UNITED STATES OF AMERICA, Appellee, v. VLADISLAV KHALUPSKY, VITALY KORCHEVSKY, Defendants-Appellants.*
Nos. 19-197-cr, 19-780-cr
United States Court of Appeals For the Second Circuit
AUGUST TERM, 2019
ARGUED: FEBRUARY 11, 2020
DECIDED: JULY 19, 2021
Appeal from the United States District Court for the Eastern District of New York.
Before: WALKER, PARKER, and CARNEY, Circuit Judges.
* The Clerk of Court is respectfully directed to amend the caption as set forth above.
Following a jury trial in the United States District Court for the Eastern District of New York (Raymond J. Dearie, J.), Khalupsky and Korchevsky were convicted of conspiracy to commit wire fraud, conspiracy to commit securities fraud and computer intrusions, securities fraud, and conspiracy to commit money laundering. They now appeal, contending that the evidence was insufficient to support conviction, venue was improper on the securities fraud counts, the government‘s proof at trial constructively amended the indictment, the district court erred by instructing the jury on conscious avoidance, and the district court erred in how it responded to a jury note. Finding no merit in these arguments, we AFFIRM the judgments of conviction.
JULIA NESTOR (Susan Corkery, Richard M. Tucker, David Gopstein, on the brief), Assistant United States Attorneys, for Jacquelyn M. Kasulis, Acting United States Attorney for the Eastern District of New York, for Appellee.
RANDY D. SINGER (Rosalyn Singer, Kevin Hoffman, on the brief), Singer Davis, LLC, Virginia Beach, VA; Steven Gary Brill (on the brief), Sullivan & Brill, LLP, New York, NY; for Defendant-Appellant Vitaly Korchevsky.
JOHN M. WALKER, JR., Circuit Judge:
For years, defendants-appellants Vladislav Khalupsky and Vitaly Korchevsky used information from stolen, pre-publication press releases to execute advantageous securities trades. Their trading was facilitated by intermediaries who paid hackers for the stolen press releases, provided the releases to Khalupsky and Korchevsky, and funded brokerage accounts for them to use in trades. Ultimately, the defendants’ illicit trades netted profits in excess of $18 million.
Following a jury trial in the United States District Court for the Eastern District of New York (Raymond J. Dearie, J.), Khalupsky and Korchevsky were convicted of conspiracy to commit wire fraud, conspiracy to commit securities fraud and computer intrusions, securities fraud, and conspiracy to commit money laundering. They now appeal, contending that the evidence was insufficient to support conviction, venue was improper on the securities fraud counts, the government‘s proof at trial constructively amended the indictment,
BACKGROUND
In 2010, brothers Arkadiy and Pavel Dubovoy approached Korchevsky, a hedge fund manager and investment advisor, to seek his help implementing a scheme to use nonpublic information to trade on the stock market. The nonpublic information was coming from hackers in Ukraine, who hacked into three newswires (PR Newswire, Marketwired, and Business Wire) that disseminate press releases from publicly traded companies. The hackers obtained the press releases containing crucial financial information before the releases were published. Then, they saved the stolen releases onto a web-based server to which the Dubovoys also had access.
The Dubovoys provided Korchevsky with login credentials to review some of the stolen releases in order to convince him of the nascent scheme‘s potential. Korchevsky looked at the releases and agreed that advance information of the sort could be traded upon profitably. Accordingly, Arkadiy Dubovoy opened and funded brokerage accounts, in which Korchevsky would trade. Arkadiy‘s son, Igor Dubovoy, equipped Korchevsky with computers, phones,
From January 2011 until February 2015, Korchevsky executed advantageous trades using the information in the stolen press releases. In return for trading on Arkadiy‘s behalf, he received a percentage of the profits. Korchevsky did most of the trading in the window of time after the press release was uploaded to a newswire‘s internal computer system but before it was publicly disseminated (i.e., trading “in-window“). He then closed on his trading position after the release became public and the market had reacted to its contents. During the scheme, Korchevsky ultimately amassed roughly $15 million in net profits—a 1,660% return on investment—in Arkadiy‘s brokerage accounts.
The Dubovoys eventually decided to bring in another trader, Khalupsky. Khalupsky owned a trading company in Ukraine and used its employees to conduct trading as part of the charged scheme. As with Korchevsky, the Dubovoys shared the stolen releases with Khalupsky, funded brokerage accounts in Arkadiy‘s name, and paid Khalupsky a piece of the profits. These trades, too, were generally initiated in-window. The Khalupsky trades yielded roughly $3.1 million in net profits during the scheme.
The scheme faltered for a time after the relationship with the hackers soured. Arkadiy had opened additional brokerage accounts unknown to the hackers in order to exclude them from some of the profits. The hackers grew suspicious and, in early 2014, stopped sending stolen press releases to the Dubovoys. Without access to the
By late 2014, the Dubovoys found another Ukrainian hacker who could steal pre-publication press releases. This new hacker charged more for the service, however, so the Dubovoys questioned whether the arrangement would still be worthwhile. Korchevsky insisted that the Dubovoys secure this new source of press releases. They did, and the scheme continued, albeit in modified form. Rather than trading directly out of Arkadiy‘s brokerage accounts, Korchevsky now received the stolen press releases from Igor, reviewed them, and sent him a coded text message telling him how much of which stocks he should purchase. The scheme continued into 2015.
On August 15, 2015, a grand jury returned the first indictment in this case, charging Khalupsky and Korchevsky with conspiracy to commit wire fraud, in violation of
Following a three-week jury trial that concluded in July 2018, Khalupsky and Korchevsky were convicted on all counts. The district court sentenced Khalupsky to four years’ imprisonment to be followed by two years’ supervised release, and ordered him to forfeit
DISCUSSION
Korchevsky‘s principal argument on appeal is that the evidence was insufficient to establish his participation in the single charged conspiracy with Khalupsky. Korchevsky also argues that: the evidence was insufficient to support the securities fraud convictions; venue was improper in the Eastern District of New York (EDNY) for the securities fraud counts (an argument Khalupsky joins); the proof at trial constituted either a constructive amendment of the superseding indictment or prejudicial variance from it; and the district court erred by giving a particular exhibit to the jury in response to a note during deliberations. Khalupsky additionally asserts that the district court erred in charging the jury on conscious avoidance (an argument Korchevsky joins in his reply brief). Each of the defendants also adopted the arguments of the other pursuant to Federal Rule of Appellate Procedure 28(i). None of the arguments of either defendant, however, is persuasive.
I. Sufficiency of the Evidence
Korchevsky challenges the sufficiency of evidence in support of both his conspiracy convictions and his substantive securities fraud convictions. In challenging the sufficiency of the evidence, Korchevsky “face[s] a heavy burden, as the standard of review is
A. Conspiracy
To challenge his conspiracy convictions, Korchevsky makes the following argument: co-conspirators must know one another, but the evidence established that he did not know Khalupsky, so the evidence cannot support his participation in one conspiracy with Khalupsky.6 This argument fails because its premise is incorrect. Korchevsky and Khalupsky need not have known one another to be co-conspirators.
“Whether the government has proved a single or multiple . . . conspiracies is a question of fact for a properly instructed jury.”7 To prove conspiracy, “the government must show that two or more persons entered into a joint enterprise for an unlawful purpose, with awareness of its general nature and extent.”8 It must “show that each alleged member agreed to participate in what he knew to be a collective venture directed toward a common goal.”9 But “[t]he government need not show that the defendant knew all of the details of the conspiracy,” “[n]or must the government prove that the defendant knew the identities of all of the other conspirators.”10 That is “especially [true] where the activity of a single person was central to the involvement of all” conspirators.11 “Indeed, a defendant may be a co-conspirator if he knows only one other member of the conspiracy . . . .”12
Q: You were intentionally trying to keep [Khalupsky and Korchevsky] away from each other?
A: Yes. . . . We wanted to see who was better at trading.13
But this exchange does not compel the conclusion Korchevsky seeks. To the contrary, the testimony indicates that Arkadiy kept Khalupsky and Korchevsky apart precisely because doing so furthered the common goal of the conspiracy: to maximize profits by successfully trading on information from the stolen press releases. That Khalupsky‘s and Korchevsky‘s individual goals were limited in scope to their own trading activity is irrelevant. Co-conspirators’ goals “need not be congruent for a single conspiracy to exist, so long as their goals are not at cross-purposes.”14
Upon review of the full record, we have no doubt that the evidence was sufficient to support the conspiracy convictions. It is clear that Korchevsky not only “agreed to participate in what he knew to be a collective venture directed toward a common goal,”15 but also “had reason to know that in dealing with” the Dubovoys he “w[as]
Faced with this evidence, Korchevsky argues that the record at most shows his awareness of other upstream co-conspirators, but fails to support his awareness of a co-conspirator similarly situated to Khalupsky. His argument is unavailing because our precedent does not require that level of specific awareness. In United States v. Sureff, we affirmed the defendant‘s conviction for a single drug dealing conspiracy even though there was no evidence that her two retailer partners—participants in the charged single conspiracy—were aware of one another‘s existence.17 The retailers nevertheless had the required awareness that “they were involved with a larger organization” because each knew that the defendant was working with “the bank” upstream from the retail operations.18 There is no relevant distinction between the awareness the retailers in Sureff each had of the defendant and her upstream co-conspirators and the awareness Khalupsky and Korchevsky each had about the Dubovoys and the hackers.
B. Securities Fraud
Counts Three and Four charged Khalupsky and Korchevsky with fraudulent trading in securities as corporate outsiders, in violation of Section 10(b) of the Securities and Exchange Act and Rule 10b-5, promulgated thereunder.
To challenge his convictions on these substantive securities fraud counts, Korchevsky first argues that the government could not prove he engaged in a “scheme or artifice to defraud” within the meaning of
First, we dispatch Korchevsky‘s contention that he did not engage in a “scheme or artifice to defraud.” Although a fiduciary duty is relevant to other securities violations—e.g., insider trading—it need not be shown to prove the securities fraud charged here: fraudulent trading in securities by an outsider.30 Further, Korchevsky‘s assertion that the deception must have targeted investors contradicts the plain language of
Second, we find that the hack of Marketwired‘s systems qualified as a “deceptive device or contrivance” under
Korchevsky cannot carry his heavy burden to overcome the jury‘s findings and demonstrate that the evidence was insufficient to support conviction on any count.
II. Venue
Khalupsky and Korchevsky both argue that there was insufficient evidence to establish venue in the EDNY for the securities fraud counts. We disagree. It was foreseeable to the defendants that
The Securities and Exchange Act provides that, for securities fraud, the “criminal proceeding may be brought in the district wherein any act or transaction constituting the violation occurred.”34 That test is satisfied in any district where “the defendant intentionally or knowingly causes an act in furtherance of the charged offense to occur,” or where “it is foreseeable to the defendant that such an act would occur . . . and that act does in fact occur.”35 “To be in furtherance of the charged offense, acts or transactions must constitute the securities fraud violation—mere preparatory acts are insufficient.”36 “Venue may also be established if the defendant aids and abets another‘s crime of securities fraud in the district.”37
The government bears the burden of proving appropriate venue on each count, as to each defendant, by a preponderance of the evidence.38 Our review is de novo, but we view the evidence “in the light most favorable to the government, crediting every inference that could have been drawn in its favor.”39 In this case, the government
First, evidence suggested the defendants foresaw that some of their trades would be consummated with counterparties in the EDNY. The government‘s expert confirmed that 175 of the defendants’ trades were in fact consummated with counterparties in the EDNY, and that 300 more may have been.40 This evidence, along with the vast scope of the trading scheme41 and the defendants’ expertise as traders,42 cumulatively supports the inference that the defendants foresaw the existence of counterparties in the EDNY.
Second, the government introduced evidence that one of Korchevsky‘s brokerage accounts used J.P. Morgan Clearing Corporation, located in the EDNY, as its clearing agent. The account-opening forms Korchevsky signed listed the J.P. Morgan Clearing Corporation‘s address. So did the account‘s monthly statements. The jury was thus entitled to infer that Korchevsky knowingly used an
Finally, all of this evidence concerns acts or transactions “constituting” the securities fraud violation, as they must to establish venue, rather than “mere preparatory acts.”45 Counterparties and clearing agents are both “crucial to the success of the scheme.”46 Without them, there would be no completed sale of a security. Accordingly, venue was proper in the EDNY.47
Korchevsky argues that the government‘s proof at trial either (a) constructively amended the superseding indictment, or (b) prejudicially varied from it. Specifically, he objects to the presentation of three categories of evidence: (1) trades involving target companies that were not identified in the superseding indictment, (2) trades involving press releases hacked from Business Wire, which were not charged in their own securities fraud count, and (3) trades taking place in 2015, even though much of the activity alleged in the indictment took place in 2011–2014. For the reasons below, none of this evidence constructively amended or prejudicially varied from the superseding indictment.48
A. Constructive Amendment
To satisfy the Fifth Amendment‘s Grand Jury Clause, “an indictment must contain the elements of the offense charged and fairly inform the defendant of the charge against which he must defend.”49 This clause is violated, and reversal is required, if the
We do not find a constructive amendment resulting from any of the evidence to which Korchevsky objects. The trades involving
We also do not find that the evidence at trial prejudicially varied from the superseding indictment. “A variance occurs when the charging terms of the indictment are left unaltered, but the evidence at trial proves facts materially different from those alleged in the indictment.”59 To warrant reversal, the defendant must show “that substantial prejudice occurred at trial as a result” of the variance.60 “A defendant cannot demonstrate that he has been prejudiced by a variance where the pleading and the proof substantially correspond, where the variance is not of a character that could have misled the defendant at the trial, and where the variance is not such as to deprive the accused of his right to be protected against another prosecution for the same offense.”61
For the reasons discussed in the context of constructive amendment, we do not think that the evidence Korchevsky points to “materially differe[d]” from what was alleged in the superseding indictment.62 And in any event, Korchevsky cannot demonstrate “substantial prejudice.”63 The superseding indictment itself put Korchevsky on notice of much of the evidence about which he complains. To the extent he had not been on notice of every piece of trade data, he was notified by the government‘s pretrial disclosures
IV. Response to Jury Note
Korchevsky argues that the district court‘s response to a jury note during deliberations caused the jury to resolve a disputed factual question against him. We review a trial court‘s response to a jury request during deliberations only for abuse of discretion,64 and we find none here.
The fact in dispute was whether Korchevsky had traded on any stolen press releases from the Dubovoys. Korchevsky contended he had never received them. To prove that he had, the government introduced forensic reports for a number of electronic devices seized from Korchevsky‘s home, including a 221-page report on the contents of an iPad. The forensic report indicated that the iPad had been used to access the “stargate11@e-mail.ua” email account (Stargate Account). On July 30, 2012, the Stargate Account sent four emails to itself, each containing the one-word message “Updates” along with an attachment. Forensics could not recover the attached files. Other evidence at trial, however, established that the conspirators shared login credentials for communal email accounts in order to disseminate the press releases amongst themselves.
The government urged the jury to infer that the July 30 Stargate Account emails attached stolen press releases, that Korchevsky had
During deliberations, the jury sent out a note requesting “Any and ALL Texts[,] Phone calls[,] Emails[,] Bank records To and/or From Korchevsky on or in any devices found in his residence, or offices possession past or at time of arrest.”65 While the parties and the court were discussing whether the iPad evidence would be responsive to that request, the jury sent out a second note, this time asking for “Korchevsky – Stargate – dubavoy correspondence.”66 The defense argued that there was no such correspondence. Further, it argued that if the district court sent the iPad report back to the jury, the district court would be endorsing the government‘s argument that Korchevsky had used the iPad to access the Stargate Account. The district court decided to send the iPad report to the jury. It also permitted the government place a flag on the page concerning the July 30 Stargate Account emails.
We do not find an abuse of discretion in the district court‘s response to the jury‘s request. The jury‘s “Korchevsky – Stargate – dubavoy correspondence” note was not entirely clear, and we think the district court “gave it a reasonable interpretation”67 by inferring
V. Conscious Avoidance
The defendants challenge the district court‘s decision to charge the jury that conscious avoidance can satisfy the knowledge requirement. They also challenge the particular instruction given. We find no merit in these challenges.
“Instructions are erroneous if they mislead the jury as to the correct legal standard or do not adequately inform the jury of the law.”69 “Objectionable instructions are considered in the context of the entire jury charge, and reversal is required where, based on a review of the record as a whole, the error was prejudicial or the charge was highly confusing.”70
A conscious avoidance charge is appropriate: “(i) when a defendant asserts the lack of some specific aspect of knowledge required for conviction[,] and (ii) the appropriate factual predicate for
The district court in this case gave the following conscious avoidance instruction to the jury, over Khalupsky‘s objection:
[T]he government is required to prove that the defendants acted knowingly. To determine whether the defendant acted knowingly[,] you may consider whether the defendant deliberately closed his eyes as to what would otherwise have been obvious to him. If you find beyond a reasonable doubt that the defendant acted or that the defendant‘s ignorance was solely and entirely the result of a conscious purpose to avoid learning the truth, then this element may be satisfied. However, guilty knowledge may not be established by
demonstrating that the defendant was merely negligent, foolish, or mistaken . . . . If you find that the defendant was aware of the high probability that the press releases were stolen, and that defendant acted with deliberate disregard of that fact, you may find the defendant acted knowingly. However, if you find that the defendant believed that the information was lawfully obtained, he must be found not guilty.
It is entirely up to you whether you find the defendant deliberately closed his eyes[,] and any inferences to be drawn from the evidence on this issue.73
In challenging this instruction on appeal, Khalupsky argues both that there was no factual predicate warranting a conscious avoidance instruction, and that the instruction led the jury to believe that conscious avoidance could satisfy the intent needed to convict on conspiracy or aiding and abetting. Korchevsky joins these arguments in reply, and also argues that the language of the conscious avoidance instruction was prejudicial.
We first reject the argument that there was no factual predicate for the conscious avoidance instruction. The inclusion of the charge was properly objected to before the district court, so we review de novo.74 We find that the record contained ample evidence from which a jury could reasonably infer that “the defendant[s] w[ere] aware of a
Second, we reject the argument that the conscious avoidance instruction confused the jury into thinking that it could convict on conspiracy or on aiding and abetting without finding the necessary intent. As the defendants concede, because they did not object before the district court to any particular language in the charge, we review this issue only for plain error.76 It is not “clear or obvious” to us, as it must be on plain error review, that the charge confused the jury in the way defendants claim.77
As to conspiracy, we do not think the jury could have convicted the defendants by finding only conscious avoidance of the fact of participation in the conspiracy. Conscious avoidance may satisfy the
Nor do we think there was any risk that the jury convicted on the aiding and abetting theory of securities fraud—a specific intent crime81—by finding only conscious avoidance. The district court charged the jury that, “in order to aid and abet someone to commit a crime, it is necessary that the defendant knowingly aid[] another person in committing a crime with the intent to facilitate the crime and make it succeed.”82 It went on to explain that “[t]o establish that the defendants knowingly aided another person with the intent to facilitate a crime, the [g]overnment must prove the defendants of course acted knowingly and intentionally.”83 Nowhere in the
Third, we reject Korchevsky‘s argument that the conscious avoidance charge given in this case was prejudicial. Korchevsky asserts that the district court‘s instruction to the jury presupposed that Korchevsky had seen the stolen press releases, and therefore prejudiced the jury in disposing of a disputed fact. Korchevsky did not make this objection to the district court, however, and we do not think any potential for confusion in this respect rises to the level of plain error. Indeed, we think it clear that the district court was referencing the stolen press releases by way of example in order to demonstrate to the jury how conscious avoidance operates. Lest the jurors be confused, the district court reiterated Korchevsky‘s theory in defense—that “he did not knowingly and intentionally access stolen press releases or trade on non-public information”84—immediately after charging on conscious avoidance.
Finally, we note that even if we had found any error in the issuance or form of this conscious avoidance instruction, we would have found the error harmless. The “overwhelming evidence” of actual knowledge in support of the jury‘s verdict, coupled with the fact that the government did not at all rely on conscious avoidance in its summation, renders this dispute over conscious avoidance beside the point.85
We have considered all of the defendants’ arguments and found them without merit. For the foregoing reasons, we AFFIRM the judgments of conviction.