United States v. Paul A. Bilzerian

REQUEST rator and a director, Short was the Presi- information set forth above is not dent, and O’Brien’s brothers Paul and Eu- relevant to the events of July 16 18,1987 gene were officers and directors. The cor- which are the subject of this indictment. poration was dissolved, and the dealership The business relationship between James sold, about one month ago. Short in- Short Agent O’Brien was not formed formed me that some of the records called until after the defendants were indicted. for by the subpoena might be in the custo- The existence of this relationship between dy DEA, in connection with the internal O’Brien and Short does not imply miscon- affairs investigation referred to above. duct Short. Nothing contained herein is On March I exculpatory, interviewed nor DEA does it tend to impeach agents Brian Noon and Agent Gerald Chapman, Allen or Short. who are participating the internal affairs Moreover, disclosure of this information investigation, for the sole purpose of deter- would compromise the internal affairs in- mining they whether had any of the vestigation against O’Brien. For these rea- records called subpoena. defense sons, therefore, requests They told me that the investigation does that the Court seal impound this doc- pertain to the business relationship be- ument and refrain from disclosing this in- tween Short and O’Brien. They also told formation to the defense in this case. me they copies have of a financial state- Respectfully submitted, ment and certain cancelled checks related JEREMIAH T. business, O’SULLIVAN but no original records. United States Attorney On Friday, March 1989, I reviewed By: Cinquegrana R.J. Special Agent (who Allen is the case CINQUEGRANA R.J. agent in the Perkins case and govern- Assistant U.S. Attorney ment’s principal trial) witness at his knowl- edge Dated: March status of the internal affairs investigation against O’Brien. Allen con- that, firmed to his knowledge, the allega- against

tions O’Brien include O’Brien’s

business relationship with Short. Allen

told me that this business relationship be- gan in the spring after all of the events which are subject of this trial occurred, had and after the date of this UNITED America, STATES of Appellee, (December indictment 28, 1987).

Short me told on March 3 that there is a dispute between Short and regard- O’Brien Paul A. BILZERIAN, ing settlement of the dissolution of the Defendant-Appellant. corporation. Short believes he is owed No. Docket 89-1502. $25,000. about United States Court of Appeals, The internal investigation affairs against Second Circuit. O’Brien also possible include a attempt by O’Brien to extort money from a defendant Argued Feb. 1990. under state (in indictment an unrelated Decided Jan. case), in return for promise O’Brien’s assist that defendant to avoid incarcera- tion. Both Short and another informant reported this allegation to DEA.

The DEA internal affairs investigation is

being conducted by Agent Carter, Art DEA Internal Affairs in Washington, D.C.

laws prohibit conspiracy, fraud, and mak- ing false statements to United agen- cies. appeal This addresses the propriety of enforcing the complained of trading methods through general these fraud and false provisions. statement Appellant Paul A. (hereafter Bilzerian referred to as Bilzerian or defendant) was Fried, Charles convicted on Cambridge, nine counts of (Lang- Mass. an indictment Mass, Hall, dell charging Cambridge, violations counsel; Ar- securities fraud, thur F. Mathews, making Stephen false Sachs, H. statements to the Ste- Securities phen Black, F. Joseph Exchange K. Brenner, Commission (SEC), Lee T. and con- Lauridsen, spiracy Hardy W. Callcott, commit specific Mark J. offenses, Le- and to imkuhler, Wilmer, defraud the SEC Cutler & Pickering, Internal Revenue Washington, D.C., (IRS). Service also counsel), charges for de- relate to trans- fendant-appellant. actions defendant made between May 1985 and October 1986 in the common stock David E. Brodsky, Asst. Atty., U.S. S.D. four companies: Cluett, Peabody and (Roger N.Y. Com- S. Hayes, Acting Atty., pany, Inc. (Cluett), Hammermill Paper John W. II, Auchincloss Asst. Atty., Company (Hammermill), H.H. S.D.N.Y., Robertson New York City, of counsel), for Company (Robertson) and Armco appellee. Steel (Armco). September On 29, 1989, the Unit- Samuel J. Buffone, Washington, D.C. ed States District Court for the Southern (Asbill, Junkin, Myers & Buffone, Char- District of New (Ward, York J.), entered a tered, Washington, D.C., of counsel), filed a judgment of conviction and sentenced brief for amicus curiae National Ass’n of Bilzerian to years four prison and a $1.5 Criminal Defense Lawyers. million fine.

Before LUMBARD, CARDAMONE, and WINTER, Judges. Circuit FACTS A. The Underlying Transactions

CARDAMONE, Circuit Judge: One 1. The principal Cluett questions posed Transactions this appeal is whether the availability of The indictment charged three fraudulent civil proceedings used to enforce —often schemes relating to trades in Cluett. the securities laws—forecloses govern- the These involved misrepresenting the source ment from instituting criminal prosecution of funds purchase used to stock, secretly for the violation of these same laws. The accumulating stock through nominee, and complex contrivances revealed in the misrepresenting an “open market” pur- present record, such as “parking” stock at chase. By agreeing to share any profits a brokerage firm in order to create the and guaranteeing against any loss, impression that the stock has sold, been or Bilzerian in April and May of 1985 raised having a broker “aceululate” stock on an $9 million to buy Cluett stock from various investor’s behalf in order to delay disclo- individual investors. The funds were sure of the purchase, carry home the mean- transferred to him through a series of ing of “0, Scott’s what a tangled web we trusts set up for that purpose. Defendant weave, When first practice we to deceive!” required was to purchase disclose of this 2 Sir Walter Scott, Marmion, VI, Canto large block of stock on a form filed with (Little XVII Brown & 1857). Co. Although the SEC known aas Schedule 13D. On the these schemes are not specifically 13D, dealt and its amendment, respecting the with in the laws, the Securities Cluett purchase, defendant stated that the Exchange Act nonetheless contains a gen- stock purchased was with “personal eral provision antifraud and other federal funds,” and did not that they disclose were Transactions Hammermill The he whom with investors other from raised million guarantee-against- $8 raised defendant profit-sharing a In June had purpose the for investor individual agreement. from an loss These stock. Hammermill purchasing employee an engaged also Bilzerian through to him available made funds reg- (Jeffries), Inc. Company, &

Jeffries to share agreeing upon trust stock broker-dealer, to accumulate istered stock. sale eventual from profits accumulation, a stock Under behalf. on ato limited over funds turned Bilzerian own in its stock purchases broker-dealer general he was partnership —of understanding that account made partnership partner —and at the date a later buy it will customer disclo- The Hammermill. offer tender commis- interest plus cost broker’s purchase stock relating to sure prear- transaction such sions. contri- that defendant’s stated offer tender loss no risk involves ranged sale “per- from was partnership bution a nominee acts broker-dealer, who funds.” sonal 28, 1985 de- May On purchaser. true arranged defendant again, Once stock accumulated purchased fendant Ham- accumulate of Jeffries employee ar- accumulation revealing the without July On his behalf. stock mermill indictment SEC. rangement 551,000 accumulated purchased fraudu- agreement charged that Although he of Hammermill. shares re- reporting delay the lently designed as of acquisition disclose required laws. the securities quirements 25, and at July until to file 7, he failed July 347,567 purchase to agreed accumulation the also not disclose Bilzerian did time that a from stock common transactions Hammermill of Cluett The shares agreement. contemplation 78j(b) of in 15 U.S.C. §§ violate to alleged of shareholders group were company, Five), for that 18 U.S.C. § offer (Count making a tender 78ff and share per Seven) U.S.C. $40 and and $38 and (Counts Six offering between offer. his tender of price Eight). the (Count depending the with made was purchase proposed This Armco and Robertson 3. The would the trade understanding that Transactions would defendant that and days for settle par- third if a park- proposal in “stock purchase the engaged also cancel Defendant Although shares. for the Robertson of more shares in ty offered ing" transactions includ- shares 66,667 of the a transac- to refers “Parking” that learned he Armco. and his already under buys stock were block in this broker-dealer a ed in which tion understanding shareholder the advised the control, with defendant a customer from offer- The back sale. stock buy the the with proceed will customer group the 347,567 shares plus price purchase claimed the for date ing statement a later trans- “accu- open market with As “in an commissions. and purchased were interest of the risk terms and market existence is no there The mulation” action.” owner the transaction who privately-negotiated broker-dealer only. in name disclosed. shares 58,000 shares park arranged Bilzerian Cluett the alleged indictment days. for Jeffries with the Robertson 32 of of 10(b)and violated §§ transactions re- would Jeffries assured Although he (Exchange of Exchange Act Securities fell price stock, the stock the (Count purchase 78ff and 78j(b) Act), U.S.C. §§ he refused and interim in the substantially stat- statements false federal One), and result, aAs commitment. his Three, honor Two, (Counts ute, U.S.C. § Defen- $250,000 loss. a incurred charged Jeffries also Four). Defendant and this in part Jeffries compensated dant and the SEC to defraud conspiring with $125,000 approximately generating by loss of 18 violation offenses specific commit paid He broker. for the commissions Eight). (Count U.S.C. § $125,000 understanding remaining ject, ordinarily protected with the by discussions attorney-client privilege. would be refunded an addition- that it when $125,000 generated. al of commissions was Declining to rule on the issue in the sent Bilzerian a false invoice Jeffries abstract, Judge Ward stated that if defen- $125,000 for “financial services” amount regarding good dant testified his faith re- performed, that were never latter garding legality disclosure, it payment on a 1985tax return. deducted open the door to would cross-examination gener- additional commissions were When respect belief, to the basis for his ated in 1986 he sent Jeffries fictitious in- that such cross-examination would allow “consulting seeking voices services” inquiry into communications with his attor- $125,000. refund ney. Thus, testify defendant did not re- 306,600 faith, arranged good to park garding

Defendant also and now claims the 30-day ruling with Jeffries prejudiced shares Armco for a trial court’s his defense period beginning September infringed right his constitutional addition, agreed deny charge Jeffries to accumulate each against element of the Armco stock its own account on defen- him. Error is also claimed several evi- dentiary rulings trial, then sell him including dant’s behalf and the accumu- made at 306,- repurchased when he expert lated stock district court’s decision to admit tes- pur- timony by 600 shares. On October 2 defendant witness on the 818,900 legal requirements chased shares of Armco from Jef- of the federal securities laws, prevailing price expert excluding fries at the market while similar $8 testi- Although per mony realized a share. broker offered defense. Additional- $575,000 gain sale, profits ly, challenges on the be- defendant the admission into longed to defendant virtue of the stock evidence of million tax return error on $4 agreements. parking personal and accumulation an unrelated tax return. Defendant sent broker an invoice for Beyond challenge right that his to a “consulting fictitious services” in order to prejudiced, fair trial Bilzerian asserts profits he realized account for on the prosecution fundamental errors in the trade. Specifically, this case. he contends that part prosecution general For his in the Robertson Armco under the false state- trades, charged conspir- light improper Bilzerian was with ments statute was of the ing specific to defraud the SEC and the IRS and to existence of more securities laws conduct, specific including covering offenses commit viola- the same that mis- 78g, 78q, tions of 15 U.S.C. and 78ff statements or omissions made on securities §§ 1001, immaterial, (1988) filings and 18 of and that TJ.S.C. violation he was § (Count Nine). improperly charged the “defraud” 18 U.S.C. under § conspiracy of

clause the federal statute B. The Trial specific than rather the more “offense” clause. argued At he trial defendant did not laws,

intend violate the securities but DISCUSSION financing believed structure of the transactions, utilizing trusts to borrow I. CHALLENGES TO THE CONDUCT funds, him legally would allow to avoid OF THE TRIAL investors, regarding other disclosure Attorney-Client A. Privilege describing the source his funds as “personal” testimony was lawful. A motion Defendant contends seeking ruling sought regarding good permit- made in limine he to introduce his ting testify regarding attempt comply him to his belief in faith with the securities describing lawfulness the source of laws would not have disclosed the content “personal” being any privileged his funds without sub- even the existence jected to cross-examination on communica- a reliance on communications or asserted such, continues, attorney tions he had with his on this sub- counsel defense. As underlying Although the rationale would not be attorney-client privilege therefore, time, and, it has testimony changed has over privilege waived error when law importance court committed reversible its the common trial retained seeking to limine see 2625-26; his motion Id. it denied at tradition. S.Ct. alleges that this Schwimmer, privilege. He protect United States rulings similar made ruling, together with (2d Cir.1989). potential The socie- trial, prevented during of the the course may great in cases like tal be benefit charge he acted refuting the him from bar, legal defendant seeks one at where element of criminal intent—a central to act within the confines advice in order that his consti- government’s case—and complex laws. Of- highly federal securities opportunity to right to “the fullest tutional promot- importance of the interests ten the against him.... meet the accusation [and] privilege justify the exclusion ed against the case deny the elements of all McCor- otherwise relevant evidence. See States, v. United him,” Walder (E. Cleary on Evidence 72 at 152 mick 62, 65, 98 L.Ed. 503 1972). 2d ed. upon. (1954), thereby encroached However, privi attorney-client Wigmore tells us that at- Professor dating privilege, lege back once used as a shield torney-client cannot at Bulow, 1600s, of the confiden- von ancient a sword. See re is the most Originally, privileges. (2d Cir.1987); communication see also Clark tial today, it privilege; attorney's States, it was the recognized as the client’s. See Wig- 8 J. (1933) (“The privilege 469, 77 L.Ed. 993 more, 542-44 Evidence at abused.”). A flight if the takes relation is rev.1961). may It (McNaughton privilege to may not use the defendant com- of testimonial advent arisen—with to disclose opponent’s case or prejudice judi- England—as a in Elizabethan pulsion for self- some selected communications right of individuals cial extension Bulow, von serving purposes. 543-44; Id. avoid self-incrimination. Thus, privilege F.2d at 101-02. Law: Privi- Developments Note, as implicitly when defendant be waived Communications, 98 Harv.L.Rev. leged requires ex claim that in fairness serts a protected communications. amination of privilege are two- purposes Corp., States v. Exxon See United person seeking first, that a it assures fold: (D.D.C.1981) (claim good F.R.D. safely. Its exist- may do so legal advice representa governmental faith reliance on the full and encourages therefore ence attorney-client privilege); waived tions by client of all the truthful revelation (E.D. Rhay, v. 68 F.R.D. 581 Hearn Second, no possession. attor- his facts Wash.1975) (assertion qualified immuni effectively un- represent a client ney can attorney-client privilege). ty defense waived facts in fully all the discloses less client applicable principle is here This waiver Thus, privilege “recog- possession. his thought his testimony that Bilzerian’s advocacy legal advice that sound nizes put his legal actions were would such advice or public ends and that serves his knowledge and the basis for of the law lawyer’s being depends upon the advocacy required in understanding of what law Co. Upjohn by the client.” fully informed re His with counsel issue. conversations States, v. United legality of his schemes would garding the L.Ed.2d 584 S.Ct. determining directly have been relevant privilege is to purpose fundamental and, knowledge a re the extent of " frank communication ‘encourage full and sult, his intent. ” their clients.’ attorneys between argument that assert- Zolin, support In of his v. 491 U.S. United States ing does not waive (1989) good faith defense 105 L.Ed.2d S.Ct. points to attorney-client privilege, Bilzerian (quoting Upjohn, at White, (D.C. 887 F.2d 267 United States 682). at Cir.1989). In that case attorney-client com- privilege hinge would on the testimony munications were admitted at trial over elicited on direct examination. In response defense objection, counsel’s in part because to defense counsel’s statement that “[t]he defendant’s assertion of lack of intent was government presumably then would be deemed to have the privilege. waived In able to call attorney because the privi- reversing White’s conviction court stat- lege gone,” the court stated: ed: rule thus forfeiting “[a] the privilege I am going not to go to point. that It upon denial of mens rea would deter indi- government be that the would be viduals from consulting with their lawyers bound the answer of the witness Ibut to ascertain the legality of contemplated am not going get to to point because actions_” at 270. Because I don’t think I have at juncture. this I intent is an element of the case that the don’t know how this is going to play out. prove, must the court contin- do, Until I I think it is inappropriate for ued, waiver of attorney-client privilege give me to any advisory opinion. based in denial of intent “would cut short both the privilege and the right.” Id. effect, defendant seeking Denial advisory of an ruling in advance, essential element of assuring charged crime the attorney-client criminal privilege intent—is a would be —here right constitutional regardless to be waived carefully safe- what developed in his guarded. But is distinguishable White direct testimony. In be- order for the privilege cause the district court’s operate ruling in- effectively defendants must stant case did prevent rely defendant able to from protection, its see In re von denying intent; criminal judge Bulow, district (“An F.2d at 100 uncertain merely said Bilzerian’s own testimony privilege one which purports to be cer —or good as to his faith open would tain, door to but in widely results varying applica cross-examination, possibly including in- tions the courts—is little better than no quiry into privileged otherwise communica- privilege.”), but courts cannot sanction the tions with his attorney. Defendant was use of the privilege prevent effective free deny criminal intent either without cross-examination on matters reasonably asserting good faith or argue good related to those introduced in direct exami faith defense by means defense coun- nation. McGautha California, Cf. opening sel’s closing statements and 183, 215-17, 1471-72, S.Ct. by his examination of witnesses. (1971)(defendant testifying on important Another punishment distinction issue proceed between bifurcated White and the ing case at bar is that in could not assert privilege against self- former the privileged communications incrimination on guilt); issue Walder, actually trial, at admitted allowing ap- 63-65, 347 U.S. at (defen 355-56 pellate court an opportunity to examine dant who lied on witness stand permit not- whether defendant’s case was or was not ted to use exclusionary rule as shield prejudiced. White, 887 F.2d at 272. against impeachment). Because defendant did not testify as to his A district finding court’s that a defen- good faith, the privileged communications dant has waived the attorney-client privi- were not Hence, introduced at trial. the lege is reviewed under the abuse of discre- trial ruling court’s and our review of defen- tion standard. See In re von Bulow, 828 dant’s claims specific lack a factual context F.2d at 101. Here the district court’s rul- within which to determine if the defense ing prevent did not the defense urg- from actually was prejudiced. See Luce Unit- ing lack of intent. Accordingly, the refusal States, ed grant to Bilzerian protection blanket from 463, 83 (1984) (“A reviewing implied an waiver of the attorney-client court is handicapped in any effort to rule privilege was not an abuse of discretion. on subtle evidentiary questions outside a factual context.”). The district court took Bilzerian asserts the court ruled that great pains point to out that application of even his own testimony regarding steps the it. applying law to the facts before of his that change the structure he took to Scop, 846 F.2d arrangements United States v. would waive the See financing Cir.1988); (2d 139-40, F.2d 5 modified, 856 argues testimony that about He

privilege. Club, Inc., Co., Inc. v. Diners’ privi- the Marx & facts waive underlying cannot Cir.), F.2d 510-11 attorney-client privilege the lege, because 54 L.Ed.2d underlying facts. See U.S. extend to does not 395-96, 101 S.Ct. at 449 U.S. at Upjohn, contrary, trial court To the 685-86. testi general expert’s rule an aAs testimony about only that Bilzerian’s held mony of law is inadmissable. See on issues open the door on cross- changes would Note, Legal Testimony, Expert generally, inquiry to into Bilzerian’s rea- examination and The Marx Harv.L.Rev. making changes, because sons for factual distinguish between Scop cases necessarily Bilzerian’s topic involve would in an ex may that be included conclusions trial coun- mind. Even defendant’s state of testimony—though they an pert’s embrace changes testimony about the sel knew jury— to be decided ultimate issue inextricably intertwined would be legal opinions embodying conclusions and good Coun- assertion of faith. Bilzerian’s duty to in upon court’s that encroach response “Mr. Bilzerian’s would sel said: at Scop, F.2d struct on the law. he directed these that be substance Marx, 142; Marx, it 550 F.2d at 512. In changes so that—in order to to be made legal opinion on expert’s that an was held per- report to to himself able enable meaning of certain contract terms was that on the 13D the funds he sonal funds expertise and outside the witness’ area trust that he would not received from the authori was an invasion of court’s also any of the investors’ disclose to ty jury applicable on the instruct that, thought doing that he

names and an Scop, law. 550 F.2d 509-510. appropriate was that he believed that defen expert’s repeated statements that ruling left proper”. The trial court’s de- manipulative dants’ conduct established testify getting into fendant free without meaning scheme within the and fraudulent mind, correctly held if his state of but permis laws exceeded the faith, good jury his would he asserted opinion testimony. scope of sible under- the basis of his be entitled know al at 139. These cases establish legal. standing that actions were though expert opine on an issue of jury’s province, may not fact he within Expert Testimony B. testimony stating legal ultimate con give next that his Defendant contends on those facts. clusions based unfairly prej ability defend himself was Marx, Scop and Unlike rulings court’s on the udiced trial present expert in the case did government’s admissability expert testimony. give Bilzeri- opinion as to whether erred, says allowing he Professor court securities laws. an’s actions violated the Coffee, government expert wit John C. witness, first much of government’s As ness, testify requirements regarding testimony general Professor Coffee’s concerning 13D disclosure of of Schedule regulation background on federal securities arrangements the source funds filing requirements and the of Schedule understandings with others. 13D, presented by referring to a Although Coffee complex blank form. Professor Particularly in cases involv questions hypo a few based on ing industry, expert testimo did answer the securities facts, hypotheticals thetical the use of ny may help jury understand unfamiliar by concepts. the on cross Its use be care first introduced defense terms and must hypotheti- The use of fully the ex examination. mere circumscribed to assure that jury’s of usurp of cals not the function pert usurp not either the role the does does law the facts the case. instructing jury applying in the as to the the to of judge trial Further, F.2d since jury Scop, in at applicable law or the role of the general testimony was not ob of expert’s the issue whether Bilzerian’s actual 13D dis- trial, to

jected complied at the issue was waived. closures legal require- with the Heinemann, Thus, See United States v. expert testimony F.2d ments. the would (2d Cir.1986), impermissible 479 U.S. an constituted instruc- governing S.Ct. tion on law. Defense counsel was informed that it an oppor- would have Following specific objection that Pro- tunity proposed jury to submit instructions testimony fessor Coffee’s an constituted regarding scope the of “personal funds.” instruction, impermissible legal Judge testimony regarding Ward limited his Although testimony concerning the requirements by asking 13D’s the jury to ordinary practices in industry the securities specified read instructions on the blank may be received to to jury enable the evalu 13D and ask Schedule to Professor Coffee ate a against defendant’s conduct the stan clarify any ambiguity to the instructions. accepted practice, Marx, dards addition, gave judge limiting the trial 509, testimony encompassing an ultimate indicating expert’s instruction that the tes- legal upon conclusion based the facts of the background timony simply was informa- admissable, is not case and be tion: simply presented made so is because it you is here Professor Coffee to furnish industry practice. terms of hypo Several background concerning meaning the questions posed thetical Spencer to Mr. in terms, procedures which are fol- particular alleged cluded the facts opinion lowed and his as to the reason indictment, blurring the line between testi procedures. He these here to mony regarding industry practice give opinion as to what the law re- opinion legality on defendant’s con quires. That is a matter which must appear duct. It does not that trial presented you by to the court. ruling clearly wrong court’s was or that placed Spencer’s the limits earlier testi respect With to the admission or exclu mony prejudiced the defense. evidence, expert we sion of defer to the judge’s trial unless his de broad discretion C. Admission Evidence Regarding See Salem v. clearly wrong. cision is Bilzerian’s 1986 Personal Lines, Tax Return (1962); 8 L.Ed.2d 313 S.Ct. Daly, United States alleges that Defendant next (2d Cir.), district court its discretion admit abused (1988). In view of ting evidence of a million error made on $4 general background nature of unob- The personal his 1986 income tax return. jected testimony limiting the court’s testimony part given evidence of the was counsel, we instruction to defense see no Murphy, Brian a former senior tax man expert in admitting abuse of discretion ager accounting with the firm of Peat Mar- testimony. accounting had wick Main & Co. who done partnerships work for some which defen argues further Bilzerian participated. dant On direct examination limiting testimony trial court erred in testimony elicited that dur witness, expert Jr., of his Lee B. Spencer, ing Murphy’s preparation tax returns former director of the SEC’s Division partner for Bilzerian’s Hammermill-related Corporate sought Finance. The defense ships, Bilzerian the source of stated funds,” phrase “personal elicit that the partnership per contribution generally in the in understood sonal funds. trial evidence indicated dustry, funds derived from includes loans contrary money bor type It received defendant. rowed. hoped to this demonstrate with evidence cross-examination, good completing defendant’s faith in On defense Judge sought disclosure form. Ward excluded establish that the source of proof directly purposes this because it related funds was irrelevant tax Cir.1985). tinez, (2d Bal 775 F.2d filed on behalf of the the tax returns against prejudice under including ancing the Bilzerian contri- relevance

partnerships, bution, the is the trial court correct. On redirect Rule 403 in the hands of were ruling the fact that defendant unless its government elicited and will be overturned arbitrary income from the Ham- underreported had is or irrational. See United personal Esdaille, tax re- on his mermill transaction 769 F.2d States by million. approximately Cir.), $4 turn for 1986 88 L.Ed.2d partnership since a court stated

The trial taxes, testimony given the pays no income personal deficiency The in Bilzerian’s tax regarding accura- the on cross-examination charge return was relevant im- cy created partnership returns any conspiracy IRS or to to defraud the re- accurately pression that defendant had charge In addi- other in the indictment. his income from Hammermill ported tion, testimony cross examination on such, had been As the door transaction. only tax partnership to defendant’s related impression, in- the false opened to correct His at most had a personal return. return inquiry personal cluding into defendant’s at trial. tenuous connection to the issues tax returns. Yet, tax intro- the fact of his error was objection when he was cross- duced without was inad- Bilzerian asserts evidence 404(b) In such context the evidence examined. pursuant 403 and to Rules missable 611(b) under Fed.R.Evid. was admissable Rule Federal Rules of Evidence. of the veracity. The probative of his trial 404(b) of "other prohibits the introduction judge position was in the best court crimes, wrongs, purpose or for the acts” by impression a false created to whether demonstrating propensity defendant’s cross-examination, Murphy’s deci- charged crime. Fed.R.Evid. commit the this was within sion to admit evidence 404(b). The district court noted evi- Here, addition, court's discretion. trial improper admitted for that dence was not limiting Judge gave a instruction Ward im- in order rebut a false purpose, but stating that the contested evidence was to had Redirect pression that been created. Murphy’s only evaluating considered im- be may course be used to rebut false cross-examination, testimony regarding preparation arising from pressions Thus, rulings on partnership returns. of such redirect is within scope and the admissability the tax error broad discretion. United trial court’s 1537, proper. Mang Wong, Sun — (2d Cir.1989), cert. -, II. ALLEGED PROSECUTORIAL FAILURES ex permits the court to Rule 10(b) Liability A. Under § is probative if its value sub clude evidence Rule 10b-5 outweighed by stantially danger of un issues, Again, or Bilzerian contends secu confusion of the prejudice, fair rities cannot be sustained misleading jury. weighing of rele fraud convictions or any misstatements omissions Rule 403 be altered when because vance under made, delays including disclosing impression created earlier false is, proba stockholdings, were not material. The se testimony. That evidence whose charged that con ordinarily outweigh its curities fraud counts might not tive value with the and Hammermill if on direct exami nection Cluett prejudicial effect offered 10(b) of testimony transactions defendant violated nation is to rebut admissable Act, 78j(b) Exchange U.S.C. examination that created elicited cross (1988),1 regulations and Rule impression. v. Mar- 10b-5 of false United States Act, any person, directly 78j Exchange It shall be unlawful for 10 of the 15 U.S.C. Section indirectly, means or the use of (1988), provides pertinent part: instrumentality commerce or of interstate promulgated thereunder, 17 C.F.R. closes that an investor acquired has benefi- (1990)2. § 240.10b-5 10(b) Section and cial ownership of percent five or more of Rule prohibit 10b-5 practices fraudulent in the stock public of a company. connection with purchase or sale of a Pursuant 13(d)(1)of § the Exchange security, including the knowing misrepre- Act, 15 78m(d)(l) U.S.C. (1988),3 § defen sentation or omission of material facts. dant was required to file a Schedule 13D 10(b) Section designed protect in within ten days after he became the benefi vestors engaged in purchase and sale cial owner percent of five of the stock of of securities by implementing policy of Cluett and Hammermill. 13(d)’s Section full disclosure. Indus., Fe Santa Inc. v. purpose is to “alert investors potential Green, 477-78, U.S. changes in corporate control so that they 1303-04, 51 properly [can] evaluate the company in 10(b) § convictions were largely based on they which had invested or were invest misrepresentations made on ing.” Schedules 13D GAF Corp. Milstein, and 14D-1 concerning the source (2d of Cir.1971), funds used for the transactions and on untimely filing of the (1972); forms. Some back see Mayer also v. Chesapeake Ins. ground on the filing requirements Co., relating (2d Cir.1989),cert. — to Schedule 13D and Schedule -, 14D-1 is helpful to understanding this L.Ed.2d portion (1990) of the (purpose of 13(d)is to § case. Both reports forms are alert marketplace filed with permit investors to SEC and made potential assess available to the public. change corporate in They disclose acquisition control). of signifi addition to background infor cant amount of stock in a publicly mation traded about the persons purchasing the company. 14D-1, stock, Schedule 13(d) 17 C.F.R. specifically 240.- requires disclo (1990), 14d-100 sure discloses of: the commence ment of a tender offer for the (B) stock of a the source and amount of the public company. See Finnegan v. Cam funds or other consideration used or to peau Corp., 915 F.2d 824 Cir.1990). be used in making the purchases, if 13D, Schedule 17 C.F.R. 240.13d-101 part any the purchase of price is repre- (1990), the focus of prosecution, this dis- sented or is to represented by funds mails, any or facility of any of national as a fraud upon or any deceit person, in exchange— securities purchase connection with the any or sale of security. (b) To use employ, or in connection with C.F.R. § 240.1Ob-5 purchase any sale security or registered on a national exchange any securities or se- 13(d)(1) 3. Section Act, of the Exchange curity registered, any not so manipulative or 78m(d)(l) (1988), U.S.C. § provides pertinent deceptive device or contrivance contraven- part: tion of regulations such rules and as the Com- Any who, person acquiring after directly or may prescribe mission necessary as appro- or indirectly the any beneficial priate ownership eq- public in the interest or for protec- uity security of a class registered tion which is of investors. pursuant to section 781 of this title ... provides: Rule 10b-5 directly indirectly or the beneficial owner of It shall be any unlawful for person, directly more per shall, than 5 centum of such class indirectly, or any the use of means or days within ten acquisition, after such send instrumentality commerce, of interstate or of security issuer of the principal at its exec- any mails or of facility any national office, by registered utive mail, or certified exchange, send to exchange each where the security is (a) employ device, any scheme, To or arti- traded, Commission, and file with the a state- defraud, fice containing ment such following (b) infor- any To make untrue statement aof ma- mation, information, and such additional as terial fact or to omit to state a material fact may by Commission regula- rules necessary made, in order to make the statements tions, prescribe necessary appropriate light the circumstances under public they made, interest protection or for the misleading, or _ (c) act, engage To investors — practice, or course operates business which operate or would through partnerships or limited rather than borrowed other-

or other consideration he purpose premise of ac- for the trusts. From this reasons wise obtained trading such securi- quiring, holding, or identities could have because the investors’ description concealed, of and ty, a the transaction the fact an unnamed been parties thereto investing of the ... him person names with other a fact.

not material contracts, (E) any as to information materiality of under the The standard understandings or with arrangements, was set forth the Su- securities laws person respect any any with Industries, v. preme in TSC Inc. Court issuer, including but not limited of the 438, Inc., 426 Northway, U.S. securities, joint any of of the transfer 2126, (1976). An omitted ventures, arrangements, option loan or if is material there is a substantial fact loans, calls, guaranties guar- of puts or a shareholder likelihood that reasonable guaranties prof- or of against loss anties important making an consider it would its, profits, or or the losses division of 449, at at investment decision. Id. proxies, naming withholding of giving or 224, Levinson, 2132; Basic Inc. v. contracts, whom such persons 231-32, 194 108 99 L.Ed.2d S.Ct. understandings have arrangements, or materiality a Determination of is into, giving the details been entered question mixed of law fact that thereof. Supreme especially Court has stated is well 78m(d)(l). 15 U.S.C. TSC, jury § 426 suited for determination. (“The 450, 96 2133 determi- U.S. S.Ct. at 13(d) dutyA to file under creates § requires delicate nation assessments completely. truthfully and duty to file a shareholder’ inferences ‘reasonable would Industries, Savoy v. 587 F.2d SEC given a of draw from set facts ... (D.C.Cir.1978), denied, 440 1165 peculiarly these assessments are ones (1979); 59 462 L.Ed.2d S.Ct. fact.”) trier 13(d) GAF, Although is F.2d at 720. § rather than an an- reporting requirement a point, first Turning to defendant’s provision, penalties criminal are tifraud public company's price a stock whether knowingly against one who available stays up moves or down or the same after misleading makes a false and statement 13D not estab filing of Schedule does required to be material fact on a document made, materiality of the statements lish the filed the securities laws. U.S.C. though jury is a factor stock movement addition, misleading false 78ff. or § may v. consider relevant. Akerman See 13D be statement made on Schedule Communications, Inc., F.Supp. Oryx provision of under the antifraud actionable (S.D.N.Y.1984),aff'd, 810 F.2d 336 GAF, 720; 10(b). 453 F.2d at see also § Lomb, (2d Cir.1987); SEC v. Bausch & 424, 431 Steinberg, 891 F.2d Kamerman (2d Cir.1977). Inc., 15-16 With Cir.1989). case, materiality of In either respect point, decline to second we prerequi or omission is a misstatement required hold that information liability. site is per disclosed 13D material se Contending there were no material 10(b) purposes simply such because support his or omissions to misstatements required disclosure is under the securities 10(b) convictions, argues first defendant is laws. But the fact that information any that the absence of market fluctuation 13(d) required to be revealed under § immediately stock after his 13D in Cluett materiality. Levy, its SEC evidence that the informa was filed demonstrates (D.D.C.1989). F.Supp. important Sec tion was investors. case ond, asserts, hearing After evidence this the source of the funds he jury that the misstatements because he could the concluded used was material lawfully disclosing his inves and omissions were material. Defendant avoided money heavy challenging the by channeling faces a burden when tors’ identities sufficiency of leading the evidence to his the United knowingly and willful- Zabare, conviction. States v. falsifies, ly up by any conceals or covers — (2d Cir.), trick, scheme, fact, or device a material -, false, any or makes fictitious or fraudu- any If rational trier fact could representations, lent or statements or have found the essential elements writing makes uses false or doc- doubt, beyond crime a reasonable the con ument knowing any the same to contain Jackson v. Vir must be viction affirmed. false, fictitious or fraudulent statement 307, 319, 2781, ginia, 99 S.Ct. entry, or shall fined not more than 2789, (1979). 61 L.Ed.2d 560 $10,000 imprisoned or not more than five jury It was not unreasonable for the years, or both. erroneously describing conclude that 18 U.S.C. 1001 The statute was § of “personal” source funds as was materi designed protect “to the authorized func al, honesty for it indicated the and fea governmental tions of departments and sibility plans of Bilzerian’s for the invest agencies perversion from might which Savoy, See ment. F.2d at 587 1166-67 deceptive result from the practices de (failure participation to disclose of a certain Gilliland, scribed.” United 312 13(d) investor violated and was material § 522, 518, U.S. 85 L.Ed. 598 10(b)); Levy, F.Supp. 706

under 73 § (1941); see also Fitzgib United States v. (failure pur to reveal on that stock 13D bon, 874, (10th Cir.1980) 619 F.2d 877-78 money chase was funded with borrowed (describing legislative history). support To 10(b)). It was material under was also § 1001, a conviction under § jury reasonable for the to find that defen (1) must establish that the defendant know engaged dant in a fraudulent scheme to (2) ingly willfully (3) and made a statement requirements avoid the disclosure of in relation a matter jurisdic within the City See v. First 13(d). SEC Financial § a department agency tion of or of the Unit Ltd., Corp., 705, (D.D.C.1988), 724 F.Supp. States, (4) knowledge ed with that it was 'd, (D.C.Cir. 1215, 890 F.2d aff false or and fictitious fraudulent. 1989) (stock parking arrangement used to Silva, States v. 43, (2d 715 F.2d delay 13(d)). filing Schedule 13D violated § Cir.1983). decisions, materiality Under our question materiality of espe Since the is of the statement is not an element of the determination, cially well jury suited for Elkin, offense. See United States v. and defendant a has demonstrated lack (2d Cir.), support of sufficient evidence to (1984); body’s conclusion, there is no basis to set Silver, United States aside the securities fraud convictions. Cir.), Liability Under 18 U.S.C. 1001

B. § making For false statements on Congress’ Defendant asserts that it was the Forms 13D 14D-1 filed with the purpose prosecutions, to have criminal SEC, charged violating Bilzerian was with reports misstatements in informational statute, general false statements SEC, brought 32(a) filed with the under § specif U.S.C. rather than the more § Act, Exchange 78ff, 15 U.S.C. § provisions. ic securities law He contends provision setting specific enforcement forth government’s prosecution under penalties criminal for willful violations of unprecedented attempt 1001 was § applicable the securities laws and the rules impose penalties criminal comply without regulations. Unlike the false state- ing specific requirements with the crim statute, 32(a) requires proof ments § prosecution inal under the 1934 Act. materiality provision and contains provides: Section 1001 imprisonment imposed will not be on a de- Whoever, any ignorant jur- matter within the fendant who was the substance any department or agency pertinent part provides: isdiction of of the rule. it willfully any alleges—to Any person who violates amount—as defendant over- chapter any 32(a). provision riding of this ... or rule requirements regulation or thereunder violation asserts that state Defendant also or is made unlawful the observ- which 14D-1 ments made Schedules 13D and required ... or ance of which is jurisdiction are not matters “within the of” willfully knowingly person who respect because with to these SEC made, any makes, to be state- or causes merely repository is statements the SEC report, or any application, doc- ment act upon and does not information filed required to be ... ument view that 1001 is statements. It misleading was false or statement only appropriate for misstatements or fact, upon any material shall respect to (1) gov during omissions made an active $1,000,- than be fined more conviction (2) inquiry ernmental or that formed the than 10 imprisoned not more governmental for some sort of action. basis ...; person no years, or but shall both imprisonment under this subject to Supreme The Court has stressed any rule or for the violation section “jurisdiction” term 1001 § proves that he had no regulation if broadly agency should be construed. An knowledge regulation. rule or of such jurisdiction meaning has within (1988). 15 78ff U.S.C. § authority upon to statute when it has act law act It settled that “when an vio- is United v. information. See States statute, one criminal lates more than 475, 479-80, Rodgers, 104 466 U.S. S.Ct. may prosecute under either so Government 1942, 1946, (1984); 492 80 L.Ed.2d United any long against it does discriminate Adler, 917, (2d Cir.), 380 F.2d 922 States v. v. class of defendants.” United States denied, 561, 1006, 389 88 19 U.S. S.Ct. Batchelder, 114, 123-24, 442 99 S.Ct. U.S. (1967). statutory “A L.Ed.2d 602 basis for 2198, 2204, 60 L.Ed.2d 755 Prose- pro agency’s request an for information additionally permitted has been un- cution jurisdiction enough punish vides fraudu despite der 1001 the existence of other § Bryson lent statements under 1001.” v. § specific state- overlapping and more false States, 64, 71, 396 United U.S. Gordon, ment statutes. United States v. 24 L.Ed.2d 264 743, (8th Cir.1977); also, 744 see 548 F.2d request statutory A for the SEC’s basis 49, Grotke, e.g., v. 702 F.2d United States Ex for information exists because the (2d Cir.1983) (§ applicable despite 1001 54 change requires Act at issue documents statute.). currency specific reporting more 78m(d), it. to be filed with 15 U.S.C. §§ argues Defendant the case of 78n(d) (1988). agency This executive is au alleged or omissions in in- misstatements regulate the content of the doc thorized reports Ex- filed under the formational investigate prosecute uments and to 32(a) Act, Congress planned that change § filings. of law based on the 15 violations control. At the time 1001 and not 1001 § § 78m(d), (1988); U.S.C. 78u see United §§ enacted—only days the Ex- 12 after Fields, 638, 649 States v. 592 F.2d passed—it provided Act harsh- change Cir.1978)(filing prospectus which concealed 32(a), penalties though than the re- er § material facts SEC stated claim un quirements for conviction under 1001 § 1001), 917, 442 der § Nonetheless, proximi- stringent. were less 2838, (1979); S.Ct. United ty of without more does not the enactments Kuna, 813, (7th v. 760 F.2d States suggest application that the of the false Cir.1985) (sustaining conviction under statements statute was to be limited 1001for statement false on broker-dealer § more just-enacted securities laws. Absent registration); Fonzo, v. United States Di explicit Congressional purpose indicia (7th Cir.1979) (doc 603 F.2d 1263-64 general use of foreclose the § uments submitted to SEC in course of in may overlap rule criminal statutes con- vestigation required jurisdiction), proof less within its cert. de trols. fact that nied, 1001 does not conviction under § (1980); 13(d). see also United sure under agreements States These § Hansen, (D.C.Cir. 943-44 were found to violate the federal conspir- (the 1985) statute, “jurisdiction” acy term em (1988), 18 U.S.C. 371 authority provides pertinent braces to conduct official part: inquiry), cert. If persons conspire two or more either (1986); L.Ed.2d any against to commit offense the United (11th Diaz, States States, States, or to defraud the United Cir.1982)(grant authority rather than its any agency or thereof manner or jurisdiction). exercise determines any purpose, and one or more such persons do any object act to effect the Although the may every SEC not act on conspiracy, each shall be fined not 13D, filing of a false Schedule state- $10,000 imprisoned more than investigatory ment interfere with its years, more than five or both. function, including its enforcement de- investigate termination or not to whether prohibits Section two distinct transaction. The securities laws are de- types conspiracies; conspiracies to de signed to make accurate information avail- conspiracies fraud the United investing able public; against the SEC’s commit an offense the United authority regulate required States. governs disclosure While the offense clause offense, brings conspiracy specific under fil- to commit a those laws ings defined jurisdiction pur- at issue within its elsewhere the federal for criminal code, the poses of defraud clause is 1001. broader and § agreements covers to interfere with or to Further, defendant a makes venue government’s obstruct lawful functions. objection, stating alleged oc violation Nersesian, See United States v. 824 F.2d D.C., Washington curred where doc 1294, (2d Cir.), denied, 1313 cert. 484 U.S. filed, drafting ument was and that the 958, 357, (1987). 108 S.Ct. preparation document was mere Bilzerian would have us rule that when offense, part not it.of See United States specific chargeable conduct is under the Corp., v. Beech-Nut Nutrition 871 F.2d clause, preclud- — offense is 1181, (2d Cir.), denied, 1190 cert. U.S. prosecuting ed from under the defraud -, 324, (1989). 107 314 L.Ed.2d Minarik, clause. See United States v. 875 disagree. pre We The documents were (6th Cir.1989). 1186, Thus, F.2d 1193-94 pared signed—i.e. “made”—within the posits charges conspiracy to York, Southern District of New and thus failed to an defraud state offense because properly venue was laid there. See United complained the conduct of is covered Mendel, 155, 746 165 statutes, specific is, 15 U.S.C. Cir.1984) (venue under 1001 lies either § 78m(d), proposition is 78ff. This §§ prepared filed), where documents were Minarik, persuasive. prosecution solely denied, 1213, 1184, 469 cert. U.S. clause—despite under the defraud ex- L.Ed.2d 84 331 specific statutory gov- istence of a offense erning the to conduct—led substantial con- C. Conspiracy prejudiced fusion and the defendant’s abili- Bilzerian was convicted on two ty prepare to for trial. Id. at 1189-90. In conspiracy alleging counts partici that he case, reading defendant’s Minarik pated multi-object conspiracies in two in contrary to established law. to tended defraud the United States and to specific commit Although recognized offenses. The first con it is that the spiracy agreement park government may involved to Rob not obtain two convictions generate ertson & Arnaco to punish stock tax loss or defendant twice the same complying es without by alleging with disclosure re conduct violations of both the 13(d); quired by the second a conspir defraud and offense clauses of the § States, acy statute, see, scheme accumulate Cluett and Hammer- e.g., May v. United shares, providing 994, mill also (D.C.Cir.), without disclo- 175 F.2d (1975). Viewing light in the 58, the evidence 94 L.Ed. 505 S.Ct. simultaneously prosecute government, favorable to the see

(1949), may it most States, under both clauses. See 315 U.S. same conduct Glosser United 1313; (1942), Nersesian, we F.2d at 86 L.Ed. S.Ct. Williams, of fact 623-24 believe a rational trier could States v. elements of the crime (2d Cir.), found the essential Jackson, beyond doubt. L.Ed.2d reasonable S.Ct. at 2789. case alleged the instant The schemes statutes, suggested numerous The evidence at trial that de- violations of involved acquire large 13(d) planned and the re- blocks of including fendant § require- delaying reporting make and broker-dealers stock while quirements that records, 17 the securities C.F.R. 240.- ments contravention of keep accurate §§ laws, gen- 17a-3, Additionally, the indict- numerous records were and that 240.17a-4. involv- it charged conspiracies appear erated to make that Jeffries ment broader parking, Company acquired and stock stock at its own ing had stock accumulation specifically prohib- generated risk. False records also were are activities Consequently, is no tax that Bilzerian there substantiate deductions ited statute. As to impropriety charging de- claimed on his 1985tax return. each prosecutorial charged there is ade- prongs conspiracies fendant under both juror quate which a rational evidence from argues that the further Defendant conspiracy ex- could have concluded that charges fail to state conspiracy to defraud objec- to achieve at least one criminal isted com the mere failure to an offense because 13(d) tive, say, that is to either violate § requirement pro regulatory ply awith or to defraud the SEC and IRS. not amount to active information did vide governmental function. interference with CONCLUSION 107, States, 483 U.S. See Tanner v. United judgment of Accordingly, the conviction 2752, 2739, 107 S.Ct. respects. is in all affirmed agency an (1987)(United thereof States target conspiracy). the As must be LUMBARD, Judge (concurring): Circuit noted, charged with administer the SEC laws, enforcing and in ing judg- I in the and concur affirmance perform conviction, function must receive substantially order to its for the ment Judge truthful disclosure. The accurate and set forth Cardamone’s reasons the le determining opinion. IRS in function similarly may im

gitimacy of a return be trial Bilzerian was not denied a fair be- by generating tax losses paired schemes precluded him from cause district court Hence, by false claims for deductions. waiving intent denying criminal without conspiracy charges an state the defraud privilege. attorney-client The court offense. preliminarily ruled that if Bilzerian tes- had regarding good faith urges there was tified his belief Finally, Bilzerian agreement legality com of certain conduct1 would sub- of an proof insufficient conspiracy ject A convic himself to cross-examination as specific mit offenses. claim, including questions multi-object conspiracy may basis of that re- on a tion based long garding that otherwise evidence is sufficient communications upheld so attorney-client protected one of the criminal would be respect to least result, privilege. Bilzerian took the Papadakis, As objectives. States denied, (2d Cir.), good stand to assert faith but chose not 510 F.2d 1682, 44 104 belief. L.Ed.2d alleged testify regarding prior sought in- that he acted in cross-examination 1. Bilzerian SEC, testimony good making certain statements in doc- consistent before Bilzerian faith in SEC, similarly sought changing he believed to assert that filed with the uments financing arrangements. legal. conduct was structure of certain Because Bilzerian 13D, not to testify decided as it was an impermissible instruction matters, on these his claims are proper governing law. ly preserved appeal. See United Third, Bilzerian’s contention that the dis- Cir.1988), Ortiz, trict court erred in admitting evidence of rt. ce error personal Bilzerian’s 1986 tax 1352, 103 Neverthe persuasive. return is not Brian Murphy, less, there no error in Judge Ward’s an accountant who prepared tax returns rulings. If Bilzerian had good asserted for a partnership in partici- which Bilzerian faith examination, on direct he could not pated, testified that Bilzerian told him that use attorney-client privilege to avoid part of Bilzerian’s capital contribution was cross-examination regarding the basis of personal funds. cross-examination, On that claim. Miller, See United States v. Bilzerian sought to establish that (5th Cir.), source the funds had no effect on the 62 L.Ed.2d 327 partnership tax return. Bilzerian also elic- ited testimony regarding the accuracy of the partnership tax return. redirect, On Bilzerian’s contention that the district over objection, defense in- court erroneously testimony by admitted quired into the accuracy of per- Bilzerian’s the government’s expert while it excluded return, sonal tax and elicited testimony expert similar testimony by the defense has that Bilzerian had understated his income trial, no merit. At Judge Ward allowed Judge $4 million. Ward denied Bilzeri- government witness, Professor John C. an’s motion for a mistrial. He found that Coffee, provide background information Bilzerian’s cross-examination had created regarding the securities filing laws and the impression that Bilzerian accurately re- requirements of Schedule 13D. The dis- ported the income returns, on all tax permitted trict court expert, Bilzerian’s Lee this had opened the door to govern- Spencer, Jr., B. same, to do the prohib- but ment’s redirect. Judge Ward acted within ited him opining from on the propriety of his discretion in admitting this evidence on describing unsecured “personal loans as redirect, possible to rebut misimpres- funds,” in a Schedule 13D. sion, arising from cross-examination, Much of Professor Coffee’s testimony, Bilzerian accurately reported on all of his which Bilzerian now contends was improp 1986 tax returns. See United States v. erly admitted, was not objected to trial. Mang Wong, Sun 1537, 884 (2d F.2d 1544 — consequence, As a it cannot now be as Cir.1989), denied, cert. U.S. -, 110 signed as error. See 103(a)(1); Fed.R.Evid. 1140, S.Ct. 107 (1990). L.Ed.2d 1045 Heinemann, United States v. 86, Bilzerian argues next that it improp- was (2d Cir.1986), 96 denied, cert. 479 U.S. er government for the prosecute him 1094, 94 (1987). L.Ed.2d 163 under the federal statute, false statements event, In Coffee’s testimony prop was 18 (1988) (“Section U.S.C. 1001”), § er factual background information, rather alleged mistatements and omissions in legal than conclusions. See United States reports informational required by the Secu- Scop, v. (2d Cir.), 846 F.2d 135 modified rities Exchange Act of 1934 because the rehearing, (1988); 856 F.2d 5 Marx & Co. government prosecute could him under Sec- Club, Inc., v. Diners’ (2d 550 F.2d 505 32(a) tion Act, the Exchange of 15 U.S.C. Cir.), 434 U.S. (1988) (“Section 78ff 32(a)”). Moreover, It is well-settled when that two statutory Judge Ward subsequently instructed the provisions overlap, government may de- jury toas the limited purpose of the testi cide under which proceed, section to unless mony. it is clear Congress that intended one sec- There was no error in excluding Spenc- tion to preempt Congress other. has testimony er’s regarding the meaning of expressed any such intent regarding phrase “personal funds” in a Schedule provisions. these in concurring WINTER, Judge, Circuit if even that Fifth, asserts Bilzerian dissenting part: in part and Section under offenses constituted

conduct only proper was venue 1001, constitutional disposi- Judge in Cardamone’s I concur reports D.C., where the Washington, issue. privilege attorney-client of the tion alleged misstatements containing the of affirmance concur I also Venue filed with SEC. were omissions secu- on violations based convictions York was of New District Southern estimable Although is an rities laws. where documents this was proper, as Professor of scholar, that much I believe signed. prepared were inadmissible. testimony was Coffee’s 155, 165 Mendel, v. legal largely of portions consisted These Cir.1984), explored been opinions that should L.Ed.2d S.Ct. to the in the instructions solely court’s to Bilzerian’s no merit Sixth, there B. expert, Lee Moreover, the defense jury. prove failed that the claim of the SEC’s Director Spencer, a former Ex 10(b) of Section under an offense Finance, pre- Corporate was Division (“Sec (1988) 78j(b) Act, U.S.C. change answering ques- from by the court vented 10b-5, prohibit 10(b)”) Rule tion or indistinguish- principle were tions that with the in connection practices fraudulent by Professor answered those able from security, it because sale of purchase Nevertheless, Coffee’s Professor Coffee. the mean within a “fraud” prove failed deviate substance testimony did not there He contends provisions. ing by the court given instructions from the misstatements because no fraud was any matter not contain jury and did material, and that and omissions jury. I might prejudice otherwise materiali found could have jury no rational therefore, oc- error believe, that whatever materiality gen ty. The determination harmless. curred was In accordance jury issue. erally is a examination the redirect regard to With Industries, Inc. TSC teachings personal Bilzerian’s regarding Murphy Inc., S.Ct. Northway, exam- redirect return, that the I tax believe Inc. and Basic (1976), L.Ed.2d 757 The cross-examina- improper. was ination 231-32, 108 Levinson, con- counsel by Bilzerian’s Murphy tion of (1988), the district only and returns partnership cerned the material jury that a instructed court Bilze- the source merely established signifi have been would fact “is one partner- irrelevant was rian’s funds investor’s investment cant to reasonable cross- way no did this ship returns. tax sup jury’s verdict decision.” for questions open door examination ample evidence. ported return, personal tax Bilzerian’s regarding convic argues that his Finally, Bilzerian improper. Reluctant- question and the of 18 in violation conspiracy for tions this however, concluded I have ly, be should be reversed (1988) U.S.C. § When Bilzerian harmless. also error was constitute cannot conduct same cause the stand, he cross-examined took the United conspiracy defraud both returns personal tax about substan conspiracy to commit and a States exculpatory explanation provide able to argument rejected this We offenses. tive impact that blunted pertinent events Nersesian, 824 F.2d v. States United Murphy. examination the redirect Cir.), 484 U.S. (2d 1294, 1313 the conviction respectfully dissent from (1987) I 98 L.Ed.2d 958, 108 S.Ct. course, I, do 1001. Williams, 18 U.S.C. under v. States and relied general canon disagree with 464 U.S. (2d Cir.), 603, 623-24 criminal stat- colleagues by my (1983). upon 524, 78 L.Ed.2d 708 1007, 104 S.Ct. do, that, they when overlap and utes support Bilze- ample evidence There was to indict under may choose conspiracy on both rian’s convictions agree, I cannot another. than one rather counts. however, that, because criminal statutes may overlap, Section 1001 must overlap ASSOCIATES, EAGLE Appellant, 32(a)

with Section of the 1934 Act. The bottom line is Congressional intent. An- BANK MONTREAL, OF other canon of construction thus dictates Appellee. that courts must insure that every part of No. Docket 90-7707. given statute be meaning and not be United, United States Court of Appeals, superfluous. rendered Second Circuit. Menasche, 528, 538-39, 513, 519-20, 99 L.Ed. 615 Because Argued Nov. 1990. we have construed prohibition Section 101’s Decided Feb. on false statements as not requiring a.find- ing of materiality, 32(a)’s Section prohibi- tion on “false ... with respect [statements]

to any material superfluous. fact” is My

colleagues’ interpretation particular- seems

ly questionable provisions because the two product virtually simultaneous

Congressional and, consideration and action

at the time of passage, Section 1001 con-

tained more stringent penalties. It certain-

ly seems somewhat odd to me that Con-

gress pass would 32(a), Section spe- which

cifically applies filings required by the

federal laws, and less than days

twelve later portions render of it su-

perfluous by passing very general statute required a lesser of proof standard provided penalties. harsher With the exception of Fields, United States v.

F.2d 638 Cir.1978), the cases relied

upon by my colleagues are from other cir-

cuits and involved false in ongo- statements

ing investigations. Fields, moreover, does proposition stand it is cited, because it only deals with the issue

of materiality.

I therefore in part concur and dissent in

part.

Case Details

Case Name: United States v. Paul A. Bilzerian

Court Name: Court of Appeals for the Second Circuit

Date Published: Jan 3, 1991

Citation: 926 F.2d 1285

Docket Number: 787, Docket 89-1502

Court Abbreviation: 2d Cir.