Re: 12/14/04 - [Elgindy] Defendant Elgindy's Annotated Objections to the Government's Proposal to Charge
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
UNITED STATES OF AMERICA Cr. No. 02-589 (RJD)
Cr. No. 02-589 (5-1) (RJD)
v. Cr. No. 02-589 (S-2) (RJD)
ANTHONY ELGINDY, also known as
“Tony Elgindy” and “Anthony Pacific,”
Defendant.
DEFENDANT ANTHONY ELGINDY’S ANNOTATED OBJECTIONS TO THE
GOVERNMENT’S PROPOSAL TO CHARGE
Barry H. Berke, Esq. (BB 1421)
Eric A. Tirschwell, Esq. (ET 3023)
Erin A. Walter, Esq. (EW 1777)
KRAMER LEVIN NAFTALIS AND FRANKEL, LLP
919 Third Avenue
New York, New York 10022
(212) 715-9100
Attorneys for Defendant Anthony Elgindy
KL3 2384910 I
GENERAL REQUESTS
The government requests that the Court charge the jury
in its usual manner on the following subjects:
1) THE ROLE OF THE COURT
2) FUNCTION OF JURY
3) COURT HAS NO VIEW
4) PARTIES EQUAL
5) WHAT IS EVIDENCE
6) WHAT IS NOT EVIDENCE
7) NO BIAS
8) INDICTMENT ACCUSATION ONLY
9) BURDEN OF PROOF
10) PRESUMPTION OF INNOCENCE
11) REASONABLE DOUBT
12) TYPES OF EVIDENCE
13) DIRECT EVIDENCE
14) CIRCUMSTANTIAL EVIDENCE
15) STIPULATIONS
16) JUDICIAL NOTICE
17) CHARTS AND SUMMARIES
18) VENUE
19) DATES APPROXIMATE
20) CONSCIOUSNESS OF GUILT FROM FLIGHT [1]
21) CONSCIOUSNESS OF GUILT FROM USE OF FALSE NAME [2]
22) WEIGH ALL EVIDENCE
23) FAILURE TO NAME A DEFENDANT
24) CREDIBILITY
25) INTERESTED WITNESSES
26) LAW ENFORCEMENT WITNESSES
27) OPINION WITNESSES
28) COOPERATING WITNESSES
29) IMPEACHMENT BY FELONY CONVICTION - NON DEFENDANT
30) IMPEACHMENT BY FELONY CONVICTION - DEFENDANT3
31) INTERVIEW OF WITNESSES
32) INVESTIGATIVE TECHNIQUES
33) PUNISHMENT
34) STATEMENTS OF COUNSEL
35) JUROR’S RECOLLECTION GOVERNS
36) INFERENCES
37) DELIBERATIONS
38) JURY CHARGE
39) MULTIPLE COUNTS
40) UNANIMOUS VERDICT
41) VERDICT FORM
42) COMMUNICATION WITH COURT
43) NO DISCUSSION
44) FOREPERSON
45) NOT TO REVEAL STATUS
46) OATH
[1] Mr. Elgindy objects to this charge being given. In the event that the Court decides to give the charge, he requests an opportunity to suggest appropriate language.
[2] Mr. Elgindy objects to this charge being given. In the event that the Court decides to give the [c]harge, he requests an opportunity to suggest appropriate language.
[3] Mr. Elgindy objects to this charge being given unless he testifies.
THE INDICTMENT
I will now review the indictment with you and instruct you as to the legal elements of the crimes with which the defendants are charged. The indictment in this case contains thirty-three separate counts for your consideration. On each of which you will be called upon to render a separate verdict as to each defendant charged in that Count. You will receive several copies of the indictment for reference during your deliberations.
Count One of the Indictment charges the defendants AMR ELGINDY and JEFFREY ROYER with conspiracy to violate the Racketeer Influenced and Corrupt Organizations Act (“RICO”) in violation of Title 18, United States Code, Section 1962(c).
Count Two of the Indictment charges the defendants AMR ELGINDY and JEFFREY ROYER with participating in a conspiracy to commit securities fraud in violation of Title 15, United States Code, Sections 78j (b) and 78ff, Title 17, Code of Federal Regulations, Section 240.lOb-5; and Title 18, United States Code, Sections 371 and 3551 et seq.
Counts Three through Nine of the Indictment charge the defendants AMR ELGINDY and JEFFREY ROYER with substantive charges of securities fraud, in violation of Title 15, United States Code, Sections 78j (b) and 78ff, Title 17, Code of Federal Regulations, Section 240.lOb-5; and Title 18, United States Code, Sections 2 and 3551 et seq.
Count Ten of the Indictment charges the defendants AMR ELGINDY and JEFFREY ROYER with participation in a conspiracy to commit extortion, in violation of Title 18, United States Code, Sections 1951(a) and 3551 et seq.
Count Eleven of the Indictment charges the defendants AMR ELGINDY and JEFFREY ROYER with extortion, in violation of Title 18, United States Code, Sections 1951(a), 2 and 3551 et seq.
Count Twelve of the Indictment charges the defendants AMR ELGINDY and JEFFREY ROYER with extortion, in violation of Title 18, United States Code, Sections 1951(a), 2 and 3551 et seq.
Count Thirteen of the Indictment charges the defendants AMR ELGINDY and JEFFREY ROYER with participation in a conspiracy to obstruct justice, in violation of Title 18, United States Code, Sections 1503, 371 and 3551 et seq.
Count Fourteen of the Indictment charges the defendants AMR ELGINDY and JEFFREY ROYER with obstruction of justice, in violation of Title 18, United States Code, Sections 1503, 2 and 3551 et seq.
Count Fifteen of the Indictment charges the defendant JEFFREY ROYER with witness tampering, in violation of Title 18, United States Code, Section 1512 (b) (3) , 2 and 1331 et seq.
Counts Sixteen through Twenty-Two of the Indictment charge the defendant AMR ELGINDY with securities fraud, in violation of Title 15, United States Code, Section 78j (b) and 78ff, Title 17, Code of Federal Regulations, Section 240.lOb-5, Title 18, United States Code, Sections 2 and 3551 et seq.
Counts Twenty-Three through Thirty-Three of the Indictment charge the defendant AMR ELGINDY with wire fraud, in violation of Title 18, United States Code, Sections 1343, 1346, 2 and 3551 et seq.
THE COUNTS
I will now explain the law that applies to each of the thirty-three counts in the indictment.
COUNT ONE: RACKETEERING CONSPIRACY
The first Count in the Indictment charges the defendants AMR ELGINDY and JEFFREY ROYER with conspiracy to violate the Racketeer Influenced and Corrupt Organizations statute, also known as “RICO.’ This means that the defendants have been charged with conspiracy to conduct or participate in the affairs of an enterprise through a pattern of racketeering activity. Count One of the indictment incorporates paragraphs 1 through 32 and charges ELGINDY and ROYER as follows:
Between approximately March 2000 and May 2002, both dates being approximate and inclusive, the defendants AMR I. ELGINDY [and] JEFFREY A. ROYER [ ] and others, were members and associates of an enterprise (the “ELGINDY Enterprise”) as defined in Title 18, United States Code, Section 1961(4), that is, a group of individuals associated in fact. The ELGINDY Enterprise operated in the Eastern District of New York and elsewhere in the United States as well as abroad. The ELGINDY Enterprise engaged in, and its activities affected, interstate and foreign commerce. The ELGINDY Enterprise constituted an ongoing organization whose members functioned as a continuing unit for a common purpose of achieving the objectives of the enterprise. The chief purpose of the ELGINDY Enterprise was to obtain money for its members and associates by trading on material, non-public information that had been misappropriated from the FBI and the SEC, by manipulating the market to deflate artificially the price of stocks that they had short sold, and by extorting free shares of stock from company insiders.
Among the means and methods by which the defendants ANR I. ELGINDY [and] JEFFREY A. ROYER, together with others, conducted and participated in the conduct of the affairs of the ELGINDY Enterprise were various criminal activities, including securities fraud, extortion and obstruction of justice.
In or about and between March 2000 and May 2002, both dates being approximate and inclusive, within the Eastern District of New York and elsewhere, the defendants AMR I. ELGINDY [and] JEFFREY A. ROYER,~ [ I together with others, being persons employed by and associated with the ELGINDY Enterprise, knowingly and intentionally conspired to violate Title 18, United States Code, Section 1962 (c), that is, to conduct and participate, directly and indirectly, in the conduct of the affairs of the ELGINDY Enterprise through a pattern of racketeering activity as defined in Title 18, United States Code, Sections 1961 (1) and 1961 (5) . The pattern of racketeering activity through which the defendants agreed to conduct the affairs of the enterprise consisted of the acts set forth below. Each defendant agreed that a conspirator would commit at least two acts of racketeering activity in the conduct of the affairs of the enterprise.
Count One then alleges twelve acts of racketeering, which I will discuss in a few moments. First, let me explain the basic elements of the crime of racketeering conspiracy charged in Count One.
RICO STATUTE
The statute on which Count One is based is called the Racketeer Influenced and Corrupt Organizations Act, hence the acronym “RICO.” The word “racketeer” has certain overtones in our society. Put aside any preconceived ideas about the word “racketeering, and concentrate only on what that word means in the statute, which I will explain to you shortly.
Count One charges the defendants AMR ELGINDY and JEFFREY ROYER with conspiring to violate the racketeering statute, that is, they knowingly and intentionally conspired to participate in the affairs of an “enterprise,” “through a pattern of racketeering activity.” A “pattern of racketeering activity” is an important phrase that I will explain to you shortly.
Section 1962(c) of Title 18 U.S.C. provides in pertinent part:
It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs through a pattern of racketeering activity . .
Section 1962(d) of the RICO Statute further provides that “It shall be unlawful for any person to conspire to violate [subsection (c)] ,“ the section I just read to you.
Before you can find a defendant guilty of Count One, the government must prove the following elements beyond a reasonable doubt:
First, that an enterprise, as described in the Indictment, did exist; Second, that the enterprise or its activities affected interstate commerce; Third, that the defendant was associated with or employed by the enterprise; and Fourth, that the defendant knowingly and intentionally conspired with one or more persons to participate in the conduct of the affairs of the enterprise, directly or indirectly, through a “pattern of racketeering.”
In Count One, the government must prove that there was an agreement to commit acts that violate the racketeering statue between two or more persons, and that the defendant knowingly and intentionally joined in that agreement. Let me explain. And I start with the first element.
Adapted from the charge of Judge Raymond J. Deane in United States v. Tyrone King see also Matthew Bender, Modern Federal Jury Instructions — Criminal 6.18.l962B.
First Element: “Existence Of The Enterprise” The government must prove beyond a reasonable doubt that an enterprise existed. An “enterprise” does not have to have a particular name, or, for that matter, any name at all. Nor must it be registered or licensed as an enterprise, or be a commonly recognized legal entity such as a corporation, a partnership, a business, or the like.
To establish that an enterprise existed, the government must prove beyond a reasonable doubt that there was, in fact, during the period charged in the indictment, a group of individuals as described in the indictment characterized by (1) a common or shared purpose of engaging in a particular course of conduct; (2) an ongoing and continuing formal or informal organization or structure; and (3) core personnel who functioned as a continuing unit during the period charged in the indictment.
An “enterprise” must be more than a group of friends that occasionally get together for the purpose of committing particular, isolated crimes bearing no relation to any common purpose. The personnel of the enterprise may change and need not be associated with the enterprise for the entire period charged in the indictment.4
If you find beyond a reasonable doubt that this was a group of people characterized by (1) a common purpose, (2) an ongoing formal or informal organization, and (3) personnel who functioned as a unit, then you may find that an enterprise existed, and you may move on to the second element.
Adapted from the charge of Judge Raymond J. Deane in United States v. Tyrone King see also Sand et al., Modern Federal Jury Instructions, Instr. 52-22. See United States v. Indelicato, 865 F.2d 1370, 1382 (2d Cir. 1989) (en banc) (“Congress sought to define [enterprise] as
~ Mr. Elgindy requests that additional language, included in a separate document, be inserted at this point. See Request No. 1.
broadly as possible, ~includ[ing] ‘ within it every kind of legal entity and any ‘group of individuals associated in fact although not a legal entity. ‘“) (quoting 18 U.S.C. § 1961(4)) and United States v. Porcelli, 865 F.2d 1352, 1362 (2d Cir.) (enterprise given “broad definition”: “The enterprise can be any enterprise, not merely one engaged in a pattern of racketeering; indeed, it may be a victim of racketeering.”), cert. denied, 493 U.S. 810 (1989) . See United States v. Minicone, 960 F.2d 1099, 1106 (2d Cir.) (discussing “enterprise” requirement), cert. denied, 112 5. Ct. 1511 (1991) ; United States v. Errico, 635 F.2d 152 (2d Cir. 1980) (requirement that enterprise be “continuing unit”) , cert. denied, 453 U.S. 911 (1981)
Second Element: Effect on Interstate Commerce The second element, which the government must prove beyond a reasonable doubt, is that the conduct of the enterprise affected interstate commerce, that is, commerce between one state and another.
A defendant need not know that his acts would affect such commerce. Nor need he have a purpose to affect such commerce. The effect on interstate commerce need not be substantial. Indeed, a minimal effect is sufficient. Nor is it necessary that the effect on interstate commerce have been adverse to commerce. All that is necessary is that the activities of the enterprise affect interstate or foreign commerce in some minimal way. It is sufficient, for example, that in the course of the racketeering activities, members of the enterprise purchased goods or services that had an effect on interstate commerce, traveled interstate, used telephone facilities interstate, or took money from businesses that had an effect on interstate commerce.
Adapted from the charge of Raymond J. Deane in United States v. Tyrone King and Judge Pierre N. Leval in United States v. Espinal, 91 Cr. 310 (S.D.N.Y. 1991), aff’d, 981 F.2d 664 (2d Cir. 1992). See also Sand et al., Modern Federal Jury Instructions, Instr. 52-14. See United States v. Barton, 647 F.2d 224, 233-34 (2d Cir.) (discussing “interstate commerce” requirement: affirming that “the impact need not be great”) cert. denied, 454 U.S. 857 (1981)
Third Element: Association With or Employment By the Enterprise The third element, which the government must prove beyond a reasonable doubt, is that a defendant was, at some time during the period charged in the indictment, knowingly associated with or employed by the enterprise. The defendant need not have been associated with or employed by the enterprise for the entire period of its existence, but the defendant must have been associated with the enterprise at the time he committed the crime and acts charged.
The defendant’s association with the enterprise must be “knowing.” An act is done “knowingly” if done voluntarily and intentionally, and not because of mistake or accident or other innocent reason.
Since we have no way of looking into another person’s mind directly, the fact of knowledge or intent may be established by circumstantial evidence just as any other fact in this case. In determining whether the government has proven the requisite element of knowledge, you may consider all of the facts and circumstances and the inferences that could logically be drawn therefrom, provided that such evidence satisfies you beyond a reasonable doubt that the defendant’s actions were done knowingly.
A person cannot be associated with or employed by an enterprise if he does not know of the enterprise’s existence or the nature of its activities. The defendant must have been connected to the enterprise in some meaningful way and have had knowledge of the existence of the enterprise through a general awareness of some of its purposes, activities and personnel.
Adapted from the charge of Raymond J. Deane in United States v. Tyrone King see also Sand et al., Modern Federal Jury Instructions, Instr. 52-24. See, e.g., United States v. Castellano, 610 F. Supp. 1359, 1406-07 (S.D.N.Y. 1985) (“The government must prove the existence of the [enterprise] but it need not prove that every defendant was a ~member. ‘ All it need show is that each defendant was somehow ~associated with’ the [enterprise] .“)
Fourth Element: Agreement to Participate Through a Pattern of Racketeering Activity
The fourth element, which the government must prove beyond a reasonable doubt, is that a defendant knowingly and intentionally conspired with - that is, agreed with - at least o ne other person to participate in the conduct of the affairs of the enterprise, directly or indirectly, through a pattern of racketeering. In Count One, this means that the government must prove that there was an agreement to commit acts that violated the racketeering statute between two or more persons, and that the defendant knowingly and intentionally joined in that agreement.
The RICO law defines the term “racketeering activity” to mean the commission of certain crimes defined in the statute as “Racketeering Acts.” These include, but are not limited to, the crimes about which you have heard testimony, like securities fraud, extortion and obstruction of justice. You have also heard the crimes that are alleged as racketeering acts referred to as predicate acts. It is not enough to convict a defendant to find that he conspired to commit those racketeering acts. He must have conspired to knowingly participate in the enterprise “through” a “pattern” of racketeering acts.
In order to find a “pattern of racketeering activity” for purposes of Count One, you must find beyond a reasonable doubt that the defendant agreed that some member or members of the conspiracy would commit at least two acts of racketeering as described in Count One, and that they were separate acts. You must also find that those acts were in some way related to each other and that there was continuity between them.
Two racketeering acts that are not apparently related to each other may nevertheless be related because each is related to the RICO enterprise. The relationship between the RICO enterprise and the racketeering acts may be established by (1) evidence that a defendant was able to commit the racketeering acts solely by virtue of his position in the enterprise or involvement in or control over its affairs or (2) by evidence that the racketeering acts are related to the activities of that enterprise. That interrelationship may also be established by proof that the racketeering acts have similar purposes, similar results, or that they are committed by the same participants. To put it more simply, a pattern of racketeering activity may be established by proof that the racketeering acts occurred around the same time and that they had common goals that were accomplished in the same or similar ways.
A pattern of racketeering activity also requires a finding that the racketeering acts constitute a threat of continuing criminal activity. This continuity may be sufficiently established if the government proves beyond a reasonable doubt a series of related acts extending over a substantial period of time. You may also find that a threat of continuing racketeering activity has been established if the related racketeering acts themselves involve a distinct threat of long-term racketeering activity or if the acts can be attributed to a defendant operating as part of a long-term association that exists for criminal purposes. In other words, the nature of the racketeering acts or of the enterprise itself may sufficiently demonstrate the necessary threat of continuing criminal activity.
For purposes of Count One, the government does not have to prove that any racketeering acts were actually committed at all, or that the defendant agreed to personally commit any such acts. The government need only prove that the defendant agreed that two or more specific acts would be committed.
Later, I will explain the general conspiracy provision applicable to federal crimes, which requires that at least one of the conspirators have committed an act to effect the object of the conspiracy. Unlike the general conspiracy provision, there is no requirement of some overt or specific act in a racketeering conspiracy, as charged in Count One. The RICO conspiracy provision, then, is more comprehensive than the general conspiracy provision you will hear about later.
Further, a defendant need only intend to further an endeavor which, if completed, would satisfy all of the elements of a substantive criminal offense; it suffices that the defendant adopt the goal of furthering or facilitating the criminal endeavor. He may do so in any number of ways short of agreeing to undertake all of the acts necessary for the crime’s completion. One can be a conspirator by agreeing to facilitate only some of the acts leading to the substantive offense. A conspiracy may exist and be punished whether or not the substantive crime occurs, for the conspiracy itself is a distinct crime.
Let me further instruct you that one can conspire, that is -- agree, with others to conduct an enterprise through a pattern of racketeering activity -- withoutoneself directing the operation or management of the enterprise. What the government must prove beyond a reasonable doubt is that the defendant, with knowledge of the enterprise’s criminal goals, himself embraced those goals and agreed to commit at least two predicate acts in furtherance thereof. To carry its burden, the government must prove that the defendant knew the general nature of the enterprise and knew that the enterprise extended beyond his individual role.
For the government to prove that the defendant was a member of such a racketeering conspiracy, it need not prove that any specific racketeering act was actually committed. Remember Count One only charges conspiracy to violate the racketeering statute, not actual violation of the statute. Thus, in Count One, the government need only prove that the defendant agreed to commit at least two racketeering acts for the purpose of participating in the conduct of the affairs of the enterprise. But here, your focus is not only on the two or more acts of racketeering. You must also find that any racketeering acts that the defendant may have agreed to commit were related to each other and to the enterprise and that they posed a threat of continued criminal activity. These factors are critical to the statute’s concern with a “pattern of racketeering,” as opposed to discrete criminal acts.
Adapted from the charge of Raymond J. Deane in United States v. Tyrone King; see also Matthew Bender, Modern Federal Jury Instructions, Instr. ¶ 18 U.S.C. § 1962(d); Salinas v. United States, 522 U.S. 52 (1997); United States v. Bruno, 2004 WL 2039421 (2d Cir. 2004)
Jury Unanimity as to Two or More Racketeering Acts
As I have stated, the government must prove beyond a reasonable doubt that a defendant agreed that at least two racketeering acts would be committed. You may not find a defendant guilty on Count One unless you all agree that that defendant agreed that at least two of the same racketeering acts would be committed. In other words, you cannot find a defendant guilty if, for example, some of you think he conspired to commit only Racketeering Acts One and Two and the rest of you think he conspired to commit Acts Two and Three. In order to convict the defendant there must be at least two specific racketeering acts that you unanimously find that defendant conspired would be committed.
Adapted from the charge of Judge Raymond J. Deane in United States v. Tyrone King See also United States v. Indelicato, 865 F.2d 1370, 1382, 1384 (2d Cir.) (en banc) (“An interrelationship between acts, suggesting the existence of a pattern, may be established ... [by] proof of their temporal proximity, or common goals, or. similarity of methods, or repetitions....
[E]vidence of the nature of the enterprise may be used to show the threat of continuity sufficient to establish a RICO pattern.”), cert. denied, 491 U.S. 907 (1989), and Sand et al., Modern Federal Jury Instructions, Instr. 52-6, 52-7, 52-25, 52- 26. See United States v. Minicone, 960 F.2d 1099, 1106 (2d Cir.) (generally discussing “pattern” requirement), cert. denied, 112 5. Ct. 1511 (1992) ; United States v. Alkins, 925 F.2d 541, 551-53 (2d Cir. 1991) (holding it is error to charge that racketeering acts “need not be shown to be related to each other”); United States v. Simmons, 923 F.2d 934, 950-51 (2d Cir.) (“pattern” requirement), cert. denied, 111 5. Ct. 2018 (1991); and United States v. Indelicato, supra, (en banc) (extended discussion of what must be proved to establish “pattern”) . See also H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 236-49 (1989)
Definition of Conspiracy
I will now instruct you more fully on the general federal law of conspiracy. When the government charges a defendant with conspiracy, the government must prove beyond a reasonable doubt that the defendant knowingly and willfully conspired with another or others to accomplish an unlawful act. A conspiracy is an agreement between two or more persons to accomplish some unlawful purpose. The crime of conspiracy is an independent offense. It is separate and distinct from the actual violation of any specific law that the alleged conspirators intend to commit. That is because the formation of a conspiracy, of a partnership for criminal purposes, is in and of itself a crime. If a conspiracy exists, even if it should fail to achieve its purposes, it is still punishable as a crime. The essence of a conspiracy is an understanding among two or more persons that they will act together to accomplish a common objective that they know is unlawful.
There are four elements of the federal crime of conspiracy:
First, it must be proven beyond a reasonable doubt that two or more persons entered into the particular unlawful agreement charged in the conspiracy count that you are considering;
Second, it must be proven beyond a reasonable doubt that the defendant knowingly and intentionally became a member of the conspiracy;
Third, for the remaining conspiracy charges in the indictment, it must be proven beyond a reasonable doubt that at least one overt act was committed by at least one of the conspirators;
Fourth, it must be proven beyond a reasonable doubt that the overt act or acts committed were committed to further some objective of the conspiracy.
The FIRST ELEMENT that the government must prove beyond a reasonable doubt to establish the offense of conspiracy is that two or more persons entered the unlawful agreement charged in the indictment.
In order for the government to satisfy this element, you need not find that the alleged members of the conspiracy met together and entered into any express or formal agreement. Similarly, you need not find that the alleged conspirators stated, in words or writing, what the scheme was, its object or purpose, or every precise detail of the scheme or the means by which its object or purpose was to be accomplished. What the government must prove is that there was a mutual understanding, either spoken or unspoken, between two or more people to cooperate with each other to accomplish an unlawful act.
You may, of course, find that the existence of an agreement to disobey or disregard the law has been established by direct proof. However, since conspiracy is, by its very nature, characterized by secrecy, you may also infer its existence from the circumstances of this case and the conduct of the parties involved.
In a very real sense, then, in the context of conspiracy cases, actions often speak louder than words. In this regard, you may, in determining whether an agreement existed here, consider the actions and statements of all of those you find to be participants as proof that a common design existed on the part of the parties involved to act together to accomplish an unlawful purpose.
The SECOND ELEMENT which the government must prove beyond a reasonable doubt to establish the offense of conspiracy is that the defendant knowingly, willfully and voluntarily became a participant in or member of the conspiracy.
Before you may find that a defendant was a member of the conspiracy, the evidence must first show beyond a reasonable doubt that the conspiracy was knowingly formed, and that the defendant knowingly participated in the unlawful plan, with knowledge of its unlawful purpose and with the intent to advance or further some objective or purpose of the conspiracy. An act is done “willfully” if it is done knowingly and purposely with intent to do something the law forbids, that is to say, with a bad purpose either to disobey or disregard the law.
An act is done “knowingly” if it is done voluntarily and intentionally, and not because of a mistake or accident or other innocent reason. A person acts intentionally if he acts with the specific intent to do something the law forbids. The person need not be aware of the specific law or rule that his conduct may be violating but he must act with a specific intent to do whatever it is the law forbids.
One who intentionally joins an existing conspiracy is charged with the same responsibility as if he had been one of the originators or instigators of the conspiracy. Before you can find that the defendant was a member of the conspiracy, you must find that he deliberately and intentionally joined the conspiracy and participated in it, meaning, he had a specific intent to do something the law forbids. In determining intent, it is impossible to look into a person’s mind. Thus, intent must be inferred from conduct, from the surrounding circumstances, and from all the evidence in the case.
A defendant’s knowledge is a matter of inference from the facts proved. In that connection, I instruct you that to become a member of the conspiracy, a defendant need not have known the identities of each and every other member, nor need he have been apprised of all of their activities. Moreover, the defendant need not have been fully informed as to all of the details, or the scope, of the conspiracy in order to justify an inference of knowledge on his part. Furthermore, the defendant need not have joined in all of the conspiracy’s unlawful objectives. The extent of a defendant’s participation has no bearing on the issue of a defendant’s guilt. A conspirator’s liability is not measured by the extent or duration of his participation. Indeed, each member of the conspiracy may perform separate and distinct acts and may perform them at different times. Some conspirators play major roles, while others play minor parts in the scheme. An equal role is not what the law requires. In fact, even a single act may be sufficient to draw the defendant within the ambit of the conspiracy. I want to caution you, however, that a defendant’s mere presence at the scene of the alleged crime does not, by itself, make him a member of the conspiracy. Similarly, mere association with one or more members of the conspiracy does not automatically make the defendant a member. A person may know, or be friendly with, a criminal, without being a criminal himself. Mere similarity of cdnduct or the fact that they may have assembled together and discussed common aims and interests does not necessarily establish proof of the existence of a conspiracy.
I also want to caution you that mere knowledge or acquiescence, without participation, in the unlawful plan is not sufficient. Moreover, the fact that the acts of a defendant, without knowledge, merely happen to further the purposes or objectives of the conspiracy, does not make the defendant a member. More is required under the law. What is necessary is that the defendant must have participated with knowledge of at least some of the purposes or objectives of the conspiracy and with the intention of aiding in the accomplishment of those unlawful ends.
In sum, the defendant, with an understanding of the unlawful character of the conspiracy, must have intentionally engaged, advised or assisted in it for the purpose of furthering the illegal undertaking. He thereby becomes a knowing and willing participant in the unlawful agreement--that is to say, a conspirator.
The THIRD ELEMENT that the government must prove beyond a reasonable doubt, to establish the offense of conspiracy, is that at least one of the overt acts charged in the indictment was knowingly committed by at least one of the conspirators, at or about the time and place alleged. In order for the government to satisfy this element, it is not required that all of the overt acts alleged in the indictment be proven. Similarly, you need not find that each defendant in this case committed the overt act. It is sufficient for the government to show that one of the conspirators knowingly committed an overt act in furtherance of the conspiracy, since such an act becomes, in the eyes of the law, the act of all of the members of the conspiracy.
Thus, proof of an overt act by only one of the co-conspirators is sufficient. In other words, so long as you all agree that one of the conspirators committed any overt act in order to accomplish one of the objectives of the conspiracy, the overt act element of the crime is satisfied. All that is required is that you all agree that the same overt act was committed.
The FOURTH ELEMENT that the government must prove beyond a reasonable doubt is that the overt act was committed for the purpose of carrying out the unlawful agreement. In order for the government to satisfy this element, it must prove, beyond a reasonable doubt, that at least one overt act was knowingly and willfully done, by at least one conspirator, in furtherance of some object or purpose of the conspiracy, as charged in the indictment. In this regard, you should bear in mind that the overt act, standing alone, may be an innocent, lawful act. Frequently, however, an apparently innocent act sheds its harmless character if it is a step in carrying out, promoting, aiding or assisting the conspiratorial scheme. You are therefore instructed that the overt act does not have to be an act that, in and of itself, is criminal or constitutes an objective of the conspiracy.
Again, you must also find beyond a reasonable doubt that the defendant you are considering had criminal intent. A person acts intentionally with respect to a result or to conduct when his conscious aim is to cause such result or engage in such conduct. Intent is a subjective element, and may be determined by considering all of the facts and circumstances leading up to, surrounding, and following the events in question. Thus, you may know a person’s intent by his acts and words, and you may examine any factors that you consider to be relevant, such as motive, location, or timing.
In determining whether the defendant became a member of the conspiracy, you must determine not only whether he intended that criminal acts be performed, but whether he joined the conspiracy with knowledge of the unlawful purposes. You must ask yourselves whether this defendant joined the conspiracy with awareness of at least some of the basic aims, activities, actors, or goals of the conspiracy. A defendant need not be aware of all of the illegal purposes of the conspiracy or the full extent of its activities or the identities of all other members in order to be considered a member of that conspiracy. You will recall that I have admitted into evidence against the defendants the acts and statements of others because these acts and statements were committed by persons who, the government charges, were also confederates or co-conspirators of the defendant on trial.
The reason for allowing this evidence to be received against the defendants has to do with the nature of the crime of conspiracy. A conspiracy is often referred to as a partnership in crime. Thus, as in other types of partnerships, when people enter into a conspiracy to accomplish an unlawful end, each and every member becomes an agent for the other conspirators in carrying out the conspiracy.
Accordingly, the reasonably foreseeable acts, declarations, statements and omissions of any member of the conspiracy and in furtherance of the common purpose of the conspiracy, are deemed, under the law, to be the acts of all of the members, and all of the members are responsible for such acts, declarations, statements and omissions.
If you find, beyond a reasonable doubt, that the defendant whose guilt you are considering was a member of the conspiracy charged in the indictment, then, any acts done or statements made in furtherance of the conspiracy by persons also found by you to have been members of that conspiracy, may be considered against that defendant. This is so even if such acts were done and statements were made in the defendant’s absence and without his knowledge.
Before you may consider the statements or acts of a co-conspirator in deciding the issue of a defendant’s guilt, however, you must first determine that the acts and statements were made during the existence, and in furtherance, of the unlawful scheme. If the acts were done or the statements made by someone whom you do not find to have been a member of the conspiracy or if they were not done or said in furtherance of the conspiracy, they may be considered by you as evidence only against the member who did or said them.
It is also not required that a person be a member of a conspiracy from its very inception. He may join it at any point during its progress and be held responsible for all that has gone on before he joined and all that may be done thereafter, so long as he remained a member of the conspiracy.
THE RACKETEERING ACTS
I will now instruct you on the law governing each of the twelve specific racketeering acts. You are required to consider all twelve of the alleged racketeering acts even though, as I said earlier, the government must prove that the defendant conspired to commit only two racketeering acts. However, you must find, with regard to any single act, that the government has proven its elements beyond a reasonable doubt. I will discuss the racketeering acts according to the type of offenses charged, rather than in the sequence in which they appear in the Indictment. You will also note that the racketeering acts are also charged as separate counts in the Indictment. Those racketeering acts mirror the securities fraud, extortion and obstruction of justice counts also contained in the Indictment, which I will talk about later. These securities fraud, extortion and obstruction of justice counts have been charged separate and apart from their charge under the RICO statute.
RACKETEERING ACTS TWO THROUGH EIGHT: SECURITIES FRAUD
Racketeering Acts Two through Eight charge the defendants AMR ELGINDY and JEFFREY ROYER as follows: On or about and between the dates set forth below, both dates being approximate and inclusive, within the Eastern District of New York and elsewhere, the defendants [ ] together with others, did knowingly and willfully use and employ manipulative and deceptive devices and contrivances in violation of Rule lob-S of the Rules and Regulations of the SEC (Title 17, Code of Federal Regulations, Section 240.lOb-S) , in that the defendants, together with others, did knowingly and willfully, directly and indirectly: (a) employ devices, schemes and artifices to defraud; (b) make untrue statements of material facts and omit to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; and (c) engage in acts, practices and courses of business which would and did operate as a fraud and deceit upon members of the investing public, in connection with the purchases and sales of the securities set forth below, by use of means and instrumentalities of interstate commerce and the mails, in violation of Title 15, United States Code, Section 78j (b)
ACT DATES SECURITY
TWO October 2000 and March 2001
[Seaview Underwater Research, Inc.]
THREE February 2001 and June 2001
[Optimum Source International]
FOUR March 2001 and August 2001
[Polymedica Corp.]
FIVE April 2001 and September 2001
[Junum Inc.]
SIX March 2001 and September 2001
[Sulphco,Inc.]
SEVEN May 2001 and September 2001
[Floor Decor]
EIGHT November 2001 and April 2002
[Innovative Software Technologies, Inc.]
At this point, I want to pause to note a few things about the indictment in this case. You have heard testimony about a number of different stocks that Mr. Elgindy and Mr. Royer had some dealings with over a lengthy and continuous period of time. However, the counts in the indictment for securities fraud I have just read to you are limited to specific stocks and finite time periods. For each individual count, you must reach a separate decision, beyond a reasonable doubt, as to whether the elements of the offense have been satisfied for the stock and time period in question. A decision on your part that Mr. Elgindy or Mr. Royer is guilty, by proof beyond a reasonable doubt, on one count does not mean that he must be guilty of any other one. Each count alleges a separate offense and must be decided separately.
Securities Fraud
The Statute And The Charge (15 U.S.C. § 78j(b)) Racketeering Acts Two through Eight charge the defendants ELGINDY and ROYER with violations of Section 78j (b) of Title 15, United States Code, which is a securities fraud statute. The statute provides, in the pertinent part, that: t shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails. (b) to use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the [SEC] may prescribe as necessary or appropriate in the public interest or for the protection of investors.
Rule lob-S promulgated by the Securities and Exchange Commission in the public interest and for the protection of investors reads, in the pertinent part, as follows:
Employment of manipulative and deceptive devices. It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails .
(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statements of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading, or
(c) To engage in any act, practice or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of a security. Securities Fraud -- Statutory Purpose The defendants are charged with violating the Securities Exchange Act of 1934.
The 1934 Securities Exchange Act was the second of two laws passed by Congress to provide a comprehensive plan to protect the investing public in the purchase and sale of securities that are publicly distributed.
Even though the first Act -the 1933 Securities Act- is not directly involved in this case, I shall briefly discuss its history and purpose to provide you with a better understanding of the entire legislative scheme.
The stock market crash of 1929 led to much legislation in the area of federal regulation. Included in this legislation were the enactment of the Securities Act of 1933 and the creation of the Securities Exchange Commission. The Securities Act was enacted to protect the investing public in the purchase of stock that is publicly distributed. The act provides a comprehensive plan requiring full and fair disclosure of all important facts in connection with a distribution of securities. Such disclosures are designed to enable the investing public to make realistic appraisals of the merits of securities so that investors may make informed investment decisions.
When it enacted the Securities Act, Congress recognized the purchase of a stock is different from the purchase of a vegetable bought in the grocery store in that the average investor is not in a position to make a personal investigation to determine the worth, quality and value of securities.
Following enactment of the Securities Act of 1933 requiring full and fair disclosure relating to the offering of stock to the investing public, Congress enacted the Securities Exchange Act of 1934 to ensure fair dealing and outlaw deceptive and inequitable practices by those selling or buying securities on the securities exchanges, over the counter markets or in face to face transactions. Among the primary objectives of the Exchange Act are the maintenance of fair and honest security markets and the elimination of manipulative practices that tend to distort the fair and just price of stock. Congress recognized that any deceptive or manipulative practice that influenced or related to trading activity undermined the function and purpose of a free market.
Authority: Adapted from Sands, Modern Federal Jury Instructions, Instr. 57-20.
Securities Fraud: Elements Of The Offense A “security” is commonly defined as a stock, bond, option or other document representing a share of stock in a company or a debt owned by a company, including the common stock that was traded here. In order to establish a violation of Section 10 (b), the Government must prove each of the following elements beyond a reasonable doubt:
First, that in connection with the purchase or sale of securities, the defendant you are considering did any one or more of the following:
(1) employed a device, scheme or artifice to defraud, or
(2) made an untrue statement of a material fact or omitted to state a material fact which made what was said, under the circumstances, misleading, or
(3) engaged in an act, practice or course of business that. operated, or would operate, as a fraud or deceit upon a purchaser or seller;
Second, that the defendant you are considering acted willfully, knowingly and with the intent to defraud; and Third, that the defendant you are considering used or caused to be used, any means or instruments of transportation or communication in interstate commerce or the use of the mails in furtherance of the fraudulent conduct. Adapted from Sand, Modern Federal Jury Instructions Instr. 57-21; see United States v. Gleason, 616 F.2d 2 (2d Cir. 1979), cert. denied, 444 U.S. 1082 (1980)
Securities Fraud: First Element - Fraudulent Act The first element that the Government must prove beyond a reasonable doubt is that, in connection with the purchase or sale of securities, the defendant you are considering did any one or more of the following:
(1) employed a device, scheme or artifice to defraud; or
(2) made an untrue statement of a material fact or omitted to state a material fact which made what was said, under the circumstances, misleading; or
(3) engaged in an act, practice or course of business that operated, or would operate, as a fraud or deceit upon a purchaser or seller.
It is not necessary for the Government to establish all three types of unlawful conduct in connection with the purchase or sale of a particular security. Any one will be sufficient for a conviction, if you so find, but you must be unanimous as to which type of unlawful conduct you find to have been proven and you must find that it has been proven beyond a reasonable doubt.
A Device, Scheme or Artifice to Defraud, Generally
A device, scheme, or artifice is merely a plan to accomplish an objective. Fraud is a general term that embraces all ingenious efforts and means that individuals devise to take advantage of others. It includes all kinds of manipulative and deceptive acts. The fraudulent or deceitful conduct alleged need not relate to the investment value of the securities involved in this case. Nor is it necessary for the Government to prove every false or fraudulent pretense, statement, representation, promise or pattern of conduct specified in the Indictment to establish an overall scheme to defraud.
Adapted from Sand, Modern Federal Jury Instructions, Instr. 57-22
First Type of Device, Scheme or Artifice to Defraud:
Insider Trading
One type of “device, scheme or artifice to defraud” alleged in this case is called “insider trading.” Insider trading is illegal because of the belief that the integrity of the stock market depends on a fair and level playing field. It is unfair when one person takes advantage of information concerning a stock knowing it is unavailable to the person on the other side of their stock transaction.5
The government contends that the defendants ELGINDY and ROYER are guilty of insider trading under the “Misappropriation Theory” of insider trading. Under this theory, a person commits fraud in connection with a securities transaction and thus violates Rule lOb-S(a) when he or she misappropriates material and confidential information for securities trading purposes in breach of a duty owed to the
~Mr. Elgindy objects to this language as argumentative.
source of the information. Said differently, the misappropriator’s secret use of confidential information for personal gain while pretending to be loyal to the source of the information is a “deceptive device” under the securities laws. Under the “misappropriation theory,” a person in a position of trust who uses information that person is bound to hold in trust for their own self-serving use to purchase or sell securities, or to tip another who purchases or sells securities, in breach of a duty of loyalty and confidentiality commits securities fraud.
Cady, Roberts & Co., 40 SEC 907, 911-12 (1961)
INSIDER TRADING - ROYER
The government alleges that ROYER obtained material, non-public information concerning certain companies through his position as an FBI agent in breach of his duty of loyalty and confidentiality that he owed to the FBI and, through the FBI’s relationship with the SEC, to the SEC. and then used that information to trade in the securities of those companies. In order to establish liability against ROYER for insider trading, the government must show, beyond a reasonable doubt:
a. that ROYER owed a duty of trust or confidence, directly or indirectly, to the FBI and, through the FBI’s relationship with the SEC. to the SEC;
b. that ROYER breached this duty by purchasing or selling stock of a company on the basis of material, non-public information about that company that he misappropriated from the FBI and SEC; and
c. that ROYER acted with intent.
INSIDER TRADING - ROYER and ELGINDY
The elements of the Misappropriation Theory are further split into two separate parts, “tipper” liability and “tippee” liability. I will instruct you as to the separate elements of each part.
“TIPPER” LIABILITY: ROYER
The government further alleges that ROYER is both a direct insider trader and he is also what is known as a “tipper” in the illegal insider trading scheme. That is, the government alleges that, in addition to his own insider trading, through his own accounts and through Derrick Cleveland’s accounts, ROYER unlawfully tipped ELGINDY and others by breaching his duty of trust or confidence by providing information he had received from confidential FBI and SEC databases, and from FBI and SEC personnel, and enabling ELGINDY and others to profit from certain securities trades ELGINDY and others then made in certain securities. In order to establish tipper liability against ROYER, the government must show:
a. that ROYER owed a duty of trust or confidence, directly or indirectly, to the FBI and, through the FBI’s relationship with the SEC. to the SEC;
b. that ROYER breached this duty by sharing material, nonpublic information about certain companies with ELGINDY and others that ROYER misappropriated from the FBI and SEC;
c. that ELGINDY and others purchased or sold securities of those companies on the basis of this information;
d. that ROYER acted with intent; and
e. that ROYER benefited by his disclosure of information to ELGINDY and others.
Should you find that the government proved beyond a reasonable doubt all the facts to demonstrate either that Royer was a direct insider trader or that he was a tipper, then you must find ROYER guilty of insider trading.
TIPPEE LIABILITY - ELGINDY
The government alleges that ELGINDY is what is known as a “tippee” in the illegal insider trading scheme. That is, the government alleges that ELGINDY and others unlawfully received tips from ROYER in breach of ROYER’S duty of trust or confidence to the FBI and, through the FBI’s relationship with the SEC, to the SEC by obtaining material, non-public information about certain companies, enabling ELGINDY and others to profit from certain securities trades they then made in those companies. In order to establish liability against ELGINDY, the government must show, beyond a reasonable doubt:
a. that ROYER owed a duty of trust or confidence, directly or indirectly, to the FBI and, through the FBI’s relationship with the SEC, to the SEC;
b. that ROYER breached this duty by sharing material, non-public information about certain companies with ELGINDY that ROYER misappropriated from the FBI and SEC;
c. that ELGINDY purchased or sold securities of those companies on the basis of this information;
d. that ELGINDY knew that ROYER had breached his duty by disclosing the information; and
e. that ROYER benefited by the disclosure to ELGINDY. Let me explain the theory behind the law on this point.6 Should you find that the government proved these elements, beyond a reasonable doubt, then you must find ELGINDY guilty of insider trading. To be clear, all five of these things are part of the first element of the insider trading violation. The government must show each and all of them in order to satisfy that first element of the securities law violation charge. You may have noticed that there is overlap between what the government must prove as to Mr. Royer and what it must prove as to Mr. Elgindy. This is because, as I mentioned, Mr. Elgindy’s liability as a tippee results from the transfer of a duty from Mr. Royer to himself. Accordingly, I will first explain to you what the government must prove in order to find that Mr. Royer is liable as a tipper. I will then explain to you the additional elements the government must prove to show that Mr. Elgindy was liable as a tippee. To be clear, then, you must find beyond a reasonable doubt that Mr. Royer was liable as a tipper before you can find that Mr. Elgindy was liable as a tippee.
Fiduciary Duty Or Similar Duty Of Trust And Confidence
To prove Insider Trading under the Misappropriation Theory, the government must establish, beyond a reasonable doubt, that a fiduciary duty, or similar duty of trust and confidence, existed between ROYER and the FBI and, through the FBI’s relationship to the SEC, to SEC. There are no hard and fast rules for determining whether a duty to maintain a confidence exists. The duty may be
6 Mr. Elgindy asks that additional language, included in a separate document, be inserted here. See Request No. 2.
expressed directly, or it may be inferred from a continuing relationship between the parties. This duty arises from a communication involving matters that are confidential, and an expectation, explicit or inferred, by those persons, that the communication is meant to remain confidential. The duty can exist, for.example, when a person explicitly agrees to maintain information in confidence. It can also exist, for example, when the history or practice of the relationship demonstrates an implicit understanding between the parties that the information will be held in confidence.
In order for you to find that ROYER unlawfully misused information he obtained through his position as an FBI agent, you must find that he had a duty not to disclose the information he possessed. In this case, that duty must have arisen out of his status as an FBI agent.7 The question for you to resolve is whether ROYER was under a duty to hold the particular non-public FBI and SEC information that he disclosed in confidence [he obtained] in his role as an FBI agent in confidence.8 For the acts of insider trading alleged by the government after Royer left the FBI, the government must show,
~Mr. Elgindy objects to this language as repetitive.
8 Mr. Elgindy objects to this language as repetitive.
beyond a reasonable doubt, that Royer took the information or that he willfully caused another person to pass material, nonpublic information to him in breach of their duty of trust or confidence.
United States v. O’Hagan, 521 U.S. 642 (1997); United States v. Chestman, 947 F. 2d 551 (2d Cir. 1991); United States v. Carpenter, 791 F.2d 1024 (2d Cir. 1986) (“trading on the basis of improperly obtained information is fundamentally unfair”) ; United States v. Ruffin, 613 F.2d 408 (2d Cir. 1979) (who causes an innocent agent meeting the capacity requirements to engage in the proscribed conduct may be punished as a principal); 18 U.S.C. §2. Non-Public Information
To prove Insider Trading under the Misappropriation Theory, the government must also establish, beyond a reasonable doubt, that the information ROYER obtained through his position as an FBI agent, and used or shared for an improper purposed, was “non-public.”
Non-public information is that information which is not generally available to the investing public. The fact that some piece of information is posted on an investment website does not necessarily make it public. Even if there are public rumors or widespread speculation as to a fact, additional information as to that fact is non-public if it is more reliable or specific than the public rumors.
The fact that some criminal records are “publicly” available in the sense that they can be found in a public place if a person is looking for them, knows where they are being kept, and has the information required as a practical matter to link the records to specific individuals connected to particular companies, does not mean that these records are “public” for the purposes of the insider trading laws.9
There is no general prohibition against trading on material, non-public information, and no general duty for an investor with such information to disclose it. However, when such information is obtained in violation of a duty of trust and confidence, an investor with such information is obligated, under the law, to either disclose the information to make it public, or to abstain from trading. When an investor with such information chooses to disclose it, the non-public information remains non-public for purposes of the insider trading laws until it has been effectively disseminated in a manner sufficient to insure its availability to the investing public
~Mr. Elgindy objects to this language, and asks that the substitute language provided in the accompanying document be given instead. See Request No. 3.
and to insure that the market has had an opportunity to “absorb” the disclosed information. In order to be public for insider trading purposes, information must have been disseminated broadly to the investing public generally and not just to a special person or group. There must have been dissemination of the information such that the company’s stock price has already adjusted to reflect that information.
Thus, the information must be disseminated in a manner calculated to reach the securities market place in general through recognized channels of distribution. Those channels include, for example, public SEC filings and newspapers of national distribution.10
Dirks v. SEC, 463 U.S. 646, 653-54 (1983) ;United States v. Falcone, 257 F.3d 226 (2d Cir. 2001) ; SEC v. Mayhew, 121 F.3d 44, 50 (2d Cir. 1997); United States v. Libera, 989 F.2d 596 (2d Cir. 1993) (information must be “fully impounded” into stock price); SEC v. Texas Gulf Sulphur Co., 401 F.2d 833, 854 (2d Cir. 1968), cert. denied, 394 U.S. 976 (1969) ; United States v. Mylett, 97 F.3d 663, 666 (2d Cir. 1996); SEC v. Caserta, 75 F. Supp. 2d 79
10 Mr. Elgindy objects to the proposed charge on the ground that it is confusing. The government’s language appears to be adopted, in part, from United States v. Libera, 989 F.2d 596 (2d Cir. 1993). In his treatise, Judge Sand provides a recommended formulation of such a charge, but writes that “[a]lthough this formulation accurately captures the logic of Libera, unless counsel specifically requests such an instruction, it is recommended that the ideas therein be left to argument by counsel.” See SAND, at 57-24. We believe that, given the potentially confusing effect ofthe proposed instruction, that the Court should adopt the course recommended by Judge Sand. Mr. Elgindy’s substitute language is included in the language referenced in the previous footnote.
(E.D.N.Y. 1999); SEC v. Lund, 570 F. Supp. 1397, 1401 (C.D. Cal. 1983) ; See Department of Justice v. Reporters Committee for Freedom of the Press, 489 U.S. 749, 764 (1989) (there is a profound difference between public records that might be unearthed during a diligent search of local courthouses and police stations and a computerized summary contained in a single database)
Material Information
To prove Insider Trading under the Misappropriation Theory, the government must also establish, beyond a reasonable doubt, that the information ROYER obtained through his position as an FBI agent, and used or shared for an improper purpose, was “material.” Material information is information that a reasonable investor would consider significant when deciding whether and when to buy or sell stock. Information is material when there is a substantial likelihood that a reasonable investor would consider the information important in making an investment decision. The information need not be such that a reasonable investor would necessarily change their investment decision based on the information, as long as they would have viewed it as significantly altering the total mix of information made available concerning the company. Material facts include any fact which, after reasonable and objective contemplation, might affect the value of the corporation’s stock.
Evidence of materiality can take many forms, including the information’s actual impact on the market after it is made public, the way the FBI handled the information,1’ and ROYER’s, ELGINDY’s and others’ conduct once in possession of the information. You may consider the actions ROYER, ELGINDY and others took once they possessed the information, if you conclude they possessed the information at all. It is up to you to decide based on all of the relevant evidence what information ROYER and ELGIDNY knew and if that information was material. But whatever you find, you must agree upon it unanimously by proof beyond a reasonable doubt.
Basic v. Levinson, 485 U.S. 224, 231-32 (1988); TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976) ; SEC v. MacDonald, 699 F.2d 47, 49-50 (1st Cir. 1983) ; SEC v. Shapiro, 494 F.2d 1301, 1305-06 (2d Cir. 1974); SEC v. Texas Gulf Sulphur Co., 401 F.2d 833, 849-52 (2d Cir. 1968) , cert. denied, 394 U.S. 976 (1969) ; SEC v. Lund, 570 F. Supp. 1397, 1401 (C.D. Cal. 1983)
Use of Inside Information “In Connection With” Purchase or Sale of Securities
The government must also prove that the defendants used the inside information “in connection with” the purchase or sale of securities. This phrase is defined broadly to include
“Mr. Elgindy objects to the language as argumentative and because it lacks, to our knowledge, any direct legal support.
deceptive practices “touching” the purchase or sale of securities. You need not find that the defendant you are considering actually participated in any specific purchase or sale of a security if you find that the defendant participated, or agreed to participate, in fraudulent conduct that was “in connection with” a purchase or sale of securities. The requirement that the fraudulent conduct be “in connection with” a purchase or sale of securities is satisfied so long as there was some nexus or relation between the allegedly fraudulent conduct and the sale or purchase of securities.
It is no defense to an overall scheme to defraud that a defendant was not involved in the scheme from its inception or played only a minor role in the scheme. Nor is it necessary for you to find that a defendant was or would be the actual seller of the securities. It is sufficient if the defendant participated in the scheme or fraudulent conduct that involved the purchase or sale of stock.
The government must prove that stock was bought or sold on the basis of material non-public information. That does not mean that the government must prove that a defendant bought or sold securities because of the material non-public information that they possessed. Apurchase or sale of a security is “on the basis of” material non-public information about that security if the person making the purchase or sale was aware of the material non-public information when the person made the purchase or sale. In other words, it is enough if the government proves that the person purchased or sold securities while knowingly in possession of material non-public information. 12
United States v. Teicher, 987 F.2d 112, 120-121 (2d Cir.), cert. denied, 510 U.S. 976 (1993); 17 C.F.R. 240.lObS-l (effective as of October 23, 2000)
Benefit to Royer
For the stocks in which ROYER did not trade either by himself or by Derrick Cleveland, the government must also prove that Royer benefited in some way by disclosing the information to Elgindy and others. However, the government need not show that ROYER expected or received a specific or tangible benefit in exchange for the information. It is sufficient if the government proves that Royer received some direct or indirect personal benefit from the disclosure. This benefit can be in the form of pecuniary gain. It can also be in the form of a reputational benefit or of a promise of future earnings. It can
12 Mr. Elgindy objects to this language, and asks that the substitute language included in the
also be in the form of reciprocal information or other things of value given or promised to Royer. It is also sufficient if the government proves that ROYER intended to benefit ELGIDNY or others. It is sufficient if the government shows that Royer made a gift of the confidential information to Elgindy or others out of friendship.13
Dirks v. SEC. 463 U.S. 646, 663 (1983); SEC v. Warde, 151 F.3d 42, 48 (2d Cir. 1998)
Now, the four elements I have discussed thus far pertain to both defendants. This means that you must find all of these to have been satisfied if you are to convict either defendant. If you find these conditions to have been met by proof beyond a reasonable doubt, then the government has satisfied the first element of securities fraud for Mr. Royer and only Mr. Royer. For it to satisfy this first element of securities fraud for Mr. Elgindy, you must find that the government has proven two additional things beyond a reasonable doubt.’4
Securities Fraud: First Element - Fraudulent Act: Second Type of Device, Scheme or Artifice to Defraud: Market Manipulation accompanying document be included instead. See Request No. 4.
‘~Mr. Elgindy objects to this language, and asks that the substitute language included in the accompanying document be included instead. See Request No. 5.
‘~Mr. Elgindy asks that the language provided in the accompanying document be inserted here. See Request No. 6.
The government contends that the defendants have committed securities fraud in two ways. First, as I have just gone over, that government alleges that the defendants committed securities fraud by insider trading.
The government also contends that the defendants manipulated or rigged the market for various securities by taking various actions designed to control the prices and trading volume of these securities in a manner that interfered with the natural market forces.
Such market manipulation is also a violation of section 10(b), which I have previously read to you. In order to find the defendants guilty under this theory, you must find the same elements that I previously discussed with you beyond a reasonable doubt. Let me repeat those elements. They are as follows:
First, that the defendant you are considering did any one or more of the following:
(1) employed a device, scheme or artifice to defraud, or
(2) made an untrue statement of a material fact or omitted to state a material fact which made what was said, under the circumstances, misleading, or
(3) engaged in an act, practice or course of business that operated, or would operate, as a fraud or deceit upon a purchaser or seller;
Second, that the defendant you are considering acted willfully, knowingly and with the intent to defraud; and Third, that the defendant you are considering used or caused to be used, any means or instruments of transportation or communication in interstate commerce or the use of the mails in furtherance of the fraudulent conduct.
In the case of market manipulation, the first element -- the device, scheme, or artifice to defraud -- that the government must prove beyond a reasonable doubt is as follows. The government must prove the defendant you are considering, alone or with one or more persons, engaged in manipulative conduct. The term “manipulative” as used in the securities laws connotes conduct that is intentional or willful and is designed to deceive or defraud investors by controlling or artificially affecting the price of securities. Such manipulative conduct distorts legitimate.
investors’ perceptions of real market conditions because, when investors and prospective investors see trading activity in a security, they are entitled to assume that the prices that they pay and receive are determined by the unimpeded interaction of real supply and real demand. In other words, investors are entitled to assume that the prices and trading volume of securities reflect collective marketplace judgments about the value of those securities. Manipulative conduct frustrates investors’ expectations.
The essential element of manipulation is the deception of investors into believing that prices at which they purchase and sell securities are determined by the natural interplay of supply and demand.
When Congress enacted Section 10 (b) , it intended to prohibit the full range of ingenious devices that might be used to manipulate securities.’5 Consequently, any conduct that is designed to deceive or defraud investors by controlling or artificially affecting the price of securities is prohibited. Congress intended that Section 10(b) prevent fraud, whether it is a garden variety of fraud, or a unique, novel or atypical form of deception. Market manipulation may be accomplished through a variety of means or ways undertaken either alone or in
‘~‘Mr. Elgindy objects to this language on the ground that it is argumentative.
combination. Section 10(b) must be read flexibly, not technically or restrictively.’6
The government alleges that the defendants engaged in a variety of conduct designed to impact artificially the price of stocks, including by making materially false and misleading public statements on the Insidetruth.com website and on the Internet and by coordinating their trading of the stocks of certain companies for the purpose of impacting the price of the stock. For instance, the government alleges that the defendants and others sometimes coordinated to sell their shares all at once to pressure stock prices downward. At other times, they agreed to abstain from short selling when they otherwise would have short sold stock to maintain the stock prices at certain levels, or to slow the speed of a price decline. According to the government, these actions were intended to artificially effect the price of the stock.’7
The government also alleges that the defendants’ market manipulation was aided by their insider trading and extortion. Namely, the acquisition of information and stock through illegal means allowed the defendants to use the
16 Mr. Elgindy objects to this language on the ground that it is argumentative.
‘~Mr. Elgindy objects to this language on the ground that it is argumentative.
controlled dissemination of information and trading to artificially effect a stock’s price.’8
Mr. Elgindy requests that additional language be inserted here.’9
Finally, the government must show that these activities were in connection with the purchase or sale of securities. As I discussed earlier, the “in connection with” aspect of this element is satisfied if you find that there was some nexus or relation between the allegedly fraudulent conduct and the sale or purchase of securities. Fraudulent conduct may be “in connection with” the purchase or sale of securities if you find that the alleged fraudulent conduct “touched upon” a securities transaction. Whether you are considering insider trading or market manipulation, in either event, you must find the “in connection” requirement to have been satisfied.
See Sante Fe Indus. V. Green, 430 U.S. 462 (1977); Ernst & Ernst v. Hochfelder, 425 U.S. 185, 199 (1976); United States v. Regan, 937 F.2d 823, 828 (2d Cir. 1991); United States v. Russo, 74 F.3d 1383, 1390 (2d Cir. 1996) ; Gurary v. Winehouse, 190 F.3d 37, 45 (2d Cir. 1999); Ernst & Ernst v. Hochfelder, 425 U.S. 185, 199, 204 & n.25 (1976) (market manipulation is
18 Mr. Elgindy objects to this language on the ground that it is argumentative.
‘~Mr. Elgindy asks that additional language, provided in the accompanying document, be inserted here. See Request No. 7.
“intentional or willful conduct designed to deceive or defraud investors by controlling or artificially affecting the price of securities.”) ; Schreiber v. Burlington Northern, Inc., 472 U.S. 1, 6-7 (198S) (affirming manipulative practices within Section 10(b) include artificially affecting market activity in order to mislead investors) ; United States v. Regan, 937 F.2d 823, 829 (2d Cir. 1991) cert. denied, 112 S. Ct. 2273 (1992); SEC v. Resch-Cassin & Co., 362 F. Supp. 964, 97S-76 (S.D.N.Y. 1973) (activity that violates Rule lob-S if it falsely persuades the public that activity in an over-the-counter security is the reflection of genuine demand instead of a mirage; insertion of higher bids may be such manipulative activity); United States v. Charnay, 537 F.2d 341, 350-51 (9th Cir. 1976), cert. denied, 429 U.S. 1000 (1976) (15 U.S.C. Section 78(i) (Section 9 of the Exchange Act) applies to over-the-counter securities through Rue lob-S and Section 17(a); Pereira v. United States, 347 U.S. 1, 8-9 (1954) ; United States v. Brown, SSS F.2d 336, 340 (2d Cir. 1977)
Securities Fraud: Second Element -- Acting Willfully, Knowingly, And With Intent to Defraud
Whether you are considering insider trading or market manipulation for the first element of Securities Fraud, the second element that the Government must establish beyond a reasonable doubt is that the defendant you are considering acted willfully, knowingly, and with the intent to defraud. “Knowingly” means to act voluntarily and deliberately, rather than mistakenly or inadvertently.
“Willfully’ means to act knowingly and purposely, with an intent to do something the law forbids, that is to say, with bad purpose either to disobey or to disregard the law. “Intent to defraud” in the context of the securities laws means to act knowingly and with the intent to deceive. The government need not prove that the defendants intended to cause harm to the victim of their securities fraud; rather, the government must show that the defendants had the intent to deceive, manipulate or defraud.
The question whether a person acted knowingly, willfully and with intent to defraud is a question of fact for you to determine, like any other fact question. This question involves one’s state of mind.
Direct proof of knowledge and fraudulent intent is almost never available. It would be a rare case where it could be shown that a person wrote or stated that as of a given time in the past he committed an act with fraudulent intent. Such direct proof is not required.
The ultimate facts of knowledge and criminal intent, although subjective, may be established by circumstantial evidence, based upon a person’s outward manifestations, his words, his conduct, his acts and all the surrounding circumstances disclosed by the evidence that the rational or logical inferences that may be drawn therefrom. Circumstantial evidence, if believed, is of no less value than direct evidence. In either case, the essential elements of the crime charged must be established beyond a reasonable doubt.
Since an essential element of the crime charged is intent to defraud, it follows that good faith on the part of a defendant is a complete defense to a charge of securities fraud. A defendant, however, has no burden to establish a defense of good faith. The burden is on the government to prove fraudulent intent and consequent lack of good faith beyond a reasonable doubt.
In considering whether or not a defendant acted in good faith, you are instructed that a belief by the defendant, if such belief existed, that ultimately everything would work out so that no one would lose any money does not require a finding by you that he acted in good faith. No amount of honest belief on the part of the defendant that a scheme will ultimately make a profit for the investors will excuse fraudulent actions or false representations by him to obtain money.
As a practical matter, then, in order to sustain the charges against the defendant, the government must establish beyond a reasonable doubt that he knew that his conduct as a participant in the scheme was calculated to deceive and nonetheless, he associated himself with the alleged fraudulent scheme.
With respect to the second element -- intent to defraud -- fraud in the context of a market manipulation concerns fraud on the market as a whole as opposed to fraud on any particular investor. Hence, a defendant need not have intended to defraud a particular customer if he instead intended to defraud the market as a whole by manipulating securities. To conclude on this element, if you find that the defendant was not a knowing participant in the scheme and lacked the intent to deceive, you should acquit the defendant that you are considering.
On the other hand, if you find that the government has established beyond a reasonable doubt not only the first element, namely, the existence of a scheme to defraud, but also this second element, that the defendant was a knowing participant and acted with intent to defraud, and if the government also establishes the third element, as to which I am about to instruct you, then you should convict the defendant that you are considering.
Adapted from Sand, Instr. S7-2S; See United States v. Brito, 907 F.2d 392, 396 (2d Cir. 1990) (“A conscious avoidance charge is appropriate when the defendant claims a lack of knowledge of the relevant acts, but the surrounding circumstances would permit a reasonable juror to conclude that the defendant should have known about them.”).
Securities Fraud: Third Element - Instrumentality of Interstate Commerce
The third and final element that the Government must prove beyond a reasonable doubt is that the defendant you are considering knowingly used, or caused to be used, the mails or the instrumentalities of interstate commerce, such as the telephone, fax machine or a national securities exchange, in furtherance of the scheme to defraud or fraudulent conduct.
It is not necessary that the defendant you are considering be or would have been directly or personally involved in any mailing or use of an instrumentality of interstate commerce. If the defendant was an active participant in the scheme and took steps or engaged in conduct which he knew or could reasonably foresee would naturally and probably result in the use of the mails or an instrumentality of interstate commerce, this element would be satisfied. When one does an act with the knowledge that he use of interstate means of communication were followed in the ordinary course of business, or where such use can reasonably be foreseen, even though not actually intended, then he causes such means to be used. Nor is it necessary that the items sent through the mails or communicated through an instrumentality of interstate commerce did or would contain the fraudulent material, or anything criminal or objectionable. The matter mailed or communicated may be entirely innocent so long as it is in furtherance of the scheme to defraud or fraudulent conduct.
The use of the mails or instrumentality of interstate commerce need not be central to the execution of the scheme or even be incidental to it. All that is required is that the use of the mails or instrumentality of interstate commerce bear some relation to the object of the scheme or fraudulent conduct. In fact, the actual purchase or sale of a security need not be accompanied by the use of the mails or instrumentality of interstate commerce, so long as the mails or instrumentality of interstate commerce are used in furtherance of the scheme and the defendant is still engaged in actions that are part of a fraudulent scheme when the mails or the instrumentalities of interstate commerce are used.
With regard to the first of these elements -- that an “instrumentality of interstate commerce” was used during the transaction -- use of a national securities exchange, like the NASDAQ exchange, qualifies.
You may find the defendant guilty of securities fraud under either of the theories alleged by the government. You need not find the defendant violated the securities laws in both of the ways alleged by the government in order to find him guilty on this count. However, you must find beyond a reasonable doubt that the government has established all three elements of the crime before you may convict a defendant. RACKETEERING ACT ONE: SECURITIES FRAUD CONSPIRACY Racketeering Act One charges AMR ELGINDY and, JEFFREY ROYER with securities fraud conspiracy. Racketeering Act One charges the defendants as follows:
In or about and between March 2000 and May 2002, both dates being approximate and inclusive, the defendants AMR I. ELGINDY [and] JEFFREY A. ROYER, [ I and others, did knowingly and willfully conspire to use and employ manipulative and deceptive devices and contrivances directly and indirectly, by use of means and instrumentalities of interstate commerce and the mails, in contravention of Rule lob-S of the Rules and Regulations of the SEC (Title 17, Code of Federal Regulations, Section 240.lob-S), and directly and indirectly to (a) employ devices, schemes and artifices to defraud; (b) make untrue statements of material facts artd omit to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; and (c) engage in acts, practices and a course of business which would and did operate as a fraud and deceit upon members of the investing public, in connection with purchases and sales of securities of the Targeted Companies, in violation of Title iS, United States Code, Sections 78j (b) and 78ff, all in violation of Title 18, United States Code, Section 371.
It was a further part of the conspiracy that between March 2000 and May 2002, both dates being approximate and inclusive, the defendant[] AMR I. ELGINDY [] and others, solicited, obtained and received from the defendant JEFFREY A. ROYER, and, later, ELGINDY, ROYER, and others, solicited, obtained and received from [...] LYNN WINGATE, material, non-public information concerning Targeted Companies and associated individuals, to wit: confidential law enforcement and regulatory information, which information had been unlawfully misappropriated from the Federal Bureau of Investigation by ROYER and Wingate in violation of their fiduciary and other duties of trust and confidence, and which information was obtained and received before the information was publicly disclosed to the investing public.
It was a further part of the conspiracy that between March 2000 and May 2002, both dates being approximate and inclusive, the defendants AMR I. ELGINDY [and] JEFFREY A. ROYER, [ ] together with others, devised, implemented and oversaw a fraudulent scheme to deflate artificially the price of various companies’ stock that they short sold so that they could profit by buying it back later at a lower price. ELGINDY, ROYER, [] and others sought to accomplish their manipulation by making false and misleading statements, and by coordinating the release of negative information, some of which was false and misleading, with short selling in a manner designed to exaggerate the negative market sentiment for the stock.
In order for the government to prove conspiracy to commit securities fraud against a defendant, it must establish beyond a reasonable doubt each of the following elements with respect to each defendant:
1. That the defendant was involved with at least one other person;
2. That the defendant and the other person knowingly and intentionally conspired or agreed and that the defendant willfully was or became a member of the conspiracy;
3. That the defendant and the other person conspired to commit either insider trading or market manipulation or both, or, in other words, that the objective of the conspiracy was to commit either insider trading or market manipulation or both; and
4. That at least one overt act was committed by at least one of the conspirators to further some objective of the conspiracy.
As to the third element, I have explained to you the concepts of insider trading and market manipulation with respect to
Racketeering Act Two.
RACKETEERING ACT TEN: EXTORTION
Racketeering Act 10 charges the defendants AMR ELGINDY and JEFFREY ROYER with obstructing interstate commerce through the use of extortion. The Indictment reads as follows: In or about and between May 2001 and August 2001, both dates being approximate and inclusive, the defendants AMR I. ELGINDY, JEFFREY A. ROYER, [ ] and others, did knowingly and intentionally obstruct, delay and affect commerce, and the movement of articles and commodities in commerce, by extortion, in that the defendants and others obtained property, to wit, the stock of Company No. 7, with the consent of the owner of such stock, which consent was induced by the wrongful use of actual and threatened force, violence and fear, in violation of Title 18, United States Code, Section l9Sl (a)
The indictment charges the defendant with violating 18 United States Code, Section l9Sl. That section, in pertinent part, provides:
Whoever in any way or degree obstructs, delays, or affects commerce or the movement of an article or commodity in commerce, by . . . extortion or attempts or conspires so to do, or commits or threatens physical violence to any person or property in furtherance of a plan or purpose to do anything in violation of this section [commits a crime] Extortion is the obtaining of another person’s property or money, with his consent when this consent is induced or brought upon through the use, or threatened use, of force, violence or fear. In order for the defendant to have obtained the property of another there must have been a transfer of possession of, or a legal interest in, that property from that other person to the defendant or a designee of the defendant.
In order to meet its burden of proving that the defendant committed extortion, the government must establish beyond a reasonable doubt each of the following elements: First, that the defendant wrongfully obtained the property of another;
Second, that the defendant obtained this property with the victim’s consent, but that this consent was compelled by the wrongful use or threat of force, violence, or fear; and Third, that, as a result of the defendant’s actions, interstate commerce, or an item moving in interstate commerce, was delayed, obstructed, or affected in any way or degree. The first element that the government must prove beyond a reasonable doubt is that the defendant wrongfully obtained or took the personal property of another, or from the presence of another. The term “property” includes money and other tangible and intangible things of value, such as stock.2° The second element the government must prove beyond a reasonable doubt is that the defendant wrongfully took this
20 Mr. Elgindy asks that the additional language provided in the accompanying document be inserted at this point. See Request No. 8.
property by actual or threatened force, violence, or fear of injury or economic harm, whether immediately or in the future. In considering whether the defendant used, or threatened to use force, violence or fear, you should give those words their common and ordinary meaning, and understand them as you normally would. The use or threat does not have to be directed at the person whose property was taken. The use or threat might be aimed at a third person. The use or threat can be one of economic rather than physical injury. A threat may be made verbally or by a physical gesture. Whether a statement or physical gesture by the defendant actually was a threat depends upon the surrounding facts.
As I have just instructed you, you must determine whether the defendant used, or threatened to use, force, violence, or fear, to unlawfully obtain the property. Fear exists if at least one victim experiences anxiety, concern, or worry over expected personal harm or business loss, or over financial or job security. The existence of fear must be determined by the facts existing at the time of the defendant’s actions.
Your decision whether the defendant used or threatened fear of injury — whether personal or economic -- involves a decision about the victim’s state of mind at the time of the defendant’s actions. It is obviously impossible to ascertain or prove directly a person’s subjective feeling. You cannot look into a person’s mind to see what his state of mind is or was. But a careful consideration of the circumstances and evidence should enable you to decide whether fear would reasonably have been the victim’s state of mind.
Looking at the situation and the actions of people involved may help you determine what their state of mind was. You can consider this kind of evidence--which is called “circumstantial evidence”--in deciding whether property was obtained by the defendant through the use or threat of fear. You have also heard the testimony of some witnesses describing their state of mind--that is, how they felt--in giving up the property. This testimony was allowed, so as to help you in deciding whether the property was obtained by fear. You should consider this testimony for that purpose.
In this case, you have heard audiotapes containing statements made by Paul Brown, one of the people whom the government alleges was a victim of extortion. Mr. Brown’s statements ordinarily would be inadmissible hearsay, but were allowed to be played because they bear on the issue of whether he experienced fear under the circumstances and to put the statements of Mr. Elgindy and others to Mr. Brown in their proper context. However, I instruct you that you cannot consider any statement that Mr. Brown made on the tapes for the truth of the matter asserted in those statements. In order words, you should not take any of Mr. Brown’s statements on the tapes as evidence that the content of that statement was true. You may consider the tapes as evidence of Mr. Brown’s state of mind and for context, but nothing more.
You may also consider the relationship between the defendant and the alleged victim in deciding whether the element of fear exists. However, a friendly relationship between the parties doesn’t mean that you can’t find that fear exists. On the other hand, you may consider the friendly nature of the relationship between the parties as bearing on the other elements of the offense, such as the defendant’s criminal intent, as well.
In addition to finding that the victim experienced fear, you must also find that his fear was reasonably felt under the circumstances.2’ This is a separate question from whether he actually felt the fear. You are to evaluate the reasonableness of his fear objectively - - that is, you must decide whether a reasonable person, under those circumstances, would also have experienced such fear.
The government must prove beyond a reasonable doubt that the victim reasonably believed two things: first, that the defendant had the power to harm the victim; and second, that the defendant would exploit that power to the victim’s detriment.22 You must also find that the defendant intended to exploit the fear of the alleged victim.23 If you find that the victim experienced fear and that he was reasonable in doing so, but that the defendant did not intend to exploit that fear, you cannot find that the defendant committed extortion.
If you decide that the defendant obtained another’s property, against his will, by the use or threat of force, violence, or fear of injury, you must then decide whether this action would effect interstate commerce in any way or degree. You must determine whether there is an actual or potential effect on commerce between any two or more states.
If you decide that there was any effect at all on interstate commerce, then that is enough to satisfy this 21 United States v. Capo, 817 F.2d 947, 951 (2d Cir. 1987) (en banc). 22 Id.
element. The effect can be minimal. For example, if a block of stock was transferred and sold on a national market, that would be a sufficient effect on interstate commerce.
If you decide that interstate commerce would potentially or probably be affected if the defendant had successfully and fully completed his actions, then the element of affecting interstate commerce is satisfied. You do not have to find that interstate commerce was actually affected. However, if the defendant has finished his actions, and done all he intended to do, and you determine there has been no effect on interstate commerce, then you cannot find the defendant guilty. You do not have to decide whether the effect on interstate commerce was harmful or beneficial to a particular business, or to commerce in general. The government satisfies its burden of proving an effect on interstate commerce if it proves beyond a reasonable doubt any effect, whether it was harmful or not.
The defendant need not have intended or anticipated an effect on interstate commerce. You may find the effect is a natural consequence of his actions. If you find that the defendant intended to take certain actions--that is, he did the 231d at 951.
acts charged in the indictment in order to obtain property--and you find those actions have either caused, or would probably cause, an effect on interstate commerce, then you may find the requirements of this element have been satisfied.
Adapted from Matthew Bender, ¶ 50.02; Scheidler v. National Organization for Women, Inc., -- U.S. --, 123 5. Ct. 10S7, -- L. Ed. 2d -- (2003); Stirone v. United States, 361 U.S. 212, 80 5. Ct. 270, 4 L. Ed. 2d 252 (1960) ; United States v. Daley, 564 F.2d 645 (2d Cir.), cert. denied, 435 U.S. 933 (1977); United States v. Tropiano, 418 F.2d 1069 (2d Cir. 1969), cert. denied, 397 U.S. 1021 (1970)
RACKETEERING ACT ELEVEN: EXTORTION
Racketeering Act Eleven charges the defendants AMR ELGINDY and JEFFREY ROYER as follows:
In or about and between December 2001 and February 2002, both dates being approximate and inclusive, the defendants AMR I. ELGINDY, JEFFREY A. ROYER [...] and others, did knowingly and intentionally obstruct, delay and affect commerce, and the movement of articles and commodities in commerce, by extortion, in that the defendants and others obtained property, to wit, the stock of Nuclear Solutions, with the consent of the owner of such stock, which consent was induced by the wrongful use of actual and threatened force, violence and fear, in violation of Title 18, United States Code, Section 19S1(a).
Follow my instructions relating to Racketeering Act Ten, above.
RACKETEERING ACT NINE: EXTORTION CONSPIRACY
Racketeering Act Nine charges the defendants AMR ELGINDY and JEFFREY ROYER as follows:
In or about and between May 2001 and February 2002, both dates being approximate and inclusive, the defendants AMR I. ELGINDY, JEFFREY A. ROYER, [ ] and others, did knowingly and intentionally conspire to obstruct, delay and affect commerce, and the movement of articles and commodities in commerce, by extortion, in that the defendants and others conspired to obtain property, to wit, stock and other things of value, with the consent of the owner of such stock and other things of value, which consent was to be induced by the wrongful use of actual and threatened force, violence and fear, in violation of Title 18, United States Code, Section 1951(a).
For a defendant to be guilty of Racketeering Act Nine, the government must prove each of the following, beyond a reasonable doubt:
1. That the defendant was involved with at least one other person;
2. That the defendant and the other person knowingly and intentionally conspired or agreed and that the defendant willfully was or became a member of the conspiracy;
3. That the defendant and the other person conspired to commit extortion, or, in other words, that the objective of the conspiracy was to commit extortion; and
4. That at least one overt act was committed by at least one of the conspirators to further some objective of the conspiracy.
I have explained to you the law of extortion with respect to Racketeering Act Ten.
RACKETEERING ACT TWELVE: OBSTRUCTION OF JUSTICE
Racketeering Act Twelve incorporates paragraphs 1 through 35 and 49, and charges the defendants AMR ELGINDY and JEFFREY ROYER as follows:
In or about and between October 2001 and May 2002, both dates being approximate and inclusive, the defendants ANR I. ELGINDY [and] JEFFREY A. ROYER, [ ] together with others, did knowingly, intentionally and corruptly endeavor to influence, obstruct and impede the due administration of justice with respect to matters before a grand jury in the Eastern District of New York and elsewhere, by accessing and causing to be accessed a confidential FBI database in order to gain information concerning the EDNY Grand Jury Investigation to provide it to ELGINDY and others, in violation of Title 18, United States Code, Sections 1S03 and 2.
Title 18 of the United States Code, Section 1S03, makes it a Federal crime or offense for anyone corruptly to endeavor to influence, obstruct or impede the due administration of justice. The phrase “administration of justice” in this statute means a federal judicial proceeding, such as a federal grand jury proceeding. A defendant can be found guilty of this offense only if all of the following facts are proved beyond a reasonable doubt:
First, that there was a proceeding before a grand jury of this Court, as described in the indictment; Second, that the Defendant knowingly and corruptly endeavored to influence, obstruct or impede the due administration of justice in that grand jury proceeding as charged.
Racketeering Act Twelve also charges ELGINDY and ROYER with conspiracy to obstruct justice as follows:
In or about and between October 2001 and May 2002, both dates being approximate and inclusive, within the Eastern District of New York and elsewhere, the defendants AMR I. ELGINDY [and] JEFFREY A. ROYER [...], together with others, did knowingly and willfully conspire to corruptly endeavor to influence, obstruct and impede the due administration of justice with respect to matters before a grand jury in the Eastern District of New York and elsewhere, in violation of Title 18, United States Code, Sections 371 and 1S03. It is a separate crime to conspire to violate Title 18 of the United States Code, Section 1S03, which I just read to you. A defendant can be found guilty of a conspiracy to obstruct justice only if all of the following facts are proved beyond a reasonable doubt:
First, the defendant knowingly entered into an agreement with another; Second, the defendant had knowledge, or at least anticipation of a grand jury proceeding; and Third, the defendant had the specific intent to impede that proceeding. Fourth, at least one overt act was committed by at least one of the conspirators to further some objective of the conspiracy.
The grand jury proceeding at issue is the Eastern District of New York investigation into ELGINDY that lead to the present case. That proceeding need not have been pending at the time the conspiracy to obstruct justice began, so long as the conspirators had reason to believe one would begin and it in fact did begin.
Here, the government alleges that ROYER regularly accessed confidential law enforcement information concerning the grand jury investigation that lead to the charges being tried in this case and provided that information to ELGINDY and others.
After ROYER left the FBI, the government alleges that Lynn Wingate also accessed confidential law enforcement information concerning the grand jury investigation, which she communicated to ROYER, who then informed ELGINDY and others.
To “endeavor” means to strive or to attempt to accomplish a goal or a result; and to endeavor to “influence, obstruct or impede” the due administration of justice means to take some action for the purpose of swaying or changing, or preventing or thwarting in some way any of the actions likely to be taken in the grand jury proceeding involved.
To act “corruptly” means to act knowingly and dishonestly with the specific intent to influence, obstruct or impede the due administration of justice. The defendant’s conduct to corruptly endeavor to influence, obstruct or impede the grand jury investigation must bear some relationship in time, causation, or logic to the grand jury proceeding. The conduct must be directed at the grand jury proceeding and must, in the defendant’s mind, have the “natural and probable effect” of obstructing or interfering with the grand jury. While it must be proved that the Defendant corruptly endeavored to influence, obstruct or impede the due administration of justice as charged, and that the natural and probable effect of the Defendant’s acts would be to influence, obstruct or impede the due administration of justice, it is not necessary for the Government to prove that the grand jury proceeding was in fact influenced or obstructed or impeded in any way. You must find that the defendant acted with the specific intention of interfering with the proceeding24 and the knowledge that his actions were likely to affect that proceeding.25 Mr. Elgindy requests that additional language be inserted here.26
Matthew Bender ¶ S6.1; see United States v. Schwarz, 283 F.2d 76 (2d Cir. 2002) ; United States v. . United States v. Aguilar, S1S U.S. 593. (1995).
COUNT TWO
(Securities Fraud Conspiracy)
Count Two of the indictment charges the defendants AMR ELGINDY and JEFFREY ROYER with Securities Fraud Conspiracy. 24 United States v. Genao, 343 F.3d 578, 585 (2d Cir. 2003) (“Genao was...aware at the time he made the relevant false statements that the Government had not yet convened a grand jury to investigate his arrest for money laundering. Indeed, no such grand jury was ever convened. Accordingly, pursuant to Agui/ar and Schwarz, Genao’s false statements could not have been made with the specific intent to interfere with a judicial proceeding.”). 2o United States v. Schwarz, 283 F.3d 76, 109 (2d Cir. 2002) (quoting Agui/ar, 515 U.S. at 599) (“([hf the defendant lacks knowledge that his actions are likely to affect thejudicial proceeding, he lacks the requisite intent to obstruct”); United States v. Aguilar, 515 U.S. 593, 599 (1995) (“the action taken by the accused must be with an intent to influencejudicial or grandjury proceedings”).
Count Two incorporates paragraphs 1 through 32 and 41 of the indictment and charges as follows:
In or about and between March 2000 and May 2002, both dates being approximate and inclusive, within the Eastern District of New York and elsewhere, the defendants AMR I. ELGINDY [and] JEFFREY A. ROYER, [ ] together with others, did knowingly and willfully conspire to use and employ manipulative and deceptive devices and contrivances directly and indirectly, by use of means and instrumentalities of interstate commerce and the mails, in contravention of Rule lob-S of the Rules and Regulations of the SEC (Title 17, Code of Federal Regulations, Section 240.lOb-S), and directly and indirectly to (a) employ devices, schemes and artifices to defraud; (b) make untrue statements of material facts and omit to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; and (c) engage in acts, practices and a course of business which would and did operate as a fraud and deceit upon members of the investing public, in connection with purchases and sales of securities of the Targeted Companies, in violation of Title 15, United States Code, Sections 78j (b) and 78ff.
It was a part of the conspiracy that between March 2000 and May 2002, both dates being approximate and inclusive, the defendants AMR I. ELGINDY [ ], and others, solicited, obtained and received from the defendant JEFFREY A. ROYER, and, later, ELGINDY, ROYER, and others, solicited, obtained and received from [Lynn Wingate] material, non-public information concerning Targeted Companies which they then used to make decisions whether to purchase and sell the stocks of the Targeted Companies.
It was a further part of the conspiracy that between March 2000 and May 2002, both dates being approximate and inclusive, the defendants AMR I. ELGINDY [and] JEFFREY A. ROYER [ ], together with others, devised, implemented and 26 Mr. Elgindy asks that the additional language provided in the accompanying document be inserted here. See Request No. 9.
oversaw a fraudulent scheme to deflate artificially the price of various companies’ stock that they short sold so that they could profit by buying it back later at a lower price.
For a defendant to be guilty of Count Two, conspiracy to commit securities fraud, each of the following must be proven beyond a reasonable doubt:
First, two or more persons entered into an agreement to commit securities fraud; Second, the defendant knowingly and intentionally became a member of the conspiracy; Third, at least one overt act was committed by at least one of the conspirators; Fourth, the overt act or acts committed were committedto further some objective of the conspiracy.
The conspiracy charged in Count Two of the indictment has charged more than one objective, that is, different ways in which the conspiracy aimed to violate the provisions of the securities laws. The government does not have to prove that the defendant agreed on all of these ways to violate the securities laws. Where a conspiracy has more than one objective, the government need only prove that the conspirators agreed to accomplish at least one of the objectives. Thus, in order for you to find the defendant guilty on Count Two, there must be a unanimous vote that the defendant conspired with others to violate at least one of the charged objectives of the conspiracy.
Authority: Adapted from the charge in United States v. Munoz-Mosquera, E.D.N.Y., 91 CR 128S (SJ)
COUNTS THREE THROUGH NINE
(Securities Fraud)
Counts Three through Nine of the Indictment incorporate the allegations contained in paragraphs 1 through 32 and charge the defendants with Securities Fraud as follows:
In or about and between the dates set forth below, both dates being approximate and inclusive, within the Eastern District of New York and elsewhere, the defendants [ ], together with others, did knowingly and willfully use and employ manipulative and deceptive devices and contrivances in violation of Rule lob-S of the Rules and Regulations of the SEC (Title 17, Code of Federal Regulations, Section 240.10b-S) , in that the defendants, together with others, did knowingly and willfully, directly and indirectly: (a) employ devices, schemes and artifices to defraud; (b) make untrue statements of material facts and omit to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; and (c) engage in acts, practices and courses of business which would and did operate as a fraud and deceit upon members of the investing public, in connection with the purchases and sales of the securities set forth below, by use of means and instrumentalities of interstate commerce and the mails.
COUNT DATES SECURITY
THREE October 2000 and March 2001
[Seaview Underwater Research, Inc.]
FOUR February 2001 and June 2001
[Optimum Source International]
FIVE March 2001 and August 2001
[Polymedica Corp.]
SIX April 2001 and September 2001
[Junum Inc.]
SEVEN March 2001 and September 2001 Inc.
[Sulphco]
EIGHT May 2001 and September 2001
[Floor Decor]
NINE November 2001 and April 2002
[Innovative Software Technologies, Inc.]
I have instructed you as to the law of securities fraud in Connection with Racketeering Acts Two through Eight.
COUNT TEN
(Extortion Conspiracy)
Count Ten of the Indictment incorporates the allegations contained in paragraphs 1 through 32 and charges ELGINDY and ROYER as follows:
In or about and between November 2001 and February 2002, both dates being approximate and inclusive, the defendants AMR I. ELGINDY [and] JEFFREY A. ROYER [ ], together with others, did knowingly and intentionally conspire to obstruct, delay and affect, commerce, and the movement of articles and commodities in commerce, by extortion, in that the defendants and others conspired to obtain property, to wit, stock and other things of value, with the consent of the owner of such stock and other things of value, which consent was to be induced by the wrongful use of actual and threatened force, violence and fear.
For a defendant to be guilty of Count Ten, conspiracy to commit extortion, each of the following must be proven beyond a reasonable doubt:
First, two or more persons entered into an agreement to commit extortion; Second, the defendant knowingly and intentionally became a member of the conspiracy; Third, at least one overt act was committed by at least one of the conspirators; Fourth, the overt act or acts committed were committed to further some objective of the conspiracy. I have instructed you as to the law of extortion in connection with Racketeering Act Ten.
COUNT ELEVEN
Extortion
Count Eleven of the Indictment incorporates the allegations contained in paragraphs 1 through 32, and charges ELGINDY and ROYER as follows:
In or about and between May 2001 and August 2001, both dates being approximate and inclusive, the defendants AMR I. ELGINDY [and] JEFFREY A. ROYER, [ ] and others, did knowingly and intentionally obstruct, delay and affect commerce, and the movement of articles and commodities in commerce, by extortion, in that the defendants and others obtained property, to wit, the stock of Company No. 7, with the consent of the owner of such stock, which consent was to be induced by the wrongful use of actual and threatened force, violence and fear.
I have instructed you as to the law of extortion in connection with Racketeering Act Ten.
COUNT TWELVE
(Extortion)
Count Twelve of the Indictment incorporates paragraphs 1 through 3[2] and charges ELGINDY and ROYER as follows: In or about and between December 2001 and February 2002, both dates being approximate and inclusive, the defendants AMR I. ELGINDY [and] JEFFREY A. ROYER [...,] and others, did knowingly and intentionally obstruct, delay and affect commerce, and the movement of articles and commodities in commerce, by extortion, in that the defendants and others obtained property, to wit, the stock of Nuclear Solutions, with the consent of the owner of such stock, which consent was to be induced by the wrongful use of actual and threatened force, violence and fear.
I have instructed you as to the law of extortion in connection with Racketeering Act Ten.
COUNT THIRTEEN
Obstruction of Justice Conspiracy
Count Thirteen of the Indictment incorporates the allegations contained in paragraphs 1 through 32, 48 and 49, and charges ELGINDY and ROYER as follows:
In or about and between October 2001 and May 2002, both dates being approximate and inclusive, within the Eastern District of New York and elsewhere, the defendants AMR I. ELGINDY [and] JEFFREY A. ROYER [ I, together with others, did knowingly and willfully conspire to corruptly endeavor to influence, obstruct and impede the due administration of justice with respect to matters before a grand jury in the Eastern District of New York and elsewhere, in violation of Title 18, United States Code, Section 1503.
It was part of the conspiracy that the defendants accessed and caused to be accessed a confidential FBI database to gain information concerning the EDNY Grand Jury investigation, and provided such information to ELGINDY, ROYER and others.
First, two or more persons entered into an agreement to commit obstruction of justice; Second, the defendant knowingly and intentionally became a member of the conspiracy; Third, at least one overt act was committed by at least one of the conspirators; Fourth, the overt act or acts committed were committed to further some objective of the conspiracy. I have instructed you as to the law of obstruction of justice in connection with Racketeering Act Twelve.
COUNT FOURTEEN
Obstruction of Justice
The Indictment incorporates the allegations contained in paragraphs 1 through 32, 48 and 49, and charges ELGINDY and ROYER as follows:
In or about and between October 2001 and May 2002, both dates being approximate and inclusive, the defendants AMR I. ELGINDY [and] JEFFREY A. ROYER [,] together with others, did knowingly, intentionally and corruptly endeavor to influence, obstruct and impede the due administration of justice with respect to matters before a grand jury in the Eastern District of New York and elsewhere, the defendants accessed and caused to be accessed, a confidential FBI database to gain information concerning the EDNY Grand Jury investigation, and provided such information to ELGINDY, ROYER and others.
I have instructed you as to the law of obstruction of justice with Racketeering Act Twelve.
COUNT FIFTEEN
Witness Tampering
The defendant ROYER, but not the defendant ELGINDY, is charged in the indictment with tampering with a witness, in violation of Title 18, United States Code, Section 1512. Count Fifteen of the Indictment incorporates paragraphs 1 through 32, and further alleges as follows:
In or about and between May 23, 2002 and May 26, 2002, in connection with a criminal case pending in United States District Court for the Eastern District of New York, the defendant JEFFREY A. ROYER did knowingly, intentionally and corruptly attempt to persuade another person, with intent to hinder, delay and prevent the communication to a law enforcement officer of the United States of information relating to the commission and possible commission of a federal offense, to wit: by instructing and suggesting that a witness, whose identity is known to the grand jury, make false and otherwise misleading statements to Special Agents of the Federal Bureau of Investigation in connection with a criminal case pending in United States District Court for the Eastern District of New York.
The statute prohibiting witness tampering is designed to protect persons who are victims of federal crimes, persons who may be called to testify or give evidence in a federal proceeding--either civil or criminal--and persons who have information about federal crimes. The integrity of the federal system of justice depends upon the cooperation of such victims and potential witnesses. If persons with information do not come forward, produce evidence and appear when summoned the criminal justice system will be significantly impaired. This statute was devised to make it unlawful for anyone to tamper with such a witness in the manner described by the statute.
In order to prove the defendant guilty of the charge in the indictment, the government must prove each of the following elements beyond a reasonable doubt: First, that on or about the date charged, ROYER used intimidation, threatened, or corruptly persuaded Michael Mitchell, or attempted to do so, or engaged in misleading conduct toward Mitchell.
Second, that ROYER acted knowingly and with intent to influence the testimony of Mitchell in an official federal proceeding or cause or induce Mitchell to (a) withhold testimony or a record or a document from an official proceeding, (b) alter, destroy, mutilate or conceal an object with intent to impair the object’s integrity or availability for use in an official federal proceeding, (c) evade legal process summoning that person to appear, or produce a record, document or other object, in an official federal proceeding, (d) to be absent from an official proceeding to which such person has been summoned by legal process or (e) hinder, delay or prevent the communication to a law enforcement officer or judge of the United States of information relating to the commission or possible commission of a federal offense or a violation of conditions of probation, supervised release, parole or release pending a federal judicial proceeding.
The first element the government must prove beyond a reasonable doubt is that ROYER used intimidation, threatened, or corruptly persuaded Mitchell, or attempted to do so, or engaged in misleading conduct toward Mitchell.
Misleading conduct includes knowingly making a false statement, intentionally omitting information from a statement and thereby causing a statement to be misleading, or intentionally concealing a material fact and thereby creating a false impression by such statement, or knowingly using a trick, scheme or device with intent to mislead.
The law does not require that a federal proceeding be pending at the time or even that it was about to be initiated when contact with the witness was made. Such a proceeding could be a proceeding before a federal court, a judge or agency.
The second element the government must prove beyond a reasonable doubt is that the defendant acted knowingly and with the specific intent to, for example, induce any person to withhold evidence from an official proceeding. An act is done knowingly if it is done voluntarily and purposely, and not by accident or mistake. By specific intent, I mean that the Royer must have acted knowingly and with the unlawful intent to induce Mitchell to, for example, withhold evidence from an official proceeding or to make false or misleading statements to law enforcement in connection with this criminal case, which at the time was pending in the United States District Court for the Eastern District of New York. In order to satisfy this element, it is not necessary for the government to prove that the defendant knew he was breaking any particular criminal law.
If you find that the defendant only engaged in lawful conduct and that his sole intention was to encourage the witness to testify truthfully, then you must find him not guilty.
Matthew Bender, ¶46.05; United States v. Baker, 262 F.3d 124 (2d Cir. 2001); United States v. Johnson, 968 F.2d 208 (2d Cir.), cert. denied, 506 U.S. 964 (1992) ; United States v. Gonzalez, 922 F.2d 1044 (2d Cir.), cert. denied, 502 U.S. 1014 (1991); United States v. Aguiar, 975 F.2d 45, 48 (2d Cir. 1992)
COUNTS SIXTEEN THROUGH THIRTY-THREE
Securities and Wire Fraud - Misleading Subscribers
Counts Sixteen through Thirty-Three of the Indictment incorporate paragraphs 1 through 32 and further allege that ELGINDY committed Securities and Wire fraud when he made false statements to his subscribers regarding his own trading to induce them and others to trade in a manner that improved ELGINDY’s own execution prices to the detriment of such subscribers and others. The Securities Fraud Counts, Counts Sixteen through Twenty-Two, allege as follows: In or about and between March 2000 and May 2002, both dates being approximate and inclusive, within the Eastern District of New York and elsewhere, the defendant AMR I. ELGINDY [...] did knowingly and willfully, directly and indirectly, use and employ manipulative and deceptive devices and contrivances in violation of Rule lob-S of the Rules and Regulations of the SEC (Title 17, Code of Federal Regulations, Section 240.lob-S) , in that the defendant did knowingly and willfully, directly and indirectly, (a) employ devices, schemes, and artifices to defraud; (b) make untrue statements of material fact and omit to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; and (c) engage in acts, practices, and courses of business which would and did operate as a fraud and deceit upon members of the investing public, in connection with purchases and sales of the securities set forth below, and by use of means and instrumentalities of interstate commerce and the mails.
COUNT NAME OF SECURITY
SIXTEEN [Junum Inc.]
SEVENTEEN [Sulphco, Inc.]
EIGHTEEN [Biopulse International, Inc.]
NINETEEN [Genesis Intermedia.com Inc.]
TWENTY [Hercules Development Group,Inc.]
TWENTY-ONE [Vital Living Products, Inc.]
TWENTY-TWO Nuclear Solutions
I instructed you previously that in order to establish a violation of Section 10 (b), the Government must prove each of the following elements beyond a reasonable doubt: First, that in connection with the purchase or sale of securities, the defendant you are considering did any one or more of the following:
(1) employed a device, scheme or artifice to defraud, or
(2) made an untrue statement of a material fact or omitted to state a material fact which made what was said, under the circumstances, misleading, or
(3) engaged in an act, practice or course of business that operated, or would operate, as a fraud or deceit upon a purchaser or seller;
Second, that the defendant you are considering acted willfully, knowingly and with the intent to defraud; and Third, that the defendant you are considering used or caused to be used, any means or instruments of transportation or communication in interstate commerce or the use of the mails in furtherance of the fraudulent conduct.
Adapted from Sand, Modern Federal Jury Instructions Instr. 57-21; see United States v. Gleason, 616 F.2d 2 (2d Cir. 1979), cert. denied, 444 U.S. 1082 (1980)
Securities Fraud: First Element - Fraudulent Act The first element that the Government must prove beyond a reasonable doubt is that, in connection with the purchase or sale of securities, the defendant you are considering did any one or more of the following:
(1) employed a device, scheme or artifice to defraud; or
(2) made an untrue statement of a material fact or omitted to state a material fact which made what was said, under the circumstances, misleading; or
(3) engaged in an act, practice or course of business that operated, or would operate, as a fraud or deceit upon a purchaser or seller.
The government has alleged, along with insider trading and market manipulation, a third type of fraudulent act, that is, that ELGINDY committed securities fraud by making untrue statements of a material fact or omitting to state material facts which made what was said, under the circumstances, misleading.
The government contends that ELGINDY engaged in fraudulent conduct towards his subscribers by (1) making false and misleading representations about, among other things, his own trading vis-à-vis the trading advice he gave to his subscribers; and/or failing to disclose facts that he was under a duty to disclose -- in particular, that he was trading in a manner so as to maximize his own profits at the expense of his subscribers. You may only find that a scheme to defraud existed if the Government has proven beyond a reasonable doubt the existence of this scheme, carried out by at least one of those means.
Let me explain the requirements of the two means of the alleged scheme in further detail -- namely, the making of fraudulent and misleading representations and the failure to disclose information that the defendants were under a duty to disclose.
Misrepresentation Theory
On the first element, the government is alleging that, for each count, Mr. Elgindy made an untrue statement of material fact or omitted to state a material fact which made what was said, under the circumstances, misleading.
A statement, representation, claim, or document is false if it is untrue when made and was then known to be untrue by the person making it or causing it to be made. A representation or statement is fraudulent if it was falsely made with the intention to deceive. Deceitful statements or halftruths or the concealment of material facts in a manner that makes what is said or represented deliberately misleading may also constitute false or fraudulent statements under the statute.
The deception need not be premised upon spoken or written words alone. The arrangement of the words, or the circumstances in which they are used, may convey the false and deceptive appearance. If there is deception, the manner in which it is accomplished does not matter.
In considering whether Mr. Elgindy did, in fact, make misleading statements or, as we will discuss, omissions, you should bear in mind that there is more than one way to make a disclosure for purposes of satisfying the securities fraud law. There is no magic formula required. An explicit disclosure is, of course, the most obvious way; but it is not the only way. A general disclaimer may serve the same purpose as a specific disclosure, as long as it meets the standard I have outlined for you. For example, a general disclaimer or disclosure may make a more specific one unnecessary. It can do so either by having the effect of disclosing the material fact or of making the undisclosed fact itself immaterial. Regardless, the ultimate question for you to address is whether, by virtue of some material omission, the statement made would, in context of all that was said, have been misleading.
Failure To Disclose Where Under Duty To Do So
The failure to disclose information may also constitute a fraudulent representation, if (1) the defendant was under a legal, professional, or contractual duty to make such a disclosure; (2) the defendant believed that such disclosure must be made; and (3) the failure to make such disclosure was carried out with the intent to defraud. The government contends that ELGINDY was under such a duty of disclosure, and that his failure to disclose to his subscribers that he was trading in such a way so as to maximize his own profits at the expense of his subscribers would have constituted and did constitute a fraudulent omission.27 It is for you to determine whether the ELGINDY was under a duty to disclose these facts.
Such a duty to disclose material facts exists, for example, if there was a fiduciary relationship between the party with knowledge of the material facts at issue and the party without such knowledge. Under these circumstances, it is the government’s burden to prove the existence of a fiduciary relationship beyond a reasonable doubt.
In determining whether such a relationship existed between the subscribers and ELGINDY, ask yourselves the following questions. Did the subscribers depend on ELGINDY to serve their interests? Did ELGINDY obtain money from his subscribers to serve the ends of the relationship? The government contends that the answers to these questions are yes. 27 Mr. Elgindy objects to this language as argumentative and confusing.
If you determine that the answers to these questions are yes, then a fiduciary relationship existed.28 If you determine that a fiduciary relationship existed, I instruct you as follows: a fiduciary owes a duty of honest services to his principal, including a duty to disclose all material facts relevant to an investment decision of the principal. A fiduciary owes a duty to refrain from self-dealing or refusing to disclose any personal interest the fiduciary may have in a transaction. A fiduciary also has a duty not to misrepresent any fact material to the transaction.
If you find that the Government has shown beyond a reasonable doubt that a fiduciary relationship existed, such as between ELGINDY and his subscribers, you must next consider whether there was a breach of the duties incumbent upon the fiduciary in the fiduciary relationship and specifically whether ELGINDY breached his fiduciary duties. I instruct you that a fiduciary owes a duty of honest services to his customer, 28 Mr. Elgindy objects to this language and asks that the substitute language included in the accompanying document be included instead. See Request No. 10. including a duty to disclose all material facts concerning the transaction entrusted to it.29
The concealment by a fiduciary of material information which he is under duty to disclose to another, under circumstances where the non-disclosure can or does result in harm to the other, is a violation of the securities fraud statute, if the Government has proven beyond a reasonable doubt the other elements of this offense as I explain them to you. Adapted from the charge of Judge Leonard B.Sand in United States v. Pignatiello,S1 96 Cr. 1032 (July 14, 1999); from the charge of Judge Denny Chin in United States v. Hall, Sl 97 Cr. 1215 (S.D.N.Y. May 5, 1999); and from Sand, Modern Federal Jury Instructions, Instr. 57-22.
Materiality
If you find that the government established beyond a reasonable doubt that a statement was false or that a fact was omitted, you must determine whether the fact misstated or omitted was material. A material fact is one that would have been significant to a reasonable investor in making an investment decision. This is not to say that it is a defense to 29 Mr. Elgindy objects to this language as confusing at this point in the charge, and otherwise, not relevant to the case because there has been no contention that he conducted transactions on behalfofhis subscribers.
the crime if the material misrepresentation or omission would not have deceived a person of ordinary intelligence. Once you find that the defendant made material misrepresentations or omissions of material facts, it does not matter whether the intended victims were gullible buyers or sophisticated investors, because the securities laws protect the gullible and unsophisticated as well as the experienced investor.
Nor does it matter whether the alleged unlawful conduct was or would have been successful, or whether the defendant profited or received any benefit as a result of the alleged scheme. Success is not an element of the crime charged. However, if you find that the defendant did profit from the alleged scheme, you may consider that in relation to the element of intent.
The second element that the government must prove is that the defendant acted knowingly and willfully in either of two ways. First, it is sufficient, of course, if the evidence satisfies you beyond a reasonable doubt that the defendant was actually aware that he was making or causing to be made a false statement or omitting or causing to be omitted material facts. Alternatively, the defendant’s knowledge may be established by proof that the defendant was aware of the high probability that a statement was false or contained material omissions, unless, despite this high probability, the facts show that the defendant actually believed the statements were true and did not contain material omissions.
Knowledge and willfulness may be found from circumstances that would convince an average, ordinary person. Thus, you may find that the defendant knew that the statements were false or contained a material omission if you conclude beyond a reasonable doubt that he made the statements with deliberate disregard of whether the statements were true or false or contained material omissions and with a conscious purpose to avoid learning the truth.
If you find beyond a reasonable doubt that the defendant acted with deliberate disregard for the truth, the knowledge requirement would be satisfied unless the defendant actually believed the statements were true and did not contain material omissions. This guilty knowledge, however, cannot be established by demonstrating merely negligence or foolishness on the part of the defendant.
The third element of securities fraud is that the defendant used the means or instruments of transportation or communication in interstate commerce. For that element, I refer you to my previous instructions relating to Racketeering Acts Two through Eight.
Adapted from the charge of Judge Leonard B. Sand in United States v. Pignatiello, Sl 96 Cr. 1032 (LBS) (July 14, 1999), and from Sand, Modern Federal Jury Instructions, Instr. 57-22.
The Wire Fraud Counts, Counts Twenty-Three through Thirty-Three, further allege as follows:
On or about and between November 2000 and February 2002, both dates being approximate and inclusive, within the Eastern District of New York and elsewhere, the defendant AMR I. ELGINDY, together with others, did knowingly and intentionally devise a scheme and artifice (a) to defraud purchasers and sellers of various stocks and deprive such purchasers and sellers of the intangible right of ELGINDY’s honest services, and (b) to obtain money and property from such purchasers and sellers by means of materially false and fraudulent pretenses, representations and promises, and for the purpose of executing such scheme and artifice and attempting to do so, transmitted and caused to be transmitted by means of wire communication in interstate and foreign commerce signs, signals, and sounds, as described below.
COUNT DATE DESCRIPTION TO FROM
TWENTYTHREE
February 16, 2001 Chat Room Discussion re [Biopulse International, Inc.] AnthonyPacific.com Subscribers in the Eastern District of New York ELGINDY in California
TWENTYFOUR
February 20, 2001 E-mail re [Biolpulse International, Inc.] AnthonyPacific .com Subscribers in the Eastern District of New York ELGINDY in California
TWENTYFIVE
May 11, 2001 Chat Room Discussion re [Genesis Intermedia.com Inc.] AnthonyPacific.com Subscribers in the Eastern District of New York ELGINDY in California 109
TWENTYSIX
May 24, 2001 E-Mail re [Junum Inc.] AnthonyPacific.com Subscribers in the Eastern District of New York ELGINDY in California
TWENTYSEVEN
June 8, 2001 Chat Room Discussion re [Sulphco, Inc.] AnthonyPacific.com Subscribers in the Eastern District of New York ELGINDY in California
TWENTYEIGHT
June 21, 2001 E-mail re [Sulphco, Inc.] AnthonyPacific.com Subscribers in the Eastern District of New York ELGINDY in California
TWENTYNINE
August 17, 2001 Chat Room Discussion re [Innovative Software Technologies, Inc.] AnthonyPacific.com Subscribers in the Eastern District of New York ELGINDY in California
THIRTY
August 23, 2001 E-mail re [Innovative Software Technologies, Inc.] AnthonyPacific.com Subscribers in the Eastern District of New York ELGINDY in California
THIRTYONE
September 18, 2001 E-mail re [Innovative Software Technologies, Inc.] AnthonyPacific.com Subscribers in the Eastern District of New York ELGINDY in California
THIRTYTWO
October 23, 2001 Chat Room Discussion re [Vital Living Products, Inc.] AnthonyPacific.com Subscribers in the Eastern District of New York ELGINDY in California
THIRTYTHREE
February 1, 2002 E-mail re Company No. Nuclear Solutions AnthonyPacific.com Subscribers in the Eastern District of New York ELGINDY in California
Title 18, United States Code, Sections 1343 and 1346, make it a Federal crime of offense for anyone to use interstate wire communications facilities in carrying out a scheme to fraudulently deprive another of an intangible right of honest services.
A defendant can be guilty of that offense only if all of the following facts are proved beyond a reasonable doubt: 112 First, that the defendant knowingly devised or participated in a scheme or artifice to defraud; Second, that the defendant did so for the purpose of knowingly and intentionally depriving another of the intangible right of honest services; Third, that the misrepresentations (or omissions) made by the defendant are material in that they have the natural tendency to influence or are capable of influencing the person to whom a duty is owed to change their behavior; and Fourth, the use of the mails or wires in furtherance of the scheme.
The phrase “scheme or artifice to defraud by depriging another of the intangible right of hone~t services, means a scheme or artifice to use the mails or wires to enable a defendant purporting to act for and in the interests of a person to whom that defendant owes a duty of loyalty (comparable to the duty owed by an employee to its employer), secretly to act in his or her own interests instead, accompanied by a material misrepresentation made or omission of information disclosed to the person to whom that defendant owes a duty of loyalty.30 The word “scheme” includes any plan or course of action intended to deceive or cheat someone; and to act with “intent to defraud” means to act knowingly and with the specific intent to deceive someone, ordinarily for the purpose of causing some financial loss to another or bringing about some financial gain to one’s self.
To “deprive another of the intangible right of honest services” means to violate a duty to provide honest services to another. Here, the government must prove that ELGINDY intended to breach a duty of loyalty to his subscribers, and that he foresaw, or reasonably should have foreseen, that the subscribers might suffer an economic harm as a result of that breach. 3?
30 Mr. Elgindy objects to this language and asks that the substitute language included in the accompanying document be included instead. See Request No. 11.
31 Mr. Elgindy objects to this language and asks that the substitute language included in the accompanying document be included instead. See Request No. 11.
Title 18, United States Code, Section 1343, makes it a Federal crime or offense for anyone to use interstate wire communications facilities32
A statement or representation is “false” or “fraudulent” if it relates to a material fact and is known to be untrue or is made with reckless indifference as to its truth or falsity, and is made or caused to be made with intent to defraud. A statement or representation may also be “false” or “fraudulent” when it constitutes a half truth, or effectively conceals a material fact, with intent to defraud.
A “material fact” is a fact that would be important to a reasonable person in deciding whether to engage or not to engage in a particular transaction. A fact is “material” if it has a natural tendency to influence, or is capable of influencing, the decision of the person or entity to whom or to which it is addressed. A false or fraudulent statement, representation or promise can be material even if the decision maker did not actually rely on the statement, or even if the decision maker actually knew or should have known that the statement was false.
32 Mr. Elgindy objects to the language because it is incomplete.
To act with “intent to defraud” means to act knowingly and with the specific intent to deceive or cheat someone, ordinarily for the purpose of causing some financial loss to another or bringing about some financial gain to one’s self. It is not necessary the Government prove all of the details alleged in the indictment concerning the precise nature and purpose of the scheme; or that the material transmitted by wire was itself false or fraudulent; or that the alleged scheme actually succeeded in defrauding anyone; or that the use of interstate wire communications facilities was intended as the specific or exclusive means of accomplishing the alleged fraud; or that the Defendant personally used the wire communication facility. ~
Mr. Elgindy requests that additional language be inserted here.34
What must be proved beyond a reasonable doubt is that the Defendant, with intent to defraud, knowingly and willfully devised, intended to devise, or participated in, a scheme to defraud substantially the same as the one alleged in the indictment; and that the use of the interstate wire
Mr. Elgindy asks that the standard instruction from SAND, at 44-4, be given at this point.
communications facilities was closely related to the scheme because the Defendant either used, or caused to be used, wire communications facilities in interstate commerce in an attempt to execute or carry out the scheme.
To “cause” interstate wire communications facilities to be used is to do an act with knowledge that the use of such facilities will follow in the ordinary course of business or where such use can reasonably be foreseen.
Each separate use of the interstate wire communications facilities in furtherance of a scheme to defraud constitutes a separate offense.
The defendant ELGINDY, is accused of frontrunning, trading against his advice, and otherwise making misrepresentations to his subscribers in order to increase his own trading profits, and using the Internet in connection with this plan. For you to find ELGINDY guilty of wire fraud, you must be convinced that the government has proved each of these things beyond a reasonable doubt:
First, that ELGINDY made a plan to obtain money based on giving false information to his subscribers;
~ Mr. Elgindy asks that additional language included in the accompanying document be included here. See Request No. 11.
Second, that when ELGINDY made the plan, he knew the information he was giving was false; Third, that ELGINDY sent Internet transmissions from California to his subscribers in other states for the purpose of carrying out this plan.
It does not matter whether this plan succeeded, or whether ELGINDY made money from this plan. Nor is it necessary that the false information was given over the Internet. However, for you to decide that ELGINDY is guilty, you must find, beyond a reasonable doubt, that ELGINDY made this plan intending to deceive his subscribers and to make money from the plan and that an Internet transmission was made from one state to another to carry out the plan. Each Internet transmission made to carry out a scheme to defraud is a separate offense.35
Adapted from Matthew Bender, Model Federal Jury Instructions, ¶~J 51.1-51.2.
~ Mr. Elgindy objects to this language as argumentative.
Dated: New York, New York
December 14, 2004
Respectfully submitted,
Barry H. Berke (BE 1421)
Eric A. Tirschwell (ET 3023)
Erin A. Walter (EW 1777)
Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, New York 10022
(212) 715-9100 |
