Petition for Writ of Certiorari — Dennis DeCiancio, Petitioner v. United States

NO. _____________

IN THE SUPREME COURT OF THE UNITED STATES

__________________________________________________

DENNIS DECIANCIO,

Petitioner,

v.

UNITED STATES OF AMERICA,

Respondent.

___________________________________________________

ON PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

___________________________________________________

PETITION FOR WRIT OF CERTIORARI

___________________________________________________

Melissa Salinas

University of Michigan Law School

Federal Appellate Litigation Clinic

363 Legal Research Building

801 Monroe Street

Ann Arbor, MI 48109-1215

(734) 763-4319

Pro Bono Counsel for Petitioner

QUESTION PRESENTED FOR REVIEW

Federal Rule of Evidence 404(b) and this Court’s decision in Michelson v.

United States, 335 U.S. 469 (1948), prohibit admission of unrelated prior convictions

evidence in criminal trials. In cases arising under federal securities fraud law, this

Court has held silence is not misleading under Rule 10b-5 absent a pre-existing duty

to disclose, Basic Inc. v. Levinson, 485 U.S. 224, 239 (1988), and that failure to

disclose is only fraudulent only upon showing of a specific pre-existing duty to

disclose, Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 45 (2011).

Notwithstanding this clear precedent, the Second, Sixth, and Eleventh Circuits have

held evidence of prior convictions is admissible as “direct proof” in prosecutions

alleging securities fraud under Rule 10b-5, so long as an investor would consider the

prior convictions “material.” The question presented is:

Whether evidence of unrelated prior convictions is admissible in securities

fraud cases as direct proof of a fraud under Rule 10b-5, even though there is otherwise

no pre-existing duty to disclose, solely upon a showing investors might consider

omissions of those unrelated prior convictions material.

i

TABLE OF CONTENTS

QUESTION PRESENTED…………………………………………………………………………….…….i

TABLE OF CONTENTS ................................................................................................ ii

APPENDIX.................................................................................................................... iii

TABLE OF AUTHORITIES ......................................................................................... iv

REFERENCE TO OPINIONS AND ORDERS BELOW .............................................. 1

STATEMENT OF JURISDICTION .............................................................................. 1

CONSTITUTIONAL PROVISIONS INVOLVED......................................................... 2

STATEMENT OF THE CASE....................................................................................... 3

REASONS FOR GRANTING THE WRIT .................................................................... 6

I.

Despite Clear Precedent that “Materiality” under Rule 10b-5 Does Not

Create a Duty to Disclose Prior Convictions, the Circuits are Split as to

what Governs Duties to Disclose. ....................................................................... 6

A. In 10b-5 Prosecutions, a Growing Circuit Split Disregards

Binding Securities Law and Allows Prejudicial Propensity

Evidence to Permeate Criminal Trials. ............................................... 7

B. Civil Cases Arising Under Rule 10b-5 Have Adopted Consistent

Rules Governing Duties to Disclose that Create a Sharp Divide

with Criminal Cases. ............................................................................ 9

1. Consistent with Basic and Matrixx Initiatives, Civil

Cases Hold Disclosure Duties Arise out of Specific and

Defined Circumstances. ........................................................ 10

II.

The Sixth Circuit’s Opinion Directly Conflicts with this Court’s

Decisions in Chiarella, Basic, and Matrixx Initiatives Pertaining to

Omissions Under Rule 10b-5…… ..................................................................... 11

III. This Case Presents an Excellent Vehicle for this Court’s Review................... 14

CONCLUSION............................................................................................................. 15

ii

APPENDIX

United States v. Donohue et al.,

726 F. App’x 333 (6th Cir. 2018), reh’g denied, 2018 U.S. App.

LEXIS 9711 (6th Cir. Apr. 17, 2018)…….…………………………………….App. 1

Order Denying Petitioner DeCiancio’s Petition for Rehearing En Banc,

No. 16-4287, 2018 U.S. App. LEXIS 9711 (6th Cir. Apr. 17, 2018)………App. 46

Opinion and Order Denying Motion for Acquittal and New Trial,

United States v. Jackson et al, No. 15 CR 263,

2016 WL 3627256 (N.D. Ohio July 7, 2016)……………………………..…..App. 48

Motion in limine To Exclude Evidence of Kenneth

Jackson’s 1992 Convictions, United States v. Jackson et al,

No. 1:15-CR-263., 2016 WL 8736078, (N.D. Ohio July 7, 2016)………....App. 68

Government’s Response Motion in Opposition to Jackson’s Motion to

Exclude 1992 Convictions, United States v. Jackson et al,

No. 1:15-cr-00263-PAG, 2016 WL 8736071 (N.D. Ohio July 7, 2016)…..App. 68

Letter Appointing Appellate Counsel

Under the Criminal Justice Act, 18 U.S.C. § 3006A, No. 16-4287,

United States v. Dennis DeCiancio (6th Cir. July 20, 2016) .. ……………..App. 84

Excerpt of Vol. 4 Jury Trial Transcript, United States v. Jackson et al,

2016 WL 3627256 (N.D. Ohio July 7, 2016)……………………………...….App. 86

Excerpt of Vol. 7 Jury Trial Transcript, United States v. Jackson et al,

2016 WL 3627256 (N.D. Ohio July 7, 2016).............................................App. 111

Excerpt I of Vol. 9 Jury Trial Transcript, United States v. Jackson et al,

2016 WL 3627256 (N.D. Ohio July 7, 2016).............................................App. 146

Excerpt II of Vol. 9 Jury Trial Transcript, United States v. Jackson et al,

2016 WL 3627256 (N.D. Ohio July 7, 2016).............................................App. 170

iii

TABLE OF AUTHORITIES

CASES

Alfus v. Pyramid Tech. Corp.,

764 F. Supp. 598 (N.D. Cal. 1991)………………………………………………...…………………10

Backman v. Polaroid Corp.,

910 F.2d 10 (1st Cir. 1990) (en banc) ....................................................................... 10

Basic Inc. v. Levinson,

485 U.S. 224 (1988) ........................................................................................... passim

Bouie v. City of Columbia,

378 U.S. 347 (1964) ................................................................................................... 13

Chiarella v. United States,

445 U.S. 222 (1980) ........................................................................................... passim

City of Monroe Emps. Ret. Sys. v. Bridgestone Corp.,

399 F.3d 651 (6th Cir. 2005) ........................................................................... 9, 10, 11

Finnerty v. Stiefel Labs., Inc.,

756 F.3d 1310 (11th Cir. 2014) ............................................................................. 9, 10

Glazer v. Formica Corp.,

964 F.2d 149 (2d Cir. 1992) ...................................................................................... 11

In re Digital Island Sec. Litig.,

357 F.3d 322 (3d Cir. 2004)………………………………………………………………….……10, 11

In re NVIDIA Corp. Sec. Litig.,

768 F.3d 1046 (9th Cir. 2014) ................................................................................... 10

In re Sofamor Danek Grp., Inc.,

123 F.3d 394 (6th Cir. 1997)…………………………………………………………...………...……...9

In re Time Warner Inc. Sec. Litig.,

9 F.3d 259 (2d Cir. 1993)……………………………………………………………………………..…..9

Matrixx Initiatives, Inc. v. Siracusano,

563 U.S. 27 (2011) ............................................................................................. passim

Oran v. Stafford,

226 F.3d 275 (3d Cir. 2000) ...................................................................................... 10

iv

Regents of Univ. of Cal. v. Credit Suisse First Boston (USA), Inc.,

482 F.3d 372 (5th Cir. 2007) ....................................................................................... 9

Roeder v. Alpha Indus., Inc.,

814 F.2d 22 (1st Cir. 1987)……………………………………………………………………………..10

Rosales-Mireles v. United States,

___ U.S. ___, 138 S. Ct. 1897 (June 18, 2018) .................................................... 14, 15

Rudolph v. Arthur Andersen & Co.,

800 F.2d 1040 (11th Cir. 1986) ................................................................................. 10

SEC v. Fehn,

97 F.3d 1276 (9th Cir. 1996)…………………………………………………...……………8

Stratte-McClure v. Morgan Stanley,

776 F.3d 94 (2d Cir. 2015) ................................................................................ 7, 9, 11

United States v. Bachynsky,

415 F. App’x 167 (11th Cir. 2011) .................................................................... passim

United States v. O’Hagan,

521 U.S. 642 (1997) ................................................................................................... 12

United States v. Olano,

507 U.S. 725 (1993) ................................................................................................... 15

United States v. Stitsky,

536 F. App’x 98 (2d Cir. 2013) .......................................................................... passim

STATUTES

15 U.S.C. § 78ff(a) (1934)............................................................................................... 7

RULES

FED. R. CRIM. PROC. 51(b) ............................................................................................ 14

FED. R. EVID. 404(b) ............................................................................................. passim

SUP. CT. R. 10(c) ........................................................................................................... 11

SUP. CT. R. 10(a) ............................................................................................................. 6

REGULATIONS

17 C.F.R. § 229.401(f) (2010) ................................................................................. 12, 13

17 C.F.R. § 240.10b-5 (1948) ............................................................................... passim

v

PARTIES TO THE PROCEEDING

All parties are listed in the caption of this petition and the caption of the

opinion of the Sixth Circuit.

REFERENCE TO OPINIONS AND ORDERS BELOW

The March 1, 2018 opinion of the United States Court of Appeals for the Sixth

Circuit is unpublished as United States v. Donohue et al., 726 F. App’x 333 (6th Cir.

2018), reh’g denied, 2018 U.S. App. LEXIS 9711 (6th Cir. Apr. 17, 2018). The opinion

of the United States District Court for the Northern District of Ohio denying

Petitioner Dennis DeCiancio’s motion for a new trial, is unpublished, but available as

United States v. Jackson et al., No. 15 CR 263, 2016 WL 3627256 (N.D. Ohio July 7,

2016). The opinions and orders are reproduced in the appendix to this petition.

STATEMENT OF JURISDICTION

Petitioner seeks review of the March 1, 2018 judgment and opinion of the

United States Court of Appeals for the Sixth Circuit. The Sixth Circuit denied en

banc review on April 17, 2018 and issued a mandate on April 26, 2018. App. 46. This

Court has jurisdiction under 28 U.S.C. § 1254(1).

1

CONSTITUTIONAL PROVISIONS INVOLVED

U.S. CONST. AMEND. V:

The Fifth Amendment to the Constitution of the United States provides, in

pertinent part: “No person shall be . . . deprived of life, liberty, or property, without

due process of law . . . .”

U.S. CONST. AMEND. VI:

The Sixth Amendment to the Constitution of the United States provides, in

pertinent part: “In all criminal prosecutions, the accused shall enjoy the right to a

speedy and public trial, by an impartial jury of the State and district wherein the

crime shall have been committed . . . .”

2

STATEMENT OF THE CASE

This case involves a federal securities-fraud prosecution stemming from

alleged misrepresentations made by Petitioner Dennis DeCiancio and his

codefendants in the sale of private securities. DeCiancio and his codefendants were

associated with Medical Safety Solutions, a corporation involved in the development

and sale of a hypodermic-needle destruction device. See App. 5–6. The government’s

case centered on allegations that the defendants made fraudulent representations to

investors while selling shares of Medical Safety Solutions. See App. 5–7. Specifically,

the government alleged defendants made false statements regarding the status of

FDA approval of the device, which was necessary to market the needle-destruction

device in the United States. App. 6.

In 2015, DeCiancio, Kenneth Jackson, Dane Donohue, and William Schureck

were indicted in the Northern District of Ohio on counts arising out of this alleged

securities scheme. App. 6. After a jury trial lasting nearly one-month, DeCiancio and

his codefendants were found guilty. App. 6. DeCiancio, a seventy-three-year-old

Ohioan with no prior criminal convictions, was sentenced to seventy months of

incarceration. App. 6.

Before the 2016 trial, Jackson filed a motion in limine to exclude evidence of

his 1992 state-court criminal convictions for securities fraud, aggravated theft, and

perjury. See App. 57–59. Jackson’s motion, joined by codefendants, sought to bar the

convictions pursuant to, inter alia, Federal Rule of Evidence 404(b), arguing there

was no existing legal duty to disclose such convictions. See App. 59–60.

3

The government opposed the motion and sought to admit the convictions on

the theory defendants engaged in fraudulent omissions by not disclosing the

unrelated 1992 convictions to investors. See App. 68. The district court held the

convictions were admissible as “direct proof” of the charged scheme and admitted

them without condition. App. 8. As “direct proof,” the district court held Rule 404(b)

was inapplicable because nondisclosure of the 1992 convictions satisfied the

materiality element of a securities fraud claim. App. 8–9.

The government introduced the convictions at trial solely on the basis that

investors would consider that information to be relevant prior to investing. App. 8.

And aside from that basis, the government offered no other forms of relevancy. App.

73–74 (stating the convictions were “relevant and admissible without regard to Rule

404(b)”). Nor could they, as the decades-old convictions occurred with different

investors, with different employees, with a different company, and in a different

decade. App. 4.

With the convictions admitted, the government presented them at every turn.

The government referenced the convictions in the opening statement, repeatedly

through witness direct and cross examination, and again in the closing statement—

no less than 100 times in total. See App. 16. 1 The impact of these convictions was

palpable. When the government questioned investor-witnesses about whether they

1 The Sixth Circuit described the number of references to Jackson’s convictions to be

80. In their respective appellate briefs, each defendant-appellant arrived at varying

numbers. While Petitioner does not contend the exact number is dispositive of any

issue, Petitioner maintains the record contains over 100—if not over 125—specific

references to the convictions throughout the trial.

4

would have been impacted by knowledge of Jackson’s convictions, witnesses typically

reacted harshly and emotionally to the convictions.

For instance, during its case-in-chief, the government asked investor Cynthia

Cernak whether she would have invested having known about Jackson’s convictions.

Cernak replied: “I would have run so fast from this company they wouldn't have seen

the door shut . . . I want nothing to do with fraud. I want nothing to do with

dishonesty.” See App. 119. Responses inciting this type of propensity reasoning were

prevalent throughout the trial. Witnesses similarly described Jackson’s convictions

as felonies, see App. 23–24, and a “ponzi scheme.” App. 99–100. Crucially, Jackson’s

convictions directly implicated DeCiancio and his codefendants when the government

portrayed their failure to disclose Jackson’s convictions as fraudulent during witness

examination. See App. 159–60 (describing DeCiancio as having never told a witnessinvestor “someone involved with the company had prior convictions for securities

fraud.”).

On appeal, DeCiancio’s principal argument was that the court erred in

admitting these convictions, and that they had a substantial prejudicial propensity

effect when viewed through the lens of the jury. App. 7–24. The Sixth Circuit

affirmed, sharing the district court’s reasoning that Jackson’s convictions were

“direct proof” of the charged scheme. App. 10–12. DeCiancio then filed a petition for

rehearing en banc, and the government was directed to respond. On April 17, the

petition for rehearing en banc was denied. App. 46.

5

REASONS FOR GRANTING THE WRIT

The Court should grant this petition for two reasons. First, the Sixth Circuit

widened an existing circuit split regarding omissions liability under federal securities

law. The Sixth Circuit joins the Second and Eleventh circuits in applying a Rule 10b5 standard in criminal cases that directly deviates from the proper application

routinely found in civil 10b-5 actions.

Second, the Sixth Circuit’s erroneous holding that defendants’ silence—in the

absence of a duty to disclose—constituted a material misrepresentation under Rule

10b-5 directly contravenes this Court’s holdings in Matrixx Initiatives, Inc. v.

Siracusano, 563 U.S. 27, 44–45 (2011); Basic Inc. v. Levinson, 485 U.S. 224, 239 n.17

(1988); and Chiarella v. United States, 445 U.S. 222, 235 (1980). This distorted

application of federal securities law wrongfully permitted the government to place

Jackson’s unrelated 1992 securities-fraud convictions front-and-center at DeCiancio’s

trial—referencing Jackson’s prior convictions no less than 100 times.

I.

Despite Clear Precedent that “Materiality” under Rule 10b-5 Does

Not Create a Duty to Disclose Prior Convictions, the Circuits are

Split as to what Governs Duties to Disclose.

The Court should grant this petition because the Courts of Appeal have

conflicting rules governing materiality and duties to disclose under 17 C.F.R. §

240.10b-5 (“Rule 10b-5”). See SUP. CT. R. 10(a). In civil actions arising out of alleged

violations of Rule 10b-5, the majority of circuits have adopted rules that comport with

the holdings of Chiarella, Basic, and Matrixx Initivities by requiring a preexisting

6

duty to disclose before liability may attach to nondisclosure. See, e.g., Stratte-McClure

v. Morgan Stanley, 776 F.3d 94, 101 (2d Cir. 2015).

Yet, in criminal cases charging violations of Rule 10b-5, the circuits have

established conflicting rules governing fraudulent omissions. There is no genuine legal

basis for this criminal-civil divide, as the 1934 Securities Act merely imposes

“criminal penalties against any person who willfully violates the Act.” Chiarella, 445

U.S. at 225 n.3 (citing 15 U.S.C. § 78ff(a) (1934)). The Act otherwise does not bifurcate

its applicability between criminal and civil cases. See id. Circuits finding criminal

defendants possess a duty to disclose unrelated prior convictions have created an

ever-growing split in authority deprives criminal defendants of a fair trial as

guaranteed by the Constitution.

A. In 10b-5 Prosecutions, a Growing Circuit Split Disregards Binding

Securities Law and Allows Prejudicial Propensity Evidence to Permeate

Criminal Trials.

In cases charging criminal violations of Rule 10b-5, the Second, Sixth, and

Eleventh circuits have held neither Michelson and its progeny, nor Rule 404(b),

preclude admission of prior convictions in federal securities fraud prosecutions.

This trend among the circuits originated with United States v. Stitsky, where

the Second Circuit affirmed a case similar to DeCiancio’s. See 536 F. App’x 98 (2d Cir.

2013) (summary order). There, the Second Circuit affirmed the district court’s

decision allowing the government to present a criminal defendants’ prior convictions

to the jury on the basis that nondisclosure was fraudulent—despite any existing duty

to disclose his prior, unrelated convictions. Id. at 106. The Second Circuit relied solely

7

on whether investors might have potentially considered the prior convictions to have

affected their investment decisions. See id.

The Eleventh Circuit reached a similar conclusion in United States v.

Bachynsky, 415 F. App’x 167, 171 (11th Cir. 2011) (per curiam) (“The duty to disclose

‘is a general one, and arises whenever a disclosed statement would be “misleading”

in the absence of the “disclos[ure] of [additional] material facts” needed to make it not

misleading.’ ”) (alterations in original) (quoting SEC v. Fehn, 97 F.3d 1276, 1290 n.12

(9th Cir. 1996) (emphasis in original)). The Bachynsky court went further than the

Stitsky court in holding general disclosure duties always arise in the case of prior

convictions—even when there are no existing judicial, statutory, or regulatory duties

to disclose.

DeCiancio’s case marks the latest stop in this dangerous trend. The Sixth

Circuit embraced the same aberrant rationale: omissions regarding decades-old

unrelated criminal convictions are material and misleading under Rule 10b-5, even

in the absence of any articulated duty to disclose affording any notice that the

convictions should have been disclosed to investors. See App. 12–14. These circuits

have not even attempted to engage with this Court’s established securities fraud

rules, and have carved out a dangerous and unfairly prejudicial exception in criminal

10b-5 prosecutions.

8

B. Civil Cases Arising Under Rule 10b-5 Have Adopted Consistent Rules

Governing Duties to Disclose that Create a Sharp Divide with Criminal

Cases.

Contrary to the results reached by the Second, Eleventh, and now Sixth

Circuit, civil cases generally treat duties to disclose as separate elements of a 10b-5

securities fraud claim. Rather than hold disclosure duties relating to prior convictions

are universal, civil cases properly recognize a pre-existing duty to disclose as a

separate element of a securities fraud claim. For instance, the Second Circuit in

Stratte-McClure v. Morgan Stanley explained “we have consistently held that ‘an

omission is actionable under the securities laws only when the corporation is subject

to a duty to disclose the omitted facts.’ ” 776 F.3d 94, 101 (2d Cir. 2015) (quoting In re

Time Warner Inc. Sec. Litig., 9 F.3d 259, 267 (2d Cir. 1993)). Similarly, the Sixth

Circuit’s civil cases have held “[i]n order to be actionable, a misrepresentation or

omission must pertain to material information that the defendant had a duty to

disclose, two significant limitations to the general policy of disclosure.” City of Monroe

Emps. Ret. Sys. v. Bridgestone Corp., 399 F.3d 651, 669 (6th Cir. 2005) (citing Basic,

485 U.S. at 238); see also In re Sofamor Danek Grp., Inc., 123 F.3d 394, 400 (6th Cir.

1997) (citing Basic, 485 U.S. at 239 n.17).

The Fifth Circuit has taken an analogous position regarding material

omissions, holding “ ‘deception’ within the meaning of § 10(b) requires that a

defendant fail to satisfy a duty to disclose material information to a plaintiff.” Regents

of Univ. of Cal. v. Credit Suisse First Boston (USA), Inc., 482 F.3d 372, 384 (5th Cir.

2007). The Eleventh Circuit has also adopted a similar rule. See Finnerty v. Stiefel

9

Labs., Inc., 756 F.3d 1310, 1316 (11th Cir. 2014) (“[A] defendant’s omission to state a

material fact is proscribed only when the defendant has a duty to disclose.”) (quoting

Rudolph v. Arthur Andersen & Co., 800 F.2d 1040, 1043 (11th Cir. 1986) (alteration

in original)).

The Third Circuit has recognized the same rule, holding “[s]uch a duty to

disclose must be separately shown.” Oran v. Stafford, 226 F.3d 275, 288 (3d Cir. 2000)

(internal quotations omitted) (quoting Alfus v. Pyramid Tech. Corp., 764 F. Supp. 598,

608 (N.D. Cal. 1991)). Similarly, the Ninth Circuit has held “[s]uch a duty to disclose

must be separately shown according to the principles set forth by the Supreme Court

in Basic and Matrixx Initiatives.” In re NVIDIA Corp. Sec. Litig., 768 F.3d 1046, 1056

(9th Cir. 2014). Likewise, the First Circuit has held “[e]ven if information is material,

there is no liability under Rule 10b-5 unless there is a duty to disclose it.” See

Backman v. Polaroid Corp., 910 F.2d 10, 12 (1st Cir. 1990) (en banc) (quoting Roeder

v. Alpha Indus., Inc., 814 F.2d 22, 26 (1st Cir. 1987)). The alignment of the circuits is

particularly strong, highlighting the magnitude of the error committed by the Second,

Sixth, and Eleventh Circuits in their criminal 10b-5 jurisprudence.

1.

Consistent with Basic and Matrixx Initiatives, Civil Cases Hold

Disclosure Duties Arise out of Specific and Defined Circumstances.

In accordance with the principles adopted by this Court in Matrixx Initiatives,

the Courts of Appeal have generally held disclosure duties only arise in defined

circumstances. For instance, the Sixth Circuit has held disclosure duties “may arise

when there is insider trading, a statute requiring disclosure, or, as relevant to this

case, an inaccurate, incomplete or misleading prior disclosure.” City of Monroe, 399

10

F.3d at 669 (quoting In re Digital Island Sec. Litig., 357 F.3d 322, 329 n.10 (3d Cir.

2004) (internal quotations omitted)). The Second Circuit has adopted nearly identical

language, holding “[s]uch a duty may arise when there is ‘a corporate insider trad[ing]

on confidential information,’ a ‘statute or regulation requiring disclosure,’ or a

corporate statement that would otherwise be ‘inaccurate, incomplete, or misleading.’ ”

Stratte-McClure, 776 F.3d at 101 (alterations in original) (quoting Glazer v. Formica

Corp., 964 F.2d 149, 157 (2d Cir. 1992)). Criminal cases charging 10b-5 violations

have simply ignored any such analysis and thus materially divided what constitutes

a 10b-5 action. This Court should grant certiorari to settle this conflict.

II.

The Sixth Circuit’s Opinion Directly Conflicts with this Court’s

Decisions in Chiarella, Basic, and Matrixx Initiatives Pertaining to

Omissions Under Rule 10b-5.

This Court should also grant this petition because the Sixth Circuit

contradicted this Court’s binding precedent regarding omissions liability under Rule

10b-5. See SUP. CT. R. 10(c). Beginning almost forty years ago when this Court has

confronted whether omissions of information are actionable or misleading under Rule

10b-5, it has clearly and consistently held such omissions may are only misleading

when a duty to disclose has been breached. The Sixth Circuit blatantly rejected this

established rule as if DeCiancio had crafted it ex nihilo, see App. 12 (“Absent a duty

to disclose, the argument goes . . .”) (emphasis added), and omitted an essential and

significant element of omissions liability under federal securities law.

In Chiarella, this Court held “[w]hen an allegation of fraud is based upon

nondisclosure, there can be no fraud absent a duty to speak.” 445 U.S. at 235. Later

11

in Basic, this Court was explicit, holding “[s]ilence, absent a duty to disclose, is not

misleading under Rule 10b-5.” 485 U.S. at 239 n.17; see also United States v.

O’Hagan, 521 U.S. 642, 680 (1997) (Thomas, J., concurring in part and dissenting in

part) (“Nondisclosure where there is a pre-existing duty to disclose satisfies our

definitions of fraud and deceit for purposes of the securities laws.”) (emphasis added)

(citing Chiarella, 445 U.S. at 230).

And addressing the creation of disclosure duties in Matrixx Initiatives, this

Court highlighted “it bears emphasis that § 10(b) and Rule 10b–5(b) do not create an

affirmative duty to disclose any and all material information.” 563 U.S. at 44–45.

Indeed, “[e]ven with respect to information that a reasonable investor might consider

material, companies can control what they have to disclose under these provisions by

controlling what they say to the market.” Id. Despite this Court’s painstakingly clear

precedent on these well-settled principles of securities law, the Sixth Circuit failed to

even acknowledge them.

The Sixth Circuit wholly ignores the rules established in Chiarella, Basic, and

Matrixx Initivities, and instead adopts a contrary rule holding “that the ‘materiality’

of the withheld information does not depend strictly on the existence of a duty to

disclose that has been codified by statute or prescribed by regulation.” See App. 13.

This rule directly contradicts the letter and spirit of this Court’s aforementioned

decisions by conflating materiality with a duty to disclose.

The SEC does impose disclosure duties regarding prior criminal convictions on

some issuers. For instance, 17 C.F.R. § 229.401(f) (2010) regulates disclosure of

12

criminal convictions occurring within the preceding ten years for directors or officers

of publicly-traded corporations. Since Medical Safety Solutions was a private

company and Jackson’s convictions were well-over ten years old, even this regulation

is inapplicable.

The Sixth Circuit failed to point to any applicable statute, regulation, or source

of law that would give rise to a duty to disclose convictions that were entirely extrinsic

to the charged fraudulent scheme. See App. 13–14. Both Stitsky and Bachynsky

similarly fail to name any statutory or regulatory duty to disclose the respective prior

convictions at issue in each case, and simply pronounce the duty ex post to the alleged

failure to disclose.

Further, the Second, Sixth, and Eleventh Circuits’ approach presents an

unworkable rule that deprives persons of notice and paints nondisclosure as

fraudulent ex post to the defendants’ alleged omissions. This Court has routinely

considered such retroactive rules to violate due process. See, e.g., Bouie v. City of

Columbia, 378 U.S. 347, 350–51 (1964) (“The basic principle that a criminal statute

must give fair warning of the conduct that it makes a crime has often been recognized

by this Court.”). Indeed, not only was the Sixth Circuit’s application improper, but it

led the jury to falsely conclude a defendant has committed fraudulent acts in his

nondisclosure. In ignoring settled securities law, these circuits have deprived

criminal defendants of fair trials through unfiltered presentation of propensity

evidence to juries; a practice this Court can and must correct.

13

III.

This Case Presents an Excellent Vehicle for this Court’s Review.

This case presents an ideal vehicle for this Court to address the conflicting

application of federal securities law and subsequent prejudicial evidentiary practices,

because references to Jackson’s inadmissible convictions thoroughly permeated

DeCiancio’s trial.

Moreover, the issues are preserved and were clearly presented below. Counsel

for DeCiancio and his codefendants objected to admission of these convictions prior

to, and during trial. See App. 11–12, 58–65. This issue was thoroughly briefed in

DeCiancio’s appeal and was squarely addressed by the Sixth Circuit in its decision.

See App. 12–16.

While the Sixth Circuit ultimately applied plain error review, the court’s sua

sponte application of plain error was not only improper, but extremely peculiar. The

government did not allege a preservation issue at any point in its briefing, nor could

it reasonably do so. DeCiancio and his codefendants objected to the use of Jackson’s

convictions in a motion in limine, App. 58–59, and the government directly addressed

the Rule 404(b) issue in its response to the motion. App. 69–72.

Further, the Sixth Circuit wrongfully strayed from the proper application

Federal Rule of Criminal Procedure 51(b). The error was preserved—DeCiancio and

his codefendants objected repeatedly to this evidence at trial. E.g., App. 181–82. And

even if it was not, it satisfied plain error. See Rosales-Mireles v. United States, ___

U.S. ___, 138 S. Ct. 1897, 1906 (June 18, 2018) (“[C]ourts ‘should’ correct a forfeited

plain error that affects substantial rights ‘if the error “seriously affects the fairness,

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integrity or public reputation of judicial proceedings.” ’ ”) (quoting United States v.

Olano, 507 U.S. 725, 736 (1993)).

The Sixth Circuit wrongfully used plain error as a tool to affirm, finding that

in light of Stitsky and Bachynsky, the error was not clear. Yet, it simply failed to

engage the abundance of binding authority holding otherwise—clearly settling

questions of omissions liability under federal securities law in a way directly adverse

to the holdings of Stitsky and Bachynsky.

Finally, this case provides an opportunity to correct lower courts’ trend of

disregarding binding Supreme Court precedent. The Sixth Circuit gave little credence

to this Nation’s overriding policy of excluding prejudicial propensity evidence in the

form of extrinsic prior criminal convictions. See Michelson, 335 U.S. at 475–76. The

position of the Sixth, Second, and Eleventh Circuits renders this Court’s holding in

Michelson largely meaningless through the erroneous application of securities law.

The government never offered, and the lower courts never relied upon, an

alleged legitimate Rule 404(b)(2) purpose; it simply based its case for admissibility

on an incorrect “direct proof” reliance theory under the federal securities laws.

Accordingly, this case presents an ideal opportunity to bring clarity to rules necessary

to ensure due process of law in criminal jury trials.

CONCLUSION

The petition for writ of certiorari should be granted.

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Respectfully submitted,

Melissa Salinas

University of Michigan Law School

Federal Appellate Litigation Clinic

363 Legal Research Building

801 Monroe Street

Ann Arbor, MI 48109-1215

(734) 763-4319

Pro Bono Counsel for Petitioner

Dated: July 13, 2018

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