Petition — Fields v. United States
Supreme Court brief1980
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OCT 11 1980
MICHAEL RODAK, JR., CLE
In THE
Sepreme Court of the United States
Octoser Term, 1980
DOUGLAS P. FIELDS, FREDERICK M. FRIEDMAN
and ALAN E. SANDBERG,
Petitioners,
VS.
UNITED STATES OF AMERICA,
Respondent.
PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS FOR THE
SECOND CIRCUIT
Benner & FRANKEL,
Attorneys for Petitioners,
225 Broadway,
New York, New York 10007.
(212) 227-6000
Louis BENDER,
Sanpor FRANKEL,
Of Counsel.
Adams Press Corp., 130 Cedar Street, N. Y. 10006—(212) 233-1050
~ -
.
In THE
a Court of the United States
Ocrosrer TERM, 1980
a.
—~—}—
DOUGLAS P. FIELDS, FREDERICK M. FRIEDMAN
and ALAN E. SANDBERG,
Petitioners,
vs.
UNITED STATES OF AMERICA,
Respondent.
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Questions Presented
1. Whether the Court of Appeals was in error in holding
(a) that a general intent rather than a specific intent
to defraud was the correct standard of proof required
by the Government on an indictment charging “wilful
and knowing” violations of Section 17(a) of the Secur-
ities Act of 1933 dealing with the fraudulent sale
of securities, and “wilful and knowing” violations of
Section 14(a) of the Securities Exchange Act of 1934
dealing with the failure to disclose fraudulent trans-
actions in proxy solicitations, and (b) whether the trial
court’s instruction to the jury that only a general in-
tent is necessary to convict as distinguished from a
specific intent is contrary to the proper standard of
intent required under those statutes.
2. Whether the Court of Appeals’ decision on the first
appeal in reversing the dismissal of the indictment,
which was exercised under the District Court’s super-
visory power as the result of the misconduct perpe-
trated by enforcement attorneys of the Securities and
Exchange Commission, is in conflict with decisions in
other Circuits that upheld such action on the part of
a District Court in similar situations and is contrary
to due process principles prohibiting a conviction under
these circumstances.
TABLE OF CONTENTS
Opinion BELOW : ae
EE a Cn
Questions PRESENTED
StTatuTorRyY PRovIsIoNs LSE eR
STATEMENT OF THE CASE
Tue Facts
REASONS FOR GRANTING THE WRIT:
1. The District Court failed to charge and the
Government failed to prove the specific in-
tent charged in the indictment and required
under Sections 17(a) (15 U.S.C. Sections
77q(a)) and 24 (15 U.S.C. Section 77x) of
the Securities Act of 1933, Sections 14(a)
(15 U.S.C. Section 78n(a)) and 32 (15 U.S.C.
Section 78ff) of the Securities Exchange Act
of 1934, and Section 1001, Title 18, U.S.C. ......
2. The Court of Appeals’ earlier decision in this
ease reversing the District Court’s dismissal
of substantially all counts of the indictment
in the exercise of the District Court’s super-
visory powers because of the misconduct per-
petrated by SEC enforcement attorneys con-
flicts with decisions in other Circuits that
have upheld such action on the part of Dis-
trict Courts in similar situations ......................
ConcLUSION
13
li TABLE OF CONTENTS
PAGE
APPENDIX:
A—Opinion of the United States Court of Ap-
peals for the Second Circuit ....----...2....00-+0-+- la
B—Judgments of the United States District
Court for the Southern District of New York Ta
C—Extract of Petition for Writ of Certiorari
Re: Frederick M. Friedman v. United States
OC AIIT. cictcisotionmmmcimnicmeuaannl iio 13a
D—Order of the United States Court of Ap-
peals Denying Petition for Rehearing ........ 28a
Order of the United States Court of Ap-
peals Denying Motion to Recall Mandate,
GO, siisceciinictcceeesniptaconjoeanieabedtledacipanniidananiniiiaa 30a
Cases Cited
Ernst & Krnst v. Hochfelder, 425 U.S. 185, 96 S.Ct.
ov) 8. | React 14-16, 20
Hamilton-Brown Shoe Co. v. Wolf Bros.. & Co., 240
US. 251, 36 S.Ct. 269 (1916) .. pen 22
Mallis v. Federal Deposit Ins. Corp., 568 F.2d 824
(2d Cir. 1977), cert. dis., sub nom. Bankers Trust
Company v. Mallis, 435 U.S. 381 (1978) 00020220202... 14
Nelson v. Serwold, 576 F.2d 1332 (9th Cir. 1978) cert.
denied, 489 U.S. 970 (1978) ....... iecneiiitliniipioenaSinclededt 15
Roe v. United States, 287 F.2d 435 (5th Cir. 1961) ... .. 17
Roe v. United States, 316 F.2d 617 (5th Cir, 1963) ..... 17
Santa Fe Industries, Inc. v. Green, 420 U.S. 462,
97 S.Ct. 1292 (1977) 14
SEC v. Blazon Corp., 609 F.2d 960 (9th Cir. 1979) ..15, 16
TABLE OF CONTENTS ili
PAGE
SEC v. Joiner, 320 U.S. 344, 64 S.Ct. 120 (1943) ...... 14
Tarvestad v. United States, 418 F.2d 1043 (8th Cir.
1969), cert. denied, 397 U.S. 935 (1970) 19
United States v. Bishop, 412 U.S. 346, 93 S.Ct. 2008
RIED“ sdinsncciainentesliinetaciattnneeasiions 15
United States v. Brown, 578 F.2d 1280 (9th Cir.
1978), cert. denied, 439 U.S. 927 (1978) . 20)
United States v. Charnay, 537 F.2d 341 (9th Cir.
1976), cert. denied, sub nom. Davis v. United States,
429 U.S. 1000 (1976) ... 15, 16
United States v. Custer Channel Wing Corp., 376 F.
2d 675 (4th Cir. 1967) 17-19
United States v. Danser 26 F.R.D. 580 (D.C. Mass.
1959), aff’d, 281 F.2d 492 (1st Cir. 1960) ..........2. 18
United States v. Fields, et al., 592 F.2d 638 (2d Cir.
1978) . , 6
United States v. Piepgrass, 425 F.2d 194 (9th Cir.
MT sci cca Rlechid vi clitcnsenigvicioreienibutiensiicaninsaidienbiaiiannapatachinsesdoniit 16
United States v. Pomponio, 429 U.S. 10, 97 S.Ct. 22
(2876)... | 15
United States v. Pray, 452 F.Supp. 788 (D.C. Pa.
1978) ee |
United States v. Russell, 411 U.S. 423 (1973) -.......... 24
Statutes Cited
Internal Revenue Code 15
TABLE OF CONTENTS
PAGE
Securities Act of 1933: ‘.
See. 5 17
See. 17(a) 2, 3, 15, 18
See. 24 4
See. 32 5)
Securities Exchange Act of 1934:
See. 10(b) 14-16, 20
See. 14(a) 2,4
See. 32(a) 11, 12, 20
15 U.S.C.:
Sec. 77e 17
Sec. 77e 17
See. T7e(a) 17
See. 77e(5) 19
See. 77q(a) 3, 7, 13, 15, 17-20
See. 77x 4, 13, 17-20
See. 78n(a) 4, 7,13
Sec. 78ff 5, 11, 13, 16, 20
18 USS.C.:
| ne NE ERR ARTO: been 02.) 7
See. 1001 3, 7, 9, 13
See. 1341 . 7
See. 1343 7, 16
TABLE OF CONTENTS Vv
PAGE
28 U.S.C.:
See. 1254(1) 2,3
Rule Cited
Rule 10b-5 14,15
No.
In THE
Supreme Court of the United States
OctosER TERM, 1980
=
- a
DOUGLAS P. FIELDS, FREDERICK M. FRIEDMAN
and ALAN EK. SANDBERG,
Petitioners,
Vs.
UNITED STATES OF AMERICA,
Respondent.
PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS FOR THE
SECOND CIRCUIT
Petitioners Douglas P. Fields, Frederick M. Friedman,
and Alan EK. Sandberg respectfully pray that a writ of
of certiorari issue to review the judgment of the United
States Court of Appeals for the Second Circuit entered
on July 25, 1980, and also the judgment previously en-
tered by the Court of Appeals on September 14, 1978.
Opinion Below
The Opinion of the Court of Appeals on the second
appeal is a summary unpublished opinion. A copy is
2
annexed hereto as Appendix A. The Opinion of the Court
of Appeals on the first appeal is reported at 592 F.2d
638 (2d Cir. 1978), cert. denied, U.S. —, 99 S.
Ct. 2838 (1979).
Jurisdiction
The jurisdiction of this Court is invoked under 28 U.S.C.
§ 1254(1). |
Questions Presented
1. Whether the Court of Appeals was in error in holding
(a) that a general intent rather than a specific intent
to defraud was the correct standard of proof required
by the Government on an indictment charging “wilful
and knowing” violations of Section 17(a) of the Seeur-
ities Act of 1933 dealing with the fraudulent sale
of securities, and “wilful and knowing” violations of
Section 14(a) of the Securities Exchange Act of 1934
dealing with the failure to disclose fraudulent trans-
actions in proxy solicitations, and (b) whether the trial
court’s instruction to the jury that only a general in-
tent is necessary to convict as distinguished from a
specific intent is contrary to the proper standard of
intent required under those statutes.
2. Whether the Court of Appeals’ decision on the first
appeal in reversing the dismissal of the indictment,
which was exercised under the District Court’s super-
visory power as the result of the misconduct perpe-
trated by enforcement attorneys of the Securities and
Exchange Commission, is in conflict with decisions in
other Circuits that upheld such action on the part of
a District Court in similar situations and is contrary
to due process principles prohibiting a conviction under
these circumstances.
Statutory Provisions
Title 18, United States Code
Section 1001
Whoever, in any matter within the jurisdiction
of any department or agency of the United States
knowingly and willfully falsifies, conceals or covers
up by any trick, scheme, or device a material fact,
or makes any false, fictitious or fraudulent state-
ments or representations, or makes or uses any
false writing or document knowing the same to con-
tain any false, fictitious or fraudulent stetement or
entry, shali be fined not more than $10,000 or im-
prisoned not more than five years, or both.
Title 28, United States Code
Section 1254(1)
Cases in the courts of appeals may be reviewed
by the Supreme Court by the following methods:
(1) By writ of certiorari granted upon the pe-
tition of any party to any civil or criminal case,
before or after rendition of judgment or decree;
Securities Act of 1933
Section 17(a), 15 U.S.C. § 77q(a)
“Tt shall be unlawful for any person in the offer
or sale of any securities by the use of any means
or instruments of transportation or communication
in interstate commerce or by the use of the mails,
directly or indirectly—
(1) to employ any device, scheme, or artifice
to defraud, or
:
%
4
(2) to obtain money or property by means of
any untrue statement of a material fact or any
omission to state a material fact necessary in
order to make the statements made, in the light
of the circumstances under which they were made,
not misleading, or
(3) to engage in any transaction, practice, or
course of business which operates or would oper-
ate as a fraud or deceit upon the purchaser.”
Section 24, 15 U.S.C. § 77x
“Any person who willfully violates any of the
provisions of the subchapter, or the rules and regu-
lations promulgated by the Commission under au-
thority thereof, or any person who willfully, in a
registration statement filed under this subchapter,
makes any untrue statement of a material fact or
omits to state any material fact required to be
stated thereon or necessary to make the statements
therein not misleading, shall upon conviction be fined
not more than $5,000 or imprisoned not more than
five years, or both.”
Securities Exchange Act of 1934
Section 14(a), 15 U.S.C. § 78n(a)
(a) It shall be unlawful for any person, by the
use of the mails or by any means or instrumentality
of interstate commerce or of any facility of a na-
tional securities exchange or otherwise, in contra-
vention of such rules and regulations as the Com-
mission may prescribe as necessary or appropriate
in the public interest or for the protection of in-
vestors, to solicit or to permit the use of his name
5
to solicit any proxy or consent or authorization in
respect of any security (other than an exempted
security) registered pursuant to section 781 of this
title.
Section 32, 15 U.S.C. § 78ff
(a) Any person who willfully violates any pro-
vision of this chapter, or any rule or regulation
thereunder the violation of which is made unlawful
or the observance of which is required under the
terms of this chapter, or any person who willfully
and knowingly makes, or causes to be made, any
statement in any application, report, or document
required to be filed under this chapter or any rule
or regulation thereunder or any undertaking con-
tained in a registration statement as provided in
subsection (d) of section 780 of this title, which
statement was false or misleading with respect to
any material fact, shall upon conviction be fined
not more than $10,000, or imprisoned not more than
two years, or both, except that when such person
is an exchange, a fine not exceeding $500,000 may
be imposed; but no person shall be subject to im-
prisonment under this section for the violation of
any rule or regulation if he proves that he had
no knowledge of such rule or regulation.
Statement of the Case
In an indictment filed on November 8, 1976 petitioners
Fields, Friedman, and Sandberg, and others, were charged
with various violations of the federal securities laws. Said
petitioners filed pre-trial motions seeking dismissal of the
indictment. Among the grounds raised in support was
6
their contention that during the course of an investiga-
tion by the Securities and Exchange Commission (“SEC”)
concerning the matters that eventually resulted in this
indictment, the SEC attorneys in charge of this investi-
gation engaged in fraudulent misconduct inducing peti-
tioners to consent to onerous settlement terms demanded
by the SEC. Petitioners agreed to the settlement in re-
liance on an understanding that had been reached between
their attorneys and the SEC attorneys that there would
be no criminal reference of this matter, on which the
SEC attorneys deliberately and secretly reneged. The
District Court (Hon. Charles S. Haight, Jr.), after con-
ducting a pre-trial hearing for over two weeks to de-
termine the facts underlying this contention, dismissed
the entire indictment against petitioners Friedman and
Sandberg and most of the irdictment against petitioner
Fields, because of the fraud which the District Court
expressly found had been perpetrated by the SEC at-
torneys upon petitioners. The District Court also dis-
missed certain portions: of the indictment on alternative
grounds. The District Court rendered voluminous find-
ings of fact in its memorandum opinion supporting dis-
missal, which opinion was not officially reported but is
unofficially reported at CCH Fed.See.L. Rep. § 96,074 (S.D.
N.Y. June z, 1977).
On Appeal by the Government, the Court of Appeals
reversed and remanded the case with instructions to re-
instate in all respects the unexpurgated indictment (United
States v. Fields, et al., 592 F.2d 638 (2d Cir. 1978). While
not overturning any of the District Court’s findings of
fact concerning the fraud perpetrated upon petitioners by
the SEC attorneys, the Court of Appeals held that the
remedy of dismissal was not an appropriate remedy for
the SEC’s fraud.
7
Petitioners timely filed such a petition, which was de-
nied by this Court on June 4, 1979 (—— U.S. ——, 99
S.Ct. 2838 (1979)), to which reference is made herein-
after at pp. 22-23).
The indictment as originally returned charged petitioners
and others in twelve counts with various violations of
the securities laws.* Prior to its order of dismissal in
1977, the District Court, on motion of petitioners to which
the Government consented, severed Counts 1-5 from Counts
6-11.°*
*On the Government’s appeal from Judge Haight’s Order of
dismissal, the Court of Appeals charted the charges against each
of the original defendants as follows (592 F.2d at 641, n. 3):
Count Defendant Violation Statute
One Fields, Friedman, Conspiracy to violate 18 U.S.C. § 371
Davis securities laws
Two Fields, Friedman, Securities fraud 15 U.S.C. § 77q(a)
Davis
Three Fields, Friedman, Filing false prospectus 18 U.S.C. § 1001
Davis
Four Fields, Friedman, Soliciting proxies with 15 U.S.C. § 78n(a)
Davis false proxy statements
Five Fields, Friedman, Soliciting proxies with 15 U.S.C. § 78n(a)
Berge, Davis false proxy statements
Six Friedman, Sandberg Wire Fraud 18 U.S.C. § 1343
Seven-Ten Friedman, Sandberg Mail Fraud 18 U.S.C. § 1341
Eleven Friedman Soliciting proxies with 15 U.S.C. § 78n(a)
false proxy statements
Twelve Berge False testimony before 18 U.S.C. § 1001
the SEC
** Count 12 had been charged only against Berge, who died
prior to being tried.
8
On October 9, 1979, trial on those counts began before
Judge Haight and a jury. After a trial of approximately
a month, the jury, on November 8, 1979, convicted peti-
tioners Fields and Friedman on all counts. The judg-
ments of conviction entered on January 10, 1980 were
affirmed by the Court of Appeals in a per curiam summary
opinion dated July 25, 1980 (copies of the judgments are
annexed hereto as Appendix B). A petition for rehear-
ing and a suggestion in the alternative for rehearing en
bane and a motion for a stay of the judgment pending
application to this Court for a writ of certiorari was
denied by the Court of Appeals on September 2, 1980.
(Copies are annexed hereto as Appendix D). An appli-
cation for a stay pending the filing of this petition and a
determination thereof was denied by Mr. Justice Mar-
shall on September 17, 1980.
The Facts
Viewed in the light most favorable to the Government,
the Government’s proof at trial established that peti-
tioners Fields and Friedman engaged in the following
transactions: (a) in 1971, they conspired to cause West-
calind to pay an improper “finder’s fee” of $50,000 to a
third party in connection with Westcalind’s acquisition
of a company called Emblem & Badge, and shared in the
profits of this “finder’s fee”, and (b) in 1971, they re-
_ fused to free-up restricted TDA stock held by various
third parties, which required those third parties, who
wanted to sell their shares to sell the shares to said peti-
tioners’ co-conspirators, who thereupon resold those shares
at a substantial profit, kicking back 70% of those profits
to said petitioners. However, the indictment did not charge
said petitioners with the commission of either of these
offenses; prosecution for these offenses was barred by the
applicable statute of limitations. Rather, the indictment
9
charged said petitioners with having violated the securi-
ties laws and 18 U.S.C. § 1001 concerning the alleged wilful
and knowing non-disclosure of those transactions in a
prospectus and two proxy statements filed with the SEC.
Yet the Government’s proof at trial failed to establish,
either directly, indirectly, or circumstantially, that either
petitioner was aware at the time of the commission of
these underlying offenses, or at the time of the filings
of the prospectus and proxy statements with the SEC, that
the underlying transactions were required by law to be
disclosed in those filings.
Petitioners Fields and Friedman on these grounds, inter
alia, moved for judgment of acquittal at the conclusion
of the Government’s case, at the conclusion of all of the
evidence, and in post-trial motions which were denied
(T*1935, 3015; A** 85). Requests to charge the jury that
it was incumbent on the Government to prove beyond a rea-
sonable doubt “that the defendants knew that under the
applicable statutes and SEC rules and regulations that
they were required to disclose [their alleged illegal con-
duct] in the SEC filings involved and that they know-
ingly, wilfully, and deliberately .. . decided not to make
such disclosures notwithstanding their alleged knowledge
of such a requirement” were denied by the District Court
(Request No. 22, A 82-83; also Requests Nos. 18 and 20,
A 80-81).
Instead, the District Court instructed as follows:
“To satisfy this element t.< government must
prove with respect to the particular defendant you
* The letter “T” followed by a number designates page refer-
ence to the trial transcript.
** The letter “A” followed by a number designates page refer-
ence to the Joint Appendix in the Court of Appeals.
7%
10
are considering that his failure to disclose material
facts in the prospectus was knowing and wilful and
that in failing to make such disclosure the defendant
had a general awareness of wrongiul conduct based
upon a realization that his acts were wrongful un-
der the securities laws.
“T shall define these terms for you. An act is done
knowingly if it is done voluntarily and intentionally
and not because of mistake or accident or other in-
nocent reason. An act is done wilfully if it is done
intentionally and deliberately.
“Knowingly means that the defendant must be
aware of what he was doing and what he was not
doing. Wilfully means that the defendant acted de-
liberately and intentionally and his acts, statements
or omissions were not the result of innocent mistake,
negligence or inadvertence or other innocent conduct.
“However, for the government to satisfy this ele-
ment it is not sufficient that it show that a particular
defendant acted knowingly or wilfully as I defined
those terms. The government must show that, that
the acts were knowing and wilful, but it must also
establish beyond a reasonable doubt that the defend-
ant had some evil purpose.
“It is not necessary that the government prove
that the defendant intended specifically to violate a
particular section of the securities law. The gov-
ernment must prove, however, that the defendant
had actual knowledge of the false or misleading char-
acter of the prospectus, he must have had a general
awareness of the requirements of the securities laws
in respect of disclosure, a realization that he was do-
ing a wrongful act.
11
“This element is satisfied if the government has
proved such a state of mind on the part of a de-
fendant, also assuming, of course, that his conduct
was wrongful under the securities laws, as I have
explained those provisions to you in the previous
element, and that the defendant’s knowingly wilful
act involved a significant risk of effecting the viola-
tion that occurred.” (T. 3519-3521)
This instruction was contradictory in requiring proof of
“some evil purpose” in addition to proof that petitioners
acted “knowingly and wilfully” and at the same time in-
structing the jury that the Government need not prove that
“the defendant intended specifically to violate a particular
section of the securities law.” The instruction, further-
more, was confusing and incorrect. Instead of an instruc-
tion that the Government was required to prove a specific
intent to defraud, i.e., that the petitioners had knowledge
that at the time of the SEC filings they were required by
law to disclose the underlying transactions and knowingly
decided not to with the intention of defrauding purchasers
of the stock and stockholders of TDA, the District Court
instructed there only had to be a “general awareness of
wrongful conduct based upon a realization that his acts
were wrongful under the securities law,” a concept of
wilfulness scarcely understandable, extremely imprecise,
and incorrect.
The Court of Appeals addressed the wilfulness issue only
with respect to Counts 4 and 5 relating to the proxy viola-
tions under Section 32(a) of the Securities Exchange Act
of 1934, 15 U.S.C. § 78ff. The Court of Appeals overlooked
petitioners’ challenge to the Government’s proof and the
District Court’s instruction as to all counts, including
Counts 4 and 5, just as it incorrectly asserted that peti-
tioners conceded that if the violation was brought under
12
the first half of Section 32(a) of the 1934 Act the standard
of culpability required was only a “general intent”. Said
petitioners’ requests to charge the jury, referred to previ-
ously herein (at p. 9), which specifically were requested
with respect to all counts, reflect the inaccuracy of the
Court of Appeals’ statement. A petition for rehearing
was filed with the Court of Appeals suggcsting these over-
sights but, as previously noted, the petition was denied
without opinion.
With regard to the violations alleged in Counts 4 and 5,
the Court of Appeals did not specifically address the dif-
ference in the wilfulness requirement between violations
brought under the first half of Section 32(a), in which the
conduct prohibited is stated to be “wilful”, and in viola-
tions under the second half of Section 32(a), in which the
conduct prohibited is stated to be “wilfully and knowingly”.
The Court of Appeals implied that the clauses with respect
to intent were merely 're“.undant but that even assuming
“the second clause of Section 32(a) does in fact require a
specific intent to violate a particular law or regulation...
the instruction given by the District Judge fairly fulfilled
this hypothetical requirement.” The Court of Appeals
added even if there was a “conceivable shortcoming in the
jury instruction it was harmless .. .”, presumably because
as “high corporate executives” they must have been “well
versed in the rules and regulations of the Securities and
Exchange Commission.” (Appendix A, p. 2). Yet there
was no such evidence, and the Court of Appeals’ Opinion
refers to none.
13
REASONS FOR GRANTING THE WRIT
1. The District Court failed to charge and the Govern-
ment failed to prove the specific intent charged in the
indictment and required under Sections 17(a) (15
U.S.C. § 77q(a)) and 24 (15 U.S.C. § 77x) of the
Securities Act of 1933, Sections 14(a) (15 U.S.C. §78n
(a)) and 32 (15 U.S.C. § 78ff) of the Securities
Exchange Act of 1934, and Section 1001, Title 18,
U.S.C.
The District Court failed to properly instruct the jury
and the Government failed to prove the requisite specific
intent under Counts 1-5. In reducing “wilfully and know-
ingly” into a single concept of “general intent”, without
requiring proof of a specific intent to defraud, the panel
of the Court of Appeals adopted a lower standard of cup-
ability than required by the statutes and charged in the
indictment. 7
The effect of the construction of wilfulness adopted by
the panel of the Court of Appeals permitted the Govern-
ment to obtain convictions in this fraudulent non-disclos-
ures case on the basis of the Government’s claim in the
Court of Appeals that
“It is therefore correct to charge the jury ‘that
the Government [is] not required to prove a specific
intent on [a defendant’s] part to disregard or dis-
obey the law...” (Gov’t Brief, p. 19 fn. **)
The result of the Court of Appeals’ decision was to con-
sider immaterial petitioners’ claim that there was a com-
plete absence of proof of any knowledge on their part
of any legal requirement to disclose in the SEC filings
the transactions which they were charged with having
“wilfully and knowingly” failed to disclose. (See peti-
tioners’ requests to charge 18-20, A 80a-8la, which were
rejected. )
14
In addition to the impact on criminal cases, the de-
cision of the Court of Appeals will likewise have its
impact on the necessary proof of wilfulness in civil ac-
tions since the issue of culpability is the same in a civil
action for damages predicated upon the instant statutes.
See SEC v. Joiner, 320 U.S. 344, 355, 64 S.Ct. 120, 125
(1943); Mallis v. Federal Deposit Ins. Corp., 568 F.2d
824, 829 (2d Cir. 1977), cert. dis., sub nom. Bankers Trust
Company v. Mallis, 435 U.S. 381 (1978).
We submit that the Court of Appeals improperly lowered
the degree of culpability required in fraud actions under
the Securities Acts of 1933 and 1934 and that in so doing
it departed from the stricter standard announced by this
Court in Ernst & Ernst v. Hochfelder, 425 U.S. 185, 96
S.Ct. 1875 (1976). In Hochfelder, this Court held that
in a private action for damages under Section 10(b) and
Rule 10b-5, it was necessary to allege and prove “scienter”
—defined as an “intent to deceive, manipulate or defraud.”
425 U.S. at 197, 96 S.Ct. at 1883. Cf. Santa Fe Indus-
tries, Inc. v. Green, 420 U.S. 462, 474-475, 97 S.Ct. 1292,
1301-1302 (1977).
Although Hochfelder dealt with a Section 10(b) and
Rule 10b-5 private action for damages under the 1934
Act, this Court expressly noted:
“Although adopted pursuant to Section 10(b), the
language of the Rule [10b-5] appears to have been
derived in significant part from § 17 of the 1933
Act, 15 U.S.C. § 77q.” 425 U.S. at 212 n. 32, 96
S.Ct. at 1390 n. 32.
Moreover, decisions of this Court interpreting wilfulness
in other criminal statutes prohibiting false and fraudu-
lent filings with a Government agency further demonstrate
15
the error of the Court of Appeals in adopting a standard
of general intent rather than of specific intent to defraud.
Thus, in United States v. Bishop, 412 U.S. 346, 93 8.Ct.
2008 (1973), involving a charge of filing a false and fraudu-
lent tax return under the Internal Revenue Code, the
wilfulness required under that staiute, said this Court,
was proof of a “voluntary intentional violation of a known
legal duty.” 412 U.S. at 360, 93 S.Ct. at 2017. This
Court reiterated and approved the Bishop standard in
United States v. Pomponio, 429 U.S. 10, 97 S.Ct. 22 (1976).
Applying that standard of proof of a “known legal duty”
to the instant case required in the very least that before
said petitioners here could be convicted, there had to be
proof beyond a reasonable doubt that they had a specific
intent not to disclose their alleged illicit transactions in
SEC filings which they knew they were required by law
to disclose there.
The decision in Hochfelder on the intent required has
been either narrowly confined to Section 10(b) actions
or held inapplicable to Section 17(a) criminal actions.
See, e.g., Nelson v. Serwold, 576 F.2d 1332 (9th Cir. 1978)
cert. denied, 439 U.S. 970 (1978), Section 10(b) and Rule
10b-5 private action (as to scienter the Court of Appeals
said, “. .. the [Supreme] Court [in Hochfelder] expressly
limited that definition to the case before it.” 576 F.2d
at 1337); SEC v. Blazon Corp., 609 F.2d 960 (9th Cir.
1979), an action for an injunction for violations of Sec-
tion 17(a), 15 U.S.C. § 77q(a), and Section 10(b) and
Rule 10b-5 (the Court of Appeals said, as to scienter,
Hochfelder is not in point because “it involved only § 10(b)
and Rule 10b-5, and the [Supreme] Court relied heavily
upon the language of § 10(b) ... This is very different
language from that of § 17(a)(2) and (3).” Ibid, at
966; United States v. Charnay, 537 F.2d 341 (9th Cir.
a
16
1976), cert. denied, sub nom. Davis v. United States, 429
U.S. 1000 (1976), indictments re violations of Section 10(b)
and 15 U.S.C. § 78ff and 18 U.S.C. § 1343 (as to scienter,
the Court of Appeals said that Hochfelder “was a civil
action for damages for alleged negligent conduct.” Ibid.
at 358. “This case obviously involves more than negli-
gent conduct.” Idem. The Court of Appeals distinguished
its earlier decision in United States v. Piepgrass, 425
F.2d 194 (9th Cir. 1970), on the issue of wilfulness in
the § 10(b) prosecution before it on the ground that
Piepgrass “involved a prosecution under § 77q(a).” Ibid.
at 352 n, 19).
Besides deviations from the standard of culpability in
Hochfelder, decisions as to the proper meaning of wil-
fully in civil and criminal actions under the Securities Acts
of 1933 and 1934 are divergent, confusing, and difficult to
understand. In United States v. Charnay, supra, after this
Court’s opinion was announced in Hochfelder, the Court
of Appeals said in a petition for rehearing:
“Although we did state that the cases have held
that there is no requirement of proof that a defend-
ant knew he was violating a particular S.E.C. rule,
we did not hold that scienter per se was not a re-
quired element of the offense. Rather we noted that
it was necessary for the prosecution to show an in-
tentional act with a ‘realization on the defendant’s
part that he was doing a wrongful act.’ Similarly,
Judge Sneed in his concurring opinion noted that
‘the intent necessary... is merely that of intend-
ing to do the acts prohibited, rather than intent to
violate the statute.’ These statements are consistent
with the holding in Ernst € Ernst.” 537 F.2d at 358.
In its later deefsion in SEC v. Blazon Corp., 609 F.2d
supra at 966 n. 2, the Court stated:
17
“In United States v. Charnay, 9 Cir., 1976, 537 F.
2d 341, 358-359, we held that scienter must be
shown in a criminal action under § 10(b) and Rule
10b-5. That action was brought only under § 10(b)
and not under { 17(a) and thus that decision does
not control our decision in this case.”
In ltoe v. United States, 287 F.2d 4385 (5th Cir. 1961), in
a criminal action involving the sale of securities in viola-
tion of 15 U.S.C. § 77q(a) and the sale of unregistered
stock in violation of 15 U.S.C. §§ 77e and 77x, the Court
of Appeals declined to define the wilfulness required on
the ground that it was not adequately raised below. After
the reversal of the conviction on the second appeal in Roe
v. United States, 316 F.2d 617 (5th Cir. 1963), the Court
of Appeals noted that “the Government had to establish
... (b) that their [defendants’] actions were wilfully and
knowingly done...” In a footnote the Court of Appeals
stated that they “avoid again. . . the necessity of deter-
mining that meaning of the term ‘willfully.’” However, the
Court of Appeals did not reject the District Court’s in-
struction defining the term as follows:
“<The word “knowingly” means done with knowl-
edge, consciously and intelligently. The word “will-
fully” means done deliberately and intentionally,
with knowledge at the time that the conduct is an
unlawful act.’” 316 F.2d supra at 621 n. 9.
United States v. Custer Channel Wing Corp., 376 F.2d
675 (4th Cir. 1967), involved a criminal contempt proceed-
ing for violation of an injunction prohibiting the sale of
unregistered stock in violation of Section 5 of the Securi-
ties Act of 1933, 15 U.S.C. § 77e(a) and (c). In dealing
with the defendants’ contention that there had to be proof
of a specific intent to violate the injunction, the Court of
Appeals said:
*
18
“A number of courts have indicated that in crimi-
nal prosecutions for violation of section 5, it is not
necessary to prove specific intent to violate the law.
All that need be shown to sustain a conviction is
that the defendant has intentionally sold... un-
registered securities through the mails or in inter-
state commerce.” 376 F.2d supra at 680
In United States v. Danser, 26 F.R.D. 580 (D.C. Mass.
1959), aff’d, 281 F.2d 492 (1st Cir. 1960), an indictment
charged violations of Section 17(a), 15 U.S.C. §§ 77q(a)
and 77x. Counts 3 and 10 charged the offer and sale of
stock pursuant to a scheme to defraud by filing a pros-
pectus which in Count 3, it was alleged the prospectus “con-
tained false and misleading financial statements,’ and in
Count 10 with respect the same prospectus it was alleged
the prospectus “omitted to state material facts which were
necessary in order to make the registration statement not
misleading.” 26 F.R.D. swpra at 584. The District Court
instructed the jury on Count 3:
“Tt is the burden of the prosecution to prove be-
yond a reasonable doubt that when [the defendant]
signed the registration statement [the defendant]
knew that he was making a false statement and in-
tended to defraud.” 26 F.R.D. supra at 587.
The District Court instructed the jury on Count 10 that
the Government must prove beyond a reasonable doubt
that “at the time [the defendant] caused the prospectus to
be delivered by mail, ... [the defendant] both knew of
these omissions and intended to defraud either the under-
writers or investors. . .” 26 F.R.D. supra at 588 (italies
in original). In further claborating on this instruction,
the Court said that the Government must prove that the
defendant’s “omission to disclose those losses was moti-
19
vated by an intent to cheat, deceive, or defraud under-
writers or investors, or both. ‘lo secure a conviction un-
der Count 10 the Government must prove beyond a rea-
sonable doubt not merely that there was an omission, that
the-omission was material, and that [the defendant] knew
of the omission, but also that [the defendant] intended to
defraud.” 26 F.R.D. swpra at 588.
In Tarvestad y. United States 418 F.2d 1043 (8th Cir.
1969), cert. denied, 397 U.S. 935 (1970), indictment for the
sale of securities in violation of 15 U.S.C. §§ 77q(a) and
77x and the sale of unregistered stock in violation of
15 U.S.C. §§ 77e(5) and 77x, the Court of Appeals said
that:
“Some courts including this cireuit, have held or
at least intimated that the term ‘willful’ under a
§ 77e(a) et seq. violation requires only evidence to
establish that a defendant intentionally sold...
securities by use of the mails. It has been held
that actual knowledge that a security was being
sold in violation of the law is not a necessary ele-
ment absent a charge of fraud. [Cases cited]. Con-
trary holdings exist. [Case cited].” 418 F.2d supra
at 1047.
The District Court’s charge upheld by the Court of Ap-
peals was as follows:
“An act is done “willfully” if it is done know-
ingly and deliberately with bad purpose. In deter-
mining whether a defendant has acted willfully,
however, it is not necessary for the government to
show that any defendant knew he was breaking any
particular law.
“Knowledge and willfulness of a defendant need
not be proved by direct evidence, and, like any other
20
fact in issue, may be established by circumstantial
evidence. Here, as in other phases of this case, the
significant fact is the defendant’s state of mind.’”
Idem.
In United States v. Brown, 578 F.2d 1280 (9th Cir.
1978), cert. denied, 439 U.S. 927 (1978), in an indictment
for sale of stock in violation of 15 U.S.C. §§ 77q(a) and
77x, the Court stated:
“We think that the government is required to
prove specific intent ... as it relates to the action
constituting the fraudulent, misleading or deceit-
ful conduct, but not as to the knowledge that the
instrument used is a security under the Securities
Act.” 578 F.2d supra at 1284.
The Court of Appeals then noted by referring to decisions
in the Court of Appeals for the Second Circuit that proof
of a specific intent to violate the law is not necessary to
uphold a conviction under Section 32(a) of the Securities
Act of 1934, 15 U.S.C. § 78ff. In United States v. Pray,
452 F.Supp. 788 (D.C.Pa. 1978), in an indictment charging
violations of Section 10(b) and other Securities Act
voilations, including Section 32(a), 15 U.S.C. § 78ff, the
District Court stated:
“Moreover, each count of the indictment relating to
violations of the securities laws contains the words
‘knowingly and willfully,’ and § 78ff makes only
knowing or willful violations of the securities law
a crime.” 452 F.Supp. at 799.
These cases illustrate the need for more direct guidance
from this Court than was provided in Hochfelder in inter-
preting the standard of culpability required under the
Securities Acts of 1933 and 1934, Im cases such as this
21
involving alleged criminal or fraudulent civil filings, a
higher, not a lower, degree of culpability is required in
view of the serious penalties which attach to such vio-
lations whether in prison penalties or damages. By lower-
ing the standard of wilfulness the Court of Appeals has
broadened accessibility to the anti-fraud provisions of the
Securities Acts of 1933 and 1934 which unquestionably will
result in unwarranted convictions as well as an increase
in vexatious and uncontrolled civil litigation. For these
reasons the Court should grant certiorari to resolve this
important issue.
2. The Court of Appeals’ earlier decision in this case
reversing the District Court’s dismissal of substantially
all counts of the indictment in the exercise of the
District Court’s supervisory powers because of the mis-
conduct perpetrated by SEC enforcement attorneys con-
flicts with decisions in other Circuits that have upheld
such action on the part of District Courts in similar
situations.
This issue was previously raised on petition for certi-
orari by the same petitioners, Fields, Friedman, and Sand-
berg, Docket Nos. 78-1474 and 78-1483, Certiorari was
denied at that time after the Government objected to the
granting of the petition, claiming that the issue was inter-
loctury and non-final. The brief of the Government in
opposition stated:
“1. Even if petitioners’ claims would otherwise
merit review, this Court should not now consider
their challenges to the court of appeals’ reinstate-
ment of the indictment. The ruling below places
petitioners in precisely the same procedural posi-
tion they would have occupied if the district court
22
had denied their motions to dismiss. Such an in-
terlocutory order would not have been subject to
pretrial appeal. See United States v. MacDonald,
435 U.S. 850, 853-863 (1978) ; Coyen v. United States,
278 U.S. 221, 222, 224 (1929). The same consider-
ations that counsel against interlocutory appeals of
denials of motions to dismiss weigh against inter-
locutory review by this Court of the issues now
presented by petitioners. Petitioners were indicted
over two years ago and have not yet been tried. At
trial, petitioners may be acquitted, in which event
their claims will be moot. If, on the other hand,
petitioners are convicted and their convictions are
affirmed, they will be able to present all of their
contentions to this Court when seeking review of
the final judgment. See generally Brotherhood of
Locomotive Firemen & Enginemen vy. Bangor &
Aroostook Railroad Co., 389 U.S. 327, 328 (1967).”
(Gov’t Brief in Opposition, pp. 7-8).
This Court’s denial of certiorari was without opinion.
Such a previous denial of certiorari should not deprive
petitioners of their right to seek a review at this time.
Hamilton-Brown Shoe Co. v. Wolf Bros. & Co., 240 U.S.
251, 257-259, 36 S.Ct. 269, 271 (1916). In that case, as here,
certiorari was denied on an application to review a de-
cision of the Court of Appeals on the first appeal. This
Court rejected the contention that a second writ could only
raise questions that were before the Court of Appeals on
the second appeal in view of the interlocutory posture of
the case when certiorari was requested from the first ap-
peal. In so holding, this Court stated:
“Tt is contended that this question is settled other-
wise, at least as between these parties, by the deci-
23
sion of the circuit court of appeals on the first ap-
peal, and our refusal to review that decision upon
complainant’s petition for a writ of certiorari, and
that the only questions open for review at this time
are those that were before the court of appeals
upon the second appeal. This, however, is based
upon an erroneous view of the nature of our juris-
diction to review the judgments and decrees of the
circuit court of appeals by certiorari under § 240,
Judicial Code [36 Stat. at L. 1157, chap. 321], de-
rived from § 6 of the Evarts act of March 3, 1891,
16 Stat. at L. 828, chap. 517, Comp. Stat. 1913 § 1217.
** * The decree that was sought to be reviewed by
certiorari at complainant’s instance was not a final
one, a fact that of itself alone furnished sufficient
ground for the denial of the application; * * * al-
though in this instance the interlocutory decision
may have been treated as settling ‘the law of the
case’ so as to furnish the rule for the guidance of
the referee, the district court, and the court of ap-
peals itself upon the second appeal, this court, in
now reviewing the final decree by virtue of the writ
of certiorari, is called upon to notice and rectify any
error that may have occurred in the interlocutory
proceedings.”
We believe it is not necessary to again set forth what
has been argued in the prior petitions and replies to the
Government’s brief in opposition on this issue. The Dis-
trict Court dismissed all of the indictment against peti-
tioners Friedman and Sandberg, and virtually all of the
indictment against petitioner Fields, in the exercise of its
supervisory powers and because of a gross fraud that had
been perpetrated on petitioner by SEC enforcement at-
torneys. We respectfully refer the Court to the arguments
advanced in petitioners’ 1978 petition for a writ of certi-
24
orari. See Docket No. 78-1474, pp. 22-25, and reply brief,
pp. 8-9, and Docket No. 78-1483, pp. 7-21, and reply brief,
pp. 2-3. The relevant portions are annexed hereto as Ap-
pendix C.
The divergence of opinion of other courts from that of
the Court of Appeals, we submit, demonstrated in the prior
petition, shows the importance of this Court’s interven-
tion in order to safeguard the proper administration of
criminal justice in the Federal courts, as well as due proc-
ess principles which should prohibit convictions under
these circumstances. This Court appropriately stated:
“lWJe may some day be presented with a situation
in which the conduct of law enforcement agents is
so outrageous that due process principles would ab-
solutely bar the government from invoking judicial
processes to obtain a conviction.” United States v.
Russell, 411 U.S. 423, 431-432 (1973).
We respectfully submit that in view of the gross fraud
perpetrated by the Government agents here, this is that
situation.
CONCLUSION
For the above reasons it is respectfully submitted that
the petition for a writ of certiorari stiould be granted.
Respectfully submitted,
Benver & FRANKEL,
Attorneys for Petitioners.
Lours BEenper,
Sanpor FRANKEL,
Of Counsel.
APPENDIX A
Opinion of the United States Court of Appeals for the
Second Circuit*
UNITED STATES COURT OF APPEALS
For tHe Ceconp Circuit
At a stated term of the United States Court of Appeals,
in and for the Second Circuit, held at the United States
Court House, in the City of New York, on the twenty-fifth
day of July, one thousand nine hundred and eighty.
Present:
HonorasLte WituiaM H. Mutuiaan,
Honoras_e THomas J. Mesxi, Circuit Judges,
Honorasce JAMEs 8. Howpen, District Judge.**
Docket Nos. 80-1027, 80,1067, 80-1104
Lin
—_——
Unitep Srates or AMERICA,
Appellee,
Vv.
Doveuas P. Freips, Frepertck M, FrrepMan and
Aan KE. SANDBERG,
Defendants-Appellants.
»™
a
* N. B. Since this statement does not constitute a formal opinion
of this court and is not uniformly available to all parties, it shall not
be reported, cited or otherwise used in unrelated cases before this or
any other court.
** Honorable James S. Holden, United States District Judge for
the District of Vermont, sitting by designation.
[la]
2a
Appendix A
ORDER
These are consolidated appeals by Douglas Fields, Fred-
erick M. Friedman and Alan Sandberg from judgments
of conviction entered in the United States District Court
for the Southern District of New York, after trials upon
indictment 76 Cr. 1022, certain counts of which had been
severed with the consent of all parties. The first trial,
before Hon. Charles S. Haight and a jury, resulted in a
verdict adjudging Fields and Friedman guilty as charged
of conspiracy, false statements to a government agency
and three counts of securities fraud, and the second, tried
to the Hon. Inzer B. Wyatt without a jury resulted in a
verdict finding Friedman and Sandberg guilty of mail and
wire fraud.
These causes came on to be heard on the transcripts of
record from the court below, and were argued by counsel.
We affirm all judgments of conviction.
Appellants’ principal contention in No. 80-1027, the ap-
peal from the first trial, is that the district judge erred in
instructing the jury on the degree of intent required to con-
vict on counts four and five, which charged that Fields aud
Friedman solicited proxies for re-election as officers and
directors from shareholders of TDA Industries, Ine. and
its subsidiary, Westcalind Corp. without revealing that they
personally had received remuneration from those compan-
ies through various illicit activities and thereby violated
Section 14 of the Securities Exchange Act, 15 U.S.C. § 78n,
and Rule 14a-9 promulgated thereunder, 17 C.F.R. §240.
14a-9. Citing the second clause of Section 32(a), 15 U.S.C.
§ 78ff(a), appellants assert that the material information
was omitted without the specific knowledge that by such
nonfeasance they were violating the Securities Exchange
3a
Appendia A
Act and that the court’s jury charge that the defendants
must have had a “general awareness of [their] wrongful
conduct based upon a realization that [their] acts were
wrongful under the securities laws,” even read in conjunc-
tion with other pertinent instruction on the meaning of
“knowingly” and “willfully” was inadequate to convey the
requisite degree of intent.
The criminal penalties sought for the violations set forth
in counts four and five could have been averred under the
first clause of Section 32(a) which, appellants concede,
requires only a general intent, United States v. Chiarella,
588 F.2d 1358, 1370 (2d Cir. 1978), rev’d on other grounds,
48 U.S.L.W. 4250 (U.S. Mar. 18, 1980); United States v.
Dixon, 536 F.2d 1388, 1395-96 (2d Cir. 1976). We are un-
persuaded that the prosecution herein was brought under
the second clause of the “Penalties” provision of the Se-
eurities Exchange Act.
Assuming that the indictment was brought under the
second clause of Section 32(a), and, assuming further that
the second clause of Section 32(a) does in fact require a
specific intent to violate a particular law or regulation,
but see 3 Loss, Securities Regulation 1986-87 (1961) (clauses
merely redundant), the instruction given by the district
judge fairly fulfilled this hypothetical requirement. Fur-
thermore, the type of charge envisioned by appellants was
not appropriate to this case since they had presented no
evidence nor raised any credible defense that the alleged
violations were due to a good faith belief that the report-
ing of these matters was not required. United States v.
Dixon, supra, 536 F.2d at 1397. Indeed, the evidence am-
ply demonstrated that these omissions took place in the
context of blatantly improper activities undertaken in great
4a,
Appendiz A
secrecy by high corporate executives who were well versed
in the rules and regulations of the Securities Exchange
Commission. Finally, any conceivable shortcoming in the
jury instructions was harmless in light of the wealth of
inculpatory evidence concerning appellants’ states of mind.
Appellants further charge a number of errors at trial,
including the improper admission of hearsay “threat tes-
timony,” introduction of co-conspirator hearsay statements
made after the purported termination of the scheme and
the receipt of insufficiently unauthenticated correspondence
which had allegedly been fabricated to document the efforts
made by nominees who received fraudulent finders’ fees
which were later kicked-back in substantial part to appel-
lants. These contentions are without merit for reasons
well stated by Judge Haight. See also United States v.
Delillo, slip op. 2817 (2d Cir. May 8, 1980). Likewise, we
are unmoved by claims of impermissible pre-indictment
delay, United States v. Lovasco, 431 U.S. 783 (1977), since
there has been no showing of resultant prejudice, and nei-
ther do we find any fault with the district court’s careful
and painstaking handling of a potential jury taint, or in
Judge Haight’s conclusion that no member of the panel
had been exposed to or affected by prejudicial extraneous
matter. United States vy. Moten, 582 F.2d 654 (2d Cir.
1978).
We have carefully considered the other caims of error
and find them to be without merit.
Appellants’ principal contention in Nos. 80-1067 and
80-1104, the appeals from the trial to the court on the
severed counts of the indictment, is that the evidence was
insufficient to convict Friedman and Sandberg since the
government did not effectively counter their defense that
Da
Appendix A
the payment to Sandberg, made under the guise of a find-
ers fee, was compensation for legitimate services which
had been previously performed. The main difficulty with
appellants’ claim is that Judge Wyatt rejected the factual
underpinnings of this defense, and his refusal. to credit
the testimony of Friedman and the other major defense
witness who testified in support of this position was not
clear error.
In any event, we agree with the district court that the
existence of a prior obligation would not constitute a com-
plete legal defense to the charges, The fact that Friedman
may not have benefited by this ruse or the fact that Sand-
berg did not receive compensation in excess of that to which
he was entitled for legitimate prior services does not pre-
clude a finding of fraudulent intent. Appellants improp-
erly evaded the necessity of obtaining the appropriate cor-
porate approval for this transaction, and thus defrauded
the company and its shareholders. United States v. Re-
gent Office Supply Co., 421 F.2d 1174 (2d Cir. 1970), re-
lied upon by appellants, is entirely distinguishable since
in that case the misrepresentation was preliminary to and
functionally unrelated to the deception whereas here, the
false statements concerning Sandberg’s entitlement to com-
pensation for a corporate acquisition were essential to and
bore directly upon the illicit venture, Thus, the evidence
was sufficient for the trier of fact to conclude that appel-
lants had the requisite intent to defraud even assuming the
existence of a bona fide prior debt to Sandberg which they
believed this payment discharged.
It is further asserted that the evidence was insufficient
to establish the existence and contents of the phone calls
and mailings upon which the charges were based, and that
6a
Appendix A
it was not demonstrated that these communications were
in furtherance of the scheme. Evidence of these communi-
cations was, for the most part, provided by parties to them,
and their testimony was capable of being credited by the
finder of fact. We have examined the record below and find
that the evidence was sufficient to establish the fact and
substance of the communications, and further find that
while they were not essential to the success of the scheme
they were plainly in furtherance of it. United States v.
Ford, 603 F.2d 1043, 1047-48 (2d Cir. 1979); United States
v. Hasenstab, 575 F.2d 1035 (2d Cir. 1978), cert. denied,
439 U.S. 827 (1979).
The district court’s refusal to review the grand jury min-
utes to determine if there existed sufficient evidence on
which to return an indictment was proper. Costello v.
United States, 350 U.S. 359 (1956).
ON CONSIDERATION WHEREOF, it is now hereby ordered,
adjudged and decreed that the judgments of the district
court be, and the same hereby are, affirmed. The mandate
shall issue forthwith.
Wiru1aMm H. Mutuiaan, U.S.C.J.
THomas J. Mesxrz, U.S.C.J.
James §S. Hotpen, U.S.D.J.
7a
APPENDIX B
Judgments of the United States District Court for the
Southern District of New York
UNITED STATES DISTRICT COURT
For tHe Souruern District or New York
Docket No. 76 Cr. 01022-01 (CSH)
Untrep States oF AMERICA
vs.
Dovatas P. Frevps
Defendant
—+>—
JUDGMENT AND ProBaTION/COMMITMENT ORDER
In the presence of the attorney for the government
Lawrence Iason, AUSA the defendant appeared in person
on this date 1-10-80 with counsel Louis Bender, Esq.
Finpinc & JUDGMENT
There being a finding/verdict of Guilty on counts 1, 2, 3,
4&5. Title 18, U.S.C., 1001 and 2 and T. 15, U.S.C. Sees.
78n(a) and 78ff, 371. Defendant has been convicted as
charged of the offense(s) of unlawfully, wilfully and know-
ingly, in the offer and sale of securities, by the use of
means and instruments of transportation and communica-
8a
Appendix B
tion in interstate commerce and by the use of the mails,
and did conceal and cover up by trick, scheme, and device
material facts, and did make false, fictitious and fraudu-
lent statements and representations, and did make and use
a false writing and document, and by use of the mails and
by means and instrvumentalities of interstate commerce did
solicit proxies from shareholders, and conspiracy so to do.
(Title 15, U.S.C., Sees. 77q(a).
SENTENCE OR PROBATION ORDER
The court asked whether defendant had anything to say
why judgment should not be pronounced. Because no suf-
ficient cause to the contrary was shown, or appeared to the
court, the court adjudged the defendant guilty as charged
and convicted and ordered that: The defendant is hereby
committed to the custody of the Attorney General or his
authorized representative for imprisonment for a period
of Six (6) Months on count 1, and fined $10,000.00 on count
1. Six (6) Months on each of counts 2, 3, 4, and 5 to run con-
currently with each other, and concurrent with sentence
imposed on count 1. Defendant is fined $10,000.00 on each
of counts 2, 3, 4 and 5. Total fine of $50,000.00, a com-
mitted fine,
Stay all aspects of sentence for incarceration and fine
pending appeal.
Defendant is released on his own recognizance pending
appeal.
Signed by Cuartes S. Harcut, Jr.
U.S. District Judge
Date 1-10-80
9a
Appendix B
UNITED STATES DISTRICT COURT
For THE SourHerN District or New York
Docket No. 76 Cr. 01022-02 (CSH)
Unirep States or AMERICA
Vs.
Freperick M, F’'rmpMaNn
Defendant
JUDGMENT AND ProBATION/COMMITMENT ORDER
In the presence of the attorney for the government
Lawrence Iason, AUSA the defendant appeared in person
on this date 1-10-80 with counsel Sandor Frankel, Esq.
Finpine & JUDGMENT
There being a finding/verdict of Guilty on counts 1, 2, 3,
4&5. Sees. 1001 and 2, and Title 15 U.S.C., Sees. 78n(a)
and 78ff, 371.) Defendant has been convicted as charged
of the offense(s) of unlawfully, wilfully and knowingly,
in the offer and sale of securities, by the use of means and
instrument of transportation and communication in inter-
state commerce and by use of the mails, and did conceal
and cover up by trick, scheme, and device material facts,
and did make false, fictitious and fraudulent statements
10a
Appendix B
and representations, and did make and use a false writing
and document, and by the use of the mails and by means
and instrumentalities of interstate commerce did solicit
proxies from shareholders, and conspiracy so to do. (Title
15, U.S.C., Sees. 77(a) and Title 18, U.S.C.
SENTENCE OR PROBATION ORDER
The court asked whether defendant had anything to say
why judgment should not be pronounced. Because no suf-
ficient cause to the contrary was shown, or appeared to the
court, the court adjudged the defendant guilty as charged
and convicted and ordered that: The defendant is hereby
committed to the custody of the Attorney General or his
authorized representative for imprisonment for a period
of Three (3) Months on count 1, and fined $10,000.00 on
count 1. Three (3) months on each of counts 2, 3, 4 and 5
to run concurrently with each other, and concurrent with
sentence imposed on count 1. Defendant is fined $10,000.00
on count 2, and fined $5,000.00 on count 3. Total fine of
$25,000.00, a committed fine.
Stay all aspects of sentence for incarceration and fine
pending appeal.
Defendant is released on his own recogniznance pending
appeal.
Signed by Cuartes S. Haircut, Jr.
U.S. District Judge
Date 1-10-80
lla
Appendia B
UNITED STATES DISTRICT COURT
For tHe SourTHERN District or New York
Docket No. 76 Crim 01022-04
=~
—e
Unrtrep States oF AMERICA
VS.
Auan E. SANDBERG
Defendant
JUDGMENT AND ProBATION/COMMITMENT ORDER
In the presence of the attorney for the government the
defendant appeared in person on this date 03-06-80 with
counsel L. Bender.
Finpinc & JuDGMENT
There being a finding/verdict of Guilty. Defendant has
been convicted as charged of the offense(s) of unlawfully
and wilfully did use means of wire communications and
the U.S. Mail for the purpose of executing a scheme and
artifice to defraud.
(18 USC 1343 and 2) (18 USC 1341 and 2)
12a
Appendia B
SENTENCE OR PROBATION ORDER
The court asked whether defendant had anything to say
why judgment should not be pronounced. Because no suf-
ficient cause to the contrary was shown, or appeared to
the court, the court adjudged the defendant guilty as
charged and convicted and ordered that: The defendant is
hereby committed to the custody of the Attorney General
or his authorized representative for imprisonment for a
period of Six (6) weeks on Counts 6, 7, and 10 to run con-
currently with each other. Defendant is fined $1,000.00 on
each of Counts 6, 7, and 10 for total fine of $3,000.00 a com-
mitted fine.
Sentence to be served on Fourteen (14) consecutive week-
ends. The period of confinement each weekend to be
Three (3) days commencing at 6:PM Friday and ending
6:00 PM Sunday.
The fine to be paid within 30 days.
Counts 8 and 9 are dismissed on defendants motion.
Signed by Inzer B. Wyatt
Date 3-6-80
13a
APPENDIX C
Extract of Petition for Writ of Certiorari ;
Re: Frederick M. Friedman v. United States of America
Reasons for Granting the Writ
1. The Court of Appeals’ decision conflicts with the deci-
sion of the United States Court of Appeals for the
First Circuit in United States v. Rodman, 519 F.2d 1058
(1st Cir. 1975) on the issue of whether a District Court
may, in the proper exercise of its supervisory powers,
dismiss an indictment where the indictment results
from misconduct perpetrated by SEC attorneys upon
the target of an SEC investigation.
The gross extent of the fraud perpetrated by the SEC’s
aitorneys®* is highlighted by the following undisputed find-
ings of fact:
1. At the first meeting and at the subsequent meetings
between petitioner’s counsel (Gould) and the SEC’s at-
torneys, Gould made the SEC attorneys “fully aware that
defendants’ counsel had as one of their two primary ob-
jectives the avoidance of a criminal reference. . . . Gould
* Both SEC attorneys involved, Tucker and Perlmutter, were more
than low-level functionaries at the time of their misconduct. “Tucker,
although reporting to his superiors at the New York regional office,
was in operational command of the inquiry. Perlmutter was his top
assistant.” (See District Court’s finding of fact #20). During
the course of the SEC’s investigation in this case, Tucker became
acting assistant regional administrator of the SEC’s New York Re-
gional Office and Perlmutter became a branch chief (pp. 545-547
of Joint Appendix in Court of Appeals).
l4a
Appendiz C
again made clear to the SEC representatives that one
of his primary concerns was to avoid a criminal refer-
ence* in respect to his individual clients (petitioner and
co-defendants Fields and Davis)” (I***16, 19, 24).
2. “On June 17, 1975, in separate telephone conversa-
tions, Tucker advised Gould and Kantor that the SEC
investigation was almost concluded; and that it appeared
that the January 14 disclosures had been substantially
complete and accurate.” (F 21).
3. The minutes of the meeting of TDA’s board of di-
rectors for July 18, 1975 state, inter alia:
“Mr. Kantor reported that on June 17, 1975, a
member of the SKC staff had informed him that
their investigation was 95 per eent complete and
that his staff would not refer the matter for crim-
inal prosecution.” (JA***401).
Fields and Friedman were present at this mecting and
heard the statement (JA 475).
* Testimony was given at the District Court hearing by William
Nortman, Esq., who at the time of the SEC's TDA investigation
was Assistant Regional Administrator of the New York Regional
Office and at the time of the hearing was Associate Regional Admin-
istrator of the SEC’s Atlanta Regional Office, that such negotiations
—a negotiated civil settlement on the understanding concurred in
by the SEC that the SEC would not make a criminal reference—
were appropriate and proper at the staff level. (See pp. 743-747
of Joint Appendix in Court of Appeals).
** The letter “F” followed by a num er designates reference to
the District Court’s numbered findings of fact (all of which are set
forth at 7a-25a).
*** The letters “JA” followed by a number indicate page reference
to the Joint Appendix in the Court of Appeals.
l5a
Appendix C
4. Petitioner (and co-defendant Fields) resisted the
settlement terms initially demanded by the SlUC, but were
told by Gould “in response to their resistance that if
Fields and Friedman did not authorize him to attempt
to settle the case on the terms recommended by Gould,
then the SISC would not be bound by the agreement which,
in. Gould’s expressed view, it had made with them not to
make a criminal reference.” (F' 25).
5. On September 16, 1975, the SEC filed its civil com-
plaint. Gould believed this violated an agreement he
had reached with Perlmutter that its filing would be
deferred until the consent then being negotiated could be
finalized and filed with the complaint. Gould angrily up-
braided Perlmutter, and Perlmutter became “upset at the
incident.” (F 26).
6. Shortly after being upbraided by Gould, Perlmutter
telephoned Assistant United States Attorney Sorkin “to
urge that the United States Attorney’s office ‘investi-
gate the TDA matter.’ Perlmutter said that ‘we really
want to get TDA’, but advised Sorkin that he first wanted
to ‘wrap up’ the civil settlement before the United States
Attorney began its own inquiry. Perlmutter made several
other calls to Sorkin, of similar import, during October
and November.” (F 32).
7. On September 30, after Gould became ill and Judge
Streit, his law partner, took over the representation of
petitioner (and of co-defendant Fields), Judge Streit met
with Tucker and Perlmutter. At this meeting the SEC
attorneys announced that the money they would insist
the defendants pay to TDA in order to settle the case
had escalated to $585,000.00. “Judge Streit responded
that it was a ‘horrendous’ amount, and there were serious
questions concerning some of the figures, ‘but in light
l6a
Appendix C
of the fact that there is to be no criminal proscention I
shall endeavor to obtain the money for you’ (Tr. 150-
153).” (F 27).
8. “Tucker and Perlmutter remained silent in the face
of [Judge] Streit’s comment.” (F 27).
9. “[Judge] Streit reported this meeting to Fields,
Friedman and Davis, including the above-quoted state-
ment that had been made hy Judge Streit to which the
SEC representatives had not responded.” (F 28).
10. At subsequent meetings over the next several months
among Fields, Friedman, Davis, and their attorneys,
“Fields, Friedman and Davis resisted the terms that the
SEC was demanding for scttlement of the civil ease.
However, their resistance was overcome by their attorneys’
advice to them that the SEC had agreed that if a satis-
factory settlement was made of the civil action, there
would be no criminal reference.” (F 28).
11. After Gordon, attorney for Mosler, was told sepa-
rately by Fields and by Kantor that as part of the set-
tlement the SEC had agreed not to make a eriminal re-
ference, Gordon scheduled a meeting with Perlmutter for
the specific purpose of confirming it. At that mecting
“Gordon advised Perlmutter that he represented Mosler,
and stated to Perlmutter, among other things, that in
deciding whether to accept a directorship in TDA it was
important for Mosler to know whether there was going
to be a criminal reference of the case. Gordon further
stated to Perlmutter that Gordon understood there was
not going to be a criminal reference. Perlmutter assured
Gordon that there was not going to be a criminal refer-
ence. Gordon thereafter reported Perlmuttcr’s assurance
to Mosler and to Fields.” (F 29).
17a
Appendix C
12. Tucker and Perlmutter falsely testified at the hear-
ing that the conversation to which Gordon testified did
not oceur (JA 575, SA*21). The Court expressly re-
jected their denials (F 29, JA 68). Tucker and Perl-
mutter also testified falsely at the hearing when they
swore that Gould had been specifically told that there
was “no deal on criminal”. (F 24).
13. When Ostrow, counsel for co-defendant Sandberg,
concluded he could not persuade Tucker and Perlmutter
to pursue lightly, if at all, the complaint against Sand-
berg, “Ostrow agreed to recommend that Sandberg enter
into a settlement, stating to Tucker and Perlmutter that
settling would be ‘better than going over to the golden
dome’, a reference to the United States Courthouse across
the street from and visible from the window of the SEC’s
office. Ostrow’s reference to ‘going over to the golden
dome’ was intended by Ostrow to be a reference to facing
a federal indictment. Under the circumstances, it was
undoubtedly so understood by Tucker and Perlmutter,
who chuckled at the statement but said nothing.” (F 31).
14. On December 1, Gould and Judge Streit met with
Tucker and Perlmutter to diseuss the collateralization of
petitioner’s (and his co-defendants’) substantial financial
obligations under the settlement then in its final stages,
and Gould told them they had “got a great settlement,
take it”. Right after Gould left, Tucker referred the case
to the United States Attorney’s Office (F 33: JA 205).
15. “At the time he made the criminal reference of the
TDA case, Tucker knew that avoidance of a criminal re-
ference was one of two primary objectives for Fields and
* The letters “SA” followed by a number designate page refer-
ence to the Supplemental Appendix filed in the Court of Appeals.
18a
Appendix C
Friedman in the civil settlement negotiations (the other
being their retention as corporate officers), and the only
objective for Davis, an attorney who was not an officer
Notwithstanding that knowledge, Tucker at no time
disclosed to counsel for these defendants that a criminal
reference had in fac: been made. That non-lisclosure was
ealeulated and deliberate, not inadvertent. Tucker testi-
fied that he did not want to do anything that would jeo-
pardize the civil settlement (Tr. 1028-1029), and that, in
his view, the defendants
“ . , believed that there would be no crimina!
ease growing out of this and that is why thev en-
tered into a consent deerce. (Tr. 1091).” (1 25)
(See also JA 634-JA 636).
16. “[H]Jad [Gould] known, subsequent to December 1
but before execution of the consents to judgment, that a
criminal reference had in fact been made, he would have
recommended to his clients that they not enter into the
consents ... Such advice would have heen accepted, so
that the SEC would have lost the civil settlement which
Tucker’s concealment of the criminal referenee was speci-
fically designed to protect.” (F 37; see also F 28 and
F 39).
These undisputed facts* clearly show, as the District
Court found, a gross fraud perpetrated by the SEC's at-
torneys upon petitioner—in the words of Circuit Judge
Mansfield in his concurring opinion, “deceitful and dup-
licitous” conduct by the SEC’s attorneys in violation of
* It is most noteworthy that the Court of Appeals’ decision, while
not upsetting any of the District Court’s findings of fact, chose
simply to ignore virtually every one of the above highlights among
those findings.
19a
Appendix C
their “ethical obligation” owed to petitioner. It was in
light of these and other findings of fact, none of which
was disputed on appeal by the Government or overtly
disturbed in any respect by the Court -f Appeals, that the
District Court exercised what it believed to be its super-
visory powers and dismissed the indictment against peti-
tioner.
The Court of Appeals’ holding that the District Court
“abused its discretion” in dismissing the indictment in the
exercise of its supervisory powers clearly conflicts with
the decision of the United States Court of Appeals for the
First Cireuit in United States v. Rodman, 519 F.2d 1058
(1st Cir, 1975), which expressly held that under identical
circumstances the District Court’s dismissal of the indict-
ment was not an abuse of the District Court’s supervisory
powers.
In Rodman, the Court of Appeals for the First Cireuit
affirmed as “not an abuse of the [district] court’s super-
visory function’* the dismissal by the District Court of
an indictment where SIEC attorneys had failed to honor
a commitment they had made to the defendant during
the SEC’s investigation that they would strongly recom-
mend that the United States Attorney not prosecute the
defendant. In both Rodman and the instant case the in-
dictments resulted from misconduct committed by SEC
attorneys against the targets of their investigation: In
Rodman the misconduct was the failure by an SEC at-
torney to honor a commitment to recommend against crim-
inal prosecution, and here the misconduct was fraudulently
inducing petitioner to consent to an extremely onerous civil
settlement on the understanding that there would be no
criminal reference of the case while the SEC attorneys
* 519 F.2d at 1060.
20a
Appendia C
were at the very same time referring the case for eriminal
prosecution. The District Court in each ease dismissed
the indictment in the exercise of the District Court’s super-
visory powers; the First Cirenit Court of Appeals held
this not to be an abuse of the District Court’s supervisory
powers and the Second Cireuit Court of Appeals held this
to be an abuse of those powers.
The Second Cireuit’s attempt to distinguish Rodman
from this case was limited to the following purported dis-
tinction:
“The improper conduct here certainly was not as
egregious as that in United States v. Rodman, 519
F.2d 1058 (1 Cir. 1975), where the SEC not only
broke its promise but obtained incriminating evi-
dence from the defendant in reliance on that prom-
‘ise. Moreover, the promise there was to ‘strongly
recommend’ against prosecution.” (98a)
It is respectfully submitted that these purported distine-
tions are in fact non-existent and that upon analysis these
factors actually underscore the sharpness of the conflict be-
tween the decisions in Rodman and in this ease:
(a) As to the allegedly more “egregious” wrong in Rod-
man. In Rodman, SEC attorneys merely broke a promise
to the defendant; here, SEC attorneys committed the far
more serious misconduct of deliberately committing a
fraud against petitioner (and his co-defendants) by know:
ingly, wilfully, and fraudulently inducing him to consent
to extremely onerous civil sanctions based on what the
SEC attorneys knew to be the understanding of petitioner
and petitioner’s counsel that in exchange for these onerous
sanctions there would be no criminal! referénce of this case,
while at the very same time these same SC attorneys
were continually referring the case to—indced urging it
2la
Appendix C
upon—the United States Attorney’s Office for criminal
prosecution. Violation of an agreement made with the
target of an investigation, as occurred in [todman, is no
more “egregious” than is the wilful and deliberate perpe-
tration of a fraud and deceit upon the target of an inves-
tigation, as occurred here; to the contrary, the District
Court in Rodman did not question the SEC attorney’s good
faith in that ease, while here the District Court repeatedly
found bad faith on the part of the SEC attorneys. The
courts have traditionally treated fraud as far more serious
misconduct than breach of an agreement. Moreover, the
fraud* committed by the SEC attorneys here was com-
pounded by the fact (as specifically found by the District
Court) that at the hearing in the District Court in this
case those same SEC attorneys lied under oath concern-
ing the events in question (JA 575, SA 21, F 24).
(b) As to the fact that in Rodman incriminating evi-
dence was obtained. The Rodman record, which was in-
troduced in the District Court in this case, unequivocally
shows that in Rodman the prosecutor agreed, during the
course of the pre-trial hearing on Rodman’s motion to
dismiss the indictment, not to use any of Rodman’s state-
ments, and that the District Court in Rodman, in addi-
tion to its order dismissing the indictment, also alterna-
tively suppressed Rodman’s statements “in case some other
court disagrees with me on the matter of the motion to
dismiss” (JA 165). Thus in both Rodman and in the in-
stant case the defendant was not prejudiced in an evi-
dentiary sense, in that in both cases the defendant made
no statement which the Government could use against him.
In fact, in Rodman the defendant was not prejudiced at
* The fraud was committed not only by the SEC attorneys’ fraudu-
lent omissions but also by their affirmative fraudulent misstatements
(32a).
22a
Appendix GC:
all in view of the Government’s consent to and the District
Court’s entry of an alternative order that all incriminatin;;
statements he had made would be suppressed. In the instant
case, to the contrary, petitioner was incurably prejudiced in
a very practical sense. As the District Court found “it is
impossible, by reopening the civil consent judgments, to
restore the individuals concerned to the positions in which
they found themselves at the time of the non-disclosure
of the criminal reference, in December of 1975, and the
subsequent execution of the consent judgments.” (38a).
The onerous terms of the consent judgments, which the
SEC attorneys in charge of this investigation repeatedly
characterized during the District Court’s hearing as “su-
perb’”*, involved payment by the defendants of over one-
half million dollars** and substantial ancillary relief in-
volving multi-year prohibitions from holding corporate
office, from holding corporate directorships, from voting
* JA601-JA611. The reason advanced by Circuit Judge Mans-
field for not dissenting—that the SEC would have received the case
from the District Attorney’s Office had the defendants not brought
it to the SEC’s attention themselves—misses the mark: if that had
occurred, and had the SEC attorneys not engaged in their fraud on
the defendants, then the defendants would not have consented to
these extremely onerous civil sanctions. In other words, the defend-
ants did not claim they were entitled to dismissal of the indictment
because they had made a voluntary disclosure to the SEC, but because
the SEC attorneys had (as the District Court found) defrauded them
during settlement negotiations to induce their consent to these im-
pressive civil sanctions. The SEC’s fraud would be equally outrage-
ous even if the D.A.’s Office had referred the matter to the SEC.
(Furthermore, there was no evidence that the District Attorney’s
Office did in fact refer this matter to the SEC.)
** An amount, as the Government conceded below, in excess of the
amount which the Government itself charged the defendants with
having unlawfully received.
23a
Appendix C
privately owned stock, severe injunctive relief, and the
like; all of the terms are set forth at 22a-23a, fn. 2.°
(c) As to the “strong recommendation against prosecu-
tion” to be made in Rodman. In this case as in Rodman,
had the Government not committed its misconduct there
would have been no criminal case. The Government in
this case has conceded that this matter came to the atten-
tion of the United States Attorney’s Office only through
the criminal references by Perlmutter and Tucker (JA 8-
JA 9). Thus, had the SEC not perpetrated its fraud by
referring this case for criminal prosecution, as the SEC
attorneys knew was the petitioner’s understanding at the
time petitioner agreed to the onerous civil settlement here,
there would have been no criminal prosecution.
Accordingly, it is respectfully submitted that the deci-
sion by the Second Circuit Court of Appeals in this case
squarely conflicts with the decision of the First Circuit
Court of Appeals in Rodman, and that only a decision by
this Court can resolve this important conflict.**
* Moreover, as one lower court has observed, the Government
should be compelled to honor commitments in the interests of “judi-
cial integrity and the interests of justice”, even where there is “no
prejudice, apart from that suffered by the administration of justice.”
Matter of Doe, 410 F.Supp. 1163, 1165, 1166 (E.D. Mich. 1976).
** Significantly, other federal circuit courts of appeals, when pre-
sented with a close parallel to the issue presented by this direct con-
flict between Rodman and the instant case, have resolved the issue
in favor of permitting District Courts, in the exercise of discretion,
to dismiss indictments. (See, e.g., United States v. Minnesota Min.
(Footnote continued on following page)
2Aa,
Appendiz
2. The Court of Appeals’ decision in forbidding a District
Court to exercise its supervisory powers to remedy a
fraud perpetrated by a governmentai agency upon a
citizen has decided an important question of federal
law vital to the administration of the laws by the SEC
(and other governmental agencies) and to the admin-
istration of criminal justice, a question which has not
yet been but should be decided by this Court.
The importance of the conflict referred to above is mani-
fest not only because it is a conflict but additionally be-
cause it leaves unresolved the significant issue of whether
a United States District Court, when confronted with an
indictment which results from fraudulent misconduct on
the part of the attorneys representing governmental agen-
cies, has the power to deter future governmental miscon-
(Footnote continued from preceding page)
& Mfg. Co., 551 F.2d 1006, 1112 (8th Cir. 1977) (“the remedy for
the breach of this promise rests in the discretion of the trial court
. and under the circumstances of this case we cannot say that
the remedy of dismissing the indictment was undue or an abuse of
discretion”); United States v. Carter, 454 F.2d 426 (4th Cir. 1972),
cert. denied 417 U.S. 933 (1974)); this was the result mandated
by this Court in Santobeilo v. New York, 404 U.S. 257, 263 (1971)
(“the ultimate relief to which petitioner is entitled we leave to the
discretion of the state court”); and other District Courts have also
exercised their discretion in analogous situations in the same manner
as the District Court in this case. (See, e.g., United States v.
Phillips Petroleum Co., 435 F.Supp. 622 (N.D. Okla. 1977) ; United
States v. Paiva, 294 F.Supp. 742 (D.C. D.C. 1969)). The cases
cited in this footnote are analogous, not identical (although cf.
Elkins v. United States, 364 U.S. 206 (1960)), as the misconduct
therein was perpetrated by the prosecuting arm of the Executive
Branch; Rodman and the case at bar, however, are identical and
indistinguishable, not merely analogous, as in both cases the miscon-
duct was perpetrated not by the prosecuting arm o! the Executive
Branch, but by attorneys for the SEC. Rodman and this case are
absolutely irreconcilable.
25a
Appendiz C
duct and to grant reasonable redress to wronged parties
by dismissal of the indictment.
The SEC refers approximately 100 cases per year to the
Department of Justice for criminal prosecution.* This
Court may also judicially notice that numerous other ad-
ministrative agencies have the statutory authority to, and
do, refer cases to the Department of Justice for criminal
prosecution. There has been no dispute at any stage in
this case—by the United States Attorney’s Office, by the
SEC, or by the Court of Appeals—that the District Court’s
uncontested findings of fact clearly establish that the SEC
attorneys wilfully perpetrated an outrageous fraud upon
petitioner and his co-defendants. This case thus presents
the question of whether when an administrative agency
perpetrates such an undisputed and adjudicated fraud upon
a target of its investigation, a District Court is completely
powerless to dismiss an indictment where no other remedy
exists which would restore petitioner to his pre-victimized
status.** This is, moreover, the second reported case
* See SEC amicus curiae memorandum in the Court of Appeals,
p. 13, n. 35.
** The District Court’s finding that “it is impossible, by reopening
the civil consent judgments, to restore the individuals concerned to
the positions in which they found themselves at the time of the non-
disclosure of the criminal reference, in December of 1975, and the
subsequent execution of the consent judgments” (38a) was amply
justified: petitioner was prevented for the full period dictated by the
the settlement from acting as director of TIA and Westcalind,
from serving as a chief executive officer of TDA and Westcalind,
and from voting his shares of TDA and Westcalind stock, and, of
course, paid out an enormous sum of money in settlement and was
subjected to other substantial injunctive relief. Nor did the Court
oi Appeals question this finding. Even the Government in its
appellate brief in the Court of Appeals abandoned the contention
it had made in the District Court that the petitioner could be “made
whole” by any remedy short of dismissal of the indictment.
26a
Appendix C
within the last several years in which SEC attorneys
have violated their legal and ethical obligations to sub-
jects of SEC investigaticns.*
The importance of resolution by this Court of this
significant question concerning the extent of the super-
visory powers of federal District Courts under these
circumstances is hightighted by the fact that the SEC
has effectively announced that it will not undertake by
itself appropriate steps to prevent a reeurrence of such
fraudulent misconduct by its attorneys. In the Govern-
ment’s petition for rehearing in the District Court, the
SEC advised the District Court that “on the basis of
the factual findings contained in the opinion of the Court,
the Commission has undertaken an independent inquiry
in this matter at the conclusion of which the Commission
will take all action which it deems appropriate.” (JA 128).
However, the SEC subsequently decided (without advising
either the District Court or Cirenit Court) to “defer”
its inquiry until the conclusion of this very case (SA 1-
SA 4). The SEC by its promise of action followed by
its inaction has effectively served notice that only the
exercise of judicial supervisory powers will prevent a
repetition of this type of fraudulent misconduct.
Thus, the Court of Appeals’ decision in this ease, if
permitted to stand, will not only stand in conflict with
the First Cireuit Court of Appeals’ decision in Rodman,
but will also result in this type of misconduct remaining
uncorrected by the SEC, and will, further, be an open
invitation to all Government agencies and their attornevs
and other representatives to act as they wish, without
any fear that their fraudulent misconduct, supported later
by perjury, will be judicially dealt with in the strong
* The other reported case being United States v. Rodman, supra.
27a
Appendiz C
terms. such misconduct merits and which the District
Court in this case (and in Rodman) properly invoked.
This Court has observed that
“we may some day be presented with a situation
in which the conduct of law enforcement agents is
so outrageous that due process principles would
absolutely bar the government from invoking judi-
cial processes to obtain a conviction.” United
States v. Russell, 411 U.S. 423, 431-432 (1973).
We respectfully submit that in view of the gross fraud
perpetrated by the Government agents here, this is that
situation.
28a
APPENDIX D
Order of the United States Court of Appeals Denying
Petition for Rehearing
(Filed—-September 2, 1980)
Unirep Sratres Court or APPEALS
Seconp Circuir
At a Stated Term of the United States Court of Appeals,
in and for the Second Circuit, held at the United States
Court House, in the City of New York, on the Second day
of September, one thousand nine hundred and eighty
Present:
HonorasLe WituiaM H. Mvutuican
Circut Judge
HonorasLe THomas J. MESKILL
Cirewt Judge
_ Honoraste James 8. HoLpen
District Judge
80-1027
80-1067
80-1104
Unirep States OF AMERICA,
Plaintiff-Appellee,
v.
Doveias P. Fietps, Frepertck M. FriepMan and
Autan EK. SANDBERG,
Defendants-Appellants.
29a
Appendix D
A petition for rehearing having been filed herein by
counsel for the defendants-appellants
Upon consideration thereof,.it is
Ordered that said petition be and it hereby is Deniep.
A. DanteL Fusaro
A. Daniel Fusaro
Clerk
30a
Appendix D
Order of the United States Court of Appeals Denying
Motion to Recall Mandate, etc.
(Filed—September 2, 1980)
Unitrep Srates Court or APPEALS
Seconp Crircuir
At a Stated Term of the United States Court of Appeals,
in and for the Second Circuit, held at the United States
Court House, in the City of New York, on the Second day
of September, one thousand nine hundred and eighty
80-1027
La
—
Unirep Srates or AMERICA,
Plaintiff-A ppellee,
Vv.
Doveuas P. Frevos, Freperick M. Frrepman,
Defendants-Appellants.
» ™
a
It is hereby ordered that the motion made herein by
counsel for the appellants and set forthwith in appellants
petition for rehearing to recall the mandate and to stay
its reissuance pending application to the Supreme Court
of the United States for a writ of certiorari be and it
hereby is denied.
WittuM H. Mvuiuican
Tuomas J. MESKILL
JAMES 8. Hotpen D.J.
Circwt Judges
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