Petition for Writ of Certiorari — Grossman v. United States
Supreme Court brief1989
Ask Donna
What actually matters in this document.
Text
af 88 -2 32 ona Supreme Court, U.S. "7
FILED
AUG 5 1988
IN THE JOSEPH F. SPANIOL, JR.
ERK
SUPREME COURT OF THE unrrepl spares
OCTOBER TERM, 1988
ISRAEL G. GROSSMAN,
Petitioner,
-against-
UNITED STATES OF AMERICA,
Respondent.
—_—————— —————— $$$ $$$ — $$ ————$———
PETITION FOR A WRIT OF CERTIORARI TO
THE UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
=o —
Nathan Z. Dershowitz
Dershowitz & Eiger, P.C.
225 Broadway, Suite 2515
New York, New York 10007
(212) 513-7676
Alan M. Dershowitz
232 Brattle Street
Cambridge, MA 02138
(617) 495-4617
Mar. D. Cahn
Victoria B. Eiger
Of Counsel
Attorneys for Petitioner
Israel G. Grossman
QUESTIONS PRESENTED FOR REVIEW
Whether, in a federal prosecution, the
defendant must prove specific prejudice
in order to establish that his Fifth and
Sixth Amendment rights have been violated
when he is forced to trial two business
days after the return of a superseding
indictment which, among other things,
added ten new counts and radically
changed the nature, scope and time frame
of the case against which he had to
defend. inti
Whether criminal sanctions may be imposed
upon an attorney under Section 10(b) of
the Securities Exchange Act and Rule
10b-5 for “misappropriating”™ information
from his law firm and its client where
the law firm and the client -- neither of
which purchased securities from nor sold
securities to Petitioner -- are the
alleged victims of the fraud.
Whether confidential information about a
proposed recapitalization entrusted to a
law firm by a client for the limited
purpose of obtaining legal advice is
“property” of the law firm or the client
within the meaning of the mail fraud
statute where the information was not
commercial information gathered or
developed by the client or the law firm,
where neither the client nor the law firm
had the right to use the information for
any commerical purpose, and where the
only injury which could arise from
misappropriation of the information was
injury to the law firm's reputation.
Whether a defendant is entitled under
Brady v. Maryland to access to admittedly
exculpatory grand jury testimony of an
alleged co-conspirator who does not
testify at trial but whose hearsay.
statements inculpating the defendant are
introduced through another prosecution
witness.
- iii -
TABLE OF CONTENTS
QUESTIONS PRESENTED FOR REVIEW......+++-1
TABLE OF CONTENTS. *eneeeneeeeeeneeneneeeneeeee iv
TABLE OF AUTHORITI ES *enerieeeeneteneneeneeeeneeeeese vi i i
CONSTITUTIONAL PROVISIONS AND
STATUTES i b rrr TTT TTT ° |
OPINIONS BELOW... cccccesccccsessseseeeseXiV
JURISDICTION OF THE COURT....--eeeeeeeeeKiv
STATEMENT OF THE CASE..ceeeeeerececcceeel
REASONS FOR GRANTING THE WRIT
POINT I DUE PROCESS IS
VIOLATED AND THE ENDS
OF JUSTICE ARE ILL-
SERVED WHERE A
DEFENDANT IS GIVEN
ONLY TWO DAYS" TIME
TO PREPARE A DEFENSE
TO A SUPERSEDING
INDICTMENT WHICH
ADDED TEN ENTIRELY
NEW COUNTS TO THE
ORIGINAL INDICTMENT
AND WHICH, IN
ADDITION, DRASTICALLY
CHAHGED THE NATURE +
AND THE SCOPE OF THE
CASE AGAINST WHICH HE
WAS CALLED UPON TO
DEFEND. .ccccccccceseseseel4
a
'¢
é e
2
: mRasti fF: ) Se Cee
. 2a ! will
st,.,98e ie WF Aes
a ae eee outage py
: Ai my of ere a i
| is a } My ae ae La i 7
ct
POINT II
POINT III
CRIMINAL* SANCTIONS -
MAY NOT BE IMPOSED
UPON AN ATTORNEY,
UNDER SECTION 10(b)
AND RULE 10b-5, FOR
“MISAPPROPRIATING"
INFORMATION FROM HIS
LAW FIRM AND ITS
CLIENT, WHERE THE LAW
FIRM AND THE CLIENT
-- NEITHER OF WHICH
PURCHASED SECURITIES
FROM NOR SOLD
SECURITIES TO
PETITIONER -- ARE THE
ALLEGED VICTIMS OF
PSF TTT TTT
CONFIDENTIAL
INFORMATION ABOUT A
CORPORATION'S
PROPOSED
RECAP ITALIZATION
ENTRUSTED TO A LAW
FIRM BY A CLIENT FOR
THE LIMITED PURPOSE
OF ALLOWING THE FIRM
TO RENDER LEGAL
ADVICE IS NOT
“PROPERTY” OF THE LAW
FIRM OR CLIENT WITHIN
THE MEANING OF THE
MAIL FRAUD STATUTE
WHERE THE INFORMATION
WAS NOT GATHERED OR
DEVELOPED BY THE
CLIENT OR THE LAW
FIRM, WHERE NEITHER
THE CLIENT NOR THE
LAW FIRM HAD THE
RIGHT TO USE THE
erro
INFORMATION FOR ANY
COMMERCIAL PURPOSE,
AND WHERE THE ONLY
HARM WHICH MIGHT
ARISE FROM
MISAPPROPRIATION OF
THE INFORMATION WAS
INJURY TO THE LAW
FIRM'S REPUTATION........ 48
POINT IV A DEFENDANT IS
ENTITLED UNDER BRADY
v.- MARYLAND TO ACCESS
TO ADMITTEDLY
EXCULPATORY GRAND
JURY TESTIMONY OF AN
ALLEGED CO-
CONSPIRATOR WHO DOES
NOT TESTIFY AT TRIAL
BUT WHOSE HEARSAY
STATEMENTS
INCULPATING THE
DEFENDANT ARE
INTRODUCED THROUGH
ANOTHER PROSECUTION
WITNESS... ee ccvccceecrce es eIO
he ae) bs eee eee er
APPENDIX
OPINION OF THE UNITED STATES COURT
OF APPEALS FOR THE SECOND CIRCUIT
(MARCH 25, I9GG) co ccvccccvescccasecssAnl
ORDER OF THE UNITED STATES COURT
OF APPEALS FOR THE SECOND CIRCUIT
DATED MAY 9, 1988 DENYING REKEARING
AND REHEARING EN BANC.......-. eoeeeeA-21
eS om
ORDER OF JUSTICE THURGOOD MARSHALL
DATED JUNE 24, 1988 EXTENDING TO
AND INCLUDING AUGUST 5, 1988 THE TIME
TO FILE PETITION FOR A WRIT OF
CERTIORARI] cccccccsssccccccsseseese eAm2a
- vii -
TABLE OF AUTHORITIES
Affiliated Ute Citizens v. United States,
Gm Wels LEO CEDIA) bane cease ka ee ee 36
Blue Chip Stamps v. Manor Drug Stores,
421 U.S. 123 (1915) ccncccvccceses e334
Bourjaily v. United States,
BUT Bele SFIS CABS Pe ccvccesecsser 58
Brady v. Maryland,
373 US. BS (1963) wcccsscccvesvese 13,56
Carpenter v. United States,
Bee Matta BOW LEWE paceccreccnes .-»-Passim
Chiarella v. United States,
445 oo Se ly Mel 5 rere Passim
Dirks v. SEC,
Ses wale 646 (1963)... ccscas sa 0h 242,435,866
Eason v. General Motors Acceptance
Corp., 490 F.2d 654
7th Cir. 1973), cert. denied,
416 U.S. 960 (1974)... ccc ccc nsnee 38
Ernst & Ernst v. Hochfelder,
* Bo Fi . Beis jj} eres 34,35,42
McNally v. United States,
107 S.Ct. 2675 (19S7).crcccescvsece Passim
Paul v. Davis,
mae memes OOP CASTE) cc one be eee escaes 53
- viii -
Russell v. United States,
De) Par SPM e he cecoeseseceecses 24
Santa Fe Industries v. Green,
ae Mee LAMP Sp ececccccocsece 35,36,41
SEC v. Materia, 745 F.2d 197 (1984).....43
SEC v. Texas Gulf Sulphur Co.,
401 F.2d 833 (2d Cir. 1968),
cert. denied, 394 U.S. 976 (1969).
Taylor v. Illinois,
10S S.Ct. 646 (1988)... cccccccens
Ungar v. Sarafite,
SIG UcB. 3573 (1964). ceccccccccccce
United States v. Baldinger,
838 F.2d 1/6 (6th Cir. 1988)......
United States v. Chiarella,
588 F.2d 1358 (2d Cir. 1978),
Sr. Mee Wels 22 (1960). cccccess
United States v. Evans,
844 F.2d 36 (2d Cir. 1988)........
United States v. Guzman,
754 F.2d 482 (2d Cir. 1985),
cert. denied, 106 S.Ct. 758 (1986).
United States v. Murphy,
836 F.2d 248 (6th Cir. 1988).......
United States v. Newman,
664 F.2d 12 (2d Cir. 1981),
cert. denied, 464 U.S. 863 (1983)..
~37
»28
43
a
United States v. Ochs,
B42 F.42G Sid (ist Cir. 1988) .ccecces 50
United States v. Rojas-Contreras,
474 U.S. 231 (LISS) cccccccccccccees 14,27
United States v. Richerson,
833 F.2d 1148 (5th Cir. 1987)...... 50
United States v. Runnels,
833 F.2d 1183 (6th Cir. 1987)...... 50
OTHER AUTHORITIES
Insider Trading and the Misappropriation
Theory: Has the Second Circuit Gone Too
Far?, 61 St. John's L. Rev.
Pe Umma 4. 66 600604666006 06660000408 Dassim
U.S.
part:
U.S.
part:
CONSTITUTIONAL PROVISIONS AND
STATUTES INVOLVED
Const., amend. V provides, in pertinent
No person shall be ... deprived
of life, liberty, or property,
without due process of law.
Const., amend. VI provides, in pertinent
In all criminal prosecutions,
the a used shall enjoy the
right ... to be informed of the
nature and cause of the
accusation; ....to have
compulsory process for
obtaining witnesses in his
favor, and to have the
Assistance of Counsel for his
defense.
Section 10(b) of the Securities Exchange Act
of 1934, 15 U.S.C. §$784(b), provides, in
pertinent part:
It shall be unlawful for any
person, directly or indirectly,
by the use of any means or
instrumentality of interestate
commerce or of the mails, or of
any facility of any national
securities exchange ....
To use or employ, in connection
with the purchase or sale of
any security registered on a
national securities exchange or
any security not so registered,
Rule
any manipulative or deceptive
device or contrivance in
contravention of such rules and
regulations as the [Securities
and Exchange] Commission may
prescribe as necessary or
appropriate in the public
interest or for the protection
of investors.
10b-5, 17 C.F.R. §240, 10b-5 provides:
It shall be unlawful for any
person, directly or indirectly,
by the use of any means or
instrumentality of interstate
commerce, or of the mails or of
any national securities
exchange,
(a) to employ any device,
scheme, or artifice to defraud,
(b) to make any untrue
statement of a material fact or
to omit 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
(c) to engage in any act,
practice, or course of business
which operates or would operate
as a fraud or deceit upon any
person, ‘in connection with the
purchase of sale of any
security.’
- xii <«
3 4 far =u
a Fe Bei:
9 il,
¥
ra
ij
»
+
t
The mail fraud statute, 18 U.S.C. $1341,
provides, i: pertinent part:
Whoever, having devised or
intending to devise any scheme
or artifice to defraud, or for
obtaining money or property by
means of false or fraudulent
pretenses, representations, or
promises, ... for the purpose
of executing such scheme or
artifice or attempting so to do
L[uses the mails or causes them
to be used,] shall be fined not
more than $1,000 or imprisoned
not more than five years, or
both.
- xiii -
OPINIONS BELOW
The opinion of the United States Court of
Appeals for the Second Circuit in United
States v. Grossman is reported at 843 F.2d 78
(2d Cir. 1988), and is set forth in the
appendix at A-l.
JURISDICTION OF THE COURT
The judgment of the Court of Appeals for
the Second Circuit was entered on March 25,
1988. (A-1) The order denying a petition for
rehearing and suggestion for rehearing en banc
was entered on May 9, 1988. (A-21) On motion
of the Petitioner, Justice Thurgood Marshall
granted Petitioner‘s request that the time for
filing a petition for a writ of certiorari be
extended to and including August 5, 1988.
(A-23)
F - xiv -
This Court has jurisdiction to review the
judgment of the United States Court of Appeals
for the Second Circuit under 28 U.S.C.
§1254(1).
STATEMENT OF THE CASE
On March 17, 1987, the grand jury for the
Southern District of New York returned a 24
count indictment which charged Petitioner
Israel G. Grossman with 12 paired counts of
securities fraud and mail fraud premised on
the Second Circuit's controversial
“misappropriation” theory of securities fraud.
The indictment charged that Grossman, an
attorney employed as an associate in the
pension department of the New York law firm of
Kramer, Levin, Nessen, Kamin & Frankel
("Kramer, Levin"), committed, or aided and
abetted the commission of, securities fraud
and mail fraud in connection with purchases of
Options to buy shares of Colt Industries, Inc.
("Colt" or “the company").
The indictment alleged that Kramer, Levin
represented not Colt, but the Trustees of
Colt's Pension Plan, and that the Pension
Plan, an owner of Colt stock, had entrusted to
the law firm confidential, non-public
information it had received from Colt
regarding a proposed recapitalization of the
company. Under the recapitalization proposal,
each shareholder except the Pension Plan would
receive $85 cash and a share in the newly
capitalized company. (The company's shares
were trading at $66 to $70 at the time.) The
Pension Plan would receive, pursuant to a
certain formula, only shares, no cash.
Kramer, Levin was retained by the Trustees of
the Plan to advise whether the proposal was
fair and whether it should be approved. The
indictment also alleged that the law firm had
a policy forbidding its employees from trading
in securities on the basis of confidential,
non-public information and forbidding the
disclosure of confidential information to
others.
The 12 securities fraud counts charged
that, between July 11 and July 18, 1986,
Petitioner Grossman engaged in a scheme to
defraud Kramer, Levin and its “clients” “in
connection with" certain purchases of Colt
stock options by George Hirschberg, Walter
Herzberg, and Norman Stein. Hirschberg and
Herzberg were, respectively, Grossman's uncle
and cousin. Stein was not related to Grossman
but was a friend of Shimon Lev, the husband of
one of Grossman's cousins.
The indictment included 12 matching mail
fraud counts based on the 12 purchases of Colt
options. The alleged mailings were, in each
instance, the mailing of brokerage
confirmations by the broker or clearinghouse
to the option purchaser, Hirschberg, Herzberg
or Stein.
Trial was scheduled to commence on
Monday, August 3, 1987. On Thursday, July 30,
1987, just two business days before the trial
date, a superseding indictment was returned
over the defendant's vigorous claims of
prejudice.
The new indictment differed in several
important respects from the original one.
This indictment spelled out in greater detail
the government's misappropriation theory.
More significantly, unlike the initial
indictment, it put Petitioner on notice, for
the first time, that the government claimed
that he had personally benefited from the
scheme. In addition, it extended the term of
the alleged fraudulent scheme. The original
indictment charged a scheme which occurred
during a discreet period in July of 1986. The
new indictment, in vivid contrast, alleged
that the scheme began in July of 1986 but
continued to and including the date of the
filing of the second indictment, over a year
later.
Finally, the new indictment contained 38
counts, 14 more than the original indictment.
Four of the new securities fraud counts (and
corresponding mail fraud counts) arose from
splitting i: :o two counts transactions which
were stated as one count in the initial
indictment.
But five of the new securities fraud
counts and five corresponding mail fraud
counts were entirely new. They involved
purchases of Colt call options and stock on
various dates in July by Saul Listokin,
Grogsman's brother-in-law, a person never even
mentioned in the original indictment.
Nevertheless, over defendant's claim of
prejudice and inadequate time to prepare a
defense, the defendant was forced to trial~on
the new indictment the following Monday.
At the trial, the government's chief
witness was David Lev, the brother of Shimon
Lev. David Lev was a convicted perjurer who
was out of the country when all of the Colt
option purchases were made and who had no
contact whatsoever with Petitioner.
Nevertheless, over objection, he was permitted
to testify about conversations he claimed he
had had with his brother Shimon Lev. All of
these conversations occurred after July 23,
1986 that is, at a time outside the period
described in the original charge but within
the extended time frame of the superseding
indictment, and all concerned purchases of
Colt options by Norman Stein. It was his
testimony which purported to establish that
Petitioner himself profited from the
securities transactions. Specifically, if
both the fact and the substance of David Lev's
reported hearsay conversations with his
brother Shimon Lev were believed, they showed
that Petitioner had tipped Shimon Lev about
the Colt recapitalization, that the disclosure
was not innocent or inadvertent, and that
based on the tip Norman Stein had purchased
Colt options for himself and for Shimon Lev.
Crucially, David Lev also testified that
Shimon Lev had told him that Grossman himself
had a financial interest in the securities
transactions and that Grossman was paid his
share of the proceeds via a check for $25,000
from David Lev (who was then holding Shimon's
profits) which he, David Lev, made out in
blank and gave to Shimon at Shimon’ request.
At the same time, however, the
prosecution -- but not the defense -- had
Shimon Lev's sworn grand jury testimony in
which, apparently, he had exculpated Israel
Grossman and denied Grossman's involvement.
The prosecution took the position that its
— Brady obligation was fully discharged by
notifying Grossman that Shimon Lev might have
exculpatory information; it refused to turn
over his concededly exculpatory grand jury
testimony, and the trial court refused to
order the prosecution to turn it over.
The remainder of the government's case
was entirely circumstantial, tending to
establish, through Kramer, Levin witnesses,
that Petitioner may have learned about the
Colt recapitalization plan through his
colleagues at the law firm and, through the
law firm's telephone records, that telephone
calls were placed from Petitioner's office to
his relatives around the time that they were
purchasing Colt options. A Kramer, Levin
partner testified that the firm had a
confidentialty policy which was important to
getting and keeping business and which was
designed to insure compliance with the
securities laws.
Through employees of brokerage houses and
their clearinghouses, the government proved
that George Hirschberg, Walter Herzberg, Saul
Listokin and Norman Stein purchased out-of-the
money call options for Colt stock. There was
testimony that, pursuant to their general
business practices, the brokerage houses or
Clearing houses mailed confirmation slips for
each purchase to the option purchaser,
confirming that a requested purchase order had
been executed and stating the price at which
the purchase had been made.
The proposed recapitalization plan was
approved and, after the announcement of the
recapitalization plan, Colt stock rose
substantially in value. The Listokin account
had sold its options before the
recapitalization announcement, and had lost
money on the transactions. The other option
purchasers -- Hirschberg, Herzberg and Stein
-- made substantial profits on their
investments in Colt options.
The government's evidence on the Listokin
counts, the new charges which were first
mentioned in the superseding indictment, was
rather different. As to these transactions,
the government purported to have proof of
Grossman's direct personal, albeit
surreptitious, involvement in the purchase of
Colt securities. Based on testimony of a
Whitehall Securities’ executive that the
customer who opened the Listokin account was
extremely nervous, that witness's failure to
identify Listokin from a photograph, and
expert testimony that the signature on the
Original account documents was not in fact
» 10 «
Listokin's, the government argued that it was
Petitioner himself who visited whitehall
Securities and op*ned the account in
Listokin's name. Based on the congruence of
Kramer, Levin telephone records and Whitehall
Securities’ business records which recorded
the time of day when purchase orders were
executed, the prosecution also claimed that it
was Petitioner himself who, by telephone from
his office at Kramer, Levin, actually placed
the purchase orders for Colt options through
that account.
Petitioner's defense was that guilt was
not proved beyond a reasonable doubt. By
focusing on the circumstantial nature of the
proof, and through cross-examination of the
government's witnesses, he sought to establish
that he hac not surreptitiously obtained
o ik «
f ’ y =) yy ae = be
1
’
«
-
-
“s
>
y
a]
_
information known by him to be confidential
and that he had no culpable involvement in the
charged purchases of Colt securities.
The jury convicted Petitioner on all
counts. He was sentenced to a two year prison
term.
The Court of Appeals for the Second
Circuit affirmed. The Court rejected
Grossman's claim that he should not have been
forced to trial two days after the return of a
superseding indictment, noting that he had
adequate notice -- through discovery and an
SEC civil proceeding -- "of the Listokin
trades and the government's interest in them"
(A-14) and ruling that the "superseding
indictment did not alter substantially the
government's case against Grossman." (A-15)
The Court of Appeals rejected his claim that
the confidential information at issue was not
property of the type protected by the mail
ba iia nA TE 2 CNL ye BS,
he As te Gh
aL ew hit Ae tne ster
ee oe ee | eee’
$
a
:
3
3
a
fraud. (A-16) The Court of Appeals also
rejected his claim that he was entitled to
have had the exculpatory grand jury testimony
of Shimon Lev under Brady v. Maryland, 373
U.S. 83 (1963), and Fed. R. Crim. P. 6(e).
(A-15-16) Petitioner preserved for review in
this Court his challenge to the validity of
the Second Circuit's "misappropriation" theory
of securities fraud. (Brief of Defendant-
Appellant in the Court of Appeals at 44.)
REASONS FOR GRANTING THE WRIT
POINT I
DUE PROCESS IS VIOLATED AND THE
ENDS OF JUSTICE ARE ILL-SERVED
WHERE A DEFENDANT IS GIVEN ONLY
TWO DAYS' TIME TO PREPARE A
DEFENSE TO A SUPERSEDING
INDICTMENT WHICH, AMONG OTHER
CHANGES, ADDED TEN ENTIRELY NEW
COUNTS AND DRASTICALLY CHANGED
THE NATURE AND THE SCOPE OF THE
CASE AGAINST WHICH HE WAS
CALLED UPON TO DEFEND
In United States v. Rojas-Contreras, 474
U.S. 231 (1985), this Court held that the
Speedy Trial Act of 1974, 18 U.S.C. $3161 et
seg-, does not prohibit commencement of a
trial less than 30 days after the defendant's
arraignment on a superseding indictment. The
Court left to the trial court's discretion the
power to grant a continuance where the return
of a superseding indictment necessitates
further defense preparation. Justice Burger,
writing for the Court, predicted that:
The authority of the District
Court to grant an “ends of
justice" continuance should
take care of any case in which
the Government seeks a
superseding indictment which
operates to prejudice a
defendant.
106 S.Ct. at 558. Justices Blackmun and
Brennan, concurring, were more specific about
when trial court's must recognize a
defendant's right to defense preparation time
following the return of a superseding
indictment. They noted that not every
superseding indictment burdens a defendant for
"CfJrequently, a superseding indictment is
used to drop charges or parties or, as here,
to make a minor correction leaving the charges
and the evidence necessary to defend against
them unaffected." Id. at 560. But, they
recognized, some superseding indictments do
“add to a defendant's burden in preparing for
trier.” Id.
In the event of additional
charges, a defendant may well
need additional preparation
time. The Constitutional right
to assistance of counsel is
rendered meaningless if a
defendant is forced to trial in
the absence of adequate time toc
prepare. To avoid prejudicing
a defendant, a continuance
should be granted when there is
a meaningful possibility that a
superseding indictment will
require an alteration or
adjustment in the planned
defense. Trial courts should
bear in mind that counsel may
require time fully to analyze
the impact of the superseding
indictment, and to explore any
options it presents or
precludes.
Id., footnote omitted.
As this case demonstrates, the advice of
Justices Blackmun and Brennan has gone
unheeded and Justice Burger's prognostication
that the availability of an ends-of-justice
continuance “should take care of any case” in
which a superseding indictment ...
prejudice[s] a defendant" has gone unrealized.
Rather, in this case the Second Circuit has
adopted a rule which turns this Court's
assumptions on their head. Under the Second
Circuit's rule a defendant is not entitled to
any defense preparation time following the
return of a superseding indictment -- even one
which adds numerous new charges and reflects
massive changes in the government's case --
unless the defendant can demonstrate actual
prejudice. And, according to the Second
Circuit, a defendant cannot demonstrate such
prejudice if he had notice -- through any
source -- of the government's “interest” in
the facts underlying the new charges and/or if
the evidence introduced to prove the charges
in the superseding indictment might have been
introduced at a trial on the original
indictment.
Under the Second Circuit's ruling, the
defendant's need to prepare a defense to new
charges or to explore options the new
indictment presents or precludes is, entirely
irrelevant.
=
The rule announced in this case by the
Second Circuit, a major departure from the
rule previously applied in that Circuit, can
only work great mischief in the administration
of justice in the federal courts. abelian
a burden on the defendant to demonstrate
specific prejudice as a result of trial
without defense preparation time, it renders
meaningless the defendant's Sixth Amendment
rights to counsel and to present a defense.
And it directly compromises the integrity of
the fact-finding process.
In complex federal criminal prosecutions,
superseding indictments are no longer the
exception, but the rule. Given the demands
inherent in heavy federal court caseloads and
those exerted by the Speedy Trial Act on the
calendars of the federal district court
judges, there are tremendous pressures to keep
—_—” we
a previously set criminal trial date firm; a
continuance can wreak havoc on a district
judge's tightly scheduled calendar.
As this case demonstrates, it is apparent
that a body of rules must be developed which
will give clear guidance to both federal
prosecutors and district judges as to when
additional preparation time must be granted
following return of a superseding indictment
or when, alternatively, the prosecution must
rest content with prosecuting the defendant on
only those charges set forth in the original
indictment. Indeed, a per se rule mandating a
minimum of 30 days' preparation time upon the
defendant's request whenever a superseding
indictment adds new criminal charges may be
appropriate. But per se rule or not, in this
case, the Constitution was violated, and the
proceeding was unfair where the defendant was
forced to trial without any significant time
to prepare a defense to ten new counts, added
at the last minute. Because, on these new
counts, the prosecution claimed that
Petitioner personally made securities
purchases, it is patent that their addition
not only required him to prepare a defense as
to these specific charges, but also compelled
him to adjust his overall defense to take the
government's evidence into account. At the
very least, in light of the fact that the five
new mail fraud charges were based on a mailing
by a different brother, it was crucial that
the defense have a chance to investigate the
office procedures and mailing practices of
that broker.
The ten new counts added by the
superseding indictment were, in quite another
respect, not merely more of the same. It is
no exaggeration to say that they massively
shifted the focus of the government's case.
shi
It was the prosecution's contention, based on
a witness's failure one year later to identify
Saul Listokin as the person who opened the
trading account- bearing his name, and an
opinion that the signature on the original
account-opening papers was not really
Listokin's, that it was Petitioner himself,
who opened the Whitehall account, masquerading
as Listokin and signing Listokin's name to the
account documents. It was further the
government's contention -- and, an
extraordinarily damaging one since it linked
the Petitioner directly to the purchase of the
Colt options -- that, during telephone calls
placed from his office to Whitehall
Securities, it was Petitioner himself who
placed orders for the purchase of Colt options
in Listokin's name.
/
As the prosecutor implicitly recognized
when he told the trial judge that he “needed"
the superseding indictment, none of this
extremely damaging evidence would have been
admissible in the case had the government gone
to trial on the original indictment. And, if
it was to be admitted at Petitioner's trial,
simple fairness and the requirements of due
process demanded that Petitioner be accorded
an opportunity to prepare a defense to it.
For example, the suggestion that it was not
Listokin, but Petitioner himself who opened
the trading account made it critical for
Petitioner to demonstrate who it was, if not
Listokin, who opened the account. The
introduction of the Listokin transactions also
made it extremely important to challenge the
validity or reliability of the Kramer, Levin
telephone records insofar as they purported to
record or reflect the time of day telephone
calls were made. This was a subject which was
completely irrelevant with respect to all of
the non-Listokin, non-Whitehall telephone
calls but it was absolutely critical to the
validity of the inference that orders for Colt
securities in the Listokin account were placed
by telephone calls made from Grossman's office
at Kramer Levin.
The district judge apparently concluded
that Grossman had adequate warning because he
was aware that the government was interested
in the Listokin transaction; they were a part
of the SEC's allegations against Petitioner
and others in a civil suit. The Second
Circuit endorsed this reasoning. it ruled
that Petitioner could show no prejudice
(notwithstanding his conviction on ten felony
counts based wholly on the Listokin trades)
Since he had notice -- via pretrial discovery
and the civil proceeding -- "of the Listokin
» 23 «
;
trades and the government's interest in them."
(A-14) But a civil suit cannot give a
defendant notice of criminal charges
sufficient to satisfy due process. Under our
Constitution it is the indictment which most
apprise the defendant of what he must bebe
prepared to meet Russell v. United States, 369
U.S. 749, 763 (1962). Knowledge of the
government's “interest” in a particular set of
facts is not the equivalent of notice to a
defendant that he will be compelled to
defendant against charges based on those facts
in a criminal proceeding.
Likewise, the superseding indictment's
expansion of the time frame and its
allegation, for the first time, that
Petitioner had personally profited from the
alleged scheme were changes which were
substantial and which, by their nature,
necessitated consideration of changes in
defense strategy. Plainly, the changes in the
indictment were sought by the prosecution to
reflect both a change in the prosecution's
theory of the case, and a major shift in its
evidence and trial strategy. By expanding the
time frame and introducing the allegation that
Grossman had himself profited from this
scheme, the superseding indictment provided
the framework for a far more complex set of
charges against the Petitioner than did the
Original charge. Furthermore, in laying out
that framework, it provided the vehicle
through which the government was able to
introduce, mostly through highly suspect "co-
conspirator hearsay" testimony, a great deal
of damaging, through highly dubious, evidence.
Specifically, the prosecution was able to
present to the jury David Lev's report of his
co-conspirator conversations with Shimon Lev
about Grossman's involvement.
The Second Circuit framed the issue as
whether Petitioner was prejudiced by the
superseding indictment. The Court concluded
that he was not on the ground that the same
evidence could have been admitted even at a
trial on the original indictment. But,
Petitioner maintains, that test of prejudice
is not the proper standard, as the Second
Circuit formerly recognized in United States
v. Guzman, 754 F.2d 482 (2d Cir. 1985), cert.
denied, 106 S.Ct. 758 (1986), a rule it has
now inexplicably repudiated.
In that case, the defendant complained on
appeal that he had been forced to stand trial
one day after the filing of a superseding
indictment which expanded the scope of the
charged narcotics conspiracy from a time
sini elliniaalsitin ee
period of two days to one of almost two years.
The government's argument was that Guzman was
not prejudiced because the same evidence could
A ie ia A nce nd
have been presented at a trial on the original
indictment. The Second Circuit rejected the
government's argument and reversed Guzman's
conspiracy conviction:
By focusing on the
prosecution's case and the fact
that the evidence introduced at
trial on the superseding
indictment was the same as that
which the government had
expected to use at the first
trial, the district court
neglected to take into account
the impact that the second
indictment might have had on
defense theories of the case,
and the defendant's need for a
more extended preparation.
754 F.2d at 486. The Second Circuit nas now
adopted a rule which, notwithstanding Rojas-
Contraras, neglects to take into account the
impact the superseding indictment might have
on defense theories of the case and the
defendant's need for further preparation.
This Court has cautioned that "a myopic
insistence upon expeditiousness in the face of
a justifiable request for delay can render the
¥ © AA at nad hentai 2
iia acisiscteireterin et 2
right to defend with counsel an empty
formality." Ungar v. Sarafite, 376 U.S. 575,
589 (1964). Ironically, in this case,
expeditious disposition of criminal charges
was not even an issue. The defense was ready,
willing and able to go to trial, as scheduled
on the original indictment, as planned. It
was the prosecution's unilateral decision to
add a host of new charges at the last
conceivable moment and the trial court's
acceptance of this maneuver which gave rise to
the problem.
In our adversary system, surprise claims,
like surprise witnesses, are not favored. As
this Court recently stated in Taylor v.
Illinois, 108 S.Ct. 646, 653 (1988), the
adversary process can only function fairly and
effectively if “each party [has] a fair
opportunity to assemble and submit evidence to
contradict or explain the opponent's case.
The last-minute return of a superseding
indictment which makes substantial change in
the original charge, as this superseding
instrument most certainly did, and the
insistence that the defendant defend the new
charges without a reasonable period of time to
prepare a defense subverts the policies
reflected in the Speedy Trial Act and,
Petitioner contends, offends the Fifth and
Sixth Amendments.
This case presents a question of
Substantial importance to prosecutors deciding
whether or not to seek a superseding
indictment, federal district judges who must
make important and difficult scheduling
decisions when superseding indictments are
returned, and defendants, like Petitioner
here, whose Constitutional rights to adequate
notice of the charges against them and an
opportunity to plan and present their defenses
are directly affected by those decisions. For
these reasons, certiorari should be granted.
POINT II
CRIMINAL SANCTIONS MAY NOT BE
IMPOSED UPON AN ATTORNEY, UNDER
SECTION 10(b) AND RULE 1Cb-5,
FOR “MISAPPROPRIATING"
INFORMATION FROM HIS LAW FIRM
AND ITS CLIENT, WHERE THE LAW
FIRM AND THE CLIENT -- NEITHER
OF WHICH PURCHASED SECURITIES
FROM NOR SOLD SECURITIES TO
PETITIONER -- ARE THE ALLEGED
VICTIMS OF THE FRAUD
Certiorari should be granted in the
instant petition to resolve an issue of
extraordinary importance regarding the
application and reach of the federal
securities laws. Petitioner Israel Grossman
was prosecuted and convicted on a theory of
securities fraud which has divided this Court
and which extends the reach of the federal
securities statute well beyond that which
either the statute or the decisions of this
Court will permit. The Petitioner was
convicted under a theory that misappropriation
of confidential information by a fiduciary for
o 2f «
use in trading securities, regardless of who
the seller or purchaser of securities is,
violates Section 10(b) and Rule 10b-5.
Indeed, the jury was instructed that,
independent of any sale or purchase of
securities, it would be sufficient to convict
Petitioner under the securities laws if the
jury found an “actual or potential injury ...
to the reputation of the law firm.” Tr. at
1369.
Fifty years of jurisprudence have
established that the purpose of Section 10b
ee Se ea
and Rule 10b-5 is to protect public investors,
not the reputation of a law firm.! The
cela alg be
las one observer recently noted:
The Supreme Court and lower
federal and state courts have
consistently held that a major~™
aim of securities legislation
is to protect the investing
public from unfair manipulation
of the securities markets.
Civil and criminal cases
brought under Rule 10b-5
(footnote continued)
securities laws are designed to protect market
participants against securities fraud; they
are neither designed, nor drafted, to protect
anyone against any kind of fraud, so long as
there is some later contact -- however remote
and unrelated -- with a securities trade.
Petitioner did not defraud or injure any
member of the investing public in connection
(footnote continued from previous page)
likewise emphasize the
protection of investors as one
of the primary functions of the
rule and section 10(b).
Because the misappropriation
theory relies on the damage
done to employers rather than
to investors, Rule 10b-5 has
been improperly utilized as a
vehicle to protect the
reputations of employers. An
employee's fraudulent breach of
the duty of confidentiality
constitutes a fraud against the
employer, not against investors
in the market.
Insider Trading and the Misappropriation
Theory: Has the Second Circuit Gone Too Far?,
61 St. John's L. Rev., 78, 108 (1986).
with its purchai
conduct did not FALL Within the
of the federal securities statutes,
“The starting point in every case
involving construction of a statute is the
language fof the statute] itself." Ernst &
Ernst v. Hochfeldér, 425 U:i8. 185, 197 (1976),
quoting Blue Chip Staiips Vi Matot Bria Sto
421 U.S. 723, 7358 (1978) (Pawel)
concurring). T\! Wek Ve a@tad tha
‘ tH; 4tild Vb} ' +“w44
Securities and
4 | 4 ' 4 iat i 4 oat | ay
read ‘more broa’'' bah
; -eaautil Mihy Lilia }
statutory schem 1s '
’ 1Ce@aGa Btates, €49 U.S ' 134
Chiarella v. Unser. =====
ns omitted), ine 1¥34 Act
(1980) (citatio
; itutory basis for prescriptions
provides the Y :
, , ing. Section 1LO(b) of the 1934
of insider trad 3
: lawful for "any person,
Act make its un yl
Lrectly ese COQ USB QI emp yy ,
directly or ind
Ltn che PHIEChasSs i npailiGc I iii
lin connection w
eS \ ¥ 2) YX 1T VA : TAY.
rules and regulations” as the SEC maj
prescribe. Rule lLOb=5, in turn, prohibits
‘any person" from engaging in “any act,
practice, or course of business which operates
iy Would operate as aA FEraica oO} 1Are if Moh AN,
7 7 of ry
ANAS) ’ 4 ‘
’
' ‘ ' +4 | \ : '
| Lib & \ + ih 4\4 » 4 i ’ +4 \ ;
: ; iin } SF Lac ft i \ } tliat ij \ L iil
jSlies we! Ly Trerets "CLO ht Ga . 2 Sh, Such) ib W ois Ii
Saies, matcnead oragers, or rigged prices, Chat
ire intended to mlslead investors by
artificially affecting market activity.
There can be little question that the term, as
applied in the statute, refers to the
manipulating of investors. As this Court
observed in Santa Fe:
Section 10(b)‘s general
prohibition of practices deemed
by the SEC to be “manipulative”
-- in this technical sense of
artificially affecting market
activity in order to mislead
investors -- is fully
consistent with the fundamental
purpose of the 1934 Act ‘to
substitute a philosophy of full
disclosure for the philosophy
of caveat emptor ....'
430 U.S. at 476-77 (quoting Affiliated Ute
Citizens v. United States, 406 U.S. 128, 151
(1972)).
The legislative history indicates that
Rule 10(b) was promulgated “specifically to
close ‘a loophole in the protection against
fraud ... by prohibiting individuals or
companies from buying securities if they
engage in fraud in their purchase." Note,
Insider Trading and the Misappropriation
Theory: Has the Second Circuit Gone Too Far?,
61 St. Johns L. Rev. 78, 88 (1986) (hereafter
Insider Trading and the Misappropriation
Theory), quoting SEC Securities Exchange Act
Release No. 3230 (May 21, 1942)} {emphasis
added). The rule, modeled after section 17(a)
of the Securities Act of 1933,2 was broadened
to encompass manipulation in the sale of
securities as well. Id.
This Court has faithfully limited the
application of Rule 10b to those activities
clearly proscribed by this regulation --
limiting the applicability to Rule 10b-5 to
fraudulent nondisclosure. Through the 1960's
2See SEC v. Texas Gulf Sulphur Co., 401 F.2d
833, 86/7 (2d Cir. 1968), cert. denied, 394
U.S. 976 (1969):
Although the authority for the
Rule comes from sect¢ion 10(b)
of the Securities and Exchange
Act of 193¢. the draftsmen
turned their backs on that
section and borrowed the words
of section 17 of the Securities
Act of 1933, simply broadening
these to include frauds on the
seller as well as the buyer.
and 1970's, without support in either
legislative history or statutory language,
circuit courts attempted to expand the “list
of insiders and transactions covered by [the
Rule] and [relax] common law requirements for
fraudulent nondisclosure while emphasizing the
goal of achieving fairness and equal access to
information for all investors in the
securities markets.” Insider Trading and the
Misappropriation Theory at 93.3 In response,
3Not all circuit courts ignored the
significance of tne requirement that the
injured party be an investor. As then-Circuit
Judge Stevens observed in Eason v. General
Motors Acceptance Corp.:
The emphasis on the injured
party's status as an investor
indicates that the protection
of the rule eytends to persons
who, in their capacity as
investors, suffer significant
injury as a direct consequence
of fraud in connection with a
securities transaction, even
though their participation in
the transaction did not involve
either the purchase or the sale
of a security.
(footnote continued)
this Court issued a series of decisions
consistently holding that trading securities
on the basis of undisclosed information is
fraud under section 10(b) and Rule 10b-5 only
where the trader owes a duty of disclosure of
a market participant.
In United States v. Chiarella, 588 F.24
1358 (2d Cir. 1978), rev'd, 445 U.S. 222
(1980), for instance, the Second Circuit had
affirmed the conviction of a mark-up man,
employed by a printer, who had discovered the
names of companies targeted for tender offers
by the printer's corporate empioyer and
subsequently traded in these companies’
stocks. The Circuit Court held that “(Lajnyone
-- corporate insider or not -- who regularly
receives material corporate information may
(footnote continued from previous page)
490 F.2d 654, 659 (7th Cir. 1973), cert.
denied, 416 U.S. 960 (1974).
not use that information ... without incurring
an affirmative duty to disclose." 588 F.2d at
1365 (emphasis in original).
In considering the substantive reach of
Rule 10b-5 for the first time, this Court
reversed the Second Circuit's Chiarella
decision, and held that mere possession of
material nonpublic information did not impose
an obligation to disclose or a duty to refrain
from trading. 445 U.S. at 235. Rather, the
Court held that silence accompanying trading
does not constitute fraud under the securities
laws unless there exists “a duty to disclose
arising from a relationship of trust and
confidence between the parties toa
transaction." Id. at 230. This Court
concluded that it could not affirm the
petitioner's conviction without recognizing a
“general duty" between all participants in
market transactions to forgo actions based on
’
« 40 «
material, nonpublic information," 445 U.S. at
233 -- recognition which the Court would not
undertake absent explicit evidence of
congressional intent. 1a.4
Similarly, in 1983, the Supreme Court
addressed the issue of "tippee liability," and
the holding of Chiarella was extended to cover
the tippees of insiders. In Dirks v. SEC, 463
U.S. 646, 654 (1983), this Court noted that
"[njot ‘all breaches of fiduciary duty in
connection with a securities transaction’ come
within the ambit of Rule 10b-5." Id. (quoting
Santa Fe Industries, Inc. v. Green, 430 U.S.
462, 472 (1977)).°
4mhis Court, in Chiarella, specifically
refused to rule on the merit of the
misappropriation theory as an alternative
basis for affirmance, holding that such a
theory of conviction had not been submitted to
the jury. 445 U.S. at 236.
SIndeed, this Court wrote that "in a statutory
area of the law such as securities regulation,
where legal principles of general application
(footnote continued)
A tippee may assume a fiduciary duty to
shareholders of a corporation not to trade on
material nonpublic information "only when the
insider has breached his fiduciary duty to the
shareholders by disclosing the information to
the tippee and the tippee knows or should know
that there has been a breach." Id., 463 U.S.
at 660. Moreover, the Court observed that "a
violation [of section 10(b)] may be found only
where there is “intentional or willful conduct
designed to deceive or defraud investors by
controlling or artificially affecting the
price of securities.'" Dirks v. SEC, 462 U.S.
646, 663 n. 23 (1983) (quoting Hochfelder, 425
U ee at 199).
Petitioner was convicted of securities
fraud under a theory -- the misappropriation
theory -- which departs from the dictates of
(footnote continued from previous page)
must be applied ... behavior that may fall
below ethical standards of conduct" is not
always illegal. 463 U.S. at 661, n. 21.
Chiarella and Dirks, and which evenly split
this Court in its most recent analysis of the
issue.© This theory was first advanced in
United States v. Newman, 664 F.2d 12 (2d Cir.
1981), cert. denied, 464 U.S. 863 (1983),
where the government alleged that employees of
two investment houses had breached the trust
and confidence of their employers, and
violated Rule 10b-5, by misappropriating
confidential information of corporate clients,
and trading on this information. The Second
Circuit reversed the district court's
dismissal of the complaint, holding that the
defendants' “conduct ... could be found to
constitute a criminal violation of Section
10(b) and Rule 10b-5 ...." Newman, 664 F.2d
at 16. Three years later, in SEC. v. Materia,
745 F.2d 197 (1984), a copyreader employed by
a financial printer, was convicted of
6See Carpenter v. United States, 108 S.Ct. 316
(1987).
securities fraud for trading on information
divined from confidential information
entrusted to his employer. 745 F.2d at 202.
Most recently, in United States v. Carpenter,
791 F.2d 1024 (2d Cir. 1986), aff'd in part,
aff'd by an equally divided court in part, 108
S.Ct. 316 (1987), a divided Court affirmed the
conviction of a Wall Street Journal reporter
who had revealed the prepublication schedule
and contents of a Journal article to a
broker-dealer, who in turn traded on this
information and shared the profits with the
reporter. In sum, in Carpenter the Second
Circuit wrote:
Thus, because of his duty of
confidentiality to the Journal,
defendant Winans -- and Felis
and Carpenter, who knowingly
participated with him -- had a
corollary duty which they
breached, under section 10(b)
and Rule 10b-5, to abstain from
trading in securities on the
basis of the misappropriated
information or to do so only
upon making adequate disclosure
to those with whom they traded.
791 F.2d at 1034.7
The misappropriation theory, as announced
in Newman, Materia, and Carpenter, and applied
in the present case, departs from Supreme
Court precedent in two fundamental ways.
First, it “presupposes that the
misappropriation of market-sensitive
information from an employer, combined with
subsequent trading in the securities market on
the basis of the information, satisfies the
requirements for Rule 10b-5 liability,
regardless of whether any fiduciary
relationship exists between the
misappropriator and a market participant.”
7In dissent, Judge Miner noted that “[wjhile
the proscription of fraudulent and deceptive
practices in connection with the purchase and
sale of securities is a broad one, it never
was intended to protect the reputation or
enforce the ethical standards of a financial
newspaper." 791 F.2d at 1037 (Miner, J.,
dissenting).
Insider Trading and the Misappropriation
Theory, supra, at 102. Moreover, the theory
imposes a general duty to disclose or abstain
from trading, a duty which was specifically
rejected by the Supreme Court in its Chiarella
decision.8
Similarly, the theory, as applied in the
instant case, turns the Supreme Court's
decision in Dirks on its head.
Under Dirks, a tippee's
liability for trading on the
basis of material nonpublic
information is dependent on his
having received the information
from a tipper who breached a
fiduciary duty by revealing the
information for personal gain.
Utilizing the misappropriation
theory to impose liability upon
tippees ignores the personal
gain requirement since the
insider, whether it be an
investment banking firm or a
S"we know of no rule of law... that a
purchaser of stock, who was not an ‘insider’
and had no fiduciary relationship to a
prospective seller, had any obligation to
reveal circumstances that might raise a
seller's demands and thus abort the sale."
Chiarella, 445 U.S. at 232, n. 14 (citations
omitted).
financial newspaper, has no
motive of personal gain in
revealing the information.
Insider Trading and the Misappropriation
Theory, supra, at 105-06.
There was never any allegation, in the
instant case, that that alleged "tipper" --
whether it be Petitioner's law firm or its
client -- benefited, or had a motive to
benefit, from the "tip," as required in Dirks.
Dirks, 463 U.S. at 662-64. As one observer
has noted, "such an expansive application of
Rule 10b-5 fails to provide adequate notice as
to which trading activities violate securities
laws." Insider Trading and the
Misappropriation Theory, supra, at 106.
This case presents an opportunity to
resolve the incontrovertibly important issue
left open by this Court's split decision in
Carpenter. The writ of certiorari should
therfore be granted.
POINT III
CONFIDENTIAL INFORMATION
ABOUT A CORPORATION'S
PROPOSED RECAPITALIZATION
ENTRUSTED TO A LAW FIRM BY
A CLIENT FOR THE LIMITED
PURPOSE OF ALLOWING THE
FIRM TO RENDER LEGAL
ADVICE IS NOT “PROPERTY"
OF THE LAW FIRM OR CLIENT
WITHIN THE MEANING OF THE
MAIL FRAUD STATUTE WHERE
THE WAS NOT INFORMATION
GATHERED OR DEVELOPED BY
THE CLIENT OR THE LAW
FIRM, WHERE NEITHER THE
CLIENT NOR THE LAW FIRM
HAD THE RIGHT TO USE THE
INFORMATION FOR ANY
COMMERCIAL PURPOSE, AND
WHERE THE ONLY HARM WHICH
MIGHT ARISE FROM
MISAPPROPRIATION OF THE
INFORMATION WAS INJURY TO
THE LAW FIRM'S REPUTATION
In McNally v. United States, 107 S.Ct.
2875 (1987), this Court held that the mail
fraud statute, 18 U.S.C. $1341, protects only
property rights, not intangible rights such as
the right of citizens to have their state's
affairs conducted honestly. In Carpenter v.
United States, 108 S.Ct. 316 (1987), the Court
»
held that, while McNally removed intangible
rights from the scope of the mail fraud
statute, intangible property rights were still
within the statute's scope. Specifically, the
Court held that confidential business or
commercial information -- in that case, the
publication schedule and contents of the Wall
Street Journal's "Heard on the Street Column"
-- though intangible, was nevertheless
property protected by the federal mail fraud
law.
The question which this case presents is
which intangible rights are “property”
interests (and thus within the statute's
protection) and which intangible rights are
“non-property"™ interests outside its scope. A
host of recent decisions demonstrates that
this question, irrelevant before McNally and
Carpenter but crucial in the aftermath of
those two decisions, demands an answer from
this Court. The decisions of the lower courts
are increasingly in disarray, and federal law
has become unacceptably uncertain. See, e.g.,
United States v. Runnels, 833 F.2d 1183 (6th
Cir. 1987) (union official's failure to turn
over a bribe to the union was a property
deprivation under McNally); United States v.
Richerson, 833 F.2d 1147 (5th Cir. 1987)
(employee's concealment of material
information from his employer causes property
harm because the employer does not receive the
property for which he paid); United States v.
Ochs, 842 F.2d 515 (lst-Cir. 1988)
(disapproving Richerson and Runnels); United
States v. Murphy, 836 F.2d 248 (6th Cir. 1988)
(state's right to control or object with
respect to issuances of a bingo permit does
not constitute property right of the state,
although, once issued, permit would be
property of holder); United States v.
Baldinger, 838 F.2d 176 (6th Cir. 1988) (right
to conduct business free of false information
concerning status of associate's polygraph
license not a property interest); United
States v. Evans, 844 F.2d 36 (2d Cir. 1988)
(right to control future arms sales is not a
property right).
This case involves confidential
information developed by Colt Industries, Inc.
but divulged to its Pension Plan and, by the
Plan, to the Plan's lawyers for the sole and
exclusive purpose of allowing the Plan to
obtain legal advice. The precise question
which this case presents is whether such
information is “property” of the Pension Plan
or of the law firm so that its
misappropriation constitutes interference with
a property right even though the
misappropriation in no way interferes with the
Client's or law firm's ability to use the
information for the purpose for which it was
entrusted to them and even though the only
harm alleged or shown is potential injury to
the law firm's reputation because of its
inability to keep confidential information
confidential.
In this case, the Court of Appeals,
relying on Carpenter, essentially held that
all business-related information is the
property of its holder, regardless of the
nature of the information, the circumstance
under which the holder obtained it, or the
nature or scope of the holder’s right to
exploit it. In so doing, it ignored every one
of those factors which led this Court to
conclude that the information at issue in
Carpenter, though intangible, was “property”
of the Wall Street Journal: the fact that the
information was the stock in trade of the
paper, gathered at the cost of enterprise,
organizations, skill, labor and money to be
sold to others, like any other merchandise,
and the fact that the misappropriation
interfered with the Journal's right to
exclusive use of the information.
Petitioner contends that whatever
“interest” Kramer, Levin had in the
confidential information entrusted to it was
not a property interest which Petitioner
violated. What may have been violated was its
non-property interest (i.e., its desire) to
keep the information confidential. This
interest or desire was a function of its
ethical responsibilities and of its desire to
protect its reputation. Under this Court's
decisions, however, neither one’s interest in
one’s reputation, Paul v. Davis, 424 U.S. 693,
712 (1976), nor an interest in an employee's
faithful service, see McNally v. United
States, supra, is a property interest
protected by the mail fraud statute. (Nor,
even if it were, is it the “interest”
Petitioner is alleged to have
misappropriated. )
As the reported cases show, schemes to
defraud may assume almost an infinite variety
of for: ; and the types of interests such
schemes can affect are equally varied. This
Court's decisions in Carpenter and McNally
have rendered it essential to differentiate
between “property" interests and “non-
property" interests ina eenkeek where those
concepts were never before relevant. While
common law definitions may help elucidate the
meaning ot “property" under McNally, legal
definitions developed for one purpose cannot
always be used for another. The lower courts
will therefore continue to confront this
question, and will continue to reach
disparate, irreconcilable conclusions. The
uncertainty to which Carpenter and McNally
have given rise is unacceptable.
The petition for a writ of certiorari
should be granted.
POINT IV
A DEFENDANT IS ENTITLED TO
ACCESS TO ADMITTEDLY
EXCULPATORY GRAND JURY
TESTIMONY OF AN ALLEGED CO-
CONSPIRATOR WHO DOES NOT
TESTIFY AT TRIAL BUT WHOSE
HEARSAY STATEMENTS INCULPATING
THE DEFENDANT ARE INTRODUCED
THROUGH ANOTHER WITNESS
This case presents the important question
whether the rule of Brady v. Maryland, 373
U.S. 83 (1963), is violated where the
prosecvtor possesses, but refuses to disclose,
transcripts of exculpatory grand jury
testimony merely because the defendant has
been advised that the testimony was
exculpatory and can speak to the grand jury
witness about his testimony. Relying on a
line of Second Circuit cases holding that
Brady does not require the go.:rnment to hand
Over exculpatory evidence “if the defendant
knew or should have known the essential facts
permitting him to take advantage of any
exculpatory testimony," the Court of Appeals
rejected Petitioner's claim that he was
entitled to the transcripts. (A-15)
Petitioner was convicted largely on co-
conspirator hearsay evidence presented through
the testimony of David Lev, himself a
convicted perjurer, who testified about
conversations he allegedly had with his
mentally unbalanced brother, Shimon Lev, who
was not called to testify for the prosecution.
According to David Lev, in those conversations
Shimon Lev inculpated Petitioner. At the same
time the government (but not the jury) well
knew that, in sworn grand jury testimony given
under a grant of immunity, Shimon Lev had
contradicted David Lev's claims and had
exculpated Petitioner.
This Court has indicated that one reason
why the admission of co-conspirator hearsay
does not violate defendant's rights is that
Rule 806 of the Federal Rules of Evidence
permits a defendant to impeach the hearsay
declarations of alleged co-conspirators.
Bourjaily v. United States, 107 S.Ct. 2775,
2781 (1987). If the guarantee is to be
meaningful, the Brady rule must extend to
Sworn grand jury testimony of the alleged co-
conspirators which directly contradicts his
hearsay statements.
Certiorari should be granted to consider
this important question.
ar NCI us in
oe a8 -.. a \/i¥
For the above-stated reaons, the writ of
certiorari’~should be granted.
Respectfully submitted,
Nathan Z. Dershowitz
Dershowitz & Eiger, P.C.
225 Broadway, Suite 2515
New York, New York 10007
(212) 513-7676
Alan M. Dershowitz
232 Brattle Street
Cambridge, MA 02138
(617) 495-4617
Attorneys for Petitioner
Israel G. Grossman
Dated: August 5, 1988
New York, New York
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
—
No. 777—August Term, 1987
(Argued February 19, 1988 Decided March 25, 1988)
Docket No. 87-1419
7
UNITED STATES OF AMERICA,
Appellee,
—Vv.i—
ISRAEL G. GROSSMAN,
Appellant.
Before:
TIMBERS, KEARSE and MAHONEY,
Circuit Judges
>
Appeal from a judgment entered September 15, 1987 in
the Southern District of New York, Richard Owen, Dis-
trict Judge, convicting appellant on nineteen counts of se-
curities fraud and nineteen counts of mail fraud.
Affirmed.
ALAN M. DERSHOWITZ, Cambridge, Mass.
(Mark D. Cahn, Victoria B. Eiger,
Nathan Z. Dershowitz, and Dershowitz
& Eiger, New York, N.Y., on the brief),
for appellant.
ROBERT GAGE, Assistant United States Attor-
ney, New York, N.Y. (Rudolph W.
Giuliani, United States Attorney, Celia
Goldwag Barenholtz and John F.
Savarese, Assistant United States Attor-
neys, New York, N.Y., on the brief), for
appellee. )
TIMBERS, Circuit Judge:
Appellant Israel G. Grossman appeals from a judgment
entered September 15, 1987 in the Southern District of
New York, upon a jury verdict, Richard Owen, District
Judge, convicting appellant on (1) nineteen counts of secu-
rities fraud, in violation of 15 U.S.C. §§ 78j(b) (1982),
78ff (1982 & Supp. IV 1986) and 17 C.F.R. § 240.10b-5
(1987); and (2) nineteen counts of mail fraud, in violation
of 18 U.S.C. §§ 2 and 1341 (1982).
On appeal, Grossman claims principally that he was not
given enough time to prepare for trial on a superseding in-
dictment which was returned two business days before
trial; and that he should have been given allegedly exculpa-
tory grand jury testimony. Other subordinate claims are
raised.
We hold that the district court did not abuse its discre-
tion in denying Grossman’s motion to dismiss the super-
A-2
2256
seding indictment or in failing to grant a continuance to
prepare for trial on the superseding indictment. We also
hold that the government was not obliged to provide
Grossman with the grand jury testimony.
We affirm.
I.
We shall summarize only those facts and prior proceed-
ings believed necessary to an understanding of the issues
raised on appeal.
At the time of the events in question, Grossman was an
associate in the Manhattan law firm of Kramer, Levin,
Nessen, Kamen & Frankel (‘‘Kramer Levin’’ or ‘‘the
firm’’). He became associated with Kramer Levin in Octo-
ber 1984 and worked in its pension department which con-
sisted of two partners and five associates.
On July 9, 1986, attorneys in the pension department of
Kramer Levin were retained by the trustees of a pension
plan known as the Retirement Savings Plan for Salaried
Employees (the ‘‘Plan’’), of Colt Industries, Inc.
(‘‘Colt’’). The Plan retained Kramer Levin to represent it
in connection with a proposed recapitalization of Colt
scheduled for July 20, 1986. Under the recapitalization,
each Colt shareholder except the Plan would redeem their
common stock in exchange for a cash payment of $85 per
share and one share in the recapitalized company. A share
in the recapitalized company was expected to have a value
of $15. The Plan, which held about seven percent of Colt’s
stock, would receive no cash but instead would receive an
equivalent number of shares in the recapitalized company.
Public announcement of the proposed recapitalization was
expected to cause Colt’s stock to rise dramatically.
4.3
2257
Ne
Starting on July 9, 1986 and continuing until the recapi-
talization was announced, Kramer Levin attempted to
keep information of the recapitalization confidential. On
drafts of documents and in correspondence, it used a code
name for the matter or omitted the client’s name and dol-
lar amounts. It established the policy of not letting others
in the firm know of the matter except on a ‘‘need-to-
know’’ basis.
Kramer Levin also periodically circulated to its attor-
neys a general memorandum on its confidentiality policy.
This memorandum stated that attorneys receiving infor-
mation from clients could not use that information for
trading and could not give it to anyone else for any pur-
pose. Kramer Levin circulated this confidentiality memo-
randum several times while Grossman was an associate.
The last time the firm circulated the memorandum prior to
the Colt transaction was November 1, 1985.
On July 10, 1986 (the day after the Plan retained Kra-
mer Levin), Michael Nassau, the senior partner in the pen-
sion department, met with several attorneys in the
department (not including Grossman), and briefed them
on the Colt recapitalization. Martin Fleischer was one of
the associates at the meeting.
That same evening, Grossman went to Fleischer’s office
and asked him if he was working on the new transaction
Grossman had been hearing about. Fleischer said he was.
In response to further questions from Grossman, Fleischer
told him almost everything about the recapitalization, in-
cluding the estimated value of the new shares; the amount
of cash per share to be given to the shareholders; and the
identity of ‘‘the others involved’’. At trial, Fleischer was
unsure whether he divulged to Grossman the name of the
client; he testified that he did not recall his response when
A-4
2258
Grossman asked him the client’s name. Fleischer also testi-
fied that Grossman had visited him only five other times in
the year and a half they had worked together.
The events that occurred subsequent to the meeting be-
tween Fleischer and Grossman are in dispute. Substantial
circumstantial evidence, however, in particular Kramer
Levin’s telephone records, indicates that, starting with
that same evening of July 10, 1986, Grossman (or some-
one using his office phone) began placing numerous phone
calls to Grossman’s friends and relatives (the ‘‘relatives’’,
collectively). Fifty calls were made between July 10, and
July 16, 1986. Grossman made 20 calls to his uncle,
George Hirshberg; 7 calls to his cousin, Walter Herzberg;
5 calls to another cousin’s husband, Shimon Lev; 3 calls to
Shimon Lev’s friend and business partner, Norman Stein;
3 calls to Grossman’s brother-in-law, Saul Listokin; and
12 calls to Listokin & Sons (‘‘L & S’’), Listokin’s com-
pany.
Also starting on July 10, someone frequently called
from Grossman’s office two discount brokerage firms,
Whitehall Securities (‘‘Whitehall’’) and Datek Securities
(‘‘Datek’’). Grossman had no accounts at these firms, but
Listokin and Stein did. These calls, 14 in all, frequently
were made before or after calls to L & S or Stein. More-
over, the person in Grossman’s office made calls that coin-
cided precisely with the placement of orders to purchase
Colt call options. Peter Gamby was the president of
Whitehall and the person who received the calls from
Grossman’s office. He testified that, upon receiving phone
orders, it was his practice (1) to put an investor on hold
and time-stamp the order; (2) to execute the order and
time-stamp it again; and (3) to take the investor off hold to
confirm that the order had been placed. Telephone records
/
a
2259
qn
and Gamby’s time-stamps indicated that Whitehall placed
the orders during the exact times when it was receiving
calls from Grossman’s office.
During the periods immediately preceding and follow-
ing the July 10-16 period, Grossman placed no phone calls
to any of these tippees or brokerage firms, except for 3
calls to Saul Listokin and 16 to L & S.
All of the relatives made massive purchases of Colt
‘*out-of-the-money’”’ call options over the next few days—
i.e., between July 11 and July 18, 1986.' For example, they
purchased over 80% of ‘‘August 80’’ options (options ex-
piring in August and with a strike price of $80)—the most
speculative category of option. None of the relatives had
purchased Colt securities before, and none sought advice
from their brokers-regarding their purchases.
The government asseris that Grossman made the pur-
chases for Listokin, both over the phone and once in per-
son at Whitehall. While the evidence is inconclusive, it
does show that on July 14, 1986 someone identifying him-
self as Listokin entered Whitehall and met with Gamby, its
president. He purchased options for the benefit of Saul
Listokin, and signed the necessary forms. Someone identi-
fying himself as Listokin telephoned Gamby later to
change the name of the beneficiary. Gamby sent new
forms to Listokin’s address, and received them back
signed after a few days. Handwriting analysis showed the
signature on the second set of forms was Listokin’s but the
l An ‘‘out-of-the-money”’ call option allows a person purchasing the
option to buy stock during a limited period in the future at a fixed
price (the ‘‘strike price’’). That price is higher than the current market
price. Thus, the option holder essentially is betting that the market
price will rise over the strike price within the limited time period. The
time limitations make such investments extremely speculative.
S68
signature on the first set was not. Neither the government
nor Grossman used the results of the comparison of
Grossman’s handwriting with the signature on the first set
of forms. Upon reviewing a set of photographs, including
Listokin’s but not Grossman’s, Gamby was certain that
his July 14 visitor was not among them. Moreover, upon
being shown a second set of photographs, including
Grossman’s, Gamby said two of them (one of Grossman)
resembled his visitor. Neither the government nor Gross-
man used this evidence at trial.
On July 20, 1986, Colt made its recapitalization public
and, as expected, its share price increased dramatically.
On July 18, 1986, before the announcement, the price was
$66.75 per share; on July 20, 1986, the price reached
$93.62 per share. Thus, on a total investment of $33,000,
the relatives were able to realize a total profit of
$1,470,000. The Listokin purchases were sold at a loss on
July 17 and 18, before the recapitalization was announced.
Purchases for Hirschberg, however, more than covered
this loss.
The events following the announcement of the recapital-
ization were proved at trial primarily through the testi-
mony of David Lev, Shimon Lev’s brother. David testified
about several conversations between Shimon and himself
and between Norman Stein and himself. According to
David’s testimony, Shimon told David that he had ‘‘made
it big’’ by purchasing options on a tip from his ‘‘cousin
Grossman’’. Shimon told David that he had become con-
cerned about an investigation into his trading in Colt and
that he wanted David to become the nominal owner of his
call options (which had been purchased through Datek by
Stein for Shimon’s benefit). David had been in Israel be-
tween July 3 and July 23, 1986. Shimon therefore believed
A-7
2261
that David had an alibi for the time period when he could
have received tips or made purchases. David agreed to be-
come the nominal owner of Shimon’s call options. Ac-
cordingly, in August 1986, Stein transferred cash from his
Datek account to David’s bank account. Moreover, Stein
drew two checks on the proceeds of the Colt options and
gave the checks to David who deposited them in his ac-
count.
Shimon subsequently told David that he owed Gross-
man $45,000 or $56,000 as Grossman’s share of the Colt
transaction. Shimon said that Grossman would accept
$25,000 as his share in recognition of the fact that David
would have to pay taxes on the capital gains. David gave
Shimon a check for $25,000 with the payee left blank. Shi-
mon, apparently in an attempt to launder the payment,
made the check payable to Bnos Rochel, a charity from
which, as he told David, he believed he could get cash.
On July 30, 1986, the SEC informed Kramer Levin that
it was investigating the Colt transaction and requested the
names of all those at the firm who knew of the transac-
tion. Max Schwartz, a Kramer Levin partner, sent a mem-
Orandum to the attorneys who had worked on the
transaction and asked that they identify anyone else who
knew of it. Upon receiving this memorandum, Fleischer
told Schwartz that he had told Grossman about the mat-
ter. Schwartz included Grossman’s name on the list he sent
the SEC.
On February 17, 1987, Grossman was arrested. On
March 17, 1987, he was indicted (in the ‘‘first indict-
ment’’) which charged him with twelve counts of securities
fraud and twelve counts of mail fraud. The securities
fraud counts charged Grossman with misappropriating
confidential, non-public, information from Kramer
A-8..
2262
Levin. The mail fraud counts charged him with devising a
fraudulent scheme to trade in Colt options using confiden-
tial information and causing mail to be delivered for the
purpose of executing the scheme. The charges were based
On events which occurred between July 11 and July 18,
1986. -
Grossman moved to dismiss the first indictment, assert-
ing among other things that it failed to state a crime; that
it failed to state that he personally benefitted from the
fraud; and that the misappropriated information was not
‘*non-public’’. By an order entered June 26, 1987, Judge
Owen denied the motion, although he observed that the
charges in the indictment were extremely bare.
On July 23, 1987, the government sent Grossman’s
counsel a letter notifying them that Shimon Lev might
have exculpatory information. Shimon had testified be-
fore the grand jury on April 23 and July 14, 1987 under a
grant of immunity. The government later refused to turn
over Shimon’s grand jury testimony to Grossman.
On July 29, 1987, the court held a pre-trial conference.
At this conference the government informed the court that
during the preceding week it had notified Grossman’s
counse! that it planned to seek a superseding indictment,
and that it had told Grossman’s counsel of the contents of
the planned superseding indictment. On Thursday, July
30, 1987, two business days before the trial was scheduled
to begin, a superseding indictment (the ‘‘superseding in-
dictment’’) was returned. The superseding indictment con-
tained 38 counts, including 10 counts involving new
transactions. These transactions concerned Listokin,
whom the first indictment did not mention. Moreover, the
superseding indictment expanded the time frame of the
charges; while the first indictment covered only the week
¢)
,
ea” 2
2263
ee
of July 11-18, 1987, the superseding indictment covered a
period longer than one year, from July 9, 1986 to July 30,
1987. The superseding indictment was filed on July 30,
1987. Grossman’s motion to dismiss the superseding in-
dictment was denied.
After a jury trial between August 3 and August 18,
1987, Grossman was convicted on all charges. He was sen-
tenced on September 15, 1987 to concurrent two year
prison terms on each of counts one through ten and twenty
through thirty. He was fined $25,000. The court sus-
pended Grossman’s prison sentences on counts eleven
through nineteen and thirty-one through thirty-eight.
Grossman was placed on probation for five years upon re-
lease from prison. A $50 statutory assessment on each of
the counts was imposed. Grossman currently is serving his
prison sentence.
From the judgment of conviction, this appeal was
taken.
Il.
Grossman claims that the court erred in permitting the
superseding indictment to be returned two business days
before the trial was scheduled to begin. He cites United
States v. Wilks, 629 F.2d 669, 672 (10 Cir. 1980), for the
proposition that a superseding indictment may be returned
any time before trial, absent prejudice to the defendant.
He then asserts that he was prejudiced in several ways in
this case. Assuming arguendo that Grossman is correct
that a court may permit a superseding indictment to be re-
turned only in the absence of prejudice to the defendant,
his argument fails because the superseding indictment here
A-190
2264
did not change substantially the nature of the govern-
ment’s case and caused no such prejudice to Grossman.
Grossman asserts essentially four claims of prejudice.
First, he argues chiefly that the superseding indictment ex- ~
panded the time frame of the charges and thereby allowed
the government, through the testimony of David Lev, to
introduce the co-conspirator statements of David and Shi-
mon Lev and Norman Stein. He says that these statements
were made after the July 11-18 period described in the first
indictment and thus would not have been admissible under
that indictment. He then asserts that he was prejudiced be-
cause these statements, which concerned in part Shimon
Lev’s plan to pay Grossman $25,000 for Grossman’s share
in the profits, provided the only evidence that Grossman
personally benefitted from the scheme.
We find this argument to be frivolous. As the govern-
ment succinctly points out, this evidence would have been
relevant under the first indictment. Specifically, it would
have been relevant under Fed. R. Evid. 401 because such
evidence—including the evidence of Shimon Lev’s inten-
tion to pay Grossman $25,000—tended to prove Gross-
man’s motive and fraudulent intent which were disputed
issues at tral. In the language of Rule 401, such evidence
concerned facts that were ‘‘of consequence to the determi-
nation of the action.’’ See, e.g., United States v. Tager,
788 F.2d 349, 352-53 (6 Cir. 1986) (evidence of previous
unpaid tax judgment relevant to show intent and motive
for securities fraud).
Grossman attempts to respond to this claim of the gov-
ernment by arguing that the superseding indictment at
least ‘‘eased’’ the way for the introduction of the co-
conspirator statements under Fed. R. Evid. 801(d)(2)(E).
He asserts that Rule 801(d)(2)(E) requires that co-
Syo5t
conspirator statements be made in furtherance of and dur-
ing the course of a conspiracy in which the defendant was
involved; that the statements in question here were made
after the time frame of the first indictment had ended; that
it was ‘‘hardly a forgone conclusion’’ that the district
court would have admitted the statements under the first
indictment; and that any presumption drawn in such a
case should operate in the defendant’s favor.
This reasoning strikes us as a smoke screen. It simply
does not address the original flaw in Grossman’s argu-
ment, namely, that the co-conspirator statements would
have been equally admissible (or inadmissible) under ei-
ther indictment because they were relevant under each.
Whether they were admissible under Rule 801(d)(2)(E) is a
concern entirely separate from the issue in the instant case.
The sole issue here is whether the superseding indictment
unfairly put Grossman in a worse position than had the
first indictment. We conclude that it did not put him in a
worse position. The expanded time frame of the super-
seding indictment did not in any way ‘‘ease’’ admission
under Rule 801, because the government was not required
to ‘‘charge a conspiracy to take advantage of Fed. R.
Evid. 801(d)(2)(E).’’ United States v. Stratton, 779 F.2d
820, 829 (2 Cir. 1985), cert. denied, 476 U.S. 1162 (1986).
‘‘The Government merely needs to demonstrate that the
declarant and the defendants against whom the statements
are offered are members of a conspiracy in furtherance of
which the statements are made, and that this conspiracy is
‘factually intertwined’ with the offenses being tried.’’ Jd.
(citations omitted) (emphasis added) (quoting United
States v. Lyles, 593 F.2d 182, 194 (2 Cir.), cert. denied,
440 U.S. 972 (1979). Thus, the indictment did not have to
State explicitly the exact time frame that would become rel-
evant at trial, as long as any co-conspirator statements the
A-12
2266
government used were derived from a conspiracy that was
‘*factually intertwined’’ with the offenses stated in the in-
dictment.
In the instant case, Shimon Lev’s statements about pay-
ing Grossman his share of the Colt profits undoubtedly
were ‘‘factually intertwined’’ with ‘‘the offenses being
tried’’, i.e., Grossman’s misappropriation and dissemina-
tion of confidential information to generate those same
Colt profits. More important, however, is the fact that the
statements were equally ‘‘intertwined’’ with the offenses
charged under either the first indictment or the supersed-
ing indictment. The government did not charge conspiracy
under either indictment; the statement would have been
equally admissible (or inadmissible) under either indict-
ment; and thus the superseding indictment could not have
prejudiced Grossman in the way claimed.
Second, Grossman argues that the superseding indict-
ment prejudiced him because it failed to give him timely
notice that he would have to explain Shimon Lev’s state-
ments about his plan to pay Grossman $25,000 or defend
himself on the trades of his brother-in-law, Saul Listokin,
which had not been included in the first indictment. He as-
serts that, had he been given earlier notice, he would have
(1) attempted to identify the person who met with Gamby
at Whitehall; (2) attacked the accuracy of the Kramer
Levin telephone records; and (3) attempted to contact
Bnos Rochel, the charity which Shimon Lev said he could
use to launder the $25,000 payment to Grossman. Each of
these assertions is without merit since Grossman in fact
did have notice that these matters would be raised at trial.
In April 1986, three months before the superseding indict-
ment was returned, the government provided Grossman
with full discovery regarding the Listokin trades, including
A-13
2267
the telephone records. Grossman therefore both knew that
the government would be using the Listokin trades at trial
and had the opportunity to attack the telephone records
for accuracy. Grossman also knew that the SEC had in-
cluded the Listokin trades in its civil proceeding against
Grossman. While Grossman claims that this fact should be
discounted because the government has no case authority
for the proposition that notice of the SEC’s allegations
“was the equivalent of notice that [he] would have to de-
fend against those allegations in a criminal proceeding’’,
Grossman simply ignores the fact that the issue, even as he
frames it, is whether he was prejudiced by the new indict-
ment. Since he in fact had notice of the Listokin trades
and the government’s interest in them, we are satisfied
that in this particular case the defendant was protected
from prejudice.
Third, Grossman argues that he was prejudiced because
it was not until the superseding indictment was returned
that the government charged that he personally benefitted
from the scheme. This argument fails to recognize that no
indictment is required to charge that a defendant person-
ally benefitted from a crime—an indictment ‘‘need do lit-
tle more than to track the language of the statute charged
and state the time and place. . . of the alleged crime’’.
United States v. Tramunti, 513 F.2d 1087, 1113 (2 Cir.),
cert. denied, 423 U.S. 832 (1975). Accoruingly, Grossman
can hardly have been prejudiced by the absence of this op-
tional information in the first indictment.
Fourth, Grossman argues conclusorily that the super-
seding indictment was returned for vindictive reasons, re-
ferring apparently to Grossman’s refusal to plead guilty.
Grossman has produced no evidence whatsoever of vindic-
tiveness and, although we strongly dispprove of the prose-
A-14
2268
cutor’s tardiness in preparing the superseding indictment,
we find no evidence suggesting a vindictive motivation.
In short, the superseding indictment did not alter sub-
stantially the government’s case against Grossman. Its re-
turn, even two days before trial, caused him no prejudice.
We hold that the court did not abuse its discretion in refus-
ing to dismiss the superseding indictment or in failing to
grant Grossman a continuance.
Ill.
We turn next to Grossman’s ciaim that he was entitled
to the grand jury testimony of Shimon Lev which he says
was exculpatory. He asserts that the government violated
Brady v. Maryland, 373 U.S. 83 (1963), when it refused to
turn over Shimon’s allegedly exculpatory grand jury testi-
mony. Grossman claims that Shimon’s testimony would
have been admissible under Fed. R. Evid. 804(b)(1)
(former testimony) and Fed. R. Evid. 806 (impeachment
of hearsay declarant). We find this claim to be without
merit.
No Brady violation occurred here because Brady does
not require the government to turn over exculpatory evi-
dence ‘‘if the defendant knew or should have known the
essential facts permitting him to take advantage of any ex-
culpatory evidence.’’ United States v. Gaggi, 811 F.2d 47,
59 (2 Cir.), cert. denied, 107 S.Ct. 3214 (1987). The ration-
ale for our rule is that Brady is designed to ‘‘assure that
the defendant will not be denied access to exculpatory evi-
dence only known to the Government.’’ United States v.
Leroy, 687 F.2d 610, 619 (2 Cir. 1982) (emphasis added),
cert. denied, 459 U.S. 1174 (1983). Accordingly, the gov-
ernment had a duty to disclose only ‘‘information which
A-15
2269
had been known to the prosecution but unknown to the
defense.’’ United States v. Agurs, 427 U.S. 97, 103 (1976).
The government has no duty actually to turn over grand
jury testimony where the defendant knows of the witness’
identity; that the witness ‘‘might have testified before the
grand jury’’; and that ‘‘[the witness’] statements might
have supported [the defendant’s] defense.’’ LeRoy, supra,
687 F.2d at 619.
LeRoy controls this case. Grossman knew of Shimon’s
identity. He had been informed specifically in the govern-
ment’s letter of July 23, 1987 that Shiffren might have
given the grand jury exculpatory evidence. While Gross-
man attempts to distinguish LeRoy on several grounds,
none of the differences he asserts is significant—for exam-
ple, the fact that LeRoy never explicitly asked the prosecu-
tion for the grand jury testimony does not change the
analysis. While Grossman claims that he needed the actual
transcripts of the grand jury testimony to impeach Shi-
mon, his claim fails because, as stated above, he never
raised his impeachment argument in the district court and
therefore waived it.
We hold that the government was not obliged to provide
Grossman with the grand jury testimony of Shimon Lev.
IV.
Grossman raises three other subordinate claims that
warrant only brief mention: (1) that his mail fraud convic-
tions should be reversed because Kramer Levin did not
have a ‘‘property interest’’ in the misappropriated confi-
dential information; (2) that his mail fraud convictions
should be reversed because the mailings were merely ‘‘inci-
dental’’ to his scheme to defraud; and (3) that the district
A-16
2270
court should have instructed the jury to find whether
Grossman knew of Kramer_Levin’s confidentiality policy
and whether his disclosure would violate that policy. We
find each of these claims to be frivolous.
First, Grossman says that the mail fraud statute, 18
U.S.C. § 1341 (1982),? protects only ‘‘property rights’’,
McNally v. United States, 107 S. Ct. 2875, 2879 (1987),
and does not protect intangible interests, such as the repu-
tation of a business. He cites Carpenter v. United States,
108 S. Ct. 316 (1987), for the proposition that confidential
business information will be ‘‘property’’ only when (1) the
information is of commercial value to the holder of the in-
formation and that holder has exclusive right to exploit it;
or (2) the holder of the information gathered it at the cost
of its own ‘‘enterprise, organization, skill, labor and
money.’ Jd. at 321. Grossman then asserts that Kramer
Levin had no ‘“‘property interest’’ in the Colt confidential
information because Kramer Levin (1) could not use the
information for its commercial value or have the exclusive
2 Section 1341 provides:
**‘Whoever, having devised or intending to devise any scheme or ar-
tifice to defraud, or for obtaining money or property by means of
false or fraudulent pretenses, representations, or promises, or to
sell, dispose of, loan, exchange, alter, give away, distribute, supply,
or furnish or procure for unlawful use any counterfeit or spurious
coin, obligation, security, or other article, or anything represented
to be or intimated or heid out to be such counterfeit or spurious ar-
ticle, for the purpose of executing such scheme or artifice or at-
tempting so to do, places in any post office or authorized
depository for mail matter, any matter or thing whatever to be sent
or delivered by the Postal Service, or takes or receives therefrom,
any such matter or thing, or knowingly causes to be delivered by
mail according to the direction thereon, or at the place at which it is
directed to be delivered by the person to whom it is addressed, any
such matter or thing, shall be fined not more than $1,000 or impris-
oned not more than five years or both.”’
18 U.S.C. § 1341 (1982) (emphasis added).
‘A-17
2271
<a
ia
right to exploit it; and (2) did not gather the information
through its own enterprise, organization, skill, labor and
money. Grossman concludes that his mail fraud convic-
tions should be reversed. We disagree.
His claim is specious and fails for several reasons. First,
Grossman distorts Carpenter. In context, the language
which he cites merely describes the confidential informa-
tion in that case; it does not require that a// confidential
information must be of the same nature to be considered
‘*property’’. Jd. at 321. Carpenter actually holds generally
that, even though ‘‘confidential business information’’ is
intangible, it ‘‘has long been recognized as properiv.’’ Jd.
at 320. Thus, the information in this case regarcing the
Colt recapitalization clearly falls within the definition of
property under Carpenter. Second, the fact that Kramer
Levin could not commercially exploit the information by
trading on it does not mean the confidentiality of the in-
formation had no commercial value to the firm. As several
partners of the firm testified, maintaining the confiden-
tiality of the information was of commercial value be-
cause, by maintaining confidentiality, the firm would
protect or enhance the firm’s reputation, with the result
that it would not lose its clients and perhaps would gain
more clients.
Second, Grossman claims that the mail fraud convic-
tions should be reversed because the mailings on which
they were based were the mailings of confirmation slips
from brokerage houses. He asserts that these mailings
were only ‘‘incidental’’ to the fraud scheme and that the
law requires that the mailings be ‘‘for the purpose of exe-
cuting the scheme’’. United States v. Lane, 474 U.S. 438,
451 (1986); see also United States v. Maze, 414 U.S. 395,
400 (1974). Here, however, the mailings of the confirma-
A-18
2272
tion slips did further the purpose of executing the scheme.
The confirmation slips (1) notified the relatives that the
purchase or sale actually had been completed; (2) provided
an on-going tally of purchases, allowing the relatives to
cover each other’s positions; (3) concealed the fraud by
maintaining an appearance of normality, see United States
v. Cohen, 518 F.2d 727, 737 (2 Cir.), cert. denied, 423
U.S. 926 (1975); and (4) allowed the relatives to demon-
strate ownership after the recapitalization announcement.
Pereira v. United States, 347 U.S. 1 (1954).
Third, Grossman claims that the court should have
charged the jury specifically to find whether he knew
about Kramer Levin’s confidentiality policy and whether
his use of the confidential information would violate that
policy. He theorizes that, since he was not on the team of
attorneys who worked on the transaction, he might never
have been told that information on the transaction was
confidential and he might have thought that it was either
public or not material. Grossman, however, did not object
to the jury charge. Absent ‘‘plain error’’, therefore, he has
waived this claim. United States v. Arocena, 778 F.2d 943,
948 (2 Cir. 1985), cert. denied, 475 U.S. 1053 (1986); Fed.
R. Crim. P. 30, 52(b).
We hold that the district court was not required to
charge the jury on Grossman’s specific knowledge of the
confidentiality policy; and that, even if the court had so
charged, the jury was unlikely to have accepted the theory
that Grossman did not realize he was doing anything im-
proper. We therefore hold that the trial judge did not com-
mit plain error.
In short, having carefully considered all of Grossman’s
claims of error, including his subordinate ones, we hold
that none has merit.
A-19
2273
To summarize:
We hold that the district court did not abuse its discre-
tion in denying Grossman’s motion to dismiss the super-
seding indictment and in failing to grant a continuance to
prepare for trial under the superseding indictment. We
also hold that the government was not obliged to provide
Grossman with the grand jury testimony. We further hold
that Grossman’s subordinate claims of error are frivolous.
Affirmed. -
A-20
2274
725—3-29-88 * USCA—80004
tse eer o/, FE oe eee __—
APPENDIX
UNITED STATES COURT OF APPEALS
SECOND CIRCUIT
At a stated term of the United States
Court of Appeals, in and for the Second
Circuit, held at the United States Courthouse,
in the City of New York, on the 9th day of May
one thousand nine hundred and eighty-eight.
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
Vv
ISRAEL G. GROSSMAN,
Defendant-Appellant.
A petition for rehearing containing a
suggestion that the action be reheard in banc
having been filed herein by counsel for the
appellant ISRAEL G. GROSSMAN,
Upon Consideration by the panel that
heard the appeal, it is
Ordered that said petition for rehearing
is DENIED.
It is further noted that the suggestion
for rehearing in banc has been transmitted to
the judges of the court in regular active
service and to any other judge that heard the
appeal and that no such judge has requested
that a vote be taken thereon.
Elaine B. Goldsmith
Clerk
SUPREME COURT OF THE UNITED STATES
ISRAEL G. GROSSMAN,
Applicant,
- Ve=
UNITED STATES.
ORDER EXTENDING TIME TO FILE PETITION
FOR WRIT OF CERTIORARI
UPON CONSIDERATION of the application of
counsel for petitioner(s),
IT IS ORDERED that the time for filing a
petition for writ of certiorari in the above-
entitled cause be, and the same is hereby,
extended to and including August 5, 1988.
/s/Thurgood Marshall
Associate Justice of the
Supreme Court of the
United States
Dated this 24th
day of June, 1988.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.