Justia Securities Law Opinion Summaries

The case involves defendants Aghee William Smith II and David Alcorn, who were convicted in the Eastern District of Virginia for their roles in fraudulent schemes that defrauded investors of millions of dollars. The schemes included marketing and selling phony investments in a dental services marketing program and fraudulent spectrum investments. The fraudulent activities primarily targeted elderly victims, resulting in significant financial losses.In the district court, Smith and Alcorn were tried together before a jury in February 2022. They raised three main issues on appeal: a joint constitutional challenge to the district court’s COVID-19 trial protocol under the Public Trial Clause of the Sixth Amendment, Smith’s separate challenge to the admission of videotaped depositions under the Confrontation Clause, and Alcorn’s challenge to the imposition of supervised release conditions.The United States Court of Appeals for the Fourth Circuit reviewed the case. The court rejected Smith and Alcorn’s joint contention that the COVID-19 trial protocol violated their rights under the Public Trial Clause, finding that the protocol did not constitute a partial courtroom closure and was justified by substantial public health reasons. The court also rejected Smith’s Confrontation Clause challenge, concluding that the government had made a good faith effort to secure the witnesses’ presence at trial and that the witnesses were unavailable due to health concerns.However, the court found merit in Alcorn’s challenge regarding the imposition of supervised release conditions. The district court had failed to properly incorporate the standard conditions of supervised release during the oral pronouncement of Alcorn’s sentence, leading to a Rogers error. As a result, the Fourth Circuit vacated Alcorn’s sentences and remanded for resentencing.In summary, the Fourth Circuit affirmed Smith’s convictions and sentences, affirmed Alcorn’s convictions, but vacated Alcorn’s sentences and remanded for resentencing. View "United States v. Smith" on Justia Law

In this case, the plaintiff, Shandor S. Badaruddin, was sanctioned by the Nineteenth Judicial District Court, Lincoln County, for his conduct as defense counsel in a criminal trial involving his client, Kip Hartman, who faced multiple felony charges related to securities and insurance fraud. The trial was conducted under strict time constraints due to the COVID-19 pandemic, and the court allocated equal time for both the prosecution and defense. Badaruddin was accused of mismanaging his allotted time, leading to a mistrial declaration by the District Court.The District Court found that Badaruddin had deliberately delayed the trial, which led to the mistrial. Consequently, the court imposed monetary sanctions amounting to $51,923.61 against Badaruddin for the costs associated with the trial. Badaruddin appealed the sanctions, arguing that he was not given adequate notice of the court's concerns and that his actions were not deliberate but rather a result of the challenging circumstances.The Supreme Court of the State of Montana reviewed the case and noted that the U.S. District Court had previously ruled that the mistrial declaration was erroneous. The U.S. District Court found that Badaruddin's actions did not constitute deliberate delay and that his efforts to manage the trial time were competent. The U.S. District Court's ruling was affirmed by the U.S. Court of Appeals for the Ninth Circuit, which held that Hartman could not be retried due to double jeopardy protections.Given the federal court's findings, the Supreme Court of Montana concluded that there was no basis for the sanctions under § 37-61-421, MCA, as there was no multiplication of proceedings. The court reversed the District Court's sanction order, determining that the costs incurred were not "excess costs" as defined by the statute. View "Badaruddin v. 19th Judicial District" on Justia Law

The case revolves around the interpretation of the Sarbanes-Oxley Act of 2002, specifically 18 U.S.C. §1512(c)(2), which imposes criminal liability on anyone who corruptly obstructs, influences, or impedes any official proceeding, or attempts to do so. The petitioner, Joseph Fischer, was charged with violating this provision for his actions during the Capitol breach on January 6, 2021. Fischer moved to dismiss the charge, arguing that the provision only criminalizes attempts to impair the availability or integrity of evidence. The District Court granted his motion, but a divided panel of the D.C. Circuit reversed and remanded for further proceedings.The Supreme Court of the United States held that to prove a violation of §1512(c)(2), the Government must establish that the defendant impaired the availability or integrity for use in an official proceeding of records, documents, objects, or other things used in an official proceeding, or attempted to do so. The Court reasoned that the "otherwise" provision of §1512(c)(2) is limited by the list of specific criminal violations that precede it in (c)(1). The Court also considered the broader context of §1512 in the criminal code and found that an unbounded interpretation of subsection (c)(2) would render superfluous the careful delineation of different types of obstructive conduct in §1512 itself. The Court vacated the judgment of the D.C. Circuit and remanded the case for further proceedings consistent with its opinion. View "Fischer v. United States" on Justia Law

In 2016, Jesse Benton, a political operative, received funds from Roman Vasilenko, a foreign national, and contributed those funds to a fundraiser supporting then-Presidential candidate Donald Trump. Benton was subsequently convicted of six felonies related to the unlawful contribution and related campaign finance filings. Benton appealed his conviction on several grounds, including challenges to the government’s decision to prosecute campaign finance crimes under the Sarbanes-Oxley Act, the admissibility of an earlier pardoned conviction, the sufficiency of the evidence, and the jury charge.The District Court denied Benton's motion to dismiss the charges, ruling that the Sarbanes-Oxley Act could be applied to false campaign finance filings. The court also allowed the admission of Benton's earlier pardoned conviction under Federal Rule of Evidence 404(b) and its use at sentencing. After a three-day jury trial, Benton was found guilty on all counts. He was sentenced to eighteen months' incarceration and twenty-four months' supervised release.On appeal, the United States Court of Appeals for the District of Columbia Circuit affirmed the district court's decision. The court held that the government had discretion to prosecute under either the Sarbanes-Oxley Act or the Federal Election Campaign Act (FECA). The court also found no error in the district court's admission of Benton's pardoned conviction under Rule 404(b) and declined to review Benton's challenge to the use of the pardoned conviction at sentencing. Finally, the court rejected Benton's challenges to the jury instructions, finding that any error was invited by Benton himself. View "United States v. Benton" on Justia Law

The case involves Francis M. Reynolds, who was convicted of three counts of obstruction of a United States Securities and Exchange Commission proceeding and one count of securities fraud. The District Court sentenced him to seven years of imprisonment plus three years of supervised release, ordered him to pay restitution to the victims of his fraud in the amount of $7,551,757, a special assessment of $400, and to forfeit $280,000 to the United States. Reynolds appealed his conviction, but he died while the appeal was pending.Reynolds was convicted in the United States District Court for the District of Massachusetts. He appealed his conviction to the United States Court of Appeals for the First Circuit. While the appeal was pending, Reynolds died. The government suggested that the court should either dismiss the appeal as moot or follow the practice of the Supreme Judicial Court of Massachusetts and dismiss the appeal as moot while instructing the District Court to add a notation in the record.The United States Court of Appeals for the First Circuit had to decide whether to apply the doctrine of abatement ab initio, which holds that when a criminal defendant dies during the pendency of a direct appeal from his conviction, his death abates not only the appeal but also all proceedings had in the prosecution from its inception. The court decided to apply the doctrine, aligning itself with other federal courts of appeals and its own past decisions. The court dismissed the appeal and remanded the case to the District Court to vacate the convictions and dismiss the indictment. The court also instructed the District Court to vacate the orders of restitution and criminal forfeiture that were imposed in this case, as well as the special assessment. View "United States v. Reynolds" on Justia Law

In the case of a contested divorce between Quin Whitman and Douglas F. Whitman, the founder of a once successful hedge fund, the Court of Appeal of the State of California ruled on several issues. The court affirmed that Doug failed to prove he retained any separate property interest in the hedge fund at the time of dissolution, despite an initial $300,000 investment of his own separate funds. The court also ruled that the community was not financially responsible for any of the legal fees Doug incurred to defend against criminal charges brought against him for insider trading or the $250,000 fine imposed on him in that case. However, the court erred in holding the community responsible for the $935,000 penalty imposed by the Securities and Exchange Commission for illegal insider trading. Quin did not demonstrate that the court erred in holding the community responsible for legal fees expended by the hedge fund when it intervened as a third party into these proceedings. The court also concluded that Quin failed to prove her claim that Doug breached his fiduciary duty in connection with the sale of the couple’s luxury home. The court concluded that the couple’s entire interest in the hedge fund is community property, subject to equal division. The court also found that Doug's legal expenses incurred in defending against insider trading charges and the $250,000 fine imposed on him were his separate debts. View "In re Whitman" on Justia Law

In this case, Robert Sproat was convicted on ten counts of securities fraud. On appeal, Sproat argued that the district court improperly coerced the jurors into reaching a unanimous guilty verdict by instructing them to return the next day after they had reported an impasse in their deliberations.The United States Court of Appeals for the Ninth Circuit affirmed the conviction, rejecting Sproat's argument. The court held that merely instructing a jury that reported an impasse to return the next day is not unconstitutionally coercive. The court found that the district court's instruction to return did not amount to an Allen charge, an instruction encouraging jurors to reach a unanimous verdict. The court explained that no such encouragement was explicit or implicit in the district court's instruction.The court also observed that the district court had not asked the jury to identify the nature of its impasse or the vote count before excusing them for the evening, and that any theoretical risk of coercion was cured by the partial Allen instruction the district court gave the following day, emphasizing the jurors' freedom to maintain their honest beliefs and their ability to be excused if they could not overcome their impasse. The court concluded that the district court's instruction to return the next day and the partial Allen instruction the following day did not coerce the jurors into reaching a unanimous guilty verdict. View "USA V. SPROAT" on Justia Law

Pacilio and Bases were senior traders on the precious metals trading desk at Bank of America. While working together in 2010-2011, and at times separately before and after that period, they engaged in “spoofing” to manipulate the prices of precious metals using an electronic trading platform, that allows traders to place buy or sell orders on certain numbers of futures contracts at a set price. It is assumed that every order is bona fide and placed with “intent to transact.” Spoofing consists of placing a (typically) large order, on one side of the market with intent to trade, and placing a spoof order, fully visible but not intended to be traded, on the other side. The spoof order pushes the market price to benefit the other order, allowing the trader to get the desired price. The spoof order is canceled before it can be filled.Pacilio and Bases challenged the constitutionality of their convictions for wire fraud affecting a financial institution and related charges, the sufficiency of the evidence, and evidentiary rulings relating to testimony about the Exchange’s and bank prohibitions on spoofing to support the government’s implied misrepresentation theory. The Seventh Circuit affirmed. The defendants had sufficient notice that their spoofing scheme was prohibited by law. View "United States v. Bases" on Justia Law

A jury convicted United Development Funding (“UDF”) executives (collectively “Appellants”) of conspiracy to commit wire fraud affecting a financial institution, conspiracy to commit securities fraud, and eight counts of aiding and abetting securities fraud. Jurors heard evidence that Appellants were involved in what the Government deemed “a classic Ponzi-like scheme,” in which Appellants transferred money out of one fund to pay distributions to another fund’s investors without disclosing this information to their investors or the Securities Exchange Commission (“SEC”). Appellants each filed separate appeals, challenging their convictions on several grounds. Considered together, they argue that (1) the jury verdict should be vacated because the evidence at trial was insufficient to support their convictions or, alternatively, (2) they are entitled to a new trial because the jury instructions were improper. Appellants also argue that the district court erred in (3) limiting cross-examination regarding a non-testifying government informant; (4) allowing the Government to constructively amend the indictment and include certain improper statements in its closing argument; (5) imposing a time limit during.   The Fifth Circuit affirmed the jury verdict in its entirety. The court explained that considering the evidence and drawing all reasonable inferences in the light most favorable to the verdict, a reasonable juror could have determined that Appellants made material misrepresentations in UDF III and UDF V’s filings that were sufficient to uphold their convictions. The court explained that multiple witnesses testified that the industry had shifted away from affiliate transactions because they were disfavored and that a no-affiliate-transaction policy in UDF V would enable it to participate in a larger network of brokers, dealers, and investors. View "USA v. Greenlaw" on Justia Law

Jumper, a securities broker-dealer, arranged financing on behalf of private investors for the purchase of a Pennsylvania fire-brick manufacturer. Jumper fraudulently obtained authority to transfer the company’s pension plan assets by forging the majority stakeholder’s signature on several documents. Between 2007-2016, Jumper transferred $5.7 million from the pension plan to accounts he controlled.The SEC filed a civil complaint against Jumper for securities fraud in the Western District of Tennessee. The Department of Justice filed criminal charges against Jumper in the Middle District of Pennsylvania. The Tennessee court entered a default judgment for the SEC and ordered Jumper to disgorge $5.7 million and to pay prejudgment interest of $726,758.79. In Pennsylvania, Jumper pleaded guilty to wire fraud and agreed to make full restitution; the parties stipulated a loss of $1.5-$3.5 million.The district court considered Jumper’s request for a downward departure based on medical issues, discussed the relevant 18 U.S.C. 3553(a) factors, and denied Jumper’s requests, explaining, the Bureau of Prisons (BOP) is equipped to provide consistent, adequate medical care. The court sentenced Jumper to 78 months’ incarceration, at the bottom of the Guidelines range of 78–97 months, and ordered him to pay $2,426,550 in restitution. The Third Circuit affirmed, rejecting arguments that the sentence violated the Double Jeopardy Clause and principles of collateral estoppel and that the court improperly concluded that the BOP could treat his medical issues. View "United States v. Jumper" on Justia Law