United States District Court, N.D. Georgia, Atlanta Division
Steven E. Slawson, Defendant, Pro se, Lebanon, NJ.
For Steven E. Slawson, Defendant: Todd Harrison, LEAD ATTORNEY, PRO HAC VICE, McDermott Will & Emery - NY, NY, New York, NY; Tony Glen Powers, Rogers & Hardin, LLP, Atlanta, GA.
For USA, Plaintiff: David M. Chaiken, Stephen H. McClain, LEAD ATTORNEYS, U.S. Attorneys Office - ATL, Atlanta, GA.
ORDER AND REPORT AND RECOMMENDATION
JANET F. KING, UNITED STATES MAGISTRATE JUDGE.
Pending before the court is Defendant Steven E. Slawson's motion [Doc. 24] (1) to dismiss the indictment for failure to allege a crime and (2) to dismiss Count One as duplicitous and Defendant's motion [Doc. 25] for discovery seeking (1) a bill of particulars, (2) materials in the possession of the Securities Exchange Commission (" SEC"), and (3) to strike surplusage. The Government opposes the pending motions. [Docs. 29, 30, 31, 32 and 33].
I. The Indictment
On May 20, 2014, a federal grand jury sitting in this District returned a thirty-six count indictment charging Defendant Slawson with violations of 18 U.S.C. § § 1343 (wire fraud), 1348 (securities fraud) and 1349 (conspiracy to commit wire and securities fraud). The indictment also includes a forfeiture provision. [Doc. 1]. In Count One, Defendant is alleged to have knowingly and wilfully conspired, from early 2005 through July 2010, with " Cooperator Number 1" and others known and unknown (a) to knowingly and wilfully execute and attempt to execute a scheme (1) to defraud others in connection with Carter's Inc. stock securities and (2) to obtain, by false and fraudulent pretenses, representations and promises, money and property in connection with the purchase and sale of Carter's Inc. stock securities, in violation of 18 U.S.C. § 1348, and (b) to knowingly and intentionally devise and attempt to devise a scheme to defraud Carter's Inc. and obtain money and property of Carter's Inc. by means of materially false and fraudulent pretenses and representations, and by omission of material facts, in violation of 18 U.S.C. § 1343. [Doc. 1 ¶ ¶ 1.-3.]. This conspiracy is charged pursuant to 18 U.S.C. § 1349. [Doc. 1].
In the background section of Count One, the participants are identified. The indictment sets forth Defendant's ownership of, investment in, or involvement with companies, such as, Titan Capital Management LLC and TCMP3 Capital LLC, and management of multi-million dollar hedge funds, such as, TCMP3 Partners, L.P. (" TCMP3"). [ Id. ¶ 4.a.]. Cooperator Number 1 is identified as a retired equity research analyst who was a paid consultant to and investor in TCMP3. [Id. ¶ 4.b.]. Carter's Inc. is identified in pertinent part as a publicly traded company with common stock listed on the New York Stock Exchange as " CRI, " with securities registered with the SEC and with policies prohibiting the unauthorized disclosure of Carter's Inc. confidential business information. [ Id.
¶ 4.c.]. Also identified as participants in the conspiracy are Eric M. Martin, who was employed by Carter's Inc. from January 2003 through March 24, 2009, working in corporate headquarters in Atlanta, Georgia, with access in advance of public release, due to his positions at Carter's Inc., to material, non-public confidential information, such as, financial performance, anticipated earnings and quarterly and annual financial results, and Richard T. Posey, who was employed by Carter's Inc. from July 2002 through early 2013, working in corporate headquarters in Atlanta, Georgia, with access in advance of public release, also due to his company positions, to material, non-public confidential information, such as, financial performance, anticipated earnings and quarterly and annual financial results. [ Id. ¶ ¶ 4.d.-e.].
The conspiracy count then provides information about the manner and means by which the conspiracy operated. From February 2005 through July 2010, Defendant is alleged to have obtained material, non-public information (" insider information"), as generally described and including quarterly and annual earnings per share, of Carter's Inc. from Cooperator Number 1 in advance of the public release of information, such as, in advance of quarterly and annual earnings releases and other major corporate events. [Id. ¶ 5.a.]. Cooperator Number 1 obtained this inside information from Martin from February 2005 through March 2009 and indirectly from Posey through Martin from April 2009 through July 2010. Martin and Posey are collectively identified as " Carter's Insider Sources." [Id. ¶ 5.b.]. The indictment alleges that Carter's Insider Sources disclosed this information in violation of (1) fiduciary and other duties of trust and confidence, (2) expectation of confidentiality, (3) Carter's Inc. written policies, and (4) agreements to maintain Carter's Inc. confidential business information and to refrain from use of such information in listed ways, including, for their own direct or indirect benefit or for stock trading on the basis of such information. However, as alleged, Carter's Insider Sources disclosed the information understanding that the individuals receiving it would purchase and sell securities based on the information, and they did so for their own personal benefit as outlined. [Id. ¶ ¶ 5.c.-d.]. And, from March 2010 through July 2010, Defendant Slawson also obtained insider information directly from Martin, who had obtained the information from Posey, with the understanding that Defendant would use the information to execute transactions in Carter's Inc. securities. [Id. ¶ 5.h.].
Cooperator Number 1 used the Carter's Inc. insider information he obtained to purchase and sell Carter's Inc. securities and also disclosed the information to Defendant with the understanding Defendant would use the information to conduct transactions in Carter's Inc. securities. [Id. ¶ ¶ 5.e.-g.]. Cooperator Number 1 obtained the insider information via interstate wire communications, including interstate telephone calls between Georgia and New York. [Id. ¶ 5.i.]. The conspiracy count provides one example of the manner and means of disclosure of confidential insider information in October 2009 from Posey, a Carter's Insider Source, to Martin, then to Cooperator Number 1 and finally to Defendant Slawson. [Id. ¶ 6]. This insider information involved the Carter's Inc., October 27, 2009, earnings delay announcement, and the indictment details the timing and disclosure of this non-public confidential information as well as the utilization of this information by Defendant to sell Carter's Inc. securities on October 26, 2009, in advance of the public announcement of delayed earnings release on October 27, 2009. [Id.].
Counts Two through Twenty-Six of the indictment charge security fraud based on the same type of insider information provided by Carter's Insider Sources and fraudulently used by Defendant, in violation of 18 U.S.C. § 1348. [Doc. 1 ¶ ¶ 7.a. & b., 9. & 10.]. The indictment alleges that from late 2008 through July 2010, Defendant, aided and abetted by Cooperator Number 1, knowingly and wilfully executed and attempted to execute a scheme (1) to defraud others in connection with Carter's Inc. stock securities and (2) to obtain, by false and fraudulent pretenses, representations and promises, money and property in connection with the purchase and sale of Carter's Inc. stock securities. The indictment alleges that Defendant, using misappropriated insider information from Carter's Inc. and knowing that it was disclosed in violation of fiduciary and other duties, executed and caused others to execute transactions in Carter's Inc. securities through corporate and personal online brokerage accounts earning illegal profits and illegally avoiding losses. [Id. ¶ ¶ 9.-10.]. The indictment then sets out by date, transaction amount and account the allegedly fraudulent transactions. [Id. ¶ 11].
And, finally, the indictment alleges a wire fraud scheme, Counts Twenty-Seven through Thirty-Six, in violation of 18 U.S.C. § 1343, in which Defendant Slawson obtained Carter's Inc. insider information via interstate wire communications, from July 2009 through July 2010, from Cooperator Number 1 and from March 2010 through July 2010, from Martin. Defendant is alleged to have knowingly and wilfully, aided and abetted by Cooperator Number 1 and Martin, devised a scheme to defraud Carter's Inc. and to obtain money and property of Carter's Inc. by means of materially false and fraudulent pretenses and representations, and by omission of material facts, having reason to know said pretenses and representations were false and fraudulent when made and that said omissions were material, in violation of 18 U.S.C. § 1343. [Id. ¶ ¶ 12.-13.] The scheme, to deprive Carter's Inc. of exclusive use of its intangible property (confidential business information used by Defendant to purchase and sell securities), was carried out by causing Posey, a Carter's Insider Source, to misappropriate insider information from Carter's Inc. in violation of his confidentiality duties and obligations and his duty to refrain from using or disclosing said information. [Id. ¶ ¶ 14. & 15.]. The indictment then sets out the date and approximate time of each charged wire communication in furtherance of the scheme and the nature of the transmission, that is, interstate telephone calls. [Id. ¶ 16.].
II. Motion to Dismiss the Indictment
Defendant Slawson seeks to dismiss the indictment for failure to allege an essential element of the crimes charged, that is, he contends that the indictment fails to allege that Defendant knew that either of the alleged tippers, Martin and Posey - the Carter's Insider Sources, " received any personal benefit in connection with passing the alleged material, non-public information to Cooperator Number 1." [Doc. 24 at 3-4]. According to Defendant, this omission is " fatal." [Id. at 4]. Defendant further contends that Count One of the indictment must be dismissed because, although pled as a single conspiracy, the count actually pleads multiple conspiracies and is, therefore, duplicitous. [Id. at 12]. After consideration of the arguments of the parties and the relevant case law, the court recommends that Defendant's motion to dismiss be denied.
a. Failure to Allege Essential Element of Crimes
Defendant contends that, in order to allege a violation of " tippee insider trading, " the indictment must allege that the tippee, that is, Defendant Slawson, was personally aware of the insider's self-dealing and the benefit the insider received because of his actions. [Doc. 24 at 3-12]. In support of his arguments, Defendant relies on the Supreme Court's decision in Dirks v. SEC, 463 U.S. 646, 103 S.Ct. 3255, 77 L.Ed.2d 911 (1983), which addressed liability for violating the Security Exchange Act of 1934, specifically Rule 10b-5 and 15 U.S.C. § 78j(b). Defendant also relies on other Supreme Court and circuit and district court decisions, some of which involved civil litigation not criminal prosecutions, discussing tippee liability for insider trading in violation of § 10(b) and Rule 10b-5 and of 15 U.S.C. § 78ff(a) and 78j(b). [Id.]. Defendant then points out that the indictment does not allege that Defendant, who was at least once if not more removed from the insiders providing the non-public information, knew the insiders, knew that the insiders breached their duty by making the disclosures, and knew that the insiders received a benefit for their actions. [Id.].
In response, the Government points out that Defendant's reliance on Section 10(b) and Rule 10b-5 and 15 U.S.C. § 78ff(a) and cases discussing those statutes and regulations in support of his claim that the indictment fails to allege an essential element of " insider tipper trading" is misplaced. The Government argues that Defendant is not charged with violations of those provisions and that the case law upon which he relies is inapposite to the Title 18 crimes charged, § § 1343, 1348 and 1349, in this indictment. [Doc. 29 at 9-14]. The Government argues that the indictment, as pled, sufficiently pleads violations of 18 U.S.C. § § 1343, 1348 and 1349. [Id.]. The Government also argues that, even if the elements identified by Defendant had to be proven to convict him of the charged offenses, the case law does not require all of the information identified by Defendant be pled in the indictment. [Id. at 15-17]. And the Government contends that a common sense reading of the allegations in the indictment warrants the inference that Defendant was aware that the insiders received a benefit for their actions. [Id. at 17-21]. The first argument made by the Government is dispositive of Defendant's motion.
Rule 7(c) of the Federal Rules of Criminal Procedure provides in pertinent part:
The indictment . . . must be a plain, concise, and definite written statement of the essential facts constituting the offense charged and must be signed by an attorney for the government. It need not contain a formal introduction or conclusion. A count may incorporate by reference an allegation made in another count. A count may allege that the means by which the defendant committed the offense are unknown or that the defendant committed it by one or more specified means. For each count, the indictment . . . must give the official or customary citation of the statute, rule, regulation, or other provision of law that the defendant is alleged to have violated. . . .
Fed. R. Crim. P. 7(c) (as amended 2009).
Taking into account Rule 7(c)'s requirements, " the Eleventh Circuit has previously described as legally sufficient an indictment that (1) presents the essential elements of the charged offense, (2) notifies the accused of the charges to be defended against, and (3) enables the accused to rely upon a judgment under the indictment as a bar against double jeopardy for any subsequent prosecution for the same offense." United States v. Perraud, 672 F.Supp.2d 1328, 1345 (S.D. Fla. 2009) (quoting United States v. Jordan, 582 F.3d 1239, 1245 (11th Cir. 2009)) (internal quotation marks omitted). Accordingly, " if the indictment tracks the language of the statute, it must be accompanied with such a statement of the facts and circumstances as will inform the accused of the specific offense, coming under the general description, with which he is charged." Id. (quoting United States v. Bobo, 344 F.3d 1076, 1083 (11th Cir. 2003)) (internal quotation marks omitted); and see United States v. Hill, at *6, 2010 WL 128314, at *2 (N.D.Ga. January 13, 2010) (same). In judging the sufficiency of an indictment, courts are cautioned to use a " broad and enlightened standpoint of common sense and right reason rather than [a] narrow standpoint of petty preciosity, pettifogging, technicality or hair splitting fault finding." Perraud, 672 F.Supp.2d at 1345 (citations and internal quotation marks omitted); and see Hill, 2010 WL 128314, at *3 (" [w]hen analyzing challenges to the sufficiency of an indictment, courts give the indictment a common sense construction, and its validity is to be determined by practical, not technical, considerations") (citation and internal quotation marks omitted). " Furthermore, an indictment for conspiracy need not be as specific as an indictment for a substantive count." United States v. Harrell, 737 F.2d 971, 975 (11th Cir. 1984); accord United States v. Stoll, 2010 WL 5313486, at *3 (S.D. Fla. November 23, 2010) (same).
" By now it has become well-established that '[t]he sufficiency of a criminal indictment is determined from its face.'" United States v. Sharpe, 438 F.3d 1257, 1263 (11th Cir. 2006) (citations omitted). In resolving Defendant's pretrial motion to dismiss, the court is not determining whether the Government's evidence is sufficient to find that Defendant is guilty of the charged offenses. Such a determination is left to the trial jury. Id. at 1263 (" In ruling on a motion to dismiss for failure to state an offense, a district court is limited to reviewing the face of the indictment and, more specifically, the language used to charge the crimes. . . . It is well-settled that 'a court may not dismiss an indictment . . . on a determination of facts that should have been developed at trial.'") (citations omitted; emphasis in original); see also United States v. Salman, 378 F.3d 1266, 1268 (11th Cir. 2004) (" There is no summary judgment procedure in criminal cases. Nor do the rules provide for a pre-trial determination of sufficiency of the evidence. . . . The sufficiency of a criminal indictment is determined from its face.").
As noted, in moving to dismiss the indictment, Defendant relies on statutes and regulations, such as, the Security Exchange Act section 10(b), Rule 10b-5, and 15 U.S.C. § § 78ff and 78j(b) - as well as case law interpreting those statutes and regulations - to argue that essential elements of offenses, not even charged in this indictment, have not been adequately pled. [Doc. 24 at 4-12]. Defendant has not offered a single legal authority applying that case law to the Title 18 security fraud violations alleged in this indictment. [Id.]. The court will judge the sufficiency of the security fraud allegations based on the elements of the charged offenses and relevant case law. In doing so, the court first notes that Defendant's arguments appear totally irrelevant to the substantive wire fraud counts charged, pursuant to 18 U.S.C. § 1343, in the indictment and to the charged conspiracy to the extent one object of that conspiracy is an agreement to commit wire fraud. Defendant advances no other attack on the charges based on § 1343, and the court, having reviewed the indictment, finds that those counts are sufficiently pled and will not further address the facial validity of the indictment in that respect.
This indictment alleges a 18 U.S.C. § 1349 conspiracy in Count One, with one object being violation of 18 U.S.C. § 1348, and substantive counts, Two through Twenty-Six, alleging violations of that statute. [Doc. 1 ¶ ...