The opinion of the court was delivered by: HAIGHT
MEMORANDUM OPINION AND ORDER
Defendants John C. Revson and Ludwig J. Cserhat move to sever their trials under the captioned indictment from that of defendant Edward M. Gilbert. Rule 14, F.R.Cr.P., whose full text appears in the margin,
permits severance of criminal defendants for trial "(if) it appears that a defendant ... is prejudiced by a joinder of ... defendants in an indictment ... or by such joinder for trial together ..."
The 36-count indictment charges a conspiracy to violate the securities laws, and substantive violations, with respect to manipulation of the shares of Conrac Corporation. All three defendants are named in the conspiracy count, and in substantive counts 33 and 34. Gilbert is charged alone in counts 2-8, 9-11, 15, 16, 20, 21, 23, 27-32, and 36. Gilbert is charged together with Revson in counts 17, 22, 24, 25, and 35. Gilbert is charged with Cserhat in counts 12, 13, 18, and 26. Revson is charged alone in count 19, and Cserhat in count 14.
Both Revson and Cserhat contend that they are peripheral defendants who would be prejudiced by a "spillover" from the Government's proof against Gilbert, the main architect of the alleged scheme and, by reason of a prior securities fraud conviction, other legal proceedings, and a much publicized flight to Brazil, a notorious character. Revson and Cserhat argue that much of the Government's evidence in a projected six-week trial will implicate only Gilbert, thereby giving rise to that "slow but inexorable accumulation of evidence of fraudulent practices" by major conspirators which was held to have fatally prejudiced minor participants in United States v. Kelly, 349 F.2d 720, 759 (2d Cir. 1965), cert. denied, 384 U.S. 947, 86 S. Ct. 1467, 16 L. Ed. 2d 544 (1966). In addition, both defendants claim that they require Gilbert's exculpatory testimony, foreclosed if they are tried together and Gilbert does not take the stand, or purchased at intolerable "spillover" cost if Gilbert testifies and is cross-examined on his checkered past.
Kelly undoubtedly teaches that the gradual accumulation of evidence against the principal members of a conspiracy to violate the securities laws may require a separate trial for a minor participant, lately come to the venture. Prejudice is particularly likely to occur in respect of defendants "who are charged in only a few of the many counts" and "who are involved in only a small proportion of the evidence," so that "(t)he jury is subjected to weeks of trial dealing with dozens of incidents of criminal misconduct which do not involve (them) in any way," and "(as) trial days go by, "the mounting proof of the guilt of one is likely to affect another.' " United States v. Branker, 395 F.2d 881, 888 (2d Cir. 1968), cert. denied, 393 U.S. 1029, 89 S. Ct. 639, 21 L. Ed. 2d 573 (1969), quoting Schaffer v. United States, 362 U.S. 511, 523, 80 S. Ct. 945, 952, 4 L. Ed. 2d 921 (1966) (Douglas, J., dissenting). But severance will be denied where the petitioning defendant's role "was central to the success of the conspiracy, and his overall activity was not so disproportionate to that of his co-defendants that his case needed to be severed to assure that he receive justice." United States v. Cohen, 518 F.2d 727, 736 (2d Cir. 1975). When "a continuing, chain-relationship" between all defendants is proven, and "the evidence against the particular defendants who request severance is not "so little or so vastly disproportionate' in comparison to that admitted against the remainder of the defendants," severance is not required. United States v. Capra, 501 F.2d 267, 281 (2d Cir. 1974), quoting United States v. Rizzo, 491 F.2d 215, 218 (2d Cir. 1974). In a stock manipulation conspiracy, a defendant is not entitled to severance simply because "he was not a member of the conspiracy during the earlier stages"; where substantial evidence demonstrates his "unlawful participation in the conspiracy," so that he was not a "silent partner" or a "peripheral defendant," a joint trial is proper. United States v. Corr, 543 F.2d 1042, 1052 (2d Cir. 1976). The defendant requesting severance must show substantial prejudice resulting from joinder, not just that he would have a better chance for acquittal at a separate trial. United States v. Lyles, 593 F.2d 182, 189-90 (2d Cir. 1979). A relatively brief trial of a one-count indictment militates against severance, since there is better chance that the trial judge's cautionary instructions will suffice, Lyles at 190. The danger of prejudicial spillover is also reduced, lessening the need for severance, where a particular defendant's circumstances are markedly different from his co-defendants. United States v. Papadakis, 510 F.2d 287, 300 (2d Cir. 1975) (drug purchaser tried together with police officers who illicitly sold confiscated narcotics; "(w)e cannot ascribe such a spillover (of evidence unrelated to purchaser) to the joint trial for the very reason that Papadakis was obviously not a "crooked cop' and clearly had no connection with their corrupt activities").
In addition to the spillover factor, Revson and Cserhat stress their need for Gilbert's exculpatory testimony. In evaluating that contention, the pertinent criteria include "(1) the sufficiency of the showing that the co-defendant would testify at a severed trial and waive his Fifth Amendment privilege, ... (2) the degree to which the exculpatory testimony would be cumulative, ... (3) the counter arguments of judicial economy, ... and (4) the likelihood that the testimony would be subject to substantial, damaging impeachment ..." United States v. Finkelstein, 526 F.2d 517, 523-24 (2d Cir. 1975) (citations omitted). Circumstances warranting severance are illustrated by United States v. DePalma, 466 F. Supp. 920 (S.D.N.Y.1979).
The perspectives of the trial and appellate courts on severance are different. Where a connected defendant appeals from the trial court's refusal to sever, the appellate court's inquiry is whether the trial judge abused his discretion; and it addresses that question against the background of a full trial record. By definition, the trial judge confronted with a pre-trial motion to sever a defendant has no such record. Accordingly the moving defendant must make the requisite showing of substantial prejudice from other sources; and the trial court's evaluation of risk is limited by the information then available to him.
Revson and Cserhat both contend, in their moving papers, that they were innocent at best and merely peripheral at worst. The Government portrays them as central figures in the conspiracy, essential to its success. These characterizations of advocates, predictable enough when severance is sought and resisted, give me minimal assistance. But there are other sources from which pertinent information may be gleaned. In 1975, the Securities and Exchange Commission ("SEC") commenced an investigation into the alleged manipulations of Conrac stock. A number of individuals testified before the SEC in connection with that investigation. They included Gilbert and one James C. Couri, an unindicted co-conspirator in the present case who is expected to be a principal Government witness. Pertinent sections of Gilbert's and Couri's SEC testimony are attached to the motion papers. In addition, the SEC culminated its investigation with a civil action seeking injunctive relief against Gilbert, Couri, Revson, Cserhat, and other individuals and entities. Securities and Exchange Commission v. Gilbert, et al, 82 F.R.D. 723, S.D.N.Y. (IBW). The affidavit of Steven Glusband, the SEC attorney in charge of the investigation, dated January 21, 1976 and presented to Judge Wyatt in support of the SEC's motion for a preliminary injunction, comprises 36 pages and contains 166 paragraphs. The Glusband affidavit, attached to the Revson's motion, presents in detail the SEC's perception of the scheme and its participants at the time civil injunctive relief was sought. These are sources, existing independently of the present contentions of counsel, which I may consult in determining whether severance is required in this case.
I should emphasize that in this opinion I intimate no view upon the accuracy of the SEC's account. Nor do I hold any opinion as to the guilt or innocence of any defendant of the crimes now charged. That determination is for the jury. The sole purpose of the recitation below is to demonstrate the SEC's prior perception of the case.
For reasons that will appear, the following analysis centers upon Revson.
The Glusband affidavit (hereinafter "G.A.") recites that beginning "in the last quarter of 1974, Gilbert, in his own accounts, accounts in which he had a beneficial interest, accounts of persons acting at his direction, and accounts of persons to whom he lent money to purchase Conrac, began to purchase and sell shares of Conrac in large volume." These entities are referred to as the "Gilbert group." By May, 1975, the "Gilbert group" had accumulated 75,000 Conrac shares, out of a total number of outstanding shares of slightly less than 1,300,000. The Gilbert group operated out of approximately 25 accounts at two brokerage firms. During this period of accumulation, the price of Conrac rose from approximately $ 9 to $ 20 per share. The Gilbert group continued its acquisition activities through September, 1975, holding a total of 98,000 shares at the end of that month. The positions in Conrac of the "Gilbert related accounts" for the period May-September 1975 appear in G.A. P 27. Revson was not yet involved. Neither was Couri.
G.A., Part V, at P 29, is captioned: "The Entry of Couri." Couri was an investor. Gilbert had met him earlier in 1975. On or about September 24, 1975, Gilbert proposed that Couri become active in the purchase and sale of Conrac shares. Couri agreed to do so, utilizing at times funds advanced to him by Gilbert. G.A. PP 29-31. It is apparent from the SEC investigation, and the Glusband affidavit summarizing its results, that Couri acted under the direct supervision of Gilbert in his Conrac trading, moving into Gilbert's own office. A typical statement appears in G.A. P 30, which after describing Couri's first Conrac transaction at Gilbert's instigation, states:
"In connection with this purchase and nearly all other transactions executed subsequently by Couri for his own accounts and those of Revson, Gilbert directed Couri as to when to purchase or sell Conrac shares, what amounts to purchase or sell the shares for, and the price at which the transaction should be effected." (emphasis in original).
Revson had been associated with Couri in 1969, as a partner in investment firms of which Couri was managing partner. These partnerships ceased operations in 1969. In August, 1975, Revson inherited a large sum of money and a substantial amount of Revlon stock. Revson was interested in finding an attractive investment. While, following the dissolution of the 1969 partnerships, Revson had no significant contact with Couri, on or about October 8, 1975 Revson received a telephone call from Couri, concerning an alleged indebtedness in connection with the dissolution of one of the 1969 partnerships.
Couri described his October 8, 1975 telephone call with Revson in his testimony before the SEC. ...