evidence was technically sufficient, the nature of the proof was such that the verdict reached was contrary to the weight of the evidence and should be set aside and a new trial granted under Fed. R. Crim. P. 33. Memorandum of Law in Support of Victor Teicher and Victor Teicher & Co.'s Motion For a Judgment of Acquittal or, Alternatively, For a New Trial ("Teicher Post-Trial Mem.") at 2-3.
After Chestman II the Teicher defendants press their 14e-3, sufficiency and materiality arguments. See Letter Of Robert J. Anello, Esq. dated December 6, 1991 ("Teicher Supp. Letter").
Defendant Frankel filed a post-trial motion arguing that Frankel was entitled to judgments of acquittal under Fed. R. Crim. P. 29 because of the Second Circuit's decision in Chestman I. In the alternative, Frankel asked for a new trial under Fed. R. Crim. P. 33, contending that the verdicts were contrary to the weight of the evidence. Memorandum of Law In Support of Ross Frankel's Motion ("Frankel Post-Trial Mem.") at 2.
Relying on Chestman II Frankel argues that there was never a duty of confidentiality proven between Salsbury and David, and accordingly the jury could not have found that such a duty extended to Frankel. Frankel argues that the government never proved that he knew the information was confidential and that, even if he had, knowledge alone is not enough for a conviction under Rule 10b-5. Defendant Frankel's Supplemental Memorandum ("Frankel Supp. Mem.") at 5-7.
After Chestman I the government responded that the decision had not changed the elements of Rule 10b-5 liability and that those elements had been proved in this case. The government contended that the evidence was sufficient to convict Frankel of mail fraud, conspiracy and perjury. The government suggested that the defendants be sentenced on the Rule 14e-3 convictions which could then be dismissed if the panel's decision was allowed to stand. Government's Memorandum of Law In Opposition ("Gov. Mem.") at 10-37.
Relying on Chestman II the government now argues that it was not required to show that each member of a line of tippees accepted a duty of confidentiality. The government contends that the critical requirement is knowledge that information is confidential and that that element was proved in this case. The government continues to argue that since the mail fraud convictions are related to the securities fraud convictions, which must be sustained, the mail fraud convictions should be upheld. The government notes that Chestman II has ended any questions about the validity of Rule 14e-3 and urges that the 14e-3 convictions be upheld. Government's Supplemental Memorandum In Opposition ("Gov. Supp. Mem.") at 2-14.
The standards for reviewing post-conviction motions are well-settled. A defendant challenging the sufficiency of the evidence carries a "very heavy burden." United States v. Alkins, 925 F.2d 541, 555 (2d Cir. 1991) (citations omitted). A reviewing court "must construe the evidence in the light most favorable to the government and draw all inferences in its favor." United States v. Teitler, 802 F.2d 606, 615 (2d Cir. 1986) (citations omitted). "[A] jury's verdict will be sustained if there is substantial evidence, taking the view most favorable to the government, to support it." United States v. Scarpa, 913 F.2d 993, 1004 (2d Cir. 1990) (citation omitted). The government is not "required to preclude every reasonable hypothesis which is consistent with innocence." United States v. Chang An-Lo, 851 F.2d 547, 554 (2d Cir.) (citation omitted), cert. denied, 488 U.S. 966, 102 L. Ed. 2d 530, 109 S. Ct. 493 (1988). "If 'any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt,' the conviction must be upheld." United States v. Nersesian, 824 F.2d 1294, 1324 (2d Cir.) (citing and quoting Jackson v. Virginia, 443 U.S. 307, 61 L. Ed. 2d 560, 99 S. Ct. 2781 (1979)) (emphasis in original), cert. denied, 484 U.S. 958, 108 S. Ct. 357, 98 L. Ed. 2d 382 (1987).
"The fact that a conviction may be supported only by the uncorroborated testimony of a single accomplice is not a basis for reversal if that testimony is not incredible on its face and is capable of establishing guilt beyond a reasonable doubt." United States v. Parker, 903 F.2d 91, 97 (2d Cir.), cert. denied, 112 L. Ed. 2d 158, 111 S. Ct. 196 (1990). "The evidence is to be viewed 'not in isolation but in conjunction.'" United States v. Mariani, 725 F.2d 862, 865 (2d Cir. 1984) (citation omitted).
I. Securities Convictions
A. The Rule 10b-5 Convictions
At the conclusion of the evidence the Teicher defendants moved under Fed. R. Crim. P. 29 for judgments of acquittal on Counts 2, 4, 5, 7, 8, 9, 12, 13, 14. This motion focused on the standard for "materiality" of nonpublic information set forth in this Court's March 9, 1990 opinion denying the Rule 29 motions at the close of the government's case. The Court relied on the Supreme Court's holding in T.S.C. Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449, 48 L. Ed. 2d 757, 96 S. Ct. 2126 (1976). See 3/9/90 slip. op. at 2-4. The Teicher defendants argued that false or inaccurate information cannot be material. The Teicher defendants argued that the jury could not find beyond a reasonable doubt that they had been in possession of material information regarding American Can, Allegheny International, American Brands or Revco or regarding Avondale Mills after February 26, 1986. The Teicher defendants contended that the government had failed to show Teicher's knowledge of any harm from his claimed improper conduct with regard to Revco and Republic. In addition, the Teicher defendants contended that the government had failed to establish that trading in Avondale was directed by Teicher. Teicher Trial Mem. 3-23.
In their post-trial motion the Teicher defendants, relying on Chestman I, argued that the government's evidence was insufficient to support convictions under Rule 10b-5. The Teicher defendants maintained that there was insufficient evidence to prove that the they knew the information concerning Revco, the companies on the phantom list (Republic, Westchester and Warnaco) and American Can was confidential. In addition, the Teicher defendants contended that the information concerning American Can, Allegheny, American Brands and Revco could not be material because it was inaccurate. The Teicher defendants argued that the government presented insufficient proof of a single conspiracy. The Teicher defendants contended that the government's proof was insufficient to demonstrate that Teicher ordered trading in Avondale Mills. The Teicher defendants argued that the mail fraud convictions had to be overturned because the information was inaccurate and so could not be property. Teicher Post-Trial Mem. at 5-25.
The Teicher defendants argue that under Chestman II the evidence at trial was insufficient to prove that Teicher knew the information as to Revco, the companies on the phantom list and American Can was confidential and so was guilty of a violation of Rule 10(b)-5. In addition, the Teicher defendants maintain that there is no fiduciary duty with regard to false, stale or inaccurate information. See Teicher Supp. Letter. at 3.
Frankel's post-trial motion challenged the convictions under Counts 8 and 15 for securities and mail fraud related to trading in American Brands, Inc. Relying on Chestman I, Frankel argued that the government had presented insufficient evidence that Salsbury accepted a duty of confidentiality on Paul, Weiss information from David and that Frankel knew that Salsbury was breaching any duty when he provided information to Frankel about the possible acquisition of American Brands. In addition, Frankel argued that there was no evidence that Frankel was ever advised by anyone that the Paul, Weiss information from Salsbury was confidential and had been divulged in violation of a fiduciary duty. Frankel Post-Trial Mem. at 8.
After Chestman II Frankel presses the argument that his Rule 10b-5 conviction on Count 8 must be vacated. Frankel argues that since there was no fiduciary relationship between Salsbury and David and no express acceptance of a duty of confidentiality by David, the government had to show an implied acceptance of duty by Salsbury. Frankel argues that no such evidence was offered. Frankel contends there was no evidence David told Salsbury that the information was confidential and no evidence that Frankel ever knew Salsbury was breaching a duty of confidentiality, even if there was such a duty. Frankel argues that the government never proved he knew the information was confidential and that even if the government had proved such knowledge, knowledge alone is insufficient to sustain 10b-5 liability. Frankel Supp. Mem. 4-7.
The government argues that Chestman II reaffirmed the existing standard for Rule 10b-5 liability that was used in this trial. The government contends that it must prove that the misappropriator violated a fiduciary or similar duty and that the tippee knew of the breach. The government argues that there was ample evidence that Teicher knew the information on Revco, the Drexel phantom list and American Can was confidential. The government rejects defendants' contention that some of the information was not material. As to Revco and American Can, the government points to David's testimony that he told Teicher the information was confidential. Regarding the Drexel phantom list the government points to Salsbury's reluctance to reveal the contents of the list and Teicher's knowledge about such lists. Gov. Supp. Mem. at 9-11.
The government argues that the evidence showed that Michael David misappropriated the American Brands information from Paul Weiss and that Salsbury was the intermediary to Frankel. The government rejects Frankel's contention that the government must show that David breached a duty to his firm and that Salsbury owed and breached a duty to David and that Frankel knew of both duties and breaches. The government contends that it was required to show that David breached a duty and that Frankel knew of that breach. As to David's duty the government argues that his duty was axiomatic as an attorney at Paul Weiss. The government points to Salsbury's testimony, Frankel's previous experience as an attorney, David's testimony and Frankel's cover up attempts as sufficient evidence that Frankel knew David had breached a duty. Gov. Supp. Mem. at 11-13.
1. The Standard for Rule 10b-5 Liability
In Chestman II the Second Circuit reviewed the standard for criminal liability under Rule 10b-5.
The Second Circuit stated the facts of Chestman II as follows:
Robert Chestman is a stockbroker. Keith Loeb first sought Chestman's services in 1982, when Loeb decided to consolidate his and his wife's holdings in Waldbaum, Inc. (Waldbaum), a publicly traded company that owned a large supermarket chain. During their initial meeting, Loeb told Chestman that his wife was a granddaughter of Julia Waldbaum, a member of the board of directors of Waldbaum and the wife of its founder. Julia Waldbaum also was the mother of Ira Waldbaum, the president and controlling shareholder of Waldbaum. From 1982 to 1986 Chestman executed several transactions involving Waldbaum restricted and common stock for Keith Loeb. To facilitate some of these trades, Loeb sent Chestman a copy of his wife's birth certificate which indicated that his wife's mother was Shirley Waldbaum Witkin.
On November 21, 1986, Ira Waldbaum agreed to sell Waldbaum to the Grant Atlantic and Pacific Tea Company (A&P). The resulting stock purchase agreement required Ira to tender a controlling block of Waldbaum shares to A&P at a price of $ 50 per share. Ira told three of his children, all employees of Waldbaum, about the pending sale two days later, admonishing them to keep the news quiet until a public announcement. He also told his sister Shirley Witkin, and nephew, Robert Karin, about the sale, and offered to tender their shares along with his controlling block of shares to enable them to avoid the administrative difficulty of tendering after the public announcement. He cautioned them "that [the sale was] not to be discussed," that it was to remain confidential.