The opinion of the court was delivered by: CHARLES S. HAIGHT, JR.
This case is before the Court on defendants' post-trial motions for judgments of acquittal pursuant to Fed. R. Crim. P. 29(c), or, alternatively, for a new trial pursuant to Fed. R. Crim. P. 33.
On November 11, 1988 the defendants, as well as D. Ronald Yagoda and Marcus Schloss & Co. Inc., were charged in a 31 - count indictment charging, inter alia, conspiracy, securities fraud, mail fraud and perjury. Yagoda and Marcus Schloss were severed out and tried separately in May 1989. See United States v. Marcus Schloss & Co., Inc., 710 F. Supp. 944, 945 (S.D.N.Y. 1989). The indictment was redacted to eliminate these defendants.
Defendants were tried before this Court and a jury from January 19, 1990 through April 6, 1990.
Defendants first made Rule 29 motions for dismissal of all counts at the close of the government's case and Counts 13, 14, 15, 16 and 19 were dismissed, although the other counts were allowed to stand. See United States v. Victor Teicher & Co., L.P., et. al., 88 Crim. 796 (CSH), Memorandum Opinion and Order (S.D.N.Y. March 9, 1990) ("3/9/90 slip. op."). The indictment given to the jury in this case was further redacted to reflect the dismissals of these counts.
Count 1 of the indictment charged that from July 1, 1985 to on or about April 30, 1986 defendants Victor Teicher & Co., L.P., Victor Teicher ("the Teicher defendants") and Ross S. Frankel conspired, in violation of 18 U.S.C. § 371, to commit securities fraud in violation of 15 U.S.C. §§ 78j(b) and 78ff and 17 C.F.R. § 240.10b-5; fraud in connection with a tender offer in violation of 15 U.S.C. §§ 78n(e) and 78ff and 17 C.F.R. § 240.14e-3(a); and mail fraud in violation of 18 U.S.C. § 1341. Counts 2 through 10 charged the Teicher defendants with securities fraud with respect to certain securities in violation of 15 U.S.C. §§ 78j(b) and 78ff, 17 C.F.R. § 240.10b-5 and 18 U.S.C. § 2. Count 8 charged defendant Frankel with securities fraud with respect to one of those securities, American Brands, Inc. Counts 11 and 12 charged the Teicher defendants with fraud with respect to the tender offer by Dominion Textile Company, Ltd. for Avondale Mills in violation of 15 U.S.C. §§ 78n(e) and 78ff, 17 C.F.R. § 240.14e-3(a) and 18 U.S.C. § 2. Counts 13 and 14 charged Victor Teicher with mail fraud in violation of 18 U.S.C. § 1341 and 2. Count 15 charged Frankel with mail fraud in violation of 18 U.S.C. § 1341. Count 16 charged Frankel with four specifications of perjury before the Securities and Exchange Commission ("S.E.C.") in violation of 18 U.S.C. § 1621. Counts 17 and 18 charged Frankel with obstruction of justice in violation of 18 U.S.C. §§ 1505 and 2.
On March 23, 1990, at the conclusion of all the evidence in the case, defendants again moved for judgments of acquittal under Rule 29. The Court reserved decision on the defendants' motions. Transcript of Trial January 19, 1990 - April 6, 1990 ("Tr.") at 6730.
On April 6, 1990 the jury returned verdicts of guilty against Victor Teicher & Co., L.P. and Victor Teicher on Counts 1-12, against Victor Teicher on Counts 13 and 14 and verdicts of guilty against Frankel on Counts 1, 8 and 15-18.
On May 2, 1990 the United States Court of Appeals for the Second Circuit issued its decision in United States v. Chestman, 903 F.2d 75 (1990), rev'd in part and aff'd in part, 947 F.2d 551 (2d Cir. 1991), petitions for cert. filed (U.S. Jan. 1 and 2, 1992) ("Chestman I "), reversing Rule 10b-5, Rule 14e-3, mail fraud and perjury convictions obtained after a jury charge substantially similar to the charge in the case at bar. On May 14 and 21, 1990 the Teicher defendants and Frankel, respectively, filed post-trial motions for judgments of acquittal under Rule 29 or, in the alternative, for a new trial under Rule 33.
On August 24, 1990 the Second Circuit granted rehearing en banc of Chestman I and this Court deferred decision on the pending post-trial motions until the Second Circuit's en banc ruling.
On October 7, 1991 the Second Circuit issued its en banc decision. United States v. Chestman, 947 F.2d 551 (2d Cir. 1991), petitions for cert. filed (U.S. Jan. 1 and 2, 1992) ("Chestman II "). Chestman II reversed in part and affirmed in part the panel's decision. Based on the en banc decision in Chestman II the defendants have filed briefs and letter-briefs supplementing the post-trial motions. Defendants' motions are now fully briefed and ripe for decision.
For the reasons set forth below, defendants' motions are denied.
To the extent that defendants challenge the sufficiency of the evidence against them, the standard of review is clear.
The evidence at trial, viewed in the light most favorable to the government, see United States v. Simmons, 923 F.2d 934, 953 (2d Cir.), cert. denied, 112 S. Ct. 383, 116 L. Ed. 2d 334 (1991), established the facts as follows.
The evidence showed that Teicher received confidential information about the names of companies on the Drexel "phantom list." This list contained the names of companies that Drexel was not to trade in because the firm was working on transactions involving them. Tr. 4728-29. Salsbury testified that Teicher repeatedly asked him for the identity of companies on the list. Salsbury initially resisted giving Teicher the names on the list, and when he did reveal the names he told Teicher that he should not disclose the information to any other person. Tr. 2253, 3018, 3031-33.
The evidence showed that while working at Salomon Brothers in the late 1970s, Teicher became familiar with what Salomon Brothers called a "restricted list." This list contained a list of stocks in which Salomon Brothers was not permitted to trade.
In late February and March 1986, Teicher purchased stocks in companies within a day or on the day that the company was placed on the Drexel phantom list. On March 14, 1986 Teicher purchased $ 710,000 worth of Warnaco stock on the day after Warnaco was added to the Drexel phantom list. The government also proved that Teicher had traded in other Drexel phantom list stocks, namely Republic Airlines (Count 2) and Westchester Financial Services Corporation (Count 3). GX 81 B.
The evidence also showed that Teicher received material nonpublic information that Michael David had misappropriated from Paul Weiss and its client Triangle Industries. During his direct testimony David stated:
I said [to Teicher that] I had learned within Paul Weiss that American Can at sometime in the future may become a takeover target by a Paul Weiss client, Triangle Industries, but that was uncertain at that time. . . . I said, if it would happen at all it would happen within six months.
On redirect examination David testified that:
While I conveyed to him that it came from Paul Weiss, I did not mention the actual source of my information. That's Mr. Lee Pershan, the actual lawyer I talked to or I learned it from. . . . I not only told him that Triangle Industries would take over American Can at sometime in the future, depending on certain antitrust barriers, but I also conveyed to him in words which I don't recollect that that information came from Paul Weiss.
The evidence showed that on March 11, 1986 Michael David told Teicher, in a conversation which took place in Teicher's office, that Paul Weiss was working on a deal involving Revco. Up to this point David had tipped Teicher on four previous Paul Weiss deals, with a tip on American Brands having been given the day before.
David testified that on the morning of March 11, 1986 he "told [Teicher] that the price of the buyout was supposed to go to thirty-five and only thirty-five and that the stock was trading a little bit too close to $ 35 a share." David testified that he told Teicher that he had gotten that information either from Andrew Solomon, another coconspirator, or from Marcus Schloss & Co. Tr. 419, 778. The evidence showed that Teicher acted on the tip that same morning. On March 11, 1986 the opening of Revco trading was delayed because of the announcement of the pending buy-out offer that appeared on the broad tape at 9:57 a.m. Solomon testified that when Solomon's boss Yagoda saw that announcement he told Solomon to tell David to sell Revco stock short because the market price was too high relative to what Yagoda knew about the actual price of the buy-out. Solomon relayed that information to David, who in turn tipped Teicher, who sold 5,000 shares short by 10:21 a.m. Tr. 414, 421, 778, 1214-16.
The evidence showed that Ross S. Frankel was a corporate vice president at Drexel Burnham Lambert doing research analysis in the domestic arbitrage department. In August 1985 Salsbury was hired to do financial analysis in the department. Ronald Geffen was also part of the research analysis team in the domestic arbitrage department. Tr. 4720-4752.
The evidence showed that Salsbury tipped Frankel about American Brands and told Frankel that the information came from Michael David, whose law firm was representing a company, BAT Industries, that was considering a takeover of American Brands. In the days leading up to March 10, 1986 Salsbury had three conversations with Michael David concerning American Brands and Salsbury related each conversation to Frankel. After the first conversation, Salsbury testified that he told Frankel "that Michael's firm is representing a British client in the acquisition of American Brands." Frankel replied by saying "that it was good information, try to get more, and tell Michael to be careful." After the second conversation with David, Salsbury testified that he told Frankel that "Paul Weiss had gone forward and gotten SEC documents . . . on American Brands." After the third conversation with David, Salsbury testified that he told Frankel "all the information about who the client was . . . I told him in fact that BAT U.S. was the acquirer . . . . that it was -- he knew it came from Paul, we discussed it coming from Paul Weiss." Tr. 2304-06. The evidence showed that Frankel was a lawyer, who had once worked at the firm of Morgan Lewis & Bockius, and was aware of the fiduciary duties lawyers owe to clients. Tr. 4715-17.
On March 10, 1986, after Salsbury relayed his third conversation with David, Frankel purchased ten American Brands call options. Frankel also allowed Salsbury to buy two options in Frankel's account at Drexel Burnham Lambert.
The government also proved a number of incidents from which it was entitled to an inference of knowledge on Frankel's part of the source of inside information. Michael David testified that when Frankel saw David at Teicher's office on March 10, 1986 Frankel warned David to "be a little bit more low key." Tr. 410. Frankel admitted, albeit with a different explanation, that he told David "I don't think you should be playing arb on Paul Weiss's time." Tr. 4888. Frankel testified that he told Salsbury on March 11, 1986 that he had seen David at Teicher's office and that Frankel "thought it was a little strange and not too good an idea." Tr. 5159. Salsbury's version of the conversation is that Frankel "was very upset" and told Salsbury that he "should tell Victor he shouldn't do that any more." Tr. 2314. Sometime later in March 1986 while Salsbury and David spoke on the phone, Frankel told Salsbury to ask David "if it [American Brands] still was on and when it would occur." Tr. 2336.
The evidence showed that Frankel gave contradicting statements on whether Salsbury had done research on American Brands in February of 1986 and the government was entitled to the inference that Frankel had committed perjury. See Indictment, Count 16, Specifications 1, 2 and 4. During his appearance before the S.E.C. Frankel testified that Salsbury had done research in February 1986 at Frankel's request and that Frankel had not asked Salsbury to do any research on March 10, 1986. In contrast, Salsbury testified that he did no research in February and that the first time Frankel had asked him to do research was after Frankel and Salsbury had purchased American Brands call options on March 10, 1986. Tr. 2318-20. On June 3, 1986 Frankel initially told the S.E.C. that "the Salsbury analysis was before March 10" and that Salsbury "had already done the financial analysis on my request a while before [March 10]." The S.E.C. then confronted Frankel with a memorandum he had written to Drexel's in house counsel Paul Merolla on April 29, 1986. That memorandum, which Frankel had written, stated that "on March 10, 1986, I told Bob that I was considering buying some American Brands calls and asked him to do a brief financial analysis of the underlying common stock." The memorandum mentioned nothing about research being done before March 10, 1986. Tr. 5036-38. When Frankel saw this memorandum at the S.E.C. he stated that it was wrong and said "I don't know why I wrote that." GX 6 at 124.
On June 5, 1986 Frankel gave another version to the S.E.C. and also relied on this version at the trial before this Court. In this version Frankel stated that he had asked Salsbury to do an analysis in February and had only asked him to do an "update" on March 10 to compare American Brand to other tobacco stocks. Tr. 4973, 5048. But the research in Salsbury's notebook on the back of a page dated March 12, 1986 is an analysis of the break-up value of American Brands using 1984 numbers. It makes no mention of any other tobacco companies. Tr. 5048.
On March 23, 1990 the Teicher defendants moved for judgments of acquittal at the conclusion of all of the evidence and argued that the government's evidence was insufficient to convict and that the alleged inside information was immaterial. Memorandum of Law In Support of Teichers' Defendants Motion ("Teicher Trial Mem.") at 1-4.
The Court reserved decision on these motions.
In May 1990, following the verdicts of guilty, the Teicher defendants renewed their March 23, 1990 motions for judgments of acquittal on all counts of the indictment. The Teicher defendants also moved for judgments of acquittal as to each count of the indictment based on the Second Circuit's decision in Chestman I. The Teicher defendants also moved for judgments of acquittal as to all counts of the indictment on the ground that, when viewed in light of all of the evidence at trial, the testimony of the government's two main witnesses, Michael David and Robert Salsbury was so contradictory and inconsistent on its face that the Court should find their testimony incredible as a matter of law. The Teicher defendants argued that the Rule 14e-3 convictions should be vacated because Rule 14e-3 had been held invalid in Chestman I.