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February 6, 2001


The opinion of the court was delivered by: Sideny H. Stein, United States District Judge.


Defendants Thomas Browne and Gerald McNeil were convicted of securities fraud in violation of 15 U.S.C. § 78j(b), 78ff, 17 C.F.R. § 240.10b-5, wire fraud in violation of 18 U.S.C. § 1343, 1346, violating the Travel Act in violation of 18 U.S.C. § 1952(a)(3), and conspiracy in violation of 18 U.S.C. § 371 after an 11 day jury trial in September of 1998. After learning that the central witness for the government had perjured himself during the trial, Browne and McNeil moved for judgment of acquittal pursuant to Fed. R. Cr. P. 29 or for a new trial pursuant to Fed. R. Cr. P. 33. The motion to acquit the defendants is denied. However, fully cognizant that a motion for a new trial is granted "only with great caution in the most extraordinary circumstances," the motion for a new trial is granted because this Court is "left with a firm belief that but for the perjured testimony, the defendants would most likely not have been convicted." United States v. Wallach, 935 F.2d 445, 456, 458 (2d Cir. 1991).


The charges against Browne and McNeil stem from their participation in a fraudulent scheme to induce customers to purchase the securities of San Diego Bancorp, Inc.*fn1 Peter Tosto, a stock promoter, recruited Browne, a stockbroker at Hanover Sterling Co. of New York, to locate other brokers willing to induce their customers to purchase San Diego Bancorp stock. In return, Tosto offered to pay Browne a percentage of the brokers' sales. Browne accepted the offer and in turn recruited McNeil, a stockbroker he knew at Greenway Capital, Inc., to induce his customers to purchase the stock. McNeil received a payment from Tosto worth 20 percent of the price of the stock his customers purchased. McNeil, in turn, recruited other brokers into the scheme. Browne and McNeil did not disclose to their customers that they were receiving cash payments in exchange for promoting the stock.

At trial, the government primarily relied upon the testimony of Peter Tosto,*fn2 the ringleader of the scheme, who had entered into a cooperation agreement with the government. Tosto testified that "[The cooperation agreement] requires me to be cooperative with the government, turn over all my records that I have, be truthful at this particular hearing and truthful in any things that I have been doing about the government; just be completely honest with all the things I have done and what happened with San Diego Bancorp and anything [the prosecutor] ask[s] me . . . and to be honest and answer all [the government's] questions and everyone's questions." (Tr. 272-73). In exchange, Tosto testified that the government would write a letter to the court requesting, pursuant to U.S. Sentencing Guideline § 5K1.1, that he receive a downward departure from his sentencing guideline range for having rendered "substantial assistance" to the government. (Tr. 273).

On direct examination, Tosto testified about his extensive previous involvement with crime, including selling narcotics to fellow high school students, sinking his car and reporting it stolen, stealing insurance checks from a close friend who was in a coma, and participating in 22 previous incidents of illegal stock manipulation. However, he also testified that he had abandoned his life of crime once he signed his cooperation agreement with the government in 1994. Specifically, he testified, "There came a point in my life when I decided I didn't want to lie and cheat anymore." (Tr. 749). He also said he had approached the government of his own accord with his tale of wrongdoing because "I wanted to expose myself." (Tr. 1112). In addition, he specifically testified that he believed his business activities in connection with the securities industry at the time of trial were in complete compliance with the securities laws and with his cooperation agreement. (Tr. 755). The government asked the jury to rely on the testimony of Tosto because "Mr. Tosto was very candid with you," "he told you the truth," and "what he told you was corroborated in important ways by other evidence in this case." (Tr. 1790, 1797, 1819). Tosto testified during five of the seven days of trial testimony in this action. Indeed, the Court observed during a side bar conference that "Mr. Tosto is the government's case." (Tr. 1115).

The government also introduced testimony from other brokers who participated in the scheme, from customers of McNeil who purchased the stock, and from an expert witness who testified about the increase in volume of the trading of San Diego Bancorp stock after 1993. The prosecutor offered documentary evidence as well, including Tosto's records, which reflected the daily stock purchases by the brokers and the cash payments he owed them as a result of those purchases, Western Union records reflecting interstate wire transfers of cash to Browne, and written confirmations of San Diego Bancorp stock purchases made by McNeil on behalf of his customers. A tape recording of a conversation between Tosto and McNeil was also played for the jury in which McNeil asked whether he would still receive "cash" if he resumed purchasing San Diego Bancorp shares for his customers. The jury convicted Browne and McNeil on all counts.

Approximately 17 months after the trial, the U.S. Attorney's office for the Southern District of New York charged Tosto with securities fraud, perjury, making false statements, and obstruction of justice. Much of the alleged criminal activity took place at the time of, or just before, defendants' trial. On October 18, 2000, Tosto pleaded guilty to committing perjury during defendants' trial, allocuting that:

On September 15, 1998, I lied under oath during the trial of the case[] of U.S. versus Brown[e]. I falsely stated under oath that my dealings with stockbrokers and the investing public had been consistent with federal securities laws since 1995 — since 1994, when in fact, I had been committing securities fraud during that time.

(United States v. Tosto, 00 Cr. 1082, Plea, Oct. 18, 2000). He also pleaded guilty to all other charges against him.

In July, 2000, this Court denied defendants' request for further discovery into the exact time the U.S. Attorney's office learned of Tosto's perjury, holding that the U.S. Attorney's office for the Southern District of New York was not responsible for knowing about an investigation into Tosto's criminal activities conducted by the Washington, D.C. office of the Securities and Exchange Commission. (United States v. Browne and McNeil, 97 Cr. 331, July 20, 2000, Oral Opinion and Order.) While acknowledging that "an individual prosecutor is presumed to have knowledge of all information gathered in connection with that office's investigation of the case," and citing Kyles v. Whitley, 514 U.S. 419, 437 (1995), the Court also stated — relying on United States v. Gambino, 835 F. Supp. 74, 95 (E.D.N.Y. 1993) (aff'd 59 F.3d 353 (2d Cir. 1995)) and United States v. Locascio, 6 F.3d 924, 949-50 (2d. Cir. 1993) — that "knowledge on the part of persons employed by a different office of the government does not in all instances warrant the imputation of knowledge to the prosecutors." The Court found that because the Washington, D.C. office of the SEC was not involved in the investigation and prosecution of Browne and McNeil, and because the SEC investigation into Tosto did not begin until four months after the trial ended, the U.S. Attorney's office in the Southern District of New York had no reason to know that Tosto had perjured himself at the time the perjury was committed. (United States v. Browne and McNeil, 97 Cr. 331, July 20, 2000, Oral Opinion and Order.)


A. Standards for new trial when a lead witness commits perjury

The U.S. Court of Appeals for the Second Circuit has articulated two discrete standards that govern when to grant a motion for a new trial based on the perjury of the government's central witness. First, if the government knew or should have known about the perjury, the conviction must be set aside "if there is any reasonable likelihood that the false testimony could have affected the judgment of the jury." Wallach, 935 F.2d at 456. Reversal in that situation is virtually automatic." Id. However, in this case, as noted above, ...

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