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May 10, 2001


The opinion of the court was delivered by: Owen. District Judge:

Defendant Richard Gladstone was acquitted following a four week trial before me for securities fraud and two and one-half days of jury deliberation. He now moves for attorney's fees and expenses pursuant to the Hyde Amendment,*fn1 asserting he meets its requirement of showing that the prosecution of him was "vexatious, frivolous . . . or [in] bad faith."

In June 2000, a Grand Jury had indicted him and three others, Howard Helfant, Gus ("Tommy") Geldman and Robert Wade, charging violations of the federal securities laws, and specifically that Gladstone owned and controlled IvyEntertainment.Com, Inc. and that he deliberately concealed material information from investors in the sale of Ivy's promissory notes by failing to disclose to them (1) the enormous (in some cases fifty percent) amount of secret commissions paid to brokers and others selling the notes, and (2) that much of the proceeds raised in the private placements would be used by Gladstone and another conspirator for personal purposes in violation of 15 U.S.C. § 77q(a) and 77x. The Gladstone case tried before me was but one of eleven indictments arising from some one thousand hours of court-ordered bugging of the offices of DMN Capital,*fn2 Gladstone in his moving papers putting before me its reputation as a mob-operated financial firm located in lower Manhattan. *fn3 (Aff. of John F. Lauro, Ex. I.)

The trial began on December 13, 2000. Over the next four weeks, the Government called eighteen witnesses and introduced numerous tape recordings made under FBI surveillance, bank records and filings with the Securities and Exchange Commission. The Government's evidence included the testimony of victim-investors who stated that various sources, such as the "brokers"*fn4 themselves and/or the two offering memoranda, indicated the brokerage commission would be usual" or in the area of ten percent — or that they were told nothing; and were further told that the proceeds of the offering would be used for the benefit and advance of the company.

Among other witnesses, Bernard Thomas, an alleged co-conspirator and cooperating witness, testified that he met Gladstone through co-defendant Gus Geldman in early 1999 and, subsequently, learned of the Ivy deal. Geldman informed Thomas that he (Geldman) made a deal with Gladstone to obtain a fifty percent commission on the sale of Ivy securities. Geldman sought Thomas' assistance in selling the notes and offered to share a portion of the fifty percent commission. Thomas testified that these payments were in fact made. Thomas also testified that, at the direction of Gladstone and Geldman, he met with Liese and offered a twenty percent commission if Liese raised under $100,000 and a twenty-five percent commission if he raised over $100,000. Thomas further testified about a twenty-five percent commission he offered, after consulting with Gladstone, to Sean Campbell, one of the Government's cooperating witnesses whom Thomas met through co-defendant Robert Wade. After this conversation, Thomas testified that Campbell's FBI-created fictitious client invested $10,000 in the private placement and Thomas received a commission of $4,000, or forty percent, from Ivy's bank account. Thomas stated that he paid Campbell $2,500 and kept the rest for himself. Bank records confirmed the transaction.

FBI Agent Kevin Barrows testified regarding certain unusual pre-arrest and pre-indictment statements by Geldman in which he told Barrows that he wanted to cooperate, that Ivy was a fifty percent deal with Gladstone and that he paid thirty-five percent in commissions or more to Thomas or others if they found an investor for Ivy.*fn5 Barrows also supervised Follick in later taped conversations with Geldman. In one conversation, the transcript of which is quoted hereafter, Follick told Geldman about a possible investor (actually created by the FBI) who would invest $5,000 in the Ivy private placement and Geldman offered Follick a forty percent commission with a twenty-four hour turn around on getting his money, Geldman keeping ten percent for himself. Geldman also told Follick that Gladstone was behind Ivy and would confirm that there would be no problem getting paid, which Gladstone did. Bank records confirmed the transactions.*fn6 The transcript of the above conversation, recorded on September 7, 1999, begins with Geldman on the line with Follick and defendant Howard Helfant and reads in relevant part:

Gus Geldman: Okay, now this is what . . . I'm bringing this guy in personally here, Howie.

Howard Helfant: Right.

Geldman: All right? I . . . just like the other guys I brought in, you know they . ., the best investors in Ivy are mine. Are we . . . a, a, agree on that, right?

Helfant: Yes, yes, we have.

Geldman: Okay.

Helfant: And you know the merger is taking place pretty shortly.

Geldman: Uh . . . exactly. And what I'm telling you now is that Bruce will always do the right thing. Okay? He's stand up or I wouldn't even put him on the phone with you. Okay? Uh . . . and basically I told him . . . uh . . . and I want Bruce to know that I told you basically uh . . . his four will go directly through you guys and the one*fn7 that I'm taking, I'm actually holding back until . . . and ensure the paperwork is done right, right?
Helfant: All con . . . consulting fees should be paid according to what Tommy told you.

Geldman: Okay?

Helfant: That's all I'm gonna tell you over the phone.

Geldman: Fair enough, exactly right. All right, Bruce?

Bruce Follick: So . . . uh, uh . . . wait a minute, I didn't . ., who's Tommy?

Geldman: I'm Tommy.

Helfant: Oh, I call him, Gus, Tommy. Yeah.

Follick: . . . so uh . . . the bottom line, if a wire comes in today for five, I'm seeing two back or what?
Helfant: or you'll get . ., you'll probably receive it tomorrow morning. You know, it depends what time of the day, I mean, I don't sit by the phone, but I, if I get a phone call. it's either today or tomorrow, put it that way. Twenty-four hour turn-around basically. As long as I have it.
[Thereafter Helfant gets off the phone and Follick is alone on the line with Geldman]
Geldman: Stay there. I told you he wasn't gonna go but so far, Bruce. But . ., hold on, stay with me . . . he's not stupid. None of these people are stupid, Bruce.

Follick: And I hear you, man.

Geldman: You know. But you heard what you needed to hear, you'll get your two of your five immediately. All right? And you'll be able to call it all the way through. You'll. . .
Geldman: Hold on, stay with me. Just don't get so damn specific with him, all right?

Follick: All right.

Geldman: Ask . ., you know what? I'll get him to tell you that Howard. . .

Follick: If you want I won't even talk.

Geldman: I'll, I'll get him to say that Howard speaks for him and that you don't gotta worry. If Howard says something is gonna happen, it'll happen. How's that sound?
Follick: I just wanna hear the guy say, "Yeah, you're gonna get your money. This is what you're getting." Even if he says it . . . I don't care if he doesn't say it to me, I just wanna know for sure that the guy is really gonna pay.

Geldman: All right. Don't say a flicking word.

Follick: What, what should I do, ask him for the money up front?

Geldman: No, you (unintelligible). . .

Follick: Then I know he's paying.

Geldman: No, you don't say a flicking word. All right?

Follick: All right.

Geldman: I don't want him to know, you know, you're on the fucking phone.

Follick: I won't say not a peep.

Follick: Tell him you got a big guy on the street and he wants four and if he can get up to a hundred he wants forty-five.
Geldman: Um-hum, no, I can't say all of that. Right now we're gonna do just the one thing and we'll talk more in person. ...

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