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
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.)
Helfant: Yes, yes, we have.
Helfant: And you know the merger is taking place
Helfant: That's all I'm gonna tell you over the phone.
Geldman: Fair enough, exactly right. All right, Bruce?
Geldman: I'm Tommy.
Helfant: Oh, I call him, Gus, Tommy. Yeah.
Follick: And I hear you, man.
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
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. I'll fly to New York, all right?
Follick: All right.
Geldman: All right, let's get the first piece.
Follick: But believe it or not, you know, if I see that
this guy is real I'll fu . . . I'll fucking do the right
thing real quick.
Geldman: Okay, well . ., but I want . ., we'll talk more
in person. Let's get the first piece done.
Follick: "Cause you know how it goes, man.
Geldman: Stay with me, baby.
[Ringing — Gladstone joins the conversation with Geldman
Gladstone: Tommy. Yeah, Tommy.
Geldman: Yeah, Rich.
Gladstone: What's cooking "cause uh. . .
Geldman: All right, I got a guy on the phone with me, uh
. . . um . . . Bruce. Say hi, Bruce.
Follick: Hi, how are you?
Geldman: You remember Bruce. He was. . .
Geldman: . . . he was working with me down in Man . . .
in New York for awhile.
Gladstone: Oh, okay, hi, Bruce.
Follick: Hi, how are you doing?
Geldman: All right, and uh . . . the deal that I told
you, I worked out through Howie. . .
Geldman: All right, he just wants to know that you are
behind it and he doesn't have to worry that . ., you know.
Gladstone: Oh, yeah, yeah, yeah. But, but Bruce, it's,
it's, critical. I mean, I, I really wanna say . . . I
mean, you gotta get the sus . . . you know, the
subscription, you know?
Follick: Oh, I've been. . .
Gladstone: (unintelligible) subscription done. I mean, if
you're missing a, a W-9, or you know, something stupid,
don't worry about it, even though we need to get it.
Follick: Believe it or not, Gus knows me and I'm, I'm
good with the paperwork. . .
Gladstone: (unintelligible). . .
Follick: . . . like that.
Gladstone: . . . if he's accredited and, you know. . .
Geldman: Rich, he's good.
Gladstone: He's in the right state, and . ., you know. . .
Gladstone: . . . otherwise, if you send us the money,
it's, it's like a, a . . . it's a tease
Gladstone: You know, "cause . . . I almost rather not
have the money.
Geldman: Rich. I just . ., two things I didn't. . .
Gladstone: But if you can get us a couple of the basic .
., you know, subscription document, you know, uh . . .
questionnaire, I think, you know, uh. . .
Follick: Believe me, I'm a stickler with the . . . I'm a
stickler with the documents myself. I can. . .
Geldman: Rich, he's, he's real good with docs, Rich.
Gladstone: Then, then, then you, you know, then . .,
yeah. We're talking. . .
Geldman: He's. . .
Gladstone: . . . talking about a twenty-four hour turnaround.
Geldman: Okay, I told him basically it'll be four . .,
and he'll get four, I'll get one, and I told him I'll
leave my one back until all paper is right.
Gladstone: Well, I'd like to think the paper is gonna be
right from the get go.
Geldman: No, I'm just saying for this first transaction,
dude. If it. . .
Geldman: No, (unintelligible). . .
Gladstone: You're right, but, but, but if it's the .
., if it's not a hundred percent right, just get the,
get the important documents right. You know the
questionnaire, the . ., you know?
Geldman: Yeah. No, no, I, I, I. . .
Gladstone: Because for all I know . . . I mean, I saw a
W-9 in there and fucking weird thing, you know?
Geldman: Yeah, no, all I'm saying, Rich, is on the first
one he, he, he just wants to see the turn around, know
everything is correct.
Gladstone: Right, I understand.
Geldman: All right? I have. . .
Gladstone: Thank you, Bruce. I'm in a meeting uh . . .
another deal we're gonna be doing uh . . . Eutro.
Gladstone: (unintelligible) but I'm with the chairman of
the board, so I really gotta go.
Follick: Wait, can I ask you a question?
Follick: If, if I, if I show you the paperwork, it's
right on a very consistent basis, and I, and I could do
maybe a hundred plus, can I get up to forty-five?
Geldman: We'll talk about it.
Gladstone: That's between you and Tommy, I'm . . . I, I,
I mean, I'm stuck at a number that I did for Tommy
because it really . . . I almost, you know, it's like a,
like a ten percent commission and anything over that is
really uh . . . an investment that I
make because um . . . you know, and, and that's
through . . . between you two guys "cause I'm trying
to help out . . . Tommy, build, you know, the Baxter
Geldman: Okay, Rich.
Gladstone: Last, last I heard they're going on the cover,
right, right, Tommy?
Geldman: Yes, sir, I'm working that out right now. You
gotta call me later, okay?
Follick: So then . . . uh . . . hello.
Geldman: Go ahead, Bruce.
Follick: If he, if he gives me the green light and says
yes I can have it, then I know I' gonna get it? I can
always call you and cry if he doesn't do the right thing?
Gladstone: Whatever, whatever Tommy says, you got.
Follick: All right.
Gladstone: I back up whatever Tommy says.
Geldman: All right?
Follick: All right.
Geldman: All right.
Follick: Thank you very much, man, thanks for your time.
Gladstone: Talk to you later.
Geldman: All right.
Gladstone: See you.
Against the foregoing, there is no evidence whatever from the trial
record, or from the assertions in Gladstone's memoranda to support his
position here that the prosecution was "vexatious, frivolous or in bad
faith," regardless of what the jury concluded. Gladstone's claims that
there could be no fraud because the Government made part of its case by
using undercover agents and fictitious investors*fn8 and also because
the promissory notes were not payable until 2002 are both irrelevant
since the use of undercover law enforcement techniques is appropriate and
because the fraud occurred when the notes were sold; and moreover because
the statements in the private placement memoranda regarding commissions,
excerpted below, are deliberately ambiguous and misleading:
It is not anticipated that there will be any commissions
paid in connection with the sale of the [Ivy Notes], but
the Company reserves the right to retain broker-dealers
on a commission basis. If any such broker-dealers are
retained it is anticipated that, at a minimum, such
broker-dealers would be paid a commission equal to 10% of
the proceeds raised through such broker dealers. See "Use
There, the "Use of Proceeds" sections of each private placement memoranda
informed potential investors that approximately ninety percent of all the
money raised through the sale of the securities would be used by Ivy, and
The Hyde Amendment states in relevant part:
During fiscal year 1998 and in any fiscal year
thereafter, the court, in any criminal
case (other than a case in which the defendant is
represented by assigned counsel paid for by the
public) pending on or after the date of the enactment
of this Act, may award to a prevailing party, other
than the United States, a reasonable attorney's fee
and other litigation expenses, where the court finds
that the position of the United States was vexatious,
frivolous, or in bad faith, unless the court finds
that special circumstances make such an award unjust.
Such awards shall be granted pursuant to the
procedures and limitations (but not the burden of
proof) provided for an award under section 2412 of
title 28. United States Code [the Equal Access to
Justice Act or "EAJA"].
Pub. L. No. 105-119, § 617, 111 Stat. 2440, 2519 (1997), reprinted in
18 U.S.C. § 3006A (underscoring supplied). Recovery under the Hyde
Amendment is intended for cases where, as Representative Hyde stated,
"[U]ncle Sam sues you, charges you with a criminal violation, even
gets an indictment and proceeds, but they are wrong. They are not
just wrong, they are willfully wrong, they are frivolously wrong."
143 Cong. Rec. H7786-04, H7791 (Sept. 24, 1997); see also United
States v. Wade, 93 F. Supp.2d 19, 22 (D.D.C. 2000) (same).
I also note that while the Hyde Amendment does not define the term
"prevailing party," it incorporates the procedures and limitations of the
EAJA, which, is where the provisions to seek attorney's fees appear in
28 U.S.C. § 24 12(b) and § 24 12(d). As has been determined in
numerous persuasive cases, it is § 2412(d) that applies here,*fn9
with its threshold proviso that an individual whose net worth exceeds
$2,000,000 may not recover fees. See 28 U.S.C. § 241
2(d)(1)(C)(2)(B). The Government has submitted on this motion a
deposition excerpt in which Gladstone stated under oath on January 20,
1999 that the approximate value of his stock brokerage accounts alone,
not including any other assets, income or holdings, was $3.5 million. See
Williams v. LDPA Acquisition Corp. et al., 96 Civ. 3079 (BDP) (Dep. Tr.
at 13). Gladstone, in his reply papers, did not take issue with this and
I treat it as established. See, e.g., United States v. 68.94 Acres of
Land, 736 F. Supp. 541, 546-547 (D.Del. 1990). Nevertheless, he argues
that the net worth threshold should not apply because it creates a
"classic `Catch 22' situation," stating in his memorandum:
If a defendant lacks financial resources, he is
effectively prohibited from retaining competent legal
counsel, and faces likely conviction even where the
government has acted improperly. However a defendant who
can afford competent counsel, in the face of an
overreaching government, would not be able to seek
compensation. . . .
Reply Letter-Brief, dated March 16, 2001, at 2 (underscoring supplied).
Setting aside the gratuitous defamation of the public defense bar,
especially the Legal Aid Society's Federal Defender Division in this
district (which shared in the acquittal of one of Gladstone's
codefendants), Gladstone's position is not only unpersuasive but in my
experience is contrary to fact.
Turning to the merits, the Hyde Amendment places the burden on
Gladstone to prove that the prosecution was
"vexatious, frivolous or in bad faith." Although the Second Circuit has
not defined these terms in the context of the Hyde Amendment, both the
Fourth and Eleventh Circuits have held:
By its plain language, vexatious means without reasonable
or probable cause or excuse. A frivolous action is
groundless . ., with little prospect of success; often
brought to embarrass or annoy the defendant. And, bad
faith is not simply bad judgment or negligence, but
rather it implies the conscious doing of a wrong because
of dishonest purpose or moral obliquity; . . . it
contemplates a state of mind affirmatively operating with
furtive design or ill will.
In re 1997 Grand Jury, 215 F.3d 430, 436 (41h Cir. 2000) (internal cites
and marks omitted) (citing United States v. Gilbert, 198 F.3d 1293, 1298
(11th Cir. 1999)). Thus, notwithstanding the acquittal, this standard is
in no way satisfied on this trial record. See In re 1997 Grand Jury, 215
F.3d at 436 ("To prevail under the Hyde Amendment, a lot more is required
. ., than a showing that the defendant prevailed at the pre-trial, trial
or appellate stages of the prosecution." (internal cites and marks
Gladstone has utterly failed in his burden to establish anything
suggesting that this was not a good faith prosecution or was not
instituted with reasonable cause, or was not well-grounded and was
brought to embarrass the defendant.
Accordingly, no hearing is required, and defendant's application
for an award of attorney's fees and related costs and expenses is denied.