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U.S. v. SULLIVAN

February 5, 2004.

UNITED STATES OF AMERICA,
v.
SCOTT D. SULLIVAN, Defendant



The opinion of the court was delivered by: BARBARA JONES, District Judge

Opinion

Defendant Scott D. Sullivan is charged with knowingly making or causing to be made false statements in various SEC-required reports and in loan and credit applications, pursuant to 15 U.S.C. § 78ff*fn1 and 18 U.S.C. § 1014,*fn2 as well as with conspiracy to commit securities fraud and bank fraud On October 7, 2003, Defendant submitted a Motion to Dismiss the Superceding Indictment for Vagueness and Lack of Specificity, premised in part on the argument that the Superceding Indictment ("Indictment") was unconstitutionally vague because it failed to identify the specific statements in the reports filed with the SEC In this motion, Defendant argues that Court should dismiss the Indictment because it lists only the documents that allegedly contain the false statements but does not "point to a sentence, a Page 2 Paragraph, or even a page in a report that allegedly contains a false statement, and does not specify the Generally Accepted Accounting Principles ("GAAP") Defendant allegedly violated. (Memorandum of Law in Support of Defendant Scott D. Sullivan's Motion to Dismiss the Superceding Indictment for Vagueness and Lack of Specificity ("Def's Mem.") at 3, 20).

At a hearing on December 8, 2003 the Court denied Defendant's motion to dismiss and advised the parties that a written opinion would follow.

 A. Whether the False Statement Charges in the Superceding Indictment Are Unconstitutionally Vague and Fail to Apprise Defendant of What he Must Meet at Trial

  The Sixth Amendment guarantees that, "`In all criminal prosecutions, the accused shall enjoy the right, . . . to be informed of the nature and cause of the accusation; . . .'" Russell v. United States, 369 U.S. 749, 761 (1962) (quoting U.S. Const. amend. VI). This right is furthered, in part, by the requirement that indictments contain an adequate description of the charges against a defendant. See United States v. Alfonso, 143 F.3d 772, 776 (2d Cir. 1998).

  Rule 7(c) of the Federal Rules of Criminal Procedure sets forth the minimum pleading standards that apply to indictments. It requires that an indictment contain a "plain, concise and definite written statement of the essential facts constituting Page 3 the offense charged . . . Fed.R.Crim.P. 7(c). Thus it is well-settled that "`an indictment is sufficient if it, first, contains the elements of the offense charged and fairly informs a defendant of the charge against which he must defend, and, second, enables him to plead an acquittal or conviction in bar of future prosecutions for the same offense "`Alfonso, 143 F.3d at 776 (quoting Hamilton, 418 U.S. at 117).

  When analyzing the sufficiency of an indictment, `'common sense and reason prevail over technicalities."' United States v. Sabbeth, 262 F.3d 207, 218 (2d Cir. 2001). Therefore, in determining whether a count of an indictment sufficiently alleges an offense, the indictment should be read in its entirety, see United States v. Hernandez, 980 F.2d 868, 871 (2d Cir. 1992), and should be "read to include facts which are necessarily implied by the specific allegations made." United States v. Stavroulakis, 952 F.2d 686, 693 (2d Cir. 1992).

  In fact, the Second Circuit has repeatedly upheld indictments that "do little more than to track the language of the statute charged and state the time and place (in approximate terms) of the alleged crime." Alfonso, 143 F.3d at 776 (quoting Stavroulakis, 952 F.2d at 693); see also Hamling v. United States, 418 U.S. 87, 117 (1974)("It is generally sufficient that an indictment set forth the offense in the words of the statute itself. . . ."). However, the Supreme Court and the Second Circuit Page 4 have mandated that have mandated that where a definition of an offense "includes generic terms, it is not sufficient that the indictment shall charge the offence in the same generic terms as in the definition; but it must state the species, — it must descend to particulars." Russell, 369 U.S. at 765 (citing United States v Cruikshank, 92 U.S. 542, 558 (1875)).

  The Second Circuit, however, has "repeatedly refused, in the absence of any showing of prejudice, to dismiss charges for lack of specificity." United States v. Walsh, 194 F.3d 37, 45 (2d Cir. 1999)(citation omitted); see also United States v. Pope, 189 F. Supp. 12, 16-17 (S.D.N.Y. 1960) ("[T]he test of [an indictment's] sufficiency is not whether it could have been more artfully drawn, or made more definite and certain. The true test is whether the indictment sufficiently apprises the defendants of the crimes charged against them so as to enable them to prepare their defense and to plead any judgment entered thereunder as a bar to further prosecution for the same offense ")

  These standards apply with equal force in the context of securities fraud prosecutions. See, e.g., Unites States v. Heredia, No. 02 Cr. 1246(SWK), 2003 WL 21524008 (S.D.N.Y. July 3, 2003) (finding sufficient an indictment alleging securities fraud and wire fraud that contained extensive factual allegations as to the defendant's agreement to enter into a conspiracy and his alleged involvement in it, and identified the approximate dates Page 5 and locations of the alleged conspiracy); United States v. Rittweger, 259 F. Supp.2d 275, 287-88 (S.D.N.Y. 2003) (holding adequate an indictment charging securities fraud where the indictment tracked the language of the statutes and provided particulars sufficient to provide notice to the defendant and to permit the defendant to plead double jeopardy); see also United States v. Labate, No. S1 00 Cr. 632(WHP), 2001 WL 533714, *3-6 (S.D.N.Y. May 18, 2001); United States v. Ferrarini, 9 F. Supp.2d 284, 295-97 (S.D.N.Y. 1998).

  1. Alleged Failure to Identify Specific False Statements in Filed Reports

  Defendant argues that the Indictment is unconstitutionally vague and does not adequately apprise him of the specific charges against him, as is mandated by the Sixth Amendment and the Federal Rules of Criminal Procedure Rule 7 The Court finds, to the contrary, that the Indictment meets, and exceeds, the requirements of both the Constitution and the Federal Rules of Criminal Procedure In fact, the Indictment provides abundant detail and more than adequate notice to the Defendant of the pending charges

  The Indictment in this case is 36 pages in length and provides the details of the conspiracy in 49 paragraphs These paragraphs are then re-alleged and incorporated in each of the following counts of the Indictment, and therefore furnishes additional particularity regarding the alleged illegal behavior Page 6 in each of the other counts. Specifically, the Indictment "explicitly alleges that Defendant falsely booked and concealed line cost entries, that the false booking and concealment "lower[ed WorldCom's] publicly reported expenses," and thereby assured that "WorldCom's reported earnings exceeded its actual earnings for the period from October 2000 through April 2002. (Ind. ¶ 45). It indicates the portions of WorldCom's financial statements that were allegedly affected, including "operating expenses," "net income," "the value of the company's capital assets," "liabilities," "EBITDA," and "line costs expressed as a percentage of overall company revenues," (see Ind. ¶ 10, 45, 57(d)), and approximates the amounts by which the reports misstated the figures. (Ind. ¶ 58). Similarly, with respect to the bank fraud charges, the Indictment specifies the alleged documents and the false aspects therein that WorldCom submitted to the banks in connection with securing credit lines and loans (Ind ¶¶ 46-49, 55-56, 64-66).

  In United States v. Bernstein, 533 F.2d 775 (2d Cir. 1976), a case similar to this one, the Second Circuit upheld an indictment charging defendants, inter alia, with violating 18 U.S.C. § 1010*fn3 by making false statements in applications for Page 7 mortgage insurance submitted to the Federal Housing Administration. Defendants challenged the indictment on the grounds that it "fail[ed] to specify or identify the specific statements alleged to be false." Id. at 785. The Court found that the indictment did not violate the Constitution or Rule 7(c) because, even though it did not identify the statements, it nonetheless tracked the language of the statute, specified the time and place of the transaction, and identified the particular false documents in which the allegedly false statements appeared. Id. at 786. "While some identification is required . . . it is not necessary that the indictment itself go into evidentiary matters" Id. (internal citations omitted). The Court went on to note that it is "just for this reason that a bill ...


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