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United States District Court, S.D. New York

June 2, 2004.


The opinion of the court was delivered by: DENISE COTE, District Judge


The Government has moved in limine for a ruling that it may offer in evidence on its case in chief at the trial of Thomas Prousalis ("Prousalis") certain alleged similar act evidence pursuant to Rules 404(b) and 403, Fed.R.Evid. The defendant has opposed the motion. For the following reasons, the Government's request is denied without prejudice to an application to offer this evidence in rebuttal.

  The indictment charges the defendant in three counts essentially with making false statements and omissions in a Registration Statement and prospectus filed on behalf of a company called Busybox in connection with its IPO in June 2000. The indictment charges that Prousalis, an attorney, intentionally failed to disclose the accurate amount that he was being given in compensation for his work on the IPO, and permitted the IPO to proceed on the basis of a misleading Registration Statement.

  The Government seeks to offer evidence that from 1993 through 1996, Prousalis caused false statements and omissions to be made in Registration Statements in connection with the IPOs for six other companies. In these cases, the gravamen of Prousalis' fraud was the failure to disclose (a) that a principal for the underwriter, Jordan Belfort ("Belfort"), was involved in and controlled the underwriting despite the fact that he had been barred previously from working in the securities industry, and (b) that Belfort controlled large blocks of stock in the companies being underwritten. The Government contends that the scheme charged in the Indictment and in all but one of these similar acts also reflect a similar modus operandi, to wit, that Prousalis would bring legitimate companies public by controlling and exploiting the process in order to raise funds from the public for his own benefit. In the remaining case, the company which Prousalis helped to take public was a sham.

  The Government contends that the similar act evidence is relevant to show that Prousalis made the false statements and omissions in the Busybox Registration Statement and participated in the fraud connected with its IPO intentionally and willfully. It also asserts that the similar act evidence provides some background to the charged crimes since it explains why Prousalis needed to begin a relationship with the underwriter he used for the Busybox IPO. The similar act evidence would explain that Prousalis' relationship with Belfort and his underwriting company had ended.

  Rule 404(b), Fed.R. Evid., provides, in pertinent part, that

[e]vidence of other crimes, wrongs, or acts is not admissible to prove the character of a person in order to show action in conformity therewith. It may, however, be admissible for other purposes, such as proof of motive, opportunity, intent, preparation, plan, knowledge, identity, or absence of mistake or accident. . . .
Rule 404(b), Fed.R.Evid. The Second Circuit has adopted an inclusionary approach to evaluating Rule 404(b) evidence, see United States v. LaFlam, No. 03-1549, 2004 WL 1152826, at *2 (2d Cir. May 25, 2004) (per curiam), "which allows evidence to be received at trial for any purpose other than to attempt to demonstrate the defendant's criminal propensity." United States v. Edwards, 342 F.3d 168, 176 (2d Cir. 2003) (citation omitted). Under Rule 403, Fed.R. Evid., such evidence, although relevant, may be excluded if its probative value is substantially outweighed by the danger of unfair prejudice, confusion, waste of time, or misleading the jury. See United States v. Pitre, 960 F.2d 1112, 1119 (2d Cir. 1992).

  The standards by which a district court is to assess the admissibility of other acts evidence under Rule 404(b) are well-established. LaFlam, 2004 WL 1152826, at *2. The court must determine if (1) the evidence is offered for a proper purpose; (2) the evidence is relevant to a disputed trial issue; and (3) the evidence is admissible given the considerations identified in Rule 403. See id.; Edwards, 342 F.3d at 176; Pitre, 960 F.2d at 1119. In addition, upon request, the court must give an appropriate limiting instruction to the jury. Edwards, 342 F.3d at 176; Pitre, 960 F.2d at 1119.

  Under Rule 404(b), evidence of prior acts may be admitted to prove intent or knowledge when a defendant's intent or knowledge is clearly at issue. See Edwards, 342 F.3d at 177-78; Pitre, 960 F.2d at 1119. A defendant, however, "may completely forestall the admission of other act evidence on the issue of intent by expressing a decision not to dispute that issue." Pitre, 960 F.2d at 1119 (citing United States v. Colon, 880 F.2d 650, 657 (2d Cir. 1989)).

  The Government has shown that it is offering the evidence for a proper purpose, and not to argue that the defendant must be guilty because he committed other crimes or has a bad character. The defendant's pretrial submissions indicate that his intent will be hotly contested at this trial. Among other things, he has given notice of an intent to offer a public authority defense and to contest that he had any intent to defraud or mislead.

  The degree of similarity between the proposed Rule 404(b) evidence and the charges in the indictment is a more complicated issue. On one hand, each of the occurrences relates to an IPO in which Prousalis served as issuer's counsel, and in most if not all instances, relates to an IPO in which Prousalis brought the company to the underwriter. Moreover, in each case there are allegations that Prousalis was responsible for false statements and omissions in the Registration Statements that accompanied the IPO, and that he had a personal financial stake in making those misleading disclosures.

  On the other hand, the nature of the misleading statements is different. In the charged crimes, the Registration Statement is alleged to have misled investors about Prosalis' compensation; in the other instances, the Registration Statements did not disclose Belfort's association with the IPOs. The heart of the fraud in the case of the proffered similar acts would appear to be Belfort's involvement in the IPO and his fraudulent conduct thereafter, including his conduct in manipulating the securities for his own benefit after the IPOs were completed.

  The similar act evidence is sufficiently similar to the charged conduct to assist the jury in making an assessment about the defendant's intent in permitting the Busybox Registration Statement to be filed and its IPO to proceed on the basis of a misleading Registration Statement. On the other hand, the Government has not shown that the similar act evidence is appropriate background evidence. It has not shown that it would be particularly helpful for the jury to understand the genesis of Prousalis' relationship with the underwriter he chose for the Busybox IPO.

  Turning to the analysis under Rule 403, and based on the parties' pre-trial submissions, the similar act evidence raises a substantial risk if presented on the Government's case in chief of diverting the jury from the issues central to its determinations. Although the Government intends to prove the similar act evidence through only one witness, Jordan Belfort, that witness' testimony would necessarily be extensive. He would be describing six other IPOs, and his own schemes of manipulation in connection with those IPOs. From the parties' description of these issues, evidence of Prousalis' role in these IPOs, while important, is likely to constitute a relatively brief part of Belfort's testimony.

  The Rule 403 analysis may very well shift if Prousalis takes the stand or otherwise presents evidence regarding his intent. For instance, should he testify, it would be appropriate to cross-examine him about these other IPOs and his knowledge and intent in connection with the Registration Statements for them. Indeed, Prousalis does not contend otherwise. Depending upon his testimony about the Busybox IPO and/or these other IPOs, it may be appropriate to offer the similar act evidence in rebuttal. At that point, there may be a significantly reduced risk that the Rule 404(b) evidence will divert the jury's attention from the central issues before them or otherwise overwhelm the presentation of evidence at trial.

  Prousalis has opposed this motion principally by arguing that the other act evidence is not sufficiently similar to the crimes with which he is charged and that he would be prejudiced by evidence that he acted as an aider and abetter of a stock manipulator. As already discussed, the similar act evidence is sufficiently similar to be probative of his intent. Prousalis will be given another opportunity to oppose the Government's proffer of this evidence should the Government renew its application during the course of the trial. At that point, the Court will be in a better position to weigh whether any unfair prejudice to Prousalis substantially outweighs the probative value of the Rule 404(b) evidence. See, e.g., Old Chief v. United States, 519 U.S. 172, 180-85 (1997); United States v. Figueroa, 618 F.2d 934, 943 (2d Cir. 1980).


  The Government's motion to offer the Rule 404(b) evidence on its case in chief is denied. It may renew this application at the end of the defendant's case, in the event that the defendant presents evidence at trial regarding his intent.



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