United States District Court, S.D. New York
June 2, 2004.
UNITED STATES OF AMERICA, -v- THOMAS T. PROUSALIS, JR., Defendant
The opinion of the court was delivered by: DENISE COTE, District Judge
OPINION AND ORDER
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
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
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
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
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.
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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