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CRIGGER v. FAHNESTOCK AND COMPANY

April 6, 2005.

FREDERICK W. CRIGGER, DSMCKEE INVESTMENTS INC., DAVID S. McKEE, JACK SCHUELER, EVA SCHUELER, TERRY WILKINSON and CSDESIGN INC., Plaintiffs,
v.
FAHNESTOCK AND COMPANY, INC., RAYMOND MINICUCCI and AURELIO VUONO, Defendants.



The opinion of the court was delivered by: JOHN KEENAN, Senior District Judge

OPINION and ORDER

This is a fraud case that will be tried to a jury beginning on April 7, 2005. Plaintiffs, Defendant Fahnestock and Defendant pro se Vuono have moved in limine to exclude evidence.

I. PLAINTIFF'S MOTIONS

  Plaintiffs move to exclude the following: (1) evidence that persons not on trial were not named as defendants in this action; (2) evidence concerning tax deductions that Plaintiffs may have taken for the investment losses they incurred as a result of Defendants' allegedly fraudulent conduct; (3) evidence relating to the September 1997 transactions between Defendant CSDesign, Inc. and Momentum Investments Ltd.; (4) evidence relating to Plaintiffs' assets; and (5) evidence concerning certain missing audiotapes of former Plaintiff Terry Wilkinson. A. Persons Not Named As Defendants

  Plaintiffs did not sue Meyer Feldman, Sydney Capland and Jeffrey Mason, three Canadians who introduced Plaintiffs to Rayvon, Inc. (Vuono's company). Plaintiffs claim that they did not assert claims against these persons because of personal jurisdiction and forum non conveniens concerns. (Pl. Mem. in Supp. at 2). They move to exclude evidence relating to their decision not to sue on Fed.R. Evid. 402 and 403 grounds. Fahnestock argues that Plaintiffs' decision not to sue the three Canadian promoters bears on the promoters' credibility because they knew at depositions that they would be free from criminal or civil charges. (Fahn. Mem. in Opp. at 1).

  The Court agrees with Fahnestock. These witnesses appear on Plaintiffs' witness list. (Pl. Prop. Pre-Trial Order, Exh. A). The defendant's attorney is permitted to challenge the credibility of the plaintiff's witness on cross-examination by asking questions pertaining to the plaintiff's decision not to bring suit against that witness.

  B. Plaintiffs' Tax Deductions

  Plaintiffs spend several pages of their memorandum pushing for the exclusion of any evidence regarding tax deductions that they may have taken for the investment losses that the allegedly incurred as a result of Defendants' activities. Plaintiffs also request that Defendants be precluded from arguing that the value of any such deductions should offset any potential damages awarded to Plaintiffs. (Pl. Mem. in Supp. at 3-9). Fahnestock correctly concedes the point on damages but intends to prove on cross-examination that certain Plaintiffs made representations about Rayvon to Canadian tax authorities that were inconsistent with their current position. Fahnestock notes that these representations were covered at length in Plaintiffs' depositions. (Fahn. Mem. in Opp. at 4).

  Fahnestock certainly may explore on cross-examination whether Plaintiffs' representations to the Canadian tax authorities contradict their current position. Furthermore, while disclosure of tax returns is generally disfavored, evidence of Plaintiffs' tax deductions is probative of investor sophistication and, by extension, justifiable reliance. See Smith v. Bader, 83 F.R.D. 437 (S.D.N.Y. 1979) (Sweet, J.). These issues go to the heart of fraud.

  C. The CSDesign-Momentum Transaction

  Two years after Terry Wilkinson's investment in the alleged fraudulent scheme, CSDesign (Wilkinson's company) sold the assets at issue in this litigation — shares of Rayvon Class B preferred stock — to another Wilkinson entity, Momentum Investments Ltd. Plaintiffs seek exclusion of this evidence on Fed.R. Evid. 403 grounds. Defendants contend that Wilkinson's ownership of two investment entities and the transaction between them undermines the notion that he is a neophyte investor and tends to prove sophistication and experience in private financial transactions, as well as access to lawyers and accounts. The Court agrees. This subject clearly is a fertile area for cross-examination, and the Court sees no danger of unfair prejudice.

  D. Plaintiffs' Net Worth

  Plaintiffs make a Fed.R. Evid. 403 objection to the admission of evidence concerning their wealth and assets. In a nutshell, they claim that this evidence is not necessarily indicative of investor sophistication. While Plaintiffs are correct that wealth, by itself, does not necessarily equate to sophistication, there is no Rule 403 problem here. Even if Fahnestock "has a long list of examples of the plaintiffs' prior investment experience" (Pl. Mem. in Supp. at 13), evidence of Plaintiffs' assets just adds another stroke of color to the overall portrait. Plaintiffs will have ample opportunity to paint their own picture. ...


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