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United States v. Motz

August 14, 2009


The opinion of the court was delivered by: Spatt, District Judge.


On November 19, 2008, a superseding indictment issued charging Defendants George Motz ("Motz" or "the Defendant") and Melhado, Flynn & Associates, Inc. ("MFA") with one count of securities fraud, in violation of 18 U.S.C. § 1348(1) ("Count One"), and one count of document alteration, in violation of 18 U.S.C. § 1519 ("Count Two"), in connection with a fraudulent "cherry-picking" scheme. Presently before the Court is a motion by Motz to dismiss the indictment or, in the alternative, to transfer venue to the Southern District of New York.


Motz is an officer and minority owner of MFA, a registered broker-dealer and investment advisor located in Manhattan. Motz was a registered representative and investment advisor for183 discretionary trading accounts at MFA. According to the superseding indictment, Motz also had the exclusive authority to trade on behalf of MFA's proprietary trading account.

The superseding indictment alleges that Motz engaged in "cherry-picking," a practice whereby a trader executes trades without immediately assigning them to a particular account. In this regard, the superseding indictment alleges that Motz purchased securities in the early part of the trading day and waited until later in the day-when he saw whether the securities purchased had appreciated in value-to allocate the securities to MFA's proprietary account. According to the superseding indictment, if a trade proved unprofitable, Motz would allocate the securities to the Third Millennium Fund, Investment Fund #1, the discretionary client accounts or all three.

The superseding indictment alleges that of the 204 trades that Motz executed on behalf of the MFA proprietary account between November of 2000 and September of 2003, 202 were profitable. The superseding indictment also alleges that Motz used the remarkable success of the MFA proprietary account to market MFA to potential investors, including two hedge funds: Mezzacappa Partners, L.P. and The Third Millennium Fund. According to the Government, from June of 2003 until May of 2005, Motz employed the same "cherry-picking" scheme to benefit both of these funds.

According to the superseding indictment, Motz and other MFA representatives, in the ordinary course of business, preparedtrade tickets that reflected the security to be traded; the number of shares to be traded; and the account to which the trade should be allocated. In general, upon receipt of these tickets, MFA's trading desk would place a time stamp on the ticket indicating when the ticket was received and when the trade was executed. The Government alleges that, in order to effectuate his scheme, Motz would send trade tickets to the MFA trading desk in the morning without specifying the accounts to which the trades should be allocated. Motz would then instruct the trading desk where to allocate securities much later in the day usually just before the market closed. If the securities appreciated in value, he would instruct the trading desk to allocate the securities to the favored accounts. If the securities depreciated in value he would instruct the trading desk to allocate the securities to one of his discretionary trading accounts. The Government alleges that, to conceal the scheme, Motz altered the MFA trading tickets to create the false impression that he allocated trades to favored accounts at the time the securities were purchased.


A. Count One - Securities Fraud

Motz raises a number of different challenges to Count One. The Court will address each in turn.

1. Whether Venue is Lacking in the EDNY

Motz contends that venue is lacking in the Eastern District of New York because the "cherry-picking" scheme alleged in the superseding indictment was carried out in Manhattan. It is well-established that "[b]oth the Sixth Amendment and Federal Rule of Criminal Procedure 18 require that defendants be tried in the district where their crime was 'committed.'" United States v. Ramirez, 420 F.3d 134, 138 (2d Cir. 2005) (citing U.S. Const. amend. IV, and Fed. R. Crim. P. 18). Accordingly, at trial, the Government carries the burden to demonstrate the propriety of the chosen venue by a preponderance of the evidence. Id. at 139 (citing United States v. Smith, 198 F.3d 377, 384 (2d Cir. 1999)). However, when faced with a pre-trial venue challenge, the Government need only show that the superseding indictment alleges facts sufficient to support venue. United States v. Bronson, No. 05-CR-714, 2007 WL 2455138, at *4 (E.D.N.Y. Aug. 23, 2007).

Here, Count One alleges generally that the charged securities fraud scheme occurred "within the Eastern District of New York and elsewhere." In particular, the Government alleges that Motz directed certain of the fraudulent account allocations by sending faxes to MFA from his residence in Quogue and the Quogue Mayor's Office on the East End of Long Island. At the motion to dismiss stage, these allegations suffice to allege venue in the Eastern District of New York. See United States v. Stein, 429 F. Supp. 2d 633, 643 (S.D.N.Y. 2006) (holding that "as long as the indictment alleges venue, a pretrial motion to dismiss based on contrary allegations by the defendant must be denied."); United States v. Bellomo, 263 F. Supp. 2d 561, 579 (E.D.N.Y. 2003) (same). Thus, the Defendant's motion to dismiss Count One for lack of venue is denied without prejudice and with leave to renew at the trial. See United States v. Elcock, No. 07-CR-582, 2008 WL 123842, at *4 (S.D.N.Y. Jan. 10, 2008) (denying a defendant's pre-trial venue challenge without prejudice and with leave to renew subject to Fed. R. Crim. P. 29); United States v. Valencia Rugeles, No. 04-CR-363, 2007 WL 1540981, at *2 (S.D.N.Y. May 24, 2007) (same).

2. Whether the Court Should Transfer Venue to the SDNY

Fed. R. Crim. P. 21(b) provides that, "[u]pon the defendant's motion, the court may transfer the proceeding, or one or more counts, against that defendant to another district for the convenience of the parties and witnesses and in the interest of justice." In deciding a motion to transfer venue, courts are guided by ten factors: (1) location of the defendant; (2) location of possible witnesses; (3) location of events likely to be in issue; (4) location of documents and records likely to be involved; (5) possible disruption of the defendant's business if the case is not transferred; (6) expense to the parties; (7) location of counsel; (8) relative accessibility of the place of trial; (9) docket conditions of each district involved; and (10) any other special elements which might affect the transfer. Platt v. Minnesota Mining & Mfg. Co., 376 U.S. 240, 243-44, 84 S.Ct. 769, 11 L.Ed. 2d 674 (1964); United States v. Keuylian, 602 F.2d 1033, 1038 (2d Cir. 1979); United States v. Brooks, No. 08-CR-35, 2008 WL 2944626, at *1 (S.D.N.Y. Jul. 31, 2008). "No one of these considerations is dispositive, and 'it remains for the court to try to strike a balance and determine which factors are of greatest importance.'" United States v. Maldonado-Rivera, 922 F.2d 934, 966 (2d Cir. 1990) (quoting United States v. Stephenson, 895 F.2d 867, 875 (2d Cir. 1990)).

"As a general rule, a criminal prosecution should be retained in the original district" in which it was filed. United States v. United States Steel Corp., 233 F. Supp. 154, 157 (S.D.N.Y. 1964). Accordingly, the burden of justifying a transfer under Fed. R. Crim. P. 21 rests with the defendant. United States v. Guastella, 90 F. Supp. 2d 335, 338 (S.D.N.Y. 2000) (citing United States v. Spy Factory, Inc., 951 F. Supp. 450, 464 (S.D.N.Y. 1997) and United States v. Persico, 621 F. Supp. 842, 858 (S.D.N.Y. 1985)). Ultimately, the determination of a Fed. R. Crim. P. 21(b) motion is committed to the sound discretion of the Court. Maldonado-Rivera, 922 F.2d at 966 (citations omitted).

a. The Location of the Defendants

This factor cuts decidedly against transferring the case. Although Motz formerly worked four days per week in MFA's Manhattan office, MFA is no longer in business and Motz currently lives on Long Island in Quogue. The Court also notes that Motz's venue challenge is significantly less compelling given that he is an elected official within this district.

b. The Location of Possible Witnesses

This factor is somewhat difficult to analyze because the Government has not yet produced a list of the witnesses that will be called to testify at the trial. However, the Government represents that while many of the potential witnesses may work in Manhattan, many of them happen to live on Long Island. Without more information about the location of ...

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