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United States v. Hatfield

July 8, 2010


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


Pending before the Court is Defendant David H. Brooks' FED. R. CRIM. P. 29(a) motion (Docket No. 1033) for a judgment of acquittal on Counts Three Through Eleven and Fifteen of the Superseding Indictment. For the following reasons, this motion is GRANTED IN PART AND DENIED IN PART. Mr. Brooks has also moved, again, for a mistrial. (Docket No. 1158). That motion is DENIED.


Mr. Brooks is on trial for: (1) securities fraud and conspiracy to commit securities fraud (Counts One and Two); (2) conspiracy to commit mail and wire fraud (Count Three); (3) mail and wire fraud (Counts Four and Five); (4) insider trading (Counts Six through Eleven); (5) conspiracy to obstruct justice and obstruction of justice (Counts Fifteen and Sixteen); and (6) material misstatements to auditors (Count Seventeen). The Government has rested. Mr. Brooks then filed this motion, contending that the Government's evidence is insufficient to convict him. In the alternative, Mr. Brooks seeks to strike any allegations in the Indictment that the Government did not sufficiently prove.


I. Standard of Review

Federal Rule of Criminal Procedure 29 provides that, on a defendant's motion, the trial court "must enter a judgment of acquittal of any offense for which the evidence is insufficient to sustain a conviction." A Rule 29(a) motion focuses upon the sufficiency of the Government's evidence in its case in chief. "Under Rule 29, a district court will grant a motion to enter a judgment of acquittal on grounds of insufficient evidence if it concludes that no rational trier of fact could have found the defendant guilty beyond a reasonable doubt." United States v. Jackson, 335 F.3d 170, 180 (2d Cir. 2003). Thus, "the court may enter a judgment of acquittal only if the evidence that the defendant committed the crime is non-existent or so meager that no reasonable jury could find guilt beyond a reasonable doubt." United States v. Guadagna, 183 F.3d 122, 130 (2d Cir. 1999) (internal citations and quotations omitted). The Court must view the evidence "in the light most favorable to the Government and all permissible inferences drawn in the Government's favor." Jackson, 335 F.3d at 180.

II. Insider Trading

Counts Six through Eleven charge Mr. Brooks with insider trading in violation of 18 U.S.C. § 1348. The Government need only prove one of § 1348's two subsections. United States v. Mahaffy, No. 05-CR-613, 2006 WL 2224518, at *12 (E.D.N.Y. Aug. 2, 2006). Under § 1348(1), the Government must provide sufficient evidence to establish that Mr. Brooks had (1) "fraudulent intent"; (2) "a scheme or artifice to defraud"; and (3) "a nexus with a security." Id. Alternatively, pursuant to § 1348(2), the Government can show that Mr. Brooks executed: (1) a scheme or artifice; (2) "to obtain, by means of false or fraudulent pretenses, representations, or promises, any money or property;" while possessing (3) fraudulent intent. 18 U.S.C. § 1348; see also Mahaffy, 2006 WL 2224518, at *16 ("[P]recedent compels this Court to read into 18 U.S.C. § 1348 the well-established requirement of fraudulent intent, which is requisite to a conviction under the other federal fraud statutes."). As this Court has already held here, the Government must also show that the false and misleading statements, disseminated as a result of Mr. Brooks' actions, were material. Order dated January 25, 2010, at 4.

Mr. Brooks raises several arguments, discussed below, for why the Government did not sufficiently evidence that Mr. Brooks illegally engaged in insider trading. These arguments are mostly unavailing.

A. DHB's Relationship to TAP

Mr. Brooks argues that the Government has adduced insufficient evidence concerning DHB Industries, Inc.'s ("DHB") disclosure of its relationship to Tactical Armored Products, Inc. ("TAP") to support convicting him of insider trading. In this regard, Mr. Brooks makes several arguments. But each of them are without merit.

Mr. Brooks first contends that DHB fully disclosed its relationship with TAP in July 2003, long before his stock sales. In this regard, Mr. Brooks notes that DHB's Amended 2002 10-K, filed in July 2003, disclosed: (1) that DHB purchased goods from TAP between 2000-2002; (2) that DHB leased space to TAP in its Jacksboro, Tennessee facility; and (3) that Terry Brooks, Mr. Brooks' wife, owned TAP. But the Government offered evidence that the Amended 10-K did not disclose, among other things: (1) that Mr. Brooks, and not his wife, controlled TAP, including setting TAP's prices; (2) that DHB paid TAP employees' salaries and bonuses; (3) that Ms. Schlegel, DHB's CFO, oversaw TAP's finances; and (4) that TAP earned significantly higher gross profit margins than DHB itself, including margins as high as 54.3%. Tr. 5484, 5486-88, 5578-79, 5599, 5650-52, 5907, 5955; GX 6198.

Mr. Brooks argues that these non-disclosures do not support an insider trading charge, because the Statement of Financial Accounting Standards does not expressly require their disclosure. But, for securities fraud purposes, the relevant inquiry is whether an omission is material under federal securities law, not whether an accounting doctrine explicitly requires its disclosure. See Docket No. 1018 at 5 ("[c]compliance with applicable accounting standards, such as GAAP, 'neither establishes nor shields guilt in a securities fraud case,'" citing United States v. Rigas, 490 F.3d 208, 220 (2d ...

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