Appeal from a judgment of the United States District Court for the Southern District of New York (Rakoff, J.), convicting Defendant-Appellant James J. Treacy of one count of conspiracy to commit securities fraud and one count of substantive securities fraud, sentencing Treacy principally to 24 months' imprisonment, and ordering him to pay restitution and forfeiture in the amount of $6,332,995.
The opinion of the court was delivered by: Hall, Circuit Judge:
(Argued: September 21, 2010;
BEFORE: McLAUGHLIN and HALL, Circuit Judges, and RESTANI, Judge.*fn1
We hold: (1) that the district court erred under the Confrontation Clause in limiting Treacy's cross-examination of a Wall Street Journal reporter on the grounds of the journalist's privilege, but that the Government has shown beyond a reasonable doubt that the error was harmless; (2) that the district court did not abuse its discretion in declining to ask prospective jurors certain questions requested by the defense; and (3) that the district court committed clear error in determining the forfeiture amount with respect to one of the option grants, requiring vacatur and remand for recalculation and entry of a new forfeiture order. AFFIRMED IN PART AND VACATED AND REMANDED IN PART.
Defendant-appellant James J. Treacy is a former Chief Operating Officer and President of Monster Worldwide, Inc. ("Monster") -- also formerly known as TMP Worldwide, Inc. -- which operates the job-hunting website Monster.com. Treacy, who left his position as an officer in 2002 and left Monster's board in 2003, was one of several Monster officials implicated in a long-term conspiracy to backdate stock options at the company and obtain favorable strike prices for the officials and others while creating the false appearance that the options had been granted at fair market value.
Treacy was indicted in August 2008 on: (1) one count of conspiracy to commit securities fraud, file false reports with the Securities and Exchange Commission ("SEC"), make false statements to auditors, and falsify books and records, in violation of 18 U.S.C. § 371; and (2) one count of substantive securities fraud, in violation of 15 U.S.C. §§ 78j(b), 78ff, 17 U.S.C. § 240.10b-5, and 18 U.S.C. § 2. A jury found Treacy guilty on both counts, and in September 2009 the district court (Rakoff, J.) sentenced Treacy principally to 24 months' imprisonment and ordered him to pay restitution and forfeiture in the amount of $6,332,995. On appeal, Treacy argues that his conviction must be reversed because: (1) the district court denied him his rights under the Confrontation Clause when it strictly limited his cross- examination of a Wall Street Journal reporter because of the journalist's privilege; and (2) the district court abused its discretion in conducting voir dire when it declined to use a questionnaire agreed to by the parties and refused to question prospective jurors about their views on corporate America generally. Treacy also argues that the district court committed clear error in determining the forfeiture amount.
For the reasons that follow, we reject Treacy's challenges to his conviction, but we agree that the district court erred in calculating forfeiture and that the case must be remanded for entry of a revised order of forfeiture.
Before trial, with the Government's consent, Treacy provided the district court with a list of 77 questions that he proposed be given to the prospective jurors in written form. The majority of the questions on the 33-page form were general biographical inquiries that might be made in any trial. A number, however, pertained specifically to the jurors' experiences with and views of the financial sector. Representative examples included:
"The defendant in this case is a former President and Chief Operating Officer of a public company. Have you or has any family member or close friend ever worked as a senior-level corporate executive or as a director or officer of a public company?" Proposed Juror Questionnaire at 10.
"Do you believe that you can be fair and impartial in a case in which a senior business executive who was paid large amounts of compensation is charged with committing a crime?" Id.
"Do you personally know anyone who has been charged with violations of the securities laws?" Id. at 13.
"Would the fact that the charges in the case involve the securities industry or fraud alleged to have been committed in connection with the securities industry affect your ability to be fair and impartial in this case?" Id.
"Is there anything about what you have heard, read, seen or experienced with regard to the current economic crisis that you believe would affect your ability to be a fair and impartial juror in a case involving a former executive of a public company?" Id. at 14.
The district court refused to give the jury a written questionnaire, stating: "I never give them, ever. I did it once, and it was the biggest mistake I ever made." The judge explained:
The[re are] many problems with questionnaires, but the single biggest problem is that there is no one in the world who can draft a question that will not have ambiguities that will be, as I learned the one time tried it, that will be picked up on by various prospective jurors. And thus during the voir dire, a huge amount of time will be spent explaining to a juror why he or she misunderstood the question in the questionnaire or finding out that . . . the way he interpreted it was not the way the lawyers interpreted it.
Tr. of Jan. 30, 2009, Hrg. at 12-13.
Immediately before the first venire was brought into the courtroom, counsel for Treacy stated that the two questions he considered most important were: (1) "the jurors' knowledge of . . . corporate America generally and options in particular"; and (2) "whether or not a particular juror has suffered a financial hit as a result of recent events and carries potential prejudice against people associated with Wall Street as a result." Voir Dire Tr. at 9. The district court agreed to ask jurors about their knowledge of options, but deemed a broader inquiry to be "too remote to warrant inquiring in the broad-brush way you've phrased it." Id. at 10. The district court asked the prospective jurors, inter alia: (1) whether they could be fair and impartial in a securities or stock fraud case involving a former chief operating officer and president of Monster; (2) whether they or any of their family members or close friends had ever received any stock options; (3) whether they owned stock in or were associated with, or had a close friend or relative who worked for, Monster; and (4) whether they had been exposed to any pretrial publicity about the case. Where prospective jurors gave affirmative answers to any of these questions, the district court probed further for possible bias. When one prospective juror mentioned that a "very close friend" had been "burned by the Bernie Madoff" case, the district court stated: "This has absolutely nothing to do with the Bernie Madoff case or anything like it." Id. at 44. The district court admonished the jury: "[W]e've all read about cases, high visibility economic cases; a number of them have come up in this very court. This has nothing to do with those cases. It is a totally separate, different kind of case, and you shouldn't even think for one second that it has anything to do with those cases whatsoever." Id. at 44-45.
II. Trial i. Evidence of the backdating scheme
Monster's vice president for human resources, Erin Barriere, testified how stock options typically work at Monster. She explained that a stock option usually gives the holder the right to buy a share at a set price, known as the "strike" price or "exercise" price, and that this price is normally the fair market value of the stock on the day the option is granted. Trial Tr. at 88-91, 126. The typical vesting period for an option at Monster was four years, with 25 percent of the granted shares vesting after each one-year interval.
Cooperating witness Myron Olesnyckyj testified that he worked at Monster from 1994 until 2006, when he was fired because of his participation in the backdating scandal. Olesnyckyj testified that he helped put together documentation relating to the backdating and hid information from directors, auditors, and the public. He testified to how the scheme worked:
A. By backdating I mean that we would select a price with the benefit of hindsight. We would look back for some period of time to select a favorable low price, and instead of having the documents reflect the actual market prices on the date of selection of that price by the compensation committee, I would create fictitious documents, suggesting that that price was selected on the date of the low price.
Q. Did the date you or others selected have anything to do with the date the grants were actually approved by the compensation committee?
Q. What did Monster tell its auditors and the public about how the exercise price was being chosen for option grants ...