The opinion of the court was delivered by: Honorable Paul A. Crotty, United States District Judge:
DOCUMENT ELECTRONICALLY FILED DOC #:
Defendants Mandell and Harrington move to dismiss the superseding indictment charging them with (1) a conspiracy to commit securities fraud, wire fraud, and mail fraud, in violation of 18 U.S.C. § 371; (2) securities fraud in violation of 15 U.S.C. § 78j(b) and 78ff, and Title 17 C.F.R. §240.10(b)5; 18 U.S.C. § 2; (3) wire fraud in violation of 18 U.S.C. § 1343 and 2; and (4) mail fraud in violation of 18 U.S.C. § 1341 and 2. Alternatively, defendants seek preclusion of evidence of extraterritorial transactions. Defendants also move for relief under the statute of limitations; as well as disclosure of particulars concerning (a) witnesses; (b) out of court statements by co-conspirators and (c) documents to be used as exhibits at trial.
Allegations in the Superseding Indictment
The superseding indictment alleges that defendants Mandell and Harrington used Thornwater Company ("Thornwater") to solicit investors to purchase private placement shares in U.S. companies. (Sup. Ind., ¶¶ 7-8.) Thornwater was a licensed broker-dealer and a member of NASD, with offices at 99 Wall Street, New York, New York. Thornwater commenced in March : (S1) 09 Cr. 0662 (PAC) 1994 and continued its operations until it closed in February 2003. (Sup. Ind., ¶ 6.) None of these Thornwater ventures resulted in a sale of securities in a public offering and the investors in the private placements never received the money they had been promised. (Sup. Ind., ¶ 21.) Instead, defendant Mandell misappropriated funds and starting in 2001, recreated Thornwater under the name of Sky Capital. (Sup. Ind., ¶ 1.) Mandell was an undisclosed principal of Thornwater and he exercised day-to-day control over Thornwater and its employees. (Sup. Ind., ¶ 8.)
Sky Capital Holdings is a Delaware Corporation, whose stock was traded on the Alternative Investment Market ("AIM") of the London Stock Exchange, during the period from July 2002 to late 2006. (Sup. Ind., ¶1.) Sky Capital Holdings had a number of affiliates, subsidiaries and related entities. Among them are Sky Capital LLC, a limited liability company, organized under New York law. In May 2002, Sky Capital LLC obtained broker-dealer approval from NASD. In 2004, Sky Capital LLC opened offices in Boca Raton, Florida and Red Bank, New Jersey purportedly to offer, inter alia, brokerage services and equity and fixed income trading. (Sup. Ind., ¶ 2.)
Sky Capital Holdings also founded Sky Capital UK Limited. It was a wholly-owned subsidiary, with its principal place of business in London. It offered brokerage services and institutional sales and trading. (Sup. Ind., ¶ 3.)
Finally, Sky Capital Holdings also formed Sky Capital Enterprises Inc., a venture capital firm that purported to provide strategic advice and financing to small and medium size start-up and early stage companies. Sky Capital Enterprises Inc. was incorporated under Delaware law under the name Sky Venture Capital Inc. Sky Capital Enterprises Inc.'s stock was publicly traded on the Alternative Investment Market. (Sup. Ind., ¶ 4.)
All the Sky Capital Companies (Sky Capital Holdings, Sky Capital LLC, Sky Capital Enterprises, and Sky Capital UK) were affiliated and, with the exception of Sky Capital UK, had their primary place of business at 110 Wall Street, New York, New York (Sup. Ind., ¶¶ 3, 4, 5.), a few doors away on Wall Street from Thornwater's address.
Mandell controlled these Sky companies. Given his disciplinary history in the securities industry, Sky Capital agreed, as a condition of its membership in NASD, that Mandell would neither supervise nor hold a supervisory position. Notwithstanding that promise, Mandell had day-to-day management control of the Sky companies. (Sup. Ind., ¶ 7.) Harrington was a registered broker, first at Thornwater, and then at Sky Capital. He was a senior broker at Sky Capital LLC and an active participant in the deceptive scheme. (Sup. Ind., ¶ 12.)
According to the indictment, during the cross-over period, as Thornwater phased out and Sky Capital phased in, Thornwater raised capital for two Sky ventures; and it also pushed investments in Dorchester Holdings. Investors were promised that their Dorchester shares would be exchanged "one-to-one" for Sky Capital Holdings which would be issued at a higher value. None of this happened. The private placement memorandum for Dorchester Holdings stated that funds would be used to make subordinated loans to Sky Capital. Instead, the funds were diverted to Sky Capital not as loans, but as direct payments, enriching the two individual defendants, among others. (Sup. Ind., ¶¶ 21-25.) When investors complained, some received shares in a subsequent private placement"which also turned out to be worthless"or other forms of compensation which defendants received from other subsequent investors. (Ibid.)
According to the indictment, Sky Capital continued these schemes. Defendants conducted a series of private placements for Sky Capital Holdings which resulted in its shares being issued. Defendants also offered private placements related to GlobalSecure, a Delaware Company with its principal place of business in Silver Springs, Maryland. GlobalSecure was formed after the terrorist attack and provided products and services for the homeland security industry. Mandell controlled GlobalSecure and served on its Board of Directors. (Sup. Ind., ¶¶ 27, 9.)
In addition to using assets held by Sky Capital to invest in GlobalSecure, defendants pursued the same course of action with Advanced Spinal Technologies Inc., a Delaware Corporation, with its principal place of business in Boca Raton, Florida. Advanced Spinal Technologies, Inc. is an affiliate of Sky Capital Enterprises and like GlobalSecure, it was ...