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United States v. Mario S. Levis

July 18, 2012

UNITED STATES, APPELLEE,
v.
MARIO S. LEVIS, DEFENDANT-APPELLANT.



Appeal from a judgment of the United States District Court for the Southern District of New York (Griesa, J.).

United States v. Lewis

SUMMARY ORDER

BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE ROCEDURE 32.1 AND THIS COURT'S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN DATABASE (WITH THE NOTATION "SUMMARY ORDER"). A PARTY CITING A SUMMARY ORDER MUST A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

At a stated term of the United States Court of Appeals for the Second Circuit, held at the Daniel Patrick Moynihan United States Courthouse, 500 Pearl Street, in the City of New York, on the 18th day of July, two thousand twelve.

PRESENT: DENNIS JACOBS, Chief Judge, DENNY CHIN, CHRISTOPHER F. DRONEY Circuit Judges.

UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that the judgment of the district court is AFFIRMED in part, VACATED in part, AND REMANDED.

Defendant-Appellant Mario S. Levis appeals his conviction and sentence for one count of securities fraud, 15 U.S.C. § 78j(b), and two counts of wire fraud, 18 U.S.C. § 1343. He raises six issues on appeal. We assume the parties' familiarity with the underlying facts, the procedural history of the case, and the issues on appeal.

[1] Levis was the Senior Executive Vice President and Treasurer of Doral Financial Corporation ("Doral") at the time he assured investors that certain risks were capped. Although not all contracts had embedded caps, he sought to defend against these charges on the ground that transactions involving hedging afforded the same assurance, or (at least) he reasonably thought so. On appeal he argues that the district court erroneously barred him from presenting his hedging defense.

"A district court abuses its discretion when . . . its evidentiary rulings are arbitrary, irrational, or simply erroneous as a matter of law." United States v. Cadet, 664 F.3d 27, 32 (2d Cir. 2011).

The district court erred in barring Levis from presenting a hedging defense as to Count Three: the wire fraud count predicated on Levis's misstatements regarding contractual caps on the pass-through rates of the mortgage pools. Doral's hedges took various forms, such as derivative financial instruments, futures and options, forward sale commitments, interest rate swaps, interest rate collars, and options to repurchase the mortgage pools. These measures were not contractual caps, which would have guaranteed a minimum pass-through rate for Doral, and therefore would have been the safest measure. But these hedges might have functioned as effective caps that minimized the overall financial risk to Doral in the event that a rise in interest rates impaired Doral's income from the mortgage sales.

One element of wire fraud is "a scheme to defraud." United States v. Pierce, 224 F.3d 158, 165 (2d Cir. 2000); accord 18 U.S.C. § 1343. "To establish [that] . . . element, the government must prove (i) the existence of a scheme to defraud, (ii) the requisite scienter (or fraudulent intent) on the part of the defendant, and (iii) the materiality of the misrepresentations." Pierce, 224 F.3d at 165 (internal citations omitted). Evidence that the hedges functioned as a cap could have raised doubts as to materiality. The district court therefore erred in excluding Levis from presenting such evidence, including lay and expert testimony involving the existence of hedges and their effectiveness. Accordingly, Levis's conviction as to the third count must be vacated and the matter remanded for re-trial.

However, the district court did not abuse its discretion in barring testimony and evidence involving hedges with regard to Count Five (wire fraud) and Count One (securities fraud), which are based on Levis's misrepresentation that Doral had been the subject of two independent evaluations. As to each of those counts, the Government presented substantial evidence that neither of the two valuations was independent. Although the Government's evidence that hedging was ineffective may have been used to corroborate the impact of Levis's misrepresentations, the existence and effectiveness of hedging is irrelevant to whether there were, in fact, two independent evaluations. Because hedging was legally irrelevant to whether Levis committed securities and wire fraud on that basis, the district court did not err in excluding Levis's hedging defense as to those counts.*fn1

There is also no danger that the now-vacated wire-fraud conviction involving contractual caps spilled over to Levis's convictions for misrepresentations involving independent valuations. "A defendant bears an extremely heavy burden when claiming prejudicial spillover." United States v. Griffith, 284 F.3d 338, 351 (2d Cir. 2002). Prejudicial spillover requires, inter alia, an evaluation of "the strength of the government's case" as to the counts in question. Id. The evidence that Levis misrepresented that Doral had been subject to two independent evaluations is so overwhelming that there is no danger of spillover and no "'prejudice so substantial as to amount to a miscarriage of justice.'" Id. (quoting United States v. Friedman, 854 F.2d 535, 563 (2d Cir. 1988)). In any event, Levis has forfeited any such argument by failing to raise it on appeal. See United States v. Pereira, 465 F.3d 515, 520 n.5 (2d Cir. 2006).

[2] Levis contends that his trial did not commence within 70 days of the public filing of his indictment, as required by the Speedy Trial Act, and that no exception to the Speedy Trial Act ...


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