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United States v. Balboa

United States District Court, Second Circuit

November 27, 2013



PAUL A. CROTTY, District Judge.

Defendant Michael Balboa ("Defendant") was previously tried for allegedly engaging in a scheme to falsely inflate the value of certain securities held by the hedge fund Millennium Global Emerging Credit Fund ("Millennium Global"), where he worked as a portfolio manager. During the jury trial, Defendant introduced (1) an October 2010 recording of a telephone call between Gilles DeCharsonville and Mark Astley (the "telephone call") and (2) evidence that Defendant allegedly marked down the price of other securities held by Millennium Global (the "markdown" evidence). The Government now seeks to preclude Defendant from introducing this evidence at the retrial, which is scheduled to begin on December 2, 2013. The Government's motion to exclude portions of the telephone call is GRANTED and the Government's motion to exclude the "markdown" evidence is DENIED.


As of October 2007, Millennium Global primarily consisted of two feeder funds that invested substantially all of their capital in Millennium Global Emerging Credit Master Fund, Ltd. (the "Fund"). Superseding Indictment, 2. The Fund's holdings included payment-adjusted warrants issued by the Government of Nigeria (the "Nigerian Warrants"), which were based on the price of oil. Id. ¶ 16.

The Fund used an independent valuation agent (the "IVA") to determine the overall value of the Fund on a monthly basis (the "Net Asset Value"). Id. 7-8. The IVA used market prices for the Fund's securities that were current and mark-to-market quotes obtained from outside, independent parties for the Fund's securities that were illiquid and non-exchange traded, like the Nigerian Warrants. Id. ¶ 8. Millennium Global Investments Limited ("MGIL") served as the Investment Manager for the Fund, id. ¶ 5, and used the IVA's price determinations in advising investors about the Fund's Net Asset Value. Id. ¶ 9.

The Government alleges that from January 2008 through October 2008, Defendant engaged in a scheme to artificially inflate the value of the Nigerian Warrants. Id. ¶¶ 12, 18. In furtherance of his scheme, Defendant provided the IVA with the names of two co-conspirators who could "independently" mark the illiquid securities. Id. ¶ 13. According to the Government, these co-conspirators overvalued prices based on inflated marks provided to them by Defendant. Id. The Government further alleges that, from late 2010 through March 2011, Defendant caused a co-conspirator to communicate certain false and materially misleading information to MGIL, among others, to prevent detection of the fraudulent scheme. Id. ¶ 15.

At trial, Defense counsel introduced an October 2010 telephone call between Gilles DeCharsonville ("DeCharsonville"), Defendant's broker and an alleged co-conspirator, and Mark Astley, the London-based CEO of MGIL. In 2010, MGIL conducted an inquiry into valuation issues relating to the Fund and Defendant provided MGIL a written justification for the pricing of certain securities in the Fund, including the Nigerian Warrants. See Government's Motion to Exclude Certain Portions of a Recorded Telephone Call ("Gov't's Mot"), Ex. 2. According to the Government, Defendant provided DeCharsonville with this document to ensure that their stories were consistent. See id., Ex. 3. On October 25, 2010, Astley called

DeCharsonville to discuss the prices he provided for the Nigerian Warrants. See id., Ex. 1. During the conversation, Astley said:

The question is, though, or one of the issues is what evidence is there that the [Nigerian] warrant holders had any rights to the collateral, because it does not say that in any of the documentation that I'm aware of. And you're absolutely right, people did make this assumption or some people made this assumption that this collateral was due to the holders but what hard evidence is there that that was indeed the case, as opposed to pure speculation?

Id., Ex. 1 at 8, 254-61. Defense counsel used this statement made in 2010 to argue that others besides Defendant believed in 2008 that collateral existed for the Nigerian Warrants. The Government claims that Astley's statements are inadmissible hearsay and therefore should be excluded from evidence at Defendant's retrial.

During the trial, defense counsel also introduced evidence concerning Defendant's purported good-faith price "markdowns" of other securities within the Fund. The evidence primarily consisted of recorded phone calls where Defendant instructed DeCharsonville to lower the price of certain securities other than the Nigerian Warrants in 2008. The Government asserts this Court should exclude "markdown" evidence at the retrial because the evidence is irrelevant and based on unsupported factual assumptions.


I. Legal Standard

"The purpose of motions in limine is to allow a court to rule on the admissibility of potential evidence in advance of trial." Romanelli v. Long Island R.R. Co., 898 F.Supp.2d 626, 629 (S.D.N.Y. 2012); see Luce v. United States, 469 U.S. 38, 41 n.2 (1984). On a motion in limine, a court will exclude evidence only if it is "clearly inadmissible on all ...

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