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United States v. Goffer

United States District Court, S.D. New York

January 17, 2017

United States of America
Zvi Goffer and Michael Kimelman, Defendants.

          The United States of America is represented by Brian R. Blais and Brooke E. Cucinella of the United States Attorney's Office for the Southern District of New York, One St. Andrews Plaza, New York

          Defendant Zvi Goffer is represented by William Mallory Kent

          Defendant Michael Kimelman is represented by Alexandra A.E. Shapiro and Daniel J. O'Neill of Shapiro Arato LLP


          Richard J. Sullivan, District Judge.

         Zvi Goffer and Michael Kimelman each move pursuant to 28 U.S.C. § 2255 to vacate their respective convictions on insider trading charges following a June 2011 jury trial. Goffer, who continues to serve his sentence of imprisonment, and Kimelman, who is currently on supervised release, both rely on the Second Circuit's opinion in United States v. Newman, "773 F.3d 438 (2d Cir. 2014), to argue that the Court's jury instruction in their trial was improper, that the evidence does not support a conviction, and that their counsel provided ineffective assistance by failing to raise these arguments on appeal. For the reasons set forth below, the Court disagrees and denies both motions.

         I. Background

         A. Facts

         Goffer, a proprietary trader at Schottenfeld Group LLC and later at the Galleon Group, "spearheaded" the conspiracy charged in the indictment: he paid cash for material nonpublic inside information, traded on it, and disseminated it to others. United States v. Goffer, 721 F.3d 113, 118-19 (2d Cir. 2013).[1] Goffer received the tips that fueled the conspiracy from his friend Jason Goldfarb, a workers' compensation attorney who conveyed to Goffer inside information he received from two attorneys at Ropes & Gray LLP, Arthur Cutillo and Brien Santarlas, about Ropes & Gray's clients. Id. Once Goffer received that information, he distributed it through his professional network, including to his brother Emanuel Goffer and his friend Michael Kimelman, both of whom Goffer considered to be among his “inner circle, ” id. at 119, 126 - i.e., “the people closest to him that he shared all of his information with and that shared with him, ” as one of Goffer's co-conspirators testified at trial (Trial Tr. at 824-25; see also JA 2782.8 (Goffer: “[T]hese two guys [Kimelman and Emanuel Goffer] are in the very, very tight circle of information.”)). Kimelman, a former M&A lawyer at a leading Manhattan firm, traded at proprietary trading firm Quad Capital. Goffer, 721 F.3d at 119; (JA 2746, 2782.1). Drawing on his background as an attorney, however, Kimelman also served as Goffer's informal legal advisor, providing him with insights into the meaning of legal documents associated with acquisitions that Goffer had learned of from his sources. Goffer, 721 F.3d at 119. Kimelman, Goffer, and Emanuel Goffer later established their own trading firm, Incremental Capital. Id. at 118.

         Over the course of the conspiracy, Kimelman and Goffer traded “151 stocks within five days of each other, including 88 stocks that they both traded on the same day.” Id. at 118-19. In order to facilitate this scheme, Goffer's network of informants and traders (though not Kimelman) used prepaid cellular phones that they destroyed after each successful tip in an effort to avoid detection. Id. at 119. Additionally, while the co-conspirators communicated often, they did so “guardedly when on the phone.” Id. In an example captured by a government wiretap, Goffer described a tip to Kimelman as “‘a good thing' but ‘nothing I'm going to talk about on the telephone.'” Id. Instead, Goffer asked Kimelman to meet in person, or “in the street, ” whenever the two men wished to discuss sensitive information. Id.

         1. 3Com Tip

         In the summer of 2007, Jason Goldfarb met with Arthur Cutillo and Brien Santarlas and informed them that he had a friend who traded stocks and was willing to pay them for information regarding corporate acquisitions and other events involving Ropes & Gray clients. (Trial Tr. at 423, 449.) The evidence later established that friend to be Goffer. Cutillo and Santarlas agreed to sell tips to Goffer through Goldfarb and began to provide information. Among their tips was Bain Capital's bid to acquire 3Com. (Id. at 424.)

         Cutillo and Santarlas became aware of the 3Com deal by searching the Ropes & Gray internal document management system and viewing documents printed on communal office printers. Their search yielded a “closing agenda” and “signature papers” related to the transaction, and they informed Goldfarb of their discovery; Goldfarb in turn conveyed the news to Goffer. Goffer, 721 F.3d at 119. Goffer then shared the information regarding the takeover bid with other co-conspirators, id., telling at least one co-conspirator (David Plate, a Schottenfeld trader) that the information came from someone who “had [a] connection to an attorney who was working on the deal” (Trial Tr. at 798, 813). During this period, “Goffer frequently convened a group of co-conspirator traders (typically including Emanuel, Kimelman, and David Plate . . .) at a bar where the group would discuss the progress of the [3Com] takeover bid and any new information that Goffer had received regarding the plans.” Goffer, 721 F.3d at 119.

         On August 7, 2007, Goffer and other members of the conspiracy began purchasing shares of 3Com stock. Id. That same evening, Goffer spoke with Kimelman via phone for twenty-five minutes. Id. Although the call was not recorded, Kimelman purchased 94, 200 shares of 3Com stock the following day. Id. In fact, Kimelman's trading was so active that it came to the attention of his firm's risk management team, which forbade Kimelman from purchasing additional 3Com stock. Id. Following the trading freeze, Kimelman sent an email to Goffer containing only a copy of his instant message conversation with the company's risk management expert. Id.

         In addition to Kimelman, Goffer also provided details about the 3Com deal to co-conspirator Craig Drimal, a trader who, in turn, passed the information to David Slaine, another trader. Id. at 120. Drimal - who was not aware that Slaine was cooperating with the government - sought to recruit Slaine into the Goffer conspiracy, explaining that the inside information had come from an attorney at “Ropeson” (JA 2743) - obviously a mistaken reference to Ropes & Gray. When Slaine stated that he was “nervous about” the reliability of the lawyer source, Drimal explained that he had similarly wondered “why is this guy risking his whole [expletive] career and maybe going to jail, ” but that the person passing him the information (Zvi Goffer) had explained that the lawyer was being paid “a lot of dough” for the information. (JA 2737; see also Id. (“[B]ecause if I pay him 25 grand in cash, . . . that's a lot to him . . . .”).)

         On September 27, 2007, Goffer informed his co-conspirators that the 3Com acquisition would occur the next day. Goffer, 721 F.3d at 120. Specifically, Goffer had learned that signature papers for the 3Com deal had been prepared, and critically, he confirmed with Kimelman over the phone that those documents “were what they sounded like; they were something that took place at the end of a deal.” Id. (quoting Trial Tr. at 831-32, 1067). The following day, as Goffer expected, Bain Capital announced its acquisition of 3Com, and the value of the co-conspirators' 3Com holdings increased substantially. Id. at 120 & n.5. Based on 3Com trades they made from early August through September 26, 2007, Goffer made a gross profit of $378, 608 (JA 2450), and Kimelman made a gross profit of $260, 403 (JA 2458-59, 2461-63).

         At the bar later that night, Goffer informed Plate that the source of the 3Com tip needed to be paid, stated the amount of money that would need to be paid, and identified to Plate who would be contributing to the payment. (Trial Tr. at 834.) At trial, Plate could not recall the named contributors other than Drimal. (Id.) Because Plate “felt guilty” that he was not among those contributing, Zvi Goffer and Plate agreed that the profits Plate was owed on 25, 000 3Com shares that Emanuel Goffer had purchased on his behalf would instead be contributed to the payment to be made to Zvi Goffer's source. (Id. at 835.) Santarlas and Cutillo later received $25, 000 each from Goldfarb, who also received $25, 000. (Id. at 435, 590.)

         2. Axcan Tip

         In November 2007, Santarlas overheard Ropes & Gray associates discussing a client's plans to acquire Axcan. Goffer, 721 F.3d at 120. To confirm the story, Santarlas accessed several documents stored on the Ropes & Gray document management system regarding the upcoming acquisition. Id. He and Cutillo then shared the tip with Goldfarb, who passed the information to Goffer, who further conveyed it to Drimal, Plate, and possibly others. Id.; (Trial Tr. at 838-39). Drimal, who worked out of the offices of Galleon Group, a large hedge fund, shared the information with Michael Cardillo, a Galleon trader, again stating that the tip came from “Ropeson” attorneys. Goffer, 721 F.3d at 118, 120 (citing Trial Tr. at 1106). Drimal and Plate then purchased Axcan stock, an investment that garnered substantial profits. Id. However, as he would later admit to David Slaine, Goffer did not trade Axcan because he was concerned that trading in the little-known stock would attract regulatory attention. Id. (citing Trial Tr. at 657-58).

         The day the Axcan transaction was publicly announced, Drimal told Cardillo that he needed funds to “take care of” the tip's source, and Cardillo provided between $16, 000 and $18, 000 in cash to Drimal. (Trial Tr. at 1122, 1124.) Subsequently, Drimal called Goffer to inform him that Cardillo had “some cash lying around” and would “take care of me . . . in that respect.” (JA 2543.) The men arranged to meet the following day in Manhattan, and, shortly after his meeting with Drimal, Goffer delivered a bag to Goldfarb. (Trial Tr. at 194, 197.) Thereafter, Goldfarb gave $7, 500 in cash to each of the Ropes & Gray tippers (Cutillo and Santarlas) and kept an additional $7, 500 for himself. (Id. at 448.)

         3. January 18, 2008 Conversation Between Goffer and Kimelman

         At the beginning of the following year, on January 18, 2008, Goffer called Kimelman with a question regarding information he had recently obtained from “a friend.” (See JA 2619-21.) In the recorded call, Goffer first confirmed that Kimelman was on his cellphone (JA 2619), and then described “a friend” who was “doing . . . contract work for a company” and who “was talking to . . . the CEO, ” who in turn had told the friend that the “contract work” was needed because the company was “being acquired” (JA 2620). Goffer asked Kimelman whether the CEO was “allowed to say that to anybody.” (Id.) Kimelman responded, “He's not supposed to, but it may be public, ” to which Goffer replied, “I'm sure it's not public.” (Id.)

         Goffer then asked whether “officers of companies [are] more comfortable speaking with lawyers, ” and Kimelman advised, “Yeah, because they're not supposed to say anything, ” and “they're bound [by] attorney client . . . confidentiality and all that.” (Id.) After reiterating that lawyers are “not supposed to say anything, ” Kimelman suggested that the CEO may “just [be] doing it to protect himself.” (Id.) Goffer refuted that notion, explaining that “it's got nothing to do with . . . the contract work . . . . I think like they're just finalizing certain things up to close.” (Id.) After Goffer reiterated that he was just interested in knowing “if [it is] possible” that a CEO might disclose information regarding the close of a deal to a lawyer (id.), Kimelman asked Goffer if he “want[ed] to go for the mid-morning . . . for the meeting right now in the street” (JA 2621). Goffer and Kimelman both laughed at this comment, and then Goffer agreed to meet Kimelman “in the street.” (Id.)

         4. P.F. Chang's Tip

         A month later, in February, Santarlas learned from a colleague of a possible takeover of P.F. Chang's China Bistro, Inc. Goffer, 721 F.3d at 120. He again conveyed the information to Goldfarb, who shared it with Goffer. Id. (citing Trial Tr. at 131-34 and JA 2442-43). A few days later, Goffer phoned Kimelman and told him he had “something that we're going to need to like figure out, ” but Goffer explained that it was “nothing [he was] going to talk about on the telephone.” Id. (citing JA 2631). Accordingly, at Goffer's suggestion, Kimelman traveled from his home in Westchester to meet Goffer in Manhattan to “figure out [their] plan of attack.” Id. After the in-person discussion, Goffer, Emanuel Goffer, Drimal, and Kimelman each purchased P.F. Chang's stock; they also purchased other restaurant companies' securities in an apparent effort to disguise the fact that their P.F. Chang's trades were based on inside information. Id. (citing Trial Tr. at 849-50); (JA 2480-83). Goffer even instructed Kimelman that information regarding each of the securities they bought must “be printed out” so that they could “go about . . . justifying a trade” should the purchases spark regulatory interest. Id. (citing JA 2638). Kimelman responded, “Absolutely.” (JA 2638.)

         Two months later, on March 20, 2008, Santarlas accessed a document in the Ropes & Gray document management system entitled “limited guaranty” that was associated with the P.F. Chang's matter. (Trial Tr. at 488.) Later that day, Goffer called Kimelman and asked him what a “limited guarantee” meant in the context of “mergers and acquisitions.” (JA 2666.) When Kimelman responded that it “depends on [the] context, ” Goffer elaborated that “our guy seems to believe that” a limited guarantee is related to a guarantee of payment and is something that “happens when . . . the directors meet and stuff like that.” (Id. (emphasis added).) Goffer reiterated his understanding that such documentation is “part of every single deal, ” and “we got that.” (JA 2666-67.)

         5. Clear Channel Tip

         Also in March 2008, Cutillo and Santarlas found deal documents relating to Bain Capital's acquisition of Clear Channel Communications, Inc. in what they believed to be a “closing room” at their law firm. Id.; (Trial Tr. at 489-90). After reviewing the documents and determining that they were ready for execution, the attorneys told Goldfarb that an acquisition was imminent. Goffer, 721 F.3d at 120; (Trial Tr. at 489- 90). Shortly thereafter, Goffer, Kimelman, and Drimal purchased Clear Channel securities. (See JA 2691; Trial Tr. at 493; GX 302 at 10-11; GX 331 at GS-GOF 7457-58.)

         As it turned out, however, the attorneys had misinterpreted the purpose of the room. The banks that had agreed to finance the deal were balking, and the closing room had been set up simply to establish the private equity buyers' right to sue the banks if they refused to provide the financing. (Trial Tr. at 357-58, 365.) In other words, Clear Channel and the private equity buyers were not expecting that the deal would close; rather, they were merely taking steps necessary to force the banks to finance or, more likely, subject themselves to a lawsuit. (Id.)

         As expected, the banks ultimately refused to go through with financing, and Clear Channel along with the private equity buyers sued the banks. (Id. at 358-59.) It quickly became public knowledge that the deal was falling apart, and recorded phone calls between the co-conspirators at the time make clear that Goldfarb had conveyed the attorneys' mistaken impression of the closing room to Goffer, who had in turn shared that information with Drimal, Kimelman, and others. (See JA 2668, 2672, 2673, 2674-76, 2677-78, 2679-80, 2681- 85, 2686-88, 2689, 2690-91, 2695-97.)

         Clear Channel's stock plunged, and Goffer, Kimelman, and most of all Drimal (who had a larger investment at stake) suffered losses. Goffer, 721 F.3d at 120. After the ordeal, Goffer and Kimelman discussed how they felt sympathy for Drimal but were also upset with him for trading recklessly. (JA 2695- 96.) Kimelman concluded that he and Goffer had gotten “lucky, ” and Goffer agreed, remarking, “Yea[h, ] we dodged a big one.” (JA 2697.)

         Nevertheless, two months later, Cutillo and Santarlas noted renewed Clear Channel activity at their law firm. Goffer, 721 F.3d at 121. Cutillo passed the news to Goldfarb, who again informed Goffer. Id. (citing Trial Tr. at 494-95 and JA 2709-14). On May 7, 2008 - less than a week before Clear Channel publicly announced that it had settled its litigation with the banks and entered into an amended merger agreement (JA 2498) - Goffer called Kimelman and asked him what it meant “if you see . . . a couple documents together, ” including “a revised merger agreement . . . . [w]ith a solid sort of settlement agreement right with it” (JA 2707). Kimelman agreed with Goffer's assessment that it could mean that the parties “already had a deal and then . . . they didn't agree on it again, and then one company sued the other company, but now they're agreeing to deal again and they're basically settling the lawsuit.” (JA 2707- 08.)

         Two days later, on May 9, Goffer contacted Kimelman to arrange for an “urgent [in-person] meeting.” (JA 2715.) Immediately thereafter, Goffer called a trader who worked for his brother, Emanuel Goffer, and instructed him to purchase Clear Channel call options for Emanuel. (JA 2718-19); see also Goffer, 721 F.3d at 121. That same day, Goffer himself and Kimelman both began purchasing Clear Channel securities. (See JA 2479; GX 331 at GS-GOF 7672.) On May 12, Clear Channel publicly confirmed that it was in settlement talks with the lenders it had previously sued (JA 2497), and on May 13, after the close of business, the company announced a settlement and amended merger agreement (JA 2498-99). As a result, Clear Channel's stock value increased markedly, netting $1 million in profits for Goffer's trading account, Goffer, 721 F.3d at 121; (see also JA 2479; Trial Tr. at 1271), and over $28, 000 in profits for Kimelman's account (see GX 331 at GS-GOF 7672-73; see also Doc. No. 304, Oct. 12, 2011 Sent'g Tr. at 4-5 (finding $28, 000 in profits from Clear Channel trades)).

         6. Efforts to Recruit David Slaine

         In late 2007, Goffer, Kimelman, and Emanuel Goffer established their own trading firm, Incremental Capital, and attempted to recruit David Slaine to join as a partner. (Trial Tr. at 616, 703.) In essence, they hoped that Slaine would provide the financial support necessary to fund what the Second Circuit dubbed their “insider trading-fueled business.” Goffer, 721 F.3d at 121. In fact, Kimelman even urged Goffer to tell Slaine that he would “get great information” by investing with Incremental Capital. Id. (quoting JA 2567). Following Kimelman's advice, Goffer subsequently met with Slaine - who, unbeknownst to Goffer, was then working with law enforcement and wearing a recording device - and revealed that he had received key tips about certain acquisitions, including 3Com, Axcan, and Hilton Hotels Corporation. Id. (citing JA 2752, 2754). Shortly thereafter, Slaine again met with Goffer, this time joined by the other members of the “inner circle, ” Emanuel Goffer and Kimelman. (JA 2782-82.18.)

         In August 2008, Slaine once again met with Zvi and Emanuel Goffer and Kimelman, who were also joined by Drimal, to further discuss Slaine's potentially joining Incremental Capital. During that meeting, Slaine pressed Goffer on the identity and the reliability of his sources of information, to which Goffer responded: “[Y]ou don't need to know where it's coming from, you don't wanna know where it's coming from obviously[;] . . . [if] someone from the government ever ask[s] you where did it come from[, ] [y]ou be like, I don't freakin' know where it came from, I had no idea[;] [t]his is another stock tip, like any other one I have ever gotten.” (JA 2789.8.) At one point, Goffer jokingly suggested that his stock tips came from a “[c]onstruction worker, ” which he admitted was just a “way of saying, don't worry about where it came from.” (JA 2789.9.) Kimelman then commented, sarcastically, that the source was the “[g]uy fixing that pothole down there” in the street outside. (Id.)

         7. Concerns About Excessive Trading by Craig Drimal

         In February 2008, Goffer and Kimelman had a phone conversation in which they discussed their concerns about trading through the same broker-dealer used by Craig Drimal. Specifically, Goffer worried that the volume of stock Drimal had purchased in companies that were then taken over could result in the broker-dealer “blowing the whistle on [Drimal] saying listen we got a guy [who's] hitting these takeovers.” (JA 2652-53.) Goffer opined that “some decisions ha[d] to [be] made” regarding “how much of a magnifying glass you want ...

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