United States District Court, S.D. New York
OPINION AND ORDER
January 19, 2017, following a six-day trial, a jury found
defendant Stefan Lumiere guilty of wire fraud, securities
fraud, and conspiracy to commit those offenses. See
Verdict, ECF No. 65. The basic charge was that the defendant,
a former employee of Visium Capital Management
("Visium"), had participated in a two-year scheme
to dupe investors into believing that the Visium Credit
Opportunities Fund (the "Credit Fund") was
performing far better than it actually was. Lumiere now moves
for a new trial pursuant to Rule 33(a) of the Federal Rules
of Criminal Procedure. For the reasons stated below,
Lumiere's motion is hereby denied.
evidence at trial (taken, along with all reasonable
inferences, most favorably to the Government) showed as
was a hedge fund manager that operated several different
hedge funds and that, at its peak, had $8 billion of investor
money under management. See Tr. 40, 42. Among the
hedge funds it managed was the Credit Fund, which invested
principally in bonds, bank debt, and other credit
instruments, and which managed up to $500 million.
See Tr. 42-43, 630-31. The Credit Fund performed
well through 2010, but in 2011, its performance began to
suffer. See Tr. 248-49; Government Exhibit ("GX")
2011, Christopher Plaford was the senior portfolio manager
for the Credit Fund, and was responsible for directing the
fund's investment process. See Tr. 45, 630-31,
651; see also GX 106. Lumiere, who reported to
Plaford, was a senior analyst and also a portfolio manager
responsible for around $100 million of the Credit Fund's
investments. See Tr. 146-47, 244-46, 664-65. Jason
Thorell was the trader for the Credit Fund, which meant that
he executed trades as directed by Plaford, Lumiere, and
others. See Tr. 241-42, 652-53. When the Credit
Fund's investments began to suffer in 2011, Plaford and
Lumiere, with assistance from Thorell, hatched a scheme to
defraud investors in the Credit Fund into believing it was
still performing well. Plaford pleaded guilty to
participating in the fraud and testified at trial under a
cooperation agreement; Thorell, who was not charged,
testified under a grant of immunity. See Tr. 222-23, 640-41.
metric by which Visium reported the Credit Fund's
performance to investors was its net asset value
("NAV"), which represented the aggregate fair
market value of all investments and cash held by the hedge
fund. See Tr. 60, 662-63. Investors also monitored
the proportion of the Credit Fund's investments that were
classified as illiquid "Level 3" assets under
Accounting Standard Codification 820, and strongly preferred
that the Credit Fund hold no Level 3 assets at all.
See Tr. 663, 703-04; see also Tr. 63-66.
Plaford and Lumiere also had personal stakes in the level of
the Credit Fund's NAV, because the higher the NAV, the
higher their compensation would be, whereas, by contrast,
poor performance could result in their termination.
See Tr. 248, 664. Visium reported the Credit
Fund's NAV and liquidity to investors on a monthly basis,
see Tr. 661; thus, to achieve their goal of duping
investors into believing the struggling Credit Fund was
performing well and held no illiquid investments, Plaford and
Lumiere crafted a plan to systematically manipulate both the
NAV and the liquidity calculations, month-by-month, from 2011
and Lumiere did not directly control the level at which the
NAV was reported, since it was calculated by the back-office
Operations group. However, to make the calculation,
Operations relied to a significant degree on securities
prices reported by the investment team - i.e., by
Plaford and Lumiere. At the end of each month, the investment
team would send Operations a list of prices for each security
held by the Credit Fund. See Tr. 560-61. The next
business day, Operations would obtain market prices for each
security from a third-party pricing source such as Markit,
and then send to the investment team a spreadsheet that
compared Visium's in-house prices with the third party
prices. See Tr. 561-63. In order to cause Operations
to use an in-house price instead of the third party's
price in calculating the NAV, the investment team was
required to provide independent verification that its
in-house price was fair and accurate. This was known as
"overriding" the third-party price. See
Tr. 563-65, 667-68. A quote from an outside broker indicating
that it would transact in a security at the investment
team's in-house price was, however, sufficient to
override a third-party price. See Tr. 564-65. Thus,
beginning in mid-2011, Plaford and Lumiere began suborning
outside brokers to provide, on demand, assurances regarding
whatever back-up securities price quotes Lumiere asked for.
Lumiere personally selected and corrupted the two main
brokers used for this purpose: Scott Vandersnow of
Princeridge and Jonathan Brook of Janney Montgomery Scott.
See Tr. 285, 293-94, 305, 483, 680-81. In addition
to being personal friends of Lumiere, Vandersnow and Brook
worked at firms that did not usually trade the type of
securities the Credit Fund held, and thus could not
realistically be counted on for objective price quotes.
See Tr. 314-15, 351; GX 1224. Later, at
Lumiere's suggestion, Thorell located a third corrupt
broker, Matthew O'Callaghan of Odeon Capital Management,
another "bucket shop" broker whose services they
occasionally used as well. See Tr. 306-09. The
brokers allowed Lumiere and his co-conspirators to dictate
the prices the brokers attested they were willing to pay.
See, e.g., Tr. 489-91; GX 1209, 1227. In return for
the brokers providing the sham prices, Lumiere steered
business their way. See, e.g., Tr. 285-86, 294. All
of this, needless to say, was concealed from everyone but the
coconspirators. See Tr. 699.
implement this scheme, Plaford and Lumiere, toward the end of
each month, would devise inflated prices for poorly
performing securities. See Tr. 668, 674-75; see
also Tr. 684-91; GX 1208, 1212, 1216, 1228-30. Plaford
would send Thorell a spreadsheet of the prices, and Thorell,
at Plaford's direction, would then create a new email,
attach that spreadsheet, and send it to Operations to begin
the month-end NAV calculation process. See Tr.
252-57, 677-78. Meanwhile, Lumiere would contact Vandersnow
and/or Brook (or, later on, O'Callaghan) and dictate the
chosen prices; Vandersnow and Brook (sometimes while they
were still on the phone with Lumiere) would promptly send
Lumiere "verifications" of the demanded prices,
without in fact independently verifying them. See,
e.g., Tr. 286, 354-58, 361-62, 489-94, 679-80; GX 1209,
1227. To give a veneer of legitimacy, these exchanges were
sometimes glossied-up. For example, Plaford might tell
Lumiere that he thought a certain price was accurate, but
that he was open to other views. See, e.g., GX 1230.
Lumiere, in turn, might relay the prices to the brokers under
the guise of "educating" them about Visium's
perspective. See, e.g., GX 1227.
this was simply window dressing intended to help conceal the
fraud. Over the course of two years and hundreds of
securities, none of the brokers ever disagreed with
Lumiere's prices, nor was there any attempt to supply the
brokers with information about the securities, with most of
which they were unfamiliar. See Tr. 500-02, 675.
Once the brokers dutifully supplied the dictated quotes,
their emails would be sent to Operations as the necessary
back-up documentation for Plaford's and Lumiere's
hand-picked securities prices. See Tr. 276, 289.
Thus did Lumiere and his co-conspirators grossly inflate the
NAV. In addition, using broker quotes as back-up had the
further advantage of preventing these securities, which were
often thinly traded, from being classified as illiquid Level
3 assets. See Tr. 693.
details of the scheme varied slightly at times. For example,
on one occasion, rather than rely on a sham broker quote as
back-up, Lumiere himself purchased a security held by the
Credit Fund at a significantly above-market price, and then
used that "real-world" transaction as the back-up
for the month-end pricing -a practice known as "painting
the tape." See Tr. 638-39, 708-15. Sometimes
Lumiere conveyed the bogus prices to the brokers by
messengering them flash drives that contained only a
spreadsheet of securities prices. See Tr. 364-66,
506-07, 682. And for a few months, acting at Lumiere's
direction, it was Thorell, rather than Lumiere, who obtained
the bogus broker quotes. See Tr. 358-62, GX 1234-A.
however, suspicion arose, and in April 2013, Lumiere was
fired for poor performance. See Tr. 658, 679.
Shortly thereafter, the remaining investment team was removed
from the pricing process, and the scheme collapsed. See,
e.g., Tr. 758-60.
evidence of the foregoing scheme introduced at trial was
little short of overwhelming. It included a mass of documents
(electronic and otherwise); audio recordings of the
conspirators in action; and credible testimony from three of
the conspirators (Platora, Thorell, and Vandesnow). The only
real issue for trial was whether, as Lumiere maintained, he
had a good-faith belief in the securities prices he obtained
to boost the NAV.
Rule 33(a), a district court "may vacate any judgment
and grant a new trial if the interest of justice so
requires." Fed. R. Crim. P. 33(a). "The test is
whether it would be a manifest injustice to let the guilty
verdict stand." United States v. Guang, 511
F.3d 110, 119 (2d Cir. 2007) (internal quotation marks
omitted). In other words, "[t]he grant of a Rule 33
motion requires a real concern that an innocent person may
have been convicted." United States v. Parkes,
497 F.3d 220, 232 (2d Cir. 2007) (internal quotation marks
omitted). Lumiere contends that a combination of supposed
evidentiary errors, putative prosecutorial misconduct, and
allegedly flawed jury instructions - nearly all of which he
did not object to at trial - resulted in an unfair trial. In
actuality, however, there were no such errors, let alone the
kind of egregious errors that would justify overturning the
with the evidentiary issues, Lumiere finds fault in a number
of rulings made in connection with the testimony of Jason
Thorell. Because Lumiere uniformly failed to object on the
grounds he now advances, his arguments are reviewed under the
"plain error" standard. See Fed. R. Crim.
P. 52(b) ("A plain error that affects substantial rights
may be considered even though it was not brought to the
court's attention."). But, in fact, none of the
rulings was erroneous, much less an "obvious" error
that not only "affected the outcome of the district
court proceedings, " but also "seriously affect[ed]
the fairness, integrity, or public reputation of judicial
proceedings." See United States v.
Olano, 507 U.S. 725, 734, 736 (1993) .
first argues that a portion of Thorell's testimony
interpreting a recording was improperly admitted as lay
opinion testimony. Under Rule 701, lay witnesses may testify
to an opinion only if it is "rationally based on the
witness's perception" and is "helpful to
clearly understanding the witness's testimony or to
determining a fact in issue." See Fed.R.Evid.
701(a), (b) .
trial, the Government played portions of a recording Thorell
made of a conversation he had with Lumiere in January 2014.
In one excerpt played for the jury, the following exchange
STEFAN LUMIERE: Yeah, I think, I think, the way we explain it
from my perspective to investors is I don't want to blow
everything they've done out. For example, Chris has been
mismarking shit since the beginning.
JASON THORELL: Um-hum.
STEFAN LUMIERE: Right? Originally in 2011, he was marking
them too low so he could save ear - like retaining earnings
for a later date - JASON THORELL: Yeah.
STEFAN LUMIERE: - and smoothing them out.
JASON THORELL: Yeah.
STEFAN LUMIERE: So he's been doing that since the
beginning. He's been mismarking shit egregiously -
outside context of what was right from the beginning. But the
things I'd like to focus on are stuff like ATI - JASON
STEFAN LUMIERE: - and Chinamed - JASON THORELL:
(indiscernible) Look, look. I, I - STEFAN LUMIERE: - which
were just egregious. And I'd like to use that as a reason
for my deciding to depart them.
1223-A. On direct examination, Thorell testified that
"Chris" referred to Plaford, their former boss.
See Tr. 237. The following exchange then occurred:
Q: When you spoke to Mr. Lumiere and he used the word
"Chris did this, " what did you understand him to
A: I understood him to mean that, in the context of this
transcript, that he's speaking for Chris, but also
See Tr. 238.
he raised no objection at the time, Lumiere now claims that
this testimony was inadmissible because it was not rationally
based on Thorell's personal knowledge and because
"Chris" was not a code that the jury needed
fact, this testimony was properly admitted. As a participant
in the conversation, Thorell plainly had first-hand knowledge
of the conversation itself. See United States v.
Urlacher, 979 F.2d 935, 939 (2d Cir. 1992) ("[T]he
first prong requires that a witness meet the familiar
requirement of first-hand knowledge or observation."
(internal quotation marks omitted)). Just as importantly,
Thorell had first-hand knowledge of the conspiracy being
discussed. Prior to explaining what he thought Lumiere meant
by "Chris, " Thorell testified that he had
participated in the mismarking scheme with Plaford and
Lumiere, that he had been sufficiently distressed by the
scheme to report it to Visium management, and that, when his
concerns were not allayed, he reported the fraud to the SEC.
See Tr. 223-25; see also Tr. 373-85,
388-89. He later explained the mechanics of the fraud in
detail. See, e.g., Tr. 274-76, 364-66. In other
words, Thorell not only had firsthand knowledge of what was
actually said, but firsthand knowledge of the underlying
scheme sufficient to interpret the statements of his former
partner-in-crime. See United States v. Yannotti, 541
F.3d 112, 125 (2d Cir. 2008) ("DiDonato's testimony
was rationally based on his own perception because it derived
from his direct participation in the loansharking activities
of the charged enterprise . . . .") .
testimony was also helpful to the jury within the meaning of
Rule 701. The conversation Thorell was called upon to
interpret took place in January 2014, after the conclusion of
the years-long securities mismarking scheme. The recording
thus contained the kind of shorthand and oblique references
that only a person familiar with the background would readily
grasp. Moreover, Thorell, as the most junior member of the
conspiracy, had taken direction from both Plaford (who had
Thorell send the override spreadsheet to Operations in
Thorell's own name to mask Plaford's involvement) and
Lumiere (who, inter alia, supplied the necessary
back-up documentation for the overrides in the form of sham
broker quotes). See Tr. 252-57, 276, 289. It is against that
backdrop that Thorell testified that he understood
Lumiere's references to "Chris" to mean both
Plaford and Lumiere himself. Such testimony was plainly
"helpful to clearly understanding the witness's
testimony or to determining a fact in issue."
See Fed.R.Evid. 701; Yannotti, 541 F.3d at
126 (upholding admission of "interpretative ...