United States District Court, S.D. New York
MEMORANDUM AND ORDER
Kevin Castel United States District Judge
David Bergstein is charged in a seven-count indictment with
securities fraud, investment advisor fraud, wire fraud, and
conspiracy to commit all three, in violation of 15 U.S.C.
§§ 78j(b), 78ff, 80b-6, 80b-17, 18 U.S.C.
§§ 371, 1343, 1349, and 17 C.F.R. § 240.10b-5.
Bergstein has moved to dismiss the indictment on the grounds
that it is impermissibly duplicitous. He also seeks to compel
disclosure, or alternatively judicial review, of the grand
jury minutes. For the reasons explained below,
Bergstein's motion is denied.
indictment charges Bergstein with conspiring with Keith
Wellner, General Counsel of Weston Capital Asset Management
(“Weston”), and Albert Hallac, Weston's
President, to defraud investors in three different Weston
funds: the Class TT Portfolio (the “TT
Portfolio”), the Wimbledon Financing Master Fund
(“WFF”), and the Partners 2 Fund (the “P2
Fund”). Specifically, the indictment charges Bergstein
and Wellner with (1) concealing material information from
Weston investors about transactions involving their money;
(2) transferring funds from one pool of Weston investors to
benefit a separate pool of Weston investors without
disclosing the conflicts of interest; and (3)
misappropriating investor funds for their own benefit.
2010, Weston entered into an agreement with Gerova Financial
Corporation (“Gerova”) in which Weston agreed to
transfer assets from WFF to Gerova in exchange for restricted
shares of Gerova stock. (Indictment ¶ 10.) After
Gerova's stock price dropped in 2011, Bergstein proposed
a plan to Hallac and Wellner which would allow Weston to
unwind this transaction and retrieve the WFF assets.
(Id. ¶ 11.) According to the plan, Gerova would
release the WFF assets back to Weston, and Weston would
returned the Gerova stock. (Id.) Weston would then
place the recovered WFF assets into Arius Libra Inc.
(“Arius Libra”), a shell company controlled by
Bergstein, in exchange for an equity stake in Arius Libra.
(Id.) Weston would also agree to pay off $5 million
in debts incurred by Gerova including some owed to Bergstein.
(Id. ¶ 12.) Gerova agreed to the transaction
and it was executed during the summer of 2011. (Id.
order to complete this transaction, Bergstein, Hallac, and
Wellner allegedly arranged a loan from the P2 Fund to Arius
Libra which was secured by the WFF assets (the “P2
Loan”). (Id. ¶¶ 13-14.) Therefore,
if the P2 Loan was not repaid, the P2 Fund could liquidate
WFF assets to make P2 investors whole, to the detriment of
WFF investors. (Id. ¶ 14.) The defendants did
not disclose this loan or the attendant conflicts of
interests to P2 Fund or WFF investors. (Id. ¶
15.) In addition, Bergstein represented to Hallac and Wellner
that the loan would be used to pay Gerova debts and
capitalize Arius Libra but instead he misappropriated a large
portion of the loan proceeds and used them for his own
benefit and to pay other individuals. (Id. ¶
indictment further alleges that in 2011, Bergstein, Wellner,
and Hallac arranged a swap agreement whereby Hallac and
Wellner transferred $17.7 million from the TT Portfolio to
Swartz IP Services Group Inc. (“Swartz IP”), an
entity controlled by Bergstein. (Id. ¶ 24.)
Bergstein represented to Wellner and Hallac that he would
provide certain investment returns and meet investor
redemption requests by TT Portfolio investors, but instead
misappropriated a large portion of the transferred funds for
his own benefit and lied about the capitalization of Swartz
IP. (Id. ¶¶ 24, 27.) In addition,
Bergstein, Wellner, and Hallac transferred $3 million of the
TT Portfolio funds to the P2 Fund in order to pay back part
of the P2 Loan. (Id. ¶ 26.) The details of this
swap agreement were not disclosed to TT Portfolio or P2 Fund
investors. (Id.) Wellner and Hallac also improperly
paid themselves out of these transferred funds. (Id.
the indictment alleges that Bergstein and Wellner worked
closely together to arrange these transactions and conceal
them from investors, including by backdating agreements,
drafting fraudulent documents, and making false disclosures
to Weston investors. (Id. ¶¶ 22-23,
argues that the indictment should be dismissed because it is
impermissibly duplicitous. According to Bergstein, the
allegations in the indictment describe two separate schemes
or conspiracies: one between Bergstein and Wellner to defraud
Weston investors and a second between Bergstein and others to
defraud Wellner and Hallac. (Def.'s Mem. 1). Because he
claims that each count of the indictment improperly charges
two crimes, Bergstein seeks dismissal of the indictment or,
alternatively, an order requiring the government to elect one
of the schemes or conspiracies and revise the indictment
accordingly by striking the allegations related to the other
scheme. (Id. at 9).
Motion to Dismiss.
8(a) requires “separate counts” for each charged
offense. Fed. R. Crim. P. 8(a). “An indictment is
impermissibly duplicitous where: 1) it combines two or more
distinct crimes into one count in contravention of Fed. R.
Crim. P. 8(a)'s requirement that there be ‘a
separate count for each offense, ' and 2) the defendant
is prejudiced thereby.” United States v.
Sturdivant, 244 F.3d 71, 75 (2d Cir. 2001) (citing
United States v. Murray, 618 F.2d 892, 896 (2d Cir.
the duplicity doctrine to a conspiracy indictment presents
unique issues because “a single agreement may encompass
multiple illegal objects.” Murray, 618 F.2d at
896. “[I]t is well established that the allegation in a
single count of a conspiracy to commit several crimes is not
duplicitous, for the conspiracy is the crime and that is one,
however diverse its objects.” United States v.
Aracri, 968 F.2d 1512, 1518 (2d Cir. 1992) (internal
citations and quotation marks omitted). “[U]nder the
law of this Circuit, acts that could be charged as separate
counts of an indictment may instead be charged in a single
count if those acts could be characterized as part of a
single continuing scheme.” Id. (internal
citations and quotation marks omitted). In addition, acts
which merely constitute different means of carrying out the
same underlying crime may properly be included in one count.
See Murray, 618 F.2d at 896.
alleged in the indictment, Bergstein's misrepresentations
to Wellner and Hallac simply constituted one method of
carrying out the underlying conspiracy and were part of a
single continuing scheme to defraud Weston investors. The
fact that Bergstein allegedly mislead his co-conspirators
about his intended use of investor funds and Swartz IP's
capitalization does not create a wholly separate scheme or
conspiracy. See United States v. Berger, 224 F.3d
107, 114-15 (2d Cir. 2000) (“a single conspiracy is not
transformed into multiple conspiracies merely by virtue of
the fact that it might involve two or more phases or spheres
of operation”) (citation omitted); United States v.
Ohle, 678 F.Supp.2d 215, 222 (S.D.N.Y. 2010)
(“Each member of the conspiracy is not required to have
conspired directly with every other member of the conspiracy;