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Mandell v. United States

United States District Court, S.D. New York

May 23, 2017

ROSS H. MANDELL, Petitioner,

          OPINION & ORDER

          HONORABLE PAUL A. CROTTY, United States District Judge.

         On July 26, 2011, following a five-week trial, the jury convicted pro se petitioner Ross Mandell of (1) conspiracy to commit securities, wire, and mail fraud, (2) securities fraud, (3) wire fraud, and (4) mail fraud. He was sentenced to a term of 144 months in prison. The Second Circuit affirmed his conviction and sentence, United States v. Mandell, 752 F.3d 544 (2d Cir. 2014), and the Supreme Court denied certiorari, Mandell v. United States, 135 S.Ct. 1402 (2015).

         Mandell now petitions, pursuant to 28 U.S.C. § 2255, for reversal of his conviction and vacation of his sentence. He argues that his trial attorney, Jeffrey Hoffman, suffered from an actual and potential conflict of interest because he simultaneously represented and had a close relationship with an unindicted coconspirator, and that Hoffman was ineffective because he did not file an interlocutory appeal after the Court denied Mandell's motion to dismiss.

         Mandell does not plausibly establish either a lapse in Hoffman's representation, or that Hoffman's representation was objectively unreasonable and that Mandell was prejudiced as a result. The Court therefore denies Mandell's Petition.


         I. Relevant Procedural History

         In June 2009, a grand jury indicted Mandell along with five co-defendants, Stephen Shea, Adam Harrington, Arn Wilson, Robert Grabowski, and Michael Passaro. See Dkt. 2.[1] On December 14, 2010, a superseding indictment charged Mandell with four crimes: (1) conspiracy to commit securities, wire, and mail fraud, (2) securities fraud, (3) wire fraud, and (4) mail fraud. Dkt. 96.

         On December 2, 2010, Mandell moved to dismiss the securities fraud and conspiracy to commit securities fraud charges based on the Supreme Court's decision in Morrison v. National Australia Bank Ltd., 561 U.S. 247 (2010). Dkt. 91. Mandell argued that Morrison precluded the extraterritorial application of the anti-fraud provisions of the Securities Exchange Act. According to Mandell, because the conduct alleged in the indictment related to securities sales that occurred outside of the United States and not on an American exchange, dismissal of the securities fraud and conspiracy to commit securities fraud charges was required. The Court denied Mandell's motion on March 16, 2011. Dkt. 115.

         Between January 25, 2011 and February 14, 2011, defendants Grabowski, Passaro, Wilson, and Shea pleaded guilty to certain counts in the superseding indictment. The remaining two defendants, Mandell and Harrington, did not plead guilty, and instead proceeded to trial. Trial commenced on June 20, 2011, and concluded on July 26, 2011, when the jury found Mandell and Harrington guilty of all charges against them.

         Following their convictions, Mandell and Harrington moved pursuant to Fed. R. Crim. P. 29 for a judgment of acquittal and alternatively pursuant to Fed. R. Crim. P. 33 for a new trial. Dkt. 161, 163. They contended, among other things, that the government failed to prove intent to engage in a scheme to defraud, intentionally false or fraudulent representations, or fraudulent domestic securities transactions within the applicable limitations period. The Court denied their motions on November 2, 2011. Dkt. 173. On May 3, 2012, the Court sentenced Mandell to a total term of 144 months of imprisonment. See Dkt. 204. The Court also ordered Mandell to make forfeiture of $50 million, pay a fine of $10, 000, and pay a mandatory special assessment of $400. Id.

         Mandell appealed his judgment of conviction and sentence on May 10, 2012. Dkt. 208. He challenged, among other things, his securities fraud conviction based on the Supreme Court's decision in Morrison. See United States v. Mandell, 752 F.3d 544 (2d Cir. 2014). The Second Circuit rejected Mandell's argument, and on May 16, 2014, affirmed Mandell's conviction and sentence.[2] Id. On February 23, 2015, the Supreme Court denied certiorari. Mandell v. United States, 135 S.Ct. 1402 (2015).

         II. Summary of Trial

         Over the course of a five-week trial, the government introduced evidence that Mandell and Harrington were guilty of conspiracy to commit securities, wire, and mail fraud; and substantive counts of securities, wire, and mail fraud. The trial involved more than twenty witnesses, hundreds of exhibits, and a transcript spanning nearly 4, 000 pages.

         A. The Government's Case

         The substance of the government's case against Mandell was that Mandell used two Wall Street brokerage firms, the Thornwater Company (“Thornwater”) and Sky Capital, LLC (“Sky Capital”), to defraud foreign and domestic investors out of millions of dollars. The evidence showed that the scheme started in 1998 with Thornwater. Grabowski wanted to start his own brokerage firm. Mandell helped Grabowski do so, and Grabowski was eventually installed as president of Thornwater. Grabowski testified, however, that Mandell, despite having no documented ownership interest in or power to have control over Thornwater, ran the show from behind the curtain. For instance, Mandell controlled who was hired and fired; the spending of funds; and what private placements to offer to investors. Mandell also directed brokers on how to pitch several private placements that purportedly would bring certain companies public, instructing the brokers to lie about the potential risks and rewards associated with the investments. The Thornwater brokers lied about the certainty that the companies would go public; the returns the investors would earn; and the way the investors' money would be spent.

         Around 2000-2001, Mandell decided that he wanted to open a new brokerage firm that would appear unrelated to Thornwater. Thornwater was running out of cash, and investor complaints were steadily increasing. But even as Mandell was purportedly separating from Thornwater, he continued to exercise control from behind the scenes. He resigned from Thornwater on or about January 30, 2001, and entered into a sweetheart deal to extract tens of thousands of dollars from Thornwater. He moved across the street from Thornwater, opened Sky Capital, and started hiring Thornwater brokers to work at Sky Capital. He also continued to use Thornwater to raise money through a private placement called Dorchester Holdings. Dorchester Holdings served to keep Thornwater open while money was being raised for Sky Capital to get off the ground.

         In June 2002, Sky Capital offered stock in the initial public offering (“IPO”) of an affiliated company, Sky Capital Holdings Ltd. (“Sky Capital Holdings”). Sky Capital Holdings was listed on the Alternative Investment Market (“AIM”) in London, a smaller market of the London Stock Exchange. Sky Capital represented that a British brokerage firm would handle the initial placement of stocks, but Mandell and Harrington used their own brokers from Thornwater to sell the shares in London. Then, because investor money went to the British brokerage firm, the Thornwater brokers were paid commissions out of the Dorchester Holdings bank account. In March 2004, another related company, Sky Capital Enterprises, was also listed on the AIM.

         With stock trading on the AIM, the scope of the fraud scheme expanded. In order to entice investors to part with their money, the brokers offered investors the chance to purchase the publicly traded Sky Capital stock at a “discount” through private stock offerings. They had to artificially prop up the stock price of the shares on the AIM in order for the investors to feel that they were getting a bargain. The brokers crossed stock trades, operated under a no net sales policy, and received undisclosed commissions (really bribes) as a reward for perpetuating the scheme. The evidence showed that Mandell was aware of the market manipulation, and why the market was being manipulated. Additionally, investors were told, at Mandell's direction, that there was a big liquidity event just around the corner; but of course, no liquidity event occurred.

         B. Mandell's Case

         At trial, Mandell argued that the government failed to meet its burden of proving his guilt beyond a reasonable doubt. His attacks focused on the (supposed) lack of evidence of his control at both Thornwater and Sky Capital. He stressed that Grabowski controlled and was the owner of Thornwater, not Mandell; that Grabowski had the authority at Thornwater to disburse money, not Mandell; that Grabowski's name was on Thornwater documents filed with the Federal Trade Commission and the National Association of Securities Dealers (“NASD”), not Mandell's; and that Grabowski had the power to fire Mandell. Mandell was just a broker at Thornwater looking to represent his clients, not some puppet master operating in the shadows. In other words, Grabowski's testimony was all a lie. At Sky Capital, Mandell highlighted that he was not the president; that he could not and did not run the company; and that there was a legitimate board of directors that made decisions relating to Sky Capital.

         With respect to the brokers' pitches, Mandell argued that the brokers chose to lie to investors and potential investors on their own, and now that they had been caught, they sought to make Mandell the fall guy. They lied at trial about Mandell's involvement in order to provide substantial assistance to the government so they could get the benefit of their cooperation agreements and potentially lower sentences. And the investors who took the stand and explained how they were defrauded were all in fact sophisticated and understood the risks associated with their investments. Mandell claimed that he played by the rules. He spent millions on lawyers to ensure that his actions did not violate any laws, and that was why, for example, the private placements were accompanied by memoranda that identified risks associated with the investments. He successfully brought two companies public on the AIM, and certain investors in fact were able to make money.

         The jury rejected Mandell's defense. On July 26, 2011, after two and a half days of deliberation, the jury found Mandell guilty of all four counts against him. As the Court explained in considering Mandell and Harrington's Rule 29 and Rule 33 motions, “the jury's verdict was based on overwhelming evidence that defendants had defrauded investors and enriched themselves at the investors' expense.” Dkt. 173 at 6.

         C. Altman's Role

         Steven Altman was an uncharged participant in the criminal scheme. He did not testify, but his role was discussed throughout the trial. Altman was a close friend of Mandell, and was an attorney for both Thornwater and Sky Capital. Altman, his firm, Ziegler, Ziegler and Altman (“ZZA”), and his partner Steve Ziegler were involved in several of the Thornwater private placements. Ziegler or Altman would help set up the private placements, and investors would wire money into a ZZA escrow account. Altman also coached employees to lie under oath to the NASD and state that Grabowski-not Mandell-controlled Thornwater. Additionally, Altman dealt with disgruntled investors and offered them deals that were less favorable than what the investors were originally promised in order to keep them from complaining. Altman directed at least one broker to sign a promissory note that served to conceal that the broker was receiving undisclosed commissions. Finally, Altman told at least one broker that crossing stocks was legal and proper and that Sky Capital's conduct was consistent with industry rules and regulations.

         III. Habeas Petition

         On February 11, 2016, Mandell filed his § 2255 Petition. He contends that his Sixth Amendment right to conflict-free counsel was violated because Hoffman's loyalties were divided between Mandell and Altman. Mandell asserts that while Hoffman was representing Mandell, Hoffman and Altman had a very close relationship: Altman referred at least two high-paying clients to Hoffman, including Mandell; Hoffman and Altman shared office space; and Hoffman and Altman had a father/son relationship. Mandell also asserts that he learned after trial that Hoffman had been simultaneously representing Altman in connection with a Securities and Exchange Commission (“SEC”) proceeding.[3] That proceeding, however, had nothing to do with any of the facts at issue in Mandell's case. Rather, it dealt with Altman's conduct as a lawyer for a friend who had been discharged by a company she worked for.

         On November 10, 2010, the SEC found that Altman had offered to have one of his clients “evade the [Division of Enforcement's] service of a subpoena and/or testify falsely in exchange for a financial package from two respondents in the proceeding.” In re Steven Altman, Esq., Release No. 63306, 2010 WL 5092725, at *1 (Nov. 10, 2010). Consequently, the SEC permanently denied Altman the right to practice or appear before it. See Id. Hoffman represented Altman during the SEC proceeding, including before the Administrative Law Judge, as well as in an action Altman later filed against the SEC. See id.; Affidavit of Jeffrey C. Hoffman, Esq. (“Hoffman Aff.”), Dkt. 326, ¶ 3; Altman v. S.E.C., 10 Civ. 9141 (RJH) (S.D.N.Y.). On December 7, 2010, Altman brought an action against the SEC in the Southern District of New York for declaratory and preliminary and permanent injunctive relief (“Altman Action”). Altman v. S.E.C., 10 Civ. 9141 (RJH), Dkt. 1 (S.D.N.Y.). Altman argued that the SEC lacked the power to discipline lawyers appearing before it and requested, among other things, that the SEC's November 10, 2010 order against him be vacated. Id. United States District Judge Richard J. Holwell dismissed the action for lack of jurisdiction on March 8, 2011, id., Dkt. 15, and the Second Circuit affirmed on June 12, 2012, id., Dkt. 19. Altman also petitioned the D.C. Circuit to review the SEC's order, but did so pro se. The court denied the petition. Altman v. S.E.C., 666 F.3d 1322, 1324 (D.C. Cir. 2011).

         This is not really a conflict in which counsel appears in the same case on behalf of multiple parties with different interests. Nonetheless, Mandell claims that because of Hoffman's divided loyalties, Hoffman chose to shield Altman from potential liability to Mandell's detriment. Mandell catalogs a laundry list of events that should have happened; and “if only” they did, Mandell would have not been convicted. Specifically, Hoffman should have allowed Mandell to testify at trial and meet with the government, proffer, cooperate, or plead guilty; Hoffman should have called Altman and others as witnesses; and Hoffman should have more vigorously cross-examined government witnesses about Altman's role in the scheme. Many of the arguments are contradictory and fanciful. Altman, for example, would exonerate Mandell by inculpating himself; and Mandell would proffer or cooperate, but would not admit guilt. Additionally, Mandell asserts that Hoffman was ineffective because he did not file an interlocutory appeal after the Court ruled on Mandell's motion to dismiss pursuant to the Supreme Court's decision in Morrison. This argument is dismissed out of hand because it was raised on appeal and rejected by the Second Circuit. It does not fare better in the § 2255 Petition.

         On February 23, 2016, the Court ordered the government to respond to Mandell's Petition. Dkt. 318. On June 2, 2016, the government requested that the Court enter an order that Hoffman submit an affidavit or affirmation addressing Mandell's assertions and send Mandell an informed consent form waiving the attorney-client privilege. 16 Civ. 1186 (S.D.N.Y.), Dkt. 9. On June 7, 2016, the Court entered the order. Dkt. 321. Mandell's signed attorney-client privilege waiver was filed on the docket on July 8, 2016. Dkt. 322. On July 25 and July 26, 2016 respectively, the Government filed its opposition to Mandell's Petition and Hoffman's affidavit addressing the claims in Mandell's Petition. Dkt. 324, 325, 326. On September 23, 2016, Mandell's reply, including his affidavit (“Mandell Aff.”), was filed on the docket. Dkt. 329, 329-2.

         On October 20, 2016, the government filed a letter requesting that the Court consider an e-mail chain in reviewing Mandell's Petition. 16 Civ. 1186 (S.D.N.Y.), Dkt. 15, refiled as Dkt. 18. The e-mail chain includes e-mails between Altman and Mandell from December 7, 2010. 16 Civ. 1186 (S.D.N.Y.), Dkt. 18-1. In the first e-mail, Altman appears to have attached a document filed in the Altman Action before United States District Judge Holwell (see page 8, supra). Altman states: “The attached was filed today. You may find it interesting. It is the work of my good friend Mitch Stein and I though Jeff [Hoffman] remains involved for good order.” Id. at 2. Mandell responds: “Congratulations! I will read through it tonight!” Id. Altman replies: “Argument on our motion for a stay/TRO/etc tomorrow at noon. Prayers welcome!” Id. And Mandell then says: “I'll pray hard!” Id. The government contends that this shows that Mandell was aware of Hoffman's involvement in representing Altman in connection with the SEC proceeding. 16 Civ. 1186 (S.D.N.Y.), Dkt. 18. Mandell objects to the Court considering the ...

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