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United States v. Flom

United States District Court, E.D. New York

June 5, 2017

UNITED STATES OF AMERICA,
v.
JONATHAN P. FLOM, Defendant.

          MEMORANDUM & ORDER

          ROSLYNN R. MAUSKOPF, UNITED STATES DISTRICT JUDGE.

         Following a jury trial, defendant Jonathan P. Flom was found guilty of money laundering in violation of 18 U.S.C. § 1956(a)(3). Flom moved for a judgment of acquittal pursuant to Federal Rule of Criminal Procedure (“Rule”) 29 and a new trial pursuant to Rule 33. (See Post-Trial Mot. (Doc. No. 74).) The government opposes the motion. (Govt.'s Opp'n (Doc. No. 79).) For the following reasons, the Court denies Flom's motion in its entirety.

         BACKGROUND

         I. Pre-Trial Proceedings

         A. The Allegations

         On September 22, 2014, a grand jury returned an indictment charging the defendant Jonathan P. Flom, a licensed attorney, with one count of money laundering in violation of 18 U.S.C. § 1956(a)(3)(A). The indictment alleged, inter alia, that in or about September 2013, Flom met with an undercover FBI agent using the fictitious name “Max Larsen” (“Larsen” or the “UC”), who was posing as a person engaged in the sale of fraudulent stock certificates to investors. Flom was introduced to Larsen by Cecil Franklin Speight, an individual with whom Flom had been involved in a prior, uncharged money laundering scheme (the “Speight Scheme”). Flom agreed to participate in a scheme with Larsen (the “UC Scheme”), one modeled on the Speight Scheme, to launder proceeds of the sale of fake stock certificates. Between December 2013 and April 2014, Flom received over $141, 000 in checks and wire transfers into his bank account - funds that he believed to be the proceeds of fraudulent stock sales, but were in fact sent from covert FBI accounts. Flom transferred these funds, minus a 5% fee, to an account maintained in Queens, New York that, unbeknownst to Flom, was controlled by the FBI.

         B. Motion to Change Venue

         Flom moved to change the trial venue from the Eastern District of New York (the “EDNY”) to the Southern District of Florida, pursuant to Rule 21(b). (See Mot. Change Venue (Doc. No. 20).) Following full briefing from both parties and oral argument, the Court issued a Memorandum and Order denying Flom's motion, holding that Flom had not met his burden of demonstrating that a trial in the EDNY was so unduly burdensome as to overcome the presumption in favor of retaining a criminal prosecution in the district in which it was initially filed. See United States v. Flom, No. 14-CR-507, 2015 WL 6506628, at *2-3, 10-11 (E.D.N.Y. Oct. 27, 2015). In denying Flom's motion, the Court found, inter alia, that Flom had not shown with specificity the burdens any potential defense witness would face by travelling to New York. See Id. at *4-5. The Court noted that any factors that weighed in favor of transfer were largely mitigated by the expected short length of the trial, and that the “strong nexus to and impact on New York through the evidence and witnesses” as well as the interests in “judicial economy borne of the related cases” supported keeping the case in the EDNY. Id. at *10-11.

         C. Motion to Admit Evidence of Prior Money Laundering Scheme

         Prior to trial, the government moved in limine pursuant to Rule 404(b) to admit evidence of Flom's involvement in the Speight Scheme, a prior uncharged money laundering scheme with Cecil Franklin Speight. (See Govt.'s Mot. Lim. (Doc. No. 32).) As discussed more fully infra, the government intended to demonstrate through recordings, emails, witness testimony, and other evidence that Flom knowingly engaged in the Speight Scheme, which was the model for the charged UC Scheme. (See id.) According to the government, Speight, the former president and sole owner of registered transfer agent International Stock Transfer, Inc. (“IST”), engaged in an offering fraud in which he and those acting on his behalf solicited potential investors and offered them high-yield investments. (See Id. at 2-3; see also 6/21/16 Tr. at 141:8-144:22.)[1] These victim investors would be instructed to send their money to bank accounts maintained by licensed attorneys, including Flom, to give the transactions an air of legitimacy. (See Govt.'s Mot. Lim. at 2-3.) The licensed attorneys would then take a percentage of the proceeds and transfer the remainder to bank accounts controlled by Speight. (See id.)

         By the end of Summer 2013, FBI agents approached Speight regarding his role in the Speight Scheme, and in an effort to cooperate with law enforcement, Speight agreed to introduce Larsen to Flom. (See id.) On September 19, 2013, Speight informed Flom that he would like to introduce him to “a guy that's gotta group” who does the “same thing” as was done in the Speight Scheme, i.e., had the “same, you know set up where the money has to come through you and you get a fee.” (See GX 100-A-T at 1:21-2:6.) Over the next several months, Speight, Larsen, and Flom had several conversations to discuss the implementation of the money laundering scheme charged in the instant case - the UC Scheme. (See Govt.'s Mot. Lim. at 2-3.) The government presented evidence of those conversations where Flom, Larsen, and Speight discussed how the UC Scheme would operate in the same manner as the Speight Scheme and would use the same fraudulent stocks, Adfitech and Altmark, as the Speight Scheme. (See id.)

         In its motion in limine, the government moved to admit evidence of the Speight Scheme under two theories: (1) as direct evidence of Flom's involvement in the UC Scheme because it establishes the background of how Larsen met Flom and how the UC Scheme began; and (2) under Federal Rule of Evidence 404(b) (“Rule 404(b)”) as proof of Flom's intent, knowledge, and the absence of any mistake or accident in his use of the same bank account in the UC Scheme as he used in the Speight Scheme. (See Id. at 3-6.) The government argued that there was no danger of undue prejudice to Flom because the evidence of Flom's money laundering as part of the Speight Scheme was no more serious or sensational than the evidence of Flom's money laundering as part of the UC Scheme. (See, e.g., id. at 6-7.) Moreover, the government argued that even if there was a risk of undue prejudice, a limiting instruction could mitigate such risk. (See id.) Flom opposed the motion, and requested that if the Court were to admit the evidence, that it also provide a limiting instruction. (See generally Def.'s Opp'n Mot. Lim. (Doc. No. 43).)

         After full briefing and oral argument, the Court granted the government's motion in limine to admit evidence of the Speight Scheme pursuant to Rule 404(b). (See generally 6/16/16 Tr.) The court held that evidence of the Speight Scheme was admissible because it was probative and relevant to how Flom came to meet and trust Larsen and to Flom's knowledge of the UC Scheme's fraudulent nature. (See 6/16/16 Tr. at 14:6-15:10.) The UC Scheme was modeled on the Speight Scheme, came about through Speight's introduction of Flom to Larsen, involved the same certificates as the Speight Scheme, and involved Flom playing the same role and using the same account as he did in the previous scheme - albeit receiving a greater fee for his efforts. The Court also held that witness testimony from Robert Thibault, a former investigator with the Royal Bank of Canada (“RBC”) who informed Flom that his account was being closed because RBC believed it was being used for the illegal sale of “bogus securities, ” was admissible to show that Flom had been placed on notice of the Speight Scheme's fraudulent nature. (See Id. at 17:11-24:4, 26:11-36:4.) The Court gave a limiting instruction - modeled largely after the one requested by Flom's counsel - both during the presentation of evidence and during the closing charge to the jury.[2] (See 6/22/16 Tr. at 523:15-524:19; 6/24/16 Tr. at 827:10- 828:10.)

         D. Conscious Avoidance Instruction

         The government also requested that the jury be given a conscious avoidance instruction. (See 6/22/16 Tr. at 441:15-442:4.) After full briefing and oral argument, the Court ruled that the conscious avoidance instruction would be given.[3] (6/23/16 Tr. at 570-572.)

         II. Evidence at Trial

         A jury trial commenced on June 20, 2016. The government's evidence at trial included the testimony of five witnesses. Flom's evidence at trial included the testimony of two character witnesses. The evidence established the following facts, which are relevant to the instant motion:

         A. Testimony of Max Larsen and the Consensual Recordings

         The government's key witness at trial was FBI Special Agent Max Larsen, the undercover agent who Flom believed was selling fraudulent securities and for whom Flom agreed to launder money. During his testimony, Larsen walked the jurors through a number of errors on an Adfitech stock certificate that one of the Speight Scheme victims, Janell Beck, had received. (GX 501-508.) Larsen testified that it was a “fake certificate.” (6/21/16 Tr. at 194:24-25.) He explained that (1) the certificate incorrectly listed Florida - as opposed to Delaware - as the state of incorporation; (2) the certificate was not signed by the actual CEO of Adfitech, but rather by a bartender who worked for IST; (3) the certificate listed IST as the transfer agent for Adfitech, even though IST was not the registered transfer agent; and (4) the certificate listed 1, 500 shares in one place and 3, 000 shares in another place. (Id. at 194:20- 196:1.) Larsen testified that the numerical discrepancy in shares alone rendered the certificates invalid. (Id.) Larsen also testified that Altmark, another of the fraudulent securities sold as part of the Speight Scheme, was a bond that had never made a coupon payment, which rendered the security essentially worthless. (See Id. at 140:13-141:7, 242:8-24.)

         Moreover, during Larsen's testimony, the government admitted, without objection, an exhibit containing excerpts from various calls and in-person meetings with Flom. (See Government's Exhibit (“GX”) 100.) These consensual recordings were played for the jurors and Larsen testified afterwards about certain portions of the recordings. Key excerpts of the recordings and corresponding testimony were as follows:

         i. September 19, 2013: Call Between Flom and Speight

         Larsen first gave a brief overview of the government's investigation into Frank Speight and its discovery that Speight had been “selling fake stock certificates that were actually being printed out on a laser printer.” (See 6/21/16 Tr. at 142:11-21.) Larsen then explained that Speight agreed to introduce him to some of his associates, including Flom. (See Id. at 143:21- 144:16.) On September 19, 2013, Speight recorded a phone conversation with Flom where he informed him that he was setting up a meeting with “a guy that's gotta group” who does the “same thing” as was done in the Speight Scheme, i.e., had the “same, you know set up where the money has to come through you and you get a fee.” (See GX 100-A-T at 1:21-2:6.) Moreover, Speight informed Flom that he advocated for a 5% fee for Flom's participation. (See id.)

         ii. September 26, 2013: In-Person Meeting with Flom, Larsen, and Speight

         On September 26, 2013, Flom met in person with Larsen and Speight. Speight informed Flom that Larsen wanted to “replicate” the structure of the Speight Scheme. (See GX 101-B-T at 12:16-24.) Larsen testified at trial that prior to the meeting, Speight had been directed by the FBI to portray the UC Scheme as “the same scheme” that Speight and Flom had been involved in previously, just with Larsen stepping in as the person selling the fake certificates. (See 6/21/16 Tr. at 163:2-17.) At the meeting, Larsen tells Flom about an inexperienced attorney he had previously worked with where the bank raised “red flags, ” (GX 101-B-T at 10:5-34), and asked Flom what he would do to make sure “red flags aren't . . . getting raised.” (See GX 101-E-T at 1:18-30.)

         At the meeting, Flom repeatedly made comments indicating that he was willing to participate in the UC Scheme, even though Larsen was committing fraud. For example, after discussing the paperwork that would accompany the transactions, Flom stated, “whatever you do in your shop is for you.” (GX 101-E-T at 4:6-21.) Similarly, after comparing the certificates that customers would buy from Larsen to a jug of milk, Flom stated, “You wanna go into a store and buy a jug of milk, go and buy a jug of milk. . . . I don't have to sit there and go oh well wait a second . . . how long's it been sitting in your bank before you send it out. I could give a rat's ass.” (See GX 101-G-T at 3:6-40.) Flom then requested a quarter “retainer” from Larsen and stated that he, Larsen, and Speight enjoyed a “protected triangle” but that “I don't have ta [sic] you know everything that you do I DO NOT capital letters DO NOT have to know . . . everything that you do, when you do it, why you do it right just what we were talkin' about with the milk sitting on the shelf in the store.” (GX 101-G-T at 8:22-34.) Larsen responded to Flom, “[A]t the end of the day . . . you don't give a shit what we're sellin' on the other side” and apologized for being “crass, ” to which Flom replied, “It's not crass . . . it's being blunt and direct. . . . I'm not one of these people . . . [w]ho cares what you do . . . You do what you do.” (GX 101-L-T at 1:24-2:22.)

         At the very end of the meeting, Flom told Larsen that “we're here to make money . . . and to protect our wingman” before going on to quote “The Charge of the Light Brigade, ” saying that he is willing to “go to war.” (See Id. at 4:22-7:38.) Flom then comments that the letters of his name, F-L-O-M, stand for “For Love of Money.” (Id. at 8:6-7.) At no point during or after this meeting did Flom question the arrangement that had been proposed, say he was uncomfortable, or express any reservations about working with Larsen. (See 6/21/16 Tr. at 193:5-11.)

         iii. December 6, 2013: Call Between Flom and Larsen

         Larsen testified that after the September 2013 meeting, the FBI experienced funding issues that prevented them from beginning to start sending payments from purported investor-victims to Flom. (See 6/21/16 Tr. at 196:5-18.) On December 6, 2013, Larsen called to make excuses as to why he had not yet started doing business with Flom. (See Id. at 197:2-10.) Larsen expressed that he was still interested in doing business with Flom and clarified that he would be selling certificates for Adfitech stock. (See id.) On the call, Larsen expressed surprise that some of the purported investor-victims were “actually calling [him] back” and asking for more securities. (See GX 102-B-T at 1:1-12.) He then said, “Yeah let me, let me warm up the laser printer and we'll get you some more of those” even though, according to Larsen's testimony, a broker dealer may never print securities. (See id.) Flom never expressed any concern about Larsen's comment that he could print additional certificates off his laser printer. (See 6/21/16 Tr. at 202:5-8.) Larsen also told Flom not to ‚Äúpick up the phone if I'm gonna try to ...


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