Wednesday, June 18th, 2014

Evidence of Domestic Transactions Was Sufficient To Sustain Securities Fraud Convictions

United States v. Mandell, No. 12-1967-cr(L) (2d Cir. May 16, 2014) (Wesley,  Carney, and Wallace) (per curiam), available here 

Ross Mandell and Adam Harrington were convicted, after a jury trial, of various substantive and conspiratorial counts of securities fraud, wire fraud, and mail fraud. Mandell was sentenced principally to 144 months in prison; Harrington got 60 months.

The defendants’ central contention on appeal was that the government failed to present sufficient evidence of domestic securities transactions under Morrison v. National Australia Bank Ltd., 561 U.S. 247 (2010), and United States v. Vilar, 729 F.3d 62 (2d Cir. 2013). The Circuit disagreed, citing evidence that certain investors in certain transactions were required to submit purchase applications and payments to a company in the United States. The Court, viewing the evidence in the light most favorable to the government, held that a rational jury could have found the essential elements of the offenses, including the domestic nature of the fraudulent transactions, beyond a reasonable doubt.

The Circuit also rejected the defendants’ challenge to the jury instructions regarding extraterritoriality. The Court appeared to agree that the instructions were flawed under Morrison, but concluded that the error was harmless because the evidence of domestic fraud was sufficient to convict, “which means that if the jury had been instructed [properly], it would still have necessarily reached the verdict it did.”

The Court went on the reject the defendants’ other challenges to their convictions, including claims that the jury should have been instructed regarding foreign law, that the jury instructions improperly allowed the jury to convict absent an “actual misrepresentation,” that the evidence was insufficient to establish any “material misrepresentation” or a duty to disclose commission payments, and that witnesses were improperly allowed to testify that certain conduct was illegal.

Finally, the Court upheld the reasonableness of the defendants’ sentences, except for a forfeiture order, which should have made the defendants jointly and severally liable.

Commentary: This decision contains a serious legal error. The panel held that the apparently flawed instruction under Morrison was harmless simply because the evidence was sufficient to convict when viewed most favorably for the government. The sufficiency standard, however, has no place in harmless-error analysis. The question in harmless-error analysis is not whether any rational juror could have convicted the
defendants absent the error, but rather whether the error likely affected
the defendants’ “substantial rights” by influencing the actual jury’s
decision. “The inquiry, in other words, is not whether, in a trial that
occurred without the error, a guilty verdict would surely have been
rendered, but whether the guilty verdict actually rendered in this trial
was surely unattributable to the error
.” Sullivan v. Louisiana, 508 U.S.
275, 279 (1993). And the Supreme Court has
expressly declared that “harmless-error inquiry is entirely distinct from a
sufficiency-of-the-evidence inquiry.” United States v. Lane, 474 U.S. 438,
450 n.13 (1986).

In light of these Supreme Court decisions, the Circuit was wrong to hold that the alleged instructional error was harmless simply because the evidence of domestic transactions, when viewed most favorably for the government, was sufficient to convict. And it was wrong to say that the mere fact that the evidence was sufficient to convict “means that if the jury had been instructed [properly], it would still have necessarily reached the verdict it did.”

The defendants have both filed petitions for rehearing and rehearing en banc. Stay tuned for further developments.

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