Opinion
S1 02 Cr. 1144 (BSJ)
February 5, 2004
Opinion
Defendant Scott D. Sullivan is charged with knowingly making or causing to be made false statements in various SEC-required reports and in loan and credit applications, pursuant to 15 U.S.C. § 78ff and 18 U.S.C. § 1014, as well as with conspiracy to commit securities fraud and bank fraud On October 7, 2003, Defendant submitted a Motion to Dismiss the Superceding Indictment for Vagueness and Lack of Specificity, premised in part on the argument that the Superceding Indictment ("Indictment") was unconstitutionally vague because it failed to identify the specific statements in the reports filed with the SEC In this motion, Defendant argues that Court should dismiss the Indictment because it lists only the documents that allegedly contain the false statements but does not "point to a sentence, a Paragraph, or even a page in a report that allegedly contains a false statement, and does not specify the Generally Accepted Accounting Principles ("GAAP") Defendant allegedly violated. (Memorandum of Law in Support of Defendant Scott D. Sullivan's Motion to Dismiss the Superceding Indictment for Vagueness and Lack of Specificity ("Def's Mem.") at 3, 20).
Section 32 of the Securities and Exchange Act states that "any person who willfully and knowingly makes, or causes to be made, any statement in any report or document required to be filed under this title which statement was false or misleading with respect to any material fact " 15 U.S.C. § 78ff (a).
18 U.S.C. § 1014 provides criminal liability for any person who "knowingly makes any false statement or report for the purpose of influencing in any way the action of any institution the accounts of which are insured by the Federal Deposit Insurance Corporation " 18 U.S.C. § 1014.
At a hearing on December 8, 2003 the Court denied Defendant's motion to dismiss and advised the parties that a written opinion would follow.
A. Whether the False Statement Charges in the Superceding Indictment Are Unconstitutionally Vague and Fail to Apprise Defendant of What he Must Meet at Trial
The Sixth Amendment guarantees that, "`In all criminal prosecutions, the accused shall enjoy the right, . . . to be informed of the nature and cause of the accusation; . . .'" Russell v. United States, 369 U.S. 749, 761 (1962) (quoting U.S. Const. amend. VI). This right is furthered, in part, by the requirement that indictments contain an adequate description of the charges against a defendant. See United States v. Alfonso, 143 F.3d 772, 776 (2d Cir. 1998).
Rule 7(c) of the Federal Rules of Criminal Procedure sets forth the minimum pleading standards that apply to indictments. It requires that an indictment contain a "plain, concise and definite written statement of the essential facts constituting the offense charged . . . Fed.R.Crim.P. 7(c). Thus it is well-settled that "`an indictment is sufficient if it, first, contains the elements of the offense charged and fairly informs a defendant of the charge against which he must defend, and, second, enables him to plead an acquittal or conviction in bar of future prosecutions for the same offense "`Alfonso, 143 F.3d at 776 (quoting Hamilton, 418 U.S. at 117).
When analyzing the sufficiency of an indictment, `'common sense and reason prevail over technicalities."' United States v. Sabbeth, 262 F.3d 207, 218 (2d Cir. 2001). Therefore, in determining whether a count of an indictment sufficiently alleges an offense, the indictment should be read in its entirety, see United States v. Hernandez, 980 F.2d 868, 871 (2d Cir. 1992), and should be "read to include facts which are necessarily implied by the specific allegations made." United States v. Stavroulakis, 952 F.2d 686, 693 (2d Cir. 1992).
In fact, the Second Circuit has repeatedly upheld indictments that "do little more than to track the language of the statute charged and state the time and place (in approximate terms) of the alleged crime."Alfonso, 143 F.3d at 776 (quoting Stavroulakis, 952 F.2d at 693); see also Hamling v. United States, 418 U.S. 87, 117 (1974)("It is generally sufficient that an indictment set forth the offense in the words of the statute itself. . . ."). However, the Supreme Court and the Second Circuit have mandated that have mandated that where a definition of an offense "includes generic terms, it is not sufficient that the indictment shall charge the offence in the same generic terms as in the definition; but it must state the species, — it must descend to particulars." Russell, 369 U.S. at 765 (citing United States v Cruikshank, 92 U.S. 542, 558 (1875)).
The Second Circuit, however, has "repeatedly refused, in the absence of any showing of prejudice, to dismiss charges for lack of specificity."United States v. Walsh, 194 F.3d 37, 45 (2d Cir. 1999) (citation omitted);see also United States v. Pope, 189 F. Supp. 12, 16-17 (S.D.N.Y. 1960) ("[T]he test of [an indictment's] sufficiency is not whether it could have been more artfully drawn, or made more definite and certain. The true test is whether the indictment sufficiently apprises the defendants of the crimes charged against them so as to enable them to prepare their defense and to plead any judgment entered thereunder as a bar to further prosecution for the same offense ")
These standards apply with equal force in the context of securities fraud prosecutions. See, e.g., Unites States v. Heredia, No. 02 Cr. 1246(SWK), 2003 WL 21524008 (S.D.N.Y. July 3, 2003) (finding sufficient an indictment alleging securities fraud and wire fraud that contained extensive factual allegations as to the defendant's agreement to enter into a conspiracy and his alleged involvement in it, and identified the approximate dates and locations of the alleged conspiracy); United States v. Rittweger, 259 F. Supp.2d 275, 287-88 (S.D.N.Y. 2003) (holding adequate an indictment charging securities fraud where the indictment tracked the language of the statutes and provided particulars sufficient to provide notice to the defendant and to permit the defendant to plead double jeopardy); see also United States v. Labate, No. S1 00 Cr. 632(WHP), 2001 WL 533714, *3-6 (S.D.N.Y. May 18, 2001); United States v. Ferrarini, 9 F. Supp.2d 284, 295-97 (S.D.N.Y. 1998).
1. Alleged Failure to Identify Specific False Statements in Filed Reports
Defendant argues that the Indictment is unconstitutionally vague and does not adequately apprise him of the specific charges against him, as is mandated by the Sixth Amendment and the Federal Rules of Criminal Procedure Rule 7 The Court finds, to the contrary, that the Indictment meets, and exceeds, the requirements of both the Constitution and the Federal Rules of Criminal Procedure In fact, the Indictment provides abundant detail and more than adequate notice to the Defendant of the pending charges
The Indictment in this case is 36 pages in length and provides the details of the conspiracy in 49 paragraphs These paragraphs are then re-alleged and incorporated in each of the following counts of the Indictment, and therefore furnishes additional particularity regarding the alleged illegal behavior in each of the other counts. Specifically, the Indictment "explicitly alleges that Defendant falsely booked and concealed line cost entries, that the false booking and concealment "lower[ed WorldCom's] publicly reported expenses," and thereby assured that "WorldCom's reported earnings exceeded its actual earnings for the period from October 2000 through April 2002. (Ind. ¶ 45). It indicates the portions of WorldCom's financial statements that were allegedly affected, including "operating expenses," "net income," "the value of the company's capital assets," "liabilities," "EBITDA," and "line costs expressed as a percentage of overall company revenues," (see Ind. ¶ 10, 45, 57(d)), and approximates the amounts by which the reports misstated the figures. (Ind. ¶ 58). Similarly, with respect to the bank fraud charges, the Indictment specifies the alleged documents and the false aspects therein that WorldCom submitted to the banks in connection with securing credit lines and loans (Ind ¶¶ 46-49, 55-56, 64-66).
In United States v. Bernstein, 533 F.2d 775 (2d Cir. 1976), a case similar to this one, the Second Circuit upheld an indictment charging defendants, inter alia, with violating 18 U.S.C. § 1010 by making false statements in applications for mortgage insurance submitted to the Federal Housing Administration. Defendants challenged the indictment on the grounds that it "fail[ed] to specify or identify the specific statements alleged to be false." Id. at 785. The Court found that the indictment did not violate the Constitution or Rule 7(c) because, even though it did not identify the statements, it nonetheless tracked the language of the statute, specified the time and place of the transaction, and identified the particular false documents in which the allegedly false statements appeared. Id. at 786. "While some identification is required . . . it is not necessary that the indictment itself go into evidentiary matters" Id. (internal citations omitted). The Court went on to note that it is "just for this reason that a bill of particulars . . . may be sought." Id. at 786-87. (holding that "[t]he indictment as amplified by the bill of particulars made clear to the appellants what was the nature and cause of the Government's case and gave them ample opportunity to prepare their defense")
18 U.S.C. § 1010 provides criminal liability for "Whoever, for the purpose of obtaining any loan or advance of credit from any person with the intent that such loan or advance of credit shall be offered to or accepted by the Department of Housing and Urban Development for insurance loan, advance of credit, or mortgage insured by such Department makes, passes, utters or publishes any statement, knowing the same to be false " 18 U.S.C. § 1010.
Defendant attempts to distinguish this case by arguing that the documents at issue in Bernstein were false in their entirety, while the Indictment here does not allege that the entire 200-plus page 10-K or 10-Q reports were false or fraudulent (Def's Mem. at 18-19). This argument fails because, regardless of the number of pages of the reports, the clarity of the Indictment is undeniable It clearly focuses on the reduction and concealment of line cost expenses and how that resulted in false statements.
Defendant's reliance on the decision in United States v. Pope, 189 F. Supp. 12 (SONY 1960), is unpersuasive In that case, Judge Weinstein upheld an indictment charging criminal liability pursuant to a false statements statute in part because the indictment specified "the precise paragraph of the registration statement wherein it is alleged the defendants misstated, and omitted to state, material facts " Pope, 189 F. Supp at 17 The Court does not read Pope, however, to mandate that all indictments contain such precision.
There is no precedent that requires that indictments identify each and every statement the Government might argue at trial is false.
Defendant's argument that "(c)ourts in other jurisdictions have consistently held that specifics, such as the precise false statements, that describe the particular conduct at issue must be alleged in the indictment, and the failure to include such required specifics warrants reversal of convictions" is unavailing (Def's Mem. at 15) (citing United States v. Nance, 533 F.2d 699 (D.C. Cir. 1976), United States v. Curtis, 506 F.2d 985 (10th Cir. 1974) and United States v. Winchester, 407 F. Supp. 261 (D. Del. 1975) A simple comparison of these cases to the one at issue, however, shows that they are easily distinguishable on their facts See Nance, 533 F.2d at 700 (wire fraud and obtaining something of value by false pretenses with intent to defraud) Curtis, 506 F.2d at 985-86 (mail fraud), Winchester, 407 F. Supp at 263 64, 274 (submission of false purchase orders to the Department of Housing and Urban Development) Moreover, the short answer is that the Indictment in this case provides more than sufficient detail to meet all legal requirements.
Notably, the concerns that motivate enforcement of the rule requiring detail in an indictment are absent in this case. `Specifically, the Indictment, bolstered by the supplemental materials produced by the Government[,] sufficiently detail the charges and statements such that the Government would be prevented from presenting evidence or arguments regarding allegedly false statements that do not reflect the line-cost shifting scheme and resultant inflated worth of WorldCom described in the Indictment. Cf. United States v. Silverman, 430 F.2d 106, 112 (2cf Cir. 1970) ("No one could suppose that the prosecutor would be free to roam at large in proving elements of the crime so explicitly stated."). Likewise, the level of specificity more than adequately allows the Defendant to prepare his defense and would allow Defendant to plead double jeopardy at a future proceeding.
On September 4, 2003, the Court directed the Government to provide a list of the statements in the 10-K and 10-Q Forms that it intended to offer at trial in support of the false statement and bank-fraud counts This list provides information above and beyond what is required of an Indictment, and was ordered produced not because of the alleged insufficiencies of the Indictment but to facilitate and expedite the trial.
Defendant asserts, incorrectly, that "Mr Sullivan has no way of knowing which statements the Government will try to prove as false at trial " (Def's Mem. at 19) This alleged lack of clarity, if it ever existed, is remedied by the materials recently turned over by the Government, which specify the range of statements that the Government intends to prove at trial Although Defendant additionally argues that the Government should be ordered to state definitively which statements theywi11 use, rather than those they might use the Court does not believe that it is either necessary or proper to limit the Government in that respect The information that the Government has now provided is more than sufficient for Defendant to prepare his defense.
It is undisputed that the Indictment tracks the language of the statutes that Defendant is charged with violating. (See, e.g., Ind. ¶¶ 62, 64, 66). The Indictment, however, goes well beyond the general wording of the statutes and clearly explains which accounting measures the Government alleges Defendant took that it considers improper, how those measures affected WorldCom's financial statements, and what portions of WorldCom's reports and documents were allegedly rendered false and misleading by this conduct. Therefore, Defendant (and the jury) need not speculate about how his alleged line cost shifts impacted WorldCom's financial statements or what aspects of those statements were rendered false and misleading.
Accordingly, Defendant's motion to dismiss the Indictment on this ground is denied
2. Alleged Constitutional Violation for Vagueness, Creating Risk of Duplicity
An indictment that charges two or more distinct crimes in a single count can be considered "duplicitous." United States v. Murray, 618 F.2d 892, 896 (2d Cir. 1980). Duplicitous indictments can be subject to dismissal because "a general verdict of guilty on a duplicitous count will not reveal whether the jury reached a unanimous verdict on each offense and `whether the jury found defendant guilty of only one crime and not the other, or guilty of both." United States v. Crisci, 273 F.3d 235, 238 (2d Cir. 2001) (quoting Murray, 618 F.2d at 896).
Defendant argues that because the Indictment fails to specify the false statements within the reports and documents, "it is unclear as to whether the [false statement] counts are duplicitous; yet, they nonetheless create the same risks of constitutional deprivation as a duplicitous indictment." (Def's Mem. 25). Defendant reasons that because each of the reports contain hundreds of entries, and "because the false statements counts provide no specificity, the jury will be free to pick and choose among various entries, and the possibility exists that different jurors could determine that different statements in the reports were false." (Def's Mem. at 26-27).
As addressed in the preceding section, the Court does not find the Indictment unconstitutionally vague. Moreover, while WorldCom's reports do contain hundreds of entries, the Indictment charges specific accounting entries (e.g., earnings, assets, capital expenditures and expenses) that the jury will be able to consider without risk of confusion. This level of detail in the Indictment satisfies applicable pleading standards.
In addition, even if Defendant's argument persuaded the Court of a risk of jury non-unanimity, the Court would properly remedy this problem by providing specific instructions with respect to unanimity on the false statement, not by dismissing the Indictment wholesale. See United States v. Stern, No. 03 Cr. 81(MBM), 2003 WL 22743897, *2 (S.D.N.Y. Nov. 20, 2003) (citing Crisci, 273 F.3d at 239, for the proposition that "[a]n indictment may charge more than one false statement in the same count, so long as the jury is instructed that it must agree unanimously both that the defendant made at least one of the charged false statements, and which statement that was").
Therefore, Defendant's motion on this claim is denied.
3. Alleged Constitutional Violation for Failure to State Which Generally Accepted Accounting Principles Were Violated
Defendant argues that the Indictment should be dismissed because it allegedly does not specify "a single rule or provision of GAAP, or any other source of authoritative accounting literature, that was allegedly violated by the accounting described in the Indictment." (Def's Mem. at 20).
The Court disagrees. Contrary to Defendant's assertion, the Indictment sufficiently describes the relevant accounting principles involved. (See Ind. ¶¶ 7-10). It specifically alleges that operating expenditures should be treated differently from capital expenditures, (Id. ¶ 9), and details how the transfers of, line cost operating expenses allegedly produced misstatements in WorldCom's income statement by, for example, reducing WorldCom's operating expenses by the amount of the transfer and thereby increasing the company's net income by the same amount. (Id. ¶ 10).
The Court declines to hold that an indictment charging violations of GAAP is unconstitutionally vague just because it does not cite to reference books and other materials. The Government will bear the burden of proving at trial that the methods it alleges are "GAAP" are in fact principles generally accepted by the accounting community; however, the Government does not have to prove this beyond a reasonable doubt at the indictment stage. Cf. United States v. Triumph Capital Group, Inc., 260 F. Supp.2d 470, 473 (2d Cir. 2003)("[W]hen considering a motion to dismiss an indictment, the Court must not conflate or confuse permissible claims based on sufficiency of the government's allegations with impermissible claims based on sufficiency of the government's evidence.")
Defendant has been presented with adequate information regarding which accounting methods the Government alleges is generally accepted and which principles he allegedly violated for him to prepare a defense. Therefore, Defendant's motion is denied.
4. Motion to Dismiss Based on Risk of Lack of Grand Jury Unanimity
Defendant makes several arguments as to why the Indictment should be dismissed based on speculation about the evidence presented to the grand jury. First, Defendant argues that because the allegedly false statements are not set forth in the Indictment, there is no way of knowing which statements were determined by the grand jury to be false. (Def's Mem. at 5-6). Second, Defendant asserts that, due to the vagueness of the Indictment, there is no guarantee that the grand jury was unanimous on which statements were in fact false. (Id. at 12).
a. Legal Standard
"[A] presumption of regularity attaches to any indictment valid on its face and returned by a duly constituted grand jury." Stern, 2003 WL 22743897, at *3 (citing Costello v. United States, 350 U.S. 359, 363 (1956)). Courts infrequently dismiss indictments based on alleged improprieties relating to the grand jury, but can do so "for prosecutorial misconduct if the grand jury was misled or misinformed . . . or possibly if there is `a history of prosecutorial misconduct, spanning several cases, that is so systematic and pervasive as to raise a substantial and serious question about the fundamental fairness of the process.'" United States v. Brito, 907 F.2d 392, 394 (2d Cir. 1990) (quoting Bank of Nova Scotia v. United States, 487 U.S. 250, 259 (1988) (citations omitted). However, "speculation and surmise" as to what occurred before the grand jury is not sufficient to overcome the presumption of regularity accorded to grand jury proceedings. United States v. Gibson, 175 F. Supp.2d 532, 534 (S.D.N.Y. 2001) (quoting United States v. Wilson, 565 F. Supp. 1416, 1436 (S.D.N.Y. 1983)).
Similarly, it is well-established that an indictment, "if valid on its face, may not be challenged on the ground that it is based on inadequate evidence." United States v. Casamento, 887 F.2d 1141, 1182 (2d Cir. 1989); see also United States v. Williams, 504 U.S. 36, 54 (1992) (quotingCostello, 350 U.S. at 363-364, for the proposition that, "`[i]t would run counter to the whole history of the grand jury institution' to permit an indictment to be challenged `on the ground that there was inadequate or incompetent evidence before the grand jury'").
b. Analysis
As the Court has held previously, the Indictment in this case is facially proper. Therefore, the Court would grant Defendant's motion to dismiss only if he overcame the presumption of that surrounds grand jury proceedings. Defendant. however, fails to allege or prove any prosecutorial misconduct and fails to articulate any other facts "sufficient to overcome this presumption.
Moreover, Defendant's argument that the Indictment should be dismissed because there is no way to determine which false statements were presented to the grand jury was specifically rejected in Bernstein, discussed supra. The Bernstein Court upheld the false statements count of the Indictment, despite its failure to specify the actual false statements, in the face of Defendant's argument that this failure "allows no way of determining whether each false statement for which [the Defendants] were prosecuted was indeed the false statement that was considered by the grand jury." Bernstein, 533 F.2d at 787. The Court specifically rejected the idea that a court was required to hold defective an indictment "for failure to specify each false statement." Id. at 787.
Defendant argues that the Court should dismiss the indictment underUnited States v. Fried, 450 F. Supp. 90, 93-95 (S.D.N.Y. 1978). In that case, the court dismissed several counts of an indictment brought under 18 U.S.C. § 1001, the general false statements statute, because the indictment set forth only the reports in which the false statements allegedly appeared and not the actual statements themselves. The Court stated that the failure to allege the specific false statements "renders impossible any acceptable degree of confidence that the grand jury genuinely knew what it was doing, and genuinely did what the Government would now tell us was done, when it agreed to the list." Id. at 94. This case, however, is factually distinguishable from the instant case because the indictment in Fried alleged six or more different ways in which the forms submitted were false, but did not specify in which way each of the charged filings was false. In contrast, the Indictment in this case provides a specific and detailed account of Defendant's alleged crimes, including the statements in WorldCom's filings that were allegedly rendered false as a result of Defendant's line cost transfers.
Additionally, Defendant's suggestion that the grand jury was not supplied with sufficient evidence to determine that probable cause existed to believe that the factual statements that the Government will present at trial were actually false is not an appropriate basis for a motion to dismiss. See Williams, 504 U.S. at 54.
Therefore, because Defendant has not overcome the presumption of regularity that attaches to the grand jury proceedings and has not asserted another proper basis for dismissal of the indictment, his motion is denied.
5. Request for Production of Grand Jury Minutes
In addition to his Motion for Dismissal, Defendant requests that the Court order the Government to turn over the minutes of the grand jury proceedings either to the Defendant or to the Court for in camera inspection. (Ltr. from Deft, to the Hon. Barbara S. Jones, dated Jan. 6, 2004, at 1). According to Defendant, the supplemental discovery the Government produced to Defendant contained such a multitude of allegedly false statements that it intends to use at trial that there is a "strong likelihood that few, if any, of these statements were presented to, and considered by, the grand jury," particularly in light of the AUSA's previous representation to the Court that there would be "a very finite, directed number of statements." (Id.) (citing 9/4/03 Tr. at 60).
a. Legal Standard
The secrecy of the grand jury proceeding is central to our criminal justice system? See United States v. Proctor Gamble Co., 356 U.S. 677, 682 (1958). As a result, "a party seeking disclosure of grand jury minutes in this Circuit confronts a stringent standard, namely, he must `show a particularized need that outweighs the government's strong interest in secrecy.'" United States v. Brown, No. 95 Cr. 168(AGS), 1995 WL 387698, *7 (S.D.N.Y. June 30, 1995) (quoting United States v. Moten, 582 F.2d 654, 662 (2d Cir. 1990)); see also Fed.R.Crim.P. 6(e)(3)(C)(11) (prohibiting disclosure of matters occurring before a grand jury, except "upon a showing that grounds may exist for a motion to dismiss the indictment because of matters occurring before the grand jury").
In fact, a review of grand jury minutes is rarely permitted without specific factual allegations of governmental misconduct See Moten, 582 F.2d at 662; see also Stern, 2003 WL 22743897, at *3 ("Therefore, absent any indication of government impropriety that would defeat [the] presumption [of regularity] this court has no roving commission to inspect grand jury minutes, and will not fashion one ") This standard applies not only to production of grand jury minutes to a defendant, see United States v. Sells Eng'g, 463 U.S. 418, 443 (1983) (mandating a defendant seeking disclosure of grand jury minutes must demonstrate a for the material sought, United States v. Abrams, 539 F. Supp. 378, 389 (S.D.N.Y. 1982) (requiring a showing of more than pure speculation"), but to production to the court for in camera inspection as well. See Brown, 1995 WL 387698, at *7 (citing United States v. Ruiz, 702 F. Supp. 1066, 1073 (S.D.N.Y. 1989), aff'd, 894 F.2d 501 (2d Cir. 1990)); see also United States v. Nunez, 2001 WL 91708, 11 (S.D.N.Y. 2001) (denying request for production of minutes to defendant and for in camera review because defendant only presented a "bald allegation" that a review of the minutes was necessary to ensure that the grand jurors were properly instructed on the controlling law)
b. Analysis
In this case, Defendant does not demonstrate a particularized need to review the grand jury minutes that overcomes the presumption of regularity or outweighs the importance of keeping grand jury proceedings secret. As noted supra, Defendant does not argue that the Government engaged in prosecutorial misconduct or any other impropriety before the grand jury. Instead, he simply argues that a review is appropriate to ensure that the grand jury considered the same statements that will be offered at trial However, " [a]negations based on belief, such as Defendants' allegations here, provide `no reason to disregard the presumption of regularity of grand jury proceedings, and do not even warrant an in camera review of the grand jury minutes. United States v. Tochelman, No. 98 Cr. 1276 (UFK), 1999 WL 294992, *2-3 (S.D.N.Y. May 11, 1999) (quotingBrown, 1995 WL 387698, at *8) (quotation marks and citation omitted).
Defendant's argument that there is no proof that any GAAP provisions were presented to Grand Jury is unpersuasive for the same reasons (Def's Mem. at 21-22).
Accordingly, Defendant's request for production of the grand jury minutes is denied.
SO ORDERED.