Opinion
01 Cr. 156 (RPP).
January 17, 2006
OPINION ORDER
On November 18, 2005, this Court issued an opinion and order in a proceeding brought by petitioner pursuant to 28 U.S.C. § 2255 for relief from his conviction for conspiracy to commit securities fraud, mail fraud and wire fraud, and the substantive crime of securities fraud. In that opinion the Court found that petitioner's rights under the Sixth Amendment to the United States Constitution had been violated because eleven plea allocutions of alleged co-conspirators had been admitted into evidence at trial without the opportunity for meaningful cross-examination. See Crawford v. Washington, 541 U.S. 36 (2004). Because of the amount of time that had elapsed since trial, the parties were ordered to file briefs by December 19, 2005, addressing the issue of whether the admission of the plea allocutions was harmless error.
STANDARD OF REVIEW
Violations of the Confrontation Clause are subject to harmless error review. See Chapman v. California, 386 U.S. 18, 24 (1967) (to be harmless, a violation of constitutional right must be "harmless beyond a reasonable doubt"); Coy v. Iowa, 487 U.S. 1012, 1021 (1988) (denial of face-to-face confrontation subject to harmless-error analysis); Delaware v. Van Arsdall; 475 U.S. 673, 681 (1986) ("an otherwise valid conviction should not be set aside if the reviewing court may confidentially say, on the whole record, that the constitutional error was harmless beyond a reasonable doubt"); United States v. McClain, 377 F.3d 219, 222-23 (2d Cir. 2004) (applying harmless error analysis to, and rejecting, Crawford claim based upon admission of guilty plea allocution);United States v. Tropeano, 252 F.3d 653, 659 (2d Cir. 2001) ("harmless error analysis applies to evidentiary errors and to violations of the Confrontation Clause").
In considering whether the trial error was harmless, the Court has to determine the importance of the error to the overall strength of the government's case, whether such error was cumulative, and the presence or absence of corroborating or evidentiary testimony on material points. Van Arsdall; 475 U.S. at 684.
DISCUSSION
As the Government points out, two cooperating witnesses, Mandaro and Peterson, testified that they participated in the conspiracy charged and had pleaded guilty to participating in it. (Gov't Letter at 11.) They described in detail the various fraudulent techniques that they and other Melville office brokers were taught by the office managers and had implemented in the course of defrauding customers such as 1) lying to customers about their experience, background, connections, clientele and income (Trial Tr. 817-19, 2107, 2111-13); 2) telling customers the broker would receive no remuneration if they purchased a House Stock (Id. at 864-65, 2106-09); 3) lying to customers about how long they would have to hold the House Stocks to profit on the purchase (Id. at 884-88, 896-97, 1002, 1166-68); 4) lying to customers to discourage them from selling their House Stocks (Id. at 898-903, 919-33, 2115-29, 2318); and 5) avoiding customer calls when they believed the customer was calling to sell a House Stock (Id. at 933-40).
Both Peterson and Mandaro acknowledged however that they faced significant jail terms and were hoping to receive 5K1 letters from the Government and non-jail sentences from the sentencing judge. (Trial Tr. at 764, 2079-80). Mandaro had had many customer complaints filed against him and admitted to lying under oath in NASD proceedings (Id. at 1068, et. al.), and that he had been arrested for issuing checks with insufficient funds. Peterson also admitted that he had had problems with drugs and alcohol (Id. at 2202), and that he had pled guilty to lying to postal inspectors (Id. at 2077.)
In addition the Government offered a substantial number of tape recordings in which various Melville office brokers made representations to their customers consistent with those Mandaro and Peterson testified were fraudulent. Included in these were several recordings of Becker in which he made various misrepresentations about having lunch with Wall Street insiders from whom he received inside information (G.X. 317 at 13, 18); the commission he was receiving (G.X. 307 at 11); and how quickly the customers would be able to profit from the purchase (G.X. 318 at 50); as well as his background (G.X. 318 at 32); earnings (G.X. 306 at 6; G.X. 317 at 11); and net worth (G.X. 306 at 9). Mandaro testified that he assisted Becker by keeping Becker's customers from selling their House Stocks (Trial Tr. at 936) and shared commissions with Becker (Id. at 950-55, 956-68; G.X. 301), but did not testify to any specific misrepresentations made by Becker.
Peterson gave no testimony about Becker's sales activities. (Trial Tr. at 2072-2134, 2140-2151). In fact, Peterson acknowledged on cross examination, "I don't know what Gregg did or what sales . . . he had" (Id. at 2294), and "I don't have any knowledge of what his actual trading was." (Id. at 2299.)
The jury also heard three witnesses who purchased House Stocks from Becker and had lost collectively nearly $100,000 from purchasing the House Stocks he had touted to them. (Trial Tr. at 1556-78, 1780-96, 2342-2365.) However the jury witnessed one of these witnesses go out of his way to shake Becker's hand after completing his testimony.
Throughout the trial defense made good use of cross-examination to show that Becker had been a recent high school graduate who had been a security guard at the building in which the Melville office was located and had been recruited by the office heads, Mangan and Grieco, as a trainee; that after acting as a cold caller for some months Becker passed a Series 7 course and became a licensed broker; that the office heads sponsored motivational sessions every morning (Trial Tr. at 1416) and another after lunch (Id. at 1418) by seasoned brokers who explained to the new brokers the "proper" way to become a successful broker and how to sell the House Stocks; that the youthful and inexperienced Becker was given an office manual on telemarketing which included books on telemarketing by a former executive of a well-known investment banking firm (Lehman Brothers) as required reading (Id. at 1421); that brokers were also given scripts misrepresenting their background, the nature of their clients, their business connections, what to say about the security they were selling, and what to say to prevent sell-orders; that the office managers emphasized their past success rate with IPOs (Id. at 1414), and were covered in the press as hobnobbing with President Clinton, Hilary Clinton, Tipper Gore, and other personages (Id. at 1405-10); that the young brokers were impressed with the office heads as business leaders, and were led to believe that these sales methods were appropriate; that it took six months or so for the more experienced Mandaro and Peterson to catch on that there was something wrong with the practices at the Melville office (Id. at 1393-96); that the conspiracy to defraud was limited to a few lead brokers; and that Becker voluntarily left Investors Associates when he caught on to what was going on. Thus, though the Government proved its case against Petitioner beyond a reasonable doubt, the defense raised questions on cross-examination which suggested Petitioner may not have had the criminal intent required for conviction.
The Melville office advertised successfully for inexperienced trainees.
When the Government offered transcripts of the plea allocutions of eleven brokers (co-defendants and co-employees of the petitioner) to prove the existence of the conspiracy charged in Count One, and testimony about the overt acts in furtherance of that conspiracy committed by that broker, the defense objected strenuously to the admission of the plea allocutions, particularly on the grounds that the overt act allocutions by the co-brokers bolstered the prosecutor's case against the defendants (Trial Tr. at 484-486.) The prosecutor countered, pointing out that the overt act allocutions of the eleven brokers showed their intent to defraud and that the alleged sales practices were overt acts and were widespread, and contradicted the defense's suggestions that the practices Mandaro and Peterson testified to were limited to a few brokers. (See Id. at 486) ("I disagree, your Honor. If he's allocuting to it on the record and he's saying that was an act in furtherance, then he's admitting that he did that with intent to defraud. He's saying I made a material misrepresentation with intent to defraud and I did it in furtherance of the conspiracy. . . . The other thing that's very crucial here, the defendants are arguing this was a few brokers in the firm that did this stuff, bad stuff. You know, a few brokers. If there's ten or twelve allocutions admitted, obviously this shows it was not some isolated conspiracy.")
In response the defendants stated they had proposed to stipulate "that a conspiracy existed at Investors Associates, and the following individuals have pled guilty to being members of that conspiracy . . . to commit mail fraud, wire fraud, and securities fraud" with respect to the House Stocks. (Id. at 487.) This proposed stipulation was rejected by the Government.
The fair conclusion is that the admission of the eleven allocutions was important to the government's case. Through these allocutions the Government proved to the jury that not just a few individuals were engaged in defrauding the customers but that the defrauding of customers in the Melville office was a widespread practice in the 100 broker Melville office, increasing the likelihood that Becker was a member of the conspiracy. Furthermore since some of the conduct allocuted to was analogous to the evidence of petitioner's conduct, the jury might have concluded that Petitioner's intent while making misrepresentations to customers while selling the House Stocks was likely to be the same as the intent of the eleven guilty brokers, in spite of the Court's instruction that the allocutions were not to be considered as evidence of the defendants' membership in the conspiracy.
CONCLUSION
In view of the foregoing, the Court does not find that the admission of the eleven allocutions was harmless beyond a reasonable doubt. Delaware v. Van Arsdall; 475 U.S. 673. The petitioner's conviction is vacated and a new trial is ordered.
IT IS SO ORDERED.