U.S. v. Rutkoske

Decision Date25 October 2007
Docket NumberDocket No. 06-4067-cr.
Citation506 F.3d 170
PartiesUNITED STATES of America, Appellee, v. David RUTKOSKE, Defendant-Appellant.
CourtU.S. Court of Appeals — Second Circuit

Marsha R. Taubenhaus, New York, N.Y., for Defendant-Appellant.

Chi T. Steve Kwok, Asst. U.S. Atty., New York, N.Y. (Michael J. Garcia, U.S. Atty., Diane Gujarati, Asst. U.S. Atty., New York, N.Y., on the brief), for Appellee.

Before: NEWMAN, WINTER and KATZMANN, Circuit Judges.

JON O. NEWMAN, Circuit Judge.

This appeal from a conviction for securities fraud primarily concerns the timeliness of an indictment and the calculation of the amount of loss for purposes of determining the sentence. Defendant-Appellant David Rutkoske appeals from a judgment of conviction for securities fraud and conspiracy to commit securities fraud entered on August 23, 2006, by the District Court for the Southern District of New York (Richard Conway Casey, District Judge) following a jury trial. Rutkoske contends that (1) the indictment and the superceding indictment were untimely, (2) the evidence was insufficient, (3) evidence of subsequent acts was improperly admitted, and (4) the sentence is unreasonable. We reject the challenges to the conviction but remand for resentencing.

Background

The Defendant. At all relevant times, Rutkoske owned a brokerage firm, Lloyd Wade Securities ("Lloyd Wade"). Lloyd Wade, headquartered in Dallas, encompassed eight to ten offices across the country by 1999. Rutkoske worked out of the Dallas office. Lloyd Wade sold stock to retail customers and provided investment banking services to institutional clients. The indictment stems from the firm's involvement with NetBet, a start-up internet gaming company.

The Indictments. On December 11, 2003, the Government filed an initial indictment charging Rutkoske's co-defendants with participation in a securities fraud conspiracy in connection with Lloyd Wade's purchase and sale of NetBet stock. Rutkoske was not charged in this initial indictment.

On April 6, 2004, the grand jury returned a superceding indictment ("Indictment S1") adding Rutkoske as a defendant. The indictment charged Rutkoske with securities fraud, in violation of 15 U.S.C. §§ 78j (b), 78ff and 18 U.S.C. § 2, and conspiracy to commit securities fraud, commercial bribery, and wire fraud, in violation of 18 U.S.C. § 371. It charged that the conspiracy continued from December 1996 "to at least on or about April 9, 1999," rendering the indictment facially timely by just three days. Indictment S1 charged numerous overt acts in furtherance of the conspiracy; of these, only one was alleged to have occurred within the applicable five-year limitations period, "[o]n or about April 9, 1999."

After the filing of Indictment S1, Rutkoske repeatedly sought from the Government details of the alleged April 9, 1999, overt act in order to pin down the "on or about" phrasing to a precise date. At a hearing in July 2005, Rutkoske notified the District Court that he intended to move to dismiss Indictment S1 as untimely, and the Government stated that it was planning to file a superceding indictment.

A second superceding indictment ("Indictment S2"), charging Rutkoske alone, was returned on July 28, 2005. Indictment S2 charged Rutkoske with the same offenses as Indictment S1. It did not include the April 9 overt act, but instead alleged two other overt acts occurring on April 15 and 16, 1999, acts that would have been within Indictment S1's limitations period.

In September 2005, Rutkoske moved to dismiss Indictment S2 as untimely. At a hearing on the motion, defense counsel told the Court that the Government had realized in September that the April 9 overt act alleged in Indictment S1 had not occurred on that date, and contended that this concession rendered Indictment S1 untimely and unavailable for Indictment S2 to relate back to it.

The District Judge denied the motion. See United States v. Rutkoske, 394 F.Supp.2d 641 (S.D.N.Y.2005). Judge Casey concluded that Indictment S1, though containing "a latent defect," was validly pending at the time Indictment S2 was filed. See id. at 646. He also concluded that Indictment S2 did not materially broaden the charges against Rutkoske. See id. Therefore, he ruled, Indictment S2 related back to Indictment S1 for purposes of satisfying the statute of limitations. See id.

Pre-trial evidentiary ruling. Before trial, the Government moved to admit testimony about, and recordings of, conversations between Rutkoske and a co-conspirator as evidence of "other acts," admissible under Rule 404(b) of the Federal Rules of Evidence. See United States v. Rutkoske, No. 03 Cr. 1452, 2005 WL 3358596, at *1 (S.D.N.Y. Dec.8, 2005). Judge Casey ruled that the proposed evidence, which suggested that Rutkoske had engaged in a similar market manipulation scheme after the events alleged in Indictment S2, was relevant and was being offered for the proper purpose of rebutting an "innocent participation" defense. See id. at *2. However, because it was unclear whether Rutkoske would present such a defense, Judge Casey concluded that he could not conduct the Rule 403 balancing analysis in advance of trial and therefore denied the motion without prejudice to renewal. See id. at *2-*3. The evidence was admitted at trial.

Trial. At the jury trial the Government presented the testimony of Rutkoske's alleged co-conspirators, some of Lloyd Wade's customers, and securities experts, and introduced documentary evidence showing Rutkoske's knowledge of undisclosed commissions earned by his brokers. In brief, the evidence permitted the jury to find the following. In 1997, Rutkoske permitted Manuel Bello, who had a history of stock manipulation, to head a new branch office in West Paterson, New Jersey. Bello introduced Rutkoske to the executive team at NetBet. Lloyd Wade's Head of Research and Investment Banking discouraged Rutkoske from doing business with NetBet, but Rutkoske entered an investment banking agreement with NetBet. The agreement contained a "lock-up" provision prohibiting significant shareholders from selling their shares and obliged NetBet to use its best efforts to ensure that all sales occurred through Lloyd Wade. Bello, with Rutkoske's knowledge, bought discounted blocks of NetBet stock from entities controlled by NetBet insiders.

Lloyd Wade began selling NetBet stock to its customers. When it wanted to sell NetBet stock at prices above the market price, Lloyd Wade would "take out" offers by buying stock from other firms making a market in the stock, thereby increasing the price. It was not difficult to increase the price of NetBet stock because it was thinly traded and Lloyd Wade controlled the vast majority of shares. Rutkoske sometimes instructed Bello to increase the price.

Brokers in the West Paterson office used "boiler room" tactics to sell NetBet stock. Cold callers posing as brokers called prospective customers and pretended that they had previously spoken. Brokers used high-pressure sales pitches to induce customers to buy NetBet stock. They sometimes lied about having visited NetBet's facilities and having met its management. One broker purchased NetBet stock for a client over the client's objection. Brokers avoided customers' phone calls when the customers wanted to sell NetBet stock, and one broker refused to comply with a client's instruction to sell the stock. Rutkoske visited the West Paterson office four or five times, and the brokers did not attempt to hide their tactics from him during all but the first of those visits.

Brokers selling NetBet stock received large commissions, which Rutkoske personally authorized. The commissions were not disclosed to clients; in fact, brokers often told their clients that they received no commission, and trade confirmations stated that there was no commission. Following an audit by the National Association of Securities Dealers ("NASD"), Lloyd Wade recharacterized the commissions as trading profits and created a new trading account to track the hidden commissions. Rutkoske knew that the firm was hiding commissions.

From January 1997 to April 1999, Lloyd Wade accounted for 72 percent of retail sales of NetBet stock; from July to December 1997, it accounted for 90 percent of the trading volume. Eventually, the price of NetBet shares plummeted. Investors lost more than $12 million.

The District Judge allowed "other acts" evidence of conversations between Rutkoske and Bello about the stock of a company owned by Rutkoske, Paradise Tan. The conversations, which occurred four years after the charged conspiracy, revealed that Rutkoske desired to push up the stock price. For example, he stated, "I need a friendly market maker to help me set the market so I can cross some stock." Bello and Rutkoske discussed how to take out offers to increase the price and how to compensate brokers for their role in these efforts. Rutkoske told Bello to comply with the registration and solicitation regulations "so you don't draw attention," stating crudely, "[G]et [] me all my registrations and all that other shit, now I can go fuck around with the stock." The District Court gave the jury a limiting instruction at the time of the testimony and in the jury instructions.

The jury convicted Rutkoske on both counts.

Sentencing. The Presentence Report ("PSR") calculated a total offense level of 31, which comprised a base offense level of 6, see U.S.S.G. § 2F1.1(a) (1998); a 15-level enhancement for loss of more than $10 million, see id. § 2F1.1 (b)(1)(P); and other enhancements for a scheme to defraud more than one victim, use of mass marketing, a leadership role in an activity involving at least five participants, and abuse of a position of trust.1 A total offense level of 31 and a Criminal History Category of I yielded a Guidelines range of 108 to 135 months' imprisonment.

Rutkoske objected to the PSR's loss calculation, which had been...

To continue reading

Request your trial
87 cases
  • U.S. v. Jordan
    • United States
    • U.S. District Court — Southern District of New York
    • December 29, 2008
    ...when two theories of an offense are submitted to the jury and the evidence supports one theory but not the other." United States v. Rutkoske, 506 F.3d 170, 176 (2d Cir.2007) (citing Griffin v. United States, 502 U.S. 46, 56-60, 112 S.Ct. 466, 116 L.Ed.2d 371 (1991)). This is because, "[i]n ......
  • U.S.A v. Kumar, Docket No. 06-5482-cr(L)
    • United States
    • U.S. Court of Appeals — Second Circuit
    • August 12, 2010
    ...time of the fraud and the revelation of the fraud,” not all of which will be attributable to fraudulent activity. United States v. Rutkoske, 506 F.3d 170, 179 (2d Cir.2007). In this case, the district court properly focused on loss attributable to the defendants' fraud. As previously establ......
  • United States v. Abdallah
    • United States
    • U.S. District Court — Eastern District of New York
    • January 6, 2012
    ...LEXIS 19127, at *4 (2d Cir. Sept. 16, 2011) (other acts evidence properly introduced to demonstrate intent); United States v. Rutkoske, 506 F.3d 170, 177 (2d Cir.2007) (other acts evidence properly introduced to demonstrate knowledge); United States v. Earls, 157 Fed.Appx. 421, 422 (2d Cir.......
  • United States v. Capers
    • United States
    • U.S. Court of Appeals — Second Circuit
    • December 14, 2021
    ...based on a theory that was supported by such weak evidence that no reasonable jury could have accepted it. See United States v. Rutkoske , 506 F.3d 170, 176 (2d Cir. 2007) (citations omitted) ("[T]he Supreme Court has held that a verdict should be affirmed when two theories of an offense ar......
  • Request a trial to view additional results
4 books & journal articles
  • Federal sentencing
    • United States
    • James Publishing Practical Law Books Federal Prison Guidebook Preliminary Sections
    • April 30, 2022
    ...in some cases). Although the calculation of “loss” is a “critical determinant” of a defendant’s sentence, see United States v. Rutkoske , 506 F.3d 170, 179 (2d Cir. 2007), and is often “the single most important factor in the application of the Sentencing Guidelines,” according to Peter J. ......
  • Chapter 17
    • United States
    • Full Court Press A Securities Regulation, Litigation, and Enforcement Handbook
    • Invalid date
    ...is trying to enhance a sentence? The Second and Fifth Circuits have applied the Dura holding in such cases. United States v. Rutkoske, 506 F.3d 170 (2d Cir. 2007); United States v. Olis, 429 F.3d 540 (5th Cir. 2005). However, the Ninth Circuit has adopted a more general principle, looking n......
  • Nacchio Profits: the Tenth Circuit in United States v. Nacchio Properly Departs from the Eighth Circuit in United States v. Mooney and Adopts the Federal Sentencing Guidelines
    • United States
    • University of Nebraska - Lincoln Nebraska Law Review No. 43, 2022
    • Invalid date
    ...myriad of new issues never encountered before in the criminal context, the courts have turned to civil jurisprudence for answers."). 102. 506 F.3d 170, 179 (2d Cir. 103. Nacchio, 573 F.3d at 1078. The Second Circuit in Rutkoske also cited Dura Pharmaceuticals, 544 U.S. at 342-43. Id. 104. N......
  • United States v. Berger: the Rejection of Civil Loss Causation Principles in Connection With Criminal Securities Fraud
    • United States
    • University of Whashington School of Law Journal of Law, Technology & Arts No. 6-4, June 2011
    • Invalid date
    ...of Law for your thoughtful review of this Article. 1. Dura Pharms., Inc. v. Broudo, 544 U.S. 336 (2005). 2. See United States v. Rutkoske, 506 F.3d 170 (2d Cir. 2007); United States v. Olis, 429 F.3d 540 (5th Cir. 2005). 3. United States v. Berger, 587 F.3d 1038 (9th Cir. 4. Dura Pharms., I......

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT