United States v. Kozeny

• Citation: 667 F.3d 122
• Decision Date: 14 December 2011
• Docket Number: Docket No. 09–4704–cr(L).
• Parties: UNITED STATES of America, Appellee, v. Viktor KOZENY, David Pinkerton, Defendants,Frederic Bourke, Jr., Defendant–Appellant,Landlocked Shipping Co., Dr. Jitka Chvatik, Petitioners.1
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

667 F.3d 122

UNITED STATES of America, Appellee,

v.Viktor KOZENY, David Pinkerton, Defendants,Frederic Bourke, Jr., Defendant–Appellant,Landlocked Shipping Co., Dr. Jitka Chvatik, Petitioners.1

Docket No. 09–4704–cr(L).

United States Court of Appeals, Second Circuit.

Argued: Feb. 10, 2011.Decided: Dec. 14, 2011.

Michael E. Tigar, Law Office of Michael E. Tigar, Pittsboro, N.C. (John D. Cline, Law Office of John D. Cline, San Francisco, Cal.; Harold A. Haddon, Saskia A. Jordan, Jason C. Middleton, Haddon, Morgan & Foreman, P.C., Denver, Colo., on the brief), for Defendant–Appellant Frederic Bourke Jr.

Harry A. Chernoff, Assistant United States Attorney for the Southern District of New York (Preet Bharara, United States Attorney for the Southern District of New York, Iris Lan, Andrew L. Fish, Assistant United States Attorneys for the Southern District of New York; Robertson Park, Assistant Chief, Fraud Section, United States Department of Justice, on the brief) New York, NY, for Appellee the United States of America.

Before: POOLER and HALL, Circuit Judges.²POOLER, Circuit Judge:

Azerbaijan reclaimed its independence in 1991 following the collapse of the Soviet Union, gaining control over its rich stores of oil and natural gas. In the mid–1990s, Azerbaijan began privatizing various state assets. The candidates for privatization included the state-owned oil company, SOCAR. The government alleged that in an attempt to capitalize on this opportunity, Viktor Kozeny and Frederic Bourke Jr. conspired with others in a scheme to illegally purchase SOCAR by bribing the Azerbaijani president and other officials. After a jury trial, Bourke was convicted of conspiring to violate the Foreign Corrupt Practices Act (“FCPA”), 15 U.S.C. § 78dd—1 et seq., 18 U.S.C. § 371, and the Travel Act, 18 U.S.C. § 1953, and of making false statements in violation of 18 U.S.C. § 1001. The district court denied Bourke's motions for new trial and for judgment of acquittal.

On appeal, Bourke vigorously attacks his conviction on several fronts, including (1) the correctness of the jury instructions given, (2) the sufficiency of the evidence, and (3) the propriety of certain evidentiary rulings made by the district court. For the reasons given below, we affirm.

BACKGROUND

Bourke co-founded the accessory company Dooney & Bourke, and considers himself an inventor, investor and philanthropist. In the mid–1990s, Bourke met Viktor Kozeny. Dubbed the “Pirate of Prague” by Fortune magazine, Kozeny is an international entrepreneur known for shady dealings. In a December 1996 article, Fortune detailed how Kozeny and his partner engaged in massive fraud during the privatization of the state-owned industries in the Czech Republic, including engaging in insider trading, purchasing state secrets and participating in various other unsavory business practices. Testimony at trial established that Bourke was aware of Kozeny's “Pirate of Prague” moniker.

In the late 1990s, Azerbaijan began converting state-controlled industries to private ownership through a voucher-based initiative, similar to the one used in the Czech Republic. Among the assets being considered for privatization was SOCAR, the state-owned Azerbaijani oil company. However, observers considered it unlikely that SOCAR would ever actually be privatized, given its economic importance to the country. As part of the privatization process, the Azerbaijani government issued each citizen a voucher book with four coupons. The coupons, which could be freely traded, were used to bid at auction for shares of state-owned enterprises being privatized. Foreigners seeking to participate in the auctions needed to pair their vouchers with options issued by the State Property Committee (“SPC”), the entity charged with administrating the privatization process. Every coupon needed to be matched with an option, so to bid a complete voucher book a foreigner needed to match the four coupons with four options. Voucher books sold for roughly $12.

In May 1997, Kozeny invited Bourke to travel with him to examine potential investments. Their journey included a stop in Azerbaijan. Kozeny created two entities upon returning from the trip: the Minaret Group, an investment bank; and Oily Rock, an entity formed to purchase and own the privatization vouchers issued by the Azerbaijani government. Kozeny recruited Thomas Farrell to work for the entities, and instructed Farrell and other employees to start purchasing vouchers. The vouchers were purchased using U.S. currency flown in on private jets from Zurich or Moscow. Altogether, about $200 million worth of vouchers were purchased.

Kozeny and Farrell were introduced to Ilham Aliyev, the then president's son and vice-president of SOCAR. Aliyev introduced the two to Nadir Nasibov, chair of the SPC, and his deputy, Barat Nuriyev. Kozeny discussed acquiring SOCAR at auction with Nuriyev—an auction that would not be conducted absent a presidential decree. As part of a scheme to purchase SOCAR, Kozeny and Nuriyev agreed that all future purchases of vouchers would be made through Nuriyev and his confederates. Nuriyev told Kozeny purchasing SOCAR would require one million vouchers (four million coupons paired with four million options). Nuriyev also made clear that an “entry fee” would need to be paid to various Azerbaijani officials, including President Aliyev, in the range of $8 to $12 million dollars. The “entry fee” was intended to encourage the president to approve SOCAR's privatization. Kozeny agreed to pay the “fee,” with Farrell delivering cash payments to Nuriyev to pass on to the president.

In addition, Nuriyev demanded that two-thirds of Oily Rock's voucher books and options be transferred to Azerbaijani officials. The officials would then be able to receive two-thirds of the profits from SOCAR's eventual privatization without actually investing any money. To make the transfer possible, in September 1997 Kozeny instructed his attorney, Hans Bodmer, to set up a complex corporate structure involving multiple parent and holding companies. In December 1997, Nuriyev told Farrell that Aliyev had doubled the voucher book requirement from one to two million vouchers. At the time Nuriyev had this conversation with Farrell, voucher books had increased in price to approximately $100 each.

This development spurred Kozeny to start seeking out additional investors, an effort he kicked off with a lavish holiday party at his home in Aspen, Colorado. Bourke attended, as did Tom McCloskey, another Aspenite who previously invested in Oily Rock. In January, 1998 Kozeny took a group of potential investors to Azerbaijan, including Bourke and his friend, Robert Evans. The group met with Nuriyev and toured the Minaret Group offices. Carrie Wheeler traveled with the group on behalf of a potential investor. She testified that, “it seemed like the gist of the meeting was to communicate [to] investors that [Kozeny] had a relationship with the government in some way.”

Bourke and Evans returned to the Azerbaijani capital, Baku, with Kozeny in February 1998. Bodmer—who traveled separately—testified that Bourke approached him in Baku and questioned him regarding the Azerbaijanis. Bodmer testified that during this so-called “walk-talk,” he told Bourke of the nature of the bribery scheme and the corporate structures created to carry it out. Bodmer conveyed the substance of his conversation with Bourke to Rolf Schmid, an associate at Bodmer's law firm. Schmid memorialized Bodmer's description of the conversation years later in a memorandum:

Ricky Bourke asked Hans Bodmer about the legal structure of Oily Rock and its subsidiaries, the ownership of vouchers and options by the holding companies, etc. Hans Bodmer remembers that—probably at the beginning of 1998—he left together with Ricky Bourke ... in Baku and went for a walk together with Ricky Bourke. During this walk he briefed Ricky Bourke in detail about the involvement of the Azeri interests ... the 2/3:1/3 arrangement ...

After traveling to Baku, Bourke set up Blueport, an investment company incorporated in the British Virgin Islands, and invested $7 million in the company. He also recruited other American investors to invest via Blueport, including former Senator George Mitchell. Over time, Blueport would invest roughly $8 million in Oily Rock. In April 1998, Bourke traveled back to Baku for the official opening of the Minaret offices. Mitchell also traveled to Baku for this event, and met with President Aliyev to discuss Oily Rock's investment. Following his conversation, Mitchell told Bourke and Kozeny that the president intended to go forward with SOCAR's privatization. During this same period, Bourke also asked Farrell several times whether “Viktor [was] giving enough” and “[h]as Viktor given them enough money?”

Bourke made another trip to Baku shortly after the Minaret office opening. When he returned home, Bourke contacted his attorneys to discuss ways to limit his potential FCPA liability. During the call, Bourke raised the issue of bribe payments and investor liability. Bourke's attorneys advised him that being linked to corrupt practices could expose the investors to FCPA liability. Bourke and fellow Oily Rock investor Richard Friedman agreed to form a separate company affiliated with Oily Rock and Minaret. This separate company would shield U.S. investors from liability for any corrupt payments made by the companies and Kozeny. To that end, Oily Rock U.S. Advisors and Minaret U.S. Advisors were formed, and Bourke joined the boards of both on July 1, 1998. Directors of the advisory companies each received one percent of Oily Rock for their participation.

In mid–1998, Kozeny and Bodmer told Bourke that an additional 300,000,000 shares of Oily Rock would be authorized and transferred to the Azeri officials. Bourke told a Minaret employee, Amir Farman–Farma, that “Kozeny had claimed that the dilution was a necessary cost of...