729 F.3d 62 (2nd Cir. 2013), 10-521-cr(L), United States v. Vilar

Docket Nº:10-521-cr(L), 10-580-cr(CON), 10-4639-cr(CON)
Citation:729 F.3d 62
Opinion Judge:Jos
Party Name:UNITED STATES, Appellee, v. ALBERTO VILAR AND GARY ALAN TANAKA, Defendants-Appellants
Attorney:VIVIAN SHEVITZ, JANE SIMKIN SMITH (Susan C. Wolfe, Joanna Eftichyiou, on the brief), Brooklyn, NY, for Alberto Vilar. ALAN DERSHOWITZ (Victoria B. Eiger, Nathan Z. Dershowitz, Dershowitz, Eiger & Adelson, P.C., New York, NY, on the brief), Cambridge, MA, for Gary Alan Tanaka. BENJAMIN A. NAFTALIS...
Judge Panel:Before: NEWMAN, CABRANES, and STRAUB, Circuit Judges.
Case Date:August 30, 2013
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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729 F.3d 62 (2nd Cir. 2013)

UNITED STATES, Appellee,

v.

ALBERTO VILAR AND GARY ALAN TANAKA, Defendants-Appellants

Nos. 10-521-cr(L), 10-580-cr(CON), 10-4639-cr(CON)

United States Court of Appeals, Second Circuit

August 30, 2013

Argued: August 21, 2012.

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Alberto Vilar and Gary Alan Tanaka appeal their judgments of conviction, entered on February 8, 2010, and February 10, 2010, respectively, in the United States District Court for the Southern District of New York (Richard J. Sullivan, Judge). In simple terms, a jury found that Vilar and Tanaka lied to clients about the nature and quality of certain investments. This appeal raises a number of substantial issues, including a question left open after the Supreme Court's decision in Morrison v. National Australia Bank Ltd., 130 S.Ct. 2869, 177 L.Ed.2d 535 (2010): whether criminal liability under Section 10(b) of the Securities Exchange Act of 1934 (" Section 10(b)" ) extends to conduct in connection with an extraterritorial purchase or sale of securities.

We conclude as follows. First, Section 10(b) and its implementing regulation, Rule 10b-5, do not apply to extraterritorial conduct, regardless of whether liability is sought criminally or civilly. Accordingly, a defendant may be convicted of securities fraud under Section 10(b) and Rule 10b-5 only if he has engaged in fraud in connection with (1) a security listed on a U.S. exchange, or (2) a security purchased or sold in the United States. Although the District Court did not require proof of domestic securities transactions in this case, this unchallenged error was not " plain" since it did not affect the outcome of the proceedings, and therefore did not affect Vilar and Tanaka's substantial rights.

Second, when proceeding criminally or civilly under Section 10(b) or Rule 10b-5, the government need not prove that the victims of a fraudulent scheme actually relied on the alleged material misrepresentations or omissions. Because reliance is not an element of a Section 10(b) offense, the District Court did not err by not instructing the jury on the issue of reliance.

Third, although the mail fraud charge in the indictment specified that the mailing itself was false or fraudulent, the District Court's instruction permitting the jury to convict the defendants based on a mailing that itself contained no false or fraudulent statement did not " constructively amend" the indictment.

Fourth, on remand, the District Court must decide what acts constitute the offense conduct for the purposes of calculating the appropriate loss amount at sentencing, and re-determine the amount of money subject to forfeiture. Further, the District Court must, in accordance with the Mandatory Victim Restitution Act, limit its restitution order to victims of the scheme who purchased securities domestically.

Fifth, with the exception of Vilar's ineffective assistance of counsel claim, which we do not reach, Vilar and Tanaka's remaining claims are without merit.

We AFFIRM the judgments of conviction in all respects, except for the sentences; and REMAND with instructions to vacate the sentences of Vilar and Tanaka and to commence a de novo resentencing of the two defendants consistent with this opinion.

VIVIAN SHEVITZ, JANE SIMKIN SMITH (Susan C. Wolfe, Joanna Eftichyiou, on the brief), Brooklyn, NY, for Alberto Vilar.

ALAN DERSHOWITZ (Victoria B. Eiger, Nathan Z. Dershowitz, Dershowitz, Eiger & Adelson, P.C., New York, NY, on the brief), Cambridge, MA, for Gary Alan Tanaka.

BENJAMIN A. NAFTALIS, JUSTIN ANDERSON (Sarah E. Paul, Katherine Polk Failla, on the brief), Assistant United States Attorneys, for Preet Bharara, United States Attorney for the Southern District of New York, New York, NY, for the United States.

Before: NEWMAN, CABRANES, and STRAUB, Circuit Judges.

OPINION

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José A. Cabranes, Circuit Judge:

Alberto Vilar and Gary Alan Tanaka appeal their judgments of conviction, entered on February 8, 2010, and February 10, 2010, respectively, in the United States District Court for the Southern District of New York (Richard J. Sullivan, Judge ). In simple terms, a jury found that Vilar and Tanaka lied to clients about the nature and quality of certain investments. This appeal raises a number of substantial issues, including a question left open after the Supreme Court's decision in Morrison v. National Australia Bank Ltd., 130 S.Ct. 2869, 177 L.Ed.2d 535 (2010): whether criminal liability under Section 10(b) of the Securities Exchange Act of 1934 (" Section 10(b)" ) extends to conduct in connection with an extraterritorial purchase or sale of securities.

We conclude as follows. First, Section 10(b) and its implementing regulation, Rule 10b-5, do not apply to extraterritorial conduct, regardless of whether liability is sought criminally or civilly.1 Accordingly, a defendant may be convicted of securities fraud under Section 10(b) and Rule 10b-5 only if he has engaged in fraud in connection with (1) a security listed on a U.S. exchange, or (2) a security purchased or sold in the United States. Although the District Court did not require proof of domestic securities transactions in this case, this error was not " plain" since it did not affect the outcome of the proceedings, and therefore did not affect Vilar and Tanaka's substantial rights.

Second, when proceeding criminally or civilly under Section 10(b) or Rule 10b-5, the government need not prove that the victims of a fraudulent scheme actually relied on the alleged material misrepresentations or omissions. Because reliance is not an element of a Section 10(b) offense, the District Court did not err by not instructing the jury on the issue of reliance.

Third, although the mail fraud charge in the indictment specified that the mailing itself was false or fraudulent, the District Court's instruction permitting the jury to convict the defendants based on a mailing that itself contained no false or fraudulent statement did not " constructively amend" the indictment.

Fourth, on remand, the District Court must decide what acts constitute the offense conduct for the purposes of calculating the appropriate loss amount at sentencing, and re-determine the amount of money subject to forfeiture. Further, the District Court must, in accordance with the Mandatory Victim Restitution Act, limit its restitution order to victims of the scheme who purchased securities domestically.

Fifth, with the exception of Vilar's ineffective assistance of counsel claim, which we do not reach, Vilar and Tanaka's remaining claims are without merit.

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BACKGROUND2

It is fair to say that, from the mid-1980s until their arrest in 2005, Vilar and Tanaka were prominent investment managers and advisers. Prior to the technology market crash of 2000-2001, they were responsible for managing approximately $9 billion in investments for their clients.

Vilar and Tanaka managed their clients' assets through a number of different funds and entities. In 1986, they founded and became the sole shareholders of Amerindo Investment Advisors Inc. (" Amerindo U.S." ), an investment adviser registered with the Securities and Exchange Commission (" SEC" ). Amerindo U.S. was a California corporation with principal offices in San Francisco and New York City. Vilar and Tanaka also founded and were the sole shareholders of (1) Amerindo Investment Advisors, Inc. (" Amerindo Panama" ), a corporation organized under the laws of the Republic of Panama that managed an off-shore investment fund offered to U.S. investors, and (2) Amerindo Investment Advisors (UK) Ltd. (" Amerindo U.K." ), a United Kingdom corporation, which managed portfolios of U.S. emerging growth stocks for U.K.-based clients.3

From at least July 1986 until May 2005, Vilar and Tanaka offered clients the opportunity to invest in " Guaranteed Fixed Rate Deposit Accounts" (" GFRDAs" ). The GFRDA program was made available only to a select group of individual clients, who were generally close friends or family members of Vilar or Tanaka. Vilar and Tanaka promised investors in the GFRDA program that they would receive a high, fixed rate of interest over a set term, and that the overwhelming majority of the GFRDA funds would be invested in high-quality, short-term deposits, including U.S. Treasury bills. The balance of the capital in the GFRDAs--generally no more than twenty-five percent--was to be invested in publicly traded emerging growth stocks.

Despite Vilar and Tanaka's description of the GFRDA program, they invested all of the funds in technology and biotechnology stocks, presumably in the hopes of meeting or even exceeding the high " guaranteed" rates of return. The downside of this scheme, of course, was that the GFRDAs were volatile and not safe investments at all. And so, when the so-called dot-com bubble " burst" in the fall of 2000, the value of the investments held by the GFRDAs dropped precipitously. Accordingly, Vilar and Tanaka could not pay the promised rates of return and, as a consequence, several GFRDA investors lost millions of dollars.

In June 2002, as the GFRDA scheme was falling apart, Vilar and Tanaka approached a long-standing client, Lily Cates, with the opportunity to invest in a type of venture known as a Small Business Investment Company (" SBIC" ). Vilar told Cates that he and Tanaka had been approved for an SBIC license, which would allow the SBIC to obtain matching funds from the federal government's Small Business Administration (" SBA" ) for the SBIC's investments. In fact, Vilar and Tanaka had never received an SBIC license and...

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