U.S. v. Ashman
| Decision Date | 06 January 1993 |
| Docket Number | Nos. 91-2390,91-2462,91-2590,91-2676,91-2524,91-2488,91-2406,91-2677,91-2708 and 91-2709,s. 91-2390 |
| Citation | 979 F.2d 469 |
| Parties | , RICO Bus.Disp.Guide 8138, 36 Fed. R. Evid. Serv. 1020 UNITED STATES of America, Plaintiff-Appellee, v. Bradley S. ASHMAN, John Ryan, Joel J. Fetchenhier, Thomas P. Kenney, William A. Barcal, III, Sheldon Schneider, Edward A. Cox, III, John A. Vercillo, Martin J. Dempsey, and Charles Bergstrom, Defendants-Appellants. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Joel D. Bertocchi, Asst. U.S. Atty. (argued), Crim. Div., Barry R. Elden, Asst. U.S. Atty., Crim. Receiving, Appellate Div., Chicago, Ill., for plaintiff-appellee U.S.
Nan R. Nolan, Robinson, Curley & Clayton, Donald C. Shine, Michael J. Daley, Nisen & Elliott, Chicago, Ill., for defendant-appellant Charles W. Bergstrom.
Garrett B. Johnson, Mark D. Young, Kirkland & Ellis, Scott E. Early, Chicago, Ill., Robert H. Bork (argued), Washington, D.C., Ann E. Barlow, New York City, for amicus curiae Bd. of Trade of City of Chicago.
C. Steven Tomashefsky, Barry A. Miller, Malcolm C. Rich, Chicago Council of Lawyers, Chicago, Ill., for amicus curiae Chicago Council of Lawyers.
James R. Epstein (argued), Jerry A. Esrig, Chicago, Ill., for defendant-appellant Martin J. Dempsey.
Michael D. Monico, Barry A. Spevack (argued), Monico, Pavich & Spevack, Chicago, Ill., for defendant-appellant John A. Vercillo.
Matthias A. Lydon, Jayne Carr Thompson (argued), Lydon & Griffin, Chicago, Ill., for defendant-appellant Edward A. Cox, III.
Matthew F. Kennelly, Margaret L. Paris, Robert M. Stephenson, Cotsirilos, Stephenson, Tighe & Streicker, Chicago, Ill., for defendants-appellants Sheldon Schneider, Thomas P. Kenney and Joel J. Fetchenhier.
Nicholas F. Maniscalco, Chicago, Ill., for defendant-appellant William A. Barcal, III.
Gordon B. Nash, Jr., Gardner, Carton & Douglas, Matthew F. Kennelly, James R. Streicker, Cotsirilos, Stephenson, Tighe & Streicker, Patrick S. Coffey, Federal Public Defender, Office of Federal Public Defender, Chicago, Ill., for defendant-appellant John C. Ryan.
Nathan Z. Dershowitz, Amy Adelson, Dershowitz & Eiger, New York City, Alan M. Dershowitz (argued), Cambridge, Mass., for defendant-appellant Bradley S. Ashman.
Before BAUER, Chief Judge, CUDAHY and KANNE, Circuit Judges.
In this rather complex appeal, we review the claims of ten defendants, traders and brokers of soybean futures contracts at the Chicago Board of Trade ("CBOT"), who were convicted of various offenses including conspiracy to violate the Racketeer Influenced and Corrupt Organizations Act ("RICO") (18 U.S.C. § 1962(c)), substantive RICO offenses (18 U.S.C. § 1962(d)), mail and wire fraud (18 U.S.C. §§ 1341 and 1343), and sundry infractions of the Commodity Exchange Act ("CEA") (7 U.S.C. §§ 6b, 6c, and 13c(a)). The final indictment included 320 counts; the trial lasted almost three months, with an additional month of jury deliberations. All defendants were convicted of some charges; all save two were convicted of conspiring to violate RICO. On appeal, the defendants as a group raise fifteen separate claims of error in their consolidated brief. Moreover, each defendant raises individual claims, totalling 34 additional challenges to their convictions and sentences. For the most part, we are not persuaded by these claims. Nevertheless, on six counts, we determine that no fraud existed. On one additional count, we uncover a failure of proof. Thus, we affirm in part and reverse in part.
Due to the complexity of the issues involved in this appeal, some background information regarding the business of trading at the CBOT is necessary. The defendants consist of two types of floor traders: "locals," who trade on their own accounts, and brokers who execute orders from customers who may be CBOT members, but usually are members of the public trading through brokerage firms. The defendants, as well as numerous other traders, both indicted and unindicted, traded contracts for soybeans futures. A futures contract is an agreement between two parties to buy or sell a specified quantity of a given commodity--in this case soybeans--at a future date but with the price for the commodity established now. In the instant case, the jury found that these ten defendants fraudulently manipulated customer orders to buy and sell soybean futures.
Soybean trading, like the trading of other commodities, takes place in certain areas of the trading floor known as pits. Pits, as the name implies, are essentially round, tiered areas where traders and brokers in a given commodity face each other to trade contracts through open outcry. To the uninitiated, this system may appear to be nothing more than a collection of people in brightly colored jackets shouting and waving at one another. Under federal laws and regulations, as well as CBOT rules, all trades must be conducted, and all customer orders executed, in the competitive marketplace of the pit by open outcry. This means that a trader seeking to buy or sell, for himself or a customer, must bid (i.e. ask to buy) or offer (i.e. propose to sell) audibly and openly so that all other traders in the pit may accept that bid or offer.
After a trade is executed, the parties to the trade record the relevant details on trading cards, or in the case of a broker trading for a customer, on order forms. If a broker cannot fill an order in the market, he may return it as "unable." The relevant elements of the trade include the identity of the opposing trader, the amount of the commodity traded, the time at which the trade took place, and the price. "Runners" return cards and orders throughout the day to clearing firms which handle the necessary accounting of the trade. The CBOT also receives a copy of the cards and orders to ensure that both sides of the trade match or "clear."
When the details of a trade do not match in the clearing process, an error or "out-trade" occurs. Most out-trades are the result of some misunderstanding between the two parties to the trade involving price, quantity, or the identity of the opposing trader. An out-trade that is left unresolved means that one trader is left with a position in the market--i.e. an unfilled order to buy or an unaccepted offer to sell. This unresolved position can result in a loss or a gain depending upon how the market moves before the mistake is corrected.
When an out-trade occurs, the traders involved attempt to determine who made the error. The trader responsible for the mistake must cover any loss that results. In this situation, the trader who made the mistake issues the other trader an "out-trade check" to cover all or part of the loss. If the traders are unable to determine who made the mistake, CBOT's custom suggests that the two traders involved split the resulting loss evenly. Where an out-trade involves the execution of a customer order, however, the customer bears no loss: the broker accepts any negative financial consequences and, if necessary, makes up the difference to the customer. But where the out-trade ends profitably for the customer, the customer keeps that windfall.
Those traders who act as brokers often act independently, filling orders for customers of several different firms and earning commissions for each contract they execute. CBOT rules provide for several types of customer orders. A "market order" directs the broker to execute as soon as possible at the best available price (i.e. highest-priced sell or lowest-priced buy) in the pit. A "market on close" (hereinafter "MOC") or "market on open" (hereinafter "MOO") order directs the broker to execute just before the close or after the opening of trading. These MOO and MOC orders request execution at a specific time, rather than at a specific price, but still require the broker to obtain the best available price. "Price orders," as you might guess, instruct the broker to buy or sell a commodity at a specific price. Nevertheless, price orders also require the broker to fill at a better price if possible. A "stop order" contains a specific price for a buy or a sell; once that price is bid or offered, then the stop order immediately converts to a market order to be filled at the best available price.
Shortly after the opening and then again following the close of trading, the CBOT posts the opening and closing ranges. These ranges consist of the highest and lowest prices actually traded in the market during the period just after the opening of trading and immediately before the close. Thus, these ranges reflect what already has occurred in the pit--they do not exist until competitive trading establishes the high and low prices for the relevant period.
At trial, the government presented hundreds of allegedly fraudulent trades executed by the various defendants. The core of the charged crimes involved brokers surreptitiously avoiding the competitive nature of the pit to arrange trades with locals at selected prices. These arranged trades, determined without the usual open outcry bid or offer in the market, guaranteed profits to the local. The local would then do one of three things (or some combination) with these profits: he might keep the profits as repayment for a loss assumed by the local from an out-trade with the broker; he might hold the profits from the arranged trade as a credit against future errors or out-trades; or he might pass the profits back to the broker who had arranged the trade in the first place (i.e. a kickback) or to another trader to whom the broker owed money from other out-trades. Locals who took losses and profits from brokers in this way were referred to in the pit as "bagmen." See Transcript of Proceedings at Trial ("Trans.") at 528-29, 2214, 4263-64.
The government charged that defendants Charles Bergstrom, Sheldon Schneider, John Ryan, John...
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