U.S. v. Teicher, s. 735
| Citation | 987 F.2d 112 |
| Decision Date | 02 March 1993 |
| Docket Number | 736,D,Nos. 735,s. 735 |
| Court | United States Courts of Appeals. United States Court of Appeals (2nd Circuit) |
| Parties | Fed. Sec. L. Rep. P 97,781, 37 Fed. R. Evid. Serv. 499 UNITED STATES of America, Appellee, v. Victor TEICHER, Victor Teicher & Co., L.P. and Ross Frankel, Defendants-Appellants. ockets 92-1301, 92-1302. |
Andrew L. Frey, Washington, DC (Dan M. Kahan, Mayer, Brown & Platt, of counsel) Roger J. Bernstein, New York City (Caryn M. Hirshleifer, of counsel), for defendant-appellant Ross Frankel.
for defendants-appellants Victor Teicher and Victor Teicher & Co.
John W. Auchincloss II, Asst. U.S. Atty., S.D.N.Y., Roger S. Hayes, Acting U.S. Atty., John K. Carroll, Reid M. Figel, Asst. U.S. Attys., for appellee.
Before: PIERCE, ALTIMARI and WALKER, Circuit Judges.
Defendants-appellants Victor Teicher, Victor Teicher & Co., L.P., and Ross Frankel appeal from judgments of conviction entered in the United States District Court for the Southern District of New York (Charles S. Haight, Jr., Judge ) following a twelve week jury trial. Teicher and Victor Teicher & Co., L.P. (collectively the "Teicher defendants") were convicted on nine counts of securities fraud in violation of 15 U.S.C. §§ 78j(b) and 78ff, 17 C.F.R. § 240.10b-5 ("Rule 10b-5"), and 18 U.S.C. § 2; two counts of fraud in connection with a tender offer in violation of 15 U.S.C. §§ 78n(e) and 78ff, 17 C.F.R. § 240.14e-3 ("Rule 14e-3"), and 18 U.S.C. § 2; and one count of conspiracy to violate the securities laws and anti-fraud laws, in violation of 18 U.S.C. § 371. Teicher was also convicted on two counts of mail fraud in violation of 18 U.S.C. §§ 1341 and 2. Frankel was convicted on one count of securities fraud in violation of 15 U.S.C. §§ 78j(b) and 78ff, Rule 10b-5, and 18 U.S.C. § 2; one count of mail fraud in violation of 18 U.S.C. §§ 1341 and 2; one count of conspiracy to violate the securities laws and anti-fraud laws, in violation of 18 U.S.C. § 371; one count of perjury before the Securities Exchange Commission ("SEC") in violation of 18 U.S.C. § 1621; and, two counts of obstruction of justice in violation of 18 U.S.C. §§ 1505 and 2.
The convictions were the result of an investigation into the trading activities of Teicher in eight separate securities and Frankel in one security after having received material non-public information concerning these securities. Frankel's additional convictions for perjury and obstruction of justice arose from his attempt to conceal his actions which included the destruction of documents pertaining to his trade and his misrepresentations under oath to the SEC. Teicher and Frankel appeal alleging that various errors deprived them of a fair trial.
For the following reasons, the judgments of conviction are affirmed.
The players in this case were involved in the business of arbitrage. Arbitrage entails trading in securities in companies that are the subject of changes in corporate control in order to take advantage of fluctuations in the price of these securities. Teicher, an arbitrageur, formed the Victor Teicher & Co., L.P. investment firm through which he managed investment pools for individual investors. Frankel was a research analyst in the arbitrage department of Drexel Burnham Lambert, Inc. ("Drexel").
Robert Salsbury, a key government witness, worked under Frankel performing financial analyses in the research unit at Drexel. During the same period, Michael David, another key government witness and a close personal friend of Salsbury, worked as an associate in the corporate department of the law firm of Paul, Weiss, Rifkind, Wharton & Garrison ("Paul Weiss"). Like Frankel and Teicher, David was interested in arbitrage.
The government's evidence at trial showed that from December 1985 until March 1986, David regularly provided Salsbury and Teicher with information that David had uncovered concerning possible acquisitions by Paul Weiss clients. David also provided Andrew Solomon, a trader at the brokerage firm of Marcus Schloss, Inc. ("Marcus Schloss") with the same Paul Weiss information he had disclosed to Teicher and Salsbury. Solomon, in turn, provided other confidential information to David who then passed it on to Teicher. The government's evidence also demonstrated that Salsbury had provided Teicher Because the factual background underlying the crimes is complex, we present it in some detail.
with the names of companies on Drexel's "phantom list"--a highly confidential list of companies that were the subject of mergers or takeovers by Drexel clients and in which trading by Drexel personnel was prohibited.
The first tip from David was passed in early February 1986 and involved a possible takeover attempt by Paul Weiss client Triangle Industries of American Can Corporation. David had learned that Triangle Industries was studying the feasibility of the takeover in light of antitrust barriers and that it would occur, if at all, within six months. The information had been given to David by a fellow associate at Paul Weiss. Soon after learning this information, David tipped Teicher that he "had learned within Paul Weiss that American Can at sometime in the future may become a takeover target by a Paul Weiss client, Triangle Industries" and that "if it would happen at all it would happen within six months." David passed along "approximately the same" information to Salsbury and Solomon, among others.
On February 6, 1986, Teicher bought 5,000 shares of American Can common stock and hedged his position by selling 50 call options on the stock. The following day, Teicher "unwound" the transaction by selling the shares and purchasing 50 call options for a one-day trading profit of $1,862.
Salsbury had passed David's information to Frankel. Although no public announcements were made, the price of American Can stock rose sharply, possibly as a result of increased trading activity following David's tipping. According to Salsbury, Frankel was impressed with the increased trading volume and price and urged Salsbury to continue obtaining information from David.
The second tip from David involved a takeover attempt by Paul Weiss client Dominion Textile Inc. for control of Avondale Mills, which was also targeted for acquisition by two other companies. After learning from a corporate librarian that there had been significant activity concerning Avondale Mills, David leafed through the corporate librarian's notebooks and learned of requests for SEC filings and other documents concerning Avondale Mills on behalf of client Dominion Textile. David also learned that Dominion Textile officers were meeting in a Paul Weiss conference room.
On February 21, 1986, David telephoned Teicher and told him that "Dominion Textile is going to make a bid for Avondale Mills." Later that day, Teicher placed an order for 20,000 shares of Avondale stock but was only able to purchase 3,500. On the same day, David tipped Salsbury, who relayed the information to Frankel, and also tipped Solomon who relayed the tip to his boss at Marcus Schloss. Marcus Schloss also purchased Avondale Mills stock.
Three days later, on February 24, Teicher & Co. purchased 9,400 shares of Avondale stock, and on February 26, Teicher & Co. made its final purchase of 1,800 shares of Avondale Mills stock. The next day, Dominion Textile announced its tender offer for Avondale Mills and Teicher sold all his shares of Avondale Mills for a profit of approximately $37,000.
Following the announcement of a competing tender offer from another bidder offering a higher price, David witnessed Dominion Textile officers meeting "day and night" in a Paul Weiss conference room. From this he correctly surmised that Dominion would be making a second bid. David passed on this information to Teicher, Salsbury and Solomon. According to Salsbury, David also told him that he had learned from an associate at Paul Weiss that Dominion Textile "had room" to increase its bid.
On March 14, 1986, Teicher and Co. accounts purchased 9,300 shares of Avondale Mills stock and also sold 3,000 shares that same day. On March 18, Dominion Textile announced a second tender offer for Avondale Mills stock and Teicher began selling his remaining shares for a final profit of $14,000.
In early February 1986, David read an entry in the Paul Weiss librarian's notebook concerning a request by a Paul Weiss partner for SEC filings concerning Allegheny International. David later matched the entry's billing code to Allegheny International and told Teicher that Ampco-Pittsburgh was "looking very closely" at Allegheny International. David also tipped Salsbury, and Solomon. On March 7, 1986, while working at Teicher's office, David noticed a sharp increase in price and volume traded of Allegheny stock. David told Teicher "it must be happening." On the same day, Teicher purchased 10,000 shares of Allegheny stock which were sold on March 10 for a profit of $3,300.
In early February 1986, BAT Industries, a British tobacco company, asked its counsel at Paul Weiss to prepare a recommendation concerning the American antitrust environment in connection with its contemplated acquisition of American Brands, an American tobacco company. By reading a list of new business at Paul Weiss, David learned that BAT Industries was considering an acquisition. He learned that the target was American Brands from reading the librarian's request notebook. Beginning on March 8, David relayed the information in stages, as he learned it, to Salsbury. On March 10, David tipped Salsbury, Teicher and Solomon that a takeover bid would be made by BAT Industries for American Brands.
Salsbury testified that...
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