People v. Florentino

Decision Date16 November 1982
Citation116 Misc.2d 692,456 N.Y.S.2d 638
Parties, Blue Sky L. Rep. P 71,789 The PEOPLE of the State of New York v. Carlo FLORENTINO, Defendant.
CourtNew York City Court

Robert Abrams, Atty. Gen., New York City, for the People; Linda S. Martinson, Eugene D. Berman, Asst. Attys. Gen., of counsel.

Obermaier, Morvillo & Abramowitz P.C., New York City, for defendant; Robert G. Morvillo, Barry A. Bohrer, New York City, of counsel.

STEPHEN G. CRANE, Justice:

This case represents the first effort by the Attorney General of the State of New York to have the criminal sanctions of the Martin Act, 1 General Business Law § 352-c, applied to what the parties refer to as "insider trading." 2 The defendant moves under § 170.30(1)(a) and (f) and § 170.35(1)(c) of the Criminal Procedure Law to dismiss the misdemeanor information on the grounds that the law allegedly violated, General Business Law § 352-c, does not apply to insider trading and the statute, as applied, is unconstitutional.

This accusatory instrument is clear and direct. It alleges that defendant was an attorney and member of a law firm representing issuers of securities in takeovers and mergers. In this capacity he acquired advanced, secret information of prospective takeover attempts and merger transactions. Acting on this information, he bought on the open market through his broker securities of target companies without disclosing his secret knowledge. When the prospective transactions were later announced, the market price of these securities naturally advanced. Thereupon, defendant liquidated his position in these securities and reaped huge profits. The People allege that defendant thus engaged in fraudulent conduct proscribed by General Business Law § 352-c.

In support of his motion defendant basically argues that General Business Law § 352-c was never intended to apply to insider trading. Rather, he suggests that it is limited to situations involving distribution of securities where the buyer and seller transact face-to-face or where the defendant is a dealer in such securities. He points to the memorandum of Attorney General Jacob Javits in support of the legislation in 1955 by which criminal sanctions were inserted in the Martin Act (1955 New York Legislative Annual, 133). The memorandum concentrated on the inadequacies of pre-existing injunctive sanctions against so-called

"boiler room" operations and similar unscrupulous dealings in the distribution of securities. The defendant, thus, contends that § 352-c is limited to fraud in those transactions where privity exists between buyer and seller. To apply it to insider trading where privity is absent, he urges, is beyond the purpose and scope of the Martin Act. Such an application after 27 years takes the defendant by surprise. Since he never had notice of such an interpretation, which is not manifest to him on the face of the statute, he submits that the provision must be struck down as unconstitutionally vague. These arguments do not pass muster.
STATUTORY CLARITY

General Business Law § 352-c, in pertinent part, provides:

"1. It shall be illegal and prohibited for any person, partnership, corporation, company, trust or association, or any agent or employee thereof, to use or employ any of the following acts or practices:

(a) Any fraud, deception, concealment, suppression, false pretense or fictitious or pretended purchase or sale;

(b) ...

(c) ...

where engaged in to induce or promote the issuance, distribution, exchange, sale, negotiation or purchase within or from this state of any securities ....

2. It shall be illegal and prohibited for any person ... to engage in any artifice, agreement, device or scheme to obtain money, profit or property by any of the means prohibited by this section.

3. ...

4. A person ... using or employing any act or practice declared to be illegal and prohibited by this section, shall be guilty of a misdemeanor."

There is nothing unclear or ambiguous in this language (People v. Cruz, 48 N.Y.2d 419, 423 N.Y.S.2d 625, 399 N.E.2d 513 [1979] ). Defendant simply ignores the category of "purchase" and the concept of "exchange" inserted in 1955. 3 His arguments might have merit if the statute omitted these words; but with their inclusion defendant is hard pressed to show ambiguity when § 352-c is applied to his conduct of purchase.

The prosecutor is asking this court to recognize that the language "any fraud, deception, concealment, suppression ... where engaged in to induce or promote the ... exchange, sale, negotiation or purchase ... of any securities" or "to obtain money, profit or property" thereby is both broad enough to embrace defendant's conduct and precise enough to be constitutional. There is no imprecision in the concept of fraud; it has been applied to insider trading for longer than defendant has been a member of the bar. (Securities and Exchange Comm. v. Texas Gulf Sulphur Co., 401 F.2d 833, 847-848, [2nd Cir., 1968] cert. den. sub nom. Coates v. Securities and Exchange Comm., 394 U.S. 976, 89 S.Ct. 1454, 22 L.Ed.2d 756 [1969] and 404 U.S. 1005, 92 S.Ct. 561, 30 L.Ed.2d 558 [1971]; Diamond v. Oreamuno, 24 N.Y.2d 494, 502, 301 N.Y.S.2d 78, 248 N.E.2d 910 [1969].) 4

VOID FOR VAGUENESS ARGUMENT

Defendant attacks as unconstitutionally vague the application of § 352-c to his alleged insider trading. In view of the conduct with which he is charged, it is doubtful that he has standing to raise this claim. (Cf. People v. Di Raffaele, 55 N.Y.2d 234, 241, 448 N.Y.S.2d 448, 433 N.E.2d 513 [1982]; United States v. Wolfson, 405 F.2d 779, 783 [2nd Cir., 1968], cert. denied 394 U.S. 946, 89 S.Ct. 1275, 22 L.Ed.2d 479 [1969].) If the statute were uncertain or vague the court would be obligated to construe it in a manner that will avoid constitutional infirmities 5 (McKinney's Cons. Laws of N.Y., Book 1, Statutes, § 150[c] ). Yet, the legislation that defendant finds vague meets constitutional standards since its meaning is derived from normal everyday usage, common understanding and practice. (United States v. Re, 336 F.2d 306, 316 [2nd Cir., 1964] cert. denied 379 U.S. 904, 85 S.Ct. 188, 13 L.Ed.2d 177 [1964]; People v. Uplinger, 113 Misc.2d 876, 881, 449 N.Y.S.2d 916 [1982]; People v. Cadplaz Sponsors, 69 Misc.2d 417, 419, 330 N.Y.S.2d 430 [1972].) This suffices to warn defendant of the conduct to be avoided. As the Court of Appeals stated (per Wachtler, J.) in People v. Cruz, 48 N.Y.2d 419, 423-424, 423 N.Y.S.2d 625, 399 N.E.2d 513 (1979):

"It is a fundamental requirement of due process that a criminal statute must be stated in terms which are reasonably definite so that a person of ordinary intelligence will know what the law prohibits or commands .... The concept promotes fairness to the defendant in two respects. First it insures that the defendant will receive adequate warning of what the law requires so that he may act lawfully. 'The underlying principle is that no man shall be held criminally responsible for conduct which he could not reasonably understand to be proscribed' (United States v. Harriss, 347 U.S. 612, 617 [74 S.Ct. 808, 811, 98 L.Ed. 989 (1954) ]. Secondly, it serves to prevent arbitrary and discriminatory enforcement by requiring 'boundaries sufficiently distinct' for police, Judges and juries to fairly administer the law ...." (citations omitted)

These goals are certainly served by applying to the defendant's alleged insider trading § 352-c of the General Business Law. Its terms have "an accepted meaning 'long recognized in law and life' that cannot be said to be so vague and indefinite as to afford the defendant insufficient notice of what is prohibited or inadequate guidelines for adjudication ... even though there may be 'element of degree in the definition as to which estimates might differ' ...." (People v. Cruz, supra at 428, 423 N.Y.S.2d 625, 399 N.E.2d 513.)

ESTOPPEL FROM ENFORCEMENT AGAINST INSIDER TRADING

Defendant claims surprise 6 that his conduct should evoke criminal sanctions under the Martin Act because it has never before been applied to the fraudulent activity known as insider trading. This claim is tantamount to an argument that the State of New York, after the 27 years § 352-c has been on the books in its present form It hardly appears appropriate for defendant, an expert in securities regulation, to assert surprise that his clear violation of Federal anti-fraud provisions should be held to violate the State anti-fraud statute that was amended in 1955 in order "more nearly [to] conform our statutes with similar provisions contained in the laws of the more progressive States and the Federal Government." (1955 New York Legislative Annual, pp. 133, 135.)

should be estopped from enforcing it now for the first time. Perhaps such a lengthy repose would assist the court in interpreting an ambiguous statute. (McKinney's Cons.Laws of N.Y., Book 1, Statutes, § 129[a].) But where as here the legislation is clear, the state cannot be estopped in seeking to enforce it and invoking its criminal sanctions. (See Hamptons Hosp. v. Moore, 52 N.Y.2d 88, 93-94, 436 N.Y.S.2d 239, 417 N.E.2d 533 (1981); People v. System Properties, 281 App.Div. 433, 441, 120 N.Y.S.2d 269, 264 N.Y.S.2d 931 (1965); McKinney's Cons.Laws of N.Y., Book 1, Statutes, § 128[b]; 21 N.Y.Jur., Estoppel, Ratification and Waiver §§ 76, 92; Note, Equitable Estoppel of the Government, 79 Columbia L.Rev. 551 [1979].)

LEGISLATIVE INTENT

Defendant's grievance is that § 352-c should not apply to insider trading because of the purpose of this legislation. He urges upon the court the legislative history limited, however, to the memorandum of the Attorney General in support of its passage.

The court should not consult its legislative history except to resolve an ambiguity in the wording of a statute (People v. Graham, 55 N.Y.2d 144, 151, 447 N.Y.S.2d 918, 432 N.E.2d 790 (1982): "[T]he clarity and unambiguity of the...

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7 cases
  • Clute v. Davenport Co.
    • United States
    • U.S. District Court — District of Connecticut
    • 7 Junio 1984
    ...that the provisions of this section "are to be liberally construed." (L.1955, ch. 553 § 4), quoted in People v. Florentino, 116 Misc.2d 692, 456 N.Y.S.2d 638, 641 n. 4 (N.Y.Crim.Ct.1982). In interpreting the Act, one New York court has pointed the words "fraud" and "fraudulent practice" as ......
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    ...be a buyer or a seller of the securities in question, or that there be privity between the victim and the wrongdoer. Florentino, 116 Misc.2d at 700-02, 456 N.Y.S.2d 638. As long as fraudulent activity has occurred, the statute does not require that there have been any sale of securities. Pe......
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