Stinn v. United States

• Decision Date: 18 April 2012
• Docket Number: No. 11–cv–2071 (NG).,11–cv–2071 (NG).
• Citation: 856 F.Supp.2d 531
• Parties: Bradley J. STINN, Petitioner, v. UNITED STATES of America, Respondent.
• Court: U.S. District Court — Eastern District of New York

856 F.Supp.2d 531

Bradley J. STINN, Petitioner,
v.
UNITED STATES of America, Respondent.

No. 11–cv–2071 (NG).

United States District Court,
E.D. New York.

April 18, 2012.

Limitation Recognized

18 U.S.C.A. § 1346

[856 F.Supp.2d 534]

David W. Shapiro, Boies Schiller & Flexner LLP, Oakland, CA, for Petitioner.

James G. McGovern, Mary M. Dickman, United States Attorneys Office, Brooklyn, NY, for Respondent.

OPINION & ORDER
GERSHON, District Judge:

On October 24, 2009, after a seven week jury trial, petitioner, former CEO of Friedman's Inc. (“Friedman's”), was found guilty by the jury of one count of securities fraud under 18 U.S.C. § 1348, one count of mail fraud under 18 U.S.C. § 1341, and one count of conspiracy to commit securities fraud, mail fraud, and wire fraud under 18 U.S.C. § 1349. The jury also returned a verdict against defendant on the issue of forfeiture, in the amount of $1,019,000, which represented the proceeds of the offenses for which petitioner was convicted.

Stinn now petitions, pursuant to 28 U.S.C. § 2255, for a writ of habeas corpus. In his petition, Stinn raises one claim—dealing with the scope of honest services fraud under § 1346—that he could have, but did not, raise on direct appeal, and another claim—dealing with the dismissal of a juror during deliberations—that he raised on direct appeal, but which was rejected by the Second Circuit. United States v. Stinn, 379 Fed.Appx. 19 (2d Cir.2010). In denying petitioner's motion for judgment of acquittal under Rule 29 of the Federal Rules of Criminal Procedure, I noted that, in the face of voluminous evidence supporting the convictions, “defendant's motion papers distort and mischaracterize the evidence produced at trial and, most importantly, ignore the mass of evidence which supports the government's position.” Petitioner, who is represented by the same attorney who represented him at trial and on the Rule 29 motion, again massively distorts the trial record and case law, and, in response to the government's opposition to the § 2255 motion, seriously mischaracterizes the government's positions. Understanding these tactics is essential to understanding the petition's lack of merit.

I. BACKGROUND

On December 3, 2007, the government filed a superseding indictment against petitioner, alleging mail fraud, securities fraud, and conspiracy to commit mail, wire, and securities fraud. The government alleged that petitioner “engaged in a scheme to defraud investors by, among other things, falsifying Friedman's accounting data and misrepresenting Friedman's financial condition in public statements and reports.” The government alleged that petitioner's scheme was designed to “obtain money and property from shareholders and the investing public.” The indictment did not charge petitioner with depriving Friedman's of petitioner's honest services.

As I stated when I denied petitioner's motion for a judgment of acquittal under Rule 29, the government, at trial, “introduced voluminous evidence establishing that Stinn knowingly and willfully, with the specific intent to defraud, engaged in a scheme to materially misrepresent Friedman's true financial condition ....” The government presented evidence that petitioner made a variety of material misrepresentations to Friedman's shareholders, auditors, and analysts about Friedman's credit-granting policies and delinquent accounts, and that he manipulated Friedman's allowance for doubtful accounts (and other reserves) in order to meet or exceed market expectations for earnings per share (“EPS”). Petitioner's misstatements were also included in public filings made

[856 F.Supp.2d 535]

with the Securities and Exchange Commission (“SEC”). Among the evidence presented was first-hand testimony from Friedman's former Chief Financial Officer, Victor Suglia, and its former Controller, John Mauro (as well as other Friedman's employees), who both testified that they regularly worked on and discussed with Stinn the accounting manipulations that were used to meet the desired EPS. For example, Suglia testified that he and Stinn would “basically arrive at a [EPS] number ... and ... manipulate the accounting records to arrive at that number.” Tr. at 1006–1010.¹ Suglia testified that he maintained a list of reserves, including the reserve for doubtful accounts, that could be manipulated.

There was also testimony about how petitioner participated in a “scooping” scheme, in which the books would be left open for several days past quarter end in an effort to pull revenue from a future quarter into the current quarter. Mauro testified that fiscal periods would be “kept open for maybe another week or two, and payments made in that period subsequent to our period end date were then applied ... as if they occurred” in the previous period. Tr. at 2330–31. Mauro testified that scooping was openly discussed at company meetings and that petitioner participated in these discussions and approved the decisions. Id. at 2331. Mauro testified that scooping occurred at every quarter end and at every year end. Mauro's testimony outlined in detail this and other accounting manipulations and misstatements used to ensure that Friedman's reported EPS figures were on par with forecasts. Also in evidence were voluminous documents that supported the testimony of Suglia and Mauro.

And finally, the government presented testimony and documentary evidence regarding the proceeds of petitioner's fraud. The government showed that petitioner received raises, bonuses, and stock incentives tied directly to Friedman's fraudulently inflated EPS figures. Bob Cruickshank, the Chairman of Friedman's Compensation Committee, testified that Stinn's bonus, as well as other performance incentives, were the “direct result of the reported earnings” for 2002. Tr. at 1959–63. Likewise, both Suglia and Mauro testified that bonuses were linked directly to the company's EPS. Tr. at 1399–1402; Tr. at 2340. Suglia testified specifically that “absent the manipulation[s],” he and Stinn would have received no bonus for 2002. Tr. at 1400. Suglia also testified that he and Stinn made material misstatements in a September 2003 prospectus, which Friedman's used to complete a $44 million stock offering. Tr. at 1480–84.

Between November 11 and December 3, Friedman's made a series of corrective disclosures, which revealed the extent of petitioner's fraud. During that period, Friedman's also announced Stinn's resignation. By December 3, when the effect of petitioner's fraud had been disseminated to the market and incorporated into the company's share price, Friedman's had lost nearly half the market capitalization it had immediately prior to the company's first corrective disclosure on November 11. Tr. at 3219.²

[856 F.Supp.2d 536]

At the close of evidence, the court instructed the jury on the elements of conspiracy, mail fraud, and securities fraud. Pertinently, the court instructed the jury that

A ‘scheme or artifice [to defraud]’ in [the context of securities fraud] means a plan or course of action that intends some harm to the property rights of another .... Thus a scheme to defraud is any plan, device or course of action to obtain money or property by false or fraudulent representations .... The government must prove beyond a reasonable doubt that the scheme contemplated or intended some harm to property rights of another. This requirement is satisfied if you find either that the government proved beyond a reasonable doubt that the defendant planned to obtain or actually obtained money from Friedman's by materially fraudulent representations or that the defendant intended that other individuals would make investment decisions as to Friedman's shares based on materially fraudulent representations. However, you must be unanimous as to at least one of these alternatives.

Tr. at 4402–06. The court reiterated this instruction with regard to the “scheme or artifice to defraud” element of mail fraud and wire fraud. Tr. at 4421, 4429. Nowhere in the instructions did the court instruct the jury on honest services fraud or tell the jury they could find petitioner guilty if they found that petitioner's scheme intended to deprive Friedman's of his honest services.

During deliberations, a juror was dismissed for consulting with, and seeking advice from, an outside party regarding the difference between fraud and conspiracy.³ After the dismissed juror was replaced with an alternate juror, and the jury deliberated anew, the jury found petitioner guilty on all counts. Stinn appealed his conviction, challenging only the court's giving of a conscious avoidance instruction and the handling of the juror's dismissal during deliberations. The Second Circuit affirmed, and the Supreme Court denied certiorari. Stinn v. United States, ––– U.S. ––––, 131 S.Ct. 676, 178 L.Ed.2d 484 (2010). At no point in his direct appeal did petitioner assert that his conviction was based on an unconstitutional interpretation of § 1346, that his conduct fell outside the scope of § 1346, or that § 1346 should be struck down as unconstitutionally vague.

II. THE SKILLING CLAIM

Petitioner asserts that the Supreme Court's decision in Skilling v. United States, ––– U.S. ––––, 130 S.Ct. 2896, 177 L.Ed.2d 619 (2010), applies to his case and requires reversal of his conviction. First, however, he argues that he can establish cause and prejudice for the procedural default that resulted from his not having raised a Skilling-type argument on direct appeal. ⁴

[856 F.Supp.2d 537]

A. The Skilling Decision

As an initial matter, it is important to determine the parameters of Skilling, because petitioner goes to great lengths to draw parallels between the evidence presented in Skilling and the evidence presented at his own trial. According to petitioner, Skilling now prevents all criminal prosecution for “an alleged scheme of non-disclosure and concealment of material information” in order to receive money and property such as “bonuses, grants of stock...