U.S. v. Berger, 00 CR. 877(VM).
| Decision Date | 25 January 2002 |
| Docket Number | No. 00 CR. 877(VM).,00 CR. 877(VM). |
| Citation | 188 F.Supp.2d 307 |
| Parties | UNITED STATES of America, v. Michael BERGER, Defendant. |
| Court | U.S. District Court — Southern District of New York |
Defendant Michael Berger (hereinafter "Berger") pled guilty on November 27, 2000 to one count of a two-count information charging securities fraud in violation of § 10(b) of the Securities Exchange Act of 1934, codified at 15 U.S.C. § 78j(b). On September 24, 2001, Berger filed a motion to withdraw his guilty plea, arguing, inter alia, that at the time he entered his guilty plea: (1) he lacked the capacity to voluntarily, knowingly and intelligently plead guilty; (2) the Court failed to conduct a sufficient inquiry into his alleged mental condition and its impact on his competence to plead; (3) he was provided ineffective assistance of counsel; and (4) his plea agreement with the Government contained a material misstatement of the fine range applicable to the charged offense. Oral argument in connection with the motion was heard on January 3, 2002. For the reasons set forth below, Berger's motion is denied.
Michael Berger was born on November 13, 1971 in London, England and grew up in Salzburg, Austria. (See Forensic Psychological Report of Dr. Sanford L. Drob, dated October 4, 2000 (hereinafter "Drob's Report"), at 7.) From 1990 to 1993, Berger studied macroeconomics at Johannes Kepler University in Linz, Austria. (Id. at 9.) In 1993, he left the university and came to New York to work for Financial Asset Management, Inc. (hereinafter "FAM"), a securities broker-dealer which maintained its headquarters in Columbus, Ohio. (Id.)
In August 1995, Berger, then 24 years old, established an investment company named the Manhattan Investment Fund Limited (hereinafter the "Hedge Fund"). (See United States v. Michael Berger, Information 00 Cr. 877, filed August 23, 2000 (hereinafter the "Information"), ¶ 4.) Berger served as one of three directors of the Hedge Fund. (Id. ¶ 3.) Berger managed the day-to-day operations of the Hedge Fund through Manhattan Capital Management, Inc. (hereinafter "MCM"), an investment company of which Berger was the President, Secretary and one hundred percent shareholder. (See Information ¶ 3 and Presentence Investigation Report, United States v. Michael Berger, Probation Office, United States District Court, Southern District of New York, dated April 18, 2001 (hereinafter the "PSR"), ¶¶ 7-11.) MCM had approximately six employees and maintained its headquarters at 410 Park Avenue, New York, New York. (Information ¶¶ 2, 3.)
In December 1999, representatives from the United States Securities and Exchange Commission (hereinafter the "SEC") requested that Berger produce certain documents relating to the Hedge Fund. Several weeks later, Berger retained the law firm of Wilkie, Farr & Gallagher (hereinafter "Wilkie"). Benito Romano, Esq. (hereinafter "Romano"), of Wilkie served as his primary counsel. Berger asserts that, pursuant to Romano's advice, he met and cooperated with representatives from the United States Attorney's Office (hereinafter the "USAO") and the SEC several times over the following three months, from January to March of 2000. (Berger Aff. ¶ 5.) On or about March 30, 2000, Romano advised Berger that he could no longer represent him due to a recently discovered conflict of interest. (Berger Aff. ¶ 12.)
In April 2000, Berger retained the law firm of Morvillo, Abramowitz, Grand, Iason & Silberberg, P.C. (hereinafter "Morvillo"). Paul Grand, Esq. (hereinafter "Grand"), and Sara Mogulescu, Esq. (hereinafter "Mogulescu"), served as Berger's primary counsel. Allegedly acting upon Grand's advice, Berger continued meeting with representatives from the USAO and the SEC. In spite of Berger's attempts to cooperate, the Government declined to enter into a cooperation agreement with him.
On January 18, 2000, the SEC commenced a civil enforcement proceeding against Berger, the Hedge Fund, and MCM, alleging violations of various securities laws. See Securities and Exchange Commission v. Berger, No. 00 Civ. 333, 2001 WL 1403028,*1 (S.D.N.Y. Nov. 13, 2001) (Cote, J.) (hereinafter "SEC v. Berger").1 The next day, on January 19, 2000, the Court in that case appointed a receiver (hereinafter "the Receiver") for defendants MCM and the Hedge Fund. Id. According to Berger, the Receiver designated was recommended by Romano and allegedly had a friendly relationship with Romano and later with Grand. In March 2000, the Receiver caused the Fund and MCM to file voluntary petitions for relief under Chapter 11 of the Bankruptcy Code. Id. On April 10, 2000, the United States Bankruptcy Court for the Southern District of New York approved the appointment of the Receiver as Chapter 11 Trustee for MCM and the Hedge Fund. Id.
On August 24, 2000, Berger waived indictment and entered a plea of not guilty to the two counts contained in the Information. Count One of the Information charged that from September 1996 through January 2000, Berger, in connection with the purchase and sales of securities, made false representations and material omissions regarding the performance and financial status of the Hedge Fund to its investors, administrator and auditors, in violation of § 10(b), 15 U.S.C. § 78ff, Rule 10b-5, and 18 U.S.C. § 2. Count Two of the Information charged that from September 1996 through January 2000, Berger, acting as an investment adviser, made false representations and material omissions regarding the Hedge Fund's performance and financial status to its investors, administrator and auditor, in violation of 15 U.S.C. §§ 80b-6(1), 80b-6(2), and 80b-17, and 18 U.S.C. § 2.
Specifically, the events and Berger's role in them, as set forth in the Information, allege that in August 1995, Berger established the Hedge Fund, incorporating it under the laws of the Territory of the British Virgin Islands. (Information ¶¶ 1, 4.) In April 1996, Berger began selling shares in the Hedge Fund through a confidential offering memorandum. (Id. ¶ 4.) According to the confidential memorandum, the Hedge Fund employed a short to intermediate contrarian investment strategy based on a premise that the stock market, particularly technology and Internet related stocks, was overvalued and that a market correction would soon cause a decline in stock prices. (Id. ¶¶ 4, 5.) However, because the prices of most of the stocks in which Berger invested for the Hedge Fund continually rose, the Hedge Fund consistently suffered losses. (Id. ¶ 5.)
The Hedge Fund maintained a brokerage account at FAM. (Id. ¶ 7.) FAM, in turn, cleared all of the Hedge Fund's trades through FAM's clearing broker, Bear Stearns Securities Corporation (hereinafter "Bear Stearns"). (Id.) The Hedge Fund contracted with Fund Administration Services (Bermuda) Limited (hereinafter the "Administrator"), an affiliate of Ernst and Young, to administer certain aspects of the Hedge Fund, including sending monthly account statements and letters from Berger to the Hedge Fund's investors. (Id. ¶ 9.) Prior to sending the monthly account statements to investors, the Administrator calculated the Hedge Fund's net asset value (hereinafter "NAV") and the market value of each investor's shares in the Hedge Fund. (Id. ¶ 9.)
Starting in September 1999, in order to conceal losses suffered by the Hedge Fund, Berger created false account statements for the Administrator. (Id. ¶ 10.) Although the Administrator received accurate account statements from Bear Stearns, Berger sent fabricated FAM statements with inflated numbers to the Administrator and told the Administrator that because Bear Stearns held only a fraction of the Hedge Fund's portfolio, it should disregard Bear Stearns's statements. (Id. ¶ 12.) Following Berger's instruction, the Administrator used the false FAM account statements to calculate the market value of each investor's shares. (Id.) As a result of these calculations, from September 1996 to December 1999, the Administrator sent the Hedge Fund's investors monthly statements that grossly exaggerated the Hedge Fund's performance and market value. (Id.)
In addition, Berger also concealed the Hedge Fund's losses from its auditors, Deloitte and Touche (Bermuda) (hereinafter "Deloitte"). (Id. ¶ 15.) From May 1997 to March 1999, Berger sent Deloitte fabricated financial information about the Hedge Fund but made it appear as if the information was being sent or faxed directly from FAM. (Id.) Working from the false information that it received from Berger, Deloitte issued unqualified audit reports for the years 1996, 1997, and 1998. (Id. ¶ 16.) During this time, Berger also distributed information, such as confidential offering memoranda, to prospective investors. (Id. ¶ 17.) Some of this information misrepresented the performance of the Hedge Fund, claiming that it had achieved substantial returns, when, in fact, it had incurred significant losses. (Id.) The discrepancies were significant, as illustrated in the following chart cited by the Government:
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False Asset Number Actual Assets Held
Year Provided by BERGER at Bear Stearns
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1996 $ 17.9 million $ 5.6 million
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1997 $ 91.5 million $39.3 million
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1998 $263.2 million $ 3.9 million...To continue reading
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