U.S. v. Callipari

• Decision Date: 17 May 2004
• Docket Number: No. 03-1647.,03-1647.
• Citation: 368 F.3d 22
• Parties: UNITED STATES of America, Appellee, v. Richard P. CALLIPARI, Defendant, Appellant.
• Court: U.S. Court of Appeals — First Circuit

368 F.3d 22

UNITED STATES of America, Appellee, v. Richard P. CALLIPARI, Defendant, Appellant.

No. 03-1647.

United States Court of Appeals, First Circuit.

Heard February 5, 2004.

Decided May 17, 2004.

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Amy M. Baron-Evans, with whom Michael A. Collora, Michael B. Galvin, and Dwyer & Collora LLP, were on brief for appellant.

Marc I. Osborne, United States Department of Justice, with whom Craig N. Moore, United States Attorney, Peter A. Mullin, Special Assistant United States Attorney, and Adam J. Bookbinder, Special Assistant United States Attorney, were on brief for appellee.

Before SELYA, Circuit Judge, STAHL, Senior Circuit Judge, and LYNCH, Circuit Judge.

STAHL, Senior Circuit Judge.

A federal jury found defendant-appellant Richard Callipari guilty of conspiracy to commit wire fraud, in violation of 18 U.S.C. § 371 (Count One); wire fraud, 18 U.S.C. § 1343 (Counts Two through Eleven); and endeavoring to obstruct a Securities and Exchange Commission proceeding, in violation of 18 U.S.C. § 1505 (Count Twelve). On appeal from his conviction and sentence, Callipari contends that the district court erred (1) in its instructions to the jury on Counts One through Eleven; (2) in limiting cross-examination and closing argument; (3) in its instructions to the jury on Count Twelve; (4) in denying his motion for judgment of acquittal on Count Twelve; and (5) in calculating the loss amount attributable to him for sentencing purposes.

I. BACKGROUND

The following recitation of facts comes from an extensive record composed primarily of trial testimony, recorded phone conversations, and records of stock options trades conducted by Callipari and his co-conspirator, Thomas Connolly. All are described in a light most favorable to the verdict.

A. Callipari's tenure at Fidelity Investments

From December 1993 to April 7, 1997, Callipari was employed by Fidelity Investments, a financial services firm headquartered in Boston, as an equity trader. Callipari primarily served broker/dealers, which are firms that do not have their own customers but trade their owners' money. Among these customers were JAS Securities, Rockrimmon Securities, and Andover Securities.

During Callipari's time at Fidelity, Connolly was a Vice President and trader on Fidelity's options desk. Callipari's position at Fidelity was considered higher and more prestigious than Connolly's. Connolly had a history of alcohol and drug abuse and subsequent to the time of the offenses in this case, was diagnosed with bipolar disorder. As an options trader, Connolly bought and sold options on behalf of Fidelity customers. In particular, he facilitated the execution of customer orders for options trades by relaying these orders to the appropriate exchange for execution, such as the Chicago Board of Options Exchange (CBOE). Under Fidelity policies, he could take a "not held" order, which gave him discretion over when to execute the order. His customers, however, still had to approve which options were actually traded.

Callipari and Connolly became friends during their tenure at Fidelity and spoke regularly. Callipari introduced Connolly to Richard Englander, who was a trader for Rockrimmon and later, Andover. Callipari also encouraged his customers, including JAS, to trade options through Connolly.

Before we proceed further with the narrative, we think it important to provide some background on options trading. The offenses involved trading in Standard & Poor's 100 options at the CBOE. The Standard & Poor's 100, generally known as OEX or OEW, is an index of one hundred major stocks. There are two types of options, calls and puts. The buyer of a call option is entitled to receive a cash payment from the seller if the index closes above a predetermined "strike price" on a specified expiration date. The buyer of a put option receives a cash payment from the seller if the index closes below the strike price on the expiration date. For example, an "OEX Sep 900 call" is a call with a strike price of 900 and expires the third Friday of the September following the sale. If the OEX closes higher than 900 on that day, the seller pays the buyer the difference between 900 and the index, multiplied by $100. If the index closes at or below 900 on the expiration day, the buyer receives nothing.

Puts work in reverse. If the index closes below 900 on the expiration date, the buyer receives the difference between the closing value and 900, multiplied by $100. If the index closes at or above the strike price, the buyer gets zero.

An options buyer is said to have a "long" position in that option while the seller is said to have a "short" position. The risk is greater in the latter because while the buyer risks only the price of the option, the seller faces potentially unlimited liability because in the case of a call the market can rise to any level and for a put because the market can crash to as far as zero. Because of these risks, brokerage firms typically require customers in "short" positions to deposit a cash margin with the firm at the end of the day on which the option is sold in order to hold the option open overnight. A trader with a short position can eliminate his risk and minimize margin requirements by buying back an equal number of the same options, what is called "closing" the position. He can also reduce his risk by "hedging" the short position by taking a long position in another option of the same type (put or call), tied to the same index, but with a different strike price.

A trade is made by contacting an executing firm. Professional Trading and Research (PTR), located at the CBOE, is one such firm. When a trader requests the services of a PTR clerk in executing a trade, both the trader and the clerk fill out a ticket recording information about the trade. In this case, at the close of each business day, the PTR clerk, usually Anthony Srock, and Connolly's supervisor, Catherine Curran, "recapped" the day's trades over the phone to ensure that they matched.

Each options trader has a clearing house, like Fidelity, that holds his options and cash. Fidelity can also fill a trade order for a customer who clears his trades with another firm. In such cases, Fidelity fills the order and sends the trade either (1) to the Options Clearing Corporation (OCC) pursuant to a clearing member trading agreement (CMTA), which delivers it to the customer's clearing house, or (2) delivers it directly to the customer's clearing house in what is called a "give-up" trade. The clearing house receiving a "give-up" can "don't-know" ("DK") a trade and decline it, thereby placing the risk of any loss from the trade on Fidelity. It is more difficult for a recipient firm to decline a trade transferred through the OCC because firms that have signed a CMTA with each other agree that they will not DK trades sent to the other through the OCC.

In the summer of 1996, Connolly began to trade without orders from a specific customer. He usually placed the orders with Srock. Connolly, however, did not fill out the required tickets. At Connolly's request, Srock did not recap these unauthorized trades.

Connolly made these trades over the phone from Fidelity's options desk, where he sat only a few feet away from Curran. If the trade was unprofitable, he continued trading under Fidelity's account at the CBOE until it became profitable. Srock would hold off on submitting the tickets or ask other PTR clerks to delay handling the trade until a profit was made. Connolly then sent the proceeds of these trades to Englander through the CMTA process, but in the beginning claimed they had been made in error. He eventually told Englander that the trades were in fact not mistakes. Connolly never received the profits of these unauthorized trades; he testified that he did it in order to "prove himself" and advance at Fidelity.

In late 1996 or early 1997, Connolly's unauthorized trades began to generate multi-million-dollar losses. Connolly told Callipari about his situation and was told either to confess to Fidelity or to trade until he realized a profit. Callipari told Connolly that in the latter case, he would help find someone to take the trades. Connolly continued trading and made a $50,000 to $60,000 profit, after which Callipari arranged for JAS to take the trades. He also admonished Connolly that he was "crazy to do it again" and should "knock it off." Connolly, however, continued to place unauthorized trades, giving them either to JAS or to Englander. Like with Englander, he initially told JAS that these trades were errors.

B. Post-Fidelity relationship between Callipari and Connolly

On April 7, 1997, Callipari was fired from Fidelity and was told by Lawrence Faulkner, executive vice president in charge of Fidelity's Equity Division, that Fidelity would "refrain" from dealing with broker/dealers and, in particular, that Fidelity would no longer deal with Rockrimmon, Andover, and JAS. At a meeting the next day with Fidelity's traders, Faulkner announced that Fidelity had eliminated Callipari's position and would no longer be dealing with his customers. Connolly's supervisors were at this meeting, but Connolly himself was not. Callipari told Connolly that he had been fired because Fidelity "didn't want to do any more business with that type of customer." Fidelity did not assign a new representative to handle JAS's account. On April 18, 1997, Fidelity closed JAS's account in its computer system. JAS, however, was never told that it was no longer a Fidelity customer, though Kevin Arnone, a JAS executive at the time of Callipari's termination by Fidelity, testified that he assumed Callipari had left Fidelity because Fidelity was not doing business with hedge funds, which JAS is. Arnone also testified that he knew JAS could not trade with Fidelity without an authorized Fidelity representative. In any event, JAS stopped placing trades with Fidelity...