U.S. v. Cassese
| Decision Date | 24 October 2005 |
| Docket Number | No. 03-1710.,03-1710. |
| Citation | 428 F.3d 92 |
| Parties | UNITED STATES of America, Appellant, v. John J. CASSESE, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Second Circuit |
Steven R. Glaser, Assistant United States Attorney (Deirdre A. McEvoy, Adam B. Siegel, Gary Stein, Assistant United States Attorneys, on the brief) for David N. Kelley, United States Attorney for the Southern District of New York, New York, NY, for Appellant.
Alexandra A.E. Shapiro, Latham & Watkins LLP, New York, N.Y. (David M. Brodsky, Noreen A. Kelly-Najah, Jennifer L. Herring, on the brief), for Defendant-Appellee.
Before: CALABRESI, B.D. PARKER, and RAGGI, Circuit Judges.
The Government appeals a judgment of acquittal in the United States District Court for the Southern District of New York (Sweet, J.) following the conviction of John J. Cassese for violating Section 14(e) of the Securities Exchange Act of 1934 ("1934 Exchange Act") and Rule 14e-3 by committing fraud in connection with a tender offer. See 15 U.S.C. §§ 78n(e), 78ff; 17 C.F.R. § 240.14e-3(a). The Government charged that Cassese, the CEO of Computer Horizons Corporation, illegally purchased 15,000 shares of Data Processing Resources Corporation ("DPRC") stock after he learned from Compuware that it planned to acquire DPRC.
On appeal, the Government contends that the District Court erred in requiring proof of Cassese's belief that the Compuware/DPRC transaction was, or was likely to be, structured as a tender offer, and the Government only needed to show that Cassese believed his transactions were unlawful to prove that he acted willfully. The Government also contends that it adduced sufficient evidence of Cassese's willfulness, and, that the District Court abused its discretion in conditionally granting Cassese a new trial. We do not reach the first or third of these contentions, because we conclude that the Government—giving it all the presumptions to which it is entitled—failed to prove beyond a reasonable doubt that Cassese willfully violated Rule 14e-3 even under the more relaxed definition of willfulness it proposes. Consequently, we affirm the judgment of acquittal.
Cassese was the Chairman and President of Computer Horizons Corporation, a New Jersey-based information technology services company. In April 1999, Computer Horizons entered into merger discussions with Compuware, a publicly traded company in the same line of business, and a meeting between executives of the two companies resulted in a proposal by Compuware to purchase Computer Horizons. The proposal consisted of a letter of intent with a proposed confidentiality agreement, both of which were forwarded to Computer Horizons on May 4, 1999 by Compuware's investment banker Barry Goldsmith. See United States v. Cassese, 290 F.Supp.2d 443, 446 (S.D.N.Y. Nov.13, 2003) (Cassese II).
In the Letter of Intent, Compuware offered Computer Horizons $22.50 per share for all outstanding shares and stated that the transaction would take place through either a tender offer or a cash merger. Cassese personally stood to gain $33 million in cash if the deal had gone through. The Board of Directors of Computer Horizons rejected Compuware's offer as too low, but Cassese continued to discuss the merger with Goldsmith. Later in May 1999, Goldsmith called Cassese and told him that it was unlikely that Compuware would acquire Computer Horizons at that time.
At about the same time that Compuware had initiated merger discussions with Computer Horizons, it also contacted DPRC about the possibility of a merger. DPRC was a publicly traded company based on the West Coast that was similar in size and lines of business to Computer Horizons. DPRC and Compuware met in April and May of 1999, and by the beginning of June, the DPRC Board of Directors had approved a merger of the two companies. See id.
On June 17, 1999, Goldsmith asked the Chief Executive Officer of Compuware, Peter Karmanos, Jr., to call Cassese to inform him that Compuware was going to buy another company and that Compuware might be interested in acquiring Computer Horizons at some point in the future. At the time he made the phone call, Karmanos had not been involved in his company's negotiations with Computer Horizons and was not aware that an offer had been made to Computer Horizons. On June 21, 1999, Karmanos spoke with Cassese by phone and told him that Compuware would not be doing a deal with Computer Horizons at that time, but might be interested in purchasing it in the future. During the conversation, Karmanos also told Cassese that Compuware was going to announce a deal with DPRC but did not divulge any details about the terms or structure of the proposed transaction.
The next day, June 22, 1999, Cassese, who had previously owned shares of DPRC, purchased 15,000 shares of DPRC stock in his own name in two of his brokerage accounts. He called Joseph Moschella, a friend of his son's and a broker at Morgan Stanley, but could not reach him. He then called Michael Pizzutello, his broker at Merrill Lynch, and placed an order for 10,000 shares. A short time later, when Moschella called him back, Cassese placed an order for an additional 5,000 shares of DPRC and, in order to cover the cost of the purchase, sold another stock in his portfolio.
On June 24, 1999, Compuware announced that it would make a tender offer for all outstanding shares of DPRC. Later that day, Moschella informed Cassese of the merger announcement and the current trading price of the stock. Moschella testified at trial that Cassese sounded surprised when Moschella told him about the tender offer announcement. Cassese asked Moschella to sell the DPRC shares in his Morgan Stanley account, and Cassese made a profit of approximately $49,000 on the sale. Approximately twenty minutes later, Cassese called Donald Pizzutello (Michael Pizzutello's father and partner) and asked him to sell the DPRC shares in his Merrill Lynch account. Cassese made a profit of almost $100,000 on this second sale, contributing to a combined profit of about $149,000. Sometime after Donald Pizzutello sold Cassese's DPRC shares in the Merrill Lynch account, Cassese asked him if he could cancel the trades, and Pizzutello told him that the trades could not be undone. When interviewed by FBI agents several years later, Pizzutello did not remember Cassese asking him if he could cancel the trades. However, when Pizzutello told Cassese about the interview, Cassese reminded him of the cancellation call and urged him to call the FBI back and set the record straight, which Pizzutello did.
In August 1999, approximately two months after Cassese's DPRC transactions, Cassese and Goldsmith discussed Cassese's purchase of DPRC stock, and Goldsmith testified at trial that he recalled Cassese admitting to him during that conversation, in substance, that "he had made a stupid mistake." (Tr. 206). Goldsmith explained in his testimony that he understood Cassese to mean that he had done something that "he should not have done," but Goldsmith did not recall Cassese saying that he felt he had done anything wrong. (Tr. 208, 251-52). Goldsmith also testified that he had the impression Cassese was "upset or angry" but that it was not clear to him why. (Tr. 208-09, 252-53).
On February 25, 2002, the SEC filed a complaint against Cassese for insider trading in DPRC securities. Cassese consented to the entry of judgment against him, and agreed to pay disgorgement in the amount of $150,937.50, prejudgment interest of $19,512.84, and a civil penalty of $150,937.50. Cassese II, 290 F.Supp.2d at 444.
A year later, in March 2003, Cassese was indicted on two counts of insider trading for violating Sections 10(b) and 14(e) of the 1934 Exchange Act. See 15 U.S.C. §§ 78j(b), 78n(e), 78ff; 17 C.F.R. §§ 240.10b-5, 240.14e-3. The District Court concluded that Cassese owed no fiduciary duty to Karmanos or Compuware and dismissed the count predicated on Section 10(b). United States v. Cassese, 273 F.Supp.2d 481, 485-88 (S.D.N.Y. July 23, 2003) (Cassese I). The count charging a violation of Section 14(e) and Rule 14e-3 proceeded to trial, which began on September 15, 2003 and lasted six days. The Court declared a mistrial after the jury was unable to reach a unanimous verdict.
A second trial on the Section 14(e) count commenced on September 29, 2003, and after four days, the jury rendered a guilty verdict. In the second trial, after the Government concluded its case, Cassese moved for a judgment of acquittal pursuant to Rule 29. See Fed.R.Crim.P. 29. He advanced a number of arguments in support of the motion, including a contention that under Section 14(e) the Government was required, but failed, to prove that Cassese knew the transaction was a tender offer and that the Government's evidence of criminal intent was circumstantial and consistent with his innocence, or at most, equally supported inferences of innocence and guilt. This motion was denied at that time without prejudice to its later renewal. Following the guilty verdict, Cassese renewed his Rule 29 motion, which Judge Sweet granted in a thoughtful opinion. Cassese II, 290 F.Supp.2d at 445.
The District Court concluded that, in criminal prosecutions under Section 14(e) and Rule 14e-3, where no other securities laws violations are alleged, the Government, to prove willfulness, must prove that the defendant believed that the material non-public information he traded upon related to, or most likely related to, a tender offer. Cassese II, 290 F.Supp.2d at 448-57. The Court concluded that the evidence at trial was insufficient to support the jury's finding that Cassese acted with criminal intent. Id. The District Court also held, in the alternative, that a new trial would be warranted should this Court reverse the judgment of acquittal. Id.
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