U.S. v. Cassese

• Decision Date: 13 November 2003
• Docket Number: No. 03 CR.302 RWS.,03 CR.302 RWS.
• Parties: UNITED STATES of America, v. John J. CASSESE, Defendant.
• Court: U.S. District Court — Southern District of New York

290 F.Supp.2d 443

UNITED STATES of America, v. John J. CASSESE, Defendant.

No. 03 CR.302 RWS.

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

November 13, 2003.

Honorable James B. Comey, United States Attorney for the Southern District of New York, New York, NY, By: Deirdre A. McEvoy, Ausa, Steven R. Glaser, Ausa, of counsel.

Latham & Watkins, New York, NY, By: David M. Brodsky, Alexandra A.E. Shapiro, Noreen A. Kelly-Najah, for Defendant, of counsel.

OPINION

SWEET, District Judge.

Defendant John J. Cassese ("Cassese") has moved for a judgment of acquittal pursuant to Federal Rule of Criminal Procedure ("Rule") 29(c), along with a conditional grant of a new trial pursuant to Rule 29(d), and, in the alternative, for a new trial pursuant to Rule 33. As set forth below, Cassese is granted a judgment of acquittal and conditionally granted a new trial.

Prior Proceedings

On February 25, 2002, the SEC filed a complaint against Cassese for insider trading in Data Processing Resources Corporation ("DPRC") securities. Neither admitting nor denying any of the allegations against him, Cassese consented to the entry of a Final Judgment of Permanent Injunction and Other Relief (the "Consent Order") in the civil enforcement action against him. In the Consent Order, Cassese agreed to pay disgorgement in the amount of $150,937.50, plus prejudgment interest of $19,512.84, and to pay a civil penalty in the amount of $150,937.50.

Cassese was subsequently criminally indicted in March 2003 and charged with two counts of insider trading. On July 23, 2003, the count predicated on Section 10(b) (Count Two) was dismissed because Cassese owed no fiduciary duty to Peter Karmanos ("Karmanos")¹ or his company, Compuware. United States v. Cassese, 273 F. Supp.2d 481, 486-88 (S.D.N.Y.2003). The remaining count of the Indictment (Count One) charged Cassese with violating Section 14(e) and Rule 14e-3.

Two jury trials were held. The first trial, which began on September 15, 2003 and lasted six days, resulted in a mistrial after the jury was unable to reach a unanimous verdict. The second trial commenced on September 29, 2003, and after a four day trial, the jury rendered a guilty verdict.²

After the close of the government's case-in-chief in the first trial, Cassese moved for a judgment of acquittal pursuant to Rule 29, arguing that a criminal prosecution under Rule 14e-3 required the government to establish as separate elements of the crime that Cassese knew the Compuware-DPRC merger would take the form of a tender offer and that substantial steps had been taken in furtherance of that tender offer; and that the government failed to produce any evidence of such knowledge. This motion was denied.

In the first trial, upon further questioning from the jury,³ the jury was instructed that the law did "not require the government to prove that the defendant had knowledge of a tender offer." However, they could consider Cassese's "knowledge, or lack of knowledge, of a tender offer with respect to the issue of [his] intent and willfulness." (First Trial Court Ex. 9.)

In the second trial, after the government rested, Cassese again moved for a judgment of acquittal pursuant to Rule 29. He moved on two grounds, incorporating by reference the arguments advanced in his Rule 29 motion from the first trial and arguing in the alternative that all of the evidence offered to establish his intent was circumstantial and consistent with his innocence, or at most, equally supported inferences of innocence and guilt. This motion was denied without prejudice to a later motion for a judgment notwithstanding the verdict.

At 4:35 p.m. on its only day of deliberations, the jury asked to hear certain testimony of Barry Goldsmith ("Goldsmith"), the investment banker who worked on the Compuware/DPRC deal. The testimony related to Computer Horizons' interest in acquiring DPRC in 1998, about a year before the stock trades at issue took place. At 4:55 p.m., after hearing this testimony, the jury rendered a verdict of guilty. After the verdict, Cassese renewed his Rule 29 motion.

Cassese's instant motion was marked fully submitted on November 7, 2003. Cassese claims that he should be granted a judgment of acquittal because the evidence was insufficient as a matter of law to establish that he acted with criminal intent. In the alternative, he argues that a new trial is necessary because the verdict was against the weight of the evidence; the last jury note showed it relied on evidence that could not reasonably be interpreted to support Cassese's guilt; and Cassese was unfairly prejudiced by the government's arguments regarding an "anger theory," which has no evidentiary basis.

Facts Established by Proceeding

The testimony and exhibits offered during the second trial established the following facts:

Cassese was the Chairman and President of Computer Horizons Corporation, a New York corporation with its principal place of business in Mountain Lakes, New Jersey. Cassese founded Computer Horizons in 1969. By 1999, when it was in its 27^th year as a public company, it had grown to $ 515 million in revenue. It had 4,800 employees globally, 800 clients, and 50 offices worldwide.

In April 1999, Computer Horizons and Compuware entered into discussions about a possible business combination. There was a single meeting between executives of Compuware and Computer Horizons on April 12, 1999, which resulted in a proposal by Compuware to purchase Computer Horizons. This offer took the form of a letter of intent ("Letter of Intent") that attached a proposed confidentiality agreement ("Proposed Confidentiality Agreement"). Goldsmith, Compuware's investment banker, forwarded the Letter of Intent and Proposed Confidentiality Agreement to Computer Horizons on May 4, 1999.

The Letter of Intent offered Computer Horizons $22.50/share for all outstanding shares. According to the Letter of Intent, this transaction would take place through either a tender offer or cash merger. The Board of Directors of Computer Horizons rejected Compuware's offer as too low. Sometime towards the end of May 1999, Goldsmith called Cassese and told him that Compuware had decided not to acquire Computer Horizons at that time.

At the same time that Compuware made its initial contact with Computer Horizons, it also contacted DPRC about the possibility of a merger. The parties met in April and May of 1999, and by the beginning of June, the DPRC Board of Directors had approved a merger with Compuware. On June 17, 2003, Goldsmith asked the Chief Executive Officer of Compuware, Karmanos, to call Cassese to tell him that Compuware was going to buy another company, but that it might be interested in buying Computer Horizons in the future. Karmanos had not been involved in his company's negotiations with Computer Horizons and was not even aware that an offer had been made to Computer Horizons until over a year after this phone call.

On June 21, 1999, Karmanos spoke with Cassese, whom he had never met, for the first and only time on a four-minute phone call. During that call, Karmanos told Cassese that (1) Compuware would not be doing a deal with Computer Horizons at that time, but might be interested in purchasing it in the future; and (2) that Compuware was going to announce a deal with DPRC instead. Karmanos did not tell Cassese any details about the deal.

On June 22, 1999, Cassese purchased 15,000 shares of DPRC stock in two brokerage accounts in his own name, in which he regularly made unsolicited purchases of stock. At approximately 9:30 a.m. that day, Cassese called his Morgan Stanley broker, Joseph Moschella ("Moschella") (a friend of his sons) to buy shares of DPRC. Moschella was not there. Cassese then called Michael Pizzutello ("Pizzutello"), his Merrill Lynch broker, and placed an order for 10,000 shares of DPRC. When Moschella called Cassese back a few minutes later, he placed an order with him for an additional 5,000 shares of DPRC. To cover the purchase price of the DPRC stock, Cassese asked Moschella to liquidate a position in IKON, with respect to which he made a substantial profit.

Moschella and Pizzutello testified that Cassese did not seem nervous or excited when he called them; he bought a normal number of shares and used an ordinary amount of money; and, as was common for Cassese and other clients, he bought shares first thing in the morning before his business day began. Moschella also testified that it was common for Cassese to liquidate a position in one stock to buy another. Both brokers testified that Cassese had made much larger purchases of stock in the past with respect both to the number of shares and purchase price. Cassese had further purchased DPRC stock before; in an account he maintained at Robert W. Baird & Co., Inc., Cassese previously purchased 1,500 shares of DPRC in November 1996 and another 500 shares of DPRC in March 1997, and sold all 2,000 shares in June 1997. Cassese never asked the brokers to monitor DPRC stock and never called in to check on the price or status of the stock.

On June 24, 1999, at 8:43 a.m., Compuware announced that it would make a tender offer for all of the outstanding shares of DPRC at $24.00/share. Moschella saw the news of the tender offer that morning and called Cassese to tell him about it, but was unable to reach him. Moschella eventually spoke with Cassese at approximately 1:45 p.m. and informed him of the merger announcement and the current trading price of the stock. Cassese seemed surprised to learn of the announcement and asked Moschella to sell the DPRC shares. Cassese made a profit of approximately $49,000 on this sale.

Approximately twenty minutes later, Cassese called Donald Pizzutello ("Mr.Pizzutello"), Michael Pizzutello's father and partner, and asked him to sell the DPRC shares held in his Merrill Lynch account. Cassese made a profit of almost $100,000 on these transactions. During a subsequent telephone conversation with Mr....