U.S. v. Grossman

• Decision Date: 25 March 1988
• Docket Number: No. 777,D,777
• Citation: 843 F.2d 78
• Parties: 25 Fed. R. Evid. Serv. 579 UNITED STATES of America, Appellee, v. Israel G. GROSSMAN, Appellant. ocket 87-1419.
• Court: U.S. Court of Appeals — Second Circuit

Page 78

843 F.2d 78

25 Fed. R. Evid. Serv. 579

UNITED STATES of America, Appellee, v. Israel G. GROSSMAN, Appellant.

No. 777, Docket 87-1419.

United States Court of Appeals Second Circuit.

Argued Feb. 19, 1988.

Decided March 25, 1988.

Alan M. Dershowitz, Cambridge, Mass. (Mark D. Cahn, Victoria B. Eiger, Nathan Z. Dershowitz, and Dershowitz & Eiger, New York City, on the brief), for appellant.

Robert Gage, Asst. U.S. Atty., New York City (Rudolph W. Giuliani, U.S. Atty., Celia Goldwag Barenholtz and John F. Savarese, Asst. U.S. Attys., New York City, on the brief), for appellee.

Before TIMBERS, KEARSE and MAHONEY, Circuit Judges.

TIMBERS, Circuit Judge:

Appellant Israel G. Grossman appeals from a judgment entered September 15, 1987 in the Southern District of New York, upon a jury verdict, Richard Owen, District Judge, convicting appellant on (1) nineteen counts of securities fraud, in violation of 15 U.S.C. Secs. 78j(b) (1982), 78ff (1982 & Supp. IV 1986) and 17 C.F.R. Sec. 240.10b-5 (1987); and (2) nineteen counts of mail fraud, in violation of 18 U.S.C. Secs. 2 and 1341 (1982).

On appeal, Grossman claims principally that he was not given enough time to prepare for trial on a superseding indictment which was returned two business days before trial; and that he should have been given allegedly exculpatory grand jury testimony. Other subordinate claims are raised.

We hold that the district court did not abuse its discretion in denying Grossman's motion to dismiss the superseding indictment or in failing to grant a continuance to prepare for trial on the superseding indictment. We also hold that the government was not obliged to provide Grossman with the grand jury testimony.

We affirm.

I.

We shall summarize only those facts and prior proceedings believed necessary to an understanding of the issues raised on appeal.

At the time of the events in question, Grossman was an associate in the Manhattan law firm of Kramer, Levin, Nessen, Kamen & Frankel ("Kramer Levin" or "the firm"). He became associated with Kramer Levin in October 1984 and worked in its pension department which consisted of two partners and five associates.

On July 9, 1986, attorneys in the pension department of Kramer Levin were retained by the trustees of a pension plan known as the Retirement Savings Plan for Salaried Employees (the "Plan") of Colt Industries, Inc. ("Colt"). The Plan retained Kramer Levin to represent it in connection with a proposed recapitalization of Colt scheduled for July 20, 1986. Under the recapitalization each Colt shareholder except the Plan would redeem their common stock in exchange for a cash payment of $85 per share and one share in the recapitalized company. A share in the recapitalized company was expected to have a value of $15. The Plan, which held about seven percent of Colt's stock, would receive no cash but instead would receive an equivalent number of shares in the recapitalized company. Public announcement of the proposed recapitalization was expected to cause Colt's stock to rise dramatically.

Starting on July 9, 1986 and continuing until the recapitalization was announced, Kramer Levin attempted to keep information of the recapitalization confidential. On drafts of documents and in correspondence, it used a code name for the matter or omitted the client's name and dollar amounts. It established the policy of not letting others in the firm know of the matter except on a "need-to-know" basis.

Kramer Levin also periodically circulated to its attorneys a general memorandum on its confidentiality policy. This memorandum stated that attorneys receiving information from clients could not use that information for trading and could not give it to anyone else for any purpose. Kramer Levin circulated this confidentiality memorandum several times while Grossman was an associate. The last time the firm circulated the memorandum prior to the Colt transaction was November 1, 1985.

On July 10, 1986 (the day after the Plan retained Kramer Levin), Michael Nassau, the senior partner in the pension department, met with several attorneys in the department (not including Grossman), and briefed them on the Colt recapitalization. Martin Fleischer was one of the associates at the meeting.

That same evening, Grossman went to Fleischer's office and asked him if he was working on the new transaction Grossman had been hearing about. Fleischer said he was. In response to further questions from Grossman, Fleischer told him almost everything about the recapitalization, including the estimated value of the new shares; the amount of cash per share to be given to the shareholders; and the identity of "the others involved". At trial, Fleischer was unsure whether he divulged to Grossman the name of the client; he testified that he did not recall his response when Grossman asked him the client's name. Fleischer also testified that Grossman had visited him only five other times in the year and a half they had worked together.

The events that occurred subsequent to the meeting between Fleischer and Grossman are in dispute. Substantial circumstantial evidence, however, in particular Kramer Levin's telephone records, indicates that, starting with that same evening of July 10, 1986, Grossman (or someone using his office phone) began placing numerous phone calls to Grossman's friends and relatives (the "relatives", collectively). Fifty calls were made between July 10, and July 16, 1986. Grossman made 20 calls to his uncle, George Hirshberg; 7 calls to his cousin, Walter Herzberg; 5 calls to another cousin's husband, Shimon Lev; 3 calls to Shimon Lev's friend and business partner, Norman Stein; 3 calls to Grossman's brother-in-law, Saul Listokin; and 12 calls to Listokin & Sons ("L & S"), Listokin's company.

Also starting on July 10, someone frequently called from Grossman's office two discount brokerage firms, Whitehall Securities ("Whitehall") and Datek Securities ("Datek"). Grossman had no accounts at these firms, but Listokin and Stein did. These calls, 14 in all, frequently were made before or after calls to L & S or Stein. Moreover, the person in Grossman's office made calls that coincided precisely with the placement of orders to purchase Colt call options. Peter Gamby was the president of Whitehall and the person who received the calls from Grossman's office. He testified that, upon receiving phone orders, it was his practice (1) to put an investor on hold and time-stamp the order; (2) to execute the order and time-stamp it again; and (3) to take the investor off hold to confirm that the order had been placed. Telephone records and Gamby's time-stamps indicated that Whitehall placed the orders during the exact times when it was receiving calls from Grossman's office.

During the periods immediately preceding and following the July 10-16 period, Grossman placed no phone calls to any of the relatives or brokerage firms, except for 3 calls to Saul Listokin and 16 to L & S.

All of the relatives made massive purchases of Colt "out-of-the-money" call options over the next few days--i.e., between July 11 and July 18, 1986. ¹ For example, they purchased over 80% of "August 80" options (options expiring in August and with a strike price of $80)--the most speculative category of option. None of the relatives had purchased Colt securities before, and none sought advice from their brokers regarding their purchases.

The government asserts that Grossman made the purchases for Listokin, both over the phone and once in person at Whitehall. While the evidence is inconclusive, it does show that on July 14, 1986 someone identifying himself as Listokin entered Whitehall and met with Gamby, its president. He purchased options for the benefit of Saul Listokin, and signed the necessary forms. Someone identifying himself as Listokin telephoned Gamby later to change the name of the beneficiary. Gamby sent new forms to Listokin's address, and received them back signed after a few days. Handwriting analysis showed the signature on the second set of forms was Listokin's but the signature on the first set was not. Neither the government nor Grossman used the results of the comparison of Grossman's handwriting with the signature on the first set of forms. Upon reviewing a set of photographs, including Listokin's but not Grossman's, Gamby was certain that his July 14 visitor was not among them. Moreover, upon being shown a second set of photographs, including Grossman's, Gamby said two of them (one of Grossman) resembled his visitor. Neither the government nor Grossman used this evidence at trial.

On July 20, 1986, Colt made its recapitalization public and, as expected, its share price increased dramatically. On July 18, 1986, before the announcement, the price was $66.75 per share; on July 20, 1986, the price reached $93.62 per share. Thus, on a total investment of $33,000, the relatives were able to realize a total profit of $1,470,000. The Listokin purchases were sold at a loss on July 17 and 18, before the recapitalization was announced. Purchases for Hirschberg, however, more than covered this loss.

The events following the announcement of the recapitalization were proved at trial primarily through the testimony of David Lev, Shimon Lev's brother. David testified about several conversations between Shimon and himself and between Norman Stein and himself. According to David's testimony, Shimon told David that he had "made it big" by purchasing options on a tip from his "cousin Grossman". Shimon told David that he had become concerned about an investigation into his trading in Colt and that he wanted David to become the nominal owner of his call options (which had been purchased through Datek by Stein for Shimon's benefit). David had been in Israel between July 3 and July 23, 1986. Shimon therefore believed that David had an alibi for the time period when he could have received tips or made purchases. David agreed to become the nominal...