U.S. v. Gruenberg, s. 91-1729

• Decision Date: 31 March 1993
• Docket Number: 91-1732,Nos. 91-1729,s. 91-1729
• Citation: 989 F.2d 971
• Parties: Fed. Sec. L. Rep. P 97,418 UNITED STATES of America, Appellee, v. Micheal L. GRUENBERG, Appellant. UNITED STATES of America, Appellee, v. Eugene I. GRUENBERG, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 971

989 F.2d 971

Fed. Sec. L. Rep. P 97,418

UNITED STATES of America, Appellee, v. Micheal L. GRUENBERG, Appellant.

UNITED STATES of America, Appellee, v. Eugene I. GRUENBERG, Appellant.

Nos. 91-1729, 91-1732.

United States Court of Appeals Eighth Circuit.

Submitted Oct. 12, 1992.

Decided March 31, 1993.

Rehearing Denied in

No. 91-1732 May 12, 1993.

Rehearing Denied in

No. 91-1729 May 17, 1993.

Carolyn M. Conway, argued, Boston, MA, for appellant in No. 91-1729.

Mark Wernick, argued, Minneapolis, MN, for appellant in No. 91-1732.

John Michael Lee, Asst. U.S. Atty., argued, Minneapolis, MN, for appellee.

Before McMILLIAN, MAGILL and HANSEN, Circuit Judges.

HANSEN, Circuit Judge.

Eugene I. Gruenberg and Micheal J. Gruenberg were charged in a 32-count indictment alleging wire fraud, interstate transportation of stolen property, and securities fraud. After an 88-day trial, the jury convicted both of them. Both defendants appeal and allege numerous trial errors. We affirm.

I. Facts

In 1981, Eugene Gruenberg and his son, Micheal Gruenberg, formed Endotronics, Inc. (ENDO), a corporation that manufactured and sold biochemical culturing instruments. These culturing instruments enable scientists to grow and maintain both human and animal cells for research purposes.

In 1983, ENDO's common stock was being traded on the NASDAQ over-the-counter market. The company soon began to experience rapid growth as evidenced by the sales figures and the price of its stock. In fiscal years 1984, 1985, and 1986, ENDO's sales figures increased from $156,000 to $5.7 million to $11.5 million. The stock price increased from $6 per share in 1984 to nearly $30 in 1986. During this time period, the total market value of the Gruenbergs' stock in the company rose from $3 million in 1984 to approximately $52 million in 1986.

In 1985, ENDO created a wholly owned marketing subsidiary located in Tokyo, Japan, called Endotronics Far East (EFE). Micheal Gruenberg assumed primary responsibility for EFE. The goal of EFE was to sell the culturing instruments to Japanese distributors who would in turn resell the instruments to eventual users. According to ENDO policy, the distributors assumed the risk of loss if they were unable to resell the instruments. The two primary Japanese distributors that supposedly purchased the instruments from ENDO were WakenYaku Company, Ltd. (Waken) and Yamaha, Inc. (Yamaha).

Unbeknownst to the public, the Gruenbergs were fraudulently inflating their corporation's sales figures in order to artificially inflate the price of its stock. They induced Japanese distributors to submit false purchase orders for culturing instruments by assuring the distributors that their purchase orders did not obligate the distributors to pay any money. For the Japanese distributors' participation in this fraudulent scheme, the Gruenbergs paid them money. As a result, sales figures continued to increase on ENDO's financial books, which in turn caused the price of ENDO stock to increase. By pledging their stock as collateral, the Gruenbergs borrowed substantial sums of money from American financial lending institutions. On occasion, the Gruenbergs would then transfer money to Robert Howe, an accomplice, who would purchase ENDO's accounts receivable. In effect, ENDO was buying its own culturing instruments. The end result: ENDO looked to the public like a thriving new international biochemical company.

In late 1986 and early 1987, the Gruenbergs' fraudulent scheme began to unravel. The national financial press began to investigate and raise questions about ENDO's operation. As a result, the price of ENDO stock began to decrease. Financial institutions began to "call due" their loans and the Gruenbergs eventually were unable to borrow any additional money. Several law enforcement agencies also began to investigate ENDO. By March 31, 1987, the price of ENDO stock had plummeted to $1.25 per share.

On July 26, 1989, the Gruenbergs were indicted and charged with wire fraud in violation of 18 U.S.C. § 1343, interstate transportation of stolen property in violation of 18 U.S.C. § 2314, and securities fraud in violation of 15 U.S.C. § 78j(b), 78f(f), and 78m(a). The jury found Eugene Gruenberg guilty on two wire fraud counts, one interstate transportation count, and nine of the twelve securities fraud counts. The jury also found Micheal Gruenberg guilty on 14 of the 15 wire fraud counts, three interstate transportation counts, and 11 of the 12 securities fraud counts. The district court ¹ sentenced Eugene Gruenberg to a 40-month term of imprisonment and Micheal to a 120-month term of imprisonment. Both defendants appeal and allege numerous trial errors in a "manner reminiscent of an all-out attack on a wagon train. We have managed to pluck [three] arrows from amidst the war whoops." United States v. Tardiff, 969 F.2d 1283, 1285 (1st Cir.1992) (Selya, J.).

II. Discussion

The three arrows that we have plucked which are embedded closest to the new trial/reversal target concern the following issues: (1) the willful blindness instruction; (2) the failure to give a specific unanimity instruction; and (3) the Rule 10b-5 jury instruction. We discuss these issues in sequence.

A. Willful Blindness Instruction

Eugene Gruenberg contends the district court erred in giving a willful blindness instruction. The instruction permitted the jury to find that Eugene had the requisite knowledge necessary to commit the crimes if it determined that he had deliberately avoided knowledge of the facts that would have made his conduct illegal. The instruction read:

The element of knowledge may be satisfied by inferences drawn from proof that a defendant deliberately closed his eyes to what would otherwise have been obvious to him. A finding beyond reasonable doubt of a conscious purpose to avoid enlightenment would permit an inference of knowledge. Stated another way, a defendant's knowledge of a fact may be inferred from willful blindness to the existence of the fact. It is entirely up to you as to whether you find any deliberate closing of the eyes and the inference to be drawn from any such evidence. A showing of negligence or mistake is not sufficient to support a finding of willfulness or knowledge.

Jury Instruction, Trial Transcript (Tr.), Vol. 85, at 9900-01. He argues that the willful blindness instruction was not appropriate because there was no evidence that he deliberately avoided any knowledge. ²

"A willful blindness instruction is appropriate when the defendant asserts 'a lack of guilty knowledge,' but the evidence 'support[s] an inference of deliberate ignorance.' " United States v. Long, 977 F.2d 1264, 1271 (8th Cir.1992) (citing United States v. White, 794 F.2d 367, 371 (8th Cir.1986) (internal quotation omitted)). " '[I]n reviewing a district court's decision to give a willful blindness instruction, we must review the evidence and any reasonable inference from that evidence in the light most favorable to the government.' " Id. (quoting United States v. Hiland, 909 F.2d 1114, 1131 (8th Cir.1990)). We review a district court's decision to give a willful blindness instruction under the clearly erroneous standard. Id.

In this case, Eugene Gruenberg has maintained from the beginning that he lacked any guilty knowledge. He pled "not guilty" to each count charged against him in the indictment. He admits that there may be circumstantial evidence indicating that he knew of the illegal conduct, see Eugene's Brief at 21-23, but argues that he did not deliberately avoid actual knowledge.

"[E]ven where there is evidence of actual knowledge, a willful blindness instruction is proper if there is sufficient evidence to support an inference of deliberate ignorance." Hiland, 909 F.2d at 1130-31. In the case of Eugene Gruenberg, there is sufficient evidence to support an inference of deliberate ignorance. For example, on the last day of fiscal year 1986, Eugene Gruenberg loaned $2.8 million to Micheal Gruenberg which was eventually used to pay an accounts receivable owed by Yamaha, ENDO's most important distributor. Yamaha accounted for approximately 60 percent of ENDO's total sales in fiscal year 1986. A reasonable inference from Eugene's failure to investigate the need to personally finance one of Yamaha's debts is that Eugene deliberately "buried his head in the sand" about the true nature of ENDO's fraudulent financial dealings. Considering the reasonable inferences from all of the evidence in the record in the light most favorable to the government, we hold that there was a sufficient foundation for a willful blindness instruction. Thus, the district court did not clearly err in its decision to give the instruction. See Long, 977 F.2d at 1271.

B. Specific Unanimity Instruction

Eugene Gruenberg also argues that the district court erred in failing to give a specific unanimity instruction to the jury. The district court gave an instruction that permitted the jury to find Eugene participated in a fraudulent scheme if it determined beyond a reasonable doubt that he was involved in one of the various schemes alleged in the Indictment. The instruction read:

In the indictment, it is alleged that various schemes were employed to defraud. To show participation by a defendant in one of those schemes, the government must prove beyond a reasonable doubt that the defendant was involved in a specific scheme alleged in the indictment. It is not sufficient if the government prove [sic] that a defendant was a party to another scheme that was separate and distinct from that alleged in the indictment.

Jury Instruction, Tr., Vol. 85, at 9894. Eugene contends that without a specific unanimity instruction, his convictions may have occurred as a result of different jurors concluding that he participated in different schemes. ³

"A general unanimity instruction usually protects a defendant's sixth amendment right to a unanimous verdict." United States v. Montanye, 962...