U.S. v. Johnson

• Decision Date: 14 December 2007
• Docket Number: No. 06-5181.,06-5181.
• Parties: UNITED STATES of America, Plaintiff-Appellant, v. Charles E. JOHNSON, Jr., Defendant-Appellee, and Christopher J. Benyo; Joseph Michael Kennedy; John P. Tuli; Kent D. Wakeford, Defendants.
• Court: U.S. Court of Appeals — Fourth Circuit

510 F.3d 521

UNITED STATES of America, Plaintiff-Appellant, v. Charles E. JOHNSON, Jr., Defendant-Appellee, and Christopher J. Benyo; Joseph Michael Kennedy; John P. Tuli; Kent D. Wakeford, Defendants.

No. 06-5181.

United States Court of Appeals, Fourth Circuit.

Argued November 2, 2007.

Decided December 14, 2007.

ARGUED: Charles Francis Connolly, Assistant United States Attorney, Office of the United States Attorney, Alexandria, Virginia, for Appellant. Patrick J. Hanley, Covington, Kentucky, for Appellee. ON BRIEF: Chuck Rosenberg, United States Attorney, Matthew J. Donnelly, Special Assistant United States Attorney, Appellate Staff, Civil Division, United States Department of Justice, Washington, DC, for Appellant.

Before WILLIAMS, Chief Judge, and WILKINSON and MICHAEL, Circuit Judges.

Reversed by published opinion. Judge WILKINSON wrote the opinion, in which Chief Judge WILLIAMS and Judge MICHAEL joined.

OPINION

WILKINSON, Circuit Judge.

Defendant Charles "Junior" Johnson was charged in the Eastern District of Virginia with, inter alia, causing the filing of a false and fraudulent document with the Securities and Exchange Commission. After a pre-trial hearing, the district court granted Johnson's motion to dismiss the count for lack of venue. The government now appeals that decision.

In support of the district court's holding, the defendant makes two claims. First, he argues that the electronic transmission of a fraudulent document to a computer server in Alexandria, Virginia, does not constitute a venue-sustaining act. Second, he contends that because he could not have reasonably foreseen that the form would be transmitted to the Eastern District of Virginia, venue cannot lie in that district.

Based on the plain language and underlying purposes of the governing venue provision, 15 U.S.C. § 78aa, we reject both of these claims and find that the Eastern District of Virginia was an appropriate venue for this securities fraud offense. We thus reverse the district court's dismissal of the aforementioned count for lack of venue.

I.

This case arises from the prosecution of a corporate executive for securities fraud and other related offenses. On January 10, 2005, a federal grand jury in the Eastern District of Virginia returned a thirty-one count indictment against Johnson and five co-defendants.¹ One of the counts, count 3, charged Johnson with causing the filing of false and fraudulent documents with the Securities and Exchange Commission ("SEC") in violation of 15 U.S.C. § 78j(b), 15 U.S.C. § 78ff, 17 C.F.R. § 240.10b-5, and 18 U.S.C. § 2. Specifically, it alleged that Johnson caused his company to submit an SEC Form 10-Q that contained fraudulently inflated revenue figures.

Johnson was the Chief Executive Officer and Chairman of the Board of Directors of PurchasePro.com, Inc. ("PurchasePro"), a publicly-owned company based in Las Vegas, Nevada, that sold internet procurement software designed to facilitate "business-to-business" transactions online. In March 2000, PurchasePro established a commercial partnership with America On-Line, Inc., to develop a business-to-business marketplace. According to the indictment, Johnson took personal control of PurchasePro's relationship with AOL and subsequently worked to inflate Purchase-Pro's reported revenue figures. The government alleges that this was accomplished through various devices, including secret and undisclosed side deals, the use of back-dated contracts, and false entries in the company's books and records.

Under federal rules and regulations, PurchasePro was required to file a quarterly revenue report, known as a Form 10-Q, with the SEC. On May 29, 2001, PurchasePro electronically submitted a Form 10-Q, containing its financial results for the first quarter of 2001, to the SEC through the Electronic Data Gathering, Analysis, and Retrieval system ("EDGAR"). According to the indictment, the filed documents contained false, misleading, and inflated revenue numbers. Notably, EDGAR's Management Office of Information and Technology and the system's computer servers, which store the transmitted files and make them publicly available through the EDGAR website, are located in Alexandria, Virginia, in the Eastern District of Virginia. The transmission to the EDGAR servers represents Johnson's lone contact with the Eastern District for the purposes of this offense.

After he was indicted in the Eastern District for causing the fraudulent submission, Johnson moved to have the count dismissed for lack of venue. Specifically, he argued that the Eastern District of Virginia was an improper venue under 15 U.S.C. § 78aa, the applicable venue provision for securities fraud offenses. On May 25, 2006, the district court held a hearing to consider the motion, and on October 16, 2006, it issued an order granting the motion to dismiss count 3 for lack of venue.

Two days later, Johnson's trial on the non-dismissed counts began. The district court later declared a mistrial, and on November 14, 2006, the government filed a timely notice of appeal of the dismissal of count 3. This court has jurisdiction pursuant to 18 U.S.C. § 3731.

II.

We review briefly the relevant venue standards. The Constitution has two provisions governing venue for criminal cases. Article III provides that criminal trials "shall be held in the State where the said Crimes shall have been committed." U.S. Const. art. III, § 2, cl. 3. Similarly, the Sixth Amendment requires that "[i]n all criminal prosecutions, the accused shall enjoy the right to a speedy and public trial, by an impartial jury of the State and district wherein the crime shall have been committed." U.S. Const. amend. VI. These constitutional safeguards are meant to "protect[ ] the defendant from bias, disadvantage, and inconvenience in the adjudication of the charges against him." United States v. Ebersole, 411 F.3d 517, 524 (4th Cir.2005); see also United States v. Smith, 452 F.3d 323, 334 (4th Cir.2006).

In accordance with these constitutional principles, Congress may, if it so desires, prescribe specific venue requirements for a particular crime. If Congress adopts such a statute, "that provision must be honored (assuming, of course, that it satisfies the constitutional minima)." United States v. Salinas, 373 F.3d 161, 164 (1st Cir.2004). If Congress does not supply a specific venue provision, then venue is to "be determined from the nature of the crime alleged and the location of the act or acts constituting it." Ebersole, 411 F.3d at 524 (quoting United States v. Cabrales, 524 U.S. 1, 6-7, 118 S.Ct. 1772, 141 L.Ed.2d 1 (1998)). It is well-accepted that there may be "more than one appropriate venue, or even a venue in which the defendant has never set foot," so long as it meets the relevant constitutional and statutory requirements. Ebersole, 411 F.3d at 524 (quoting United States v. Bowens, 224 F.3d 302, 309 (4th Cir.2000)). The government bears the burden of proving venue by a preponderance of the evidence. See Ebersole, 411 F.3d at 524.

For securities offenses, Congress has provided a specific venue provision: "Any criminal proceeding may be brought in the district wherein any act or transaction constituting the violation occurred." 15 U.S.C. § 78aa (2000). It is undisputed that this provision applies to count 3 and thus governs the issue at hand. The controversy in this case centers on whether the facts alleged in the indictment satisfy the requirements of this specific venue provision.

III.

A.

Johnson first argues that venue cannot lie in the Eastern District of Virginia because the electronic transmission of the Form 10-Q to the EDGAR servers in Alexandria, Virginia, did not constitute a material part of the alleged offense. See In re AES Corp. Sec. Litig., 240 F.Supp.2d 557, 559 (E.D.Va.2003) (holding that a "venue-sustaining act [under § 78aa] need not constitute the core of the alleged violation, nor even be illegal, so long as it represents more than an immaterial part of the alleged violation[ ]") (quoting S-G Sec., Inc. v. Fuqua Inv. Co., 466 F.Supp. 1114, 1121 (D.Mass.1978)); see also First Fed. Sav. & Loan Assoc. of Pittsburgh v. Oppenheim, Appel, Dixon & Co., 634 F.Supp. 1341, 1350 (S.D.N.Y.1986) (finding that "any non-trivial act in the forum district which helps to accomplish a securities law violation is sufficient to establish venue" under § 78aa).

The "essence" of the charged crime, Johnson asserts, is filing a fraudulent form with the SEC in Washington, D.C., not its servers in Alexandria. Moreover, the fact the SEC channels the Form 10-Q to its EDGAR Office "for its own administrative ministerial purposes" is "of no substantial consequence" and cannot "constitute a basis for venue." Brief of Appellee at 11-12 (citing United States v. Bezmalinovic, 962 F.Supp. 435 (S.D.N.Y.1997) (holding that venue for a bank fraud offense was inappropriate in a district where the only contacts were a bank's "ministerial actions")). Thus, while Johnson concedes venue may lie in the District of Columbia, he argues that it cannot lie in the Eastern District of Virginia.

We cannot accept Johnson's contention. We therefore hold that causing the transmission of the Form 10-Q to the Eastern District of Virginia will suffice to sustain venue in that district. The notion that venue in securities prosecutions must be limited to where the "essence" of the offense exists finds no basis in the text of § 78aa. To the contrary, this provision, whose language is "manifestly broad," see AES Corp., 240 F.Supp.2d at 559, simply requires that "any act or transaction constituting the violation" have taken place in the pertinent district, 15 U.S.C. § 78aa (2000) (emphasis added). As a result, the "venue-sustaining act need not constitute the core of the alleged violation," but merely one that is material to the charged offense. AES Corp., 240 F.Supp.2d at 559.

Under that standard, causing the transmission of a false Form 10-Q to...