U.S. v. Mulheren

• Decision Date: 10 July 1991
• Docket Number: No. 1557,D,1557
• Citation: 938 F.2d 364
• Parties: Fed. Sec. L. Rep. P 96,082 UNITED STATES of America, Appellee, v. John A. MULHEREN, Jr., Defendant-Appellant. ocket 90-1691.
• Court: U.S. Court of Appeals — Second Circuit

Page 364

938 F.2d 364

Fed. Sec. L. Rep. P 96,082

UNITED STATES of America, Appellee, v. John A. MULHEREN, Jr., Defendant-Appellant.

No. 1557, Docket 90-1691.

United States Court of Appeals, Second Circuit.

Argued May 20, 1991.

Decided July 10, 1991.

Andrew L. Frey, Washington, D.C. (Wendy E. Ackerman, Mayer, Brown & Platt, Washington, D.C., and Thomas P. Puccio, Milbank, Tweed, Hadley & McCloy, New York City, of counsel), for defendant-appellant.

E. Scott Gilbert, Asst. U.S. Atty. (Roger S. Hayes, Acting U.S. Atty., S.D.N.Y., Daniel C. Richman, of counsel), for appellee.

Before VAN GRAAFEILAND, MESKILL and McLAUGHLIN, Circuit Judges.

McLAUGHLIN, Circuit Judge:

In the late 1980's a wide prosecutorial net was cast upon Wall Street. Along with the usual flotsam and jetsam, the government's catch included some of Wall Street's biggest, brightest, and now infamous--Ivan Boesky, Dennis Levine, Michael Milken, Robert Freeman, Martin Siegel, Boyd L. Jeffries, and Paul A. Bilzerian--each of whom either pleaded guilty to or was convicted of crimes involving illicit trading scandals. Also caught in the government's net was defendant-appellant John A. Mulheren, Jr., the chief trader at and general partner of Jamie Securities Co. ("Jamie"), a registered broker-dealer.

Mulheren was charged in a 42-count indictment handed-up on June 13, 1989. The indictment alleged that he conspired to and did manipulate the price on the New York Stock Exchange (the "NYSE") of the common stock of Gulf & Western Industries, Inc. ("G & W" or the "company") in violation of 18 U.S.C. Sec. 371, 15 U.S.C. Sec. 78j(b) & 78ff and 18 U.S.C. Sec. 2, by purchasing 75,000 shares of G & W common stock on October 17, 1985 for the purpose of raising the price thereof to $45 per share (Counts One through Four); that he engaged in "stock parking" transactions to assist the Seemala Corporation, a registered broker-dealer controlled by Boesky, in evading tax and other regulatory requirements in violation of 15 U.S.C. Secs. 78j(b) & 78ff and 18 U.S.C. Sec. 2 (Counts Five through Twenty-Four); that he committed mail fraud in connection with the stock parking transactions in violation of 18 U.S.C. Secs. 1341 & 2 (Counts Twenty-Five through Thirty-Nine); and that Mulheren caused Jamie to make and keep false books and records in violation of 15 U.S.C. Sec. 78ff & 78q(a) (Counts Forty through Forty-Two).

Count Forty-One was dismissed before trial on the government's motion. At the conclusion of the government's case, the district court dismissed Counts Twenty-Nine through Thirty-Nine pursuant to Fed.R.Crim.P. 29. Of the remaining thirty counts, the jury returned a partial verdict of guilty on Counts One through Four. A mistrial was declared by the district court when the jury could not reach a verdict on the other twenty-six counts. On Counts One through Four, Mulheren was sentenced to concurrent terms of one year and one day imprisonment, a $1,681,700 fine and a $200 special assessment.

This appeal thus focuses solely on the convictions concerning Mulheren's alleged manipulation of G & W common stock. The government sought to prove that on October 17, 1985, Mulheren purchased 75,000 shares of G & W common stock with the purpose and intent of driving the price of that stock to $45 per share. This, the government claimed, was a favor to Boesky, who wanted to sell his enormous block of G & W common stock back to the company at that price. Mulheren assails the convictions on several grounds.

First, Mulheren claims that the government failed to prove beyond a reasonable doubt that when he purchased the 75,000 shares of G & W common stock on October 17, 1985, he did it for the sole purpose of raising the price at which it traded on the NYSE, rather than for his own investment purposes. Second, Mulheren argues that even if his sole intent had been to raise the price of G & W stock, that would not have been a crime because, he claims, (1) he neither misrepresented any fact nor failed to disclose any fact that he was under a duty to disclose concerning his G & W purchases; (2) his subjective intent in purchasing G & W stock is not "material"; and (3) he did not act for the purpose of deceiving others. Finally, Mulheren cites various alleged evidentiary and sentencing errors that he believes entitle him to either a new trial or resentencing.

Although we harbor doubt about the government's theory of prosecution, we reverse on Mulheren's first stated ground because we are convinced that no rational trier of fact could have found the elements of the crimes charged here beyond a reasonable doubt.

BACKGROUND

Reviewing the evidence "in the light most favorable to the government, and construing all permissible inferences in its favor," United States v. Puzzo, 928 F.2d 1356, 1357 (2d Cir.1991) (citing United States v. Diaz, 878 F.2d 608, 610 (2d Cir.), cert. denied --- U.S. ----, 110 S.Ct. 543, 107 L.Ed.2d 540 (1989)), the following facts were established at trial.

In 1985, at the suggestion of his long-time friend, Carl Icahn, a prominent arbitrageur and corporate raider, Ivan Boesky directed his companies to buy G & W stock, a security that both Icahn and Boesky believed to be "significantly undervalued." Between April and October 1985, Boesky's companies accumulated 3.4 million shares representing approximately 4.9 percent of the outstanding G & W shares. According to Boesky, Icahn also had a "position of magnitude."

On September 5, 1985, Boesky and Icahn met with Martin Davis, the chairman of G & W. At the meeting, Boesky expressed his interest in taking control of G & W through a leveraged buyout or, failing that, by increasing his position in G & W stock and securing seats on the G & W board of directors. Boesky told Davis that he held 4.9 percent of G & W's outstanding shares. Davis said he was not interested in Boesky's proposal, and he remained adamant in subsequent telephone calls and at a later meeting on October 1, 1985.

At the October 1, 1985 meeting, which Icahn also attended, Boesky added a new string to his bow: if Davis continued to reject Boesky's attempts at control, then G & W should buy-out his position at $45 per share. At that time, G & W was, indeed, reducing the number of its outstanding shares through a repurchase program, but, the stock was trading below $45 per share. Davis stated that, although he would consider buying Boesky's shares, he could not immediately agree to a price. Icahn, for his part, indicated that he was not yet sure whether he would sell his G & W stock.

During--and for sometime before--these negotiations, Mulheren and Boesky also maintained a relationship of confidence and trust. The two had often shared market information and given each other trading tips. At some point during the April-October period when Boesky was acquiring G & W stock, Mulheren asked Boesky what he thought of G & W and whether Icahn held a position in the stock. Boesky responded that he "thought well" of G & W stock and that he thought Icahn did indeed own G & W stock. Although Boesky told Mulheren that G & W stock was "a good purchase and worth owning," Boesky never told Mulheren about his meetings or telephone conversations with Davis because he considered the matter "very confidential." Speculation in the press, however, was abound. Reports in the August 19, 1985 issue of Business Week and the September 27, 1985 issue of the Wall Street Journal indicated that Boesky and Icahn each owned close to five percent of G & W and discussed the likelihood of a take-over of the company. Mulheren, however, testifying On October 3, 1985, two days after his meeting with Boesky and Icahn, Davis met with Mulheren. Mulheren stated that he had a group of investors interested in knowing whether G & W would join them in acquiring CBS. According to Davis, Mulheren also volunteered that he could be "very helpful in monitoring the activities of Ivan Boesky [in G & W stock;] [Mulheren] knew that [Davis] considered Mr. Boesky adversarial;" and Mulheren agreed with Davis' unflattering assessment of Boesky. In a telephone conversation sometime between this October 3 meeting and a subsequent meeting between the two on October 9, 1985, Mulheren told Davis that he believed that Boesky did not own any G & W securities. Mulheren also said that he did not own any G & W stock either. When Davis and Mulheren met again on October 9, they spoke only about Mulheren's CBS proposal.

in his own behalf, denied reading these reports and denied knowing whether Boesky and Icahn held positions in G & W.

In the meantime, Boesky continued to press Davis to accept his proposals to secure control of G & W. When Boesky called Davis after their October 1, 1985 meeting, Davis "told [Boesky] as clearly as [he] could again that [G & W] had no interest whatsoever in doing anything with [Boesky]." Boesky then decided to contact his representative at Goldman, Sachs & Co. to arrange the sale of his massive block of stock to G & W. Boesky advised Goldman, Sachs that G & W common stock was not trading at $45 per share at the time, "but that should it become 45," he wanted to sell. A Goldman, Sachs representative met with Davis shortly thereafter regarding the company's repurchase of Boesky's G & W shares.

Sometime after the close of the market on October 16, 1985, Boesky called Davis, offering to sell his block of shares back to G & W at $45 per share. NYSE trading had closed that day at $44 3/4 per share, although at one point during that day it had reached $45. Davis told Boesky that the company would buy his shares back, but only at the "last sale"--the price at which the stock traded on the NYSE at the time of the sale--and that Boesky should have his Goldman, Sachs representative contact Kidder Peabody & Co. to arrange the transaction. ¹

After this conversation with Davis, but before 11:00 a.m. on October 17, 1985, Boesky called Mulheren. According to Boesky's testimony, the following,...