U.S. v. Regensberg

• Decision Date: 23 March 2009
• Docket Number: No. 08 Cr. 0219 (VM).,08 Cr. 0219 (VM).
• Citation: 604 F.Supp.2d 625
• Parties: UNITED STATES of America, v. Hayim REGENSBERG, Defendant.
• Court: U.S. District Court — Southern District of New York

604 F.Supp.2d 625

UNITED STATES of America, v. Hayim REGENSBERG, Defendant.

No. 08 Cr. 0219 (VM).

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

March 23, 2009.

David Mark Siegal, U.S. Attorney's Office, New York, NY, for United States of America.

Michael Sangyun Kim, Kobre & Kim LLP, New York, NY, for Defendant.

DECISION AND ORDER

VICTOR MARRERO, District Judge.

Defendant Hayim Regensberg ("Regensberg") moves the Court pursuant to Rule 12(b)(3)(B) of the Federal Rules of Criminal Procedure for an order directing the Government to either to elect or to dismiss certain counts of Superseding Indictment S1 08 Cr. 219 (VM) (the "Indictment"). First, Regensberg argues that Counts One and Two, which charge Regensberg with securities fraud, are multiplicitous because they charge a single offense as two separate offenses. Second, Regensberg argues that Counts Three through Eight, which charge Regensberg with wire fraud, and the securities fraud counts stated in Counts One and Two are multiplicitous because the wire fraud counts are lesser-included offenses of the securities fraud counts. For the reasons set forth below, Regensberg's motion is DENIED.

I. BACKGROUND

In February 2009, a grand jury in this District returned the Indictment, superseding an indictment returned in March 2008. The Indictment charges that between 2004 and September 2007, Regensberg engaged in a scheme to defraud members of the investing public, divert investor funds, and perpetrate a "Ponzi" scheme. Specifically, the Indictment charges that Regensberg "made, or caused others to make, false and fraudulent representations to investors and potential investors to induce them to entrust their monies to Regensberg for the purported purpose of investing in either or both of two investment vehicles." (Indictment ¶ 4.) The Indictment then specifies that Regensberg's false and fraudulent representations included claims that he would invest investor funds in: (1) a lending product, by which Regensberg would lend pooled investor funds to institutions engaged in securities trading ("Trading Firms"), which in turn would pay an above-market fixed rate of return for the use of those loaned funds with little risk (the "Lending Product"); or (2) initial public offerings ("IPOs") of stock traded on an international stock exchange, in a manner that would guarantee investors a quick and high rate of return with little risk (the "IPO Product"). (Id.)

As to the Lending Product, the indictment charges that from 2004 to September 2007, Regensberg "made and caused others to make false and fraudulent representations" regarding how funds in the Lending Product would be invested. For example, Regensberg told investors that their Lending Product funds would be "loaned" to Trading Firms, which in turn would use those funds as collateral relating to leveraged investments being made by those Trading Firms. Regensberg represented that these funds would not be invested by the Trading Firms, but held as collateral—a service for which the Trading Firms would pay a fee. Regensberg told investors that their Lending Product funds would be subject to low risk, and he promised investors "a high, fixed annual rate of return, up to as high as 18 percent per year." Regensberg "typically" documented this promised return with a promissory note stating the fixed return that would be paid in monthly installments, and promising to return the principal investment on the earlier of either the fifth anniversary of the promissory note's issuance or within three weeks of demand. The Indictment charges that Regensberg did not invest funds in any Lending Product, but rather: "(a) invested substantial amounts of investors' funds in highly speculative and risky securities, including ... stock options of companies whose stock was listed on domestic exchanges, (b) used later-investors' funds to pay money owed to earlier investors, or (c) misappropriated investor funds to pay for his and his family's own personal expenses." (Id. ¶ 5.)

As to the IPO Product, the Indictment charges that from early 2006 to September 2007, Regensberg "made and caused others to make false and fraudulent representations" regarding how funds in the IPO Product would be invested. Specifically, Regensberg represented to IPO Product investors that he was able to obtain IPO stock of companies listed on an international stock exchange before it was available to the public, and that he would sell the stock at the earliest possible moment after it became public, allowing him to achieve quick returns of between 5 percent and 15 percent for his investors. Regensberg further represented that he had consistently and successfully used this strategy in the past. The Indictment charges, however, that Regensberg failed to invest funds in any IPO stock, and had no such track record; instead, he diverted IPO investor funds by "(a) investing substantial amounts of investors' funds in highly speculative and risky securities, including ... stock options of companies whose stock was listed on domestic exchanges, (b) paying debts owed to earlier investors, or (c) paying for his and his family's own personal expenses." (Id. ¶ 6.)

The Indictment further charges that, to conceal his failure to generate any IPO Product profits, and to conceal the unauthorized expenditure of funds, Regensberg falsely represented to IPO Product investors, both orally and in writing, "(a) that their funds had been invested in IPO stock of companies traded on an overseas exchange, and (b) that their investments had generated profits." (Id. ¶ 7.)

Count One of the Indictment charges Regensberg with securities fraud in connection with the purchase and sale of the Lending Product, and Count Two charges Regensberg with securities fraud in connection with the purchase and sale of the IPO Product. (Id. ¶¶ 11, 13.) Counts Three through Eight charge Regensberg with wire fraud, each alleging that on six separate occasions between May 9, 2007 and August 1, 2007, Regensberg transmitted and caused to be transmitted by means of wire communication in interstate and foreign commerce funds ranging from approximately $4,275 to $500,000 in connection with his scheme to defraud investors. (Id. ¶ 15.)

II. DISCUSSION

A. COUNTS ONE AND TWO ARE NOT MULTIPLICITOUS

Counts One and Two both charge Regensberg with securities fraud in violation of 15 U.S.C. §§ 78j(b) & 78ff ("Section 10(b)")¹ and 17 C.F.R. § 240.10b-5 ("Rule 10b-5").² Regensberg argues that Counts One and Two are multiplicitous "because they charge a single offense—a scheme to defraud investors by fraudulently inducing them to invest in one of two investment vehicles—as two separate offenses." (Defendant's Memorandum of Law in Support of His Pre-Trial Motion, dated March 9, 2009 ("Def. Mem."), at 1.) According to Regensberg, the Government charged him "with engaging in identical conduct in each count, separating them only as to the two alleged securities which induced investments" (Id. at 4.) In order to remedy this supposed multiplicity, Regensberg requests that the Court order the Government to elect between Counts One and Two.

The Government argues that Counts One and Two embody groups of two separate transactions that are governed by different terms and conditions, involved different buyers, and occurred over different time periods. (See Government's Memorandum of Law in Opposition to Defendant Hayim Regensberg's Pre-Trial Motion, dated March 12, 2009 ("Gov't Opp."), at 5-7.) Thus, according to the Government, the counts are not multiplicitous.³

"An indictment is multiplicitous when it charges a single offense as an offense multiple times, in separate counts, when, in law and fact, only one crime has been committed." United States v. Chacko, 169 F.3d 140, 145 (2d Cir.1999). A multiplicitous indictment "violates the Double Jeopardy clause of the Fifth Amendment, subjecting a person to punishment for the same crime more than once." Id. It also "may improperly prejudice a jury by suggesting that a defendant committed not one but several crimes." United States v. Reed, 639 F.2d 896, 904 (2d Cir.1981).

"It is not determinative whether the same conduct underlies the counts; rather, it is critical whether the `offense'— in the legal sense, as defined by Congress—complained of in one count is the same as that charged in another." Chacko, 169 F.3d at 146. When the same statutory violation is charged twice, as is the case with Counts One and Two, "the question is whether the facts underlying each count were intended by Congress to constitute separate `units' of prosecution." United States v. Ansaldi, 372 F.3d 118, 124 (2d Cir.2004) (quoting Bell v. United States, 349 U.S. 81, 83-84, 75 S.Ct. 620, 99 L.Ed. 905 (1955)).⁴

In United States v. Rigas, 281 F.Supp.2d 660 (S.D.N.Y.2003), this Court addressed an argument almost identical to that posed by Regensberg here. In Rigas, the defendants were charged with fifteen counts of securities fraud in violation of Section 10(b) and Rule 10b-5, in connection with the purchase and sale of fifteen different classes of securities. The defendants sought an order requiring the Government to elect one count on which to proceed, and to dismiss the remaining counts, based on the premise that the fraudulent "device" at issue was a single scheme to defraud. Id. at 665-66.

The Rigas Court examined the language of Section 10(b) and Rule 10b-5, and determined that while Section 10(b) prohibits the use of "any manipulative or deceptive device" in connection with the purchase or sale of a security, the forbidden act may take the form of: (1) a fraudulent scheme; (2) a false statement of material fact or material omission; or (3) a fraudulent act or practice. Id. at 666-67. Based on this language, the Court understood the proper unit of prosecution for violations of Section 10(b) and Rule 10b-5 as not limited to fraudulent schemes, but also permitting prosecution of

other fraudulent activities that...