U.S. v. Rutkoske

• Decision Date: 17 October 2005
• Docket Number: No. 03 CR. 1452(RCC).,03 CR. 1452(RCC).
• Citation: 394 F.Supp.2d 641
• Parties: The UNITED STATES of America, Government, v. David RUTKOSKE, Defendant
• Court: U.S. District Court — Southern District of New York

394 F.Supp.2d 641

The UNITED STATES of America, Government, v. David RUTKOSKE, Defendant

No. 03 CR. 1452(RCC).

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

October 17, 2005.

COPYRIGHT MATERIAL OMITTED

Ira Lee Sorkin, Dickstein Shapiro Morin & Oshinsky LLP, New York, NY, for David Rutkoske, Defendant.

David B. Anders, U.S. Attorney's Office, New York, NY, for U.S., Plaintiff.

MEMORANDUM & ORDER

CASEY, District Judge.

David Rutkoske ("Defendant") is charged with various acts of securities fraud in connection with the purchase and sale of NetBet, Inc. stock. The two-count second superseding indictment charges Defendant with conspiring to commit and committing securities fraud in violation of 15 U.S.C. §§ 78j(b), 78ff, and 17 C.F.R. 240.10b-5; commercial bribery, in violation of 18 U.S.C. § 1952(a)(3); and wire fraud in violation of 18 U.S.C. §§ 1343, 1346. Defendant moves to dismiss both the first and second superseding indictments on statute-of-limitations grounds. In the alternative, Defendant moves for change of venue and for a bill of particulars. For the following reasons, Defendant's motions are DENIED.

I. BACKGROUND

The Court presumes familiarity with the substance of this case and offers only those facts necessary to decide the motions. The case involves an alleged securities-fraud conspiracy conducted out of Lloyd Wade Securities ("Lloyd Wade"), which was headquartered in Dallas, Texas. Defendant was the President of Lloyd Wade for the time period at issue in this case and worked out of the Texas headquarters. Almost all of the brokers charged in this case worked in the West Patterson, New Jersey Office of Supervisory Jurisdiction ("West Patterson OSJ"). Defendant still lives and works in Texas.

It is alleged that Lloyd Wade obtained large blocks of NetBet securities at below-market prices pursuant to secret arrangements. Lloyd Wade brokers, motivated by excessive undisclosed commissions, allegedly stimulated demand in the public market for NetBet securities by means of fraudulent "boiler room" tactics, then sold NetBet securities on the open market. It is further alleged that this scheme operated with Defendant's knowledge and approval.

The original indictment charged fourteen Lloyd Wade brokers but did not include Defendant in the charges. On April 6, 2004, a grand jury returned the first superseding indictment ("FSI") adding Defendant's name for the first time. It charged that the conspiracy occurred from "in or about December 1996 up to and including April 9, 1999" (FSI ¶ 18), and alleged a single April 9, 1999 act within the five-year limitations period, namely that co-conspirator Nicholas Cianciaruso "used high pressure sales tactics to induce an investor (`Investor No. 24') to purchase NetBet securities" (id. ¶ 23(oo)).

Counsel for Defendant questioned the validity of the April 9, 1999 act through correspondence with the Government dated January 12, 2005 and June 30, 2005. (See Sorkin Aff. Ex. C, Ex. D.) A July 5, 2005 letter from the Government changed the date of the April 9, 1999 act to April 6, 1999, and added a new April 21, 1999 act as well. (See Cosgrove Decl. Ex. A.) The earliest date still timely under the five-year statute of limitations was April 6, 1999. In fact, the monthly statement attached to the Government's July 5 letter revealed that the April 6 date related to the settlement date of the transaction, not the trade date. Both parties now agree the trade would have occurred three business days prior, on March 31, 1999, outside the statute-of-limitations period.

On July 28, 2005, another grand jury returned the second superseding indictment ("SSI") charging Defendant alone. The time period alleged was from "in or about late 1996 through at least in or about April 1999." (SSI ¶ 18.) The SSI did not allege the April 9 (or April 6, or March 31) overt act but instead alleged two new acts within the FSI's limitations period. The first states that Defendant "[o]n or about April 15, 1999... paid excess commissions to Lloyd Wade brokers." (Id. ¶ 23(j).) The second states that "[o]n or about April 16, 1999, Nicholas Cianciaruso used high pressure sales tactics to induce an investor (`Investor No. 5') to purchase NetBet securities." (Id. ¶ 23(k).)

II. DISCUSSION

A. Defendant's motion to dismiss the indictments

The statute of limitations for securities fraud and conspiracy is five years. 18 U.S.C. § 3282. The Government satisfies the statute of limitations for conspiracy if it establishes that the conspiracy operated within the five-year period preceding the indictment and that a co-conspirator knowingly committed at least one overt act in furtherance of the scheme within that period. United States v. Salmonese, 352 F.3d 608, 614 (2d Cir.2003).

Here, the FSI was returned on April 6, 2004, which means the Government must have alleged an overt act on or after April 6, 1999 for the FSI to be timely. The SSI was returned on July 28, 2005, which means the Government must have alleged an overt act on or after July 28, 2000 for the FSI to be timely.

The Government concedes that the April 9, 1999 overt act, which rendered the FSI timely on its face, in reality occurred on March 31, 2005, outside of the statute-of-limitations period. (See Gov't Opp'n at 9.) It also concedes that if the SSI does not relate back to the FSI then it is untimely and must be dismissed. (See Sorkin Aff., Ex. E at 8:2-7.) Thus, the decisive issue presented in the motion to dismiss is whether a superseding indictment that is not independently timely can relate back to a prior indictment that, although timely on its face, contains no overt act that actually occurred within the statute-of-limitations period.

In United States v. Grady, 544 F.2d 598, 601-02 (2d Cir.1976), the Second Circuit held that an untimely superseding indictment relates back to the original indictment if (1) it is brought while the original indictment is "validly pending" and (2) "it does not broaden the charges made in the first indictment." Grady also considered the policy behind the statute of limitations, namely, to put a defendant on notice that he will be called to account for his activities and to afford him the opportunity to prepare a defense. Id. at 601.

The primary disagreement between the parties is whether, under the first prong of Grady, the FSI was "validly pending" when the SSI was filed. Defendant argues the FSI was "void" because the overt act that made the FSI timely was later determined to be erroneous. In Defendant's view, a defective indictment is void at the moment its defect is discovered and can never be validly pending. The Government counters that the FSI was validly pending because the indictment on its face alleged a timely overt act. According to the Government, a defective indictment is nevertheless validly pending until it is dismissed. The Government's position better reflects the law and policy considerations outlined in Grady and subsequent cases.

A close reading of Grady reveals that an indictment is validly pending until it is dismissed. See Grady 544 F.2d at 601 ("Once an indictment is brought, the statute of limitations is tolled as to the charges contained in that indictment.... The statute begins to run again on those charges only if the indictment is dismissed ..."); see also United States v. Smith, 197 F.3d 225, 229-30 (6th Cir.1999) (reading Grady to hold that an original indictment "remains pending until it is dismissed or until double jeopardy or due process would prohibit prosecution under it"). Cases subsequent to Grady confirm this reading. In United States v. Drucker, 453 F.Supp. 741, 742 (S.D.N.Y.1978) aff'd, 591 F.2d 1332 (2d Cir.1978), the court found as a matter of law that "whether or not the original indictment was defective, that indictment served to toll the statute of limitations with respect to the charges contained therein." Similarly, in Smith, 197 F.3d at 228, the Sixth Circuit found that "even if the original indictment [were] defective on its face, the superseding indictment related back to the filing date of the original indictment." The court there rejected the reasoning in United States v. Crysopt, 781 F.Supp. 375 (D.Md.1991), and Defendant's argument here, that a defective indictment is a nullity and thus could never be "validly pending." Id. at 228-29. Rather, the court found that "`[v]alidly pending' under the Grady rule is unrelated to the issue of whether an indictment is defective or insufficient." See Smith, 197 F.3d at 229; cf. Salmonese, 352 F.3d at 613 (finding prosecution timely even though overt acts in indictment did not satisfy the statute of limitations where Government later proved timely acts not alleged in indictment).

Here, the FSI carried in it a latent defect but had not been dismissed when the SSI was filed. As such, the FSI was "validly pending" under the first prong of Grady when the SSI, which cured the defect in the FSI, was filed.

To relate back to a validly pending original indictment, a superseding indictment must not materially broaden or substantially amend the charges made in the first indictment. See Salmonese, 352 F.3d at 622. In this Circuit, a superseding indictment does not necessarily broaden an original indictment by adding overt acts and altering the relevant period of a conspiracy. See United States v. Gengo, 808 F.2d 1, 2-4 (2d Cir.1986) (finding superseding indictment that offered a new substantive count, added an overt act, and altered commencement date of conspiracy did not broaden original indictment). A court must consider whether the charges in the superseding indictment "allege violations of a different statute, contain different elements, rely on different evidence, or expose the defendant to a potentially greater sentence." Salmonese, 352 F.3d at 622.

Here, the SSI contains charges nearly identical to those included in the FSI. The SSI alleges violations of the same statutes by the same fraudulent scheme...