U.S. v. Smith

• Decision Date: 26 January 1984
• Docket Number: D,No. 405,405
• Parties: 14 Fed. R. Evid. Serv. 1583 UNITED STATES of America, Plaintiff-Appellee, v. Brian Patrick SMITH, Defendant-Appellant. ocket 83-1276.
• Court: U.S. Court of Appeals — Second Circuit

Page 214

727 F.2d 214

14 Fed. R. Evid. Serv. 1583

UNITED STATES of America, Plaintiff-Appellee, v. Brian Patrick SMITH, Defendant-Appellant.

No. 405, Docket 83-1276.

United States Court of Appeals, Second Circuit.

Argued Nov. 15, 1983.

Decided Jan. 26, 1984.

Gregory J. Wallance, Asst. U.S. Atty., Brooklyn, N.Y. (Raymond J. Dearie, U.S. Atty., E.D.N.Y., Allyne R. Ross, Asst. U.S. Atty., Brooklyn, N.Y., of counsel), for plaintiff-appellee.

Steven Kimelman, New York City, for defendant-appellant.

Before OAKES, MESKILL and PIERCE, Circuit Judges.

PIERCE, Circuit Judge:

Appellant Smith appeals from a judgment, dated July 13, 1983, of the United States District Court for the Eastern District of New York, Eugene H. Nickerson, Judge, convicting him, after a jury trial, on eight counts of securities fraud in violation of 15 U.S.C. Secs. 78j(b) and 78ff (1982), and on nine counts of wire fraud in violation of 18 U.S.C. Sec. 1343 (1982). Smith was sentenced to concurrent terms of imprisonment of one year and one day on one count of securities fraud and one count of wire fraud, respectively. Imposition of sentence on the remaining counts was suspended and Smith was placed on probation for five years consecutive to the prison term imposed.

On appeal, Smith contends that the district judge erred in (1) including in his instructions to the jury a charge on aiding and abetting under 18 U.S.C. Sec. 2 (1982) as to counts one through eight since the indictment did not allege aiding and abetting and in effect the government did not argue that Smith had violated that section, (2) admitting against Smith certain similar act evidence pursuant to Fed.R.Evid. 404(b) and 403, and (3) permitting the introduction of extrinsic evidence during the government's cross-examination of Smith. We do not find these contentions meritorious and, therefore, we affirm the judgment of conviction.

I. BACKGROUND

The evidence presented at trial, viewed in the light most favorable to the government, Glasser v. United States, 315 U.S. 60, 80, 62 S.Ct. 457, 469, 86 L.Ed. 680 (1942), indicates that Smith, a former licensed stockbroker, engaged in a "free-riding" scheme designed to defraud certain United States and Canadian individuals and broker-dealers. The government argued at trial that Smith fraudulently purchased or caused others to purchase on credit large amounts of stock in Jupiter Development Corporation ("Jupiter"), a Canadian company involved in oil and gold exploration, without Smith having the intent or ability to pay for the Jupiter stock unless it went up in price.

In May, 1979, Smith entered into an agreement with Jupiter to assist the company in raising funds through a private placement of Jupiter stock. As compensation, Smith received 30,000 shares of Jupiter stock plus an option to buy 100,000 more Jupiter shares at a price of $1.10 a share. ¹ Smith hoped to drive up the price of Jupiter stock so that eventually he could exercise his stock options at a sizeable profit. To cause the Jupiter stock price to rise, he purchased or caused others to purchase the stock on credit, thus contributing to an artificially high price for the stock, which permitted him to generate further credit to make additional purchases. All the while, he recognized that he would be able to meet his original commitments only if the price of Jupiter shares continued to rise. When the inflated price of the stock collapsed, Smith's credit dried up and he found himself unable to pay for the Jupiter securities he had ordered or had caused to be ordered in his name or for other persons. As a consequence, the financial loss was borne by the broker-dealers rather than by himself.

Smith's scheme involved two types of transactions. The first consisted of certain purchases with "bad checks" occurring at the New York City offices of E.F. Hutton & Co., Inc. ("E.F. Hutton") between February and May of 1980. Most of these orders were placed through Robert Grenley, a young broker in E.F. Hutton's broker training program. In February, 1980, Smith established an account in his own name. ² Thereafter, he referred several of his relatives, friends and acquaintances to Grenley, all in connection with Jupiter stock purchases. He also offered to buy Jupiter stock for the E.F. Hutton accounts of several of Grenley's friends, assuring them that they could repay Smith when the price of the stock went up. He also told Grenley that his (Smith's) friends had authorized him to make Jupiter stock purchases for their E.F. Hutton accounts. Payment for most of these Smith-induced purchases, which accounted for over 100,000 Jupiter shares, was in the form of approximately twenty-two of Smith's personal checks for about $500,000, drawn on Smith's accounts at the Toronto Dominion Bank and the Bank of Nova Scotia in Toronto, Canada.

Smith's checks, which were written at different times between February and May, 1980, were drawn on Canadian bank accounts and consequently took four to six weeks to clear. All along, he failed to disclose to E.F. Hutton that he did not have sufficient funds to cover the checks. ³ Yet, during the clearing period, he transferred to Canadian margin accounts some of the Jupiter stock (which appeared to be fully paid for since the bad checks had not yet been returned unpaid) held in various E.F. Hutton accounts he controlled. Through the margin accounts, Smith was able to pledge the transferred shares as collateral for additional loans from Canadian brokers to buy more stock. Smith also used the transferred stock to borrow funds to cover the first batch of bad checks payable to the order of E.F. Hutton amounting to roughly $100,000.

In mid-May, 1980, however, other bad checks, for about $400,000, were returned to E.F. Hutton unpaid due to insufficient funds. That same week, the Alberta Securities Exchange in Canada had reopened trading in Jupiter stock after trading had been suspended for approximately four weeks. Despite heavy activity, the price of Jupiter stock commenced its precipitous fall during that week. Smith was unable to make further purchases to support the price, and was denied additional credit from the Canadian margin accounts to cover the last wave of bad checks to E.F. Hutton. In short, the "bad checks" part of Smith's scheme fell apart.

The second set of transactions, which can be termed the "no check" purchases, took place during the week of May 12, 1980. As the price of Jupiter stock started to plummet, and as Smith found himself cut-off from his credit lines, he placed orders at three West Coast broker-dealer firms (E.F. Hutton's Los Angeles office, Black & Company, Inc., and Belford, Hammerbeck, Inc.) for approximately 37,000 shares of Jupiter stock at a cost in excess of $250,000, without disclosing to the broker-dealers that the only way he would be able to pay for these massive orders would be if the price of Jupiter stock stopped falling and in fact began to rise. At this point, Smith was without funds and without access to further credit. One of the firms informed Smith that it would not place all the orders requested by him and that some of the orders it would place would come from the firm's inventory of Jupiter stock. Smith was displeased that these orders would not be placed through the Alberta Securities Exchange, where they might have had a more direct impact on the price. Despite Smith's last-minute buying spree, the price of Jupiter collapsed. Smith never paid the West Coast broker-dealer firms for those orders which they did place.

On November 10, 1982, an indictment was filed against Smith in the Eastern District of New York, charging him with eight counts of securities fraud and nine counts of wire fraud. Even though the indictment did not include an aiding and abetting charge under 18 U.S.C. Sec. 2, Judge Nickerson, at the government's request, and over defendant's objection, included such an instruction in his charge to the jury. After a jury trial of more than two weeks, Smith was convicted on all 17 counts. Upon review, we find Smith's contentions of error without merit and we affirm the judgment of conviction.

II. DISCUSSION

A. Aiding and Abetting Charge.

The indictment against Smith did not charge him with aiding and abetting in the commission of securities fraud pursuant to 18 U.S.C. Sec. 2. At the government's request and over Smith's objection, however, Judge Nickerson instructed the jury that "[t]he guilt of the defendant with respect to counts one through eight may be established without proof that he personally did every act constituting the offense charged if he aided or abetted another in commiting a crime." ⁴

The well established rule in this and other circuits is that a "defendant may be indicted for the commission of a substantive crime and convicted of aiding and abetting its commission although not named in the indictment as an aider and abettor." United States v. Tropiano, 418 F.2d 1069, 1083 (2d Cir.1969), cert. denied, 397 U.S. 1021, 90 S.Ct. 1262, 25 L.Ed.2d 530 (1970); see, e.g., United States v. Bommarito, 524 F.2d 140, 145 (2d Cir.1975) ("the absence of a reference in the indictment to 18 U.S.C. Sec. 2 does not bar the conviction on this count"); United States v. Pellegrino, 470 F.2d 1205, 1209 (2d Cir.1972) (citing United States v. Tropiano), cert. denied, 411 U.S. 918, 93 S.Ct. 1556, 36 L.Ed.2d 310 (1973); United States v. Bullock, 451 F.2d 884, 888 (5th Cir.1971) ("one who has been indicted as a principal may be convicted on evidence showing that he merely aided and abetted"); Levine v. United States, 430 F.2d 641, 643 (7th Cir.1970) (collecting cases), cert. denied, 401 U.S. 949, 91 S.Ct. 962, 28 L.Ed.2d 232 (1971). An aiding and abetting jury instruction is appropriate where the prosecution makes it known that it intends to proceed on a theory of aiding and abetting and the evidence so warrants. United States v. Taylor, 464 F.2d 240, 242 n. 1 (2d Cir.1972). A principal purpose of the...