United States v. Abdallah

• Decision Date: 06 January 2012
• Docket Number: No. 09–CR–717 (JFB).,09–CR–717 (JFB).
• Citation: 840 F.Supp.2d 584
• Parties: UNITED STATES of America, v. Kamal ABDALLAH, Defendant.
• Court: U.S. District Court — Eastern District of New York

840 F.Supp.2d 584

UNITED STATES of America,

v.Kamal ABDALLAH, Defendant.

No. 09–CR–717 (JFB).

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

Jan. 6, 2012.

Loretta E. Lynch by David C. Woll, Jr., United States Attorney, Brooklyn, NY, for United States of America.

Kamal Abdallah, pro se.

MEMORANDUM AND ORDER

JOSEPH F. BIANCO, District Judge:

On March 7, 2011, defendant Kamal Abdallah (hereinafter “Abdallah” or “defendant”) was convicted following a jury trial of one count of conspiracy to commit securities and wire fraud, 18 U.S.C. §§ 1343, 1348 and 1349, one count of securities fraud, 18 U.S.C. § 1348, and one count of wire fraud, 18 U.S.C. § 1343.

On July 1, 2011, defendant moved for a judgment of acquittal, pursuant to Federal Rule of Criminal Procedure 29, and for a new trial, pursuant to Federal Rule of Criminal Procedure 33(a). In his motion for a judgment of acquittal, defendant argues that venue in the Eastern District of New York (“EDNY”) was not proper for the conspiracy charge, the securities fraud charge, or the wire fraud charge, and contends that the government manufactured venue as to each count. Defendant also claims that there was insufficient evidence to support the wire fraud charge. In his motion for a new trial, defendant seeks to overturn his conviction on the following four grounds: (1) there was a constructive amendment or prejudicial variance to the superseding indictment; (2) the government withheld witness statements in violation of Brady v. Maryland, 373 U.S. 83, 83 S.Ct. 1194, 10 L.Ed.2d 215 (1963); (3) the government improperly introduced evidence of the defendant's prior bad acts in violation of Federal Rule of Evidence 404(b); and (4) the government misled the jury during its rebuttal summation.

For the reasons set forth below, the Court denies defendant's motion for judgment of acquittal and defendant's motion for a new trial in their entirety.

I. Background

A. Superseding Indictment

The grand jury returned a superseding indictment (“Superseding Indictment”) against the defendant on August 17, 2010 in seven counts, including conspiracy to commit securities and wire fraud, substantive securities fraud, and five counts of wire fraud. The Superseding Indictment charged that between June 2009 and August 2009, the defendant paid Eric T. Seiden to create false demand for stock in Universal Property Development and Acquisition Corporation (“UPDV”), which inflated UPDV's share price. (Sup. Ind., ¶¶ 4–9.) Defendant and an individual named Roger Kainth then allegedly sold their UPDV stock at these artificially high prices. (Sup. Ind., ¶¶ 5, 9.) The indictment also alleged that, during a phone call that Seiden made to the defendant on July 28, 2009, while Seiden was in the EDNY, the defendant and Seiden discussed a scheme to manipulate the stock price of UPDV and another company called Alphatrade. (Sup. Ind., ¶ 11.) During that discussion, the defendant allegedly asked Seiden to place fraudulent trades for Alphatrade at a certain price in order to artificially inflate the price and allow defendant and Kainth to sell their stock. (Sup. Ind., ¶ 11.)

Before the trial began, the government voluntarily dismissed three counts of wire fraud on venue grounds, and proceeded at trial on Count One charging conspiracy to commit wire fraud, Count Two charging substantive securities fraud, and Count Seven charging wire fraud on or about July 28, 2009 (which was re-numbered as Count Three for purposes of the jury's consideration). The trial began on February 14, 2011 with the selection of the jury.

B. The Trial

Familiarity with the trial record is presumed. However, the Court briefly summarizes below the evidence relevant to the instant motions. The evidence is construed in the light most favorable to the government, as required under Rule 29 of the Federal Rules of Criminal Procedure.

1. Relevant Companies and Loans

The defendant was the CEO and Chairman of the Board of UPDV, an oil and gas services company. (Tr. 671, 1013–14.) ¹ The defendant was also Chairman of the Board of Continental Fuels (“Continental”), an oil products-related company in which UPDV owned a controlling interest. (Tr. 677–78.)

In April 2007, Sheridan Asset Management, LLC (“Sheridan”), a commercial finance and investment management company, lent UPDV about $3.6 million. (Tr. 671–72.) In August 2007, Sheridan extended an additional $3.25 million to UPDV. (Tr. 675–77.) In December 2007, Sheridan lent Continental $5.5 million so that Continental could acquire Geer Tank Trucks, Inc. (“Geer”). (Tr. 677–79.) That same month, Sheridan extended Continental a $3 million line of credit. UPDV guaranteed the loan and the line of credit. (Tr. 680.)

In October 2008, UPDV stopped making payments to Sheridan on the $3.6 and $3.25 million loans and went into default on both. (Tr. 684–87.) That month, Continental stopped producing collateral reports to Sheridan. (Tr. 688.) Bank statements for Continental and UPDV show that $4 million was transferred on October 14, 2008 from Geer to Continental, then to UPDV. (Tr. 693–94, 695–97; Gvt. Ex. 166.) On the same day, $3.5 million was transferred from UPDV to the defendant's personal bank account. (Tr. 699; Gvt. Ex. 165.) Defendant later acknowledged that he lost $3 million out of the $3.5 million that was transferred to his account by engaging in currency trading. (Tr. 699–700.) Because of defendant's actions, Geer was unable to pay its suppliers and began to bounce checks. (Tr. 701–02.)

In December 2008, defendant resigned from UPDV, Continental, and all related companies. At that point, UPDV owed Sheridan more than $14 million. (Tr. 704–06.)

2. Issuance of 600 Million UPDV Shares

On October 27, 2008, after the defendant had already taken the above-referenced money from Geer, he sent an email to UPDV's transfer agent asking the transfer agent to issue 600 million UPDV shares in the name of Mohamed Abdellatif Yassine. (Tr. 304–05, 1120; Gvt. Ex. 98.) The defendant asserted that the 600 million shares could be properly issued because he had converted into common stock some 15,000 shares of Preferred B stock that UPDV had issued to him on December 27, 2007. (Gvt. Ex. 98.) The defendant also requested that the stock certificates be sent by the transfer agent overseas to Al Mawarid Financial Services (“AM Financials”) in Beirut, Lebanon. ( Id.) The stock certificates were issued and sent overseas as instructed by the defendant. ( Id.)

3. Defendant and Roger Kainth

Beginning in June 2009, defendant and Roger Kainth used different brokerage accounts to buy and sell UPDV shares between their respective accounts in order to artificially increase trading volume in UPDV stock. (Tr. 877–882; Gvt. Exs. 213, 214.) Between June 1 and June 19, 2009, defendant and Kainth bought or sold UPDV stock every day that the stock market was open, buying a total of over 30 million shares, and selling 28.5 million shares. (Tr. 881; Gvt. Ex. 215.) Moreover, their trading activity was very similar. For example, on June 4, 2009, defendant bought 3,921,500 UPDV shares in his Fidelity brokerage account, and sold 1,206,953 UPDV shares in his Ameritrade account. (Tr. 878; Gvt. Ex. 213.) Similarly, on June 1, 2009, Kainth bought a total of 424,999 UPDV shares in his E*Trade and Schwab accounts and sold 5,999,994 shares in his Schwab account. (Gvt. Ex. 214.) In addition, Kainth, who sold more shares than he bought, sent some of the proceeds of such sales to the defendant. (Tr. 893–97.) Finally, once the defendant was introduced to Seiden on June 18, 2009, and Seiden began fraudulently inflating the demand in the UPDV shares, defendant and Kainth ceased their pattern of buying and selling UPDV shares between their accounts, and began to almost exclusively sell their UPDV shares. (Gvt. Exs. 215, 218.)

4. Defendant and Eric Seiden

Defendant first spoke to Seiden during a phone conference on June 18, 2009. (Tr. 394–95.) Seiden told the defendant that he had a lot of relationships with people and could buy a lot of stock. (Tr. 398–99.) The defendant agreed to wire Seiden money if Seiden successfully procured buy orders for UPDV shares. Defendant also agreed to pay Seiden 25 percent of the purchase price of any of the UPDV shares that Seiden bought. (Tr. 400–01.) That same day, Seiden bought a few million UPDV shares, and defendant wired him $3,500. (Tr. 402–04; Gvt. Ex. 18.)

After June 18, 2009, Seiden continued to place buy orders in UPDV stock on the defendant's behalf. (Tr. 407–08.) To do so, Seiden called brokerage firms pretending to be various individuals from institutional investors who had existing accounts at the brokerage firms. (Tr. 408.) During these phone calls, Seiden would place buy orders into the accounts of the investors he was impersonating. Seiden placed fake buy orders on June 22, June 25, June 26, July 7, and July 8, 2009 at brokerage firms such as Cantor Fitzgerald, Dinosaur Securities, Roth Capital Partners, and Royal Bank of Canada Capital Markets. (Tr. 41–43, 70–74, 119–125, 134–35, 155–56.)

Between June 19 and July 10, 2009, defendant and Seiden communicated several times per day by phone and through text messages. (Tr. 404–05.) Through these communications, defendant told Seiden how many shares to buy, the price that UPDV shares were selling for at the time, and the price at which defendant wanted to sell the shares, which was “always above where the market was trading.” (Tr. 405, 407, 411.)

On days that Seiden successfully placed a fake buy order, the defendant sold or attempted to sell UPDV stock. (Gvt. Ex. 216.) He also made multiple phone calls or text messages on those days, and wired money to Seiden on or around the days when Seiden placed the buy orders. (Gvt. Ex. 211; Tr. 287–88, 425–28, 431.)

For example, on June 22, 2009, which was the day Seiden placed fraudulent buy orders with Cantor Fitzgerald for 10 million UPDV shares, defendant sold about 5.3 million UPDV shares in his personal brokerage...