United States v. Elbaz

• Docket Number: 20-4019
• Decision Date: 03 November 2022
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Lee ELBAZ, a/k/a Lena Green, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fourth Circuit

52 F.4th 593

UNITED STATES of America, Plaintiff-Appellee,

v.Lee ELBAZ, a/k/a Lena Green, Defendant-Appellant.

No. 20-4019

United States Court of Appeals, Fourth Circuit.

Argued: December 9, 2021

Decided: November 3, 2022

ARGUED: Eric Joseph Brignac, OFFICE OF THE FEDERAL PUBLIC DEFENDER, Raleigh, North Carolina, for Appellant. James I. Pearce, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee. ON BRIEF: G. Alan DuBois, Federal Public Defender, Jennifer C. Leisten, Assistant Federal Public Defender, OFFICE OF THE FEDERAL PUBLIC DEFENDER, Raleigh, North Carolina, for Appellant. Nicholas A. McQuaid, Acting Assistant Attorney General, Robert A. Zink, Acting Deputy Assistant Attorney General, Caitlin R. Cottingham, Assistant Chief, Fraud Section, Criminal Division, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee.

Before RICHARDSON, RUSHING, Circuit Judges, and TRAXLER, Senior Circuit Judge.

Affirmed in part, vacated in part, and remanded by published opinion. Judge Richardson wrote the opinion, in which Judge Rushing and Senior Judge Traxler joined.

RICHARDSON, Circuit Judge:

Based on the Defendant's petition for panel rehearing, the panel grants panel rehearing, vacates the prior panel opinion, and issues a new panel opinion below. While the result does not change, we appreciate Defendant's thoughtful petition.¹

* * *

Lee Elbaz and her confederates orchestrated a multimillion-dollar fraud scheme, operating from Israel and targeting unsophisticated victims worldwide. Posing as an investment firm, Elbaz and her partners solicited "investments" that cost fraud victims over $100 million, including millions from victims in the United States. While vacationing in New York, Elbaz was arrested and later convicted for conspiring to commit wire fraud and for substantive wire fraud itself. She was sentenced to 22 years in prison and required to pay $28 million in restitution.

Elbaz argues that the wire-fraud statute does not apply to her extraterritorial conduct, so she did not commit a crime under United States law. She also argues that the district court committed two procedural errors warranting a new trial: refusing to compel immunity for witnesses she planned to call and refusing to grant a mistrial after a juror overheard a disparaging remark about Elbaz. And, finally, she raises several challenges to her sentence.

We reject most of these challenges. While the wire-fraud statute does not apply extraterritorially, the focus of the statute is on misuse of American wires. As her conduct misused American wires, she was properly prosecuted for a domestic offense. And the district judge properly refused to compel immunity to witnesses and denied a mistrial. But while we reject most of Elbaz's alleged sentencing errors, we agree the district court erred in imposing broad restitution that went beyond victims of domestic wire fraud.

I. Factual Background and Procedural Posture

A. The Fraud

Elbaz and her partners' fraud scheme involved so-called "binary options." These all-or-nothing options place a bet on the price of an asset at a certain time. And typically, that time is shortly after the binary option is purchased, sometimes only minutes or hours.² The option buyer does not hold the asset, and unlike other options, the option does not confer the right to purchase or sell that asset. Instead, the owner profits by a fixed amount if he correctly bets that the asset's price will be above a target (or below it or within a range, depending on how the option is structured). If the owner bets wrong, he loses his investment. The all-or-nothing aspect of binary options, combined with the short time frame, looks an awful lot like gambling and seems to lead to many fraud schemes with binary options at the center. See SEC Off. of Inv. Educ. & Advoc., Investor Alert: Binary Options and Fraud , Investor.gov (June 6, 2013) (ECF attachment).

The scheme here operated in three layers. First, binary-option investments were marketed by two foreign companies, BinaryBook and BigOption. Second, when a customer responded to an advertisement, they would be contacted by a "conversion" agent from a company called Linktopia, who would persuade the customer to become a client by depositing at least $250. Third, once the customer was on the hook, responsibility for "retention" would transfer to Yukom Communications, based in Israel.

Elbaz worked for Yukom in Israel in various capacities, including as its Chief Executive Officer. Elbaz and others at Yukom made fraudulent representations to retain investors by convincing them to deposit more money, then stopping them from withdrawing their funds. Yukom's retention agents used fake names and told investors significant lies about their education, work experience, compensation incentives, location, and investment performance. And these lies supported their various techniques to "lock the client in," J.A. 1692, obtaining more deposits and refusing to permit withdrawals. In total, the scheme netted more than $100 million in deposits, including millions from American victims. As part of the scheme, Elbaz caused at least three domestic wire transmissions to occur in Maryland: (1) an email from a retention agent to a Maryland victim that included wire-transfer instructions, (2) a telephone call from a retention agent to a second Maryland victim, and (3) an email requesting a third Maryland victim complete a deposit confirmation form.

B. Legal Proceedings

A grand jury indicted Elbaz for conspiracy to commit wire fraud and for three substantive wire-fraud counts, based on the three wire transmissions sent to victims in Maryland. And when Elbaz traveled to New York on vacation, she was arrested.

Before trial, Elbaz sought to dismiss the indictment, asserting that the wire-fraud statute did not apply because her conduct was extraterritorial. The district court acknowledged that the wire-fraud statute does not apply extraterritorially but rejected Elbaz's argument because it found that the charged wire frauds were domestic offenses based on the use of American wires to target American victims.

At trial, Elbaz planned to call four Israeli witnesses to testify. But before trial the United States informed the witnesses that three of them were under indictment and warned them about testifying. All four witnesses then declined to testify. Elbaz then sought to compel the government to grant immunity to these witnesses. The district court denied this extraordinary request.

During jury deliberations, one juror—Juror 9—overheard a negative conversation in Hebrew about Elbaz while standing in line at a drugstore. Juror 9 spoke enough Hebrew to generally understand but did not know the people speaking in this coincidental encounter. Juror 9 did not immediately disclose his encounter to the court. Instead, he continued deliberations for a day before informing the court, though without telling any other jurors about the incident. Juror 9 said that what he had heard made him change his opinion, from leaning toward acquitting to leaning toward convicting. He was excused, but Elbaz sought a complete mistrial. Elbaz argued that Juror 9 tainted the jury and its deliberations by continuing to sit on the jury for a day after being influenced by the drugstore conversation. The court responded by conducting hearings to confirm none of the remaining jurors had heard any outside information. Satisfied that none had, the court sat an alternate juror, ordered the jury to start deliberations from scratch, and allowed the reconstituted jury to begin deliberating.

The jury convicted Elbaz on all counts. The court then sentenced Elbaz to 264 months in prison, followed by three years of supervised release. The court also ordered Elbaz to pay $28 million in restitution. Elbaz timely appealed.

II. Discussion

Elbaz challenges her conviction on three grounds. She first asserts that the wire-fraud statute was impermissibly applied to convict her for extraterritorial conduct. She alternatively claims that she must be granted a new trial because her proposed witnesses were not granted use immunity and because the juror's exposure to improper contact caused irreparable prejudice. Elbaz also challenges her sentence—including restitution—on various grounds. Except for the restitution award, we reject each challenge.

A. Extraterritoriality

Elbaz contends that the federal wire-fraud statute criminalizes only domestic, not extraterritorial, conduct. And this, she argues, requires vacating her conviction because the wire-fraud scheme was devised and carried out in Israel.

Courts have long presumed "that legislation of Congress, unless a contrary intent appears, is meant to apply only within the territorial jurisdiction of the United States." Morrison v. Nat'l Austrl. Bank Ltd. , 561 U.S. 247, 255, 130 S.Ct. 2869, 177 L.Ed.2d 535 (2010) (quoting EEOC v. Arabian Am. Oil Co. , 499 U.S. 244, 248, 111 S.Ct. 1227, 113 L.Ed.2d 274 (1991) ). This presumption against extraterritoriality "rests on the perception that Congress ordinarily legislates with respect to domestic, not foreign, matters." Id.

This presumption, however, can be rebutted. To determine whether it has been overcome, we conduct a two-step inquiry. At step one, if a statute lacks a clear indication of an extraterritorial application, it has none. See id. at 265, 111 S.Ct. 1227. When a statute applies extraterritorially, we apply it extraterritorially as far as the statutory indication directs.

At step two, if the statute does not apply extraterritorially, we then ask whether the case before us "involves a domestic application of the statute." RJR Nabisco, Inc. v. Eur. Cmty. , 579 U.S. 325, 337, 136 S.Ct. 2090, 195 L.Ed.2d 476 (2016). And to identify a permissible domestic application, we must determine the statute's "focus" and whether the conduct relevant to the statute's focus occurred inside the United States. Id. It is not enough for conduct to merely "touch and concern the ...