United States v. Georgiou
| Decision Date | 20 January 2015 |
| Docket Number | 12–2077.,11–4587,Nos. 10–4774,s. 10–4774 |
| Citation | 777 F.3d 125 |
| Parties | UNITED STATES of America v. George GEORGIOU, Appellant. |
| Court | U.S. Court of Appeals — Third Circuit |
OPINION TEXT STARTS HERE
Louis D. Lappen, Esq., [Argued], Office of United States Attorney, Philadelphia, PA, for Appellee.
Scott J. Splittgerber, Esq., [Argued], Bachner & Associates, New York, NY, Hope C. Lefeber, Esq., Philadelphia, PA, for Appellant.
Before: CHAGARES, GREENAWAY, JR., and VANASKIE, Circuit Judges.
A federal jury convicted Appellant George Georgiou (“Appellant” or “Georgiou”) of conspiracy, securities fraud, and wire fraud for his participation in planned manipulation of the markets of four publicly traded stocks, resulting in more than $55,000,000 in actual losses. The District Court sentenced him to 300 months' imprisonment, ordered him to pay restitution of $55,823,398 and ordered that he pay a special assessment of $900. The Court also subjected Georgiou to forfeiture of $26,000,000.
For the first time on appeal, Georgiou argues that under Morrison v. National Australia Bank Ltd., 561 U.S. 247, 130 S.Ct. 2869, 177 L.Ed.2d 535 (2010), his securities and wire fraud convictions were improperly based upon the extraterritorial application of United States law. Thus, we must determine as a matter of first impression whether the purchases and sales of securities issued by U.S. companies through U.S. market makers acting as intermediaries for foreign entities constitute “domestic transactions” under Morrison. For the reasons set forth below, we find that these transactions are “domestic transactions,” and that his conviction was not based upon the improper extraterritorial application of United States law. Georgiou also argues that the District Court erred in denying his motion for a new trial based on purported Brady and Jencks Act violations. He also asserts that the District Court erred on several evidentiary and sentencing issues. We find no error. Thus, we will affirm the District Court's Judgment of Conviction.
From 2004 through 2008, Georgiou and his co-conspirators engaged in a stock fraud scheme resulting in more than $55 million in actual losses. The scheme centered on manipulating the markets of four stocks: Neutron Enterprises, Inc. (“Neutron”), Avicena Group, Inc. (“Avicena”), Hydrogen Hybrid Technologies, Inc. (“HYHY”), and Northern Ethanol, Inc. (“Northern Ethanol”) (collectively, “Target Stocks”). At all relevant times, the Target Stocks were quoted on the OTC Bulletin Board (“OTCBB”) 1 or the Pink OTC Markets Inc. (“Pink Sheets”).2
In order to facilitate their scheme, Georgiou and his co-conspirators opened brokerage accounts in Canada, the Bahamas, and Turks and Caicos. Once opened, the co-conspirators used these accounts to engage in manipulative trading in the Target Stocks. Specifically, by trading stocks between the various accounts they controlled, the co-conspirators artificially inflated the stock prices and created the false impression that there was an active market in each Target Stock.
As a result of this manipulation, Georgiou and his co-conspirators were able to sell their shares at inflated prices. In addition, these artificially inflated shares would be used as collateral to fraudulently borrow funds on margin and obtain millions of dollars in loans from Caledonia Corporate Management Group Limited (“Caledonia”) and Accuvest Limited (“Accuvest”), both brokerage firms based in the Bahamas. Eventually, these accounts experienced severe trading losses since the assets purportedly serving as collateral proved to be worthless.3
In June 2006, unbeknownst to Georgiou, Kevin Waltzer,4 one of his co-conspirators, began cooperating in an FBI sting operation. Through Waltzer's cooperation, the FBI monitored Georgiou's activities, including many of his emails, phone calls and wire transfers.
Georgiou and his co-conspirators manipulated the prices of the Target Stocks by creating matched trades,5 wash sales,6 and misleading email blasts. They used various alias accounts, nominees, and offshore brokerage accounts to conceal both their ownership of the Target Stocks and their involvement in the fraudulent scheme.
At least some of the manipulative trades were transacted through market makers 7 located in the United States. Georgiou communicated via phone and e-mail with Waltzer about their plans, and also had occasional in-person meetings with Waltzer and others in the United States about these schemes. In these communications, Georgiou provided direction on how to implement the manipulative schemes, and demonstrated his role and culpability in orchestrating and perpetrating the fraud. After fourteen months, Georgiou wired $5,000 to the account of an undercover FBI agent as part of a test transaction. Six days later, Georgiou was arrested.
In December 2006, Georgiou opened a margin-eligible account in his wife's name at Caledonia. As a result, Georgiou was able to obtain loans and purchase stock without using his own funds. Georgiou represented to the principals at Caledonia that the margin in his account would be collateralized by approximately $15 million worth of Avicena and Neutron stock, but did not disclose that the value of these securities had been artificially inflated.
In March 2007, Georgiou borrowed approximately $3,394,000 from Caledonia to purchase 1,697,000 shares of Avicena from Waltzer. That loan was secured by Avicena and Neutron stock held in the name of Georgiou's wife at another brokerage firm, and was never repaid.
During the same month, Georgiou borrowed approximately $2.8 million from Caledonia to purchase Neutron stock and to provide financing to Neutron. The loan was ostensibly secured by Avicena and Neutron stock held in a different name at another brokerage firm. This loan was also never repaid. Caledonia was unable to cover the substantial deficits incurred as a result of Georgiou's activities. Ultimately, Caledonia suffered approximately $25 million in losses. The firm was later dissolved and liquidated.
In June 2007, Georgiou met with representatives of Accuvest in the Bahamas to discuss opening a brokerage account. In September 2007, Georgiou opened an account at Accuvest in a different name. The trading in the account was handled through William Wright Associates (“Wright”), an Accuvest affiliate based in California. From October 2007 through February 2008, Georgiou deposited HYHY and Northern Ethanol stock into this account, and in return, Accuvest provided a margin loan of ten percent of the value of the account. Georgiou did not disclose that the value of these securities had been artificially inflated. On several occasions in 2008, Georgiou directed Wright, via email, to wire cash from this account to Avicena, or Team One Marketing, a Canadian company associated with Georgiou.
In August 2008, Georgiou instructed Wright to open a second Accuvest account, which was funded with 10 million shares of Northern Ethanol. As had happened before, Georgiou did not disclose that the value of these securities had been artificially inflated. Georgiou failed to repay the money that he had borrowed on margin and in cash loans from Accuvest. The artificially inflated stock did not cover the loans and Accuvest lost at least $4 million.
Following a three-week trial, a jury found Georgiou guilty of one count of conspiracy, in violation of 18 U.S.C. § 371, four counts of securities fraud, in violation of Section 10(b) of the Securities Exchange Act of 1934 (the “Act”), 15 U.S.C. §§ 78j(b) and 78ff, and four counts of wire fraud, in violation of 18 U.S.C. §§ 1343 and 1349.
Georgiou was sentenced to 300 months' imprisonment, and ordered to pay over $55 million in restitution.
The District Court had jurisdiction under 15 U.S.C. § 78aa and 18 U.S.C. § 3231. We have jurisdiction under 28 U.S.C. § 1291 and 18 U.S.C. § 3742(a).
For the first time on appeal, Georgiou argues that his securities fraud convictions are improperly based on an exterritorial application of United States law. He assertsthat without proof that any securities transactions occurred in the United States, the jury lacked sufficient evidence upon which to convict him. He further asserts that the District Court erred in failing to require that the jury base it verdicts solely on domestic transactions. Georgiou relies on Morrison, which held that Section 10(b) of the Act only proscribes “deceptive conduct [made] ‘in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered.’ ” 561 U.S. at 266, 130 S.Ct. 2869 (quoting 15 U.S.C. § 78j(b)).
Because Georgiou raised neither argument below, we review for plain error. Fed.R.Crim.P. 52(b); Henderson v. United States, ––– U.S. ––––, 133 S.Ct. 1121, 1124–25, 185 L.Ed.2d 85 (2013); United States v. Riley, 621 F.3d 312, 321–22 (3d Cir.2010).8 A finding of “plain error” is warranted if: “(1) there is an ‘error’; (2) the error is ‘clear or obvious, rather than subject to reasonable dispute’; (3) the error ‘affected the appellant's substantial rights, which in the ordinary case means' it affected the outcome of the district court proceedings'; and (4) ‘the error seriously affect[s] the fairness, integrity or public reputation of judicial proceedings.’ ” United States v. Marcus, 560 U.S. 258, 262, 130 S.Ct. 2159, 176 L.Ed.2d 1012 (2010) (quoting Puckett v. United States, 556 U.S. 129, 135, 129 S.Ct. 1423, 173 L.Ed.2d 266 (2009)); see also United States v. Andrews, 681 F.3d 509, 517 (3d Cir.2012). Georgiou bears the burden of showing that the error affected his substantial rights. Andrews, 681 F.3d at 517.
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