United States v. Hussain

• Decision Date: 26 August 2020
• Docket Number: No. 19-10168,19-10168
• Citation: 972 F.3d 1138
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Sushovan Tareque HUSSAIN, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

972 F.3d 1138

UNITED STATES of America, Plaintiff-Appellee,

v.Sushovan Tareque HUSSAIN, Defendant-Appellant.

No. 19-10168

United States Court of Appeals, Ninth Circuit.

Argued and Submitted May 11, 2020 San Francisco, California

Filed August 26, 2020

Alexandra A.E. Shapiro (argued) and Lauren M. Capaccio, Shapiro Arato Bach LLP, New York, New York, for Defendant-Appellant.

Robert S. Leach (argued), Jonas Lerman, Adam A. Reeves, and William Frentzen, Assistant United States Attorneys; Merry Jean Chan, Chief, Appellate Section; Hallie Hoffman, Chief, Criminal Division; David L. Anderson, United States Attorney; United States Attorney's Office, San Francisco, California; for Plaintiff-Appellee.

Before: Ryan D. Nelson and Daniel A. Bress, Circuit Judges, and James S. Gwin,^* District Judge.

BRESS, Circuit Judge:

Sushovan Hussain served as Chief Financial Officer of Autonomy Corporation, a U.K. technology company that Hewlett-Packard (HP) acquired in 2011. Following the acquisition, HP discovered that Hussain and others fraudulently inflated Autonomy's revenue through a series of elaborate accounting schemes. Hussain was charged with wire fraud, conspiracy to commit wire fraud, and securities fraud. After a lengthy jury trial, Hussain was convicted on all counts.

We hold that Hussain's wire fraud convictions did not involve an impermissible extraterritorial application of United States law to foreign conduct because the "focus" of the wire fraud statute is the use of the wires in furtherance of a scheme to defraud, and Hussain used domestic wires to perpetrate his fraud. We also hold that sufficient evidence supported Hussain's conviction for securities fraud because a reasonable jury could conclude that Hussain's approval of false and misleading financial information in an HP press release distributed to the investing public reflected a fraudulent scheme "in connection with" U.S. securities.

In a concurrently filed memorandum disposition, we hold that the district court did not abuse its discretion in certain evidentiary rulings or err in ordering money forfeiture. We therefore affirm Hussain's convictions and sentence in full.

I

Autonomy was a U.K. technology company with dual headquarters in San Francisco and Cambridge, United Kingdom. Hussain, a U.K. citizen, served as Autonomy's CFO from approximately June 2001 to the spring of 2012. In this role, he was responsible for preparing Autonomy's financial reports and certifying that they complied with U.K. regulations for public companies.

HP began exploring the possibility of acquiring Autonomy in early 2011, negotiating the deal that summer. On August 18, 2011, HP announced that it would acquire Autonomy for more than $11 billion, or £25.50 per share, an approximately 64% premium on the market price for Autonomy's shares on the London Stock Exchange.

Post-acquisition, things quickly soured. After Hussain left the company in May 2012, Autonomy's new CFO discovered errors in Autonomy's publicly filed financial documents and decided to restate the company's finances for 2010. Upon closer review, it was revealed that for years Hussain and others at Autonomy had fraudulently represented the company's financial picture.

Hussain and his co-conspirators perpetrated this fraud through various sophisticated tactics. Each was centered around the idea of inflating Autonomy's revenue, one of the main metrics of success for a technology company because it signals growth and creates strong market valuation—thereby making Autonomy an attractive acquisition target.

The government's evidence at trial was extensive and we offer only a flavor of it here. Among other things, Autonomy recorded revenue earlier than allowed under standard accounting practices by paying intermediary brokers to buy its software, even though the brokers often had no intention of selling it to end-users. Autonomy backdated some of these deals so that it could increase revenue for certain past quarters. In addition, and despite representing itself as a "pure software" company, Autonomy sold hardware at a loss to further inflate its revenues. Extensive evidence presented at trial showed that Hussain was centrally involved in both inflating Autonomy's revenue and misrepresenting its claimed financial success to HP.

The government's evidence at trial showed that Hussain and Autonomy had substantial presence in the United States before and during the negotiations for the HP deal. As relevant here, during the course of HP's due diligence leading up to the Autonomy acquisition, Hussain and his co-conspirators used emails, press releases, and video and telephone conference calls to speak with HP executives in the United States and fraudulently misrepresent Autonomy's finances. On the cusp of finalizing the HP deal, Hussain signed a letter warranting that an HP press release announcing the acquisition contained truthful financial information about Autonomy, when it did not. When the deal closed, Hussain earned approximately $16 million.

Following a joint investigation by American and U.K. authorities, Hussain was charged in the Northern District of California with fourteen counts of wire fraud under 18 U.S.C. § 1343, and one count of conspiracy to commit wire fraud under 18 U.S.C. § 1349. Each count of wire fraud alleged the misuse of a wire with a connection to the Northern District. A few months later, the government superseded the indictment and added one count of securities fraud under 18 U.S.C. § 1348. The government's theory for this charge was that Hussain engaged in a scheme to defraud "in connection with" HP securities by "caus[ing] HP to issue a press release to the market that was false."

Hussain moved to dismiss the indictment, arguing that his wire fraud charges were an impermissible extraterritorial application of U.S. law and that the securities fraud charge was too attenuated to U.S. securities. The district court rejected these legal challenges. After a 29-day trial in which the government called 37 witnesses, the jury found Hussain guilty on all counts. Hussain was sentenced to 60 months’ imprisonment. He was also ordered to pay a $4 million fine and $6.1 million in restitution. This appeal followed.

II

Hussain's primary argument on appeal is that his convictions for wire fraud and conspiracy to commit wire fraud must be reversed because they involved the improper application of U.S. criminal law to conduct abroad. We review questions of statutory interpretation de novo. United States v. Gagarin , 950 F.3d 596, 603 (9th Cir. 2020). In determining if the evidence was sufficient to sustain a conviction, we consider whether, "after viewing the evidence in the light most favorable to the prosecution, any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt." Id. at 602 (quotations omitted). We hold that Hussain's wire fraud and conspiracy convictions are not impermissibly extraterritorial because they are based on conduct that occurred in the United States.¹

A

Federal criminal law generally applies to domestic conduct, so when foreign conduct is also involved, questions arise as to whether a U.S. prosecution exceeds its proper bounds. Under the longstanding "presumption against extraterritoriality," the Supreme Court has held that "[a]bsent clearly expressed congressional intent to the contrary, federal laws will be construed to have only domestic application." RJR Nabisco, Inc. v. European Cmty. , ––– U.S. ––––, 136 S. Ct. 2090, 2100, 195 L.Ed.2d 476 (2016). But if the object of a federal law is conduct that occurs in this country, the concerns associated with a potentially extraterritorial application of our laws do not come into play. Id. at 2100–101.

In Morrison v. National Australia Bank Ltd. , 561 U.S. 247, 262–65, 130 S.Ct. 2869, 177 L.Ed.2d 535 (2010), the Supreme Court devised a two-step framework for analyzing issues of extraterritoriality. See also RJR Nabisco , 136 S. Ct. at 2101. We first ask "whether the presumption against extraterritoriality has been rebutted—that is, whether the statute gives a clear, affirmative indication that it applies extraterritorially." Id. If it does not, then we "determine whether the case involves a domestic application of the statute" by "looking to the statute's ‘focus.’ " Id .

A statute's "focus" under step two of Morrison is " ‘the object of its solicitude,’ which can include the conduct it ‘seeks to regulate’ as well as the parties and interests it ‘seeks to protect’ or vindicate." WesternGeco LLC v. ION Geophysical Corp. , ––– U.S. ––––, 138 S. Ct. 2129, 2137, 201 L.Ed.2d 584 (2018) (quoting Morrison , 561 U.S. at 267, 130 S.Ct. 2869 ) (alterations omitted). If a statute is not extraterritorial under Morrison step one, the question under step two becomes whether the conduct that is proscribed took place in this country to a sufficient extent:

If the conduct relevant to the statute's focus occurred in the United States, then the case involves a permissible domestic application even if other conduct occurred abroad; but if the conduct relevant to the focus occurred in a foreign country, then the case involves an impermissible extraterritorial application regardless of any other conduct that occurred in U.S. territory.

RJR Nabisco , 136 S. Ct. at 2101.

The Supreme Court has instructed that "[b]ecause a finding of extraterritoriality at step one will obviate step two's ‘focus’ inquiry, it will usually be preferable for courts to proceed" with these two steps sequentially. Id. at 2101 n.5. But courts may also "start[ ] at step two in appropriate cases." Id. This is such a case because the focus of the wire fraud statute is the use of the wires in furtherance of a scheme to defraud, which here occurred domestically. We therefore need not and do not decide whether § 1343 applies extraterritorially.

B

The wire fraud statute states:

Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining

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