United States v. Khalupsky

• Decision Date: 19 July 2021
• Docket Number: 19-780-cr,Nos. 19-197-cr,August Term, 2019,s. 19-197-cr
• Citation: 5 F.4th 279
• Parties: UNITED STATES of America, Appellee, v. Vladislav KHALUPSKY, Vitaly Korchevsky, Defendants-Appellants.
• Court: U.S. Court of Appeals — Second Circuit

5 F.4th 279

UNITED STATES of America, Appellee,

v.Vladislav KHALUPSKY, Vitaly Korchevsky, Defendants-Appellants.^*

Nos. 19-197-cr

19-780-cr

August Term, 2019

United States Court of Appeals, Second Circuit.

Argued: February 11, 2020

Decided: July 19, 2021

Julia Nestor (Susan Corkery, Richard M. Tucker, David Gopstein, on the brief), Assistant United States Attorneys, for Jacquelyn M. Kasulis, Acting United States Attorney for the Eastern District of New York, for Appellee.

Darrell Fields, Federal Defenders of New York, New York, NY, for Defendant-Appellant Vladislav Khalupsky.

Randy D. Singer (Rosalyn Singer, Kevin Hoffman, on the brief), Singer Davis, LLC, Virginia Beach, VA; Steven Gary Brill (on the brief), Sullivan & Brill, LLP, New York, NY; for Defendant-Appellant Vitaly Korchevsky.

Before: Walker, Parker, and Carney, Circuit Judges.

John M. Walker, Jr., Circuit Judge:

For years, defendants-appellants Vladislav Khalupsky and Vitaly Korchevsky used information from stolen, pre-publication press releases to execute advantageous securities trades. Their trading was facilitated by intermediaries who paid hackers for the stolen press releases, provided the releases to Khalupsky and Korchevsky, and funded brokerage accounts for them to use in trades. Ultimately, the defendants’ illicit trades netted profits in excess of $18 million.

Following a jury trial in the United States District Court for the Eastern District of New York (Raymond J. Dearie, J. ), Khalupsky and Korchevsky were convicted of conspiracy to commit wire fraud, conspiracy to commit securities fraud and computer intrusions, securities fraud, and conspiracy to commit money laundering. They now appeal, contending that the evidence was insufficient to support conviction, venue was improper on the securities fraud counts, the government's proof at trial constructively amended the indictment, the district court erred by instructing the jury on conscious avoidance, and the district court erred in how it responded to a jury note. Finding no merit in these arguments, we AFFIRM the judgments of conviction.¹

BACKGROUND

In 2010, brothers Arkadiy and Pavel Dubovoy approached Korchevsky, a hedge fund manager and investment advisor, to seek his help implementing a scheme to use nonpublic information to trade on the stock market. The nonpublic information was coming from hackers in Ukraine, who hacked into three newswires (PR Newswire, Marketwired, and Business Wire) that disseminate press releases from publicly traded companies. The hackers obtained the press releases containing crucial financial information before the releases were published. Then, they saved the stolen releases onto a web-based server to which the Dubovoys also had access.

The Dubovoys provided Korchevsky with login credentials to review some of the stolen releases in order to convince him of the nascent scheme's potential. Korchevsky looked at the releases and agreed that advance information of the sort could be traded upon profitably. Accordingly, Arkadiy Dubovoy opened and funded brokerage accounts, in which Korchevsky would trade. Arkadiy's son, Igor Dubovoy, equipped Korchevsky with computers, phones, and a software program enabling easy access to the server hosting the stolen releases.

From January 2011 until February 2015, Korchevsky executed advantageous trades using the information in the stolen press releases. In return for trading on Arkadiy's behalf, he received a percentage of the profits. Korchevsky did most of the trading in the window of time after the press release was uploaded to a newswire's internal computer system but before it was publicly disseminated (i.e., trading "in-window"). He then closed on his trading position after the release became public and the market had reacted to its contents. During the scheme, Korchevsky ultimately amassed roughly $15 million in net profits—a 1,660% return on investment—in Arkadiy's brokerage accounts.

The Dubovoys eventually decided to bring in another trader, Khalupsky. Khalupsky owned a trading company in Ukraine and used its employees to conduct trading as part of the charged scheme. As with Korchevsky, the Dubovoys shared the stolen releases with Khalupsky, funded brokerage accounts in Arkadiy's name, and paid Khalupsky a piece of the profits. These trades, too, were generally initiated in-window. The Khalupsky trades yielded roughly $3.1 million in net profits during the scheme.

The scheme faltered for a time after the relationship with the hackers soured. Arkadiy had opened additional brokerage accounts unknown to the hackers in order to exclude them from some of the profits. The hackers grew suspicious and, in early 2014, stopped sending stolen press releases to the Dubovoys. Without access to the nonpublic information, Korchevsky's trading volume and profits plummeted.

By late 2014, the Dubovoys found another Ukrainian hacker who could steal pre-publication press releases. This new hacker charged more for the service, however, so the Dubovoys questioned whether the arrangement would still be worthwhile. Korchevsky insisted that the Dubovoys secure this new source of press releases.

They did, and the scheme continued, albeit in modified form. Rather than trading directly out of Arkadiy's brokerage accounts, Korchevsky now received the stolen press releases from Igor, reviewed them, and sent him a coded text message telling him how much of which stocks he should purchase. The scheme continued into 2015.

On August 15, 2015, a grand jury returned the first indictment in this case, charging Khalupsky and Korchevsky with conspiracy to commit wire fraud, in violation of 18 U.S.C. § 1349 (Count One); conspiracy to commit securities fraud, in violation of 18 U.S.C. § 371 (Count Two); securities fraud, in violation of 15 U.S.C. §§ 78j(b) and 78ff (Counts Three and Four); and money laundering conspiracy, in violation of 18 U.S.C. § 1956(h) (Count Five). On September 13, 2016, a second grand jury returned a superseding indictment, replicating the first one but adding computer intrusions as an object of the conspiracy to commit securities fraud charge in Count Two.

Following a three-week jury trial that concluded in July 2018, Khalupsky and Korchevsky were convicted on all counts. The district court sentenced Khalupsky to four years’ imprisonment to be followed by two years’ supervised release, and ordered him to forfeit $397,281.12 and pay $339,062.99 in restitution. It sentenced Korchevsky to five years’ imprisonment to be followed by three years’ supervised release, and ordered him to forfeit $14,452,245 and pay $339,062.99 in restitution. This appeal followed.

DISCUSSION

Korchevsky's principal argument on appeal is that the evidence was insufficient to establish his participation in the single charged conspiracy with Khalupsky. Korchevsky also argues that: the evidence was insufficient to support the securities fraud convictions; venue was improper in the Eastern District of New York (EDNY) for the securities fraud counts (an argument Khalupsky joins); the proof at trial constituted either a constructive amendment of the superseding indictment or prejudicial variance from it; and the district court erred by giving a particular exhibit to the jury in response to a note during deliberations. Khalupsky additionally asserts that the district court erred in charging the jury on conscious avoidance (an argument Korchevsky joins in his reply brief). Each of the defendants also adopted the arguments of the other pursuant to Federal Rule of Appellate Procedure 28(i). None of the arguments of either defendant, however, is persuasive.

I. Sufficiency of the Evidence

Korchevsky challenges the sufficiency of evidence in support of both his conspiracy convictions and his substantive securities fraud convictions. In challenging the sufficiency of the evidence, Korchevsky "face[s] a heavy burden, as the standard of review is exceedingly deferential to the jury's apparent determinations."² "[W]e view the evidence in the light most favorable to the government, crediting every inference that could have been drawn in the government's favor."³ When the sufficiency challenge is to a conspiracy conviction, "deference to the jury's findings is especially important because a conspiracy by its very nature is a secretive operation, and it is a rare case where all aspects of a conspiracy can be laid bare in court."⁴ We will uphold the challenged convictions if "any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt."⁵ Here, we find no basis to disturb the convictions.

A. Conspiracy

To challenge his conspiracy convictions, Korchevsky makes the following argument: co-conspirators must know one another, but the evidence established that he did not know Khalupsky, so the evidence cannot support his participation in one conspiracy with Khalupsky.⁶ This argument fails because its premise is incorrect. Korchevsky and Khalupsky need not have known one another to be co-conspirators. The evidence was sufficient to support the defendants’ knowing participation in a single conspiracy.

"Whether the government has proved a single or multiple ... conspiracies is a question of fact for a properly instructed jury."⁷ To prove conspiracy, "the government must show that two or more persons entered into a joint enterprise for an unlawful purpose, with awareness of its general nature and extent."⁸ It must "show that each alleged member agreed to participate in what he knew to be a collective venture directed toward a common goal."⁹ But "[t]he government need not show that the defendant knew all of the details of the conspiracy," "[n]or must the government prove that the defendant knew the identities of all of the other conspirators."¹⁰ That is "especially [true] where the activity of a single person was central to the involvement of all" conspirators.¹¹ "Indeed, a defendant may be a co-conspirator if he knows only one other member of the conspiracy...