United States v. Ramsey

• Decision Date: 04 October 2021
• Docket Number: CRIMINAL ACTION No. 19-268
• Citation: 565 F.Supp.3d 641
• Parties: UNITED STATES of America v. Mark Wayne RAMSEY
• Court: U.S. District Court — Eastern District of Pennsylvania

565 F.Supp.3d 641

UNITED STATES of America

v.Mark Wayne RAMSEY

CRIMINAL ACTION No. 19-268

United States District Court, E.D. Pennsylvania.

Filed October 4, 2021

Alexandra M. Lastowski, David J. Ignall, Eileen Castilla Zelek, Assistant US Attorneys, U.S. Attorney's Office, Philadelphia, PA, for United States of America.

Ann Campbell Flannery, Philadelphia, PA, Rocco C. Cipparone, Jr., Law Offices of Rocco C. Cipparone, Haddon Heights, NJ, for Mark Wayne Ramsey.

MEMORANDUM

Pratter, United States District Judge

INTRODUCTION AND BACKGROUND

The Government and the defendant, Mark Wayne Ramsey, disagree on the required elements of a charged offense under 18 U.S.C. § 1348. In his Proposed Jury Instructions, Mr. Ramsey asserts that the "personal benefit test" applies to charges of securities fraud under both the Securities Exchange Act in Title 15 and under Title 18. See Doc. No. 116, at 37 ("Defendant's Proposed Instruction No. 22"). By contrast, the Government contends that the "personal benefit test" applies to charges of securities fraud under Title 15 but not under Title 18. See Doc. No. 120, at 57-58 ("Government Request No. 42"). The parties pursued their respective positions on this point at the charging conference prior to the final day of trial and before presenting closing arguments. At the conclusion of the charging conference, the Court invited written submissions, which both sides then provided, Docs. No. 139 & 140, leaving the matter ripe for the Court's resolution.

DISCUSSION

This dispute centers on one sub-element of a charge under the first subsection of § 1348 of Title 18. Under § 1348(1), the Government must prove three elements. First, the Government must prove beyond a reasonable doubt that a defendant knowingly devised (or willfully participated in) "a scheme or artifice to defraud." See 18 U.S.C. § 1348(1). Second, the Government must prove beyond a reasonable doubt that a defendant had "fraudulent intent." See United States v. Hatfield , 724 F. Supp. 2d 321, 324 (E.D.N.Y. 2010). Cf. United States v. Harra , 985 F.3d 196, 222 n.21 (3d Cir. 2021) (assuming without deciding that this is a required element based on precedential opinions from sister circuits so holding). Third, the Government must prove beyond a reasonable doubt that the "scheme or artifice to defraud" was "in connection with" a security of a certain issuer or with certain filing requirements. See 18 U.S.C. § 1348.

Under element one, the "scheme to defraud," the parties disagree over the definition of that element. Specifically, the parties dispute whether a charge of securities fraud based on the misappropriation theory of insider trading requires the Government to prove that the tipper received a "personal benefit" from his or her tip of confidential information under Title 18. In short, because a charge of securities fraud under Title 15 (the Securities Exchange Act) does require the Government to prove that the tipper received some "personal benefit," the question arose whether this same requirement applies to securities fraud charged under Title 18.¹

The Government contends that it does not have to prove a tipper received any "personal benefit" (this is known as the "personal benefit test") from an alleged tip for a charge of securities fraud under Title 18. See Doc. No. 120, at 57–58 ("Government Request No. 42"); Doc. No. 139. The Government's argument is based on (1) a recently vacated Second Circuit decision, (2) the Government brief in that same Second Circuit case on remand, (3) scant discussion in two Northern District of Georgia cases, and (4) the absence of any mention of the personal benefit test in other cases discussing the required elements of an offense under § 1348. See Doc. No. 139.

Mr. Ramsey argues that the same personal benefit test that applies to misappropriation insider trading securities fraud charged under Title 15 does apply to the same under Title 18. See Doc. No. 116, at 37 ("Defendant's Proposed Instruction No. 22"); Doc. No. 140. Mr. Ramsey's argument is based on the fact that the Supreme Court vacated the same Second Circuit opinion cited by the Government in January 2021. See Doc. No. 140. The defense asserts, "We cannot, however, infer from the remand that the Supreme Court was uninterested in the question of whether the personal benefit requirement applies to Title 18 securities fraud it simply did not reach the question in light of the fact that Kelly likely undermined the Title 18 securities fraud convictions on another ground." Id. at 1.

The Court is not persuaded by Mr. Ramsey's argument for two reasons, one legal and one policy.

I. Mr. Ramsey Failed to Assert Any Legal Reason Why the Personal Benefit Test Should Apply to Offenses Charged Under Title 18

Only one court, the Second Circuit Court of Appeals in United States v. Blaszczak , 947 F.3d 19 (2d Cir. 2019), judgment vacated , ––– U.S. ––––, 141 S. Ct. 1040, 208 L.Ed.2d 513 (2021), has engaged in substantive analysis of this issue. The Blaszczak Court engaged in a close reading of Title 15 and Title 18, and ultimately held that "the personal-benefit test does not apply to the wire fraud and Title 18 securities fraud statutes." Id. at 37. Because of the importance of that case to the one now before this Court, a brief summary of the Blaszczak Court's reasoning on this issue in order.

The Blaszczak Court began by noting the similarity in the language of a "scheme to defraud" between Title 15 fraud and § 1348(1). See Blaszczak , 947 F.3d at 35. However, the Second Circuit Court of Appeals then went on to explain that the personal benefit test was a court-created doctrine intended to effectuate the statutory purpose of the Securities Exchange Act. Id. The Court explained that Dirks v. SEC , 463 U.S. 646, 103 S.Ct. 3255, 77 L.Ed.2d 911 (1983), grafted the personal benefit test onto the Title 15 fraud provisions only to enforce Congress’ intention to eliminate the use of insider information for "personal advantage. " Id. (quoting Dirks , 463 U.S. at 662, 103 S.Ct. 3255 ) (emphasis in original). The Blaszczak Court clarified that Dirks created this test specifically in the context of Title 15 because Congress knew that insiders would always have access to information not available to the public, and each possible disclosure of this information would not necessarily constitute "fraud" under an embezzlement theory.² See id. at 35, 36. Instead, the Dirks Court held that a tipper could not commit fraud for purposes of Title 15 absent a showing that the tipper received some personal benefit. See id. In contrast, the Blaszczak Court explained that the personal benefit test "finds no support in the embezzlement theory of fraud recognized in Carpenter [v. United States , 484 U.S. 19, 108 S.Ct. 316, 98 L.Ed.2d 275 (1987) ]" and Title 18. Id. at 36.

In addition, the Blaszczak Court explained that § 1348 in particular was meant to be far broader than Title 15. Citing a Senate report on § 1348, the Second Circuit Court of Appeals noted that § 1348 "was intended to provide prosecutors with a different – and broader – enforcement mechanism to address securities fraud than what had been previously provided in the Title 15 fraud provisions." Id. at 36–37 (citing S. Rep. No. 107-146, at 14 ).

Based on both of these reasons, the Second Circuit Court of Appeals concluded that the personal benefit test was based "entirely on the purpose of the Exchange Act," and declined to extend it to Title 18. Id.

Research has revealed only two district court cases from the Northern District of Georgia that address this particular issue. In United States v. Melvin , 143 F. Supp. 3d 1354, 1371 (N.D. Ga. 2015), aff'd , 918 F.3d 1296 (11th Cir. 2017), the Court noted that the defendants there had not offered any convincing legal reason why the personal benefit test of Title 15 should be imported into Title 18. Id. at 1375. And, similar to the Blaszczak Court, the Melvin Court cited to § 1348 ’s legislative history and its broader purpose. See id. Nevertheless, the Melvin Court assumed the personal benefit test did apply under Title 18 but still rejected the defendant's argument that the indictment was legally insufficient. Id.

The Melvin Court relied on another Northern District of Georgia case, United States v. Slawson , No. 14-CR-0186, 2014 WL 5804191, at *6 (N.D. Ga. Nov. 7, 2014), report and recommendation adopted , No. 14-CR-0186, 2014 WL 6990307 (N.D. Ga. Dec. 10, 2014) ). There, the Court also declined to import the personal benefit test into Title 18. Slawson , 2014 WL 5804191, at *7 ("This court declines to impose on the charges set forth in the indictment the requirement to plead elements of offenses not charged in the indictment in light of the lack of binding or persuasive legal authority imposing same.").

On the other hand, the reason put forth by the Mr. Ramsey is not convincing nor legally binding. Mr. Ramsey argues that the Supreme Court granted certiorari on Blaszczak on both issues raised in the plaintiff's petition for certiorari, which included the issue of whether the personal benefit test applied to Title 18. See Doc. No. 140; Petition for Writ of Certiorari, Blaszczak v. United States , ––– U.S. ––––, 141 S. Ct. 1040, 208 L.Ed.2d 513 (2021) (No. 20-306). Because the petition for certiorari included both issues and the Supreme Court granted the petition, vacated the Second Circuit Court of Appeals’ opinion, and remanded the case for further consideration, Mr. Ramsey argues, the Second Circuit Court of Appeals’ reasoning and conclusion regarding the personal benefit test is bunk. Mr. Ramsey is right, of course, that the Blaszczak decision has been vacated by the Supreme Court. Blaszczak v. United States , ––– U.S. ––––, 141 S. Ct. 1040, 208 L.Ed.2d 513 (2021) (mem.). Mr. Ramsey is wrong, however, to suggest that this dictates the outcome in this case.

First, Mr. Ramsey's speculation as to the reasons for the Supreme Court's decision in Blaszczak is unavailing. The...