United States v. Rogas

• Decision Date: 07 July 2021
• Docket Number: 20 Cr. 539 (JPC)
• Citation: 547 F.Supp.3d 357
• Parties: UNITED STATES of America, v. Adam ROGAS, Defendant.
• Court: U.S. District Court — Southern District of New York

547 F.Supp.3d 357

UNITED STATES of America,

v.Adam ROGAS, Defendant.

20 Cr. 539 (JPC)

United States District Court, S.D. New York.

Signed July 7, 2021

Jared P. Lenow, Assistant US Attorney, Richard Alan Cooper, Assistant US Attorney, United States Attorney's Office, New York, NY, for United States of America.

Thomas Charles Hill, Pro Hac Vice, William Michael Sullivan, Jr., Pillsbury Winthrop Shaw Pittman LLP, Washington, DC, for Defendant.

OPINION AND ORDER

JOHN P. CRONAN, United States District Judge:

Defendant Adam Rogas is charged with multiple fraud counts in connection with his alleged orchestration of a scheme to misrepresent the financial condition of his company, leading investors to purchase company shares based on false and inflated information of the company's assets and revenue. Before the Court are two pretrial motions that Rogas has filed, both of which are denied for reasons that follow. First, the Court denies Rogas's motion to preclude evidence relating to allegedly defrauded investors who lack ties to the Southern District of New York, because such evidence would fall squarely within the charged conduct. Second, the Court denies Rogas's request for a bill of particulars in light of the detailed information that has been provided to him concerning the alleged fraudulent scheme the Government anticipates proving at trial.

I. Alleged Criminal Conduct¹

The following allegations are taken from the Complaint, filed on September 14, 2020, Dkt. 1 ("Complaint"),² and the Indictment, filed on October 13, 2020, Dkt. 7 ("Indictment").

Rogas was a founder, the Chief Executive Officer, the Chief Financial Officer, and a member of the Board of Directors of NS8, Inc. ("NS8"), a cyberfraud prevention company based in Las Vegas, Nevada. Indictment ¶¶ 1, 2; Complaint ¶¶ 6, 7.a, 7.b. In substance, the Government alleges that Rogas falsified NS8's financial records to fraudulently exaggerate the company's financial health. In particular, the Government alleges that Rogas modified statements from a corporate bank account (the "Fraudulent Bank Statements") to reflect that NS8 had received greater customer revenue, and therefore held more assets, than in reality, and falsified customer revenue statements (the "Fraudulent Customer Revenue Spreadsheets"), with the similar effect of superficially inflating NS8's assets. Indictment ¶ 3; Complaint ¶¶ 8-12.

Particularly significant to the Government's case appear to be two fundraising rounds during which NS8 sold Series A Preferred Shares to investors. Complaint ¶¶ 7.c, 15.³ The first fundraising round was held from in or about September through in or about November 2019 (the "Fall 2019 Round"), with the second in or about April 2020 (the "Spring 2020 Round"). Id. ¶¶ 7.c.i, 7.c.ii; see id. ¶¶ 13, 15.

The Government alleges that Rogas disseminated the Fraudulent Bank Statements and the Fraudulent Customer Revenue Spreadsheets to potential investors in connection with both fundraising Rounds. Id. ¶¶ 15-17. During investor due diligence prior to each Round, NS8 made available to potential investors an online file-sharing database, which featured the company's purported financial statements. Id. ¶¶ 15.a, 15.f. These financial statements, however, allegedly were based on inflated assets and revenue for NS8. Id. ¶¶ 15.a, 15.f. After examining information available to potential investors in connection with the two Rounds, the Government estimates that, for the period of January 2019 through February 2020, the percentage of total assets reported in the NS8 balance sheets that were fictitious ranged from at least approximately 40 percent to over 95 percent. Id. ¶ 11. Similarly, the Government estimates that during this same period, the Fraudulent Bank Statements reflected "at least approximately $40 million in fictitious revenue" that "was not, in fact, received by NS8." Id. ¶ 12. These statements, in turn, were allegedly represented in the company's income statement and statement of profit and loss. Id.⁴

The Complaint lays out Rogas's alleged dealings with two particular investors who expressed interest in buying shares of NS8. "Investor-1," who is based in New York and worked for "Investment Firm-1," received a presentation from Rogas regarding "NS8's business and financial condition," and retained a company to perform due diligence of NS8. Id. ¶¶ 15.b, 15.c. The resulting due diligence report incorporated the Fraudulent Bank Statements and led to Investment Firm-1 investing approximately $15 million in NS8 during the Fall 2019 Round. Id. ¶ 15.c. The second investor, "Investor-2" at "Investment Firm-2," retained a company (the "Audit Firm") to conduct an audit of NS8. Id. ¶ 15.d. The Audit Firm similarly produced a due diligence report based on the fictitious assets and revenue contained in NS8's financial statements, which led Investment Firm-2 to invest approximately $24.1 million during the Fall 2019 Round. Id.

During Investment Firm-2's auditing process, an employee of the Audit Firm emailed NS8 to inquire about an apparent discrepancy in an August 2019 statement from NS8's bank account. Id. ¶ 17.b. Rogas allegedly replied by sending one of the Fraudulent Bank Statements, which listed $3.3 million in net deposits, whereas the company's bank account in fact contained only $5,739.81 at the time. Id. ¶ 17.c. An employee of the Audit Firm also visited NS8's office in Las Vegas, where the employee observed Rogas and another NS8 employee log into the online portal for certain NS8 bank accounts and download monthly bank statements. Id. ¶¶ 17.d, 17.e. That auditor emailed another employee of the Audit Firm an attachment of what the employee claimed to have observed Rogas download that day, and that email included the Fraudulent Bank Statements from January 2019 through February 2020. Id. ¶ 17.f. The Government alleges that the Audit Firm incorporated those inflated bank statements into its due diligence report, which both Investor-1 and Investor-2 reviewed and relied upon when their firms each made an additional $25 million investment in NS8 shares during the Spring 2020 Round. Id. ¶ 17.h.

The Government alleges that, in total, the Fall 2019 Round and the Spring 2020 Round raised at least $123 million in funds for NS8. Id. ¶ 6; see Indictment ¶ 3. With the funds raised from the Spring 2020 Round, NS8 conducted a tender offer, through which it purchased shares from the company's stockholders and option holders. Complaint ¶ 7.c.ii. The Government alleges that, in connection with this tender offer, Rogas obtained approximately $17.5 million by selling shares that he held personally and through an entity he controlled. Indictment ¶ 3; Complaint ¶¶ 7.c.ii, 18.

Rogas was arrested on September 17, 2020, and was arraigned on the Indictment on October 15, 2020. The Indictment charges Rogas with one count of securities fraud in violation of section 10(b) of the Securities Exchange Act, 15 U.S.C. §§ 78j(b), 78(ff), and Rule 10b-5, 17 C.F.R. § 240.10b-5 ; one count of fraud in the offer or sale of securities in violation of section 17(a) of the Securities Act of 1933, 15 U.S.C. §§ 77q(a), 77(x) ; and one count of wire fraud in violation of 18 U.S.C. § 1343.

On April 15, 2021, Rogas filed his motion in limine seeking to exclude evidence relating to investors and activity without a nexus to this District, Dkt. 29 ("Motion in Limine "), and on May 4, 2021, he moved for a bill of particulars, Dkt. 32 ("Bill of Particulars Motion"). The Government submitted an opposition to both motions on May 25, 2021, Dkt. 35 ("Opposition"), and Rogas filed a reply on June 8, 2021, Dkt. 38 ("Reply"). The Court held oral argument on these motions on June 30, 2021.

II. Motion in Limine

Rogas asks the Court to preclude the Government from offering "evidence of criminal activity as it relates to investors and actions that have no connection whatsoever to this jurisdiction." Motion in Limine at 4. While not contending that venue is lacking and acknowledging that an investor, i.e. , "Investor-1," allegedly had ties to this District, id. , Rogas argues that evidence of his interactions with other investors lacking a connection to this District would be inadmissible "evidence of other criminal activity," id. at 5-11. Rogas similarly contends that evidence as to allegedly defrauded out-of-District investors is inadmissible "background evidence" that is unnecessary for the Government's proof of the offense charged. Id. at 7-8. Rogas further argues that even if the challenged evidence is found to be relevant, it should be excluded pursuant to Rule 403 because any "probative value is significantly outweighed by the threat of unfair prejudice." Id. at 5.

A. The Challenged Evidence Is Directly Relevant to the Charged Conduct

At the heart of Rogas's motion in limine is his insistence that the Indictment charges "separate and distinct transactions with individual investors or investment firms" used to "secure independent investments." Id. at 4. The Court reads the Indictment differently. Rogas is charged with perpetrating a scheme to defraud investors located in the Southern District of New York as well as elsewhere. His alleged conduct, which entailed falsifying company bank statements and customer revenue reports, impacted investors who relied upon this inflated information of NS8's financial health. With no challenge to venue, evidence of actions taken in connection with the fraud out of the District, including impacted investors located outside of New York, would plainly be relevant to the charged offenses.

To start, the Indictment alleges that Rogas "operated a fraudulent scheme to deceive NS8's investors by falsely inflating the company's reported revenue and assets by substantial amounts." Indictment ¶ 3. This scheme allegedly entailed making material misrepresentations to "entice[ ] investors to purchase securities in two fundraising rounds." Id. Each Count similarly alleges a scheme to defraud, without limitation to the...