United States v. Slawson
| Decision Date | 07 November 2014 |
| Docket Number | CRIMINAL CASE NO. 1:14-CR-00186-RWS-JFK |
| Court | U.S. District Court — Northern District of Georgia |
| Parties | UNITED STATES OF AMERICA v. STEVEN E. SLAWSON, Defendant. |
Pending before the court is Defendant Steven E. Slawson's motion [Doc. 24] (1) to dismiss the indictment for failure to allege a crime and (2) to dismiss Count One as duplicitous and Defendant's motion [Doc. 25] for discovery seeking (1) a bill of particulars, (2) materials in the possession of the Securities Exchange Commission ("SEC"), and (3) to strike surplusage.1 The Government opposes the pending motions. [Docs. 29, 30, 31, 32 and 33].2
On May 20, 2014, a federal grand jury sitting in this District returned a thirty-six count indictment charging Defendant Slawson with violations of 18 U.S.C. §§ 1343 (wire fraud), 1348 (securities fraud) and 1349 (conspiracy to commit wire and securities fraud). The indictment also includes a forfeiture provision. [Doc. 1]. In Count One, Defendant is alleged to have knowingly and wilfully conspired, from early 2005 through July 2010, with "Cooperator Number 1" and others known and unknown (a) to knowingly and wilfully execute and attempt to execute a scheme (1) to defraud others in connection with Carter's Inc. stock securities and (2) to obtain, by false and fraudulent pretenses, representations and promises, money and property in connection with the purchase and sale of Carter's Inc. stock securities, in violation of 18 U.S.C. § 1348, and (b) to knowingly and intentionally devise and attempt to devise a scheme to defraud Carter's Inc. and obtain money and property of Carter's Inc. by means of materially false and fraudulent pretenses and representations, and by omission of material facts, in violation of18 U.S.C. § 1343. [Doc. 1 ¶¶ 1.-3.]. This conspiracy is charged pursuant to 18 U.S.C. § 1349. [Doc. 1].
In the background section of Count One, the participants are identified. The indictment sets forth Defendant's ownership of, investment in, or involvement with companies, such as, Titan Capital Management LLC and TCMP3 Capital LLC, and management of multi-million dollar hedge funds, such as, TCMP3 Partners, L.P. ("TCMP3"). [Id. ¶ 4.a.]. Cooperator Number 1 is identified as a retired equity research analyst who was a paid consultant to and investor in TCMP3. [Id. ¶ 4.b.]. Carter's Inc. is identified in pertinent part as a publicly traded company with common stock listed on the New York Stock Exchange as "CRI," with securities registered with the SEC and with policies prohibiting the unauthorized disclosure of Carter's Inc. confidential business information. [Id. ¶ 4.c.]. Also identified as participants in the conspiracy are Eric M. Martin, who was employed by Carter's Inc. from January 2003 through March 24, 2009, working in corporate headquarters in Atlanta, Georgia, with access in advance of public release, due to his positions at Carter's Inc., to material, non-public confidential information, such as, financial performance, anticipated earnings and quarterly and annual financial results, and Richard T. Posey, who was employed by Carter's Inc. from July 2002 through early 2013, working in corporate headquarters in Atlanta, Georgia, with access in advance of public release, also due to his company positions, to material, non-public confidential information, such as,financial performance, anticipated earnings and quarterly and annual financial results. [Id., ¶¶ 4.d.-e.].
The conspiracy count then provides information about the manner and means by which the conspiracy operated. From February 2005 through July 2010, Defendant is alleged to have obtained material, non-public information ("insider information"), as generally described and including quarterly and annual earnings per share, of Carter's Inc. from Cooperator Number 1 in advance of the public release of information, such as, in advance of quarterly and annual earnings releases and other major corporate events. [Id. ¶ 5.a.]. Cooperator Number 1 obtained this inside information from Martin from February 2005 through March 2009 and indirectly from Posey through Martin from April 2009 through July 2010. Martin and Posey are collectively identified as "Carter's Insider Sources." [Id. ¶ 5.b.]. The indictment alleges that Carter's Insider Sources disclosed this information in violation of (1) fiduciary and other duties of trust and confidence, (2) expectation of confidentiality, (3) Carter's Inc. written policies, and (4) agreements to maintain Carter's Inc. confidential business information and to refrain from use of such information in listed ways, including, for their own direct or indirect benefit or for stock trading on the basis of such information. However, as alleged, Carter's Insider Sources disclosed theinformation understanding that the individuals receiving it would purchase and sell securities based on the information, and they did so for their own personal benefit as outlined. [Id. ¶¶ 5.c.-d.]. And, from March 2010 through July 2010, Defendant Slawson also obtained insider information directly from Martin, who had obtained the information from Posey, with the understanding that Defendant would use the information to execute transactions in Carter's Inc. securities. [Id. ¶ 5.h.].
Cooperator Number 1 used the Carter's Inc. insider information he obtained to purchase and sell Carter's Inc. securities and also disclosed the information to Defendant with the understanding Defendant would use the information to conduct transactions in Carter's Inc. securities. [Id. ¶¶ 5.e.-g.]. Cooperator Number 1 obtained the insider information via interstate wire communications, including interstate telephone calls between Georgia and New York. [Id. ¶ 5.i.]. The conspiracy count provides one example of the manner and means of disclosure of confidential insider information in October 2009 from Posey, a Carter's Insider Source, to Martin, then to Cooperator Number 1 and finally to Defendant Slawson. [Id. ¶ 6]. This insider information involved the Carter's Inc., October 27, 2009, earnings delay announcement, and the indictment details the timing and disclosure of this non-public confidential information as well as the utilization of this information by Defendant tosell Carter's Inc. securities on October 26, 2009, in advance of the public announcement of delayed earnings release on October 27, 2009. [Id.].
Counts Two through Twenty-Six of the indictment charge security fraud based on the same type of insider information provided by Carter's Insider Sources and fraudulently used by Defendant, in violation of 18 U.S.C. § 1348. [Doc. 1 ¶¶ 7.a. & b., 9. & 10.]. The indictment alleges that from late 2008 through July 2010, Defendant, aided and abetted by Cooperator Number 1, knowingly and wilfully executed and attempted to execute a scheme (1) to defraud others in connection with Carter's Inc. stock securities and (2) to obtain, by false and fraudulent pretenses, representations and promises, money and property in connection with the purchase and sale of Carter's Inc. stock securities. The indictment alleges that Defendant, using misappropriated insider information from Carter's Inc. and knowing that it was disclosed in violation of fiduciary and other duties, executed and caused others to execute transactions in Carter's Inc. securities through corporate and personal online brokerage accounts earning illegal profits and illegally avoiding losses. [Id. ¶¶ 9.-10.]. The indictment then sets out by date, transaction amount and account the allegedly fraudulent transactions. [Id. ¶ 11].
And, finally, the indictment alleges a wire fraud scheme, Counts Twenty-Seven through Thirty-Six, in violation of 18 U.S.C. § 1343, in which Defendant Slawson obtained Carter's Inc. insider information via interstate wire communications, from July 2009 through July 2010, from Cooperator Number 1 and from March 2010 through July 2010, from Martin. Defendant is alleged to have knowingly and wilfully, aided and abetted by Cooperator Number 1 and Martin, devised a scheme to defraud Carter's Inc. and to obtain money and property of Carter's Inc. by means of materially false and fraudulent pretenses and representations, and by omission of material facts, having reason to know said pretenses and representations were false and fraudulent when made and that said omissions were material, in violation of 18 U.S.C. § 1343. [Id. ¶¶ 12.-13.] The scheme, to deprive Carter's Inc. of exclusive use of its intangible property (confidential business information used by Defendant to purchase and sell securities), was carried out by causing Posey, a Carter's Insider Source, to misappropriate insider information from Carter's Inc. in violation of his confidentiality duties and obligations and his duty to refrain from using or disclosing said information. [Id. ¶¶ 14. & 15.]. The indictment then sets out the date and approximate time of each charged wire communication in furtherance of the scheme and the nature of the transmission, that is, interstate telephone calls. [Id. ¶ 16.].
Defendant Slawson seeks to dismiss the indictment for failure to allege an essential element of the crimes charged, that is, he contends that the indictment fails to allege that Defendant knew that either of the alleged tippers, Martin and Posey - the Carter's Insider Sources, "received any personal benefit in connection with passing the alleged material, non-public information to Cooperator Number 1." [Doc. 24 at 3-4]. According to Defendant, this omission is "fatal." [Id. at 4]. Defendant further contends that Count One of the indictment must be dismissed because, although pled as a single conspiracy, the count actually pleads multiple conspiracies and is, therefore, duplicitous. [Id. at 12]. After consideration of the arguments of the parties and the relevant case law, the court recommends that Defendant's motion...
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