United States v. Wey, 15-cr-611 (AJN)

• Court: United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
• Parties: United States of America, v. Benjamin Wey, Defendant.
• Docket Number: 15-cr-611 (AJN)
• Decision Date: 18 January 2017

United States of America,
v.
Benjamin Wey, Defendant.

15-cr-611 (AJN)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

January 18, 2017

OPINION & ORDER

ALISON J. NATHAN, District Judge:

Before the Court are several pretrial motions filed by Defendant Benjamin Wey. Wey seeks dismissal of all charges pending against him, a bill of particulars pursuant to Federal Rule of Criminal Procedure 7(f), immediate disclosure and identification of Brady and Giglio material, leave to depose co-Defendant Seref Dogan Erbek under Federal Rule of Criminal Rule 15(a), and removal from the indictment of references to Wey's alleged aliases.¹ For the reasons set forth below, the Court resolves these motions as follows: the motion to dismiss is DENIED in full; the motion for a bill of particulars is GRANTED in limited in part and otherwise DENIED; the motion for immediate disclosure of Brady/Giglio material is DENIED; the motion for leave to depose Erbek is GRANTED; and the motion to strike surplusage from the indictment is DENIED.²

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I. Background

Wey is charged in an eight-count indictment returned on September 8, 2015. Dkt. No. 2 (the "Indictment"). The Indictment alleges that between approximately 2007 and 2011 Wey, along with co-Defendant Seref Dogan Erbek (who remains at large) and unindicted co-conspirators known and unknown, orchestrated a scheme whereby Wey - through various non-party entities, family members, and associates (the "Nominees") - covertly amassed beneficial ownership of substantial portions of the equity stock of certain publicly traded companies (the "Issuers"), manipulated the market price of the Issuers' stock, liquidated his holdings at artificially inflated prices, and then laundered millions of dollars in ill-gotten proceeds. See, e.g., Indictment ¶¶ 7, 13, 18-22.

Specifically, according to the Indictment, Wey secretly caused the Nominees to acquire, on his behalf, substantial portions of the shares of certain U.S.-based over-the-counter-traded shell companies and then, through his consulting firm New York Global Group, Inc. ("NYGG") and its alleged affiliate in Beijing, China, facilitated so-called "reverse merger" transactions by which China-based operating companies merged into those shell companies, thus forming new publicly traded corporations - the Issuers. Id. ¶¶ 8-12. The Government alleges that the Nominees acquired and retained, for Wey's benefit, stock in the Issuers by virtue of their ownership of the target shell companies, and that these holdings together constituted more than five percent of the Issuers' outstanding shares. Id. ¶¶ 7, 13. Because Wey, among other things, purportedly exercised investment authority over the shares held by the Nominees, he was required to disclose his beneficial ownership under Section 13(d) of the Securities Exchange Act of 1934 and Rule 13d-1 promulgated thereunder within ten days of the acquisition of shares in excess of five percent. Id. ¶ 13. The Government alleges that Wey was "well aware" of this

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reporting requirement but intentionally failed to file the required disclosures in order to conceal his ownership from the investing public. Id. ¶ 14. Moreover, the Indictment asserts, Wey purposefully caused the Nominees' holdings to be structured such that no individual Nominee ever held more than five percent of the stock of any given Issuer, thus avoiding triggering Rule 13d-1's disclosure mandate. Wey enlisted the assistance of Erbek on this front, the Government alleges, instructing him to allocate Issuer shares among the Nominees to avoid any one of them accumulating sufficient stock to incur a reporting obligation. Id. The Government maintains that as a result of these efforts, and with the stock held by the Issuers' management subject to lockup agreements preventing disposition, Wey at times effectively controlled - through the Nominees - a "substantial portion of a given Issuer's public stock float" unbeknownst to the investing public. Id. ¶¶ 11-14.

Wey also, according to the Indictment, caused several of the Issuers, including SmartHeat, Inc. ("SmartHeat"), Deer Consumer Products, Inc. ("Deer"), and CleanTech Innovations, Inc. ("CleanTech"), to apply for listings on the NASDAQ. Id. ¶ 15. In order to secure approval of these applications, Wey allegedly engaged in deception to artificially satisfy NASDAQ's so-called "round-lot" shareholder requirement - i.e., the requirement that every listed issuer has at least 300 shareholders each owning 100 or more shares of common stock. Id. ¶¶ 16-17. In particular, Wey purportedly facilitated deceptive transfers of shares of Issuer stock from Nominees to other Wey confederates, as well as issuances of round-lot blocks of shares in the names of individuals who never actually received such shares or were otherwise unaware of their ownership. Id. ¶¶ 15-17.

After successfully getting the Issuers listed on NASDAQ, the Government alleges, Wey proceeded to manipulate the demand for and price of Issuer stock. This was purportedly

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accomplished by, among other things: (i) causing two Manhattan-based retail brokers to solicit their customers to purchase common stock of the Issuers, often on margin, while at the same time actively discouraging the sale of such stock; (ii) instructing Erbek to maintain the share prices of certain Issuers' stock held in various Nominees' accounts; and (iii) facilitating match trades in the Issuers' stock involving Nominees and/or other Wey confederates. Id. ¶¶ 18-19.

Contemporaneous with this market manipulation scheme, the Government alleges, Wey caused certain Nominees to sell shares of the Issuers' stock at artificially inflated prices. Id. ¶ 20. Wey then purportedly laundered the proceeds of these sales by causing them to be transferred from accounts located in the U.S. to Nominees' accounts located overseas, including in Switzerland and Hong Kong, before being repatriated back to the U.S. and into accounts controlled by Wey and his wife or otherwise held for Wey's benefit. Id. ¶¶ 20-22. At least some of these transfers were allegedly reported on tax returns filed in the name of Wey's wife as non-taxable gifts from foreign persons. Id. ¶ 22.

Wey is charged with one count of conspiracy to commit securities fraud and wire fraud under 18 U.S.C. § 371 ("Count One"); one count of securities fraud under Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder, 15 U.S.C. §§ 78j(b) & 78ff, 17 C.F.R. § 240.10b-5 ("Count Two"); one count of securities fraud under 18 U.S.C. § 1348 ("Count Three"); one count of wire fraud under 18 U.S.C. § 1343 ("Count Four"); two counts - concerning Deer and CleanTech stock, respectively - of failure to disclose ownership in excess of five percent of a covered class of equity securities under Section 13(d) of the Exchange Act and Rule 13d-1, 15 U.S.C. §§ 78m(d) & 78ff, 17 C.F.R. § 240.13d-1 (as to Deer, "Count 5," and as to CleanTech, "Count 6"); one count of money laundering under 18 U.S.C. § 1956(a)(1)(B)(i) ("Count 7"); and one count of money laundering under 18 U.S.C. § 1956(a)(2)(A) ("Count 8").

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See Indictment ¶¶ 23-40.

II. Discussion

A. Dismissal

Wey seeks dismissal of the charges against him on several grounds. First, he contends that the conspiracy, securities fraud, wire fraud, and money laundering counts are impermissibly duplicitous. Second, he argues that, for various reasons, all counts fail to sufficiently allege offenses. And third, he urges that the nearly four-year gap between the Government's searches of Wey's residence and offices and the return of the Indictment constitutes prejudicial pre-indictment delay in violation of the Due Process Clause of the Fifth Amendment. The Court will address each argument in turn.

1. Counts 1-4, 7, and 8 Are Not Duplicitous

Wey first argues that the conspiracy, securities fraud, wire fraud, and money laundering charges are duplicitous because each individual count actually contains multiple offenses.³ In essence, Wey's position is that because the "the Government's case involves the alleged market manipulation of three separate securities" - SmartHeat, Deer, and CleanTech - it cannot charge any given offense (for example, securities fraud) in a single aggregate count that purports to cover all of the allegedly illegal conduct. Dismissal Br. at 64-66. Instead, Wey maintains, if the Government intends to implicate multiple securities, then it must charge multiple corresponding counts of any given offense (for example, three separate counts of securities fraud covering SmartHeat, Deer, and CleanTech, respectively). Id. The Court is not persuaded.

"An indictment is impermissibly duplicitous where: 1) it combines two or more distinct crimes into one count in contravention of [Federal Rule of Criminal Procedure] 8(a)'s

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requirement that there be a separate count for each offense, and 2) the defendant is prejudiced thereby." United States v. Sturdivant, 244 F.3d 71, 75 (2d Cir. 2001) (internal quotation marks omitted). The Court of Appeals has long recognized that for the doctrine of duplicity "'to be more than an exercise in mere formalism, it must be invoked only when an indictment affects the policy considerations' that underlie that doctrine." United States v. Margiotta, 646 F.2d 729, 732-33 (2d Cir. 1981), cert. denied, 461 U.S. 913 (1983) (quoting United States v. Murray, 618 F.2d 892, 897 (2d Cir. 1980)). These policy considerations include:

avoiding the uncertainty of whether a general verdict of guilty conceals a finding of guilty as to one crime and a finding of not guilty as to another, avoiding the risk that the jurors may not have been unanimous as to any one of the crimes charged, assuring the defendant adequate notice, providing the basis for appropriate sentencing, and protecting against double jeopardy in a subsequent prosecution.

Margiotta, 646 F.2d at 733.

"A conspiracy indictment," of the sort at issue here, "presents 'unique issues' in the...