US v. Victor Teicher & Co., LP

• Decision Date: 19 December 1989
• Docket Number: No. 88 Cr. 796 (CSH).,88 Cr. 796 (CSH).
• Citation: 726 F. Supp. 1424
• Parties: UNITED STATES of America v. VICTOR TEICHER & CO., L.P., Victor Teicher, and Ross S. Frankel, Defendants.
• Court: U.S. District Court — Southern District of New York

726 F. Supp. 1424

UNITED STATES of America v. VICTOR TEICHER & CO., L.P., Victor Teicher, and Ross S. Frankel, Defendants.

No. 88 Cr. 796 (CSH).

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

December 19, 1989.

COPYRIGHT MATERIAL OMITTED

Roger S. Hayes, Acting U.S. Atty., S.D. N.Y., New York City (Carl H. Loewenson, Jr., Martin Klotz, of counsel), for U.S.

Morvillo, Abramowitz & Grand, P.C., New York City (Paul R. Grand, J. Kelly Strader, of counsel), for defendant Ross S. Frankel (Robert G. Morvillo, Robert J. Anello, Catherine M. Foti, of counsel), for defendants Victor Teicher & Co., L.P. and Victor Teicher.

HAIGHT, District Judge:

Trial in this insider trading case is scheduled to begin on January 16, 1990. Defendants now move for various pre-trial relief.

Background

Familiarity with the general background of the captioned action and this Court's prior opinions in the companion case of United States v. Marcus Schloss & Co. is assumed. However, a brief summary of the procedural history of the case is useful.

The original indictment in this action named D. Ronald Yagoda and Marcus Schloss & Co. Inc ("MS & Co.") as defendants along with Victor Teicher & Co., L.P. and Victor Teicher (collectively, the "Teicher defendants"), as well as Ross S. Frankel. Due to certain scheduling concerns of the government, it consented to a partial severance of the case. The trial of MS & Co. and Yagoda commenced on May 22, 1989 with the Teicher defendants and Frankel to be tried separately. After a five week jury trial, the jury acquitted Yagoda of all counts and convicted MS & Co. of two of the eight counts contained in the indictment.

In consequence of the rulings made by this Court in United States v. Marcus Schloss, 710 F.Supp. 944 (S.D.N.Y.1989), the government has redacted the indictment for use in this second trial, the Teicher and Frankel trial.¹ Defendants take issue with the sufficiency of the redactions and further contest the legal sufficiency of certain counts. The defendants also move for a severance of the trial between Frankel and the Teicher defendants, or, in the alternative, for a severance of certain counts. In addition, defendants move for a bill of particulars and other pre-trial discovery. I deal with these issues in turn.

Discussion

I. Conspiracy Count

Count 1 of the redacted indictment charges the Teicher defendants,² Frankel,³ Robert Salsbury,⁴ and Michael David⁵ with conspiracy to commit securities fraud.

A. Duplicitousness

Defendants argue that the conspiracy count is facially improper in that it charges multiple conspiracies. Defendants thus conclude that Count 1 must be dismissed as duplicitous. Specifically, defendants argue that Count 1 charges four separate conspiracies, three of which revolve around David and one of which, the so-called "Drexel phantom list" conspiracy, is wholly separate from those other three. The Frankel memorandum describes the so-called David-centered conspiracies as set forth below.

First, the government alleges a conspiracy pursuant to which Victor Teicher purportedly received material non-public information from David with respect to four securities. The Teicher defendants allegedly traded on the basis of that information on seven occasions (Counts 5-9, 12-13).

Second, the indictment alleges a conspiracy pursuant to which Michael David purportedly provided material, non-public information directly to co-conspirator Robert Salsbury with respect to some five securities. The indictment then alleges that Mr. Salsbury passed this information to Mr. Frankel with respect to three of these securities (¶¶ 13(13), (14), (17)), but that Mr. Frankel only traded on that information in one security, American Brands, Inc. This is the trading with which Mr. Frankel is charged in Count 9.

Third, the indictment alleges a conspiracy pursuant to which material non-public information concerning Revco D. S., Inc., purportedly flowed from Marcus Schloss & Co., Inc., to Mr. David, to Mr. Teicher (¶ 12(e)).... The indictment further alleges that Mr. Teicher traded the securities of Revco while knowingly in the possession of material non-public information.

Memorandum of Law in Support of Frankel's Motion to Sever at 8-9 (footnotes omitted).

The memorandum of the Teicher defendants describes the so-called fourth conspiracy, the Drexel phantom list conspiracy as below.

Allegedly, Salsbury, at times on his own initiative and at times at the purported initiative of Frankel, revealed directly to Mr. Teicher and "other co-conspirators" the identities of companies on Drexel's so-called "phantom" list. See Redacted indictment at ¶ 12(d). According to the indictment, this phantom list contains the names of companies "involved in corporate takeovers that Drexel ... might finance." See id. at ¶ 12(c).

Teicher Supplemental Memorandum at 9. The indictment further alleges that "Drexel Burnham employees were prohibited from disclosing the contents of the `phantom' list to anyone outside of Drexel Burnham." Indictment at ¶ 12(c).

Not surprisingly, the government characterizes the conspiracy charged in the indictment very differently. It describes the conspiracy as a "web of inter-connected, mutually dependent relationships with a common goal: to exchange material non-public information stolen from the co-conspirators' employers and clients of their employers and to buy and sell securities while in possession of that material non-public information." Government's Memorandum of Law at 4. The government further describes the conspiracy as one where its "members ... operated with awareness of the identities and roles of other members of the conspiracy." Id.

Defendants rely heavily on Kotteakos v. United States, 328 U.S. 750, 66 S.Ct. 1239, 90 L.Ed. 1557 (1946) for the proposition that Count 1 charges not one, but multiple conspiracies. In that case, one Brown placed false loan applications for other persons under the National Housing Act. Brown exacted a fee for filing the applications, which he knew to be fraudulent at the time they were filed. The government indicted thirty-two persons in all, including Brown and various of the persons who used his services in placing loan applications. The Supreme Court addressed the question of whether the defendants were properly charged with and convicted of a single conspiracy. The Court answered that question in the negative.

The government in Kotteakos argued that there was a pattern of conspiracy in that case: the "pattern was `that of separate spokes meeting in a common center.'" Id. at 755, 66 S.Ct. at 1243. However, the Court reversed the judgments of conviction, noting that the lack of a "rim of the wheel to enclose the spokes" was fatal to the government's case. Id. Where there are "numerous participants in ... different schemes ... who did not know or have anything to do with one another", a single conspiracy cannot be properly charged. Id. at 758, 66 S.Ct. at 1244.

In Blumenthal v. United States, 332 U.S. 539, 68 S.Ct. 248, 92 L.Ed. 154 (1947), the Court again had occasion to examine the question of single versus multiple conspiracies. In that case, five individuals were "convicted of conspiring to sell whiskey at prices above the ceiling set by regulations of the Office of Price Administration, in violation of the Emergency Price Control Act." Id. at 541, 68 S.Ct. at 249. The five sellers argued that a single conspiracy did not exist and had not been proven. That argument stemmed from the fact that the individual sellers did not know the identity of the individual who owned the whiskey. The Court affirmed the convictions stating that "it would be a perversion of justice to regard the salesmen's ignorance of the unknown owner's participation as furnishing adequate ground for reversal of their convictions." Id. at 558, 68 S.Ct. at 257.

Conspiracies involving ... elaborate arrangements generally are not born full-grown. Rather they mature by successive stages which are necessary to bring in the essential parties. And not all of those joining in the earlier ones make known their participation to others later coming in.

The law does not demand proof of so much. For it is most often true, especially in broad schemes calling for the aid of many persons, that after discovery of enough to show clearly the essence of the scheme and the identity of a number participating, the identity and the fact of participation of others remain undiscovered and undiscoverable. Secrecy and concealment are essential features of successful conspiracy. The more completely they are achieved, the more successful the crime. Hence the law rightly gives room for allowing the conviction of those discovered upon showing sufficiently the essential nature of the plan and their connections with it, without requiring evidence of knowledge of all its details or of participation of others. Otherwise the difficulties, not only of discovery, but of certainty in proof and of correlating proof with pleading would become insuperable, and conspirators would go free by their very ingenuity.

Id. at 556-57, 68 S.Ct. at 256 (footnote omitted). Therefore, it is sufficient that the conspirators "knew or must have known" of the existence of other conspirators and their participation in a larger project. Id. at 558, 68 S.Ct. at 257. See also United States v. Nerlinger, 862 F.2d 967 (2d Cir.1988).

The Second Circuit recently addressed this question in United States v. Vanwort, 887 F.2d 375 (2d Cir.1989).

A single conspiracy may be found where there is "`mutual dependence and assistance' among the participants, a common aim or purpose .. or a permissible inference, from the nature and scope of the operation, that each actor was aware of his part in a larger organization where others performed similar roles equally important to the success of the venture.'" United States v. Bertolotti, 529 F.2d 149, 154 (2d Cir.1975) (citation omitted) (quoting United States v. Tramunti, 513 F.2d 1087, 1106 (

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