USA v. Contorini

Filing

OPINION, affirmed, vacated and remanded, by RKW, PWH, DC, FILED.[695205] [11-3]

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11-3-cr
United States v. Contorinis

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UNITED STATES COURT OF APPEALS

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FOR THE SECOND CIRCUIT

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August Term, 2011

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(Argued:

January 5, 2012

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Decided: August 17, 2012)

Docket No.

11-3-cr

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- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

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UNITED STATES OF AMERICA,

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Appellee,
v.
JOSEPH CONTORINIS,
Defendant-Appellant.

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B e f o r e:

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WINTER, HALL, and CHIN, Circuit Judges.

Appeal from a conviction by a jury in the United States

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District Court for the Southern District of New York (Richard

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J. Sullivan, Judge), for conspiracy to commit securities fraud

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and insider trading.

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instructions, admission of evidence concerning the trading

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activity of other alleged tippees, and the amount of the

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forfeiture order.

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forfeiture order, and remand.

Appellant challenges the jury

We affirm the conviction, vacate the

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ROBERTO FINZI (Theodore V. Wells,
Jr., Mark F. Pomerantz, & Farrah
R. Berse, on the brief), Paul,
Weiss, Rifkind, Wharton &
Garrison LLP, New York, New York,
for Defendant-Appellant.
ANDREW L. FISH, Assistant United
States Attorney (Reed M. Brodsky,
Assistant United States Attorney
on the brief), for Preet Bharara,
United States Attorney for the
Southern District of New York,
New York, New York, for Appellee.
WINTER, Circuit Judge:

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Joseph Contorinis appeals from his conviction by a jury

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before Judge Sullivan for conspiracy to commit securities fraud

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and insider trading and from the district court’s forfeiture

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order in the amount of $12.65 million.

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in:

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convey the definition of material, nonpublic information; (ii)

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the admission of evidence of contemporaneous trades by

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individuals who received inside information from the same

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source as appellant; and (iii) the amount of the forfeiture

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order entered by the district court.

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court properly instructed the jury on the definition of

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material, nonpublic information and acted within its discretion

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in admitting evidence concerning the trades by other

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individuals.

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ordering appellant to forfeit gains acquired by his employer

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but not by him.

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vacate the forfeiture order and remand for further proceedings.

Appellant claims error

(i) a jury instruction that allegedly did not adequately

We hold that the district

However, we conclude that the court erred in

We therefore affirm appellant’s conviction but

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BACKGROUND

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Given the jury’s verdict, we view the evidence and

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inferences drawn therefrom in the light most favorable to the

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government.

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Cir. 2008).

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United States v. Chavez, 549 F.3d 119, 124 (2d

During the relevant time period, appellant was employed,

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with Michael Handler, as a co-portfolio manager of the Jeffries

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Paragon Fund (“Fund”).

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retail and personal products sectors.

The Fund invested in companies in the
As portfolio managers,

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Handler and appellant made investment decisions but did not

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control disbursements of profits.

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Sometime in 2000, appellant met and befriended Nicos

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Stephanou, who became an investment banker in the Mergers and

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Acquisitions group at UBS in 2002.

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Stephanou spoke on the telephone often, sometimes as much as 75

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times a month.

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information to several friends.

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California employee of a semiconductor company, an individual

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working in an import/export business in New York, and two

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individuals living in Cyprus.

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Thereafter, appellant and

Stephanou regularly provided confidential
These “tippees” included a

On September 2, 2005, Albertsons grocery store chain

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(“ABS”) announced that it was exploring options to increase

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shareholder value, including a possible sale of the company.

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Appellant then purchased a large amount of ABS stock on behalf

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of the Fund.

On the same day, Stephanou was assigned to a team

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at UBS that was to represent a potential purchaser of ABS.

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Stephanou testified that he informed appellant of his role, and

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that appellant asked Stephanou to keep him informed about the

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deal.

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Subsequently, on November 22, Stephanou received

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information suggesting that it was then more likely than not

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that an acquisition of ABS would occur.

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that information to appellant and his other friends.

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same day, appellant purchased 250,000 shares of ABS on behalf

Stephanou conveyed

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of the Fund.

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a worse than expected earnings report by ABS.

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On the

other tippees also purchased shares around this time.

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He testified that this purchase was motivated by
Stephanou’s

On December 6, Stephanou learned that the likelihood of

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the deal had been drastically reduced.

Nevertheless, appellant

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purchased 126,000 shares of ABS the following morning.

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testified that he believed that offers at the end of the

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bidding period, December 7, the next day, would increase the

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stock price.

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Handler began to sell ABS stock.

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sold the stock because he mistakenly believed the bidding

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period was over.

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continued to sell.

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position in ABS on December 7, closed out its long position on

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December 8, and then briefly went short.

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lion’s share of these trades.

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out their positions in ABS during the same time frame.

He

Appellant became unavailable for a few hours, and
Handler testified that he

When appellant became available, appellant
The Fund sold the vast majority of its

Appellant made the

The other tippees also closed

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On December 9, Stephanou was told that the deal was back

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on and could be announced on the 19th.

That day Stephanou

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purchased shares of ABS, and several of his tippees did as

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well.

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call discussing the details of the proposed transaction.

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Immediately following that call, Stephanou spoke with

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appellant, and the Fund purchased over $38 million of ABS the

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next day.

Two days later, Stephanou was involved in a conference

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Stephanou testified that he learned on December 17 that

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the deal was going to happen and would be announced later in

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the week.

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appellant several times over the next two days.

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purchased over 300,000 shares of ABS between December 19 and

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20.

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had broken down and that the deal was unlikely to occur.

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Stephanou testified that he repeatedly relayed information

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about the deal to appellant.

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calls between the two during this time.

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reports, the details looked positive, but ultimately it was

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determined that antitrust concerns in the Chicago market would

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hold the deal up.

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transaction was not going forward.

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Stephanou sold his position in ABS, shorted the stock, and

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advised appellant and the other tippees of the moribund status

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of the deal.

Phone records showed that Stephanou spoke with
The Fund

On December 21, several media outlets reported that talks

Phone records showed several
Until the media

Stephanou then advised appellant that the
The next day, December 22,

The Fund also sold all of its stock in ABS, and

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the other tippees did the same.

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morning of December 22 stated only that the deal was uncertain,

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but not necessarily dead.

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December 22, and Stephanou, his other tippees, and the Fund had

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sold all their ABS shares, did ABS announce that talks about

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the sale had been terminated.

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significantly the next morning.

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However, media reports in the

Only after the markets closed on

ABS stock dropped in price

In late December and into early January 2006, Stephanou
received reports that the acquisition of ABS was back on track.

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In response, he purchased ABS stock on January 11.

He also

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informed appellant that the deal was gaining traction and that

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a transaction would likely be announced in the coming weeks.

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On that day, appellant purchased approximately 1.1 million

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shares of ABS stock for the Fund.

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also bought ABS stock at this time.

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appellant attributed the purchase to a belief that comments by

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the CEO of one of the would-be purchasers implied that ABS

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would be acquired.

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additional shares of ABS.

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Post announced that negotiations had reopened and the Fund

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purchased another 200,000 shares, bringing its holdings to over

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2.3 million shares.

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later but then repurchased them the following day.

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the sale of ABS was announced on January 23 and the Fund sold

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its entire ABS holdings that day, reaping a net profit of

Stephanou’s other tippees
In his testimony,

On January 12, appellant purchased 900,000
Then, on January 13, the New York

The Fund sold 500,000 shares two days

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Finally,

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approximately $3 million through its December and January

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trades.

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2005, and ending in January, 2006, he had kept appellant

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informed of the status of the deal and expected date of the

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announcement.

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Stephanou testified that, beginning in September,

Prior to trial, appellant objected to evidence about the

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trades of Stephanou’s other tippees.

In denying appellant’s

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motion to exclude that evidence, the court stated that it had

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considered the parties’ arguments concerning district court

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opinions in United States v. Marcus Schloss & Co., Inc., 710 F.

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Supp. 944 (S.D.N.Y. 1989) (excluding evidence of trades by

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others), and United States v. Ballesteros Gutierrez, 181 F.

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Supp. 2d 350 (S.D.N.Y. 2002) (admitting such evidence), and

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concluded that the reasoning in Ballesteros was more fitting in

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this case.

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other tippees were probative because they tended to show that

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the trades of the tippees were more consistent with the sharing

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of inside information than with independent investment

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decisions.

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court saw no reason to exclude the evidence under Rule 403 but

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stated that it was open to a limiting instruction.

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instruction was requested.

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The court found that the trading patterns of the

Based on the balancing done in Ballesteros, the

No such

Appellant also objected to the jury charge on the basis

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that the court’s definition of “material, nonpublic

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information” did not adequately explain when confirmation of

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publicly known or rumored information can be considered

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material and nonpublic.

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The jury found appellant guilty of conspiracy and insider

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trading on the counts relating to the trades made on December

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22 and January 11.

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imprisonment and was ordered to forfeit approximately $12.65

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million -- the profits made by the Fund on appellant’s trades

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in his capacity as agent of the Fund.

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Appellant was sentenced to 72 months’

This appeal followed.

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DISCUSSION
a) Jury Instructions
We review jury instructions de novo to determine whether

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the jury was misled or inadequately informed about the

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applicable law.

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(2d Cir. 2010).

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Henry v. Wyeth Pharm., Inc., 616 F.3d 134, 146

As pertinent here, the crime of insider trading required

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the government to prove beyond a reasonable doubt that

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Stephanou had a duty to UBS not to convey material, nonpublic

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information about deals in progress to outsiders, See Dirks v.

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SEC, 463 U.S. 646, 662 (1983), and that appellant received such

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material, nonpublic information in breach of that duty and used

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the information to trade relevant securities, see id.

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Stephanou had the requisite duty is not contested.

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appellant testified that he never received any information from

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Stephanou about deals Stephanou was working on and that

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That

However,

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appellant’s trades in ABS were based solely on information

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available to the public or professional investors like himself.

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Although appellant’s denial of receiving any information

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from Stephanou no doubt reduced the importance of the

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definition of material, nonpublic information in the jury’s

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deliberations -– if it found appellant to be lying, the chances

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of an acquittal would be low –- the government still had to

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prove that the information Stephanou claimed to have given

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appellant was material and nonpublic.

Appellant claims that

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the definition of material, nonpublic information given in the

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district court’s instructions was erroneous.

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The pertinent instruction read:
Information is nonpublic if it was not
available to the public through such sources
as press releases, Securities and Exchange
Commission filings, trade publications,
analysts' reports, newspapers, magazines,
rumors, word of mouth or other sources. In
assessing whether information is nonpublic,
the keyword is "available." If information
is available in the public media or in SEC
filings, it is public. However, the fact
that information has not appeared in a
newspaper or other widely available public
medium does not alone determine whether the
information is nonpublic. Sometimes a
corporation is willing to make information
available to securities analysts, prospective
investors, or members of the press who ask
for it even though it may never have appeared
in any newspaper publication or other
publication. Such information would be
public. Accordingly, information is not
necessarily nonpublic simply because there
has been no formal announcement or because
only a few people have been made aware of it.
For example, if UBS policy was to give out
certain information to people who ask for it,
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that information is public information.
Whether information is nonpublic is an issue
of fact for you to decide.
On the other hand, the confirmation by
an insider of unconfirmed facts or rumors -even if reported in a newspaper -- may itself
be inside information. A tip from a
corporate insider that is more reliable or
specific than public rumors is nonpublic
information despite the existence of such
rumors in the media or investment community.
Whether or not the confirmation of a rumor by
an insider qualifies as material nonpublic
information is an issue of fact for you to
decide.
. . .
Within the particular context of the
purchase and sale of securities, "material"
information is information which a reasonable
investor would have considered significant in
deciding whether to buy, sell, or hold
securities, and at what price to buy or sell.
Appellant argues that this jury instruction did not

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properly inform the jury because it failed to include the

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following language, or variations thereon:1

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Appellant submitted two variations as proposed instructions:
Although information in a newspaper or an analyst report is public, an
insider’s confirmation of published information may itself constitute
material nonpublic information if it discloses significant details that are
not apparent from what is public, such as the certainty that a rumored event
in fact will occur. However, if an insider simply repeats what has appeared
in the public press, the repetition of that information is not material
nonpublic information. A generalized confirmation of an event that is obvious
to every market participant who is knowledgeable about a company is not
material information. Speculative information also may not rise to the level
of materiality. It is a fact issue for you to decide whether Mr. Stephanou
was sufficiently different from the information that was available in the
marketplace to be material.
and
A generalized confirmation of an event that is obvious to every market
participant who is knowledgeable about a company is not material information.
Speculative information also may not rise to the level of materiality. It is
a fact issue for you to decide whether Mr. Stephanou provided Mr. Contorinis

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A generalized confirmation of an event that
is fairly obvious to investors knowledgeable
about the company or the particular security
at issue –- here Albertsons or Albertsons
stock -- is not material information. In
order to be nonpublic and material,
information must be different from general
discussions in the marketplace at the time.
Even if an event, like a corporate merger,
may be important, information about that
event is not material unless it contains
something beyond what already was known to
the public from news articles, analyst
reports, or otherwise, and the additional
information likely would have been
significant to a reasonable investor. A
generalized confirmation of an event that is
fairly obvious to market participants who are
knowledgeable about a company is not material
information. Likewise, speculative
information is not material. The mere fact
that some discussion has taken place on
matters that may or may not occur is not
material unless it goes beyond speculation
and relates to existing facts.
In appellant’s view, the critical omission in the

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instructions given by the court was the lack of language

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indicating that general confirmation of an event that is

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“fairly obvious” to knowledgeable investors is not material,

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nonpublic information.

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instruction that stated, “[t]he confirmation by an insider of

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unconfirmed facts or rumors -- even if reported in a newspaper

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-- may itself be inside information.

Conversely, he objects to the court’s

We disagree.

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with any nonpublic information, and whether any such information was
sufficiently different from the information that was available in the
marketplace to be material.

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We first discuss materiality and nonpublic status as

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separate concepts.

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substantial likelihood that a reasonable investor would find it

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important in making an investment decision.

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v. Cusimano, 123 F.3d 83, 88 (2d Cir. 1997) (citing Basic Inc.

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v. Levinson, 485 U.S. 224, 231-32 (1988)).

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information must “alter[] the ‘total mix’ of information

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available.”

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available to the public through SEC filings, the media, or

Id.

Information is material when there is a

See United States

To be material,

Of course, information is public if it is

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other sources.

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1997).

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is also deemed public if it is known only by a few securities

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analysts or professional investors.

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trading will set a share price incorporating such information.

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See SEC v. Mayhew, 121 F.3d 44, 50-51 (2d Cir.

As the district court instructed the jury, information

This is so because their

While the concepts of materiality and nonpublic status

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refer to different things, there is considerable overlap for

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purposes of insider trading analysis.

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of information may be of importance in affecting the share

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price but so well-known that it does not alter the mix of

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available information and is therefore not deemed to be

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material.

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unknown to the public, may alter substantially the mix of

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information and thus be deemed very material.

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comes in varying degrees of specificity and reliability, and

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the extent to which a newly reported item of information alters

The content of a piece

Conversely, the same information, if previously

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Information also

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the total mix may depend on the specificity or reliability of

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that information.

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See id. at 52.

In Elkind v. Liggett & Myers, Inc., 635 F.2d 156 (2d Cir.

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1980), we held that a tip stating that an upcoming earnings

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report would reflect lower sales was not material where that

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fact was already common knowledge among analysts and the

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company had previously stated that a decline in sales was

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expected.

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had included additional details, such as the expected amount of

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Id. at 166.

However, we indicated that if the tip

the decrease, it would have been material.

Id.

Similarly, a tip that provides additional reliability to

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existing information about the status of a transaction based on

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the source’s access to inside information may be material

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because it lessens the risk from uncertainty.

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F.3d at 52.

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See Mayhew, 121

Insiders often have special access to information about a

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transaction.

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be circulating but are difficult to evaluate because their

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source may be unknown.

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information obtained from a particular insider, even if it

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mirrors rumors or press reports, is sufficiently more reliable,

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and, therefore, is material and nonpublic, because the insider

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tip alters the mix by confirming the rumor or reports.

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Rumors or press reports about the transaction may

A trier of fact may find that

Id.

We conclude that the district court’s instructions
adequately conveyed the applicable standards.

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The charge

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informed the jury that for information to be material it must

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be considered significant by reasonable investors.

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to the jury that material, nonpublic information is information

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that either is not publicly available or is sufficiently more

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detailed and/or reliable than publicly available information to

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be deemed significant, in and of itself, by reasonable

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investors.

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It conveyed

To the extent that appellant’s suggested charges focused
entirely on the content of reports or tips, excluding from

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consideration the reliability of the source, they misstated the

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law. See United States v. Abelis, 146 F.3d 73, 82 (2d Cir.

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1998) (holding that defendant “bears the burden of showing that

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the requested instruction ‘accurately represented the law in

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every respect and that, viewing as a whole the charge actually

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given, he was prejudiced.’” (quoting United States v. Dove, 916

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F.2d 41, 45 (2d Cir. 1990)))

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instructions conveyed the substance of those requested by

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appellant.

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b)

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In other respects, the court’s

Evidence of Other Trades
Appellant also argues that the district court should have

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excluded the evidence concerning trades of other individuals

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under Fed. R. Evid. 403, which states that evidence may be

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excluded if its probative value is “substantially outweighed by

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a danger of . . . unfair prejudice, confusing the issues, [or]

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misleading the jury.”

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Given the district courts’ “broad discretion over the

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admission of evidence,” United States v. McDermott, 245 F.3d

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133, 140 (2d Cir. 2001), we review evidentiary rulings only for

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abuse of discretion.

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Ctr. Props., LLC, 467 F.3d 107, 119 (2d Cir. 2006).

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deferential standard is of particular importance with regard to

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evidentiary rulings under Rule 403 because “[a] district court

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is obviously in the best position to do the balancing mandated

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by Rule 403.”

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SR Int'l Bus. Ins. Co. v. World Trade
This

United States v. Salameh, 152 F.3d 88, 110 (2d

Cir. 1988).
On appeal, as in the district court, the parties’

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arguments focus on which of the differing district court

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opinions in Marcus Schloss and Ballesteros we should adopt.

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However, we are skeptical as to whether a general rule, rather

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than a case by case analysis, regarding admission or exclusion

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of evidence of trades by other alleged tippees in insider

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trading cases is appropriate.

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Ballesteros, the evidence of other trades was relevant to the

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extent of a particular conspiracy.

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Supp. at 951; Ballesteros, 181 F. Supp. 2d at 356.

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In Marcus Schloss and

See Marcus Schloss, 710 F.

Here, however, there is no allegation that appellant and

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the other tippees were co-conspirators.

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tippees were strangers to appellant.

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government’s argument that the evidence of the other trades

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tends to show that appellant traded on inside information

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Rather, the other

In that light, the

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arguably contains a danger of substantial prejudice.

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was a professional in the securities industry while the others

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were not.

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on information available to such a professional.

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tippees’ information may well have been entirely limited to

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Stephanou’s tips, a fact not easily litigated.

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Appellant

Appellant’s defense was that his trades were based
The other

However, the relevance of the other trades is not limited

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to showing the motive for appellant’s trades.

Appellant

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challenged Stephanou’s testimony as to his conversations with

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appellant, labeling him a “career criminal” and “a master liar”

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who concocted a tale involving appellant to obtain a lighter

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sentence.

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Appellant’s defense was not that he received information

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from Stephanou about the ABS negotiations and that it was both

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insignificant and a fraction of the information available to

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him.

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from Stephanou regarding any transaction on which Stephanou was

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working.

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evidence of common trades had arguable probative value in

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support of the credibility of Stephanou’s testimony that he

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shared common information with appellant and the others.

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Rather, appellant denied ever receiving any information

Given that testimony and litigating position, the

Admission of the evidence of other trades was thus a

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paradigmatic case of weighing probative value and danger of

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unfair prejudice that was within the considerable discretion of

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the district court.

It may well be that appellant was entitled

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to a limiting instruction, but such an instruction was never

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requested.

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c)

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Order of Forfeiture
The final issue is whether the district court erred in

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ordering appellant to forfeit $12.65 million, the total amount

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of profits made, and losses avoided, by the Fund in ABS trades.

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Appellant, who was an employee and small equity owner of the

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Fund, argues that he cannot be ordered to forfeit profits that

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he never received or possessed.

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We agree.

In reviewing an order of forfeiture, we review the

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district court’s legal conclusions de novo and the factual

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findings for clear error.

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215, 261 (2d Cir. 2010). In the course of successful criminal

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securities fraud prosecutions, a district court can order the

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forfeiture of "[a]ny property, real or personal, which

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constitutes or is derived from proceeds traceable to [the]

17

violation."2

18

violations is “the amount of money acquired through the illegal

19

transactions resulting in the forfeiture, less the direct costs

United States v. Sabhnani, 599 F.3d

The definition of proceeds for insider trading

2
18 U.S.C. § 981(a)(1)(C). Section 981(a)(1)(C) allows a court to
order forfeiture for “any offense constituting ‘specified unlawful activity’
[]as defined in [18 U.S.C. §] 1956(c)(7).” Section 1956(c)(7)(A) incorporates
“any act or activity constituting an offense listed in [18 U.S.C. §] 1961(1).”
And § 1961(1)(D) lists “any offense involving . . . fraud in the sale of
securities.” While § 981(a)(1)(C) is a civil forfeiture provision, it has
been integrated into criminal proceedings via 28 U.S.C. § 2461(c). This
roundabout statutory mechanism allows a court to order forfeiture in criminal
securities fraud proceedings.

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incurred in providing the goods or services.”3
While the statute does not expressly identify the “whom”

3

that must do the acquiring that results in forfeiture,

4

“forfeiture” is a word generally associated with a person’s

5

losing an entitlement as a penalty for certain conduct.

6

Hamilton v. Atlas Turner, Inc., 197 F.3d 58, 61 (2d Cir. 1999)

7

(discussing the difference between forfeiture and waiver).

8

order in the present matter includes funds to which appellant

9

was never entitled.

10

See

The

Because the “proceeds” sought by the

government here were “acquired” by the Fund over which

3
Id. § 981(a)(2)(B). We agree with our own prior non-precedential
conclusion, consistent with that of the Tenth Circuit, that § 981(a)(2)(B)
supplies the definition of “proceeds” in cases involving fraud in the purchase
or sale of securities, see United States v. Mahaffy, No. 09-5349-cr, 2012 U.S.
App. LEXIS 16072 at *58-59 (2d Cir. August 2, 2012) (“If the district court
addresses the forfeiture issue again, with the same factual and legal bases,
the proper measure of forfeiture . . . is . . . under § 981(a)(2)(B).”);
United States v. Nacchio, 573 F.3d 1062, 1088-90 (10th Cir. 2009), and
incorporate by reference the rationale contained therein. Section
981(a)(2)(B) applies to “cases involving lawful goods or lawful services that
are sold or provided in an illegal manner.” A security is a “lawful good[]”
for the purposes of § 981(a)(2)(B), the purchase or sale of which, if done
based upon improperly obtained material nonpublic inside information, is “sold
. . . in an illegal manner.” Further, the sale of a security is not an
inherently unlawful activity, like say the sale of foodstamps, or a robbery,
and thus insider trading is not “unlawful activity” as that term is used in §
981(a)(2)(A). See 1 David B. Smith, Prosecution and Defense of Forfeiture
Cases, ¶ 5.03[2], at 5–62 (“The term ‘unlawful activities’ in section
981(a)(2)(A) was meant to cover inherently unlawful activities such as robbery
that are not captured by the words ‘illegal goods’ and ‘illegal services.’”).
United States v. Uddin, 551 F.3d 176 (2d Cir. 2009) is not to the contrary.
That case involved the sale of foodstamps, which cannot be done lawfully, and
therefore is properly considered an “unlawful activity” under § 981(a)(2)(A).
Because § 981(a)(2)(B) defines “proceeds” as the “money acquired . . . less
the direct costs incurred” it seems that the only money that should be subject
to forfeiture in an insider trading case is money acquired when shares are
traded based upon inside information at a gain. In cases where the securities
are sold at a loss to avoid further losses, the direct costs associated with
the sale, namely the cost of purchasing the securities sold, would exceed the
“money acquired” in the sale. In this case, because the Fund and not
appellant bore all direct costs, any money that appellant can fairly be
considered as having “acquired” as a result of his insider trading activities
may be subject to forfeiture under §981.

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1

appellant lacks control, it is difficult to square the statute

2

with the forfeiture order.

3

Forfeiture of funds or property can be either civil or

4

criminal.

In civil forfeiture, the United States brings a

5

civil action against the property itself as an in rem

6

proceeding –- “[i]t is the property which is proceeded against,

7

and . . . held guilty and condemned as though it were conscious

8

instead of inanimate and insentient.”

9

Personal Property v. United States, 282 U.S. 577, 581 (1931);

Various Items of

10

see also United States v. Davis, 648 F.3d 84, 92 (2d Cir. 2011)

11

(quoting same).

12

often rests on the claimant, who may be an innocent third

13

party, to prove that the property is not subject to forfeiture.

14

United States v. Parcel of Property, 337 F.3d 225, 229-30 (2d

15

Cir. 2003).

16

irrelevant, Bennis v. Michigan, 516 U.S. 442, 446 (1996).

17

In civil forfeiture proceedings, the burden

The claimant’s culpability is also often

Forfeiture in criminal proceedings under 18 U.S.C. § 981

18

is an in personam proceeding.

“The forfeiture serves no

19

remedial purpose, is designed to punish the offender, and

20

cannot be imposed upon innocent owners.”

21

Bajakajian, 524 U.S. 321, 332 (1998).

22

focuses on the disgorgement by a defendant of his “ill-gotten

23

gains.”

24

2010) (citing United States v. Emerson, 128 F.3d 557, 566 (7th

25

Cir. 1997); United States v. Various Computers & Computer

United States v.

Criminal forfeiture

United States v. Kalish, 626 F.3d 165, 170 (2d Cir.

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1

Equip., 82 F.3d 582, 588 (3d Cir. 1996)).

2

calculation of a forfeiture amount in criminal cases is usually

3

based on the defendant’s actual gain.

4

McGinty, 610 F.3d 1242, 1247 (10th Cir. 2010) (“[R]estitution

5

is calculated based on the victim’s loss, while forfeiture is

6

based on the offender’s gain.” (quoting United States v.

7

Webber, 536 F.3d 584, 603 (7th Cir. 2008))).

8

consistent with the purpose of criminal forfeiture, as endorsed

9

by the House Judiciary Committee when recommending the Civil

Thus, the

See United States v.

This is

10

Asset Forfeiture Reform Act.

11

(1999) (“With the forfeiture laws, we can separate the criminal

12

from his profits. . . thus removing the incentive others may

13

have to commit similar crimes tomorrow.”) (quoting Stefan

14

Cassella, Assistant Chief, Asset Forfeiture and Money

15

Laundering Section, Criminal Division, U.S. Department of

16

Justice in testimony before the committee); see also H.R. Rep.

17

No. 105-358, at 23 (1997) (same).

18

circuit have echoed this view by concluding that “a defendant

19

may be ordered to forfeit all monies received by him as a

20

result of the fraud.”

21

342, 347 (W.D.N.Y. 2009) (emphasis added) (citing United States

22

v. Uddin, 551 F.3d 176, 181 (2d Cir. 2009)).

23

H.R. Rep. No. 106-192, at 5

District courts in our

United States v. Nicolo, 597 F. Supp. 2d

This general rule is somewhat modified by the principle

24

that a court may order a defendant to forfeit proceeds received

25

by others who participated jointly in the crime, provided the

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1

actions generating those proceeds were reasonably foreseeable

2

to the defendant.

3

(2d Cir. 2005) (reviewing order of forfeiture under RICO

4

forfeiture provision); United States v. Warshak, 631 F.3d 266,

5

281-82, 333 (6th Cir. 2010) (affirming joint and several

6

forfeiture orders under 18 U.S.C. § 981).

7

forfeiture proceedings, where the general principle is that a

8

defendant is liable for the reasonably foreseeable acts of his

9

co-conspirators.

United States v. Fruchter, 411 F.3d 377, 384

This extends to

See United States v. Jackson, 335 F.3d 170,

10

181 (2d Cir. 2003) (“Under well-established law, Jackson was

11

responsible not only for the cocaine that he himself conspired

12

to import but also for the cocaine his co-conspirators

13

conspired to import, provided he knew of his co-conspirator's

14

illicit activities or the activities were reasonably

15

foreseeable by him.”).

16

received by actors in concert with a defendant may be deemed to

17

be based on the view that the proceeds of a crime jointly

18

committed are within the possessory rights of each concerted

19

actor, i.e. are

20

according to a joint decision.

21

extension to a situation where the proceeds go directly to an

22

innocent third party and are never possessed by the defendant.

23

Moreover, we are not aware of, and the government has not

The extension of forfeiture to proceeds

“acquired” jointly by them and distributed
This view does not support an

24

cited, any decision standing for the proposition that a

25

defendant may be required to forfeit funds never acquired by

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1

him or someone working in concert with him.

Neither our

2

opinion in United States v. Royer, 549 F.3d 886 (2d Cir. 2008)

3

nor our summary order in United States v. Capoccia, 402 F.

4

App’x 639 (2d Cir. 2010) are to the contrary.

5

were we presented with a situation where a defendant had been

6

asked to forfeit funds that were never under his or his co-

7

conspirator’s control.

8

or directly in the possession of the defendant, his assignees,

9

or his co-conspirators in order to be subject to forfeiture,”

10

Capoccia, 402 F. App’x at 640, the property must have, at some

11

point, been under the defendant’s control or the control of his

12

co-conspirators in order to be considered “acquired” by him.

13

Finally, extending the scope of a forfeiture to include

14

proceeds that have never been acquired either by a defendant or

15

his joint actors would be at odds with the broadly accepted

16

principle that forfeiture is calculated based on a defendant’s

17

gains.

18

the district court erred in ordering appellant to forfeit funds

19

that were never possessed or controlled by himself or others

20

acting in concert with him, and remand to determine the proper

21

forfeiture amount.4

In neither case

While “property need not be personally

See McGinty, 610 F.3d at 1247.

Therefore, we hold that

22

4

To what extent appellant’s interest in salaries, bonuses, dividends,
or enhanced value of equity in the Fund can be said to be money “acquired” by
the defendant “through the illegal transactions resulting in the forfeiture,”
18 U.S.C. § 981(a)(2)(B), we leave to the district court to decide on remand
in a manner not inconsistent with this opinion.

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CONCLUSION
We have reviewed appellant’s other arguments and conclude

3

that they are without merit.

For the foregoing reasons, we

4

affirm appellant’s conviction, but vacate the order of

5

forfeiture and remand for further proceedings in accordance

6

with this opinion.

7

23