PEOPLE v. SCHWARTZ (2005)

Judgment, Supreme Court, New York County (Bernard J. Fried, J.), rendered December 2, 2002, convicting defendant Howard Schwartz, after a jury trial, of scheme to defraud in the first degree, falsifying business records in the first degree, and five counts of securities fraud, and sentencing him to an aggregate term of 4 to 12 years and imposing an aggregate fine of $25,000, unanimously modified, on the law, to the extent of vacating the conviction for falsifying business records and, on the facts, to the extent of vacating the convictions for securities fraud with respect to Technical Chemicals and Products and with respect to Innovir Laboratories, and dismissing those counts of the indictment, and otherwise affirmed.   This matter is remitted to Supreme Court, New York County, for further proceedings pursuant to CPL 460.50(5).

Judgment, same court and Justice, rendered December 2, 2002, convicting defendant Steven Finkelstein, after a jury trial, of scheme to defraud in the first degree, falsifying business records in the first degree, and two counts of securities fraud, and sentencing him to an aggregate term of 2 2/323 to 8 years and imposing an aggregate fine of $10,000, unanimously modified, on the law, to the extent of vacating the conviction for falsifying business records and dismissing that count of the indictment, and otherwise affirmed.

Judgment, same court and Justice, rendered October 25, 2002, convicting defendant Jon Belkin, after a jury trial, of scheme to defraud in the first degree, and sentencing him to a term of 1 1/313 to 4 years and imposing a fine of $80,000, unanimously affirmed.   This matter is remitted to Supreme Court, New York County, for further proceedings pursuant to CPL 460.50(5).

Except as indicated, the verdict as to each defendant is based on legally sufficient evidence and is not against the weight of the evidence (see e.g. People v. Sala, 95 N.Y.2d 254, 260, 716 N.Y.S.2d 361, 739 N.E.2d 727 [2000] ).   There is no basis for disturbing the jury's determinations concerning credibility, including its evaluation of the weight to be given to the testimony of cooperating witnesses (see People v. Gaimari, 176 N.Y. 84, 94, 68 N.E. 112 [1903] ).

 The falsifying business records count must be dismissed as against Schwartz and Finkelstein because New York County lacked geographical jurisdiction (see CPL 20.40[1] ) and because the consulting agreement between defendants' firm, Meyers Pollock Robbins (MPR), and Holly Holdings was not a business record (see Penal Law § 175.00[2];  People v. Papatonis, 243 A.D.2d 898, 900-901, 663 N.Y.S.2d 341 [1997];  People v. Bel Air Equip. Corp., 46 A.D.2d 773, 774, 360 N.Y.S.2d 465 [1974], affd. 39 N.Y.2d 48, 382 N.Y.S.2d 728, 346 N.E.2d 529 [1976] ).   The contract was signed in Florida on behalf of MPR and in Pennsylvania on behalf of Holly Holdings, and the meeting to negotiate the agreement took place in Nassau County.   The fact that the agreement lists MPR's address as One World Trade Center does not constitute an element of falsifying business records, and there is no evidence that the Manhattan-based lawyer who prepared the agreement knew it to be false.

 Schwartz's convictions for securities fraud (General Business Law § 352-c[5] ) with respect to Technical Chemical and Innovir are against the weight of the evidence.   While one partner of the Melville branch testified that he offered a commission of more than five percent on Technical Chemical, another partner testified that he offered his brokers no special incentives to sell that stock, and the sales manager of the Melville office testified that he did not receive any special commissions in regard to this stock.   Moreover, the average commission reported to Bear Stearns on Technical Chemical was only 2.59%. Thus, MPR appears to have been well within the NASD commission guidelines with respect to this stock.   The fact that MPR did not tell its customers about its agreement with Technical Chemical does not, by itself, evidence intent to defraud.   MPR's own compliance manual did not require investment banking agreements to be disclosed.   As to Innovir, while the strike price on some of the warrants was low, the warrants were MPR's sole compensation under the agreement.   It is not unusual for companies, especially start-up companies, to compensate their investment bankers with warrants.   Since Schwartz and Finkelstein provided the services listed in the agreement, it was not a sham.   As for the blocks of stock purchased at below-market rates, no testimony quantified how much of a discount MPR received.   There are legitimate reasons for selling blocks of stock at a discount;  notably, it is difficult to sell many shares of a small company without depressing the price.   While one of the Melville brokers received high commissions for selling Innovir, there is no evidence that Schwartz received such commissions.   Finally, since Schwartz invested his own parents' retirement money in Innovir, we conclude that he did not think it was a worthless stock.

 We reject Belkin's sufficiency arguments.   Although the court should have instructed the jury that a certain sales assistant was an accomplice as a matter of law (see People v. Adams, 307 A.D.2d 475, 763 N.Y.S.2d 347 [2003], lv. denied 1 N.Y.3d 566, 775 N.Y.S.2d 784, 807 N.E.2d 897 [2003] ), the error was harmless in light of extensive corroborating evidence (see People v. Hwang, 2 A.D.3d 245, 768 N.Y.S.2d 323 [2003], lv. denied 2 N.Y.3d 738, 778 N.Y.S.2d 464, 810 N.E.2d 917 [2004] ).   The nonaccomplice testimony received from the custodian of TWA records and from the receptionist/administrative assistant at the 5 Hanover Square office, together with the documentary evidence (telephone and Federal Express records), corroborated the accomplice testimony and tended to connect Belkin with the scheme to defraud (see CPL 60.22[1];  People v. Besser, 96 N.Y.2d 136, 143-144, 726 N.Y.S.2d 48, 749 N.E.2d 727 [2001] ).

 The scheme to defraud count was not duplicitous.   While the various branches of MPR operated with a high degree of autonomy, the main office-which supplied the trading desk, the connection to Bear Stearns (the clearing house), and the capital required by NASD rules-was a necessary part of the scheme to defraud.   Furthermore, at a fundamental level, both the 5 Hanover Square office (where Belkin worked) and the Melville office (of which Schwartz and Finkelstein were partners) engaged in the same deceptive technique:  neither told its customers that it was receiving extra compensation to promote certain stocks.   Therefore, there was a single, overarching scheme to defraud (see People v. First Meridian Planning Corp., 86 N.Y.2d 608, 617-618, 635 N.Y.S.2d 144, 658 N.E.2d 1017 [1995] ).

 Since they agreed to accept a joint trial, Schwartz and Finkelstein waived their current argument that they were unduly prejudiced by being tried jointly with Belkin (see People v. White, 53 N.Y.2d 721, 723, 439 N.Y.S.2d 333, 421 N.E.2d 825 [1981] ), and we decline to review the claim in the interest of justice.   Were we to entertain the argument, we would find that the court providently exercised its discretion (see People v. Bornholdt, 33 N.Y.2d 75, 87, 350 N.Y.S.2d 369, 305 N.E.2d 461 [1973], cert. denied sub nom. Victory v. New York, 416 U.S. 905, 94 S.Ct. 1609, 40 L.Ed.2d 109 [1974] ).   We note that 60 witnesses testified in the three-month trial and that the defenses were not in irreconcilable conflict (see People v. Mahboubian, 74 N.Y.2d 174, 183-184, 544 N.Y.S.2d 769, 543 N.E.2d 34 [1989] ).

 The court providently exercised its discretion in accepting the former president of MPR as an expert in SEC filings (see generally People v. Brown, 97 N.Y.2d 500, 505, 743 N.Y.S.2d 374, 769 N.E.2d 1266 [2002] ).   This witness was a certified public accountant, held various securities licenses, and had about 15 years' experience in analyzing public filings.   He had been a chief financial officer, responsible for all regulatory reporting and filings with the SEC and the New York Stock Exchange.   He testified as to matters that were the proper subject of expert testimony (see People v. Lee, 96 N.Y.2d 157, 162, 726 N.Y.S.2d 361, 750 N.E.2d 63 [2001] ), and he was properly permitted to testify from certain business summaries (see R & I Elecs. v. Neuman, 81 A.D.2d 832, 833, 438 N.Y.S.2d 832 [1981], lv. denied 54 N.Y.2d 605, 443 N.Y.S.2d 1028, 427 N.E.2d 513 [1981] ).   The court's frequent and detailed instructions obviated the danger that qualifying him as an expert witness in one area would bolster his credibility as a fact witness in other areas.

 The court also providently exercised its discretion in permitting a law school professor to give expert testimony on securities laws and regulations (see e.g. United States v. Bilzerian, 926 F.2d 1285, 1294 [2d Cir.1991], cert. denied 502 U.S. 813, 112 S.Ct. 63, 116 L.Ed.2d 39 [1991] [“Particularly in complex cases involving the securities industry, expert testimony may help a jury understand unfamiliar terms and concepts”];  People v. A.S. Goldmen, Inc., 9 A.D.3d 283, 285, 779 N.Y.S.2d 489 [2004], lv. denied 3 N.Y.3d 703, 785 N.Y.S.2d 31, 818 N.E.2d 673 [2004];  People v. Lurie, 249 A.D.2d 119, 122, 673 N.Y.S.2d 60 [1998], lv. denied 92 N.Y.2d 900, 680 N.Y.S.2d 64, 702 N.E.2d 849 [1998] ).   The witness was neither offered nor accepted as an expert on the various New York State statutes at issue in this case, nor did he testify as to the ultimate issues before the jury.   His testimony did not misstate the law.

 By referring to the trial record, the court properly responded to a jury note asking whether market making must be disclosed to customers.   Factual questions were presented as to whether MPR engaged in market making (see C.R.A. Realty Corp. v. Tri-South Invs., 568 F.Supp. 1190, 1191-1192 [S.D.N.Y.1983], affd. 738 F.2d 73 [2d Cir.1984] ) and whether it was required to disclose that fact (Chasins v. Smith, Barney & Co., 438 F.2d 1167, 1172 [2d Cir.1970];  see also Zweig v. Hearst Corp., 594 F.2d 1261 [9th Cir.1979] ).   Thus, the court responded appropriately by reading back the pertinent testimony of expert and other witnesses and by submitting these issues for the jury's determination on the evidence (see People v. Steinberg, 79 N.Y.2d 673, 685, 584 N.Y.S.2d 770, 595 N.E.2d 845 [1992];  People v. Wosu, 213 A.D.2d 967, 968-969, 624 N.Y.S.2d 479 [1995], affd. 87 N.Y.2d 935, 640 N.Y.S.2d 870, 663 N.E.2d 911 [1996] ).   As a general principle, the weight to be accorded expert testimony is a matter for the jury (see Windisch v. Weiman, 161 A.D.2d 433, 437, 555 N.Y.S.2d 731 [1990] ).

 The consecutive sentences for securities fraud are not illegal, nor do they violate double jeopardy.   Each Martin Act violation involves a separate security and is thus a separate offense (see generally Penal Law § 70.25[2];  Blockburger v. United States, 284 U.S. 299, 304, 52 S.Ct. 180, 76 L.Ed. 306 [1932] ).   We note that the individual securities fraud sentences are concurrent with the overall scheme to defraud sentence (see People v. Sanchez, 195 A.D.2d 578, 580, 600 N.Y.S.2d 946 [1993], mod. on other grounds 84 N.Y.2d 440, 618 N.Y.S.2d 887, 643 N.E.2d 509 [1994] ).

We perceive no basis for reducing the sentences upon the valid convictions.   We have considered and rejected defendants' remaining arguments.