From 1998 through 2006, the defendants participated in a scheme to defraud investors via two successive securities broker-dealers: The Thornwater Company, L.P., ("Thornwater"); and Sky Capital LLC and associated entities, including Sky Capital Enterprises Inc., and Sky Capital Holdings Ltd. (collectively "Sky Capital"). Until late 2006, shares of Sky Capital Holdings ("SKH") and Sky Capital Enterprises ("SKE") were traded publicly on the Alternative Investment Market of the London Stock Exchange. Through material misrepresentations and omissions, the defendants induced victims to invest in purported investment opportunities promising large returns, such as private placements, offers to purchase restricted stock, and offers to purchase Sky Capital securities. In fact, investor funds were substantially used to enrich the defendants and others; to pay excessive undisclosed commissions to brokers; and to pay off victims who had lost money through prior purported investment opportunities. In connection with the scheme, the defendants, acting primarily from Thornwater and Sky Capital's offices in New York, New York, raised a total of approximately $140 million from investors . . .
Mandell: 144 months in prison, $50 million forfeiture, $10,000 fine, and a $400 assessment;
Harrington: 50 months in prison, $20 million forfeiture; $400 assessment.
Section 10(b) reaches the use of a manipulative or deceptive device or contrivance only in connection with the purchase or sale of a security listed on an Amterican stock exchange, and the purchase or sale of any other security in the United States. This case involves no securities listed on a domestic exchange, and all aspects of the purchases complained of by those petitioners who still have live claims occurred outside the United States. Petitioners have therefore failed to state a claim on which relief can be granted. We affirm the dismissal of petitioners' complaint on this ground.
[D]efendant may be convicted of securities fraud under Section 10(b) [of the Securities Exchange Act of 1934] and Rule 10b-5 only if he has engaged in fraud in connection with (1) a security listed on a U.S. exchange, or (2) a security purchased or sold in the United States." Vilar, 729 F.3d at 67. Thus, we held that Section 10(b) does not "apply extraterritorially in criminal cases.
[a] securities transaction is domestic when the parties incur irrevocable liability to carry out the transaction within the United States or when title is passed within the United States." Id., citing Absolute Activist Value Master Fund Ltd. v. Ficeto, 677 F.3d 60, 69 (2d Cir. 2012). We went on to explain that a "domestic transaction has occurred when the purchaser [has] incurred irrevocable liability within the United States to take and pay for a security, or . . . the seller [has] incurred irrevocable liability within the United States to deliver a security." . . .
The jury considered evidence of five private placement offerings relating to three entities--Global Secure, Sky Capital Enterprises, and Sky Capital Holdings. Investors in the Global Secure private placement were required to submit purchase applications and payments to the company in the United States; the company had discretion to accept or reject those applications on receipt. Under Vilar, these were "domestic transactions." Vilar, 729 F.3d at 76. Investors also made domestic purchases of private placement shares of Sky Capital Enterprises. In light of this evidence of domestic transactions, and viewing the evidence "in the light most favorable to the government," a "rational jury" could have found the "essential elements" of Mandell and Harrington's convictions beyond a reasonable doubt. Abdulle, 564 F.3d at 125. . .
[T]here was evidence that Mandell falsely told victims that there "were absolutely no risks involved" in making certain securities purchases, even while he was telling his associates that making money on such purchases was "almost equivalent to buying a lottery ticket." There was also evidence that brokers had been instructed by Mandell on how to "pitch" private placements deceptively to potential investors. As to the duty to disclose, our cases make clear that brokers have a duty to disclose in this context. See, e.g., United States v. Santoro, 302 F.3d 76, 80-81 (2d Cir. 2002) (holding that a "broker has an affirmative duty to disclose all relevant information, including the receipt of excessive commissions," and stating that a "customer relying on a broker's recommendation would want to know information about the broker's receipt of extraordinary commissions in exchange for his recommendation of the stock because . . . it would raise a ‘red flag' that the broker had reason to misrepresent the quality of the investment"); see also United States v. Szur, 289 F.3d 200, 211-12 (2d Cir. 2002).
Bill Singer's CommentFar from taking affirmative steps to "disavow or defeat" the conspiracy, Harrington went on to seek payment of Sky shares from Mandell, even though those shares would have been worthless had the conspiracy not been ongoing. Moreover, each of the conversations at issue included discussion of the progress of the conspiracy sufficient to render them admissible. . .