In Reinstating Conviction, Second Circuit Expands Federal Prosecutors’ Ability to Prosecute Fraud Claims in New York
On August 15, 2016, the United States Court of Appeals for the Second Circuit reversed the district court’s judgment of acquittal for Kristofor Lange on venue grounds. See U.S. v. Lange, No. 14-2442-cr, slip op. at 2 (2d Cir. Aug. 15, 2016). Lange had been convicted of securities fraud and conspiracy to commit wire fraud after a jury trial. The Court held that venue was in fact proper in the Eastern District of New York because individuals targeted by Lange’s scheme had received phone calls in the district and because it was foreseeable to Lange that calls would be made to individuals located there.
On March 6, 2014, a jury found Lange and his co-defendant, Brad Russell, guilty of three counts of conspiracy to commit wire and securities fraud and substantive securities fraud. The charges related to a fraudulent scheme to solicit investments for a mining company in Alaska. After trial, Lange moved for a judgment of acquittal, arguing, among other things, that the evidence was insufficient to establish venue in the district. Even though prosecutors need to establish venue by a preponderance of the evidence, Chief Judge Dora Irizarry of the Eastern District of New York granted Lange’s motion with respect to the substantive securities fraud conviction (not the other count of conviction), and the government appealed.
In reversing, the Court stated that to establish venue in the charged district for securities fraud charges, the government must establish that (1) the acts constituting the violation occurred in the district of venue and (2) either the acts constituting the fraudulent scheme were foreseeable to the defendants, or the defendants aided and abetted the fraudulent scheme. The Court then held that the first element of this test was satisfied in this case because victims received phone calls or emails in the Eastern District. The Court further held that Judge Irizarry erred by failing to consider whether it was foreseeable to Lange that acts in furtherance of this scheme would occur within the Eastern District. The Court explained that a defendant need not have knowledge or intent to cause an act to occur in the charged district; instead, the act need only be foreseeable. Because evidence at trial demonstrated that Lange saw a contact list for cold calling potential investors, which included phone numbers located in the Eastern District, the Court concluded that it was foreseeable that calls to the District would be made. Finally, the Court held that Judge Irizarry erred by ruling that the government was required to present evidence that Lange aided and abetted the particular acts carried out in the district. The Court explained, however, that aiding and abetting the fraudulent scheme generally would suffice to render venue proper.
The Second Circuit’s decision affirmed the broad reach of venue in criminal securities fraud cases, especially as applied to the Southern and Eastern Districts—where both defendants and targets are often based or conduct business. Of course, venue can still be challenged on due process-related and convenience grounds, but such challenges pose an uphill battle, especially when acts in furtherance of the charged conspiracy occurred within these districts.