10 2076 Motz Brief Special Appendix - Sturm College of La · Orton, 73 F.3d 331 (11th Cir. 1996).....
Transcript of 10 2076 Motz Brief Special Appendix - Sturm College of La · Orton, 73 F.3d 331 (11th Cir. 1996).....
BRIEF OF DEFENDANT-APPELLANTand SPECIAL APPENDIX
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Attorneys for Defendant-Appellant
Ynited States Court of AppealsFOR THE SECOND CIRCUIT
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10-2076-cr
ON APPEAL FROM THE UNITED STATES DISTRICT COURTFOR THE EASTERN DISTRICT OF NEW YORK
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Defendant-Appellant,
Defendant.
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TABLE OF CONTENTSPage
PRELIMINARY STATEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
JURISDICTIONAL STATEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
QUESTIONS PRESENTED. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
STATEMENT OF THE CASE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
STATEMENT OF FACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
A. The Indictment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
B. Pretrial Motions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
C. Motz's Guilty Plea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
D. The PSR and Motz's Objections. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
E. Fatico Hearing and Post-Hearing Submissions. . . . . . . . . . . . . . . . . 11
1. The Government Expert. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2. The Defense Experts.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
F. Sentencing.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
G. Restitution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SUMMARY OF ARGUMENT.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARGUMENT.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
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Page
POINT I: MOTZ'S TRADE ALLOCATION SCHEME NEITHERCAUSED NOR CONTEMPLATED "LOSS" TO HIS CUSTOMERSAND, EVEN IF IT DID, THE LOSS WAS MUCH LESS THAN $2.4 MILLION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
A. No Loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
B. Much Less Loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
1. Ex Post Facto. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
2. Intolerable Ambiguity. . . . . . . . . . . . . . . . . . . . . . . 35
POINT II: THE NUMBER OF "VICTIMS" WAS LESS THAN 50. . . . . 39
POINT III: THE RESTITUTION ORDER MUST BE VACATEDBECAUSE IT DID NOT AND COULD NOT IDENTIFY EITHERTHE "VICTIMS" OR THEIR PURPORTED "LOSSES". . . . . . . . . . . . . . 42
POINT IV: MOTZ'S EIGHT- YEAR PRISON TERM IS UNREASONABLE.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
CONCLUSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
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TABLE OF AUTHORITIESPage
CASES
United States v. Allen, 529 F.3d 390 (7th Cir. 2008).. . . . . . . . . . . . . . . . . . . . . . 46
United States v. Arnaout, 431 F.3d 994 (7th Cir. 2005). . . . . . . . . . . . . . . . . . . . . 41
United States v. Booker, 543 U.S. 220 (2005). . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
United States v. Catoggio, 326 F.3d 323 (2d Cir. 2003). . . . . . . . . . . . . . . . . . . . 43
United States v. Ebbers, 458 F.3d 110 (2d Cir. 2006). . . . . . . . . . . . . . . . . . . . . . 36
United States v. Fagans, 406 F.3d 138 (2d Cir.2005). . . . . . . . . . . . . . . . . . . . . . 47
United States v. Flowers, 55 F.3d 218 (6th Cir. 1995). . . . . . . . . . . . . . . . . . . . . . 29
United States v. Frydenlund, 990 F.2d 822 (5th Cir. 1993). . . . . . . . . . . . . . . . . . 29
United States v. Giovanelli, 464 F.3d 346 (2d Cir. 2006). . . . . . . . . . . . . . . . . . . 46
United States v. Guang, 511 F.3d 110 (2d Cir. 2007). . . . . . . . . . . . . . . . . . . . . . 37
United States v. Harris, 79 F.3d 223 (2d Cir. 1996).. . . . . . . . . . . . . . . . . . . . . . . 34
United States v. Jones, 460 F.3d 191 (2d Cir. 2006). . . . . . . . . . . . . . . . . . . . . . . 46
United States v. Marcus, 538 F.3d 97 (2d Cir. 2008). . . . . . . . . . . . . . . . . . . . . . . 34
United States v. Marcus, 628 F.3d 36 (2d Cir. 2010). . . . . . . . . . . . . . . . . . . . . . . 34
United States v. Orton, 73 F.3d 331 (11th Cir. 1996).. . . . . . . . . . . . . . . . . . . . . . 30
United States v. Parris, 573 F. Supp. 2d 744 (E.D.N.Y. 2008). . . . . . . . . . . . 48, 49
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United States v. Pescatore, ___ F.3d ___, 2011 WL 644150 (2d Cir. Feb. 23, 2011) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43, 45
United States v. Preasley, 628 F.3d 72 (2d Cir. 2010). . . . . . . . . . . . . . . . . . . . . . 46
United States v. Rutkoske, 506 F.3d 170 (2d Cir. 2007).. . . . . . . . . . . . . . . . . . . . 37
United States v. Silkowski, 32 F.3d 682 (2d Cir. 1994). . . . . . . . . . . . . . . . . . . . . 44
United States v. Scheele, 231 F.3d 492 (9th Cir. 2000). . . . . . . . . . . . . . . . . . . . . 38
United States v. Van Alstyne, 584 F.3d 803 (9th Cir. 2009).. . . . . . . . . . . . . . 28, 30
STATUTES AND GUIDELINES
18 U.S.C. §1348. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
18 U.S.C. §3664. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
18 U.S.C. §3663A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
USSG §2B1.1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23, 28, 29, 39, 41
OTHER AUTHORITIES
In re Gerson Asset Management, 2005 WL 3287956 (SEC Admin. Proceeding Dec. 2, 2005). . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SEC v. Lyons, SEC LR 15842 (Aug. 12, 1998). . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SEC v. Bond, SEC LR 17099 (Aug. 10, 2001). . . . . . . . . . . . . . . . . . . . . . . . . . . 25
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1. A "corrected" judgment was filed on June 18, 2010 (A582), whichdiffered from the May 2010 judgment (A576) only to the extent of representingthat Motz had pleaded guilty to the second superseding indictment, not the first.
1
PRELIMINARY STATEMENT
Appellant George M. Motz appeals from A) a judgment of the United States
District Court for the Eastern District of New York, entered on May 13, 2010,
convicting Motz upon his plea of guilty to one count of securities fraud (18 U.S.C.
§1348(1)), and sentencing him to, inter alia, an eight-year prison term and a
$20,000 fine ("the Judgment"), and B) an order of the same court, entered August1
5, 2010, directing Motz to pay restitution in the approximate amount of $865,000
("the Order") (Spatt, J, on the Judgment and Order). Motz is confined pursuant to
the Judgment, and has been since June 30, 2010.
JURISDICTIONAL STATEMENT
Subject matter jurisdiction in the district court over this federal criminal
prosecution was based on 18 U.S.C. §3231, and this Court has jurisdiction over
the appeals from the Judgment and the Order pursuant to 28 U.S.C. §1291. This is
an appeal from A) the Judgment, entered May 13, 2010, following Motz's
sentencing on April 28, 2010, and B) the Order, entered August 5, 2010. Motz
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filed timely notices of appeal from the Judgment (on May 5, 2010) and from the
Order (on August 17, 2010).
QUESTIONS PRESENTED
1. Did Motz's trade allocation scheme cause or contemplate any "loss" tohis customers and, even if it did, wasn't the loss much less than $2.4 million?
2. Wasn't the number of "victims" less than 50?
3. Must the restitution order be vacated because it did not and could notidentify either the "victims" or their purported losses?
4. Wasn't Motz's eight-year prison term unreasonable?
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2. "Doc. # ___" refers to the documents listed in the district court's docketentries reproduced at A1-14 in the parties' joint appendix; "A" refers to paginationin the parties' joint appendix.
3
STATEMENT OF THE CASE
George Motz, the 69-year-old long-serving and respected mayor of Quogue,
Long Island, and a decorated death-notification officer during the Vietnam war,
was indicted in the Eastern District of New York in August 2008 on one count of
securities fraud (18 U.S.C. §1348(1)) and one count of document alteration (18
U.S.C. §1519). Doc.##1-3. The indictment alleged that Motz, who owned2
under 10% of a Manhattan securities broker-dealer, Melhado Flynn & Associates
("MFA"), conducted a trade allocation or "cherry picking" scheme by which
profitable day trades, i.e., blocks of stock purchased in the morning that rose in
value during the day and were sold at a profit, were often allocated late in the
trading day to MFA's proprietary account and subsequently to the accounts of two
favored hedge fund clients, thereby locking in the profits for the favored accounts,
while losing day trades, i.e., blocks of stock purchased in the morning that
declined in value during the day, were allocated late in the trading day to, and
maintained in, client accounts over which Motz had trading discretion
("discretionary accounts"). In November 2008, a nearly identical superseding
indictment was returned, this time adding MFA as a codefendant. A15-26.
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3. The second superseding indictment (A123) charged only the securities(continued...)
4
The district court dismissed most of the indictment on pretrial motion
(A109-22), but Motz nonetheless pleaded guilty without a plea agreement in
October 2009, entering his plea soon after the court ruled that, pursuant to F.R.Ev.
404(b), the government would be permitted to introduce at trial all of the trades
and other conduct dismissed on pretrial motion. Doc.##55, 60. Following a
Fatico hearing in April 2010 principally devoted to the issue of "loss" under the
United States Sentencing Guidelines ("USSG") (A266-439), the court sentenced
Motz on April 28, 2010, to, inter alia, an eight-year prison term (A548-49), and
later ordered Motz to pay restitution in the approximate amount of $865,000.
A651-53. In June 2010, Motz surrendered to a BOP facility where he remains
confined pursuant to the Judgment.
STATEMENT OF FACTS
A. The Indictment. The first superseding indictment ("the indictment")
charged Motz and MFA with the unlawful trade allocation scheme committed
during the period November 2000 and June 2005, in violation of a securities fraud
statute that only became effective on July 30, 2002, and alteration of documents
committed in September 2003. 3
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3. (...continued)fraud offense, but added 56 additional trades made between June 2003 and June2005, and added a count of criminal forfeiture against Motz alone. In a May 28,2010 addendum (Doc.#119), well after Motz was sentenced, the ProbationDepartment informed the court that it had made an error in the PSR whichwarranted "correction." According to the Probation Office, Motz had actuallypleaded guilty to the second, not the first, superseding indictment. Motz wasnever arraigned on the second superseding indictment, however, and nothing inhis plea allocution indicates that he was pleading guilty to the second supersedingindictment. Accordingly, Motz did not and could not plead guilty to thatindictment nor could he have been convicted under it. See Rules 10 and 11(g),F.R.Cr.P.
5
According to the indictment, Motz, a registered representative and
investment advisor, managed approximately 183 discretionary accounts, and had
exclusive authority to trade for MFA's proprietary or house account. A15-16.
Motz also shared trading authority for two investment funds, i.e., the Third
Millennium Fund and Investment Fund #1 (later identified by the government by
the name of its principal investor, Damon Mezzacappa). A16-17.
The indictment effectively divided the charged scheme into two time
periods: the earlier period (November 2000 to September 2003) charged Motz
with allocating the profitable trades to MFA's proprietary account, and the later
period (June 2003 - June 2005) charged Motz with allocating profitable trades to
the two hedge fund accounts. The indictment alleged that, for the period
November 2000 to September 2003, Motz allocated "losing" day trades near the
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end of the trading day to the accounts of the two hedge funds or the discretionary
accounts or all three. The indictment acknowledged that Motz did not close out
those "losing" trades on the day of purchase, i.e., by selling the securities, but
continued to hold the securities in the discretionary accounts to which they had
been allocated for longer periods. As a result, even the indictment acknowledged
that those so-called "losing" day trades "may have become profitable by the time
they were closed." A19.
According to the indictment, since Motz closed out winning or profitable
trades the same day, and allocated most of those trades to the MFA proprietary
account, those profits were realized virtually risk free. Thus, the indictment
alleged that of the 204 trades Motz allocated to the house account during the
period November 9, 2000 to September 30, 2003, 202 were profitable, realizing a
net profit for that account of approximately $1.4 million. A19.
During the fall of 2003, MFA was investigated by the NASD and the SEC.
According to the indictment, in order to cover up the trade allocation scheme
using MFA's proprietary account, Motz and others at MFA altered trade tickets to
make it appear that those trades had been allocated earlier in the day than they
actually had been. A19-20. As the government would later acknowledge, the
alleged "alteration" conduct (the indictment does not allege "destruction" of
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documents) was committed only at MFA's Manhattan office. Count Two,
charging document alteration in September 2003 in the Eastern District of New
York, was based on those allegations, but the court dismissed that count on venue
grounds. A122.
According to the indictment, in September 2003 Motz ceased allocating
profitable day trades to the house account, and began assigning some of them only
to the accounts of the two hedge funds (Third Millennium and the Mezzacappa
Fund) in order to keep those two funds as satisfied investors. A22-23. The
indictment alleges that, during the period June 2003 and June 2005, Motz assigned
50 "winning" day trades to these two funds. A23.
The government later produced to the defense a list of 1216 trades occurring
between January 2001 and June 2005 which the government identified as the
suspect trades it intended to introduce and prove at trial. A29-55. That list,
which identified both the "winning" trades allocated to the house account (and
later to the hedge funds) and the "losing" trades allocated to the discretionary
accounts over the period covered by the indictment, was the basis for the USSG
"loss" calculation advanced by the government.
B. Pretrial Motions. Motz moved in July 2009 to dismiss the
indictment on grounds of the statute of limitations, lack of venue, unconstitutional
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vagueness, and the Ex Post Facto Clause. Docs.## 48-52. In a reported decision
dated August 14, 2009, the district court granted Motz substantial relief. A109-22.
For example, the district court held that 18 U.S.C. §1348 was not a continuing
offense, so that the trade allocations occurring more than five years before the
return of the indictment, i.e., before August 27, 2003, were time-barred. As a
result, 638 of 1216 trades were outside the limitations period (before August 27,
2003) and could not be prosecuted. Doc. #48 at 21; A120. Moreover, upon the
government's concession that all of the "alteration" conduct occurred at MFA's
Manhattan office, the court also dismissed Count Two on venue grounds. As a
result, what began as a two-count indictment charging a securities fraud scheme
committed over a five-year period and involving more than 1200 questioned trades
became, after pretrial motions, a one-count indictment charging a two-year scheme
involving less than half the original number of suspect trades.
C. Motz's Guilty Plea. On October 13, 2009, within a month of the
court's Rule 404(b) decision permitting the government to introduce at Motz's trial
on the remaining transactions all of the otherwise time-barred transactions (Doc.
#60), Motz entered a guilty plea, without a plea agreement, to the trade allocation
scheme charged in Count One. His plea allocution, interrupted several times to
permit him to confer with counsel (A160, 167), did not go smoothly. The
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experienced district judge would later describe Motz's plea as "one of the longest
pleas I had." A515. For example, at the beginning of the proceedings the
government agreed that Motz was entitled to a three-level reduction for acceptance
of responsibility; by the end of the proceedings the government had "revise[d] its
opinion on three points for acceptance of responsibility" (A159, 186), and at
sentencing urged the court, unsuccessfully, to deny Motz any USSG reduction for
acceptance of responsibility. A449-51, 508-13.
During his allocution, Motz readily admitted that his scheme was designed
to benefit MFA's proprietary account (A178), and that he "put the preponderance
of profitable day trades into the proprietary trading account [of MFA]." A181. As
Motz put it, "I'm accepting full responsibility for [allocating] the high percentage
of profitable day trades into the firm trading account" (A183), but Motz denied
that he did or intended to hurt any of his clients. Motz insisted several times
during the plea proceedings that the day trades were "not appropriate for the client
[accounts]" (A181), and that unprofitable trades allocated to client accounts were
held for substantial periods until sold (almost always at a profit), "because [these]
clients were not day traders. They were investors." A183.
Indeed, even though the government repeatedly notified them that they were
victims of Motz's scheme and therefore entitled under the Crime Victims Act to
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4. At least five persons on the government's "victim" list wrote letters ofsupport for Motz, including Charles Mott, Ben Carter, David Genser, Tobe Intrieriand Susan Sayer. Compare A597-615 with Doc. #89 Exhibit C.
5. The complaining letter-writer (Kennedy) wrote on behalf of his elderlymother, but failed to acknowledge that his mother's account, managed by Motzover many years, made profits of some $11 million, an analysis performed by adefense expert (Sikowitz) which the government did not dispute. A529-30, 624.
10
attend all proceedings, to be heard at sentencing, and possibly even to receive
restitution (Doc. #89 Exhibit Z), some of Motz's supposedly victimized clients
actually wrote letters of support for him at sentencing, and only one customer4
bothered to complain. None appeared at sentencing. A464, 534.5
Nevertheless, by the end of the lengthy plea proceedings, and upon
government agreement that Motz had admitted an offense under 18 U.S.C. §1348
(A186), the district court accepted Motz's guilty plea to securities fraud in
satisfaction of the only remaining count of the indictment. A187.
D. The PSR and Motz's Objections. In its Pre-Sentence Report
("PSR"), the Probation Office revealed that, while the government presented a list
of 240 "victims," the government "is unable to identify the losses suffered by each
victim." PSR ¶11. Nevertheless, the PSR calculated Motz's total offense level at
35 in Category I (168-210 months), driven largely by the PSR's adoption of the
government calculation that Motz had caused his discretionary clients, who totaled
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more than 50 (4-levels), a combined "loss" of about $2 million (16 levels). The
PSR also reflected the government view that Motz should receive no reduction for
acceptance of responsibility.
In his sentencing memorandum (Doc. #89), Motz objected to, inter alia, the
PSR's "loss" and "number of victims" calculations; he contended there was no
"loss" and no victims within the meaning of the USSG. Motz's own USSG
calculation produced a total offense level of 11 (including a two-level reduction
for acceptance of responsibility), with a USSG range of 8-14 months before
considering Motz's arguments for downward departure on grounds of, inter alia,
age and military and public service.
E. Fatico Hearing and Post-Hearing Submissions. With no plea
agreement because the parties were advancing dramatically different "loss"
calculations, the district court held a Fatico hearing before sentencing. Both sides
introduced expert reports and testimony, and made post-hearing submissions.
1. The Government Expert. The government's expert, Lawrence
Harris, a professor of finance at the University of Southern California and for two
years the chief economist for the SEC (A211-12), acknowledged on cross-
examination that he was not and never had been a registered representative or
investment advisor; had never supervised retail accounts like MFA's discretionary
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accounts; had not reviewed the new account opening statements for the
discretionary accounts at issue in this case; did not review the investment
objectives of the customers reflected in their new account opening statements; did
not review the risk profile of the discretionary account customers; and therefore
had "no idea" whether any of the purported victimized customers had authorized
Motz to engage in day trading in their accounts; did not know if any of the
discretionary accounts were margin accounts; did not know the amount of the
commissions that MFA charged its customers for executing trades; had not
attempted to satisfy the obligation of a broker or trader to "know the client"; in
conducting his analysis in this case, had not put himself in the shoes of an
investment advisor for MFA's customers; did not analyze how the subject stocks
performed two weeks or more after the day of trade; did not know whether the
1200 or so subject trades were discretionary or directed trades; and conceded that
some of those trades may not have been discretionary trades at all, "in which case
my evidence would have been less conclusive for the government." A332-38,
343, 350-51). Finally, Harris claimed that he had not attempted to address or
answer the defense expert's report or conclusions. A343.
Over the three years Harris had worked on the issue of loss in this case, first
for the SEC in 2007 and then for the government (A344-45), culminating in an
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"Addendum" submitted two days before the Fatico hearing, Harris repeatedly
modified his theory of loss. Initially, Harris theorized that "loss" in this case could
be measured by the profits realized by MFA's proprietary account and later the
accounts of the two hedge funds. While Harris never abandoned that theory, the
district court rejected it at sentencing. A488. The newer and alternative "loss"
theory advanced by Harris, reflected in his Addendum admitted at the Fatico
hearing over defense objection because its tardy production did not give the
defense a sufficient opportunity to analyze it (A271-73), was based on the notion
that the "disfavored" accounts realized a first-day loss amounting to $2.4 million
resulting from the difference between the higher price at which Motz purchased
the stock in the morning and the lower price of the stock when he allocated it to
the discretionary accounts. A310-17, 486-88. In other words, two days before
the Fatico hearing, Harris finally discovered that the "loss" from a "cherry
picking" scheme comes about because
[i]n effect, the purchase is actually taking place at thetime of assignment, not at the original time [of purchase]in the morning, and so they [the discretionary accounts]are paying a higher price than they should for thesecurities that they're receiving.
A284.
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6. Harris's Addendum also increased the amount of loss by approximately$1.2 million, to a total of $3.6 million, on the assumption that the discretionaryaccounts were charged $.10 a share per transaction for investment advisoryservices they did not receive from Motz, when the $.10 figure was actually thenormal execution cost per share for any MFA trade. A264, 352-53. The courtrejected Harris's additional $1.2 million loss figure. A488-89.
14
Whatever the theory, Harris always insisted that the discretionary accounts
suffered a loss, a conclusion he adhered to despite the fact that 1) a highly
respected and knowledgeable defense expert refuted Harris's theories; 2) most of
Motz's discretionary accounts made money over time on the questioned trades; 3)
some of the accounts were not discretionary accounts at all, and therefore could
not be part of the charged scheme; and 4) under any fair and proper system of
allocating trades, some of the "losing" trades would have been allocated to the
discretionary accounts in any event, assuming those accounts were amenable to
day trades in the first place (and they weren't). A260.
Moreover, in his last-minute Addendum, Harris acknowledged that his
original reports were based on an erroneous "simplifying assumption when
computing the damages" (A255), which Harris claimed to have cured in the
Addendum by exercising "more discipline in the production of the addendum than
previously." A348. According to Harris, his Addendum contained his most
accurate "loss" figure, $2,409,311. A255, 356.6
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15
2. The Defense Expert. Charles Porten, a defense expert, was the
president of his own investment advisory firm, a Harvard Business School
graduate, and a chartered financial analyst with 31 years of experience in the
investment management industry, including as chief investment officer of
Citibank's Global Private Bank. In his expert report dated January 7, 2010 (A192-
209), Porten concluded that Harris's initial loss calculation of $2,164,869 million,
based on Harris's theory that loss could be measured by the profits earned by the
"favored" accounts on the first day, was "grossly overstated" because it failed to
take into account transaction costs, taxes, the cost of liquidity to make the
purchase, e.g., sale of stock or borrowing, and the fact that day trading was
inappropriate for the discretionary accounts. Porten concluded that "a more
realistic number for the 'profit' [if allocated to the discretionary accounts] would
be a loss of $131,236." A197 (emphasis added).
Of course Porten had no opportunity to address in his report Harris's new
theory of loss, i.e., the same-day difference between purchase price and allocation
price, because Harris only offered his new theory on the eve of the Fatico hearing
while Porten's report had been submitted months earlier and in response to Harris's
original and outdated report. It was not until the Fatico hearing that Porten had
the opportunity, albeit a limited one, to comment not only on Harris's testimony at
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16
the hearing, but Harris's new theory which in the end was the theory of loss the
court adopted.
For example, Porten testified uncontradicted that most of Motz's clients
made money on the questioned trades because Motz bought "blue chip" stocks that
inevitably appreciated in value after the first day. A381. According to Porten's
analysis, during the sample year of 2004, 83% of the questioned trades became
profitable within one week, and 88% became profitable within two weeks. Id. In
other words, Porten insisted that
the first day's loss is irrelevant . . . [since] the trades thatshowed a loss after day one were not closed out after dayone. There was no realized loss to the client. Thosetransactions stayed in the account.
A381. Porten concluded that most of the questioned trades allocated to the
discretionary accounts "worked out well [for the customers] in a reasonably tough
economic environment and paid dividends along the way." A382.
In short, Porten insisted that, while he was "not disputing that cherry
picking was a fraud," it was a fraud in which "there is no loss to the clients, just a
gain to the favored accounts." A400-01. In reaching his conclusion, Porten
rejected Harris's assertion that Motz's trading scheme was a "zero sum game" in
which profits improperly allocated to favored accounts came from or resulted in
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7. Motz also introduced the expert report of Jonathan Macey, the SamHarris Professor of Corporate Law, Corporate Finance and Securities Law at theYale Law School, and a professor in the Yale School of Management, who wasprepared to testify, inter alia, that the day trades allocated to the proprietary andhedge fund accounts "would have been wholly inappropriate for the RetailAccounts" (Doc.#89 Exhibit U), but Macey did not testify at the Fatico hearing.
17
losses in the disfavored accounts. A318-19. According to Porten, "The gains [to
the favored accounts] were from different transactions . . . The private clients
weren't on the other side of those trades. The zero sum game doesn't apply."
A401.7
After the Fatico hearing and two days before sentencing, both sides made
simultaneous submissions addressing the testimony at the hearing and the issue of
loss (and the related issue of the number of victims). A442-46 (government);
A454-57 (Motz). Counsel for Motz contrasted Harris's shifting positions with
Porten's consistent position that the discretionary accounts suffered no loss from
Motz's trade allocation scheme.
F. Sentencing. At Motz's sentencing on April 28, 2010, and over
government objection, the court gave Motz a two-level reduction for acceptance of
responsibility. The court also rejected the government's eleventh-hour argument
that the loss caused by Motz should include an additional $1.3 million based on
the advisory fees the discretionary accounts had paid, a loss the court found
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18
unsupported. Finally, the court rejected Harris's original theory that the loss
caused by Motz was equivalent to and could be measured by the profits earned by
the "favored" accounts. A488-89, 519.
At the same time, the court rejected Motz's argument that the charged
victims suffered no loss. Instead, the court adopted Harris's loss figure of
approximately $2.4 million based on Harris's newer theory that the discretionary
accounts had lost the amount by which the subject stocks had declined in value on
the day of trade from the time they were bought in the morning until allocated to
the discretionary accounts near the end of the trading day. A488. The court also
rejected the defense's related objection to the government's list of 240
discretionary account "victims" to whom "losing" day trades had been allocated,
thereby increasing Motz's total offense level by 4-levels for more than 50 victims.
A496. Finally, the court enhanced Motz's sentence by 2-levels for obstruction
based on Motz's "destruction" of trading records, although Motz had only been
charged with altering records, and there was no evidence he had destroyed any
records. A502-04.
Based on its findings, the court calculated Motz's total offense level at 33
(135-168 months), imposed a prison sentence of 96 months and a $20,000 fine,
left the amount of restitution for later determination and, over government
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8. MFA, which was moribund, also pleaded guilty and was sentenced to aterm of probation.
19
objection, permitted Motz to self-surrender to a designated BOP facility. A548-
49, 565.8
G. Restitution. By decision and order dated August 5, 2010 (A651-53),
the district ordered Motz to pay restitution in the amount of $864,806, a figure
calculated by Harris based on the timely trades allocated to the discretionary
accounts, i.e., trades occurring after August 27, 2003. In so holding, the court
"decline[d] Motz's invitation to revisit victim loss issues that were decided during
the Fatico hearing." A652. In particular, the court rejected Motz's argument that
restitution to customers who ultimately profited from the trades allocated to their
accounts would amount to a "windfall." A624. The court did agree to stay Motz's
obligation to pay restitution pending this appeal. A.656-58.
SUMMARY OF ARGUMENT
I. The court erred in determining a USSG "loss" figure of $2.4 million
because it failed to offset the loss by profits Motz made for the charged "victims"
after the first day paper losses from his "cherry picking" scheme. In any event,
the loss was far less than $2.4 million because the court failed to consider or
resolve, inter alia, the ex post facto implications of basing "loss" on the violation
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20
of a statute that did not take effect until two a half years after the scheme allegedly
began, and the government expert's concession that his estimate, which the court
adopted, had a 40% margin of error, which is not a "reasonable estimate" for
purposes of determining "loss."
II. For much the same reasons, the court erred in concluding that Motz's
scheme victimized 240 persons. In fact, the government failed to prove the
existence of any victims. Certainly the number of "victims" found by the court is
intolerably unreliable because the court did not consider or resolve such factors as
1) the victim list included non-discretionary accounts which were not part of the
charged scheme; 2) the victim list double counted the victims who had several
accounts; 3) the victim list did not take into account the ex post facto implications
of calling someone a victim based on conduct occurring before the effective date
of the statute; and 4) the list included accounts that received no allocation of
block trades and therefore could not have been part of the scheme.
III. The court's restitution order is invalid because it fails to identify any
victim or the amount of restitution to which any victim was entitled, in plain
violation of the restitution statute. The fundamental defects in the order should
come as no surprise not only because many, if not all, of the 240 names on the
government's list were not victims at all, but because the government conceded it
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21
could not identify "the losses suffered by each victim," as the statute requires in
order to avoid a windfall to "victims" who suffered no loss.
IV. An eight-year prison term for a 69-year-old man with an unblemished
record and a history of honorable military and public service is unreasonable
where the "victims" of his trade allocation or "cherry picking" scheme actually
profited from the trades allocated to their accounts.
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22
ARGUMENT
Introduction. Without appellate review and relief, this case presents a
cautionary tale of the bizarrely onerous results the USSG regime, which largely
drove Motz's harsh sentence, is capable of producing when confronted with
securities schemes like this one raising new issues or garden-variety issues in
unusual contexts. We start with the proposition that George Motz, the married
father of five, was the long-serving and respected mayor of Quogue until he
resigned after he pleaded guilty, and was decorated for his service to his country
during the Vietnam war. By some lights, these facts alone could make his eight-
year sentence seem at least puzzling. But there's more. Motz's two-count
indictment was largely eviscerated on pretrial motion, although he nonetheless
pleaded guilty soon after the government won its Rule 404(b) motion.
Even during his guilty plea and after, Motz continued to deny that he had
caused or intended to cause any loss to the charged victims, i.e., the discretionary
accounts to which he allocated same-day losing trades. There was good reason
for Motz's resistence. It was undisputed that the overwhelming majority of the
questioned same-day trades allocated to client accounts ultimately made a profit.
Indeed, despite being told repeatedly by the government that they were "victims"
of Motz's scheme, there is no indication in the record that any significant number
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23
of customers considered themselves "victims." Some even wrote to the court to
urge leniency for Motz at sentencing.
Motz's plea amounted to an admission that he used his clients' accounts
without their knowledge as a vehicle to carry out a trade allocation scheme by
which MFA's house account (and later two favored hedge funds) were assured of
making money by the allocation to those accounts of only profitable day trades.
Implicit in Motz's allocution was the admission that he caused his discretionary
accounts to pay for trades that were not intended for their benefit, but were
allocated to them, and paid for by them, only because the stocks had declined in
value on the day of purchase, and Motz did not want to assign losing trades to the
house account. Certainly Motz has never attempted to deny his guilt of the
charged fraud.
But an admitted securities fraud scheme does not necessarily mean that the
discretionary accounts suffered financial "loss" within the meaning of the USSG.
On the contrary, the USSG recognizes that actual or intended loss, e.g., in a check
kiting or Ponzi scheme, can be mitigated or reduced by credits, gains or
repayment. USSG §2B1.1, comment. (n. 3(E)).
Here, whatever the "same day" loss, the stocks allocated to the discretionary
accounts indisputably and usually became profitable, generally within a relatively
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24
short time after purchase. And that is what differentiates this case from every
other reported "cherry picking" case. If the government had identified
discretionary accounts that lost money when the stocks Motz allocated to them
were sold, perhaps that "loss" would have been a real "loss" for purposes of the
USSG. But neither the government nor its expert ever identified such accounts or
trades, no doubt because the government wanted to ignore or obscure the critical
fact that the supposed victims actually made money overall from the charged
trades.
In short, the government did not carry its burden of proving the $2.4 million
loss figure adopted by the district court. And if there was any USSG "loss" — and
Motz argues on this appeal, as he did below, that the government proved no loss
— it was certainly much less than the $2.4 million accepted by the district court.
The case should be remanded for resentencing.
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9. Compare, e.g., In re Gerson Asset Management, 2005 WL 3287956(SEC Admin. Proceeding Dec. 2, 2005) (personal gain of over $200,000; loss toclients of at least $150,000); SEC v. Bond, SEC LR 17099 (Aug. 10, 2001)(personal gain of $6.6 million; loss to clients of $57 million); SEC v. Lyons, SECLR 15842 (Aug. 12, 1998) (personal gain of $929,000; loss to clients of$416,000). In none of the cited cases, nor in any other reported decisioninvolving a cherry picking scheme, was the loss measured by the first day tradinglosses. Moreover, there was no question in the cited case that the offendinginvestment advisors or fund managers profited at the expense of their customers. In short, Motz's case is sui generis.
25
POINT I: MOTZ'S TRADE ALLOCATIONSCHEME NEITHER CAUSED NORCONTEMPLATED "LOSS" TO HIS CUSTOMERSAND, EVEN IF IT DID, THE LOSS WAS MUCHLESS THAN $2.4 MILLION
A. No Loss. This case raises a new and important question of law about
how to calculate "loss" under the USSG in a trade allocation scheme. What
makes the issue new, and what causes the government serious conceptual and
practical problems, is the fact that, unlike all other reported cherry picking cases,
Motz's scheme indisputably made money for most of his allegedly victimized
customers, just not on the day of the trade. Thus, the government concocted a9
"loss" that was purely theoretical and artificial, providing only a misleading
freeze-frame that did not reflect the kind of actual or intended "loss" the USSG
requires before enhancing the offense level as dramatically (16 levels) as the court
did in this case.
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10. In something of an understatement, the government offered what itconceded was an "extreme" hypothetical example that, in the government's view,"best makes the point." A443. The example involved 100,000 shares of bankstock purchased at $10/share in the morning, but as a result of news during the daythat the bank's officers had been indicted, the share price tumbled to $1/share bythe end of the day when the stock was assigned to a discretionary account, creatinga paper loss of $900,000 for the day. According to the government, no matter howmuch the stock rebounded in the days and weeks afterwards, the discretionaryaccount would never make up the $900,000 first-day paper loss.
26
In the face of undisputed actual profit or gain in this case, the government
understandably had a hard time articulating a theory of "loss." The best it could
do, over months and months of effort, change and refinement of its position, was
the assertion that, no matter how much the discretionary accounts ultimately
profited from Motz's scheme, they would never recover the first-day price
differential between the supposedly higher opening price the discretionary
accounts paid for stock and the lower price at the time the stock was allocated to
them later in the day. A443-46. In other words, according to the government,
"the question now before the Court [after the Fatico hearing] is how to measure
the first day losses." A442 (emphasis added). 10
No court has ever before accepted or adopted the government's theory, i.e.,
that same-day paper losses are the equivalent of actual loss under the USSG, and
for good reason. The law is clear that USSG "loss" is not to be determined on
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27
such an artificial basis, one that fails to take into account developments after the
first day.
First, by limiting the scheme to "first day losses," the government impliedly
acknowledges that Motz's purchases made profits for the discretionary accounts
exceeding first day losses. Indeed, the indictment says so (the "losing" trades
"may have become profitable by the time they were closed"). And Motz's expert, a
highly reputable and experienced market professional, concluded, without
contradiction or question by the government or its expert, that the overwhelming
number of questioned trades were ultimately profitable: the questioned trades had
"worked out well [for the customers] in a reasonably tough economic environment
and paid dividends along the way." Had the trades lost money after the first day,
this Court can be sure that the government would have sought to hold Motz
accountable and punish him for those losses.
Equally important, despite the defense's uncontradicted argument that the
discretionary accounts were unsuitable for day trades, the government's "loss"
theory was predicated on the baseless and erroneous proposition that the same day
allocations were suitable in light of the investment objectives and risk profiles of
the discretionary accounts, factors that the government expert conceded he had not
looked into, and that the loss lay merely in charging those accounts a higher price
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11. USSG §2B1.1, comment. (n. 3(E)(i) & (ii)) provides in relevant partthat loss "shall be reduced" by "the money returned and the fair market value ofthe property returned and the services rendered, by the defendant or other personsacting jointly with the defendant, before the offense was detected" or by "theamount the victim has recovered by the time of sentencing from disposition of thecollateral [pledged or otherwise provided by the defendant]." Commentary note3(F)(iv) provides that, "in a Ponzi or otherwise fraudulent investment scheme, gainto an individual investor in the scheme shall not be used to offset the loss toanother individual in the scheme," but gain to the individual investor offsets hisown losses. United States v. Van Alstyne, 584 F.3d 803, 817-18 (9th Cir. 2009).
28
than they should have paid, i.e., the higher purchase price as opposed to the lower
price when the stock was allocated to the discretionary accounts.
In other words, the owners of Motz's discretionary accounts would not
likely have authorized his use of their money to purchase stock for their own
accounts to facilitate a trade allocation scheme designed to benefit the house
account or a few favored customers. It was the purchase price of the stock paid for
by the discretionary accounts for a purpose they presumably had not authorized
that constituted the "loss" caused by the scheme to which Motz pleaded guilty.
The government conspicuously ignores this more natural and rational theory
of loss because, if the scheme and its consequences are not hermetically sealed on
the first day, as the government theorizes, the USSG would recognize the fair
market value of any off-setting gains or credits. USSG §2B1.1, comment. (n.
3(E)(i) & (ii) and 3(F)(iv)). 11
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29
For example, in a check kiting scheme, while the USSG could have
calculated the loss as the face amount of any kited check, in fact the "loss" in such
a scheme is based on the actual loss the lender suffers by or after the time of
detection, less any funds available to the lender to offset the loss. See, e.g., United
States v. Flowers, 55 F.3d 218, 222 (6th Cir. 1995). No additional "loss" is
attributed to the defendant for borrowing the lender's funds or putting those funds
at risk during the kite, where the defendant ultimately makes good on the kited
check before the kite falls and the scheme unravels. USSG §2B1.1, comment (n.
3(D)(i)("Loss shall not include . . . interest of any kind); United States v.
Frydenlund, 990 F.2d 822, 826 & n.5 (5th Cir. 1993) (rejecting government
argument that check kiting loss is sum total of kited checks; instead, loss is net
loss when scheme unravels).
Similarly, in a Ponzi scheme, "loss" is measured by a victimized investor's
actual loss at the time the scheme unravels, not the theoretical or risk of loss when
he first invests in the fraudulent scheme. If the investor receives the promised
return on his investment, even from later victims of the scheme, he has not
suffered a loss within the meaning of the USSG:
[I]ndividuals who receive a 'return' or break even on their'investments' are not victims for purposes of 2F1.1. Atmost, they are unwilling pawns in the Ponzi scheme.
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These individuals may be exposed to a risk of harm bythe Ponzi scheme, but the risk of harm should not beconsidered in estimating the loss under § 2F1.1.
United States v. Orton, 73 F.3d 331, 334 (11th Cir. 1996), adopted by the USSG in
App. C, Amend. 617. See also Van Alstyne, 584 F.3d at 817-18 ("The notes
accompanying [Amendment 617] . . . make clear that the implication of the new
standard is that returns to investors up to the amount invested do not count as
losses").
Like check kiting or Ponzi schemes, the "loss" in a trade allocation scheme
is the amount paid by the customer for the fraudulently allocated stocks, less the
amount ultimately returned to the customer's account, which in this case was more
than the amount the customer accounts were charged for the purchase, let alone
the amount of the first-day's price differential between purchase and allocation.
A slight variation in the government's hypothetical example demonstrates
the conceptual and practical flaws in the government "same day loss" theory.
Suppose that the bank stock purchased in the morning at $10/share was allocated
at the end of the day when the stock was down only $.25 and was trading at
$9.75/share. The next day, however, when the market had fully absorbed the
news of the indictments of the bank's officers, the stock declined precipitously to
the government's hypothesized $1/share. Under the government's theory, the
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"loss" caused by Motz's scheme would be measured only by the $.25/share first
day differential, not the more dramatic second day loss resulting from the original
fraudulent allocation. But just as Motz might be responsible for all loss caused by
or resulting from his trade allocation scheme, whether the loss occurred on the first
day or two weeks later, he should also be credited with the substantial gains he
realized for his clients after the first day.
Here, the government has never disputed the defense expert's analysis that
nearly all of the subject trades allocated to the discretionary accounts produced a
profit over the period that Motz held the stock. For example, the defense expert
determined that in the sample year of 2004, 83% of the allocated block trades
became profitable in one week and 88% became profitable after two week, in part
because Motz purchased blue chip stocks. Like all other fraudulent investment
schemes, loss in a trade allocation scheme should be based on actual net loss, not
theoretical paper losses. Where, as here, the client accounts actually profited from
the trades, Motz is entitled to have those gains credited against any losses resulting
from his allocation scheme.
For this reason Motz correctly argued below that the government did not
carry its burden of proving "loss," and that his offense level should not have been
enhanced by 16-levels for "loss." No doubt for this reason, too, none of the 240
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32
"victims" turned up at sentencing. On the contrary, at least five of those "victims"
wrote letters to the court supporting Motz.
Accepting Motz's argument concerning "loss" does not mean that he would
go unpunished. Motz never qualified or withdrew his admission of guilt to the
trade allocation scheme, which starts with a base offense level of 7. Nor could
there be any quarrel with a 4-level enhancement because Motz was an investment
advisor (§2B1.1(b)(17)(B)(iii)), a 2-level enhancement for obstruction (§3C1.1),
and a 2-level role enhancement (§3B1.1(c)), resulting in a total offense level of 13
(after deducting 2-levels for acceptance of responsibility), producing a USSG
range in Zone C of 12-18 months.
In short, the district court erred as a matter of law in adopting the
government's artificial and novel theory that produced an illusory $2.4 million
loss, while rejecting Motz's more consistent and persuasive argument that his
scheme caused no actual USSG "loss," nor was it intended to, because his
discretionary clients profited over all from the allocations.
B. Much Less Loss. Even if this Court accepts the government's "day
of trade" theory of "loss," the court's $2.4 million loss calculation was grossly
overstated and erroneous, principally because, as far as the record shows, the
court, like the government and its expert, ignored or failed to consider a number of
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33
undisputed or indisputable defense arguments that substantially reduced the "loss"
calculation.
1. Ex Post Facto. The government's loss calculation, submitted on
the eve of the Fatico hearing and adopted by the court at sentencing, was based on
Motz's 765 block trades between January 4, 2001, and June 28, 2005, broken up
and allocated to discretionary accounts on the day of purchase. A29-45, 215.
The government's expert (Harris) concluded that the loss figure under this new
"day of trade" theory was approximately $2.4 million, the figure the court accepted
and on which it based its 16-level USSG "loss" enhancement.
The district court correctly held on pretrial motion that 18 U.S.C. §1348, the
statute under which Motz pleaded guilty, was not a continuing offense; that each
of Motz's trades in furtherance of the trade allocation scheme was a separate
§1348 offense; and therefore prosecution for trades occurring before August 27,
2003, was barred by the statute of limitations. The court held, however, that
otherwise time-barred trades could be used to determine "loss" under a relevant
conduct theory. As a result, the statute of limitations had no affect in determining
"loss," although it did significantly affect the issue of restitution since restitution
cannot be imposed for a crime for which Motz was not convicted.
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What the court failed to take into account, however, was the fact that §1348
did not take effect until July 30, 2002, and that Motz could not be punished for his
trades before the effective date without violating the Ex Post Facto Clause.
United States v. Marcus, 538 F.3d 97 (2d Cir. 2008) (plain error reversal of two
counts of conviction based on Ex Post Facto Clause violation) (Marcus I),
vacated United States v. Marcus, 130 S. Ct. 2159 (2010), on remand United States
v. Marcus, 628 F.3d 36 (2d Cir. 2010) (reversing conviction on one count on ex
post facto grounds) (Marcus II); United States v. Harris, 79 F.3d 223, 228 (2d Cir.
1996) (defining scope of Ex Post Facto Clause).
Of the 765 block trades relied on by the government, and therefore the
court, 225 occurred before the effective date of the statute (A29-33), and were
therefore barred as a basis for punishing Motz. The loss from these 225 trades,
according to the government's chart, totaled approximately $930,000, the amount
by which the $2.4 million loss figure must be reduced on Ex Post Facto grounds.
In fact, based on Harris's acknowledgments in his Addendum, i.e., that
approximately 314 out of the 765 block trades "may not have been subject to the
fraud" (A260) (see Point I-B-2, infra), the nearly $1 million reduction based on Ex
Post Facto principles could well have reduced the "loss" to a lower category than
the "more than $1 million" category upon which the court settled. §2B1.1(b)(1)(I).
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Even if removing nearly $1 million, by itself, would not have reduced
Motz's offense level, it surely would have favorably affected the court's view of
Motz and his offense, and would likely have resulted in a lower sentence.
2. Intolerable Ambiguity. In his Addendum, the government's
expert, Professor Harris, made a startling admission:
[S]ome of the trades that I identified as assignable [to thescheme] in fact may not have been subject to fraudulenttrade assignments. . . . Had [Motz] assigned allprofitable trades to the favored accounts, and all othertrades to the disfavored accounts, approximately equalnumbers of trades would have been assigned to both setsof accounts. Instead, 765 trades of the 1216 trades that Iidentified as assignable were assigned to the disfavoredaccounts while only 451 were assigned to the favoredaccounts. Thus, approximately 314 (765 minus 451)trades assigned to the disfavored accounts may not havebeen subject to the fraud.
A260 (emphasis added). Thus, by his own admission, the government's expert,
whose loss figure was adopted by the court, recognized that about 40% of the 765
trades he allocated to Motz's scheme may not have been part of the fraud at all.
In other words, Harris acknowledged the possibility that, even without
Motz's trade allocation scheme, 40% or more of the "losing" trades would have
been allocated to the discretionary accounts in any event. Losses to accounts not
attributable to the scheme cannot be laid at Motz's doorstep for purposes of
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12. In his plea allocution, Motz admitted that "there were times when Iwould purchase block trades in the morning, and then monitor the performance ofthese trades during the day. There were occasions when I saw these trades weremaking a profit. I took the profits from those trades to benefit the firm'sproprietary trading account." A177-78. Similarly, the indictment alleges that"[a]s part of the scheme, Motz frequently submitted orders to purchase securitiesto the MFA trading desk in the morning." A18.
36
sentencing under the USSG. United States v. Ebbers, 458 F.3d 110, 128 (2d Cir.
2006) ("[l]osses from causes other than the fraud must be excluded from the loss
calculation").
The high percentage of trades that Professor Harris may have improperly or
erroneously assigned to the scheme is not chimerical or illusory. As reflected on
the government's chart of all questioned trades, by at least the beginning of April
2004 the government was able to track the time of Motz's block purchases. A39-
44, 48-50. Even a cursory review of the government's chart reveals that many of
those block purchases were made in the afternoon of the trading day — in fact,
approximately 47% of the listed trades whose time of purchase was identified on
the government's chart were not made in the morning but in the afternoon and
therefore closer to the time of allocation — a pattern which is inconsistent with the
scheme charged in the indictment and Motz's guilty plea allocution.12
Similarly, Harris acknowledged that he never bothered to determine whether
the client accounts which he included as part of the scheme were actually non-
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37
discretionary accounts. Harris passed off this gaping hole in his analysis by
breezily conceding that, if some of Motz's questioned trades were not discretionary
trades at all, "my evidence would have been less conclusive for the government."
A332-38, 343, 350-51.
True, the USSG recognizes that determining loss is often a complicated
matter, and therefore courts are permitted to estimate loss rather than determine it
with an accountant's precision. USSG §2B1.1, Comment. (n. 3(C)); United States
v. Guang, 511 F.3d 110, 123 (2d Cir. 2007) ("A district court need not establish
the loss with precision but rather need only make reasonable estimate of the loss,
given the available information"); United States v. Rutkoske, 506 F.3d 170, 179
(2d Cir. 2007). Nevertheless, a margin of error of 40% or more is not a
"reasonable estimate," but a stab in the dark, and an arbitrary, unsatisfactory and
ultimately unlawful basis on which to deprive a defendant of his freedom. Cf.
United States v. Scheele, 231 F.3d 492, 499 (9th Cir. 2000) (like "loss," the USSG
permits drug quantity to be estimated; but where court estimates, it must consider
the margin of error in its methodology before determining quantity, and
approximated quantity should then be compared to USSG "break points": "If
taking the margin of error into account and erring on the side of caution would
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13. While Harris tried to pass of this intolerable ambiguity as merelymeaningless background "noise" which did not bias his conclusions since "gainersare approximately equally likely as losers, so that the gainers will offset the losers"(A261), his reasoning is illogical and unpersuasive. Based on Harris's logic, thereshould have been an equal number of "losers" as "winners" among allocations toMotz's discretionary accounts. But a review of those trades shows that there arefar more same-day losers than winners (A29-45), suggesting that a highpercentage of those losers had nothing to do with the scheme. Equally plausible,the supposedly off-setting "winners" were never reflected on the chart since Harrisadmitted that he "undoubtedly" did not identify all client trades that wereassignable to the scheme. A260. Thus, Harris's attempt to soft pedal a 40%margin of error by calling it merely background "noise" is unconvincing. Histheory that "gainers" will offset the "losers" is at odds with the facts.
38
reduce the defendant's base offense level to the next lowest level, the court must
do so").13
Accordingly, the case should be remanded for resentencing without a "loss"
enhancement or at least for recalculation of the "loss" enhancement, taking into
account, inter alia, the effective date of 18 U.S.C. §1348 and the high percentage
of trades that had nothing to do with the scheme.
POINT II: THE NUMBER OF "VICTIMS" WAS LESS
THAN 50
Over Motz's objection (Doc. #89 at 30-31; A467, 490), Motz received a 4-
level enhancement under USSG §2B1.1(b)(2)(B) for causing loss to more than 50
"victims." A496. The court found the government had established that the
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14. For example, the "victim" list reflects two accounts, one in the name"Renee Karas Crames" and the other in the name of "Renee Karas__Crames, 12
(continued...)
39
offense "involved the 240 victims set forth in the Pre-Sentence Report, and the
offense level was properly increased by four levels." Id.
Of course, the defense had argued before and at sentencing that Motz's
scheme caused no loss, and therefore no "victims," or at least that the government
had not carried its burden of proving otherwise. See Point I-A, supra. If the
defense argument is accepted by this Court, Motz's offense level would have to be
reduced by 4-levels, i.e., less than 10 victims. USSG §2B1.1(b)(2)(A).
Even assuming, however, that this Court upholds the government's "day of
trade" theory of loss, the number of "victims" found by the district court is still
intolerably unreliable because of the many important factors the court appeared
not to consider and certainly did not resolve. Counsel for Motz pointed out to the
court that the government's list of 240 victims 1) included non-discretionary
accounts which, according to the government's expert, were not part of the
charged scheme although such non-discretionary accounts were figured into his
analysis; 2) included multiple accounts for the same client, sometimes based on
nothing more than variations in the spelling of the client's name, which would not
constitute multiple victims but only one victim; 3) the "victim" list did not reflect14
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14. (...continued)Westfield Road," undoubtedly the same person. A604.
40
the date or dates on which block trades were improperly allocated to the
discretionary accounts, and therefore whether criminal prosecution of the
questioned trade would be barred by the effective date of 18 U.S.C. §1348 (July
30, 2002) and the Ex Post Facto Clause; 4) a number of persons identified by the
government as "victims" actually wrote letters of support for Motz at sentencing,
suggesting that they did not view themselves to be victims, and neither should the
government (Doc. #89 Exhibit C); and 5) the list of "victims" included accounts
that received no allocation of any portion of block trade purchases.
These were serious flaws in the government's list of "victims," and should
have called into question the list's reliability. Having adopted the government's
questionable loss theory, however, the court did not appear inclined to make nice
distinctions as to who was or was not an actual victim. The two concepts (loss
and victim) are not synonymous, however, because the court is entitled to estimate
loss, while identifying victims, whether for the USSG or for restitution, requires
precision since the USSG contains a precise definition of "victim," i.e., "any
person who sustained any part of the actual loss . . . as a result of the offense."
USSG §2B1.1, comment. (n.1).
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41
This case is no different from United States v. Arnaout, 431 F.3d 994, 999
(7th Cir. 2005), where the Seventh Circuit "could not find proof by a
preponderance of the evidence in the record that at least 50 donors contributed the
amount attributable to [the defendant]." While there were 17,000 potential victims
of the defendant's scheme in Arnaout, and "it is entirely conceivable that of the
over 17,000 potential victims, more than 50 contributed to the $300,000" loss
attributable to the defendant (id.), the Arnaout court was persuaded by the
defendant's argument that the district court had "failed to account for each dollar
diverted and did not trace each diverted dollar back to a specific donor."
Arnaout demonstrates the rigor with which the court is required to
determine the identity or number of victims, and highlights how inadequate and
unsatisfying the record and the court's efforts were in this case.
In short, it is virtually certain that there were fewer than 240 victims of
Motz's trade allocation scheme. Indeed, the indictment alleges that Motz
supervised or managed only 186 discretionary accounts, so it is hard to understand
how there could ever be 240 victims. And it is probable that there were less than
50 victims. If so, Motz's 4-level enhancement for more than 50 victims would
have to be reduced by at least two levels. If this Court accepts Motz's argument
that no loss occurred, there would be no victims at all within the meaning of the
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42
USSG. At the very least, the record demonstrates that the government failed to
carry its burden of establishing the requisite number of victims for the 4-level
enhancement imposed on Motz.
POINT III: THE RESTITUTION ORDER MUST BEVACATED BECAUSE IT DID NOT AND COULDNOT IDENTIFY EITHER THE "VICTIMS" ORTHEIR PURPORTED "LOSSES"
Over government objection, the district court wisely granted a stay of
Motz's restitution obligation on the ground that "the loss issue was vigorously
litigated and . . . Motz should be given an opportunity to test [the court's] finding
on appeal before he is required to make this [$864,806] restitution payment."
A657. In fact, even apart from the "vigorously litigated" loss issue, the court's
restitution order must be vacated because it contains none of the precision the
statute demands.
We start with the fact that the restitution order nowhere identifies the
victims to whom restitution is owed and the amount of restitution each victim is to
receive. A651-53. The Mandatory Victims Restitution Act ("MVRA"), 18
U.S.C. §3663A, expressly requires the court to identify in the judgment or
restitution order the identities of the "victims" to whom restitution is to be paid
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15. The MVRA provides in relevant part that it applies to "any offense . . .in which an identifiable victim . . . has suffered a . . . pecuniary loss." §3663A(c)(1)(B). Moreover, 18 U.S.C. §3664(f)(1)(A) requires that "[i]n eachorder of restitution, the court shall order restitution to each victim in the fullamount of each victim's losses as determined by the court . . . ."
43
and in what amount. As this Court has held: "Identification of victims is a15
statutory prerequisite to the application of the MVRA . . . The court erred in not
identifying them before ordering restitution." United States v. Catoggio, 326 F.3d
323, 328 (2d Cir. 2003). See also United States v. Pescatore, ___ F.3d ___, 2011
WL 644150, at *12 (2d Cir. Feb. 23, 2011) ("§3664(f)(1)(A) required that the
amount of each victim's loss be determined by the district court and included in the
restitution order") (emphasis added). For these reasons alone, the restitution
order must be vacated.
These fatal omissions — the identities of the victims and the amount of
restitution to which they are entitled — are not surprising, and reflect a more
fundamental problem than simply a technical defect in the order. The PSR
disclosed the government's admission that "it is unable to identify the losses
suffered by each victim." PSR ¶11. The government's inability to determine or
identify how much each victim lost and the amount of restitution to which he was
therefore entitled makes any "victim" list meaningless since there is no way to
know whether any particular name on the list actually suffered a loss.
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44
Here, the government produced to the Probation Office, and the Probation
Office provided to the defense, a list of 240 named "victims," but the record fails
to reflect that the district court incorporated, or even saw, that list of names.
Certainly the court's restitution order makes no reference to the list. Moreover,
even the government acknowledge below, albeit grudgingly, based on this Court's
decision in United States v. Silkowski, 32 F.3d 682, 690 (2d Cir. 1994), that
restitution was inappropriate and unauthorized for conduct that was not the basis
of a criminal conviction. A616 ("the defendant is not properly assessed restitution
for victim losses incurred prior to August 27, 2003 — the relevant date for statute
of limitations purposes").
In this case, the "victim" list included persons or accounts who were not
victims for purposes of restitution, including accounts to which no timely trades
were allocated, non-discretionary accounts, or accounts to which no portion of a
block trade was allocated.
Motz argued below, and argues on this appeal, that the trades Motz
allocated to his client accounts overwhelmingly became profitable, generally
within days or weeks of their purchase, and therefore those account holders cannot
be victims for any purpose, including restitution. See Point I-A, supra. Even
assuming, however, this Court finds the government's loss theory to be valid, the
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45
government's theory cannot serve as a basis for determining restitution because,
unlike "loss" under the USSG which does not require identification of particular
victims and permits reasonable estimates of loss, restitution requires precision in
the identification of victims and the amount of loss. Pescatore, supra, 2011 WL
644150, at *10 ("§3663A does not authorize the court to order restitution to
victims in excess of their losses").
Professor Harris admitted in his first Addendum that his calculation of
victim loss had as much as a 40% margin of error. While he may have considered
such an extraordinary possibility of mistake as simply background "noise" when it
came to the issue of "loss" since "the gainers would offset the losers," his analysis
could only apply in gross terms to the group of discretionary accounts as a whole.
It was completely inapplicable and inappropriate for determining restitution where
each "victim" and that victim's loss must be identified.
The government has no idea who the victims are and how much restitution
they are entitled to receive. In fact, for most, if not all, of the "victims," any
restitution would amount to an extraordinary windfall. Furthermore, where, as
here, the "victims" and the amount of restitution to which they are entitled are not
specifically determined and identified, there is no way for the defendant to argue
for and receive the benefit of set offs or credits against restitution to which the
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46
statute entitles him. United States v. Allen, 529 F.3d 390, 397 (7th Cir. 2008)
(court committed plain error when it refused to deduct from restitution the value
that fraud victims may have obtained from defendant).
In short, the district court's restitution order was invalid because it failed to
identify the victims or their particular, individualized losses, critical omissions for
restitution purposes which the government concededly has no way of determining.
The restitution order should be vacated.
POINT IV: MOTZ'S EIGHT-YEAR PRISONTERM IS UNREASONABLE
After United States v. Booker, 543 U.S. 220 (2005), this Court reviews
sentences for substantive and procedural "reasonableness." United States v.
Giovanelli, 464 F.3d 346, 354-55 (2d Cir. 2006). This Court has also recognized
that "reasonableness" in sentencing is "inherently a concept of flexible meaning,
generally lacking precise boundaries," and so this Court has declined to "fashion
any per se rules as to the reasonableness of every sentence within an applicable
guideline." United States v. Jones, 460 F.3d 191, 195-96 (2d Cir. 2006). See also
United States v. Preasley, 628 F.3d 72, 79 (2d Cir. 2010) ("We do not presume
that a Guidelines range sentence is reasonable. Instead, we take into account the
totality of the circumstances, giving due deference to the sentencing judge’s
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47
exercise of discretion, and bearing in mind the institutional advantages of district
courts") (internal quotation marks and citations omitted). Motz's sentence was
substantively and procedurally unreasonable.
No point would be served in repeating here Motz's arguments on "loss" and
"number of victims." See Points I and II, supra. Suffice it to say that if this Court
accepts or upholds any of those arguments, Motz's sentence would be procedurally
unreasonable, requiring vacatur and resentencing. United States v. Fagans, 406
F.3d 138, 141 (2d Cir. 2005) (“[A]n incorrect calculation of the applicable
Guidelines range will taint not only a Guidelines sentence, if one is imposed, but
also a non-Guidelines sentence, which may have been explicitly selected with
what was thought to be the applicable Guidelines range as a frame of reference”).
Thus, for present purposes, we focus instead on substantive reasonableness.
Even accepting the government's arguments on "loss" ($2.4 million) and number
of victims (240), Motz's eight-year sentence, based on his guilty plea to a
securities scheme that, even if it resulted in a technical loss, indisputably "worked
out well" for most of the "victims" and did so "in a reasonably tough economic
environment," is substantively unreasonable, particularly in view of Motz's age
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16. Even if the district court considered most of these factors whenimposing sentence, the court came to an unreasonable conclusion when it imposedan eight-year prison term.
17. Motz was not convicted of obstruction, but his sentence was enhancedfor obstruction-related conduct, i.e., altering documents.
48
(69 years old), prior unblemished record and long history of honorable public
service.16
Because of the inherently ad hoc nature of the reasonableness
determination, no point would be served by extended citation to sentencing
jurisprudence. For present purposes, the data and analysis reflected in United
States v. Parris, 573 F. Supp. 2d 744 (E.D.N.Y. 2008), provides ample authority to
conclude that Motz's sentence was unreasonable. In Parris, the defendant was
convicted of securities fraud and obstruction. Unlike this case, however, the loss17
(about $4.9 million) and number of victims (over 500) in Parris were double the
loss and number of victims the district court found here. Id. at 748. Unlike Motz,
who owned only a small ownership interest in MFA, the Parris defendants owned
and ran the company and personally pocketed more that $2.6 million of the
scheme's proceeds. Id. Unlike Motz, the Parris defendants put the government to
its proof at trial, and received no reduction for acceptance of responsibility.
Finally, unlike Motz, who has a distinguished military record and a long history of
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49
public service, the Parris defendants "presented 'no characteristics or
circumstances that distinguished this case as sufficiently atypical to warrant a
sentence different from that called for under the guidelines." Id. at 750.
After canvassing, with government assistance, the type of sentences
imposed throughout the country in comparable securities fraud cases, the court in
Parris concluded that a five-year term of confinement was "sufficient, but not
greater than necessary, to satisfy the purposes of sentencing." Id. at 755. In light
of the sentence in Parris, as well as the sentences in securities fraud cases around
the country, all reflected in a comprehensive chart prepared with government
assistance and incorporated in the Parris decision, Motz's eight-year prison
sentence is simply unfathomable and profoundly unreasonable.
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CONCLUSION
For the above-stated reasons, Motz's j udgment of conviction and restitution
order should be vacated, and hi s case shou ld be remanded to the di strict courl for
resentencing.
New York, New York April 4, 20 11
Respectfull y submined ,
950 Thi rd Aven ue New York, New York 10022 (212) 308-7900
G. ROBERT GAGE, JR. LAURA-MICHELLE HORGAN GAGE SPENCER & FLEM ING LLP
410 Park Avenue ew York, New York 10022
(2 12) 768-4900
Allomeysfor Appellalll GeOlge Motz
50
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Certification of Compliance with FRA!' 32(a)(7)
PursuaI1l to Rul e 32(a)(7)(C), F.R.A. P., I hereby certify based on the word-counting functio n or my word processing system (Word Perfect X3) that this brief complies with the Rule's type and vo lume limitations. This briercOI1lains 11 011 words.
Dated: New York, New York April 4, 20 I I
Steven Y.
Case: 10-2076 Document: 79 Page: 56 04/04/2011 257744 97
!!!!!!!!!!!!!!!!!!
"#$%&'(!'##$)*&+!
Case: 10-2076 Document: 79 Page: 57 04/04/2011 257744 97
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SPA1
Westlaw
652 F.5upp.2d 284 (Cite as: 652 F.Supp.2d 284)
United States District Court, E.O . New York.
UN ITED STATES of America, v.
George M. MOTZ, and Melhado, Flynn & Asso-ciates, Inc., Defendants.
No. 08-CR-598 (ADS). Aug. 14, 2009.
Background : Defendants were indicted for onc count of securities fraud and onc count of document al teration, in connection with fraudulent "cherry-picking" scheme, as officer and minority owner of corporate registered broker-dealer and in-vestment advisor that executed trades without im-mediate assignment to particular accounts, waiting until later in day to determine profitability of trarle, then allocating profitable securities to broker-dealer defendant's proprietary account but allocating un-profitable trade to funds and discretionary cli cnt ac-counts. Owner defendant moved to dismiss indict-ment or, alternatively, to transfer venue .
Uoldin gs ; The District Court, Spatt, 1. , held that: (I) indictment's allegations of securities fraud were sufficient to withstand pre-trial challenge to vcnue; (2) transfer of venue was not warranted; (3) securi ty fraud claims with respect to certain trades were not time-barred; (4) securities fraud statute was not unconstitution-ally vague; {5) securities fraud charge was not unconstitution-ally vague; (6) indictment's allegations were sufficiently de-tailed for cognizable securities fraud claim; and (7) indictmcnt's allegations of document al teration were not sufficient to withstand pre-trial challenge to venue.
Motion granted in part and denied in part.
West Headnotes
(II C riminal Law 110
110 Criminal Law 110lX Venue
Page I
IIOIX{A) Place of Bringing Prosecution 1l Okl13 k. Offenses against United
Statcs. Most Cited Cases Both the Sixth Amendment and Federal Rules
of Criminal Procedure require that defendants be tried in the district where thei r crime was commit-ted. U.S .C.A. Const.Amend. 6; Fed.Rules Cr. Proc.Rulc 18, 18 U.S.CA .
121 C riminal Law 110 £:=564(2)
110 Criminal Law IIOXVII Evidence
110XVl1 (V) Weight and Sufficicncy II Ok564 Place of Commission of Offense
and Vcnue II Ok564(2) k. Degree of proof. Most
Cited Cases
Indictment and In fo rmation 210 £:=86(2)
210 Indictment and Information 21 OV Requisites and Sufficiency o f Accusation
2JOk86 Place of Offense 210k86(2) k. Sufficiency in general. Most
Cited Cascs At a criminal trial, the government carries the
burden to demonstrate the propriety of thc chosen venue by a preponderance of the evidence; however, when faced with a pre-trial venue chal-lenge, the government need only show that the su-perseding indictment alleges fac ts sufficient to sup-port venue. Fed.Ru les CL Proc.Rule 18, 18 U.S.C.A
131 1ndictmcnt and Information 210 €;:;:::>86(2)
210 Indictment and Infonnalion 21 OV Requisites and Sufficiency of Accusation
:! 1 Ok86 Place of Offense 21Ok86(2) k. Sufficiency in general. Most
10 2011 Thomson Reuters. No Claim to Orig. US Gov. Works.
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SPA2
652 F.Supp.2d 284 (Cite as: 652 F.Supp.2d 284)
Cited Cases Govcrnmenl's superseding indictmenl, charging
defendants with securities fraud in conncction with "cherry-picking" scheme, sufficiently alleged facts to withstand defendant's pre-trial challenge to ven-ue in forum district, including allegations that scheme occurred within forum district and else-where, and that defendant directed fraudulent ac-count allocations by sending faxes from his resid-encc and another location in forum distr ict 10 co-defendant corporate broker-dealer. 18 U.S .C.A. §§ 1348(1 ), 1519; Fed.R ules Cr. Proc .Rulc 18, 18 U.S .C.A.
14] C rimin a l Law 110 €=>124
110 Criminal Law llOIX Venue
IIO IX(B) Change of Venue I 10k 123 Grounds for Change
110k124 k. In general. Most Cited Cases
In dcc iding a motion to transfer venue, district court strikes a balance between ten Pfaff fac tors, none of which is dispositive, and detennines which fac tors are of greatest impoTlance: ( I) location of the defendant, (2) location of possible witnesses, (3) location ofcvents likely to be in issue , (4) loca-tion of documents and records likely to be involved, (5) possible disruption of the defendant's business if thc case is not transferred, (6) expense 10 the parties, (7) location of counsel, (8) relative access-ibility of the place of trial , (9) docht conditions of each district involved, and ( 10) any other special elements which might affect the transfer. Fed.Ru les Cr. Proc.Rule21(b). 18 U.S.C.A .
151 C rimi nal Law 110 €=> II S
110 Criminal Law 1i0lX Venue
II OIX(B) Change of Venue II Ok J J 5 k. Power and duty of court in
general. Most Cited Cases Generally, a criminal prosccution should be re-
tained in the original district court in which the case
Page 2
was filed. Fed.Rules Cr.Proc .Rule 21 (b), 18 U.S.C.A .
[61 Crimin a l Law 110 €=> 134(1 )
110 Criminal Law I J OIX Venue
I I OIX(B) Change of Venue II Ok 129 Application
IIOk 134 Affidavits and Other Proofs I JOk134(1) k. In general. Most
Cited Cases Thc burden of justifying a transfer of venue for
a criminal prosecution rests with the defendant. Cr. Proc. Rulc 21(b), 18 U.S.C.A.
[7[ Crimin a l Law 1I0 €;::::::> 121
110 Criminal Law I IOIX Venuc
I IOIX(B) Change ofVenuc IIOk 121 k. Discretion of court. Most
Cited Cases The dctermination of a motion to transfer ven-
ue of a criminal prosecution is committcd to the sound discretion of thc district court. Fcd.Rules Cr. Proc. Rulc 21(b), 18 U.S.C.A.
[8] C rimin al Law 110 €;::::::> 124
110 Criminal Law I JOIX Venue
II00X(B) Change of Venue ! IOkl23 Grounds for Change
I J Ok 124 k. In general. Most Citcd Cases
Criminal Law 110 €=:>127
J 10 Criminal Law 110lX Venue
lIOI X{B) Change of Venue 11 Ok 123 Grounds for Change
IlOk l27 k. Conven ience of witnesses. Most Citcd Cases
Balance of Phm fac tors weighed against trans-fer of criminal prosecution of charges against de-
10 20 I I Thomson Reutcrs. No Claim to Orig. US Gov. Works.
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SPA3
652 F.Supp.2d 284 (C ite as: 652 F.Supp.2d 284)
fendan ts for securities fraud "cherry-pick ing" scheme; only two of ten PI(ll( factors favo red trans-fer, namely location of events of scheme and loca-tion of defense counsel, but corporate broker-dea ler defendant was no longer in busi ness and owner de-fendan t was elected officia l of and resided in forum district, along with most witnesses, recruitment of investors and some account allocations for scheme took place in forum district, discovery was com-pleted fo r bulk of documents obtained from pro-posed transferee district, defendant's business was defunct so would not be disrupted, litigation wou ld not be more costly in forum, defense attorneys were in close proximity to forum, docket condit ion of each district was neutral factor, and no special ele-ments were identified. 18 U.S .C.A. I 34811 ); Fed. Rules Cr.Proc.Rule 21 (b), 1 S U.S.C.A .
191 Criminal Law 110 €;::;;:>149
110 Crim inal Law IIOX Limi tat ion of Prosceut ions
IIOkl48 Commencement of Period of Limit-ation
IIOkl49 k. Commission of offense in general. Most Ci ted Cases
Criminal law 110 £;::::>150
! 10 Crim inal Law Ii0X l imitation of Prosecutions
II Ok 148 Commencement of Period of Limit-alion
11 0kl50 k. Continuing offenses. Mosl Cited Cases
Generally, a crimi nal offense is "committed," wi thin meaning of statute of limitations for securit-ies fraud , when the offense has been completed; however, thc lime at which a crime is "completed" depends largely on the nature of the crime, as some crimes are instantaneous and others arc continuing. IS U.S.C.A . § 3282.
1101 C riminal law 110 €:=150
110 Criminal Law
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! lOX Lim itation of Prosecutions IIOk 148 Commencement of Period of Limi t-
ation 110kl50 k. Continuing offcnses . Most
Cited Cases Where the crime charged constitutes a continu-
ing offense, the crime is not "completed," under statute of li mi tations for securities fraud rcquiring prosecution of defendant within five years aftcr of-fense has been "committed," until the conduct has run its course. 18 U.S.C.A. § 3282.
11I1 Crimin al Law 110 £;::::> 150
110 Criminal Law IIOX Limitation of Prosecutions
1 JOkl48 Commencement of Period of Limit-at ion
11 Ok 150 k. Cont inuing offenses. Most Cited Cases
An offense is deemed to be a "con tinuing of-fense," fo r statute of limi tations purposes, only where the explicit language of the substantive crim-inal statute compels such a conclusion, or the nature of the crime involved is such that Congress must assuredly have intended that the cri me be treated as a continuing one.
[121 Crimi nal Law 11 0
110 Criminal Law Jl0X Limitation of Prose cui ions
1 )Ok143 Commencement of Period of Limit-alion
11 Okl50 k. Continuing offenses. Most Cited Cases
The continuing offense doctrine should be ap-plied for statute of limitations purposes only in lim-ited circumstances, and continuing offenses arc not to be (00 readily found, since criminal limitations statutes are to be liberally interpreted in favo r of re-pose.
[131 Crimin al Law 11 0 €=>150
110 Criminal Law
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IIOX Limitation of Proseeulions IIOk l48 Commencement of Period of Limit-
alion 110k 150 k. Continuing offenses. Most
Ci ted Cases There is a dist inction 10 be drawn between con-
duct that is deemed a continuing offense and con-duct that constitutes a continu ing course of criminal activity, but which is not deemed continuing for statute of limitations purposes.
[141 C riminal Law liD
110 Criminal Law II OX Limitation of Prosecutions
II0k 148 Commencement o f Period of Limit-ation
[IOkISO k. Continuing offenses. Most Cited CllSCS
To establish whethcr Congress intended to treat an offense as continuing, for stlltute of limitlltions purposes, district court considcrs whether thc stat-ute of offense itself clearly contemplates a pro-longed course of conduct.
[1 5[ C riminal Law liD
110 Criminal Law I lOX Limitation of Prosecutions
IIOk 148 Commencement of Period of Limit-ation
I 10k 150 k. Conti nuing offcnses. Most Cited C[lses
A continuing offense is not simply an offense that continues in a factual sense, as where a defend-ant cngaged in a course of conduct comprised of rc-peated criminal violations, but instclld refers to a substantive crime that Congress estllblished as con-tinuing.
[161 C rimin al Law 110
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I J Ok 150 k. Continuing offenses. Most Cited Cases
Continuing offenses, for statute of limitations purposes, include conspiracy, escape from fede ral custody, kidnapping, and crimes of possession; each of these crimes, by thei r nature, continue after the offense is initially committed.
[171 C riminal Law 110
110 Criminal Law I IOX Limitation of Prosecutions
IIOk l48 Commencement of Period of Limil-ation
11 Ok 149 k. Commission of offense in general. Most Citcd Cases
C riminal Law 110
! 10 Criminal Law IIOX Limitalion of Prosecutions
110kl48 Commencement of Period of Limit-ation
IIOk150 k. Continuing offenses. Most Cited Cases
Defendant's charge fo r repeatedly violating se-curi ties fraud statute over period of time, pursuant to same "cherry-picking" scheme, did not transform securities fraud statute into "conlinuing offense," for purposes of five-year statute of limitations for securilies fraud, and thus, each lime defendant ex-ecuted allegedly fraudulent trade, elemcnts of se-curities fraud were satisfied, and claim accrued with respect to that violation. 18 U.S .C.A. §§ 1348(1),3282.
IISI Constitution a l Law 92
92 Constitutional Law 92X First Amendment in General
92X(A) In General 92k I! 59 Vagueness in General
92k 1160 k. In general. Mosl Cited Cases
Generally, the "void-for-vagueness doctrine," under the First Amendment, requires that a penal
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statute define the criminal offense with sufficient definiteness that ordinary people can understand what conduct is prohibited and in a manner that does not encourage arbitrary and discriminatory en-fo rcement. U.S.C.A. Const.Amcnd. I.
[191 Crimina l Law 110
110 Criminal Law 1101 Nature and Elements of Crime
II Ok 12 Statutory Provisions 110k13.1 k. Certainty and definiteness.
Most Cited Cases When the interpretation of a criminal statute
does not implicate First Amendment rights, under the void-for-vagueness doctrine, the statute is as-sessed fo r vagueness only as applied, that is, in light of the specific facts of the case at hand and not with regard to the statute's facial validity. U.S .c.A. Const.Amend . I.
120[ Constitutional Law 92 €;:;;;> 11 70
92 Constitutional Law 92X First Amendment in General
92X(8) Particular Issues and Applications 92k [ 170 k. In general. Most Cited Cases
Securities Regulation 3498
349B Securities Regulation 349BI Federal Regulat ion
349DI(G) Offenses and Prosecutions 349Bkl93 k. Fraudulent transactions.
Most Cited Cases Criminal securities fraud statute docs not im-
plicate a defendant's rights under the First Amend-ment. U.s.C.A. Const.A mend. [; 18 U.S .C.A. 1348.
1211 Constitution al Law 92 (;::::::> 1160
92 Constitutional Law 92X First Amendment in General
92X(A) In General 92 kl 159 Vagueness in General
92k1160 k. In general. Most Cited Cases
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When faced with an "as applied" First Amend-ment vagueness ehallcnge to a criminal statute, dis-trict court engages in a two-part inqui ry to determ-ine: (I) whether the statute gives the person of or-dinary intelligence a reasonable opportunity to know what is prohibited, and then considers (2) whether the statute provides explicit standards for those who apply the statute. U. S.C.A. Const.Amend. I.
122[ Con stitut ional Law 92 (;::::::> 11 33
92 Constitutional Law 92V lII Vagueness in General
92kl132 Particular Issucs and Applications 92 kl 133 k. In general. Most Ci ted Cases
Secur ities Regulation 3498 €=> 193
349B Securities Regulation 349BI Federal Regulation
349BI(G) Offenses and Prosecutions 349Bk 193 k. Fraudulent transactions.
Most Cited Cases Crimi nal securities fraud statute, prohibiting
knowing execution, or attempt to execute, scheme or artifice to defraud any person in connect ion with securities of publicly traded companies, was not un-constitutionally vague as applied, since statute gave person of ordinary intell igence reasonable oppor-tunity to know what conduct was prohibited, rather than creating trap for unwary defendant or permit-ting arbitrary enfo rcement, and statute provided ex-plicit standards to be applied by government in showing fraudu lent intent, scheme to defraud, and nexus with securities. 18 U.S.C.A. 1348.
1231 Securit ies Regu lation 3498
349B Securities Regulation 34981 Federal Regulation
349BI(G) Offenses and Prosecutions 3498k 19J k. Fraudulent transactions.
Most Cited Cases [n order to prove a violation of the criminal se-
curities fraud statute, the government must show:
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(I) fraudulen t intent, (2) a scheme or artifice to de-fraud, and (3) a nexus with a security. 18 U.S.C.A. 13411 .
[24[ Sec urities Regulation 349B €=::> 195
3498 Securities Regulation 34981 Federal Regulation
3498 [(0) Offenses and Prosecutions 349Bk l95 k. Indictment and information.
Most Cited Cases In a securit ies fraud scheme, the government
necd not specify in the indictment which client ac-counts were victimized by each allcgedly fraudu-lent trade. 18 U.S.C.A. 1348.
[25[ Constitutional l aw 92 €=::> 11 33
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3498 Securities Regu[ation 349B! Federal Regu lation
349B I(G) Offenses and Prosecutions 349Bkl95 k. Indictment and information.
Most Citcd Cases Superseding indictment's charge against de-
fendants for securities fraud was not unconstitut ion-ally vague, on grounds that indictmcnt failed to de-scribc specific victims of alleged fraudu lent schcme, since government was not required to comb through investmcnt profiles and cash Icvels of each client account to describe specific victims of each allegedly fraudulent "cherry-picked" trade. 18 V.S .C.A. 1348.
[261 lnd ictmenl a nd Information 210 (>=86(1)
210 Indictment and Information 11 OV Requisites and Sufficiency of Accusation
11Ok86 Place of Offense 210k86(1) k. Necessity of statement of
place ofvellue. Most Ci ted Cases
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Indictm ent and In fo rm ation 210 €=>87(1)
210 Indictment and Information 210V Requisites and Sufficiency of Accusation
210k87 Time of Offense 210k87(1) k. Necessity of averments as to
time in general. Most Cited Clses
Indictment and Information 2 10 £=:> 110(3)
210 Indictment and Information 2 I OV Requisites and Sufficiency of Accusation
2 [Ok107 Statutory Offenses 2!Ok! 10 Language of Statute
21 Ok [ 10(3) k. Sufficicncy of indict-ment in language of statute in general. Most Cited Cases
Indictments arc required to do little more than to track the language of the statute charged and state the timc and place in approximatc terms of the alleged crime. Fed.Rules Cr.Proc.Rule 7(c), 18 U.S.C.A .
[271 Indictment and Informati on 210 €:=:'71 .2(2)
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210k71 Certainty and Particularity 11 Ok71.2 Purpose of Requirement and
Test of Compliance 210k7 1.2(2) k. Informing accused of
nature of charge. Most Cited Cases
Indictment and Information 21 0 €=>7 J.2(4)
210 Indictment and Information 2 I OV Requisites and Sufficiency of Accusation
21 Ok7l Certainty and Particularity 2l0k7 J.2 Purpose of Requirement and
Test ofCompJiance 2 10k7 1.1(4) k. Protection against sub-
sequent prosecution. Most Cited Cases To be legally sufficient, the indictment must
specify the clements of the offense in enough detail to give a defendant not ice of the charges against him and to permit him to plead double jeopardy in a futu re prosecution based on the same events.
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128] Secu rilies Regu lation 349B C;;:;;> 195
3498 Securities Regulation 349B! Federal Regulation
3490[(G) Offenses and Prosecutions 349 Bk 195 k. Indictment and information.
Most Cited Cases Superseding indictment allegcd willi sufficient
detail for cognizable claim that defendants inten-tionally schemed to defraud in conncction with publ icly traded securities, including allegations of "cherry-picking" scheme from which fraudulent in-tent could bc inferred due to necessary result of dis-advantaging clients with discretionary accounts by shifting risk of unprofitable trades entirely to those accounts while creating vinually risk-free profits for defendants and two hedge fund clients. 18 U.s.C.A. 1348; Fed.Rules Cr.Proe.Rule 7(c), 18 U.S.c.A.
129 ] Securities Regulation 3498 C;;:;;>193
349B Securities Regulation 349BI Federal Regulation
349B I{G) Offenses and Prosecutions 3498kJ93 k. Fraudulent transactions.
Most Cited Cases Because the text and legislative history of the
securities fraud criminal statute clearly establish that the statute was modeled on the mail and wire fraud statutes, district court 's analysis of the securit-ies fraud statute is guided by the caselaw construing the mail and wire fraud statutes. 18 U.S.C.A. §§ 1341,1343, 1348.
13 01 Securities Regulation 349B €:=> 193
349B Securities Regulation 349B! Federal Regulation
34981(G) Offenses and Prosecutions 349Bk193 k. Fraudulent transactions.
Most Cited Cases Where the necessary result of the defendant's
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securities fraud scheme is to injure others, fraudu-lent intent may be inferred from the scheme itself. 18 U.S .C.A . § !348.
IJll lndietment and Information 210 C;;:;;>86(2)
210 Indictment and Information 210V Requisites and Sufficiency of Accusation
21 OkS6 Place of Offense 21 OkS6(2) k. Sufficiency in general. Most
Cited Cases Supcrseding indictment, charging defendants
with document alteration, lacked sufficient allega-tions of facts to withstand defendant's pre-trial chal-lenge to venue in forum district, since there were no facts identifying that charged acts took place in for-um district. 18 U.S.C.A. § 1519; Fed.Rules Cr.Proc.Rule 18, 18 U.S.C.A .
*288 Bcnton 1. Campbell, United States Attorney, Eastern District of New York, by James G. McGov-ern, Assistant United States Attorney, Daniel A. Spcctor, Assistant United States Attorney, Roger Anson Burlingame, Assistant United States Attor-ney, William E. Schaeffer, Assistant United Statcs Attorney, Central Islip, NY, for United States of Amcrica.
Gage Spencer & Fleming LLP, by G. Robert Gage, Esq. , Laura-Michelle Rizzo, Esq., of Counsel, New York, N.Y. for Defendant George M. Motz.
Ellenoff Grossman & Schole LLP, by Ted Poretz, Esq., of Counsel , New York, *289 NY, for Defend-ant Melhado, Flynn & Associates, Inc.
MEMORANDUM OF DECISION AND ORDER SPATT, District Judge.
On November 19,2008, a superseding indict-ment issued charging Defendants George Motz ("Motz" or "the Defendant") and Mclhado, Flynn & Associates, Inc. (,OM FA ") with one count of securit-ies fraud, in violation of 18 U.S.c. !348( J) ("Count One"), and one count of document alteration, in vi-olation of 18 U.S .c. 1519 ("Count Two"), in con-nection with a fraudulent "cherry-picking" scheme.
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Presently before the Court is a motion by Motz to dismiss the indictment or, in the al ternative, to transfer venue to the Southern District of New York.
I . BACKGROUND Motz is an officer and minori ty owner of MFA,
a registered broker·dealer and investment advisor located in Manhattan. Motz was a registered repres· entative and investment advisor for 183 discretion· ary trading accounts at MFA. According to the su· pcrseding indictment, Motz also had the exclusive authority to trade on behalf of MFA's proprietary trading account.
The superseding indictment alleges that Motz engagcd in "cherry-picking," a practice whereby a trader executes trades without immediately assign-ing them to a particular account. In this regard, the superseding indicunent alleges that Motz purchased securities in the early part of the trading day and waited until later in the day-when he saw whether the securities purchased had appreciated in value-to allocate the securit ies to MFA's proprietary ac-count . According to the superseding indictment, if a tradc proved unprofi table, Motz would allocate the securities to the Thi rd Mi llennium Fund, Invest-ment Fund # I, the discretionary client accounts or al! th ree.
The superseding indictment alleges that of the 204 trades that Motz executed on behalf of the MFA proprictary account between November of 2000 and Scptember of 2003, 202 were profitable. The superseding indictment also allcges that Motz used the remarkable success of the MFA propriet-ary account to market MFA to potential investors, including two hedge funds: Mezzacappa Partncrs, L.P. and The Third Millennium Fund. According to the Government, from June of 2003 unti l May of 2005, Motz cmploycd the same "cherry-picking" scheme to benefit both of these funds.
According to the superseding indictment, Motz and other MFA representatives, in the ordinary course of business, prepared trade tickcts that reo
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necled the security to be traded; the number of shares to be traded; and the account to which the trade should be allocated. In general, upon receipt of these tickets, MFA's trading desk would place a time stamp on the ticket indicating when the ticket WIIS received and when the trade was executed. The Government alleges that, in order to effectuate his scheme, Motz would send trade tickets to the MFA trading desk in the morning without specifying the accounts to which the trades should be allocated. Motz would thcn instruct the trading desk where to allocate securities much later in the day usually just before the market closed. If the securitics appreci-ated in value, he would instruct the trading desk to allocate the securities to the favored accounts. If the securities depreciated in value he would instruct the trading desk to allocate the securities to one of his discretionary trading accounts. The Government al-leges thai, to conceal the scheme, Motz altered *290 the MFA trading tickets to create the false im· pression that he allocated trades to favo red ac· counts at the time the securities were purchased.
I/. DISCUSSION A. Count One·Securities Fra ud
Motz raises a number of different challenges to Count One. The Court will address each in turn.
I. Whether Venue is Lacking in the EDNY [1][2] Motz contends that venue is Jacking in
the Eastern District of New York because the "chcrry-pieking" scheme all eged in the superseding indictment was carried out in Manhattan. It is well· established that "[b]oth the Sixth Amendment and Fedcrn l Rule of Criminal Procedure 18 require that defendants be tried in the district where their crime was 'committed.' " U"ited States v. Ramire:, 420 F.3d 134, 138 (2d Cir.2005) (citing U.S. Canst. amend. IV, and Fcd. R.Crim.P. 18). Accordingly, at trial, the Government carries the burden to demon· strate the propriety of the chosen venue by a pre-ponderance of the evidence. Id. at 139 (citing Uni ted Stales II. Smith. 198 F.3d 377. 384 (2d Cir.1999 )). However, when faced with a pre-trial venue challenge, the Government need only show
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that the superseding indictment alleges facts suffi-cient to support venue. United States v. Bronson. No. 05-CR-714, 2007 WI. 2455138. at *4 (E.D.N.Y . Aug. 23, 2007).
[3J Herc, Count One allegcs generally that the charged securities fraud scheme occurred "within the Eastern District of New York and elsewhere." In particu lar, the Government alleges that Motz dir-ected certain of the fraudulent account allocations by sending faxcs to MFA from his residence in Quogue and the Quogue Mayor's Office on the East End of Long Island. At the motion to dismiss stage, these allegations suffice to allegc venue in the East-ern District of New York. See Unired Stales v. Sleit!, 429 F.Supp.2d 633, 643 (S.D .N.Y.2006) (holding that "as long as thc indictment alleges vell-ue, a pretrial motion to dismiss based on contrary allegations by the defendant must be denicd."); Ullited Slares I'. Bellomo. 263 F.Supp.2d 561, 579 (E.D.N.Y.2003) (same). Thus, the Defendant's mo-tion to dismiss Count One for lack of venue is denied without prejudice and with leave to renew at the tr ial. See United Srales v. Elcock, No. 07-CR-582. 2008 WL 123842, at "4 (S .D.N. Y. Jun. 10, 2008) (denying a defendant'S pre-trial venue challenge without prejudice and with leave to re-new subject \0 Fed .R .Crim.P. 29); Unilcd Srares 1'.
Valencia Rugefes, No. 04-CR363. 2007 WL 1540981, at "2 (S.D.N. Y. May 24. 2007) (same).
2. Wheth er th e Court Should Transfer Venu e to the SONY
[4) Fed .R.Crim.P. 21(b) provides that, "[uJpon the defendant's motion, the court may transfer the proceeding, or one or more counts, against that de-fendant to anothcr district for the convenience of the parties and witnesses and in the interest of justice." In deciding a motion to transfer venue, courts are guided by ten factors: (1) location of the defendant; (2) location of possible witnesses; (3) location of evenls likely to be in issue; (4) location of documents and records likely to be invo lved; (5) possible disruption of the defendant's business if the case is not transferred; (6) expense to the
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parties; (7) location of counsel; (8) relative access-ibility of the place of trial; (9) docket conditions of each district involved; and (10) any other special elements which might affect the transfer. *29l Plafl I'. Minnesota Mining & Mfg. Co., ]76 U.S. 240. 243-44, 84 S.Ct. 769, II L.Ed .2d 674 ( 1964); Ullited Srares v. Kelly/iall. 602 F.2d 10]], 1038 (2d Cir.1979); Unired Srates v. Brooks, No. 08-CR-35, 2008 WL 2944626, al "1 (S.D.N. Y. Ju l. 3 1, 2008). ''No one of these considerations is dispositive, and 'it remains for the court to try to strike a balance and determine which factors are of greatest import-ance.' " United Slates v. Maldunado-Rivera, 922 F.2d 934, 966 (2d Cir. 1990) (quoting United States v. Stephenson. 895 F.2d 867, 875 (2d Cir. I 990)).
[5][6][7] "As a general ru le, a criminal prosec-ution should be retained in the original district" in which it was fi led. Unired Stmes v. Ullited Stales Steel Corp., 233 F.supp. 154. 157 (S. D.N.Y.1964). Accordingly, the burden of justifying a transfer un-der Fed. R.Crim. P. 2 1 rests with the defendant. United Siaies 1'. Guw;teffa. 90 F.Supp.2d 335 . 338 (S .D.N.Y.2000) (citing Unired Stlltes II. Spy Fact -ory. Inc., 951 F.Supp. 450, 464 (S .D.N.Y.1997) and United SImes 1'. Persico, 621 F.Supp. 842, 858 (S.D.N .Y. 1985)). Ultimately, the determination of a Fed. R.Crim. P. 21 (b) motion is committed to the sound discretion of the Court. Maldonado-Rivera, 922 F.2d at 966 (citations omitted).
3. The Location of the Defendants [8] This factor cuts decidedly agai nst transfer-
ring the case. Al though Motz formerly worked four days per week in MFA's Manhattan office, MFA is no longer in business and Mo!z currently lives on Long Island in Quogue. The Court also notes that Motis venue challenge is significantly less compel-ling given that he is an elected officia l within th is district.
b. The Location of Possible Witn esses This factor is somewhat difficult \0 analyze be-
cause the Government has not yet produced a list of the witnesses that will be called to testify at the tri-al. However, the Governmcnt represents that while
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many of the potential witnesses may work in Man-hattan, many of them happen to live on Long Is-land. Without more information about the location of prospectivc witnesses, the Court finds that this fac tor does not favor cither party's position.
c. Locat ion of the Events at Issue This facto r appears to favor Motz. Although
the Government has suggested (hat certain parts of the alleged scheme were carried out on Long Is-land-namely the recruitment of investors and some of the account allocations-most of the conduct com-mitted in furtherance of the alleged scheme seems to have takcn place in Manhattan.
d. Location of Documents and Records This factor carries no weight in the Court's ana-
lysis. Although the bulk of the documents and re-cords at issue were produced out of MFA's fo rmer office in Manhattan, discovery has already been completed. It makes little scnse to have venue turn on the original location of documents and records that have already been produced to the respective parties.
c. Possible Disruption of th e Defendants' Busi-nesses
MOlz's papers make no mention of how a trial might disrupt his business affairs. The Court is not eonccrncd that the trial will disrupt business at MFA because the company is now defunct. Con-trary to Motz's suggestion, the fact that a trial in Central Islip might interfere with the new business endeavors of former MFA employees who are not defendants in this case is irrelevant to the Court's analysis.
*292 r. Expense 10 th e Parties Motz makes no effort to explain why litigating
this case in Central Islip would prove more costly. Accordingly, this facto r weighs against transferring the case
g. Loc ation of Counsel This factor elearly favo rs a transfer as counsel
for both Defendants have their offices in Manhat-
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tan. However, in light of Central Islip's proximity to Manhattan, this is not a major facto r.
h. Relative Aeeessibility of Central Islip As noted above, counsel fo r both Defendants
have their offices in Manhattan and most of the pro-spective witnesses in this case apparently live in the New York mctropolitan area. The courthouse is roughly 50 miles from Motz's counsel's office in Manhattan and Central Islip is accessible on the Long Island Railroad. Under the ci rcumstances, the Court finds that this factor weighs somewhat against a venue transfer.
i. Docket Condition s in th e EDNY and SONY Th is factor carries no weight in the Court's ana-
lysis because it is difficult to discern, with any de-gree of precision, whether the respective dockets favor or disfavor a transfer of venue. The Court de-clines to speculate-simply by looking at docket stat-istics-about whether the trial would be delayed in the event of a transfer to the Southern District of New York.
j . SIJ ecial Elements The parties have not identified·and the Court is
not aware of-any special circumstances in this case that either favor or disfavor a transfer of venue.
After a rcvicw of the Plan facto rs, the Court finds that Motz has failed to meet his burden to show that this case should be transferred to the Southern District of New York. See United Steel C(JI'l) .. 2]] F.Supp. m 157 (observing that "[\]0 warrant a transfer ... it should appear that a tri-al there would be so unduly burdensome that fair-ness requires the transfer to another district of prop-er venue where a trial would be less burdensome" and that the Court's inquiry "must take into account any countervailing considerations which may milit-ate against removal."). Although two of the ten factors-the location of the events in qucst ion and the location of counsel-favor Motz's position, neither consideration is of such importance that a transfer of venue is appropriate. In fact, if anything, the Court's balancing of these ten facto rs tips
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against transferring this case to the Southern Dis-trict of New York. Accordingly, the Defendant's motion to transfer venue is denied.
3. Whether Certa in Trades are Ba rred by the Stat ut e of Limitations
The applicable statute of limitations governing Count One provides that a. defendant must be pro-secuted "within five years after such offense shall have been committed." 18 U.S.C. 3282. Here, Ihe original indictment issued on August 27 , 2008 . Motz contends that all of the securities transactions alleged in Count One which occurred before Au-gust 27, 2003 arc beyond the five year statute of limitations.
[9J[10] Generally, a criminal offense is com-mitted when the offense has been completed. Toussie v. Ulliled Slales, 397 U.S. 112, lIS, 90 S.Ct. 858, 25 156 (1970). However, "[tJhe time at which a crime is 'complete ' depends largely on the nature of the crime . Some crimes are 'instantaneous'; others are 'continuing.' " *293 United Slates v. Eppolito, 543 F.3d 25, 46 (2d Cir.2008) (citations omitted). Where the crime charged constitutes a "continuing offense," the crime is not completed-and therefore the statute of limitations docs not begin to run-until " the conduct has run its course." fd. Therefore, the question for the Court is whether the alleged scheme is a "continuing offense" such that the Government may prosecute Motz for trades that were made more than five years prior to the indictment.
[I [][12] The Supreme Court has explained that an offense is decmed "continuing" for statute of limitations purposes only where "the explicit lan-guage of the substantive criminal statute compels such a conclusion, or thc nature of the crime in-volved is such that Congress must assuredly have intended that it be treated as a continuing one." TOl/ssie. 397 U.S. at 115.90 S.C!. 858. In analyzing whether either of these conditions are met, "[t]he Supreme Court has cautioned ... that the continu ing offense doctrine 'should be applied only in limited circumstances,' and continuing offenses ' are not to
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be too readily found,' since ' criminal limitations statutes arc to be liberally interpreted in favor of re-pose .' " See United Slaies II. Rivlin, No. 07-CR-524, 2007 WL 427671 2, lit *2 (S. D.N. Y. Dec. 5, 2007) (quoting TOlIssie, 397 U.S. at 115-1 6. 90 S.Ct. 858) (internal citation omitted).
[13] The explicit language of 18 U.S .c. 1348 does not compel the conclusion that [8 U.S.c. 1348 should be construed as a continuing offense. Thus, following the Supreme Court's guidance in TOllssie, the Court's task is to determine whether the nature of the crime itself-securit ies fraud- is such that Con-gress "must assuredly" have intended to treat it as a continuing offense. Although Motz did allegedly engage in a course of repeated criminal conduct in violation of 18 U.S .C. 1348, it does not necessarily follow that 18 V.S.c. [348 is a continuing offense. See Rill/in, 2007 WL 4276712, *3 (quoting Ullited Stales v. 166 F.3d 873, 877 (7th Cir.1999), and Unired Slates v. Jaynes, 75 F.3d 1493,1506 n. 12 (10th Ci r. 1(96» (observing that" 'separate offenses may be part of a common scheme without being 'continuing' for limitation purposes.' "). As District Judge Sidncy Stein has aptly cxplained, there is a distinction to be drawn "between conduct that is deemed a 'continuing of-fense' under TOlissie and conduct that constitutes a continuing course of criminal activity, but which is not deemed 'continuing' for limitations purposes." Rh'{in, 2007 WL 4276712, il l *2 .
[14][15J[16] "To estilblish whether Congress intended to treat an offense as 'continuing,' courts consider whether the [statute itself] 'clearly con-template[s] a prolonged course of conduct.' " Riv/ifl, 2007 WL 4276712, at *3 (quoting Toussie, 397 U. S. at 120,90 S. C!. 858), A continuing of-fense is not simply "an offense that continues in a factual sense, as where a defendant engaged in a course of conduct comprised of repeated criminal violations," but instead refers to a substantive crime that Congress established as continuing. Id. at *2. Traditional examples of "continuing offenses" in-clude conspiracy, escape from federa l custody, kid-
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napping, and crimes of possess ion. Id. (citing Ulliled Slales v. Rodrigue=-Moreno. 526 U.S. 275, 281-82, 119 S.C!. 1239, 143 L.Ed .2d 388 (1999) (kidnapping); United States v. Baile)'. 444 U.S. 394. 413.100 S.Ct. 624, 62 L.Erl.2d 575 (1980) (escape from federal custody); United States v. Waters . 23 F.3d 29, 36 (2d Cir.1994) (unlawful possession ofa firearm); Uniled Sral(tS v. McGoff, 831 F.2d 1071, 1078 (D.C.CiL I 987)). Each of these crimes, by thcir nature, continue aftcr the offense is initially committed. For example, a dcfcndant*294 who es-capes from federal custody continues to violate 18 U.S.c. 751(a) until he is apprehended.
(I 7] A !though it is truc that securities fraud schemes arc frequently carried out over a period of time, 18 V.S.c. 1348 itself does no! contemplate a prolonged course of conduct. Based upon the rc-qui rements of 18 U.S.c. IJ48(1), each time Motz executed an allegedly fraudulent trade, the requisite clements of securities fraud were satisfied and the applicable statute of limitations began to run with respect to that violation. See Uniled Slates v. Ma -haJJv. No. 05-CR-613. 2006 WL 2224518, at *'2 (E.D.N. Y. Aug. 2, 2006) (noting that a violation of 18 U.S.C. 1348 requires proof of three elements: "(I) fraudulent intent (2) a scheme or artifice to de-fraud and (3) a nexus with a security."). Thc fact that Motz is charged with repeatedly violati ng the statute over a period of time pursuant to the same scheme docs not transform 18 V.S.c. IJ48 into a "continuing offense" for statute of limitations pur-poses. See RiFlill. 2007 WL 4276712. at *3 (quoting Y(Jshar. 166 F.3d at 877) (observing that "[i]t is not the active or passive nature of a defend-ant's act ions that matters, but rather whether the statute describes an offense that by its nature con-tinues after the elements have been met.").
Accordingly, Motz's motion for partial dis-missal of Count One is granted. The Government may on ly prosecute Motz for allegedly fraudulent tradcs that occurred within the five years preceding the August 27, 2008 indictment.
4. Whether 18 V.S.c. 1348 is Unconstitutionally
Page [2
Vague Motz contends that 18 U.S.c. 1348(1 ) is itself
unconstitutionally vague because the statute's breadth creates no limitation on the scope of ils plication. The statute makes it a crime to "knowingly execute{ ], or attempt ( 1 to execute, a scheme or artifice ... to dcfraud any person in con-nection," with the securities of publicly traded com-panies. 18 V.S.c. 1348( 1). According to the legis-lative history, the overarching purpose of the statute was to broaden the range of conduct proscribed by existing federal securities laws. See 148 Congo Rec. S7420-21 (daily cd. July 26, 2002) (statement of Sen. Leahy), available at 2002 WL 1731002 (noting that 18 U.S.C. was "intended to provide needed enforcement flexibility in the context of publicly traded companies to protect shareholders and prospective shareholders against all the types of schemes and frauds which inventive criminals may devise in the future.").
fl8J(19](201 "As genera lly stated, the void-for-vagueness doctrine requires that a penal statute define the criminal offense with sufficient definite-ness that ordinary people can understand what con-duct is prohibited and in a manner that docs not en-courage arbitrary and discriminatory enforcement ." United States v. Rybicki, 354 F.3d 124, 129 (2d Ci( 2003) (quoting Kolendel" v. Lawson, 461 U. S. 352,357,103 S.CI. 1855.75 L. Ed.2d 903 (1983 )). The Second Circuit has found that when "the inter-pretation of a statute docs not implicate First Amendment rights, it is assessed for vagueness only 'as applied,' i.e., 'in light of the specific facts of the case at hand and not with regard to the stat-ute's facial validity.' " Id. (quoting United SlateS V. Nadi, 996 F.2d 548. 550 (2d Cir. I 993 )). Here, it is clear that 18 V.S.c. 1348 docs not implicate Motis rights under the First Amendment. The Court's task, then, is to detcrmine whether the statute is uncon-stitutionally vague as applied.
[21] When faced with an "as applied" vague-ness chai!enge, courts engage in a two-part inquiry. Nodi, 996 F.2d at 550. *295 "[A] court must first
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determine whether the statute 'givers] the person of ordinary intelligence a reasonable opportunity to know what is prohibited' and then consider whether the law 'providers] explicit standards for those who apply [it]. ' " Id. (quoting GrC/)'l/cd v. CiTY of Rock-ford, 408 U.S. 104. 108. 92 S.Ct. 2294, 2299, 33 L Ed.2d 222 0972), and Unired Slaies v. Schmd-dermal!. 968 F.2d 1564, 1568 (2d Cir. 1992) .
[22] Motz does not articulate why a person of ordinary intelligence would be unable to understand the conduci prohibited by 18 U.S.c. 1348. [n other words, Motz has failed to show thai the language of 18 U.S.c. 1348 is so vague as to "create[ J a trap for the unwary and permit[ J arbitrary enforce· ment." Nadi, 996 F.2d at 550. The statute's [an-guage is intentionally broad because Congress sought to create a mechanism by which prosecutors could combat the myriad of ever-evolving securit-ies fraud schemes.
[23] With regard to the second prong of the analysis-whether the law provides explicit stand-ards to be applied-the Court notes that the requisite clements of the statute are straightforward. In order to prove a violation of the [8 U.S.c. 1348, the Gov-ernment must show: "( I) fraudulent intent (2) a scheme or artifice to defraud; and (3) a nexus with a security." Mahaffy, 2006 WL 2224518, at ·12. The Court finds that this standard is sufficiently clear to prevent the arbitrary or discriminatory ap-plication of 18 U.S.C. 1348. Accordingly, Motz's "as applied" challenge is denied.
5. Wheth er Count One is Uncon stitution ally Vague
[24][25] Motz contends that Count One is un-consti tutionally vague and must therefore be dis-missed because the superseding indictment fails to describe the specific victims of the alleged scheme. However, as the Court has already observed, in a securities fraud scheme such as the one alleged, the Government need not specify which MFA client ac-counts were victimized by each allegedly fraudu-lent trade. Here, because the Defendant "cherry-picked" the profitable trades for the benefit
Page 13
of MFA, Mezzacappa Partners, L.P., and the Thi rd Millennium Fund, each client with a discretionary trading account with MFA could conceivably be considered a victim because these clients could have benefitted from the profitable trades. The Government need not comb through the investment profiles and cash levels of each discretionary ac-count to determine what accounts could have bene-fitted from each profitable trade. This level of detai l is well-beyond the scope of an indictment.
6. Whether Count One AlIegcs a Cognizable Claim Undcr 18 U.S.c. 1348
[26J[27J Motz argues that Count One fails to allege a cognizable claim under 18 U.S.C. 1348. Rule 7(c) of the Federal Rules of Crimi nil! Proced-ure requires that an indictment contain a "plain, concise and definite written statement of the essen-tial facts constituting the offense charged." Fcd.R,Cr. f> . 7(c). This requirement is not particu-larly onerous and the Second Circuit has repeatedly upheld "indictments that 'do little more than to track the language of the statute charged and state the time and place (in approximate terms) of the al-leged crime.' ,. UJl ill!d SWte$ II. Walsh, 194 F.3d 37, 44 (2d Cir.1999) (quoting Uni/ed STales II. Tra-munti, 513 F.2d 1087, 1113 (2d Ci L), cert. denied, 423 U.S . 832 . 96 S.Ct . 54. 55, 46 L.Ed.2d 50 (1 975 )). To be legally sufficient, the indictment must specify the clements of the offense in enough detail to give a defendant notice of the charges against him and to permit him to plead doub le jeop· ardy in a future prosecution based on the same events. Id. *296 (quoting Unilcd Stales \'. S!al'foul-okis, 952 F.2d 686. 693 Pd Cir.), cerro denied, 504 U.S. 926, 11 2 S.Ct. 1982, 118 L. Ed.2d 580 ( 1992)).
[28] Here, it is beyond serious dispute that the superseding indictment alleges, in considerable de-tail, a scheme to defraud in connection with pub-licly traded securities. However, Molz contends that the superseding indictment fails to adequately allege the required element of fraudulent intent. The Court disagrees.
[29][30] The parties agree that because "the
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text and legislative history of 18 U.S.c. § 1348 clearly establ ish that it was modeled on the mail and wire fraud statutes," the Court's analysis should be guided by the caselaw construing those statutes. Mahaffy, 2006 WL 2224518, at *11; see 18 u.s.c. 1341 (mail fraud) ; ! 8 U.S.C. 1343 (wire fraud). To show that a defendant possessed fraudulent intent within the meaning of the mail and wire fraud stat-utes, the Government must show that the defendant "contemplated some actual harm or injury to [his] vict ims." UniTed STUtes v. Starr. 816 F.2d 94. 98 (2e1 Cir.1987). The Second Circuit has held (hat "where the 'necessary result' of the [defendant's] scheme is to injure others, fraudulent intent may be inferred from the scheme itself. " United Slales II.
D'Ammo, 39 F.3d 1249, 1257 (2d Ci r. 1994) (citations omitted).
Here, the cherry-picking scheme described in the superseding indictment contemplated harm to the allegedly disfavored accounts. The alleged scheme, by its very nature, allowed Motz and MFA to sh ift the risk of unprofitable trades entirely to disfavored client accounts. By selectively allocating the profitable trades, Motz generated virtually risk-frce profits for MFA and two hedge fund clients at the expense of clients with discretionary accounts. Under the circumstances, fraudulent intent can be inferred because the necessary result of the alleged scheme was to disadvantage clients with discretion-ary accounts.
The Government has adequately alleged all of the requisite clements of 18 U.s.C. 1348. Accord-ingly, Motz's motion to dismiss Count One is den ied.
B. COllll t Two-Documell t AlteratiOll [31] Motz argues that Count Two should be
dismissed because venue is lacking in the Eastern District of New York . In particular, Motz points out-and the Government concedes-that the evidence dcveloped thus far is insufficient to prove Ihat the charged acts of document alteration took place in this district. Accordingly, Count Two is dismissed without prejudice. The Government may choose to
Page 14
present the document alteration count to a grand jury in the Southern District of New York or at-tcmpt to replead the count in the Eastern District of New York. In any event, having dismissed Count Two on venue grounds, the Court will not address Motz's additional challenges to the document alter-ation charge.
III. CONCL USION With respect to Count One, the Court finds that
the Government has, at the pre-trial stage, offered allegations sufficient to show that venue is propcr in the Eastern District of New York. The Court finds that the statute is constitutional as applied in this case; the superseding indictment is not uncon-stitutionally vague; and that the Governmcnt has al-leged a cognizable claim under 18 V.S.c. 1348. However, the Government may only prosecute Motz for allegcdly fraudu lent trades that occurred within the five years preceding the August 27, 2008 indictment.
The Court also finds that Count Two should be dismissed without prejudice because*297 venue is lacking in the Eastern District of New York.
SDORDERED.
E.D.N.Y.,2009. V.S. v. Motz 652 F.Sllpp.2d 284
END OF DOCUMENT
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'-'A024SB
Case Document 103 (Rev. 06lOJ)Jlldpncnlln .Cri,llin. t c- Filed 05113/10 Page 1 of 6 , .... ,
UNITED STATES DISTRICT COURT EASTERN
UNITED STATES OF AMERICA V.
District of NIN NEW YORK
JUDGME A CRIMINAL CASE '.
Case Number: GEORGE M. MOTZ USMNumbcr:
CR-08-0S98(S-2}01 (ADS)
72209-053
G. Robert G'. Esq. (RED !Roger Burlingame. AUSA Dcl"mdanl'. AtIonIIg'
THE DEFENDANT: X pJeaded guilty to ccunt(s) ONE (TWO COUNT FIRST SUPERSBDpm INDICTMENT).
,t,." " o pJe.ded nolo contcndercto co\D\t(s) IN r! which was accepled by the court. U.S . DJS ·[;/CT COUItr c.D.N.Y
o was found guilty on count(s) after a plea ofnot guilty.
The defendlU'lt is adjudicated auilty of these of'fellSC9:
! . f .J .j 201D * LONG ISLAND OFFICE
Title 4: ScstiOD 18:1348(1) AUU, I. CI.", 8 Fclony
DUcOR EadC1l l:olml I
The defendant is sentenced 05 provided in paps 2 through the Selltencin& Refonn Act of 1984,
_-,6,--_ The sentence is imposed punu8II1Io
o The defendant has been round nOl: guilty on couot(s)
x eount(s) and Second Superseding Indictment 0 Is X are dIsmissed on die motion orthe United States.
It Is ordered that the defendAnt must notitY the UDited Stata anomcy for this!let within 30 days of any cbaMe of name, residence, orrnailillgaddreu until all fines, JatiMion, costs, and spocial usessmcntl imposed 'judgment arc fully paKt. Ifomcrcd to payrestiMioll, the defendallt must notify the court IUld United states altomey ofmatenal chanpt bI nomlc circwnstaJlces.
Sign.rureof JwIF.
HONORABLE £ D. SPAlT, U.5.D.J .
Mil)' Il, 2.010
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' . Case 2:0S-cr-00598-AOS Document 103 Filed 05/13/10 Page 2 of6 AO 2f58 (Re.. 06lO')Jlldplfllt in Criminl\Casc
SIIOCIIl Imprisonment
DEFENDANT, CASE NUMBER:
GEORGE M. MOTZ CR-08-OS98(S·2)-OI (ADS)
IMPRISONMENT
. ,
The defendant is hereby committed to the custody of the United States Bureau If Prisons to be imprisoned for. total term of: .
NINETY SIX (96) MONTHS_ 11ffi DEFENDANT SHALL BE GIVEN cREbrr FOR TIME ALREADY SERVED, IF ANY.
XThc coun makClil the following recommenditiollJ to the Bureau of Prisons: THAT THE DEFENDANT SERVE HIS SENTENCE AT THE MINIMUM SECURJTY F ACIUTY AT THE FEDERAL PRISON CAMP IN PENSACOLA, FLORIDA. THE DEFENDANT SHALL BE GfVEN MENTAL HEAL1H TREATMENT. -
[)The defendant is remanded to the custody ofthc United States Marshal.
XThc defendant shall SWTencier to the United States Marshal for this district:
x " ____ ___ O a.m. X p.m. on 61301W or the Institution designated
o as notirJcd by llIe United Stales Marsha].
[JThe defendant shall surrender for servJee of sentence at the institution desipitC by the Bureau ofPrisoos:
o before 2 p.m. on
o IS notified by the United State5 Marshal.
o as notified by the Problltion or Pretrial ServtcU Office.
RETURN
I hive executed this judgment as follows:
.. Deferl(iant delivered Of!
to _____________ _
_____________ • withacertifiedc:opyoflbisjudgmeet.
UNITED STATES MAASHAL
By DEPUTY UNITED STATES MARSHAL
---- ._ ... _-------
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Case 2:0B-cr-00598-ADS Document 103 For d 05/ Ie 13/10 Page30f6 .4.014SB (Rev. .Crimlnal C&se
Shed 3 Suporv;,e.! Release
DEFENDANT: CASE NUMBER:
GEORGE Mo MOTZ CR-O'-0598(S-2)-Ot (ADS)
SUPERVISED
Upon rcle&3e from imprisorunent, the defendant shall be on supervised release for. tdm of:
THREE (3) YEARS.
Judsmmt-Pwae _ Q(
The defendant must repanto the probation office in me district to which the de*r!dant is rllJused within 72 hours ohl/lease from the custody of the Buteau of Pnsons. The del'endant shall not commit another federal, srate or local crime. The defendant &ban not unlawfully pcl:ssess a conuolled substance. The defendant qu refrain from any' unlawful use ofa controlled substlU1ce. The defendatrt shall subinlt 10 one drug test within 1.5 days of release &oat anC:\ al least twtl periodic drug tesCs thereafter, as by the court. o The above druB testing condition Is suspended, based on the coun's detennlnldoa that the defendant poses a low risk of
future subSlance abuse. (Check, if applicable.)
X The defendant shall not possess a ftreann, ammWlitioo. destructive device, or.., other dangcrous weapon. (Check, if.ppllcable.) , o The defmdant shall In the collection of ON A as directed by ttlc prot.fdon officcr. (Check, ifapplicable.)
o The dcfendant Jhail register with the stale sex offendcr registration agency in .It&te whcre the defendant residcs, works. OJ is a student, as directed by the probation officer. (Check, ifappllcable.)
o Thc defendant shall participate in an approved propm for domestic violence . • (Cbcck, ifapplicabk.)
Ifthis/'udgment imposes a nne or reJtitUClon, It is a condition of suptTYised re" that the dcfendant pay In accordance with Ihe Schedule 0 Payments sboct of this judgment.
The defendant musl comply with the standard condkions that have beco by this court as well as with lUly additional conditions on the attached page. ,.
STANDARD CONDITIONS OF sppERVISION 1) the defendant shall not leavc the judicial dutria without the permiSSion otdit court or probation officer; 2) the defendant shall repol1lO tbe probation officer and shall submit. tnrthM'.d COf1Ipletc written report within the fint five days of
each month; 3) thc defendant shall answer truthfully all inquiries by the probation officer and follow thc instructions of the probation officer; 4) the defendant shall support his or her dependents and meet other family 5) the defendlUlt sban work regularly at a lawful occupation, unless excused the probation officer for schoo1ina. training, or oliler
acceptable reasons; 6) the derendant shall notity lbe probation officer at least len days prior to IllI)' :Clbangc in residence or employment; 1) the defendant shall retrain from excessive use ofelcoholaod shall not pun:Itr.e, posse.ss, use. distnbute, or adminIster any
controlled substance or any paraphemlllie related to any controlled except as prescribed by. physician; 8) tbc defendlflt shall not hquent places where controlled substanCC$ arc iU.1y aold, used, distributed. or administered; 9) the defendant shall not associate with any p'cnons eDpaed In criminal actIYflY and shall not associate with any penon convicted ofa
felony. unless gnulted pcnnisslon to do 10 by the probafion officer; 10) the defendant shall pennil a probation officer to visit him or hcr at any time.home or clsewhere and shall pennit coofiscat!on of any
contraband obsentcd in plain view orthe probation officer; I I) the defendant shall notify the probation officer withirl !evcnly,fwo hours arrested or questioned by a law enforcement officer; 12) the shall not enter into any 1gecment 10 ICt as an Infonner or "lpCCiai agcnt of a law enforcement agency without the
pennlSSlon of the court; and IJ) as directed by the probation officer, the defeodaDl shall notity third parties _ritb that may be occasioned by thc defendant's criminal
record or history or characteristics IIl'I.d shall permit the officer to makc such notificatiON and to confinn the defendant s compliance with such notificadon requirement.
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Case 2:08-cr-00598-ADS Document 103 Filed 05/13/10 Page 4 016 A0 2U8 (R". O6IOS) Judplent in I Cticn;nll Case
Shoel 3" - Supmlsed Release
DEFENDANT: CASE NUMBER:
GEORGE M. MOTZ CR-08-0598(S-2}Ot (ADS)
ADDITIONAL SUPERVISED RELJ4ISE TERMS •
I. RESTITUTION TO BE DECIDED AT A LATER DATE.
•
2. TIlE DEFENDANT SHALL PAY A FINE IN TIlE SUM OF TWENTY TllVUSAND DOLLARS ($20,000.00) TO THE U.S. A TIORNEY'S OFFICE, 225 CADMAN PLAZA EAST, BROOKLYN J!Y.
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" AOlASB Case 2 :08-cr-00598-ADS Document 103 (Rey. OI!JOS) ill. Criminal c .. Shoel S CIimir* Maocwy p.,aItier
DEFENDANT: GEORGE M. MOTZ CR-08-0598(S-2)-Ot (ADS) CASE NUMBER;
Filed 05/13/10 Page 50f6 ,1
CRIMINAL MONETARY
The defendant mlbC pay the total criminal montlaly penalties under the schedu&c Cllf.paymenu on Sheet 6.
TOTALS Aacwplltt
S 100.00 flu
$ 20,000,00 RnUtullOD
S TO BE DETERMINED
•
o The detcnninaUon of restitution i. deferrod UIllil sfter $UCh determination.
. An JudgMiltrt in a Criminal Case (AO 24.SC) will be entered
o The defendant must make restitution (Including community restitution) to the folkrwing payees in the amount listed below.
lethe defendant makes a partiel payment, payee shall receive an approximIaItY othefWise in the priorit): payment column below. However, pUI'Suadt to tlU.S.C. § 3()64(1). all nontbiml victims must be paid before the United States 15 paTd. '
Nlmso(P •• Tot.! Lpg- Rgtltyt .. Qrdered Priority or PuCSnlne •
TOTALS S _____ -'°L S _____ -'°L
o Restitution amount ordered punuaot to plea agreement S ________ _
o The deferniant must pay interest on restitution and. fine of more than unless the restitution or ftoe is paid in full before the fifteenth day after the date ofche j udgment, pursuant to 18 U.S.C. § 3612(f) • . AII of the payment options on Sheet 6 may be subject 10 penaltiH for delinquency and default, punuant to 18 U.S.C. § 3611(g),
o The court dt1ermined that the defendant does not have the ability to pay and Ills ordered that
o the Interest requirement is waived for the 0 fine 0 restitution..
o the interest requirement for the 0 fine 0 restitution is modiftlld u follows:
• filldinp for tho: totll amount ofloues are underChaptel'$ I09A, 110, I lOA, and J 13A of Til le 18 foroffmsescommitted on orafter September 13, 1994, but before April 23. 1996.
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" A024SB Document 103 Filed 05113/10 Page 6 or6 Shoel 6 - Schedule or
DEFENDANT: CASE NUMBER,
GEORGE M. MOTZ CR-08-0598(S-2)-O I (ADS)
SCHEDULE OF PAYMEN1'S
JlldplX'l'll P.&e --!- of' 6
Hlylng assessed the dcfendant's ability to pay, payment of the total criminal monetary P,lNlties Ire du.c as follows:
A X Lump swn payment ofS ___ due immediatel)', balance m.
o notlatertllan ,01' .\ _ D inaccordance 0 C, 0 0, 0 E,or 0 F below; or '
8 0 Payment to begin immediately (may be combined with 0 C, DO. til 0 F bclow); or
c 0 Payment in equal (c.,., weekly. monthly, quarterly) of S oyer a period of _ _ __ (e.8., months or yean), to commence (c.8., 30 orj() days) after Ole date oftbis judgment; or
D 0 Plyment in equal (e.g., weekly, monthly, quarterly) installilcDts of S oyer a period of -:::::c:<::= (e,g., months or yean), to commence (c.g.. 3001'10 days) after release: from imprisonment to a
term of supervision; or
E 0 Payment during thc term ofsupcnoised release will commence within (e.g., 30 or 60 days) after rclouc from imprisonment. The coun will set the payment plan based on an assessment of'thc defendant's ability to pay at that lime; or
p 0 Special instructions regarding the payment of criminal monetary penalties:
Unless tbe court hu express'r ordered otherwise, ifthisJudgment imposes of criminal penalric5 is due during !mPrisonment. All crunina monetary penalties, except those payments made the Fcdcnd Bureau of PriSOQJ' Inmate Financill ReSpomibilify Program, arc made to the of the court.
The defendant shall receivc endlt for all payments previously made toward any crintiDaI monetary penalties imposed.
X Joint and Several
Defendant and Names and Caso Numbers (including defendant mubber), Total Amount, Joint and Seven) Amount, and payee, if appropriate.
MELHADO, FLYNN & ASSOClA TES CR·08-!598·02 (ADS).
o The defendant shall pay the cost ofprosecudoo.
o Thc defendant shall pay the following court cost(s):
o The defendant shall forfeit the defendant's ioterest in thc following property to Ita, United States:
Pa}'!!lents shall bClapplic.d in the following order: (I) USC$Sment, (2) restitution Princtal. (3) restitution interest, (4) fine prinCipal. (!5) fine interest, (6) community restitution, (7) penalties, and (8) Including COlt and court costs.
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SPA21
"AO 2458 (Rev. 06105) Judgment in a Climinal Case
UNITED STATES DrSTRlCT COURT EASTERN District of NEW YORK
UNITED STATES OF AMERICA (1""-,,..,,) JUDGMENT IN A CRIMINAL CASE v.
Case Number: GEORGE M. MOTZ USM Number:
CR·OS·0598(S·2)·O I (ADS)
72209-053
G. Robert Gage, Esq. (RET) fRoger Burlingame, AUSA Dcrendant"s AUorne)'
THE DEFENDANT: X pleaded guilty 10 count{s) ONE (SINGLE COUNT SECOND SUPERSEDrNG INDICTMENT).
o pleaded nolo contendere to count(s) which was accepted by the court.
o was found gui lty on counl(s) after a pIca of not gUilty.
The defendant is adjudicated guilty ofthese offcnses:
T itle & Section 18:1348(1)
Nature o(Offcnse SECURITIES FRAUD, a Class B Felony
Offense Ended C ount I
The dcfcndanl is sentenced as provided in pages 2 through the Sentencing Reform Act of 1984.
_ ..... 6 _ _ of lhis judgment. The sentence is imposed pursuant 10
o The defendant has been found not guilty on count(s)
X Counl(s) and Second Superseding Indictment 0 is X are dismissed on the motion of the United States.
It is ordered that the defendant must notifY the United States attorney for this district within 30 days of any change of name, residence, or mailing address until all fines, restitution, costs, and special assessments imposed by this judgment are fully paid. If ordered to pay restitution, the defenOanI must notify the court and Un ited States attorney of material changes in econom iC circumstances.
April 28 2010
Signature of Judge
HONORABLE ARTHUR D. SPAlT, U.S.D.J. - •.
1 .. 1 ROBERT c. HElNEMANl'I
l' .............. ..... . (J \>,V ·_· ! r .... <y .......... ....... . : .... : .. ,
- .' .
Name and Title of Judge
June 18.2010 Date
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SPA22
AO 245B (Rey, 06/()S) Judgmtllt in Cri minal Case Shee! 2 - Imprisonment
DEFENDANT: CASE NUMBER:
GEORGE M. MOTZ CR-08-0598(S-2)-01 (ADS)
IMPRISONMENT
Judgment Page
The defendant is hereby committed 10 the custody of the United States Bureau of Prisons to be imprisoned for a total teon of:
, of
NfNETY SIX (96) MONTHS. THE DEFENDANT SHALL BE GIVEN CREDIT FOR TIME ALREADY SERVED, IF ANY.
X The court makes the following recommendations to the Bureau of Prisons:
6
THATTHE DEFENDANT SERVE HIS SENTENCE ATTHE MINIMUM SEC URITY FACILITY AT THE FEDERAL PRISON CAMP fN PENSACOLA, FLORIDA. THE DEFENDANT SHALL BE GIVEN MENTAL HEALTH TREATMENT.
OThe defendant is remanded to the custody of the United States Marshal.
X The defendant shall surrender to the United States Marshal for this district
x o " ___ "12",:0,,,0 ___ 0 a.m.
as notified by the United States Marshal.
X p.m. o. 6/30110 or the Institution designated
OThe defendant shall surrender for service of sentence at the institution designated by the Bureau of Prisons:
o before 2 p.m. on
o as notified by the United States Marshal.
o as notified by the Probation or Pretrial Services Office.
RETURN
f have executed thisjudgmenl as foll ows:
" Defendant del ivered on to
______________ , with a certified copy of this judgment.
UNITED STArES MARSHAL
DEPUTY UNITED STATES MARSHAL
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SPA23
AO 2459 (Rev. 06105) Judgment in a Criminal Case SlIcel J - Release
Judgmcll! Page of DEFENDANT, CASE NUMBER,
GEORGE M. MOTZ CR-OS-059S(S-2)-OI (ADS)
SUPERVISED RELEASE
Upon release from imprisonment, the defendant shall be on supervised release for II term of:
THREE (3) YEARS.
The defendanl must repon 10 the probation office in the district to which the defendant is released with in 72 hours of release from the custody of the Bureau ofPnsans. The defendant shall not commit another federal, state or local crime. The defendant shall not unlawfully possess a controlled substance. The defendant shall refrain from any unlawfu l use of a controlled substance. The defendant shall submit to one drug test within IS days of release from imprisonment and at least two periodic drug tests thereafter, as determined by the court. o The above drug testing condition is suspended, based on Ihe court's detennination that the defendant poses a low risk of
fUlure substance abuse. (Check. if applicable.) X TIle defendant shall not possess a fireann, ammunition, destructive device, or any other dangerous weapon. (Check, if applicable.)
o The defendant shall cooperate in the collection of ON A as directed by the probation officer. (Check, ifapplicable.)
o The defendant shall register with the state sex offender registration agency in the state whcre the defendant residcs. works, or is a student. as directed by the probation officer. (Check. ifapplicable.)
o The defendant shall participate in an approved program for domestic violence. (Chcck, if applicable.)
If this/'udgment imposes a fine or restitution, il is a condition of supervised release thai the defendant pay in accordance with the Schedulc 0 Payments sllcet of this judgment.
The defendant must comply with the standard conditions that have becn adopted by this court as well as with any additional conditions on the attached page.
I) 2)
3) 4)
5)
6)
7)
8)
9)
10)
II) 12)
13)
STANDARD CONDITIONS OF SUPERVISION the defendant shall not leave Ihe judicial district without the permission of the court or probation officer; the defendant shall report to the probation officer and shall submit a truthful and complete written repon within Ihe first five days of cach month; the defendant shall answer truthfully all inquiries hy the probation officer and follow the instructions of the probation officer; the defendant shall support his or her dependents and meet other family responsibilities; the defendant shall work regularly al a lawful occupation, unless cxcused by the probation officer for schooling, training, or other acceptable reasons; the defendant shall notify Ihc probation officer at least ten days prior to any change in residence or employment; the defendant shall refrain from excessive use of alcohol and shall not purchase, possess, use, distribute, or administer any controlled substance or any paraphernalia related to any controlled substances, except as prescribed by a physician; the defendant shall not frequent places where controlled substances are illegally sold, used, distributed, or adm inistered; the dcfendant shall not associate with any I?crsons enga!led in criminal activity and shall not associate with any person convicted of a felony, unlcss granted pennission to do so by the proballon officer; the defendant shall permit a probation officer 10 visit him or her at any time at home or elsewhere and shall pennit confiscation of any contraband obscrved in plain view oflhe probation officer; the defendant shal l notify the probation officer within sevcnty-two hours ofbcing arrested or questioned by a law enforcemenl officer; the shall not enler into any agreement 10 act as an informer or a special agent of a law enforccment agcncy without the permiSSion of the cour1; and as directed by the probation officer, the defendanl shaJJ notify third parties of risks that may be occasioned by the defendant'S criminal record or personal history or characteristics and shall pcnnit the probation officcr to make such notifications and to confirm thc defendant's compliance with such notification requirement.
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SPA24
AD 24SB (Rev. O6AlS) Judgment in. Criminal Case Shut 3A - Supervised Relcase
DEFENDANT: CASE NUMBER;
GEORGE M. MOTZ CR·08-0598(S·2)·01 (ADS)
ADDITIONAL SUPERVISED RELEASE TERMS
I. RESTITUTION TO BE DECIDED AT A LATER DATE.
2. THE DEFENDANT SHA LL PAY A FINE IN THE SUM OF TWENTY THOUSAN D DOLLARS ($20,000.00) TO T HE U.S. ATTORNEY'S OFFICE, 225 CADMAN PLAZA EAST, BROOK LYN NY.
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SPA25
AO (Rev. 061(5) Judgmenl in, Cr!minal C.se SIIeel5 -Criminal PCNlltics
DEFENDANT, CASE NUMBER,
GEORGE M. MOTZ CR-08-0598(S-2}01 (ADS)
Page
CRIMINAL MONETARY PENALTIES
The defendant must pay Ihe total criminal monetary penalties under the schedule of payments on Sheet 6.
Fine Restitution
, of
TOTALS A.'i$eument
$ 100.00 S 20,000.00 S TO DE DETERMINED
•
o The detenninstion of res lit uti on is deferred until after such delcnnination.
. An Amended Judgment in a Criminal Case (AO 245C) will be entered
o The defendant must make restitution (including community restitution) to the following payees in the amount listed below.
If the defendant makes a partial payment, each payee shall receive an approximately proportioned payment, unless specified otherwise in the priority order or percentage payment column below. However, pursuant to 18 U.S.C. § 3664(i), all nonfederal victims must be paid before the United States is paId.
Name of Payee Restitution Ordered Priority or Percentage
TOTALS $ ______ 0,,- $ ______ -"-0
o Restitution amount ordered pursuant to plea agreement S _ _ _______ _
o The defendant must pay interest 00 restitution and a fine of more than $2,500, unless the restitution or fine is paid in fu ll before the fifteenth day after the dale of the judgment, pursuant to 18 U.S.C. § 3612(f). All of me payment options on Sheet 6 may be subjCGt to penalties for delinquency and default, pursuant to 18 U.S.C. § 3612(g).
o The court determined that the defendant does not have the ability to pay interesl ll.nd it is ordered that:
o the interest requirement is waived for the o fine 0 resti tution.
o the interest requirement for the o fine 0 restitution is modified as follows:
.. Findings for the total amount oflosses are required under Chapters 109A, 110, II OA, and 113A ofTitle 18 forolTenses committed on or after September 13, 1994, but before April 23, 1996.
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SPA26
AO 2458 (Rev, 06l0j) Judgment in a Criminal Cue Sheet 6 - Schedule of Payments
DEFENDANT: CASE NUMBER:
GEORGE M. MGTZ CR-08-0598(S-2)-Ol (ADS)
SCHEDULE OF PAYMENTS
Judgment Page
Having assessed the defcndant's ability to pay, payment of the total criminal monetary penalties are due as follows:
A X Lump sum payment of $ _ _ _ due immediately, balance due
o not later than ." o in accordance o C, 0 D, 0 E,or 0 Fbelow;or
B 0 Payment to begin immediately (may be combined with DC, o D, or 0 F below); or
6 .r
c 0 Payment in equal (e.g., weekly, monthly. quanerly) installments of $ over a period of (e.g .• months or years), to commence (e.g., 30 or 60 days) after the date of this judgment; or
D 0 Payment in equal (e.g., weekly, monthly, quanerly) installments of S over a period of (e.g., months or years), to commence (e.g., 30 or 60 days) after release from imprisonment to a
tenn of supervision; or
E 0 Payment during the leon of supervised release will commence within (e.g., 30 or 60 days) after release from imprisonment. The court wil l set the payment plan based on an assessment of the defendant 's ability to pay at that time; or
F 0 Special instructions regarding the payment of criminal monetary penalties:
6
Unless the court has expresslrordercd otherwise, ifthisju dgment imposes imprisonment, payment of criminal monetary penalties is due during imprisonment. All cnmina monetary penalties, except those payments made through the Federal Bureau of Prisons' Inmate Financial Responsibility Prcgram, arc made to the clerk of the court.
The defendant shalt receive credit for all payments previolJsly made toward any criminal monelary penalties imposed.
X Joint and Several
Defendant and Co-Defendant Names and Case Numbers (including defendant number), Total Amount, Joint and Severa! Amount, and corresponding payee, if appropriate.
MELHADO, FL.YNN & ASSOCIATES CR-08-598-02 (ADS).
o The defendant shall pay the cost of prosecution.
o The defendant shall pay the foHowing court cost(s):
o The defendant shall forfeit the defendant's interest in the following property to the United States:
Payments shall be applied in the following order: (1/ assessment, (2) restitution principal, (3) restitu tion interest, (4) fine principal, (5) fine interest, (6) community restitution, (7) pena ties, and (8) costs, including cost of prosecution and court costs.
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SPA27
AO 24SB (Rev. 06105) Cnmlnl' Judgment Anachmcnl (Pqe 2) SlalemenlofReuom
DEFENDANT: GEORGE M. MOTZ CR-08-0598(S-2)-OI (ADS) EASTERN
CASE NUMBER: DlSTRlCf:
STATEMENT OF REASONS (Not for Public Disclosure)
IV ADV ISORY GUIDELINE SENTENCING DETERMINATION (Check only one.)
A D B D
C D
D X
n nlU(e II l'I'illiin I n I dvisory nnge Ihl l is nOI Iha n 24 lIIon th" Indille (ourl fo nds no ruson 10 dcpl l1.
The Stlltcnct I. with in I n Idvisory guideline n nge ,h i ' I, eru lcr Ihan 14 monlll!, I nd Ihe spedfic Stn lcncc Is Imposed fo-r (hUt rU,ons. (Usc PlI&t 4 if necessary.)
The courl dcplrl' from Ihe advisory gu ideline nllee fur rcuon • • by til( n nlut!ng guidelines m. nual. (Also complete Section V.)
Th court "'Ipo$ed I senlel>« ()!J tsidc the adviso ry sentencing I: uldcline .ystem. (Also complete Section VI.)
V DEPARTURES AUTHORIZED BY THE ADVISORY SENTENCING GUIDEL rN"ES (Ifapplicable.)
A The sentt nce imposed departs (Check only one.); o below the advisory guideline range o above the advisory guideline range
n Departure based on (Check. art that apply.);
Plea Agret ment (Check all that apply and check. reason(s) belOW.); o SK 1.1 plea agreement based on the defendant's substantial ass istance o SKJ.I plea agreement based on Early Disposition or "Fast·track." Program o binding plea agreement for departure accepted by the court o plea agreement for departure, which the court finds to be reasonable o plea agreement ihal Siales that the government will flOt oppose a defense departure motion.
2 Motion Not AddreS5ed in a Plea Agreement (Check alltha! apply and check. reason(s) below.): o SK [.1 government motion based on the defendant 's substantial assis tance o SKJ . 1 government motion bascd on Early Disposition or "Fast-track." program o government motion for departure o defense motion for departure to which the government did not object o defense motion for departure to which the government objccted
3 Other o Other than a plea agreement or motion by the part ies for departure (Check reason(s) below.):
C Reason(s) for Depll rlure (Check all that apply other than SK 1.1 or SK3. 1.)
D Criminal Histor)' Inadequacy D SK2.1 "'., D 5K2.1 I Harm D SH I.I A,o D '/(2.2 Physical Injury D SKl. 12 COCfcm and Duress D Eduellion.nll Voeationll Skills D 51(2.3 Exlll:mc P$ycholoaicIJ Injury D 5K2.IJ Diminished Clplcity D SHU Mental and Emocion .. Condition D SKl.4 Ab!llICIion or Unll wful RQ!.arnl D Public Welfare 0 5HI.4 Physitll Condit;';'" D SK2.5 l'rogeny Damage or Loss D SKl.16 Voluntary DiscJosuf(: 01 otren.c 0 ,UU RteOI"d D SKl.6 Weapon Of Dangerous Weapon D SKl.J7 HigI\-Cap;,city, Semiautomatic WClpon D SHU. FlII'llily Tics IUld Responsibililies D 'K2.1 Disruption o{Government Funclion D 'Kl." Violent Stree! Gang D 5m II Military- Record, Charitllble Service, D SK.2.S Extn:me Conduct D SK.2.20 AbcfTMt Behavior
Good Works D SK2.9 Criminal Purpose D 5K2.21 Dismissed and Unch"lCd Conduet D SK2.0 Agaravl tinl or Miliga1ine CircumstanGCS D 5K.2. IO Victim's Conduct D SKl.22 Age or Health o( Sa Offenders
D 5K.2.l3 Disd\argcd Tams of Imprisonment D OIlier Suidcline basis .. 2B 1.1 commc.l!ary)
D Explain the fnels j uslirying the departure. (Use page 4 if necessary.)
AD 2458 (Rev. 06105) Criminll Judgment
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SPA28
DEFENDANT, CASE NUMBER, DISTRICT,
GEORGE M. MOTZ CR-08-0598(S-2)-OI (ADS) EASTERN
STATEMENT OF REASONS (Not ror Public Disclosure)
VI COURT DETERM INATION FOR SENTENCE OUTSIDE THE ADVISORY GUIDELINE SYSTEM (Check all that apply.)
A The sentence imposed Is (Check only one.): X below the advisory guideline range o above the advisory guideline rdnge
B Sentence imposed pursuant to (Check all that apply.):
Pica Agreement (Check all that apply and check reason(s) be low.): o hinding pica agreement for a sentence OtItsidc the ad visory guideline system accepted by the cou rt o plea agreemem fOf a senten« outside the advisory guidel ine syslcm, which the coun fillds 10 be r<asonablc o pka Sillies that Ihe government will not a defense motion to Ihe cou rt to outside Ihe advisory guideline
system
2 Molion Not Addressed in a Pica Agreement (Check all that apply and check reason(s) below.): o government morion for I sentence outside ofrhc advisory guide line system o defense mOlion for 1 sentence oU15ide oflhe advisOI)' guideline system 10 which the government did not object o defense morion fot B sentence outside of the advisOf)' guideline system 10 which the govemmcm objected
3 Other o OIher than a plea agreement or motion the parties fur a sentence outside of the . dvisory guideline system (Check reDsonCs) below.):
C Reoson(s} for Sentence Outside the Advisory Guideline System (Check all t hat apply.)
o the nature am! circumstances of the offense and the hiUOl)' and cllar1lcleristics ofth c defendant to 18 U.S.c. § JSD(aXt )
o 10 refleet the se riousness of the offense. 10 promote rcspec{ fot the law, and to provide just punishment fO/ the offense (18 U.S.c. § J5.53(IX2XA»
o to .fford adequate deterrence to criminal conduct (18 U.S.C. f J55J(a)(2XBj)
o to protectlhe public from further crimes Oflhc defendant (II U.S.C. §
o to provide the defendant with needed educational or YQC.lIlional training. medical care, or other correctional treatment in the most effective manner (IS U.S.c. § 3553(1)(2)(0»
o to avoid unwarranted sentencing disparit ies among defendants (18 U.S.C. § 3SS3(a)(6» o to provide restitution 10 Iny victims of the offense ( IS U.S.C. § 3553(8)(7))
D Explain the facts Justifying a sentence outside the advisory guidellne systerll. (Use page 4 if necessary.)
AD 24S8 (Rev. O6IOH Cr imi!!al Judgrnent Auachment (Page 4) - Statemem of Reasons
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SPA29
DEFENDANT: CASE NUMBER: DISTRlCT:
GEORGE M. MOTZ CR-08-0598(S-2)-OI (ADS) EASTERN
STATEMENT OF REASONS (Not for Public Disclosure)
VU COURT DETEUMfNATIONS OF RESTITUTION
A 0 Restitution Not Applicable.
B Total Amount of Rest itution: TO BE DETERMINED
C Restitution not ordered (Check only one.);
o For ofTcn't5 for which restitut ion is otherwise mundalOf}' un!h:r 18 U.S.C. § )663A, Ies!ilution is nOI ordered because Ihe number of ident in.blt: victims is iIQ IRlge as to make resl iMion impracticable unller 18 U.S.C. § 3663A(c)/3)(A),
2 0 Foroff= (or which restitution is otherwise mandatory undu 18 U.S.C. § 366JA, ItSliluliOIl is not ordered bec, u.sc determining complex iuues offact and relating them to the cause or amount orlhc victims' lossc:5 would complie.1I: or prolong Ihe sentencing process to I degree Ihat the need to provide mlilulion 10 My viclim would be outweighed by the burden on the prouu under 18 U.S.C. § 3663A(c)(3)(O).
3 0 Forolher offenses for which is autholized under 18 U.S.C. § 3663 and/of required by the !tnlenting gu idelines, reSlilulion i5 not ordered because the complication lIIld prolongatil)lllJfthe sentencing proce5$ resulting from the fashioning or. restitution order outweigh the neW 10 provide rCSlitution to any victi!ll!i under 18 U.S.C. ,3663(a)(IXB)(i;).
4 0 Restitution is not ordered for other rcasons. (Explain.)
o 0 Partial restitution is ordered for these reasons (18 U.S.C. § 3553(c»:
VlIf ADDIT IONAL FACTS JUSTI FYING THE SENTENCE IN THIS CASE (Ifapplicable.)
BASED ON THE CIRCUMSTANCES rNVOLVED [NTH IS SENTENCING, TNCLUOrNG A CONSIDERATION OF THE ADVISORY GUIDELINES, THE STATUTORY REASONS FOR SENTENCrNG THE DEFENDANT'S LACK OF A CRIMINAL HISTORY AND HIS MILITARY SERVICE, THE COURT IMPOSES.96 MONTHS IMPRISONMENT AS A REASONABLE SENTENCE. ; A Tr TTli; rnpy
,-.-'-- ATI'E5" It " 1
. Sections I, II, III, IV, and VI I of the Statement of Reasons fonn must be completed in all felony cases.
Defendant's Soc. Sec. No.: ____ ___ __ _
Defendant's Date of Birth: ___________ _
Defendant's Residence Address: 6 Bayview Drjve Quogue, NY 11959
Defendant's Mailing Address: SAME AS ABOVE
osition of Judgment 10
Name and Title of Ju e Date Signed June 18, 20 to
.0.1.
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SPA30
.... O6IOS) Criminal Anlchmcnt{Pagco I) SWemenlofRusons
F I LFr) IN Ci 'RK'S (':· -;- 'CE
DEFENDANT, CASE NUMBER, D1STRJCT:
GEORGE M. MOTZ CR-08-0598(S-2)-OI (ADS) EASTERN US D!Sl h ICT COu R"1 I:.D.N Y
STATEMENT OF REA.S (Not (or Public Olsdosu1 * !: l.'f 1·1 2Qiil *
COURT FINDlNGS ON PRESENTENCE INVESTIGATION REPORT LONG ISLAND OFFICE A 0
" X
2
)
•
C 0
The court adopts the presentence investigation report without cltange.
The court adopts the pre5entence investigation report with tbe following changes. all dUll apply and (;O\lf"I determination, fmdings, or COIl1I11U\ts, I':!'c:r-.ina paragaph numbers In the presenlence report. ifapplicable.)
(Use pap 4 ,fnecessary.)
X Chlptrr Two of Ibe U.s.s.r.. M .. IIIII determ;nalions by 000111 (includinr. c'*acs 10 base offense or specific offense cllltacterislics);
o Clup(er Tllr« Orille U.s.s.G. Mln.al clctetrninal;ons by coun (inc ludi"l.tllngcs 10 vict;m·n:lated adjustments. rolc in the offense, obstl'UClion ofjuslicc, multiple counts, or lcecplllllCC
o Cllapltr FOllr ofille U.s.s.G. Mloilil determinllions by coun (includina 10 criminal lI istory C11C&OTY or $CO!"C$, career ofTenclet, or crimlnallivclillood dClmninations):
o Additional CommcDtJ Of" Flltdhllf (includinl comments Of faclua! findu.. eenain information in lhe n:port thlll lhe Feden] Bureau ofPriSOR$ may rely on when it...w..a inmate crusiflcalion,
Of PrQ&rImrninl decisions):
The rtcord establishes no need (or a presentence investigatAo! report pursuant to Ft'd.RCrlm.P. 32.
II COURT FINDING ON MANDATORY MINIMUM SENTENCE all that apply.)
A X
" 0 C 0
No c:ounl afoonvKlion I mandatory minirnum sentencc.
Mandatory minimum $CT1lc11cc imposed.
One ar CO\II\ts Ille&ed in the indictment earry I manaatory lerm ofimprisonmenl, bUllhe 5Cn1CllCC ,mposed;s below a mandatory minimum term because the rollIll\as ,-""ined that the mandalOf)' minimwn docs not apply based on
o findings affael in tbi!; case o 5ubstanliallS5istancc (r8 U.S.C. § lSSl(e» o !he Slalulory slife!}' (II U.S.C. f )SS3(f))
III COURT DETERMINATION OF ADVISORY GUIDELINE RANGE (BEFORE DEPARTURES):
Total OlTense Level: 33 Criminal History Category: I Imprisonment Range: 135 to 168 months Supervised Release Range: 3 10 Fine Range: $ 17,500 to S 4,800,000
5 years
o Fine waived or below the guideline range because of inability to pay,
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SPA31
...... AO 24S8 (Rev. 06lOS) Criminal Judgment A!t¥llIntn! (Page: 2) SUilatlen\ ofRcasotIS
DEFENDANT, CASE NUMBER, DISTRICT:
GEORGE M. MOTZ CR-08-0598(S-2)-OI (ADS) EASTERN
STATEMENT OF REAsoliS (Not for Public Di5cloSur;) ..
IV ADVISORY GUIDELINE SENTENCING DETERMINATION (Check 0
A D B D
c D
o X
The statuu I, witblo . n .dYltory lulddJo£ unit lb.t" Irutu tb.n:U (U5e page" ifnectSSlIr)'.)
.nd tll£ COliN finds aD rellloa to d£p.M .
.. od Ibe speclflc Is 100pDJtd (or Ih_ r C"fl'on,.
TIlt court dtptrtl from Ibt .dvlsory ,.ldellne r.nlt for rUJOIII '''Illoriud '" -.e Hnlcnclnl ,.idellnts ruau.l. (Also \X)IT)jtleic Scetion V.)
Tile coyrlllllpond. HOlence IIullllde Ihe .dvbory H.lend"l luidtllnt complete Section VI.) , V DEPARTURES AUTHORlZED BY THE ADVISORY SENTENCING GUDELlNES (If applicable.)
" A Tbe .sentence Imposed departs (Check only one.): o below the advisory guideline range o above the advisory guideline range
B Departul"e baste! on (Check all that apply.):
Plea Agreement (Check ailihat apply and check reason($) *.): o 5K 1. 1 plea agreement based on the defendanl's assistance o 5K3. 1 plea agreement based on Early Disposition or "r..-vsck" Program o binding plea agreemenl for departure accepted by the cowt o plea agreement for departure, which the court finds to be Iusonable o plea agreement that states thai the government will not a defense departure mOlion.
Motion No. Addressed In a Plea Agreement (Check all Fly and check reason(s) below.}: D SK 1. I government motion based on the defendant's su..,tial assistance o 5K3.l government motion based on Early Disposition or·"Fast·track" program
2
o governmenl motion for departure o defense motion for departure 10 which the government nol object o defense mOlion for departure to which the government oIjecled
J Other D Other than a plea agreemenl or motion by the panies for .departure (Check reason(s) below.):
C Reuon(s) for Departure (Check all that apply other than SKI lor 51<3,1.)
D Criminal History D SKl.1 Do,. D 5Kl.1I I..e:uer Html D AS' D SK2.2 Physical Injury D SKl. 12 Coercion .. d Durcss D SHl.2
D Educalion and Voca!.ional Skills D SKl.3 l's)"cboIogieaI In.iup' D SK.2. 13 Diminished C..,teity Mallal and Emotional Condition D Stu .. AbdllCtion or Unlllwfu! R""t 0 Stu. 14 f'ublic
D Physical Condition 0 SK2.S Propat)' Damage or Lou D Vohmtllr}l Diselosun: of Offense 0 5H1 .5
D SH I.IS Emplo)"lnCnt Rcoord D SKl.6 Weaporl or Dangerous w..pon D SKl. 17 Higll-Cllpll(: ily, SemiaulOmll.ic Weapon Family Ties iUld Responsibililies D SKl.7 Disruption ofOovemmcal '-'c:tIon D SKl.iS Violent Sau:t GlIlg
D SHU I Military Record. ChariUble Service, D SKU Exlreme Conduci D SKl.20 Abcmmt Behavior Good Worts D 'Kl.9 Criminal Purpose D SK2.2 1 Dismissed and Uncharged CondllCl
D Aggravating or Milipling Cin:UIT\Stam:es D Stu. 10 Viclim's Conducl ,. D SKl.ll Age or Healtll of Sex Offenders , D SKl.23 Di,chara:cd TennJ oflrnprisonmall
D Other guideline buis (I.k., 281 .1 commtnW)')
o Explain tbe racts justifying the departure. (Use page 4 if necessary.)
AO 24S8 O6IOS) Criminal Judgment Altl.Cbmen! (r. 3) - Slau::mcru of Rcasotll
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SPA32
DEFENDANT: GEORGE M. MOTZ CR-08-0598(S-2)-OI (ADS) EASTERN
CASE NUMBER: DlSTRICf:
VI
STATEMENT OF REASQNS (Not for Public Disclosure) ;
COURT DETERMINATION FOR SENTENCE OUTSIDE THE GUIDELINE SYSTEM (Cheek all lhat apply.)
A The sentence imposed Is (Check only one.): X below lhe advisory guideline range o above the advisory guideline range
., . . ' 2 ..... , ,
B Scalence imposed pursuant to (Check alllhat apply.):
Pica Agreement (Cheek a ll that apply and check rcason(s) below.): o binding plu for . ouuide lhe advLsocy auidelillC: "'*"" &Co;epIcd by 1M 1;0\11'\
o pie. foc. JClUCfICC ou"id!;: the IIdvlSOf)' guideline sysIetn. +" the o;ourt finds be:: l'eltSOl'lable o plea II&Jccmcllt thai states tllil the govwlll1Cnl .... iII not oppose. mOll0l110 the (lOUn to sentence outside the ld'viSOf)' guideline
'Y'.m
2 Motion Not Addressed In a Plea Agreement (Check and cheek reason(s) below.): o pel1UllC:llt motion for a outside of the IIdvil«)' guideline S)'iIIm o defense lIlOfion for a scnteno:eoutsidc of the advi$Ory guidel ine 5)'StaIi:1O wh ich the government d id II1If objcet o defense IT\OIion for a SCtItrnee oLlUide of the aotvi$Ory guideline 10 which the government objected
3 Other o Other than a plea agreemml or mot ion by the: pmies for a sentence ouuilk of the advisory guideline I)'mm (Cheek reason{$) below.);
C Reason(s) for Sentence Outside the Advisory Guideline System (Chtck all that apply.)
o lI.ture IIld circunutanccs of tile offense IIld the hislory lOdeharao;tulslie$ of lhe defendanl pursuant to 18 U.S .C. § lSSl{I)( I)
o 10 ren tel the seriOU5nC$S oflhc offense, to promote rt:Sp«! for the law, IIld to plOY_ jUSI punishment for the offense (l8 U.S.C. f 3SSJeaK2XA»
o to afford Idequatc 10 criminal conduct ( 18 U.S.c. § 3SS)(1)(2)(B»
o 10 prol:ec1 the public from funhcr crimes of lile defendanl (18 U.S.C. § 35SJ(I)(2XC)1
o 10 provilk !he defendant with roo;edcd educ:.zicmal or vOCIIional lrain in& medical . or other corre<:tional uutmmt in the most effec:tive manner ( II U.S.C. § 3SS3(aX2)(O»)
o 10 avoid. unwarTallted sentencing IlII001 dcfcndarolS ( 18 U.S.C. § JH3(V;6)
o to proYide restitution 10 any vict ims ollhe offensc (18 U.S.c. § lS53(a)(1))
D Explain the facts justifying a sentence outside the advisory guiddHte system. (Usc page 4 irnceessary.)
AO 2455 (Rev. 06J(5)CriminaJ Judgment An.aehmcnt (Page 4) - Statement of , ,
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SPA33
DEFENDANT, CASE NUMBER: DISTRICT:
GEORGE M. MOTZ CR-08·0598(S·2}OI (ADS) EASTERN
;-... STATEMENT OF
(Not (or Public:: Diselosure)
VII COURT DETERMINATIONS OF RESTITUTION
A 0 Restitution Not Applicable.
B Total Amount of Restitution: TO BE DETERMINED
C Restitution not ordered (Check only one.):
o For otren$e:J for which restitution;' otherwise mandllOf)' under J 8 U.S.C. § 16QA. resliMion is nOl 0I'\krcd bmlusc numMlof identifiable viclims is so larJr IS to make reslilulion tmpnlo;ticabie uncle, 18 U.S£. § 366JA(c}(J)(AJ.
2 0 For ofTmo;es for which is otherwise mandarory under 18 U.S.C. f 166lA. restilution is nof ordered because determining complex iuutl of fact and them to thoe cause or amount of the victims' losses ...... oomplieale or prolong Ihe ser1leneins plDlZS$ 10 • <levee Ihat!he need to provide restitution to MY v)etim ..00ld be ouTWeighed by the b....;kn on 1M senlrncina procus under 18 U,S.C. § 166'A(c}(3)(B).
J 0 For O1l1c:roffcnscs ror whiet! IeSlitlllion il MlIbOfi«d unde, 18 U.S.c. § 3663 .... required by !he senteslcinl1;Uidclinc:s. restitution is IlOl ordered b«ause eonapliealion and prolonsllion ofthc: sentencing prooc» +1 !Torn lhe fashioning of l reslituliQn order outweigh lhe need 10 provide restitution 10 any ViClilTll under I B U.S.C. § )66)(I)( I)(BXilX
4 0 RCSlitution;s IlOl orlkrcd forOlhcr reasons.. (Exp-llin.)
D 0 Partial restitution is ordered for these reasons (18 U.S.C. § JS53(c»:
VIII ADOITIONAL FACfS JUSTIFYING THE SENTENCE IN THIS CASE CU":tpplicable.)
BASED ON THE CIRCUMSTANCES INVOLVED IN THIS UDING A CONSIDERATION OF THE ADVISORY GUIDELINESbTHE STATUTORY REASONS FOR SENTEN\,.; THE DEFENDANT'S LACK OF A CRlMrNAL HISTORY AN HIS MlLtTARY SERVICE, THE COURT I 96 MONTHS lMPR1S0NMENT AS A REASONABLE SENTENCE. '
Sections I, II, III, IV, and VII of the Statement of Reasons fonn mUllltbe completed in all felony cases.
Defendant's Soc. Sec. No.: _ ________ _
Defendant's Date of Birth: JI"' "19.'ll94"""'-______ _____ _
Defendant's Residem:e Address: 6 Bayview Drive Quogue, NY 11959
Defendant'S Mailing Address: SAME AS ABOVE
....... ,position of Judgment 28 0 0 A
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Case 2:08-cr-00598-ADS Document t21 Filed 08105110 Page 1 of 3
UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK -----------------------------------------------------------J( UNITED STATES OF AMERICA,
-aga inst-
GEORGE M. MOTZ, and MELHADO, FLYNN & ASSOCIATES, lNC.,
Defendants. -----------------------------------------------------------J(
SPATT, District Judge.
ORDER 08-CR-598 (ADS)
On April 28, 2010, Defendant George Motz was sentenced to 96 months
imprisonment and three years of supervised release for his role in a fraudu lent cherry-
picking scheme. Prior to his sentencing, the Court held a Fatica hearing at which it
determined that Matz's fraud cost hi s victims $2.4 million in total losses. However, at
his sentencing, the Court deferred decision on the issue of restitution so that the
parties could fi le submissions deta il ing the losses incurred within the statute of
limitations. Tr. 86-94.
It is well-established that in cases not involv ing a continuing offense, victim
losses incurred outside the relevant statute of limitations may not be considered for
purposes of restitution. United States v. Silkowski, 32 F.3d 682 (2d Cir. 1994). Here,
because the Court found that Motz's scheme was not a continu ing offense, United
States v. Motz, 652 F. Supp. 2d 284, 294 (E.D.N.V. 2009), he may not be assessed
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Case 2:08-cr-00598-ADS Document 121 Filed 08105/10 Page 2 of 3
restitution for victim losses incurred prior to August 27, 2003, the relevant date for
sta tute of limitations purposes.
Using the same methodology that the Court accepted to calculate the total
amount ofioss, the Government's expert, Professor Lawrence Harris, has determined
that Motz's victims lost $864,806 wi thin the limitations period. Ln opposition, Motz
cla ims that the Government has failed to ca rry its burden under 18 U.S.C. § 3664(e) to
demonstrate the amount of loss sustained by his clients. He also contends that
restitution would not be appropriate in this case because it would amount to a windfall
for clients who ultimately profited from the los ing trades that he assigned to the ir
accounts.
The Court declines Motz's invitation to revisit victim loss issues that were
decided during the Fatico hearing. The Court finds that Professor Harris's calculation
accurately determines the losses the victims sustained within the limi tations period.
Accord ingly, the Court orders that Motz pay restitution in the total sum of$864,806.
T he only remaining issue that the Court must decide is the schedule of restitution
payments.
Motz's counsel has advised the Court that the net proceeds from the sale of
Mr. and Mrs. Motz's home amounted to the sum of$812,598.06. Mr. Motz's one-half
interest in the sale proceeds, $419,148.06, has been placed in an escrow account
pending the Court's decision on resti tution. Based upon this information and the other
2
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Case 2:0S-cr-0059S-ADS Document 121 Filed 08/05/10 Page 3 of 3
financia l data contained in the Pre-Sentence Report, the Court orders that restitution
be paid to the Clerk of the Court in the foll owing manner:
Within 30 days of the date of thi s order, Motz shall pay the sum of
$419,148.06, which represents his 50% interest in the proceeds from the sale of his
home. In the event that the undeveloped property at 8 Bayview Drive, in Quogue,
New York is sold, Motz shall pay 50% of the net sa le proceeds. With regard to the
balance of the restitution, within 60 days after his release from incarceration, Matz
shall pay, on a monthly basis, 10 % of his gross monthly income.
SO ORDERED.
Dated: Central Islip, New York August 5, 2010
lsi Arthur D. Spall ARTHUR D. SPATT
United States District Judge
3
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Case 2:08-cr-00598-ADS Documenl128 Filed 09/'6/10 Page 1 of 3
UN ITED ST ATES DIST RICT CO URT EAST E RN DISTRICT O F NEW YORK -----------------------------------------------------------)( UNlTED STATES OF AMEIUCA,
-against-
GEORGE M. MOTZ, and MELHADO, FL YNN & ASSOCIATES, INC.,
Defendants. -----------------------------------------------------------)(
MEMORAND UM O F D ECISIO N AND O RD KR 08-CR-598 (ADS)
LORETTA E. LYNCH, UNITED STAT ES ATTO RNEY EASTERN DISTRI CT OF NEW YO RK 271 Cadman Plaza East Brooklyn, NY 11201-1820
By: Roger Anson Burl ingame, Assistant United States Attorney William E. Schaeffer, Assistant United States Attorney
GAGE SPENCER & FLEMl NG LL P Attorneys for Defendant George M. Motz 410 Park A venue, 9th Floor New York, NY 10022
By: G. Robert Gage, Esq . Laura-Michelle Rizzo, Esq., Of Counsel
SPATT, District Judge.
Presently before the Cour! is Defendant George Matz's applicat ion to stay this COli rt 's
restitution order pending his appeal to the United States Court of Appeals for the Second Circuit.
For the reasons discussed below, his motion is granted.
I. BAC KG RO UND
The Court assumes the parties ' familiar ity with the underlying facts and legal issues in
Ihis case. See United States v. Motz, 652 F. Supp. 2d 284, 294 (E.D.N.Y. 2009). However, a
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Case 2:08-cr-00598-ADS Document t28 Filed 09/16/'0 Page 2 013
brief review is in order.
On October 13,2009, Motz pleaded guilty to one count of securities fraud in connection
with a fraudulent stock scheme. Motz was sentenced to 96 months imprisonment and three years
of supervised re lease. Prior to his sentencing, the Court held a Fatica hearing at which it
determined that Motz's fraud cost hi s victims $2.4 million in total losses. At his sentenc ing, the
Court deferred dec ision on the issue of restitution so that the parties cou ld file submissions
detailing the losses incurred within the statute ofl imitat ions.
In a decision dated August 5, 2010, the Court ordered Molz to pay restitution in the total
sum of $864,806, representing the amount of loss hi s victims sustained with in the relevant
limitations period. On August 17, 2010, Mol'Z fi led a timely notice of appeal, chall enging tbe
Court's order of restitution. Two days later, MOlz fJled the instant motion, requesting that the
Court stay the restitution order while bis appeal is pending.
n. DISCUSSION
Fed. R. Crim. P. 38(e)(J) provides, in pertinent part, that "[iJfthe defendant appeals, the
district COUlt, ... may stay--on any terms considered appropriate·-any sentence provid ing for
restitution under 18 U.s.c. § 3556 or notice under 18 U.S.c. § 3555."
Here, MOIZ contends that since tbe amount of loss sustained by his victims is a central
issue on appea l, the Court should stay the resti tution payment until the Second Circuit has had an
opportunity to add ress thi s issue. The Court agrees .
As Motz points out, the loss issue was vigorous ly litigated. Although the Cou rt believes
that it assessed the correct amount of loss, Motz should be given an opportunity to test this
finding on appeal before he is required to make this substant ial restitut ion paymenl. A stay is
2
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Case 2:08-cr·00598·ADS Document 128 Filed 091 6110 Page 3 of 3
particularly appropriate in this case because there is no risk that the monies set aside for
restitution will be secreted or expended. Currently these monies are held, at the Court's
direction, in defense counsel's escrow account and they will remain there unti l the appeal is
dec ided.
III . CONCLUSION
For the foregoing reasons, the Court gran ts Motz's application for a slay of the restitution
order pending his appeal.
SO ORDERE D.
Dated: Central Islip, New York September 16, 20 10
lsi Arthur D. Sralt ARTHUR D. SPAn
United States District Judge
)
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