10 2076 motz brief special appendix - university of denver

BRIEF OF DEFENDANT-APPELLANTand SPECIAL APPENDIX

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Attorneys for Defendant-Appellant

Ynited States Court of AppealsFOR THE SECOND CIRCUIT

"+'.$*

10-2076-cr

ON APPEAL FROM THE UNITED STATES DISTRICT COURTFOR THE EASTERN DISTRICT OF NEW YORK

To be argued by:!"#$%!&'%(')!**+,*!)

1+".*&'-.%.*-'2N'%5*!"#%EAppellee,

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Defendant-Appellant,

Defendant.

Case: 10-2076 Document: 79 Page: 1 04/04/2011 257744 97

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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


-iv-

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


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


2

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?


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.


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


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


6

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


7

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


8

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


9

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


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


11

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


12

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


13

"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.


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


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


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


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


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


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


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


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.


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


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


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.


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.


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


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


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


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.


30

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


31

"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


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


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.


34

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).


35

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


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-


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


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


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


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).


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


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


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.


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


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


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


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


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


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.


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


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.


!!!!!!!!!!!!!!!!!!

"#$%&'(!'##$)*&+!


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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.


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.


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

Page 3

! 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



SPA4

652 F.Supp.2d 284 (Ci te as: 652 F.S upp.2d 284)

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

110 Criminal Law 110X Limitation of Prosecutions

II Okl48 Commencement of Period of Limit-at ion

Page 4

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



SPA5

652 F.Supp.2d 284 (Cite as: 652 P.5upp.2d 284)

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


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


92X(A) In General 92 kl 159 Vagueness in General

92k1160 k. In general. Most Cited Cases

Page 5

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

92 Constitutional Law nVIJI Vagueness in General

92k [ [32 Particular Issues and Applications n kl133 k. In general. Most Cited Cases

Securities Regulation 3498 C;:;:;;>195

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)


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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SPA7

652 F.Supp.2d 284 (Cite as: 652 FoSupp.2d 284)

u.S.c.A. ConSI.Amend. 5; Fed.Rules Cr.Proc.Ru le 7(c), 18 U.S.C.A.

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

Pagc 7

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)


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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652 F .Supp.2d 284 (C ite as; 652 F.Supp.2d 284)

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

Page 8

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



SPA9

652 F.5upp.2d 284 (Cite lIS: 652 F.Supp.2d 284)

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

Page 9

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



SPA10

652 FSupp.2d 284 (Cite as: 652 F.S upp.2d 284)

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-

Page 10

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



SPA11

652 F .Supp.2d 284 (Cite as: 652 F.Supp.2d 284)

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

Page I I

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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SPA12

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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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SPA13

652 F.Supp.2d 284 (Cite as; 652 F.Supp.2d 284)

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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SPA14

652 F.Supp.2d 284 (Ci te as: 652 F.Supp.2d 284)

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

(> 2011 Thomson Reuters. No Claim to Orig. US Gov. Works.


SPA15

'-'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


SPA16

' . 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

---- ._ ... _-------


SPA17

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.


SPA18

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


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.


SPA19

" 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.


SPA20

" 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.


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


SPA22

AO 245B (Rey, 06/()S) Judgmtllt in Cri minal Case Shee! 2 - Imprisonment


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


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.


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.


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.


SPA26

AO 2458 (Rev, 06l0j) Judgment in a Criminal Cue Sheet 6 - Schedule of Payments


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.


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


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


SPA29

DEFENDANT: CASE NUMBER: DISTRlCT:


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.


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,


SPA31

...... AO 24S8 (Rev. 06lOS) Criminal Judgment A!t¥llIntn! (Page: 2) SUilatlen\ ofRcasotIS

DEFENDANT, CASE NUMBER, DISTRICT:


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


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 , ,


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


SPA34

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


SPA35

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

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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

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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

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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

)
