Opinion
01 CR. 53 (DLC)
July 13, 2001
Andrew J. Ceresney, Joshua Klein, Andrew McCarthy, Office of the United States Attorney, Southern District of New York, New York, NY.
Peter Fleming Jr., T. Barry Kingham, Melina Sfakianaki, Curtis, Mallet-Prevost, Colt Mosle LLP, New York, NY, Counsel for defendant M. Laurie Cummings
Elkan Abramowitz, Jeremy Temkin, Rebecca A. Monck, Morvillo, Abramowitz, Grand, Iason Silberberg, P.C., New York, NY, Counsel for defendant Ian R. Wilson
OPINION AND ORDER
Four defendants were indicted on January 22, 2001, with crimes arising from the alleged under-reporting of certain business expenses on financial statements and SEC filings of Aurora Foods, Inc. ("Aurora"), a publicly held company engaged in producing and marketing premium brand name food products through its two divisions: "AFI", which handles dry groceries, and "VDK", which handles frozen foods. Defendants Ian R. Wilson ("Wilson"), the former CEO and Chairman of the Board of Aurora, and M. Laurie Cummings ("Cummings"), the former CFO of Aurora, have filed pre-trial motions. This Opinion addresses the motions to transfer the trial in this action from Manhattan to their home city, San Francisco, and to dismiss six counts of this eight count indictment on the ground that venue for those counts does not lie in this district.
A. Transfer
Rule 21(b), Fed.R.Crim.P., provides: "For the convenience of parties and witnesses, and in the interest of justice, the court upon motion of the defendant may transfer the proceeding as to that defendant or any one or more of the counts thereof to another district." Fed.R.Crim.P. 21(b). "Disposition of a Rule 21(b) motion is vested in the sound discretion of the district court." United States v. Maldonado-Rivera, 922 F.2d 934, 966 (2d Cir. 1990).
In deciding whether transfer is appropriate under Rule 21(b), the Court considers and balances the non-exclusive list of factors set forth in Platt v. Minnesota Mining Mfg. Co., 376 U.S. 240 (1964). Maldonado-Rivera, 922 F.2d at 966. These factors include: (1) the location of the defendants; (2) the location of possible witnesses; (3) the location of events likely to be at issue; (4) the location of relevant documents; (5) the potential for disruption of the defendant's business if transfer is denied; (6) expenses to be incurred by the parties if transfer is denied; (7) the location of counsel; (8) the relative accessibility of the place of trial; (9) docket conditions in each district; and (10) any other special circumstances that might bear on the desirability of transfer. Platt, 376 U.S. at 243-44.
"No one of these considerations is dispositive, and `[i]t remains for the court to try to strike a balance and determine which factors are of greatest importance.'" Maldonado-Rivera, 922 F.2d at 966 (citation omitted). As a general rule, however, "`a criminal prosecution should be retained in the original district' in which it was filed." United States v. Guastella, 90 F. Supp.2d 335, 338 (S.D.N.Y. 2000) (quoting United States v. United States Steel Corp., 233 F. Supp. 154, 157 (S.D.N Y 1964)). The defendant bears the burden of justifying a transfer under Rule 21(b). See id.; United States v. Spy Factory, Inc., 951 F. Supp. 450, 464 (S.D.N.Y. 1997).
Aurora was managed by the principals of Dartford Partnership L.L.C. ("Dartford") from mid-1998 until February 2000, when it is alleged that the fraud described in the indictment was discovered. Wilson and Cummings were Dartford partners and managed Aurora from San Francisco. The stock of Aurora was traded on the New York Stock Exchange ("NYSE"). As noted, the business of Aurora was the production and marketing of premium brand foods throughout the United States through its AFI and VDK divisions located respectively in Columbus, Ohio and St. Louis, Missouri.
The core allegations in the indictment involve a conspiracy to falsify financial reports in order to conceal the size of Aurora's trade promotion expenses, that is, the costs paid to retailers to promote Aurora's products, from the firm's outside auditors, Wall Street analysts, and the market generally. To achieve this goal, it is alleged that Cummings directed AFI employees to reclassify certain trade promotion expenses to accounts receivable, and directed VDK employees to reduce the funds accrued for trade promotion expenses. To obscure the under-accrual at VDK, it is alleged, among other things, that Cummings ordered VDK employees to shut down a computer system that automatically posted these accruals.
Turning to the specific factors identified in Platt, both of these defendants reside in San Francisco. They may be the only defendants at trial. If tried in New York, Wilson will bear the additional expense of paying for his wife and two of his three apparently adult sons to stay with him in New York. One of these sons currently resides with him. His third child works in Manhattan, but is not expected to attend the trial since he will be working at a new job. His wife sees a psychiatrist "every week to two weeks" and one of the sons who will be attending the trial sees a psychiatrist "every month." Finally, his wife's mother lives in South Africa and depends on her daughter to manage her financial affairs, which Mrs. Wilson does from her apartment. Cummings' mother recently died after a long and debilitating illness and she depends emotionally on her community of friends in San Francisco. Her brother lives in northern California. Neither defendant has indicated a financial inability to bear the costs associated with a trial in New York, nor presented evidence that the cost of a New York trial will outweigh the cost of paying for their New York counsel to try this case in San Francisco. As a consequence, the greatest burden on these defendants will be the difficulties of Wilson's family members in coordinating their medical care while in New York, and Cummings' separation from her support network of friends during the trial. While not perfect a solution, some of these burdens can be alleviated by telephone communication.
There is no suggestion that any trial witness will be unable to appear to testify in New York. Most of the Government's witnesses reside in Ohio, Missouri, or Texas. Two or three reside in San Francisco and two reside in New York. The defendants have not identified any witness they intend to call at trial other than the two defendants. They have offered, however, to reveal ex parte the identity of potential character witnesses, each of whom they represent lives in San Francisco. They argue that a San Francisco jury would be better able to evaluate the character testimony because of their familiarity with these witnesses.
The principal activities in connection with the alleged scheme occurred in San Francisco and in the division headquarters in Columbus and St. Louis, including the auditing work by the outside accountants. The Government represents that the evidence will show that these two defendants attended meetings in Columbus and St. Louis when the concealment of the under-accrual was discussed. Certain activities are alleged in the indictment to have occurred in New York, including meetings of the Board of Directors and conference calls with analysts based in New York. Finally, Aurora was a national company, whose products were sold across this country and its stock was listed on the NYSE. While significant criminal activities are alleged to have occurred in San Francisco, this was not a crime whose planning, execution, or impact was limited by geography.
At this point it time, the relevant documents and records are located here. There are extensive files that the parties have accumulated to prepare for trial and it would be burdensome to each party to organize the transport of those voluminous files to San Francisco.
Neither defendant is engaged in any business that would be more disrupted by a trial in New York than one in San Francisco. Last year, Wilson and Cummings formed a new consulting business, which at this time has neither clients nor employees. In addition, they continue to be responsible for the management of three remaining Dartford partnerships. The business of these partnerships is not described. Nothing in the defendants' discussion of these business activities indicates that they would be better able to continue this work while attending trial in California than while attending trial in New York.
All trial counsel are located in New York. While the defendants once had criminal defense counsel in California, and might wish to retain that counsel again if the trial were transferred to California, they candidly admit that they intend for their New York attorneys to remain their principal trial counsel.
A trial in New York or in San Francisco is equally accessible to any person who wishes to attend. This factor does not weigh for or against transfer.
The parties have presented publicly available statistics regarding the docket conditions in the Northern District of California and in the Southern District of New York. As the parties are well aware, this Court was ready to try this case this summer, but agreed to their joint request to begin the trial in September. There is no need to transfer this case to San Francisco in order to avoid calendar congestion. On the other hand, it may be difficult to adhere to our trial schedule if the case is transferred.
In sum, the only factor that argues for transfer is the location of the defendants and the personal impact on the two defendants and their families of conducting the trial in New York. While the burden summarized above on the defendants and on Wilson's family of being away from home is significant — the Government has estimated that the trial will last six to eight weeks — it is not sufficient to justify a transfer. Every life is significantly disrupted during a trial wherever it is held. Besides the need to be in court every day, the evenings and weekends are usually consumed analyzing the evidence that has been admitted and preparing for the remainder of the trial. With the one caveat noted below, the defendants' motion for a transfer is denied.
B. Motion to Dismiss Counts Three Through Eight
The United States Constitution guarantees criminal defendants the right to trial in the "state and district" where the offense was committed. Specifically, Article III requires that "[t]he trial of all Crimes . . . shall be held in the State where the said Crimes shall have been committed." U.S. Const. art. III, § 2, cl. 3. The Sixth Amendment further specifies that "[i]n all criminal prosecutions, the accused shall enjoy the right to a speedy and public trial by an impartial jury of the State and district wherein the crime shall have been committed." Rule 18, Fed.R.Crim.P., codifies the constitutional requirements, providing that "prosecution shall be had in a district in which the offense was committed." Fed.R.Crim.P. 18. See United States v. Saavedra, 223 F.3d 85, 88 (2d Cir. 2000). When a defendant is charged with more than one count, venue must be proper with respect to each count. United States v. Beech-Nut Nutrition Corp., 871 F.2d 1181, 1188 (2d Cir. 1989).
The Supreme Court has recently explained that, in analyzing where criminal violations occur for venue purposes, "the locus delecti [of the offense] must be determined from the nature of the crime alleged and the location of the acts constituting it." United States v. Rodriguez-Moreno, 526 U.S. 275, 279 (1999) (quoting United States v. Cabrales, 524 U.S. 1, 6-7 (1998)). Consequently, "a court must initially identify the conduct constituting the offense . . . and then discern the location of the commission of the criminal acts." Id. Venue only lies where conduct that constitutes an "essential" element of the charged offense occurs. Saavedra, 223 F.3d at 95 (Cabranes, J., dissenting). A prosecution may only occur, therefore, in a district "in which an act occurs that the statute at issue proscribes." United States v. Smith, 198 F.3d 377, 384 (2d Cir. 1999); Saavedra, 273 F.3d at 95 (Cabranes, J., dissenting).
When the Government relies on a continuing offense theory to support venue, either as permitted by 18 U.S.C. § 3237(a) or 15 U.S.C. § 78aa, in this Circuit courts must also analyze whether "a given prosecution comports with constitutional safeguards," that is, "whether the criminal acts in question bear `substantial contacts' with any given venue." Saavedra, 223 F.3d at 93 (quoting United States v. Reed, 773 F.2d 477, 481 (2d Cir. 1985)). In United States v. Reed, the Second Circuit considered four main factors in determining whether such "substantial contacts" exist: (1) the site of the crime; (2) its elements and nature; (3) the place where the effect of the criminal conduct occurs; and (4) suitability of the venue chosen for accurate fact finding. Reed, 773 F.2d at 481. While not a "formal constitutional test," Reed is helpful in determining whether a chosen venue is "unfair or prejudicial" to a defendant. Saavedra, 223 F.3d at 93 (citing Reed, 773 F.2d at 481).
The Government bears the burden of proving, by a preponderance of the evidence, that the crime was committed in this district. See United States v. Bala, 236 F.3d 87, 95 (2d Cir. 2000). Prior to trial, however, "it suffices for the government to allege with specificity that the charged acts support venue in this district." United States v. Martino, No. S1 00 CR 389 (RCC), 2000 WL 1843233, at *1 (S.D.N.Y. Dec. 14, 2000) (citation omitted). See United States v. Szur, No. S5 97 CR 108 (JGK), 1998 WL 132942, at *9 (S.D.N.Y. Mar. 20, 1998).
The indictment has eight counts. Count One is a conspiracy count, and Count Two charges the defendants with fraud in connection with the purchase or sale of securities. The defendants have challenged the venue of the remaining six counts. Counts Three through Six — False Filings with the SEC
Counts Three through Six charge Wilson and Cummings with having filed false 10-K and 10-Q reports with the SEC, in violation of 15 U.S.C. § 78m(a) (1997) ("Section 78m(a)"), 15 U.S.C. § 78ff (1997) ("Section 78ff"), 17 C.F.R. § 240.13a-1 ("Rule 13a-1"), and 18 U.S.C. § 2 (2000). Section 78m(a) requires issuers of registered securities to file certain information "with the Commission," referring to the Securities and Exchange Commission ("SEC"), and to file "a duplicate original . . . with the exchange." The offense charged in these counts is committed when the defendant
Section 78m(a) provides:
Every issuer of a security registered pursuant to section 781 of this title shall file with the Commission, in accordance with such rules and regulations as the Commission may prescribe as necessary or appropriate for the proper protection of investors and to insure fair dealing in the security —
(1) such information and documents (and such copies thereof) as the Commission shall require to keep reasonably current the information and documents required to be included in or filed with an application or registration statement filed pursuant to section 781 of this title, . . .
(2) such annual reports (and such copies thereof), certified if required by the rules and regulations of the Commission by independent public accountants, and such quarterly reports (and such copies thereof), as the Commission may prescribe.
Every issuer of a security registered on a national securities exchange shall also file a duplicate original of such information, documents, and reports with the exchange.15 U.S.C. § 78m(a) (emphasis supplied).
Rule 13a-1 provides:
Every issuer having securities registered pursuant to section 12 of the Act ( 15 U.S.C. § 781) shall file an annual report on the appropriate form authorized or prescribed therefor for each fiscal year after the last full fiscal year for which financial statements were filed in its registration statement. Annual reports shall be filed within the period specified in the appropriate form.17 C.F.R. § 240.13a-1 (emphasis supplied).
18 U.S.C. § 2 provides:
(a) Whoever commits an offense against the United States or aids, abets, counsels, commands, induces or procures its commission, is punishable as a principal.
(b) Whoever willfully causes an act to be done which if directly performed by him or another would be an offense against the United States, is punishable as a principal.
willfully and knowingly makes, or causes to be made, any statement in any application, report, or document required to be filed under this chapter or any rule or regulation thereunder . . ., which statement was false or misleading with respect to any material fact.15 U.S.C. § 78ff(a) (emphasis supplied). In criminal cases alleging violations of the federal securities laws, venue lies "in the district wherein any act or transaction constituting the violation occurred." 15 U.S.C. § 78aa (1997). See United States v. Natelli, 527 F.2d 311, 326 (2d Cir. 1975); Szur, 1998 WL 132942, at *9. See also 18 U.S.C. § 3237(a) (2000).
In considering Sections 78m(a) and 78ff and similar statutes, courts have held that venue is proper in either the district where the required documents were prepared, or the district where they were filed. See Securities and Exchange Comm'n v. Savoy Indus., Inc., 587 F.2d 1149, 1154 n. 12, 1155 (D.C. Cir. 1978) (for alleged violations of, inter alia, Section 78m(a), venue proper under 15 U.S.C. § 78aa where form is to be filed); Natelli, 527 F.2d at 325-27 (venue in case alleging false filing of proxy statement pursuant to 15 U.S.C. § 78n and 15 U.S.C. § 78ff includes location where false statement is prepared as well as location where filed); Investors Funding Corp. v. Jones, 495 F.2d 1000, 1002-03 (D.C. Cir. 1974) (for alleged violations of, inter alia, Section 78m(a), venue proper under 15 U.S.C. § 78aa where form is to be filed). See also United States v. Bilzerian, 926 F.2d 1285, 1301 (2d Cir. 1991) (venue proper in prosecution for filing of false financial statements with SEC under general false statement statute — 18 U.S.C. § 1001 — where documents prepared and signed); United States v. Stephenson, 895 F.2d 867, 875 (2d Cir. 1990) (venue in case under 18 U.S.C. § 1001 proper in place where false statement is made by defendant as well as where it is received by government official); United States v. Mendel, 746 F.2d 155, 165 (2d Cir. 1984) (venue under 18 U.S.C. § 1001 lies where documents were prepared and signed). These cases have not had to consider whether other activities beyond preparation and filing were sufficient to support venue.
According to the indictment, the 10-K and 10-Q reports in Counts Three through Six were prepared and signed in San Francisco and then filed in the District of Columbia. The Government makes two arguments to support venue in the Southern District of New York for these counts. First, it argues that Counts Three through Six allege that the 10-K and 10-Q reports were "obtained by investors and others throughout the United States, including in New York, New York." This is not sufficient to create venue. As the defendants correctly point out, the statute at issue does not criminalize the distribution of the fraudulent 10-K and 10-Q reports.
According to paragraph 30(b) of the indictment, which lists an overt act for the conspiracy charged in Count One, "[f]rom in or about March 1999 to in or about October 1999, in San Francisco, California, M. Laurie Cummings, the defendant, signed Forms 10-Q and a Form 10-K that were filed with the SEC, . . . and which were then obtained by investors and others throughout the United States, including in New York, New York." (Emphasis supplied).
Paragraph 34 of Counts Three through Six in the indictment charges that "[o]n or about the dates listed below, in the District of Columbia and elsewhere, Ian R. Wilson, M. Laurie Cummings, and Ray Chung, the defendants, unlawfully, willfully, and knowingly, made and caused to be made statements in reports and documents required to be filed with the SEC under the Securities Exchange Act of 1934 . . ., which statements were false and misleading with respect to material facts." (Emphasis supplied).
Alternatively, the Government represents that it intends to plead, in a superceding indictment, that the conduct at issue in Counts Three through Six occurred in the Southern District of New York and elsewhere. Further, the Government asserts somewhat cryptically that "the amended indictment will specifically allege that the defendants made false and misleading statements as to a material fact in annual and quarterly reports within the Southern District of New York."
Accordingly, the defendants' motion to dismiss Counts Three through Six for improper venue is denied without prejudice and with leave to renew. The Government shall, if it has not filed a superceding indictment by July 20, 2001, provide the defendants by that date with a bill of particulars describing facts it intends to establish at trial which it claims are sufficient to establish venue in this district with respect to Counts Three through Six. See Szur, 1998 WL 132942, at *9.
Count Seven — False Books and Records
Count Seven of the indictment charges the defendants with falsifying and causing to be falsified Aurora's books, records, and accounts, in violation of 15 U.S.C. § 78m(b)(2) ("Section 78m(b)(2)"), 78m(b)(5) ("Section 78m(b)(5)"), and 78ff, 17 C.F.R. § 240.13b2-1 ("Rule 13b2-1"), and 18 U.S.C. § 2. These provisions essentially require publicly held corporations to keep accurate records and accounts. See United States v. Wallach, 935 F.2d 445, 463 (2d Cir. 1991); Decker v. Massey-Ferguson, Ltd., 681 F.2d 111, 120 (2d Cir. 1982). Section 78ff therefore makes it a crime willfully and knowingly to falsify the books and records of a public corporation. 15 U.S.C. § 78ff. See also United States v. Bradstreet, 135 F.3d 46, 48 (1st Cir. 1998); United States v. Crop Growers Corp., 954 F. Supp. 335, 352 (D.D.C. 1997).
Section 78m(b)(2) provides:
Every issuer which has a class of securities registered pursuant to section 781 of this title and every issuer which is required to file reports pursuant to section 78o(d) of this title shall —
(A) make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer; and
(B) devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that —
(i) transactions are executed in accordance with management's general or specific authorization;
(ii) transactions are recorded as necessary (I) to permit preparation of financial statements in conformity with generally accepted accounting principles or any other criteria applicable to such statements, and (II) to maintain accountability for assets;
(iii) access to assets is permitted only in accordance with management's general or specific authorization; and
(iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.15 U.S.C. § 78m(b)(2) (emphasis supplied).
Section 78m(b)(5) provides:
No person shall knowingly circumvent or knowingly fail to implement a system of internal accounting controls or knowingly falsify any book, record, or account described in [Section 78m(b)(2)].15 U.S.C. § 78m(b)(5) (emphasis supplied).
Rule 13b2-1 provides:
No person shall directly or indirectly, falsify or cause to be falsified, any book, record or account subject to [ 15 U.S.C. § 78m(b)(2)(A)] of the Securities Exchange Act.17 C.F.R. § 240.13b2-1 (emphasis supplied).
Various paragraphs in the conspiracy charge contained in Count One of the indictment allege that Aurora's books and records were made and kept at either its headquarters in San Francisco or at the divisional offices in Columbus and St. Louis. Relying on Crop Growers, 954 F. Supp. at 352, the defendants argue that any falsification of those books and records occurred, if at all, in one of those three cities. Crop Growers held that violations of Sections 78m(b)2 and 78m(b)(5) occur at the time the records are made or kept, and not when they are transmitted to the SEC. Id. at 352.
The Government makes several arguments to support venue for Count Seven. As an initial matter, it argues that the indictment's allegation that the defendants falsified books and records "in the Southern District of New York and elsewhere" is sufficient for venue purposes. It is generally true that the allegation that the offense took place in this district is sufficient to survive a motion to dismiss for improper venue. See, e.g., Szur, 1998 WL 132942, at *9; United States v. Fama, No. S1 95 Cr. 840 (RO), 1996 WL 438165, at *1 (S.D.N.Y. Aug. 5, 1996); United States v. Korolkov, 870 F. Supp. 60, 63-64 (S.D.N.Y. 1994); United States v. Rogers, No. 90 CR. 377 (CSH), 1991 WL 90797, at *3 (S.D.N.Y. May 21, 1991); United States v. Wheaton, 463 F. Supp. 1073, 1076 (S.D.N.Y.), aff'd sub nom., United States v. Williams, 614 F.2d 1293 (2d Cir. 1979).
The Government further argues that the reasoning of Crop Growers, 954 F. Supp. at 352, should not apply. Because the Crop Growers court relied on the "key verbs test" in analyzing the issue of venue, the Government argues that its reasoning has been undermined by the Supreme Court's decision in Rodriguez-Moreno, 526 U.S. at 279. In Rodriguez-Moreno, the Supreme Court admonished that the key verb test should not be the "sole consideration in identifying the conduct that constitutes an offense." Id. at 280 (emphasis supplied). It explained that "the `verb test' certainly has value as an interpretive tool," but "cannot be applied rigidly, to the exclusion of other relevant statutory language." Id.
Finally, the Government appears to identify its sole theory for the existence of venue in this district. It contends that venue is proper in this district because Section 78m(b)(2) applies to "[e]very issuer which has a class of securities registered pursuant to section 781 of [the Securities Exchange Act of 1934] and every issuer which is required to file reports pursuant to section 78o(d) of [the Securities Exchange Act of 1934]." 15 U.S.C. § 78m(b)(2) (emphasis supplied). The Government therefore argues that one of the "predicates" for a Section 78m(b)(2) violation is registration on a national securities exchange, in this case the NYSE located in this district. Thus, the Government asserts that Aurora's registration of its stock with the NYSE is an "essential conduct element" of the alleged false books and records offense which continued through the Southern District of New York.
The Government's argument is not persuasive. While it is true that Section 78m(b)(2) applies to issuers whose stock is registered on a national exchange, that clause of the statute merely identifies the class of persons who must comply with the statute's requirements. Thus, while an issuer's registration on a national securities exchange is an essential predicate for imposing the requirements set forth in Section 78m(b)(2), the act of registration is not the conduct being regulated by this particular section of the securities laws. Specifically, registration on an exchange is not an "essential conduct element" proscribed by Section 78m(b)(2). See Rodriguez-Moreno, 526 U.S. at 280 (emphasis supplied).
The Government apparently does not rely on 18 U.S.C. § 2 to support venue in this district. For charges of aiding and abetting "[v]enue is proper where the defendant's accessorial acts were committed or where the underlying crime occurred." United States v. Smith, 198 F.3d 377, 383 (2d Cir. 1999).
Accordingly, the defendants' motion to dismiss Count Seven for improper venue is denied without prejudice and with leave to renew. The Government shall, if it has not filed a superceding indictment by July 20, 2001, provide the defendants by that date with a bill of particulars describing facts it intends to establish at trial which it claims are sufficient to establish venue in this district with respect to Count Seven.
Count Eight — False Statements to Auditors
Count Eight of the indictment charges the defendants with having made and caused others to make material omissions in statements to the auditors in violation of 17 C.F.R. § 240.13b2-2 ("Rule 13b2-2"), 15 U.S.C. § 78ff, and 18 U.S.C. § 2. The defendants argue that this violation is committed in the district where the allegedly false or misleading statements were made to the auditors. See Crop Growers, 954 F. Supp. at 352-53. As the defendants point out, the allegations in the conspiracy count of the indictment charge that false and misleading statements were made to the auditors in San Francisco, Columbus, or St. Louis, but make no similar reference to New York.
Rule 13b2-2 provides:
No director or officer of an issuer shall, directly or indirectly,
(a) Make or cause to be made a materially false or misleading statement, or
(b) Omit to state, or cause another person to omit to state, any material fact necessary in order to make statements made, in the light of the circumstances under which such statements were made, not misleading to an accountant in connection with (1) any audit or examination of the financial statements of the issuer required to be made pursuant to this subpart or (2) the preparation or filing of any document or report required to be filed with the Commission pursuant to this subpart or otherwise.17 C.F.R. § 240.13b2-2 (emphasis supplied).
The Government makes two arguments to support venue for Count Eight. First, as discussed above, the Government is correct that the indictment's allegation in Count Eight itself that the defendants made false and misleading statements to auditors "in the Southern District of New York and elsewhere" should ordinarily be sufficient at this stage for venue purposes.
Although the analysis could arguably end with consideration of whether it is appropriate to require a bill of particulars in connection with this Count, prudence cautions that there be a brief discussion of the Government's alternative argument. The Government argues that venue is proper because Rule 13b2-2 prohibits false statements and omissions "in connection with . . . the preparation or filing of any document or report required to be filed with the Commission pursuant to this subpart or otherwise." 17 C.F.R. § 240.13b2-2 (emphasis supplied). Rule 13b2-2 was adopted pursuant to Section 78m(a), which separately requires that "[e]very issuer of a security registered on a national securities exchange shall also file a duplicate original of such information, documents, and reports with the exchange." 15 U.S.C. § 78m(a). Thus, Section 78m(a) requires duplicate copies of Aurora's Forms 10-K and 10-Q to be filed with the NYSE, which the Government can be expected to prove is located in the Southern District of New York. The Government therefore argues that the "essential conduct element" of "preparation and filing of reports and documents" continued through the Southern District of New York where the reports were filed with the NYSE.
The Government's analysis is not persuasive. Rule 13b2-2 proscribes making false statements in connection with documents required to be filed with the "Commission." The fact that a separate statute — for which there is no allegation of a violation in Count Eight — requires that duplicates must also be filed with "a national securities exchange" does not establish venue here. The filing of duplicates is not an "essential conduct element" of the offense proscribed by Rule 13b2-2, which does not refer to filings with a national securities exchange. See Rodriguez-Moreno, 526 U.S. at 280. The Government cannot use Section 78m(a) to bootstrap venue to its Rule 13b2-2 charge.
The defendants' motion to dismiss Count Eight for improper venue is denied without prejudice and with leave to renew. The Government shall, if it has not filed a superceding indictment by July 20, 2001, provide the defendants by that date with a bill of particulars describing facts it intends to establish at trial which it claims are sufficient to establish venue in this district with respect to Count Eight.
The Government has suggested in its memorandum of law that "even if some of the counts are not properly venued in New York, the defendants themselves can avert the risk of facing a second trial in another district by waiving their venue objections." Even if it had the discretion to do so, however, the Court would not subject the defendants to two separate trials for the alleged offenses at issue in this case — all of which arise from the same alleged scheme and course of conduct. See Saavedra, 223 F.3d at 89 (where "a defendant is charged with a conspiracy as well as substantive offenses, venue must be laid in a district where all of the counts may be tried"). If the Government is unable to make a sufficient showing of venue through either the superceding indictment or a bill of particulars, it may choose to dismiss the deficient counts with prejudice or this Court will grant the motion to transfer this trial to the Northern District of California.
CONCLUSION
The defendants' motion that the Court transfer venue is conditionally denied. The defendants' motion to dismiss Counts Three through Eight of the indictment is denied without prejudice to renewal. The Government shall, if it has not filed a superceding indictment by July 20, 2001, provide the defendants by that date with a bill of particulars describing facts it intends to establish at trial which it claims are sufficient to establish venue in this district with respect to Counts Three through Eight.
SO ORDERED