Dept of Justice, US Attorney’s Office for the Eastern District of New York, Brooklyn, NY
United States District Court for the Eastern District of New York (Brooklyn)
USA v Zaslavskiy, 1:17-cr-00647-RJD-RER
Order of the Court to Proceed to Trial:
Please see the previous blog post reviewing the initiation of the Civil Action and the filing of this Criminal Indictment by the SEC.
On September 11, 2018, Judge Dearie denied the Motion to Dismiss in that the Indictment as plead met the legal requirements, and that the statute was not unconstitutionally vague as applied. The case was ordered to proceed to trial.
Denial of Motion to Dismiss NOT Based on Merits of Case
The reader needs to be reminded that Judge Dearie denied the Motion to Dismiss based upon the requirements of a proper grand jury Indictment as set forth in the Federal Rules of Criminal Procedure 7(c)(1), and NOT upon a finding on the merits of whether the defendant offered tokens as securities.
The Rule recites that an Indictment must state a, “plain, concise and definite written statement of the essential facts constituting the offense charged.” The reader must also remember that a grand jury Indictment is not evidence nor proof of facts, and that at this pre-trial phase the Court does not decide the facts as alleged in the Indictment Counts.
Did Grand Jury Meet Drafting and Content Requirements?
A grand jury Indictment is the formal writ that must be presented by the US Attorney to the Court to apprise the accused and start the matter toward trial and conviction. To test the specifications of the Indictment, the Court has to assume that the allegations as plead in the writ are true. Thus, if assumed true for this test, do they track the requirements of the cited statute or rule? This preliminary assumption of validity is not passed to the jury by the Court. As stated above, the Court is not deciding the government’s case on the merits – just testing whether the grand jury drafting and content requirements of the writ are met. “The validity of an Indictment depends upon its allegations, not whether the Government can prove its case.” (quoting United States v Goffey, 361 F. Supp. 2d 102, 111 (E.D.N.Y. 2005) (Glasser, J.)).
After review, if the Court affirms that the requirements were followed by the grand jury, then the Indictment satisfies the three threshold constitutional requirements, that the accused: (1) has the Sixth Amendment right to be informed of the nature and cause of the accusation; (2) avoids the double jeopardy restriction of the Fifth Amendment; and (3) has the additional Fifth Amendment right of protection from prosecution for crimes based on evidence not presented to the grand jury. [citations omitted]
Court Upholds the Legal Sufficiency of the Indictment
After oral argument, and significant review of the facts as alleged, the Court upheld the legal sufficiency of the Indictment, denied Defendant’s Motion to Dismiss and Ordered the case to proceed to trial. The label attached to the alleged scheme did not control the analysis. “Congress purpose in enacting the securities laws was to regulate investments, in whatever form they are made and by whatever name they are called.” (quoting Reves v Ernst & Young, 494 US 56, 61 (1990))
The Court also noted that the parties engaged in a frenzied debate of the facts and law, all of which was premature as it is the exclusive province of the trier of fact, but gave minimal effort to review of whether the Indictment was sufficient. Subsequent review enabled the Court to opine that the facts as alleged in the Indictment could lead a reasonable jury to conclude that they met the Howey test.
The Court further opined that the conduct of the defendants as charged were within the prohibitions of the statutes, and that the Exchange Act and Rule 10b-5 were not vague as they set forth the types of behavior that constitute securities fraud.
“The Indictment plainly alleges that REcoin and Diamond were two of the “countless and variable schemes” that in the ever-evolving commercial market, “fall within the ordinary concept of a security.” See Howev. 328 U.S. at 299 (internal quotation marks and citations omitted). At this juncture, Zaslavskiy’s contrary characterizations are plainly insufficient to bypass regulatory and criminal enforcement of the securities laws.” [pg 21]
In Conclusion, “Because the Indictment is sufficient under the Constitution and the Federal Rules of Criminal Procedure, and because the law under which Zaslavskiy is charged is not unconstitutionally vague as applied, Zasvlavskiy’s motion is denied. The case will proceed to trial.” [p 22]
The denial of the Motion to Dismiss is not appealable by the defendant at this stage of the proceedings since it is not a final judgment on the merits.
Next Key Court Date:
January 7, 2019 – pending trial date.
Stay tuned!
Commentary by Attorney Timothy F. Mills, Editor / Action Cyber Times™ © 2018 All Rights Reserved.
Action Cyber Times™ provides resources for cybersecurity, data privacy, compliance, breach reporting and risk management, intellectual property theft, and the utilization of emerging technologies such as artificial intelligence, machine learning, blockchain DLT, advances in cryptographic applications, and more.
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