Financial crimes such as Scheme to Defraud and charges under the Martin Act are notoriously complex and difficult to understand and interpret. This complexity only becomes more significant when there are, as is typically the case with such criminal charges, hundreds of thousands of pieces of documentary evidence. In those circumstances, it is easy for prosecutors to make glaring oversights or unintentionally misrepresent the facts, and just as easy for criminal defense attorneys to let those negligent misdeeds go unnoticed. The question then becomes, “How does the Court deal with these prosecutorial errors when they become apparent.” This was exactly the question faced by by the New York County Supreme Court, Criminal Term in People v. Thompson, et al., 2016 NY Slip Op 50777(U) (N.Y. Co. Sup. 2016).
In Thompson, a white-collar criminal case involving a penny stock pump-and-dump scheme, the prosecutor presented numerous documents to the Grand Jury to obtain an indictment, including marketing emails to potential investors. Importantly, the prosecutor omitted highly relevant disclaimers that the defendants had included in those promotional emails, which were highly exculpatory with regard to the defendant’s intent. The Court found that the prosecutor should clearly have included the entire contents of those emails. While prosecutors are not generally obligated to to present all, or even any, evidence that is favorable to an accused person to the Grand Jury, the Court held that the prosecutor does have a duty of fairness to the accused which should prevent them from selectively omitting critical portions of a document that they are already presenting to the Grand Jury.
However, the Court in Thompson then gave the answer to the question above, which was that the indictment should still not be dismissed because, in this particular case, the Court did not believe that the prosecutor deliberately misled the Grand Jury, and those particular documents were just some of many that were presented, and not a critical part of the Grand Jury presentation.
With that issue resolved, the Court then turned to the issues of whether the prosecutor had submitted enough evidence to establish the Martin Act and Scheme to Defraud charges in the first place. Fraud under the Martin Act generally includes any deceitful practices contrary to principles of honesty and all acts tending to mislead the public. If that isn’t broad enough, it does not need to be alleged that classic common-law fraud was committed, or that any alleged victim even relied on any false statements made by the accused. However, it does have to be established that the accused obtained property as a result of the wrongdoing. In other words, there must be a causal link between the defendant’s actions and receiving money or property. In Thompson, the Court held that this was clearly established in that the evidence before the Grand Jury clearly established that the defendants received money as the direct result of misleading investor victims.
Criminal charges under the Martin Act are not to be confused with charges under the New York State Penal Law, such as Scheme to Defraud in the First Degree, Penal Law § 190.65, which was at issue in Thompson. Subdivision (a) of this statute applies when an accsued person is alleged to have engaged in a “systematic ongoing course of conduct with intent to defraud ten or more persons…by false and fraudulent pretenses” and obtains property from at least ten such persons. Subdivision (b) applies when the same conduct occurs, but it need only be directed at one victim if more than one thousand dollars are obtained. The financial thresholds under both this statute and the Martin Act are often not at issue, since prosecutions tend to arise from alleged large-scale schemes. In Thompson, the Court held that there was clearly evidence presented to the Grand Jury to establish that the defendants targeted more than ten people, and that it resulted in monetary gain far exceeding $1,000. Just as with the Martin Act, the Scheme to Defraud statute was clearly designed to be extremely broad and flexible so that it could apply to almost any kind of scheme that a person might think of in the future. While ensuring this kind of breadth is sensible, it also leaves a great deal of room for prosecutorial abuse, and mishandling by criminal defense attorneys.
This blog entry is not an attempt to substitute for an examination of your particular case by your own criminal defense lawyer who will determine what is best for your case. Instead, this entry can give you the foundation to better understand Scheme to Defraud and Martin Act offenses. To better understand these crimes, possible defenses, and how you can best protect yourself, consult with your criminal lawyer.