10-2786 (L)
USA v. Wolfson
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
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August Term, 2010
(Argued: May 24, 2011 Decided: June 7, 2011)
Docket Nos. 10-2786-cr(L), 10-2878-cr(CON)
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UNITED STATES OF AMERICA,
Appellee,
-v.-
ALLEN WOLFSON,
Defendant-Appellant.
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Before: KEARSE, POOLER, and LYNCH, Circuit Judges.
Defendant-Appellant Allen Wolfson appeals from two judgments of conviction entered
in the United States District Court for the Southern District of New York (Koeltl, J.). On appeal,
Wolfson argues that the first judgment of conviction, entered upon a jury verdict, should be
overturned, either because the evidence was insufficient to permit a jury to find a fiduciary duty,
or because the jury was improperly instructed about how to determine the existence of a
fiduciary duty. Wolfson further argues that the second judgment of conviction should be
overturned because his guilty plea, entered after his conviction in the first trial, was premised on
the outcome of that trial. We reject Wolfson’s challenge to the jury instructions and AFFIRM
both judgments of conviction.
____________________
JAMES A. COHEN, Michael W. Martin, Fordham University
School of Law, Lincoln Square Legal Services, Inc., New York,
N.Y., for Defendant-Appellant.
RUSSELL CAPONE, Andrew L. Fish, Assistant United States
Attorneys, Of Counsel, for Preet Bharara, United States Attorney,
Southern District of New York, New York, N.Y., for Appellee.
__________________
PER CURIAM:
Defendant-Appellant Allen Wolfson appeals from two judgments of conviction entered
in the United States District Court for the Southern District of New York (Koeltl, J.). The first
judgment was entered after a jury trial, which resulted in Wolfson’s conviction on a number of
different grounds, including securities fraud, relating to Wolfson’s involvement in a “pump and
dump” stock scheme. The second judgment resulted from a guilty plea in connection with a
similar scheme involving different stock. We reject Wolfson’s challenge to the jury instructions,
and affirm both convictions.
The evidence at trial showed that Wolfson artificially inflated the prices of certain
thinly-traded securities in which he had amassed a substantial interest, and then unloaded those
holdings on unsuspecting investors. Of particular relevance to Wolfson’s conviction, the scheme
relied on corrupt stock brokers who sold the securities for prices far above their actual value. In
exchange, Wolfson rewarded the brokers with exorbitant commissions. Some of the brokers
failed to disclose the fact of the commissions to their customers. Others made affirmative
misrepresentations about the size of these commissions.
On appeal, Wolfson argues that the brokers had no duty to disclose their commissions,
and that his fraud convictions, which relied on the breach of that duty to establish a scheme to
defraud, must therefore be overturned. Wolfson also argues that, even if a duty to disclose might
arise in some contexts, the district court gave an improper fiduciary duty instruction. Finally,
Wolfson submits that it was only because a jury had found him guilty in the first instance that he
pled guilty in the second case, so that if we overturn the first judgment of conviction, the second
should be reversed as well.
In the context of a motion made pursuant to Federal Rule of Criminal Procedure 33, the
district court concluded that Wolfson’s arguments were unavailing in light of our holding in
United States v. Szur, 289 F.3d 200 (2d Cir. 2002). With the issue now before us on direct
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appeal, we agree with the district court. Reviewing the jury instructions for plain error, because
Wolfson did not timely object below, see United States v. Middlemiss, 217 F.3d 112, 121 (2d
Cir. 2000), and taking the evidence in the light most favorable to the Government, we conclude
that the jury was entitled to find that the brokers in this case had a duty to disclose their
exorbitant commissions, just as they had a duty to refrain from making affirmative
misrepresentations regarding the size of their commissions, and that the district court properly
instructed the jury on the elements of that duty.
Although we have long held that there “is no general fiduciary duty inherent in an
ordinary broker/customer relationship,” we have also recognized that “a relationship of trust and
confidence does exist between a broker and a customer with respect to those matters that have
been entrusted to the broker.” Szur, 289 F.3d at 211 (internal quotation marks omitted, emphasis
added). As we explained in United States v. Skelly, 442 F.3d 94 (2d Cir. 2006), “[m]ost
commonly, this relationship exists in situations in which a broker has discretionary authority
over the customer's account.” Id. at 98. However, a discretionary account is not the sole means
by which a fiduciary duty may be created in the context of a broker-customer relationship; we
have “recognized that particular factual circumstances may serve to create a fiduciary duty
between a broker and his customer even in the absence of a discretionary account.” Id.
(emphasis added). Put otherwise, it is well settled in this Circuit that the presence of a
discretionary account automatically implies a general fiduciary duty between a broker and
customer, but the absence of a discretionary account does not mean that no fiduciary duty exists.
In Szur, which presented analogous facts and a nearly identical jury instruction, we
upheld a fraud conviction premised on a “deprivation of honest services” theory of wire fraud
under 18 U.S.C. § 1343 as modified by 18 U.S.C. § 1346. Jeffrey Szur, the owner and president
of J.S. Securities, had convinced brokers to market stock in exchange for unusually large
commissions, sometimes as much as 50 percent of the proceeds of the sale. Szur, 289 F.3d at
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212. These brokers failed to disclose the size of the commissions to their customers. We held
that, although the brokers owed no “general fiduciary duty resulting from discretionary authority
. . . JSS was under a duty to disclose these exorbitant commissions because the information
would have been relevant to a customer's decision to purchase the stock.” Id. (emphasis added).
This holding was an outgrowth of our pronouncement in SEC v. First Jersey Securities, Inc., 101
F.3d 1450, 1469 (2d Cir. 1996), where we explained that “[s]ales of securities by broker-dealers
to their customers carry with them an implied representation that the prices charged in those
transactions are reasonably related to the prices charged in an open and competitive market.”
Wolfson argues that United States v. Skelly, which was factually similar in that it arose in
the context of securities fraud, effectively limited the duty to disclose identified in Szur to claims
of honest services fraud. This is simply not the case. The error we identified in Skelly was not
that the brokers involved in the pump and dump scheme in that case had no fiduciary
relationship with their customers, but that the district court omitted a key element of what it
means to be a fiduciary from the jury charge. The instruction in Skelly was limited to a single
sentence: “One acts in a fiduciary capacity when the business which he transacts or the money or
property which he handles is not his or for his own benefit, but is for the benefit of another
person as to who[m] he stands in relation implied and necessitating great confidence and trust on
the one part, and a high degree of good faith on the other part.” Id. at 98 (internal quotation
marks and footnote omitted). The problem we identified with the charge was the fact that it
“omitted the elements of ‘reliance and de facto control and dominance,’ which are required to
establish a fiduciary relationship.” Id. at 99 (quoting Szur, 289 F.3d at 210). In reaching that
conclusion, Skelly favorably cited to the jury instruction in Szur, which included those elements.
Id. (citing Szur, 289 F.3d at 210). As a result, Skelly stands for the proposition that a properly
instructed jury may find that stock brokers have a duty to disclose material commissions to their
customers, and can convict brokers who breach that duty of violating “the general antifraud
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provisions of the securities laws” as well as the “comparable provisions of the wire fraud
statute.” Id. at 97. Skelly therefore reinforces, rather than undermines, the holding of Szur.
The controlling question in this case, then, is whether the jury was properly instructed.
The district court instructed the jury in relevant part as follows:
Whether a fiduciary relationship exists is a matter of fact for you,
the jury, to determine. At the heart of the fiduciary relationship
lies reliance and de facto control and dominance. The relationship
exists when confidence is reposed on one side and there is
resulting superiority and influence on the other. One acts in a
fiduciary capacity when the business which he or she transacts or
the money or property which he or she handles is not his own or
for his or her own benefit but for the benefit of another person, as
to whom he or she stands in a relation implying and necessitating
great confidence and trust on the one part and a high degree of
good faith on the other part.
If you find that the government has shown beyond a reasonable
doubt that a fiduciary relationship existed, such as between any
one of the brokers and the customers you next consider whether
there was a breach of the duties incumbent upon the fiduciary in
the fiduciary relationship and specifically whether the defendant
caused the broker or brokers to breach their fiduciary duties to
customers. I instruct you that a fiduciary owes a duty of honest
services to his customer, including a duty to disclose all material
facts concerning the transaction entrusted to him or her. The
concealment by a fiduciary of material information which he or
she is under a duty to disclose to another, under circumstances
where the nondisclosure can or does result in harm to the other is a
[b]reach of the fiduciary duty and can be a violation of the federal
securities laws, if the government has proven beyond a reasonable
doubt the other elements of this offense, as I explained them to
you.
That instruction is identical in all material respects to the charge given in Szur. See Szur, 289
F.3d at 210. Because we find no principled basis on which to distinguish this case from Szur, we
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conclude that there was no error in the charge, and affirm Wolfson’s first conviction.1 That
conclusion necessarily defeats Wolfson’s argument challenging his subsequent guilty plea and so
we also affirm his second judgment of conviction.
CONCLUSION
We have considered Appellant's remaining contentions and find them to be without merit.
We AFFIRM both judgments of the district court in their entirety.
1
Wolfson also argues that his trial counsel was ineffective for failing to object to the
district court’s jury instruction on fiduciary duty. “[I]n most cases a motion brought under §
2255 is preferable to direct appeal for deciding claims of ineffective assistance,” because the
collateral attack allows for additional fact finding. Massaro v. United States, 538 U.S. 500, 504
(2003). Here, however, we have found no error in the jury instruction, and therefore, counsel
could not have been ineffective for failing to object to it—no additional fact finding could alter
this conclusion.
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