PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 13-6814
THOMAS T. PROUSALIS, JR.,
Petitioner - Appellant,
v.
CHARLES E. MOORE, Senior U.S. Probation Officer,
Respondent – Appellee.
Appeal from the United States District Court for the Eastern
District of Virginia, at Richmond. John A. Gibney, Jr.,
District Judge. (3:12-cv-00134-JAG)
Argued: March 19, 2014 Decided: May 7, 2014
Before TRAXLER, Chief Judge, and WILKINSON and KEENAN, Circuit
Judges.
Affirmed by published opinion. Judge Wilkinson wrote the
opinion, in which Judge Keenan joined. Chief Judge Traxler wrote
an opinion concurring in the result.
ARGUED: Scott Martin, GIBSON, DUNN & CRUTCHER, LLP, Washington,
D.C., for Appellant. Jonathan Holland Hambrick, OFFICE OF THE
UNITED STATES ATTORNEY, Richmond, Virginia, for Appellee. ON
BRIEF: Dana J. Boente, Acting United States Attorney, OFFICE OF
THE UNITED STATES ATTORNEY, Alexandria, Virginia, for Appellee.
WILKINSON, Circuit Judge:
Appellant Thomas Prousalis Jr. pled guilty to three counts
arising from his fraudulent activity in connection with a
client’s initial public offering. He now seeks habeas relief,
contending that, in light of the Supreme Court’s intervening
decision in Janus Capital Group, Inc. v. First Derivative
Traders, 131 S. Ct. 2296 (2011), the conduct for which he was
convicted is no longer criminal. For the following reasons, we
reject Prousalis’s claims and affirm the dismissal of his
petition.
I.
Thomas Prousalis was a securities lawyer who marketed his
services to small firms seeking to raise capital. At issue here
is his representation of Busybox.com, Inc. (Busybox), an
internet company that he guided through the process of
conducting an initial public offering (IPO). Despite Busybox’s
modest size and limited cash flow, Prousalis persuaded company
management to agree to an initial offering of over $10 million.
Prousalis’s retainer agreement provided that he would be
compensated the greater of $375,000 or 7.5 percent of the gross
proceeds; notably, his fee was contingent upon the successful
closing of the IPO. To effectuate the transaction, Busybox also
hired Barron Chase Securities, Inc., an investment banking firm,
which agreed to provide a firm commitment underwriting. This
2
agreement obligated Barron Chase to purchase all of the
available Busybox shares and then resell them to the public.
Prousalis prepared the IPO registration materials, which
were subsequently signed by Busybox officers and filed with the
Securities and Exchange Commission (SEC). The materials stated
that Busybox intended to raise $12.8 million in gross proceeds
through the offering, with net receipts of $10.6 million. The
forms also reported Prousalis’s legal fee, but failed to
acknowledge the contingent nature of his compensation. When
Busybox’s CEO attempted to correct the registration statement to
accurately reflect Prousalis’s retainer agreement, Prousalis
insisted that the existing description was compliant and that
the SEC had confirmed its sufficiency. Prousalis later admitted
in his plea allocution that he knew at the time that Busybox
would not be listed on the NASDAQ exchange if his compensation
arrangement were accurately disclosed.
Prousalis soon became aware that Barron Chase was unwilling
to complete a firm commitment underwriting of the IPO. Barron
Chase’s failure to uphold its end of the bargain generated a
shortfall of $2.5 million in the IPO as originally conceived. To
solve this problem, Prousalis orchestrated a scheme in which IPO
proceeds were recycled in order to purchase shares that were
then used both to compensate him (in a sum unrelated to his
retainer agreement) and to pay salaries and bonuses to Busybox
3
officers. Prousalis failed to disclose these maneuvers to the
SEC. Only after the initial offering was made did he reveal to
Busybox officers the existence of the shortfall and his proposed
remedy. The judge presiding over Prousalis’s earlier collateral
proceeding noted that “Prousalis specifically admitted that at
the time he did each of these acts he knew he was doing
something wrong, knew he was acting in violation of the law, and
was acting with the intent to deceive and defraud investors in
Busybox securities.” Prousalis v. United States, Nos. 06 Civ.
12946(DLC), 03 CR. 1509, slip op. at 5 (S.D.N.Y. Aug. 24, 2007).
As a result of these activities, Prousalis was indicted in
the Southern District of New York on three counts. Count One
charged conspiracy to commit securities fraud, wire fraud, and
mail fraud (in violation of 15 U.S.C. §§ 78j(b), 78ff; 17 C.F.R.
§ 240.10b-5; 18 U.S.C. §§ 371, 1343, 1346, 1341). Count Two
charged securities fraud (in violation of 15 U.S.C. §§ 78j(b),
78ff; 17 C.F.R. § 240.10b-5; 18 U.S.C. § 2). Finally, Count
Three charged “failure to disclose interest of counsel” in the
registration materials Prousalis prepared in connection with the
IPO (in violation of 15 U.S.C. § 77x; 17 C.F.R. § 228.509; 18
U.S.C. § 2). J.A. 225-49. As relevant for purposes of this
appeal, Prousalis’s convictions hinged in large part on his
violation of SEC Rule 10b-5, which implements Section 10(b) of
the Securities Exchange Act of 1934. The Rule provides:
4
It shall be unlawful for any person, directly or
indirectly, by the use of any means or instrumentality
of interstate commerce, or of the mails or of any
facility of any national securities exchange . . . [t]o
make any untrue statement of a material fact or to omit
to state a material fact necessary in order to make the
statements made, in the light of the circumstances
under which they were made, not misleading . . . in
connection with the purchase or sale of any security.
17 C.F.R. § 240.10b-5. 15 U.S.C. § 78ff subjects certain
violators of Rule 10b-5 to criminal penalties. 15 U.S.C.
§ 78ff(a) (“Any person who willfully violates any provision of
this chapter . . . or any rule or regulation thereunder the
violation of which is made unlawful . . . shall upon conviction
be fined not more than $5,000,000, or imprisoned not more than
20 years, or both . . . .”).
Trial commenced but was aborted when Prousalis agreed to
plead guilty to each count pursuant to a plea agreement. The
district court subsequently sentenced Prousalis to 57 months of
imprisonment, followed by three years of supervised release. He
was also ordered to pay $12.8 million in restitution. Prousalis
appealed to the Second Circuit but lost on the basis of the
appeal waiver contained in his plea agreement. J.A. 460. In
2006, he filed a petition for collateral review under 28 U.S.C.
§ 2255, alleging ineffective assistance of counsel and Fifth and
Sixth Amendment violations. The district court denied his
petition and the Second Circuit affirmed the dismissal.
5
Pursuant to the savings clause of 28 U.S.C. § 2255,
Prousalis later filed a habeas petition in the Eastern District
of Virginia -- the site of his supervised release -- under 28
U.S.C. § 2241, naming his probation officer as respondent. As
explained below, Prousalis is only eligible for relief under
§ 2241 if the conduct for which he was originally convicted is
no longer deemed criminal. The district court denied his motion,
citing two alternative rationales. First, it concluded that the
decision upon which Prousalis relies, Janus, has no application
in the criminal context. Second, it determined that Prousalis
pled guilty to charges -- such as aiding and abetting -- that
fall outside the substantive scope of the Janus decision, which
only addresses primary liability under the securities laws. The
court thus concluded that Prousalis’s petition constituted an
“unauthorized, successive § 2255” motion and dismissed for lack
of jurisdiction. J.A. 557. This appeal followed.
II.
Prousalis may file a habeas petition under § 2241 only if
the collateral relief typically available under § 2255 “is
inadequate or ineffective to test the legality of his
detention.” 28 U.S.C. § 2255(e). This standard is satisfied
when:
(1) [A]t the time of conviction, settled law of this
circuit or the Supreme Court established the legality
of the conviction; (2) subsequent to the prisoner’s
6
direct appeal and first § 2255 motion, the substantive
law changed such that the conduct of which the
prisoner was convicted is deemed not to be criminal;
and (3) the prisoner cannot satisfy the gatekeeping
provisions of § 2255 because the new rule is not one
of constitutional law.
In re Jones, 226 F.3d 328, 333-34 (4th Cir. 2000). The parties
here agree that conditions (1) and (3) are satisfied.
Prousalis bases his argument under prong (2) on the Supreme
Court’s decision in Janus, which was handed down subsequent to
his direct appeal and § 2255 motion. In that case, the Court
defined what it means to “make” an untrue statement in the
context of a private action alleging a Rule 10b-5 violation.
According to the Court, “the maker of a statement is the person
or entity with ultimate authority over the statement, including
its content and whether and how to communicate it.” Janus, 131
S. Ct. at 2302. It added that “[w]ithout control, a person or
entity can merely suggest what to say, not ‘make’ a statement in
its own right. One who prepares or publishes a statement on
behalf of another is not its maker.” Id. The Court analogized
its rule to the relationship between a speaker and speechwriter:
“Even when a speechwriter drafts a speech, the content is
entirely within the control of the person who delivers it. And
it is the speaker who takes credit -- or blame -- for what is
ultimately said.” Id.
7
Prousalis contends that, under Janus, he does not qualify
as the “maker” of any false statements contained in Busybox’s
registration materials. Instead, Busybox itself -- the entity
with the ultimate legal authority over the SEC filings -- is the
maker for purposes of 10b-5. If this interpretation of Janus is
correct, then Prousalis arguably stands condemned (at least in
part) of conduct which is no longer deemed criminal. On the
other hand, Prousalis’s convictions unquestionably remain valid
if his reading of Janus is mistaken. He does not contest that
his guilty pleas were legitimate at the time they were entered
and remain so in the absence of Janus. For the reasons that
follow, we find Janus inapplicable outside the context of the
10b-5 implied private right of action. That case thus does not
affect Prousalis’s criminal convictions. Because his convictions
are proper under current law, his § 2241 petition necessarily
fails. *
A.
Neither Section 10(b) of the Securities Exchange Act nor
SEC Rule 10b-5 explicitly provides for a private right of action
to enforce the prohibitions established therein. Nevertheless,
*
Because we find that Janus does not apply to Prousalis’s
criminal convictions, we need not reach the government’s
alternative argument that his convictions are sustainable on a
theory of secondary liability, the requirements for which were
not affected by Janus.
8
in Superintendent of Insurance v. Bankers Life & Casualty Co.,
the Supreme Court stated that the existence of such a right was
“established.” 404 U.S. 6, 13 n.9 (1971). The precise scope of
this judicially created cause of action has been the source of
continuing disagreement. See, e.g., Stoneridge Inv. Partners,
LLC v. Scientific-Atlanta, Inc., 552 U.S. 148 (2008); Cent. Bank
of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511
U.S. 164 (1994). The Supreme Court’s general inclination over
the past several decades has been to restrict the right;
Congress, similarly, has declined to expand it. See, e.g.,
Janus, 131 S. Ct. at 2302; Alexander C. Krueger-Wyman, Note,
Making a Statement About Private Securities Litigation: The
Merits and Implications of the Supreme Court’s Janus Capital
Case, 98 Va. L. Rev. 1621, 1621 (2012).
The Janus opinion itself makes clear the limits of its
reach. Janus concerned the ability of a private plaintiff
invoking the 10b-5 implied right to sue a mutual fund investment
adviser. Janus, 131 S. Ct. at 2299. The scope of the Court’s
opinion was established at the outset: “We granted certiorari to
address whether [the adviser] can be held liable in a private
action under Rule 10b–5 for false statements included in [its
client’s] prospectuses.” Id. at 2301 (emphasis added). Moreover,
the Court’s reasoning -- like its framing of the issue --
indicates that its holding was confined to cases invoking the
9
implied private right of action and does not extend to the
criminal convictions at issue here. Several points merit
particular attention.
First, the Court stated that its rule “follows from Central
Bank of Denver, . . . in which we held that Rule 10b–5’s private
right of action does not include suits against aiders and
abettors.” Id. at 2302. The Janus Court reasoned that a more
expansive interpretation of primary liability under the implied
right would functionally render aiders and abettors a null set,
thus draining the Central Bank decision of any concrete impact.
Id. In this respect, Janus works in tandem with Central Bank to
impart a coherent structure to the 10b-5 implied cause of
action. The reasoning in both decisions is born out of concerns
specific to the implied civil right since, as the parties agree,
aiding and abetting is plainly available under the criminal law.
Central Bank in fact makes the distinction explicit: “while it
is true that an aider and abettor of a criminal violation of any
provision of the 1934 Act, including § 10(b), violates 18 U.S.C.
§ 2, it does not follow that a private civil aiding and abetting
cause of action must also exist.” Central Bank, 511 U.S. at 190.
Second, the Janus Court also relied heavily on Stoneridge,
another decision involving the scope of the 10b-5 private
action. In that case, plaintiffs sued “entities who, acting both
as customers and suppliers, agreed to arrangements that allowed
10
the investors’ company to mislead its auditor and issue a
misleading financial statement affecting the stock price.”
Stoneridge, 552 U.S. at 152-53. Relevantly, the Stoneridge Court
observed that “nothing [defendants] did made it necessary or
inevitable for [the company] to record the transactions as it
did.” Id. at 161. The Janus Court found this logic compelling,
noting that, unless a bad actor possesses ultimate authority, it
is not “necessary or inevitable” that the falsehoods he
propagates will appear in any final statement filed with the
SEC. Janus, 131 S. Ct. at 2303 (internal quotation marks
omitted).
Janus thus meshes seamlessly with the reasoning of the
Supreme Court’s recent 10b-5 private right of action cases. In
all three decisions (Central Bank, Stoneridge, and Janus), the
context is everything. Apart from its specific dependence on
Central Bank and Stoneridge, however, the Janus opinion evinces
a general desire to circumscribe implied causes of action. At
the outset, the Court observes that:
“Concerns with the judicial creation of a private
cause of action caution against its expansion.” Thus,
in analyzing whether [defendant] “made” the statements
for purposes of Rule 10b–5, we are mindful that we
must give “narrow dimensions . . . to a right of
action Congress did not authorize when it first
enacted the statute and did not expand when it
revisited the law.”
11
Id. at 2302 (quoting Stoneridge, 552 U.S. at 165, 167) (internal
alteration and citations omitted). The Court summarizes its
analysis by noting, “Our holding also accords with the narrow
scope that we must give the implied private right of action.”
Id. at 2303. These concerns are specific to the dangers of
judicially implied causes of action. Nowhere is there the
suggestion that criminal sanctions for security fraud violations
would be similarly imperiled.
Prousalis argues in rebuttal that Janus rested primarily on
a straightforward reading of Rule 10b-5’s text, and that the
Court’s desire to limit the implied right merely confirmed its
textual conclusion. In support of this argument he highlights
Janus’s statement that the word “make” in Rule 10b-5 is
“not . . . ambiguous.” Id. at 2304 n.8.
But this and similar language only reinforce our analysis.
Any textual conclusion announced in this particular area of law
would not be casually generalizable to the criminal context
which, as discussed below, presents a wholly different set of
issues. “[T]he meaning of statutory language, plain or not,
depends on context.” King v. St. Vincent’s Hosp., 502 U.S. 215,
221 (1991). A facially ambiguous or vague word can be rendered
determinate by the setting in which it appears. See FDA v. Brown
& Williamson Tobacco Corp., 529 U.S. 120, 132 (2000) (“The
meaning -- or ambiguity -- of certain words or phrases may only
12
become evident when placed in context.”). Petitioner’s position
would render the Supreme Court’s discussion of private rights of
action largely superfluous. We decline to disfigure the Court’s
analysis of civil actions by wrenching its conclusion from the
distinctive contextual considerations that gave it birth.
B.
Our interpretation of Janus is further supported by
considerations of judicial restraint and legislative primacy.
The Janus Court’s discomfort with implied rights of action
reflected the fact that “[t]he regulation of access to the
courts is largely a legislative task, and one that courts should
hesitate to undertake.” Smith v. Reagan, 844 F.2d 195, 201 (4th
Cir. 1988). As Stoneridge emphasized, “In the absence of
congressional intent the Judiciary’s recognition of an implied
private right of action . . . . runs contrary to the established
principle that the jurisdiction of the federal courts is
carefully guarded against expansion by judicial interpretation.”
552 U.S. at 164 (internal quotation marks and alteration
omitted). “For this reason, implied rights of action are
disfavored, and will not be found in the absence of clear
evidence of legislative intent.” Smith, 844 F.2d at 201.
It is not just that judicially created causes of action are
disfavored. It is that congressional control of federal court
jurisdiction and, more specifically, of the elements of federal
13
criminal offenses have long been respected. As a result, the
Court’s willingness to constrict an implied civil right tells us
very little about its views regarding the scope of a
congressionally authorized action lying squarely within the
legislature’s traditional prerogative to prescribe crimes and
ranges of punishment. See United States v. Lanier, 520 U.S. 259,
265 n.5 (1997) (noting “the deference due to the legislature,
which possesses the power to define crimes and their
punishment”). A part of the Janus Court’s unease stemmed, as
noted earlier, from the fact that the case involved “a right of
action Congress did not authorize when it first enacted the
statute and did not expand when it revisited the law.” Janus,
131 S. Ct. at 2302 (quoting Stoneridge, 552 U.S. at 167)
(internal quotation marks omitted). This concern is absent when
Congress has in fact acted. The gulf between these two domains
of law makes it difficult to extrapolate from one to the other.
The Janus Court gave no indication that it intended to curtail
the government’s criminal enforcement, nor did the opinion
suggest that it even contemplated the issue. Explicit
congressional prohibitions simply operate in a different
universe than the one inhabited by Janus.
Indeed, the Court has noted on many occasions that
“Congress intended securities legislation enacted for the
purpose of avoiding frauds to be construed ‘not technically and
14
restrictively, but flexibly to effectuate its remedial
purposes.’” Affiliated Ute Citizens of Utah v. United States,
406 U.S. 128, 151 (1972) (quoting SEC v. Capital Gains Research
Bureau, Inc., 375 U.S. 180, 195 (1963)). Prousalis himself has
offered no reason to believe that the concerns attendant upon
implied rights of action -- concerns of legitimacy,
institutional competence, and judicial policymaking -- are
implicated by prosecutions such as the one at issue here. All of
the statutes to which Prousalis pled guilty fall within the
acknowledged powers of Congress. Petitioner has made no
contention that the prohibitions to which he pled guilty are in
any way unconstitutional or otherwise illegitimate. Furthermore,
Prousalis’s conduct falls within the heartland of congressional
concern: he orchestrated a sophisticated scheme to defraud both
his own client and Busybox investors in the securities markets
out of hundreds of thousands (if not millions) of dollars for
his personal gain. It is hard to imagine a scenario more germane
to Congress’s intentions in enacting the securities laws.
Prousalis has simply failed to proffer any compelling reason for
placing his conduct outside the reach of the criminal law.
In sum, to broaden Janus’s holding beyond the domain of
implied rights would represent a stark assertion of judicial
will, the very thing against which Janus itself inveighed. The
majority in Janus gave not the slightest indication that its
15
holding applied beyond the implied civil context: the four
dissenters resisted taking the law even that far. As counsel for
petitioner candidly noted at oral argument, no other appellate
court has adopted Prousalis’s argument; indeed, counsel was
unable to identify a single district court that had applied
Janus in the criminal context. There is a good reason for this
dearth of cases. It is not the role of courts to blaze new
trails into uncharted territory in the absence of any clear
textual or precedential mandate for doing so. Considerations of
judicial restraint and modesty militate against such an
untethered venture. In the absence of more affirmative
indications from either Congress or the Supreme Court, we
decline to work such an avulsive change in law on our own.
III.
For the foregoing reasons, we reject Prousalis’s arguments
and affirm the dismissal of his petition.
AFFIRMED
16
TRAXLER, Chief Judge, concurring in the result:
“Under Rule 10b-5, it is unlawful for ‘any person, directly
or indirectly, . . . [t]o make any untrue statement of a
material fact’ in connection with the purchase or sale of
securities.” Janus Capital Group, Inc. v. First Derivative
Traders, 131 S. Ct. 2296, 2301 (2011) (quoting 17 C.F.R.
§ 240.10b-5(b)) (alterations in original). The Supreme Court in
Janus held that “[f]or purposes of Rule 10b-5, the maker of a
statement is the person or entity with ultimate authority over
the statement, including its content and whether and how to
communicate it.” Id. at 2302. Although I believe “make” has
the same meaning in the criminal context as it does in the
context of a private right of action, I nevertheless would
affirm.
Prousalis argues that the conduct underlying his
convictions is no longer illegal because Janus demonstrates that
it was Busybox, and not he, who made the statements that were
the basis for his convictions. However, that it was Busybox
that made the statements does not negate the illegality of
Prousalis’s causing Busybox to make them. Subsection 2(b) of
Title 18 states that “[w]hoever 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.” That provision “is intended to impose criminal
17
liability on one who causes an intermediary to commit a criminal
act, even though the intermediary who performed the act has no
criminal intent and hence is innocent of the substantive crime
charged.” United States v. Richeson, 825 F.2d 17, 20 (4th Cir.
1987) (internal quotation marks omitted). Subsection 2(b) “does
not set forth an essential element of the offense with which the
defendant is charged or itself create a separate offense.”
United States v. Ashley, 606 F.3d 135, 143 (4th Cir. 2010).
Thus, a defendant can be liable under § 2(b) regardless of
whether the indictment even charges that provision. 1 See id.
Prousalis’s willful intent to defraud, combined with
Busybox’s duty not to make the charged material
misrepresentations and omissions, made it a crime for Prousalis
to cause Busybox to make the statements at issue. Thus, his
contention that the conduct underlying his convictions is no
longer illegal after Janus is simply incorrect, and the district
court properly dismissed his petition. 2
1
The indictment did expressly charge 18 U.S.C. § 2 with
regard to Counts Two and Three.
2
Count One alleged a conspiracy, the objective of which
was to commit securities fraud, wire fraud, and mail fraud.
Even if under Janus the alleged conduct did not amount to
conspiracy to commit securities fraud, it still amounted to
conspiracy to commit wire fraud and mail fraud, and this
provides an additional basis for affirmance concerning Count
One.
18