17‐2552‐cr (con)
United States v. Hirst
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY
ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE
OF APPELLATE PROCEDURE 32.1 AND THIS COURTʹS LOCAL RULE 32.1.1. WHEN CITING A
SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE
FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION ʺSUMMARY ORDERʺ). A
PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED
BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second
Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in
the City of New York, on the 14th day of December, two thousand eighteen.
PRESENT: ROBERT D. SACK,
BARRINGTON D. PARKER,
DENNY CHIN,
Circuit Judges.
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UNITED STATES OF AMERICA,
Appellee,
v. 17‐2552‐cr
JASON GALANIS, GARY HIRST,
Defendants‐Appellants,
JOHN GALANIS, JARED GALANIS, DEREK
GALANIS, GAVIN HAMELS, YMER SHAHINI,
Defendants.
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FOR APPELLEE: BRIAN R. BLAIS, Assistant United
States Attorney (Aimee Hector, Rebecca
Mermelstein, Won S. Shin, Assistant
United States Attorneys, on the brief), for
Geoffrey S. Berman, United States
Attorney for the Southern District of
New York, New York, New York.
FOR DEFENDANT‐APPELLANT MICHAEL TREMONTE, Sher Tremonte
GARY HIRST: LLP, New York, New York.
Appeal from the United States District Court for the Southern District of
New York (Castel, J.).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED,
ADJUDGED, AND DECREED that the judgment of the district court is AFFIRMED.
Defendant‐appellant Gary Hirst appeals from a judgment of conviction,
entered August 3, 2017, after a two‐and‐one‐half‐week jury trial.1 Hirst was convicted
of conspiracy, securities fraud, and wire fraud arising out of his involvement with
Gerova Financial Group, Ltd. (ʺGerovaʺ). He was sentenced principally to 78 monthsʹ
imprisonment. We assume the partiesʹ familiarity with the underlying facts, procedural
history, and issues on appeal.
The Government presented evidence that in 2007, Jason Galanis and
others created a special purpose acquisition company, originally called Asia Special
1 This appeal was consolidated with the appeal of co‐defendant Jason Galanis, No. 17‐629‐cr.
Because the two appeals raise different issues, we address them separately.
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Situations Acquisition Corp. and later renamed Gerova, which was initially traded on
the American Stock Exchange. Hirst served as the President and Chairman of Gerova.
The evidence at trial showed that Galanis, Hirst, and others created
fraudulent documents to justify the issuance of millions of dollars of Gerova stock to
Ymer Shahini, a citizen of Canada and Kosovo, for their own benefit and without the
knowledge or approval of the SEC or the Gerova board. Hirst signed on behalf of
Gerova a fraudulently backdated agreement entitling Shahini to Gerova shares in
consideration of a consulting fee purportedly owed to Shahini, which itself was justified
by a fraudulently backdated document. Hirst also signed the May 26, 2010, letter
authorizing Gerovaʹs transfer agent to transfer 5,333,333 unrestricted Gerova shares to
Shahini, which were issued on May 27, 2010. On June 1, 2010, Hirst instructed Gerovaʹs
transfer agent to cancel 5,333,333 shares issued to Gerovaʹs former CEO, retroactive to
May 27, 2010, effectively concealing the issuance of the Shahini shares.
Thereafter, Hirstʹs co‐conspirators monetized the Shahini shares by
depositing them in U.S. brokerage accounts and either selling them or using the shares
as collateral. Before Gerova was de‐listed from the stock exchange, more than $19
million of proceeds were generated from the sale of the Shahini shares. Some $2.6
million of those proceeds were deposited into an account managed by Hirst and used to
pay a debt owed to an investor in a hedge fund that Hirst managed.
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Hirst argues on appeal that (1) the district court erred in certain
evidentiary rulings, (2) the district court erred in calculating the loss attributable to
Hirst under the sentencing Guidelines, and (3) the government committed prosecutorial
misconduct in summation. For the reasons discussed below, Hirstʹs arguments fail.
DISCUSSION
1. Evidentiary Rulings
We review a district courtʹs evidentiary rulings for abuse of discretion.
United States v. Vilar, 729 F.3d 62, 82 (2d Cir. 2013). If, however, an objection was not
made, we review only for plain error. United States v. Johnson, 529 F.3d 493, 501 (2d Cir.
2008). ʺ[W]e will not order a new trial because of an erroneous evidentiary ruling if we
conclude that the error was harmless.ʺ United States v. Abreu, 342 F.3d 183, 190 (2d Cir.
2003).
A. Evidence of the Disposition of the Shahini Shares
The district court did not err in permitting the Government to introduce
evidence concerning the disposition of the Shahini shares. Hirst argues that the
issuance of the Shahini shares and the monetization of those shares were two separate
conspiracies, and that Hirst was not involved in the latter. The argument lacks merit.
Hirst was charged with being involved in a single scheme to fraudulently
issue and monetize shares of Gerova. Dkt. No. 225 ¶¶ 13‐17. A ʺsingle conspiracy . . .
may involve two or more spheres or phases of operation,ʺ and the Government was
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entitled to introduce evidence of such a conspiracy. See United States v. Geibel, 369 F.3d
682, 689 (2d Cir. 2004) (citation omitted). Evidence of conduct that arises out of the
ʺsame transaction or series of transactions as the charged offenseʺ or ʺis necessary to
complete the story of the crime on trialʺ is admissible. United States v. Carboni, 204 F.3d
39, 44 (2d Cir. 2000) (quoting United States v. Gonzalez, 110 F.3d 936, 942 (2d Cir. 1997)).
The monetization of the Shahini shares was part of the overall scheme and
was reasonably foreseeable to Hirst. He was involved in the fraudulent issuance of the
shares, and he did foresee or should have foreseen that the shares would be monetized
and disposed of for value in the United States. See United States v. Overton, 470 F.2d 761,
766 (2d Cir. 1972) (noting that conspirators are responsible for acts taken by co‐
conspirators in furtherance of the conspiracy whether or not they knew of precise
methods chosen). This was particularly so given that the evidence at trial established
that Hirst (1) was President and Chairman of Gerova, (2) personally authorized the
fraudulent issuance of 5,333,333 shares of Gerova to Shahini to be ʺdelivered without
restrictionʺ on trading, (3) took steps to prevent officers of Gerova from discovering the
issuance, and (4) received a financial benefit from the monetization of the shares in the
amount of $2.6 million. See United States v. Svoboda, 347 F.3d 471, 483 (2d Cir. 2003)
(noting that a defendantʹs financial sophistication is relevant to the reasonable
foreseeability inquiry).
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Thus, the district court did not abuse its discretion in permitting the
Government to introduce evidence of the fraudulent disposition of the Shahini shares.
B. Testimony of Laby
The district court did not err in permitting Arthur Laby, a law professor,
to testify as a ʺsummary witnessʺ about securities law. Hirst argues that Laby, who the
government initially presented as a fact witness, provided impermissible expert
opinions, including opinions about the legal standard of materiality, the requirements
of Regulation S, and the meaning of certain fiduciary duties.
Although Laby testified as a lay witness or summary witness, he was not
prohibited from offering an opinion. Lay witness testimony ʺin the form of an opinion
is limited to one that is: (a) rationally based on the witnessʹs perception; (b) helpful to
clearly understanding the witnessʹs testimony or to determining a fact in issue; and (c)
not based on scientific, technical, or other specialized knowledge within the scope of
[Federal Rule of Evidence] 702.ʺ Fed. R. Evid. 701. Hirstʹs challenge to Labyʹs testimony
is reviewed for plain error because he did not object on this basis at trial. See United
States v. Algahaim, 842 F.3d 796, 799‐800 (2d Cir. 2016).
Laby testified about background principles of securities law. To the extent
that Laby opined about these matters, we have held that some degree of specific,
industry‐related knowledge will not disqualify lay opinion testimony. See United States
v. Yannotti, 541 F.3d 112, 126 (2d Cir. 2008); United States v. Garcia, 413 F.3d 201, 215‐16
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(2d Cir. 2005). The district court did not commit plain error in permitting Labyʹs
testimony.2
2. Reasonableness of Sentence
The district court did not err in calculating the loss attributable to Hirst
under the U.S. Sentencing Guidelines (the ʺGuidelinesʺ). A district court commits
procedural error where it, inter alia, ʺmakes a mistake in its Guidelines calculation.ʺ
United States v. Cavera, 550 F.3d 180, 190 (2d Cir. 2008) (en banc). We review a district
courtʹs interpretation of the Guidelines de novo and its findings of fact for clear error.
United States v. Rubenstein, 403 F.3d 93, 99 (2d Cir. 2005). A district courtʹs factual
findings at sentencing need be supported only by a preponderance of the evidence.
United States v. Martinez, 862 F.3d 223, 246 (2d Cir. 2017).
ʺ[I]n the case of a jointly undertaken criminal activity,ʺ the amount of loss
attributable to a defendant at sentencing includes ʺall acts and omissions of others that
were . . . (i) within the scope of the jointly undertaken criminal activity, (ii) in
furtherance of that criminal activity, and (iii) reasonably foreseeable in connection with
that criminal activity.ʺ U.S.S.G. § 1B1.3(a)(1)(B). To hold a defendant accountable for
jointly undertaken criminal activity, a district court must make two ʺparticularized
findingsʺ: (1) ʺthat the acts were within the scope of the defendantʹs agreementʺ and (2)
2 Hirst also argues that other witnesses should not have been permitted to testify. The objections
lack merit.
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ʺthat they were foreseeable to the defendant.ʺ United States v. Studley, 47 F.3d 569, 574
(2d Cir. 1995). In determining scope, the district court ʺmay consider any explicit
agreement or implicit agreement fairly inferred from the conduct of defendant and
others.ʺ U.S.S.G. § 1B1.3 cmt. n.3(B).
Hirst argued at sentencing that his issuance of shares to Shahini and
subsequent failure to disclose the issuance itself resulted in a loss of only $1.1 million,
because the shares issued by Hirst could not be sold in the U.S. for a certain time period
and thus were worth substantially less than they would have been if freely transferable
in U.S. markets. The district court did not agree, finding that ʺthe loss resulting from
the offense of Mr. Hirst was expected by him to be in a range of between 25 but not
more than 65 million and was in fact in that range.ʺ App. at 415. This finding was
based on the ʺaverage price of the security during the period of the fraud and the
average price during the period following disclosure, multiplied by the number of
shares outstanding.ʺ App. at 411.
In concluding that the disposition of the Shahini shares in U.S. markets
was within the scope of Hirstʹs jointly undertaken criminal activity for purposes of
Guidelines § 3B1.3, the district court found that ʺ[a]t the time [Hirst] signed the warrant
agreement and facilitated the exercise and facilitated the transfer, he knew from the
surrounding circumstances that the purpose, the whole reason that Galanis had
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recruited him was so that [the Shahini shares] would be sold on the U.S. market.ʺ App.
at 414.
As to the second prong of Studley, foreseeability, the district court found
that ʺit was foreseeable that these shares would wind up sold to U.S.‐based investors.ʺ
App. at 389. The court also found that Hirst knew that the ʺobject and consequences of
his acts were that these shares would be sold on U.S. markets by his coconspirators.ʺ
App. at 413.
The district court made particularized findings at sentencing sufficient to
satisfy Studley and Guidelines § 3B1.3, including the following: (1) ʺMr. Hirst failed to
contemporaneously inform Gerovaʹs CFO and board of directors about the stock
transfer, including details such as the number and the value of the transferred shares,ʺ
App. at 391, (2) ʺon October 6, 2010, Gerovaʹs board was asked to ratify the issuance of
shares to Shahiniʺ but Hirst did not disclose that the Shares received by Shahini ʺgave
him control over half the float,ʺ nor did he tell the board that he had backdated the
Warrant Agreement, App. at 392‐95, and (3) the $2.6 million Hirst received from the
proceeds of the Shahini shares were used to pay a debt owed by Hirst to Albert Hallac,
App. at 405‐06 (ʺ[The jury] understood that it was paying down a debt. . . . They
understood that, and I understand that as well.ʺ). The district court also ʺadopt[ed] as
[its] findings of fact the facts set forth in the presentence report as modified . . . on the
record.ʺ App. at 409.
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Thus, the district court did not abuse its discretion, let alone commit clear
error, in determining that the loss attributable to Hirst under the Guidelines was
between $25 and $65 million.
3. Prosecutorial Misconduct
The Government did not commit prosecutorial misconduct by referring in
summation to the value of the Shahini shares as being $72 million. Hirst argues that use
of the $72 million figure as shorthand was misconduct that caused ʺsubstantial
prejudice by so infecting the trial with unfairness as to make the resulting conviction a
denial of due process.ʺ Appellantʹs Br. at 31 (quoting United States v. Certified Envtl.
Servs., Inc., 753 F.3d 72, 95 (2d Cir. 2014)). In considering claims of prosecutorial
misconduct, we consider (1) the severity of the misconduct, (2) the measures adopted to
cure the misconduct, and (3) the certainty of conviction absent the misconduct. Certified
Envtl. Servs., Inc., 753 F.3d at 95.
The Government did not commit misconduct, let alone misconduct
warranting the ʺdrastic remedyʺ of reversing a criminal conviction. United States v.
Valentine, 820 F.2d 565, 570 (2d Cir. 1987). There was a good faith basis for the assertion,
as the Government explained the figure to the jury during summation: (a) Hirst
directed Gerovaʹs transfer agent to issue over 5.3 million shares of Gerova to Shahini,
(b) on the day the shares were sent to Shahiniʹs account, Gerova shares were trading at
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$13.56, and (c) as a result, the Shahini shares were worth $72 million the day they were
issued.
Hirstʹs argument that this figure represents a misstatement that unfairly
prejudiced the jury is an extension of his argument that the district court erred in
admitting evidence of the disposition of the Shahini shares and in calculating loss under
the Guidelines. For the same reasons discussed above, however, this was not a
misstatement because the evidence at trial established that the object of the conspiracy
and jointly undertaken activity was to overcome Regulation S restrictions and sell the
Shahini shares on the U.S. market. Moreover, the Shahini shares were actually sold at
market prices and the district court explicitly found at sentencing that the shares were
worth $72 million when issued. For these reasons, and because the Government has
ʺbroad latitude in the inferences it may reasonably suggest to the jury,ʺ it did not
commit misconduct by using the $72 million figure during summation. See United States
v. Zackson, 12 F.3d 1178, 1183 (2d Cir. 1993).
* * *
We have considered Hirstʹs remaining arguments and find them to be
without merit. For the reasons set forth above, we AFFIRM the district courtʹs
judgment.
FOR THE COURT:
Catherine OʹHagan Wolfe, Clerk of Court
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