Factual Background
Sandy Winick and his co-conspirators controlled dozens of thinly traded target
stocks (the Target Stocks). His overarching fraudulent scheme called for him to form a
corporate team for the Target Stock and then engage a promotion team through a middleman such as Joseph Manfredonia or others. The middle-man would engage a promotion team,
which would then coordinate its promotion bursts (phone calls, emails, websites, etc.) with false
and misleading press releases from the corporate team. The content and timing of the corporate
materials was dictated by the shared desire of the conspirators to sell the Target Stocks, not by
facts or reality, and all of that coordination routed through the phones of the middle-man.
A. Sahachaisere
Sahachaisere owned and operated Investsource, Inc., a public relations firm that
did business with penny stock companies. On March 2, 2009, the Securities and Exchange
Commission (SEC) issued a formal order of investigation in the matter of Investsource.
Sahachaisere was therefore aware that the SEC had commenced an official proceeding against
him for participating in the unlawful and fraudulent promotion of penny stocks.
On June 12, 2009, a co-conspirator and Sahachaisere discussed over a courtordered wiretap the use of a penny stock investor relations firm named Wall Street Grand to
promote RSGR:
CoConspirator:
How long do you think till you get [Wall Street Grand] on board?
OK then, lets do that then. Im gonna hold off on this other group I
was gonna bring in . . . . Let me ask you a question, are you gonna put
out the, put up the cash for them?
This is what Im gonna do for you, all right? Pay them the cash, and
then Ill do the journal at Moneyline for you.
See Session 1254, June 12, 2009, 14:06. Moneyline was a brokerage firm operating out of
Panama.
On or about June 17, 2009, Sahachaisere gave a sworn deposition to the SEC.
Among other false and misleading statements Sahachaisere made on June 17, 2009, Sahachaisere
falsely stated that he had no foreign brokerage accounts, when, in fact, he had foreign brokerage
accounts such as Moneyline and those accounts were used in the Penny Stock Scheme charged in
the instant indictment; Sahachaisere gave false and misleading testimony about his control of a
company called Siam Capital Ventures, which was later used for the deposit of RNER stock; and
Sahachaisere falsely stated that he always disclosed the compensation he received for the
stocks that Investsource profiled when, in fact, he did not disclose the compensation deposited in
his foreign brokerage accounts, including Moneyline and Siam Capital Ventures.
Barely a week later, on June 24, 2009, a co-conspirator and Sahachaisere
discussed over the Title III wiretap the continued promotion of RNER using Panamanian
brokerage accounts that Sahachaisere concealed from the SEC.
On June 26, 2009, RNER issued a press release, which was distributed by PR
Newswire. The press release stated that the patents and patent applications for the medical
equipment discussed in the June 9, 2009 press release had been approved. As a result, the
company stated that it expected to generate between $12 million and $32 million in revenue. A
search of the China SIPO database found no patent application for or patent issued to RainEarth,
nor did the search reveal any applications or patents related to blood dialysis or any of the other
equipment listed in the press release. Because of Sahachaiseres false testimony on June 17,
2009, the SEC was unable to stop the fraudulent promotion.
Later that day, a co-conspirator continued talking to Sahachaisere over the Title
III wiretap about the RNER promotion campaign:
CoConspriator:
The phrase out there refers to publicly traded RNER stock not controlled by the coconspirators.
superseding indictment. See June 12, 2015 Motion at 1, n.1. However, because of the
obstructive lies and behavior by Sahachaisere, the SEC was unable to address the other Target
Stocks fraudulently touted by Sahachaisere.
As stated in the superseding indictment, Sahachaisere and Investsources
fraudulent touting continued long after the Consent Order.
B. Kershner
Gary Kershner graduated from law school in June 1965. Since 1985, Kershner
has been suspended from the practice of law. Yet, in May 2013, as part of this scheme, Kershner
was intercepted talking to a co-conspirator in a consensual recording in which he stated that he
was a lawyer who worked for the Kansas Securities Commission. This entire statement was
false.
In 1989, The Kansas Securities Commissioner filed a criminal complaint against
Kershner consisting of 14 counts alleging violations of the Kansas Securities Act, one count of
making a false writing and one count of perjury. In July 1989, a Kansas jury convicted Kershner
of four felonies, which the Court of Appeals of Kansas affirmed on November 21, 1990. State of
Kansas v. Gary J. Kershner, 15 Kan. App. 2d 17 (1990); see also In the Matter of Gary J.
Kershner, 250 Kan. 383 (1992) (regarding Kershners public censure for committing a felony
while a member of the Kansas bar). Kershner was convicted of two counts of engaging in
business as a broker-dealer without being registered and two counts of selling or offering for sale
unregistered securities. In 1992, Kershner was publicly censured based on these convictions.
Kershner was nominally an executive in many of Winicks pump-and-dump
companies, and Kershner impersonated a retired attorney to create documents to facilitate trading
in at least one of the Target Stocks. As part of the scheme, Kershner made false statements to
regulators and investigators, and also created false and fraudulent documents which were
presented to transfer agents and clearing firms to surreptitiously trade in the Target Stocks.
On or about February 15, 2012, Kershner falsely told investigators in the SECs
Enforcement Division that he was the controlling shareholder of NKRN, one of the Target
Stocks, and had not sold a share. Then, on or about February 16, 2012, over a consensual
recording Kershner directed a co-conspirator to not send the SEC a damn thing that they
requested. Kershner discussed that he was also worried that the SEC was looking at them due to
the promoter groups that they hired. See Session 7829, February 16, 2012, 9:50:24.
On or about February 23, 2012, Kershner said over a consensual recording that he
was getting heat from the SEC. He and his co-conspirator discussed how the SEC and the FBI
were also now scrutinizing TMHO, another Target Stock, because the same promoter group
worked on it. Kershner said that he would not answer any more questions from the SEC and
would explore listing NKRN on another countrys exchange. Kershner said that the SEC ruined
a deal that was perfectly set. Kershner advised, Right now we just got to lay low on [NKRN]
. . . theyre not going away . . . Im just gonna get fairly uncooperative . . . its what it amounts
to . . . Im just gonna say . . . show me your complaints . . . show me your letter of directive.
Kershner discussed how he falsely told the SEC that there was a newly developed device, when
he really took an existing machine from someone in Kansas City. Kershner said that they have
an engineer who they bribed with stock to back their technology claims because there is no real
technology involved. See Session 8095, February 23, 2012, 21:57:44.
On or about February 28, 2012, Kershner discussed over a consensual recording
creating a cover story to give to the FBI. See Session 8148, February 28, 2012, 17:01:50.
On or about March 1, 2012, Kershner discussed over a consensual recording a
fake promoter firm and phone number that he was creating with Winicks help. Kershner
discussed the need to profit from WGIH, another Target Stock, to fund the defense of NKRN.
See Session 8177, March 1, 2012, 15:57:12.
II.
Sahachaisere endeavors to invoke SEC v. Citigroup Global Markets, 752 F.3d 285
(2d Cir. 2014), for the proposition that Sahachaiseres consent decree does not constitute reliable
evidence. 752 F.3d at 295. This appears to be a non-sequitur. SEC v. Citigroup Global Markets
had no connection with any trial, let alone a criminal securities fraud trial. Rather, the case
concerns solely the discretion a district court possesses to approve or deny the entry of such a
consent decree. As the Second Circuit established in Gilbert, SEC consent decrees provide
viable Rule 404(b) evidence of intent, motive, modus operandi and absence of mistake in
securities fraud trials.
The government also submits that the underlying conduct and the SECs actions
each have their own independent bases for inclusion in this trial. For example, the SEC
examination about foreign brokerage accounts and Sahachaiseres lies constitute intent and
knowledge to conceal. Meanwhile the SEC consent decree proves lack of mistake and
knowledge as to the promotion of the later Target Stocks. Indeed, based upon the pre-trial
litigation, it appears that Sahachaisere is arguing mistake and lack of intent in the instant case
case. See, e.g., June 12, 2015 Affirmation 33. Sahachaiseres own motions underline the
necessity of this evidence.
B.
Sahachaisere argues that Rule 608(b) bars any cross-examination about his past
false statements. See June 12, 2015 Motion at 6-7. In support of this argument, Sahachaisere
states that the SEC complaint had nothing to do with the superseding indictment. See id.
Sahachaisere does not address the core issues under Rule 608(b).
Under Rule 608(b), specific instances of a witnesss conduct may be the subject
of cross-examination if such instances are probative of the character for truthfulness or
untruthfulness of [ ] the witness. Fed. R. Evid. 608(b). It is axiomatic that questions regarding
the SEC fraud investigation could have been used under Federal Rule of Evidence 608(b) to
show [a defendant]s general character for untruthfulness. United States v. Parker, --- F.3d ----,
2015 WL 3895452, at *6 (4th Cir. June 25, 2015). The Second Circuit has ruled that past
instances of fraud and perjury are probative of truthfulness under Rule 608(b). United States v.
Flaharty, 295 F.3d 182, 191 (2d Cir. 2002). Therefore, cross examination upon the SEC
investigation, which concerns fraud, and Sahachaiseres lies are clearly permitted. See id.; see
also United States v. Leake, 642 F.2d 715, 718-19 (4th Cir.1981) (fraudulent conduct is an
instance[ ] of misconduct ... clearly probative of truthfulness or untruthfulness and such
evidence is admissible under Rule 608(b)).
Moreover, as outlined above, the SEC investigations should be admitted in the
case in chief as relevant evidence. Therefore, the SEC investigation will not constitute extrinsic
evidence.
C.
Sahachaisere argues that the government should be precluded from presenting any
evidence of securities fraud relating the stock Rainearth, also known by ticker symbol RNER.
See June 12, 2015 Motion at 4-5. Without citing any authority, Sahachaiseres argument appears
to have two parts: (1) Sahachaisere had no obligation to fact-check the press releases given to his
company and (2) because the government began investigating one year after the promotion, it is
somehow barred from bringing a prosecution. Neither argument is supported by law.
Proceeding in order, the indictment has not charged Sahachaisere with violating a
fiduciary duty to fact-check the press releases upon which he based his promotions. Rather, the
indictment charges Sahachaisere with participated in a conspiracy and scheme to fraudulently
inflate and attempted to inflate, the share prices and trading volumes of the Target Stocks. After
fraudulently inflating the share prices and trading volumes of the Target Stocks, the Penny Stock
Defendants sold the Target Stocks at a profit, and attempted to do so, after their fraudulent
conduct deceived investors into believing that market forces alone set the Target Stocks
artificially inflated share prices and trading volumes. See S-1 Indictment at 25-34. The
Penny Stock Defendants acquired controlling interests in the lightly traded Target Stocks for
little or no cost. The Penny Stock Defendants then employed various means to artificially and
fraudulently inflate the Target Stocks share prices and trading volumes. Examples of these acts
include matched trades and the coordination of promotion with false and misleading press
releases. The Penny Stock Defendants also transferred shares of the Target Stocks into the
possession and control of stock promoters, such as Sahachaisere, who would then comment upon
the Target Stocks. Sahachaisere, in particular, used undisclosed offshore entities to conceal his
own profits as well as undisclosed kickbacks to promoters. All of these were affirmative acts by
Sahachaisere, not fiduciary duties. 2
Next, Sahachaisere argues that the government is somehow barred from bringing
this prosecution because it began its investigation of RNER in 2010, after the promotion. This
argument, which appears to suggest a new requirement of contemporaneous investigation, is
unsupported by any law or other authority.
Finally, in his affirmation, Sahachaisere argues that he is innocent of these
charges, as a matter of law, because he will be able to show that some of the uncharged
Investsource promotions were truthful. See June 12, 2015 Affirmation 33. The analogous
argument would be because a bank robber did not rob all banks that he visited, he is innocent of
the four that he actually robbed. Moreover, it is axiomatic that a defendant cannot put on
evidence of his or her failure to commit crimes on other occasions. See United States v. Scarpa,
897 F.2d 63, 70 (2d Cir. 1990) (defendant may not seek to establish his innocence, however,
2
It is true that Sahachaisere may have owed certain fiduciary duties under the regulatory
scheme for promotion of public companies. See Scott v. Dime Sav. Bank of New York, FSB,
886 F. Supp. 1073, 1079 (S.D.N.Y. 1995). However, the criminal charges in this case center on
Sahachaiseres affirmative fraudulent and misleading acts.
through proof of the absence of criminal acts on specific occasions). The proposed evidence is
irrelevant as a matter of established Second Circuit law.
III.
accident that he had to abide by securities regulations, all of which will be at issue at trial. As
the Second Circuit stated in United States v. Mercado, the prior crimes are probative as they
established ... intent and knowledge. United States v. Mercado, 573 F.3d 138, 142 (2d Cir.
2009).
Further, because Kershner was previously convicted of securities violations in
which he was engaged in the business as a broker-dealer and sold securities, these prior acts
demonstrate that he was not mistaken or uninformed about his later involvement in the charged
crimes that also involved selling securities or the nature of his role that also involved him
working in ways similar to a broker-deal and talking to regulators and investigators. Inevitably,
Kershner will have to claim that he did not know that he was lying to regulators and
investigators, so his prior convictions go to prove his knowledge. United States v. Lombardozzi,
491 F.3d 61, 79 (2d Cir. 2007) (finding no abuse of discretion in allowing testimony
establishing similar acts of extortion to show intent and absence of mistake where testimony
was relevant and highly probative of the defendants relationship with other participants in the
extortionate scheme).
Here, given the highly probative value of the evidence, the evidence should be
admitted. Even were there a danger of undue prejudice, any such risk could be mitigated
effectively by a cautionary instruction limiting the jurys consideration of the evidence to the
purposes for which it is offered. See, e.g., United States v. Mickens, 926 F.2d 1323, 1328-29 (2d
Cir. 1991); United States v. Levy, 731 F.2d 997, 1002 (2d Cir. 1984).
Thus, the government respectfully submits that Kershners securities violations
should be admitted pursuant to Rule 404(b) to show his intent, knowledge and absence of
mistake or accident.
IV.
prosecuted a second time for the same offense. United States v. Bornovsky, 820 F.2d 572, 574
(2d Cir. 1987). The Court has discretion as to whether to grant or deny a bill of particulars.
United States v. Panza, 750 F.2d 1141, 1148 (2d Cir. 1984).
A bill of particulars may be required to identify victims, United States v.
Davidoff, 845 F.2d 1151, 1154-55 (2d Cir. 1994), and fraudulent documents or transactions, see
Bornovsky, 820 F.2d at 574-75. And, an appropriate bill of particulars should not be denied
merely because it would disclose the governments evidence of theory of the case. United States
v. Barnes, 158 F.3d 662, 665 (2d Cir. 1998). Yet, a defendant cannot use a bill of particulars to
get evidentiary detail about the governments case. United States v. Torres, 901 F.2d 205,
234 (2d Cir. 1990) (citing Hemphill v. United States, 392 F.2d 45, 49 (8th Cir.) (affirming denial
of bill of particulars for identity of people and specific dates and locations of events described in
indictment); United States v. Cephas, 937 F.2d 816, 823 (2d Cir. 1991) (government not required
to identify specific activities by which defendant furthered conspiracy). The government
provided additional discovery today, regarding the identity of victims and fraudulent documents
that obviated the need for a bill of particulars. See United States v. Chen, 378 F.3d 151, 163 (2d
Cir. 2004); United States v. Panza, 750 F.2d 1141, 1148 (2d Cir. 1984). Therefore, the
government moves that the defendants request for a bill of particulars be denied, in part, as
moot.
Here, the superseding indictment is not drawn in general terms but contains
specific language in the introduction that readily permits the defendant to prepare for trial,
prevent surprise and to interpose any plea of double jeopardy. The request for additional
information in Kershners bill of particulars goes well beyond the information that the
government is required to provide. For example, Kershner can see from the dates of the press
releases whether there was a spike in trading activity around those dates. Therefore, the rest of
the defendants bill of particulars should be denied as unnecessary to prepare for trial or prevent
surprise.
V.
Severance
Rule 8(b) allows multiple defendants to be named in the same indictment if they
are alleged to have participated in the same act or transaction or in the same series of acts or
transactions, constituting an offense or offenses. Fed. R. Crim. P. 8(b). Multiple defendants
may be charged in one or more counts together or separately; they need not be charged in each
count. Id.; see United States v. Souza, No. 06-806 (SLT), 2008 U.S. Dist. LEXIS 21772, at *19
(E.D.N.Y. Mar. 19, 2008).
In 2008, the Second Circuit confirmed its interpretation of Rule 8(b) that joinder
is proper where two or more persons criminal acts are unified by some substantial identity of
facts or participants, or arise out of a common plan or scheme. United States v. Rittweger, 524
F.3d 171, 177 (2d Cir. 2008) (internal quotation marks and citations omitted). The Court also
applied a common sense rule to decide if joint proceedings would produce enough efficiencies
that would make joinder proper even where there is a possibility of prejudice to either or both
defendants. Id. at 177; see also United States v. Shellef, 507 F.3d 82, 98 (2d Cir. 2007); United
States v. Turoff, 853 F.2d 1037, 1044 (2d Cir. 1998).
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substantial that a miscarriage of justice will occur. United States v. Friedman, 854 F.2d 535,
563 (2d Cir. 1988); see also United States v. DeVillio, 983 F.2d 1185, 1192 (2d Cir. 1993)
(same); United States v. Lasanta, 978 F.2d 1300, 1306 (2d Cir. 1992) (same).
In evaluating similar claims, courts have determined that the fact that evidence
may be admissible against one defendant, but not another, does not necessarily require a
severance. Rittweger, 524 F.2d at 179 (quoting United States v. Carson, 702 F.2d 351, 367 (2d
Cir. 1983)); see also United States v. Losada, 674 F.2d 167, 171 (2d. Cir. 1982). [D]isparity in
the quantity of evidence and of proof of culpability are inevitable in any multi-defendant trial,
and by themselves do not warrant a severance. United States v. Cardascia, 951 F.2d 474, 482
(2d Cir. 1992). Thus, to the extent that either defendant raises concerns that the jury will hear
evidence at trial that does not pertain directly to him, his concerns do not warrant severance.
Even assuming that one defendant was somehow prejudiced by a joint trial, the
issue under Rule 14 is whether that prejudice is sufficiently severe to outweigh the judicial
economy that would be realized by avoiding lengthy multiple trials. United States v. Lanza,
790 F.2d 1015, 1019 (2d Cir. 1984) (citing United States v. Panza, 750 F.2d 1141, 1149 (2d Cir.
1984)). There is a strong preference in the federal courts for joint trials for defendants who are
indicted together for reasons of economy, convenience and avoidance of delay. Feyrer, 333 F.3d
at 114; see also Zafiro, 506 U.S. at 537; United States v. Diaz, 176 F. 3d 52, 102 (2d Cir. 1999).
The strong institutional considerations underlying this settled principle were explained by the
Supreme Court as follows:
It would impair both the efficiency and the fairness of the criminal
justice system to require . . . that prosecutors bring separate
proceedings, presenting the same evidence again and again,
requiring victims and witnesses to repeat the inconvenience (and
sometimes trauma) of testifying, and randomly favoring the lasttried defendants who have the advantage of knowing the
prosecutions case beforehand. Joint trials generally serve the
interests of justice by avoiding inconsistent verdicts and enabling
more accurate assessment of relative culpability advantages
which sometimes operate to the defendants benefit. Even apart
from these tactical considerations, joint trials generally serve the
interests of justice by avoiding the scandal and inequity of
inconsistent verdicts.
Richardson v. Marsh, 481 U.S. 200, 209-10 (1987); see also Bruton v. United States, 391 U.S.
123, 134 (1968) (noting that joint trials conserve state funds, diminish inconvenience to
witnesses and public authorities, and avoid delays in bringing those accused of a crime to trial);
United States v. Lyles, 593 F.2d 182, 191 (2d Cir. 1979) (presumption in favor of joint trials
conserves judicial resources, alleviates the burden on citizens serving as jurors, and avoids the
necessity of having witnesses reiterate testimony in a series of trials) (quoting United States v.
Borelli, 435 F.2d 500, 502 (2d Cir. 1970)). Thus, while joint trials may invite some prejudice to
defendants, [t]he risks of prejudice attendant in a joint trial are presumptively outweighed by
12
the conservation of time, money and scarce judicial resources that joint trial permits. United
States v. Jimenez, 824 F. Supp. 351, 366 (S.D.N.Y. 1993).
In the event that there were separate trials for the defendants, the government
would have to call many of the same witnesses twice to give virtually the same testimony. For
example, the government will need to call some of the same cooperating witnesses, the same
agents, the same experts, and the same victims. See Richardson, 481 U.S. at 210 (stating that the
need for witnesses to testify multiple times favors trying joined co-defendants together).
Under these circumstances, severance would be extremely burdensome and would
needlessly disadvantage the public, the Court, and the government with complex and repetitive
trials. Thus, any potential prejudice that would be suffered by the defendants as a result of a
joint trial is far outweighed by the prejudice that would be suffered by the government if the trial
of one defendant were severed from that of his co-defendants.
Even in situations where the risk of prejudice associated with joinder is somewhat
higher, courts should consider less drastic means, such as limiting instructions, as an
alternative to granting a Rule 14 severance motion. Feyrer, 333 F.3d at 114 (quoting Zafiro, 506
U.S. at 539); see also United States v. Romero, 54 F.3d 56, 60 (2d Cir. 1995); United States v.
Hernandez, 85 F.3d 1023, 1029-30 (2d Cir. 1996). Indeed, juries are strongly presumed to be
capable of following a judges instructions in sorting out which evidence bears on the guilt of
any single defendant. Zafiro, 506 U.S. at 540 ([J]uries are presumed to follow their
instructions.) (quoting Richardson, 481 U.S. at 211)).
As a final point regarding joinder with Winick, the government notes that Winick
is the only remaining Advance Fee Defendant who has not yet pleaded guilty. If the Court were
to wait until 30 days prior to the trial, the government submits that this severance motion will
likely become moot.
VI.
Conclusion
For the foregoing reasons, all of the defendants motions should be denied.
Respectfully submitted,
KELLY T. CURRIE
Acting United States Attorney
By:
cc:
13
/s/
Sylvia Shweder
Christopher A. Ott
Assistant U.S. Attorneys
(718) 254-6092/6154