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.

‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐x

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.

‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐x 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.

2

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.

3

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,

(2d Cir. 2013). If, however, an objection was not

made, we review only for plain error. United States v. Johnson,

(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,

(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

4

entitled to introduce evidence of such a conspiracy. See United States v. Geibel,

(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,

(2d Cir. 2000) (quoting United States v. Gonzalez,

(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,

(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,

(2d Cir. 2003)

(noting that a defendantʹs financial sophistication is relevant to the reasonable

foreseeability inquiry).

5

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,

, 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,

(2d Cir. 2008); United States v. Garcia,

, 215‐16

6

(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,

(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,

(2d Cir. 2005). A district courtʹs factual

findings at sentencing need be supported only by a preponderance of the evidence.

United States v. Martinez,

(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.

7

ʺthat they were foreseeable to the defendant.ʺ United States v. Studley,

(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

8

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.

9

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.,

(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.,

.

The Government did not commit misconduct, let alone misconduct

warranting the ʺdrastic remedyʺ of reversing a criminal conviction. United States v.

Valentine,

(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

10

$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,

(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

11