United States v. Cornelson

595 F.Supp.3d 265

UNITED STATES of America

v.Igor CORNELSON, Defendant.

15 Cr. 516 (JGK)

United States District Court, S.D. New York.

Signed March 31, 2022

Christine Ingrid Magdo, United States Attorney's Office, New York, NY, for United States of America.

OPINION AND ORDER

JOHN G. KOELTL, District Judge:

On August 5, 2015, Igor Cornelson was charged in an Indictment with (1) conspiracy to commit securities fraud and fraud in connection with a tender offer in violation of 18 U.S.C. § 371 ; (2) securities fraud in violation of 15 U.S.C. §§ 78j(b) & 78ff, 17 C.F.R. §§ 240.10b-5 & 240.10b5-2, and 18 U.S.C. § 2 ; (3) fraud in connection with a tender offer in violation of 15 U.S.C. §§ 78n(e) & 78ff, 17 C.F.R. §§ 240.14e-3(a) & 240.14e-3(d), and 18 U.S.C. § 2 ; and (4) conspiracy in violation of 18 U.S.C. § 1349 to commit wire fraud in violation of 18 U.S.C. § 1343. See ECF No. 6. Each of the four counts in the Indictment charged that the crimes occurred from at least in or about May 2010 through in or about September 2010.

Mr. Cornelson now moves to dismiss the Indictment pursuant to Federal Rule of Criminal Procedure 12. ECF No. 11. The defendant argues, among other things, that the crimes charged do not apply to Mr. Cornelson's extraterritorial conduct, and that the application of the criminal statutes to Mr. Cornelson's extraterritorial conduct violates his right to due process. See id. In opposition, the Government urges the Court to apply the fugitive disentitlement doctrine and decline to consider the merits of Mr. Cornelson's motion. For the reasons that follow, the Court finds that Mr. Cornelson is not a fugitive, and that disentitlement is unwarranted.

I.

A. The Indictment

Mr. Cornelson is a Brazilian citizen and an experienced investor with a professional background in the Brazilian banking industry. Indictment ¶ 5, ECF No. 6. At all relevant times, Waldyr Prado was Mr. Cornelson's investment broker. Id. Client-1, who resided in Brazil, was also Mr. Prado's client. Id. ¶¶ 4, 14.

Sometime in 2008, Client-1 made a capital commitment of $50 million to the 3G Capital Special Situations Fund II, L.P. (the "3G Fund"), on the understanding that the 3G Fund would at some point thereafter acquire a company. Id. ¶ 11. At all relevant times, the 3G Fund was managed by 3G Capital Partners ("3G"), a Cayman Islands private equity firm with offices in New York. Id. ¶ 2.

From on or about March 29, 2010, to on or about August 31, 2010, 3G engaged in negotiations to acquire Burger King Holdings Inc., a Delaware corporation headquartered in Florida (together with its subsidiary, Burger King Corporation, "Burger King"). Id. ¶¶ 1, 8. Burger King's stock is listed on the New York Stock Exchange (the "NYSE"), and its options are traded on various exchanges, including the NYSE Amex Equities and the International Securities Exchange (the "ISE"), all of which are located in New York. Id. ¶ 1.

In March or April 2010, while the negotiations between 3G and Burger King were ongoing, a 3G principal informed Client-1 that 3G was engaged in negotiations to have the 3G Fund acquire Burger King. See id. ¶ 12. Client-1 signed a confidentiality agreement with 3G relating to this information, which permitted Client-1 to share information concerning the potential transaction with his financial advisors "who have a need to receive, review or use" the information in connection with Client-1's investments. Id. ¹ In or about April or May 2010, as he was permitted to do pursuant to this agreement, Client-1 divulged the news of the potential 3G-Burger King acquisition to Mr. Prado. See id. ¶ 13.

On or about May 7, 2010, Mr. Prado met Client-1 for lunch. Id. ¶ 16. On or about May 17, 2010, Mr. Prado sent Mr. Cornelson an email in which Mr. Prado stated, "[I]f you are around call me at the Curitiba hotel ... I have some info that I cannot say over the phone ... You have to hear this." Id. ¶ 19 (ellipses in original). Within minutes, Mr. Cornelson called Mr. Prado, and the two spoke for approximately ten minutes. Id. From on or about May 18, 2010, and through on or about June 17, 2010, Mr. Cornelson purchased Burger King call options and common stock. Id. ¶ 20. These call options were purchased through multiple exchanges, including the ISE. Id.; see also id. ¶ 35(c), (e). By July 17, 2010, these call options expired as worthless because Burger King did not trade at or above $20 by that time. See id. ¶ 21.

On or about August 18, 2010, Mr. Cornelson emailed Mr. Prado asking whether "the sandwich deal [was] going to happen." Id. ¶ 23. Mr. Prado replied, "[I]t's going to happen." Id. On the same day, Mr. Cornelson asked Mr. Prado again whether the "sandwich deal" was happening, to which Mr. Prado replied that the deal was a "sure thing." Id. On or about August 19, 2010, Mr. Cornelson purchased 1,400 October 2010 call options for Burger King with a strike price of $17.50 for $98,735 on the ISE, and 206 October 2010 call options for Burger King with a strike price of $19 for $7,467.50. Id. ¶ 24; see also id. ¶ 35(i)-(j). On or about August 26, 2010, and on or about August 27, 2010, Mr. Cornelson purchased 1,794 additional October 2010 call options for Burger King with a strike price of $19 for approximately $91,400. Id. ¶ 27; see also id. ¶ 35(m). Of these latter call options, 281 were purchased through the ISE. Id. ¶ 27.

On or about August 31, 2010, 3G proposed to complete the acquisition of Burger King through a tender offer to Burger King shareholders at a price of $24 per share. Id. ¶ 9. On September 2, 2010, 3G and Burger King publicly announced this transaction in a press release. Id. ¶ 10.

The same day that news of the 3G-Burger King acquisition was released, Mr. Cornelson sold his Burger King options for a total profit of over $1.68 million, and a net profit of approximately $1.4 million, after discounting Mr. Cornelson's losses from the expired July 2010 options. Id. ¶ 30. Mr. Prado, who had simultaneously been purchasing his own stock and options in Burger King, made a total profit of at least $175,000. Id.; see, e.g., id. ¶¶ 16-17, 26, 29.

B . Facts External to the Indictment

In May 2012, Mr. Cornelson voluntarily traveled to California to be deposed by the Securities Exchange Commission (the "SEC") as part of an investigation relating to 3G's acquisition of Burger King. See Gertzman Decl. Ex. C, ECF No. 13-3. In that deposition, Mr. Cornelson told the SEC that he was abroad at all times relevant to the eventual Indictment. See id. at 71-72, 75, 118-19. Mr. Cornelson testified that he was in Brazil at the time that he first purchased the Burger King stock and call options, and that he was in Europe at the time of his later purchases, as well as when he sold the options. See id. Travel logs provided by the Government on this motion corroborate that Mr. Cornelson was not in the United States at these times. See Hanft Decl. Ex. A, ECF No. 22-1.

In his SEC deposition, Mr. Cornelson also testified that he permanently resided in the Bahamas at that time, and that he had permanently resided in Brazil prior to 2005. Gertzman Decl. Ex. C, at 8. Mr. Cornelson also noted that he had homes in both Brazil and Boca Raton, Florida. Id. Mr. Cornelson explained that he had been traveling to the United States for pleasure every year since 2000, when he purchased his vacation home in Boca Raton, and that he would typically stay in Florida for around 119 days a year. Id. at 9-10. At the end of the SEC deposition, Mr. Cornelson stated that he was "go[ing] back to Brazil." Id. at 185.

A few days after the SEC deposition, on May 9, 2012, Mr. Cornelson left the United States from Miami International Airport, and landed in Brazil at Guarulhos International Airport, using his own passport. See Hanft Decl. Ex. A. This marked Mr. Cornelson's last trip to the United States. See id.

On November 30, 2012, the SEC filed a complaint against Mr. Cornelson for insider trading based on the same general facts as the Indictment. See SEC v. Cornelson, No. 12-cv-8712, 2012 WL 5983716 (S.D.N. Y filed Nov. 30, 2012). On December 11, 2012, Mr. Cornelson settled with the SEC on a no-admit basis, agreeing to pay more than $5 million in disgorgement and penalties. SEC v. Cornelson, No. 12-cv-8712, ECF No. 7.

On September 10, 2013, a sealed criminal complaint against Mr. Prado and Mr. Cornelson was filed, and warrants were issued for their arrests. ECF Nos. 1, 2. On September 11, 2013, a Magistrate Judge authorized the International Criminal Police Organization ("INTERPOL") to be served with the complaint and the arrest warrants, in order for INTERPOL to assist in the arrests of Mr. Prado and Mr. Cornelson. See ECF No. 4.

On January 27, 2014, the complaint against Mr. Prado and Mr. Cornelson was unsealed. ECF No. 5. On August 5, 2015, the Indictment against them was filed, ECF No. 6, and arrest warrants were again issued, ECF Nos. 7, 8.

On October 7, 2021 – nearly eight years after the complaint was unsealed, and over six years after the Indictment was filed – Mr. Cornelson's attorneys made their first appearances in this action. ECF Nos. 9, 10. On the same date, Mr. Cornelson – through counsel – moved to dismiss the Indictment. ECF No. 11.

It is undisputed that Mr. Cornelson is currently 74 years old, that he is battling leukemia, and that he has been residing in Brazil since at least 2015. See Mem. in Supp. of Mot. to Dismiss 22, ECF No. 12; Gertzman Decl. Ex. C, at 7-8; see also Opp. to Mot. to Dismiss 7, 17, ECF No. 21.

II.

The Government argues that the Court should decline to consider the merits of Mr. Cornelson's motion pursuant to the fugitive disentitlement doctrine. This argument is unpersuasive in light of the court of appeals’ recent amended decision in United States v. Bescond, 24 F.4th 759 (2d Cir. 2021).

Under the common law doctrine of fugitive disentitlement, the Court "may decline to entertain the claims of a defendant who is a fugitive from justice." Id. at 764. Application of the fugitive...