United States v. Cornelson

609 F.Supp.3d 258

UNITED STATES of America

v.Igor CORNELSON, Defendant.

15 Cr. 516 (JGK)

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

Signed June 27, 2022

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

Michael E. Gertzman, Shane Donnelly Avidan, Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, NY, for Defendant.

MEMORANDUM OPINION AND ORDER

JOHN G. KOELTL, District Judge:

On August 5, 2015, Igor Cornelsen and Waldyr Prado were 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 (together with counts (1)-(2), the "Securities Fraud Counts"); and (4) conspiracy in violation of 18 U.S.C. § 1349 to commit wire fraud in violation of 18 U.S.C. § 1343 (the "Wire Fraud Count").¹ See ECF No. 6. Each of the Counts in the Indictment charged that the Crimes occurred from at least in or about May 2010 through in or about September 2010.

On October 7, 2021, Cornelsen moved to dismiss the Indictment pursuant to Federal Rule of Criminal Procedure 12. ECF No. 11. The Government initially opposed the motion solely on the grounds that the Court should decline to consider the merits of Cornelsen's motion under the fugitive disentitlement doctrine. ECF No. 21. However, on March 31, 2022, the Court rejected the Government's argument, finding that Cornelsen is not a fugitive, and that disentitlement was in any event unwarranted. United States v. Cornelson (Cornelson I ), 595 F.Supp.3d 265 (S.D.N.Y. Mar. 31, 2022). The Court directed the Government to respond to the merits of Cornelsen's motion to dismiss. Id. On June 17, 2022, after the motion was fully briefed, the Court heard oral argument on the motion.

For the reasons that follow, Cornelsen's motion to dismiss the Indictment is denied.

I.

The following facts are taken from the Indictment and are accepted as true for the purposes of this motion to dismiss. See United States v. Velastegui, 199 F.3d 590, 592 n.2 (2d Cir. 1999).²

Cornelsen 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, Prado, a registered representative at a brokerage firm ("Firm-1"), was Cornelsen's investment broker. Id. ¶¶ 3, 5. Client-1, who resided in Brazil, was also 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, New York. Id. ¶ 2.

From March 29, 2010, to August 31, 2010, 3G engaged in negotiations to acquire Burger King Holdings Inc., a Delaware corporation headquartered in Miami, 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"), which is located in New York, New York, and its options are traded on various exchanges, including the NYSE Amex Equities and the International Securities Exchange (the "ISE"), both of which are located in New York, 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. In 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 transaction to Prado. See id. ¶ 13. Based on his professional relationship with Prado, Client-1 believed and expected that Prado would keep this information confidential. Id. Prado had also attested in writing to Firm-1 that he was in compliance with Firm-1's confidentiality and proprietary information policies, which prohibited any employee from using, trading on, or disclosing to a third party any material nonpublic information obtained from a Firm-1 client. Id. ¶ 15.

On May 17, 2010, Prado met Client-1 for lunch. Id. ¶ 16. Within hours of the meeting, and in breach of his duties and responsibilities to Firm-1 and Client-1, Prado purchased 300 July 2010 call options for Burger King at a strike price of $20 for $33,185. Id. Prado purchased 200 of these options through the NYSE Amex Equities. Id.

Later that evening, Prado sent Cornelsen an email in which Prado stated, "[I]f you are around call me at the Curitiba hotel [in Curitiba, Brazil] ... I have some info that I cannot say over the phone ... You have to hear this." Id. ¶ 19 (ellipses in original). Within minutes, Cornelsen called Prado, and the two spoke for approximately ten minutes. Id. Over the next few days, on May 18 and 19, 2010, Cornelsen purchased 2,850 July 2010 call options for Burger King through various exchanges, including the ISE located in New York, New York. Id. ¶¶ 20, 35(c).

On June 2, 2010, Prado called Cornelsen by means of wire communication in interstate and foreign commerce, which call lasted approximately nine minutes. Id. SI 35(d). On that same day, Cornelsen purchased 1,000 July 2010 call options for Burger King through an account with a brokerage firm located in New York, New York. Id. ¶ 35(e). On June 3, 2010, Prado made another telephone call to Cornelsen by means of wire communication in interstate and foreign commerce, which lasted approximately 14 minutes. Id. ¶ 35(f). On the same day, Prado also purchased 7,000 shares of Burger King stock for approximately $135,410 through the over-the-counter market. Id. ¶ 17.

By July 17, 2010, the call options purchased by Prado and Cornelsen had expired as worthless because Burger King did not trade at or above $20 by that time. See id. ¶ 21.

On August 18, 2010, Cornelsen emailed Prado by means of wire communication in interstate and foreign commerce asking whether "the sandwich deal [was] going to happen." Id. ¶ 23; see id. ¶ 35(h). Prado replied, "[I]t's going to happen." Id. ¶ 23. On the same day, Cornelsen emailed Prado again asking whether the "sandwich deal" was happening, to which Prado replied that the deal was a "sure thing." Id. The next day, Cornelsen purchased 1,400 October 2010 call options for Burger King with a strike price of $17.50 for $987735 on the ISE in New York, New York, through an account with a brokerage firm in New York, New York, and 206 October 2010 call options for Burger King with a strike price of $19 for $7,467.50 through another brokerage firm. Id. ¶ 24; see id. ¶ 35(i)-(j).

Between August 23 and 26, 2010, Cornelsen and Prado communicated by telephone several times. Id. ¶ 25. On August 25, 2010, Prado purchased 13,000 shares of Burger King common stock for approximately $227,000 through the over-the-counter market, and 100 January 2011 call options for Burger King with a strike price of $20 for $9,560 through the NYSE Amex Equities. Id. ¶¶ 26, 35(k)-(l).

On August 26 and 27, 2010, Cornelsen purchased 1,794 additional October 2010 call options for Burger King with a strike price of $19 for approximately $91,400. Id. ¶¶ 27, 35(m). Of these latter call options, Cornelsen purchased 281 through the ISE. Id.

On 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. The next day, Prado purchased 9,000 additional shares of Burger King common stock for approximately $165,263 through the over-the-counter market. Id. ¶ 29.

On September 2, 2010, 3G and Burger King publicly announced their transaction in a press release. Id. ¶ 10. The same day, Cornelsen sent Prado an email by means of wire communication in interstate and foreign commerce. Id. SI 35(o). Also on the same day, following the public announcement of the 3G-Burger King transaction, Cornelsen 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 his losses from the expired July 2010 options. Id. ¶ 30. Prado, too, sold his Burger King stock and options positions for a total profit of at least approximately $175,000. Id.

II.

Federal Rule of Criminal Procedure 7(c)(1) provides that an indictment "must be a plain, concise, and definite written statement of the essential facts constituting the offense charged." An indictment is sufficient if it contains the elements of the offense charged and fairly informs a defendant of the charges against him. See United States v. Alfonso, 143 F.3d 772, 776 (2d Cir. 1998). Accordingly, "an indictment need do little more than track the language of the statute charged and state the time and place (in approximate terms) of the alleged crime." United States v. Stavroulakis, 952 F.2d 686, 693 (2d Cir. 1992). "A defendant faces a high standard in seeking to dismiss an indictment." United States v. Taveras, 504 F. Supp. 3d 272, 277 (S.D.N.Y. 2020).

The Second Circuit Court of Appeals has noted that "an indictment must be read to include facts which are necessarily implied by the specific allegations made." Stavroulakis, 952 F.2d at 693 ; see also United States v. Sattar, 314 F. Supp. 2d 279, 303 (S.D.N.Y. 2004), aff'd sub nom. United States v. Stewart, 590 F.3d 93 (2d Cir. 2009). However,...