United States v. Elmanni

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UNITED STATES OF AMERICA, v. AMIR ELMAANI, Defendant.

No. 20 Cr. 661 (CM)

United States District Court, S.D. New York

April 4, 2023

DECISION ON THE GOVERNMENT'S MOTIONS IN LIMINE

McMahon, J.

Amir Elmaani is charged in the instant indictment with two counts of tax evasion, in violation of Title 26, United States Code Section 7201.

In anticipation of the trial of this matter scheduled for April 24, 2023, the Government has file motions in limine. The Government seeks rulings in advance of trial precluding the defendant from (1) introducing mental health evidence for the purpose of raising a diminished capacity defense, which is impermissible under the Insanity Defense Reform Act, and (2) eliciting testimony about self-serving statements the defendant made to law enforcement, including statements about his mental health. Government Memorandum, ECF Doc. 49.

Elmaani has not filed any in limine motions but has filed a response opposing the Government's motion. Elmaani contends that he should be allowed to present evidence, and he and others should be allowed to testify about: (1) Elmaani's mental state, including his mental health, at the time of the offense- not to excuse his conduct based on a diminished capacity, but to refute the Government's argument that he committed affirmative acts with the requisite intent to evade paying his taxes; and (2) Elmaani's purpose in conducting cryptocurrency transactions, including but not limited to his oral and written statements from prior to, and at the time of, the events giving rise to the instant charges. Defense Memorandum, ECF Doc. 50.

Background The Indictment

The Indictment in this case alleges that, in the years 2017 and 2018, the defendant, Amir Elmaani, earned millions of dollars in income-including from his creation of a new cryptocurrency called “Pearl” tokens-and that he failed to pay taxes on almost all of this income. The Indictment alleges that he evaded payment of a substantial part of his income taxes for both years by various means, including: (a) for the calendar year 2017, filing a false income tax return and failing to report substantial income to the IRS; (b) in 2018 using nominees to receive part of his unreported income and transfer it to him; (c) in 2017 and 2018, earning his unreported income by operating a business under a pseudonym and concealing his true identity; (d) in 2017 and 2018, owning assets through anonymous entities and in others' names; (e) obtaining additional unreported income through a cryptocurrency exit scam in October 2018, in which Elmaani attempted to conceal his involvement; and (f) in 2017 and 2018, dealing substantially in cryptocurrency, cash, and precious metals to conceal his unreported income. Indictment 20 Cr. 661 (CM), ECF Doc. 1.

The Government's Proof

The Government says that it expects the evidence at trial will prove that, in the fall of 2017, Elmaani created Pearl tokens as part of a data-storage platform he was creating named Oyster Protocol. As part of this projec_he also started a company in May 2018 called Oyster Protocol Inc. Throughout the entire Oyster Protocol project, Elmaani remained anonymous, shielding his true identity by using only his alias, “Bruno Block.”

Elmaani sold Pearl tokens to the public in 2017 through an initial coin offering, or “ICO.” Elmaani also created other Pearl tokens that were retained by Elmaani and Oyster Protocol. In 2017 and 2018, Elmaani exchanged a large amount of the Pearl tokens that he personally held on a cryptocurrency exchange (“Exchange-1”), to obtain new cryptocurrency. Elmaani then transferred that new cryptocurrency to a second cryptocurrency platform (“Exchange-2”), where he exchanged it for U.S. dollars. In other words, in 2017 and 2018, Elmaani sold the Pearl tokens he owned for U.S. dollars, through a series of intermediate steps.

In October 2018, Elmaani committed what is colloquially known as an “exit scam:” without telling anyone, Elmaani unilaterally printed milli ons of new Pearl tokens, then sold them and kept the proceeds (the “Exit Scam”). Elmaani did this by exploiting Pearl's “smart contract,” a computer program that created new Pearl tokens. Elmaani accessed this smart contract and used it to create millions of new Pearl tokens for himself, for free.

Elmaani, meanwhile, exchanged his new Pearl tokens for other types of cryptocurrencies before the investing public caught on to the Exit Scam. He ultimately sold that cryptocurrency for U.S. dollars. During this process, Elmaani used “mixers,” also sometimes called “tumblers,” which are cryptocurrency services that combine transactions from multiple customers to make individual transactions difficult to trace. This had the effect of concealing his movements of cryptocurrency. Elmaani also moved cryptocurrency and dollars through the accounts of his friends and family, including his spouse, which further concealed its source. Elmaani took additional steps to conceal his income, as set forth in the Indictment, including by trading in precious metals.

When the investing public discovered the Exit Scam, Pearl tokens became nearly worthless. When Exchange-1 discovered the Exit Scam, it halted all trading in Pearl, and two weeks later ultimately delisted Pearl from its exchange. As a result of the Exit Scam. Pearl investors lost substantial amounts of money.

When confronted by Oyster Protocol's CEO two days after initiating the Exit Scam. Elmaani stated that he executed the Exit Scam in part because “taxes are pretty nasty.”

The Innocence Proffer

On September 27, 2021, the Government met with Elmaani, at Elmaani's request (the “September 2021 Interview”). Elmaani signed an agreement explicitly acknowledging that the Government could “offer at any stage of the criminal proceeding for any purpose any statement made by the Client during the meeting,” and that Elmaani could not assert any claim “under the United States Constitution, any statute, Rule 410 of the Federal Rules of Evidence, or any other federal rule, that such statements or any leads therefrom should be suppressed.”

During the meeting, Elmaani acknowledged much of the conduct listed above, including his execution of the Exit Scam and subsequent movement of funds. Among other things, he admitted that he minted new Pearl tokens without telling the investing public; this minting of new coins was contrary to Elmaani's prior public statements about Pearl. Elmaani acknowledged that, given these omissions, the individuals and entities who purchased the new Pearl tokens likely believed that they were purchasing from the existing supply of Pearl tokens. He admitted that he used a fake name (Jullz) to commit the smart contract reopening. He admitted to deleting the contents of his Oyster Protocol Inc. email address and to not providing Oyster Protocol Inc.'s employees with his real phone number.

Elmaani admitted that, in 2018, he held as much as $60 million his cryptocurrency, and that he was aware that he needed to pay taxes on his cryptocurrency earnings but did not in fact pay them. He admitted to using “mixers,” which as described above are a method of making cryptocurrency transactions harder to trace, and to directing his friends and family members to conduct cryptocurrency transactions for him in their names, and then transfer the proceeds to his account. And he admitted to converting some of his money into gold bars, which he then transported from Rhode Island to Virginia, where a family member sold them on his behalf. He also admitted to using the money he made to purchase at least two multi-million dollar luxury yachts.

Elmaani also made what the Government characterizes as self-serving statements in an attempt to argue that his admitted conduct was not for the purpose of evading taxes. The Government says that, in his statement to the Government, as well as multiple written submissions, Elmaani contended that his deceptive conduct was not designed to evade taxes but was rather to evade the scrutiny of Oyster investors, his employees, and the online community. He also contended that, during this period, he was suffering from trauma and was overwhelmed by his conviction that the world financial system was on the brink of collapse. He contended that his primary motivation in this period was to retrofit his yachts so that he could provide for his family once the financial system collapsed, and that the stress from his fears left him unable to focus on his taxes. He claimed that he never saw a 1099 tax form from Exchange-2-despite evidence that Exchange-2 did in fact mail him a 1099-and that without a 1099, the prospect of calculating his total income from the cryptocurrency sales became an overwhelming problem that he was unable to address.

Government Memorandum at 1-4.

Government's Motion to Preclude Diminished Capacity Defense Evidence Applicable Law

1. Elements of Tax Fraud

In order to prove beyond a reasonable doubt that defendant committed tax evasion under 26 U.S.C. § 7201, the Government must prove three elements at trial: “(1) the existence of a substantial tax debt, (2) willfulness of the nonpayment, and (3) an affirmative act by the defendant, performed with intent to evade or defeat the calculation or payment of the tax.” United States v. Josephberg, 562 F.3d 478, 488 (2d Cir.2009).

2. Insanity Defense Reform Act

In 1984, Congress enacted that Insanity Defense Reform Act, or “IDRA,” which was intended to “place a number of limitations on a criminal defendant's ability to introduce mental health evidence.” United States v. Jones, 2018 WL 1115778, at *4 (S.D.N.Y. Feb. 27 2018); Insanity Defense Reform Act of 1984,18 U.S.C. § 17(a) (the “IDRA”). The IDRA established an affirmative insanity defense in...