United States v. Tuzman

301 F.Supp.3d 430

UNITED STATES of America,

v.Kaleil Isaza TUZMAN and Omar Amanat, Defendants.

S8 15 Cr. 536 (PGG)

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

Signed October 19, 2017

Edward Young Kyu Kim, A. Damian Williams, Joshua Arditi Naftalis, Andrea Michelle Griswold, United States Attorney's Office, New York, NY, for United States of America.

Avi Weitzman, Jeffrey Ilan Salomon, Reed Michael Brodsky, Amer Shahid Ahmed, David Francis Crowley–Buck, David Philip Salant, Justine Marie Goeke, Nancy Elizabeth Hart, Gibson, Dunn & Crutcher, LLP, Paul W. Ryan, Silvia L. Serpe, Serpe Ryan LLC, Ilene B. Jaroslaw, Hoguet Newman Regal & Kenney, LLP, Howard S. Weiner, Law Offices of Howard Weiner, Michael Fred Bachner, Bachner & Associates, P.C., Eric M. Creizman, Amanda Shoffel, Caroline Johnston Polisi, Melissa Madrigal, Creizman PLLC, Randall Wade Jackson, Joanna Christine Wright, Boies, Schiller & Flexner LLP, James Walden, Brian David Mogck, Jim Walden, Walden Macht & Haran LLP, Jill R. Shellow, Law Offices of Jill R. Shellow, Benjamin Adam Silverman, Patel & Shellow LLP, Sarita Kedia, New York, NY, Marcellus Antonio McRae, Pro Hac Vice, Gibson, Dunn & Crutcher LLP, Los Angeles, CA, Christopher Brett Leach, Gibson, Dunn & Crutcher LLP, Washington, DC, Richard S. Glaser, Jr., Parker Poe Adams & Bernstein LLP, Charlotte, NC, for Defendant.

MEMORANDUM OPINION & ORDER

PAUL G. GARDEPHE, U.S.D.J.:

Defendants Kaleil Isaza Tuzman and Omar Amanat are charged with conspiracy to commit wire fraud, wire fraud, investment advisor fraud, and conspiracy to commit securities fraud. The Government claims that Tuzman—the former chief executive officer of KIT digital, Inc.—and Omar Amanat of Enable Invest Ltd., conspired with others, including Stephen Maiden, to have Maiden's hedge fund purchase and hold KIT digital's stock to artificially inflate its price and trading volume, and to hide losses Maiden's hedge fund had sustained in Enable. Tuzman is also charged with making false statements to the public and to auditors about these transactions and KIT digital's finances. Tuzman has moved for a bill of particulars and an order dismissing the S8 Indictment as violating the rule against specialty. (Dkt. No. 262) Omar Amanat has moved to dismiss Count Four as duplicitous and to strike certain language in the S8 Indictment as surplusage. (Dkt. No. 269) Both Defendants have also moved for a severance.

(Dkt. Nos. 262, 269)¹ For the reasons stated below, Defendants' motions will be denied.

BACKGROUND

I. THE S8 INDICTMENT'S FACTUAL ALLEGATIONS

Enable was a Dubai-based investment company managed by Irfan Amanat,² Omar Amanat's brother. (S8 Indictment (Dkt. No. 198) ¶ 3) Omar Amanat raised funds for Enable. (Id. ) In June 2008, Omar Amanat solicited Tuzman to have KIT digital invest in Enable in exchange for Omar Amanat raising funds for a privately-held special purpose investment vehicle controlled by Tuzman that would invest in KIT digital (the "KIT digital SPIV"). (Id. ¶¶ 14, 18, 20, 22) To this end, in June 2008, Omar Amanat induced Stephen Maiden to have his hedge fund, Maiden Capital, invest $1 million in the KIT digital SPIV. (Id. ¶ 19) In the following months, Tuzman obtained approval from KIT digital's Board of Directors to invest $6.5 million—more than half of KIT digital's available cash—in Enable. (Id. ¶¶ 22–23) Tuzman also re-directed Maiden Capital's $1 million investment in the KIT digital SPIV to Enable, without Maiden's authorization. (Id. ¶ 24) Most of KIT digital's investment in Enable was placed in Enable's U.S. trading account. (Id. ¶ 25) By September 2008, that trading account had incurred more than $5.5 million in trading losses, and contained less than $113,000. (Id. ¶¶ 25–26) Both Irfan Amanat—who controlled the account—and Omar Amanat were aware of the losses. (Id. ¶¶ 26–27)

In November 2008, Tuzman made a redemption request for a portion of the KIT digital funds held by Enable. (Id. ¶ 28) In order to satisfy Tuzman's request, Omar Amanat asked Maiden to invest $2 million from Maiden Capital in Enable on a supposedly short-term basis, and Maiden agreed to do so. (Id. ¶¶ 27–28) Omar Amanat then caused Enable to wire nearly $1.5 million to KIT digital. (Id. ¶ 28(a)-(c) )

By mid-December 2008, Maiden began requesting the return of at least part of Maiden Capital's $2 million investment. Unbeknownst to Maiden, however, Enable "d[id not have the money] and " ‘d[id not] have any ability to repay it.’ " (Id. ¶¶ 29–31) At the end of December—although Enable had not returned any funds to Maiden Capital—Maiden agreed with Tuzman and Omar Amanat that Maiden Capital would purchase $400,000 of KIT digital stock and hold it for 90 days. (Id. ¶ 58) Maiden also agreed not to redeem Maiden Capital's investment in either the KIT digital SPIV or Enable. (Id.) In return, Omar Amanat assigned a portion of his interest in the KIT digital SPIV to Maiden Capital, and Tuzman agreed to arrange for KIT digital to retain Maiden Capital for various services, and to assign to Maiden Capital a portion of Tuzman's interest in the KIT digital SPIV. (Id. ) In a second agreement signed the same day, Omar Amanat and Tuzman agreed that Omar Amanat would facilitate further purchases of KIT digital stock in open market trading. (Id. ) Both Omar Amanat and Tuzman were aware at this time that Enable was insolvent. (Id. ) In January 2009, Maiden Capital purchased approximately $400,000 in KIT digital stock while Maiden continued to request the return of funds from Enable. (Id. ¶¶ 31, 59, 76(b) )

In March 2009, during a telephone call with the Amanat brothers and Tuzman, Maiden learned that Enable was insolvent and that Maiden Capital's multimillion dollar investment in Enable was lost. (Id. ¶ 32) Over the next three years, in order to hide Enable's losses from Maiden Capital's investors and KIT digital's shareholders, Irfan Amanat provided false account statements concerning each entity's investment in Enable. (Id. ¶¶ 35–37, 98, 137) Maiden, in turn, provided false account statements to Maiden Capital's investors, including KIT digital. (Id. ¶¶ 16, 35, 53, 80) Omar Amanat also wired hundreds of thousands of dollars to Maiden Capital to allow it to honor certain redemption requests. (Id. ¶¶ 38–41, 43–45) Omar Amanat, Tuzman, and Maiden discussed Enable's losses and insolvency in telephone and email communications, and in July 2011, they met to discuss these issues. (Id. ¶¶ 42, 62(e), 76(d) )

Between March 2009 and September 2011, Tuzman, with Omar Amanat's knowledge and approval, induced Maiden to purchase more than $2 million worth of KIT digital stock, in part using KIT digital funds provided by Tuzman and Tuzman's own funds, in order to inflate the price and trading volume of KIT digital's stock. (Id. ¶¶ 60–62, 64–69) Tuzman and Omar Amanat represented to Maiden that supporting KIT digital's stock price would facilitate Maiden Capital being repaid, thereby hiding Maiden Capital's Enable losses. (Id. ¶ 60)

In addition to his use of the false account statements provided by Irfan Amanat and Maiden, Tuzman conspired with others to hide KIT digital's true financial condition between 2009 and 2012. Between 2010 and 2012, Tuzman arranged for KIT digital to improperly recognize revenue from sham licenses. (Id. ¶¶ 99–105) When the purported licensee refused to pay, Tuzman had KIT digital loan the licensee money in exchange for the licensee paying KIT digital's invoice. (Id. ¶¶ 106–115) Tuzman also used KIT digital funds in an escrow account to "pay off fabricated or [other] uncollectible receivables" so as to avoid negative accounting treatment, while at the same time claiming that the escrow account was empty. (Id. ¶¶ 116–136)

In March 2012, KIT digital's Board of Directors began questioning certain of the Company's investments, including in Maiden Capital, and Tuzman agreed to resign as chief executive officer. (Id. ¶ 80) In July 2012, Maiden Capital was unable to meet redemption requests and collapsed. (Id. ¶ 46)

II. CHARGES

Counts One, Two, and Three of the S8 Indictment charge Omar and Irfan Amanat with conspiracy to commit wire fraud, wire fraud, and aiding and abetting investment advisor fraud by (1) causing Maiden to make material misrepresentations and to omit material facts in communications with Maiden Capital investors about the status of their investments; (2) wiring hundreds of thousands of dollars to Maiden Capital in order to pay certain redemptions and forestall Maiden Capital's collapse; and (3) providing Maiden with false account statements regarding Maiden Capital's investment in Enable, knowing that such false account statements were intended to be presented, and were presented, to Maiden Capital investors. (Id. ¶ 50; see id. ¶¶ 47–48, 52–54)

Count Four charges Omar Amanat and Tuzman with conspiracy to commit securities fraud by inducing Maiden to manipulate the trading volume and price of KIT digital's stock in December 2008 and thereafter while concealing the true relationship between Maiden Capital and KIT digital. (Id. ¶¶ 56–76)

Count Five charges Tuzman with conspiracy to commit wire fraud by, inter alia, having KIT digital invest in Maiden Capital without disclosing the true relationship between KIT digital and Maiden Capital, and by using KIT digital's investments in Maiden Capital to redeem Tuzman's personal investments in Maiden Capital. (Id. ¶¶ 77–82)

Count Six charges Tuzman and Irfan Amanat with conspiracy to commit securities fraud, make false statements in SEC reports, and make false statements to KIT digital's auditors. This charge is premised on these defendants' use of false account statements concerning KIT digital's investments in Enable and Maiden Capital, (id. ¶¶ 37, 139, 141–143), as well as Tuzman's false statements regarding improper revenue recognition and loans made to delinquent KIT digital customers so that they would pay KIT digital invoices, (id. ¶¶ 97, 143).

DISCUSSION

I. DEFENDANTS' SEVERANCE MOTIONS

Tuzman and Omar Amanat...