UNITED STATES DISTRICT COURT EASTERN DISTRICT OF VIRGINIA

Transcription

1 UNITED STATES DISTRICT COURT EASTERN DISTRICT OF VIRGINIA ) ) THOMAS T. PROUSALIS, JR. ) S. Falconbridge Court ) Richmond, Virginia 23238, ) ) Petitioner, ) ) v. ) ) Civ. CHARLES E. MOORE ) Senior U.S. Probation Officer ) 701 East Broad Street, Suite 1150 ) Richmond, Virginia 23219, ) ) Respondent. ) ) ) PETITIONER S MEMORANDUM OF LAW IN SUPPORT OF A PETITION FOR A WRIT OF HABEAS CORPUS PURSUANT TO 28 U.S.C. SECTION 2241 Thomas T. Prousalis, Jr., appearing pro se, hereby files this memorandum of law in support of his petition for a writ of habeas corpus, pursuant to 28 U.S.C. Section 2241.

2 TABLE OF CONTENTS TABLE OF AUTHORITIES JURISDICTION AND VENUE PROCEDURAL HISTORY STATEMENT OF FACTS ARGUMENT THE PETITIONER S CONVICTION MUST BE VACATED INASMUCH AS THE PETITIONER CANNOT BE HELD LIABLE AS A MATTER OF LAW FOR THE THREE COUNTS CHARGED IN THE SUPERSEDING INDICTMENT IN VIEW OF AN INTERVENING SUBSTANTIVE CHANGE IN THE LAW A. The Standard of Review in the Case at Bar is Based Upon an Intervening Substantive Change in the Law Decided by the United States Supreme Court B. An Intervening Substantive Change in the Law Recently Decided by the United States Supreme Court Requires that the Petitioner s Conviction be Vacated C. The Petitioner Cannot be Held Liable For Statements in a Prospectus Which the Petitioner Participated in Drafting Inasmuch as an Adviser is Not the Maker of the Statements as a Matter of Law D. In view of Janus, the Superseding Indictment Rests on Acts Not Attributable to the Petitioner as a Matter of Law E. In view of Janus, the Arraignment, Plea and Sentencing Hearings in the Case at Bar are Unequivocal Evidence that the Petitioner Pled Guilty to Conduct Not Criminal as a Matter of Law CONCLUSION HEARING REQUESTED CERTIFICATE OF SERVICE INDEX TO EXHIBITS EXHIBITS Page 2

3 TABLE OF AUTHORITIES Federal Cases Page Bousley v. United States, 523 U.S. 614 (1998) Doe v. Menefee, 391 F.3d 147 (2d Cir. 2004) In re Jones, 226 F.3d 328 (4 th Cir. 2000) , 19 In re Mutual Funds Investment Litigation, 566 F.3d 111 (4 th Cir. 2009) In re Vial, 115 F.3d 1192 (4 th Cir. 1997) (en banc) Janus Capital Group, Inc. v. First Derivative Traders, 564 U.S. (2011) et seq. Rice v. Rivera, 617 F.3d 802 (4 th Cir. 2010) , 19 Rumsfeld v. Padilla, 542 U.S. 426 (2004) Shaw v. United States, 2011 U.S. App. (4 th Cir.) LEXIS United States v. Gobert, 139 F.3d 436, 438 (5 th Cir. 1998) Federal Statutes 15 U.S.C. Section 78j(b) , 7, 16, 24-25, 33, 40, 42, U.S.C. Section , 7, 16, 24-25, 33, 40, 42, U.S.C. Section , 6, 20, U.S.C. Section Federal Securities Regulations 17 C.F.R. Section , 7, 16-17, 24, 37-40, 42, C.F.R. Section b , 7, 16, 21-22, Item 509, Regulation S-B, Part , 39 Federal Securities Rules Rule 10b-5, Securities Exchange Act of Rule 12b-2, Securities Exchange Act of

4 JURISDICTION AND VENUE Mr. Prousalis was, at all times relevant hereto, a resident and domiciliary of the Commonwealth of Virginia. Mr. Prousalis, age 64, is a current resident of Richmond and a domiciliary of the Commonwealth of Virginia. From December 1998 through June 2000, Mr. Prousalis represented busybox.com, inc. ( Busybox ), an internet company originally based in San Francisco, California. Mr. Prousalis was one of several outside legal advisers retained by Busybox to assist the company in the preparation of a final Busybox IPO registration statement and prospectus (collectively, Registration Materials ), as defined by the Government in the superseding indictment. Ex. 12 at 3. On December 29, 2003, the Government obtained an indictment under seal against Mr. Prousalis in the Southern District of New York, charging him with conspiracy to commit securities fraud, in violation of 18 U.S.C. Section 371, and securities fraud, in violation of 15 U.S.C. Section 78j(b) and 17 C.F.R b-5. On January 7, 2004, Mr. Prousalis was arrested at his McLean, Virginia, home. On May 10, 2004, the Government obtained a superseding indictment under seal against Mr. Prousalis, which included the first two counts of the original indictment, and a third count for failure to disclose interest of counsel in the Registration Materials filed with the Securities and Exchange Commission ( SEC ), in violation of 17 C.F.R. Section On June 15, 2004, Mr. Prousalis entered into a plea agreement with the Government and pled guilty to all three counts of the superseding indictment. 4

5 Mr. Prousalis was sentenced to 57 months of imprisonment and three years of supervised release. In addition, Mr. Prousalis was ordered to pay $12,500,000 in restitution, which represented the entire amount of the gross proceeds of the Busybox initial public offering ( IPO ) of securities. Mr. Prousalis completed his sentence and is currently on supervised release with the probation office of the U.S. District Court for the Eastern District of Virginia until March This Court has jurisdiction in this matter, pursuant to 28 U.S.C. Section 2241(a)(c)(1)(3). Mr. Prousalis may challenge the validity of his conviction under 28 U.S.C. Section 2241 when 28 U.S.C. Section 2255 is inadequate or ineffective to test the legality of his detention and when there is an intervening substantive change in the law. Rice v. Rivera, 617 F.3d 802 (4 th Cir. 2010); In re Jones, 226 F.3d 328 (4 th Cir. 2000). District of Confinement The Eastern District of Virginia is the district of confinement in connection with the Petitioner s supervised release. Whenever a Section 2241 habeas petitioner seeks to challenge the lawfulness of his custody, the petition must be filed in the district of confinement. Shaw v. United States, 2011 U.S. App. (4 th Cir.) LEXIS A petitioner must file a petition for a writ of habeas corpus in the district of confinement pursuant to Section 2241 when Section 2255 is inadequate or ineffective to test the legality of the detention. Id. See Rumsfeld v. Padilla, 542 U.S. 426 (2004). See also U.S. Attorneys Manual, Chapter , which states, inter alia, that Section 2241 habeas corpus petitions must be filed in the district where the prisoner is confined, and are litigated by the U.S. Attorneys Offices in the districts where the petitions are filed. (emphasis added) Mr. Prousalis is currently confined in the Eastern District of Virginia. Therefore, venue is proper in this Court. 5

6 Mr. Prousalis Petition for a Writ of Habeas Corpus is also timely under Section 2241, which grants a petitioner the right to challenge his conviction after the United States Supreme Court substantively interprets the reach of federal statutes underlying his conviction. Rice v. Rivera, 617 F.3d 802 (4 th Cir. 2010); In re Jones, 226 F.3d 328 (4 th Cir. 2000). As the Second Circuit noted in Doe v. Menefee, 391 F.3d 147 (2d Cir. 2004), where a petitioner appears to be the victim of a fundamental miscarriage of justice, the principal of finality must yield to the imperative of federal judicial review of the conviction. The Respondent The Respondent, Mr. Charles E. Moore, is a Senior U.S. Probation Officer for the U.S. District Court for the Eastern District of Virginia in Richmond. The federal habeas statute expressly provides that the proper respondent to a habeas petition is the person who has custody over [the petitioner]. 28 U.S.C. Section 2242; see also Section 2243 ( The writ, or order to show cause, shall be directed to the person having custody of the person detained. ) Rumsfeld, 542 U.S. at 435. The custodian, moreover, is the person with the ability to produce the prisoner s body before the habeas court. Id. Here, Mr. Moore, as Mr. Prousalis probation officer, exercises day-to-day control over Mr. Prousalis and is his immediate custodian under Rumsfeld. [W]e reaffirm that the immediate custodian, not a supervisory official who exercises legal control, is the proper respondent in a habeas petition. Id. at

7 PROCEDURAL HISTORY On December 29, 2003, the Government obtained an indictment under seal against Mr. Prousalis in the Southern District of New York, charging him with conspiracy to commit securities fraud, in violation of 18 U.S.C. Section 371, and securities fraud, in violation of 15 U.S.C. Section 78j(b) and 17 C.F.R b-5. On January 7, 2004, Mr. Prousalis was arrested at his McLean, Virginia, home. On May 10, 2004, the Government obtained a superseding indictment under seal against Mr. Prousalis, which included the first two counts of the original indictment, and a third count for failure to disclose interest of counsel in the Registration Materials filed with the SEC, in violation of 17 C.F.R. Section On May 12, 2004, the district court held an arraignment hearing. On June 7, 2004, Mr. Prousalis trial commenced. On June 15, 2004, Mr. Prousalis entered into a plea agreement with the Government and pled guilty to all three counts of the superseding indictment. On June 15, 2004, the district court held a plea hearing. On October 28, 2004, the district court held a sentencing hearing. Mr. Prousalis was sentenced to 57 months imprisonment and three years of supervised release. In addition, Mr. Prousalis was ordered to pay restitution of $12,500,000, representing the entire amount of the gross proceeds of the Busybox IPO. Also, on October 28, 2004, the district court entered judgment against Mr. Prousalis. On January 7, 2005, Mr. Prousalis self-surrendered to Nellis Federal Prison Camp, Las Vegas, Nevada. 7

8 In January 2005, Mr. Prousalis, acting pro se, appealed his conviction and sentence to the U.S. Court of Appeals for the Second Circuit. On January 28, 2006, the Second Circuit dismissed the appeal. On November 6, 2006, Mr. Prousalis, acting pro se, filed a habeas petition with the district court, pursuant to 28 U.S.C. Section 2255, in an effort to vacate his judgment, based on ineffective assistance of counsel. On August 23, 2007, the district court denied Mr. Prousalis habeas petition under 28 U.S.C. Section 2255 without a hearing. On February 11, 2008, Mr. Prousalis was released to home confinement in the Commonwealth of Virginia. On July 2, 2008, the U.S. Court of Appeals for the Second Circuit affirmed the district court s decision. On October 6, 2008, the United States Supreme Court denied Mr. Prousalis petition for a writ of certiorari. On March 3, 2010, in a hearing before the U.S. District Court for the Southern District of New York, Mr. Prousalis admitted to a violation of his supervised release, relating to business travel outside of the Eastern District of Virginia without consent. Mr. Prousalis received a sentence of nine months. Mr. Prousalis was released on December 3, On June 13, 2011, the United States Supreme Court decided Janus Capital Group, Inc., et al. v. First Derivative Traders, 564 U.S. (2011). 8

9 STATEMENT OF FACTS Prior to his conviction, Mr. Prousalis was an attorney in good standing before the bar for more than 25 years. Mr. Prousalis was married for more than 25 years and was the father of three teenage daughters. Mr. Prousalis is a former decorated commissioned officer and fighter pilot in the United States Air Force. Mr. Prousalis served his country for more than 10 years, during which time he held a Top Secret security clearance. Mr. Prousalis was honorably discharged in Ex. 1. On December 9, 1998, busybox.com, inc. ( Busybox ), an internet company originally based in San Francisco, California, retained Mr. Prousalis, pursuant to a written Retainer Agreement. Ex. 2. From December 1998 through June 2000, Mr. Prousalis was one of several outside legal advisers retained by Busybox to assist the company in the preparation of a final Buxybox IPO registration statement and prospectus (collectively, Registration Materials ), as defined by the Government in the superseding indictment. Ex. 2; Ex. 12 at 3. At the time Mr. Prousalis was retained, he was a solo practitioner and a member in good standing of the District of Columbia bar, with offices located at 1919 Pennsylvania Avenue, N.W., Suite 200, Washington, D.C Busybox was also represented in connection with the IPO by Jon M. Bloodworth, III, its General Counsel; Patton Boggs LLP, a major Washington, D.C., law firm; Fenwick & West LLP, a major San Francisco, California, law firm; and Grant Thornton LLP, a major Washington, D.C., audit, tax and advisory firm (collectively, advisers ). All of the foregoing advisers assisted in the preparation, drafting, editing and review of Busybox s Registration Materials, which Busybox filed with the SEC. Two of Busybox s five directors, Messrs. Jon M. Bloodworth, III, Esquire, and Michael H. Glawe, Esquire, were active 9

10 members of the bar. Moreover, Messrs. Bloodworth and Glawe signed the original Registration Materials, and each of the seven Amendments, filed by Busybox with the SEC. Under the original terms and conditions of his Retainer Agreement, Busybox agreed to pay Mr. Prousalis $375,000, or 7.5 percent of the gross proceeds of the IPO, whichever was more, upon the closing of the IPO. Ex. 2. Mr. Prousalis Retainer Agreement was approved by the Board of Directors of Busybox and was fully disclosed to its advisers. In January 1999, Busybox retained Barron Chase, Inc., a broker-dealer firm registered with the SEC and a member firm of the National Association of Securities Dealers, Inc. ( NASD ), as its Underwriter for a proposed firm commitment IPO, pursuant to the terms and conditions of an Underwriting Agreement. In June 1999, Busybox filed its original Registration Materials with the SEC in connection with its IPO. The Registration Materials were signed by each of the Officers and Directors of Busybox. In addition, Busybox subsequently filed seven Amendments to the Registration Materials with the SEC. Each and every Amendment was signed by each of the Officers and Directors of Busybox. Mr. Prousalis did not sign the Registration Materials filed with the SEC. Moreover, Mr. Prousalis did not sign any of the seven Amendments to the Registration Materials filed with the SEC. Busybox retained ultimate authority and control over its IPO, including its Registration Materials, the distribution of its prospectuses and its closing. A copy of the Registration Materials, including the seven Amendments, as well as Busybox s correspondence with the SEC, were routinely distributed to Busybox, its Officers and Directors, and to its advisers by Merrill Corporation, the financial printer. Busybox filed the Registration Materials, and each of its seven Amendments, with the SEC, by and through Merrill Corporation. 10

11 In April 2000, Mr. Prousalis distributed copies of the Corporate Director s Guidebook to the members of the Board of Directors of Busybox. The Guidebook was promulgated by the American Bar Association and provided guidance under the principal federal securities laws, regulations and rules for the directors of a public company. On May 24, 2000, Busybox filed Amendment No. 7 to the Registration Materials with the SEC in connection with its IPO. This was the last Amendment filed prior to the IPO being declared effective by the SEC on June 26, During June 2000, Messrs. Patrick A. Grotto, the Chairman of the Board and Chief Executive Officer of Busybox, Mark A. Leffers, the Chief Financial Officer of Busybox, and Robert T. Kirk, Jr., the Chief Executive Officer of Barron Chase and an NASD-registered financial adviser to Busybox, went on a multi-city road show together to promote the proposed IPO before numerous interested broker-dealer firms and brokers throughout the United States. Mr. Prousalis did not participate in the road show, nor did any other adviser. On June 7, 2000, Mr. Grotto, the Chairman of the Board and Chief Executive Officer of Busybox, on behalf of Busybox, wrote a letter to the SEC and requested that an effective date be granted as soon as practicable. Ex. 4. In his request, Mr. Grotto stated that [t]he Company confirms that it is aware of its responsibilities under the Securities Act of 1933 and the Securities Exchange Act of 1934 as they relate to the proposed public offering of the securities specified in the [R]egistration [S]tatement. Ex. 4. On June 23, 2000, the SEC notified Busybox that the Registration Materials would be declared effective as of June 26, Busybox requested that Merrill Corporation, its financial printer, print 10,000 final prospectuses, dated June 26,

12 On June 26, 2000, Barron Chase, on behalf of Busybox, distributed more than 10,000 final prospectuses to its clients in the United States and abroad. On June 26, 2000, the NASD cleared the Registration Materials in connection with Barron Chase s proposed firm commitment IPO, following its review of the Underwriter s financial condition and its ability to undertake the firm commitment underwriting. On June 26, 2000, the National Association of Securities Dealers Automated Quotations ( NASDAQ ) cleared the Registration Materials for Busybox s listing. Busybox s common stock and warrants began trading on NASDAQ the following day under the symbols BUSY and BUSYW, respectively. On June 26, 2000, the Registration Materials became effective with the SEC. On June 26, 2000, Mr. Prousalis distributed a Securities Memorandum, outlining certain rights and responsibilities under the federal securities statutes, regulations and rules, to the Officers and Directors of Busybox. Mr. Prousalis had earlier distributed an ABA-sponsored Directors Guidebook in April 1999 to Busybox s Directors, outlining similar rights and responsibilities for Directors of public companies. Ex. 5. On June 26, 2000, the Officers and Directors of Busybox executed the Officers and Directors Certificates in connection with the IPO, which were signed by all of the Officers and Directors of Busybox. Ex. 6. Such Certificates represent and warrant, inter alia, that the Registration Materials do not contain any untrue statement of material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading. Ex. 6 at 1. On June 27, 2000, Busybox s common stock and warrants began trading on NASDAQ. 12

13 On June 30, 2000, the IPO closed, which included friends and family participation that Barron Chase, the Underwriter, requested. Busybox received gross proceeds of $12,812,500 from the IPO, before deductions for salaries and bonuses, professional fees and expenses, and the repayment of outstanding note obligations. Fiserv, Inc., the underwriter s clearing firm, managed the escrow and distribution of the IPO proceeds on behalf of Busybox. All of the foregoing deductions and the repayment of outstanding note obligations were approved by a Resolution of the Board of Directors of Busybox. In addition, the foregoing were disclosed in the Registration Materials. Moreover, Busybox disclosed the fees, costs and expenses associated with the IPO, including Mr. Prousalis legal fees and expenses, in the Company s first quarterly report on Form 10-QSB, filed with the SEC for the period ending June 30, Ex. 3 at 16, 71; Ex. 6; Ex. 9 at 3, 4, 7, 10, 12-15; Ex. 11. Mr. Prousalis also timely declared his legal fees and expenses of $1,256,193, paid to him at the closing of the IPO, as ordinary income on his Form 1040, U.S. Individual Income Tax Return and on his Form 760, Commonwealth of Virginia Individual Income Tax Return, for the tax year Mr. Prousalis legal fees and expenses represented more than 3,500 hours of work on behalf of Busybox over more than two years. On June 30, 2000, Barron Chase mailed confirmations and final prospectuses, dated June 26, 2000, as required by the NASD, to the investors, including the friends and family investors. On June 30, 2000, Mr. Prousalis mailed his Schedule 13D, dated June 26, 2000, to the SEC, which properly disclosed his securities positions, legal fees and expenses in the IPO. Ex. 7. Although Mr. Prousalis filed his Schedule 13D with the SEC, nevertheless, the Government alleged in the superseding indictment that Mr. Prousalis failed to file the Schedule 13D. The Government alleged in the superseding indictment that Mr. Prousalis never filed his required 13

14 Schedule 13D to the SEC, and, as proof thereof, provided an official certification from the SEC, complete with a royal blue ribbon and an official, embossed gold seal, attesting to this alleged fact. Ex. 8. However, due to the efforts of the FBI, Mr. Prousalis Schedule 13D was found to have been filed with the SEC. A few days before trial was scheduled to commence on June 7, 2004, the Government was required to disclose to Mr. Prousalis counsel that the FBI had found a letter from the SEC among Busybox s corporate records at its bankruptcy trustee s office in Los Angeles, California, which acknowledged Mr. Prousalis Schedule 13D filing with the SEC. The SEC letter established that Mr. Prousalis Schedule 13D had, in fact, been properly and timely filed with the SEC. The SEC letter was addressed to Busybox, acknowledged Mr. Prousalis Schedule 13D filing and attached a copy of the Schedule 13D filing. Nevertheless, despite the fact that the Government was required to concede that the Schedule 13D had, in fact, been filed and that the certification from the SEC was false, the Government took no action to remove this false charge from the superseding indictment. Indeed, on October 28, 2004, at the plea hearing, the district court referred to Mr. Prousalis alleged failure to file his Schedule 13D as strong consciousness of guilt. (emphasis added) Ex. 15 at 13. The district court wrongly relied on the false allegation in the superseding indictment. The Government took no affirmative steps to amend the superseding indictment or to correct the district court s erroneous reliance. On October 23, 2000, Mr. Prousalis mailed an amended Schedule 13D, dated September 5, 2000, to the SEC, which disclosed the sale of part of his securities, and his remaining securities position in Busybox. Ex

15 In November 2000, Grant Thornton resigned as the Independent Certified Public Accountant of Busybox. In November 2000, Mr. Leffers resigned as the Chief Financial Officer of Busybox. In December 2000, Mr. Grotto resigned as Chairman of the Board and Chief Executive Officer of Busybox. In December 2000, Mr. Bloodworth was elected Chairman of the Board and Chief Executive Officer of Busybox by the two remaining Directors of Busybox, Messrs. Seligmann and Glawe. In April 2001, Busybox s securities were de-listed from NASDAQ. In April 2001, Busybox, its Officers and Directors, and Grant Thornton LLP, were named as defendants in a class action lawsuit, which was settled in May 2003 for $1 million. Mr. Prousalis was not named as a defendant in the class action lawsuit. In July 2001, approximately 13 months after the June 26, 2000, effective date of its IPO, Busybox filed a petition for bankruptcy. As disclosed in its Registration Materials, Busybox estimated that the proceeds of the IPO would only be sufficient to sustain Busybox s operations for a period of 12 months following the effective date, or until June 26, Ex. 3 at 16, 22; Ex. 9 at 14. In August 2001, an investor in the IPO filed a lawsuit against Busybox s Officers and Directors, and Grant Thornton LLP, in the Los Angeles County Superior Court, mirroring the class action lawsuit filed against such persons in April Mr. Prousalis was not named as a defendant in the lawsuit. The lawsuit was concluded in 2005 with a judgment in favor of the investor for substantial damages. 15

16 In April 2002, unbeknownst to Mr. Prousalis, the U.S. Attorney s Office for the Southern District of New York commenced a criminal investigation of the Busybox IPO. On April 23, 2003, Mr. Prousalis learned that he might be a target of a criminal investigation from a Busybox shareholder. Upon learning this information, Mr. Prousalis immediately called the U.S. Attorney s Office for the Southern District of New York and spoke with Assistant U.S. Attorney Steven R. Glaser. Mr. Prousalis requested an open meeting with AUSA Glaser and the staff to discuss the Busybox IPO, but his request was denied. On April 24, 2003, Mr. Prousalis retained George J. Terwilliger, III, Esquire, a former acting United States Attorney General, and a partner at White & Case LLP, a New York law firm. Mr. Prousalis was later unable to retain the law firm to represent him at trial because he was unable to afford the firm s services. On December 29, 2003, the Government obtained an indictment under seal against Mr. Prousalis in the Southern District of New York, charging him with conspiracy to commit securities fraud, in violation of 18 U.S.C. Section 371; and securities fraud, in violation of 15 U.S.C. Section 78j(b) and 17 C.F.R b-5. Neither Busybox, nor any of its Officers, Directors or Principal Shareholders, were charged by the Government. Moreover, neither Patton Boggs LLP, Fenwick & West LLP nor Grant Thornton LLP, all of whom participated in the preparation, drafting, editing and review of the Registration Materials, were charged by the Government. These outside advisers, collectively, received more than $3.5 million for their services in their representation of Busybox in connection with the IPO. Moreover, Patton Boggs LLP and Fenwick & West LLP have nationally recognized securities law practices. Indeed, Fenwick & West LLP serves as securities counsel to Facebook, Inc. in connection with its pending $5 billion IPO. Ex. 19 at 1-2,

17 During the criminal investigation of Mr. Prousalis, the Government did not issue any requests for information, subpoenas or search warrants to Mr. Prousalis regarding his law office, his home or his personal, financial, telephone or records. Instead, the Government relied on statements, or the omission of statements, in the Registration Materials filed by Busybox with the SEC as the bases for its December 2003 indictment and May 2004 superseding indictment of Mr. Prousalis. On January 7, 2004, Mr. Prousalis was arrested at his McLean, Virginia home. On May 10, 2004, after Mr. Prousalis refused to enter into a plea agreement and plead guilty, the Government obtained a superseding indictment under seal against Mr. Prousalis, which included the first two counts of the original indictment, and a third count for failure to disclose interest of counsel in the Registration Materials, in violation of 17 C.F.R. Section Ex. 12. On May 12, 2004, at an arraignment hearing, the district court, among other things, reviewed the three counts in the superseding indictment with Mr. Prousalis. Ex. 14. On June 7, 2004, Mr.Prousalis trial commenced. On June 15, 2004, Mr. Prousalis entered into a plea agreement with the Government and pled guilty to all three counts of the superseding indictment. Ex. 13. Also, on June 15, 2004, at the plea hearing, the district court, among other things, reviewed the three counts in the superseding indictment with Mr. Prousalis. Ex. 15. On October 28, 2004, at the sentencing hearing, the district court, among other things, reviewed the three counts in the superseding indictment with Mr. Prousalis. Mr. Prousalis was sentenced to 57 months of imprisonment and three years of supervised release. In addition, Mr. 17

18 Prousalis was ordered to pay $12,500,000 in restitution, which represented the entire amount of the gross proceeds of the Busybox IPO. Ex. 16. On October 28, 2004, the district court entered judgment against Mr. Prousalis. Ex. 17. On June 13, 2011, the United States Supreme Court decided Janus Capital Group, Inc., et al. v. First Derivative Traders, 564 U.S. (2011). Ex

19 ARGUMENT THE PETITIONER S CONVICTION MUST BE VACATED INASMUCH AS THE PETITIONER CANNOT BE LIABLE AS A MATTER OF LAW FOR THE THREE COUNTS CHARGED IN THE SUPERSEDING INDICTMENT IN VIEW OF AN INTERVENING SUBSTANTIVE CHANGE IN THE LAW A. The Standard of Review in the Case at Bar is Based Upon An Intervening Substantive Change in the Law Decided by the United States Supreme Court This case involves the availability of collateral relief from a federal criminal conviction based upon an intervening substantive change in the law. An intervening substantive change in the law requiring a review of a conviction is well established. The standard of review was developed to mitigate the potential harshness of the judicial limitations placed on a petitioner s ability to file successive habeas petitions in the federal courts, so as to address constitutional due process concerns under the Fifth Amendment to the United States Constitution. It is also well established that petitioners convicted in federal court are obliged to seek habeas relief from their convictions and sentences through 28 U.S.C. Section See In re Vial, 115 F.3d 1192, 1194 (4 th Cir. 1997) (en banc). When Section 2255 proves inadequate or ineffective to test the legality of detention, a petitioner may pursue habeas relief under 28 U.S.C. Section See Rice v. Rivera, 617 F.3d 802, 805 (4 th Cir. 2010). In the Fourth Circuit, In re Jones, 226 F.3d 328 (4 th Cir. 2000), delineates the circumstances in which a Section 2241 may be used to pursue a habeas petition when there is a substantive change in the law. Rice, 617 F.3d at 805. More specifically, Section 2255 is inadequate and ineffective and Section 2241 may be utilized when: (1) at the time of conviction, settled law of this circuit or the Supreme Court established the legality of the conviction; (2) subsequent to the prisoner s direct appeal and first Section 2255 motion, the substantive law changed such that the conduct of which the prisoner was convicted is deemed not to be criminal; and (3) the prisoner cannot satisfy the gatekeeping provisions of Section 2255 because the new rule is not one of constitutional law. Id. 19

20 In other words, under the Jones rule, a petitioner is entitled to pursue a Section 2241 habeas petition only when he had no opportunity to utilize Section 2255 to take advantage of a substantive change in the law. Id. Mr. Prousalis appealed his October 28, 2004 conviction and sentence to the Second Circuit in January In January 2006, the Second Circuit dismissed the appeal. In November 2006, Mr. Prousalis filed a habeas petition under Section 2255 with the Southern District of New York based on ineffective assistance of counsel. In August 2007, the district court denied Mr. Prousalis habeas petition under Section 2255 without a hearing. In July 2008, the Second Circuit affirmed the district court. In October 2008, the Supreme Court denied Mr. Prousalis petition for a writ of certiorari. Almost three years later, on June 13, 2011, the United States Supreme Court decided Janus Capital Group, Inc., et al. v. First Derivative Traders, 564 U.S. (2011) (hereafter Janus ), which changed the substantive law applicable to the case at bar. Ex. 18. The substantive law changed subsequent to Mr. Prousalis direct appeal and first Section 2255 motion. As will be seen, subsequent to Mr. Prousalis direct appeal and first Section 2255 motion, the substantive law changed such that the conduct of which Mr. Prousalis was convicted is deemed not to be criminal and Mr. Prousalis cannot satisfy the gatekeeping provisions of Section 2255 because the new rule is not one of constitutional law. Thus, the Petitioner s habeas petition under Section 2241 is proper. B. An Intervening Substantive Change in the Law Decided by the United States Supreme Court Requires that the Petitioner s Conviction be Vacated An intervening substantive change in the law requires that Mr. Prousalis conviction be vacated. Under Section 10(b) of the Exchange Act, a person or entity is prohibited from using or 20

21 employing any manipulative or deceptive device in contravention of Securities and Exchange Commission ( SEC ) rules. SEC Rule 10b-5(b), in turn, makes it unlawful to make any untrue statement of a material fact or omit to state a material fact. Under settled law at the time of Mr. Prousalis conviction, any person participating in the writing of the prospectus was deemed to have made the misleading statements contained in the prospectus. In re Mutual Funds Investment Litigation (First Derivative Traders v. Janus Capital Group, Inc, et al.) 566 F.3d 111 (4 th Cir. 2009). However, on June 13, 2011, the United States Supreme Court reversed the Fourth Circuit in this case in Janus Capital Group, Inc., et al. v. First Derivative Traders, 564 U.S. (2011). The magnitude of the decision and the result it will have on prosecutions is already being felt. In several recent cases, the SEC has been forced to concede that its pleadings under Rule 10b-5 cannot survive Janus. In Janus, the Supreme Court was called upon to determine whether Janus Capital Management LLC ( JCM ), a mutual fund investment adviser, [could] be held liable in a private action under Securities and Exchange Commission ( SEC ) Rule 10b-5 for false statements included in its client mutual funds prospectuses. As the Supreme Court stated, Rule 10b-5 prohibits mak[ing] any untrue statement of a material fact in connection with the purchase or sale of securities. 17 C.F.R. Section b-5 (2010). The Supreme Court conclude[d] that JCM [could not] be held liable because it did not make the statements in the prospectuses. Id. at 1. This, despite the close relationship between JCM and the maker of the statements in the prospectuses. The Janus Capital Group, Inc. ( JCG ) was a publicly traded company that created the Janus family of mutual funds. The funds were held in a business trust, the Janus Investment Fund. The Fund retained JCM, a wholly owned subsidiary of JCG, to be its investment adviser 21

22 and administrator. Although JCG created the Janus Investment Fund, the Supreme Court found the Janus Investment Fund to be a separate legal entity owned entirely by mutual fund investors. In addition, the Court found that JCM provide[d] [the] Janus Investment Fund with investment advisory services, which include[d] the management and administrative services necessary for the operation of [the] [Janus Investment] Fund,... but the two entities maintain[ed] legal independence. Id. at 1-2. The Janus Investment Fund issued prospectuses describing the investment strategy and operations of its mutual funds to investors. After the Attorney General of the State of New York filed a complaint against JCG and JCM, a class of plaintiffs alleged that JCG and JCM violated Rule 10b-5 and Section 10(b) of the Securities Exchange Act of 1934 by materially misleading the investing public. The district court dismissed the complaint for failure to state a claim. The Fourth Circuit reversed, holding that First Derivative had sufficiently alleged that JCG and JCM, by participating in the writing and dissemination of the prospectuses, made the misleading statements contained in the documents. Id. at 4. See In re Mutual Funds Investment Litigation (First Derivative Traders v. Janus Capital Group, Inc, et al.) 566 F.3d 111 (4 th Cir. 2009). The Supreme Court reversed the Fourth Circuit. The Supreme Court noted that [u]nder Rule 10b-5, it is unlawful for any person, directly or indirectly,... [t]o make any untrue statement of a material fact in connection with the purchase or sale of securities. 17 C.F.R. Section b-5(b) (footnote omitted.) It reasoned that [t]o be liable, therefore, JCM must have made the material misstatements in the prospectuses. Id. at 5. The Court held that JCM did not make the statements. The Court noted that [o]ne makes a statement by stating it. Id. at 6. The Supreme Court expressly stated as follows: 22

23 For purposes of Rule 10b-5, the maker of a statement is the person or entity with ultimate authority over the statement, including its content and whether and how to communicate it. Without control, a person or entity can merely suggest what to say, not make a statement in its own right. One who prepares or publishes a statement on behalf of another is not its maker. And in the ordinary case, attribution within a statement or implicit from surrounding circumstances is strong evidence that a statement was made by and only by the party to whom it is attributed. This rule might best be exemplified by the relationship between a speechwriter and a speaker. Even when a speechwriter drafts a speech, the content is entirely within the control of the person who delivers it. And it is the speaker who takes credit or blame for what is ultimately said. (emphasis added.) Id. at 6-7. * * * We draw a clean line between the two the maker is the person or entity with ultimate authority over a statement and others are not. (emphasis added) Id. at 7, n. 6. The Supreme Court rejected the Government s contention in a brief filed for the United States as Amicus Curiae that make should be defined as create. Id. at 8. The Supreme Court rejected the plaintiffs suggestion that the close relationship between the mutual fund and its investment adviser should govern the outcome. The Supreme Court further rejected any argument that it disregard the corporate form. It also rejected the plaintiffs and amici argument that investment advisers exercise significant influence over their client funds and found that the corporate formalities were observed in the case before it. The Court further found that [a]ny reapportionment of liability in the securities industry in light of the close relationship between investment advisers and mutual funds is properly the responsibility of Congress and not the courts. Id. at 10. Finally, the Court rejected the suggestion that both JCM and Janus Investment Fund might have made the misleading statements within the meaning of Rule 10b-5 because JCM was significantly involved in preparing the prospectuses. Id. at 12. (emphasis added) 23

24 The Supreme Court found that JCM did not make any of the statements in the Janus Investment Fund prospectuses; Janus Investment Fund did. Id. at 11. And it found that [o]nly Janus Investment Fund not JCM bears the statutory obligation to file the prospectuses with the SEC... Id. at 11. The Supreme Court concluded that no claim had been stated against JCM under Rule 10b-5 and reversed the judgment of the Fourth Circuit. C. The Petitioner Cannot be Held Liable for Statements in a Prospectus Which the Petitioner Participated in Drafting Inasmuch as an Adviser is Not the Maker of the Statements as a Matter of Law The Supreme Court expressly held in Janus, supra, that an adviser cannot be held liable under Section 10(b) of the Securities Exchange Act of 1934, codified at 15 U.S.C. Section 78j(b), and Rule 10b-5, codified at 17 C.F.R. Section b-5, for statements made in a prospectus which the adviser participated in drafting, since an adviser is not the maker of the statements. Mr. Prousalis superseding indictment rests on the identical federal securities law and the identical federal securities regulation addressed in Janus. Ex. 18. Therefore, the holding in Janus is dispositive of the case at bar and requires that the Petitioner s conviction be vacated. In the case at bar, Busybox retained several outside legal advisers, including Mr. Prousalis, to assist the Company in the preparation of its Registration Materials, including the prospectus, which were prepared in connection with an IPO. Busybox filed the Registration Materials with the SEC. Busybox, through its Officers and Directors, maintained ultimate authority and control over its Registration Materials, the distribution of its prospectuses, and its closing. Each of the Officers and Directors of Busybox signed the Registration Materials and each of the subsequent Amendments on behalf of Busybox. Ex. 3 at 77. In Janus, the Supreme Court expressly held for the first time that the maker of statements made in a prospectus, for purposes of 15 U.S.C. Section 78j(b) and 17 C.F.R. Section 24

25 240.10b-5, is the person or entity with ultimate authority and control over the content of such statements, not an adviser who may have drafted the statements. Busybox was controlled by its Officers and Directors, each of whom signed the Registration Materials and Amendments thereto. Ex. 3 at 77. Therefore, Busybox exercised ultimate authority and control over its IPO, including its Registration Materials, the distribution of its prospectuses and its closing. Janus makes it clear that Busybox was the maker of the Registration Materials. Based on Janus, only Busybox and its Officers and Directors are liable for the statements made in the Registration Materials or material omissions therefrom under 15 U.S.C. Section 78j(b) and 17 C.F.R. Section b-5. Mr. Prousalis was not an Officer, Director or Principal Stockholder of Busybox. Mr. Prousalis had no control over Busybox or its actions. Mr. Prousalis never signed the Registration Materials, or any of its seven Amendments. Busybox was a corporation, totally separate and distinct from Mr. Prousalis. Janus makes it clear that the outside legal advisers to Busybox, including Mr. Prousalis, were not the makers of the statements made in the Registration Materials. Thus, based on the holding in Janus, Mr. Prousalis did not make any of the statements in the Registration Materials filed by Busybox with the SEC. Based on Janus, neither Mr. Prousalis, nor any other legal adviser to Busybox, is liable for statements in the Registration Materials or for material omissions therefrom. Janus is controlling here, although it was rendered subsequent to Mr. Prousalis guilty plea entered on June 15, 2004, and the entry of Judgment on October 28, Ex. 15, 17. While new rules of criminal procedure may not be applicable to cases that have already been decided, we are not dealing here with new rules of criminal procedure, but with a substantive change in the law. This is a case in which the Supreme Court has subsequently decided the 25

26 meaning of a statute enacted by Congress and expressly held that conduct under the statute is not attributable to certain persons, as a matter of law. The Supreme Court emphasized this critical distinction in Bousley v. United States, 523 U.S. 614, 617 (1998), in which it stated as follows: By contrast, decisions of this Court holding that a substantive federal criminal statute does not reach certain conduct, like decisions placing conduct beyond the power of the criminal law-making authority to proscribe, Id. at 311 (quoting Mackey, 401 U.S. at 692), necessarily carry a significant risk that a defendant stands convicted of an act that the law does not make criminal. Davis v. United States, 417 U.S. 333, 346 (1974). For under our federal system it is only Congress, and not the courts, which can make conduct criminal. (citation omitted) As will be seen in the case at bar, the Government charged Mr. Prousalis in the superseding indictment with acts which are not attributable to him under Janus, as a matter of law. Therefore, in view of Janus, the Judgment entered against Mr. Prousalis, based on the superseding indictment, must be vacated. D. In view of Janus, the Superseding Indictment Rests on Acts Not Attributable to the Petitioner as a Matter of Law The superseding indictment rests on acts not attributable to Mr. Prousalis under Janus as a matter of law. Even a cursory review of the superseding indictment demonstrates that, based on a subsequent change in the law decided by the Supreme Court in Janus, the conduct charged in the indictment is not attributable to Mr. Prousalis. The following examples of charges alleged in the superseding indictment serve to illustrate that the charges rest on conduct not attributable to the Petitioner. The Scheme to Defraud In the first section of the superseding indictment, captioned The Scheme to Defraud, the Government alleges, inter alia, as follows: 26

27 Prousalis made and caused others to make materially false statements orally and in written materials such as the final Busybox IPO registration statement and prospectus (collectively, the Registration Materials ) regarding, among other things: (a) the nature of the underwriting agreement between Barron Chase and Busybox; (b) the use of proceeds from the Busybox IPO; and (c) the fees paid to Prousalis in connection with the close of the IPO. As a result of the foregoing misrepresentations, among others, more than 2.5 million Busybox shares were sold in connection with the IPO at $5 per share. (emphasis added) Ex. 12 at 3. However, under Janus, Mr. Prousalis did not make any of the statements in the Registration Materials. Under Janus, Busybox, and its Officers and Directors, had ultimate authority and control over its IPO, including its Registration Materials, the distribution of its prospectuses and its closing. Under Janus, Busybox, and its Officers and Directors, each of whom signed the Registration Materials and amendments thereto, were liable for making the statements in the Registration Materials. Moreover, it should be noted that the foregoing charges are all made in the conjunctive. Therefore, the making of statements in the Registration Materials is one critical component of the conduct alleged as criminal. Inasmuch as Janus makes it pellucid that the statements made in the Registration Materials are not attributable to Mr. Prousalis as a matter of law, the entirety of the charge which includes the making of false statements made in the Registration Materials, must also fail. The Registration Materials In the second section of the superseding indictment, captioned The Registration Materials, the Government alleges, inter alia, as follows: In connection with the anticipated Busybox IPO, Thomas T. Prousalis, Jr., the defendant, prepared and caused to be filed the Registration Materials, which included several amendments, the last and final version of which was filed on or about May 23, (emphasis added) Ex. 12 at 5. 27

28 However, under Janus, Mr. Prousalis did not make any of the statements in the Registration Materials. Under Janus, the preparation, crafting, editing or review of statements made in Registration Materials, do not constitute criminal acts attributable to the person preparing, crafting, editing or reviewing the statements, even where the statements in the Registration Materials are false or misleading, unless the person doing so is also the maker of the statement. Under Janus, Busybox, and its Officers and Directors, each of whom signed the Registration Materials and Amendments thereto, were responsible for making the statements in the Registration Materials. Therefore, even assuming Mr. Prousalis was one of several outside advisors who prepared the Registration Materials and Amendments thereto, the mere preparation of same, without also making the statements therein, is not conduct that is criminal under on Janus. Moreover, it must be noted again that the foregoing charges are all in the conjunctive. There is no evidence that Mr. Prousalis filed any Registration Materials with the SEC. On the contrary, the record establishes that Busybox filed the Registration Materials with the SEC, which included several Amendments, the last and final version of which was filed on or about May 23, Ex. 3. In any case, the duty to file the Registration Materials is the legal obligation of the issuer. As the Supreme Court expressly stated in Janus, [o]nly Janus Investment Fund [issuer] not JCM [adviser] bears the statutory obligation to file the prospectuses with the SEC. Janus, 564 U.S. at 11. Moreover, Busybox made an undertaking in its Registration Materials to file, during any period in which offers or sales [of securities] are being made... : (emphasis added) Ex. 3 at

29 (i) To include any prospectus required by Section 10 (a) (3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement... which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement;... Ex. 3 at 75. In addition, Busybox certifie[d], in accordance with the requirements of the Securities Act of 1933, that it had reasonable grounds to believe that it meets all of the requirements for filing Form SB-2 and authorized this registration statement to be signed on its behalf by its Officers and Directors. (emphasis added) Ex. 3 at 77. In any case, inasmuch as Janus makes clear that the person who prepares, drafts, edits or reviews statements in the Registration Materials is not liable for same as a matter of law unless he is also the maker of same, the entirety of the charge must fail. The Secret Agreement Among Prousalis and Kirk Concerning the Underwriting In the third section of the superseding indictment, captioned The Secret Agreement Among Prousalis and Kirk Concerning the Underwriting, the Government alleges, inter alia, as follows: Rather than cancel the IPO or change the underwriting terms and public disclosures concerning the IPO, Prousalis, Kirk, and others known and unknown, secretly agreed to hide the fact of Barron Chase s inability to complete the IPO and raise the full amount of proceeds disclosed in the Registration Materials from investors who participated in the IPO, and from investors who purchased Busybox shares in the aftermarket. (emphasis added) Ex. 12 at 7-8. However, under Janus, Mr. Prousalis did not make any of the statements ( public disclosures ) in the Registration Materials. Under Janus, Mr. Prousalis is not the maker of the disclosures in the Registration Materials. Under Janus, Busybox and its Officers and Directors had ultimate authority and control over its IPO, including its Registration Materials, the 29