Case 1:14-cr JEI Document 114 Filed 11/07/14 Page 1 of 17 PageID: 1312 UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY

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1 Case 1:14-cr JEI Document 114 Filed 11/07/14 Page 1 of 17 PageID: 1312 UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY UNITED STATES OF AMERICA v. Case No (JEI) JOSEPH SIGELMAN ORDER AND NOW, this day of, 2014, after consideration of Defendant Joseph Sigelman s Motion to Dismiss Honest-Services-Fraud Charges, and any response thereto, it is hereby ORDERED that the Motion is GRANTED, and that the portions of Counts One and Five that charge Sigelman with conspiracy to commit, or to transfer money to commit, honest-services wire fraud in violation of 18 U.S.C and 1346 are hereby DISMISSED. BY THE COURT: HONORABLE JOSEPH E. IRENAS SENIOR UNITED STATES DISTRICT JUDGE

2 Case 1:14-cr JEI Document 114 Filed 11/07/14 Page 2 of 17 PageID: 1313 Patrick J. Egan Matthew S. Olesh FOX ROTHSCHILD LLP 2000 Market Street, 20 th Fl. Philadelphia, PA Tel: (215) Fax: (215) pegan@foxrothschild.com William Burck Ben O Neil Veronica Yepez Jonathan Cooper QUINN EMANUEL URQUHART & SULLIVAN LLP 777 6th Street NW Washington, DC Tel: (202) Fax: (202) williamburck@quinnemanuel.com UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY UNITED STATES OF AMERICA v. Case No (JEI) JOSEPH SIGELMAN NOTICE OF DEFENDANT S MOTION TO DISMISS HONEST-SERVICES-FRAUD CHARGES TO: Daniel S. Kahn, Esquire Zach Intrater, Esquire Assistant United States Attorney Assistant United States Attorney United States Department of Justice U.S. Attorney s Office, Room Pennsylvania Avenue, NW 970 Broad Street Washington, DC Newark, NJ PLEASE TAKE NOTICE that, on a date and time to be set by the Court, defendant Joseph Sigelman, by and through his undersigned attorneys, will move before the United States District Court for the District of New Jersey under Federal Rule of Criminal Procedure 12(b)(3) for an Order dismissing the portions of Counts One and Five that charge Sigelman with conspiracy to commit, or to transfer money to commit, honest-services wire fraud in violation of 18 U.S.C and 1346.

3 Case 1:14-cr JEI Document 114 Filed 11/07/14 Page 3 of 17 PageID: 1314 Mr. Sigelman will rely on the memorandum of law submitted herewith in support of his Motion. Oral argument is requested if the Motion is opposed. Patrick J. Egan, Esquire Matthew S. Olesh, Esquire FOX ROTHSCHILD LLP 2000 Market Street, 20th Floor Philadelphia, PA Tel: (215) Fax: (215) pegan@foxrothschild.com /s/ William Burck William Burck, Esquire Ben O Neil, Esquire Veronica Yepez, Esquire Jonathan Cooper, Esquire QUINN EMANUEL URQUHART & SULLIVAN, LLP 777 6th Street NW 11th Floor Washington, D.C Tel: (202) Fax: (202) williamburck@quinnemanuel.com Dated: November 7, 2014 Counsel for Defendant Joseph Sigelman 2

4 Case 1:14-cr JEI Document 114 Filed 11/07/14 Page 4 of 17 PageID: 1315 Patrick J. Egan Matthew S. Olesh FOX ROTHSCHILD LLP 2000 Market Street, 20 th Fl. Philadelphia, PA Tel: Fax: pegan@foxrothschild.com William Burck Ben O Neil Veronica Yepez Jonathan Cooper QUINN EMANUEL URQUHART & SULLIVAN LLP 777 6th Street NW Washington, DC Tel: Fax: williamburck@quinnemanuel.com UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY UNITED STATES OF AMERICA v. Case No (JEI) JOSEPH SIGELMAN DEFENDANT S MOTION TO DISMISS HONEST-SERVICES-FRAUD CHARGES Joseph Sigelman, through his undersigned counsel, respectfully moves this Court under Federal Rule of Criminal Procedure 12(b)(3) to dismiss for failure to state an offense the portions of Counts One and Five that charge Sigelman with conspiracy to commit, or to transfer money to commit, honest-services wire fraud in violation of 18 U.S.C and Respectfully submitted, Patrick J. Egan, Esquire Matthew S. Olesh, Esquire FOX ROTHSCHILD LLP 2000 Market Street, 20th Floor Philadelphia, PA Tel: (215)

5 Case 1:14-cr JEI Document 114 Filed 11/07/14 Page 5 of 17 PageID: 1316 Fax: (215) pegan@foxrothschild.com /s/ William Burck William Burck, Esquire Ben O Neil, Esquire Veronica Yepez, Esquire Jonathan Cooper, Esquire QUINN EMANUEL URQUHART & SULLIVAN, LLP 777 6th Street NW 11th Floor Washington, D.C Tel: (202) Fax: (202) williamburck@quinnemanuel.com Dated: November 7, 2014 Counsel for Defendant Joseph Sigelman

6 Case 1:14-cr JEI Document 114 Filed 11/07/14 Page 6 of 17 PageID: 1317 UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY UNITED STATES OF AMERICA v. Case No (JEI) JOSEPH SIGELMAN MEMORANDUM IN SUPPORT OF DEFENDANT S MOTION TO DISMISS HONEST-SERVICES-FRAUD CHARGES

7 Case 1:14-cr JEI Document 114 Filed 11/07/14 Page 7 of 17 PageID: 1318 TABLE OF CONTENTS INTRODUCTION...1 ARGUMENT...2 I. Legal Standard...2 II. There is no extraterritorial honest-services fraud....3 CONCLUSION...6 i

8 Case 1:14-cr JEI Document 114 Filed 11/07/14 Page 8 of 17 PageID: 1319 TABLE OF AUTHORITIES Cases Boyce Motor Lines, Inc. v. United States, 342 U.S. 337 (1952)... 1 Fulbright v. United States, 91 F.2d 210 (8th Cir. 1937)... 6 Kiobel v. Royal Dutch Petroleum Company, 133 S. Ct (2013)... 4 LaSala v. Bordier et Cie, 519 F.3d 121 (3d Cir. 2008)... 5 Lunini v. Grayeb, 184 F. App x 559 (7th Cir. 2006)... 6 McNally v. United States, 483 U.S. 350 (1987)... 3 Morrison v. National Australia Bank Ltd., 130 S. Ct (2010)... 4, 6 Rehberg v. Paulk, 611 F.3d 828 (11th Cir. 2010), aff d, 132 S. Ct (2012)... 6 Resolution Trust Corp. v. Chapman, 29 F.3d 1120, 1122 (7th Cir. 1994)... 5 Skilling v. United States, 561 U.S. 358 (2010)... 2, 6 United States v. Andrews, 681 F.3d 509 (3d Cir. 2012)... 2 United States v. Biggs, 211 U.S. 507 (1909)... 6 United States v. Castle, 925 F.2d 831 (5th Cir. 1991)... 6 United States v. Gebardi, 287 U.S. 112 (1932)... 6 United States v. Giffen, 326 F. Supp. 2d 497 (S.D.N.Y. 2004)... 3, 4, 5, 6 United States v. Lazarenko, 2003 U.S. Dist. Lexis (N.D. Cal. Sept. 10, 2003)... 5 United States v. Lazarenko, 2004 U.S. Dist. Lexis (N.D. Cal. May 7, 2004)... 3 United States v. McGeehan, 584 F.3d 560 (3d Cir. 2009), vacated on other grounds, 625 F.3d 159 (3d Cir. 2010)... 2, 5 United States v. Milovanovic, 678 F.3d 713 (9th Cir. 2012) (en banc)... 2 United States v. Murphy, 323 F.3d 102 (3d Cir. 2003)... 2 United States v. Panarella, 277 F.3d 678 (3d Cir. 2002)... 2 ii

9 Case 1:14-cr JEI Document 114 Filed 11/07/14 Page 9 of 17 PageID: 1320 United States v. Smith, 985 F. Supp. 2d 547 (S.D.N.Y. 2014)... 2 Statutes 18 U.S.C , 5 Rules Federal Rule of Criminal Procedure 12(b)(3)(B)(v)... 2 iii

10 Case 1:14-cr JEI Document 114 Filed 11/07/14 Page 10 of 17 PageID: 1321 INTRODUCTION In 2009, PetroTiger, an oil-services company incorporated in the British Virgin Islands with operations in Colombia and offices in New Jersey, purchased another oil-services company with operations in Colombia known as the Target Company. ECF No. 28 (Indictment) 2 3, 10, 16. PetroTiger funded this acquisition with the help of investments from two Colombian citizens, referred to in the Indictment as the Investing Partners. Id. 2, According to the Indictment, Joseph Sigelman, PetroTiger s co-ceo, accepted payments from two of the Target Company s owners in exchange for providing favorable terms to these owners in the acquisition, and concealed these payments which the Indictment dubs kickbacks from the Colombian Investing Partners. Id Based on these allegations, the government charges Sigelman with conspiring to commit honest-services wire fraud in violation of 18 U.S.C and Specifically, Count One alleges that Sigelman fraudulently conspired to deprive the Investing Partners of their right to SIGELMAN s... honest and faithful services. Id. 26(a). Similarly, in Count Five, the government charges Sigelman with conspiring to transfer money to carry out honest-services wire fraud in violation of 18 U.S.C and Id. 89(a). 2 These portions of the indictment are deficient because the deprivation of honest services in a foreign country is not an actionable crime. Sigelman thus respectfully requests that this Court dismiss the portions of Counts One and Five alleging that Sigelman conspired to commit, or to transfer money to commit, honest-services wire fraud in violation of 18 U.S.C and For purposes of this motion, Sigelman must accept as true the factual allegations in the indictment. Boyce Motor Lines, Inc. v. United States, 342 U.S. 337, 343 n.16 (1952). 2 Counts One and Five raise other charges as well, but this motion focuses solely on the portions of those counts that charge honest-services fraud. 1

11 Case 1:14-cr JEI Document 114 Filed 11/07/14 Page 11 of 17 PageID: 1322 ARGUMENT I. Legal Standard Under Federal Rule of Criminal Procedure 12(b)(3)(B)(v), dismissal is appropriate when an indictment fails to state an offense. An indictment fails to state an offense if the specific facts alleged in the charging document fall beyond the scope of the relevant criminal statute, as a matter of statutory interpretation. United States v. Panarella, 277 F.3d 678, 685 (3d Cir. 2002). To prove wire fraud, the Government must establish (1) the defendant s knowing and willful participation in a scheme or artifice to defraud, (2) with the specific intent to defraud, and (3) the use of... interstate wire communications in furtherance of the scheme. United States v. Andrews, 681 F.3d 509, 518 (3d Cir. 2012) (citation and quotation marks omitted). Under 18 U.S.C. 1346, a scheme or artifice to defraud includes a scheme or artifice to deprive another of the intangible right of honest services. In Skilling v. United States, the Supreme Court held that a deprivation of the intangible right of honest services under 1346 occurs only when the defendant participates in a bribery or kickback scheme in violation of a fiduciary duty. 561 U.S. 358, 407 (2010). Skilling thus makes clear that breach of a fiduciary duty is an element of honest services fraud, United States v. Milovanovic, 678 F.3d 713, 722 (9th Cir. 2012) (en banc); accord, e.g., United States v. Smith, 985 F. Supp. 2d 547, (S.D.N.Y. 2014) (collecting cases), as this Circuit has long recognized. See United States v. Murphy, 323 F.3d 102, & n.5 (3d Cir. 2003). Not just any fiduciary duty will suffice. In this Circuit, the rule is that state law must provide the specific honest services owed by the defendant in a fiduciary relationship. United States v. McGeehan, 584 F.3d 560, 568 (3d Cir. 2009) (quoting United States v. Murphy, 323 F.3d 102, 116 n.5 (3d Cir. 2003)), vacated on other grounds, 625 F.3d 159 (3d Cir. 2010). 2

12 Case 1:14-cr JEI Document 114 Filed 11/07/14 Page 12 of 17 PageID: 1323 II. There is no extraterritorial honest-services fraud. The word fiduciary does not appear in the indictment. See Indictment. And the word duty shows up just twice, neither time in connection with a duty allegedly owed by Sigelman to the Investing Partners. See Indictment 26(b) (discussing the duty of a foreign official), 87 (same). Nor does the government use comparable words to spell out some fiduciary relationship. Where the indictment should explicate the fiduciary duty that Sigelman owed, we instead find silence. There is no allegation whatsoever that Sigelman owed a duty of honest services to the Investing Partners. There is a reason for this absence: a foreign deprivation of the intangible right of honest services is not actionable under U.S. criminal law. In United States v. Giffen, the Southern District of New York dismissed an indictment charging the defendant with causing the loss of honest services in Kazakhstan in order to obtain business for his company headquartered in New York. 326 F. Supp. 2d 497, 499, 506 (S.D.N.Y. 2004). Giffen explained that Congress enacted 18 U.S.C in 1988 to overrule the Supreme Court s decision in McNally v. United States, 483 U.S. 350 (1987), and to reinstate the pre-mcnally theory that the deprivation of the intangible right of honest services was fraudulent. 326 F. Supp. 2d at 504. Surveying this pre-mcnally body of law, Giffen noted that the Government could not point to any decision where a court upheld application of the honest services theory in an international setting involving a foreign government and its citizens. Id. The only relevant case postdating McNally was United States v. Lazarenko, which entered a judgment of acquittal for a defendant accused of committing honest services fraud in Ukraine U.S. Dist. Lexis (N.D. Cal. May 7, 2004). Given the total absence of pre-mcnally precedent supporting the Government s overseas application of the intangible rights theory, Giffen concluded that Congress did not intend that the intangible right 3

13 Case 1:14-cr JEI Document 114 Filed 11/07/14 Page 13 of 17 PageID: 1324 to honest services encompass bribery of foreign officials in foreign countries, Giffen, 326 F. Supp. 2d at The decision in Giffen is sound. Six years later, the Supreme Court in Skilling confirmed that Congress, by enacting 1346, meant to reinstate the body of pre-mcnally honest-services law. 561 U.S. at 405 (citation and quotation marks omitted). [T]o ascertain the meaning of the phrase the intangible right of honest services, courts must therefore look to the doctrine developed in pre-mcnally cases. Id. at 404 (quoting 18 U.S.C. 1346). The Supreme Court went on to demarcate the contours of 1346 as establishing a uniform national standard, id. at 411 (emphasis added; citation omitted), one that would apply domestically to federal public officials, to state and local corruption, and to private-sector fraud. Id. at 413 n.45. Skilling thus implicitly confirms what Giffen made explicit. And the unwillingness to apply 1346 overseas is in harmony with the many recent Supreme Court decisions emphasizing that the presumption against extraterritoriality generally prevents the foreign application of federal statutes, e.g., Kiobel v. Royal Dutch Petroleum Company, 133 S. Ct. 1659, 1664 (2013), even to foreign frauds that might have some connection to the United States, see Morrison v. National Australia Bank Ltd., 130 S. Ct. 2869, (2010). The logic of Skilling and the holding of Giffen foreclose any overseas application of the intangible rights theory, including in this case. 326 F. Supp. 2d at 505. The indictment alleges that Sigelman, while serving as co-ceo for a British Virgin Islands company that operated primarily in Colombia (PetroTiger), deprived two Colombians (the Investing Partners) of his honest services while purchasing another company that operated primarily in Colombia (the Target Company). Indictment 2 4, 10, 16, The indictment never identifies the source of any alleged fiduciary duty, so Sigelman is left to guess the precise nature of the honest- 4

14 Case 1:14-cr JEI Document 114 Filed 11/07/14 Page 14 of 17 PageID: 1325 services duties he is charged with breaching. The government cannot repair this deficiency by arguing Sigelman owed general, unspecified duties: a fiduciary duty of honest services must derive from state law. McGeehan, 584 F.3d at 568. Because the contours of the duty change from jurisdiction to jurisdiction, reference must be made to the underlying source of substantive law. Assuming, arguendo, that the indictment premises Sigelman s alleged fiduciary duties upon his status as a PetroTiger corporate officer, the state law governing any such duties would be the law of the British Virgin Islands. Under the internal affairs doctrine, the law of a company s place of incorporation governs the fiduciary duties of the company s officers, see LaSala v. Bordier et Cie, 519 F.3d 121, 131 n.13 (3d Cir. 2008); Resolution Trust Corp. v. Chapman, 29 F.3d 1120, (7th Cir. 1994) (collecting authorities), and here the place of incorporation is the British Virgin Islands, see Indictment 10. Just as Ukraine law would have been the source of any fiduciary duties for a Ukrainian official under the honest-services statute, see United States v. Lazarenko, 2003 U.S. Dist. Lexis 25940, at *21 22 (N.D. Cal. Sept. 10, 2003), and Kazakh law would have been the source for the Kazakh official, see Giffen, 326 F. Supp. 2d at 505, so too must British Virgin Islands law be the source of any fiduciary duty of honest services Sigelman owed in his capacity as an officer of a British Virgin Islands company. Yet the government does not allege in the indictment that Sigelman either owed the Investing Partners a duty under the law of the British Virgin Islands or broke such a duty. Even if it had made such allegations, applying 1346 to the alleged loss by foreigners (the Investing Partners) of honest services owed them under foreign law (British Virgin Islands law) is what Giffen expressly forbade and what Skilling implicitly forbade as outside the core body of pre-mcnally caselaw codified by The government may point to the fact that 5

15 Case 1:14-cr JEI Document 114 Filed 11/07/14 Page 15 of 17 PageID: 1326 PetroTiger had offices in New Jersey (although that office was staffed by a single individual and, in fact, was Greg Weisman s home). See Indictment 10. But just as it was irrelevant in Giffen that the defendant was seeking to obtain business for a New York-headquartered company, 326 F. Supp. 2d at 499, so is it irrelevant here that PetroTiger has New Jersey offices. See also Morrison, 130 S. Ct. at (rejecting argument that the presumption against extraterritorial application of federal statutes is overcome for a foreign fraud that involves significant conduct in the United States). What matters is that the pre-mcnally body of case law does not sanction the prosecution of a defendant for depriving foreign nationals in a foreign country of a duty of honest services owed under foreign law. That is the body of law encapsulated in 18 U.S.C Skilling, 561 U.S. at 405; Giffen, 326 F. Supp. 2d at Congress has thus expressed its intent in 1346 that Sigelman is not liable for the foreign deprivation of honest services that the indictment charges him with. Accordingly, the deficient portions of Counts One and Five must be dismissed. 3 CONCLUSION For the foregoing reasons, this Court should dismiss the portions of Counts One and Five alleging that Sigelman conspired to commit, or to transfer money to commit, honest-services wire fraud in violation of 18 U.S.C and It scarcely need be mentioned that there is no such thing as a conspiracy to commit lawful conduct. Because Congress closed the door to charging Sigelman with honest-services fraud under 1346, the government may not prosecute Sigelman for such conduct via the backdoor route of a conspiracy charge. See United States v. Gebardi, 287 U.S. 112, 123 (1932); United States v. Biggs, 211 U.S. 507, 521 (1909); Rehberg v. Paulk, 611 F.3d 828, 854 (11th Cir. 2010) ( A person may not be prosecuted for conspiring to commit an act that he may perform with impunity. ), aff d, 132 S. Ct (2012); Lunini v. Grayeb, 184 F. App x 559, 563 (7th Cir. 2006) (same); United States v. Castle, 925 F.2d 831 (5th Cir. 1991) (individuals excluded from liability under the Foreign Corrupt Practices Act may not be prosecuted for conspiring to violate that Act); Fulbright v. United States, 91 F.2d 210, 212 (8th Cir. 1937) ( If the act is not prohibited by Congress, it is not unlawful to conspire to do it. ). 6

16 Case 1:14-cr JEI Document 114 Filed 11/07/14 Page 16 of 17 PageID: 1327 Respectfully submitted, Patrick J. Egan, Esquire Matthew S. Olesh, Esquire FOX ROTHSCHILD LLP 2000 Market Street, 20th Floor Philadelphia, PA Tel: (215) Fax: (215) /s/ William Burck William Burck, Esquire Ben O Neil, Esquire Veronica Yepez, Esquire Jonathan Cooper, Esquire QUINN EMANUEL URQUHART & SULLIVAN, LLP 777 6th Street NW 11th Floor Washington, D.C Tel: (202) Fax: (202) williamburck@quinnemanuel.com Dated: November 7, 2014 Counsel for Defendant Joseph Sigelman 7

17 Case 1:14-cr JEI Document 114 Filed 11/07/14 Page 17 of 17 PageID: 1328 UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY UNITED STATES OF AMERICA v. Case No (JEI) JOSEPH SIGELMAN CERTIFICATE OF SERVICE I hereby certify that on November 7, 2014, the foregoing Defendant s Motion to Dismiss Honest-Services-Fraud Charges, memorandum in support, and all other supporting documents were filed electronically with the Case Management/Electronic Case Filing System ( CM/ECF ) for the Federal Judiciary. Notice of this filing will be sent to all parties by operation of the CM/ECF system, and the parties to this action may access this filing through CM/ECF. Patrick J. Egan, Esquire