United States District Court,
UNITED STATES of
CORPORATION, John J. Hemmingson, and Gary A. Black, Defendants.
No. 96-0181 (GK).
Jan. 3, 1997.
KESSLER, District Judge.
This matter is before the Court upon Defendants' three Motions to Dismiss and one
Motion to Strike. [FN1] The motions arise out of Independent Counsel Donald Smaltz's
criminal prosecution of Defendants for conspiring to make illegal campaign contributions
and then concealing those contributions from various federal agencies.
motions are: (1) Motion of Defendants Crop Growers, Hemmingson, and Black to Dismiss the
Second Superseding Indictment as Beyond the Independent Counsel's Jurisdiction ; (2)
Motion of Defendants Crop Growers and Hemmingson to Dismiss the Second Superseding
Indictment Based on Inconsistent Theories of Prosecution ; (3) Motion of Defendants
Crop Growers, Hemmingson, and Black to Dismiss Based on Defects in the Second Superseding
Indictment ; and (4) Motion of Defendants Crop Growers, Hemmingson, and Black to
Strike Surplusage from the Second Superseding Indictment .
I. Background [FN2]
FN2. The facts
of this case are somewhat involved and will be developed more fully in the Court's
discussion of each challenge to the Indictment. This section summarizes the overall
factual background and the counts of the Indictment.
Defendant Crop Growers Corporation ("Crop Growers") is a holding company for
several wholly-owned subsidiary companies, including Crop Growers Insurance, Inc.
("CGI"), Crop Growers Software, Inc. ("CGS"), and Prairie Mountain
Insurance, Inc. ("PMI"). Defendants John J. Hemmingson ("Hemmingson")
and Gary A. Black ("Black") were officers of Crop Growers at all relevant times.
Hemmingson was an officer and director of CGI and a director of CGS. Black was also a
director of Crop Growers, an officer of CGI, an officer and director of CGS, and an
officer of PMI. CGI obtains a significant portion of its revenue from the federal
Multi-Peril Crop Insurance Program, which the Department of Agriculture regulates.
All three Defendants are charged in an eighteen-count indictment (the
"Indictment"), returned on October 31, 1996. [FN3] Independent Counsel Donald
Smaltz (the "IC") is prosecuting Defendants as part of his investigation of the
acceptance of gifts by former Secretary of Agriculture Alphonso Michael ("Mike")
Espy ("Secretary Espy" or the "Secretary") from organizations or
individuals with business pending before the Department of Agriculture.
FN3. This is
the Second Superseding Indictment. The Original Indictment, returned on May 30, 1996, and
the Superseding Indictment, returned on October 1, 1996, were both dismissed without
prejudice as subsequent superseding indictments were returned.
The Indictment charges an elaborate scheme, involving indicted and unindicted
co-conspirators, to violate the Federal Election Campaign Act ("FECA") and to
conceal that violation in contravention of the campaign finance and securities laws.
Essentially, the Indictment charges that Defendants facilitated the making of illegal
campaign contributions to Secretary Espy's brother, Henry William Espy, Jr. ("Henry
Espy"). These contributions were allegedly hidden by Defendants' falsification of the
accounting and business records of Crop Growers and its subsidiaries CGI, CGS, and PMI.
Specifically, the Counts of the Indictment charge as follows:
Count One: A five-object conspiracy, existing from 1993 through 1995, to make and
conceal illegal campaign contributions of approximately $46,000 to the Henry Espy for
Counts Two and Three: Causing the Henry Espy for Congress Committee to falsely report
the identities of campaign contributors to the Federal Election Commission
("FEC") on March 24, 1993, and August 31, 1993. Crop Growers is not a named
defendant in these Counts of the Indictment.
Count Four: Making and keeping false records and accounts comprising the information
underlying the financial statements filed by Crop Growers with the Securities and Exchange
Commission ("SEC"), from June 23, 1994 through December 31, 1995.
Count Five: Making and keeping false accounting records, from June 23, 1994 through
December 31, 1995. Crop Growers is not a named defendant in this Count of the Indictment.
Counts Six through Fifteen: Failing to disclose material facts in filings with the SEC
on ten different dates, from April 11, 1994 through March 31, 1995.
Count Sixteen: Failing to provide information about the alleged false information
comprising the first fifteen Counts of the Indictment in information relied upon by
purchasers and potential purchasers of securities when Crop Growers became a publicly
traded corporation registered with the SEC.
Counts Seventeen and Eighteen: Failing to disclose potentially illegal conduct to
independent auditors, namely, that management of Crop Growers had been involved in making
illegal campaign contributions, on March 25, 1994 and March 28, 1995. Crop Growers is not
a named defendant in these Counts of the Indictment.
Defendant Hemmingson and several other persons not indicted here, including Henry
Espy, have been indicted and tried in the Eastern District of Louisiana for crimes arising
out of similar and/or interrelated events. United States v. Espy, et al., No. CR. 96-198
(E.D.La. Aug. 1996). Secretary Espy is not a defendant in either action.
Defendants raise several challenges to the substance of the Indictment in their many
motions, each of which will now be considered in turn.
II. Independent Counsel Jurisdiction
All three Defendants challenge the IC's jurisdiction to bring the charges in the
Indictment, and move that all eighteen Counts be dismissed under Fed R.Crim.P. 12(b)(1)
The IC acts pursuant to the Ethics in Government
Act, 28 U.S.C. s 591 et seq. [FN4] The IC was appointed on September 9, 1994, to
investigate the acceptance of gifts by Secretary Espy from organizations or individuals
with business pending before the Department of Agriculture. In re Espy, Order Appointing
Independent Counsel, Div. No. 94-2 (D.C.Cir. Sept. 9, 1994) ("the Appointment
Order"). The Appointment Order provided that:
statutory scheme is fully explained in Morrison
v. Olson, 487 U.S. 654, 659-65, 108 S.Ct. 2597, 2602-06, 101 L.Ed.2d 569 (1988).
The Independent Counsel shall have jurisdiction and authority to investigate other
allegations or evidence of violation of any federal criminal law, other than a Class B or
C misdemeanor or infraction, by any organization or individual developed during the
Independent Counsel's investigation referred to above and connected with or arising out of
that investigation ... [and] to seek indictments and to prosecute any organizations or
individuals involved in any of the matters described above, who are reasonably believed to
have committed a violation of any federal criminal law arising out of such matters,
including organizations or individuals who have engaged in an unlawful conspiracy or who
have aided or abetted any federal offense.
Id. at 2. On September 14, 1994, the Department of Justice ("DOJ") referred
an additional matter to the IC (the "Supplemental Referral") for investigation,
namely, that "Secretary Espy hosted a fundraising dinner, attended by agricultural
lobbyists, the purpose of which was to retire the campaign debt of his brother."
Notice of Prosecutorial Jurisdiction, United States v. Crop Growers Corp. et al., Criminal
No. 96-181 (D.D.C. May 30, 1996). Defendants assert both constitutional and statutory
arguments in support of their position that the IC has exceeded his jurisdiction in
bringing these charges.
 First, Defendants rely on Morrison v. Olson, supra, for the proposition that an IC
who attempts to perform more than a "single task" has been improperly appointed
by the judiciary in violation of the Appointments Clause of the Constitution, Art. II, s
2, cl. 2. The single task to which the Supreme Court referred in Morrison was the limited
grant of authority in an IC's appointment order and any supplemental referrals. Id. at
S.Ct. at 2609. Because the Court concludes that the conduct at issue here is
sufficiently related to the investigatory powers granted the IC in the Appointment Order
and Supplemental Referral, see infra pp. 7-9, it follows that the IC has acted within
Morrison's single task parameter.
 Second, Defendants contend that they are not "covered persons"
under the Act. By its terms, the Act is triggered by the alleged illegal conduct of high
ranking executive branch officials. 28
U.S.C. s 591(a), (b). However, the IC is not limited to investigating only those
persons covered by the Act. United States v. Tucker, 78 F.3d 1313, 1321-22 (8th Cir.1996),
cert. denied, ---
U.S. ----, 117 S.Ct. 76, 136 L.Ed.2d 35 (1996). When the IC investigates non-covered
persons, he must show that the persons or organizations and matters being investigated are
related to the original subject matter of his investigation so that "there is a
reasonable causal or logical connection between the two." United
States v. Secord, 725 F.Supp. 563, 566 (D.D.C.1989). Accord, United
States v. Sun-Diamond Growers of Ca., 941 F.Supp. 1262, 1273 (D.D.C.1996) [Sun-Diamond
I ]. Again, given the Court's decision relating to the scope of this Appointment Order and
Supplemental Referral, the Court finds that a significant connection exists between
gratuities allegedly accepted by Secretary Espy and contributions made to retire his
brother's campaign debt because both could conceivably influence the Secretary's opinions
and decisions on matters pending before the Department of Agriculture.
 Finally, Defendants argue lack of IC jurisdiction under the Appointment Order and
the Supplemental Referral. Preliminarily, the Court notes that two other courts have
already rejected these arguments, finding that allegations similar to these--illegal
campaign contributions made to Secretary Espy's brother by companies with business pending
before the Department of Agriculture--fall squarely within the jurisdiction granted to
this IC under this Appointment Order. Sun-Diamond
I, 941 F.Supp. at 1273-74; United
States v. Espy, No.Crim.A. 96-198, 1996 WL 586364 (E.D.La. Oct. 9, 1996).
Defendants assert that neither the original Appointment Order nor the Supplemental
Referral provides jurisdiction over the subject matter of the Indictment. Defendants'
contention that the only powers granted to the IC are related to the acceptance of
gratuities by Secretary Espy is simply without merit. The language of both the Appointment
Order and the Supplemental Referral clearly gives the IC the authority to investigate
persons and organizations other than Secretary Espy and violations of federal laws other
than the gratuities statute. [FN5]
FN5. Our Court
of Appeals has recognized that the IC's jurisdiction is both "wide in perimeter and
fuzzy at the borders." United
States v. Wilson, 26 F.3d 142, 148 (D.C.Cir.1994), cert. denied sub nom., Briscoe
v. United States, 514 U.S. 1051, 115 S.Ct. 1430, 131 L.Ed.2d 311 (1995).
 Defendants also argue that, because the Indictment does not allege any wrongful
conduct by Secretary Espy, the conduct it does charge is insufficiently related to the
authority granted the IC in the Appointment Order and Supplemental Referral to satisfy the
requirements of 28
U.S.C. s 593(b)(3). To prove relatedness, the IC must show that "there is a
reasonable causal or logical connection" between the organizations and the matters
being pursued by the IC and the subject matter of the original investigation. Secord,
725 F.Supp. at 566.
In Sun-Diamond I, the defendants argued that several counts of the indictment did not
relate specifically to the subject of gratuities and, thus, at most, should have been
referred to the DOJ for prosecution. 941
F.Supp. at 1273. The Sun-Diamond I court rejected the argument, pointing out that the
indictment alleged that those defendants had made an illegal campaign contribution to
Henry Espy, had conspired to conceal the contribution, and had business pending before the
Department of Agriculture. Id. The court found that the alleged purpose of the
contribution, to gain improper influence with Secretary Espy, was "intertwined with
the original core subject matter of the Attorney General's investigation, as well as the
subsequent related referral dealing with the allegations that Secretary Espy hosted a
fundraising dinner to help retire his brother's campaign debt." Id. at 1274.
The logic of the Sun-Diamond I analysis is applicable here. The same Appointment Order
and Supplemental Referral define the jurisdiction of the IC in this case as they did in
Sun Diamond I, and the interpretation of those documents is the same in both cases. The
underlying concern of the IC's investigation of Secretary Espy is that the "Secretary
may have been influenced improperly to favor or intervene in the gift-givers' cause
pending before his or her Department." In
re Espy, 80 F.3d 501, 508 (D.C.Cir.1996). The Appointment Order, by its terms, allows
the IC to investigate the acceptance of gratuities by Secretary Espy and to investigate
individuals and organizations who may have violated any federal law in connection with the
investigation of the Secretary. Clearly, allegations that an organization with business
pending before the Department of Agriculture made an illegal campaign contribution to
Secretary Espy's brother to curry favor with the Secretary falls within the mandate of
that Appointment Order. Further, the Supplemental Referral clearly covers allegations of
Hemmingson's attendance at the fundraising dinner hosted by Secretary Espy. Allegations
relating to the fundraising dinner are part and parcel of the overarching theory that all
these activities were designed to curry favor with the Secretary.
Defendants attempt to distinguish Sun Diamond I on the basis that the Sun Diamond I
indictment specifically alleged, in other counts, that the defendants had paid gratuities
to Secretary Espy himself. However, Defendants' argument is unpersuasive because the
analysis of the contribution to Henry Espy was not based on the existence of gratuities
charges in other counts of the indictment.
The Court's conclusions are also consistent with United
States v. Espy, 1996 WL 586364, which rejected the identical arguments of defendants
about the same contribution to Henry Espy's campaign that is at issue in this case.
"Hemmingson's representation of an agricultural concern, his attendance at a
fundraising dinner, and his alleged signing of a $20,000 check fall within the express
purpose of the AG's referral." Id. at * 4.
Thus, Defendant's Motion to Dismiss the Second Superseding Indictment as Beyond the
Independent Counsel's Jurisdiction is denied.
III. Inconsistent Theories of Prosecution
 Defendants Hemmingson and Crop Growers assert that the IC's theory of prosecution
in the Eastern District of Louisiana is inconsistent with its theory of prosecution in
this District and thus move that Counts One, Four, Five, Eleven through Fifteen, Sixteen,
and Eighteen of the Indictment be dismissed under Fed R.Crim.P. 12(b)(2) and the Due
Process Clause of the Constitution. Although few cases address this issue, those that do
overwhelmingly favor the position of the IC.
The Louisiana indictment charges that Defendant Hemmingson and other co- conspirators
perpetrated a fraud upon Crop Growers by taking $20,000 from Crop Growers and directing it
to Henry Espy's campaign, disguising it as a legal fee. Thus, in Louisiana, the IC charges
that Crop Growers was a victim of the alleged criminal activity. The District of Columbia
Indictment charges that Crop Growers itself made illegal campaign contributions to the
Henry Espy campaign. Defendants assert that it is completely inconsistent for the IC to
assert that the same behavior makes Crop Growers a victim in Louisiana and a perpetrator
in the District of Columbia Thus, Defendants argue that the Counts of the Indictment
resting on the alleged $20,000 contribution should be dismissed.
Defendants rely heavily on a concurring opinion in Drake
v. Kemp, 762 F.2d 1449 (11th Cir.1985) (en banc), cert. denied, 478 U.S. 1020, 106 S.Ct.
3333, 92 L.Ed.2d 738 (1986), where two defendants were tried separately for the same
murder. The prosecution presented inconsistent theories about whom the actual murderer was
and obtained two death penalty convictions. Drake,
762 F.2d at 1478 (Clark, J., concurring). The majority of the en banc panel declined
to reach Drake's argument that the theories of prosecution were inconsistent and relied
instead on other grounds to overturn his conviction. Id. at 1451. Judge Clark, concurring,
found that the prosecutor's actions violated notions of fundamental fairness inherent in
the Fourteenth Amendment's due process clause. Id. at 1478-79.
For the following reasons, the Court finds Judge Clark's concurrence of no help to
Defendants. First, no other judge joined Judge Clark's opinion and, as noted above, the en
banc court did not reach the issue. [FN6] Second, Judge Clark's opinion, which turned
largely on factual inconsistencies between the two trials, condemned what he perceived to
be false evidence. Id. at 1477, 1479. Third, subsequent case law has narrowly construed
Judge Clark's view, applying it only where the prosecutor has used "evidence that he
could not have believed." Parker
v. Singletary, 974 F.2d 1562, 1578 (11th Cir.1992). Finally, a concurring opinion from
the Eleventh Circuit does not bind this Court. [FN7]
FN6. The prior
panel opinion rejected the defendant's claim. Drake
v. Francis, 727 F.2d 990, 994 (11th Cir.1984) ("A review of the record reveals
that the state's theories in the two trials were not totally inconsistent.").
v. Georgia, 442 U.S. 95, 99 S.Ct. 2150, 60 L.Ed.2d 738 (1979) (per curiam ), adds
nothing to Defendants' argument. Green reversed the state court's exclusion of
exculpatory, mitigating evidence, saying that "the hearsay rule may not be applied
mechanistically to defeat the ends of justice." Id. at 96-97, 99
S.Ct. at 2151-52 (internal quotation omitted). Green is totally inapposite since it
related to evidentiary rulings in the punishment phase of a trial.
In addition, as a corporation, rather than a natural person, Crop Growers can be both
a victim and a participant in crimes arising out of the same facts. It is a basic
principle of corporate law that, in a shareholder derivative suit, a corporation plays the
role of both plaintiff and defendant. See Cohen
v. Beneficial Indus. Loan Corp., 337 U.S. 541, 547-48, 69 S.Ct. 1221, 1226-27, 93 L.Ed.
1528 (1949). See also Weaver
v. United Mine Workers of Am., 492 F.2d 580, 586 (D.C.Cir.1973) (recognizing that a
union, like a corporation, can reverse its position with respect to derivative litigation)
(citing with approval In re Penn Cent. Sec. Litig., 335 F.Supp. 1026 (E.D.Pa.1971)).
Judge Clement ruled similarly when Hemmingson raised the same issue in a Motion to
Transfer Venue in Henry Espy, Crim.Act. 96-198 (E.D.La. Nov. 6, 1996). In that motion,
Hemmingson argued that transferring the indictment from Louisiana to the District of
Columbia would prevent the government from arguing inconsistent legal theories at the two
trials. Id. slip. op. at 12. That court rejected Hemmingson's request, relying in part on
theories of corporate law. Id. at 12-13.
Finally, Defendants cite no authority, and the Court has found none, where a court has
dismissed a criminal prosecution based on inconsistent theories of prosecution. For all
these reasons, Defendants' Hemmingson and Crop Growers Motion to Dismiss the Second
Superseding Indictment Based on Inconsistent Theories of Prosecution is denied.
Liability Under 18 U.S.C. s 1001
Counts Six through Fifteen of the Indictment charge Defendants with violations of 18
U.S.C. Section 1001 [FN8] and 18
U.S.C. Section 2. [FN9] Section 1001 proscribes two different types of conduct:
concealment of material facts and false representations. See United
States v. Curran, 20 F.3d 560, 566 (3d Cir.1994); United
States v. Mayberry, 913 F.2d 719, 722 n. 7 (9th Cir.1990); United
States v. Tobon-Builes, 706 F.2d 1092, 1096 (11th Cir.1983); United
States v. Diogo, 320 F.2d 898, 902 (2d Cir.1963). The Indictment alleges violations of
both prohibitions, which will be discussed in turn.
18 U.S.C. s 1001 provides:
Whoever, in any
matter within the jurisdiction of any department or agency of the United States knowingly
and wilfully falsifies, conceals or covers up by any trick, scheme, or device a material
fact, or makes any false, fictitious or fraudulent statements or representations, or makes
or uses any false writing or document knowing the same to contain any false, fictitious or
fraudulent statement or entry, shall be fined not more than $10,000 or imprisoned not more
than five years, or both.
18 U.S.C. s 2(b) provides:
willfully causes an act to be done which if directly performed by him or another would be
an offense against the United States, is punishable as a principal.
The Indictment specifically identifies ten different SEC filings from which material
facts were allegedly omitted. These material facts are: (a) that Crop Growers violated
FECA by making illegal campaign contributions; (b) that a material contingent liability
existed for potential criminal and civil fines because of said violations; (c) that Crop
Growers' financial statements were misleading; (d) that Crop Growers maintained false
books and records; and, (e) that Crop Growers, its subsidiaries, and their key officers
faced criminal and civil sanctions under provisions other than FECA and that their ability
to operate could be severely affected as a result.
A. Section 1001 Concealment
Although our Court of Appeals has not squarely addressed the issue, [FN10] the
majority of Circuits have ruled that a violation of Section 1001 predicated on concealment
requires that the defendant must have had a legal duty to disclose the facts at the time
of the alleged concealment. Curran,
20 F.3d at 566; United
States v. Zalman, 870 F.2d 1047, 1055 (6th Cir.1989), cert. denied sub nom., Sharifinassab
v. United States, 492 U.S. 921, 109 S.Ct. 3248, 106 L.Ed.2d 594 (1989); United
States v. Nersesian, 824 F.2d. 1294, 1312 (2d Cir.1987), cert. denied, 484 U.S. 958, 108
S.Ct. 357, 98 L.Ed.2d 382 (1987); United
States v. Murphy, 809 F.2d 1427 (9th Cir.1987); United
States v. Hernando Ospina, 798 F.2d 1570, 1578 (11th Cir.1986); United
States v. Larson, 796 F.2d 244, 246 (8th Cir.1986); United
States v. Anzalone, 766 F.2d 676, 683 (1st Cir.1985); United
States v. Irwin, 654 F.2d. 671, 678-79 (10th Cir.1981), cert. denied, 455 U.S. 1016, 102
S.Ct. 1709, 72 L.Ed.2d 133 (1982). At least one district court in this circuit has
stated that "[t]he case law is clear that the deliberate failure to disclose material
facts in the face of a specific duty to disclose such information constitutes a violation
of the concealment provision of s 1001." United
States v. Dale, 782 F.Supp. 615, 626 (D.D.C.1991).
FN10. Our Court
of Appeals upheld a Section 1001 concealment conviction where it concluded that a HUD form
completed by defendant required him to disclose the business relationship at issue. United
States v. Muntain, 610 F.2d 964, 972-73 (D.C.Cir.1979).
The rationale of these cases has rested, in large part, on due process considerations.
809 F.2d at 1431 (citations omitted); United
States v. Bucey, 876 F.2d 1297, 1307-08 (7th Cir.1989), cert. denied, 493 U.S. 1004, 110
S.Ct. 565, 107 L.Ed.2d 560 (1989) (citation omitted). For example, in Murphy, the
defendant was charged with conspiring to conceal information from and falsify information
to the Internal Revenue Service by submitting Currency Transaction Reports
("CTRs") that misidentified the source of funds deposited. 809
F.2d at 1429. The court found that because the CTR form was ambiguous, criminal
liability could not be predicated on the failure to fill out the form completely, stating:
Due process requires that penal statutes define criminal offenses with sufficient
clarity that an ordinary person can understand what conduct is prohibited. Kolender
v. Lawson, 461 U.S. 352, 357, 103 S.Ct. 1855, 1858, 75 L.Ed.2d 903 (1983). [The
statute and regulations at issue] do not clearly require depositors to identify the source
of their funds. Therefore, the imposition of criminal sanctions on these facts would
violate due process. [citation omitted].
809 F.2d at 1431.
 In Murphy, where the statute and its implementing regulations were ambiguous as to
whether they required disclosure, the Ninth Circuit concluded that imposition of criminal
liability would offend due process considerations. A fortiori, where a statute or
regulation imposes no duty whatever to disclose information, due process concerns require
that criminal liability not be based on omission of such information.
Turning to the issue of whether Defendants herein had a duty to disclose the five
pieces of information that the IC alleges as the basis for liability, the Court must first
decide, as a matter of law, whether such duty existed. Zalman,
870 F.2d at 1055 (citations omitted); United
States v. Poarch, 878 F.2d 1355, 1360 (11th Cir.1989).
Defendants contend that they had no duty to disclose that Crop Growers violated FECA
by making illegal campaign contributions or that they illegally maintained false books and
records. In support of their argument, Defendants cite United
States v. Matthews, 787 F.2d 38 (2d Cir.1986), for the proposition that there is no
duty to disclose uncharged criminal conduct.
The defendant in Matthews appealed from a criminal conviction for violations of
securities laws for failing to disclose on a proxy statement that he was guilty of
conspiracy. [FN11] 787
F.2d 38, 44. Matthews allegedly joined the conspiracy in 1978. Id. at 39-40. In 1981,
the chair of the board of directors of a corporation asked him to run for election to the
board and, to that end, Matthews filed a proxy statement. Id. at 39, 44. At the time of
the 1981 proxy filing, Matthews was the subject of a grand jury investigation. Id. at 44.
He was indicted on the conspiracy charge in July 26, 1984, and on the securities violation
on August 2, 1984. Id. at 43. The government claimed that Matthews violated securities
laws and regulations by not disclosing on the proxy statement, filed in 1981, that he was
guilty of conspiracy. Id. at 43.
was acquitted of the conspiracy charges in the same trial. Matthews,
787 F.2d at 39.
 The key issue in Matthews was whether section 14(a) of the Securities
Exchange Act of 1934, 15 U.S.C. s 78n(a), and SEC
Implementing Rule 14a-9, 17 C.F.R. 240.14a-9, required that the defendant "state
to all the world that he was guilty of the uncharged crime of conspiracy." Id. at 46.
The court looked to the language of the statute and rule in concluding that the defendant
had no such duty. Id. at 47-48. In particular, the court pointed to the problems inherent
in management evaluation of qualitative disclosures, which were inherently subject to
varying interpretation, rather than quantitative disclosures, such as net income, profits,
losses, and the due process concerns thereby implicated Id. at 48- 50. Therefore, "so
long as uncharged criminal conduct is not required to be disclosed by any rule lawfully
promulgated by the SEC, nondisclosure of such conduct cannot be the basis of a criminal
prosecution." Id. at 49.
 The Matthews analysis is persuasive precisely because it is a logical extension
of the omission/duty principles outlined above, see supra pp. 344-45. Due process concerns
dictate the finding that, where there is no fair notice that specific conduct is
forbidden, or compelled, that conduct cannot be prosecuted. See United
States v. Harriss, 347 U.S. 612, 74 S.Ct. 808, 98 L.Ed. 989 (1954).
Further, the SEC itself has, in conjunction with the proxy statement provisions of the
securities law, failed to adopt such a broad disclosure requirement. The provisions of
Item 6 of Schedule 14A, which require only disclosure of criminal convictions or pending
criminal proceedings, were proposed in 1976, Securities Exchange Act Release No. 5758,
1976-77 Transfer Binder, Fed.Sec.L.Rep. (CCH) ¶ 80,783, and adopted in 1978, Securities
Exchange Act Release No. 5949, 1978 Transfer Binder, Fed.Sec.L.Rep (CCH) ¶ 81,649. The
Commission found that information about directors' and officers' involvement in litigation
was material to investors. Securities Exchange Act Release No. 5949, supra, at p. 80,618.
The Commission considered requiring disclosure of questionable or illegal payments, see
Securities Exchange Act Release No. 13185, 1976-77 Transfer Binder, Fed.Sec.L.Rep (CCH) ¶
80,897 at 87,382-84, but failed to adopt such a requirement. See Securities Exchange Act
Release No. 15570, 1979 Transfer Binder, Fed.Sec.L.Rep. (CCH) ¶ 81,959 at 81,392. Thus,
the SEC clearly knows how to write specific disclosure requirements into its regulations,
and has chosen not to do so for uncharged criminal conduct.
The IC seems to suggest in its Opposition that, even if the Court finds Matthews to be
applicable to Hemmingson and Black, it should not apply to Crop Growers because a
corporation has no Constitutional right against self- incrimination. However, Fifth
Amendment concerns merely "buttressed" the holding of Matthews. 787
F.2d at 49. That court's overriding concern, as previously noted, was related to
according due process protections, which are as applicable to corporate defendants as to
As the IC points out, thereis a line of cases requiring the disclosure of uncharged
criminal or improper conduct under the federal securities laws. See S.E.C.
v. Fehn, 97 F.3d 1276 (9th Cir.1996); In
re Par Pharmaceutical, Inc. Sec. Litig., 733 F.Supp. 668 (S.D.N.Y.1990); Ballan
v. Wilfred Am. Educ. Corp., 720 F.Supp. 241 (E.D.N.Y.1989); Greenfield
v. Professional Care, Inc., 677 F.Supp. 110 (E.D.N.Y.1987). Each and every one of
those cases, however, recognizes the validity of Matthews in the criminal context. Fehn,
97 F.3d at 1290 n. 12; Par
Pharmaceutical, 733 F.Supp. at 675 n. 8; Ballan,
720 F.Supp. at 249; Greenfield,
677 F.Supp. at 112-13. In addition, each of those cases was a civil action, not, like
Matthews, a criminal action.
Further, the IC's reliance on Roeder
v. Alpha Indus., Inc., 814 F.2d 22 (1st Cir.1987), is misplaced. Although the Roeder
court did find that illegal activities may be material under the securities laws, id. at
25-26, it concluded that the criminal conduct in that case did not need to be disclosed.
While acknowledging the holding in Matthews, the Roeder court noted that Matthews was a
criminal case raising significantly different concerns than the civil complaint involved
in Roeder. Further, in Roeder, both the corporation and one of its vice-presidents had
already pled guilty to a bribery-related crime. Id. at 23, 26. The court went on to note,
however, that the materiality of the undisclosed information was not alone sufficient to
sustain liability, and that a duty to disclose was required to state any violation of the
securities laws. Roeder,
814 F.2d at 25-27. The court then held that no such duty existed and dismissed the
entire complaint. Id. at 26-28. In short, Roeder supports the position of Defendants, not
that of the IC.
The issue now before the Court is whether the specific statutes and regulations
governing each filing unambiguously required disclosure of uncharged criminal conduct. In
support of its position that Defendants had a duty to disclose the information at issue in
paragraphs (a) and (d), the IC cites the general disclosure provision of the Securities
Exchange Act of 1934. That provision requires that issuers of registered securities file
periodic and other reports containing the information prescribed in the SEC's rules. 15
U.S.C. s 78m(a). In general, the provisions of SEC Regulation S-K set forth the
specific information that must be disclosed. 17
C.F.R. Part 229.
Under SEC Rule 12b-20, an issuer of securities has a duty to supply "such further
information, if any, as may be necessary to make the required statements, in light of the
circumstances under which they are made, not misleading." The IC argues that this
general duty, in essence, transforms all of the specific rules set forth in Regulation S-K
into affirmative duties to disclose. Even assuming that this is true, the Court can still
find no basis in the specific regulations for requiring disclosure. Each required
disclosure references specific portions of Regulation S-K, set forth at 17
C.F.R. Part 229, which in turn set forth the specific information that must be
Defendants argue that the regulations that govern the disclosures at issue in this
case are 17
C.F.R. ss 229.401 and 229.103. The IC contends that 17
C.F.R. ss 229.303 and 229.503 are the appropriate regulations. The Court finds that
under any of these regulations, the alleged omissions in paragraphs (a) and (d) need not
have been disclosed.
 Defendants argue that Matthews is dispositive with respect to 17
C.F.R. ss 229.401. Matthews examined the language of 17
C.F.R. s 229.401, [FN12] which governs disclosures relating to directors and executive
officers on Form S-1 and on the proxy statements. See Form S-1, Item 11(j) (incorporating
the disclosure requirements of 17
C.F.R. s 229.401). The Matthews court found that the specific language did not require
the defendant to disclose uncharged criminal conduct. The Court's own examination of the
language leads it to the same conclusion.
17 C.F.R. s 229.401(f)(2) provides for disclosure of legal proceedings where:
(2) Such person
was convicted in a criminal proceeding or is a named subject of a pending criminal
proceeding (excluding traffic violations and other minor offenses).
 The regulations governing corporate disclosures are set forth at 17
C.F.R. s 229.103. [FN13] See Form S-1, Item 11(c). By its plain language, the
regulation requires only the disclosure of proceedings "known to be contemplated by
governmental authorities" and does not require the disclosure of uncharged criminal
conduct. One court has even held that the receipt of a target letter is insufficient to
trigger an obligation to disclose under this section. In
re Browning-Ferris Indus., Inc. Shareholder Derivative Litig., 830 F.Supp. 361, 369
(S.D.Tex.1993), aff'd mem., 20 F.3d 465 (5th Cir.1994). The government does not
contend that Defendants, at the time of the filings at issue, had any knowledge that the
government was contemplating formal criminal proceedings or even an investigation. The
Court cannot find that the regulation unambiguously requires disclosure of the conduct
alleged in paragraphs (a) and (d).
17 C.F.R. s 229.103 provides:
briefly any material pending legal proceedings, other than ordinary routine litigation
incidental to the business, to which the registrant or any of its subsidiaries is a party
or of which any of their property is the subject. Include the name of the court or agency
in which the proceedings are pending, the date instituted, the principal parties thereto,
a description of the factual basis alleged to underlie the proceeding and the relief
sought. Include similar information as to any such proceedings known to be contemplated by
 The IC relies on two other disclosure provisions, 17
C.F.R. s 229.303, incorporated by Item 11(h), which requires that an issuer discuss
"any known trend or uncertainty" likely to influence the registrant's liquidity
or operational results, and 17
C.F.R. s 229.503, incorporated in Form S-1 by Item 3, which requires that a registrant
provide a discussion of "the principal factors that make the offering speculative or
one of high risk."
The IC's argument involves a lengthy chain of inferences. Crop Growers' Forms S-1
discussed the implications of proposed legislative changes in the Federal Multi-Peril Crop
Insurance Program. However, those forms did not discuss the alleged FECA violation, which
could have jeopardized Crop Growers' participation in the Program. Thus, the IC argues,
the discussion of the risk to the Program from the pending legislation was incomplete. To
make the forms complete and not misleading under Rule 12B-20, the IC claims that
Defendants would have had to disclose and discuss the alleged violations of FECA. The
Court finds this argument both attenuated and untenable.
The specific forms at issue do not specify that criminal liability can be imposed if
the forms are not completed in compliance with law. Further, the terms of the regulations
do not set forth required disclosures in precise terms. Qualitative terms such as
"risk", "trend", and "uncertainty" do not provide sufficient
notice that a particular disclosure is required to allow criminal liability to attach for
alleged non-disclosure. Accord Matthews,
787 F.2d at 48 (citations omitted). Such terms are, quite simply, too vague and
amorphous to give fair notice, required by the Due Process clause, of what disclosure is
required. As to the specific regulations, the Court has found no case law supporting the
IC's view that these general disclosure requirements can provide a basis for criminal
liability, and the IC does not cite any case supporting that view. Nor was the Court able
to find any federal case which specifically discussed 17
C.F.R. s 229.503, the risk factors provision, in conjunction with required
disclosures. As for the general disclosure of trends under 17
C.F.R. s 229.303, the Court was also unable to find any case supporting the IC's broad
reading of that regulation. Thus, neither regulation, even when read in conjunction with 17
C.F.R. s 240.12B-20, will support criminal liability for failing to disclose
uncharged, uninvestigated criminal conduct.
 The other alleged omissions, namely, that a material contingent liability existed
because of the alleged FECA violations, that Crop Growers' financial statements were
misleading, and that Crop Growers, its subsidiaries, and their officers faced potential
criminal liabilities, also fail to support a Section 1001 concealment charge because
Defendants had no duty to disclose that information.
 First, since the Defendants had no duty to disclose uncharged criminal
conduct underlying these additional omissions, it logically follows that they had no duty
to disclose the additional facts. Second, to the extent that any duty to disclose is
predicated on professional standards not codified in any statute or regulation, there can
be no criminal liability. As previously stated, the predicate for criminal behavior must
be set out with sufficient clarity to put a potential defendant on notice that the conduct
is proscribed. Criminal liability cannot be extended to violations of Financial Accounting
Standards Board (FASB) standards not codified in criminal statutes and open to varying
interpretations. See In
re VeriFone Secs. Litig., 11 F.3d 865, 870 (9th Cir.1993) (stock exchange rules cannot
be imported into body of securities laws).
 For the reasons discussed above, the portions of the Indictment relating to
Counts Six through Fifteen, based on a Section 1001 concealment charge and the
corresponding claims under 18
U.S.C. s 2, must be dismissed because Defendants had no duty to disclose the conduct
FN14. Where a
defendant with no duty to disclose particular information knowingly and willingly keeps a
third party from making a required disclosure, the defendant is liable under 18
U.S.C. s 2(b), even though he lacks the scienter requisite for a primary violation.
20 F.3d at 567-68; United
States v. Richeson, 825 F.2d 17, 20 (4th Cir.1987). However, because the Court
concludes that Crop Growers had no duty to disclose the information at issue, a Section
2(b) claim against Hemmingson or Black cannot be sustained.
B. Section 1001 False Representations
 The elements of a false representation prosecution under Section 1001 are
that (1) the defendant made a statement; (2) the statement was false, fictitious or
fraudulent as far as the defendant knew; (3) the statement was made knowingly or
willfully; (4) the statement was within the jurisdiction of a federal agency; and (5) the
statement was material. United
States v. Irwin, 654 F.2d 671, 675-76 (10th Cir.1981) (citations omitted). Thus, a
false representation charge requires that the defendant made a misrepresentation or used a
document that contained a false statement or entry, in other words, that the defendant
made some sort of active misrepresentation. United
States v. London, 550 F.2d 206, 212 (5th Cir.1977); United
States v. Diogo, 320 F.2d 898, 902 (2d Cir.1963).
Defendants contend that the Indictment fails because it does not allege the use of
affirmatively false documents or writings. The Indictment itself rests only on the alleged
omissions discussed in Section IIA, above, and is thus fatally deficient.
 The IC simply misstates the law when it says that no falsehood is required under
the false representations prong of Section 1001. Diogo,
320 F.2d at 902. The IC contends that a Section 1001 prosecution can rest on omissions
in statements if those omissions make the statements "misleading in light of the
other contents in the document and a duty to disclose." Government's Combined
Opposition at 32. A false representations prosecution cannot rest
upon the omission of an explanation, which omission only carries with it 'implications
of a state of facts which were not ... true.' To so hold would distort the language of the
statute and assimilate the separate offence of concealment into the different one of false
representations solely because of a similarity of prohibited objectives.
320 F.2d at 905 (quoting Lutwak v. United States, 344 U.S. 604, 612, 73 S.Ct. 481,
487, 97 L.Ed. 593 (1953)). Thus, the IC's argument must fail.
The IC also relies on United
States v. Mattox, 689 F.2d 531, 533 (5th Cir.1982) (per curiam), and Irwin,
654 F.2d at 676, for the proposition that silence may be falsity. These cases are
unconvincing because they are predicated on a duty to speak. See Mattox,
689 F.2d at 532-33 ("Silence may be falsity when it misleads, particularly if
there is a duty to speak."); Irwin,
654 F.2d at 676 ("If there are facts that should be reported, leaving a blank
belies the certification ... that the information is 'true and correct.' ") (emphasis
added). [FN15] Thus, neither Mattox nor Irwin is sufficiently on point to provide support
for the IC's contentions.
and Irwin also present a different situation because, in both cases, the defendants left
blank answers to clear, closed- ended questions. The SEC forms at issue in this case, by
comparison, ask open-ended questions and require subjective narrative explanations.
The Indictment does not assert that there are any affirmatively false statements in
the SEC filings. Thus, the Indictment must fail on that basis. Accordingly, the portions
of the Indictment relating to alleged false misrepresentations under 18
U.S.C. s 1001 and 18 U.S.C.
s 2 are dismissed.
Liability Under 15 U.S.C. ss 77q(a) and 77x
 Defendants argue that Count Sixteen of the Indictment, which alleges securities
fraud in violation of 15
U.S.C. ss 77q(a) and 77x, should be dismissed because there was no duty to disclose
the allegedly material facts to the investing public. Although the IC does not
specifically address the duty argument as it relates to these statutory provisions, the
Court assumes that their duty arguments relating to 18
U.S.C. s 1001 apply here as well.
There are no cases in this Circuit that squarely address the issue of silence in a
prosecution for violation of Section 17(a) of the Securities
and Exchange Act of 1934, 15 U.S.C. s 77q(a). [FN16] However, the language of that
provision closely tracks the language of Rule 10b-5, [FN17] 17
C.F.R. s 240.10b-5, promulgated pursuant to Section 10(b) of the Securities
and Exchange Act of 1934, 15 U.S.C. s 78j(b). Although Rule 10b-5 is somewhat broader
than Section 17(a) because it refers to "any person" rather than
"purchaser", in the context of this case both proscriptions operate in a
substantially similar way. See S.E.C.
v. Maio, 51 F.3d 623, 631 (7th Cir.1995) (citing S.E.C. v. International Loan Network,
Inc., 770 F.Supp. 678, 694 (D.D.C.1991), aff'd, 968 F.2d 1304 (D.C.Cir.1992)); Teamsters
Local 282 Pension Trust Fund v. Angelos, 762 F.2d 522, 531 (7th Cir.1985); S.E.C.
v. Lauer, 864 F.Supp. 784, 793 (N.D.Ill.1994), aff'd, 52 F.3d 667 (7th Cir.1995); Kirshner
v. Goldberg, 506 F.Supp. 454, 458 n. 4 (S.D.N.Y.1981), aff'd mem., 742 F.2d 1430 (2d
v. Material Sys. Corp., 354 F.Supp. 1048, 1054 (S.D.Fla.1973). Thus, the
interpretation of Section 17(a) is guided by principles articulated in Rule 10b-5 cases.
17(a), 15 U.S.C. s 77q(a), provides in relevant part:
(a) It shall be
unlawful for any person in the offer or sale of any securities by the use of any means or
instruments of transportation or communication in interstate commerce or by the use of the
mails, directly or indirectly-- ... (2) to obtain money or property by means of any untrue
statement of a material fact or any omission to state a material fact necessary in order
to make the statements made, in the light of the circumstances under which they were made,
not misleading, or
(3) to engage
in any transaction, practice, or course of business which operates or would operate as a
fraud or deceit upon the purchaser.
10b-5, 17 C.F.R. s 240.10b-5, provides in relevant part:
(a) It shall be
unlawful for any person, directly or indirectly, by the use of any means or
instrumentality of interstate commerce, or of the mails or of any facility of any national
(2) to make any
untrue statement of a material fact or to omit to state a material fact necessary in order
to make the statements made, in the light of the circumstances under which they were made,
not misleading, or
(3) to engage
in any act practice, or course of business which operates or would operate as a fraud or
deceit upon any person,
with the purchase or sale of any security.
The Supreme Court has squarely held that "[w]hen an allegation of fraud is based
upon nondisclosure, there can be no fraud absent a duty to speak." Chiarella
v. United States, 445 U.S. 222, 235, 100 S.Ct. 1108, 1118, 63 L.Ed.2d 348 (1980).
Thus, whether Defendants can be held criminally liable for failing to disclose certain
information in their submissions to the SEC turns on whether they had a duty to do so.
Although the cases interpreting Chiarella have arisen in the context of insider trading
with non-public information, the logic of the cases is equally applicable to the case at
bar. According to our Court of Appeals, a duty to disclose attaches "only when a
party has legal obligations other than a mere duty to comply with the general antifraud
proscriptions in the federal securities laws." Dirks
v. S.E.C., 681 F.2d 824, 837 (D.C.Cir.1982), rev'd on other grounds, 463 U.S. 646, 103
S.Ct. 3255, 77 L.Ed.2d 911 (1983).
Reading these holdings against the backdrop of due process concerns outlined in Part
IV A of this opinion, the Court concludes that Defendants had no duty to disclose the
allegedly material facts listed in the Indictment. Thus, Count Sixteen of the Indictment
must be dismissed.
VI. Multiplicity of Counts Six Through Fifteen
 Defendants next argue that Counts Six through Fifteen are multiplicitous because
the same alleged omissions form the basis of each Count. Therefore, they move that the
Counts be dismissed pursuant to Fed.R.Crim.P. 12(b)(2).
 In general, the law protects a defendant against multiplicitous indictments to
avoid multiple sentences for what is, in essence, a single offense, and because such
indictments might be unduly suggestive to a jury. 1 Charles A. Wright, Federal Practice
and Procedure: Criminal 2d s 142 (1982). See United
States v. Duncan, 850 F.2d 1104, 1108 n. 4 (6th Cir.1988). Defendants rely on United
States v. Clarridge, 811 F.Supp. 697 (D.D.C.1992) to support their contention that
only separate and distinct false statements can provide a basis for separate counts under 18
U.S.C. s 1001.
In Clarridge, a CIA officer was indicted on five counts of perjury in violation of 18
U.S.C. s 1621 and two counts of making false statements under 18
U.S.C. s 1001. The Section 1001 charges arose from testimony elicited before various
Congressional committees and in depositions regarding Colonel Oliver North's involvement
in the shipment of military equipment to Iran. 811
F.Supp. at 699. The court held that the Blockburger [FN18] "same elements"
test for determining whether subsequent prosecutions for the same conduct are barred by
the Double Jeopardy clause applied, with some modifications, to the defendant's
multiplicity claim. Id. at 702. The test articulated by that court was:
v. United States, 284 U.S. 299, 52 S.Ct. 180, 76 L.Ed. 306 (1932).
each count must set forth a separate lie or false statement, and in cases where the
facts present a close question of whether separate lies exist, it is relevant to inquire
into the degree to which the second statement impaired the body before which it was made.
Id. at 703.
Defendants contend that Clarridge dictates a finding that Counts Six through Fifteen
are multiplicitous because the IC alleges that the same lies make up the bases for each
Count. However, Defendants cite no cases where this testhas been adopted in the context of
a false or fraudulent writing. Moreover, the majority of courts applying the Blockburger
test in the false writings context have held that each and every false document submitted
to the government can be charged as a separate violation of Section 1001. See United
States v. Guzman, 781 F.2d 428, 432-33 (5th Cir.1986) (per curiam ), cert. denied, 475
U.S. 1143, 106 S.Ct. 1798, 90 L.Ed.2d 343 (1986); United
States v. Bennett, 702 F.2d 833 (9th Cir.1983).
The language of Section 1001 itself leads the Court to the conclusion that Congress
intended to make each use of a false writing or statement a separate offense. The statute
imposes liability for "any false writing or document." 18
U.S.C. s 1001. The use of the singular form of the words "writing" and
"document" implies that each document or writing filed is actionable. Accord, United
States v. Bettenhausen, 499 F.2d 1223, 1234 (9th Cir.1974) (allowing multiple charges
for each document in a group of documents filed at the same time).
This finding is not inconsistent with Clarridge. In Clarridge, the defendant made
false statements in response to questioning by government officials, raising concerns that
the government could increase the number of charges against a defendant by repeatedly
asking him the same question. 811
F.Supp. at 702-03. The same coercive concerns are not implicated here. The government
was not eliciting false statements from Defendants. Rather, Defendants affirmatively
submitted documents on their own initiative to obtain government approval to engage in
economic activity they believed would ultimately be profitable.
For the reasons stated above, Defendants' Motion to Dismiss Counts Six through Fifteen
because of multiplicity is denied.
Defendants contend that Counts Four, Five, Seventeen, and Eighteen should be dismissed
because venue for those crimes does not lie in the District of Columbia.
The Court must first address the IC's contention that venue may only be decided by the
jury. The IC argues that, so long as conduct is alleged in the District of Columbia, the
Indictment is sufficient and the IC bears the burden of proving venue by a preponderance
of the evidence at trial. Government's Combined Opposition at 39-40.
 Venue is an affirmative defense, S.E.C.
v. Ernst & Young, 775 F.Supp. 411, 412 (D.D.C.1991), which ordinarily is submitted
to the jury. United
States v. Lam Kwong-Wah, 924 F.2d 298, 300 (D.C.Cir.1991). Venue may be proper in more
than one district, id. (citation omitted), but must be proper for each count of the
States v. Beech-Nut Nutrition Corp., 871 F.2d 1181, 1188 (2d Cir.1989), cert. denied, 493
U.S. 933, 110 S.Ct. 324, 107 L.Ed.2d 314 (1989). In this case, because no one
disagrees about where the books, records and financial records were compiled and made
(Montana and Texas) or where they were filed (the District of Columbia), it is perfectly
appropriate for this Court to decide the issue of whether venue is proper. See United
States v. Anderson, 328 U.S. 699, 66 S.Ct. 1213, 90 L.Ed. 1529 (1946) (determination
of venue on basis of defendant's demurrer).
The Constitution and the Federal Rules of Criminal Procedure guarantee that a
defendant will be tried in the state and district where the charged offense was allegedly
Const. Art. III, s 2, cl. 3; U.S. Const. Amend. VI; Fed.R.Crim.P. 18; Jones
v. Gasch, 404 F.2d 1231, 1234 (D.C.Cir.1967), cert. denied, 390 U.S. 1029, 88 S.Ct. 1414,
20 L.Ed.2d 286 (1968). Venue is determined by the locus of the offense and the locus
is to be "determined from the nature of the crime alleged and the location of the act
or acts constituting it." Anderson,
328 U.S. at 703, 66 S.Ct. at 1216 (citations omitted). It is important to remember
[q]uestions of venue in criminal cases ... are not merely matters of formal legal
procedure. They raise deep issues of public policy in the light of which legislation must
be construed. If an enactment of Congress equally permits the underlying spirit of the
constitutional concern for trial in the vicinage to be respected rather than to be
disrespected, construction should go in the direction of constitutional policy even though
not commanded by it.
States v. Johnson, 323 U.S. 273, 276, 65 S.Ct. 249, 251, 89 L.Ed. 236 (1944).
 To determine where a crime was committed, a court must "examine 'the key
verbs in the statute defining the criminal offense' to find the scope of the relevant
States v. Georgacarakos, 988 F.2d 1289, 1293 (1st Cir.1993) (quoting United States v.
Tedesco, 635 F.2d 902, 905 (1st Cir.1980), cert. denied, 452 U.S. 962, 101 S.Ct. 3112, 69
L.Ed.2d 974 (1981)). See also United
States v. Mendel, 746 F.2d 155, 164 (2d Cir.1984) (citations omitted). To decide if
venue is proper for each of the challenged Counts, the court must examine the statute
under which each Count is brought.
 Count Four of the Indictment charges Defendants with violating 15
U.S.C. ss 78m(b)(2)(A) by keeping false books and records. Section 78m(b)(2)(A)
provides that issuers of public securities must "make and keep books, records, and
accounts, which, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the issuer." The key language of the statute is that
which defines the violation as the making and keeping of books and records. Neither Crop
Growers nor its subsidiary companies (whose books and records are implicated in the
Indictment) is located in or has an office in the District of Columbia. There is no
allegation that any of the false entries were made in the District of Columbia. Indeed,
the government concedes that the books and records were created and maintained in Montana.
It is unclear, then, how venue could lie in the District of Columbia when it had no
connection to the actual making or keeping of the entries at the offices of Crop Growers
and its subsidiaries.
 Count Five charges Defendants with violating 15
U.S.C. s 78m(b)(5) by falsifying accounting records. Section 78m(b)(5) provides that
"[n]o person shall ... knowingly falsify any book, record, or account described in [s
78m(b)(2) ]." The key language of the statute defines the violation as the
falsification of books and records. There is again no allegation that the falsification
occurred in the District of Columbia. The government has presented no evidence
demonstrating that a company with no office in Washington could have falsified records in
In sum, examining "the key verbs" of 15
U.S.C. ss 78m(b)(2)(A) and 78m(b)(5) compels the conclusion that violations of these
statutory provisions are committed at the time the records are made or kept, not when
transmitted to the SEC.
 Counts Seventeen and Eighteen charge Hemmingson and Black with violations of 17
C.F.R. s 240.13b2-2 for making false statements and failing to disclose material facts
to auditors. That regulation prohibits a director or officer of an issuer, in conjunction
with the preparation of reports and documents required under the securities laws, from
"[m]aki[ing] or caus[ing] to be made a materially false or misleading statement, or
[o]mitting to state ... any material fact necessary in order to make statements made"
not misleading in context. 17
C.F.R. s 240.13b2-2. The language on which this violation is predicated is the making
of the statement or the omitting to state a material fact necessary to avoid misleading
the public. Under the plain language of the statute, the locus of the crime is the
district where the statement was made or omitted. There is no allegation in the Indictment
that Hemmingson or Black ever spoke with auditors in the District of Columbia, either in
person or by telephone, or in any other way communicated with auditors in Washington.
The IC attempts to predicate venue for Counts Four and Five on the fact that the
books, records, and accounting records at issue were financial statements filed with the
SEC in the District of Columbia. The IC justifies venue for Counts Seventeen and Eighteen
by stating that Defendants made the statements "with the knowledge that [they] would
be incorporated in written reports submitted to the SEC in the District of Columbia."
Essentially, the IC attempts to turn these four Counts into false filing counts because
venue for filing a false statement may lie either where the statement was prepared or
where it was filed. See Mendel,
supra, 746 F.2d at 165 (citation omitted) (rejecting defendant's argument that venue
for false statements was proper only where the statements were filed, rather than
That argument is unavailing. The cases holding that venue for false filing can lie in
the district where the statement was prepared or where it was filed are limited to
prosecutions under 18
U.S.C. Section 1001. See Id.; United
States v. Bilzerian, 926 F.2d 1285, 1300-01 (2d Cir.1991), cert. denied, 502 U.S. 813, 112
S.Ct. 63, 116 L.Ed.2d 39 (1991); United
States v. Stephenson, 895 F.2d 867, 875 (2d Cir.1990). The Defendants are not being
charged, in these four Counts, with violating 18
U.S.C. Section 1001. Significantly, the particular provisions under which Defendants
are charged do not require filing of the records for the crime to be completed. The IC
cites no case law standing for the proposition that a court can graft a filing component
onto a statute that does not require filing for the crime to be completed.
The charging statutes in Counts Four, Five, Seventeen and Eighteen present the mirror
image of those charged in Travis
v. United States, 364 U.S. 631, 81 S.Ct. 358, 5 L.Ed.2d 340 (1961). In Travis, the
defendant was charged with making and filing false non-Communist affidavits in violation
of a now-repealed section of the National Labor Relations Act. The provision in question
read that "[n]o investigation shall be made ... unless there is on file with the
Board an affidavit ... [by an officer saying] that he is not a member of the Communist
Party." Id. at 632-33, 81
S.Ct. at 360. The affidavits at issue were prepared in Colorado, but filed in the
District of Columbia. Id. at 635, 81
S.Ct. at 361. The Supreme Court parsed the statute, concluding that the language of
the statute--"unless there is on file with the Board"--showed that there was no
offense until the filing was completed. Thus, venue could lie only in the District of
Columbia, where the false affidavits were filed, and not in Colorado, where the false
affidavits were prepared. Id.
In this case, the statutes are drafted in precisely the opposite way. The statutes
prohibit "mak[ing]," "keep[ing]," and "falsify[ing]" of
records. That makes the "locus delicti" of the crime charged the place where the
actual entries were made. Id. See also Anderson,
328 U.S. at 703, 66 S.Ct. at 1216; United
States v. Walden, 464 F.2d 1015, 1018 (4th Cir.1972), cert. denied sub nom., Ard
v. United States, 409 U.S. 867, 93 S.Ct. 165, 34 L.Ed.2d 116 (1972).
The IC makes an additional attempt to base venue for Counts Four and Five on the fact
that Crop Growers books and records, by way of their SEC filings, are "kept" at
the SEC in the District of Columbia. This argument must be rejected. First, such a basis
would allow third parties to significantly increase the criminal exposure of defendants
merely by maintaining records in another District. [FN19] This simply could not have been
Congress' intent when it passed the securities laws. Second, if such a tortured reading of
the statute was accepted, it would actually be the SEC who "kept" Crop Growers'
records in Washington. Clearly, such an absurd result could not reflect Congressional
intent. For all of these reasons, Defendants' Motion to Dismiss Counts Four, Five,
Seventeen and Eighteen is granted because venue for the crimes alleged does not lie in
example, a common practice for businesses operating in downtown Washington is to open a
storage facility or satellite office in suburban Maryland or Virginia where real estate is
FEC's Status Under 18 U.S.C. s 1001
 Defendants contend that Counts Two and Three, involving reports filed with the
FEC, should be dismissed pursuant to Fed.R.Crim.P. 12(b)(2) because the FEC was not an
agency of the executive branch during the relevant period, as required by 18
U.S.C. s 1001.
Section 1001 applies only to executive branch agencies or departments. Hubbard
v. United States, 514 U.S. 695, ----, ----, 115 S.Ct. 1754, 1758, 1765, 131 L.Ed.2d 779
States v. Dean, 55 F.3d 640, 658-59 (D.C.Cir.1995), cert. denied, 516 U.S. 1184, 116 S.Ct.
1288, 134 L.Ed.2d 232 (1996). One court in this District has already held, in a
well-reasoned and persuasive opinion, that the FEC is an agency under Section
1001. United States v. Rostenkowski, 1996 WL 342110 at *5 (D.D.C. Mar. 12, 1996)
(unpublished). Other courts have merely upheld Section 1001 convictions for false
statements to the FEC, although without squarely addressing the issue. United
States v. Oakar, 924 F.Supp. 232, 239 (D.D.C.1996); United
States v. Hopkins, 916 F.2d 207, 214-15 (5th Cir.1990).
In finding that the FEC was an agency under Section 1001, the Rostenkowski court
v. NRA Political Victory Fund, 6 F.3d 821 (D.C.Cir.1993), cert. dismissed, 513 U.S. 88,
115 S.Ct. 537, 130 L.Ed.2d 439 (1994), where our Court of Appeals held that
Congressional involvement with the FEC violated the constitutional separation of powers
doctrine because the FEC's powers were executive in nature. Rostenkowski,
1996 WL 342110 at *5. It further relied on the definition of "agency" found
U.S.C. s 6, Buckley
v. Valeo, 424 U.S. 1, 96 S.Ct. 612, 46 L.Ed.2d 659 (1975), and NRA, supra, to find
that the FEC was a sufficiently independent commission to make it an "agency"
under Section 1001. Defendants have provided no compelling reasons why this logic should
be rejected in this case. [FN20] Thus, Defendants' Motion to Dismiss Counts Two and Three
because Section 1001 does not prohibit false statements to the FEC is denied.
Defendants contend that the alleged FECA violations occurred in 1993, prior to the D.C.
Circuit's decision in NRA, and, thus, during the relevant time frame, the FEC was not
sufficiently independent enough to be a constitutionally valid agency. However, the basis
for the NRA decision was that Congressional involvement was improper because the FEC was
an executive agency exercising executive power. NRA,
6 F.3d at 826. Further, after the NRA decision, the FEC reconstituted itself and
re-affirmed all its previous actions. See F.E.C.
v. Legi-Tech, Inc., 75 F.3d 704, 706 (D.C.Cir.1996).
IX. Literal Truth of Statements Filed with the FEC
Defendants contend that Counts Two and Three, involving reports filed with the FEC,
should be dismissed pursuant to Fed.R.Crim.P. 12(b)(2) because the statements filed with
the FEC were literally true. According to Defendants, because the reports correctly
identified the persons who wrote the contribution checks, the FEC statements were correct
on their face.
 Falsity is an essential element of a case brought under Section 1001. United
States v. Gahagan, 881 F.2d 1380, 1382 (6th Cir.1989) (cited with approval in United
States v. Milton, 8 F.3d 39, 45 n. 7 (D.C.Cir.1993), cert. denied, 513 U.S. 919, 115 S.Ct.
299, 130 L.Ed.2d 212 (1994)). Defendants cite several cases where criminal convictions
have been reversed because, as a matter of law, the allegedly false statements could not
have been false. See United
States v. Hixon, 987 F.2d 1261 (6th Cir.1993); Gahagan,
supra, 881 F.2d 1380. However, those cases provide no support for the contention that
the statements at issue in this case were literally true when made. That is a question for
the jury to resolve. See United
States v. Hopkins, 916 F.2d 207 (6th Cir.1990). Thus, Defendants' Motion to Dismiss
Counts Two and Three because the statements made to the FEC were true is denied.
Application of 15 U.S.C. s 78m to Crop Growers
Defendants contend that 15
U.S.C. s 78m applies only to public corporations and therefore cannot provide a basis
for liability for acts or omissions occurring prior to Crop Growers' registration as a
public company with the SEC. They further contend that financial statements are books and
records under the statute. Pursuant to Fed.R.Crim.P. 7(d), they move to strike any
references to entries allegedly made before June 23, 1994, when Crop Growers became a
public company, and all references to financial statements in Counts One, Four, and Five.
Preliminarily, the Court notes that, although styled as a Motion to Strike, Defendants'
Motion with respect to Counts Four and Five is actually a motion to dismiss.
Count Four of the Indictment charges that Defendants violated Section 13(b)(2)(A)
of the Securities and Exchange Act of 1934, 15 U.S.C. s 78m(b)(2)(A), [FN21] by
failing to make and keep accurate books, records and accounts. Count Five of the
Indictment charges that Hemmingson and Black falsified Crop Growers books and records in
violation of 15
U.S.C. s 78m(b)(5) [FN22] and 17
C.F.R. s 240.13b2-1. [FN23] The allegations and charges in both Counts arise from
entries made in Crop Growers' books from approximately June 23, 1994 through December 31,
15 U.S.C. s 78m(b)(2)(A) provides:
which has a class of securities registered pursuant to [the securities laws] and every
issuer which is required to file reports pursuant to [those laws] shall make and keep
books, records, and accounts, which in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the issuer.
15 U.S.C. s 78m(b)(5) provides:
No person shall
knowingly circumvent or knowingly fail to implement a system of internal controls or
knowingly falsify any book, record, or account described in [15
U.S.C. s 78m(b)(2) ].
17 C.F.R. s 240.13b2-1 provides that "[n]o person shall ... falsify or cause to
be falsified, any book, record or account subject to [15
U.S.C. S 78m(b)(2)(A)."
A. Entries Prior to Registration as a Public Company
 Defendants argue that no duty arose under Section 78m(b)(2)(A), Section
78m(b)(5), or 17
C.F.R. S 240.13b-2 until June 23, 1994, the date on which Crop Growers was actually
registered as a public company.
Defendants rely largely on the plain text of the statute and the legislative history
of the statutory amendments. The 94th Congress modified the Securities and Exchange Act of
1934 to include the accurate books and records provisions currently embodied in 15
U.S.C. s 78m(b). See Act
of June 4, 1975, Pub.L. 94-29, 89 Stat. 199. In passing the 1975 amendments, Congress
sought to address the problems associated with American companies doing business overseas.
See Corrupt Overseas Payments by U.S. Business Enterprises, S.Rep. No. 94-1031 (1976). The
Congressional reports suggest that only public corporations would have a duty to conform
to the standards set forth in the statute. See S.Rep. No. 94-1031 at 6 (s 78m(b)(2)(A)
would create stricter requirements for publicly held companies).
The IC argues that the duty to keep accurate books and records must be deemed to arise
two or three years before an actual registration because the audited financial statements
which a company must file with the SEC as part of the registration process are based on
the previous two and three years' financial data. See 17
C.F.R. ss 210.3-01 (consolidated balance sheets for the two most recent fiscal years)
and 210.3-02 (consolidated statements of income and changes in financial position for the
three most recent fiscal years). Therefore, the IC argues, a finding that a violation of
Section 78m(b)(2)(A) requires a corporation to be public at the time of its acts would
vitiate the protections of the securities laws by allowing companies seeking to become
public to willfully keep inaccurate records and then base their registration statements on
those inaccurate records.
By its terms, Section 78m(b)(2)(A) applies only to companies registered pursuant to
the securities law, or public companies. However, the IC points to definitive regulations
issued by the SEC governing the conduct at issue. The SEC's interpretation is entitled to
deference under Chevron so long as it is reasonable. [FN24] The Court concludes that the
SEC's interpretation is eminently reasonable, since Congress could not have intended that
companies seeking public status from the SEC base their registration statements on
inaccurate financial data.
Supreme Court's landmark decision in Chevron,
USA, Inc. v. Natural Resources Defense Council, 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d
694 (1984) governs questions of statutory construction. Under Chevron, where the plain
language of the statute does not indicate that Congress has spoken to the precise question
at issue, the agency's interpretation should be upheld so long as it is a
"permissible construction of the statute." Id. at 842-43, 104
S.Ct. at 2782. A court "need not conclude that the agency construction was the
only one it permissibly could have adopted to uphold the construction, or even the reading
the court would have reached if the question originally had arisen in a judicial
proceeding." Id. at 843 n. 11, 104
S.Ct. at 2782 n. 11.
For the reasons discussed above, Defendants' Motion to Strike all references in Counts
Four and Five alleging falsification of Crop Growers' books and records before June 23,
1994, when Crop Growers became a public company, is denied. [FN25]
Defendants' alternative argument that, even if the securities laws imposed a duty on Crop
Growers prior to it's becoming a public company, Crop Growers adopted other company's
books rather than making and keeping its own is similarly untenable. Congress could not
have intended that holding companies file information based on the financial records of
their subsidiaries without imposing upon them some duty to insure the accuracy of such
Status of Financial Statements Under 15 U.S.C. s 13(b)(2)(A) and 13(b)(5)
 Defendants contend that Section 13(b)(2)(A) clearly differentiates "books
and records" from "financial statements" and, as a matter of law, financial
statements cannot be books and records.
 In deciding whether to grant Defendants' Motion to Strike, several key principles
need to be kept in mind. First, motions to strike are rarely granted, United
States v. Guerrerio, 670 F.Supp. 1215, 1225 (S.D.N.Y.1987). Second, for such a motion
to be granted, Defendants must show that the challenged allegations are both irrelevant
and prejudicial. Id.; United
States v. Poindexter, 725 F.Supp. 13, 35 (D.D.C.1989).
According to Defendants, the statute covers only books and records and not the
allegedly false financial statements. The statute requires that "books, records, and
accounts" be accurately kept so that financial statements can be prepared. 15 U.S.C.
s 78m(b)(2)(B)(ii). To support their argument that the difference between "books and
records" and "financial statements" is clear and well-defined, Defendants
cite language in S.E.C.
v. World-Wide Coin Investments, Ltd., 567 F.Supp. 724, 748 (N.D.Ga.1983)
("transactions should be properly reflected on books and records in such a manner as
to permit the preparation of financial statements in conformity with [generally accepted
accounting principles] and other criteria applicable to such statements"), and in the
legislative history of the provision, Securities and Exchange Commission, 94th Cong., 2d
Sess., Report of the Securities and Exchange Commission on Questionable and Illegal
Corporate Payments and Practices 58-59 (Comm. Print 1976) (purpose of s 78m(b)(2)(A) is,
inter alia, "to permit the preparation of financial statements in conformity with
generally accepted accounting principles").
In response, the IC points to language undercutting this clear separation contained in
the American Institute of Certified Public Accountant's Statement on Accounting Standards
No. 62, Professional Std. at 5 (April 1994) (a financial statement is "[a]
presentation of financial data, including accompanying notes, derived from accounting
records and intended to communicate an entity's economic resources or obligations at a
point in time").
 No case law squarely addresses this issue. However, a common sense reading of the
statute suggests that financial statements and records are not sufficiently distinct to
warrant differential treatment. When Congress has provided no definition for a particular
term, the ordinary meaning associated with that term applies. International
Bhd. of Elec. Workers, Local Union No. 474, AFL-CIO v. N.L.R.B., 814 F.2d 697, 710
(D.C.Cir.1987). The Court concludes that financial statements are books and records
under the securities laws.
Finally, given the non-inflammatory nature of the language relating to financial
statements in Counts One, Four, and Five, Defendants can demonstrate no prejudice from its
inclusion. Defendants' Motion to Strike references to financial statements in Counts One,
Four, and Five of the Indictment is denied.
XI. Post-Election Contributions
 Defendants argue that post-election contributions to a losing candidate do not
violate FECA and that, therefore, all references to FECA violations must be stricken from
the Indictment pursuant to Fed.R.Crim.P. 7(b).
Again, it must be remembered that motions to strike are rarely granted, Guerrerio,
670 F.Supp. at 1225, and that Defendants must show that the challenged allegations are
both irrelevant and prejudicial. Id.; Poindexter,
725 F.Supp. at 35.
FECA's prohibitions apply only to those contributions made "for the purpose of
influencing any election for Federal office." 2
U.S.C. s 431(8)(A). Defendants contend that a post-election contribution to a losing
candidate, when there is no allegation that the candidate plans to run again, cannot
influence an election and, thus, is outside the ambit of FECA. While there is logical
appeal to this argument, it must be rejected.
There is already existing case law holding that such contributions do violate FECA.
States v. Sun-Diamond Growers of Ca., supra, 941 F.Supp. 1277 [Sun-Diamond II]; F.E.C.
v. Ted Haley Congressional Comm., 852 F.2d 1111 (9th Cir.1988); F.E.C.
v. Lance, 617 F.2d 365 (5th Cir.1980), cert. denied, 453 U.S. 917, 101 S.Ct. 3151, 69
L.Ed.2d 999 (1981). Defendants contend that all these cases are distinguishable
because they applied the deferential Chevron administrative review standard to the FEC's
interpretation of a FECA regulation which it has since repealed. That regulation provided
that "[c]ontributions made to retire debts resulting from elections held after
December 31, 1974 are subject to the limitations of [these regulations]." 11
C.F.R. 110.1(g). Since that regulation was repealed, effective November
9, 1995, 60 Fed.Reg. 56,506 (Nov. 9, 1995), Defendants argue that any previous
decisions granting it deference no longer provide support for subjecting post-election
contributions to the limits of FECA. This contention must be rejected for two reasons.
Defendants and the IC argue that the enactment and repeal of the various regulations
reflects some intent by Congress to change the meaning of the statute. For many reasons,
the Court is unwilling to accord any significance to Congressional action or inaction in
First, the decisions cited above rested not only on the regulation, but on FEC
Advisory Opinions holding that post-election contributions are subject to FECA. Those
opinions are also entitled to deference under Chevron and still exist as precedent
explaining the FEC's interpretation of the statute.
Second, and more importantly, an examination of the repeal of Section 110.1(g) itself
does not provide support for such a broad reading. On June 15, 1995, the FEC proposed the
repeal of three provisions of its rules that it believed had become obsolete. 60
Fed.Reg. 56, 506 (Nov. 9, 1995). Congress received no adverse comments in response to
the FEC's June 15, 1995 proposal, which then became effective November 9, 1995. Id. One
provision repealed was 11
C.F.R. 110.1(g) which, according to the announcement in the Federal Register,
"exempted certain contributions made to retire debts from elections held prior to
January 1, 1975, from the" contribution limits. 60
Fed.Reg. 56,506 (Nov. 9, 1995). Although Section 110.1(g) stated that debts resulting
from elections held after December 31, 1974 were subject to the limits of the campaign
finance laws, it is clear from the FEC's summary of action that the intent of the repeal
was to eliminate provisions of the regulations that had become obsolete. [FN27] The
language of the repeal evidences an awareness that pre-1975 elections and contributions
were no longer an issue because all federal elections had now become fully covered by
FECA. See id. Read in context of the overall legislative scheme, the repeal does not have
the significance that Defendants attach to it, namely that the Commission no longer
considers post-election contributions to be subject to FECA.
announcement read, in part:
15, 1995 (60 Fed.Reg. 31,381), the Commission published the text of revised
regulations repealing three obsolete provisions of the Commission's rules. The repealed
provisions addressed contributions to retire pre-1975 debts; certain 1976 payroll
deductions for separate segregated funds; and an alternative reporting option for
candidates in presidential elections held prior to January 1, 1981.
Two significant policy concerns buttress the Court's holding. First, exempting
post-election contributions from FECA's provisions would provide an opportunity for the
exception to swallow the rule, as the Fifth Circuit has persuasively explained. See Lance,
supra, 617 F.2d at 372 n. 4 (exempting post-election contributions "would permit
candidates to evade FECA's restrictions by running their campaigns at a deficit and then
collecting contributions after the election"). Second, the Court can see no rational
basis for basing FECA's applicability on the success or failure of a candidate. Even if
such a distinction were tenable, there is no way of knowing whether a losing candidate
will bide her time, seek federal office at a more propitious point and, therefore, be
subject to the improper influence FECA seeks to avoid. Defendants' suggestion that there
be an exception for losing candidates who again seek office provides a host of enforcement
problems. The Court is not willing to create a complicated regime of exceptions within
exceptions that may require monitoring long after completion of a particular election.
Defendants further contest FECA's Constitutionality. These challenges must be
rejected, as they have been in other cases. See Sun-Diamond
II, 941 F.Supp. at 1281. The logic of that well-reasoned opinion governs here.
 Further, Defendant's argument that FECA is so vague as to violate due process is
entirely without merit. At the time of the alleged contribution, 11
C.F.R. s 110.1(g) was already in place and the FEC had rendered a number of advisory
opinions holding that post-election contributions, even to losing candidates, violated the
statute. See, e.g., Advisory Opinion 1983-2, 1 Fed.Election Camp.Fin.Guide (CCH) ¶ 5709
(Feb. 24, 1983); Advisory Opinion 1981-16, 1 Fed.Election Camp.Fin Guide (CCH) ¶ 5604
(Apr. 15, 1981). Thus, contrary to their suggestion, Defendants were on notice that this
type of conduct was unlawful and prohibited. See Connally
v. General Constr. Co., 269 U.S. 385, 391, 46 S.Ct. 126, 127-28, 70 L.Ed. 322 (1926).
The Court holds that post-election contributions to an unsuccessful candidate fall
within the ambit of FECA. Thus, Defendants' Motion to Strike references to FECA from the
Indictment is denied.
XII. Legal Conclusions
 Defendants also contend that the Indictment contains many prejudicial legal
assertions in Counts One, Four, Five, and Six through Fifteen, which should be stricken
pursuant to Fed.R.Crim.P. 7(b). Defendants argue that the IC is invading the province of
the court by including language from the law under which Defendants are charged. The Court
finds this contention to be without merit.
Moreover, the cases cited by Defendants for the proposition that an indictment
containing legal conclusions interferes with the court's function are inapposite. Each
case cited turned on the trial judge's admission of opinion testimony as to the ultimate
issues to be determined by the litigation. See United
States v. Scop, 846 F.2d 135, 140 (2d Cir.1988) (citation omitted) (perjury
convictions based on improper opinion testimony); Marx
& Co. v. Diners' Club, Inc., 550 F.2d 505, 510-12 (2d Cir.1977) (expert witness cannot
testify to ultimate issue of illegality of transaction), cert. denied, 434 U.S. 861, 98
S.Ct. 188, 54 L.Ed.2d 134 (1977); United
States v. Zipkin, 729 F.2d 384, 387 (6th Cir.1984) (witness improperly allowed to
testify as to legal conclusion); United
States v. Phillips, 478 F.2d 743 (5th Cir.1973) (conclusory testimony improperly
Defendants' concerns that the jury will have a copy of the Indictment and may use it
to decide Defendants' guilt or innocence are also unconvincing. This Court will instruct
the jury at the proper time as to the applicable substantive law. In both opening and
closing instructions, this Court instructs the jury that it may draw no inferences of
guilt from the filing of an indictment and that an indictment is merely a statement of
charges. The instructions will thoroughly explain the role of the jury and what law
governs the various charges brought by the IC. The Court will instruct the jury that the
only law to be applied is that which is set forth in its final instructions. Finally, a
copy of those instructions will accompany the jury into the jury room for reference during
For all the forgoing reasons, Defendants' Motion to Strike legal conclusions from the
Indictment is denied.
Defendants' Motion to Dismiss the Second Superseding Indictment as Beyond the
Independent Counsel's Jurisdiction  is denied. Defendants' Motion to Dismiss the
Second Superseding Indictment Based on Inconsistent Theories of Prosecution  is
denied. Defendants' Motion to Dismiss Based on Defects in the Second Superseding
Indictment  is granted in part and denied in part. Specifically, Counts Six through
Fifteen of the Second Superseding Indictment are dismissed in their entirety because
Defendants had no duty to disclose uncharged criminal conduct under the concealment prong
of Section 1001 and because the Indictment does not adequately allege the use of an
affirmatively false writing under the false statement prong of Section 1001. Count Sixteen
of the Indictment is dismissed because Defendants had no duty to disclose the alleged
omissions to the investing public. Counts Four, Five, Seventeen and Eighteen of the
Indictment are dismissed because venue does not lie in the District of Columbia for the
crimes charged. All other arguments raised by Defendants in their Motion to Dismiss Based
on Defects in the Second Superseding Indictment are rejected. Defendants Motion to Strike
Surplusage from the Second Superseding Indictment  is denied.