On Tuesday, the 2nd Circuit Court of Appeals did something
unusual and unexpected: It granted bail to Alberto Vilar and
Gary Tanaka, who were convicted in 2010 of defrauding investors
in their Panamanian investment advisory firm, Amerindo. The
grant was notable because Vilar, in particular, was once a
highly visible philanthropist who showered millions on art and
music institutions (you may recall James Stewart's dive into
Vilar's opera-obsessed psyche in a brilliant 2006 profile in The New Yorker). But for those of us who don't have a personal
connection to the defendants, what's more intriguing is the
possibility that the 2nd Circuit is signaling its agreement with
one of the key arguments Vilar and Tanaka presented on appeal:
The U.S. Supreme Court's 2010 ruling in Morrison v. National Australia Bank limits the reach of criminal securities fraud
laws just as surely as it restricts civil litigation against
companies that aren't listed on U.S. exchanges.
You already know how widely Morrison has been applied in all kinds of civil litigation, not just in the private securities
class actions that spawned the court's proscription against
presuming that Congress intended U.S. laws to apply overseas.
But until oral arguments in Vilar and Tanaka's appeal took place
in late August, no federal circuit court has been confronted
with the question of whether Morrison's limit on
extraterritoriality applies not just in civil cases but also to
The Justice Department has insisted strenuously since
Morrison came down that a 1922 Supreme Court ruling called U.S.v. Bowman stands for the principle that extraterritorial
jurisdiction can be inferred from criminal laws, so Morrison
doesn't limit their reach. That's not how Vilar (represented by
Vivian Shevitz and Jane Simkin Smith) and Tanaka (represented by
Dershowitz, Eiger & Adelson) read Bowman, however. In Vilar's
reply brief at the 2nd Circuit, Shevitz wrote that Bowman
addressed only cases in which the government was the victim of
an alleged fraud, not cases involving alleged crimes against
private victims. Shevitz argued that the 2nd Circuit
acknowledged the limited reach of U.S. criminal laws in a 2000
case called U.S. v. Gatlin, in which the appeals court
reluctantly agreed that U.S. courts did not have jurisdiction
over the alleged sexual abuse of a young woman on a U.S.
military base in Germany.
The U.S. Attorney's Office in Manhattan replied in its final brief before oral argument in the Vilar case that the 2nd
Circuit "has repeatedly held that the presumption against
extraterritoriality does not apply to criminal statutes where
jurisdiction does not depend on the location where the offenses
occurred." To read Bowman and Morrison otherwise, prosecutors
said, would "create a safe harbor for fraudsters who cleverly
structure their investment contracts, all the while preying on
U.S. citizens from inside the United States."
Morrison was only one of the issues presented to the 2nd
Circuit panel of Jon Newman, Jose Cabranes and Chester Straub,
but, according to Vilar counsel Shevitz, "it was a biggie."
After the argument, Vilar and Tanaka renewed their motions for
bail pending the 2nd Circuit's decision. U.S. District Judge
Richard Sullivan once again denied them, but when Vilar and
Tanaka then turned to the appeals court, the court granted the
Tanaka counsel Nathan Dershowitz was hesitant to infer
anything from the appeals court's grant other than the 2nd
Circuit panel's belief that the appeal presents a "significant
and substantial" issue and it's unfair to keep the defendants
behind bars while the judges deliberate. I asked whether he
believed Morrison was on the court's mind. "Maybe," he said.
"That issue and many others are significant." A spokeswoman for
the U.S. Attorney's Office declined comment.
But Shevitz said she regards the "very unusual" grant of
bail as a hint that the 2nd Circuit takes her Morrison argument
very seriously. She already suspected that to be true; when she
asked the trial judge to grant bail, she noted that the 2nd
Circuit order right after oral arguments seemed to indicate that
"the Morrison issue is indeed a substantial one likely to result
in reversal." That the appeals court would grant bail after the
district court refused to do so, she told me, "signals a strong
indication that we're going to prevail."
This is, moreover, the second time in just the last few
months that the 2nd Circuit has granted bail to a criminal
defendant raising Morrison on appeal. In July judges Cabranes,
Robert Katzmann and Reena Raggi ordered that bail be set for
Ross Mandell, who was convicted of defrauding British investors
through manipulation of share prices on an offshoot London stock
exchange. The court also expedited Mandell's appeal.
It seems clear to me that the 2nd Circuit is concerned with
the post-Morrison extraterritorial reach of criminal laws.
Whether these extraordinary bail grants signal skepticism about
the government's interpretation of Morrison and Bowman is
something we'll just have to wait to find out.
(This post has been corrected. A previous version misspelled
Vivian Shevitz's last name and Ross Mandell's first name.)
(Reporting by Alison Frankel)
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