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United States v. Weed

United States Court of Appeals, First Circuit

October 6, 2017

UNITED STATES OF AMERICA, Appellee,
v.
RICHARD WEED, Defendant, Appellant.

         APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS HON. DOUGLAS P. WOODLOCK, U.S. DISTRICT JUDGE

          Thomas C. Frongillo, with whom Gus P. Coldebella, Caroline K. Simons, and Fish & Richardson P.C. were on brief, for appellant.

          Patrick J. Massari and Erica L. Marshall on brief for amicus curiae Cause of Action Institute.

          Alexander P. Robbins, U.S. Department of Justice, Criminal Division, Appellate Section, with whom Kenneth A. Blanco, Acting Assistant Attorney General, Trevor N. McFadden, Acting Principal Deputy Assistant Attorney General, William D. Weinreb, Acting United States Attorney, and Sarah E. Walters and Eric A. Forni, Assistant United States Attorneys, were on brief, for appellee.

          Before Howard, Chief Judge, Selya, Circuit Judge, and McConnell, District Judge. [*]

          HOWARD, Chief Judge.

         Richard Weed, a securities lawyer, wrote false opinion letters so that his two co-conspirators could sell stock to the public in a "pump and dump" scheme.[1] In connection with this conduct, he was convicted of securities fraud, wire fraud, and conspiracy to commit both. Following the jury's guilty verdict, Weed moved for a judgment of acquittal. He argued that the evidence was insufficient to support his convictions, relying on a novel interpretation of a particular Securities Act provision. The district court denied Weed's motion. After careful consideration, we affirm.

         I.

         A. Trial Evidence

         Because of the jury's guilty verdict, we review the record "in the light most favorable to the prosecution." United States v. Manso-Cepeda, 810 F.3d 846, 847 (1st Cir. 2016). The trial evidence established that Weed participated in a pump and dump scheme with two former stockbrokers, Coleman Flaherty and Thomas Brazil. From 2008 to 2013, these conspirators ran several iterations of the scheme, using a public "shell" company that Flaherty had acquired from Weed in 2008.

         First, Flaherty and Brazil would identify an entrepreneur who owned a privately held target company and offer to help take the target public through a "reverse merger" with the shell company.[2] Once the entrepreneur accepted the offer, Weed would complete the legal work needed to carry out the merger. The resulting post-merger company would be publicly listed under the target's name.

         On paper, Flaherty and Brazil would hold only debt in the post-merger company, in the form of promissory notes, which could be converted into shares of stock. To make money, Flaherty and Brazil would arrange for stock promoters to inflate the company's value artificially by, for example, issuing glowing press releases about the company's prospects. Then - and this is where Weed's expertise as a securities lawyer was critical -Flaherty and Brazil would convert their promissory notes into freely tradable stock, sell their overvalued shares to an unwitting public, and stop investing in the company, which would soon collapse. As Weed put it to Flaherty, "the deals are all vapor, and they can't sustain themselves for six weeks."

         With Weed's help, Flaherty and Brazil ran through four iterations of this scheme, making about $5 million in the process. Weed was prepared to run the scheme a fifth time, but by then Flaherty had begun cooperating with the Federal Bureau of Investigation. The conspiracy unraveled, and Weed was arrested in November 2014. He was ultimately indicted for securities fraud, 15 U.S.C. §§ 78j(b), 78ff(a); wire fraud, 18 U.S.C. § 1343; and conspiracy to commit securities fraud and wire fraud, id. § 371.

         B. ...


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