On Monday, December 9, 2013, the Second Circuit issued an opinion reversing the conspiracy convictions of three General Electric employees accused of bid-rigging in relation to the sale of municipal bonds. This decision favors defendants and sets an important precedent for the limitation of what constitutes an “overt act in furtherance” of a conspiracy.
The three defendants (Dominick Carollo, Steven Goldberg and Peter Grimm) worked for a division of GE that acted as a Guaranteed Investment Contract (“GIC”) provider. According to the opinion, the defendants executed a “multi-year scheme to fix below-market rates on interest paid by GE to municipalities” by conspiring with third party brokers to fix the fair market value of GICs, thereby affecting the market interest rate.
Six counts of the government’s superseding indictment charged the defendants with a two-object conspiracy in violation of 18 U.S.C. § 371, the purpose of which was to defraud the issuers through the use of an interstate wire (in violation of 18 U.S.C. § 1343) and to defraud the United States. The seventh count charged Carollo and Goldberg with wire fraud in violation of 18 U.S.C. § 1343. The Southern District of New York dismissed the wire fraud count based on the government’s failure to allege any activity within the five-year statute of limitations, but held that the statute of limitations continued to run for the conspiracy counts during the period that GE paid the (depressed) interest to the municipalities because each payment constituted an overt act in furtherance of the conspiracy. The defendants appealed.
The Second Circuit held that the interest payments were not acts in furtherance of the conspiracy, citing United States v. Salmonese, 352 F.3d 608 (2d Cir. 2003), and United States v. Doherty, 867 F.2d 47 (1st Cir. 1989). The Court stated: “Doherty and Salmonese list features to describe serial payments that do not constitute overt acts: lengthy, indefinite, ordinary, typically noncriminal and unilateral. …[G]enerally, overt acts have ended when the conspiracy has completed its influence on an otherwise legitimate course of common dealing that remains ongoing for a prolonged time, without measures of concealment, adjustment or any other corrupt intervention by any conspirator.” In this context, the Court found that the GIC payments met the very definition of a serial payment that is not an overt act, holding that “the advantageous interest payment is the result of a completed conspiracy, and is not in furtherance of one that is ongoing.”
Judge Kearse dissented from the opinion, arguing that unindicted co-conspirators were reaping the economic benefit of the conspiracy so each payment made and received extended the statute of limitations. The Majority Opinion, however, pointed out that under the government’s (and Judge Kearse’s) theory, a “conspiracy to corrupt the rent payable on a 99-year ground lease would . . . prolong the overt acts until long after any conspirator or co-conspirator was left to profit, or to plot.” In fact, here, the “stream of GIC interest payments does not raise the underlying concern of concerted action, and therefore is not a continuous action that prolongs the life of the conspiracy.”
This holding puts some teeth into the statute of limitations for a conspiracy count and places a meaningful limitation on the power of the government to prosecute conduct that essentially was completed before the limitations period.