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United States v. Elbaz

United States District Court, D. Maryland

September 10, 2018

UNITED STATES OF AMERICA
v.
LEE ELBAZ, Defendant.

          MEMORANDUM OPINION

          THEODORE D. CHUANG UNITED STATES DISTRICT JUDGE.

         Defendant Lee Elbaz is charged with one count of conspiracy to commit wire fraud, in violation of 18 U.S.C. § 1349, and three counts of wire fraud, in violation of 18 U.S.C. § 1343 and 2. Presently pending before the Court are four Motions to Dismiss filed by Elbaz in which she argues that the Indictment fails to state an offense, the charged offenses are improperly based on extraterritorial conduct, the conspiracy charge exceeds Congress's power under the Commerce Clause to criminalize a foreign conspiracy, and the Indictment fails to allege proper venue in the District of Maryland. Elbaz has also filed a Motion to Strike Paragraph 10 of the Indictment and a Motion, in the Alternative, for a Bill of Particulars. After briefing, the Court held a hearing on all six Motions on July 30, 2018. For the reasons set forth below, the Motions to Dismiss are denied, the Motion to Strike is denied, and the Motion for a Bill of Particulars is granted in part and denied in part.

         BACKGROUND

         The Indictment alleges the following facts, which the Court accepts as true for purposes of the Motions.

         Elbaz, a resident of Israel, was the Chief Executive Officer of Yukom Communications, an Israel-based business that provided sales and marketing services for two internet-based businesses with the brand names BinaryBook and BigOption ("the Companies"). BinaryBook and BigOption sell financial instruments known as "binary options," consisting of bets on the outcome of a particular event, that result in the payment of either a pre-determined amount of money or nothing. Indictment ¶ 9, ECF No. 37. Elbaz identified herself as the "Trading Floor Manager" for BinaryBook and BigOption. Id. ¶ 7.

         Count One of the Indictment charges Elbaz with conspiracy to commit wire fraud. The fraud was allegedly perpetrated in several ways. Sales representatives of the Companies ("Representatives") would misrepresent their personal financial incentives to investors by stating that they were paid a commission based on investor profit, when in fact they were paid a commission based on investor deposits. The Indictment alleges that Elbaz trained and encouraged Representatives to make such claims.

         Representatives also misrepresented the average investment return on binary options. Representatives were given a script that included false statements such as that investor returns averaged 15-25 percent per month and that there was an average success rate of 70 percent. Elbaz allegedly trained and encouraged employees of the Companies to make such misrepresentations.

         Furthermore, Representatives, following scripts provided by Elbaz, made false statements about their educational backgrounds, claiming to have a master's degree in economics; their location, stating that they were in London; and their names, using "stage names" or other aliases. Elbaz allegedly trained and encouraged Representatives to make such statements and personally approved the stage names.

         The Indictment also alleges that Representatives misstated to investors how easy it was for investors to withdraw their funds. When an investor sought to withdraw funds, the Representatives instead offered the investor an "Academy" class that was purportedly designed to improve trading performance, but did not, in fact, do so. Id. ¶ 34. Elbaz allegedly trained and encouraged employees to make misrepresentations that funds could be withdrawn easily.

         Finally, Representatives did not disclose material information about various proposed investment terms, including "bonuses," "risk free trades," and "insured trades." Id. ¶¶ 36-39. Although these terms implied that investors would receive additional money or decreased risk, these tools were actually mechanisms used to make it more difficult to withdraw deposits. Elbaz allegedly trained and encouraged employees to make misrepresentations about the ability to withdraw funds invested in these instruments.

         Counts Two, Three, and Four charge Elbaz with three counts of wire fraud. In these counts, the Indictment charges that on three separate occasions, Elbaz caused, or aided and abetted, the sending of wire transmissions from Representatives to victims in Maryland for the purpose of executing a scheme to defraud. The Indictment identifies three Maryland victims through pseudonyms as Victims A, B, and C, and it provides specific dates on which a Representative of BinaryBook or BigOption communicated with the victim through a wire transmission.

         DISCUSSION

         The Court will first address Elbaz's Motions to Dismiss, then consider the Motion to Strike, and finally examine the Motion for a Bill of Particulars.

         I. Motions to Dismiss

         A. Legal Standard

         Elbaz has been charged in Counts Two, Three, and Four with substantive counts of wire fraud in violation of 18 U.S.C. § 1343, which states:

Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, transmits or causes to be transmitted by means of wire, radio, or television communication in interstate or foreign commerce, any writings, signs, signals, pictures, or sounds for the purpose of executing such scheme or artifice, shall be fined under this title or imprisoned not more than 20 years, or both.

18 U.S.C. § 1343 (2012). Elbaz is also charged with aiding and abetting these offenses under 18 U.S.C. § 2, which provides that anyone who "commits an offense against the United States or aids, abets, counsels, commands, induces or procures its commission, is punishable as a principal." 18 U.S.C. §2.

         Elbaz is charged in Count One with conspiracy to commit wire fraud, in violation of 18 U.S.C. § 1349, which states: "Any person who attempts or conspires to commit any offense under this chapter shall be subject to the same penalties as those prescribed for the offense, the commission of which was the object of the attempt or conspiracy." 18 U.S.C. § 1349.

         Elbaz has filed her Motions to Dismiss under Federal Rule of Criminal Procedure 12, which states that "[a] party may raise by pretrial motion any defense, objection, or request that the court can determine without a trial on the merits" and includes challenges of failure to state an offense and improper venue. Fed. R. Crim. P. 12(b)(1), (3)(A)(i), (3)(B)(v). Under United States v. Engle, 676 F.3d 405 (4th Cir. 2012), a court may dismiss an indictment "where there is an infirmity of law in the prosecution." Id. at 415. It may not do so based on a "determination of facts that should have been developed at trial." Id. Thus, when evaluating a challenge to an indictment under Rule 12, the Court must base its determination solely on the facts contained in the indictment and must accept all facts in the indictment as true. Id.

         B. Failure to State an Offense

         Elbaz seeks dismissal of the Indictment for failing to state an offense. According to Elbaz, the Indictment does not set forth the essential facts that would fairly inform her of the conduct forming the offense charged in Count One. In her view, the Indictment fails to allege any facts that link her to the perpetrators of the fraud, or that show that she was aware of the fraud at all. Elbaz further argues that Counts Two, Three, and Four are deficient because there is no factual allegation that she made or caused to be made a materially false statement, or that the individuals who communicated with the Maryland victims were connected to Elbaz. Finally, she argues that there are no facts that support the charge that she aided and abetted wire fraud.

         When a defendant challenges the sufficiency of an indictment, courts apply a "heightened scrutiny to ensure that every essential element of an offense has been charged." United States v. Perry, 757 F.3d 166, 171 (4th Cir. 2014). "An indictment must contain the elements of the offense charged, fairly inform a defendant of the charge, and enable the defendant to plead double jeopardy as a defense in a future prosecution for the same offense." Id. (quoting United States v. Kingrea, 573 F.3d 186, 191 (4th Cir. 2009)). An indictment is allowed to set forth the offense in the words of the statute itself, so long as it includes all of the necessary elements of the offense, but the statutory language must also be accompanied by a "statement of the essential facts constituting the offense charged." Perry, 757 F.3d at 171 (quoting United States v. Quinn, 359 F.3d 666, 673 (4th Cir. 2004)). However, while an indictment is intended to be "concise," Fed. R. Crim. P. 7(c), there is no requirement that it "include every fact to be alleged by the government," United States v. Moyer, 674 F.3d l92, 203 (3d Cir. 2012).

         When the charged crime is conspiracy, "all that is necessary in the indictment is that the object of the conspiracy be set forth sufficiently to identify the offense which the defendant is charged with conspiring to commit." United States v. Matzkin, 14 F.3d 1014, 1019 (4th Cir. 1994). The sufficiency of the indictment is determined by "practical, as opposed to purely technical considerations," with the key question being whether it tells the defendant all that is needed to show for his defense, and whether it provides enough information that the defendant will not be placed in double jeopardy. Id.

         On Count One, the elements of conspiracy to commit wire fraud are "(1) two or more persons made an agreement to commit wire fraud; (2) the defendant knew the unlawful purpose of the agreement; and (3) the defendant joined in the agreement willfully." United States v. Kuhrt, 788 F.3d 403, 414 (5th Cir. 2015). The Indictment clearly states these elements. In paragraph 17, the Indictment alleges that Elbaz "and others known and unknown to the Grand Jury, did knowingly and willfully combine, conspire, confederate, and agree with each other and others ... to commit wire fraud." Indictment ¶ 17. The object of the conspiracy was explicitly identified as the commission of the federal crime of wire fraud, which was described as "knowingly and with the intent to defraud, having devised ... a scheme and artifice to defraud binary options investors in BinaryBook and Big Option, . . . knowingly transmit and cause to be transmitted by means of wire communication in interstate and foreign commerce, writings, signs, pictures, and sounds for the purpose of executing the scheme and artifice in violation of Title 18, United States Code, Section 1343." Id Thus, each element of conspiracy, as well as the object of the conspiracy, is fairly stated. See Perry, 757 F.3d at 171; Matzkin, 14 F.3d at 1019. Although this description largely tracks the statute, the Indictment is not limited to the statutory language. It also includes the "essential facts constituting the offense charged," including the dates of the offense (from May 2014 to June 2017) and the location (the District of Maryland and elsewhere). Indictment ¶ 17. It describes the object of the conspiracy as wire fraud relating to a scheme to defraud "binary options investors in BinaryBook and Big Option." Id.

         Beyond those basic facts, which are typically sufficient to state a conspiracy charge, the Indictment sets forth a detailed description of the manner and means of the conspiracy, including that Elbaz and her co-conspirators induced investors to deposit funds based on four different categories of misrepresentations made by BinaryBook and BigOption personnel, specifically misrepresentations that Representatives were paid based on total investor profits, when in fact they were paid based on total investor deposits, misrepresentations about the profitability of their accounts, misrepresentations about the location and education of particular Representatives, and misrepresentations about investors' ability to withdraw their funds. These additional facts are more than enough to identify the offense Elbaz is charged with conspiring to commit and to allow Elbaz to understand whether she is being subjected to double jeopardy.

         Elbaz claims that the Indictment does not provide sufficient facts to connect her to the perpetrators of the fraud or to show that she was aware of the actual acts of wire fraud. Elbaz further claims that the Indictment "must contain factual allegations from which a reasonabl[e] jury could conclude that the defendant made or caused to be made a materially false statement." Mot. Dismiss (Failure to State an Offense) at 9, ECF No. 58. First, these claims misunderstand the purpose of an indictment, which is to put the defendant on notice of the charge against her, not to demonstrate that the Government has sufficient facts to convict the defendants. Unlike for a civil complaint, there is no requirement that an indictment offer sufficient facts, which if true, would establish the offense. Rather, an indictment ...


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