USA v. Bandfield et al

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
UNITED STATES OF AMERICA,
Plaintiff,
-against-
KELVIN LEACH and ROHN
KNOWLES,
Defendants.
MEMORANDUM AND ORDER
Case No. 1:14-CR-476 (FB)
Appearances:
For the Government:
MATTHEW R. GALEOTTI
Assistant United States Attorney
Eastern District of New York
271 Cadman Plaza East
Brooklyn, New York 11201
For the Defendants:
ADAM CALEB FORD
BRYAN W. MCCRACKEN
NOAH D. GENEL
Ford O’Brien Landy LLP
275 Madison Avenue, Fl. 24
New York, New York 10016
BLOCK, Senior District Judge:
Defendants Kelvin Leach and Rohn Knowles are charged with conspiracy to
commit securities fraud and conspiracy to commit money laundering. They jointly
move, pursuant to Federal Rule of Criminal Procedure 12(b)(3)(B)(v), to dismiss
the indictment for failure to state an offense. For the following reasons, the motion
is denied.
I
A. Factual Background
The indictment alleges the following facts:
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Titan International Securities Inc. (“Titan”) was an offshore broker-dealer
and investment-management company with its principal place of business in Belize
City, Belize. Leach was Titan’s President, and Knowles its Head Securities Trader;
both worked out of Titan’s Belize City office.
In January of 2013, an undercover federal agent in the Eastern District of
New York called Leach and Defendant Andrew Godfrey, who worked for another
business, IPC Corporate Services Inc. (“IPC”). The agent stated that he was a U.S.
citizen who was interested in opening an offshore brokerage account with Titan.
He explained that he was a stock promoter who wanted to conceal his ownership of
certain stocks and money transfers to avoid scrutiny from the Securities and
Exchange Commission (“SEC”) and the Internal Revenue Service (“IRS”).
Leach told the agent that Titan did not open individual brokerage accounts
for U.S. citizens, but that it could open accounts for international business
corporations (“IBCs”). Godfrey explained that IPC could structure IBCs to
conceal ownership of the accounts. The undercover agent then paid for the
creation of the IBCs and brokerage accounts. Leach confirmed that the accounts
with Titan had been established in the name of the IBCs, thereby concealing the
agent’s control of the accounts.
The agent later met with Knowles and Godfrey in Belize. When the agent
explained that he wanted to engage in market manipulation through illusory trades
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between two of the Titan accounts, Knowles stated that he could arrange the trades.
B. Procedural History
Leach and Knowles were indicted on September 8, 2014. Because both men
are citizens of the Bahamas residing in Belize, the United States requested their
arrest and extradition. The government of Belize executed the arrest, but Leach
and Knowles successfully challenged their extradition on the grounds that the
indictment was based on evidence obtained in violation of their rights under
Belizean law. Although they have not been extradited to the United Sates, they
have been unable to leave Belize for fear of arrest in a different country.
Thus, Leach and Knowles have yet to answer the charges against them.
Instead, they seek to dismiss the indictment.
II
A. Fugitive Disentitlement
Before turning to the merits of the motion, the Court must briefly address the
government’s invocation of the fugitive disentitlement doctrine, under which “a
court may decline to entertain the claims of a defendant who is a fugitive from
justice.” United States v. Bescond, 24 F.4th 759, 764 (2d Cir. 2021). Leach and
Knowles are not “traditional fugitives” because they did not “flee[] from the
jurisdiction of the court where a crime was committed or depart[] from [their]
usual place of abode and conceal[ themselves] within the district.” Id. at 771
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(cleaned up). They are not “constructive-flight fugitives” because, as residents of
Belize, they did not just happen to be there and then “refuse[] to return to the
United States in order to avoid prosecution.” Id. at 772 (cleaned up). Even if their
status were a close call, the Court would still decline to rely on the doctrine
because, as the Second Circuit has noted, incautiously labeling a foreign defendant
a fugitive “is in tension with principles that underlie the presumption against
extraterritorial[ application of United States law].” Id.; see also id. at 773 (noting
that use of the doctrine is discretionary). Since extraterritoriality is at the heart of
defendants’ motion to dismiss, the Court will address it on the merits.
B. Failure to State an Offense
Federal Rule of Criminal Procedure 7(c) requires that an indictment include
“a plain, concise, and definite written statement of the essential facts constituting
the offense charged.” The Second Circuit has explained that “[a]n indictment is
sufficient as long as it (1) contains the elements of the offense charged and fairly
informs a defendant of the charge against which he must defend, and (2) enables
the defendant to plead an acquittal or conviction in bar of future prosecutions for
the same offense.” United States v. Dawkins, 999 F.3d 767, 779 (2d Cir. 2021). “To
satisfy these requirements, ‘an indictment need do little more than . . . track the
language of the statute charged and state the time and place (in approximate terms)
of the alleged crime.’” Id. (quoting United States v. Alfonso, 143 F.3d 772, 776 (2d
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Cir. 1998)).
There is no question but that the indictment against Leach and Knowles does
precisely that. Count One (Conspiracy to Commit Securities Fraud) tracks the
language of 15 U.S.C. § 78j(b), otherwise known as § 10(b) of the Securities
Exchange Act of 1934; since that statute does not specifically include conspiracies,
the indictment also alleges overt acts in furtherance of the conspiracy, as required
by the general conspiracy statute, 18 U.S.C. § 371. Count Three (Money
Laundering Conspiracy) tracks the language of 18 U.S.C. § 1956, which
criminalizes conspiracies without overt acts. Both counts allege that the criminal
conduct took place “[i]n or about and between January 2009 and September 2014
[and] within the Eastern District of New York and elsewhere.” Indictment ¶¶ 48,
54.
Leach and Knowles’s sole complaint is that both charges require
extraterritorial application of United State law. As noted, there is a presumption
against such application. See RJR Nabisco v. Eur. Cmty., 579 U.S. 325, 335 (2016)
(“Absent clearly expressed congressional intent to the contrary, federal laws will be
construed to have only domestic application.”). With respect to securities fraud,
the Supreme Court has held that § 10(b) does not apply extraterritorially. See
Morrison v. Nat'l Australia Bank Ltd., 561 U.S. 247, 265 (2010). As for money
laundering, the statute itself limits its application to cases involving more the
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$10,000 and conduct that either “is by a United States citizen” or “occurs in part in
the United States.” 18 U.S.C. § 1956(f).
All of which is beside the point because the United States has disavowed any
extraterritorial application of either statute. Instead, it argues that “Count One
inherently alleges a domestic violation, since that is the only kind of violation that
exists [under Morrison],” see Gov’t Mem. of Law at 12, and that “Count Three
alleges a domestic violation of § 1956(h) over which the Court plainly has
jurisdiction,” id. at 16.
In addition to foreclosing extraterritorial application of § 10(b), Morrison
defines its domestic scope: “Section 10(b) reaches the use of a manipulative or
deceptive device or contrivance only in connection with the purchase or sale of a
security listed on an American stock exchange, and the purchase or sale of any
other security in the United States.” 561 U.S. at 273. Though a civil case,
Morrison’s holding applies “regardless of whether liability is sought criminally or
civilly.” United States v. Vilar, 729 F.3d 62, 67 (2d Cir. 2013). Thus, “a defendant
may be convicted of securities fraud under Section 10(b) and Rule 10b-5 only if he
has engaged in fraud in connection with (1) a security listed on a U.S. exchange, or
(2) a security purchased or sold in the United States.” Id.
Leach and Knowles argue that the indictment against them does not satisfy
Morrison. But that argument is premature.
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In assessing a motion to dismiss an indictment, “the facts alleged by the
government must be taken as true.” United States v. Velastegui, 199 F.3d 590, 592
n.2 (2d Cir. 1999). Moreover, courts at this stage “do not evaluate the adequacy of
the facts to satisfy the elements of the charged offense.” Dawkins, 999 F.3d at 780.
“That is something we do after trial.” Id. In other words, “summary judgment does
not exist in federal criminal procedure.” United States v. Aiyer, 33 F.4th 97, 117
(2d Cir. 2022).
As a result, there is—as far as the Court is aware—not a single case in which
a securities-fraud indictment has been dismissed based on Morrison. On the
contrary, the only reported case addressing the issue concluded that it was
premature: “The Court will be in a better position to decide whether § 10(b)
reaches the transactions at issue once the Government puts on its case-in-chief. At
that time, the Defendant can reassert his motion.” United States v. Coffman, 771 F.
Supp. 2d 735, 737 (E.D. Ky. 2011). The Southern District has reached the same
conclusion, albeit with respect to a different statute, reasoning that “[t]he
Government is entitled to put on its evidence, which may include facts beyond
those alleged in the Indictment, and Defendant is entitled to challenge that
evidence as insufficient, both on a Rule 29 motion and before the jury.” United
States v. Phillips, 2023 WL 5671227, at *8 (S.D.N.Y. Sept. 2, 2023); see also
United States v. Bankman-Fried, 680 F. Supp. 3d 289 (S.D.N.Y. 2023)
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(“Extraterritoriality typically is assessed after a full presentation of the evidence at
trial.”).
The Court agrees that determining whether the facts of this case bring it
within the territorial scope of § 10(b) must await the development of those facts at
trial. At this stage, it is sufficient under Dawkins that the indictment alleges that
Leach and Knowles conspired to violate the statute “within the Eastern District of
New York and elsewhere.” Indictment ¶ 48. Whether the government can prove
that allegation remains to be seen.1
There is no Morrison analogue for money laundering. The government
argues that the statute delimits its own territorial application because it covers,
among other things, the “transport, transmi[ssion], or transfer [of] a monetary
instrument or funds from a place in the United States to or through a place outside
1The Court is aware that a domestic securities transaction is “necessary but
not necessarily sufficient to make § 10(b) applicable,” Parkcentral Glob. HUB Ltd.
v. Porsche Auto. Holdings SE, 763 F.3d 198, 216 (2d Cir. 2014), and that the
defendants’ conduct “must not be ‘so predominately foreign as to be impermissibly
extraterritorial.’” Prime Int’l Trading, Ltd. v. BP P.L.C., 937 F.3d 94, 106 (2d Cir.
2019) (quoting Parkcentral, 763 F.3d at 216). The Court is also aware that the
Dodd-Frank Wall Street Reform and Consumer Protection Act arguably allows
extraterritorial application of the securities law to conduct occurring after its
enactment on July 21, 2010. See Sec. & Exch. Comm'n v. Scoville, 913 F.3d 1204,
1218 (10th Cir. 2019) (“[W]e conclude that Congress has affirmatively and
unmistakably indicated that the antifraud provisions of the federal securities acts
apply extraterritorially when the statutory conduct-and-effects test is met.”).
Inasmuch as those issues concern the territorial application of § 10(b), they, too,
can be addressed only after the government has put on its case. Accord Coffman,
771 F. Supp. 2d at 737 (deferring consideration of similar issues).
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the United States or to a place in the United States from or through a place outside
the United States.” 18 U.S.C. § 1956(a)(2). In addition to tracking this statutory
language, the indictment alleges specific wire transfers to and from the United
States. See Indictment ¶¶ 20, 35.
As with securities fraud, whether the facts of this case make out a domestic
violation of the money-laundering statute is a question for a later date. For now, it
is sufficient that the indictment alleges that a violation occurred “within the Eastern
District of New York and elsewhere.” Indictment ¶ 54.
C. Due Process
Leach and Knowles argue that application of United States law to their
conduct would violate their rights under the Due Process Clause of the Fifth
Amendment. As they would receive the epitome of due process—a criminal
trial—if they were to appear, their argument involves substantive due process.
In that regard, application of the criminal laws of the United States to “non-
citizens acting entirely abroad” require, irrespective of congressional intent, “a
sufficient nexus between the defendant[s] and the United States, so that such
application would not be arbitrary or fundamentally unfair.” United States v. Al
Kassar, 660 F.3d 108, 118 (2d Cir. 2011). But this is yet another premature issue.
Determining whether Leach and Knowles’s conduct had a nexus sufficient to
satisfy due process requires the Court to know exactly what that conduct was and,
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therefore, to allow the government an opportunity to present its case.
Moreover, due process hinges on a deprivation of “life, liberty, or property.”
Any deprivation in this case will flow from a conviction. The Court obviously
cannot say whether such a conviction would comport with due process until after a
trial. Cf. Vilar, 729 F.3d at 67 (“[A] defendant may be convicted of securities
fraud under . . . only if he has engaged in fraud in connection with (1) a security
listed on a U.S. exchange, or (2) a security purchased or sold in the United States.”
(emphasis added)).
III
The indictment adequately alleges a territorial basis for the application of
§ 10(b) and 18 U.S.C. § 1956 to Leach and Knowles. Until the government has
presented the facts supporting those allegations at trial, it is premature to address
whether such application is statutorily and constitutionally permissible.
Accordingly, the motion to dismiss the indictment is denied without prejudice to
raising the same issues at the appropriate time.
SO ORDERED.
_/S/ Frederic Block__________
FREDERIC BLOCK
Senior United States District Judge
Brooklyn, New York
January 7, 2026
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