Securities Fraud Does Not Qualify as Continuing Offense, Judge Finds

Securities Fraud Does Not Qualify as Continuing Offense, Judge Finds - 8-24-2009

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Securities Fraud Does Not Qualify as Continuing Offense, Judge Finds
Vesselin Mitev

New York Law Journal. August 24, 2009
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EXCERPT: A Hamptons mayor charged with securities fraud for "cherry-picking" stocks did not engage in a "continuing" course of conduct, a federal judge has ruled in dismissing part of the government's case against George M. Motz of Quogue, N.Y. "The fact that Motz is charged with repeatedly violating the statute over a period of time pursuant to the same scheme does not transform [the statute] into a 'continuing offense' for statute of limitations purposes," Eastern District of New York Judge Arthur D. Spatt held in United States v. Motz, 08-CR-598, ruling that a five-year statute of limitations bars the government from prosecuting Motz for trades executed before Aug. 27, 2003. Motz was indicted on Aug. 27, 2008, for allegedly executing trades and delaying their assignment to a particular trading account, a practice known as "cherry-picking." A superseding indictment was brought in November 2008, charging Motz and his now-defunct brokerage firm, Melhado, Flynn & Associates, with securities fraud. Federal prosecutors charged that Motz, a minority owner of the brokerage, would buy stocks early in the day and wait to see how the market reacted. If the securities went up in value, he would allocate the securities to favored accounts; if they went down, he would allocate them to one of his discretionary trading accounts. To conceal the scheme, Motz allegedly altered trading tickets to create the false impression that he allocated trades to the favored accounts at the time the securities were purchased. According to the decision, Motz used "the remarkable success" of the firm's proprietary account -- 202 of 204 trades he executed between November 2000 and September 2003 were profitable -- to market the brokerage to potential clients, including two hedge funds. According to the government, Motz used the scheme to benefit those two clients from June 2003 through May 2005.

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