X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
An aggressive, successful strategy developed by FBI agents and federal prosecutors in Miami to combat securities fraud faces a strenuous legal challenge before the 11th U.S. Circuit Court of Appeals in Atlanta. Hanging on the court’s decision in U.S. v. Bertman is the government’s ability to use undercover stings to police securities fraud. If the 11th Circuit rules in favor of the two defendants who filed the appeal, it could imperil nearly 50 other convictions that came out of the high-profile Operation Bermuda Short. The defendants, Bruce Bertman and Jerry Poole, were arrested and convicted in February 2003 on multiple counts of conspiracy and fraud as part of the multiagency probe led by the FBI over several years. Bermuda Short focused on fraudulent securities sales in 23 small, publicly traded companies. At the heart of the appeal are a number of fundamental questions of fairness. One issue is whether mail fraud and wire fraud can occur when the government and its agents — not the defendant — creates and controls the scam. The defendants also argue that they were entrapped by federal agents and that the government did not have the right to target them in an undercover sting because it had no prior evidence to suspect them of wrongdoing. “Predisposition must exist independent of the government’s inducement,” Bertman’s attorney Steven J. Wisotsky wrote. “When the government first contacted Mr. Bertman, it had no reason to suspect that he was predisposed to commit the offenses.” “There was no evidence or word of mouth that he was corrupt,” Wisotsky wrote. “The agents and informers were trolling blind.” But the government insists that’s not true. Assistant U.S. Attorney Jonathan D. Colan argued in court papers that when the jury looked at the evidence, it found that the defendants were “predisposed to take part in the crimes.” In his appeal brief, Wisotsky asked the 11th Circuit not only to vacate his client’s conviction and 51-month prison sentence, but also to repudiate the practice of using an undercover sting operation to “manufacture” securities crime. He argued that enforcing securities laws is different from enforcing narcotics laws. “Penetration of the drug underworld has been acknowledged by the courts to be a necessary part of law enforcement operations because of the consensual nature of the crimes and the absence of a victim willing to blow the whistle,” Wisotsky, a Nova Southeastern University law professor and appellate counsel at Zuckerman Spaeder in Miami, wrote in his brief. “That is hardly true of securities frauds, where outraged shareholders and regulatory officials have for decades shown great vigor in exposing the depredations of corporate officials,” Wisotsky said. “There is no compelling societal need to manufacture securities frauds in order to prosecute those who rise to the bait.” West Palm Beach solo practitioner Val Rodriguez, who represents Poole, has adopted the same argument. “The appeals court doesn’t grant oral arguments in every case,” Rodriguez said. “I don’t know, but I think they may be concerned about the sting.” Not surprisingly, federal prosecutors vigorously disagree, arguing that the Bermuda Short probe of local stock fraud was “well within the parameters of undercover operations this and other courts have upheld” and justified. “The government did nothing more than provide a profitable, but illegal opportunity,” wrote Assistant U.S. Attorney Jonathan D. Colan of Miami in the government’s appeal brief. “Bertman and Poole welcomed the opportunity and suggested key refinements to the scheme.” A spokesman for U.S. Attorney Marcos D. Jimenez declined to comment on the case. University of Miami law professor Ricardo J. Bascuas, a former assistant federal public defender in Miami who is not involved in the case, sympathizes with Wisotsky but predicts he’ll lose the appeal. “He’s got a good argument,” Bascuas said. “Police officers and federal agents shouldn’t be involved in deception and trickery. But it’s become so routine through the drug war that we’ve come to accept it.” As is the custom of the 11th Circuit, the three-judge panel that will hear the case won’t be publicly identified until about a week before oral arguments, which are scheduled for Oct. 8. KICKBACKS FOR STOCK BUYS Court filings show the Bermuda Short investigation began in May 2000 amid a more general investigation of securities fraud in South Florida, including market manipulation and illegal payments to stockbrokers. Undercover agents and informants told company executives, brokers and stock promoters that they could arrange large stock purchases at inflated prices in exchange for kickbacks. Until his conviction in February 2003, Bertman was chief executive of Rockville, Md.-based WorldTeq Group International, which was publicly traded on the over-the-counter bulletin board. Poole had been a licensed stockbroker who’d worked with Bertman in hopes of taking the small Internet and telecommunications firm, then known as A1 Internet.com, onto the Nasdaq. To do that, though, they needed to raise several million dollars in capital. Bertman, Poole and three other defendants were charged in a 16-count indictment unsealed in August 2002 to coincide with the government’s public disclosure of the Bermuda Short investigation. FBI agent Michael Palasek, who had been a private investment banker at Brown Harriman Brothers in New York City in the late 1980s, was the case agent. He posed as a corrupt securities trader named Michael Patterson who worked at a fictional U.S. firm, Connelly & Williams Associates. C&W was supposed to be the U.S. representative for an unnamed London-based mutual fund with $800 million to invest, and for a corrupt board member of the mutual fund willing to take kickbacks to arrange big stock purchases. The fund also was fictitious. The sting was run out of the Boca Raton office of two crooked stock promoters turned government informants — Robert Schlien and W. David Jones. Before the kickoff, Schlien and Jones signed plea deals admitting they’d run other stock scams worth $20 million to $40 million, according to court records. Prosecutors say in court papers that the government “did not seek out” Bertman and Poole specifically as targets. Nevertheless, in February 2001, Poole brought Bertman to Schlien and Jones. In turn, Poole was introduced to informants Schlien and Jones by another cooperating witness who’d heard about C&W’s alleged investment opportunity. Bertman was looking to raise several million dollars to meet the capital qualifications for his company to be listed on Nasdaq. In a Feb. 15, 2001 phone call that was secretly taped, Schlien dangled the bait about the fictitious mutual fund with $800 million to invest in small cap stocks. According to court papers, Schlien told Bertman that the fund would pay the going retail price for shares of A1 Internet.com — then about 25 cents a share — but said that an unspecified “compensation factor” would be required. That factor wasn’t explained until later. “You have a nice company, your company’s got revenues. … The company grew significantly,” Schlien said. “You’re saying all the things that are near and dear to a CEO’s heart,” Bertman replied during the phone conversation. “You’ve hit all the right buttons.” Schlien told Bertman that his company would get an $8 million infusion of capital. FBI agent Palasek later testified he picked that large amount because he knew it would be “like winning the lottery” for a small-businessman like Bertman. At a Feb. 21, 2001 meeting in Boca Raton, Schlien told Bertman that he and his cronies expected $3 million of the $8 million to be kicked back to them through an offshore company. Bertman agreed. Bertman was arrested after a test sale of 40,000 shares owned by Bertman was completed at 50 cents a share and he kicked back half the proceeds, or $10,000. Assistant U.S. Attorneys Christopher Clark and Edward Nucci prosecuted the case. At trial before U.S. District Judge Donald L. Graham in Miami last year, Bertman testified in his own defense that he considered the share purchase by C&W to have been a legitimate business opportunity. He testified that his company’s board of directors authorized the sale of shares to C&W, and that “the payment of a large commission would be expected as part of any bargain that an unlisted bulletin board company could make to raise capital,” court papers said. Bertman also argued entrapment as a defense. The jury, however, convicted Bertman and Poole of conspiracy, securities fraud and 12 counts of wire fraud. Bertman was acquitted of one count of wire fraud. Another defendant, stock promoter and A1 Internet.com stockholder Charles Arnold, was acquitted on all counts. Two other defendants never went to trial. The government dismissed all counts in the case against stock promoter Cris Sagnelli in exchange for his testimony. Sagnelli pleaded guilty, however, in another Bermuda Short case, Rodriguez said. Defendant Ray Hutchison, an A1 Internet.com stockholder, pleaded guilty to conspiracy and got seven months. Bertman was sentenced to 51 months in prison and fined $10,000. Poole got 33 months. Bertman is in prison. Poole was set for release from prison this week, his attorney Rodriguez said.

This content has been archived. It is available exclusively through our partner LexisNexis®.

To view this content, please continue to Lexis Advance®.

Not a Lexis Advance® Subscriber? Subscribe Now

Why am I seeing this?

LexisNexis® is now the exclusive third party online distributor of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® customers will be able to access and use ALM's content by subscribing to the LexisNexis® services via Lexis Advance®. This includes content from the National Law Journal®, The American Lawyer®, Law Technology News®, The New York Law Journal® and Corporate Counsel®, as well as ALM's other newspapers, directories, legal treatises, published and unpublished court opinions, and other sources of legal information.

ALM's content plays a significant role in your work and research, and now through this alliance LexisNexis® will bring you access to an even more comprehensive collection of legal content.

For questions call 1-877-256-2472 or contact us at [email protected]

 
 

ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.