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Wednesday, July 20, 2011

Acquittals Coming in Sky Capital IPO Fraud Case?

A Manhattan federal jury is scheduled to begin deliberations as early as Thursday afternoon in the Sky Capital fraud trial of Ross Mandell and Adam Harrington.

The five-week-long trial was ostensibly on securities fraud charges. However, government witnesses seemed long on tales of adult entertainment and short on hard facts showing actual criminality. In fact, judging from a flaccid government closing argument, the federal government has attempted to criminalize business failure and other capital raising activities which are benign, customary and otherwise legal.

One government argument is that there was a fraud upon investors because, according to certain government witnesses, management of the privately-held company Global Secure Corp. never believed the company would actually go public. The problem is that the company came close to going public, even filing a formal registration statement with the Securities and Exchange Commission to register its stock for sale to the public. (Don't believe me? Here is the company's sixth amendment to its registration statement in 2005.)

A second argument for fraud was the issuance to founders, friends and others of cheap stock in Global Secure after its inception. The argument was that the issuance of shares for little money was criminal. In reality, the law mandates disclosure (and even there, the law talks about "materiality" and lacks a clear "yes or no" rule on what to disclose in private placements to accredited investors). Young companies commonly issue shares for pennies to employees, founders and others. This is one way young companies and small businesses, which often cannot get bank loans, raise capital to go into, and stay in, business.

The government, shamefully, tried to dupe a jury into thinking that giving stock away in a startup company is a crime. Perhaps this is a way for the government to control the economy by discouraging capital raising through fear of prosecution. Will the government next mandate the price of shares? It will need to measure the value of those shares. Would you trust the government -- the same government that didn't catch Bernard Madoff, the same government that has run up a trillion-dollar debt -- to be able to do that?

If and when that happens, the government will be able to run your business...well, it won't be yours anymore.
The existence of our entire system of free enterprise is theoretically at risk with this curious prosecution, which is starting to look like an innovative way to legislate a command-and-control economy (socialism, anyone?) by using the executive branch's prosecutorial power to regulate, discourage and ultimately control who participates in our economy.

One final note...for now.  As pointed out very well by Harrington's lawyer Michael Bachner, the government was very selective in whom it chose as witnesses.  There were dozens of potential Sky Capital employees and others whom the government could have called.  The choice of some seriously credibility-challenged witnesses, many of whom appear to be chronically and comically incapable of telling basic truths about anything, speaks volumes about the potential witnesses whom the government felt it was unable to call.

For example, the government could have called  as a witness -- and chose not to call to the stand -- one informant, the same person who is cited in court documents as having taped Phil Akel talking about something incriminating.  This held-back witness was described at his sentencing (in a separate matter) by a government agent to have been one of the most helpful informants the agent had ever worked with.  Why wasn't this person called, instead of, say, Phil Akel?  Might it be because this person was committing bankruptcy fraud, frauds upon the court, and was sued for mortgage fraud in a civil suit -- all while working for the government and in violation of his cooperation agreement? 

Might it be because this person was trying to bamboozle the sentencing court into granting him leniency for medical reasons related to a back injury, an injury sustained before asking the same court for relief from travel restrictions in order to travel to Colorado to go snowboarding?

Or might it be because this person has used -- or been allowed to use -- at least four different names in official court proceedings in New York and New Jersey, in addition to other distinct iterations of his first and last names in business?

Is the government playing the game, as I wrote two weeks ago and as Harrington's lawyer Bachner said today, of "Catch Me If You Can"?

I mean, if the federal government passed over a man described as one of the best informants in an agent's career in order to put Phil Akel on the witness stand in what can only be described as a painful performance, serious strategic questions have to be raised. 

More to come...updates and another post on the government's attempt to defame a lawyer who was named at trial but was not charged, and thus cannot defend his reputation (he can never have a jury evaluate his credibility, he never gets to erase a cloud over his head), late Wednesday or early Thursday morning.

Eric Dixon is a New York lawyer and investigative analyst who does not represent anyone in the Sky Capital case. 



  1. Thank you Mr. Dixon. I am that lawyer. The government presented knowingly false testimony in this case by trying to implicate me in alleged criminality involving Sky Capital, Mr. Mandell and Mr. Harrington for whom I served as counsel for many years. THAT was scandalous, scurrilous and a crime for which THEY should be prosecuted. It was no doubt done to try to deter me from assisting the defense. Didn't work.
    The defendants should and I believe will be acquitted of all charges. As for me, I am left to pray for the poor souls who were so lost they felt compelled to lie to the jury at the government's insistence.
    Steven Altman

  2. If the investors we're naive and did not do their home work whose fault is that. If I told a person to jump in fire because it will be good for his self moral chances are they wouldn't. But for argument sake a few did and death was the consequence; would I be responsible for their death. This is basically the questions jurors are being asked today. Could these brokers under Ross's supervision have used their persuasive talents including the pleasures of hookers strip clubs and other means to sway investors into what they already knew was a death trap that's the real question. You decide!