FBI Informant Guy Gentile’s Indictment Is Tossed by the Judge

Guy Gentile Indictment Dismissed

Guy Gentile Gets Good News

On January 30, 2017, brokerage firm owner Guy Gentile got the good news he’d been hoping for:  Judge Jose Linares of the United States District Court for the District of New Jersey had dismissed the indictment filed against him by the Department of Justice.  For Gentile, the judge’s order brings a welcome end to an involvement with the Federal Bureau of Investigation and the DOJ that had lasted nearly five years.  We’ve written twice about Gentile, first in September 2016, and then in December of the same year.  From our perspective, it was of interest as an example of the DOJ and FBI’s abuse of the considerable powers they possess.

The Allegations 

In 2007 and 2008, Guy Gentile had participated in the promotion of two penny stocks, Raven Gold Corporation (RVNG) and Kentucky USA Energy, Inc. (KYUS).  He was drawn into these schemes by Canadian promoters Mike Taxon and Itamar Cohen.  The Securities and Exchange Commission eventually opened an investigation into both, suspecting pump and dump operations, and the DOJ took an interest as well.  Gentile had no idea legal actions against him were being prepared, and turned to different projects after mid-2008.  In 2011, he opened a new brokerage in the Bahamas that was designed to appeal to day traders.  It was almost immediately successful, and he devoted his energies to it. 

The pleasure he took in his burgeoning businesses was short-lived.  On July 13, 2012, while sitting on a plane at the Westchester, New York, airport, he was arrested by U.S. Customs and Border Control.  The customs agents transferred him to the custody of the FBI, and he was escorted to Newark, New Jersey.  During a weekend in jail, he was informed he’d been named in a sealed complaint alleging securities fraud.  The FBI told him their chief interest was in Adam Gottbetter, the man behind the KYUS manipulation, and asked whether he’d like to cooperate.  Seeing a possible advantage for himself, he agreed to the arrangement in principle.  Following discussions with his attorney, he consented.  He did not demand a written non-prosecution agreement, but was heartened when the DOJ dismissed the complaint it had filed against him under seal.

Gentile Realizes the FBI Agents Are Not His Friend

His life changed dramatically.  Though he was allowed to continue to run his own businesses—that made a good cover—he was obliged to do what the authorities required, when they required it.  Initially, he got back in touch with Gottbetter, and procured evidence against him that resulted in Gottbetter’s arrest and conviction.  He also engaged in more elaborate and potentially dangerous undercover work.  He seems to have enjoyed that, but had no wish to be a “cooperator” for the rest of his life, and hoped his services would result in formal immunity from prosecution, or at least in a misdemeanor charge only.  He felt he’d established a good rapport with his FBI handlers and their AUSA supervisors, and believed, on the basis of what he saw as their friendship, along with more specific promises occasionally made to him, that he would get his wish.

He was doomed to disappointment.  On March 23, 2016, the SEC filed a civil lawsuit naming him, and the DOJ refiled its complaint, charging him with one count of conspiracy to commit fraud and one count of securities fraud.  Angry and feeling ill-treated, he filed a motion to dismiss the indictment on July 14, 2016, four years and one day after his 2012 arrest.

The reopened case did not come as a complete surprise to Gentile.  He’d been informed in July 2015 that the government intended to prosecute him.  He naturally objected, pointing out the considerable value of the work he’d done for them.  The parties continued to negotiate into 2016, the DOJ suggesting that if he’d plead guilty, he’d be sentenced to probation only.  He was not reassured, and no longer trusted his former “friends” at the FBI. He decided to rely on his own attorneys instead, and filed his motion to dismiss.

The Motion to Dismiss

In the motion, Gentile’s broader argument was that the government’s decision to prosecute was “outrageous” in light of years of cooperation in which the FBI had assured him—“with explicit words, implicit conduct, and winks and nods”—that in the end he wouldn’t be charged.  His more specific arguments were that:

–  The applicable statute of limitations had expired.  During the time he worked with the FBI, Guy Gentile signed two tolling waivers, one in mid-2012 and one in mid-2013.  Each extended the statute of limitations by one year.  But he refused a third, which was offered for his signature in 2014.  He believed that by doing so, the DOJ would have to refile its case by June 30, 2015, or give it up.

–  His right to a speedy trial, triggered on the day of his arrest in 2012, was abridged because his liberty had been restricted.

–  The fundamental fairness doctrine of the Fifth Amendment’s due process clause was violated because the government had caused him to believe he would not be charged if he continued his cooperation.  This, he said, created a de facto non-prosecution agreement.

The DOJ filed an opposition to Gentile’s motion on September 23, 2016; Gentile filed a rebuttal on November 4.  For a detailed analysis of these pleadings, see our earlier article.  On November 14, Judge Linares held a conference to determine whether the motion to dismiss could be decided on papers or would require oral arguments or an evidentiary hearing.  Four days before Christmas, the judge’s courtroom deputy reported on the oral arguments that had just been heard, noting that Linares had reserved his decision.

Gentile would have to wait until the judge considered the matter and made up his mind.

The Judge’s Decision

The judge took his time, not handing down his final opinion until January 30.  In the end, he chose to rule on the statute of limitations question only.  He’d noted at the conference that if he found reason to dismiss in only one or two of Gentile’s arguments, the case would be over:  “[I]f I went ahead and decided those issues, if you were to win, we don’t have to get to these other issues, right?”

In the opinion, the judge points out that Gentile believed he’d no longer face danger of prosecution if the government didn’t refile by June 30, 2015, and that he and his attorney had discussed that with the government.  As part of its argument, the DOJ had relied heavily on the fact that the statute of limitations for criminal securities fraud had been increased from five to six years by the Dodd-Frank Act, which became law in 2010.  It further insisted that the law could be applied retroactively in Gentile’s case, because it was a mere extension of the statute of limitations that did not alter the illegality of the defendant’s alleged acts.

Gentile’s counsel had argued that his client was unaware of the change to the statute of limitations ratified in Dodd-Frank, and had therefore signed the tolling waivers unknowingly.  Moreover, until quite late in the game, the government was also unaware of the change.  As Judge Linares put it:

Defendant asserts that at all times, and specifically at the times the waivers were signed by him, both he and the Government were clearly operating under the assumption that the statute of limitations was in fact five years… The Government has conceded this point.  Thus, Defendant’s position is that even assuming the statute of limitations applicable to his case is actually six years, he entered into both tolling waivers under the expressed assumption that the statute of limitations applicable at the time was indeed five years and he therefore signed the aforesaid waivers without knowledge or a clear understanding as to the rights he was in fact waiving…  Defendant claims that therfore [sic] these waivers were made unknowingly are [sic] are invalid. If the waivers are in fact found to be invalid by this Court, the indictment, according to Defendant, needed to be filed by June 30, 2014 under the six-year statute of limitations… Thus, Defendant concludes the March 2016 indictment is untimely.

Citing U.S. v. Levine, Linares notes that “waivers involve a relinquishment of important rights and ‘should also be made with the advice of counsel and informed by an understanding of the consequences of the waiver.’” (Emphasis added in the opinion.)  He adds that Houmis v. U.S holds that “where ‘substantial confusion’ calls into question whether there was a ‘meeting of the minds’ over a plea agreement, there is no agreement to be enforced,” and cites McKeever v. Warden, SDI-Graterford, “stating that a plea agreement ‘is voidable in its entirety’ when the Defendant entered into such agreement without the knowledge and understanding of the rights being waived.”

The judge concludes that:

[T]he limitations period, as extended by the waivers Defendant signed under the five-year statute of limitation, which was the statute that both the Government and Defendant thought they were operating under, along with the tolling waivers, gave the Government until June 30, 2015 to timely indict Defendant…  In fact, the Second Tolling Waiver even included the date of June 30, 2015 as the latest possible date the Government could institute a criminal action against Defendant.

Gentile, he points out, believed that when he signed the waivers, he was extending his exposure to prosecution by two years, when in reality he was unknowingly extending it by three years:  “Thus, the waivers are invalid, therefore the statute of limitations was not tolled.  Hence, the March 23, 2016 indictment is untimely, regardless of which statute of limitations is applicable.”

Judge Linares is also skeptical of the government’s insistence that the Dodd-Frank statute of limitations can be applied retroactively.  He cites Landgraf v. USI Film Prods., which was used to different ends by both the defendant and the prosecution in their own arguments, saying there is a “presumption against retroactive legislation [which] is deeply rooted in [Supreme Court] jurisprudence.”  (Emphasis added in the opinion.)  Citing Hughes Aircraft Co. v. U.S. ex rel. Schumer, he notes that “[T]his time-honored presumption [must be applied] unless Congress has clearly manifested its intent to the contrary.  (Emphasis added in the opinion.)

Cutting to the chase, the judge asserts flatly that he “finds that the six-year statute of limitations created by Dodd-Frank is inapplicable to the crimes Defendant allegedly committed in 2007 and 2008,” and offers compelling reasons for doing so, relying particularly on United States v. Richardson.  In that case, Richardson, the defendant, was a man who failed to register for the draft within five days of his 18th birthday, thus breaking the law.  He was prosecuted years later.  At the time he committed this criminal act, the statute of limitations was five years.  Later, in connection with another matter, Congress amended the statute of limitations, allowing the government to prosecute men who fail to register for up to five years after their 26th birthday.

Linares further explains:

There, as here, the Government argued that because the amendment was entitled “Extension of Statute of Limitations on Prosecution for Non-Registration to Five Years after a Registrant’s Twenty-Sixth Birthday” Congress must have intended to extend the time the Government had to prosecute all non-registering men, including those who committed the crime prior to enactment… (Emphasis added in the opinion.) The Richardson Court rejected said argument stating “Congress did not explicitly state that it intended the statute to apply retroactively as it assuredly could have done, and has done.”… (Emphasis added.). The Court further held that it did not believe it prudent to extend the statute of limitations by way of judicial order “[i]n the absence of a clear statement from Congress that it intended retroactive application of the extended statute. To do so would presume that Congress was in error—that it passed a statute which did not reflect its intent.” (Emphasis added.)

The judge comes to the same conclusion in the Gentile case.  Noting that “Section 3301 of Dodd-Frank is entitled ‘Extension of Statute of Limitations for Securities Fraud Violations,’ but contains no language that could possibly be construed to mean Congress clearly intended for Section 3301 to be applied retroactively,” he finds that it should not be applied retroactively because Congressional intent is lacking.

Thus the indictment fails for two reasons:  the tolling waivers were invalid, and even if that were not the case, the applicable statute of limitations is five years, and it expired on June 30, 2015. And so Judge Linares granted Gentile’s motion to dismiss the indictment.

The Implications

The government’s loss to Gentile is not without consequences for it.  The case may be considered precedential.  In possible other actions, the DOJ will be unable to rely on claims that the Dodd-Frank statute of limitations can be applied retroactively.  In its insistence on retroactivity, the prosecutors—who themselves were unaware of the “new” statute of limitations until they found themselves opposing Gentile’s motion—evidently believed they could make up their own laws and interpret them to their own benefit.  Perhaps they now realize that needs to stop.

After the decision was handed down, Guy Gentile’s attorneys, Adam Ford of Ford O’Brien LLP and Chad Seigel and Joe Tacopina of Tacopina & Seigel, offered this statement:

We are pleased with Judge Linares’ well-reasoned decision and believe it not only protects Mr. Gentile’s constitutional rights in this case, but resolves significant ambiguities regarding the reach of Dodd-Frank, so as to prohibit stale criminal prosecutions by the Government. As this is the first decision in the country to rule Dodd-Frank is not retroactive in this regard, we expect the decision to have far-reaching positive effects. Our client is very pleased that this ordeal is now behind him, and looks forward to moving ahead with his life and restoring his good name.”

Gentile himself, no longer “the defendant,” is home free and clear.

For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956 or by email at [email protected].   This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.