'Bad boy' broker Mandell's boiler room conviction is upheld

NEW YORK Fri May 16, 2014 1:47pm EDT

NEW YORK May 16 (Reuters) - A federal appeals court in New York on Friday upheld Ross Mandell's conviction and 12-year prison term for running an alleged $140 million trans-Atlantic boiler room fraud, rejecting his claim that he could not be prosecuted under U.S. securities laws because much of the case was foreign.

The 2nd U.S. Circuit Court of Appeals also upheld the conviction and five-year prison term of former Sky broker Adam Harrington for his role in a scheme that prosecutors said ran from 1998 to 2006. It sent the case back to the trial court to modify a provision of an order of forfeiture.

Both defendants were appealing their July 2011 convictions by a Manhattan jury for allegedly using high-pressure sales tactics to persuade U.S. and British investors to invest in Sky entities, only to then divert money to enrich themselves and pay undisclosed broker commissions.

Mandell, 57, of Boca Raton, Florida, has called himself "Wall Street's 'bad boy' broker" and who pitched a reality TV show to tell his story. He and Harrington, 44, of Miami, have been free on bail during their appeals.

In his appeal, Mandell said he couldn't be criminally responsible for trades involving U.S. investors because they occurred long ago, and the statute of limitations had run out.

The defendants also said they weren't criminally responsible under Section 10(b) of the Securities Exchange Act of 1934 for British trades, citing a 2010 U.S. Supreme Court case, Morrison v. National Australia Bank.

Morrison said Section 10(b) didn't apply in civil cases to foreign securities transactions. Last August, in a case involving former Amerindo Investment Advisors money manager Alberto Vilar, the 2nd Circuit said that law also didn't apply extraterritorially in criminal cases.

But in Friday's decision, a three-judge 2nd Circuit panel said some investors bought Sky Capital private placement shares domestically, and some transactions required processing investor applications and payments in the United States.

As a result, "a rational jury could have found the 'essential elements' of Mandell and Harrington's convictions beyond a reasonable doubt," the panel said. The 2nd Circuit also rejected several other defense arguments in the appeals.

Mandell was originally ordered to forfeit $50 million, and Harrington $20 million.

The 2nd Circuit accepted Mandell's argument, which the government conceded was correct under a 2012 ruling, that the defendants be jointly and severally liable for forfeiture, responsible for full payment regardless of their share of fault.

Matthew Brissenden, a lawyer for Mandell, was not immediately available for comment.

Scott Splittgerber, a lawyer for Harrington, said he is disappointed with the decision, "particularly since most of the evidence at trial concerned foreign transactions. We will evaluate whether to appeal to the Supreme Court."

The case is U.S. v. Mandell et al, 2nd U.S. Circuit Court of Appeals, Nos. 12-1967, 12-2090. (Reporting by Jonathan Stempel in New York; Editing by Bernard Orr)