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Prousalis v. Moore

United States Court of Appeals, Fourth Circuit

May 7, 2014

THOMAS T. PROUSALIS, JR., Petitioner - Appellant,
v.
CHARLES E. MOORE, Senior U.S. Probation Officer, Respondent - Appellee

Argued: March 19, 2014.

Appeal from the United States District Court for the Eastern District of Virginia, at Richmond. John A. Gibney, Jr., District Judge. (3:12-cv-00134-JAG).

ARGUED:

Scott Martin, GIBSON, DUNN & CRUTCHER, LLP, Washington, D.C., for Appellant.

Jonathan Holland Hambrick, OFFICE OF THE UNITED STATES ATTORNEY, Richmond, Virginia, for Appellee.

ON BRIEF:

Dana J. Boente, Acting United States Attorney, OFFICE OF THE UNITED STATES ATTORNEY, Alexandria, Virginia, for Appellee.

Before TRAXLER, Chief Judge, and WILKINSON and KEENAN, Circuit Judges. Judge Wilkinson wrote the opinion, in which Judge Keenan joined. Chief Judge Traxler wrote an opinion concurring in the result.

OPINION

Page 273

WILKINSON, Circuit Judge:

Appellant Thomas Prousalis Jr. pled guilty to three counts arising from his fraudulent activity in connection with a client's initial public offering. He now seeks habeas relief, contending that, in light of the Supreme Court's intervening decision in Janus Capital Group, Inc. v. First Derivative Traders, 131 S.Ct. 2296, 180 L.Ed.2d 166 (2011), the conduct for which he was convicted is no longer criminal. For the following reasons, we reject Prousalis's claims and affirm the dismissal of his petition.

I.

Thomas Prousalis was a securities lawyer who marketed his services to small firms seeking to raise capital. At issue here is his representation of Busybox.com, Inc. (Busybox), an internet company that he guided through the process of conducting an initial public offering (IPO). Despite Busybox's modest size and limited cash flow, Prousalis persuaded company management to agree to an initial offering of over $10 million. Prousalis's retainer agreement provided that he would be compensated

Page 274

the greater of $375,000 or 7.5 percent of the gross proceeds; notably, his fee was contingent upon the successful closing of the IPO. To effectuate the transaction, Busybox also hired Barron Chase Securities, Inc., an investment banking firm, which agreed to provide a firm commitment underwriting. This agreement obligated Barron Chase to purchase all of the available Busybox shares and then resell them to the public.

Prousalis prepared the IPO registration materials, which were subsequently signed by Busybox officers and filed with the Securities and Exchange Commission (SEC). The materials stated that Busybox intended to raise $12.8 million in gross proceeds through the offering, with net receipts of $10.6 million. The forms also reported Prousalis's legal fee, but failed to acknowledge the contingent nature of his compensation. When Busybox's CEO attempted to correct the registration statement to accurately reflect Prousalis's retainer agreement, Prousalis insisted that the existing description was compliant and that the SEC had confirmed its sufficiency. Prousalis later admitted in his plea allocution that he knew at the time that Busybox would not be listed on the NASDAQ exchange if his compensation arrangement were accurately disclosed.

Prousalis soon became aware that Barron Chase was unwilling to complete a firm commitment underwriting of the IPO. Barron Chase's failure to uphold its end of the bargain generated a shortfall of $2.5 million in the IPO as originally conceived. To solve this problem, Prousalis orchestrated a scheme in which IPO proceeds were recycled in order to purchase shares that were then used both to compensate him (in a sum unrelated to his retainer agreement) and to pay salaries and bonuses to Busybox officers. Prousalis failed to disclose these maneuvers to the SEC. Only after the initial offering was made did he reveal to Busybox officers the existence of the shortfall and his proposed remedy. The judge presiding over Prousalis's earlier collateral proceeding noted that " Prousalis specifically admitted that at the time he did each of these acts he knew he was doing something wrong, knew he was acting in violation of the law, and was acting with the intent to deceive and defraud investors in Busybox securities." Prousalis v. United States, Nos. 06 Civ. 12946(DLC), 03 CR. 1509, at *5 (S.D.N.Y. Aug. 24, 2007).

As a result of these activities, Prousalis was indicted in the Southern District of New York on three counts. Count One charged conspiracy to commit securities fraud, wire fraud, and mail fraud (in violation of 15 U.S.C. § § 78j(b), 78ff; 17 C.F.R. § 240.10b-5; 18 U.S.C. § § 371, 1343, 1346, 1341). Count Two charged securities fraud (in violation of 15 U.S.C. § § 78j(b), 78ff; 17 C.F.R. § 240.10b-5; 18 U.S.C. § 2). Finally, Count Three charged " failure to disclose interest of counsel" in the registration materials Prousalis prepared in connection with the IPO (in violation of 15 U.S.C. § 77x; 17 C.F.R. § 228.509; 18 U.S.C. § 2). J.A. 225-49. As relevant for purposes of this appeal, Prousalis's convictions hinged in large part on his violation of SEC Rule 10b-5, which implements Section 10(b) of the Securities Exchange Act of 1934. The Rule provides:

It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange . . . [t]o make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, ...

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