You are on page 1of 16

Case 2:14-cv-03574-WJM Document 31 Filed 05/18/16 Page 1 of 16 PageID: 299

IN THE UNITED STATES DISTRICT COURT


DISTRICT OF NEW JERSEY
Elizabeth T. Foster, Attorney at Law, LLC
NJ Bar 009152006
22 E. Quackenbush Ave.
Dumont, NJ 07628
201 290 5761
201 215 9574 (fax)
liztlaw@gmail.com
Attorney for Petitioner
----------------------------------------------X
DAVID CONNOLLY
Petitioner.

Civ. No. 2:14-cv-3574-WJM

v.
UNITED STATES OF AMERICA
Respondent,
------------------------------------------------X

CORRECTED MEMORANDUM IN SUPPORT OF PETITIONER DAVID


CONNOLLY'S HABEAS CORPUS PETITION

Case 2:14-cv-03574-WJM Document 31 Filed 05/18/16 Page 2 of 16 PageID: 300

TABLE OF CONTENTS
Table of Authorities........................................................................................................

ii

Introduction....................................................................................................................... 1
Point 1: Petitioner David Connolly Cannot be Guilty of Any Securities Exchange Act
Violation codified at Subtitle 2B ( 78a et seq.) of Title 15 of the United States Code
Because he acted only as an original issuer of securities, not a re-seller of extant
securities............................................................................................................................ 1
Point 2. Because15 USC Section 78 ff(a) provides that: ...no person shall be subject
to imprisonment under this section for the violation of any rule or regulation if he
proves that he had no knowledge of such rule or regulation, the term of
imprisonment imposed upon Petitioner David Connolly under Count
One of the Indictment must be vacated............................................................................. 6
Point 3. Because there was no Underlying Securities Violation Under the 1934 Act,
Count Ten of the Indictment is Fatally Defective............................................................. 9
Point 4. Because Attorney Saluti Falsely Promised Connolly that There was a
Secret Deal with the Government and that he would not Serve Jail Time, the
Confession Was the Product of Fraud............................................................................................. 10
Point 5. Because Petitioner David Connolly received ineffective assistance of
counsel, he was wrongfully and unlawfully convicted of the charges in Count One
of the Indictment.............................................................................................................. 11
CONCLUSION ............................................................................................................... 12

iii
-i-

Case 2:14-cv-03574-WJM Document 31 Filed 05/18/16 Page 3 of 16 PageID: 301

Table of Authorities
Cases

Page

Affiliated Ute Citizens of Utah v. U.S., 406 U.S. 128 (1972).......................................... 4


Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (1975)....................................... 3
Central Bank of Denver, N.A., v. First Interstate Bank of Denver, N.A.,
511 U.S. 164 (1994) ......................................................................................................... 4
Peoples Securities Co. v. Securities and Exchange Co., 289 F2d 268
(5th Cir. 1961)..................................................................................................................... 2
Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350 (1991).............. 2
Securities and Exchange Commission v. Capital Gains Research Bureau, Inc.
375 U.S. 180 (1963).......................................................................................................... 3
Strickland v. Washington, 466 U.S. 668 (1984)...............................................................12

Superintendent of Ins. of State of N.Y. v. Bankers Life & Cas. Co., 404 U.S. 6 (1971)...3
Rules and Statutes
Securities Act of 1933 (Title I of Pub. L. 73-22, 48 Stat. 74, enacted May 27,
1933, codified at 15 U.S.C. 77a et seq.).........................................................1,4,5 passim
Securities Exchange Act of 1934 (ch. 404, Title I, Sec. 1, 48 Stat. 881,
enacted June 6, 1934, codified at 15 U.S.C. 78a et seq.)...............................1,2,3 passim
17 CFR 240.10b-5............................................................................................................6,7
15 USC Section 78 ff(a) ..................................................................................................6,7
18 USC 1957.....................................................................................................................8

iv
-ii-

Case 2:14-cv-03574-WJM Document 31 Filed 05/18/16 Page 4 of 16 PageID: 302

Introduction
Petitioner has moved for habeas corpus relief based on actual innocence and
ineffective assistance of counsel. Because the petitioner has committed no offenses
under the specified sections under which he was charged, this court must grant the
habeas petition and vacate the plea and conviction.
Point I: Petitioner David Connolly Cannot be Guilty of Any Securities Exchange Act
Violation codified at Subtitle 2B ( 78a et seq.) of Title 15 of the United States Code
Because he acted only as an original issuer of securities, not a re-seller of extant
securities.
In Count I, to which Connolly pled guilty due to ineffective assistance of counsel,
David Connolly was charged with crimes under provisions of the Securities Exchange
Act codified at Subtitle 2B (sections 78a et seq.) of Title 15 of the United States Code.
These provisions have no lawful application to Mr. Connolly because he was in every
instance an original issuer of securities, not a re-seller or trader of extant securities.
Congress enacted two different acts to govern dealings in securities. The first act
adopted was the Securities Act of 1933, commonly known and referred to as the
Securities Act. It is codified in Subtitle 2A ( 77a et seq.) of Title 15 of the United
States Code.

The Securities Act of 1933 deals with and governs the issuance of new

securities, also called Initial Public Offerings (IPO's). 1



Connolly never believed he was dealing in securities, he thought he was selling

1 David

real estate investments. Therefore, he could not conceive the notion that he was violating
any securities laws. See Connolly declaration.

Case 2:14-cv-03574-WJM Document 31 Filed 05/18/16 Page 5 of 16 PageID: 303

The second securities act adopted was the Securities Exchange Act of 1934,
commonly known and referred to as the Exchange Act. It is codified in Subtitle 2B
(section 78a et seq) of Title 15 of the United States Code. This act deals with and
governs the purchase, sale and trading in securities subsequent to their initial issue.
Peoples Securities Co. v. Securities and Exchange Co., 289 F2d 268 (5th Cir. 1961). The
Securities Exchange does not apply to the governance of IPOs.
Because Mr. Connolly was strictly dealing with the introduction of new issues
(IPO's), he was not engaged in the purchase, sale and trading in securities subsequent
to their initial issue and therefore the provisions of the Exchange Act, including its
criminal provisions 78(j)b, 78ff(a) and 17 CFR 240.10b5 have absolutely no lawful
application to him.
The Exchange Act was enacted not to govern new issues of securities but rather:
1. to regulate transactions by officers, directors, and principal security holders.
Section 2 of the Exchange Act (15 United States Code Section 78b);
2. to require appropriate reports. Section 2 of the Exchange Act (15 United States
Code Section 78b);
3. to make information available to persons trading in securities on the markets.
Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350 (1991);
4. to remove impediments to and perfect the mechanisms of a national market
system for securities transactions and the safeguarding of funds and securities
related to a national market system. Section 2 of the Exchange Act (15 United
States Code Section 78b);

Case 2:14-cv-03574-WJM Document 31 Filed 05/18/16 Page 6 of 16 PageID: 304

5. to protect interstate commerce, the national credit, and the federal taxing power.
Section 2 of the Exchange Act (15 United States Code Section 78b);
6. to protect and make more effective the national banking and Federal Reserve
system. Section 2 of the Exchange Act (15 United States Code Section 78b);
7. to insure the maintenance of fair and honest markets in transactions conducted on
securities exchanges and over-the-counter markets. Section 2 of the Exchange Act
(15 United States Code Section 78b);
8. to prevent manipulation in the securities markets. Lampf, Pleva, Lipkind, Prupis
& Petigrow v. Gilbertson, 501 U.S. 350 (1991);
9. to substitute a philosophy of full disclosure for the philosophy of caveat emptor.
Affiliated Ute Citizens of Utah v. U.S., 406 U.S. 128 (1972); Securities and
Exchange Commission v. Capital Gains Research Bureau, Inc. 375 U.S. 180
(1963);
10. to prevent those whose business is dealing in securities and who are experienced
and knowledgeable in the practical processes of securities issues, and the property
and potential backing such issues, from imposing upon the the public by reason of
such background knowledge, that is insider trading. Superintendent of Ins. of
State of N.Y. v. Bankers Life & Cas. Co., 404 U.S. 6 (1971).
To say it another way, the Securities Act of 1933 deals with and governs the
primary market in securities. See Blue Chip Stamps v. Manor Drug Stores, 421 U.S.
723, 728 (1975).

The Securities Exchange Act of 1934 deals with and governs the

secondary market in securities.

Id. at 728-29. The mistake that was made in Mr.

Case 2:14-cv-03574-WJM Document 31 Filed 05/18/16 Page 7 of 16 PageID: 305

Connolly's case is that he was charged with violating provisions of law relating to the
secondary market when he was strictly involved in the primary market.
As explained in Central Bank of Denver, N.A., v. First Interstate Bank of Denver,
N.A., et al., 511 U.S. 164 (1994):
In the wake of the 1929 stock market crash and in response to reports of
widespread abuses in the securities industry, the 73d Congress enacted two
landmark pieces of securities legislation: the Securities Act of 1933 (1933 Act)
and the Securities Exchange Act of 1934 (1934 Act). 48 Stat. 74, as amended, 15
U.S.C. 77a et seq.; 48 Stat. 881, 15 U.S.C. 78a et seq. The 1933 Act regulates
initial distributions of securities, and the 1934 Act for the most part regulates
post-distribution trading. Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723,
752, 95 S.Ct. 1917, 1933, 44 L.Ed.2d 539 (1975). Together, the Acts "embrace a
fundamental purpose . . . to substitute a philosophy of full disclosure for the
philosophy of caveat emptor." Affiliated Ute Citizens of Utah v. United
States, 406 U.S. 128, 151, 92 S.Ct. 1456, 1471, 31 L.Ed.2d 741 (1972) (internal
quotation marks omitted).
The legislative intent of Congress in writing these laws was not to regulate the
real estate market but to regulate the stock market. Real estate professionals do not
perceive themselves to be dealing in securities but rather in land and housing. David
Connolly typified the real estate investor who was woefully but typically ignorant of any
securities law of which his business might run afoul.
The first sentence of Section 2 of the Securities Exchange Act (78b), entitled
Necessity of Regulation, clearly indicates that the act was intended to govern
transactions in securities as commonly conducted upon securities exchanges and
over-the-counter markets, which is trading in already existing securities. This clear
mandate alone disposes of the case at hand.
For the reasons hereinafter enumerated, transactions in
securities as commonly conducted upon securities

Case 2:14-cv-03574-WJM Document 31 Filed 05/18/16 Page 8 of 16 PageID: 306

exchanges and over-the-counter markets are effected


with a national public interest which makes it necessary to
provide for regulation and control of such transactions and
of practices and matters related thereto, including
transactions by officers, directors, and principal security
holders, to require appropriate reports, to remove
impediments to and perfect the mechanisms of a national
market system for securities and a national system for the
clearance and settlement of securities transactions and the
safeguarding of securities and funds related thereto, and to
impose requirements necessary to make such regulation and
control reasonably complete and effective, in order to
protect interstate commerce, the national credit, the Federal
taxing power, to protect and make more effective the
national banking system and Federal Reserve System, and
to insure the maintenance of fair and honest markets in such
transactions:
Mr. Connolly, as an issuer of new securities, did not fall under the Securities
Exchange Act of 1934 under the provisions of which he was criminally charged in Count
of the Indictment. He was not engaged in the purchase, sale and trading in securities
subsequent to their initial issue. Instead, his activities were strictly related to the
issuance of new securities which included the issuance of prospectuses in connection
with the IPO's he was marketing. One need only look at the section headings contained
in the Securities Act of 1933 to realize that Mr. Connolly was improperly charged under
the provisions of the Securities Exchange Act of 1934. The Securities Act of 1933, not
the Securities Exchange Act of 1934, deals with the 'registration of new issues' and
'prospectuses' for them as you can see by some of its section headings:

77f- Registration of securities


77g-Information required in registration statement
77h-Taking effect of registration statement

Case 2:14-cv-03574-WJM Document 31 Filed 05/18/16 Page 9 of 16 PageID: 307

77j-Information required in prospectus


77k-Civil liabilities on account of false registration statement
77l- Civil liabilities arising in connection with prospectuses and communications
77aa-Schedule of information required in registration statement
As outlined in his certification, David Connolly never conceived of himself as
dealing in securities at all. He saw himself as a real estate professional. If it can be said
that he traded in securities at all, it was only at the IPO level, and Connolly never
engaged in trading these securities. The eight investments to which paragraphs 18-53 of
the Indictment refer and upon which Count One was based, to wit, Watchung Gardens,
Fulton Towers, Carteret Arms, Netherwood Village, Grand Court Villas, Marshall
Woods, Hampshire Court and Hillside Valley, LP. (see 18-53 of the indictment) were
strictly original issues of securities, having never before existed, been traded, purchased
or sold. Connolly prepared a Prospectus for each security, a Prospectus accompanying
and being a conventional indicia of a new securities offering, that is, an IPO.
Petitioner David Connolly pleaded guilty to Count One of the Indictment
charging him with violations of the Securities Exchange Act of 1934 (78j(b), 78ff(a),
17 CFR 240.10b5) to a crime he did commit, nor could have possibly committed as a
matter of law. As a result, this court is compelled to vacate the judgment of conviction
and dismiss Count One of the Indictment.
Point 2. Because15 USC Section 78 ff(a) provides that: ...no person shall be subject
to imprisonment under this section for the violation of any rule or regulation if he
proves that he had no knowledge of such rule or regulation, the term of
imprisonment imposed upon Petitioner David Connolly under Count One of the
Indictment must be vacated.

Case 2:14-cv-03574-WJM Document 31 Filed 05/18/16 Page 10 of 16 PageID: 308

15 USC 78ff(a) directs that those who are ignorant of the


securities laws cannot be imprisoned for violating them.

The law

provides that "...no person shall be subject to imprisonment under this


section for the violation of any rule or regulation if he proves that he had
no knowledge of such rule or regulation." Because David Connolly
never conceived of himself as someone who dealt in securities, but rather
saw himself as a real estate investor, and had no knowledge of the
securities laws of the United States or of any rule or regulation enacted
thereunder, nor any idea that such laws even existed, this particular
section of the law is tailor-made for Mr. Connolly and protects him from
imprisonment.

In the alternative, the sentencing phase of the

proceedings should be re-opened to permit the defense to present


evidence that Mr. Connolly had no knowledge at the time of securities
laws, rules and regulations he allegedly offended.
In support of his contention that Mr. Connolly knew nothing about any
securities rule or regulation he may have been violating, consider the statements in
Connolly's declaration that: he had absolutely no idea at all at the time that investment
interests in real estate such as residential apartment complexes were or could even be
regarded as securities implicating federal law nor that he was in jeopardy of violating
federal securities laws, rules and regulations by my conduct. Further, as an ordinary New
Jersey real estate broker, investor and apartment complex manager, he had not heard of
nor did he have any knowledge of the federal securities laws. I did not even know of

Case 2:14-cv-03574-WJM Document 31 Filed 05/18/16 Page 11 of 16 PageID: 309

their existence, much less their application his business activities in real estate.
Connolly knew nothing about the provisions of 15 USC 78(j)(b), 78ff(a)
and 17 CFR 240.10b-5, much less what they said. No one, attorney or accountant, with
whom he consulted had ever educated, informed, alerted or warned me that he was
treading on a minefield, at risk of criminally violating these laws. His first awareness of
this was when he was indicted.
Connolly's attorney, who should most certainly have been aware of the
securities laws which Connolly had been accused of breaking, once again proved an
unmitigated disaster as his defense attorney. He apparently had no knowlege about the
last provision of 15 USC Section 78 ff(a) which declares in no uncertain terms that:
...no person shall be subject to imprisonment under this section for the violation of
any rule or regulation if he proves that he had no knowledge of such rule or
regulation.
Point 3. Because There was no Underlying Securities Violation under the 1934 Act,
Count Ten of the is Fatally Defective
Count Ten of the Indictment, to which Defendant David Connolly, in his
ignorance of the law, pleaded guilty, is fatally defective as a matter of law because it is
based on underlying violations of the Securities Exchange Act of 1934 which, as shown
above, did not occur.
Count Ten of the Indictment charged Mr. Connolly with 'Transacting in Criminal
Proceeds' in violation Title 18 United States Code Section 1957. Paragraph 2 of Count
Ten of the Indictment reads:

Case 2:14-cv-03574-WJM Document 31 Filed 05/18/16 Page 12 of 16 PageID: 310

2.On or about the dates set forth below, in the District of


New Jersey and elsewhere, defendant, DAVID
CONNOLLY, knowingly engaged and attempted to engage
in monetary transactions affecting interstate commerce in
criminally derived property of a value greater than $10,000,
such property having been derived from 'specified
unlawful activity,' that is mail fraud and wire fraud, in
violation of Title 18, United States Code Sections 1341,
1343, and 2 as follows [highlighting is mine]:
Count Approximate Date
10
11/29/2007

Monetary Transaction
Transfer in the amount of $900,000 from the Connolly
Properties, Inc., Master Bank Account to bank account
ending *6633 in the name of Connolly Properties, Inc.

The elements of mail fraud are: (1) participation by the defendant in a scheme to
defraud. (2) defendant's use of the mail in furtherance of the scheme. (3) it must be
proven that the defendant who participated in the scheme used or caused the use of the
mail. Likewise, in order to obtain a conviction for wire fraud, the government must
prove the following elements: (1) it must be established that there was a scheme to
defraud. (2), the defendant must have knowingly and willingly participated in the scheme
with the intent to defraud. (3) it must be shown that interstate wire communications were
used to further the scheme. There was no crime properly stated under the indictment in
Connolly soliciting money for the real estate ventures at issue here, so no mail fraud or
wire fraud occurred. Since the government cannot prove that Connolly engaged in the
scheme to defraud that it alleged under the Securities Exchange Act, it cannot make out a
claim

for

either

mail

fraud

or

wire

fraud.

See

also

https://www.justice.gov/usam/criminal-resource-manual-2101-money-
laundering-overview for a discussion of how the defendant must be using money
that was derived from a felony, and it has never been alleged that any funds that
Connolly solicited were derived from criminal activity but instead came from lawful
investors.

Case 2:14-cv-03574-WJM Document 31 Filed 05/18/16 Page 13 of 16 PageID: 311

Of course, ambiguity concerning the ambit of criminal statutes should be resolved


in favor of lenity, and a defendant may not be subjected to a penalty unless the words of a
statute plainly impose it.

Here, any possible criminal liability is completely opaque to

the defendant and therefore the plea and the sentence must be vacated.

Point 4. Because Attorney Saluti Falsely Promised Connolly that There was a Secret
Deal with the Government and that he would not Serve Jail Time, the Confession Was
the Product of Fraud.
The conviction obtained for Count One of the Indictment against Petitioner David
Connolly was fatally flawed because the confession upon which it rests lacks veracity,
having been induced by means of fraud and deception on the part of his attorney Gerald
Saluti, Esq. who brazenly tricked him into pleading guilty by misinforming him that he
had made a secret deal with the United Attorney to have him re-sentenced to a term of
probation at a later date provided he pleaded guilty, answering yes to every question
posed to him during the plea hearing.
In support of his contention that his attorney, Gerald Saluti, Esq. duped Mr. Connolly
into pleading guilty to the charges contained in Count One of the Indictment, charges of
which he was innocent as a matter of law, Connolly states in his declaration that: his
attorneys were crooks who failed to do any work in this case to defend him, he paid
Saluti $133,000 but all Saluti did was trick him into pleading guilty without reference to
the actual charges, promising him that Saluti had made a secret deal with the prosecutor.
Under the terms of this "secret deal," Saluti instructed Connolly to say yes to every
question at the plea hearing in order to guarantee that the plea would be accepted. Under
the terms of this "secret deal," Connolly would never have to go to prison. Instead

10

Case 2:14-cv-03574-WJM Document 31 Filed 05/18/16 Page 14 of 16 PageID: 312

Connolly would be resentenced to probation. Of course, no such "secret deal" existed,


instead, it was merely a ploy on the part of Saluti to get Connolly to plead guilty, which
enabled him to keep his ill-gotten and unearned legal fees without fear that Connolly
could pursue return of those fees, since those who are in prison have a hard time even
managing simple daily affairs, not to mention involvement in litigation.

Point 5. Because Petitioner David Connolly received ineffective assistance of counsel,


he was wrongfully and unlawfully convicted of the charges in Count One of the
Indictment.
Because Petitioner David Connolly received the ineffective assistance of
counsel, he was wrongfully and unlawfully convicted of the charges in Count One of the
Indictment.
Mr. Connolly received the ineffective assistance of counsel in that: (1)
Gerald Saluti, abjectly neglecting his defense, either failed to uncover the fact that the
grand jury had unlawfully charged him, an original issuer of securities, under provisions
of the Securities Exchange Act of 1934 or knowing it failed to raise it.
(2)Gerald Saluti procured Mr. Connolly's confession to Count One of the
Indictment for crimes he could not as a matter of law have committed by means of fraud
and deceit, telling him that he had a secret agreement with United States Attorney to
have him resentenced at a later date to a term of probation, so long as he confessed and
said yes to every question posed to him at the plea hearing. Likewise, he procured his
confession to Count Ten as well.
Defendants have a sacred right to the effective assistance of counsel, as

11

Case 2:14-cv-03574-WJM Document 31 Filed 05/18/16 Page 15 of 16 PageID: 313

guaranteed by and enshrined in the Sixth Amendment to the United States Constitution.
Geraldi Saluti has miserably failed the two prong test laid down by the Supreme Court
in Strickland v. Washington, 466 U.S. 668, 687 (1984), to wit: Firstly, Gerald Saluti's
performance as Mr. Connolly's attorney was deficient in that his ignorance of and/or
his failure to raise the law, to wit, that provisions of the Securities Exchange Act of
1934 under which Mr. Connolly was charged in Count One of the Indictment have no
lawful application to him, as an original issuer of securities, was so serious that he was
not functioning as the counsel guaranteed the defendant by the Sixth Amendment.
Further Gerald Saluti's performance as Mr. Connolly's attorney was
deficient in that his practiced deceit and fraud upon him and the court in connection
with the plea hearing was so serious that he was not functioning as the counsel
guaranteed the defendant by the Sixth Amendment. Finally, Gerald Saluti's deficient
performance was so serious as to deprive Mr. Connolly of a fair trial, a proceeding that
produces a reliable result.
With Justice Sandra Day O'Connor writing for the majority, the Strickland
Court counseled that in making a showing of deficient performance, the defendant must
demonstrate that counsel's representation fell below an "objective standard of
reasonableness." The Court also noted that to show prejudice, the defendant must show
that there is a "reasonable probability" that, but for counsel's unprofessional errors, the
result would have been different. Here, Connolly has made both showings.
CONCLUSION
Serious, critical mistakes have been made in charging, prosecuting and

12

Case 2:14-cv-03574-WJM Document 31 Filed 05/18/16 Page 16 of 16 PageID: 314

convicting Mr. Connolly under Counts One and Ten of the Indictment. Mr. Saluti failed
competently to represent Mr. Connolly, not even bothering to review the relevant statutes
to see if they fit the alleged crimes. This is ineffective assistance of counsel.
Since the crimes to which the defendant, Mr. Connolly pled guilty are crimes
of which he cannot possibly be guilty, it is the duty of the court and of the United States
Attorney, both having sworn a solemn oath to uphold the laws and Constitution, to
correct these mistakes. Therefore, the plea must be set aside and the conviction must be
vacated.
Respectfully submitted,
Dated: May 18, 2016

/s/Elizabeth T. Foster ___________________


Elizabeth T. Foster
Attorney for Petitioner

13