The White Collar Appeal: Acquittal on Conspiracy Count Bars Retrial on Substantive Counts in Revenue-Recognition Securities Fraud Case

• The Second Circuit’s opinion in United States v. Cole not only erases his fraud convictions and wipes the slate clean for Neil Cole, it also provides hope for all defendants who find themselves facing a retrial on substantive counts following an acquittal on a related conspiracy charge.

• The decision illustrates that reviewing courts should conduct a “detailed examination” of the record that is practical and faithful to the trial dynamics that produced the verdict—not engage in hypotheticals or improbable theories of the jury’s decision-making.

• Cole thus gives real teeth to Double-Jeopardy review and compelling arguments to defendants seeking to avoid retrials when a jury acquits on a conspiracy count and hangs on related substantive counts. 

Background

Neil Cole was the founder and CEO of Iconix Brand Group, which acquired well-known trademarks and licensed them to retailers wishing to sell products bearing the marks.  The government alleged that Cole inflated the company’s reported revenue figures through an “overpayments-for-givebacks” scheme.  The government’s theory was essentially that Cole convinced counterparties to pay higher licensing fees than they otherwise would have, and in exchange, gave those counterparties separate contracts for marketing and other services that served to refund a portion of the licensing fee.  Iconix would then book the full amount of the licensing fee as revenue, even though the “kickback” portion should not have qualified as revenue under applicable accounting rules.  The boost to the company’ s revenue, however, made Iconix stock more attractive to investors. 

As relevant here, the government charged Cole with conspiracy to (1) commit securities fraud, (2) make false SEC filings, and (3) interfere with audits.  It also charged him with substantive counts of committing securities fraud, making false SEC filings, and interfering with audits. 

At the first trial, in 2021, the government told the jury that the “central question in [the] case” was whether Cole made “secret agreements” and “dirty deals … for overpayments and givebacks.”  The government argued that Iconix’s COO and two executives from an Iconix customer “worked hand in hand with” Cole to “pull this scheme off.”  The government’s main witness was Iconix’s COO, who was on the stand for approximately one third of the total trial and admitted to conspiring with Cole to commit precisely these crimes.  Cole, for his part, argued that the contracts Iconix awarded to the licensees were independent business decisions with no connection to the licensing agreements—not secret side deals designed to refund licensing fees.  The jury acquitted Cole of the conspiracy count and hung on the substantive counts.

Over Cole’s objection, the district court permitted the government to retry Cole on the substantive counts, which resulted in guilty verdicts.

Holding

The Second Circuit reversed the convictions from the second trial on the basis that they violated the Double Jeopardy Clause.  It reached this conclusion because the “obvious explanation” for the jury’s acquittal on the conspiracy count was that it simply was not persuaded that Cole made fraudulent overpayments-for-givebacks deals.  The court rejected the government’s explanations for the first jury’s verdict—that the jury could have acquitted Cole of conspiracy because it (1) thought he acted alone or otherwise did not reach a conspiratorial agreement with anyone else or (2) believed he conspired but could not agree on the object of the conspiracy—as “implausible” and “unrealistic.” 

The government’s first hypothesis was incoherent, because it would require the jury to have disbelieved the COO’s testimony that he and Cole worked together to commit a crime, yet concluded that the remaining evidence (which equally implicated the COO) was sufficient to show Cole was guilty.  The second hypothesis was too “strange [a] conclusion” to credit, because it implies that at least one juror believed that Cole conspired to lie to Iconix’s auditors but not to deceive investors.  Put another way, the theory would require at least one juror to have found that Cole agreed to “concoct and carry out an elaborate criminal scheme simply for the thrill of evading Iconix’s auditors.”  According to the court, no reasonable juror could reach that conclusion.

Having rejected these “hypertechnical” theories, the court concluded that the only logical explanation for the acquittal was that the jury accepted Cole’s defense and harbored a reasonable doubt about the “central question” of the case:  whether Cole made secret side deals.  Because this factual finding was “indisputably essential” to the substantive counts, the government was precluded from relitigating that issue in a second trial.

Key Takeaways

A conspiracy acquittal carries new weight.  Cole provides strong arguments for defendants who obtain an acquittal on a conspiracy count where the government’s theory was that they were at the center of the conspiracy.  In those circumstances, it often will be the case that the central factual issues at trial applied equally to the conspiracy and substantive counts.  Although not an extremely common occurrence, defendants who find themselves with a hung jury on substantive charges and acquittal on a related conspiracy now have a roadmap to preclude the government from obtaining a retrial.

Cole reflects a remarkably painstaking and practical review of the record.  The court’s analysis not only delved into the details of the trial record but also rejected the government’s theoretically possible, but practically implausible, explanations for the jury’s verdict.  In doing so, the panel was willing to analyze the jurors’ decision-making in a way that courts often are reluctant to do.  Here, the defense was able to marshal the record in a simple and compelling way that brought the trial to life for the Court of Appeals and demonstrated just how illogical and improbable the government’s rationalizations of the verdict were.  The decision even includes a mild rebuke of the government, stating in a footnote that “the government made our review of th[e] record more challenging” by failing sufficiently to cite the trial transcript.  The lesson appears to be that, if an argument requires an appellate court to interpret the meaning of a jury’s verdict, litigants should be faithful to the record and use it to illustrate the real-world dynamics that drove the outcome of the trial.

The government’s trial narrative boxed it in on appeal.  Relatedly, the court refused to credit the government’s arguments because they conflicted with its trial narrative.  Having framed the "central question" of the case for the jury as whether Cole made "secret agreements" and argued he "orchestrated a scheme from the top," the government could not be heard to advance arguments on appeal that the jury rejected that theory, yet still somehow thought Cole was guilty.  Defense lawyers thus should seek to use the government’s (often oversimplistic) jury narrative against it in arguing for issue preclusion by showing that the jury’s acquittal on one count necessarily decided the core facts underlying the others.

Jury instructions on multi-object conspiracies can be outcome-determinative.  In a footnote, the court highlighted that the specific wording of the jury charge in Cole was essential to the Double Jeopardy analysis.  Here, the trial court instructed the jury that if it could not unanimously agree on a criminal object, it "must find Mr. Cole not guilty."  The Second Circuit noted, however, that other courts have instructed juries that, in these circumstances, they "may not find the defendant guilty." Here, the latter instruction would have resulted in a hung jury, rather than acquittal, on the conspiracy charge, which would have permitted the government to retry Cole on all charges.  Defense attorneys should be sure to argue for the language in Cole rather than alternative formulations.

Stay tuned for further proceedings in this case.  The government may well seek rehearing en banc in Cole, as it seems likely that several active Second Circuit judges who were not on the panel might believe that the way the court analyzed the jurors’ decision-making exceeded the role that appellate judges should play.  And because the decision provides a seemingly defense-friendly roadmap for future appeals, the government might conclude that it has nothing to lose in an en banc rehearing.