## Facts

- Mark P. Kaiser was a high-level executive at U.S. Food Services (USF), a subsidiary of Royal Ahold N.V. (Ahold).
- The government alleged Kaiser participated in a scheme to inflate USF’s promotional allowance (PA) income through improper accounting and related entries.
- The alleged inflation affected USF’s financial reporting and, in turn, Ahold’s public financial disclosures.
- Kaiser was charged with: (1) conspiracy to commit securities fraud, make false SEC filings, and falsify books and records; (2) securities fraud under § 10(b)/Rule 10b-5; and (3) multiple counts of making or causing false SEC filings.
- A jury convicted Kaiser on all counts, but on the conspiracy count specifically found the conspiracy’s objectives included making false filings and falsifying books and records, not committing securities fraud.
- The district court sentenced Kaiser to 84 months’ imprisonment and a $50,000 fine.
- On appeal, Kaiser challenged jury instructions (conscious avoidance and willfulness), several evidentiary rulings (including admission of a statement that USF’s general counsel wanted to report him to the SEC), and aspects of sentencing.

## Issues

1. Whether the district court’s conscious-avoidance instruction on knowledge was legally deficient because it omitted the required “high probability” and “actual belief” components.
2. Whether the court correctly instructed the jury on “willfulness” for securities fraud under § 10(b) and Rule 10b-5.
3. Whether the district court abused its discretion in admitting (a) evidence of conduct predating the charged securities fraud period, (b) certain planners as business records, and (c) hearsay that USF’s general counsel wanted to report Kaiser to the SEC.
4. Whether the sentence was correctly calculated (including loss and enhancements), given the challenged convictions.

## Decision

- The Second Circuit vacated Kaiser’s convictions and remanded for a new trial.
- The court held the conscious-avoidance instruction was erroneous because it failed to require findings that (1) the defendant was aware of a high probability of the relevant fact and (2) the defendant did not actually believe the fact was not true.
- The court concluded the instructional error was not harmless because scienter was central to the case.
- The court also determined that admitting the general counsel “wanted to report Kaiser to the SEC” statement was erroneous hearsay and potentially prejudicial.
- Because the convictions were vacated, the sentence was set aside; the court provided limited guidance for any resentencing after retrial.

## Legal Principles

- A conscious-avoidance (willful blindness) instruction must require the jury to find the defendant was aware of a high probability of the fact at issue.
- The instruction must also inform jurors they may not infer knowledge through conscious avoidance if the defendant actually believed the fact did not exist.
- An incomplete conscious-avoidance instruction risks permitting conviction based on negligence or recklessness rather than knowledge.
- Hearsay offered to convey an accusatory view of the defendant’s culpability (such as an internal lawyer’s desire to report the defendant) is inadmissible absent a valid exception and may require reversal when prejudicial.
- When convictions are vacated for trial error, the sentence based on those convictions is also vacated, and any recalculation on remand must follow the appellate court’s guidance.

## Conclusion

The Second Circuit ordered a new trial because the jury was improperly instructed on conscious avoidance in a scienter-dependent fraud prosecution, and prejudicial hearsay was admitted, undermining confidence in the verdict.


United States v. Kaiser, 609 F.3d 556 (2d Cir. 2010)