## Facts

- Schwartz, an attorney serving as counsel to Armstrong Co., Inc., was closely involved in the firm’s business operations.
- Armstrong, a broker-dealer, sought financing connected to a stock sale agreement but could not meet required financial conditions.
- Schwartz helped arrange a loan from Sterling Factors by pledging 150,000 shares of stock as collateral.
- The collateral included fully paid customer securities held by Armstrong.
- Pledging all shares to secure the loan exposed customers—who had paid in full for their securities—to the risk of loss if Armstrong defaulted, because the securities were subject to liens beyond any customer indebtedness.
- Schwartz was charged and convicted of conspiracy to violate federal hypothecation restrictions under the Securities Exchange Act of 1934 and SEC rules limiting the use of customer securities as collateral.
- The district court imposed a $2,500 fine, and Schwartz appealed.

## Issues

1. Whether the delay between the alleged conduct and prosecution violated Schwartz’s Sixth Amendment right to a speedy trial.
2. Whether the statutory and regulatory hypothecation provisions were unconstitutionally vague for lack of fair notice.
3. Whether alleged defects in grand jury proceedings or evidentiary rulings (including admission of business records) required reversal.

## Decision

- The Second Circuit affirmed the judgment of conviction and the $2,500 fine.
- Applying the Barker v. Wingo balancing test, the court held there was no Sixth Amendment speedy-trial violation, emphasizing case complexity, lack of intentional government delay for tactical advantage, and insufficient showing of prejudice.
- The court rejected the vagueness challenge, holding the hypothecation provisions gave adequate warning to persons of ordinary intelligence that over-hypothecating fully paid customer securities was prohibited.
- The court dismissed Schwartz’s remaining claims regarding grand jury sufficiency and evidentiary rulings, finding no reversible error.

## Legal Principles

- Speedy trial claims are evaluated by balancing length of delay, reasons for delay, the defendant’s assertion of the right, and prejudice; substantial delay alone does not establish a violation absent unjustified government conduct and actual prejudice.
- The Sixth Amendment speedy-trial right applies after accusation; pre-accusation delay is assessed under different constitutional constraints.
- A statute or regulation is not void for vagueness if it provides sufficiently clear warning of prohibited conduct to individuals of common intelligence.
- In the broker-dealer context, knowingly pledging fully paid customer securities as collateral in a manner that subjects them to liens exceeding customer indebtedness can support criminal conspiracy liability for participants, including attorneys involved in firm operations.

## Conclusion

The Second Circuit upheld Schwartz’s conspiracy conviction for arranging financing that pledged fully paid customer securities in violation of federal hypothecation limits, finding no speedy-trial violation under Barker and concluding the governing provisions provided adequate notice and were not unconstitutionally vague.


United States v. Schwartz, 464 F.2d 499 (2d Cir. 1972)