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Civ. No. 14-3574 (WJM)

Crim. No. 12-343 (WJM)
Hon. William J. Martini


From at least as early as 2006 through October 2009, petitioner David
Connolly ran a multi-million dollar Ponzi scheme disguised as a real estate
investment business. (PSR 19; 25).2 Connolly solicited investors from states
including New Jersey, Florida, and Pennsylvania, for approximately thirty real
estate investment deals. (PSR 23). For each investment, Connolly prepared a
prospectus which described the property, the number of shares available for
purchase, the ownership structure, and financial projections. (PSR 25).
Connolly kept a number of shares of each investment entity as a
management fee. When distributions were made to investors, Connolly would
be paid a share as well. Connolly paid himself almost $600,000 in 2006, more

A more detailed description of petitioners criminal conduct is set forth in the Governments
10/25/14 Answer to Petitioners Original Section 2255 Petition. (Doc. No. 9).

PSR refers to the final Presentence Investigation Report, dated April 18, 2013.

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than $650,000 in 2007, more than $700,000 in 2008, and almost $300,000 in
2009, for a total of approximately $2.25 million. (PSR 26).
Beginning in at least as early as 2006, Connolly knew that many of the
real estate investment entities had not generated sufficient income to pay their
own expenses, including mortgage obligations, as well as distributions to
investor victims. (PSR 28). To make up for the negative cash flows, Connolly
commingled revenues from the separate investment entities and investor
capital contributions, and used all available money to pay mortgages,
expenses, and investor distributions. Connolly repeatedly assured investors
that their investments were in good shape. (PSR 29). He further lied about
vacancy rates, receipts, cash reserves, and other aspects of the business. (PSR
In addition, Connolly continued to solicit and accept new investment
contributions through March 2009, using the money to pay operating expenses
and distributions related to earlier investments. (PSR 30). Ultimately,
Connolly was unable to purchase Marshall Woods and Hampshire Court -- two
properties for which he had specifically collected capital contributions, as he
misappropriated the money targeted for these purchases for other purposes.
(PSR 57-61).
When the scheme ran out of money in early 2009, Connolly stopped
paying the mortgages. As a consequence, the banks holding mortgages on the
buildings instituted foreclosure actions, and the investment entities declared

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bankruptcy. Ultimately, approximately 150 to 200 investors suffered a net loss

of more than $18 million. (PSR 68-71).
On January 23, 2013, a fifteen count superseding indictment was
returned against Connolly. Count One charged Connolly with securities fraud,
in violation of 15 U.S.C. 77j(b) and 78ff(a), and Title 17, Code of Federal
Regulations, Section 240.10b-5. Counts Two through Seven charged mail
fraud, in violation of 18 U.S.C. 1341 and 2. Counts Eight and Nine charged
wire fraud, in violation of 18 U.S.C. 1343 and 2; and Counts 10 through 15
charged engaging in a monetary transaction in criminally derived property
greater than $10,000, in violation of 18 U.S.C. 1957.
On or about February 4, 2013, Connolly entered a guilty plea before this
Court to Counts One and Ten of the superseding indictment. Pursuant to the
plea agreement, the parties stipulated that 1) the offense involved losses
totaling more than $7 million but less than $20 million, and 2) that the offense
involved more than 50 victims but less than 250 victims, and that a forfeiture
of $9.92 million was appropriate.
A sentencing hearing was held on June 5, 2013. This Court sentenced
Connolly to a term of imprisonment of 108 months on Count One, and to a
concurrent term of 60 months on Count Ten. The Court also ordered Connolly
to make restitution in the amount of $18,732,775 and to forfeit the sum of
$9.92 million. The judgment of conviction was entered on June 6, 2013. On
October 21, 2013, following a motion by the United States, the Court entered

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an amended judgment of conviction to correct a clerical mistake in the original

judgment. Connolly did not file a direct appeal challenging either his sentence
or conviction.
On June 4, 2014, Connolly filed a brief in support of a Section 2255
petition in which he claimed that 1) Counts One and Ten of the superseding
indictment to which he had pleaded guilty failed to state a cause of action and
2) his attorney, Gerald Saluti, Esq., had provided ineffective assistance of
counsel by failing to move to dismiss the indictment instead of counseling him
to plead guilty to conduct that was not properly charged. (Doc. No. 1). In
particular, Connolly claimed that Count One of the indictment did make any
reference to the term security, did not identify any instrument that would fall
within the definition of the term security, and did not describe the scheme to
defraud or in what manner his activities made use of interstate commerce or
the mails.
On August 13, 2014, Connolly filed a Section 2255 petition on the
appropriate form supplied by the Clerks Office, raising the same issues that he
had raised in the earlier brief. (Doc. No. 4). On October 25, 2014, the
Government filed an Answer to Connollys Section 2255 petition. (Doc. No. 9).
On December 2, 2014, Connolly requested a thirty-day extension to file a
reply to the Governments Answer. (Doc. No. 10). On January 4, 2015,
Elizabeth Foster, Esq. filed a notice of appearance on behalf of Connolly in the
Section 2255 action. (Doc. No. 11). On January 6, 2015, Ms. Foster requested
thirty days from that date to file a reply to the Governments Answer. (Doc.

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Nos. 12, 13). On January 9, 2015, this Court granted a thirty-day extension
and directed that any reply brief needed to be filed by February 6, 2015 and
that the brief should respond to the defenses and legal arguments raised in the
Governments Answer. (Doc. No. 14).
On February 9, 2015, Ms. Foster requested a further extension of time to
file a reply brief stating that she wished to obtain and review prior defense
counsels file and prepare an amended petition. (Doc. No. 15). On February
13, 2015, the Government opposed the request to amend the original Section
2255 petition as counsel had failed to allege the specific nature of the proposed
amendment, let alone establish that the new claims related back to the claims
in the original petition. (Doc. No. 16). On February 19, 2015, this Court
granted petitioner until March 5, 2015 to file a reply brief responding to the
defenses and legal arguments raised in the Governments answer. This Court
further directed petitioner to file a letter by March 12, 2015 describing the
claims that petitioner planned to include in an amended petition and further
explaining why the Court should permit such an amendment. (Doc. No. 17).
On March 6, 2015, Ms. Foster filed a reply to the governments answer.
In contravention of this Courts instructions, the reply contained numerous
new factual assertions regarding the alleged ineffective assistance of Gerald
Saluti, Esq. that were not contained in the original petition, including that
Saluti: 1) generally overcharged his clients; 2) did no work in petitioners case
and ignored petitioners calls; 3) advised petitioner that petitioner would never
go to jail; 4) did not read the plea agreement; and 5) advised petitioner not to

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speak to the probation officer preparing his presentence investigation report.

In addition, rather than addressing the alleged insufficiency of the charging
language in the indictment, which was the claim asserted in the original
petition, the reply disputed the sufficiency of the evidence underlying the
charged offenses to which the defendant pleaded guilty. Notably, no affidavit
was submitted from the defendant supporting any of these allegations.
Instead, petitioners wife Donna Connolly submitted a declaration containing
conclusory hearsay comments regarding what her husband believed, and what
he relied upon, in making decisions about his case.3 (Doc. Nos. 18, 19).
On March 12, 2015, Ms. Foster filed a letter, on behalf of petitioner
setting forth the reasons why petitioner should be permitted to file an amended
petition. In response to the governments assertion that the amendments must
relate back to the original claims and be tied to a common core of operative
facts, Ms. Forster stated simply that this legal requirement was satisfied as
the original and new claims both contained claims of ineffective assistance of
counsel. (Doc. No. 20). The Government responded to Ms. Fosters March 6
and March 12, 2015 submissions on April 23, 2015. (Doc. No. 22).
On February 25, 2016, this Court granted petitioners motion to amend
his Section 2255 petition. (Doc. No. 23). On March 8, 2016, this Court
directed that petitioner was to file an amended petition within thirty days.
3 In support of the allegations regarding Mr. Saluti, Ms. Foster also improperly relied upon 1)
snippets of a civil complaint that she filed against Mr. Saluti and his law firm, on behalf of a
fired employee, an individual who subsequent to the lawsuit was charged in or about December
2014 by an Essex County grand jury with theft from Salutis law firm; and 2) recommendations
made by the New Jersey Supreme Courts Ethics Committee which Ms. Foster incorrectly
characterized as findings by the New Jersey Supreme Court and which had nothing to do with
Salutis representation of the petitioner in this federal case.

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(Doc. No. 24.)

On April 12, 2016, Ms. Foster requested an additional ninety days to file
petitioners amended petition, asserting that she needed to order the grand jury
transcript that lead to petitioners indictment. (Doc. No. 26). The following
day, this Court granted counsel a thirty-day extension until May 13, 2016 to
file the amended petition. The Court cautioned counsel that her arguments in
the amended petition should be limited to those made in her motion to amend.
(Doc. No. 26).
On May 14, 2016, Ms. Foster filed a Memorandum in Support of
Petitioner David Connollys Habeas Corpus Petition, as well as a Declaration
from petitioner. (Doc. Nos. 28, 29). Amended versions of these two documents
were thereafter filed on May 18, 2016. (Doc. No. 31). Despite the Courts
admonitions, Ms. Foster has raised new factual and legal contentions that were
not referenced in her March 12, 2015 letter in support of the application to
amend the original petition.
Ms. Foster now asserts: 1) petitioner cannot be guilty of the securities
fraud charge that he pleaded to, as he was an original issuer of securities, and
not a re-seller, 2) he should not have been sentenced to imprisonment, as he
did not have knowledge that he was violating any specific securities rule or
regulation; 3) he cannot be guilty of the money laundering count as it is
premised on an underlying allegedly defective securities fraud charge; 4) Saluti
tricked him into pleading guilty by advising him that he had a secret deal with
the government and that he would never go to prison; and 5) Saluti was

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ineffective because he failed to recognize that the securities fraud charge was
defective as it did not apply to an original issuer of securities. An analysis of
these latest claims demonstrates that they are procedurally deficient and
substantively without merit. Accordingly, his Section 2255 petition should be
Petitioners Allegation that he was Improperly Charged in Count One with
Violating Provisions of the Securities Exchange Act of 1934 is Untimely,
Procedurally Defaulted, and Without Merit.
Paragraph 10 of Count One of the indictment described the scheme to
defraud, in part, as follows:
10. From at least as early as in or about 2006 through in or
about October 2009, in the District of New Jersey and elsewhere,
by use of the means and instrumentalities of interstate commerce,
the mails, and facilities of national securities exchanges, directly
and indirectly, knowingly and willfully used manipulative and
deceptive devices and contrivances in contravention of Title 17,
Code of Federal Regulations, Section 240.10b-5 (Rule 10b-5) in
connection with the purchase and sale of securities by (i)
employing devices, schemes, and artifices to defraud members of
the investing public; (ii) making untrue statements of material fact
and omitting to state material facts necessary in order to make the
statements made, in the light of the circumstances under which
they were made, not misleading; and (iii) engaging in acts,
practices, and a course of business which operated and would
operate as a fraud and deceit upon the Investors in the Connolly
Paragraph 11 of Count One set forth the object of the scheme while paragraphs
12 through 48 provided a summary of the scheme, including detailed examples
of the fraudulent conduct, lulling distribution payments, and

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misrepresentations. Count One further alleged that all of the described

conduct was in violation of Title 15, United States Code, Sections 78j(b) and
78ff(a), as well as Rule 10b-5.
According to petitioner, he is entitled to habeas relief because he was
improperly charged under the Securities Exchange Act of 1934, 15 U.S.C.
78a through 78mm ( the 1934 Act). In particular, petitioner alleges that the
1934 Act only covers fraudulent conduct engaged in during the course of
selling existing securities, rather than fraud and misrepresentations with
respect to the initial offering of securities. His argument fails on several
First, he failed to raise the claim that he was improperly charged under
the 1934 Act while he was before this Court prior to the entry of his judgment
of conviction and he similarly failed to raise this claim on direct appeal.
[C]laims not raised on direct appeal ordinarily may not be raised on
collateral review. Massaro v. United States, 538 U.S. 500, 504 (2003). This
doctrine is neither a statutory nor a constitutional requirement, but a judgemade rule adhered to by the courts to conserve judicial resources and to
respect the laws important interest in the finality of judgments. 538 U.S. at
In practice, the requirement that a claim be adequately preserved means
that the defendant must raise it at trial, whether by motion, objection, or
otherwise, and on direct appeal. See Murray v. Carrier, 477 U.S. 478, 490-492
(1986)(claim not raised no direct review is procedurally defaulted). Doing one

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but not the other will not prevent the claim from being defaulted.
Federal courts will not review a procedurally defaulted claim on collateral
review unless the defendant can establish one of two circumstances: either (1)
cause for the default and actual prejudice from the error, or (2) that the Court=s
failure to consider the claim will result in a miscarriage of justice because the
defendant is Aactually innocent.@ Bousley v. United States, 523 U.S. 614, 622
(1998); Hodge v. United States, 554 F.3d 372, 378-79 (3d Cir. 2009). See also
United States v. Frady, 456 U.S. 152, 167 (1982).
Here, Connolly has failed to establish any cause for his failure to allege
supposed defects in the superseding indictment in the district court and on
direct appeal. Any defects in the charging language, if they existed, should
have been apparent from reading the allegedly defective pleading. Moreover, he
has failed to allege any actual prejudice from the claimed error. Indeed, had
Connolly timely raised his objections below prior to his plea hearing, the United
States would have had the opportunity to remedy any perceived defects
through a second superseding indictment, or information alleging an
alternative legal theory. Further, Connolly does not contend that he is
actually innocent of the scheme to defraud investors alleged in Count One,
but merely that the superseding indictment relied upon the wrong provision of
the securities law.
Second, Connolly did not contend in his initial Section 2255 petition (nor
even in his motion to amend his petition) that he was improperly charged
under the 1934 Act. A claim raised in an amended Section 2255 petition filed

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after the expiration of the one-year limitation period is only considered to be

filed within the one year period if the claim relates back to the petitioners
original timely Section 2255 petition. See Mayle v. Felix, 545 U.S. 644, 656
(2005); Fed. R. Civ. P. 15(c). An amendment relates back if the claim arose out
of the same conduct, transaction, or occurrence set out or attempted to be
set out in the original pleading. Fed. R. Civ. P. 15(c)(1)(B). Claims do not
relate back merely because they arose out of the same trial and conviction.
Mayle, 544 U.S. at 650. Instead, the claims must be tied to a common core of
operative facts. Id. at 664. Here, Connollys initial claim that the indictment
did not sufficiently reference the term security or describe the scheme to
defraud and the use of interstate commerce is fundamentally different than his
present claim that he was charged under the wrong statutory provision.
Third, Connollys contention that he was improperly charged under the
1934 Act is wrong. During the 1930s, Congress enacted two important
statutes regulating securities. The Securities Act of 1933 (the 1933 Act) was
described in its preamble as an Act to provide full and fair disclosure of the
character of securities sold in interstate and foreign commerce and through the
mails, and to prevent frauds in the sale thereof, and for other purposes. The
1934 Act was described as an Act to provide for the regulation of securities
exchanges and over-the-counter markets operating in interstate and foreign
commerce and through the mails, to prevent inequitable and unfair practices
on such exchanges and markets, and for other purposes.


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The Supreme Court has recognized, however, that these two acts
constitute interrelated components of the federal regulatory scheme governing
transactions in securities. See Ernst & Ernst v. Hochfelder, 425 U.S. 185, 206
(1976); Herman & McLean v. Huddleston, 459 U.S. 375, 380 (1983). In
Herman, the Supreme Court held that the 1934 Act is broad enough to
encompass fraud in the initial offerings of securities as well as in subsequent
trading in those securities. 459 U.S. at 380-387. More specifically, the
Herman Court concluded that the existence of a specific provision of the 1933
Act, i.e., 15 US.C. 77k (known as Section 11) which prohibited misleading
information in a registration statement did not bar a private right of action for
fraudulent conduct under 15 U.S.C. 78j(b) (known as Section 10-b) of the
1934 Act. In reaching this holding, the Court stated, we see no reason to
carve out an exception to Section 10(b) for fraud occurring in a registration
statement just because the same conduct may also be actionable under Section
11. 459 U.S. at 382.
Indeed it is hardly a novel proposition that the Securities Exchange Act
and the Securities Act prohibit some of the same conduct. 459 U.S. at 383
(citing to United States v. Naftalin, 441 U.S. 768, 778 (1979) (applying Section
17(a) of the 1933 Act to conduct also prohibited by Section 10(b) of the 1934
Act)). In order to ensure that the 1933 and 1934 laws were read in tandem,
Congress enacted savings clauses which made clear that the remedies in each
Act were designed to supplement and not replace each other. Herman, 459
U.S. at 383. See Section 16 of the 1933 Act (the rights and remedies provided

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in this subchapter shall be in addition to any and all rights and remedies that
may exist at law or in equity); Section 28(a) of the 1934 Act (containing a
similar provision).
The Herman Court further explained that a cumulative construction of
the securities laws . . . furthers their broad remedial purposes. 459 U.S. at
386. See also SEC v. Capital Gains Research Bureau, 375 U.S. 180, 195
(1963)(securities fraud laws should be not be construed technically but rather
flexibly to effectuate [their] remedial purposes). Section 10(b) of the 1934 Act
is written in a broad fashion and makes it unlawful to use or employ, in
connection with the purchase or sale of any security . . . any manipulative or
deceptive device or contrivance in contravention of such rules and regulations
as the Commission may prescribe as necessary or appropriate in the public
interest or for the protection of investors. (Emphasis added). The usefulness
of the expansive protection provided against fraud in Section 10(b) of the 1934
Act would be undermined if its scope were limited by the specific remedy
provided under Section 11 of the 1933 Act. See also Robinson v. Difford, 92
F.Supp.145, 148-49 (E.D. Pa. 1950) (finding that the reach of the 1934 Act was
not limited to its preamble reporting its purpose to regulate registered
securities or those traded in the over-the-counter market, where the language
in 10(b) was plain and unambiguous that it was intended to cover fraud with
respect to any security).
Notably, in United States v. Rudi, 902 F. Supp. 452 (S.D.N.Y. 1995), the
district court denied a challenge to a securities fraud indictment similar to the

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one Connolly raises here. A financial advisor to a bond issuer had been
charged with violating the antifraud provisions of the 1934 Act, i.e., Section
10(b), by procuring kickbacks from an underwriter. The defendant claimed
that he could not be prosecuted under the 1934 Act as the alleged fraud
occurred before distribution of the bonds to the public and therefore was
exclusively covered by Section 17(a), 15 U.S.C. 77q(a) of the 1933 Act.
Relying upon the Supreme Court decisions addressing this issue, the district
judge held that the sale was covered by the 1934 Act, noting that [r]espondent
is undoubtedly correct that the two Acts prohibit some of the same conduct.
But (t)he fact that there may well be some overlap is neither unusual or
unfortunate.) (quoting from Naftalin, 441 U.S. at 778). In sum, Connollys
challenge to his plea to Count One, charging him with violating the 1934 Act, is
untimely, procedurally defaulted and without merit.


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Petitioners Allegation that the No Knowledge Clause Contained in the
1934 Act Should Have Barred A Term of Imprisonment is Untimely,
Procedurally Defaulted, and Without Merit.
Connolly invokes the no knowledge clause within 15 U.S.C. 78ff(a),
claiming that he did not know that his real estate investments could be
considered securities and that he did not have specific knowledge of provisions
in the 1934 Act under which he was charged. Accordingly, petitioner asserts
that he should not have been sentenced to prison. Petitioners knowledge of
specific SEC rules and regulations, however, is not required. Further, his bare,
self-serving assertions in his declaration are outweighed by direct and
circumstantial evidence that he knew it was against the law to defraud
investors. His belatedly raised no knowledge claims should be rejected on
both procedural and substantive grounds.
Section 78ff(a) of Title 15, United States Code, provides:
Any person who willfully violates any provision of this chapter
. . . or any rule or regulation thereunder the violation of which is
made unlawful or the observation of which is required under the
terms of this chapter . . . shall upon conviction be fined not more
than $1,000,000, or imprisoned, or both . . . but no person shall
be subject to imprisonment under this section for the violation of
any such rule or regulation if he proves that he had no knowledge
of such rule or regulation. (Emphasis supplied).
The no knowledge clause was added as a compromise between the Senate
and the House of Representatives during the passage of the 1934 Act. See
United States v. Lilley, 291 F. Supp. 998, 992 (S.D. Texas 1968).
It was included in the 1934 Act as a compromise measure to
allay fears in Congress that, by enacting a vast new securities
statute giving broad rule-making authority to the SEC, and by

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making violations of such rules criminal, the legislators were

subjecting totally innocent people persons who might act
without knowledge that their conduct was prohibited by a rule
to possible incarceration.
United States v. Sloan, 399 F.Supp. 982, 984 (S.D.N.Y. 1975). Congress did
not intend this clause to be available to persons who knew that their conduct
violated the law, but did not know it also violated a particular SEC rule or
regulation. Sloan, 399 F. Supp. at 984.
It is equally clear, however, that Congress intended to charge every
man with knowledge of the standards prescribed in the securities
acts themselves. It would frustrate the intent of Congress to
permit a person whose conduct is expressly prohibited by statute
to prove no knowledge of a parallel rule provision.
Lilley, 291 F.Supp. at 992.
The no knowledge clause is an affirmative defense to a sentence of
imprisonment. See United States v. OHagan, 521 U.S. 642, 677 n.23 (1997).
Hence, a defendant bears the burden of proving a lack of knowledge of the
charged rule or regulation by a preponderance of the evidence. See United
States v. Reyes, 577 F.3d 1069, 1081 (9th Cir. 2009). Proof of a lack of
knowledge of the rule can only mean proof of an ignorance of the substance of
the rule, proof that the defendant did not know [his or her] conduct was
contrary to law. Reyes, 577 F.3d at 1081 (citing to United States v. Schwartz),
464 F.2d 499, 509 n. 16 (2d Cir. 1972), Lilley, 291 F. Supp. at 993. It is not a
defense for a defendant to argue a lack of knowledge of the precise number or
common name of the rule, the book and page where it was found, or the date
upon which it was promulgated. Lilley, 291 F. Supp. at 993; United States v.


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Jensen, 537 F. Supp. 2d 1069, 1073 (N.D. Cal. 2008).

Notably, several district courts have held that the no knowledge clause
does not apply to a conviction for violating a securities statute, as opposed to a
violation of a SEC rule or regulation. See Lilley, 291 F. Supp. at 992; Sloan,
399 F. Supp. at 984-85; United States v. Knueppel, 293 F. Supp. 199, 203-04
(E.D.N.Y 2003) (holding that Rule 10b-5 is not a mere technical rule but rather
implements Section 10(b) of the 1934 Act, which makes illegal all types of
fraud; therefore, convictions under Section 10(b) and Rule 10b-5 are inherently
criminal and are not covered by the no knowledge provision). As these
opinions explain, the intent of the no knowledge clause is to avoid
imprisonment for technical violations of SEC rules or regulations, where the
defendant has no knowledge of the rule or regulation. It was not intended to
give a defendant protection from imprisonment for general fraud offenses.
Here, Connolly failed to raise the no knowledge clause at the time of his
sentencing or on direct appeal. Thus, his claim should not be available on
collateral review because he has failed to establish cause for this default. See
Massaro, 538 U.S. at 504; Bousley, 523 U.S. at 622. Notably, at no time
during his plea or sentencing hearings did he assert that he was unaware that
it was unlawful to misrepresent and omit material facts in statements that he
provided to those he solicited to invest in the various real estate entities. See
Petitioners 2/4/13 Plea and 6/4/13 Sentencing Hearing Transcripts, attached
hereto as Exhibits A and B, respectively.
Further, Connolly failed to raise the no knowledge clause claim in his

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initial Section 2255 petition. As the present claim does not relate back to his
original habeas claims asserting defects in the charging language of his
indictment, it is outside the one-year statute of limitations, and should be
barred on this ground, as well. See Mayle, 545 U.S. at 656.
Connolly has also failed to meet his burden of establishing the
applicability of the no knowledge clause. He pleaded guilty to and was
convicted of fraud in violation of Section 10b and Rule 10b-5. Thus, it was not
the type of technical violation of an SEC rule or regulation for which the clause
was intended. Notably, Connolly has not cited to any case where the no
knowledge clause has been applied in a defendants favor. To the contrary,
federal courts routinely have held that defendants have failed to meet their
burden of showing the clause prohibited a sentence of imprisonment. See, e.g.,
United States v. Laurenti, 731 F.3d 967, 972 (9th Cir. 2013) (affirming district
courts refusal to grant an evidentiary hearing due to defendants failure to
present evidence in support of his motion, and finding that his claim that he
did not know the requirements set forth in 10b-6 is implausible.); United
States v. Behrens, 713 F.3d 926, 932 (8th Cir. 2013) (defendants admissions at
plea hearing that he knew it was illegal to make a misrepresentation of fact
related to the sale of a security sufficed to show that he had knowledge of the
substance of Rule 10b-5; thus, he was removed from the protection of the noknowledge provision); Reyes, 577 F.3d at 1082 (the district court appropriately
concluded [the defendant] had not carried her burden of establishing that she
had no knowledge of the SEC rule prohibiting the falsification of books and

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records); Lilley, 291 F. Supp. at 993 (finding that the defendants failed to meet
their burden of proof, as evidence showed that they were aware that securities
fraud was prohibited by law).
Connollys assertions in his declaration that he did not know of specific
provisions of the securities regulations or securities laws are unavailing as
such knowledge is not required.4 Moreover, it is evident from his background
and experience, as well as his plea colloquy and sentencing hearing remarks,
that he was aware that it was unlawful to engage in fraud and deceit related to
his investors. Connolly is an educated and intelligent man. He graduated high
school with a GPA of 4.46. (PSR 120). He holds an associate degree from
Raritan Community College in real estate, graduating with a 4.0 GPA. (PSR
120.) He has also held licenses as a real estate broker and as a title insurance
producer and spent years working as a real estate agent, a title searcher and
title insurance underwriter. See 11/19/2009 Connolly Deposition at 10-16,
attached hereto as Exhibit C. Although Connolly was not licensed in the
securities industry, it simply defies logic that Connolly would not have learned
of the basic prohibition against making deliberate and material omissions and
misrepresentations in real estate transactions from his years of working in the
industry and the training he would undoubtedly have needed to become
licensed in the fields of real estate and title work.
Connolly makes the broad statement in his declaration that he had never heard of nor did I
have any knowledge of the federal securities laws. I was not even aware that they existed,
much less that they applied to my real estate business. This contention is not credible given
that he had knowledge of state securities laws and the need for registration. See Exhibit C, at
37-38 (acknowledging that he had registered with the securities bureau over the years but not
every time and that it was an oversight that he stopped that practice.)


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Moreover, Connolly acknowledged at his plea hearing that he had

knowingly engaged in deceitful conduct. In particular, he admitted, among
other things, that: he had distributed prospectuses for each proposed
acquisition, he was aware that the revenue from many of the investment
entities was not sufficient to continue to cover operating expenses and
distributions; he commingled revenues from investment entities to make up for
negative cash flows; he concealed and misrepresented to investors in
prospectuses and other communications the financial state of the investment
entities; he concealed his misappropriation of the capital contributions that he
had received for the Marshall Woods and Hampshire Court properties by
offering investors an interest in another entity; and he had acted knowingly
and intentionally in committing those acts. See Exhibit A, at 13-17.
In addition, Connolly repeatedly acknowledged at his sentencing hearing
that he had violated the law. At the beginning of his remarks he stated, (f)irst,
I want to say I accept total responsibility for my offenses. I broke the law and
my actions are inexcusable. Exhibit B, at 25. Later, Connolly remarked, I
was doing everything in my power to keep things afloat so that I could recover
the properties for my investors, but I did do things that violated the law.
Exhibit B, at 26.
Simply put, it is unfathomable that Connolly did not know that it was
against the law to commit a fraud and deceit upon those investors that he
solicited in his prospectuses to purchase his various real estate entities. His
Section 2255petition based upon the no knowledge clause should be denied.

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Count Ten of the Indictment Charging Money Laundering in Violation of
18 U.S.C. 1957 was not Defective.
Connolly claims that his plea to Count Ten of the Indictment should be
vacated as the monetary transaction that was the subject of this money
laundering count was derived from an underlying violation of the 1934 Act,
which Act he claims was improperly charged. As set forth in Point I, supra,
Connolly was properly charged with committing securities fraud in Count One
in violation of the 1934 Act as Section 10bs reach is not limited to initial
offerings of securities but encompasses schemes to defraud in connection with
the purchase and sale of any security.
In any event, Count Ten charged that the specified unlawful activity was
wire and mail fraud, in violation of 18 U.S.C. 1341, 1343, and 2, and not
securities fraud. Although Connolly did not plead guilty to wire or mail fraud,
paragraphs 1 through 9 and 11 through 48 of Count One of the Superseding
Indictment which were incorporated by reference in Count Ten described
at length the scheme to defraud and the use of mails and wires in furtherance
of that scheme. This claim is accordingly devoid of merit.


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Connolly has Failed to Demonstrate that Salutis Performance was
Connolly claims that Saluti was ineffective for: (1) failing to argue that
Connolly was improperly charged under the 1934 Act; (2) failing to argue the
no knowledge clause as a bar to his sentence of imprisonment; and (3) falsely
assuring Connolly that he had a secret deal with the Government and that
Connolly would not serve any jail time. These claims also are procedurally
barred and substantively deficient.
These new ineffective assistance of counsel claims are outside the oneyear statute of limitations as Connolly did not raise them in his original
petition and they do not relate back to the ineffective assistance of counsel
claims that he did raise in his original petition, which were not based upon a
common core of operative facts. See e.g. Dodd v. United States, 614 F.3d 512,
515 (8th Cir. 2010); United States v. Ciampi, 419 F.3d 20, 24 (1st Cir. 2005).
Connollys initial claims that the indictment did not sufficiently reference the
term security or describe the scheme to defraud and the use of interstate
commerce are fundamentally different than his present claims that he was
charged under the wrong statutory provision, was not subject to a term of
imprisonment, and was falsely told that his counsel had a secret deal with the
government that he would not go to prison. See, e.g., United States v.
Hernandez, 436 F.3d 851, 857 (8th Cir. 2006)(ineffective assistance claim
regarding cross-examination did not relate back to claim arising from counsels


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alleged failure to object to admission of evidence); United States v. Duffus, 174

F.3d 333, 336-337 (3d Cir. 1999)(claim that counsel failed to move to suppress
narcotics did not relate back to original Section 2255 claim that counsel failed
to challenge use of a particular sentencing guideline).
As a matter of substance, Connolly bears the burden of establishing his
counsels ineffectiveness. See Smith v. Robbins, 528 U.S. 259, 285 (2000);
Marshall v. Hendricks, 307 F.3d 36, 89 (3d Cir. 2002). To meet that burden,
Connolly must satisfy the Strickland two-prong test. First, Connolly must show
that his counsels representation was not within the range of competence
demanded of attorneys in criminal cases. Hill v. Lockhart, 474 U.S. 52, 56
(1985) (internal quotations omitted). Second, Connolly must show prejudice
i.e., that his counsels deficiencies affected the outcome of the proceedings.
Id. at 58-59. Thus, Connolly has to demonstrate a reasonable probability
that, but for counsels errors, he would not have pleaded guilty and would have
insisted on going to trial. Premo v. Moore, 562 U.S. 115, 129 (2011) (quoting
Hill, 474 U.S. at 59). Connolly cannot satisfy either Strickland prong.
Under Stricklands first prong, Connolly must show that his counsels
performance was so deficient that it fell below an objective standard of
reasonableness under prevailing professional norms. Buehl v. Vaughn, 166
F.3d 163, 169 (3d Cir. 1999) (Alito, J.). This requires showing that counsel
made errors so serious that counsel was not functioning as the counsel
guaranteed the defendant by the Sixth Amendment. Id. (quoting Strickland,
466 U.S. at 689). Accordingly, this Courts review is highly deferential and it

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does not second-guess counsels decisions. Premo, 562 U.S. at 123-126. To

the contrary, counsel should be strongly presumed to have rendered adequate
assistance and made all significant decisions in the exercise of reasonable
professional judgment[.] Cullen v. Pinholster, 131 S. Ct. 1388, 1403 (2011)
(quoting Strickland, 466 U.S. at 690). And strict adherence to the Strickland
standard is all the more essential when reviewing the choices an attorney
made at the plea bargain stage. Premo, 562 U.S. at 125.
Connolly has failed to establish that Saluti was ineffective for failing to
challenge Count One on the basis that it charged a violation under the 1934
Act. As set forth in Point I, supra, Congress designed the 1933 and 1934 Acts
to supplement each other, be construed together, and interpreted in a broad
fashion. Thus, Salutis performance cannot be deemed to be outside of
professional norms when he advised Connolly to plead guilty to a properly
charged criminal count.
Similarly, Connolly has failed to establish that Saluti was ineffective for
failing to argue at sentencing that the no knowledge clause precluded the
Court from imposing a prison term. The no knowledge clause was meant to
protect individuals who commit technical violations of SEC rules and
regulations and not to protect those individuals convicted of violating the
securities laws who have knowledge that their fraudulent activities are in
violation of the law. See Point II, supra. Accordingly, Saluti did not fall below
the standard of reasonableness when he failed to argue the applicability of a
clause that did not apply to Connollys conduct.

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Notably, Saluti took a different and more successful posture in seeking

mitigation of Connollys sentence. In particular, Saluti argued that Connollys
business was not initially fraudulent, that he had a misguided confidence in
his abilities as an investment manager, and that his motivation was not
primarily greed, but a desire to satisfy his investors. See Exhibit B, at 20-25.
This Court was ultimately persuaded to vary two levels down from the
applicable sentencing guideline range, in part, based upon Salutis arguments,
and thereafter sentenced Connolly to the bottom of that adjusted range. See
Exhibit B, at 38-44.
Further, Connollys claim that Saluti advised that he had a secret deal
with the government that Connolly would not receive a prison term should be
denied as it is completely at odds with the record that Connolly himself made
at his guilty plea proceeding and sentencing. Connollys contention that he
thought that he could realistically receive a complete walk for this extremely
serious offense with 150 to 200 victims and $18 million in losses is belied by
his awareness of the maximum prison terms available under the charged
statutes, his repeated acknowledgement that no one had made any promises to
him, his sworn assurance that he was satisfied with his counsels
representation, as well as his failure to complain or evidence any surprise at
his sentencing hearing when this Court imposed a term of 108 months
In particular, Connollys plea agreement with the government noted that
he was facing statutory maximum sentences of twenty years on Count One and

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ten years on Count 10, and that these sentences could run concurrently. See,
Plea Agreement, at 2, annexed hereto as Exhibit D. The parties further
stipulated and agreed in the plea agreement that the offense involved more
than $7 million and less than $20 million in losses, and more than 50 but less
than 250 victims. Exhibit D, at 8. Importantly, the plea agreement expressly
stated that (t)his agreement constitutes the plea agreement between David
Connolly and this Office and supersedes any previous agreements between
them. No additional promises, agreements, or conditions have been made or
will be made unless set forth in writing and signed by the parties. Exhibit D,
at 6.
Connolly also signed and filed with the Court an Application for
Permission to Enter a Guilty Plea, see Exhibit E. In that Application,
Connolly acknowledged that: (1) he was facing a maximum of thirty years
imprisonment; (2) no officer or agent of the government nor any other person
had made any promise or suggestion that he would receive a lighter sentence,
or probation, or any other form of leniency; (3) only the judge had the
discretion to decide on punishment, and that if any person had told him
otherwise, that person was not telling the truth; (4) he understood that the
Court would not be able to determine the appropriate sentence until after the
preparation of a Presentence Report; (5) he would not have a right to withdraw
his plea if anyones prediction as to the guidelines range or sentence proved to
be inaccurate; (6) he had not been forced, coerced, threatened in any manner
by any person to plead guilty to the charges; (7) he believed that his attorney

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had done all that anyone could do to counsel and assist him, and that he was
satisfied with the advice and help from his attorney; (8) he was pleading guilty
because he was in fact guilty; and (9) all of his statements made in the
Application were true. See Exhibit E.
At his plea hearing before this Court on February 4, 2013, Connolly
swore under oath that he had no objection to Richard Roberts, Esq. handling
the hearing in lieu of Saluti. Exhibit A, at 3. Connolly also swore that he had
gone over the plea agreement with both Roberts and Saluti and that both
counsel had thoroughly explained to him the charges contained in Counts One
and Ten. Exhibit A, at 3-4. Connolly also acknowledged under oath that he
understood the elements of these two offenses and the maximum statutory
penalties for these two offenses of twenty and ten years. See Exhibit A, at 6-8.
Connolly also acknowledged under oath that he had provided full, complete
and truthful answers in his responses in the Application to Plead Guilty. See
Exhibit A, at 11. This Court also engaged in the following sworn colloquy with
Connolly regarding his plea agreement:
Q. Do you understand that this is the full and complete
agreement between you and the Government? And what that
means if something was said to you or promise to you by either
your lawyers or the Government thats not incorporated in this
agreement, its of no binding effect on you or the Government?
Do you understand that?
A Yes, your Honor.
Q. Okay. Did you sign this agreement voluntarily, without
anybody forcing or threatening or coercing you to do it?
A. Yes.

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Q. And you should also understand, when it comes to the

sentence in this case, the sentence to be imposed is in the sole
discretion of myself as the sentencing judge. And what that means
is, while there are Sentencing Guidelines that I look to for guidance
as to what would be a reasonable sentence, I could, if I thought it
was reasonable, impose a sentence up to the maximum statutory
amounts that I just described to you.
Do you understand that?
A. Yes, your Honor.
In short, Connollys contention that Saluti falsely told him that there was a
secret deal with the government that would result in Connolly not going to jail,
does not support a claim for ineffective assistance in light of the record
established in his direct case. Indeed, in order for the Court to find Connollys
present contention, this Court would have to conclude that Connolly
deliberately lied in his plea agreement, in his Application to enter a Guilty Plea,
and at his plea hearing when he swore under oath that no one had made any
additional promises to him other than those set forth in the plea agreement.
Moreover, this Court would have to find that it was plausible that Connolly
believed that the government and this Court would both decide that he
deserved not a single day of imprisonment for defrauding more than 100
victims of millions of dollars, despite the fact that the relevant statutes
authorized up to thirty years in jail. As previously stated, Connolly is a smart
man. He did not believe that this was a realistic possibility then and he does
not believe that now.
Although it is evident that Connolly has failed to establish Salutis
deficient performance, and this Court could deny his claim on that basis alone,

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this Court does not even need to reach the first part of the Strickland test, as
Connolly cannot satisfy the second part of the Strickland test. See Strickland,
466 U.S. at 697 (ineffective assistance claim can be resolved by finding a lack
of prejudice without reaching adequacy of performance). Connolly must show
that there is a reasonable probability that, but for counsels errors, he would
not have pleaded guilty and would have insisted on going to trial. Hill, 474
U.S. at 59. This standard reflects the principle that only attorney errors that
affect the outcome of the adversarial process should be grounds for relief.
Strickland, 466 U.S. at 691.
A defendants subjective allegation that he would have chosen to go to
trial, without more, cannot establish prejudice. See Hill, 474 U.S. at 59. A
defendant must support his assertion by showing that in view of all of the
considerations in play at the time of the plea the chances of prevailing at
trial, given the strength of the prosecutions case and the availability of any
defenses, and the relative advantages of a trial and a plea going to trial
would have been a rational choice. See Hill, 474 U.S. at 59.
Here, Connolly does not even allege in his self-serving declaration that he
would have gone to trial on the fifteen-count Superseding Indictment, let alone
offer any support to justify that choice. An objectively reasonable (and credible)
willingness to go trial, however, is the sina qua non of a Hill-style claim of
ineffective assistance of counsel. See, e.g., Hill, 474 U.S. at 59-60; Roe v. FloresOrtega, 528 U.S. 470, 486 (2000); Meyer v. Branker, 506 F.3d 358, 369 (4th
Cir. 2007). Even now, Connolly mounts technical challenges to the two counts

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of his indictment to which he pleaded guilty, but he does not seriously dispute
that he engaged in a scheme to defraud investors or engaged in monetary
transactions with money that he derived through his use of the mails and/or
wires to further his fraudulent scheme. Nor does he assert that he would have
rejected the plea agreement and proceeded to trial if he understood that he was
facing a term of imprisonment.
Moreover, Connolly had a slim chance of escaping conviction at trial for
the securities fraud and the single count of money laundering he pleaded guilty
to in Counts One and Ten, let alone the additional charges of mail fraud, wire
fraud, and money laundering charged in the remainder of the Superseding
Indictment. As alleged in the Superseding Indictment, Connolly received
investor contributions through the mail and through interstate wires. Further,
Connolly made material misrepresentations and omissions in prospectuses and
letters that were mailed to investors, and transacted financial transactions with
the criminal proceeds of this mail and wire fraud. The government was
prepared to call a Special Agent from the Internal Revenue Service Agent who
would have testified that funds that were collected by Connolly to purchase
specific properties were instead routinely diverted to pay operating expenses
and distributions for other Connolly entities. Further, investors would have
testified regarding the material misrepresentations and omissions made to
them by Connolly regarding, among other things, the use of their capital
contributions, alleged contingency reserves, rental occupancy rates, and the
profitability of their investments in specific real estate entities. (PSR 32-35).

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Moreover, the Chief Operating Officer of Connolly Properties would have

testified that he specifically warned Connolly in early 2008, that the cash flow
from the investment properties could not support continued distributions to
investors and to Connolly at the rate that he was paying. (PSR 66.) In short,
there was ample evidence against Connolly on all the charges in the
Superseding Indictment which militated against the likelihood that he would
have risked going to trial and potentially faced an even longer prison term.
Where a Section 2255 motion clearly fails to demonstrate either
deficiency of counsels performance or prejudice to the defendant, then the
claim does not merit an evidentiary hearing. See United States v. Dawson, 857
F.2d 923, 928 (3d Cir. 1988). Because the record here establishes that counsel
was not deficient, and that going to trial would have been irrational, an
evidentiary hearing is unnecessary. See in re Sealed Case, 488 F.3d 1011,
1019 (D.C. 2007).


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The petition fails to show grounds to vacate, set aside, or correct the
sentence. Accordingly, the defendants application should be dismissed
without any further hearing.

Respectfully submitted,

United States Attorney
Assistant U.S. Attorney


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I, Leslie F. Schwartz, an Assistant U.S. Attorney, do hereby certify that
on July 5, 2016, I caused a copy of the within Response to Petitioners
Amended Motion to Vacate, Set Aside, or Correct Sentence Pursuant to 28
U.S.C. 2255 to be mailed, by certified mail, to:
Elizabeth T. Foster, Esq.
22 E. Quackenbush Avenue
Dumont, New Jersey 07628
I certify that the foregoing statements made by me are true. I
understand that if any of the foregoing statements made by me are willfully
false, that I am subject to punishment.

United States Attorney


Assistant U.S. Attorney


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