Documenti di Didattica
Documenti di Professioni
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DAVID CONNOLLY,
Petitioner
v.
UNITED STATES OF AMERICA,
Respondent
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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).
1
PSR refers to the final Presentence Investigation Report, dated April 18, 2013.
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
30).
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
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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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
denied.
POINT I
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,
defendant
DAVID CONNOLLY,
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
Entities.
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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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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11
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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POINT II
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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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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POINT III
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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POINT IV
Connolly has Failed to Demonstrate that Salutis Performance was
Ineffective.
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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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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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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CONCLUSION
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,
PAUL J. FISHMAN
United States Attorney
By: LESLIE F. SCHWARTZ
Assistant U.S. Attorney
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CERTIFICATE OF SERVICE
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.
PAUL J. FISHMAN
United States Attorney
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