The 3rd U.S. Circuit Court of Appeals on Tuesday rejected defendant George Georgiou's argument that the trades in question were not "domestic," having been processed for foreign accounts and involving stocks not listed on major U.S. exchanges, thereby excusing him from U.S. prosecution for fraud.

"Obviously we are disappointed and respectfully disagree with the court's conclusions," Scott Splittgerber, a lawyer for Georgiou, said in an email. Georgiou will review whether to appeal to the U.S. Supreme Court, Splittgerber added.

A federal jury in February 2010 convicted Georgiou, now 45, of securities fraud, wire fraud and conspiracy over trades in Avicena Group Inc, Hydrogen Hybrid Technologies Inc (>> Hydrogen Hybrid Technologies Inc), Neutron Enterprises Inc and Northern Ethanol Inc, which were listed on the OTC Bulletin Board or Pink Sheets.

Prosecutors said Georgiou and others traded the stocks from 2004 to 2008 in accounts they controlled in Canada, the Bahamas and the Turks and Caicos Islands, and artificially inflated prices by creating a false appearance of an active market.

Georgiou was arrested in an FBI sting. He had been banned as a broker in Canada in 1995.

In his appeal, Georgiou said Morrison v. National Australia Bank Ltd, a June 2010 Supreme Court decision that limited the use of U.S. securities laws to fight deceptive non-U.S. conduct, justified reversing his fraud conviction.

While agreeing that the Bulletin Board and Pink Sheets were not national securities exchanges, Circuit Judge Joseph Greenaway wrote for the 3rd Circuit that Georgiou had conducted "domestic" trades in all four stocks because he had incurred "irrevocable liability" for them in the United States.

Greenaway said this was because the trades involved working with U.S.-based market makers, or purchases or sales at Georgiou's direction involving entities in the United States.

"We now hold that irrevocable liability establishes the location of a securities transaction," Greenaway wrote. He said three other federal appeals courts have used that standard.

Georgiou in 2010 was also sentenced to pay $55.8 million of restitution. He is housed at a low-security facility in Milan, Michigan, and eligible for release in December 2031.

The case is Georgiou v. U.S., 3rd U.S. Circuit Court of Appeals, Nos 10-4774, 11-4587, 12-2077.

(Reporting by Jonathan Stempel in New York; Editing by Gunna Dickson and Leslie Adler)

By Jonathan Stempel