US v. Prange

Filing

OPINION issued by William J. Kayatta , Jr., Appellate Judge; Bobby R. Baldock, Appellate Judge and Bruce M. Selya, Appellate Judge. Published. [13-2262, 13-2328]

Case: 13-2262

Document: 00116761026

Page: 1

Date Filed: 11/05/2014

Entry ID: 5865098

United States Court of Appeals
For the First Circuit
Nos. 13-2262 & 13-2328
UNITED STATES OF AMERICA,
Appellee,
v.
JAMES PRANGE and JOHN C. JORDAN,
Defendants, Appellants.

APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Nathaniel Gorton, U.S. District Judge]

Before
Kayatta, Baldock,* and Selya,
Circuit Judges.

Steven N. Fuller, with whom Allen-Fuller, P.A. was on brief,
for appellant James Prange.
Inga L. Parsons for appellant John C. Jordan.
David M. Lieberman, Attorney, United States Department of
Justice, with whom Carmen M. Ortiz, United States Attorney, Stephen
E. Frank, Assistant United States Attorney, Sarah E. Walters,
Assistant United States Attorney, Leslie R. Caldwell, Assistant
Attorney General, and David M. Bitkower, Deputy Assistant Attorney
General, were on brief, for appellee.

November 5, 2014

*

Of the Tenth Circuit, sitting by designation.

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Baldock, Circuit Judge. A jury convicted Co-Defendants
James Prange and John Jordan of multiple fraud-related counts based
on their participation in an FBI securities fraud “sting.”

The

district court sentenced each defendant to 30 months in prison.
Defendants’ consolidated appeals raise multiple challenges to their
convictions and sentences. Exercising jurisdiction under 28 U.S.C.
§ 1291 and 18 U.S.C. § 3742, we affirm Defendants’ convictions but
remand for resentencing because the district court procedurally
erred when formulating their guideline sentencing ranges.
I.

Introduction
Penny stocks are stocks issued by small companies that

trade at less than $5 per share. These stocks, generally speaking,
are thinly traded and not listed on organized securities exchanges.
As a result, their prices are often volatile and subject to
manipulation.
To investigate fraud in the penny stock market, the FBI
launched “Operation Penny Pincher.”

This sting operation posed an

FBI agent as a corrupt hedge fund manager named “John Kelly” from
a fictitious fund called “Seafin Capital.” In this role, the agent
proposed

a

particular

investment

deal

to

the

executives

of

companies with low market capitalization. The agent offered to use
up to five million dollars of his clients’ money to overpay for
restricted shares of the executives’ companies in return for a

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fifty percent kickback disguised as a consulting fee to one of the
agent’s nominee companies.1
The FBI created a New York address, website, and business
cards, and rented a Massachusetts office for Seafin Capital.

It

also used former stock broker E.H. as a cooperating witness willing
to speak to executives interested in the kickback arrangement.
E.H. had previously been convicted of wire fraud through this same
operation and was seeking a lenient sentence.
A.

Defendant Prange
Defendant

consultant.

Prange

is

a

self-described

financial

A mutual acquaintance introduced E.H. and Prange over

the phone in early 2011.

In June 2011, Prange called E.H. asking

for details about the kickback program. E.H. explained the program
as a “program of last resort” where fifty percent would go right
back to the agent-manager “and basically it’s a kickback to him.”
E.H. also emphasized that the executives had to “fully understand
the program” and that those who were uncomfortable could “just walk
away.”
page

When Prange asked whether the manager had “a little one

term

sheet”

documenting

the

kickback

arrangement,

E.H.

responded “no, no . . . he would never put anything in writing.”
Prange then replied “Exactly. Right.”

1

“Restricted” shares generally refer to unregistered and
non-transferable shares of ownership in a corporation.
They
typically carry less value because the owner’s right to sell or
transfer the stock is limited.
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Prange recommended a number of executives as participants
in this scheme and later participated in conference calls where
E.H. explained to these executives that the hedge fund did not know
about the kickback because the manager “slip[ped] this money in”
with his “legitimate business” deals.

He also explained that the

manager used “seven or eight different nominee names” to receive
the consulting fee even though there was “no consulting work being
done for the company.”

With Prange on the call, E.H. told one of

these executives that the arrangement was “inappropriate . . .
definitely inappropriate . . . in my mind illegal.”
Prange met the undercover agent in Massachusetts on July
22, 2011.

The agent explained that his fund’s typical investments

involved a great deal of due diligence.
“legitimate

deals,”

the

agent

said

he

But alongside these
invested

in

longshot

corporations in a way that made it look like he had done due
diligence when, instead, he would simply “paper the file in order
to get it through, and have the hedge fund, make the capital
investment.”
off the top.”

The catch?

He took “a fifty percent kickback, right

The agent then offered Prange a choice: “if at the

end of today . . . there’s something about me you don’t like, then,
we decide to part ways.”

But if Prange decided to participate he

would receive ten percent of each kickback, “so if . . . we do five
million, I get two and a half, I can give you ten percent.”

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The agent then explained logistics.

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He would fund the

companies “in tranches . . . just to make sure all the mechanics
. . . work out.”

Each tranche would “overpay” for restricted

shares of the company’s stock.

As for the kickback, the agent

explained, “it’s me, personally, and through my nominee company,
that gets the money . . . so the fund doesn’t know, they don’t need
to know.”

To “mask the payment,” the agent would “execute a

consulting agreement” with one of his nominee companies, but he
made clear that “[the] consulting agreement . . . is in paper only,
there’s no consulting.” The agent then told Prange “the ball is in
your court . . . if you wanna continue these meetings.”
responded, “[a]bsolutely . . . it’s excellent.”

Prange

Prange then sat

through two meetings where the agent repeated the kickback pitch to
two of the executives Prange had recommended for participation in
the scheme.
B.

Defendant Jordan
Several weeks later, Defendant Prange suggested the

undercover agent invest in Vida Life International.

On August 22,

2011, the agent met with Prange and Defendant Jordan--Vida Life’s
president, CEO, and CFO.

The agent had a two-hour, face-to-face

conversation with Jordan, during which he explained the kickback
scheme. He then told Jordan “the decision now is yours whether you
want . . . to continue.”

Jordan asked if Vida Life would need to

report the kickback on “a 1099” tax form; the agent said no,

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because

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they

would

“mask[

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the]

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payment

through

a

Entry ID: 5865098

consulting

agreement” even though no one would ever perform any consulting.
The agent then told Jordan, “my biggest concern . . . is your
ability to . . . feel comfortable and . . . cover or hide the
payment that you’re making back to me.”

Jordan responded, “I have

no issues.” The agent also told Jordan, “I’m screwing my investors
on the hedge fund side,” but qualified that, “They have done so
well in the past that anything I do like this is . . . not gonna
really hurt them.”

He then asked if Jordan “had any pangs . . . of

consc[ience] with that.”

Jordan responded simply: “No.”

Jordan

then gave the agent materials the agent could use to “mislead” his
partners on the nature of the investment.

Jordan also pledged to

make Vida Life’s press releases say the cash was coming from the
sale of fishmeal, and not from Seafin.
At the close of the meeting, Jordan proposed they sign
the consulting and stock subscription agreements right then and
there.

The agent signed the consulting agreement, but directed

Jordan (who lived in California) to take the subscription agreement
home with him, fill in certain information, and then send it back.
By August 31, 2011, Jordan had finalized these agreements.
Once

the

executives

finalized

the

stock

purchase

agreements and the consulting agreements, which listed “Waters
Edge” as the nominee corporation to receive the kickback, the FBI
(posing as Seafin) wired the first tranche of approximately $30,000

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to each company.

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Of the $32,000 Vida Life received, it sent

$16,000 to Waters Edge.

Vida Life then disbursed the remainder to

Jordan, his credit card, his niece, his attorney, and his business
partner. In anticipation of the next tranche, Jordan fabricated an
invoice, dated September 8, 2011, justifying a $50,000 payment by
Vida

Life

to

Waters

Edge

for

purported

consulting

services,

technology assessments, travel expenses, and conference fees.
Neither Waters Edge nor the agent ever provided these services.
The

FBI

stopped

the

investments

in

September

2011,

adopting a cover story that Seafin had transferred John Kelly to
its London office where he could no longer execute these fraudulent
investments.

The FBI arrested Prange, Jordan, and the other

participants several months later.

The three other executives

indicted with Prange and Jordan--Stephen Berman, Richard Kranitz,
and Karen Person--pled guilty.
C.

Prange and Jordan went to trial.

Trial
At trial, the government during its case in chief played

in short segments video recordings of the agent’s meetings and
phone conversations with Prange, his meeting with Jordan, and his
meetings with the other executives.

After playing each segment,

the government asked the agent to clarify particular statements
made during these conversations. For example, after playing a clip
where Prange asked the agent whether he would have “an open line of
communication”

to

“[b]ring

other

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things

to

you,”

the

agent

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testified that he understood Prange’s question to be referencing
Prange’s “ability and willingness to bring other companies to do
these stock fraud deals.”

As to Jordan, after playing the clip

where the agent asked Jordan if he was comfortable hiding the
kickback and Jordan responded “I have no issues,” the government
asked the agent what he thought Jordan’s response meant. The agent
answered: “It’s my understanding that Mr. Jordan was clear that
this was an illegal stock deal and he was willing to participate in
it.”

Similarly, when asked why he told Jordan “I’m screwing my

investors on the hedge fund side,” the agent testified that this
was so he could “make clear to Mr. Jordan that this is not a
legitimate transaction.” After playing the segment where the agent
asked Jordan if he had any “pangs of consc[ience]” about what they
were doing and Jordan responded “no,” the agent testified his
understanding from this response was that “Mr. Jordan had no
problem with what I was doing by screwing my investors.”
did not object to this line of questioning at trial.

Prange
Jordan’s

repeated objections were, for the most part, overruled.
In their defense, Prange and Jordan claimed entrapment
throughout trial and sought judgments of acquittal on this basis.
The district court denied these motions, but instructed the jury on
the defense of entrapment.

The court told the jury that, to

convict, “[it] must be convinced that the government has proven
beyond a reasonable doubt that [the] defendant was not entrapped.”

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The government could satisfy its burden in one of two ways, the
court explained:

It might demonstrate “that the cooperating

witness or undercover agent did not persuade or talk the defendant
into committing the crime.”

Alternatively, the government could

establish “that the defendant . . . was ready and willing to commit
the crime without any persuasion from the cooperating witness,
undercover agent or any other government agent.”
At the close of trial, the district court notified the
parties that it planned to provide a copy of the superseding
indictment to the jury but would redact the names of the three
other executives who had pled guilty.

The court refused, however,

“to take out all of the references to the co-conspirators.”
Defendants

objected.

They

urged

the

court

to

redact

the

superseding indictment’s “Introduction” and “Background” sections
because

these

sections

contained

“numerous

representations

including acts by individuals who are not on trial which are
prejudicial.”
referenced

the

Defendants also complained that the indictment
term

“nominee

companies”

referring to the agent’s nominee companies.

in

quotations

when

The court overruled

these objections and submitted the indictment to the jury.

But it

also instructed the jury “[n]ot . . . to be concerned with the
guilt of any other person or persons not on trial as a defendant in
this case,” and explained that “an Indictment is not evidence of
any kind against the defendant.”

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Ultimately, the jury convicted both Defendants on all
counts:

Prange

with

three

counts

of

conspiracy

to

commit

securities fraud, in violation of 18 U.S.C. § 1349; and eight
counts of wire fraud, in violation of 18 U.S.C. §§ 1343, 1349, and
2; and Jordan with one count of conspiracy to commit securities
fraud, in violation of 18 U.S.C. § 1349; four counts of wire fraud,
in violation of 18 U.S.C. §§ 1343, 1349, and 2; and one count of
mail fraud, in violation of 18 U.S.C. §§ 1341, 1349, and 2.

Prange

and Jordan then moved for judgment notwithstanding the verdict or,
in the alternative, a new trial arguing that “no reasonable jury
could find beyond a reasonable doubt that the government had
disproven the defense[] of . . . entrapment . . . .”

The district

court denied these motions.
D.

Sentencing
In

preparation

for

sentencing,

Jordan’s

Presentence

Report (“PSR”) recommended holding him accountable for $32,000 in
intended

loss,

representing

transmitted to Vida Life.

the

full

amount

of

the

money

Prange’s PSR recommended holding him

responsible for $95,000, reflecting the sum total of the funds
transmitted

to

Vida

Life

and

the

two

other

executives Prange had introduced to the agent.

companies

whose

Defendants urged

the district court to reduce these loss calculations by the market
value

of

the

stock

purchased

by

Seafin

and

to

classify

the

kickbacks as credits against the loss. The district court rejected

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these arguments and accepted the PSRs’ recommended figures.

Based

on these numbers, Jordan received a six-level increase to his base
offense level and Prange received an eight-level increase.
The PSR also concluded Jordan had altered an e-mail
before producing it to the government and accordingly recommended
a two-level obstruction-of-justice enhancement to Jordan’s offense
level.

More specifically, in response to a government subpoena,

Jordan initially produced an e-mail to his lawyer, Richard Kranitz-who, recall, pled guilty to other charges related to this sting-referencing the fraudulent consulting fees as follows:
I have to request that restricted stock be issued to SEA
FIN CAPITAL LLC as agreed. Both the issuance of stock
and paying for the “consulting” fees were approved by the
Board of Directors on August 26, 2011.
Although the e-mail referenced two attachments, Jordan did not
include them.

After being notified of the missing attachments,

Jordan produced them along with another version of the e-mail
above, with the same date and time stamp (August 31, 2011, 8:53
a.m.).

But in this second e-mail, the word “consulting” was no

longer in quotation marks.

Over Jordan’s objection, the court

adopted the PSR’s conclusion that deleting these quotation marks
warranted an obstruction-of-justice enhancement.
The government also argued Prange deserved a four-level
enhancement under U.S.S.G. § 3B1.1(a) because he organized or led
five

or

more

participants.

The

PSR

leadership or management enhancement.
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did

not

recommend

any

The court declined the

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government’s request, but ultimately found “that [Prange] was at
least

a

manager

and

supervisor

or

exercised

management

responsibilities over the property, assets or activities of a
criminal organization.”

As such, the court applied a two-level

enhancement to Prange’s offense level under § 3B1.1(c).
The

district

court

eventually

calculated

Prange’s

guideline sentencing range at 24 to 30 months, reflecting an
offense level of 17 and a criminal history category of I.

The

district court calculated Jordan’s guideline sentencing range at 30
to 37 months, reflecting an offense level of 19 and a criminal
history category of I.

The court sentenced both Defendants to

concurrent terms of 30 months’ imprisonment for each count of
conviction.
II.
A.

Agent Testimony

Testimony Against Jordan
Jordan first argues the district court erred when it

permitted the undercover agent to interpret what he and Jordan
meant by certain questions and statements in their recorded, faceto-face

conversation.

Jordan

preserved

his

objections

to

the

agent’s testimony at trial so we review these evidentiary rulings
for an abuse of discretion.

See United States v. Albertelli, 687

F.3d 439, 445 (1st Cir. 2012).
monolithic standard.

“But abuse of discretion is not a

Within its margins, embedded issues may

receive attention under more narrowly focused standards.

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embedded questions of law engender de novo review and embedded
findings of fact engender clear-error review.”

United States v.

Carrasco-De-Jesús, 589 F.3d 22, 26-27 (1st Cir. 2009).
Jordan argues the agent impermissibly testified as to
(1) the agent’s own state of mind and intent, (2) Jordan’s state of
mind and intent, and (3) the ultimate legal issue in the case.

He

gives a number of examples of this purportedly improper testimony:

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Recorded Conversation

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Agent’s Testimony

Jordan: “Do we as a
corporation have to issue a
1099?”

“It’s my understanding that
[Jordan]’s engaging me now on
how best to cover up the
kickback payment.”

Agent: “No”
Jordan: “How do we go around
that?”

“I understand Jordan to be
telling me that the consulting
agreement--phony consulting
agreement and the fake
invoices, if they passed
audits from companies
that have already done these
stock deal--frauds with, then
he thinks that it will
pass his as well.”

Jordan: “If [other
participating companies] have
done well and their audits go
through then I’m sure ours
. . . will do the same.”

Agent: “my biggest concern
. . . is your ability to . . .
feel comfortable and . . .
cover or hide the payment that
you’re making back to me.”

“It’s my understanding that
Mr. Jordan was clear that this
was an illegal stock deal and
he was willing to
participate.”

Jordan: “I have no issues.”
Agent: “I’m screwing my
investors on the hedge fund
side.”
. . .
“So if you have any pangs of
con[science] with that.”
Jordan: “No.”

“This is another . . . way I
can make clear to Mr. Jordan
that this is not a legitimate
transaction.”
“I understand Mr. Jordan had
no problem with what I was
doing by screwing my
investors.”

Our first task is to establish whether the government
offered this testimony as expert testimony or lay testimony.

When

critical evidence in a case consists of recorded conversations,

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“officers

commonly

help

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interpret

[these]

translating jargon common among criminals.”
at 446.

Entry ID: 5865098

conversations

by

Albertelli, 687 F.3d

“This [testimony] can be admitted as lay testimony from

experienced

officers,

circumstances.”
Cir. 2009).

expert

testimony

or

both

depending

on

United States v. Santiago, 566 F.3d 65, 69 (1st

Where the basis of an interpretation comes from the

officer’s personal involvement in the case, rather than from
specialized outside knowledge, we typically construe it as lay
testimony under Federal Rule of Evidence 701.

See Albertelli, 687

F.3d at 446–47.
Jordan’s opening brief sometimes assumes the agent’s
testimony was lay testimony.

See Jordan Br. at 25 (“Even if the

agent was being used as some type of expert . . . .” (emphasis
added)).

Other

times

it

assumes

the

testimony

was

expert

testimony. See id. at 31 (asserting the agent’s testimony violated
Fed. R. Evid. 704, which applies only to expert witnesses).
until

his

reply

brief

does

Jordan

assert

that

the

Not

agent’s

interpretations should be classified as expert testimony because
the agent had also testified about “industry terms.”
Br. at 1.
new

Jordan Reply

“While a reply brief is not the proper place to raise

arguments,

clarification.”

it

is

proper

for

a

court

to

look

there

for

United States v. Bradstreet, 207 F.3d 76, 80 n.1

(1st Cir. 2000) (citation omitted). Regardless, the fact that this
case involved some industry jargon does not automatically turn the

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agent’s interpretations of his own conversations with Defendants
into expert testimony.
Indeed, the agent prefaced almost every interpretation he
gave with “I understand this to mean,” or “it is my understanding
that . . . .”

The agent never once said, for example, “Jordan said

X and, in the finance industry, that means Y.”

Furthermore, as to

the jargon used, the agent used terms like “lender of last resort”
to try to convey the illegality of these transactions to both
Defendants.

But when pressed on the meaning of these particular

terms, the agent readily admitted he did not know and did not look
up their meaning “in the business community.”

Rather, the agent

based his understanding of Defendants’ responses to terms like
“lender of last resort” on his personal understanding of that term
“[i]n the context of this undercover operation.” (emphasis added).
As

such,

we

interpretation

fail
of

to

see

his

own

why

we

should

conversations

as

treat

the

expert

agent’s

testimony.

“Although linguistically possible, calling such testimony ‘expert
opinion’ would lend undue credibility to it and increase the risk
of reliance on information not properly before the jury as data on
which ‘experts in the particular field would reasonably rely,’
[when] the ‘field’ is merely the facts of the case.”

Albertelli,

687 F.3d at 446 (quoting Fed. R. Evid. 703); see also United States
v. Rollins, 544 F.3d 820, 833 (7th Cir. 2008) (Where “the agent’s
‘impressions’ testimony was based on his own personal observations

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and perceptions derived from this particular case[, s]uch testimony
is admissible as lay opinion testimony.”).
Of course, we have previously detailed many potential
dangers of allowing this form of interpretation as lay testimony.
See Albertelli, 687 F.3d at 447.

And Jordan, in a conclusory list

in his reply brief, asserts every one of these dangers were
harmfully manifested at trial.

Again, the reply brief is not the

proper place to raise these new arguments.
F.3d at 80 n.1.

See Bradstreet, 207

Moreover, Jordan only hints at developed argument

as to two of these dangers.

See United States v. Zannino, 895 F.2d

1, 17 (1st Cir. 1990) (“[I]ssues adverted to in a perfunctory
manner, unaccompanied by some effort at developed argumentation,
are deemed waived.”).
First, Jordan essentially argues that we cannot treat the
agent’s

testimony

as

admissible

to

lay

the

lay

testimony

government

failed

necessary

testimony.

See Albertelli, 687 F.3d at 447.

because

foundation

for

the
lay

The Federal Rules of

Evidence require that lay testimony be “(a) rationally based on the
witness’s perception; (b) helpful to clearly understanding the
witness’s testimony or to determining a fact in issue; and (c) not
based on scientific, technical, or other specialized knowledge
within the scope of Rule 702.”

Fed. R. Evid. 701.

Alluding to Rule 701(a), Jordan argues the agent was
“unable to point to any rational basis for the interpretation

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offered [and did] nothing more than speculating.”
F.3d at 447.

Entry ID: 5865098

Albertelli, 687

Jordan relies heavily on two Second Circuit cases to

argue this foundational element was not met, at least as to the
agent’s testimony interpreting what Jordan meant by his statements
and

responses

during

their

recorded

conversation.

Most

significantly, he cites United States v. Garcia, 291 F.3d 127 (2d
Cir. 2002), for the proposition that “[w]hen a conversation has a
legitimate purpose understandable to a lay person, testimony about
a code without some evidence of prearrangement or some other
foundation is inappropriate.”

Id. at 141; see also United States

v. Rea, 958 F.2d 1206, 1215 (2d Cir. 1992)(“When a witness has not
identified the objective bases for his opinion, the proffered
opinion obviously fails completely to meet the requirements of Rule
701 . . . .”).
We fail to see how statements such as “screwing my
investors on the hedgefund side” could lend themselves to a
legitimate purpose understandable to a lay person.
government

laid

out

an

objective

basis

Moreover, the

for

the

agent’s

understanding that Jordan knew they were speaking in coded terms
and his impression of what Jordan actually meant.2
the

agent

testified

that

stock

2

fraud

deals

Specifically,
are

“discussed

Clearly, the agent had personal knowledge of what he meant
when he spoke to Jordan, and “his status as a participant in the
conversation is sufficient to demonstrate the basis of this
opinion.” Garcia, 291 F.3d at 140-41.
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privately,” “happen quickly,” and employ “coded terminology.”3
Furthermore, before meeting with Jordan personally, the agent asked
Prange, who had recruited Jordan into this scheme, about Jordan’s
understanding of the scheme.

Prange told the agent that Jordan’s

“money guy” had explained to Jordan that they had tried “different
ways” to get financing and that “this deal makes sense.”
also told the agent, Jordan “gets it.”
Prange: “All right.
percent?”

Prange

The agent then pressed

And he’s good with the kickback with the 50

To which Prange responded “yes.”

The government thus

provided an objective basis for the agent’s opinion that Jordan met
with him personally to discuss participating in an illegal stock
fraud scheme.
Jordan then asserts the government did not establish a
foundation for how this lay testimony was helpful to the jury. See

3

To be sure, the Second Circuit has condemned, and we have
strongly cautioned against, a witness using “broad appeals to ‘the
totality of the investigation’” or “purporting to represent
collective knowledge” “for the bases of his interpretations.”
Albertelli, 687 F.3d at 448 (quoting United States v. Grinage, 390
F.3d 746, 749 (2d Cir. 2004)). And here, the agent relied on his
specialized expertise and “experience investigating frauds like
this” in explaining how stock fraud deals typically work and why
interpretation was needed. But Jordan does not point to, and we
have not found, any place in the record that indicates the agent
purported to base his interpretations of Jordan’s specific
statements on collective knowledge. Rather, as explained above,
the agent readily admitted on cross-examination that his
understanding of certain terms might not line up with their
traditional meaning in the business community. Furthermore, unlike
in Grinage, where the agent never made any personal observations of
the defendant, see 390 F.3d at 749, here, the agent interpreted his
own face-to-face conversation with Jordan.
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Fed. R. Evid. 701(b). Rather, Jordan claims, his conversation with
the agent used everyday terms that made sense contextually.
disagree.

We

Jordan often used abrupt stand alone words or phrases

that do not strike us as everyday terms, for example: “what will be
your overpay,” and “[f]or five, half back.”
proper

context,

a

lay

jury

might

easily

significance of many of Jordan’s comments.

Likewise, without
fail

to

grasp

the

For example, at one

point in their conversation, the agent explained to Jordan that his
hedge fund had “CalPERS” and “other pension money from California,”
and also that he was “screwing” his investors on the hedge fund
side.

Jordan then responded simply, “my wife . . . doesn’t work

with the state[,] so.” Those familiar with public company auditing
and state retirement systems might grasp the significance of
Jordan’s response without any further explanation, but a lay juror
might not.

The agent’s own statements at the meetings were often

equally obscure.4

True, Jordan--the President, CEO, and CFO of a

public company--never expressed any confusion with the vernacular
the agent used or its significance, but we understand how a lay
juror might.

The agent’s testimony therefore helped the jury

clearly understand the recorded conversation and its significance.

4

For example, the agent told Jordan, “I view you differently
and take that as a compliment . . . I see you as having, uh, access
. . . either to venture capital money or to government money.”
Furthermore, in trying to convey the illegality of the scheme to
Jordan, the agent used terms like “last resort,” “kickback,” and
“papering the file.”
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Finally,

the

Page: 21

agent’s

Date Filed: 11/05/2014

testimony

was

Entry ID: 5865098

“not

based

on

scientific, technical, or other specialized knowledge within the
scope of Rule 702.”
otherwise.

Fed. R. Evid. 701(c).

Jordan does not argue

As we noted above, although the agent referenced his

specialized expertise in explaining that stock fraud deals are
often planned in a coded language, Jordan does not point to any
place in the record where the agent relied on prior specialized
knowledge

to

interpret

conversation with Jordan.

the

particular

terms

used

in

his

Rather, the agent’s interpretations

appear to be based on his own personal understanding of what Jordan
meant, developed in the context of face-to-face conversation.

See

Rollins, 544 F.3d at 832 (admitting agent’s lay testimony about
code words when “not based on any specialized knowledge gained from
his law enforcement training and experience,” but instead on “the
particular things he perceived from monitoring intercepted calls”
and

other

therefore

case-specific
satisfied

that

investigative
the

activities).

government

laid

a

We

are

sufficient

foundation for the agent’s lay testimony interpreting his face-toface conversation with Jordan.
The second danger Jordan alludes to is that the agent
“usurp[ed] the jury’s function by effectively testifying as to
guilt rather than merely providing building blocks for the jury to
draw its own conclusion.”

Albertelli, 687 F.3d at 447.

In this

vein, Jordan points out that the agent repeatedly testified as to

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Jordan’s knowledge of the illegality of this scheme.

Entry ID: 5865098

But Jordan

does not explain how this usurped the jury’s function. Instead, he
relies on an unpublished district court memorandum and order for
the proposition that “[a]n expert witness may not testify as to
another person’s intent.

No level of experience or expertise will

make an expert witness a mind-reader.”

Holmes Grp., Inc. v. RPS

Products, Inc., CIV.A. 03-40146-FDS, 2010 WL 7867756, at *5 (D.
Mass. June 25, 2010) (emphasis added).

Yet Jordan fails to

acknowledge that a lay witness may “offer an opinion that is
‘rationally based on the witness’s perception,’ and though one
can’t actually read another person’s mind, one is often able to
infer, from what the person says or from the expression on his face
or other body language, what he is thinking.”
Curescu, 674 F.3d 735, 740 (7th Cir. 2012).

United States v.

Given that the agent

was a lay witness, he was free to state his rationally-based
perception of what Jordan was thinking during their face-to-face
conversation.
Lest any doubt remain as to the propriety of the agent’s
testimony, Jordan’s trial contained numerous safeguards against the
danger that the agent might usurp the jury’s function.
Albertelli, 687 F.3d at 447.

See

The district court sustained several

of Jordan’s objections where the prosecution’s question called for
generalized or speculative responses. Moreover, the court afforded
Jordan

“very

liberal

cross-examination”

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on

whether

the

agent

Case: 13-2262

Document: 00116761026

properly

understood

examination
certain

drew

terms

the

out

and

Page: 23

recorded

possible

phrases--for

“lender of last resort.”

Date Filed: 11/05/2014

statements.

alternative
example

Entry ID: 5865098

This

cross-

interpretations

“confidentiality”

of
and

“Where such alternatives can be offered,

the plausibility of the witness’ own position--unlike, say, that of
a medical expert--is readily measured by the jury.”

Id. at 448.

Finally, and in a similar vein, Jordan argues the court
erred when it allowed the agent to testify to the ultimate issue in
this case.

The challenged conduct is exemplified by the following

excerpt from trial:
Q [to Agent]: “How are you familiar with Mr. Prange and
Mr. Jordan?”
A: “Mr. Prange and Mr. Jordan both participated in stock
fraud deals that we had done.”
But, again, as we explained above, Jordan fails to recognize that
this testimony was properly offered as lay opinion testimony, and
lay opinion “is not objectionable just because it embraces an
ultimate issue.”

Fed. R. Evid. 704(a) (emphasis added).

In sum, because the district court properly admitted the
agent’s

interpretation

contained

sufficient

as

lay

testimony

and

Jordan’s

against

the

abuse

safeguards

trial

of

such

testimony, Jordan’s objections to the agent’s testimony fail.
B. Testimony Against Prange
Prange, on the other hand, conceded at oral argument
that, because he did not object to the agent’s testimony below, we
review his challenge to the agent’s testimony for plain error only.
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See Albertelli, 687 F.3d at 445.

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Furthermore, Prange’s challenge

to the agent’s testimony consists of one sentence in his brief
joining in Jordan’s argument on this point.
argument clearly fails.

As such, Prange’s

We see no reason to provide any further

analysis when Prange gives us nothing further to analyze.

See

Zannino, 895 F.2d at 17.
III. Entrapment
Both Prange and Jordan claimed entrapment throughout
trial and moved for acquittal on this basis.

The court denied

their motions for acquittal as a matter of law, but submitted the
issue to the jury. Alas, the jury likewise rejected the entrapment
claim.

Nevertheless, Defendants maintain the evidence did not

support the jury’s verdict and we should hold they were entrapped
as a matter of law.
We review the denial of Defendants’ motion for acquittal
de novo, “asking whether the evidence, construed favorably to the
government,

permitted

rational

jurors

to

conclude,

beyond

a

reasonable doubt, that the defendant[s were] guilty as charged.”
United States v. Sánchez-Berríos, 424 F.3d 65, 77 (1st Cir. 2005)
(internal quotation marks omitted).

“To defeat a sufficiency

challenge premised on a defense of entrapment, the evidence, taken
in the light most favorable to the government, need only support a
finding of either predisposition or lack of improper inducement.”
Id. (emphasis added).

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Defendants first argue the Government improperly induced
them to engage in stock fraud. “An improper ‘inducement,’ however,
goes beyond providing an ordinary ‘opportunity to commit a crime.’”
United States v. Gendron, 18 F.3d 955, 961 (1st Cir. 1994) (quoting
Jacobson

v.

United

States,

503

U.S.

540,

550

(1992)).

“An

‘inducement’ consists of an ‘opportunity’ plus something else-typically, excessive pressure by the government upon the defendant
or

the

government’s

taking

non-criminal type of motive.”
id.

at

961–62

(listing

advantage

of

an

alternative,

Gendron, 18 F.3d at 961; see also

examples

of

improper

inducement).

Defendants do not argue excessive pressure, nor could they.

The

record is replete with instances where the agent made clear to
Defendants that they were free to walk away if they felt in any way
uncomfortable with the kickback scheme. Instead, Defendants assert
two alternative forms of improper inducement:

First, they argue

the government improperly played on the desperation of executives
trying to save floundering companies.

Second, they argue the very

nature of the sting amounted to an improper inducement because it
was designed to appear as a legitimate investor engaging in
legitimate investment activities.
The record belies Defendants’ first argument.

Prange,

for his part, did not serve as an executive or director for any of
the companies seeking capital in this operation.

We thus fail to

see how the asserted desperation of trying to save a failing

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enterprise could affect his decisional calculus.

Entry ID: 5865098

Jordan, on the

other hand, initially told the agent he would use the capital to
grow his business.

Yet as soon as he received his first tranche,

Jordan transferred that money which he did not kick back to Waters
Edge to his personal bank and credit card accounts, and to the
accounts of his niece, attorney, and business partner.

Faced with

these facts, a reasonable jury could conclude beyond a reasonable
doubt that Jordan was not desperate to save his company.

Rather,

the jury could reasonably conclude Jordan simply “succumb[ed] to
his own greed [and] the lure of easy money.”

United States v.

Coady, 809 F.2d 119, 122 (1st Cir. 1987).
Defendants’

second

inducement

argument,

that

the

government made the kickback scheme appear legitimate, fares no
better. Whether Defendants knew the scheme was illegal “relates to
[their] intent to commit the illegal act.

It does not bear on

whether [they were] induced to” engage in the kickback scheme.
United States v. Marino, 868 F.2d 549, 554 (3d Cir. 1989) (footnote
omitted).

Defendants do not argue on appeal that they lacked the

requisite

mens

rea

to

commit

securities

fraud--indeed,

entrapment defense assumes the necessary mens rea existed.5

5

an
See

Jordan asserts that kickbacks are commonplace in his native
country of Peru--whether they are legal in Peru he does not say.
Jordan Br. at 9.
Regardless, “ignorance of the law is not an
excuse for violating it,” United States v. Denis, 297 F.3d 25, 31
(1st Cir. 2002), and Jordan nowhere explains why his kickbackfriendly background should excuse his illegal activities here.
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United States v. Dyke, 718 F.3d 1282, 1286 (10th Cir. 2013).

Nor

do they argue the evidence was insufficient to show they intended
to commit securities fraud.

They cannot now bootstrap that

argument in under the guise of entrapment.
In sum, a reasonable jury concluded the government did
not improperly induce Defendants to commit securities fraud, and we
cannot say the government improperly induced Defendants as a matter
of law.

Given the lack of an improper inducement, Defendants’

entrapment claim fails and we need not address predisposition.
IV.

Submitting the Superseding Indictment to the Jury
Defendants also argue the district court committed two

reversible errors in submitting their superseding indictment to the
jury.

Defendants

first

argue

that

the

“Introduction”

and

“Background” sections of their indictment asserted facts that had
not been proven at trial and related to co-defendants who were not
on trial because they had pled guilty.

Second, they argue that

allowing the term “nominee companies” to remain in quotations in
the

indictment

was

tantamount

to

providing

the

jury

with

testimonial evidence not subject to cross-examination.
We have long followed “[t]he well nigh universal rule”
that, “subject to a proper covering instruction, whether the
indictment

should

be

given

to

the

jury

for

use

during

its

deliberations is within the discretion of the trial court.” United
States v. Medina, 761 F.2d 12, 21 (1st Cir. 1985).

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“We will find

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no fault with the exercise of the court’s discretion in this manner
unless the defendant can show unfair prejudice as a result of the
court’s approach.”
Cir. 1988).

United States v. Glantz, 847 F.2d 1, 10 (1st

“Whether all or a part of the indictment is provided

to the jury, one way to avoid unfair prejudice is to give a proper
covering instruction.”
Defendants’

Id.
claims

of

error

are

dubious

at

best.

Defendants rely on allegations in the indictment relating to Steve
Berman and Richard Kranitz, whose names were apparently redacted,6
as the prime example of “asserted facts not proven at trial.”

But

the government presented a wealth of evidence on Berman and
Kranitz’s involvement in the conspiracy, including recordings of
numerous

conversations

in

which

they

took

part.

Moreover,

Defendants do not explain how the quotation marks around “nominee
companies” transform this term into a form of testimony.
Even assuming the superseding indictment provided cause
for concern, however, Defendants cannot show prejudice here both
because no prejudice is obvious and because the district court gave
proper covering instructions.

The court instructed the jury “that

an Indictment is not evidence of any kind against the defendant.
It is simply the formal method that our Constitution provides for

6

The district court indicated it would redact the names of
these individuals because they had entered guilty pleas.
Defendants do not provide us with a copy of the indictment that was
submitted to the jury, so we can only assume the district court did
as promised.
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charging someone with the commission of a crime.” (emphasis added).
The court also told the jury: “Neither are you to be concerned with
the guilt of any other person or persons not on trial as a
defendant in this case.”

In light of these instructions, we fail

to see how Defendants were prejudiced by submitting to the jury the
superseding indictment as redacted.

See, e.g, Smith v. Jenkins,

732 F.3d 51, 69 (1st Cir. 2013) (“As it is a basic premise of our
jury system that the jury follows the court’s instructions, we
presume that the jury acted according to its charge.” (internal
quotation marks and alterations omitted)).
Indeed, Defendants fail to cite a single case where a
court has overturned a conviction based on a district court’s
discretionary decision to provide a copy of the charging instrument
to the jury subject to a proper covering instruction. In his reply
brief, Jordan relies on United States v. Roy, 473 F.3d 1232 (D.C.
Cir. 2007), and United States v. Shafer, 455 F.2d 1167 (5th Cir.
1972).

But these cases are inapposite.
In Roy, the trial court inadvertently submitted to the

jury an indictment which identified specific predicate crimes to
support the defendant’s felon-in-possession count even though the
defendant had already stipulated to his felon status.
F.3d at 1232.

Roy, 473

This violated prior D.C. Circuit precedent which

established that, “at least when the defendant stipulates to the
fact of a felony conviction, the district court should avoid

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mentioning the nature of the prior felony to the jury.”

United

States

1995).

v.

Jones,

67

F.3d

320,

325

n.10

(D.C.

Cir.

Nevertheless, the D.C. Circuit affirmed the defendant’s conviction
on

plain

error

review,

holding

that

the

defendant

was

not

prejudiced because, among other things, the trial court took back
the

incorrect

instruction.

indictment

and

gave

Roy, 473 F.3d at 1239.

a

sufficient

curative

In so holding, the D.C.

Circuit noted that giving a copy of the indictment “often carries
significant risks and has few corresponding benefits.” Id. at 1237
n.2.

But it also recognized that submitting the indictment to the

jury is “common practice,” and even “assume[d] that it would have
been within the district court’s discretion to submit a properly
redacted indictment to the jury in this case.”

Id.

In Shafer, the Fifth Circuit held “[n]umerous . . . items
were erroneously submitted to the jury, including a copy of the
indictment showing substantive charges which had been dismissed,
and a blackboard on which the prosecutor had summarized the
testimony of various prosecution witnesses.”
1170.

Shafer, 455 F.2d at

The most prejudicial of these items were (1) “the sworn

complaint by a customs agent on the basis of which arrest warrants
of

defendants

had

been

obtained,”

which

“was,

in

effect,

a

statement that defendants were guilty,” and (2) a copy of a hotel
bill, which had not been admitted into evidence at trial, tying the
defendants to the alleged offenses.

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Id. at 1169.

Indeed, the

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Fifth Circuit did not reverse the defendants’ convictions there
based on the submission of their indictment listing dismissed
charges.

Rather,

“[w]ithout

considering

[the

indictment]

in

detail,” the Fifth Circuit concluded, “we are forced to [reverse],
based

on

the

complaint

and

the

hotel

bill.”

Id.

at

1170.

Furthermore, there is no indication that the district court there
gave any covering instruction as to the indictment.
Defendants have not shown any particular statements in
the indictment that were not supported by evidence presented at
trial.

Nor do they show how any improprieties in the indictment

caused prejudice so egregious as to be beyond the reach of the
court’s covering instructions.

As such, we cannot say the court

abused its discretion in submitting the superseding indictment to
the jury.
V. Sentencing Issues
Defendants also challenge their sentences on various
grounds.

“We review sentences for reasonableness, a task composed

of both procedural and substantive inquiries.”

United States v.

Innarelli, 524 F.3d 286, 291 (1st Cir. 2008).

“We first review

the procedural component of the sentence for abuse of discretion.”
Id.

at

292.

discretion

“[P]rocedural

might

include

errors

failing

to

amounting
calculate

to

an

(or

abuse

of

improperly

calculating) the Guidelines range . . . or failing to adequately
explain the chosen sentence--including an explanation for any

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deviation from the Guidelines range.”

Entry ID: 5865098

Id. (internal quotations

marks omitted). Only if this review reveals no abuse of discretion
do we examine the substantive reasonableness of the sentence
imposed.

See id.

A. Jordan’s Obstruction-of-Justice Enhancement
Jordan argues the district court erroneously added a twolevel enhancement for obstruction of justice to his offense level
calculation.

“We review for clear error the sentencing court’s

factbound determination that an obstruction of justice occurred.”
United States v. Quirion, 714 F.3d 77, 79 (1st Cir. 2013). “[W]here
the record supports at least two permissible inferences, the
factfinder’s choice between them cannot be clearly erroneous.”
United States v. Balsam, 203 F.3d 72, 89 (1st Cir. 2000).
The Guidelines recommend increasing a defendant’s offense
level by two levels if “(1) the defendant willfully . . . attempted
to obstruct or impede[] the administration of justice with respect
to the investigation, prosecution, or sentencing of the instant
offense of conviction, and (2) the obstructive conduct related to
(A) the defendant’s offense of conviction and any relevant conduct
. . . .”

U.S.S.G. § 3C1.1.

The commentary to § 3C1.1 specifically

lists “producing or attempting to produce a false, altered, or
counterfeit document or record during an official investigation or
judicial proceeding,” as an example of obstruction of justice

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warranting a two-level enhancement.

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Entry ID: 5865098

Id. at § 3C1.1 cmt. 4(C)

(emphasis added).
Recall that, in response to a subpoena, Jordan initially
produced,

along

referencing

the

with

various

fraudulent

other

correspondence,

consulting

“consulting” in quotation marks.

fees

with

an
the

e-mail
word

He later produced this e-mail’s

attachments with a copy of the same e-mail, with an identical time
stamp (August 31, 2011, at 8:53 a.m.), except that “consulting” was
no longer in quotation marks.

The PSR asserted this warranted a

two-level enhancement because it showed Jordan had deleted the
quotation

marks

before

reproducing

the

e-mail

and

therefore

“altered an e-mail chain . . . that was produced pursuant to a
subpoena.” At sentencing, Jordan offered an alternate explanation:
He “typically sends two or three e-mails on different servers
because he has a lot of e-mail problems.”

And, in this instance,

he sent two e-mails to his lawyer, but in the second e-mail he
“thought better of putting in those quotations.”
argued this explanation was “nonsensical.”

The government

Ultimately, the court

agreed with the government’s position, and found Jordan obstructed
justice by altering the e-mail.
Although Jordan’s alternate explanation may be possible,
the PSR’s theory is much more plausible given the identical
timestamp.

The district court accordingly could not commit clear

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error by adopting the PSR’s factual predicate, warranting a twolevel enhancement under § 3C1.1.
B.

Prange’s Management Enhancement
Prange attacks the district court’s imposition of a two-

level

management

enhancement.

In

preparing

for

Prange’s

sentencing, the government sought a four-level enhancement under
U.S.S.G. § 3B1.1(a), asserting Prange organized or lead five or
more participants.

Prange’s PSR, however, maintained no such

enhancement should apply because “Prange did not direct his coconspirators, each of whom willingly became a part of, and played
an active role in, the scheme.”

At sentencing, the court stated

that Prange “may not be deserving of a full four-level enhancement
for his role in the offense as a leader or organizer, but he is
surely deserving of at least a two-level enhancement for his
management and supervisory role.”

The court accordingly enhanced

Prange’s offense level by two levels.
The Guidelines authorize a two-level enhancement in cases
where

“the

defendant

was

an

organizer,

supervisor in any criminal activity . . . .”
To

justify

the

two-level

enhancement,

leader,

manager,

or

U.S.S.G. § 3B1.1(c).
“[e]vidence

of

the

defendant’s role . . . need only show that he ‘exercised authority
or control over another participant on one occasion.’”
States

v.

Flores-De-Jesús,

(citation omitted).

569

F.3d

8,

34

(1st

Cir.

United
2009)

Indeed, simply “recruiting” a co-defendant,

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“by itself, constitutes a ‘managerial’ function under § 3B1.1.”
United States v. Savarese, 686 F.3d 1, 20 (1st Cir. 2012).
not

enough,

however,

that

the

defendant

merely

“It is

controlled,

organized, or managed criminal activities; rather, he must instead
control, organize, or manage criminal actors.”

Flores-De-Jesús,

569 F.3d at 34 (emphasis in original) (quoting United States v.
Ofray–Campos, 534 F.3d 1, 40 (1st Cir. 2008)).
The

district

court

based

this

enhancement

on

two

alternate findings: (1) “that [Prange] was at least a manager and
supervisor,” or (2) that he “exercised management responsibilities
over

the

property,

assets

or

activities

of

a

criminal

organization.” Although the court’s second finding, may warrant an
upward departure, it is not a valid basis for an offense level
enhancement under § 3B1.1.

See id. at cmt. 2.

Nevertheless, the

record amply supports the court’s first finding: that Prange was at
least a manager or supervisor.
Jordan

and

multiple

other

At a minimum, Prange recruited

executives

into

this

scheme

by

introducing them to E.H., gauging their willingness to issue
kickbacks, and recommending them to the agent. Thus, the court did
not clearly err in finding Prange was “at least a manager or
supervisor,” warranting a § 3B1.1 two-level enhancement.
C.

Calculation of Loss
Both Defendants argue the district court made two errors

in calculating the amount of loss attributed to them.

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argue they should have been given credit for the kickbacks paid
because they unwittingly paid these kickbacks to the government.
Second, they argue they should be given credit for the value of the
stock purchased by the government in these fraudulent transactions.
“We

review

the

district

court’s

interpretation

and

application of the Guidelines de novo; we review related findings
of fact, including the court’s calculation of amount of loss, for
clear error.”

Innarelli, 524 F.3d at 290.

The Guidelines define

“loss” as “the greater of actual or intended loss.”
2B1.1, cmt. 3(A).

U.S.S.G. §

“We have endorsed a pragmatic, fact-specific

approach,” to calculating such loss, “stating that ‘loss should be
calculated using the entire price paid for the product, unreduced
by any offsetting value,’ if ‘the product misrepresented by the
defendant is worthless.’” United States v. Ihenacho, 716 F.3d 266,
278 (1st Cir. 2013) (citation omitted).
Defendant’s argument that they should be given credit for
the kickback plainly fails.

To give Defendants credit for the

kickback would ignore the fact that loss under § 2B1.1 includes
intended loss, which “includes intended pecuniary harm that would
have been impossible or unlikely to occur (e.g., as in a government
sting operation . . . ).” U.S.S.G. § 2B1.1, cmt. 3(A)(ii).

Here,

by taking money Defendants believed belonged to investors in a
hedge fund and paying fifty percent as a kickback to the corrupt
manager’s personal nominee company, Defendants intended to cause a

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loss to the hedge fund investors of at least the amount of the
kickback paid.

The fact that no investors actually suffered this

intended loss is irrelevant under § 2B1.1.
On the other hand, the government admits it received
shares of restricted stock in the companies to which it sent
tranches.

The government also admits that if the shares received

carry any fair market value, the district court should have reduced
its loss calculation by that amount.

See id. at cmt. 3(E)(i)

(“Loss shall be reduced by . . . the fair market value of the
property returned and the services rendered . . . .”).

But the

district court never made any findings as to the value of these
shares.

Nevertheless, the government asserts the district court

must have found these particular shares were worthless because
Defendants did not present sufficient evidence of their value.

We

are not so sure.
Defendants

argued

below

that

the

PSRs

should

have

credited them with the value of the shares the government received.
The PSRs responded to these objections by reasoning that Defendants
should be held accountable for the total value of the transaction
or transactions simply because they knew these transactions were
not legitimate.

The government, for its part, argued at Jordan’s

sentencing that the Vida Life stock was worthless simply because
there was no market for it.

But neither reason holds water.

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Indeed, the PSRs’ reasoning flies in the face of our
precedent.

In calculating loss based on fraud, we have long

recognized
that there are two types of fraud: “The first type of
fraud implicates the ‘true con artist,’ . . . who intends
only to pocket the money without rendering [anything] in
return. The second type of fraud involves a person who
would not have attained the contract or loan but for the
fraud, but who fully intends to perform.”
United States v. Blastos, 258 F.3d 25, 30 (1st Cir. 2001) (quoting
United States v. Haggert, 980 F.2d 8, 12–13 (1st Cir. 1992)); see
also United States v. Smith, 951 F.2d 1164, 1167 (10th Cir. 1991)
(“A thief who steals $100,000 is more culpable than a salesman who
obtains

$100,000

by

selling

a

victim

an

$80,000

fraudulently represents as being worth $100,000.

house

he

In the latter

case, it makes no sense to suggest that $100,000 is the accurate
measure of the victim’s loss.”).

Yet, by holding Defendants

responsible for the full amount of the fraudulent transactions
simply because they knew the transactions were fraudulent, the
PSRs’

response

to

Defendants’

objections

would

render

the

distinction between these two types of fraud illusory.
Furthermore, on appeal, the parties do not dispute that
the common stock of the companies at issue had some value.

At

sentencing, the government asserted no market existed for Vida Life
stock because “in contrast to [the] other companies . . . that were
at issue,” there was “virtually no trading” of Vida Life shares.
(emphasis added).

But the government’s own witness at trial
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testified to multiple trades of Vida Life common shares in 2011 at
between $0.03 and $0.05 per share.

In its response brief, the

government argues these particular shares were worthless because
they were restricted shares, which were not fully transferable or
salable.

Of course, restricted shares may be less valuable than

common shares because they are not freely transferable.

But the

government cites no authority, from the record or elsewhere, for
the proposition that the shares the government acquired were
worthless simply because they were restricted.

Au contraire,

courts often assign a value to restricted shares.

See, e.g.,

United States v. Roush, 466 F.3d 380, 385-86 (5th Cir. 2006)
(“[T]he fact that the stock was restricted at all times during 1998
did not render its fair market value either zero or de minimus for
the purposes of income calculations.”); Scully v. US WATS, Inc.,
238 F.3d 497, 514 (3d Cir. 2001) (affirming the district court’s
refusal to discount the value of stock shares simply because they
were restricted).
At oral argument, the government asserted the district
court must have found the shares were worthless because Defendants
did not provide sufficient evidence to show the shares had any
particular value, and thus, the court was entitled to disregard
them in its amount of loss calculation.
court nowhere made such a finding.

But, again, the district

Rather, the court’s terse

explanation as to the amount of loss indicates it probably followed

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one of the original erroneous arguments put forth by the PSR and
the government.

As to Jordan, the court stated “the loss was, in

fact, $32,000, the full amount of the transaction, and not some
netted out amount . . . reflective of [the] alleged value of the
transferred stock.” (emphasis added).

Similarly, the court stated

only that Prange “is responsible for the loss as calculated by the
probation officer, namely, including all of the amounts paid to the
co-conspirators.” (emphasis added).

Perhaps the court could have

found these shares were worthless, but the record does not show the
court must have held this view.

Indeed, the government suggested

at oral argument that, to the extent we are concerned about the
district court’s failure to make any factual findings on this
point, we should remand to allow the court to make those findings.
There

is

a

strong

likelihood

that

the

court

based

Defendants’ amount of loss enhancements on an erroneous legal
ground rather than a possible unspoken factual determination.
Furthermore, a finding that the shares at issue had even a very
small

value

Guidelines.7

could

make

a

significant

difference

under

the

As such, we accept the government’s invitation and

7

For example, given that the district court held Jordan
responsible for $32,000 in loss, if the Government’s 400,000 Vida
Life shares had a combined value of even $2,000--or just half a
cent per share--Jordan could be held responsible for no more than
$30,000 in loss and his amount of loss enhancement would be reduced
by two levels. See U.S.S.G. § 2B1.1(b)(1)(D). Similarly, because
Prange was held responsible for $95,000 in loss, if all of the
shares procured from all of Prange’s co-conspirators had a combined
value of $25,000 or more, he could be held responsible for no more
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remand these cases for resentencing so the district court can make
factual findings as to the value of the pertinent shares acquired
by the government during the sting.8
VI.
For

the

reasons

Conclusion
state

above,

we

AFFIRM

Defendants’

convictions but REMAND their cases to the district court with
instruction to vacate Defendants’ sentences and resentence them
according to this opinion.

than $70,000 in loss, and his amount of loss enhancement would
likewise be reduced. See id. at (b)(1)(E).
8

Because the district court committed procedural error in
formulating Defendants’ sentences, we need not address the
substantive reasonableness of those sentences here.
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