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
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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
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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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Thus,
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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.
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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
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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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Entry ID: 5865098
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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