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United States Court of AppealsFor the First Circuit
Nos. 13- 2262 & 13- 2328
UNI TED STATES OF AMERI CA,
Appel l ee,
v.
J AMES PRANGE and J OHN C. J ORDAN,
Def endant s, Appel l ant s.
APPEALS FROM THE UNI TED STATES DI STRI CT COURTFOR THE DI STRI CT OF MASSACHUSETTS
[ Hon. Nat hani el Gor t on, U. S. Di st r i ct J udge]
Bef or eKayat t a, Bal dock, * and Sel ya,
Ci r cui t J udges.
St even N. Ful l er , wi t h whom Al l en- Ful l er , P. A. was on br i ef ,f or appel l ant J ames Pr ange.
I nga L. Par sons f or appel l ant J ohn C. J or dan.
Davi d M. Li eberman, At t orney, Uni t ed St ates Depart ment ofJ ust i ce, wi t h whomCar men M. Or t i z, Uni t ed Stat es At t or ney, StephenE. Frank, Assi st ant Uni t ed St at es At t or ney, Sar ah E. Wal t er s,Assi st ant Uni t ed St at es At t or ney, Lesl i e R. Cal dwel l , Assi st antAt t or ney Gener al , and Davi d M. Bi t kower , Deput y Ass i st ant At t or neyGener al , wer e on br i ef , f or appel l ee.
November 5, 2014
*Of t he Tent h Ci r cui t , si t t i ng by desi gnat i on.
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Baldock, Circuit Judge. A j ur y convi ct ed Co- Def endant s
J ames Pr ange and J ohn J or dan of mul t i pl e f r aud- r el at ed count s based
on t hei r par t i ci pat i on i n an FBI secur i t i es f r aud st i ng. The
di st r i ct cour t sent enced each def endant t o 30 mont hs i n pr i son.
Def endant s consol i dat ed appeal s r ai se mul t i pl e chal l enges t o thei r
convi ct i ons and sent ences. Exer ci si ng j ur i sdi ct i on under 28 U. S. C.
1291 and 18 U. S. C. 3742, we af f i r m Def endant s convi ct i ons but
r emand f or r esent enci ng because t he di st r i ct cour t pr ocedur al l y
er r ed when f or mul at i ng thei r gui del i ne sent enci ng ranges.
I. Introduction
Penny st ocks ar e st ocks i ssued by smal l compani es t hat
t r ade at l ess t han $5 per shar e. These st ocks, gener al l y speaki ng,
ar e t hi nl y t r aded and not l i st ed on or gani zed secur i t i es exchanges.
As a r esul t , t hei r pr i ces ar e of t en vol at i l e and subj ect t o
mani pul at i on.
To i nvest i gat e f r aud i n t he penny st ock mar ket , t he FBI
l aunched Oper at i on Penny Pi ncher . Thi s st i ng oper at i on posed an
FBI agent as a corr upt hedge f und manager named J ohn Kel l y f r om
a f i cti t i ous f und cal l ed Seaf i n Capi t al . I n t hi s rol e, t he agent
pr oposed a par t i cul ar i nvest ment deal t o t he execut i ves of
compani es wi t h l ow mar ket capi t al i zat i on. The agent of f er ed t o use
up t o f i ve mi l l i on dol l ar s of hi s cl i ent s money t o over pay f or
r est r i ct ed shar es of t he execut i ves compani es i n r et ur n f or a
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f i f t y per cent ki ckback di sgui sed as a consul t i ng f ee t o one of t he
agent s nomi nee compani es. 1
The FBI cr eated a New York address, websi t e, and busi ness
car ds, and r ent ed a Massachuset t s of f i ce f or Seaf i n Capi t al . I t
al so used f or mer st ock br oker E. H. as a cooper at i ng wi t ness wi l l i ng
t o speak t o execut i ves i nt er est ed i n the ki ckback ar r angement .
E. H. had pr evi ousl y been convi ct ed of wi r e f r aud t hr ough t hi s same
operat i on and was seeki ng a l eni ent sent ence.
A. Defendant Prange
Def endant Pr ange i s a sel f - descr i bed f i nanci al
consul t ant . A mut ual acquai nt ance i nt r oduced E. H. and Prange over
t he phone i n ear l y 2011. I n J une 2011, Pr ange cal l ed E. H. aski ng
f or det ai l s about t he ki ckback pr ogr am. E. H. expl ai ned t he pr ogr am
as a pr ogr am of l ast r esor t wher e f i f t y per cent woul d go r i ght
back t o t he agent - manager and basi cal l y i t s a ki ckback t o hi m.
E. H. al so emphasi zed t hat t he execut i ves had t o f ul l y under st and
t he pr ogr am and t hat t hose who were uncomf or t abl e coul d j ust wal k
away. When Pr ange asked whet her t he manager had a l i t t l e one
page t erm sheet document i ng t he ki ckback arr angement , E. H.
r esponded no, no . . . he woul d never put anythi ng i n wr i t i ng.
Pr ange t hen r epl i ed Exact l y. Ri ght .
1 Rest r i ct ed shar es gener al l y r ef er t o unr egi st er ed andnon- t r ansf er abl e shar es of owner shi p i n a cor por at i on. Theyt ypi cal l y car r y l ess val ue because t he owner s r i ght t o sel l ort r ansf er t he st ock i s l i mi t ed.
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Pr ange r ecommended a number of execut i ves as par t i ci pants
i n t hi s scheme and l at er par t i ci pat ed i n conf er ence cal l s wher e
E. H. expl ai ned t o t hese execut i ves t hat t he hedge f und di d not know
about t he ki ckback because t he manager s l i p[ ped] t hi s money i n
wi t h hi s l egi t i mat e busi ness deal s. He al so expl ai ned t hat t he
manager used seven or ei ght di f f erent nomi nee names t o r ecei ve
t he consul t i ng f ee even t hough t here was no consul t i ng work bei ng
done f or t he company. Wi t h Prange on t he cal l , E. H. t ol d one of
t hese execut i ves t hat t he ar r angement was i nappr opr i at e . . .
def i ni t el y i nappr opr i at e . . . i n my mi nd i l l egal .
Prange met t he undercover agent i n Massachuset t s on J ul y
22, 2011. The agent expl ai ned t hat hi s f und s t ypi cal i nvest ment s
i nvol ved a gr eat deal of due di l i gence. But al ongsi de t hese
l egi t i mat e deal s, t he agent sai d he i nvest ed i n l ongshot
corporat i ons i n a way t hat made i t l ook l i ke he had done due
di l i gence when, i nst ead, he woul d si mpl y paper t he f i l e i n or der
t o get i t t hr ough, and have the hedge f und, make the capi t al
i nvest ment . The cat ch? He t ook a f i f t y per cent ki ckback, r i ght
of f t he t op. The agent t hen of f er ed Pr ange a choi ce: i f at t he
end of t oday . . . t her e s somet hi ng about me you don t l i ke, t hen,
we deci de t o par t ways. But i f Pr ange deci ded t o par t i ci pat e he
woul d r ecei ve t en per cent of each ki ckback, so i f . . . we do f i ve
mi l l i on, I get t wo and a hal f , I can gi ve you t en per cent .
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The agent t hen expl ai ned l ogi st i cs . He woul d f und t he
compani es i n t r anches . . . j ust t o make sur e al l t he mechani cs
. . . wor k out . Each t r anche woul d over pay f or r est r i ct ed
shar es of t he company s st ock. As f or t he ki ckback, t he agent
expl ai ned, i t s me, personal l y, and t hr ough my nomi nee company,
t hat get s t he money . . . so t he f und doesn t know, t hey don t need
t o know. To mask the payment , t he agent woul d execut e a
consul t i ng agr eement wi t h one of hi s nomi nee compani es, but he
made cl ear t hat [ t he] consul t i ng agr eement . . . i s i n paper onl y,
t her e s no consul t i ng. The agent t hen t ol d Pr ange t he bal l i s i n
your cour t . . . i f you wanna cont i nue t hese meet i ngs. Pr ange
r esponded, [ a] bsol ut el y . . . i t s excel l ent . Pr ange t hen sat
t hr ough two meet i ngs where t he agent r epeat ed t he ki ckback pi t ch t o
t wo of t he execut i ves Pr ange had r ecommended f or part i ci pat i on i n
t he scheme.
B. Defendant Jordan
Several weeks l ater , Def endant Prange suggest ed t he
under cover agent i nvest i n Vi da Li f e I nt er nat i onal . On August 22,
2011, t he agent met wi t h Pr ange and Def endant J or dan- - Vi da Li f e s
pr esi dent , CEO, and CFO. The agent had a t wo- hour , f ace- t o- f ace
conver sat i on wi t h J or dan, dur i ng whi ch he expl ai ned the ki ckback
scheme. He t hen t ol d J ordan t he deci si on now i s your s whether you
want . . . t o cont i nue. J or dan asked i f Vi da Li f e woul d need t o
r epor t t he ki ckback on a 1099 t ax f orm; t he agent sai d no,
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because t hey woul d mask[ t he] payment t hr ough a consul t i ng
agr eement even t hough no one woul d ever per f orm any consul t i ng.
The agent t hen t ol d J or dan, my bi ggest concer n . . . i s your
abi l i t y t o . . . f eel comf or t abl e and . . . cover or hi de t he
payment t hat you r e maki ng back t o me. J ordan r esponded, I have
no i ssues. The agent al so t ol d J or dan, I mscr ewi ng my i nvest or s
on t he hedge f und si de, but qual i f i ed t hat , They have done so
wel l i n t he past t hat anyt hi ng I do l i ke t hi s i s . . . not gonna
r eal l y hur t t hem. He t hen asked i f J or dan had any pangs . . . of
consc[ i ence] wi t h t hat . J or dan r esponded si mpl y: No. J or dan
t hen gave t he agent mat er i al s t he agent coul d use t o mi sl ead hi s
par t ner s on t he nat ur e of t he i nvest ment . J or dan al so pl edged t o
make Vi da Li f e s press r el eases say t he cash was comi ng f r om t he
sal e of f i shmeal , and not f r om Seaf i n.
At t he cl ose of t he meet i ng, J or dan pr oposed t hey si gn
t he consul t i ng and st ock subscr i pt i on agr eement s r i ght t hen and
t her e. The agent s i gned t he consul t i ng agr eement , but di r ect ed
J or dan ( who l i ved i n Cal i f or ni a) t o t ake t he subscr i pt i on agr eement
home wi t h hi m, f i l l i n cer t ai n i nf or mat i on, and t hen send i t back.
By August 31, 2011, J ordan had f i nal i zed t hese agr eement s.
Once t he execut i ves f i nal i zed t he st ock pur chase
agr eement s and t he consul t i ng agr eement s, whi ch l i st ed Waters
Edge as t he nomi nee cor por at i on to recei ve t he ki ckback, t he FBI
( posi ng as Seaf i n) wi r ed t he f i r st t r anche of appr oxi mat el y $30, 000
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t o each company. Of t he $32, 000 Vi da Li f e r ecei ved, i t sent
$16, 000 t o Waters Edge. Vi da Li f e t hen di sbur sed t he r emai nder t o
J or dan, hi s cr edi t car d, hi s ni ece, hi s at t or ney, and hi s busi ness
par t ner . I n ant i ci pat i on of t he next t r anche, J or dan f abr i cat ed an
i nvoi ce, dated Sept ember 8, 2011, j ust i f yi ng a $50, 000 payment by
Vi da Li f e t o Wat er s Edge f or pur por t ed consul t i ng servi ces,
t echnol ogy assessment s, t r avel expenses, and conf er ence f ees.
Nei t her Waters Edge nor t he agent ever pr ovi ded t hese ser vi ces.
The FBI st opped t he i nvest ment s i n September 2011,
adopt i ng a cover st or y t hat Seaf i n had t r ansf er r ed J ohn Kel l y t o
i t s London of f i ce wher e he coul d no l onger execut e t hese f r audul ent
i nvest ment s. The FBI ar r est ed Prange, J or dan, and t he ot her
par t i ci pant s sever al mont hs l at er . The t hr ee ot her execut i ves
i ndi ct ed wi t h Prange and J or dan- - St ephen Ber man, Ri char d Kr ani t z,
and Kar en Per son- - pl ed gui l t y. Pr ange and J or dan went t o t r i al .
C. Trial
At t r i al , t he gover nment dur i ng i t s case i n chi ef pl ayed
i n shor t segment s vi deo recor di ngs of t he agent s meet i ngs and
phone conver sat i ons wi t h Prange, hi s meet i ng wi t h J or dan, and hi s
meet i ngs wi t h t he other execut i ves. Af t er pl ayi ng each segment ,
t he gover nment asked the agent t o cl ar i f y par t i cul ar st at ement s
made dur i ng t hese conver sat i ons. For exampl e, af t er pl ayi ng a cl i p
wher e Pr ange asked t he agent whet her he woul d have an open l i ne of
communi cat i on t o [ b] r i ng ot her t hi ngs t o you, t he agent
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t est i f i ed t hat he under st ood Pr ange s quest i on t o be ref er enci ng
Pr ange s abi l i t y and wi l l i ngness t o br i ng ot her compani es t o do
t hese st ock f r aud deal s. As t o J or dan, af t er pl ayi ng t he cl i p
where the agent asked J ordan i f he was comf ort abl e hi di ng t he
ki ckback and J ordan r esponded I have no i ssues, t he gover nment
asked t he agent what he t hought J ordan s r esponse meant . The agent
answered: I t s my under st andi ng t hat Mr . J or dan was cl ear t hat
t hi s was an i l l egal st ock deal and he was wi l l i ng t o par t i ci pat e i n
i t . Si mi l ar l y, when asked why he t ol d J or dan I m scr ewi ng my
i nvest or s on t he hedge f und si de, t he agent t est i f i ed t hat t hi s
was so he coul d make cl ear t o Mr . J or dan t hat t hi s i s not a
l egi t i mat e t r ansact i on. Af t er pl ayi ng t he segment wher e t he agent
asked J ordan i f he had any pangs of consc[ i ence] about what t hey
wer e doi ng and J or dan r esponded no, t he agent t est i f i ed hi s
under st andi ng f r om t hi s r esponse was t hat Mr . J or dan had no
pr obl em wi t h what I was doi ng by scr ewi ng my i nvest or s. Prange
di d not obj ect t o t hi s l i ne of quest i oni ng at t r i al . J or dan s
r epeat ed obj ect i ons wer e, f or t he most par t , over r ul ed.
I n t hei r def ense, Prange and J ordan cl ai med ent r apment
t hr oughout t r i al and sought j udgment s of acqui t t al on t hi s basi s.
The di st r i ct cour t deni ed t hese mot i ons, but i nst r uct ed t he j ury on
t he def ense of ent r apment . The cour t t ol d t he j ur y t hat , t o
convi ct , [ i t ] must be convi nced t hat t he gover nment has proven
beyond a r easonabl e doubt t hat [ t he] def endant was not ent r apped.
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The gover nment coul d sat i sf y i t s bur den i n one of t wo ways, t he
cour t expl ai ned: I t mi ght demonst r at e t hat t he cooper at i ng
wi t ness or undercover agent di d not persuade or t al k t he def endant
i nt o commi t t i ng t he cr i me. Al t er nat i vel y, t he gover nment coul d
est abl i sh t hat t he def endant . . . was r eady and wi l l i ng t o commi t
t he cr i me wi t hout any per suasi on f r om t he cooper at i ng wi t ness,
undercover agent or any other government agent .
At t he cl ose of t r i al , t he di str i ct cour t not i f i ed t he
par t i es t hat i t pl anned t o pr ovi de a copy of t he super sedi ng
i ndi ct ment t o t he j ur y but woul d r edact t he names of t he t hr ee
ot her execut i ves who had pl ed gui l t y. The cour t r ef used, however ,
t o t ake out al l of t he r ef er ences t o t he co- conspi r at or s.
Def endant s obj ect ed. They ur ged t he cour t t o r edact t he
super sedi ng i ndi ct ment s I nt r oduct i on and Backgr ound sect i ons
because t hese sect i ons cont ai ned numerous r epr esent at i ons
i ncl udi ng act s by i ndi vi dual s who ar e not on t r i al whi ch ar e
pr ej udi ci al . Def endant s al so compl ai ned t hat t he i ndi ct ment
r ef er enced t he ter m nomi nee compani es i n quot at i ons when
r ef er r i ng t o t he agent s nomi nee compani es. The cour t over r ul ed
t hese obj ect i ons and submi t t ed t he i ndi ct ment t o t he j ur y. But i t
al so i nst r uct ed t he j ur y [ n] ot . . . t o be concer ned wi t h t he
gui l t of any ot her per son or per sons not on t r i al as a def endant i n
t hi s case, and expl ai ned t hat an I ndi ct ment i s not evi dence of
any ki nd agai nst t he def endant .
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Ul t i mat el y, t he j ur y convi ct ed bot h Def endant s on al l
count s: Prange wi t h t hr ee count s of conspi r acy t o commi t
secur i t i es f r aud, i n vi ol at i on of 18 U. S. C. 1349; and ei ght
count s of wi r e f r aud, i n vi ol at i on of 18 U. S. C. 1343, 1349, and
2; and J or dan wi t h one count of conspi r acy to commi t secur i t i es
f r aud, i n vi ol at i on of 18 U. S. C. 1349; f our count s of wi r e f r aud,
i n vi ol at i on of 18 U. S. C. 1343, 1349, and 2; and one count of
mai l f r aud, i n vi ol at i on of 18 U. S. C. 1341, 1349, and 2. Pr ange
and J ordan t hen moved f or j udgment notwi t hst andi ng t he verdi ct or ,
i n t he al t er nat i ve, a new t r i al ar gui ng t hat no r easonabl e j ur y
coul d f i nd beyond a reasonabl e doubt t hat t he government had
di spr oven t he def ense[ ] of . . . ent r apment . . . . The di st r i ct
cour t deni ed t hese mot i ons.
D. Sentencing
I n pr epar at i on f or sent enci ng, J or dan s Pr esent ence
Report ( PSR) r ecommended hol di ng hi m account abl e f or $32, 000 i n
i nt ended l oss, r epr esent i ng t he f ul l amount of t he money
t r ansmi t t ed t o Vi da Li f e. Prange s PSR r ecommended hol di ng hi m
r esponsi bl e f or $95, 000, r ef l ect i ng t he sum t ot al of t he f unds
t r ansmi t t ed t o Vi da Li f e and t he two ot her compani es whose
execut i ves Pr ange had i nt r oduced t o t he agent . Def endant s ur ged
t he di st r i ct cour t t o r educe t hese l oss cal cul at i ons by t he mar ket
val ue of t he st ock pur chased by Seaf i n and t o cl assi f y the
ki ckbacks as cr edi t s agai nst t he l oss. The di st r i ct cour t r ej ected
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t hese ar gument s and accepted t he PSRs r ecommended f i gur es. Based
on t hese number s, J or dan r ecei ved a si x- l evel i ncr ease t o hi s base
of f ense l evel and Pr ange r ecei ved an ei ght - l evel i ncr ease.
The PSR al so concl uded J or dan had al t er ed an e- mai l
bef ore pr oduci ng i t t o t he gover nment and accor di ngl y r ecommended
a t wo- l evel obst r uct i on- of - j ust i ce enhancement t o J or dan s of f ense
l evel . Mor e speci f i cal l y, i n r esponse t o a gover nment subpoena,
J or dan i ni t i al l y produced an e- mai l t o hi s l awyer , Ri char d Kr ani t z-
- who, r ecal l , pl ed gui l t y t o ot her char ges r el at ed t o t hi s st i ng- -
r ef er enci ng t he f r audul ent consul t i ng f ees as f ol l ows:
I have t o r equest t hat r est r i ct ed st ock be i ssued t o SEAFI N CAPI TAL LLC as agr eed. Both t he i ssuance of st ockand payi ng f or t he consul t i ng f ees were appr oved by theBoar d of Di r ectors on August 26, 2011.
Al t hough t he e- mai l r ef er enced t wo at t achment s, J or dan di d not
i ncl ude t hem. Af t er bei ng not i f i ed of t he mi ssi ng at t achment s,
J or dan produced t hem al ong wi t h anot her ver si on of t he e- mai l
above, wi t h t he same date and t i me st amp ( August 31, 2011, 8: 53
a. m. ) . But i n t hi s second e- mai l , t he wor d consul t i ng was no
l onger i n quot at i on mar ks. Over J or dan s obj ect i on, t he cour t
adopt ed t he PSR s concl usi on t hat del et i ng t hese quot at i on mar ks
war r ant ed an obst r uct i on- of - j ust i ce enhancement .
The gover nment al so ar gued Pr ange deser ved a f our - l evel
enhancement under U. S. S. G. 3B1. 1( a) because he organi zed or l ed
f i ve or more part i ci pant s. The PSR di d not r ecommend any
l eadershi p or management enhancement . The cour t decl i ned t he
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gover nment s r equest , but ul t i mat el y f ound t hat [ Prange] was at
l east a manager and super vi sor or exer ci sed management
r esponsi bi l i t i es over t he pr oper t y, asset s or acti vi t i es of a
cr i mi nal or gani zat i on. As such, t he cour t appl i ed a t wo- l evel
enhancement t o Pr ange s of f ense l evel under 3B1. 1( c) .
The di st r i ct cour t event ual l y cal cul at ed Pr ange s
gui del i ne sent enci ng r ange at 24 t o 30 mont hs, r ef l ect i ng an
of f ense l evel of 17 and a cr i mi nal hi st or y cat egor y of I . The
di st r i ct cour t cal cul at ed J or dan s gui del i ne sent enci ng r ange at 30
t o 37 mont hs, r ef l ect i ng an of f ense l evel of 19 and a cr i mi nal
hi st or y cat egor y of I . The cour t sent enced bot h Def endant s t o
concur r ent t erms of 30 mont hs i mpr i sonment f or each count of
convi ct i on.
II. Agent Testimony
A. Testimony Against Jordan
J or dan f i r st ar gues t he di st r i ct cour t er r ed when i t
per mi t t ed the under cover agent t o i nt er pr et what he and J or dan
meant by cer t ai n quest i ons and st at ement s i n t hei r r ecor ded, f ace-
t o- f ace conver sat i on. J or dan pr eser ved hi s obj ect i ons t o t he
agent s t est i mony at t r i al so we r evi ew t hese evi dent i ar y r ul i ngs
f or an abuse of di scret i on. See Uni t ed St at es v. Al ber t el l i , 687
F. 3d 439, 445 ( 1st Ci r . 2012) . But abuse of di scr et i on i s not a
monol i t hi c st andar d. Wi t hi n i t s mar gi ns, embedded i ssues may
r ecei ve at t ent i on under mor e nar r owl y f ocused st andar ds. Thus,
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embedded quest i ons of l aw engender de novo r evi ew and embedded
f i ndi ngs of f act engender cl ear - er r or r evi ew. Uni t ed St at es v.
Car r asco- De- J ess, 589 F. 3d 22, 26- 27 ( 1st Ci r . 2009) .
J or dan ar gues t he agent i mper mi ssi bl y t est i f i ed as t o
( 1) t he agent s own st at e of mi nd and i nt ent , ( 2) J or dan s st at e of
mi nd and i nt ent , and ( 3) t he ul t i mat e l egal i ssue i n t he case. He
gi ves a number of exampl es of t hi s pur port edl y i mpr oper t est i mony:
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Recor ded Conver sat i on Agent s Test i mony
J or dan: Do we as acor por at i on have t o i ssue a1099?
Agent : No
J or dan: How do we go ar oundt hat ?
I t s my under st andi ng t hat[ J ordan] s engagi ng me now onhow best t o cover up theki ckback payment .
J or dan: I f [ ot herpar t i ci pat i ng compani es] havedone wel l and t hei r audi t s got hr ough t hen I m sur e our s. . . wi l l do t he same.
I under st and J or dan t o bet el l i ng me t hat t he consul t i ngagr eement - - phony consul t i ngagr eement and t he f akei nvoi ces, i f t hey passedaudi t s f r om compani est hat have al r eady done t hese
st ock deal - - f r auds wi t h, t henhe t hi nks t hat i t wi l lpass hi s as wel l .
Agent : my bi ggest concer n. . . i s your abi l i t y t o . . .f eel comf or t abl e and . . .cover or hi de t he payment t hatyou r e maki ng back t o me.
J or dan: I have no i ssues.
I t s my under st andi ng t hatMr . J or dan was cl ear t hat t hi swas an i l l egal st ock deal andhe was wi l l i ng t opar t i ci pat e.
Agent : I m scr ewi ng myi nvest ors on t he hedge f unds i de. . . .So i f you have any pangs ofcon[ sci ence] wi t h t hat .
J or dan: No.
Thi s i s anot her . . . way Ican make cl ear t o Mr . J ordant hat t hi s i s not a l egi t i mat et r ansacti on.
I under st and Mr . J or dan hadno pr obl emwi t h what I wasdoi ng by scr ewi ng myi nvest or s.
Our f i r st t ask i s t o est abl i sh whet her t he gover nment
of f er ed t hi s t est i mony as exper t t est i mony or l ay t est i mony. When
cr i t i cal evi dence i n a case consi st s of r ecor ded conver sat i ons,
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of f i cer s commonl y hel p i nt er pr et [ t hese] conver sat i ons by
t r ansl at i ng j ar gon common among cr i mi nal s. Al ber t el l i , 687 F. 3d
at 446. Thi s [ t est i mony] can be admi t t ed as l ay t est i mony f r om
exper i enced of f i cers, exper t t est i mony or bot h dependi ng on
ci r cumst ances. Uni t ed St at es v. Sant i ago, 566 F. 3d 65, 69 ( 1st
Ci r . 2009) . Wher e t he basi s of an i nt er pr et at i on comes f r om t he
of f i cer s per sonal i nvol vement i n t he case, r at her t han f r om
speci al i zed out si de knowl edge, we t ypi cal l y const r ue i t as l ay
t est i mony under Feder al Rul e of Evi dence 701. See Al ber t el l i , 687
F. 3d at 44647.
J or dan s openi ng br i ef somet i mes assumes t he agent s
t est i mony was l ay t est i mony. See J or dan Br . at 25 ( Even i f t he
agent was bei ng used as some t ypeof exper t . . . . ( emphasi s
added) ) . Ot her t i mes i t assumes t he t est i mony was expert
t est i mony. See i d. at 31 ( asser t i ng t he agent s t est i mony vi ol at ed
Fed. R. Evi d. 704, whi ch appl i es onl y t o exper t wi t nesses) . Not
unt i l hi s r epl y br i ef does J or dan asser t t hat t he agent s
i nt er pr et at i ons shoul dbe cl assi f i ed as exper t t est i mony because
t he agent had al so t est i f i ed about i ndust r y t er ms. J or dan Repl y
Br . at 1. Whi l e a r epl y br i ef i s not t he pr oper pl ace t o r ai se
new ar gument s, i t i s pr oper f or a cour t t o l ook ther e f or
cl ar i f i cat i on. Uni t ed St at es v. Br adst r eet , 207 F. 3d 76, 80 n. 1
( 1st Ci r . 2000) ( ci t at i on omi t t ed) . Regar dl ess, t he f act t hat t hi s
case i nvol ved some i ndust r y j ar gon does not aut omat i cal l y t ur n t he
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agent s i nt er pr et at i ons of hi s own conver sat i ons wi t h Def endant s
i nt o exper t t est i mony.
I ndeed, t he agent pr ef aced al most ever y i nt er pr et at i on he
gave wi t h I under st and t hi s t o mean, or i t i s my under st andi ng
t hat . . . . The agent never once sai d, f or exampl e, J or dan sai d
X and, i n t he f i nance i ndust r y, t hat means Y. Fur t her mor e, as t o
t he j ar gon used, t he agent used t er ms l i ke l ender of l ast r esor t
t o t r y to convey the i l l egal i t y of t hese t r ansact i ons t o bot h
Def endant s. But when pr essed on t he meani ng of t hese part i cul ar
t erms, t he agent r eadi l y admi t t ed he di d not know and di d not l ook
up t hei r meani ng i n t he busi ness communi t y. Rather , t he agent
based hi s under st andi ng of Def endant s r esponses t o t er ms l i ke
l ender of l ast r esor t on hi s per sonal under st andi ng of t hat t er m
[ i ] n t he cont ext of t hi sunder cover operat i on. ( emphasi s added) .
As such, we f ai l t o see why we shoul d t r eat t he agent s
i nt er pr et at i on of hi s own conver sat i ons as exper t t est i mony.
Al t hough l i ngui st i cal l y possi bl e, cal l i ng such t est i mony exper t
opi ni on woul d l end undue credi bi l i t y to i t and i ncrease t he r i sk
of r el i ance on i nf or mat i on not pr oper l y bef or e the j ur y as dat a on
whi ch exper t s i n t he par t i cul ar f i el d woul d r easonabl y r el y,
[ when] t he f i el d i s mer el y t he f act s of t he case. Al ber t el l i ,
687 F. 3d at 446 ( quot i ng Fed. R. Evi d. 703) ; see al so Uni t ed St at es
v. Rol l i ns, 544 F. 3d 820, 833 ( 7t h Ci r . 2008) ( Wher e t he agent s
i mpr essi ons t est i mony was based on hi s own personal obser vat i ons
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and per cept i ons der i ved f r omt hi s par t i cul ar case[ , s] uch t est i mony
i s admi ssi bl e as l ay opi ni on t est i mony. ) .
Of cour se, we have pr evi ousl y det ai l ed many pot ent i al
danger s of al l owi ng t hi s f or m of i nt er pr et at i on as l ay t est i mony.
See Al ber t el l i , 687 F. 3d at 447. And J or dan, i n a concl usor y l i st
i n hi s r epl y br i ef , assert s ever y one of t hese danger s wer e
har mf ul l y mani f est ed at t r i al . Agai n, t he r epl y br i ef i s not t he
pr oper pl ace t o r ai se t hese new ar gument s. See Br adst r eet , 207
F. 3d at 80 n. 1. Moreover , J ordan onl y hi nt s at devel oped argument
as t o t wo of t hese danger s. See Uni t ed St at es v. Zanni no, 895 F. 2d
1, 17 ( 1st Ci r . 1990) ( [ I ] ssues adver t ed t o i n a per f unct or y
manner , unaccompani ed by some ef f or t at devel oped argument at i on,
are deemed wai ved. ) .
Fi r st , J or dan essent i al l y ar gues t hat we cannot t r eat t he
agent s t est i mony as admi ssi bl e l ay t est i mony because t he
gover nment f ai l ed t o l ay t he necessary f oundat i on f or l ay
t est i mony. See Al ber t el l i , 687 F. 3d at 447. The Feder al Rul es of
Evi dence r equi r e t hat l ay t est i mony be ( a) r at i onal l y based on t he
wi t ness s per cept i on; ( b) hel pf ul t o cl ear l y under st andi ng t he
wi t ness s t est i mony or t o det er mi ni ng a f act i n i ssue; and ( c) not
based on sci ent i f i c, t echni cal , or ot her speci al i zed knowl edge
wi t hi n t he scope of Rul e 702. Fed. R. Evi d. 701.
Al l udi ng t o Rul e 701( a) , J or dan ar gues t he agent was
unabl e t o poi nt t o any r at i onal basi s f or t he i nt er pr et at i on
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of f er ed [ and di d] not hi ng mor e t han specul at i ng. Al ber t el l i , 687
F. 3d at 447. J or dan r el i es heavi l y on t wo Second Ci r cui t cases t o
ar gue thi s f oundat i onal el ement was not met , at l east as t o the
agent s t est i mony i nt er pr et i ng what J or dan meant by hi s s t at ement s
and r esponses dur i ng t hei r r ecor ded conver sat i on. Most
si gni f i cant l y, he ci t es Uni t ed St at es v. Gar ci a, 291 F. 3d 127 ( 2d
Ci r . 2002) , f or t he pr oposi t i on t hat [ w] hen a conver sat i on has a
l egi t i mat e pur pose under st andabl e t o a l ay person, t est i mony about
a code wi t hout some evi dence of prear r angement or some other
f oundat i on i s i nappr opr i at e. I d. at 141; see al so Uni t ed St at es
v. Rea, 958 F. 2d 1206, 1215 ( 2d Ci r . 1992) ( When a wi t ness has not
i dent i f i ed t he obj ect i ve bases f or hi s opi ni on, t he pr of f er ed
opi ni on obvi ousl y f ai l s compl et el y t o meet t he r equi r ement s of Rul e
701 . . . . ) .
We f ai l t o see how st atement s such as scr ewi ng my
i nvest or s on t he hedgef und si de coul d l end themsel ves t o a
l egi t i mat e pur pose under st andabl e t o a l ay per son. Mor eover , t he
gover nment l ai d out an obj ect i ve basi s f or t he agent s
underst andi ng t hat J ordan knew t hey were speaki ng i n coded t erms
and hi s i mpr essi on of what J ordan act ual l y meant . 2 Speci f i cal l y,
t he agent t est i f i ed t hat st ock f r aud deal s ar e di scussed
2 Cl ear l y, t he agent had personal knowl edge of what he meantwhen he spoke t o J or dan, and hi s s t at us as a par t i ci pant i n t heconver sat i on i s suf f i ci ent t o demonst r at e t he basi s of t hi sopi ni on. Gar ci a, 291 F. 3d at 140- 41.
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pr i vat el y, happen qui ckl y, and empl oy coded t er mi nol ogy. 3
Fur t her more, bef or e meet i ng wi t h J or dan per sonal l y, t he agent asked
Prange, who had r ecr ui t ed J or dan i nt o t hi s scheme, about J or dan s
under st andi ng of t he scheme. Prange t ol d t he agent t hat J or dan s
money guy had expl ai ned t o J or dan t hat t hey had t r i ed di f f er ent
ways t o get f i nanci ng and t hat t hi s deal makes sense. Prange
al so t ol d t he agent , J or dan get s i t . The agent t hen pr essed
Pr ange: Al l r i ght . And he s good wi t h t he ki ckback wi t h t he 50
per cent? To whi ch Pr ange r esponded yes. The government t hus
pr ovi ded an obj ect i ve basi s f or t he agent s opi ni on t hat J or dan met
wi t h hi m per sonal l y t o di scuss par t i ci pat i ng i n an i l l egal st ock
f r aud scheme.
J or dan t hen asser t s t he gover nment di d not est abl i sh a
f oundat i on f or how t hi s l ay t est i mony was hel pf ul t o t he j ur y. See
3 To be sure, t he Second Ci r cui t has condemned, and we havest r ongl y caut i oned agai nst , a wi t ness usi ng br oad appeal s t o t het ot al i t y of t he i nvest i gat i on or pur por t i ng t o r epr esentcol l ect i ve knowl edge f or t he bases of hi s i nt er pr et at i ons. Al ber t el l i , 687 F. 3d at 448 ( quot i ng Uni t ed St at es v. Gr i nage, 390F. 3d 746, 749 ( 2d Ci r . 2004) ) . And her e, t he agent r el i ed on hi sspeci al i zed exper t i se and exper i ence i nvest i gat i ng f r auds l i ket hi s i n expl ai ni ng how st ock f r aud deal s t ypi cal l y wor k and whyi nt er pr et at i on was needed. But J or dan does not poi nt t o, and wehave not f ound, any pl ace i n t he r ecord t hat i ndi cat es t he agentpur por t ed t o base hi s i nt er pr et at i ons of J or dan s speci f i c
st at ement s on col l ect i ve knowl edge. Rat her , as expl ai ned above,t he agent r eadi l y admi t t ed on cr oss- exami nat i on t hat hi sunder st andi ng of cer t ai n t er ms mi ght not l i ne up wi t h t hei rt r adi t i onal meani ng i n t he busi ness communi t y. Fur t her mor e, unl i kei n Gr i nage, where t he agent never made any personal obser vat i ons oft he def endant , see 390 F. 3d at 749, her e, t he agent i nt er pr et ed hi sown f ace- t o- f ace conver sat i on wi t h J or dan.
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Fed. R. Evi d. 701( b) . Rat her , J or dan cl ai ms, hi s conver sat i on wi t h
t he agent used everyday t erms t hat made sense cont extual l y. We
di sagr ee. J or dan of t en used abr upt st and al one wor ds or phr ases
t hat do not st r i ke us as ever yday t er ms, f or exampl e: what wi l l be
your over pay, and [ f ] or f i ve, hal f back. Li kewi se, wi t hout
pr oper cont ext , a l ay j ur y mi ght easi l y f ai l t o gr asp t he
si gni f i cance of many of J or dan s comment s. For exampl e, at one
poi nt i n t hei r conver sat i on, t he agent expl ai ned t o J or dan t hat hi s
hedge f und had Cal PERS and ot her pensi on money f r omCal i f orni a,
and al so t hat he was scr ewi ng hi s i nvest or s on t he hedge f und
si de. J or dan t hen r esponded si mpl y, my wi f e . . . doesn t wor k
wi t h t he st at e[ , ] so. Those f ami l i ar wi t h publ i c company audi t i ng
and st at e r et i r ement syst ems mi ght gr asp t he si gni f i cance of
J or dan s r esponse wi t hout any f ur t her expl anat i on, but a l ay j uror
mi ght not . The agent s own st atement s at t he meet i ngs were of t en
equal l y obscure. 4 Tr ue, J or dan- - t he Pr esi dent , CEO, and CFO of a
publ i c company- - never expr essed any conf usi on wi t h t he ver nacul ar
t he agent used or i t s si gni f i cance, but we under st and how a l ay
j uror mi ght . The agent s t est i mony t her ef or e hel ped t he j ury
cl ear l y under st and t he recor ded conver sat i on and i t s si gni f i cance.
4 For exampl e, t he agent t ol d J or dan, I vi ew you di f f er ent l yand t ake t hat as a compl i ment . . . I see you as havi ng, uh, access. . . ei t her t o vent ur e capi t al money or t o gover nment money. Fur t her mor e, i n t r yi ng t o convey t he i l l egal i t y of t he scheme t oJ or dan, t he agent used t er ms l i ke l ast r esor t , ki ckback, andpaper i ng t he f i l e.
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Fi nal l y, t he agent s t est i mony was not based on
sci ent i f i c, t echni cal , or ot her speci al i zed knowl edge wi t hi n t he
scope of Rul e 702. Fed. R. Evi d. 701( c) . J or dan does not ar gue
otherwi se. As we noted above, al t hough t he agent r ef erenced hi s
speci al i zed exper t i se i n expl ai ni ng t hat st ock f r aud deal s ar e
of t en pl anned i n a coded l anguage, J ordan does not poi nt t o any
pl ace i n t he r ecor d wher e t he agent r el i ed on pr i or speci al i zed
knowl edge t o i nt er pr et t he par t i cul ar t er ms used i n hi s
conver sat i on wi t h J or dan. Rat her , t he agent s i nt er pr et at i ons
appear t o be based on hi s own personal underst andi ng of what J ordan
meant , devel oped i n t he cont ext of f ace- t o- f ace conver sat i on. See
Rol l i ns, 544 F. 3d at 832 ( admi t t i ng agent s l ay test i mony about
code words when not based on any speci al i zed knowl edge gai ned f r om
hi s l aw enf or cement t r ai ni ng and exper i ence, but i nst ead on t he
par t i cul ar t hi ngs he per cei ved f r om moni t or i ng i nt er cept ed cal l s
and ot her case- speci f i c i nvest i gat i ve act i vi t i es) . We ar e
t her ef or e sat i sf i ed t hat t he gover nment l ai d a suf f i ci ent
f oundat i on f or t he agent s l ay t est i mony i nt er pr et i ng hi s f ace- t o-
f ace conver sat i on wi t h J or dan.
The second danger J or dan al l udes t o i s t hat t he agent
usur p[ ed] t he j ur y s f unct i on by ef f ect i vel y t est i f yi ng as t o
gui l t r at her t han mer el y pr ovi di ng bui l di ng bl ocks f or t he j ur y t o
dr aw i t s own concl usi on. Al ber t el l i , 687 F. 3d at 447. I n t hi s
vei n, J or dan poi nt s out t hat t he agent r epeat edl y t est i f i ed as t o
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J or dan s knowl edge of t he i l l egal i t y of t hi s scheme. But J or dan
does not expl ai n how t hi s usur ped t he j ur y s f unct i on. I nst ead, he
r el i es on an unpubl i shed di st r i ct cour t memor andum and or der f or
t he pr oposi t i on t hat [ a] n exper t wi t ness may not t est i f y as t o
anot her per son s i nt ent . No l evel of exper i ence or exper t i se wi l l
make an exper t wi t ness a mi nd- r eader . Hol mes Gr p. , I nc. v. RPS
Product s, I nc. , CI V. A. 03- 40146- FDS, 2010 WL 7867756, at *5 ( D.
Mass. J une 25, 2010) ( emphasi s added) . Yet J or dan f ai l s t o
acknowl edge t hat a l ay wi t ness may of f er an opi ni on t hat i s
r at i onal l y based on t he wi t ness s per cept i on, and t hough one
can t act ual l y read anot her per son s mi nd, one i s of t en abl e t o
i nf er , f r omwhat t he per son says or f r omt he expr essi on on hi s f ace
or ot her body l anguage, what he i s t hi nki ng. Uni t ed St at es v.
Cur escu, 674 F. 3d 735, 740 ( 7t h Ci r . 2012) . Gi ven t hat t he agent
was a l ay wi t ness, he was f r ee t o st at e hi s r at i onal l y- based
per cept i on of what J or dan was t hi nki ng dur i ng t hei r f ace- t o- f ace
conver sat i on.
Lest any doubt r emai n as t o t he pr opr i et y of t he agent s
t est i mony, J or dan s t r i al cont ai ned numer ous saf eguar ds agai nst t he
danger t hat t he agent mi ght usur p t he j ur y s f unct i on. See
Al ber t el l i , 687 F. 3d at 447. The di st r i ct cour t sust ai ned sever al
of J or dan s obj ect i ons wher e t he pr osecut i on s quest i on cal l ed f or
gener al i zed or specul at i ve r esponses. Mor eover , t he cour t af f or ded
J or dan ver y l i ber al cr oss - exami nat i on on whet her t he agent
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pr oper l y under st ood t he r ecor ded st at ement s. Thi s cr oss-
exami nat i on dr ew out possi bl e al t er nat i ve i nt er pr et at i ons of
cer t ai n t er ms and phr ases- - f or exampl e conf i dent i al i t y and
l ender of l ast r esor t . Wher e such al t er nat i ves can be of f er ed,
t he pl ausi bi l i t y of t he wi t ness own posi t i on- - unl i ke, say, t hat of
a medi cal exper t - - i s r eadi l y measur ed by t he j ur y. I d. at 448.
Fi nal l y, and i n a si mi l ar vei n, J or dan ar gues t he cour t
er r ed when i t al l owed t he agent t o t est i f y t o t he ul t i mat e i ssue i n
t hi s case. The chal l enged conduct i s exempl i f i ed by t he f ol l owi ng
excerpt f rom t r i al :
Q [ t o Agent ] : How ar e you f ami l i ar wi t h Mr . Prange andMr . J or dan?A: Mr . Pr ange and Mr . J or dan bot h par t i ci pat ed i n st ockf r aud deal s t hat we had done.
But , agai n, as we expl ai ned above, J or dan f ai l s t o r ecogni ze t hat
t hi s t est i mony was pr oper l y of f er ed as l ay opi ni on t est i mony, and
l ay opi ni on i s not obj ect i onabl e j ust because i t embr aces an
ul t i mat e i ssue. Fed. R. Evi d. 704( a) ( emphasi s added) .
I n sum, because t he di st r i ct cour t pr oper l y admi t t ed t he
agent s i nt er pr et at i on as l ay test i mony and J or dan s t r i al
cont ai ned suf f i ci ent saf eguar ds agai nst t he abuse of such
t est i mony, J or dan s obj ect i ons t o t he agent s t est i mony f ai l .
B. Testimony Against Prange
Prange, on t he ot her hand, conceded at oral argument
t hat , because he di d not obj ect t o t he agent s t est i mony bel ow, we
r evi ew hi s chal l enge t o t he agent s t est i mony f or pl ai n er r or onl y.
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See Al ber t el l i , 687 F. 3d at 445. Fur t her mor e, Pr ange s chal l enge
t o the agent s t est i mony consi st s of one sent ence i n hi s br i ef
j oi ni ng i n J or dan s ar gument on t hi s poi nt . As such, Pr ange s
ar gument cl ear l y f ai l s. We see no r eason t o pr ovi de any f ur t her
anal ysi s when Prange gi ves us not hi ng f ur t her t o anal yze. See
Zanni no, 895 F. 2d at 17.
III. Entrapment
Bot h Pr ange and J ordan cl ai med ent r apment t hroughout
t r i al and moved f or acqui t t al on t hi s basi s. The cour t deni ed
t hei r mot i ons f or acqui t t al as a mat t er of l aw, but submi t t ed t he
i ssue t o t he j ur y. Al as, t he j ur y l i kewi se r ej ect ed t he ent r apment
cl ai m. Never t hel ess, Def endant s mai nt ai n t he evi dence di d not
suppor t t he j ur y s verdi ct and we shoul d hol d t hey wer e ent r apped
as a mat t er of l aw.
We r evi ew t he deni al of Def endant s mot i on f or acqui t t al
de novo, aski ng whet her t he evi dence, const r ued f avor abl y t o the
gover nment , per mi t t ed r at i onal j ur or s t o concl ude, beyond a
r easonabl e doubt , t hat t he def endant [ s wer e] gui l t y as char ged.
Uni t ed St at es v. Snchez- Ber r os, 424 F. 3d 65, 77 ( 1st Ci r . 2005)
( i nt er nal quot at i on mar ks omi t t ed) . To def eat a suf f i ci ency
chal l enge pr emi sed on a def ense of ent r apment , t he evi dence, t aken
i n t he l i ght most f avor abl e t o the gover nment , need onl y suppor t a
f i ndi ng of ei t her pr edi sposi t i on or l ack of i mpr oper i nducement .
I d. ( emphasi s added) .
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Def endant s f i r st argue t he Government i mpr oper l y i nduced
t hemt o engage i n st ock f r aud. An i mpr oper i nducement , however ,
goes beyond pr ovi di ng an or di nar y oppor t uni t y t o commi t a cr i me.
Uni t ed St at es v. Gendr on, 18 F. 3d 955, 961 ( 1st Ci r . 1994) ( quot i ng
J acobson v. Uni t ed Stat es, 503 U. S. 540, 550 ( 1992) ) . An
i nducement consi st s of an oppor t uni t y pl us somet hi ng el se- -
t ypi cal l y, excessi ve pr essure by the government upon t he def endant
or t he gover nment s t aki ng advant age of an al t er nat i ve,
non- cr i mi nal t ype of mot i ve. Gendr on, 18 F. 3d at 961; see al so
i d. at 96162 ( l i st i ng exampl es of i mpr oper i nducement ) .
Def endant s do not ar gue excessi ve pr essur e, nor coul d t hey. The
r ecor d i s r epl et e wi t h i nst ances wher e t he agent made cl ear t o
Def endant s t hat t hey wer e f r ee to wal k away i f t hey f el t i n any way
uncomf ort abl e wi t h t he ki ckback scheme. I nst ead, Def endant s assert
t wo al t er nat i ve f or ms of i mpr oper i nducement : Fi r st , t hey ar gue
t he government i mpr oper l y pl ayed on t he desperat i on of execut i ves
t r yi ng t o save f l ounder i ng compani es. Second, t hey ar gue t he ver y
natur e of t he st i ng amount ed t o an i mpr oper i nducement because i t
was desi gned t o appear as a l egi t i mat e i nvest or engagi ng i n
l egi t i mat e i nvest ment act i vi t i es.
The r ecor d bel i es Def endant s f i r st ar gument . Pr ange,
f or hi s par t , di d not ser ve as an execut i ve or di r ect or f or any of
t he compani es seeki ng capi t al i n t hi s oper at i on. We t hus f ai l t o
see how t he asser t ed desper at i on of t r yi ng t o save a f ai l i ng
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ent er pr i se coul d af f ect hi s deci si onal cal cul us. J or dan, on t he
ot her hand, i ni t i al l y t ol d t he agent he woul d use t he capi t al t o
gr ow hi s busi ness. Yet as soon as he r ecei ved hi s f i r st t r anche,
J or dan t r ansf er r ed t hat money whi ch he di d not ki ck back t o Wat er s
Edge to hi s per sonal bank and cr edi t card account s, and t o the
account s of hi s ni ece, at t or ney, and busi ness par t ner . Faced wi t h
t hese f act s, a r easonabl e j ur y coul d concl ude beyond a r easonabl e
doubt t hat J ordan was not desperate t o save hi s company. Rather ,
t he j ur y coul d r easonabl y concl ude J or dan si mpl y succumb[ ed] t o
hi s own gr eed [ and] t he l ur e of easy money. Uni t ed St ates v.
Coady, 809 F. 2d 119, 122 ( 1st Ci r . 1987) .
Def endant s second i nducement argument , t hat t he
government made t he ki ckback scheme appear l egi t i mate, f ares no
bet t er . Whet her Def endant s knew t he scheme was i l l egal r el at es t o
[ t hei r ] i nt ent t o commi t t he i l l egal act . I t does not bear on
whether [ t hey were] i nduced t o engage i n t he ki ckback scheme.
Uni t ed St at es v. Mar i no, 868 F. 2d 549, 554 ( 3d Ci r . 1989) ( f oot not e
omi t t ed) . Def endant s do not ar gue on appeal t hat t hey l acked t he
r equi si t e mens r ea t o commi t secur i t i es f r aud- - i ndeed, an
ent r apment def ense assumes t he necessar y mens r ea exi st ed. 5 See
5 J or dan asser t s t hat ki ckbacks ar e commonpl ace i n hi s nat i vecount r y of Per u- - whet her t hey ar e l egal i n Per u he does not say.J or dan Br . at 9. Regar dl ess , i gnor ance of t he l aw i s not anexcuse f or vi ol at i ng i t , Uni t ed St at es v. Deni s, 297 F. 3d 25, 31( 1st Ci r . 2002) , and J or dan nowher e expl ai ns why hi s ki ckback-f r i endl y backgr ound shoul d excuse hi s i l l egal act i vi t i es her e.
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Uni t ed St at es v. Dyke, 718 F. 3d 1282, 1286 ( 10t h Ci r . 2013) . Nor
do they ar gue the evi dence was i nsuf f i ci ent t o show t hey i nt ended
t o commi t secur i t i es f r aud. They cannot now boot st r ap t hat
argument i n under t he gui se of ent r apment .
I n sum, a reasonabl e j ur y concl uded t he government di d
not i mpr oper l y i nduce Def endant s t o commi t secur i t i es f r aud, and we
cannot say t he government i mproper l y i nduced Def endants as a mat t er
of l aw. Gi ven t he l ack of an i mpr oper i nducement , Def endant s
ent r apment cl ai m f ai l s and we need not addr ess predi sposi t i on.
IV. Submitting the Superseding Indictment to the Jury
Def endant s al so ar gue t he di st r i ct cour t commi t t ed t wo
r ever si bl e er r or s i n submi t t i ng t hei r super sedi ng i ndi ct ment t o the
j ury. Def endant s f i r st ar gue t hat t he I nt r oduct i on and
Backgr ound sect i ons of t hei r i ndi ct ment asser t ed f act s t hat had
not been pr oven at t r i al and r el ated t o co- def endant s who were not
on t r i al because t hey had pl ed gui l t y. Second, t hey ar gue t hat
al l owi ng t he t erm nomi nee compani es t o r emai n i n quot at i ons i n
t he i ndi ct ment was t ant amount t o pr ovi di ng t he j ur y wi t h
t est i moni al evi dence not subj ect t o cr oss- exami nat i on.
We have l ong f ol l owed [ t ] he wel l ni gh uni ver sal r ul e
t hat , subj ect t o a pr oper cover i ng i nst r uct i on, whet her t he
i ndi ct ment shoul d be gi ven t o t he j ur y f or use dur i ng i t s
del i ber at i ons i s wi t hi n t he di scr et i on of t he t r i al cour t . Uni t ed
St at es v. Medi na, 761 F. 2d 12, 21 ( 1st Ci r . 1985) . We wi l l f i nd
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no f aul t wi t h t he exer ci se of t he cour t s di scr et i on i n t hi s manner
unl ess t he def endant can show unf ai r pr ej udi ce as a r esul t of t he
cour t s appr oach. Uni t ed St at es v. Gl ant z, 847 F. 2d 1, 10 ( 1st
Ci r . 1988) . Whet her al l or a par t of t he i ndi ct ment i s pr ovi ded
t o t he j ur y, one way t o avoi d unf ai r pr ej udi ce i s t o gi ve a pr oper
cover i ng i nst r ucti on. I d.
Def endant s cl ai ms of er r or ar e dubi ous at best .
Def endant s r el y on al l egat i ons i n t he i ndi ct ment r el at i ng t o St eve
Berman and Ri chard Kr ani t z, whose names were apparent l y redact ed, 6
as t he pr i me exampl e of asser t ed f act s not pr oven at t r i al . But
t he gover nment presented a weal t h of evi dence on Berman and
Kr ani t z s i nvol vement i n t he conspi r acy, i ncl udi ng r ecor di ngs of
numerous conver sat i ons i n whi ch t hey t ook part . Moreover ,
Def endant s do not expl ai n how t he quot at i on marks ar ound nomi nee
compani es t r ansf or m t hi s t er m i nt o a f or m of t est i mony.
Even assumi ng t he supersedi ng i ndi ct ment pr ovi ded cause
f or concern, however , Def endant s cannot show pr ej udi ce here both
because no pr ej udi ce i s obvi ous and because t he di st r i ct cour t gave
pr oper cover i ng i nst r uct i ons. The cour t i nst r uct ed t he j ur y t hat
an I ndi ct ment i s not evi dence of any ki nd agai nst t he def endant .
I t i s si mpl y t he f or mal met hod t hat our Const i t ut i on pr ovi des f or
6 The di st r i ct cour t i ndi cat ed i t woul d r edact t he names oft hese i ndi vi dual s because t hey had ent er ed gui l t y pl eas.Def endant s do not pr ovi de us wi t h a copy of t he i ndi ct ment t hat wassubmi t t ed t o t he j ur y, so we can onl y assume t he di st r i ct cour t di das promi sed.
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char gi ng someone wi t h t he commi ssi on of a cr i me. ( emphasi s added) .
The cour t al so t ol d t he j ury: Nei t her ar e you t o be concer ned wi t h
t he gui l t of any ot her per son or per sons not on t r i al as a
def endant i n t hi s case. I n l i ght of t hese i nst r ucti ons, we f ai l
t o see how Def endant s were pr ej udi ced by submi t t i ng t o t he j ur y the
super sedi ng i ndi ct ment as r edact ed. See, e. g, Smi t h v. J enki ns,
732 F. 3d 51, 69 ( 1st Ci r . 2013) ( As i t i s a basi c pr emi se of our
j ury syst em t hat t he j ury f ol l ows t he cour t s i nst r uct i ons, we
pr esume that t he j ur y act ed accor di ng t o i t s char ge. ( i nt er nal
quot at i on mar ks and al t er at i ons omi t t ed) ) .
I ndeed, Def endant s f ai l t o ci t e a si ngl e case wher e a
cour t has over t ur ned a convi ct i on based on a di st r i ct cour t s
di scr et i onar y deci si on t o pr ovi de a copy of t he char gi ng i nst r ument
t o t he j ur y subj ect t o a pr oper cover i ng i nst r uct i on. I n hi s repl y
br i ef , J or dan r el i es on Uni t ed St at es v. Roy, 473 F. 3d 1232 ( D. C.
Ci r . 2007) , and Uni t ed St at es v. Shaf er , 455 F. 2d 1167 ( 5t h Ci r .
1972) . But t hese cases ar e i napposi t e.
I n Roy, t he t r i al cour t i nadver t ent l y submi t t ed t o t he
j ury an i ndi ct ment whi ch i dent i f i ed speci f i c predi cat e cr i mes t o
suppor t t he def endant s f el on- i n- possessi on count even though the
def endant had al r eady st i pul at ed t o hi s f el on st at us. Roy, 473
F. 3d at 1232. Thi s vi ol at ed pr i or D. C. Ci r cui t pr ecedent whi ch
est abl i shed t hat , at l east when t he def endant st i pul at es t o t he
f act of a f el ony convi ct i on, t he di st r i ct cour t shoul d avoi d
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ment i oni ng t he nat ur e of t he pr i or f el ony t o t he j ur y. Uni t ed
St at es v. J ones, 67 F. 3d 320, 325 n. 10 ( D. C. Ci r . 1995) .
Never t hel ess, t he D. C. Ci r cui t af f i r med t he def endant s convi ct i on
on pl ai n er r or r evi ew, hol di ng t hat t he def endant was not
pr ej udi ced because, among ot her t hi ngs, t he t r i al cour t t ook back
t he i ncor r ect i ndi ct ment and gave a suf f i ci ent cur at i ve
i nst r uct i on. Roy, 473 F. 3d at 1239. I n so hol di ng, t he D. C.
Ci r cui t not ed t hat gi vi ng a copy of t he i ndi ct ment of t en car r i es
si gni f i cant r i sks and has f ew cor r espondi ng benef i t s. I d. at 1237
n. 2. But i t al so r ecogni zed t hat submi t t i ng t he i ndi ct ment t o t he
j ury i s common pract i ce, and even assume[ d] t hat i t woul d have
been wi t hi n t he di st r i ct cour t s di scret i on t o submi t a pr oper l y
r edact ed i ndi ct ment t o t he j ur y i n t hi s case. I d.
I n Shaf er , t he Fi f t h Ci r cui t hel d [ n] umer ous . . . i t ems
wer e er r oneousl y submi t t ed t o t he j ur y, i ncl udi ng a copy of t he
i ndi ct ment showi ng subst ant i ve charges whi ch had been di smi ssed,
and a bl ackboar d on whi ch t he prosecut or had summar i zed the
t est i mony of var i ous pr osecut i on wi t nesses. Shaf er , 455 F. 2d at
1170. The most pr ej udi ci al of t hese i t ems wer e ( 1) t he sworn
compl ai nt by a cust oms agent on t he basi s of whi ch ar r est warr ant s
of def endant s had been obt ai ned, whi ch was, i n ef f ect , a
st at ement t hat def endant s wer e gui l t y, and ( 2) a copy of a hot el
bi l l , whi ch had not been admi t t ed i nt o evi dence at t r i al , t yi ng t he
def endant s t o t he al l eged of f enses. I d. at 1169. I ndeed, t he
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Fi f t h Ci r cui t di d not r ever se t he def endant s convi ct i ons t her e
based on t he submi ssi on of t hei r i ndi ct ment l i st i ng di smi ssed
char ges. Rat her , [ w] i t hout consi der i ng [ t he i ndi ct ment ] i n
det ai l , t he Fi f t h Ci r cui t concl uded, we ar e f or ced t o [ r ever se] ,
based on t he compl ai nt and t he hot el bi l l . I d. at 1170.
Fur t her mor e, t her e i s no i ndi cat i on t hat t he di st r i ct cour t t her e
gave any cover i ng i nst r uct i on as t o t he i ndi ct ment .
Def endant s have not shown any part i cul ar st atement s i n
t he i ndi ct ment t hat were not support ed by evi dence pr esent ed at
t r i al . Nor do t hey show how any i mpr opr i et i es i n t he i ndi ct ment
caused pr ej udi ce so egr egi ous as t o be beyond t he reach of t he
cour t s cover i ng i nst r uct i ons. As such, we cannot say t he cour t
abused i t s di scr et i on i n submi t t i ng t he super sedi ng i ndi ct ment t o
t he j ur y.
V. Sentencing Issues
Def endant s al so chal l enge t hei r sent ences on var i ous
gr ounds. We r evi ew sentences f or r easonabl eness, a t ask composed
of bot h pr ocedur al and subst ant i ve i nqui r i es. Uni t ed St at es v.
I nnar el l i , 524 F. 3d 286, 291 ( 1st Ci r . 2008) . We f i r st revi ew
t he pr ocedur al component of t he sent ence f or abuse of di scr et i on.
I d. at 292. [ P] r ocedur al er r or s amount i ng t o an abuse of
di scret i on mi ght i ncl ude f ai l i ng t o cal cul at e ( or i mpr oper l y
cal cul at i ng) t he Gui del i nes r ange . . . or f ai l i ng t o adequat el y
expl ai n t he chosen sent ence- - i ncl udi ng an expl anat i on f or any
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devi at i on f r om t he Gui del i nes r ange. I d. ( i nt er nal quot at i ons
mar ks omi t t ed) . Onl y i f t hi s r evi ew r eveal s no abuse of di scr et i on
do we exami ne t he subst ant i ve r easonabl eness of t he sentence
i mposed. See i d.
A. Jordans Obstruction-of-Justice Enhancement
J or dan ar gues t he di st r i ct cour t er r oneousl y added a t wo-
l evel enhancement f or obst r uct i on of j ust i ce t o hi s of f ense l evel
cal cul at i on. We r evi ew f or cl ear err or t he sent enci ng cour t s
f act bound det er mi nat i on t hat an obst r uct i on of j ust i ce occur r ed.
Uni t ed St at es v. Qui r i on, 714 F. 3d 77, 79 ( 1st Ci r . 2013) . [ W] her e
t he r ecor d suppor t s at l east t wo per mi ssi bl e i nf er ences, t he
f act f i nder s choi ce bet ween t hem cannot be cl ear l y er r oneous.
Uni t ed St at es v. Bal sam, 203 F. 3d 72, 89 ( 1st Ci r . 2000) .
The Gui del i nes r ecommend i ncr easi ng a def endant s of f ense
l evel by t wo l evel s i f ( 1) t he def endant wi l l f ul l y . . . at t empt ed
t o obst r uct or i mpede[ ] t he admi ni st r at i on of j ust i ce wi t h r espect
t o t he i nvest i gat i on, pr osecut i on, or sent enci ng of t he i nst ant
of f ense of convi ct i on, and ( 2) t he obst r uct i ve conduct r el at ed t o
( A) t he def endant s of f ense of convi ct i on and any r el evant conduct
. . . . U. S. S. G. 3C1. 1. The comment ar y t o 3C1. 1 speci f i cal l y
l i st s pr oduci ng or at t empt i ng t o pr oduce a f al se, al t er ed, or
count er f ei t document or r ecor d dur i ng an of f i ci al i nvest i gat i on or
j udi ci al proceedi ng, as an exampl e of obst r uct i on of j ust i ce
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war r ant i ng a t wo- l evel enhancement . I d. at 3C1. 1 cmt . 4( C)
( emphasi s added) .
Recal l t hat , i n r esponse t o a subpoena, J or dan i ni t i al l y
pr oduced, al ong wi t h var i ous ot her cor r espondence, an e- mai l
r ef er enci ng t he f r audul ent consul t i ng f ees wi t h t he wor d
consul t i ng i n quot at i on mar ks. He l at er produced t hi s e- mai l s
at t achment s wi t h a copy of t he same e- mai l , wi t h an i dent i cal t i me
st amp ( August 31, 2011, at 8: 53 a. m. ) , except t hat consul t i ng was
no l onger i n quot at i on mar ks. The PSR assert ed t hi s war r ant ed a
t wo- l evel enhancement because i t showed J ordan had del eted t he
quot at i on mar ks bef or e r epr oduci ng t he e- mai l and t her ef or e
al t er ed an e- mai l chai n . . . t hat was pr oduced pur suant t o a
subpoena. At sent enci ng, J or dan of f er ed an al t er nat e expl anat i on:
He t ypi cal l y sends t wo or t hr ee e- mai l s on di f f er ent ser ver s
because he has a l ot of e- mai l pr obl ems. And, i n t hi s i nst ance,
he sent t wo e- mai l s t o hi s l awyer , but i n t he second e- mai l he
t hought bet t er of put t i ng i n t hose quot at i ons. The gover nment
ar gued t hi s expl anat i on was nonsensi cal . Ul t i mat el y, t he cour t
agr eed wi t h t he gover nment s posi t i on, and f ound J or dan obst r uct ed
j ust i ce by al t er i ng t he e- mai l .
Al t hough J or dan s al t er nat e expl anat i on may be possi bl e,
t he PSR s t heory i s much mor e pl ausi bl e gi ven t he i dent i cal
t i mest amp. The di st r i ct cour t accor di ngl y coul d not commi t cl ear
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er r or by adopt i ng t he PSR s f act ual pr edi cat e, war r ant i ng a t wo-
l evel enhancement under 3C1. 1.
B. Pranges Management Enhancement
Pr ange at t acks t he di st r i ct cour t s i mposi t i on of a t wo-
l evel management enhancement . I n pr epar i ng f or Prange s
sentenci ng, t he government sought a f our - l evel enhancement under
U. S. S. G. 3B1. 1( a) , asser t i ng Pr ange or gani zed or l ead f i ve or
mor e par t i ci pant s. Prange s PSR, however , mai nt ai ned no such
enhancement shoul d appl y because Prange di d not di r ect hi s co-
conspi r at or s, each of whom wi l l i ngl y became a par t of , and pl ayed
an act i ve r ol e i n, t he scheme. At sent enci ng, t he cour t st at ed
t hat Prange may not be deser vi ng of a f ul l f our - l evel enhancement
f or hi s r ol e i n t he of f ense as a l eader or or gani zer , but he i s
sur el y deservi ng of at l east a t wo- l evel enhancement f or hi s
management and supervi sor y r ol e. The cour t accordi ngl y enhanced
Pr ange s of f ense l evel by two l evel s.
The Gui del i nes aut hor i ze a t wo- l evel enhancement i n cases
where t he def endant was an organi zer , l eader , manager , or
super vi sor i n any cri mi nal acti vi t y . . . . U. S. S. G. 3B1. 1( c).
To j ust i f y t he t wo- l evel enhancement , [ e] vi dence of t he
def endant s r ol e . . . need onl y show t hat he exer ci sed aut hor i t y
or cont r ol over anot her par t i ci pant on one occasi on. Uni t ed
St at es v. Fl or es- De- J ess, 569 F. 3d 8, 34 ( 1st Ci r . 2009)
( ci t at i on omi t t ed) . I ndeed, si mpl y r ecrui t i ng a co- def endant ,
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by i t sel f , const i t ut es a manager i al f unct i on under 3B1. 1.
Uni t ed St at es v. Savar ese, 686 F. 3d 1, 20 ( 1st Ci r . 2012) . I t i s
not enough, however , t hat t he def endant merel y cont r ol l ed,
or gani zed, or managed cr i mi nal act i vi t i es; r at her , he must i nst ead
cont r ol , or gani ze, or manage cr i mi nal act or s. Fl or es- De- J ess,
569 F. 3d at 34 ( emphasi s i n or i gi nal ) ( quot i ng Uni t ed St at es v.
Of r ayCampos, 534 F. 3d 1, 40 ( 1st Ci r . 2008) ) .
The di st r i ct cour t based t hi s enhancement on t wo
al t er nat e f i ndi ngs: ( 1) t hat [ Pr ange] was at l east a manager and
super vi sor , or ( 2) t hat he exer ci sed management r esponsi bi l i t i es
over t he pr oper t y, asset s or act i vi t i es of a cr i mi nal
or gani zat i on. Al t hough t he cour t s second f i ndi ng, may war r ant an
upwar d depar t ur e, i t i s not a val i d basi s f or an of f ense l evel
enhancement under 3B1. 1. See i d. at cmt . 2. Never t hel ess, t he
r ecor d ampl y suppor t s t he cour t s f i r st f i ndi ng: t hat Pr ange was at
l east a manager or supervi sor . At a mi ni mum, Prange r ecrui t ed
J or dan and mul t i pl e ot her execut i ves i nt o t hi s scheme by
i nt r oduci ng t hem t o E. H. , gaugi ng t hei r wi l l i ngness t o i ssue
ki ckbacks, and r ecommendi ng t hemt o t he agent . Thus, t he cour t di d
not cl ear l y er r i n f i ndi ng Pr ange was at l east a manager or
super vi sor , war r ant i ng a 3B1. 1 two- l evel enhancement .
C. Calculation of Loss
Bot h Def endant s ar gue the di st r i ct cour t made two er r or s
i n cal cul at i ng t he amount of l oss at t r i but ed t o t hem. Fi r st , t hey
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ar gue they shoul d have been gi ven cr edi t f or t he ki ckbacks pai d
because t hey unwi t t i ngl y pai d these ki ckbacks t o t he gover nment .
Second, t hey ar gue t hey shoul d be gi ven cr edi t f or t he val ue of t he
st ock pur chased by the gover nment i n t hese f r audul ent t r ansact i ons.
We r evi ew t he di st r i ct cour t s i nt er pr et at i on and
appl i cat i on of t he Gui del i nes de novo; we revi ew r el at ed f i ndi ngs
of f act , i ncl udi ng t he cour t s cal cul at i on of amount of l oss, f or
cl ear er r or . I nnar el l i , 524 F. 3d at 290. The Gui del i nes def i ne
l oss as t he gr eat er of act ual or i nt ended l oss. U. S. S. G.
2B1. 1, cmt . 3( A) . We have endor sed a pr agmat i c, f act - speci f i c
appr oach, t o cal cul at i ng such l oss, st at i ng t hat l oss shoul d be
cal cul at ed usi ng t he ent i r e pr i ce pai d f or t he pr oduct , unr educed
by any of f set t i ng val ue, i f t he pr oduct mi sr epr esent ed by t he
def endant i s wor t hl ess. Uni t ed St at es v. I henacho, 716 F. 3d 266,
278 ( 1st Ci r . 2013) ( ci t at i on omi t t ed) .
Def endant s ar gument t hat t hey shoul d be gi ven cr edi t f or
t he ki ckback pl ai nl y f ai l s. To gi ve Def endant s credi t f or t he
ki ckback woul d i gnor e the f act t hat l oss under 2B1. 1 i ncl udes
i nt ended l oss, whi ch i ncl udes i nt ended pecuni ar y har m t hat woul d
have been i mpossi bl e or unl i kel y t o occur ( e. g. , as i n a gover nment
st i ng oper at i on . . . ) . U. S. S. G. 2B1. 1, cmt . 3( A) ( i i ) . Her e,
by t aki ng money Def endant s bel i eved bel onged t o i nvest ors i n a
hedge f und and payi ng f i f t y per cent as a ki ckback t o the cor r upt
manager s per sonal nomi nee company, Def endants i ntended to cause a
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l oss t o t he hedge f und i nvest or s of at l east t he amount of t he
ki ckback pai d. The f act t hat no i nvest or s act ual l y suf f er ed t hi s
i nt ended l oss i s i r r el evant under 2B1. 1.
On t he ot her hand, t he government admi t s i t r ecei ved
shar es of r est r i ct ed st ock i n t he compani es t o whi ch i t sent
t r anches. The gover nment al so admi t s that i f t he shar es recei ved
car r y any f ai r mar ket val ue, t he di st r i ct cour t shoul d have reduced
i t s l oss cal cul at i on by t hat amount . See i d. at cmt . 3( E) ( i )
( Loss shal l be r educed by . . . t he f ai r mar ket val ue of t he
pr oper t y r et ur ned and t he ser vi ces r ender ed . . . . ) . But t he
di st r i ct cour t never made any f i ndi ngs as to t he val ue of t hese
shar es. Never t hel ess, t he gover nment asser t s t he di st r i ct cour t
must have f ound t hese part i cul ar shar es were wort hl ess because
Def endant s di d not pr esent suf f i ci ent evi dence of t hei r val ue. We
ar e not so sur e.
Def endant s argued bel ow t hat t he PSRs shoul d have
cr edi t ed t hemwi t h t he val ue of t he shar es t he gover nment r ecei ved.
The PSRs r esponded t o t hese obj ect i ons by r easoni ng t hat Def endant s
shoul d be hel d account abl e f or t he t ot al val ue of t he t r ansact i on
or t r ansact i ons si mpl y because t hey knew t hese t r ansact i ons wer e
not l egi t i mat e. The gover nment , f or i t s par t , ar gued at J or dan s
sent enci ng t hat t he Vi da Li f e st ock was wor t hl ess s i mpl y because
t her e was no mar ket f or i t . But nei t her r eason hol ds wat er .
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I ndeed, t he PSRs r easoni ng f l i es i n t he f ace of our
pr ecedent . I n cal cul at i ng l oss based on f r aud, we have l ong
r ecogni zed
t hat t her e ar e t wo t ypes of f r aud: The f i r st t ype off r aud i mpl i cat es t he t r ue con ar t i st , . . . who i nt endsonl y t o pocket t he money wi t hout r ender i ng [ anythi ng] i nr et ur n. The second t ype of f r aud i nvol ves a per son whowoul d not have at t ai ned t he cont r act or l oan but f or t hef r aud, but who f ul l y i nt ends t o per f or m.
Uni t ed St at es v. Bl ast os, 258 F. 3d 25, 30 ( 1st Ci r . 2001) ( quot i ng
Uni t ed St at es v. Hagger t , 980 F. 2d 8, 1213 ( 1st Ci r . 1992) ) ; see
al so Uni t ed St at es v. Smi t h, 951 F. 2d 1164, 1167 ( 10t h Ci r . 1991)
( A thi ef who st eal s $100, 000 i s more cul pabl e t han a sal esman who
obt ai ns $100, 000 by sel l i ng a vi ct i m an $80, 000 house he
f r audul ent l y r epr esent s as bei ng wor t h $100, 000. I n t he l at t er
case, i t makes no sense t o suggest t hat $100, 000 i s t he accur at e
measur e of t he vi ct i m s l oss. ) . Yet , by hol di ng Def endant s
r esponsi bl e f or t he f ul l amount of t he f r audul ent t r ansact i ons
si mpl y because t hey knew t he t r ansact i ons wer e f r audul ent , t he
PSRs r esponse t o Def endant s obj ect i ons woul d r ender t he
di st i nct i on bet ween t hese t wo types of f r aud i l l usor y.
Fur t her mor e, on appeal , t he par t i es do not di sput e t hat
t he common st ock of t he compani es at i ssue had some val ue. At
sent enci ng, t he gover nment asser t ed no mar ket exi st ed f or Vi da Li f e
st ock because i n cont r ast t o [ t he] ot her compani es . . . t hat wer e
at i ssue, t her e was vi r t ual l y no t r adi ng of Vi da Li f e shar es.
( emphasi s added) . But t he government s own wi t ness at t r i al
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t est i f i ed t o mul t i pl e t r ades of Vi da Li f e common shar es i n 2011 at
bet ween $0. 03 and $0. 05 per shar e. I n i t s response br i ef , t he
government argues t hese part i cul ar shar es were wort hl ess because
t hey wer e r est r i ct ed shar es, whi ch wer e not f ul l y t r ansf er abl e or
sal abl e. Of cour se, r est r i ct ed shar es may be l ess val uabl e t han
common shar es because t hey are not f r eel y t r ansf erabl e. But t he
gover nment ci t es no aut hor i t y, f r om t he recor d or el sewher e, f or
t he pr oposi t i on t hat t he shar es t he government acqui r ed were
wor t hl ess si mpl y because t hey wer e r est r i ct ed. Au cont r ai r e,
cour t s of t en assi gn a val ue t o r est r i ct ed shar es. See, e. g. ,
Uni t ed St at es v. Roush, 466 F. 3d 380, 385- 86 ( 5t h Ci r . 2006)
( [ T] he f act t hat t he st ock was r est r i ct ed at al l t i mes dur i ng 1998
di d not r ender i t s f ai r mar ket val ue ei t her zer o or de mi ni mus f or
t he pur poses of i ncome cal cul at i ons. ) ; Scul l y v. US WATS, I nc. ,
238 F. 3d 497, 514 ( 3d Ci r . 2001) ( af f i r mi ng t he di st r i ct cour t s
r ef usal t o di scount t he val ue of st ock shar es si mpl y because they
wer e r est r i ct ed) .
At or al ar gument , t he gover nment asser t ed t he di st r i ct
cour t must have f ound t he shar es were wor t hl ess because Def endant s
di d not pr ovi de suf f i ci ent evi dence t o show t he shar es had any
par t i cul ar val ue, and t hus, t he cour t was ent i t l ed t o di sr egar d
t hem i n i t s amount of l oss cal cul at i on. But , agai n, t he di st r i ct
cour t nowher e made such a f i ndi ng. Rat her , t he cour t s t er se
expl anat i on as t o t he amount of l oss i ndi cat es i t pr obabl y f ol l owed
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one of t he or i gi nal er r oneous ar gument s put f or t h by the PSR and
t he gover nment . As t o J or dan, t he cour t st at ed t he l oss was, i n
f act , $32, 000, t he f ul l amount of t he t r ansact i on, and not some
net t ed out amount . . . r ef l ect i ve of [ t he] al l eged val ue of t he
t r ansf er r ed st ock. ( emphasi s added) . Si mi l ar l y, t he cour t st at ed
onl y t hat Pr ange i s r esponsi bl e f or t he l oss as cal cul at ed by t he
pr obat i on of f i cer , namel y, i ncl udi ng al l of t he amount s pai d t o t he
co- conspi r at or s. ( emphasi s added) . Per haps t he cour t coul d have
f ound t hese shar es were wort hl ess, but t he recor d does not show t he
cour t must have hel d t hi s vi ew. I ndeed, t he government suggest ed
at oral argument t hat , t o t he ext ent we are concerned about t he
di st r i ct cour t s f ai l ur e t o make any f act ual f i ndi ngs on t hi s
poi nt , we shoul d remand to al l ow t he cour t t o make t hose f i ndi ngs.
Ther e i s a st r ong l i kel i hood t hat t he cour t based
Def endant s amount of l oss enhancement s on an er r oneous l egal
gr ound r at her t han a possi bl e unspoken f act ual deter mi nat i on.
Fur t her mor e, a f i ndi ng t hat t he shar es at i ssue had even a ver y
smal l val ue coul d make a si gni f i cant di f f er ence under t he
Gui del i nes. 7 As such, we accept t he gover nment s i nvi t at i on and
7 For exampl e, gi ven t hat t he di st r i ct cour t hel d J or danr esponsi bl e f or $32, 000 i n l oss, i f t he Gover nment s 400, 000 Vi da
Li f e shar es had a combi ned val ue of even $2, 000- - or j ust hal f acent per shar e- - J or dan coul d be hel d r esponsi bl e f or no mor e t han$30, 000 i n l oss and hi s amount of l oss enhancement woul d be r educedby t wo l evel s. See U. S. S. G. 2B1. 1( b) ( 1) ( D) . Si mi l ar l y, becausePr ange was hel d r esponsi bl e f or $95, 000 i n l oss, i f al l of t heshar es procur ed f r omal l of Pr ange s co- conspi r at or s had a combi nedval ue of $25, 000 or more, he coul d be hel d r esponsi bl e f or no more
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r emand t hese cases f or r esent enci ng so t he di st r i ct cour t can make
f act ual f i ndi ngs as t o t he val ue of t he per t i nent shar es acqui r ed
by t he government dur i ng the st i ng. 8
VI. Conclusion
For t he r easons st at e above, we AFFI RM Def endant s
convi ct i ons but REMAND t hei r cases t o t he di st r i ct cour t wi t h
i nst r uct i on t o vacat e Def endant s sent ences and r esent ence t hem
accor di ng t o t hi s opi ni on.
t han $70, 000 i n l oss, and hi s amount of l oss enhancement woul dl i kewi se be r educed. See i d. at ( b) ( 1) ( E) .
8 Because t he di st r i ct cour t commi t t ed pr ocedur al er r or i nf ormul at i ng Def endant s sent ences, we need not addr ess t hesubst ant i ve r easonabl eness of t hose sent ences her e.