United States v. Jordan , 813 F.3d 442 ( 2016 )

United States Court of Appeals
For the First Circuit
No. 15-1174
UNITED STATES OF AMERICA,
Appellee,
v.
JOHN C. JORDAN,
Defendant, Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Nathaniel M. Gorton, U.S. District Judge]
Before
Howard, Chief Judge,
Selya and Thompson, Circuit Judges.
Inga L. Parsons on brief for appellant.
Leslie R. Caldwell, Assistant Attorney General, Sung-Hee Sue,
Deputy Assistant Attorney General, David M. Lieberman, Attorney,
Criminal Division, Appellate Section, United States Department of
Justice, Carmen M. Ortiz, United States Attorney, and Stephen E.
Frank and Sarah E. Walters, Assistant United States Attorneys, on
brief for appellee.
March 2, 2016
SELYA, Circuit Judge. Defendant-appellant John C.
Jordan once again appeals from the imposition of sentence. This
time around, he advances two claims of sentencing error. First,
he asserts that the district court abused its discretion in
admitting certain expert testimony at sentencing. Second, he
asserts that the court committed clear error in determining the
amount of the loss attributable to the offense of conviction.
Concluding, as we do, that these claims of error are fruitless, we
affirm.
We sketch the background. The reader who hungers for
more exegetic detail should consult our opinion regarding the
defendant's earlier appeal. See United States v. Prange, 771 F.3d
17, 21-25 (1st Cir. 2014).1
In 2011, the Federal Bureau of Investigation (FBI)
mounted a sting operation designed to ferret out fraud in the
market for penny stocks (securities typically traded at less than
$5 per share and not listed on any organized stock exchange). In
the typical iteration of the sting, an undercover agent, posing as
a corrupt hedge fund manager, would propose a deal to executives
of a small public company: the agent would offer to overpay for
restricted shares of a company's stock, in return for a kickback
1 Prange and Jordan were codefendants in the underlying
criminal case. They were tried and convicted together. Because
Prange is not a party to this appeal, we make no further mention
of him.
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(disguised as a consulting fee) equal to 50% of the amount
invested.
The defendant, then the president and chief executive
officer of Vida Life International Ltd. (Vida Life), bought into
the FBI's sting. After being approached by an undercover agent in
August of 2011, the defendant agreed that his company would sell
400,000 restricted shares2 for an aggregate price of $32,000 to
the fictitious hedge fund. Once the sale was effected, the
defendant kicked back one-half of the investment.
In due course, a federal grand jury indicted the
defendant for conspiracy to commit securities fraud, see 18 U.S.C.
§§ 1348, 1349, and several counts of mail and wire fraud, see id.
§§ 1341, 1343, 1349. A ten-day jury trial ended in the defendant's
conviction on all charges and, on August 12, 2013, the district
court sentenced the defendant to a 30-month term of immurement for
the fraud offenses.
In fraud cases, the amount of actual or intended loss is
an important integer in the calculation of a defendant's guideline
sentencing range (GSR). USSG §2B1.1(b)(1) & comment. (n.3(A)(i)-
(ii)); United States v. Lilly, 13 F.3d 15, 17 (1st Cir. 1994).
Here, the defendant's sentence was at the nadir of his GSR — a
2 The Vida Life shares were subject to a one-year holding
period and, thus, could not have been sold on the open market until
August of 2012.
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range based partly on the court's determination that the defendant
should be held accountable for a loss of $32,000 (the full amount
of the purchase price of the shares).
On the defendant's initial appeal, we affirmed his
convictions. See Prange, 771 F.3d at 37. However, we vacated his
sentence for securities fraud after finding procedural error in
the district court's calculation of the loss amount. See id. at
21, 35-37. We remanded for resentencing, directing the district
court, en route to its calculation of the loss amount, to make
factual findings regarding the value of the Vida Life shares
acquired by the FBI. See id. at 37.
On remand, the parties offered conflicting expert
testimony anent the value of the Vida Life shares in the form of
competing affidavits.3 The government proffered the affidavit of
Thomas Carocci, senior counsel for the Financial Industry
Regulatory Authority (FINRA). Carocci concluded that the 400,000
shares of restricted Vida Life stock had no value, so the amount
of loss equaled the full price paid for the shares ($32,000). The
defendant proffered the affidavit of James Watts, an investment
banker. Employing a "subjective" approach to the valuation of
micro-cap stocks, Watts concluded that "a per share price equal to
half the amount invested . . . represents a price an investor
3 Both of the affiants had testified during the criminal trial.
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. . . would pay." Under Watts' valuation, the Vida Life shares
were worth $16,000 and the amount of the loss was also $16,000 —
a figure representing the amount paid for the stock less the
kickback.
The court below credited the government's expert, fixed
the loss amount at $32,000, and again sentenced the defendant to
serve 30 months in prison. This timely appeal followed.
In this venue, the defendant first challenges the
admission of Carocci's testimony. He argues that Carocci was not
qualified to offer an expert opinion on the value of Vida Life's
shares and that, in all events, Carocci's methodology was flawed.
We review a district court's decision to admit or exclude
expert testimony for abuse of discretion. See Samaan v. St. Joseph
Hosp., 670 F.3d 21, 31 (1st Cir. 2012). In carrying out that
review, we afford "broad deference to the determination made by
the district court as to the reliability and relevance of [the]
expert testimony." Beaudette v. Louisville Ladder, Inc., 462 F.3d
22, 25 (1st Cir. 2006). Absent a material error of law — and we
discern none here — we will not second-guess such a discretionary
determination unless it appears that the trial court "committed a
meaningful error in judgment." Ruiz-Troche v. Pepsi Cola of P.R.
Bottling Co., 161 F.3d 77, 83 (1st Cir. 1998) (quoting Anderson v.
Cryovac, Inc., 862 F.2d 910, 923 (1st Cir. 1988)).
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Federal Rule of Evidence 702 furnishes the relevant
benchmark. Under this rule, "[a] witness who is qualified as an
expert by knowledge, skill, experience, training, or education may
testify in the form of an opinion" if: (1) his "scientific,
technical, or other specialized knowledge will help the trier of
fact to understand the evidence or to determine a fact in issue";
(2) his "testimony is based on sufficient facts or data"; (3) his
"testimony is the product of reliable principles and methods"; and
(4) he "has reliably applied the principles and methods to the
facts of the case." Fed. R. Evid. 702. We conclude, without
serious question, that Carocci's opinion testimony comported with
the strictures of Rule 702 and that the decision to admit it fell
comfortably within the encincture of the district court's
discretion.
To begin, Carocci's educational and professional
background evinces broad experience in the fields of corporate
finance, compliance, and enforcement. Carocci is both a college
graduate (with majors in finance and economics) and a law school
graduate. He has held responsible positions both at NASD and at
a major investment bank (Goldman, Sachs & Co.). In his current
role as senior counsel for FINRA (the principal self-regulatory
agency for the securities industry), Carocci has spent five years
investigating securities-related crimes, including the backdating
of options, market manipulations, and insider trading. On its
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face, Carocci's curriculum vitae belies the defendant's self-
serving assertion that Carocci lacked the relevant knowledge,
experience, or education to proffer an expert valuation.
Consequently, we find no abuse of discretion in the district
court's determination that Carocci was qualified to offer a
valuation of the Vida Life stock.
Relatedly, the defendant assails Carocci's method of
valuing Vida Life's stock. In his view, Carocci relied on
"principals [sic] of guesswork." But this is empty rhetoric:
Carocci charted the share price and volume of Vida Life stock
trades between September 2011 and January 2014 (the approximate
interval between the FBI's stock purchase and the last day of
trading for Vida Life shares) and explained that share price and
trading volume data supplied reliable evidence of how the market
would have valued the 400,000 Vida Life shares held by the
government. This data provided a logical basis for Carocci's
opinion, and no more was exigible under Rule 702. See Breidor v.
Sears, Roebuck & Co., 722 F.2d 1134, 1138-39 (3d Cir. 1983). From
that point forward, the credibility and weight of the expert's
opinion was for the factfinder. See id.
The defendant has a fallback position. He contends that
Carocci should have appraised the restricted shares based on their
value at the point of sale, not on their value after the sale was
consummated. The defendant premises this contention on a guideline
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commentary stating that a loss amount "shall be reduced" based on
"the fair market value of the property returned [by the defendant]
. . . to the victim before the offense was detected." USSG §2B1.1,
comment. (n.3(E)(i)). But this comment has no bearing here: the
defendant fraudulently sold 400,000 Vida Life shares, and this
fraudulent sale formed the predicate for the defendant's
conviction. Viewed against this backdrop, there was never a
legitimate "return" of property to the victim of the defendant's
fraud.4
This brings us to the defendant's remaining assignment
of error: his claim that the district court committed reversible
error in crediting Carocci's opinion and determining that the
400,000 restricted shares of Vida Life stock were worthless.5 We
4
At any rate, a loss calculation includes "[t]he reduction
that resulted from the offense in the value of equity securities
or other corporate assets." See USSG §2B1.1, comment. (n.3(C)(v))
(emphasis supplied). It necessarily follows that when valuing the
400,000 Vida Life shares purchased by the FBI, the district court
was bound to consider whether the defendant's criminal conduct
reduced the worth of the stock. Such an inquiry would be totally
frustrated without considering changes in the value of the shares
after the date of sale.
5 Based on this determination, the district court set the
amount of the loss at $32,000; that loss amount triggered a six-
level increase in the defendant's offense level under the then-
applicable sentencing guidelines, see USSG §2B1.1(b)(1)(D) (Nov.
2012); and — combined with other guideline calculations that are
not challenged here — that six-level adjustment yielded a GSR of
30-37 months. A loss amount less than $30,000 would have supported
only a smaller offense-level adjustment. See id. §2B1.1(b)(1)(C).
That would have shrunk the GSR, and had the GSR been lower, it is
likely that the defendant's sentence would also have been lower.
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review a district court's factual findings at sentencing,
including its loss calculations, for clear error. See United
States v. Innarelli, 524 F.3d 286, 290 (1st Cir. 2008).
At bottom, this is a case of dueling experts. Carocci
concluded that the restricted stock had "de-minimus or no value."
In reaching this conclusion, he first noted that, during the
"restricted" period, there was no private market for the purchase
or sale of the stock. Carocci went on to examine the period from
August of 2012 (when the Vida Life shares would have become
unrestricted) to January of 2014 (when any Vida Life shares were
last traded). He reasoned that, had the government tried to sell
the 400,000 Vida Life shares, the market would have crashed
completely, rendering the shares worthless.
To be sure, Watts expressed a different opinion. He
concluded that the worth of the stock should be determined based
on the subjective value placed on the securities by the parties at
the time of the transaction. Using this methodology, he opined
that the shares that remained in the government's possession were
worth $16,000 (the purchase price paid by the FBI less the kickback
amount).
Faced with these sharply conflicting views, the district
court found that "the unrestricted shares of Vida Life during the
relevant time period had little or no market value." This finding
was supported by Carocci's opinion. It was also supported by the
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trading data, which showed that even the unrestricted Vida Life
stock traded very infrequently, in small amounts, and at meager
prices. Extrapolating from this data, the district court
reasonably determined that the 400,000 shares of restricted stock
were "worth less than the unrestricted shares."
We add that weaknesses in Watts' valuation method may
help to explain why the district court chose to credit Carocci
instead of Watts. For instance, Watts' methodology assumed that
the undercover agent and the defendant negotiated a price that
accurately reflected the actual value of the restricted shares.
But this assumption was contradicted by the record: the undercover
FBI agent told the defendant that he planned to overpay for the
Vida Life stock.
So, too, Watts' valuation method assumed that Vida Life
intended to use the capital furnished by the FBI to carry out its
business plan. Yet the record shows with conspicuous clarity that
Vida Life had no such plans. Rather, the defendant lost no time
in diverting the capital infusion into personal accounts.
That ends this aspect of the matter. Where, as here,
expert testimony is in sharp conflict, an appellate court must
defer in large measure to the trial court's superior point of
vantage. See United States v. Wetmore, ___ F.3d ___, ___ (1st
Cir. 2016) [No. 15-1522, slip op. at 9]. After all, "[i]t is not
[this court's] place to re-weigh the credibility of witnesses or
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to determine the weight accorded to [an] expert witness." United
States v. Volungus, 730 F.3d 40, 48 (1st Cir. 2013). When dueling
experts have each rendered a coherent and facially plausible
opinion, the trial court's decision to adopt one and reject the
other cannot be clearly erroneous. See Anderson v. City of
Bessemer City, 470 U.S. 564, 575 (1985). So it is here.
We need go no further. For the reasons elucidated above,
the judgment of the district court is
Affirmed.
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