United States v. Douglas Newton , 559 F. App'x 902 ( 2014 )

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[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 12-16001
________________________
D. C. Docket No. 0:11-cr-60150-MGC-1
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
versus
DOUGLAS NEWTON,
Defendant-Appellant.
________________________
Appeal from the United States District Court
for the Southern District of Florida
_________________________
(March 19, 2014)
Before ANDERSON, Circuit Judge, and MOODY* and SCHLESINGER,** District
Judges.
*
Honorable James S. Moody, Jr., United States District Judge for the Middle District of
Florida, sitting by designation.
**
Honorable Harvey E. Schlesinger, United States District Judge for the Middle District
of Florida, sitting by designation.
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SCHLESINGER, District Judge:
Defendant was the President, Secretary, and sole Director of Real American
Brands, Inc. (“RLAB”). The Second Superseding Indictment alleged that
Defendant agreed to pay kickbacks to induce a pension fund to buy restricted
shares of RLAB’s penny stock. When informed that the pension fund would no
longer purchase any more of RLAB stock, Defendant conspired with a friend, Yan
Skwara, to pay the same kickbacks for the purchase of stock in Skwara’s company.
Unbeknownst to Defendant, the pension fund was fictitious and he was speaking
with undercover FBI agents.
Defendant was charged by a seven-count Second Superseding Indictment.
Counts 1 and 2 alleged that Defendant knowingly and with intent to defraud,
devised a scheme and artifice to defraud and to obtain money and property by
means of materially false and fraudulent pretenses, and that, in furtherance of that
scheme, “did knowingly cause to be delivered certain mail matter by a private
carrier,” in violation of 18 U.S.C. § 1341 and 2. Counts 3 and 4 alleged that
Defendant knowingly, willfully, and unlawfully, employed a device, scheme, and
artifice to defraud in connection with the purchase and sale of securities, in
violation of 15 U.S.C. § 78j(b), 15 U.S.C. § 78ff(a), 17 C.F.R. § 240.10b-5, and 18
U.S.C. § 2. Count 5 alleged conspiracy to commit securities fraud, in violation of
18 U.S.C. § 371. Counts 6 and 7 alleged securities fraud, in violation of 15 U.S.C.
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§ 78j(b), 15 U.S.C. § 78ff(a), 17 C.F.R. § 240.10b-5, and 18 U.S.C. § 2. Defendant
was convicted on all counts and was sentenced to 30 months’ imprisonment
followed by one year of supervised release.
I. Background
On March 24, 2009, Defendant met, for the first time, with FBI Agent
Robert Strickland, who was posing as “Robert Scott,” the President of Northern
Springs Capital Group (“NSCG”). Richard Epstein introduced Defendant to
Strickland. Defendant and Epstein had done deals in the past, and the three men
met in Epstein’s home in South Florida.
Defendant introduced himself as the founder of Billy Martin’s USA, a
“western lifestyle retail company,” which later changed its name to RLAB. RLAB
owned the Billy Martin’s USA brand and operated a Billy Martin’s retail boutique
at Trump Plaza in New York City. RLAB was a publicly-traded company with
common stock traded on the “pink sheet” market under the ticker symbol “RLAB.”
Defendant told Strickland that he was able to offer five hundred million shares of
stock in his company, that 135 million shares of “mostly all restricted stock” had
been issued, and that as the “sole director and CEO,” Strickland would not have to
“deal with anybody other than me.”
Epstein told Defendant that he and Strickland had “found a way” to “get
money.” Epstein explained to Defendant that he and Strickland had been doing
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some “very interesting deals lately,” which had been a “win, win, win situation for
all those involved.” Strickland cautioned that this would be a “sensitive deal” and
asked Defendant “to kind of keep it amongst ourselves.” Strickland explained that
“this thing that I have is kind of the goose that . . . laid a golden egg for me,” and
that he and the “limited number of other people who” were involved “can’t really
afford to let it get out.” Defendant promised to keep their discussions confidential.
Strickland told Defendant that he had a close personal friend named Chris Russo
who was a senior executive of a national retail chain and served as the trustee of
the employee pension fund. As the trustee, Russo could control the pension fund
manager, whom Russo had hired and placed in that position. Russo and the fund
manager had discretion “over every cent of the fund” and were able to provide
“opportunities” to buy stocks in companies like Defendant’s. Generally, Russo
would cause the pension fund to buy $20,000 to $30,000 worth of stock at a time.
Because RLAB stock was so thinly traded, Strickland explained that the pension
fund would buy restricted shares so that it would not raise “red flags,” meaning
unwanted scrutiny from securities regulators. Strickland told Defendant that “what
these guys do is, they do things in a very measured fashion, so as to not draw any
suspicion at all.” Strickland stated that the pension fund would purchase $20,000
worth of stock “about once every three weeks.” Once the stock was purchased, it
would “be buried,” meaning it would not be sold. Strickland said this to assure
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Defendant that the stock would not be sold all at once and depress the price.
In exchange for the pension fund’s purchase of $20,000 of RLAB restricted
stock, Defendant would be required to pay a 30% kickback of $6,000, to be
divided among Strickland, Russo, and the fund manager. The $6,000 kickback
would be disguised as Defendant’s payment for “consulting” services, and they
would sign a phony consulting agreement in case they were ever questioned by the
FBI or the SEC. Defendant agreed, noting that “on the very off chance” that he
was ever questioned about the $6,000 payment, he could claim it was for
consulting services. Strickland emphasized that despite the consulting agreement,
Defendant and his company would not receive any actual consulting services.
Strickland and Defendant agreed that the pension fund would purchase
$20,000 of restricted stock at the market “ask” price for free-trading shares of .005
per share, which was higher than the “bid” price of .003 per share. Strickland
explained that the purchase price of the RLAB stock, and whether the stock price
ultimately rose or fell, was frankly irrelevant to him and Russo. They only cared
about the $6,000 kickback payment. When Defendant said that he thought Russo
would be happy about the prospect of investing in an American company,
Strickland responded: “Chris is gonna be happy about getting paid.” Defendant
responded, “Now I didn’t hear that.” Strickland laughed, and Defendant added, “If
he gets, you know, I mean that’s fine. He’ll get, he’ll get happy.”
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Strickland could only “guarantee” an “initial deal” of $20,000, but that there
was the possibility that the pension fund would continue to buy stock in the future.
Defendant was interested in more deals and stated he wanted to “have more fun,
make more money.”
Strickland and Defendant called Chris Russo on speaker phone. Russo, an
undercover FBI agent, confirmed that he would get the pension fund to pay
$20,000 for 4,000,000 restricted shares of RLAB stock in exchange for
Defendant’s payment of a 30% kickback. Russo emphasized the confidentiality of
the deal, warning that “as far as we’re all concerned here, um, we, we never had
this discussion, and our relationship shouldn’t really be discussed.” After the
phone call ended, Defendant asked Strickland, “what was the reason why he said
we didn’t have this discussion?” Strickland replied, “well, it’s the uh, the thirty
points.” Defendant replied, “I hear ya. I hear ya. Well, that and that never even
came up. I didn’t know about that,” and “I’m not making any connection between
the two.” Referring to the phony consulting agreement, Defendant added, “the
consulting firm has already benefitted me immensely.”
Later that same day, Russo, on behalf of the purported pension fund,
“Benefits and Pension Group,” and Defendant, on behalf of RLAB, signed a
subscription agreement for the purchase of 4,000,000 shares of restricted RLAB
stock. Strickland, as “Robert Scott,” and Defendant signed a “consulting
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agreement” between RLAB and a shell company called “Great Lakes Advisors,
LLC” (“Great Lakes”). Defendant promised to maintain the fiction that there was
no connection between his deal with Russo and the phony consulting agreement.
Defendant suggested that if he and Strickland were ever talking on the phone about
the deal when somebody walked into his office, Defendant would start talking
about baseball as a code to indicate that he could not talk openly about their
scheme. Defendant added that he wanted the scheme “to be bigger than just uh
you know, um, a monthly deal.”
A. First RLAB Stock Purchase
On March 25, 2009, the next day, Defendant mailed Strickland a $6,000
check, from the Billy Martin’s USA account, made payable to Great Lakes. The
same day, the pension fund wire transferred $20,000 to Defendant for the purchase
of 4,000,000 shares of restricted RLAB stock. On March 30, 2009, Defendant
mailed a certificate for 4,000,000 restricted shares of RLAB stock, issued to
Benefits and Pension Group.
Epstein wanted $5000 worth of stock for every $20,000 worth of stock the
pension fund purchased to compensate him for introducing Defendant to
Strickland. On March 30, 2009, Defendant issued 1,000,000 restricted shares of
RLAB stock to Epstein.
Although they had signed a consulting agreement, neither Strickland nor
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Great Lakes ever provided consulting services to Defendant, RLAB or Billy
Martin’s USA. Nevertheless, Defendant sent Strickland numerous e-mails
referring to the consulting services Strickland had provided about the company’s
new clothing lines and retail locations. Strickland chuckled when he received the
e-mails, knowing they were Defendant’s attempt to conceal the kickback as
payment for his consulting services.
B. The Second RLAB Stock Purchase
On April 7, 2009, Russo, on behalf of Benefits and Pension Group, signed a
second subscription agreement for the purchase of 2,222,222 restricted shares of
RLAB stock, at that day’s price of .009 per share, for a total of $20,000. This
agreement was in exchange for Defendant’s payment of a 30% kickback to
Strickland, Russo, and the pension fund manager.
On April 8, 2009, Defendant mailed Strickland a $6,000 check, from the
Billy Martin’s USA account, made payable to Great Lakes. The same day, the
pension fund wire transferred $20,000 to Defendant for the purchase of 2,222,222
shares of restricted RLAB stock. Defendant mailed, by Federal Express, a
certificate for 2,222,222 restricted shares of RLAB stock to Benefits and Pension
Group.
After the second purchase and kickback, Defendant continued to send
Strickland e-mails referring to Strickland’s suggestions about his new apparel line,
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retail locations, and a trade show in Las Vegas. Strickland never gave Defendant
any such advice or suggestions about his company.
On April 13, 2009, Defendant sent Epstein a certificate for 2,000,000
restricted shares of RLAB stock. Defendant enclosed a note stating that he wanted
Epstein to “have additional stock incentive and ownership in RLAB based on the
contributions you have been making and are making to the continued growth and
implementation of RLAB’s new business plan.”
Defendant met with Strickland and Epstein in South Florida for a second
time on April 28, 2009. Defendant said that he had traveled to Florida to “check
with my consultant Great Lakes,” and that if anyone ever questioned “what am I
doing with Great Lakes, why am I writing checks,” he wanted to have “a fine
record of what we’ve done to justify et cetera, et cetera.” Defendant announced
that he had brought a “fancy looking agenda” to the meeting, and suggested they
could “dispense with” the consulting in “about thirty seconds.” Defendant
commented, “I wanna make sure that everything looks cool with my, uh, with my
consultant Great Lakes Advisors, yada, yada, yada, okay.”
Strickland remarked that he liked Defendant’s effort to create a phony
agenda to conceal the scheme. Epstein noted, “this is a great cover your a-- piece
of paper.” While Defendant spoke about his ideas for the development of a new
line of denim apparel and new boutique locations, Strickland never offered any
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comment, advice, or consulting services.
Defendant wanted the pension fund to buy more stock in his company and
brought a blank subscription agreement and “consulting” agreement between
“Stock Services LLC” and RLAB. Defendant, Strickland, and Epstein also
discussed ways to increase RLAB’s trading volume and stock price. Defendant
stated, “I am not interested in getting dumped, okay, I would like to find the right
people to do a, a, a, I don’t wanna say a pump and dump,” and Epstein replied,
“let’s call it a push,” and Defendant characterized it as a promotional benefit for
his shareholders.”1 Epstein observed that increasing the stock’s trading volume
“would probably win you some brownie points with the fund,” and Strickland
agreed that it would “lower the scrutiny” of SEC regulators. Defendant told them
that he had been making an effort to increase the trading volume of the stock.
Defendant, Strickland, and Epstein also discussed other ways to manipulate the
market, such as the payment of brokers to push the stock, and the disclosure of
company press releases to Russo before they were made public. Epstein warned
that they should not talk about these things over the phone or in e-mails.
Meanwhile, Defendant continued to send e-mails to Strickland referring to
1
A “pump and dump” is a money-making scheme where one drives the price of a stock
up to a certain level and immediately sells it once it hits a certain price. A stock is “pumped” or
“pushed” when the price is pushed up, and a stock is “dumped” when a large number of shares
are offered for sale.
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consulting work that Strickland never provided. For example, in a May 27, 2009
e-mail, Defendant thanked Strickland for his “good input on this new product.”
Strickland never provided any such advice.
C. Defendant’s Use of the Proceeds
Between March 25, 2009, and June 22, 2009, Defendant’s participation in
the fraudulent scheme netted him $14,000 from each of the two RLAB stock sales
($20,000 purchase price minus his $6,000 kickback), plus $6,000 from Yan
Skwara, for a total of $34,000. During that same time period, Defendant wrote
checks on the Billy Martin’s USA account for his own personal expenses,
including his homeowners’ association, his country club, his residential gas and
electric bills, and the rent on his son’s apartment.
On the other hand, between April and August 2009, Defendant paid only
$13,000 of the approximately $196,620 that Billy Martin’s USA owed in back rent
for its retail space in Trump Plaza.
D. Yan Swara
On April 29, 2009, Strickland called Defendant to tell him that Russo had
decided against the pension fund’s purchase of any more RLAB stock. Strickland
explained that Russo was very upset that the trading volume was so high, which he
feared would attract unwanted attention. Defendant asked whether Strickland and
Russo would be interested in doing the same scheme with other public companies,
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and suggested his friend, Yan Skwara.
Skwara, who lived in San Diego, was the CEO, President, Secretary, and
Treasurer of U.S. Farms, Inc. (“USFM”). USFM was a farming and nursery
company that grew aloe vera plants and marketed aloe-based products. Skwara
also had a small consulting business. Skwara had met Defendant in late 2008.
Defendant told Skwara that he had a relationship with people in Florida who
had caused a large pension fund to invest in RLAB, and he offered to arrange for
the pension fund to invest in USFM. USFM’s stock was publicly traded on the
over-the-counter “pink sheet” market under the ticker symbol “USFM.” It was
thinly traded and considered to be a “penny stock” because its price was between
one and three cents a share. Its investors were mostly private individuals, and it
had never had any large institutional investors. Skwara was interested in having a
large institutional investor, like a pension fund, invest in his company.
Defendant told Skwara that if the pension fund agreed to invest in USFM,
Skwara would be required to pay a kickback to the people controlling the pension
fund, which would be concealed by a phony consulting agreement. In addition,
Defendant wanted $6,000 for making the introduction. Defendant described this to
him as an “opportunity for both our companies to make some money” and was
“anxious to see this come through.” Skwara understood that the pension fund
would invest in his company “primarily due to the kickback, not so much on the
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fact that the company had merits.”
Defendant and Strickland arranged for Skwara to travel to Florida for a
meeting. Defendant gave Strickland some personal information about Skwara and
promised to provide directions to Epstein’s house.
Skwara flew to South Florida and met with Strickland and Epstein at
Epstein’s home on May 28, 2009. Strickland, again posing as Robert Scott, told
Skwara that he had a relationship with the trustee of a large pension fund, and that
in exchange for a 30% kickback paid to Strickland, Russo, and the pension fund
manager, the pension fund would buy USFM stock. Strickland and Skwara agreed
that the kickback would be concealed as payments to a consulting company, Great
Lakes, although there would not be any actual consulting work performed.
E. The First USFM Stock Purchase
Skwara signed a consulting agreement with Great Lakes, and on June 5,
2009, he mailed Strickland a $6,000 check for the kickback. Great Lakes never
provided any consulting services to USFM. The same day, the pension fund wire
transferred $20,000 to USFM for the purchase of 1,000,000 restricted shares of
USFM stock. On June 15, 2009, 1,000,000 restricted shares of USFM stock were
issued to Benefits and Pension Group.
To compensate Defendant for Skwara’s introduction to Strickland, between
June 8, 2009 and June 22, 2009, Skwara sent Defendant four cashier’s checks,
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totaling $6,000, made payable to Billy Martin’s USA.
F. The Second USFM Stock Purchase
On July 10, 2009, 2,000,000 restricted shares of USFM stock were issued to
Benefits and Pension Group. On July 14, 2009, the pension fund wire transferred
$20,000 to USFM for the purchase of that stock. On the same day, Skwara mailed
Strickland a $6,000 check, made payable to Great Lakes, as the agreed-upon
kickback payment. Skwara also caused 200,000 restricted shares of USFM stock
to be issued to Epstein as part of the kickback scheme.
Skwara subsequently pleaded guilty to conspiracy to commit securities
fraud. He testified for the government at Defendant’s trial.
II. Issues Presented
Defendant raises five issues on appeal.2 First, Defendant maintains his
convictions must be vacated because the government failed to prove the offenses
charged in the indictment. Second, according to Defendant, his Count 7 conviction
must be vacated because the sole co-conspirator testified that he had no agreement
with Defendant regarding that transaction. Third, cumulative error deprived
Defendant of a fair trial. Fourth, Defendant argues that the District Court erred by
improperly calculating the intended loss amount under U.S.S.G. § 2B1.1(b)(1)(E).
2
Defendant’s issues have been reordered for convenience.
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Fifth, and finally, Defendant maintains the District Court erred by imposing a
position-of-trust enhancement under U.S.S.G. § 3B1.3.
III. Standards of Review
“‘We review challenges to the sufficiency of the evidence de novo,’” and ask
“‘whether a reasonable jury could have found the defendant guilty beyond a
reasonable doubt.’” United States v. House, 684 F.3d 1173, 1196 (11th Cir. 2012)
(quoting United States v. Mercer, 541 F.3d 1070, 1074 (11th Cir. 2008)).
A challenge to the sufficiency of the evidence to sustain a defendant’s
conviction is reviewed de novo. United States v. To, 144 F.3d 737, 743 (11th Cir.
1998). “But where a defendant ‘present[s] his case after denial of a motion for
judgment of acquittal’ and then ‘fails to renew his motion for judgment of acquittal
at the end of all of the evidence,’ we review the defendant’s challenge to the
sufficiency of the evidence for a manifest miscarriage of justice.” House, 684 F.3d
at 1196 (quoting United States v. Jones, 32 F.3d 1512, 1516 (11th Cir.1994)).
“This standard requires us to affirm the defendant’s conviction unless ‘the
evidence on a key element of the offense is so tenuous that [the] conviction [is]
shocking.’” Id. (quoting United States v. Milkintas, 470 F.3d 1339, 1343 (11th
Cir.2006)). “‘In making this determination, we must view the evidence in the light
most favorable to the government and accept all reasonable inferences and
credibility determinations that support the jury’s verdict.’” Id. (quoting Milkintas).
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To demonstrate plain error, the defendant “must show that there is (1) error
(2) that is plain and (3) that affect[s] substantial rights.” United States v.
Lejarde-Rada, 319 F.3d 1288, 1290 (11th Cir. 2003) (internal quotations and
citations omitted). “If all three conditions are met, an appellate court may then
exercise its discretion to notice a forfeited error, but only if (4) the error ‘seriously
affect[s] the fairness, integrity, or public reputation of judicial proceedings.’” Id.Claims of prosecutorial misconduct are ordinarily reviewed de novo. United
States v. Eckhardt, 466 F.3d 938, 947 (11th Cir. 2006). But when a defendant has
failed to assert a contemporaneous objection to the alleged misconduct, plain error
review applies. United States v. Newton, 44 F.3d 913, 920 (11 Cir. 1995); United
States v. Hernandez, 921 F.2d 1569, 1573 (11th Cir. 1991).
We review the district court’s amount-of-loss calculation for clear error.
United States v. Nosrati-Shamloo, 255 F.3d 1290, 1291 (11th Cir. 2001). Clear
error will be present when we are “left with a definite and firm conviction that a
mistake has been committed.” United States v. Crawford, 407 F.3d 1174, 1177
(11th Cir. 2005) (citation omitted). We review de novo the question of whether the
district court properly determined a defendant’s relevant conduct under U.S.S.G. §
1B1.3. United States v. McCrimmon, 362 F.3d 725, 728 (11th Cir. 2004).
We review for clear error a district court’s “factual determination that a
defendant abused a position of . . . trust.” United States v. Garrision, 133 F.3d
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831, 837 (11th Cir. 1998). But the district court’s “conclusion that the defendant’s
conduct justifies the abuse-of-trust enhancement is a question of law” reviewed de
novo. Id.IV. Discussion
A. Trial Issues
The government, according to Defendant, never established the central
allegation in this case—that the stock was sold at an artificially inflated price. The
difficulty for Defendant, however, is that defense counsel did not renew his motion
for judgment of acquittal at the close of the defense case. Due to this, we may
reverse “only to prevent a manifest miscarriage of justice.” House, 684 F.3d at
1196. “This standard requires us to affirm the defendant’s conviction unless the
evidence on a key element of the offense is so tenuous that [the] conviction [is]
shocking.” Id. (internal quotations omitted). As discussed below, evidence
supports Defendant’s convictions beyond a reasonable doubt, and Defendant fails
to demonstrate that his convictions are shocking or a manifest miscarriage of
justice.
Moreover, the record refutes Defendant’s assertions. The evidence at trial
established that the 30% kickbacks made the price of the stock irrelevant. The
parties involved cared only about the kickback payments, not the stock price. In
addition, because of the kickbacks, the pension fund purchased restricted shares at
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the higher price set for freely-traded shares. Thus, the kickback itself artificially
increased the stock price. The pension fund paid $20,000 for stock that should
have cost only $14,000—absent the $6,000 bribe. Ample evidence existed for the
jury to conclude that the fraudulent scheme caused the pension fund to pay inflated
prices for the restricted shares of stock.
Likewise, Defendant’s contention that there was no evidence that he made
any misrepresentation material to the fraud lacks merit. A “scheme to defraud” has
been broadly defined, and it may include more than fraudulent misrepresentations.
United States v. Svete, 556 F.3d 1157, 1161-62 (11th Cir. 2009) (en banc). “‘A
scheme to defraud need not be carried out to constitute a violation of the mail and
wire fraud statutes. These statutes punish unexecuted, as well as executed,
schemes.’” United States v. Ross, 131 F.3d 970, 986 (11th Cir. 1997) (citing
Pelletier v. Zweifel, 921 F.2d 1465, 1498 (11th Cir. 1991). “The Government
merely needs to show that the accused intended to defraud his victim and that his
or her communications were reasonably calculated to deceive persons of ordinary
prudence and comprehension.” Id. (internal quotation and citation omitted).
The evidence here demonstrated that Defendant engaged in a scheme to
defraud the pension fund beneficiaries by making undisclosed kickbacks to induce
the purchase of stock at inflated prices. While the undercover FBI agents initiated
the deal and proposed the terms, Defendant voluntarily joined the scheme, and then
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urged Skwara to participate for Defendant’s own gain. Furthermore, Defendant
attempted to conceal the kickback agreement with a fictitious consulting
agreement, and numerous e-mails referring to advice he never received. Finally,
Defendant’s words and conduct, as captured on the recorded tapes played at the
trial, demonstrated his intent to defraud the pension fund investors. Accordingly,
there was no miscarriage of justice.
Defendant also maintains the prosecutor’s comments to the jury
constructively modified the indictment. “It is well settled that a defendant enjoys a
Fifth Amendment right to be tried on felony charges returned by a grand jury
indictment and that only the grand jury may broaden the charges in the indictment
once it has been returned.” United States v. Sanders, 668 F.3d 1298, 1309 (11th
Cir. 2012) (citing Stirone v. United States, 361 U.S. 212, 215–16 (1960)). A
constructive amendment to an indictment occurs “when the essential elements of
the offense contained in the indictment are altered to broaden the possible bases for
conviction beyond what is contained in the indictment.” United States v. Keller,
916 F.2d 628, 634 (11th Cir. 1990). A constructive amendment is present when
“the jury instructions modify the elements of the charged offense so much that the
defendant may have been convicted on a ground not alleged by the grand jury’s
indictment.” Sanders, 668 F.3d at 1309.
There was no constructive amendment here. The Second Superceding
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Amended Indictment alleged a fraudulent scheme pursuant to which a 30%
kickback would be paid to induce the pension fund to buy stock at an artificially
inflated price. That is what the government argued to the jury that the evidence
proved.
While the prosecutor mentioned “pump and dump” schemes and insider
trading in his closing argument, the jury was never urged to convict Defendant on
those theories. Finally, the District Court properly instructed the jury on the
elements of mail fraud, securities fraud, and conspiracy.
Defendant maintains that his conviction for Count 7 must be set aside
because Skwara’s second transaction with the pension fund was outside the scope
of Defendant’s criminal agreement. Count 7 alleged securities fraud base on
Skwara’s second sale of USFM stock to the pension fund. However, Defendant
asserts that due to Skwara’s testimony that he and Defendant had no agreement for
this transaction, the conviction must be reversed.
The evidence demonstrated that the scope of Defendant’s agreement with
Skwara was not limited to the first purchase of USFM stock in June, 2009. Skwara
explained that when Defendant first approached him, he told Skwara that “this is
an opportunity for both our companies to make some money and help our
companies” and “indicated that if the pension fund liked the deal, that they could
be a long-term investor in the company.” Defendant provided the introduction of
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Skwara to the undercover agents, and coordinated Skwara’s travel to meet with
them. The jury could have understood this to mean that Defendant anticipated the
pension fund’s “long-term” investment in USFM stock, not a one-time transaction,
and Defendant’s continued involvement. Accordingly, the Count 7 conviction
need not be set aside.
Defendant maintains that cumulative errors mandate a new trial. While
Defendant asserts a number of errors, only two arguments merit discussion. First,
that the District Court allowed inadmissable hearsay testimony from FBI Agent
Sputo. Second, that government argued that Defendant was guilty because Skwara
had pled guilty to the same offense.
According to Defendant, the District Court abused its discretion by allowing
inadmissable hearsay testimony from FBI Agent Sputo that Defendant used
corporate funds to pay for his homeowners’ association, county club, son’s
apartment and other personal expenses.
Following a review of the record, we determine that Sputo’s testimony was
not improperly admitted. Sputo testified that based on his review of bank records,
Defendant had used corporate funds to pay for his homeowners’ association,
country club, son’s apartment, and other personal expenses. Such testimony was
permissible for a lay witness consistent with Federal Rule of Evidence 701. See
Agro Air Assocs., Inc. v. Houston Cas. Co., 128 F.3d 1452, 1456 (11th Cir. 1997)
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(finding that, pursuant to Rule 701, a lay witness is entitled to testify about their
“opinions or inferences” which may be helpful to give a clear understanding of the
witnesses testimony). Furthermore, Sputo was subject to cross-examination on this
testimony, therefore “any objection to the testimony went to the weight of the
evidence, not to its admissibility.” Id.Even assuming, arguendo, that this testimony was mistakenly admitted, an
erroneous evidentiary ruling does not require reversal if the resulting error was
harmless. “[A] non-constitutional error is harmless if, viewing the proceedings in
their entirety, a court determines that the error did not affect the verdict, or had but
very slight effect.” United States v. Arias, 431 F.3d 1327, 1338 (11th Cir. 2005)
(quotation omitted). “Overwhelming evidence of guilt is one factor that may be
considered in finding harmless error.” United States v. Phaknikone, 605 F.3d
1099, 1109–11 (11th Cir. 2010). Therefore, even if we were to conclude that any
of Sputo’s testimony was inadmissible hearsay, the error would be harmless in
light of the overwhelming evidence of mail and securities fraud presented at trial.
The government argued, according to Defendant, that Defendant was guilty
because Skwara had pled guilty to doing the same. The prosecutor compared
Defendant’s and Skwara’s conduct, and reminded the jury that Skwara admitted
that he had committed fraud.
“It is a well-accepted principle that ‘evidence about the conviction of a
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coconspirator is not admissible as substantive proof of the guilt of a defendant.’”
United States v. Mitchell, 1 F.3d 235, 240 (4th Cir. 1993) (internal citation
omitted). However, that did not occur in this case. We have reviewed the
comments that Defendant finds objectionable, and conclude these statements,
while possibly not advisable, were not erroneous and did not rise to the level of
plain error.3
Tellingly, all but one of the prosecutor’s alleged inappropriate comments
occurred in the government’s rebuttal argument. Prior to the rebuttal argument,
defense counsel painted the picture of Defendant as a down on his luck business
owner in need of cash was snared into this case by Epstein—an opportunistic
cooperating witness for the government. Once Defendant unwittingly agreed to
become involved in a sting operation, it was the government, not Defendant, who
set the terms of the deal. In rebuttal, the prosecutor explained that both Skwara
and Defendant made their respective decisions to become involved in the scheme,
not the government. This was fair comment on the evidence.
There do not appear to have been any inappropriate comments by the
prosecutor about Skwara’s guilty plea. Nevertheless, Defendant cannot
demonstrate plain error because he fails to show that the comments made in
3
No objections were raised before the District Court to any of these comments.
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closing argument affected his substantial rights. Indeed, the jury was instructed
that thier decision should not be based on what the lawyers said, but only on facts
they decided were true based on the evidence presented at trial.4
B. Sentencing Issues
Defendant argues that the District Court erred by improperly calculating the
intended loss amount under U.S.S.G. § 2B1.1(b)(1)(E). Under the Guidelines,
promulgated by the Untied States Sentencing Commission, the amount of loss
caused by a defendant’s offense will provide a basis for an enhancement. U.S.S.G.
§ 2B1.1(b)(1). The reduction in value of equity securities resulting from the
offense is one factor the sentencing court shall take into account when estimating
loss. U.S.S.G. § 2B1.1, cmt. (n.3)(C)(v)). Moreover, the loss shall be reduced by
the fair market value of the “collateral” provided by the defendant. U.S.S.G. §
2B1.1, cmt. (n.3(E)(ii)).
The district court is required “to make independent findings establishing the
factual basis for its Guidelines calculations.” United States v. Hamaker, 455 F.3d
1316, 1338 (11th Cir. 2006). It may base these finding on “‘among other things,
evidence heard during trial, undisputed statements in the PSI, or evidence
presented during the sentencing hearing.’” Id. (quoting United States v. Ndiaye,
4
Defendant also suggested that the District Court erred by failing to give the witness-
accomplice guilty plea limiting instruction. However, Defendant failed to request such an
instruction, and the failure to give such an instruction was not plain error.
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434 F.3d 1270, 1300 (11th Cir. 2006)). The burden of proof is on the government
to establish “facts relevant to the loss calculation by a preponderance of the
evidence.” Id. The district court’s loss calculation is “entitled to appropriate
deference” and its “reasonable estimate . . . will be upheld on appeal.” United
States v. Gupta, 463 F.3d 1182, 1200 (11th Cir. 2006) (citations and quotations
omitted). But the district court may not base its calculation on “mere speculation
and the government bears the burden of supporting its loss calculation with reliable
and specific evidence.” Id. Fraudulent schemes come in a variety of forms,
ranging from “theft-like fraud where the perpetrator intends to keep the entire
amount fraudulently obtained,” to “contract fraud where the perpetrator, while
fraudulently obtaining the contract, intends to perform the contract and to cause no
loss to the victim.” United States v. Orton, 73 F.3d 331, 334 (11th Cir. 1996). The
nature of the scheme, however, must be considered to determine “what method is
to be used to calculate the harm caused or intended.” Id. at 333.
Under the Guidelines, conduct relevant to sentencing includes all acts that a
defendant “aided, abetted, [or] counseled.” U.S.S.G § 1B1.3(a)(1)(A). It also
includes “all reasonably foreseeable acts and omissions of others in furtherance of
the jointly undertaken criminal activity.” U.S.S.G § 1B1.3(a)(1)(B). A
defendant’s conduct may result in sentencing accountability under more than one
subsection. U.S.S.G § 1B1.3, cmt. (n.2(b)(1)). To determine a defendant’s
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liability for the acts of others pursuant to § 1B1.3(a)(1)(B), the district court “‘must
first make individualized findings concerning the scope of criminal activity
undertaken by a particular defendant.’” Hunter, 323 F.3d at 1319 (quoting United
States v. Ismond, 993 F.2d 1498, 1499 (11th Cir. 1993)). Only upon making this
finding of scope is the district court to determine reasonable foreseeability. Id. A
conspirator’s mere knowledge of the larger conspiracy and agreement to participate
in a particular act does not necessarily amount to acquiescence in all of the acts of
the criminal enterprise. Id. at 1320. However, a defendant is liable under §
1B1.3(a)(1)(B) when he is “fully aware of the objective of the conspiracy and . . .
actively involved in recruiting investors to further the . . . scheme.” McCrimmon,
362 F.3d at 732.
The District Court did not err in the loss calculation. Instead, it gave a
reasonable estimate of the loss that accounted for the likely effect that the
undisclosed fraud would have on the market value of Defendant’s company stock.
In this case, the District Court found that the Pension Plan would not have bought
the stock at all in the absence of the fraud, and found that, in light of the fraud, the
Pension Fund held stock that was essentially worthless. Moreover, the District
Court properly found Defendant responsible for both of his co-conspirator’s
transactions under the relevant-conduct principles of § 1B1.3. Accordingly, we
affirm as to this issue.
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Secondly, Defendant maintains that the District Court improperly applied a
two-level enhancement under U.S.S.G. § 3B1.3 for abuse of trust because
Defendant had no relationship with the victims of the criminal transaction.
Specifically, Defendant maintains it was improper for the District Court to apply a
bright-line rule that it was an abuse of trust whenever a CEO commits a crime
related to that CEO’s company. Moreover, the conduct on which the conviction is
based must be independent of the abuse of trust itself. But here, according to
Defendant, paying a bribe was the basis both of the conviction and the
enhancement.
Under the Guidelines, a two-level enhancement may be applied if a
defendant “abused a position of public or private trust . . . in a manner that
significantly facilitated the commission or concealment of the offense.” U.S.S.G. §
3B1.3. The enhancement “only applies when the victim conferred the trust.”
United States v. Walker, 490 F.3d 1282, 1300 (11th Cir. 2007). In the context of
fraud, with its “[inherent] component of misplaced trust,” a district court must not
be “overly broad” in applying the enhancement. Garrison, 133 F.3d at 838
(citations and quotations omitted). Instead, the enhancement, should be applied in
two circumstances: “where the defendant steals from his employer, using his
position in the company to facilitate the offense,” and “where a fiduciary or
personal trust relationship exists with other entities, and the defendant takes
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advantage of the relationship to perpetrate or conceal the offense.” Id. at 837-38
(quotations omitted). In the fiduciary context, courts “must distinguish between
those arms-length commercial relationships where trust is created by the
defendant’s personality or the victim’s credulity, and relationships in which the
victim’s trust is based on defendant’s position in the transaction.” Id. at 838
(citation omitted).
The District Court properly found that an abuse-of-trust enhancement was
justified in this case. Defendant abused his position as a fiduciary to his
shareholders, and used that position to facilitate the commission of the offense.
Accordingly, we affirm as to this issue.
V. Conclusion
Based on the foregoing and our review of the record and the parties’ briefs,
we affirm Defendant’s convictions and sentence.
AFFIRMED.
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