United States v. Michael Rand , 835 F.3d 451 ( 2016 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 15-4322
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
v.
MICHAEL T. RAND,
Defendant - Appellant.
Appeal from the United States District Court for the Western
District of North Carolina, at Charlotte. Robert J. Conrad,
Jr., District Judge. (3:10-cr-00182-RJC-DSC-1)
Argued: May 12, 2016 Decided: August 26, 2016
Before GREGORY, Chief Judge, and NIEMEYER and HARRIS, Circuit
Judges.
Affirmed by published opinion. Chief Judge Gregory wrote the
opinion, in which Judge Niemeyer and Judge Harris joined.
ARGUED: Seth Paul Waxman, WILMER CUTLER PICKERING HALE AND DORR
LLP, Washington, D.C., for Appellant. Amy Elizabeth Ray, OFFICE
OF THE UNITED STATES ATTORNEY, Asheville, North Carolina, for
Appellee. ON BRIEF: Stephen D. Councill, ROGERS & HARDIN LLP,
Atlanta, Georgia; Claire J. Rauscher, WOMBLE CARLYLE SANDRIDGE
AND RICE LLP, Charlotte, North Carolina; Brent J. Gurney,
Jeannie S. Rhee, Kelly P. Dunbar, Matthew Guarnieri, WILMER
CUTLER PICKERING HALE AND DORR LLP, Washington, D.C., for
Appellant. Jill Westmoreland Rose, United States Attorney,
Maria K. Vento, Assistant United States Attorney, OFFICE OF THE
UNITED STATES ATTORNEY, Charlotte, North Carolina, for Appellee.
GREGORY, Chief Judge:
Michael Rand was convicted of conspiracy, in violation of
18 U.S.C. §§ 371 and 1349, and obstruction of justice, in
violation of 18 U.S.C. § 1512(b)(3), (c)(1), and (c)(2),
following his involvement in earnings mismanagement and improper
accounting transactions while acting as chief accounting officer
at Beazer Homes USA, Inc. Rand appeals several aspects of his
convictions and sentence. Finding no error, we affirm.
I.
In 2010, the government charged Michael Rand with
accounting fraud based on his work at Beazer Homes USA, Inc.
(“Beazer”), a home-building company, from 2000 to 2007 and with
obstructing an investigation into Beazer’s mortgage origination
practices. Rand, a certified public accountant, was Beazer’s
controller and later its chief accounting officer from 1999 to
2007. He reported to Beazer’s CEO and CFO.
The government’s accounting charges concerned earnings
management: it believed that Rand attempted to adjust Beazer’s
reported earnings over time so that Beazer would hit consensus—
that is, the quarterly earnings amount that Wall Street
predicted. This practice involved “cookie jar” accounting with
respect to Beazer’s reserve accounts, where funds are set aside
for future expenditures or revenue. It is generally accepted
2
that the amount put into a reserve account is what the company
reasonably anticipates needing to meet the expected expense. It
is not appropriate to increase or decrease funds in reserve
accounts to understate or inflate its actual earnings. Instead,
if a company determines that it does not need the reserve funds,
those funds “are to be taken back as income as soon as [the
company] know[s] that they are no longer required.” J.A. 1260.
The government attempted to prove that Rand manipulated the
accounting to reduce earnings when Beazer was beating consensus.
E.g., J.A. 3720 (“If you have more than 100k extra, hide it.”);
id. at 3722 (“To achieve the ‘goal’ $ for this year, let’s
squirrel $ away in places which will turn around in the next
year; not be so ‘open.’”); id. at 1982-83 (“We may have $5
million to squirrel away, so if you have ant [sic] ideas, let me
know. Joavan’s cookie jar has no more room.”). This practice
resulted in a misrepresentation of Beazer’s earnings in many
quarters, including each quarter in fiscal year 2006.
The government also alleged that Rand improperly accounted
for transactions involving model homes Beazer sold to and leased
back from GMAC, an investment company. In 2005, Beazer sought
to enter into model-home sale-leaseback agreements. Under these
agreements, Beazer would sell model homes to investors and rent
the homes back from the investors until the subdivision was
complete and the model home could be sold to a third party.
3
Generally, a seller cannot count the transaction as a sale
and recognize revenue until “all risks and rewards of ownership”
are transferred to the buyer. J.A. 2056. A seller may not have
any “continuing involvement” with the property for it to be
counted as a sale. Id. A transaction is not counted as a sale
if the seller retains the ability to share in the appreciation
of the home after it is sold.
Deloitte & Touche (“Deloitte”) served as Beazer’s
auditors. Rand consulted with Deloitte senior manager, Corbin
Adams, about a potential sale-leaseback arrangement with GMAC.
In December 2005, Rand sent Adams a draft Master Sale and Rental
Agreement (“MSRA”) that did not include any provision for Beazer
to benefit from later appreciation in the value of the homes.
He later confirmed that Beazer would not be able to “participate
in appreciation of [the] leased assets.” Id. at 2074.
Meanwhile, Rand was assuring Beazer’s employees that Beazer
would share in the upside—the future profits from appreciation
in value before GMAC eventually sold them. The same day Beazer
entered into the MSRA, a Property Management Agreement (“PMA”)
between GMAC entities was executed, providing that Beazer would
share in the upside of any consumer transactions. In the next
nine months, Beazer entered into two more MSRAs, followed by
PMAs, agreeing that Beazer would share in appreciation when the
4
model homes sold. Beazer received $117 million for the model
homes it sold and reported $24.8 million in total profit.
Finally, Rand was charged with obstruction of justice
stemming from his allegedly deleting emails following a grand
jury subpoena. In March 2007, the FBI began investigating
Beazer for mortgage fraud. On March 23, 2007, a federal grand
jury issued a subpoena requiring Beazer to retain all documents,
including emails, related to mortgages or home sales.
On March 28, Beazer initiated an “email dumpster,” which
would save all deleted emails from permanent deletion.
Beginning March 29, all deleted emails were caught in this
dumpster without the employee’s knowledge. At 2:58 p.m. on
March 30, Beazer’s CEO Ian McCarthy sent a memorandum to Rand
and other senior management notifying them that Beazer was
providing documents in response to the subpoena and would be
providing an updated document-retention memorandum. Around 4:20
p.m., Deborah Danzig, an in-house attorney, sent an email to all
employees in the corporate office, including Rand, with this
memorandum, instructing them not to destroy any records. Danzig
also testified that she told Rand directly that “he was required
to keep everything and destroy nothing.” Id. at 975.
Between 5:55 p.m. on March 29 and 5:45 p.m. on March 30,
2007, Rand deleted nearly 6,000 emails dating back to 1999.
Some of the emails were responsive to the grand jury’s subpoena
5
and contained evidence of mortgage fraud. Other emails that
Rand deleted were related to the cookie-jar accounting scheme.
Others still appeared irrelevant to either set of charges.
Shortly after the subpoena was issued, Beazer’s audit
committee hired the law firm Alston & Bird to conduct an
internal investigation. Mike Brown, a partner at Alston & Bird,
interviewed Rand as part of that investigation. On June 15,
2007, during their first interview, Rand told Brown that he had
not destroyed or deleted any documents or emails since the
investigation had begun. On June 26, 2007, Brown met with Rand
again. Brown had learned that the email dumpster had recovered
thousands of emails that Rand had attempted to delete. At that
meeting, Rand initially provided that he did not delete any
emails, but he eventually admitted that he might have deleted “a
couple of emails” to reduce the size of his mailbox. Id. at
1072. On further questioning, Rand said that he deleted “a
series of emails” from one particular coworker on March 30. Id.
at 1073.
Beginning July 2008, the FBI conducted between six and
eight interviews with Rand as part of a proffer. During these
interviews, conducted by FBI Agent Douglas Curran and others,
Rand admitted to manipulating Beazer’s earnings, admitted that
that was illegal, and expressed remorse. Curran testified that
he also asked Rand about the GMAC transaction, and Rand admitted
6
that there was a “verbal side agreement to share in the
appreciation of the model homes when they were ultimately sold.”
Id. at 2780.
Curran also asked Rand about the email deletions. Curran
testified that Rand admitted that “he was certain that by March
27th he was for sure at the latest aware that there was a
federal investigation in Charlotte.” Id. at 2784. Rand also
admitted that he had spoken with Danzig and understood that the
document-retention memorandum applied to him, when he “went back
to his office and started performing mass deletions of emails.”
Id. at 2784-85. Explaining that he was “essentially in a state
of panic,” he deleted the emails because “[t]here were a lot of
stressful events going on in his life at that time, and on top
of that he was aware of the federal grand jury investigation
that was focused in Charlotte and he did not want to be
associated with that investigation in any way.” Id. at 2785.
Rand admitted that he “understood that he was deleting evidence
pertinent to the investigation” and “[h]e knew it was wrong.”
Id. at 2786.
Rand went to trial twice. Before the first trial, Rand
sought leave to subpoena computer forensic evidence of Rand’s
email deletions and records from Beazer’s accounting system to
show Rand’s accounting was reasonable and justified and to
7
contextualize and refute the prosecution’s accounting records.
The district court denied both requests.
In the first trial, the government presented evidence of
emails relevant to the grand jury’s investigation into Beazer’s
mortgage division and that Rand deleted from his Beazer email
account. Aaron Philipp, a computer forensics expert, testified
that based on Beazer’s backup tapes, 3,272 emails were deleted
between March 23 and 28, while another 5,936 were deleted on
March 30, after the email dumpster was put into place. 1
The jury deliberated for twenty hours and returned a split
verdict, convicting Rand on seven counts and acquitting on four.
A new trial was later granted due to juror misconduct.
In advance of the second trial, Rand again sought to
subpoena Beazer to obtain records from its accounting system.
Again, the district court denied the request. Rand also tried
again to get the backup tapes from Beazer of the March 23-28
email deletions, and this time, the court granted the request.
Rand’s expert examined the data on the backup tapes and
concluded that approximately 2,500 of the approximately 3,200
emails that Philipp testified during the first trial were
1 To be clear, these are two categories of email deletions:
the backup tape analysis is separate from the electronic
dumpster records. The backup tapes were relevant to alleged
deletions that occurred between March 23 and 28, which were not
charged in the second trial; the dumpster was put into place on
March 28 and captured all deletions beginning March 29.
8
deleted between March 23 and March 28, 2007 (prior to the
dumpster being in place), were not, in fact, deleted, explaining
that “there [were] various technical explanations why Mr.
Philipp could not find them on the tape the first time.” Id. at
719.
The government dropped Philipp from its witness list,
halted all efforts to prove the March 23-28 deletions, and moved
to strike parts of the indictment relating to those deletions.
The government also moved to preclude Rand from introducing
evidence or mentioning the false accusations at the retrial.
The court granted the prosecution’s request ruling that the
evidence was irrelevant and excludable under Federal Rule of
Evidence 403 as distracting or confusing because the prosecution
was no longer seeking to prove the March 23-28 deletions.
In addition to dropping the count tied most closely to the
March 23-28 deletions, the government also abandoned its effort
to prove Rand had committed securities fraud. It thus proceeded
only with the conspiracy counts (counts 1 and 2), in violation
of 18 U.S.C. § 371 (conspiracy) and 18 U.S.C. § 1349 (wire fraud
conspiracy), and three obstruction of justice counts (counts 6,
9, and 11), in violation of 18 U.S.C. § 1512(b)(3), (c)(1), and
(c)(2). Rand was ultimately convicted on all five counts.
Prior to sentencing, Rand’s probation officer calculated a
total offense level of 43 and an advisory guideline range of
9
life based, in part, on the finding that the loss reasonably
foreseeable to Rand was between $100 and $200 million. Rand
objected to this loss calculation, and the district court
conducted a full-day sentencing hearing. During the hearing,
both parties presented expert testimony on the appropriate
calculation of loss under U.S. Sentencing Guideline § 2B1.1 and,
in particular, the effect on the value of Beazer’s stock of
three separate announcements Beazer made to the market related
to Rand’s offense conduct.
The district court adopted the government’s expert’s most
“conservative methodology” and found a loss of $135 million.
Id. at 3279. Based in part upon that finding, the district
court calculated the total offense level of 51, resulting in an
adjusted offense level of 43 and an advisory guideline sentence
of life in prison. After considering the appropriate sentencing
factors under 18 U.S.C. § 3553(a), the district court sentenced
Rand to 120 months in prison.
This appeal followed.
II.
Rand first argues that the exclusion of evidence
surrounding the false email accusations hampered his
constitutional right to present a defense in three distinct
ways: he was prevented from explaining the circumstance of his
10
confession; he was unable to show that certain statements were
not misleading; and he could not effectively cross-examine
certain witnesses.
We “review[] evidentiary rulings implicating constitutional
claims de novo.” United States v. Williams, 632 F.3d 129, 132
(4th Cir. 2011). Thus we review Rand’s claim regarding the
circumstances of a confession under this standard. See Crane v.
Kentucky, 476 U.S. 683 (1986).
Nevertheless, “a defendant’s right to present a defense is
not absolute: criminal defendants do not have a right to
present evidence that the district court, in its discretion,
deems irrelevant or immaterial.” United States v. Prince–Oyibo,
320 F.3d 494, 501 (4th Cir. 2003); see also Crane, 476 U.S. at689–90 (noting that the “Constitution leaves to the judges who
must make these decisions wide latitude to exclude evidence that
is repetitive . . ., only marginally relevant or poses an undue
risk of harassment, prejudice, [or] confusion of the issues”
(citation and internal quotation marks omitted)). Thus, as to
Rand’s other two arguments, we review for abuse of discretion,
as they are “better framed” as “evidentiary argument[s].” See
United States v. Malloy, 568 F.3d 166, 177 (4th Cir. 2009).
While his argument is “couched in terms of his due process right
to defend himself, the crux of his complaint is that he was not
11
allowed to present a particular defense.” Id. (citing United
States v. Uzenski, 434 F.3d 690, 708–09 (4th Cir. 2006)).
Ultimately, harmless error review applies: “[Arizona v.]
Fulminante[, 499 U.S. 279 (1991),] enumerated the wide variety
of constitutional errors subject to harmless error analysis,”
including the “erroneous exclusion of a defendant’s testimony
regarding the circumstances of a confession.” Sherman v. Smith,
89 F.3d 1134, 1137 (4th Cir. 1996) (en banc) (citing Crane, 476
U.S. at 691). “That analysis requires a reviewing court to
quantitatively assess the effect of the error ‘in the context of
other evidence presented’ at trial.” Id. at 1138 (quoting
Fulminante, 499 U.S. at 308).
Here, the district court did not permit testimony that some
of the March 23-28 email deletion accusations turned out to be
false, concluding that such evidence was irrelevant or confusing
or distracting for the jury, as the government would not be
presenting evidence as to that timeframe. Rand argues that this
unconstitutionally impinged his ability to present a complete
defense. Had he been allowed, Rand would have introduced the
following:
At the June 26 interview, Rand acknowledged deleting
some junk emails, as well as innocuous emails with a
colleague. He also truthfully denied deleting emails
with high-level Beazer personnel. However, Brown,
having just learned of the forensic analysis by
Philipp, accused Rand of “false[ly]” denying mass
email deletions. Beazer in turn fed that information
12
to the prosecution. In a later reverse proffer, the
prosecution told Rand it had forensic evidence that he
had deleted accounting-related emails. It was that
reverse proffer and the weight of alleged evidence
purportedly showing Rand had mass-deleted deleted
emails the week following the subpoena that prompted
Rand’s statements to the government.
Rand Br. 23 (internal citation omitted) (alteration in
original). We find no error, constitutional or otherwise, in
the district court’s ruling to exclude this evidence.
First, Rand was not “stripped of the power to describe to
the jury the circumstances that prompted his confession.”
Crane, 476 U.S. at 683. 2 While a case may “stand or fall on [the
defendant’s] ability to convince the jury that the manner in
which the confession was obtained casts doubt on its
credibility,” id. at 689, the district court did permit Rand to
“testify as to why he was induced into proffering,” J.A. 2664.
He was allowed to “truthfully respond to what was in his mind at
the time.” Id. The only thing Rand could not do was make
“reference to the fact that years later some of the information
2
The government argues that Crane is inapplicable, as Rand
is not asserting that his will was overborne by deliberately
coercive behavior. We find this argument unavailing as such a
reading of Crane is too narrow. In Crane, the Supreme Court
held that “the blanket exclusion of the proffered testimony
about the circumstances of petitioner’s confession deprived him
of a fair trial.” 476 U.S. at 690. The Court provided that
“entirely independent of any question of voluntariness,” a
defendant may introduce the same evidence at trial “to convince
the jury that the manner in which the confession was obtained
casts doubt on its credibility.” Id. at 689.
13
he was confronted with turned out to be false.” Id. Rand did
ultimately delete nearly 7,000 emails, including the 800 emails
deleted between March 23 and 28, despite their not being at
issue in the second trial. Further, as the government argues,
only a few slides of the PowerPoint that they presented to Rand
during the reverse proffer dealt with email deletion, and even
fewer contained any incorrect information.
Rand also argues that the district court’s ruling
specifically impacted Count 9, which charged him with “knowingly
and corruptly engag[ing] in misleading conduct” during the June
26, 2007, interview with Brown. 3 Rand Br. 31-32 (citing J.A.
52). Rand relies on his view of the government’s theory of
Count 9 from the first trial—that is, before the government
discovered that the bulk of the March 23-28 emails were not
deleted. Under this view, Rand explains that the government’s
“original theory of count 9” was that Rand told Brown that he
had deleted some emails that “he believed were largely junk,
‘similar to advertisements for the drug Viagra,’ as well as some
emails from particular ‘non-essential’ Beazer employees.” Id.at 32 (citing J.A. 38). After the interview, Brown received
information that Rand had deleted “a large number of e-mails
3
Rand notes that Count 11 incorporated by reference these
allegations, and so this argument also applies as exculpatory as
to Count 11.
14
involving” the current and former CFOs and the CEO. J.A. 322-
323. On receiving this information, Brown returned and
confronted Rand with this information, but Rand “offered no
corrections.” Id. As Counts 9 and 11 required proof of corrupt
intent, 18 U.S.C. § 1512(b)(3), (c)(2), Rand argues that “[h]ad
the jury learned that [he] truthfully denied the March 23-28
email deletions at the interview, the jury may have concluded,
in view of Rand’s overall conduct at the interview, that Rand
did not intend to mislead Brown or to hinder a grand jury
investigation.” Rand Br. 33.
We agree with the government that Rand’s argument falls
short here. At the second trial, Brown was only asked to
testify about the deletions on March 30, which “unquestionably
occurred.” Gov’t Br. 49 (referring to J.A. 1070). And again,
even if not as in as great a number as previously thought, Rand
did still delete a certain number of emails between March 23-28.
Thus we do not find that the district court abused its
discretion in excluding this evidence based on its relevance
weighed against potential juror confusion—the evidence was
“irrelevant to the crime charged.” See Malloy, 568 F.3d at 177.
Moreover, during both trials, Brown testified about Rand’s
constantly shifting position. E.g., J.A. 1072-73 (“[H]e
initially said that he did not delete any emails); id. at 1073
(“When we asked him about the week of the 23rd, I think he told
15
us that he might have deleted a couple of emails in this manner
[to clear out his inbox]. Mostly related to Viagra or some type
of -- sort of spam emails, but nothing else.”); id. at 1074
(describing how Rand “revise[d] his answers” and eventually told
Brown that “he deleted a series of emails from Cory Boydston
during one of those two weeks”). We can hardly say with any
certainty that a jury would have found Rand’s “overall conduct”
during the interview did not show an intent to mislead. 4
Finally, we find any error harmless. While any
harmlessness assessment should be sensitive to the “indelible
impact a full confession may have on the trier of fact,
Fulminante, 499 U.S. at 313 (Kennedy, J., concurring), we do not
find that Rand’s explanation as to the circumstances of his
confession would have countered the charges in light of the
overwhelming evidence at trial. Rand did in fact delete the
vast majority of the emails he was accused of deleting,
including one quarter of those during March 23 to 28. Rand had
the opportunity to present a vigorous defense, cross-examine the
4
Rand also argues that the excluded evidence went to
Brown’s credibility and bias, as Brown had a leading role in the
investigation and “had a substantial personal stake in ensuring
that his own mistakes . . . did not derail the prosecution.”
Rand Br. at 33. He also argues that the evidence was relevant
because he would have cross-examined other witnesses about their
knowledge of the veracity of his “confession,” and exclusion
prevented him the opportunity to ask whether and how these false
accusations biased their views. We find these arguments too
speculative to survive harmless error review.
16
government’s witnesses, and, albeit in a slightly limited way,
explain “what was in his mind” during his various interviews.
J.A. 2664. We do not find that Rand was ultimately prejudiced
by the omission.
III.
Rand next argues that several of the district court’s other
evidentiary rulings were improper. The Court reviews these
decisions for abuse of discretion. United States v. Richardson,
607 F.3d 357, 368 (4th Cir. 2010) (citing United States v.
Fowler, 932 F.2d 306, 311 (4th Cir. 1991)). An abuse of
discretion can occur “when the court uses an erroneous legal
standard or bases its decision on clearly erroneous facts.” Id.(citing United States v. Under Seal (In re Grand Jury), 478 F.3d
581, 584 (4th Cir. 2007)).
Rand first argues that the district court abused its
discretion in quashing his Federal Rule of Criminal Procedure
17(c) subpoena to Beazer. Rule 17(c) permits a defendant to
issue a subpoena duces tecum to compel the production at trial
of “books, papers, documents, data, or other objects.” Fed. R.
Crim. P. 17(c)(1). A district court “may quash or modify” the
subpoena “if compliance would be unreasonable or oppressive,”
Fed. R. Crim. P. 17(c)(2).
17
Rule 17(c) “is not intended to provide a means of pretrial
discovery; rather, its primary purpose is simply ‘to expedite
the trial by providing a time and place before trial for the
inspection of subpoenaed materials.’” Richardson, 607 F.3d at
368 (quoting United States v. Nixon, 418 U.S. 683, 689-99
(1974)). In United States v. Nixon, the Supreme Court held that
the requesting party bears the burden of showing
(1) that the documents are evidentiary and relevant;
(2) that they are not otherwise procurable reasonably
in advance of trial by exercise of due diligence; (3)
that the party cannot properly prepare for trial
without such production and inspection in advance of
trial and that the failure to obtain such inspection
may tend unreasonably to delay the trial; and (4) that
the application is made in good faith and is not
intended as a general “fishing expedition.”
418 U.S. at 699-700 (footnote omitted). The Court distilled
this showing into three requirements: “(1) relevancy; (2)
admissibility; [and] (3) specificity.” Id. at 700; see
Richardson, 607 F.3d at 368.
Rand argues that the Nixon test applies only to subpoenas
issued to the prosecution not to those issued to third parties.
Instead, Rand contends that the standard explicit in the rule
itself—unreasonable or oppressive—is the proper standard. While
the Nixon Court noted that the special prosecutor suggested that
the “evidentiary requirement” of the heightened standard did
“not apply in its full vigor” for subpoenas to third parties,
418 U.S. at 700 n.12, the Court determined that it “need not
18
decide whether a lower standard exists” because the district
court’s refusal to quash the subpoena was proper regardless.
Id.We have previously applied the Nixon test to third-party
subpoenas, e.g., Richardson, 607 F.3d 357; In Re Martin Marietta
Corp., 856 F.2d 619, 621 (4th Cir. 1988), but have not
specifically considered how the evidentiary requirement should
apply in that context. Thus, the issue appears to be one of
first impression. See Legal Servs. Corp. v. Velasquez, 531 U.S.
533, 557 (2001) (“Judicial decisions do not stand as binding
‘precedent’ for points that were not raised, not argued, and
hence not analyzed.”). No circuit court appears to have applied
the explicit standard apart from the Nixon standard, and Rand
cites only a handful of district courts that have done so. See
United States v. Al-Amin, No. 1:12-CR-50, 2013 WL 3865079, at *8
(E.D. Tenn. July 25, 2013) (noting that application of the lower
standard “is a distinct minority view”). Nonetheless, Rand
argues that the purpose for the heightened standard as to the
government—to not allow bypass of Rule 16 through Rule 17—does
not apply in the case of third parties. And application of the
higher standard is inconsistent with Rule 17(c)’s basic purpose
of “implement[ing] the Sixth Amendment guarantee that an accused
have compulsory process to secure evidence in his favor.” In Re
Martin Marietta Corp., 856 F.2d at 621 (citing California v.
19
Trombetta, 467 U.S. 479, 485 (1984)). Rand contends that in
document-intensive cases such as this one, requiring a defendant
to specify precisely what he wants hinders this guarantee.
We decline to adopt a lower standard for third-party
subpoenas under Rule 17(c) and find that the district court
applied the correct standard. In Nixon, the Supreme Court
reiterated that the subpoena duces tecum “was not intended to
provide a means of discovery for criminal cases.” 418 U.S. at698 (citing Bowman Dairy Co. v. United States, 341 U.S. 214, 220
(1951)). Importantly, the Court did not cabin this purpose to
discovery from the government. See id. Moreover, Rule 17(c) is
available to both the defense and prosecution. As to Rand’s
argument that the defense is hampered by the application of the
Nixon standard, one court has noted, “The right to defend
oneself does not extend to using the power of the Court to
compel third parties to provide information that may not even be
admissible at trial or at a hearing or that is merely
‘investigatory.’” Al-Amin, 2013 WL 3865079, at *7 n.3.
Finally, the Nixon standard is not at odds with our
interpretation of the explicit standard in Rule 17. A subpoena
should be quashed as unreasonable or oppressive if it is
“irrelevant; abusive or harassing; overly vague; or excessively
broad.” In re Grand Jury, John Doe No. G.J.2005-2, 478 F.3d at
585 (internal citations omitted) (considering a grand jury
20
subpoena and citing in part United States v. Loe, 248 F.3d 449,
466 (5th Cir. 2001), which applied this standard in the context
of a third-party trial subpoena). These map on quite well to
the Nixon standard of relevance, admissibility, and specificity.
See Nixon, 418 U.S. at 700.
As we find that the district court applied the correct
standard, we also find that the ruling was not an abuse of
discretion. Rand’s request to Beazer was to produce “accounting
entries, budgets, budget entries, and financial reports for
seven categories of reserve accounts over an eight-year period—
the timeframe of the alleged conspiracy.” Rand Br. 43-44. Rand
argues that these reports would have enabled him to show the
reasonableness of the reserve adjustments looking more broadly
at Beazer resources and over a period of time. We find that the
district court did not abuse its discretion in finding that Rand
failed to limit his request to entries in issue in the
prosecution’s case and to justify his broad request, instead
finding it more of a fishing expedition, frowned upon by Nixon.
We further decline to find error as to Rand’s other two
evidentiary claims. First, the district court did not abuse its
discretion in prohibiting Rand’s accounting expert from
testifying about work papers prepared by Beazer’s independent
auditors at Deloitte. The district court permitted him to
“offer his own opinion as to the legitimacy of [the] entries,”
21
but that he could not “bootstrap that opinion by the Deloitte
and Touche work papers which the court [did] not find reliable,”
as the court found that the Deloitte witness, Adams, said that
“he was not provided sufficient information” to make those
conclusions himself. J.A. 2475, 2479-80. The district court
did not abuse its discretion, especially where not all evidence
relating to the Deloitte work papers was excluded and Rand was
“free to call any of the auditors who did the work” to have them
testify about their findings. See Gov’t Br. 55.
Additionally, the district court did not err in allowing
the government to have Beazer employees testify as lay witnesses
about the propriety of complex accounting transactions without
calling an accounting expert to testify. Citing Federal Rules
of Evidence 701 and 702, Rand contends that lay witnesses may
not offer opinions about matters of “technical” or “other
specialized knowledge” requiring expert proof and that the
government needed an expert to explain accounting principles
such as setting reserve levels and analyzing historical costs
and projections of future costs.
We have previously affirmed the admission of lay-opinion
testimony in a securities-fraud case. United States v. Offill,
666 F.3d 168, 177 (4th Cir. 2011). Under plain error review, we
held that the district court “acted well within its broad
discretion” in admitting testimony including that the
22
defendant’s actions were “fraudulent,” “securities
manipulation,” and “illegal.” Id. at 177-78. While Rand
attempts to distinguish Offill by pointing out that the
government presented expert testimony in addition to the lay
witnesses who testified, here, Rand had opportunity to cross-
examine these lay witnesses to expose the apparent falsity of
their testimony, as well as having his own expert testify.
Furthermore, “[i]f the government proves that a defendant was
responsible for financial reports that intentionally and
materially misled investors, the statute is satisfied. The
government is not required in addition to prevail in a battle of
expert witnesses over the application of individual [Generally
Accepted Accounting Practice] rules.” United States v. Ebbers,
458 F.3d 110, 125-26 (2d Cir. 2006).
IV.
Rand takes issue with the government’s statements in its
rebuttal closing argument concerning Rand’s wealth, Rand’s
decision not to testify, and the government’s vouching for its
own witness. See Griffin v. California, 380 U.S. 609, 615
(1965) (unconstitutional to comment on defendant’s silence);
United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 239 (1940)
(class prejudice); United States v. Lewis, 10 F.3d 1086, 1089
(4th Cir. 1993) (bolstering).
23
As this issue raises questions of law, we review it de
novo. United States v. Collins, 415 F.3d 304, 307 (4th Cir.
2005). 5 Nevertheless, the claims are still subject to harmless
error review. Chapman v. California, 386 U.S. 18, 22 (1967);
Sherman, 89 F.3d at 1137 (noting that harmless error review
applies to errors such as improper comment on defendant’s
silence). That is, “[w]ith respect to claims of prosecutorial
misconduct, an appellant must show that the remarks were
improper and that they ‘prejudicially affected the defendant’s
substantial rights so as to deprive the defendant of a fair
trial.’” United States v. Baptiste, 596 F.3d 214, 226 (4th Cir.
2010) (alteration in the original) (quoting United States v.
Adam, 70 F.3d 776, 780 (4th Cir. 1995)). We have previously
laid out factors to consider in determining whether improper
remarks require reversal:
(1) the degree to which the prosecutor’s remarks have
a tendency to mislead the jury and to prejudice the
accused; (2) whether the remarks were isolated or
5 The government argues that plain-error review applies as
not all of these issues were raised contemporaneously to the
alleged error. See United States v. Brainard, 690 F.2d 1117,
1123 n.7 (4th Cir. 1982) (“A motion for a mistrial after the
summation is not, however, a substitute for an objection at the
time the prejudicial comments are made.”). But see United
States v. Williams, 106 F.3d 1173, 1176 (4th Cir. 1997) (noting
that either a “contemporaneous objection to the prosecutor’s
statements and [a] motion for a mistrial” will suffice). Here,
Rand objected to the prosecution’s bolstering of Curran and made
a timely motion for a mistrial based on class prejudice and
Rand’s silence.
24
extensive; (3) absent the remarks, the strength of
competent proof introduced to establish the guilt of
the accused; (4) whether the comments were
deliberately placed before the jury to divert
attention to extraneous matters [; ] . . . (5) whether
the prosecutor’s remarks were invited by improper
conduct of defense counsel [;] . . . and (6) whether
curative instructions were given to the jury.
Id. (quoting United States v. Wilson, 135 F.3d 291, 299 (4th
Cir. 1998)) (alterations in original). On all three of these
potential misconduct claims, Rand makes little attempt to
contend with any of these factors and fails to argue that any
error was not harmless. Accordingly, we affirm the district
court’s denial of a mistrial.
As to Rand’s class prejudice argument, Rand acknowledges
that in closing, his counsel made reference to a bag of gold:
“You remember the story about the Emperor With No
Clothes? In that story a weaver said to the Emporer
[sic], if you give me a bag of gold, I will make you
an invisible suit of clothes. . . . That’s what this
case is like, accounting entries, after accounting
entries whizzing by that you can’t put together, and
don’t add up.”
J.A. 3008-09. Rand argues, however, that the government
impermissibly expanded the analogy in rebuttal.
At the outset of its rebuttal, the government referred to
Rand’s wealth: “You just heard a story alright. It took a lot
of gold. A lot of gold. The defendant’s lawyers, all of them,
his experts, a lot of gold.” Id. at 3010; see also id. at 3012
(referring to Rand as “rich” in discussing testimony from Rand’s
25
wife); id. at 3019 (referring to Rand’s experts as being paid
$650 an hour to provide testimony helpful to Rand); id. at 3023
(“So you can go live in the story like the Emporer [sic] with no
clothes and listen to the story that was bought with gold, or
you can look at the facts.”).
We cannot find, as the government urges, that no error
occurred as the remarks were not a reference to Rand’s wealth,
only to the fact that Rand’s case was “built on the testimony of
compensated expert witnesses, none of whom had any personal
knowledge of what Rand did or did not do.” Gov’t Br. 62. These
conclusions are but two sides of the same coin. See United
States v. Farinella, 558 F.3d 695, 700-01 (7th Cir. 2009)
(finding prosecutorial misconduct where the government argued to
the jury about not “let[ting] the defendant and his high-paid
lawyer buy his way out of this”).
Nonetheless, considering the factors above, we conclude
that any error did not affect Rand’s substantial rights. The
remarks may not have been “isolated,” Baptiste, 596 F.3d at 226,
and no curative instructions were given, id. But we find no
evidence that the remarks were deliberately made to focus on
“extraneous matters,” id.; instead they were founded in, and
even inspired by, Rand’s closing—even if they ultimately
exceeded the scope of that context. Furthermore, given the
strength of the evidence presented throughout the trial, we do
26
not find that the comments overly misled the jury or prejudiced
Rand. Id.Considering Rand’s second argument that the prosecution
improperly commented on his decision not to testify, the right
of a defendant in a criminal trial “to remain silent unless he
chooses to speak in the unfettered exercise of his own will” is
guaranteed by the Fifth Amendment, Malloy v. Hogan, 378 U.S. 1,
8 (1964); see U.S. Const. amend. V; and the Constitution
“forbids either comment by the prosecution on the accused’s
silence or instructions by the court that such silence is
evidence of guilt,” Griffin, 380 U.S. at 615. We ask, “Was the
language used manifestly intended to be, or was it of such
character that the jury would naturally and necessarily take it
to be a comment on the failure of the accused to testify?”
United States v. Francis, 82 F.3d 77, 78 (4th Cir. 1996)
(quoting United States v. Anderson, 481 F.2d 685, 701 (4th Cir.
1973)).
Here again, we affirm the district court. In explaining
Rand’s earlier confession, the government described Rand’s
argument as “[t]he FBI is lying. And I [Rand] lied to the FBI
because I was desperate.” J.A. 3010. Returning to this idea,
the government said,
“But then he also said, but wait, I also lied to
the FBI because I was desperate. How those things fit
27
together I [the prosecutor] didn’t understand, maybe
you did.
So I heard that the FBI lied, I also heard that
Mr. Rand lied because he was desperate. Why was he
desperate? He didn’t say. Nor could he really,
because your lawyer can’t talk about your own beliefs,
they can just make arguments.”
Id. at 3012. The district denied the motion for a mistrial, as
it found that the jury could conclude that the “he” was
referring to Rand’s counsel’s silence, as counsel had just
spoken and claimed in argument that Rand made the confession
only because Rand was desperate. We do not find this conclusion
in error. While Rand argues that the jury would have understood
that the “he” was referring to Rand as “[t]he rebuttal argument
repeatedly referred to Rand’s theory about why Rand was
desperate,” Rand Br. 55 (referencing the government’s repeated
use of “I”), we do not find this to be the “necessar[y]”
conclusion the jury would draw. See Francis, 82 F.3d at 78.
Finally, Rand argues that the government improperly vouched
for Curran’s credibility. In rebuttal, the government argued
that if Curran lied, “he’s risking perjury. He’s risking the
loss of his career. There’s a federal judge sitting right there
going to put him in jail--.” J.A. 3011. Rand immediately
objected to this argument, and the district court sustained the
objection, but Rand contends that this was insufficient as the
court did not direct the jury to disregard it or give a curative
28
instruction. Cf. United States v. Forlorma, 94 F.3d 91, 95 (2d
Cir. 1996) (considering one of various factors and finding “we
cannot be confident that the judge’s unexplained ruling
dispelled the misperception that was likely caused by the
baseless argument”). The government importantly notes, however,
that although he objected, Rand did not ask for a curative
instruction, either at the time or later in the jury charge.
Again, we find any error harmless. Rand himself
acknowledges that Curran was “extensively cross-examined about
discrepancies between his trial testimony, his contemporaneous
notes of Rand’s proffer sessions, and his later write-up of
those notes.” Rand Br. 56. While Rand argues that, had the
jury doubted Curran’s testimony, it might have found reason to
doubt Rand’s confession as well, we do not find that the jury’s
determination of guilt or innocence “hinged entirely on the
credibility” of Curran such that any improper remarks affected
Rand’s substantial rights. See United States v. Gracia, 522
F.3d 597, 606 (5th Cir. 2008). Instead, given the overwhelming
evidence, including Curran’s testimony, supported in part by
Brown’s testimony and the physical evidence in the record, we
find the context of the error harmless.
29
V.
Rand finally challenges his sentence as procedurally
unreasonable, arguing that the district court erred in
determining the loss calculation by failing to apply the
principles from Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S.
336 (2005). As Rand objected at sentencing, the Court reviews
improper calculation of a guideline range de novo. United
States v. McManus, 734 F.3d 315, 318 (4th Cir. 2013).
Meanwhile, “[t]he determination of loss attributable to a fraud
scheme is a factual issue for resolution by the district court,
and we review such a finding of fact only for clear error.”
United States v. Keita, 742 F.3d 184, 191 (4th Cir. 2014)
(citation omitted).
U.S. Sentencing Guideline § 2B1.1 sets the offense level
for certain fraud offenses and requires an increase based on the
loss caused by the offense conduct, in accordance with a table
in § 2B1.1(b)(1). An application note instructs that “in a case
involving the fraudulent inflation or deflation in the value of
publicly traded security,” loss should be calculated based on
how the price of a security changed, “after the fraud was
disclosed to the market.” U.S.S.G. § 2B1.1 Application Note
3(F)(ix).
30
At sentencing, the parties debated which of Beazer’s three
public disclosures qualified as the date on which the “fraud was
disclosed to the market”:
June 27, 2007: Beazer announced that Rand had been
fired for “destroy[ing] documents” and that an
investigation was ongoing involving mortgage
origination and “related matters.” J.A. 4624.
August 10, 2007: Beazer announced that its
investigation “has discovered that [Rand] may have
caused reserves . . . to have been recorded . . . in
excess of amounts that would have been appropriate,”
but that the “investigation is ongoing” and that
Beazer did not “believe that the amounts . . . are
quantitatively material.” Id. at 4626.
October 11, 2007: Beazer summarized the findings of
its investigation, quantified the effects of Rand’s
reserve adjustments, explained the GMAC issue, and
informed the public that Beazer would restate its
financials. Id. at 4606-07.
The court determined that the fraud was disclosed in June
and August and that the loss to investors following those dates
was $135 million. Accordingly, the district court calculated an
offense level of 51 for a guidelines range of life imprisonment,
capped by the statutory maximum. The parties agreed that if the
October date were used, the resulting loss would be $0. Had the
district court used the loss amount following the October
disclosure, Rand’s offense level would have been 19, with a
range of 30 to 37 months. The court ultimately varied downward
from the guidelines range of life imprisonment and imposed a
ten-year sentence.
31
Drawing from principles in civil securities cases, Rand
argues that the proper date to consider was the October
disclosure. In the civil context, the Supreme Court has held
that to sustain a damages claim for civil securities fraud under
15 U.S.C. §§ 78j(b) and 78u–4, a plaintiff must show “a causal
connection between the material misrepresentation and the loss.”
Dura Pharms., 544 U.S. at 342. In so holding, the Dura Court
rejected the notion that stock overvaluation resulting from so-
called “fraud-on-the-market” may form the basis for a
plaintiff’s damages award in a private securities action. Id.at 341–43. That is, a shareholder’s claim that he bought stock
at a price that was artificially inflated due to fraud does not
state a claim for loss. Id.The Second and Fifth Circuits have suggested that the Dura
loss-causation principles apply to criminal securities fraud
cases. In United States v. Olis, 429 F.3d 540 (5th Cir. 2005),
the Fifth Circuit indicated, “The civil damage measure should be
the backdrop for criminal responsibility both because it
furnishes the standard of compensable injury for securities
fraud victims and because it is attuned to stock market
complexities.” 429 F.3d at 526 (citing Dura Pharms., 544 U.S.
at 341–43). Olis cited several out-of-circuit cases, including
various “cook the books” scenarios, and noted with approval that
“each case takes seriously the requirement to correlate the
32
defendant’s sentence with the actual loss caused in the
marketplace, exclusive of other sources of stock price decline.”
Id. at 547 (citing United States v. Snyder, 291 F.3d 1291 (11th
Cir. 2002); United States v. Bakhit, 218 F. Supp. 2d 1232, 1238
(C.D. Cal. 2002); United States v. Grabske, 260 F. Supp. 2d 866,
869-71 (N.D. Cal. 2002)). In United States v. Rutkoske, 506
F.3d 179 (2d Cir. 2007), the court stated, “[W]e see no reason
why considerations relevant to loss causation in a civil fraud
case should not apply, at least as strongly, to a sentencing
regime in which the amount of loss caused by a fraud is a
critical determinant of the length of a defendant’s sentence.”
506 F.3d at 179; cf. United States v. Nacchio, 573 F.3d 1062,
1078 (10th Cir. 2009) (“Courts in criminal cases have sought
guidance from civil damage measures in considering an estimate
of loss from the defendant’s unlawful conduct.” (citing Kevin P.
McCormick, Untangling the Capricious Effects of Market Loss in
Securities Fraud Sentencing, 82 Tul. L. Rev. 1145, 1153 (2008)
(“Faced with a myriad of new issues never encountered before in
the criminal context, the courts have turned to civil
jurisprudence for answers.”))) (considering profits for
sentencing). 6
6 The Fifth and Second Circuits nevertheless cautioned
against a strict application of Dura. E.g., United States v.
Gushlak, 728 F.3d 184, 196 n.9 (2d Cir. 2013) (“Although we rely
(Continued)
33
Meanwhile, the Third, Sixth, and Ninth Circuits have
declined to apply Dura in the context of criminal sentencing.
The Ninth Circuit, for example, has found the Dura Court’s
concern not relevant in criminal sentencing:
[I]n a private civil fraud action, a court gauges loss
from the perspective of the plaintiff-victim, i.e.,
whether the plaintiff can show the amount and cause of
loss he sustained. Because a civil plaintiff bears
the burden to show loss, it is logical to require that
the plaintiff show that any loss he sustained was
attributable directly to devaluation caused by
revelation of the defendant’s fraud. It likewise
follows that a plaintiff’s mere allegation that he
purchased overvalued stock is insufficient to state a
claim, because the allegation does not by itself
establish that the plaintiff personally incurred loss
commensurate with the overvaluation.
In criminal sentencing, however, a court gauges the
amount of loss caused, i.e., the harm that society as
a whole suffered from the defendant’s fraud. Whether
and to what extent a particular individual suffered
actual loss is not usually an important consideration
in criminal fraud sentencing. Therefore, where the
value of securities have been inflated by a
defendant’s fraud, the defendant may have caused
aggregate loss to society in the amount of the fraud-
induced overvaluation, even if various individual
victims’ respective losses cannot be precisely
determined or linked to the fraud. As a result, the
principle underlying the Dura Pharmaceuticals Court’s
reluctance to allow mere overvaluation as a basis for
establishing loss is generally not present in the
criminal sentencing context, and we are not persuaded
that it would be appropriate to expand the Dura
on authorities from each of these contexts to establish certain
general principles, we are mindful of important differences that
counsel against using authorities from these different contexts
interchangeably.”).
34
Pharmaceuticals rule to the criminal sentencing
context.
United States v. Berger, 587 F.3d 1038, 1044 (9th Cir. 2009)
(internal citations omitted); see also United States v.
Georgiou, 777 F.3d 125, 146 (3d Cir.), cert. denied, 136 S. Ct.
401 (2015); United States v. Peppel, 707 F.3d 627, 644-45 (6th
Cir. 2013).
We find the reasoning of the Berger court convincing and
adopt it here. Accordingly, we decline to adopt the Dura
principles in the criminal context. The district court thus
committed no clear error in determining the loss amount, and we
affirm the sentence.
Even assuming we found Dura’s principles applicable, the
district court’s finding would still stand. In Peppel, the
Sixth Circuit affirmed the amount-of-loss determination where
class actions had been filed alleging false inflation, newspaper
articles reported the allegations, and “less than a month later,
an announcement was made informing the investing public as
follows: ‘MCSi . . . today announced that it has learned of an
investigation of the Company by the [SEC] and has received a
subpoena from the SEC seeking production of documents . . . .’”
Peppel, 707 F.3d at 644 (alterations and omission in original).
The court determined that “[i]nformation concerning Peppel’s
fraud was thus generally available to the investing public.”
35
Id. Similarly here, we find that Beazer’s June and August
announcements sufficiently put investors on notice of fraud. We
are unmoved by Rand’s invocation of Loos v. Immersion Corp., 762
F.3d 880, 890 (9th Cir. 2014), as amended (Sept. 11, 2014)
(considering a motion to dismiss for failure to state a claim in
a civil case and holding that “the announcement of an
investigation, without more, is insufficient to establish loss
causation”). As in Peppel, here “it does not take a strong
inference to connect the publication of this information to the
near-immediate” losses to investors. 707 F.3d at 644. 7
Accordingly, we affirm the loss finding and Rand’s sentence as
procedurally reasonable.
VI.
For the foregoing reasons, the district court is
AFFIRMED.
7
We are unpersuaded by the government’s alternative theory
for affirming based on a rebuttable presumption in place at the
time of Rand’s sentencing. When Rand was sentenced, the
guidelines provided that loss to investors should be calculated
based on stock changes in a 90-day period after the fraud was
disclosed. U.S.S.G § 2B1.1 cmt 3(F)(ix). As this is no longer
the presumption in the current guidelines, and both parties,
their experts, and the district court agreed that such a method
was unreliable in this case, we decline to use this approach.
36