United States v. Steve Hale (4th Cir, 5/17/17): Fences, Addicts, and Stolen Goods, Oh My! The Fourth Circuit Upholds Denial of Willful Blindness Jury Instruction.

This is an important case because of the attention it directs to the willful blindness jury instruction. Steve Hale was convicted of a whole host of violations– transporting stolen property in interstate commerce, knowing the goods to have been stolen, conspiring to do the same, of making false statements on his tax returns, failing to collect and pay employee taxes, and obstructing justice. His main argument on appeal was that the District Court judge erred in giving the jury a willful blindness instruction that informed the jury that he knew the property at issue was stolen. He raised other challenges, but the most interesting other claim (in my humble opinion) relates to the statements the government made to the jury during closing argument.

Essentially this scheme involved a number of drug addicts in and around the Gastonia, North Carolina area who would go into stores and shoplift large amounts of over the counter medications and health and beauty aids.  They operated in groups of 2-4 people. These addicts would then take their bounty and hand them over to a fence. The fence would then remove the stickers and other identifying information that showed that the goods were coming from a particular store. Then these fences would sell the materials to Hale who would then sell these products on the secondary market.

During the course of its investigation, law-enforcement surveillance showed that one particular fence, “Bridges”, regularly delivered stolen merchandise to Hale’s warehouse. Bridges and others delivered their products in plastic garbage bags, plastic storage bins, and boxes. Hale paid cash for the merchandise that was delivered. On October 20, 2010, agents intercepted a FedEx shipment from the warehouse to another person in the Boca Raton, Florida area. In that shipment were items that the officers had marked with an ultraviolet light prior to having a cooperating witness sell the items to Bridges. In short, law enforcement was tracking where some of these materials were being transported. Later, law-enforcement executed a search warrant at Hale’s warehouse and found numerous shelves with merchandise, and a “cleaning station” where there were different products for use to remove stickers, sensors, and glue.

At trial, numerous witnesses testified to their relationships with one another and with Hale. A number of these people met at flea markets, where apparently there is a vibrant trade in moving stolen goods. Who knew? One witness testified that Hale told him that he made $18,000 in a “bad month.” Apparently trafficking in stolen goods can be a very lucrative endeavor.

At the end of the government’s case, Hale made a motion for a judgment of acquittal that the district court denied. Hale’s attorney also objected to the district court’s decision to provide the jury with a willful blindness instruction. After conviction, Hale received a 97 month prison sentence.

On appeal, Hale argued that the District Court judge erred in giving the jury a willful blindness jury instruction. As the Court notes, for a jury to convict Hale of transporting stolen goods in interstate commerce, the government had to prove that Hale knew that the goods he was transporting were stolen.  See 18 U.S.C. §2314.   In order to meet this burden of proof, the government could either show that Hale actually knew the materials were stolen, or by presenting evidence that he had made himself deliberately ignorant of the fact that the goods were stolen.  It is a deeply rooted principle of law that criminal defendants cannot escape the reach of criminal statutes by shielding themselves from clear evidence of critical facts that are so strongly suggested by the circumstances.  Global-Tech Appliances, Inc. v. SEB S.A, 563 U.S.754, 766 (2011); see also United States v. Jinwright, 683 F.3d 471 (4th Cir. 2012).  The application of the willful blindness doctrine has two basic requirements: (1) the defendant must subjectively believe that there is a high probability that a fact exists, and (2) the defendant must take deliberate actions to avoid learning of that fact.”  Global-Tech Appliances, 563 U.S. at 769.   Here, the Court found there was ample evidence to support that Hale knew there was a high probability that the goods he was buying and selling were stolen. He testified at trial that based on his prior experience he knew there was a very big risk of people selling over the counter medicine and health and beauty aids at flea markets could be first level fences who had bought the goods at deep discounts from professional shoplifters. And the Court also found that Hale took deliberate actions to avoid confirming the goods were stolen because he was careful never to ask his fence about where she was receiving her items or why so many of her goods were marked with stickers indicating that they belonged on the shelves of local stores. The Court also continued to show that Hale fully knew the goods were stolen, including evidence that he tried to disguise his suppliers’ identities.  In short, the Court found sufficient evidence existed to support the willful blindness jury instruction.

Hale also argued that the willful blindness instruction that the District Court judge gave was inaccurate, but the Fourth Circuit disagreed, finding that, considered as a whole, the jury instruction “accurately and fairly state[d] the controlling law.” United States v. Rahman, 83 F.3d 89, 92 (4th Cir. 1996).

Hale also raised on appeal the argument that the prosecutor engaged in misconduct by presenting a closing argument that focused on how Hale denigrated the community by feeding individuals’ addiction, and by indirectly lining the pockets of drug dealers. He argued that this blatant appeal the passions and prejudices of the jury was improper and deprived him of a fair trial. Unfortunately for Mr. Hale, he did not object to this argument at trial. For that reason, the Fourth Circuit reviewed the claim under the plain error standard. The court rejected the claim and found that in light of the strength of the government’s case, the prosecutor’s remarks did not substantially prejudice Hale’s substantial rights resulting in the deprivation of his right to a fair trial.  That’s too bad, because this argument was clearly improper.

An unfortunate conviction for Hale, but a good primer on the willful blindness jury instruction for others.

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United States v. Shalhoub (11th Cir., 4/28/17); Fugitive Disenfranchisement Doctrine, and a Bunch of Remedies that the Eleventh Circuit Declines to Apply to Appellant’s Case

I like this case because it implicates a number of legal remedies that one does not ordinarily encounter during the course of things, and legal remedies are fun. Here, Shalhoub is a citizen of Saudi Arabia and lives there now.  Formerly, he was married to an American citizen with whom he had a child.  The specifics are not laid out, but it appears that while he and his child were in Saudi Arabia, a decision was made to stay there in violation of the child custody arrangements made during the course of their divorce.  All this happened roughly 20 years ago and Shalhoub was indicted on one count of international parental kidnapping in violation of 18 USC §1204.

Fast forward and Shalhoub wanted to hire a lawyer to appear for him in the United States and contest the indictment.  He did not want to show up himself.  The district court said, “no way” and Shalhoub appealed arguing that the denial of his right to have a lawyer appear on his behalf while he is a fugitive from justice is an immediately appealable collateral order and, if not, that the 11th Circuit should issue a writ of mandamus to compel a ruling on the motion to dismiss the indictment without requiring him to appear in court.

The fugitive disentitlement doctrine allows a district court to “sanction or enter judgment against parties on the basis of their fugitive status.”  Magluta v. Samples, 162 F.3d 662, 664 (11th Cir. 1998).  Essentially, courts do not like it when people flee from their jurisdiction.  This doctrine discourages flights from justice and protects the dignity of the courts.  Ortega-Rodriguez v. United States, 507 U.S. 234 (1993).  Shalhoub argued that application of this doctrine to his case was error.  The 11th Circuit found that it lacked jurisdiction over this case because a final judgment has not been entered.  The “final judgment rule” prohibits appellate review of a pretrial order in a criminal case “until conviction and imposition of sentence.”  Flanagan v. United States, 465 U.S. 259, 263 (1984).  An exception to the final judgment rule is the “collateral order doctrine” which allows review of an order that (1) conclusively determines the disputed question, (2) resolves an important issue completely separate from the merits of the action, and (3) is effectively unreviewable on appeal from a final judgment.”  Since Shalhoub was neither convicted nor sentenced, the Eleventh Circuit found it did not have jurisdiction.

Shalhoub also argued the Court could decide the case under the doctrine of “marginal finality.” An order that presents a question of “marginal” finality “fundamental to the further conduct of the case” is immediately appealable.  Gillespie v. U.S. Steel Corp., 379 U.S. 148, 152, 154 (1964).  As the Court notes, however, that case was limited to the unique facts of that particular case. The Court once again declined and found that it was inconsistent for a litigant to assert that the Court has appellate jurisdiction under the collateral order doctrine, which requires the issue resolved to be completely separate from the merits, and the marginal finality doctrine which addresses the review of intermediate issues “fundamental to the further conduct of the case.”  See Alt. Fed. Sav. & Loan Ass’n of Ft. Launderdale v. Blythe Eastman Paine Webber, Inc., 890 F.2d 371, 377 (11th Cir. 1989).

And lastly, the Court declined the petition for writ of mandamus, noting that such a “drastic and extraordinary” remedy that they are clearly NOT going to extend to someone who stole his kid and refuses to submit to the jurisdiction of the United States courts.  As the Court noted on a few occasions in this opinion, Shalhoub just needs to come to court and figure out this whole mess.  My guess is that he will continue in his fugitive status.  No love for Shalhoub from the 11th Circuit.  Great lawyering, though.

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US v. Diaz (2013 WL 322243) and US v. Hayes, 948 F.Supp.2d 1009 (2013): Two federal district judges disagree with the Federal Sentencing Guidelines policies regarding drug trafficking sentences.

These two important opinions offer thoughtful rebukes to the often draconian sentences imposed in federal court on defendants convicted of drug trafficking offenses.

First, Judge John Gleeson of the Eastern District of New York issued this Memorandum Explaining a Policy Disagreement with the Drug Trafficking Offense Guideline. Judge Gleeson was asked to sentence Ysidro Diaz, who was convicted of attempting to sell a kilogram of heroin to an undercover agent.  Because of the weight and type of drug, he was charged to the mandatory minimum 10-year sentence dictated under the federal sentencing guidelines.  Judge Gleeson has a fundamental policy disagreement with the length of imprisonment recommended by the United States Sentencing Commission’s Guidelines manual because it produces sentencing ranges that are “excessively severe.”  He finds these guidelines to be “deeply and structurally flawed.”

The flaw is simply stated:  the Guidelines ranges for drug trafficking offenses are not based on empirical data, Commission expertise, or the actual culpability of defendants.  If they were, they would be much less severe, and judges would respect them more.  Instead, they are driven by drug type and quantity, which are poor proxies for culpability.

Id. at 1.

The opinion fully fleshes out Judge Gleeson’s argument, but he provides a helpful roadmap at the beginning.  His argument is essentially this:

  • District Judges are authorized to disagree on policy grounds with the Guidelines;
  • I disagree on policy grounds with the Guidelines range for drug trafficking offenses because they are not based on empirical data and national experience;
  • Those ranges are excessively severe because they subject all drug trafficking defendants to the harsh weight-driven regime the ADAA (Anti -Drug Abuse Act of 1986, passed after Len Bias died of a drug overdose) intended only for managers and leaders of drug organizations;
  • Those ranges are not now and have never been “heartland” sentences;
  • The drug trafficking offense guideline has been a major contributor to the dramatic increase in the federal prison population;
  • The Commission should “de-link” the drug trafficking Guidelines range from the ADAA’s weight-driven mandatory minimum sentences and use its resources,
  • knowledge, and expertise to fashion fair sentencing ranges for drug trafficking offenses. In the meantime, it should reduce those ranges by a third;
  • The Commission should make the drug trafficking offense guideline more sensitive to factors directly relevant to culpability, including the defendant’s role in the offense, and less sensitive to drug type and quantity;
  • The Commission’s stated reasons for refusing to de-link the drug trafficking Guidelines ranges from the mandatory minimum sentences are wrong;
  • The Commission should welcome (rather than seek to stifle as it currently does) policy disagreements expressed by sentencing judges;
  • The federal judiciary has repeatedly told the Commission that the drug trafficking Guidelines ranges should be de-linked from the mandatory minimum sentences, and the Commission should stop ignoring that message;
  • Whatever else it does or fails to do, the Commission should at least desist from its current practice of freighting the debate over adherence to the Guidelines with suggestions of racial disparity.

Judge Gleeson found that the fact that drug quantity is a poor proxy for culpability has been evident for two decades. A Department of Justice report in 1994 found that “[r]egardless of the functional role a defendant played in the drug scheme, the drug amounts involved in the offense are similar across the roles.”  Therefore, defendants with very different roles–whether peripheral or central to the drug scheme, were receiving the same sentences.  U.S. DEP’T OF JUSTICE, NAT’L INST. OF JUSTICE, AN ANALSYSIS OF NON-VIOLENT DRUG OFFENDERS WITH MINIMAL CRIMINAL HISTORIES 120 (1994).

Judge Mark Bennett of the Northern District of Iowa cited to Judge Gleeson’s opinion in U.S. Hayes.  In Hayes, Bennett notes his policy disagreement with the guidelines applicable to methamphetamine.  Noting that he has the authority to depart from the Guidelines based on policy disagreement, see e.g. Spears v. United States, 555 U.S. 261, 263-67 (2009) (per curiam), Kimbrough v. United States, 552 U.S. 85, 109-10 (2007), he proceeded to do so in this case.   Judge Bennett shares nearly all of the same concerns voiced by Judge Gleeson, including, most notably, that drug weight is a very poor proxy for criminal culpability. Judge Bennett’s opinion also identifies some interesting, methamphetamine-specific facts.  For example, in 2010, a mandatory minimum sentence applied in 83.1% of all methamphetamine cases, the highest rate of any drug type.  More than 58% of these received some relief from the mandatory minimum at sentencing.  Also no other drug is punished more severely based on purity, a fact that makes little empirical sense when you consider a courier or mule has no idea what the purity of the product may be.  It makes no sense to sentence someone in that role more harshly than one moving around a lesser-pure product.  Judge Bennett’s opinion also cites to a number of other decisions where federal district court judges have announced their policy disagreements with the drug trafficking guidelines, so practitioners should be aware that additional opinions abound. For practitioners representing federal clients on drug charges, these opinions offer thoughtful and important arguments that may benefit your client.

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US v. Donald T. Hill (App. No. 15-4639) (4th Cir., filed 3/30/17): Prolonged Detention of Car Stop; Important Dissent by Judge Davis.

This is an interesting case addressing law enforcement’s prolonging a roadside detention. The short of it is that law enforcement is not particularly obligated to be efficient during a stop as it conducts its duties. Here, law enforcement was patrolling a neighborhood in Richmond, Virginia. They saw a car that slightly exceeded the posted speed limit, and then that car crossed a solid yellow line. They decided to pull the car over.  Time:  6:01. The driver of the car (not Hill) immediately stepped out of the car, but got back in when the officers told him to. One of the officers recognized this guy as someone who hangs out with people connected to robberies. He also recognized Hill, who was the passenger, as someone who had been the victim of a stabbing incident.

Hill was unable to produce identification.  The officer then entered the names of both guys into the National Crime Information Center (NCIC) database. About three minutes passed and the database returned an “alert” notifying the officer that both men had been associated with drug trafficking and were “likely armed.” The officer also realized that the driver had a suspended license. Time:  6:04.  The officer started writing summons for the driver– for reckless driving and suspended license. He also called for a K-9 unit.

The officer then stopped writing the summonses so he could check an additional database, PISTOL (“Police Information System Totally On Line”) which tracks every person who has prior contacts with Richmond police officers.  At the hearing, the officer testified this can be a lengthy process because PISTOL produces a list of all people who have the same name.  In this case, PISTOL produced a list of 8-9 people with the same name as the driver. The officer spent 3-5 minutes reviewing that list. While this officer was checking out PISTOL, the other cop was making small talk (yeah, right) with the driver and Hill.  This officer asked them three times whether they had drugs or firearms in the car.  After the third ask, Hill told him that he had a gun on him. The officer immediately yelled, “gun!” and the other officer assisted in securing Hill and taking his gun. As this was going on, the K-9 unit arrived.  The court found that approximately 20 minutes elapsed between the time of the stop and the moment that the officer yelled “gun!”.

Hill argued on appeal that the officers unlawfully extended the duration and scope of the traffic stop in violation of Hill’s Fourth Amendment rights. Specifically, he challenged one officer’s decision to talk with him and the driver instead of assisting the other officer searching the databases and writing the summonses. He also challenged the decision to request the K-9 unit and to search the PISTOL database.

Hill did not challenge the initial basis for the stop so the Court focused on the question of whether the “manner of execution [of the stop] unreasonably infringe[d]” on Hill’s rights under the Fourth Amendment.  Illinois v. Caballes, 543 U.S. 405, 407 (2005).  If a traffic stop is extended in time beyond the period that the officers are completing tasks related to the traffic infractions, the officers must either obtain consent from the individuals detained or identify reasonable suspicion of criminal activity to support the extension of the stop.  United States v. Williams, 808 F.3d 238, 245-46 (4th Cir. 2015).  The United States Supreme Court has recently clarified that extending a stop, even a de minimis length of time violates the Fourth Amendment. Rodriguez v. United States, 135 S. Ct. 1609 (2015).   In assessing the reasonableness of a stop, the Court will consider “what the police in fact do,” and whether the officers acted reasonably under the totality of the circumstances.  Rodriguez at 1616.

Here’s what cops get to do:

  • An officer may engage in certain safety measures during a traffic stop, but generally must focus on the initial basis for the stop.  United States v. Palmer, 820 F.3d 640, 649 (4th Cir. 2016).  An officer may engage in “ordinary inquiries incident to” the traffic stop, such as inspecting the driver’s license and license to operate the vehicle, has insurance, and whether driver has outstanding warrants.
  • Officers may also engage in other investigative techniques unrelated to the traffic infraction or the safety of the officers, but only so long as that activity does not prolong the roadside detention for the traffic infraction.

The Court quickly found that the officers’ actions in this case did not improperly prolong the detention, but also found that this case does not present a case of officers being intentionally dilatory in their duties.  The Court offers a very important final paragraph:

In sum, the Supreme Court’s decision in Rodriguez does not require courts to second-guess the logistical choices and actions of a police officer that, individually and collectively, were completed diligently within the confines of a lawful traffic stop.  We emphasize, however, that we are not confronted here with an officer’s decision to execute a traffic stop in a deliberately slow or inefficient manner, in order to expand a criminal investigation within the temporal confines of the stop without reasonable suspicion of criminal activity or consent of those detained.  In such a case, an officer’s actions delaying the completion of the stop may compel a different conclusion than the one we reach here.  In the present case, however, we hold that because the evidence shows that the officers acted with reasonable diligence in executing the tasks incident to the traffic stop, and the stop was not impermissibly expanded in scope or time beyond the pursuit of the stop’s mission, the district court did not err in denying Hill’s motion to suppress.

Judge Davis authored an important dissent, noting that Hill was not the driver of this car, he was merely the passenger.  Davis finds the purpose of this stop to be “well known to all of us”– this was a narcotics and firearms investigation, undertaken in the absence of reasonable suspicion that a narcotics or firearms violations were occurring.  As Judge Davis notes:  “the ill-fated “War on Drugs” has a sometimes overlooked and unmentioned casualty:  the Fourth Amendment.”  Davis would have reversed the denial of the motion to suppress pursuant to Rodriguez.

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Salman v. United States, 580 U.S.__ (2016) Insider Trading, What Does the Tipper Have to Get for it to be Criminal?

Short answer:  Nothing.

Longer answer:  Section 10(b) of the Securities Exchange Act of 1934 and Rule 10(b)(5) prohibit undisclosed trading on inside corporate information by individuals who are under a duty of trust and confidence (“fiduciary duty”) that prohibits them from secretly using that information for personal advantage. This is typically called “insider trading.” If someone does this, they are subject to criminal and civil liability. But ALSO, these people who have the insider information, may not give that information to others for trading, either. The “tippee” acquires the “tipper’s” duty to disclose, or duty to abstain from trading, if the tippee knows the information was disclosed in breach of the tipper’s duty.  In Dirks v. SEC, 463 U.S. 646 (1983), the Court held a tipper breaches his or her fiduciary duty when the tipper discloses the inside information for personal benefit. A jury can infer personal benefit where the tipper receives something of value in exchange for the tip or “makes a gift of confidential information to a trading relative or friend.”  Id. at 664.

Here, Salman challenged his convictions for insider trading. Salman received trading tips from an extended family member who had received the information from Salman’s brother-in-law.  Salman traded on that information.  He argued that he could not be held liable as a tippee because the tipper (his brother-in-law) did not personally receive money or property in exchange for the tips and therefore did not personally benefit from them.  The Second Circuit Court of Appeals disagreed and held that Dirks allowed the jury to infer that the tipper breached a duty because he made a “gift of confidential information to a trading relative.”  792 F.3d 1087, 1092 (CA9 2015).

The Facts

Maher Kara was an investment banker with Citigroup. He handled matters of mergers and acquisitions involving Citigroup’s clients. Kara was close to his older brother, Mounir Kara (“Michael”). He began discussing his work with Michael.  Michael began to trade on the information he was getting from his brother regarding these mergers and acquisitions.  Michael began to feed this information to others, including Salman. Maher knew about it. Salman knew the information was coming to him by way of the breach of a fiduciary duty. By the time the authorities caught on, Salman made over $1.5 million in profits that he split with another relative who executed trades on Salman’s behalf. After he was convicted, Salman was sentenced to 36 months of prison and $730,000 in restitution.

The Result

The Court had little problem finding a violation here which is not surprising. As it held in Dirks, a tippee is exposed to liability for trading on inside information only if the tippee participates in a breach of the tipper’s fiduciary duty. Whether the tipper breached that duty depends “in large part on the purpose of the disclosure” to the tippee. 463 U.S. at 662. “[T]he test is whether the insider personally will benefit, directly or indirectly, from his disclosure.” Ibid. Specifically, the Court found that “[t]he elements of fiduciary duty and exploitation of nonpublic information also exist when an insider makes a gift of confidential information to a trading relative or friend.”

So, it does not matter that the initial tipper did not receive any monetary or other financial reward. What matters is that the information to Michael was a “gift of confidential information to a trading relative” and that Salman knew that when he traded.  The Court found Salman’s conduct “in the heartland” of Dirks‘s rule concerning gifts:

            It remains the case that “[d]etermining whether an insider personally benefits from a particular disclosure, a question of fact, will not always be easy for courts.”  463 U.S., at 664.  But there is no need for us to address those difficult cases today, because this case involves “precisely the ‘gift of confidential information to a trading relative’ that Dirks envisioned.”  792 F.3d 1092 (quoting 463 U.S., at 664).

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State v. Alphonso Thompson (App. No. 27706), SC Supreme Court win on Search Warrant Issue!

This is a very important case for all criminal defense practitioners handling drug cases.  Essentially, the Court holds here that it is willing to kick convictions of massive quantities of drugs if law enforcement cannot meet the (really, quite low) standards of showing probable cause in the search warrants it obtains from judges.  From the opinion, it appears that Thompson had been on law enforcement’s radar for awhile, because the warrant references events that occurred years before the warrant was actually obtained from the judge.  But, despite that, the warrant itself was not particular enough to justify the search of the residence on that particular date. That’s a problem.   The Court articulates the law:

In determining whether a search warrant is supported by probable cause, the crucial element is not whether the target of the search is suspected of a crime, but whether it is reasonable to believe that the items to be seized will be found in the place to be searched.  Zurcher v. Stanford Daily, 436 U.S. 547, 556 (1978) (emphasis in opinion).  In South Carolina, the judicial officer asked to issue a search warrant must make a practical, common sense decision concerning whether, under the totality of the circumstances set forth in the affidavit, there is a fair probability that evidence of a crime will be found in the particular place to be searchedState v. Tench, 353 S.C. 531, 534, 579 S.e.2d 314, 316 (2003) (emphasis in the opinion).

Here, the Court found that only two pieces of information in the affidavit tied drug activity to the address listed in the affidavit:  1) a 2009 hearsay statement that cocaine was delivered there “on several different occasions” and 2) the assertion that “in the six months preceding the affidavit, investigators ‘witnessed Thompson visit this 120 River Street address just before making cocaine deliveries throughout Spartanburg.'” Neither statement, the Court concluded, either independently or read together, demonstrates a sufficiently specific indication that the drugs Thompson was allegedly selling were being accessed at that address on or near May 2010 (when the warrant was executed).  In fact, the Court notes, assertions in the affidavit contained no specific facts showing any connection between drug-related activity and the searched address after February 2009.

Based on all this, the Supreme Court reversed the Court of Appeals’ decision finding the search warrant was sufficient.  Excellent advocacy by both trial counsel and appellate counsel, Michael Patrick Scott of Nexsen Pruet in Columbia, South Carolina.

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USA v. Mitchell Stein (11th Cir. 2017, filed 1/18/17), Lawyer Behaving Badly, But Not THAT Badly.

The Crime: Stein was convicted after a two-week trial during which he represented himself (never, ever a good idea which Stein knows because he is a lawyer).  He was convicted of securities, wire, and mail fraud.  The fraud was not particularly clever– he sent three press releases to his securities lawyer regarding purported purchase agreements with non-existent customers. He also enlisted others (who testified against him at trial) to create bogus purchase orders to substantiate the press releases.  All this was in support of a medical device company owned by his wife.  In August 2008, this company, “Signalife” filed a quarterly SEC form that indicated the “cancellation” of one of these bogus purchases.  The district court found this filing, which put investors on notice that the stock was overvalued, marked the end of the fraudulent time frame.

The Big Issue here was calculating the actual loss to investors due to the fraudulent behavior. The Government proposed, and the district court accepted, a “buyer’s only” method. Under this method, the court would consider only those customers who purchased the stock during the time frame of the fraudulent behavior, value the amount of those purchases, and then subtract the value of those shares at the end of the fraudulent period.  The court found that there were 2,415 investors who purchases the stock during that period and that they lost $13,186.025.85. Understandably, Stein objected to this method.  He argued there was no evidence that the 2,415 investors actually relied on his false press releases or other fraudulent information, nor did the court consider extrinsic market factors that may have also influenced the value of the stock (for example, the 2008 financial crisis).  Based on the losses the court found, it sentenced Stein to 17 years in prison.  In financial fraud cases, the loss calculation often drives the sentence.  See, e.g., United States v. Olis, 429 F.3d 540, 545 (5th Cir. 2005)

The Court reviews “a district court’s interpretation of the Sentencing Guidelines de novo, and the determination of the amount of loss involved in the offense for clear error.”  United States v. Maxwell, 579 F.3d 1282, 1305 (11th Cir. 2009). A district court’s determination that a person or entity was a victim for purposes of loss calculation is an interpretation of the guidelines, so it is reviewed de novo. United States v. Martin, 803 F.3d 581 (11th Cir. 2015). A district court’s determination of proximate cause, however, is part of the court’s determination of the amount of loss involved in the offense and, thus, is reviewed only for clear error.  Id.  “We will overturn a court’s loss calculation under the clear-error standard where we are left with a definite and firm conviction that a mistake has been committed.”  United States v. Campbell, 765 F.3d 1291, 1302 (11th Cir. 2014).

There are two ways to measure loss under USSG §2B1.1, actual and intended loss, and the court is instructed to take the greater of the two.  USSG §2B1.1, cmt. n.3(A). The Government bears the burden of proving by a preponderance of the evidence actual loss attributable to a defendant’s conduct.  United States v. Rodriguez, 751 F.3d 1244, 1255 (11th Cir. 2014). Actual loss is defined as the “reasonably foreseeable pecuniary harm that resulted from the offense.”  Campbell at 1302.  The Government did not argue “intended loss” so the court did not address it.

Reliance (Factual causation)

The parties agreed that the Government must show that the investors relied on the fraudulent information to satisfy the “but for” causation requirement.  The parties disagreed as to what the showing must entail.  According to the Court, the Government can show reliance through direct or specific circumstantial evidence. Requiring individualized proof of reliance for each investor is often infeasible or impossible.  See Basic Inc. v. Levinson, 485 U.S. 224, 245 (1988) (recognizing in civil securities fraud context that requiring direct proof of reliance may be “an unnecessarily unrealistic evidentiary burden on the Rule 10b-5 plaintiff who has traded on an impersonal market”).   In cases involving numerous plaintiffs, the Government could, instead, offer specific circumstantial evidence from which the district court could conclude that all of the investors relied on the defendant’s fraudulent information.  Here, the Government did neither.

The Court found that the record did not contain any direct, individualized evidence to demonstrate reliance for each investor, and that the circumstantial evidence in the record was far too limited to support a finding that 2,415 investors relied on the information that Stein disseminated.  The evidence the Government put up was the following: 1) trial testimony from one investor that he relied on one of Stein’s false press releases, 2) a victim impact statement from another investor to the same effect, 3) a number of victim impact statements suggesting that the investors relied on press releases and other publicly available information generally, but not specifically the fraudulent information Stein disseminated, and 4) testimony that, because the only place to get information about the company’s stock was from press releases and public filings, at least some investors likely relied on this type of information.   In other words, very thin record, here.

Intervening Events (Legal causation)

The causation standards for determining actual loss under the Sentencing Guidelines and for restitution purposes are similar.  When calculating actual loss for either purpose, the district court should take into account intervening events contributing to the loss unless those events also were reasonably foreseeable to the defendant.  Stein argued the district court erred because it failed to consider the stock devaluation caused by the short selling of the company stock and the across-the-board stock market decline of 2008. The Court agreed.

The Court upheld Stein’s conviction, but remanded on the issue of the value of the actual loss and the effect, if any, of any intervening causes in that valuation. Given how sentences, in the federal system, are nearly always a function of the pecuniary loss, it’s surprising that the Government did not take more care in presenting its case in the first place. But I think this is a very fair result. 17 years for this crime seems unjustifiably harsh.  But also, it’s time for Stein to hire himself a lawyer.

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Ashish Sijapati v. Boente (4th Cir, filed 2/1/17), Visa Holders Should Take Care in Travelling Abroad

This is another published immigration case out of the Fourth Circuit this week and highlights the dangers of non-citizens travelling abroad while seeking residency in the United States.  Here Sijapati was found to be removable under 8 USC 237(a)(2)(A)(i) because he was convicted on December 12, 2007 of a crime involving moral turpitude that occurred more than five years after he was first admitted to the United States which occurred on January 25, 2001.  The Board of Immigration Appeals (“BIA”), however, relying on its decision in Matter of Alyazji, 25 I.&N. Dec. 397 (BIA 2011), determined that Sijipati’s relevant “date of admission” was January 18, 2003, the date he was most recently admitted to the United States after taking a brief vacation abroad.

  • Sijipati entered the US on a nonimmigrant L-2 visa on January 25, 2001.
  • On December 31, 2002, he took a two- and-a half week vacation to Nepal (his home country), and re-entered the US on January 18, 2003 pursuant to his L-2 visa.
  • On March 16, 2005, he was approved for adjustment of status as a lawful permanent resident (LPR).
  • On December 12, 2007– more than five years after his initial admission, but less than 5 years after he returned from his brief vacation, he was convicted of felony embezzlement and received an 18 month suspended sentence.

The Department of Homeland Security sought his removal.

The question here involves interpreting the phrase “date of admission” in Section 237(a)(2)(A)(i).  In interpreting the statute, the Court recognized it is bound by Chevron U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984) (“Chevron deference”) which is to say, the Court is bound by the agency’s interpretations of its own statutes.  The “Chevron inquiry” is this:  First, the Court must consider “whether Congress has directly spoken to the precise question at issue.”  Chevron, 467 U.S. at 842.  If Congress’s intent is clear, then the inquiry comes to an end.  If the statute is silent or ambiguous as to the specific issue, then the Court must determine “whether the agency’s answer is based on a permissible construction of the statute.”  Id. at 843.  If so, then it is to be followed.  The Court concluded that Alyazi’s construction of “the date of admission” was entitled to deference.

One interesting point in this case is that, had Sijapati been a LRP at the time of his travel, his brief trip would not have factored into his “date of admission.”  As the Court notes, Congress has repeatedly made the decision to treat different classes of non-citizens differently.  In this context, Congress chose to provide nonimmigrants with lesser privileges than lawful permanent residents, and that’s okay.  Unfortunately for Sijapati, it means that he must return to Nepal after spending the last 16 years in America.

A cat at Boudhanath Kathmandu also known as little Tibet, Nepal

Ihar Sotnikau v. Lynch (4th Cir., filed 1/24/17), Involuntary Manslaughter NOT a Crime of Moral Turpitude re: Removal Proceedings. Also, Appreciate How the Rule of Law Protects Immigrants in Practice.

Sotnikau, a native of Belarus, was a lawful permanent resident of the US.  He was subjected to a removal proceeding because authorities decided that his conviction, for involuntary manslaughter, was a crime of “moral turpitude.”  He sought asylum, withholding of removal, and protection under the Convention Against Torture (“CAT”).  After various hearings, he lost these claims, the lower courts finding that involuntary manslaughter, under Virginia statute, was a crime involving moral turpitude.

An alien is subject to removal per 8 USC 1227(a)(2)(A)(i) if he “is convicted of a crime involving moral turpitude committed within five years . . . after the date of admission” and “for which a sentence of one year or longer may be imposed.”  Sotnikau fit the bill here since he was admitted in 2009 and his crime occurred in 2010.  A crime involving moral turpitude “must involve conduct that not only violates a statute but also independently violates a moral norm.”  See Mohamed v. Holder, 769 F.3d 885, 888 (4th Cir. 2014); see also id. (“[W]e have noted that ‘moral turpitude’ refers generally to ‘conduct that shocks the public conscience as being inherently base, vile, or depraved.'” (quoting Medina v. United States, 259 F.3d 220, 227 (4th Cir. 2001).  That is, “to involve moral turpitude, a crime requires two essential elements:  a culpable mental state and reprehensible conduct.”  In re Ortega-Lopez, 26 I.&N. Dec. 99, 100 (BIA 2013).  “Where knowing or intentional conduct is an element of an offense,” the BIA has “found moral turpitude to be present.”  See In re Perez-Contreras, 20 I.&N. Dec. 615, 618 (BIA 1992).  Those circumstances involve criminally reckless conduct, but NOT criminally negligent conduct because “there [is] no intent required for conviction, or any conscious disregard of a substantial and unjustifiable risk.”  Id. at 619.

In Virginia, involuntary manslaughter is “the accidental killing of a person, contrary to the intention of the parties, during the prosecution of an unlawful, but not felonious, act, or during the improper performance of some lawful act.”  See Gooden v. Commonwealth, 311 S.E.2d 780, 784 (Va. 1984).  As the Court found, an involuntary manslaughter conviction could be secured in Virginia without proving a conscious disregard of risks attendant to the offender’s conduct.   Crimes involving criminal negligence are generally excluded from the category of crimes that involve moral turpitude.  See e.g., Rodriguez-Castro v. Gonzales, 427 F.3d 316, 323 (5th Cir. 2005) (collecting decisions and recognizing that “negligence-based crimes usually do not amount to [crimes involving moral turpitude]”).   Finding no reason to depart from that, the Court granted the petition for review, vacated the final BIA order, and remanded for further action.

This is what the Rule of Law looks like under our current immigration law paradigm.  Trump’s recent immigration executive order would allow removal proceedings against persons like Mr. Sotnikau based only on a “belief” that they have committed a crime.  As everyone is currently aghast at the travel ban, please do not forget that this sort of movement against immigrants is also afoot. Remain vigilant.

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US v. Kofi Agyekum, No. 15-4479 (4th Cir, filed 1/24/17), Disagreement on Enhancement Based on Abuse of Position of Trust

Mr. Agyekum found himself in a whole bunch of trouble due to his criminal plan to illegally sell oxycodone pills out of his pharmacy in West Virginia.  In addition to simply illegally filling fraudulent prescriptions, he also fudged his bank deposits to hide this activity (by making a number of deposits at a level below $10,000 which triggers certain federal notice provisions).  Much of this opinion details the specifics of Agyekum’s conduct, and– frankly– his rather amateurish attempts to hide his ill-gotten profits.  What’s most interesting here is the sentencing discussion.

Agyekum argued on appeal that the district court erred in calculating his sentenced based on two enhancements– 1) leadership role (USSG 3B1.1(c)) and 2) abuse of a position of trust (USSG 3B1.3).

The overarching design of the Guidelines is aimed at sentencing defendants in substantial part for “the actual conduct in which the defendant engaged regardless of the charges for which he was indicted or convicted.”  USSG 1A1.4(a).  “Thus, despite the limited scope of conduct for which the defendant was convicted, he may nonetheless be sentenced more broadly for relevant conduct.”  United States v. McVey, 752 F.3d 606, 610 (4th Cir. 2014).  USSG 1B1.3 defines relevant conduct to include “all acts and omissions committed . . .by the defendant . . . that occurred during the commission of the offense of conviction, in preparation for that offense, or in the course of attempting to avoid detection or responsibility for that offense.”  USSG 1B1.3(a)(1)(A).  The Court held “when defining “relevant conduct,” the term “during” conveys a linkage that is more than a mere temporal overlap; it also conveys a qualitative overlap such that the conduct must be related or connected to the crime of conviction.  See United States v. Wernick, 691 F.3d 108, 115 (2nd Cir. 2012) (holding that “[o]ne criminal act does not become ‘relevant’ to a second act under 1B1.3(a)(1)(A) by the bare fact of temporal overlap” and that there must also be “proof of a connection between the acts”).

Long legal analysis short, the Court found that, even though Agekum only pleaded guilty to the money structuring violations, his illegal drug distribution plan was still “relevant conduct.”

As to the enhancements:

Leadership:  The Court agreed with the district court that Agyekum had a leadership role based on these factors:  1) that the pharmacy would fill out-of-state prescriptions, 2) that the pharmacy would only accept cash for filling oxycodone prescriptions, 3) that the pharmacy charged different prices depending on the risk involved in the transaction; and 4) that those seeking to fill suspicious oxycodone prescriptions were also required to submit prescriptions for non-controlled substances.  Also, he handed all the money, and controlled the bank accounts.  Dude ran the business.

Trust:   According to the majority opinion, Agyekum qualified for this enhancement due to his clear abuse of his positions of trust with his drug distributors (by not purchasing drugs to serve legitimate purposes) and the West Virginia Board of Pharmacy (by altering computer records to avoid proper reporting).

Judge Wynn, while agreeing with most of this, disagreed with the district court’s enhancement based on his abuse of a position of trust (and his colleagues’ adoption of it).  He argues that a defendant’s abuse of trust must be effected “in a manner that significantly facilitated the commission of the offense.”  USSG 3B1.3.  Also, “[w]hether a defendant held a position of trust must be assessed from the perspective of the victim,” United States v. Abdelshafi, 592 F.3d 602, 611 (4th Cir.), cert denied, 562 U.S. 874 (2010, and “[t]here must be a trust relationship between [the defendant] and his victim for the enhancement to apply,” United States v. Moore, 29 F.3d 175, 180 (4th Cir. 1994).   Judge Wynn argues that the majority fails to establish that a trust relationship existed between Appellant and either the Board of Pharmacy or the distributor.  Appellant was, in fact, a pharmacy intern since he flunked his pharmacy boards.  The pertinent West Virginia statute deprived him of managerial discretion since he was not actually a pharmacist (his wife is a licensed pharmacist).  Therefore, the trust relationship existed between the Pharmacy Board and Agyekum’s wife.  But also, there was not a trust relationship between Agyekum and his distributors since “an ordinary commercial relationship between the perpetrator and victim is insufficient to support the abuse of trust enhancement.”  United States v. Akinkoye, 185 F.3d 192, 204 (4th Cir. 1999).

An interesting disagreement on the nature of “abuse of trust” for purposes of sentencing enhancements under the Federal Sentencing Guidelines.

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