Wednesday, December 10, 2014

First Circuit Reverses Sentence in Securities Fraud Case -- Remands for Sentencing Court to Reduce Loss by Value of Stock Received by Victims

In fraud cases, loss is central in determining the guideline sentencing range.  Under the guidelines, “loss” is not necessarily the actual loss suffered by the victims.  If the intended loss is greater than the actual loss, then that figure will drive the guideline calculation.  It is also important to determine whether victims received something of value for the money they were tricked into paying.  If they did, then the loss must be reduced by its fair market value.  USSG § 2B.1.1, App. Note 3(E)(i).  That was not done in a recent case involving a sting operation in which a cooperating witness and an FBI agent posed as a hedge-fund manager.   Under the scheme, the “hedge-fund manager” pretended to arrange for his clients to purchase penny stock at inflated prices.  The “hedge-fund manager” would receive a 50% kickback disguised as a “consulting fee” – of which the lead defendant would receive a 10% commission.  After the lead defendant persuaded executives from small companies to participate in the scheme, he and another participant were charged with conspiracy to commit securities fraud, in violation of 18 U.S.C. 1349, as well as wire fraud in violation of 18 U.S.C. § 1343.  They were convicted after trial.  At sentencing, each defendant was sentenced to 30 months’ imprisonment after the court rejected defense counsels’ objection to the PSR’s inclusion of the full price the victims paid for the stock.  On appeal, the government conceded that loss is normally reduced by the value received, but argued that in this case that the stock was worthless since the shares solder were “restricted,” which means that they were not fully transferrable or salable.  The Court of Appeals rejected this argument, noting that while restricted shares are less valuable, they still have some value.  The Court vacated the sentences and remanded for resentencing.  UnitedStates v. Prange, 2014 WL 5659648 (1st Cir. Nov. 5, 2014)

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