Rook and Role

United States v. Skys, No. 09-5204-cr (2d Cir. February 23, 2011) (Jacobs, Kearse, Straub, CJJ)

In August of 2007, Eric Skys approached Citigroup and claimed that his company, Kaiser-Himmel Corp., owned 13.4 million shares of Sprint Nextel Corp. stock, with a market value of approximately $240 million. He told Citigroup that transfer of the shares was restricted for another fourteen months, but that he wanted to raise immediate cash by pledging the shares to Citigroup in exchange for an $83 million dollar loan. Citigroup’s due diligence revealed that Skys’ claims were false and that the documents he had presented were forgeries. Skys approached three other financial institutions with the same scheme, again without success. He ultimately pled guilty to securities, wire and bank fraud.

At sentencing, his presentence report described additional, albeit uncharged, fraudulent conduct. Skys solicited investments in a fake software company and also cheated a Florida dentist out of $300,000, then tried to take him for another $2 million, again claiming he owned 13.4 million shares of Sprint stock.

At sentencing, over objection, the district court included a two-level enhancement for ten or more victims and a four-level enhancement for aggravating role. These contributed to a final range of 235 to 293 months. The district court varied downward, and imposed a below-Guideline prison term of 130 months.

On appeal, Skys raised the same sentencing issues, and the circuit agreed with him to some extent. While it did not hold that the court should not have applied the enhancements, it concluded that the district court’s findings were insufficient. It accordingly vacated the sentence and remanded the case so that the district court could supplement the record and, if necessary, resentence Skys.

For the ten-victim enhancement, only victims that suffer an actual loss qualify. Here, the district court did little more than adopt the fact findings in the presentence report, which indicated only that Skys tried to defraud four financial institutions, none of which suffered an actual financial loss. And, while some of the individuals victimized by the uncharged conduct suffered an actual loss, there was no evidence that there were ten or more of them. Thus, the court of appeals concluded that there was no way it could engage in “meaningful review” of the enhancement.

It reached a similar conclusion for the role enhancement. The aggravating role enhancement applies where the defendant was an organizer or leader of a criminal activity that involved five or more participants or was “otherwise extensive.” Here, the district court applied only the “otherwise extensive” theory, concluding that “this was an extensive scheme.” Here, again, the circuit found the findings to be insufficient.

The circuit has interpreted the “otherwise extensive” language to refer primarily to the number of persons involved, either knowing or unknowing, and the extent to which the the unknowing participants were necessary to the success of the scheme. Here, the district court did not identify a single other “participant” - a person with criminal responsibility for the commission of the offense - and gave no “objectively reviewable explanation” for its conclusion that Skys’ criminal activity was “extensive.”

Role Away

United States v. Labbe, No. 08-0673-cr (2d Cir. December 4, 2009) (Newman, Pooler, Katzmann, CJJ)

About a week before Labbe’s sentencing, the district court issued a written Sentencing Opinion describing the sentence it was likely to impose. The Opinion included a 4-level role reduction for Labbe’s “minimal” participation and announced that “Labbe is hereby sentenced to ... 57 months.” The Opinion noted, however, that this was “subject to modification at the sentencing hearing.”

Before sentencing, the government sent a letter to the court objecting to the role reduction, but at the sentencing hearing itself the defense focused its arguments primarily on the loss calculations, apparently assuming that the judge had decided to keep the role reduction. The judge asked the government a few questions about the relative participation levels of Labbe and his co-conspirators, then announced that the “government’s argument and its reading of the guidelines with respect to the minor and minimal participants is right.” He imposed a sentence 30 months longer than that contained in the Sentencing Opinion.

On appeal, Labbe argued that the district court’s change of heart was not supported by adequate findings. The court of appeals agreed. It held that the Sentencing Opinion had given Labbe an “expectation” that he would be sentenced to 57 months. Under the advisory Guidelines, a court need not give notice of its intention to impose a non-Guideline sentence. But here, the Sentencing Opinion created an “expectancy” that was more like that created by the mandatory Guidelines and “gave rise to the need for notice that a significant change was likely” so that Labbe would have a chance to oppose the contemplated change.

The court did not rule on the merits because it concluded that the district court’s findings on the issue were insufficient for appellate review. The appellate court was uncertain whether the judge changed his mind because he (1) attributed more misconduct to Labbe than he had originally found, (2) was interpreting the guideline differently than before, or (3) had simply reassessed the significance of the facts under the same legal standard that he had used in the Sentencing Opinion.

The court accordingly remanded the case for a de novo sentencing, at which the defense - now alerted to the judge’s inclinations - would have a “full opportunity to argue for the adjustment.”

On a Role

United States v. Ware, No. 07-5222-cr (2d Cir. August 18, 2009) (Kearse, Sack, Hall, CJJ)

For five months in 2001 and 2002, Ware, an attorney, ran a “pump and dump” scheme, in which entities he controlled issued fraudulent, and supposedly independent, press releases promoting two penny stocks that he owned. When other investors acted on the false releases, the stocks went up and Ware sold his shares, earning a profit of more than $200,000. He was convicted of securities and wire fraud offenses, and the district court sentenced him to 97 months’ imprisonment.

On appeal, he represented himself pro se, raising a host of trial and sentencing issues. In this long opinion, which covers little real new ground, the court affirmed the conviction, but remanded for further sentencing findings on a leadership role enhancement.

The trial evidence revealed that Ware had three associates in the scheme: Jones and Epps, two young securities traders that he hired to find small companies to promote, and to draft press releases; and a clerical assistant, Williams, who helped distribute the releases.

At sentencing, the district court imposed a four-level leadership role enhancement under U.S.S.G. § 3B1.1(a). This section applies where the defendant was an “organizer or leader of a criminal activity that involved five or more participants” or was “otherwise extensive.” Circuit precedent requires highly specific findings on leadership role: it is “not enough for the court merely to repeat or paraphrase the language of the guideline and say conclusorily that the defendant meets those criteria.” Nor is it sufficient to adopt the PSR if the “PSR itself does not state enough facts to permit meaningful appellate review.”

Here, the district court's findings were too general. The court noted that the scheme “obviously involved ... five or more participants and unknowing participants and was otherwise extensive.” By “unknowing participants” the court meant “the wire services that published [the] false press releases.” The court also noted that the scheme “took place over a period of time.”

The circuit, on plain error review, since Ware did not object to the enhancement at sentencing, had “several difficulties with this explanation.” First, the findings did not identify the “five or more” participants, and the trial record produced only “four obvious” candidates. In addition, the court faulted the district court’s inclusion of the wire services through which Ware distributed the press releases as “unknowing participants.” Under § 3B1.1(a), a “participant” must have criminal exposure, and the record did not support a finding that the wire services could be criminally liable. The district court also made insufficient findings on the alternative, “otherwise extensive,” basis for the enhancement. Its observation that the scheme “took place over a period of time,” was, “standing alone,” insufficient, since the scheme spanned only five months. Nor did Ware’s use of wire services make the activity “otherwise extensive.”

The court accordingly remanded the case for additional findings on the leadership role enhancement.

Gambling Problem

United States v. Ivezaj, No. 06-3112-cr (2d Cir. June 11, 2009) (Feinberg, Miner, Parker, CJJ)

Six defendants were convicted of racketeering and related offenses arising from their efforts to break the hold that New York City’s traditional organized crime families had on illegal gambling.

The primary challenge on appeal concerned two RICO predicate acts that alleged violations of New York state’s extortion statute. In New York, extortion involves compelling another person to “deliver ... property” to himself or a third person through fear of a future injury. “Property” is any personal property or “article, substance or thing of value ... which is provided for a charge or compensation.” The defendants argued that control over illegal intangible property such as a gambling operation was not “property” and could not be “delivered.”

The circuit disagreed. Surveying New York case law, the court first concluded that the state recognizes that intangible property - for example, a tenant’s right to occupy an apartment - is covered by the extortion statute. New York courts have also held that “illegal tangible goods,” such as narcotics, can constitute “property.” From those two propositions, the circuit readily concluded that illegal intangibles are also “property” under New York law.

The circuit’s own Hobbs Act jurisprudence bolstered this conclusion. Indeed, the court in 2006 held that “intangible property rights can qualify as extortable property under the Hobbs Act,” whether legal or not.

The court characterized the defendants’ claim that control over an illegal gambling business could not be “obtain[ed]” or “deliver[ed]” as “imaginative but overly literal,” since New York courts have already held that intangible property rights can be extorted.

Relatedly, the defendants also claimed that one of their beating victims was not a “victim” of the inchoate extortion offense, since he was not an “owner” of the extorted property. The court held that, since the defendants were charged with attempt and conspiracy offenses, it was sufficient that the defendants thought he was an owner.

Finally, the defendants challenged their § 924(c) convictions, which related back to the substantive racketeering count, arguing that racketeering did not constitute a “crime of violence.” Applying the traditional “categorical approach” to both the racketeering statute and the statutes underlying the predicate acts, the court disagreed. “[W]here the government proves (1) the commission of at least two acts of racketeering and (2) at least two of those acts qualify as ‘crime[s] of violence’ under § 924(c)," a racketeering conviction serves as a predicate for a § 924(c) conviction.

Finally, the court tackled an open Guidelines question in racketeering cases. One defendant challenged his aggravating role enhancement on the ground that the district court should have looked only to the conduct alleged in the charged RICO predicates, and not to his role in the enterprise as a whole. The circuit disagreed, adopting the reasoning of a Seventh circuit case. In racketeering prosecutions, role adjustments function just as they do in any other prosecution: the sentencing court is to look to the count of conviction and all relevant conduct.