U.S. v. PAULDocket Nos. 09-3191-cr (L), 09-4147-cr (con).
634 F.3d 668 (2011)
UNITED STATES of America, Appellee,
Peter PAUL, Defendant-Appellant,
Stephen M. Gordon, Jeffrey Pittsburg, Charles Kusche, Jonathan Gordon, Defendants.
Peter PAUL, Defendant-Appellant,
Stephen M. Gordon, Jeffrey Pittsburg, Charles Kusche, Jonathan Gordon, Defendants.
United States Court of Appeals, Second Circuit.
Argued: February 17, 2011.
Decided: March 7, 2011.
Winston Y. Chan, Assistant United States Attorney ( Susan Corkery, Assistant United States Attorney, of counsel), for Loretta E. Lynch, United States Attorney for the Eastern District of New York, for Appellee. Harlan J. Protass, Clayman & Rosenberg LLP, New York, NY, for Defendant-Appellant.
Before: CABRANES, CHIN, Circuit Judges, and CROTTY, District Judge.
CROTTY, District Judge:
The evidence underlying the conviction, viewed "in the light most favorable to the prosecution," Jackson v. Virginia,
Between 1998 and 2000, Paul and others began artificially inflating the price of SLM stock by effecting trades between the nominee accounts, thereby making SLM stock appear to be more liquid, and thus a less risky, investment. Additionally, Paul created a false appearance of higher than actual demand by directing others to execute uptick trades immediately prior to the daily close of public trading. In order to profit from the inflated stock price without having to sell his stock, Paul drew on his nominee accounts to obtain margin loans totaling $12.6 million. Paul induced Merrill Lynch and Spear, Leeds to make the loans by fraudulently creating the nominee accounts, as he could not have properly obtained the loans otherwise. Eventually, the plot collapsed and SLM's stock price began to decline steadily, falling to $0.13 per share in December 2000. As a result, the Securities and Exchange Commission opened an investigation into the trading of SLM stock.
In December 2000, Paul suddenly departed for Brazil. On June 8, 2001, a grand jury in the Eastern District of New York returned a two-count indictment charging Paul with conspiracy to commit securities fraud and securities fraud. Between August 2001 and July 2003, Paul was incarcerated in Brazil, awaiting extradition to the United States. Paul was
On March 7, 2005, Paul pled guilty to Count Two of a two-count superseding indictment which charged Paul with securities fraud in violation of 15 U.S.C. §§ 78j(b) and 78ff. Paul remained in home detention with electronic monitoring until he appeared for sentencing more than four years later, on June 25, 2009. Ultimately, the District Court (Wexler, J.) sentenced Paul to 120 months' imprisonment, three years of supervised release, restitution of $11,479,035.32 and a $100 special assessment.
Paul appeals, arguing that the District Court (1) violated his Fifth Amendment right to speedy sentencing; (2) imposed an unreasonable sentence; (3) erred in its ordering of restitution; and (4) violated his Sixth Amendment right to a speedy trial. In a July 19, 2010 unpublished Order, we dismissed Paul's appeals relating to his right to a speedy trial and the reasonableness of the District Court's sentence because these appeals were barred by a waiver of appellate rights contained in Paul's plea agreement. On November 5, 2010, we granted Paul's motion for leave to file a supplemental letter brief asserting that the District Court violated Federal Rule of Criminal Procedure 11(c)(1) by improperly participating in plea negotiations. Paul's Rule 11(c)(1) argument is not foreclosed by his appellate waiver because it goes to the question of whether he entered his plea agreement knowingly and voluntarily. See United States v. Pearson,
For the following reasons, Paul's conviction and sentence are AFFIRMED.
I. Federal Rule of Criminal Procedure 11(c)(1)
Rule 11(c) outlines the procedure that the government and defense counsel must follow in coming to a plea agreement, and Rule 11(c)(1) specifically states that "[t]he court must not participate in these discussions." Fed.R.Crim.P. 11(c)(1). This rule is in place because such discussion "inevitably carries with it the high and unacceptable risk of coercing a defendant to accept the proposed agreement and plead guilty." United States v. Bruce,
In his letter-brief, Paul argues that the "district court violated Rule 11(c)(1) when it made statements at a December 29, 2004 conference that," according to Paul, "were intended to pressure and coerce Mr. Paul into pleading guilty, thereby casting doubt on the voluntariness of Mr. Paul's guilty plea approximately two months later." Def.'s Letter-Br. 2. Specifically, the District Court stated that:
J.A. 293-94. Paul argues that these statements compared a potential sentence following a guilty plea with a potential sentence following a guilty verdict and,
In addition, Paul alleges that a remark made by the District Court regarding his twenty-five months of incarceration in Brazil—"if he doesn't have a plea, he's not getting credit for that time"—was coercive, "misleading[,] and misstate[d] the law." J.A. 298; Def.'s Letter-Br. 3. In making his argument, Paul points out that only the Bureau of Prisons has the ability to credit him for the time spent incarcerated in Brazil.
The government argues that the statements did not violate Rule 11(c)(1) because (1) Paul did not plead guilty until two months after the District Court made the statements, (2) Paul was not present when the statements were made, and (3) the transcript of the proceeding at which the statements were made was sealed until several years after the guilty plea was entered. In addition, the government argues that all of the cases cited by Paul involved much more egregious conduct than the statements made by the District Court in this case, and that, with respect to the first set of remarks, the District Court was simply stating the sentencing law in effect at the time.
The Second Circuit's only significant decision regarding Rule 11(c)(1) is United States v. Werker,
The statements made by the District Court were made at a bail hearing, where counsel and the court were trying to fashion a package that would facilitate Paul's release. The hearing was in chambers and under seal. Toward the end of the hearing, the District Court made the first remark to which Paul now objects. The discussion was not about Mr. Paul, however, but rather about a trial date for all defendants. The District Court made the observation that trial dates produce pleas because defendants gain an advantage by pleading. Paul did not hear the District Court's remarks because he was not present. Although it may be possible that his attorney conveyed the substance of the remarks to him, no fair-minded reader of the transcript at issue would conclude that the remarks rose to the level of a violation of Rule 11(c)(1).
This case is most analogous to United States v. Bierd,
The first set of remarks made in this case are similar to the remarks in Bierd in context and in scope. In both cases, the comments were made in a context having little to do with plea discussions. And in both cases, the statements suggested that a guilty plea would cause a reduction in sentence—an accurate reflection of the sentencing law in effect at the time. As such, the First Circuit's common-sense conclusion that it "sense[d] a distinct qualitative difference between statements found to require vacat[ur] and the comments made" in Bierd guides our decision here. Id. at 21. The District Court's remarks were "impromptu, unemphatic, and unrepeated," id., and, therefore, did not violate Rule 11(c)(1).
The second remark made by the District Court is even less concerning, as Paul clearly takes this remark out of context. A review of the surrounding discussion clearly indicates that the District Court was actually trying to secure Paul's release on bail, not trying to coerce a plea. Specifically, the District Court said "he's been over four years in jail. That's a long period of time." J.A. 298. The Assistant United States Attorney then stated that Paul was "getting credit for every minute" of the time he had spent incarcerated. Id. The District Court disagreed: "[n]o, he isn't." Id. The rest of the conversation continued as follows:
Id. 298-99. Whether or not the District Court was correct or had the authority to comment on whether Paul would get credit for the time he spent incarcerated is of no moment. Given the context of the remark, it was not coercive in any way, shape, or form. The District Court's comments begin and end with its concern about getting Paul released on bail. "The rule against judicial participation in plea bargaining protects the parties against implicit or explicit pressure to settle criminal cases on terms favored by the judge. It does not establish a series of traps for imperfectly articulated oral remarks." Frank, 36 F.3d at 903.
Even if the District Court's remarks constituted error (which they do not), such error was certainly harmless. Paul was not present when the remarks were made
In sum, the District Court did not err in the circumstances presented here. Paul's requested relief is, accordingly, denied.
II. The Right to a Speedy Sentencing
Since Paul did not raise an objection in the District Court relating to his right to a speedy sentencing, we review his claim for plain error. See United States v. Keppler,
"[T]o determine whether a defendant has been deprived of [his] due process right to a prompt sentencing, we must consider  the reasons for the delay as well as  the prejudice to the accused." United States v. Ray,
A. Reasons for the Delay
In considering the reasons for the delay, the Supreme Court has instructed that "different weights should be assigned to different reasons." Vermont v. Brillon, ___ U.S. ___,
In the instant case, a large portion of the roughly four year delay before sentencing was due to the government's inability to provide the Probation Department with certain evidence for calculating restitution and to allow a new Assistant United States Attorney to familiarize himself with the case. There is, however, no evidence to suggest that this was an intentional—or anything more than an inadvertent—delay. In any event, negligence on the part of the government does not weigh as heavily as would an intentional delay.
"To prove a due process violation as a result of a sentencing delay, the prejudice claimed by the defendant ... must be substantial and demonstrable." Ray, 578 F.3d at 200 (citing Perez v. Sullivan,
Paul first argues that the uncertainty of his fate left him "in limbo" with respect to employment prospects and his ability to make future arrangements for his family. Indeed, delay in sentencing "postpones the commitment of the defendant to corrections facilities, may have a detrimental effect on rehabilitation, and suspends the appellate review of error." Ray, 578 F.3d at 198. These harms, however, inevitably accompany any delay in sentencing and do not, in and of themselves, satisfy the "substantial and demonstrable" prejudice requirement. See id. at 200.
Paul also contends that he took steps towards rehabilitation, such as reestablishing ties with his family and helping shareholders recover hidden assets from SLM. In developing this argument, Paul attempts to draw a comparison between himself and the defendant in Ray. This comparison, however, is unavailing. The defendant in Ray waited fifteen years for her sentencing hearing. Ray, 578 F.3d at 187, 200. Believing that her involvement with the criminal justice system was behind her, she obtained employment and paid taxes, married and raised a family, owned a home, and obtained higher education. Id. at 201. On the contrary, however, Paul waited four years for a sentencing hearing, all the while remaining in home detention. Thus, at no time did Paul believe that the matter was behind him, nor did he have the opportunity to fully reintegrate into society.
Lastly, Paul claims that his incarceration was detrimental to his autistic son, who had become reliant on Paul during the interim period. The son's doctor reported that the child was "very attached to his father," and voiced concern that Paul's incarceration might have a detrimental effect on the child. J.A. 457. The doctor also, however, noted that the effect of Paul's incarceration could have been ameliorated by "allow[ing] some time to help prepare [Paul's son] for this transition." Id. Given the several delays in Paul's surrender date, Paul and his son undoubtedly had such a transition period. In sum, Paul does not cite any authority to support a finding of prejudice for family circumstances and has not specifically shown how the delay has prejudiced him in this respect.
In Ray, the Court expressly emphasized the narrowness of its holding. Ray, 578 F.3d at 202. Specifically, the Court noted that "[e]ven substantial delays in sentencing do not in all circumstances amount to a due process violation, especially when a defendant has not requested timely sentencing and is unable to establish prejudice of the sort implicated here." Id. Paul's is not the "unusual case where the dictates of fundamental fairness clearly compel [the
Accordingly, Paul's requested relief is denied.
III. Restitution Under the Mandatory Victims Restitution Act
At Paul's sentencing hearing, there was extensive discussion regarding restitution. According to the original Presentence Investigation Report ("PSR"), the total losses to all victims—including losses to individual investors and losses to Merrill Lynch and Spear, Leeds—was $28,596,827.23, but the only losses attributable to Paul's securities fraud were the losses to the individual investors, totaling $15,945.849.47. The government conceded, however, that the losses to the individual investors could not be properly quantified, and therefore argued that the only restitution that could be properly imposed on Paul would be the losses to Merrill Lynch and Spear, Leeds, totaling $12,650,978.00. Later in the hearing, the probation officer noted that the $12,650,978.00 figure related to bank fraud and not the "security [sic] fraud that [Paul] pled guilty to." J.A. 400. As a result of this confusion, the Court reserved decision on the restitution issue.
The Court held restitution hearings on July 15, 2009 and July 23, 2009. By then, the Probation Department concluded that it had erred in not including the total losses that Merrill Lynch and Spear, Leeds sustained. Accordingly, the District Court imposed restitution to Merrill Lynch in the amount of $3,828,057.56 and to Spear, Leeds in the amount of $7,650,977.76.
We review restitution orders "deferentially" and will reverse only for abuse of discretion. United States v. Pearson,
18 U.S.C. § 3663A(a)(2). In determining the proper amount of restitution, a court must keep in mind that "[t]he loss must be the result of the fraud." United States v. Rutkoske,
The pertinent question here is whether the losses to Merrill Lynch and Spear, Leeds can be considered losses resulting from the securities fraud to which Paul pled guilty. The Probation Department initially took the position that the loss to the financial institutions was the result of bank fraud, not securities fraud. In its Second Addendum to the PSR, however, the Probation Department "concluded that it erred" and changed its position based on Paragraph 26(d) of the Second Superseding Indictment which alleged:
Paul argues that Merrill Lynch and Spear, Leeds are not properly characterized as victims because their loss was not a direct and proximate cause of Paul's securities fraud. He contends instead that their loss was caused by (1) the declining stock price which left the institutions "without valuable collateral to use to recover funds loaned to [Paul]," and (2) bank fraud, including fraudulently obtained loans. Def.'s Br. 55-57. Specifically, Paul points out that the government conceded at the June 25, 2009 sentencing hearing that it could not establish a causal link between Paul's conduct and the drop in the price of SLM stock. According to Paul, it follows that there is no causal link between Paul's securities fraud and the loss to Merrill Lynch and Spear, Leeds, as he contends that their losses came solely as a result of the drop in share price.
The government responds, however, that the margin loans were "an integral part of the larger securities fraud." Gov't Br. 13. Without the loans, the government contends, Paul would not have been able to profit from the scheme without selling his holdings of SLM stock, an event that would have depressed the share price.
As part of his allocution at the March 7, 2005 plea hearing, Paul explicitly admitted that:
J.A. 324. Because these loans were admittedly a significant part of the greater fraud, the necessary "causal nexus" unquestionably exists between Paul's conduct, the margin loans, and the losses to Merrill Lynch and Spear, Leeds. The brokerage houses would not have made the loans to Paul had they known that the collateral for the loans was the stock he manipulated through the nominee accounts.
Paul, however, also argues that even if he is responsible for the losses to Merrill Lynch and Spear, Leeds, the District Court was required, under our decision in United States v. Rutkoske,
In the instant case, however, the loss to Merrill Lynch and Spear, Leeds was not caused by the decline in value of SLM stock but, rather, by the making of the loans in the first instance. For this reason, the instant case is more analogous to our decision in United States v. Turk,
The same logic guides us here. The fact that independent market forces may have contributed to the decline in SLM stock held by Merrill Lynch and Spear, Leeds is irrelevant to the restitution calculation, because the stock was merely securing the fraudulently-obtained loans. The loss to the brokerage houses resulted from Paul's inducement of the loans, and it is for this loss that Paul must provide restitution.
Accordingly, the District Court did not abuse its discretion in imposing the restitution. The restitution order must, therefore, be affirmed.
We have considered all of Paul's arguments on appeal and find them to be without merit. For the foregoing reasons, Paul's conviction and sentence are AFFIRMED.
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