Federal Appeal - Tim Durham, James Cochran, Rick Snow Federal Appeal - Part 1

Case: 12-3819
Document: 34-1
Filed: 09/09/2013
Pages: 109
Nos. 12-3819, 12-3833 and 12-3867
United States Court of Appeals for the Seventh Circuit

UNITED STATES OF AMERICA, Plaintiff-Appellee, v. TIMOTHY S. DURHAM, JAMES S. COCHRAN, AND RICK D. SNOW, Defendants-Appellants. On Appeal from United States District Court for the Southern District of Indiana Case No. 11-CR-00042 CONSOLIDATED BRIEF AND SHORT APPENDIX OF DEFENDANTS-APPELLANTS TIMOTHY S. DURHAM, JAMES S. COCHRAN, AND RICK D. SNOW
James H. Mutchnik, P.C. Leonid Feller KIRKLAND & ELLIS LLP 300 North LaSalle Street Chicago, Illinois 60654 Telephone: (312) 862-2000 Counsel for DefendantAppellant Timothy S. Durham
Michelle L. Jacobs BISKUPIC & JACOBS, S.C. 1045 West Glen Oaks Lane Suite 106 Mequon, Wisconsin 53092 Telephone: (262) 241-0033 Counsel for DefendantAppellant James. F. Cochran September 9, 2013
Jeffrey A. Baldwin VOYLES ZAHN & PAUL 141 East Washington Street Suite 300 Indianapolis, Indiana 46204 Telephone: (317) 632-4463 Counsel for DefendantAppellant Rick D. Snow
ORAL ARGUMENT REQUESTED
Case: 12-3819 34-1 Case: 12-3819 Document: Document: 18

CIRCUIT RULE 26.1
DISCLOSURE STATEMENT
Filed: Filed: 09/09/2013 02/22/2013
Pages: Pages: 109 1
Appellate Court No: 12-3819 Short Caption: United States of America v. Timothy S. Durham To enable the judges to determine whether recusal is necessary or appropriate, an attorney for a non-governmental party or amicus curiae, or a private attorney representing a government party, must furnish a disclosure statement providing the following information in compliance with Circuit Rule 26.1 and Fed. R. App. P. 26.1. The Court prefers that the disclosure statement be filed immediately following docketing; but, the disclosure statement must be filed within 21 days of docketing or upon the filing of a motion, response, petition, or answer in this court, whichever occurs first. Attorneys are required to file an amended statement to reflect any material changes in the required information. The text of the statement must also be included in front of the table of contents of the party's main brief. Counsel is required to complete the entire statement and to use N/A for any information that is not applicable if this form is used. [ ] PLEASE CHECK HERE IF ANY INFORMATION ON THIS FORM IS NEW OR REVISED AND INDICATE WHICH INFORMATION IS NEW OR REVISED.
(1) The full name of every party that the attorney represents in the case (if the party is a corporation, you must provide the corporate disclosure information required by Fed. R. App. P 26.1 by completing item #3):
Timothy S. Durham
(2) The names of all law firms whose partners or associates have appeared for the party in the case (including proceedings in the district court or before an administrative agency) or are expected to appear for the party in this court:
Kirkland & Ellis LLP (new counsel) Brown Tompkins Lory & Mastrian; Hinshaw & Culbertson LLP; Black, Srebnick, Kornspan & Stumpf, P.A.
(3) If the party or amicus is a corporation: i) Identify all its parent corporations, if any; and
ii) list any publicly held company that owns 10% or more of the partys or amicus stock:
Attorney's Signature:
s/ James H. Mutchnik, P.C.
Date: February 22, 2013
Attorney's Printed Name: James H. Mutchnik, P.C. Please indicate if you are Counsel of Record for the above listed parties pursuant to Circuit Rule 3(d). Address: Yes No
300 North LaSalle Street Chicago IL 60654
Phone Number: (312)-862-2000 E-Mail Address: james.mutchnik@kirkland.com
Fax Number: (312)-862-2200
rev. 01/08 AK
Case: 12-3819 Document: 34-1 Filed: 09/09/2013 CIRCUIT RULE 26.1 DISCLOSURE STATEMENT
Appellate Court No: 12-3833 Short Caption: USA v. James F. Cochran
Pages: 109
To enable the judges to determine whether recusal is necessary or appropriate, an attorney for a non-governmental party or amicus curiae, or a private attorney representing a government party, must furnish a disclosure statement providing the following information in compliance with Circuit Rule 26.1 and Fed. R. App. P. 26.1. The Court prefers that the disclosure statement be filed immediately following docketing; but, the disclosure statement must be filed within 21 days of docketing or upon the filing of a motion, response, petition, or answer in this court, whichever occurs first. Attorneys are required to file an amended statement to reflect any material changes in the required information. The text of the statement must also be included in front of the table of contents of the party's main brief. Counsel is required to complete the entire statement and to use N/A for any information that is not applicable if this form is used. [ ] PLEASE CHECK HERE IF ANY INFORMATION ON THIS FORM IS NEW OR REVISED AND INDICATE WHICH INFORMATION IS NEW OR REVISED.
James F. Cochran
On appeal: Biskupic & Jacobs, S.C., by Michelle L. Jacobs, 1045 W. Glen Oaks Lane, Suite 106, Mequon, WI 53092 In district court: Joseph Martin Cleary, Collignon and Dietrick, 310 N. Alabama, Suite 250, Indianapolis, IN 46204; William H. Dazey, Jr., Indiana Federal Community Defenders, 111 Monument Circle, Suite 752, Indianapolis, IN 46204; and Tyler D. Helmond and Jennifer Lukemeyer, Voyles Zahn Paul Hogan & Merriman, 141 East Washington Street, Suite 300, Indianapolis, IN 46204
N/A
N/A
Attorney's Signature: /s Michelle L. Jacobs Attorney's Printed Name: Michelle L. Jacobs
Date: March 27, 2013
Please indicate if you are Counsel of Record for the above listed parties pursuant to Circuit Rule 3(d). Address: Biskupic & Jacobs, S.C., 1045 West Glen Oaks Lane, Suite 106, Mequon, WI 53092
Yes x
No
Phone Number: 262-241-0033 E-Mail Address: mjacobs@biskupicjacobs.com
Fax Number: 866-700-7640
ii
rev. 01/08 AK
Case: 12-3819
Appellate Court No: 12-3867 Short Caption: USA v. Rick D. Snow
CIRCUIT RULE 26.1
Document: 34-1
DISCLOSURE STATEMENT
Filed: 09/09/2013
Pages: 109
To enable the judges to determine whether recusal is necessary or appropriate, an attorney for a non-governmental party or amicus curiae, or a private attorney representing a government party, must furnish a disclosure statement providing the following information in compliance with Circuit Rule 26.1 and Fed. R. App. P. 26.1. The Court prefers that the disclosure statement be filed immediately following docketing; but, the disclosure statement must be filed within 21 days of docketing or upon the filing of a motion, response, petition, or answer in this court, whichever occurs first. Attorneys are required to file an amended statement to reflect any material changes in the required information. The text of the statement must also be included in front of the table of contents of the party's main brief. Counsel is required to complete the entire statement and to use N/A for any information that is not applicable if this form is used. [ ] PLEASE CHECK HERE IF ANY INFORMATION ON THIS FORM IS NEW OR REVISED AND INDICATE WHICH INFORMATION IS NEW OR REVISED.
Rick D. Snow
Baldwin & Maxwell, Indianapolis, IN; Voyles, Zahn & Paul, Indianapolis, IN; Frost Brown Todd, Indianapolis, IN
N/A
N/A
Attorney's Signature:
s/ Jeffrey A. Baldwin
Date: 1-8-13
Attorney's Printed Name: Jeffrey A. Baldwin Please indicate if you are Counsel of Record for the above listed parties pursuant to Circuit Rule 3(d). Address: Yes No
141 E. Washington Street, Ste. 300 Indianapolis IN 46204
Phone Number: 317-632-4463 E-Mail Address: jbaldwin@vzplaw.com
Fax Number: 317-631-1199
iii
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TABLE OF CONTENTS TABLE OF AUTHORITIES ..................................................................... vii JURISDICTIONAL STATEMENT ............................................................ 1 I. Timothy S. Durham ................................................................. 1 II. James F. Cochran..................................................................... 1 III. Rick D. Snow ............................................................................ 2 ISSUES PRESENTED FOR REVIEW ...................................................... 3 STATEMENT OF THE CASE ................................................................... 4 STATEMENT OF FACTS .......................................................................... 7 I. Fair Finance Company ............................................................ 7 II. The governments investigation ............................................ 11 III. Trial ........................................................................................ 13 IV. Sentencing .............................................................................. 16 SUMMARY OF THE ARGUMENT ......................................................... 18 ARGUMENT ............................................................................................. 22 I. The district court abused its discretion when it denied the Defendants motion to suppress wiretap evidence for lack of necessity. ............................................................... 22 A. Standard of review ........................................................ 23 B. The wiretap application did not establish that ordinary investigative techniques failed or were unlikely to succeed in this specific investigation. ....... 24 C. The district court erred by failing to suppress the wiretap evidence, and the Defendants convictions must be vacated because the wiretap evidence was central to the governments case. ......................... 34 D. Evidence obtained from the search of Fair, Fair Holdings, and Obsidian also must be suppressed because wiretap evidence was essential to the governments search warrant application. .................. 37 II. The district court should have ordered a mistrial when the prosecutor took unfair advantage of a plainly iv
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III.
IV.
V.
inadvertent misstatement by defense counsel during closing arguments. ................................................................. 39 A. Factual background ...................................................... 39 B. Standard of review ........................................................ 41 C. The prosecutors comments were improper. ................ 42 D. The comments prejudiced all three Defendants. ......... 44 The government failed to introduce any evidence that the wires challenged in Counts Two and Five were in furtherance of any scheme to defraud. ................................ 48 A. Standard of review ........................................................ 49 B. There was no evidence that the wires charged in Counts Two and Five were in furtherance of any scheme to defraud. ........................................................ 50 The district court erred by rejecting the proposed securities fraud jury instruction............................................ 54 A. Standard of review. ....................................................... 57 B. The proposed instruction was an accurate statement of law. ........................................................... 58 C. The proposed instruction was supported by the evidence. ........................................................................ 60 D. Defendants theory was not already part of the charge. ........................................................................... 63 E. The failure to include Defendants instruction denied them a fair trial................................................. 64 The district court failed to follow proper sentencing procedures. ............................................................................. 66 A. Standard of review ........................................................ 68 B. The district courts loss calculation was clearly erroneous. ...................................................................... 69 1. The district court erred when calculating intended loss without considering Defendants subjective intent. ............................. 71 2. The district court erred even under the placed at risk standard because it failed to account for money returned to investors. ........... 75 3. The district court erred when calculating actual loss by failing to account for the effect of extrinsic factors...................................... 76 v
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C. D. E.
The district court erred by failing to consider the need to avoid unwarranted sentencing disparities. ..................................................................... 81 None of the district courts procedural errors was harmless. ....................................................................... 86 The district court abused its discretion when it ordered restitution of over $208 million. ..................... 87
CONCLUSION ......................................................................................... 88 REQUEST FOR ORAL ARGUMENT...................................................... 89 CERTIFICATE OF SERVICE.................................................................. 92 APPENDIX TABLE OF CONTENTS ......................................................... i
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TABLE OF AUTHORITIES Cases Abrahamson v. Fleschner, 568 F.2d 862 (2d Cir. 1977) ............................................................. 58, 59 Anthony v. United States, 935 A.2d 275 (D.C. 2007) ....................................................................... 44 Berger v. United States, 295 U.S. 78 (1935) .................................................................................. 39 Boyde v. California, 494 U.S. 370 (1990) ................................................................................ 87 Burks v. United States, 437 U.S. 1 (1978) .................................................................................... 53 Davis v. Zant, 36 F.3d 1538 (11th Cir. 1994)................................................................ 43 Ernst & Ernst v. Hochfelder, 425 U.S. 185 (1976) ................................................................................ 58 Gall v. United States, 552 U.S. 38 (2007) .................................................................................. 68 Gehring v. Case Corp., 43 F.3d 340 (7th Cir. 1995).................................................................... 64 Griffin v. United States, 502 U.S. 46 (1991) .................................................................................. 64 Kann v. United States, 323 U.S. 88 (1944) .................................................................................. 50 Krim v. BancTexas Grp., Inc., 989 F.2d 1435 (5th Cir. 1993)................................................................ 58 Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S. 71 (2006) .................................................................................. 58 vii
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Otto v. Variable Annuity Life Ins. Co., 816 F. Supp. 458 (N.D. Ill. 1991)..................................................... 58, 60 Parr v. United States, 363 U.S. 370 (1960) ................................................................................ 51 Ray v. U.S., 481 U.S. 736 (1987) ................................................................................ 57 Rothstein v. Seidman & Seidman, 410 F. Supp. 244 (S.D.N.Y. 1976) ......................................................... 59 Steffes v. Pollard, 663 F.3d 276 (7th Cir. 2011).................................................................. 57 U.S. v. Sandoval, 347 F.3d 627 (7th Cir. 2003).................................................................. 41 United States v. Adams, 625 F.3d 371 (7th Cir. 2010).................................................................. 54 United States v. Allen, 529 F.3d 390 (7th Cir. 2008)............................................................ 87, 88 United States v. Amerson, 185 F.3d 676 (7th Cir. 1999).................................................................. 45 United States v. Arnaout, 431 F.3d 994 (7th Cir. 2005).................................................................. 81 United States v. Badger, 983 F.2d 1443 (7th Cir. 1993)................................................................ 42 United States v. Bartlett, 567 F.3d 901 (7th Cir. 2009).................................................................. 84 United States v. Bell, 624 F.3d 803 (7th Cir. 2010).................................................................. 41 United States v. Berheide, 421 F.3d 538 (7th Cir. 2005).................................................................. 72 viii
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United States v. Blackmon, 273 F.3d 1204 (9th Cir. 2001).............................................. 24, 27, 28, 32 United States v. Booker, 543 U.S. 220 (2005) .............................................................................. 1, 2 United States v. Bowman, 353 F.3d 546 (7th Cir. 2003).................................................................. 41 United States v. Bradley, 675 F.3d 1021 (7th Cir. 2012).................................................... 81, 85, 86 United States v. Brandt, 546 F.3d 912 (7th Cir. 2008).................................................................. 50 United States v. Brisk, 171 F.3d 514 (7th Cir. 1999).................................................................. 46 United States v. Brownell, 495 F.3d 459 (7th Cir. 2007).................................................................. 76 United States v. Campos, 541 F.3d 735 (7th Cir. 2008)............................................................ 23, 30 United States v. Clark, 535 F.3d 571 (7th Cir. 2008)............................................................ 42, 45 United States v. Cline, 349 F.3d 1276 (10th Cir. 2003).............................................................. 35 United States v. Colon, 549 F.3d 565 (7th Cir. 2008).................................................................. 54 United States v. Confredo, 528 F.3d 143 (2d Cir. 2008) ................................................................... 74 United States v. Davuluri, 239 F.3d 902 (7th Cir. 2001).................................................................. 50 United States v. Delgado, 701 F.3d 1161 (7th Cir. 2012)................................................................ 23 ix
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United States v. Diallo, 710 F.3d 147 (3d Cir. 2013) ................................................................... 73 United States v. Dokich, 614 F.3d 314 (7th Cir. 2010).................................................................. 87 United States v. Dorr, 636 F.2d 117 (5th Cir. 1981).................................................................. 43 United States v. Farmer, 543 F.3d 363 (7th Cir. 2008).................................................................. 69 United States v. Fearman, 297 F.3d 660 (7th Cir. 2002).................................................................. 72 United States v. Giordano, 416 U.S. 505 (1974) .................................................................... 23, 24, 35 United States v. Glosser, 623 F.3d 413 (7th Cir. 2010).................................................................. 86 United States v. Gonzalez, Inc., 412 F.3d 1102 (9th Cir. 2005).......................................................... 25, 26 United States v. Groves, 470 F.3d 311 (7th Cir. 2006)...................................................... 49, 51, 53 United States v. Hach, 162 F.3d 937 (7th Cir. 1998)...................................................... 54, 57, 66 United States v. Henry, 2 F.3d 792 (7th Cir. 1993)...................................................................... 53 United States v. Higgins, 270 F.3d 1070 (7th Cir. 2001)................................................................ 73 United States v. Hill, 645 F.3d 900 (7th Cir. 2011).................................................................. 86 United States v. Holzer, 840 F.2d 1343 (7th Cir. 1988)................................................................ 53 x
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United States v. Ippolito, 774 F.2d 1482 (9th Cir. 1985)................................................................ 32 United States v. Irorere, 228 F.3d 816 (7th Cir. 2000)............................................................ 54, 57 United States v. Jackson, 189 F.3d 502 (7th Cir. 1999).................................................................. 37 United States v. Jewel, 947 F.2d 224 (7th Cir. 1991)............................................................ 70, 71 United States v. Jones, 438 Fed. Appx. 515 (7th Cir. 2011) ....................................................... 82 United States v. Kahn, 415 U.S. 143 (1974) .................................................................... 22, 24, 34 United States v. Kimoto, 588 F.3d 464 (7th Cir. 2009).................................................................. 81 United States v. Kwiat, 817 F.2d 440 (7th Cir. 1987)............................................................ 51, 52 United States v. Lauer, 148 F.3d 766 (7th Cir. 1998).................................................................. 72 United States v. Leiskunas, 656 F.3d 732 (7th Cir. 2011)............................................................ 70, 71 United States v. Lilla, 699 F.2d 99 (2d Cir. 1983) ............................................................... 24, 34 United States v. Long, 639 F.3d 293 (7th Cir. 2011).................................................................. 23 United States v. Lorefice, 192 F.3d 647 (7th Cir. 1999).................................................................. 43 United States v. Manatau, 647 F.3d 1048 (10th Cir. 2011)........................................................ 73, 74 xi
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United States v. Martin, 692 F.3d 760 (7th Cir. 2012).................................................................. 69 United States v. Maze, 414 U.S. 395 (1974) .......................................................................... 51, 52 United States v. McHale, 495 F.2d 15 (7th Cir. 1974) .................................................................... 37 United States v. McLee, 436 F.3d 751 (7th Cir. 2006).................................................................. 23 United States v. Meeker, 558 F.2d 387 (7th Cir. 1977).................................................................. 39 United States v. Meyer, 157 F.3d 1067 (7th Cir. 1998).................................................... 60, 62, 65 United States v. Middlebrook, 553 F.3d 572 (7th Cir. 2009)............................................................ 72, 87 United States v. Nacchio, 573 F.3d 1062 (10th Cir. 2009).............................................................. 78 United States v. Newson, 351 F. App'x 986 (6th Cir. 2009) ........................................................... 73 United States v. OHagan, 521 U.S. 642 (1997) ................................................................................ 58 United States v. Olis, 429 F.3d 540 (5th Cir. 2005).................................................................. 77 United States v. Owens, 697 F.3d 657 (7th Cir. 2012).................................................................. 49 United States v. Panice, 598 F.3d 426 (7th Cir. 2010)...................................................... 81, 85, 86 United States v. Patrick, 707 F.3d 815 (7th Cir. 2013)...................................................... 68, 86, 87 xii
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United States v. Pisman, 443 F.3d 912 (7th Cir. 2006).................................................................. 83 United States v. Quaye, 57 F.3d 447 (5th Cir. 1995).................................................................... 73 United States v. Radziszewski, 474 F.3d 480 (7th Cir. 2007).................................................................. 50 United States v. Reed, 539 F.3d 595 (7th Cir. 2008).................................................................. 63 United States v. Requarth, 847 F.2d 1249 (7th Cir. 1988)................................................................ 57 United States v. Reyes-Medina, 683 F.3d 837 (7th Cir. 2012).................................................................. 83 United States v. Rice, 478 F.3d 704 (6th Cir. 2007).................................................................. 35 United States v. Richards, 719 F.3d 746 (7th Cir. 2013).................................................................. 48 United States v. Robinson, 698 F.2d 448 (D.C. Cir. 1983) ................................................................ 24 United States v. Rutkoske, 506 F.3d 170 (2d Cir. 2007) ................................................................... 77 United States v. Sanchez, 615 F.3d 836 (7th Cir. 2010).................................................................. 50 United States v. Schroeder, 536 F.3d 746 (7th Cir. 2008)................................................ 69, 75, 77, 81 United States v. Simpson, 479 F.3d 492 (7th Cir. 2007).................................................................. 47 United States v. Spagnuolo, 549 F.2d 705 (9th Cir. 1977)...................................................... 31, 37, 38 xiii
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United States v. Starks, 309 F.3d 1017 (7th Cir. 2002)................................................................ 50 United States v. Stephens, 421 F.3d 503 (7th Cir. 2005).................................................................. 50 United States v. Stout, 882 F.2d 270 (7th Cir. 1989).................................................................. 70 United States v. Swanquist, 161 F.3d 1064 (7th Cir. 1998)................................................................ 54 United States v. Trujillo-Castillon, 692 F.3d 575 (7th Cir. 2012).................................................................. 68 United States v. Van Allen, 524 F.3d 814 (7th Cir. 2008).................................................................. 60 United States v. Vargas, 583 F.2d 380 (7th Cir. 1978)............................................................ 44, 46 United States v. Vitek Supply Corp., 144 F.3d 476 (7th Cir. 1998).................................................................. 37 United States v. Wasko, 473 F.2d 1282 (7th Cir. 1973)................................................................ 42 United States v. Wells, 127 F.3d 739 (8th Cir. 1997).................................................................. 73 United States v. Whiting, 471 F.3d 792 (7th Cir. 2006)............................................................ 69, 76 United States v. Williams, 493 F.3d 763 (7th Cir. 2007).................................................................. 36 United States v. Wingate, 128 F.3d 1157 (7th Cir. 1997)................................................................ 50 United States v. Wurzinger, 467 F.3d 649 (7th Cir. 2006)................................................ 68, 71, 86, 87 xiv
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United States v. Wysinger, 683 F.3d 784 (7th Cir. 2012).................................................................. 35 United States v. Zambrana, 841 F.2d 1320 (7th Cir. 1988)................................................................ 30 United States v. Zangari, 677 F.3d 86 (2d Cir. 2012) ............................................................... 69, 80 Statutes 15 U.S.C. 78j(b) ................................................................................ 1, 2, 3 18 U.S.C. 1343............................................................................ 1, 2, 3, 55 18 U.S.C. 2 ....................................................................................... 1, 2, 3 18 U.S.C. 2515............................................................................ 24, 25, 39 18 U.S.C. 2518(1)(c) ......................................................................... 19, 23 18 U.S.C. 3231.................................................................................. 1, 2, 3 18 U.S.C. 3553(a) ............................................................................... 7, 92 18 U.S.C. 3553(a)(6) ......................................................................... 18, 74 18 U.S.C. 371.................................................................................... 1, 2, 3 18 U.S.C. 3742(a) ............................................................................. 1, 2, 3 28 U.S.C. 1291.................................................................................. 1, 2, 3 Other Authorities Federal Rule of Appellate Procedure 4(b) ............................................. 1, 2 Federal Rule of Criminal Procedure 32(i)(3)(B) ...................................... 70 U.S.S.G. 2B1.1, cmt. n. 3(B) ................................................................. 91 U.S.S.G. 2B1.1, cmt. n. 3(A) .................................................................. 77 U.S.S.G. 2B1.1, cmt. n. 3(A)(i)............................................................... 87 xv
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U.S.S.G. 2B1.1, cmt. n. 3(A)(ii) ............................................................. 80 U.S.S.G. 2B1.1, cmt. n. 3(C) .................................................................. 78
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JURISDICTIONAL STATEMENT I. Timothy S. Durham Timothy S. Durham appeals from a judgment of conviction in a federal criminal case. He was convicted of securities fraud, wire fraud, and conspiracy and sentenced to a total of 50 years imprisonment. The district court had jurisdiction pursuant to 18 U.S.C. 3231 and the underlying criminal statutes, 18 U.S.C. 371, 1343 and 2, and 15 U.S.C. 78j(b). Judgment was entered on December 10, 2012 and amended on December 14, 2012. On December 14, 2012, Durham filed a timely notice of appeal, which was amended on December 17, 2012. This Court has jurisdiction pursuant to 28 U.S.C. 1291, 18 U.S.C. 3742(a) as modified by United States v. Booker, 543 U.S. 220 (2005), and Rule 4(b) of the Federal Rules of Appellate Procedure. II. James F. Cochran James F. Cochran appeals from a judgment of conviction in a federal criminal case. He was convicted of securities fraud, wire fraud, and conspiracy and sentenced to a total of 25 years imprisonment. The district court had jurisdiction pursuant to 18 U.S.C. 3231 and the under-
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lying criminal statutes, 18 U.S.C. 371, 1343 and 2, and 15 U.S.C. 78j(b). Judgment was entered on December 10, 2012 and amended on December 14, 2012. On December 17, 2012, Cochran filed a timely notice of appeal. This Court has jurisdiction pursuant to 28 U.S.C. 1291, 18 U.S.C. 3742(a) as modified by United States v. Booker, 543 U.S. 220 (2005), and Rule 4(b) of the Federal Rules of Appellate Procedure. III. Rick D. Snow Rick D. Snow appeals from a judgment of conviction in a federal criminal case. He was convicted of securities fraud, wire fraud, and conspiracy and sentenced to a total of 10 years imprisonment. The district court had jurisdiction pursuant to 18 U.S.C. 3231 and the underlying criminal statutes, 18 U.S.C. 371, 1343 and 2, and 15 U.S.C. 78j(b). Judgment was entered on December 10, 2012 and amended on December 14, 2012. On December 19, 2012, Snow filed a timely notice of appeal. This Court has jurisdiction pursuant to 28 U.S.C. 1291, 18 U.S.C. 3742(a) as modified by United States v. Booker, 543 U.S. 220 (2005), and Rule 4(b) of the Federal Rules of Appellate Procedure.
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ISSUES PRESENTED FOR REVIEW 1. Did the district court err in denying Defendants motion to suppress wiretap evidence when the wiretap applications statement of necessity relied exclusively on generic allegations describing inherent limitations of ordinary investigative techniques rather than limitations specific to this case? 2. Did the district court err by not ordering a mistrial as a result of prosecutorial misconduct, when the government took unfair advantage of an obvious misstatement by defense counsel in closing argument to claim, in rebuttal, that a Defendant had conceded the existence of a scheme to defraud, the central issue in the case for all three Defendants? 3. Did the district court err in denying Durhams motion for acquittal on wire fraud Counts Two and Five, when the government failed to offer any proof connecting the wires to a scheme to defraud and instead merely established that two wire transfers were executed? 4. Did the district court err in rejecting the Defendants proposed jury instruction related to the in connection with the purchase or sale of a security element of securities fraud, which highlighted
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the crucial distinction between transferring ownership of a security and merely continuing to hold a security or delaying an interest payment? 5. Did the district court err at sentencing when it: (i) calculated an intended loss amount without determining Defendants subjective intent and an actual loss amount without accounting for losses incurred independent of Defendants conduct; (ii) affirmatively refused to consider sentences of similarly-situated defendants from other districts when considering the need to avoid unwarranted sentencing disparities; and (iii) ordered restitution based on a loss amount not tied to the Defendants specific conduct? STATEMENT OF THE CASE On March 15, 2011, a grand jury in the Southern District of Indiana returned a twelve-count indictment charging Durham, Cochran, and Snow with securities fraud, wire fraud, and conspiracy. R. 1.1 A superseding indictment was returned on February 14, 2012. R. 217.
In this brief, R. followed by a number refers to an entry on the district courts docket, Tr. followed by a number refers to a page of the trial transcript, Sent. Tr. followed by a number refers to a page of the sentencing hearing transcript, Tr. Ex. followed by a number refers to an exhibit admitted at trial, App. followed by a number refers to Defendants Short Appendix, and S.A. followed by a number refers to Defendants Separate Appendix.
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In pretrial motions, Durham moved to suppress wiretap recordings and derivative evidence for lack of necessity, R. 167, and Cochran and Snow joined the motion, R. 166, 185, 186. The district court denied the motion after oral argument. App. 226-233. The Defendants also moved to suppress evidence obtained from searches of the Defendants offices, R. 152, 153, which the district court also denied, S.A. 1-15. A seven-day trial began on June 11, 2012. R. 339. At the close of the governments case, the district court denied Defendants Rule 29 motions. App. 234:20-235:9, 247:22-248:11. On June 20, 2012, the jury found Durham guilty of all twelve counts. App. 213-225. The jury acquitted Cochran on Counts Two,
Three, Five and Seven, and found him guilty of conspiracy (Count One), six counts of wire fraud (Counts Four, Six, and Eight through Eleven), and one count of securities fraud (Count Twelve). Id. The jury acquitted Snow of Counts Two, Three, Five, and Eight through Eleven, and found him guilty of conspiracy (Count One), three counts of wire fraud (Counts Four, Six and Seven), and securities fraud (Count Twelve). Id. Beyond identifying the object of the conspiracy underlying Count One, the verdicts contained no specific findings. Id. The court denied 5
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the Defendants renewed Rule 29 motions, remanded all three Defendants into custody, and ordered that Pre-Sentence Investigation Reports (PSR) be prepared. R. 352; App. 243:24-44:3. On October 31, 2012, Durham filed objections to his PSR, R. 413, and on November 26, 2012, Durham, Cochran, and Snow all filed sentencing memoranda. S.A. 195-217, 222-224; R. 432. Cochran adopted Durhams objections to the Sentencing Guidelines calculations, including to the loss calculation, and adopted the bulk of Durhams sentencing arguments under 18 U.S.C. 3553(a). R. 432 at 1; R. 421, Addendum at 2. Snow also objected to the Sentencing Guidelines calculations and raised his own similar arguments regarding loss calculation. R. 424 at 29-35. The district court conducted a sentencing hearing on November 30, 2012. R. 423. The court sentenced Durham to a total of 50 years, Cochran to a total of 25 years, and Snow to a total of 10 years imprisonment. All three were ordered to pay special assessments and restitution in the amount of $208,830,082.77, and to serve terms of supervised release. R. 443-445, 448, 450, 452. Amended judgments for all three were entered on the district courts docket on December 14, 2012. App. 6
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1-212. All three Defendants filed timely notices of appeal. R. 457, 469, 475. Defendants are currently incarcerated pending appeal. STATEMENT OF FACTS I. Fair Finance Company At the heart of this case is Fair Finance Company (Fair). Fair was fully-owned by Defendants Durham and Cochran, who acquired the company in December 2001. Tr. 42:13-43:4. Defendant Snow served as its Chief Financial Officer. Tr. 83:19-23. Fairs business evolved over time. When Fair was founded in
1934, it provided financing for dump trucks. Tr. 29:6-30:25. It later financed used cars, made consumer loans, and then made second mortgages. Tr. 29:23-31:8, 33:15-19. By 2001, Fair was in the business of buying and collecting on consumer contracts, also referred to as consumer receivables. Tr. 34:13-21. Fair would purchase installment contracts from businesses, like fitness clubs or buyers clubs, making a single discounted payment and then collecting the stream of payments due on the contract over time. Tr. 35:4-19, 66:10-67:12, 91:17-22. Fair continued in this profitable line of business throughout the time Durham and Cochran owned and operated the company. Tr. 419:18-421:25.
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Fair financed its business by selling subordinated debentures, which it called investment certificates, to individuals. Tr. 31:15-32:7. When an investor purchased an investment certificate, he or she was entitled to interest payments for a set period of time. S.A. 35. At the end of that period, the investor could redeem the certificates, at which point the principal investment and any outstanding interest would be repaid. Id. Alternatively, an investor could simply hold the certificate and continue earning interest according to the original terms of the investment. Id. Investment certificate holders were unsecured creditors, whose investments were not guaranteed in any manner. S.A. 31-32; Tr. 39:11-15. Fair, an Ohio company, sold these certificates to Ohio residents, and the sales were regulated by the Ohio Department of Securities (ODS). Tr. 32:8-13, 36:23-5. Fair sought authorization from ODS to sell the certificates. Tr. 32:8-23. After Durham and Cochran purchased the company in December 2001, in addition to continuing the consumer receivables business, Durham and Cochran began investing in outside businesses by making loans to various companies. Tr. 49:3-10; S.A. 31. Logistically, these loans were made from Fair to its parent holding company, Fair Hold8
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ings, Inc., then to the ultimate recipient of the loan. S.A. 31.
These
loans were directed at markets not serviced by Fair, which created additional opportunities for growth for Fair. Id. Fair Holdings made loans both to unrelated third-party entities and to business that were connected to Durham and Cochran. For example, some of the companies that ultimately received loans were businesses owned by Obsidian Enterprises, a company partially owned by Durham.2 Tr. 82:9-25, 92:8-10, 95:13-17, 145:15-17. Obsidians operating companies were involved in a diversified variety of businesses, among them manufacturing enclosed cargo trailers, leasing luxury buses, and reclaiming butyl rubber from old inner tubes. Tr. 89:9-24. Fair also made loans to DC Investments, LLC, another company owned by Durham and Cochran. Tr. 88:15-22; S.A. 31. In turn, DC Investments
Obsidian became a private company in 2005. Tr. 1445:16-19, 1449:1-21. As part of the going-private transaction, an investment bank did a valuation of Obsidian and its operating companies. Id. The investment bank determined that Obsidian and its operating companies had positive equity valuethat is the value of the company in excess of its debt, including its debt to Fairof $5.7 million if the company was sold during the normal course of business, as distinguished from a forced liquidation. Tr. 1453:17-1454:1; Tr. Ex. 283 at 12-13.
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made loans to both related and unrelated businesses and to Durham and Cochran personally. Id.3 Fairs loans were fully disclosed to investors. Tr. 49:3-10, 53:1-8, 411. In particular, Fair was required to submit an offering circular with information about Fairs financial condition to ODS when Fair sought authorization to sell investment certificates. Tr. 223:6-17. The offering circular explained both Fairs consumer receivable business and Fairs loans to other businesses, including the loans to related businesses, Fair Holdings, DC Investments, Obsidian, and Obsidians subsidiaries. S.A. 30-32, 57-60; Tr. 49:3-10, 53:1-8, 411:18-24. It also made clear that these certificates were subordinated to senior debt, that there was no limit on the amount of senior debt Fair could incur, and that the financial health of Fair Holdings, and its ability to repay the loans from Fair, would impact Fairs financial health. S.A. 32-35. Potential investors were provided a copy of the offering circular and had to sign a subscription agreement indicating that they received and read the circular. Tr. 404:25-405:10, 634:1-4.
Durham had other business interests in addition to Fair, Fair Holdings, DC Investments, and Obsidian Enterprises, including serving as President and CEO of National Lampoon. Tr. 922:1617; S.A. 105.
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II.
The governments investigation Like almost every other business in the country, Fair was vulner-
able to the financial crisis and resulting recession that struck in the fall of 2008. Tr. 253:9-14. Investors began redeeming certificates at a higher rate than in prior years. Tr. 257:18-258:2. Fair undertook efforts to manage its cash flow in light of this run, including monitoring cash flow daily and no longer permitting investors to redeem certificates early. Tr. 334:5-24, 408:3-20. None of the redemption policies Fair instituted in the wake of the financial crisis violated Ohio regulations. Tr. 414:68. The government offered no contrary evidence, nor any evidence that these policies violated federal law. Further, these policies were consistent with the terms of the investment set forth in Fairs offering circulars. See S.A. 29-30, 35-36; Tr. 59:1-4. Fair, however, also was unable to make promptly some interest and redemption payments to investors. Tr. 262:2-20. In February 2009, ODS initiated an examination of Fair based on complaints it received from investors about delayed payments. Tr. Ex. 813; Tr. 346:5-348:13. As part of ODSs examination, Durham attended a meeting with ODS and gave accurate answers to ODSs questions. Tr.
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422:1-424:4. Prior to this meeting, Durham never had any conversations with any of the other attendees in an effort to conceal anything from ODS. Tr. 422:1-424:4. The redemption rate slowed, and thus Fairs cash flow recovered, around July 2009. Tr. 485:23-486:8. Fair was able to improve its payment processing and dispersal rate. Tr. 415:8-10. But the FBI began investigating Fair at this time based on months-old rumors of alleged criminal activity. R. 150, Ex. C 20, 22. The entirety of the governments ensuing four-month investigation consisted of: interviewing an acquaintance of Durhams, id. 22; installing a pen register on Durhams cell phone, id. 27; subpoenaing certain financial records, id. 30, 44; interviewing two informants, neither of whom actually worked at Fair or its related companies, id. 4(a), 35-36; and once calling and twice visiting Fair branches to interview low-level Fair employees (who confirmed the information outlined in Fairs offering circular), id. 23-26. Nevertheless, with the investigation still in an inchoate stage, on November 6, 2009, the government applied for and secured a wiretap of Durhams cell phone. At the time, the government had not yet applied 12
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for a search warrant because, in its own words, it lacked probable cause to search any specific location. Id. at 46. Seventeen days later, with the information gleaned from the wiretap, the government applied for and received warrants to search the offices of Fair, Fair Holdings, and Obsidian. See R. 154, Ex. AA; R. 188 at 2 n.2. The applications cited the wire intercepts as the basis for probable cause to search those locations. Id. At the end of November 2009, the government executed the search warrants and raided Fairs offices. See Tr. 420:17-19. The government seized Fairs servers, hard drives, phone system, contracts, and dealer files. S.A. 16:21-17:14. As a result, the infrastructure necessary to
maintain the companys consumer receivables businesswhich had continued generating cash flow through the recession and the legitimacy of which was never in questionwas forced to shut down. S.A. 16:617:25; Tr. 419:18-25. III. Trial The governments case at trial focused heavily on wire-tapped discussions among the Defendants and statements made by the Defendants to current Fair investors during the second half of 2009 regarding
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efforts to explain delayed interest payments and convince investors to retain rather than redeem their investment certificates. See Tr. at
13:22-14:5, 15:21-16:2, 256:24-58:2, 262:21-63:21, 284:17-25, 294:7-12, 511:11-14:18, 649:20-59:24, 657:18-59:24, 717:11-722:2, 1558:13-17. The government played more than thirty-five communications captured by the wiretap and highlighted the wiretap evidence both in its opening statement and closing arguments. Tr. at 6:21-22; 1554:18-20; 1558:1-4; 1558:13-17; 1562:11-17; 759:1-785:15; 831:15-861:1; 1327:25-1353:13. The government further sought to establish a scheme to defraud through complex financial records about a byzantine business structure and abstruse testimony about accounting principles. See Tr. at 181:19183:16; 204:20-205:08; 1091:1-1092:12; 1101:19-1104:11. The Defendants countered with evidence that the governments alleged indicia of fraud were disclosed to investors and to ODS in Fairs offering circulars. S.A. 27-78; Tr. 49:3-10, 53:1-8, 411:18-24, 635:5-16. Defendants also offered evidence that the policies they instituted in response to the financial crisis with respect to investor redemptions were permissible. Tr. 414:6-8. Defendants established that they did not try to influence the programs used to train employees on how to sell in14
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vestment certificates or the preparation of the financial statements used in the offering circular. Tr. 425:22-426:25, 429:13-432:24, 434:15435:13, 1101:4-15. They also offered evidence that they, and their families, had put their own money into Fair, which was also lost when the business collapsed. Tr. 446:2-13, 1036:18-37:1; Tr. Exs. 2056-2058. At the close of evidence, the district court held a jury instruction conference. Durham proposed a number of instructions, including one reflecting the Defendants theory of defense to the charge of securities fraud. That theory was that any statement, activity, or misrepresentation related to delaying interest payments to current investors or convincing a current investor to continue to hold a certificate did not satisfy the statutes in connection with a purchase or sale of a security requirement. S.A. 145. Though this instruction accurately stated the law and found support in the evidence adduced at trial, the district court rejected it over Durhams objection. App. 246:1-10. Subsequently, the district court permitted the parties to present closing arguments. During his closing argument, which immediately followed Durhams closing, counsel for Cochranintending to argue that there was no scheme to defraud but that, even if there was, his cli15
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ent was not a participant, App. 240:5-14misspoke and instead stated, I hope that your finding might be that there is a reasonable doubt as to whether Mr. Durham participated in a scheme to defraud. . . . The answer is, no, I think there was a scheme to defraud. The question is, was there anybody else that was let in on that scheme? S.A. 24:1-6 (emphasis added). The prosecutor, in the last piece of argument that the jury heard before it began deliberating, then declared to the jurors that Cochrans lawyer had conceded there had been a scheme to defraud inviting the jury to infer guilt on the basis of this alleged concession rather than to determine its verdicts based on the evidence. S.A. 26:1-3 (Now, you heard Mr. Cochrans attorney tell you that there was a scheme to defraud . . . . ). The jury subsequently returned guilty ver-
dicts against each Defendant: Durham on twelve counts, Cochran on eight counts, and Snow on five counts. App. 213-225. IV. Sentencing After the jury returned its verdict, the Probation Office prepared a PSR for each Defendant, and the Court held a sentencing hearing. R.
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423. Although all three Defendants made objections to their PSRs,4 and all three Defendants submitted sentencing memoranda, R. 429, 430, 432, the district court failed to address several of the Defendants objections. See, e.g., R. 413 at 3, 12; R. 429 at 12-13; Sent. Tr. 10:1-17:3; R. 432 at 1-3. At sentencing, the government offered no evidence of the Defendants subjective intent to cause any investors loss, R. 434 at 3, and the district court made no factual findings regarding the Defendants subjective intent, if any. Sent. Tr. 105:20-107:7; 140:13-19, 168:24-169:11. When determining the actual loss, the court never addressed Defendants contentions that investors ability to recover their investment in Fair was substantially impacted by extrinsic factors such as the general decline in the broader economy, including the nationwide decline in property values, the governments raid on Fairs offices, and the effect of negative publicity from the governments forfeiture lawsuit, which was dismissed one day after it was filed. See R. 429 at 13.
Durham filed his objections with the district court. R. 413. Cochran and Snow submitted objections to the probation officer to be incorporated in the final PSR pursuant to S.D. Ind. L.C. R. 13.1. See R. 421, Addendum at 2; R. 424 at 29-35.
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When the time came for the district court to fulfill its statutory obligation to consider unwarranted sentencing disparities, 18 U.S.C. 3553(a)(6), the district judge erroneously asserted, I cant look to cases from other districts. App. 278:3-8. Elsewhere the court elaborated on its unwillingness to consider the Defendants evidence of sentencing disparities: I dont know about what goes on in the Southern District of New York. I visit there only rarely. This is the Heartland. This is where we work hard . . . . We drive Chevies and Buicks and Fords, not Bugattis. App. 261:19-262:1. The district court proceeded to sentence Durham, Cochran, and Snow to 50, 25, and 10 year sentences, respectively. R. 456, 460, 462. In doing so, the judge recognized that for Durhamand most likely for Cochran as wellshe had imposed effective life sentences. Sent. Tr. 133:9-13, 148:10-24, 155:1-5, 159:13-16. SUMMARY OF THE ARGUMENT There are five independent grounds that merit vacating the district courts judgments and sentences and remanding for a new trial or, at a minimum, resentencing.
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First, the district court erroneously admitted evidence gathered from an improper wiretap. To strike an appropriate balance between privacy, the potential for abuse, and legitimate law-enforcement needs, Congress requires that the government demonstrate the wiretaps necessity by providing a full and complete statement as to whether or not other investigative procedures have been tried and failed or why they reasonably appear to be unlikely to succeed if tried or to be too dangerous. 18 U.S.C. 2518(1)(c). Far from meeting this standard, the governments wiretap application in this case merely alleged generic shortcomings of traditional investigative techniques which apply equally to every criminal investigation. Because the wiretap evidence was obtained in violation of the necessity requirement, it must be suppressed. And, because of the key role the wiretap evidence played at trial, Defendants convictions must be vacated. Further, because the wiretap evidence formed the basis of the governments probable cause to search Fairs, Fair Holdings, and Obsidians offices, evidence from those searches should also be suppressed. Second, the district court erred when it failed to grant a mistrial in the face of prosecutorial misconduct. The prosecutor opportunistical19
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ly turned an obvious misstatement by defense counsel into a critical concession, stating that defense counsel admitted there was a scheme to defraudthe key element of the governments case against all three Defendants. This prosecutorial misconduct usurped the jurys function, distorted the burden of proof, and ultimately violated the Defendants due process. Third, the government introduced no evidence to connect the wires underlying two counts of fraud on which Durham was convicted to a scheme to defraud. A conviction for wire fraud requires some proof in the recordbe it testimony, taped communications, written communications, or other documentsthat the wire was transmitted in furtherance of a scheme to defraud. Here, there is no such evidence. This error requires reversal, a judgment of acquittal on those two counts, and that Durhams sentence be vacated and his case remanded for resentencing. Fourth, the district court incorrectly rejected the Defendants theory-of-defense jury instruction. The Defendants urged the district court to instruct the jury on the critical distinctionthe essence of the defense theory with respect to the securities fraud chargethat a scheme 20
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to delay is not a scheme to defraud. This Court has made clear that a defendant is entitled to a jury instruction when the proposed instruction represents an accurate statement of law, is supported by the evidence, is not already part of the charge, and its rejection would deny the defendant a fair trial. The tendered instruction here accurately stated the law and directly attacked evidence on which the government focused throughout the trial. The district courts failure to give this instruction denied the Defendants a fair trial and requires that their convictions be vacated. Finally, the district court failed to adhere to required sentencing procedures. First, the court neglected to address the Defendants Second, it erred in calculating intended loss
presentence objections.
without evidence or consideration of the Defendants subjective intent. Third, it ignored the effect of extrinsic factors on investors losses when calculating actual loss. Fourth, it failed to considerindeed, erroneously professed that it was barred from consideringthe need to avoid unwarranted sentencing disparities. Finally, the district courts erroneous actual loss finding infected its restitution order. Together these errors
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at sentencing require, at a minimum, that Defendants sentences be vacated and remanded for resentencing. ARGUMENT I. The district court abused its discretion when it denied the Defendants motion to suppress wiretap evidence for lack of necessity. The governments Title III affidavit failed to explain, as it must, why ordinary investigative techniques were insufficient under the particularized, individual circumstances of this case. Instead, the affidavit merely described generic limitations of those techniques. This is not enough, as a matter of law. To obtain authorization for a wiretap under Title III, the government must provide a full and complete statement as to whether or not other investigative procedures have been tried and failed or why they reasonably appear to be unlikely to succeed if tried or to be too dangerous. 18 U.S.C. 2518(1)(c). This so-called necessity requirement
assure[s] that wiretapping is not resorted to in situations where traditional investigative techniques would suffice to expose the crime. United States v. Kahn, 415 U.S. 143, 153 n.12 (1974). Not only did the government fail to explain why a wiretap was necessary, but it also failed to explain why it ignored obvious and far 22
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less intrusive avenues of investigation which appeared fruitful, safe, and cost-effective. These failures rendered the wiretap application
statutorily deficient and the accompanying authorization erroneous. Accordingly, the district court should have granted the Defendants motion to suppress all evidence derived from the wiretap. 18 U.S.C.
2515; United States v. Giordano, 416 U.S. 505, 527 (1974). Given the central role of this erroneously-admitted evidence to the governments case at trial, the Defendants convictions must be vacated and the case remanded for a new trial. See United States v. Delgado, 701 F.3d 1161, 1165 (7th Cir. 2012). A. Standard of review
This Court reviews a district courts necessity finding for abuse of discretion. United States v. Long, 639 F.3d 293, 301 (7th Cir. 2011). Title III does not require absolute necessity or that the wiretap be used as a last resort. United States v. Campos, 541 F.3d 735, 746 (7th Cir. 2008). Rather, the purpose of the requirement is to ensure that wiretaps are not routinely used as the initial step in a criminal investigation, United States v. McLee, 436 F.3d 751, 763 (7th Cir. 2006), or where traditional investigative techniques would suffice to expose the
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crime, Kahn, 415 U.S. at 153 n.12. A wiretap application that fails to meet the necessity requirement cannot support a valid wiretap authorization, and any communications intercepted pursuant to that defective authorization must be suppressed. U.S. at 527. B. The wiretap application did not establish that ordinary investigative techniques failed or were unlikely to succeed in this specific investigation. 18 U.S.C. 2515; Giordano, 416
To satisfy Title III, the government must demonstrate why, in the particular case at hand, [ordinary investigative techniques] will be insufficient. United States v. Blackmon, 273 F.3d 1204, 1210 (9th Cir. 2001) (emphasis added); see also United States v. Lilla, 699 F.2d 99, 104 (2d Cir. 1983) (suppressing wiretap evidence because the affidavit does not enlighten us as to why this narcotics case presented problems different from any other small-time narcotics case); United States v. Robinson, 698 F.2d 448, 453 (D.C. Cir. 1983) (per curiam) (superseded by statute on other grounds) (The affidavit must show with specificity why in this particular investigation ordinary means of investigation will fail.) (emphasis in original).
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The governments Title III affidavit in this case itemizes six investigative techniques(1) grand-jury subpoenas, (2) search warrants, (3) pen registers, (4) confidential sources, (5) undercover agents, and (6) physical surveillanceand asserts that, individually and in combination, these techniques were insufficient to further the governments investigation absent a wiretap. But the affidavits discussion of each
technique failed to address with the requisite specificity why these techniques failed or were unlikely to succeed under the particular circumstances of this investigation. Grand Jury Subpoenas and Search Warrants. None of the affidavits allegations regarding the use of grand jury subpoenas or search warrants described problems unique or particular to this investigation: financial institution records are often complex and take time to obtain and analyze; grand jury testimony is typically unlikely to uncover evidence of mens rea; and grand jury investigations always run the risk of alerting subjects to be more cautious or to flee. R. 150, Ex. C 4445; see United States v. Gonzalez, Inc., 412 F.3d 1102, 1114 (9th Cir. 2005) (The affidavit rejects these tools by claiming they would likely reveal the investigation to its targets. Such statements do not reasonably ex25
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plain why traditional investigative tools are unlikely to succeed in a particular investigation.). Here, the government applied for the wiretap before basic records responsive to the governments subpoenas, such as Durhams tax returns, had even been returned. R. 150, Ex. C 43. In other words, the government apparently concluded that the use of grand jury subpoenas had failed before it had an opportunity to assess the utility of the evidence that it already had subpoenaed. Likewise, the notion that the use of search warrants might thwart efforts to identify additional co-conspirators is common to every investigation. See R. 150, Ex. C 45, 49. For this reason, search warrants are typically used near the conclusion of an investigation. The governments assertion that it lacked information regarding the whereabouts of records and could not establish probable cause to search any specific location at the time the Title III affidavit was executed, id. 46, simply suggests the investigation was at an inchoate stagenot that a wiretap was necessary. See Gonzalez, 412 F.3d at 1114 ([T]erse rejection of the possible productive use of grand jury subpoenas or search warrants
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does not establish that these investigative techniques were reasonably unlikely to work.). Pen Registers. The affidavit alleged that pen registers had been utilized, but were of limited evidentiary value because they cannot confirm the identity of participants in the conversations or the subject matter of the discussions. R. 150, Ex. C 51. This is not an explanation of why pen registers were ineffective in this particular investigation, but merely a generalized description of their functionality. As such, this allegation is irrelevant to the Title III necessity analysis. See Blackmon, 273 F.3d at 1210 (full and complete statement of necessity requires more than allegation that pen registers only provide evidence that the telephone was used, without showing the identity of the callers or the nature or purpose of those communications). The government also argued that it needed a wiretap in part because it could not identify all of the participants in the alleged conspiracy. Yet, it did not even attempt to make robust use of pen registers despite the governments own allegation that information gleaned from these devices and records has been of some use in establishing contact
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between telephones. R. 150, Ex. C. 51. Again, this is more indicative of investigative impatience than lack of utility. Confidential Sources. After acknowledging that two confidential sources had provided reliable information, the affidavit claimed those sources were never formally employed by Durham, and consequently are unable to provide information on Durhams current activities and accomplish the investigative objectives. R. 150, Ex. C 3538. But formal employment is not a prerequisite for providing current information, particularly in light of the governments own allegation that one of the confidential informants has worked with Durham . . . for at least the last 12 months, and continues in that capacity to the present. Id. 4(a) (emphasis added). Further, there is no indication in the affidavit that the government made any effort to recruit additionaland potentially more fruitfulconfidential sources before resorting to a wiretap. Regardless, the limitations of confidential informants cited in the wiretap application are merely a generic problem[] of police investigation. Blackmon, 273 F.3d at 1211. Undercover Agents. As with confidential sources, the govern-
ments allegations regarding undercover agents were both internally in28
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consistent and wholly generic. The affidavit alleged that undercover agents met with low-level Fair employees, but that further use of undercover agents was unlikely to succeed because it was doubtful that they would be able to approach the Defendants to attain information. R. 150, Ex. C 40(a). According to the government, [t]he only possible success of an undercover operation would require that someone get hired to work with Durham. Id. Even if true, the government regularly places undercover agents inside suspect organizations, and it is unclear why the FBI could not have attempted to do so here. More broadly, the notion that an undercover operation could not be successful unless the agent was hired to work with Durham is belied by the affidavits earlier allegation that, when any individual desired to invest more than $200,000, Fairs owners and/or Board of Directors would contact the investor. R. 150, Ex. C 26. Here, for example, there was nothing preventing an undercover agent from posing as an investor desiring to invest more than $200,000. In fact, at an evidentiary hearing, even Special Agent Halliden conceded that this technique likely would have succeeded.5 R. 270 at 76:21-77:7.
Q: You then indicated you thought it was impossible to get somebody close enough to
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Instead, the failure to do so apparently was premised on the generalized assertion that individuals involved in complex fraud schemes are suspicious of anyone who they have not known for a long period of time. R. 150, Ex. C 40(b). Yet again, this is nothing more than a statement of the inherent limitations of undercover investigations. The affidavit explicitly concedes that these allegations derive from general past experience with fraud schemesbut not from the pending investigation. Id. Although this Court has sometimes overlooked such obvious investigative failures, it has done so only when the organization under investigation was specifically alleged to be particularly insular or dangerous. See, e.g., United States v. Campos, 541 F.3d 735, 747 (7th Cir. 2008) (involving close, secretive, dangerous drug-trafficking organization); United States v. Zambrana, 841 F.2d 1320, 1331-32 (7th Cir. 1988) (closely run family organization). However, here the district court expressly found that the opposite was true: the organization was not inDurham to talk to him, correct? A: If I invested $200,000 I probably could have, but I didnt have $200,000. R. 270 at 76:24-77:2. Special Agent Hallidens post hoc rationalizationI didnt have $200,000is unpersuasive. As his own affidavit explained, the Defendants would contact any investor who expressed an interest in investing over $200,000, R. 150, Ex. C. 26, the undercover agent would not actually have needed to invest the $200,000.
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sular, but rather used the unknowing services of many Fair employees. Sent. Tr. at 110. Lacking any case-specific allegations about the nature of the organization, an unsupported assertion that general police experience indicates that ordinary investigative techniques reasonably appear unlikely to succeed . . . will not suffice to establish necessity. United States v. Spagnuolo, 549 F.2d 705, 710 (9th Cir. 1977). Physical Surveillance. Finally, the government alleged that physical surveillance would not permit law enforcement to determine whether Durham conducted business in a legal or an illegal manner . . . or the decisions made or actions taken from the meeting. R. 150, Ex. C 52. But this is of course true for any fraud or financial-crime investigationindeed, it is true for most crimes that do not involve contraband or violence. * * *
In short, all of the affidavits allegations purporting to establish necessity are generic: they stem from the intrinsic shortcomings of these investigative techniques in fraud-based investigations, not from casespecific circumstances. The government cannot side-step the necessity requirement with generalities. To satisfy Title IIIs necessity require31
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ment, the government must do more than describe inherent limitations of normal investigative procedures. Blackmon, 273 F.3d at 1210. Beyond relying on inadequate generalizations, the government cannot, consistent with the requirements of Title III, seek wiretap authorization while ignoring obvious avenues of investigation that appear both fruitful and cost effective. United States v. Ippolito, 774 F.2d
1482, 1486 (9th Cir. 1985). The government ignored several such avenues here. Most glaringly, the affidavit does not mention the FBI contacting the Ohio Division of Securities (ODS), Fairs principal regulator. ODS had investigated Fair earlier in 2009subpoenaing documents and interviewing Fairs management, including Durham. Tr. 345:13-348-7; S.A. 18:1-22; R. 168, Ex. R. This obvious, cost-effective avenue of investigationcontacting ODS, speaking with the Divisions investigators, reviewing its findings, and obtaining Fairs documentswould have aided the federal investigation in the very ways alleged in the wiretap affidavit to be futile. For example, the affidavit claimed that search warrants were unlikely to succeed because the government did not know where Fairs records were located, and grand jury subpoenas 32
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would not be effective because the government had yet to identify which individuals were integral to the alleged scheme. R. 150, Ex. C 45, 46. ODS already had much of this information,6 or could have been used to gather such information with little risk of compromising the federal investigation. What is more, the government made no effort to contact any third partyFairs accountants and lenders, or former Fair employees, for exampleall of whom undoubtedly had useful information about the companys operations, personnel, records, and recordkeeping practices and procedures. The government failed to pursue these most basic investigative techniques, and instead rushed immediately to what is supposed to be a technique of lastnot firstresort. Cf. S. Rep. No. 901097, reprinted in 1968 U.S.C.C.A.N. 2112, 2160 (Title III enacted to facilitate evidence gathering in circumstances where there are no books and records available for law enforcement inspection). The Defendants do not suggest that the government was required to undertake all of these investigative techniques to meet Title IIIs necessity requirement if the affidavit sufficiently alleged that ordinary
6
Indeed, Durhams trial counsel submitted an online request to ODS for publicly available materials relevant to Fair and received voluminous materials in response. R. 239.
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techniques were unlikely to succeed or would be too dangerous. But parroting those words, and making only half-hearted attempts at discrediting ordinary investigative techniques through nonspecific generalizationendeavoring merely to check boxes in an effort to obtain an expedient wiretap rather than actually determining if traditional investigative techniques would sufficefall woefully short of what Title III requires: the most precise and discriminate circumstances, which fully comply with the requirement of particularity. S. Rep. No. 90-1097, 1968 U.S.C.C.A.N. at 2191; see Kahn, 415 U.S. at 153 n.12 (necessity requirement was designed to assure that wiretapping is not resorted to in situations where traditional investigative techniques would suffice to expose the crime); Lilla, 699 F.2d at 104 (necessity requirement underscore[s] the desirability of using less intrusive procedures). This Court should not countenance the governments effort to circumvent Title IIIs necessity requirement by allowing the government to recite generic allegations of the inherent limitations of traditional investigative techniques, particularly when obvious avenues of investigation were casually disregarded. C. The district court erred by failing to suppress the wiretap evidence, and the Defendants convictions must be vacated be34
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cause the wiretap evidence was central to the governments case. Title III requires suppression of evidence derived from wiretaps when the application fail[ed] to satisfy any of those statutory requirements that directly and substantially implement the congressional intention to limit the use of intercept procedures to those situations clearly calling for the employment of this extraordinary investigative device. Giordano, 416 U.S. at 527; see also 18 U.S.C. 2515 (no wiretap evidence or evidence derived therefrom may be received in evidence in any trial . . . if the disclosure of that information would be in violation of this chapter.). Accordingly, wiretap evidence must be suppressed
where the wiretap application failed to satisfy the necessity requirement. United States v. Rice, 478 F.3d 704, 710 (6th Cir. 2007); United States v. Cline, 349 F.3d 1276, 1280 (10th Cir. 2003). The district court therefore erred by failing to do so. Erroneous admission of evidence requires this Court to vacate the Defendants convictions unless the error was harmless. See United
States v. Wysinger, 683 F.3d 784, 803-04 (7th Cir. 2012). The test for harmless error is whether it appears beyond a reasonable doubt that the error complained of did not contribute to the verdict obtained. 35
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United States v. Williams, 493 F.3d 763, 766 (7th Cir. 2007) (internal quotations omitted). Here the erroneous admission of the wiretap evidence was far from harmless. On the contrary, the wiretap evidence was the centerpiece of the governments case. Indeed, in its opening statement, the government acknowledged the central role of the wiretaps to its case: So while in this case the Government is going to present witness testimony and quite a few documents, this case is a little bit different, because you, as members of the jury, are going to be able to hear the Defendants voices discussing committing a crime in real time when they didnt know that anyone else was listening. Tr. at 7:7-12. The governments closing argument also concentrated on the wiretap evidence: And then October, November of 2009, go back and listen to those wiretap calls. See if you hear Rick Snow and Tim Durham working together on a plan on how to hide those bad debts. . . . Go back and listen to those calls. Tr. at 1643:4-10 (emphasis added). The wiretaps were, in effect, the governments star witness. There can be little doubt that, in the mind of the average juror, the prosecutions case would have been significantly less persuasive absent the improperly admitted wiretap evidence. The Defendants convictions must therefore be vacated and the case remanded for a new trial. 36
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D.
Evidence obtained from the search of Fair, Fair Holdings, and Obsidian also must be suppressed because wiretap evidence was essential to the governments search warrant application.
Title IIIs exclusionary provision reaches beyond intercepted communications, encompassing all evidence derived therefrom. 18
U.S.C. 2515. In particular, Title III requires suppression of evidence tainted by illegally obtained wiretap evidence: if evidence derived from an improper wiretap is necessary to a subsequent probable cause affidavit, that subsequent authorization must also be suppressed. Spagnuolo, 549 F.2d at 712; accord United States v. McHale, 495 F.2d 15, 17 (7th Cir. 1974) (per curiam). Here, the wiretap evidence incurably taints the warrants used to search the offices of Fair, Fair Holdings, and Obsidian.7 In its wiretap application, the government expressly conceded that it lacked probable cause to search any particular location. R. 150, Ex. C 46 (The FBI does not know and does not have any current source of
7
The government submitted two search warrant applications: one in the Southern District of Indiana to search the offices of Fair Holdings and Obsidian and one in the Northern District of Ohio to search the offices of Fair Finance. The Defendants properly preserved their challenge to the Fair Holdings and Obsidian search warrant. S.A. 1. This Court therefore reviews the district courts findings de novo. See United States v. Vitek Supply Corp., 144 F.3d 476, 480 (7th Cir. 1998). The Defendants challenge to the Fair Finance search warrant is reviewed for plain error. See S.A. 1 n.1; United States v. Jackson, 189 F.3d 502, 508 (7th Cir. 1999).
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information that establishes probable cause to search any specific location for records of Durhams criminal activity.) Yet, just seventeen days later Special Agent Halliden submitted an affidavit in support of a warrant to search the Defendants offices, specifically citing the Title III phone intercepts as the basis of his knowledge that the Defendants oversaw their business operations and prepared financial records from their Indianapolis offices.8 R. 154, Ex. AA 49-50. Even by its own assessment, the government could not have established probable cause to search Fair, Fair Holdings, and Obsidian without evidence derived from the illegal wiretap. Consequently, the search warrant must fall with the wiretap, and all evidence derived from it must be suppressed, further requiring that Defendants convictions be vacated and the case remanded for a new trial. Spagnuolo, 549 F.2d at 712.
While the Ohio warrant application does not appear in the record, the government conceded below that the Indiana affidavit and the Ohio affidavit contain nearly identical factual allegations. R. 188 at 2 n.2.
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II.
The district court should have ordered a mistrial when the prosecutor took unfair advantage of a plainly inadvertent misstatement by defense counsel during closing arguments. Prosecutors have a special obligation to remain well within the
bounds of propriety and fairness at all times. United States v. Meeker, 558 F.2d 387, 389 (7th Cir. 1977); see also Berger v. United States, 295 U.S. 78, 88 (1935) (It is as much [the prosecutors] duty to refrain from improper methods calculated to produce a wrongful conviction as it is to use every legitimate means to bring about a just one.). Here, the prosecutor on rebuttal stepped outside those boundaries by taking advantage of an inadvertent misstatement by Cochrans counsel during closing argument. By doing so, the prosecutor usurped the jurys function, distorted the burden of proof, and ultimately violated the Defendants due process right to a fair trial. Accordingly, all three Defendants are entitled to a new trial on all counts of conviction. A. Factual background
During his closing argument, Cochrans trial counsel (William Dazey) made the following statement: [A]nd there may have been some reference today [by Durhams counsel during closing] of Mr. Durham having a right hand and a left hand that performed various functions along the way. And I hope for Mr. Durhams sake, and I hope for Mr. Cochrans sake, that his counsels presentation is persuasive. And I hope that 39
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your finding might be that there is a reasonable doubt as to whether Mr. Durham participated in a scheme to defraud. That is none of my business. The answer is, no, I think there was a scheme to defraud. The question is, was there anybody else that was let in on that scheme? Was there anybody that knew what the conspiracy was that was charged in this indictment? Was there anybody else that knew what the plan was? S.A. 23:21-24:8 (emphasis added). On rebuttal, the prosecutor asserted to the jury that Cochrans counsel had conceded the scheme to defraud: Lets talk about Mr. Cochran. Now, you heard Mr. Cochrans attorney tell you that there was a scheme to defraud but that Mr. Cochran didnt have a role in it. Well, Mr. Cochrans role was absolutely critical to making this thing happen. S.A. 26:1-5 (emphasis added). Trial ended for the day after the governments rebuttal argument was concluded. Tr. 1644:12-14. The next morning, Durham and Snow moved for a mistrial, arguing that Dazeys misstatement was improper as a statement of counsels personal opinion of the evidence. App. 236:8-38:12. When asked about Dazeys comment, the prosecutor acknowledged that the thrust of Dazeys argument sounded in the alternative: I think this isnt the first criminal trial there are multiple Defendants and one Defendant has made the argument maybe there was a crime but I was not involved 40
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in it . . . App. 237:24-38:4. The district court, after replaying the audio recording of Dazeys closing argument, reached the same conclusion. App. 238-240. Dazey confirmed that his intention was to argue in the alternative. App. 240:5-14. The court denied the motion targeted at Dazeys comments. App. 239:23-40:4. B. Standard of review
Because the Defendants aimed their objection at Dazeys argument, rather than specifically at prosecutorial misconduct, a plain error standard of review generally would apply.9 United States v. Bell, 624 F.3d 803, 811 (7th Cir. 2010) (quoting United States v. Bowman, 353 F.3d 546, 550 (7th Cir. 2003)). This Court employs a two-step test in analyzing claims of prosecutorial misconduct. First, the Court determines whether the prosecutors statement, in isolation, was improper. Second, if it was improper, the Court considers whether the impropriety prejudiced the Defendants. United States v. Clark, 535 F.3d 571, 580
Durhams counsel arguably preserved his objection to the prosecutors statement for this appeal when, in making the motion for a mistrial, he noted that [t]he Government picked up on it in their final close. App. 236:16. In addition, the court said in ruling on the motion, I also dont know that -- it is prosecutorial misconduct that might result in a violation of the right to fair trial. App. 240:16-18. Because the district court erred under even under a plain error standard of review, its failure to order a mistrial would be error under the abuse of discretion standard, which applies when the issue was properly preserved. U.S. v. Sandoval, 347 F.3d 627, 631 (7th Cir. 2003).
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(7th Cir. 2008) (citations omitted); United States v. Badger, 983 F.2d 1443, 1450 (7th Cir. 1993). C. The prosecutors comments were improper.
The prosecutor should never have referred to Dazeys closing argument. First, regardless of its substance, defense counsels opinion about the evidence is not itself evidence the jury may use in determining the existence of the scheme. See United States v. Wasko, 473 F.2d 1282, 1282 (7th Cir. 1973) (reversing a conviction where the prosecutor stated an opinion in closing argument). Second, even though he knew or should have known that Dazey had made an argument in the alternative, App. 237-38, the prosecutor unfairly mischaracterized Dazeys argument as conceding a scheme to defraud, and did so in rebuttal, leaving the improper remarks unchallenged. Regardless of the prosecutors intent, his misrepresentation invited the jury to reject the presumption of innocence as well as the burden of proof, and to rely instead on counsels phantom concession. See United States v. Clark, 535 F.3d 571, 580-81 (7th Cir 2008) (finding a prosecutors characterization of a defendants anticipated closing argu-
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ment improper because it deprived the defendant of the presumption of innocence). Courts have deemed similar mischaracterizations and misrepresentations in closing argument improper. For example, in United States v. Lorefice, the prosecutor argued in closing that a defense witness, who was the defendants attorney for the transaction underlying the charges, had learned there was a scheme to defraud. 192 F.3d 647, 651 (7th Cir. 1999). This Court found the statement improper because it in effect invited the jury to infer that [the witness, the defendants attorney,] thought he was guilty. Id. at 652 (finding the statement improper but not sufficiently prejudicial to warrant a new trial in part because, unlike here, the defendants attorney had an opportunity to address the comment in closing). Similarly, in Davis v. Zant, the Eleventh Circuit held improper the prosecutors misrepresentation of the defendants theory of defense. 36 F.3d 1538, 1548 (11th Cir. 1994). Noting the prosecutors special duty of integrity, the court held that [l]ittle time and no discussion is necessary to conclude that it is improper for a prosecutor to use misstatements and falsehoods. Id. Likewise, in United States v. Dorr, the Fifth Circuit reversed where the prosecutor suggest43
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ed that defense counsel was contending that both judges were involved in a conspiracy to convict the appellantseven though [n]o such argument by defense counsel was ever presented. 636 F.2d 117, 120 (5th Cir. 1981); see also Anthony v. United States, 935 A.2d 275, 283-84 (D.C. 2007) (reversing the defendants convictions on the charges tainted by the prosecutorial misconduct where the prosecutor misstated the evidence in rebuttal argument). Here, the prosecutors statement unfairly mischaracterized defense counsels argument. It invited the jury to rely on Dazeys supposed concession or opinion as to the existence of the scheme, thereby distorting the jurys function and lowering the governments burden of proof. United States v. Vargas, 583 F.2d 380, 386 (7th Cir. 1978) (noting that prosecutors statements that in effect distort the burden of proof can be grounds for reversal). Therefore, the statement was improper. D. The comments prejudiced all three Defendants.
In determining prejudice, this Court considers the following factors: (1) whether the prosecutor misstated the evidence; (2) whether the remark implicated a specific right; (3) whether the defendant invited
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the remark; (4) whether the district court provided a curative instructions, and the efficacy of that instruction; (5) whether the defendant had an opportunity to rebut the remark; and (6) the weight of the evidence against the defendant. Clark, 535 F.3d at 580-81; see also United States v. Amerson, 185 F.3d 676, 686 (7th Cir. 1999). Analysis of the six factors demonstrates that reversal is necessary. First, the prosecutor misstated Cochrans counsels argument and in doing so misrepresented the lynchpin of all three Defendants theory of defense, namely the absence of a scheme to defraud. Although the transcript of Dazeys comments might, at first blush, appear to support what the prosecutor said on rebuttal, it was immediately clear to the district court upon review of the audio recording the following morning that Cochrans counsel had not conceded anything but instead made an alternative argument. App. 238:13-41:4. Indeed, the government
seemed to agree. When asked about Dazeys comment the following morning, the prosecutor told the court that he could not remember the exact phrasing but suggested that the gist of Dazeys argument sounded in the alternative. App. 237:24-38:4 (I think this isnt the first criminal trial there are multiple Defendants and one Defendant has 45
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made the argument maybe there was a crime but I was not involved in it and that is not improper.) (emphasis added). When considered in context, the prosecutor could not reasonably have believed Dazeys remark meant what the prosecutor argued it meantthat is, that a defendant had conceded that there was a scheme to defraud. Second, the prosecutors remark implicates the fundamental protections of the presumption of innocence and burden of proof. The remark invited the jury to infer a critical element of guilt as to all three Defendants based on a comment or opinion from counsel, rather than on the evidence. See Vargas, 583 F.2d at 386. Third, the Defendants did not invite the error. Durham and Snow had no involvement in the issue, and nor did Cochran, whose counsel merely misspoke. Fourth, the jury was not specifically instructed to disregard the prosecutors remark. Fifth, the Defendants had no ability to respond to or correct the remark, as it was made on rebuttal. See United States v. Brisk, 171 F.3d 514, 524 (7th Cir. 1999).
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Sixth, the evidence against the Defendants was not strong absent the prosecutors improper statement. See United States v. Simpson, 479 F.3d 492, 504 (7th Cir. 2007), abrogated on other grounds by United States v. Boone, 628 F.3d 927, 933 (7th Cir. 2007). In a complex case like this, the prosecutors suggestion that Dazey had made a straightforward admission of a key element must have had immeasurable appeal to the jury. Before this statement, the jury faced the task of determining whether there was a scheme to defraudthe key issue on which each claim against the Defendants hingedafter a multi-week trial based on contested testimony and documents, including financial statements related to a complex business structure, several loans between a variety of related and unrelated entities, and abstract accounting principles. To a jury starved for something it could understand, the prosecutors endorsement of Dazeys misstatement must have seemed a comprehensible proposition with which it could too easily agree. It allowed the jurors to take their focus off of the loans and the accountants and the numbersin other words, the actual evidenceand obscured the governments inability to prove the elements of the crime beyond a reasonable doubt. 47
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The prosecutors statement was highly prejudicial. The government made it seem as though at least one of the Defendants hadat the last moment, and only after being confronted with the trial evidenceabandoned the Defendants cohesive, unified defense. It gave the jury the mistaken impression that a Defendantone of only three people who really knew what had happened between Snow, Durham and Cochranhad admitted the core element of the case for all three. The prosecutors improper conduct so infected the trial with unfairness as to make the resulting conviction a denial of due process. See United States v. Richards, 719 F.3d 746, 767 (7th Cir. 2013) (reversing where the prosecutors misconduct in closing argument called into doubt the fairness of the defendants trial). It affected Defendants convictions on each count as the alleged scheme to defraud was the common thread tying together each count. Therefore, in light of the prosecutorial misconduct, the convictions of all three Defendants should be vacated on all counts and the case remanded for a new trial. III. The government failed to introduce any evidence that the wires challenged in Counts Two and Five were in furtherance of any scheme to defraud.
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The jury convicted Durham of two counts of wire fraud based exclusively on evidence that these two wires took place and in the absence of any proof connecting the wires to a scheme to defraud. With no evidence in the record to support this essential element of wire fraud, Durhams conviction on those counts cannot stand. United States v. Groves, 470 F.3d 311, 327-28 (7th Cir. 2006). This Court, therefore, should reverse Durhams convictions on Counts Two and Five, order a judgment of acquittal entered on these two counts, vacate his sentence on the remaining counts, and remand the remaining counts for resentencing. A. Standard of review
In considering a challenge to the sufficiency of the evidence to sustain a conviction, this Court reverses only if no rational trier of fact, viewing the evidence in the light most favorable to the Government, could have found the defendants guilt beyond a reasonable doubt. United States v. Owens, 697 F.3d 657, 658 (7th Cir. 2012). This standard of review applies where a defendant, like Durham, moved for acquittal at the close of the governments evidence and at the close of all the evidence. App. 243:24-25, 247:22-248:6; see United States v. Brandt,
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546 F.3d 912, 915 (7th Cir. 2008). Where, as here, the record contains no evidence, regardless of how it is weighed, upon which a rational trier of fact could find guilt beyond a reasonable doubt, the conviction must be overturned. United States v. Sanchez, 615 F.3d 836, 842 (7th Cir. 2010) (quoting United States v. Starks, 309 F.3d 1017, 1021 (7th Cir. 2002)). B. There was no evidence that the wires charged in Counts Two and Five were in furtherance of any scheme to defraud.
To sustain a conviction for wire fraud, there must be evidence of (1) the defendants participation in a scheme to defraud; (2) the defendants intent to defraud; and (3) the defendants use of the . . . wires . . . in furtherance of the fraudulent scheme. United States v.
Radziszewski, 474 F.3d 480, 484-85 (7th Cir. 2007) (quoting United States v. Davuluri, 239 F.3d 902, 906 (7th Cir. 2001)). Federal law criminalizes only those limited instances in which the use of the [wires] is a part of the execution of the fraud. Kann v. United States, 323 U.S. 88, 95 (1944); see also 18 U.S.C. 1343 (wire fraud covers wire transmissions for the purpose of executing such scheme or artifice).10
10
Cases construing the mail fraud statute are equally applicable to the wire fraud statute. United States v. Stephens, 421 F.3d 503, 507 (7th Cir. 2005) (quoting United States v. Wingate, 128 F.3d 1157, 1162 n. 3 (7th Cir. 1997)).
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Therefore, the wire must be incident to an essential part of the scheme. United States v. Maze, 414 U.S. 395, 411 (1974) (quoting Parr v. United States, 363 U.S. 370, 390 (1960)); see also R. 353 at 33 (With respect to wire fraud, the government must prove that an interstate wire communication was used to carry out the scheme, or was incidental to an essential part of the scheme.). Put another way, the wire must be causally linked to the schemes success, such that it make[s] the fraud possible or facilitate[s] it. United States v. Kwiat, 817 F.2d 440, 443 (7th Cir. 1987). Here, the government failed to offer any evidence connecting the wires charged in Counts Two and Five to any alleged scheme to defraud or any part of the alleged scheme to defraud. In fact, the government failed to connect the wire transfers charged in these counts to anythingcriminal or otherwise. Where the record is devoid of evi-
denceno testimony, no taped telephone conversations, no e-mail correspondence, no document whatsoeveron an element of the offense, a conviction can not stand. Groves, 470 F.3d at 324. With respect to each count, the government sought admission of a single exhibitExhibit 211 for Count Two and Exhibit 213 for Count 51
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Five.
S.A. 19:8-22:11, 141-142.
Each exhibit originally consisted of
multiple pages, with the first page documenting a wire transfer between Fair and Fair Holdings, and the remainder presumably intended to establish some connection to a scheme to defraud. But, the government ultimately introduced only the first page of each exhibitsetting forth nothing more than the fact of each wireinto evidence. S.A.
20:12-24, 21:8-17, 141-142. As a result, the only evidence in the record with respect to Counts Two and Five was that on two particular occasions, money was sent between two companies, Fair and Fair Holdings. Id. During the remainder of trial, the government elicited no further testimony about either wire and offered no evidence that these wire transfers made the fraud possible or facilitate[d] it in anyway. Kwiat, 817 F.2d at 443.11 Accordingly, there is no basis for a juror to infer from the simple movement of money between two companies that the transfers were incident to an essential part of [a fraudulent] scheme. Maze, 414 U.S. at 411.
11
In contrast, with respect to Count Three, for example, the government introduced similar documentary evidence with respect to the fact of a wire transfer, S.A. 21:25-22:11, but then also offered testimony tracing the proceeds of the wire to alleged personal expenditures by the Defendants, Tr. 910:15-911:16. No similar evidenceor any evidence whatsoever for that matterwas offered with respect to Counts Two and Five.
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Indeed, the only other mention of either count was in closing, when the government argued that Durham made a $250,000 wire of investor money [Count Two] so he could rebuild his garage. Tr.
1635:11-13. Of course, with no evidentiary supportindeed, no mention whatsoever during the trial of Durham constructing a garagethe argument was improper. See United States v. Henry, 2 F.3d 792, 795 (7th Cir. 1993) (It is fundamental that counsel cannot rely or comment on facts not in evidence during closing argument.). But regardless, closing argument is not proof and Durhams convictions on Counts Two and Five cannot stand without evidence in the record to support an essential element of the charged crimes. See Groves, 470 F.3d at 327-28. Durhams convictions on Counts Two and Five should therefore be reversed and a judgment of acquittal entered on both counts. Burks v. United States, 437 U.S. 1, 18 (1978). In addition, Durhams sentence with respect to the remaining counts should be vacated, and in accordance with [the Courts] usual practice, his case remanded for resentencing. United States v. Holzer, 840 F.2d 1343, 1352 (7th Cir. 1988)
(remanding for resentencing after acquittal on some but not all counts because the judge conceivably may have given him a longer sentence 53
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because he erroneously believed that [he] had committed another crime); accord United States v. Adams, 625 F.3d 371, 386 (7th Cir. 2010); United States v. Colon, 549 F.3d 565, 572 (7th Cir. 2008). IV. The district court erred by rejecting the proposed securities fraud jury instruction. The district courts erroneous rejection of the proposed theory-ofdefense jury instruction tainted Defendants securities fraud convictions on Count Twelve. [T]here are circumstances where a pattern instruction will be insufficient and where a criminal defendant is entitled to an explicit jury instruction encapsulating his theory of defense. United States v. Irorere, 228 F.3d 816, 825 (7th Cir. 2000). A defendant is entitled to a particular theory of defense instruction if: (1) the instruction represents an accurate statement of the law; (2) the instruction is supported by the evidence; (3) the instruction is not already part of the charge; and (4) failure to include the instruction would deny the defendant a fair trial. United States v. Swanquist, 161 F.3d 1064, 1075 (7th Cir. 1998). If the defendant can satisfy these four criteria, the trial courts decision to not give the theory of defense instruction provides grounds for reversal. United States v. Hach, 162 F.3d 937, 945 (7th Cir. 1998). 54
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The Defendants theory of defense to securities fraud was that a scheme to delay is not a scheme to defraud and that many of the alleged misrepresentations on which the government built its case related to, at most, delaying interest payments to investors, or encouraging investors to delay redemptions of investment certificatesnot the purchase or sale of a security by any investor. Tr. 1577:9-24, 1578:16-17; S.A. 145. For the jurors to understand the legal import of this theory of defense, it was critical that they understand the difference between, on one hand, misrepresentations made in connection with a purchase or sale of a security, and, on the other, misrepresentations made to delay interest payments to investors or to cause investors to hold previously purchased investment certificates. To highlight this vital distinction, Defendants proposed the following jury instruction for the securities fraud charge: First, there must be a purchase or sale of a security. This means that the transfer of ownership of an asset is required for a purchase and sale. Simply continuing to holding [sic] a security does not qualify. Furthermore, delaying an interest payment or redemption of an Investment Certificate is not a purchase or sale of a security. Second, to satisfy the in connection with requirement, the government must prove beyond a reasonable doubt that there was some nexus or relationship between the alleged 55
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untrue statements of material fact and the purchase or sale of interests in Fair Finance. The misrepresentations must have some direct pertinence to a securities transaction. Evidence that defendants made untrue statements or omissions of material fact following the purchase of an Investment Certificate is inadequate. Likewise, evidence that investors purchased or sold interests in spite of defendants alleged untrue statements of material fact is insufficient. Instead, the government must prove beyond a reasonable doubt that investors actually purchased or sold some or all of their Investment Certificates in Fair in connection with the defendants alleged untrue statements of material fact. S.A. 145. The district court rejected the proposed jury instruction and instead gave a set of instructions simply mirroring the statutory language. The instructions as given told jurors only that the misrepresentation must have been made in connection with the purchase or sale of a securitywithout any mention of the legal distinction vital to a proper understanding of that language in light of the testimony and evidence at this trial. S.A. 182. This was error. It allowed the jurors to consider mistakenly evidence of misrepresentations made to delay paymentsacts that do not rise to securities fraudwhen deciding whether to convict Defendants of securities fraud.12 Absent the pro-
12
The Defendants are entitled to appellate review of this error notwithstanding the fact that the prison term to which each Defendant was sentenced based on their securities fraud convictions runs concurrent to other portions of their sentences. See App. 3; App.
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posed instruction, it is impossible to know whether Defendants were convicted based on evidence clearly insufficient to support a securities fraud conviction. Given the importance of the proposed instruction to Defendants theory of defense, their conviction for securities fraud must be vacated. See Hach, 162 F.3d at 945. A. Standard of review.
This Court reviews de novo a properly preserved objection to a district courts decision not to instruct the jury on a defendants theory of defense. Irorere, 228 F.3d at 825. Here, Durham explicitly objected to the district judges rejection of the proposed jury instruction. App.
246:1-10; see also United States v. Requarth, 847 F.2d 1249, 1253-54 (7th Cir. 1988). Thus, the district courts refusal to give the instruction is reviewed de novo.13
74; App. 144. At a minimum, Defendants were each assessed a monetary special assessment for each count, App. 6, 77, 147, 269, 283, 297; R. 426 147; R. 421 148; R. 424 132, which renders the concurrent sentences doctrine inapplicable. Steffes v. Pollard, 663 F.3d 276, 280-81 (7th Cir. 2011) (citing Ray v. U.S., 481 U.S. 736, 737 (1987)).
13
Counsel for Cochran and Snow did not object to the courts rejection of the proposed jury instruction. Thus, the appropriate standard for them may be plain error. See Irorere, 228 F.3d at 825.
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B.
The proposed instruction was an accurate statement of law.
In rejecting the proposed jury instruction, the district court erroneously refused an accurate statement of law and created a risk that the jury convicted the Defendants of securities fraud on the basis of irrelevant evidence. Even when interpreted broadly, in connection with requires the misrepresentation or omission to occur in conjunction with a purchase or sale of a security. See United States v. OHagan, 521 U.S. 642, 651 (1997); Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S. 71, 85 (2006).14 It is well established that fraudulently inducing an investor to retain a security does not satisfy the in connection with requirement for a securities fraud conviction, unless there has been a significant change in the nature of the investment or additional funds are committed. Abrahamson v. Fleschner, 568 F.2d 862, 868 (2d Cir. 1977); Krim v. BancTexas Grp., Inc., 989 F.2d 1435, 1443 n. 7 (5th Cir. 1993); Otto v. Variable Annuity Life Ins. Co., 816 F. Supp. 458, 461 (N.D. Ill. 1991). Rather, continued performance of rights and obligations established up-
14
Courts look to civil, in addition to criminal, precedent when examining the elements of criminal securities fraud. See OHagan, 521 U.S. at 651 (citing Ernst & Ernst v. Hochfelder, 425 U.S. 185, 214 (1976)).
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on prior purchase of a security is nothing more than a continuation of the status quo . . . and d[oes] not constitute purchases or sales. Rothstein v. Seidman & Seidman, 410 F. Supp. 244, 247 (S.D.N.Y. 1976) (internal quotation omitted). Here, Fairs investors decision not to redeem their investment certificates did not constitute a purchase or sale. When investors purchased a Fair investment certificate, they were entitled to interest on their investment for a set period of time. S.A. 35. At the end of that period, they could decide to redeem their certificates, at which point their principal and any outstanding interest would be repaid. Id. Alternatively, an investor could simply continue to hold the certificate. Id. When retained past maturity, the principal remained constant and additional interest was paid according to the original terms. Id. Nothing would change. The certificates did not automatically roll over into new securities and no new cash expenditures were required. Id. Retaining a certificate past maturity was merely a continuation of the status quo. Similarly, statements made with respect to the timing of interest payments of an already purchased security are not in connection with the purchase or sale or a security. Abrahamson, 568 F.2d at 59
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868; Otto, 816 F. Supp. at 461. Therefore, Defendants proposed jury instruction was an accurate statement of law. C. The proposed instruction was supported by the evidence.
Much of the governments evidence of misrepresentations related to delayed interest payments and redemptions. Accordingly, the evidence at trial supported the proposed jury instruction. A theory need only have some foundation in the evidence, however tenuous, to render a theory-of-defense instruction proper. United States v. Van Allen, 524 F.3d 814, 823 (7th Cir. 2008). The relevant
evidence need not be so compelling that the jury could reach only one conclusionindeed, that conclusion need not even be more likely than not. See United States v. Meyer, 157 F.3d 1067, 1075 (7th Cir. 1998) (theory of defense supported if there is evidence sufficient to create a reasonable doubt of guilt in the mind of a reasonable juror (internal quotations omitted)). As long as a reasonable jury may have believed the alleged misrepresentations were made to delay interest payments or redemptions, it does not matter if there is also evidence to the contrary. See id. Instead, [i]t may often be better to give the proposed jury instruction and let the jury sort it out. Id. at 1076.
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The government adduced considerable evidence at trial of misrepresentations made by Defendants simply to delay payments to investors and delay redemptions. For example, the governments examinations of former Fair employees Douglas DeRose and Matthew Ogden, focused almost exclusively on establishing that the Defendants purportedly lied to delay interest payments to and redemptions by investors. Tr. 13:22-14:5, 256:24-58:2, 262:21-63:21, 284:18-25, 294:7-12,
649:20-59:24, 657:18-59:24, 1558:13-17. The governments direct examination of David Spector likewise detailed Defendants alleged efforts to delay Spectors redemption of his investment certificate. Tr. 15:21-16:2, 717:11-722:2. The governments direct examination of
Donald Russell also focused on the Defendants attempts to delay payments. Tr. 511:11-14:18. Further, much of the wiretap evidence
which the government called the most important evidence in the case, Tr. at 6:21-22involved alleged misrepresentations made only to delay payments to current investors, not to solicit additional investors. See Tr. Exs. 78A, 79A, 80A, 81A. Tellingly, the government announced in its opening statement that it would show the Defendants lied to investors who were calling 61
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and complaining about why their checks were arriving latenot that they lied to induce new sales. Tr. 7:2-5. And, it highlighted this evidence again in its closing argument. Tr. 1554:18-20, 1558:1-4, 1558:1317, 1562:11-17. The government urged the jury to focus on evidence related to delayed payments and redemptions when rendering its securities fraud verdict. All of this evidence supports Defendants theory of defense that the governments evidence at most established a scheme to delay, not a scheme to defraud. See Tr. 1577:9-24, 1578:16-17. Had the jury been properly instructed, there was substantial evidence for a reasonable juror to believe that such misrepresentations were only made in an effort to delay payments to investors. Given the record as a whole, had the jury been properly focused on the distinction between a purchase or sale and mere delay, the jury reasonably may have found the government did not satisfy the in connection with requirement. Meyer, 157 F.3d at 1075. Consequently, the district courts rejection of Defendants proposed jury instruction was error. Since there is a strong possibility that the jury misinterpreted this evidence as supporting a securities fraud conviction, the conviction should be vacated. 62
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D.
Defendants theory was not already part of the charge.
The district court should have accepted Defendants proposed instruction because it was not already part of the securities fraud charge. A defendant is entitled to a specific jury instruction unless the jury was adequately instructed on the defendants theory of defense, based on a review of the instructions in their entirety. United States v. Reed, 539 F.3d 595, 599 (7th Cir. 2008). The district courts instructions did not adequately express Defendants theory of defense because the instructions as given did not explain what constitutes a purchase or sale such that the jury could properly evaluate whether the alleged misrepresentations satisfied the in connection with requirement of securities fraud, or merely related to a delayed interest payment or redemption. Instead, the district courts instruction merely parroted the statutes in connection with a purchase or sale language without drawing the key distinction upon which the Defendants theory of defense relied. S.A. 182. The instructions as given to a lay jury did not highlightor even suggestthat mere retention of a security was insufficient to satisfy the in connection with requirement. See Griffin v.
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United States, 502 U.S. 46, 59 (1991) (Jurors are not generally equipped to determine whether a particular theory of conviction submitted to them is contrary to law. . . . [L]eft the option of relying upon a legally inadequate theory, there is no reason to think that their own intelligence and expertise will save them from that error.); see also Gehring v. Case Corp., 43 F.3d 340, 344 (7th Cir. 1995) (Judges ought not assume that jurors come armed with copies of H.L.A. Hart & Tony Honor, Causation and in the Law (2d ed. 1985), and the academic background necessary to put its distinctions to use.) Thus, the instructions as given did not fairly or adequately reflect Defendants theory. E. The failure to include Defendants instruction denied them a fair trial.
The district courts rejection of Defendants proposed instruction denied them a fair trial by creating a risk that jurors relied on evidence showing alleged misrepresentations made to delay payment when they convicted the Defendants of securities fraud. In determining whether failure to include a proposed jury instruction denied the appellant a fair trial, the key consideration is whether a reasonable jury may have
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reached a different verdict had the proposed instruction been given. See Meyer, 157 F.3d at 1075. In Meyer, the Seventh Circuit held that the defendant in a drug conspiracy case was denied a fair trial because the trial courts rejection of his proposed jury instruction may have cost him a not-guilty verdict. Id. at 1075. The trial court had rejected the defendants proposed jury instruction that a mere buyer-seller relationship between a defendant and members of an alleged conspiracy was insufficient for a conspiracy conviction. Id. at 1074. The Seventh Circuit reversed the conviction on the grounds that the jury may have rendered a not-guilty verdict had the jury been properly focused on the distinction between a conspiracy and a mere buyer-seller relationship. Id. at 1075. That is similar to what happened here. The jury was not informed of a key distinction that may have changed the verdict. The government presented evidence of alleged misrepresentations made to delay payments. Defendants theory of defense was heavily dependent on a distinction that went to the core of the securities fraud charge: whether inducing retention of a security by investors or delaying payments to investors was considered in connection with a purchase or sale. Alt65
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hough Defendants were allowed to present this theory of defense throughout the trial, the defense could not be effective without proper instruction of the jury. By refusing to properly instruct the jury on this distinction, the district court created a risk of juror confusion that may have robbed Defendants of a not-guilty verdict for securities fraud. A conviction clouded by the district courts erroneous rejection of Defendants proposed jury instruction cannot stand. Defendants convictions on Count Twelve should be vacated and the case remanded for resentencing. See Hach, 162 F.3d at 945. V. The district court failed to follow proper sentencing procedures. The district court made three fundamental procedural errors when sentencing the Defendants. Each requires Defendants sentences be vacated and the cases remanded for resentencing. First, the district court failed to calculate correctly the Sentencing Guidelines range when it made erroneous findings as to the intended and actual losses caused by the Defendants conduct, failing in the process to even address Defendants specific objections to the portions of their PSRs relating to the loss calculations. This error had a substantial effect at sentencing, as
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the loss increase was unequivocally the controlling factor in the Sentencing Guidelines range calculation for each Defendant. Second, the district court explicitly and affirmatively refused to give meaningful consideration to the need to avoid unwarranted sentencing disparities, as required by 18 U.S.C. 3553(a)(6). Indeed, the district court mistakenly believed that it was not permitted to consider sentences imposed in other districts, several of which had been brought to the district courts attention in advance of and at sentencing. Yet, this is precisely what section 3553(a)(6) requires. Third, the district court applied its erroneous actual loss calculation when entering the restitution order. The district courts failure to account for extrinsic factors that contributed to the lossa requirement to determine properly the loss caused by a defendants conduct rendered the restitution order improper as a matter of law. None of these errors was harmless. The district courts failure to follow proper sentencing procedures is especially problematic here because the district court acknowledged it was effectively sentencing Mr. Durham and Mr. Cochran to life sentences given their ages at the time of sentencing. App. 265:9-13; see also Sent. Tr. 148:10-149:3; App. 67
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279:13-15. As this Court has repeatedly recognized, death in prison is not to be ordered lightly. United States v. Patrick, 707 F.3d 815, 820 (7th Cir. 2013) (quoting United States v. Wurzinger, 467 F.3d 649, 652 (7th Cir. 2006)). [A] sentence of death in prison is notably harsher than a sentence that stops even a short period before. Id. Sentencing courts are thus admonished to give pause before sentencing a defendant to life in prison. Id. Here, despite the need for serious consideration before sentencing a defendant to life imprisonment, procedural errors tainted Defendants sentences. Accordingly, their sentences cannot stand. A. Standard of review
[W]hether a district court followed proper procedures in sentencing is reviewed de novo. United States v. Trujillo-Castillon, 692 F.3d 575, 578 (7th Cir. 2012). [F]ailing to calculate (or improperly calculating) the Guidelines range and failing to consider the 3553(a) factors are procedural errors. Gall v. United States, 552 U.S. 38, 51 (2007). When evaluating whether the district court calculated the Guidelines range properly, findings of fact underlying the calculation are reviewed
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for clear error. United States v. Whiting, 471 F.3d 792, 802 (7th Cir. 2006). When a sentencing court commits procedural error, the sentence must be vacated and the case remanded to the district court for resentencing unless this Court has reason to believe that the error in no way affected the district courts selection of a particular sentence. United States v. Martin, 692 F.3d 760, 766 (7th Cir. 2012) (quoting United States v. Farmer, 543 F.3d 363, 375 (7th Cir. 2008)). B. The district courts loss calculation was clearly erroneous.
The loss calculation should be based on the greater of actual loss or intended loss. U.S.S.G. 2B1.1, cmt. n. 3(A). Regardless of which measure of loss the district court uses, it is the governments burden to prove [the] amount of loss by a preponderance of the evidence. United States v. Schroeder, 536 F.3d 746, 753 (7th Cir. 2008). Even though calculating the loss can be difficult, United States v. Zangari, 677 F.3d 86, 93 (2d Cir. 2012), the government must offer a reasonable estimate of the loss based on proper criteria to meet its burden, U.S.S.G. 2B1.1, cmt. n. 3(C). If the loss cannot be reasonably determined, [t]he
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court shall use the gain that resulted from the offense as an alternative measure of the loss. Id. at cmt. 3(B). As a starting point, the district court erred as a matter of law by failing to address Defendants objections to the district courts loss calculations. Here, Defendants triggered the [Rule 32] protections when they raise[ed] specific objections to the presentencing report. United States v. Jewel, 947 F.2d 224, 234 (7th Cir. 1991); see R. 413. at 3, 12; R. 429 at 12- 13; Sent. Tr. 10-17; R. 432 at 1-3; R. 421, Addendum at 2; R. 424 at 29-35. The district court must rule on any disputed portion of the presentence report or other controverted matter or must determine that a ruling is unnecessary either because the matter will not affect sentencing, or because the court will not consider the matter in sentencing. Fed. R. Crim. P. 32(i)(3)(B). The district courts silence in the face of these objections was error. United States v. Leiskunas, 656 F.3d 732, 737-38 (7th Cir. 2011); see also United States v. Stout, 882 F.2d 270, 272 (7th Cir. 1989) (Rule 32 is mandatory, not discretionary, and our court has been reluctant to characterize any violations of the rule as harmless.) (internal citations
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omitted).15 Such error requires a remand for resentencing because the lack of explanation means this Court cannot meaningfully review the [district c]ourts decision. Leiskunas, 656 F.3d at 737-38; Jewel, 947 F.2d at 232. As to the district courts loss calculations, the district court found that each Defendant intended a $250 million loss or, in the alternative, that the Defendants caused an actual loss of $202 million, resulting in a 28-level increase in the offense level. See App. 250:20-252:7, 272:13-19, 288:24-289:18. As set forth below, both calculations were infected with error.16 1. The district court erred when calculating intended loss without considering Defendants subjective intent.
Intended loss is the the pecuniary harm that was intended to result from the offense. U.S.S.G. 2B1.1, cmt. n. 3(A)(ii). In the Seventh
15
The district court also seemingly rejected, without meaningful consideration, Cochrans mitigation argument about life expectancy and the importance of considering a sentence that would not be an effective life sentence. S.A. 220:10-24. The court commented: I dont know about the life expectancy table, but I have crafted a sentence I think based on the counts for which you were charged . . . . App. 279:13-15. The court continued: [I]t may be in effect a life sentence. It is not certainly an effective life sentence. App. 280:20-22. This too is failure to give meaningful consideration to a mitigation argument, which warrants reversal. This error is particularly egregious given that death in prison is not to be ordered lightly and the chance that a defendant will not live out his sentence should give pause to a sentencing court. United States v. Wurzinger, 467 F.3d 649, 652 (7th Cir. 2006). Defendants objected to both the intended and actual loss figures. R. 413 at 1-12; Sent. Tr. 10:6-14; R. 432 at 1-3; R. 421, Addendum at 2; R. 424 at 29-35.
16
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Circuit, intended loss should be established through the subjective intent of the defendant. United States v. Middlebrook, 553 F.3d 572, 578 (7th Cir. 2009). Here, the government presented no evidence whatsoever of subjective intent, see R. 434 at 3, and the district court made no factual findings on this point.17 Instead, the district court found that the Defendants intended investors to lose $250 million because that was the amount that [Defendants] placed at risk. App. 251:1-252:7, 272:13-19, 288:24-289:11 (citing United States v. Lauer, 148 F.3d 766, 768 (7th Cir. 1998)). Cases, like Lauer, applying a placed at risk standard are contrary to the weight of authority in this Circuit requiring proof of subjective intent to establish intended loss. See Middlebrook, 553 F.3d at 578; United
States v. Berheide, 421 F.3d 538, 541 (7th Cir. 2005) (reversing the intended loss finding, which must be based on a determination of how much loss, if any, [the defendant] intended [the victim] to suffer); United States v. Fearman, 297 F.3d 660, 662 (7th Cir. 2002) (reversing the
Indeed, there is contrary evidence in the record, including evidence that Durham personally assumed loans Fair made to debtors who could no longer pay, Tr. 446:2-13, 1343:16-1346:25, and ultimately paid over $28 million into Fair, Tr. 1368:19-23. Almost $7 million of the $28 million in payments from Durham to Fair occurred after January 2008. Tr. 1388:8-11. Durham also pledged personal assets as collateral on other loans. Tr. 1036:18-20.
17
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intended loss finding, which is not an actual loss or a realistically expected loss, but one that must exist at least in the defendant's mind); United States v. Higgins, 270 F.3d 1070, 1075 (7th Cir. 2001) (reversing the intended loss finding, which as the name suggests, turns upon how much loss the defendant actually intended to impose). The placed at risk standard is also contrary to near-uniform authority in other circuits. See, e.g., United States v. Diallo, 710 F.3d 147 (3d Cir. 2013) ([W]e look to the defendants subjective expectation, not to the risk of loss to which he may have exposed his victims.) (internal citation omitted); United States v. Quaye, 57 F.3d 447, 448-49 (5th Cir. 1995) (vacating a sentence for failure to find that the defendant did not intend to repay the loans); United States v. Newson, 351 F. App'x 986, 988 (6th Cir. 2009) ([I]ntended loss [is] the loss the defendant subjectively intended to inflict on the victim.) (internal citation omitted); United States v. Wells, 127 F.3d 739, 747-48 (8th Cir. 1997) (The district court did not commit clear error in determining that there was no intention to cause the bank a loss . . . . The sentencing courts determination that the intended loss was zero is not clearly erroneous.); United States v. Manatau, 647 F.3d 1048, 1050-54 (10th Cir. 2011) (intended 73
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loss is a loss the defendant purposely sought to inflict.) (emphasis in original); cf. United States v. Confredo, 528 F.3d 143, 152 (2d Cir. 2008) ([A] district court may presume that the defendant intended the victims to lose the entire face value of the [fraudulent] instrument, but the defendant may rebut the presumption by producing evidence to demonstrate that he actually intended to cause a lesser loss.) (internal quotations omitted).18 The Tenth Circuit recently set forth an exhaustive analysis of why the Guidelines compel this conclusion: the meaning of intent is plain, it fits within background legal norms, which the Sentencing Commission clearly understood, and a definition of intent is implausible on its face if it includes things [a defendant] never contemplatedexcept perhaps in an Opposite Day game. Manatau, 647 F.3d at 1050-53. Because there was no offer of proof by the government and no finding by the district court as to the amount Defendants subjectively intended investors to lose, the district court erred in calculating De-
18
In Confredo, the court noted that although the 1991 Sentencing Guidelines referred to the probable or intended loss, subsequent versions of the Guidelines eliminate the word probable, and courts have subsequently rejected equating intended loss with the worst case scenario [of] potential loss. 528 F.3d at 150-51 (emphasis in original) (internal citations omitted).
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fendants Guidelines ranges based on intended loss. Defendants sentences based on an improperly calculated Guidelines range cannot stand. See Schroeder, 536 F.3d at 753. 2. The district court erred even under the placed at risk standard because it failed to account for money returned to investors.
The district courts intended loss finding was premised on the amount of investment certificates Fair was authorized to sell in July 2008 and the authorization Fair sought in late 2009, each of which equaled $250 million. App. 250:23-252:7, 272:13-19, 288:24-289:18.
Neither, however, is the proper measure of intended loss even under the district courts erroneous placed at risk standard. First, although Fair did sell substantially all its investment certificates under the July 2008 authorization, Tr. 676:18-22, it is undisputed that some of those investors were paid back, although the precise amount was not adduced at trial or at sentencing.19 The money repaid to investors before the fraud was detected must be deducted from the intended loss figure under the placed at risk standard. United States
19
The $250 million July 2008 offering was nearly fully subscribed. Tr. 676. But in Fairs bankruptcy, investors claimed a total of $208 million in unpaid principal from all Fair offerings. R. 434 at 2-3. Therefore, at a minimum, $42 million of the July 2008 offering was necessarily repaid, although this amount is almost certainly greater since the $208 million total includes claims from all of Fairs offerings, including pre-2008 offerings.
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v. Brownell, 495 F.3d 459, 463 (7th Cir. 2007) (remanding for a determination of how much was returned before the detection of the fraud because the Seventh Circuit, and several others, permit a credit against intended loss for money returned). Having failed to do so, the district courts intended loss finding of $250 million was clearly erroneous. Second, Defendants unsuccessful attempt to authorize Fair to issue $250 million in additional investment certificates in late 2009 could not and did not place investors money at risk. Because the authorization was never granted, Fair was never able to sell certificates under it and no funds were placed at risk. 3. The district court erred when calculating actual loss by failing to account for the effect of extrinsic factors.
The district courts alternative basis for its loss enhancement actual lossis also flawed. Actual loss is the reasonably foreseeable pecuniary harm that resulted from the offense. U.S.S.G. 2B1.1, cmt. n. 3(A)(i). Harm is reasonably foreseeable if the defendant knew or, under the circumstances, reasonably should have known, [it] was a potential result of the offense. Id. at cmt. n. 3(A)(iv). Not only must the harm be reasonably foreseeable, but there must be a causal connection between the relevant conduct and the loss. See Whiting, 471 F.3d at 76
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802 (reversing for failure to find the misrepresentations caused the loss). As with intended loss, it is the governments burden to prove the actual loss by a preponderance of the evidence. Schroeder, 536 F.3d at 753. Here, the district courts actual loss calculation of $202 million equaled the outstanding principal investors claimed they were owed at the time of sentencing, after a credit for the $6 million of assets Fairs bankruptcy trustee recovered on their behalf. App. 251:11-252:7; R. 434 at 2-3. But the district courts loss calculation failed to account, as it must, for extrinsic factors that contributed to any decline in the value of Fairs assets.20 United States v. Olis, 429 F.3d 540, 548-49 (5th Cir. 2005); see also United States v. Rutkoske, 506 F.3d 170, 180 (2d Cir. 2007) (remanding for resentencing as a result of [t]he District Court's basic failure at least to approximate the amount of the loss caused by the fraud without even considering other factors relevant to a decline in the at-issue securitys value); United States v. Nacchio, 573 F.3d
20
As unsecured creditors of Fair, the value of the investment certificates was based on the value of Fairmeasured either in terms of the value of Fairs assets or Fairs going concern valueless Fairs liabilities to senior or secured creditors. Fairs assets consisted mostly of its consumer receivables and outstanding loans, including the collateral or security interests in assets underlying those loans. S.A. 103-122.
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1062, 1078-79 (10th Cir. 2009) (applying the same principals to an insider trading case). Here, relevant extrinsic factors contributing to declines in the value of Fairs assets were not accounted for by the district court. Most significant, the district court failed to account for the effect of the general decline in the broader recessionary economy on Fairs balance sheet, including but not limited to the nationwide decline in property values. The record contained evidence of other factors influencing the value of Fairs assets. For example, one of the companies with an outstanding loan from Fair had its ability to repay the loan hindered when a significant customer canceled its contract. S.A. 197. Another company with an outstanding loan from Fair saw its profitability decline when its raw material costs increased by six percentage points between 2009 and 2011. S.A. 197, 204-209. The CEO of that company submitted an affidavit indicating that the decline in the value of that company was a result of market and competitive factors and not a result of any actions of the Defendants. S.A. 212-213. The district court also failed to account for the effect of the governments raid on Fairs office, which eliminated the infrastructure 78
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servers, hard drives, phone system, and documentsthat Fair needed to continue operating its then-profitable and indisputably legitimate consumer receivables business, as well as the effect of negative publicity from the governments forfeiture lawsuit, which was dismissed one day after it was filed. S.A. 16:21-18:14, 196-198. Neither the government nor the district court made any effort to disaggregate the effect of these various factors, rending the actual loss finding clearly erroneous. Comparing the value of the assets reported on Fairs financial statements before Fairs bankruptcy to the amount that Fair investors were repaid by the bankruptcy trustee makes clear the absence of evidence linking Defendants conduct to the $202 million actual loss that the district court found. In the November 2009 offering circular Fair submitted to ODS, Fair reported over $255 million in assets and only $18 million in senior debt, leaving $237 million in assets available to pay the $207 million in outstanding investment certificates. S.A. 103. Even crediting the governments allegation that the offering circular overstated Fairs assets, there is no record evidence that they were overstated by anything approaching this magnitude. Thus, the gov-
ernment offered no evidence explaining how Defendants conduct was 79
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exclusively responsible for shrinking the $237 million in reported assets in November 2009 to the $6 million recovered by the bankruptcy trusteeoften through liquidation of assets rather than sales as going concernsat the time of sentencing. See App. 251:11-252:7; R. 434 at 2-3. The court cannot simply assume that the difference must have been a result of Defendants conduct, particularly given the presence of the extrinsic factors discussed above. The district courts failure to account for those factors in calculating actual loss was error. The fact that such a calculation may be difficult is immaterial. Zangari, 677 F.3d at 93. The government must meet its burden of proving how Defendants conduct affected the asset values. Where this is not possible, the Guidelines provide an alternative: The court shall use the gain that resulted from the offense as an alternative measure of the loss. U.S.S.G. 2B1.1, cmt. n. 3(B). But the government provided no evidence of this measure, and the district court did not conclude, nor could it have, that the Defendants gained this amount. Therefore, the district court erred in calculating Defendants Guidelines ranges based on an actual loss that failed to account for the effect of extrinsic factors,
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and therefore Defendants sentences cannot stand. See Schroeder, 536 F.3d at 753.21 C. The district court erred by failing to consider the need to avoid unwarranted sentencing disparities.
Proper sentencing procedure requires sentencing courts to consider what sentence is appropriate for the individual defendant in light of the statutory sentencing factors, 18 U.S.C. 3553(a). United States v. Panice, 598 F.3d 426, 441 (7th Cir. 2010) (internal citation deleted). In doing so, the judge must address any substantial arguments the defendant made. Id. at 443 (internal citation omitted). Section
3553(a)(6) requires a sentencing court to take into account the need to avoid unwarranted sentencing disparities among defendants with similar records who were found guilty of similar conduct. United States v. Bradley, 675 F.3d 1021, 1027 (7th Cir. 2012). The district courts re-
21
The Defendants Guideline range was also increased based on the number of victims. App. 252:15-21, 273:7-11, 289:19-21. This enhancement hinges on the actual loss finding. See United States v. Kimoto, 588 F.3d 464, 496 (7th Cir. 2009) ([T]he estimation of the number of victims is limited to those who incurred part of the actual loss.); United States v. Arnaout, 431 F.3d 994, 999 (7th Cir. 2005) (reversing for lack of evidence connecting the number of victims to the loss amount). Because the district courts erroneous actual loss finding was based on the assumption that Defendants conduct caused all investors to lose their entire investment, the record remains devoid of any proof or finding as to the number of victims who suffered a loss if the loss were properly calculated. Thus, the district courts actual loss calculation error renders the enhancement for the number of victims erroneous too.
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fusal to properly consider sentencing disparities here, under the mistaken belief that it could not, was error. At sentencing, Defendants identified and presented cases involving convictions, following trial, for fraud involving losses far in excess of those the government claimed here, with sentences imposed far less than the 50-year, and in some cases the 10- and 25-year, terms handed down in this case: Ronald Ferguson was sentenced to 2 years imprisonment for a $544 million fraud. S.A. 201; see also United States v. Ferguson, 584 F. Supp. 2d 447, 456 (D. Conn. 2007). E. Kirk Shelton was sentenced to 10 years imprisonment for a $3.2 billion fraud. S.A. 201; see also S.A. 228-229. Bernard Ebbers was sentenced to 25 years imprisonment for a $1 billion fraud. S.A. 201; see also United States v. Ebbers, 458 F.3d 110, 128-129 (2d Cir. 2006). S.A. 199-203, 215-216,
Defendants pointed to other such examples. 217:19-218:5; R. 432 at 1.22
22
The district court seemed to suggest that Cochran did not preserve this argument because his lawyers really havent made that argument. Sent. Tr. at 158. But Cochran stated unequivocally in his sentencing memorandum that he had joined and adopted the disparity argument and analysis presented fully in Durhams sentencing memorandum. R. 432 at 1. Moreover, the PSR included the disparity issue as a basis for potential departure. R. 421 at 156(f). Thus, Cochran properly raised the 3553(a)(6) issue. See generally United States v. Jones, 438 Fed. Appx. 515 (7th Cir. 2011) (discussing preservation of arguments under 3553).
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The district court failed to address these arguments, wrongly believing: I cant look to cases from other districts. App. 278:3-8. The district court apparently felt it could (or should) simply ignore these cases because this case involves people in the Heartland of America. App. 278:8; see also App. 261:19-21 (I dont know about what goes on in the Southern District of New York. I visit there only rarely. This is the Heartland. This is where we work hard.). But the law requires exactly the opposite. Sentences for substantially similar conduct in other cases, including cases in other districts, are precisely the comparison group that the sentencing court is supposed to consider. United States v. Pisman, 443 F.3d 912, 916 (7th Cir. 2006) (section 3553(a)(6) concerns unjustified difference across judges or districts). This Court has recently suggested that a sentencing judge need not say a word about 3553(a)(6) . . . to satisfy the procedural requirement that he give that factor meaningful consideration, so long as the judge correctly calculated and carefully reviewed the guidelines range. United States v. Reyes-Medina, 683 F.3d 837, 841 (7th Cir. 2012) (quoting United States v. Bartlett, 567 F.3d 901, 908 (7th Cir. 83
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2009)).
In Reyes-Medina, however, that statement was mere dicta, as
this Court found that the judge did expressly consider section 3553(a)(6). Id. at 840. Further, that dicta was based on a line of cases in the Seventh Circuit holding that judges adequately consider disparities among co-defendants by relying on properly calculated Guidelines ranges. See Bartlett, 567 F.3d at 908. Here, in contrast, the Defendants disparity argument concerned nationwide disparities with respect to a category of offenses that regularly result in sentences substantially below the Guidelines range. See R. 429 at 42-46; R. 432 at 1; R. 430 at 3-4. 23 Regardless, the district court here erred as a matter of law in its
23
It is unclear how the district court treated the sentences the government argued should be considered with respect to unwarranted sentencing disparities. The district court may have also ignored the examples the government offered or, in even more egregious departure from sentencing procedures, the court may have considered the governments examples and ignored only the Defendants examples. Further, the counter-examples the government offered to the district court are inapposite. In oneUnited States v. Bernard Madoff, 09-cr-213 (S.D.N.Y)the 150 year sentence flowed from a $13 billion fraudulent scheme, an amount significantly above the loss the court found in this case. R. 435 at 15. In others, the specific conduct and criminal history of the defendant, rather than the loss amount at issue, warranted a longer sentence. For example, Scott Rothstein was sentenced to 50 years for a $429 million fraud, but he fled to Morocco with $16 million in an attempt to escape prosecution. Id.; Defendants Sent. Memo at 12, United States v. Rothstein, No. 09-60331-CR-COHN, 2010 WL 3499085 (S.D. Fla. June 4, 2010). Robert Stinson was sentenced to 33 years for a $14 million fraud, but he was a repeat offender. R. 435 at 15; S.A. 230-231 (noting that the PSR utilized a criminal history category of III). Edward Okun was sentenced to 100 years for a $126 million fraud, but there was evidence that he had been warned nine times by counsel that his behavior was illegal. R. 435 at 15; S.A. 225-227. And Richard Harkless was sentenced to 100 years for a $39 million fraud, but he fled to Mexico and diverted funds outside the United States in an attempt to escape prosecution. R. 435 at 15; S.A. 221-224. Thus, none of the governments examples established a lack of unwarranted disparity between Defendants sentences and those from comparable cases.
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mistaken belief that it was not even permitted to consider sentences in comparable, out-of-district cases. S.A. 278:3-8. Indeed, this Court has vacated and remanded substantially similar cases for resentencing where the district court failed to address a defendants section 3553(a)(6) arguments. In Bradley, for example, this Court vacated a sentence where the district court mentioned one dissimilar case without even referencing [the defendants] cited cases, including cases outside the trial courts district. 675 F.3d at 1027. In Panice, this Court vacated a sentence where the district court failed to give adequate consideration to the disparities between [the Defendants] sentence and those given to other white collar criminals. 598 F.3d at 443. There, this Court noted that the failure to consider the
disparities noted by the defendant was of particular concern because [t]he amount of loss caused by [the others] is much, much greater than that caused by [the defendant], yet their sentences are significantly shorter than [the defendants]. Id. In comparison, the district court here, in not mentioning any comparison cases at all, did even less than the sentencing judge in Panice. By explicitly refusing to consider sentences from other districts, the dis85
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trict court failed to consider that the effective life sentences Durham and Cochran now face are vastly higher than other similarly-situated defendants that happen to have been prosecuted elsewhere. And given that a death sentence is notably harsher than a sentence that stops even a short period before, Patrick, 707 F.3d at 820 (quoting Wurzinger, 467 F.3d at 652), the district courts failure to consider unwarranted sentencing disparities requires that the Defendants sentences be vacated and the cases remanded for resentencing. Bradley, 675 F.3d at 1027; Panice, 598 F.3d at 443. D. None of the district courts procedural errors was harmless.
The district courts procedural errors were not harmless because it is not certain that the sentencing judge would have imposed the same sentence had it not committed a procedural error. United States v. Glosser, 623 F.3d 413, 419-20 (7th Cir. 2010). Far from the district court ma[king] it clear, Glosser, 623 F.3d at 419-20, or expressly stat[ing] that it would have handed down the same sentence regardless of these errors, United States v. Hill, 645 F.3d 900, 912 (7th Cir. 2011), to the contrary, the district court expressly stated that the erroneously calculated loss amount was the absolute accurate measure of the na-
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ture, circumstances, and severity of this crime, App. 266:22-23. And given the notably harsh life sentences Durham and Cochran now face, any ambiguity with respect to whether these errors were harmless should militate in favor of remand. See Patrick, 707 F.3d at 820
([D]eath in prison is not to be ordered lightly.) (quoting Wurzinger, 467 F.3d at 652); cf. Boyde v. California, 494 U.S. 370, 395 (1990) (Marshall, J. dissenting) (We have long embraced a commitment to resolving doubts about the accuracy of a death verdict in favor of a capital defendant.). E. The district court abused its discretion when it ordered restitution of over $208 million.
A challenge to the restitution amount is reviewed for an abuse of discretion. Middlebrook, 553 F.3d at 579. The proper amount of restitution is the amount wrongfully taken by the defendant. United States v. Allen, 529 F.3d 390, 396 (7th Cir. 2008) (internal quotation omitted). Like the actual loss calculation, it must be based on the loss caused by a defendants conduct. Id. In fact, the amount of loss sustained by victims is synonymous with actual loss, id. at 397, and a restitution order should never exceed the loss used to calculate a sentence. United States v. Dokich, 614 F.3d 314, 319-20 (7th Cir. 2010). 87
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Here, the restitution amount was based on the same facts underlying the actual loss calculation: the amount of outstanding principle payments Fair investors claimed in Fairs bankruptcy, without accounting for extrinsic factors that contributed to the loss.24 Tr. 1415; R. 434 at 2. Thus, the restitution award suffers from the same defects as the actual loss calculation. See R. 413 at 33; R. 432 at 1; R. 421, Addendum at 2; R. 424 at 26. Because the district court erred in calculating the actual loss under the Sentencing Guidelines, the district court abused its discretion in entering a restitution order in the same amount, and the restitution order should be vacated. See Allen, 529 F.3d at 396. CONCLUSION For the foregoing reasons, the Defendants respectfully request that the Court: (1) vacate their convictions on all counts, (2) direct the district court to enter a judgment of acquittal for Durham on Counts Two and Five, (3) remand the remaining the counts for a new trial. In the alternative, the Court should vacate the Defendants sentences and remand for new sentencing proceedings.
24
Although the restitution award is set at $208 million, Defendants receive credit for any recovery made by the bankruptcy trustee, which at the time of the sentencing was approximately $6 million, making the restitution award and actual loss calculation ($202 million) equal. See App. 4-5.
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REQUEST FOR ORAL ARGUMENT Pursuant to Federal Rule of Appellate Procedure 34(a) and Seventh Circuit Rule 34(f), oral argument is requested, as Appellants believe it would assist the Court in resolution of this appeal.
September 9, 2013
Respectfully submitted, s/ James H. Mutchnik, P.C. James H. Mutchnik, P.C. Leonid Feller Kirkland & Ellis LLP 300 North LaSalle Street Chicago, Illinois 60654 Telephone: (312) 862-2000 james.mutchnik@kirkland.com leonid.feller@kirkland.com Counsel for Defendant-Appellant Timothy S. Durham s/ Michelle L. Jacobs Michelle L. Jacobs, SBN 1021706 Biskupic & Jacobs, S.C. 1045 West Glen Oaks Lane Suite 106 Mequon, Wisconsin 53092 Telephone: (262) 241-0033 mjacobs@biskupicjacobs.com Counsel for Defendant-Appellant James F. Cochran
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s/ Jeffrey A. Baldwin Jeffrey A. Baldwin Voyles Zahn & Paul 141 East Washington Street Suite 300 Indianapolis, Indiana 46204 Telephone: (317) 632-4463 jbaldwin@vzplaw.com Counsel for Defendant-Appellant Rick D. Snow
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CERTIFICATE OF COMPLIANCE WITH FEDERAL RULE OF APPELLATE PROCEDURE 32(a)(7)(C) The undersigned, counsel of record for Defendant-Appellant Timothy S. Durham, furnishes the following in compliance with Federal Rule of Appellate Procedure 32(a)(7): I hereby certify that this brief conforms to the rules contained in Federal Rule of Appellate Procedure 32(a)(7) for a brief produced with a proportionally spaced font, as modified by this Courts May 6, 2013 Order granting Defendants-Appellants leave to file a joint consolidated opening brief containing up to 21,000 words. The length of this brief is 18,337 words. Dated: September 9, 2013 s/ James H. Mutchnik, P.C. James H. Mutchnik, P.C. Counsel for Defendant-Appellant Timothy S. Durham
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CERTIFICATE OF SERVICE I hereby certify that I electronically filed the foregoing with the Clerk of Court for the United States Court of Appeals for the Seventh Circuit on September 9, 2013 via the CM/ECF system, thereby serving the following counsel of record: Winfield D. Ong Nicholas E. Surmacz Office of the United States Attorney 10 West Market Street Suite 2100 Indianapolis, Indiana 46204 Winfield.Ong@usdoj.gov Nicholas.Surmacz@usdoj.gov John-Alex Romano U.S. Department of Justice Criminal Division, Appellate Section 950 Pennsylvania Avenue, N.W. Room 1264 Washington, D.C. 20530 John-Alex.Romano@usdoj.gov Dated: September 9, 2013 s/ James H. Mutchnik, P.C. James H. Mutchnik, P.C. Counsel for Defendant-Appellant Timothy S. Durham
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Case: 12-3819

Nos. 12-3819, 12-3833 and 12-3867

United States Court of Appeals for the Seventh Circuit

ORAL ARGUMENT REQUESTED

Case: 12-3819 34-1 Case: 12-3819 Document: Document: 18

Filed: Filed: 09/09/2013 02/22/2013

Pages: Pages: 109 1

s/ James H. Mutchnik, P.C.

Date: February 22, 2013

300 North LaSalle Street Chicago IL 60654

Phone Number: (312)-862-2000 E-Mail Address: james.mutchnik@kirkland.com

Fax Number: (312)-862-2200

Attorney's Signature: /s Michelle L. Jacobs Attorney's Printed Name: Michelle L. Jacobs

Date: March 27, 2013

Phone Number: 262-241-0033 E-Mail Address: mjacobs@biskupicjacobs.com

Fax Number: 866-700-7640

CIRCUIT RULE 26.1

141 E. Washington Street, Ste. 300 Indianapolis IN 46204

Phone Number: 317-632-4463 E-Mail Address: jbaldwin@vzplaw.com

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ments allegations regarding undercover agents were both internally in28

S.A. 19:8-22:11, 141-142.

Each exhibit originally consisted of

The proposed instruction was an accurate statement of law.

Defendants theory was not already part of the charge.

ernment offered no evidence explaining how Defendants conduct was 79

Defendants pointed to other such examples. 217:19-218:5; R. 432 at 1.22

In Reyes-Medina, however, that statement was mere dicta, as

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