U.S. v. Downing

• Decision Date: 01 July 2002
• Docket Number: Docket No. 01-1485.,Docket No. 01-1437.
• Citation: 297 F.3d 52
• Parties: UNITED STATES of America, Appellee, v. James R. DOWNING, Defendant, Samuel Ward, Daniel Drucker, Defendants-Appellants.
• Court: U.S. Court of Appeals — Second Circuit

297 F.3d 52

UNITED STATES of America, Appellee, v. James R. DOWNING, Defendant, Samuel Ward, Daniel Drucker, Defendants-Appellants.

Docket No. 01-1437.

Docket No. 01-1485.

United States Court of Appeals, Second Circuit.

Argued: April 30, 2002.

Decided: July 1, 2002.

COPYRIGHT MATERIAL OMITTED

Diarmuid White, White & White (Brendan White, of counsel), New York, NY, for Defendant-Appellant Daniel Drucker.

Howard L. Jacobs, New York, NY, for Defendant-Appellant Samuel Ward.

Christopher J. Clark, Assistant United States Attorney (Christine H. Chung, Assistant United States Attorney, of counsel; James B. Comey, United States Attorney for the Southern District of New York), New York, NY, for Appellee United States of America.

Before: MINER and SACK, Circuit Judges, and BERMAN, District Judge.^*

SACK, Circuit Judge.

Samuel Ward, a certified public accountant and principal of the accounting firm S.M. Ward Co., and Daniel Drucker, a former employee of Ward's firm, appeal their convictions and respective sentences imposed by the United States District Court for the Southern District of New York (Kevin Thomas Duffy, Judge) after a jury found them guilty of conspiracy to commit wire fraud and securities fraud. Ward and Drucker appeal on many grounds, all but one of which we find to be without merit. We write primarily to clarify the application of two sections of the United States Sentencing Guidelines ("U.S.S.G." or the "Guidelines"): (1) U.S.S.G. § 2X1.1(b)(2),¹ which prescribes a three-level downward adjustment for certain conspiracy convictions; and (2) U.S.S.G. § 3B1.3, which prescribes a two-level upward adjustment "[i]f the defendant abused a position of public or private trust, or used a special skill, in a manner that significantly facilitated the commission or concealment of the offense." We hold that the district court erred by declining to apply a three-level downward adjustment under § 2X1.1(b)(2), but properly increased the defendants' base offense level by two pursuant to § 3B1.3. We therefore affirm in part, reverse in part, and remand for the district court to resentence the defendants with the benefit of this adjustment.

BACKGROUND

Jeffrey Pokross, an investment banker, James Downing, owner of the privately held corporation SearchHispanic.com, Inc. ("SearchHispanic"), and several others conspired to perpetrate a "pump and dump" scheme. "Pump and dump," according to the government, denotes a stock-market manipulation scheme in which "the schemers [first] artificially inflate, or `pump,' the price of [a] stock by bribing stock promoters to sell it, and [then] `dump' the stock once the price [becomes] sufficiently high." Appellee's Br. at 3.

To accomplish this scheme, the conspirators intended, as a first step, to merge SearchHispanic into the publicly traded shell corporation GTrade Networks, Ltd. ("GTrade"), an offshore company controlled by unindicted coconspirator Andy Mann. GTrade had previously been listed on the Over-The-Counter Bulletin Board exchange ("OTCBB"), but had been removed from the OTCBB register because of its failure to comply with an antifraud rule promulgated by the National Association of Securities Dealers, Inc.

To restore GTrade to the OTCBB register following the merger between SearchHispanic and GTrade — a preliminary step toward the execution of the pump-and-dump scheme — the conspirators needed unqualified audit reports for each company. Because truly independent auditors would be highly unlikely to furnish such opinions, the conspirators needed the help of compliant accountants in order to carry out the scheme successfully. The conspirators identified Ward as the principal accountant upon whom they could rely to produce the unqualified reports. According to evidence admitted at trial pursuant to Fed.R.Evid. 404(b), Ward had in 1999 "furnished false financial statements" in connection with a similar pump-and-dump scheme (the "Jackpot Scheme"). See Appellee's Br. at 11. To ensure that the reports on GTrade and SearchHispanic appeared independent, Ward recruited his employee Drucker to produce one of the reports on separate letterhead. The conspirators reasoned that if Ward issued the purportedly unqualified audit reports for both premerger entities — GTrade and SearchHispanic — potential investors would likely become suspicious.

Unbeknownst to the other conspirators, Pokross had been arrested previously for offenses of a similar nature, and on December 4, 1998, had agreed as part of a plea agreement with respect to those offenses to cooperate with the government as an informant. With his help, the government installed an audio eavesdropping device in Pokross's office, and over a period of several months, recorded conversations among the conspirators that illuminated the nature and scope of the conspiracy. On May 2, 2000, the conspirators, including the two accountants, met in Pokross's offices, where they discussed the scheme and the roles to be played by Ward and Drucker. On June 14, 2000, the government arrested Ward, Drucker, and Downing. Downing subsequently pled guilty to a conspiracy charge. On January 26, 2001, following a ten-day trial, a jury convicted Ward and Drucker of conspiracy to commit securities fraud and wire fraud in violation of 18 U.S.C. § 371.

On July 31, 2001, the district court sentenced Ward to forty-six months' imprisonment. The court rejected Ward's argument that he qualified for a three-level reduction to his base offense level under U.S.S.G. § 2X1.1(b)(2) because the conspiracy "did not go very far." Drucker also requested a downward adjustment under § 2X1.1(b)(2). He further contended that because he never in fact used his "special skill," accounting, to facilitate the offense of conviction, the district court should not impose the two-level upward adjustment prescribed by U.S.S.G. § 3B1.3. The court rejected both arguments, and on September 5, 2001, sentenced Drucker to thirty-three months' incarceration.

Both defendants appeal, challenging their convictions and sentences on multiple grounds. They contend, inter alia, that the district court erred by refusing to apply § 2X1.1(b)(2) and by applying § 3B1.3.

DISCUSSION

I. Sufficiency of the Evidence

Both defendants argue that the evidence did not suffice to support their convictions insofar as it failed to establish their awareness of the conspiracy's object: to commit wire fraud and securities fraud. Drucker alone maintains that the evidence also failed to establish that he ever agreed to issue false audit reports. He avers that he "believe[d] in good faith" that his and Ward's opinions "would be rendered independently." Appellant Drucker's Br. at 44. Finally, both Ward and Drucker argue that the district court erred by admitting evidence pursuant to Fed.R.Evid. 404(b) of Ward's involvement in a previous pump-and-dump operation. The district court admitted this evidence solely against Ward, for the purpose of showing his knowledge or intent.

A. Standard of Review

We review challenges to the sufficiency of the evidence underlying a criminal conviction "in the light most favorable to the government," crediting "every inference that could have been drawn in its favor." United States v. Diaz, 176 F.3d 52, 89 (2d Cir.), cert. denied, 528 U.S. 875, 120 S.Ct. 181, 145 L.Ed.2d 153 (1999). Our inquiry is whether "any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt." Jackson v. Virginia, 443 U.S. 307, 319, 99 S.Ct. 2781, 61 L.Ed.2d 560 (1979) (emphasis in original). To answer this question, we review the evidence as a whole, United States v. Desimone, 119 F.3d 217, 223 (2d Cir.), cert. denied, 525 U.S. 874, 119 S.Ct. 174, 142 L.Ed.2d 142 (1998), and "resolv[e] all issues of credibility in the government's favor," United States v. Abelis, 146 F.3d 73, 80 (2d Cir.), cert. denied, 525 U.S. 1009, 119 S.Ct. 527, 142 L.Ed.2d 437 (1998). We will not overturn a jury verdict "merely because [an] exculpatory account is plausible." United States v. Friedman, 998 F.2d 53, 56 (2d Cir.1993); accord Abelis, 146 F.3d at 80 (emphasizing that the "government need not disprove every possible hypothesis of innocence" and that "the jury may properly base its verdict upon inferences from circumstantial evidence") (internal quotation marks omitted). Finally, "[w]e must be especially deferential when reviewing a conspiracy conviction." United States v. Mulder, 273 F.3d 91, 109 (2d Cir.2001), cert. denied, ___ U.S. ___, 122 S.Ct. 1344, 152 L.Ed.2d 247 (2002); accord United States v. Pitre, 960 F.2d 1112, 1121 (2d Cir.1992). "[A] conspiracy by its very nature is a secretive operation, and it is a rare case `where all aspects of a conspiracy can be laid bare in court with the precision of a surgeon's scalpel.'" Id. (quoting United States v. Provenzano, 615 F.2d 37, 45 (2d Cir.), cert. denied, 446 U.S. 953, 100 S.Ct. 2921, 64 L.Ed.2d 810 (1980)).

B. The Elements of Conspiracy

To prove the crime of conspiracy, 18 U.S.C. § 371, the government must establish:

(1) that the defendant agreed with at least one other person to commit an offense; (2) [that] the defendant knowingly participated in the conspiracy with the specific intent to commit the offenses that were the objects of the conspiracy; and (3) that during the existence of the conspiracy, at least one of the overt acts set forth in the indictment was committed by one or more of the members of the conspiracy ....

United States v. Salameh, 152 F.3d 88, 145 (2d Cir.1998), cert. denied, 525 U.S. 1112, 119 S.Ct. 885, 142 L.Ed.2d 785 (1999). The conspiratorial agreement need not be "formal or express." United States v. Amato, 15 F.3d 230, 235 (2d Cir.1994). The government may prove its existence by circumstantial evidence, Desimone, 119 F.3d at 223, provided such evidence establishes beyond a reasonable doubt the defendants' knowledge of "the essential nature of the plan and their connections with it," ...