U.S. v. Martin
| Decision Date | 11 July 2006 |
| Docket Number | No. 05-16645. Non-Argument Calendar.,05-16645. Non-Argument Calendar. |
| Citation | 455 F.3d 1227 |
| Parties | UNITED STATES of America, Plaintiff-Appellant, v. Michael MARTIN, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Eleventh Circuit |
Bruce C. Bishop, Mark J. Hulkower, Steptoe & Johnson, LLP, Washington, DC, for Martin.
Appeal from the United States District Court for the Northern District of Alabama.
Before CARNES, HULL and MARCUS, Circuit Judges.
This is the second time the government has appealed the sentence of defendant-appellee Michael Martin, a former HealthSouth Corporation ("HealthSouth") executive, who pled guilty to conspiracy to commit securities fraud and mail fraud and falsify books and records, in violation of 18 U.S.C. § 371, and falsifying books and records, in violation of 15 U.S.C. §§ 78m(b)(2)(A), 78m(b)(5), and 78ff, 17 C.F.R. § 240.13b2-1, and 18 U.S.C. § 2. In both appeals the parties have agreed that Martin's advisory guidelines range is 108 to 135 months' imprisonment, and that Martin's substantial assistance to the government warrants a downward departure pursuant to U.S.S.G. § 5K1.1. The hotly contested dispute both times has been over whether the extremely lenient sentence the district court gave is reasonable.
The district court originally sentenced Martin to 60 months' probation. In the first appeal, this Court vacated that sentence for lack of a record capable of meaningful appellate review and remanded for resentencing. United States v. Martin, 135 Fed.Appx. 411 (11th Cir.June 21, 2005) (unpublished).
At the resentencing, the government recommended a § 5K1.1 downward departure to 42 months' imprisonment, which equates to a 9-level departure. Instead, the district court granted Martin a 23-level downward departure and imposed a sentence of 7 days' imprisonment. The government again appeals. After review, we again vacate Martin's sentence in its entirety.
A factual summary outlining Martin's fraud is attached to his guilty plea. The Pre-sentence Investigation Report ("PSI") also details the massive fraud in this case, and at sentencing, Martin withdrew any objection to the PSI. Thus, the two documents establish these facts.
At all relevant times, HealthSouth claimed to be the nation's largest provider of outpatient surgery, diagnostic imaging, and rehabilitative healthcare services, with approximately 1,800 locations across all 50 states. HealthSouth's common stock was listed on the New York Stock Exchange. The management of HealthSouth provided guidance to the investing public regarding anticipated earnings per share, and in turn, professional securities analysts disseminated to the public their estimates of the company's expected performance. If a company, such as HealthSouth, announces earnings that fail to meet or exceed analyst expectations, the price of the company's stock typically will decline.
From at least 1994 until March 2003, a group of HealthSouth officers conspired to artificially inflate HealthSouth's reported earnings and earnings per share, and to falsify reports about HealthSouth's overall financial condition. The HealthSouth officers made, and directed accounting personnel to make, false and fraudulent entries in HealthSouth's books and records for the purpose of falsely reporting HealthSouth's assets, revenues, and earnings per share and in order to defraud investors, banks, and lenders. As a result, HealthSouth's public financial records overstated its financial position cumulatively by billions of dollars from 1994 to 2002, and public investors purchased overvalued shares of HealthSouth's stock, which plummeted from $3.91 per share to $.11 per share when the massive fraud was revealed.
Defendant Martin was employed by HealthSouth from 1989 to 2000, and served as its Chief Financial Officer ("CFO") from October 1997 until he resigned in March 2000. As early as 1994, Martin became aware that HealthSouth was not meeting its earnings-per-share projections. After Martin became CFO in 1997, he began reviewing quarterly preliminary income statements showing HealthSouth's true and accurate financial results, which showed that HealthSouth was not meeting earnings-per-share projections made by its Chief Executive Officer ("CEO"), Richard Scrushy. By Martin's own admission, at the direction of Scrushy, Martin falsified numbers to inflate HealthSouth's stated earnings to meet Scrushy's projections and Wall Street's expectations.
Martin also attended numerous meetings in which members of the accounting department discussed how the financial statements could be altered to meet Scrushy's earnings-per-share projections. Martin repeatedly discussed with Scrushy the fact that the income statements provided to the Securities and Exchange Commission ("SEC") and the investors were inaccurate, and he tried to dissuade Scrushy from perpetrating further fraud. Martin nevertheless signed HealthSouth's 10-Q and 10-K forms beginning in 1997 and continuing through the third quarter of 1999, with the knowledge that the numbers in the attached financial statements were false and thus the financial statements misrepresented the company's financial condition.
As noted earlier, the overstatement of HealthSouth's financial position in its public records as a result of the massive and prolonged fraud summed to billions of dollars.1 The most direct victims of the fraud were the investing public, HealthSouth shareholders, and the company. HealthSouth had many shareholders, some of whom invested their life savings in HealthSouth stock and saw their investment plummet to pennies per share. A conservative estimate of the stock value loss attributable to Martin's fraud was $1,390,800,000 or approximately $1.4 billion.
There were also many other collateral victims of Scrushy and Martin's fraud, including (1) HealthSouth employees, particularly those who were terminated and those who had participated in the company's stock ownership plan or pension fund; (2) employees of contractors who were dependent on HealthSouth contracts for income; (3) banks and other lenders who loaned money to HealthSouth based on falsified financial information; and (4) competing health service providers who lost business or financing based on the false information. See United States v. McVay, 447 F.3d 1348, 1350 (11th Cir. 2006).
Although many victims suffered devastating losses, HealthSouth's officers benefitted by receiving huge salaries and bonuses. Martin's income was over $14 million from just 1997 to 2000: $3,339,237 in 1997; $5,820,910 in 1998; $1,632,776 in 1999; and $4,080,959 in 2000. As detailed later, Martin agreed to a $2.375 million forfeiture, and the district court also imposed a $50,000 fine, both of which Martin immediately paid by check. At the time of the PSI in 2004, Martin had a net worth of over $8.9 million.
In March 2003, certain of Martin's co-conspirators revealed the fraud to federal authorities. Martin subsequently met with Federal Bureau of Investigation ("FBI") agents, admitted his role in the conspiracy, and thereafter cooperated substantially with the government.
On April 8, 2003, the government filed a three-count information against Martin, charging him with: (1) one count of conspiracy to commit securities fraud and mail fraud and falsify books and records, in violation of 18 U.S.C. § 371 (Count One); and (2) one count of falsifying books, records, and accounts, in violation of 15 U.S.C. §§ 78m(b)(2)(A), 78m(b)(5), and 78ff, 17 C.F.R. § 240.13b2-1, and 18 U.S.C. § 2 (Count Two). The information also included a forfeiture count (Count Three). Pursuant to a plea agreement, Martin pled guilty to all three counts.
The PSI indicated that Martin's offense level was 31 and his criminal history category was I, resulting in a guidelines sentence range of 108 to 135 months' imprisonment.2 Martin's base offense level of 6 was increased to level 34 by these enhancements: (1) 18 levels under U.S.S.G. § 2F1.1(b)(1)(S) because the fraud loss was over $80 million; (2) 4 levels under § 3B1.1(a) because Martin was an organizer or leader of a criminal activity that was extensive; (3) 2 levels under § 3B1.3 for Martin's abuse of a position of public and private trust; (4) 2 levels under § 2F1.1(b)(5)(C) because his offenses involved sophisticated means; and (5) 2 levels under § 2F1.1(b)(2)(A) because his offenses involved more than minimal planning. Martin's offense level of 34 was reduced by 3 levels under § 3E1.1 due to his acceptance of responsibility.
On June 19, 2004, the district court held a sentencing hearing. The government had already filed a motion for downward departure, pursuant to U.S.S.G. § 5K1.1, based on Martin's substantial assistance. At the sentencing hearing, the government argued that the court should depart down 6 levels to offense level 25 and impose a sentence of 62 months' imprisonment.3 The government pointed out that while Martin's assistance was valuable, Martin nevertheless was "the most culpable of those who have been sentenced to date"; that "[h]e was the most senior officer, he had the most authority, and he was involved the longest"; that "he obtained substantial income and status, social status, from this position at HealthSouth"; and that a lesser sentence would not sufficiently deter such conduct.
The district court adopted the PSI's calculations that Martin's offense level was 31, his criminal history category was I, and his guidelines sentence range was 108 to 135 months' imprisonment. Although the district court granted the government's § 5K1.1 motion, the district court departed 21 levels down to offense level 10, which yielded a guidelines range of 6 to 12 months' imprisonment. Although objecting to the extent of the § 5K1.1 departure, the government asked for a sentence of at least 12 months'...
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