United States v. Berger, 04-50469.
| Citation | 473 F.3d 1080 |
| Decision Date | 18 January 2007 |
| Docket Number | No. 04-50469.,No. 04-50530.,04-50469.,04-50530. |
| Parties | UNITED STATES of America, Plaintiff-Appellee, v. Richard I. BERGER, Defendant-Appellant. United States of America, Plaintiff-Appellant, v. Richard I. Berger, Defendant-Appellee. |
| Court | United States Courts of Appeals. United States Court of Appeals (9th Circuit) |
Michael R. Doyen, Munger, Tolles & Olson LLP, Los Angeles, CA, for the defendant-appellant-appellee.
Paul G. Stern, Assistant United States Attorney, Los Angeles, CA, for the plaintiff-appellee-appellant.
Appeal from the United States District Court for the Central District of California; Robert M. Takasugi, District Judge, Presiding. D.C. Nos. CR-00-00994-RMT, CR-00-00994-RMT-01.
Before HARRY PREGERSON and EDWARD LEAVY, Circuit Judges, and RALPH R. BEISTLINE,* District Judge.
Defendant Richard I. Berger appeals his conviction of twelve counts of conspiracy, loan fraud, falsifying corporate books, and various securities fraud violations. Berger argues that: (1) the district court improperly coerced the jury into reaching a verdict, (2) the district court violated his constitutional right to be present during trial when the district court — with counsel's consent — made certain comments at an informal meeting with the jury outside of Berger's presence, (3) the district court used the wrong materiality standard for securities fraud violations, (4) the indictment did not charge with sufficient particularity the materiality element for securities fraud violations, and (5) the district court erred when it ordered Berger to pay restitution. The government cross-appeals the sentence imposed by the district court, arguing that the district court erred when it refused to increase Berger's sentence based on judicially-found facts. We have jurisdiction over Berger's appeal pursuant to 28 U.S.C. § 1291 and the government's cross-appeal pursuant to 18 U.S.C. § 3742(b). For the reasons given below, we affirm the conviction, affirm the restitution order, vacate the sentence and fine, and remand for resentencing under United States v. Booker, 543 U.S. 220, 125 S.Ct. 738, 160 L.Ed.2d 621 (2005).
Craig Consumer Electronics, Inc. ("Craig Electronics") operated a consumer electronics business that sold products such as car stereos, compact music centers and small personal stereos to retail stores. Berger was Craig Electronics' President, Chief Executive Officer, and Chairman of the Board. Donna Richardson, a co-conspirator, pled guilty to three counts of the indictment prior to trial. Richardson was the Chief Financial Officer of Craig Electronics until May 31, 1997, when she left the company. Defendant Bonnie Metz was at various times a Vice President in Craig Electronics' Hong Kong and Cerritos, California locations. Metz is not a party to this appeal.
On August 5, 1994, Craig Electronics entered into a $50 million revolving credit agreement ("Credit Agreement") with a consortium of banks including BT Commercial Corporation ("Bankers Trust"), La Salle National Bank, Nationsbank of Texas, and Sanwa Business Credit Corporation. Bankers Trust acted as the agent for the consortium (collectively "lending banks"). Under the Credit Agreement, Craig Electronics could, subject to certain exclusions, borrow up to:
(1) Eighty-five percent of the value of Craig Electronics' accounts receivable. Accounts receivable consisted of the money owed Craig Electronics by retail stores that had purchased Craig Electronics products;
(2) Sixty-five percent of the value of Craig Electronics' inventory of new goods, sometimes referred to as "A" goods, not to exceed $20 million; and
(3) Sixty-five percent of the value of Craig Electronics' inventory of refurbished goods, sometimes referred to as "B" goods, not to exceed $1 million.
Craig Electronics was prohibited from borrowing against goods that had been returned to Craig Electronics but not yet inspected, or goods that were defective, sometimes referred to as "C" goods.
Craig Electronics was required to provide Bankers Trust with a Borrowing Base Certificate ("Borrowing Certificate") every business day. Each Borrowing Certificate was supposed to report accurately the amount of Craig Electronics' accounts receivable eligible for borrowing, updated on a daily basis, and the value of its inventory eligible for borrowing, updated on a weekly basis. The Credit Agreement required that either Berger or Richardson supervise the preparation of each Borrowing Certificate and certify in writing that the information it contained was true, correct, and complete in all material respects.
Based on the information in the Borrowing Certificates, Bankers Trust determined the amount of money Craig Electronics could borrow on each business day. Specifically, the lending banks conditioned their lending decisions on whether Craig Electronics had excess borrowing availability based on the information — particularly the accounts receivable and inventory eligible for borrowing purposes — set forth in the daily Borrowing Certificates.
Any materially false or misleading representation made in the Borrowing Certificates was identified as an event of default under the Credit Agreement. Craig Electronics was required to notify the lending banks of the nature of any default no later than two business days after it occurred.
Starting as early as 1995 and continuing through September 1997, Craig Electronics did not have sufficient accounts receivable and inventory to continue to borrow the money needed to fund its operations. Presumably to hide Craig Electronics' true financial condition from the lending banks, Berger, Richardson, and Metz regularly falsified the information contained in the Borrowing Certificates. They used the following methods: First, Berger, Richardson and Metz inflated the accounts receivable reported to the lending banks by: (1) pre-billing retail stores for goods that had not yet been shipped and, in some instances, had never been purchased; (2) deliberately delaying the processing of credits for returned goods that had been received and identified in an off-the-books accounting ledger called the "queue," and not reporting this substantial volume of credits; and (3) falsely reporting that $1 million in accounts receivable from a company in Brazil remained valid through May 1997 when, in fact, the underlying sales were reversed and the goods re-routed back to Craig Electronics approximately two months earlier.
Second, Berger, Richardson, and Metz distorted the inventory figures submitted to the lending banks by: (1) improperly classifying "C" goods as "A" or "B" goods, and (2) misreporting that Craig Electronics had requisite title to certain shipments of goods originating with its overseas suppliers when, in fact, Craig Electronics either did not have proper title to the shipments for borrowing purposes, or the shipments did not exist. The financial misreporting that falsely inflated Craig Electronics' accounts receivable and inventory caused the lending banks to lend more money to Craig Electronics than it was allowed to borrow under the Credit Agreement.
Third, to conceal the fraudulent nature of Craig Electronics' reported accounts receivable and inventory, Berger, Richardson, and Metz deceived and attempted to deceive Craig Electronics' outside accountants as well as auditors from the lending banks. For example, they instructed Craig Electronics employees not to reveal to the accountants and auditors the true status of Craig Electronics' accounts receivable and inventory.
The false statements resulted in the lending banks loaning millions of dollars to Craig Electronics based on either nonexistent or substantially overstated collateral. The lending banks did not discover the full extent of the fraud until after Craig Electronics filed for bankruptcy on August 1, 1997. According to one witness, the lending banks suffered approximately $8.4 million in losses.
Finally, Berger and Richardson failed to disclose Craig Electronics' true financial condition in several mandatory reports they filed with the Securities and Exchange Commission ("SEC"). Those SEC filings were Craig Electronics' Amended S-1 Registration Statement, Amended 1996 10-K Report, and First Quarter 1997 10-Q Report. As a result of the activities described above, Craig Electronics was operating while in default of the Credit Agreement and was substantially overdrawn on its line of credit. None of this information, however, was disclosed in Craig Electronics' mandatory SEC filings.
The grand jury returned an indictment against Berger and Metz. The indictment alleged conspiracy, loan fraud, falsification of corporate books and records, making false statements to accountants of a publicly-traded company, and making false statements in reports filed with the SEC. Berger's and Metz's trial began on May 20, 2003 and lasted forty-one days.
On the morning of August 29, 2003, after the jury had deliberated for three-and-a-half days, the district court held a status conference with all parties and their respective attorneys. The court hoped to discuss some of the jurors' conflicting schedules, that appeared to limit the number of days available for deliberation. The court believed that some of these requests for days off might be related to "the issue of stress and responsibility on the part of the jury."
The court suggested that it might be helpful to engage in an informal discussion with jurors on the record but outside the presence of the parties and their attorneys. The court explained its proposal:
I think this is the time when the jurors need understanding and patience. This is the time when w...
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