United States v. Reda

Decision Date29 May 2015
Docket NumberNo. 14–1305.,14–1305.
PartiesUNITED STATES of America, Appellee, v. Albert REDA, Defendant–Appellant.
CourtU.S. Court of Appeals — First Circuit

William J. Kopeny for appellant.

Mark T. Quinlivan, Assistant United States Attorney, with whom Carmen M. Ortiz, United States Attorney, was on brief, for appellee.

Before HOWARD, Circuit Judge, SOUTER,* Associate Justice, and LIPEZ, Circuit Judge.

Opinion

SOUTER, Associate Justice.

Albert Reda was caught in an FBI sting targeting the market for penny stocks and was convicted of wire and mail fraud. See 18 U.S.C. §§ 1343, 1341. His appeal raises two claims of trial error (evidentiary rulings with respect to a key witness and purportedly improper vouching by the government) and two of sentencing error (application of an enhancement for violating securities laws and the loss calculation). We affirm as to both trial error claims and the sentencing enhancement. As to the loss calculation, the government has confessed error, and we remand for resentencing.

I.

Details of this FBI sting, titled “Operation Penny Pincher,” were set out in United States v. Prange, 771 F.3d 17, 21–25 (1st Cir.2014). We will assume familiarity with that case, and describe here only those details necessary for resolving this one.

In Operation Penny Pincher, the FBI created a fictitious hedge fund and designated an undercover agent as its pretended, corrupt manager. Well-connected people (some of whom were FBI cooperators) typically arranged meetings between the manager and executives of penny stock companies. These latter individuals were identified in advance as likely to be interested in proposals by the manager to invest the fund's money in the executives' penny stocks at premium prices in return for 50% kickbacks concealed through phony consulting agreements solely for the manager's benefit.

Reda was one such executive, being chairman of the board of 1st Global Financial Corporation, which was in the business of purchasing distressed real estate. Arrangements were made for him to meet with the agent on June 29, 2011.

The day before that, a cooperating witness, E.H., called Reda to discuss the meeting, and during their recorded conversation, Reda asked for “more detail” on the deal that would be discussed the next day. E.H. explained that the hedge fund buys shares for an above-market price, half of which would be reclaimed by a “consulting bill from one of several “different nominee companies” so the “accountants don't ... have any suspicions.” E.H. specifically explained that this “money goes back to this gentleman at the fund” and he doesn't share it with ... his partners,” to which Reda responded, “Right. I understand.”

The subsequent conversation among the agent, E.H., and Reda at the June 29th meeting was also recorded. The agent told Reda that, although he normally engaged in a four to six week due diligence enquiry before investing in a company, “this isn't going to be one of those deals.” He continued with the following explanation of this “non-traditional deal”:

[M]y financing is fifty percent[.][F]ifty percent gets kicked back to me, right off the top[.][F]ortunately I fund that, so it's no money out of your pocket but that's what I mean kinda, [I]'m the lender of last resort ...
[T]he other advantage is I don't, because, because this is the type of deal that this is, I don't get into your business. I don't, I don't really, I won't run, help run your business[.] I don't wanna help run your business[.] I don't want to have a say[.] I don't want a say[.] [Y]our business is your business[.][I]f you're successful, then I win, my fund wins[.][I]f you're unsuccessful, then, well, I win anyway and, you win to an extent, because [y]ou've got that working capital that you need.

He then offered to pay $5,000,000 for restricted shares, where “two and half [would] go[ ] back to” him, a deal that he asked Reda to keep “confidential,” so that the fund “won't know anything about the two and half going back to” him. To create a “paper trail,” the agent would “invoice [the kickback] through a nominee consulting company,” but he added, “I don't consult you on anything.”

At no point during this meeting did Reda express any reservations or indicate anything but agreement. When the agent emphasized that the deal had to be kept secret from his fund, Reda said that was [f]ine with me.” His only question during the conversation was logistical, about the address to which he should send the 1st Global stock certificates.

The deal was to be done through tranches of increasing dollar value. The first tranche was one of $32,000, for 320,000 restricted shares at 10 cents each (even though the common shares were trading at 4 to 5 cents). Shortly after the June 29th meeting, Reda and the agent executed the stock purchase and consulting agreements, and Reda mailed, through Federal Express, a stock certificate for the 320,000 restricted shares. The FBI responded with a wire transfer of $32,000 to Reda, who later wired $16,000 to the bank account of the agent's fake consulting company.

The agent and Reda next planned for a second tranche of $75,000, this time for 500,000 restricted shares at 15 cents each. Reda sent the agent a stock purchase agreement for these shares as well as a modified invoice for $37,500 in consulting services (prepared by Reda on behalf of the agent). These were promptly followed by Reda's mailing, again through Federal Express, of a stock certificate for the 500,000 restricted shares. This transaction, however, was never completed, owing to Reda's arrest sometime later on charges of wire and mail fraud.

At Reda's trial, the government's principal witness was the undercover agent, who not only explained the circumstances of the sting and authenticated the government's recording of the June 29th meeting, but also gave his own interpretations of statements he made during that conversation. He explained, for example, that the reason he told Reda that he normally spends four to six weeks on due diligence was to indicate that this transaction, by contrast, “wasn't legitimate.” So, too, he said that he had emphasized confidentiality because he was “trying to convey that this [deal] is wrong.”

Reda's defense was that he did not understand the deal to be illegitimate, but the jury convicted him on both the wire and mail fraud counts. The district court calculated Reda's sentencing range under the Sentencing Guidelines at 30–37 months, but imposed a below-Guidelines prison sentence of 26 months.

II.

Reda raises a host of evidentiary objections to the undercover agent's testimony. He contends that it was improper expert opinion testimony under Federal Rules of Evidence 702 and 704 ; that it was improper lay opinion testimony under Rule 701, because it was lacking foundation, unhelpful to the jury, and improperly called for a legal conclusion; and that it was unduly prejudicial under Rule 403. He further says that these errors cumulatively violated his due process right to a fair trial.

Most of these challenges, however, were not preserved below. Reda objected at trial to the agent's testimony on two grounds only: (1) that statements that the deal was “not legitimate” and “ma[d]e no economic sense” were improper expert testimony; and (2) that the term “kickback” was conclusory. We review these two error claims for abuse of discretion, and the rest, unpreserved, for plain error, United States v. Rosado–Pérez, 605 F.3d 48, 54 (1st Cir.2010), the latter permitting reversal only if we find (1) an error (2) that is clear and obvious, (3) affecting the defendant's substantial rights, and (4) seriously impairing the integrity of judicial proceedings, United States v. Santiago, 775 F.3d 104, 106 (1st Cir.2014).1

The district court did not abuse its discretion in permitting the undercover agent to testify under Rule 701 as a lay, and not expert, witness, a conclusion dictated by Prange, in which the same undercover agent also testified, and quite similarly. The defendants there raised this very objection, and we rejected it, explaining at length why the lay designation was correct. Here, as in Prange, the agent used prefatory language appropriate to avoid any undue suggestion of expert character (e.g., “This is my attempt to make clear that ...”), and we too “fail to see why we should treat the agent's interpretation of his own conversations as expert testimony.” Prange, 771 F.3d at 27. Indeed, far from offering an expert opinion about the functioning of the financial industry, the agent was explaining, as the district judge put it, “why the deal ... was structured [this] way.” As we explained in Prange, the agent's own explanation of his objectives in such fact-bound circumstances mitigated the risk of investing his testimony with the persuasive premium of an expert's conclusion. Id.

Nor do we find an abuse of discretion in allowing the agent to use the term, “kickback.” Reda objected below that such testimony went to the ultimate legal question, but his argument fails on law and fact. To begin with, as this was lay, and not expert, opinion testimony, it is “not [automatically] objectionable just because it embraces an ultimate issue.” Fed.R.Evid. 704(a). To be sure, the Rule does not countenance “the admission of opinions which would merely tell the jury what result to reach.” Fed.R.Evid. 704 Advisory Committee's Note on 1972 Proposed Rules. But protection against that sort of usurpation is found in the criteria for admitting lay opinion testimony, id., that it be “helpful to [a jury's] clearly understanding the witness's testimony or determining a fact in issue.” Fed.R.Evid. 701(b) ; see also United States v. Meises, 645 F.3d 5, 16–17 (1st Cir.2011) ; United States v. Díaz–Arias, 717 F.3d 1, 11–12 (1st Cir.2013). Here, the district court found that “kickback” was not presented as a legal term but merely as “a factual shorthand that money is coming back to him.” The pithy colloquialism was suited to the task of...

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