U.S. v. Arutunoff

• Decision Date: 03 August 1993
• Docket Number: 91-5147,91-5166,Nos. 91-5146,s. 91-5146
• Citation: 1 F.3d 1112
• Parties: Fed. Sec. L. Rep. P 97,709 UNITED STATES of America, Plaintiff-Appellee, v. Christopher ARUTUNOFF, Defendant-Appellant. UNITED STATES of America, Plaintiff-Appellee, Cross-Appellant, v. Steven J. DeVRIES, Defendant-Appellant, Cross-Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1112

1 F.3d 1112

Fed. Sec. L. Rep. P 97,709

UNITED STATES of America, Plaintiff-Appellee, v. Christopher ARUTUNOFF, Defendant-Appellant.

UNITED STATES of America, Plaintiff-Appellee, Cross-Appellant, v. Steven J. DeVRIES, Defendant-Appellant, Cross-Appellee.

Nos. 91-5146, 91-5147, 91-5166.

United States Court of Appeals Tenth Circuit.

Aug. 3, 1993.

Jill M. Wichlens, Asst. Federal Public Defender, Denver, CO (Michael G. Katz, Federal Public Defender, with her on the briefs) for defendant-appellant/cross-appellee.

Kenneth P. Snoke, Asst. U.S. Atty., Tulsa, OK (Tony M. Graham, U.S. Atty., with him on briefs), for plaintiff-appellee/cross-appellant.

Before McKAY, Chief Judge, GODBOLD, Senior Circuit Judge, ¹ and SEYMOUR, Circuit Judge.

GODBOLD, Senior Circuit Judge.

These consolidated appeals arise from appellants' convictions for participating in a scheme to defraud investors. Appellant DeVries was convicted of one count of conspiracy to commit securities fraud, 18 U.S.C. Sec. 371, 15 U.S.C. Sec. 77q, three counts of selling unregistered securities, 15 U.S.C. Sec. 77e(a)(1), and one count of securities fraud, 15 U.S.C. Sec. 77q(a)(2)-(3). He appeals from his convictions and the district court's restitution order. Appellant Arutunoff likewise was convicted of conspiracy to commit securities fraud but only appeals from the district court's restitution order. The government cross-appeals from the district court's decision at sentencing to depart downward in DeVries's case. We affirm DeVries's convictions but vacate DeVries's sentence. We vacate the restitution awards against both appellants and remand for further proceedings.

I. FACTUAL BACKGROUND

We view the evidence in the light most favorable to the jury's verdict. U.S. v. Harrison, 942 F.2d 751, 754 (10th Cir.1991); U.S. v. Wright, 932 F.2d 868, 872 (10th Cir.), cert. denied, --- U.S. ----, ----, 112 S.Ct. 428, 450, 116 L.Ed.2d 448, 467 (1991).

In January 1988 John McFarlin set up a business called McFarlin Trading Co. (MTC) for the purpose of trading commodities futures. Purchases of futures were to be funded by investors. McFarlin was to receive a commission of 25% of the profits generated by any trade made by MTC. McFarlin hired Arutunoff to assist with the trades and DeVries to attract investors. McFarlin initially agreed to pay DeVries 25% of the commissions earned on accounts obtained by DeVries. This was later increased to 35%.

To facilitate investment with MTC, DeVries formed a limited partnership called DeVries Trading Limited Partnership (DTLP). Individual investors placed funds with DTLP, and the aggregate of DTLP's funds was invested with MTC. These investors, like all of MTC's clients, received monthly statements prepared by McFarlin and Arutunoff that showed the trades made on their behalf and the resulting profit or loss. DeVries prepared brochures, business cards, and other materials designed to encourage investment with DTLP and/or MTC. These materials were sent to potential investors.

The brochures prepared by DeVries contained several misrepresentations. DeVries misrepresented his qualifications and those of McFarlin and Arutunoff, as well as whether DTLP was registered with the Securities Exchange Commission, and misrepresented the risk associated with investment. McFarlin contributed to the misrepresentations in the brochures by providing DeVries with false data concerning MTC's track record. In addition, when DeVries formed DTLP he did not register it as a security. ²

The first investor obtained by DeVries was Helen Menning. Although McFarlin made trades with Menning's money he failed to generate any profits. Rather than reveal this fact McFarlin and Arutunoff agreed to send Menning a false monthly statement. Thereafter the monthly statements sent to Menning and every other investor were false. By sending out doctored statements McFarlin hoped to present an illusion of profitability so he could continue to attract investors. To conceal this fraud McFarlin decided to pay DeVries in accordance with the false statements and also to pay investors the stated profits if they chose to withdraw their money. It is agreed that DeVries did not know that McFarlin and Arutunoff had decided to send out false statements.

Throughout 1989 and early 1990 McFarlin and Arutunoff continued to send out false statements while trying to make up the losses through further trades. But they only fell further behind because they continued to lose money trading and also began to spend investor funds on personal expenses. In May 1990 DeVries confronted McFarlin who admitted that he had been sending out false statements. On May 10 DeVries sent a letter to the investors informing them that McFarlin had sent out false statements and had mismanaged their funds but stated that McFarlin promised to make restitution.

When criminal charges were brought McFarlin negotiated a plea ³ and agreed to testify at trial against Arutunoff and DeVries. DeVries was convicted of one count of conspiracy to commit securities fraud, three counts of selling unregistered securities, and one count of securities fraud. Arutunoff was convicted of conspiracy to commit securities fraud.

The presentence report calculated the total loss to investors as $2,632,851.41. McFarlin received a sentence of 30 months imprisonment plus three years supervised release and was ordered to make restitution for the entire loss. Arutunoff also received a sentence of 30 months imprisonment plus three years supervised release and was ordered to make restitution of $877,617.13. The presentence report calculated DeVries's offense level as 20 and placed him in criminal history category I, resulting in a guideline range of 33 to 41 months imprisonment. The court, however, departed downward to offense level 10 and criminal history category I and imposed a six month sentence. DeVries was ordered to make restitution of $877,617.

DeVries appeals from his convictions and the restitution order. ⁴ Arutunoff challenges the restitution award. In DeVries's case the government cross-appeals from the court's decision to depart downward.

II. DISCUSSION

A. Conspiracy

DeVries contends that the evidence was insufficient to support the jury's verdict that he conspired to commit securities fraud with McFarlin and Arutunoff. ⁵ When reviewing a jury verdict, we examine, in the light most favorable to the government, all of the evidence together with the reasonable inferences to be drawn therefrom and ask whether any rational juror could have found the essential elements of the crime beyond a reasonable doubt. U.S. v. Pina, 974 F.2d 1241, 1244 (10th Cir.1992); U.S. v. Morehead, 959 F.2d 1489, 1499 (10th Cir.), adhered to on reh'g en banc, U.S. v. Hill, 971 F.2d 1461 (10th Cir.1992). A conspiracy conviction cannot be sustained if " 'the evidence does no more than create a suspicion of guilt or amounts to a conviction resulting from piling inference on top of inference.' " U.S. v. Evans, 970 F.2d 663, 671 (10th Cir.1992) (quoting U.S. v. Horn, 946 F.2d 738, 741 (10th Cir.1991)), cert. denied, --- U.S. ----, 113 S.Ct. 1288, 122 L.Ed.2d 680 (1993).

Proving a conspiracy requires the government to show:

" that two or more persons agreed to violate the law, that the defendant knew at least the essential objectives of the conspiracy, ... that the defendant knowingly and voluntarily became a part of it," and that the alleged coconspirators were interdependent.

Id. at 668 (quoting U.S. v. Fox, 902 F.2d 1508, 1514 (10th Cir.), cert. denied, 498 U.S. 874, 111 S.Ct. 199, 112 L.Ed.2d 161 (1990)). DeVries asserts that the government failed to prove that he agreed with anyone else to violate the law. The government contends that the evidence would permit a reasonable jury to find that DeVries and McFarlin agreed to commit securities fraud by sending out materials containing misrepresentations to induce people to open investment accounts with MTC.

The essence of a conspiracy is an agreement to commit an unlawful act. U.S. v. Esparsen, 930 F.2d 1461, 1471 (10th Cir.1991), cert. denied, --- U.S. ----, 112 S.Ct. 882, 116 L.Ed.2d 786 (1992). The agreement need not be formal or explicit but rather may be inferred from facts and circumstances. Morehead, 959 F.2d at 1500. " '[T]he critical inquiry is whether the circumstances, acts, and conduct of the parties are of such a character that the minds of reasonable men may conclude therefrom that an unlawful agreement exists.' " Id. (quoting U.S. v. Kendall, 766 F.2d 1426, 1431 (10th Cir.1985), cert. denied, 474 U.S. 1081, 106 S.Ct. 848, 88 L.Ed.2d 889 (1986)). To reasonably infer an agreement the defendant's conduct must be interdependent with the conduct of other conspirators. Id. Interdependence requires more than casual transactions or mere associations; the defendant's activities must facilitate the endeavors of other conspirators or the venture as a whole. Id.

The government presented evidence sufficient for a reasonable juror to infer an agreement between DeVries and McFarlin to send materials containing misrepresentations to investors. Although McFarlin testified that he had voiced objections to DeVries concerning the misrepresentations in the brochures, (R. IV, at 586-92, 606-07), a reasonable juror could conclude, based on the evidence concerning McFarlin's conduct, that he agreed to the misrepresentations. First, McFarlin admitted that some of the misrepresentations were based on false data that he had supplied to DeVries. (R. IV, at 589). Second, McFarlin stated that he did he did not press his objections because he needed DeVries to continue raising money. (R. V, at 745). Finally, despite both DeVries's and McFarlin's awareness that the brochures contained misrepresentations, DeVries continued to use the materials to attract investors and McFarlin continued to accept money from those investors. Based on this evidence, reasonable jurors could infer that McFarlin and DeVries...