U.S.A v. Laurienti

• Decision Date: 16 June 2010
• Docket Number: 07-50365,07-50367.,No. 07-50240,07-50358,07-50240
• Parties: UNITED STATES of America, Plaintiff-Appellee,v.Bryan LAURIENTI, a/k/a Bryan Anthony Laurienti, Defendant-Appellant.United States of America, Plaintiff-Appellee,v.Donald Samaria, akas Donald S. Samaria, Donald Samuel Samaria, Jr., Donny Samaria, Don Samaria, Donald Samuel Samaria, Defendant-Appellant.United States of America, Plaintiff-Appellee,v.David Montesano, Defendant-Appellant.United States of America, Plaintiff-Appellee,v.Curtiss Parker, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

611 F.3d 530

UNITED STATES of America, Plaintiff-Appellee,

v.Bryan LAURIENTI, a/k/a Bryan Anthony Laurienti, Defendant-Appellant.

United States of America, Plaintiff-Appellee,

v.Donald Samaria, akas Donald S. Samaria, Donald Samuel Samaria, Jr., Donny Samaria, Don Samaria, Donald Samuel Samaria, Defendant-Appellant.

United States of America, Plaintiff-Appellee,

v.David Montesano, Defendant-Appellant.

United States of America, Plaintiff-Appellee,

v.Curtiss Parker, Defendant-Appellant.

Nos. 07-50240, 07-50358, 07-50365, 07-50367.

United States Court of Appeals Ninth Circuit.

Argued and Submitted April 8, 2010.

Filed June 16, 2010.

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Dennis P. Riordan, Riordan & Horgan, San Francisco, CA; Jonathan D. Libby, Deputy Public Defender, Los Angeles, CA; Karen L. Landau, Oakland, CA; and Irene P. Ayala, Los Angeles, CA, for the defendants-appellants.

Ellen R. Meltzer, Fraud Section, Criminal Division, United States Department of Justice, Washington, D.C., for the plaintiff-appellee.

Appeals from the United States District Court for the Central District of California, Terry J. Hatter, District Judge, Presiding. D.C. Nos. CR-03-00620-TJH-03, CR-03-00620-TJH-8, CR-03-00620-TJH-05, CR-03-00620-TJH-06.

Before: BARRY G. SILVERMAN and SUSAN P. GRABER, Circuit Judges, and FREDERICK J. SCULLIN, JR.,^* District Judge.

ORDER AND OPINIONORDER

The opinion filed June 8, 2010, slip opinion at 8193, is hereby withdrawn. The attached opinion is ordered filed in its place and constitutes the opinion for the court.

OPINION

GRABER, Circuit Judge:

After the collapse of a securities fraud “pump and dump” scheme, the government indicted the owners, managers, and senior brokers of a securities broker-dealer firm. The owners and managers pleaded guilty to charges of criminal securities fraud, but the senior brokers, including Defendants Bryan Laurienti, Curtiss Parker, Donald Samaria, and David Montesano, pleaded not guilty. Defendants conceded that a fraudulent scheme existed but argued that they had not joined the conspiracy or engaged in fraudulent acts; rather, they were innocent brokers selling stocks to their clients, caught in the government's overly wide criminal dragnet. The jury found otherwise and convicted Defendants on all counts. Defendants appeal their convictions and sentences. We affirm Defendants' convictions but vacate their sentences and remand for resentencing.

FACTUAL AND PROCEDURAL HISTORY

Hampton Porter Investment Bankers, LLC (“Hampton Porter”), was a securities broker-dealer firm registered with the United States Securities and Exchange Commission (“SEC”). In the late 1990s and early 2000s, Hampton Porter's owners and top-level managers engaged in what is known as a “pump and dump” scheme. Certain publicly traded companies granted Hampton Porter (or its owners) large blocks of free, or deeply discounted, stock. In return, Hampton Porter drove up the price of these thinly traded stocks by pressuring unsuspecting clients into purchasing shares, by strongly discouraging clients from selling shares, and by refusing in some instances to execute clients' sales orders. In the meantime, Hampton Porter and others who stood to benefit from the scheme sold their shares at artificially inflated prices. See generally United States v. Zolp, 479 F.3d 715, 717 n. 1 (9th Cir.2007) (describing a “pump and dump” scheme); United States v. Skelly, 442 F.3d 94, 96-97 (2d Cir.2006) (same).

When the stock market fell sharply in 2000, Hampton Porter's scheme crashed with it. Hampton Porter went out of business in 2001. After an investigation, the government indicted Hampton Porter's owners, managers, and senior brokers. ¹ The indictment alleges that the defendants participated in a securities fraud conspiracy, in violation of 18 U.S.C. § 371, 15 U.S.C. § 78j(b), and 15 U.S.C. § 78ff and, by incorporation, 17 C.F.R. § 240.10b-5. The indictment alleges that the “purpose of the conspiracy was to enrich defendants and their co-conspirators by means of the fraudulent sales of securities to the customers of Hampton Porter.” The indictment also alleges additional counts against individual defendants in connection with specified stock purchases for acts committed “in furtherance of the fraudulent scheme.”

The government's investigation uncovered overwhelming evidence that the criminal conspiracy existed and that the owners and managers were complicit. The owners and managers pleaded guilty to various charges and, in plea agreements, agreed to testify against the senior brokers, who are Defendants here. Defendants pleaded not guilty, and the district court presided over a 14-day jury trial.²

Much of the testimony and documentary evidence at trial concerned Defendants' receipt of “bonus commissions” when a client purchased shares of four targeted stocks, referred to by Defendants as “house stocks.” ³ The commission structure worked in the following manner. On the purchase of all stocks, the client paid a sales commission-typically $100. The brokers fully disclosed that sales commission, and the client's copy of the transaction ticket reflected the commission. Out of that sales commission, Hampton Porter paid its brokers a predetermined percentage, typically 50%, for a resulting regular commission of $50. As an incentive to the brokers to push house stocks, however, Hampton Porter offered a “bonus commission,” which Hampton Porter paid the brokers in addition to the regular commission. The bonus commission typically amounted to 5% of the purchase price of the house stock. The bonus commissions were paid directly by Hampton Porter, not by the clients. Neither the brokers nor the transaction tickets disclosed to clients the existence of bonus commissions. In summary, for a purchase of non-house stock, a broker received $50; but for a purchase of house stock, a broker received $50 plus 5% of the purchase price.

Two simple examples illustrate the dramatic difference between the broker's commission on a client's purchase of a non-house stock and the broker's commission on a client's purchase of a house stock. Suppose that a client bought $30,000 worth of a non-house stock and that Hampton Porter charged its standard $100 sales commission. The client would pay $30,100, and the broker would receive a $50 commission. Now assume instead that a client bought $30,000 worth of a house stock and that Hampton Porter charged its standard $100 sales commission. The client again would pay $30,100. But this time, the broker would receive the $50 sales commission plus a bonus commission of $1,500. In summary, a client's purchase of $30,000 worth of stock would result in either a total commission of $50 or a total commission of $1,550-depending only on whether the stock purchased was a house stock.⁴

Additionally, bonus commissions could be lost. Generally speaking, if the client sold shares of a house stock, the broker would lose the bonus commission that he or she had earned on the original purchase of the house stock. The brokers attempted to avoid the loss of the bonus commission in several ways. First, and most simply, the brokers dissuaded the client from selling the house stock. Second, if the broker could find another client to purchase the house stock, he or she executed a “cross-trade” between clients. Although the specifics of the transaction were unknown to the two clients, the selling client sold his or her shares of the house stock to the purchasing client. In this way, the total number of shares owned by Hampton Porter clients as a group would be unaffected. Third, in some instances, the broker executed unauthorized purchases of the house stock by another, unsuspecting client.

The government introduced overwhelming and uncontested evidence that Defendants knowingly received bonus commissions. Several of Defendants' former clients testified that Defendants used high-pressure sales tactics to persuade them to buy house stocks and that Defendants strongly discouraged the sale of house stocks. They testified that, had they known of the bonus commissions, they would not have bought the house stocks. They also testified to unauthorized purchases in their accounts and other illicit behavior by Defendants, such as lying and failing to carry out their express instructions. Finally, the government introduced uncontested evidence that all Defendants except Laurienti regularly executed trades without the necessary licenses.

The jury found Defendants guilty on all counts. Although the jury convicted each Defendant of more than one count, the district court imposed only one sentence by operation of U.S.S.G. § 3D1.2(d), which mandates that “counts involving substantially the same harm shall be grouped together.” The district court imposed sentences ranging from 30 months' imprisonment to 52 months' imprisonment. Each sentence is below the corresponding Guidelines range. The district court also ordered that each Defendant pay restitution in amounts ranging from approximately $300,000 to approximately $2.7 million. In these consolidated appeals, Defendants timely appeal their convictions and their sentences.

DISCUSSION

I. Challenges to the Convictions

A. Duty to Disclose Bonus Commissions

Section 10(b) of the Securities Exchange Act of 1934 states:

It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange-

....

(b) To use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, or any securities-based swap agreement (as defined in section 206B of the Gramm-Leach-Bliley Act), any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.

15 U.S.C. § 78j (...