U.S. v. Mooney

• Decision Date: 10 October 2005
• Docket Number: No. 02-3388.,02-3388.
• Citation: 425 F.3d 1093
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Michael Alan MOONEY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

425 F.3d 1093

UNITED STATES of America, Plaintiff-Appellee, v. Michael Alan MOONEY, Defendant-Appellant.

No. 02-3388.

United States Court of Appeals, Eighth Circuit.

Submitted: June 22, 2005.

Filed: October 10, 2005.

COPYRIGHT MATERIAL OMITTED

Jon M. Hopeman, Minneapolis, Minnesota, for appellant.

Michael W. Ward, Asst. U.S. Attorney, Minneapolis, Minnesota, for appellee.

Before LOKEN, Chief Judge, LAY, BRIGHT, WOLLMAN, ARNOLD, MURPHY, BYE, RILEY, MELLOY, SMITH, COLLOTON, GRUENDER, and BENTON, Circuit Judges.

MURPHY, Circuit Judge.

Michael Alan Mooney was convicted by a jury of eight counts of mail fraud, four counts of securities fraud, and five counts of money laundering. The district court¹ sentenced him to 42 months, and Mooney appealed his conviction and sentence. The issues he raised in respect to his conviction were resolved in the March 28, 2005 panel opinion affirming his conviction, United States v. Mooney, 401 F.3d 940 (8th Cir.2005), but the sentencing portion of that opinion was vacated. Supplemental briefing was scheduled to address the impact of United States v. Booker, ___ U.S. ___, 125 S.Ct. 738, 160 L.Ed.2d 621 (2005), and United States v. Pirani, 406 F.3d 543 (8th Cir.2005) (en banc), and these briefs were submitted by June 22, 2005. Now before the court is Mooney's appeal of his sentence. He argues that the district court miscalculated the gain from his offenses and violated his Sixth Amendment rights by enhancing his guideline sentence without submitting the question of gain to the jury. We affirm.

I.

Mooney was formerly vice president of underwriting for United Healthcare Corporation (United). United is one of the largest health care management service companies in the country, and its stock trades on the New York Stock Exchange. Mooney opened a margin account in 1990 at the brokerage house Recom and then used it solely to invest in United stock. Recom extended him a line of credit equal to half the value of the securities he maintained in the account. If the value of his securities were to fall below half the account's total value, Recom would make a margin call. Mooney would then have to make a deposit to restore equity in the account or Recom could sell assets of his to restore the 50% margin.

As part of United's strategy to acquire health insurance companies, it approached privately owned MetraHealth (Metra) in early 1995 and entered into negotiations with it in February of that year. At that time Metra provided health insurance to more individuals than United, and it also had a substantial indemnity business. If United were to succeed in acquiring Metra, it would become the largest health care services company in the United States. It would have more than 40 million people enrolled in a variety of health care programs, with projected annual revenue of more than $8 billion. Mooney received stock options from time to time as part of his compensation at United, and on April 13 he exercised his right to purchase 20,000 shares of United stock for $36,000. The market value on that day for that amount of stock was $917,500.

During the 1995 negotiations, United and Metra conducted due diligence inquiries which involved confidential meetings at the headquarters of each company. Mooney had attended many such meetings on behalf of United in the past, and he and other senior representatives of United went to Metra's Virginia headquarters on May 11, 1995 for due diligence meetings. They spent four days looking through Metra's financial records, membership projections, cost data, and confidential Book of Business. United's corporate counsel reminded the participants in the meetings not to trade in stock during the due diligence period and to protect the secrecy of the proceedings by referring to the proposed merger transaction as "Project Fjord" and to Metra as "Musky."

United has a written policy on insider trading which prohibits United employees from trading in its stock in two situations: (1) during the blackout period at the end of each quarter before the United earnings report is released, and (2) when an employee possesses material nonpublic information. The insider trading policy defines material nonpublic information as information that a reasonable investor would use in deciding whether to invest. It also states that information about proposed mergers and acquisitions by United is material. United's policy was frequently published in employee newsletters and mentioned in oral reminders at due diligence meetings.

After Mooney returned from the meetings at Metra's Virginia headquarters, he contacted his stockbroker on May 17, 1995 to sell the 20,000 shares of United common stock he had purchased in April. The sale cleared on May 24, and Mooney used part of the $775,500 proceeds to purchase call options in United stock. The call options were purchased between May 24 and June 14 for a total price of $258,283.03. They gave him the right to buy a total of 40,000 shares of United stock at $35 a share in the following months of September, December, and January. Both the sale of his United shares and his purchases of the United call options occurred before the end of the due diligence period in the Metra transaction.

Mooney subsequently sold his call options at a profit.² On July 14, 1995 he sold the September options, and early in October he sold the December and January options. His total return on these sales was $532,482.49, and between August 3 and November 20, 1995 he deposited $428,000 into an account he had at Firstar Bank. These deposits were made by five checks drawn on his account at Recom Securities.³

The first media mention of the acquisition appeared on June 21, 1995 in the New York Times, which reported that United was in advanced discussions with Metra. United issued a press release on the same day, confirming the ongoing discussions. The daily volume of trade in United shares increased markedly, and the stock price rose 5%. On June 22 the Wall Street Journal reported speculation about United's approaching acquisition of Metra, and United common stock rose another 6%. Then on June 26 United announced its agreement to acquire Metra for $1.65 billion in cash and stock. On June 20, the day before the first national media story, United stock had traded at $40.125. By July 15 the price was $44.50 a share, and by October 5 it was over $49.00.

Shortly after the public announcement of United's acquisition of Metra, stock market surveillance officials notified the Securities and Exchange Commission (SEC) about bullish positions taken in United call options prior to the announcement of the acquisition. The SEC asked United to investigate whether Mooney had engaged in prohibited securities trading. Mooney denied to United's corporate counsel that he had done so, but the SEC filed a civil action against him on August 2, 1999. It alleged that Mooney had purchased call options while he had material nonpublic information regarding United's plan to acquire Metra. The SEC sought an injunction, disgorgement of Mooney's gains, and a civil penalty. Shortly thereafter on August 9, United suspended Mooney for violating its insider trading policy. He later resigned. The SEC's civil action was stayed after he was indicted in this case.

II.

The second superceding indictment alleged that Mooney knowingly devised and engaged in a scheme to defraud United and its shareholders through his May sale of United common stock and his subsequent purchase and sale of United call options, all while in possession of material nonpublic information concerning United's negotiations to acquire Metra. The indictment charged Mooney with eight counts of mail fraud in violation of 18 U.S.C. §§ 1341 and 1346; four counts of securities fraud in violation of 15 U.S.C. §§ 78j(b), 78ff(a), and 17 C.F.R. § 240.10b-5; and five counts of money laundering in violation of 18 U.S.C. § 1957. The mail fraud counts referenced eight separate mailings of confirmation slips, for his May 17 sale of United common stock and for his subsequent call option transactions. The securities fraud counts covered his four separate purchases of call options. The money laundering counts were based on his deposits of five checks from Recom into his Firstar Bank account during August, October, and November 1995; the indictment alleged that these funds were derived from his securities and mail fraud.

Mooney was found guilty by a jury on all counts and required to forfeit $70,000. Mooney was sentenced on August 21, 2002 under the then prevailing mandatory guideline system. Because the federal sentencing guidelines in effect in 2002 would have resulted in a higher sentencing range for the amount of gain found to have resulted from his offenses, the district court applied the 1994 guidelines. See United States Sentencing Guidelines Manual [U.S.S.G.] § 1B1.11(b)(1). Section 2B1.4, the guideline at issue in this case, is identical in both versions except for the use of gender neutral language in 2002, and Mooney does not challenge the court's use of the 1994 manual.

The district court applied the guideline grouping rules, which call for the grouping of offenses which involve substantially the same harm. See U.S.S.G. § 3D1.3. Mooney's securities and mail fraud convictions were grouped under U.S.S.G. §§ 3D1.2(b) and (d) since they involved the same criminal objective. They were then grouped with his convictions for laundering the fraudulent proceeds. See U.S.S.G. § 3D1.2(c). Since the money laundering convictions had the highest offense level of the grouped offenses, they supplied the base offense level of 17. See U.S.S.G. § 3D1.3(a). Two levels were then added for Mooney's knowledge that the proceeds were from a fraudulent scheme. See U.S.S.G. § 2S1.2(b)(1)(B) (1994).

The final adjustment to Mooney's base offense level was an enhancement of two levels for engaging in monetary transactions involving between $200,000 and $350,000 in illegal...