U.S. v. Tom

• Decision Date: 01 October 2007
• Docket Number: No. 07-1074.,07-1074.
• Citation: 504 F.3d 89
• Parties: UNITED STATES of America, Appellant, v. Michael K.C. TOM, Defendant, Appellee.
• Court: U.S. Court of Appeals — First Circuit

504 F.3d 89

UNITED STATES of America, Appellant, v. Michael K.C. TOM, Defendant, Appellee.

No. 07-1074.

United States Court of Appeals, First Circuit.

Heard September 10, 2007.

Decided October 1, 2007.

Jonathan F. Mitchell, Assistant United States Attorney, with whom Michael J. Sullivan, United States Attorney, and Cynthia A. Young, Assistant United States Attorney, were on brief, for appellant.

Mark W. Pearlstein, with whom Benjamin A. Goldberger and McDermott Will & Emery LLP, were on brief, for appellee.

Before LYNCH and LIPEZ, Circuit Judges, and BARBADORO,^* District Judge.

LYNCH, Circuit Judge.

The government appeals as unreasonably lenient a sentence of thirty-six months' probation (including six months of community confinement) imposed on a white-collar criminal, Michael Tom. Tom, a securities professional, illegally made almost $800,000 in insider trading profits and then obstructed justice by lying under oath to the Securities and Exchange Commission, encouraging another witness to lie, and creating a false document.

The low end of the Sentencing Guidelines range for Tom, including a two-level increase for obstruction of justice, was thirty-seven months' imprisonment, and the prosecution agreed to make that recommendation as part of a plea agreement. After accepting Tom's guilty plea, the court declined to sentence within the Guidelines range or to imprison Tom, and stated three reasons for its sentence. The court primarily rested on a disparity rationale: that Shengnan Wang, who as a cooperating co-defendant received a U.S.S.G. § 5K1.1 departure, was the insider tipper and gained $9,761, and had been sentenced by a different judge to twelve months' probation (and 500 hours community service). The court stated that Tom was less culpable than Wang, and that made any Guidelines sentence for Tom unjust. The court also articulated a concern that Tom was subject to sanctions by the SEC, and a prison sentence would over-punish him. Finally, while the court had concluded that family circumstances would not justify a downward departure, the court noted that Tom's family problem — a daughter's illness — factored into the mix.

We agree with the government that the sentence is unreasonable and that it did not give adequate consideration to the seriousness of the offense, the need for general deterrence for white-collar crimes, and the need for some imprisonment. We reverse and remand for resentencing.

I.

On February 15, 2006, Michael Tom waived indictment and pleaded guilty to five counts of insider trading in violation of 15 U.S.C. § 78j(b) and § 78ff(a). The insider trading arose out of a call on April 29, 2004 that Tom received from Shengnan Wang, an employee of Citizens Bank. Tom and Wang had worked together at Citizens during the end of 2003, where he had helped hire and train her, and they kept in touch when Tom left Citizens to start a hedge fund, Global Time Capital Management. In February 2004, Wang and her husband invested $60,000 in Tom's fund.

Wang's department performed due diligence on banks which Citizens sought to acquire. The day before Wang called Tom, her supervisor informed her that other members of her department were traveling to conduct due diligence at an acquisition target; while she deliberately was not provided the destination, she learned through her own investigations that the due diligence was taking place in Cleveland, Ohio, and that three banks were based there: KeyCorp, National City Corporation, and Charter One.

In Wang's call to Tom the next morning, she told him that the Citizens team was analyzing an acquisition target in Cleveland, Ohio. Ten minutes after the call, Tom sent an e-mail to his brother recommending that he purchase securities in the three banks. In the next two-and-a-half hours, Tom made eighteen purchases of over $25,000 of stocks and options in each of the three likely target banks for the hedge fund, for himself, and for family members whose accounts he controlled. Over the next several days, as sales volume in Charter One increased, Tom sold off his securities in the other two banks and acquired a larger position in Charter One. By the end of the week, he had made 52 trades, acquiring 952 Charter One call options and 2,100 shares of Charter One common stock. Neither Wang nor her husband purchased any securities.

After the market closed on May 4, 2004, Citizens announced it was acquiring Charter One. The next day, Tom sold virtually all of his Charter One holdings and realized a gain of $743,505.37. Including his brother's gain of $39,089, the total gain reasonably attributable to Tom was $782,594.37.

After an article the following week on the Forbes website mentioned Tom's unusual trading activity, the SEC initiated an investigation. Tom attempted to obstruct this investigation in numerous ways. First, he told Wang's husband to sign a new backdated investment contract in an attempt to mislead the government as to any link between Wang and Tom. This backdated document was provided to the SEC pursuant to a subpoena. Second, Tom convinced Wang to cover up the real purpose of her phone call, telling her to tell the SEC that she had called not to give information about the merger, but to seek his guidance in using one of Citizens' financial databases. Lastly, Tom provided false testimony under oath to the SEC, giving information that was directly contrary to the available evidence regarding his communications with Wang.

Wang and her husband were charged with insider trading separately from Tom. They both pleaded guilty before a different district court judge. Because Wang cooperated in the case against Tom, she received a U.S.S.G. § 5K1.1 departure for providing substantial assistance to the government. The judge sentenced them both to one year of probation.¹

Tom signed a plea agreement with the government in which both parties agreed that the proper Guidelines range was thirty-seven to forty-six months in prison, which included a two-level increase for obstruction of justice. He waived his right to appeal the sentence or seek any departure, except on two grounds: (1) because of his extraordinary family circumstances and (2) because the loss overstated the seriousness of his offense.

The government took the position that thirty-seven months' imprisonment, the low end of the Guidelines, was warranted. Tom sought a departure from the Guidelines range on both his reserved grounds, requesting thirty-six months' probation, including twelve months' home detention. Based on a report from a holistic medical practitioner who diagnosed his daughter as suffering from heavy metal poisoning, Tom argued that he was her necessary caregiver. He then claimed that the loss was overstated because at a certain point after he began trading Charter One securities, he relied on publicly available information. In addition to the grounds for departure, Tom also argued to the court that he had already agreed with the SEC never to work in the investment industry again, and that he still was potentially liable to the SEC in an outstanding civil action. Lastly, Tom mentioned the need to avoid a sentencing disparity between him and Wang, arguing that as the insider, she was the more culpable of the wrongdoers.

The district court appropriately calculated the Guidelines range of thirty-seven to forty-six months in accord with the plea agreement and declined to grant Tom's request for a departure under the Guidelines. The government provided a report from a board-certified toxicologist stating that Tom's daughter likely did not suffer from metal poisoning, and that the treatment Tom suggested could in fact put her at greater risk. The report went on to say that even if the daughter did require that treatment, Tom's participation was unnecessary. The court then concluded that Tom's presence was not "essential" to his daughter, and that his family circumstances did not rise to the level that would result in a departure. In addition, the court decided that it was impossible to disentangle Tom's insider trading from his trading based on public information.

In rendering Tom's sentence, however, the court imposed a term of thirty-six months' probation, six of which were to be served in a community confinement center. The court based the sentence on three reasons. First, it said it wanted to avoid sentencing disparity between Tom and Wang, whom the court viewed as more culpable. While the court recognized that it had no basis from the record to assess the reasons for Wang's sentence, and that Wang had cooperated while Tom had not, it stated that "it doesn't seem altogether fitting and proper that the person who is at the center of this criminal conduct should get a year's probation while Mr. Tom faces three years of incarceration. That disparity alone suggests to me that a Guideline[s] sentence is not the appropriate sentence." Second, the court recognized that Tom was still subject to punishment by the SEC. Third, the court recognized that while Tom's "family problem" did not qualify for a departure, his presence at home was "important to the development of his daughter." The government appealed the sentence as unreasonably lenient.

II.

This court is required on appeal to review sentences for reasonableness. United States v. Booker, 543 U.S. 220, 261, 125 S.Ct. 738, 160 L.Ed.2d 621 (2005); United States v. Jiménez-Beltre, 440 F.3d 514, 517 (1st Cir.2006) (en banc), cert. denied, ___ U.S. ___, 127 S.Ct. 928, 166 L.Ed.2d 715 (2007). The sentence at issue is substantially below the Guidelines scale of a minimum of thirty-seven months' imprisonment, and imposes no imprisonment. "[T]he farther the judge's sentence departs from the guidelines sentence the more compelling the justification . . . the judge must offer." United States v. Thurston (Thurston III), 456 F.3d 211, 215 (1st Cir.2006) (quoting United States v. Smith, 445 F.3d 1, 4 (1st Cir.2006)). We look for both "a...