United States v. Isaacson
| Decision Date | 22 May 2014 |
| Docket Number | Nos. 11–14287,12–14703.,s. 11–14287 |
| Citation | 752 F.3d 1291 |
| Court | U.S. Court of Appeals — Eleventh Circuit |
| Parties | UNITED STATES of America, Plaintiff–Appellee, v. Laurence ISAACSON, Defendant–Appellant. United States of America, Plaintiff–Appellee, v. Laurence Isaacson, Defendant–Appellant. |
OPINION TEXT STARTS HERE
Anne Ruth Schultz, Wifredo A. Ferrer, Christopher J. Hunter, Assistant U.S. Attorney, Kathleen Mary Salyer, Harold E. Schimkat, U.S. Attorney's Office, Miami, FL, Jack B. Patrick, Washington, DC, for Plaintiff–Appellee.
Sheryl Joyce Lowenthal, Attorney at Law, Miami, FL, for Defendant–Appellant.
Appeals from the United States District Court for the Southern District of Florida, D.C. Docket No. 1:08–cr–20071–JAL–4.
Before MARTIN, FAY, and SENTELLE,* Circuit Judges.
Laurence Isaacson was convicted after a jury trial on account of his participation in a conspiracy to commit securities fraud in violation of 18 U.S.C. § 371. He was sentenced to 36–months imprisonment and ordered to pay $8 million in restitution. In this consolidated appeal, Mr. Isaacson challenges his conviction, his sentence, and the District Court's denial of his motion for a new trial. After careful review, and with the benefit of oral argument, we affirm Mr. Isaacson's conviction and the District Court's denial of his motion for a new trial, but vacate his sentence and remand with instructions for resentencing.
This case arises out of a complex scheme designed to defraud investors through a group of hedge funds we will call the Lancer Fund. At the core of the criminal enterprise were Michael Lauer, Martin Garvey, and Eric Hauser, all of whom had ownership interests in the Lancer Fund. Also central to the scheme was Bruce Cowen, who served as the Lancer Fund's managing director.
The fraud charged in this case began in earnest in late 1999, when the Lancer Fund began investing in publicly traded shell companies, or companies that typically had no real assets or business operations. Once the Lancer Fund controlled the shell companies, it drove up the share prices by buying stock in the companies at artificially inflated prices. This caused the shell companies to appear much more valuable than they really were. By the conspiracy's end, these worthless and overpriced shell companies made up the majority of the Lancer Fund's investment portfolio. Among the shell companies the Lancer Fund invested in were ServiceMax of America (SMX), Augment Systems (AUG), and Nu–D–Zine, each of which Mr. Isaacson helped the Lancer Fund acquire and manage.
Investors had no way to know what the Lancer Fund was doing because it did not disclose the companies in which it invested. This policy prevented investors from verifying for themselves the value and performance of the Lancer Fund. Instead, investors generally depended on evaluationsgiven by Lancer Fund managers and to some extent on annual audits by independent auditors.
Mr. Isaacson's criminal involvement with the conspiracy began when the Lancer Fund's auditors became suspicious about the value of the shell companies in the investment portfolio and sought support for their assigned market value. In an effort to placate the auditors, Mr. Cowen sought valuations in early 2002 from consultants corroborating the market value of the companies. One of the consultants was Milton Barbarosh, who shared an office with Mr. Isaacson in Florida.
At first, Mr. Barbarosh was not sure how he would fulfill Mr. Cowen's request, because “there was no basis to show that the value of the companies were worth anywhere near the value of the public market.” Eventually, Mr. Barbarosh decided that he could evaluate the shell companies by producing hypothetical valuations based on future business plans that were not intended to be implemented. Mr. Barbarosh shared this fraudulent plan with Mr. Isaacson, who reported that he had already suggested the idea to Mr. Cowen, and Mr. Cowen had said that it “would be fine if [Mr. Barbarosh did] the reports on that basis.” Mr. Barbarosh testified that he told Mr. Isaacson that the purpose of the valuations was to support the market price of the companies, and that he “probably” summarized the rest of the conversation with Mr. Cowen for Mr. Isaacson.
With a plan in place, Mr. Barbarosh began work on the valuation reports for SMX and Nu–D–Zine. To do that, he needed some model business plans that he could say were being implemented at the companies. Mr. Isaacson agreed to help and found two plans with figures that would allow Mr. Barbarosh to come close to the market value. Neither of these plans was ever actually going to be implemented at either SMX or Nu–D–Zine.
Mr. Barbarosh completed the valuations consistent with Mr. Cowen's request and sent him the final reports, which were dated May 23 and June 7, 2002.1 After Mr. Barbarosh sent the last of the reports, Mr. Isaacson spoke with Mr. Cowen and passed the message along to Mr. Barbarosh that “the reports were great, and that the auditors had accepted them.” The record does not indicate when exactly the Lancer Fund sent the reports to the auditors.
Messrs. Isaacson and Barbarosh were also involved in similar efforts to produce inflated valuations in 2003. Investors eventually became suspicious, however, in part because the auditors had not issued a report about the Lancer Fund's 2001 performance by 2003. In an effort to stave off investors' attempts to withdraw their money—which the Lancer Fund did not have—the Lancer Fund continued to misrepresent its performance to investors and encourage them to accept redemption in the form of Lancer Fund securities as opposed to cash.
Mr. Isaacson was indicted, along with Messrs. Lauer, Garvey, Hauser, and Barbarosh, on January 29, 2008. The indictment charged the co-conspirators with conspiracy to commit wire, mail, and securities fraud, in violation of 18 U.S.C. § 371 (Count One), and six counts of wire fraud, in violation of 18 U.S.C. §§ 1343 and 2 (Counts Two through Seven). Mr. Cowen was charged separately.
Due in large part to three continuances, which were granted at various defendants' requests, Mr. Isaacson was not brought to trial until spring of 2010. In March 2010, the District Court began jury selection based on prospective jurors' responses to written questionnaires, which the parties had helped to prepare. The delay between indictment and Mr. Isaacson's trial prompted him to file a Speedy Trial Act motion to dismiss on April 19, 2010, which the District Court denied.
After a lengthy trial, Mr. Isaacson was convicted of conspiracy to commit securities fraud, as charged in Count One. The District Court dismissed Count Seven before submitting the case to the jury; the jury acquitted Mr. Isaacson of Counts Two, Three, and Four; and did not reach a verdict on Counts Five and Six. Ultimately, Messrs. Hauser, Cowen, and Barbarosh pleaded guilty based on their involvement in the scheme. Messrs. Lauer and Garvey were, however, acquitted after a jury trial.
Mr. Isaacson's presentence investigation report (PSR) noted that his offense corresponded to a base offense level of 6, and also recommended that the Court impose the following enhancements: a 20–level loss amount enhancement, pursuant to United States Sentencing Guidelines (USSG) § 2B1.1(b)(1)(K); a 4–level number of victims enhancement, pursuant to USSG § 2B1.1(b)(2)(B); a 2–level sophisticated means enhancement, pursuant to USSG § 2B1.1(b)(9)(C); and a 4–level enhancement pursuant to USSG § 2B1.1(17)(A)(ii), because Mr. Isaacson was licensed with the Securities and Exchange Commission at the time he committed the offense. These enhancements brought Mr. Isaacson's offense level to 36, which corresponded to a guideline range of 188– to 235–months imprisonment. The statutory maximum sentence for a violation of 18 U.S.C. § 371 is 60–months imprisonment.
Mr. Isaacson objected to the loss amount enhancement, the number of victims enhancement, and the sophisticated means enhancement, and also objected to the lack of a 2–level minor role reduction pursuant to USSG § 3B1.2(b). At sentencing, Mr. Isaacson's loss amount objection proved the most controversial, and ultimately drove the guideline calculation.
The PSR attributed a loss of $15 million to Mr. Isaacson based on an investment Morgan Stanley made on June 28, 2002. The District Court eventually agreed with the attribution, after much deliberation. In sentencing Mr. Isaacson, the District Court defined his agreement to participate in the conspiracy narrowly, as a conspiracy to defraud the auditors. Despite this narrow definition, the District Court concluded that by defrauding the auditors, Mr. Isaacson participated in the broader conspiracy that caused Morgan Stanley to make its investment.
This loss amount enhancement brought Mr. Isaacson's guideline range above the maximum sentence permitted by his statute of conviction, and so the Court declined to rule on the remainder of Mr. Isaacson's objections. The Court ultimately sentenced Mr. Isaacson to 36–months imprisonment, a downward variance from his 60–month guideline range. Cf.USSG § 5G1.1(a) (). The District Court also ordered Mr. Isaacson to pay $8 million in restitution to Morgan Stanley. This was the amount of loss the Court found the government proved at sentencing.
About two years after Mr. Isaacson's conviction, he filed a motion pursuant to Federal Rule of Criminal Procedure 33 seeking a new trial, as well as an evidentiary hearing, based on newly discovered evidence about an alleged prosecutorial conflict of interest. Mr. Isaacson asserted his discovery that the lead prosecutor's wife was a shareholder at the firm representing Mr. Barbarosh, one of the...
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