United States v. Miller
| Decision Date | 12 August 2016 |
| Docket Number | No. 15–2577,15–2577 |
| Citation | 833 F.3d 274 |
| Parties | United States of America v. Everett C. Miller, Appellant |
| Court | U.S. Court of Appeals — Third Circuit |
Richard Sparaco, Esq., 1920 Fairfax Avenue, Cherry Hill, NJ 08003, Counsel for Appellant.
Mark E. Coyne, Esq., Office of United States Attorney, 970 Broad Street, Room
700, Newark, NJ 07102, Norman Gross, Esq., Office of United States Attorney, Camden Federal Building & Courthouse, 401 Market Street, Camden, NJ 08101, Counsel for Appellee.
Before: FUENTES, CHAGARES and RESTREPO, Circuit Judges.
Appellant Everett C. Miller sold investors over $41 million in phony “promissory notes” and then squandered their money. Miller pled guilty to one count of securities fraud, 15 U.S.C. § 78j(b), and one count of tax evasion, 26 U.S.C. § 7201. He was sentenced to 120 months' imprisonment. Miller argues that the District Court improperly applied the Sentencing Guidelines investment adviser enhancement, U.S.S.G. § 2B1.1(b)(19)(A)(iii), because he was not an “investment adviser,” as defined by the Investment Advisers Act of 1940, 15 U.S.C. § 80b–2(a)(11). This claim requires us to interpret the statutory definition of “investment adviser” for the first time. Miller also argues that the Government breached his plea agreement and that his sentence is substantively unreasonable. We will affirm.
Miller was the founder, chief executive and sole owner of Carr Miller Capital, LLC (“Carr Miller”), an investment and financial services firm. Carr Miller was based in New Jersey and had more than thirty affiliates and related entities. Carr Miller received over $41.2 million in capital, from more than 190 investors, between June 2006 and December 2010.
Miller was a registered investment adviser representative under New Jersey securities law. While he had little formal education—a high school GED—Miller passed several securities industry examinations (Series 7, 24, 55, 63 and 65). The District Court found that he “maintained a public persona of a very successful entrepreneur.” App. 293.1
Through Carr Miller, Miller sold investors “Carr Miller Capital promissory notes,” which were securities under the Securities Act of 1933 and the Securities Exchange Act of 1934, 15 U.S.C. §§ 77b(a)(1), 78c(a)(10), and not exempt from federal or state registration requirements. App. 83. Miller did not register the notes. The Carr Miller notes promised annual returns of between 7 and 20 percent, which varied by investor, plus the return of the principal after nine months. These promises, of high returns and no risk, were false.
Miller deceived his investors in at least three ways. First, Carr Miller operated, in part, as a Ponzi scheme. Carr Miller spent approximately $11.7 million of its investors' principal to repay earlier investors. Second, Carr Miller invested in risky business ventures without informing its investors. Carr Miller lost approximately $15.7 million of $22.9 million invested by the firm. Third, Carr Miller comingled investors' funds in seventy-five related bank accounts, which Miller then tapped like a “credit card” for Carr Miller overhead and his own expenses. App. 293. Miller spent lavishly on luxury cars, home furnishings, electronics, vacations and tickets to entertainment and sporting events.
Carr Miller began to unravel when the Arkansas Securities Department opened an investigation of an affiliate in August 2009. This investigation put Miller on notice that his promissory notes were unregistered securities. This did not stop him. After becoming aware of the investigation, Miller knowingly sold almost $5 million in promissory notes to forty new investors. He did not return any of their principal. Instead, Miller used a portion of the funds to repay earlier investors and spent the balance of the money on Carr Miller overhead and his own expenses. This period of the Carr Miller fraud, from August 2009 to December 2010, formed the basis of Miller's securities fraud conviction and led to a stipulated loss amount of $2.5 to $7 million.
Miller pled guilty pursuant to a plea agreement and a cooperation agreement. The parties stipulated to a combined offense level of 29, followed by a 3-level reduction for acceptance of responsibility. See U.S.S.G. § 3E1.1. The parties agreed that a sentence within the Guidelines range for offense level 26 would be reasonable.
Under the cooperation agreement, Miller agreed to provide substantial assistance in exchange for the Government's downward departure motion. See U.S.S.G. § 5K1.1. Miller cooperated with the Government and with a state court receiver for Carr Miller. He helped the Government trace investors' “money through the labyrinth of bank accounts and financial transactions” in order to determine the restitution owed. App. 234. In exchange, the Government filed a Section 5K1.1 departure motion. The motion requested a downward departure of “ ‘3 levels from the parties' stipulated offense level of 26,’ to ‘offense level 23.’ ” Br. for Appellee 27 (quoting App. 360).2
At Miller's sentencing, three issues arose that are the subject of this appeal. First, the District Court imposed the investment adviser enhancement, which Miller argues is inapplicable. Second, the Government made sentencing recommendations, which Miller contends breached the plea agreement. Third, the District Court imposed an upward variance, resulting in a sentence that Miller claims is substantively unreasonable.
The District Court applied the 4–level investment adviser enhancement. The plea agreement was silent as to this enhancement, which was recommended later in the Presentence Report. Miller objected to the enhancement, but the District Court rejected his argument that he did not meet the definition of an “investment adviser.” The District Court did grant a 3–level downward departure. However, having added 4 levels for the investment adviser enhancement, the downward departure was from offense level 30 to 27, rather than from 26 to 23.
At sentencing, the District Court asked the Government for its sentencing recommendation.
Consistent with the 5K1.1 motion, the Government stated that it was requesting a sentence at “offense level 23.” App. 273. The Government reiterated its position that a sentence at offense level 26 would be “before the three level downward departure” and that after the departure “it would be a 23.” App. 274. When requesting offense level 23, the Government reaffirmed that it was “abiding by the terms of our plea agreement.” App. 273.
Defense counsel interjected that the District Court had granted the 5K1.1 downward departure from offense level “30 to 27.” App. 274. Defense counsel stated, “I think in so doing, that's in contradiction to the plea agreement....” App. 274. In response, the District Court suggested that Government request an additional one-level downward departure to level 26. The Government agreed that this would be “reasonable.” App. 275. However, the District Court did not depart below level 27.
The District Court also imposed an upward variance of 2 levels based upon the Section 3553(a) factors. See 18 U.S.C. § 3553(a). This produced a final offense level of 29 and a Guidelines range of 97 to 121 months' imprisonment. The District Court stated that it would have varied upward more but for Miller's poor health.3 The District Court's sentence of 120 months was within the Guidelines range.4
Miller first challenges the application of the Sentencing Guidelines investment adviser enhancement, U.S.S.G. § 2B1.1(b)(19)(A)(iii).5 He contends that he was not an “investment adviser,” as defined by the Investment Advisers Act of 1940, 15 U.S.C. § 80b–2(a)(11). The interpretation of this statutory definition is a matter of first impression in this Circuit.
We exercise plenary review of a district court's interpretation of the Sentencing Guidelines. United States v. Richards , 674 F.3d 215, 219 (3d Cir. 2012). We review a factual challenge to the application of the Guidelines for clear error. Id. at 220.
In the instant case, we consider a Guideline enhancement that incorporates a statutory definition. “Our goal when interpreting a statute is to effectuate Congress's intent.” Hagans v. Comm'r of Soc. Sec. , 694 F.3d 287, 295 (3d Cir. 2012). “[W]e begin with the language of the statute itself.” Transamerica Mortg. Advisors, Inc. v. Lewis , 444 U.S. 11, 16, 100 S.Ct. 242, 62 L.Ed.2d 146 (1979). “In trying to divine the intent of Congress, we should consider the entire scope of the relevant statute,” including its larger structure. Hagans , 694 F.3d at 295.
Our starting point is the text of the investment adviser enhancement, which provides: “If the offense involved ... a violation of securities law and, at the time of the offense, the defendant was ... an investment adviser , or a person associated with an investment adviser ... increase by 4 levels.” U.S.S.G. § 2B1.1(b)(19)(A)(iii) (emphasis added). This enhancement adopts the definition of “investment adviser” set forth by the Investment Advisers Act of 1940 (“the Act”), 15 U.S.C. § 80b–2(a)(11). See U.S.S.G. § 2B1.1, cmt. n.15(A).
The Act “was the last in a series of [a]cts designed to eliminate certain abuses in the securities industry, abuses which were found to have contributed to the stock market crash of 1929 and the depression of the 1930's.” SEC v. Capital Gains Research Bureau, Inc. , 375 U.S. 180, 186, 84 S.Ct. 275, 11 L.Ed.2d 237 (1963). Under the Act, investment advisers have fiduciary duties to their clients. Id. at 201, 84 S.Ct. 275 ; Belmont v. MB Inv. Partners, Inc. , 708 F.3d 470, 501 (3d Cir. 2013). Non-exempt investment advisers must register with the Securities and Exchange Commission (“SEC”) and all investment advisers are prohibited from engaging in fraud. Goldstein v. SEC , 451 F.3d 873, 876 (D.C. Cir. 2006) (citing 15 U.S.C. §§ 80b–3, 80b–6 ).
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