United States v. Stein

• Decision Date: 18 January 2017
• Docket Number: No. 14-15621,14-15621
• Citation: 846 F.3d 1135
• Parties: UNITED STATES of America, Plaintiff–Appellee, v. Mitchell J. STEIN, Defendant–Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

846 F.3d 1135

UNITED STATES of America, Plaintiff–Appellee,

v.Mitchell J. STEIN, Defendant–Appellant.

No. 14-15621

United States Court of Appeals, Eleventh Circuit.

January 18, 2017

Kevin Brian Muhlendorf, Chaim E. Bryski, Nicole Grosnoff, Ellen Meltzer, Albert Blackwell Stieglitz, Andrew H. Warren, U.S. Department of Justice, Criminal Division, Washington, DC, Wifredo A. Ferrer, Kathleen Mary Salyer, Emily M. Smachetti, U.S. Attorney's Office, Miami, FL, Darrin L. McCullough, U.S. Attorney's Office, Savannah, GA, for Plaintiff–Appellee.

Jonathan Kasen, Law Offices of Jonathan Kasen, PA, Fort Lauderdale, FL, Robert O. Saunooke, Law Office of Robert O. Saunooke, Miramar, FL, for Defendant–Appellant.

Before WILLIAM PRYOR and JILL PRYOR, Circuit Judges, and STORY,^* District Judge.

JILL PRYOR, Circuit Judge:

After a two-week trial, Mitchell Stein, a lawyer, was convicted of mail, wire, and securities fraud based on evidence that he fabricated press releases and purchase orders to inflate the stock price of his client Signalife, Inc., a publicly-traded manufacturer of medical devices. The district court sentenced Mr. Stein to 204 months' imprisonment, over $5 million in forfeiture, and over $13 million in restitution. Mr. Stein appeals his conviction and sentence.

Regarding his conviction, Mr. Stein argues, among other points, that the government failed to disclose Brady material¹ to the defense before trial and knowingly relied on false testimony to make its case. As regards his sentence, Mr. Stein argues that the district court erred in calculating actual loss for the purposes of the Mandatory Victims Restitution Act of 1996 ("MVRA"), 18 U.S.C. § 3663A, and § 2B1.1 of the United States Sentencing Guidelines. In particular, he argues that in estimating actual loss the district court erroneously presumed that all purchasers of Signalife stock during the period when the fraud was ongoing relied on false information Mr. Stein promulgated. He also argues that the district court failed to take into account other market forces that likely contributed to the investors' losses. After careful consideration of the parties' briefs and with the benefit of oral argument, we affirm Mr. Stein's conviction but vacate his sentence.

This opinion proceeds in three parts. We first provide background regarding Mr. Stein's fraudulent scheme, his subsequent indictment, his pretrial and post-trial motions, and his sentencing. Second, we address and reject Mr. Stein's challenges to his conviction. Mr. Stein identified only one potential Brady document, and it contained no information favorable to him and was accessible through reasonable diligence before trial. And, he failed to identify any suppressed material or any materially false testimony on which the government relied, purportedly in violation of Giglio .²

Third, with respect to sentencing, we review the district court's actual loss calculation. We agree with Mr. Stein that to establish an actual loss figure under the guidelines or the MVRA based on investors' losses, the government must prove that, in deciding to purchase Signalife stock, investors relied on the fraudulent information Mr. Stein disseminated. The district court found that more than 2,000 investors relied on Mr. Stein's fraudulent information, but the only evidence supporting this finding was the testimony of two individuals that they relied on Mr. Stein's false press releases and generalized evidence that some investors may rely on some public information. This evidence was insufficient to permit reliance to be inferred for over 2,000 investors. Accordingly, the district court erred in calculating an actual loss figure based on the losses of all these investors. The district court also failed to determine whether intervening events caused the Signalife stock price to drop and, if so, whether these events were unforeseeable such that their effects should be subtracted from the actual loss figure. We remand so that the district court can remedy these errors.

I. BACKGROUND

A. The Fraudulent Scheme

The evidence adduced at trial—including the testimony of Mr. Stein's two co-conspirators, Martin Carter and Ajay Anand—supported the following facts. In an effort to inflate artificially the value of Signalife stock, Mr. Stein drafted three press releases and three corresponding purchase orders touting more than $5 million in bogus Signalife sales.³ The fraudulent period began on September 20, 2007, when Mr. Stein sent the first false press release to John Woodbury, Signalife's securities lawyer, with instructions to publish it. The press release reported that Signalife had sold $1.98 million worth of its products. Mr. Stein represented that the press release was "backed up by a purchase order." Trial Tr., Doc. 240 at 59.⁴ Mr. Woodbury lacked any independent knowledge of the truth of the statements in the press release. He published it that day anyway, though, because Mr. Stein had told him that he and Signalife's Chief Executive Officer, Lowell T. Harmison, were traveling together visiting potential clients, and Mr. Woodbury believed that this sale was the fruit of those efforts.

A few days later, Mr. Stein emailed Mr. Woodbury a second press release about an additional $3.3 million in sales and represented that Mr. Harmison had approved the press release. Mr. Woodbury published the release the next day despite lacking any supporting documentation.

Mr. Stein emailed Mr. Woodbury a third press release about two weeks later. The press release reported an additional $551,500 in sales orders. Mr. Woodbury issued the release early the next morning, again without supporting documentation.

Mr. Woodbury later asked Mr. Stein for additional information regarding the sales that were described in the press releases. In response, Mr. Stein sent Mr. Woodbury three purchase orders. None of these purchase orders provided an address for shipment. Tracey Jones, Mr. Harmison's assistant, maintained that she "never received any backup or anything on" the purchase orders, and thus she considered them "phantom purchase orders." Doc. 241 at 117.

The first purchase order, dated September 14, 2007, reflected an order by a company called Cardiac Hospital Management ("CHM"). The order reflected a sale of $1.93 million worth of product and noted a $50,000 deposit. The signature block showed "Cardiac Hospital Management" and an illegible signature without a name. A week after the date of the purchase order, Thomas Tribou, a consultant who had worked with Signalife, paid Signalife $50,000 for goods he expected to receive.

The second and third purchase orders, dated September 24, 2007 and October 4, 2007, respectively, reflected sales to a company called IT Healthcare. One order reflected a sale of products at a cost of $3.3 million and noted a $30,000 deposit. The other reflected a sale with a "net due" amount of $551,500.

The facts of these purchase orders resurfaced several times. Mr. Harmison incorporated information about them in a March 2008 memorandum to Signalife's auditors. Likewise, Signalife filed reports with the Securities and Exchange Commission ("SEC") that detailed these orders. According to Mr. Woodbury, who oversaw the drafting of the SEC filings, Mr. Stein was the sole source of information about the purchase orders and was intimately involved in the drafting process.

Mr. Stein used the help of his personal assistant, Mr. Carter, and a Signalife contractor, Mr. Anand, to make the fake purchase orders appear legitimate. For example, Mr. Stein gave Mr. Carter a template to create bogus letters requesting a change of shipment address, one for IT Healthcare and another for CHM. Mr. Carter drafted a letter ostensibly from a man named Yossie Keret of IT Healthcare requesting that products be delivered to an address in Israel that Mr. Carter made up. Mr. Carter also prepared a letter appearing to come from CHM that asked for products to be delivered to an address in Tokyo, Japan. This letter purportedly was signed by "Toni Nonoy." Mr. Carter never spoke with Yossie Keret, Toni Nonoy, or anyone at IT Healthcare or CHM; indeed, he had no idea whether the companies or the individuals actually existed. He believed, however, that Mr. Stein had fabricated these names.

Mr. Stein directed Mr. Carter to help him with the fraud in other ways as well.

Mr. Stein asked Mr. Carter for two numbers he could use as fax numbers for purchase confirmation letters from Yossie Keret and Toni Nonoy. Mr. Carter provided Mr. Stein with two numbers unaffiliated with either company or person. Then, in June 2008, Mr. Stein told Mr. Carter to fabricate a letter from Yossie Keret purporting to cancel IT Healthcare's orders. Mr. Carter did as he was told and sent the letter to Mr. Woodbury. At one point, Mr. Stein arranged for Mr. Carter to travel to Israel ostensibly to find customers for Signalife even though Mr. Carter had no business contacts there. On another occasion, Mr. Stein sent Mr. Carter to Japan with a sealed envelope in a plastic bag, instructing him to mail the envelope back to the United States while wearing gloves and then return home the same day.

Mr. Stein similarly relied on Mr. Anand for help in perpetrating the fraud. Once Mr. Stein asked Mr. Anand to travel to Texas to mail two IT Healthcare purchase orders to Signalife. When Mr. Anand asked whether the purchase orders were real, Mr. Stein responded that it did not matter. Mr. Anand declined to help, but later, on Mr. Stein's request, he agreed to draft two letters that would appear to come from Yossie Keret on behalf of IT Healthcare. The first letter requested a shipping address change to an Israeli address. The second letter cancelled the Signalife order. Mr. Anand sent these letters to Mr. Stein and Mr. Harmison.

Mr. Stein also used Carter and Anand to take money or stock from Signalife. At Mr. Stein's direction, in January 2008, Mr. Carter executed an agreement with Signalife to provide consulting services, none...