Petition for Writ of Certiorari — Rafferty v. United States (No. 08-1400)

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Supreme Court U.S.

\ “(\) 081400 MAY 14 2009

No. 08-OFFICE OF THE CLERK

IN THE

Supreme Court of the United States

TIMOTHY RAFFERTY,

Petitioner,

Vv.

UNITED STATES OF AMERICA,

Respondent.

On Petition for a Writ of Certiorari

to the United States Court of Appeals

for the Eleventh Circuit

PETITION FOR WRIT OF CERTIORARI

MARSHA R. TAUBENHAUS

Counsel of Record

110 Wall Street

11th Floor

New York, NY 10005

(212) 859-3513

Counsel for Petitioner

QUESTIONS PRESENTED

1. Whether the principles set forth in Dura

Pharmaceuticals Inc. v. Broudo, 544 U.S. 336 (2005)

regarding loss calculations in civil cases should ap-

ply in criminal cases.

=. Under 18 U.S.C. § 3771, victims are entitled to no-

tice of court proceedings, to be heard at sentencing,

and to be treated with fairness. The question pre-

sented are: (A) whether government prosecutors,

under the guise of giving victims notice, may inform

potential witnesses of their theory of the case and

belief in the defendant’s guilt; and (B) »’nether a vic-

tim’s desire to appear on the defendan.’s behalf at

sentencing must be honored.

TABLE OF CONTENTS

QUESTION PRESENTED

TABLE OF AUTHORITIES

PETITION FOR A WRIT OF CERTIORAI

OPINIONS BELOW

JURISDICTION

RELEVANT CONSTITUTIONAL AND

Factual Background

Sentencing

Ampeai ............. el a a EAA ERR SRO

REASONS FOR GRANTING THE WRIT

Loss Calculation

The CVRA

CONCLUSION

APPENDIX A, Opinion of the United States

Court of Appeals for the Eleventh Circuit

APPENDIX B, Order of the United States

Court of Appeals for the Eleventh Circuit

Denying Order for Rehearing

APPENDIX C, United States Code, Title 15,

Chapter 2B, § 78) (Manipulative and deceptive

devices)

APPENDIX D, United States Code, Title 18,

§ 3771(a) (Crime victims’ rights)

APPENDIX E, United States Sentencing

Commission Guidelines Manual, § 2B1.1

ill

TABLE OF AUTHORITIES

Cases

JInreAntrobus, F.3d__ , 2009 US.

App. LEXIS 8264* at *23 (10 Cir.

April 22, 2009)

Dura Pharmaceuticals, Inc. v. Broudo,

530 U.S. 466 (2005)

Matter of Eldrige, 37 N.Y. 161

Kenna v. U.S. Dist. Court, 435 F.3d 1011

(9th Cir. 2006)

O’Connor v. Pierson, 426 F.3d 187

(2d Cir. 2005)

United States v. Ebbers, 458 F.3d 110

(2d Cir. 2006)

United States v. Guthrie, 557 F.3d 243

(6th Cir. 2009)

United States v. Mark Kaiser, 04 Cr. 733

(S.D.N.Y. 2006)

United States v. Marcello, 370 F.Supp.2d

745 (N.D. Ill. 2005)(mem.) ................

United States v. Masferrer, 514 F.3d

1158 (11* Cir. 2008)

United States v. Mooney, 425 F.3d

1093 (8t» Cir. 2005)

United States v. Olis, 429 F.3d 540

(5th Cir. 2005)

United States v. Peterson, 538 F.3d

1064 (9th Cir. 2008)

United States v. Rutkoske, 506 F.3d

170 (2d Cir. 2007)

United States v. Saferstein, slip op.,

2008 WL 4925016 *3 (E.D. Pa. Nov.

18, 2008)

United States v. Turner, 367 F. Supp. 2d 319

(E.D.N.Y. 2006) Gmem.) .................0....+-. 17

United States v. Tyler, 767 F.2d 1350

(9th Cir. 1985)

United States v. Zolp, 479 F.3d 715

(9th Cir. 2007)

Statutes

18 U.S.C. §3553(a)(1)

18 U.S.C. §3661

18 U.S.C. §3771

28 U.S.C. § 1254(1)

Federal Sentencing Guidelines Provisions

U.S.S.G. §2B1.1

Other Authorities

150 CONG. REC. $10,911 (daily ed. Oct. 9, 2004)

(statement of Sen. Kyl)

150 Cong. Rec. at S4261 (Apr. 22, 2004)

(statement of Sen. Feinstein)

150 Cong. Rec. $4262 (daily ed. Apr. 22, 2004)

(statement of Sen. Feinstein)

Steven M. Davidoff, A Brave New World for

the S.E.C., N.Y. TIMES, May 8, 2009

Bennett L. Gershman, Witness Coaching

by Prosecutors, 23 CARDOZO L.J. 829

(2002)

Ashby Jones, Making Sense of the Mini-Boom

in Securities Suits, WALL ST. J.,

(May 6, 2009)

Sarah Lynch, SEC, CFTC Would Get More

Enforcement Resources, WALL ST. d.,

(May 7, 2009)

Justice Department Accuses Andersen of ‘Witness

Coaching,’ KNIGHT RIDDER/TRIBUNE BUSINESS

News (Mar. 29, 2002)

Man sentenced to community service for

distracted driving death, http://www.abc4.com,

Nov. 10, 2008

Monica Mercer, Hamilton County:

Forgiveness leads to lighter sentence,

CHATANOOGA FREE PRESS

(June 3, 2008)

Recent Development, The Victims’ Rights

Amendment, 42 H.J.L. 525 (2005)

Mari A. Schaefer, Victim's forgiveness keeps

embezzler out of prison, PHILADELPHIA IN-

QUIRER, (May 6, 2009)

PETITION FOR A WRIT OF CERTIORARI

Petitioner Timothy Rafferty respectfully peti-

tions for a writ of certiorari to review the judgment

of the United States Court of Appeals for the Elev-

enth Circuit.

OPINIONS BELOW

The opinion of the United States Court of Ap-

peals for the Eleventh Circuit (Pet. App. la) is un-

published and appears at 296 Fed.Appx. 788 (11t

Cir. 2008). The Court of Appeals’ order denying peti-

tioner’s petition for rehearing (Pet. App. 22a) is un-

published.

JURISDICTION

The judgment of the Court of Appeals was en-

tered on October 16, 2008 (Pet. App. la). The Court

of Appeals’ order denying petitioner’s application for

rehearing was denied on December 16, 2008. On

March 23, 2009, Justice Thomas granted petitioner’s

application for an extension of time for filing a peti-

tion for a writ of certiorari to May 14, 2009. This

Court has jurisdiction pursuant to 28 U.S.C. §

1254(1).

RELEVANT CONSTITUTIONAL AND

STATUTORY PROVISIONS

The Fifth Amendment to the United States Consti-

tution provides in relevant part: “No person shall be

. deprived of life, liberty or property without due

process of law....”

The Sixth Amendment to the United States

Constitution provides in relevant part: “In all crimi-

nal prosecutions, the accused shall enjoy the right to

a speedy and public trial, by an impartial jury.”

The relevant sections of the Crime Victims

Act, the United States Sentencing Guidelines, and

15 U.S.C. § 78) are reproduced at Pet. App. 23a-25a.

STATEMENT OF THE CASE

This securities case is unusual in one respect:

a majority of the “victim” shareholders, in an un-

precedented show of support for petitioner, insisted

that they had not been defrauded by him and did not

want their losses factored into his sentence. In other

aspects, however, the case is representative of the

difficult issues that are frequently litigated in secu-

rities cases and about which the courts of appeal are

hopelessly divided.

Factual Background

Uncommon Media Group (UMDA) was a

startup company involved in “crossover media” with,

in the government’s words, an “interesting concept”

and some “interesting ideas” about tracking down-

loads of music on the internet (T8).!

The company “had a business plan, it had

some technology, it had opportunities to merge with

other companies. What it didn’t have was capital.

And that’s where Timothy Rafferty came in” (Gov-

ernment’s opening at T9). In March, 2003, petitioner

was approached by UMDA’s investment broker and

by the company’s largest investor and asked to help

raise funds to acquire the necessary technology to

implement UMDA’s business plan.

Petitioner was excited by the UMDA technol-

ogy and agreed to help raise funding for the com-

pany.2 He invested his own money to help UMDA

acquire a company with proprietary tracking soft-

ware.? A deal was consummated with the software

company in July 2003 (T122). A few months later,

UMDA entered into a contract with the Nielsen

| References preceded by “T” are to the trial transcript.

2 Nearly all of the witnesses at trial testified that, throughout

the period of the indictment, petitioner was “someone that was

interested in this company being built and succeeding” (1178),

was “enthused about this project [and] he felt that this was go-

ing to be a winner for all the people that had invested in it)”

(T476), he was “enthusiastic” and wanted the company to suc:

ceed (T74, 872,).

3 On May 22, 2003, he wired $70,000 from his trading account

to an account that was established to close the deal with the

software company (T2018). He then borrowed $210,000 so

UMDA could purchase additional shares of the company

(T1160). Petitioner invested a total of $492,000 in UMDA in

2003 (T1186, 1482). UMDA issued a secured convertible prom-

issory note to him for $461,000, reflecting monies he had lent

the company (T1386, Govt. Ex. 748). He also lent a fellow in-

vestor $23,000, and secured the loan with the investor’s UMDA

stock (T1979).

Company, a leading marketing and media informa-

tion company (T122).

Petitioner mentioned UMDA as an investment

opportunity to an acquaintance, Fred Hornick from

Colorado, who in turn told his friends and family,

many of whom became UMDA investors (T219, 224-

225). Petitioner told them he was not an officer of

UMDA, or an “insider,” but merely an investor

(T225, 494, 531, 710). Hornick spoke personally with

the patent holder of the technology UMDA was using

and watched it in action on his computer (T01).

Hornick brought in over 100 investors, raising

about $1.4 million for UMDA, most of which was

wired directly to UMDA’s bank account, some of

which was wired to companies in California and

some to third parties, usually at petitioner’s direc-

tion (230, 1480). Over the course of several months,

petitioner and Gallo gave the investors an extremely

rosy outlook for UMDA, and petitioner exaggerated

his family’s wealth. However, as one investor testi-

fied, petitioner warned them about the risks of in-

vesting in UMDA: “he pointed out that this is all

very risky, right? We’re launching a new company.

There were risks. It was wrought with risks, I be-

lieve is what he said” (T2057). Gallo and petitioner

did not tell potential investors that the available

shares were not free-trading, although at least by

December 2003, it was publicly known that the stock

would have to be restricted (T472). Petitioner did

not tell all the investors that 12 years earlier, he had

been convicted of a securities fraud, nor that 11

years earlier, the SEC had enjoined him from com:

mitting securities fraud, nor that he had several un

related civil judgments (T687, 1285-1286).4 Mark

Gottlieb, a lawyer who had worked for petitioner and

was brought in to “clean up” UMDA’s problems tes-

tified that he did not believe petitioner had any “fi-

duciary duty to disclose” his conviction (T1114).

Many of Hornick’s investors also purchased a

substantial number of shares in two privately held

companies, Third Dimension and Data Treasury.

Petitioner had large positions in options on those

companies. As directed, Hornick wired Third Di-

mension and Data Treasury monies to various third

party accounts, including petitioner’s accounts.

Petitioner did not have any control over the

books and records of UMDA and was not an officer

or a salaried employee (T109-110). The company’s

CEO was Lawrence Gallo, who, petitioner came to

learn, had been indicted in 2002 for conspiring to de-

fraud UMDA shareholders. He was released on bail,

and continued to operate the company. He belittled

the indictment, telling petitioner and other investors

that it was a mistake.

By the fall of 2003, CEO Gallo was making

tens of thousands of dollars in cash withdrawals

from the UMDA account to support his cocaine

habit, pay his criminal defense lawyers, and make a

down payment on a house (T984, 1907). Petitioner

was also making withdrawals of money that had

been wired to third party accounts for UMDA, but,

according to Mike Contento (the man who was hired

by UMDA in September/October 2003 to bring the

UMDA books and records up to SEC compliance) it

4 At least one of the investors who testified for the government

at trial stated that petitioner told him about getting “enveloped

in a securities violation” (T483).

was “understood that [petitioner] had put ... money

into the company” and the withdrawals were for

monies that “were owed to him” (T1920). Contento

testified that, while the money “should have come

into the company first, and then [petitioner] should

have gotten his money,” that was “just the way the

whole accounting at UMDA] went” (T1920). Con-

tento was unhappy about the “bizarre” way that

UMDA handled its accounting (“Money was just

given to people without a ledger, you know, and it

was shocking”)(T1886), but he never had any reason

to believe that petitioner was diverting funds from

UMDA (T1922).5 .

After Contento found that Gallo had been di-

verting funds from UMDA for personal use, he told

petitioner and others who were trying to “clean up

the mess” that Gallo had made of the company

(T1898, 1907-1908). They brought in Gottlieb, who

convinced Gallo to resign in February 2004.

Nonetheless, in March 2004, the SEC placed a

restraining order on UMDA, effectively terminating

its operations (T485, 636, 1117, 1185, 1911, 1989).

The SEC injunction was related to Gallo’s 2002 in-

dictment, covering events which occurred before pe-

titioner became involved with UMDA (Government’s

brief in the Court of Appeals at p.6 n.6). One of the

UMDA investors testified that in September 2005,

he received a telephone call from an FBI agent. He

asked the agent whether the restraining order would

be removed. “At that time, he told me, which was a

great surprise, that the Justice Department had

5 With respect to Contento, the government told the jury: “Mike

Contento testified in the grand jury, and it was obvious that he

is clueless” (T2181).

made arrangements with the Securities and Ex-

change Commission to hold on to our corporation

and keep it under lock and key for quite an extended

period of time” (T1988).

In July 2004, petitioner and Gallo were in-

dicted and charged with securities fraud. The in-

dictment included the allegation that petitioner

failed to disclose to investors that he had been con-

victed of securities fraud 13 years earlier. Shortly

thereafter, Gallo pled guilty to both the 2002 and

2004 charges. After cooperating with the govern-

nent, he served a 47-month term of imprisonment.

After petitioner was indicted, government

prosecutors and FBI agents contacted many of the

UMDA investors, and told them that UMDA was

merely a “sham company,” a “Ponzi scheme,” a “shell

game” (T509, 538, 2060)

In January 2006, the government prosecutors

wrote a letter to the UMDA investors, purportedly

pursuant to the requirements of the CVRA. In it,

the government stated:

The government alleges that Rafferty

solicited more than one hundred small

investors to invest funds in ... UMDA

.. by making materially false state-

ments to those investors. Rafferty

failed to disclose that he had been

convicted of securities fraud in 1991

and that over the course of the next 10

counts and incorporated allegations that he failed iv disclose to

investors a 2003 Georgia default judgment and a New York

case that was resolved by a negotiated settlement.

years, had continued to defraud inves-

tors in a number of different cases.

Even as UMDA was ceasing to be a go-

ing concern, and as its prospects con-

tinued to flag, Rafferty and Gallo con-

tinued to represent to investors that

the company was a gold mine. ... The

evidence in the case will show that the

money was diverted from UMDA by

these men, and in Rafferty’s case, used

to pay for the myriad of civil fraud

judgments he has pending against

him, as well as payment of expenses

such as his mortgage, a BMW, and

other personal expenses (Appendix to

Petitioner’s brief in the Court of Ap-

peals, DE-154).’

In pretrial proceedings, the defense moved to

dismiss the indictment, arguing that this letter

amounted to witness tampering, depriving him of his

right to a fair trial. The prosecution responded that

it was required by federal law “to send out this let-

ter. So by law it is impossible that the government

was vindictive.” The trial court denied the defense

motion, concluding that the letter was sent pursuant

to 18 U.S.C. §3771, and 18 U.S.C. §3771(d)(1) pro-

’ Attached to one of the letters was a New York Daily News

article entitled “Brokers Busted in 2.5M Pad Scam.” The

prosecutor explained: ““‘l don’t think attaching a newspaper

article that I happened to have on my desk because it was just

there. I was trying to give him info, you know, call me this is

something that’s ongoing, the trial is starting. ... | wasn’t try

ing to taint him in the process, just communicate with him”

(2/23/06 Pretrial hearing at p.8).

vided that an accused could not obtain relief under

that statute (Pretrial hearing, February 23, 2006 at

pp2-3).

After a three-week trial, petitioner was con-

victed as charged.

Sentencing

At a first sentencing proceeding, the court ar-

ticulated the standard it would use for calculating

loss:

The determination is how much did

people invest based upon fraudulent

representations that were made to

induce them to purchase the stock.

Whether or not [the defendants] put

it in their own pocket or they actually

used the money to try and run the

business appropriately, either one of

those is irrelevant. The question is

how much money was fraudulently

received based upon the misrepresen-

tations or omissiuns (July 14, 2006

Sentencing Proceeding at pp.43-44).

The defense contended that the court would

first have to determine whether any alleged loss was

“as a result of the misrepresentation charged”

(7/14/06 Sentencing at p.53). It noted that despite

the government’s outreach to the investors, only ten

had responded. The prosecution argued that it

was irrelevant that many of the investors did not

consider themselves to be victims: “There is no case

law supporting that you have to believe you are a

victim in order to be a victim for guideline purposes”

(7/14/06 Sentencing at p.80). It also stressed that

the investors were an “unsophisticated” group of

Mormons (7/14/06 Sentencing at p.82).

The court adjourned the proceedings to review

the bank records and other evidentiary materials

(7/14/06 Sentencing at p.98).

At a second proceeding in September, defense

counsel spoke on behalf of 120 of the 200 investors

the government had identified. They wanted the

court to consider their letters, stating in effect that

they did “not want their losses in terms of monetary

value or in terms of their numbers as people to be

used to enhance” petitioner's sentence. They had

even written to their senators and congressman say-

ing: “Help us explain to Judge Marra that we do not

want our losses in UMDA to be used against Tim

Rafferty at his sentencing” (9/12/06 Sentencing at

p.62). When the court complained that the letters

were not submitted earlier, defense counsel noted

that they had been submitted to the government at

around the time of the first sentencing proceeding.

The court responded: “What is it you want to

tell me; that they think Mr. Rafferty’s a great guy? I

heard their testimony that he didn’t do anything

wrong, that they had faith in him, that they believed

he was acting in their best interest. What else do I

need to know? I mean, I’ve heard it already. ... I’m

just going to make it part of the record for appellate

purposes for whatever it’s worth. ... So there’s no ar-

gument that I kept things out of the record” (Sep-

tember 12, 2006, Sentencing at pp.59-63).

The defense attempted to introduce an ac-

countant’s affidavit, which included UMDA’s closing

prices and daily trading volume for the time period

of the charged conspiracy and the subsequent four

months. The data was derived from Bloomberg’s

market data service, and indicated that at the be-

ginning of the charged conspiracy, UMDA was trad-

ing at appropriate three cents per share. At the end

of the conspiracy period, it was trading at six to

eight cents per share.

Defense counsel argued that the investors suf-

fered no loss until the company’s activities were

terminated by the temporary restraining order:

“these losses that the investors incurred in this case

were as a result of the government closing down the

business” (9/12/06 Sentencing proceeding at p.37).

The court, ruling that the accountant’s affida-

vit was inadmissible hearsay, summarily dismissed

the defense argument and proffer. It concluded that

the stock became worthless as a result of the fraud,

and calculated the loss as the total amount invested

by the investors for the duration of the conspiracy.

Recognizing that petitioner “didn’t personally

profit” from the charged conspiracy (9/12/06 Sentenc-

ing at p.84), the court added 16 levels to his guide-

line offense level on the basis of a $1.1 million loss

calculation. Petitioner was sentenced to a term of

imprisonment of 126 months.

Appeal

On appeal, petitioner challenged, inter alia,

the district court's methodology for determining loss

for sentencing purposes. The Eleventh Circuit was

apparently unwilling to adopt the reasoning of Dura

Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336, 125

S.Ct. 1627 (U.S. 2005) in the criminal context; it up-

held the district court’s decision to count as a loss

the entire amount of UMDA investments, without

identifying a causal connection between the pur-

ported loss and the alleged misrepresentations. The

Circuit accepted the district’s conclusion that the

stock became worthless by the end of the conspiracy

period, despite contrary evidence provided by

Bloomberg Market Data Service records.* It also

apparently approved the district court’s decision to

include in its loss calculation the monies lost by

those ‘victims’ who had asked that their losses not be

used to enhance petitioner’s sentence.

The Eleventh Circuit did not reach petitioner’s

contention that the prosecution’s letter to prospec-

tive witnesses/victims was improper.

REASONS FOR GRANTING THE WRIT

Loss Calculation

The calculation of loss under the fraud Guide-

line, Section 2B1.1(d), drives the length of the sen-

tence and bedevils courts in criminal securities fraud

cases. Here, for example, petitioner’s offense level

was increased by 16 levels based on the district

court’s loss calculation, which it arrived at after re-

jecting the calculations proposed by the government,

the defense and the probation office. The federal

courts are deeply divided as to what exactly the gov-

ernment has to show in order to prove loss causa-

tion; as a result, the length of a securities’ fraud sen-

8 The Circuit could not have arrived at this conclusion without

endorsing the district court’s rejection of the Bloomberg quotes

on hearsay grounds, despite Circuit precedent specifically hold-

ing that Bloomberg market quotes are admissible pursuant to

FRE 803(17). United States v. Masferrer, 514 F.3d 1158 (11%

Cir. 2008).

tence depends largely on the court in which the case

was tried. Loss calculation is an important issue,

since the need to calculate loss arises in virtually

every securities fraud prosecution, and there is an

intrinsic difficulty in proving loss in such cases even

under the clearest of measures: “The loss to inves-

tors who hold during the period of an ongoing fraud

is not easily quantifiable because we cannot accu-

rately assess what their conduct would have been

had they known the truth.” United States v. Ebbers,

458 F.3d 110, 127 (2d Cir. 2006). And, given the

size of the enhancement, it is fair to say that accu-

rately determining loss is the most important task

facing a court in a securities fraud conviction. The

lower courts need this Court’s guidance to resolve

this confusion and to ameliorate the risk of substan-

tially overstating actual loss. 3

In Dura Pharmaceuticals Inc. v. Broudo, 544

U.S. 336, 125 S.Ct. 1627 (2005), this Court resolved

a marked conflict amongst the courts as to what ex-

actly plaintiffs had to show in order to prove loss

causation in a private securities fraud action. Loss

causation, as defined in Dura, is the “causal connec-

tion between the material misrepresentation and the

loss.” 125 S.Ct. at 1631. In other words, in civil

fraud cases, a claimant must show that the decline

in the market price was due to the fraud, as opposed

to other factors

In the wake of Dura, however, the courts have

been conflicted as to whether or not such a showing

is required in criminal cases involving securities

fraud.?

9 In fraud cases, a defendant’s Guidelines offense level gener-

ally begins with a base offense level of six or seven. Under Sec-

The Second, Fifth and Ninth Circuits have all

applied the precepts of Dura in the criminal context.

The Second Circuit concluded that “considerations

relevant to loss causation in a civil fraud case should

. apply, at least as strongly, to a sentencing regime

in which the amount of loss caused by a fraud is a

critical determinant of the length of a defendant's

sentence.” United States v. Rutkoske, 506 F.3d 170

(2d Cir. 2007). See also United States v. Zolp, 479

F.3d 715 (9 Cir. 2007); United States v. Olis, 429

F.3d 540 (5t Cir. 2005)(“because a company’s stock

is affected before and after the fraud, by numerous

extrinsic market influences as well as the soundness

of other business decisions by the company, the cal-

culation of loss attributable to securities fraud re-

quires careful analysis”).

The Eighth Circuit has taken the opposite ap-

proach and rejected the application of Dura in the

criminal] context, adding: “Criminal prosecutions for

violations of securities law are different [from civil

cases], however, for ‘the victims and their losses are

difficult if not impossible to identify’ as the guideline

commentary points out.” United States v. Mooney,

425 F.3d 1093 (8th Cir. 2005). With its decision be-

low, the Eleventh Circuit has followed the Eighth

Circuit’s approach. Unlike the Second, Fifth and

Ninth Circuits, which require that losses from

causes other than the fraud be excluded from the

tion 2B1.1(d), levels are added depending on the amount of

monetary loss the victim(s) suffered as a result of the defen-

dant’s offense conduct. The fraud Guideline’s commentary

states that “loss is the greater of actual loss or intended loss.”

Both actual and intended loss are calculated to measure the

seriousness of the offense, as well as the defendant’s level of

culpability in committing the offense.

loss calculation, the Eighth and Eleventh Circuits

permit the district court to ignore the variety of

other factors (including changed economic circum-

stances, changed investor expectations, industry-

specific or firm-specific facts, conditions or other

events, taken separately or together) that may ac-

count for some or all of a stock’s lower price.

This split is causing unwarranted sentencing

disparities across the country, since the length of

sentences meted out in securities fraud cases over

recent years is driven by the measure of the financial

losses. 1°

Similarly, the Circuits run the gamut in how

broadly they construe the realm where they will re-

quire detailed proof of loss causation. The Eleventh

Circuit has apparently concluded that detailed proof

is not necessary so long as a stock was “worthless” at

the conclusion of the conspiracy. Pet. App. at 16-17a.

By contrast, in United States v. Olis, 429 F.3d at

546, the Fifth Circuit held that detailed proof is not

necessary if the stock was worthless before, during

and at the conclusion of the scheme. In Olis, the

10 As an example, in a fraud prosecution in the Southern Dis-

trict of New York, the government originally sought a sentence

based on the total market capitalization loss of $6 billien upon

disclosure of the fraud. But a defense expert's analysis attrib-

uted the vast bulk of the share price decline to issues other

than the fraud in which the defendant was involved. The re-

sulting seven-year sentence, while significant, was far lower

than the life sentence dictated by the advisory guidelines under

the government's original loss analysis. United States v. Mark

Kaiser, 04 Cr. 733 (S.D.N.Y. 2006). In many cases where the

initial loss estimates are much smaller (for instance, in many

options backdating schemes), the application of Dura’s loss cau-

sation principles may even mean the difference between jail

and probation.

court noted that where a defendant “promoted

worthless stock in worthless companies, measuring

the loss as the entire amount raised by the scheme is

neither surprising nor complex, and is fully consis-

tent with civil loss causation.” Id. That is because

where there is no value to the stock before or after

the scheme, all money lost through investment in

the stock is the result of the fraud. The Ninth Cir-

cuit has defined a “worthless stock” very narrowly: a

company is not a “sham operation” within the mean-

ing of the Olis exception, if it (a) is in fact incorpo-

rated and (b) occupies real estate. Where those

meager requirements are met, the Ninth Circuit will

require the Government to prove loss causation in

detail. United States v. Zolp, 479 F.3d at 720. Simi-

larly, in United States v. Rutkoske, supra, the Sec-

ond Circuit required a detailed loss causation analy-

sis despite the defendant’s brokerage firm handling

the vast majority of the volume of the subject stock

during the manipulation period (between 72 and

90%), which, when coupled with the evidence of bro-

ker bribery and other high pressure sales tactics,

could easily support a finding that the public market

for the stock was wholly engulfed in a manipulation

scheme and therefore that all loss was attributable

to the fraud. And in United States v. Ebbers and

Rutkoske, supra, the Second Circuit repeatedly em-

phasized the narrowness of those situations where

no loss analysis is required: “cases might arise where

share price drops so quickly and so extensively 1m-

mediately upon disclosure of a fraud that the differ-

ence between pre- and post-disclosure share prices is

a reasonable estimate of loss caused by the fraud.

Even there, however, a coincidentally precipitous de-

cline in shares of comparable companies would merit

consideration.” /d.

This case is an excellent vehicle for consider-

ing the questions presented, since there can be no

doubt that, had this case been tried in the Ninth,

Second, or Fifth Circuits, the result would have been

dramatically different. Clearly, this was not the case

of a “sham” company as defined by the Fifth and

Ninth Circuits. Nor would this case have fallen into

the small category of cases where the Second Circuit

would forgo detailed analysis. Moreover, the result

in this case would undoubtedly have been different

under the methodology employed by those Circuits,

since there was undisputed evidence of other factors

- contributing to any loss.!! Most significant was the

SEC’s TRO which, as the government conceded be-

low, was imposed for reasons predating petitioner’s

involvement with the stock. Since nearly all of the

witnesses at trial testified that the TRO was the

main cause of UMDA’s demise, under Dura, losses

attributable to the TRO would have to be excluded

from the loss calculation.'2 Additionally, a number

'! The district court in this case did not perform a loss calcula

tion as described in the above-cited cases, since it did not de-

termine precisely which losses could be attributed to the

charged fraud as Opposed to other factors. Instead, it merely

searched the record to determine the total amount invested in

UMDA through petitioner.

12 The Ninth Circuit dealt with a similar issue in a different

context. In United States v. Tyler, 767 F.2d 1350 (9th Cir.

1985), the defendant was arrested for cutting down timber from

a national forest. The government took possession of the timber

that same day, but retained it for evidentiary purposes. By the

time the government sold it, the value of the timber had

dropped significantly, The district court ordered the defendant

to pay restitution for the decreased value of the timber. The

of investors testified that their decision to invest in

UMDA was independent of any of the petitioner’s

statements or omissions. Under Dura, their invest-

ments would likewise have to be excluded from the

measurement of loss.

The standard for determining loss takes on

particular important during difficult economic times

such as these, where the vast majority of public

companies have experienced falling stock prices due

to macroeconomic conditions. Securities cases are all

but certain to proliferate. See generally, Ashby

Jones, Making Sense of the Mini-Boom in Securities

Suits, WALL ST. J., May 6, 2009; Steven M. Davidoff,

A Brave New World for the S.E.C., N.Y. TIMES, May

8, 2009; Sarah Lynch, SEC, CFTC Would Get More

Enforcement Resources, WALL S'. J., May 7, 2009.

At the same time, untangling the effect of a defen-

dant’s conduct from other extraneous factors on a

stock price becomes increasingly difficult when sig-

nificant declines in company stock prices are com:

monplace. In such circumstances, guidance from

this Court is critical.

Ninth Circuit reversed the restitution order and found that the

defendant did not cause the loss. The court observed: "Any re-

duction in [the timber's] value stems from the government's

decision to hold the timber during a period of declining prices,

not from [the defendant’s] criminal acts." Jd. at 1352. See also

United States v. Peterson, 538 F.3d 1064 (9th Cir.

2008)(“defendant’s conduct need not be the sole cause of the

loss, but any subsequent action that contributes to the loss,

such as an intervening cause, must be directly related to the

defendant’s conduct. The causal chain may not extend so far,

in terms of the facts or the time span, as to become unreason-

able”).

The CVRA

In 2004, Congress passed the Crime Victims’

Rights Act (CVRA), giving victims some rights to

participate in the federal criminal justice system. !*

Instead of making victims parties or intervenors in

criminal prosecutions, the CVRA asks courts and

prosecutors to vindicate victims’ interests. This un-

usual posture creates substantial conflicts for courts

and prosecutors.

“CVRA is a relatively new statute that effects

dramatic changes to our traditional criminal justice

system. The participants in that system--

prosecutors, defendants, victims, and courts alike--

are rightfully struggling with its scope and mean-

ing.” In re Antrobus, F.3d , 2009 U.S. App.

LEXIS 8264* at *23 (10 Cir. April 22, 2009).

Moreover, the legislation itself provides little

guidance to courts and prosecutors on how to incor-

porate the statute into federal prosecutions. Nor

does the sparse legislative history provide any guid-

ance.'4 On one hand, its drafters took pains to stress

13 In addition to the CVRA, every state has passed victims’

rights legislation, and a majority of states have amended their

constitutions to recognize victims’ rights as well. Recent Devel-

opment, The Victims’ Rights Amendment, 42 H.J.L. 525, 526—

27 (2005).

14 Congress enacted the CVRA when sponsors of a crime vic-

tims’ constitutional amendment failed to secure sufficient sup

port for its passage after years of debate and lobbying efforts by

victim advocates. 150 CONG. RFC. at $4261 (Apr. 22, 2004) (state-

ment of Sen. Feinstein). Because Congress rushed to pass the

statute, the legislative history supporting the CVRA consists of

only two floor statements by the statute’s sponsors, Senators

Dianne Feinstein and Jon Kyl. Kenna v. U.S. Dist. Court, 435

that the rights in the CVRA “do not come at the ex-

pense of defendant’s [sic] rights.”15 But they also

demanded that courts and prosecutors avoid

“whittl{ing] down or marginalizling]” victims’ rights

and “treat victims of crime with the respect they de-

serve and... afford them due process.”?®

This case presents two important issues relat-

ing to investor/victims in securities fraud cases: the

line between appropriate notice to victims and im-

permissible witness coaching; and the inclusion of

victims at sentencing.

The first issue involves the interaction between

the governnent and prospective witnesses/victims in

this case, and the propriety of a letter sent to pro-

spective witnesses/victims which included the prose-

cution’s view of petitioner’s guilt. Given that securt

ties fraud cases characteristically involve large vic

tim bases, the government often has to resort to

mass mailings or publication to fulfill its obligation

under 18 U.S.C. § 3771(a)(2) to give victims notice.'’

F.3d 1011, 1015-16 (9th Cir. 2006); United States v. Turner,

367 F. Supp. 2d 319, 323 n.3 (E.D.N.Y. 2005) (mem.).

15 150 CONG. REC. $4262 (daily ed. Apr. 22, 2004) (statement of

Sen. Feinstein).

16 150 CONG. REC. $10,911 (daily ed. Oct. 9, 2004) (statement

of Sen. Ky).

\?7 For example, in United States v. Saferstein, slip op., 2008

WL 4925016 *3 (E.D. Pa. Nov. 18, 2008), where the government

had to notify 300,000 people, the court approved publication in

the newspaper and an interactive website, Unlike this case,

however, the notice was carefully drawn to avoid contamina-

tion. It stated the name of the company and defendants’ titles

but not their names, omitting tax and perjury charges because

there were no victims, and stating that an “indictment is an

accusation,” and a “defendant is innocent unless and until

proven guilty.”

The question of what information those mass mail-

ings may include is one of significanee and one which

will inevitable recur with some frequency.

Here, the court allowed the prosecutor to in-

clude a highly opinionated version of the case in its

letter to possible victims/witnesses.18 When peti-

tioner moved to dismiss the indictment, arguing that

the letter constituted “an intentional act to influence

prospective witnesses” (Pretrial hearing, February

14, 2006 at p.45), the district court denied the mo-

tion on the ground that the letter was authorized

under 18 U.S.C. §3771 and that under that statute

the defendant is precluded from obtaining relief.!9

With this ruling—a ruling which the Eleventh Cir-

cuit, given its affirmance, apparently endorsed—the

court interpreted the CVRA as stripping the peti-

tioner of his due process right to a fair trial. For,

while a defendant could otherwise argue that his

right to due process had been violated by egregious

18 One witness testified at a pretrial hearing that the letter

was circulated among the investors and was “very upsetting

because it presented a completely different representation of

what I know the man to be” (Pretrial hearing, February 14,

2006 at p.21). He said that another investor, upon reading the

letter, was also very upset, and told him: “I am really angry. ...

I just want my money back” (2/14/06 hearing at p.25).

Interestingly, the Justice Department has decried pre-

cisely the same conduct when it emanated from the defense

camp. It accused Arthur Andersen, Enron Corp.’s former audi-

tor, of “behavior bordering on ‘witness coaching’ in its media

campaign challenging the government’s obstruction of justice

charge.: Justice Department Accuses Andersen of ‘Witness

Coaching,’ KNIGHT RIDDER/TRIBUNE BUSINESS NEWS, Mar. 29,

2002.

19 Under 18 U.S.C. § 3771(d)(1), a “person accused of the crime

may not obtain any form of relief under this chapter.”

witness coaching,2° under the CVRA, the court con-

cluded, that avenue was no longer available.

It is important for this Court to address this is-

sue, not only to provide guidance for the proper in-

terpretation of the CVRA, but also because this case

affords a rare opportunity to address witness coach-

ing, “the ‘dark—some have even called it ‘dirty’

—secret of the U.S. adversary system.” Bennett L.

Gershman, Witness Coaching by Prosecutors, 23

CARDOZO L.J. 829 (2002). While there is a body of

scholarly commentary devoted to witness prepara-

tion generally, “there has been very little discussion

by courts and commentators on witness ... coaching

by prosecutors.” Jd. at 831.

The second aspect of the CVRA raised by this

case involves the responsibility of the sentencing

court to ensure that victims are “reasonably heard”

before imposing sentence. 18 U.S.C. § 3771(a)(4).

20 As Judge Francis Finch of the New York Court of Appeals

put it, the attorney’s “duty is to extract the facts from the wit-

ness, not to pour them into him: to learn what the witness does

know, not teach him what he ought to know.” In the Matter of

Eldrige, 37 N.Y. 161, 171 (1880). See Geders v. United States,

425 U.S. 80, 90 n.3 (1976) ("An attorney must respect the im-

portant ethical distinction between discussing testimony and

seeking improperly to influence it."). See also ited States v.

Guthrie, 557 F.3d 243 (6t Cir. 2009)(prosecutor may “have

conversations with his witness. He may not coach the wit-

ness”). The danger that a prosecutor may improperly influence

a witness’ testimony is even greater than it is with other attor-

neys. Because of the prosecutor's unique status as the attorney

for the government, he ordinarily is viewed by the witness as a

highly knowledgeable official who can be trusted to use the

facts responsibly.

The CVRA does not explain how much weight, if any,

courts should give victims’ opinions. And the lower

courts disagree as to the scope of this provision.

Compare, e.g., United States v. Marcello, 370

F.Supp.2d 745, 48 (N.D. Ill. 2005)(mem.) (“[T]he

statute requires only that a victim be reasonably

heard, and . . . Congress’s use of that term of art

does not require that a trial court accept oral state-

ments in all situations.”), with Kenna v. U.S. Dist.

Court, 435 F.3d 1011, 1016 (9th Cir. 2006) (“The

statements of the sponsors of the CVRA and the

committee report for the proposed constitutional

amendment disclose a clear congressional intent to

give crime victims the right to speak at proceedings

covered by the CVRA.”).

Here, the district court arrived at a sentencing

determination without considering letters written on

behalf of a majority of the UMDA investors.?! These

investors were not insisting on appearing in person,

but merely wanted the opportunity to be “reasonably

heard” as required by the statute.

The propriety of excluding victims who wish to

weigh in at sentencing on the defendant’s behalf is

an issue of national importance, given the substan-

tial impact such testimony can have on a defendant’s

sentence. While not the norm, it is far from unusual

21 “Reasonably heard” is a legal term of art meaning to bring

one’s position to the attention of the court, in person or in writ-

ing, as the court deems reasonable under the circumstances.

See Q’Connor v. Pierson, 426 F.3d 187, 198 (2d Cir. 2005); al-

though the district judge made the victims’ letters part of the

record to preserve them for appellate purposes, he did not read

them himself. Thus, the investors did not have a meaningful

opportunity to have their position brought to the court’s atten-

tion before it determined the appropriate sentence.

for a victim’s statement to prompt a lighter sentence.

See, e.g., Monica Mercer, Hamilton County: Forgive-

ness leads to lighter sentence, CHATTANOOGA FREE

PRESS, June 3, 2008 (although sentencing court had

intended to impose an 8-12 year sentence, defendant

received a suspended sentence after hearing victim’s

statement); Man sentenced to community service for

distracted driving death, http://www.abc4.com, Nov.

10, 2008 (Gudge placed defendant on probation and

ordered him to do 500 hours of community service

for vehicular homicide after hearing plea from vic-

tim’s mother); Mari A. Schaefer, Victim's forgiveness

keeps embezzler out of prison, PHILADELPHIA IN-

QUIRER, May 6, 2009)(defendant given probation

where sentencing court gives “full weight” to the vic-

tim’s request for leniency).22 In short, this issue is of

importance, not only to petitioner but to criminal de-

fendants generally. Accordingly, it is worthy of con-

sideration by this Court.

CONCLUSION

For the foregoing reasons, the petition for a writ of

certiorari should be granted.

22 While a defendant cannot seek re-sentencing on the basis of

a violation of the CVRA, he may appeal the failure of the sen-

tencing court to hear the victims’ perspective under 18 U.S.C.

§3553(a)(1) and 3661.

May 13, 2009

295

Respectfully submitted,

Marsha R. Taubenhaus

Counsel of Record

110 Wall Street, 11 Floor

New York, New York 10005

(212) 859-3513

APPENDIX

FILED

U.S. COURT OF APPEALS

ELEVENTH CIRCUIT

OCT 16, 2008

THOMAS K. KAHN

CLERK

[DO NOT PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

No. 06-15090

D. C. Docket No. 04-20478-CR-KAM

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

versus

TIMOTHY RAFFERTY,

a.k.a. Tim Rafferty,

Defendant-Appellant.

Appeal from the United States District Court

for the Southern District of Florida

(October 16, 2008)

Before TJOFLAT and BLACK, Circuit Judges, and

EVANS, District Judge.

EVANS, District Judge:

Honorable Orinda Evans, United States District

Judge for the Northern District of Georgia, sitting by

designation.

Timothy Rafferty ("Rafferty") appeals his convictions

and sentence on counts of conspiracy to commit se-

curities fraud, conspiracy to commit mail fraud and

wire fraud, and two substantive counts of wire fraud.

Rafferty raises numerous issues on appeal challeng-

ing evidentiary rulings, legal rulings, his convictions,

and the sentence imposed. After oral argument and

a careful review of the briefs and record in this case,

we affirm.

BACKGROUND

Rafferty was charged in a second superseding in-

dictment with conspiracy to engage in securities

fraud, in violation of 15 U.S.C. §§ 78j(b), 78ff(a) and

18 U.S.C. § 371 (Count 1), conspiracy to commit mail

fraud and wire fraud, 18 U.S.C. § 1349 (Count 2),

and wire fraud, 18 U.S.C. § 1343 (Counts 3 and 4).

He was convicted on April 10, 2006 by a jury on all

Counts. He was sentenced on September 12, 2006

to 126 months’ imprisonment, followed by three

years of supervised release. The sentence included a

requirement of $1,234,880 in restitution and forfei-

ture of $1,198,450 in certain property. Post-trial mo-

tions for new trial on Counts 1 and 2 and for judg-

ment of acquittal on Counts 3 and 4 were denied.

Rafferty timely filed a notice of appeal.

Taking the facts in the light favorable to the verdict,

the evidence at trial’ showed that Rafferty began his

association with Uncommon Media Group, Inc.

("UMDA") in 2003 when its CEO Lawrence Gallo

("Gallo") persuaded Rafferty to join his cperations.

' The testimony of over thirty witnesses aiong with hundreds of

exhibits, including eleven summary charts (discussed infra),

was presented at trial.

Rafferty worked at UMDA on a daily basis, shared

an office with CEO Gallo and spoke with potential

investors, but was neither a corporate officer nor a

salaried employee of UMDA. Rafferty held himself

out to be both a major investor in and consultant to

UMDA.

Rafferty established a business relationship

with Frederick Hornick, an investor in Colorado.

Hornick served as a recruiter of other investors and

as Rafferty's messenger to them regarding directions

for wire transfer of investment funds. The govern-

ment presented evidence that Rafferty and Gallo

knowingly misrepresented a number of material

facts to these investors related to the business pros-

pects of UMDA; taken together, these statements

misrepresented the vaiue and liquidity of the UMDA

shares. The evidence also showed that Rafferty did

not reveal, to either the investors or Gallo, past legal

judgments against him: specifically, a 1991 convic-

tion for securities fraud, a 1993 injunction against

further acts of securities fraud, and numerous civil

suit judgments. A large number of individuals who

dealt with either Rafferty, Hornick, or both pur-

chased shares of UMDA and/or other companies.

Such shares were either never delivered to these in-

dividuals or, if they were delivered, turned out to be

worthless. At trial, the government argued that

Rafferty defrauded these investors. Also, the gov-

ernment’s trial evidence showed that Rafferty, either

directly or via Hornick, caused the investors to wire

their money to accounts controlled by Rafferty rather

than to UMDA.

In July 2004, the government filed a sealed indict-

ment charging Timothy Rafferty and Lawrence Gallo

with conspiracy to commit securities fraud and con-

spiracy to commit mail fraud and wire fraud. The

government offered both defendants a plea agree-

ment. Gallo pled guilty, but Rafferty did not. The

grand jury returned the first superseding indictment

against Rafferty alone on June 2, 2005, adding sub-

stantive wire fraud counts and extending the time

period of the alleged conspiracy. On September 13,

2005, the district court held a hearing to consider

Rafferty's motion to dismiss the first superseding in-

dictment on grounds of vindictive prosecution. This

motion was denied. In response to questioning by

the district court on the specificity of the forfeiture

section of the first superseding indictment, the gov-

ernment brought and ultimately tried Rafferty on a

second superseding indictment.

At trial, the district court ruled that the 1991 convic-

tion, the 1993 injunction and the two 2003 civil

judgments, in Georgia and New York, specified in

the second superseding indictment were admissible

as intrinsic evidence. Regarding the civil judgments

not specified in the second superseding indictment,

the court ruled that testimony demonstrating that

Rafferty secretly diverted UMDA investor funds to

pay his debts and attorneys fees arising from these

civil cases was inextricably intertwined. Limited

evidence that Rafferty’s conduct underlying those

civil cases was similar to the facts in the instant case

was admitted under Federal Rule of Evidence 404(b),

but most of the evidence related to civil judgments

not specified in the second superseding indictment

was not admitted.

In preparation for trial, the government enlisted FBI

financial analyst Gail Winter to review documents

from various third-party bank accounts controlled by

Rafferty, along with other records. Winter prepared

eleven summary charts tracking the sources and

destinations of money through these various ac-

counts. Winter’s charts traced $998,921 in investor

funds to these accounts and showed that UMDA did

not receive any of this investor money. The eleven

summary charts, along with the bank records, were

admitted into evidence at trial. Altogether, the vo-

luminous account records, Winter's summary charts,

and Winter's and others’ trial testimony supported

the government's theory that Rafferty funneled in-

vestor money through these accounts and used the

funds to pay personal expenses, including, inter alia,

mortgage and car payments, repayment of civil

judgments and associated attorneys’ fees.

Over the course of two sentencing hearings, the dis-

trict court proceeded to determine the amount of loss

by tracing and aggregating the investor funds depos-

ited into Rafferty’s various bank accounts. The dis-

trict court emphasized that it was only including

funds that were clearly invested in UMDA, not other

companies, as a result of Rafferty’s solicitation, and

it deducted significant amounts of money where the

bank records contained mistakes or where it was

possible that some money might be double-counted.

The district court concluded that the amount of loss

attributed to Rafferty, after giving him the benefit of

the doubt, was $1,198,450. The district court found

the amount of loss to be between $1 million and $2.5

million and added a 16-level enhancement to his of-

fense level pursuant to U.S.S.G. § 2B1.1(b)(1).

Rafferty’s objection was overruled.

Rafferty’s post-trial motions for new trial on Counts

1 and 2 and for acquittal on Counts 3 and 4 and were

denied. Rafferty timely filed a notice of appeal. He

claims improper admission of evidence, a violation of

Brady v. Maryland, 373 U.S. 83 (1995), vindictive

prosecution, and improper sentencing.”

DISCUSSION

1. Admussion of Evidence.

A district court's evidentiary rulings are reviewed for

abuse of discretion. United Statesv. Baker, 432 F.3d

1189, 1202 (11th Cir. 2005). We review preserved

evidentiary objections for harmful error. United

States v. Hands, 184 F.3d 1322, 1329 (11th Cir.

1999), corrected by 194 F.3d 1186 (11th Cir. 1999).

A. Summary Charts.

Rafferty challenges the admission of all eleven

summary charts into evidence, alleges that the

summary charts were “falsely created” in violation of

his due process rights and claims that the manner in

which the summary charts were introduced violated

his due process right to effective cross examination.

—--

‘ Throughout his briefs, Rafferty focuses on his assertion that

many of the transactions depicted in the summary charts do

not involve UMDA directly. His argument confounds the issues

in this case; the losses stemming from Rafferty’s actions are not

the damages to UMDA per ee, but the injuries inflicted by

Rafferty upon the investors he defrauded.

He also asserts a Brady violation related to the

summary charts. As a preliminary matter, we find

that the summary charts produced by FBI analyst

Winter were properly admitted under Federal Rule

of Evidence 1006 as summaries of the voluminous

financial data. The data had also been previously

admitted into evidence. See United States v. Norton,

867 F.2d 1354, 1362-63 (11th Cir. 1989) (finding no

abuse of discretion where district court admitted a

summary chart and related testimony after admis-

sion of the checks depicted in the summary chart as

relevant to establishing a conspiracy to engage in

racketeering activity). As the summary charts were

properly introduced at trial, Rafferty’s allegations of

deprivation of his due process rights are without

merit and we find no abuse of discretion.

B. Evidence of Prior Conviction, Injunction and Civil

Fraud Judgments.

Challenges to evidentiary rulings are reviewed for

an abuse of discretion. Baker, 432 F.3d at 1202.

Count One of the second superseding indictment ac-

cused Rafferty of omitting material facts in commu:

nications with investors. Such alleged omitted facts

included: (1) Rafferty’s 1991 conviction for securities

fraud in a New York federal court; (2) in 1993, an Il-

linois federal court permanently enjoined Rafferty

from committing further acts of securities fraud; (3)

the two civil fraud judgments entered against

Rafferty in 2003; and (4) Rafferty’s secret use of

funds from investors in UMDA and other companies

to pay his legal fees. Prior to trial, the government

notified Rafferty of its intent to offer the foregoing

evidence, including the facts underlying the civil

judgments, as inextricably intertwined with the

charged offenses or alternatively as evidence of in-

tent, plan or knowledge, pursuant to Federal Rules

of Evidence 404(b).

Rafferty moved to exclude this evidence on the

grounds that he did not have a duty to disclose this

information, that the investors did not rely on his

representations before investing, and that the facts

underlying the civil judgments were inadmissible

under Federal Rule of Evidence 404(b). The district

court heard argument several times and held that

the conviction, the injunction and the civil judg:

ments specified in the second superseding indict:

ment were admissible as intrinsic evidence with the

charged offenses. On appeal, Rafferty renews his

objections. The Supreme Court has recognized a fi-

duciary duty in the instance of so-called "temporary

insiders," specifically:

Under certain circumstances, such as where cor:

porate information is revealed legitimately to...[a]

consultant working for the corporation, these out-

siders may become fiduciaries of the sharehold-

ers. The basis for recognizing this fiduciary duty

is not simply that such persons acquired nonpub-

lic corporate information, but rather that they

have entered into a special confidential relation-

ship in the conduct of the business of the enter-

prise and are given access to information solely

for corporate purposes.

Dirks v. S.E.C., 463 U.S. 646, 655 n.14 (1983).

To the extent the district court based its ruling on

Rafferty’s status as a “temporary insider” and that

he was therefore under a duty to disclose the mate-

rially omitted facts, discussed supra, we find no

abuse of discretion.

Furthermore, this court has held that:

evidence of criminal activity other than the

charged offense is not extrinsic under Rule 404(b)

if it is (1) an uncharged offense which arose out of

the same transaction or series of transactions as

the charged offense, (2) necessary to complete the

story of the crime, or (3) inextricably intertwined

with the evidence regarding the charged offense.

United States v. Ramsdale, 61 F.3d 825, 829 (11th

Cir. 1995). The government argues specifically that

the evidence is part of the offense charged and thus

intrinsic, as witnessed by the reference to the spe-

cific material omissions, discussed supra, in the

charges in the indictment. See also United States v.

Bianco, 181 Fed. Appx. 846, 853-4, 2006 WL 1374495

at *7 (11th Cir. 2006) (unpublished) (admitting evi-

dence showing that the defendant [while on trial for

mail fraud, wire fraud and money laundering] was

on probation, owed restitution, had been enjoined

from soliciting investments, and was not licensed to

provide check-cashing services as intrinsic to the of-

fense and/or as relevant to his intent). We find no

abuse of discretion in the district court's evidentiary

ruling.

Evidentiary errors that are not specifically objected

to at trial are reviewed for plain error. United

10a

States v. Jernigan, 341 F.3d 1273, 1280 (11th Cir.

2003) (holding that, “[uJnder this standard, we cor-

rect only for errors that are particularly egregious

and that seriously affect the fairness, integrity or

public reputation of judicial proceedings, and the

only when a miscarriage of justice would result”) (ci-

tations, internal quotations and alteration omitted).

At trial, the government tendered a certified copy of

the 1991 conviction against Rafferty, with the In-

formation attached. It was admitted. Rafferty nei-

ther objected to the attached Information at that

time nor when the prosecutor referred to the facts in

the Information in closing argument. For the first

time in his motion for new trial, Rafferty claimed

that he was not provided with a copy of the Informa-

tion during discovery and objected to the admission

of the Information on the grounds that its admission

was highly prejudicial to his right to a fair trial. The

record reflects, however, that Rafferty’s counsel ex-

pressly stated that he did not object to the intredauc-

tion of a certified copy of the 1991 conviction with

attached Information at trial. Therefore, we find

that he has failed to show plain error in its admis-

sion at trial.

Il. Lrady Claim.

Rafferty's Brady claim centers around summary

chart S-5, which focuses on the activity of a Millen-

nium Capital Trading bank account controlled by

Ralf Riverso. The government argues that unknow-

ing UMDA investors deposited money into Riverso’s

bank account and that none of these funds actually

reached UMDA. Rafferty filed a motion in May

2005, requesting any exculpatory evidence from the

lla

government. The government’s response did not in-

form Rafferty of an interview that took place in early

2005 in which Riverso explained to government in-

vestigators that most of the funds that passed

through his accounts were held for the benefit of

someone besides Rafferty. After the verdict was re-

turned, Rafferty filed a motion for new trial. In fur-

therance of this motion, Rafferty submitted an affi-

davit by Riverso describing his 2005 interview with

the government. The district court denied the mo-

tion for new trial.

“The suppression by the prosecution of evidence fa-

vorable to an accused upon request violates due

process where the evidence is material either to guilt

or to punishment, irrespective of the good faith or

bad faith of the prosecution." Brady v. Maryland, 373

U.S. at 87. Evidence is material “if there is a rea-

sonable probability that, had the evidence been dis-

closed to the defense, the result of the proceeding

would have been different.” Grossman Vv.

McDonough, 466 F.3d 1325, 1341-42 (11th Cir. 2006)

(citation omitted). The information contained in the

Riverso affidavit, assuming its veracity, would only

call into question the information in one of the gov-

ernment's eleven summary charts [chart S-5]. The

remaining charts, witnesses, and other evidence be-

fore the jury support the government’s contention

that investors’ money was fraudulently funneled at

Rafferty’s direction to entities not including UMDA.

Therefore, the Riverso evidence is not material, i.e.,

if it had been admitted at trial in Rafferty’s favor, 12

there is not a reasonable probability of a different

outcome in this case.

12a

Ill. Vindictive Prosecution.

The dismissal of an indictment on the ground of

prosecutorial misconduct is reviewed for an abuse of

discretion. United States v. Barner, 441 F.3d 1310,

1315 (11th Cir. 2006). A district court abuses its dis-

cretion if it applies the incorrect legal standard or

makes findings of fact that are clearly erroneous. Jd.

Rafferty alleges that the government brought the

first and second superseding indictments to punish

Rafferty for not pleading guilty. Rafferty also al-

leges that the Assistant U.S. Attorney threatened to

withdraw the plea deal if he filed any more motions

and later told Rafferty’s attorney that, "[Rafferty]

should have taken his three and one-half year plea

while he had the chance."

We find that Rafferty has failed both to show any ob-

jective evidence of actual vindictiveness on the part

of the government or to raise circumstances meriting

a rebuttable presumption of vindictiveness. See

United States v. Dorsey, 512 F.3d 1321, 1325 (11th

Cir. 2008). The government acquired more evidence

against Rafferty as a result of the Gallo plea agree-

ment; nothing precluded the government from seek-

ing the first and second superseding indictments.

IV. Motions for Judgment of Acquittal and New

Trial.

A. Motion for Judgment of Acquittal.

Challenges to the sufficiency of the evidence are re-

viewed de novo. United States v. Keller, 916 F.2d

628, 632 (11th Cir. 1990). In this context, all rea-

sonable inferences and credibility choices are made

13a

in favor of the jury verdict. United States v. Young,

39 F.3d 1561, 1565 (11th Cir. 1994).

In order to uphold a lower court's denial of judgment

of acquittal, it is only necessary to find that a rea-

sonable factfinder could conclude that the evidence

establishes the defendant's guilt beyond a reason-

able doubt. Keller, 916 F.2d at 632. Rafferty argued

that the evidence at trial was insufficient to sustain

his conviction for wire fraud on Counts 3 and 4.

However, a defendant need not be proven to have ac-

tually participated in or initiated the wire communi-

cations to be guilty of violating the wire fraud stat-

ute. United States v. Snyder, 505 F.2d 595 (5th Cir.

1974).3 We find that the evidence and testimony

presented at trial, including the summary charts

which depict wire transfers of investment money, is

sufficient to support the jury’s verdict.

B. Motion for New Trial.

A denial of a motion for new trial is reviewed for an

abuse of discretion. United States v. Fernandez, 136

F.3d 1434, 1438 (11th Cir. 1998). In furtherance of

his motion for new trial on Counts 1 and 2, Rafferty

argued that, by deliberating for only two hours, the

jury clearly failed to follow the district court’s in-

structions to consider evidence separately with re-

spect to each count. Rafferty cited no law in support

of his assertion that the short length of jury delib-

erations reflects any bias against him. Furthermore,

> This Court adopted as binding precedent all Fifth Circuit decisions

prior to October 1, 1981. Bonner v. City of Prichard, 661 F.2d 1206,

1209 (11th Cir. 1981)({en banc).

l4a

the Tenth Circuit has ruled against this very argu-

ment. See United States v. Lawrence, 405 F.3d 888,

904-05 n.11 (10th Cir. 2005) (denying motion for

mistrial where jury deliberations lasted two hours

and finding no evidence of prejudice against defen-

dant).

Rafferty also alleged the improper admission of the

summary charts, the civil and crimina! convictions,

including the Information attached to the 1991 con-

viction, as well as the violation of Brady, discussed

supra. Incorporating our reasoning in sections I and

II above, we conclude thai the district court did not

abuse its discretion in denying Rafferty’s motion for

new trial.

V. Sentence.

On appeal Rafferty argues that in handing down his

126-month sentence, the district court erred by ap-

plying a 16-level enhancement under U.S.S.G. §

2B1.1(b)(1)(D based on its finding that Rafferty was

responsible for losses between $1,000,000 and

$2,500,000. In addition to his substantive argu-

ments about § 2B1.1(b)(1)(D, Rafferty also argues

that he was not given an opportunity to address the

court on the loss issue and that the court erred by

independently calculating the loss.

“A district court’s determination regarding the

amount of loss for sentencing purposes is reviewed

for clear error.” United States v. Medina, 485 F.3d

1291, 1303 (11th Cir. 2007)(citation omitted). Under

U.S.S.G. § 2B1.1(b)(1), a defendunt’s base offense

level is increased by 16-ler~'s if the offense involved

15a

losses in the amount of more than $1,000,000, but

less than $2,500,000. U.S.S.G. § 2B1.1(b)()(D. The

application notes provide that “loss is the greater of

actual or intended loss.” /d., comment (n.3(A)). Ac-

tual loss is defined as “the reasonably foreseeable

pecuniary harm that resulted from the offense.” /d.,

comment (n.3(A)(D). “[Tlhe government bears the

burden of supporting its loss calculation with reli-

able and specific evidence.” United States v. Renick,

273 F.3d 1009, 1025 (11th Cir. 2001)(citation omit-

ted).

“(T]he Sentencing Guidelines require a district court,

at the sentencing stage, to make independent find-

ings establishing the factual basis for its Guideline

calculations.” United States v. Hamaker, 455 F.3d

1316, 1338 (11th Cir. 2006). “The court need only

make a reasonable estimate of the loss. The sentenc-

ing judge is in a unique position to assess the evi-

dence and estimate the loss based upon that evi-

dence. For this reason, the court’s loss determina-

tion is entitled to appropriate deference.” U.S.S.G. §

2B1.1(b)(1), comment ‘n.3(C)). “A reasonable esti-

mate of the loss amount is appropriate because often

the amount of loss caused by fraud is difficult to de-

termine accurately.” Medina, 485 F.3d at 1304 (cita-

tion omitted). “But while estimates are permissible,

courts must not speculate concerning the existence

of a fact which would permit a more severe sentence

under the guidelines.” /d, (citation and alternation

omitted).

“Fraudulent schemes...come in various forms, and

we must consider the nature of the scheme in deter-

mining what method is to be used to calculate the

16a

harm caused or intended.” United States v. Orton,

73 F.3d 331, 333 (11th Cir. 1996). “The Sentencing

Commission is clearly aware that different types of

fraud may call for different methods of calculation.”

Id. at 333 n.4. Nonetheless, “[lJoss...focuses gener-

ally on the harm suffered by the victim of the crimi-

nal conduct rather than on the proceeds of the crime

enjoyed by the defendant.” Hamaker, 455 F.3d at

1337.

Rafferty argues that the district court erred by

adopting a methodology of calculating his applicable

guideline range that was not advanced by the gov-

ernment or the probation officer and that the court

therefore assumed the role properly left to the prose-

cution. Specifically, he argues that the district court

erred by not calculating the loss as the diminution in

the net value of the shares between the time the

conspiracy began and the time it ended, March 2003

to February 2004; the approach this Court employed

in United States v. Snyder, 291 F.3d 1291, 1295

(11th Cir. 2002). Here, however, the district court

found that the UMDA stock was “worthless” at the

conclusion of the conspiracy and, therefore, no such

subtraction was warranted. This exhaustion of the

subject stock’s value did not occur in Snyder, where

shares of Biocryst Pharmaceuticals, Inc. were found

to have retained some value over the life of the con-

spiracy.

Furthermore, this Court in Snyder did not mandate

a particular loss calculation approach and stated

that many methods were acceptable. “All that is re-

quired is that the court make a reasonable estimate

17a

of the loss, given the available information.” /d., at

1295-96 (citations omitted). Here, the district court

calculated the loss by determining the amount of in-

vestor funds deposited in to Rafferty’s various bank

accounts, taking care to only aggregate funds clearly

invested in UMDA, not other companies, as a result

of Rafferty’s solicitation. The district court did not

subtract the value of the stock at the end of the con-

spiracy, as such arithmetic would be pointless. See

United States v. Olis, 429 F.3d 540, 546 (5th Cir.

2005) (stating that, “[iln cases where defendants

promoted worthless stock in worthless companies,

measuring the loss as the entire amount raised by

the schemes is neither surprising nor complex, and

is fully consistent with civil loss calculation”). Also,

the district court’s loss calculation methodology was

conservative, excluding some amounts that were

transferred during the course of the conspiracy, in

order to avoid the risk of mistakes or double-

counting amounts.

Rafferty also contends that he had no opportunity to

challenge the district court’s loss findings, denying

Rafferty his Sixth Amendment right to counsel.

However, Rafferty addressed the district court on

the loss issue in both his sentencing memorandum

and in his objections to the pre-sentencing investiga’

tion report. Additionally, the district court heard ex-

tensively from Rafferty on the issue at both the first

and second sentencing hearings. This argument is

meritless.

Finally, Rafferty argues that the district court erred

by independently calculating the amount of loss. His

complaint is that the district court made calculations

18a

of its own in between the first and second sentencing

hearings. We find nothing wrong with this. Rafferty

had the opportunity to address the district court

when its calculations were presented. Indeed, the

district court is required to exercise independent

judgment in Guidelines calculations. See Unrted

States v. Foley, 508 F.3d 627, 633 (11th Cir. 2007)

(holding that the district court erred by adopting the

jury's forfeiture verdict as the amount of loss, thus

abdicating its responsibility to make independent

findings under the Sentencing Guidelines).

We find that Rafferty failed to demonstrate that the

district court employed an improper loss-calculation

methodology or that its factual findings were clearly

erroneous. Furthermore, Rafferty's arguments that

he was not given an opportunity to address the dis-

trict court on the loss calculation issue and that the

court erred by conducting its independent loss calcu-

lation are without merit.

CONCLUSION

The district court’s denial of the motion for new trial

and denial of the motion for judgment of acquittal re

AFFIRMED. Rafferty’s conviction and sentence are

also AFFIRMED.

19a

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

No. 06-15090

UNITED STATES OF AMERICA,

Plaintiff-Appellee

versus

TIMOTHY RAFFERTY

a.k.a. Tim Rafferty,

Defendant-Appellant.

On Appeal from the United States District Court for

the Southern District of Florida

Before: THOFLAT and BLACK, Circuit Judges, and

EVANS’

PER CURIAM:

The Petition(s) for Rehearing are DENIED and no

Judge in regular active service on the Court having

requested that the Court be polled on rehearing en

banc (Rule 35, Federal Rules of AppelDate

Procedure), the Petition(s) for Rehearing En Banc

are DENIED.

* Honorable Orinda Evans, United States District Judge for the

Northern District of Georgia, sitting by designation.

ENTERED FOR THE COURT:

UNITED STATES CIRCUIT JUDGE

Filed Dec. 15, 2008

Zla

TITLE 15 - COMMERCE AND TRADE

CHAPTER 2B - SECURITIES EXCHANGES

§ 78}. Manipulative and deceptive devices

It shall be unlawful for any person, directly or indi-

rectly, by the use of any means or instrumentality of

interstate commerce or of the mails, or of any facility

of any national securities exchange—

(a)

(1) To effect a short sale, or to use or employ

any stop-loss order in connection with the pur:

chase or sale, of any security registered on a

national securities exchange, in contravention

of such rules and regulations as the Commis:

sion may prescribe as necessary or appropriate

in the public interest or for the protection of

investors.

(2) Paragraph (1) of this subsection shall not

apply to security futures products.

(b) To use or employ, in connection with the pur-

chase or sale of any security registered on a national

securities exchange or any security not so registered,

or any securities-based swap agreement (as defined

in section 206B of the Gramm-Leach-Bliley Act), any

manipulative or deceptive device or contrivance in

contravention of such rules and regulations as the

_Commission may prescribe as necessary or appropri:

ate in the public interest or for the protection of in-

vestors.

22a

Rules promulgated under subsection (b) of this sec-

tion that prohibit fraud, manipulation, or insider

trading (but not rules imposing or specifying report-

ing or recordkeeping requirements, procedures, or

standards as prophylactic measures against fraud,

manipulation, or insider trading), and judicial prece-

dents decided under subsection (b) of this section

and rules promulgated thereunder that prohibit

fraud, manipulation, or insider trading, shall apply

to security-based swap agreements (as defined in

section 206B of the Gramm-Leach-Bliley Act) to the

same extent as they apply to securities. Judicial

precedents decided under section 77q (a) of this title

and sections 78i, 780, 78p, 78t, and 78u-—1 of this ti-

tle, and judicial precedents decided under applicable

rules promulgated under such sections, shall apply

to security-based swap agreements (as defined in

section 206B of the Gramm-Leach-Bliley Act) to the

same extent as they apply to securities.

23a

18 U.S.C. § 3771. Crime victims’ rights

(a) Rights of Crime Victims.— A crime victim has

the following rights:

(1) The right to be reasonably protected from

the accused.

(2) The right to reasonable, accurate, and

timely notice of any public court proceeding,

or any parole proceeding, involving the crime

or of any release or escape of the accused.

(3) The right not to be excluded from any such

public court proceeding, unless the court, after

receiving clear and convincing evidence,

determines that testimony by the victim

would be materially altered if the victim heard

other testimony at that proceeding.

(4) The right to be reasonably heard at any

public proceeding in the district court

involving release, plea, sentencing, or any

parole proceeding.

(5) The reasonable right to confer with the

attorney for the Government in the case.

(6) The right to full and timely restitution as

provided in law.

(7) The right to proceedings free from

unreasonable delay.

(8) The right to be treated with fairness and

with respect for the victim’s dignity and

privacy.

U.S.S.G. § 2B1.1

§2B1.1. Larceny, Embezzlement, and Other Forms of

Theft; Offenses Involving Stolen Property; Property

Damage or Destruction; Fraud and Deceit; Forgery;

Offenses Involving Altered or Counterfeit

Instruments Other than Counterfeit Bearer

Obligations of the United States

(a) Base Offense Level:

(1) 7, if (A) the defendant was convicted of an

offense referenced to this guideline; and (B) that

offense of conviction has a statutory maximum term

of imprisonment of 20 years or more; or

(2) 6, otherwise.

(b) Specific Offense Characteristics

(1) If the loss exceeded $5,000, increase the offense

level as follows:

Loss (Apply the Greatest) Increase in Level

$5,000 or less no increase

(B) More than $5,000 add 2

(D) More than $30,000 add 6

(E) More than $70,000 add 8

(F) More than $120,000 add 10

(G) More than $200,000 add 12

(H) More than $400,000 add 14

(I) More than $1,000,000 add 16

(J) More than $2,500,000 add 18

25a

(K) More than $7,000,000 add 20

(L) More than $20,000,000 add 22

(M) More than $50,000,000 add 24

(N) More than $100,000,000 add 26

(O) More than $200,000,000 add 28

(P) More than $400,000,000 add 30.

(2) (Apply the greatest) If the offense—

(A) @) involved 10 or more victims: or (ii) was

committed through mass-marketing, increase by 2

levels;

(B) involved 50 or more victims, increase by 4

levels; or

levals.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.