Friday, August 28th, 2009

On a Role

United States v. Ware, No. 07-5222-cr (2d Cir. August 18, 2009) (Kearse, Sack, Hall, CJJ)

For five months in 2001 and 2002, Ware, an attorney, ran a “pump and dump” scheme, in which entities he controlled issued fraudulent, and supposedly independent, press releases promoting two penny stocks that he owned. When other investors acted on the false releases, the stocks went up and Ware sold his shares, earning a profit of more than $200,000. He was convicted of securities and wire fraud offenses, and the district court sentenced him to 97 months’ imprisonment.

On appeal, he represented himself pro se, raising a host of trial and sentencing issues. In this long opinion, which covers little real new ground, the court affirmed the conviction, but remanded for further sentencing findings on a leadership role enhancement.

The trial evidence revealed that Ware had three associates in the scheme: Jones and Epps, two young securities traders that he hired to find small companies to promote, and to draft press releases; and a clerical assistant, Williams, who helped distribute the releases.

At sentencing, the district court imposed a four-level leadership role enhancement under U.S.S.G. § 3B1.1(a). This section applies where the defendant was an “organizer or leader of a criminal activity that involved five or more participants” or was “otherwise extensive.” Circuit precedent requires highly specific findings on leadership role: it is “not enough for the court merely to repeat or paraphrase the language of the guideline and say conclusorily that the defendant meets those criteria.” Nor is it sufficient to adopt the PSR if the “PSR itself does not state enough facts to permit meaningful appellate review.”

Here, the district court’s findings were too general. The court noted that the scheme “obviously involved … five or more participants and unknowing participants and was otherwise extensive.” By “unknowing participants” the court meant “the wire services that published [the] false press releases.” The court also noted that the scheme “took place over a period of time.”

The circuit, on plain error review, since Ware did not object to the enhancement at sentencing, had “several difficulties with this explanation.” First, the findings did not identify the “five or more” participants, and the trial record produced only “four obvious” candidates. In addition, the court faulted the district court’s inclusion of the wire services through which Ware distributed the press releases as “unknowing participants.” Under § 3B1.1(a), a “participant” must have criminal exposure, and the record did not support a finding that the wire services could be criminally liable. The district court also made insufficient findings on the alternative, “otherwise extensive,” basis for the enhancement. Its observation that the scheme “took place over a period of time,” was, “standing alone,” insufficient, since the scheme spanned only five months. Nor did Ware’s use of wire services make the activity “otherwise extensive.”

The court accordingly remanded the case for additional findings on the leadership role enhancement.

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