In Watts v. United States, Nos. 21-2925(L), 21-3028 (2d Cir. Apr. 12, 2023) (summary order), the Circuit affirmed the defendant’s convictions for various counts involving securities fraud, wire fraud, and money laundering. But, at the Government’s urging on its cross-appeal, the court vacated his sentence—which included a below-Guidelines term of imprisonment of one year and one day—as substantively unreasonable because it was “shockingly low, or otherwise unsupportable as a matter of law.” Fortunately, the decision is an unpublished summary order, meaning that it has no precedential effect.
Watts was convicted in the Eastern District of New York (Seybert, J.), of charges that, over a four-year period, he and his co-defendants schemed to defraud investors in several publicly traded companies by artificially controlling the price and volume of traded shares in those companies. In brief, Watts and other insiders at public companies allegedly hired a Long Island “boiler room” to fraudulently promote the companies’ penny stocks and to engage in manipulative trading practices to control the price of the stock.
The Government sought a prison term within the advisory Guidelines range of imprisonment of 235-293 months. But the district court decided to impose just one year and one day of imprisonment—about 95% below the bottom of the range—along with more than $4.4 million in restitution.
The Second Circuit held that this sentence, which even the district court called “extraordinar[ily] low,” was “substantively unreasonable.” It cited various reasons for this conclusion:
- The district court “overemphasized” the need for the defendant to pay restitution, “to the detriment of the other Section 3553(a) factors, and to such a degree that the court ended up placing more weight on this factor than it could reasonably bear.”
- The court “minimized Watts’s history of violating securities laws.”
- The court “categorically dismissed the value of general deterrence; excused Watts’s lack of remorse; and failed to justify treating him differently from other co-conspirators,” some of whom received “far lengthier sentences.”
- The court failed to provide an adequate explanation for its extreme variance from the Guidelines range.
Accordingly, the Circuit vacated the defendant’s sentence and remanded for resentencing.
Here are some things to consider about this case:
- Would the Circuit have vacated the sentence if it had been 95% above the Guidelines range? See, e.g., United States v. Shahid, 486 F. App’x 915, 917 (2d Cir. 2012) (affirming the substantive reasonableness of a prison term that was “more than double the upper end” of the Guidelines range); United States v. Bean, 368 F. App’x 260, 263 (2d Cir. 2010) (“[A]lthough [the] sentence of 120 months … is more than double the Guidelines range, … this is insufficient to demonstrate substantive unreasonableness because the Supreme Court has expressly rejected the use of mathematical formulas to gauge substantive unreasonableness”); United States v. Verkhoglyad, 516 F.3d 122, 134 (2d Cir. 2008) (affirming the substantive reasonableness of a sentence more than five times the upper end of the Guidelines range). If not, is the Circuit applying an improper double-standard depending on whether the sentence is above or below the Guidelines range? Is this a basis for rehearing or certiorari?
- The Circuit held that the district court placed too much weight on the “need to provide restitution to any victims of the offense,” a mandatory sentencing factor under § 3553(a)(7). But the Circuit has repeatedly held that “the weight given to any single factor is a matter firmly committed to the discretion of the sentencing judge and is beyond our review.” E.g., United States v. Capanelli, 479 F.3d 163, 165 (2d Cir. 2007)? Is this a basis for rehearing?
- The Circuit ruled that the district court failed to adequately consider “the need to avoid unwarranted sentence disparities” between Watts’s sentence and the sentences imposed on his co-defendants. But the Circuit has repeatedly held that a sentencing judge is required to consider only “nationwide sentencing disparities, not those between co-defendants.” E.g., United States v. Crisostomo, 392 F. App’x 894, 896 (2d Cir. 2010) (citing United States v. Frias, 521 F.3d 229, 236 & n.8 (2d Cir. 2008)). Is this (another) basis for a rehearing petition?
- Would the Government have been willing to withdraw its cross-appeal—thereby immunizing the defendant’s sentence from appellate review—if the defendant had agreed to withdraw his appeal? Even if not, investigating such a possibility often makes sense when the defendant receives a sentence well below the Guidelines range and the Government may decide to appeal it.
- While Watts is not precedential, defendants may be able to use aspects of the decision to challenge above-Guidelines sentences as substantive unreasonable.
- Finally, Watts should serve as a reminder to district judges and defense counsel alike: when a court decides to impose a sentence significantly below the Guidelines range, the record must be sufficiently developed and protected so that the Court of Appeals sees that the court fully and carefully considered all the § 3553(a) factors and did not place inordinate weight on any single factor.