Monday, November 30, 2009

U.S. v. Berger, No. 08-50171 (11-30-09). This is an appeal after a remand for resentencing on securities fraud. There are two interesting issues: (1) calculation of loss; and (2) standard of proof for such loss. The defendant was convicted of securities fraud. In assessing loss of 3.14 million, the court looked at the decline in stock values from other companies that had fraud disclosed. The amount of loss resulted in a +13 enhancement. On appeal, defendant argued that the court should have used the test for civil loss causation articulated in Dura Pharm., Inc v. Broudo, 554 US 336 (2005), which requires the fraud to have divulged to the stock market. This test was adopted in the criminal context by the 2nd and 5th Circuits. The 9th (M. Smith joined by W. Fletcher and Clifton) declines an expansion of Dura Pharm; instead, the test is one of "all harm that resulted from the acts or omissions of the defendant." This is distinguished from the "share price fell significantly after the truth became known." Dura Pharm at 347. The 9th reasoned that the civil test placed the burden on the plaintiff to show causation, and it was an ill fit for sentencing, and that the guidelines favored a broader net thrown. There is now a circuit split on this test. As for the standard of proof, the defendant argued that the enhancement of +13 required a clear and convincing standard, and not just preponderance. The 9th held that preponderance would work just fine; the 9th's jurisprudence in this error is complex, but in focusing on the offense of conviction (conspiracy), the loss is tied to the acts and there is not a cross reference. The 9th acknowledges a totality of circumstances approach but here rests on previous precedent where the enhancement for loss in a fraud case with a conspiracy conviction was preponderance. The 9th did remand for another resentencing because the approach the district court used -- looking at other companies -- was an abuse of discretion. The fraud here was not disclosed, and using other companies, at other times, strayed from the focus on this act.


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