good morning in may please the court my name is eric bruce and i represented mr kipp bench trial and i also represent him on appeal to this court at trial this was a week and largely circumstantial case in which the government's primary evidence which was e mails written by mr kim be proved that he was trying to meet swisher is final and drastically reduced quarterly forecast but there was no direct documentary evidence that mr kid ever intentionally booked an improper accounting entry and its written verdict the district court mistakenly conflated motive with intent and then compounded that error by making a factual finding that mr  had the requisite intent to defraud because he was eligible for an award of stock even though that award was in no way dependent on meeting eba targets and a possible cash bonus even though swisher was still findings to support its verdict that mr kipp specifically intended to book improper accounting entries based on the facts known to him at the time but the district court instead further aired by making clearly erroneous findings concerning each of the accounting entries an issue that fall roughly into the following three categories st the district court convicted mr kidd based on facts which amounted to nothing more than an innocent mistake by someone other than mr kipp nd the district court relied on facts to convict mr kip which he never even knew and rd the district court cherry picked certain facts that are clearly erroneous based on a favor a view of the entire record the st category of facts which amounted to nothing more than an innocent mistake by someone other than mr kemp show that the district court got it wrong in this case and made unjust findings that must be corrected on appeal for example as to the cue to bad debt and just meant adjustment mr kid got indicted for what was an innocent mistake and not even his own innocent mistake mr kemp was indicted and then convicted based on what both government witnesses sara stat and hugh crawford agreed was an innocent mistake these were government witnesses who testified that this was an innocent mistake and debt model and this century was disclosed to switchers auditor and put simply there was no contrary proof whatsoever in the record that this century was a fraudulent act by mr kipp similarly with regards to the q three enviro earn adventure mr kit was again erroneous lee found to have engaged in fraud because joanne b r t mistakenly used a prior version of a spreadsheet in which she had zeroed out the final two are now payments because she believed that and by rove would hit the full one million dollar are now in ten quarters instead of the full twelve quarters over the thirty three year period and that's all that happened with that entry diminished due to business interference by one of swishes competitors mr chip and ms fiorina appropriately rebalance the our now and reduced it down to the five hundred thousand dollars amount that swisher c e o tom byrne had told them was the maximum amount that enviro would earn doing anything other than revaluing the arnaout at that point would have violated gap and been improper but nevertheless the district court found that this was a fraudulent act by mr k but had the defendants not revalued the arnaout at that point when the operational people at swisher were telling them that enviro was only going to earn five hundred thousand dollars surely they would have been accused of using it as an inflated reserve and been prosecuted on that theory and that was one of the catch twenty two that the government set up in this case when they argued that even booking a gap compliant accounting entry can constitute a crime because if they vote the gap compliant entry they can be guilty of a crime but have they not booked the same entry they would have violated gap and it would have resulted in improper financial statements which also could be considered a crime now the nd category of factual findings relied upon were based on facts which he never even knew about this included the q to nicasio an entry the q to lee county unfavorable contract entry and the q four of shamrock entry as to the the district court principally relied on the testimony of two witnesses to convict mr kipp and its written findings nicasio own who admitted he never even spoke to mr kipp and couldn't even pick him out in the court room at trial and j the government's cooperating witness who essentially had recanted his guilty plea by testifying repeatedly that he never intended to commit a crime and never thought he was committing a crime while at swisher and who admitted as to the casio an entry that he didn't work on it and couldn't identify a single thing that was improper about it similarly as to the leak county entry in order to convict mr kipp the district court relied on chris cochran's testimony even though again it was under spew did that cop friend had never even spoken to mr kemp and the district court selectively misquoted c e o steve bart's testimony to conclude that mr berard testified that the leak ownie contract was not an unfavorable contract even though the entire purpose of mr broad's testimony was that he believed the leak ownie contract was in fat and unfavorable contracts he had directed mr chips to book it as an unfavorable contract and he had it was unfavorable as to this contract period and then he says words to the effect this was not an unfavorable contract and i believe what he intended to say was it this was not an unprofitable contract and either he had a slip of the to that that's correct your honor and i looked at that rule and i don't think we met the rule where you need to go back and correct the transcript it wasn't an issue obviously until the district court's opinion came out that you know it highlighted that that was what the district court was hanging its hat on and that that time after the district court issued its decision i don't think i was in a position to try to go back and correct the record at that point that i record is what the record at that bar does say it was unfavorable as to this contract so he is saying it's an unfavorable contract and then he contradicts it by saying it was not an unfavorable contract but that was on to explain why what he means is it's not an unprofitable contract and all of the witnesses agreed that a contract can still be profitable but unfavorable on this point your honour's what was important is that the district court continually cited evidence from witnesses that mr kipp never knew and never spoke to and that was in disputed and what the court should have done is look at what mr kipp knew at the time and on that point well mr kipp knew about both of these entries cassy own and lee county was set out in a memo that mr barak had sent to mr kept its kid exhibit  twelve setting out all of the facts that berard was relating to kip in order to book this lee county contract as an unfavorable contract and both the chassis elementary and based on those facts both government both defense accounting experts testified that the entry was proper and gap compliant and needed to be but the way mr chip looked it so our position your honour's is that mr kipp can only be judged based on the facts he knew at the time not facts that were related by the witnesses he never spoke to the shamrock entry was another example of this happening in which the district court relied on the testimony of dan carroll from shamrock and  catus and from proclaiming both again admitted that they had never spoken to mr kept and the district court again ignored the facts that mr kipp actually knew which is what he learned from c e o of tom byrne who told him that s be recording a receivable because the money was not due to shamrock and he had instructed mr le bron to get the money back that the district court also ignored evidence of mr chips own innocent state of mind accounting right and wanted to double check himself after crawford raised concerns now in the rd category the district court unjustly cherry picked certain facts to make clearly trial that he didn't understand the accounting he was very candid about that and our view is that to get a just result in this case you had to engage on the accounting and yet expert that's correct to  only defended government and call expert ok but it is in his notwithstanding the fact that he said he didn't understand the accounting he also didn't rely on the experts the defense experts he cited certain portions of their testimony but not on the core issues of whether these entries were got compliant or not and i think he should have relied on those defense experts because he admitted he didn't understand the accounting and what the defense experts did and contrary to how the government tried its case is  and what what actually comes across when you look at this record i did not do the trial here on from this is there are really significant errors in the factual findings in this case especially as  she was involved and basically she was convicted of conspiracy to commit securities fraud who lied to switchers auditors and false accounting entries but you know what the district court here mistakenly cited of complex accounting issues she conferred with others in the company its auditor b t o and an outside consultant she disclosed two of the three accounting and trees to the disclosure committee she wasn't hiding anything she said she didn't seek to disguise or to see her actions were consistent with a professional seeking include faith to resolve complex financial issues the committees with respect to whether there was a separate i'm going to say yes a contract and that's a perfect example of how the judge got it wrong perfect example because what happened was she just there was no request that was ever made by b t o the auditor for a copy of the severance agreement quote unquote severance agreement in fact the documents show there was no severance agreement it was an employment agree she provided this information the same information that she had cheap provided to the auditors she disclosed all this information how did we elected who are well we thought that that the issues were pretty complex as to the accounting issues and i think that our client felt that and with mr kim that the court would be in a better position to understand the complex issues than a juror the problem that we have here is the court made serious errors in the factual findings because what happened in this case with regard to the severance issue on our auditors are struggling with the submit and the best proof we could provide them is evidence that the severance agreement was in place after the audit committee meeting after is when she learned she got the employment agreement at that point but she already had documents which accurately summarize what was in the employment agreement so there was no misleading information here the judge  went he the core fail to explain what was the information that was withheld and how would it affected the entry no fund no fight no explanation from the court this is much ado about nothing to do you want a two hundred and fifty dollars for your friend yes i'm what i'm afraid of those findings look i understand it's fifty one pages but i always say it's the it's the quality of the words not the length of pinion that necessarily matters and in this case we're talking about three entries taking someone who does hundreds of entries a quarter and now the government comes back and says these three entries were a mistake you're going to jail we're not going to convert we're not going to convert the accounting profession into something like that of so with regard to we've talked about the  believe i'm agreeing one way or the other in the email trying to explain that because the contract was recently bid it may be difficult for it to be underwater then and they have a phone call cop for his ass the get of that phone call all right i believe you can't recall the specifics of this call for answer no i mean it was about the contents of the email and through some specifics but i don't remember exactly what we discussed the court ok the court then says that mr cothren quote advise reserve what happened well after that the enviro because of a competitor's actions and whatnot ended up not even coming close to the revenue targets that you all came in time or she got twenty actually start fourteen she got twenty months and she said he in jail right now for three accounting antrix which makes no sense given the fact they're all three themselves and that's what the judge has that's what this verdict is it and they're taken to the facts that would normally normally be resolved in a civil case and trying to get into a criminal that this was not  are plainly wrong there's no evidence of a project with the judges the judge and he's an experienced good i mean he's been around the horn he was a prosecutor if he was a defense lawyer and he was a magistrate judge i was need to personally benefit from this but it's a far cry to say that three accounting entries that may have been a mistake indicates fraudulent intent that's not the burden here i get it the judge sat there i get the just solid witnesses but i'll tell you this when you buy an opinion and i was taught very early on you better when you cite something it better say that well here it doesn't failures to reach a preconceived result what about all of these statements that are made this is a bad guy would put us back below so and so i need about so many additional thousands in income to get to this and then they say let's work up the number of we'll show up we'll get it in  closely tied yeah with mr kemp she's a seasoned accountant and in her own right it's hard for me to believe that she was just left out of what seems a fairly raises and bonuses for him you mean or for people who are both that she wasn't entitled to anything based upon the the revenue targets well she's a she's a she's just the accidental reporting person who drafts the ten k and ten kids well it's hard for me to believe it wasn't something her we'll hear from the government on that point oh excuse me you're on a beach she was acquitted because the judge found she had no intent to defraud there was no personal benefit to her i'm just asking you know i understand that but that sort of undercurrent you pointed the judge didn't really know what was going on well no the judge understood that part it leaves the court my name is william miller i'm here on behalf of the united states obviously we are not here to retry this case judge king as you mention the standard and the question for this court is whether viewing the evidence in the light most favorable to the government there was substantial evidence and the sentence reflected that she was the director of external reporting for the company which as the district court found is a gatekeeping role she was responsible for the s e c filings and the reports that were made of those financial statements what was in it for her to  found i had to respond to that st she got a promotion during this time period she got a raise there were benefits that accrue to her during the course of her employment i think the evidence showed that by contrast you crawford who was the employee who blew the whistle and refused to go along with this or any major scheme got fired so what you're saying is the one way or another advancement in the company depended on having the fifty's show a certain amount of profit  participation in misleading authors and falsifying bucks and records so the personal gain really from the court's perspective below went to the intent to defraud which is the object that he quit her of i think even on  that but what was the what was the benefit to her so i don't know that the government had to prove a benefit to her i guess you know i'm just glad but i think it was in vance men in the company this was the town this is that this is what it took to move up and she did in fact move up accounting why don't you put in the experts all well a couple responses st we did call byron berry who was the auditor from b t o who has the technical knowledge and did go through through these different entries that were examples o is a c p a as well and he was the chief in gage mit partner who was in charge of the audit so he did have a witness who testified about these various entries this court who testified about the accounting principles yes your honor ok and really there wasn't much i think that was certainly part of what the trial was about but where i was headed was this court in the rand opinion said that what he's fraud cases are about is proving intentional misstatements of financial information it's not about prevailing in a battle of the experts over a gap that's a principle that comes from the nd circuit's case and evers and that's what this case is really about and that's what both of my colleagues here have overlooked is the fraudulent earnings management scheme that was going on at this company  consent touch you touched on it a little bit your honor in your last questions there but what the evidence showed in this case was at the end of every quarter a concerted effort by mr k with the assistance of miss fiar to manage earnings to achieve a pre determine that are eventually going to be realized by someone else really talking about some necessarily has to be made from a to b that's right your honor i think what i was saying there is that that is borne out by the e mails in this case and there's three interest except those e mails that i want to highlight and these are the quarter close e mails where the defendants are clearly driving toward a target the st touristic is that these are just open ended requests from mr kit to the accounting department to make up for earnings when operations is coming up with the shortfall that's not forecasting which is what the defendants have argued in their briefing was it necessary here to charge so many different conspiracy coun an object and i misspoke on that your honor he actually found her guilty of all three objects and acquitted her of the substantive offense of securities fraud all right but but for but for a conspiracy of finance you need to prove one  helpful to us here and that's exactly right i was headed with those three characteristics of the closing emails and so the st one was these open ended requests for earnings to reach the priest predetermine targets all of the witnesses including the defense witnesses said managing to a pre determined target like that through one side of the counting is fraud and that's what makes this a crime and i'll call the court's attention to what we used to call cooking the book it's cooking the books it's some of it's cookie jar accounting i mean all of that was present in this case but with respect to those open requests it was prevalent and every quarter in q two i need about two one hundred and fifty thousand come to get to three million that's an open integral quest that's not tied to any kind of variance analysis or forecasting that's going to the accounting staff whose job it is to be the scorekeepers to try to help them run up the score to get to a pre determined number in q three there's an open in request from the defendant hit to miss yard i need to get about three hundred thousand and expens rights back here are a few ideas of how to get there and so these are the types of open and requests that are not emblematic of forecasting which is perfectly appropriate they're emblematic of cooking the books or fraudulent earnings management in the th quarter i would suggest it got even worse and then the emails there we are still short of the target we will get to five million four hundred thousand dollars what are the options to do find the remaining one hundred and thirty one thousand again an open ended request of the accounting department to how to make up the shortfall in operations the other component of those emails that i think judge berger distinguishes this from run of the mill business operations is the offsets for the negative entries and so there you saw e mails where the court would where the senate would write things like if that's what you think you need to find another ninety k to offset it well just because you find an unfavorable entry it's not proper accounting to just go try to find something else that you might be able to justify that unfavorable entry that's another distinction is that the chief victims are in this and this is a lot of the victims here in this particular fraud were twofold one would be the investing public they're being deprived of their right to reliable financial information is this information this accounting information put out on the street or been involved in of annual  s to the investing public and in fact these are public or break this is a public company and this earnings number was reported in the final report to the public and so this was a number that was broadcast and i was investing company and also to additional financing for a deal that they were trying to accomplish but to go back to the to the st one and the announcements in the ten q s and the ten k s to the street even swisher says we're reporting this number because we think it's important to the compan these more glowing are news reports the bank was examining their earnings in connection with a potential deal and they were going to extend funding to that deal so that's one reason or in connection with a potential loan or  one of the financial space arm of the lower half correct so in connection with this particular deal the defendant kit was directly corresponding with the bank here's where our numbers coming in and there were memos written about that and those were the numbers that the defense were managing earnings too and in addition to that there was also an existing loan or credit facility that swisher had with wells fargo that required regular reporting of these earnings numbers but especially saying we need to come up with this income and we're going to miss the bank forecast there were also two witnesses john her aren't you crawford who testified that mr kipp told them if we had our number the financing is going to come through in the deal will happen if we miss it deals debt and so there was ample evidence to show that these numbers were important to the bank and that that was one of the reasons for the early expansions to return to your question judge berger the rd thing i did want to mention about those who are close e mails are the references to what's commonly referred to as cookie jar accounting or moving money from reserves from one quarter to another there are several e mails were mr kent says if we hit the number i'll send some money back your way that's an example of manipulating the reserves so that you have extra reserves to pull down later on to benefit income and those are e mails that all the accountants who testified would look at and say yeah that's not appropriate i don't think those are defensible in any way and there are several examples of the there's another one where you see things we find to refill the cookie jar let's put some cushion in the event b finds a bad guy so these are all examples of e mails and earnings management scheme that distinguishes this from forecasting or sort of what you would expect in a general business and they're all things the defendants have glossed over to this point today let's talk about materiality a little bit here and i think that you have covered this relates to the bank quite frankly when we talk about which we also will have to discuss yes your honor and so there the question with materiality is always is it quantitatively material and is it quality and i think that the point your honor was making relates perhaps more to the quantitative side with respect to a company like this that is a growth company but the question for the court and the question on appeal is whether there is substantial evidence to support the district court's verdict and on that point what he found was that just these and juries that we operate as examples in that he found were examples of this earning earnings management scheme in operation accounted for between fifteen and twenty percent of that reported adjusted even a number that i was discussing with judge walker earlier and so that is quantitatively material to that number that was reported to the street based on the way the courts look at these things that evidence was supplemented with the testimony from andrew whitman was a snow stock analyst who said adjusting the bit was the primary metric that he had valuated when he was doing his analysis it was also bolstered by the fact that swisher itself says we were reporting in just that he would have because we believe investors and analysts and other interested parties would care about this number or interested in this number to evaluate our results and so while there may be an argument of it that hey this is the growth and growth company and does it really matter the court of course did not have to accept that argument and our task on appeal is not to disprove any innocent explanation the question is just is there substantial evidence to support the court's finding and i think add to that just that even a number there was ample evidence to support his findings on the qualitative and quantitative materiality point on qualit i think what you said is the way i tried to separate them out was that the substantial evidence just goes to the overall question of whether the substantial evidence to all support a particular conviction i would agree with that your honor and is it to build on the point i was making to your honor judge berger those e mails were also supplemented by a live witness testimony that the district court heard from our very st witness was you crawford who was the controller of this company which is a very senior accounting position he was fired for refusing to go along with that earnings management scheme and he reported his concerns to the auditor and to the hot committee and they commissioned an investigation that ultimately resulted in the terminal the e mails  expression of see there is your life yeah and based on the part of mr gale on and you're i think the e mails also show mr yards active participation and that i cited one of them a moment ago right and she has an accounting background right and i think another compelling piece of evidence as to her that came out in trial is the auditor and one of the lawyers who conducted the internal investigation testified the statements that she had made previously during the  groups thank you your honor i did want to pick up briefly on the question of materiality and make two points st we contend the district court made a purely legal error by concluding that the accounting at entries on the issue were material because as the court put it quote adjusted eba was the metric relied on by swisher and by stock analysts this was not the proper legal test as this court has said in s c c versus pirate investor the focus should be on a reasonable investor what's important to the company or some stock analysts isn't what matters there should be evidence on what a reason what would be material important to a reasonable  making investing decision or altering the total mix of information that was available that's an issue that i think this court will investor want to be after well certainly your honor investors rely on financial statements but there's a question of materiality even in that statement i want the books because i'm certainly run ins with binocular but if we look at you have to look at the individual accounting entries and the statements that are made so if for example a c f o booked an improper ten minute ten dollar accounting entry i don't think many reasonable investors would think that was material so there should be some evidence in the record of what's important to an investor and here there was on because the government chose not to call any calling a stock analyst instead of an actual investor there was an insufficient amount of proof in the record as to what would have been material to a reasonable investor but it's not gonna lays out a reasonable people who follow these kind of certainly we did call an expert witness at trial regarding materiality and what her event static study showed was that these earnings misses were not material to investors because the stock never moved the analysts never downgraded the stock so these now of course you still have the question of the banks of course your honor but on that point if i may briefly what the bank the banker cabin harris testified was that small well i recognize we have a mountain to climb and i want to make just a couple of points one with regard to miss the arc she was not charged with bank fraud she was had nothing to do with the bank she didn't deal with the  they would have been intended well she she was definitely in communications with him but what she did with the information or with the task that she was given was she conferred with  talked to outside experts she raised questions as to whether or not this was a proper entry she said work it is the reason she consulted with mr cochran was to make sure that there was support for this and make sure it was the right decision this is not a criminal scheme or people were acting where she was acting in hiding she was out in the open showing it to b t o showing it to a consultant and disclosing it to the audit committee with the language these are close calls i mean that to me says she's not acting with criminal intent she's acting as a professional should in this situation but yet and not only that i would also point out there was record evidence here of various entries that she made sure were not put in because they were proper beat where she did apply the cap standard and on page thirty one of our opening brief and footnote fourteen we cited numerous examples where she said we better talk to legal we better do this so now post hoc i'm going to come in and show you three entries where she made mistakes and call it criminal oh well i get the e mails are incendiary the problem is look at what she did with the information look what she did in terms of her conduct you have to make a specific finding beyond a reasonable doubt that she was engaged in false entries and everything here shows that she acted contrary to we're going to hide this if anything she consulted and brought in more people to what should have been a criminal conspiracy where people are hiding and cooking folks as you guys as you judge your court says this is not cooking plucks she did everything to show that these were proper entries and documented and she goes to jail that makes no sense