FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

UNITED STATES OF AMERICA, 

Plaintiff-Appellee, No. 04-50469

v.  D.C. No.

RICHARD I. BERGER, CR-00-00994-RMT

Defendant-Appellant. 

UNITED STATES OF AMERICA,  No. 04-50530

Plaintiff-Appellant, D.C. No.

v.  CR-00-00994-

RMT-01 RICHARD I. BERGER,

Defendant-Appellee. OPINION 

Appeal from the United States District Court

for the Central District of California

Robert M. Takasugi, District Judge, Presiding

Argued and Submitted

April 4, 2006—Pasadena, California

Filed January 18, 2007

Before: Harry Pregerson and Edward Leavy, Circuit Judges,

and Ralph R. Beistline,* District Judge.

Opinion by Judge Pregerson

*The Honorable Ralph R. Beistline, United States District Judge for the

District of Alaska, sitting by designation. 

705
COUNSEL

Michael R. Doyen, Munger, Tolles & Olson LLP, Los Angeles, California, for the defendant-appellant-appellee.

Paul G. Stern, Assistant United States Attorney, Los Angeles,

California, for the plaintiff-appellee-appellant.

OPINION

PREGERSON, Circuit Judge: 

Defendant Richard I. Berger appeals his conviction of

twelve counts of conspiracy, loan fraud, falsifying corporate

books, and various securities fraud violations. Berger argues

that: (1) the district court improperly coerced the jury into

reaching a verdict, (2) the district court violated his constitutional right to be present during trial when the district court

— with counsel’s consent — made certain comments at an

informal meeting with the jury outside of Berger’s presence,

(3) the district court used the wrong materiality standard for

securities fraud violations, (4) the indictment did not charge

with sufficient particularity the materiality element for securities fraud violations, and (5) the district court erred when it

ordered Berger to pay restitution. The government crossappeals the sentence imposed by the district court, arguing

that the district court erred when it refused to increase Berger’s sentence based on judicially-found facts. We have juris710 UNITED STATES v. BERGER
diction over Berger’s appeal pursuant to 28 U.S.C. § 1291 and

the government’s cross-appeal pursuant to 18 U.S.C.

§ 3742(b). For the reasons given below, we affirm the conviction, affirm the restitution order, vacate the sentence and fine,

and remand for resentencing under United States v. Booker,

543 U.S. 220 (2005).

FACTUAL BACKGROUND

I. Offense Conduct

A. Craig Consumer Electronics, Inc. and the Revolving

Credit Agreement 

Craig Consumer Electronics, Inc. (“Craig Electronics”)

operated a consumer electronics business that sold products

such as car stereos, compact music centers, and small personal stereos to retail stores. Berger was Craig Electronics’

President, Chief Executive Officer, and Chairman of the

Board. Donna Richardson, a co-conspirator, pled guilty to

three counts of the indictment prior to trial. Richardson was

the Chief Financial Officer of Craig Electronics until May 31,

1997, when she left the company. Defendant Bonnie Metz

was at various times a Vice President in Craig Electronics’

Hong Kong and Cerritos, California locations. Metz is not a

party to this appeal. 

On August 5, 1994, Craig Electronics entered into a $50

million revolving credit agreement (“Credit Agreement”) with

a consortium of banks including BT Commercial Corporation

(“Bankers Trust”), La Salle National Bank, Nationsbank of

Texas, and Sanwa Business Credit Corporation. Bankers

Trust acted as the agent for the consortium (collectively

“lending banks”). Under the Credit Agreement, Craig Electronics could, subject to certain exclusions, borrow up to: 

(1) Eighty-five percent of the value of Craig Electronics’ accounts receivable. Accounts receivUNITED STATES v. BERGER 711
able consisted of the money owed Craig

Electronics by retail stores that had purchased

Craig Electronics products; 

(2) Sixty-five percent of the value of Craig Electronics’ inventory of new goods, sometimes

referred to as “A” goods, not to exceed $20

million; and 

(3) Sixty-five percent of the value of Craig Electronics’ inventory of refurbished goods, sometimes referred to as “B” goods, not to exceed

$1 million. 

Craig Electronics was prohibited from borrowing against

goods that had been returned to Craig Electronics but not yet

inspected, or goods that were defective, sometimes referred to

as “C” goods. 

Craig Electronics was required to provide Bankers Trust

with a Borrowing Base Certificate (“Borrowing Certificate”)

every business day. Each Borrowing Certificate was supposed

to report accurately the amount of Craig Electronics’ accounts

receivable eligible for borrowing, updated on a daily basis,

and the value of its inventory eligible for borrowing, updated

on a weekly basis. The Credit Agreement required that either

Berger or Richardson supervise the preparation of each Borrowing Certificate and certify in writing that the information

it contained was true, correct, and complete in all material

respects. 

Based on the information in the Borrowing Certificates,

Bankers Trust determined the amount of money Craig Electronics could borrow on each business day. Specifically, the

lending banks conditioned their lending decisions on whether

Craig Electronics had excess borrowing availability based on

the information — particularly the accounts receivable and

712 UNITED STATES v. BERGER
inventory eligible for borrowing purposes — set forth in the

daily Borrowing Certificates. 

Any materially false or misleading representation made in

the Borrowing Certificates was identified as an event of

default under the Credit Agreement. Craig Electronics was

required to notify the lending banks of the nature of any

default no later than two business days after it occurred. 

B. Falsification of Information 

Starting as early as 1995 and continuing through September

1997, Craig Electronics did not have sufficient accounts

receivable and inventory to continue to borrow the money

needed to fund its operations. Presumably to hide Craig Electronics’ true financial condition from the lending banks, Berger, Richardson, and Metz regularly falsified the information

contained in the Borrowing Certificates. They used the following methods: First, Berger, Richardson, and Metz inflated

the accounts receivable reported to the lending banks by: (1)

pre-billing retail stores for goods that had not yet been

shipped and, in some instances, had never been purchased; (2)

deliberately delaying the processing of credits for returned

goods that had been received and identified in an off-thebooks accounting ledger called the “queue,” and not reporting

this substantial volume of credits; and (3) falsely reporting

that $1 million in accounts receivable from a company in Brazil remained valid through May 1997 when, in fact, the underlying sales were reversed and the goods re-routed back to

Craig Electronics approximately two months earlier. 

Second, Berger, Richardson, and Metz distorted the inventory figures submitted to the lending banks by: (1) improperly

classifying “C” goods as “A” or “B” goods, and (2) misreporting that Craig Electronics had requisite title to certain

shipments of goods originating with its overseas suppliers

when, in fact, Craig Electronics either did not have proper

title to the shipments for borrowing purposes, or the shipUNITED STATES v. BERGER 713
ments did not exist. The financial misreporting that falsely

inflated Craig Electronics’ accounts receivable and inventory

caused the lending banks to lend more money to Craig Electronics than it was allowed to borrow under the Credit Agreement. 

Third, to conceal the fraudulent nature of Craig Electronics’ reported accounts receivable and inventory, Berger, Richardson, and Metz deceived and attempted to deceive Craig

Electronics’ outside accountants as well as auditors from the

lending banks. For example, they instructed Craig Electronics

employees not to reveal to the accountants and auditors the

true status of Craig Electronics’ accounts receivable and

inventory. 

The false statements resulted in the lending banks loaning

millions of dollars to Craig Electronics based on either nonexistent or substantially overstated collateral. The lending

banks did not discover the full extent of the fraud until after

Craig Electronics filed for bankruptcy on August 1, 1997.

According to one witness, the lending banks suffered approximately $8.4 million in losses. 

Finally, Berger and Richardson failed to disclose Craig

Electronics’ true financial condition in several mandatory

reports they filed with the Securities and Exchange Commission (“SEC”). Those SEC filings were Craig Electronics’

Amended S-1 Registration Statement, Amended 1996 10-K

Report, and First Quarter 1997 10-Q Report. As a result of the

activities described above, Craig Electronics was operating

while in default of the Credit Agreement and was substantially overdrawn on its line of credit. None of this information, however, was disclosed in Craig Electronics’ mandatory

SEC filings. 

II. Trial, Jury Deliberations, and Verdict 

The grand jury returned an indictment against Berger and

Metz. The indictment alleged conspiracy, loan fraud, falsifica714 UNITED STATES v. BERGER
tion of corporate books and records, making false statements

to accountants of a publicly-traded company, and making

false statements in reports filed with the SEC. Berger’s and

Metz’s trial began on May 20, 2003 and lasted forty-one days.

A. Status Conference with the Parties 

On the morning of August 29, 2003, after the jury had

deliberated for three-and-a-half days, the district court held a

status conference with all parties and their respective attorneys. The court hoped to discuss some of the jurors’ conflicting schedules, that appeared to limit the number of days

available for deliberation. The court believed that some of

these requests for days off might be related to “the issue of

stress and responsibility on the part of the jury.” 

The court suggested that it might be helpful to engage in an

informal discussion with jurors on the record but outside the

presence of the parties and their attorneys. The court

explained its proposal:

I think this is the time when the jurors need understanding and patience. This is the time when we do

what we can to lead them not to make a rush to judgment and emotional unfair verdicts, chaos within the

jury room and eventually a verdict of hung jury. 

If there had been any suggestions about an Allen

instruction I want the record to indicate that I do not

believe in the Allen instruction, I will not give it,

never have given it. 

My suggestion was to communicate with the jurors

quietly and personally, to convey to the jury, of

course, an understanding of their problems. It’s not

an easy task for the jurors to listen to two months of

legal arguments, for them to have a clear head to the

UNITED STATES v. BERGER 715
point where they could return what we would call a

reasonable judgment. 

My effort to communicate, wish to communicate

was to add a positive energy to the deliberations, and

not to impose ridiculous time tables. And this communication technique has been used, with the consent of the parties of course, on dozens of occasions

and used when I have been on the bench. It has

saved many jury verdicts and of course, the goodwill

of the judicial system. 

My philosophy there is not to encourage them to do

anything more than to diligently study the evidence,

to relieve the tension and to redefine their responsibility. 

Defense counsel expressed concern that the need for the

judge to address the jurors was not yet necessary. After further discussion, however, counsel for Berger and Metz indicated that “doing it informally” might be acceptable. Berger’s

counsel agreed with the prosecutor that it would be more productive for the court to indicate what it intended to say, and

then the parties “could come to an agreement pretty quickly.”

The court explained:

This is what I was planning to do. I was planning to

address the issue, first of all, regarding the jury

request for days off. And in the process of doing so

I was going to suggest to them that your fellow

jurors are going to be, I suppose there will be, contrary to their particular private plans, but then we

also recognize the fact that if you have to take off we

could certainly understand that. 

And I want to make certain that I can convey to them

the thought that a rush to judgment is probably the

716 UNITED STATES v. BERGER
worst form of verdict you could receive. I feel very

strong about that. 

Other than that, nothing magical about what I want

to say except that in the past anyway, it’s been very

effective when I could get down to the jury room,

chat with them, let them know that they’re not doing

wrong. And a lot of times there’s little clashes within

the jury room and I try to resolve those. It’s not a

question of emotions, it’s a question of determining

what the truth is. Write your script and I will certainly diligently —

Counsel for defendants declined the court’s invitation to write

a “script.” Metz’s counsel stated that Metz would be willing

to have the court informally address the jury “without counsel

being present,” because the court’s “vague outline” of what it

intended to say “does not sound to us like it will in any way

pressure the jury to rush to judgment,” but “will do just the

opposite.” Berger’s counsel agreed, stating that he had conferred with Metz’s counsel and agreed “with everything he

said.” Berger’s counsel’s agreement was qualified only by his

request that, “in discussing search for justice,” the jurors “be

reminded that the government bears the burden of proof and

guilt beyond a reasonable doubt.” 

Based on this representation from counsel, the court

accepted Berger’s personal waiver of his right to be present

for the court’s meeting with the jury. Berger waived his “right

to be present for the particular communication that [the court]

anticipate[d] having with the jury.” The court found Berger’s

and Metz’s waivers to be free and voluntary. 

B. Informal Meeting with the Jury 

In its discussion with the jury, the court first observed that

several jurors had conflicting medical appointments. The

judge stated: 

UNITED STATES v. BERGER 717
As far as medical appointments are concerned, I

don’t know whether you know it or not, but during

the middle of the trial I was hospitalized. After I

gave you instructions, that very evening I had to go

to the hospital again, water in the lungs. They tell me

that’s not a good thing. But the heart and lungs are

very strong, so I guess I’m going to stick around for

a while. 

The problem we have here is we have to emphasize

one thing. That is this. Jurors should not be forced to

reach a verdict. Please understand that. Because any

time you’re forced to reach a verdict you’re going to

reach an improper verdict or for improper reasons. 

And so far as that’s concerned, there’s no time limit,

except it interferes with your life because if one person takes off, the entire jury will be unable to continue. And we’d like to finish this before Christmas.

After some laughter, two jurors indicated that they were willing to modify their plans so that deliberations could go forward on September 2nd and 5th. Juror Roux, who lived 170

miles from the courthouse, changed her child care plans; Juror

Morgan delayed her medical appointment. When Morgan

commented that she was not happy about the delay, the court

responded, “I understand. The day that I gave instructions, I

think Friday, I hadn’t slept for four nights. That’s rough, not

sleeping. Then not breathing.” 

When the court turned to dates for the week starting September 9th, Juror Roux interjected that she was “ninety-nine

percent sure we’ll be done by then,” to which the court

responded, “Wonderful. I’m glad to hear that.” Juror Roux

asked whether the others agreed they would be finished by the

9th. Juror Morgan stated, “There’s no way to say.” In

response, Juror Roux said, “I pretty much — I do — we all

718 UNITED STATES v. BERGER
have our set minds pretty much.” The court then engaged in

the following discussion with the jury: 

Court: If there’s set minds and everybody is

not agreeing, then well, calm down

and try to resolve it using your rational

mind. 

Juror Roux: There won’t be a resolution to a lot.

There’s some of us that are dead set on

our verdicts and others that are dead

set. You could probably leave us in

here a hundred years and we’ve deliberated, we’re gone over it and my vote

will not change. 

Court: The way I look at it, as long as your

position is sincere, the position taken

— 

Juror Roux: It is. 

Court: — is based upon your recollection of

the evidence and law, there’s not much

more we can ask for. 

Juror Roux: It is. I’m letting you know where I

stand. 

The court then called on the foreperson, Juror Lynch, who

had a personal conflict the week of September 9th. Lynch

prefaced her answer by emphasizing that the jury still had not

reviewed all the evidence and therefore could not “say [they

were] stuck on things,” rather, “everything [was] still undecided completely.” After scheduling a portion of the week of

September 9th for deliberation, the court indicated that it

probably did not need to worry about dates during the week

of September 15th through 18th because “[y]ou feel by that

UNITED STATES v. BERGER 719
time a verdict will be reached.” At that point, an unidentified

juror stated, “I sure hope so. If not, I’ll jump out this window.” Juror Roux stated, “I’m with you, buddy. Can I go

first? I will even let you push me.” 

In response to these concerns, the judge closed the meeting

with the following comment:

Okay. One thing I would like to comment on. I don’t

know if I should or not, but with respect to those of

you who reached a particular conclusion, and that

you will not change your minds. It wouldn’t be

wrong for you to reconsider your position if you can

be convinced that perhaps your position was not

accurate, that it could be wrong. 

And you have to have that state of mind throughout

the deliberations. Otherwise it’s going to be like the

Hatfields fighting the McCoys. It’s not going to be

promotive of a final conclusion. As long as you

understand that. 

C. Post-Meeting Ameliorative Instruction 

Upon returning from its discussion with the jury, the judge

stated that he “may” have gone “beyond the script” by

responding to jurors who had “blurted out . . . that they made

up their minds and [were] not going to change [them]” to “reexamine your views to see if you’re correct in your view.” At

the request of Berger’s counsel, the judge agreed to have a

transcript of his colloquy with the jury made available immediately, so that a corrective instruction could be given if necessary. 

At a mid-afternoon hearing that same day, Berger moved

for a mistrial, arguing that the court’s final comments to the

jury misstated the burden of proof and took “the worst part of

an Allen charge” without the balancing language. The govern720 UNITED STATES v. BERGER
ment argued that the challenged passage essentially reiterated

the instruction in the court’s initial charge concerning the duty

to deliberate. The court denied Berger’s motion for a mistrial.

The court, however, brought the jury back into the courtroom

and read the following clarifying instruction:

You should not take from my remarks this morning

any suggestion that you should change your views

simply in order to reach an agreement or because

other jurors think it is right. If at any time you

believe that you are deadlocked and unable to reach

a verdict, you should inform the Court. The government has the burden of proving every element of the

charges beyond a reasonable doubt. 

And those are the supplemental instructions. You are

now excused to enjoy the weekend. 

The jurors resumed deliberations at 9:30 a.m. on September

2, 2003, after the Labor Day weekend. At 1:20 p.m. that day,

they sent a note indicating that they: (1) had reached unanimous verdicts against Berger on twelve counts but were deadlocked as to the remaining twenty-four counts against Berger

and as to all twenty-one counts against Metz, and (2) needed

further instructions as to how to proceed. Upon the jury’s

return for further proceedings on September 4, 2003, the court

took the jury’s guilty verdicts as to twelve counts against Berger and declared a mistrial as to the rest of the counts against

Berger and on all of the counts against Metz. 

III. Sentencing 

The court sentenced Berger to six months in prison and

imposed a $1.25 million fine. The court also ordered Berger

to pay the lending banks $3.14 million in restitution. 

UNITED STATES v. BERGER 721
DISCUSSION

I. Alleged Allen Instruction 

A. Standard of Review 

A district court’s decision to issue an Allen instruction is

reviewed for abuse of discretion. See United States v. Plunk,

153 F.3d 1011, 1027 (9th Cir. 1998), amended by 161 F.3d

1195 (9th Cir. 1998). An Allen instruction “must be upheld

unless it is clear from the record that the charge had an impermissibly coercive effect on the jury.” Id. Whether a judge has

improperly coerced a jury’s verdict is a mixed question of law

and fact we review de novo. See Jiminez v. Myers, 40 F.3d

976, 979 (9th Cir. 1994). 

B. The Court Did Not Coerce the Jury into Reaching

Unanimous Verdicts 

Berger contends that the district judge gave an improper

Allen charge when he met informally with the jury and that

the charge effectively coerced the jury to reach unanimous

verdicts against him on twelve counts in violation of Berger’s

right to an impartial jury. We disagree. 

[1] This court has explained: 

The term “Allen charge” is the generic name for a

class of supplemental jury instructions given when

jurors are apparently deadlocked; the name derives

from the first Supreme Court approval of such an

instruction in Allen v. United States, 164 U.S. 492,

501-02 (1896). In their mildest form, these instructions carry reminders of the importance of securing

a verdict and ask jurors to reconsider potentially

unreasonable positions. In their stronger forms, these

charges have been referred to as “dynamite charges,”

because of their ability to “blast” a verdict out of a

722 UNITED STATES v. BERGER
deadlocked jury. The charge has also been called the

“third degree instruction,” “the shotgun instruction,”

and “the nitroglycerin charge.” 

United States v. Mason, 658 F.2d 1263, 1265 n.1 (9th Cir.

1981) (citation omitted). The Allen instruction is most often

used in cases of “apparent juror deadlock” to “admonish

jurors to keep trying.” Id. at 1265; see also Weaver v. Thompson, 197 F.3d 359, 365 (9th Cir. 1999) (“In the archetypal

Allen charge context, the judge instructs a deadlocked jury to

strive for a unanimous verdict.”). 

In Weaver, this court stated that “[s]o long as the defendant

has offered facts that fairly support an inference that jurors

who did not agree with the majority felt pressure from the

court to give up their conscientiously held beliefs in order to

secure a verdict, we must proceed to the Allen charge analysis.” Weaver, 197 F.3d at 365. In the instant case, the district

judge made comments that echoed a mild Allen instruction

when he mentioned: “[W]ith respect to those of you who

reached a particular conclusion, and that you will not change

your minds[, i]t wouldn’t be wrong for you to reconsider your

position if you can be convinced that perhaps your position

was not accurate, that it could be wrong.” The court’s remarks

came soon after Juror Roux commented: “There’s some of us

that are dead set on our verdicts and others that are dead set.

You could probably leave us in here a hundred years and

we’ve deliberated, we’re gone over it and my vote will not

change.” These comments fairly support the inference that the

jury might have been deadlocked — at least as to some counts

— and that the court’s comments could have been construed

as instructing the jurors to reconsider their respective positions if convinced their position was not correct. Accordingly,

a full Allen analysis is appropriate. 

We have stated that there is “nothing talismanic about any

single element either making the charge valid or invalid; the

fundamental question is whether the jury was improperly

UNITED STATES v. BERGER 723
coerced, thus infringing the defendant’s due process rights.”

Id. We apply a “totality of the circumstances” analysis when

examining whether a judge’s statements to a jury were impermissibly coercive. Jimenez, 40 F.3d at 980. In performing the

Allen analysis, it is helpful to consider three relevant factors:

“(1) the form of the instruction, (2) the time the jury deliberated after receiving the charge in relation to the total time of

deliberation and (3) any other indicia of coerciveness.” United

States v. Steele, 298 F.3d 906, 911 (9th Cir. 2002).1

1. The form of the instruction was not coercive 

Berger takes issue with three aspects of the “form” of the

so-called Allen instruction the court delivered during its informal meeting with the jury. First, Berger complains that the

judge’s comments omitted an instruction that jurors should

not abandon their conscientiously held beliefs. Second, Berger alleges that the judge’s statements about his poor health

coerced the jury into reaching a verdict. Finally, Berger

claims that the judge strongly suggested to the jurors that they

should work to a unanimous verdict when he said that if they

did not follow his instruction it would be like “the Hatfields

fighting the McCoys.” We conclude that Judge Takasugi’s

remarks were not coercive. In addition, the ameliorative

instruction cured any coerciveness that may have resulted

from the judge’s informal comments to the jurors. 

a. The district court instructed the jurors to hold on

to their beliefs 

At the end of the judge’s informal meeting with the jurors,

he told them that “[i]t wouldn’t be wrong for you to recon1Some cases have separated the second factor into two distinct factors:

(1) the amount of time of deliberation following the charge and (2) the

total time of deliberation. See Weaver, 197 F.3d at 366. Because those two

considerations must be compared with each other, we find that it is more

helpful to discuss them together. 

724 UNITED STATES v. BERGER
sider your position if you can be convinced that perhaps your

position was not accurate, that it could be wrong.” If the jury

was truly deadlocked, these words could be interpreted as

directing the jury to “reconsider potentially unreasonable

positions.” Mason, 658 F.2d at 1265 n.1. Berger contends that

because the judge overlooked telling the jury to hold on to

their “conscientiously held beliefs,” there was no adequate

counterbalance to the coercive aspects of the so-called Allen

instruction. 

[2] Generally, when a judge tells jurors to reconsider their

positions, the judge must also warn the jurors to hold on to

their conscientiously-held beliefs. See Mason, 658 F.2d at

1268 (reversing where instruction was more coercive than the

instruction approved in Allen and failed to tell jurors in the

minority not to abandon their conscientiously-held views); see

also Jimenez, 40 F.3d at 981 & n.5 (noting that failure to

instruct jurors to hold on to conscientiously held beliefs

“weighs heavily in favor of the conclusion that the defendant’s right to a fair trial and impartial jury has been violated”); but see United States v. Cuozzo, 962 F.2d 945, 952 (9th

Cir. 1992) (“While it is helpful for an Allen charge to include

such ameliorative language, its lack does not itself necessarily

require reversal.”). Berger, however, misconstrues the record

when he contends that Judge Takasugi’s informal comments

to the jury — which Berger characterizes as an Allen instruction — were not offset by other comments by the judge telling

the jury to hold on to their beliefs. 

[3] First, the judge told the jurors: “The way I look at it, as

long as your position is sincere, the position taken . . . is based

upon your recollection of the evidence and law, there’s not

much more we can ask for.” The judge’s statement was substantially the same as an instruction telling jurors to hold on

to their conscientiously held beliefs. Telling the jury to hold

on to a “sincere” position based on a “recollection of the evidence and law” neutralized any potentially coercive effect and

undercuts Berger’s contention. 

UNITED STATES v. BERGER 725
[4] Second, at the request of the defendants, the court gave

an ameliorative instruction later that afternoon. The court

instructed the jury: “You should not take from my remarks

this morning any suggestion that you should change your

views simply in order to reach an agreement or because other

jurors think it is right.” That corrective instruction also neutralized any coercive effect of the court’s earlier informal

comments. The instruction explained that each juror’s personal views were more important than the parties’ or the

court’s interest in obtaining a unanimous verdict. Thus, we

find that Berger’s first challenge to the court’s informal comments lacks merit. See United States v. Bonam, 772 F.2d

1449, 1451 (9th Cir. 1985) (“When the portion of the instruction that asks the minority to re-examine its views is counterbalanced by the caution that a juror should not abandon his

conscientiously held views, we have generally upheld the

instruction as not coercive.”); see also United States v. Ajiboye, 961 F.2d 892, 894 (9th Cir. 1992). 

b. It was not coercive for the judge to mention his

recent illness 

[5] Berger next argues that the judge engaged in coercion

when he told the jury he had been hospitalized during trial

with a serious illness. Berger implies that because Judge

Takasugi is a senior judge who made reference to his illness,

the jury felt compelled to reach a verdict. Such an interpretation is a misreading of the transcript. The judge’s comments

regarding his health cannot reasonably be read to have had

any coercive effect on the jury. First, the judge tempered his

comments about his health by saying, “But the heart and

lungs are very strong, so I guess I’m going to stick around for

a while.” Further, Berger’s contention that references to the

judge’s illness pushed the jury to reach a verdict is undermined by reading the judge’s next words, which were: “Jurors

should not be forced to reach a verdict. Please understand

that. Because any time you’re forced to reach a verdict you’re

going to reach an improper verdict or for improper reasons.

726 UNITED STATES v. BERGER
And so far as that’s concerned, there’s no time limit . . . .”

The judge’s discussion of his illness did not create a coercive

atmosphere. 

c. The judge’s statement that failure to reconsider a

position would “be like the Hatfields fighting the

McCoys” was not coercive 

Berger next focuses on the judge’s informal comment that

it “wouldn’t be wrong for you to reconsider your position,”

and that jurors “have to have that state of mind throughout the

deliberations. Otherwise it’s going to be like the Hatfields

fighting the McCoys. It’s not going to be promotive of a final

conclusion.” Berger asserts that “[t]he court’s statements told

the jurors that honest and conscientious beliefs were less

important than getting along — indeed, these statements told

the jurors that hanging on to such beliefs would make them

responsible for inappropriate feuding.” 

[6] The comparison of a deadlocked jury to the Hatfields

and the McCoys might have conveyed to the jury that the

judge favored a unanimous agreement over a deadlock. But

we must not consider that analogy in isolation. We must

instead consider it in the context of the judge’s other informal

remarks and his ameliorative instruction. See Jimenez, 40

F.3d at 980. When so viewed, the “Hatfields fighting the

McCoys” comment was not coercive. As noted above, the

judge told the jury that they would not be “forced to reach a

verdict” and that jurors should not “change [their] views simply in order to reach an agreement or because other jurors

think it is right.” Furthermore, the court later gave the ameliorative instruction that the jurors should not “change [their]

views simply in order to reach an agreement or because other

jurors think it is right.” Any coercive effect that emanated

from the court’s “Hatfields fighting the McCoys” comment

was neutralized by the court’s counterbalancing statements

and corrective instruction. 

UNITED STATES v. BERGER 727
2. The time the jury deliberated after the informal

meeting in relation to the total time it deliberated

does not suggest that the court’s statements were

coercive 

“A jury verdict reached immediately after an Allen charge

can be an indication of coercion.” Bonam, 772 F.2d at 1451.

In contrast, this court has found no coercion existed in circumstances where the deliberations lasted some significant

amount of time after an Allen instruction was given. See id.

at 1450-51 (finding no coercion with just over one day of total

deliberation, one-and-a-half hours of which came after Allen

charge); see also Lorenzo, 43 F.3d at 1307 & n.3 (finding no

coercion with five-and-a-half hours of deliberation coming

after Allen charge); Cuozzo, 962 F.2d at 952 & n.6 (finding

no coercion with two days and six hours of deliberation, six

hours of which came after Allen charge); but see Weaver, 197

F.3d at 366 (finding coercion existed when jury returned with

unanimous verdict five minutes after Allen charge). 

The jury deliberated at least seven hours following the

challenged comments by the judge. On the morning of August

29, 2003, the court, with counsel’s consent, had its informal

meeting after the jury had deliberated about three-and-a-half

days. Following the judge’s meeting with the jurors, the jury

deliberated until 3:19 p.m. At that time, the court gave the

ameliorative instruction that the jury members should not

“change [their] views simply in order to reach an agreement

or because other jurors think it is right.” The court recessed

for the weekend. The jury resumed deliberations at 9:30 a.m.

on September 2, 2003, and reached a verdict that afternoon at

1:20 p.m. 

Seven hours was a substantial amount of time after the

informal meeting. During that time, the jury could consider

the charges against both defendants. In our opinion, seven

hours was a “sufficient period of time to allow the jury to

728 UNITED STATES v. BERGER
reach a reasoned decision in this case.” Cuozzo, 962 F.2d at

952 n.6. 

[7] Finally, we note that the jury’s verdict on September

2nd came after the three-day Labor Day holiday. We have

held: 

The fact the jury reached its verdict half an hour

after returning from a weekend recess could merely

reflect that the jurors came to a resolution during a

weekend when they individually pondered the evidence. The weekend interval itself probably would

have diluted any coercive effect of an Allen charge

given the prior Thursday. 

Steele, 298 F.3d at 911. Here, as in Steele, any potentially

coercive effect of the judge’s remarks was diluted by the long

holiday weekend and the time the jury deliberated after the

court’s informal remarks. 

3. There Were No Other Indicia of Coercion 

a. The Court’s informal statements to the jury were

not directed toward a specific juror or set of jurors

Berger argues that the judge’s informal comments were

particularly coercive because they were directed at a specific

juror, Juror Roux. This argument misrepresents the record,

because the judge addressed his remarks toward the jurors as

a group. The judge only knew that “some” of the jurors were

set on one position and that “others” were set on another. The

judge did not know which jurors favored guilt and which

favored acquittal. Moreover, because of the complicated

nature of the case, Juror Roux’s comment that “some of us . . .

are dead set on our verdicts” might have related only to some

of the dozens of charges the jurors had to consider. The record

also does not reveal whether Juror Roux was in the majority

or minority on any particular charge, nor how many jurors she

UNITED STATES v. BERGER 729
was referring to when she said “some of us that are dead set

on our verdicts.” 

Here, “the judge did not ask what the division was. There

is no evidence that he knew who the dissenting juror[s were.]

Further, the judge did not even know whether the majority

position was to convict or acquit.” Lorenzo, 43 F.3d at 1307.

Thus, Juror Roux could not have been singled out by the

judge in his comments, which were made to the multiple

jurors who were “dead set” on their verdicts. 

b. It is not clear that the jurors were in fact

deadlocked

Contrary to Berger’s contention, the jury was not deadlocked at the time the judge, with the consent of counsel, had

an informal meeting with the jurors regarding scheduling

issues. Berger’s case is distinguishable from other cases

where an allegedly coercive Allen charge is made to an obviously deadlocked jury. In those cases, the jury typically sends

out a note indicating that it is deadlocked and inquiring about

the next appropriate step. See Jimenez, 40 F.3d at 978-79

(explaining that jury sent notes to judge that stated “We are

unable to reach a verdict and feel strongly that we would not

be able to reach a verdict” and “We are at an impasse and

request further direction.”). 

[8] There is simply no evidence in the record that any of the

jurors considered further deliberations to be futile. The jury

knew that deliberations were ongoing. With the consent of

counsel, the judge met informally with the jurors, who had

served for over three months, about their issues regarding

child care, travel to the courthouse, medical appointments,

and vacation plans — hoping to schedule dates for more

deliberation. Juror Lynch stated that the jury had not reviewed

all the evidence and could not “say [the jury was] stuck on

things,” rather, “everything [was] still undecided completely.”

Thus, the judge did not make his remarks in an atmosphere

730 UNITED STATES v. BERGER
where the jurors would have felt that unanimity was their only

escape from the jury room. 

c. The jury was not unanimous on all counts 

The jury reached agreement on twelve counts against Berger. The jury deadlocked on the remaining twenty-four counts

against Berger. The jury also deadlocked on all twenty-one

counts against Metz. This result clearly tells us that the jury

exercised “their rational and independent review of the evidence” and did not succumb to the court’s alleged coercion.

See Plunk, 153 F.3d at 1027; Cuozzo, 962 F.2d at 952. 

[9] In light of the foregoing, we hold that Berger’s contention that the district court impermissibly coerced the jury to

arrive at unanimous verdicts is without merit. 

II. Berger’s Constitutional Right to Be Present 

A. A Defendant’s Right to Be Present 

Berger next argues that his right to be present at every stage

of the proceedings was violated when the judge made the

challenged informal comments to the jury outside the presence of Berger and his counsel. We conclude that Berger

waived his right to be present but that the scope of the waiver

did not include the full range of comments made by the judge

during the informal meeting with the jury. Consequently, even

though the so-called Allen instruction was not coercive, the

challenged language was spoken by the court without Berger’s knowledge and consent, and thus impinged his due process right to be present at every critical stage of trial. We

nevertheless hold that the error, if any, was harmless beyond

a reasonable doubt and therefore not a ground for reversal. 

This court has stated that the “Constitution, the fundamental principles of jury trial, and the Federal Rules of Criminal

Procedure guarantee a defendant the right to be present at

UNITED STATES v. BERGER 731
every stage of trial.” United States v. Frazin, 780 F.2d 1461,

1469 (9th Cir. 1986) (citing Illinois v. Allen, 397 U.S. 337,

338 (1970) (holding right of presence secured by the confrontation clause)). In United States v. Gagnon, 470 U.S. 522

(1985), in discussing a defendant’s right to be present at critical stages of trial, the Supreme Court explained: 

[A] defendant has a due process right to be present

at a proceeding whenever his presence has a relation,

reasonably substantial, to the fulness of his opportunity to defend against the charge. The presence of a

defendant is a condition of due process to the extent

that a fair and just hearing would be thwarted by his

absence, and to that extent only. 

Id. at 526 (quoting Snyder v. Massachusetts, 291 U.S. 97,

105-06, 108 (1934)) (internal quotations and alterations omitted). Such an error, however, is not a basis for automatic

reversal. If an ex parte communication “rises to the level of

a constitutional violation, then the burden is on the prosecution to prove that the error was harmless beyond a reasonable

doubt.” United States v. Rosales-Rodriguez, 289 F.3d 1106,

1109 (9th Cir. 2002).2

2Federal Rule of Criminal Procedure 43(a) provides a similar but

broader right: a defendant is entitled to be present “at every stage of the

trial including the impaneling of the jury and the return of the verdict.” See

Rosales-Rodriguez, 289 F.3d at 1109. A violation of Rule 43 is harmless

if “there is no reasonable possibility that prejudice resulted from the

absence.” Id. As this court has recognized, the constitutional harmless

error standard is “more stringent” than the harmless error standard applicable to a Rule 43 violation. Frazin, 780 F.2d at 1469 n.8 (“The reasons supporting our determination that the constitutional error was harmless . . .

would necessarily satisfy the more lenient standard for nonconstitutional

error . . . .”). Because we ultimately conclude that the constitutional violation in this case was harmless beyond a reasonable doubt, we need not

decide whether Berger’s statutory right to be present was also violated.

See id.

732 UNITED STATES v. BERGER
[10] Our case law is clear that communication between the

judge and jury outside of counsel’s presence, without a proper

waiver, violates a defendant’s right to due process of law. See

Frazin, 780 F.2d at 1469; see also Rosales-Rodriguez, 289

F.3d at 1110 (noting that delivery of a supplemental jury

instruction is a “critical” stage of a trial that requires a defendant’s or defense counsel’s presence). A defendant, however,

may waive his or her constitutional right to be present at all

critical stages of the proceedings “provided such waiver is

voluntary, knowing, and intelligent.” Campbell v. Wood, 18

F.3d 662, 671-72 (9th Cir. 1994) (citing Johnson v. Zerbst,

304 U.S. 458, 464 (1938)). 

Below, we consider the scope of Berger’s waiver of his

right to be present during the court’s informal meeting with

the jury. We then discuss whether the constitutional error, if

any, was harmless beyond a reasonable doubt. 

B. Berger Did Not Waive His Right to Be Present During

the So-Called Allen Instruction 

The parties do not dispute that Berger knowingly, intelligently, and voluntarily waived his right to be present during

the judge’s informal communication with the jury. They do,

however, disagree as to the scope of his waiver. We agree

with Berger that he only waived his right to be present during

the court’s informal meeting with the jury, so long as the discussion involved the setting of future deliberation dates that

would not conflict with the child care, vacation, and travel

arrangements of some of the jurors. He did not waive his right

to be present during the administration of the so-called Allen

instruction. 

We narrowly construe Berger’s waiver and only read it to

include whatever Berger explicitly waived. See Gete v. INS,

121 F.3d 1285, 1293 (9th Cir. 1997) (“[A] waiver of constitutional right is not to be implied and is not lightly to be found.”

(internal quotations omitted)); see also Johnson, 304 U.S. at

UNITED STATES v. BERGER 733
464. Before accepting Berger’s waiver of his right to be present, the judge explained to the parties what he planned to say

to the jury at the informal meeting. The judge stated, “If there

had been any suggestions about an Allen instruction I want the

record to indicate that I do not believe in the Allen instruction,

I will not give it, never have given it.” When asked what he

was specifically planning to say, the judge narrowed his plan

to two specific points: first, he would “address the issue . . .

regarding the jury[’s] request for days off”; second, he would

“make certain that [he could] convey to them the thought that

a rush to judgment is probably the worst form of verdict you

could receive.” Berger expressly waived his “right to be present for the particular communication that [the court] anticipate[d] having with the jury.” 

[11] The record shows that the court intended to (1) discuss

the scheduling conflicts some of the jurors were having, and

(2) explain to the jurors that a rush to judgment would not be

appropriate. More importantly, the court emphatically stated

that it would not give an Allen instruction. Because Berger’s

waiver only encompassed the “particular communication” that

was “anticipated” by the district court, the waiver was

restricted to the court’s two planned topics of discussion. 

[12] The jurors’ comments, however, led the judge away

from his stated plan. Juror Roux stated that some jurors were

“dead set” on their verdicts. In response to that comment the

judge noted that “[i]t wouldn’t be wrong for you to reconsider

your position if you can be convinced that perhaps your position was not accurate, that it could be wrong.” Berger argues

that he did not waive his right to be present when that comment was uttered, which was, at worst, the mildest form of a

mild Allen instruction. See Mason, 658 F.2d at 1265 n.1 (“In

their mildest form, [Allen] instructions carry reminders of the

importance of securing a verdict and ask jurors to reconsider

potentially unreasonable positions.”). 

734 UNITED STATES v. BERGER
C. The Constitutional Error Was Harmless 

[13] A violation of a defendant’s due process right to be

present at critical stages of trial is subject to harmless error

analysis. See Frazin, 780 F.2d at 1469. Constitutional error is

harmless if a court concludes “beyond a reasonable doubt that

the error complained of did not contribute to the verdict

obtained.” Id. at 1469-70 (quoting Chapman v. California,

386 U.S. 18, 24 (1967)). As we have thoroughly discussed,

the portion of the judge’s comments that arguably exceeded

the scope of Berger’s waiver did not coerce the jury into

reaching a verdict. The comments were, at worst, the mildest

form of an Allen instruction. Further, the jury deliberated a

substantial amount of time — seven hours — after the comments at issue; and the jury did not reach unanimous verdicts

on all counts. All of the factors that we considered above

demonstrate that the district court’s statements were not coercive and did not affect the jury’s verdict. See RosalesRodriguez, 289 F.3d at 1111 (holding that district court’s

delivery of supplemental instruction without consulting parties was harmless error because “[t]he instruction . . . was not

coercive and did not cause the jury to rush to judgment”);

Frazin, 780 F.2d at 1469-71 (finding that the judge’s failure

to consult parties when responding to a jury note was harmless error because jury reached its own conclusion and “not as

the result of actual or perceived judicial pressure”). Moreover,

the defendants had an immediate opportunity to review the

transcript of the meeting. The same afternoon, the court provided an ameliorative corrective instruction. Looking at the

totality of the circumstances, we are convinced beyond a reasonable doubt that the jury’s verdict was not affected by any

part of the court’s informal meeting with the jurors and any

perceived error was harmless. Frazin, 780 F.2d at 1471. 

UNITED STATES v. BERGER 735
III. Materiality in Indictment Counts 34, 35, and 36 

A. Indictment Counts 34, 35, and 36 — The Materiality

Element 

Counts 34, 35, and 36 charged that, in three SEC filings,

Berger knowingly omitted material facts about Craig Electronics’ (1) fraudulent accounting practices, (2) default of the

Credit Agreement, and (3) overdrawn status on its line of

credit. 

At trial, the government gave notice of its intention to call

a victim investor and an SEC expert witness to testify about

the materiality of omissions in the SEC filings. Berger

objected on the ground that Kungys v. United States, 485 U.S.

759 (1988), required the government to prove that the false

statements were material to the SEC. Berger argued that the

investor had no relevant testimony concerning the effect of

the falsehoods on the SEC and that expert testimony on the

materiality of omissions would invade the province of the

jury. 

The government responded that Kungys governs false statements to government agencies was not controlling because the

relevant materiality standard in securities fraud cases is

whether a misrepresentation or omission would influence a

reasonable investor, not the SEC. The district court agreed but

concluded that under the reasonable investor standard, the

proposed testimony of the investor and of the SEC expert witness were unnecessary. 

In a motion for judgment of acquittal at the close of the

government’s case-in-chief, Berger asserted that there was

insufficient evidence that the falsehoods were material to the

SEC. Berger also contended that the indictment charged that

the false statements were material to the lending banks, not to

individual investors. In a post-verdict motion for judgment of

acquittal, Berger repeated these claims and also argued that

736 UNITED STATES v. BERGER
there was a fatal variance between the indictment — which

alleged that the false statements were material to the lending

banks — and the proof — which established that the false

statements were material to reasonable investors. The court

denied both motions. 

B. Standard of Review 

The materiality standard to be applied is a question of law

reviewed de novo. See, e.g., United States v. Rosenthal, 445

F.3d 1239, 1244 (9th Cir. 2006). The sufficiency of an indictment is reviewed de novo. See United States v. PernilloFuentes, 252 F.3d 1030, 1032 (9th Cir. 2001). 

C. Counts 35 and 36 — Materiality Under Section 32(a)

of the Securities Exchange Act of 1934 Assessed from

the Reasonable Investor’s Perspective 

[14] Counts 35 and 36 of the indictment alleged that Berger

made material omissions in mandatory filings with the SEC,

in violation of section 13(a) of the Securities Exchange Act of

1934 (“1934 Act”), 15 U.S.C. § 78m(a), and section 32(a) of

the 1934 Act, 15 U.S.C. § 78ff(a).3 Section 13(a) is a mandatory filing provision, that requires certain companies to file

with the SEC “information and documents . . . as the Commission shall require to keep reasonably current the information and documents required to be included in or filed with an

application or registration statement” as well as “annual

reports . . . and . . . quarterly reports.” 15 U.S.C. § 78m(a)(1)-

(2). Section 32(a) provides criminal penalties for “any person

who willfully and knowingly makes . . . any statement in any

application, report, or document required to be filed under this

3We refer to the relevant statutory provisions according to their Sections

under the 1934 Act, rather than the United States Code section. In other

words, we refer to Section 13(a) for 15 U.S.C. § 78m(a), Section 32(a) for

15 U.S.C. § 78ff(a), Section 14(a) for 15 U.S.C. § 78n(a), and Section

10(b) for 15 U.S.C. § 78j(b). 

UNITED STATES v. BERGER 737
chapter or any rule or regulation thereunder . . . which statement was false or misleading with respect to any material fact

. . . .” 15 U.S.C. § 78ff(a) (emphasis added). 

Berger contends that when applying section 32(a), courts

should assess materiality from the perspective of the SEC.

Berger primarily bases his argument on Kungys v. United

States, 485 U.S. 759 (1988). In Kungys, the Supreme Court

interpreted a statute that penalized the “concealment of a

material fact” from the Immigration and Naturalization Service. Id. at 767-72. The Supreme Court looked to the federal

courts of appeals, which had a “uniform understanding” of

“materiality” under a similar statute, 18 U.S.C. § 1001.

Kungys, 485 U.S. at 769-70. Section 1001 is a general statute

that criminalizes acts of material misrepresentation in “any

matter within the jurisdiction of the executive, legislative or

judicial branch of the Government of the United States.” 18

U.S.C. § 1001. The courts of appeals had, in § 1001 cases,

assessed materiality from the perspective of the government

agency. See Kungys, 485 U.S. at 769-70. The Supreme Court

agreed with that interpretation and held that a false statement

made to a government agency is “material” if it “has a natural

tendency to influence, or was capable of influencing, the decision of the decisionmaking body to which it was addressed.”

Id. at 770 (internal quotations omitted). 

Berger identifies cases that apply the Kungys materiality

standard to a number of different agencies, including the

Environmental Protection Agency, see United States v. Self,

2 F.3d 1071, 1083-84 (10th Cir. 1993), and the Food and

Drug Administration, see United States v. Diaz, 690 F.2d

1352, 1357 (11th Cir. 1982). Each of those cases dealt with

the materiality of false statements made in the context of specific agency decisions. See, e.g., Self, 2 F.3d at 1084 (noting

false statements “had a tendency to forestall any regulatory

agency investigation”); Diaz, 690 F.2d at 1358 (explaining

that false records could “impair the FDA in carrying out its

responsibility for protection of the public health”). Berger

738 UNITED STATES v. BERGER
contends that the SEC, as a regulatory body, makes decisions

based on the information contained in a company’s mandatory

filings. Thus, Berger argues that the materiality of false statements made to the SEC under section 32(a) must also be

assessed not from the reasonable investor’s perspective, but

from the SEC’s perspective, in the context of its own regulatory decisions. 

[15] We disagree with Berger. The purpose of the 1934 Act

was to benefit and protect investors, with proper agency decisionmaking as a secondary concern. “The 1934 Act was

designed to protect investors against manipulation of stock

prices.” Basic Inc. v. Levinson, 485 U.S. 224, 230 (1988) (citing S. Rep. No. 73-792, at 1-5 (1934)). Furthermore, the

Court “repeatedly has described the ‘fundamental purpose’ of

the Act as implementing a ‘philosophy of full disclosure.’ ”

Id. (quoting Santa Fe Indus., Inc. v. Green, 430 U.S. 462,

477-78 (1977)). Accordingly, the Supreme Court has established a specific materiality standard to be used when assessing fraudulent statements filed with the SEC. In TSC

Industries, Inc. v. Northway, Inc., 426 U.S. 438 (1976), the

Supreme Court explained in the proxy-solicitation context

that “[a]n omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote.” Id. at 449. In formulating that

standard, the Court noted the broad remedial purpose of Rule

14a-9 of the 1934 Act:

That purpose is not merely to ensure by judicial

means that the transaction, when judged by its real

terms, is fair and otherwise adequate, but to ensure

disclosures by corporate management in order to

enable the shareholders to make an informed choice.

TSC Indus., 426 U.S. at 448. Thus, the Court held that under

section 14(a) and Rule 14a-9, materiality should be assessed,

not from the SEC’s perspective, but from the investor’s perspective. See id. at 449. The Court later expanded the reach

UNITED STATES v. BERGER 739
of the TSC Industries materiality standard to section 10(b) and

Rule 10b-5, which prohibit fraud in connection with the purchase or sale of securities. See Basic Inc., 485 U.S. at 231-32;

see also United States v. Tarallo, 380 F.3d 1174, 1182 (9th

Cir. 2004) (assessing materiality under Section 10(b) from

reasonable investor’s perspective). 

[16] Applying the “reasonable investor” materiality standard to Section 32(a) is consistent with the goals of the SEC.

As amicus curiae, the SEC noted that the agency itself commences actions on filings it considers materially misleading to

investors. Cf. Touche Ross & Co. v. Redington, 442 U.S. 560,

570 (1979) (“The information contained in the [mandatory]

reports is intended to provide the [SEC], [the New York Stock

Exchange], and other authorities with a sufficiently early

warning to enable them to take appropriate action to protect

investors . . . .”). In addition to being a regulatory body, the

SEC acts as a repository of information intended to be disseminated to and used by the public. See United States v.

Bilzerian, 926 F.2d 1285, 1301 (2d Cir. 1991) (“The securities laws are designed to make accurate information available

to the investing public . . . .”). The mandatory filings at issue

in this case, for example, were meant for investors’ use. Craig

Electronics’ Form 10-K and Form 10-Q, which were periodic

reports, were filed under Section 13(a) “as necessary or

appropriate for the proper protection of investors and to insure

fair dealing in the security.” 15 U.S.C. § 78m(a). Furthermore, Congress has explained the purpose of the mandatory

reporting provisions of the 1934 Act: 

It is anticipated that the information filed by a corporation [under the 1934 Act] will be so complete as to

present to the stockholder, or the prospective stockholder, a picture of the corporation’s financial condition which will enable him intelligently to evaluate

its securities. . . . The reporting provisions of the act

will fill a long-felt need by aiding the exchanges to

secure proper information for the investor. 

740 UNITED STATES v. BERGER
S. Rep. No. 73-1455, at 74 (1934) (emphasis added). It is

clear that the reporting requirements under the 1934 Act are

intended to protect investors, and that materiality should be

assessed from the reasonable investor’s perspective. 

The SEC concedes that the mandatory filings here satisfy

a related but separate purpose specific to the agency — the

SEC reviews the documents to determine whether to investigate a particular transaction. False filings that relate to specific agency decisions, however, are criminalized by a

separate statute, 18 U.S.C. § 1001. Indeed, in Bilzerian, the

Second Circuit held that the government can institute two separate counts against an individual for the same false filing. In

that case a false filing could be charged under both (1) section

10(b), the 1934 Act provision relating to the purchase or sale

of securities, and (2) § 1001, the general statute criminalizing

false statements made to government agencies. See Bilzerian,

926 F.2d at 1299-1301 (“The securities laws are designed to

make accurate information available to the investing public;

the SEC’s authority to regulate disclosure required under

those laws brings the securities filings at issue within its jurisdiction for purposes of § 1001.”). 

Here, the government could have charged Berger with

making false statements that related to the SEC’s regulatory

decisionmaking under § 1001 in addition to charging him

with filing false statements that were material to investors

under Section 32(a).4 As to the hypothetical § 1001 charge,

the Kungys case’s interpretation of materiality — examining

4Berger contends that Congress already has provisions such as Sections

10(b) and 14(a) in place to protect investors from false statements. He

implies that interpreting Section 32(a) as we do today would be duplicative of those provisions. This is inconsequential, however, because “when

an act violates more than one criminal statute, the Government may prosecute[ ] under either so long as it does not discriminate against any class

of defendants.” United States v. Batchelder, 442 U.S. 114, 123-24 (1979);

see also United States v. Pope, 189 F. Supp. 12, 21-22 (S.D.N.Y. 1960)

(holding permissible charges under both Section 14(a) and Section 32(a)).

UNITED STATES v. BERGER 741
the misstatement’s ability to influence the SEC’s decisionmaking — would be appropriate. However, under Section

32(a), which was promulgated under an act specifically

intended to benefit the investing public, misstated or omitted

facts should be evaluated for materiality as to those investors.

Finally, Berger argues that “materiality must be assessed in

the context of a decision.” He points to Sections 10(b) and

14(a) for comparison. In the Section 10(b) context, courts

assess materiality by examining a fact’s potential to influence

an investor’s particular decision — the decision to buy or sell

a security. See Ganino v. Citizens Utils. Co., 228 F.3d 154,

161 (2d Cir. 2000). Similarly, in Section 14(a), the false statement must have a tendency to influence a decision — how an

investor will vote. See TSC Indus., 426 U.S. at 449. Section

32(a), however, only criminalizes the filing of false information and does not expressly implicate any specific type of

investment decision. Thus, Berger argues that the materiality

standard we adopt today is “unworkable and incoherent.” 

We disagree. In Sections 10(b) and 14(a), affected investment decisions — the decision to buy or sell shares and the

decision to vote a particular way — are enumerated as elements of the statutes. The language of Section 32(a) is distinct; it criminalizes the mere filing of a material false

statement without requiring that the statement affect a particular investment decision. It thus appears that Congress

intended Section 32(a) to act as a catch-all provision to punish

those who file a false statement, whether or not the filing can

be shown to affect a specific investment decision, as long as

the false statement could affect a reasonable investor. See

Pope, 189 F. Supp. at 21 (“Section 32(a) is a catch all provision . . . .”). 

[17] We recognize the materiality standard set forth in TSC

Industries as the materiality standard for Section 32(a) of the

1934 Act. Materiality must be assessed from the perspective

742 UNITED STATES v. BERGER
of the reasonable investor. Accordingly, we affirm the district

court’s interpretation of Section 32(a). 

D. Materiality Element in Count 34 Under the Securities

Act of 1933 

1. Berger’s Conviction Under Count 34 May Not Be

Reversed for an Error in Citation 

[18] In Berger’s reply brief, he contends that his conviction

on Count 34 must be reversed.5 Count 34 alleged that Berger

violated Section 32(a) when he filed false statements on Craig

Electronics’ Amended S-1 Registration Statement. Berger

points out that Section 32(a) applies to false statements made

on any application, report, or document filed under the 1934

Act. See 15 U.S.C. § 78ff. S-1 Registration Statements, however, are required under the Securities Act of 1933 (“1933

Act”), 15 U.S.C. §§ 77a-77bbbb, not the 1934 Act. See Section 6, 1933 Act, 15 U.S.C. § 77f; see also FORM S-1 Registration Statement Under the Securities Act of 1933, available

at http://www.sec.gov/about/forms/forms-1.pdf (“This Form

shall be used for the registration under the Securities Act of

1933 . . . .”). Thus, Berger argues that the government did not

prove an essential element of Section 32(a) — that he made

a materially false statement on an application, report, or document required under the 1934 Act — and accordingly, that his

conviction under Count 34 must be reversed. 

5Berger did not raise this issue in his opening brief. “Generally, an issue

is waived when the appellant does not specifically and distinctly argue the

issue in his or her opening brief.” United States v. Kama, 394 F.3d 1236,

1238 (9th Cir. 2005). Nevertheless, we have the discretion to review issues

not previously raised if “the issue presented is purely one of law and either

does not depend on the factual record developed below, or the pertinent

record has been fully developed.” Pfingston v. Ronan Eng’g Co., 284 F.3d

999, 1004 (9th Cir. 2002). Because this is a pure question of law and the

relevant record has been fully developed, we exercise our discretion to

consider this issue. 

UNITED STATES v. BERGER 743
[19] We begin by noting that the government could have

properly charged Berger with making a materially false statement on an S-1 Registration Statement under Section 24 of

the 1933 Act, 15 U.S.C. § 77x. Section 24 of the 1933 Act

criminalizes the filing of materially false statements made on

a registration statement filed under the 1933 Act. See 15

U.S.C. § 77x. Thus, both Section 24 of the 1933 Act and Section 32(a) of the 1934 Act criminalize the filing of material

false statements on documents required under their respective

acts. 

[20] Berger does not contest that Section 24 of the 1933

Act criminalizes the conduct alleged in Count 34. Accordingly, the error alleged by Berger here is one of improper statutory citation, rather than one of substantive error in the

indictment. Such an error is not a proper basis for reversal. 

The Federal Rules of Criminal Procedure counsel that

“[u]nless the defendant was misled and thereby prejudiced,

neither an error in a citation nor a citation’s omission is a

ground to dismiss the indictment or information or to reverse

a conviction.” Fed. R. Crim. P. 7(c)(3). Here, the language of

the indictment clearly constitutes a satisfactory enumeration

of the elements of Section 24 of the 1933 Act. Accordingly,

Berger was not “misled to his prejudice,” nor did “defects or

irregularities in the indictment affect[ his] substantial rights.”

Hockenberry v. United States, 422 F.2d 171, 174 (9th Cir.

1970). We hold that Count 34 here “describes the activities

forming the basis of the charge [under Section 24 of the 1933

Act] with sufficient particularity to assure that the Grand Jury

deliberated on the elements of the crime.” Echavarria-Olarte

v. Reno, 35 F.3d 395, 398 (9th Cir. 1994). Because the defect

here was one of form, rather than substance, we decline to

reverse his conviction because of the citation error in the

indictment. See id. at 399; United States v. Fekri, 650 F.2d

1044, 1046 (9th Cir. 1981) (“When there has been no preju744 UNITED STATES v. BERGER
dice and the error is merely an error in the citation, reversal

is not required.”).6

2. Materiality Under Section 24 of the Securities Act of

1933 Assessed from the Reasonable Investor’s

Perspective 

Because we hold that Berger was properly convicted under

Section 24 of the 1933 Act, we next consider the proper materiality standard applicable to that provision. We have already

determined that under Section 32(a) of the 1934 Act, materiality must be assessed from the perspective of the reasonable

investor. For similar reasons, we hold that materiality under

Section 24 of the 1933 Act must also be assessed from the

reasonable investor’s perspective. 

We acknowledge the subtle differences in the purposes of

the 1933 and 1934 Acts. The Supreme Court has recognized

that “[t]he essential purpose of the [1933 Act] is to protect

investors by requiring publication of certain information concerning securities before offered for sale.” A.C. Frost & Co.

v. Coeur D’Alene Mines Corp., 312 U.S. 38, 40 (1941)

(emphasis added). This purpose is slightly different from the

purpose of the 1934 Act, which applies to post-distribution

securities exchanges. See Reader v. Hirsch & Co., 197 F.

Supp. 111, 114 (S.D.N.Y. 1961) (“The Securities Exchange

Act of 1934 does not overlap the 1933 Act, but rather supplements it, i.e., it deals with post distribution trading.”). 

6A person convicted under Section 24 of the 1933 Act may be fined up

to $10,000 and imprisoned up to five years. See 15 U.S.C. § 77x. A person

convicted under Section 32(a) of the 1934 Act faces potentially harsher

penalties: up to $5,000,000 in fines and up to twenty years imprisonment.

See 15 U.S.C. § 78ff. As discussed below, we remand this case for resentencing. One should be mindful of the relevant statutory maximum penalties under Section 24 of the 1933 Act when considering the appropriate

sentence for Berger pursuant to his conviction under Count 34. See, e.g.,

Hockenberry, 422 F.2d at 174. 

UNITED STATES v. BERGER 745
[21] Nevertheless, as with the 1934 Act, Congress was primarily concerned with protecting the investing public when it

passed the 1933 Act. In Ernst & Ernst v. Hochfelder, 425 U.S.

185 (1976), the Supreme Court noted: “The Securities Act of

1933 . . . was designed to provide investors with full disclosure of material information concerning public offerings of

securities in commerce, to protect investors against fraud and,

through the imposition of specified civil liabilities, to promote

ethical standards of honesty and fair dealings.” Id. at 195 (citing H.R. Rep. No. 73-85, at 1-5 (1933)) (emphasis added); see

also SEC v. Ralston Purina Co., 346 U.S. 119, 124 (1953)

(“The design of the [1933 Act] is to protect investors by promoting full disclosure of information thought necessary to

informed investment decisions.”). Furthermore, this court has

recognized that “the purpose of the [1933 Act] is to compel

full and fair disclosure in the issuance of securities so that

investors will be adequately protected.” United States v. Carman, 577 F.2d 556, 564 (9th Cir. 1978) (emphasis added). 

[22] Our above discussion of the 1934 Act also applies to

our interpretation of the 1933 Act. Both acts are primarily

designed to protect investors: the 1934 Act protects investors

with respect to post-distribution trading, and the 1933 Act

protects investors at the time of issuance. It makes sense that

in the penalty provisions of both acts, the materiality of a misstatement must be assessed from the reasonable investor’s

perspective. As we stated above, the claim that an individual

made a materially false statement that affected the SEC in its

regulatory decisionmaking capacity is more appropriately

charged as a violation of 18 U.S.C. § 1001.7 Accordingly, we

apply the materiality standard set forth in TSC Industries as

the materiality standard for Section 24 of the 1933 Act. 

7The SEC itself “is charged with the duty of enforcing the [1933 Act]

in the ‘public interest.’ ” Berko v. SEC, 316 F.2d 137, 141 (2d Cir. 1963).

746 UNITED STATES v. BERGER
E. The Government’s Indictment Charged the Materiality

Element with Sufficient Particularity 

Berger next asserts that even if we address materiality from

the perspective of a reasonable investor, the indictment failed

to allege that the fraudulent statements were material to investors. Berger argues that the government only charged that the

fraudulent statements were material to the lending banks from

which the loans were obtained. Thus, Berger maintains, when

the government introduced evidence pertaining to the statements’ effect on investors, that was a fatal variance requiring

reversal. 

[23] Federal Rule of Criminal Procedure 7(c)(1) requires

that an indictment be a “plain, concise and definite written

statement of the essential facts constituting the offense

charged.” This court has said that an indictment “should be

read in its entirety, construed according to common sense, and

interpreted to include facts which are necessarily implied.”

United States v. King, 200 F.3d 1207, 1217 (9th Cir. 1999).

Finally, if an indictment contains an error, there must be some

evidence that the error misled the defendant to the defendant’s

prejudice. See id. (citing Fed. R. Crim. P. 7(c)(3)). 

The structures of Counts 34, 35, and 36 are similar. Each

count first indicates the SEC filings on which the fraudulent

statement was made: Craig Electronics’ Amended S-1 Registration Statement, Amended 1996 10-K Report, and First

Quarter 1997 10-Q Report. The indictments then detail Berger’s misrepresentations and omissions: (1) “the fraudulent

transfers of ‘C’ inventory to ‘B’ inventory . . .”, (2) that

“Craig was in default of the Credit Agreement because of the

false statements it had made to Bankers Trust in the Borrowing Base Certificates”, and (3) that “Craig was substantially

overdrawn on its line of credit.” All three counts conclude

with the final paragraph:

These omissions were material in that they would

have created serious doubt about whether Craig

UNITED STATES v. BERGER 747
could continue to operate as a going concern because

disclosure of these facts would have alerted the lending banks to the fraud, and because Craig’s cash

flow and ability to finance inventory purchases

depended upon its ability to draw upon its line of

credit with the lending banks. 

[24] The question before us is whether materiality to investors could be inferred from the indictment. We believe that

although the indictment did not allege to whom the misstatements were material, such lack of specificity was not fatal in

this case. 

It is self-evident that “the materiality [to the reasonable

investor] of information relating to financial condition, solvency and profitability is not subject to serious challenge.”

SEC v. Murphy, 626 F.2d 633, 653 (9th Cir. 1980). In this

case, we find it beyond dispute that, before making reasonable

investment decisions, a reasonable investor would consider

Craig Electronics’ “cash flow and ability to finance inventory

purchases” to be material information. 

Furthermore, that the indictment alleged materiality to

investors was evident from the face of the indictment. “It is

well settled, at least in this circuit, that an indictment need not

allege the materiality of a false representation if the facts

advanced by the pleader warrant the inference of materiality.”

United States v. Oren, 893 F.2d 1057, 1063 (9th Cir. 1990).

In Oren, this court upheld an indictment in a § 1001 case

involving the National Park Service. See id. at 1063. Though

the indictment did not specifically mention materiality, the

indictment indicated that: (1) Oren had made a false statement

regarding an offer for land; (2) the statement was within the

jurisdiction of the Park Service, which would only purchase

through a specific third-party nonprofit agency; (3) the Park

Service would purchase land only if it had an appraisal; and

(4) Oren had given his false statement to the third party. See

id. at 1064. This court held that “[s]urely these allegations

748 UNITED STATES v. BERGER
warrant the inference of materiality of Oren’s false statement.” Id. (internal quotations omitted). 

[25] Likewise, here, the indictment detailed the misstatements filed by Berger, each of which could have been relied

upon by a reasonable investor. The S-1, 10-K, and 10-Q filings submitted to the SEC were documents upon which reasonable investors would base investment decisions. Because

the indictment alleged material misstatements and omissions

contained in documents upon which investors would rely, we

hold that the indictment was sufficiently detailed to warrant

the inference of materiality to investors. 

IV. Restitution 

A. Standard of Review 

A court has broad discretion in ordering restitution. See

United States v. Laney, 189 F.3d 954, 966 (9th Cir. 1999). A

restitution order is reviewed for abuse of discretion, provided

it is within the bounds of the statutory framework. See United

States v. Phillips, 367 F.3d 846, 854 (9th Cir. 2004). The

court’s valuation methodology is reviewed de novo. See

United States v. Lomow, 266 F.3d 1013, 1020 (9th Cir. 2001).

The factual findings supporting a restitution order are

reviewed for clear error. See United States v. De La Fuente,

353 F.3d 766, 772 (9th Cir. 2003). 

B. The District Court Properly Calculated Restitution

Neither party disputes the district court’s conclusion that

restitution in this case is governed by the Mandatory Victims

Restitution Act of 1996 (“MVRA”), 18 U.S.C. § 3663A. Each

party submitted various proposals to the district court regarding the restitution calculation. The court adopted one of the

government’s proposals, and ordered Berger to pay

$3,144,832 in restitution to the lending banks. Under this

approach, the court first considered thirteen falsified BorrowUNITED STATES v. BERGER 749
ing Certificates, including eleven that were not charged in the

underlying indictment. Based on those falsified Borrowing

Certificates, the lending banks had advanced Craig Electronics $4,976,000. The court discounted that total by the percentage of funds recovered by the lending banks when they

foreclosed on Craig Electronics’ collateral — the lending

banks recovered $4,944,1808 of an outstanding $13,331,403

— or 36.2%. Thus, according to the district court, the lending

banks’ loss attributable to the false information was

$3,144,832, or 63.8% of $4,976,000. 

On appeal, Berger reasserts the position he took before the

district court, that the lending banks suffered no losses traceable to the fraud. We disagree and affirm the district court’s

restitution calculation. 

1. Berger’s fraud directly and proximately caused the

lending banks’ losses 

[26] The MVRA requires a defendant to pay restitution to

a victim who is “directly and proximately harmed as a result

of” the fraud. 18 U.S.C. § 3663A(a)(2). Berger argues that the

thirteen Borrowing Certificates at issue did not cause any of

the losses the lending banks suffered when Craig Electronics

defaulted on its loan. We conclude, however, that the district

court did not commit clear error when it determined that the

fraudulent Borrowing Certificates caused at least some of the

losses suffered by the lending banks. 

a. The district court did not err when it interpreted

the Credit Agreement 

Berger’s main contention is that the district court improperly attributed $3.1 million of the lending banks’ loss to the

8

It is only by coincidence that the amount advanced by the lending

banks on the fraudulent Borrowing Certificates, $4,976,000, is similar to

the amount recovered by the lending banks, $4,944,180. 

750 UNITED STATES v. BERGER
fraudulent Borrowing Certificates submitted by Craig Electronics. Berger bases this contention on the structure of the

Credit Agreement, which both parties recognize as a “revolving” line of credit. Under the Credit Agreement, the amount

of money Craig Electronics was able to borrow on any given

day was determined by the amount of eligible inventory and

accounts receivable Craig Electronics had on that day. To

maintain the agreement, Craig Electronics would continuously: (1) borrow money from the lending banks based on the

Borrowing Certificates, (2) purchase goods overseas with the

money, (3) sell the goods in the United States, and (4) use the

proceeds from the sales to pay off the loan. 

The thirteen Borrowing Certificates at issue were submitted

to the lending banks between April 30, 1996 and January 6,

1997. Craig Electronics defaulted on the loan on May 21,

1997. Berger argues that because of the revolving cycle, by

the time the lending banks foreclosed on the loan, any effect

the fraudulent Borrowing Certificates had on the amount of

the loan was reduced to nothing. He notes that the equivalent

of each loan advancement was paid off about sixty days after

each loan advancement was made. Thus, he argues that Craig

Electronics paid off the balance of each “tainted” loan

advancement long before Craig Electronics defaulted. Berger

contends that because Craig Electronics had stopped submitting falsified Borrowing Certificates in early January 1997 —

while continuing to submit truthful Borrowing Certificates

and paying back money for the remainder of the loan’s life —

no bank loss could be attributed to the fraudulent Borrowing

Certificates. 

The government maintains that the district court’s approach

was proper. The government’s accountant explained that the

Credit Agreement was better understood if the Borrowing

Certificates were analyzed together: “[E]ach borrowing base

certificate reported an aggregate amount of Craig’s outstanding loan; each day’s advance was added to this aggregate

amount; and the amounts collected from Craig’s accounts

UNITED STATES v. BERGER 751
receivables in the ‘lock box’ were applied to the outstanding

loan.” Under this interpretation, the court could not consider

any loan advancement fully paid back “until the aggregate

outstanding amount equaled zero.” Thus, because Craig Electronics never paid back the full balance of the loan, the

remaining outstanding debt included some loan advancements

that had been “tainted” by the false statements. 

[27] On this record, we conclude that the government’s

interpretation, adopted by the district court, is more reasonable. By overstating the assets and accounts receivable in thirteen Borrowing Certificates, Craig Electronics received loan

advancements greater than that to which it was entitled. Thus,

the amount of the outstanding debt at the time of Craig Electronics’ default was greater than it would have been had the

false statements never been made. Accordingly, we hold that

the district court did not err when it viewed the Credit Agreement in its broader structure, rather than as smaller component cycles.9

b. Craig Electronics’ false statements significantly

affected the lending banks’ loans 

Berger also takes issue with the district court’s decision

regarding the effect each false statement had on the final loan

amount. For each of the thirteen days Craig Electronics sub9The government makes an insightful point: 

If defendant’s analysis were correct and repayments of advances

had to be computed against individual [Borrowing Certificates]

rather than against the total balance of loans outstanding, then

misstatements of collateral in revolving lines of credit would

always result in no loss for restitution purposes, as long as the

false statements at issue were made long enough before the fraud

was uncovered. 

It would be unwise to interpret the Credit Agreement in a way that would

reward Berger for the lending banks’ failure to uncover the fraud until

months after the fraud had been perpetrated. 

752 UNITED STATES v. BERGER
mitted a false Borrowing Certificate, the court added the

entire amount of that day’s loan advancement to the final “net

loss attributed to fraud” figure. Berger asserts that such a calculation was erroneous because the court failed to correlate

specifically a loss amount with each fraudulent statement

made on the Borrowing Certificates at issue. Berger poses the

hypothetical that if he “misreported one $50 VCR on a [Borrowing Certificate] requesting a $5 million advance and the

loan goes into default the following year, [he] cannot be

ordered to repay the $5 million as ‘restitution’ simply because

he made a $50 false statement.” 

[28] Berger overstates his case. Nowhere in the record did

such an extreme situation arise. Each overstatement on the

Borrowing Certificates had a substantial impact on the overall

loan amount. In fact, during some weeks, Craig Electronics

would not have been eligible for any loan advancements had

Berger not overstated Craig Electronics’ assets. For example,

in the April 30, 1996, Borrowing Certificate, Berger improperly classified $392,191 worth of “C” goods as “B” goods,

bringing the eligible “B” inventory to $1,508,725.89, a 35%

overstatement of inventory. Craig Electronics’ loan advancement for that week was $585,000. Had Craig Electronics

truthfully reported its assets for that week, Craig Electronics

would have been ineligible to receive any loan advancements.

Moreover, Berger fails to provide any alternative method for

separating the amount of the loan advancement obtained by

fraud from the amount that, hypothetically, was not fraudulently obtained. We hold that the district court did not err by

holding that Berger’s fraud contributed significantly to the

losses suffered by the lending banks. 

c. Berger’s supporting case law is inapposite 

Berger relies on a number of cases that deal with false

statements made during the course of the loan as opposed to

the initial loan application. Those cases hold that restitution

is not appropriate if the losses “would have occurred despite

UNITED STATES v. BERGER 753
the . . . reliance on the false reports.” United States v. Diamond, 969 F.2d 961, 967 (10th Cir. 1992); see also United

States v. Meksian, 170 F.3d 1260, 1263 (9th Cir. 1999)

(“[T]he main inquiry for causation in restitution cases

becomes whether there was an intervening cause and, if so,

whether this intervening cause was directly related to the

offense conduct.”); United States v. Wilson, 980 F.2d 259,

262 (4th Cir. 1992) (“[I]n the event a bank loan legitimately

is obtained by one who subsequently submits a statement that

is required in connection with the loan and that statement is

false . . . , the loss under [the Sentencing Guidelines] is the

loss that can be attributed to the false statement.”). In each of

these cases, courts held restitution to be inappropriate because

the defendant’s fraud had been unrelated to the loss. See Meksian, 170 F.3d at 1263 (holding “contaminated nature of the

loan property” to have caused loss, not defendant’s false statements); Diamond, 969 F.2d at 966-67 (noting that where loan

was initially valid, but subsequent false statements were

made, false statements did not actually cause loss); see also

Wilson, 980 F.2d at 262 (remanding for reconsideration of

amount of loss directly caused by fraud). 

These cases are factually distinct from this case. In Meksian, an unanticipated intervening environmental cause, rather

than the alleged fraud, was to blame for the loss. See Meksian,

170 F.3d at 1263. In Diamond, the fraud occurred after the

loan and was, more importantly, separate from the “original

debt.” Diamond, 969 F.2d at 966. Finally, in Wilson, the

losses began soon after the loan was made and those losses

“were not related . . . to the criminal conduct,” which

occurred seven months after the loans were made. Wilson,

980 F.2d at 262. 

Most importantly, each of these cases dealt only with a single decision by a lender to lend a fixed amount of money. The

instant case is more complex, and the structure of the loan

calls for closer scrutiny. Craig Electronics’ loan amount was

in constant flux, varying with respect to the inventories and

754 UNITED STATES v. BERGER
accounts receivables reported in the Borrowing Certificates.

The information in the Borrowing Certificates was vital;

fraudulent overstatement would, and did, cause the lending

banks to advance more money than was actually due. Berger’s

citation to inapposite case law is unconvincing. 

d. Intervening factors did not cause the lending

banks’ losses 

Finally, Berger asserts that unrelated financial difficulties

— not the falsified Borrowing Certificates — caused the

loan’s failure. Berger argues that the downturn in the electronics market and Craig Electronics’ financial troubles were the

reason that Craig Electronics could no longer pay off its loan

obligations. This court has held that the “main inquiry for

causation in restitution cases [is] whether there was an intervening cause and, if so, whether this intervening cause was

directly related to the offense conduct.” United States v. Gordon, 393 F.3d 1044, 1055 (9th Cir. 2004). Berger is probably

correct to note that Craig Electronics’ financial troubles ultimately led to the loan default. He has not demonstrated, however, that external factors were completely to blame for the

lending banks’ losses. Even if the default were inevitable, the

high amount of the lending banks’ losses was not. Had Berger

not fraudulently stated Craig Electronics’ assets on the Borrowing Certificates, the amount of outstanding debt would

have been smaller. That fact was taken into account by the

district court, which did not attribute the lending banks’ entire

loss to the fraud. Instead, the district court properly focused

only on the amount of loss attributable to the falsified Borrowing Certificates. 

For the above reasons, we conclude that it was not clearly

erroneous for the district court to determine that Berger’s

fraudulent statements caused, at least in part, the lending

banks to suffer a loss. 

UNITED STATES v. BERGER 755
2. The district court’s approach was reasonable even if

it used a repealed Sentencing Guideline 

Berger also argues that the district court erred when it

applied a repealed Sentencing Guideline — Sentencing

Guideline § 2F1.1, comment 7(b)10 — in determining the

amount of restitution. That Guideline, repealed in 2001, dealt

specifically with fraudulent loan applications and the calculations of corresponding loss. See U.S.S.G. § 2F1.1 cmt.7(b)

(repealed). The district court, however, did not indicate that

it was bound by the Guideline. In fact, the court explicitly

stated that it was bound by the MVRA with respect to the

imposition of restitution. The court only referenced the

Guideline, which provided a method for fashioning a loss calculation in the restitution context. The district court did not

abuse its discretion when it consulted the repealed Guideline

section. 

[29] The district court’s restitution calculation method was,

in light of the circumstances, quite reasonable and fair. In calculating the $3.1 million restitution award, the district court

devised a reasonable formula for determining the amount of

the lending banks’ loss that was attributable to the fraud. The

district court did not order restitution for the entire $13.3 million of the lending banks’ losses. Instead, it based its restitution calculation only on the amount of the loan advancements

received due to fraudulent Borrowing Certificates. Even then,

the district court discounted by the percentage the lending

10The Guideline states, in relevant part: 

In fraudulent loan application cases . . . the loss is the actual loss

to the victim . . . . For example, if a defendant fraudulently

obtains a loan by misrepresenting the value of his assets, the loss

is the amount of the loan not repaid at the time the offense is discovered, reduced by the amount the lending institution has recovered (or can expect to recover) from any assets pledged to secure

the loan. 

U.S.S.G. § 2F1.1 cmt.7(b) (repealed). 

756 UNITED STATES v. BERGER
banks recovered when they foreclosed on Craig Electronics’

collateral. To achieve the goal of making crime victims

whole, the MVRA permits “district courts to engage in an

expedient and reasonable restitution process, with uncertainties resolved with a view toward achieving fairness to the victim.” Gordon, 393 F.3d at 1048. We hold that, in light of the

MVRA’s goals and the complexities of the Credit Agreement,

the district court did not abuse its discretion in its restitution

order. 

V. Government’s Sentencing Cross-Appeal 

[30] The government cross-appeals Berger’s six month sentence and requests a remand under United States v. Booker,

543 U.S. 220 (2005).11 Sentencing in this case occurred on

September 13, 2004, before the Supreme Court issued the

Booker decision, which rendered the Sentencing Guidelines

advisory. The district court erroneously assumed that, under

Blakely v. Washington, 542 U.S. 296 (2004), it could not

apply Guideline sentencing enhancements based on facts not

previously found by the jury. See Booker, 543 U.S. at 267-68.

Additionally, the district court sentenced Berger under the

assumption that the Sentencing Guidelines were mandatory.

Accordingly, we must vacate the sentence and remand for

resentencing. See United States v. Labrada-Bustamante, 428

F.3d 1252, 1266 (9th Cir. 2005).12

11The remand would not apply to the restitution order, which derives

from the MVRA, a separate statute. See United States v. DeGeorge, 380

F.3d 1203, 1221 (9th Cir. 2004). 

12Both parties agree that we should remand for full reconsideration of

the fine imposed. In light of our full remand as to the term of imprisonment, we find it appropriate to vacate the fine and remand for the district

court to consider the statutory factors enumerated in 18 U.S.C. § 3553(a)

and the Sentencing Guideline factors listed in U.S.S.G. § 5E1.2(d). 

UNITED STATES v. BERGER 757
CONCLUSION

For the above reasons, we AFFIRM the conviction;

AFFIRM the restitution order; VACATE the sentence and

fine; and REMAND for resentencing. 

758 UNITED STATES v. BERGER