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. e du/thir dc ir c uit_1999/284Filed October 15, 1999

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

NOS. 98-1102 and 98-1146

UNITED STATES OF AMERICA Appellant in No. 98-1146

v.

DAVID REX YEAMAN Appellant in No. 98-1102

On Appeal From the United States District Court For the Eastern District of Pennsylvania (D.C. Crim. Action No. 96-cr-00051-3) District Judge: Honorable Clarence C. Newcomer

Argued July 30, 1999

BEFORE: SLOVITER, NYGAARD and STAPLETON, Circuit Judges

(Opinion Filed: October 15, 1999)

Frank C. Razzano (Argued) Eric A. Bensky Dickstein, Shapiro, Morin & Oshinsky 2101 L Street, N.W. Washington, D.C. 20037 Attorneys for David Yeaman Appellant in No. 98-1102Michael R. Stiles

U.S. Attorney Walter S. Batty, Jr. Assistant U.S. Attorney Robert E. Courtney, III Deputy U.S. Attorney Andrea G. Foulkes (Argued) Assistant U.S. Attorney Thomas V. Sjoblom Special Assistant U.S. Attorney Office of U.S. Attorney 615 Chestnut Street, Suite 1250 Philadelphia, PA 19106 Attorneys for United States
of America Appellant in No. 98-1146

Paul A. Tufano, General Counsel Commonwealth of Pennsylvania

330 Market Street Harrisburg, PA 17120

and

Alan C. Kessler Andrew W. Allison (Argued) Buchanan Ingersoll Eleven Penn Center, 14th Floor

1835 Market Street Philadelphia, PA 19103 Attorneys for Amicus
M. Diane Koken
Insurance Commissioner of the Commonwealth of Pennsylvania

OPINION OF THE COURT

STAPLETON, Circuit Judge:

David Rex Yeaman, along with four other defendants, was convicted of various counts of conspiracy, wire fraud,
and securities fraud. His conviction resulted from his involvement in a complex scheme involving the leasi ng of worthless stocks of three public companies, U.S. Ca rd

2Investors, Inc. ("U.S. Card"), Omega Power ("Omega" ), and

American Family Services ("AFS"), to the Teale Netw ork ("Teale"), a fraudulent network of offshore and dom estic companies.1 Teale represented these leased stocks a s assets available to pay claims pursuant to reinsurance con tracts entered into with a Pennsylvania-based insurance company, World Life and Health Insurance Co. ("Worl d Life"). When these assets were called upon to pay outstanding medical reinsurance claims, the stocks were deemed worthless.

Yeaman has appealed from the jury's verdict and a sentencing adjustment. The government has cross-app ealed the sentence imposed by the District Court.

I.

World Life became insolvent at some point in or bef ore 1988. It hid its insolvency from regulators and its insureds, however, by placing a piece of land valued at $60,0 00 on its
books as worth several million dollars. World Life issued the four group medical policies involved in this ca se in late 1989, in the spring of 1990, in the summer of 1990, and on December 1, 1990. Teale's contracts reinsuring thes e policies were entered on November 16, 1989, May 30, 1990, June 28, 1990, November 10, 1990, and November 11, 1990. Pursuant to these agreements, Teale assumed 1 00% of the liability under the four group medical insur ance policies issued by World Life in exchange for 92% o f the premiums paid by World Life's insureds on those pol icies.
These reinsurance transactions allowed World Life t o reflect a reserve credit of approximately $6 million. Teale received total premiums from World Life of approximately $7 million
under its reinsurance contracts. The indictment all eged that the conspiracy among Teale and the defendants existed from about May of 1990 to June of 1992.

In 1990, Philip Rennert created Forum Rothmore, whi ch acted as an intermediary between Teale and publicly traded

___________________________________________________ ______________

1. The Teale Network was organized and controlled b y Alan Teale. Neither is a party to these proceedings but both are allege d to be unindicted coconspirators. We will refer to both collectively as "Teale."

3corporations that desired to lease their stock. For um

Rothmore entered into "surplus contribution agreeme nts," known as RENN contracts, with Teale. The first RENN contract involving one of the defendants was execut ed on September 1, 1990. Yeaman was involved in a series of RENN contracts entered between December 1, 1990, an d April 1, 1991.

Under the terms of these contracts, corporations le ased
their stock to Teale and authorized the sale of the stock if necessary to pay claims under insurance policies th at Teale
had reinsured. The value of the stock leased was ca lculated by multiplying the number of shares by the market p rice.
Teale then listed these shares at the same value on the financial statements presented to World Life. In ex change, Teale paid a percentage of the monthly leasing fees it received from World Life to Forum Rothmore, which i n turn split the fees with the stock providers. Of the app roximately $7 million Teale received, about $3.3 million was

distributed to the defendants as rental fees for th e leased
securities.

Yeaman was president of Capital General Corporation ("Capital General"). Capital General assisted other companies in going public through mergers with exis ting shell corporations that had previously completed th eir SEC registration. After the merger, Capital General ret ained some interest in the corporations, and Yeaman handl ed the registration and promotion of the stock. National S tock Transfer ("NST"), a subsidiary of Capital General, was the transfer agent and performed the record keeping fun ctions for the public corporations with whom Capital Gener al

dealt.

U.S. Card, Omega, and AFS were formed via mergers orchestrated by Yeaman and Capital General. U.S. Ca rd was a small baseball card business operated in the home of the father of one of Yeaman's associates in Hull, Massachusetts. Its total inventory was less than $5 0,000. Omega was a nearly insolvent business that bought a nd sold surplus high voltage power line equipment. Ome ga had minimal operations conducted by a sole proprietor w ho was desperately seeking capital for his business. AFS a lso had

4no significant assets or profit making activity. Ye aman was

an officer and director of these three corporations

.

In spite of the minimal value of these corporations
, Yeaman purported to lease $8 million of U.S. Card s tock, $2 million of Omega stock, and $2 million of AFS st ock to Teale. In order to be able to attribute such high v alues to these stocks, Yeaman manipulated the market quotes and inflated the financial statements of these corporat ions. Moreover, while certain of these stocks were restri cted, they were represented to be marketable and were transfer red without any indication of their restricted status. Forum Rothmore assisted Yeaman in leasing these falsely-v alued and restricted stocks. In short, securities were fa lsely held out by the defendants and Teale to be marketable an d valuable, when, in fact, they were not marketable a nd were virtually without value.

In January 1991, the Pennsylvania Insurance Department began to investigate World Life's financ ial condition. On July 28, 1991, the Pennsylvania Insur ance Commissioner declared World Life insolvent and orde red its liquidation. Since Teale had been paying insurance claims with recently received premiums and had no other significant assets to draw upon, this liquidation d eprived Teale of the ability to pay further claims.

The Pennsylvania Life and Health Insurance Guarante e Fund is a state fund authorized by statute to pay outstanding liabilities of licensed Pennsylvania co mpanies
that become insolvent. The Guarantee Fund is financ ed by Pennsylvania insurance companies. When World Life w as liquidated, the Guarantee Fund paid the outstanding group medical reinsurance claims left unpaid as a result of the fraud. The unpaid claims totaled over $6 million.

In February 1996, Yeaman was indicted in the Easter n District of Pennsylvania and charged with one count of conspiracy and multiple counts of wire and securiti es fraud. The conspiracy charge included an allegation that Yeaman failed to disclose in SEC and NASD filings t hat he "previously had been found to have violated the sec urities laws." (A.116, Count 1 P 6(o)(2)). This allegation was incorporated into the wire and securities fraud cou nts.

5Yeaman moved to strike this language from the indic tment

on the ground that he had no duty to disclose forme r securities law violations and/or that he did disclo se the information required by law.

The District Court denied Yeaman's motion because i t determined that if certain predicate facts could be established, Yeaman had a duty to disclose five sec uritiesrelated administrative proceedings. The government later introduced two of these proceedings into evidence. One proceeding was a 1988 SEC administrative action aga inst

NST that resulted in a censure order. See In the Ma tter of National Stock Transfer, Inc., 41 S.E.C. Docket 121 9 (1988). The other proceeding was an SEC investigation that began
in 1987 and culminated in a cease and desist order entered against Yeaman and Capital General in 1993. See In the Matter of Capital General Corp., 54 S.E.C. Docket 1 322 (1993). A third proceeding, in which the Oregon Department of Insurance and Finance entered a cease and desist order against Yeaman and Capital General, wa s admitted by stipulation of the parties. See In the Matter of Capital General Corp. and David Yeaman, E7-49 (Oreg on Dept. of Ins. & Finance, April 28, 1988).

After a four week trial, the jury, by general verdi ct, convicted Yeaman of the one count of conspiracy,fiv e counts of wire fraud, and three counts of securitie s fraud. At the sentencing hearing, the District Court assig ned Yeaman an offense level of 11, which included a one -point upward departure for causing a loss of confidence i n an important institution. The District Court found no monetary loss attributable to Yeaman and refused to impose adjustments for jeopardizing the safety of a financial institution and use of special skills. Th e District Court sentenced Yeaman to 14 months imprisonment an d a $20,000 fine.

II.

Yeaman first contends that his conviction must be reversed because the jury's general verdict may hav e been based on an improper legal theory. Yeaman argues th at the District Court erred in concluding that he had a du ty to

6disclose the 1988 SEC censure order entered against NST

and the SEC's investigation that began in 1987 and led to a 1993 cease and desist order entered against Capit al
General and Yeaman. The admission at trial of evide nce of these proceedings allowed the jury to consider Yeam an's nondisclosure of them in determining whether he was guilty of conspiring, wire fraud, and securities fraud. Ye aman seeks reversal and a new trial in which such eviden ce would be excluded. The District Court's legal concl usions with respect to these two proceedings are subject t o plenary
review.

A. 1988 SEC Administrative Proceeding against NST

Regulation S-K, 17 C.F.R. S 229.401, mandates that certain information pertaining to corporate managem ent and control persons be included in the periodic rep orts that public companies file with the SEC. Item 401(f) of that regulation requires disclosure of certain legal pro ceedings that occurred in the past five years and that are"m aterial to an evaluation of the ability or integrity of any director, person nominated to become a director or executive officer of the registrant." Item 401(f)'s six subparagraphs list the types of legal proceedings that must be disclosed. Items 401(f)(3) and (4) require disclosure when "[s]uch p erson was the subject of any order, judgment, or decree, not subsequently reversed, suspended, or vacated" of a court of competent jurisdiction or federal or state authorit y, and the order, judgment, or decree was related to certain s pecified behaviors. 17 C.F.R. S 299.401(f)(3)-(4) (emphasis added).

Since Yeaman was an officer and director of U.S. Ca rd and Omega, the government alleged that Item 401(f) of Regulation S-K required the 1989 and 1990 Form 10-K reports of these companies to disclose the 1988 SEC order entered against NST.2 The 1988 order found that NST had
violated various securities laws on a number of occ asions,3

___________________________________________________ ______________

2. Because AFS was a non-registrant and non-reporti ng company under the federal securities laws, Regulation S-K does no t apply to it. (A.159 n.16) 3. In the course of the administrative proceeding a gainst NST, the Commission found that NST willfully violated Sectio ns 17(a)(3), 17(f)(1), (2), and (3), 17A(c), 17A(d) and Rules 17f-1, 17f-2 , 17Ac2-1, 17Ac2-2, 17Ad-6, 17Ad-10, 17Ad-11, 17Ad-13 thereunder. (A.23 5-36)

7censured NST, directed it to take corrective measur es,

ordered it to retain an independent outside account ant to report on the implementation of those measures, and required NST's president to execute an affidavit ve rifying that the services of an independent accountant had been engaged. Yeaman was not a named party to the procee ding.

Before the District Court, Yeaman contended that It ems 401(f)(3) and (4) only refer to persons who were "n amed" in the proceedings and thus that he had no duty to dis close the 1988 proceeding against NST. Concluding that th is argument had no merit, the District Court contraste d the text of Items 401(f)(3) and (4) with that of Item 4 01(f)(2) in the same regulation. Item 401(f)(2) requires disclo sure if the director or control person "was convicted in a crim inal proceeding or is a named subject of a pending crimi nal proceeding." See 17 C.F.R. S 299.401(f)(2) (emphasi s added). The District Court observed: "Although Item 401(f)( 2) refers to `named subject,' Item 401(f)(3) and (4) merely r efer to `the subject of,' which connotes a broader meaning than` named subject.' Surely, if (f)(3) and (f)(4) meant only`n amed subject,' the SEC could have explicitly stated so, as it did in (f)(2)." (A.150)

The District Court went on to note that the governm ent had alleged that it possessed evidence demonstratin g that: (1) Yeaman was the director and president of Capita l General; (2) Yeaman owned more than 90% of Capital General's stock; (3) Yeaman owned and controlled NS T through Capital General; (4) Yeaman was president o f NST in 1988 and already was or became its director; and (5) NST and Capital General were affiliates as defined in Rule 405 of the Securities Act, 17 C.F.R. S 230.405. (A. 150-51) The Court held that if the government could prove t hese allegations at trial, "then there would be no quest ion that Yeaman was the `subject of' [the 1988 order entered against NST]." (A.151)

On appeal, Yeaman continues to assert that he was n ot "the subject of" the 1988 proceeding within the mea ning of 17 C.F.R. S 229.401(f)(3) and (4) because he was no t a named party to that proceeding. In support of this argument, he cites to the Uniform and Integrated Re porting Requirements: Directors and Executive Officers, Sec urities

8Act Release No. 33-5949, 1978 SEC LEXIS 1031, at *2 4

(July 28, 1978), which states:

Item 3 [now known as Item 401, or 17 C.F.R. S 229.401] makes it clear that disclosure of criminal convictions, criminal proceedings, orders, j udgments, etc. is required only where the executive of ficer, director, or nominee for election as a direc tor is a named party in the legal proceeding.

Yeaman avers that the word "criminal" in this SEC r elease does not modify the terms "orders" or "judgments," and that the "named party" limitation therefore applies equa lly to civil orders and judgments. He concludes that we sh ould defer to this interpretation of S 229.401(f)(3) and (4) by the
Commission.

In order to understand what Item 3 "makes clear," w e must examine the above-quoted statement in context. Prior to 1978, Regulation S-K contained only Items 1 and 2. In 1976, the Commission proposed several amendments to Regulation S-K, including a new section requiring disclosures concerning directors and officers. Sect ion (f) of this amendment as originally proposed is substantia lly similar to the current version of Item 401(f), exce pt that Section (f)(2) required disclosure if "[s]uch perso n was convicted in a criminal proceeding . . . or is the subject of a criminal proceeding which is presently pending." Disclosure of Management Background: Uniform Report ing Requirements, Exchange Act Release No. 34-12946, 10 S.E.C. Docket 834, 1976 WL 15989, at *10 (Nov. 2, 1 976) (emphasis added). In response to comments received on this proposed amendment, Item 3(f)(2), as it was kn own upon its adoption in 1978, was amended to read: "[s ]uch person was convicted in a criminal proceeding or is a named subject of a pending criminal proceeding." Se curities Act Release No. 33-5949, 1978 SEC LEXIS 1031, at *4 0 (emphasis added). The SEC's statement in the releas e cited by Yeaman is thus explaining a change in the origin ally proposed section dealing solely with criminal proce edings. It is accordingly clear that the word "criminal" was i ntended to modify "orders, judgments, etc." as well as "con victions" and "proceedings." We find it equally clear that th e District Court properly regarded the difference between "nam ed

9subject" in Item 401(f)(2) and "subject" in Item 40 1(f)(3) and

(4) as deliberate and significant and properly conc luded that the latter term is a broader concept. We thus reject Yeaman's reading of Item 401(f)(3) and (4).

B. SEC Investigation of Capital General and Ye aman

between 1987-1990

The anti-fraud provisions of the securities laws im pose a duty to disclose material facts that are necessary to make disclosed statements, whether or not mandatory, not misleading. See 15 U.S.C. SS 77q(a), 77x. The Distr ict Court held that Yeaman violated this duty by failing to d isclose, in the Form 10-K reports filed by Omega and U.S. Card in March 1990, that he and Capital General had been th e subject of an SEC investigation since 1987.4

The 10-K reports of these companies made no referen ce to this investigation and affirmatively asserted th e following:

Other than described above, neither the Regi strant nor any of its officers or directors, to their b est knowledge, is a party to any material legal proceeding or litigation which would impact the operations or the Reg istrant, and such persons know of no material legal proceedings, judgments entered, legal action s or litigation contemplated, or threatened which would impair operation of the Registrant in the fu ture.

(A.152 (quoting 10-K reports)). The Court found tha t disclosure of the investigation was necessary in or der to make not misleading the disavowal of knowledge of threatened proceedings that would impair the operat ions of the corporation. As a result of its holding, the Co urt allowed evidence of the investigation to be admitte d at trial. While the Court's opinion stated that it found the relevant statements to be material and misleading, and thus

___________________________________________________ ______________

4. In 1993, after a five year investigation, the SE C ordered Yeaman and Capital General to cease and desist from committing or causing further violations of Sections 5(a) and (c) and 17(a) of th e Securities Act, and Sections 10(b) and 13(g) of the Securities Exchange Act, and Rules 10b5, 12b-20, and 13d-1(c) promulgated thereunder. See In the Matter of Capital General Corp., 54 S.E.C. Docket 1322 (1993)

.

10violative of the securities laws, the jury instruct ions

indicate that the jury was properly charged to make its own determinations in these respects.

On appeal, Yeaman insists that he did not know at t he time of filing the 10-K reports that the SEC planne d to commence litigation. He notes that the administrati ve proceeding that resulted from this investigation wa s not instituted until June 22, 1992, and did not result in a cease and desist order until July 23, 1993. He insi sts that, while he knew of the investigation at the time offi ling the March 1990 reports, he did not know that the invest igation was focused on or might impact U.S. Card or Omega. As a result, he disagrees that a duty to disclose the in vestigation
existed or that the affirmative statements containe d in the 10-K reports were misleading in any respect. In res ponse, the government points out, inter alia, that the inv estigation had been ongoing since 1987, that it instituted sui t against Yeaman and Capital General in June of 1990 to enfor ce a subpoena duces tecum theretofore issued to them, an d that the Court ordered compliance in July of 1990. Taken as a whole, the government argues, the evidence compelle d the
conclusion that Yeaman must have been aware of the scope and gravity of the investigation prior to March of 1990 and, given his knowledge of his own activities prior to March 1990, he must have known of the probability of a proceeding that would implicate U.S. Card or Omega.

We conclude that the government's evidence regardin g the investigation was properly submitted to the jur y for consideration as to whether the 10-K reports were materially misleading in light of the affirmative s tatement quoted above. While Yeaman argues that the District Court committed a legal error, his claim properly charact erized is that the evidence was insufficient to support a con viction on the theory that the reports were materially misl eading. When reviewing the sufficiency of the evidence, we view the evidence in the light most favorable to the governm ent and
ask whether a "rational trier of fact could have fo und the essential elements of the crime beyond a reasonable doubt." United States v. Dent, 149 F.3d 180, 187 (3d Cir. 1 998) (internal citations omitted). Under this standard, we believe the government has tendered sufficient evidence to support

11this theory. We need not base our rejection of Yeam an's

argument on this ground, however.

We have concluded that 15 U.S.C. SS 77q(a) and 77x provide a solid legal foundation for the government 's theory of liability based on failure to disclose the SEC investigation. Assuming that there were insufficien t evidence to support this theory, Yeaman nevertheles s would not be entitled to a new trial because the governme nt advanced other alternative, legally valid theories at trial that were supported by sufficient evidence. Under t he teachings of Griffin v. United States, 502 U.S. 46 (1991), we are required in such circumstances to presume that the jury found the defendant guilty beyond a reasonable doubt on a theory supported by the evidence.

III.

Yeaman also requests reversal based on two challeng es to the jury instructions. Review of the legal standard enunciated in a jury instruction is plenary, see Un ited States v. Johnstone, 107 F.3d 200, 204 (3d Cir. 199 7), but review of the wording of the instruction, i.e. , th e expression,
is for abuse of discretion. See United States v. Ze hrbach, 47 F.3d 1252, 1264 (3d Cir. 1995) (en banc). This Cour t reviews jury instructions to determine whether,"tak en as a whole, they properly apprized the jury of the issue s and the applicable law." Dressler v. Busch Entertainment Co rp., 143 F.3d 778, 780 (3d Cir. 1998) (internal quotation om itted).

A. Unanimity Instruction

Section 17(a) of the 1933 Act, 15 U.S.C. S 77q(a), makes it unlawful for any person "in the offer or sale of securities by the use of any means or instruments of transport ation or communication in interstate commerce or by the u se of the mails, directly or indirectly," to do any of th e following:

(1) to employ any device, scheme, or artific e to defraud,

or

(2) to obtain money or property by means of any untrue statement of a material fact or any o mission to state a material fact necessary in order to make the

12statements made, in the light of the circums tances

under which they were made, not misleading, or

(3) to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser.

15 U.S.C. S 77q(a). The indictment alleged in the conjunctive that Yeaman engaged in conduct that cam e within all three of these subsections. At the concl usion of trial, the District Court declined to give the foll owing

instruction that Yeaman insisted should follow imme diately after the Court read subsections (1)-(3) of Section 17(a):

It is not necessary for the government to e stablish all three types of unlawful conduct in connectio n with the offer or sale of securities; any one will be sufficient for a conviction if you so find. However, you mu st unanimously agree upon which of the types of unlawful conduct the defendant engaged in. If you can not agree on any one or more of the means, you must fi nd the defendant not guilty.

The District Court instead charged as follow s:

The second element that the government must prove beyond a reasonable doubt is that in the off er or sale of the particular security the defendants di d any one or more of the following:

(1) employed a device, scheme, or artifice t o de fraud,

or

(2) made an untrue statement of a material f act or
omitted to state a material fact which made what was said, under the circumstances, misleadin g, or

(3) engaged in an act, practice, or course o f busi ness that operated, or would operate, as a fraud or deceit upon a purchaser, seller, or other person.

It is not necessary for the government to es tablish all three types of unlawful conduct in connectio n with the offer, sale, or purchase of the particular s ecurity. Any one type of unlawful conduct will be suffici ent for a conviction, if you so find such unlawful con duct.

13Yeaman suggests that this instruction constitutes r eversible

error.5

It is well settled that a defendant in a federal cr iminal trial has a constitutional right to a unanimous ver dict. See United States v. Edmonds, 80 F.3d 810, 814 (3d Cir. 1996). This includes the right to have the jury instructed that in order to convict, it must reach unanimous agreement on each element of the offense charged. It is equally well settled, however, that this does not mean one has a right to insist on an instruction requiring unanimous agreem ent on the means by which each element is satisfied. When a statute enumerates alternative routes for its viola tion, it may be less clear, however, whether these are mere means of committing a single offense (for which unanimity is not required) or whether these are independent elements of the crime (for which unanimity is required). In making this determination, Edmonds teaches that two questions m ust
be addressed:

First, did the legislature intend the differ ent routes to establish separate "offenses," for which una nimity is required as to every fact constituting the o ffense, or different "means" of violating a single offe nse, for which unanimity is not required? Second, if the le gislature
intended the alternative routes to be mere m eans of violating a single statute, is the statute's definition of

the crime unconstitutional under the Due Pro cess clause?

Edmonds, 80 F.3d at 815.

We begin our analysis by noting that Section 17(a)f irst
focuses on an historic event -- the offer or sale o f a security utilizing an instrument of interstate commerce. It then requires that the defendants' conduct with respect to that
offer or sale fall within one or more of three clos ely related

___________________________________________________ ______________

5. Although the government contends that this issue was waived, we note that defense counsel submitted the above-quote d proposed jury instruction indicating the need for unanimous agree ment as to which subsection of Section 17(a) was violated and object ed, both at the instruction hearing and at the conclusion of trial, to the District

Court's instructions to the extent that they deviated from their proposed
instructions.

14categories -- a "device, scheme or artifice to defr aud,"

an obtaining of money or property by material misrepresentation, or a transaction that operates a s a fraud or deceit on a purchaser. While each category has i ts own parameters, see United States v. Naftalin, 441 U.S. 768 (1979), they are largely overlapping categories and all fall within the traditional understanding of the concept of fraud. Most conduct that falls within one is likely to satisfy

another as well.

These characteristics of the relevant statute and t he nature of the specific unanimity charge requested h ere distinguish this case from the situation involved i n Edmonds and Richardson v. United States, 119 S. Ct. 1707 (1999). The statute involved in those cases, the Co ntinuing Criminal Enterprise Statute ("CCE"), requires that the defendant have engaged in a "continuing series of violations" of a broad range of specified criminal statutes. The indictments there charged numerous such violati ons and the defendants asked that the jury be instructe d that it must unanimously agree on each violation it reli ed upon as satisfying the requirement of a "continuing seri es of violations." In both cases, the Courts declined to find that Congress intended "CCE predicate offenses to consti tute mere means of [committing] a single CCE offense" an d suggested that such a finding would raise serious q uestions under the Due Process Clause. Edmonds, 80 F.3d at 8 19.
Both courts stressed that the "statute's word `viol ations' covers many different kinds of behaviors of varying degrees of seriousness" and that failing to treat each viol ation as a separate element would create substantial risk that a guilty verdict might mask "wide disagreement among the jur ors about what the defendant did, or did not, do." Rich ardson,

119 S. Ct. at 1711.

Section 17(a) does not cover "many different kinds of behavior of varying degree of seriousness" and the requested charge was not directed at the same conce rn identified in Edmonds and Richardson. The statute i s limited to fraud in connection with an offer and sa le of securities in interstate commerce. The requested ch arge did not seek to require jury unanimity with respect to whether Yeaman engaged in the alleged market manipulation, the

15alleged representation of restricted securities as

unrestricted, or the alleged failure to disclose ma terial SEC proceedings. Thus its function would not have been to increase the assurance that Yeaman committed specif ic criminal conduct. Its only function would have been to require jury unanimity on whether Yeaman's conduct constituted a scheme to defraud, an obtaining of mo ney by material misrepresentation, or a transaction that o perated as a fraud on a purchaser, as those concepts are us ed in Section 17(a).

We are confident that the District Court's denial o f the requested instruction did not in any way frustrate Congress's intent in passing Section 17(a) or jeopa rdize any fairness concept embodied in the Due Process Clause . 6 Indeed, we perceive no purpose that would have been served by putting the jurors to the task Yeaman's c harge would impose on them -- a task that would require t hem not only to determine what Yeaman did but also to a gree upon the outer limits of each of the subsections of Section 17(a) in this factual context.

We find the most helpful precedent to be the decisi on of the Court of Appeals for the Ninth Circuit in Unite d States v. UCO Oil Co., 546 F.2d 833 (9th Cir. 1976). The s tatute there, 18 U.S.C. S 1001, provided:

"Whoever, in any matter within the jurisdict ion of any department or agency of the United States kn owingly and willfully falsifies, conceals or covers up by any trick, scheme, or device a material fact, or makes any false, fictitious or fraudulent statements o r representations, or make or uses any false w riting or document knowing the same to contain any fal se, fictitious or fraudulent statement or entry, shall be fined not more than $10,000 or imprisoned no t more than five years, or both."

___________________________________________________ ______________

6. In order to comport with due process, we have in dicated that different means for committing an offense "must reflect notio ns of `equivalent blameworthiness or culpability.' " Edmonds, 80 F.3d at 820 (quoting Schad, 501 U.S. at 643). In light of the similarity of these three
alternatives and the fact that each alternative has the same mental state requirement, we conclude that this requirement is m et.

16546 F.2d at 836. Each relevant count of the indictm ent was

based on an identified document and charged the defendants both with having "made . . . false writi ngs . . . knowing the same to contain false . . . statements" and with having "falsified, concealed and covered up by trick,
scheme and device material facts." The Court conclu ded that Section 1001 specified alternative means for committing a single offense and that, as a result, it was not necessary for "the jury, in arriving at a unanimous verdict, [to] agree on the particular means by which the off ense was committed." The Court explained:

On the face of it, the statute, framed in a single paragraph and providing a single penalty, do es not suggest Congressional purpose to create more than one offense. Moreover, the statute is directed a t a single evil, i.e., the "perversion" of "the authori zed functions of governmental departments and agencies . . . which might result from the deceptive practices de scribed." United States v. Gilliland, 312 U.S. 86, 93, 61 S.Ct. 518, 522, 85 L.Ed. 598 (1941). The types of conduct enumerated all fall within the general under standing of what constitutes fraud. As the court put it in Charles Hughes & Co. v. Securities and Exchange Comm 'n, 139 F.2d 434, 437 (2d Cir. 1943):

"The law of fraud knows no difference betwee n express representation on the one hand and i mplied misrepresentation or concealment on the othe r."

See also, Gusow v. United States, 347 F.2d 7 55, 756 (10th Cir. 1965).

It is reasonable to conclude, therefore, tha t Congress was concerned with proscribing the prohibite d result rather than particular kinds of conduct. Tha t being so, consistency calls for interpreting the enume ration of
different kinds of conduct in the statute as reflecting different modes of achieving that result, no t separate
and distinct offenses. . . .

546 F.2d at 836. We find this reasoning equally cog ent
here.

B. Restricted Stock Instruction

Yeaman also argues that the District Court improper ly instructed the jury that it could find a Securities Act

17violation based solely on his having held and trans ferred

restricted stock. According to Yeaman, the charge r elieved the government of its burden of proving that Yeaman engaged in fraud by misrepresenting the restricted stock as free-trading stock.

After instructing the jury on the elements of Secti on 17(a), the judge noted that "the government contend s that certain of the defendants engaged in the fraudulent sale of restricted stock." (A.4159) The judge informed the jury that restricted stock is stock acquired directly or indi rectly from an issuer in a transaction not involving any public offering;
and that such stock is deemed "restricted" because there are restrictions on its resale to the public. See 1 7 C.F.R. S 230.144. The judge then gave the instruction we h ave set forth in the margin.7

___________________________________________________ ______________

7. Now, the Government contends that the defendants made use of
certain restricted securities in furtherance of som e fraudulent acts and practices by distributing and contributing those st ocks to the off-shore reinsurance companies. I have already defined for y ou what a restricted stock is and the requirements under the law if and when the restricted stock is going to be sold. If you find that the def endants held restricted stock, then you may find the defendants engaged in acts, practices and courses of business that operated as a fraud and de ceit. And that they made material misrepresentations by manipulating th e price of the stocks by contributing them to the off-shore reinsu rers who placed them on their financial statements to give the appearanc e of highly valued assets, by participating in the misrepresentations made by their coconspirators who used those financial statements to misrepresent the financial well being of the off-shore reinsurers wh en contracting with a primary insurance company in Pennsylvania. And by m isrepresenting that these stocks could be liquidated to meet claim s when they could

not.

Now, the Government also contends that the defendan ts made use of
certain restricted securities in furtherance of the fraudulent acts and practices by distributing and pledging these restri cted stocks to the
banks which held and maintained the escrow accounts . If you find that the defendants held restricted stock, then you mayf ind that the defendants engaged in acts, practices and courses o f business that operated as a fraud and deceit and made material mi srepresentations in connection with the deposit of those stocks into th e escrow accounts, if you find one or more of the following.

18We do not find this jury instruction to be legally

inaccurate or improper in any respect. The purpose of the Court's instruction was to provide examples of the way that the defendants may have violated Section 17(a), ass uming
that the defendants used restricted stock in the co urse of their dealings. To find defendants guilty under one of these possible scenarios, the jury first had to find that defendants held restricted stock. The implication of the Court 's statement "[i]f you find that the defendants held r estricted stock," is that if the jury did not so find, then t heir consideration of this theory was precluded. If the jury did find that the defendant held restricted stock, then the jury was obliged to consider whether the evidence suppor ted a finding that the defendants engaged in transactions with these stocks that would operate as a fraud or decei t. Thus,
we find no error in the Court's restricted stock in struction.

IV.

In combination, the parties raise four sentencing i ssues. The government finds three flaws in the District Co urt's application of the Sentencing Guidelines: (1) the f inding of no loss under U.S.S.G. S 2F1.1; (2) the failure to impose a

___________________________________________________ ______________

First, if you find that the defendants contributed through Forum
Rothmore and World Re and into the escrow accounts stock positions they controlled in one or more of the five companie s. And at the time they did so, they had not held the Rule 144 stock l ong enough to meet the two or three year holding I described previousl y. Or secondly, Forum Rothmore became an underwriter and was thus engaged in an unlawful distribution. An underwriter is defined by statute to mean any person who either has purchased from an issuer, with a vie w to or offers or sells
for an issuer in connection with the distribution o f any security. Or any person who participates or has a direct or indirect participation in any such undertaking. Or third, they engaged in acts, p ractices or courses of business that operated as a fraud on the escrow acc ounts when they engaged in an unlawful distribution and had violate d the rules concerning the sale of restricted stock.

It's not necessary you find the defendants engaged in all three of these courses of business or conduct. Anyone (sic) is suf ficient.

(A-4164-4166).

19four-level increase under U.S.S.G. S 2F1.1(b)(6) fo r a

substantial effect on a financial institution; and (3) the rejection of a special skills enhancement under U.S .S.G. S 3B1.3. Yeaman challenges the District Court's upw ard departure based on its finding that Yeaman's fraudu lent acts resulted in loss of confidence in an important
institution.

The standard of review of a district court's interp retation and application of the Sentencing Guidelines is ple nary. See United States v. Hallman, 23 F.3d 821, 823 (3d Cir. 1994). Findings of facts are measured by the clearl y erroneous test. See United States v. Hillstrom, 988 F.2d 448, 450 (3d Cir. 1993). This Court's review of a d istrict court's decision to depart upward is plenary as to whether the increase was permissible. We review the reasona bleness of the degree of the departure for an abuse of disc retion. See United States v. Kikumura, 918 F.2d 1084, 1098, 1110 (3d Cir. 1990).

A. Calculation of Fraud Loss under U.S.S.G.S 2F1.1

Section 2F1.1(a) of the Sentencing Guidelines estab lishes a base offense level of six for offenses involving fraud and
deceit. See U.S.S.G. S 2F1.1.8 Pursuant to Section 2F.1.1(b), the base offense level must be increased according to the size of the loss. This Court's precedents establish that " `fraud loss is, in the first instance, the amount of money the victim has actually lost,' " United States v. C oyle, 63 F.3d 1239, 1250-51 (3d Cir. 1995) (quoting United S tates v. Kopp, 951 F.2d 521, 523, 536 (3d Cir. 1991)). Howev er, "if an intended loss that the defendant was attempting to inflict can be determined, this figure will be used if it is greater than actual loss." Application Note 7 to U. S.S.G. S 2F1.1. While the greater of actual loss and inten ded loss is the preferred measure, there are situations in w hich the defendant's gain can appropriately be used as a measurement of loss. A court may look to a defendan t's gain as an alternative measure but only "[w]hen if it is not feasible to estimate with reasonable accuracy the v ictim's loss [or intended loss] and where there is some log ical relationship between the victim's loss and the defe ndant's

___________________________________________________ ______________

8. All references to the Sentencing Guidelines are to the 1997 version.

20gain so that the latter can reasonably serve as a s urrogate

for the former." United States v. Dickler, 64 F.3d 818, 826 (3d Cir. 1995) (indicating, by way of example, that proceeds from resale of object taken could provide estimate of loss because sale would establish approximate market val ue of object). Additionally, "the loss need not be determ ined with precision. The Court need only make a reasonable es timate of the loss given the available information." Appli cation

Note 8 to U.S.S.G. S 2F1.1.

The relevant conduct provision of the Sentencing Guidelines, S 1B1.3, provides that specific offense characteristics, -- in this instance the loss amoun t that
should be attributed to the defendant under S 2F1.1 , -- are to be determined on the basis of the following:

(1) (A) all acts and omissions committed, ai ded, abetted, counseled, commanded, induced, proc ured, or willfully caused by the defendant; and

(B) in the case of a jointly undertaken cri minal activity (a criminal plan, scheme, endeavor, or enterprise undertaken by the defendant in co ncert with others, whether or not charged as a conspira cy), all reasonably foreseeable acts and omissions of others in furtherance of the jointly undertaken crimin al activity,

that occurred during the commission of the o ffense of conviction, in preparation for that offense, or in the course of attempting to avoid detection or r esponsibility for that offense;

* * *

(3) all harm that resulted from the acts and omissions specified in [the above ] subsections. . . , and all harm that was the object of such acts and omissio ns.

U.S.S.G. S 1B1.3. In the context of a jointly under taken criminal activity, Application Note 2 indicates tha t the
conduct attributable to a defendant does not includ e the conduct of other participants prior to defendant's joining the activity, even if the defendant knows of that c onduct. See Application Note 2 to U.S.S.G. S 1B1.3. On the other hand, one who commits to a scheme to defraud alread y in progress is responsible from that point on for all reasonably

21foreseeable loss occasioned by other participants a cting in

furtherance of the scheme.

We have previously held that Section 1B1.3(a)(3) establishes a causation requirement when determinin g actual loss. See United States v. Neadle, 72 F.3d 1 104, 1114-15 (3d Cir. 1996) (Becker, J., concurring in p art and dissenting in part) ("[T]he plain meaning of`result ed from' connotes causation."), opinion amended by 79 F.3d 1 4 (3d Cir. 1996); United States v. Evans, 155 F.3d 245, 2 53 (3d Cir. 1998) ("[T]he actual loss determination must b e predicated on the harm caused by [defendant's] offe nses.").

Where the defendant takes something without giving anything to the victim in return, the value of the thing taken reflects the victim's loss. However, where th e defendant gave something of value in exchange for w hat was fraudulently taken, the victim's loss is the di fference between the value of what he or she gave up and the value received in exchange. See United States v. Dickler, 64 F.3d 818, 825 (3d Cir. 1995).

In the Pre-Sentence Investigation Report, the Proba tion Office recommended a loss calculation of $6.4 milli on and the addition of 14 levels pursuant to Section 2F1.1 (b)(1). The $6.4 million amount reflects the unpaid medical reinsurance payments owed by Teale to World Life pursuant to the terms of the reinsurance contracts and ultimately paid by the Guarantee Fund. Nonetheless, in sentencing the defendants, the District Court deter mined that the offense involved no loss. The government c ontends that the Court erred in several ways: (1) by determ ining that the offense involved no actual loss; (2) by fa iling to
consider the loss that Yeaman and his business asso ciates intended to impose; and (3) by failing to account f or the fact that Yeaman and his co-defendants collectively reap ed $3.3

million as a result of the offense.

In determining that no actual loss occurred, the Di strict Court focused on the $6.4 million loss figure conta ined in the sentencing report. The Court concluded:

The indisputable fact is that [the] overwhel ming majority of harm or loss to the victims occu rred prior to any of the defendants joining the conspir acy. Indeed

22the evidence shows that the loss that the Go vernment

is claiming, namely $6.4 million in unpaid c laims,[on the insurance policies], was incurred as lia bilities by World Life prior to any conduct by the defen dants here. In effect, the defendants could not have mad e the liabilities greater. The stock they contribu ted merely
failed to cover the liabilities incurred . .

. .

(A.658-59). The Court did not explicitly make anyfi ndings with respect to intended loss. The District Court a lso did not address the gain acquired by Yeaman and the oth er participants in the scheme.

The District Court found no actual loss because it concluded that World Life had issued the policies, and was thus committed to pay the $6.4 million in claims, p rior to the defendant's misrepresentations. We find the Dis trict Court's analysis flawed for several reasons.

Yeaman and his co-defendants agreed to participate in a
scheme that would enable Teale to collect millions of dollars in premiums from World Life in exchange for virtual ly
worthless reinsurance. The victims of the scheme we re World Life and the beneficiaries of the group medic al policies. The record demonstrates that the defendan ts were fully aware of the use to be made of their misrepresentations in the stock leasing agreements and it strongly suggests that these misrepresentations wer e essential to Teale's continued collection of those premiums. The reinsurance contracts provided for their termin ation in the event of the reinsurer's insolvency. Without th e assets of the defendants and the resulting appearance of s olvency,
the most reasonable inference is that World Life wo uld have ceased paying premiums to Teale long before it even tually did. The District Court failed to make any finding, however,
as to the likelihood of a causal connection between the misrepresentations of the defendants and Teale's co llection of premiums after the defendants committed themselv es to support the scheme.

If there was a causal connection between the misrepresentations of Teale, Yeaman, and the other conspirators and the continued receipt by Teale of premiums after Yeaman joined the scheme, Yeaman is

23responsible for an actual loss equal to the premium s

received after he joined the scheme less any amount paid by Teale in satisfaction of policy claims out of th ose premiums or the sale of the reinsurance assets. Yea man would be responsible in this event for an actual lo ss whether or not World Life issued its group policies or entered into its reinsurance contract prior to Yeam an's entry on the scene. See United States v. Dickler, 6 4 F.3d at

825.

Because Teale collected the premiums from World Lif e as a result of jointly undertaken criminal activity, n either we
nor the District Court on remand need determine whe ther Yeaman in particular caused World Life to cede thes e amounts to Teale. Under Section 1B1.3(a)(1), Yeaman is accountable, not only for his own acts, but also fo r the conduct of others that was: (1) in furtherance of t he jointly undertaken criminal activity; (2) within the scope of the criminal activity Yeaman agreed to jointly undertak e; and (3) reasonably foreseeable in connection with that criminal activity. See U.S.S.G. S 1B1.3(a)(1)(B); Applicatio n Note 2; United States v. Evans, 155 F.3d 245, 253-54 (3d Ci r. 1998). The record contains ample evidence demonstra ting

that Yeaman understood the extent of Teale's scheme
, including the roles of other parties to the scheme and the need to place a diversity of stocks on Teale's fina ncial record in order to pass muster with World Life and insurance regulators. Accordingly, we have no diffi culty concluding that Yeaman is responsible for the acts of all
others involved in the scheme that occurred after h e entered the conspiracy, and thus all of the premium s ceded by World Life as a result of their combined acts.

The record indicates that Yeaman entered into hisfi rst RENN contract on December 1, 1990. On remand, if th e District Court finds a causal connection between th e conduct of Teale and the other co-conspirators and Teale's continued receipt of premiums, it will determine wh en before December 1, 1990, Yeaman committed himself t o the conspiracy and will calculate the amounts received by Teale in premiums under the reinsurance contracts after t hat date. It should then reduce that amount by the tota l claims paid by Teale. If these amounts cannot be calculate d with precision, reasonable estimates will suffice.

24The premiums paid by World Life after Yeaman's deci sion

to enter the scheme may not, however, be the only a ctual loss measure that this record will support. In Unit ed States v. Neadle, 72 F.3d 1104 (3d Cir. 1995), we upheld a district
court's determination that the actual loss caused b y a defendant who issued fraudulent insurance policies was the amount of unpaid claims of policyholders. The recor d revealed that the defendant misrepresented the amou nt of his initial capital in order to get into the insura nce business and engaged in fraudulent conduct to perpe tuate his business. We determined that, but for his fraud ulent acts, the defendant would not have been able to ent er and
remain in the insurance business. We concluded that the insureds' unpaid claims provided a reasonable estim ate of the harm resulting from the defendant's fraudulent scheme. See also United States v. Krenning, 93 F.3d 1257, 1 270 (5th Cir. 1996)(holding that actual loss caused by defen dant who disguised the insolvency of his insurance compa ny and continued to sell policies was losses of policyhold ers). We see no reason why the Neadle analysis should not si milarly apply where reinsurance is sold based on a fraudule nt
inflation of the value of the reinsurer's assets.

In this case, Teale could not have entered and rema ined in the business of reinsuring World Life but for it s fraudulent misrepresentations. Although the Distric t Court made no finding on the issue, the record would also appear to us to support the proposition that World Life wa s not capable of insuring any of the four group medical p olicies without having received a commitment for 100%
reinsurance. It follows that if the Teale fraudulen t reinsurance contracts had not been available, World Life
would either have secured other reinsurance or woul d not have issued the group policies involved. If reinsur ance from a solvent reinsurer had been obtained, all claims u nder the policies would have been paid to the reinsurer; if the group policies had not been issued, the employers who pur chased the policies from World Life would have obtained gr oup medical coverage from another source and all claims of the beneficiaries would have been paid in full. In eith er event, under the teachings of Neadle, there would have bee n a causal nexus between the fraud and all unpaid claim s.

25While it is true, as Yeaman stresses, that he canno t be

held responsible for the consequences of Teale's misrepresentations before he joined the conspiracy, he would be responsible for all loss under a group pol icy reinsured by Teale after he committed to the scheme . The timing of Yeaman's own misrepresentation would be
immaterial. While Yeaman's initial RENN contract wa s entered into on December 1, 1991, a few weeks after the last of the reinsurance contracts, the record sugge sts that his decision to join the fraudulent scheme may have predated at least some of those reinsurance contrac ts.

By identifying these ways in which the record sugge sts that Yeaman may be responsible for an actual loss s uffered by World Life and the beneficiaries of its group me dical policies, we do not foreclose the District Court fr om concluding, after an analysis consistent with this opinion, that the government has failed to carry its burden of proving a causal nexus by a preponderance of the ev idence.

Neither do we intend to indicate that a careful ana lysis of the voluminous record here could not find support f or other theories involving such a nexus. Even if Yeaman joi ned the
scheme after all of the reinsurance contracts had b een entered, for example, it does not necessarily follo w that he is not responsible for any of the unpaid claims ari sing under the group policies. Neadle emphasizes that an insurer's continued fraud may allow it to remain in business longer than it otherwise would. Here, in t he absence of Yeaman's participation in the scheme, Te ale's insolvency may have surfaced earlier than it did an d less loss may have been occasioned to World Life and the beneficiaries of its group policies than was in fac t occasioned by the end of the conspiracy. We do not mean to foreclose the District Court on remand from purs uing this or any other theory of actual loss suggested b y the record. We hold only that the District Court's limi ted factual findings do not support its conclusion that no actual loss was occasioned.

The government also contends that the intended loss in this case exceeds the actual loss and should, there fore, be used in applying U.S.S.G. S 2F1.1. It argues that t he intended loss is the face value of the stock provid ed by

26Yeaman and others under the RENN contracts and repo rted

in Teale's financial statements. We do not agree th at Yeaman and his co-conspirators intended to cause a loss equal to the amount of the represented value of the leased

stocks. Intended loss refers to the defendant's sub jective expectation, not to the risk of loss to which he ma y have exposed his victims. United States v. Kopp, 951 F.2 d 521, 529-531 (3d Cir. 1991). Here, Yeaman and the others undoubtedly hoped that their fraudulently inflated
securities would never have to be sold and that the scheme
would continue for the indefinite future. The loss that they intended was the premiums Teale would receive less any payment of claims necessary to keep the scheme aliv e. We express no view at this juncture as to whether the current record will support a finding of an intended loss i n excess of the actual loss.

Additionally, while we do not foreclose the Distric t Court from considering the gain of Yeaman and the others on remand, their gain would not appear to us to be a h elpful alternative in this factual context. That gain woul d appear to be limited to an amount equal to the minimum act ual loss we have held to be appropriate, i.e., to the p remiums received by Teale after Yeaman's joinder, less any claims paid in order to maintain the scheme, including any amounts paid by Teale in satisfaction of the outsta nding claims upon liquidation.

B. Failure to Apply Four Level Increase Under Secti on 2F1.1(b)(6)

Section 2F1.1(b)(6) of the United States Sentencing Guidelines provides:

If the offense--

(A) substantially jeopardized the safety and soundness of a financial institution; or

(B) affected a financial institution and the defendant derived more than $1,000,000 in gross receip ts from the offense,

increase by 4 levels. If the resulting offen se level is less than level 24, increase to level 24.

27U.S.S.G. S 2F1.1(b)(6). Application Note 15 states:

An offense shall be deemed to have "substant ially jeopardized the safety and soundness of a fi nancial institution" if, as a consequence of the off ense, the institution became insolvent; substantially reduced benefits to pensioners or insureds; was unab le on demand to refund fully any deposit, payment, or investment; was so depleted of its assets as to be forced to merge with another institution in order to continue active operations; or was placed in substantial jeopardy of any of the above.

In the course of rejecting an enhancement under Sec tion 2F1.1(b)(6), the District Court explained:

Based on the evidence the Court finds that t he defendants did not substantially jeopardize the safety or soundness of World Life. As with respect to the loss calculation, the Government must demonstrate a causal connection between the defendants' co nduct and the safety and soundness of the institut ion.

In this case the conduct of the defendants c ould not
have caused World Life to become insolvent. World Life had been insolvent as a matter of pure accou nting long before any of the defendants charged conduct . Clearly

the conduct of the defendants could not have caused
World Life to become insolvent because it al ready was.

Finally, the evidence does not establish tha t defendants' conduct caused any of the other consequences in application note 15.

(A. 659-60).

While the government concedes that the reinsurers d id not cause World Life's insolvency, they nonetheless contend that the Court erred in refusing to order an enhanc ement under Section 2F1.1(b)(6)(A).9 The government maint ains that the conduct of Yeaman and the other parties to the scheme substantially reduced benefits to insureds a nd "left the company `unable on demand to refund fully any

___________________________________________________ ______________

9. The government has not raised the issue of wheth er an enhancement was appropriate under Section 2F1.1(b)(6)(B).

28deposit, payment, or investment' or meet its obliga tions to

insureds." Government Br. at 117.

Consistent with our previous conclusion that the Di strict Court's factual findings do not support its holding of no actual loss, we conclude that the District Court al so erred in holding that Yeaman did not substantially jeopar dize the safety and soundness of World Life by (1) substanti ally reducing benefits to World Life's insureds and (2) placing World Life in a position such that it was unable to refund premiums that were paid in exchange for non-existen t coverage. Yeaman and the others received several mi llion dollars of premiums from World Life that should hav e gone towards paying insureds' claims or refunding their premiums. See United States v. McDermott, 102 F.3d 1379 (5th Cir. 1996) (holding that, even though victim corporation was insolvent independent of fraud,find ing of actual loss of $5-10 million caused by defendants' fraud was irreconcilable with finding that defendants did not substantially reduce benefits to insureds or cause corporation to be unable to refund deposit, payment s, or investments).

Accordingly, we will remand for application of Sect ion 2F1.1(b)(6)(A).

C. Upward Departure for Loss of Confidence i n Impo rtant
Institution

Yeaman appeals the District Court's decision to imp ose a one-level upward departure based on the loss of con fidence in an important institution that resulted from his fraudulent acts. Yeaman's challenge is two-fold. He argues that the Court abused its discretion by both (1) co ncluding that this case fell outside the "heartland" of typi cal fraud cases; and (2) determining that the record supporte d the imposed departure.

We begin our analysis by noting that the Commission conceives of each offense guideline as "carving out a `heartland,' a set of typical cases embodying the c onduct that each guideline describes." U.S.S.G., Ch. 1, Pt . A intro. p.s. 4(b). In the unusual case where a defendant's conduct falls outside the typical "heartland," the court ma y consider a departure from the guidelines range. Id. A distri ct court

29may impose a sentence outside the guideline range w here

"the court finds that there exists an aggravating o r mitigating circumstance of a kind, or to a degree, not adequately taken into consideration by the Sentenci ng Commission in formulating the guidelines that shoul d
result in a sentence different from that described. " 18 U.S.C. S 3553(b); see U.S.S.G. S 5K2.0.

As this Court explained in United States v. Iannone , 184 F.3d 214, 226 (3d Cir. 1999):

The Supreme Court provided additional guidan ce on departures in Koon v. United States, 518 U.S . 81, 95 (1996), instructing courts to apply the foll owing analysis when considering a S 5K2.0 departur e. First, identify the factor or factors that potentia lly take the
case outside the Guidelines' "heartland" and make it special or unusual. Id. at 95. Second, deter mine whether the Guidelines forbid departures bas ed on the factor, encourage departures based on the fa ctor, or do
not mention the factor at all. Id. at 94-95. Third, apply the appropriate rule: (1) if the factor is f orbidden, the court cannot use it as a basis for departure ; (2) if the factor is encouraged, the court is authorize d to depart if the applicable guideline does not already take it into account; (3) if the factor is discouraged, o r encouraged but already taken into account by the applic able guideline, the court should depart only if t he factor is present to an exceptional degree, or in some other way makes the case different from the ordinary c ase in which the factor is present; or (4) if the f actor is unmentioned, "the court must, after consider ing the structure and theory of both relevant indivi dual guidelines and the Guidelines taken as a who le, decide whether [the factor] is sufficient to take t he case out of the Guideline's heartland." Id. at 95-96 (in ternal citation and quotation marks omitted).

In the instant case, the District Court concluded t hat a resulting loss of confidence in an important instit ution took
this case out of the "heartland" of fraud cases. Th e Commission has explicitly encouraged departures bas ed on this factor. Application Note 10 to U.S.S.G. S 2F.1 .1 provides a nonexclusive list of circumstances in wh ich the

30loss calculated pursuant to Section 2F1.1 "does not fully

capture the harmfulness and seriousness of the cond uct." Application Note 10 to U.S.S.G. S 2F1.1 (1997). Cau sing a loss of confidence in an important institution is i dentified as one such circumstance. See Application Note 10(e ).

Because the Guidelines suggest that a finding of lo ss of confidence in an important institution is sufficien t by itself to place a case outside the "heartland" of typical fraud cases, we limit our examination to whether the Cour t properly considered the evidence put forth by the government and whether this evidence was sufficient to support a finding of loss of confidence in an impor tant
institution.10

At sentencing, the government argued that the
defendants' scheme had caused a loss of confidence in both the insurance industry and the stock market. In sup port of its arguments, the government submitted a series of letters from policyholders of World Life and a letter from William McLucas, the Director of Enforcement at the SEC. Al though it granted the departure, the Court did not state w hether it based the departure on a finding of loss of confide nce in the insurance industry, the stock market, or both.

Yeaman relies on this Court's holding in United Sta tes v. Neadle, 72 F.3d 1104 (3d Cir. 1996) to support his argument that the District Court departure has inad equate record support. In Neadle, the defendant, as we hav e noted,
had been convicted of mail fraud in connection with the formation and maintenance of an insurance company. The

___________________________________________________ ______________

10. In Yeaman's reply brief, he asserted for thefir st time that Section 2F.1.1(b)(6) of the Guidelines already takes loss o f confidence into account, at least when the important institution at issue is a financial institution. As a result, Yeaman contends that the Court cannot grant an upward departure based on Application Note 10(e) un less the instant offense involved exceptional aggravating circumstan ces. While Yeaman has waived this argument by failing to raise it soo ner, we nonetheless note that it has no merit in this particular case w here the financial institution at issue for purposes of Section 2F1.1( b)(6), World Life, is

an institution separate and distinct from the "importa nt institution" supporting the Court's decision to upwardly depart pursuant to Section
5K2.0. See discussion infra.

31district court imposed a one point upward departure on the

ground that " `[t]he offense itself contributed mat erially to the destruction of the reputation of the insurance industry in the territory." Id. at 1112 (quoting district co urt). This Court held that this upward departure was improper. We explained: "[T]he court based the upward departure not on sworn testimony but on unsupported judicial conclus ion. Such judicial speculation cannot provide the basis for an upward departure." Id. We emphasized that the government, when asked for its evidence supporting the argument for a departure, had merely cited conversa tions with fifteen insureds of the fraudulent company"who did not hold the insurance industry in very high regard
, meetings with people on the street, and evidence fr om reading newspapers." Id. at 1112 n.8 (internal quot ation omitted).

Relying on the language in Neadle, Yeaman contends that the upward departure for loss of confidence in an institution in this case was similarly based on uns upported judicial conclusions rather than competent evidence . First, he notes that none of the materials submitted by th e government in support of the upward departure consi sted of sworn testimony. Second, he argues that the lett ers from policy holders tendered by the government demonstra te nothing more than their frustration occasioned by W orld Life's failure, i.e. their lack of coverage and res ulting out-ofpocket expenses or inability to receive health care services. Finally, he observes that the SEC letter speaks gen erally
about the deleterious effects of fraud on the secur ities market, but does not claim that Yeaman's conduct ac tually contributed to a loss of public confidence in the m arket.

We do not understand Neadle to hold that unsworn, b ut reliable and probative evidence cannot be relied up on by a sentencing court to support a departure. The law is clearly to the contrary. Rather "[i]n resolving any dispute concerning a factor important to the sentencing determination, the court may consider relevant info rmation without regard to its admissibility under the rules of evidence applicable at trial, provided that the inf ormation has sufficient indicia of reliability to support it s probable accuracy." U.S.S.G. S 6A1.3; United States v. Broth ers, 75 F.3d 845, 848 (3d Cir. 1996).

32With respect to the letters from World Life's insur ed, we

find ourselves in agreement with Yeaman. As he poin ts out, these letters demonstrate the policyholders' frustr ation in the past with World Life, their inability to receiv e benefits from World Life after having paid their premiums, a nd the resulting financial strain as medical problems aros e. None of these letters suggest that World Life's insureds will be unlikely to purchase medical insurance in the futur e.

Nonetheless, the government's evidence is sufficien t to support a finding of loss of confidence in the stoc k market. The McLucas letter provides an expert opinion that manipulation of the market through means like those employed by Yeaman destroy confidence in the securi ties market and that a fraudulent scheme with respect to a few stocks can have a pervasive, detrimental effect. As Director McLucas explained:

[W]hen the integrity of the secondary market is undermined by a manipulation scheme involvin g even only a few stocks, there inevitably is a mor e persuasive
effect on the securities markets as a whole. When
investors lose confidence in the securities markets as a result of market manipulation of a particula r stock market integrity as a whole is diminished. W hen that happens, investment in securities of other i ssurers is impeded.

(A. 495).

We find that the McLucas letter along with the othe r evidence concerning Yeaman's conduct provides a satisfactory predicate for the District Court's upw ard departure. It is not necessary in a situation of th is kind that the government produce someone whose confidenc e in
the institution has diminished as a result of the d efendants' conduct. We think it clear that a sentencing court may infer that the requisite loss of confidence has occurred based on the evidence concerning the character of the fraud, and expert opinion testimony like that of Director McLu cas regarding the impact of that kind of fraud on the p articular institution involved. Moreover, where the Court can draw
the inference that some loss of confidence in the i nstitution occurred, that will suffice; it is not necessary th at the loss

33from this particular scheme be further quantified. See

United States v. Rowe, 999 F.2d 14 (lst Cir. 1993)(permitting inference of loss of confidence in the health insurance industry based solely on the chara cter of the defendant's fraudulent scheme).

On remand, the District Court should reevaluate its decision to impose a one level upward departure in light of our observations concerning the letters of World Li fe's
insured. If it infers that some loss of confidence in the stock market has occurred, it may reimpose its original departure.

D. Failure to Apply Two Level Enhancement Unde r Se ction

3B1.3

Section 3B1.3 provides:

If the defendant abused a position of public or private trust, or used a special skill, in a manner that significantly facilitated the commission or concealment of the offense, increase by 2 levels. This a djustment may not be employed if an abuse of trust or skill is included in the base offense level or specif ic offense
characteristic.

Application Note 2 states:

"Special skill" refers to a skill not posses sed by members of the general public and usually re quiring substantial education, training or licensing . Examples would include pilots, lawyers, doctors, acco untants, chemists, and demolition experts.

The government contends that the District Court err ed in refusing to impose an enhancement on Yeaman based o n his specialized knowledge of the stock market as a prior stock broker and his particular knowledge acquired over decades of experience in the over-the-counter (bull etin board) market, the inner workings of a brokeragefir m, and use of a transfer agent. While the Guideline itself precludes the adjustment if the abuse of skill is included in the base offense level or specific offense characteristic, t he District Court declined to impose the enhancement because "t he basis for the proposed enhancement, constitutes par t of the
elements of the offense for which he has been convi cted."

34(A.710 (emphasis added)). The District Court, belie ved that

an enhancement for use of special skills would amou nt to "double counting."

We hold that the District Court misconstrued the applicable law when it looked to whether the specia l skill used was part of the statutory offense, rather than included in the Guideline applicable to that offense.11 The relevant Guideline here, which applies to all fraud cases, n either makes reference to a special skill or directs that Section 3B1.3 not be applied. It follows that Section 3B1.3 must be applied if its factual predicates are satisfied. Ac cordingly, we will remand for initial findings as to whether Y eaman possessed special skills within the meaning of Sect ion 3B1.1 and, if so, whether he used these skills to significantly facilitate the commission of the offe nse.12 While Application Note 2 does not specifically recognize stock brokers as persons possessing special skills in its list of examples, enhancements based on a defendant's speci al skills he or she developed as a broker or financier and used in the commission of securities fraud are proper in some circumstances. Cf. United States v. Connell, 960 F. 2d 191 (1st Cir. 1992) (holding that stockbroker's ability to launder large amount of stock while shielding the true owne r's identity in a way that a lay person could not do wi thout attracting scrutiny supported use of special skill

___________________________________________________ ______________

11. Yeaman notes that the government agreed, at the sentencing hearing, that the issue "was whether or not the special skil l used his is so part and parcel of the overall offense as to constitute an element." (A.716) Nonetheless, we do not find that the government has waived the right to assert the correct state of the law. The government 's argument appears
to be due to mere inadvertence rather than a calcul ated attempt to mislead the District Court. In fact, the government stated the law correctly in its sentencing memorandum. See In re C hambers Development Co., 148 F.3d 214, 229 (3d Cir. 1998) ( "Asserting inconsistent positions does not trigger the doctrin e of judicial estoppel
unless intentional self-contradiction is used as a means of obtaining unfair advantage.").

12. The government contends that the District Court made this required factual finding. The government cites the Court's s tatement that "this program . . . was not devised by Mr. Miller, but by those who were expert in the field of manipulating the stock." (A. 718-19 ) We do not find this statement to be sufficiently explicit on this point

.

35enhancement of sentence for violation of federal cu rrency

reporting requirements).

V.

Based on the foregoing analysis, we will affirm Yea man's
conviction on all counts and the District Court's i mposition of a one-point upward departure based on loss of confidence in an important institution. We will rem and for application of U.S.S.G. SS 2F1.1, 2F1.1(b)(6), and 3B1.3.

A True Copy:

Teste:

Clerk of the United States Court of Appeals
for the Third Circuit

36