PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

_____________

No. 16

- 3813

_____________

UNITED STATES OF AMERICA

v.

STEVEN METRO, Appellant

_______________

On Appeal from the United States District Court for the District of New Jersey (D.C. No. 3

- 15

- cr

- 0 00 28

- 001 ) District Judge: Hon. Michael A. Shipp

_______________

Argued November 6, 2017

Before: JORDAN, HARDIMAN and SCIRICA, Circuit Judges.

(Filed : February 14 , 2018 )

_______________2 Anne M. Collart Lawrence S. Lustberg [ARGUED]

Gibbons One Gateway Center Newark, NJ 07102

Steven Metro ( pro se ) 32 Old Village Lane Katonah, NY 10536 Counsel for Appellant

Mark E. Coyne Office of United States Attorney

970 Broad St.

– Rm. 700 Newark, NJ 07102

Glenn J. Moramarco [ARGUED] Office of United States Attorney

401 Market Street Camden, NJ 08101 Counsel for Appellee

______________

OPINION OF THE COURT

_______________

JORDAN, Circuit Judge

.

Steven Metro appeals from the 46

- month sentence of imprisonment imposed by the District Court as a consequence of his guilty plea to one count of conspiracy to violate federal

securities laws and one count of insider trading. He contends

that the Court wrongly attribut ed to him illicit financial gains3 actually attributable to someone with whom he was not acting in concert and to whom he did not provide inside information.

B ecause the Distric t Court ’s factual findings are in sufficient to support the sentence , we will vacate and remand for resentencing.

I. Background 1

A. The Insider Trading Scheme

Metro, a former managing clerk at a prominent New York City law firm, engaged in a five

- year insider trading scheme in which he abused his position at the firm by

disclos ing material nonpublic information to his close friend Frank Tamayo. The pattern of Metro’s criminal activity remained fairly constant throughout the multi

- year scheme. Between February 2009 and January 2013, he used his position

at the law firm to obtain material nonpublic information concerning thirteen distinct corporate transactions. In eac h instance, a fter obtaining the inside information, he would meet

with Tamayo and tell him which stocks to purchase and when. Tamayo would then write down the stock symbols of the companies whose stock he was about to acquire

.

After Tamayo left those meetings with Metro, he would call his personal stockbroker, Vladimir Eydelman, and arrange

to meet him

, typically at Grand Central Station. Tamayo

would show Eydelman the stock symbols he had written down

1 The fact s that follow are drawn from the record that was before the District Court at sentencing. They are not in dispute , unless otherwise noted below

.4 and Eydelman would commit th em to memory. Tamayo would

then tell Eydelman when to make the trades.

Eydelman made such trad es not only for Tamayo but also on behalf of himself, his family, his friends, and other brokerage clients. Metro, by and large, did not hold the

involved stocks himself and did not collect proceeds from the

trades . Rather, he relied on Tamayo to reinvest the proceeds

from their unlawful trade s in future insider trading. When all was said and done, t he insider trading by Eydelman, Tamayo,

and Metro, based on Metro’s tip s, resulted in illicit gains of $5,673,682. The District Court attributed that entire sum to

Metro in determining the length of his sentence

.

Metro denies being aware of Eydelman’s existence until one year after he relayed his last tip to Tamayo

, and h e contends that he never intended any of the tips he provided to Tamayo to be passed to a broker or any other third party.

B. Tamayo Cooperates with the Government

The trading activity based on Metro’s inside information did not g o unnoticed by the government

. Eventually, an investigation was launched and government

agents execut ed a search warrant at Tamayo’s home in or around December 2013. Tamayo promptly admitted his role in the scheme and began cooperating with the government.

That cooperatio n included recording a January 28, 2014

, meeting with Metro in which Metro expressed his desire to liquidate some of the gain s that had accrued since 2009, so he

could fund a real estate transaction. Tamayo responded that he

had asked his stockbroker

– wh o was unnamed in the

conversation

– to help liquidate some of the assets held in5 Tamayo’s retirement account. A portion of that conversation follows, as set forth in a transcript created by the government

and provided to the District Court

.

TAMAYO: [M]y stock broker . . . I also asked him to see if he can get me, like, 30K for you. Um, because I know you, um, so that might help.

[METRO] : That would help, yeah. Yeah, that would help.

TAMAYO: But, you know, because I know that he [the stock broker], obviously, has to, you know, in order to, uh, you know, to make everything look kosher, he passed it [the Inside Information] to a couple of his clients, you know.

[METRO] : Okay.

TAMAYO: So I said to him [the stock broker], um, I said, listen, is there a ny way you can give me like 30K, ‘cause I can’t take it out of my, you know, because all that money is tied up in my retirement.

[METRO] : Right, sure, sure, right.

TAMAYO: So he [the stock broker] said, he’s thinking about it. I’m actually going to meet with him again, um, you know like Monday or Tuesday of next week. And then he’s gonna, he’s gonna see if he can get me cash.

[METRO] : Alright.6 TAMAYO: So that should be good.

[METRO] : That works. Yeah, that totally works.

...

TAMAYO: If I get my broker to give you, you know, at least 30K, you know, we’ll take it off the. . .

[METRO] : Right, right.

TAMAYO: . . . the, uh, the 168 [ [Metro’s] accrued share of the insider trading profits], there, so. Um, alright, so, let’s see . . .

[METRO] : Yeah, because we’re all cashed out at this point, right?

TAMAYO: Yeah.

[METRO] : We’re not holding anything.

TAMAYO: No, do you, um . . .

[METRO] : But I’m going to . . . if I can’t use the money, I’m not going to leave that money there, doing nothing.

TAMAYO: Uh hum. Yeah, . . . um . . .

[METRO] : You know what I mean? That doesn’t make

sense to me. . .

TAMAYO: Yeah, I mean, it’s been a while, right?7 [METRO] : For us, it’s been a long time. But, I’m just saying even if . . .

TAMAYO: No, no, as far as the last one we did [the last insider trading].

[METRO] : Yeah, yeah. Like a year, or kind of a little bit . . . but I’m not even saying that, I’m saying a legit thing. Because why not, I mean, that money should be making me money, rather than just sitting in a cash

value.

TAMAYO: Absolutely. Um, he actually, the broker actually asked me about it

— he’s like, anything new? I was like, no, you know, so.

[METRO] : But those tips, they really don’t pay off. I mean they pay off for us, but, what good is giving h im [the stock broker] a tip?

TAMAYO: I know.

[METRO] : It’s not making me any money.

TAMAYO: Yeah, but you know the thing is that, it’s good because, it actually, you know, covers up a little bit, that’s all.

[METRO] : Yeah, no, it’s true. But you think he [the stock broker] would kick you something for the [tips].8 TAMAYO: I know, absolutely. He might be the cheapest bastard around.

(App. at 175

- 77 (non

- italicized alterations in original).)

Metro also told Tamayo during that conversation that “[i]f any thing comes up, I’ll let you know about it for sure.” (P resentence Report ¶ 97.) The government arrested Metro less than two months after that meeting.

C. The Presentence Report and Metro’s Objections

After he was caught , Metro ple d guilty to conspiracy to

violate the securities laws 2 in violation of 18 U.S.C. § 371, and insider trading in v iolation of 15 U.S.C. §§ 78j(b) and 78ff.

The Presentence Report (“PSR”) set forth an analysis of

Metro’s sentencing exposure under the U nited S tates Sentencing G uidelines (“U.S.S.G.” or “guidelines”)

. Specifically, t he PSR applied § 2B1.4 of the guidelines , the provision relevant to insider trading, to calculate the offense

level that would determine, in part, the appropriate sentencing

range

. Pursuant to that section , Metro’s base offense level was 8. Because the gain resulting from his conduct exceeded $6,500, the guidelines , under § 2B1.4(b)(1)

, called for an

“ increase by the number of levels from the table in § 2B1.1 [

. ] ” U.S.S.G. § 2B1.4(b )(1). As the PSR attributed all $5 .6 million in illicit gains to Metro, an 18

- level increase was directed by §

2 The indictment charged Metro with conspiracy to commit securities and tender offer fraud. For ease of reference,

we describ e that charge throughout this opinion as a conspiracy

to violate the securities laws.9 2B1.1(b)(1)(J). An a dditional 2

- level increase pursuant to §

3B1.2 was added because Metro had abused his position of

trust as a n employee with management responsibilities at the

law firm

. Finally

, because Metro pled guilty and acknowledged his criminal behavior

, the PSR credited him

with accepting responsibility and hence allowed a 3

- level

reduction in his offense level

, pursuant to § 3E1.1(a) and (b).

Based on a total offense level of 25 and Metro’s criminal history category of I, the recommended guideline s range was 57 to 71 months of imprisonment

.

Metro objected to the attribution to him of all the gains realized as a result of Eydelman’s trades. He argued in a presentence filing with the District Court that he was not , in the language of c ommentary to guidelines § 2B1.4, “acting in concert” with Eydelman such that Eydelman’s gains should be

attribut ed to him for purposes of sentencing

. 3

D. Sentencing Hearing and Sentence

A t the sentencing hearing

, Metro renewed his objection

to the PSR’s 18

- level enhancement based on all $5.6 million of illicit gains from the scheme . In response, the government

described for the Distri ct Court its theory of the case: namely

, that this was “a three

- party scheme[,]” with Metro as the insider, Tamayo as the middleman, and Eydelman as the

stockbroker. (App. at 79

. ) After the District Court asked whether the law requires that Metro “know of Mr. Eydelma n in order to have” responsibility for Eydelman’s gains, the

3 Metro also objected to the abuse of position of trust

enhancement. The District Court’s resolution of t hat objection is not a subject of this appeal.10 government answered that the law only requires that Metro “know that there is somebody else that is obtaining the inside information that he is passing on. And [the g overnment has]

to show that all three gentlemen were acting in concert.” (App.

at 81

- 82.) The government then argued that it had met those requirements because Eydelman, the ultimate recipient of Metro’s tips, was critical to the insider trading

, and that the January 28, 2014, conv ersation demonstrated Metro ’s

aware ness of Eydelman’s existence

.

Metro disputed the government’s characterization of the January 28 conversation, arguing that it did not support a finding that he had acted in concert with Eydelman because the

conversation took place one year after the las t time Metro provided an inside tip. According to Metro , he first learned that a broker (i.e., Eydelman) was involved with the scheme shortly before that conversation, and no fair interpretation of his respons es shows that he had been aware of Eydelman when he (Metro) was passing information to Tamayo

.

The District Court overruled Metro’s objection to the

PSR’s attribution of the full $5.6 million to him . Without making any explicit factual findings on the record, the Court stated that “[t]he commentary [to § 2B1.4] unequivocally attributes all the gains made by Tamayo and Eydelman to Metro. ... So with that, the Court also finds that United States v. Kluger , 722 F.3d 549 (3d Cir. 2013) is also on point and

a nalogous[.]” 4 (App. at 97.)

4 As more fully discussed herein, Kluger deals with the attribution, for sentencing purposes, of insider trading gains.

722 F.3d at 557.11 When handing down Metro’s sentence, the District

Court used the PSR’s guideline imprisonment range of 57 to

71 months as a starting point. It then granted a two

- level downward variance because of Metro’s “strong family ties” and “redeemable qualities,” resulting in a guideline imprisonment range of 46 to 57 months. The Court sentenced

Metro to a 46

- month term of imprisonment

, a three

- year term of supervised release , a $10,000 fine, and a $200 special

assessment

. Metro now ap peals that sentence

.

II. Discussion 5

The District Court rightly looked to the insider trad ing

specific guideline, § 2B1.4, in sentencing Metro. As already noted, t hat section provides for a base offense level of 8, and then says that “[i] f the gain resulting from the offense exceeded $6,500, increase by the number of levels from the table in §

2B1.1 ... . ” U.S.S.G. § 2B1.4 (b)(1) . The commentary to the

section explains that:

... Insider trading is treated essentially as a sophisticated fraud . Because the victims and their losses are difficult if not impossible to identify, the gain, i.e., the total increase in value realized through trading in securities by the defendant and persons acting in concert with the defendant or to whom the defendan t provided inside information , is employed instead of the

victims’ losses.

5 The District Court had jurisdiction under 18 U.S.C. § 3231 . We have appellate jurisdiction pursuant to 18 U.S.C. § 374 2(a)(1) and 28 U.S.C. § 1291.12 U.S.S.G. § 2B1.4 cmt. background (emphasis added). R elying on that commentary, the District Court attributed to Metro all

of the gains realized from Eydelman’s illegal trades , whi ch amounted to approximately $5.6 million. Metro argues that the Court failed to make sufficient factual findings to support that

attribution and gave too broad a meaning to the phrase “acting in concert.” We agree.

A. General Principles and Kluger

“[ W ]e review the District Court’s interpretation of the Sentencing Guidelines de novo ,” its “findings of fact for clear error[,]” and its “application of the Guidelines to facts for

abuse of discretion.” Kluger , 722 F.3d at 555 (citations omitted). T he fede ral sentencing guidelines are to be

understood according to their “plain and unambiguous language [

. ] ” Id. at 556 (quoting United States v. Wong , 3 F.3d 667, 670 (3d Cir. 1993 ) ). C ommentary interpreting or explaining a specific guideline “is authoritative unless it violates the Constitution or a federal statute, or is inconsistent with, or a plainly erroneous reading of, that guideline.” Stinson

v. United States , 508 U.S. 36, 38 (1993). A failure to properly calculate a guidelines range is a “significant procedural error.”

Gall v. United States , 552 U.S. 38, 51 (2007). Accordingly,

“the use of an erroneous

... range will typically require reversal[.]” United States v. Langford , 516 F.3d 205, 215 (3d Cir. 2008); see also United States v. Merced

, 603 F.3d 203, 214 (3d Cir. 201 0 ) (“If the district court commits procedural error, our preferred course is to remand the case for re

- sentencing, without going any further.”).13 With those general principles in mind, we turn to a

review of our decision in United Sta tes v. Kluger , which features prominently in the District Court’s decision and the parties’ arguments on appeal.

Kluger involved an insider trading scheme that, like the

one here, had an insider at a law firm disclosing material

nonpu blic information to a middleman who , in turn, relayed

th at information to a stockbroker who ultimately executed the illegal trades. 722 F.3d at 553

- 54. At sentencing, the d istrict

court attributed to the law firm insider all of the gains realized by the stockbroker, even th ough the insider argued that those gains were not foreseeable because the stockbroker traded “in

share volumes far in excess of the number of shares that the ... conspirators agreed would be traded.” Id. at 554. On appeal,

the insider c hallenged the distri ct court’s gain analysis by arguing that the foreseeability test set out in § 1B1.3(a)(1)(B)

should have lowered the “gain” attributed to him. Id. at 557. Under the version of the guidelines in effect at the time the defendant was sentenced, § 1B1.3(a)(1 ) stated:

(a) ... Unless otherwise specified , (i) the base offense level where the guideline specifies more than one base offense level, (ii) specific offense characteristics and (iii) cross references in Chapter Two, and (iv) adjustments in Chapter Three, shall be determined on the basis of the following:

(1)(A) all acts and omissions committed, aided, abetted, counseled, commanded, induced, procured, or willfully caused by the defendant;

and14 (B) in the case of a jointly undertaken cr iminal activity (a criminal plan, scheme, endeavor, or enterprise undertaken by the defendant in concert with others, whether or not charged as a conspiracy), all reasonably foreseeable acts and omissions of others in furtherance of the jointly

undertaken criminal activity[.]

U.S.S.G. § 1B1.3(a)(1) (2010 ) (emphasis added). In affirming the district court’s gain calculation, we determined that “the

insider

- trading guideline falls under the ‘unless otherwise specified’ exception of § 1B1.3

, ” such that § 1B1. 3’s foreseeability test does not apply to the gain analysis required by § 2B1.4’s commentary. Kluger

, 722 F.3d at 558

- 59. We

reached that conclusion because that gain analysis “unequivocally attributes” to a defendant all the gains realized through tradi ng by individuals “acting in concert with the defendant” or “to whom the defendant provided inside information,” without regard to the foreseeability of those gains. Id. at 558 (quoting U.S.S.G. § 2B1.4 cmt. background).

Critical to o ur conclusion in Klu ger was the defendant ’s

admission that he was “acting in concert with” the stockbroker and that he “provided inside information” with the intent that

it reach the stockbroker. Id. 6 Metro, in contrast, strenuously

6 We emphasized those facts four separate times in Kluger

. See 722 F.3d at 558 ( “[The stockbroker] was a ‘person[] acting in concert with the defendant,’ as well as one ‘to whom the defendant provided inside information.’” (citation omitted) ); id. at 559 n.13 (“[W]e observe that it is undisputed that [the defendant] passed inside information to [the middleman] with the intent that the information would15 disputes that he either acted “ in concert with ” or “ provided

inside information ” to Eydelman.

B. Kluger Did Not Render § 1B1.3 Irrelevant for Purposes of Determining the Scope of

Conduct for Which a Defendant Can B e Held Accountable at Sentencing

Adopting the approach taken in t he PSR, the District

Court concluded that Kluger controlled the sentencing

outcome here

. That of course was also the government’s position

, but t he only evidence offered by the government to establish that Metro had any knowledge of Eydelman, or that

Metro had any aw areness that his insider tips were received by anyone other than Tamayo, was the January 28, 2014

, transcript. Metro objected throughout sentencing to the

conclusion in the PSR that he acted “in concert with” or “provided inside information” to Eydelman

, and he disputed that the January 28, 2014

, transcript established that he had

. The District Court

, at Metro’s sentencing hearing, neither

resolve d those factual disputes nor made any other factual findings with regard to Metro’s relationship with, or

know ledge of, Eydelman. The Court appears to have

reach [the stockbroker] who [the defendant] knew was a

securities trader in order for [the stockbroker] to place illicit trades.”); id. at 561 (“[The stockbroker] is explicitly an individual ‘to whom the defendant provided inside information.’” (citation omitted)); id. at 561 n.19 (“[The defendant] intended [the stockbroker] to be the ultimate tippee because [the defendant] knew that [the middleman] would not exercise the vast majority of the trades on behalf of the conspirators.”).16 concluded either that, in light of Kluger

, Metro’s guilty plea to a conspiracy count naming Eydelman was a sufficient basis to
establish the “in concert with” or the “provide inside information to” requirement s for the attribution of gains , or that Kluger requires that courts hold tippers accountable at sentencing for all downstream trading resulting from that tipper’s inside information. Both interpretations take Kluger

too far.

Metro pled guilty to Count 1 of the indictment , which charg ed him with conspiring with “Tamayo, Eydelman, and

others” to violate the securities laws . (App. at 26.) It is clear

, however, that the guidelines do not consider a defendant’s

criminal liability to be co

- extensive with se ntencing accountability

. The commentary to the guidelines’ “Relevant Conduct” provision, § 1B1.3, is explicit that “[t]he principles and limits of sentencing accountability under this guideline are not always the same as the principles and limits of crimi nal liability,” U.S.S.G. § 1B1.3 cmt. 1, and further that

, “[b]ecause a count may be worded broadly and include the conduct of many participants over a period of time, the scope of” a defendant’s conduct for sentencing purposes “is not necessarily the same as the scope of the entire conspiracy,”

U.S.S.G. § 1B1.3 cmt. 3(B). We have thus explained that the

conduct a defendant is typically held responsible for under the guidelines “is not coextensive with conspiracy law.” United

States v. Mannino , 212 F.3d 835, 842 (3d Cir. 2000) (emphasis omitted) (quoting United States v. Collado , 97 5 F.2d 985, 997 (3d Cir. 1992)). 7 For that reason, we have instructed that

, at

7 See also United States v. Getto , 729 F.3d 221, 234 n.11 (2d Cir. 2013) (“[T]he scope of condu ct for which a defendant can be held accountable under the sentencing17 sentencing

, it is essential for courts to conduct “a searching and individualized inq uiry into the circumstances surrounding each defendant’s involvement in [a] conspiracy ... to ensure that the defendant’s sentence accurately reflects his or her role.”

Collado , 975 F.2d at 995

. The question we are faced with now is whether those fundament al sentencing principle s appl y with equal force in the insider trading context , given our decision in Kluger , and the answer is they do.

Kluger does not mandate that § 1B1.3 , and its guidance on the importance of individual accountability at sentencing, play s no role in determining the scope of a defendant’s relevant

conduct in i nsid er

- trading conspiracy cases. That case holds, rather, that § 1B1.3’s foreseeability requirement is inapplicable

to an analysis of illicit gain under § 2B1.4

. See Kluger , 72 2

F.3d at 5 58

- 59 (“[T]he insider

- trading guideline falls under the

guidelines is significantly narrower than the conduct embraced by the law of conspiracy.” (citation omitted) ); United States v. Spotted Elk , 548 F.3d 641, 6 74 (8th Cir. 2008) (“[T]he emphasis under § 1B1.3 is the scope of the individual defendant’s undertaking ... rather than the scope of the conspiracy as a whole[.]”); William W. Wilkins, Jr. & John R.

Steer , Relevant Conduct: The Cornerstone of the Federal

Se ntencing Guidelines , 41 S.C. L. Rev. 494, 510 (1990) [hereinafter Relevant Conduct ] (explaining that in “concerted activity situations,” the guidelines attempted to create a sentencing rule that was “not necessarily co

- extensive with

...

co

- conspirator liabi lity”). At the time Relevant Conduct was published

, Judge Wilkins was Chairman of the United States Sentencing Commission, and Steer was the Commission’s

General Counsel. Relevant Conduct , 41 S.C. L. Rev. at 495

n.a & aa.18 ‘unless otherwise specified’ exception of § 1B1.3, and, as a result, we will not use the reasonable foreseeability test in reviewing the District Court’s calculation of the offense

level [.] ”); id. at 559 (“In the circumstances we should not look beyond the plain language of § 2B1.4 and read a foreseeability test into § 2B1.4.”)

. T he “unless otherwise specified” exception is not a n all

- or

- nothing proposition. Just because

one subsection of § 1B1.3 does “not apply to a particular count

of conviction does not mean that other subsections of the relevant conduct pr ovision cannot be given effect.” United

States v. Maddox , 803 F.3d 1215, 1223 (11th Cir. 2015)

.

Amendments made by the United States Sentencing Commission to § 1B1.3 after Kluger

, and that were given effect prior to Metro’s sentencing, support our conclusion that § 1B1.3 remains important even in an insider trading case

. The

2015 version of § 1B1.3 amended subsection (a)(1)(B) , the provision containing guidance on when a court is to hold a

defendant accountable for the conduct of others “in the case of a jointly undertaken criminal activity [

. ] ” U.S.S.G. § 1B1.3(a)(1)(B). In the pre

- 2015 version of the guidelines

tha t Kluger interpret ed , that specific subsection instructed courts to hold defendants responsible “in the case of a jointly undertaken criminal activity (a criminal plan, scheme, endeavor, or enterprise undertaken by the defendant in concert with others, whe ther or not charged as a conspiracy)[] [for] all reasonably foreseeable acts and omissions of others in furtherance of the jointly undertaken criminal activity [

. ] ” U.S.S.G. § 1B1.3(a)(1)(B) (2011). Following the 2015 amendments, § 1B1.3(a)(1)( B ) now inst ructs courts to h old a

defe ndant responsible,19 in the case of a jointly undertaken criminal activity (a criminal plan, scheme, endeavor, or enterprise undertaken by the defendant in concert with others, whether or not charged as a conspiracy), [for] all acts a nd omissions of others

that were

— (i) within the scope of the jointly undertaken criminal activity, (ii) in furtherance of that criminal activity, and (iii) reasonably foreseeable in

connection with that criminal activity[.]

U.S.S.G. § 1B1.3(a)(1)(B) (2015)

.

The amendment placed within the text of the guideline

three distinct factors for courts to consider when conducting the § 1B1.3(a)(1)(B) analysis. By its own account, t he Sentencing Commission amended the guideline to “clarify the

use of relevant conduct in offenses involving multiple participants.” U.S.S.G. Supp. to App. C, Amend. 790, Reason

for Amend. While the amendment did not signal a “substantive change in policy

, ” it did clarify that courts should go through a

three

- step analysis before attributi ng the conduct of others to a defendant facing sentencing

. Id. That analysis requires courts

to “(1) identify the scope of the jointly undertaken criminal activity; (2) determine whether the conduct of others in the jointly undertaken criminal activity w as in furtherance of that criminal activity; and (3) determine whether the conduct of

others was r easonably fore seeable in connection with that criminal activity.” Id. The main point of the amendment was20 to take the “scope” step of the analysis out of th e commentary and place it “in the text of the guideline itself.” Id.

Kluger had no occasion to address the “scope” of the jointly undertaken criminal activity because it was not disputed that the defendant was aware of, and acting with, the

stockbroker

. 722 F.3d at 559 n.13. Rather, the Kluger Court’s analysis focused on whether conduct that was admittedly within the scope of and in furtherance of the jointly undertaken

criminal acti vity also had to be foreseeable to be attributable to

an insider

- trading defendant. Id. at 557

- 61. In short, the question of scope was not on the table in Kluger

, but it is here

, and it may be in other insider trading cases

.

We therefore hold that § 1B1.3 remains relevant when attributing to an insider

- trading defend ant gains realized by

other individuals. Before attributing gains to a defendant under § 2B1.4’s gain analysis, a sentencing court should first identify the scope of conduct for which the defendant can fairly be held

accountable for sentencing purposes un der § 1B1.3. After identifying the scope of conduct, the court should then analyze

that conduct to determine who m the defendant “act [ ed ] in

concert with” and to whom he “ provided inside information [

. ] ” U.S.S.G. § 2B1.4 cmt. background. That may lead the court to
attribute to a defendant gains realized by downstream trading emanating from the defendant’s tips

, but, depending on the facts established at sentencing, it may not. 8 Kluger does not

8 We emphasize that a defendant cannot artificially limit his sentencing exposure by utilizing a middleman to convey inside information to a third party to conduct illegal trades when that defendant had reason to know, or was21 impose, as the government suggests, “what a mounts to strict

li ability” on tippers, regardless of whether or not the tipper had any knowledge at the time he was providing the inside

information that it would reach an individual other than the

individual to whom he provided it . ( Answering Br. at 26.) In fact, the gov ernment’s own argument to the District Court

undercuts the position it has taken before us. When asked by

the District Court whether Metro had to “know of

Mr. Eydelman in order to have” responsibility for Eydelman’s gains, the government answered that the law requires that Metro “know that there is somebody else that is obtaining the inside information that he is passing on. And [the government has] to show that all three gentlemen were acting in concert.” (App. at 81

- 82.)

Because “the attribution of ga ins to a defendant can be critical in a guidelines sentencing range calculation,” Kluger

, 722 F.3d at 556, the “strict liability” position now taken by the
government run s the risk of sentences being imposed on defendants that are excessive in relation to their criminal

conduct. 9 Our holding today avoids that risk but remains fully

willfully blind to the fact that, the middleman was passing t he inside information to third parties.

9 We are not alone in looking to § 1B1.3 to provide the proper analytical framework for assessing the scope of a defendant’s conduct for sentencing purposes in the insider trading context. Other c ourts of appeals have looked to that provision for that purpose for decades. United States v.

Nacchio , 573 F.3d 1062, 1072

- 73 (10th Cir. 2009); United States v. O’Hagan , 139 F.3d 641, 655

- 56 (8th Cir. 1998);22 in line with Kluger . Once a sentencing court identifies the scope of conduct for which a defendant can be fairly held accountable, whether consequences flowing from that conduct

were foreseeable is not pertinent to § 2B1.4’s gain analysis.

C. The District Court Did Not Address Critical Factual Disputes Relevant to the Scope of Metro’s Conduct for Sentencing Purposes

Since we have conclude d that district courts must look to § 1B1.3 to determine the scope of conduct for which a defendant can be held accountable for sentencing purposes , we

must now consider whether the District Court made “a searching and individualized inquiry into the circumstances surrounding [Metro’s] involvement in the conspiracy ... to ensure that [Metro’s] sentence accurately reflect[ed] his

... role.” Collado , 975 F.2d at 995. A district court does not meet that requirement if it fails to comply with the guidelines’ instruction to “resolve disputed sentencing factors at a sentencing hearing in accordance with [Federal Rule of Criminal Procedure] 32(i).” U.S.S.G. § 6A1.3(b). That rule mandates that, “[a]t sentencing, the court ... must

– for any disputed portion of th e presentence report or other controverted

matter

– rule on the dispute or determine that a ruling is unnecessary either because the matter will not affect sentencing, or because the court will not consider the matter in sentencing ... .” Fed. R. Crim. P. 3 2(i). The rule is “strictly enforced” and requires that “[a] finding on a disputed fact or a disclaimer of reliance upon a disputed fact ... be expressly

made.” United States v. Electrodyne Sys. Corp. , 147 F.3d 250,

United States v. Stern

, No. 92

- 3752, 1993 WL 82048, at *4 (5th Cir. Mar. 12, 1993) (not precedential).23 255 (3d Cir. 1998); see also United Stat es v. Freeman , 763 F.3d 322, 339 (3d Cir. 2014) (“[I]f a defendant disputes a fact included in the presentence investigation report, the sentencing court must either resolve that dispute or state that it will not rely on the disputed fact.” (citation omitt ed)). A district court’s failure to comply with Rule 32(i)(3)(B) “is grounds for vacating the sentence.” Electrodyne Sys. , 147 F.3d at 255.

T he government offered only the January 28, 2014, transcript to establish its factual contentions. Metro , for hi s part, clearly objected to the government’s position that he “acted in concert with” or “provided inside information” to Eydelman. The District Court never resolved those factual disputes on the record; it simply overruled Metro’s objection

and concluded that Kluger was controlling. Had the Court’s

assessment of Kluger been correct, it may have been justified in viewing as moot the factual disputes raised by Metro. B ut, as we have discussed, the assessment was in error. Accordingly, the factual disputes are ver y much alive and the obligation of Rule 32(i)(3)(B) to resolve those disputes

remains in force.

When the scope of a defendant’s involvement in a conspira cy is contested , a district court cannot rely solely on a defendant’s guilty plea to the conspiracy charge, without

additional fact

- fi nding, to support attributing co

- conspirator s ’ gains to a defendant. Because the District Court here did not

resolve the key factual dispute raised by Metro, or otherwise

pro vide a factual basis to support its gain analysis, there was

not the “searching and individualized inquiry” necessary to ensure Metro’s sentence matched his role in the conspiracy.24 D. A Guilty Plea Alone Is Not Necessarily Determinative of Sentencing Accountability

In reaching our conclus ion, we do not imply that a defendant can contest at sentencing the factual averments contained in an indictment to which he pled guilty

. See United

States v. Parker , 874 F.2d 174, 177 n.1 (3d Cir. 198 9) (holding that pleading guilty “binds [a defendant] to the accuracy of the

facts set forth in the indictment” ). That issue is not before us today because the indictment to which Eydelman pled guilty contains no facts actually linking Metro to Eydelman. Though it charged Metro with “knowingly and willfully combin[ing], conspir[ing] and agree[ing] with Tamayo, Eydelman, and

others” to violate the securities laws , (App. at 26

- 27,) the

indictment did not set out any factual basis showing that Metro

“acted in concert with” or “provided inside information” to Eydelman for purposes of sentencing accountability. Similarly, the PSR does not contain any facts linking Metro to Eydelman, other than referring to the fact that Metro was charged with conspi ring with Eydelman. And although the government could have eli cited facts from Metro at his plea hearing to tie him to Eydelman, it did not.

On the contrary, a t the plea hearing, the government

established only that Metro learn ed about Eydelman after the

inside r trading activity had ended

. 10 It asked Metro whether h e

10 Federal Rule of Criminal Procedure 11 instructs that “[b]efore entering judgment on a guilty plea, the court must determine that there is a factual basis for the plea.” Fed. R. Crim. P. 11(b)(3). Here, ra ther than conducting the colloquy

with Metro to determine whether there was a sufficient factual basis to support entering judgment on the guilty plea, the Court25 “enter[ed] into an agreement with Frank Tamayo to engage in securities transactions based on material nonpublic information,” to which Metro responded, “Yes

, ” but it did not ask whether he entered into an agreement with Eydelman. (App. at 67. ) The gove rnment next asked whether Metro “disclose[d] the inside information to Tamayo,” to which Metro responded, “Yes.” (App. at 67.) It did not ask if he disclosed information to Eydelman. The g overnment asked whether, between February 2009 and January 2013, Metro “provide[d] Tamayo inside information related to at least 13 different corporate transactions so that Tamayo could profit by trading on the inside information[,]” to which Metro responded, “Yes.” (App. at 69.) The government did not ask

whether he provided that information with the intent that it reach Eydelman. The government further asked, “[w]ith respect to the overt acts charged in the indictment, do you acknowledge that you and Frank Tamayo each had a defined role to perform certain specific a cts in furtherance of your
agreement to [violate the securities laws] ,” to which Metro replied, “Yes.” (App. at 69.) The government did not ask about Eydelman’s role , if any, in that agreement. The only fact the government did elicit from Metro concerning Eydelman

was that “ [ a ] fter [his] arrest,” Metro “learn[ed] that Tamayo used a broker named Vladimir Eydelman[.]” (App. at 69.)

The government must prove facts supporting a

sentenc ing enhancement by a preponderance of the evidence. United States v. Napolitan , 762 F.3d 297, 309 (3d Cir. 2014);

United States v. Tai , 750 F.3d 309, 318

- 19 (3d Cir. 2014). Perhaps t he District Court thought that the government had met

requested the government to develop the factual basis by questioning Metro.26 its burden to demo nstrate that Metro “acted in concert with” or “provided inside information” to Eydelman

, but the record give s us no basis to say that the Court indeed reached that

conclusion

. I n any event, the record is insufficient to support the sentence given.

III. Conclu sion For the foregoing reasons, we will vacate Metro’s

sentence and remand the case for resentencing after the District

Court has determine d whether the government has established by a preponderance of the evidence that Metro “acted in concert with” or “provided inside information” to Eydelman. The Court is free to reopen the record, should it determine that further development of the record is in order.