Opinion ID: 180862
Heading Depth: 4
Heading Rank: 2

Heading: Disclosure of sales terms

Text: Goyal also affirmed in seven signed management representation letters to PwC that NAI had fully disclosed to [PwC] all sales terms, including all rights of return or price adjustments, and all warranty provisions. The government argued that this statement was willfully and knowingly false, independent of any GAAP violation, because NAI, at Goyal's direction, did not turn over the buy-in letters memorializing the quarter-end Ingram transactions. Goyal contends that his affirmations of disclosure were not false, because PwC had access to all sales terms through Ingram's debit memos. Whenever Ingram claimed a concession from a buy-in deal, it sent NAI a debit memo requesting that the promised discount or rebate be honored. Ingram typically cited the deal term it sought to apply, and sometimes attached its copy of the relevant buy-in letter for reference. The government maintains that NAI could only satisfy its duty to disclose sales terms by disclosing the buy-in letters themselves. Equivalent information, trickling in piecemeal in the form of debit memos from Ingram, did not, according to the government, measure up to what Goyal claimed to have disclosed. Whether this is correct is a close question. NAI recognized revenue based on Ingram's purchase orders, invoices, and debit memos, not the buy-in letters that spelled out what sales terms would be. Goyal reasonably could have thought, in good faith, that conveying the sales terms in one of the forms NAI used to recognize revenue was sufficient. Our review of a motion to acquit limits us, however, to what a reasonable juror could have found, and there was enough evidence for a juror to conclude that nondisclosure of the buy-in letters mattered. Stavers testified that [i]t would have been important for [PwC] to have seen these letters in order to determine the proper accounting for the sales transactions. He further explained that a debit memo did not adequately provide him with the terms of the deal because the debit memos came in after the fact: It doesn't help us on June 30th to look at a document issued in August, in order for us to determine the accounting at the end of June. A reasonable juror could have concluded that buy-in letters were necessary for a full[ ] disclosure of all sales terms, and that Goyal's representations to PwC on that subject were materially false. But even if sales terms were not disclosed to PwC, the government's case suffered from a total failure of proof, Nevils, 598 F.3d at 1167, that Goyal willfully and knowingly misled PwC. Several of the government's arguments for inferring mens rea in connection with GAAP violations, see part II.B.1.b supra, apply equally to Goyal's knowledge of withholding of buy-in letters. The inferences the government would have a juror drawfrom Goyal's accounting knowledge and participation in buy-in transactions, from his incentives to use the deals to meet NAI's projected revenue, and by attributing Borrmann and Collins' claimed knowledge to Goyalare no more valid in this context. We reject them for the reasons already articulated and turn now to arguments specific to the buy-in letters. The government points to Collins' testimony that he, as corporate controller, withheld buy-in letters from PwC because that is what he believed Goyal wanted. Collins left NAI before the time periods covered by the lying-to-auditors counts. His opinion, therefore, is only pertinent to the extent it supports an inference that Goyal's intentions in the relevant period were the same as Collins assumed they were during his tenure. More fundamentally, though, Collins offered no basis for his belief about Goyal's intentions. He admitted that Goyal had never told him to withhold buy-in letters from PwC, and the government introduced no other evidence that Goyal wanted them withheld. To the contrary, Collins told Goyal that he would [e]nsure [SOP 97-2] compliance for the year end audit, and [m]eet all filing requirements. Baseless speculation by a cooperating witness is not proof of fraudulent intent, especially when it contradicted evidence that Goyal had reason to expect compliance with auditing requirements. Finally, the district court relied on the notion that Goyal could be convicted of lying to PwC because he had an affirmative responsibilityas set forth in the management representation lettersto disclose the buy-in letters. But even if he did, his failure to do so does not indicate scienter. The district court's theory is therefore untenable because it makes a strict-liability crime out of one that requires willful and knowing deception. Cf. United States v. Smith, 155 F.3d 1051, 1068 n. 25 (9th Cir.1998) (declining to adopt a construction of 15 U.S.C. § 78ff(a) that de facto eliminates the mens rea requirement). Absent any proof that Goyal willfully concealed buy-in letters from PwC, his convictions on this basis must be reversed.