Opinion ID: 765751
Heading Depth: 3
Heading Rank: 1

Heading: Existence of a Position of Trust

Text: 76 In deciding whether a defendant holds a position of trust, a court must consider: 77 (1) whether the position allows the defendant to commit a difficult-to-detect wrong; (2) the degree of authority which the position vests in defendant vis-a-vis the object of the wrongful act; and (3) whether there has been reliance on the integrity of the person occupying the position. 78 United States v. Pardo, 25 F.3d 1187, 1192 (3d Cir. 1994). Application Note 1 to section 3B1.3 states: 79 Public or private trust refers to a position of public or private trust characterized by professional or managerial discretion (i.e., substantial discretionary judgment that is ordinarily given considerable deference). Persons holding such positions ordinarily are subject to significantly less supervision than employees whose responsibilities are primarily non-discretionary in nature. 80 § 3B1.3 application note 1. The Court found that Nathan's position allowed him to commit hard-to-detect crimes, since he was able to breach contracts without interference from superiors and was able to conceal those breaches through instructions to subordinates. (Though it also found that the government had relied on Nathan's integrity in revealing military information to him, this finding has no potency in light of the fact that the information was already in the public domain.) The Court took note of the fact that Nathan submitted to the government an agreement acknowledging all of his responsibilities under United States export control laws and stating that he would not provide access to critical military data to persons other than Electrodyne's employees without Department of Defense consent. 81 We have frequently determined that individuals who held high positions in their companies had positions of trust. For example, in Sokolow, we concluded that the defendant, as president and owner of his company, held a position of trust because he was able to commit difficult-to-detect wrongs, as he had sole control over [the company's] accounts without oversight or supervision. Sokolow, 91 F.3d at 413. We also noted that he had the authority to withdraw his victims' funds from his company and that such authority was necessary to complete the offense. See id. Nathan similarly had the authority to determine how his company would fulfill its contracts, which authority was critical to the success of his fraud. 82 In United States v. Bennett, 161 F.3d 171 (3d Cir. 1998), petition for cert. filed, 67 U.S.L.W. 3758 (U.S. June 4, 1999) (No. 98-1957), we held that the defendant, who held a fiduciary position as president and sole director of the . . . organizations and who possessed absolute control over the organizations, id. at 195, held a position of trust. The defendant created a phony board of directors, invented benefactors, and used the contributions for his own businesses. The court concluded that his victims--donors who were told that their money would be used for charitable purposes--trusted him and that his position enabled him to abuse that trust. See id. at 196. Like Bennett, Nathan held the highest position in the company, managed to conceal the breaches of contract for five years, and owned a controlling block of stock. 83 In analyzing whether a defendant held a position of trust in a contracting situation, courts have given weight to whether the victim reposed additional trust in the defendant by ceding its ability to confirm compliance with the contract, thus relying more heavily on the honesty of the defendant than an ordinary party to a contract would. In a government contract case, United States v. Glymph, 96 F.3d 722 (4th Cir. 1996), the Fourth Circuit concluded that a defense contractor who was allowed to certify his own compliance with his contract with the Department of Defense (DoD) deserved an abuse of position of trust enhancement. The defendant, who was convicted of knowingly supplying to the DoD parts that did not conform to the agency's specifications, owned a company that was approved to participate in the DoD's Alternate Release Procedure. This procedure allowed the company to ship parts without prior inspection by a government quality assurance representative so long as Glymph certified that each shipment had passed the required tests and conformed to the specifications. Though Glymph argued that he was merely an arm's length contractor with the government, the court held that in light of the self-certification procedure and the difficulty in detecting the fraud, he held a position of trust. 84 Likewise, in United States v. Velez, 168 F.3d 1137 (9th Cir. 1999), the defendant, who operated a private immigration consulting firm, helped aliens file applications with the INS. He also directed a group that was a qualified designated entity (QDE), which meant that it had been given statutory authority to assist aliens in preparing legalization applications. Over three years, Velez submitted six thousand applications to the INS, many of which contained false information. At some points in time, the INS was only accepting applications from QDEs. The Ninth Circuit affirmed the district court's Conclusion that Velez held a position of trust because of his special status with the INS as a director of a QDE and because his false documents could not be discovered as a matter of routine. See id. at 1139. It also affirmed that he had used his position to facilitate the offense, since he used his status to attract clients and to expedite the filing process at a time when only QDEs could file applications. 85 Velez is a more clear-cut case than the present one, since Velez had statutory authorization (comparable to an oligopoly) that entitled him to benefits--and responsibilities--other entities did not have. However, like Velez, Nathan had a formal understanding with the government that he would perform certain services in a certain way, and it was difficult for the government to monitor compliance with that understanding. See also United States v. Sherman, 160 F.3d 967, 970 (3d Cir. 1998) (holding that doctor who committed insurance fraud abused a position of trust because the victim-insurer used an honor system and costs to insurer of double-checking doctor's submissions would be prohibitively high). 86 Much like the defendants in Glymph, Velez, and Sherman, Nathan, as president of the company, was in a unique position to make decisions for the company and to decide how Electrodyne would fill the government contracts. Since no one else--neither the government nor anyone at Electrodyne--was supervising his acts, he held a position that allowed him to commit wrongs, and that permitted him to make those wrongs harder to detect by requiring subordinates to mark over foreign labels and add Made in the U.S.A. labels. Importantly, the government did not appoint a quality assurance representative to monitor the contracts at issue here, diverging from what appears to be its regular practice; thus, the government vested a significant degree of authority in Nathan. Finally, the government relied on Nathan's integrity not only in opting to contract with him (as the head of Electrodyne), but also in deciding not to assign an enforcement representative to ensure that he was complying with his contracts. Applying this court's abuse of position of trust jurisprudence, which is captured in the tripartite test set forth in Pardo, we conclude that the District Court correctly determined that the government was a victim within the meaning of Sokolow and that accordingly Nathan held a position of trust vis-a-vis the government. 5