Court Opinion

ID: 4322554
Source: CourtListenerOpinion
Date Created: 2018-10-19 00:00:21.704447+00
Date Added: 2024-06-11T07:49:12.360220
License: Public Domain

Case: 17-30623    Document: 00514688037       Page: 1     Date Filed: 10/18/2018

         IN THE UNITED STATES COURT OF APPEALS
                  FOR THE FIFTH CIRCUIT

                                     No. 17-30623                  United States Court of Appeals
                                                                            Fifth Circuit

                                                                          FILED
                                                                   October 18, 2018
UNITED STATES OF AMERICA,
                                                                     Lyle W. Cayce
              Plaintiff - Appellee                                        Clerk

v.

JOHN STEVEN BLOUNT,

              Defendant - Appellant

                   Appeal from the United States District Court
                      for the Western District of Louisiana

Before JOLLY, ELROD, and WILLETT, Circuit Judges.
E. GRADY JOLLY, Circuit Judge:
       John Steven Blount, who pled guilty to securities fraud crimes, on appeal
challenges only his two-level sentencing enhancement based on his violation of
a prior administrative order. He argues first that the order, handed down by
the    Financial    Industry   Regulatory    Authority        (FINRA),        is     not        an
administrative order within the meaning of § 2B1.1(b)(9)(C) of the Sentencing
Guidelines.    Second, he argues that even assuming § 2B1.1(b)(9)(C) is
applicable to the FINRA order, he did not violate its terms. We hold that,
under the plain error standard of review, the district court did not err in
applying the § 2B1.1(b)(9)(C) sentencing enhancement to the FINRA order and
that Blount clearly violated the order’s terms.
    Case: 17-30623     Document: 00514688037     Page: 2   Date Filed: 10/18/2018

                                  No. 17-30623
                                        I.
      Blount practiced as a FINRA-licensed securities broker and dealer from
June 1992 through August 2003. During this period, he was the subject of over
one hundred customer complaints, provoking FINRA to open a regulatory
investigation.   The investigation concluded that Blount misrepresented
material information to investors, causing them to purchase unsuitable
financial products. Based on this finding, FINRA issued an order banning
Blount from associating with any FINRA member “in any capacity.” Because
of FINRA’s jurisdiction over the brokerage industry, this order effectively
barred Blount from dealing in the securities business.
      Blount disregarded FINRA’s order (and numerous other state and
federal securities laws and regulations along the way) and resumed work as
an investment advisor and securities broker by at least the summer of 2007.
Holding himself out as a licensed securities broker, Blount orchestrated a
Ponzi scheme primarily targeting retirees. He promised his victims high rates
of return for investments in what turned out to be fictitious securities. Instead
of investing his victims’ capital, he placed it in various shell companies for his
own benefit.
      In February 2014, FINRA forwarded a complaint to the Louisiana Office
of Financial Institutions alleging that Blount was selling securities to the
public in violation of its 2003 order.       This complaint provoked a law
enforcement investigation which exposed Blount’s Ponzi scheme. Ultimately,
Blount defrauded at least 72 investors out of approximately $5.8 million.
                                       II.
      The federal government charged Blount with violating 18 U.S.C. § 1343
by committing wire fraud. Blount pled guilty. In accordance with the plea
agreement, he signed a stipulated factual agreement admitting that the 2003
FINRA order barred him from working as a securities broker.              He also
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                                         No. 17-30623
admitted that “[d]espite his prohibition by FINRA, on a date not later than
June 1, 2007, Blount resumed operations as an investment advisor and
securities broker in violation of state and federal securities laws and
regulations.” To eliminate all doubt of the admission, Blount reaffirmed these
admissions during his plea colloquy:
         District Court: In spite of your prohibition by FINRA . . . you
         resumed operations as an investment advisor and securities
         broker . . . . [I]s that what happened in this case?
         Blount: Yes, ma’am.
The      Presentence       Report     (PSR)      recommended          several      offense-level
adjustments, including a two-level increase under U.S.S.G. § 2B1.1(b)(9)(C) for
violating a prior judicial or administrative order. 1 The district court overruled
Blount’s objections to the PSR and sentenced him to 235 months of
imprisonment followed by three years of supervised release and ordered him
to pay $4,313,173.22 in restitution. He did not directly appeal this sentence.
         Soon thereafter, however, Blount filed a motion in the district court
under 28 U.S.C. § 2255 to vacate, set aside, or correct his sentence, arguing
that his defense counsel was constitutionally ineffective. The district court
granted the motion, vacated his sentence, and ordered a revised PSR and new
sentencing hearing. The revised PSR eliminated its recommendation for an
enhancement for abuse of trust but left untouched the remainder of Blount’s
sentence, including the two-level enhancement for violating an administrative
order.       Blount objected to the revised PSR including its prior order
enhancement but failed to object on the grounds that the FINRA order was not
an administrative order within the terms of § 2B1.1(b)(9)(C). The district court

         U.S.S.G. § 2B1.1(b)(9)(C) provides that: “If the offense involved . . . a violation of any
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prior, specific judicial or administrative order, injunction, decree, or process not addressed
elsewhere in the guidelines . . . increase by 2 levels.”

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                                   No. 17-30623
rejected Blount’s objection, holding that the prior order enhancement applied
under the facts of the case. It sentenced him to 188 months of imprisonment,
three years of supervised release, and $4,313,173.22 in restitution. Blount
timely appealed.
                                          III.
      We review “a district court’s interpretation or application of the
Guidelines de novo and its factual findings for clear error.” United States v.
Nash, 729 F.3d 400, 403 (5th Cir. 2013) (internal citation omitted). Further,
“[a] determination that a particular judicial or administrative action qualifies
under Section 2B1.1(b)(9)(C) is an interpretation and application of the
guidelines that we review de novo.” Id. We review challenges to Guidelines
enhancements that are raised for the first time on appeal for plain error. See
United States v. Chavez-Hernandez, 671 F.3d 494, 497 (5th Cir. 2012).
      On appeal, Blount argues that the two-level prior administrative order
enhancement should be reversed because 1) the FINRA order was not a prior
administrative order as referenced in the Sentencing Guidelines and 2) even
so, he did not violate its terms. We address each argument in turn.
                                          A.
      We first consider Blount’s argument that the FINRA order is not a “prior,
specific judicial or administrative order, injunction, decree, or process” under
§ 2B1.1(b)(9)(C) of the Sentencing Guidelines. Because Blount raises this issue
for the first time in this appeal, we review for plain error.         See Chavez-
Hernandez, 671 F.3d at 497 (“If . . . the defendant has failed to make his
objection to the guidelines calculation sufficiently clear [in the trial court], the
issue is considered forfeited, and we review only for plain error.”). Ordinarily,
an error is not plain when the court has not previously addressed the issue at
hand. See United States v. Evans, 587 F.3d 667, 671 (5th Cir. 2009). Indeed,
“[e]ven   where    the    [defendant’s]    argument   requires    only   extending
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                                      No. 17-30623
authoritative precedent, ‘the failure of the district court to do so cannot be plain
error.’” Id. (quoting United States v. Lomas, 304 F. App’x 300, 301 (5th Cir.
2008)).
       Blount argues that FINRA’s order is not an “administrative order”
because     FINRA        is   a    “private       self-regulatory    organization”       and
“administrative” order, in the context of the guidelines, strongly suggests, if
not requires, that the order emanate from a governmental entity.                         The
Government concedes that FINRA is “technically a private entity.”                        The
Government nevertheless argues that FINRA’s order qualifies because FINRA
“mirrors the typical governmental oversight body with respect to its
responsibilities, authority, and procedure” and the SEC has formally tasked it
with regulating the securities industry, “including conducting enforcement
actions against individuals.” Further, the Government emphasizes the plain
error standard of review and urges that Blount’s inability to cite Fifth Circuit
precedent supporting his argument demonstrates that even if applying the
administrative order enhancement to the FINRA order were error, it was
certainly not a plain error. 2
       We agree. This case is largely indistinguishable from the plain error
analysis in United States v. Evans in which we also encountered a novel
argument that was not raised in the district court and had no support in Fifth
Circuit precedent.        See 587 F.3d at 670–71.             Thus, given the lack of
authoritative precedent suggesting that § 2B1.1(b)(9)(C) does not apply to

       2  Blount cites a single Ninth Circuit case as support for the proposition that a FINRA
order is not a prior order under the Sentencing Guidelines. In United States v. Linville, the
Ninth Circuit held that a U.S. Department of Agriculture warning did not qualify as a prior
order because the warning “neither resulted from an adversary proceeding nor constituted
formal orders.” 10 F.3d 630, 632 (9th Cir. 1993). Blount does not attack the FINRA order on
such procedural grounds; instead, he attacks the order on the basis that it is not a
government-issued order. In any event, our review is under plain error and Linville gives
little succor to Blount’s argument that the district court’s error here was plain.

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                                      No. 17-30623
FINRA orders, the district court’s alleged error certainly was not “obvious,”
“readily apparent,” or in a word, plain.           See id. at 671 (citation omitted).
Because the district court did not plainly err in determining that FINRA’s
order was within the terms of § 2B1.1(b)(9)(C), we now turn to Blount’s
argument that he did not violate the order.
                                            B.
       Blount continues his challenge to the sentencing enhancement by
arguing that, even assuming § 2B1.1(b)(9)(C)’s applicability, his conduct did
not violate the terms of the FINRA order. Because he raised this argument in
objections below, we review this issue de novo. 3 See Nash, 729 F.3d at 403.
Blount concedes that he was engaged in criminal fraud but argues that he did
not violate the FINRA order because he was selling insurance products, not
securities. In response, the Government argues that it does not matter how
Blount referred to the products. Regardless of label, the fraudulent products
he marketed were within the definition of “securities” under the Securities
Exchange Act of 1934. See 15 U.S.C. § 78c(a)(10). The Government also points
out that Blount admitted in his plea deal, and in open court, to engaging in
securities trading and specifically to violating the FINRA order.                  Blount
attempts to avoid this conclusion by arguing that he was operating under an
insurance license and selling insurance products. These actions, he argues,
would fall outside the FINRA order because the order was only directed at the
sale of “securities” and makes no mention of “insurance.”
       Courts will look to the substance of the product to determine whether it
is a security. See Reves v. Ernst & Young, 494 U.S. 56, 61 (1990) (“Congress’

       3 The Government argues that Blount waived these arguments by failing to challenge
the prior order enhancement in his § 2255 motion. He did raise these issues, however, in
objections prior to his resentencing hearing. Because the Government clearly prevails on the
merits, we will assume that Blount’s arguments are not waived for purposes of this appeal.

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                                  No. 17-30623
purpose in enacting the securities laws was to regulate investments, in
whatever form they are made and by whatever name they are called.”); Marine
Bank v. Weaver, 455 U.S. 551, 555–56 (1982) (“The definition of ‘security’ . . . .
includes ordinary stocks and bonds, along with the countless and variable
schemes devised by those who seek the use of the money of others on the
promise of profits.” (citation omitted)); United States v. Tucker, 345 F.3d 320,
329 (5th Cir. 2003) (“The Reves court rejected the notion that ‘legal formalisms’
were controlling . . . . [The Court] also found the ‘fundamental essence of a
security to be its character as an investment.’”). Blount advertised and sold
products, including purported bonds, investment contracts, and qualified IRAs,
that fit comfortably within the federal definition of “security.” See Tucker, 345
F.3d at 328–31. Whether Blount calls the investments he peddled insurance,
annuities, or magic beans, they are substantively securities for the purposes of
the Securities Exchange Act.
      Finally, to further rebut a conclusion that he violated the FINRA order
by selling securities, Blount argues that his activity did not violate the order
because that order was “imposed in his capacity as a licensed securities dealer
working for a brokerage firm,” but at the time of the offense, he operated
“under an insurance license . . . and worked for himself.” This practically
redundant argument is likewise unpersuasive. FINRA’s order does not bar
Blount merely from working as a licensed broker affiliated with a brokerage
firm, it further bars him from “associating with any [FINRA] member in any
capacity.” The fact that Blount was not affiliated with a brokerage firm at the
time of the offenses is of no consequence. Blount violated FINRA’s order when
he advertised and sold financial products that meet the federal definition of
“security.”
      Still further, Blount’s plea agreement and sworn statements amount to
an unambiguous admission that he sold securities in violation of the FINRA
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                                 No. 17-30623
order.     “Solemn declarations in open court carry a strong presumption of
verity.”    U.S. v. Cervantes, 132 F.3d 1106, 1110 (5th Cir. 1998) (citation
omitted).      Blount now effectively asks this Court to ignore his sworn
admissions but gives no reason why they should be disregarded. He does not
argue that the statements were not knowing and voluntary. Cf. id. He does
not argue that the statements were the result of coercion. Cf. United States v.
Fuller, 769 F.2d 1095, 1099 (5th Cir. 1985).      He does not argue that the
statements were induced by false representations of his defense counsel. Cf.
Cervantes, 132 F.3d at 1110–11. Blount swore, multiple times and in multiple
formats, that he violated the FINRA order by holding himself out as a
securities broker. The district court was entitled to rely upon these sworn
admissions. See id. at 1110; see also United States v. Trevino, 131 F.3d 1140,
1141 (5th Cir. 1997) (rejecting defendant’s challenge because it conflicted with
his guilty plea).
                                      IV.
         In sum, we hold that the district court committed no plain error in
concluding that FINRA’s order was a prior administrative order for purposes
of § 2B1.1(b)(9)(C), nor did the district court commit any error in applying the
two-level sentencing enhancement to Blount because he was engaged in
securities activity that violated FINRA’s order. The district court’s judgment
is therefore
                                                                   AFFIRMED.

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