Court Opinion

ID: 3182121
Source: CourtListenerOpinion
Date Created: 2016-03-02 21:02:41.571088+00
Date Added: 2024-06-11T14:08:23.877488
License: Public Domain

United States Court of Appeals
                     For the First Circuit

No. 15-1174

                    UNITED STATES OF AMERICA,

                            Appellee,

                               v.

                         JOHN C. JORDAN,

                      Defendant, Appellant.

          APPEAL FROM THE UNITED STATES DISTRICT COURT
                FOR THE DISTRICT OF MASSACHUSETTS

         [Hon. Nathaniel M. Gorton, U.S. District Judge]

                             Before

                       Howard, Chief Judge,
               Selya and Thompson, Circuit Judges.

     Inga L. Parsons on brief for appellant.
     Leslie R. Caldwell, Assistant Attorney General, Sung-Hee Sue,
Deputy Assistant Attorney General, David M. Lieberman, Attorney,
Criminal Division, Appellate Section, United States Department of
Justice, Carmen M. Ortiz, United States Attorney, and Stephen E.
Frank and Sarah E. Walters, Assistant United States Attorneys, on
brief for appellee.

                          March 2, 2016
          SELYA,   Circuit    Judge.     Defendant-appellant    John     C.

Jordan once again appeals from the imposition of sentence.            This

time around, he advances two claims of sentencing error.             First,

he asserts that the district court abused its discretion in

admitting certain expert testimony at sentencing.             Second, he

asserts that the court committed clear error in determining the

amount of the loss attributable to the offense of conviction.

Concluding, as we do, that these claims of error are fruitless, we

affirm.

          We sketch the background.        The reader who hungers for

more exegetic detail should consult our opinion regarding the

defendant's earlier appeal.     See United States v. Prange, 771 F.3d
17, 21-25 (1st Cir. 2014).1

          In   2011,   the   Federal   Bureau   of   Investigation    (FBI)

mounted a sting operation designed to ferret out fraud in the

market for penny stocks (securities typically traded at less than

$5 per share and not listed on any organized stock exchange).           In

the typical iteration of the sting, an undercover agent, posing as

a corrupt hedge fund manager, would propose a deal to executives

of a small public company: the agent would offer to overpay for

restricted shares of a company's stock, in return for a kickback

    1  Prange and Jordan were codefendants in the underlying
criminal case. They were tried and convicted together. Because
Prange is not a party to this appeal, we make no further mention
of him.

                                 - 2 -
(disguised    as    a    consulting     fee)    equal   to   50%    of   the   amount

invested.

             The defendant, then the president and chief executive

officer of Vida Life International Ltd. (Vida Life), bought into

the FBI's sting.         After being approached by an undercover agent in

August of 2011, the defendant agreed that his company would sell

400,000 restricted shares2 for an aggregate price of $32,000 to

the fictitious hedge fund.               Once the sale was effected, the

defendant kicked back one-half of the investment.

             In    due    course,   a   federal    grand     jury    indicted     the

defendant for conspiracy to commit securities fraud, see 18 U.S.C.

§§ 1348, 1349, and several counts of mail and wire fraud, see id.

§§ 1341, 1343, 1349. A ten-day jury trial ended in the defendant's

conviction on all charges and, on August 12, 2013, the district

court sentenced the defendant to a 30-month term of immurement for

the fraud offenses.

             In fraud cases, the amount of actual or intended loss is

an important integer in the calculation of a defendant's guideline

sentencing range (GSR).         USSG §2B1.1(b)(1) & comment. (n.3(A)(i)-

(ii)); United States v. Lilly, 13 F.3d 15, 17 (1st Cir. 1994).

Here, the defendant's sentence was at the nadir of his GSR — a

    2 The Vida Life shares were subject to a one-year holding
period and, thus, could not have been sold on the open market until
August of 2012.

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range based partly on the court's determination that the defendant

should be held accountable for a loss of $32,000 (the full amount

of the purchase price of the shares).

            On    the   defendant's    initial      appeal,   we   affirmed   his

convictions.      See Prange, 771 F.3d at 37.         However, we vacated his

sentence for securities fraud after finding procedural error in

the district court's calculation of the loss amount.                 See id. at

21, 35-37.       We remanded for resentencing, directing the district

court, en route to its calculation of the loss amount, to make

factual findings regarding the value of the Vida Life shares

acquired by the FBI.        See id. at 37.

            On    remand,    the    parties    offered    conflicting    expert

testimony anent the value of the Vida Life shares in the form of

competing affidavits.3       The government proffered the affidavit of

Thomas    Carocci,      senior     counsel    for   the   Financial    Industry

Regulatory Authority (FINRA).          Carocci concluded that the 400,000

shares of restricted Vida Life stock had no value, so the amount

of loss equaled the full price paid for the shares ($32,000).                 The

defendant proffered the affidavit of James Watts, an investment

banker.     Employing a "subjective" approach to the valuation of

micro-cap stocks, Watts concluded that "a per share price equal to

half the amount invested . . . represents a price an investor

    3   Both of the affiants had testified during the criminal trial.

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. . . would pay."       Under Watts' valuation, the Vida Life shares

were worth $16,000 and the amount of the loss was also $16,000 —

a figure representing the amount paid for the stock less the

kickback.

            The court below credited the government's expert, fixed

the loss amount at $32,000, and again sentenced the defendant to

serve 30 months in prison.       This timely appeal followed.

            In   this   venue,   the   defendant   first   challenges   the

admission of Carocci's testimony.        He argues that Carocci was not

qualified to offer an expert opinion on the value of Vida Life's

shares and that, in all events, Carocci's methodology was flawed.

            We review a district court's decision to admit or exclude

expert testimony for abuse of discretion. See Samaan v. St. Joseph

Hosp., 670 F.3d 21, 31 (1st Cir. 2012).            In carrying out that

review, we afford "broad deference to the determination made by

the district court as to the reliability and relevance of [the]

expert testimony."      Beaudette v. Louisville Ladder, Inc., 462 F.3d
22, 25 (1st Cir. 2006).      Absent a material error of law — and we

discern none here — we will not second-guess such a discretionary

determination unless it appears that the trial court "committed a

meaningful error in judgment."         Ruiz-Troche v. Pepsi Cola of P.R.

Bottling Co., 161 F.3d 77, 83 (1st Cir. 1998) (quoting Anderson v.

Cryovac, Inc., 862 F.2d 910, 923 (1st Cir. 1988)).

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             Federal Rule of Evidence 702 furnishes the relevant

benchmark.        Under this rule, "[a] witness who is qualified as an

expert by knowledge, skill, experience, training, or education may

testify in the form of an opinion" if: (1) his "scientific,

technical, or other specialized knowledge will help the trier of

fact to understand the evidence or to determine a fact in issue";

(2) his "testimony is based on sufficient facts or data"; (3) his

"testimony is the product of reliable principles and methods"; and

(4) he "has reliably applied the principles and methods to the

facts of the case."           Fed. R. Evid. 702.      We conclude, without

serious question, that Carocci's opinion testimony comported with

the strictures of Rule 702 and that the decision to admit it fell

comfortably       within     the   encincture   of   the   district     court's

discretion.

             To     begin,    Carocci's   educational      and     professional

background evinces broad experience in the fields of corporate

finance, compliance, and enforcement.           Carocci is both a college

graduate (with majors in finance and economics) and a law school

graduate.     He has held responsible positions both at NASD and at

a major investment bank (Goldman, Sachs & Co.).                  In his current

role as senior counsel for FINRA (the principal self-regulatory

agency for the securities industry), Carocci has spent five years

investigating securities-related crimes, including the backdating

of options, market manipulations, and insider trading.                  On its

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face, Carocci's curriculum vitae belies the defendant's self-

serving assertion that Carocci lacked the relevant knowledge,

experience,      or   education      to    proffer      an    expert      valuation.

Consequently, we find no abuse of discretion in the district

court's   determination       that   Carocci      was   qualified       to    offer    a

valuation of the Vida Life stock.

           Relatedly, the defendant assails Carocci's method of

valuing   Vida    Life's   stock.         In   his   view,    Carocci     relied      on

"principals [sic] of guesswork."                But this is empty rhetoric:

Carocci charted the share price and volume of Vida Life stock

trades between September 2011 and January 2014 (the approximate

interval between the FBI's stock purchase and the last day of

trading for Vida Life shares) and explained that share price and

trading volume data supplied reliable evidence of how the market

would   have   valued   the    400,000     Vida      Life    shares    held    by    the

government.      This data provided a logical basis for Carocci's

opinion, and no more was exigible under Rule 702.                     See Breidor v.

Sears, Roebuck & Co., 722 F.2d 1134, 1138-39 (3d Cir. 1983).                        From

that point forward, the credibility and weight of the expert's

opinion was for the factfinder.            See id.

           The defendant has a fallback position.                He contends that

Carocci should have appraised the restricted shares based on their

value at the point of sale, not on their value after the sale was

consummated. The defendant premises this contention on a guideline

                                      - 7 -
commentary stating that a loss amount "shall be reduced" based on

"the fair market value of the property returned [by the defendant]

. . . to the victim before the offense was detected."         USSG §2B1.1,

comment. (n.3(E)(i)).    But this comment has no bearing here: the

defendant fraudulently sold 400,000 Vida Life shares, and this

fraudulent    sale   formed   the     predicate   for   the   defendant's

conviction.     Viewed against this backdrop, there was never a

legitimate "return" of property to the victim of the defendant's

fraud.4

            This brings us to the defendant's remaining assignment

of error: his claim that the district court committed reversible

error in crediting Carocci's opinion and determining that the

400,000 restricted shares of Vida Life stock were worthless.5          We

        4
       At any rate, a loss calculation includes "[t]he reduction
that resulted from the offense in the value of equity securities
or other corporate assets." See USSG §2B1.1, comment. (n.3(C)(v))
(emphasis supplied). It necessarily follows that when valuing the
400,000 Vida Life shares purchased by the FBI, the district court
was bound to consider whether the defendant's criminal conduct
reduced the worth of the stock. Such an inquiry would be totally
frustrated without considering changes in the value of the shares
after the date of sale.

    5 Based on this determination, the district court set the
amount of the loss at $32,000; that loss amount triggered a six-
level increase in the defendant's offense level under the then-
applicable sentencing guidelines, see USSG §2B1.1(b)(1)(D) (Nov.
2012); and — combined with other guideline calculations that are
not challenged here — that six-level adjustment yielded a GSR of
30-37 months. A loss amount less than $30,000 would have supported
only a smaller offense-level adjustment. See id. §2B1.1(b)(1)(C).
That would have shrunk the GSR, and had the GSR been lower, it is
likely that the defendant's sentence would also have been lower.

                                    - 8 -
review     a    district   court's   factual   findings   at   sentencing,

including its loss calculations, for clear error.               See United

States v. Innarelli, 524 F.3d 286, 290 (1st Cir. 2008).

               At bottom, this is a case of dueling experts.       Carocci

concluded that the restricted stock had "de-minimus or no value."

In reaching this conclusion, he first noted that, during the

"restricted" period, there was no private market for the purchase

or sale of the stock.       Carocci went on to examine the period from

August of 2012 (when the Vida Life shares would have become

unrestricted) to January of 2014 (when any Vida Life shares were

last traded).       He reasoned that, had the government tried to sell

the 400,000 Vida Life shares, the market would have crashed

completely, rendering the shares worthless.

               To be sure, Watts expressed a different opinion.         He

concluded that the worth of the stock should be determined based

on the subjective value placed on the securities by the parties at

the time of the transaction.          Using this methodology, he opined

that the shares that remained in the government's possession were

worth $16,000 (the purchase price paid by the FBI less the kickback

amount).

               Faced with these sharply conflicting views, the district

court found that "the unrestricted shares of Vida Life during the

relevant time period had little or no market value."           This finding

was supported by Carocci's opinion.          It was also supported by the

                                     - 9 -
trading data, which showed that even the unrestricted Vida Life

stock traded very infrequently, in small amounts, and at meager

prices.    Extrapolating   from    this   data,   the   district   court

reasonably determined that the 400,000 shares of restricted stock

were "worth less than the unrestricted shares."

           We add that weaknesses in Watts' valuation method may

help to explain why the district court chose to credit Carocci

instead of Watts.   For instance, Watts' methodology assumed that

the undercover agent and the defendant negotiated a price that

accurately reflected the actual value of the restricted shares.

But this assumption was contradicted by the record: the undercover

FBI agent told the defendant that he planned to overpay for the

Vida Life stock.

           So, too, Watts' valuation method assumed that Vida Life

intended to use the capital furnished by the FBI to carry out its

business plan.   Yet the record shows with conspicuous clarity that

Vida Life had no such plans.      Rather, the defendant lost no time

in diverting the capital infusion into personal accounts.

           That ends this aspect of the matter.         Where, as here,

expert testimony is in sharp conflict, an appellate court must

defer in large measure to the trial court's superior point of

vantage.   See United States v. Wetmore, ___ F.3d ___, ___ (1st

Cir. 2016) [No. 15-1522, slip op. at 9].     After all, "[i]t is not

[this court's] place to re-weigh the credibility of witnesses or

                               - 10 -
to determine the weight accorded to [an] expert witness."    United

States v. Volungus, 730 F.3d 40, 48 (1st Cir. 2013).   When dueling

experts have each rendered a coherent and facially plausible

opinion, the trial court's decision to adopt one and reject the

other cannot be clearly erroneous.        See Anderson v. City of

Bessemer City, 470 U.S. 564, 575 (1985).    So it is here.

            We need go no further. For the reasons elucidated above,

the judgment of the district court is

Affirmed.

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