Court Opinion

ID: 875376
Source: CourtListenerOpinion
Date Created: 2013-06-04 16:49:41.710188+00
Date Added: 2024-06-11T10:57:46.710401
License: Public Domain

NOT PRECEDENTIAL

                      UNITED STATES COURT OF APPEALS
                           FOR THE THIRD CIRCUIT
                                _____________

                                    No. 12-1570
                                   _____________

                          UNITED STATES OF AMERICA

                                          v.

                             JOHN D. WOSOTOWSKY,

                                             Appellant
                                    ___________

                   On Appeal from the United States District Court
                       for the Western District of Pennsylvania
                             (D.C. No. 2-11-cr-00203-001)
                   District Judge: Honorable Maurice B. Cohill, Jr.
                                    ___________

                   Submitted Pursuant to Third Circuit LAR 34.1(a)
                                  October 25, 2012

    Before:   HARDIMAN, GREENAWAY, JR., and VANASKIE, Circuit Judges.

                                (Filed: June 4, 2013)

                                    ___________

                                     OPINION
                                    ___________

VANASKIE, Circuit Judge.

      John D. Wosotowsky appeals a judgment of the District Court sentencing him to

ninety-seven months’ imprisonment. Specifically, Wosotowsky challenges the District
Court’s application of a four-level sentencing enhancement for “a violation of securities

law” pursuant to U.S.S.G. § 2B1.1(b)(18)(A). Finding no error, we will affirm the

District Court’s sentence and judgment.

                                             I.

       Wosotowsky worked as a broker and a financial planner for more than twenty-six

years. He held professional licenses authorizing him “to sell any and all securities,

annuities (fixed & variable), and insurance.” (Appendix (“A.”) 74-75.) He was also a

compulsive gambler and an alcoholic. To satisfy the demands of his addictions,

Wosotowsky employed an elaborate investment scheme to defraud his clients out of more

than two million dollars.

       The scheme spanned nearly ten years, from September 2000 until May 2010.

During that time, Wosotowsky was associated with the investment company MetLife,

Inc. (“MetLife”). Wosotowsky also formed a fictitious company, Equity I & R, and then

misrepresented to his victims that Equity I & R was a “clearing house or a transfer

company” that provided secure financial investment products with high rates of return

“under the umbrella of MetLife.” (A. 16-17.) Wosotowsky’s victims – many of whom

were elderly, financially unsophisticated, and vulnerable – paid money to Equity I & R,

believing it was a safe investment; instead, payments to Equity I & R went into a bank

account under that name, which was controlled entirely by Wosotowsky.

       In addition, Wosotowsky changed the addresses of his victims’ MetLife files to

mailing addresses which he maintained. He then forged some victims’ names to make

withdrawals and loan requests from legitimate accounts, and he had those payments sent

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to the mailing addresses he controlled. He also forged those victims’ signatures and

deposited the funds into the Equity I & R bank account. To maintain the appearance of

legitimacy, Wosotowsky prepared and mailed fraudulent quarterly and monthly financial

statements detailing the investments, including the balances of principal and interest, and

the rates of return.

       In 2010, one of Wosotowsky’s victims attempted to withdraw money from a

product he believed he had purchased, only to learn that he had no such account. This

discovery sparked the investigation that ultimately led to Wosotowsky’s arrest.

       On October 11, 2011, Wosotowsky entered a plea of guilty to one count of mail

fraud and one count of making a false declaration to the Internal Revenue Service. The

United States Probation Office prepared a presentence report that recommended a four-

level enhancement pursuant to U.S.S.G. § 2B1.1(b)(18)(A), for offense conduct by a

broker involving a violation of securities law. Wosotowsky filed an objection to the

enhancement, the government filed a response, and on February 14, 2012, the District

Court held a sentencing hearing which included oral argument from both parties

addressing the enhancement’s applicability to Wosotowsky’s conduct.

       After hearing argument, the District Court concluded the enhancement applied,

and calculated Wosotowsky’s sentence accordingly. Based on an adjusted offense level

of 30 and criminal history category I, the U.S. Sentencing Guidelines (the “Guidelines”)

range was 97 to 121 months’ imprisonment. Without the enhancement, the Guidelines

range would have been 63 to 78 months. The District Court sentenced Wosotowsky to 97

months’ imprisonment. Wosotowsky now appeals, contending the District Court failed

                                             3
to state a proper basis for the enhancement because it did not identify either a specific

“violation of securities law,” as that term is defined in the Guidelines, or the conduct that

supported the enhancement. Further, Wosotowsky argues that application of the

enhancement is factually unsupported in the record.

                                             II.

       The District Court had jurisdiction under 18 U.S.C. § 3231, and we have appellate

jurisdiction under 28 U.S.C. § 1291 and 18 U.S.C. § 3742(a). We review “factual

findings relevant to the Guidelines for clear error and . . . exercise plenary review over a

district court’s interpretation of the Guidelines.” United States v. Grier, 475 F.3d 556,

570 (3d Cir. 2007) (en banc).

                                             A.

       We turn first to Wosotowsky’s argument that the District Court committed

procedural error because it failed to properly explain the basis for the enhancement. At

sentencing, a district court must meet certain procedural requirements, including the

requirement that the court “adequately explain the chosen sentence.” Gall v. United

States, 552 U.S. 38, 50 (2007). As our case law has made clear, this requirement must be

flexible to accommodate the “fact-bound nature of each sentencing decision,” and, thus,

“there is no ‘uniform threshold’ for determining whether a court has supplied a sufficient

explanation for its sentence.” United States v. Merced, 603 F.3d 203, 215 (3d Cir. 2010)

(citing United States v. Tomko, 562 F.3d 558, 567 (3d Cir. 2009) (en banc)); see also

United States v. Ausburn, 502 F.3d 313, 328 (3d Cir. 2007) (“[W]hile the record must be

                                              4
adequate for review, it need not be perfect.”). We simply require that there be a

sufficient record to allow meaningful appellate review. Ausburn, 502 F.3d at 328.

       Here, the District Court found that Wosotowsky’s conduct warranted a four-level

sentencing enhancement pursuant to U.S.S.G. § 2B1.1(b)(18)(A)(ii), which is applicable

if an offense involved “a violation of securities law and, at the time of the offense, the

defendant was . . . a registered broker or dealer . . . .” Id. After hearing oral argument on

the issue of the enhancement, the District Court stated: “As far as I’m concerned, what

we have here is a broker and he was dealing with securities, and the manner in which he

did it was a violation of securities law. So I make a finding that the enhancement does

apply in this case.” (A. 214.)

       Focusing on this statement alone, Wosotowsky urges us to remand this case

because the District Court failed to state the specific securities law Wosotowsky violated

or the conduct that supports that violation. Wosotowsky’s repeated assertion that no

specific securities violation was ever identified is belied by the record. In both its written

submissions and at the sentencing hearing, the Government made a detailed argument

that the conduct Wosotowsky pled guilty to violated 17 C.F.R. § 240.10b-5. A review of

the sentencing hearing transcript reveals that the District Court was persuaded by the

Government’s arguments, and, therefore, found that the enhancement was justified in this

case. We are satisfied that the sentencing hearing and the parties’ briefs provide a

sufficient record for our review and an ample basis for the District Court’s conclusion

that Wosotowsky was a broker who violated securities law. Therefore, we will not

                                              5
overturn the District Court’s sentence for failing to provide an adequate record for our

review.

                                             B.

       We will now address the question of whether application of the enhancement is

factually supported in the record. Wosotowsky does not dispute the District Court’s

finding that he is a broker. Thus, the only question is whether Wosotowsky’s scheme

violated securities law as defined by the Guidelines. Application note 14 to § 2B1.1

defines “securities law” as follows:

              Securities law (i) means 18 U.S.C. §§ 1348, 1350, and the
              provisions of law referred to in section 3(a)(47) of the
              Securities Exchange Act of 1934 (15 U.S.C. § 78c(a)(47));
              and (ii) includes the rules, regulations, and orders issued by
              the Securities and Exchange Commission pursuant to the
              provisions of law referred to in such section.

U.S.S.G. § 2B1.1 cmt. n.14 (internal quotation marks omitted). One of the provisions of

law referenced in 15 U.S.C. § 78c(a)(47) is the Securities Exchange Act of 1934 (15

U.S.C. § 78a). Thus, “securities law” as defined by the Guidelines includes all of the

provisions and regulations issued pursuant to the Securities Exchange Act of 1934.

       The Government argues Wosotowsky’s conduct violated 17 C.F.R. § 240.10b-5, a

regulation enacted pursuant to 15 U.S.C. § 78j and commonly referred to as Rule 10b-5.

This regulation “makes it unlawful for any person, in connection with the purchase or

sale of [a] security, to (1) employ a device, scheme or artifice to defraud; (2) make any

false statement of material fact; or, (3) engage in any act, practice or course of business

                                              6
that operates as fraud or deceit upon any person.” 1 United States v. Haddy, 134 F.3d 542,

548 (3d Cir. 1998).

       It is undisputed that Wosotowsky employed a scheme to defraud, that in doing so

he made material false statements, and, further, that he engaged in acts and practices

which defrauded and deceived his victims. Thus, his conduct violated Rule 10b-5 so long

as his scheme involved “the purchase or sale of any security.” 17 C.F.R. § 240.10b-5. In

support of the contention that Wosotowsky’s sham products were securities, the

Government points to Congress’ definition of a “security,” which includes any

“investment contract.” 15 U.S.C. § 78c(a)(10). The Supreme Court has defined

“investment contract” as follows:

                [A]n investment contract for purposes of the Securities Act
                means a contract, transaction or scheme whereby a person

       1
           17 C.F.R. § 240.10b-5 provides:

                It shall be unlawful for any person, directly or indirectly, by
                the use of any means or instrumentality of interstate
                commerce, or of the mails or of any facility of any national
                securities exchange,

                (a) To employ any device, scheme, or artifice to defraud,

                (b) To make any untrue statement of a material fact or to omit
                to state a material fact necessary in order to make the
                statements made, in the light of the circumstances under
                which they were made, not misleading, or

                (c) To engage in any act, practice, or course of business
                which operates or would operate as a fraud or deceit upon any
                person,

                in connection with the purchase or sale of any security.

                                                7
              invests his money in a common enterprise and is led to expect
              profits solely from the efforts of the promoter or a third party,
              it being immaterial whether the shares in the enterprise are
              evidenced by formal certificates or by nominal interests in the
              physical assets employed in the enterprise.

SEC v. Howey, 328 U.S. 293, 298-99 (1946). We agree with the Government and the

District Court that Wosotowsky’s scheme fits within this definition of investment

contract and, thus, violates Rule 10b-5.

       Wosotowsky concedes that his fraudulent products fit within this broad definition

of securities. He contends, however, that the products he purported to sell are excluded

from federal securities law by 15 U.S.C. § 77c(a)(8), which exempts from federal

securities law “[a]ny insurance or endowment policy or annuity contract or optional

annuity contract, issued by a corporation subject to the supervision of the insurance

commissioner, bank commissioner, or any agency or officer performing like functions, of

any State or Territory of the United States or the District of Columbia.”

       Wosotowsky’s argument is unavailing for two reasons. First, the products

Wosotowsky purported to sell were variable – not fixed – annuities, which fall within the

scope of Rule 10b-5 notwithstanding the exemption set forth in § 77c(a)(8). See SEC v.

Variable Annuity Life Ins. Co. of Am., 359 U.S. 65, 69-73 (1959). Second, the exemption

is inapplicable here because it only excludes annuities issued by a qualifying

corporation. 2 On this second point, we are unconvinced by Wosotowsky’s assertion that

       2
         Wosotowsky contends this argument is waived because the Government did not
argue it before the District Court. We are not limited to the bases relied upon by the
District Court, however, and we may affirm a ruling of the District Court “for any proper
                                              8
the record is unclear as to who – Wosotowsky, Equity I & R, or MetLife – actually issued

the annuities. Instead, we find the record entirely clear on this point: no party issued any

legitimate annuities. Wosotowsky purported to sell a variety of annuities, but this was a

sham. Thus, no qualifying corporation ever issued annuities that could bring the products

within § 77c(a)(8)’s exemption.

       Moreover, in addition to annuities, the record contains evidence that Wosotowsky

also contracted to sell traditional securities in the form of money market and mutual

funds. (A. 129-30.) Finally, the Government’s uncontested proffer at the sentencing

hearing established that Wosotowsky convinced some of his victims to sell legitimate

securities in exchange for his false products. This conduct also falls within the scope of

Rule 10b-5, which applies to fraud in connection with “the purchase or sale of any

security.” 17 C.F.R. § 240.10b-5 (emphasis added). Accordingly, we conclude that

Wosotowsky’s scheme violated securities law as defined by the Sentencing Guidelines

and, consequently, that the District Court did not err by applying the four-level

enhancement pursuant to U.S.S.G. § 2B1.1(b)(18)(A).

                                            III.

       For the foregoing reasons, we will affirm the District Court’s sentence and

judgment.

reason that appears on the record even where not relied on by it.” United States v. Perez,
280 F.3d 318, 337 (3d Cir. 2002).
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