Court Opinion

ID: 2723829
Source: CourtListenerOpinion
Date Created: 2014-09-04 20:00:32.92441+00
Date Added: 2024-06-11T10:03:01.824769
License: Public Domain

In the

        United States Court of Appeals
                       For the Seventh Circuit

Nos. 12-3819, 12-3833 & 12-3867

UNITED STATES OF AMERICA,
                                                           Plaintiff-Appellee,

                                        v.

TIMOTHY S. DURHAM, JAMES F.
COCHRAN, and RICK D. SNOW,
                                                     Defendants-Appellants.

                 Appeals from the United States District Court
          for the Southern District of Indiana, Indianapolis Division.
               No. 1:11CR00042 — Jane Magnus-Stinson, Judge.

     ARGUED JANUARY 21, 2014 — DECIDED SEPTEMBER 4, 2014

   Before KANNE and SYKES, Circuit Judges, and GILBERT,
District Judge.*

*
    Of the Southern District of Illinois, sitting by designation.
2                             Nos. 12-3819, 12-3833 & 12-3867

    SYKES, Circuit Judge. Timothy Durham, James Cochran, and
Rick Snow were convicted of perpetrating a widespread
financial fraud that caused more than $200 million in losses to
thousands of victims, many of them elderly or living on
modest incomes. After taking control of Fair Finance Com-
pany, a previously well-established and respected business, the
trio quickly turned it into their personal piggy bank. They used
money invested in Fair to support their lavish lifestyles and to
fund loans to related parties that would never be repaid. When
the company’s auditors raised red flags about its financial
status, the auditors were fired. When Fair experienced cash-
flow problems, it misled investors and regulators so it could
keep raising capital.
   Eventually the scheme began to unravel. One of the
company’s directors, himself under investigation in a separate
matter, alerted the FBI that Fair was being operated as a Ponzi
scheme. After an investigation, the FBI seized Fair’s computer
servers and arrested Durham, Cochran, and Snow. A jury
convicted them on various counts of conspiracy, securities
fraud, and wire fraud.
   They now appeal their convictions and sentences on several
grounds. We reject all of their challenges save one. The
government failed to enter into the trial record key documen-
tary evidence supporting two counts of wire fraud against
Durham. It was clearly an oversight, but the mistake leaves a
crucial gap in the evidence on those counts. Accordingly, we
reverse Durham’s convictions on Counts 2 and 5 of the
indictment and remand for resentencing without those counts
Nos. 12-3819, 12-3833 & 12-3867                                3

in the mix. In all other respects, we affirm the defendants’
convictions and sentences.

                        I. Background
    Before the events in this case transpired, Fair Finance was
a respectable company and had been in the business of
providing financial services since the Great Depression. By the
early 2000s, the company primarily focused on purchasing
consumer receivables. Fair would purchase installment
contracts from businesses with a single, up-front payment at a
discounted rate. This arrangement provided working capital
for the business and a profit for Fair—the difference between
what it paid for the contract and what it ultimately collected on
it.
    Fair raised money to purchase these receivables by selling
what it called “investment certificates”—a form of subordinate
debenture that essentially functioned as a certificate of deposit
without FDIC insurance. Certificate holders were paid interest
at regular intervals. When a certificate came due, Fair sent a
check to the holder for the interest earned before maturity. At
that point the holder could redeem the original face value of
the certificate or renew it, which involved redeeming an old
certificate and purchasing a new one. If a holder took no action
at expiration, the certificate would continue earning interest at
a set rate. Before 2002 most certificates were offered for a six-
month term and were no larger than $50,000 in value. The
latter limitation was meant to ensure that the company could
redeem the certificates without encountering liquidity prob-
lems.
4                               Nos. 12-3819, 12-3833 & 12-3867

    Certificates were sold exclusively to consumers in Ohio,
and authorization by the Ohio Department of Securities was
required. With each request for authorization, Fair needed to
submit an offering circular disclosing its financial status and
the investment’s risks. The circular would then be distributed
to potential investors once the new issuance received regula-
tory approval. According to data gathered by Fair, a majority
of its investors were elderly and many lived on modest
incomes. By all accounts, Fair was a trusted Ohio financial
institution.
    Timothy Durham and James Cochran bought the business
in 2001 through a holding company formed for that purpose
and named Fair Holdings, Inc. Durham was its CEO, Cochran
was its COO and chairman of the board, and Rick Snow was its
CFO. Snow already had been working at Fair and soon became
CFO for another Durham-owned company, a private equity
fund called Obsidian Enterprises. At the time of the acquisition,
Fair had assets of $50 million in receivables and liabilities of
$38 million in certificates.
    Fair soon dramatically increased its sale of certificates and
offered them for longer terms (up to 5 years), higher amounts
(up to $200,000), and at higher interest rates. Within a year and
a half, its certificate liabilities doubled. The increased capital,
however, was not used to expand its receivables business,
which grew slightly after the purchase but soon started to
taper off. Instead, the money raised was used to fund millions
of dollars in loans, often made through Fair Holdings, to
Durham and Cochran, their relatives, and related companies
Nos. 12-3819, 12-3833 & 12-3867                                    5

(particularly Obsidian and another Durham-owned holding
company named DC Investments).
    Much of this money funded Durham’s and Cochran’s
extravagant lifestyles. Loan proceeds paid for their homes,
cars, and parties. For example, Durham hosted a Playboy-
themed party using $110,000 of Fair money. Likewise, Cochran
used $783,867 to fund a real-estate purchase. Even loans to
other companies served to support Durham and Cochran’s
spending habits; for example, a Fair circular reflected a loan of
more than $9 million to the company that held Durham’s
personal car collection. Fair rarely received any payments on
these loans, most of which were not made on commercially
available terms, were poorly documented, and were amended
as time went on to increase the debtor’s borrowing limit. Yet
Fair’s circulars continued to list these loans as assets support-
ing the sale of certificates.
    Fair Holdings’s accountants soon began questioning its
financial statements, raising numerous concerns about the
third-party loans and noting that they lacked sufficient
collateral. The auditors also had doubts about the holding
company’s viability as a going concern. The defendants
terminated the services of two different accounting firms that
refused to issue unqualified audit reports. After that the
holding company’s financial statements were unaudited and
replete with misrepresentations.
    Things began to fall apart after the financial crisis in the fall
of 2008. In Durham’s words, “every company” in his organiza-
tion was “running on vapor.” Facing cash shortfalls, Fair
delayed payments of interest and principal to investors,
6                               Nos. 12-3819, 12-3833 & 12-3867

blaming computer and banking issues. It fell behind on
payments to dealers and vendors as well. Investors began to
worry; Fair had historically made interest payments on time,
and the financial press started criticizing Durham’s manage-
ment. In February 2009 the Ohio Department of Securities
opened an investigation. By this time Fair’s 2008 authorization
to issue $250 million in certificates was almost used up.
Without the ability to sell more certificates, Fair was unable to
generate new income. Desperate for cash, Fair sought regula-
tory authorization to issue another $250 million in certificates
in October 2009. It would never be granted.
    As problems mounted, the FBI began a criminal investiga-
tion into Fair’s activities after receiving a proffer from a Fair
board member who was targeted in a separate investigation.
The board member disclosed that Fair was being operated as
a Ponzi scheme. The FBI investigated for approximately eight
months, then sought and obtained authorization to tap
Durham’s phone. Recorded phone calls revealed many
discussions about how to hide Fair’s true financial status from
regulators and investors. In one conversation Cochran advised
against letting any employees go because they “know a little
bit too much” that could be used to “bust” them. The three
executives discussed plans to “vanish,” “disappear,” “vapor-
ize[],” and “wipe[] off” bad debts from the company’s regula-
tory disclosures. The FBI used this evidence to obtain a warrant
to search Fair’s office and seize its computer servers, effectively
shutting the company down. The warrant was executed on
November 24, 2009. Fair’s operations ceased, and it soon went
into bankruptcy. More than 5,000 investors filed claims totaling
Nos. 12-3819, 12-3833 & 12-3867                                 7

approximately $215 million. The trustee recovered only
$5.6 million in assets.
    Durham, Cochran, and Snow were charged with conspiracy
to commit wire fraud and securities fraud, 18 U.S.C. § 371
(Count 1); wire fraud, 18 U.S.C. § 1343 (Counts 2–11); and
securities fraud, 15 U.S.C. §§ 78j(b), 78ff; 17 C.F.R. § 240.10b-5
(Count 12). All three were convicted of conspiracy and
securities fraud. Durham was found guilty on all ten counts of
wire fraud, Cochran on six wire-fraud counts (4, 6, and 8–11),
and Snow on three wire-fraud counts (4, 6, and 7). Durham and
Cochran received within-guidelines sentences of 50 years and
25 years, respectively. Snow was sentenced to a below-guide-
lines term of 10 years. The court also ordered the defendants to
pay $208,830,082.27 in restitution, for which they are jointly
and severally liable.

                         II. Discussion
    The defendants attack their convictions and sentences on
multiple grounds. Durham challenges the sufficiency of the
evidence on two counts of wire fraud. All three defendants
challenge the sufficiency of the wiretap application. They also
argue that the district court erroneously refused to give their
proposed theory-of-defense jury instruction on the securities-
fraud count. They claim that the prosecutor committed
misconduct during his rebuttal closing argument. Finally, they
raise several sentencing errors.
8                              Nos. 12-3819, 12-3833 & 12-3867

A. Sufficiency of the Evidence on Counts 2 and 5
    Durham argues that the evidence was insufficient on
Counts 2 and 5, two of the ten counts of wire fraud of which he
stands convicted. Count 2 involved a transfer of $250,000 from
Fair to Fair Holdings on February 13, 2007; Count 5 concerned
a transfer of $50,000 from Fair to Fair Holdings on
November 10, 2008. To prove that these transfers constituted
wire fraud, the government needed to establish that Durham:
(1) was involved in a scheme to defraud; (2) had an intent to
defraud; and (3) used the wires in furtherance of that scheme.
See United States v. Leahy, 464 F.3d 773, 786 (7th Cir. 2006). We
review the evidence “in the light most favorable to the govern-
ment and ask whether any rational trier of fact could have
found the essential elements of the crime beyond a reasonable
doubt.” United States v. Love, 706 F.3d 832, 837 (7th Cir. 2013).
Durham moved for judgment of acquittal on these counts, so
our review is de novo. United States v. Claybrooks, 729 F.3d 699,
704 (7th Cir. 2013).
    We agree with Durham that there was insufficient evidence
in the record to establish that these particular wire transfers
were made in furtherance of the fraudulent scheme. The
government introduced single-page printouts reflecting each
transfer. As to Count 5, the government also introduced an
email indicating that an Obsidian employee asked a Fair
employee to wire $50,000 to Fair Holdings. At most, this
evidence shows that the wire transfers were in fact made; it
does not establish that the transfers were made in furtherance
of the fraudulent scheme.
Nos. 12-3819, 12-3833 & 12-3867                               9

    The government apparently intended to introduce addi-
tional evidence regarding the circumstances of these transfers
but neglected to do so. The single-page printouts were meant
to be the first pages of much larger exhibits. The complete
exhibits were transmitted to us in connection with this appeal;
they include financial records tracing the money and docu-
menting how it was used. (For what it’s worth at this too-late
stage of the case, the additional documentation shows that the
$250,000 wire transfer paid for a luxury garage and the $50,000
transfer was used to pay dues at a country club.) But the trial
record contains only the single-page printouts showing that the
two wire transfers were made. Without the additional docu-
mentary evidence, the jury had no evidence about how the
money was used.
    The government offers up a Hail Mary in an attempt to
salvage these two convictions. Its theory is that the trial
evidence was sufficient to show that the modus operandi of the
entire scheme involved wire transfers between Fair and Fair
Holdings. Money from investments in Fair would fund phony
insider loans after being moved around by wire. These “loans”
would usually start with a wire transfer from Fair to Fair
Holdings, just like these two, and the transfers were typically
requested via email, as the $50,000 transfer was. In other
words, there was a stream of money going from Fair to Fair
Holdings and not coming back. Thus, the jury could conclude
that these two transfers were used to originate fraudulent loans
even without the additional documentary evidence.
   This argument is problematic for a couple of reasons. It
essentially transforms every wire transfer from Fair to Fair
10                              Nos. 12-3819, 12-3833 & 12-3867

Holdings into a criminal act. To be sure, the evidence amply
supports the basic theory that Fair Holdings was used to
further the defendants’ illicit scheme, but the government has
not established that fraud was its exclusive function. Moreover,
because this argument was not raised at trial, Durham was
unable to defend against it.
   At bottom the government introduced no evidence from
which a jury reasonably could conclude that these particular
wire transfers were made in furtherance of the fraudulent
scheme. The gap in the trial record, though inadvertent, leaves
us no choice but to reverse Durham’s conviction on Counts 2
and 5 based on insufficient evidence.

B. Proof of Necessity for the Wiretap
    In order to obtain authorization for a wiretap, the govern-
ment must make “a full and complete statement as to whether
or not other investigative procedures have been tried and
failed or why they reasonably appear to be unlikely to succeed
if tried or to be too dangerous.” 18 U.S.C. § 2518(1)(c). The
government’s burden “is not great,” and compliance with this
requirement is analyzed in a “practical and common-sense
fashion.” United States v. Campos, 541 F.3d 735, 746 (7th Cir.
2008) (internal quotation marks omitted). The statute does not
require the government to show absolute necessity, id.; the
point is to ensure that wiretaps are not used routinely as the
first step in an investigation, United States v. Thompson, 944 F.2d
1331, 1340 (7th Cir. 1991).
Nos. 12-3819, 12-3833 & 12-3867                              11

    The defendants claim that evidence gathered from the
wiretap should have been excluded because the government
failed to demonstrate the necessity of tapping Durham’s
phone. We review the finding of necessity for abuse of discre-
tion. United States v. McLee, 436 F.3d 751, 763 (7th Cir. 2006).
    To obtain authorization to tap Durham’s phone, the
government submitted a 45-page affidavit summarizing
evidence gathered over the course of a nearly eight-month
investigation. The government began looking into Fair after a
board member advised the FBI that Durham had been running
the company as a Ponzi scheme, had made more than
$100 million in loans from Fair to related companies, and had
made misrepresentations to investors. That was the extent of
the board member’s cooperation, however. The subsequent
investigation involved gathering information through a variety
of channels. The FBI contacted the SEC, which was conducting
its own investigation of Fair. The FBI also reviewed records in
the public domain and subpoenaed from the Federal Reserve
Bank of New York. An FBI agent posing as a potential investor
spoke with Fair sales representatives over the phone, met with
them twice in person, and ultimately purchased a certificate in
an effort to gather relevant information about the scheme. The
FBI also interviewed two confidential informants who pro-
vided some useful information but were not close enough to
the scheme to provide current information about Durham’s
activities. Agents also used a pen register to monitor Durham’s
phone calls.
   The affidavit went on to explain that these measures had
not yielded enough evidence to successfully prosecute Durham
12                            Nos. 12-3819, 12-3833 & 12-3867

or reveal other guilty parties; it also explained that other
standard investigative techniques were not viable under the
circumstances. If Fair was operating as a Ponzi scheme, the
investigation needed to move quickly in order to protect
investors. Subpoenaing and sifting through volumes of
financial records looking for proof would be too slow. So too
would attempting to infiltrate the scheme’s inner circle; that
would require getting an undercover agent in place and
allowing time to penetrate what was likely to be a cautious
group of fraudsters. On the other hand, if the company was
merely undercapitalized, secrecy was vital, and word of a
criminal investigation could provoke a run causing Fair to
collapse when it otherwise could be saved. So subpoenaing
witnesses and internal records or executing a search warrant
would be unwise. Other methods of investigation had ex-
hausted their utility. The FBI had no further leads on infor-
mants with more direct knowledge of the scheme, and pen
registers had revealed all they could.
     This thorough affidavit easily established the necessary
foundation for the wiretap. Far from asking for a wiretap after
little conventional investigation, the government first used a
variety of other techniques to gather information. And the
wiretap application provided a reasonable explanation as to
why other standard investigative techniques would not be
appropriate.
   The defendants counter that the stated reasons for the
wiretap were too generic and relied on inherent limitations in
other investigative techniques that could apply to any investi-
gation of large-scale financial fraud. But the affidavit did not
Nos. 12-3819, 12-3833 & 12-3867                                   13

merely state the limitations of a given alternative in general
terms—it did not say, for example, that a pen register only
showed the phone numbers called but not the contents of those
conversations. Instead, the affidavit tied the limitations to the
particular investigation at hand. That the justifications might
apply in other, similar investigations is not fatal to an applica-
tion for a wiretap; a particular kind of crime may pose com-
mon, recurring problems for investigators. What matters is that
other available investigative procedures had been tried, or
were inadvisable or unlikely to succeed under the circum-
stances. The government’s application established the neces-
sary foundation for the wiretap as required by § 2518(1)(c).
    The defendants rely on some authority from other circuits,
but the cases are distinguishable. For example, United States v.
Blackmon, 273 F.3d 1204, 1207–08 (9th Cir. 2001), applied de
novo review, not review for abuse of discretion, the standard
used in our circuit. Moreover, the wiretap affidavit in Blackmon
was highly generic and also riddled with errors. Finally, the
majority opinion in Blackmon drew a strong dissent arguing
that abuse of discretion was the correct legal standard and
explaining that the affidavit was sufficient under that standard.
See id. at 1211–12 (Wardlaw, J., dissenting). United States v. Lilla,
699 F.2d 99 (2d Cir. 1983), is likewise distinguishable. It
involved an affidavit containing a bare conclusion that no other
investigative techniques would suffice without explaining
“what, if any, investigative techniques were attempted prior to
the wiretap request.” Id. at 104. In contrast, the affidavit here
contained many pages of information detailing the govern-
ment’s previous efforts and a reasoned explanation of why
other techniques would be inadvisable or likely unproductive.
14                             Nos. 12-3819, 12-3833 & 12-3867

The government met its burden of showing necessity for the
wiretap.

C. Securities-Fraud Jury Instruction
    The defendants also challenge the district court’s refusal to
give their proposed securities-fraud jury instruction, which
described their theory of defense by defining the phrase “in
connection with the purchase or sale of any security” under
§ 10(b) of the Securities and Exchange Act of 1934. 15 U.S.C.
§ 78j(b). A defendant is entitled to a theory-of-defense jury
instruction if:
       (1) the instruction represents an accurate state-
       ment of the law; (2) the instruction reflects a
       theory that is supported by the evidence; (3) the
       instruction reflects a theory which is not already
       part of the charge; and (4) the failure to include
       the instruction would deny the [defendant] a fair
       trial.
United States v. Walker, 746 F.3d 300, 307 (7th Cir. 2014) (inter-
nal quotation marks omitted).
    Section 10(b) of the Act makes it a crime “[t]o use or
employ, in connection with the purchase or sale of any
security … [,] any manipulative or deceptive device or contriv-
ance in contravention of such rules and regulations as the
[SEC] may prescribe as necessary or appropriate in the public
interest or for the protection of investors.” 15 U.S.C. § 78j(b).
The SEC implements this provision through Rule 10(b)-5, see
17 C.F.R. § 240.10b-5, which “is coextensive with the coverage
Nos. 12-3819, 12-3833 & 12-3867                                             15

of § 10(b).” S.E.C. v. Zandford, 535 U.S. 813, 816 n.1 (2002). The
defendants’ proposed instruction sought to define the scope of
liability under § 10(b) to advance their theory of defense that
“a scheme to delay is not a scheme to defraud.”1 The district

1
    The entire proposed instruction reads:
               The fifth element that the government must prove
          beyond a reasonable doubt is that a subordinated lender (a
          Fair Finance Investment Certificate purchase) purchased or
          sold investment securities from Fair Finance and that the
          purchase or sale of the interests was made in connection
          with the alleged untrue statements of material fact.
              First, there must be a purchase or sale of a security.
          This means that the transfer of ownership of an asset is
          required for a purchase and sale. Simply continuing to
          holding [sic] a security does not qualify. Furthermore,
          delaying an interest payment or redemption of an Invest-
          ment Certificate is not a purchase or sale of a security.
              Second, to satisfy the “in connection with” require-
          ment, the government must prove beyond a reasonable
          doubt that there was some nexus or relationship between
          the alleged untrue statements of material fact and the
          purchase or sale of interests in Fair Finance. The misrepre-
          sentations must have some direct pertinence to a securities
          transaction. Evidence that defendants made untrue
          statements or omissions of material fact following the
          purchase of an Investment Certificate is inadequate.
          Likewise, evidence that investors purchased or sold
          interests in spite of defendants’ alleged untrue statements
          of material fact is insufficient. Instead, the government
          must prove beyond a reasonable doubt that investors
          actually purchased or sold some or all of their Investment
                                                                 (continued...)
16                                    Nos. 12-3819, 12-3833 & 12-3867

court rejected the proposed instruction, opting instead to give
one that mirrored the statutory language. We review that
decision de novo. Love, 706 F.3d at 838.2
   The defendants’ proposed instruction runs into trouble
both in its statement of the law and its fit with the facts of the
case. At the outset we note that the instruction takes a too-
narrow view of the “in connection with” language in § 10(b).
When the Supreme Court has “sought to give meaning to the
phrase [‘in connection with’] in the context of § 10(b) and
Rule 10b-5, it has espoused a broad interpretation.” Merrill
Lynch, Pierce, Fenner & Smith Inc. v. Dabit (“Merrill Lynch”),
547 U.S. 71, 85 (2006).3 The defendants asked the court to

1
    (...continued)
            Certificates in Fair in connection with the defendants’
            alleged untrue statements of material fact.

2
 The government argues that we should review for plain error because the
defendants forfeited this claim. We disagree. At the instruction conference,
Durham’s counsel submitted and argued for the proposed instruction,
which the judge then denied. That is enough to preserve the issue for
review. Counsel did not need to object immediately after this colloquy to
avoid forfeiture. See United States v. James, 464 F.3d 699, 707 n.1 (7th Cir.
2006).

3
 Merrill Lynch interpreted the key phrase “in connection with” the purchase
or sale of a security in the context of the Securities Litigation Uniform
Standards Act of 1998, which
          prohibits securities class actions if the class has more than
          50 members, the suit is not exclusively derivative, relief is
          sought on the basis of state law, and the class action suit is
                                                                  (continued...)
Nos. 12-3819, 12-3833 & 12-3867                                          17

instruct the jury that a misrepresentation is made “in connec-
tion with” the purchase or sale of a security if it has “some
direct pertinence” to the transaction. The Supreme Court, on
the other hand, has treated the in-connection-with requirement
as merely requiring a misrepresentation “coincid[ing]” with,
Zandford, 535 U.S. at 822, or “touching,” Superintendent of Ins.
v. Bankers Life & Casualty Co., 404 U.S. 6, 12 (1971), a securities
transaction.
    Moreover, the core theory reflected in the defendants’
proposed instruction—that “a scheme to delay is not a scheme
to defraud”—is problematic as a legal matter and in the context
of the evidence in this case. Many, though not all, of the
misrepresentations in this case were statements falsely explain-
ing the delayed interest payments or encouraging investors to
delay redemption of their investment certificates. The defen-
dants urged the court to instruct the jury that “[s]imply
continuing to hold[] a security does not qualify” as a purchase
or sale of a security. This argument was premised on civil cases
involving the judicially created private cause of action under
§ 10(b) and Rule 10b-5, but the “rules governing private

3
    (...continued)
            brought by “any private party alleging a misrepresentation
            or omission of a material fact in connection with the
            purchase or sale of a covered security.”
Brown v. Calamos, 664 F.3d 123, 124 (7th Cir. 2011) (quoting 15 U.S.C.
§ 78bb(f)(1)). Though appearing in different statutory sections, the Supreme
Court has treated the in-connection-with language appearing in both
provisions as having the same meaning. See Merrill Lynch, Pierce, Fenner &
Smith Inc. v. Dabit, 547 U.S. 71, 85–86 (2006).
18                              Nos. 12-3819, 12-3833 & 12-3867

Rule 10b–5 actions … developed differently from the law
defining what constitute[s] a substantive violation of
Rule 10b–5.” Merrill Lynch, 547 U.S. at 80.
    More specifically, in Blue Chip Stamps v. Manor Drug Stores,
421 U.S. 723, 749 (1975), the Supreme Court concluded that
only plaintiffs who were themselves purchasers or sellers of a
security had standing to sue for securities fraud, a requirement
often referred to as the “purchaser-seller” rule or “Birnbaum
Rule.” See Merrill Lynch, 547 U.S. at 80. This rule is meant to
cabin the reach of private actions for securities fraud. The
defendants’ argument for their proposed instruction is based
on cases drawn from that context. For example, the defendants
cite Abrahamson v. Fleschner, 568 F.2d 862, 868 (2d Cir. 1977),
which relied on Blue Chip Stamps—not the text of § 10(b)—to
conclude that “fraud in connection with the purchase or sale of
a security is not satisfied by an allegation that plaintiffs were
induced fraudulently not to sell their securities.” Another
example is Krim v. BancTexas Group, Inc., 989 F.2d 1435, 1443
n.7 (5th Cir. 1993), which also involved a private cause of
action. Krim cited Blue Chip Stamps for the proposition that “[i]t
is well established that mere retention of securities in reliance
on material misrepresentations or omissions does not form the
basis for a § 10(b) or Rule 10b-5 claim.”
    But what matters in this context is the scope of substantive
criminal liability under § 10(b), not the judicially created rules
for private civil actions. See Merrill Lynch, 547 U.S. at 84 (“Blue
Chip Stamps … purported to define the scope of a private right
of action under Rule 10b-5—not to define the words ‘in
connection with the purchase or sale.’”); see also Blue Chip
Nos. 12-3819, 12-3833 & 12-3867                                19

Stamps, 421 U.S. at 751 n.14 (“[T]he purchaser-seller rule
imposes no limitation on the standing of the SEC to bring
actions for injunctive relief under § 10(b) and Rule 10b-5.”).
This line of cases does not provide a defense to criminal
liability for securities fraud. The proposed instruction thus
would have misled the jury about the scope of § 10(b).
   Moreover, the proposed instruction lacked an adequate
foundation in the evidence. In the context of the broader
scheme at issue here, the defendants’ misrepresentations did
not merely induce investors to “continue to hold” their
investment certificates. Fair’s investors made decisions to buy,
renew, or redeem their certificates based on a massive fraud
that included lulling statements about the delayed interest
payments as well as misrepresentations intended to induce
delayed redemptions. The reliable payment of interest was
precisely what gave the investment certificates value and
would have played a large role in an investor’s decision to cash
out an existing certificate, renew that certificate (which itself
involved issuance of a new certificate), or buy one for the first
time. In addition, the defendants made misrepresentations in
Fair circulars about the general financial status of the company
and how it used investors’ money.
    Finally, the judge’s decision to instruct the jury using the
statutory language hardly deprived the defendants of a fair
trial. They were free to argue their theory that a scheme to
delay is not a scheme to defraud, and in fact did so. Accord-
ingly, the district court did not err in rejecting the defendant’s
proposed instruction; neither the law nor the evidence sup-
ported it.
20                             Nos. 12-3819, 12-3833 & 12-3867

D. Prosecutorial Misconduct
   The defendants next argue that the prosecutor’s comment
on an argument made by Cochran’s counsel, William Dazey,
constituted prosecutorial misconduct. In closing argument
Dazey said the following:
       [T]here may have been some reference today [by
       Durham’s counsel in closing] of Mr. Durham
       having a right hand and a left hand that per-
       formed various functions along the way. And I
       hope for Mr. Durham’s sake, and I hope for
       Mr. Cochran’s sake, that his counsel’s presenta-
       tion is persuasive. And I hope that your finding
       might be that there is a reasonable doubt as to
       whether Mr. Durham participated in a scheme to
       defraud. That is none of my business.
           The answer is, no, I think there was a scheme to
       defraud. The question is, was there anybody else
       that was let in on that scheme?
(Emphasis added.) In rebuttal the prosecutor briefly referred
to Dazey’s statement: “Let’s talk about Mr. Cochran. Now, you
heard Mr. Cochran’s attorney tell you that there was a scheme
to defraud but that Mr. Cochran didn’t have a role in it. Well,
Mr. Cochran’s role was absolutely critical to making this thing
happen.” Neither Durham’s nor Snow’s lawyer objected.
   The day after closing arguments, counsel for Durham and
Snow moved for a mistrial, arguing that Dazey’s comment
amounted to an improper expression of personal opinion
about the guilt of their clients in violation of ethical rules. In
Nos. 12-3819, 12-3833 & 12-3867                                21

response Dazey told the judge that he had heard a report about
his comment on National Public Radio that morning and
realized that he had misspoken. He explained that he had
intended to argue in the alternative—that there was no scheme,
but if there was, his client played no part in it. But he inadver-
tently omitted the qualifier “if.” After replaying the audio of
Dazey’s closing argument, the judge accepted this explanation
and concluded that Dazey had not improperly offered his
personal opinion about the guilt of the other defendants but
had simply misspoken.
    The defendants do not challenge that characterization of
Dazey’s comment. Instead, they focus for the first time on the
prosecutor’s response to Dazey’s misstatement, insisting that
it amounted to prosecutorial misconduct. We review a claim of
prosecutorial misconduct in two steps. First, we determine
whether the prosecutor’s comments were improper standing
alone. United States v. Bell, 624 F.3d 803, 811 (7th Cir. 2010).
Second, we ask whether the remarks in the context of the
whole record denied the defendants the right to a fair trial. Id.
    We note for starters that this argument was forfeited below.
Although the judge mentioned in passing that the prosecutor’s
comment did not amount to misconduct, the defendants never
raised or developed such a claim, instead focusing only on
Dazey’s error. Accordingly, our review is for plain error only,
which in this context requires the defendants to demonstrate
“that the comments at issue were obviously or clearly
improper,” and “not only [were the defendants] deprived of a
fair trial, but also that the outcome of that trial probably would
have been different absent the prosecution’s remarks.” United
22                              Nos. 12-3819, 12-3833 & 12-3867

States v. Hills, 618 F.3d 619, 640 (7th Cir. 2010) (internal quota-
tion marks omitted). This is a steep hill to climb.
    First, the prosecutor’s statement in rebuttal was not clearly
or obviously improper. Though Dazey’s argument was made
in the alternative when viewed with the benefit of hindsight,
the prosecutor’s characterization of it was, in a strict sense,
accurate. And the prosecutor was not given the benefit of
hindsight or an opportunity to review a transcript of Dazey’s
closing—he was speaking in rebuttal and had to craft his
argument in real time. Even the defendants’ counsel did not
realize a mistake had been made. Dazey needed a reminder
brought to him courtesy of NPR, and no one else from the
defense table objected during the prosecutor’s rebuttal.
    Second, even assuming for the sake of argument that the
prosecutor’s statement was improper, it did not deny the
defendants a fair trial. To determine prejudice, we consider the
following factors:
       (1) whether the prosecutor misstated the evi-
       dence; (2) whether the remark implicated a
       specific right; (3) whether the defendant invited
       the remark; (4) whether the district court pro-
       vided (and the efficacy of) a curative instruction;
       (5) whether the defendant had an opportunity to
       rebut the remark; and (6) the weight of the
       evidence against the defendant.
United States v. Clark, 535 F.3d 571, 580–81 (7th Cir. 2008). Most
of these considerations weigh against a finding of prejudice.
First, the prosecutor did not misstate the evidence. If there was
an error at all, Dazey invited it by misspeaking, and again none
Nos. 12-3819, 12-3833 & 12-3867                                23

of the defendants objected during the prosecutor’s rebuttal. As
such, any lack of opportunity to take corrective action falls on
the defendants.
   Finally, the government’s evidence was very strong. It’s
highly implausible that this single, passing remark during the
prosecutor’s rebuttal affected the jury’s verdict. Finding
prejudice on plain-error review requires that the outcome of
the trial probably would have been different without the
prosecutor’s remark. That standard is not remotely satisfied
here.

E. Sentencing
    Finally, the defendants raise several challenges to their
sentences and the restitution order. We review the district
court’s factual findings at sentencing for clear error; claims of
procedural or legal error are reviewed de novo. United States
v. Mei, 315 F.3d 788, 792 (7th Cir. 2003). Restitution orders are
reviewed for abuse of discretion. United States v. Allen, 529 F.3d
390, 394 (7th Cir. 2008).

   1. Unwarranted Sentencing Disparities
   Before imposing a sentence, the district court is required to
consider the sentencing factors in 18 U.S.C. § 3553(a) and
address any substantial arguments made by the defendant.
United States v. Panice, 598 F.3d 426, 443 (7th Cir. 2010). At
sentencing Durham raised an argument about unwarranted
sentencing disparities. See 18 U.S.C. § 3553(a)(6) (requiring the
24                             Nos. 12-3819, 12-3833 & 12-3867

sentencing court to consider the need to avoid unwarranted
sentencing disparities). He cited several cases from other
districts—including some from New York—in which the
defendant received a shorter sentence than the guidelines
called for in his case. The district court rejected this argument,
saying:
       I don’t know about what goes on in the Southern
       District of New York. I visit there only rarely.
       This is the Heartland. This is where we work
       hard. We work hard to put our kids through
       school, which is what a lot of these folks wanted
       to do, to pay for our houses, to get them paid off
       by the time that we retire so that we can maybe
       take some trips or buy a little place in Florida.
       We drive Chevies and Buicks and Fords, not
       Bugattis.
The judge continued in a similar vein when sentencing
Cochran:
           You need to understand there have been
       some arguments made in the case that talk about
       whether white-collar criminals are punished too
       severely or too lightly. I can’t look to cases from
       other districts, and your lawyers haven’t really
       made that argument to me. But as I said before,
       this case involves people in the Heartland of
       America.
           These are people who worked very hard and
       saved because they wanted to be secure in their
       retirement, because they wanted to pay off their
Nos. 12-3819, 12-3833 & 12-3867                                 25

       homes, because they wanted to send their kids to
       college, because in many circumstances they
       wanted to have enough money to be able to
       supplement whatever kind of healthcare might
       be provided.
    The defendants now argue that the judge’s comments
suggest that she mistakenly believed that she lacked the
authority to consider cases from outside the Southern District
of Indiana or the American “heartland” more generally. That’s
implausible, and in any event, we disagree. Considered in
context, the judge’s remarks do not suggest that she thought
she was legally barred from considering the other sentences but,
rather, that she was exercising her discretion not to consider
them in light of the particularly severe consequences of the
fraud in this case. The judge focused on the victims of the
defendants’ scheme, many of whom were elderly and working
class, and declined to give weight to sentences imposed
elsewhere. Nor did the judge claim to be following a binding
legal rule. Cf. United States v. Prado, 743 F.3d 248, 252 (7th Cir.
2014) (finding procedural error after the sentencing judge
stated incorrectly that “the Seventh Circuit has stated that any
argument relating to unwarranted sentence disparities has to
be presented on a national basis”). We find no error.

   2. Loss Calculation and Restitution
    The Sentencing Guidelines provide for an increase in
offense level based on either the actual or intended pecuniary
loss resulting from an offense. U.S.S.G. § 2B1.1 cmt. n.3(A). In
this case, both loss calculations were in the $200-million to
26                             Nos. 12-3819, 12-3833 & 12-3867

$400-million range, resulting in the application of a 28-point
enhancement. Id. § 2B1.1(b)(1)(O). A district court “need only
make a reasonable estimate of the loss, not one rendered with
scientific precision.” United States v. Gordon, 495 F.3d 427, 431
(7th Cir. 2007); see also U.S.S.G. § 2B1.1 cmt. n.3(C). The
government bears the burden of proof on the loss amount.
United States v. Vivit, 214 F.3d 908, 916 (7th Cir. 2000). To
challenge that amount, the defendant must provide “substan-
tiated evidence … to counter the government’s explicit proof
of loss.” Gordon, 495 F.3d at 432. The defendants challenge both
the intended and actual loss amounts.
    As a threshold matter, the defendants claim that the judge
failed to adequately address their specific objections to the loss
amount in violation of Rule 32(i)(3)(B) of the Federal Rules of
Criminal Procedure, which generally requires the district court
to rule on disputed factual issues. “[W]e have characterized the
requirement outlined in Rule 32(i)(3)(B) as one imposing a
minimal burden.” United States v. Brown, 716 F.3d 988, 994 (7th
Cir. 2013) (internal quotation marks omitted). As long as the
judge’s treatment of factual disputes at sentencing gives us an
adequate record to enable appellate review, Rule 32(i)(3)(B) is
satisfied. See id. at 995; United States v. Cunningham, 429 F.3d
673, 679 (7th Cir. 2005). Here, the judge made specific findings
on the intended and actual loss amounts, explained her
findings, and rejected the defense evidence and objections.
Nothing more is required.
Nos. 12-3819, 12-3833 & 12-3867                                 27

       (i) Actual loss
    Actual loss is the “reasonably foreseeable pecuniary harm
that resulted from the offense.” U.S.S.G. § 2B1.1 cmt. n.3(A)(i).
The district court concluded that the actual loss resulting from
the defendants’ fraud was $202 million. This calculation was
based on a report from Fair’s trustee in bankruptcy. After a
thorough review of Fair’s books and the claims submitted by
investors, the trustee reported that Fair’s investors were owed
more than $208 million (excluding claims for $7 million in
interest payments) and that around $5.6 million in assets were
recovered, resulting in a net loss of $202 million. (The govern-
ment notes the arithmetic here is off and the net loss should
have been a bit higher, but that does not affect the analysis.)
This evidence is easily sufficient on its own to support the
judge’s finding of actual loss. In addition to the trustee’s
calculation, the judge heard substantial evidence at trial that
the money from the certificates issued by Fair ended up in the
pockets of the defendants and related parties.
    The defendants contend that their fraud did not cause the
full $202 million in losses. Instead, they cast partial blame on
the effects of the 2008 financial crisis and the ensuing recession.
But they did not substantiate that claim. The only hard
evidence they submitted consisted of an affidavit of a former
Obsidian employee attributing Fair’s declining value to market
forces and valuations generated by Fair itself reporting that it
had more assets than liabilities in November 2009. But Fair’s
own internal accounting could not be trusted; the evidence
established widespread manipulation of its financial informa-
tion. And the affidavit from the former Obsidian employee is
28                            Nos. 12-3819, 12-3833 & 12-3867

very general; it does not indicate how much of the loss in value
was attributable to broader problems affecting the American
economy. While it is certainly possible that the recession
compounded the effects of the defendants’ fraud, there is no
reliable evidence establishing whether and to what extent it
actually impacted Fair’s business.
    The restitution order was premised on the court’s finding
of actual loss, and appropriately so. See Allen, 529 F.3d at
396–97. Because we find no error in the judge’s actual-loss
finding, the defendants’ challenge to the restitution order
necessarily fails.

       (ii) Intended loss
    Intended loss refers to the pecuniary harm that was
intended to result from an offense and includes “harm that
would have been impossible or unlikely to occur.” U.S.S.G.
§ 2B1.1 cmt. n.3(A)(ii). To calculate the intended loss, the
district court looked to the amount placed at risk by the
scheme. See United States v. Lauer, 148 F.3d 766, 768 (7th Cir.
1998). At the time Fair collapsed, nearly all of its approved
$250 million offering from 2008 had been issued, and it was
seeking (though never received) approval for another offering
of the same size. Based on the size of Fair’s most recent
certificate offering, the district court concluded that the
defendants’ scheme placed $250 million at risk.
    The defendants argue that the “placed at risk” standard
fails to account for the defendant’s subjective intent. But this
standard is well established in this circuit. Id. (“[T]he amount
Nos. 12-3819, 12-3833 & 12-3867                                 29

of the intended loss, for purposes of sentencing, is the amount
that the defendant placed at risk by misappropriating money
or other property.”); see also United States v. Brownell, 495 F.3d
459, 463 (7th Cir. 2007); United States v. Swanson, 483 F.3d 509,
513 (7th Cir. 2007); United States v. Lane, 323 F.3d 568, 585 (7th
Cir. 2003). The rule is particularly well suited for application to
Ponzi schemes. Ponzi schemes themselves generate no legiti-
mate gains; they “will inevitably collapse at some point, when
the volume of new money from new investors/victims is no
longer sufficient to meet the demands and expectations of the
earlier investor/victims.” United States v. Castaldi, 743 F.3d 589,
597 (7th Cir. 2014). After money is raised through investment,
the question is not whether it will be lost but when and by
whom. It’s worth noting that none of the authorities cited by
the defendants in their attempt to undercut Lauer involved a
Ponzi scheme.
    Nor is the placed-at-risk standard necessarily inconsistent
with this court’s general position that “[i]n determining the
intended loss amount, the district court must consider the
defendant’s subjective intent.” United States v. Middlebrook,
553 F.3d 572, 578 (7th Cir. 2009). For instance, in Mei we upheld
the use of the placed-at-risk standard to determine intended
loss in a scheme involving credit-card fraud. 315 F.3d at 793.
The evidence in Mei established that the defendant intended to
use each credit card to its limit; we held that the district court
properly estimated intended loss by multiplying the average
maximum credit limit of the recovered cards by the total
number of cards used in the conspiracy. Id.
30                              Nos. 12-3819, 12-3833 & 12-3867

    Similarly here, the evidence established that the defendants
intended to place the full value of their certificate authorization
at risk. For example, in discussing the ramifications of the state
agency’s refusal to authorize the fall 2009 offering, Cochran
said, “[I]f the[y’re] gonna blow us up, we’re gonna blow them
up. … Fifty four hundred investors aren’t gonna f*ckin[,] I
mean it would be a catastrophic event in the [S]tate of Ohio.”
Durham also told Snow,
       I mean, [we’re] betting obviously on a
       renewal … of our offering certificate, if the
       renewal doesn’t happen all bets are off (laughs)
       anyway, for everything … either the renewal
       happens and we[’]re able to kick back up invest-
       ment deposits [or] it doesn’t and then we[’]re all
       f*cked anyway, we just kind of go into liquida-
       tion mode of everything anyways.
    The defendants also argue that the district court erred in
not accounting for money from the $250 million 2008 offering
that was repaid to investors. The sentencing guidelines allow
the application of a “credit against loss” when money is repaid
before discovery of a crime. Brownell, 495 F.3d at 463–64 (citing
U.S.S.G. § 2B1.1 cmt. n.3(E)). The defendants concede that they
adduced no evidence of repayment in the district court.
Instead, they argue from inferences drawn from the trustee’s
report. Approximately $250 million worth of certificates were
issued, yet investors only claimed $208 million in losses from
those investments, suggesting that $42 million must have been
repaid. Or so the argument goes.
Nos. 12-3819, 12-3833 & 12-3867                                 31

    Nothing supports the inference of repayment. It’s specula-
tive at best; we simply do not know whether the holders of the
unaccounted-for $42 million in certificates were repaid or
merely did not file claims in the bankruptcy. The defendants
also cannot demonstrate whether the supposed “repayments”
occurred before or after their criminal conduct was uncov-
ered—a necessary finding in order to apply the credit. See id. at
463.
    Finally, any error related to intended loss is harmless. The
district court’s actual loss finding is independently sufficient to
support the sentencing enhancement.

                        III. Conclusion
    For the foregoing reasons, we REVERSE Durham’s convic-
tions on Counts 2 and 5 and REMAND for resentencing without
those counts. In all other respects, the defendants’ convictions
and sentences are AFFIRMED.