07-5222 | Omnilex

Gesamter Gesetzestext

07-5222-cr (L) ,
07-5670-cr
USA v. Ware

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UNITED STATES OF AMERICA,

UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT

August Term, 2008

(Submitted: April 22, 2009

Decided: August 18, 2009)

Docket Nos. 07-5222-cr (L), 07-5670-cr

Appellee-Cross-Appellant,

\- V. -

ULYSSES THOMAS WARE, also known as Thomas Ware,

Defendant -Appellant-
Cross-Appellee.

Before: KEARSE, SACK, and HALL, Circuit Judges.

Appeal from a judgment of the United States District Court
for the Southern District of New York, William H. Pauley III,
Judge, convicting defendant of securities fraud and conspiracy to
commit securities fraud and wire fraud, see 15 U.S.C. § 78j (b) and
18 U.S.C. § 2; 18 U.S.C. § 371.

Conviction affirmed; matter remanded for additional
proceedings in connection with sentencing.

MICHAEL J. GARCIA, United States Attorney
for the Southern District of New York,
New York, New York (Nicholas S.
Goldin, Andrew L. Fish, Assistant
United States Attorneys, New York, New
York, of counsel) , for Appellee.

ULYSSES THOMAS WARE, Brooklyn, New York,
Defendant-Appellant pro se.

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KEARSE, Circuit Judge:

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Defendant pro se Ulysses Thomas Ware appeals from a
judgment entered in the United States District Court for the
Southern District of New York following a jury trial before
William H. Pauley III, Judge, convicting him of securities fraud,
in violation of § 10 (b) of the Securities Exchange Act of 1934, 15
U.S.C. § 78j (b) , Rule 10b-5 promulgated thereunder by the
Securities Exchange Commission ("SEC"), and 18 U.S.C. § 2; and
conspiracy to commit securities fraud and wire fraud, in
violation of 18 U.S.C. § 371. Ware was sentenced principally to
97 months' imprisonment, to be followed by a three-year term of
supervised release, a fine of $25,000, and forfeiture of $228,388.
On appeal, Ware contends, inter alia, that his right to be free
from double jeopardy was violated, that the evidence was
insufficient to support his convictions, and that the court made
errors in sentencing. We find no merit in any of Ware's
contentions except his challenge to the sufficiency of the
district court's sentencing findings as to his role in the
offenses. On that issue, we remand for additional proceedings; in
all other respects we affirm.

# I. BACKGROUND

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The present prosecution focused on the conduct of Ware
with respect to a "pump and dump" scheme from December 2001
through April 2002, involving the issuance of fraudulent press

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releases that artificially inflated the prices of the publicly
traded shares of two small companies: Service Systems
International, Ltd. ("Service Systems"), and Investment
Technology, Inc. ("Investment Technology") . The government's
evidence at trial included press releases issued at Ware's behest;
testimony from two participants in the drafting of the press
releases, Jeremy Jones and Carleton Epps; charts showing
increases in price and trading volume of the companies' shares
corresponding to the dates on which such press releases were
issued; and testimony from several investors who invested in
Investment Technology in reliance on Ware's press releases, only
to see the stock become worthless when the artificially inflated
prices plummeted. As discussed in Part II.B. below, the press
releases contained materially false and misleading representations
favorable to the companies, and/or omitted material information
that was unfavorable, causing their stock prices to rise. Ware,
who had acquired stock in the companies, sold most of his stock
while causing the false press releases to be issued, reaping
profits of more than $200, 000 in a five-month period.

Ware was tried on one count of securities fraud and one
count of conspiracy to commit securities fraud and wire fraud.
After a first trial ended in a mistrial, necessitated by the
illness of Jones (see Part II.A. below), Ware was retried and
convicted on both counts. He was sentenced principally as
indicated above, calculated as discussed in Part III below.

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On appeal, Ware makes numerous challenges to his
conviction, including contending that his prosecution was the
product of government misconduct, that the district judge should
have recused himself, that his right to be free from double
jeopardy was violated, and that the evidence was insufficient to
support his conviction on either count. We reject Ware's charges
of government misconduct -- and his contention that he should have
been allowed to argue to the jury that there was such misconduct --
substantially for the reasons stated by the district court in an
Order dated January 8, 2007, and in an in limine ruling on the
record on May 19, 2006. We reject Ware's contention that the
district judge should have recused himself, as we find in the
record no basis for recusal. We reject Ware's double jeopardy and
sufficiency challenges for the reasons that follow.

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## A. The Double Jeopardy Contention

Ware's first trial began on January 15, 2007. The
government's principal witness was Jones, who described his
participation in Ware's securities fraud scheme and authenticated
numerous exhibits for admission into evidence. (See, e.q.,
Transcript of First Trial at 198-202, 214-15.) When the trial was
adjourned for the weekend on Thursday, January 18, Ware was in the
process of cross-examining Jones. During the weekend, Jones was
hospitalized, suffering from elevated blood pressure and kidney

failure. With Ware's consent, the trial resumed on Monday,
January 22, with testimony from other government witnesses. On
Tuesday morning, the government reported that it had been unable
to obtain more information as to Jones's condition, and it
proffered the name and telephone number of Jones's attending
physician to Ware and the court. Ware moved for a mistrial,
arguing that having a hiatus of a week or more during his cross-
8 examination of Jones would be unduly prejudicial. (See id. at
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618.) The government opposed the motion, and the district court
denied it. (See id. at 620-23.)

On Tuesday afternoon, the government relayed to Ware and
the court the physician's evaluation of Jones and inability to
predict when Jones might be discharged from the hospital. Ware
again moved for a mistrial; the court postponed a ruling and
continued the trial that afternoon. (See id. at 740-44.) Later
in the day, an affidavit was received from Jones's physician
stating that Jones was critically ill and would require
hospitalization for an indefinite period of time. Ware again
moved for a mistrial, arguing that, as a practical matter, the
jury would be unable to disregard Jones's testimony and the
evidence admitted through his testimony. (See id. at 798-99.)
Although the government urged the district court to wait a few
days to see whether Jones's condition improved, the court found it
clear that Jones would not be returning to testify soon; and it
granted Ware's motion. The court noted that

[t]here is no constitutional issue presented here
because the defendant has moved for a mistrial; and

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it seems to me not to grant it would simply raise
potential Sixth Amendment issues, because the
defendant has not had an opportunity to complete his
cross-examination of Mr. Jones.

Ware thereafter moved to dismiss the indictment on the
ground that he could not be retried because of his right to be
free from double jeopardy. That motion was denied, and his new
trial began in April 2007. On this appeal, Ware pursues his
contention that the Double Jeopardy Clause precluded any retrial.

The Double Jeopardy Clause of the Fifth Amendment
generally protects a defendant from successive prosecutions for
the same offense. See, e.g., Oregon v. Kennedy, 456 U.S. 667, 671
(1982) ; United States v. Dinitz, 424 U.S. 600, 606 (1976) .
However, where the original trial has not been completed because
the defendant himself moved for a mistrial, "he is deemed to have
deliberately elected 'to forgo his valued right to have his guilt
or innocence determined before the first trier of fact. '" United
States v. Rivera, 802 F.2d 593, 597 (2d Cir. 1986) (quoting United
States v. Scott, 437 U.S. 82, 93 (1978)). Thus, when a mistrial
has been granted on motion of the defendant, a retrial is normally
not barred by the Double Jeopardy Clause unless the government
engaged in conduct that was "intended to 'goad' the defendant into
moving for a mistrial." Kennedy, 456 U.S. at 676; see, e.g.,
Dinitz, 424 U.S. at 611 (Double Jeopardy Clause "protect [s] a
defendant against governmental actions intended to provoke
mistrial requests") .

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In the present case, the mistrial was sought by Ware, and
the district court granted it over the objection of the
government. There is no indication whatever in the record that
Jones's absence from the trial after January 18 was procured by
the government or that the government engaged in any conduct
designed to cause a mistrial or goad Ware into moving for a
mistrial. Accordingly, Ware's double jeopardy challenge is
meritless.

## B. The Sufficiency Challenges

Ware challenges the sufficiency of the evidence to support
his securities fraud conviction, arguing principally (a) that the
government failed to call as witnesses any auditors or forensic
accountants to testify that any of the statements in the press
releases were false or misleading, and (b) that there was no proof
that those statements were material, i.e., that they had any
impact on the trading volume in the shares of Service Systems or
Investment Technology. In challenging the sufficiency of the
evidence to support his conviction of conspiracy to commit
securities fraud and wire fraud, Ware contends principally that
there was insufficient evidence of a conspiratorial agreement,
pointing to testimony from Epps and Jones suggesting that they had
not knowingly conspired to manipulate the Service Systems and
Investment Technology stock. These contentions are meritless.

In reviewing a defendant's challenge to the sufficiency of
the evidence to support his conviction, we must view all of the

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evidence in the light most favorable to the government, crediting
every inference that could have been drawn in the government's
favor, see, e.q., United States v. Josephberg, 562 F.3d 478, 487
(2d Cir. 2009) ; United States v. Eppolito, 543 F.3d 25, 45 (2d
Cir. 2008) , cert. denied, 129 S. Ct. 1027 (2009) ; United States v.
Leonard, 529 F.3d 83, 87 (2d Cir. 2008). Where there are
conflicts in the testimony, we must defer to the jury's resolution
of the weight of the evidence and the credibility of the
witnesses. See, e.g., United States v. Jones, 393 F.3d 107, 111
(2d Cir. 2004) ; United States v. Morrison, 153 F.3d 34, 49 (2d
Cir. 1998) ; United States v. Miller, 116 F.3d 641, 676 (2d Cir.
1997), cert. denied, 524 U.S. 905 (1998). "The assessment of
witness credibility lies solely within the province of the jury,
and the jury is free to believe part and disbelieve part of any
witness's testimony
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United States v. Josephberg, 562

F.3d at 487; see, e.q., United States v. Gleason, 616 F.2d 2, 15
(2d Cir. 1979), cert. denied, 444 U.S. 1082 (1980). These
principles apply whether the evidence is direct or circumstantial.
See, e.q., Glasser v. United States, 315 U.S. 60, 80 (1942). The
conviction must be upheld if "any rational trier of fact could
have found the essential elements of the crime beyond a reasonable
doubt." Jackson v. Virginia, 443 U.S. 307, 319 (1979) (emphasis
in original) .

The evidence at Ware's second trial, taken in the light
25 most favorable to the government, included the following. In
2001, Ware was an attorney who operated a small firm called

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Rosenfeld, Goldman & Ware ("RGW"), which held itself out as both a
law firm and an investment bank. (See, e.g., Transcript of Second
Trial ("Tr. ") at 300.) In late 2001, Ware hired Jones and Epps,
young men who were previously employed by Jackson, Shanklin &
Sonia (or "JSS"), a small securities firm that had leased office
space from RGW until October 2001. Jones and Epps testified that
Ware instructed them to search the internet for small publicly
traded companies that had "reasonable" trading volume and whose
share price was below $1. (Id. at 299; see id. at 737-38.) Jones
and Epps were to contact companies that fit that profile and
inquire whether they would like help from Ware in promoting their
stock; in exchange, Ware would require advance payments of cash or
of stock that could be sold immediately upon receipt without
restrictions. (See id. at 301-02, 738-40.)

Service Systems and Investment Technology entered into
such agreements with Ware's firm; and brokerage accounts
controlled by Ware ultimately received a total of 2.5 million
shares of Service Systems stock (see id. at 985) and 7.5 million
shares of Investment Technology stock (see id. at 968-69). After
the initial shares were received, Ware began editing, approving,
and issuing press releases that he caused to be distributed
nationwide through Business Wire and Internet Wire, companies
engaged in the electronic distribution of press releases and other
material on a large scale. The press releases promoting Service
Systems and Investment Technology did not disclose the involvement
or role of Ware; rather, Ware had his part-time clerical assistant

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Myron Williams, who owned a defunct credit consulting business
called MW Financial Services, send the releases to Business Wire
and Internet Wire, using the MW Financial Services name and
website. (See Tr. 226-28, 885-93.)

The Ware-generated press releases introduced at trial were
false and misleading in three ways. First, they attributed
statements and evaluations to sources that were said to be
independent of each other and of the issuer of the stock being
promoted. In fact, however, some of the information in the press
releases for Investment Technology came from its president; other
information as to both Investment Technology and Service Systems
was fabricated by Jones and Epps; and the entities cited were not
sources of factual information at all. One supposed source was MW
Financial Services, Williams's credit consulting company, which
was defunct. Another was JSS, which had never employed stock
analysts, had never made stock recommendations, and never issued
press releases; during the period in question, JSS's principal
worked from his home and was unaware that the JSS name was being
19 used by Ware. (See id. at 480-88.) A third purported source,
Centennial Advisors, was a company that had been created by Epps
and Jones but was not operational. (See id. at 788.) A fourth,
called Small Cap Research Group, was a company set up by Ware.
(See id. at 859.) Ware instructed Epps and Jones, in drafting
press releases, to make it appear that there were "more entities"
analyzing these companies because it would be better "for the
price of the stock." (Id. at 322; see also id. at 346-47 (Ware

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also instructed Epps "to get on . . . ragingbull. com" -- which Epps
described as "an investment community bulletin board" and "on
Yahoo [which] has that same feature" -- and "post favorable
comments" about Service Systems and Investment Technology "under
an . . . assortment of screen names" (emphasis added) ) .) In fact,
Ware was responsible for all of the favorable statements in the
press releases, as the releases were written by Epps or Jones and
edited or approved by Ware. (See, e.g., id. at 756-57, 784-85.)

Second, the press releases did not disclose that Service
Systems and Investment Technology had paid Ware to prepare the
promotional press releases. Any receipt and amount of such
compensation are material information, the disclosure of which is
required by law, see 15 U.S.C. § 77q (b) .

Third, the press releases that Ware caused to be issued
contained false and baseless statements about the business and
financial circumstances of Service Systems and Investment
Technology. Jones testified that he helped "prepare and issue
18 false press releases
[t]o drive up the price of a stock."
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(Tr. 732) He testified that he never saw or heard anything to
support those releases. For example, a December 6, 2001 press
release claimed that JSS rated the Service Systems (or "SVSY")
stock a "Speculative Strong Buy, " with a target price of 77 cents
a share, which was more than five times the stock's price at that
time (Government Exhibit ("GX") 20-R) ; a December 10 press
25 release, which was also attributed to JSS, "Reiterate [d]
Speculative Strong Buy .... $0.45 - $0.65 In Short Term" (GX 21-R) ;

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and a December 11, 2001 press release attributed to Centennial
Advisors a prediction that the SVSY share price would triple in
five business days (see GX 22-R; see also GX 93-A). In fact,
SVSY's then-most recent quarterly report to the SEC, filed on
November 13, stated that SVSY "has not recognized revenue to date
and has accumulated operating losses of approximately $2,400, 000
since inception"; that although SVSY was attempting to raise
additional equity capital, "there is no assurance that any such
activity will generate funds that will be available for
operations"; and that " [t]hese conditions raise substantial doubt
about the Company's ability to continue as a going concern. "
(GX 2, at 9.)

A press release for SVSY on Thursday, January 10, 2002,
stated (a) that " [f]inancing talks reportedly in excess of
20 million dollars will provide the cash infusion [that Service
Systems] needs, " and (b) that "Carlton [sic] Epps, Micro-Cap
Analyst at Jackson, Shanklin & Sonia" recommended SVSY stock and
believed that it "could very well return up to 400% from current
levels." (GX 25-R.) In fact, however, JSS never employed stock
analysts (see Tr. 480); Epps never made stock price predictions
(see id. at 321-22) ; and Jones had no reason to believe there were
any $20 million financing negotiations (see id. at 831, 861). On
January 11, 2002, Ware sent Service Systems an e-mail stating that
"currently the bid has risen 40% since our P/R of Thursday ..... the
market is positive on the prospects for the company.
Our

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strategy will definitely work if everybody does their part on the
team." (GX 66.)

Ware's earlier press releases for Service Systems had had
similarly desirable effects on its share price in December. On
December 3, 2001, the closing price of Service Systems stock was
14 cents a share, on a trading volume of 146,100 shares. (See
GX 93.) After the press releases by Ware on December 6, 10, and
11, 2001, the December 11 closing price was 22 cents a share, with
670, 600 shares traded, reflecting increases of more than 57
percent in price and more than 359 percent in volume in six
trading days. (See id.)

As to Investment Technology (or "IT Inc. "), Ware caused
press releases to be issued on, among other days, February 4, 5,
6, 7, and 8. On January 30, 2002, Investment Technology stock had
closed at 2% cents a share, with 800,100 shares traded. (See
GX 92.) Ware's February 4, 2002 press release estimated that IT
Inc. 's profits would grow at the rate of 30 percent a year and
that its "stock price [would] accelerat [e] to the mid $0.40 with
[sic] the next 2 months on strong volume." (GX 31-R. ) By
February 4, the closing price of an IT Inc. share was double the
January 30 closing price; and the February 4 trading volume was
1,104, 200 shares, whereas only 77,000 shares had been traded on
the previous trading day. (See GX 92.) Ware's February 5, 2002
press release attributed to Small Cap Research Group a description
of IT Inc. as a "leader in the online gaming industry, " referred
to "estimated EPS [earnings per share] of $0.15-0.25," and stated

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that IT Inc. 's share price was expected to increase to
"$1.50-2.50 within the next 12 months"; the release cited a
report on the MW Financial Services website. (GX 32-C.) In
fact, Small Cap Research Group was owned by Ware; MW Financial
Services was merely a website that belonged to Williams and was
controlled by Ware; and the online gambling report on the website
had been prepared by Epps. When Epps was asked about the
supposedly expected 12-month price target of $1.50-$2.50, he
testified that the calculation of a price target "starts with the
financial statements of that company" and that, as of the date of
the press release, he had no financial statements for IT Inc.
(Tr. 339.) When asked about the basis for the press release's
estimate of 15-25 cents per share as IT Inc. 's earnings, Epps
testified that IT Inc. "was not an operating company. Therefore,
it didn't have any earnings." (Id. at 687.)

Ware also caused to be issued a February 7, 2002 press
release that attributed to Centennial Advisors a recommendation of
Investment Technology as a "Strong Buy" and stated that IT Inc.
had accepted more than 100, 000 bets totaling more than $4 million
in connection with the February 3, 2002 Super Bowl. (GX 34-C.)
In fact, however, IT Inc. had no operations and had not taken a
single Super Bowl bet. (See, e.q., Tr. 845 ("actually, they
didn't do any money" (internal quotation marks omitted) .) Jones
testified that some of the information in this press release had
come from IT Inc.'s president (see id. at 800), but that the
$4 million figure was his and Epps's hypothesis as to the amount

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that could have been bet with IT Inc. on "that type of day" based
on sports betting statistics they found on the internet (id.
at 801) . And as to the press release statement that 100, 000 bets
had been placed, Jones testified, "That is the information that
Carlton [sic] and I made up." (Id. at 800-01.)

After the SEC began an investigation in 2003 into the
trading in Investment Technology stock, Ware prepared an affidavit
for Williams that was designed to exculpate Ware with respect to
the February 7, 2002 press release. Williams testified at trial
that he signed the affidavit without carefully reading it, relying
on Ware because Ware said it was merely a document that he had
forgotten to have Williams sign, Ware was an attorney, and
Williams trusted him (see id. at 902-06, 915). The affidavit
stated that the release was a draft that had been sent out
inadvertently, that Ware and Williams had called Business Wire and
explained the error, and that they had asked that the release be
withdrawn. (See GX 80.) Although Ware submitted this affidavit
to the SEC, Williams testified that each of these statements was
false (see Tr. 912-14) .

A February 13, 2002 press release (introduced as GX 37-C)
prepared by Jones and attributed to Centennial Advisors, stated
that IT Inc. was "aligning itself with takeover targets" that had
good business prospects in terms of "content" and "established
customer base" and was "allocating roughly an estimated 45 percent
of its operating budget to advertising." (Tr. 788 (internal
quotation marks omitted) .) In fact, Jones had no information to

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support his statements about IT Inc. 's budget; he testified, "They
had no budget." (Id.)

During the period in which Ware was having the falsely
favorable press releases issued, he was selling most of the stock
he had received as compensation for creating the press releases.
In December 2001 and January 2002, he sold 375,000 of his Service
Systems shares, making a profit of $57,670. (See id. at 987.)
From the end of January to mid-April 2002, Ware sold some
7,000, 000 of his Investment Technology shares, making a profit of
$170, 718. (See id. at 974-75; GX 100-B.)

We conclude that the evidence at trial was ample to permit
the jury to find that Ware, in connection with the purchase or
sale of securities of Service Systems and Investment Technology,
directly or indirectly used instrumentalities of interstate
15 commerce " [t]o make . . . untrue statement [s] of . . . material
fact [s] 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," 17 C.F.R. § 240.10b-5, and
hence was guilty of securities fraud. Ware's argument that there
were certain types of evidence that the government did not present
does not detract from the fact that the evidence the government
did present -- both direct and circumstantial -- was sufficient to
prove Ware's guilt beyond a reasonable doubt.

The above evidence was also ample to permit the jury to
find Ware guilty of conspiracy in violation of 18 U.S.C. § 371,
i.e., that Ware (a) entered into an agreement with others,

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including at least Epps and Jones, to perpetrate the securities
fraud scheme by means of wire communications, and (b) committed
one or more overt acts in furtherance of that agreement.

### III. SENTENCING CHALLENGES

In determining Ware's sentence, the district court first
calculated the imprisonment range recommended by the advisory
Sentencing Guidelines ("Guidelines"). It found that Ware's
Guidelines base offense level was 6, see Guidelines § 2B1. 1 (a) (2),
and that that level should be increased by 12 steps pursuant to
§ 2B1 . 1 (b) (1) (G) either because the losses caused by Ware's
offenses totaled more than $200,000 or because his gains from the
sale of the Service Systems and Investment Technology stock
exceeded $200,000. (See Sentencing Transcript, October 26, 2007
("S. Tr. "), at 69-70. ) Ware's offense level was further increased
by four steps because his offenses involved 50 or more victims,
see Guidelines § 2B1.1 (b) (2) ; four steps on the ground that Ware
was an organizer or leader of a scheme that involved five or more
participants or that was otherwise extensive, see id. § 3B1. 1 (a) ;
two steps on the ground that Ware, having been retained as an
attorney for Service Systems and having made improper regulatory
filings with respect to that company in order to benefit himself

at its expense, abused a position of trust, see id. § 3B1.3; and

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two steps on the ground that his submission of the false Williams
affidavit to the SEC constituted an attempt to obstruct justice,

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see id. § 3C1.1. (See S. Tr. 70-71.) Ware's total offense level
was thus 30; given his criminal history category of I, the
Guidelines-recommended range of imprisonment was 97-121 months.
After considering the factors set out in 18 U.S.C. § 3553, the
court concluded that a reasonable term of imprisonment for Ware
was 97 months.

Ware challenges most of the court's Guidelines
calculations. We question only the adjustment for leadership
role.

## A. Leadership Role

The advisory Guidelines specify a four-step upward
adjustment in offense level if "the defendant was an organizer or
leader of a criminal activity that involved five or more
participants," Guidelines § 3B1.1 (a) -- including the defendant,
see, e.g., United States v. Paccione, 202 F.3d 622, 625 (2d Cir.),
cert. denied, 530 U.S. 1221 (2000) -- "or was otherwise extensive, "
Guidelines § 3B1.1 (a) . Before imposing a role adjustment, the
sentencing court must make specific findings as to why a
particular subsection of § 3B1.1 adjustment applies. See, e.g.,
United States v. Espinoza, 514 F.3d 209, 212 (2d Cir.) (" [o]ur
precedents are uniform in requiring a district court to make
specific factual findings to support a sentence enhancement under
U.S.S.G. § 3B1.1") (internal quotation marks omitted), cert.
denied, 128 S. Ct. 2458 (2008); United States v. Carter, 489 F.3d
528, 538 (2d Cir. 2007) ("Carter"), cert. denied, 128 S. Ct. 1066

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(2008) ; United States v. Huerta, 371 F.3d 88, 93 (2d Cir. 2004) ;
United States v. Molina, 356 F.3d 269, 275 (2d Cir. 2004) ; United
States v. Patasnik, 89 F.3d 63, 68 (2d Cir. 1996) ("A court must
make two specific factual findings before it can properly
enhance a defendant's offense level under § 3B1.1 (a): (i) that
the defendant was 'an organizer or leader, ' and (ii) that the
criminal activity either 'involved five or more participants' or
'was otherwise extensive. ' ") .

The findings of the sentencing court must be sufficiently
specific to permit meaningful appellate review. It is not enough
for the court merely to repeat or paraphrase the language of the
guideline and say conclusorily that the defendant meets those
criteria. In Carter, for example, the district court applied the
four-step role enhancement, stating,

the thing that I wrestled with was the defendant's
role in the offense. 3B1.1 (a) states that if a
defendant was an organizer or leader of a criminal
activity that involved five or more participants or
was otherwise extensive, then he can be liable. I
think that this covers this defendant.

489 F.3d at 539 (emphasis added) (internal quotation marks
omitted). We concluded that this statement was "far too general
to support a role enhancement." Id.

Further, although a sentencing court may sometimes satisfy
its obligation to make findings by adopting the factual statements
in the defendant's presentence report ( "PSR") , see, e.g., United
States v. Molina, 356 F.3d at 275-76, adoption of the PSR does not
suffice if the PSR itself does not state enough facts to permit
meaningful appellate review, see, e.g., Carter, 489 F.3d at 540.

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In Carter, for example, the PSR that was adopted by the district
court "simply made reference to [a witness's] testimony that [the
defendant] supplied drugs to at least 10 dealers." Id. We
concluded that the PSR's findings were inadequate, and hence their
adoption was not sufficient.

In the present case, because Ware did not object to the
role adjustment in the district court on the ground that the court
failed to make adequate findings, his present challenge to the
sufficiency of the findings is reviewable only for plain error.
See, e.q., Fed. R. Crim. P. 52 (b); United States v. Olano, 507
U.S. 725, 732 (1993) . Under this standard, a party is not to be
granted relief unless there was " (1) 'error, ' (2) that is 'plain, '
and (3) that 'affect [s] substantial rights. '" Johnson v. United
States, 520 U.S. 461, 467 (1997) (quoting Olano, 507 U.S. at 732).
"If all three conditions are met, " we have discretion to grant
relief "only if (4) the error 'seriously affect [s] the fairness,
integrity, or public reputation of judicial proceedings. '"
Johnson, 520 U.S. at 467 (quoting Olano, 507 U.S. at 732 (other
internal quotation marks omitted) ). In conducting plain-error
review of sentencing issues, we have stated that when the district
court's statement provides "an insufficient basis . . . for us to
determine why the district court did what it did, " that is an
error that affects a defendant's "substantial rights. " United
States v. Lewis, 424 F.3d 239, 247 n.5 (2d Cir. 2005). In Lewis,
addressing a failure to comply with the statutory provision that
" [t]he court, at the time of sentencing, shall state in open court

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the reasons for the imposition of the particular sentence, "
18 U.S.C. § 3553 (c), especially when the sentence is outside the
range recommended by the advisory Guidelines, see id.
§ 3553 (c) (2), we concluded that the fourth component of the
plain-error test was met because the absence of a meaningfully
explanatory statement undermines "understanding of, trust in, and
respect for the court and its proceedings on the part both of
those who are themselves parties to the proceeding and those who
are not." 424 F. 3d at 247. In Carter, applying Lewis's analysis,
we concluded that the district court's conclusory finding as to
11 the defendant's leadership role and its "reliance on the
inadequate findings of the PSR, without more, constituted plain
error, " 489 F.3d at 540.

In the instant case, in finding that the four-step
increase in offense level was warranted for Ware "because the
defendant was the organizer and leader of this conspiracy" (S.Tr.
70), the district court stated as follows:

[W]ith respect to the aggravating role enhancement
that I have imposed, it obviously involved a criminal
enterprise with five or more participants and
unknowing participants and was otherwise extensive.
It took place over a period of time. All the
activities of the knowing and unknowing participants
were organized or led by Mr. Ware with specific
criminal intent to defraud the investing public. And
of course the services of those unknowing
participants, the wire services that published his
false press releases, etc., they were all peculiar
and necessary to the criminal scheme.

(Id. at 72-73 (emphases added) .) We have several difficulties
with this explanation as to the number of participants or the
extensiveness of the criminal activity.

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First, the Guidelines define a " 'participant'" in the
criminal activity as a person who, though perhaps not convicted,
"is criminally responsible for the commission of the offense."
Guidelines § 3B1.1, Application Note 1. If the above statement by
the district court was meant as a finding that there were five or
more participants within the meaning of § 3B1.1, it lacks the
specificity needed to allow us to conduct a meaningful review, as
there were only four obvious participants here: Ware, Epps,
Jones, and Williams. The government, on this sentencing issue,
argues to us that IT Inc. 's chief executive officer ( "CEO") was
also a participant because he knew of the falsity of Ware's
February 7, 2002 press release. (See Government brief on appeal
at 84, 86.) But in arguing the issue of Ware's guilt, the
government states that IT Inc. 's CEO was upset at the press
release because of its falsity and that he "complained to Epps
that it needed to be retracted." (Id. at 15 (citing Tr. 340-41,
787) .)
n sentencing Ware, the district court made no finding
that the IT Inc. CEO was criminally responsible, and we cannot
endorse the role enhancement on the basis of the government's
speculation as to what the sentencing judge had in mind.

Second, the district court's reference to "unknowing
participants" (S. Tr. 72) sheds no greater light on the court's
finding that the five-participant aspect of the § 3B1.1 criteria
was met. To the extent that the court was referring to the wire
services utilized by Ware, it surely appears that they were
unknowing and that their services were necessary for the execution

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of his scheme; but the record does not indicate that they could be
considered "participants" within the above Guidelines definition
of that term, for we see no indication in the record that they
would be criminally liable. To the extent that, by "the services
of
unknowing participants" who had been "organized or led by
Mr. Ware" (S.Tr. 73, 72), the court was referring to services
provided by persons other than the wire services, it is not clear
to what services the court was referring or who those persons
were. And even if such a person were identified by the district
court, we could not, without some explanation by the court,
conclude that an individual who contributed unknowingly should be
considered "criminally responsible, " Guidelines § 3B1.1,
Application Note 1.

Finally, while the Guidelines instruct the sentencing
court that,

[i]n assessing whether an organization is "otherwise
extensive," all persons involved during the course of
the entire offense are to be considered. Thus, a
fraud that involved only three participants but used
the unknowing services of many outsiders could be
considered extensive,

id. § 3B1.1, Application Note 3 (emphasis added), it is not clear
what facts the court had in mind when it stated that Ware's
criminal activity was "otherwise extensive" (S.Tr. 72). Although
the court's next sentence stated that "[i]t took place over a
period of time" (id. ), that consideration, standing alone, would
not be a sufficient basis. If it were, any activity that, like
Ware's, spanned some five months would be "otherwise extensive, "
and the defendant leader or organizer would automatically have his

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advisory Guidelines offense level increased by four steps (or by
three steps if he were a manager or supervisor, rather than a
leader or organizer, see Guidelines § 3B1.1 (b) ). The district
court went on to refer to Ware's use of the wire services; but it
is not clear whether the court meant to imply that the mere use of
wire services makes a criminal activity "otherwise extensive"
within the meaning of § 3B1.1 -- a principle that, again, would seem
to expose any leader/organizer or supervisor/manager defendant
whose offense involved use of the wires (as might any wire fraud
or conspiracy to commit wire fraud) to an automatic four- or
three-step increase in offense level.

In sum, we conclude that the findings of the district
court are not sufficient to reveal the factual basis for the
court's conclusion that Ware's criminal activity involved five or
more "participants" or was "otherwise extensive" within the
meaning of Guidelines § 3B1. 1 (a) .

## B. Other Sentencing Challenges

Ware's other sentencing challenges are meritless and do
not require extended discussion. The 12-step enhancement of
Ware's offense level pursuant to Guidelines § 2B1. 1 (b) (1) (G) for
the amount of loss caused by his offenses was justified either by
evidence that investors in SVSY and IT Inc. lost some $397, 000
during the relevant period (see Government's Sentencing
Submission, August 14, 2007, Exhibits 2 and 3), or by the evidence
that Ware, in selling stock that he received as compensation for

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his fraudulent services, received a total of $228,338 (see, e.g.,
Tr. 974-75, 987, 1006). The four-step adjustment pursuant to
§ 2B1.1 (b) (2) was based on the finding that more than 50 victims
were involved, a finding that was not clearly erroneous in light
of the government's introduction of the names of 383 investors who
bought shares of Service Systems or Investment Technology during
the period of Ware's manipulation of the market for those shares
(see Government's Sentencing Submission, August 14, 2007,
Exhibits 2 and 3) . Nor do we see any error in the court's two-
step adjustment pursuant to § 3C1.1 for obstruction of justice.
That adjustment, based on Ware's filing of the false Williams
affidavit in the SEC civil investigation, which dealt with the
same conduct for which Ware was found criminally liable here, was
appropriate. See, e.g., United States v. Fiore, 381 F.3d 89, 94
(2d Cir. 2004) .

As to the increase in offense level for abuse-of-trust,
Ware appears to pursue a contention he made in the district court,
namely that he had no fiduciary duty to any of the investors
allegedly victimized by his press releases (see Ware reply brief
on appeal at 87-88). This adjustment, however, was imposed not on
the basis that Ware held a position of trust toward investors but
rather that he held such a position toward one of the companies
whose stock he was promoting and which had retained him to perform
legal services. (See S.Tr. 70.) In sentencing Ware, the district
court so stated with respect to Service Systems (see id.); in
fact, the only evidence we have seen on this point showed that

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Ware had such a relationship not with Service Systems (see GX 61) ,
but rather with IT Inc. (see GX 70, at 1 (RGW "shall provide any
and all SEC Legal Counsel to Investment Technology") ). The
court's misstatement that Ware was retained as legal counsel by
Service Systems, rather than by IT Inc., was not raised in the
district court and has not been argued on appeal, and hence that
issue has been forfeited. And even had that error been raised on
appeal, it would provide no basis for relief as it clearly did not
affect Ware's substantial rights.

Finally, there is no merit in Ware's contention that the
court erred in ordering him to forfeit $228,388. The government
presented evidence that Ware gained that amount in selling stock
he received as compensation for devising and orchestrating his
pump-and-dump scheme. The district court properly found by a
preponderance of the evidence, see, United State v. Fruchter, 411
F.3d 377, 383 (2d Cir. 2005), that Ware gained $228,388, and we
see no error in the ruling that he should forfeit that amount.

# CONCLUSION

We have considered all of Ware's contentions on this
appeal and, except as indicated above with respect to the
sentencing enhancement for his role in the offense, we have found
them to be without merit. Ware's conviction is affirmed; we
remand for further proceedings with regard to his sentence.

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In Carter, in which we concluded that the district court's
findings as to the defendant's leadership role were inadequate to
permit meaningful appellate review, we remanded for resentencing.
But we did so in that case because there were other errors as
well. In the present case, the lack of adequate findings as to
Ware's role is the only material defect we have found.
Accordingly, we remand to the district court either for
supplementation of the record with findings as to why the criteria
of § 3B1.1 (a) are met, or, if the court concludes that those
criteria are not met, for resentencing.

The mandate shall issue forthwith. If the district court
supplements the record in accordance with the foregoing, this
appeal will be reinstated -- without the need for a new notice of
appeal -- upon notice by either party to this Court by letter within
14 days of such supplementation. If the district court
resentences Ware, any party wishing to appeal must file a new
notice of appeal. In either event, the matter shall be referred
to this panel.

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, 07-5670-cr USA v. Ware 1 2 3 4 5 6 7 8

Gesamter Gesetzestext

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