United States of America v. Sean Hart

Filed November 29, 2001
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
Nos. 00-2242, 00-2243, 00-2244 & 00-2283
UNITED STATES OF AMERICA
v.
SEAN HART,
Appellant at No. 00-2242
NEIL WHITE,
Appellant at No. 00-2243
JOSEPH ORLANDO,
Appellant at No. 00-2244
LAWRENCE WEIL,
Appellant at No. 00-2283
On Appeal from the United States District Court
for the District of New Jersey
D.C. Criminal Nos. 98-cr-00414-2, 98-cr-00414-4,
98-cr-00414-8 & 98-cr-00414-1
(Honorable William G. Bassler)
Argued July 19, 2001
Before: SCIRICA, RENDELL and ROSENN,
Circuit Judges
(Filed: November 29, 2001)

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JAMES PATTON, ESQUIRE
(ARGUED)
554 South Livingston Avenue
Livingston, New Jersey 07039
Attorney for Appellant, Sean Hart
ANDREW J. BLAIR, ESQUIRE
(ARGUED)
4 Brighton Road, Suite 330
Clifton, New Jersey 07012
Attorney for Appellant, Neil White
JAMES W. KRAUS, ESQUIRE
(ARGUED)
Doepken, Keevican & Weiss
USX Tower, 58th Floor
600 Grant Street
Pittsburgh, Pennsylvania 15219
Attorney for Appellant, Joseph
Orlando
MARC A. CALELLO, ESQUIRE
(ARGUED)
675 Franklin Avenue
Nutley, New Jersey 07110
Attorney for Appellant, Lawrence
Weil
NORMAN J. GROSS, ESQUIRE
(ARGUED)
Office of United States Attorney
Camden Federal Building
and United States Courthouse
401 Market Street, 4th Floor
P. O. Box 2098
Camden, New Jersey 08101
GEORGE S. LEONE, ESQUIRE
Office of United States Attorney
970 Broad Street, Room 700
Newark, New Jersey 07102
Attorneys for Appellee
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OPINION OF THE COURT
SCIRICA, Circuit Judge.
This case involves five former stockbrokers of L.C.
Wegard and Co., Inc., who sold high risk stocks to investors
and were convicted for their roles in an extensive securities
fraud conspiracy. The brokers made fraudulent statements,
failed to disclose material information, employed high
pressure sales techniques grossly exaggerating the merits of
the stocks, and concealed these practices from both
internal and external regulators.
Appellants Joseph Orlando, Lawrence Weil, Neil White,
and Sean Hart were all indicted on multiple counts related
to the conspiracy, as were several others not involved in
this appeal. Weil, White, Adams and Hart pled guilty to one
count of the indictment, violating 15 U. S.C. §§ 78j(b) and
78f(f) for conspiring to commit securities fraud between
November 1991 and November 1995. They appeal only from
sentencing. Orlando did not plead guilty and was convicted
at trial of multiple counts of securities fraud. He appeals
alleged trial and sentencing errors. Because the cases
involve similar facts and defendants share many of the
same arguments on appeal, the cases have been
consolidated.
I. Facts
Between 1991 and 1995, defendants were licensed
brokers who worked in managerial positions for L. C.
Wegard and Co., Inc., a securities brokerage firm. 1 During
this time, the defendants coordinated a massive fraudulent
_________________________________________________________________
1. Defendants held the following positions in Wegard: Sean Hart was a
co-branch manager of Wegard' s Bensalem, Pennsylvania office and a
regional vice president; Lawrence Weil was a co-branch manager of the
Bensalem office and also a regional vice president; Neil White was the
assistant branch manager of the Monroeville, Pennsylvania office and a
regional vice president; and Joseph Orlando was a manager in Wegard' s
Monroeville, Pennsylvania office. In addition to their managerial
responsibilities, the defendants sold securities to customers.
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scheme that employed intentionally misleading sales scripts
and boiler room pressure tactics to defraud tens of
thousands of investors. Customers were lured into
investing nearly one hundred million dollars in highly
speculative securities on the basis of sales scripts
containing gross misrepresentations of material fact and
baseless predictions about future growth. Defendants then
lied about the use of these scripts to investigators and
other Wegard employees.
As part of the scheme, some of the defendants recruited
and trained young, inexperienced brokers to carry out the
fraud via a "three call system." After the New York office
picked a "recommended stock," the brokers initiated a
series of calls to potential customers. After a"cold call" to
ascertain customer interest, a second "qualifying call" was
made, and finally a high pressure "sales call" was made to
close the sale. These calls were made with scripts developed
by managers (like White) and distributed to the brokers (by
Orlando, among others). The sales scripts used in this
three-tier calling system failed to disclose the risks of the
speculative Wegard stocks, contained false statements of
material fact, and made baseless predictions of future
growth. After the sales, scripts were destroyed in order to
avoid detection of the scheme.
Most of the " recommended stocks" touted in these phone
calls were high risk stocks traded on the NASDAQ"small
cap" or OTCBB electronic markets.2 Wegard customers did
not have easy access to outside information on these stocks
because many were not publicly quoted. In addition,
customers were led to believe that the stocks they were
investing in would soon be listed on the NASDAQ or the
New York Stock Exchange.
In order to sell as many of these "recommended stocks"
as possible, Orlando and others directed the young brokers
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2. The OTCBB ("Over The Counter Bulletin Board" ) and NASDAQ are
electronic markets for securities. Many of the Wegard "recommended
stocks" were from new companies with limited earnings, revenue, and
shareholders. NASDAQ listing has minimum requirements for assets,
share price, and number of shareholders. The OTCBB does not have
minimum requirements.
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to employ aggressive boiler room tactics. For example,
brokers were trained to fraudulently inform customers that
stocks could only be purchased in "blocks" of hundreds or
even thousands of shares. Brokers were also instructed to
ignore the financial status of the buyer or the suitability of
stocks for a particular customer. In addition, defendants
discouraged new brokers from doing independent research
or from reviewing corporate information on recommended
stocks.
Defendants actively concealed the conspiracy from
investigators. In anticipation of on-site compliance
investigations conducted by the National Association of
Securities Dealers, Inc., the SEC, state regulators, and
Wegard' s own internal compliance department, defendants
collected, destroyed, or hid the misleading sales scripts.
Furthermore, in various internal questionnaires and
interviews, they denied the use of such scripts. Defendants
also encouraged employees under their supervision to take
similar steps of concealment.
After their indictment, all defendants but Victor Samaha
and Joseph Orlando entered plea agreements with the
government.3 Following a jury trial before Judge William G.
Bassler, Samaha and Orlando were convicted on all counts
but one. As noted, Orlando now appeals his conviction and
various aspects of his sentencing. Hart, White, and Weil
appeal from the calculation of their sentences.
We will begin with Orlando' s appeals, and in so doing, we
will also reach the merits of some of the other defendants'
appeals.
II. Severance
Joseph Orlando contends his trial should have been
severed from that of co-defendant Victor Samaha. He
maintains the failure to grant his pre-trial motion for
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3. A federal grand jury issued a ninety-six count indictment in a related
case involving eight other Wegard employees. All defendants but one
entered plea agreements with the government and were sentenced by
Judge John W. Bissell. Defendants here were indicted on a sixty-eight
count indictment (as were four other defendants not in this appeal).
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severance, or to order severance sua sponte during trial
based on the misconduct of Samaha and his attorney,
warranted a mistrial. We review the denial of the pre-trial
motion for severance for abuse of discretion, see United
States v. Sharma, 190 F. 3d 220, 230 (3d Cir. 1999), and
the failure to order severance sua sponte for plain error.
See United States v. Quintero, 38 F. 3d 1317, 1339 (3d Cir.
1994).
Whether to sever a trial is left to the sound discretion of
the district courts. See Zafiro v. United States , 506 U.S.
534, 541 (1993); United States v. Reicherter, 647 F. 2d 397,
400 (3d Cir. 1981). But even with an abuse of discretion,
reversal is not required absent "clear and substantial
prejudice" resulting in a manifestly unfair trial. United
States v. Palma-Ruedas, 121 F.3d 841, 854 (3d Cir. 1997),
rev' d on other grounds and judgment of conviction
reinstated sub nom., United States v. Rodriguez-Moreno,
526 U.S. 275 (1999). Because we find no abuse of
discretion or substantial prejudice, we will affirm.
Fed. R. of Crim. P. 14 permits the trial court to sever a
defendant from a trial where "it appears that a defendant or
the government is prejudiced by a joinder." There is no
prejudice merely because defendants are tried together.
"There is a preference in the federal system for joint trials
of defendants who are indicted together." Zafiro, 506 U.S. at
537.
Here, Orlando contends the prejudice he suffered was
twofold. First, he claims he was prejudiced by "spillover
evidence" submitted about co-defendant Samaha' s role in
the conspiracy. But as the government argues, Orlando' s
defense was premised on shifting the responsibility for the
illegal conduct to his supervisors and other managers.
Therefore, any evidence about Samaha' s role in the
conspiracy served to bolster, not diminish, Orlando' s
defense. Furthermore, because Samaha and Orlando were
charged under the same conspiracy, acts committed by one
in furtherance of the conspiracy were admissible against
the other. See United States v. DeLuca, 137 F. 3d 24, 36 (1st
Cir. 1998) ("[S]ince any evidentiary spillover is vitiated
where the evidence in all events would have been
admissible against the movant, in the context of
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conspiracy, severance will rarely, if ever, be required.")
(internal quotation marks and alterations omitted). For this
reason, much, if not all, of this evidence could have been
presented against Orlando had the trials been severed.4 The
District Court judge properly instructed the jury to"give
separate individual consideration to each charge against
each defendant. " We see no abuse of discretion or
prejudice.
Second, Orlando argues he was prejudiced by the
conduct of both Samaha and his defense attorney. During
trial, Samaha' s attorney came forward to claim he had
received a death threat because of his pursuit of a defense
which claimed he was only a minor player in the much
larger "Brennan conspiracy. "5 These threats were fabricated
by Samaha and his attorney. Even though Orlando
contends the trial judge should have severed the trial sua
sponte upon hearing the alleged threats, Orlando never
moved for severance on these grounds.
Orlando contends the alleged death threats made him
reconsider his own defense. We do not find this credible. At
the time of the reported death threats (which were
ultimately shown to be manufactured by Samaha and his
attorney), the "threats" against the attorney were connected
to a line of defense not being pursued by Orlando. 6 Orlando
had no reason to fear for his own life. That he did not make
a motion for severance at the time he learned of these
"threats," is evidence the "threats" had little impact on
Orlando.
_________________________________________________________________
4. The testimony about Samaha and the Providence office made no
mention of Orlando. This evidence, therefore, was easily segregated. See
United States v. Garner, 837 F.2d 1404, 1414 (7th Cir. 1987).
5. Samaha attempted to present evidence that the owner of Wegard,
Leonard Greer, together with New Jersey businessman Robert Brennan
conspired to have Brennan sell to Wegard large volumes of stock in
companies he controlled at extreme discounts. Then, according to
Samaha, Wegard brokers would sell these stocks as"recommended
stocks" at inflated prices.
6. Orlando did not join in the efforts to admit this conspiracy evidence,
nor did he object when it was excluded as irrelevant.
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Because Orlando did not raise this issue before the trial
court, he must demonstrate plain error under Fed. R. Crim.
P. 52(b). See United States v. Quintero, 38 F. 3d 1317, 1339
& n.16. Orlando must show that "(1) an error was
committed; (2) the error was plain; and (3) the error affected
[his] substantial rights." United States v. Stevens, 223 F. 3d
239, 242 (3d Cir. 2000), cert. denied sub nom. , Stevens v.
United States, 531 U.S. 1179 (2001) (citing United States v.
Olano, 507 U.S. 725, 732-34 (1993)). Despite this high
burden, Orlando presents no evidence (other than mere
conjecture) that his defense was affected by these"threats. "
Nor does he proffer any specific evidence he would have
presented had it not been for the threats.7
Neither the "threats" nor the fact they were manufactured
as part of an attempt to obstruct justice was ever revealed
to the jury. Besides having no proven effect on Orlando, we
cannot see how these "threats" had any effect on the jury
or other aspects of trial. We see no error, let alone plain
error.
III. Sufficiency of the Evidence
Orlando contends the evidence submitted at trial was
insufficient to support his convictions. Our review of the
sufficiency of the evidence after a conviction is"highly
deferential." See United States v. Helbling , 209 F. 3d 226,
238 (3d Cir. 2000), cert. denied, 531 U.S. 1100 (2001). We
must determine whether the evidence submitted at trial,
"when viewed in the light most favorable to the government,
would allow a rational trier of fact to convict." Id.; United
States v. Coleman, 811 F. 2d 804, 807 (3d Cir. 1987)
(holding that the court must determine "whether all the
pieces of evidence against the defendant, taken together,
make a strong enough case to let the jury find him guilty
beyond a reasonable doubt."). Given the overwhelming
evidence of Orlando' s involvement in the securities
_________________________________________________________________
7. Furthermore, it is unclear how a severed trial would have protected
Orlando from these "threats" if any had in fact existed. Presumably,
under his own logic, Orlando would have had just as much to fear in
testifying at his own trial if he pursued defenses which placed him in
danger. Thus, the failure to sever would have created no prejudice.
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conspiracy, we will affirm the denial of the motion for
Judgment of Acquittal on the grounds of insufficiency of the
evidence.
A.
Orlando contends he did not knowingly and willfully
become a member of the conspiracy because he was
inadequately trained and was unaware his conduct violated
the securities laws. Although he does not contest he
engaged in much of the conduct for which he was indicted,
Orlando does contest whether he knowingly engaged in
fraudulent activity.
Evidence of Orlando' s fraudulent activities was
overwhelming. Ten former customers testified that Orlando
recommended unsuitable investments and made baseless
claims about the investment risks of the stocks. Orlando
also falsely recorded customers' stock preferences on new
account forms and failed to disclose several risk factors.
Besides his customers, three co-brokers testified to
Orlando' s fraudulent practices. Despite his attempts to
paint himself as an entry-level employee who simply
followed orders, Orlando was a manager and immediate
supervisor of as many as a dozen brokers.
There was also strong evidence that Orlando himself
recognized the illegality of his conduct. He distributed
fraudulent scripts and discarded them to avoid detection by
regulators. He represented to his managers that, if asked
by regulators, he would falsely respond that he did not use
scripts. He also directed a broker under his supervision to
falsify a questionnaire in a compliance examination so it
would appear that Wegard had reviewed due diligence files
prior to recommending particular stocks, when Orlando
knew this to be false.
Moreover, the fact that entry-level brokers testified they
left the firm soon after realizing they were engaged in
improper tactics while Orlando remained for over three
years supports a strong inference of his knowing
participation. Furthermore, Orlando was a licensed
stockbroker. Having passed the requisite examinations,
Orlando would have known that he had a duty to act in the
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best interests of his customers. This duty included an
obligation to give fair and balanced presentations of any
recommended stock, make reasonable efforts to obtain
accurate information about a stock before recommending it,
disclose risk factors, and assess the customer' s investment
objectives. The evidence strongly supports he knowingly
violated these duties. For all these reasons, a rational trier
of fact could find that Orlando knowingly and willfully
engaged in the fraudulent conspiracy.
B.
Orlando also contends there was insufficient evidence of
securities fraud for convictions on Counts 61, 62, 63, 64,
66, 67, and 68.8 Generally, Orlando claims the evidence at
most proves negligence, not willful and knowing illegal
conduct. The evidence belies this claim and demonstrates
his willful and knowing participation in securities fraud.
In Counts 61, 62, and 64 Orlando was convicted for
failing to disclose material risk factors to James
Farnsworth. For example, in Count 61, Orlando was
convicted of omitting material facts in connection with his
sale of Great American Recreation, Inc., stock to
Farnsworth. The Wegard research reported significant risk
factors with this stock, including: a) a history of significant
losses; b) high debt levels; and c) real estate development
subject to the availability of capital. Despite this knowledge,
Orlando failed to disclose any risks to Farnsworth.
For each conviction of his failure to disclose material
facts (Counts 61-64, 67), the circumstances were almost
identical. Orlando had access to all necessary information
about the stocks he recommended and even claimed, in
response to an internal Wegard questionnaire, that he
"reviewed the due diligence file before recommending a
security." Yet in each instance, Orlando failed to provide
_________________________________________________________________
8. Counts 61, 62, and 64 were for failure to disclose material risk factors
to clients. Count 67 was for the omission of material facts in connection
with a sale of securities. Counts 66 and 68 were for committing
securities fraud by making unauthorized purchases of stock on behalf of
various clients.
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these material facts to his customer. There was sufficient
evidence for the jury to find that Orlando knowingly
defrauded his customers by failing to disclose known risk
factors.
In Count 68, Orlando was convicted of the unauthorized
purchase of Intile stock for Jeffrey McPadden. The
government presented evidence that Orlando canceled an
arranged purchase of International Franchise Systems,
Inc., and instead used the money to purchase Intile stock,
all without authorization. McPadden testified that Orlando
made the unauthorized purchase and admitted as much
during a telephone call. That McPadden could not
remember other specific details does not make his evidence
insufficient. See United States v. Hallmark, 911 F. 2d 399,
402-03 (10th Cir. 1990) (holding evidence sufficient even
though various witnesses were unable to remember specific
details of drug transactions). That McPadden did not
request a cancellation of the transaction is immaterial. The
trade was unauthorized. Furthermore, McPadden was not
advised that he could rescind the trade. The evidence was
sufficient to support a conviction for securities fraud.
In Count 66, Orlando was convicted of a similar
unauthorized purchase. In this instance, Orlando sent a
"confirmation" letter reciting his purchase of 5,000
Primedex bonds for customer James Farnsworth.
Farnsworth testified that Orlando "went out to acquire the
Primedex without a final discussion or definite agreement."
Farnsworth then transferred his holdings to another broker
and stopped working with Orlando. There was sufficient
evidence that Orlando had made an unauthorized trade
constituting securities fraud.
Viewing the evidence in the light most favorable to the
government, we hold the evidence, in the face of the jury
verdict, was more than sufficient for a rational jury to
convict on all counts.
IV. "Consciousness of Guilt/Concealment" Jury
Instruction
Orlando contends the District Court abused its
discretion in charging the jury on "consciousness of
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guilt/concealment. " Orlando maintains there was no
evidence to support the instruction. We disagree.
In reviewing a jury instruction, we look to see if"the
charge, taken as a whole and viewed in the light of the
evidence, fairly and adequately submits the issues in the
case to the jury." United States v. Adams, 759 F. 2d 1099,
1116 (3d Cir. 1985). There was substantial evidence
presented on Orlando' s intent and conduct to conceal his
fraudulent behavior.
For example, the government presented evidence that
Orlando told supervisors he would lie to auditors about
employing misleading scripts for solicitation calls, lied on
internal questionnaires from the compliance department,
and directed a broker under his supervision to lie on the
questionnaires as well. The government also showed that
Orlando misrepresented customer preferences on new
account forms. Orlando would record that a customer was
interested in "speculative investments," even after being
told the customer wanted to purchase low-risk blue chip
stocks. The evidence also demonstrated that Orlando
collected fraudulent sales scripts so they would not be
found by auditors. Given this evidence of concealment, the
instruction was proper. See United States v. Pflaumer, 774
F. 2d 1224, 1236 (3d Cir. 1985) (finding that evidence the
defendant took efforts to conceal a fraudulent scheme from
state auditors raised an inference of the defendant' s
consciousness of guilt); United States v. Clark , 45 F.3d
1247, 1250-51 (8th Cir. 1995) (deciding consciousness of
guilt instruction proper when the evidence shows the
defendants concealed evidence).
V. Sentencing: Calculation of Loss - Orlando and Hart
A.
Orlando challenges several aspects of his sentence. First,
he disputes the calculation of loss. The District Court found
the loss to be $226,605, while Orlando contends the loss
was between $70, 000 and $150,000. Orlando maintains the
loss should not have been calculated at the date when
Wegard ceased operations because some stocks increased
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in value and certain customers could have mitigated their
losses by selling. We review findings of facts under a clearly
erroneous standard, and legal conclusions under a plenary
standard. United States v. Hillstrom, 988 F. 2d 448, 450 (3d
Cir. 1993); see also United States v. Bush, 56 F. 3d 536,
537-38 (3d Cir. 1995).
Specifically, Orlando contends that investor Van Wilburn
should have taken steps to mitigate his loss. This
contention lacks merit because the evidence demonstrates
that Wilburn repeatedly asked Orlando to sell his stocks,
but Orlando refused and would not send him the
certificates. When Wilburn finally received the certificates,
he was under no obligation to immediately sell them.
Orlando cites to no authority which suggests that his
responsibility should be diminished because the defrauded
investor could have mitigated losses by selling the stocks.
Declining to reduce the amount calculated as the loss
was well within the discretion of the sentencing judge. See
United States v. Badaracco, 954 F. 2d 928, 937 n.9 (3d Cir.
1992) ("[T]he guideline loss should not be reduced simply
because the victim . . . may have augmented it." ). We see
no error.
Orlando similarly contends that he should not be held
responsible for the loss sustained by investor Andris Enzis
because the bonds he had purchased increased in value
after Wegard ceased operations. We disagree. We see no
error in selecting the end of the conspiracy as an
appropriate date from which to calculate loss.9 Orlando' s
control over the securities ended with the end of Wegard' s
operations, which terminated the conspiracy. The District
Court did not err in calculating loss as of that date.
Furthermore, the loss calculations at trial represented
the losses for only ten customers. Given the evidence, the
actual number of customers defrauded by Orlando is much
higher. Each broker who testified at trial had worked with
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9. Orlando provides no reason why another date should be chosen, nor
does he suggest an alternative date.
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more than ten customers, yet each had worked at Wegard
less time than Orlando.10
B.
Defendant Hart also challenges his loss calculation,
contending the District Court improperly calculated his
gain from the fraudulent sale of Wegard recommended
stocks at $1,037, 200. We disagree.
The government maintained that "the losses in this
matter are difficult, if not virtually impossible to quantify,
as each and every investor who lost money has not been
identified. " Therefore, the government proposed estimating
losses based on a calculation of Hart' s gain. The
government determined Hart' s gain by tallying his salary,
commissions, and bonuses, and then subsequently reduced
this figure by a factor of fifteen percent to reflect that a
percentage of Wegard' s profits was not attributable to the
fraudulent scheme.
Hart agrees that his gain could be used to calculate loss,
but now contends that the only proper measure of gain was
the total commissions earned from the improper sales of
securities. Hart also disputes the government' s calculation
of loss because he argues that defendants' gain was in fact
far less than that of Wegard because the corporation' s
income was mostly derived from stock price increases, and
not from commissions. Because Hart did not raise this
argument before the District Court, we review for plain
error. United States v. Stephens, 198 F. 3d 389, 391 (3d Cir.
1999).
Hart fails to offer any evidence for the claim that these
calculations improperly included Wegard income from the
sale of recommended stocks. The government maintains
there is no reason to believe the calculation of gain was not
based on the compensation paid to Hart as set forth in the
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10. Even if we were to reduce the loss calculation of Enzis, Orlando
would still have caused losses totaling more than $219,000, well within
the range of $200,000 to $350,000 which set the level of the sentence.
Therefore, even if we did find the District Court erred in calculating
Enzis' loss attributable to Orlando, no relief would be due.
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pre-sentence report. Furthermore, the sentence would not
change even if the loss calculation were reduced by as
much as $237,199. We see no plain error.
VI. Sentencing: Abuse of Position of Trust - Hart and
Orlando
Hart and Orlando also challenge the District Court' s
application of United States Sentencing Guideline§ 3B1.3,
which authorizes a two-level enhancement "[i]f the
defendant abused a position of public or private trust . . .
in a manner that significantly facilitated the commission or
concealment of the offense" U.S.S.G. § 3B1.3. In applying
this sentencing guideline, we have employed a two-step
analysis: (1) whether the defendant occupied a position of
public or private trust; and (2) whether the defendant
abused this position of trust in a way that significantly
facilitated the crime. United States v. Iannone , 184 F. 3d
214, 222 (3d Cir. 1999) (citing United States v. Craddock,
993 F.2d 338, 340 (3d Cir. 1993)).
Enhancement for abuse of a "position of trust" is often
raised with respect to violators of the securities laws. But
not all brokers involved with the fraudulent sale of
securities occupy a "position of trust" under the guidelines.
Determining whether a defendant occupies a position of
trust is a fact intensive inquiry. Both the knowledge and
the sophistication of the customer may bear on this
determination. In United States v. Iannone, 184 F. 3d at
222, we stated:
Determining what constitutes a position of trust for the
purposes of § 3B1.3 is not a simple task. Neither
§ 3B1.3 nor its applicable Commentary clearly defines
what is meant by a "position of trust." United States v.
Smaw, 993 F. 2d 902, 905 (D.C. Cir. 1993). "Position of
trust" could be defined narrowly to encompass only
formal fiduciary or employment relationships. Or, the
concept could be defined broadly to include any
relationship in which a victim places his trust in the
defendant. The Commentary to § 3B1.3 indicates that
the Sentencing Commission ("Commission" ) did not
intend for the term "position of trust" to be interpreted
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too narrowly, as the Commentary does not limit the
phrase' s application only to formal fiduciary or
employment relationships. See U.S.S.G. § 3B1.3,
comment (n.1) (Nov. 1997). However, a court should
hesitate before defining the concept too broadly, as
"there is a component of misplaced trust inherent in
the concept of fraud." United States v. Garrison, 133
F. 3d 831, 838 (11th Cir. 1998) (quoting United States
v. Mullens, 65 F. 3d 1560, 1567 (11th Cir. 1995)
(internal quotation marks omitted)); see also United
States v. Trammell, 133 F. 3d 1343, 1355 (10th Cir.
1998) ("The [§ 3B1.3] guideline enhancement requires
more than a mere showing that the victim had
confidence in defendant. ") (citing United States v.
Brunson, 54 F.3d 673, 678 (10th Cir. 1995)); United
States v. Koehn, 74 F.3d 199, 201 (10th Cir. 1996) ("In
every successful fraud the defendant will have created
confidence and trust in the victim, but the sentencing
enhancement is not intended to apply in every case of
fraud.").
Here, the District Court found that Hart and Orlando
occupied and abused positions of trust.11 Because the
determination whether the defendant occupied a position of
trust is a legal question, we review this de novo. Id. But we
review the District Court' s finding that defendant abused a
position of trust for clear error, as this is a factual
question. Id.
We determine whether a defendant occupied a "position
of trust" under a three-part test: "(1) whether the position
allows the defendant to commit a difficult to detect wrong;
(2) the degree of authority which the position vests in
defendant vis-a-vis the object of the wrongful act; and (3)
whether there has been reliance on the integrity of the
person occupying the position." U.S. v. Pardo , 25 F.3d
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11. The District Court also found sentence enhancement for Orlando
appropriate because he had abused a "special skill." On appeal, Orlando
does not contend the District Court erred in finding he had abused a
"special skill" developed while training to be a licensed stockbroker.
Because we find the enhancement was proper because Orlando occupied
a "position of trust," we need not review the finding of abuse of a "special
skill."
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1187, 1192 (3d Cir. 1994); see also Iannone, 184 F. 3d at
223. We consider these factors in light of the guiding
rationale of U. S.S.G. § 3B1.3 -- punishing insiders "who
take advantage of a position of trust." Pardo , 25 F. 3d at
1191. Defendants focus their arguments on the second
Pardo factor, claiming they lacked the requisite authority
because they were merely executing customers' orders in
arm' s-length transactions. Only stockbrokers who control
discretionary accounts, they claim, hold "positions of trust."
But their argument addresses only one part of the three-
part test. We will address all three Pardo factors.
With regard to the first factor, we find the reasoning of
the Court of Appeals for the Second Circuit persuasive. See
United States v. Hussey, 254 F. 3d 428 (2d Cir. 2001)
(finding that a group of un-licensed security brokers who
received undisclosed commissions occupied positions of
trust). In Hussey, the Court of Appeals for the Second
Circuit found sentence enhancement proper under U.S.S.G.
§ 3B1.3 because the defrauded investors
were under the impression that [the defendants] were
acting as their fiduciaries in suggesting and trading
stocks; therefore, [the investors] entrusted[the
defendants] with the kind of discretionary authority
that is characteristic of a position of trust. This
distinction is crucial, because "the primary trait that
distinguishes a position of trust from other positions is
the extent to which the position provides the freedom
to commit a difficult-to-detect wrong."
Id. at 432 (quoting United States v. Laljie, 184 F. 3d 180,
194 (2d Cir. 1999)); see also Iannone, 184 F. 3d at 225
(defendant' s managerial position considered a " position of
trust" because it allowed him to prevent detection of his
fraud via publication of false progress reports). Likewise,
the District Court found Orlando' s position enabled him to
commit a "difficult-to-detect wrong." We conclude the
defendants' activities satisfy the first Pardo prong because
they: (1) recommended stocks that were traded on the
NASDAQ "small cap" or OTCBB electronic markets, making
it difficult for the inexperienced investor to acquire
independent information; (2) refused to take telephone calls
from customers requesting to sell stocks; (3) falsely
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recorded customer preferences on new account forms; and
(4) destroyed evidence of fraudulent sales scripts.
The second Pardo prong is satisfied because Hart and
Orlando were vested with the requisite degree of authority
vis-a-vis the object of their wrongful act. As already
observed, not all stockbrokers may be vested with enough
authority to meet the second Pardo prong. Stewart, 33 F.3d
at 768 (stating that application of the enhancement
provision does not turn on simple categories); United States
v. Boyle, 10 F. 3d 485, 489 (7th Cir. 1993) ("[T]he
sentencing court must look beyond descriptive labels to the
actual nature of the relationship and the responsibility the
defendant is given."). Although we resist categorization, it
seems apparent that the responsibilities and discretion
exercised by stockbrokers spans the spectrum. At the one
end are brokers who exercise authority and discretion over
an account and have the power to make sales or take
actions on behalf of a customer without specific direction.
See United States v. Davuluri, 239 F. 3d 902, 909 (7th Cir.
2001) (holding that when a broker had complete discretion
in using money given to him in order to trade securities to
make a profit for his customer, he occupied a "position of
trust"); but see United States v. Mullens, 65 F. 3d 1560,
1566-67 (11th Cir. 1995) (control over accounts is not
sufficient to satisfy the abuse-of-trust standard). At the
other end are brokers who mechanically execute trades
requested by customers. See United States v. Hirsch, 239
F. 3d 221, 227 (2d Cir. 2001) (when defendants are involved
with investors in arm' s-length transactions, they are not in
"positions of trust"); see also Mullens , 65 F. 3d at 1566-67.
Many brokers, however, who advise and recommend trades
or other actions fall somewhere in the middle of the
spectrum. These brokers may have little or no discretion to
act without express consent from the customer, yet many of
these brokers offer advice and recommendations on trades.
Defendants argue they did not have sufficient discretion
to qualify for the U. S.S.G. § 3B1.3 sentence enhancement
because they participated in simple stockbroker-customer
relationships. The District Court rejected this argument
because Orlando treated customers' accounts as de facto
discretionary accounts (e.g., cancelling stock purchases
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without authorization) and because the Wegard boiler-room
techniques created atypical stockbroker-customer
relationships (e.g., ignoring the suitability of"recommended
stocks" for individual customer needs). The District Court
also found the brokers' activities satisfied the second Pardo
factor because their positions provided them with the
"wherewithal to commit the wrongful act." Id. (quoting
Pardo, 25 F. 3d at 1192). Because managers like Hart and
Orlando "certainly had control and authority over the
brokers who were essential to effectuating the crime," and
because defendants contacted customers directly, the
District Court found they were vested with the requisite
"wherewithal. " We agree with this analysis. The second
Pardo factor is satisfied here because defendants did
considerably more than just execute orders requested by
customers.
Finally, the third Pardo factor is satisfied because the
customers relied on the defendants' perceived integrity as
Wegard stockbrokers. Customers testified Orlando
represented himself as a knowledgeable broker who advised
customers in buying and selling stocks. Defendants also
falsely informed customers that Wegard stocks had to be
purchased immediately, without waiting to read risk
disclosure documents, because a price increase was
imminent, or because the supply of stocks was limited. The
brokers committed the fraud by exploiting an advantage
stemming from unequal access to information and use of
high-pressure tactics; in part, this advantage enabled them
to convince their customers to rely on their advice and
invest in worthless stocks. Thus, we believe the third Pardo
factor has also been met. See Iannone, 184 F. 3d at 225
(finding reliance on perceived integrity when an apparently
experienced businessperson offered what seemed to be a
great investment opportunity and, based on his
representations, victims believed they were investing in a
genuine drilling project).
Based on these facts, we conclude that Orlando and Hart
each occupied a "position of trust." We also believe that the
District Court did not clearly err in determining that
Orlando and Hart "abused this position of trust in such a
way that significantly facilitated the crime." U.S.S.G.
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§ 3B1.3. We see no error in the District Court' s application
of the sentencing enhancement.
VII. Sentencing: Minor Role -Orlando
Orlando also contends he was a "minor participant"
entitled to a reduction under § 3B1.2. Because a
defendant' s role "is a question of fact, " we review only for
clear error. United States v. Haut, 107 F. 3d 213, 218 (3d
Cir. 1997).
Orlando claims he was not involved in the activities of co-
defendants Lawrence Weil, Sean Hart, Daniel Petronelli,
Victor Samaha, or Malik Tawil and had no contact with
other branch offices. He also contends he was supervised
by John V. Adams, Jr. , Neil White and Ronald Bongo. He
claims he did nothing on his own and had no significant
authority or discretion. But even if Orlando was less
culpable than several other co-defendants, this does not
demonstrate that he was entitled to a minor role reduction.
All other members of the conspiracy who were more
culpable received enhancements because of their roles. The
District Court' s decision to refuse an enhancement or
reduction to Orlando adequately reflected his level of
culpability. Furthermore, we are convinced that Orlando' s
role was not one in which "[h]e did nothing on his own," as
he claims. Orlando both trained and supervised younger
brokers to undertake the fraudulent conduct and to conceal
it. There was no clear error here.
VIII. Refusal to Grant a Downward Departure -
Disparate Sentences - Weil, White, Hart
Defendants Weil, White, and Hart all argue they were
entitled to a downward departure on the grounds that they
received higher sentences than those imposed on co-
conspirators sentenced by a different judge. They claim the
failure to do so was an abuse of discretion. Defendants
contend that a disparity in sentences contradicts the
underlying principles of the sentencing guidelines. See
United States Sentencing Commission, Guidelines Manual,
Ch. 1, Pt. A, intro. (2000) (stating that one of the basic
principles of the guidelines is to seek "reasonable
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uniformity in sentencing by narrowing the wide disparity in
sentences imposed for similar criminal offenses committed
by similar offenders").
As an initial matter, we note that the imposition of
different sentences for co-conspirators is not error. We have
asserted, "[A] criminal defendant has no constitutional right
to be given a sentence equal in duration to that of his or
her co-defendants," United States v. Smith , 839 F. 2d 175,
179 (3d Cir. 1988), and a "[d]isparity of sentence between
co-defendants does not of itself show an abuse of
discretion." United States v. Cifuentes, 863 F. 2d 1149, 1156
n.5 (3d Cir. 1998).
Although this issue was not raised by each defendant,
the District Court was made fully aware of the disparity
between its sentences and those of Judge Bissell on co-
conspirators. The District Court exercised its discretion in
refusing to grant an additional downward departure.
Responding to Hart' s Rule 35(c) motion, the District
Court explained that " [t]hough it had the discretion to do
so, the Court declined to depart downward to mirror the
sentences imposed by Judge Bissell. " We have no
jurisdiction to review its exercise of discretion. See United
States v. Vitale, 159 F.3d 810, 816 (3d Cir. 1998); United
States v. Richardson, 901 F.2d 867, 869-70 (10th Cir.
1990) (denying jurisdiction in a case involving a denied
request for a downward departure due to disparities in
sentences of co-conspirators).
IX. Use of Evidence From Other Trial - Weil and White
Weil and White claim that the District Court erroneously
considered evidence from Orlando and Samaha' s trial in
determining their sentences without providing notice this
evidence would be used against them. Both defendants
concede the sentencing judge may rely on extrinsic
evidence in sentencing, even that from another trial. See,
e.g., United States v. Knobloch, 131 F. 3d 366, 370 (3d Cir.
1997)(finding no plain error where the district court
imposed an enhancement based on evidence from a co-
defendant' s trial, explaining that "[n]o rule of law prohibits
the [sentencing] court from making its factual conclusions
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at sentencing based on testimony from a separate
proceeding . . . ."). They also concede there is no limitation
to using evidence only contained in the Pre-sentence
Investigation Report. But they contend the use of this
evidence, without notice, was inappropriate.
Because neither Weil or White raised these arguments
before the District Court, we review for plain error. See
United States v. Nappi, 243 F. 3d 758 (3d Cir. 2001). The
sentence will only be set aside if: "1) the District Court
erred; 2) the court' s error was clear or obvious; 3)
[defendant] can show that the error affected his substantial
rights, i.e., that it prejudiced him; and 4) not correcting the
error would seriously impair the fairness, integrity, or
reputation of a judicial proceeding." United States v.
Reynoso, 254 F.3d 467, 470 (3d Cir. 2001).
We recently held that notice should be given defendants
when extrinsic evidence is used at sentencing. In Reynoso,
we stressed the importance of the notice requirement,
stating, "Following both Supreme Court jurisprudence and
our own, we hold that before a sentencing court may rely
on testimonial or other evidence from an earlier proceeding,
it must afford fair notice to both defense counsel and the
Government that it plans to do so." Id. Failure to provide
notice met the first prong of the plain error standard; i.e.,
that the District Court erred. As in Reynoso, however, the
defendants have "not met [their] burden of showing that the
error affected [their] substantial rights." Id. Weil and White
argue in the abstract that they may have been able to
challenge the admissibility of some of the evidence, or
would have had a chance to rebut the evidence, but have
offered no concrete examples. When questioned at oral
argument, defendants were unable to point to any specific
objectionable evidence that was not already part of the Pre-
sentence Investigation Report. Furthermore, defendants
have the burden of not only showing that they may have
been able to rebut evidence, but they "must show that the
District Court would have imposed a lesser sentence had
defense counsel been given the required notice." Id. Weil
and White have made no showing that even if they had
been able to rebut certain evidence, it would have resulted
in a lower sentence. They have demonstrated no prejudice.
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Most, if not all, of the evidence was contained in the Pre-
sentence Investigation report. We see no plain error.
X.
We will affirm the judgment of conviction and sentence
on Joseph Orlando and the sentences on Lawrence Weil,
Neil White, and Sean Hart.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
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