United States v. Louis Petrossi ( 2019 )

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 18-3454
_____________
UNITED STATES OF AMERICA
v.
LOUIS F. PETROSSI,
Appellant
_____________________________________
On Appeal from the United States District Court for the
Middle District of Pennsylvania
(District Court No.: 1-17-cr-00192-001)
District Judge: Honorable Christopher C. Conner
_____________________________________
Submitted under Third Circuit L.A.R. 34.1(a)
on July 9, 2019
Before: McKEE, ROTH and RENDELL, Circuit Judges
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O P I N I O N*
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RENDELL, Circuit Judge:
Louis F. Petrossi was indicted in the Eastern District of New York for his part in a
fraudulent scheme involving the securities of an energy company, Forcefield Energy, Inc.
*
This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not
constitute binding precedent.
Even though a post-bond release agreement in that matter barred him from employment
directly involving investors, Petrossi continued to own and operate two investment funds:
Chadwicke Partners and Chadwicke Ventures (collectively “Chadwicke”). While on
post-bond release, he falsely overstated the cost and value of securities owned by
Chadwicke to recruit investors and told them that their money would go to equity in
privately-held startups. Much of their money, in fact, went to Petrossi’s personal
expenses.
The Chadwicke scheme was uncovered and Petrossi was indicted in the United
States District Court for the Middle District of Pennsylvania for investment advisor fraud,
securities fraud, and wire fraud. The indictment included a statutory penalty
enhancement because the crimes occurred while he was on post-bond release. See 18
U.S.C. § 3147. The jury convicted Petrossi on all three counts of fraud and found that he
was subject to the enhancement. The District Court sentenced him to one hundred
months and three days’ imprisonment.
On appeal, Petrossi claims that he is not an “investment advisor,” that he owed no
duty to Chadwicke’s investors to disclose his indictment, and that the District Court erred
by admitting testimony regarding the Forcefield scheme. He further claims that we
should remand for re-sentencing because the Court improperly enhanced his sentence and
improperly calculated the amount of loss caused by his conduct. We disagree and will
affirm Petrossi’s conviction and sentence.1
1
The District Court had jurisdiction pursuant to 18 U.S.C. § 3231. We have jurisdiction
pursuant to 28 U.S.C. § 1291.
2
A. Sufficient evidence supported Petrossi’s conviction.
Petrossi argues that the evidence is insufficient to establish that he is an
“investment advisor.” But he failed to challenge the sufficiency of evidence in the
District Court. We thus will only vacate the conviction if the evidence is “so insufficient
that for us to uphold his conviction would result in a miscarriage of justice or be
fundamentally wrong.” United States v. Barel, 939 F.2d 26, 31 (3d Cir. 1991). Viewing
the evidence in a light most favorable to the Government,2 there is more than sufficient
evidence to conclude that Petrossi is a “person who, for compensation, engages in the
business of advising others, either directly or through publications or writings, as to the
value of securities or as to the advisability of investing in, purchasing, or selling
securities.” 15 U.S.C. § 80b-2(a)(11). The Government established that Petrossi: (1) sent
investors business plans that “recommend[ed] 10% of one’s portfolio for prudent asset
allocation in late stage companies,” Supp. App. 231; (2) received both a single-time fee
and a fee after profits for the investments, Supp. App. 49; and (3) held himself out as an
investment advisor who can “help accredited investors invest in companies.” Supp. App.
230 (emphasis added). See United States v. Miller, 833 F.3d 274, 282 (3d Cir. 2016)
(finding a person is an investment advisor if “he held himself out as a person who
2
Petrossi fails to heed this standard of review for a sufficiency of evidence challenge by
pointing only to the evidence that supports the conclusion that he is not an investment
advisor, and ignoring the wealth of evidence in the other direction. Compare App. Br. at
27–30 (citing to defense witnesses and cross-examination testimony) with App. 88–90
(victim describing Petrossi’s presentation that discussed investing in startup companies,
followed by a personal pitch to get involved in Chadwicke and advice about a specific
company); App. 96–97 (describing Petrossi as “pushing” late stage pre-IPO’s and
personally discussing investment options).
3
provides investment advice.”). Because the above evidence shows Petrossi “engage[d] in
the business of advising others” about the “value of securities” for “compensation,” 15
U.S.C. § 80b-2(a)(11), it is not plain error to conclude Petrossi is an investment advisor
that owed a fiduciary duty to his investors.
Petrossi argues that, even if he is an investment advisor, he had no duty to disclose
the EDNY indictment to investors because he was not a registered investor under the
applicable SEC rules. Petrossi claims that because he had no duty to disclose, the jury
may have convicted him on a legally insufficient theory—fraud by omission—which
warrants reversal. But under plain error review, any error “must have been prejudicial: It
must have affected the outcome of the district court proceedings.” United States v.
Olano, 507 U.S. 725, 734 (1993). Here the evidence is overwhelming that the jury
convicted Petrossi for fraud by misrepresentation. The indictment itself targets two
misrepresentations: “(a) falsely claiming to investors that the money they had invested in
Chadwicke would be used to invest in the equity of privately-held startup companies
when, in reality, Petrossi used investors’ money to pay for personal expenses; and (b)
disseminating to investors fraudulent statements that overstated both the cost of the
securities held by Chadwicke and the value of those securities.” App. 34. The
government presented evidence to support those theories throughout the trial. The FBI
forensic accountant testified that, after reviewing Petrossi’s accounts, over $1.3 million of
the approximately $1.8 million in investor funds received went to non-stock, non-fund
purchases. Ruth Higby, a victim of the scheme, testified that the distribution of
investment and non-investment funds “is not how it was represented to [her], and [she]
4
would not have invested” in Chadwicke if Petrossi accurately portrayed his intent. Supp.
App. 29. Petrossi also led victims to believe he would invest significant portions of their
money in “major players [and] Silicon Valley insiders.” Supp. App. 259. They felt
misled when they learned that Chadwicke primarily invested in three companies that
Petrossi had past dealings with: Search Initiatives, Grom Social, and R. Post. See Supp.
App. 11–12, 202–03. Taken together, there is overwhelming evidence to conclude that
Petrossi is an investment advisor who misrepresented material facts to his investors in
order to obtain investments that went to his personal expenses. Thus, Petrossi fails to
establish prejudice because there is overwhelming evidence to conclude that the jury
convicted Petrossi on the legally sufficient theory of fraud by misrepresentation.3 See,
e.g., United States v. Skelly, 442 F.3d 94, 99 (2d Cir. 2006) (affirming the conviction
where “it is overwhelmingly likely that any reasonable juror would have convicted on the
basis of the Government’s primary theory.”).4
B. The District Court did not abuse its discretion by admitting Sanchez’s and St.
Julien’s testimony.
Petrossi argues that the District Court abused its discretion by admitting pretrial
service officer Misty Sanchez’s testimony under Federal Rule of Evidence 404 and
3
Even so, Petrossi’s claim that his failure to disclose the indictment constitutes fraud by
omission rings hollow when, as part of the indictment and post-bond release, he was
barred from handling investments. Thus, when he claimed he could “help accredited
investors invest in companies,” Supp. App. 230, his omission could reasonably be viewed
as an active misrepresentation.
4
For the same reasons, we conclude there was sufficient evidence to convict Petrossi for
securities fraud and wire fraud.
5
failing to exclude it under Rule 403. Sanchez testified that, as a condition of post-bond
release in the EDNY matter, Petrossi signed an agreement prohibiting him from violating
state or federal law and from any employment “directly involving the handling of
investors.” App. 39. She testified that she consistently reviewed the conditions of
release with Petrossi but that he claimed “he did consulting work” and was not handling
investor money. Supp. App. 8–9.
Rule 404 prohibits “[e]vidence of a crime, wrong, or other act . . . to prove a
person’s character in order to show that on a particular occasion the person acted in
accordance with the character.” Fed. R. Evid. 404(b). Evidence of uncharged crimes is
admissible under Rule 404(b) if it: (1) has a proper evidentiary purpose; (2) is relevant;
(3) satisfies Rule 403; and (4) is accompanied by a limiting instruction if requested. See
United States v. Green, 617 F.3d 233, 249 (3d Cir. 2010) (citing United States v. Butch,
256 F.3d 171, 175 (3d Cir. 2001)). Thus, evidence of a prior act may nonetheless be
admitted if the government identifies a proper evidentiary purpose. Here, Sanchez’s
testimony was admissible because it established the terms of the post-bond agreement
that Petrossi violated. See United States v. Gibbs, 190 F.3d 188, 217–18 (3d Cir. 1999)
(admitting past uncharged offenses when they served as direct proof of the charged
offense). Petrossi nonetheless argues that the District Court should have excluded the
evidence under Rule 403 because its probative value is outweighed by its unfair
prejudice. Moreover, he claims that because he offered to stipulate to the terms of the
agreement, Sanchez’s testimony was especially prejudicial. See Old Chief v. United
States, 519 U.S. 172, 191 (1997) (excluding testimony when stipulation was offered and
6
“the functions of the competing evidence are distinguishable only by the risk inherent in
the one and wholly absent from the [stipulation].”). But here, Sanchez’s testimony
offered much more than a stipulation could offer: It established that Petrossi and Sanchez
reviewed the conditions of the agreement and that he nonetheless continued to handle
investments and lied about his work. The District Court further offered a limiting
instruction to ensure the jury would not use the evidence of the prior indictment as
propensity evidence.5 Thus, the district court did not abuse its discretion by permitting
Sanchez to testify.
Petrossi also argues that the testimony of Richard St. Julien was inadmissible
under Rule 404(b). St. Julien testified as a cooperating witness who participated in the
Forcefield scheme. He testified that, as in the Chadwicke scheme, Petrossi “introduced
[us] to some investors and also to these investment conference[s] I was not familiar with.
So he was making—number one, he introduce[d] us to these conference[s], registered
him or us at these conferences, ma[d]e presentation introduction[s] of the company and
where we also made presentation[s] and offer[ed] . . . financing.” App. 63. At these
conferences, Petrossi solicited “potential investors . . . accredited investors and some non-
accredited investors . . . looking to invest in [the] potential business.” App. 64. St. Julien
also presented significant testimony about Search Initiatives, R. Post, and Grom Social.
5
See App. 122 (“This evidence of other acts will be admitted for a very limited purpose.
You may consider this evidence for the purpose of deciding whether the defendant had
the knowledge or the intent to commit fraud as charged in the indictment in this case. Do
not consider this evidence for any other purpose.”); App. 129 (policing the bounds of
Sanchez’s testimony by restricting the admission of Forcefield related testimony).
7
He testified that the “C.E.O. of Forcefield Energy was a director of Grom [Social],” App.
83, and that Petrossi asked St. Julien if an overseas holding corporation used in the
Forcefield scheme could “receive some of the warrants that [were] owed by R. Post to
[Petrossi] for previous work he did.” App. 85. He also testified that Mr. Petrossi told
him that he received compensation from Search Initiatives and that “the company was
growing quick and it was going well and that he had a banker interested in taking them
public and they would go public.” App. 82.
Petrossi argues that this testimony is nothing more than propensity evidence: an
attempt to admit the past wrongdoings of Petrossi in the Forcefield scheme so that the
jury will draw an adverse inference in this scheme. But the evidence about Forcefield
addresses Petrossi’s common scheme to defraud as it is “part[] of a single series of
events” and “tend[s] to show a motive for the charged crime and hence establish the
commission of that crime, the identity of the actor, or his intention.” Government of V.I.
v. Pinney, 967 F.2d 912, 916 (3d Cir. 1992). St. Julien described identical activity as the
victim investors in the Chadwicke scheme, including solicitations through presentations
and investment conferences. St. Julien further testified that Petrossi received
compensation from R. Post, Grom Social, and Search Initiatives during this time period.
These three companies comprised Chadwicke’s primary investments, and tend to show
Petrossi’s motive for investing in these companies, rather than the “Silicon Valley
Insiders.” Supp. App. 259. In addition to the proper evidentiary purpose, the District
Court offered limiting instructions to correct any risk the jury would use the Forcefield
8
scheme as propensity evidence.6 Thus, the District Court did not abuse its discretion in
admitting St. Julien’s Testimony.
C. The District Court did not err when applying the sentencing guidelines.
We exercise plenary review over a district court’s interpretation of the sentencing
guidelines. Miller, 833 F.3d at 279. We review its factual findings for clear error. Id. If
a claim was not raised below, we review for plain error. United States v. Flores-Mejia,
759 F.3d 253, 256–59 (3d Cir. 2014) (en banc). Petrossi first argues that the District
Court erred when it concluded he was an “investment advisor” and enhanced his
sentence. For the reasons outlined in Section A, Petrossi is an investment advisor, and
thus the District Court did not err.
Petrossi next argues that the District Court erred when it concluded that the
Forcefield scheme was “relevant conduct” for purposes of assessing loss and enhancing
his sentence. But Petrossi expressly waived this argument in the District Court. When
this issue was presented, Petrossi’s attorney stated that:
I was not as clear in my objections as I probably should have been. My
concern is this. If the court is not inclined to follow 5G1.3 in a concurrent
sentence because of the relevant conduct incorporating both ForceField as
well as Chadwicke, then I would raise this objection. So my concern is that
if the court does not believe that 5G1.3 would then apply for any sentence
that this court would impose should run concurrent with the New York case,
then I would want to raise it as an issue . . . I don’t wish to lose the benefit of
6
See ECF 1:17-cr-00192-CCC Doc. 80 p. 139 (“Specifically you may not use this
evidence to conclude that because the defendant may have committed the other acts, he
must also have committed the acts charged in the indictment. Remember, the defendant is
on trial here only for securities fraud, investment advisor fraud, and wire fraud between
January 2015 and January 2017, not for these other acts. Do not return a guilty verdict
unless the government proves the crimes charged in the indictment beyond a reasonable
doubt.”).
9
what I believe should be a concurrent sentence . . . Because if the court is
inclined to follow 1.3 then I will not raise this as a challenge to the loss
amount . . . .”
App. 207–08. The Government stated “[i]f Your Honor agrees with our position, we
would not object to having Your Honor’s sentence imposed in this action run concurrent
to the sentence that’s been imposed on the defendant in the ForceField action.” App.
208–09. The Court agreed, and Petrossi stated, “then I would withdraw that objection
and that would be fine moving on to the second one.” App. 209. In essence, Petrossi
received the benefit of an agreement from the Government and the Court that the
sentence would run concurrently, rather than consecutively, if it concluded that the
Forcefield conduct is “relevant conduct.” He withdrew his objection on that basis. Thus,
Petrossi’s argument that the Forcefield scheme is not “relevant conduct” is waived.7
Finally, Petrossi argues that the District Court failed to state adequate findings on
the record when it calculated total loss to investors. In doing so, Petrossi relies on expert
testimony that provided a present day valuation of Chadwicke’s assets. The District
Court did not clearly err when it relied on the presentencing report’s evaluation of total
loss to investors and discredited the expert’s testimony, which was primarily related to
present day valuation and restitution, not total loss. Contrary to Petrossi’s claim that the
District Court’s reasoning was inadequate, it was well supported by the record, which
indicated that the Court considered all arguments from both sides before determining
total loss. App. 252 (“I’ve taken into consideration the testimony just received, the
7
Petrossi’s argument that the Court applied the wrong Guideline provision to establish
“relevant conduct” is also waived.
10
arguments of counsel.”); cf. Chavez-Meza v. United States, 138 S. Ct. 1959, 1965 (2018)
(“In some cases, it may be sufficient for purposes of appellate review that the judge
simply relied upon the record, while making clear that he or she has considered the
parties’ arguments and taken account of the § 3553(a) factors, among others.”). Thus, the
District Court did not err when it calculated total loss for purposes of restitution to
investors.
Conclusion
We will affirm Petrossi’s conviction and the District Court’s sentencing order.
11