United States v. Steven Metro , 882 F.3d 431 ( 2018 )

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 16-3813
_____________
UNITED STATES OF AMERICA
v.
STEVEN METRO,
Appellant
_______________
On Appeal from the United States District Court
for the District of New Jersey
(D.C. No. 3-15-cr-00028-001)
District Judge: Hon. Michael A. Shipp
_______________
Argued
November 6, 2017
Before: JORDAN, HARDIMAN and SCIRICA, Circuit
Judges.
(Filed: February 14, 2018)
_______________
Anne M. Collart
Lawrence S. Lustberg [ARGUED]
Gibbons
One Gateway Center
Newark, NJ 07102
Steven Metro (pro se)
32 Old Village Lane
Katonah, NY 10536
Counsel for Appellant
Mark E. Coyne
Office of United States Attorney
970 Broad St. – Rm. 700
Newark, NJ 07102
Glenn J. Moramarco [ARGUED]
Office of United States Attorney
401 Market Street
Camden, NJ 08101
Counsel for Appellee
______________
OPINION OF THE COURT
_______________
JORDAN, Circuit Judge.
Steven Metro appeals from the 46-month sentence of
imprisonment imposed by the District Court as a consequence
of his guilty plea to one count of conspiracy to violate federal
securities laws and one count of insider trading. He contends
that the Court wrongly attributed to him illicit financial gains
2
actually attributable to someone with whom he was not acting
in concert and to whom he did not provide inside information.
Because the District Court’s factual findings are insufficient to
support the sentence, we will vacate and remand for
resentencing.
I. Background 1
A. The Insider Trading Scheme
Metro, a former managing clerk at a prominent New
York City law firm, engaged in a five-year insider trading
scheme in which he abused his position at the firm by
disclosing material nonpublic information to his close friend
Frank Tamayo. The pattern of Metro’s criminal activity
remained fairly constant throughout the multi-year scheme.
Between February 2009 and January 2013, he used his position
at the law firm to obtain material nonpublic information
concerning thirteen distinct corporate transactions. In each
instance, after obtaining the inside information, he would meet
with Tamayo and tell him which stocks to purchase and when.
Tamayo would then write down the stock symbols of the
companies whose stock he was about to acquire.
After Tamayo left those meetings with Metro, he would
call his personal stockbroker, Vladimir Eydelman, and arrange
to meet him, typically at Grand Central Station. Tamayo
would show Eydelman the stock symbols he had written down
1
The facts that follow are drawn from the record that
was before the District Court at sentencing. They are not in
dispute, unless otherwise noted below.
3
and Eydelman would commit them to memory. Tamayo would
then tell Eydelman when to make the trades.
Eydelman made such trades not only for Tamayo but
also on behalf of himself, his family, his friends, and other
brokerage clients. Metro, by and large, did not hold the
involved stocks himself and did not collect proceeds from the
trades. Rather, he relied on Tamayo to reinvest the proceeds
from their unlawful trades in future insider trading. When all
was said and done, the insider trading by Eydelman, Tamayo,
and Metro, based on Metro’s tips, resulted in illicit gains of
$5,673,682. The District Court attributed that entire sum to
Metro in determining the length of his sentence.
Metro denies being aware of Eydelman’s existence until
one year after he relayed his last tip to Tamayo, and he
contends that he never intended any of the tips he provided to
Tamayo to be passed to a broker or any other third party.
B. Tamayo Cooperates with the Government
The trading activity based on Metro’s inside
information did not go unnoticed by the government.
Eventually, an investigation was launched and government
agents executed a search warrant at Tamayo’s home in or
around December 2013. Tamayo promptly admitted his role
in the scheme and began cooperating with the government.
That cooperation included recording a January 28, 2014,
meeting with Metro in which Metro expressed his desire to
liquidate some of the gains that had accrued since 2009, so he
could fund a real estate transaction. Tamayo responded that he
had asked his stockbroker – who was unnamed in the
conversation – to help liquidate some of the assets held in
4
Tamayo’s retirement account. A portion of that conversation
follows, as set forth in a transcript created by the government
and provided to the District Court.
TAMAYO: [M]y stock broker . . . I also asked him to
see if he can get me, like, 30K for you. Um, because I
know you, um, so that might help.
[METRO]: That would help, yeah. Yeah, that would
help.
TAMAYO: But, you know, because I know that he [the
stock broker], obviously, has to, you know, in order to,
uh, you know, to make everything look kosher, he
passed it [the Inside Information] to a couple of his
clients, you know.
[METRO]: Okay.
TAMAYO: So I said to him [the stock broker], um, I
said, listen, is there any way you can give me like 30K,
‘cause I can’t take it out of my, you know, because all
that money is tied up in my retirement.
[METRO]: Right, sure, sure, right.
TAMAYO: So he [the stock broker] said, he’s thinking
about it. I’m actually going to meet with him again, um,
you know like Monday or Tuesday of next week. And
then he’s gonna, he’s gonna see if he can get me cash.
[METRO]: Alright.
5
TAMAYO: So that should be good.
[METRO]: That works. Yeah, that totally works.
…
TAMAYO: If I get my broker to give you, you know, at
least 30K, you know, we’ll take it off the. . .
[METRO]: Right, right.
TAMAYO: . . . the, uh, the 168 [[Metro’s] accrued
share of the insider trading profits], there, so. Um,
alright, so, let’s see . . .
[METRO]: Yeah, because we’re all cashed out at this
point, right?
TAMAYO: Yeah.
[METRO]: We’re not holding anything.
TAMAYO: No, do you, um . . .
[METRO]: But I’m going to . . . if I can’t use the money,
I’m not going to leave that money there, doing nothing.
TAMAYO: Uh hum. Yeah, . . . um . . .
[METRO]: You know what I mean? That doesn’t make
sense to me. . .
TAMAYO: Yeah, I mean, it’s been a while, right?
6
[METRO]: For us, it’s been a long time. But, I’m just
saying even if . . .
TAMAYO: No, no, as far as the last one we did [the last
insider trading].
[METRO]: Yeah, yeah. Like a year, or kind of a little
bit . . . but I’m not even saying that, I’m saying a legit
thing. Because why not, I mean, that money should be
making me money, rather than just sitting in a cash
value.
TAMAYO: Absolutely. Um, he actually, the broker
actually asked me about it—he’s like, anything new? I
was like, no, you know, so.
[METRO]: But those tips, they really don’t pay off. I
mean they pay off for us, but, what good is giving him
[the stock broker] a tip?
TAMAYO: I know.
[METRO]: It’s not making me any money.
TAMAYO: Yeah, but you know the thing is that, it’s
good because, it actually, you know, covers up a little
bit, that’s all.
[METRO]: Yeah, no, it’s true. But you think he [the
stock broker] would kick you something for the [tips].
7
TAMAYO: I know, absolutely. He might be the
cheapest bastard around.
(App. at 175-77 (non-italicized alterations in original).)
Metro also told Tamayo during that conversation that
“[i]f anything comes up, I’ll let you know about it for sure.”
(Presentence Report ¶ 97.) The government arrested Metro
less than two months after that meeting.
C. The Presentence Report and Metro’s
Objections
After he was caught, Metro pled guilty to conspiracy to
violate the securities laws 2 in violation of 18 U.S.C. § 371, and
insider trading in violation of 15 U.S.C. §§ 78j(b) and 78ff.
The Presentence Report (“PSR”) set forth an analysis of
Metro’s sentencing exposure under the United States
Sentencing Guidelines (“U.S.S.G.” or “guidelines”).
Specifically, the PSR applied § 2B1.4 of the guidelines, the
provision relevant to insider trading, to calculate the offense
level that would determine, in part, the appropriate sentencing
range. Pursuant to that section, Metro’s base offense level was
8. Because the gain resulting from his conduct exceeded
$6,500, the guidelines, under § 2B1.4(b)(1), called for an
“increase by the number of levels from the table in § 2B1.1[.]”
U.S.S.G. § 2B1.4(b)(1). As the PSR attributed all $5.6 million
in illicit gains to Metro, an 18-level increase was directed by §
2
The indictment charged Metro with conspiracy to
commit securities and tender offer fraud. For ease of reference,
we describe that charge throughout this opinion as a conspiracy
to violate the securities laws.
8
2B1.1(b)(1)(J). An additional 2-level increase pursuant to §
3B1.2 was added because Metro had abused his position of
trust as an employee with management responsibilities at the
law firm. Finally, because Metro pled guilty and
acknowledged his criminal behavior, the PSR credited him
with accepting responsibility and hence allowed a 3-level
reduction in his offense level, pursuant to § 3E1.1(a) and (b).
Based on a total offense level of 25 and Metro’s criminal
history category of I, the recommended guidelines range was
57 to 71 months of imprisonment.
Metro objected to the attribution to him of all the gains
realized as a result of Eydelman’s trades. He argued in a
presentence filing with the District Court that he was not, in the
language of commentary to guidelines § 2B1.4, “acting in
concert” with Eydelman such that Eydelman’s gains should be
attributed to him for purposes of sentencing. 3
D. Sentencing Hearing and Sentence
At the sentencing hearing, Metro renewed his objection
to the PSR’s 18-level enhancement based on all $5.6 million of
illicit gains from the scheme. In response, the government
described for the District Court its theory of the case: namely,
that this was “a three-party scheme[,]” with Metro as the
insider, Tamayo as the middleman, and Eydelman as the
stockbroker. (App. at 79.) After the District Court asked
whether the law requires that Metro “know of Mr. Eydelman
in order to have” responsibility for Eydelman’s gains, the
3
Metro also objected to the abuse of position of trust
enhancement. The District Court’s resolution of that objection
is not a subject of this appeal.
9
government answered that the law only requires that Metro
“know that there is somebody else that is obtaining the inside
information that he is passing on. And [the government has]
to show that all three gentlemen were acting in concert.” (App.
at 81-82.) The government then argued that it had met those
requirements because Eydelman, the ultimate recipient of
Metro’s tips, was critical to the insider trading, and that the
January 28, 2014, conversation demonstrated Metro’s
awareness of Eydelman’s existence.
Metro disputed the government’s characterization of the
January 28 conversation, arguing that it did not support a
finding that he had acted in concert with Eydelman because the
conversation took place one year after the last time Metro
provided an inside tip. According to Metro, he first learned
that a broker (i.e., Eydelman) was involved with the scheme
shortly before that conversation, and no fair interpretation of
his responses shows that he had been aware of Eydelman when
he (Metro) was passing information to Tamayo.
The District Court overruled Metro’s objection to the
PSR’s attribution of the full $5.6 million to him. Without
making any explicit factual findings on the record, the Court
stated that “[t]he commentary [to § 2B1.4] unequivocally
attributes all the gains made by Tamayo and Eydelman to
Metro. … So with that, the Court also finds that United States
v. Kluger, 722 F.3d 549 (3d Cir. 2013) is also on point and
analogous[.]” 4 (App. at 97.)
4
As more fully discussed herein, Kluger deals with the
attribution, for sentencing purposes, of insider trading gains.
722 F.3d at 557.
10
When handing down Metro’s sentence, the District
Court used the PSR’s guideline imprisonment range of 57 to
71 months as a starting point. It then granted a two-level
downward variance because of Metro’s “strong family ties”
and “redeemable qualities,” resulting in a guideline
imprisonment range of 46 to 57 months. The Court sentenced
Metro to a 46-month term of imprisonment, a three-year term
of supervised release, a $10,000 fine, and a $200 special
assessment. Metro now appeals that sentence.
II. Discussion 5
The District Court rightly looked to the insider trading-
specific guideline, § 2B1.4, in sentencing Metro. As already
noted, that section provides for a base offense level of 8, and
then says that “[i]f the gain resulting from the offense exceeded
$6,500, increase by the number of levels from the table in §
2B1.1 … .” U.S.S.G. § 2B1.4(b)(1). The commentary to the
section explains that:
… Insider trading is treated essentially as a
sophisticated fraud. Because the victims and
their losses are difficult if not impossible to
identify, the gain, i.e., the total increase in value
realized through trading in securities by the
defendant and persons acting in concert with the
defendant or to whom the defendant provided
inside information, is employed instead of the
victims’ losses.
5
The District Court had jurisdiction under 18 U.S.C.
§ 3231. We have appellate jurisdiction pursuant to 18 U.S.C.
§ 3742(a)(1) and 28 U.S.C. § 1291.
11
U.S.S.G. § 2B1.4 cmt. background (emphasis added). Relying
on that commentary, the District Court attributed to Metro all
of the gains realized from Eydelman’s illegal trades, which
amounted to approximately $5.6 million. Metro argues that the
Court failed to make sufficient factual findings to support that
attribution and gave too broad a meaning to the phrase “acting
in concert.” We agree.
A. General Principles and Kluger
“[W]e review the District Court’s interpretation of the
Sentencing Guidelines de novo,” its “findings of fact for clear
error[,]” and its “application of the Guidelines to facts for
abuse of discretion.” Kluger, 722 F.3d at 555 (citations
omitted). The federal sentencing guidelines are to be
understood according to their “plain and unambiguous
language[.]” Id. at 556 (quoting United States v. Wong, 3 F.3d
667, 670 (3d Cir. 1993)). Commentary interpreting or
explaining a specific guideline “is authoritative unless it
violates the Constitution or a federal statute, or is inconsistent
with, or a plainly erroneous reading of, that guideline.” Stinson
v. United States, 508 U.S. 36, 38 (1993). A failure to properly
calculate a guidelines range is a “significant procedural error.”
Gall v. United States, 552 U.S. 38, 51 (2007). Accordingly,
“the use of an erroneous … range will typically require
reversal[.]” United States v. Langford, 516 F.3d 205, 215 (3d
Cir. 2008); see also United States v. Merced, 603 F.3d 203, 214
(3d Cir. 2010) (“If the district court commits procedural error,
our preferred course is to remand the case for re-sentencing,
without going any further.”).
12
With those general principles in mind, we turn to a
review of our decision in United States v. Kluger, which
features prominently in the District Court’s decision and the
parties’ arguments on appeal.
Kluger involved an insider trading scheme that, like the
one here, had an insider at a law firm disclosing material
nonpublic information to a middleman who, in turn, relayed
that information to a stockbroker who ultimately executed the
illegal trades. 722 F.3d at 553-54. At sentencing, the district
court attributed to the law firm insider all of the gains realized
by the stockbroker, even though the insider argued that those
gains were not foreseeable because the stockbroker traded “in
share volumes far in excess of the number of shares that the …
conspirators agreed would be traded.” Id. at 554. On appeal,
the insider challenged the district court’s gain analysis by
arguing that the foreseeability test set out in § 1B1.3(a)(1)(B)
should have lowered the “gain” attributed to him. Id. at 557.
Under the version of the guidelines in effect at the time the
defendant was sentenced, § 1B1.3(a)(1) stated:
(a) … Unless otherwise specified, (i) the base
offense level where the guideline specifies more
than one base offense level, (ii) specific offense
characteristics and (iii) cross references in
Chapter Two, and (iv) adjustments in Chapter
Three, shall be determined on the basis of the
following:
(1)(A) all acts and omissions committed, aided,
abetted, counseled, commanded, induced,
procured, or willfully caused by the defendant;
and
13
(B) in the case of a jointly undertaken criminal
activity (a criminal plan, scheme, endeavor, or
enterprise undertaken by the defendant in
concert with others, whether or not charged as a
conspiracy), all reasonably foreseeable acts and
omissions of others in furtherance of the jointly
undertaken criminal activity[.]
U.S.S.G. § 1B1.3(a)(1) (2010) (emphasis added). In affirming
the district court’s gain calculation, we determined that “the
insider-trading guideline falls under the ‘unless otherwise
specified’ exception of § 1B1.3,” such that § 1B1.3’s
foreseeability test does not apply to the gain analysis required
by § 2B1.4’s commentary. Kluger, 722 F.3d at 558-59. We
reached that conclusion because that gain analysis
“unequivocally attributes” to a defendant all the gains realized
through trading by individuals “acting in concert with the
defendant” or “to whom the defendant provided inside
information,” without regard to the foreseeability of those
gains. Id. at 558 (quoting U.S.S.G. § 2B1.4 cmt. background).
Critical to our conclusion in Kluger was the defendant’s
admission that he was “acting in concert with” the stockbroker
and that he “provided inside information” with the intent that
it reach the stockbroker. Id. 6 Metro, in contrast, strenuously
6
We emphasized those facts four separate times in
Kluger. See 722 F.3d at 558 (“[The stockbroker] was a
‘person[] acting in concert with the defendant,’ as well as one
‘to whom the defendant provided inside information.’”
(citation omitted)); id. at 559 n.13 (“[W]e observe that it is
undisputed that [the defendant] passed inside information to
[the middleman] with the intent that the information would
14
disputes that he either acted “in concert with” or “provided
inside information” to Eydelman.
B. Kluger Did Not Render § 1B1.3 Irrelevant for
Purposes of Determining the Scope of
Conduct for Which a Defendant Can Be Held
Accountable at Sentencing
Adopting the approach taken in the PSR, the District
Court concluded that Kluger controlled the sentencing
outcome here. That of course was also the government’s
position, but the only evidence offered by the government to
establish that Metro had any knowledge of Eydelman, or that
Metro had any awareness that his insider tips were received by
anyone other than Tamayo, was the January 28, 2014,
transcript. Metro objected throughout sentencing to the
conclusion in the PSR that he acted “in concert with” or
“provided inside information” to Eydelman, and he disputed
that the January 28, 2014, transcript established that he had.
The District Court, at Metro’s sentencing hearing, neither
resolved those factual disputes nor made any other factual
findings with regard to Metro’s relationship with, or
knowledge of, Eydelman. The Court appears to have
reach [the stockbroker] who [the defendant] knew was a
securities trader in order for [the stockbroker] to place illicit
trades.”); id. at 561 (“[The stockbroker] is explicitly an
individual ‘to whom the defendant provided inside
information.’” (citation omitted)); id. at 561 n.19 (“[The
defendant] intended [the stockbroker] to be the ultimate tippee
because [the defendant] knew that [the middleman] would not
exercise the vast majority of the trades on behalf of the
conspirators.”).
15
concluded either that, in light of Kluger, Metro’s guilty plea to
a conspiracy count naming Eydelman was a sufficient basis to
establish the “in concert with” or the “provide inside
information to” requirements for the attribution of gains, or
that Kluger requires that courts hold tippers accountable at
sentencing for all downstream trading resulting from that
tipper’s inside information. Both interpretations take Kluger
too far.
Metro pled guilty to Count 1 of the indictment, which
charged him with conspiring with “Tamayo, Eydelman, and
others” to violate the securities laws. (App. at 26.) It is clear,
however, that the guidelines do not consider a defendant’s
criminal liability to be co-extensive with sentencing
accountability. The commentary to the guidelines’ “Relevant
Conduct” provision, § 1B1.3, is explicit that “[t]he principles
and limits of sentencing accountability under this guideline are
not always the same as the principles and limits of criminal
liability,” U.S.S.G. § 1B1.3 cmt. 1, and further that, “[b]ecause
a count may be worded broadly and include the conduct of
many participants over a period of time, the scope of” a
defendant’s conduct for sentencing purposes “is not
necessarily the same as the scope of the entire conspiracy,”
U.S.S.G. § 1B1.3 cmt. 3(B). We have thus explained that the
conduct a defendant is typically held responsible for under the
guidelines “is not coextensive with conspiracy law.” United
States v. Mannino, 212 F.3d 835, 842 (3d Cir. 2000) (emphasis
omitted) (quoting United States v. Collado, 975 F.2d 985, 997
(3d Cir. 1992)). 7 For that reason, we have instructed that, at
7
See also United States v. Getto, 729 F.3d 221, 234
n.11 (2d Cir. 2013) (“[T]he scope of conduct for which a
defendant can be held accountable under the sentencing
16
sentencing, it is essential for courts to conduct “a searching and
individualized inquiry into the circumstances surrounding each
defendant’s involvement in [a] conspiracy … to ensure that the
defendant’s sentence accurately reflects his or her role.”
Collado, 975 F.2d at 995. The question we are faced with now
is whether those fundamental sentencing principles apply with
equal force in the insider trading context, given our decision in
Kluger, and the answer is they do.
Kluger does not mandate that § 1B1.3, and its guidance
on the importance of individual accountability at sentencing,
plays no role in determining the scope of a defendant’s relevant
conduct in insider-trading conspiracy cases. That case holds,
rather, that § 1B1.3’s foreseeability requirement is inapplicable
to an analysis of illicit gain under § 2B1.4. See Kluger, 722
F.3d at 558-59 (“[T]he insider-trading guideline falls under the
guidelines is significantly narrower than the conduct embraced
by the law of conspiracy.” (citation omitted)); United States v.
Spotted Elk, 548 F.3d 641, 674 (8th Cir. 2008) (“[T]he
emphasis under § 1B1.3 is the scope of the individual
defendant’s undertaking … rather than the scope of the
conspiracy as a whole[.]”); William W. Wilkins, Jr. & John R.
Steer, Relevant Conduct: The Cornerstone of the Federal
Sentencing Guidelines, 41 S.C. L. Rev. 494, 510 (1990)
[hereinafter Relevant Conduct] (explaining that in “concerted
activity situations,” the guidelines attempted to create a
sentencing rule that was “not necessarily co-extensive with …
co-conspirator liability”). At the time Relevant Conduct was
published, Judge Wilkins was Chairman of the United States
Sentencing Commission, and Steer was the Commission’s
General Counsel. Relevant Conduct, 41 S.C. L. Rev. at 495
n.a & aa.
17
‘unless otherwise specified’ exception of § 1B1.3, and, as a
result, we will not use the reasonable foreseeability test in
reviewing the District Court’s calculation of the offense
level[.]”); id. at 559 (“In the circumstances we should not look
beyond the plain language of § 2B1.4 and read a foreseeability
test into § 2B1.4.”). The “unless otherwise specified”
exception is not an all-or-nothing proposition. Just because
one subsection of § 1B1.3 does “not apply to a particular count
of conviction does not mean that other subsections of the
relevant conduct provision cannot be given effect.” United
States v. Maddox, 803 F.3d 1215, 1223 (11th Cir. 2015).
Amendments made by the United States Sentencing
Commission to § 1B1.3 after Kluger, and that were given effect
prior to Metro’s sentencing, support our conclusion that
§ 1B1.3 remains important even in an insider trading case. The
2015 version of § 1B1.3 amended subsection (a)(1)(B), the
provision containing guidance on when a court is to hold a
defendant accountable for the conduct of others “in the case of
a jointly undertaken criminal activity[.]” U.S.S.G.
§ 1B1.3(a)(1)(B). In the pre-2015 version of the guidelines
that Kluger interpreted, that specific subsection instructed
courts to hold defendants responsible “in the case of a jointly
undertaken criminal activity (a criminal plan, scheme,
endeavor, or enterprise undertaken by the defendant in concert
with others, whether or not charged as a conspiracy)[] [for] all
reasonably foreseeable acts and omissions of others in
furtherance of the jointly undertaken criminal activity[.]”
U.S.S.G. § 1B1.3(a)(1)(B) (2011). Following the 2015
amendments, § 1B1.3(a)(1)(B) now instructs courts to hold a
defendant responsible,
18
in the case of a jointly undertaken criminal
activity (a criminal plan, scheme, endeavor, or
enterprise undertaken by the defendant in
concert with others, whether or not charged as a
conspiracy), [for] all acts and omissions of others
that were—
(i) within the scope of the jointly
undertaken criminal activity,
(ii) in furtherance of that criminal
activity, and
(iii) reasonably foreseeable in
connection with that criminal
activity[.]
U.S.S.G. § 1B1.3(a)(1)(B) (2015).
The amendment placed within the text of the guideline
three distinct factors for courts to consider when conducting
the § 1B1.3(a)(1)(B) analysis. By its own account, the
Sentencing Commission amended the guideline to “clarify the
use of relevant conduct in offenses involving multiple
participants.” U.S.S.G. Supp. to App. C, Amend. 790, Reason
for Amend. While the amendment did not signal a “substantive
change in policy,” it did clarify that courts should go through a
three-step analysis before attributing the conduct of others to a
defendant facing sentencing. Id. That analysis requires courts
to “(1) identify the scope of the jointly undertaken criminal
activity; (2) determine whether the conduct of others in the
jointly undertaken criminal activity was in furtherance of that
criminal activity; and (3) determine whether the conduct of
others was reasonably foreseeable in connection with that
criminal activity.” Id. The main point of the amendment was
19
to take the “scope” step of the analysis out of the commentary
and place it “in the text of the guideline itself.” Id.
Kluger had no occasion to address the “scope” of the
jointly undertaken criminal activity because it was not disputed
that the defendant was aware of, and acting with, the
stockbroker. 722 F.3d at 559 n.13. Rather, the Kluger Court’s
analysis focused on whether conduct that was admittedly
within the scope of and in furtherance of the jointly undertaken
criminal activity also had to be foreseeable to be attributable to
an insider-trading defendant. Id. at 557-61. In short, the
question of scope was not on the table in Kluger, but it is here,
and it may be in other insider trading cases.
We therefore hold that § 1B1.3 remains relevant when
attributing to an insider-trading defendant gains realized by
other individuals. Before attributing gains to a defendant under
§ 2B1.4’s gain analysis, a sentencing court should first identify
the scope of conduct for which the defendant can fairly be held
accountable for sentencing purposes under § 1B1.3. After
identifying the scope of conduct, the court should then analyze
that conduct to determine whom the defendant “act[ed] in
concert with” and to whom he “provided inside information[.]”
U.S.S.G. § 2B1.4 cmt. background. That may lead the court to
attribute to a defendant gains realized by downstream trading
emanating from the defendant’s tips, but, depending on the
facts established at sentencing, it may not. 8 Kluger does not
8
We emphasize that a defendant cannot artificially
limit his sentencing exposure by utilizing a middleman to
convey inside information to a third party to conduct illegal
trades when that defendant had reason to know, or was
20
impose, as the government suggests, “what amounts to strict
liability” on tippers, regardless of whether or not the tipper had
any knowledge at the time he was providing the inside
information that it would reach an individual other than the
individual to whom he provided it. (Answering Br. at 26.) In
fact, the government’s own argument to the District Court
undercuts the position it has taken before us. When asked by
the District Court whether Metro had to “know of
Mr. Eydelman in order to have” responsibility for Eydelman’s
gains, the government answered that the law requires that
Metro “know that there is somebody else that is obtaining the
inside information that he is passing on. And [the government
has] to show that all three gentlemen were acting in concert.”
(App. at 81-82.)
Because “the attribution of gains to a defendant can be
critical in a guidelines sentencing range calculation,” Kluger,
722 F.3d at 556, the “strict liability” position now taken by the
government runs the risk of sentences being imposed on
defendants that are excessive in relation to their criminal
conduct. 9 Our holding today avoids that risk but remains fully
willfully blind to the fact that, the middleman was passing the
inside information to third parties.
9
We are not alone in looking to § 1B1.3 to provide the
proper analytical framework for assessing the scope of a
defendant’s conduct for sentencing purposes in the insider
trading context. Other courts of appeals have looked to that
provision for that purpose for decades. United States v.
Nacchio, 573 F.3d 1062, 1072-73 (10th Cir. 2009); United
States v. O’Hagan, 139 F.3d 641, 655-56 (8th Cir. 1998);
21
in line with Kluger. Once a sentencing court identifies the
scope of conduct for which a defendant can be fairly held
accountable, whether consequences flowing from that conduct
were foreseeable is not pertinent to § 2B1.4’s gain analysis.
C. The District Court Did Not Address Critical
Factual Disputes Relevant to the Scope of
Metro’s Conduct for Sentencing Purposes
Since we have concluded that district courts must look
to § 1B1.3 to determine the scope of conduct for which a
defendant can be held accountable for sentencing purposes, we
must now consider whether the District Court made “a
searching and individualized inquiry into the circumstances
surrounding [Metro’s] involvement in the conspiracy … to
ensure that [Metro’s] sentence accurately reflect[ed] his …
role.” Collado, 975 F.2d at 995. A district court does not meet
that requirement if it fails to comply with the guidelines’
instruction to “resolve disputed sentencing factors at a
sentencing hearing in accordance with [Federal Rule of
Criminal Procedure] 32(i).” U.S.S.G. § 6A1.3(b). That rule
mandates that, “[a]t sentencing, the court … must – for any
disputed portion of the presentence report or other controverted
matter – rule on the dispute or determine that a ruling is
unnecessary either because the matter will not affect
sentencing, or because the court will not consider the matter in
sentencing … .” Fed. R. Crim. P. 32(i). The rule is “strictly
enforced” and requires that “[a] finding on a disputed fact or a
disclaimer of reliance upon a disputed fact … be expressly
made.” United States v. Electrodyne Sys. Corp., 147 F.3d 250,
United States v. Stern, No. 92-3752, 1993 WL 82048, at *4
(5th Cir. Mar. 12, 1993) (not precedential).
22
255 (3d Cir. 1998); see also United States v. Freeman, 763
F.3d 322, 339 (3d Cir. 2014) (“[I]f a defendant disputes a fact
included in the presentence investigation report, the sentencing
court must either resolve that dispute or state that it will not
rely on the disputed fact.” (citation omitted)). A district court’s
failure to comply with Rule 32(i)(3)(B) “is grounds for
vacating the sentence.” Electrodyne Sys., 147 F.3d at 255.
The government offered only the January 28, 2014,
transcript to establish its factual contentions. Metro, for his
part, clearly objected to the government’s position that he
“acted in concert with” or “provided inside information” to
Eydelman. The District Court never resolved those factual
disputes on the record; it simply overruled Metro’s objection
and concluded that Kluger was controlling. Had the Court’s
assessment of Kluger been correct, it may have been justified
in viewing as moot the factual disputes raised by Metro. But,
as we have discussed, the assessment was in error.
Accordingly, the factual disputes are very much alive and the
obligation of Rule 32(i)(3)(B) to resolve those disputes
remains in force.
When the scope of a defendant’s involvement in a
conspiracy is contested, a district court cannot rely solely on a
defendant’s guilty plea to the conspiracy charge, without
additional fact-finding, to support attributing co-conspirators’
gains to a defendant. Because the District Court here did not
resolve the key factual dispute raised by Metro, or otherwise
provide a factual basis to support its gain analysis, there was
not the “searching and individualized inquiry” necessary to
ensure Metro’s sentence matched his role in the conspiracy.
23
D. A Guilty Plea Alone Is Not Necessarily
Determinative of Sentencing Accountability
In reaching our conclusion, we do not imply that a
defendant can contest at sentencing the factual averments
contained in an indictment to which he pled guilty. See United
States v. Parker, 874 F.2d 174, 177 n.1 (3d Cir. 1989) (holding
that pleading guilty “binds [a defendant] to the accuracy of the
facts set forth in the indictment”). That issue is not before us
today because the indictment to which Eydelman pled guilty
contains no facts actually linking Metro to Eydelman. Though
it charged Metro with “knowingly and willfully combin[ing],
conspir[ing] and agree[ing] with Tamayo, Eydelman, and
others” to violate the securities laws, (App. at 26-27,) the
indictment did not set out any factual basis showing that Metro
“acted in concert with” or “provided inside information” to
Eydelman for purposes of sentencing accountability.
Similarly, the PSR does not contain any facts linking Metro to
Eydelman, other than referring to the fact that Metro was
charged with conspiring with Eydelman. And although the
government could have elicited facts from Metro at his plea
hearing to tie him to Eydelman, it did not.
On the contrary, at the plea hearing, the government
established only that Metro learned about Eydelman after the
insider trading activity had ended. 10 It asked Metro whether he
10
Federal Rule of Criminal Procedure 11 instructs that
“[b]efore entering judgment on a guilty plea, the court must
determine that there is a factual basis for the plea.” Fed. R.
Crim. P. 11(b)(3). Here, rather than conducting the colloquy
with Metro to determine whether there was a sufficient factual
basis to support entering judgment on the guilty plea, the Court
24
“enter[ed] into an agreement with Frank Tamayo to engage in
securities transactions based on material nonpublic
information,” to which Metro responded, “Yes,” but it did not
ask whether he entered into an agreement with Eydelman.
(App. at 67.) The government next asked whether Metro
“disclose[d] the inside information to Tamayo,” to which
Metro responded, “Yes.” (App. at 67.) It did not ask if he
disclosed information to Eydelman. The government asked
whether, between February 2009 and January 2013, Metro
“provide[d] Tamayo inside information related to at least 13
different corporate transactions so that Tamayo could profit by
trading on the inside information[,]” to which Metro
responded, “Yes.” (App. at 69.) The government did not ask
whether he provided that information with the intent that it
reach Eydelman. The government further asked, “[w]ith
respect to the overt acts charged in the indictment, do you
acknowledge that you and Frank Tamayo each had a defined
role to perform certain specific acts in furtherance of your
agreement to [violate the securities laws],” to which Metro
replied, “Yes.” (App. at 69.) The government did not ask
about Eydelman’s role, if any, in that agreement. The only fact
the government did elicit from Metro concerning Eydelman
was that “[a]fter [his] arrest,” Metro “learn[ed] that Tamayo
used a broker named Vladimir Eydelman[.]” (App. at 69.)
The government must prove facts supporting a
sentencing enhancement by a preponderance of the evidence.
United States v. Napolitan, 762 F.3d 297, 309 (3d Cir. 2014);
United States v. Tai, 750 F.3d 309, 318-19 (3d Cir. 2014).
Perhaps the District Court thought that the government had met
requested the government to develop the factual basis by
questioning Metro.
25
its burden to demonstrate that Metro “acted in concert with” or
“provided inside information” to Eydelman, but the record
gives us no basis to say that the Court indeed reached that
conclusion. In any event, the record is insufficient to support
the sentence given.
III. Conclusion
For the foregoing reasons, we will vacate Metro’s
sentence and remand the case for resentencing after the District
Court has determined whether the government has established
by a preponderance of the evidence that Metro “acted in
concert with” or “provided inside information” to Eydelman.
The Court is free to reopen the record, should it determine that
further development of the record is in order.
26