Filed: May 22, 2014
Latest Update: Mar. 02, 2020
Summary: Case: 11-14287 Date Filed: 05/22/2014 Page: 1 of 34 [PUBLISH] IN THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT _ No. 11-14287 _ D.C. Docket No. 1:08-cr-20071-AJ-4 UNITED STATES OF AMERICA, Plaintiff-Appellee, versus LAURENCE ISAACSON, Defendant-Appellant. _ No. 12-14703 _ D.C. Docket No. 1:08-cr-20071-JAL-4 UNITED STATES OF AMERICA, Plaintiff-Appellee, versus LAURENCE ISAACSON, Case: 11-14287 Date Filed: 05/22/2014 Page: 2 of 34 Defendant-Appellant. _ Appeals from the United Stat
Summary: Case: 11-14287 Date Filed: 05/22/2014 Page: 1 of 34 [PUBLISH] IN THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT _ No. 11-14287 _ D.C. Docket No. 1:08-cr-20071-AJ-4 UNITED STATES OF AMERICA, Plaintiff-Appellee, versus LAURENCE ISAACSON, Defendant-Appellant. _ No. 12-14703 _ D.C. Docket No. 1:08-cr-20071-JAL-4 UNITED STATES OF AMERICA, Plaintiff-Appellee, versus LAURENCE ISAACSON, Case: 11-14287 Date Filed: 05/22/2014 Page: 2 of 34 Defendant-Appellant. _ Appeals from the United State..
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Case: 11-14287 Date Filed: 05/22/2014 Page: 1 of 34
[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 11-14287
________________________
D.C. Docket No. 1:08-cr-20071-AJ-4
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
versus
LAURENCE ISAACSON,
Defendant-Appellant.
________________________
No. 12-14703
________________________
D.C. Docket No. 1:08-cr-20071-JAL-4
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
versus
LAURENCE ISAACSON,
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Defendant-Appellant.
________________________
Appeals from the United States District Court
for the Southern District of Florida
________________________
(May 22, 2014)
Before MARTIN, FAY, and SENTELLE, * Circuit Judges.
MARTIN, Circuit Judge:
Laurence Isaacson was convicted after a jury trial on account of his
participation in a conspiracy to commit securities fraud in violation of 18 U.S.C.
§ 371. He was sentenced to 36-months imprisonment and ordered to pay $8
million in restitution. In this consolidated appeal, Mr. Isaacson challenges his
conviction, his sentence, and the District Court’s denial of his motion for a new
trial. After careful review, and with the benefit of oral argument, we affirm Mr.
Isaacson’s conviction and the District Court’s denial of his motion for a new trial,
but vacate his sentence and remand with instructions for resentencing.
I. Background
A. The Criminal Conspiracy
This case arises out of a complex scheme designed to defraud investors
through a group of hedge funds we will call the Lancer Fund. At the core of the
*
Honorable David Bryan Sentelle, United States Circuit Judge for the District of Columbia,
sitting by designation.
2
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criminal enterprise were Michael Lauer, Martin Garvey, and Eric Hauser, all of
whom had ownership interests in the Lancer Fund. Also central to the scheme was
Bruce Cowen, who served as the Lancer Fund’s managing director.
The fraud charged in this case began in earnest in late 1999, when the
Lancer Fund began investing in publicly traded shell companies, or companies that
typically had no real assets or business operations. Once the Lancer Fund
controlled the shell companies, it drove up the share prices by buying stock in the
companies at artificially inflated prices. This caused the shell companies to appear
much more valuable than they really were. By the conspiracy’s end, these
worthless and overpriced shell companies made up the majority of the Lancer
Fund’s investment portfolio. Among the shell companies the Lancer Fund
invested in were ServiceMax of America (SMX), Augment Systems (AUG), and
Nu-D-Zine, each of which Mr. Isaacson helped the Lancer Fund acquire and
manage.
Investors had no way to know what the Lancer Fund was doing because it
did not disclose the companies in which it invested. This policy prevented
investors from verifying for themselves the value and performance of the Lancer
Fund. Instead, investors generally depended on evaluations given by Lancer Fund
managers and to some extent on annual audits by independent auditors.
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Mr. Isaacson’s criminal involvement with the conspiracy began when the
Lancer Fund’s auditors became suspicious about the value of the shell companies
in the investment portfolio and sought support for their assigned market value. In
an effort to placate the auditors, Mr. Cowen sought valuations in early 2002 from
consultants corroborating the market value of the companies. One of the
consultants was Milton Barbarosh, who shared an office with Mr. Isaacson in
Florida.
At first, Mr. Barbarosh was not sure how he would fulfill Mr. Cowen’s
request, because “there was no basis to show that the value of the companies were
worth anywhere near the value of the public market.” Eventually, Mr. Barbarosh
decided that he could evaluate the shell companies by producing hypothetical
valuations based on future business plans that were not intended to be
implemented. Mr. Barbarosh shared this fraudulent plan with Mr. Isaacson, who
reported that he had already suggested the idea to Mr. Cowen, and Mr. Cowen had
said that it “would be fine if [Mr. Barbarosh did] the reports on that basis.” Mr.
Barbarosh testified that he told Mr. Isaacson that the purpose of the valuations was
to support the market price of the companies, and that he “probably” summarized
the rest of the conversation with Mr. Cowen for Mr. Isaacson.
With a plan in place, Mr. Barbarosh began work on the valuation reports for
SMX and Nu-D-Zine. To do that, he needed some model business plans that he
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could say were being implemented at the companies. Mr. Isaacson agreed to help
and found two plans with figures that would allow Mr. Barbarosh to come close to
the market value. Neither of these plans was ever actually going to be
implemented at either SMX or Nu-D-Zine.
Mr. Barbarosh completed the valuations consistent with Mr. Cowen’s
request and sent him the final reports, which were dated May 23 and June 7, 2002. 1
After Mr. Barbarosh sent the last of the reports, Mr. Isaacson spoke with Mr.
Cowen and passed the message along to Mr. Barbarosh that “the reports were
great, and that the auditors had accepted them.” The record does not indicate when
exactly the Lancer Fund sent the reports to the auditors.
Messrs. Isaacson and Barbarosh were also involved in similar efforts to
produce inflated valuations in 2003. Investors eventually became suspicious,
however, in part because the auditors had not issued a report about the Lancer
Fund’s 2001 performance by 2003. In an effort to stave off investors’ attempts to
withdraw their money—which the Lancer Fund did not have—the Lancer Fund
continued to misrepresent its performance to investors and encourage them to
accept redemption in the form of Lancer Fund securities as opposed to cash.
1
Mr. Barbarosh also produced a false valuation report for AUG, but Mr. Isaacson apparently did
not provide a business plan to assist in the production of that report. The AUG report was dated
May 3, 2002.
5
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Mr. Isaacson was indicted, along with Messrs. Lauer, Garvey, Hauser, and
Barbarosh, on January 29, 2008. The indictment charged the co-conspirators with
conspiracy to commit wire, mail, and securities fraud, in violation of 18 U.S.C.
§ 371 (Count One), and six counts of wire fraud, in violation of 18 U.S.C. §§ 1343
and 2 (Counts Two through Seven). Mr. Cowen was charged separately.
B. The Prosecution
Due in large part to three continuances, which were granted at various
defendants’ requests, Mr. Isaacson was not brought to trial until spring of 2010. In
March 2010, the District Court began jury selection based on prospective jurors’
responses to written questionnaires, which the parties had helped to prepare. The
delay between indictment and Mr. Isaacson’s trial prompted him to file a Speedy
Trial Act motion to dismiss on April 19, 2010, which the District Court denied.
After a lengthy trial, Mr. Isaacson was convicted of conspiracy to commit
securities fraud, as charged in Count One. The District Court dismissed Count
Seven before submitting the case to the jury; the jury acquitted Mr. Isaacson of
Counts Two, Three, and Four; and did not reach a verdict on Counts Five and Six.
Ultimately, Messrs. Hauser, Cowen, and Barbarosh pleaded guilty based on their
involvement in the scheme. Messrs. Lauer and Garvey were, however, acquitted
after a jury trial.
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C. Sentencing
Mr. Isaacson’s presentence investigation report (PSR) noted that his offense
corresponded to a base offense level of 6, and also recommended that the Court
impose the following enhancements: a 20-level loss amount enhancement,
pursuant to United States Sentencing Guidelines (USSG) § 2B1.1(b)(1)(K); a 4-
level number of victims enhancement, pursuant to USSG § 2B1.1(b)(2)(B); a 2-
level sophisticated means enhancement, pursuant to USSG § 2B1.1(b)(9)(C); and a
4-level enhancement pursuant to USSG § 2B1.1(17)(A)(ii), because Mr. Isaacson
was licensed with the Securities and Exchange Commission at the time he
committed the offense. These enhancements brought Mr. Isaacson’s offense level
to 36, which corresponded to a guideline range of 188- to 235-months
imprisonment. The statutory maximum sentence for a violation of 18 U.S.C. § 371
is 60-months imprisonment.
Mr. Isaacson objected to the loss amount enhancement, the number of
victims enhancement, and the sophisticated means enhancement, and also objected
to the lack of a 2-level minor role reduction pursuant to USSG § 3B1.2(b). At
sentencing, Mr. Isaacson’s loss amount objection proved the most controversial,
and ultimately drove the guideline calculation.
The PSR attributed a loss of $15 million to Mr. Isaacson based on an
investment Morgan Stanley made on June 28, 2002. The District Court eventually
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agreed with the attribution, after much deliberation. In sentencing Mr. Isaacson,
the District Court defined his agreement to participate in the conspiracy narrowly,
as a conspiracy to defraud the auditors. Despite this narrow definition, the District
Court concluded that by defrauding the auditors, Mr. Isaacson participated in the
broader conspiracy that caused Morgan Stanley to make its investment.
This loss amount enhancement brought Mr. Isaacson’s guideline range
above the maximum sentence permitted by his statute of conviction, and so the
Court declined to rule on the remainder of Mr. Isaacson’s objections. The Court
ultimately sentenced Mr. Isaacson to 36-months imprisonment, a downward
variance from his 60-month guideline range. Cf. USSG § 5G1.1(a) (“Where the
statutorily authorized maximum sentence is less than the minimum of the
applicable guideline range, the statutory authorized maximum sentence shall be the
guideline range.”). The District Court also ordered Mr. Isaacson to pay $8 million
in restitution to Morgan Stanley. This was the amount of loss the Court found the
government proved at sentencing.
D. The Rule 33 Motion
About two years after Mr. Isaacson’s conviction, he filed a motion pursuant
to Federal Rule of Criminal Procedure 33 seeking a new trial, as well as an
evidentiary hearing, based on newly discovered evidence about an alleged
prosecutorial conflict of interest. Mr. Isaacson asserted his discovery that the lead
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prosecutor’s wife was a shareholder at the firm representing Mr. Barbarosh, one of
the primary witnesses against Mr. Isaacson. The attorney who represented Mr.
Isaacson at trial filed an affidavit explaining that, had he known about this conflict
of interest, he would have “employed different trial tactics . . . , especially with
regard to cross-examination of Mr. Barbarosh and [the] closing argument.”
The government filed a response, which included an affidavit from the
prosecutor’s wife. The prosecutor’s wife explained that although she was once a
shareholder with the firm, at the time of Messrs. Barbarosh and Isaacson’s
prosecution she was not. Rather, she was employed as a part-time contract
attorney at that time, and was paid an hourly wage. She explained that she was not
a member of Mr. Barbarosh’s defense team and did not have any contact with the
lead counsel assigned to Mr. Barbarosh’s case. The government’s response also
noted that the prosecutor had disclosed his wife’s employment to his supervisors,
who concluded there was no need for recusal because there was no actual conflict
or an appearance of one. Given the lack of any appearance of conflict, the
government maintained that recusal was not required and that information about
the conflict was not subject to disclosure.
The District Court denied Mr. Isaacson’s request for an evidentiary hearing
and a new trial, finding “no conflict of interest or Brady[ v. Maryland, 373 U.S. 83,
83 S. Ct. 1194 (1963),] violation warranting a new trial.” To the conflict of
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interest issue, the District Court emphasized that the wife was not actually a
shareholder at the firm at the time of the representation. On the Brady issue, the
Court found the wife’s employment gave no additional incentive for Mr. Barbarosh
to lie on the stand beyond that already explored during cross examination. The
Court thus concluded that the information had no material impact on the outcome
of Mr. Isaacson’s prosecution.
E. This Appeal
This is a consolidated appeal, including Mr. Isaacson’s direct appeal from
his conviction and sentence as well as his appeal from the denial of his Rule 33
motion based on his charge of prosecutorial conflict. Mr. Isaacson makes the
following arguments on appeal: (1) his conduct lies outside the scope of conduct
punishable under 18 U.S.C. § 371; (2) the District Court should have granted his
motion to dismiss for Speedy Trial Act violations; (3) the government failed to
prove an overt act within the statute of limitations; (4) the evidence is insufficient
to support the conviction; (5) his sentence is unreasonable because the loss and
restitution amounts are not sufficiently attributable to his participation in the
conspiracy, and because he was ordered to serve a much longer sentence and pay
much more restitution than any of his more culpable co-defendants; and (6) his
motion for a new trial should have been granted. We address each argument in
turn.
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II. The Scope of 18 U.S.C. § 371
We first address Mr. Isaacson’s argument that 18 U.S.C. § 371 does not
reach his conduct because the Lancer Fund made the investments through a hedge
fund based in the British Virgin Islands. Mr. Isaacson relies upon the holding in a
civil case, Morrison v. National Australia Bank Ltd., 561 U.S. 247,
130 S. Ct. 2869
(2010), to argue that his criminal conviction based on violations of the Securities
Exchange Act cannot survive because the transactions were based outside the
United States. The issue Mr. Isaacson raises—whether the criminal statute reaches
his conduct—is subject to de novo review. United States v. Lopez-Vanegas,
493
F.3d 1305, 1311 (11th Cir. 2007).
To begin, it has never been established in this Circuit that Morrison limits
the scope of criminal liability for violations of the Securities Exchange Act to the
same extent it limits the scope of civil liability. 2 We need not explore that question
in this appeal. That is because, even if we assume here that it does, Mr. Isaacson’s
conviction is still due to be affirmed.
In Morrison, the Supreme Court applied the presumption against
extraterritoriality, a tool of statutory construction limiting a statute’s applicability
to domestic conditions unless the statute gives a “clear indication of an
2
The Second Circuit—which is, to our knowledge, the only other Circuit Court to have
considered Morrison’s effect on criminal cases involving a conspiracy to commit securities
fraud—has fully applied Morrison’s holding to criminal cases. See United States v. Vilar, 729
F.3d 62, 72 (2d Cir. 2013).
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extraterritorial application.” 561 U.S. at 255, 130 S. Ct. at 2877–78. The Supreme
Court held that the scope of civil liability based on the Securities Exchange Act is
limited to cases in which the defendant committed a fraud “in connection with the
purchase or sale of a security listed on an American stock exchange,” or in
connection with the purchase or sale of any other security that took place in the
United States.
Id. at 273, 130 S. Ct. at 2888. If the conduct underlying the claim
does not meet at least one of these requirements, then under Morrison, there can be
no civil liability.
Id.
We have no trouble concluding that Mr. Isaacson’s conduct meets
Morrison’s requirements for a U.S. nexus. The government’s expert witness
analyzed the SMX, 3 AUG, and Nu-D-Zine securities and testified that they all
“traded on the Over-the-Counter Bulletin Board or the Pink Sheets.” The expert
explained that these exchanges are “similar to” the NYSE and the NASDAQ,
which are both American markets. Beyond that, there was evidence that the
Lancer Fund was “run out of New York City” and that Mr. Isaacson’s office was
located in Florida, which supports the inference that the Lancer Fund purchased the
securities in the United States. This evidence is enough to satisfy Morrison’s
conditions.
3
Which, it is worth remembering, is shorthand for ServiceMax of America, strongly suggesting
that its securities trade on American exchanges.
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III. The Speedy Trial Act Motion
We next address Mr. Isaacson’s argument that the District Court should have
granted his motion to dismiss under the Speedy Trial Act. His challenge turns on
the question of whether eliminating prospective jurors based only on their answers
to written questionnaires before they make any personal appearance in Court
constitutes part of voir dire. This is a question of law which we review de novo.
United States v. Jernigan, 341 F.3d 1273, 1285 (11th Cir. 2003) (“We review a
claim under the Speedy Trial Act de novo and review a district court’s factual
determinations on excludable time for clear error.” (quotation marks omitted)).
The Speedy Trial Act generally requires a federal criminal trial to
“commence within seventy days” of the defendant’s indictment or initial
appearance, whichever is later. 18 U.S.C. § 3161(c)(1). The seventy-day
requirement is tempered to some extent by a number of exclusions which extend
the time the government has to bring a defendant to trial. Id. § 3161(h).
The remedy for a violation of the seventy-day provision is mandatory
dismissal upon the defendant’s motion. Id. § 3162(a)(2). If, however, the
defendant fails to move for enforcement of his Speedy Trial Act rights “prior to
trial,” he is deemed to have waived his rights and the remedy of dismissal is no
longer available to him, even if the trial technically violates the Act’s
requirements.
Id. We have said that trial begins for purposes of the Speedy Trial
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Act “when the court begins the voir dire.” United States v. Gonzalez, 671 F.2d
441, 443 (11th Cir. 1982). But this begs the question now before us—when (again,
for purposes of the Speedy Trial Act) does voir dire begin?
Mr. Isaacson argues that the Speedy Trial clock began to run on March 6,
2008, when Mr. Garvey made his initial appearance. See 18 U.S.C. § 3161(c)(1)
(noting that the Speedy Trial Act clock is triggered when the indictment is filed or
when the defendant makes an appearance in the court in which he is being charged,
whichever is later); United States v. Mathis, 96 F.3d 1577, 1579 n.1 (“In a multiple
defendant case, the speedy trial clock begins to run when the last codefendant is
indicted or arraigned.”). 4 The District Court granted three continuances at different
co-defendants’ requests and also held a hearing on a motion for reconsideration,
which Mr. Isaacson joined. Each of these events arguably extended the time the
government had to bring Mr. Isaacson to trial. See 18 U.S.C. § 3161(h)(7)(A)
(noting that the period of delay resulting from a continuance is excludable “if the
judge granted such continuance on the basis of his findings that the ends of justice
served by taking such action outweigh the best interest of the public and the
defendant in a speedy trial”);
id. § 3161(h)(1)(D) (noting that the delay resulting
from any pretrial motion is excludable “from the filing of the motion through the
4
Mr. Lauer did not make his initial appearance until March 13, 2008, but the government
acknowledges that his initial appearance may not be counted against Mr. Isaacson because the
delay was the result of the transportation of Mr. Lauer from another judicial district in the United
States. See 18 U.S.C. § 3161(h)(1)(F) (addressing excludable time due to transportation delays).
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conclusion of the hearing on, or other prompt disposition of, such motion”). Based
on his view that the time resulting from these delays was not wholly excludable,
Mr. Isaacson filed a Speedy Trial Act motion on April 19, 2010.
After careful consideration, we conclude that Mr. Isaacson’s motion to
dismiss was properly denied because it was filed after his trial had already begun.
In reaching this conclusion, we agree with the District Court’s decision that jury
selection based on written responses is part of the voir dire process, at least once
the District Court begins ruling on opposed challenges to particular jurors. The
District Court began discussing with counsel the responses to the juror
questionnaires on March 18, 2010, and the parties identified several jurors they
jointly agreed should be struck for cause or hardship. The District Court
announced that it would eliminate several of those agreed-upon prospective jurors,
which the Court characterized as “the beginning of jury selection.” This process
continued on March 23, when the District Court excluded several more prospective
jurors for which there was a consensus, and excused at least one juror over the
government’s opposition. Mr. Isaacson did not file his Speedy Trial Act motion
until April 19, 2010. This being the case, Mr. Isaacson’s motion was untimely,
even though jurors did not appear for oral examination until April 26. 5
5
The District Court’s decision about the start of trial led it to deny the motion to dismiss based
on its merits instead of its timeliness. This makes no difference here. The District Court could
just as easily have decided the issue on the same timeliness grounds we do today, and we may
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Mr. Isaacson may well be right when he posits that the common
understanding of voir dire is jurors being examined under oath in the courtroom
where the judge, the defendant, and the government can decide who should be
placed on the jury based on the content of the jurors’ answers as well as their
demeanor. See Reynolds v. United States, 98 U.S. 145, 156–57 (1878) (“[T]he
manner of the juror while testifying is oftentimes more indicative of the real
character of his opinion than his words. That is seen below, but cannot always be
spread upon the record.”). But this limited definition of voir dire cannot withstand
a broader consideration of the discretion vested in District Courts for developing
procedures for jury selection.
We have long recognized that District Courts have considerable discretion in
deciding how best to pick a jury. This includes deciding who should ask questions
of the prospective jurors; what the questions should be; and most important here,
how they should be asked. See, e.g., United States v. Tegzes, 715 F.2d 505, 507
(11th Cir. 1983). The only limit on this discretion this Court has articulated is that
the District Court’s chosen methods must create a “reasonable assurance that
prejudice would be discovered if present,”
id. (quotation mark omitted). Of
affirm for any reason supported by the record. United States v. Al-Arian,
514 F.3d 1184, 1189
(11th Cir. 2008) (per curiam).
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course, the selection process must also comply with Federal Rule of Criminal
Procedure 24, which addresses jury selection.
Written questionnaires are now a common complement to oral examination
when selecting an effective and impartial jury. As the Second Circuit observed not
too long ago, courts “routinely employ questionnaires to facilitate voir dire in a
number of circumstances.” United States v. Quinones, 511 F.3d 289, 299 (2d Cir.
2007) (italics omitted) (finding that written questionnaires can be used as part of
the voir dire process, although outside the Speedy Trial Act context). With this in
mind, the Second Circuit recognized that, “[a]lthough voir dire ordinarily
contemplates seeing the jurors and hearing them speak, any court-supervised
examination of prospective jurors is reasonably understood to be part of voir dire.”
Id. (italics, citation, and footnote omitted).
As a practical matter, written questionnaires pose questions commonly
asked, and materially indistinguishable from, what we expect to see during oral
examination in the courtroom. Beyond that, the expectation that jurors will tell the
truth is the same whether their answers are spoken or written. The written
questionnaire in Mr. Isaacson’s case informed jurors that they were “sworn to give
true and complete answers,” and warned that jurors might be subject to prosecution
for perjury if they did not uphold that oath. This tracks the oath the jurors took
once they were called into Court in this case.
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Because written questionnaires facilitate jury selection in ways not unlike
traditional oral examination, we cannot agree with Mr. Isaacson’s suggestion that
jury selection based on written questionnaires can never constitute part of voir dire
for purposes of the Speedy Trial Act. Where, as here, the District Court relies on
written questionnaires to aid in jury selection, voir dire and thus the trial begins
when the Court starts to rule on opposed juror challenges based on those written
questionnaires. In this case, that date was March 23, several weeks before Mr.
Isaacson’s Speedy Trial Act motion.6 Mr. Isaacson’s April 19 motion was
therefore untimely, and he was not entitled to dismissal.
We caution that District Courts should not take our decision today “as a
license to evade the Act’s spirit,” Gonzalez, 671 F.2d at 444, by starting to
eliminate jurors based on written questionnaires long before beginning oral
examination. As we said in Gonzalez, “[w]e will not hesitate to find that a trial has
not actually ‘commenced’ . . . if we perceive an intent to merely pay the Act lip
service.”
Id. Thus, there may be cases where a deviation from the general rule
about written examinations we set forth today would be warranted, where the
record reveals some purposeful manipulation of the Speedy Trial Act’s technical
requirements.
6
Because it makes no difference, we need not decide today whether voir dire might have begun
on March 18, when the District Court began to rule on unopposed juror challenges.
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The particular procedural background of this case, even with the rather
prolonged delay of trial, gives us comfort that this voir dire was not commenced in
order to avoid the requirements of the Speedy Trial Act. When the District Court
first ruled on the written questionnaires, it had already granted a continuance, at
two defendants’ request, to April 26. Also, the Court still had a motion before it
which challenged certain evidence against Mr. Isaacson and his co-defendants, for
which it held an evidentiary hearing in the first week of April. Given this context,
we do not see the District Court’s decision to begin jury selection in March based
on the written questionnaires as an intentional effort to manipulate the Speedy
Trial Act.
IV. The Statute of Limitations
Next, Mr. Isaacson argues that his conviction should be vacated because the
government failed to prove an overt act within the statute of limitations. In a
conspiracy prosecution brought under 18 U.S.C. § 371, the government must prove
at least one overt act in furtherance of the conspiracy by one of the conspirators
within the five years before the return of the indictment. 18 U.S.C. § 3282(a);
United States v. McNair, 605 F.3d 1152, 1213 (11th Cir. 2010).7 Whether there is
7
Mr. Isaacson also argues that after Gabelli v. SEC, ___ U.S. ___,
133 S. Ct. 1216 (2013), our
focus should be on whether the indictment was returned within five years of the conspiracy’s
beginning, rather than whether any overt act occurred within five years of the indictment being
returned. The Supreme Court’s interpretation of the statute of limitations for purposes of civil
enforcement in Gabelli, however, is not directly on point here, because this case involves a
criminal conviction governed by an entirely separate statutory provision, 18 U.S.C. § 3282(a).
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sufficient evidence of an overt act within the statute of limitations is a question of
law which this Court reviews de novo. See id. at 1212 n.87.
The grand jury returned Mr. Isaacson’s indictment on January 29, 2008,
meaning that the government had to prove an overt act in furtherance of the
conspiracy occurring on or after January 29, 2003. See 18 U.S.C. § 3282(a).
When the District Court rejected Mr. Isaacson’s statute of limitations argument, it
found “that the government sufficiently proved a number of overt acts within the
limitations period (e.g., overt acts 24, 26, and 27).” Because one overt act in
furtherance of the conspiracy is enough to affirm the conviction, we focus on overt
act 24, which alleged that Mr. Lauer sent letters to the Lancer Fund’s investors in
February 2003. Mr. Isaacson’s brief does not challenge the District Court’s
conclusion that the sending of these letters was an overt act in furtherance of the
conspiracy. Instead, Mr. Isaacson argues that this overt act does not mention him,
and that Mr. Lauer’s overt act cannot be used to bootstrap Mr. Isaacson’s conduct
within the statute of limitations.
This argument misunderstands the nature of conspiracy liability. “[A]n
individual conspirator need not participate in the overt act in furtherance of the
conspiracy. Once a conspiracy is established, and an individual is linked to that
We are therefore bound to apply our existing precedent, which generally applies § 3282(a) to
criminal convictions. See United States v. Kaley, 579 F.3d 1246, 1255 (11th Cir. 2009)
(describing this Court’s strong prior panel precedent rule).
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conspiracy, an overt act committed by any conspirator is sufficient.” United States
v. Thomas, 8 F.3d 1552, 1560 n.21 (11th Cir. 1993); see also United States v.
Arias,
431 F.3d 1327, 1340 (11th Cir. 2005) (“An accused conspirator’s
participation is presumed to have continued . . . until the last overt act has been
committed by any of the conspirators.”).8 Mr. Isaacson’s statute of limitations
argument is therefore without merit.
V. The Sufficiency of the Evidence
Mr. Isaacson also challenges the sufficiency of the evidence supporting his
conviction. He argues that several government witnesses, and one government
agent who did not testify at trial, were not credible, and that two of the
government’s witnesses testified that they did not know Mr. Isaacson. In Mr.
Isaacson’s view, the case against him was weak, as evidenced by the government’s
failure to secure a conviction on six of the seven counts charged. Also, he points
to shortcomings in the government’s case he surmises could have led to his
acquittal.
We review de novo the sufficiency of the evidence supporting a conviction,
viewing the evidence and drawing all inferences in favor of the verdict. United
States v. Benbow, 539 F.3d 1327, 1331 (11th Cir. 2008). We must affirm Mr.
Isaacson’s conviction “unless there is no reasonable construction of the evidence
8
Our analysis would be different if there was evidence that Mr. Isaacson withdrew from the
conspiracy. See
Arias, 431 F.3d at 1340.
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from which the jury could have found [him] guilty beyond a reasonable doubt.”
United States v. Joseph, 709 F.3d 1082, 1093 (11th Cir. 2013). To the extent Mr.
Isaacson’s argument “depends upon challenges to the credibility of witnesses, the
jury has exclusive province over that determination and the court of appeals may
not revisit this question.” United States v. Chastain,
198 F.3d 1338, 1351 (11th
Cir. 1999). We will upset a jury’s decision to credit a witness’s testimony only in
the rare circumstance that the testimony is incredible as a matter of law. United
States v. Calderon,
127 F.3d 1314, 1325 (11th Cir. 1997). Testimony is incredible
as a matter of law only if it concerns facts that the witness “physically could not
have possibly observed or events that could not have occurred under the laws of
nature.”
Id. (quotation marks omitted).
Applying these well-established principles, we find the evidence against Mr.
Isaacson sufficient to support his conviction. He primarily argues that Messrs.
Cowen and Barbarosh were not credible because the witnesses had incentives to
lie. But Mr. Isaacson has not pointed to any circumstances that would render their
testimony incredible as a matter of law, and instead points to circumstances which
were thoroughly explored during the examinations of both witnesses. Mr. Isaacson
also notes that more evidence has come out since his conviction suggesting that
Mr. Barbarosh lied about his own culpability and about whether Mr. Isaacson was
really the source of the business plans upon which the fraudulent valuations were
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based. But, at least on direct review from the conviction, we consider only the
evidence that was actually presented to the jury at the time it reached its verdict.
See United States v. Lopez-Ramirez, 68 F.3d 438, 441 & n.3 (11th Cir. 1995).9
By contrast, the government presented significant evidence implicating Mr.
Isaacson. Mr. Barbarosh testified that Mr. Isaacson gave him the business plans,
knowing they would be used in valuations provided to auditors, and knowing that
the plans had nothing to do with the businesses being valued. Beyond that, the
shell companies Mr. Barbarosh was valuing were actually managed by Mr.
Isaacson (suggesting that he knew their true value, or rather lack thereof), and had
been purchased by the Lancer Fund with Mr. Isaacson’s help. Finally, Mr.
Isaacson testified on his own behalf, and the jury was “permitted to reject that
testimony, as we must assume it did, and consider that testimony as substantive
evidence of the defendant’s guilt.” United States v. Jiminez, 564 F.3d 1280, 1285
(11th Cir. 2009) (quotation marks and emphasis omitted). This evidence supports
the inference that Mr. Isaacson was guilty, and his evidence arguably suggesting
otherwise does not undermine it to the extent necessary for us to upset the jury’s
verdict.
9
The other evidence Mr. Isaacson points to as undermining the government’s case makes no
difference at all. He challenges the credibility of one government witness, again without
pointing to any facts that would make the testimony incredible as a matter of law. He also
attacks the credibility of a government agent. But this agent did not even testify at Mr.
Isaacson’s trial, so it is not clear to us how that impacts his conviction.
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VI. The Sentence
We next consider Mr. Isaacson’s argument that the government did not carry
its burden to attribute Morgan Stanley’s losses to him for purposes of the loss
amount enhancement and the restitution order. Based upon the findings of the
District Court, the government’s evidence did not adequately tie Morgan Stanley’s
investment to the scope of Mr. Isaacson’s participation in the conspiracy. Thus,
we vacate his sentence and remand with instructions.10
In his objections to the PSR and at sentencing, Mr. Isaacson asserted that the
government could not adequately attribute Morgan Stanley’s $15.625 million
investment to him. “When the government seeks to apply an enhancement under
the Sentencing Guidelines over a defendant’s factual objection, it has the burden of
introducing sufficient and reliable evidence to prove the necessary facts by a
preponderance of the evidence.” United States v. Washington, 714 F.3d 1358,
1361 (11th Cir. 2013) (quotation marks omitted). “We review de novo the
application of the sentencing guidelines and findings of fact for clear error.”
United States v. Louis,
559 F.3d 1220, 1224 (11th Cir. 2009).
The District Court “may hold participants in a conspiracy responsible for the
losses resulting from the reasonably foreseeable acts of co-conspirators in
10
Because we resolve this argument in Mr. Isaacson’s favor, we need not consider his alternative
argument that the sentence is unreasonable because both the prison sentence and restitution
amounts were far greater than what any of his more culpable co-defendants received.
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furtherance of the conspiracy.” United States v. Hunter, 323 F.3d 1314, 1319
(11th Cir. 2003). But “[t]he limits of sentencing accountability are not coextensive
with the scope of criminal liability.”
Id. For sentencing purposes, a defendant is
responsible for the conduct of his co-conspirators only if that conduct was “in
furtherance of the jointly undertaken criminal activity” and “reasonably
foreseeable in connection with that criminal activity.” USSG § 1B1.3, comment.
(n.2). The Guidelines have established a two-pronged test which District Courts
must apply at sentencing before they can attribute losses caused by a co-
conspirator’s conduct to a defendant. First, the District Court must “make
individualized findings concerning the scope of criminal activity undertaken by a
particular defendant.”
Hunter, 323 F.3d at 1319 (quotation mark omitted); see also
USSG § 1B1.3, comment. (n.2) (“In order to determine the defendant’s
accountability for the conduct of others . . . the court must first determine the scope
of the criminal activity the particular defendant agreed to jointly undertake (i.e., the
scope of the specific conduct and objectives embraced by the defendant’s
agreement).”). “[T]he fact that the defendant knows about the larger operation,
and has agreed to perform a particular act, does not amount to acquiescence in the
acts of the criminal enterprise as a whole.”
Hunter, 323 F.3d at 1320.
Once the District Court determines the precise scope of the defendant’s
agreement, the Court must then consider whether the conduct of his co-
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conspirators was “in furtherance of, and reasonably foreseeable in connection with,
the criminal activity jointly undertaken by the defendant.” USSG § 1B1.3,
comment. (n.2). Said another way, the defendant’s sentence can only be enhanced
by those reasonably foreseeable losses caused by co-conspirators acting in
furtherance of the part of the conspiracy in which the defendant agreed to
participate. See Hunter, 323 F.3d at 1319–20; see also USSG § 2B1.1, comment.
(n.3(A)(i)–(ii)) (defining loss amount as the greater of the actual losses “that
resulted from the offense” or the “pecuniary harm that was intended to result from
the offense”).
Here, the government has not established that Morgan Stanley’s losses were
the result of either Mr. Isaacson’s or his co-conspirators’ conduct in furtherance of
the part of the conspiracy in which he agreed to participate. The District Court’s
“finding with regards to the scope of criminal activity that was jointly undertaken
by Mr. Isaacson” was this: “Mr. Isaacson knowingly participated in a scheme to
produce or create inflated valuations for what I will call the shell companies which
Lancer had in its portfolio. . . . The purpose of this aspect of the conspiracy was to
help Lancer deal with questions being asked by auditors and administrators of the
Lancer Funds . . . .” Specifically, then, the District Court concluded that Mr.
Isaacson agreed to jointly undertake the criminal activity of defrauding the
auditors, not the investors.
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As a result, to attribute Morgan Stanley’s losses to Mr. Isaacson, the
government was required to show that its investment was the result of acts by Mr.
Isaacson or his co-conspirators taken to defraud the auditors. In assessing the link
between the actions taken to further that subset of the criminal enterprise and
Morgan Stanley’s investment, we “must not speculate concerning the existence of
a fact which would permit a more severe sentence under the guidelines.” United
States v. Sepulveda, 115 F.3d 882, 890 (11th Cir. 1997) (quotation marks omitted).
A close look at the conspiracy to defraud the auditors and Morgan Stanley’s
investment reveals that far too much speculation is necessary to attribute that
investment loss to the conspiracy to defraud the auditors.
Morgan Stanley never saw the valuations Mr. Isaacson helped Mr.
Barbarosh to prepare. And, as the District Court noted, Morgan Stanley knew the
auditors had not signed off on the Lancer Fund’s financial statements for 2001, the
year for which the fraudulent valuations were provided. But Morgan Stanley
invested anyway. That Morgan Stanley invested knowing that the audit reports
were delayed, suggesting there might be a problem, strongly supports the inference
that Morgan Stanley made its investment decision entirely independent of any
audit reports that would or should have been completed after Mr. Isaacson agreed
to join the conspiracy. This inference is further supported by the fact that Morgan
Stanley’s June 28, 2002 investment was the last in a series of several investments
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Morgan Stanley made, dating back to October 2001, after doing its own due
diligence. These facts preclude the government from showing that Morgan
Stanley’s investment “resulted from,” USSG § 2B1.1, comment. (n.3(A)(i)), the
conspiracy to defraud the auditors. In the words of the District Court, “Morgan
Stanley was going to make this investment, and had made its own internal decision
that despite significant risk factors, it was going to invest, because it thought it was
a good deal, and it was willing to overlook certain red flags, like the audited
financial statements for 2001 being late.”
To be sure, the conspiracy to defraud the auditors delayed and possibly
prevented the auditors’ discovery of the fraud. In this way, the government argues,
the conspiracy to defraud the auditors caused the investment because “Morgan
Stanley almost certainly would have learned of Lancer’s fraud if that fraud had
been discovered and publicly reported by Lancer’s auditors.” But this hypothetical
causal chain requires inference upon inference for which there is not sufficient
support in the record. See Washington, 714 F.3d at 1361. Would the auditors have
actually discovered the broader conspiracy to defraud the investors if not for the
conspiracy to defraud the auditors? Would the auditors have made that
information public? If the auditors would have unearthed the conspiracy and
released that information to the public, would they have done so in time to prevent
Morgan Stanley’s investment?
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The record does not support an affirmative answer to this last question. The
fraudulent valuation reports Mr. Barbarosh produced were dated May 3, May 23,
and June 7, 2002, and Morgan Stanley made its investment on June 28, 2002. The
government acknowledged at Mr. Isaacson’s sentencing that there was no evidence
about the precise date on which the valuation reports were provided to the auditors.
Given that the final valuation report is dated June 7 and Morgan Stanley invested
on June 28, we reject the government’s argument that we should infer, without
more information, that without those reports, the auditors would have discovered
the fraud in time to save Morgan Stanley from making this bad investment
decision.
To the contrary, the evidence strongly suggests that Morgan Stanley was set
on making the June 2002 investment, and does not support the inference that
absent the specific conspiracy Mr. Isaacson joined, the auditors would have
discovered the fraud before Morgan Stanley invested. To say that Morgan
Stanley’s investment resulted from the conspiracy to defraud the auditors would
require a number of inferential leaps and assumptions not supported by the record.
See Sepulveda, 115 F.3d at 890–91. Therefore, we conclude that the link between
the conspiracy to defraud the auditors and Morgan Stanley’s investment is too
speculative to say the latter “resulted from” the former, as the Guidelines require.
USSG § 2B1.1, comment. (n.3(A)(i)–(ii));
Sepulveda, 115 F.3d at 890–91. The
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District Court clearly erred in concluding otherwise and Mr. Isaacson’s sentence
should not have been enhanced based on Morgan Stanley’s losses.
The same problem plagues the District Court’s restitution order. This Court
reviews the legality of a restitution order de novo, and factual findings regarding
the specific amount of restitution for clear error. United States v. Huff, 609 F.3d
1240, 1247 (11th Cir. 2010). The Mandatory Victims Restitution Act requires a
District Court to order restitution for any person who is “directly and proximately
harmed as a result of” a defendant’s participation in a conspiracy. See 18 U.S.C.
§ 3663A(a)(2). Because we find that the government did not carry its burden to
show that Morgan Stanley’s investment was the result of the conspiracy in which
Mr. Isaacson participated, he cannot be ordered to pay restitution based on that
investment. Cf. United States v. Dickerson,
370 F.3d 1330, 1341 (11th Cir. 2004)
(“[A] criminal defendant cannot be compelled to pay restitution for conduct
committed outside of the scheme, conspiracy, or pattern of criminal behavior
underlying the offense of conviction.”).
Mr. Isaacson’s sentence is vacated and we remand this case for his
resentencing without the loss amount enhancement or the $8 million restitution
order. When the District Court resentences Mr. Isaacson, it should resolve all of
his remaining sentencing objections not already addressed. Because all of the
objections Mr. Isaacson raised were before the District Court at the original
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sentencing, and because the Court stood ready to accept all relevant evidence from
both parties going to each of those objections, we remand with instructions that the
District Court is limited to the record the parties previously made as to those
objections. See Washington, 714 F.3d at 1362 (describing situations in which this
Court will not remand for further evidentiary hearings after a defendant’s
successful appeal). The same evidentiary limitation applies to the District Court’s
reconsideration of the appropriate restitution amount. The government has already
had an opportunity to litigate the restitution question, and did not appeal the
District Court’s denial of the government’s request to present further evidence on
restitution.
VII. The Rule 33 Motion
Mr. Isaacson’s second appeal challenges the District Court’s denial of his
Federal Rule of Criminal Procedure 33 motion for a new trial and an evidentiary
hearing based on the prosecutor’s failure to disclose that his wife was a lawyer at
the law firm representing Mr. Barbarosh.
We review a District Court’s denial of a Rule 33 motion for a new trial and
an evidentiary hearing for abuse of discretion. United States v. Thompson, 422
F.3d 1285, 1294–95 (11th Cir. 2005); United States v. Schlei,
122 F.3d 944, 990
(11th Cir. 1997). Mr. Isaacson presents two reasons the District Court should have
granted the motion: (1) because the prosecutor’s recusal was required by statute,
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see 28 U.S.C. § 528 (providing that a prosecutor is not supposed to participate in a
prosecution “if such participation may result in a personal, financial, or political
conflict of interest, or the appearance thereof”); or alternatively (2) because the
alleged conflict should have been disclosed pursuant to Brady v. Maryland, 373
U.S. 83,
83 S. Ct. 1194 (1963).
Both of these claims miss the mark. First, the prosecutor was not required to
recuse himself under § 528. The prosecutor’s wife had no involvement in Mr.
Barbarosh’s defense and did not even work in the firm’s criminal defense practice
group. Beyond that, she was only employed as an at-will, part-time attorney and
was paid an hourly wage. See United States ex rel. Weinberger v. Equifax, Inc.,
557 F.2d 456, 463–64 (5th Cir. 1977) (holding that a District Court judge was not
required to recuse himself 11 where the judge’s son was an attorney with the firm
representing one of the parties because the son’s “salary interest as an associate is
too remote” to give rise to any arguable conflict); 12 see also United States v.
Reagan,
725 F.3d 471, 488 (5th Cir. 2013) (noting that the “mere fact that the
prosecutor’s husband worked at a firm that represented one of the witnesses did not
create a conflict, as [the defendant] did not show that the prosecutor or her husband
11
It bears mention that a stronger showing of a conflict is generally required for prosecutorial
recusal than judicial recusal. Young v. United States ex rel. Vuitton et Fils S.A.,
481 U.S. 787,
811,
107 S. Ct. 2124, 2139 (1987) (plurality).
12
In Bonner v. City of Prichard,
661 F.2d 1206 (11th Cir. 1981) (en banc), we adopted as
binding precedent all decisions of the former Fifth Circuit handed down before October 1, 1981.
Id. at 1209.
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had a financial stake in the outcome of [the defendant’s] trial creating a conflict or
requiring her disqualification,” even though the prosecutor’s husband was a partner
rather than an associate). Because Mr. Isaacson cannot show that the prosecutor or
his wife had any financial interest in a good outcome for Mr. Barbarosh, there is no
conflict of interest that would have required the prosecutor’s recusal. The District
Court was right to deny Mr. Isaacson’s Rule 33 motion based on the statutory
recusal provision.
To the extent Mr. Isaacson raises a Brady claim that disclosure of the
conflict was required even if recusal was not, the challenge is still without merit.
While there may be some cases where an arguable prosecutorial conflict must be
disclosed even if recusal is not statutorily required, this is not one of them. To
prevail on a Rule 33 motion based on an alleged Brady violation, a defendant must
show that there is a reasonable probability the outcome would have been different
had the evidence been disclosed. See United States v. Vallejo, 297 F.3d 1154,
1164 (11th Cir. 2002) (noting that defendants must prove four things, including
prejudice, before a Rule 33 motion based on a Brady violation will be granted).
Mr. Isaacson has shown no reasonable probability that the outcome would
have been different if his attorney had been able to cross examine Mr. Barbarosh
about the prosecutor’s alleged conflict of interest. There is substantial evidence
implicating Mr. Isaacson in the conspiracy, and his attorney examined Mr.
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Barbarosh about his plea agreement with the government and his incentive to
testify against Mr. Isaacson. We agree with the District Court’s finding that this
purported prosecutorial conflict would not have given Mr. Barbarosh any
additional incentive to lie on the stand. There is therefore no reasonable
probability that the outcome would have been different had the alleged conflict
been disclosed.
VIII. Conclusion
We affirm Mr. Isaacson’s conviction as well as the denial of his Rule 33
motion. However, we find that the District Court erred when it enhanced Mr.
Isaacson’s sentence and ordered restitution based on the losses from Morgan
Stanley’s investment. We therefore vacate the sentence and remand for
resentencing based on the record from the first sentencing.
AFFIRMED IN PART; VACATED AND REMANDED IN PART.
34
