BENAVIDES, Circuit Judge:
Defendants-Appellants James Patrick Phillips, Wesley C. Walton, and James Brooks (collectively, the "Defendants-Appellants") appeal their conviction of and sentencing for false reporting of natural gas trades in violation of the Commodities Exchange Act and the federal wire fraud statute. We AFFIRM.
The Defendants-Appellants are former employees of El Paso Merchant Energy Corporation ("EPME"), a subsidiary of the El Paso Corporation ("El Paso"). The government alleges that the Defendants-Appellants violated the Commodities Exchange
Some background on the natural gas industry is necessary for understanding this case. Natural gas is transported throughout North America via a network of pipelines. The gas transportation network is centered around "hubs," which are geographical locations where major pipeline systems interlink. These hubs act as separate markets, at which supply and demand dictate prices that may differ between the hubs.
Gas trades are divided into different types. Most basically, physical gas is traded, whereby one company agrees to purchase a quantity of gas to be physically delivered to a particular location. In addition to the sale of physical gas, financial trades are made based on gas prices. One particular financial trade, a gas contract for future delivery, is traded on the New York Mercantile Exchange ("NYMEX"). NYMEX contracts are based on the price of gas trading at Henry Hub, Louisiana. Other financial trades, termed "swaps," are transactions where two traders agree to buy a volume of gas from each other at the same time, but at different prices. In one common format, called a "basis" trade, one party agrees to pay a first-of-the-month index price and the counterparty agrees to pay based on the last day NYMEX settle. Another common financial transaction is an exchange for physical futures ("EFP"), which is a swap with one end priced off the NYMEX futures market and the other prices off an index plus or minus a differential.
The market index prices for physical gas are most prominently published in two privately owned newsletters: Inside FERC Gas Market Report ("Inside FERC") and Natural Gas Intelligence ("NGI"). Both of these publications publish the natural gas price marketing indicators at the major pipeline hubs and market centers in the United States, and it is undisputed that both publications are highly influential to market price for physical gas. The indexes also are used to determine royalties and public gas contracts, among other things. The publications gather pricing information about the various markets and pipeline hubs by requesting data about physical gas transactions from natural gas traders. After receiving data from the gas traders, and taking a variety of other factors into account, the publications release indexes that purport to represent the price of natural gas at different delivery points. In requesting data, Inside FERC and NGI requested that traders report fixed-price, baseload deals negotiated during bidweek, and it also instructed that basis or EFP trades not be reported.
The Defendants-Appellants were all employees at EPME. EPME traded in both physical and financial transactions of the sort previously mentioned. In 2000, Defendant-Appellant Brooks was EPME's Senior Vice President for Risk Management, and he was responsible for overseeing
From summer 2002 to fall 2002, El Paso received inquires from various federal agencies and a United States Attorney's Office grand jury subpoena seeking information on the reports EPME sent to the trade publications.
Starting in March 2003, an Assistant U.S. Attorney began a course of correspondence with El Paso's legal counsel about El Paso's payment of legal fees for former employees. El Paso informed the Assistant U.S. Attorney about the company by-laws, according to which EPME was required to indemnify any employee for legal fees if the employee was found not to have engaged in wrongdoing, but EPME was left with discretion about whether to advance payment of legal fees prior to such determination.
Defendant-Appellant Phillips, who had not been discussed in the correspondence, subsequently requested indemnification.
On September 25, 2006, the government filed a second superseding indictment, charging the Defendants-Appellants with forty-nine counts: specifically, twenty-four counts of false reporting in violation of the CEA, 7 U.S.C. § 13(a)(2), twenty-four counts of wire fraud in violation of 18 U.S.C. § 1343, and one count of conspiracy to commit false reporting and wire fraud in violation of 18 U.S.C. § 371. The government alleged that the Defendants-Appellants were involved in a conspiracy, lasting from about April 2000 through May 2002, whereby the Defendants-Appellants reported false information related to natural gas prices to Inside FERC and NGI to manipulate the index prices reported in those magazines. Specifically, the government alleged that Defendant-Appellant Brooks would direct the physical gas traders at EPME to report false data to the publications, such as trades that did not occur, false prices, or false gas volumes, in a manner that would benefit EPME's financial positions. Defendant-Appellant Walton, a basis trader on the Texas and Northeast Desks, would allegedly tell the physical traders his financial positions for the upcoming month, such as whether he wanted the index price of gas to increase or decrease in certain areas, so the physical traders could report data manipulating the published indexes in his favor. The second superseding indictment also alleged that Defendant-Appellant Phillips and the other physical gas traders sent fictitious information and reports to Inside FERC and NGI. The government alleged that twenty-four misleading reports were transmitted to these publications, either personally by the Defendants-Appellants or based on their instructions.
The trial lasted from December 4, 2007 to February 7, 2008. During the trial, the government submitted over 1,000 exhibits, including the bidweek surveys sent to Inside FERC and NGI, internal worksheet versions of those surveys, internal EPME emails, EPME trade tickets recording physical and basis deals, summaries of basis positions, and hundreds of taped telephone calls. During trial, the jury heard testimony from fourteen government witnesses, including Matthew O'Loughlin, an expert, and five defense witnesses, including Defendant-Appellant Brooks.
The government's two primary witnesses were physical traders Dallas Dean and Sharon O'Toole. Dean was a physical trader on the Northeast Desk and O'Toole was a physical trader on the Texas Desk. Both testified about the conspiracy and stated that Defendant-Appellant Brooks instructed them to submit false data to Inside FERC based on information given to them by Defendant-Appellant Walton. O'Toole also testified about Defendant-Appellant Phillips's involvement in the conspiracy. The government also admitted a
In one particularly important email chain, various EPME employees, including Brooks, Phillips, and Walton, discussed the reports sent to the publications. Starting this chain, Brooks emailed the physical and financial traders on October 23, 2000, writing:
In response, various traders, including Walton and Phillips, chose the first option. Several other traders discussed the options, emailing with Brooks and discussing how Inside FERC had a standardized format for reporting data, but that the "integrity of the data ... is not verified." Another trader replied that they should "avoid discussing this is on e-mail" due to ongoing investigations, and O'Toole replied, "GOOD point!"
Also testifying for the government was Ronald Clay Sanders, an employee at EPME, who worked as the manager of the risk operations group during the time of the alleged conspiracy. Sanders testified whether the trades reported to Inside FERC or NGI by the physical traders were real and whether they matched any trades in the EPME electronic database. Overall, Sanders testified that only 3.6% of the 6,213 trades reported to Inside FERC and NGI during the course of the conspiracy matched actual trades, and that if the trades reported by the West Desk are excluded — which allegedly stopped participating in the conspiracy in fall 2002 — only 1.9% of the 5,687 trades match actual trades. Finally, the government presented O'Loughlin, an expert who testified about the effect of EPME's false reports on the published indexes at Inside FERC and NGI.
The primary defense witness was Defendant-Appellant Brooks. In part, Brooks testified about the incriminating October 2000 email chain where the traders discuss reporting based on "book bias." Brooks testified that "book bias" did not mean that the physical traders would submit numbers favoring the basis traders' positions; rather, Brooks stated that the term meant that EPME would report data to the publications based on their perception of where gas was actually trading.
A potential defense witness, Don Guilbault, invoked his Fifth Amendment privilege against self-incrimination on the day he was scheduled to testify. Guilbault was a physical trader at EPME and he had admitted to submitting false reports to Inside FERC and NGI. According to the Defendants-Appellants, however, Guilbault would have testified that Walton did not
After closing arguments, the jury deliberated for three days. The jury sent several notes during deliberations, one of which asked a question about the phrase "ignorance of the law is no excuse." Ultimately, the jury found: all Defendants-Appellants guilty of the conspiracy count; Phillips guilty of false reporting and wire fraud on counts 5, 9-10, 14, 19-21, 23-25, 29, 33-34, 38, 43-45, 47-49, and not guilty on all other charged counts; Walton guilty of false reporting and wire fraud on counts 3-5, 9-10, 19-24, 27-29, 33-34, 43-48, and not guilty on all other charged counts; and Brooks guilty on counts 2-5, 8-29, 32-49, and not guilty on all other charged counts.
On December 17, 2009, the district court sentenced the Defendants-Appellants. The district court calculated, for Phillips and Walton, that the proper offense level was thirty-three (with criminal history category 1), with a recommended sentencing range of 135 to 168 months. For Brooks, the district court calculated that the offense level was thirty-five (with a criminal history category 1), with a recommended sentencing range of 168 to 210 months. The district court sentenced Phillips and Walton to 135 months of imprisonment and sentenced Brooks to 168 months of imprisonment.
The Defendants-Appellants filed a timely notice of appeal, and they now assert ten separate grounds for error. They argue that the indictment must be dismissed, and that their convictions and sentences must also be reversed.
The Defendants-Appellants first argue that the government pressured EPME to cut off its payment of legal fees for their attorneys, violating their Fifth and Sixth Amendment rights, and consequently, requiring dismissal of the indictment against them, relying on 2003 correspondence between the Assistant U.S. Attorney and El Paso's legal counsel. The district court found no such pressure by the government, and the Defendants-Appellants do not show clear error in that determination.
We review a district court's denial of a motion to dismiss an indictment de novo. United States v. McNealy, 625 F.3d 858, 868 (5th Cir.2010). We review the district court's underlying factual findings for clear error. Id. "Under the clear error standard, we defer to the findings of the district court unless we are left with a definite and firm conviction that a mistake has been committed." United States v. Avants, 367 F.3d 433, 441 (5th Cir.2004) (citation and internal quotation omitted).
The record creates no "firm conviction" that the district court erred in finding the government did not coerce El Paso into deciding not to advance the Defendants-Appellants' legal fees. While the correspondence shows El Paso possessed an intense desire to be seen as cooperative by the government, the government never demanded or suggested to El Paso that it cease paying the legal fees of the Defendants-Appellants. Indeed, rather than create a "firm conviction" that El Paso was coerced into not paying the Defendants-Appellants' attorney fees, the correspondence shows El Paso, through EPME, exercised
Nor do Defendants-Appellants fair better in relying on the 2003 Justice Department Memorandum, "Principles of Federal Prosecution of Business Organizations," also known as the "Thompson Memorandum."
This case is distinguishable from the facts that the Second Circuit confronted in United States v. Stein, 541 F.3d 130 (2d Cir.2008). There, the district court found that the government had "forced" KPMG to cease paying legal fees on behalf of the defendants, the payment of which had been KPMG's long-standing policy, based on threats from the government and the government's involvement in crafting internal KPMG memos dissuading employees from obtaining counsel. Id. at 147-50. The district court's factual findings bound the Second Circuit, and on such findings, the Second Circuit held KPMG's actions were state actions that violated the defendants' right to counsel of their choice. Id.
Here, as noted above, no such factual findings were made, and reasonably so. Whereas in Stein, where the government specifically threatened to take into account KPMG's payment of legal fees, referring to the Thompson Memorandum, the correspondence here does not refer to that memorandum and it includes no threat to indict El Paso if it continued to pay fees. Moreover, the government did not meddle in El Paso's internal discussion with employees in an attempt to dissuade the retention of counsel. Lastly, whereas KPMG's long-standing policy of paying legal fees demonstrated that the fees would have been paid but for the government's actions, EPME's policy was discretionary, and had been independently exercised to not advance legal fees to Brooks.
Accordingly, the Defendants-Appellants fail to show clear error in the district court's factual findings, and under those facts, we find that denial of the motion to dismiss the indictment was proper.
The Defendants-Appellants raise a number of challenges to the applicability and constitutionality of the CEA. First, they argue that 7 U.S.C. § 13(a)(2)'s reference to "false ... reports" does not cover the false reports they sent to industry newsletters. Second, they argue that trades of physical natural gas are exempted from the CEA and/or do not meet the Act's definition of "commodity." Third, the Defendants-Appellants argue that various terms in § 13(a)(2) are vague, and thus the CEA is unconstitutionally vague as applied to them. Fourth, they argue that the
The Defendants-Appellants first argue that their communications with Inside FERC and NGI do not qualify as "reports" under § 13(a)(2). They state that other portions of the CEA, as well as the CFTC's regulations promulgated thereunder, distinguish between "statements" and "reports," and generally use "report" to refer to "a formal record or document the Commission requires regulated futures professionals or traders to file, maintain or provide to the Commission or costumers."
The CEA states that it shall be unlawful for:
7 U.S.C. § 13(a)(2). The term "reports" is not defined in the CEA or CFTC regulations. See 7 U.S.C. § 1a; 17 C.F.R. § 1.3. Neither the Supreme Court nor any circuit court has considered the definition.
"In construing the United States Code our task must begin with the words provided by Congress and the plain meaning of those words." United States v. Valencia, 394 F.3d 352, 355 (5th Cir.2004). Thus, we begin with the plain meaning of "report[]," which the dictionary defines as any statement of fact, or at least a detailed statement of fact. See Merriam-Webster, report, available at http://www.merriam-webster.com/dictionary/report (defining report as "a usually detailed account or statement"); Oxford English Dictionary, report, available at http://www.oed.com/ search?searchType=dictionary&q=report (defining report as "[i]nformation provided or conveyed, and related senses," "[a]n account of a situation, event, etc., brought by one person to another ..., a notification of something observed," "[a] descriptive account or statement"); see also CBC, Inc. v. Bd. of Governors of Federal Reserve Sys., 855 F.2d 688, 690-91 (10th Cir. 1988) (applying dictionary definition of "report" to interpret word in Bank Holding Act).
The Defendants-Appellants argue that "reports," when used in the CEA, refers only to formal reports required under the statute to be submitted by traders to the
Indeed, reading § 13(a)(2) in the manner suggested by Defendants-Appellants would render other sections of the CEA superfluous. The next two subsections of the CEA make it unlawful for "[a]ny person knowingly to make ... any statement in any application, report, or document required to be filed under this chapter ... which statement was false or misleading with respect to a material fact," and for "[a]ny person willfully to falsify ... a material fact, make any false ... statements or representations ... to a registered entity, board of trade, of futures associations...." 7 U.S.C. § 13(a)(3), (4) (emphasis added). Similarly, 7 U.S.C. § 6b(a)(2) renders it unlawful for "any person, in or in connection with any order to make ... any contract of sale of any commodity for future delivery ..., (B) willfully to make or cause to be made to the other person any false report or statement or willfully to enter or cause to be entered for the other person any false record." If § 13(a)(2) was intended to cover only false reports sent to the CFTC or to customers, these other sections would be superfluous.
Moreover, if § 13(a)(2) concerned only false reports submitted to the CFTC, or false reports submitted from traders to customers, there would be no need to limit the provision to communications "in interstate commerce," and that "affect or tend to affect the price of any commodity." See 7 U.S.C. § 13(a)(2). These jurisdictional "hooks" would not be needed for Congress to regulate false communications to a government agency, or false communications by federally registered traders. See M'Culloch v. Maryland, 17 U.S. (4 Wheat.) 316, 417, 4 L.Ed. 579 (1819). The fact is apparent when one looks at the CEA's provisions that specifically deal with false reports to the CEA or customers. Those sections are not limited to communications in interstate commerce or to those that affect commodity prices. Instead, they render all false statements to the CFTC or customers by registered traders unlawful. See 7 U.S.C. §§ 6b(a)(2)(B), 13(a)(3)(4).
Further, the language in § 13(a)(2) indicates that covered "reports" include more than formal communications to the CFTC or customers. As the Northern District of Georgia pointed out, § 13(a)(2) covers reports communicated "through the mails or interstate commerce by telegraph, telephone, wireless or other means of communication."
Finally, the CFTC has consistently interpreted § 13(a)(2) to apply to trade reports sent to Insider FERC and/or NGI, like those sent by the Defendants-Appellants. Although not promulgated in notice-and-comment rulemaking, the CFTC has sued various defendants for behavior identical or similar to that at issue here. See CFTC v. Dizona, 594 F.3d 408, 411-13 (5th Cir.2010) (alleging defendants sent false reports to Inside FERC and NGI; affirming district court's refusal to overturn jury verdict on false reporting because no evidence that reports were false); CFTC v. Reed, 481 F.Supp.2d 1190, 1193 (D.Colo.2007) (alleging defendants sent false trade reports to "industry reporting firm"); Atha, 420 F.Supp.2d at 1377-78 (alleging defendants sent false reports to Insider FERC, NGI, and Gas Daily). The CFTC's consistent interpretation is afforded at least some deference. See generally Skidmore v. Swift & Co., 323 U.S. 134, 65 S.Ct. 161, 89 L.Ed. 124 (1944).
Accordingly, we find that the Defendant-Appellants' communications with Inside FERC and NGI qualified as "reports" under 7 U.S.C. § 13(a)(2).
The Defendants-Appellants next argue that the CEA does not apply to their conduct, making two arguments. First, they argue that natural gas is an exempt commodity under the CEA, and thus, the types of contracts they allegedly falsely reported — natural gas contracts — are exempt. Second, they argue that because the CEA only regulates natural gas futures contracts, which are traded on NYMEX, any false reporting related to index prices at hubs other than Henry Hub are not covered by the CEA. These arguments will be considered in turn.
In 1993, the CFTC issued a final rule which "exempt[ed] from all provisions of the [CEA], [except certain provisions to the extent they prohibit manipulation] ... [c]ontracts for the purchase and sale of ... natural gas, [and] natural gas liquids." See 58 Fed.Reg. 21,286, 21,294 (1993). Thereafter, 7 U.S.C. § 2(g)-(h) was amended in 2000, as part of the Commodity Futures Modernization Act, to exclude all trades between individual qualified participants that are not "executed or traded on" or "entered into on" a "trading facility," which, defendants argue, covers the physical natural gas trades. The Defendants-Appellants contend that because natural gas is exempted under both the 1993 CFTC rule and the 2000 amendment to the CEA, their false reporting practices are also exempted from the CEA's coverage.
The Defendants-Appellants' argument, however, has been uniformly rejected by the courts that have considered it — this Court included. In United States v. Futch, an unpublished decision, this Court found that the various exemptions only cover actual contracts for natural gas, and do not cover false reports about non-existent contracts. See 278 Fed.Appx. 387, 392 (5th Cir.2008). In reaching this holding, this Court stated that "§ 13(a)(2)'s false reporting offense ... extends to `any commodity in interstate commerce' and is not limited to futures contracts regulated by the CFTC ...[;] `false reporting of market information concerning natural gas and attempted manipulation of natural gas price indices does not implicate an agreement, contract or transaction' and thus does not come under the exceptions in 7
This reading has been uniformly adopted by courts, and the Defendants-Appellants do not cite any contrary case law to support their argument. See, e.g., Reed, 481 F.Supp.2d at 1197-98 (holding that false reporting not exempted); Atha, 420 F.Supp.2d at 1379-80 (same); CFTC v. Bradley, 408 F.Supp.2d 1214, 1218-19 (N.D.Okla.2005) (same); United States v. Valencia, No. Civ. A. H-03-024, 2003 WL 23174749, at *10 (S.D.Tex. Aug. 25, 2003) (same), rev'd on other grounds, 394 F.3d 352 (5th Cir.2004); see also CFTC v. Johnson, 408 F.Supp.2d 259, 266-67 (S.D.Tex. 2005) (not expressly addressing issue but finding that CEA covers nearly identical false reporting practices).
The Defendants-Appellants next contend that the false reports they submitted did not concern a "commodity" subject to the CEA. They argue that only natural gas traded at Henry Hub is a commodity under the CEA because only natural gas traded at Henry Hub underlies the natural gas futures contracts traded on NYMEX. Consequently, because the government proved only that their false reports affected or could have affected the price of natural gas generally, and not at Henry Hub, the Defendants-Appellants argue their convictions must be vacated. We do not agree.
The CEA defines "commodity" as "wheat, cotton, rice, corn, oats, barley, rye..., and all other goods and articles, except onions ..., and all services, rights, and interests ... in which contracts for future delivery are presently or in the future dealt with." See 7 U.S.C. § 1a(4). Natural gas is plainly a "good" or "article." The questions thus turns on whether it is a good "in which contracts for future delivery are presently or in the future dealt with."
As mentioned above, futures contracts for natural gas are traded on NYMEX, and those futures are derivative of natural gas traded at Henry Hub. Nonetheless, the record shows that natural gas may be
Although, as discussed above, the Defendants-Appellants conduct did not fall within the regulatory exemption, the existence of that exemption bolsters our reading of the definition of "commodity." The CFTC exempted from the CEA's coverage "[c]ontracts for the purchase or sale of ... natural gas." See 58 Fed.Reg. at 21,294. Such an exemption would be unnecessary if natural gas was not a commodity under the act.
Case law supports such a reading. Although no court has squarely confronted the question presented by the Defendants-Appellants, neither has any court suggested that natural gas at hubs other than Henry Hub is outside the purview of the CEA. See Futch, 278 Fed.Appx. at 390 (stating "natural gas is a commodity under the Commodity Exchange Act"); Valencia, 394 F.3d at 353 (considering allegations defendant manipulated natural gas market, by reporting false trades, in violation of § 13(a)(2)); United States v. Radley, 659 F.Supp.2d 803, 806 (S.D.Tex.2009) (stating "natural gas" was "the commodity at issue in the case"); Reed, 481 F.Supp.2d at 1196 (finding allegations "Defendant attempted to manipulate the price of natural gas, a commodity that travels in interstate commerce" covered by CEA); Atha, 420 F.Supp.2d at 1377-78 (stating "[n]atural gas is a commodity"); Bradley, 408 F.Supp.2d at 1220 ("It is undisputed that natural gas constitutes a `commodity' under the CEA."); Johnson, 408 F.Supp.2d at 264-65 (finding allegations defendants falsely reported natural gas trades stated a claim under § 13(a)(2)).
Hershey v. Energy Transfer Partners, L.P., 610 F.3d 239 (5th Cir.2010), does not contradict this reading. In that case, the Court considered whether private plaintiffs had a cause of action based on allegations that the defendants were manipulating the price of natural gas at hubs other than Henry Hub. Id. at 243-49. The private plaintiffs' standing to sue was premised on their holding NYMEX futures contracts. Id. at 240. The CEA, however, provides a right of action for holders of a futures contract for manipulation of that contract or "the price of the commodity underlying such contract." See 7 U.S.C. § 25(a)(1)(D). Consequently, as the plaintiffs had not alleged manipulation of the Henry Hub natural gas price, which price underlay their security, they had no cause of action against manipulation of the price
Accordingly, we find that natural gas, whether at Henry Hub or at some other location, is a "commodity" within the meaning of the CEA.
The Defendants-Appellants next argue § 13(a)(2) is unconstitutionally vague because it fails to give fair notice that the CEA, an act whose primary purpose is to regulate futures and options, covers false reporting of physical trades. In particular, they argue that terms "report," "false or misleading," "market information," "conditions that tend to affect the price of any commodity in interstate commerce," and "price" are all vague.
"It is a basic principal of due process that an enactment is void for vagueness if its prohibitions are not clearly defined." Grayned v. City of Rockford, 408 U.S. 104, 108, 92 S.Ct. 2294, 33 L.Ed.2d 222 (1972). "[T]he void-for-vagueness doctrine requires that a penal statute define the criminal offense with sufficient definiteness that ordinary people can understand what conduct is prohibited and in a manner that does not encourage arbitrary and discriminatory enforcement." Kolender v. Lawson, 461 U.S. 352, 357, 103 S.Ct. 1855, 75 L.Ed.2d 903 (1983). Nonetheless, it is also "well established that vagueness challenges to statutes which do not involve First Amendment freedoms must be examined in light of the facts of the case at hand." United States v. Mazurie, 419 U.S. 544, 550, 95 S.Ct. 710, 42 L.Ed.2d 706 (1975).
Here, the Defendants-Appellants do not argue that their speech is protected by the First Amendment. Indeed, this Circuit has held that "intentional or reckless falsehood, even political falsehood, enjoys no First Amendment protection[.]" Colson v. Grohman, 174 F.3d 498, 507 (5th Cir.1999) (finding first amendment did not protect defamation and libel made with knowledge of or reckless disregard to falsity).
Consequently, the Defendants-Appellants' vagueness challenge must be evaluated in light of the proven conduct. As discussed below, the evidence shows the Defendants-Appellants reported knowingly false trades to Inside FERC and NGI, that they did so with the intent that it affect those publications' reported indexes, and with the intent that it would affect EPME's financial positions, to their personal benefit. Simply put, it is incredulous to believe that a person of average intelligence could not understand the CEA as potentially applying to that type of conduct. See Futch, 278 Fed.Appx. at 393-95 (holding CEA was not vague in application
In particular, "report," as discussed above, clearly covers the Defendants-Appellants' emails and faxes to the publications. Similarly, "false and misleading" has a clear and well defined meaning. "[M]arket information" clearly covers reports of quantity and price of trades. See id. at 393 (holding the term "`market information' is not vague because [defendant's] false statements about time, place, price, and volume of ... natural gas trades clearly qualified as `market information' under almost any definition of the term"). Similarly, the term "price" is also clear. See Merriam-Webster, price, available at http://www.merriam-webster.com/ dictionary/price (defining "price" as "the amount of money given or set as consideration for the sale of a specified thing"). Even if the Defendants-Appellants are correct that there are a number of prices in natural gas trading, each one of the referenced prices is a "price," and thus manipulation of it would create a violation of § 13(a)(2). Finally, the term "affect or tend to affect" clearly covers a situation, such as the Defendants-Appellants', where the false reports served as the basis for the industry publication's price reports. See Futch, 278 Fed.Appx. at 394 (noting "even if the phrase `tends to affect' were found to be vague in some factual contexts, it is sufficiently clear to have put [defendant] on notice that providing false sales data to Inside FERC's monthly reporting index survey violated the law").
Accordingly, the CEA is not unconstitutionally vague as applied to the Defendants-Appellants' conduct.
The Defendants-Appellants also challenge the CEA as being unconstitutionally overbroad. The Defendants-Appellants argue that the CEA, while directed at constitutionally unprotected speech, nevertheless covers constitutionally protected speech because it requires no mens rea proof with regard to the element that the speech "affect or tend to affect" commodity prices.
A statute is overbroad if in "banning unprotected speech," a "substantial amount of protected speech is prohibited or chilled in the process." Ashcroft v. Free Speech Coalition, 535 U.S. 234, 237, 122 S.Ct. 1389, 152 L.Ed.2d 403 (2002). Nevertheless, by its express language, the CEA only covers "knowingly ... false or misleading or knowingly inaccurate" speech. Such speech is not constitutionally protected. See Colson v. Grohman, 174 F.3d 498, 507 (5th Cir.1999). Accordingly, the CEA covers no constitutionally protected speech.
The Defendants-Appellants next argue that the district court's jury instructions were erroneous on several grounds. We review "preserved error in jury instructions under an abuse of discretion standard and ask whether the court's charge, as a whole, is a correct statement of the law and whether it clearly instructs jurors as to the principles of the law applicable to the factual issues confronting them." United States v. Kay, 513 F.3d 432, 446 (5th Cir.2007) (quotation and footnote omitted). Under this standard, district courts "enjoy substantial latitude in formulating a jury charge." United States v. Davis, 609 F.3d 663, 689 (5th Cir.2010); see also United States v. Williams, 610 F.3d 271, 285 (5th Cir.2010). Similarly, the district court is afforded "great discretion in responding to jury questions." United States v. Wilcox, 631 F.3d 740, 752 (5th Cir.2011) (quotation marks omitted). However, when a jury instruction "hinges
First, the Defendants-Appellants argue that the district court incorrectly instructed the jury on the mens rea of conspiracy and conspiracy to commit wire fraud in a response to a jury note. In its jury instructions, based on the Fifth Circuit Pattern Criminal Instructions, the district court instructed that to convict for conspiracy under 18 U.S.C. § 371, the jury must find:
The district court also explained that under the first element the jurors need to "agree that the government proved beyond a reasonable doubt that the defendants conspired to commit false reporting; or, all of you must agree that the government proved beyond a reasonable doubt that the defendants conspired to commit wire fraud." The district court instructed that to convict someone of wire fraud under 18 U.S.C. § 1343,
The district court explained that "`specific intent to defraud' means an intent to specifically deceive or cheat someone."
During its deliberations, the jury sent the district court a note asking:
After a conference with the parties, the district court replied to the note, writing:
The Defendants-Appellants argue that this answer misstates the mens rea required to prove conspiracy and conspiracy to commit wire fraud.
A conviction for conspiracy under Section 371 requires that the government prove: "(1) an agreement between two or more persons to pursue an unlawful objective; (2) the defendant's knowledge of the unlawful objective and voluntary agreement to join the conspiracy; and (3) an overt act by one or more of the members of the conspiracy in furtherance of the objective of the conspiracy." United States v. Coleman, 609 F.3d 699, 704 (5th Cir.2010); see also United States v. Curtis, 635 F.3d 704, 719 n. 53 (5th Cir.2011). Conspiracy actually has two intent elements — intent to further the unlawful purpose and the level of intent required for proving the underlying substantive offense. See 2 Wayne R. LaFave & Austin W. Scott, Jr., Substantive Criminal Law § 12.2(c)(1) (2003); United States v. Alvarez, 610 F.2d 1250, 1255 (5th Cir.1980) ("Conspiracy is, however, more complex because it involves two elements of intent that shade into each other: each party must have intended to enter into the agreement and the schemers must have had a common intent to commit an unlawful act.").
The Defendants-Appellants first seem to argue that proving conspiracy always requires proof the defendant knew his conduct was unlawful, regardless of the mens rea of the underlying substantive offense. This argument is inconsistent, however, with the Supreme Court's opinion in Ingram v. United States, 360 U.S. 672, 79 S.Ct. 1314, 3 L.Ed.2d 1503 (1959). In that decision, the Supreme Court stated that to convict for conspiracy, "[t]here need not, of course, be proof that the conspirators were aware of the criminality of their objective," but rather, there must only be proof of knowledge of the unlawful conduct. Id. at 678. This holding was reaffirmed in United States v. Feola, 420 U.S. 671, 95 S.Ct. 1255, 43 L.Ed.2d 541 (1975). In Feola, the Supreme Court again stated that the government need not prove anything more than the degree of criminal intent necessary for the substantive offense in order to convict a defendant of conspiracy. Id. at 686-87, 95 S.Ct. 1255. Thus, to the extent that the Defendants-Appellants argue that conspiracy always requires proof that the defendant knew his conduct was unlawful, we reject their argument. See United States v. Blair, 54 F.3d 639, 642-43 (10th Cir.1995) (rejecting same argument and stating that since "`one can violate a criminal statute simply by engaging in the forbidden conduct, a conspiracy to commit that offense is nothing more than an agreement to engage in the prohibited conduct'" (quoting Feola, 420 U.S. at 687, 95 S.Ct. 1255)).
To prove wire fraud, the government must prove: (1) a scheme or artifice to defraud; (2) material falsehoods; and (3) the use of interstate wires in furtherance of the scheme. See Curtis, 635 F.3d at 718 n. 49; United States v. McMillan, 600 F.3d 434, 447 n. 24 (5th Cir.2010). Violation of the wire-fraud statute requires the specific intent to defraud, i.e., a "conscious knowing intent to defraud." United States v. Reyes, 239 F.3d 722, 736 (5th Cir.2001). Thus, proving conspiracy to commit wire fraud requires proof that the Defendants-Appellants joined the conspiracy with the specific intent to defraud. See Curtis, 635 F.3d at 719 n. 53. The district court's response to the jury's note accurately describes this intent requirement.
The jury note states that as to the conspiracy statute itself, ignorance of the law is no excuse, because "[t]he government is not required to prove that a defendant knew the purpose of the agreement was in fact unlawful, that is, in violation of a statute, but the government must prove the defendant knew the purpose of the agreement." See Ingram, 360 U.S. at 678, 79 S.Ct. 1314. The note also accurately states that the government must prove that the purpose was in fact unlawful, which requires proof that the Defendants-Appellants acted with the requisite mens rea to commit wire fraud. Coleman, 609 F.3d at 704-06 (analyzing whether elements of target offense also met when determining if conspiracy to commit that offense proven); United States v. Bedford, 536 F.3d 1148, 1155 (10th Cir.2008) (stating government must prove degree of criminal intent necessary to prove underlying crime). Although the district court's response possibly could have spelled out the relationship between conspiracy and the underlying substantive offenses more clearly, it is not an incorrect statement of the law, particularly in light of the rest of the jury charge. See United States v. Chavis, 772 F.2d 100, 108 (5th Cir.1985) ("The jury charge must ... be considered as a whole, in the full context of the trial.").
Next, the Defendants-Appellants argue that the district court's jury instruction on deliberate ignorance impermissibly lowered the mens rea of both offenses. The district used the Pattern Fifth Circuit instruction, and instructed:
Fifth Circuit Pattern Criminal Jury Instructions, § 1.37. The Defendants-Appellants argue that these instructions were incorrect on two grounds: first, that the evidence did not support the instruction; and second, that the instruction was legally incorrect.
On the first argument, a deliberate ignorance instruction is warranted "when a defendant claims a lack of guilty knowledge and the proof at trial supports an inference of deliberate indifference." United States v. Moreno, 185 F.3d 465, 476 (5th Cir.1999) (quotation omitted). "The evidence at trial must raise two inferences: (1) the defendant was subjectively aware of a high probability of the existence of the illegal conduct; and (2) the defendant purposely contrived to avoid learning of the illegal conduct." United States v. Lara-Velasquez, 919 F.2d 946, 951 (5th Cir. 1990). In assessing whether evidence sufficiently supports the instruction, we "view the evidence and all reasonable inferences that may be drawn from the evidence in the light most favorable to the [g]overnment." United States v. Mendoza-Medina, 346 F.3d 121, 132 (5th Cir.2003) (quotation omitted); United States v. Gray, 105 F.3d 956, 967 (5th Cir.1997).
The first requirement for using the instruction — the defendant claims a lack of guilty knowledge — is not disputed by the parties. The second requirement — the defendant purposely contrived to avoid learning of the illegal conduct — is satisfied if the evidence at trial raises an inference that: (1) the defendant was subjectively aware of a high probability of the existence of the illegal conduct; and (2) the defendant purposely contrived to avoid learning of the illegal conduct. Lara-Velasquez, 919 F.2d at 951. Here, taking all reasonable inference in the government's favor, there is more than sufficient evidence to find that the Defendants-Appellants were subjectively aware of a high probably of the existence of illegal conduct and that they purposely contrived to avoid learning of the illegal conduct.
On this first prong, a review of the record shows that there was a great
On the second prong, the Defendants-Appellants argue that there is no evidence that they "purposefully contrived to avoid learning of illegal conduct." Specifically, the Defendants-Appellants claim that they did not know the actual instructions sent by the publications, and that they thought they were sending the correct information. There is evidence in the record, however, showing that the Defendants-Appellants purposely avoided learning of the illegal nature of the conduct. For example, both Brooks and Phillips repeatedly ignored the reporting instructions, and they both also had conversations with Kelley Doolan, an editor at Inside FERC, about the reporting requirements. Similarly, other evidence indicated that Walton had been forwarded a spreadsheet with fake trades, and that he was included in the "book bias" email, in which the traders made statements indicating that their reporting practices were not in line with Inside FERC's instructions. Based on this evidence, we hold that it was not an abuse of discretion for the district court to instruct the jury on deliberate ignorance.
Second, the Defendants-Appellants argue that the instruction on deliberate ignorance was an improper statement of the law in light of the Supreme Court's recent decision in Global-Tech Appliances, Inc. v. SEB S.A., ___ U.S. ___, 131 S.Ct. 2060, 179 L.Ed.2d 1167 (2011). In Global-Tech, the Supreme Court considered willful blindness in the civil context, stating that willful blindness requires proof that: "(1) the defendant [] subjectively believe[d] that there [was] a high probability that a fact exists and (2) the defendant [took] deliberate actions to avoid learning of that fact." Id. at 2070. The Court continued, stating that willful blindness "surpasses recklessness and negligence," and that "a willfully blind defendant is one who takes deliberate actions to avoid confirming a high probability of wrongdoing and who can almost be said to have actually known the critical facts." Id. at 2070-71.
The Fifth Circuit Pattern Instruction meets the standard set forth by the Supreme Court in Global-Tech.
The Defendants-Appellants also argue that the jury instructions were in error because the district court incorrectly stated the elements of false reporting under the CEA, 7 U.S.C. § 13(a)(2).
In relevant part, the CEA provides that "[i]t shall be a felony ... for ... [a]ny person ... knowingly to deliver or cause to be delivered for transmission through the mails or interstate commerce by telegraph, telephone, wireless, or other means of communication false or misleading or knowingly inaccurate reports concerning crop or market information or conditions that affect or tend to affect the price of any commodity in interstate commerce...." 7 U.S.C. § 13(a)(2). The district court instructed the jury that to convict it must find that the Defendants-Appellants: (1) "knowingly delivered, or caused to be delivered, for transmission through interstate commerce by telephone or other means of communication a material false or misleading or inaccurate report"; (2) "knew the report was false or misleading or inaccurate"; and (3) "[t]hat the report concerned market information or conditions that affected or tended to affected the price of a commodity in interstate commerce." The Defendants-Appellants argue that the mens rea of false reporting — knowingly — requires that a defendant must "know" his reports would "affect or tend to affect the price of any commodity in interstate commerce."
In Valencia, the Court found that "knowingly" in this section of the CEA applies both to the transmission and falsity of the report (elements one and two), but that decision did not reach whether it applied to the final element of the offense. 394 F.3d at 354-56.
Overall, it is not clear whether knowledge applies to the requirement that the false report affect or tend to affect the price of a commodity. However, even assuming that the Defendants-Appellants are correct in their interpretation of the statute, we need not reverse their convictions. Where a trial court misstates or omits an element of an offense, the conviction is reviewed for harmless error. See Neder v. United States, 527 U.S. 1, 9-10, 119 S.Ct. 1827, 144 L.Ed.2d 35 (1999); Pope v. Illinois, 481 U.S. 497, 501-04, 107 S.Ct. 1918, 95 L.Ed.2d 439 (1987); United States v. Bohuchot, 625 F.3d 892, 903 (5th Cir.2010); United States v. Delgado, 256 F.3d 264, 280-81 (5th Cir.2001). Under this plain error standard, the conviction should be affirmed if it is "clear beyond a reasonable doubt that a rational jury would have found the defendant guilty absent the error." Neder, 527 U.S. at 18, 119 S.Ct. 1827; accord United States v. Skilling, 638 F.3d 480, 481-82 (5th Cir. 2011).
Here, there was a great deal of evidence admitted at trial showing that the Defendants-Appellants knew their price reports would or had affected natural gas indexes. For example, according to Dean, Brooks told him that they "gamed the system" and that Dean needed to report trades that would favorably affect the index prices. Additionally, in the October 2000 "book bias" email, Brooks wrote to the other traders that "we reported only verifiable fixed price transactions to IF for October" and "[it] only eliminated us as an active price setting participant." O'Toole and Dean both also testified that they were instructed by Phillips or Brooks to
Given this evidence, it is "clear beyond a reasonable doubt that a rational jury" would have found that the Defendants-Appellants had knowledge that their reports affected or tended to affect the price of natural gas. Accordingly, we decline to decide whether the mens rea applies to the final element of false reporting, because even assuming that it does, the error would be harmless.
Finally, the Defendants-Appellants argue that the cumulative error of the jury instructions errors requires reversal. "[T]he cumulative error doctrine ... provides that an aggregation of non-reversible errors (i.e., plain errors failing to necessitate reversal and harmless errors) can yield a denial of the constitutional right to a fair trial, which calls for reversal." United States v. Munoz, 150 F.3d 401, 418 (5th Cir.1998). Beyond the issue of whether the mens rea applied to the final element of the false reporting offense — which we are confident was harmless if it was erroneous — we found no errors in the jury instructions. Therefore, we hold that the cumulative error doctrine does not require reversal.
The Defendants-Appellants also argue that the questions on the Inside FERC
First, the Defendants-Appellants argue that the district court erred by denying their motion for acquittal because they were convicted for answering fundamentally ambiguous questions. Specifically, they argue that there are not universally accepted definitions for the terms "trading location," "bidweek," "baseload," or "fixed price." This court reviews the district court's denial of a motion for acquittal de novo. United States v. Bennett, 664 F.3d 997, 1011-12 (5th Cir.2011).
To be fundamentally ambiguous, a "question must lack `a meaning about which men of ordinary intellect could agree, nor one which could be used with mutual understanding by a questioner and answerer unless it were defined at the time it were sought and offered as testimony.'" United States v. Strohm, 671 F.3d 1173, 1179 (10th Cir.2011) (quoting United States v. Farmer, 137 F.3d 1265, 1269 (10th Cir.1998)); accord United States v. Culliton, 328 F.3d 1074, 1078 (9th Cir. 2003). The question must be so vague that it is impossible to have intended to answer it untruthfully. United States v. Richardson, 421 F.3d 17, 33 (1st Cir.2005). Where a question is found to be fundamentally ambiguous, a defendant's answer to it is insufficient as a matter of law to sustain a conviction. Richardson, 421 F.3d at 33. A question is fundamentally ambiguous, however, in only very "narrow circumstances." Strohm, 671 F.3d at 1179; United States v. Damrah, 412 F.3d 618, 627 (6th Cir.2005) (stating that doctrine applies only in "exceptional" cases). If a witness "knowingly made a false statement, based on his or her understanding of the question," the doctrine does not apply, Strohm, 671 F.3d at 1180, and a witness cannot "twist the meaning of a question in his own mind into some totally unrecognizable shape and then hide behind it by alleging its fundamental ambiguity," Richardson, 421 F.3d at 35 (quotation omitted).
Given the context in which the fundamental ambiguity defense has been applied previously, we hold that it does not apply under the facts of this case. It is completely implausible to think that the Defendants-Appellants reported fabricated trades based on a misinterpretation of the instructions. The fundamental ambiguity defense does not apply where a defendant "twist[s] the meaning of a question in his own mind into some totally unrecognizable shape and then hide[s] behind it by alleging its fundamental ambiguity." Richardson, 421 F.3d at 35 (quotation omitted); see also Farmer, 137 F.3d at 1269 (stating that a question cannot be isolated from context to engineer ambiguity); United States v. Carey, 152 F.Supp.2d 415, 427 (S.D.N.Y.2001) (defense does not apply where an "answer to an ambiguous question is false under any reasonable interpretation"). There is no reasonable interpretation of the instructions that would allow reporting invented and fabricated trades. Indeed, the Defendants-Appellants are unable to cite any actual trade that was mistakenly reported due to specific ambiguities in the survey instructions.
Second, the Defendants-Appellants argue that even if Inside FERC's instructions were not fundamentally ambiguous, the district court abused its discretion by denying a jury instruction on arguable ambiguity. As we noted earlier, "[d]istrict courts enjoy substantial latitude in formulating a jury charge, and hence we review all challenges to, and refusals to give, jury instructions for abuse of discretion." United States v. Carrillo, 660 F.3d 914, 925-26 (5th Cir.2011) (quotation omitted). "We consider whether the instruction, taken as a whole, `is a correct statement of the law and whether it clearly instructs jurors as to the principles of law applicable to the factual issues confronting them.'" United States v. Freeman, 434 F.3d 369, 377 (5th Cir.2005) (quoting United States v. Daniels, 281 F.3d 168, 183 (5th Cir.2002)). It is "reversible error to refuse a charge on a defense theory for which there is an evidentiary foundation and which, if believed by the jury, would be legally sufficient to support a verdict of not guilty." United States v. Barnett, 197 F.3d 138, 142 (5th Cir.1999) (quotation omitted). An instruction on a defense theory, however, only need be given where "there exists evidence sufficient for a reasonable jury to find in [the defendant's] favor." United States v. Mata, 491 F.3d 237, 241 (5th Cir.2007).
During the jury charge conference, the Defendants-Appellants requested that the following jury instruction be given, which was adapted from the Fifth Circuit Pattern Jury Instruction Section 2.69, on perjury:
Fifth Circuit Pattern Criminal Jury Instructions § 2.69. The district court denied this instruction. The Defendants-Appellants argue that their defense revolved around showing that the instructions from Inside FERC were ambiguous and that not allowing the instruction prevented
A determination of whether a question or statement is arguably ambiguous is generally left to the jury. See, e.g., United States v. Posada Carriles, 541 F.3d 344, 362-63 (5th Cir.2008) (stating that jury resolves ambiguities where they are not fundamental); United States v. Bell, 623 F.2d 1132, 1136 (5th Cir.1980) (same). It is not clear whether an arguable ambiguity instruction is appropriate in cases charging false reporting and wire fraud.
Here, in making their argument, the Defendants-Appellants ignore the fact that such an ambiguity instruction is only appropriate in cases where the defendant's claimed interpretation of the ambiguous terms is reasonable and is supported by the record. Migliaccio, 34 F.3d at 1525. In United States v. Lawrence, the Tenth Circuit discussed Migliaccio and affirmed a district court's denial of an ambiguity instruction in a wire fraud case. 405 F.3d 888, 896-900 (10th Cir.2005). In doing so, the court stated that an ambiguity instruction "is only necessary where there is evidence supporting the defendant's interpretation as reasonable." Id. at 898. Indeed, it is accepted law that a defendant is only entitled to an instruction on a defense theory where there is sufficient evidence such that a reasonable jury could find in his favor on that theory. See United States v. Branch, 91 F.3d 699, 712-13 (5th Cir.1996).
As explained previously, there is no reasonable interpretation of the instructions that allows the reporting of completely fabricated data. This interpretation is divorced from the language of the instructions, and it has no relationship to the allegedly ambiguous terminology. The district court, therefore, appropriately denied the ambiguity instruction.
The Defendants-Appellants also appeal several of the district court's evidentiary rulings. Specifically, the Defendants-Appellants challenge: (1) the district court's exclusion of their industry practice evidence; (2) the district court's admission of the testimony of Matthew O'Loughlin, the government's expert witness; and (3) the district court's decision not to immunize Don Guilbault, a potential defense witness. We will consider these rulings in turn.
First, the Defendants-Appellants argue that the district court erred by excluding evidence related to industry practice. Specifically, the Defendants-Appellants argue that they were prevented from proving their good faith defense because they were barred from presenting evidence showing that other energy companies were also submitting similarly false data to Inside FERC and NGI.
We review evidentiary rulings for abuse of discretion, subject to harmless error analysis. United States v. Isiwele, 635 F.3d 196, 199 (5th Cir.2011); United States v. Cantu, 167 F.3d 198, 203 (5th Cir.1999). This Court has previously held that it was not an abuse of discretion to exclude evidence offered on a very similar theory. See United States v. Arledge, 553 F.3d 881, 894 (5th Cir.2008) (excluding evidence in fraud case showing that similarly situated third parties committed similar acts because it had little or no bearing on whether defendant acted with fraudulent intent). The industry practice evidence offered here has little or no bearing on whether the Defendants-Appellants acted with fraudulent intent. See United States v. Kahn, 711 F.Supp.2d 9, 12 (D.D.C.2010) (testimony about beliefs of third parties on validity of tax code irrelevant to determination of whether defendant acted in good faith). Indeed, this unrelated information posed a threat of confusing the jury and detracting from relevant information about the conduct of the actual parties. See Fed.R.Evid. 403 (stating "relevant evidence" may be excluded "if its probative value is substantially outweighed by a danger of ... unfair prejudice, confusing the issues, [or] misleading the jury ..."). Thus, we hold that it was not an abuse of discretion to exclude this testimony.
Second, the Defendants-Appellants challenge the district court's admission of the government's expert, Matthew O'Loughlin. The admission of expert evidence is also reviewed "for abuse of discretion; however, evidentiary rulings are subjected to heightened scrutiny in criminal cases." United States v. John, 597 F.3d 263, 274 (5th Cir.2010). "Federal Rule of Evidence 702 provides that testimony by a qualified expert is admissible if (1) it will assist the trier of fact; (2) it is based upon sufficient facts or data; (3) the testimony is a product of reliable methods; and (4) the witness has applied those principles reliably to the facts." Id.
The Fifth Circuit has already upheld the admission of O'Loughlin's expert testimony in nearly identical circumstances. See Valencia, 600 F.3d at 401, 420-29. The Defendants-Appellants' attempts to distinguish Valencia are unavailing. The
Third, Defendant-Appellant Walton argues that the district court erred by failing to order the government to immunize Don Guilbault, a physical gas trader on the same desk as Dean. In particular, Walton argues, first, that the district court should have denied Guilbault's invocation of his Fifth Amendment right because he had already plead guilty to the relevant crimes and the statute of limitations had expired on any others, and, second, that the district court should have either granted Guilbault immunity or compelled the government to do so. As Walton shows error on neither ground, his argument fails.
Guilbault worked on El Paso during the relevant times, and, on October 5, 2004, he plead guilty to violating the CEA by submitting false reports to Inside FERC and NGI. At the time of the Defendants-Appellants' trial, Guilbault had not been sentenced because the government had sought to delay sentencing to ensure Guilbault's continued corporation in its prosecutions. On June 2, 2005, Guilbault was interviewed by government agents. According to a summary of the interview, Guilbault stated that, while Brooks told Guilbault to "get with" Walton, Walton told Guilbault that he did not need to show Walton his trades, and that Walton did not otherwise tell Guilbault what to report.
Walton subpoenaed Guilbault to appear at trial, and informed the government of the subpoena the day before Guilbault was to appear. That night, one of the members of the prosecution called Guilbault's attorney to ask if Guilbault would indeed testify. The next morning at trial, Guilbault's attorney informed the court that Guilbault would invoke his Fifth Amendment right against self-incrimination. Guilbault's attorney told the court that the decision has been Guilbault's alone to make. Guilbault's attorney further explained that, while Guilbault had been on a list of possible government witnesses, no decision had been made previously about whether he would be called. Prosecutors then informed the court that they did not intend to call Guilbault because they had concerns about Guilbault's truthfulness, and pointed to inconsistences between Guilbault's 2005 interview and previous statements, as well as other instances that cast doubt on his credibility. Walton thereafter moved to compel Guilbault to testify, to compel the government to grant Guilbault immunity, or to admit a summary of the
"A district court's decision to exclude a witnesses's testimony based on an invocation of the witnesses's Fifth Amendment privilege is reviewed for an abuse of discretion." United States v. Mares, 402 F.3d 511, 514 (5th Cir.2005). "Although the trial court's discretion is not unlimited, it must enjoy wide discretion in resolving a self-incrimination claim." United States v. Van Deveer, 577 F.2d 1016, 1017 (5th Cir.1978) (per curiam). "Generally, an abuse of discretion only occurs where no reasonable person could take the view adopted by the trial court." Whitehead v. Food Max of Miss., Inc., 332 F.3d 796, 803 (5th Cir.2003) (quotation omitted & emphasis in original).
Here, although Guilbault had plead guilty to violating the CEA, he had not yet been sentenced, and Walton's questions sought information related to those crimes. The Fifth Amendment right against self-incrimination only extinguishes once "the sentence has been fixed and the judgment of conviction has become final." Mitchell v. United States, 526 U.S. 314, 326, 119 S.Ct. 1307, 143 L.Ed.2d 424 (1999) ("Where the sentence has not yet been imposed a defendant may have a legitimate fear of adverse consequences from further testimony."). Accordingly, the district court did not err in finding Guilbault had a legitimate fear of self-incrimination, and could be excused from testifying.
With regard to immunity, this Court has held that "[d]istrict [c]ourts have no inherent power to grant immunity." United States v. Follin, 979 F.2d 369, 374 (5th Cir.1992). "A district court may not grant immunity simply because a witness has essential exculpatory evidence unavailable from other sources." Id. (citing United States v. Thevis, 665 F.2d 616, 638-41 (5th Cir.1982)). At most, this Court has left open the possibility that immunity may be necessary to stem government abuse. See Thevis, 665 F.2d at 641.
Walton's sole evidence showing an abuse by the government is the government's continuances of Guilbault's sentencing, a single call by a prosecutor to Guilbault after Walton subpoenaed him to testify, and the purported inconsistency in the government's maintaining Guilbault as a possible witness and its statements on January 24, 2008 that it had concerns about Guilbault's truthfulness. Guilbault's attorney, however, informed the court that Guilbault's decision to invoke the Fifth Amendment was his own. Further, the prosecutor's call the night before was explained
Lastly, the Defendants-Appellants raise a number of challenges to the calculation of their Sentencing Guidelines' sentences. In particular, the Defendants-Appellants challenge the burden of proof born by the government and the calculation of their Guidelines range.
We review the district court's legal interpretation of the Sentencing Guidelines de novo and factual findings for clear error. See United States v. Murray, 648 F.3d 251, 254 (5th Cir.2011). A factual finding is clearly erroneous only if, based on the entirety of the evidence, the reviewing court is left with the definite and firm conviction that a mistake has been made. United States v. Valdez, 453 F.3d 252, 262 (5th Cir.2006). A factual finding is not clearly erroneous if it is plausible in light of the entire record. Id. Because the Court finds Defendants-Appellants' arguments unavailing, we affirm the sentence.
The Defendants-Appellants first argue that the government should have been required to prove the loss caused by their fraud with clear and convincing evidence. The Presentence Report ("PSR") provided for increases of eighteen and twenty-levels for the Defendants-Appellants due to the calculated loss, which was the largest contributing factor to the Defendants-Appellants' offense levels.
"[A]s a general matter, the burden of proof at sentencing is by a preponderance of the evidence." United States v. Mergerson, 4 F.3d 337, 343 (5th Cir.1993). The Fifth Circuit has stated in dicta, however, that "there may be certain cases where a sentencing fact is a `tail that wags the dog of the substantive offense,' and might arguably require a finding beyond a reasonable doubt." Id. at 344 (quoting McMillan v. Pennsylvania, 477 U.S. 79, 88, 106 S.Ct. 2411, 91 L.Ed.2d 67 (1986)
We need not decide at this time that a heightened burden is never required. While the Defendants-Appellants' enhancements are significant, accounting for more than fifty percent of their offense levels, and increasing their recommended sentence range from 18-to-24 months to 135-to-168 or 168-to-210 months, this Court has held a similar enhancement did not require a heightened burden of proof. See United States v. Carreon, 11 F.3d 1225, 1240 (5th Cir.1994) (holding enhancement in recommended sentence from six years to twenty years did not require proof beyond a preponderance).
The Defendants-Appellants assert a number of errors in the calculation of their Sentencing Guidelines. In particular, the Defendants-Appellants challenge the district court's calculation of loss, its calculation of the number of victims of that loss, and its finding that the Defendant-Appellants obstructed justice.
Turning first to the calculation of loss, "[w]e review de novo the district court's method for determining loss, while clear error applies to the background factual findings that determine whether or not a particular method is appropriate." Isiwele, 635 F.3d at 202. "[A] district court need only make a reasonable estimate of loss, and, `because the sentencing judge is in a unique position to assess the evidence and estimate the loss ... the
The Defendants-Appellants fail to show that the district court's method for determining loss was erroneous. The district court, adopting the method used in the PSRs, relied on O'Loughlin's calculations about the effect of the false reports on the published index prices, and El Paso's own calculations, in its "Basis Summaries," about its "exposure" to changes in those index prices. The various losses were then attributed to each Defendant-Appellant based on his responsibility for the various reports. The method provided a "reasonable estimate," and, indeed, a conservative estimate, of the loss caused by the Defendants-Appellants' fraudulent scheme.
Nor does the Defendants-Appellants' challenge to the use of the use of El Paso's Basis Summaries fare better. As the record shows, the summaries were created so that El Paso could determine its exposure to changes in the various index prices. El Paso entered into a trade to buy or sell natural gas at some price at a certain hub. That contract had value so long as there was some difference between the specified price and the market price for natural gas at the hub at the time of the contract's execution. For example, a contract to buy a unit of natural gas at $5 next month would gain value if the price of natural gas at the hub increased to $6: the contract would allow the holder to net a $1 profit by buying the gas at $5 and selling it at $6.
While the Defendants-Appellants are correct that these charts did not necessarily reflect the flow of cash,
Moreover, in contrast to the Defendants-Appellants' protests, the method employed by the district court provided a "realistic, economic approach" to determining the loss caused by their fraud. See United States v. Olis, 429 F.3d 540, 546 (5th Cir.2005) (quotation omitted). Unlike the typical valuation of damages in a securities fraud scheme, where the effect of the fraud must be inferred from the changes in the market price of the security and where, consequently, external forces on that price must be accounted, see, e.g., id. at 546-48, the method employed by the district court directly measured the loss. As described above, the district court relied on the government's expert's conclusion that the false trades move the various index prices by definite amounts, and the company's calculations about the effect of such moves on the value of its assets. With such a method, there is no need to account for external factors that may have also increased or decreased the value of the futures contracts.
Next, the Defendants-Appellants challenge the calculation used to determine the number of victims of their fraud. Each of the Defendants-Appellants received a four-point enhancement to their offense level due to the district court's finding that their scheme involved fifty or more victims. See U.S. Sentencing Guideline § 2B1.1(b)(2)(B). In light of the entire record, the district court's finding is not clearly erroneous. The record includes backup for the Basis Summaries reports that list the details of the various financial trades that went into those calculations. Just one of those backup spreadsheets, showing the trades for a single hub in a single month, shows in excess of fifty counterparties to El Paso's futures trades — the counterparties who would have seen the value of their contracts artificially lowered by the Defendants-Appellants' false statements. Accordingly, Defendants-Appellants fail to show error in the district court's finding that their scheme, which occurred over at least two
Lastly, the Defendants-Appellants challenge the two-point enhancement they received as a result of the district court's finding that they obstructed justice. In particular, the Defendants-Appellants argue that the district court improperly found that they provided materially false information to the investigating government officials because they mislead the individuals involved in El Paso's internal investigation. The Defendants-Appellants argue they cannot be found to have obstructed the investigation because, (1) their statements occurred before any government investigation started, (2) their false statements were not made directly to government agents, and (3) their false statements did not actually impede the investigation.
The relevant Sentencing Guidelines allow for an enhancement where:
See U.S. Sentencing Guideline § 3C1.1 (2001).
First, with regard to Brooks, the district court found, in addition to his false statements, that in or about May of 2002 he destroyed or ordered another person to destroy material evidence when he ordered an El Paso employee to shred records related to reports to an industry newsletter. As noted in the PSR, and unchallenged by the Defendants-Appellants,
With regard to Phillips and Walton, the PSRs found obstruction based on their statements to El Paso's legal counsel and independent investigators during the company's investigation arising from inquiries by the CFTC, the Federal Energy Regulatory Commission, and the U.S. Attorney's Office.
Finally, the Defendants-Appellants fail to show error in the district court's adoption of the PSRs' finding that their false statements significantly impeded the investigation. False statements which significantly delay an investigation and prosecution, even if not successful in preventing it, may provide a sufficient basis for an obstruction enhancement. See United States v. Phipps, 319 F.3d 177, 191-92 (5th Cir.2003) (holding defendant's false identification of accomplice, delaying investigation, constituted obstruction). While Defendants-Appellants objected to the PSRs' finding, they presented no evidence to rebut that finding. See Vital, 68 F.3d at 121. Consequently, the district court could rely on the PSRs, see id., and the Defendants-Appellants fail to show that the district court's finding was implausible based on the record. Thus, they fail to show error in the obstruction enhancement.
Accordingly, the Defendants-Appellants fail to show any error in their sentences.
For the reasons stated above, Defendants-Appellants' convictions and sentences are AFFIRMED.
Second, the Defendants-Appellants proposed instruction that a failure to follow Inside FERC's instructions, by itself, is not evidence of a crime, is confusing and the instruction likely would have misled the jury. Further, the instruction seems to be inaccurate, given that a failure to follow Inside FERC's instructions alone, with the proper intent, could constitute false reporting or wire fraud. Thus, denying this instruction was also not an abuse of discretion. See Jobe, 101 F.3d at 1059.
