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U.S. v. EBERHARD

June 7, 2005.

UNITED STATES OF AMERICA,
v.
TODD EBERHARD, Defendant.



The opinion of the court was delivered by: ROBERT SWEET, Senior District Judge

SENTENCING OPINION

Defendant Todd Eberhard ("Eberhard") appeared in this Court on September 14, 2004, and pled guilty to eleven counts of a twelve-count indictment against him: one count of conspiracy to commit investment advisor fraud, wire fraud and mail fraud in violation of 18 U.S.C. § 371; seven counts of investment advisor fraud in violation of 15 U.S.C. §§ 80b-6, 80b-17; one count of wire fraud in violation of 18 U.S.C. §§ 1343, 1346; one count of mail fraud in violation of 18 U.S.C. §§ 1341, 1346; and one count of obstruction of justice in violation of 18 U.S.C. § 1512(c). Eberhard will be sentenced to 151 months of imprisonment to be followed by three years of supervised release. A fine in the amount of $15,000 is ordered, and restitution in an amount to be determined within 90 days of the imposition of this sentence is mandated. A special assessment fee of $1,100 is mandatory and is due immediately. Prior Proceedings

On February 4, 2003, the government filed a complaint against Eberhard, and an arrest warrant was issued on that day. Eberhard was arrested the same day and subsequently released, after posting a personal recognizance bond subject to specific court-ordered pretrial supervision conditions pending trial.

  Explicit conditions of Eberhard's release prohibited Eberhard from having any contact with his former clients except through counsel and required him to comply with all orders entered by the Honorable Richard M. Berman of this district, who has been presiding over a parallel civil `proceeding initiated by the Securities and Exchange Commission (hereinafter, the "S.E.C.") against Eberhard. The government moved to revoke Eberhard's bail at a bail hearing before this Court on June 16, 2003, citing Eberhard's violation of these two conditions of his pretrial supervision. The Court declined to revoke Eberhard's bail, instead opting to modify his pretrial supervision conditions to include home detention with electronic monitoring. Subsequently, on September 23, 2003, the Court removed the conditions of home detention with electronic monitoring and has not made any further amends to Eberhard's pretrial supervision conditions thereafter. On September 14, 2004, Eberhard appeared before this Court and pleaded guilty in accordance with the terms of a plea agreement reached with the government. He currently is scheduled to be sentenced in this Court on June 7, 2005.

  The Sentencing Framework

  In accordance with the Supreme Court's decision in United States v. Booker, 125 S. Ct. 738 (2005), and the Second Circuit's decision in United States v. Crosby, 397 F.3d 103 (2d Cir. 2005), the sentence to be imposed was reached through consideration of all of the factors identified in 18 U.S.C. § 3553 (a), including the advisory Sentencing Guidelines (the "Guidelines") established by the United States Sentencing Commission. Thus, the sentence to be imposed here is the result of a consideration of:
(1) the nature and circumstances of the offense and the history and characteristics of the defendant;
(2) the need for the sentence imposed —
(A) to reflect the seriousness of the offense, to promote respect for the law, and to provide just punishment for the offense;
(B) to afford adequate deterrence to criminal conduct;
(C) to protect the public from further crimes of the defendant; and
(D) to provide the defendant with needed educational or vocational training, medical care, or other correctional treatment in the most effective manner; (3) the kinds of sentences available;
(4) the kinds of sentence and the sentencing range established for —
(A) the applicable category of offense committed by the applicable category of defendant as set forth in the guidelines . . .;
(5) any pertinent policy statement . . . [issued by the Sentencing Commission];
(6) the need to avoid unwarranted sentence disparities among defendants with similar records who have been found guilty of similar conduct; and
(7) the need to provide restitution to any victims of the offense.
18 U.S.C. § 3553(a). A sentencing judge is permitted to find all the facts appropriate for determining a sentence, whether that sentence is a so-called Guidelines sentence or not. See Crosby, 397 F.3d at 114-15.

  The Defendant

  Eberhard was born on April 2, 1964, the younger of two children. He reports an enjoyable childhood and close relationships with his strict but loving and hard-working parents.

  Currently, his mother lives in Millbrook, New York, and his sister lives in Mexico City, Mexico. He claims a close relationship with both. His father passed away after a bout with cancer in 1979, when the defendant was fourteen years old. Although the defendant was enrolled in a boarding school during his father's illness, he returned home to help care for his father and support his mother in his father's last days. After his father's death, the family business declared bankruptcy and Eberhard's family struggled through difficult economic times. Thereafter Eberhard assumed greater financial responsibility for his family, attempting to earn money wherever possible.

  The defendant graduated from Skidmore College in 1986 with a business administration degree and since has been employed in the securities business. In 1989, he started Eberhard Investment Association, based in New York City, and in 1999, he opened Park South Securities with offices in New Jersey, Texas and Florida. Eberhard was operating these businesses at the time of his arrest in 2003.

  Eberhard married in September 1998 and has fathered one child with his wife. He had been living with his wife and child in New York City until recently, when he and his wife moved to separate residences due to marital strife. Eberhard's son currently lives with his mother.

  Eberhard is in good health and claims no use of controlled substances or alcohol. He has been under the care of a mental health professional for approximately two years but does not take any prescribed medications.

  The defendant reports no assets, as all have been liquidated already or are in the process of being liquidated at this time. All of Eberhard's bank accounts, securities holdings and other assets, including real estate, have been seized as a result of his conviction in the instant offense. His corporate assets also have been frozen.

  Eberhard has no prior criminal convictions.

  The offense Conduct

  The investigation of the instant offense was initiated upon several complaints received by the NASD, NASDAC's regulations enforcement agency, regarding the brokerage practices of Eberhard. Eberhard purported to be in the business of providing investment advice to, and managing the funds of, individual investors. He held Series 7, 24, 63 and 65 licenses with NASD, and, at various times relevant to this Indictment, was registered with NASD as a general securities principal and representative.

  Eberhard Investment Associates and its predecessor entity, Eberhard Investment Advisers (collectively "EIA"), were entities incorporated and located in the State of New York through which Eberhard rendered investment advice for the trading of securities and general advice regarding investment strategies and financial planning for his clients. At all times relevant to this Indictment, Eberhard was the president of EIA.

  Because EIA was not a securities broker-dealer, it entered into relationships with securities broker-dealers to enable EIA to place securities transactions and otherwise manage the funds clients entrusted to it. The securities broker-dealers with which EIA was affiliated included the following:
a) From 1993 through 1998, EIA maintained relationships with the following entities, in succession, all of which were securities broker-dealers registered with the S.E.C. and members of the NASD: (1) Nathan & Lewis Securities Inc. (Nathan & Lewis), located in New York, NY; (2) Linsco/Private Ledger (LPL), located in San Diego, CA; and (3) Royal Alliance Associates, Inc. (Royal Alliance), located in New York, NY. Eberhard was registered as a general securities representative employed by Nathan & Lewis and LPL, and as both a general securities representative and general securities principal employed by Royal Alliance. Because of his excessive and improper trading activity, Nathan & Lewis, LPL and Royal Alliance each terminated its relationship with EIA and Eberhard.
b) From November 1998 through December 2001, EIA used the brokerage services of Clearing Services of America, Inc. (CSA), a securities broker-dealer registered with the S.E.C. and a member of NASD. Eberhard was registered both as a general securities principal and a general securities representative employed by CSA.
  Park South Securities, LLC (Park South) was a limited liability company organized under the laws of the State of New York with several places of business, including one in Manhattan. Park South was registered with the S.E.C. as an investment adviser and a securities broker-dealer. From July 1999 through at least February 2003, Eberhard was Chairman of the Board and part owner of Park South. In late 2001, Eberhard caused his clients' accounts to be transferred from CSA to Park South. Park South used the clearing services of Correspondent Services Corporation ("CSC"), an entity owned and controlled by UBS Paine Webber and located in Weehawken, New Jersey. CSC, in its capacity as Park South's clearing broker, provided a number of services for Park South clients, including the issuance of monthly account statements.

  From at least 1993, through May 2003, Eberhard and others engaged in a scheme to defraud certain clients for whom he provided investment advisory and securities brokerage services. As part of the scheme, Eberhard misappropriated funds entrusted to him by his clients through a variety of means, including "churning" their accounts to generate millions of dollars in commissions and compensation for himself and his firms, and by making unauthorized and improper withdrawals and transfers from client accounts.

  As commonly understood in the securities industry, the term churning refers to a pattern of excessive and unsuitable trading conducted by a broker with discretion over a client's account, or caused by a broker's bad faith recommendations to a client for the purpose of generating commissions for the broker. Typically, the more trades Eberhard conducted, the higher the commissions were that he received. Between November 1998 and December 2001, for example, Eberhard ...


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