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United States of America Appellee v. Stephen M. Gordon

March 7, 2011

UNITED STATES OF AMERICA APPELLEE,
v.
STEPHEN M. GORDON, JEFFREY PITTSBURG, CHARLES KUSCHE, JONATHAN GORDON DEFENDANTS, PETER PAUL DEFENDANT-APPELLANT.



The opinion of the court was delivered by: Crotty, District Judge:

09-3191-cr (L)

USA v. Paul

Argued: February 17, 2011

Before: CABRANES, CHIN, Circuit Judges, and CROTTY, District Judge.*fn1

Defendant Peter Paul appeals from a judgment of conviction entered in the United States District Court for the Eastern District of New York (Wexler, J.) following his guilty plea to securities fraud in violation of 15 U.S.C. §§ 78j(b) and 78ff. Thereafter, Paul was sentenced to 120 months' imprisonment, three years of supervised release, restitution of $11,479,035.32 and a $100 special assessment. Paul now contends that the District Court (1) violated Federal Rule of Criminal Procedure 11(c)(1) by improperly participating in plea negotiations, (2) violated his right to speedy sentencing; and (3) erred in its ordering of restitution.

Affirmed.

BACKGROUND

The evidence underlying the conviction, viewed "in the light most favorable to the prosecution," Jackson v. Virginia, 443 U.S. 307, 319 (1979), established the following facts. In 1998, Defendant Peter Paul ("Paul") and Stan Lee founded Stan Lee Media ("SLM"), an internet-based multimedia production company. As a co-founder and head of the company, Paul controlled a substantial amount of SLM stock. Paul placed portions of this stock into nominee accounts at Merrill Lynch, Pierce, Fenner & Smith, Inc. ("Merrill Lynch") and Spear, Leeds & Kellogg, L.P. ("Spear, Leeds") that he fully controlled, but maintained under other names to mask his involvement.

Between 1998 and 2000, Paul and others began artificially inflating the price of SLM stock by effecting trades between the nominee accounts, thereby making SLM stock appear to be more liquid, and thus a less risky, investment. Additionally, Paul created a false appearance of higher than actual demand by directing others to execute uptick trades immediately prior to the daily close of public trading. In order to profit from the inflated stock price without having to sell his stock, Paul drew on his nominee accounts to obtain margin loans totaling $12.6 million. Paul induced Merrill Lynch and Spear, Leeds to make the loans by fraudulently creating the nominee accounts, as he could not have properly obtained the loans otherwise. Eventually, the plot collapsed and SLM's stock price began to decline steadily, falling to $0.13 per share in December 2000. As a result, the Securities and Exchange Commission opened an investigation into the trading of SLM stock. In December 2000, Paul suddenly departed for Brazil. On June 8, 2001, a grand jury in the Eastern District of New York returned a two-count indictment charging Paul with conspiracy to commit securities fraud and securities fraud. Between August 2001 and July 2003, Paul was incarcerated in Brazil, awaiting extradition to the United States. Paul was arraigned on September 15, 2003 and, on January 21, 2005, Paul was released on bail, subject to home detention and electronic monitoring.

On March 7, 2005, Paul pled guilty to Count Two of a two-count superseding indictment which charged Paul with securities fraud in violation of 15 U.S.C. §§ 78j(b) and 78ff. Paul remained in home detention with electronic monitoring until he appeared for sentencing more than four years later, on June 25, 2009. Ultimately, the District Court (Wexler, J.) sentenced Paul to 120 months' imprisonment, three years of supervised release, restitution of $11,479,035.32 and a $100 special assessment. Paul appeals, arguing that the District Court (1) violated his Fifth Amendment right to speedy sentencing; (2) imposed an unreasonable sentence; (3) erred in its ordering of restitution; and (4) violated his Sixth Amendment right to a speedy trial. In a July 19, 2010 unpublished Order, we dismissed Paul's appeals relating to his right to a speedy trial and the reasonableness of the District Court's sentence because these appeals were barred by a waiver of appellate rights contained in Paul's plea agreement. On November 5, 2010, we granted Paul's motion for leave to file a supplemental letter brief asserting that the District Court violated Federal Rule of Criminal Procedure 11(c)(1) by improperly participating in plea negotiations. Paul's Rule 11(c)(1) argument is not foreclosed by his appellate waiver because it goes to the question of whether he entered his plea agreement knowingly and voluntarily. See United States v. Pearson, 570 F.3d 480, 485 (2d Cir. 2009). For the following reasons, Paul's conviction and sentence are AFFIRMED.

ANALYSIS

I. Federal Rule of Criminal Procedure 11(c)(1)

Rule 11(c) outlines the procedure that the government and defense counsel must follow in coming to a plea agreement, and Rule 11(c)(1) specifically states that "[t]he court must not participate in these discussions." Fed. R. Crim. P. 11(c)(1). This rule is in place because such discussion "inevitably carries with it the high and unacceptable risk of coercing a defendant to accept the proposed agreement and plead guilty." United States v. Bruce, 976 F.2d 552, 556 (9th Cir. 1992).

In his letter-brief, Paul argues that the "district court violated Rule 11(c)(1) when it made statements at a December 29, 2004 conference that," according to Paul, "were intended to pressure and coerce Mr. Paul into pleading guilty, thereby casting doubt on the voluntariness of Mr. Paul's guilty plea approximately two months later." Def.'s Letter-Br. 2. Specifically, the District Court stated that:

They're not going to go to trial once we set a real date. I know that. And I'm saying that on the record.

Most defense lawyers know with me you go to trial, after whatever the guidelines are, you get. You plead, and I'm considered lenient, so they know that and every effort will be made to plead before me rather than go to trial.

And they also know and let the Second Circuit know, I don't think that I've been reversed in a criminal trial in years. So you're going to have to find, the clients are going to have to be found not guilty before they can walk.

J.A. 293-94. Paul argues that these statements compared a potential sentence following a guilty plea with a potential sentence following a guilty verdict and, therefore, coerced him into entering his guilty plea. In addition, Paul alleges that a remark made by the District Court regarding his twenty-five months of incarceration in Brazil -- "if he doesn't have a plea, he's not getting credit for that time" -- was coercive, "misleading[,] and misstate[d] the law." J.A. 298; Def.'s Letter-Br. 3. In making his argument, Paul points out that only the Bureau of Prisons has the ability to credit him for the time spent incarcerated in Brazil. The government argues that the statements did not violate Rule 11(c)(1) because (1) Paul did not plead guilty until two months after the District Court made the statements, (2) Paul was not present when the statements were made, and (3) the transcript of the proceeding at which the statements were made was sealed until several years after the guilty plea was entered. In addition, the government argues that all of the cases cited by Paul involved much more egregious conduct than the statements made by the District Court in this case, and that, with respect to the first set of remarks, the District Court was simply stating the sentencing law in effect at the time. The Second Circuit's only significant decision regarding Rule 11(c)(1) is United States v. Werker, 535 F.2d 198 (2d Cir. 1976), but the facts in Werker were particularly unusual -- the defendant attempted to plea bargain directly with the court. Id. at 201, 205. Some Circuits have indeed espoused a "bright- line" rule regarding remarks made by a trial court that touch on topics related to plea discussions. See, e.g., United States v. Cano-Varela, 497 F.3d 1122, 1134 (10th Cir. 2007) ("[T]he court's comparison of a post-trial sentence to a post-plea sentence was inherently coercive."); Bruce, 976 F.2d at 555 ("The command of [Rule 11(c)(1)] with regard to plea negotiations is simple and admits of no exceptions."). But a closer review of the relevant caselaw suggests that a more discriminating examination of the remarks at issue -- and the context in which they were made -- is the more prudent approach. We need not adopt a particular standard to apply to all potential 11(c)(1) situations. It suffices simply to say that a "bright-line" rule is inappropriate for such an analysis. Issues arising under Rule 11(c)(1) are highly fact-specific and, as a result, such "situations must be analyzed in terms of the purposes of the rule, and not with illogical rigidity." United States v .Moses, No. 05 Cr. 133, 2010 WL 3521724, at *15 (D.Vt. Sept. 7, 2010) (citing Cano- Varela, 497 F.3d at 1133-34; United States v. Frank, 36 F.3d 898, 902 (9th Cir. 1994)).

The statements made by the District Court were made at a bail hearing, where counsel and the court were trying to fashion a package that would facilitate Paul's release. The hearing was in chambers and under seal. Toward the end of the hearing, the District Court made the first remark to which Paul now objects. The discussion was not about Mr. Paul, however, but rather about a trial date for all defendants. The District Court made the observation that trial dates produce pleas because defendants gain an advantage by pleading. Paul did not hear the District Court's remarks because he was not present. Although it may be possible that his attorney conveyed ...


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