United States v. Michael Rand
835 F.3d 451
4th Cir.2016Background
- Michael Rand, Beazer Homes' controller and later chief accounting officer (1999–2007), was charged with conspiracy (18 U.S.C. §§ 371, 1349) and obstruction (18 U.S.C. § 1512) for alleged "cookie-jar" earnings management, improper sale-leaseback accounting with GMAC, and mass email deletions after a grand-jury subpoena.
- Government alleged reserve-account manipulations to hit Wall Street consensus and a verbal side agreement to share appreciation on model homes; Beazer reported $24.8M profit on $117M sales.
- After a March 2007 grand-jury subpoena to preserve documents, Rand deleted thousands of emails (some responsive). Beazer instituted an email "dumpster" and an internal investigation by Alston & Bird.
- Rand made admissions in proffers to the FBI about earnings manipulation, the GMAC side agreement, and that he knowingly deleted evidence. He was tried twice (first trial resulted in split verdict and mistrial; second trial led to convictions on five counts).
- At sentencing, the district court found an investor-loss-based loss of $135M (using market reactions to June and August disclosures), yielding an advisory guidelines range of life; the court varied and imposed 120 months. Rand appealed multiple evidentiary, prosecutorial-misconduct, and sentencing issues.
Issues
| Issue | Rand's Argument | Government's Argument | Held |
|---|---|---|---|
| Exclusion of evidence about false March 23–28 deletion accusations (right to present defense) | Exclusion prevented Rand from contextualizing/confessing circumstances, rebutting misleading statements, and cross-examining witnesses about bias | Evidence was irrelevant/confusing for retrial because government no longer relied on March 23–28 deletions; district court allowed testimony about why Rand proffered | Affirmed — exclusion was within discretion; defendant could explain mindset; any error harmless given overwhelming evidence |
| Quashing Rule 17(c) subpoena to Beazer for broad accounting records | Nixon standard inapplicable to third parties; Rule 17(c)'s "unreasonable or oppressive" should be applied more leniently to allow defense access | Nixon's relevancy/admissibility/specificity test applies to third-party subpoenas; broad request was a fishing expedition | Affirmed — Nixon test applicable; district court did not abuse discretion in quashing subpoena |
| Admissibility of Deloitte work papers and lay testimony on complex accounting | Defense wanted auditor work papers and argued lay testimony on technical accounting required expert testimony | Court allowed opinion testimony from witnesses and defense expert; excluded Deloitte work papers as unreliable; lay testimony admissible and subject to cross-exam | Affirmed — district court acted within discretion; defense could call auditors and present expert testimony |
| Sentencing loss calculation (application of Dura causation principles) | Dura requires loss-causation linking misrepresentation to investor loss; district court should have used October disclosure (resulting in $0 loss) | Criminal sentencing measures societal aggregate loss; June/August disclosures sufficiently put market on notice; Dura inapplicable to sentencing | Affirmed — court declined to apply Dura to sentencing; found June/August disclosures sufficient; loss finding not clearly erroneous |
Key Cases Cited
- Crane v. Kentucky, 476 U.S. 683 (1986) (defendant may offer evidence about circumstances of a confession to challenge its credibility)
- United States v. Nixon, 418 U.S. 683 (1974) (standards for Rule 17 subpoenas: relevancy, admissibility, specificity)
- Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336 (2005) (civil securities loss-causation requirement)
- United States v. Berger, 587 F.3d 1038 (9th Cir. 2009) (declining to extend Dura to criminal sentencing; aggregate market loss is relevant)
- United States v. Peppel, 707 F.3d 627 (6th Cir. 2013) (public disclosures and press coverage can suffice to put market on notice for loss calculation)
- United States v. Offill, 666 F.3d 168 (4th Cir. 2011) (upholding admissibility of lay-opinion testimony in securities-fraud context)
- United States v. Ebbers, 458 F.3d 110 (2d Cir. 2006) (government need not prevail in a battle of experts over GAAP to prove securities-related fraud)