United States v. Mitchell J. Stein
2017 U.S. App. LEXIS 813
| 11th Cir. | 2017Background
- Mitchell Stein, a lawyer for Signalife, was convicted after a two-week trial for fabricating press releases and purchase orders to inflate Signalife stock; co-conspirators Carter and Anand testified against him.
- Stein drafted three false press releases (Sept–Oct 2007) and fabricated purchase orders and related documents; some false information appeared in SEC filings and corporate memoranda.
- Trial evidence included assistance by Carter and Anand in creating bogus documents and schemes to move Signalife stock/compensate intermediaries; Signalife publicly disclosed an order cancellation on Aug 15, 2008, ending the fraudulent period.
- Before trial Stein sought SEC materials; DOJ produced a small subset and declined broader SEC discovery; Stein later located an SEC document (Exhibit X) post-trial and asserted Brady/Giglio violations based on alleged withheld or false evidence.
- At sentencing the government used a "buyer’s only" method to calculate actual loss: 2,415 investors who bought during the fraudulent period allegedly lost $13,186,025.85; court applied Guidelines enhancements and ordered restitution.
- The Eleventh Circuit affirmed convictions (no Brady/Giglio violation) but vacated and remanded the sentence, holding the district court erred in its actual-loss finding and failure to consider intervening events.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Brady/Giglio suppression and use of false testimony | Stein: DOJ/ prosecutors withheld SEC Brady material (Exhibit X) and knowingly relied on false testimony, warranting new trial | Government: Exhibit X was not favorable/impeaching and was publicly available; no suppressed material and no materially false testimony used | No Brady or Giglio violation; convictions affirmed (evidence not favorable or suppressed; inconsistencies immaterial) |
| Proof of reliance for actual loss under U.S.S.G. §2B1.1 and MVRA | Stein: Government must prove investors relied on Stein’s fraudulent statements (but-for causation); 2,415-investor inference unsupported | Govt: Circumstantial evidence and victim statements about relying on press releases permit inference of reliance for identified buyers | Reversed as to loss: government failed to prove reliance for all 2,415 investors; district court’s extrapolation was impermissible speculation |
| Intervening events / proximate legal causation for loss | Stein: Court should account for external market forces (2008 crash, heavy short selling) that may have caused declines and break causal chain | Govt: Loss from luring investors was foreseeable; external events do not negate liability | Remanded: district court must assess intervening events’ effects and whether they were reasonably foreseeable; subtract unforeseeable-event impact from loss if possible |
| Sentence & restitution computation | Stein: Sentencing enhancements and restitution tied to flawed actual-loss figure; must vacate sentence | Govt: Alternative loss measures (company asset loss or defendant’s gain) could support range; harmless error | Sentence vacated and remanded for recalculation of loss/restitution consistent with required factual findings (reliance, foreseeability) |
Key Cases Cited
- Brady v. Maryland, 373 U.S. 83 (1963) (prosecution must disclose materially favorable evidence)
- Giglio v. United States, 405 U.S. 150 (1972) (prosecutor must correct/use of known perjured testimony)
- Basic Inc. v. Levinson, 485 U.S. 224 (1988) (fraud-on-the-market presumption of classwide reliance)
- Dura Pharm., Inc. v. Broudo, 544 U.S. 336 (2005) (causation principle in securities fraud loss cases)
- United States v. Ebbers, 458 F.3d 110 (2d Cir.) (recognizing Basic presumption for loss calc under §2B1.1)
- United States v. Peppel, 707 F.3d 627 (6th Cir.) (applying Basic presumption to sentencing loss)
- United States v. Martin, 803 F.3d 581 (11th Cir. 2015) (restitution: foreseeability of successor losses)
- United States v. Cavallo, 790 F.3d 1202 (11th Cir.) (actual loss under Guidelines and MVRA largely same)
- United States v. Robertson, 493 F.3d 1322 (11th Cir.) (vacating restitution where intervening-loss foreseeability was not shown)
- United States v. Sepulveda, 115 F.3d 882 (11th Cir.) (loss estimates must be based on reliable, specific evidence)
- United States v. Ford, 784 F.3d 1386 (11th Cir.) (district court may reasonably estimate loss but cannot speculate)
- United States v. Campbell, 765 F.3d 1291 (11th Cir.) (definition of actual loss and clear-error standard for amount)