United States v. Prange
771 F.3d 17
| 1st Cir. | 2014Background
- FBI sting "Operation Penny Pincher" posed an agent as a corrupt hedge-fund manager ("John Kelly" of fictitious Seafin Capital) who offered to overpay for restricted penny-stock shares in exchange for 50% kickbacks funneled to nominee companies.
- Cooperating witness E.H. (a former broker) recruited and explained the kickback scheme to executives; James Prange introduced executives and participated in calls/meetings; John Jordan (Vida Life CEO) negotiated and executed subscription and sham consulting agreements.
- The FBI wired tranches (e.g., ~$32,000 to Vida Life); Vida Life paid half to the nominee company and distributed the rest to Jordan and others; Jordan later fabricated an invoice to justify a larger payment.
- Prange and Jordan were indicted and tried; video/audio recordings of meetings were played and the undercover agent gave lay-interpretive testimony about the meaning and illegality of statements.
- A jury convicted both defendants on conspiracy, wire-fraud, and mail-fraud counts; district court applied sentencing enhancements (Prange: §3B1.1 managerial + loss; Jordan: §3C1.1 obstruction + loss) and sentenced each to 30 months.
- On appeal the First Circuit affirmed convictions but remanded for resentencing because the district court failed to make factual findings about the market value of the restricted shares when calculating loss.
Issues
| Issue | Plaintiff's Argument (U.S.) | Defendant's Argument (Prange / Jordan) | Held |
|---|---|---|---|
| Admissibility of undercover agent's interpretations of recorded conversations | Agent's interpretations were admissible lay-opinion testimony helpful to the jury and based on his perception in the investigation | Testimony usurped jury, invaded ultimate issue, and lacked Rule 701 foundation; some argue it was improper expert testimony | Admitted as lay opinion; district court did not abuse discretion (Jordan's objections fail; Prange forfeited) |
| Entrapment (improper inducement / predisposition) | Government provided opportunity but no improper inducement; defendants were predisposed; evidence supports jury verdict | Government induced defendants by exploiting executives' desperation and by staging a realistic-looking legitimate investor | No entrapment as a matter of law; no improper inducement proven, so conviction stands |
| Submitting superseding indictment to jury (redactions & quoted "nominee companies") | Providing a redacted indictment with proper jury instructions is within district court discretion and not prejudicial | Indictment contained unproven background facts and quoted phrasing that amounted to testimonial evidence | No reversible error: covering instructions cured any potential prejudice; court did not abuse discretion |
| Obstruction enhancement (Jordan §3C1.1) | Jordan altered an email (removed quotation marks) produced under subpoena, warranting a two-level enhancement | Alternate benign explanation (multiple servers / drafts) makes enhancement improper | Affirmed: district court’s factual finding that Jordan altered the email was not clearly erroneous |
| Role enhancement (Prange §3B1.1) | Prange recruited and recommended executives and exercised supervisory authority over participants, supporting a two-level enhancement | Prange merely introduced willing participants and did not direct them; PSR did not recommend enhancement | Affirmed two-level managerial enhancement: recruitment and limited supervisory role suffice |
| Loss calculation (amount of intended/actual loss; value credit for stock & kickbacks) | Loss equals full amount of intended loss (kickbacks) but should be reduced by fair market value of stock the government received; district court credited full amounts without findings | Defendants sought credit for either kickbacks (arguing government got the money) or for market value of restricted shares received | Remand required: court erred procedurally by not making findings on stock value; convictions affirmed but sentences vacated for resentencing with proper loss findings |
Key Cases Cited
- United States v. Albertelli, 687 F.3d 439 (1st Cir. 2012) (discusses admission and limits of investigative-agent lay-interpretation testimony)
- United States v. Carrasco-De-Jesús, 589 F.3d 22 (1st Cir. 2009) (standard of review where abuse-of-discretion contains legal/factual subissues)
- United States v. Santiago, 566 F.3d 65 (1st Cir. 2009) (officer may interpret recorded conversations as lay or expert testimony depending on basis)
- United States v. Garcia, 291 F.3d 127 (2d Cir. 2002) (limits on interpreting coded conversation without foundation)
- United States v. Rea, 958 F.2d 1206 (2d Cir. 1992) (Rule 701 requires foundation for lay-opinion testimony)
- Zannino v. Zannino, 895 F.2d 1 (1st Cir. 1990) (issues raised perfunctorily are deemed waived)
- United States v. Gendron, 18 F.3d 955 (1st Cir. 1994) (definition of improper inducement for entrapment)
- Jacobson v. United States, 503 U.S. 540 (1992) (enticement vs. improper inducement in entrapment doctrine)
- United States v. Marino, 868 F.2d 549 (3d Cir. 1989) (distinguishing knowledge of illegality from inducement)
- United States v. Blastos, 258 F.3d 25 (1st Cir. 2001) (two types of fraud and how to measure loss)
- United States v. Ihenacho, 716 F.3d 266 (1st Cir. 2013) (loss calculation principles in fraud cases)
- United States v. Innarelli, 524 F.3d 286 (1st Cir. 2008) (procedural vs substantive sentence-reasonableness review)
- United States v. Quirion, 714 F.3d 77 (1st Cir. 2013) (clear-error review of obstruction findings)
- United States v. Balsam, 203 F.3d 72 (1st Cir. 2000) (deference where record supports multiple inferences)
- United States v. Flores-De-Jesús, 569 F.3d 8 (1st Cir. 2009) (§3B1.1 role enhancements: recruitment can suffice)
- United States v. Savarese, 686 F.3d 1 (1st Cir. 2012) (recruiting a co-defendant can constitute managerial role)
- United States v. Roush, 466 F.3d 380 (5th Cir. 2006) (restricted stock can have fair market value)
- Scully v. US WATS, Inc., 238 F.3d 497 (3d Cir. 2001) (declining to discount restricted stock value categorically)