Defendant-Appellant Richard I. Berger appeals the sentence imposed by the district court following our affirmance of his conviction for twelve counts of bank and securities fraud. Berger argues that, in sentencing him on remand, the district court erred by: (1) not adhering to the civil loss causation principle in finding shareholder loss, as described by the Supreme Court in
Dura Pharmaceuticals, Inc. v. Broudo,
FACTS AND PROCEDURAL BACKGROUND
Craig Consumer Electronics, Inc. (Craig) was a publicly traded consumer electronics business that primarily distributed its products to retail electronics stores. During the relevant time frame, Berger was Craig’s President, Chief Executive Officer, and Chairman of the Board. Two other corporate officers, Donna Richardson and Bonnie Metz, 1 participated in the fraudulent scheme and were convicted along with Berger for their involvement.
In August 1994, Craig entered into a $50 million revolving credit agreement with a consortium of banks. Under the agreement, the amount Craig was permitted to borrow was based on the value of its current inventory and accounts receivable. To determine the fluctuating amount Craig was eligible to borrow, Berger and his co-defendants were required to provide the lending banks with a daily certification concerning those assets.
Berger and his accomplices began the fraudulent scheme as early as 1995. 2 Starting at that time and continuing through September 1997, Craig lacked sufficient qualifying accounts receivable and inventory to continue borrowing the funds needed for Craig’s ongoing operations. To conceal Craig’s true financial condition from the lending banks, Berger and his cohorts employed various accounting schemes to falsify the information contained in the certifications. Relying on these false statements, the banks lent millions of dollars to Craig based on either nonexistent or substantially overstated collateral.-
In May 1996, Craig made an initial public offering (IPO) of its stock. In connection with the IPO, Berger publicly misrepresented the company’s fiscal viability, misstating Craig’s financial condition in several mandatory reports filed with the Securities and Exchange Commission (SEC). At the time of the IPO, Craig was actually operating in default of its credit agreement with the lending banks, and was substantially overdrawn on its credit line. None of this information was disclosed in Craig’s mandatory SEC filings, or to its lenders.
In 1997, an audit of the company’s records by Craig’s accounting firm uncovered various accounting irregularities. As a result of the audit, Craig was required to restate its earnings for 1995 and part of 1996, thereby revealing that its earnings were substantially lower than those shown in its previous financial statements. In the months following this restatement, Craig’s stock price fell from $4.99 to $0.99 per share. 3 In July 1997, Craig’s stock was delisted from the Nasdaq because of its failure to meet Nasdaq’s minimum bid *1041 price. The securities fraud and accounting irregularities noted were not publicly revealed until after the delisting. The lending banks did not discover the full extent of the fraud until August 1997, when Craig filed for bankruptcy.
In March 2003, Berger was indicted for thirty-six counts of bank and securities fraud including: conspiracy, loan fraud, falsification of corporate books and records, making false statements to accountants of a publicly traded company, and making false statements in reports filed with the SEC. Berger went to trial and was convicted on twelve of those counts. In September 2004, the district court, believing controlling authority prohibited it from applying any sentencing facts not found by the jury, calculated an applicable sentencing range of zero to six months and sentenced Berger to six months imprisonment. The district court also ordered Berger to pay restitution of $3.14 million and a $1.25 million fine. Berger appealed his conviction and restitution order, and the government cross-appealed the sentence.
We affirmed the conviction and the restitution amount. However, we vacated Berger’s sentence and remanded to the district court for resentencing in light of
United States v. Booker,
To determine the loss to shareholders, the court adopted one of the government’s suggested calculation methods, the so-called “modified market capitalization theory,” i.e., comparing the change in stock value of other, unaffiliated companies after accounting irregularities in those companies’ records were disclosed to the market. The court determined that the average depreciation of those selected companies’ stock was 26.5% and applied that figure to the value of Craig’s initial public offering (although in Craig’s case, the fraud was never disclosed to the market before trading was halted). The court calculated the resulting shareholder loss at $2.1 million.
Therefore, the total calculated loss was $5.2 million, which triggered a fourteen-level sentencing enhancement, from level sixteen to thirty. This enhancement increased the applicable sentencing range from 21-27 months to 97-121 months. The district court imposed a 97-month sentence. Berger appeals the sentence, arguing that the district court committed two significant legal errors in calculating the applicable sentencing range.
JURISDICTION AND STANDARD OF REVIEW
We have jurisdiction pursuant to 28 U.S.C. § 1291. We review de novo the district court’s interpretation of the Sentencing Guidelines,
United States v. Kimbrew,
DISCUSSION
Berger raises two issues on appeal. First, he argues that in calculating loss in securities fraud cases, district courts must employ the civil securities fraud “loss causation” approach as described in
Dura Pharmaceuticals,
I. Loss Causation Principles Applied to Criminal Securities Fraud
Berger first argues that the district court erred by including losses in its $2.1 million shareholder loss figure that did not actually occur, or that were not caused by his fraudulent conduct.
A. Civil Securities Fraud Standard
The Supreme Court has ruled that to sustain a damages claim for civil securities fraud under 15 U.S.C. §§ 78j(b) and 78u-4, a plaintiff must show that the fraud was publicly revealed and that the disclosure caused the shareholders to suffer loss.
Dura Pharms.,
B. Application of Civil Rule to Criminal Securities Fraud
The Supreme Court has not applied its
Dura Pharmaceuticals
loss causation principle to sentencing enhancements in criminal securities fraud cases, but two federal circuit courts have suggested that they are applicable in this context. In
United States v. Olis,
the Fifth Circuit intimated that the civil loss causation principle described in
Dura Pharmaceuticals
should inform criminal securities fraud sentencing.
See Olis,
And in United States v. Rutkoske, the Second Circuit endorsed the application of Dura Pharmaceuticals’s principle to criminal sentencing even more strongly, stating that:
[t]he Government contends that the principles set forth in Dura Pharmaceuticals, a civil case, should not apply to loss calculation in a criminal case. The dicta in [our decision in United States v. Ebbers,458 F.3d 110 , 128 (2d Cir.2006) ] strongly undermines that position. Moreover, we see no reason why considerations relevant to loss causation in a civil fraud case should not apply, at least as strongly, to a sentencing regime in which the amount of loss caused by a fraud is a critical determinant of the length of a defendant’s sentence.
This court has not applied
Dura Pharmaceuticals’s
strict loss causation standard to criminal fraud cases, but we have endorsed a more general loss causation principle, permitting a district court to impose sentencing enhancements only for losses that “resulted from” the defendant’s fraud.
United States v. Hicks,
We decline to do so for two reasons. First, we believe that the primary policy rationale of
Dura Pharmaceuticals
for proscribing overvaluation as a valid measure of loss does not apply in a criminal sanctions context. Second, application of
Dura Pharmaceuticals’s
civil rule to criminal sentencing would clash with the parallel principles in the Sentencing Guidelines, which have persuasive value in federal courts.
See United States v. Staten,
As noted,
Dura Pha'rmaceuticals
rejected the notion that an allegation by a private plaintiff that he purchased securities that were overvalued because of fraud is sufficient to state a damages claim for civil securities fraud.
The Dura Pharmaceuticals Court’s concern is not implicated in the criminal sentencing arena. As demonstrated, in a private civil fraud action, a court gauges loss from the perspective of the plaintiff-victim, i.e., whether the plaintiff can show the amount and cause of loss he sustained. Id. Because a civil plaintiff bears the burden to show loss, it is logical to require that the plaintiff show that any loss he sustained was attributable directly to devaluation caused by revelation of the defendant’s fraud. It likewise follows that a plaintiffs mere allegation that he purchased overvalued stock is insufficient to state a claim, because the allegation does not by itself establish that the plaintiff personally incurred loss commensurate with the overvaluation.
In criminal sentencing, however, a court gauges the amount of loss
caused,
i.e., the harm that society as a whole suffered from the defendant’s fraud.
See, e.g., Zolp,
The Sentencing Guidelines provide further support for limiting the scope of Dura Pharmaceuticals’s loss causation rule in a criminal sentencing context. In arguing for this interpretation, the government cites the commentary to the 1995 Guidelines (the version applied at Berger’s sentencing), specifically its endorsement of a flexible approach to loss calculation in criminal sentencing. 8 E.g., Zolp, 479 F.3d *1045 at 718-19. The government notes that § 2F1.1 commentary note 8 of the 1995 Guidelines 9 states that:
The court need only make a reasonable estimate of the loss, given the available information. This estimate, for example, may be based on the approximate number of victims and an estimate of the average loss to each victim, or on more general factors, such as the nature and duration of the fraud and the revenues generated by similar operation. The offender’s gain from committing the fraud is an alternative estimate that ordinarily will underestimate the loss. 10
In addition, the government contends that § 2F1.1 condones measuring loss by overvaluation. See U.S.S.G. § 2F1.1, cmt. n.7(a) (1995). That note states:
[a] fraud may involve the misrepresentation of the value of an item that does have some value (in contrast to an item that is worthless). Where, for example, a defendant fraudulently represents that stock is worth $40,000 and the stock is worth only $10,000, the loss is the amount by which the stock was overvalued (i.e., $30,000).
Thus, were
Dura Pharmaceuticals’s
loss causation rule applied to criminal sentencing enhancements, that principle’s plain rejection of the overvaluation loss measurement method,
see
For these reasons, we decline to require, in finding facts relevant to sentencing, a showing that “share price fell significantly after the truth became known.”
Dura Pharms.,
C. The District Court’s Loss Valuation Approach
While the district court was not required to follow Dura Pharmaceuticals’s loss causation approach, the loss-calculation method it did employ troubles us; it leaves us with little confidence that the government demonstrated, by the applicable standard of proof, 11 that shareholder loss occurred, let alone that approximately $2.1 million of loss occurred.
Though the Guidelines state that courts may employ various methodologies to determine loss and that loss need not be established with precision, the fact that “[t]he court need only make a reasonable estimate of the loss,” U.S.S.G. § 2B1.1, cmt. n. 3, § 2F1.1, cmt. n. 8, does not obviate the requirement to show that actual, defendant-caused loss occurred. Rather, the plain language of the Guidelines commentary merely indicates that, in arriving at the loss figure, some degree of uncertainty is tolerable.
First, the Guidelines’ statement that the “estimate [of loss] ... may be based on the approximate number of victims and an estimate of the average loss to each vic *1046 tim,” U.S.S.G. § 2F1.1, cmt. n. 8, presupposes that the court has already determined that some defendant-caused loss occurred. Indeed, without any loss to victims, there would be nothing on which to base an estimate. In the same way, the fact that the loss estimate “may be based on ... general factors, such as the nature and duration of the fraud and the revenues generated by similar operation,” id., or on the “offender’s gain from committing the fraud,” id., does not suggest that a court is relieved of the duty to determine that some loss actually occurred. Even the overvaluation method example in § 2F1.1 commentary note 7(a) does not suggest that a showing of actual loss is unnecessary. That illustration provides a model for calculating the amount of loss where fraud caused the value of stock to decrease, but where the stock retained residual value. The example assumes that the stockholders were left holding stock that depreciated because of the fraud. In sum, each of these possible methodologies assumes that some loss was proximately caused by the defendant, while recognizing that the amount of loss may not be easily measurable.
In determining that the shareholder loss was $2.1 million in this case, the district court employed a eounterfactual approach. The method examined the effect on the stock value of other, unrelated companies after accounting irregularities were disclosed to the market. Using that method, the court determined that the average depreciation in value was 26.5%. That figure was applied to the value of Craig’s initial public offering. The court’s method appears to have assumed that defendant-caused shareholder loss existed, and only then purported to measure that loss. Moreover, that measure of loss was not based on Craig’s finances or on the actual effect of Berger’s fraud, but rather on data from other companies in previous years and different economic conditions. More importantly, it was based on cases in which there had been disclosure of accounting irregularities to the market, despite the fact that Craig’s accounting irregularities were never disclosed while its stock was still publicly traded. As a result, because the method did not properly establish that Berger’s sentence was based only on “ ‘all harm that resulted from the acts or omissions’ of the defendant,”
Hicks,
We therefore remand to the district court to redetermine, based on the principles described herein, how much of the shareholders’ loss was actually caused by Berger’s fraud. While we do not dictate the exact method the district court must use, we note that whatever method is chosen should attempt to gauge the difference between Craig’s share price — as inflated *1047 through fraudulent representation — and what that price would have been absent the misrepresentation.
II. Standard of Proof in Finding Sentencing Facts
Berger next argues that, in circumstances such as these, due process requires the district court to find the loss amount by clear and convincing evidence, rather than by a preponderance of the evidence.
A. Nature of Dispute
Maintaining that preponderance of the evidence is the proper standard, the government first argues that Berger challenged only the methodology of the district court’s determination, which is a purely legal dispute.
See, e.g., United States v. Hardy,
This argument fails for two reasons. First, contrary to the government’s characterization, Romero-Rendon declined to address the appropriate standard of proof; instead, the court held that the unchallenged pre-sentence report constituted clear and convincing evidence of the critical predicate fact. See id. at 1165. Here, however, Berger vigorously challenged the loss calculations before the district court.
Second, although the parties disputed the validity of the district court’s loss calculation, making such a calculation necessarily involved the district court’s determination of how much loss was suffered, an issue we have held to be one of fact.
See, e.g., United States v. Garro,
B. Standard of Proof for Finding Sentence-Enhancing Facts
A district court typically uses a preponderance of the evidence standard when finding facts pertinent to sentencing.
United States v. Armstead,
Since
Restrepo,
we have not been a model of clarity in deciding what analytical framework to employ when determining whether a disproportionate effect on sentencing may require the application of a heightened standard of proof. Some of our cases have explicitly stated that where the sentencing enhancements are based on charged conduct, i.e., the “offense of conviction,” employing a preponderance of the evidence standard does not implicate
Restrepo’s
due process concerns.
See, e.g., United States v. Harrison-Philpot,
Berger argues that our case law is irreconcilable, or premised on an indefensible distinction between an enhancement based on the “offense of conviction” and one based on “uncharged” or “acquitted” conduct. He asserts that we have not always been diligent in maintaining this distinction, or even if we have, there is no basis for holding that facts relating to uncharged or acquitted conduct are subject to a heightened standard of proof, while facts relating to the offense of conviction are not.
We decline Berger’s invitation to decide this case on such broad grounds, because a number of our cases squarely address the factual situation presented here. Those cases involve a defendant’s fraudulent conduct where sentencing enhancements for financial loss are based on the extent of the fraud conspiracy. They hold that facts underlying the disputed enhancements need only be found by a preponderance of the evidence.
United States v. Riley,
In
Riley,
the defendant pled guilty to one count of conspiracy to produce fictitious obligations, one count of possession of fictitious obligations, and one count of identification fraud.
In
Armstead,
a jury convicted the defendant of nine counts of bank fraud and one count of conspiracy to commit bank fraud.
*1049
Finally, in
Garro,
the defendant was convicted of eight counts of wire fraud, eleven counts of money laundering, and one count of tax evasion.
Here, like in
Riley, Armstead,
and
Garro,
the enhancement under U.S.S.G. § 2F1.1 is based entirely on the extent of the fraud conspiracy for which Berger was convicted.
See Riley,
CONCLUSION
For the reasons described, we vacate Berger’s sentence, affirm the district court’s ruling on the applicable standard of proof in finding sentence-enhancing facts in this context, and remand to the district court for resentencing before a new district judge 15 consistent with the standards articulated in this opinion.
AFFIRMED in part, REVERSED in part, VACATED and REMANDED.
Notes
. Richardson, Craig’s Chief Financial Officer until May 31, 1997, pled guilty to three counts of the indictment prior to trial. Metz was at various times a Vice President in Craig’s Hong Kong and Cerritos, California locations.
. Our prior decision in this case provides a more detailed description of the scheme.
See United States v. Berger,
. It is unclear the extent to which this decline resulted from the restated earnings, as opposed to unrelated external market forces or other factors.
. The district court used the 1995 version of the Sentencing Guidelines to avoid creating a potential ex post facto problem.
.
But see United States v. Williamson,
. The government in this case concedes that, "in order to be a basis for an increase in base offense level under the guidelines, the losses from defendant’s securities fraud offenses must have resulted from those offenses.”
. We note that, based on this reasoning,
Dura Pharmaceuticals
may be more relevant in the context of criminal
restitution
under, for instance, the Mandatory Victims Restitution Act of 1996 (MVRA), 18 U.S.C. § 3663A, which, unlike the sentencing enhancement scheme, focuses on harm to the victims as opposed to loss caused by the defendant.
See, e.g., Berger,
. The Guidelines, including those for enhancements purposes, "are ordinarily applied in light of available commentary, including application notes.”
Staten,
. Section 2F1.1 was repealed in 2001.
. Similarly, the government points out that § 2B1.1 commentary note 3 provides that:
The court need only make a reasonable estimate of the loss, given the available information. This estimate, for example, may be based upon the approximate number of victims and the average loss to each victim, or on more general factors such as the scope and duration of the offense.
. As we discuss below, the standard in this case should be preponderance of the evidence.
. In concluding that the district court’s method was erroneous, we do not suggest that Berger’s fraud caused no loss to investors. The district court found that Craig’s spring 1997 stock value decline was "unrelated to Berger's criminal conduct" because it resulted not from disclosure of fraud, but from disclosure of the company's poor financial status. But that conclusion is valid only in the narrowest sense. While revelation of Berger’s fraud to the public did not depreciate Craig’s stock value (as Craig was no longer publicly traded by that point), it appears that the stock value was overvalued, at least in part, because of the fraud. As a result, many investors were likely induced to buy Craig stock at its IPO price under the false pretenses created by Berger and his cohorts. Had Craig’s financial troubles not been masked by fraud during the IPO, then surely (assuming the IPO had happened at all) Craig’s stock price would already have been significantly lower in spring 1997, Craig's earnings would not have required restatement, and the stock value would not have plummeted.
. The government cites only a withdrawn version of
Romero-Rendon,
. Berger's reliance on
Staten
and
Zolp
is misplaced. Neither
Staten
nor
Zolp
focused on the standard of proof, and therefore neither calls into question our holdings in
Riley, Armstead,
or
Garro. See United States v. Johnson,
. The district judge in this case, the Honorable Robert M. Takasugi, passed away on August 4, 2009.