United States v. Goyal

can plying principle, this the court hold preempted regardless

state law of “wheth

er National Government had acted

and, had, if reference to without conflict,

degree principle having

been established that Constitution en foreign policy exclusively

trusts to the Na Garamendi,

tional See Government.” 2374;

U.S. at 419 n. 123 S.Ct. accord Saher,

Von 963-64.

Accordingly, I would conclude there is

an express foreign policy, Presidential

acquiesced in by Congress, prohibiting

legislative recognition of the “Armenian formally By

Genocide.” recognizing the Genocide,” §

“Armenian 354.4 directly foreign policy.

conflicts this More-

over, from concerning far an area of tradi- interest, §

tional state 354.4 instead in-

fringes upon federal government’s

prerogative foreign to conduct affairs.

Therefore, I respectfully dissent

would reverse the district court’s order 12(b)(6)

denying the Rule motion to dis-

miss. America,

UNITED STATES

Plaintiff-Appellee, GOYAL, Defendant-Appellant.

Prabhat

No. 08-10436.

United States Court of Appeals,

Ninth Circuit.

Argued and Submitted Jan. 2010.

Filed Dec. 2010. NAI, Goy- alleged that under generally accept- supervision,

al’s violated (“GAAP”) principles ed recognizing revenue certain software Goyal earlier than it should have. allegedly concealing for was indicted accounting from NAI’s outside improper filing reports and for with the auditors that, Exchange Commission Securities accounting, allegedly reporting pe- revenue certain misstated Goyal ar- between 1998 and 2000. riods him gues that no could have found doubt, guilty a reasonable as the did, jury below on the evidence the based prosecution presented agree, at trial. We Stretch, (argued), Rosen Brian Amber S. on all and we reverse his convictions Becker, At- Assistant United States Elise counts. CA, Jose, plaintiff-appel- torneys, San of America. lee United States Background I. (argued), Jonathan E. P. Seth Waxman 2001, Goyal approximately From 1997 to Nuechterlein, Bollinger, Carey Wilmer NAI, financial officer of NAI. was chief LLP, Pickering Hale and Dorr Cutler McAfee, formerly known was and D.C., Washington, Fleming, and Mark C. major antivirus mains vendor of Hale Dorr Pickering Wilmer Cutler security software. network Boston, MA, LLP, defendant-appellant 1998, NAI used a “direct sales” Before Goyal. Prabhat model, it meaning primarily business LLP, Falk, Mayer M. Brown Donald directly In its software to end users. sold Alto, CA, for Amicus National Associ- Palo 1998, the added a “distribution Lawyers. ation of Criminal Defense model, through selling products channel” companies. These distribu- distribution software to retail tors in turn sold NAI’s the software to end stores that resold users. prosecution’s against case KOZINSKI, Chief ALEX

Before: challenged method WALLACE and J. Judge, CLIFFORD used, Goyal’s supervision as under CLIFTON, Judges. R. Circuit RICHARD CFO, from sales to recognize distributor, Ingram its largest domestic

OPINION took In particular, Micro. CLIFTON, Judge: Circuit method NAI with the issue recognize large sales that made used to Goyal, financial of- Prabhat former chief quarters at the end financial Associates, (“NAI”), Inc. ficer of Network Following prac- and 2000. between 1998 convictions on fifteen appeals from his industry, in the software common tice making ma- counts of securities fraud did not contend was to auditors. The which terially false statements channel). significant illegal, negotiated quarter- tion Sell-through accounting Ingram, “buy-in” end deals with called recognizes revenue later than sell-in ac- transactions, help quarterly meet rebates, counting does and nets out dis- sales, To projections.1 revenue close these counts, and returns. Thus the manufac- discounts, granted Ingram substantial turer does need to estimate their effect rebates, and other favorable sales terms. on its revenue. Ingram One enticement that NAI offered Goyal convicted of one count of in of quarters the last two 1998 and the securities fraud and seven mak- counts of 1999, quarter guarantee of was a first ing filings false (collectively, with the SEC NetTools, wholly subsidiary, its owned counts”),3 securities “the and seven counts product In- repurchase would unsold materially of making false statements gram specified amounts. NetTools PricewaterhouseCoopers NAI’s auditors at product sell repurchased would then the (“PwC”) (the counts”).4 “lying-to-auditors customers.2 government did not contend Goyal’s conviction, After the district any gave of the sales concessions that NAI court denied his motions judgment of Ingram in the improper deals were acquittal new trial. ap- or that NAI claimed revenue that it never pealed. Rather, the government objected earned. timing to the recognition of reve- II. Discussion nue from government these deals. The maintained that NAI violated GAAP review We de novo the district using recognize “sell-in” rev- Goyal’s court’s denial of 29 Rule motion for enue from these deals earlier than it judgment acquittal. See United States thereby should have and overstated (9th its 412, Cir.2006). Mosley, 415 revenue. accounting, Under sell-in a man- We must decide “whether ‘after viewing recognizes ufacturer like NAI revenue light the evidence most favorable to it ships products when to its distributors prosecution, any rational trier of fact (i.e., channel). in” “sells to the distribution could have found the essential elements of ” The manufacturer must estimate crime[s] reasonable doubt.’ rebates, amount of future discounts or re- Nevils, United States v. turns and then its reduce stated revenue (9th (en Cir.2010) banc) (quoting by this amount. 307, 319, Virginia, Jackson v. 443 U.S. (1979));

By contrast, S.Ct. L.Ed.2d see using “sell- Brown, through” accounting recognizes -, also McDaniel v. revenue 558 U.S. 665, 673, (2010). when its product distributors sell the to a 130 S.Ct. 175 L.Ed.2d 582 (i.e., reseller through” “sells apply the distribu- We this standard to the securities Quarter-end (sales 1. place push effectively transactions took what were direct sales every quarter except between users) 1998 and fledgling between NAI and end into quarter for the second when channel, trying it was distribution which then already and other distributors had too much promote. inventory. 78ff; 78j(b) §§ 3. See & 15 U.S.C. 17 C.F.R. 2. Manager NAI's former Senior of Finance § 240.10b-5. Operations explained arrange- that this ment, repur- in which NAI sold and then 78ff; 78m(b)(2) §§ 4. & See 15 U.S.C. product, chased its arguably own busi- made § C.F.R. 240.13b2-2. ness sense It time. allowed NAI to GAAP, in violated because the counts lying-to-auditors counts clearly carry its burden on failed turn. materiality. prosecution point, second Counts A. Securities adequate prove offered materially affected violations securities counts—one All of the reported. that NAI fraud and seven counts revenue count securities filings false the SEC— making trial on the relied at prove required sell- applying parties’ stipulations materially misstated accounting to NAI’s entire busi- through years quarters in certain earned in “a revenue would have resulted ness method. choice of through its than re- figure materially that is less the allegedly inflated revenue reports NAI’s in figure” periods charged for ported the materi “untrue statement of furnished the stipulations filing the false counts.5 These filing each of the false required fact” for al overbroad, however, fatally are because counts, state “misleading as the as well not that the did contend a material fact made ment omission sell-through required NAI to use to sustain fraud needed with scienter” accounting for all sales. The pro antifraud general the under conviction ac- sell-through evidence that only offered 10(b) Ex § of the Securities vision of Ingram buy- counting required for the was States v. change Act of 1934. United transactions, stipulations in and the did (9th Cir.1998) Smith, 1051, applying sell-through account- provide that (internal numbering marks and quotation have ing to transactions alone would those omitted). of elements any given in made a material difference contention that government’s much period. Without of how its revenue necessar- materially overstated recognized revenue NAI would have less (1) that two claims: NAI rec- ily entailed Ingram if it had used sell- on the deals than it a different time revenue at ognized accounting, had through jury the no basis (2) have; that NAI’s account- should that the misstatement of conclude artificially higher revenue ing produced the ported resulting from periods that “would have figures in certain presum- Even transactions was material. by reasonable investor as viewed the been must, jury the ing, as we drew the mix’ having altered ‘total significantly prosecution’s inferences the reasonable available.” Basic Inc. information made Nevils, favor, F.3d at there see 224, 231-32, Levinson, 485 U.S. v. way inferred properly no it could have was (1988). 99 L.Ed.2d 194 S.Ct. it had before materiality from the evidence to make its relied on GAAP it. case, sell-through point, on the first problem, gov- this the Confronted required instances that the argued ernment after verdict But the sell-in method. where NAI used materiality actually jury could have inferred not decide whether need we sell-through stipulations, one tion were seven such 5. There accounting period. fig- period The first a revenue each relevant would result in same provided: stipulation materially reported less than ure respect figure. Count Three of Indict- With year identical, except In its Form 10-K for the fiscal stipulations ment: other 13, 1998, Network Associ- ended December figure was revised to the net revenue ates, (“NAT'), reported net revenue in Inc. stipulation. period by the covered reflect $990,045,000. applica- the amount of fact that It mere deals with NAI’s revenue. would have been “mere Ingram were substantial. The dollar speculation, rather than reasonable infer- purchase amounts in orders for these ence,” Nevils, for the transactions, according govern- to the jury to that applying sell-through conclude calculations, “represented approxi- ment’s accounting to the revenue from the In- mately 24% of total revenue for NAI gram themselves would have 1998, 1999, 2000” during and “between made a material difference in the compa- approximately 7% to 40% of total ny’s figures. Goy- total revenue Because quarterly on a revenue” basis. But this al’s competent evidence of argument bridge materiality failed materiality it, before have gap Goyal’sjury had to make properly him any convicted of the secu- materiality findings that his convictions re- rities counts. quired, and it figures. never saw these Rigas, See United States Lying-to-Auditors B. Counts Cir.2007) (2d 231 n. 29 (declining, in a lying-to-auditors The counts de sufficiency-of-the-evidence challenge, pended independent on two statements in the arguments “consider first instance management represen made regarding materiality that were not pre- (1) tation letters to PwC: that NAI’s fi jury”). sented to the nancial complied statements with GAAP jury could not have inferred materi- (2) and that NAI had disclosed “sales ality from this evidence even if it had seen terms.” The charged Goyal it, because it not magni- was the absolute willfully knowingly making false tude of the deals that mattered. statements to PwC. requires Willfulness The jury needed to assess whether NAI’s that Goyal’s actions “voluntarily were accounting use of sell-in for the Ingram knowingly wrongful.” United v. States transactions materially increased NAI’s Tarallo, 1174, 1189(9th Cir.2004). overall compared revenue when to using Knowledge requires that Goyal “was sell-through accounting. But the had aware of falsify the falsification and not did no evidentiary basis making for ignorance, mistake, through or accident.” quired comparisons. There simply was Reyes, United States v. evidence that of using effect sell-in (9th Cir.2009) (internal quotation 1080 rather than sell-through accounting for omitted). marks The government there Ingram transactions was so substantial prove fore Goyal voluntarily that it made a material By difference. calculations, government’s made own statements to PwC that he non-In- knew gram always accounted for most were false.6 13b2-2, promulgated 6. The SEC Rule the ba- false statement an auditor be made know- lying-to-auditors sis for the charges, imple- ingly. impose Rule 13b2-2 could not a lesser 78m(b)(2). § ment 15 U.S.C. Promotion of requirement, mens rea because the SEC can- Information, the Reliability of Financial 44 promulgate not scope a rule whose exceeds 10,964, 10,969 (Feb. 23, Reg. 1979). Fed. implements, that of the statute a and lesser Only "knowingly those who or circumvent requirement mens rea would a criminalize knowingly implement system fail to of inter- broader swath of conduct. See Ernst & Ernst nal knowingly falsify controls 185, 213-14, Hochfelder, U.S. 96 S.Ct. book, record, or account described in (1976) (holding 47 L.Ed.2d 668 78m(b)(2) subject [§ are prose- ]" to criminal impose Rule liability negli- 10b-5 cannot provision. cution under 15 U.S.C. conduct, gent because the statute under 78m(b)(4), (5). § liability Criminal under scienter). promulgated requires which it was Rule requires 13b2-2 therefore also occurred, that could “be allowed “future returns” in this case the events When at the time of sale. reasonably distributors estimated” for sales to (f). ¶ guidelines: 48, 6(a), category two The second FAS governed Board Accounting NetTools, subsidiary Standards Financial involves 48”) (“FAS State- No. 48 repurchase prod- Statement used (“SOP 97-2”). FAS Position 97-2 ment of al- Ingram. uct the use sell-in 48 allowed preclud- NetTools that NAPs use of leged only when: recognition because the ed sell-in revenue price buyer to the The seller’s

1. “signifi- arrangement amounted NAPs or determinable substantially fixed performance obligation[ for future ] cant sale; date directly bring product.” about resale significant ¶ does not have 6(e). The seller 2. FAS to di- performance future obligations for prices and returns a. Uncertain bring product resale of

rectly about buyer; and by the argues that terms in be can of future returns 3. The amount allowing future Ingram deals ad- reasonably estimated.7 prices, sell-through justments to such ¶ (Fin. Accounting rebates, Standards prices FAS meant that “sub- 1981). only pro- Bd., SOP June stantially fixed or determinable” when required that in this case vision at issue undisputed, It is NAI made sales.8 “[vjendor’s be “fixed or determinable” fee” however, contingencies do not that future par- The recognized. revenue was when recognition improp- render sell-in this was func- that condition agreed ties reasonably can estimate the er if the seller “substantially to tionally equivalent the contingencies of and set aside effect the of 48. prong FAS or determinable” fixed adequate to cover them. The reserves therefore, only prove could prosecution, Compliance 1. with GAAP violation species this of GAAP lying-to-auditors first basis for the The that by showing reasonable doubt the to whether requires us decide counts reasonably account for reserves did that NAPs have concluded could the sales. The quarter-end terms of the revenue violated recognizing of method on failed make its case this prosecution prove that GAAP. point. PwC that Goyal’s representations to materially false evidence with were offered no complied GAAP misleading, were, fact, knew that. or he inade- reserves that NAPs Instead, it on equivocal relied quate. al- NAPs analysis group the It aids from statements witnesses— conclusory categories. into two leged GAAP violations Hans Winters and Robert Stav- principally allegations category encompasses first ers, at PwC—to the two of NAPs auditors under improper was that sell-in like would terms rebates effect sales Ingram of the deals because terms GAAP the questions “raise about prices that were allegedly involved using.” Even where the wit- determinable,” or “substantially fixed or Another, executed software licenses. imposed on several more conditions 7. FAS 48 only promised recognition, quarter of timing but first of revenue end case. disputed in this three are box” sales in these on rebate retail/academic “3% year. quarter of that the second Ingram a example, granted one deal 8. For margin” [profit] resales "[gjuaranteed 3% did, testified that certain terms prove nesses would needed to what NAI not what preclude accounting, govern- sell-in hypothetically terms pos- made ment adequate admits that reserves would Ingram’s sible. Without problems, resolve these GAAP and the turns were not amenable to reasonable opine witnesses had no basis to on whether estimation, juror no reasonable could have actually inadequate. NAI’s reserves using found that sell-in these sales violated GAAP. observed, As court the district no wit- work, ness had “done perform[ed] [or] b. NetTools computations that would establish a arrangement basis The NetTools opinion” to render an about how violated FAS applied statements, GAAP if NAI’s financial NAI’s “commitments” to repur- including prespecified quantities reserves set aside.9 With chase of its soft- were, no evidence of what NAI’s reserves Ingram ware from “signifi- amounted to they how fell obligations short amounts that the cant performance for future Ingram juror required, no reasonable directly bring product.” about resale of the ¶ 48, 6(e). have violation found GAAP FAS contends that the depended on insufficient reserves. NetTools “commitments” were not “signifi- obligations” cant were not A problem respect similar arose technically binding agreements, but mere- Ingram sales terms that allowed to return ly “forecast[s]” how much software Net- only software to NAI. allows sell-in Tools would back buy Ingram. accounting to used “[t]he be when amount reasonably future can returns be esti- of Ingram’s One buyers associate testi- ¶ 6(f). mated.” FAS although fied guar- “there [were] argued that certain terms antees, ... spot-on the forecast came in gave transactions an unlimited every time for Net Tools.... If they said right purchased, to return software it and Net Tools was going do 25 million that an right unlimited return of automati- through the of quarter, end on the last cally accounting. defeated sell-in day quarter of the receiving we were Net Tools’[purchase up until 2:00 in the testified, orders]

Stavers a response hypo- to morning to make sure that we hit 25 mil- question, thetical that “if the distributor lion.” relied on the NetTools had fore- right return, an unlimited of then ... predict casts to inventory. own And we do not possi- believe would have been forecasts, NAI used its NetTools in quar- to ble estimate the return.” But he did negotiations ter-end Ingram, not with to base this as- analysis statement on an sure it that quantities NAI’s certain actual return of software estimations. FAS 48 lays subsequent would sell in quarters. out four may “factors Even impair the [that] if ability these formally to make a commitments were not reasonable estimate” of ¶ enforceable, 48, future returns. FAS the evidence clear 8. No makes witness applied parties these factors to both treated them as deals reliable and or concluded expected that NAI could not to accurate- them be honored. A reason- ly estimate returns. prosecution juror able could have concluded prevented 9. The district court expert Winters and witnesses. We to decline decide (and prosecution's Stavers all of the wit- whether evidence of the sort the nesses) offering prosecution conclusions about the requires needed to make its case application requirements expert testimony, and of GAAP inde- because such evidence was pendent offered, previous experience of their properly improperly, not or in this put NAI because were not forward as case.

919 Corp., F.Supp.2d within First Sec. 249 1270 commitments fell NetTools (D.Utah 2002) (effort analysts’ “to “significant obligations,” meet meaning disappoint violated numbers and not is using thus that sell-in Wall Street merely company’s an example a shared GAAP. good” imply motives to look that does not so, the prosecution Even engaged “that the was in fraudu willfully knowingly prove conduct”). Similarly, Goyalis pre lent PwC when he asserted that misled knowledge qualified sumed of GAAP as a are mindful complied with GAAP. We criminally not make him respon CFO does that the mere fact that “evidence submit every sible for his conceivable mistake. If wholly suscepti by ted understanding accounting or simply rules explanations,” ble innocent such as optimizing company’s performance a understanding “com Goyal’s alternative scienter, enough to establish then ac mitments,” a con enough is not reverse by company’s tion a chief financial officer appeal. United v. Wise viction on States juror a hindsight could conclude in (9th Cir.1994) man, 25 subject false misleading was could him Nevils, (quoted overruled liability regard fraud without to intent 1166-67). jury long As could That be. deceive. cannot Merck & Cf. culpable con accepted explanation have Co., -, Reynolds, Inc. v. 559 U.S. proof of con sistent with the defendant’s 1796-97, S.Ct. L.Ed.2d 582 duct, assume, in prosecution’s must we (2010) (holding that “facts that tend to favor, Nevils, jury did so. a materially misleading show false or 1166-67; F.3d at see United States v. do always statement” suffice “to show (9th Dinkane, Cir. well”). Goyal’s compen scienter as That 1994) (“The inquiry relevant is not wheth sation was linked to NAI’s success—half of every hypothesis the evidence excludes er achieving corpo his bonus based on except guilt, but whether goals change rate matters. verdict.”). —does reasonably arrive at its general merely Such a financial incentive nonetheless must offer some Goyal’spreexisting duty max reinforces support culpable explana performance, seeking his imize NAI’s there is total failure of “[WJhere tion. inherently expectations to meet cannot be state, required mental we proof’ A.T. probative Aldridge of fraud. See Nevils, a conviction. cannot affirm Cir.2002) (1st Corp., Cross Scribner, (quoting at 1167 Briceno v. (financial company’s incentive linked to (inter (9th Cir.2009)) 1069, 1079 performance enough “cannot be estab omitted). quotation gov nal marks The if far “go lish scienter” it does not any failure to offer evidence ernment’s compensation usual of arrangements an inference of willful and supporting even company’s earnings”). based on the knowing deception undermines its case. government argues Goyal that also ways government offers several various must have known about revenue jury could have inferred fraudu- that the recognition problems others at because conduct, Goyal’s lent intent from but none claimed that were aware support can the inferences the of Eric Borrm- improprieties. Goyal’s NAPs would draw. desire meet (and ann, vice later trea- president NAI’s knowledge targets, and his of and revenue surer), that he there testified believed help in deals to make that participation relate to Goyal’s were “balance-sheet issues that happen, simply doing evidence of See, not suffi- job e.g., perhaps the lack of reserves. Or diligently. his Anderson v. Pro, ... ingly misleading. cient There is also lack of reserves. SEC v. Retail Cf. Inc., relating issues disclosure around 673 F.Supp.2d Collins, (S.D.Cal.2009) (CFO channel.” Evan [distribution] violated Rule 13b2-2 controller, NAI’s offered corporate former by signing management representation let- opinion his that of the terms ... “some he stating “knowledge ters had no of alle- [buy-in] agreements certain ... would gations suspected of fraud or fraud” after recognition.” ruin [sell-in] company’s contract administrator sent him credibly an email alleging that there was of Neither these witnesses found fault fraud); commitments, however, potential Espuelas, SEC v. the NetTools (S.D.N.Y.2008) any F.Supp.2d light Goyal (finding so shed what neither on knew or know arrange- did not about that violation Rule 13b2-2 where there testimony ment. Borrmann’s concerned were no “red flags” that indicating state- for uncertain terms in ments to misleading). auditors were buy-in deals such as rebates dis- sum, In various GAAP violations counts; these are unrelated NetTools. alleged, only problem with NetTools perceived Collins’s statement was about supported by government’s proof. letters; problems buy-in with written But no supported finding made orally. its NetTools commitments Goyal knew NetTools’s commitments Because neither Borrmann’s nor Collins’ violated GAAP. The lying-to-auditors NetTools, testimony anything said about counts, therefore, cannot be sustained testimony prove anything did not ground that Goyal’s assertion of GAAP Goyal’s subject. about knowledge on that compliance to willfully PwC was and know- The government also suggests that a ingly false. Goyal’s could infer intent from state- ment that “he couldn’t know about” a A Disclosure sales terms president memo NAI’s vice of sales distri- Goyal also affirmed in signed seven bution had sent him questioning NAI’s management representation letters the terms of several PwC that “fully disclosed to enclosing deals documenting letters terms, all including [PwC] all rights those terms. appears adjustments, of return price argue did not want to know warranty provisions.” about the letters because that would have argued this willfully statement was made compli- his statements about GAAP false, knowingly independent knowingly ance misleading. But inci- this violation, NAI, Goyal’s dent not prove anything does sort direction, did not turn over the because the memo and letters were not letters memorializing quarter-end In- related to whether NAI’s use of sell-in gram transactions. accounting complied with GAAP did and Goyal contends that his affirmations flags raise red it. about NAI false, disclosure were not because PwC president vice claim of sales did not that had access to all through “sales terms” GAAP; the in terms the letters violated indeed, Ingram’s debit memos. Whenever he admitted that he had idea no buy-in deal, claimed concession from a it payments what the documented in let- the ters for. sent NAI debit requesting were memo that therefore produced promised no Goyal’s evidence that the discount or knowl- rebate be hon- edge of the Ingram typically letters’ contents would have ored. cited the deal term made his to statements the know- sought apply, auditors it to and sometimes attached tions, buy-in supra, equal- part apply letter for see II.B.l.b its of the relevant copy ly Goyal’s knowledge withholding reference. to buy-in gov- The inferences the letters. government maintains that juror ernment would have a draw—from only satisfy duty to disclose “sales Goyal’s accounting knowledge partic- by disclosing buy-in the letters terms” transactions, ipation buy-in in from his in- information, trick- Equivalent themselves. the centives to use deals to meet NAI’s in the of debit ling piecemeal in form revenue, not, according projected by attributing Ingram, from did to memos Goyal up knowledge measure to what Borrmann and claimed government, the Collins’ to Goyal claimed have disclosed. to no in this more valid con- —are reject them for text. We the reasons al- ques- is a close Whether this is correct ready articulated and turn now to argu- on recognized tion. NAI based specific buy-in ments to the letters. orders, invoices, and Ingram’s purchase memos, buy-in not the letters that debit government points to Collins’ testi- terms be. spelled out what sales would he, mony corporate controller, that Goyal reasonably thought, in could have buy-in withheld from letters PwC because faith, conveying the sales terms good Goyal is what he believed wanted. recognize in forms NAI used to one the periods Collins left before the time revenue was sufficient. Our review a lying-to-auditors covered the counts. us, however, acquit limits motion therefore, opinion, only pertinent His found, juror what a reasonable could have supports extent it an inference that enough juror for a and there was evidence Goyal’s period intentions in the relevant buy- of the to conclude nondisclosure the same as were Collins assumed in letters mattered. Stavers testified that during tenure. were his More fundamen- for important would have been “[i]t [PwC] tally, though, no Collins offered basis for in these letters order to have seen Goyal’s his belief about intentions. He accounting for proper determine the Goyal admitted that had never told him to explained He further sales transactions.” PwC, withhold letters adequately pro- that a debit memo did not introduced other evidence vide him with “the terms of the deal” Goyal To wanted them withheld. in “after because the debit memos came contrary, Goyal Collins told that he would help “It us on 30th fact”: doesn’t June compliance [SOP “[e]nsure 97-2] at August, look a document issued year audit,” filing end “[m]eet order for us determine the quirements.” speculation by Baseless juror of June.” A the end reasonable cooperating proof witness is of fraudu- concluded that could have letters intent, especially lent when contradicted necessary a “full[ ]” were disclosure of Goyal expect reason to terms,” Goyal’s repre- “all and that compliance auditing requirements. subject on that sentations to PwC materially false. court Finally, district relied notion that could be convicted of if

But even sales terms were not dis- lying to PwC because he “had an affirma- PwC, government’s case suf- closed set forth in responsibility tive proof,” from a failure of fered “total Nev- —as management representation letters —to ils, 1167, Goyal willfully 598 F.3d letters. But even if he disclose” and knowingly misled PwC. Several of the did, his government’s arguments failure to do so does not indicate inferring theory rea in mens connection GAAP viola- scienter. The district court’s is 922 legality.

therefore untenable because makes ble But criminal law should strict-liability out of one that re- crime clearly separate conduct that is criminal quires knowing deception. willful and from legal. conduct that is This is Cfi Smith, 1051, v. 155 F.3d United States only consequences the dire aof (9th Cir.1998) 1068 n. 25 (declining to disenfranchisement, including conviction— 78ff(a) adopt § a construction of 15 U.S.C. incarceration and even deportation —but that “de facto eliminates the mens rea also because criminal law represents the requirement”). proof that any Absent community’s type sense of the of behavior Goyal willfully concealed letters that merits the moral condemnation of so- PwC, his convictions on this basis Bass, ciety. See United v. States 404 U.S. must be reversed. 336, 348, 515, 92 S.Ct. 488 L.Ed.2d (1971) (“[Cjriminal punishment usually III. Conclusion represents the moral condemnation of the viewing Even in light the evidence ”); community .... see also Wade v. Unit- prosecution, most favorable to the no rea- States, 64, (9th Cir.1970) ed 426 F.2d juror sonable have found (“[T]he person declaration that a is crimi- guilty beyond a any reasonable doubt of nally responsible for his actions is a moral charges against him. judgment judgment of the community....”). When REVERSED, court district is prosecutors have to stretch the law or the entry case is REMANDED judg- conviction, evidence to secure a did acquittal ment of counts. here, hardly it can be said such moral Judge KOZINSKI, judgment

Chief concurring: is warranted. This ease has consumed an inordinate Mr. Goyal had the exceptional- benefit of resources, taxpayer amount of and has no ly advocacy fine on appeal, spared so he is doubt devastated the personal defendant’s punishment for a crime he didn’t com- professional life. The for defendant’s mit. But not everyone lucky. is so employer mer paid footing also a price, shouldn’t have brought multimillion dollar bill for the defense. charges unless it had clear And, end, in the couldn’t wrongdoing, judge trial should prove that the defendant engaged in have dismissed the case prosecu- when the criminal conduct. This just is one aof tion rested and it was clear the evidence string of recent cases which courts have support could not Although a conviction. prosecutors found that federal overreached now Goyal, we vindicate damage Mr. much by trying to stretch criminal law has been done. can only hope One that he proper bounds. See Arthur Andersen family and his will recover from the ordeal. States, LLP v. 696, United 544 U.S. 705- And, 08, perhaps, be will 125 S.Ct. 161 L.Ed.2d 1008 (2005); more cautious the future. United v. Reyes, States (9th Cir.2009); United v. States Brown, (5th Cir.

2006); Moore, United States cf. (D.C.Cir.2010) (Kavanaugh,

J., (breadth concurring) of 18 U.S.C. abuse).

§ 1001 prosecutorial creates risk of

This way sup- criminal law is

posed to work. Civil often law covers

conduct gray that falls in a area of argua-

Case Details

Case Name: United States v. Goyal

Court Name: Court of Appeals for the Ninth Circuit

Date Published: Dec 10, 2010

Citation: 629 F.3d 912

Docket Number: 08-10436

Court Abbreviation: 9th Cir.