United States v. Campbell
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United States v. Campbell, (1st Cir. 1998).
Opinion
USCA1 Opinion
United States Court of Appeals
For the First Circuit
____________________
No. 97-1164
UNITED STATES,
Appellee,
v.
BERNARD F. BRADSTREET,
Defendant, Appellant.
____________________
No. 97-1204
UNITED STATES,
Appellant,
v.
BERNARD F. BRADSTREET
Defendant, Appellee.
_____________________
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Richard G. Stearns, U.S. District Judge] ___________________
____________________
Before
Torruella, Chief Judge, ___________
Stahl, Circuit Judge, _____________
and Lynch, Circuit Judge. _____________
____________________
William J. Kopeny, with whom John W. Powell and Kopeny & Powell, __________________ _______________ ________________
P.C. were on brief for appellant/cross-appellee. ____
John J. Falvey, Jr. and Jonathan L. Kotlier, Assistant United ____________________ ____________________
States Attorneys, with whom Mark W. Pearlstein, Acting United States __________________
Attorney, was on brief for appellee/cross-appellant.
____________________
January 29, 1998
____________________
STAHL, Circuit Judge. Bernard F. Bradstreet is the STAHL, Circuit Judge. _____________
former President and Chief Financial Officer of Kurzweil
Applied Intelligence, Inc., a Massachusetts company that
develops and sells voice recognition software. Following a
twenty-day trial, a jury convicted Bradstreet of conspiring
to commit securities fraud, see 18 U.S.C. 371; securities ___
fraud, see 15 U.S.C. 78j(b), 78ff(a), and 17 C.F.R. ___
240.10b-5 ("Rule 10b-5"); and knowingly falsifying Kurzweil's
books and records in an attempt to conceal his fraud, see 15 ___
U.S.C. 78m(b)(5), 78ff(a), and 17 C.F.R. 240.13b2-2.
Thereafter, the district court departed downward from the
applicable guidelines sentencing range of 51-63 months and
sentenced Bradstreet to 33 months in prison, followed by 24
months of supervised release. It also ordered him to pay
$2.3 million in restitution.
Bradstreet appeals from his convictions on a number
of grounds, only two of which are preserved for plenary
appellate review. The government cross-appeals from the
district court's sentence, arguing that, on the facts of this
case, the downward departure was not within the court's
discretion. We affirm the convictions but vacate the
judgment and remand for resentencing.
-3- 3
I. I. __
We limit ourselves here to a general overview of
the case, deferring more detailed recitations of the facts to
later discussions of relevant issues.
To sell stock to the general public on the
publicly-traded securities markets, a company must apply for
and receive the approval of the Securities and Exchange
Commission (SEC), and thereafter make an initial public
offering (IPO). In connection with the IPO, the company must
file with the SEC a prospectus detailing its overall
financial condition and recent financial performance.
Subsequently, it also must make quarterly filings of SEC
Forms 10-Q, which contain information about the company's
financial performance during the preceding quarter.
Sometime in the early 1990's, the Kurzweil
management hierarchy, led by Bradstreet, initiated a
substantial effort to "take the company public." To this
end, Bradstreet established quarterly projections for
revenues and profits. Bradstreet then pressured Kurzweil's
sales force to meet these projections because investment
bankers were unlikely to underwrite the contemplated IPO
unless Kurzweil could demonstrate profitability for several
quarters in a row.
Companies determine quarterly profits or losses on
either a cash or an accrual basis. In cash basis accounting,
-4- 4
profit or loss constitutes actual dollars received less
actual dollars spent. In accrual basis accounting, profit or
loss constitutes revenue due, whether received or not, less
expense incurred, whether paid or not. Because informed
judgment often determines whether and when revenue actually
is "due," public companies that use accrual basis accounting
must develop revenue recognition policies that both guide the
exercise of such judgment and conform to generally accepted
accounting principles (GAAP).
Prior to the decision to go public, Kurzweil, an
accrual basis accounter, adopted a revenue recognition
policy. In June 1992, management circulated to the sales
staff a memorandum reminding the staff of Kurzweil's
"policies regarding shipment and revenue recognition."
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USCA1 Opinion
United States Court of Appeals
For the First Circuit
____________________
No. 97-1164
UNITED STATES,
Appellee,
v.
BERNARD F. BRADSTREET,
Defendant, Appellant.
____________________
No. 97-1204
UNITED STATES,
Appellant,
v.
BERNARD F. BRADSTREET
Defendant, Appellee.
_____________________
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Richard G. Stearns, U.S. District Judge] ___________________
____________________
Before
Torruella, Chief Judge, ___________
Stahl, Circuit Judge, _____________
and Lynch, Circuit Judge. _____________
____________________
William J. Kopeny, with whom John W. Powell and Kopeny & Powell, __________________ _______________ ________________
P.C. were on brief for appellant/cross-appellee. ____
John J. Falvey, Jr. and Jonathan L. Kotlier, Assistant United ____________________ ____________________
States Attorneys, with whom Mark W. Pearlstein, Acting United States __________________
Attorney, was on brief for appellee/cross-appellant.
____________________
January 29, 1998
____________________
STAHL, Circuit Judge. Bernard F. Bradstreet is the STAHL, Circuit Judge. _____________
former President and Chief Financial Officer of Kurzweil
Applied Intelligence, Inc., a Massachusetts company that
develops and sells voice recognition software. Following a
twenty-day trial, a jury convicted Bradstreet of conspiring
to commit securities fraud, see 18 U.S.C. 371; securities ___
fraud, see 15 U.S.C. 78j(b), 78ff(a), and 17 C.F.R. ___
240.10b-5 ("Rule 10b-5"); and knowingly falsifying Kurzweil's
books and records in an attempt to conceal his fraud, see 15 ___
U.S.C. 78m(b)(5), 78ff(a), and 17 C.F.R. 240.13b2-2.
Thereafter, the district court departed downward from the
applicable guidelines sentencing range of 51-63 months and
sentenced Bradstreet to 33 months in prison, followed by 24
months of supervised release. It also ordered him to pay
$2.3 million in restitution.
Bradstreet appeals from his convictions on a number
of grounds, only two of which are preserved for plenary
appellate review. The government cross-appeals from the
district court's sentence, arguing that, on the facts of this
case, the downward departure was not within the court's
discretion. We affirm the convictions but vacate the
judgment and remand for resentencing.
-3- 3
I. I. __
We limit ourselves here to a general overview of
the case, deferring more detailed recitations of the facts to
later discussions of relevant issues.
To sell stock to the general public on the
publicly-traded securities markets, a company must apply for
and receive the approval of the Securities and Exchange
Commission (SEC), and thereafter make an initial public
offering (IPO). In connection with the IPO, the company must
file with the SEC a prospectus detailing its overall
financial condition and recent financial performance.
Subsequently, it also must make quarterly filings of SEC
Forms 10-Q, which contain information about the company's
financial performance during the preceding quarter.
Sometime in the early 1990's, the Kurzweil
management hierarchy, led by Bradstreet, initiated a
substantial effort to "take the company public." To this
end, Bradstreet established quarterly projections for
revenues and profits. Bradstreet then pressured Kurzweil's
sales force to meet these projections because investment
bankers were unlikely to underwrite the contemplated IPO
unless Kurzweil could demonstrate profitability for several
quarters in a row.
Companies determine quarterly profits or losses on
either a cash or an accrual basis. In cash basis accounting,
-4- 4
profit or loss constitutes actual dollars received less
actual dollars spent. In accrual basis accounting, profit or
loss constitutes revenue due, whether received or not, less
expense incurred, whether paid or not. Because informed
judgment often determines whether and when revenue actually
is "due," public companies that use accrual basis accounting
must develop revenue recognition policies that both guide the
exercise of such judgment and conform to generally accepted
accounting principles (GAAP).
Prior to the decision to go public, Kurzweil, an
accrual basis accounter, adopted a revenue recognition
policy. In June 1992, management circulated to the sales
staff a memorandum reminding the staff of Kurzweil's
"policies regarding shipment and revenue recognition."
Attached to the memorandum was a document dated "7/28/87" and
labeled "Kurzweil Applied Intelligence, Inc. Revenue
Recognition Policy." In relevant part, it stated that
anticipated revenue should not be recognized if "major
uncertainties . . . surround culmination of the [revenue-
generating] transaction" or if "final acceptance by the
customer requires an event out of [Kurzweil's] control . . .
."
After an earlier false start, the IPO closed on
August 17, 1993. Thereafter, as required, Kurzweil submitted
Forms 10-Q for the quarters ending July 31, 1993 and October
-5- 5
31, 1993. The essence of the government's case was that each
of these submissions contained fraudulently-inflated revenue
figures indicating that Kurzweil was profitable when, in
fact, it was operating near or at a loss. In making its
case, the government sought to prove that Bradstreet; Thomas
E. Campbell, Kurzweil's vice president in charge of sales;
and Debra J. Murray, Kurzweil's treasurer and also a vice
president, conspired to and actually did "book" as revenue
the anticipated proceeds of a number of contingent sales
which occurred in time periods covered by the prospectus and
the Forms 10-Q. The government also endeavored to show that
these same individuals, along with David R. Earl, Kurzweil's
vice president in charge of operations, engaged in a scheme
to conceal the fraud from the company's auditors and
underwriters. The underlying indictment charged Bradstreet
and Campbell with conspiracy (Count I); substantive
securities fraud in connection with each of the three
fraudulent submissions (Counts II - IV respectively); and
knowing falsification of company records (Count V). It also
charged Earl with knowing falsification in Count V. Murray
had previously entered into a cooperation and plea agreement
with the government and had waived indictment.
The indictment set forth 14 improperly-booked
"sales" (and alluded to a fifteenth) as overt acts in the
conspiracy count. The transactions in question, which took
-6- 6
place between June 1992 and January 1994, were of two basic
types: (1) those in which, near the end of a fiscal-year
quarter, a Kurzweil salesperson had forged a prospective
customer's signature to a sales quote; and (2) those in which
the prospective customer had signed a sales quote, but had
conditioned its agreement to purchase Kurzweil equipment on
the occurrence of some event not within Kurzweil's control,
such as a future commitment from a third-party purchaser. At
trial, the government introduced evidence regarding these
transactions and several others, the defendants' knowledge of
the nature of these transactions, and the defendants' efforts
to conceal the nature of these transactions from Kurzweil's
auditors and underwriters. These efforts included the
creation of side agreements, not shown to the auditors, which
memorialized the conditions of unfinalized sales Kurzweil had
recorded as revenue; the forging by Kurzweil personnel of
responses to audit "confirmation letters" which the auditors
had sent to Kurzweil customers to confirm the details of
certain recorded sales; the pretextual shipment of Kurzweil
products to a storage facility in order to create, on the
books, the illusion of shipment to customers; and the giving
of false explanations of the high and ever-growing percentage
of Kurzweil revenues made up of accounts receivable. The
jury acquitted Earl, but convicted Bradstreet and Campbell on
all charges.
-7- 7
II. II. ___
Bradstreet's appellate brief presents six developed
arguments for reversal of his convictions, but hints at a
good number more. As usual, we confine our discussion to the
issues accompanied by developed argumentation. See United ___ ______
States v. Bongiorno, 106 F.3d 1027, 1034 (1st Cir. 1997). ______ _________
Because four of Bradstreet's arguments, including
the primary one, surface for the first time on appeal, we
address them together under the plain-error rubric. See Fed. ___
R. Crim. P. 52(b) ("Plain errors or defects affecting
substantial rights may be noticed although they were not
brought to the attention of the court."). We then address
the two arguments Bradstreet has preserved.
A. Arguments Governed by Rule 52(b) ____________________________________
Bradstreet asserts that the trial court plainly
erred in failing to give the jury two instructions he never
requested. The first is that "the government bears the burden
of negating a reasonable interpretation of the revenue
recognition policy upon which [its] false statement theory
depends" [sic]; the second is that the jury must "unanimously
agree on either the factual basis for each count, or the
precise legal theory on which [Bradstreet] was guilty" as to
the conspiracy and securities fraud counts. Bradstreet
further contends that the court plainly erred in permitting
the indictment to have been constructively amended and/or in
-8- 8
permitting the facts at trial to have varied prejudicially
from those alleged in the indictment.
In two recent cases, the Supreme Court has
emphasized and then reaffirmed the circumscribed authority
Rule 52(b) confers upon appellate courts. To be correctable
under Rule 52(b), an error or defect raised for the first
time on appeal must be "plain," meaning "clear" or "obvious,"
United States v. Olano, 507 U.S. 725, 734 (1993), at the time _____________ _____
of appellate consideration, Johnson v. United States, 117 S. _______ _____________
Ct. 1544, 1549-50 (1997); and it must have "affect[ed]
substantial rights," meaning, in most cases, "[i]t must have
affected the outcome of the district court proceedings,"
Olano, 507 U.S. at 734. Even then, an appellate court should _____
exercise its discretion to notice an error or defect, see id. ___ ___
at 735-36 (noting the permissive language of the Rule), only
if it "seriously affects the fairness, integrity or public
reputation of judicial proceedings," id. at 736 (citation and ___
internal quotation marks omitted). Although the Court has
not described the contours of this discretionary inquiry with
much precision, it has declined to exercise its discretion in
the face of "overwhelming" evidence that the outcome would
have been the same in an error-free proceeding. See Johnson, ___ _______
117 S. Ct. at 1550 (involving failure to instruct on an
element of the offense). We evaluate Bradstreet's first four
appellate arguments against this unfriendly legal backdrop.
-9- 9
1. The Reasonable Interpretation Instruction _____________________________________________
The trial court instructed the jury that there are
three alternative ways one can commit securities fraud under
Rule 10b-5 -- employing a device, scheme or artifice to
defraud; making an untrue statement of a material fact or
omitting to state a material fact necessary to prevent the
statement made from being misleading; or engaging in an act,
practice or course of business which operates or would
operate as a fraud or deceit upon any person -- and that,
although the government need only prove one of these three to
secure conviction, the jury's "finding must be unanimous as
to which type or types of conduct, if any, have been proven
beyond a reasonable doubt." It also told the jury that, to
convict Bradstreet of securities fraud, it had to find that
he engaged in the fraud knowingly, willfully, and with the
intent to defraud. The court then defined for the jury each
of these concepts, and concluded its intent instructions as
follows:
Because the crimes charged in the
indictment involve a specific or
deliberate intent to defraud, a good
faith belief on the part of a defendant
in the truth of his actions or statements
will necessarily negate that intent.
Even false statements or omissions of a
material fact do not constitute a
violation of the criminal provisions of
the securities fraud law unless made with
an intent to defraud. This intent, as I
told you, is one that the government must
prove beyond a reasonable doubt.
-10- 10
If you were to have a reasonable
doubt as to whether a defendant made an
inaccurate statement while honestly
believing that statement to be true, he
cannot be held criminally liable for that
statement, even if the statement has been
shown demonstrably false. Good faith is
a defense to a crime containing an
element of specific intent even if a
defendant's belief in the proof [sic] of
his statements was one that a reasonable
person would not have embraced.
Bradstreet did not object to these instructions or seek
additional mens rea instructions. ____ ___
Nevertheless, Bradstreet now contends that the
court plainly erred in failing to instruct the jury that
Bradstreet would not have committed securities fraud if, in
fact, the revenue he knowingly booked was properly booked
under any reasonable interpretation of Kurzweil's revenue
recognition policy. Analogizing to a false statement case
from the Tenth Circuit, see United States v. Migliaccio, 34 ___ _____________ __________
F.3d 1517 (10th Cir. 1994), and cases cited therein, see id. ___ ___
at 1525, Bradstreet asserts that there is here the
possibility that the jury convicted him for one or more
recognitions of revenue that were, in fact, reasonable under
a fair construction of Kurzweil s policy. Central to
Bradstreet's primary argument are subsidiary contentions that
the jury was presented with substantively divergent summaries
of Kurzweil s policy in the documentary evidence and in the
testimony of several witnesses, and that the trial judge
never told the jury which version was controlling.
-11- 11
Bradstreet also emphasizes our inability to ascertain which
transactions the jury relied upon in reaching its verdicts,
and our putative willingness to look "more tolerantly" on a
"failure to articulate precisely the shape of [a] necessary
protective instruction" in the context of an unprecedented
prosecution. See United States v. Sawyer, 85 F.3d 713, 742 ___ _____________ ______
(1st Cir. 1996) (involving a bribery prosecution under the
federal Travel Act, 18 U.S.C. 1952).
The government responds by denying the premises of
Bradstreet s argument. It contends that Bradstreet presented
as his defense theory lack of knowledge of the fraud, not
truth-in-conduct; that all witnesses summaries of Kurzweil's
revenue recognition policy were essentially consonant; that
this prosecution was not nearly so novel as the one reviewed
in Sawyer; and that Bradstreet s utter failure to argue for a ______
reasonable interpretation instruction below is not comparable
to the more forgivable "imprecise articulation" of the
argument at issue in Sawyer. ______
While we agree with the government's final two
rejoinders, we think the first two are seriously misleading.
On our reading of the record, Bradstreet presented a
bifurcated defense. As to the vast majority of the
transactions at issue, he denied knowing the critical
incriminating facts. But certainly with respect to three
transactions -- contemplated sales to Transquick, Chicago
-12- 12
Mercy, and Willard Hall -- and probably with respect to two
others -- contemplated sales to HCA Nashville and HCA Plano -
- he did defend on the basis that the revenue that these
transactions would have generated was properly recognized
under Kurzweil's policy.
Moreover, the jury did hear verbal descriptions of
Kurzweil's revenue recognition policy which, when taken in
isolation, appear to have differed materially from the
written versions of the policy set forth in the trial
exhibits. As we have noted, the written version of the
policy that was circulated internally at Kurzweil stated that
revenue should not be recognized if "major uncertainties . .
. surround culmination of the [revenue-generating]
transaction" or if "final acceptance by the customer requires
an event out of [Kurzweil's] control . . . ." See supra at ___ _____
5. The jury also had before it notes to financial
statements, which had been attached to the prospectus, that
contained a summary of Kurzweil's policy. In pertinent part,
these notes stated: "Revenue from product sales is recorded
at the time of shipment if no significant obligation relating
to the sale remains and collection is deemed probable."
Arguably, these documentary summaries are consistent with one
another, and with the synopsis of the revenue recognition
inquiry Bradstreet himself presented to the jury: "Are there
any major uncertainties and is collection probable?"
-13- 13
They are not, however, entirely consistent with the
explanations of the applicable revenue recognition principles
provided by two of the government's more important witnesses:
Debra Murray, Kurzweil's treasurer, and Harvey Creem, who led
Kurzweil's auditing team up to and through the IPO. Both
Murray and Creem used language which might suggest that the
applicable principles were stricter than the written versions
of the policy seemed to indicate.
After being shown a copy of Kurzweil's internal
policy, Murray described it as requiring that a "firm
contract [exist] before any goods could be shipped"; that the
goods "be shipped to the customer and stored at a warehouse
only at the request of a customer and that they were going to
be paying for the storage [sic]"; and that "there . . . be no
obligations beyond the company's control." She also noted
that Kurzweil's policy was in compliance with GAAP. Creem
framed his testimony in terms of GAAP, and not Kurzweil's
written policy, stating that income must be "earned" and
"realizable" to be recognizable: "Putting that into
Kurzweil's terms, Kurzweil would have delivered to a customer
a product that the customer wanted, and the customer has the
ability to pay and is obligated to pay, both."
If Bradstreet had argued that there was an
interpretation of Kurzweil's revenue recognition policy that
differed materially from the government's and under which
-14- 14
certain of the recognitions of revenue at issue in this case
would have been proper, the trial court, upon request, might
well have been obliged to give some sort of "reasonable
interpretation" instruction. After all, where the government
must prove, as an element of the offense, falsity or, as here
(at least with respect to the second and third of the three
securities fraud scenarios described by Rule 10b-5, see supra ___ _____
at 9-10), something akin to falsity; where the government
also must prove intent to defraud; where a defendant advances
an understanding of the principles by which truth and falsity
are judged that differs from that of the government; and
where the defendant's actions might have been truthful under
such an understanding, the government cannot carry its burden
without first demonstrating the unreasonableness of the
contrary understanding. See Migliaccio, 34 F.3d at 1522-25. ___ __________
In this case, however, Bradstreet never
affirmatively claimed, either in testimony or in argument,
that his underlying understanding of Kurzweil's policy
differed from that of Harvey Creem, Debra Murray, or the
government. Nor did he suggest that ambiguities in the
policy made such a contrary understanding possible. He
merely testified that, in his judgment and on his view of the
hotly-contested facts, certain of the transactions put in
issue by the government properly triggered a recognition of
-15- 15
revenue under Kurzweil's policy. In light of this, we take
Bradstreet's characterization of Kurzweil's written policy, a
document to which his lawyer drew his attention just before
he gave his characterization, to be only a synopsis of the
document. We do not take it to be a de facto assertion that __ _____
Bradstreet's baseline understanding of the policy differed
from that of the government, or that a contrary understanding
was possible. And absent such an assertion, there was no
need for the instruction Bradstreet now contends was
necessary.
The transcript demonstrates that the parties tried
this case on disputed historical facts and the inferences to
be drawn from those facts. The principles underlying the
policy by which Bradstreet's conduct was to be judged, though
summarized variously and, perhaps, carelessly, were not
controverted; they seem to have been commonly understood.
This is enough to differentiate this case from Migliaccio and __________
the cases on which it relies. And it is enough to convince
us that the trial court's failure to give a sua sponte ___ ______
reasonable interpretation instruction was not plain error.
On this record, there is no basis for concluding that the
jury's verdict would have been different had the trial judge
given the now-suggested instruction. Cf. Johnson, 117 S. Ct. ___ _______
at 1550.
2. The Remaining Plain Error Claims ____________________________________
-16- 16
Bradstreet's remaining claims of plain error merit
less discussion. As we have observed, the trial judge
informed the jury that it must unanimously agree upon which
of the three types of securities fraud Bradstreet committed.
See supra at 9-10. In view of this, we are at a loss to ___ _____
comprehend Bradstreet's suggestion that the jury never was
told to agree on a precise legal theory of guilt as to the
securities fraud and conspiracy counts.
With respect to the argument that the jury should
have been told that it must "unanimously agree on . . . the
factual basis for each count," we simply note that it is
unaccompanied by citation to any case which even remotely
supports it, and that, although this area of the law is still
developing, the weight of the relevant authority appears to
be against requiring juries to reach factual unanimity in
circumstances such as these. See McKoy v. North Carolina, ___ _____ ______________
494 U.S. 433, 449 (1990) ("Plainly there is no general
requirement that the jury reach agreement on the preliminary
factual issues which underlie the verdict.") (Blackmun, J.,
concurring) (footnote omitted); United States v. Tipton, 90 ______________ ______
F.3d 861, 885 (4th Cir. 1996) (unanimity instructions need
guard only against a lack of unanimity as to the means by
which a statute was in fact violated), cert. denied, 117 S. _____ ______
Ct. 2414 (1997); United States v. Bellrichard, 62 F.3d 1046, _____________ ___________
1049 (8th Cir. 1995) (similar), cert. denied, 116 S. Ct. 1425 _____ ______
-17- 17
(1996); United States v. Tarvers, 833 F.2d 1068, 1074 (1st _____________ _______
Cir. 1987) (unanimity generally not required with respect to
a specific act underlying an element of a charged offense);
cf. United States v. Shaoul, 41 F.3d 811, 818 n.4 (2d Cir. ___ _____________ ______
1994) (quoting pattern unanimity instructions). We therefore
discern no "clear" or "obvious" defect in the trial court's
unanimity instructions. See Olano, 507 U.S. at 734. ___ _____
We are left, then, with Bradstreet's claims of
constructive amendment and/or prejudicial variance. See ___
United States v. Fisher, 3 F.3d 456, 462-63 (1st Cir. 1993) _____________ ______
("A constructive amendment occurs when the charging terms of
the indictment are altered, either literally or in effect, by
the prosecution or court after the grand jury has last passed
upon them. A variance occurs when the charging terms remain
unchanged but when the facts proved at trial are different
from those alleged in the indictment.") (citations and
internal quotation marks omitted). Bradstreet first
complains about the government's introduction into evidence
of transactions other than those set forth as overt acts in
Count I of the indictment. He also contests the court's
instruction to the jury that it could convict Bradstreet on
Count V under an aiding and abetting theory. Finally, he
points to the discrepancy between the relatively strict
summary of Kurzweil's revenue recognition policy set forth in
paragraph 1(f) of the indictment -- "[Kurzweil] could only
-18- 18
recognize a sale as revenue for purposes of its financial
statements and balance sheet when (1) it had a firm,
unconditional contract with the buyer evidenced by a signed
purchase order or sales quote signed by the customer and (2)
it had shipped the product to the customer" -- and the more
open-ended language found in the written versions of the
policy the jury saw. None of these alleged defects is within
the purview of Rule 52(b).
First, it is settled that the government "need not
recite all of its evidence in the indictment, nor is it
limited at trial to the overt acts listed in the indictment."
Fisher, 3 F.3d at 462 n.16 (citation and internal quotation ______
marks omitted). Bradstreet has not pointed us toward
anything that takes this case outside the general rule.
Second, Count V did effectively charge him with falsifying ___
books and records and aiding and abetting such a
falsification by alleging a violation of the aiding and
abetting statute, 18 U.S.C. 2. And even had it not done
so, "aiding and abetting is an alternative charge in every
count, whether explicit or implicit." United States v. ______________
Oreto, 37 F.3d 739, 751 (1st Cir. 1994) (citation and _____
internal quotation marks omitted), cert. denied, 513 U.S. _____ ______
1177 (1995). Third, while the summary of Kurzweil's revenue
recognition policy set forth in the indictment -- a summary
the jury did not hear or read -- did differ materially from
-19- 19
the language used in the written versions of the policy that
were in evidence, the lack of congruence did not
constructively amend the indictment and cause Bradstreet to
be convicted of a crime other than the ones charged. Cf., ___
e.g., United States v. Fletcher, 121 F.3d 187, 191-93 (5th ____ ______________ ________
Cir.) (analyzing the effects of a constructive amendment),
cert. denied, 66 U.S.L.W. 3417 (U.S. Dec. 15, 1997) (No. 97- _____ ______
6753). Nor did it prejudice him. See Fisher, 3 F.3d at 463 ___ ______
(an objected-to variance constitutes reversible error only if
it results in prejudice). Indeed, the variance we detect
worked only to Bradstreet's advantage, as the versions of the
policy the jury saw were, if anything, more defense-friendly
than the summary of applicable principles set forth in the
indictment. Cf. id. at 463 n.19. ___ ___
B. Preserved Arguments _______________________
Bradstreet contends that the trial court committed
reversible error when, in admitting into evidence the
cooperation agreement between the government and Debra
Murray, it failed to redact from the document the $10 million
loss to investors Murray admitted to having caused. He also
argues that the court committed reversible error when, in
giving the jury an accomplice witness instruction, it
inadvertently failed, despite its having told Bradstreet it
would do so at the charging conference, to tell the jury to
consider what benefits Murray "hopes to receive" in addition
-20- 20
to the benefits she had been promised or had received. The
first argument is unconvincing and the second is frivolous.
Near the end of the trial's sixth day, Bradstreet
and Campbell argued to the district court that the amount of
loss Murray admitted to having caused should be redacted
because it was irrelevant, see Fed. R. Evid. 401 and 402, or, ___
even if relevant, was highly inflammatory and therefore
excludable under Fed. R. Evid. 403 ("Although relevant,
evidence may be excluded if its probative value is
substantially outweighed by the danger of unfair prejudice,
confusion of the issues, or misleading the jury . . . .").
The district court rejected this argument, reasoning that the
amount of loss was relevant to the materiality of the
falsely-recorded revenue figures. At Bradstreet and
Campbell's request, the court then instructed the jury that
the loss stipulation was between the government and Murray
only, and that it should not be viewed as binding upon
Bradstreet, Campbell, or Earl.
Although Bradstreet's appellate argument is not
entirely clear on this point, we infer that he continues to
view the amount of loss as either irrelevant or, if relevant,
excludable under Rule 403. The government points out that
Bradstreet has not presented a coherent challenge to the
district court's reasoning in admitting the evidence, and
contends further that the evidence was relevant to Murray's
-21- 21
knowledge of the scope of the conspiracy. Alternatively, the
government asserts that any error in admitting the loss
figure was harmless because "it is highly probable that the
error did not contribute to the verdict." United States v. _____________
Rose, 104 F.3d 1408, 1414 (1st Cir.), cert. denied, 117 S. ____ _____ ______
Ct. 2424 (1997).
On the one hand, Bradstreet says little in his
brief about whether the amount of loss was relevant. On the
other, we have some trouble seeing how the amount of loss was
relevant to the materiality of the alleged false statements
or Murray's knowledge of the scope of the conspiracy. We
therefore turn our focus to the harmless-error analysis by
assuming error arguendo and asking whether the error was ________
likely to have affected the verdict. We see no such
likelihood. The jury was well aware that the IPO netted
Kurzweil approximately $24 million. Moreover, the jury was
told that a private placement of Kurzweil stock would have
netted anywhere from $10-15 million less than an IPO.
Finally, a single investor, Scudder, Stevens, and Clark,
testified without objection that, by April 1994, it had
invested approximately $5.6 million in the company. The jury
therefore could hardly have been shocked by evidence that the
total loss was $10 million. We are confident that this
evidence had no effect on the verdict.
-22- 22
As to Bradstreet's objection to the accomplice
witness instruction, we think that, although the court failed
to use the "hopes to receive" language Bradstreet requested,
the court's lengthy instruction was adequate to convey to the
jury the need to scrutinize Debra Murray's testimony with
special care. This, in combination with the extensive cross
examination of Murray as to the benefits she hoped to receive
for her plea and cooperation, leaves us with no doubt
whatsoever that the jury fully understood it was to regard
what Murray had to say with some skepticism. Cf. United ___ ______
States v. Newton, 891 F.2d 944, 950 (1st Cir. 1989) ______ ______
(rejecting a challenge to a court's failure to give an
accomplice witness instruction because the court's immunized-
witness instruction advised the jury to receive the testimony
of such a witness with caution and to weigh it with care).
III. III. ____
Having rejected Bradstreet's challenges to his
convictions, we turn now to the government's cross-appeal.
Appropriately applying the 1995 Guidelines Manual, the
probation officer who prepared Bradstreet's presentence
report (PSR) recommended a base offense level of six; a
two-level increase for more than minimal planning; a
fifteen-level increase because the loss ($11,471,250.00)
exceeded $10 million; a four-level increase because
Bradstreet was an organizer or leader of a criminal activity
-23- 23
that involved five or more participants or was otherwise
extensive; and a two-level increase for abuse of a position
of public or private trust. This yielded adjusted and total
offense levels of 29 and, because Bradstreet had no criminal
history, a recommended guidelines sentencing range of 87-108
months.
Prior to sentencing, however, Bradstreet and the
government entered into a sentencing agreement which mirrored
the PSR except in two respects. First, the government agreed
not to seek a two-level upward adjustment for abuse of a
position of trust. Second, the parties agreed to request the
court to find that the $11-plus million loss figure
overstated the seriousness of the offense, see Application ___
Note 7(b) of U.S.S.G. 2F1.1, and that the appropriate
amount of loss to be attributed to Bradstreet was
approximately $2.3 million. Adoption of this calculation
would result in a twelve, rather than fifteen, level increase
for amount of loss. These provisions of the agreement
combined to reduce the recommended total offense level to 24
and the recommended guidelines sentencing range to 51-63
months. The sentencing agreement also provided that the only
ground on which Bradstreet could move for a downward
departure was under a theory that his conduct was "a single
act of aberrant behavior," see United States v. Grandmaison, ___ _____________ ___________
77 F.3d 555, 560-64 (1st Cir. 1996) (explicating the contours
-24- 24
of this ground of departure), and that the government would
oppose the motion. Prior to sentencing, Bradstreet so moved.
The government opposed Bradstreet's motion on three
grounds. First, it argued that it is illogical to find
aberrant conduct where, as here, there has been no admission
of guilt. Alternatively, it asserted that both the record and
the jury's verdicts establish that Bradstreet testified
dishonestly when he testified that he did not act with an
intent to defraud, see supra at 10-11 (outlining the court's ___ _____
mens rea instructions, which emphasized that the jury must ____ ___
find an intent to defraud in order to convict); see also, ___ ____
e.g., United States v. Rostoff, 53 F.3d 398, 413 (1st Cir. ____ ______________ _______
1995) (a court is bound to accept a fact necessarily
established by a jury verdict when that fact is material to
sentencing), and that it is illogical to find criminal
dishonesty aberrant where the defendant subsequently
testified dishonestly. Finally, the government took the
position that the duration, complexity, and sophistication of
Bradstreet's fraud defy characterization as "a single act."
The district court accepted the parties'
recommendations as to the appropriate guidelines
calculations, finding that Bradstreet had a total offense
level of 24 and an applicable guidelines sentencing range of
51-63 months. The court then granted Bradstreet's motion for
a downward departure, reduced Bradstreet's total offense
-25- 25
level to 20 (yielding a guidelines sentencing range of 33-41
months), and sentenced Bradstreet to 33 months in prison. In
doing so, the court implicitly rejected the government's
argument that a defendant must admit guilt in order to
receive an aberrant conduct departure. The court also
rejected without explanation the argument that the record and
verdicts establish that Bradstreet testified dishonestly, and
that this fact makes him legally ineligible for an aberrant
conduct departure.
Rather, the court looked to our statement in
Grandmaison that "aberrant behavior departures are available ___________
to first offenders whose course of criminal conduct involves
more than one criminal act," 77 F.3d at 563, and our
directive that courts judge aberrance vel non under a ___ ___
totality-of-circumstances test, see id. at 563-64 (approving ___ ___
consideration of factors such as the absence of pecuniary
gain to the defendant, prior good deeds, and efforts to
mitigate the effects of the crime), to find that Bradstreet
had engaged in "behavior . . . animated by a single
objective, . . . the success of the Kurzweil IPO." In the
court's view, Bradstreet's conduct was, under the facts of
this case, tantamount to a single act. And the totality of
the circumstances -- a perceived lack of motivation by greed,
an
otherwise exemplary life, a record of significant charitable
-26- 26
giving, and an impressive outpouring of support from friends
and family -- warranted the conclusion that Bradstreet's
conduct was aberrant.
Even if we were to follow the district court's
approach and to define Bradstreet's criminal conduct at an
exceedingly high level of generality, that is, as a
multi-faceted act of dishonesty designed to obtain for
Kurzweil badly-need cash during the 1992-94 time frame, we
are faced with the government's arguments that what occurred
was not a single aberrant act of dishonesty because
Bradstreet did not plead guilty and/or because Bradstreet
engaged in the wholly-separate act of testifying dishonestly
about his conduct. Because we see no convincing response to
the latter of these two arguments on the facts of this case,
we accept it and leave to another day consideration of
whether an admission of guilt is a prerequisite to an
aberrant behavior departure.
Although Grandmaison takes an expansive view of ___________
that which constitutes a single act of aberrant conduct, it
confirms that the Guidelines Manual means what it says: a
departure for an act that is composed of a number of
component acts, id. at 563 ("[S]ingle acts of aberrant ___
behavior . . . include multiple acts leading up to the
commission of a crime."), is permissible only if the act is
singular, see id. at 564 (first time offenders who have been ___ ___
-27- 27
"convicted of several unrelated offenses" are not entitled to
aberrant conduct departures). Moreover, in the context of
guidelines sentencing, we think it obvious that the term
"aberrant" must look forward as well as backward. In other
words, an aberrant behavior departure is not warranted unless
the conduct at issue is both a marked departure from the past
and is unlikely to recur. Cf. United States v. Lam, 20 F.3d ___ ___ _____________ ___
999, 1004 (9th Cir. 1994) ("[I]n this context, calling a
consistent criminal's behavior aberrant would be an oxymoron
and, perhaps, make us look like oxen or morons or both.").
In so holding, we note that the Ninth Circuit, which also
takes an expansive view of that which constitutes a single
act of aberrant behavior, see United States v. Takai, 941 ___ ______________ _____
F.2d 738, 741 (9th Cir. 1991), apparently includes likelihood
of recurrence as part of its aberrance calculation, see Lam, ___ ___
20 F.3d at 1005.
Under these criteria and on this record, the
district court exceeded its discretion in rejecting the
government's dishonest testimony argument and departing
downward. The argument rests on two premises, one legal and
one factual: (1) one convicted of criminal dishonesty who
testifies dishonestly about his conduct is not entitled to an
aberrant conduct departure as a matter of law; and (2) a
finding that Bradstreet did not testify dishonestly would be
an abuse of discretion. Because the court failed to specify
-28- 28
which of these premises it did not accept, we examine each in
turn.
We think it obvious that the government's legal
premise is sound. As we have observed, a departure based on
a finding that the relevant criminal conduct was a single act
of aberrant behavior is appropriate only where the conduct
was isolated and is unlikely to recur. Yet one who testifies
dishonestly after engaging in felonious dishonesty cannot
credibly make either claim. One convicted of criminal
dishonesty is therefore not entitled to an aberrant conduct
departure if he has testified dishonestly about his criminal
conduct.
We also agree with the government's factual
premise. As the government pointed out both below and on
appeal, Bradstreet testified that he did not intend to file
false information in connection with the public offering, to
file false financial statements in connection with the
relevant Forms 10-Q, or to conceal records or information
from the auditors. The verdicts against him necessarily
establish, however, that the jury rejected this testimony and
found that he did act with an intent to defraud. See supra ___ _____
at 10-11 (noting that the court instructed the jury to acquit
unless it found that Bradstreet acted with an intent to
defraud and setting forth the court's mens rea instructions). ____ ___
In our view, this finding conclusively establishes that
-29- 29
Bradstreet testified dishonestly at trial. After all, the
jury's verdict must be credited over Bradstreet's contrary
testimony, see, e.g., Rostoff, 53 F.3d at 413; the contrary ___ ____ _______
testimony strikes us as inherently not subject to
characterization as unintentional, cf. United States v. ___ ______________
Dunnigan, 507 U.S. 87, 94 (1993) (making clear that false ________
testimony is not perjurious where it is "a result of
confusion, mistake, or faulty memory"); and, in any event,
Bradstreet has not responded to the government's argument by
suggesting that his false intent testimony was unintentional.
To the contrary, he has steadfastly maintained that he acted
without an intent to defraud during the entire pendency of
these proceedings.
Bradstreet attempts to rebut this line of analysis
in three ways. First, he appears in some places to argue
that the district court departed downward on some ground or
grounds other than the guidelines-based single act of
aberrant behavior ground, and that the Supreme Court's
decision in Koon v. United States, 116 S. Ct. 2035 (1996) ____ _____________
(establishing an across-the-board abuse of discretion
reviewing standard for sentencing departures), validates the
court's authority to engage in such a departure. We think it
apparent, however, that the court based its departure on the
ground on which departure was sought: that the conduct
underlying the conviction was a single act of aberrant
-30- 30
behavior. To the extent that the court ranged far and wide
in explaining its departure, we perceive it only to have been
employing the totality-of-circumstances test we prescribed in
Grandmaison. Second, Bradstreet seems to contend that ___________
Koon precludes appellate courts from establishing the ____
contours of mixed fact/law concepts such as that which
constitutes a single act of aberrant behavior. Koon makes ____
clear, however, that the appellate courts are to continue to
establish the legal boundaries and to correct law-based
misapplications of such concepts. See 116 S. Ct. at 2047-48. ___
Here, for the reasons just stated, we think the sentencing
court went beyond its legal boundaries when it concluded that
the dishonest conduct underlying Bradstreet's convictions was
both a one-time occurrence and an aberration. We simply have
corrected the court's error.
Finally, Bradstreet contends that the jury did not
necessarily reject any aspect of his testimony. In doing so,
he reanimates his argument that, because the jury heard
substantively divergent versions of Kurzweil's revenue
recognition policy and was not told to acquit if it found
that the revenue Bradstreet knowingly booked was properly
booked under a reasonable interpretation of the policy, his
conviction is fatally flawed. In Bradstreet's view, the jury
might have believed that he knew nothing about the true
nature of those transactions involving forgeries, but
-31- 31
nonetheless convicted him on the basis of those transactions
he defended as having generated properly-recognized revenue.
Even if we assume this unlikely scenario for the
sake of argument, it remains fact that Bradstreet never
argued that there was an interpretation of Kurzweil's policy
that differed in some respect from the government's. And on
this record, there is no basis for an inference that the jury
understood the testifying witnesses' summaries of Kurzweil's
revenue recognition policy to be anything other than
divergent synopses of commonly-understood concepts. We thus
have every confidence that the jury determined that
Bradstreet acted with an intent to defraud by reference to a
common and proper set of principles. As a result, we are
bound to credit the jury's intent finding, which conclusively
demonstrates its rejection of Bradstreet's testimony.
We wish to be clear on the precise nature of our
ruling. We do not employ a per se rule that an accused who ___ __
gives testimony that is necessarily rejected by the jury has
intentionally testified dishonestly -- i.e., that he has
perjured himself. As we have stated, such testimony, though
it must be taken as false, see Rostoff, 53 F.3d at 413, may ___ _______
not have been intentionally false; it may have been the
product of confusion, mistake, or faulty memory, see ___
Dunnigan, 507 U.S. at 95. Here, though, for reasons we have ________
-32- 32
explained, see supra at 29, Bradstreet's false testimony ___ _____
simply is not capable of being regarded as unintentional.
Because the record is fully developed on this point
and Bradstreet has had an ample opportunity to respond to the
government's argument, we rule, as a matter of law, that the
dishonest activity for which Bradstreet stands convicted was
not a single act of aberrant conduct. Accordingly, we vacate
Bradstreet's sentence and remand for resentencing. See, ___
e.g., Rostoff, 53 F.3d at 413-14. ____ _______
IV. IV. ___
Our decision to nullify the district court's
downward departure might strike some as harsh. We are
acutely aware that incarceration is but one of a number of
ruinous consequences that the 52-year-old Bradstreet and his
family are suffering as a result of his conduct. And we have
a great deal of respect for the informed judgment of the
experienced judge who determined that, in light of all the
circumstances, nearly three years in prison is enough. But
it hardly bears repeating that, under guidelines sentencing,
a judge has limited discretion to depart from an applicable
guidelines sentencing range. This case is yet another
striking reminder of this fact.
For the reasons stated, we affirm Bradstreet's affirm ______
convictions but vacate the judgment and remand for vacate ______
resentencing.
-33- 33
Related
United States v. Fletcher
121 F.3d 187 (Fifth Circuit, 1997)
McKoy v. North Carolina
494 U.S. 433 (Supreme Court, 1990)
United States v. Dunnigan
507 U.S. 87 (Supreme Court, 1993)
United States v. Olano
507 U.S. 725 (Supreme Court, 1993)
Koon v. United States
518 U.S. 81 (Supreme Court, 1996)
United States v. Fisher
3 F.3d 456 (First Circuit, 1993)
United States v. Rostoff
53 F.3d 398 (First Circuit, 1995)
United States v. Grandmaison
77 F.3d 555 (First Circuit, 1996)
United States v. Sawyer
85 F.3d 713 (First Circuit, 1996)
United States v. Rose
104 F.3d 1408 (First Circuit, 1997)
United States v. Anthony Phillip Tarvers, Jr., United States of America v. Richard J. Brenner, United States of America v. Terrence J. O'Duggan
833 F.2d 1068 (First Circuit, 1987)
United States v. Stuart H. Newton, United States of America v. Thomas W. Gilbert
891 F.2d 944 (First Circuit, 1989)
United States v. Frank Oreto, Sr., United States of America v. Frank Oreto, Jr., United States of America v. Dennis Petrosino
37 F.3d 739 (First Circuit, 1994)
United States v. Jack Shaoul
41 F.3d 811 (Second Circuit, 1994)
United States v. Loren Francis Bellrichard
62 F.3d 1046 (Eighth Circuit, 1995)
United States v. Frank P. Bongiorno, United States of America v. Frank P. Bongiorno
106 F.3d 1027 (First Circuit, 1997)
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