United States v. DiIanni

Opinion

USCA1 Opinion

UNITED STATES COURT OF APPEALS
                            UNITED STATES COURT OF APPEALS

                                FOR THE FIRST CIRCUIT
                                FOR THE FIRST CIRCUIT

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        No. 95-1524



                              UNITED STATES OF AMERICA,



                                      Appellee,



                                          v.



                                  ROBERT A. DiIANNI,



                                Defendant, Appellant.



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                     APPEAL FROM THE UNITED STATES DISTRICT COURT



                          FOR THE DISTRICT OF MASSACHUSETTS



                   [Hon. Douglas P. Woodlock, U.S. District Judge]
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                                        Before



                                  Cyr, Circuit Judge,
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                            Aldrich, Senior Circuit Judge,
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                            and Gertner,* District Judge.
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            Francis J. DiMento with whom DiMento & Sullivan was on brief for
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        appellant.

            Mark J. Balthazard, Assistant United States Attorney, with whom
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        Donald K. Stern, United States Attorney, was on brief for appellee.
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        *Of the District of Massachusetts, sitting by designation.



ALDRICH, Senior Circuit Judge.  Defendant Robert A.
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            DiIanni found himself in serious trouble with the Securities



            and Exchange Commission; was indicted, and ultimately pleaded



            guilty to three counts of mail fraud, three counts of wire



            fraud, one count of interstate transportation of property



            taken by fraud and one count of securities fraud.  He



            received two consecutive sentences of 42 and 60 months,



            execution of the latter suspended with three years supervised



            release.  A special condition of his probation required



            compliance with a permanent injunction entered in an SEC-



            initiated civil case that arose out of some of the same



            fraudulent activities.  This forbade defendant from, inter
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            alia, engaging in any conduct "in connection with the
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            purchase or sale of any security," that would violate Rule



            10b-5,1 under the Securities Exchange Act, 15 U.S.C.



                                
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            1.  The Rule provides, in relevant part:



                           It shall be unlawful for any person,

                      directly or indirectly, by the use of

                      . . . any facility of any national

                      securities exchange,



                           (a) To employ any device, scheme, or

                      artifice to defraud,



                           (b) To make any untrue statement of

                      a material fact or to omit to state a

                      material fact necessary in order to make

                      the statements made, in the light of the

                      circumstances under which they were made,

                      not misleading, or



                           (c) To engage in any act, practice

                      or course of business which operates or



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78j(b).  In May, 1992, defendant was released from prison



            and, in due course, engaged in conduct which led the



            government to successfully charge him with having breached



            this special condition by impersonating his stepson in



            securities dealings with the brokerage firm National



            Financial Services Corporation ("NFSC"), as well as a general



            condition that he refrain from lying to his probation



            officer.  The court revoked probation and sentenced defendant



            to two years imprisonment.  He appeals.  We affirm.



                      To revoke probation the sentencing court must make



            both a retrospective determination that the probationer has



            violated a condition of his probation, and a discretionary,



            prospective determination that any violation(s) warrants



            revocation.  Black v. Romano, 471 U.S. 606, 611 (1985)
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            (revocation must meet due process requirements); United
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            States v. Gallo, 20 F.3d 7, 13 (1st Cir. 1994).  The
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            government need not prove a violation beyond a reasonable



            doubt, but must merely satisfy the court that a violation



            occurred.  Id. at 14.  The second step requires
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            individualized evaluation of the particular probationer and



            "a predictive decision, based in part on [an] assessment of



            [his] propensity toward antisocial conduct."  Id.  We review
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                      would operate as a fraud or deceit upon

                      any person, in connection with the

                      purchase or sale of any security.



            17 C.F.R.   240.10b-5.



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the court's decision for abuse of discretion.  Id. at 13;
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            United States v. Nolan, 932 F.2d 1005, 1006 (1st Cir. 1991)
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            (court's revocation determination "will not be disturbed



            absent a showing of manifest abuse").



                      Condition Four of defendant's probation requires



            that he "answer truthfully all inquiries by the probation



            officer . . . ."  Defendant does not dispute that he falsely



            denied to his probation officer that he was "in any way



            involved" in managing or trading the securities appearing on



            a brokerage account statement that the officer happened to



            notice during an unannounced visit to defendant's home.  He



            simply contends his prevarication is immaterial because,



            contrary to what the probation officer apparently believed,



            the conditions of his probation do not forbid him from



            trading in securities.  Condition Four is not limited to



            inquiries that relate to other conditions of defendant's



            probation, however, and cannot be read to leave defendant



            free to pick and choose which inquiries deserve a truthful



            answer.



                      The court also found defendant had willfully



            concealed his identity -- and therefore his status as felon



            convicted for fraud in connection with securities



            transactions -- as the person controlling certain brokerage



            accounts with NFSC, and the limited partnerships ostensibly



            behind them, and that this amounted to a violation of


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defendant's special condition of probation.  The record



            discloses that defendant incorporated a consulting outfit in



            his wife's name, set up two limited partnerships naming his



            stepson, Mark Pinguey, as general partner, and opened a



            margin account with NFSC for each partnership, signing



            Pinguey's name.  He then deposited 600,000 shares of a



            marginable stock borrowed through the consulting firm to one



            of the accounts, enabling him to obtain a $2.5 million credit



            from NFSC to purchase more stock.  During all ensuing



            transactions and other dealings with NFSC, defendant held



            himself out as Pinguey.  Even when defendant, posing as



            Pinguey, was asked by an NFSC representative whether "a Mr.



            DiIanni" was impersonating Pinguey, defendant kept up the



            ruse.  The record supports the court's finding that defendant



            deliberately made untrue statements in identifying and



            representing himself as Pinguey in his dealings with NFSC,



            and -- contrary to his story that he was acting under



            Pinguey's "authorization" -- did so systematically with the



            intent to conceal the fact that he, not Pinguey, controlled



            the transactions that NFSC processed through the accounts.



                      In order for defendant's untruths and omissions to



            come within the prohibitions of the civil injunction,



            however, they had to have been of "material fact" within the



            meaning of Rule 10b-5.  17 C.F.R.   240.10b-5(b).  See Basic
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            Inc. v. Levinson, 485 U.S. 224, 231 (1988).  The true
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identity of an investor is not always material, see United
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            States v. Bingham, 992 F.2d 975 (9th Cir. 1993), but where
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            there is a "substantial likelihood" that a reasonable



            decision-maker would have viewed the omitted fact "as having



            significantly altered the total mix of information made



            available," the Rule's materiality requirement is fulfilled. 



            Basic Inc., 485 U.S. at 231-32 (internal quotations omitted). 
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            The record indicates that in his heyday defendant was a



            successful, high-profile investment advisor, well-known in



            the financial world.  His indictment and convictions were



            well documented in the local press, which detailed the



            millions he bilked from his victims, as well as the fast and



            loose financial dealings that had prompted SEC sanctions



            years earlier.  A 1990 feature on the cover of the Boston



            Globe's business pages dubbed him "one of Boston's most



            notorious investment advisors of the 1980s," and reported his



            post-incarceration plans to jump back into the financial fray



            upon release from prison.  Had defendant signed his own name



            to the margin account agreements in December of 1992, rather



            than Pinguey's, there is a substantial likelihood that it



            would have rung someone's bell at NFSC, and the means of



            uncovering the details of defendant's past were readily



            available.  We have no doubt this information would have


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significantly transformed the picture.2  We also think it



            reasonable to conclude that an intent to preclude NFSC from



            obtaining this information was in large measure the reason



            defendant employed Pinguey as his puppet.  Defendant's



            behavior was manifestly outside the bounds of Rule 10b-5.3



                      Given the relationship between defendant's



            probation infractions and his past criminal conduct, it was



            not unreasonable for the court to conclude that defendant's



            post-release activities suggested he was positioning himself



            incognito to get right back into his old heists.  The court



            found his new offenses "in many ways a kind of shadow of the



            offenses that led initially to Mr. DiIanni's incarceration



            . . . .  Moreover, they come after considerable experience



            here with violations of the federal securities law, a SEC



                                
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            2.    The court credited testimony that NFSC would not have

            entered into any margin account agreements with a convicted

            felon.  It is of no moment that NFSC did not perform a credit

            check on Pinguey, which of course would not have revealed

            anything about defendant.  Defendant's assertion in his

            appellate brief that NFSC was not checking any accounts at

            the time is unsupported and in any event does not alter the

            fact that, under defendant's particular circumstance, his

            identity alone would have been material to NFSC's decision

            whether to open the margin accounts. Compare Bingham, 992
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            F.2d at 976 (no evidence was introduced to show investors

            would have found the misrepresented or omitted information

            significant).



            3.  The civil injunction requires defendant to conform his

            behavior to the provisions of Rule 10b-5.  Proof of material

            reliance, although necessary to state a private cause of

            action for damages under Rule 10b-5, see Estate of Soler v.
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            Rodriguez, 63 F.3d 45, 53 (1st Cir. 1995), is not required to
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            demonstrate violation of the terms of the injunction, and

            therefore also of defendant's special condition of probation.



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injunction, a criminal prosecution . . . .  And so, what I



            have before me is a recidivist who -- offered any opportunity



            -- will undertake to engage in conduct that is proscribed by



            the federal securities laws."  The court reasonably found



            defendant's efforts to explain away his behavior not



            credible, and his propensity for "anti-social" conduct



            substantial.



                      Finally, defendant contends that a two year



            sentence is too harsh.  It was well within the court's



            authority to impose and, for the reasons amplified above, we



            find no abuse of discretion.



                      Affirmed.
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