United States v. Paladino, Robert D.

401 F.3d 471
CourtCourt of Appeals for the Seventh Circuit
DecidedFebruary 25, 2005
Docket03-2296, 03-2383, 03-2386, 04-1951, 04-2339, 04-2378
StatusPublished
Cited by4 cases

This text of 401 F.3d 471 (United States v. Paladino, Robert D.) is published on Counsel Stack Legal Research, covering Court of Appeals for the Seventh Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
United States v. Paladino, Robert D., 401 F.3d 471 (7th Cir. 2005).

Opinions

POSNER, Circuit Judge.

We have consolidated for decision several criminal appeals, argued the same day, all of which present the key issue left open by the Supreme Court’s decision in United States v. Booker, - U.S. -, 125 S.Ct. 738, 160 L.Ed.2d 621 (2005) — the application of the plain-error doctrine to appeals from sentences rendered under the federal sentencing guidelines before the Supreme Court ruled that they are advisory rather than mandatory. Three of the cases present nonsentencing issues as well, and we begin with them.

Paladino and his codefendants were convicted by a jury of a variety of federal crimes arising out of a scheme to defraud investors that succeeded in fleecing $11 million from the victims. The scheme had two stages, but only the second, which lasted from 1995 to 1997, generates non-sentencing issues. Defendant lies, whose function was to recruit the investors, to whom she promised absurd returns — more than 100 percent per week for at least 40 weeks — made a variety of false representations. The one most significant to her appeal is that she and James Wardell (who died before he could be indicted) were reputable and experienced investment ad-visors. In fact lies had pleaded guilty to federal fraud charges in 1988 and the following year had been banned by the SEC from ever associating with members of the securities industry, while Wardell had been convicted in a state court of theft by fraud in 1975, and in 1972 had consented to an SEC order forbidding him to violate federal securities laws in the offer and sale of stock in a corporation in which he had been involved. The government was permitted to present all these prior “bad acts” to the jury, and also to argue that lies knew about Wardell’s conviction and SEC bar order, though all Wardell had told her, when she Informed him of her own SEC bar order, was that he, too, had had problems with the SEC.

Rule 404(b) of the Federal Rules of Evidence forbids the use of evidence of a defendant’s history of illegal or unethical acts to prove that he is a person of bad [475]*475character and likely therefore to have committed the crime of which he is accused in the present case, or perhaps some other, undetected crime for which he should be punished. The government argues that it presented the evidence of Iles’s and War-dell’s bad acts for the innocent reason that those acts were so “inextricably intertwined” with the conduct of which the defendants were accused in this case that the jury needed to know the bad acts in order to form a complete picture of that conduct. United States v. Spaeni, 60 F.3d 313, 316 (7th Cir.1995); United States v. Ramirez, 45 F.3d 1096, 1102-03 (7th Cir.1995). Such evidence can be proper to enable the jurors to make sense of the evidence pertaining to the criminal activity of which the defendant is currently accused, United States v. Gibson, 170 F.3d 673, 682 (7th Cir.1999), and to avoid puzzling them by making them think that facts important to their understanding of the case are being concealed. But those-were not problems here. If the jurors never heard anything about Iles’s and Warden’s previous legal troubles, it would not have occurred to them that they were missing anything or have made any of the other evidence in the case unintelligible.

The government’s fallback position is stronger-that Iles’s failure to disclose Wardell’s and her histories was a part of the scheme. But the government overreaches by arguing that anyone who solicits an investment is required, on pain of criminal liability for failing to do so, to disclose any previous conviction for fraud, or for that matter anything else that might give an investor cold feet. If asked by the investor about such things, the solicitor would have to give a truthful answer or be guüty of fraud. E.g., United States v. Tadros, 310 F.3d 999, 1006 (7th Cir.2002); United States v. Ross, 77 F.3d 1525, 1543 (7th Cir.1996); United States v. Kinney, 211 F.3d 13, 17-19 (2d Cir.2000). But to fail to volunteer such information would be fraud only if potential investors would assume that someone soliciting an investment would disclose such a history. We doubt that that would be a reasonable assumption, and in any event the government has made no effort to argue that it would be or to provide cases that support its expansive notion of fraud.

It is true that a fiduciary (which lies was, as we’ll see when we come to the sentencing issues) is required to disclose facts material to his principal, e.g., Carr v. CIGNA Securities, Inc., 95 F.3d 544, 547-48 (7th Cir.1996); United States v. Szur, 289 F.3d 200, 211-12 (2d Cir.2002), and true too that materiality implies merely that disclosure would make a difference to the principal’s decision, Basic Inc. v. Levinson, 485 U.S. 224, 231-32, 108 S.Ct. 978, 99 L.Ed.2d 194 (1988); TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449, 96 S.Ct. 2126, 48 L.Ed.2d 757 (1976); Castellano v. Young & Rubicam, Inc., 257 F.3d 171, 180 (2d Cir.2001), and that most principals if they learned that their fiduciary had been convicted of fraud would tell him to take a walk. But pushed to its logical extreme, this reasoning would have required lies to preface every conversation with a customer with a detailed recitation of everything in her personal history that might alarm or discourage him, on pain of criminal punishment if she intentionally left something out. It would also make a person who had ever been convicted of fraud a leper in the investment business, even if she had not been barred from the industry.

We need not pursue this issue; for what is incontestable is that Iles’s history is evidence that the representations she made to potential investors really were misleading. She had represented to them that she was both reputable and experi[476]*476enced, and by doing so had implied that she had a clean record, and certainly that she had not been barred from the securities business for life almost a decade earlier, after being convicted of criminal fraud. What made the representation misleading was precisely her history; that history was therefore direct evidence of guilt rather than evidence merely of bad character. United States v. Polichemi, 219 F.3d 698, 709-10 (7th Cir.2000).

The judge should not, however, have permitted the evidence of Wardell’s legal troubles to come in without evidence that lies actually knew about them. All War-dell told her was that he had had problems with the SEC. Many members of the securities business have had problems with the SEC that did not result in their being barred from the business. The SEC does not bring remedial proceedings against everyone whom it investigates and it does not prevail in all the proceedings that it does bring. Anyone who had to defend himself against the agency would acknowledge having had problems with it even if he had been exonerated. The judge’s error, however, was harmless, because the evidence against lies, especially in light of our conclusion that her own previous fraud judgments were properly placed before the jury, was compelling.

Defendant Paladino complains that he was forced to take the stand by an erroneous evidentiary ruling.

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