A Third Circuit panel affirmed a district court’s application of the investment adviser enhancement under the federal sentencing guidelines to an individual who sold fake “promissory notes” to investors and misused the proceeds. The panel agreed that the defendant was in the business of providing investment advice for compensation in the form of his misappropriation of investor funds and found that his lack of adviser registration was not relevant. The panel also declined to find any breach of the plea agreement and rejected the defendant’s efforts to alter his 120-month sentence on the grounds of unreasonableness in light of his health (U.S. v. Miller, August 12, 2016, Restrepo, L.).
Fraud and plea agreement. The founder and sole owner of financial services firm Carr Miller Capital, LLC sold investors unregistered promissory notes, falsely promising annual returns of between 7 and 20 percent and the return of principal after nine months. The firm received over $41.2 million in capital from more than 190 investors, and, even after an investigation uncovered problems, Carr Miller continued to sell the unregistered notes, and the owner used funds to repay earlier investors and to pay the firm’s overhead and his own expenses.
The owner pleaded guilty to securities fraud and tax evasion, and the parties stipulated to a combined offense level of 29 under the federal sentencing guidelines, followed by a 3-level reduction for acceptance of responsibility. Thereafter, the government moved for a downward departure from 26 to offense level 23. The government noted that this approach met the terms of the plea agreement. The district court, however, applied the 4-level investment adviser enhancement under the guidelines, which was not mentioned in the plea agreement but recommended later in the presentence report. The defendant objected, but the district court found that he was unable to establish that he was not, in fact, an “investment adviser.” The district court did grant a 3-level downward departure, but after the adviser enhancement, the final level was higher than that stated in the plea agreement.
Investment adviser enhancement. The court noted that enhancement for a defendant that was an “investment adviser” at the time of the offense uses the definition of that term found in the Advisers Act, which states that an “investment adviser” is any person who engages in the business of advising others as to securities or investments for compensation. The defendant contends that he was not “in the business” of providing securities advice because he advised only initial investors and not those during the time period charged, but, the court found, the guidelines involve not only convicted conduct, but also acts involving the same course of conduct. Further, applying SEC guidance, the panel held that the defendant was “in the business” of providing advice because he held himself out as doing so and performed the activities for compensation when he commingled investors’ accounts and spent the money for his own purposes. Regardless of registration, the defendant was an investment adviser, and the district court properly applied the enhancement, the court concluded.
No breach, no unreasonableness. The panel also rejected the defendant’s claim that the government breached the plea agreement by promising to recommend offense level 23 and telling the judge that level 26 would be reasonable. The defendant failed to preserve this claim, making only a generalized objection to a contradiction with the agreement, the panel explained. There was no clear or obvious breach, and the government did in fact make the request to the court, the panel stated.
The panel also found no merit to the defendant’s objection to the sentence as substantively unreasonable. The district court considered the defendant’s personal characteristics and took into account his medical condition, even stating that it would have varied upward more but for his health, the panel concluded.
The case is No. 15-2577.
Attorneys: Mark E. Coyne and Norman Gross, Office of United States Attorney, for the United States of America. Richard Sparaco (Law Offices of Richard Sparaco) for Everett C. Miller.
Companies: Carr Miller Capital, LLC
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