Tuesday, October 1, 2013
Court Upholds Reduced Sentence in ‘Pump-and-Dump’ Scheme
By KENNETH OFGANG, Staff Writer
A former stock broker with a now-defunct San Diego firm was fairly sentenced to 36 months in federal prison after the Ninth U.S. Circuit Court of Appeals reversed his previous 40-month term, a different Ninth Circuit panel ruled yesterday.
The new sentence for Bryan Laurienti was not excessive, the panel concluded, particularly given the defendant’s efforts to avoid paying restitution by transferring property to his ex-wife since his conviction.
Laurienti was a broker at Hampton Porter Investment Bankers, a firm co-owned by his brother, John Laurienti. The brothers were among eight defendants indicted in 2003 on charges of conspiracy and securities fraud.
In addition, John Laurienti was charged with five counts of money laundering. He cooperated with the government and was sentenced to 16 months in prison.
Two other defendants pled guilty, and one was acquitted. Bryan Laurienti and three others were convicted, with sentences ranging from 30 to 52 months and restitution awards ranging from $300,000 to $2.7 million.
Prosecutors described the scheme as one in which the defendants received shares of thinly traded “penny” stocks for free or at deep discounts in exchange for aggressively pushing those companies’ stocks on their clients. The brokers would then discourage clients from selling shares, refusing in some instances to execute clients’ sales orders.
The company kept the brokers in on the scheme, according to testimony, buy paying well-above-standard commissions on those “house stocks”—concealing the size of the bonus commissions from the clients. The scheme unraveled when the market took a dive in 2000, and Hampton Porter folded the following year.
In the first appeal, the panel upheld the convictions of all four appellants, but sent the case back to Senior U.S. District Judge Terry J. Hatter of the Central District of California for resentencing. The judges said the restitution amounts had been incorrectly calculated, and that the legal standard for determining whether a defendant is subject to a greater sentence for having abused a position of trust had changed since the original sentencing.
On remand, Hatter again found Laurienti had committed an abuse of trust, but cut four months from his prison term and accepted a stipulation reducing the restitution award to $204,000.
Abuse of Trust
In yesterday’s opinion for the Ninth Circuit, Senior District Judge James G. Carr of the Northern District of Ohio, said Hatter was correct in finding that Laurienti abused a position of trust, and that the prison term—which was in the middle of the guideline range—was substantively reasonable.
In concluding that the abuse-of-trust enhancement was proper, Carr distinguished United States v. Contreras, 593 F.3d 1135, a 2010 case in which the Ninth Circuit held en banc that a prison cook did not hold a position of trust.
Unlike the cook, the jurist wrote, a stock broker holds a position in which his wisdom and judgment are relied on by the clients.
“[T]he professional discretion Laurienti exercised in selecting which securities to recommend, and the deference his recommendations received in light of his special knowledge and expertise, afforded him a position of trust,” Carr wrote.
He rejected the defendant’s claim that Hatter acted unfairly in not declining to read the last two pages of the defense sentencing memorandum or to look at a DVD that was submitted. Noting that the argument was not raised in the trial court and thus could not be a basis for reversal unless the judge committed plain error, Carr said there was nothing in the memorandum or the DVD that was not presented to the judge in some other form.
The judge did, however, comment in a footnote:
“We note in passing that the time that the attorneys and this court have spent on the issue of the unread two pages and unwatched DVD was, in all likelihood, far more extensive (and, for the parties, expensive) than if the court had simply read and watched what was before it. As Benjamin Franklin astutely observed, ‘An ounce of prevention is worth a pound of cure.’”
Carr went on to say that three years was not an excessive term.
“Laurienti engaged in fraudulent conduct, including unauthorized trading in clients’ accounts, for approximately two years. He caused substantial losses in his clients’ accounts and profited at his clients’ expense. He continues, despite the jury’s verdict, to deny responsibility for his actions. As the government notes, the mitigating factors he cites are either accounted for by the Guidelines (lack of criminal history) or common among white-collar defendants (community and family support). The district court…had good reason to [deny leniency], as it appears Laurienti has transferred assets to his ex-wife and engaged in a post-conviction plan to avoid paying restitution.”
Nor did the disparity between Laurienti’s sentence and his brother’s indicate unfairness, Carr said, because John Laurienti was entitled to consideration for his cooperation and there was no suggestion that Bryan Laurienti was punished for exercising his constitutional right to a jury trial.
Judges Marsha S. Berzon and Paul J. Watford joined in the opinion.
The appeal was argued by Deputy Federal Public Defender Lisa Shinar for the defendant and by Ellen R. Meltzer, special counsel in the Fraud Section of the Department of Justice’s Criminal Division, for the prosecution.
The case is United States v. Laurienti, 11-50294.
Copyright 2013, Metropolitan News Company