United States v. Stein

United States v. Stein

Opinion

 [*1139]  JILL PRYOR, Circuit Judge:

After a two-week trial, Mitchell Stein, a lawyer, was convicted of mail, wire, and securities fraud based on evidence that he fabricated press releases and purchase orders to inflate the stock price of his client Signalife, Inc., a publicly-traded manufacturer of medical devices. The district [**2]  court sentenced Mr. Stein to 204 months' imprisonment, over $5 million in forfeiture, and over $13 million in restitution. Mr. Stein appeals his conviction and sentence.

Regarding his conviction, Mr. Stein argues, among other points, that the government failed to disclose Brady material² to the defense before trial and knowingly relied on false testimony to make its case. As regards his sentence, Mr. Stein argues that the district court erred in calculating actual loss for the purposes of the Mandatory Victims Restitution Act of 1996 ("MVRA"), 18 U.S.C. § 3663A, and § 2B1.1 of the United States Sentencing Guidelines. In particular, he argues that in estimating actual loss the district court  [*1140]  erroneously presumed that all purchasers of Signalife stock during the period when the fraud was ongoing relied on false information Mr. Stein promulgated. He also argues that the district court failed to take into account other market forces that likely contributed to the investors' losses. After careful consideration of the parties' briefs and with the benefit of oral argument, we affirm Mr. Stein's conviction but vacate his sentence.

This opinion proceeds in three parts. We first provide background regarding Mr. Stein's fraudulent scheme, his subsequent indictment, [**3]  his pretrial and post-trial motions, and his sentencing. Second, we address and reject Mr. Stein's challenges to his conviction. Mr. Stein identified only one potential Brady document, and it contained no information favorable to him and was accessible through reasonable diligence before trial. And, he failed to identify any suppressed material or any materially false testimony on which the government relied, purportedly in violation of Giglio.³

Third, with respect to sentencing, we review the district court's actual loss calculation. We agree with Mr. Stein that to establish an actual loss figure under the guidelines or the MVRA based on investors' losses, the government must prove that, in deciding to purchase Signalife stock, investors relied on the fraudulent information Mr. Stein disseminated. The district court found that more than 2,000 investors relied on Mr. Stein's fraudulent information, but the only evidence supporting this finding was the testimony of two individuals that they relied on Mr. Stein's false press releases and generalized evidence that some investors may rely on some public information. This evidence was insufficient to permit reliance to be inferred for over [**4]  2,000 investors. Accordingly, the district court erred in calculating an actual loss figure based on the losses of all these investors. The district court also failed to determine whether intervening events caused the Signalife stock price to drop and, if so, whether these events were unforeseeable such that their effects should be subtracted from the actual loss figure. We remand so that the district court can remedy these errors.

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