Since the Supreme Court’s decision in United States v. Booker,1
sentencing courts are no longer bound by the U.S. Sentencing Guidelines.
Although their substantial sentencing discretion was recently
reaffirmed in Gall v. United States,2 they nonetheless remain obligated
to calculate and consider the applicable sentencing range under the
Guidelines. Thus the calculation of “loss” under Section 2B1.1 of the Guidelines remains a critical issue at sentencing in many white collar crime cases.3
This article examines some arguments and strategies that defense
counsel might consider in preparing loss arguments for a securities
‘Loss’ Under Guideline Section 2B1.1
The loss adjustment in Section 2B1.1 of the Guidelines may
lead to harsh sentences in fraud cases. The Guidelines include an
expansive definition of loss that applies in most financial cases,
including those involving securities, bank, mail and wire fraud, money
laundering, and conspiracy. Typical defendants are the principals or
executives of issuers or brokerages, traders or other investment
services employees, lawyers, investment advisors, or other
professionals. Wrongdoing may include misleading investors or clients,
backdating, cooking the books, pump-and-dump schemes, false filings with
the SEC, misstatements to regulators, and an array of other misconduct.
Loss calculations can generate particularly draconian results in
securities fraud cases. Consider, for example, WorldCom’s Bernie Ebbers
(25 years), Enron’s Jeff Skilling (over 24 years) and Andrew Fastow (six
years), Dynergy’s Jamie Olis (24 years, reduced to six years on
resentencing), Adelphia’s Timothy Rigas (17 years), Qwest’s Joseph
Nacchio (six years), and Canadian CEO Conrad Black (over six years).
These sentences are unfair and irrational.4 Some appellate
courts disfavor an unbridled construction of loss in securities cases,
and their opinions invite a fresh evaluation of the issue in preparing
for sentencing proceedings.
In securities fraud cases, the loss up-tick is often the greatest single
factor in determining a sentence. As the Second Circuit has noted, the
Guidelines “are a sentencing regime in which the amount of loss caused
by a fraud is a critical determinant of the length of a defendant’s
sentence.”5 This may be true even for a defendant who profited little or
not at all from a fraudulent scheme. In the typical case in which an
“oversimplified … measure of damages [is] proffered by the government,”6
the defense may be able to improve its position by proposing a more
sophisticated loss calculation methodology. A lower loss adjustment, of
course, means a lower “starting point” or “initial benchmark”7 from
which the sentencing court will determine the applicable sentence.
The Government’s Burden of Proof
The government bears the burden of proving the facts underlying any upward adjustment.8
Ordinarily the standard is a preponderance of the evidence, but where a
potentially disproportionate adjustment is at issue, due process may
require the prosecution to satisfy a heightened burden.9
The clear and convincing standard may apply — at least in some jurisdictions.10
Where the government proposes a loss adjustment that is greater than
four levels and would have a substantial impact on the sentence, the
clear and convincing standard may be appropriate.11 There is
no “bright line” rule, however, and the “totality of the circumstances”
will determine whether the heightened standard of proof applies.12
Relevant considerations in a securities fraud case ordinarily will
support an argument that the clear and convincing standard should be
applied.13 Given the challenges of calculating securities
fraud losses, convincing a sentencing court to hold the government to
this heightened standard may benefit the defense substantially.
Satisfying the clear and convincing standard may be a problem for the
government when it comes to assessing securities losses in complex
cases. Complex cases include those involving multiple stocks, numerous
investors, multiple defendants, stocks with a long trading history or
substantial residual value, a generally turbulent market at the time in
question, an intricate scheme, or a lengthy period of fraudulent
conduct. The presence of several of these factors may compound the
Although “some estimate must be made for Guidelines’ purposes, or
perpetrators of fraud would get a windfall,”14 the benefit of any doubt
should be given the defense where the court is estimating loss.15
Factors to Consider in Evaluating Loss
A number of arguments may support a more reasonable loss adjustment than
that proposed by the government. In developing a position, consider the
- Should victims’ losses be market-adjusted to reflect any overall
drop in the relevant market at the time in question (for example, the
dot-com bust in the high tech market, or distress in the mortgage-backed
- Should a victim’s losses be adjusted to reflect any drop in
the value of a stock that was caused by factors unrelated to the fraud
(for example, unfavorable earnings releases), or extrinsic conditions
(for example, exchange rate fluctuations, increasing energy costs, or
general economic conditions)?
- Where the facts support the use of various different time
periods for assessing loss, should the client be given the benefit of
the doubt by selecting the time period that minimizes the loss
- Would the client’s personal gain provide a suitable
alternative because the government’s evidence is not clear and
convincing or does not enable victims’ losses to be assessed with
- Should sophisticated victims’ losses be adjusted to reflect
the degree of risk that they knowingly assumed, so that a loss
adjustment is based only on that portion of a loss resulting from
investors’ unwitting assumption of risk?
- Was a large portion of victims’ losses caused by the
“intervening, independent, and unforeseeable criminal misconduct”17 of a
- Where a fraudulent scheme involves multiple stocks, should a
victim’s aggregate losses be offset by the victim’s gains on all stocks
(i.e., does the calculation of net loss on a stock-by-stock basis result
in a loss greater than the victim’s out-of-pocket loss because the
victim made money on some stocks in the victim’s portfolio)?
- Do victims’ losses overstate a client’s culpability based on
any other factors? For example, was the client unaware of the fraudulent
scheme when victims first purchased stocks? Did the client take steps
to avoid or mitigate investors’ losses? Did the client attempt to
withdraw from a conspiracy? Were any victims on notice of irregularities
when they invested in a stock, and thus partially to blame for their
losses? Did a stock broker/client intend for his customers to be among
those who profited from a scheme? Was a scheme simply “puffery or
cheerleading or even a misguided effort to protect the company, its
employees, and its cheerleaders from the capital-impairing effects of
what was believed to be a temporary downturn in business”?18
Notwithstanding “the time and evidentiary constraints on the sentencing
process,” some courts considering loss have been amenable to a “nuanced
approach modeled upon loss causation principles.”19 This may
substantially benefit the defense in a thorny securities fraud case.
Actual Loss vs. Intended Loss vs. Alternate Measures
The Guidelines commentary states that “loss” is the “greater of actual
loss or intended loss.”20 “Actual loss” — often referred to as “but for”
loss — means “the reasonably foreseeable pecuniary harm that resulted
from the offense.”21 It includes both losses directly attributable to
acts of the defendant and acts of co-conspirators that were reasonably
foreseeable to the defendant.22
“Intended loss” means “the pecuniary harm that was intended to result
from the offense.”23 “Intended loss” is not simply the maximum potential
loss from an offense, and a “court errs when it simply equates
potential loss with intended loss without deeper analysis.”24 However,
there is no “economic reality principle” under the Guidelines, and
intended losses may include losses that would have been “impossible or
unlikely to occur.”25
The Guidelines “do not present a single universal method” for loss
calculation, and a “fact-intensive and individualized … inquiry” may be
required to make a reasonable estimate of loss.26 There are
“several possible approaches to this calculation: the greater of actual
loss or intended loss” or, where these figures cannot be determined
“with sufficient certainty … the defendant’s personal gain from the
fraud as an alternate measure.”27
The Guidelines suggest two loss calculation methods that may be
particularly relevant to securities fraud cases: “the approximate number
of victims multiplied by the average loss to each victim,” and “the
reduction that resulted from the offense in the value of equity
securities or other corporate assets.”28 Often neither method will
result in a loss adjustment that fairly reflects the economic reality of
a client’s wrongdoing or bears any reasonable relationship to the
The Challenge of Calculating Loss With Reasonable Certainty
The Guidelines require only that a sentencing court “make a reasonable
estimate of … loss.”29 In cases involving multiple victims, determining
loss “is not easily quantifiable.”30 Where a stock is a complete sham,
determining loss may be relatively straightforward.31
However, the analysis is “considerably more complex” where a scheme
involved an “otherwise legitimate company,” or a company that is not an
“entirely sham” operation.32 This is because the government
may be unable to prove loss causation — that the stock would be
worthless but for the scheme, or that the drop in stock price resulted
entirely from the fraudulent scheme.33
Substantial challenges face the government where: (1) a stock has some
value apart from the effect of a fraudulent scheme; (2) a stock had a
long trading history or substantial residual market value following the
conclusion of a scheme; (3) market forces or other factors unrelated to
the fraud contributed to the drop in a stock’s price; or (4) the price
of the stock rebounded significantly at some point after disclosure of
the fraud. One or more of these factors will often be present where a
scheme causes investor losses regarding an otherwise legitimate stock.
An example of the potential complexity of assessing loss is a
“pump-and-dump” scheme, which involves “the touting of a company’s stock
… through false and misleading statements to the marketplace. After
pumping the stock, fraudsters make huge profits by selling their cheap
stock to the market.”34 As the Ninth Circuit held in Zolp, unless the
government can prove by clear and convincing evidence that the stock is a
complete sham, a loss assessment requires it to “disentangle the
underlying value of the stock, inflation of that value due to the fraud,
and either inflation or deflation … due to unrelated causes.”35 The way
to calculate loss in such circumstances is not set forth in the
Guidelines. In this type of situation, the defense may benefit greatly
from a sophisticated loss analysis.
Market CapitalizationTheory of Loss
A market capitalization theory of loss is a crude but easy-to-apply
method of calculating loss. It measures the decline in a stock’s value
between the time when a fraudulent scheme was going on and the time when
investors first learned about the scheme. This measure bases “loss on a
gross correlation between stock price decline and the revelation of a
A market capitalization measure of loss is often a poor proxy for
victims’ actual injury because the dates selected for valuation of the
stock may have “no particular relevance to the offense conduct,” and the
method will attribute the total amount of a decline in the price of a
stock to the offense conduct even though other factors may have
contributed to the loss.37 This is particularly true in the
case of a long-running scheme because “[o]ther things being equal, the
longer the time between purchase and sale … the more likely that other
factors caused the loss.”38
Moreover, a market capitalization measure of loss overstates a victim’s
losses where the victim bought the stock at a price that was lower than
the inflated price that resulted from the fraudulent scheme. The
over-inflation of loss using this methodology may be very substantial
where a stock has a lengthy trading history and its price has increased
continually over time. In such cases, early purchasers may have lost
little or nothing, yet a high loss could be attributed to them.39
A market capitalization calculation also overstates victims’ losses
where the stock price plummeted immediately after investors learned of
the fraud, but then rebounded at a later point in time.40
An example of the defects in loss calculations proposed by the
government is described in Zolp. The sentencing court had adopted the
government’s position that the loss for Guidelines purposes was the
“intended loss.”41 The district court calculated loss as the difference
between the purchase price of the stock and what it assumed to be its
true value (nothing). The Ninth Circuit reversed, ruling that the
government had not met its “burden to establish, by clear and convincing
evidence, that there was ‘no market’ for … [the] shares after the fraud
came to light.”42
Analogizing to Civil Securities Fraud
Analogizing to civil law may be helpful because civil securities law
encompasses a loss causation standard that is similar to the common law
theory of proximate cause — a concept largely lost in Section 2B1.1 of the Guidelines.43
In Rutkoske, a stock manipulation case against a brokerage firm owner,
the Second Circuit remanded for resentencing, noting “no reason why
considerations relevant to loss causation in a civil fraud case should
not apply” to loss calculations under the Guidelines.44
When considering the bounty of civil securities fraud cases examining
loss causation and calculating damages, defense counsel should be
cognizant of the significant impact of the Supreme Court’s 2005 decision
in Dura Pharmaceuticals.45 In Dura, a case cited in many
securities fraud cases, the Court held that a civil securities fraud
plaintiff must plead and prove loss causation, i.e., that there was a
“causal connection between the material misrepresentation and the loss,”
in order to satisfy the element of “loss causation.”46 Cases predating
Dura may adopt a broader concept of loss than that which applies
following Dura, as reflected in its progeny.
In Olis,47 the Fifth Circuit cited Dura in stating that “there is no
loss attributable to a misrepresentation unless and until the truth is
subsequently revealed and the price of the stock accordingly declines
and the portion of a price decline caused by other factors must be
excluded from the loss calculation.” If a fraudulent scheme corresponded
with general turbulence in the stock market, or with depression in a
particular segment of the market, loss causation may prove a substantial
challenge for the government. If extrinsic factors impacted a stock’s
price, or players other than the client (or even co-conspirators acting
outside of the conspiracy) contributed to victims’ losses, the requisite
causal link may be weak. Similar problems may face the government where
victims knowingly assumed a high degree of risk by investing in
speculative or volatile securities.
Another illustration of the more reasonable approach to investors’
losses under civil securities law is the Private Securities Litigation
Reform Act of 1995.48 That statute provides for damages to be
computed based on the difference between the purchase price paid by an
investor and the mean trading price of the stock during the 90-day
period following public disclosure of a fraudulent scheme.49
This methodology will result in a more accurate assessment of damages —
or, by analogy, loss — where the market has an extreme but temporary
reaction to disclosure of a fraudulent scheme.
The government may object to considering civil law in calculating loss
under the Guidelines because most criminal cases reflect a broader
concept of loss. However, the argument that civil securities law does
not apply to loss calculations under the Guidelines was explicitly
rejected by the Second Circuit in Rutkoske.50 The common
sense reasons for considering civil law in Rutkoske and Olis may appeal
to sentencing courts, in light of the similarity between civil damages
and loss to investors in a criminal securities fraud case.51
A market-adjusted analysis of loss reduces investors’ losses by any
decrease in the value of a security that resulted from market factors
that were unrelated to a fraudulent scheme. Market adjustment makes
economic sense and is consistent with the Guidelines since a loss caused
by extrinsic factors is “not a ‘loss’ attributable to the fraud.”52 A
loss computation that is not market-adjusted will often overstate the
loss under the Guidelines.53 Thus, the government must prove —
perhaps by clear and convincing evidence — the amount of investors’
losses that resulted exclusively from the fraudulent activities of the
Where a security is not a complete sham, a large portion of the
diminution in its value may have been caused by factors other than a
fraudulent scheme. Accordingly, it may behoove defense counsel to
establish that the security was not a total sham. Consider questions
such as: How long had the security been trading before the claimed
fraud? Did it continue trading after the fraud was exposed? Was it
traded on the NYSE, AMEX, NASDAQ, or another NASD-regulated exchange?
Was it widely traded?54 Was it rated by Morningstar, Lipper, or another
popular rating system? Was it included in the Russell 20000, NASDAQ-100®
or another market index? Did the issuer have business premises? Did it
have substantial tangible or others assets? Did it have numerous
employees or extensive business operations? Did it submit timely and
complete SEC filings?
While the factors establishing legitimacy will differ depending on the
circumstances, the more indicia of bona fide business operations that
can be established, the more likely it is that a court will consider the
impact of extraneous factors on the drop in stock price following
revelation of a fraud.
Assessing the appropriate amount of market adjustment “inevitably cannot
be an exact science,” and ordinarily expert analysis and consideration
of the general and particular segment of the securities market is
necessary for a court “to approximate the extent of loss caused by a
defendant’s fraud.”55 Because market-adjusted figures will often be more
accurate than those mechanically generated from raw trading data, it
may benefit the defense to have an expert prepare a market-adjusted
analysis of loss. At a minimum, raising the possibility of market
influences on investors’ losses may discredit crude and inflated
government loss estimates, and support the position that the government
has failed to meet its burden of establishing loss with reasonable
Alternate Loss Measures — A Defendant’s Gain
If neither “intended” nor “actual” loss can be reasonably ascertained, a
defendant’s “personal gain from the fraudulent scheme” is an
appropriate alternative method of calculating Guidelines loss.57
A client’s gain could be diverted funds, inflated trading profits, or
the bonuses, kickbacks or other remuneration received because of
participation in a scheme.58
Using the gains to a client rather than victims’ losses may benefit the
defense substantially where a client profited little from a fraud, or
ended up being among the losers when the scheme belly-flopped or the
leading perpetrators scooped all of the gains. Regardless of the
circumstances, it also is the alternate method prescribed by the
Guidelines when no reasonably accurate assessment of intended or actual
loss can be made. In Zolp, for example, the defendant was a “major
participant in a ‘pump-and-dump’ scheme,” who, inter alia, convinced an
issuer to hire a bogus investment advisory firm, which generated false
press releases, thereby driving up the price of the stock. When the
price was elevated, he told his broker to sell his trove of stock.59
The presentence report “found that actual loss to the investors could
not be determined, and, accordingly, recommended a calculation based on
[the defendant’s] personal gain from the fraudulent scheme.”60
Of course, a client’s gain may be disproportionately large relative to
actual or intended loss. For example, in a sting operation law
enforcement may be responsible for the amount paid in bribes or
kickbacks.61 In such cases, the government holds the keys to a
defendant’s gain, and it could be unfair to use such figures as the
“loss” amount for sentencing purposes.
Novel Government Theories of Loss
Government efforts to calculate loss based on novel theories (for
example, a victim’s expectations of profit, or the opportunity cost of
funds invested by victims) have been unpopular in some courts.62
As the Fifth Circuit stated in Olis, the “government does not further
the goals of sentencing uniformity or fairness when, as seems to be
happening in these cases, the government persistently adopts aggressive,
inconsistent, and unsupportable theories of loss.”63
Exclusions From, and Credits Against, Loss
Exclusions from, and credits against, loss may provide good
opportunities for a lower loss adjustment. For example, amounts based
upon an agreed-upon return, the costs of prosecution, and a victim’s
expenses in aiding prosecutors are not included in loss calculations.64
Loss will also be reduced by money or property returned to victims
before an offense is exposed, or a defendant knows, or reasonably should
have known, that the scheme was about to be detected.65 An
exception to this exclusion, however, is a Ponzi or other scheme in
which payments to victims are routinely made to some or all victims.66
A victim’s losses also should be reduced by the victim’s gains, and
courts could consider a victim’s net losses on the entire portfolio of
stocks that were impacted by a fraudulent scheme. As explained by the
Seventh Circuit in United States v. Mount:67
[The Guidelines], and this court’s cases … call for the court to
determine the net detriment to the victim rather than the gross amount
of money that changes hands. So a fraud that consists in promising 20
ounces of gold but delivering only 10 produces as loss of the value of
10 ounces of gold, not 20.
This may be helpful where a victim withdrew some trading profits on a
fraudulent stock before the scheme came to light and its value
plummeted. Likewise, this may be helpful where a scheme involved
multiple stocks and an investor lost money on some, but profited on
To make a reasonably accurate assessment of loss that takes into account
investors’ gains, a court must evaluate an individual investor’s
trading history and the residual value of a stock at some point in time
following the exposure of a fraudulent scheme. Where an investor had
extensive in-and-out trading over a lengthy period of time, or where the
nature of the stock invited extensive trading (for example, penny
stocks or commodities), it may be very challenging to offset victims’
losses with their gains. If feasible, however, it may result in a lower
loss adjustment where a victim enjoyed profits on stocks at various
times during the course of a scheme, or enjoyed profits on some, but not
all, stocks that were affected by a fraud.
Computing loss with reasonable certainty in securities fraud cases
presents substantial legal and practical challenges. Identifying a
methodology that is feasible under the circumstances, consistent with
the Guidelines, and generates a fair sentence may be particularly
problematic. However, a number of cases create opportunities to avoid
some of the distortion created by the broad concept of loss under the
Guidelines. In light of the severe sentences often generated by rote
loss calculations, exploring these issues may help to obtain more just
sentences for clients convicted of securities fraud.
- 543 U.S. 220 (2005).
128 S. Ct. 586, 596 (2007).
For offenses before November 1, 2001, see USSG § 2F1.1 (providing lower loss adjustments).
See Stuart Taylor, Jr., Irrational Sentencing, Top to Bottom, Nat’l
Law J. (February 12, 2007) (comparing sentencing proceedings in such
cases to “Roman emperors throwing criminals to the lions and bears to
gratify circus crowds”).
United States v. Rutkoske, 506 F.3d 170, 179 (2d Cir. 2007).
United States v. Olis, 429 F.3d 540, 547 (5th Cir. 2005).
Gall, 128 S. Ct. at 596.
United States v. Zolp, 479 F.3d 715, 718 (9th Cir. 2007).
See McMillan v. Pennsylvania, 477 U.S. 79 (1986) (higher standard of
proof than a preponderance of the evidence may apply where sentencing
enhancement is the “tail which wags the dog of the substantive
See United States v. Gonzalez, 492 F.3d 1031, 1039 (9th Cir. 2007)
(clear and convincing standard applies to 9-level increase to the
offense level, which increased Guideline range from 0-6 months to 21-27
months, since adjustment had “extremely disproportionate effect on the
sentence relative to the offense of conviction”), cert. denied, 128 S.
Ct. 1093 (2008); Zolp, 479 F.3d at 718; United States v. Okai, 454 F.3d
848, 852 (8th Cir.) (recognizing in dicta that due process may require
sentencing courts to apply a higher standard of proof where the
sentencing enhancement becomes the “tail which wags the dog of the
substantive offense”), cert. denied, 127 S. Ct. 697 (2006). Cf. United
States v. Grier, 475 F.3d 556, 566 (3d Cir.) (en banc) (declining to
consider status of prior holding that sentencing enhancements that “can
fairly be characterized as a ‘tail which wags the dog of the substantive
offense’ must be proved by clear and convincing evidence”) (citations
omitted), cert. denied, 128 S. Ct. 106 (2007); but see United States v.
Scroggins, 485 F.3d 824 (5th Cir.) (rejecting argument that any standard
of proof greater than a preponderance applies where relevant conduct is
the “tail that wags the dog” of the substantive offense), cert. denied,
128 S. Ct. 324 (2007).
See United States v. Jordan, 256 F.3d 922, 929 (9th Cir. 2001)
(clear and convincing standard applies where 9-level adjustment would
approximately double Guideline range); id. at 934 (“[W]e appear to have
consistently held that when the enhancement is greater than four levels
and more than doubles the applicable sentencing range, then the
enhancements must be proved under ‘clear and convincing’ standard of
proof.”) (O’Scannlain, J., concurring); Zolp, 479 F.3d at 718
(government concedes clear and convincing standard applies to 20-level
United States v. Pike, 473 F.3d 1053, 1057-58 (9th Cir.) (error to
apply heightened standard to 5-level adjustment without first
considering “totality of circumstances”), cert. denied, 128 S. Ct. 256
See id. (enumerating relevant factors); USSG § 2B1.1(b)(1)
(prescribing 4- to 30-level adjustments for losses exceeding $5,000).
United States v. Ebbers, 458 F.3d 110, 127 (2d Cir. 2006), cert. denied, 127 S. Ct. 1483 (2007).
See United States v. Kilby, 443 F.3d 1135, 1141 (9th Cir. 2006)
(where “sentence depend[ed] in large part upon the amount of drugs,”
court “must err on the side of caution” in approximating quantity).
See, e.g., Rutkoske, 506 F.3d at 180 (“a fraud disclosed just as the
dot-com bubble burst might cause most, but not necessarily all, of the
decline in previously high-flying technology stocks”); Emergent Capital
Inv. Mgmt., LLC v. Stonepath Group, Inc., 343 F.3d 189, 197 (2d Cir.
2003) (where “loss was caused by an intervening event, like a general
fall in the price of Internet stocks, the chain of causation will not
have been established”).
United States v. Hooker, 217 F.3d 1038, 1049 (9th Cir.), cert. denied, 531 U.S. 1037 (2000).
Ebbers, 458 F.3d at 129-30.
Olis, 429 F.3d at 547 (citations omitted). An example of this is the
analysis of the district court considering the sentencing of Brocade
Communications’ CEO Gregory Reyes. See United States v. Reyes, et al.,
CR 06-556-CRB (N.D. Cal.) (CR 737, Order Re: Sentencing dated November
27, 2007 (“Reyes Order”)).
USSG § 2B1.1, cmt. n.3(A).
Id. at § 2B1.1, cmt. n.3(A)(i); see also U.S. Sentencing Commission,
Office of General Counsel, An Overview of Loss in USSG § 2B1.1 (March 2007), available at http://www.ussc.gov/training/loss-March%202007.pdf (“Loss Overview”).
See Loss Overview, at 1.
USSG § 2B1.1, cmt. n.3(A)(ii).
United States v. Geevers, 226 F.3d 186, 192 (3d Cir. 2000).
Loss Overview, at 4.
Zolp, 479 F.3d at 718.
Id. at 719; see USSG § 2B1.1, cmt. n.3(B).
USSG § 2B1.1, cmt. n.3(C)(iii), (iv).
USSG § 2B1.1, cmt. n.3(C).
Ebbers, 458 F.3d at 127.
Olis, 429 F.3d at 546-47.
See Zolp, 479 F.3d at 719.
See id.; Ebbers, 458 F.3d at 128 (“Many factors causing a decline in
a company’s performance may become publicly known around the time of
[a] fraud and be one cause in the [drop] in price. …”).
Zolp, 479 F.3d at 717, n.1 (citation omitted).
Id. at 719; see also Ebbers, 458 F.3d at 128 (“The loss must be the result of the fraud.”).
Olis, 429 F.3d at 546-47 (citing cases rejecting market capitalization calculations of loss).
See Rutkoske, 506 F.3d at 178.
Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336, 343 (2005); cf.
Ebbers, 458 F.3d at 127 (“The loss to investors who hold during the
period of an ongoing fraud is not easily quantifiable because we cannot
accurately assess what their conduct would have been had they known the
See In re Cedant Corp. Litig., 264 F.3d 201, 242 (3d Cir. 2001)
(illustrating inflated loss generated by market capitalization analysis
where an investor purchased stock at a lower price than that immediately
preceding disclosure of a fraud), discussed in Reyes Order, at 5-6.
See United States v. Bakhit, 218 F. Supp. 2d 1232, 1241-42 (C.D.
Cal. 2002) (calculating loss based on depressed stock price on date
trading resumed following disclosure of fraud would result in an
inflated loss adjustment because initial price drop was temporary and
“appear[ed] to be an anomaly, an extreme reaction to the announcement of
479 F.3d at 720.
Id. at 720; cf. Ebbers, 458 F.3d at 127-28 (discussing defects in “simplistic analysis” of market capitalization model).
See Rutkoske, 506 F.3d at 179, citing Olis, 429 F.3d at 546 (looking
to civil securities fraud damages law for guidance in calculating
Rutkoske, 506 F.3d at 179.
544 U.S. 336.
Id. at 341.
429 F.3d at 546.
Pub. L. No. 104-67, 109 Stat. 737 (1995) (codified in various sections of Title 15 U.S.C.).
See 15 U.S.C. § 78u-4(e); United States v. Grabske, 260 F. Supp. 2d 866, 873-75 (N.D. Cal. 2002); Reyes Order, at 6.
506 F.3d at 179.
See, e.g., Reyes Order, at 5-6.
Olis, 429 F.3d at 546.
See Rutkoske, 506 F.3d at 180 (“basic failure” for sentencing court
to not even consider factors relevant to stock price decline other than
Cf. Rutkoske, 506 F.3d at 180 (rejecting government’s argument that a
“thin market” for a stock means that market forces could not have
contributed to investors’ losses).
Rutkoske, 506 F.3d at 179-80.
See Reyes Order, at 8-10 (rejecting government calculations based on
“rescissory loss model” because effects of defendant’s wrongdoing
cannot be untangled from market influences on stock price).
See USSG § 2B1.1, cmt. n.3(B); Zolp, 479 F.3d at 719.
See, e.g., United States v. West, 2 F.3d 66, 71 (4th Cir. 1993)
(brokerage fees paid by government is appropriate loss where brokers
fraudulently obtained under-secured bonds for government).
Id. 479 F.3d at 717.
60. Id. at 720; cf., e.g., United States v. Munoz, 430 F.3d 1357, 1371
(11th Cir. 2005) (sentencing court would be justified in using
defendant’s gain to assess loss given that it was arguably difficult to
determine customers’ loss in misbranding case), cert. denied, 126 U.S.
2305 (2006); United States v. Yeager, 331 F.3d 1216, 1225-26 (11th Cir.
2003) (affirming trial court finding that defendant’s profit was
reasonable estimate of loss where court was unable to reasonably
estimate actual or intended losses due to conflicting and confusing
See, e.g., 6 Arrested Over Plots to Pump Up Share Prices, N.Y.
Times, Dec. 8, 2007, at B1 (detailing operation in which undercover FBI
agent “got word out in the penny stock community that he was willing to
buy stocks in struggling companies in return for bribes”).
See, e.g., Reyes Order, at 7 (rejecting government’s alternate
proposal of measuring loss by SEC fines paid by issuer, or tax
liabilities of victim employees that issuer voluntarily assumed).
Olis, 429 F.3d at 547, n.11, cited in Reyes Order, at 7 (citation omitted).
USSG § 2B1.1, cmt. n.3(D); United States v. Schuster, 467 F.3d 614,
618-20 (7th Cir. 2006) (reversing loss calculation that included
victims’ expenses in connection with trial testimony).
USSG § 2B1.1, cmt. n.3(E)(i).
Id. cmt. n.3(F)(iv); Loss Overview, at 13.
- 966 F.2d 262, 265 (7th Cir. 1992).