In the Courts

Much of the Ninth Circuit's analysis addressed Keskemety's sentencing appeal. Between 2007 and 2009, when Keskemety acted as a manager for the Florida boiler room, the company raised $9.3 million from a total of over 264 investors. Of that amount, Keskemety contended that only $1.5 to $2 million could be attributed to his efforts. By this calculation, Lloyd's boiler room raised approximately $7.3 million. There was no evidence presented challenging this assertion. In exchange for a guilty plea, Keskemety received an 80-month sentence and over $8 million in restitution. His sentence was based on the losses and number of victims of both the California and Florida boiler rooms. Keskemety's appeal asserted that his sentence was improperly increased by including fraud losses and victims attributable only to the Los Angeles location run by Lloyd. In his appeal, Keskemety did not attempt to escape liability for those identifiable losses and investors tied to the Florida scheme.

By statute, when individuals jointly undertake criminal activity, both are responsible for “all reasonably foreseeable acts and omissions in others in furtherance of the jointly undertaken criminal activity.” To identify “the scope of the criminal activity, the court may consider any explicit or implicit agreement.” However, an individual can only be held accountable for the losses attributable to that defendant's involvement, and not the losses of the criminal enterprise as a whole. In the telemarketing context specifically, “the scope of a joint undertaking for sentencing purposes depends on whether the telemarketers worked together, relied on one another to make a sale, attended the same sales meetings, and depended on the success of the operation as a whole for their financial compensation.”

Additionally, mere knowledge of another co-conspirator's acts is insufficient to hold a defendant responsible for those acts. This premise, however, was the entire basis for the district court's sentencing, as it failed to “identify additional factors supporting its conclusion that the solicitation and sales activities in Lloyd's Los Angeles boiler room were within the scope of the criminal activity Keskemety agreed to jointly undertake.” Specifically, the district court made the following statements regarding Keskemety's criminal scope: first, losses and victims “were clearly foreseeable” and during the time period of Keskemety's participation in the scheme; and second, “although Keskemety was in Florida, he was fully aware of all major facets of the scheme, knew others were raising money from the [movies], [and] ran his own boiler room operation that employed several closers who worked for him.” The government offered a similar argument, suggesting that both managers were “acting in concert for the same purported goal: to raise money for sellers,” and as such, Keskemety's sentencing was an accurate reflection of his criminal involvement. To the contrary, the Ninth Circuit noted that while both defendants were engaged in the same type of activity and used similar scripts to engage potential investors, they did not pool their customers and Keskemety did not benefit financially from Lloyd's Los Angeles operation. As a result, the Ninth Circuit concluded that the solicitations made and money obtained from Lloyd's Los Angeles boiler room were not within the scope of the criminal activity that Keskemety agreed to undertake” and ordered resentencing.

In the Courts and Business Crimes Hotline were written by Mayer Brown associate Colleen Snow.

Ninth Circuit: Appellate Review of Telemarketer Convictions and Sentences for Sale of Unregistered Securities

On Dec. 4, 2015, the U.S. Court of Appeals for the Ninth Circuit rendered its decision in United States v. Lloyd, 2015 WL 7873401, a case involving the sale of unregistered securities. The five defendants worked for telemarketing “boiler rooms” (outbound call centers) in California and Florida and were responsible for soliciting investments to finance production and distribution of films. Approximately 650 individuals invested a total of over $23 million after the defendants promised high returns with little to no risk, and many of these individuals lost their entire investment.

The indictments against the individuals ' all of whom were connected to two movie production companies ' charged conspiracy, wire fraud, mail fraud and securities fraud, spanning a period from 2001 to 2009. The two managers for the California and Florida offices (Lloyd and Keskemety) pleaded guilty and appealed their sentences. One telemarketer (Greenhouse) convicted after a trial appealed his sentence, and two additional telemarketers (Nelson and Baker), convicted at the same joint trial as Greenhouse, appealed their convictions and sentences. The Ninth Circuit affirmed Lloyd's sentence, vacated Keskemety's sentence and remanded for resentencing, reversed Nelson's conviction, affirmed Baker's conviction, and affirmed Greenhouse's sentence. The court noted that “[t]he number of defendants, the lengthy period involved, and the type of conduct made this a difficult case for any trial court to resolve. The record shows that the district judge competently and fairly resolved many of the innumerable issues that arose in trial and at sentencing. The points on which we disagree with the district judge raise issues that are both complex and close.”

Much of the Ninth Circuit's analysis addressed Keskemety's sentencing appeal. Between 2007 and 2009, when Keskemety acted as a manager for the Florida boiler room, the company raised $9.3 million from a total of over 264 investors. Of that amount, Keskemety contended that only $1.5 to $2 million could be attributed to his efforts. By this calculation, Lloyd's boiler room raised approximately $7.3 million. There was no evidence presented challenging this assertion. In exchange for a guilty plea, Keskemety received an 80-month sentence and over $8 million in restitution. His sentence was based on the losses and number of victims of both the California and Florida boiler rooms. Keskemety's appeal asserted that his sentence was improperly increased by including fraud losses and victims attributable only to the Los Angeles location run by Lloyd. In his appeal, Keskemety did not attempt to escape liability for those identifiable losses and investors tied to the Florida scheme.

By statute, when individuals jointly undertake criminal activity, both are responsible for “all reasonably foreseeable acts and omissions in others in furtherance of the jointly undertaken criminal activity.” To identify “the scope of the criminal activity, the court may consider any explicit or implicit agreement.” However, an individual can only be held accountable for the losses attributable to that defendant's involvement, and not the losses of the criminal enterprise as a whole. In the telemarketing context specifically, “the scope of a joint undertaking for sentencing purposes depends on whether the telemarketers worked together, relied on one another to make a sale, attended the same sales meetings, and depended on the success of the operation as a whole for their financial compensation.”

Additionally, mere knowledge of another co-conspirator's acts is insufficient to hold a defendant responsible for those acts. This premise, however, was the entire basis for the district court's sentencing, as it failed to “identify additional factors supporting its conclusion that the solicitation and sales activities in Lloyd's Los Angeles boiler room were within the scope of the criminal activity Keskemety agreed to jointly undertake.” Specifically, the district court made the following statements regarding Keskemety's criminal scope: first, losses and victims “were clearly foreseeable” and during the time period of Keskemety's participation in the scheme; and second, “although Keskemety was in Florida, he was fully aware of all major facets of the scheme, knew others were raising money from the [movies], [and] ran his own boiler room operation that employed several closers who worked for him.” The government offered a similar argument, suggesting that both managers were “acting in concert for the same purported goal: to raise money for sellers,” and as such, Keskemety's sentencing was an accurate reflection of his criminal involvement. To the contrary, the Ninth Circuit noted that while both defendants were engaged in the same type of activity and used similar scripts to engage potential investors, they did not pool their customers and Keskemety did not benefit financially from Lloyd's Los Angeles operation. As a result, the Ninth Circuit concluded that the solicitations made and money obtained from Lloyd's Los Angeles boiler room were not within the scope of the criminal activity that Keskemety agreed to undertake” and ordered resentencing.

In the Courts and Business Crimes Hotline were written by Mayer Brown associate Colleen Snow.