F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
DEC 29 1998
UNITED STATES COURT OF APPEALS
PATRICK FISHER
Clerk
TENTH CIRCUIT
UNITED STATES OF AMERICA,
Plaintiff-Appellant,
v.
Nos. 97-4165, 97-4183
DOUGLAS E. BROWN,
Defendant-Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH
(D.C. No. 95-CR-245-B)
Paul T. Moxley and Catherine L. Brabson, Moxley Jones & Campbell L.C., Salt Lake
City, Utah, for Defendant-Appellant.
Scott J. Thorley, Assistant United States Attorney (David J. Schwendiman, United States
Attorney, with him on the brief), Salt Lake City, Utah, for Plaintiff-Appellee.
Before PORFILIO, BALDOCK, and EBEL, Circuit Judges.
PORFILIO, Circuit Judge.
Defendant Douglas Brown pleaded guilty to securities fraud, being an unregistered
broker-dealer, and wire fraud stemming from the sale of American securities to investors
in Germany. He now appeals the denial of his motion to dismiss portions of the
indictment for lack of subject matter jurisdiction. The government cross-appeals the
district court’s loss calculation under the Sentencing Guidelines. We have jurisdiction, 28
U.S.C. § 1291; 18 U.S.C. § 3742(b), and affirm.
I
This case involves the fraudulent sale of American securities to investors in
Germany. The grand jury returned a 255-count superseding indictment against Douglas
Brown, Hans Kuhlen, and others, charging them with conspiracy, securities fraud,
transacting in securities while not registered as broker-dealers, wire fraud, and money
laundering. The indictment alleges in pertinent part that, from Utah, Mr. Brown created
companies and stocks without substance, provided those stocks for resale in Germany
through Mr. Kuhlen and others, misrepresented the value of those stocks to support their
sale, and transferred the proceeds of the fraud from Germany to Utah.
Mr. Brown moved to dismiss the securities counts of the indictment for lack of
subject matter jurisdiction. See Fed. R. Crim. P. 12(b). Relying on the allegations of the
indictment, Mr. Brown claimed that much of the conduct occurred in Germany and thus
outside the territorial jurisdiction of the United States criminal laws. The district court
held a hearing and denied the motion. The court reasoned that the “allegations contained
in the superseding [indictment were] enough to find that [the court] has jurisdiction.” Mr.
-2-
Brown then pleaded guilty, unconditionally and without a plea agreement, to one count
each of securities fraud, 15 U.S.C. § 78j(b), transacting in securities while not registered
with the Securities and Exchange Commission as a broker-dealer, id. § 78o(a)(1), and
wire fraud, 18 U.S.C. § 1343. The government sought and obtained dismissal of the
remaining counts of the indictment.1
During the sentencing phase, the district court held a two-day evidentiary hearing
to determine, among other things, the relevant conduct and loss for which Mr. Brown
would be held accountable. The district court calculated the loss according to the
$650,000 Mr. Brown gained from the scheme, instead of the $18-25 million in actual loss
to the victims the government had urged. In doing so, the court concluded that the
government had failed to prove by a preponderance of the evidence that Mr. Kuhlen’s
activities in Germany, and the concomitant losses, constituted relevant conduct for which
Mr. Brown must be held responsible. The court stated:
The loss has been difficult for me to calculate. The government wants me
to look at $25 million. And loss, to a large extent, determines the sentence.
. . . [T]he gain to [Mr. Brown], personally, was only 650,000 or something
like that. I’m going to take that figure and find that the government has not
proved, by a preponderance of the evidence at this sentencing hearing, that
Mr. Brown, for purposes of sentencing, should be linked with that entire
loss amount [of $25 million]. [¶] It does appear to me that Mr. Kuhlen was
the mastermind behind this criminal enterprise, that he conned a lot of
Only the counts to which Mr. Brown pleaded guilty are presently before the
1
Court. The dismissal of the remaining counts rendered them a moot issue on Mr.
Brown’s appeal. United States v. Rodriguez-Aguirre, 73 F.3d 1023, 1025 (10th Cir.
1996).
-3-
people, and he was the driving force. . . . For those reasons, and because I
haven’t heard anyone show me, with a direct link, that Mr. Brown was in
Germany making those misrepresentations[,] for purposes of sentencing
only, and only for purposes of the loss amount, I’m willing to indulge the
argument of defense that the loss is above 600,000 and not above
25,000,000.
The court sentenced Mr. Brown to 42 months in prison, a $250,000 fine, and three years
of supervised release. Both parties timely appealed.
II
Mr. Brown claims the district court lacked subject matter jurisdiction over the
federal securities and wire fraud offenses2 because the bulk of the illegal conduct
allegedly occurred in Germany. He argues the “laws under which he was indicted and
sentenced do not apply extraterritorially unless conduct occurred in the United States that
directly caused the loss.” We review Mr. Brown’s challenge to the district court’s
jurisdiction de novo, United States v. Blackwell, 81 F.3d 945, 947 (10th Cir. 1996), and
reject it because the indictment alleged his criminal activity occurred within the United
States and he admitted as much when he pleaded guilty unconditionally.
Subject matter jurisdiction initially vested in the district court upon the filing of the
superseding indictment in this case. The indictment charges Mr. Brown with offenses
2
Mr. Brown challenges the reach of the wire fraud statute for the first time on
appeal. Nevertheless, because the argument pertains to the district court’s jurisdiction,
we deem it appropriate to address it. United States v. Angelo, 88 F.3d 856, 860 n.2 (10th
Cir. 1996); United States v. Bustillos, 31 F.3d 931, 933 (10th Cir. 1994).
-4-
against the United States in language similar to the securities and wire fraud statutes. It
alleges the locale of the offenses in general terms--the criminal activity took place “in the
Central Division of the District of Utah and elsewhere”--and in many instances,
specifically links the purported violations to Mr. Brown’s activities in Utah. For
example, Mr. Brown is alleged to have incorporated bogus companies in Utah and
Nevada; mailed on a regular basis documents to and from his offices in Utah; conducted
telephone and facsimile communications between Germany and Utah; and wire
transferred fraudulently obtained money from Germany to Utah. Because the indictment
recited the necessary jurisdictional facts, and the contrary has not been shown or argued
upon its face,3 nothing more was required to initially confer subject matter jurisdiction.
18 U.S.C. § 3231; United States v. Perea, 413 F.2d 65, 67 (10th Cir. 1969); Young v.
3
In his brief, Mr. Brown sought to belie the indictment’s allegations of the location
of the crimes by relying on affidavits and evidence extrinsic to the indictment. This is
something he may not do. Generally, an indictment is to be tested “solely on the basis of
the allegations made on its face, and such allegations are to be taken as true.” United
States v. Hall, 20 F.3d 1084, 1087 (10th Cir. 1994); see also United States v. Caicedo, 47
F.3d 370, 371 (9th Cir. 1995); United States v. Cadillac Overall Supply Co., 568 F.2d
1078, 1082 (5th Cir. 1978). The only recognized exception to this rule–where the
extrinsic facts are undisputed and neither party objects, Hall, 20 F.3d at 1088–is
inapplicable here.
At oral argument, counsel then sought to expand this appeal by arguing the
superseding indictment on its face was not “specific enough with respect to the conduct
that occurred in the United States.” This challenge to the precision of the superseding
indictment, which was neither raised at the trial court nor (more importantly) briefed on
appeal, comes too late to merit our attention. Gross v. Burggraf Constr. Co., 53 F.3d
1531, 1547 (10th Cir. 1995); Durham v. Xerox Corp., 18 F.3d 836, 841 n.4 (10th Cir.
1994). We further note the issue was only mentioned in passing at oral argument and no
effort was made to advance any reasoned argument on the matter.
-5-
United States, 354 F.2d 449, 452 (10th Cir. 1965); Head v. Hunter, 141 F.2d 449, 451
(10th Cir. 1944); United States v. Stoddard, 875 F.2d 1233, 1236-37 (6th Cir. 1989);
United States v. Desurra, 865 F.2d 651, 654 (5th Cir. 1989); United States v. Romero-
Galue, 757 F.2d 1147, 1150 n.10 (11th Cir. 1985).
Jurisdiction remained with the district court through the entry of judgment because
Mr. Brown pleaded guilty unconditionally to the offenses at issue. Counsel asserted at
oral argument that, during the plea hearing, Mr. Brown was “very careful” not to admit
any conduct occurred within the United States. Although that may have been his intent,
the strategy failed to realize the unconditional plea admitted all material allegations
already contained in the superseding indictment, including the allegations that Mr.
Brown’s criminal activity occurred in Utah. An unconditional plea of guilty is an
admission of all material facts alleged in the charge, United States v. Broce, ___ U.S.
___, 109 S. Ct. 757, 762 (1989); United States v. Powell, 159 F.3d 500, 503 (10th Cir.
1998), including those facts that serve as factual predicates to subject matter jurisdiction.
United States v. Eason, 133 F.3d 933, 1998 WL 8224, at *1 (10th Cir. 1998)
(unpublished disposition); United States v. Richard, 37 F.3d 1510, 1994 WL 548964, at
*2 (10th Cir. 1994) (unpublished disposition); Valencia v. United States, 923 F.2d 917,
921 (1st Cir. 1991); Mack v. United States, 853 F.2d 585, 586 (8th Cir. 1988); United
States v. Mathews, 833 F.2d 161, 163-64 (9th Cir. 1987); Hayle v. United States, 815
F.2d 879, 881-82 (2d Cir. 1987); United States v. Hoyland, 264 F.2d 346, 351-53 (7th
-6-
Cir. 1959). Therefore, omitting discussion of the place of the crime at the plea hearing
was inconsequential. By pleading guilty, Mr. Brown established facts sufficient by
operation of law to maintain subject matter jurisdiction through the entry of judgment.
Mathews, 833 F.2d at 164.
III
The government cross-appeals the district court’s loss calculation under the
Sentencing Guidelines. The district court relied on Mr. Brown’s $650,000 gain, instead
of the $18-25 million in actual loss to the victims the government had urged. The
government challenges both legal and factual aspects of the district court’s conclusion.
We review the former de novo and the latter for clear error, United States v. Fox, 999
F.2d 483, 485 (10th Cir. 1993), and reject each contention.
The government first argues the district court erred when it failed to make explicit
findings explaining why Mr. Brown’s gain was a reasonable estimate of the victims’
losses. See 1995 U.S.S.G. § 2F1.1 n.8 (using gain as measure of loss is permissible so
long as the gain is a “reasonable estimate of the loss”). This claim is tantamount to a
belated Rule 32(c)(1) objection. Fed. R. Crim. P. 32(c)(1).
Rule 32(c)(1) provides that when a defendant or the government objects to a
matter in the presentence report, the court “must make either a finding on the allegation or
a determination that no finding is necessary because the controverted matter will not be
-7-
taken into account in, or will not affect, sentencing.” Id. Ordinarily, when a district court
fails to comply with this rule we must remand for the court to either make the necessary
findings or enter a declaration that the controverted matters are inconsequential. United
States v. Romero, 122 F.3d 1334, 1344 (10th Cir. 1997), cert. denied, 118 S. Ct. 1310
(1998); United States v. Pedraza, 27 F.3d 1515, 1530-31 (10th Cir. 1994).
A remand is unnecessary here, however, because the record demonstrates the
government chose not to ask the trial court to explicate its reasons pursuant to Rule
32(c)(1). The government’s failure to previously raise a Rule 32(c)(1) objection limits
our review to noticing plain error. Fed. R. Crim. P. 52(b). And because we have already
held the failure to make specific findings under Rule 32(c)(1) does not rise to the level of
obvious and substantial error, United States v. Williamson, 53 F.3d 1500, 1527 (10th Cir.
1995) (discussing Fed. R. Crim. P. 32(c)(3)(D), predecessor to Rule 32(c)(1)), we need
not proceed any further on this issue.
The government next contends the district court erred as a matter of law when it
used Mr. Brown’s gain to determine the loss because the amount of his gain was
incommensurate to the purported actual loss to the victims of $18-25 million. The
government reads United States v. Haddock, 12 F.3d 950 (10th Cir. 1993), to state that
where the actual loss is high and the measure of gain is disproportionately lower, then the
gain is a per se unreasonable estimate of the loss. Haddock and its progeny say nothing
of the sort. Rather, our cases state that relying on a defendant’s gain is per se
-8-
unreasonable only when the actual or intended loss is non-existent. Id. at 960-61; United
States v. Galbraith, 20 F.3d 1054, 1060 (10th Cir. 1994). The government does not, of
course, advance such an argument.
The government’s third and final contention is the district court erred when it
found that Mr. Kuhlen’s activities in Germany, and the losses those activities created, did
not constitute relevant conduct attributable to Mr. Brown. The Guidelines provide that
loss calculations shall be determined, in the case of a jointly undertaken criminal activity,
on the basis of “all reasonably foreseeable acts and omissions of others in furtherance of
the jointly undertaken criminal activity, that occurred during the commission of the
offense of conviction, in preparation for that offense, or in the course of attempting to
avoid detection or responsibility for that offense.” 1995 U.S.S.G. § 1B1.3(a)(1)(B); see
also United States v. Melton, 131 F.3d 1400, 1405 (10th Cir. 1997).4 The government
argues, contrary to the district court’s conclusion, that it proved by a preponderance of the
evidence that the entire $18-25 million in actual losses resulted from reasonably
foreseeable acts or omissions of Mr. Kuhlen in Germany.
Our review of the record leads us to conclude there is ample evidence to support
the district court’s conclusion that many of Mr. Kuhlen’s acts in Germany could not have
Although the district court did not expressly state that Mr. Kuhlen’s activities in
4
Germany were not relevant conduct under section 1B1.3, we assume the district court
performed the proper review because there is no evidence to suggest the contrary. Green
v. Branson, 108 F.3d 1296, 1305 (10th Cir. 1997).
-9-
been reasonably foreseen by Mr. Brown. The evidentiary hearing revealed that “Mr.
Kuhlen was the mastermind behind this criminal enterprise . . . [and] the driving force.”
Mr. Brown had little if any input regarding Mr. Kuhlen’s activities in Germany; he rarely
contacted (and never directly supervised) the sales persons in Germany; he was not
otherwise involved with or in control of the sales practices of the German operations; and
he was kept in the dark by Mr. Kuhlen with respect to many activities in Germany.
Although the government proffers affidavits to contradict the district court’s
findings, we conclude that at most those affidavits presented the district court with an
alternate, permissible account of events. The district court found one version more
credible than the other, as it is within its power to do.
IV
The judgment of the district court is AFFIRMED. The district court had subject
matter jurisdiction over Mr. Brown’s offenses and applied the Sentencing Guidelines
within the bounds of its discretion.
- 10 -