United States Court of Appeals
For the First Circuit
No. 07-1074
UNITED STATES OF AMERICA,
Appellant,
v.
MICHAEL K.C. TOM,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Reginald C. Lindsay, U.S. District Judge]
Before
Lynch and Lipez, Circuit Judges,
and Barbadoro,* District Judge.
Jonathan F. Mitchell, Assistant United States Attorney,
with whom Michael J. Sullivan, United States Attorney, and Cynthia
A. Young, Assistant United States Attorney, were on brief, for
appellant.
Mark W. Pearlstein, with whom Benjamin A. Goldberger and
McDermott Will & Emery LLP, were on brief, for appellee.
October 1, 2007
*
Of the District of New Hampshire, sitting by designation.
LYNCH, Circuit Judge. The government appeals as
unreasonably lenient a sentence of thirty-six months' probation
(including six months of community confinement) imposed on a white-
collar criminal, Michael Tom. Tom, a securities professional,
illegally made almost $800,000 in insider trading profits and then
obstructed justice by lying under oath to the Securities and
Exchange Commission, encouraging another witness to lie, and
creating a false document.
The low end of the Sentencing Guidelines range for Tom,
including a two-level increase for obstruction of justice, was
thirty-seven months' imprisonment, and the prosecution agreed to
make that recommendation as part of a plea agreement. After
accepting Tom's guilty plea, the court declined to sentence within
the Guidelines range or to imprison Tom, and stated three reasons
for its sentence. The court primarily rested on a disparity
rationale: that Shengnan Wang, who as a cooperating co-defendant
received a U.S.S.G. § 5K1.1 departure, was the insider tipper and
gained $9,761, and had been sentenced by a different judge to
twelve months' probation (and 500 hours community service). The
court stated that Tom was less culpable than Wang, and that made
any Guidelines sentence for Tom unjust. The court also articulated
a concern that Tom was subject to sanctions by the SEC, and a
prison sentence would over-punish him. Finally, while the court
had concluded that family circumstances would not justify a
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downward departure, the court noted that Tom's family problem -- a
daughter's illness -- factored into the mix.
We agree with the government that the sentence is
unreasonable and that it did not give adequate consideration to the
seriousness of the offense, the need for general deterrence for
white-collar crimes, and the need for some imprisonment. We
reverse and remand for resentencing.
I.
On February 15, 2006, Michael Tom waived indictment and
pleaded guilty to five counts of insider trading in violation of 15
U.S.C. § 78j(b) and § 78ff(a). The insider trading arose out of a
call on April 29, 2004 that Tom received from Shengnan Wang, an
employee of Citizens Bank. Tom and Wang had worked together at
Citizens during the end of 2003, where he had helped hire and train
her, and they kept in touch when Tom left Citizens to start a hedge
fund, Global Time Capital Management. In February 2004, Wang and
her husband invested $60,000 in Tom's fund.
Wang's department performed due diligence on banks which
Citizens sought to acquire. The day before Wang called Tom, her
supervisor informed her that other members of her department were
traveling to conduct due diligence at an acquisition target; while
she deliberately was not provided the destination, she learned
through her own investigations that the due diligence was taking
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place in Cleveland, Ohio, and that three banks were based there:
KeyCorp, National City Corporation, and Charter One.
In Wang's call to Tom the next morning, she told him that
the Citizens team was analyzing an acquisition target in Cleveland,
Ohio. Ten minutes after the call, Tom sent an e-mail to his
brother recommending that he purchase securities in the three
banks. In the next two-and-a-half hours, Tom made eighteen
purchases of over $25,000 of stocks and options in each of the
three likely target banks for the hedge fund, for himself, and for
family members whose accounts he controlled. Over the next several
days, as sales volume in Charter One increased, Tom sold off his
securities in the other two banks and acquired a larger position in
Charter One. By the end of the week, he had made 52 trades,
acquiring 952 Charter One call options and 2,100 shares of Charter
One common stock. Neither Wang nor her husband purchased any
securities.
After the market closed on May 4, 2004, Citizens
announced it was acquiring Charter One. The next day, Tom sold
virtually all of his Charter One holdings and realized a gain of
$743,505.37. Including his brother's gain of $39,089, the total
gain reasonably attributable to Tom was $782,594.37.
After an article the following week on the Forbes website
mentioned Tom's unusual trading activity, the SEC initiated an
investigation. Tom attempted to obstruct this investigation in
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numerous ways. First, he told Wang's husband to sign a new
backdated investment contract in an attempt to mislead the
government as to any link between Wang and Tom. This backdated
document was provided to the SEC pursuant to a subpoena. Second,
Tom convinced Wang to cover up the real purpose of her phone call,
telling her to tell the SEC that she had called not to give
information about the merger, but to seek his guidance in using one
of Citizens' financial databases. Lastly, Tom provided false
testimony under oath to the SEC, giving information that was
directly contrary to the available evidence regarding his
communications with Wang.
Wang and her husband were charged with insider trading
separately from Tom. They both pleaded guilty before a different
district court judge. Because Wang cooperated in the case against
Tom, she received a U.S.S.G. § 5K1.1 departure for providing
substantial assistance to the government. The judge sentenced them
both to one year of probation.1
Tom signed a plea agreement with the government in which
both parties agreed that the proper Guidelines range was thirty-
seven to forty-six months in prison, which included a two-level
increase for obstruction of justice. He waived his right to appeal
the sentence or seek any departure, except on two grounds: (1)
1
The record does not indicate the government's recommended
sentence for Wang and her husband.
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because of his extraordinary family circumstances and (2) because
the loss overstated the seriousness of his offense.
The government took the position that thirty-seven
months' imprisonment, the low end of the Guidelines, was warranted.
Tom sought a departure from the Guidelines range on both his
reserved grounds, requesting thirty-six months' probation,
including twelve months' home detention. Based on a report from a
holistic medical practitioner who diagnosed his daughter as
suffering from heavy metal poisoning, Tom argued that he was her
necessary caregiver. He then claimed that the loss was overstated
because at a certain point after he began trading Charter One
securities, he relied on publicly available information. In
addition to the grounds for departure, Tom also argued to the court
that he had already agreed with the SEC never to work in the
investment industry again, and that he still was potentially liable
to the SEC in an outstanding civil action. Lastly, Tom mentioned
the need to avoid a sentencing disparity between him and Wang,
arguing that as the insider, she was the more culpable of the
wrongdoers.
The district court appropriately calculated the
Guidelines range of thirty-seven to forty-six months in accord with
the plea agreement and declined to grant Tom's request for a
departure under the Guidelines. The government provided a report
from a board-certified toxicologist stating that Tom's daughter
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likely did not suffer from metal poisoning, and that the treatment
Tom suggested could in fact put her at greater risk. The report
went on to say that even if the daughter did require that
treatment, Tom's participation was unnecessary. The court then
concluded that Tom's presence was not "essential" to his daughter,
and that his family circumstances did not rise to the level that
would result in a departure. In addition, the court decided that
it was impossible to disentangle Tom's insider trading from his
trading based on public information.
In rendering Tom's sentence, however, the court imposed
a term of thirty-six months' probation, six of which were to be
served in a community confinement center. The court based the
sentence on three reasons. First, it said it wanted to avoid
sentencing disparity between Tom and Wang, whom the court viewed as
more culpable. While the court recognized that it had no basis
from the record to assess the reasons for Wang's sentence, and that
Wang had cooperated while Tom had not, it stated that "it doesn't
seem altogether fitting and proper that the person who is at the
center of this criminal conduct should get a year's probation while
Mr. Tom faces three years of incarceration. That disparity alone
suggests to me that a Guideline[s] sentence is not the appropriate
sentence." Second, the court recognized that Tom was still subject
to punishment by the SEC. Third, the court recognized that while
Tom's "family problem" did not qualify for a departure, his
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presence at home was "important to the development of his
daughter." The government appealed the sentence as unreasonably
lenient.
II.
This court is required on appeal to review sentences for
reasonableness. United States v. Booker, 543 U.S. 220, 261 (2005);
United States v. Jiménez-Beltre, 440 F.3d 514, 517 (1st Cir. 2006)
(en banc), cert. denied, 127 S. Ct. 928 (2007). The sentence at
issue is substantially below the Guidelines scale of a minimum of
thirty-seven months' imprisonment, and imposes no imprisonment.
"[T]he farther the judge's sentence departs from the guidelines
sentence the more compelling the justification . . . the judge must
offer.” United States v. Thurston (Thurston III), 456 F.3d 211,
215 (1st Cir. 2006) (quoting United States v. Smith, 445 F.3d 1, 4
(1st Cir. 2006)). We look for both "a plausible explanation and a
defensible overall result." Jiménez-Beltre, 440 F.3d at 519. This
is not a case of inadequate explanation of the court's reasons for
the sentence, but of whether the reasons stated do come to a
defensible overall result.2 The sentence essentially substituted
for a term of over three years' imprisonment a term of probation.
Further, the only confinement imposed was community confinement,
and then only for a six-month period.
2
We do not address the hypothetical question of whether
any deviation was unreasonable, but only of whether this sentence
was unreasonable.
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The low sentence was primarily based on a comparison with
a co-defendant, and cannot be justified on that basis. Our circuit
law firmly holds that the concern with disparity among defendants
is primarily a national concern, and not a concern about defendants
in a particular case or court. Thurston III, 456 F.3d at 216;
United States v. Mueffelman, 470 F.3d 33, 40 (1st Cir. 2006).
Post Booker, there remains a strong interest in national
uniformity among defendants who commit the same crimes and are
similarly situated. We have not held that consideration of co-
defendant disparity before the same judge is impermissible, but
have often rejected arguments relying on co-defendant disparity as
a basis to give lenient sentences well below the Guidelines range.
See Thurston III, 456 F.3d at 215 (vacating a sentence that relied
on co-defendant disparity); United States v. Navedo-Concepción, 450
F.3d 54, 60 (1st Cir. 2006) (concluding that district court was
reasonable in sentencing a defendant to a longer sentence than co-
defendants); United States v. Saez, 444 F.3d 15, 18 (1st Cir. 2006)
(same), cert. denied, 127 S. Ct. 224 (2006); United States v.
Gomez-Pabon, 911 F.2d 847, 862 (1st Cir. 1990). We have done so
because, inter alia, a focus on co-defendant disparity has a
tendency to thwart the goal of national uniformity. See, e.g.,
Thurston III, 456 F.3d at 215.
The Sentencing Guidelines and decisions by the Sentencing
Commission, while not exclusive, are the vehicles for "promoting
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[national] uniformity and fairness." Jiménez-Beltre, 440 F.3d at
518. This is in part because the Guidelines (a) represent the only
integration of the multiple statutory factors set forth in 18
U.S.C. § 3553(a); (b) are a reflection of data on past sentencing
practices; and (c) bear the imprimatur of the Sentencing
Commission, which is the expert agency charged with developing the
Guidelines. Id.; see also Rita v. United States, 127 S.Ct. 2456,
2463-65 (2007); United States v. D'Amico, ___ F.3d ___, 2007 WL
2253494, at *8 (1st Cir. Aug. 7, 2007); Smith, 445 F.3d at 4.
Here, it is true, as the defendant argues, that there is
no statute requiring a mandatory minimum sentence for this crime.
It would be wrong to conclude, as Tom claims, that congressional
intent is not at issue in substantial deviations because the
Guidelines are not a statute. In Thurston III, we recognized that
the Commission, in revising the Guidelines, was responding to
congressional concern over the leniency of punishments for white-
collar offenses. 456 F.3d at 218. We have also recognized that
the statute, 18 U.S.C. § 3553(a), expressly refers to "the need to
avoid unwarranted sentence disparities" across the nation. Smith,
445 F.3d at 3-4 (quoting 18 U.S.C. § 3553(a)(6)) (internal
quotation mark omitted). Further, the Supreme Court in Rita has
reaffirmed that the Guidelines largely reflect what Congress
intended. See Rita, 127 S. Ct. at 2463-65 (2007) (noting that "the
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Guidelines, insofar as practicable, reflect . . . sentences that
might achieve § 3553(a)'s objectives").
Thus, under circuit law, while consideration of disparity
among sentences imposed by the same judge on similarly situated
defendants may play some role in the analysis, Mueffelman, 470 F.3d
at 41, even that disparity3 does not necessarily justify a
substantial deviation from the Guidelines absent compelling
justification. We have also been clear that disparities with
sentences imposed by other judges on co-defendants can play an even
lesser role in the analysis for several reasons. One is that the
other judge's reasons for the sentence are not fully known. Saez,
444 F.3d at 19; see also id. ("But with different judges sentencing
two defendants quite differently, there is no more reason to think
that the first one was right than the second."). Another is that
this would lead "to endless rummaging by lawyers through sentences
in other cases" to find specific examples, and create a model of
analysis which is "about the weakest sort of proof of national
practice that can be imagined." Id. The court here erred in the
significance it gave to the sentence imposed on a co-defendant by
a different judge.
3
Indeed, the sentence imposed created a disparity contrary
to and not consistent with "the need to avoid unwarranted
disparities among defendants with similar records who have been
found guilty of similar conduct." 18 U.S.C. § 3553(a)(6); see
also United States v. Taylor, ___ F.3d ___, 2007 WL 2349415, at *8-
9 (1st Cir. Aug. 17, 2007).
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Further, the two defendants were not similarly situated.
The record does not uphold the court's assessment that Tom was
"less culpable" than Wang. It is true that Wang was the insider
who initiated the conspiracy. Yet the record is clear that Tom was
Wang's senior and her mentor. He did not use his influence with
Wang to stop the scheme. To the contrary, he exploited his mentor
relationship and was actively involved in, had numerous
conversations with Wang about, and tried to milk maximum illicit
profit from their scheme. He made over fifty trades, tipped his
own brother, and reaped together with his brother close to $800,000
in profits.
While the court did recognize that Wang had cooperated
and Tom had not, it did not give enough weight to this difference
in circumstances. "Although a district court may consider
disparities among co-defendants in determining a sentence, [a
defendant's] sentence [is not] unreasonable simply because his
co-defendant[] agreed to help the government in exchange for [a]
reduced sentence[]." United States v. Vázquez-Rivera, 470 F.3d
443, 449 (1st Cir. 2006); see also Saez, 444 F.3d at 18 (justifying
sentence disparity by describing co-defendant's cooperation);
United States v. Mateo-Espejo, 426 F.3d 508, 514 (1st Cir. 2005)
("[D]ifferences between the appellant's belated and grudging
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cooperation and [co-defendant's] prompt and full cooperation
sensibly account for the differing sentences.").4
Further, Tom was the dominant figure in the activity
amounting to obstruction of justice. Tom not only gave false
testimony under oath to the SEC, but he convinced Wang to perjure
herself so that the stories would be consistent. He then created
a false document to replace a damning original document.
As a separate ground, we also agree with the government
that this lenient sentence undermined the strong congressional
interest in deterring others from committing similar crimes. In
particular, "deterrence of white-collar crime [is] of central
concern to Congress." Mueffelman, 470 F.3d at 40. In Taylor, we
found a sentence without imprisonment for a white-collar defendant
4
Other circuits have also taken this view. See, e.g.,
United States v. Caine, 487 F.3d 1108, 1114-15 (8th Cir. 2007)
(upholding as reasonable a sentence twice as long as that received
by an allegedly more culpable co-defendant because co-defendant's
cooperation and testimony rendered him "not similarly situated");
United States v. Ramirez, 221 Fed. Appx. 883, 887-88 (11th Cir.
2007) (upholding as reasonable a sixteen-year sentence for a
defendant without a criminal history, when the defendant with the
"central role" received only a seven-year sentence but had assisted
the government's investigation); United States v. Boscarino, 437
F.3d 634, 638 (7th Cir. 2006), cert. denied, 127 U.S. 3041 (2007)
(upholding as reasonable a sentence longer than that imposed on a
co-defendant who cooperated, and noting that a "sentencing
difference is not a forbidden 'disparity' if it is justified by
legitimate considerations, such as rewards for cooperation").
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unreasonable in part because it did not satisfy this interest in
deterrence.5 2007 WL 2349415, at *8.
Similarly, the availability of SEC sanctions does not
justify this sentence.6 The fact that the SEC may order
disgorgement and monetary penalties7 is no substitute for the fact
that Congress made this offense a crime, subject to imprisonment.
Our case law has already rejected this argument. In Jiménez-
Beltre, we found that the presence of other sanctions was not a
persuasive ground for a reduced sentence. 440 F.3d at 520. All
investment advisors who engage in insider trading are subjected to
such civil punishment, so "[t]he guideline sentencing range was
5
There, we noted that Congress has explained:
The placing on probation of [a white-collar criminal] may
be perfectly appropriate in cases in which, under all the
circumstances, only the rehabilitative needs of the
offender are pertinent; such a sentence may be grossly
inappropriate, however, in cases in which the
circumstances mandate the sentence's carrying substantial
deterrent or punitive impact.
Taylor, 2007 WL 2349415, at *8 (quoting S. Rep. No. 98-225, at
91-92 (1983), reprinted in 1984 U.S.C.C.A.N. 3182, 3274-75).
6
Tom volunteered the settlement with the SEC that barred
him from associating with investment advisors. In addition, it is
not clear that a heavier sentence will lead to increased overall
punishment, as the SEC has agreed to hold its civil case in
abeyance until the conclusion of the criminal matter. Indeed,
defendant's counsel informed the district court that "the SEC in
this matter would like to see what [the court] does, and based on
what [the court] does, do what it deems appropriate anything
additional [sic]."
7
The pre-sentence report stated that Tom had a net worth
of more than a million dollars. The court adopted the report
without change.
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likely predicated on this understanding." Id.; see also Koon v.
United States, 518 U.S. 81, 110-11 (1996). Because it is
commonplace for a defendant to lose his ability to practice a
profession (in this case, Tom's ability to be an investment advisor
or be associated with an advisor), that career harm is not a valid
ground for departure. United States v. Hoffer, 129 F.3d 1196,
1203-04 (11th Cir. 1997) (finding loss of medical license an
invalid basis for departure); cf. Koon, 518 U.S. at 110 (finding an
abuse of discretion when sentencing judge based downward departure
on potential for defendants' "career loss"). By definition, the
fact that Tom has lost his license does not distinguish him from
others convicted of insider trading. See 15 U.S.C. § 80b-3(f)
(allowing the SEC to bar those convicted of insider trading from
association with investment advisors).
Further, his argument would lead to problematic class
distinctions: white-collar criminals would be able to avoid
imprisonment while non-professionals would be imprisoned because
the latter have neither a license to lose nor substantial sums of
money to pay civil sanctions. Sentences for white-collar criminals
should have the following effects: "deterrence of white-collar
crime . . . , the minimization of discrepancies between white- and
blue-collar offenses, and limits on the ability of those with money
or earning potential to buy their way out of jail." Mueffelman,
470 F.3d at 40. See also Thurston III, 456 F.3d at 218. The
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rationale here cannot, consistent with the interest in national
uniformity in sentencing, reasonably be the basis for a below-
Guidelines sentence.
This leaves the district court's third stated reason, the
"family problem" rationale for departure. The court correctly
recognized this rationale could not, on its own, justify a
departure. The other two grounds could not justify the sentence
given. Throwing this rationale into the mix does not make an
unreasonable sentence reasonable.
We believe the government is correct that some term of
imprisonment is required for the sentence to be reasonable on the
facts of this case. Such a result is consistent with our
precedent. In Taylor, the court found unreasonable a sentence of
probation and time in a halfway house for a white-collar defendant
who had also obstructed justice. 2007 WL 2349415, at *1; see also
Thurston III, 456 F.3d at 220 (finding, when a district court judge
sentenced a white-collar defendant to three months' imprisonment
although the Guidelines recommendation was sixty months, that any
sentence below thirty-six months of imprisonment would be
unreasonable); United States v. Martin, 455 F.3d 1227, 1240 (11th
Cir. 2006) (holding that a seven-day sentence of imprisonment for
a white-collar defendant was unreasonable).
Tom argues his sentence includes confinement: that the
sentence of six months' community confinement is the equivalent of
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a prison sentence. We reject the argument. Most fundamentally,
community confinement for whatever period is not the same as
imprisonment for thirty-six months. See United States v.
Rattoballi, 452 F.3d 127, 135, 137 (2d Cir. 2006) (finding
unreasonable a sentence that substituted one year of home
confinement and five years' probation for a Guidelines range
between twenty-seven and thirty-three months' imprisonment); United
States v. Elkins, 176 F.3d 1016, 1020 (7th Cir. 1999) ("Community
confinement . . . do[es] not [itself] constitute 'imprisonment.'").
[Further, even if it were, a six-month sentence is only 16% of a
thirty-six-month sentence.]
Tom points to U.S.S.G. § 5C1.1(e)(2), which establishes
a schedule under which one day of community confinement may be
substituted for one day of imprisonment for purposes of conforming
with the Guidelines. His very argument refutes itself: this
substitution holds true only for Guideline ranges that fall within
Zones B and C of the Sentencing Table. Tom's uncontested
Guidelines range was thirty-seven to forty-six months, which falls
solidly within Zone D, and for which the Guidelines provide no
substitute punishment for imprisonment. U.S.S.G. § 5C1.1(f); see
also United States v. Mercado, 412 F.3d 243, 253 n.4 (1st Cir.
2005) (noting that community confinement cannot substitute for
imprisonment for Zone D sentences under the Guidelines); United
States v. Martin, 363 F.3d 25, 40 n.25 (1st Cir. 2004) ("[B]ecause
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Zone D does not allow for [community confinement], the conversion
ratio . . . is inapplicable to this case by the terms of the
Guidelines themselves."). Even for sentences within Zone B or
Zone C, some minimum term of imprisonment must be served under the
Guidelines: for Zone B sentences, there must be at least one month
of imprisonment, and for Zone C sentences at least one-half of the
minimum term must be served in prison. U.S.S.G. § 5C1.1(c), (d);
see also United States v. Cintrón-Fernández, 356 F.3d 340, 347-48
(1st Cir. 2004).
Further, we have recognized that community confinement is
"considered as [one of the] 'Substitute Punishments' for
imprisonment, not [a] merely different form[] of imprisonment
itself." Cintrón-Fernández, 356 F.3d at 347; see also United
States v. Serafini, 233 F.3d 758, 777 (3d Cir. 2000) (stating
community confinement cannot constitute imprisonment for purposes
of fulfilling the requirement that one-half of a split sentence be
satisfied by imprisonment under section 5C1.1); United States v.
Adler, 52 F.3d 20, 21 (2d Cir. 1995) ("'Imprisonment' and
'community confinement' are not synonyms.").
We reverse the sentence and remand for resentencing in
accord with this opinion.
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