FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
UNITED STATES OF AMERICA,
Plaintiff-Appellee, No. 04-50469
v. D.C. No.
RICHARD I. BERGER, CR-00-00994-RMT
Defendant-Appellant.
UNITED STATES OF AMERICA, No. 04-50530
Plaintiff-Appellant, D.C. No.
v. CR-00-00994-
RICHARD I. BERGER, RMT-01
Defendant-Appellee.
OPINION
Appeal from the United States District Court
for the Central District of California
Robert M. Takasugi, District Judge, Presiding
Argued and Submitted
April 4, 2006—Pasadena, California
Filed January 18, 2007
Before: Harry Pregerson and Edward Leavy, Circuit Judges,
and Ralph R. Beistline,* District Judge.
Opinion by Judge Pregerson
*The Honorable Ralph R. Beistline, United States District Judge for the
District of Alaska, sitting by designation.
705
710 UNITED STATES v. BERGER
COUNSEL
Michael R. Doyen, Munger, Tolles & Olson LLP, Los Ange-
les, California, for the defendant-appellant-appellee.
Paul G. Stern, Assistant United States Attorney, Los Angeles,
California, for the plaintiff-appellee-appellant.
OPINION
PREGERSON, Circuit Judge:
Defendant Richard I. Berger appeals his conviction of
twelve counts of conspiracy, loan fraud, falsifying corporate
books, and various securities fraud violations. Berger argues
that: (1) the district court improperly coerced the jury into
reaching a verdict, (2) the district court violated his constitu-
tional right to be present during trial when the district court
— with counsel’s consent — made certain comments at an
informal meeting with the jury outside of Berger’s presence,
(3) the district court used the wrong materiality standard for
securities fraud violations, (4) the indictment did not charge
with sufficient particularity the materiality element for securi-
ties fraud violations, and (5) the district court erred when it
ordered Berger to pay restitution. The government cross-
appeals the sentence imposed by the district court, arguing
that the district court erred when it refused to increase Ber-
ger’s sentence based on judicially-found facts. We have juris-
UNITED STATES v. BERGER 711
diction over Berger’s appeal pursuant to 28 U.S.C. § 1291 and
the government’s cross-appeal pursuant to 18 U.S.C.
§ 3742(b). For the reasons given below, we affirm the convic-
tion, affirm the restitution order, vacate the sentence and fine,
and remand for resentencing under United States v. Booker,
543 U.S. 220 (2005).
FACTUAL BACKGROUND
I. Offense Conduct
A. Craig Consumer Electronics, Inc. and the Revolving
Credit Agreement
Craig Consumer Electronics, Inc. (“Craig Electronics”)
operated a consumer electronics business that sold products
such as car stereos, compact music centers, and small per-
sonal stereos to retail stores. Berger was Craig Electronics’
President, Chief Executive Officer, and Chairman of the
Board. Donna Richardson, a co-conspirator, pled guilty to
three counts of the indictment prior to trial. Richardson was
the Chief Financial Officer of Craig Electronics until May 31,
1997, when she left the company. Defendant Bonnie Metz
was at various times a Vice President in Craig Electronics’
Hong Kong and Cerritos, California locations. Metz is not a
party to this appeal.
On August 5, 1994, Craig Electronics entered into a $50
million revolving credit agreement (“Credit Agreement”) with
a consortium of banks including BT Commercial Corporation
(“Bankers Trust”), La Salle National Bank, Nationsbank of
Texas, and Sanwa Business Credit Corporation. Bankers
Trust acted as the agent for the consortium (collectively
“lending banks”). Under the Credit Agreement, Craig Elec-
tronics could, subject to certain exclusions, borrow up to:
(1) Eighty-five percent of the value of Craig Elec-
tronics’ accounts receivable. Accounts receiv-
712 UNITED STATES v. BERGER
able consisted of the money owed Craig
Electronics by retail stores that had purchased
Craig Electronics products;
(2) Sixty-five percent of the value of Craig Elec-
tronics’ inventory of new goods, sometimes
referred to as “A” goods, not to exceed $20
million; and
(3) Sixty-five percent of the value of Craig Elec-
tronics’ inventory of refurbished goods, some-
times referred to as “B” goods, not to exceed
$1 million.
Craig Electronics was prohibited from borrowing against
goods that had been returned to Craig Electronics but not yet
inspected, or goods that were defective, sometimes referred to
as “C” goods.
Craig Electronics was required to provide Bankers Trust
with a Borrowing Base Certificate (“Borrowing Certificate”)
every business day. Each Borrowing Certificate was supposed
to report accurately the amount of Craig Electronics’ accounts
receivable eligible for borrowing, updated on a daily basis,
and the value of its inventory eligible for borrowing, updated
on a weekly basis. The Credit Agreement required that either
Berger or Richardson supervise the preparation of each Bor-
rowing Certificate and certify in writing that the information
it contained was true, correct, and complete in all material
respects.
Based on the information in the Borrowing Certificates,
Bankers Trust determined the amount of money Craig Elec-
tronics could borrow on each business day. Specifically, the
lending banks conditioned their lending decisions on whether
Craig Electronics had excess borrowing availability based on
the information — particularly the accounts receivable and
UNITED STATES v. BERGER 713
inventory eligible for borrowing purposes — set forth in the
daily Borrowing Certificates.
Any materially false or misleading representation made in
the Borrowing Certificates was identified as an event of
default under the Credit Agreement. Craig Electronics was
required to notify the lending banks of the nature of any
default no later than two business days after it occurred.
B. Falsification of Information
Starting as early as 1995 and continuing through September
1997, Craig Electronics did not have sufficient accounts
receivable and inventory to continue to borrow the money
needed to fund its operations. Presumably to hide Craig Elec-
tronics’ true financial condition from the lending banks, Ber-
ger, Richardson, and Metz regularly falsified the information
contained in the Borrowing Certificates. They used the fol-
lowing methods: First, Berger, Richardson, and Metz inflated
the accounts receivable reported to the lending banks by: (1)
pre-billing retail stores for goods that had not yet been
shipped and, in some instances, had never been purchased; (2)
deliberately delaying the processing of credits for returned
goods that had been received and identified in an off-the-
books accounting ledger called the “queue,” and not reporting
this substantial volume of credits; and (3) falsely reporting
that $1 million in accounts receivable from a company in Bra-
zil remained valid through May 1997 when, in fact, the under-
lying sales were reversed and the goods re-routed back to
Craig Electronics approximately two months earlier.
Second, Berger, Richardson, and Metz distorted the inven-
tory figures submitted to the lending banks by: (1) improperly
classifying “C” goods as “A” or “B” goods, and (2) misre-
porting that Craig Electronics had requisite title to certain
shipments of goods originating with its overseas suppliers
when, in fact, Craig Electronics either did not have proper
title to the shipments for borrowing purposes, or the ship-
714 UNITED STATES v. BERGER
ments did not exist. The financial misreporting that falsely
inflated Craig Electronics’ accounts receivable and inventory
caused the lending banks to lend more money to Craig Elec-
tronics than it was allowed to borrow under the Credit Agree-
ment.
Third, to conceal the fraudulent nature of Craig Electron-
ics’ reported accounts receivable and inventory, Berger, Rich-
ardson, and Metz deceived and attempted to deceive Craig
Electronics’ outside accountants as well as auditors from the
lending banks. For example, they instructed Craig Electronics
employees not to reveal to the accountants and auditors the
true status of Craig Electronics’ accounts receivable and
inventory.
The false statements resulted in the lending banks loaning
millions of dollars to Craig Electronics based on either non-
existent or substantially overstated collateral. The lending
banks did not discover the full extent of the fraud until after
Craig Electronics filed for bankruptcy on August 1, 1997.
According to one witness, the lending banks suffered approxi-
mately $8.4 million in losses.
Finally, Berger and Richardson failed to disclose Craig
Electronics’ true financial condition in several mandatory
reports they filed with the Securities and Exchange Commis-
sion (“SEC”). Those SEC filings were Craig Electronics’
Amended S-1 Registration Statement, Amended 1996 10-K
Report, and First Quarter 1997 10-Q Report. As a result of the
activities described above, Craig Electronics was operating
while in default of the Credit Agreement and was substan-
tially overdrawn on its line of credit. None of this informa-
tion, however, was disclosed in Craig Electronics’ mandatory
SEC filings.
II. Trial, Jury Deliberations, and Verdict
The grand jury returned an indictment against Berger and
Metz. The indictment alleged conspiracy, loan fraud, falsifica-
UNITED STATES v. BERGER 715
tion of corporate books and records, making false statements
to accountants of a publicly-traded company, and making
false statements in reports filed with the SEC. Berger’s and
Metz’s trial began on May 20, 2003 and lasted forty-one days.
A. Status Conference with the Parties
On the morning of August 29, 2003, after the jury had
deliberated for three-and-a-half days, the district court held a
status conference with all parties and their respective attor-
neys. The court hoped to discuss some of the jurors’ conflict-
ing schedules, that appeared to limit the number of days
available for deliberation. The court believed that some of
these requests for days off might be related to “the issue of
stress and responsibility on the part of the jury.”
The court suggested that it might be helpful to engage in an
informal discussion with jurors on the record but outside the
presence of the parties and their attorneys. The court
explained its proposal:
I think this is the time when the jurors need under-
standing and patience. This is the time when we do
what we can to lead them not to make a rush to judg-
ment and emotional unfair verdicts, chaos within the
jury room and eventually a verdict of hung jury.
If there had been any suggestions about an Allen
instruction I want the record to indicate that I do not
believe in the Allen instruction, I will not give it,
never have given it.
My suggestion was to communicate with the jurors
quietly and personally, to convey to the jury, of
course, an understanding of their problems. It’s not
an easy task for the jurors to listen to two months of
legal arguments, for them to have a clear head to the
716 UNITED STATES v. BERGER
point where they could return what we would call a
reasonable judgment.
My effort to communicate, wish to communicate
was to add a positive energy to the deliberations, and
not to impose ridiculous time tables. And this com-
munication technique has been used, with the con-
sent of the parties of course, on dozens of occasions
and used when I have been on the bench. It has
saved many jury verdicts and of course, the goodwill
of the judicial system.
My philosophy there is not to encourage them to do
anything more than to diligently study the evidence,
to relieve the tension and to redefine their responsi-
bility.
Defense counsel expressed concern that the need for the
judge to address the jurors was not yet necessary. After fur-
ther discussion, however, counsel for Berger and Metz indi-
cated that “doing it informally” might be acceptable. Berger’s
counsel agreed with the prosecutor that it would be more pro-
ductive for the court to indicate what it intended to say, and
then the parties “could come to an agreement pretty quickly.”
The court explained:
This is what I was planning to do. I was planning to
address the issue, first of all, regarding the jury
request for days off. And in the process of doing so
I was going to suggest to them that your fellow
jurors are going to be, I suppose there will be, con-
trary to their particular private plans, but then we
also recognize the fact that if you have to take off we
could certainly understand that.
And I want to make certain that I can convey to them
the thought that a rush to judgment is probably the
UNITED STATES v. BERGER 717
worst form of verdict you could receive. I feel very
strong about that.
Other than that, nothing magical about what I want
to say except that in the past anyway, it’s been very
effective when I could get down to the jury room,
chat with them, let them know that they’re not doing
wrong. And a lot of times there’s little clashes within
the jury room and I try to resolve those. It’s not a
question of emotions, it’s a question of determining
what the truth is. Write your script and I will cer-
tainly diligently —
Counsel for defendants declined the court’s invitation to write
a “script.” Metz’s counsel stated that Metz would be willing
to have the court informally address the jury “without counsel
being present,” because the court’s “vague outline” of what it
intended to say “does not sound to us like it will in any way
pressure the jury to rush to judgment,” but “will do just the
opposite.” Berger’s counsel agreed, stating that he had con-
ferred with Metz’s counsel and agreed “with everything he
said.” Berger’s counsel’s agreement was qualified only by his
request that, “in discussing search for justice,” the jurors “be
reminded that the government bears the burden of proof and
guilt beyond a reasonable doubt.”
Based on this representation from counsel, the court
accepted Berger’s personal waiver of his right to be present
for the court’s meeting with the jury. Berger waived his “right
to be present for the particular communication that [the court]
anticipate[d] having with the jury.” The court found Berger’s
and Metz’s waivers to be free and voluntary.
B. Informal Meeting with the Jury
In its discussion with the jury, the court first observed that
several jurors had conflicting medical appointments. The
judge stated:
718 UNITED STATES v. BERGER
As far as medical appointments are concerned, I
don’t know whether you know it or not, but during
the middle of the trial I was hospitalized. After I
gave you instructions, that very evening I had to go
to the hospital again, water in the lungs. They tell me
that’s not a good thing. But the heart and lungs are
very strong, so I guess I’m going to stick around for
a while.
The problem we have here is we have to emphasize
one thing. That is this. Jurors should not be forced to
reach a verdict. Please understand that. Because any
time you’re forced to reach a verdict you’re going to
reach an improper verdict or for improper reasons.
And so far as that’s concerned, there’s no time limit,
except it interferes with your life because if one per-
son takes off, the entire jury will be unable to con-
tinue. And we’d like to finish this before Christmas.
After some laughter, two jurors indicated that they were will-
ing to modify their plans so that deliberations could go for-
ward on September 2nd and 5th. Juror Roux, who lived 170
miles from the courthouse, changed her child care plans; Juror
Morgan delayed her medical appointment. When Morgan
commented that she was not happy about the delay, the court
responded, “I understand. The day that I gave instructions, I
think Friday, I hadn’t slept for four nights. That’s rough, not
sleeping. Then not breathing.”
When the court turned to dates for the week starting Sep-
tember 9th, Juror Roux interjected that she was “ninety-nine
percent sure we’ll be done by then,” to which the court
responded, “Wonderful. I’m glad to hear that.” Juror Roux
asked whether the others agreed they would be finished by the
9th. Juror Morgan stated, “There’s no way to say.” In
response, Juror Roux said, “I pretty much — I do — we all
UNITED STATES v. BERGER 719
have our set minds pretty much.” The court then engaged in
the following discussion with the jury:
Court: If there’s set minds and everybody is
not agreeing, then well, calm down
and try to resolve it using your rational
mind.
Juror Roux: There won’t be a resolution to a lot.
There’s some of us that are dead set on
our verdicts and others that are dead
set. You could probably leave us in
here a hundred years and we’ve delib-
erated, we’re gone over it and my vote
will not change.
Court: The way I look at it, as long as your
position is sincere, the position taken
—
Juror Roux: It is.
Court: — is based upon your recollection of
the evidence and law, there’s not much
more we can ask for.
Juror Roux: It is. I’m letting you know where I
stand.
The court then called on the foreperson, Juror Lynch, who
had a personal conflict the week of September 9th. Lynch
prefaced her answer by emphasizing that the jury still had not
reviewed all the evidence and therefore could not “say [they
were] stuck on things,” rather, “everything [was] still unde-
cided completely.” After scheduling a portion of the week of
September 9th for deliberation, the court indicated that it
probably did not need to worry about dates during the week
of September 15th through 18th because “[y]ou feel by that
720 UNITED STATES v. BERGER
time a verdict will be reached.” At that point, an unidentified
juror stated, “I sure hope so. If not, I’ll jump out this win-
dow.” Juror Roux stated, “I’m with you, buddy. Can I go
first? I will even let you push me.”
In response to these concerns, the judge closed the meeting
with the following comment:
Okay. One thing I would like to comment on. I don’t
know if I should or not, but with respect to those of
you who reached a particular conclusion, and that
you will not change your minds. It wouldn’t be
wrong for you to reconsider your position if you can
be convinced that perhaps your position was not
accurate, that it could be wrong.
And you have to have that state of mind throughout
the deliberations. Otherwise it’s going to be like the
Hatfields fighting the McCoys. It’s not going to be
promotive of a final conclusion. As long as you
understand that.
C. Post-Meeting Ameliorative Instruction
Upon returning from its discussion with the jury, the judge
stated that he “may” have gone “beyond the script” by
responding to jurors who had “blurted out . . . that they made
up their minds and [were] not going to change [them]” to “re-
examine your views to see if you’re correct in your view.” At
the request of Berger’s counsel, the judge agreed to have a
transcript of his colloquy with the jury made available imme-
diately, so that a corrective instruction could be given if nec-
essary.
At a mid-afternoon hearing that same day, Berger moved
for a mistrial, arguing that the court’s final comments to the
jury misstated the burden of proof and took “the worst part of
an Allen charge” without the balancing language. The govern-
UNITED STATES v. BERGER 721
ment argued that the challenged passage essentially reiterated
the instruction in the court’s initial charge concerning the duty
to deliberate. The court denied Berger’s motion for a mistrial.
The court, however, brought the jury back into the courtroom
and read the following clarifying instruction:
You should not take from my remarks this morning
any suggestion that you should change your views
simply in order to reach an agreement or because
other jurors think it is right. If at any time you
believe that you are deadlocked and unable to reach
a verdict, you should inform the Court. The govern-
ment has the burden of proving every element of the
charges beyond a reasonable doubt.
And those are the supplemental instructions. You are
now excused to enjoy the weekend.
The jurors resumed deliberations at 9:30 a.m. on September
2, 2003, after the Labor Day weekend. At 1:20 p.m. that day,
they sent a note indicating that they: (1) had reached unani-
mous verdicts against Berger on twelve counts but were dead-
locked as to the remaining twenty-four counts against Berger
and as to all twenty-one counts against Metz, and (2) needed
further instructions as to how to proceed. Upon the jury’s
return for further proceedings on September 4, 2003, the court
took the jury’s guilty verdicts as to twelve counts against Ber-
ger and declared a mistrial as to the rest of the counts against
Berger and on all of the counts against Metz.
III. Sentencing
The court sentenced Berger to six months in prison and
imposed a $1.25 million fine. The court also ordered Berger
to pay the lending banks $3.14 million in restitution.
722 UNITED STATES v. BERGER
DISCUSSION
I. Alleged Allen Instruction
A. Standard of Review
A district court’s decision to issue an Allen instruction is
reviewed for abuse of discretion. See United States v. Plunk,
153 F.3d 1011, 1027 (9th Cir. 1998), amended by 161 F.3d
1195 (9th Cir. 1998). An Allen instruction “must be upheld
unless it is clear from the record that the charge had an imper-
missibly coercive effect on the jury.” Id. Whether a judge has
improperly coerced a jury’s verdict is a mixed question of law
and fact we review de novo. See Jiminez v. Myers, 40 F.3d
976, 979 (9th Cir. 1994).
B. The Court Did Not Coerce the Jury into Reaching
Unanimous Verdicts
Berger contends that the district judge gave an improper
Allen charge when he met informally with the jury and that
the charge effectively coerced the jury to reach unanimous
verdicts against him on twelve counts in violation of Berger’s
right to an impartial jury. We disagree.
[1] This court has explained:
The term “Allen charge” is the generic name for a
class of supplemental jury instructions given when
jurors are apparently deadlocked; the name derives
from the first Supreme Court approval of such an
instruction in Allen v. United States, 164 U.S. 492,
501-02 (1896). In their mildest form, these instruc-
tions carry reminders of the importance of securing
a verdict and ask jurors to reconsider potentially
unreasonable positions. In their stronger forms, these
charges have been referred to as “dynamite charges,”
because of their ability to “blast” a verdict out of a
UNITED STATES v. BERGER 723
deadlocked jury. The charge has also been called the
“third degree instruction,” “the shotgun instruction,”
and “the nitroglycerin charge.”
United States v. Mason, 658 F.2d 1263, 1265 n.1 (9th Cir.
1981) (citation omitted). The Allen instruction is most often
used in cases of “apparent juror deadlock” to “admonish
jurors to keep trying.” Id. at 1265; see also Weaver v. Thomp-
son, 197 F.3d 359, 365 (9th Cir. 1999) (“In the archetypal
Allen charge context, the judge instructs a deadlocked jury to
strive for a unanimous verdict.”).
In Weaver, this court stated that “[s]o long as the defendant
has offered facts that fairly support an inference that jurors
who did not agree with the majority felt pressure from the
court to give up their conscientiously held beliefs in order to
secure a verdict, we must proceed to the Allen charge analy-
sis.” Weaver, 197 F.3d at 365. In the instant case, the district
judge made comments that echoed a mild Allen instruction
when he mentioned: “[W]ith respect to those of you who
reached a particular conclusion, and that you will not change
your minds[, i]t wouldn’t be wrong for you to reconsider your
position if you can be convinced that perhaps your position
was not accurate, that it could be wrong.” The court’s remarks
came soon after Juror Roux commented: “There’s some of us
that are dead set on our verdicts and others that are dead set.
You could probably leave us in here a hundred years and
we’ve deliberated, we’re gone over it and my vote will not
change.” These comments fairly support the inference that the
jury might have been deadlocked — at least as to some counts
— and that the court’s comments could have been construed
as instructing the jurors to reconsider their respective posi-
tions if convinced their position was not correct. Accordingly,
a full Allen analysis is appropriate.
We have stated that there is “nothing talismanic about any
single element either making the charge valid or invalid; the
fundamental question is whether the jury was improperly
724 UNITED STATES v. BERGER
coerced, thus infringing the defendant’s due process rights.”
Id. We apply a “totality of the circumstances” analysis when
examining whether a judge’s statements to a jury were imper-
missibly coercive. Jimenez, 40 F.3d at 980. In performing the
Allen analysis, it is helpful to consider three relevant factors:
“(1) the form of the instruction, (2) the time the jury deliber-
ated after receiving the charge in relation to the total time of
deliberation and (3) any other indicia of coerciveness.” United
States v. Steele, 298 F.3d 906, 911 (9th Cir. 2002).1
1. The form of the instruction was not coercive
Berger takes issue with three aspects of the “form” of the
so-called Allen instruction the court delivered during its infor-
mal meeting with the jury. First, Berger complains that the
judge’s comments omitted an instruction that jurors should
not abandon their conscientiously held beliefs. Second, Ber-
ger alleges that the judge’s statements about his poor health
coerced the jury into reaching a verdict. Finally, Berger
claims that the judge strongly suggested to the jurors that they
should work to a unanimous verdict when he said that if they
did not follow his instruction it would be like “the Hatfields
fighting the McCoys.” We conclude that Judge Takasugi’s
remarks were not coercive. In addition, the ameliorative
instruction cured any coerciveness that may have resulted
from the judge’s informal comments to the jurors.
a. The district court instructed the jurors to hold on
to their beliefs
At the end of the judge’s informal meeting with the jurors,
he told them that “[i]t wouldn’t be wrong for you to recon-
1
Some cases have separated the second factor into two distinct factors:
(1) the amount of time of deliberation following the charge and (2) the
total time of deliberation. See Weaver, 197 F.3d at 366. Because those two
considerations must be compared with each other, we find that it is more
helpful to discuss them together.
UNITED STATES v. BERGER 725
sider your position if you can be convinced that perhaps your
position was not accurate, that it could be wrong.” If the jury
was truly deadlocked, these words could be interpreted as
directing the jury to “reconsider potentially unreasonable
positions.” Mason, 658 F.2d at 1265 n.1. Berger contends that
because the judge overlooked telling the jury to hold on to
their “conscientiously held beliefs,” there was no adequate
counterbalance to the coercive aspects of the so-called Allen
instruction.
[2] Generally, when a judge tells jurors to reconsider their
positions, the judge must also warn the jurors to hold on to
their conscientiously-held beliefs. See Mason, 658 F.2d at
1268 (reversing where instruction was more coercive than the
instruction approved in Allen and failed to tell jurors in the
minority not to abandon their conscientiously-held views); see
also Jimenez, 40 F.3d at 981 & n.5 (noting that failure to
instruct jurors to hold on to conscientiously held beliefs
“weighs heavily in favor of the conclusion that the defen-
dant’s right to a fair trial and impartial jury has been violat-
ed”); but see United States v. Cuozzo, 962 F.2d 945, 952 (9th
Cir. 1992) (“While it is helpful for an Allen charge to include
such ameliorative language, its lack does not itself necessarily
require reversal.”). Berger, however, misconstrues the record
when he contends that Judge Takasugi’s informal comments
to the jury — which Berger characterizes as an Allen instruc-
tion — were not offset by other comments by the judge telling
the jury to hold on to their beliefs.
[3] First, the judge told the jurors: “The way I look at it, as
long as your position is sincere, the position taken . . . is based
upon your recollection of the evidence and law, there’s not
much more we can ask for.” The judge’s statement was sub-
stantially the same as an instruction telling jurors to hold on
to their conscientiously held beliefs. Telling the jury to hold
on to a “sincere” position based on a “recollection of the evi-
dence and law” neutralized any potentially coercive effect and
undercuts Berger’s contention.
726 UNITED STATES v. BERGER
[4] Second, at the request of the defendants, the court gave
an ameliorative instruction later that afternoon. The court
instructed the jury: “You should not take from my remarks
this morning any suggestion that you should change your
views simply in order to reach an agreement or because other
jurors think it is right.” That corrective instruction also neu-
tralized any coercive effect of the court’s earlier informal
comments. The instruction explained that each juror’s per-
sonal views were more important than the parties’ or the
court’s interest in obtaining a unanimous verdict. Thus, we
find that Berger’s first challenge to the court’s informal com-
ments lacks merit. See United States v. Bonam, 772 F.2d
1449, 1451 (9th Cir. 1985) (“When the portion of the instruc-
tion that asks the minority to re-examine its views is counter-
balanced by the caution that a juror should not abandon his
conscientiously held views, we have generally upheld the
instruction as not coercive.”); see also United States v. Aji-
boye, 961 F.2d 892, 894 (9th Cir. 1992).
b. It was not coercive for the judge to mention his
recent illness
[5] Berger next argues that the judge engaged in coercion
when he told the jury he had been hospitalized during trial
with a serious illness. Berger implies that because Judge
Takasugi is a senior judge who made reference to his illness,
the jury felt compelled to reach a verdict. Such an interpreta-
tion is a misreading of the transcript. The judge’s comments
regarding his health cannot reasonably be read to have had
any coercive effect on the jury. First, the judge tempered his
comments about his health by saying, “But the heart and
lungs are very strong, so I guess I’m going to stick around for
a while.” Further, Berger’s contention that references to the
judge’s illness pushed the jury to reach a verdict is under-
mined by reading the judge’s next words, which were: “Jurors
should not be forced to reach a verdict. Please understand
that. Because any time you’re forced to reach a verdict you’re
going to reach an improper verdict or for improper reasons.
UNITED STATES v. BERGER 727
And so far as that’s concerned, there’s no time limit . . . .”
The judge’s discussion of his illness did not create a coercive
atmosphere.
c. The judge’s statement that failure to reconsider a
position would “be like the Hatfields fighting the
McCoys” was not coercive
Berger next focuses on the judge’s informal comment that
it “wouldn’t be wrong for you to reconsider your position,”
and that jurors “have to have that state of mind throughout the
deliberations. Otherwise it’s going to be like the Hatfields
fighting the McCoys. It’s not going to be promotive of a final
conclusion.” Berger asserts that “[t]he court’s statements told
the jurors that honest and conscientious beliefs were less
important than getting along — indeed, these statements told
the jurors that hanging on to such beliefs would make them
responsible for inappropriate feuding.”
[6] The comparison of a deadlocked jury to the Hatfields
and the McCoys might have conveyed to the jury that the
judge favored a unanimous agreement over a deadlock. But
we must not consider that analogy in isolation. We must
instead consider it in the context of the judge’s other informal
remarks and his ameliorative instruction. See Jimenez, 40
F.3d at 980. When so viewed, the “Hatfields fighting the
McCoys” comment was not coercive. As noted above, the
judge told the jury that they would not be “forced to reach a
verdict” and that jurors should not “change [their] views sim-
ply in order to reach an agreement or because other jurors
think it is right.” Furthermore, the court later gave the amelio-
rative instruction that the jurors should not “change [their]
views simply in order to reach an agreement or because other
jurors think it is right.” Any coercive effect that emanated
from the court’s “Hatfields fighting the McCoys” comment
was neutralized by the court’s counterbalancing statements
and corrective instruction.
728 UNITED STATES v. BERGER
2. The time the jury deliberated after the informal
meeting in relation to the total time it deliberated
does not suggest that the court’s statements were
coercive
“A jury verdict reached immediately after an Allen charge
can be an indication of coercion.” Bonam, 772 F.2d at 1451.
In contrast, this court has found no coercion existed in cir-
cumstances where the deliberations lasted some significant
amount of time after an Allen instruction was given. See id.
at 1450-51 (finding no coercion with just over one day of total
deliberation, one-and-a-half hours of which came after Allen
charge); see also Lorenzo, 43 F.3d at 1307 & n.3 (finding no
coercion with five-and-a-half hours of deliberation coming
after Allen charge); Cuozzo, 962 F.2d at 952 & n.6 (finding
no coercion with two days and six hours of deliberation, six
hours of which came after Allen charge); but see Weaver, 197
F.3d at 366 (finding coercion existed when jury returned with
unanimous verdict five minutes after Allen charge).
The jury deliberated at least seven hours following the
challenged comments by the judge. On the morning of August
29, 2003, the court, with counsel’s consent, had its informal
meeting after the jury had deliberated about three-and-a-half
days. Following the judge’s meeting with the jurors, the jury
deliberated until 3:19 p.m. At that time, the court gave the
ameliorative instruction that the jury members should not
“change [their] views simply in order to reach an agreement
or because other jurors think it is right.” The court recessed
for the weekend. The jury resumed deliberations at 9:30 a.m.
on September 2, 2003, and reached a verdict that afternoon at
1:20 p.m.
Seven hours was a substantial amount of time after the
informal meeting. During that time, the jury could consider
the charges against both defendants. In our opinion, seven
hours was a “sufficient period of time to allow the jury to
UNITED STATES v. BERGER 729
reach a reasoned decision in this case.” Cuozzo, 962 F.2d at
952 n.6.
[7] Finally, we note that the jury’s verdict on September
2nd came after the three-day Labor Day holiday. We have
held:
The fact the jury reached its verdict half an hour
after returning from a weekend recess could merely
reflect that the jurors came to a resolution during a
weekend when they individually pondered the evi-
dence. The weekend interval itself probably would
have diluted any coercive effect of an Allen charge
given the prior Thursday.
Steele, 298 F.3d at 911. Here, as in Steele, any potentially
coercive effect of the judge’s remarks was diluted by the long
holiday weekend and the time the jury deliberated after the
court’s informal remarks.
3. There Were No Other Indicia of Coercion
a. The Court’s informal statements to the jury were
not directed toward a specific juror or set of jurors
Berger argues that the judge’s informal comments were
particularly coercive because they were directed at a specific
juror, Juror Roux. This argument misrepresents the record,
because the judge addressed his remarks toward the jurors as
a group. The judge only knew that “some” of the jurors were
set on one position and that “others” were set on another. The
judge did not know which jurors favored guilt and which
favored acquittal. Moreover, because of the complicated
nature of the case, Juror Roux’s comment that “some of us . . .
are dead set on our verdicts” might have related only to some
of the dozens of charges the jurors had to consider. The record
also does not reveal whether Juror Roux was in the majority
or minority on any particular charge, nor how many jurors she
730 UNITED STATES v. BERGER
was referring to when she said “some of us that are dead set
on our verdicts.”
Here, “the judge did not ask what the division was. There
is no evidence that he knew who the dissenting juror[s were.]
Further, the judge did not even know whether the majority
position was to convict or acquit.” Lorenzo, 43 F.3d at 1307.
Thus, Juror Roux could not have been singled out by the
judge in his comments, which were made to the multiple
jurors who were “dead set” on their verdicts.
b. It is not clear that the jurors were in fact
deadlocked
Contrary to Berger’s contention, the jury was not dead-
locked at the time the judge, with the consent of counsel, had
an informal meeting with the jurors regarding scheduling
issues. Berger’s case is distinguishable from other cases
where an allegedly coercive Allen charge is made to an obvi-
ously deadlocked jury. In those cases, the jury typically sends
out a note indicating that it is deadlocked and inquiring about
the next appropriate step. See Jimenez, 40 F.3d at 978-79
(explaining that jury sent notes to judge that stated “We are
unable to reach a verdict and feel strongly that we would not
be able to reach a verdict” and “We are at an impasse and
request further direction.”).
[8] There is simply no evidence in the record that any of the
jurors considered further deliberations to be futile. The jury
knew that deliberations were ongoing. With the consent of
counsel, the judge met informally with the jurors, who had
served for over three months, about their issues regarding
child care, travel to the courthouse, medical appointments,
and vacation plans — hoping to schedule dates for more
deliberation. Juror Lynch stated that the jury had not reviewed
all the evidence and could not “say [the jury was] stuck on
things,” rather, “everything [was] still undecided completely.”
Thus, the judge did not make his remarks in an atmosphere
UNITED STATES v. BERGER 731
where the jurors would have felt that unanimity was their only
escape from the jury room.
c. The jury was not unanimous on all counts
The jury reached agreement on twelve counts against Ber-
ger. The jury deadlocked on the remaining twenty-four counts
against Berger. The jury also deadlocked on all twenty-one
counts against Metz. This result clearly tells us that the jury
exercised “their rational and independent review of the evi-
dence” and did not succumb to the court’s alleged coercion.
See Plunk, 153 F.3d at 1027; Cuozzo, 962 F.2d at 952.
[9] In light of the foregoing, we hold that Berger’s conten-
tion that the district court impermissibly coerced the jury to
arrive at unanimous verdicts is without merit.
II. Berger’s Constitutional Right to Be Present
A. A Defendant’s Right to Be Present
Berger next argues that his right to be present at every stage
of the proceedings was violated when the judge made the
challenged informal comments to the jury outside the pres-
ence of Berger and his counsel. We conclude that Berger
waived his right to be present but that the scope of the waiver
did not include the full range of comments made by the judge
during the informal meeting with the jury. Consequently, even
though the so-called Allen instruction was not coercive, the
challenged language was spoken by the court without Ber-
ger’s knowledge and consent, and thus impinged his due pro-
cess right to be present at every critical stage of trial. We
nevertheless hold that the error, if any, was harmless beyond
a reasonable doubt and therefore not a ground for reversal.
This court has stated that the “Constitution, the fundamen-
tal principles of jury trial, and the Federal Rules of Criminal
Procedure guarantee a defendant the right to be present at
732 UNITED STATES v. BERGER
every stage of trial.” United States v. Frazin, 780 F.2d 1461,
1469 (9th Cir. 1986) (citing Illinois v. Allen, 397 U.S. 337,
338 (1970) (holding right of presence secured by the confron-
tation clause)). In United States v. Gagnon, 470 U.S. 522
(1985), in discussing a defendant’s right to be present at criti-
cal stages of trial, the Supreme Court explained:
[A] defendant has a due process right to be present
at a proceeding whenever his presence has a relation,
reasonably substantial, to the fulness of his opportu-
nity to defend against the charge. The presence of a
defendant is a condition of due process to the extent
that a fair and just hearing would be thwarted by his
absence, and to that extent only.
Id. at 526 (quoting Snyder v. Massachusetts, 291 U.S. 97,
105-06, 108 (1934)) (internal quotations and alterations omit-
ted). Such an error, however, is not a basis for automatic
reversal. If an ex parte communication “rises to the level of
a constitutional violation, then the burden is on the prosecu-
tion to prove that the error was harmless beyond a reasonable
doubt.” United States v. Rosales-Rodriguez, 289 F.3d 1106,
1109 (9th Cir. 2002).2
2
Federal Rule of Criminal Procedure 43(a) provides a similar but
broader right: a defendant is entitled to be present “at every stage of the
trial including the impaneling of the jury and the return of the verdict.” See
Rosales-Rodriguez, 289 F.3d at 1109. A violation of Rule 43 is harmless
if “there is no reasonable possibility that prejudice resulted from the
absence.” Id. As this court has recognized, the constitutional harmless
error standard is “more stringent” than the harmless error standard applica-
ble to a Rule 43 violation. Frazin, 780 F.2d at 1469 n.8 (“The reasons sup-
porting our determination that the constitutional error was harmless . . .
would necessarily satisfy the more lenient standard for nonconstitutional
error . . . .”). Because we ultimately conclude that the constitutional viola-
tion in this case was harmless beyond a reasonable doubt, we need not
decide whether Berger’s statutory right to be present was also violated.
See id.
UNITED STATES v. BERGER 733
[10] Our case law is clear that communication between the
judge and jury outside of counsel’s presence, without a proper
waiver, violates a defendant’s right to due process of law. See
Frazin, 780 F.2d at 1469; see also Rosales-Rodriguez, 289
F.3d at 1110 (noting that delivery of a supplemental jury
instruction is a “critical” stage of a trial that requires a defen-
dant’s or defense counsel’s presence). A defendant, however,
may waive his or her constitutional right to be present at all
critical stages of the proceedings “provided such waiver is
voluntary, knowing, and intelligent.” Campbell v. Wood, 18
F.3d 662, 671-72 (9th Cir. 1994) (citing Johnson v. Zerbst,
304 U.S. 458, 464 (1938)).
Below, we consider the scope of Berger’s waiver of his
right to be present during the court’s informal meeting with
the jury. We then discuss whether the constitutional error, if
any, was harmless beyond a reasonable doubt.
B. Berger Did Not Waive His Right to Be Present During
the So-Called Allen Instruction
The parties do not dispute that Berger knowingly, intelli-
gently, and voluntarily waived his right to be present during
the judge’s informal communication with the jury. They do,
however, disagree as to the scope of his waiver. We agree
with Berger that he only waived his right to be present during
the court’s informal meeting with the jury, so long as the dis-
cussion involved the setting of future deliberation dates that
would not conflict with the child care, vacation, and travel
arrangements of some of the jurors. He did not waive his right
to be present during the administration of the so-called Allen
instruction.
We narrowly construe Berger’s waiver and only read it to
include whatever Berger explicitly waived. See Gete v. INS,
121 F.3d 1285, 1293 (9th Cir. 1997) (“[A] waiver of constitu-
tional right is not to be implied and is not lightly to be found.”
(internal quotations omitted)); see also Johnson, 304 U.S. at
734 UNITED STATES v. BERGER
464. Before accepting Berger’s waiver of his right to be pres-
ent, the judge explained to the parties what he planned to say
to the jury at the informal meeting. The judge stated, “If there
had been any suggestions about an Allen instruction I want the
record to indicate that I do not believe in the Allen instruction,
I will not give it, never have given it.” When asked what he
was specifically planning to say, the judge narrowed his plan
to two specific points: first, he would “address the issue . . .
regarding the jury[’s] request for days off”; second, he would
“make certain that [he could] convey to them the thought that
a rush to judgment is probably the worst form of verdict you
could receive.” Berger expressly waived his “right to be pres-
ent for the particular communication that [the court] antici-
pate[d] having with the jury.”
[11] The record shows that the court intended to (1) discuss
the scheduling conflicts some of the jurors were having, and
(2) explain to the jurors that a rush to judgment would not be
appropriate. More importantly, the court emphatically stated
that it would not give an Allen instruction. Because Berger’s
waiver only encompassed the “particular communication” that
was “anticipated” by the district court, the waiver was
restricted to the court’s two planned topics of discussion.
[12] The jurors’ comments, however, led the judge away
from his stated plan. Juror Roux stated that some jurors were
“dead set” on their verdicts. In response to that comment the
judge noted that “[i]t wouldn’t be wrong for you to reconsider
your position if you can be convinced that perhaps your posi-
tion was not accurate, that it could be wrong.” Berger argues
that he did not waive his right to be present when that com-
ment was uttered, which was, at worst, the mildest form of a
mild Allen instruction. See Mason, 658 F.2d at 1265 n.1 (“In
their mildest form, [Allen] instructions carry reminders of the
importance of securing a verdict and ask jurors to reconsider
potentially unreasonable positions.”).
UNITED STATES v. BERGER 735
C. The Constitutional Error Was Harmless
[13] A violation of a defendant’s due process right to be
present at critical stages of trial is subject to harmless error
analysis. See Frazin, 780 F.2d at 1469. Constitutional error is
harmless if a court concludes “beyond a reasonable doubt that
the error complained of did not contribute to the verdict
obtained.” Id. at 1469-70 (quoting Chapman v. California,
386 U.S. 18, 24 (1967)). As we have thoroughly discussed,
the portion of the judge’s comments that arguably exceeded
the scope of Berger’s waiver did not coerce the jury into
reaching a verdict. The comments were, at worst, the mildest
form of an Allen instruction. Further, the jury deliberated a
substantial amount of time — seven hours — after the com-
ments at issue; and the jury did not reach unanimous verdicts
on all counts. All of the factors that we considered above
demonstrate that the district court’s statements were not coer-
cive and did not affect the jury’s verdict. See Rosales-
Rodriguez, 289 F.3d at 1111 (holding that district court’s
delivery of supplemental instruction without consulting par-
ties was harmless error because “[t]he instruction . . . was not
coercive and did not cause the jury to rush to judgment”);
Frazin, 780 F.2d at 1469-71 (finding that the judge’s failure
to consult parties when responding to a jury note was harm-
less error because jury reached its own conclusion and “not as
the result of actual or perceived judicial pressure”). Moreover,
the defendants had an immediate opportunity to review the
transcript of the meeting. The same afternoon, the court pro-
vided an ameliorative corrective instruction. Looking at the
totality of the circumstances, we are convinced beyond a rea-
sonable doubt that the jury’s verdict was not affected by any
part of the court’s informal meeting with the jurors and any
perceived error was harmless. Frazin, 780 F.2d at 1471.
736 UNITED STATES v. BERGER
III. Materiality in Indictment Counts 34, 35, and 36
A. Indictment Counts 34, 35, and 36 — The Materiality
Element
Counts 34, 35, and 36 charged that, in three SEC filings,
Berger knowingly omitted material facts about Craig Elec-
tronics’ (1) fraudulent accounting practices, (2) default of the
Credit Agreement, and (3) overdrawn status on its line of
credit.
At trial, the government gave notice of its intention to call
a victim investor and an SEC expert witness to testify about
the materiality of omissions in the SEC filings. Berger
objected on the ground that Kungys v. United States, 485 U.S.
759 (1988), required the government to prove that the false
statements were material to the SEC. Berger argued that the
investor had no relevant testimony concerning the effect of
the falsehoods on the SEC and that expert testimony on the
materiality of omissions would invade the province of the
jury.
The government responded that Kungys governs false state-
ments to government agencies was not controlling because the
relevant materiality standard in securities fraud cases is
whether a misrepresentation or omission would influence a
reasonable investor, not the SEC. The district court agreed but
concluded that under the reasonable investor standard, the
proposed testimony of the investor and of the SEC expert wit-
ness were unnecessary.
In a motion for judgment of acquittal at the close of the
government’s case-in-chief, Berger asserted that there was
insufficient evidence that the falsehoods were material to the
SEC. Berger also contended that the indictment charged that
the false statements were material to the lending banks, not to
individual investors. In a post-verdict motion for judgment of
acquittal, Berger repeated these claims and also argued that
UNITED STATES v. BERGER 737
there was a fatal variance between the indictment — which
alleged that the false statements were material to the lending
banks — and the proof — which established that the false
statements were material to reasonable investors. The court
denied both motions.
B. Standard of Review
The materiality standard to be applied is a question of law
reviewed de novo. See, e.g., United States v. Rosenthal, 445
F.3d 1239, 1244 (9th Cir. 2006). The sufficiency of an indict-
ment is reviewed de novo. See United States v. Pernillo-
Fuentes, 252 F.3d 1030, 1032 (9th Cir. 2001).
C. Counts 35 and 36 — Materiality Under Section 32(a)
of the Securities Exchange Act of 1934 Assessed from
the Reasonable Investor’s Perspective
[14] Counts 35 and 36 of the indictment alleged that Berger
made material omissions in mandatory filings with the SEC,
in violation of section 13(a) of the Securities Exchange Act of
1934 (“1934 Act”), 15 U.S.C. § 78m(a), and section 32(a) of
the 1934 Act, 15 U.S.C. § 78ff(a).3 Section 13(a) is a manda-
tory filing provision, that requires certain companies to file
with the SEC “information and documents . . . as the Com-
mission shall require to keep reasonably current the informa-
tion and documents required to be included in or filed with an
application or registration statement” as well as “annual
reports . . . and . . . quarterly reports.” 15 U.S.C. § 78m(a)(1)-
(2). Section 32(a) provides criminal penalties for “any person
who willfully and knowingly makes . . . any statement in any
application, report, or document required to be filed under this
3
We refer to the relevant statutory provisions according to their Sections
under the 1934 Act, rather than the United States Code section. In other
words, we refer to Section 13(a) for 15 U.S.C. § 78m(a), Section 32(a) for
15 U.S.C. § 78ff(a), Section 14(a) for 15 U.S.C. § 78n(a), and Section
10(b) for 15 U.S.C. § 78j(b).
738 UNITED STATES v. BERGER
chapter or any rule or regulation thereunder . . . which state-
ment was false or misleading with respect to any material fact
. . . .” 15 U.S.C. § 78ff(a) (emphasis added).
Berger contends that when applying section 32(a), courts
should assess materiality from the perspective of the SEC.
Berger primarily bases his argument on Kungys v. United
States, 485 U.S. 759 (1988). In Kungys, the Supreme Court
interpreted a statute that penalized the “concealment of a
material fact” from the Immigration and Naturalization Ser-
vice. Id. at 767-72. The Supreme Court looked to the federal
courts of appeals, which had a “uniform understanding” of
“materiality” under a similar statute, 18 U.S.C. § 1001.
Kungys, 485 U.S. at 769-70. Section 1001 is a general statute
that criminalizes acts of material misrepresentation in “any
matter within the jurisdiction of the executive, legislative or
judicial branch of the Government of the United States.” 18
U.S.C. § 1001. The courts of appeals had, in § 1001 cases,
assessed materiality from the perspective of the government
agency. See Kungys, 485 U.S. at 769-70. The Supreme Court
agreed with that interpretation and held that a false statement
made to a government agency is “material” if it “has a natural
tendency to influence, or was capable of influencing, the deci-
sion of the decisionmaking body to which it was addressed.”
Id. at 770 (internal quotations omitted).
Berger identifies cases that apply the Kungys materiality
standard to a number of different agencies, including the
Environmental Protection Agency, see United States v. Self,
2 F.3d 1071, 1083-84 (10th Cir. 1993), and the Food and
Drug Administration, see United States v. Diaz, 690 F.2d
1352, 1357 (11th Cir. 1982). Each of those cases dealt with
the materiality of false statements made in the context of spe-
cific agency decisions. See, e.g., Self, 2 F.3d at 1084 (noting
false statements “had a tendency to forestall any regulatory
agency investigation”); Diaz, 690 F.2d at 1358 (explaining
that false records could “impair the FDA in carrying out its
responsibility for protection of the public health”). Berger
UNITED STATES v. BERGER 739
contends that the SEC, as a regulatory body, makes decisions
based on the information contained in a company’s mandatory
filings. Thus, Berger argues that the materiality of false state-
ments made to the SEC under section 32(a) must also be
assessed not from the reasonable investor’s perspective, but
from the SEC’s perspective, in the context of its own regula-
tory decisions.
[15] We disagree with Berger. The purpose of the 1934 Act
was to benefit and protect investors, with proper agency deci-
sionmaking as a secondary concern. “The 1934 Act was
designed to protect investors against manipulation of stock
prices.” Basic Inc. v. Levinson, 485 U.S. 224, 230 (1988) (cit-
ing S. Rep. No. 73-792, at 1-5 (1934)). Furthermore, the
Court “repeatedly has described the ‘fundamental purpose’ of
the Act as implementing a ‘philosophy of full disclosure.’ ”
Id. (quoting Santa Fe Indus., Inc. v. Green, 430 U.S. 462,
477-78 (1977)). Accordingly, the Supreme Court has estab-
lished a specific materiality standard to be used when assess-
ing fraudulent statements filed with the SEC. In TSC
Industries, Inc. v. Northway, Inc., 426 U.S. 438 (1976), the
Supreme Court explained in the proxy-solicitation context
that “[a]n omitted fact is material if there is a substantial like-
lihood that a reasonable shareholder would consider it impor-
tant in deciding how to vote.” Id. at 449. In formulating that
standard, the Court noted the broad remedial purpose of Rule
14a-9 of the 1934 Act:
That purpose is not merely to ensure by judicial
means that the transaction, when judged by its real
terms, is fair and otherwise adequate, but to ensure
disclosures by corporate management in order to
enable the shareholders to make an informed choice.
TSC Indus., 426 U.S. at 448. Thus, the Court held that under
section 14(a) and Rule 14a-9, materiality should be assessed,
not from the SEC’s perspective, but from the investor’s per-
spective. See id. at 449. The Court later expanded the reach
740 UNITED STATES v. BERGER
of the TSC Industries materiality standard to section 10(b) and
Rule 10b-5, which prohibit fraud in connection with the pur-
chase or sale of securities. See Basic Inc., 485 U.S. at 231-32;
see also United States v. Tarallo, 380 F.3d 1174, 1182 (9th
Cir. 2004) (assessing materiality under Section 10(b) from
reasonable investor’s perspective).
[16] Applying the “reasonable investor” materiality stan-
dard to Section 32(a) is consistent with the goals of the SEC.
As amicus curiae, the SEC noted that the agency itself com-
mences actions on filings it considers materially misleading to
investors. Cf. Touche Ross & Co. v. Redington, 442 U.S. 560,
570 (1979) (“The information contained in the [mandatory]
reports is intended to provide the [SEC], [the New York Stock
Exchange], and other authorities with a sufficiently early
warning to enable them to take appropriate action to protect
investors . . . .”). In addition to being a regulatory body, the
SEC acts as a repository of information intended to be dis-
seminated to and used by the public. See United States v.
Bilzerian, 926 F.2d 1285, 1301 (2d Cir. 1991) (“The securi-
ties laws are designed to make accurate information available
to the investing public . . . .”). The mandatory filings at issue
in this case, for example, were meant for investors’ use. Craig
Electronics’ Form 10-K and Form 10-Q, which were periodic
reports, were filed under Section 13(a) “as necessary or
appropriate for the proper protection of investors and to insure
fair dealing in the security.” 15 U.S.C. § 78m(a). Further-
more, Congress has explained the purpose of the mandatory
reporting provisions of the 1934 Act:
It is anticipated that the information filed by a corpo-
ration [under the 1934 Act] will be so complete as to
present to the stockholder, or the prospective stock-
holder, a picture of the corporation’s financial condi-
tion which will enable him intelligently to evaluate
its securities. . . . The reporting provisions of the act
will fill a long-felt need by aiding the exchanges to
secure proper information for the investor.
UNITED STATES v. BERGER 741
S. Rep. No. 73-1455, at 74 (1934) (emphasis added). It is
clear that the reporting requirements under the 1934 Act are
intended to protect investors, and that materiality should be
assessed from the reasonable investor’s perspective.
The SEC concedes that the mandatory filings here satisfy
a related but separate purpose specific to the agency — the
SEC reviews the documents to determine whether to investi-
gate a particular transaction. False filings that relate to spe-
cific agency decisions, however, are criminalized by a
separate statute, 18 U.S.C. § 1001. Indeed, in Bilzerian, the
Second Circuit held that the government can institute two sep-
arate counts against an individual for the same false filing. In
that case a false filing could be charged under both (1) section
10(b), the 1934 Act provision relating to the purchase or sale
of securities, and (2) § 1001, the general statute criminalizing
false statements made to government agencies. See Bilzerian,
926 F.2d at 1299-1301 (“The securities laws are designed to
make accurate information available to the investing public;
the SEC’s authority to regulate disclosure required under
those laws brings the securities filings at issue within its juris-
diction for purposes of § 1001.”).
Here, the government could have charged Berger with
making false statements that related to the SEC’s regulatory
decisionmaking under § 1001 in addition to charging him
with filing false statements that were material to investors
under Section 32(a).4 As to the hypothetical § 1001 charge,
the Kungys case’s interpretation of materiality — examining
4
Berger contends that Congress already has provisions such as Sections
10(b) and 14(a) in place to protect investors from false statements. He
implies that interpreting Section 32(a) as we do today would be duplica-
tive of those provisions. This is inconsequential, however, because “when
an act violates more than one criminal statute, the Government may prose-
cute[ ] under either so long as it does not discriminate against any class
of defendants.” United States v. Batchelder, 442 U.S. 114, 123-24 (1979);
see also United States v. Pope, 189 F. Supp. 12, 21-22 (S.D.N.Y. 1960)
(holding permissible charges under both Section 14(a) and Section 32(a)).
742 UNITED STATES v. BERGER
the misstatement’s ability to influence the SEC’s decision-
making — would be appropriate. However, under Section
32(a), which was promulgated under an act specifically
intended to benefit the investing public, misstated or omitted
facts should be evaluated for materiality as to those investors.
Finally, Berger argues that “materiality must be assessed in
the context of a decision.” He points to Sections 10(b) and
14(a) for comparison. In the Section 10(b) context, courts
assess materiality by examining a fact’s potential to influence
an investor’s particular decision — the decision to buy or sell
a security. See Ganino v. Citizens Utils. Co., 228 F.3d 154,
161 (2d Cir. 2000). Similarly, in Section 14(a), the false state-
ment must have a tendency to influence a decision — how an
investor will vote. See TSC Indus., 426 U.S. at 449. Section
32(a), however, only criminalizes the filing of false informa-
tion and does not expressly implicate any specific type of
investment decision. Thus, Berger argues that the materiality
standard we adopt today is “unworkable and incoherent.”
We disagree. In Sections 10(b) and 14(a), affected invest-
ment decisions — the decision to buy or sell shares and the
decision to vote a particular way — are enumerated as ele-
ments of the statutes. The language of Section 32(a) is dis-
tinct; it criminalizes the mere filing of a material false
statement without requiring that the statement affect a particu-
lar investment decision. It thus appears that Congress
intended Section 32(a) to act as a catch-all provision to punish
those who file a false statement, whether or not the filing can
be shown to affect a specific investment decision, as long as
the false statement could affect a reasonable investor. See
Pope, 189 F. Supp. at 21 (“Section 32(a) is a catch all provi-
sion . . . .”).
[17] We recognize the materiality standard set forth in TSC
Industries as the materiality standard for Section 32(a) of the
1934 Act. Materiality must be assessed from the perspective
UNITED STATES v. BERGER 743
of the reasonable investor. Accordingly, we affirm the district
court’s interpretation of Section 32(a).
D. Materiality Element in Count 34 Under the Securities
Act of 1933
1. Berger’s Conviction Under Count 34 May Not Be
Reversed for an Error in Citation
[18] In Berger’s reply brief, he contends that his conviction
on Count 34 must be reversed.5 Count 34 alleged that Berger
violated Section 32(a) when he filed false statements on Craig
Electronics’ Amended S-1 Registration Statement. Berger
points out that Section 32(a) applies to false statements made
on any application, report, or document filed under the 1934
Act. See 15 U.S.C. § 78ff. S-1 Registration Statements, how-
ever, are required under the Securities Act of 1933 (“1933
Act”), 15 U.S.C. §§ 77a-77bbbb, not the 1934 Act. See Sec-
tion 6, 1933 Act, 15 U.S.C. § 77f; see also FORM S-1 Regis-
tration Statement Under the Securities Act of 1933, available
at http://www.sec.gov/about/forms/forms-1.pdf (“This Form
shall be used for the registration under the Securities Act of
1933 . . . .”). Thus, Berger argues that the government did not
prove an essential element of Section 32(a) — that he made
a materially false statement on an application, report, or docu-
ment required under the 1934 Act — and accordingly, that his
conviction under Count 34 must be reversed.
5
Berger did not raise this issue in his opening brief. “Generally, an issue
is waived when the appellant does not specifically and distinctly argue the
issue in his or her opening brief.” United States v. Kama, 394 F.3d 1236,
1238 (9th Cir. 2005). Nevertheless, we have the discretion to review issues
not previously raised if “the issue presented is purely one of law and either
does not depend on the factual record developed below, or the pertinent
record has been fully developed.” Pfingston v. Ronan Eng’g Co., 284 F.3d
999, 1004 (9th Cir. 2002). Because this is a pure question of law and the
relevant record has been fully developed, we exercise our discretion to
consider this issue.
744 UNITED STATES v. BERGER
[19] We begin by noting that the government could have
properly charged Berger with making a materially false state-
ment on an S-1 Registration Statement under Section 24 of
the 1933 Act, 15 U.S.C. § 77x. Section 24 of the 1933 Act
criminalizes the filing of materially false statements made on
a registration statement filed under the 1933 Act. See 15
U.S.C. § 77x. Thus, both Section 24 of the 1933 Act and Sec-
tion 32(a) of the 1934 Act criminalize the filing of material
false statements on documents required under their respective
acts.
[20] Berger does not contest that Section 24 of the 1933
Act criminalizes the conduct alleged in Count 34. Accord-
ingly, the error alleged by Berger here is one of improper stat-
utory citation, rather than one of substantive error in the
indictment. Such an error is not a proper basis for reversal.
The Federal Rules of Criminal Procedure counsel that
“[u]nless the defendant was misled and thereby prejudiced,
neither an error in a citation nor a citation’s omission is a
ground to dismiss the indictment or information or to reverse
a conviction.” Fed. R. Crim. P. 7(c)(3). Here, the language of
the indictment clearly constitutes a satisfactory enumeration
of the elements of Section 24 of the 1933 Act. Accordingly,
Berger was not “misled to his prejudice,” nor did “defects or
irregularities in the indictment affect[ his] substantial rights.”
Hockenberry v. United States, 422 F.2d 171, 174 (9th Cir.
1970). We hold that Count 34 here “describes the activities
forming the basis of the charge [under Section 24 of the 1933
Act] with sufficient particularity to assure that the Grand Jury
deliberated on the elements of the crime.” Echavarria-Olarte
v. Reno, 35 F.3d 395, 398 (9th Cir. 1994). Because the defect
here was one of form, rather than substance, we decline to
reverse his conviction because of the citation error in the
indictment. See id. at 399; United States v. Fekri, 650 F.2d
1044, 1046 (9th Cir. 1981) (“When there has been no preju-
UNITED STATES v. BERGER 745
dice and the error is merely an error in the citation, reversal
is not required.”).6
2. Materiality Under Section 24 of the Securities Act of
1933 Assessed from the Reasonable Investor’s
Perspective
Because we hold that Berger was properly convicted under
Section 24 of the 1933 Act, we next consider the proper mate-
riality standard applicable to that provision. We have already
determined that under Section 32(a) of the 1934 Act, material-
ity must be assessed from the perspective of the reasonable
investor. For similar reasons, we hold that materiality under
Section 24 of the 1933 Act must also be assessed from the
reasonable investor’s perspective.
We acknowledge the subtle differences in the purposes of
the 1933 and 1934 Acts. The Supreme Court has recognized
that “[t]he essential purpose of the [1933 Act] is to protect
investors by requiring publication of certain information con-
cerning securities before offered for sale.” A.C. Frost & Co.
v. Coeur D’Alene Mines Corp., 312 U.S. 38, 40 (1941)
(emphasis added). This purpose is slightly different from the
purpose of the 1934 Act, which applies to post-distribution
securities exchanges. See Reader v. Hirsch & Co., 197 F.
Supp. 111, 114 (S.D.N.Y. 1961) (“The Securities Exchange
Act of 1934 does not overlap the 1933 Act, but rather supple-
ments it, i.e., it deals with post distribution trading.”).
6
A person convicted under Section 24 of the 1933 Act may be fined up
to $10,000 and imprisoned up to five years. See 15 U.S.C. § 77x. A person
convicted under Section 32(a) of the 1934 Act faces potentially harsher
penalties: up to $5,000,000 in fines and up to twenty years imprisonment.
See 15 U.S.C. § 78ff. As discussed below, we remand this case for resen-
tencing. One should be mindful of the relevant statutory maximum penal-
ties under Section 24 of the 1933 Act when considering the appropriate
sentence for Berger pursuant to his conviction under Count 34. See, e.g.,
Hockenberry, 422 F.2d at 174.
746 UNITED STATES v. BERGER
[21] Nevertheless, as with the 1934 Act, Congress was pri-
marily concerned with protecting the investing public when it
passed the 1933 Act. In Ernst & Ernst v. Hochfelder, 425 U.S.
185 (1976), the Supreme Court noted: “The Securities Act of
1933 . . . was designed to provide investors with full disclo-
sure of material information concerning public offerings of
securities in commerce, to protect investors against fraud and,
through the imposition of specified civil liabilities, to promote
ethical standards of honesty and fair dealings.” Id. at 195 (cit-
ing H.R. Rep. No. 73-85, at 1-5 (1933)) (emphasis added); see
also SEC v. Ralston Purina Co., 346 U.S. 119, 124 (1953)
(“The design of the [1933 Act] is to protect investors by pro-
moting full disclosure of information thought necessary to
informed investment decisions.”). Furthermore, this court has
recognized that “the purpose of the [1933 Act] is to compel
full and fair disclosure in the issuance of securities so that
investors will be adequately protected.” United States v. Car-
man, 577 F.2d 556, 564 (9th Cir. 1978) (emphasis added).
[22] Our above discussion of the 1934 Act also applies to
our interpretation of the 1933 Act. Both acts are primarily
designed to protect investors: the 1934 Act protects investors
with respect to post-distribution trading, and the 1933 Act
protects investors at the time of issuance. It makes sense that
in the penalty provisions of both acts, the materiality of a mis-
statement must be assessed from the reasonable investor’s
perspective. As we stated above, the claim that an individual
made a materially false statement that affected the SEC in its
regulatory decisionmaking capacity is more appropriately
charged as a violation of 18 U.S.C. § 1001.7 Accordingly, we
apply the materiality standard set forth in TSC Industries as
the materiality standard for Section 24 of the 1933 Act.
7
The SEC itself “is charged with the duty of enforcing the [1933 Act]
in the ‘public interest.’ ” Berko v. SEC, 316 F.2d 137, 141 (2d Cir. 1963).
UNITED STATES v. BERGER 747
E. The Government’s Indictment Charged the Materiality
Element with Sufficient Particularity
Berger next asserts that even if we address materiality from
the perspective of a reasonable investor, the indictment failed
to allege that the fraudulent statements were material to inves-
tors. Berger argues that the government only charged that the
fraudulent statements were material to the lending banks from
which the loans were obtained. Thus, Berger maintains, when
the government introduced evidence pertaining to the state-
ments’ effect on investors, that was a fatal variance requiring
reversal.
[23] Federal Rule of Criminal Procedure 7(c)(1) requires
that an indictment be a “plain, concise and definite written
statement of the essential facts constituting the offense
charged.” This court has said that an indictment “should be
read in its entirety, construed according to common sense, and
interpreted to include facts which are necessarily implied.”
United States v. King, 200 F.3d 1207, 1217 (9th Cir. 1999).
Finally, if an indictment contains an error, there must be some
evidence that the error misled the defendant to the defendant’s
prejudice. See id. (citing Fed. R. Crim. P. 7(c)(3)).
The structures of Counts 34, 35, and 36 are similar. Each
count first indicates the SEC filings on which the fraudulent
statement was made: Craig Electronics’ Amended S-1 Regis-
tration Statement, Amended 1996 10-K Report, and First
Quarter 1997 10-Q Report. The indictments then detail Ber-
ger’s misrepresentations and omissions: (1) “the fraudulent
transfers of ‘C’ inventory to ‘B’ inventory . . .”, (2) that
“Craig was in default of the Credit Agreement because of the
false statements it had made to Bankers Trust in the Borrow-
ing Base Certificates”, and (3) that “Craig was substantially
overdrawn on its line of credit.” All three counts conclude
with the final paragraph:
These omissions were material in that they would
have created serious doubt about whether Craig
748 UNITED STATES v. BERGER
could continue to operate as a going concern because
disclosure of these facts would have alerted the lend-
ing banks to the fraud, and because Craig’s cash
flow and ability to finance inventory purchases
depended upon its ability to draw upon its line of
credit with the lending banks.
[24] The question before us is whether materiality to inves-
tors could be inferred from the indictment. We believe that
although the indictment did not allege to whom the misstate-
ments were material, such lack of specificity was not fatal in
this case.
It is self-evident that “the materiality [to the reasonable
investor] of information relating to financial condition, sol-
vency and profitability is not subject to serious challenge.”
SEC v. Murphy, 626 F.2d 633, 653 (9th Cir. 1980). In this
case, we find it beyond dispute that, before making reasonable
investment decisions, a reasonable investor would consider
Craig Electronics’ “cash flow and ability to finance inventory
purchases” to be material information.
Furthermore, that the indictment alleged materiality to
investors was evident from the face of the indictment. “It is
well settled, at least in this circuit, that an indictment need not
allege the materiality of a false representation if the facts
advanced by the pleader warrant the inference of materiality.”
United States v. Oren, 893 F.2d 1057, 1063 (9th Cir. 1990).
In Oren, this court upheld an indictment in a § 1001 case
involving the National Park Service. See id. at 1063. Though
the indictment did not specifically mention materiality, the
indictment indicated that: (1) Oren had made a false statement
regarding an offer for land; (2) the statement was within the
jurisdiction of the Park Service, which would only purchase
through a specific third-party nonprofit agency; (3) the Park
Service would purchase land only if it had an appraisal; and
(4) Oren had given his false statement to the third party. See
id. at 1064. This court held that “[s]urely these allegations
UNITED STATES v. BERGER 749
warrant the inference of materiality of Oren’s false state-
ment.” Id. (internal quotations omitted).
[25] Likewise, here, the indictment detailed the misstate-
ments filed by Berger, each of which could have been relied
upon by a reasonable investor. The S-1, 10-K, and 10-Q fil-
ings submitted to the SEC were documents upon which rea-
sonable investors would base investment decisions. Because
the indictment alleged material misstatements and omissions
contained in documents upon which investors would rely, we
hold that the indictment was sufficiently detailed to warrant
the inference of materiality to investors.
IV. Restitution
A. Standard of Review
A court has broad discretion in ordering restitution. See
United States v. Laney, 189 F.3d 954, 966 (9th Cir. 1999). A
restitution order is reviewed for abuse of discretion, provided
it is within the bounds of the statutory framework. See United
States v. Phillips, 367 F.3d 846, 854 (9th Cir. 2004). The
court’s valuation methodology is reviewed de novo. See
United States v. Lomow, 266 F.3d 1013, 1020 (9th Cir. 2001).
The factual findings supporting a restitution order are
reviewed for clear error. See United States v. De La Fuente,
353 F.3d 766, 772 (9th Cir. 2003).
B. The District Court Properly Calculated Restitution
Neither party disputes the district court’s conclusion that
restitution in this case is governed by the Mandatory Victims
Restitution Act of 1996 (“MVRA”), 18 U.S.C. § 3663A. Each
party submitted various proposals to the district court regard-
ing the restitution calculation. The court adopted one of the
government’s proposals, and ordered Berger to pay
$3,144,832 in restitution to the lending banks. Under this
approach, the court first considered thirteen falsified Borrow-
750 UNITED STATES v. BERGER
ing Certificates, including eleven that were not charged in the
underlying indictment. Based on those falsified Borrowing
Certificates, the lending banks had advanced Craig Electron-
ics $4,976,000. The court discounted that total by the percent-
age of funds recovered by the lending banks when they
foreclosed on Craig Electronics’ collateral — the lending
banks recovered $4,944,1808 of an outstanding $13,331,403
— or 36.2%. Thus, according to the district court, the lending
banks’ loss attributable to the false information was
$3,144,832, or 63.8% of $4,976,000.
On appeal, Berger reasserts the position he took before the
district court, that the lending banks suffered no losses trace-
able to the fraud. We disagree and affirm the district court’s
restitution calculation.
1. Berger’s fraud directly and proximately caused the
lending banks’ losses
[26] The MVRA requires a defendant to pay restitution to
a victim who is “directly and proximately harmed as a result
of” the fraud. 18 U.S.C. § 3663A(a)(2). Berger argues that the
thirteen Borrowing Certificates at issue did not cause any of
the losses the lending banks suffered when Craig Electronics
defaulted on its loan. We conclude, however, that the district
court did not commit clear error when it determined that the
fraudulent Borrowing Certificates caused at least some of the
losses suffered by the lending banks.
a. The district court did not err when it interpreted
the Credit Agreement
Berger’s main contention is that the district court improp-
erly attributed $3.1 million of the lending banks’ loss to the
8
It is only by coincidence that the amount advanced by the lending
banks on the fraudulent Borrowing Certificates, $4,976,000, is similar to
the amount recovered by the lending banks, $4,944,180.
UNITED STATES v. BERGER 751
fraudulent Borrowing Certificates submitted by Craig Elec-
tronics. Berger bases this contention on the structure of the
Credit Agreement, which both parties recognize as a “revolv-
ing” line of credit. Under the Credit Agreement, the amount
of money Craig Electronics was able to borrow on any given
day was determined by the amount of eligible inventory and
accounts receivable Craig Electronics had on that day. To
maintain the agreement, Craig Electronics would continu-
ously: (1) borrow money from the lending banks based on the
Borrowing Certificates, (2) purchase goods overseas with the
money, (3) sell the goods in the United States, and (4) use the
proceeds from the sales to pay off the loan.
The thirteen Borrowing Certificates at issue were submitted
to the lending banks between April 30, 1996 and January 6,
1997. Craig Electronics defaulted on the loan on May 21,
1997. Berger argues that because of the revolving cycle, by
the time the lending banks foreclosed on the loan, any effect
the fraudulent Borrowing Certificates had on the amount of
the loan was reduced to nothing. He notes that the equivalent
of each loan advancement was paid off about sixty days after
each loan advancement was made. Thus, he argues that Craig
Electronics paid off the balance of each “tainted” loan
advancement long before Craig Electronics defaulted. Berger
contends that because Craig Electronics had stopped submit-
ting falsified Borrowing Certificates in early January 1997 —
while continuing to submit truthful Borrowing Certificates
and paying back money for the remainder of the loan’s life —
no bank loss could be attributed to the fraudulent Borrowing
Certificates.
The government maintains that the district court’s approach
was proper. The government’s accountant explained that the
Credit Agreement was better understood if the Borrowing
Certificates were analyzed together: “[E]ach borrowing base
certificate reported an aggregate amount of Craig’s outstand-
ing loan; each day’s advance was added to this aggregate
amount; and the amounts collected from Craig’s accounts
752 UNITED STATES v. BERGER
receivables in the ‘lock box’ were applied to the outstanding
loan.” Under this interpretation, the court could not consider
any loan advancement fully paid back “until the aggregate
outstanding amount equaled zero.” Thus, because Craig Elec-
tronics never paid back the full balance of the loan, the
remaining outstanding debt included some loan advancements
that had been “tainted” by the false statements.
[27] On this record, we conclude that the government’s
interpretation, adopted by the district court, is more reason-
able. By overstating the assets and accounts receivable in thir-
teen Borrowing Certificates, Craig Electronics received loan
advancements greater than that to which it was entitled. Thus,
the amount of the outstanding debt at the time of Craig Elec-
tronics’ default was greater than it would have been had the
false statements never been made. Accordingly, we hold that
the district court did not err when it viewed the Credit Agree-
ment in its broader structure, rather than as smaller compo-
nent cycles.9
b. Craig Electronics’ false statements significantly
affected the lending banks’ loans
Berger also takes issue with the district court’s decision
regarding the effect each false statement had on the final loan
amount. For each of the thirteen days Craig Electronics sub-
9
The government makes an insightful point:
If defendant’s analysis were correct and repayments of advances
had to be computed against individual [Borrowing Certificates]
rather than against the total balance of loans outstanding, then
misstatements of collateral in revolving lines of credit would
always result in no loss for restitution purposes, as long as the
false statements at issue were made long enough before the fraud
was uncovered.
It would be unwise to interpret the Credit Agreement in a way that would
reward Berger for the lending banks’ failure to uncover the fraud until
months after the fraud had been perpetrated.
UNITED STATES v. BERGER 753
mitted a false Borrowing Certificate, the court added the
entire amount of that day’s loan advancement to the final “net
loss attributed to fraud” figure. Berger asserts that such a cal-
culation was erroneous because the court failed to correlate
specifically a loss amount with each fraudulent statement
made on the Borrowing Certificates at issue. Berger poses the
hypothetical that if he “misreported one $50 VCR on a [Bor-
rowing Certificate] requesting a $5 million advance and the
loan goes into default the following year, [he] cannot be
ordered to repay the $5 million as ‘restitution’ simply because
he made a $50 false statement.”
[28] Berger overstates his case. Nowhere in the record did
such an extreme situation arise. Each overstatement on the
Borrowing Certificates had a substantial impact on the overall
loan amount. In fact, during some weeks, Craig Electronics
would not have been eligible for any loan advancements had
Berger not overstated Craig Electronics’ assets. For example,
in the April 30, 1996, Borrowing Certificate, Berger improp-
erly classified $392,191 worth of “C” goods as “B” goods,
bringing the eligible “B” inventory to $1,508,725.89, a 35%
overstatement of inventory. Craig Electronics’ loan advance-
ment for that week was $585,000. Had Craig Electronics
truthfully reported its assets for that week, Craig Electronics
would have been ineligible to receive any loan advancements.
Moreover, Berger fails to provide any alternative method for
separating the amount of the loan advancement obtained by
fraud from the amount that, hypothetically, was not fraudu-
lently obtained. We hold that the district court did not err by
holding that Berger’s fraud contributed significantly to the
losses suffered by the lending banks.
c. Berger’s supporting case law is inapposite
Berger relies on a number of cases that deal with false
statements made during the course of the loan as opposed to
the initial loan application. Those cases hold that restitution
is not appropriate if the losses “would have occurred despite
754 UNITED STATES v. BERGER
the . . . reliance on the false reports.” United States v. Dia-
mond, 969 F.2d 961, 967 (10th Cir. 1992); see also United
States v. Meksian, 170 F.3d 1260, 1263 (9th Cir. 1999)
(“[T]he main inquiry for causation in restitution cases
becomes whether there was an intervening cause and, if so,
whether this intervening cause was directly related to the
offense conduct.”); United States v. Wilson, 980 F.2d 259,
262 (4th Cir. 1992) (“[I]n the event a bank loan legitimately
is obtained by one who subsequently submits a statement that
is required in connection with the loan and that statement is
false . . . , the loss under [the Sentencing Guidelines] is the
loss that can be attributed to the false statement.”). In each of
these cases, courts held restitution to be inappropriate because
the defendant’s fraud had been unrelated to the loss. See Mek-
sian, 170 F.3d at 1263 (holding “contaminated nature of the
loan property” to have caused loss, not defendant’s false state-
ments); Diamond, 969 F.2d at 966-67 (noting that where loan
was initially valid, but subsequent false statements were
made, false statements did not actually cause loss); see also
Wilson, 980 F.2d at 262 (remanding for reconsideration of
amount of loss directly caused by fraud).
These cases are factually distinct from this case. In Mek-
sian, an unanticipated intervening environmental cause, rather
than the alleged fraud, was to blame for the loss. See Meksian,
170 F.3d at 1263. In Diamond, the fraud occurred after the
loan and was, more importantly, separate from the “original
debt.” Diamond, 969 F.2d at 966. Finally, in Wilson, the
losses began soon after the loan was made and those losses
“were not related . . . to the criminal conduct,” which
occurred seven months after the loans were made. Wilson,
980 F.2d at 262.
Most importantly, each of these cases dealt only with a sin-
gle decision by a lender to lend a fixed amount of money. The
instant case is more complex, and the structure of the loan
calls for closer scrutiny. Craig Electronics’ loan amount was
in constant flux, varying with respect to the inventories and
UNITED STATES v. BERGER 755
accounts receivables reported in the Borrowing Certificates.
The information in the Borrowing Certificates was vital;
fraudulent overstatement would, and did, cause the lending
banks to advance more money than was actually due. Berger’s
citation to inapposite case law is unconvincing.
d. Intervening factors did not cause the lending
banks’ losses
Finally, Berger asserts that unrelated financial difficulties
— not the falsified Borrowing Certificates — caused the
loan’s failure. Berger argues that the downturn in the electron-
ics market and Craig Electronics’ financial troubles were the
reason that Craig Electronics could no longer pay off its loan
obligations. This court has held that the “main inquiry for
causation in restitution cases [is] whether there was an inter-
vening cause and, if so, whether this intervening cause was
directly related to the offense conduct.” United States v. Gor-
don, 393 F.3d 1044, 1055 (9th Cir. 2004). Berger is probably
correct to note that Craig Electronics’ financial troubles ulti-
mately led to the loan default. He has not demonstrated, how-
ever, that external factors were completely to blame for the
lending banks’ losses. Even if the default were inevitable, the
high amount of the lending banks’ losses was not. Had Berger
not fraudulently stated Craig Electronics’ assets on the Bor-
rowing Certificates, the amount of outstanding debt would
have been smaller. That fact was taken into account by the
district court, which did not attribute the lending banks’ entire
loss to the fraud. Instead, the district court properly focused
only on the amount of loss attributable to the falsified Bor-
rowing Certificates.
For the above reasons, we conclude that it was not clearly
erroneous for the district court to determine that Berger’s
fraudulent statements caused, at least in part, the lending
banks to suffer a loss.
756 UNITED STATES v. BERGER
2. The district court’s approach was reasonable even if
it used a repealed Sentencing Guideline
Berger also argues that the district court erred when it
applied a repealed Sentencing Guideline — Sentencing
Guideline § 2F1.1, comment 7(b)10 — in determining the
amount of restitution. That Guideline, repealed in 2001, dealt
specifically with fraudulent loan applications and the calcula-
tions of corresponding loss. See U.S.S.G. § 2F1.1 cmt.7(b)
(repealed). The district court, however, did not indicate that
it was bound by the Guideline. In fact, the court explicitly
stated that it was bound by the MVRA with respect to the
imposition of restitution. The court only referenced the
Guideline, which provided a method for fashioning a loss cal-
culation in the restitution context. The district court did not
abuse its discretion when it consulted the repealed Guideline
section.
[29] The district court’s restitution calculation method was,
in light of the circumstances, quite reasonable and fair. In cal-
culating the $3.1 million restitution award, the district court
devised a reasonable formula for determining the amount of
the lending banks’ loss that was attributable to the fraud. The
district court did not order restitution for the entire $13.3 mil-
lion of the lending banks’ losses. Instead, it based its restitu-
tion calculation only on the amount of the loan advancements
received due to fraudulent Borrowing Certificates. Even then,
the district court discounted by the percentage the lending
10
The Guideline states, in relevant part:
In fraudulent loan application cases . . . the loss is the actual loss
to the victim . . . . For example, if a defendant fraudulently
obtains a loan by misrepresenting the value of his assets, the loss
is the amount of the loan not repaid at the time the offense is dis-
covered, reduced by the amount the lending institution has recov-
ered (or can expect to recover) from any assets pledged to secure
the loan.
U.S.S.G. § 2F1.1 cmt.7(b) (repealed).
UNITED STATES v. BERGER 757
banks recovered when they foreclosed on Craig Electronics’
collateral. To achieve the goal of making crime victims
whole, the MVRA permits “district courts to engage in an
expedient and reasonable restitution process, with uncertain-
ties resolved with a view toward achieving fairness to the vic-
tim.” Gordon, 393 F.3d at 1048. We hold that, in light of the
MVRA’s goals and the complexities of the Credit Agreement,
the district court did not abuse its discretion in its restitution
order.
V. Government’s Sentencing Cross-Appeal
[30] The government cross-appeals Berger’s six month sen-
tence and requests a remand under United States v. Booker,
543 U.S. 220 (2005).11 Sentencing in this case occurred on
September 13, 2004, before the Supreme Court issued the
Booker decision, which rendered the Sentencing Guidelines
advisory. The district court erroneously assumed that, under
Blakely v. Washington, 542 U.S. 296 (2004), it could not
apply Guideline sentencing enhancements based on facts not
previously found by the jury. See Booker, 543 U.S. at 267-68.
Additionally, the district court sentenced Berger under the
assumption that the Sentencing Guidelines were mandatory.
Accordingly, we must vacate the sentence and remand for
resentencing. See United States v. Labrada-Bustamante, 428
F.3d 1252, 1266 (9th Cir. 2005).12
11
The remand would not apply to the restitution order, which derives
from the MVRA, a separate statute. See United States v. DeGeorge, 380
F.3d 1203, 1221 (9th Cir. 2004).
12
Both parties agree that we should remand for full reconsideration of
the fine imposed. In light of our full remand as to the term of imprison-
ment, we find it appropriate to vacate the fine and remand for the district
court to consider the statutory factors enumerated in 18 U.S.C. § 3553(a)
and the Sentencing Guideline factors listed in U.S.S.G. § 5E1.2(d).
758 UNITED STATES v. BERGER
CONCLUSION
For the above reasons, we AFFIRM the conviction;
AFFIRM the restitution order; VACATE the sentence and
fine; and REMAND for resentencing.