Isaacson: Investor's loss not "reasonably foreseeable" for loss amount calculation purposes

In U.S. v. Isaacson, No 11-14287 (May 22, 2014), the Court affirmed a conviction for securities fraud, but vacated the sentence. The Court rejected the argument that Isaacson’s conviction for violating 18 U.S.C. § 371 should be vacated because the investments were made through a hedge fund based in the British Virgin Islands. The Court pointed out that the conviction could stand even in light the presumption against extraterritorial application of a statute, because Isaacson’s office was in Florida and hte securities were sold on American markets. The Court also rejected a claimed Speedy Trial Act violation. Isaacson’s argue that the trial commenced more than 70-day deadline, based on the date in-court jury selection began. Rejecting this argument, the Court pointed out that potential jurors began filling out written questionnaires within the 70-day deadline. The Court held that absent evidence the trial court was manipulating the timing of written juror questionaires to skirt the Speedy Trial Act deadline, the jurors’ answers to written questionnaires would count as the commencement of trial for Speedy Trial Act purposes. Turning to the sentence, the Court noted that Isaacson participated in a fraud against auditors who were auditing a fraudulent investment fund. Isaacson did not participate in fraudulently convincing an investor, Morgan Stanley, to invest in the fund. The fact that Morgan Stanley made the investment before the auditors signed off on the financial reports of the fund indicates that Morgan Stanley “made its investment decision entirely independent of any audit reports.” Consequently, the loss attributable to Morgan Stanley’s investment, though part of the overall conspiracy, was not “reasonably foreseeable” to Isaacson for purposes of the Relevant Conduct guideline. The district court therefore erred in including this loss in the loss amount for Guideline enhancement purposes, and in the restitution amount as well. Finally, the Court rejected Isaacson’s Rule 33 motion for a new trial based on the prosecutor’s failure to disclose that his wife was a lawyer at the law firm representing an accomplice. The Court noted that the prosecutor’s wife had no financial interest in a good outcome for the accomplice, and therefore no grounds for recusal – and no reasonable probability the outcome would have been different had the alleged conflict of interest been disclosed.