United States v. Kluger, No. 12-270; Third Circuit; opinion by Greenberg, U.S.C.J.; filed July 9, 2013. Before Judges Jordan, Greenberg and Nygaard. On appeal from the District of New Jersey, No. 2-11-00858-001. [Sat below: Judge Hayden.] DDS No. 14-8-xxxx [48 pp.]
The government charged Matthew Kluger, Garrett Bauer and Kenneth Robinson as conspirators in an insider-trading scheme that spanned 17 years. Kluger, an attorney, was the sole source of the insider information, which he passed to Robinson, who passed it to Bauer, a professional stock trader, who executed the trades. Robinson instructed Bauer on how many shares to purchase for him and Kluger but Bauer actually traded shares far in excess of the agreed-on number. Neither Robinson nor Bauer told Kluger of the extent of Bauer's trading.
Kluger pleaded guilty plea to conspiracy to commit securities fraud, securities fraud, conspiracy to commit money laundering, and obstruction of justice. He was sentenced to a custodial term of 144 months. Bauer was sentenced to 108 months. Robinson was sentenced to 27 months.
On appeal, Kluger (1) challenges the calculation of his sentencing guidelines range; (2) contends that the court procedurally erred in imposing the sentence on him by improperly denying him an evidentiary hearing prior to his sentencing, failing to resolve his objections to the presentence investigation report, and not ordering discovery of materials that the government turned over to the probation department for use in preparing the presentence report; and (3) contends that the court imposed a procedurally and substantively unreasonable sentence.
Held: The district court properly used U.S.S.G. § 2B1.4 to attribute to Kluger all of the scheme's monetary gain, even though his share of the profits was far less that Bauer's. Kluger was not improperly denied an evidentiary hearing regarding the foreseeability issue as to the scope of the scheme and he was not entitled to discovery regarding information he claims the government gave to probation in connection with the preparation of the presentence report. The sentence is procedurally sound and not substantively unreasonable.
As to the sentencing guidelines calculation, Kluger argues that in attributing all of the scheme's monetary gain to him, even though his share of the profits was far less than Bauer's, the district court improperly used U.S.S.G. § 2B1.4 (insider trading) and ignored U.S.S.G. § 1B1.3 (relevant conduct). He argues there is no support in the § 2B1.4 commentary for a conclusion that the gain calculation is exempted from the application of the reasonable foreseeability test under § 1B1.3(a)(1)(B) and that the court should have applied the latter to lessen the gains attributable to him.
The court says it interprets and applies the guidelines as written. The commentary in the guidelines manual is authoritative unless it violates the constitution or a federal statute, or is inconsistent with, or a plainly erroneous reading of, that guideline. Here, the key is the application of the relevant commentary. The plain language of the commentary's background to § 2B1.4 unequivocally attributes all of Bauer's gains to Kluger because Bauer acted in concert with him. Therefore, the insider-trading guideline falls under the "unless otherwise specified" exception of § 1B1.3, and, therefore, the court will not use the reasonable foreseeability test in reviewing the calculation of the offense level and thus of the guidelines range in imposing a sentence on Kluger.
As to Kluger's argument that the district court denied him a presentence evidentiary hearing at which he could have addressed the foreseeability issue with respect to the scope of the conspirators' agreement, the court says that § 6A1.3 of the guidelines requires the district court to provide a procedure — but not necessarily an evidentiary hearing — in which the parties may argue contested sentencing issues. Here, the extensive sentencing hearing before the district court gave Kluger a sufficient opportunity to present his case and there was no need for an evidentiary hearing.
The court then considers Kluger's claim that the court failed to resolve his objections to the presentence report's characterization of the scheme and to its description of him as the initiator of the scheme. It says the probation department is not required to resolve all objections and, pursuant to Fed. R. Crim. P. 32(g), the presentence report included an addendum containing unresolved objections. In considering the presentence report, the district court complied with the applicable rules of criminal procedure in concluding that since Kluger was a full participant in the conspiracy, an inquiry into the originator of the scheme did not merit an individualized sentencing hearing.
The court rejects Kluger's claim that the court erred in not ordering discovery regarding information the government provided to the probation officer that would prove that there was an agreement among the conspirators regarding the limits of the insider-trading scheme. Fed. R. Crim. P 32 does not provide for such broad discovery with respect to presentence materials and, in any event, Kluger merely speculates as to the existence of such materials.
As to the procedural reasonableness of the sentence, the court focuses its review on the third step of the sentencing process in which the court considers the relevant 18 U.S.C. § 3553(a) factors. The court rejects Kluger's claim that the district court focused on the seriousness of the offense and on affording adequate deterrence to the exclusion of other factors, such as the nature and circumstances of the offense and the history and characteristics of the defendant, finding that it engaged in a thorough discussion of the circumstances of the offense. It also says that there was good reason to impose a longer sentence on Kluger. Among other things, Kluger was the source of the information that permitted the scheme; he was an attorney who took an oath to uphold the law; and he was involved in the scheme during most of his legal career.
The court also distinguishes Kluger's sentence from those imposed in other insider-trading cases.
The court concludes that the touchstone of reasonableness is whether the record as a whole reflects rational and meaningful consideration of the factors in § 3553(a) and that the record more than meets that requirement.
Having found that the district court did not commit procedural error, the Third Circuit reviews the sentence for substantive reasonableness. It concludes that Kluger, as the challenging party, fails to meet his burden to overcome the deference owed the district court's determinations and that it cannot say that no reasonable court would have imposed the same sentence. Thus, it declines to disturb the sentence on the grounds that it was substantively unreasonable.
For appellee — Mark E. Coyne and Caroline Sadlowski, Assistant U.S. Attorneys (Paul J. Fishman, U.S. Attorney). For appellant — Harvey Weissbard (Genova Burns Giantomasi & Webster) and Alan L. Zegas.