19-208 United States v. Goodrich

In the United States Court of Appeals For the Second Circuit ______________

August Term, 2019

(Argued: January 10, 2020 Decided: September 1, 2021)

Docket No. 19-208 ______________

UNITED STATES OF AMERICA,

Appellee,

–v.–

DARREN GOODRICH,

Defendant-Appellant,

ABRAXAS J. DISCALA, AKA AJ DISCALA, MARC WEXLER, IRA SHAPIRO, MATTHEW BELL, CRAIG JOSEPHBERG, AKA JOBO, KYLEEN CANE, VICTOR AZRAK, DARREN OFSINK, MICHAEL MORRIS,

Defendants. *

______________

B e f o r e:

CALABRESI, POOLER, CARNEY, Circuit Judges. ______________

* The Clerk of Court is directed to amend the caption to conform with the above. In June 2016, Defendant-Appellant Darren Goodrich pled guilty to conspiracy to commit securities fraud in violation of

. As a broker-dealer in the over- the-counter securities market, Goodrich executed fraudulent trades for a co-defendant client with the effect of artificially inflating the share price of a sham company, Cubed, Inc. (“Cubed”). While Goodrich was involved in that activity, his co-defendants arranged the sale of Cubed shares outside the public market in a private placement. The District Court (Vitaliano, J.) held that Goodrich was liable under the Mandatory Victims Restitution Act of 1996 (“MVRA”) for restitution, both to purchasers of Cubed shares in the public market (in the amount of $479,000) and to purchasers in the private placement (in the amount of $1.85 million). Goodrich challenges the $1.85 million portion of restitution, contending that the Government did not show that the private placement losses are attributable to his offense of conviction, as the MVRA requires. We agree with Goodrich. The MVRA authorizes restitution only for losses “directly and proximately” caused by a covered “offense” of conviction. 18 U.S.C. § 3663A(a)(2), (c). This proximate cause element requires that the Government prove, by a preponderance of the evidence, that the losses for which restitution compensates were foreseeable to the defendant in the course of committing the offense of conviction. Because the Government has not adduced sufficient evidence that the private placement losses were foreseeable to Goodrich during his participation in the conspiracy to manipulate the public share price of Cubed, the MVRA does not authorize the $1.85 million in restitution for these losses. REVERSED AND REMANDED. ______________

SHANNON C. JONES (Kevin Trowel, on the brief) on behalf of Jacquelyn M. Kasulis, Acting United States Attorney, United States Attorney’s Office for the Eastern District of New York, Brooklyn, NY, for Appellee.

NATHANIEL Z. MARMUR, The Law Offices of Nathaniel Z. Marmur, PLLC, New York, NY, for Defendant- Appellant. ______________

2 CARNEY, Circuit Judge:

In June 2016, Defendant-Appellant Darren Goodrich pled guilty to one count of

conspiracy to commit securities fraud in violation of

. Goodrich was a

broker-dealer in the over-the-counter (“OTC”) securities market. At the direction of a

co-defendant client, he executed fraudulent trades that artificially inflated the share

price of a sham company, Cubed, Inc. (“Cubed”). While Goodrich was involved in that

activity, his co-defendants, who are not appellants here, arranged the sale of Cubed

shares outside the public market in a private placement. The District Court (Vitaliano,

J.) determined that Goodrich was liable under the Mandatory Victims Restitution Act of

1996 (“MVRA”), 18 U.S.C. § 3663A, to make restitution both to purchasers of Cubed

shares in the public market ($479,000) and in the private placement ($1.85 million),

totaling $2.3 million.

Goodrich challenges the $1.85 million portion of the restitution order. He argues

that the losses of the private placement victims are not attributable to his offense of

conviction as the MVRA requires. The MVRA provides that, to be owed restitution, a

victim must have been “directly and proximately harmed as a result of the commission

of [a covered] offense” of conviction. 18 U.S.C. § 3663A(a)(2), (c). Under this standard,

we must identify both (i) what Goodrich’s relevant “offense” of conviction is, and

(ii) whether that offense “directly and proximately” caused the asserted harm to the

victims. The latter proximate cause element requires the Government to show, by a

preponderance of the evidence, that the harm to victims was foreseeable to Goodrich in

the course of committing the offense of conviction.

We conclude that the Government has not made that showing here. The offense

to which Goodrich pled guilty was conspiracy to manipulate the Cubed share price in

the public market. Although in some circumstances a participant in such a scheme

might reasonably foresee harm to victims who purchase shares outside the public

3 market, the Government has not adduced sufficient evidence that the private placement

victims were foreseeable to Goodrich. We accordingly REVERSE the District Court’s

order of restitution in part and REMAND for entry of a further amended criminal

judgment consistent with this Opinion.

BACKGROUND

I. Factual Background

In November 2015, Goodrich was indicted along with several co-defendants for

his involvement in a “pump and dump” market manipulation scheme. 1 The operative

Superseding Indictment 2 charged Goodrich with: (i) conspiracy to commit securities

fraud, see

(Count One), (ii) conspiracy to commit mail and wire fraud, see

(Count Two), (iii) securities fraud, see 15 U.S.C. §§ 78j(b) and 78ff

(Count Four), and (iv) wire fraud, see

(Count Six). Ultimately, all

defendants charged in the scheme except for two entered guilty pleas. Goodrich pled

guilty in June 2016. Two defendants—Abraxas J. Discala, the leader of the scheme, and

Kyleen Cane, a lawyer prosecuted for assisting in the scheme—were tried before a jury

in April and May 2018. Discala was convicted, but Cane was acquitted.

1The Superseding Indictment explains that a “pump and dump” scheme involves “a group of individuals who control the free trading o[f] allegedly unrestricted shares” of a public company by “fraudulently inflat[ing] the share price and trading volume of the targeted public company through, inter alia, wash and matched trades, false and misleading press releases and paid stock promotions. When the target company’s share price reached desirable levels, the individuals sold their free trading shares for substantial financial gain.” App’x at 26.

2The prosecution of the conspiracy began in July 2014 when an indictment initially charged seven defendants, but not Goodrich, with the scheme. In November 2015, the Superseding Indictment added Goodrich and two others as defendants and excluded three of the original defendants who had pled guilty by that time.

4 The following narrative is drawn from the Superseding Indictment and

Goodrich’s Presentence Investigation Report (“PSR”), unless otherwise noted.

A. The Cubed Scheme

Cubed was one of four public companies on which Defendants’ market

manipulation scheme was focused. The Superseding Indictment charged Goodrich with

involvement only in the Cubed portion of the scheme and not in any conduct relating to

the three other companies.

Discala led the overall scheme. He was the Chief Executive Officer of OmniView

Capital Advisors LLC, a company that purported to raise capital for and provide

strategic advice to companies, including the four at issue. Cubed came into existence as

part of the scheme in March 2014, after a public shell company acquired the intellectual

property of a private startup in a reverse merger and renamed itself “Cubed.” Cubed

purported to develop mobile applications, but had no operations or assets and was

essentially worthless.

Through the reverse merger, Cubed became a public company. Its unrestricted

shares traded under the ticker symbol CRPT in the OTC market—thus not on any stock

exchange. Although the shares appeared to be freely traded, Cane secretly controlled a

substantial portion of them through an escrow account. 3 Using that account, the

defendants coordinated fraudulent “wash trades” and “matched trades” among

themselves, with the gradual effect of increasing Cube’s share price and trading

3The Government proffered evidence at trial suggesting that Cane’s de facto control of the shares was concealed through the use of “nominee” shareholders—generally, sham entities or individuals who appear to own, but do not actually control, shares.

5 volume. 4 Ultimately, unsuspecting investors bought Cubed shares at the artificially

inflated prices.

Cubed’s shares traded in this fashion from approximately March 28, 2014 to July

9, 2014, when the Securities and Exchange Commission (“SEC”) shut down trading

following Discala and Cane’s arrests. Under Defendants’ influence, Cubed’s share price

opened at $5.00 on March 28, 2014, showed no activity for fifteen days until April 22,

2014, reached a peak closing price of $6.75 on June 23, 2014, and finally closed at $6.60

on July 9, 2014 when the SEC halted trading.

B. Goodrich’s Role in the Cubed Scheme

Goodrich was the Managing Director and head trader at a brokerage firm in Los

Angeles. As a broker-dealer, Goodrich was licensed to quote prices and to buy and sell

Cubed shares in the OTC market. Goodrich joined the scheme on April 22, 2014 and

continued participating in it until the SEC halted trading.

During his plea allocution, Goodrich admitted to being fully aware that the

trades he executed were intended to manipulate the market. Numerous phone calls

between Discala and Goodrich, recorded by the Federal Bureau of Investigation,

evinced Goodrich’s knowledge. On these calls, Discala directed Goodrich to make

trades at particular prices. Goodrich also spoke with Discala about his discussions with

Cane on how the escrow arrangement worked.

4In a “wash trade,” the beneficial ownership of a stock does not change hands because the owner simultaneously buys and sells the stock at a particular price. See App’x at 27 (Superseding Indictment ¶ 17). A matched trade is similar to a wash trade except that the buyer and seller are different but coordinate their simultaneous sale and purchase of a stock at a particular price. See

The consequence of these trades is that the defrauding parties create the appearance of demand for a stock and thereby increase the price and trading volume.

6 Critical to the restitution issue, the Government relies on a June 5, 2014 call

between Goodrich and Discala to demonstrate that Goodrich knew about the private

placement scheme through which investors bought restricted Cubed shares at $1.00 per

share. The Government points to Discala’s discussion of Cubed shares “at a buck” as an

oblique reference to the private placement:

GOODRICH: So I’m going to call [Cane] and tell her to get the, you know some accounts going and I’m also going to ask her, do you want, what, what exactly should I ask her on the Cube? DISCALA: No, just say, what, when, when, when should I expect my 50? GOODRICH: Okay. [ . . . ] Gotcha. What uhm, is it 50 thousand dollars or 50 cents, what, so I know, so I just know what I’m talking about. DISCALA: 25 cents, 50 thousand shares, less than I paid. GOODRICH: Got it, okay cool. DISCALA: That’s a little kiss and make up and how ya like me now. GOODRICH: I appreciate it, is this Scanbuy or Cube, just to make sure I don’t sound like an idiot. DISCALA: Cube. GOODRICH: Cube, got it. Ok. DISCALA: Cube. Scanbuy you’re gonna get a lot more, I’m, I’m going to get you in, but I just don’t know how yet, I’m not going to know what allocation I have, uhm[.] GOODRICH: Gotcha. DISCALA: For you know, and what you should say is what do you have at a buck on CRPT? I’d like to see the documentation, you know all that stuff, for accounting. Three things we need to talk about Kyleen [Cane], uhm what’s this round going on with CRPT, the stock that uhm AJ discussed with me, uhm and uhm also, uh, documentation on investment that Marc and AJ are going to, you know, everything. Everything I talk to you, you can talk to her about. GOODRICH: Gotcha, gotcha. Okay, perfect[.]

App’x at 281-82 (emphasis added).

7 C. The Private Placement of Cubed Stock

The private placement is not referred to in the Superseding Indictment,

Goodrich’s Pre-Sentence Investigation Report, the Plea Agreement, or plea allocution.

In the case materials, the first reference to the private placement, with respect to

Goodrich, is in the Government’s July 9, 2018 sentencing submission, which the

Government filed three days before sentencing.

The private placement, alleged to have been coordinated by Cane, offered

restricted Cube stock to investors outside the public market for $1.00 per share.

Evidence admitted at Discala and Cane’s trial suggested that, between March 31, 2014

and June 24, 2014, investors who participated in the private placement deposited about

$2.21 million into an escrow account managed by Cane. Of this amount, about $2

million was deposited after April 22, 2014, when Goodrich first joined the scheme and

began trading. The Government later adjusted the total amount attributed to Goodrich

for restitution purposes from the original calculation of $2 million to the $1.85 million

figure now at issue.

II. Procedural History

A. Goodrich’s Guilty Plea

On June 9, 2016, Goodrich entered into a Plea Agreement with the Government

under which he would plead guilty only to Count One, conspiracy to commit securities

fraud in violation of

. He entered his guilty plea on June 27, 2016.

During the plea allocution, Goodrich admitted to the conduct supporting his

guilty plea. The hearing transcript suggests that the Government reviewed the contents

of the allocution statement in advance. See App’x at 111 (Government explaining its

understanding of what would “not be covered” in the statement). In relevant part, the

allocution proceeded as follows:

8 THE COURT: As we went over earlier in today’s proceeding, you’re going to have to tell me what it is that you did such that you are in fact guilty of Count 1 of the superseding indictment, which as I just mentioned charges you with a violation of

. So in you[r] own words, if you could tell me what you did. THE DEFENDANT: Okay. In spring of 2014, I was a representative acting as a broker and a trader at BMA Securities. Starting in late April/early May, one of my clients asked me to place trades in the stock Cubed, Inc., which traded under the ticker symbol CRPT. From our conversations, I learned that my client was interested in having the stock price at certain levels and my execution of his orders would assist in achieving that objective. I knew that I was not supposed to assist in placing orders where the proposed trade was to influence the market. I also learned from the conversations with my client that he was working with others in the market to cause the stock to trade at desired levels. Despite learning these facts, I agreed to continue to do business with this client[] and continued to execute buy-and-sell orders in CRPT that I knew were intended to cause CRPT to trade at artificial levels. [...] THE COURT: Mr. Goodrich, with regard to any overt act that you undertook with regard to the conspiracy, could you tell me about that? THE DEFENDANT: I had various phone calls with A.J. Discala, in which he told me he liked particular levels of stock to trade, and I think that’s evidenced in part M [of a document submitted to the court]. THE COURT: For the record, can you tell me what part M is? THE DEFENDANT: Can I read it, your Honor? THE COURT: Sure. THE DEFENDANT: On or about May 29th, 2014, during a telephone call between Discala and Goodrich, Discala stated in part, “no, just buy 100 and stay under 43. I’ll have the other guys move up.” THE COURT: Is it true that you had that discussion with Mr. Discala? THE DEFENDANT: Yes, your Honor. THE COURT: And that that is what was said in the call on or about May 29th, 2014?

9 THE DEFENDANT: Yes, your Honor. THE COURT: For the government, is that a sufficient allocution? MS. JONES: We believe so, your Honor.

App’x at 113-17.

B. Sentencing and Restitution Proceedings

On July 12, 2018—two years after Goodrich’s June 2016 guilty plea and a few

months after Discala and Cane’s trial—Goodrich was sentenced. The District Court

imposed a below-Guidelines sentence of 41 months’ imprisonment, one year of

supervised release, and a $100 special assessment.

During the sentencing hearing, the District Court reserved decision on restitution

for a later hearing, explaining that it needed additional time to resolve the parties’

disagreement over the proper amount of restitution owed. As discussed, in a sentencing

submission filed three days before the hearing, the Government sought restitution for

the private placement losses. Goodrich objected to that request.

After further briefing and a second hearing, the District Court entered an order

on December 6, 2018, imposing on Goodrich the full amount of restitution

($2,329,007.05) requested by the Government. See United States v. Goodrich, No. 14-cr-

399,

, at *1 (E.D.N.Y. Jan. 4, 2019). This amount comprised both

(i) $479,007.05 to victims who purchased unrestricted Cubed shares in the public market

from April 22, 2014 onward, and (ii) the challenged $1.85 million to victims who

purchased restricted Cubed shares in the private placement from April 22, 2014

onward.

.

In imposing the $1.85 million portion, the District Court explained that the

MVRA mandates restitution for “the loss sustained by all the victims as a result of the

crime of conviction.”

. The District Court rejected Goodrich’s argument that he

10 should not owe restitution for the private placement losses because he was involved

only in the public trading activity and was not aware of the private placement. The

District Court found that Goodrich knew about the private placement as evidenced by

the June 5, 2014 wiretapped call during which Discala directed Goodrich to ask Cane for

Cubed shares “at a buck”: “there would be no reason for [Goodrich] to be aware of

[Cane] at all” except in connection with the private placement because her “role” was to

“organiz[e] the complementary private placement of Cubed stock after the reverse

merger.”

The District Court further found that the wiretapped call showed that

Goodrich “wanted, specifically, to acquire [Cubed shares] for himself ‘at a buck’” so he

must have known about the private placement.

As the District Court explained,

“[t]he synergy between the public trading and private placement transactions is

undeniable. Each one made the other more attractive. Goodrich was surely aware of

that synergy and of its inevitable impact on both classes of victims.”

. The

District Court acknowledged, however, that “[c]ertainly, there is no evidence to suggest

that Goodrich was involved in the planning or execution of the private placement of

Cubed stock,” but he was “well aware” of it.

.

On January 15, 2019, the District Court entered an Amended Judgment,

including the full restitution order of $2.3 million. Goodrich timely appealed.

DISCUSSION

“We review an MVRA order of restitution deferentially, and we will reverse only

for abuse of discretion.” United States v. Gushlak,

(2d Cir. 2013). 5 An

abuse of discretion occurs when “a challenged ruling rests on an error of law, a clearly

5Unless otherwise indicated, in quoting case law and the parties’ briefs, we omit all internal quotation marks, alterations, emphases, footnotes, and citations.

11 erroneous finding of fact, or otherwise cannot be located within the range of permissible

decisions.” United States v. Boccagna,

(2d Cir. 2006). “Where [a

defendant] challenges the district court’s finding of facts, we review for clear error;

where his arguments raise questions of law, our review is de novo.” Gushlak, 728 F.3d at

190–91.

I. The Mandatory Victims Restitution Act of 1996

The MVRA provides that “the court shall order . . . that the defendant make

restitution to the victim of the offense.” 6 18 U.S.C. § 3663A(a)(1). Section (a)(2) of the

statute defines a “victim” as “a person directly and proximately harmed as a result of

the commission of an offense for which restitution may be ordered including, in the

case of an offense that involves as an element a scheme, conspiracy, or pattern of

criminal activity, any person directly harmed by the defendant’s criminal conduct in the

course of the scheme, conspiracy, or pattern.” 18 U.S.C. 3663A(a)(2). Thus, in

determining to whom a defendant owes restitution, the statute requires the court (1) to

identify the “offense” of conviction and (2) to ascertain whether the putative “victim”

was “directly and proximately harmed” by the defendant’s commission of that

“offense.”

We must turn first to identifying the nature and scope of the “offense” on which

restitution is based. As we explained in United States v. Vilar,

(2d Cir. 2013),

restitution may be imposed only for losses arising from “‘the specific conduct that is the

basis of the offense of conviction.’” Vilar,

(quoting Hughey v. United States,

6The statute mandates restitution for the offense of conspiracy to commit securities fraud to which Goodrich pled guilty, because this offense resulted in “an identifiable victim or victims [who] has suffered a . . . pecuniary loss.” 18 U.S.C. § 3663A(c)(1)(B).

12

(1990)). 7 Where, as here, the offense of conviction is a conspiracy, we

look to “the defendant’s criminal conduct in the course of” that conspiracy as the basis

for restitution. 18 U.S.C. § 3663A(a)(2). As we have previously ruled, this statutory

language does not limit restitution to “losses caused by the actions of that defendant”

during the conspiracy, but also embraces losses flowing from the reasonably foreseeable

“actions of that defendant’s co-conspirators.” United States v. Boyd,

, 50–51

(2d Cir. 2000). This is because the defendant’s “specific conduct” in a conspiracy

includes his agreement to the “common plan of the conspiracy” and the “reasonably

foreseeable acts of all co-conspirators” advancing that plan.

. 8 See Vilar, 729 F.3d

7In Hughey, the Supreme Court interpreted a nearly identical predecessor statute to the MVRA, the Victim and Witness Protection Act of 1982 (“VWPA”)). The Supreme Court focused on a provision in the VWPA functionally equivalent to § 3663A(a)(1) in the MVRA. See 18 U.S.C. § 3663A(a)(1) (requiring that “the defendant make restitution to the victim of the offense”); Hughey,

(interpreting the VWPA’s requirement that “the defendant make restitution to any victim of such offense”) (quoting

(a)(1) (1982 ed.)).

8As Boyd further clarified, imposition of a restitution obligation based on co-conspirators’ acts does not require that the offense of conviction be conspiracy itself. Rather, the offense must simply be one involving conspiracy. See Boyd,

. In Boyd, we affirmed an order of restitution incorporating losses caused by co-conspirators’ acts, even though the defendant was acquitted of conspiracy and convicted only of substantive offenses. Because the defendant had not committed the substantive offenses herself, we found that her conviction necessarily rested on a theory of co-conspirator liability under Pinkerton v. United States,

(1946). Thus, we held that it was appropriate for the restitution order to incorporate losses based on her co- conspirators’ acts. Relatedly, we do not read Boyd to be in tension with our later statement in Vilar that restitution must flow from “the loss caused by the specific conduct that is the basis of the offense of conviction.’” Vilar,

, 97 (quoting Hughey,

). In Boyd, we quoted a First Circuit decision approvingly that states that restitution is not limited to “losses attributable solely to the offense of conviction [but may include] all losses caused in the course of a defendant’s criminal conduct.” See Boyd,

(quoting United States v. Collins,

(1st Cir. 1999)). This quoted language from Collins may obscure the main thrust of Boyd: we found that conspiracy was part of the defendant’s “offense of conviction,” and

13 at 97; United States v. McDermott,

(2d Cir. 2001) (“We have frequently

noted that the essence of conspiracy is the agreement and not the commission of the

substantive offense.”). In this way, a restitution order that incorporates a co-

conspirator’s acts is rooted in the defendant’s own “criminal conduct.” 18 U.S.C.

§ 3663A(a)(2).

We turn next to evaluating causation. As discussed, the MVRA requires that the

“offense” of conviction “directly and proximately harmed” the victim entitled to

restitution. Courts have interpreted this language to impose cause-in-fact and

proximate cause requirements, respectively. See Robers v. United States,

(2014) (The MVRA “has a proximate cause requirement.”); see also United States v.

Marino,

(2d Cir. 2011). Regarding cause in fact, the defendant’s

conduct must have been a necessary factor in bringing about the victim’s harm. See

Marino,

(observing that, under the “cause in fact” requirement, the

Government showed that “[b]ut for appellant’s role in affirmatively concealing [a Ponzi

scheme], these investors would certainly not have invested in” the fund and suffered

losses) (emphasis added). Regarding proximate cause, the Supreme Court has distilled

the principle as follows: “The basic question that [such a] requirement presents is

therefore, losses flowing from the defendant’s co-conspirators’ acts were “attributable” to that offense and properly incorporated into the restitution order. Nor does Boyd endorse the First Circuit’s suggestion that Hughey is no longer good law. In Collins, the First Circuit found that the statement in Hughey – that restitution is “authorized . . . only for the loss caused by the specific conduct that is the basis of the offense of conviction,”

– may no longer be valid after Congress amended the VWPA into a form similar to the MVRA today. See Collins,

. But as we explained in Vilar,

n.36, Hughey was interpreting language (“victim of the offense,” 18 U.S.C. § 3663A(a)(1)) that remains intact in both the VWPA and MVRA. The post-Hughey amendments examined by Collins – namely, the addition of a broader definition of “victim” comparable to § 3663A(a)(2) in the MVRA – does not undermine the offense-oriented nature and language of either statute. The Hughey principle discussed in Vilar therefore continues to apply.

14 whether the harm alleged has a sufficiently close connection to the conduct,” which we

evaluate based on whether that harm was “foreseeable” to a defendant. See Robers,

. We similarly assessed the proximate cause requirement under a

“foreseeab[ility]” standard in Marino, concluding that the record was sufficient “to

suggest that [the defendant] could have foreseen the extent of losses that the [fraudulent

scheme] was incurring.”

; see also

(“No reasonable person in [the

defendant’s] position could have failed to foresee that the victims . . . would ultimately

face substantial or even complete loss of their investment” as a result of the scheme.).

Thus, we held that the defendant owed restitution for those losses.

II. Goodrich’s Offense of Conviction

Under the MVRA then, we must first identify Goodrich’s “offense of conviction.”

Where a defendant has pled guilty to an offense, we look to the materials supporting

the plea—such as the allocution statement, the plea agreement, and the indictment—to

ascertain the “offense of conviction” for restitution purposes. See, e.g., United States v.

Young,

(2d Cir. 1991). 9

9This approach finds support in the law of other Circuits. See, e.g., United States v. Elson,

(6th Cir. 2009) (“Because Elson was convicted pursuant to a guilty plea rather than by a jury, the court should look to the plea agreement, the plea colloquy, and other statements made by the parties to determine the scope of the ‘offense of conviction’ for purposes of restitution.”), abrogated on other grounds by Lagos v. United States,

(2018); United States v. Adams,

(5th Cir. 2004) (“When a defendant pleads guilty to fraud, however, the scope of the underlying scheme is defined by the parties themselves. The mutual understanding reached by parties during plea negotiations is normally not detailed in the original charging document, and is more often gleaned from any superseding indictments, plea agreements, and statements made by the parties during plea and sentencing hearings.”); United States v. Akande,

(3d Cir. 1999) (“Because the conviction here was the result of a plea bargain rather than the product of a jury verdict, we look to the plea agreement and colloquy” to determine “what was the ‘offense of conviction.’”).

15 In Young, we vacated a district court’s order of restitution of $20,400 because that

amount “exceeded the $5,500 obtained in the offense of conviction.”

(citing Hughey,

). 10 We held that, if the Government sought restitution on

remand, then the District Court would be “limited” to imposing an order of restitution

of up to $5,500. Id. at 1038. In reaching this result, we defined the scope of the “offense

of conviction” in terms of the particulars of the offense to which the defendant pleaded

guilty: “one count of impersonating a federal officer, in violation of

, in

connection with obtaining $5,500” from two victims.

. Although the defendant

had allegedly carried out a “similar scheme” against “three other victims [from whom

he] obtained $14,900,” his plea did not address this scheme. Id at 1036-37. For that

reason, we concluded that the second scheme was not part of his “offense of

conviction,” and therefore, the original restitution obligation of $20,400 would have to

be lowered by $14,900 to $5,500 on remand. 11 The import of Young is not that a

defendant must plead to a specific amount of restitution. Rather, it demonstrates that

we will look to the record of the guilty plea proceedings to determine the nature and

scope of the “offense of conviction.”

Applying these principles, we conclude that Goodrich pleaded guilty to a

conspiracy to manipulate the Cubed share price in the public securities market. The

plea allocution and Superseding Indictment describe the scheme consistently in this

10Although we did not expressly discuss the statutory basis for restitution in Young, our reliance on Hughey – a case addressing the VWPA – suggests that the VWPA governed the restitution obligation. Since the VWPA is a nearly identical statute to the MVRA, we find Young instructive in the present case.

11Although the Government in Young conceded that the defendant’s “offense of conviction” excluded the $14,900 obtained from the three additional victims, we independently agreed with this characterization of the offense of conviction, in view of the content of the defendant’s guilty plea. See Young,

.

16 manner. As Goodrich allocuted, starting in April 2014, he helped his client Discala

move the Cubed “stock price at certain levels” by “execut[ing] buy-and-sell orders” in

concert “with others in the market” whom Discala also coordinated. App’x at 114.

Goodrich understood that the “objective” of this activity was to illegally “influence the

market” and to “cause [Cubed stock] to trade at artificial levels,” yet he “agreed . . . to

do business” with Discala.

Goodrich described performing an overt act in

furtherance of the conspiracy: he participated in a May 29, 2014 wiretapped call in

which Discala directed him to trade Cubed stock “at particular levels.” Id. at 116.

Goodrich further acknowledged that the May 29 call was one of several that he had

with Discala to facilitate the market manipulation activity. See id.

The Superseding Indictment similarly describes that, between March 29, 2014

and July 9, 2014, Discala “controlled the fraudulent manipulation of Cubed’s stock by

directing the price and volume of Cubed’s shares [to be] traded on the market” by his

co-defendants, including Goodrich. See id. at 34, 36, 38. The indictment details Discala’s

and Goodrich’s several wiretapped calls in addition to the May 29 call.

Tellingly, nowhere in Goodrich’s plea hearing, the Plea Agreement, or the

Superseding Indictment is there any reference to the private placement. Goodrich

argues that, based on this fact alone, the District Court was not authorized to order

restitution for the private placement losses. Because the plea materials excluded any

reference to the private placement, Goodrich argues that that activity was not part of his

“offense of conviction” on which restitution may be based. The Government counters

that restitution for the private placement losses is proper because those losses were

“directly and proximately” caused by the conspiracy to manipulate the public share

price of Cubed to which Goodrich pleaded guilty. 18 U.S.C. § 3663A(a)(2).

Although we decide that the Government has not carried its burden in showing

causation, we agree with its framing of the issue. Goodrich’s argument jumps the gun.

17 While it is true that he pleaded guilty to a conspiracy to manipulate the Cubed share

price rather than to execute the private placement, this fact is not conclusive of whether

his “criminal conduct” was sufficiently connected to the private placement losses to

mandate restitution under the MVRA. See id.; Robers,

. The key question,

as 18 U.S.C. § 3663A(a)(2) makes plain, is whether the losses suffered by the private

placement victims were “directly and proximately” caused by the conspiracy to

manipulate the public share price of Cubed. Until we answer that question, we cannot

determine whether Goodrich owes restitution to the private placement victims.

III. The Government’s Failure to Show Causation

We turn finally to whether the conspiracy to manipulate the public share price of

Cubed “directly and proximately” caused harm to persons who purchased shares in the

private placement. The Government bears the “burden of demonstrating,” “by the

preponderance of the evidence,” “the amount of the loss sustained by a victim as a

result of the offense” and “such other matters as the court deems appropriate” and “as

justice requires.” See

(e). Because the issue here is whether the

challenged $1.85 million loss “amount” was “sustained . . . as result of” of Goodrich’s

offense, we think it “appropriate” that the Government bear the burden of proving

causation. See

(emphasis added).

The Government has not met that burden here. With respect to proximate cause,

it has not adduced sufficient evidence that Goodrich’s offense—agreeing to manipulate

the Cubed share price in the public market—had a “sufficiently close connection to” the

losses sustained by victims in the private placement. See Robers,

. As

discussed, we assess proximate cause based on whether losses are “foreseeable” to a

defendant. The record contains too little evidence suggesting that Goodrich knew of, or

18 could have reasonably foreseen, that his participation in the public market scheme

would result in the harm to private placement purchasers.

The only piece of evidence that the Government points to as demonstrating

foreseeability is an ambiguous comment that Discala made to Goodrich on a

wiretapped call. During that call, Discala instructs Goodrich to ask Cane, “[W]hat do

you have at a buck on CRPT?” App’x at 282. The Government argues that, because the

private placement involved the sale of Cubed stock for $1.00 per share, Discala’s

comment about “CRPT” shares “at a buck” is a reference to that scheme. See Gov’t Br. at

19, 58. Consequently, the Government contends that Goodrich must have known about

the private placement scheme. It further argues that we can infer Goodrich understood

the connection between the private placement scheme and his market manipulation

activity, because the inflated public share price (above $5.00 per share) made the private

placement (at $1.00 per share) more attractive to investors.

But the evidence does not sufficiently show that this theory is more likely than

not true, as the preponderance of the evidence standard requires. The conversation

between Discala and Goodrich is opaque. In giving the instructions to Goodrich, Discala

states that he is talking about “you know”: “For you know, and what you should say is

what do you have at a buck on CRPT? . . . [U]hm what’s this round going on with

CRPT, the stock that uhm AJ discussed with me, uhm and uhm also, uh, documentation

on investment that Marc and AJ are going to, you know, everything.” App’x at 282.

Goodrich also repeatedly comments on his own lack of understanding of the topic

under discussion: “I’m also going to ask [Cane], do you want, what, what exactly

should I ask her on the Cube? . . . What uhm, is it 50 thousand dollars or 50 cents, what,

so I know, so I just know what I’m talking about. . . . is this Scanbuy or Cube, just to

make sure I don’t sound like an idiot.” Id. at 281-82. The conversation further suggests

that Goodrich is seeking to acquire Cubed shares for himself. Discala instructs Goodrich

19 to ask Cane, “when should I expect my 50?” Id. at 281 (emphasis added). When

Goodrich asks Discala for clarification about whether Discala is referring to shares of

Cubed or the entity called Scanbuy, Discala suggests that he can only help Goodrich

“get . . . in” on Cubed for the time being: “Cube. Scanbuy you’re gonna get a lot more,

I’m, I’m going to get you in, but I just don’t know how yet, I’m not going to know what

allocation I have, uhm.” Id. at 282. As discussed below, that Goodrich appears to have

been seeking Cubed shares “at a buck” for himself tends to undermine the inference

that he and Discala were discussing the private placement scheme or that Goodrich

fully understood the harmful nature of the $1.00 per share sale.

The broader context also undermines that the private placement losses were

foreseeable to Goodrich. As the District Court found, “[T]here is no evidence to suggest

that Goodrich was involved in the planning or execution of the private placement of

Cubed stock.” Goodrich,

, at *2. Goodrich’s role was to trade unrestricted

Cubed stock in the public market at Discala’s direction. The private placement involved

the sale of restricted stock to select investors as coordinated by Cane. See App’x at 205

(Government describing the private placement as involving the sale of “restricted CRPT

stock”). Although the Government argues that both contexts involved the sale of Cubed

“common stock,” see Gov’t Br. at 39-41, restricted common stock is different in kind

from unrestricted common stock. The former cannot be sold in public markets generally

and is subject to unique transfer restrictions. See

(a)(3) (codifying SEC

Rule 144 on the sale of restricted stock). The record contains little evidence to suggest

that Goodrich understood how Discala, Cane, or their associates were handling this

unique set of restricted stock, or that Goodrich even knew or foresaw that a private

placement was occurring. At most, there is evidence that Goodrich spoke with Cane

about the “escrow account,” but that account and Cane were connected with both the

public trading scheme and the private placement. See App’x at 36-38.

20 The District Court applied an incorrect legal standard by omitting any analysis of

whether Goodrich’s offense of conviction “directly or proximately” caused the losses to

the private placement victims. It also did not properly hold the Government to its

burden of showing causation by a preponderance of the evidence.

Compounding these concerns, we conclude that some of the factual premises of

the District Court’s analysis were clearly erroneous. The District Court found that the

June 5, 2014 wiretapped call between Discala and Goodrich was compelling evidence of

Goodrich’s knowledge of the private placement scheme because Discala had no reason

to direct Goodrich to speak with Cane except about the private placement. But the

record belies this finding. As discussed, Goodrich acknowledged that he spoke with

Cane about the escrow account, which was fundamental to the public market

manipulation scheme and not just to the private placement. See App’x at 133–34; PSR

¶ 28–29.

The District Court further concluded that, because Goodrich’s call with Discala

showed that Goodrich sought Cubed shares for himself “at a buck,” he must have been

aware of the private placement scheme. But this conclusion requires a few inferential

leaps for which the record lacks evidentiary support. The District Court did not explain

how Goodrich’s willingness to pay for Cubed shares at the same price as defrauded

victims meant that Goodrich was aware that private placement sales to outside

investors were occurring. That Cane may have used the same mechanism to sell Cubed

shares to Goodrich as she did to outside investors does not prove that Goodrich was

aware of the sales to outside investors. Nor does the District Court explain why, even

assuming that Goodrich knew of the private placement, the conversation between

Discala and Goodrich necessarily establishes that Goodrich understood the harmful

nature of the $1.00 per share offer. The record suggests that Goodrich knew that

Cubed’s shares trading above $5.00—the baseline price when Goodrich joined the

21 scheme—were inflated. See Gov’t Br. at 22 (explaining that the restitution amount for

public market losses was calculated based on difference between the $5.00 per share

price at the time Goodrich joined the scheme and the highest price the shares reached

during the period in which he traded). But this fact does not show that Goodrich

understood that the $1.00 per share price was harmful or fraudulent in the absence of

evidence suggesting that Goodrich knew the Cubed shares were worth even less. Of

course, the record also supports the countervailing inference that Goodrich might have

been willing to pay $1.00 per share for Cubed shares that he knew were worthless,

because he expected to dispose of them at a profit in some manner permitted for

restricted shares. Absent further evidence, the District Court’s conclusion that Goodrich

must have known or could have foreseen the harm to private placement victims was

conclusory.

Finally, the District Court relied heavily on its intuition that Goodrich knew

about both “the public trading and private placement transactions” because they had a

natural “synergy” where “[e]ach one made the other attractive.” Goodrich,

, at *3. But this point assumes rather than proves that Goodrich could have

reasonably foreseen both activities. That a private placement could be made more

attractive by a public market manipulation scheme does not mean a person engaged in

the latter scheme expects that a fraudulent private placement is ongoing.

Although the Government raises a plausible theory that a defendant who is

engaged in public market manipulation may reasonably foresee victims who purchase

inflated stock outside the public market, the record here does not establish this theory

as to Goodrich under the preponderance of the evidence standard. We accordingly

conclude that the District Court erred in ordering restitution for the $1.85 million in

private placement losses.

22 CONCLUSION

The Amended Judgment is REVERSED to the extent that it imposes on Goodrich

a restitution obligation of $1.85 million for losses to the private placement victims. We

REMAND the case to the District Court to enter a further amended judgment consistent

with this Opinion.

23