
USCA1 Opinion

	




                                        UNITED STATES COURT OF APPEALS                            UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                FOR THE FIRST CIRCUIT                                 ____________________        No. 95-1524                              UNITED STATES OF AMERICA,                                      Appellee,                                          v.                                  ROBERT A. DiIANNI,                                Defendant, Appellant.                                 ____________________                     APPEAL FROM THE UNITED STATES DISTRICT COURT                          FOR THE DISTRICT OF MASSACHUSETTS                   [Hon. Douglas P. Woodlock, U.S. District Judge]                                              ___________________                                 ____________________                                        Before                                  Cyr, Circuit Judge,                                       _____________                            Aldrich, Senior Circuit Judge,                                     ____________________                            and Gertner,* District Judge.                                          ______________                                 ____________________            Francis J. DiMento with whom DiMento & Sullivan was on brief for            __________________           __________________        appellant.            Mark J. Balthazard, Assistant United States Attorney, with whom            __________________        Donald K. Stern, United States Attorney, was on brief for appellee.        _______________  ______________________                                 ____________________                                 ____________________                                    ____________________        *Of the District of Massachusetts, sitting by designation.                      ALDRICH, Senior Circuit Judge.  Defendant Robert A.                               ____________________            DiIanni found himself in serious trouble with the Securities            and Exchange Commission; was indicted, and ultimately pleaded            guilty to three counts of mail fraud, three counts of wire            fraud, one count of interstate transportation of property            taken by fraud and one count of securities fraud.  He            received two consecutive sentences of 42 and 60 months,            execution of the latter suspended with three years supervised            release.  A special condition of his probation required            compliance with a permanent injunction entered in an SEC-            initiated civil case that arose out of some of the same            fraudulent activities.  This forbade defendant from, inter                                                                 _____            alia, engaging in any conduct "in connection with the            ____            purchase or sale of any security," that would violate Rule            10b-5,1 under the Securities Exchange Act, 15 U.S.C.                                            ____________________            1.  The Rule provides, in relevant part:                           It shall be unlawful for any person,                      directly or indirectly, by the use of                      . . . any facility of any national                      securities exchange,                           (a) To employ any device, scheme, or                      artifice to defraud,                           (b) To make any untrue statement of                      a material fact or to omit to state a                      material fact necessary in order to make                      the statements made, in the light of the                      circumstances under which they were made,                      not misleading, or                           (c) To engage in any act, practice                      or course of business which operates or                                         -2-              78j(b).  In May, 1992, defendant was released from prison            and, in due course, engaged in conduct which led the            government to successfully charge him with having breached            this special condition by impersonating his stepson in            securities dealings with the brokerage firm National            Financial Services Corporation ("NFSC"), as well as a general            condition that he refrain from lying to his probation            officer.  The court revoked probation and sentenced defendant            to two years imprisonment.  He appeals.  We affirm.                      To revoke probation the sentencing court must make            both a retrospective determination that the probationer has            violated a condition of his probation, and a discretionary,            prospective determination that any violation(s) warrants            revocation.  Black v. Romano, 471 U.S. 606, 611 (1985)                         _____    ______            (revocation must meet due process requirements); United                                                             ______            States v. Gallo, 20 F.3d 7, 13 (1st Cir. 1994).  The            ______    _____            government need not prove a violation beyond a reasonable            doubt, but must merely satisfy the court that a violation            occurred.  Id. at 14.  The second step requires                       ___            individualized evaluation of the particular probationer and            "a predictive decision, based in part on [an] assessment of            [his] propensity toward antisocial conduct."  Id.  We review                                                          ___                                            ____________________                      would operate as a fraud or deceit upon                      any person, in connection with the                      purchase or sale of any security.            17 C.F.R.   240.10b-5.                                         -3-            the court's decision for abuse of discretion.  Id. at 13;                                                           ___            United States v. Nolan, 932 F.2d 1005, 1006 (1st Cir. 1991)            _____________    _____            (court's revocation determination "will not be disturbed            absent a showing of manifest abuse").                      Condition Four of defendant's probation requires            that he "answer truthfully all inquiries by the probation            officer . . . ."  Defendant does not dispute that he falsely            denied to his probation officer that he was "in any way            involved" in managing or trading the securities appearing on            a brokerage account statement that the officer happened to            notice during an unannounced visit to defendant's home.  He            simply contends his prevarication is immaterial because,            contrary to what the probation officer apparently believed,            the conditions of his probation do not forbid him from            trading in securities.  Condition Four is not limited to            inquiries that relate to other conditions of defendant's            probation, however, and cannot be read to leave defendant            free to pick and choose which inquiries deserve a truthful            answer.                      The court also found defendant had willfully            concealed his identity -- and therefore his status as felon            convicted for fraud in connection with securities            transactions -- as the person controlling certain brokerage            accounts with NFSC, and the limited partnerships ostensibly            behind them, and that this amounted to a violation of                                         -4-            defendant's special condition of probation.  The record            discloses that defendant incorporated a consulting outfit in            his wife's name, set up two limited partnerships naming his            stepson, Mark Pinguey, as general partner, and opened a            margin account with NFSC for each partnership, signing            Pinguey's name.  He then deposited 600,000 shares of a            marginable stock borrowed through the consulting firm to one            of the accounts, enabling him to obtain a $2.5 million credit            from NFSC to purchase more stock.  During all ensuing            transactions and other dealings with NFSC, defendant held            himself out as Pinguey.  Even when defendant, posing as            Pinguey, was asked by an NFSC representative whether "a Mr.            DiIanni" was impersonating Pinguey, defendant kept up the            ruse.  The record supports the court's finding that defendant            deliberately made untrue statements in identifying and            representing himself as Pinguey in his dealings with NFSC,            and -- contrary to his story that he was acting under            Pinguey's "authorization" -- did so systematically with the            intent to conceal the fact that he, not Pinguey, controlled            the transactions that NFSC processed through the accounts.                      In order for defendant's untruths and omissions to            come within the prohibitions of the civil injunction,            however, they had to have been of "material fact" within the            meaning of Rule 10b-5.  17 C.F.R.   240.10b-5(b).  See Basic                                                               ___ _____            Inc. v. Levinson, 485 U.S. 224, 231 (1988).  The true            ____    ________                                         -5-            identity of an investor is not always material, see United                                                            ___ ______            States v. Bingham, 992 F.2d 975 (9th Cir. 1993), but where            ______    _______            there is a "substantial likelihood" that a reasonable            decision-maker would have viewed the omitted fact "as having            significantly altered the total mix of information made            available," the Rule's materiality requirement is fulfilled.             Basic Inc., 485 U.S. at 231-32 (internal quotations omitted).             __________            The record indicates that in his heyday defendant was a            successful, high-profile investment advisor, well-known in            the financial world.  His indictment and convictions were            well documented in the local press, which detailed the            millions he bilked from his victims, as well as the fast and            loose financial dealings that had prompted SEC sanctions            years earlier.  A 1990 feature on the cover of the Boston            Globe's business pages dubbed him "one of Boston's most            notorious investment advisors of the 1980s," and reported his            post-incarceration plans to jump back into the financial fray            upon release from prison.  Had defendant signed his own name            to the margin account agreements in December of 1992, rather            than Pinguey's, there is a substantial likelihood that it            would have rung someone's bell at NFSC, and the means of            uncovering the details of defendant's past were readily            available.  We have no doubt this information would have                                         -6-            significantly transformed the picture.2  We also think it            reasonable to conclude that an intent to preclude NFSC from            obtaining this information was in large measure the reason            defendant employed Pinguey as his puppet.  Defendant's            behavior was manifestly outside the bounds of Rule 10b-5.3                      Given the relationship between defendant's            probation infractions and his past criminal conduct, it was            not unreasonable for the court to conclude that defendant's            post-release activities suggested he was positioning himself            incognito to get right back into his old heists.  The court            found his new offenses "in many ways a kind of shadow of the            offenses that led initially to Mr. DiIanni's incarceration            . . . .  Moreover, they come after considerable experience            here with violations of the federal securities law, a SEC                                            ____________________            2.    The court credited testimony that NFSC would not have            entered into any margin account agreements with a convicted            felon.  It is of no moment that NFSC did not perform a credit            check on Pinguey, which of course would not have revealed            anything about defendant.  Defendant's assertion in his            appellate brief that NFSC was not checking any accounts at            the time is unsupported and in any event does not alter the            fact that, under defendant's particular circumstance, his            identity alone would have been material to NFSC's decision            whether to open the margin accounts. Compare Bingham, 992                                                 _______ _______            F.2d at 976 (no evidence was introduced to show investors            would have found the misrepresented or omitted information            significant).            3.  The civil injunction requires defendant to conform his            behavior to the provisions of Rule 10b-5.  Proof of material            reliance, although necessary to state a private cause of            action for damages under Rule 10b-5, see Estate of Soler v.                       _______                   ___ _______________            Rodriguez, 63 F.3d 45, 53 (1st Cir. 1995), is not required to            _________            demonstrate violation of the terms of the injunction, and            therefore also of defendant's special condition of probation.                                         -7-            injunction, a criminal prosecution . . . .  And so, what I            have before me is a recidivist who -- offered any opportunity            -- will undertake to engage in conduct that is proscribed by            the federal securities laws."  The court reasonably found            defendant's efforts to explain away his behavior not            credible, and his propensity for "anti-social" conduct            substantial.                      Finally, defendant contends that a two year            sentence is too harsh.  It was well within the court's            authority to impose and, for the reasons amplified above, we            find no abuse of discretion.                      Affirmed.                      ________                                         -8-
