06-4067-cr
U .S.A . v. R u t k o sk e




                                  UNITED STATES COURT OF APPEALS

                                      FOR THE SECOND CIRCUIT

                                         August Term 2007

Heard: August 27, 2007                                 Decided: October 25, 2007

                                      Docket No. 06-4067-cr

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UNITED STATES OF AMERICA,
     Appellee,

                             v.

DAVID RUTKOSKE,
     Defendant-Appellant.
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Before: NEWMAN, WINTER and KATZMANN, Circuit Judges.

           Appeal from the August 23, 2006, judgment of the United States

District Court for the Southern District of New York (Richard Conway

Casey, District Judge), convicting the defendant of securities fraud.

           Conviction affirmed; remanded for resentencing.

                                       Marsha R. Taubenhaus, New York, N.Y., for
                                         Defendant-Appellant.

                                       Chi T. Steve Kwok, Asst. U.S. Atty., New York,
                                         N.Y. (Michael J. Garcia, U.S. Atty., Diane
                                         Gujarati, Asst. U.S. Atty., New York, N.Y.,
                                         on the brief), for Appellee.

JON O. NEWMAN, Circuit Judge.

           This appeal from a conviction for securities fraud primarily
concerns the timeliness of an indictment and the calculation of the

amount of loss for purposes of determining the sentence.          Defendant-

Appellant David Rutkoske appeals from a judgment of conviction for

securities fraud and conspiracy to commit securities fraud entered on

August 23, 2006, by the District Court for the Southern District of

New York (Richard Conway Casey, District Judge) following a jury

trial.    Rutkoske contends that (1) the indictment and the superceding

indictment were untimely, (2) the evidence was insufficient, (3)

evidence of subsequent acts was improperly admitted, and (4) the

sentence is unreasonable.      We reject the challenges to the conviction

but remand for resentencing.

                                    Background

     The Defendant. At all relevant times, Rutkoske owned a brokerage

firm, Lloyd Wade Securities (“Lloyd Wade”). Lloyd Wade, headquartered

in Dallas, encompassed eight to ten offices across the country by

1999.     Rutkoske worked out of the Dallas office.         Lloyd Wade sold

stock to retail customers and provided investment banking services to

institutional    clients.     The    indictment   stems   from   the   firm’s

involvement with NetBet, a start-up internet gaming company.

     The Indictments.    On December 11, 2003, the Government filed an

initial     indictment      charging     Rutkoske’s   co-defendants     with

participation in a securities fraud conspiracy in connection with


                                       -2-
Lloyd Wade’s purchase and sale of NetBet stock.                   Rutkoske was not

charged in this initial indictment.

     On    April   6,   2004,    the    grand     jury   returned    a   superceding

indictment (“Indictment S1") adding Rutkoske as a defendant.                      The

indictment charged Rutkoske with securities fraud, in violation of 15

U.S.C. §§ 78j(b), 78ff and 18 U.S.C. § 2, and conspiracy to commit

securities fraud, commercial bribery, and wire fraud, in violation of

18 U.S.C. § 371.        It charged that the conspiracy continued from

December 1996 “to at least on or about April 9, 1999,” rendering the

indictment facially timely by just three days. Indictment S1 charged

numerous overt acts in furtherance of the conspiracy; of these, only

one was alleged to have occurred within the applicable five-year

limitations period, “[o]n or about April 9, 1999.”

     After the filing of Indictment S1, Rutkoske repeatedly sought

from the Government details of the alleged April 9, 1999, overt act in

order to pin down the “on or about” phrasing to a precise date.                  At a

hearing in July 2005, Rutkoske notified the District Court that he

intended to move to dismiss Indictment S1 as untimely, and the

Government    stated    that    it    was   planning     to   file   a   superceding

indictment.

     A    second   superceding       indictment    (“Indictment      S2"),   charging

Rutkoske alone, was returned on July 28, 2005.                Indictment S2 charged


                                         -3-
Rutkoske with the same offenses as Indictment S1.   It did not include

the April 9 overt act, but instead alleged two other overt acts

occurring on April 15 and 16, 1999, acts that would have been within

Indictment S1's limitations period.

     In September 2005, Rutkoske moved to dismiss Indictment S2 as

untimely.   At a hearing on the motion, defense counsel told the Court

that the Government had realized in September that the April 9 overt

act alleged in Indictment S1 had not occurred on that date, and

contended that this concession rendered Indictment S1 untimely and

unavailable for Indictment S2 to relate back to it.

     The District Judge denied the motion. See United States v.

Rutkoske, 394 F. Supp. 2d 641 (S.D.N.Y. 2005). Judge Casey concluded

that Indictment S1, though containing “a latent defect,” was validly

pending at the time Indictment S2 was filed. See id. at 646.   He also

concluded that Indictment S2 did not materially broaden the charges

against Rutkoske. See id.   Therefore, he ruled, Indictment S2 related

back to Indictment S1 for purposes of satisfying the statute of

limitations. See id.

     Pre-trial evidentiary ruling. Before trial, the Government moved

to admit testimony about, and recordings of, conversations between

Rutkoske and a co-conspirator as evidence of “other acts,” admissible

under Rule 404(b) of the Federal Rules of Evidence. See United States


                                 -4-
v. Rutkoske, No. 03 Cr. 1452, 2005 WL 3358596, at *1 (S.D.N.Y. Dec. 8,

2005).    Judge Casey ruled that the proposed evidence, which suggested

that Rutkoske had engaged in a similar market manipulation scheme

after the events alleged in Indictment S2, was relevant and was being

offered    for     the   proper   purpose   of   rebutting   an   “innocent

participation” defense. See id. at *2.           However, because it was

unclear whether Rutkoske would present such a defense, Judge Casey

concluded that he could not conduct the Rule 403 balancing analysis in

advance of trial and therefore denied the motion without prejudice to

renewal. See id. at *2-*3.        The evidence was admitted at trial.

     Trial.      At the jury trial the Government presented the testimony

of Rutkoske’s alleged co-conspirators, some of Lloyd Wade’s customers,

and securities experts, and introduced documentary evidence showing

Rutkoske’s knowledge of undisclosed commissions earned by his brokers.

In brief, the evidence permitted the jury to find the following.        In

1997, Rutkoske permitted Manuel Bello, who had a history of stock

manipulation, to head a new branch office in West Paterson, New

Jersey.    Bello introduced Rutkoske to the executive team at NetBet.

Lloyd Wade’s Head of Research and Investment Banking discouraged

Rutkoske from doing business with NetBet, but Rutkoske entered an

investment banking agreement with NetBet.        The agreement contained a

“lock-up” provision prohibiting significant shareholders from selling


                                      -5-
their shares and obliged NetBet to use its best efforts to ensure that

all   sales    occurred   through   Lloyd    Wade. Bello,    with   Rutkoske’s

knowledge, bought discounted blocks of NetBet stock from entities

controlled by NetBet insiders.

      Lloyd Wade began selling NetBet stock to its customers.            When it

wanted to sell NetBet stock at prices above the market price, Lloyd

Wade would “take out” offers by buying stock from other firms making

a market in the stock, thereby increasing the price.                It was not

difficult to increase the price of NetBet stock because it was thinly

traded   and   Lloyd   Wade   controlled    the   vast   majority   of   shares.

Rutkoske sometimes instructed Bello to increase the price.

      Brokers in the West Paterson office used “boiler room” tactics to

sell NetBet stock.     Cold callers posing as brokers called prospective

customers and pretended that they had previously spoken. Brokers used

high-pressure sales pitches to induce customers to buy NetBet stock.

They sometimes lied about having visited NetBet’s facilities and

having met its management.       One broker purchased NetBet stock for a

client over the client’s objection.         Brokers avoided customers’ phone

calls when the customers wanted to sell NetBet stock, and one broker

refused to comply with a client’s instruction to sell the stock.

Rutkoske visited the West Paterson office four or five times, and the

brokers did not attempt to hide their tactics from him during all but


                                     -6-
the first of those visits.

     Brokers selling NetBet stock received large commissions, which

Rutkoske personally authorized.          The commissions were not disclosed

to clients; in fact, brokers often told their clients that they

received no commission, and trade confirmations stated that there was

no commission.        Following an audit by the National Association of

Securities     Dealers     (“NASD”),     Lloyd   Wade     recharacterized      the

commissions as trading profits and created a new trading account to

track the hidden commissions.         Rutkoske knew that the firm was hiding

commissions.

     From January 1997 to April 1999, Lloyd Wade accounted for 72

percent of retail sales of NetBet stock; from July to December 1997,

it accounted for 90 percent of the trading volume.               Eventually, the

price of     NetBet    shares    plummeted.   Investors   lost   more   than   $12

million.

     The District Judge allowed “other acts” evidence of conversations

between Rutkoske and Bello about the stock of a company owned by

Rutkoske, Paradise Tan.         The conversations, which occurred four years

after the charged conspiracy, revealed that Rutkoske desired to push

up the stock price.      For example, he stated, “I need a friendly market

maker to help me set the market so I can cross some stock.”             Bello and

Rutkoske discussed how to take out offers to increase the price and


                                        -7-
how to compensate brokers for their role in these efforts.                 Rutkoske

told       Bello   to   comply   with   the    registration    and   solicitation

regulations “so you don’t draw attention,” stating crudely, “[G]et[]

me all my registrations and all that other shit, now I can go fuck

around with the stock.”          The District Court gave the jury a limiting

instruction at the time of the testimony and in the jury instructions.

       The jury convicted Rutkoske on both counts.

       Sentencing.       The Presentence Report (“PSR”) calculated a total

offense level of 31, which comprised a base offense level of 6, see

U.S.S.G. § 2F1.1(a) (1998); a 15-level enhancement for loss of more

than $10 million, see id. § 2F1.1(b)(1)(P); and other enhancements for

a scheme to defraud more than one victim, use of mass marketing, a

leadership role in an activity involving at least five participants,

and abuse of a position of trust.1            A total offense level of 31 and a

Criminal History Category of I yielded a Guidelines range of 108 to

135 months’ imprisonment.

       Rutkoske objected to the PSR’s loss calculation, which had been

based on the trial testimony of an NASD expert, which we discuss

further below.          The District Court rejected Rutkoske’s objections,

accepted the testimony of the witness, and estimated the loss to be

$12,057,928.        Judge   Casey   imposed     a   sentence   of    108    months’


       1
           All references to the Guidelines are to the 1998 version.

                                        -8-
imprisonment and required restitution in the amount of $12,057,928.

                                   Discussion

I. Timeliness of the Indictments

     Rutkoske contends that both indictments were untimely.                 The

statute of limitations governing securities fraud and conspiracy is

five years. See 18 U.S.C. § 3282(a) (indictment must be “found” within

five years after offense committed)2.          When conspiracy requires proof


     2
         The Supreme Court has used different words to describe a grand

jury’s action with respect to an indictment.           See, e.g., Whitfield v.

United States, 543 U.S. 209, 211 (2005) (indictment “returned”);

United States v. Mauro, 436 U.S. 340, 346 (1978) (indictment “filed”);

United     States   v.   Guest,   383   U.S.   745,   760   (1966)   (indictment

“brought”).     A leading case in this Circuit, United States v. Grady,

544 F.2d 598 (2d Cir. 1976), discussed below, managed to use all three

verbs on the same page. See id. at 601.



     The Tenth Circuit has ruled that an indictment “is ‘found’ under

18 U.S.C. § 3282 when the grand jury votes to indict the defendant and

the foreperson subscribes the indictment as a true bill.”                 United

States v. Thompson, 287 F.3d 1244, 1251 (10th Cir. 2002).             Normally,

the voting by the grand jury, the subscribing by the foreman, the

return in open court, see Fed. R. Crim. P. 6(f), and the filing in a

                                        -9-
of an overt act, as in this case, the statute of limitations is

satisfied if the Government proves that the conspiracy operated within

the five-year period preceding the date of the indictment and that a

conspirator knowingly committed an overt act in furtherance of the

conspiracy within that same period. See United States v. Salmonese,

352 F.3d 608, 614 (2d Cir. 2003).      It is well-established that the

Government may satisfy this test “‘by proof of an overt act not

explicitly listed in the indictment, as long as a defendant has had

fair and adequate notice of the charge for which he is being tried,

and he is not unduly prejudiced by the asserted variance in the

proof.’” Id. at 620 (quoting United States v. Frank, 156 F.3d 332, 339

(2d Cir. 1998)).

     This Court’s seminal opinion in United States v. Grady, 544 F.2d

598 (2d Cir. 1976), governs the timeliness of a superceding indictment

filed after the expiration of the statute of limitations.    In Grady,

the original indictment properly alleged overt acts in furtherance of

a conspiracy taking place within the five-year statute of limitations.

See id. at 601.     A superceding indictment was filed after the


clerk’s office all occur on the same date.



     In the pending appeal, any gap in this sequence of events that

might have occurred is without significance.

                                -10-
limitations period had run. See id.   The Court noted that the bringing

of the original indictment tolled the statute of limitations “as to

the charges contained in that indictment.” Id.    It then held:

     Since the statute stops running with the bringing of the
     first indictment, a superceding indictment brought at any
     time while the first indictment is still validly pending, if
     and only if it does not broaden the charges made in the
     first indictment, cannot be barred by the statute of
     limitations.

Id. at 601-02.   Subsequent cases applying Grady have stated that a

superceding indictment relates back to “a pending timely indictment”

so long as the superceding indictment does not “materially broaden or

substantially amend the original charges.” Salmonese, 352 F.3d at 622

(emphasis added); accord United States v. Ben Zvi, 242 F.3d 89, 98 (2d

Cir. 2001).

     Thus, Grady and its progeny impose a two-part test for relation

back of a superceding indictment: the original indictment must be

validly pending, and the superceding indictment must not materially

broaden or substantially amend the charges.     Rutkoske contends that

the indictments fail both prongs of this test.

     Whether Indictment S1 was validly pending.         Rutkoske first

contends that Indictment S1 was not validly pending because it was

untimely.   The premise of this argument, not previously considered in

this Circuit, is that an indictment that is facially valid only

because of one alleged overt act within the limitations period should

                                 -11-
not be considered to have been validly pending under Grady when the

Government concedes that the overt act did not occur within the

limitations period.

     There can be no doubt that Indictment S1 was facially timely when

returned.   It alleged a conspiracy that extended into the limitations

period and an overt act occurring within that period, unlike the

initial indictment in Ben Zvi, 242 F.3d at 97, which alleged no overt

acts within the limitations period.      Furthermore, had the Government

proceeded to trial on Indictment S1 and failed to prove that the

alleged April 9 overt act occurred within the limitations period, it

could nonetheless have satisfied the statute of limitations by proving

another overt act within the limitations period, even though the other

act was not alleged in the indictment.       See Salmonese, 352 F.3d at

620; Frank, 156 F.3d at 339.   Since failure to prove the April 9 overt

act at trial would not have rendered Indictment S1 dismissable as long

as a timely act, although uncharged, was proved, it is arguable that

the Government’s concession in advance of trial should not matter,

regardless of when the concession was made.        See United States v.

Smith, 197 F.3d 225, 228-29 (6th Cir. 1999) (“[A]n original indictment

remains pending until it is dismissed or until double jeopardy or due

process would prohibit prosecution under it.”).      Whether or not that

would be so, we see no basis to deem Indictment S1 untimely on the


                                  -12-
facts of this case where the concession did not occur until after the

return of Indictment S2.                On the day Indictment S2 was returned,

Indictment S1 was facially timely and validly pending. Nothing in the

record    suggests         that   the    Government    deliberately       withheld     its

concession concerning the April 9 overt act until after return of

Indictment S2.

       Whether     Indictment      S2    impermissibly       broadened    the    charges.

Rutkoske next argues that even if Indictment S1 was validly pending,

Indictment S2 impermissibly broadened the scope of the conspiracy.                       A

superceding indictment containing additional overt acts relates back

to a previous indictment when the additional overt acts “simply flesh

out or provide more detail about the originally charged crime without

materially broadening or amending it.” Salmonese, 352 F.3d at 622.

Indictment S2 alleged two new overt acts extending the scope of the

conspiracy       by    one     week.      This     one-week    extension     cannot     be

characterized         as   a   material    broadening    of    the     charges    against

Rutkoske. Cf. United States v. Ratcliff, 245 F.3d 1246, 1253-54 (11th

Cir. 2001) (holding that a superceding indictment could not relate

back   when   it      expanded     the    conspiracy    by    twelve     years   and   ten

conspirators).         Rutkoske contends that the one-week extension of the

conspiracy was critically important because its purpose was to save

the indictment from dismissal.                   This contention simply restates


                                            -13-
Rutkoske’s first argument that Indictment S1 was not validly pending

when Indictment S2 was returned.

     Since Indictment S2 did not materially broaden the scope of the

conspiracy charge, it related back to Indictment S1 and was therefore

timely.

II. Sufficiency of the Evidence

     At trial, the Government based the conspiracy and securities

fraud charges on theories of both failure to disclose brokers’ profits

and material misrepresentations.         Rutkoske argues that the evidence

was insufficient to establish that Lloyd Wade’s brokers had a duty to

disclose their profits to their customers.         We need not consider this

argument because, whether or not the omission theory was proved, the

evidence was sufficient to support the misrepresentation theory, and

the Supreme Court has held that a verdict should be affirmed when two

theories of an offense are submitted to the jury and the evidence

supports one theory but not the other. See Griffin v. United States,

502 U.S. 46, 56-60 (1991); see also United States v. Vazquez, 85 F.3d

59, 60-61 (2d Cir. 1996).         In such cases, courts assume that the

verdict is based on the valid theory. See, e.g., United States v.

Skelly, 442 F.3d 94, 99 n.4 (2d Cir. 2006); see also United States v.

Washington,   861   F.2d   350,    352     (2d   Cir.   1988)   (“[W]here   an

impermissible basis of conviction arises from an insufficiency of


                                    -14-
evidence and a valid basis remains on an alternative theory, a

defendant must request the trial judge not to submit the invalid basis

to the jury or else the objection will be deemed waived.”).

III. The Admission of the Paradise Tan Evidence

      Rutkoske’s final challenge to his conviction concerns the “other

acts” evidence of his conversations with Bello about Paradise Tan.

Rule 404(b) of the Federal Rules of Evidence permits the introduction

of evidence of other acts for the purpose of proving a defendant’s

knowledge.   Evidence may be introduced under Rule 404(b) if (1) it is

introduced for a proper purpose, (2) it is relevant to the charged

offense, (3) its prejudicial effect does not substantially outweigh

its   probative   value,   and   (4)    it    is   admitted   with   a   limiting

instruction if requested. See Huddleston v. United States, 485 U.S.

681, 691-92 (1988); see also United States v. Edwards, 342 F.3d 168,

176 (2d Cir. 2003).    Rutkoske implicitly concedes that the Paradise

Tan evidence was introduced for the permissible purpose of proving his

knowledge, and he does not challenge the District Court’s limiting

instruction.   His arguments are thus confined to the second and third

elements of Huddleston.

      Relevancy determinations are reviewed for abuse of discretion,

and the district court is accorded “wide latitude.” United States v.

Ramirez, 894 F.2d 565, 569 (2d Cir. 1990).          Relevancy “‘exists only as


                                       -15-
a relation between an item of evidence and a matter properly provable

in the case.’” Id. (quoting Huddleston, 485 U.S. at 689 (internal

quotation marks omitted)).     Rutkoske’s defense at trial was that he

neither knew nor approved of the fraud in the West Paterson office.

The Paradise Tan evidence is relevant if it tends to make the

existence of Rutkoske’s knowledge more probable than it would be

without the evidence. See Fed. R. Evid. 401.

     Rutkoske presents two arguments pertaining to relevancy.             He

first argues that he did not discuss improper stock manipulation with

Bello; he explains that the conversations “led to a host of competing

inferences, none of which was rendered any more likely than the

others.” However, as the District Court observed, the Paradise Tan and

NetBet schemes both “display an effort to manipulate a ‘thinly-traded’

stock by buying out offers below a predetermined target price and . .

. required the cooperation of brokers and market-makers, lured by the

promise   of   personal   financial    gain,   to   carry   out   the   stock

manipulation.”    Rutkoske,   2005    WL    3358596,   at   *2.   Rutkoske’s

demonstrated understanding of how the Paradise Tan scheme would work

showed that he was “conversant in the language of stock manipulation,”

id., making it more likely that he understood the role of excessive

commissions and “taking out” offers in the NetBet scheme.

     Rutkoske primarily contends that the Paradise Tan evidence is


                                     -16-
irrelevant because the conversations occurred four years after the

alleged NetBet scheme. As the District Court recognized, see id. at

*2 n.1, this Court has refused to erect a per se bar to evidence of

“other acts” occurring after the charged offense. See United States v.

Germosen, 139 F.3d 120, 128 (2d Cir. 1998) (allowing evidence of a

similar scheme perpetrated shortly after the charged offenses to show

intent); Ramirez, 894 F.2d at 569 (allowing evidence of narcotics

involvement nine months after the charged offense to show knowledge).

The courts of appeals mostly agree that the admission of subsequent

acts under Rule 404(b) is governed by the same four-part test as prior

acts,     though   some   courts   have     recognized   that   the   temporal

relationship between the acts may have some bearing on the evidence’s

probative value. See, e.g., United States v. Anifowoshe, 307 F.3d 643,

647 (7th Cir. 2002) (“The timing of the act is only relevant inasmuch

as it affects considerations inherent in that test.”); United States

v. Latney, 108 F.3d 1446, 1449 (D.C. Cir. 1997) (declining to adopt a

special rule for subsequent acts but observing that “the strength of

the evidence is a different matter than its relevancy”).3


     3
         Rutkoske cites a Third Circuit case stating that “[t]he logic of

showing prior intent or knowledge by proof of subsequent activity

escapes us,” United States v. Boyd, 595 F.2d 120, 126 (3d Cir. 1978),

but the Third Circuit arguably has retreated from that position, see

                                     -17-
     In light of the similarity between the NetBet and Paradise Tan

schemes,   the    District      Court   did      not   exceed   its   discretion    in

determining      that   the    Paradise    Tan    conversations       were   relevant,

notwithstanding the fact that they took place four years after the

charged conspiracy.           Moreover, the District Court conscientiously

reviewed the Rule 403 factors and concluded that, if Rutkoske argued

a lack of knowledge at trial, which he did, the probative value of the

other acts evidence would “greatly increase[], such that the balance

under Rule 403 would shift considerably in favor of admissibility.”

Rutkoske, 2005 WL 3358596, at *2.

 IV. The Reasonableness of the Sentence

     Rutkoske contends that his sentence was unreasonable because (1)

the District Judge did not properly determine the amount of the

shareholders’ loss, a key component of selecting the appropriate

Guidelines sentencing range, and (2) the District Judge accorded that


United States v. Echeverri, 854 F.2d 638, 645 (3d Cir. 1988) (“We do

not dispute that there may be cases in which evidence of subsequent

wrongful acts may properly be admitted under Rule 404(b).”). Citing

Boyd, the Sixth Circuit has said that “rarely will an event that

occurred subsequent to the charged crime be probative of motive,

knowledge, or intent.” United States v. Cowart, 90 F.3d 154, 158 (6th

Cir. 1996).

                                          -18-
range a presumption of reasonableness.

       The loss calculation.          Despite the Supreme Court’s decision in

United States v. Booker, 543 U.S. 220 (2005), rendering the Guidelines

advisory,    a    sentencing       court    remains     obliged     to    determine     the

appropriate Guidelines range and then decide whether to impose a

sentence within that range.               See United States v. Crosby, 397 F.3d

103, 113 (2d Cir. 2005).                  For offenses like Rutkoske’s, a key

component of the Guidelines calculation is the amount of loss caused

by the wrongful conduct. See U.S.S.G. § 2F1.1(b)(1).                       The District

Judge determined the loss to be $12,057,928 and used that amount to

increase Rutkoske’s Guidelines range by 15 levels, the enhancement

prescribed       for   a    loss     of    more    than     $10    million,       see   id.

§ 2F1.1(b)(1)(P).          This increase added 87 months to the minimum

sentencing range.          The Judge also ordered restitution for the same

amount.

       The   Guidelines      state    that    “[t]he      court    need    only    make   a

reasonable estimate of the loss, given the available information.” Id.

§ 2F1.1 cmt. n.9.      Nevertheless, a court of appeals must “determine[]

whether the trial court’s method of calculating the amount of loss was

legally acceptable.” United States v. Olis, 429 F.3d 540, 545 (5th

Cir.   2005).      Judge     Casey’s      method   in     this    case,   following     the

Government’s expert witness, was to take the losses sustained by Lloyd


                                            -19-
Wade customers in NetBet stock as a result of their purchases and

sales between January 1997 and July 29, 1999, and, as to unsold

shares, use the difference between purchase price and value on July

29, 1999.    That date was the last date for which the parties had “blue

sheets,”    reporting    forms       for   market    makers.    That    date    had   no

particular relevance to the offense conduct, and in fact was three

months    after   the   end     of   the   charged    conspiracy.        This    method

implicitly attributed the total amount of the decline in the value of

NetBet shares to Rutkoske’s offense conduct.

     We recently considered the calculation of loss in a criminal

stock fraud case in United States v. Ebbers, 458 F.3d 110 (2d Cir.

2006).      In Ebbers, we acknowledged the complexities inherent in

calculating the loss amount but emphasized that “[t]he loss must be

the result of the fraud.” Id. at 128.                  Many factors may cause a

decline    in   share   price    between     the    time   of   the    fraud    and   the

revelation of the fraud. See id.           In such cases, “[l]osses from causes

other than the fraud must be excluded from the loss calculation.” Id.

In Ebbers, however, the total loss was so massive that the loss

enhancement would have remained the same had the district court taken

into account other causes of the price decline, and remand was

therefore unnecessary. See id.

     The Fifth Circuit, in a case cited approvingly in Ebbers, 458


                                           -20-
F.3d at 128, looked to principles governing recovery of damages in

civil securities fraud cases for guidance in calculating the loss

amount for a Guidelines enhancement. See Olis, 429 F.3d at 546.

Applying the teaching of the Supreme Court in Dura Pharmaceuticals,

Inc. v. Broudo, 544 U.S. 336 (2005), the Fifth Circuit stated that

“there is no loss attributable to a misrepresentation unless and until

the   truth   is   subsequently     revealed     and    the    price    of   the   stock

accordingly declines” and that the portion of a price decline caused

by other factors must be excluded from the loss calculation. See Olis,

429 F.3d at 546; see also United States v. Zolp, 479 F.3d 715, 719

(9th Cir. 2007) (“[T]he court must disentangle the underlying value of

the stock, inflation of that value due to the fraud, and either

inflation or deflation of that value due to unrelated causes.”).

       Dura Pharmaceuticals, on which the Fifth Circuit relied, provides

useful   guidance.        There,    the    Supreme     Court   rejected      the   Ninth

Circuit’s “inflated purchase price” theory of loss causation, which

held that plaintiffs in a civil stock fraud case could establish loss

causation simply by showing that the purchase price was inflated

because of the defendants’ misrepresentation.                  See 544 U.S. at 340.

In    rejecting    this   theory,    the    Court    observed    that    although     an

artificially inflated price might cause an investor’s loss when the

investor sells his shares “after the truth makes its way into the


                                          -21-
market place,” id. at 342, other factors, such as changed economic

conditions, might also contribute to a stock’s decline in price, see

id. at 343, and a plaintiff must prove that the misrepresentation

proximately caused the economic loss, see id. at 346.

       The Government contends that the principles set forth in Dura

Pharmaceuticals, a civil case, should not apply to loss calculation in

a criminal case.        The dicta in Ebbers strongly undermines that

position.     Moreover, we see no reason why considerations relevant to

loss causation in a civil fraud case should not apply, at least as

strongly, to a sentencing regime in which the amount of loss caused by

a fraud is a critical determinant of the length of a defendant’s

sentence.

       Determining   the   extent    to    which    a   defendant’s    fraud,    as

distinguished from market or other forces, caused shareholders’ losses

inevitably cannot be an exact science. See Ebbers, 458 F.3d at 127

(“no   easy   task”).      The   Guidelines’      allowance   of   a   “reasonable

estimate” of loss remains pertinent.              And cases might arise where

share price drops so quickly and so extensively immediately upon

disclosure of a fraud that the difference between pre- and post-

disclosure share prices is a reasonable estimate of loss caused by the

fraud.    Even there, however, a coincidentally precipitous decline in

shares   of   comparable    companies     would    merit   consideration.       For


                                      -22-
example, a fraud disclosed just as the dot-com bubble burst might

cause most, but not necessarily all, of the decline in previously

high-flying technology stocks.      Normally, expert opinion and some

consideration of the market in general and relevant segments in

particular will enable a sentencing judge to approximate the extent of

loss caused by a defendant’s fraud.

     The Government contends that it satisfied whatever obligations

Dura Pharmaceuticals, Ebbers, and Olis impose by showing that NetBet

shares traded in a “thin” market and that “the scheme unraveled, and

the price of NetBet stock plummeted.” However, a “thin” market does

not preclude the effect of market forces, although it may minimize

them,4 and the Government’s expert linked the low share price of his

calculation to an arbitrary date representing the end of available

blue sheet data, rather than the date of disclosure of the fraud.   The

Government provides no record citation to any particular date to

support its generalized claim that the scheme “unraveled.”

     The District Court’s basic failure at least to approximate the

amount of the loss caused by the fraud without even considering other


     4
         The record does not suggest that the District Court understood

Lloyd Wade to have “promoted worthless stock in worthless companies,”

which would justify attributing the entire loss amount to Rutkoske’s

fraud. See Olis, 429 F.3d at 546.

                                   -23-
factors relevant to a decline in NetBet share price requires a remand

to redetermine the amount of the loss, both for purposes of the

sentence and restitution.

     The     claimed   presumption   concerning   the   Guidelines   range.

Rutkoske also contends that the District Judge improperly accorded the

applicable Guidelines range a presumption of reasonableness.           This

claim raises an issue similar to the issue of whether a court of

appeals should accord a presumption of reasonableness to a sentence

that is within the applicable Guidelines range.5        However, the claims

are not identical.     The appellate review issue concerns the use of a

presumption in assessing the reasonableness of a particular sentence

selected from within the applicable range.        Rutkoske’s claim is that

the District Judge presumed that he should use the applicable range to

define the limits of his sentence rather than use his post-Booker


     5
         On this appellate review issue, the Supreme Court has ruled that

a court of appeals “may apply a presumption of reasonableness to a

district court sentence that reflects a proper application of the

Sentencing Guidelines,” Rita v. United States, 127 S. Ct. 2456, 2462

(2007) (emphasis added), while recognizing that several circuits

reject such a presumption, see id.     This Circuit has declined to apply

such a presumption. See United States v. Fernandez, 443 F.3d 19, 27

(2d Cir. 2006).

                                     -24-
discretion to impose a non-Guidelines sentence.               Rutkoske’s claim is

also similar to the claim that a sentencing judge erred in imposing a

sentence within the applicable Guidelines range rather than exercising

discretion to make a departure below the range.6

      We need not resolve the presumption issue that Rutkoske endeavors

to   present    because    Judge   Casey   accorded     no    presumption   to    the

applicable sentencing range.           He merely stated that “the federal

sentencing guidelines have been developed to take into consideration

the other factors of Title 18 United States Code 3553(a).”                       This

statement      was   entirely    consistent    with   this    Court’s   post-Booker

observation that the Guidelines “are the only integration of the

multiple factors” in 18 U.S.C. § 3553(a). United States v. Rattoballi,

452 F.3d 127, 133 (2d Cir. 2006) (internal quotation marks omitted).

And the District Judge explicitly recognized that the Guidelines are

not binding.

                                    Conclusion

      The     conviction    is     affirmed;    the    case     is   remanded     for

resentencing.


      6
          We regularly reject that claim in the absence of any indication

that the sentencing judge was unaware of departure authority. See,

e.g., United States v. Valdez, 426 F.3d 178, 184 (2d Cir. 2005);

United States v. Galvez-Falconi, 174 F.3d 255, 257 (2d Cir. 1999).

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