This summer, Richard Berger will be resentenced by a court that now must calculate the loss attributable to his securities fraud conviction according to a rule that the U.S. Court of Appeals for the 9th Circuit adopted in November as a result of Berger’s appeal. U.S. v. Berger, 587 F.3d 1038 (9th Cir. 2009).That approach diverges from the approach of the other three federal circuits that have considered the issue. At a time when the U.S. Department of Justice is promising uniformity in sentencing, Berger’s case has created a circuit split regarding the proper method for calculating loss in criminal securities fraud cases. As a result, defendants convicted of such offenses in the 9th Circuit will very likely receive higher sentences than defendants sentenced elsewhere. This disparity regarding the most material factor involved in the sentencing of economic crimes could soon attract the interest of the U.S. Supreme Court.
Berger, the former president and chief executive officer of Craig Consumer Electronics Inc., a publicly traded company, was convicted of 12 counts of bank and securities fraud. Berger and his co-defendants employed accounting schemes to falsify information in daily certifications required as part of Craig’s credit agreement with a consortium of banks. Banks lent millions of dollars to Craig in reliance on the false statements. In May 1996, Craig made an initial public offering. In connection with the IPO, Berger allegedly misrepresented the company’s viability and financial condition to the public. In 1997, an audit revealed accounting irregularities, requiring Craig to restate earnings for part of 1995 and 1996. The company’s stock fell from $4.99 to 99 cents per share. The 9th Circuit acknowledged that the extent to which this decline resulted from the restated earnings, as opposed to unrelated external market forces, was uncertain. U.S. v. Berger, 473 F.3d 1080 (9th Cir. 2007).
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