The 9th U.S. Circuit Court of Appeals has again gone against the grain in calculating loss in securities fraud cases, this time in the context of determining fraud loss under the Federal Sentencing Guidelines. In United States v. Berger , the 9th Circuit allowed the government to calculate fraud loss for Sentencing Guidelines purposes using the “inflated-purchase-price” theory. This theory allows the government to include the purported loss to shareholders who bought and sold shares while the fraud was ongoing but not yet disclosed.
This theory can significantly, and perhaps unfairly, increase a defendant’s sentence under the Sentencing Guidelines. Indeed, in Berger , the disputed loss to shareholders boosted the defendant’s fraud loss from $3.1 million to $5.2 million, which in turn raised his sentencing range from 21-27 months to 97-121 months. The defendant received a 97 month sentence, roughly triple what it would have been had the fraud loss been excluded.
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