Ignorance No Basis for Shaking Fraud Sentence
(CN) - A former stock broker cannot escape a three-year prison sentence by claiming he was ignorant of one of the fundamental rules of his trade, the 9th Circuit ruled Monday.
A jury convicted Bryan Laurienti of securities fraud in connection with a "pump-and-dump" scheme operated out of the now closed Hampton Porter investment firm in San Diego.
Laurienti and others allegedly pushed inexpensive stocks to artificially increase their value and warned clients against selling them, while at the same time making unauthorized purchases and cross trades in their clients' names without telling them. The scheme fell apart in 2000 when the stock market fell hard, and Hampton Porter soon went out of business.
While some of the brokers, including Laurienti's own brother, reached plea agreements with the government, Laurienti went to trial and was convicted. He was originally sentenced to 40 months behind bars, but the 9th Circuit ordered resentencing and U.S. District Judge Terry Hatter in Los Angeles dropped it to 36 months in prison with three years of supervised release. Laurienti was also ordered to pay some $200,000 in restitution.
In his second appeal in the 9th Circuit, Laurienti claimed, among other things, that the lower court should have held a hearing as to whether he knew about Rule 10b-5 of the federal Securities Act at the time of the alleged fraud. The rule makes it a crime to defraud clients, mislead them about their investments and "to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security."
Affirming the sentence, a unanimous three-judge panel of the federal appeals court found it inconceivable that an experienced stock broker would be ignorant of such a basic rule of securities trading.
"Laurienti simply cannot credibly claim, in light of his professional experience, that he was unaware that federal law prohibits securities fraud," wrote U.S. District Judge James Carr, sitting on the panel by designation from the Northern District of Ohio. "He passed the Series 7 and 63 qualifying examinations required to practice as a registered representative of the National Association of Securities Dealers. These exams include questions about federal and state securities regulations. Six other securities firms employed Laurienti before he began working with Hampton Porter. Laurienti's clients testified he was extremely knowledgeable and experienced in the field, and he held himself out as such. Given the absence of any submission indicating ignorance and in light of Laurienti's experience in the securities industry at the time of his offenses, the district court was entitled to infer that he did know of the restrictions contained in Rule 10b-5 without holding an evidentiary hearing."
The appeals panel also rejected Laurienti's claim that the District Court had improperly enhanced his sentence based on abuse of trust.
Testimony by his clients at trial revealed that they had relied on and trusted his advice to their detriment, the panel found.
"These clients did not merely hire Laurienti to make trades at their direction," Judge Carr wrote. "Rather, they sought his investment advice, and-as one of the clients put it-'trusted his discretion.'"