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Ex-Attorney Asks 11th Circuit to Reverse Securities Fraud Conviction

A jailed former attorney from California turned to the 11th Circuit on Tuesday to pursue a second appeal of his conviction for an elaborate stock manipulation scheme. 

MIAMI (CN) — A jailed former attorney from California turned to the 11th Circuit on Tuesday to pursue a second appeal of his conviction for an elaborate stock-manipulation scheme.

Imprisoned in Miami, Mitchell Stein is asking the Atlanta-based appellate court to reverse or trim his fraud sentence, which was already reduced from 17 to 12 years after a past appellate court ruling that his victims' losses had been overestimated. ​

Stein was convicted in 2013 of securities fraud, wire fraud, money laundering and conspiracy to obstruct justice. Prosecutors accused him of inflating the stock price of Signalife, a company marketed as a producer of heart monitors. ​

While working as counsel for Signalife, Stein allegedly fabricated millions of dollars in sales invoices for the company's products. He went so far as to have his confidants send the company bogus letters purporting to be from foreign buyers named "Tony Nonoy" and "Yossie Keret," the prosecution alleged. Press releases touting the supposed sales piqued investor interest before the fraud was uncovered in 2008. ​

For Tuesday morning’s hearing, Stein's lawyer Kendall Turner connected with a three-judge panel of the 11th Circuit, which was scheduled to hear the case in Miami, via teleconference on account of coronavirus-related court closures. ​

The attorney argued that prosecutors at trial knowingly presented false testimony regarding one of the Signalife invoices Stein allegedly fabricated.​ The witnesses at issue were a Signalife corporate assistant and a securities attorney for the company, both of whom testified that they never received documentation to verify that the invoice was real. According to Stein, the testimony was false because both witnesses knew of a $50,000 check from one Thomas Tribou, who supposedly sent the check as a purchase deposit.

Turner argued Tuesday that the conviction should be overturned because previous judges used the wrong legal standard in gauging the egregiousness of the alleged prosecutorial misconduct. Regardless of which standard is applied, however, a declaration from Tribou in post-trial proceedings establishes that one of the purchase orders was legitimate, Turner argued.

The government retorts in its brief that Stein's counsel is trying to recycle evidence that was already considered and rejected by the 11th Circuit on Stein's first appeal. ​

"The only purported 'new evidence' on which [Stein] relies is the one-page Tribou declaration, which does not establish knowing, material falsity in the witness testimony or the government’s representations," a Department of Justice brief states.

Questioning the veracity of the declaration, the government on Tuesday called the judges' attention to the extensive lengths to which Stein allegedly went to fabricate the other purchase orders. The Department notes that nowhere in the declaration does Tribou confirm he was associated with company that was actually listed as the buyer in Signalife's press release. ​

Senior U.S. Circuit Judge Stanley Marcus, a Bill Clinton appointee, appeared skeptical that the prosecutorial misconduct claims are ripe for the court's consideration. The judge pointed out that the 11th Circuit's 2017 ruling sent the case back to the district court for recalculation of Stein's sentence, but found no merit in his due-process argument to toss the conviction in its entirety. ​

"That was the beginning and the end of the remand. Basically you're asking us to go far beyond that," Marcus said during an exchange with Turner.

Turner in turn cited exceptions to law-of-the-case doctrine that apply when a past ruling is clearly erroneous and would generate a "manifest injustice." ​

Stein is scheduled to be released from prison in 2023, according to the Bureau of Prisons. Apart from his argument for conviction reversal, he is requesting that his sentence be tossed out on the grounds that the investor losses from the fraud were improperly calculated.

He prevailed on similar grounds in 2017 when the 11th Circuit found that the lower court had not factored in outside market forces when calculating victims' losses. On remand, in addition to the lowering of his sentence to 12 years, Stein secured a reduction of his restitution from $13 million to roughly $1.03 million. ​

His attorney argued in her current appellate brief that the court's revised calculations still miss the mark and don't completely account for broad market declines going into the 2008 financial crisis.

Appellate counsel for the government, Joshua Handell, told the 11th Circuit panel on Tuesday that prosecutors brought in new expert testimony in 2017 and have painstakingly addressed any shortcomings in the fraud loss calculation.

"There is no reason to send this case back for a third round," Handell said. ​

He added: "The district court engaged in a lot of narrowing [of the fraud loss calculation]. The district court was trying to be as conservative as possible."​

The parties are also in dispute over the district court's finding that Stein is jointly and severally liable with an alleged conspirator for a $2.15 million forfeiture order.  ​

Stein's counsel claims that the forfeiture order against Stein should be tossed, in light of Honeycutt v. United States – wherein the U.S. Supreme Court found a defendant charged with certain drug offenses cannot be held jointly and severally liable for amounts he did not personally receive.

Categories / Appeals, Criminal, Securities

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