Circuit Vacates Sentence and Restitution Order in High-Profile Fraud Case
In United States v. Huberfeld, the Second Circuit (Pooler, Lynch, Menashi) vacated the sentence imposed on Murray Huberfeld, a co-founder of the now-defunct Platinum Partners hedge fund (“Platinum”), and reversed the district court’s order requiring Huberfeld to pay $19 million in restitution to the Corrections Officers Benevolent Association (“COBA”), which is New York City’s largest union for corrections officers. The Circuit’s decision took issue with several aspects of the district court’s Guidelines calculation, as well as its determination that COBA was a “victim” of the wire-fraud crime to which Huberfeld pleaded guilty. It is another recent decision by the Circuit policing the bounds of restitution orders, a necessary step particularly when as here the restitution order involves a large sum of money.
In late 2013, Platinum experienced a large number of redemptions from investors and Huberfeld sought to help recruit new clients for the hedge fund. In connection with those efforts, Huberfeld spoke with an acquaintance, Jona Rechnitz, who told Huberfeld that he might be able to help recruit COBA as an investor by reaching out to Norman Seabrook, the longtime COBA president who had significant influence over the union’s operations. Rechnitz subsequently suggested to Seabrook that COBA should invest in Platinum, and Seabrook agreed to facilitate the investment on the condition that he be paid for it. Huberfeld consented to that arrangement and devised a scheme whereby Platinum would pay Seabrook a portion of the profits from COBA’s investment, estimated at the time to be an annual payment of between $100,000 and $150,000. Seabrook then took steps to ensure COBA’s investment, and COBA’s retirement benefits fund subsequently invested $20 million in Platinum.
At the end of 2014, Huberfeld told Rechnitz that Platinum had underperformed and therefore Seabrook’s payment would be only $60,000. Rechnitz agreed to pay Seabrook the $60,000 and Huberfeld said he would have Platinum reimburse him for the payment. After Rechnitz made the payment to Seabrook, he sent Huberfeld an invoice from his company seeking reimbursement, claiming that the payment from Platinum was for courtside Knicks tickets. A few days later, Platinum sent Rechnitz a $60,000 check. About two years later, Platinum filed for bankruptcy and COBA lost $19 million of its $20 million investment.
In July 2016, a grand jury returned an indictment charging Huberfeld and Seabrook with honest services wire fraud and conspiracy to commit honest services wire fraud. The indictment alleged a commercial bribery scheme that deprived COBA members of their intangible right to Seabrook’s honest services. Huberfeld and Seabrook were jointly tried, but the trial resulted in a hung jury. Thereafter, the government approached Huberfeld with a plea offer that would require him to plead guilty to a superseding information that charged him solely with conspiracy to commit wire fraud. The underlying conduct in the superseding information was the presentation of the false $60,000 invoice to Platinum, and the superseding information did not allege the overarching bribery scheme at issue in the superseding indictment. Huberfeld took the deal, which stipulated that the applicable sentencing guideline would be U.S.S.G. § 2B1.1, which applies to fraud, and that the applicable Guidelines range would be 6-12 months’ imprisonment based on a $60,000 loss amount.
Although both parties agreed that the district court could not rely on uncharged conduct to determine the appropriate Guidelines offense section, the district court expressed dissatisfaction with use of the fraud guideline at sentencing and decided that it could instead rely on U.S.S.G. § 2B4.1, which applies to commercial bribery offenses. Starting with an offense level of 8 under § 2B4.1, the district court did its own back-of-the-envelope calculation of the “improper benefit” conferred on Huberfeld by the bribe, which was necessary to calculate the offense level under the commercial bribery guideline. That calculation resulted in a $400,000 improper benefit calculation, which the district court concluded should result in an additional 14 levels to the offense level based on the benefits table in the Guidelines. Relying on its reading of the benefits table, the district court calculated a guidelines range of 30-37 months’ imprisonment and imposed a 30-month sentence. In addition, the district court ruled that COBA was a victim of the charged wire-fraud offense and therefore ordered Huberfeld to pay $19 million in restitution to COBA.
The Circuit’s Analysis
The Circuit first addressed Huberfeld’s argument that the district court committed procedural error by calculating his guidelines range under the commercial bribery guideline. The government conceded that there was procedural error but argued that the error was harmless because the district court stated it would have imposed the same sentence under either the fraud or commercial bribery guideline. Although the Circuit agreed that the district court had committed procedural error, it did not find the error to be harmless.
The Circuit explained that the district court was obligated to apply the fraud guideline without cross-referencing the commercial bribery guideline, as it had done. In particular, the Circuit noted that the district court could cross-reference and rely on the commercial bribery guideline only if there had been conduct set forth in the superseding information alleging that Huberfeld had committed a commercial bribery offense. That was not the case here, as the government had expressly conceded below that the superseding information did not charge the broader bribery scheme. While the district court stated at one point that it could treat the $19 million loss as relevant conduct under Guidelines § 1B1.3, the Circuit’s opinion and its instructions for remand cast doubt on whether this would be permitted.
The Circuit also explained that the district court had committed further error even after it incorrectly applied the commercial bribery guideline. The Circuit expressed skepticism regarding the district court’s approach to determining the value of the “improper benefit,” noting that its process involved “estimating the fees earned by management at a hypothetical hedge fund, using a formula which was not part of the parties’ sentencing submissions or the presentence report.” Setting aside that issue, however, the Circuit also noted that the district court had appeared to misread the benefits table in the Guidelines because a $400,000 benefit only supported a 12-level increase in the offense level instead of the 14-level increase applied at sentencing. The district court’s misreading of the table resulted in the guidelines range increasing from 24-30 months to 30-37 months.
The Circuit rejected the government’s contention that the district court’s procedural error was harmless. The Circuit noted that the district court declined the government’s suggestion that it take the bribery conduct into account in its Section 3553(a) analysis, as opposed to its Guidelines calculation. The Circuit also noted that the district court repeatedly referred to its Guidelines calculation in framing its choice regarding the appropriate sentence, suggesting that the incorrect calculation may have anchored the district court’s view of what an appropriate sentence would be. Finally, the Circuit observed that the 30-month sentence imposed by the district court was more than double the 6-12 month sentence called for under the fraud guideline, and it explained that the district court had not adequately explained why such a significant variance above the applicable range was appropriate.
The Circuit also agreed with Huberfeld that the district court erred in ordering him to pay restitution to COBA because the union had not been a direct or proximate victim of the wire-fraud offense to which he had pleaded guilty. The Circuit reasoned that this conclusion followed from its 2009 decision in In re Local #46 Metallic Lathers Union & Reinforcing Iron Workers & Its Associated Benefit & Other Funds, 568 F.3d 81, 85-86 (2d Cir. 2009). In that case, the Circuit had affirmed the district court’s denial of a union’s restitution request where the defendant, who had initially been charged with money laundering and defrauding the union, subsequently pleaded guilty to only the money laundering charge. With respect to Huberfeld, the Circuit noted that none of the conduct within the charged wire-fraud conspiracy had itself injured COBA, and COBA could not qualify as a victim under the Mandatory Victims Restitution Act simply because the broader scheme involving the alleged wire fraud was detrimental to COBA. Invoking its recent decision in United States v. Calderon, 944 F.3d 72 (2d Cir. 2019), the Circuit also noted that COBA’s losses could not have been caused by the wire-fraud conduct because that conduct postdated COBA’s investment with Platinum.
The Circuit’s decision suggests that the district court was uncomfortable with Huberfeld’s plea agreement, which was premised on the unusual theory that Platinum (not COBA) was the victim of the underlying crime, and its provision stipulating to a guidelines range of 6-12 months. To a certain degree, this discomfort is understandable in light of the overall circumstances of the bribery scheme giving rise to the prosecution. Indeed, the probation office’s recommendation of a 24-month sentence appears to reflect a recognition that a guidelines sentence may have been inadequate with respect to all of Huberfeld’s conduct, including that which was the subject of the original charges.
The Circuit seemed to find perplexing the guidelines gymnastics that led to selection of the higher range than the one to which the parties stipulated. In making a sentencing decision, the district court could have considered the circumstances of the overarching bribery scheme in its Section 3553(a) analysis. The Circuit seems to have made this point clear in noting that the district court can consider “the nature and circumstances of the offense” at resentencing. Slip Opn. at 25 (emphasis in original). One would reasonably expect that the district court will do so at resentencing, and that it may be the case that this is the rare case where a district court judge elects to impose a sentence that exceeds the applicable Guidelines range.
Huberfeld also highlights the difficult line that the government must walk when it drops charges against a defendant in exchange for the certainty of a guilty plea. Here, the decision to have Huberfeld plead guilty only to a wire-fraud charge allowed the government to obtain a conviction after a mistrial. But because restitution is limited to the victim harm that arises out of the offense of conviction, the result of this was to limit the restitution to the victim harm arising from the wire-fraud offense to which Huberfeld pleaded guilty. Was the government’s approach too cautious, particularly after Seabrook was retried and convicted on the original substantive and conspiracy counts of honest services fraud? It is impossible to know for sure. Most prosecutors would agree that getting a conviction is more important to achieving justice than getting a particular sentencing outcome. Still, COBA’s ability to recover its losses from Huberfeld are complicated by its inability to obtain court-ordered restitution in connection with Huberfeld’s sentencing. Although the sentencing court ordered Seabrook to pay $19 million in restitution to COBA, it is unclear whether he has the financial means to pay that sizeable sum.
By Jared S. Buszin and Harry Sandick
 The presentence report calculated a guidelines range of 6-12 months’ imprisonment, consistent with the plea agreement, but nevertheless recommended an upward variance to 24 months’ imprisonment on the ground that the guidelines range did not adequately account for the full scope of the overall scheme perpetrated by Huberfeld, Seabrook, and Rechnitz.