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  • U.S. v. Kaiser (2d Cir. 2010)
  • Boyle v. U.S. (U.S. 2009)
  • U.S. v. Milikowsky (2d Cir. 1995)
  • U.S. v. Ebbers (2d Cir. 2006) (just sentencing portion of opinion)
    Write up 1 of the above 4 cases:
    Case Write-Up Instructions
    1. Your write-up should be 1 to 2 pages, single spaced, at standard type face (12 or 14 point).
    2. It should briefly (in very few sentences) lay out the basic facts of the case. These are usually generally agreed upon by the time it gets to final appeal stage; i.e., the Supreme Court of a Federal District court.
    3. What is much more important is the issue at law – the dispute about what the law means or how it should be interpreted.
    4. What was the majority of the court’s decision in the case, and – more importantly – what was the basic reasoning behind this decision?
    5. If you are asked to read a dissent in the case, what was the decision and reasoning in the minority?
    6. Do you agree or disagree with the court’s decision? Explain why.

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Page 1 EDMUND BOYLE, Petitioner v. UNITED STATES No. 07-1309 SUPREME COURT OF THE UNITED STATES 556 U.S. 938; 129 S. Ct. 2237; 173 L. Ed. 2d 1265; 2009 U.S. LEXIS 4159; 77 U.S.L.W. 4474; 21 Fla. L. Weekly Fed. S 893 January 14, 2009, Argued June 8, 2009, Decided JUDGES: Alito, J., delivered the opinion of the Court, in which Roberts, C. J., and Scalia, Kennedy, Souter, Thomas, and Ginsburg, JJ., joined. Stevens, J., filed a dissenting opinion, in which Breyer, J., joined, post, p. 952. OPINION BY: Alito OPINION Justice Alito delivered the opinion of the Court. We are asked in this case to decide whether an association-in-fact enterprise under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. ß 1961 et seq., must have "an ascertainable structure beyond [*941] that inherent in the pattern of racketeering activity in which it engages." Pet. for Cert. i. We hold that such an enterprise must have a "structure" but that an instruction framed in this precise language is not necessary. The District Court properly instructed the jury in this case. We therefore affirm the judgment of the Court of Appeals. I A The evidence at petitioner's trial was sufficient to prove the following: Petitioner and others participated in a series of bank thefts in New York, New Jersey, Ohio, and Wisconsin during the 1990's. The participants in these crimes included a core group, along with others who were recruited from time to time. Although the participants sometimes attempted bank-vault burglaries and bank robberies, the group usually targeted cash-laden night-deposit boxes, which are often found in banks in retail areas. Each theft was typically carried out by a group of participants who met beforehand to plan the crime, gather tools (such as crowbars, fishing gaffs, and walkie-talkies), and assign the roles that each participant would play (such as lookout and driver). The participants generally split the proceeds from the thefts. The group was loosely and informally organized. It does not appear to have had a leader or hierarchy; nor does it appear that the participants ever formulated any long-term master plan or agreement. From 1991 to 1994, the core group was responsible for more than 30 night-deposit-box thefts. By 1994, petitioner had joined the group, and over the next five years, he participated in numerous attempted night-deposit-box thefts and at least two attempted bank-vault burglaries. In 2003, petitioner was indicted for participation in the conduct of the affairs of an enterprise through a pattern of racketeering activity, in violation of 18 U.S.C. ß 1962(c); conspiracy to commit that offense, in violation of ß 1962(d); conspiracy to commit bank burglary, in violation of ß 371; and nine counts of bank burglary and attempted bank burglary, in violation of ß 2113(a). B In instructing the jury on the meaning of a RICO "enterprise," the District Court relied largely on language in United States v. Turkette, 452 U.S. 576, 101 S. Ct. 2524, 69 L. Ed. 2d 246 (1981). The court told the jurors that, in order to 1 establish the existence of such an enterprise, the Government had to prove that: "(1) There [was] an ongoing organization with some sort of framework, formal or informal, for carrying out its objectives; and (2) the various members and associates of the association function[ed] as a continuing unit to achieve a common purpose." App. 112. Over petitioner's objection, the court also told the jury that it could "find an enterprise where an association of individuals, without structural hierarchy, form[ed] solely for the purpose of carrying out a pattern of racketeering acts" and that "[c]ommon sense suggests that the existence of an association-in-fact is oftentimes more readily proven by what is [sic] does, rather than by abstract analysis of its structure." Id., at 111-112.1 1 The relevant portion of the instructions was as follows: "The term 'enterprise' as used in these instructions may also include a group of people associated in fact, even though this association is not recognized as a legal entity. Indeed, an enterprise need not have a name. Thus, an enterprise need not be a form[al] business entity such as a corporation, but may be merely an informal association of individuals. A group or association of people can be an 'enterprise' if, among other requirements, these individuals 'associate' together for a purpose of engaging in a course of conduct. Common sense suggests that the existence of an association-in-fact is oftentimes more readily proven by what is [sic] does, rather than by abstract analysis of its structure. "Moreover, you may find an enterprise where an association of individuals, without structural hierarchy, forms solely for the purpose of carrying out a pattern of racketeering acts. Such an association of persons may be established by evidence showing an ongoing organization, formal or informal, and . . . by evidence that the people making up the association functioned as a continuing unit. Therefore, in order to establish the existence of such an enterprise, the government must prove that: (1) There is an ongoing organization with some sort of framework, formal or informal, for carrying out its objectives; and (2) the various members and associates of the association function as a continuing unit to achieve a common purpose. "Regarding 'organization,' it is not necessary that the enterprise have any particular or formal structure, but it must have sufficient organization that its members functioned and operated in a coordinated manner in order to carry out the alleged common purpose or purposes of the enterprise." App. 111-113 (emphasis added). Petitioner requested an instruction that the Government was required to prove that the enterprise "had an ongoing organization, a core membership that functioned as a continuing unit, and an ascertainable structural hierarchy distinct from the charged predicate acts." Id., at 95. The District Court refused to give that instruction. Petitioner was convicted on 11 of the 12 counts against him, including the RICO counts, and was sentenced to 151 months' imprisonment. In a summary order, the Court of Appeals for the Second Circuit affirmed his conviction but vacated the sentence on a ground not relevant to the issues before us. 283 Fed. Appx. 825 (2007). The Court of Appeals did not specifically address the RICO jury instructions, stating only that the arguments not discussed in the order were "without merit." Id., at 826. Petitioner was then resentenced, and we granted certiorari, 554 U.S. 944, 129 S. Ct. 29, 171 L. Ed. 2d 931 (2008), to resolve conflicts among the Courts of Appeals concerning the meaning of a RICO enterprise. II A RICO makes it "unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt." 18 U.S.C. ß 1962(c) (emphasis added). The statute does not specifically define the outer boundaries of the "enterprise" concept but states that the term "includes any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." ß 1961(4).2 This enumeration of included enterprises is obviously broad, encompassing "any . . . group of individuals associated in fact." Ibid. (emphasis added). The term "any" ensures that the definition has a wide reach, see, e.g., Ali v. Federal Bureau of Prisons, 552 U.S. 214, 218-219, 128 S. Ct. 831, 169 L. Ed. 2d 680 (2008), and the very concept of an association in fact is expansive. In addition, the RICO statute provides that its terms are to be "liberally construed to effectuate its remedial purposes." ß 904(a), 84 Stat. 947, note following 18 U.S.C. ß 1961; see also, e.g.,National Organization for Women, Inc. v. Scheidler, 510 U.S. 249, 257, 114 S. Ct. 798, 127 L. Ed. 2d 99 (1994) ("RICO broadly defines 'enterprise'"); Sedima, S. P. R. L. v. Imrex Co., 473 U.S. 479, 497, 105 S. Ct. 3275, 87 L. Ed. 2d 346 (1985) ( [HN5] "RICO is to be read broadly"); Russello v. United States, 464 U.S. 16, 21, 104 S. Ct. 296, 78 L. Ed. 2d 17 (1983) (noting "the pattern of the RICO statute in utilizing terms and concepts of breadth"). 2 In light of these statutory features, we explained in Turkette that "an enterprise includes any union or group of individuals associated in fact" and that RICO reaches "a group of persons associated together for a common purpose of engaging in a course of conduct." 452 U.S., at 580, 583, 101 S. Ct. 2524, 69 L. Ed. 2d 246. Such an enterprise, we said, "is proved by evidence of an ongoing organization, formal or informal, and by evidence that the various associates function as a continuing unit." Id., at 583, 101 S. Ct. 2524, 69 L. Ed. 2d 246. Notwithstanding these precedents, the dissent asserts that the definition of a RICO enterprise is limited to "businesslike entities." See post, at 952, 173 L. Ed. 2d, at 1279-1282 (opinion of Stevens, J.). We see no basis to impose such an extratextual requirement.3 3 The dissent claims that the "businesslike" limitation "is confirmed by the text of ß 1962(c) and our decision in Reves v. Ernst & Young, 507 U.S. 170, 113 S. Ct. 1163, 122 L. Ed. 2d 525 (1993)." Post, at 953, 173 L.Ed. 2d, at 1280. Section 1962(c), however, states only that one may not "conduct or participate, directly or indirectly, in the conduct of [an] enterprise's affairs through a pattern of racketeering activity." Whatever businesslike characteristics the dissent has in mind, we do not see them in ß 1962(c). Furthermore, Reves v. Ernst & Young, 507 U.S. 170, 113 S. Ct. 1163, 122 L. Ed. 2d 525 (1993), is inapposite because that case turned on our interpretation of the participation requirement of ß 1962, not the definition of "enterprise." See id., at 184-185, 113 S. Ct. 1163, 122 L. Ed. 2d 525. In any case, it would be an interpretive stretch to deduce from the requirement that an enterprise must be "directed" to impose the much broader, amorphous requirement that it be "businesslike." B As noted, the specific question on which we granted certiorari is whether an association-in-fact enterprise must have "an ascertainable structure beyond that inherent in the pattern of racketeering activity in which it engages." Pet. for Cert. i. We will break this question into three parts. First, must an association-in-fact enterprise have a "structure"? Second, must the structure be "ascertainable"? Third, must the "structure" go "beyond that inherent in the pattern of racketeering activity" in which its members engage? "Structure." We agree with petitioner that an association-in-fact enterprise must have a structure. In the sense relevant here, the term "structure" means "[t]he way in which parts are arranged or put together to form a whole" and "[t]he interrelation or arrangement of parts in a complex entity." American Heritage Dictionary 1718 (4th ed. 2000); see also Random House Dictionary of the English Language 1410 (1967) (defining structure to mean, among other things, "the pattern of relationships, as of status or friendship, existing among the members of a group or society"). From the terms of RICO, it is apparent that an association-in-fact enterprise must have at least three structural features: a purpose, relationships among those associated with the enterprise, and longevity sufficient to permit these associates to pursue the enterprise's purpose. As we succinctly put it in Turkette, an association-in-fact enterprise is "a group of persons associated together for a common purpose of engaging in a course of conduct." 452 U.S., at 583, 101 S. Ct. 2524, 69 L. Ed. 2d 246. That an "enterprise" must have a purpose is apparent from the meaning of the term in ordinary usage, i.e., a "venture," "undertaking," or "project." Webster's Third New International Dictionary 757 (1976). The concept of "associat[ion]" requires both interpersonal relationships and a common interest. See id., at 132 (defining "association" as "an organization of persons having a common interest"); Black's Law Dictionary 156 (rev. 4th ed. 1968) (defining "association" as a "collection of persons who have joined together for a certain object"). Section 1962(c) reinforces this conclusion and also shows that an "enterprise" must have some longevity, since the offense proscribed by that provision demands proof that the enterprise had "affairs" of sufficient duration to permit an associate to "participate" in those affairs through "a pattern of racketeering activity." Although an association-in-fact enterprise must have these structural features, it does not follow that a district court must use the term "structure" in its jury instructions. A trial judge has considerable discretion in choosing the language of an instruction so long as the substance of the relevant point is adequately expressed. "Ascertainable." Whenever a jury is told that it must find the existence of an element beyond a reasonable doubt, that element must be "ascertainable" or else the jury could not find that it was proved. Therefore, telling the members of the jury that they had to ascertain the existence of an "ascertainable structure" would have been redundant and potentially misleading. "Beyond that inherent in the pattern of racketeering activity." This phrase may be interpreted in at least two different ways, and its correctness depends on the particular sense in which the phrase is used. If the phrase is interpreted to 3 mean that the existence of an enterprise is a separate element that must be proved, it is of course correct. As we explained in Turkette, the existence of an enterprise is an element distinct from the pattern of racketeering activity and "proof of one does not necessarily establish the other."4 452 U.S., at 583, 101 S. Ct. 2524, 69 L. Ed. 2d 246. On the other hand, if the phrase is used to mean that the existence of an enterprise may never be inferred from the evidence showing that persons associated with the enterprise engaged in a pattern of racketeering activity, it is incorrect. We recognized in Turkette that the evidence used to prove the pattern of racketeering activity and the evidence establishing an enterprise "may in particular cases coalesce." Ibid. 4 It is easy to envision situations in which proof that individuals engaged in a pattern of racketeering activity would not establish the existence of an enterprise. For example, suppose that several individuals, independently and without coordination, engaged in a pattern of crimes listed as RICO predicates--for example, bribery or extortion. Proof of these patterns would not be enough to show that the individuals were members of an enterprise. C The crux of petitioner's argument is that a RICO enterprise must have structural features in addition to those that we think can be fairly inferred from the language of the statute. Although petitioner concedes that an association-in-fact enterprise may be an "'informal'" group and that "not 'much'" structure is needed, Reply Brief for Petitioner 24, he contends that such an enterprise must have at least some additional structural attributes, such as a structural "hierarchy," "role differentiation," a "unique modus operandi," a "chain of command," "professionalism and sophistication of organization," "diversity and complexity of crimes," "membership dues, rules and regulations," "uncharged or additional crimes aside from predicate acts," an "internal discipline mechanism," "regular meetings regarding enterprise affairs," an "enterprise 'name,'" and "induction or initiation ceremonies and rituals," id., at 31-35; see also Brief for Petitioner 26-28, 33; Tr. of Oral Arg. 6, 8, 17. We see no basis in the language of RICO for the structural requirements that petitioner asks us to recognize. As we said in Turkette, an association-in-fact enterprise is simply a continuing unit that functions with a common purpose. Such a group need not have a hierarchical structure or a "chain of command"; decisions may be made on an ad hoc basis and by any number of methods--by majority vote, consensus, a show of strength, etc. Members of the group need not have fixed roles; different members may perform different roles at different times. The group need not have a name, regular meetings, dues, established rules and regulations, disciplinary procedures, or induction or initiation ceremonies. While the group must function as a continuing unit and remain in existence long enough to pursue a course of conduct, nothing in RICO exempts an enterprise whose associates engage in spurts of activity punctuated by periods of quiescence. Nor is the statute limited to groups whose crimes are sophisticated, diverse, complex, or unique; for example, a group that does nothing but engage in extortion through old-fashioned, unsophisticated, and brutal means may fall squarely within the statute's reach. The breadth of the "enterprise" concept in RICO is highlighted by comparing the statute with other federal statutes that target organized criminal groups. For example, 18 U.S.C. ß 1955(b), which was enacted together with RICO as part of the Organized Crime Control Act of 1970, Pub. L. 91-452, 84 Stat. 922, defines an "illegal gambling business" as one that "involves five or more persons who conduct, finance, manage, supervise, direct, or own all or part of such business." A "continuing criminal enterprise," as defined in 21 U.S.C. ß 848(c), must involve more than five persons who act in concert and must have an "organizer," supervisor, or other manager. Congress included no such requirements in RICO. III A Contrary to petitioner's claims, rejection of his argument regarding these structural characteristics does not lead to a merger of the crime proscribed by 18 U.S.C. ß 1962(c) (participating in the affairs of an enterprise through a pattern of racketeering activity) and any of the following offenses: operating a gambling business, ß 1955; conspiring to commit one or more crimes that are listed as RICO predicate offenses, ß 371; or conspiring to violate the RICO statute, ß 1962(d). Proof that a defendant violated ß 1955 does not necessarily establish that the defendant conspired to participate in the affairs of a gambling enterprise through a pattern of racketeering activity. In order to prove the latter offense, the prose- 4 cution must prove either that the defendant committed a pattern of ß 1955 violations or a pattern of state-law gambling crimes. See ß 1961(1). No such proof is needed to establish a simple violation of ß 1955. Likewise, proof that a defendant conspired to commit a RICO predicate offense--for example, arson--does not necessarily establish that the defendant participated in the affairs of an arson enterprise through a pattern of arson crimes. Under ß 371, a conspiracy is an inchoate crime that may be completed in the brief period needed for the formation of the agreement and the commission of a single overt act in furtherance of the conspiracy. See United States v. Feola, 420 U.S. 671, 694, 95 S. Ct. 1255, 43 L. Ed. 2d 541 (1975). Section 1962(c) demands much more: the creation of an "enterprise"--a group with a common purpose and course of conduct--and the actual commission of a pattern of predicate offenses.5 5 The dissent states that "[o]nly if proof of the enterprise element . . . requires evidence of activity or organization beyond that inherent in the pattern of predicate acts will RICO offenses retain an identity distinct from ß 371 offenses." Post, at 957, 173 L. Ed. 2d, at 1283. This is incorrect: Even if the same evidence may prove two separate elements, this does not mean that the two elements collapse into one. Finally, while in practice the elements of a violation of ßß 1962(c) and (d) are similar, this overlap would persist even if petitioner's conception of an association-in-fact enterprise were accepted. B Because the statutory language is clear, there is no need to reach petitioner's remaining arguments based on statutory purpose, legislative history, or the rule of lenity. In prior cases, we have rejected similar arguments in favor of the clear but expansive text of the statute. See National Organization for Women, 510 U.S., at 262, 114 S. Ct. 798, 127 L. Ed. 2d 99 ("The fact that RICO has been applied in situations not expressly anticipated by Congress does not demonstrate ambiguity. It demonstrates breadth" (quoting Sedima, 473 U.S., at 499, 105 S. Ct. 3275, 87 L. Ed. 2d 346; brackets and internal quotation marks omitted)); see also Turkette, 452 U.S., at 589-591, 101 S. Ct. 2524, 69 L. Ed. 2d 246. "We have repeatedly refused to adopt narrowing constructions of RICO in order to make it conform to a preconceived notion of what Congress intended to proscribe." Bridge v. Phoenix Bond & Indem. Co., 553 U.S. 639, 660, 128 S. Ct. 2131, 170 L. Ed. 2d 1012 (2008); see also, e.g., National Organization for Women, supra, at 252, 114 S. Ct. 798, 127 L. Ed. 2d 99 (rejecting the argument that "RICO requires proof that either the racketeering enterprise or the predicate acts of racketeering were motivated by an economic purpose"); H. J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229, 244, 109 S. Ct. 2893, 106 L. Ed. 2d 195 (1989) (declining to read "an organized crime limitation into RICO's pattern concept"); Sedima, supra, at 481, 105 S. Ct. 3275, 87 L. Ed. 2d 346 (rejecting the view that RICO provides a private right of action "only against defendants who had been convicted on criminal charges, and only where there had occurred a 'racketeering injury'"). IV The instructions the District Court Judge gave to the jury in this case were correct and adequate. These instructions explicitly told the jurors that they could not convict on the RICO charges unless they found that the Government had proved the existence of an enterprise. See App. 111. The instructions made clear that this was a separate element from the pattern of racketeering activity. Ibid. The instructions also adequately told the jury that the enterprise needed to have the structural attributes that may be inferred from the statutory language. As noted, the trial judge told the jury that the Government was required to prove that there was "an ongoing organization with some sort of framework, formal or informal, for carrying out its objectives" and that "the various members and associates of the association function[ed] as a continuing unit to achieve a common purpose." Id., at 112. Finally, the trial judge did not err in instructing the jury that "the existence of an association-in-fact is oftentimes more readily proven by what is [sic] does, rather than by abstract analysis of its structure." Id., at 111-112. This instruction properly conveyed the point we made in Turkette that proof of a pattern of racketeering activity may be sufficient in a particular case to permit a jury to infer the existence of an association-in-fact enterprise. We therefore affirm the judgment of the Court of Appeals. It is so ordered. DISSENT BY: STEVENS 5 DISSENT Justice Stevens, with whom Justice Breyer joins, dissenting. In my view, Congress intended the term "enterprise" as it is used in the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. ß 1961 et seq., to refer only to businesslike entities that have an existence apart from the predicate acts committed by their employees or associates. The trial judge in this case committed two significant errors relating to the meaning of that term. First, he instructed the jury that "an association of individuals, without structural hierarchy, form[ed] solely for the purpose of carrying out a pattern of racketeering acts" can constitute an enterprise. App. 112. And he allowed the jury to find that element satisfied by evidence showing a group of criminals with no existence beyond its intermittent commission of racketeering acts and related offenses. Because the Court's decision affirming petitioner's conviction is inconsistent with the statutory meaning of the term enterprise and serves to expand RICO liability far beyond the bounds Congress intended, I respectfully dissent. I RICO makes it "unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity." ß 1962(c). The statute defines "enterprise" to include "any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." ß 1961(4). It is clear from the statute and our earlier decisions construing the term that Congress used "enterprise" in these provisions in the sense of "a business organization," Webster's Third New International Dictionary 757 (1976), rather than "a 'venture,' 'undertaking,' or 'project,'" ante, at 946, 173 L. Ed. 2d, at 1276 (quoting Webster's Third New International Dictionary, at 757). First, the terms "individual, partnership, corporation, association, or other legal entity" describe entities with formal legal structures most commonly established for business purposes. ß 1961(4). In context, the subsequent reference to any "union or group of individuals associated in fact although not a legal entity" reflects an intended commonality between the legal and nonlegal entities included in the provision. Ibid. (emphasis added). "The juxtaposition of the two phrases suggests that 'associated in fact' just means structured without the aid of legally defined structural forms such as the business corporation." Limestone Development Corp. v. Lemont, 520 F.3d 797, 804-805 (CA7 2008).1 1 To be sure, we have read RICO's enterprise term broadly to include entities with exclusively noneconomic motives or wholly unlawful purposes. See National Organization for Women, Inc. v. Scheidler, 510 U.S. 249, 252, 114 S. Ct. 798, 127 L. Ed. 2d 99 (1994) (NOW); United States v. Turkette, 452 U.S. 576, 580-581, 101 S. Ct. 2524, 69 L. Ed. 2d 246 (1981). But those holdings are consistent with the conclusion that an enterprise is a businesslike entity. Indeed, the examples of qualifying associations cited in Turkette--including loan-sharking, property-fencing, drug-trafficking, and counterfeiting operations--satisfy that criterion, as each describes an organization with continuing operations directed toward providing goods or services to its customers. See id., at 589-590, 101 S. Ct. 2524, 69 L. Ed. 2d 246 (citing 84 Stat. 923; 116 Cong. Rec. 592 (1970)). Similarly, the enterprise at issue in NOW was a nationwide network of antiabortion groups that had a leadership counsel and regular conferences and whose members undertook an extensive pattern of extortion, arson, and other racketeering activity for the purpose of "shut[ting] down abortion clinics." 510 U.S., at 253, 114 S. Ct. 798, 127 L. Ed. 2d 99. That an enterprise must have businesslike characteristics is confirmed by the text of ß 1962(c) and our decision in Reves v. Ernst & Young, 507 U.S. 170, 113 S. Ct. 1163, 122 L. Ed. 2d 525 (1993). Section 1962(c) creates liability for "conduct[ing] or participat[ing] . . . in the conduct of [an] enterprise's affairs through a pattern of racketeering activity." In Reves, we examined that provision's meaning and held that, "[i]n order to 'participate, directly or indirectly, in the conduct of such enterprise's affairs,' one must have some part in directing those affairs." Id., at 179, 113 S. Ct. 1163, 122 L. Ed. 2d 525 (quoting ß 1962(c)). It is not enough for a defendant to "carry on" or "participate in" an enterprise's affairs through a pattern of racketeering activity; instead, evidence that he operated, managed, or directed those affairs is required. See id., at 177-179, 113 S. Ct. 1163, 122 L. Ed. 2d 525. This requirement confirms that the enterprise element demands evidence of a certain quantum of businesslike organization--i.e., a system of processes, dealings, or other affairs that can be "directed." Our cases also make clear that an enterprise "is an entity separate and apart from the pattern of activity in which it engages." United States v. Turkette, 452 U.S. 576, 583, 101 S. Ct. 2524, 69 L. Ed. 2d 246 (1981). As with the requirement that an enterprise have businesslike characteristics, that an enterprise must have a separate existence is confirmed 6 by ß 1962(c) and Reves. If an entity's existence consisted solely of its members' performance of a pattern of racketeering acts, the "enterprise's affairs" would be synonymous with the "pattern of racketeering activity." Section 1962(c) would then prohibit an individual from conducting or participating in "the conduct of [a pattern of racketeering activity] through a pattern of racketeering activity"--a reading that is unbearably redundant, particularly in a case like this one in which a single pattern of activity is alleged. The only way to avoid that result is to require that an "enterprise's affairs" be something other than the pattern of racketeering activity undertaken by its members. 2 2 The other subsections of 18 U.S.C. ß 1962 further demonstrate the businesslike nature of the enterprise element and its necessary distinctness from the pattern of racketeering activity. Subsection (a) prohibits anyone who receives income derived from a pattern of racketeering activity from "us[ing] or invest[ing], directly or indirectly, any part of such income . . . in acquisition of any interest in, or the establishment or operation of, any enterprise." And subsection (b) prohibits anyone from "acquir[ing] or maintain[ing]" any interest in or control of an enterprise through a pattern of racketeering activity. We noted in NOW that the term enterprise "plays a different role in the structure" of those subsections than it does in subsection (c) because the enterprise in those subsections is the victim. 510 U.S., at 258-259, 114 S. Ct. 798, 127 L. Ed. 2d 99. We did not, however, suggest that the term has a substantially different meaning in each subsection. To the contrary, our observation that the enterprise in subsection (c) is "the vehicle through which the unlawful pattern of racketeering activity is committed," id., at 259, 114 S. Ct. 798, 127 L. Ed. 2d 99, indicates that, as in subsections (a) and (b), the enterprise must have an existence apart from the pattern of racketeering activity. Recognizing an enterprise's businesslike nature and its distinctness from the pattern of predicate acts, however, does not answer the question of what proof each element requires. In cases involving a legal entity, the matter of proving the enterprise element is straightforward, as the entity's legal existence will always be something apart from the pattern of activity performed by the defendant or his associates. Cf. Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158, 163, 121 S. Ct. 2087, 150 L. Ed. 2d 198 (2001). But in the case of an association-in-fact enterprise, the Government must adduce other evidence of the entity's "separate" existence and "ongoing organization." Turkette, 452 U.S., at 583, 101 S. Ct. 2524, 69 L. Ed. 2d 246. There may be cases in which a jury can infer that existence and continuity from the evidence used to establish the pattern of racketeering activity. Ibid. But that will be true only when the pattern of activity is so complex that it could not be performed in the absence of structures or processes for planning or concealing the illegal conduct beyond those inherent in performing the predicate acts. More often, proof of an enterprise's separate existence will require different evidence from that used to establish the pattern of predicate acts. Precisely what proof is required in each case is a more difficult question, largely due to the abundant variety of RICO predicates and enterprises. Because covered enterprises are necessarily businesslike in nature, however, proof of an association-in-fact enterprise's separate existence will generally require evidence of rules, routines, or processes through which the entity maintains its continuing operations and seeks to conceal its illegal acts. As petitioner suggests, this requirement will usually be satisfied by evidence that the association has an "ascertainable structure beyond that inherent in the pattern of racketeering activity in which it engages." Pet. for Cert. i. Examples of such structure include an organizational hierarchy, a "framework for making decisions," an "internal discipline mechanism," "regular meetings," or a practice of "reinvest[ing] . . . proceeds to promote and expand the enterprise." Reply Brief for Petitioner 31-34. In other cases, the enterprise's existence might be established through evidence that it provides goods or services to third parties, as such an undertaking will require organizational elements more comprehensive than those necessary to perform a pattern of predicate acts. Thus, the evidence needed to establish an enterprise will vary from case to case, but in every case the Government must carry its burden of proving that an alleged enterprise has an existence separate from the pattern of racketeering activity undertaken by its constituents. II In some respects, my reading of the statute is not very different from that adopted by the Court. We agree that "an association-in-fact enterprise must have at least three structural features: a purpose, relationships among those associated with the enterprise, and longevity sufficient to permit these associates to pursue the enterprise's purpose." Ante, at 946, 173 L. Ed. 2d, at 1276. But the Court stops short of giving content to that requirement. It states only that RICO "demands proof that the enterprise had 'affairs' of sufficient duration to permit an associate to 'participate' in those affairs through 'a pattern of racketeering activity,'" before concluding that "[a] trial judge has considerable discretion in choosing the language of an instruction" and need not use the term "structure." Ibid. While I agree the word "structure" is not talismanic, I would hold that the instructions must convey the requirement that the alleged enterprise have an existence apart from the alleged pattern of predicate acts. The Court's decision, by contrast, will allow juries to infer the existence of an enterprise in every case involving a pattern of racketeering activity undertaken by two or more associates. 7 By permitting the Government to prove both elements with the same evidence, the Court renders the enterprise requirement essentially meaningless in association-in-fact cases. It also threatens to make that category of ß 1962(c) offenses indistinguishable from conspiracies to commit predicate acts, see ß 371, as the only remaining difference is ß 1962(c)'s pattern requirement. The Court resists this criticism, arguing that ß 1962(c) "demands much more" than the inchoate offense defined in ß 371. Ante, at 950, 173 L. Ed. 2d, at 1278. It states that the latter "may be completed in the brief period needed for the formation of the agreement and the commission of a single overt act in furtherance of the conspiracy," whereas the former requires the creation of "a group with a common purpose and course of conduct--and the actual commission of a pattern of predicate offenses." Ibid. Given that it is also unlawful to conspire to violate ß 1962(c), see ß 1962(d), this comment provides no assurance that RICO and ß 371 offenses remain distinct. Only if proof of the enterprise element--the "group with a common purpose and course of conduct"--requires evidence of activity or organization beyond that inherent in the pattern of predicate acts will RICO offenses retain an identity distinct from ß 371 offenses. This case illustrates these concerns. The trial judge instructed the jury that an enterprise need have only the degree of organization necessary "for carrying out its objectives" and that it could "find an enterprise where an association of individuals, without structural hierarchy, forms solely for the purpose of carrying out a pattern of racketeering acts." App. 112.3 These instructions were plainly deficient, as they did not require the Government to prove that the alleged enterprise had an existence apart from the pattern of predicate acts. Instead, they permitted the Government's proof of the enterprise's structure and continuing nature--requirements on which all agree--to consist only of evidence that petitioner and his associates performed a pattern of racketeering activity. 3 For the full text of the relevant portion of the instructions, see ante, at 942-943, n 1, 173 L. Ed. 2d, at 1273-1274. Petitioner's requested instruction would have required the jury to find that the alleged enterprise "had an ongoing organization, a core membership that functioned as a continuing unit, and an ascertainable structural hierarchy distinct from the charged predicate acts." Id., at 95. That instruction does not precisely track my understanding of the statute; although evidence of "structural hierarchy" can evidence an enterprise, it is not necessary to establish that element. Nevertheless, the proposed instruction would have better directed the jury to consider whether the alleged enterprise possessed the separate existence necessary to expose petitioner to liability under ß 1962(c), and the trial judge should have considered an instruction along those lines. The trial judge also erred in finding the Government's evidence in this case sufficient to support petitioner's RICO convictions. Petitioner was alleged to have participated and conspired to participate in the conduct of an enterprise's affairs through a pattern of racketeering activity consisting of one act of bank robbery and three acts of interstate transportation of stolen funds. Id., at 15-19. The "primary goals" of the alleged enterprise "included generating money for its members and associates through the commission of criminal activity, including bank robberies, bank burglaries and interstate transportation of stolen money." Id., at 14. And its modus operandi was to congregate periodically when an associate had a lead on a night-deposit box that the group could break into. Whoever among the associates was available would bring screwdrivers, crowbars, and walkie-talkies to the location. Some acted as lookouts, while others retrieved the money. When the endeavor was successful, the participants would split the proceeds. Thus, the group's purpose and activities, and petitioner's participation therein, were limited to sporadic acts of taking money from bank deposit boxes. There is no evidence in RICO's text or history that Congress intended it to reach such ad hoc associations of thieves. III Because the instructions and evidence in this case did not satisfy the requirement that an alleged enterprise have an existence separate and apart from the pattern of activity in which it engages, I respectfully dissent. 8 Page 1 United States of America, Appellee-Cross-Appellant, v. Daniel Milikowsky, Defendant-Appellant-Cross-Appellee, MACC Holding Corporation, Defendant. Docket Nos. 94-1450, 94-1492,*94-1493 * voluntarily withdrawn. UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT 65 F.3d 4; 1995 U.S. App. LEXIS 24457; 1995-2 Trade Cas. (CCH) P71,125 April 27, 1995, Argued August 30, 1995, Decided JUDGES: Before OAKES, McLAUGHLIN and LEVAL, Circuit Judges. OPINION BY: OAKES OPINION OAKES, Senior Circuit Judge: This appeal raises the issue, under the Sentencing Guidelines, whether a district court may downwardly depart in order to avoid imprisoning an antitrust offender when imprisonment would impose extraordinary hardship on the defendant's employees. Daniel Milikowsky appeals, and the government cross-appeals, from a judgment of conviction entered August 10, 1994, following a jury trial in the United States District Court for the District of Connecticut (Ellen Bree Burns, J.). The jury convicted Milikowsky, a principal in several small steel-related businesses, of one count of price-fixing, in violation of the Sherman Act, 15 U.S.C. ß 1. Departing downward to avoid imposing a prison sentence, the court sentenced Milikowsky to two years' probation, conditioned on a period of six months' home confinement and 150 hours of community service, and a $ 250,000 fine. Milikowsky contends that his conviction should be overturned for three reasons: (1) the government failed to correct, and knowingly reinforced, the false testimony of a prosecution witness, Benjamin DeBerry; (2) the court wrongly limited cross-examination of DeBerry; and (3) the government made prejudicial comments during its closing argument. On cross-appeal, the government contends that the district court erred in departing downward one offense level from the applicable Guidelines range because of the effect that imprisonment would have on Milikowsky's employees. Milikowsky's contentions have been thoroughly addressed in Judge Burns's comprehensive opinion denying Milikowsky's motions for a new trial and for acquittal, United States v. Milikowsky, 1994 U.S. Dist. LEXIS 20581, No. 3-93-CR-191 (EBB) (D. Conn. Aug. 25, 1994), and we affirm his conviction for the reasons stated therein. We write only to address the sentencing issue. BACKGROUND During the period relevant to this litigation, Milikowsky, a resident of New Haven, Connecticut, was a principal in several steel-related businesses -- Jordan International Company ("Jordan"), a steel trading company headquartered in New Haven, Prospect Industries ("Prospect"), a steel pail manufacturing company, and Mid Atlantic Container Corp. ("Mid Atlantic"), which manufactured new steel drums at a plant in Linden, New Jersey, until April 1990, when its assets were sold to The Russell-Stanley Corp. In July 1993, a one-count indictment was filed in the District of Connecticut, charging Milikowsky and MACC Holding Corp. ("MACC"), the successor corporation to Mid Atlantic, along with unnamed co-conspirators, with conspiring to fix the prices of new steel drums in the eastern United States from May 1987 through April 1990. After a three-week jury trial, Milikowsky and MACC were convicted. Under the Sentencing Guidelines (Nov. 1989 version) 1 , the base offense level for an individual defendant convicted of a Sherman Act violation such as price-fixing is nine. U.S.S.G. ß 2R1.1(a). Two levels are added to the offense level if Page 2 65 F.3d 4, *; 1995 U.S. App. LEXIS 24457, **; 1995-2 Trade Cas. (CCH) P71,125 the volume of commerce attributable to the defendant is more than $15 million, and three levels are added if volume is more than $50 million. Id. ß 2R1.1(b)(2). One level is added if conduct involved bid-rigging. Id. ß 2R1.1(b)(1). 1 The parties agree that Milikowsky's sentence is governed by the November 1989 Guidelines, and all subsequent references refer to that version of the Guidelines. At sentencing, the district court found the bid-rigging enhancement inappropriate, but it concluded, over Milikowsky's objection, that a two-level enhancement, for greater than $ 15 million volume, was appropriate. The resulting offense level, accordingly, was eleven. In view of Milikowsky's criminal history category of I, the applicable Guidelines range was eight to fourteen months' imprisonment. Under this offense level, a split sentence is available, allowing part of the term to be served by community confinement or home detention, but imprisonment for at least half the minimum term is required. Id. ß 5C1.1(d). Milikowsky requested a downward departure from level eleven that would allow the court to sentence him to probation rather than prison, on the basis of the effect imprisonment would have on his family and on his employees at Jordan and Prospect. The court took note of the destructive effect imprisonment would have on Milikowsky's family, but found it insufficient by itself to justify a departure. However, the court concluded that Milikowsky's other contention -- the effect of imprisonment on his employees -- did allow the court to downwardly depart, and accordingly it departed down one level, to level ten. The court noted that Milikowsky's circumstances differed from those of other high-level business people it had sentenced, in that "this is a situation where I am convinced that the loss of his daily guidance would extraordinarily impact on persons who are employed by him." Transcript of sentencing of Aug. 8, 1994, at 93. Accordingly, the court placed Milikowsky on two years' probation, with the first six months to be spent in home confinement; it also sentenced him to 150 hours of community service and fined him $ 250,000. DISCUSSION The government contends that the court's downward departure is inconsistent with the deterrence rationale of U.S.S.G. ß 2R1.1 (the "Antitrust Guideline"), and that it is contrary to case law which rejects effect on employees as a ground for departure. First, the Antitrust Guideline, as the government notes, reflects the Sentencing Commission's belief that, in order to deter potential violators, antitrust offenders should generally be sentenced to prison. The commentary to the Antitrust Guideline states that "the Commission believes that the most effective method to deter individuals from committing [antitrust violations] is through imposing short prison sentences coupled with large fines. The controlling consideration underlying this guideline is general deterrence. . . . In very few cases will the guidelines not require that some confinement be imposed." U.S.S.G. ß 2R1.1, cmt. (background); see also United States v. Haversat, 22 F.3d 790, 797-98 (8th Cir. 1994) (confinement should be imposed in "all but the rarest" criminal antitrust cases). Second, the government cites cases from other circuits holding that the business effects of a white collar offender's incarceration generally provide no ground for departure. See, e.g., United States v. Reilly, 33 F.3d 1396, 1424 (3d Cir. 1994) ("there was nothing extraordinary in the fact that the incarceration of a company's principal might 'cause harm to the business and its employees'"); United States v. Sharapan, 13 F.3d 781, 785 (3d Cir. 1994); United States v. Rutana, 932 F.2d 1155, 1158 (6th Cir.), cert. denied, 502 U.S. 907, 116 L. Ed. 2d 243, 112 S. Ct. 300 (1991); United States v. Mogel, 956 F.2d 1555, 1563-64 (11th Cir.), cert. denied, 121 L. Ed. 2d 115, 113 S. Ct. 167 (1992). Since enforcement actions by the Antitrust Division have been directed in large part against industries made up primarily of small businesses, see Report of the American Bar Ass'n, Section of Antitrust Law, Task Force on the Antitrust Division, 58 Antitrust L.J. 747, 755 (1990); 60 Minutes with Charles F. Rule, Assistant Attorney General, Antitrust Division, 57 Antitrust L.J. 257, 258-61 (1988), the government contends that there is nothing "extraordinary" about the prospect of imprisoning, and potentially putting out of business, small business owners. We are not convinced that the government's contentions require vacatur of the court's decision to depart. The Sentencing Reform Act provides that a court may impose a sentence outside the Guideline range when it finds a "mitigating circumstance of a kind, or to a degree, not adequately taken into consideration by the Sentencing Commission in formulating the guidelines." 18 U.S.C. ß 3553(b) (1988). The Sentencing Commission has explained that "courts should treat each guideline as 'carving out a "heartland," a set of typical cases' and that, 'when a court finds an atypical case,' that Page 3 65 F.3d 4, *; 1995 U.S. App. LEXIS 24457, **; 1995-2 Trade Cas. (CCH) P71,125 'significantly differs from the norm, the court may consider whether a departure is warranted.'" United States v. Merritt, 988 F.2d 1298, 1309 (2d Cir.) (quoting U.S.S.G., intro. 4(b)), cert. denied, 124 L. Ed. 2d 683, 113 S. Ct. 2933 (1993). This court has taken this guidance firmly to heart in recent years, making clear that a district court not only can, but must, consider the possibility of downward or upward departure "when there are compelling considerations that take the case out of the heartland factors upon which the Guidelines rest." United States v. Monk, 15 F.3d 25, 29 (2d Cir. 1994); see also United States v. Restrepo, 999 F.2d 640, 644 (2d Cir.) (listing cases upholding departures), cert. denied, 126 L. Ed. 2d 352, 114 S. Ct. 405 (1993); Merritt, 988 F.2d at 1309-10 (same). "Departure in the appropriate case," we have emphasized, "is essential to the satisfactory functioning of the sentencing system." Merritt, 988 F.2d at 1309. "The authority to depart provides a 'sensible flexibility' to insure that atypical cases are not shoe-horned into a Guidelines range that is formulated only for typical cases." United States v. Rogers, 972 F.2d 489, 493 (2d Cir. 1992). Among the permissible justifications for downward departure, we have held, is the need, given appropriate circumstances, to reduce the destructive effects that incarceration of a defendant may have on innocent third parties. Although a Guidelines policy statement indicates that "family ties and responsibilities . . . are not ordinarily relevant in determining whether a sentence should be outside the guidelines," U.S.S.G. ß 5H1.6 (policy statement), we have nonetheless held that, where a defendant's parental responsibilities were "extraordinary" and incarceration would "wreak extraordinary destruction" on her four young dependents, downward departure to avoid imprisonment was warranted. United States v. Johnson, 964 F.2d 124, 126-30 (2d Cir. 1992); see also United States v. Califano, 978 F.2d 65 (2d Cir. 1992) (per curiam); United States v. Alba, 933 F.2d 1117, 1122 (2d Cir. 1991). While the Commission undoubtedly "took ordinary family responsibilities into account when formulating the Guidelines," we reasoned, "extraordinary circumstances . . . are by their nature not capable of adequate consideration" and "therefore may constitute proper grounds for departure." Johnson, 964 F.2d at 128. We find the reasoning of Johnson applicable to the antitrust and employment context. It is true, as the government notes, that the Antitrust Guideline favors prison terms for antitrust offenders as a means of deterring potential violators. See U.S.S.G. ß 2R1.1, cmt. (background). Additionally, in drawing up the Antitrust Guidelines, the Commission could hardly have overlooked the effect that imprisonment of offenders would have on small businesses that are likely to be heavily dependent on those very offenders for their continuing success. See cases cited supra, at 5. In considering, and taking into account, the effect of imprisonment on antitrust offenders' businesses, however, the Commission did not thereby take into account the effect imprisonment would have in "extraordinary circumstances." Such circumstances, as we explained in Johnson, 964 F.2d at 128, "are by their nature not capable of adequate consideration." The issue before us, then, is whether the facts considered by the district court comprise such "extraordinary circumstances," falling outside the heartland envisioned by the Antitrust Guideline. Our de novo review, see Rogers, 972 F.2d at 492, makes clear that extraordinary effects on an antitrust offender's employees, "to a degree[] not adequately taken into consideration by the Sentencing Commission," warrant a downward departure. We thus review for clear error the district court's factual determination that such extraordinary circumstances are indeed present. United States v. Jagmohan, 909 F.2d 61, 64 (2d Cir. 1990). The district court found Milikowsky's situation extraordinary when it distinguished his case from other "high level business people" it had sentenced. Tr. of sentencing of Aug. 8, 1994, at 93. What distinguished his situation, the court noted, was the "extraordinary" impact that the loss of his daily involvement would have on his business and, consequently, on his employees. Id. The record more than adequately supports this conclusion. Before the court were unrebutted letters and testimony from family members, employees, business associates, and Milikowsky's chief trade creditor attesting to his indispensability to Jordan and Prospect, Milikowsky's two remaining businesses. This record, undisputed by the government, allowed the court to conclude that Milikowsky is the only individual with the knowledge, skill, experience, and relationships to run Jordan, the steel trading concern, on a daily basis: he is the sole buyer of all steel, the only person with the requisite ability and contacts to buy steel at competitive rates, the most successful seller, and the person who deals with Jordan's customers and suppliers. The record allowed the court to conclude, additionally, that Milikowsky's daily involvement at Jordan is necessary to ensure the continuing viability of Prospect, the steel pail company. Milikowsky is the sole buyer of all the steel Prospect uses to make pails, and, according to testimony, the cost advantage attributable to his steel-buying expertise is virtually the only reason that Prospect remains a viable operation. The two companies' dependence on Milikowsky is greatly increased by the companies' extremely precarious financial condition. The two companies, as well as the Milikowsky families personally, are indebted for approximately $ 20 million to an international steel conglomerate, TradeARBED. According to the testimony of Milikowsky's business lawyer, Page 4 65 F.3d 4, *; 1995 U.S. App. LEXIS 24457, **; 1995-2 Trade Cas. (CCH) P71,125 Jordan and Prospect are so deeply indebted that they are unable to obtain credit from anywhere else, and TradeARBED continues to provide credit only so long as the companies remain profitable. The court, crediting the unrebutted testimony on behalf of Milikowsky, was able to conclude that the companies' continuing livelihood depends entirely on Milikowsky's personal involvement, and that, in his absence, TradeARBED might well withdraw its credit, leading to both companies' immediate bankruptcy and the loss of employment for Jordan's employees and Prospect's 150 to 200 employees. On the basis of this record, we cannot find clear error in the court's conclusion that imprisoning Milikowsky would have extraordinary effects on his employees to a degree not adequately taken into consideration by the Sentencing Commission. While we agree with our sister circuits that business ownership alone, or even ownership of a vulnerable small business, does not make downward departure appropriate, see cases cited supra, departure may be warranted where, as here, imprisonment would impose extraordinary hardship on employees. As we have noted in similar circumstances, the Sentencing Guidelines "do not require a judge to leave compassion and common sense at the door to the courtroom." Johnson, 964 F.2d at 125. CONCLUSION We have considered all of Milikowsky's contentions as to why his conviction should be reversed, and the government's contentions as to why the sentence should be vacated, and have found no basis for either reversal or vacatur. The judgment of conviction and the sentence are affirmed. UNITED STATES OF AMERICA, Appellee, v. BERNARD J. EBBERS, DefendantAppellant. Docket No. 05-4059-cr UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT 458 F.3d 110; 2006 U.S. App. LEXIS 19190; Fed. Sec. L. Rep. (CCH) P93,921 January 30, 2006, Argued July 28, 2006, Decided JUDGES: Before: WINTER, CABRANES, and B.D. PARKER, Circuit Judges. OPINION BY: WINTER OPINION WINTER, Circuit Judge: Bernard J. Ebbers appeals from his conviction by a jury on nine counts of conspiracy, securities fraud, and related crimes and from the 25-year jail sentence imposed by Judge Jones. Ebbers was the Chief Executive Officer ("CEO") of WorldCom, Inc., a publicly traded global telecommunications company. During the pertinent times -- from the close of the fourth quarter of the 2000 fiscal year through the first quarter of the 2002 fiscal year -- he engineered a scheme to disguise WorldCom's declining operating performance by falsifying its financial reports. Although the scheme was multi-faceted, the fraud primarily involved the treating of hundreds of millions of dollars of what had always been recorded operating costs as capital expenditures for several fiscal quarters. After a seven week trial, the jury convicted Ebbers on all counts. He was sentenced to 25 years' imprisonment, to be followed by 3 years' supervised release. On appeal, Ebbers principally contends that the district court erred in permitting the government to introduce testimony by immunized witnesses while denying immunity to potential defense witnesses who were rendered unavailable to Ebbers by their invocation of the privilege against self-incrimination. He also claims that the court should not have given a conscious avoidance instruction and that the government should have been required to allege and prove violations of Generally Accepted Accounting Principles ("GAAP"). Finally, he challenges his sentence as based on an inaccurate calculation of losses to investors, as significantly greater than those imposed on his co-conspirators, and as unreasonable in length. We affirm. BACKGROUND We must of course view the evidence in the light most favorable to the government and draw all permissible inferences from that evidence in its favor. Glasser v. United States, 315 U.S. 60, 80, 62 S. Ct. 457, 86 L. Ed. 680 (1942). a) Beginnings There is an element of tragedy here in that it was not a lack of legitimate entrepreneurial skills that caused Ebbers to resort to fraud. Before WorldCom, he was, among other things, a teacher, coach, and warehouse manager. He was a motel operator when, in 1983, he first invested in Long Distance Discount Services ("LDDS"), a small long distance company in Mississippi. When LDDS was in danger of failing in 1985, Ebbers agreed to become its CEO and led it to profitability by merging with other long distance providers. In 1989, LDDS went public by merging with Advantage Companies, another telecommunications company that was listed on NASDAQ. In 1995, LDDS changed its name to WorldCom, Inc. After WorldCom acquired MCI, Inc., in 1998, it was a global company with subsidiaries in Brazil, Mexico, and Canada. WorldCom then tried to acquire Sprint, but the Justice Department and the European Union stopped the merger on antitrust grounds. Having exhausted the market for acquisition targets in the long distance business, WorldCom began to acquire web hosting services. By 2000, WorldCom had about 90,000 employees in 65 countries, and reported revenues of $ 39 billion. 1 458 F.3d 110, *; 2006 U.S. App. LEXIS 19190, **; Fed. Sec. L. Rep. (CCH) P93,921 As part of its business, WorldCom built a global network of fiber-optic cables and telephone wires to transmit data and telephone calls. It also leased capacity on other companies' network facilities to transmit data and calls. The cost of the leasing was WorldCom's single largest expense -- styled "line costs." When the "dot-com bubble" burst in early 2000, WorldCom's business slowed dramatically as some of its dot-com customers were unable to pay their bills and demand for WorldCom's internet services declined. Anticipating growth rather than declining demand, WorldCom had added 10,000 new employees, continued to invest heavily in new equipment, and had taken on long-term line leases with fixed monthly payments. By the end of the third quarter of 2000, as its revenue growth decreased and its expenses increased, the company could no longer meet investors' expectations of revenue and profit growth. b) Ebbers' Personal Finances By this time, Ebbers had powerful personal as well as occupational motives to see that investors' expectations were met and that WorldCom's stock price did not fall. Although Ebbers had become very wealthy since his earlier days, his consumption and investment habits outpaced his income. Ebbers had accumulated millions of shares of WorldCom stock but had borrowed over $ 400 million from banks, using his stock in WorldCom as collateral. As WorldCom's stock price began to drop in 2000, Ebbers received margin calls from the banks, requiring him either to put up more stock as collateral or to pay back a portion of the money he owed. Because he had used much of the borrowed money to buy relatively illiquid assets, such as a ranch, timber lands, and a yacht-building company, Ebbers could not use those assets to meet the margin calls. As WorldCom's stock price continued to fall, Ebbers pledged more of his WorldCom stock until every share he owned was collateral for the loans. By October 2000, Ebbers entered into a forward sale transaction, allowing Bank of America to sell some of his WorldCom stock at a future date in exchange for $ 70.5 million in cash to pay off his margin debts. WorldCom assumed the liability for the debts to the banks in October 2000, requiring Ebbers to make payments directly to WorldCom in the amount the company owed the banks; the debts to WorldCom and to the banks were still secured by Ebbers' WorldCom stock. c) Third Quarter 2000 As a public company, WorldCom was required to file quarterly financial statements and annual reports with the SEC. When it became clear that the company would be unable to meet analysts' expectations in the third quarter of 2000, Ebbers and WorldCom's Chief Financial Officer ("CFO") Scott Sullivan reviewed the monthly revenue reports and discussed the company's options. Sullivan told Ebbers that WorldCom's financial performance had deteriorated and that they should issue an earnings warning to investors. Ebbers refused. Sullivan then told Ebbers that to meet expectations the company would have to make an improper adjustment to the revenue figure. Ebbers replied that "[W]e have to hit our numbers." Sullivan instructed others to increase the publicly reported revenues by adding $ 133 million in anticipated under-usage penalties to the revenue calculation, even though he believed that those penalties were not likely to be collected. Soon after, Sullivan learned that line cost expenses would be almost $ 1 billion greater than expected. He reported that to Ebbers, who reiterated that the company had to hit its quarterly earnings estimates. Sullivan instructed Controller David Myers and his subordinates Buford Yates, Betty Vinson, and Troy Normand to reduce line cost expense accounts in the general ledger while also reducing reserves in the same amounts, which lowered the reported line costs by about $ 828 million. As a result, WorldCom's reported earnings were increased by the same amount. Vinson and Normand believed the entries were wrong and considered resigning. When Sullivan told Ebbers that the accounting staff might quit, Ebbers told Sullivan that "we shouldn't be making adjustments; we've got to get the operations of this company going; we shouldn't be putting people in this position." Ebbers then spoke to Controller Myers, apologizing for the position that Myers and his staff were put in. In November 2000, WorldCom lowered its future earnings estimates and offered new guidance to analysts. d) Fourth Quarter 2000 WorldCom's revenues and line costs did not improve in the fourth quarter of 2000. In January 2001, Ebbers and Sullivan agreed that WorldCom would not be able to meet even the analysts' revised expectations if it reported its actual results. Sullivan asked Ebbers if he would again reduce the earnings estimate given to analysts, but Ebbers refused to do so. Sullivan asked Myers to alter the reported revenue and expense numbers to meet expectations. The commissions paid to airlines as part of a marketing partnership were no longer removed from the reported revenues, increasing the revenue reported by about $ 42 million. WorldCom's line cost expenses were $ 800 million above analysts' expectations. Sullivan directed Myers to bring the reported line costs in line with expectations. Myers and his staff then reduced the income tax reserve by $ 407 million, 2 458 F.3d 110, *; 2006 U.S. App. LEXIS 19190, **; Fed. Sec. L. Rep. (CCH) P93,921 and altered other accounts until they were able to reduce the reported line costs by $ 797 million for the fourth quarter. Monthly reports sent to Ebbers, referred to at trial as the Monthly Budget Variation Reports ("MBVRs"), detailed the company's financial results and included the reduced line costs, giving the company an apparent gross margin of 78% in September 2000 and 74% in December 2000 -- margins that had never been achieved by WorldCom before. The 2000 annual report and Form 10-K also contained the false information. e) First Quarter 2001 In early 2001, WorldCom's line costs were still hundreds of millions of dollars higher than the company had predicted, again making it impossible to meet analysts' expectations without further manipulation of the company's financial reports. The staff had been asked to find ways to reduce line costs, but the proposed cost savings were far smaller than needed to meet expectations. When the first quarter ended, reserves had been largely exhausted and could no longer be used to reduce line costs. Sullivan suggested capitalization of the line costs, that is, shifting a portion of the costs out of reported current expenses into capital expenses. Because line costs had always been treated as operating expenses, their unannounced treatment as capital expenses would disguise the decline in earnings. Myers and his staff agreed to capitalize about $ 771 million in line costs, although they believed it to be improper. At a dinner in Washington in March 2001, Sullivan and Ebbers discussed the line cost problem. Sullivan told Ebbers that the planned allocation of current expenses to capital expenses -- in an amount over $ 500 million -- "wasn't right." Ebbers did not deter him from the allocation. Ebbers approved the capitalization of line costs in a later conversation with Sullivan. He told Sullivan that "[w]e have to grow our revenue and we have to cut our expenses, but we have to hit the numbers this quarter." Sullivan told Myers to change the general ledger to capitalize a portion of the line cost expenses in an amount totaling hundreds of millions of dollars. Ebbers later told Sullivan to change the format of the reports to remove the line cost figures. When Ebbers spoke to analysts and the public about WorldCom's first quarter performance in the earnings conference call, he did not mention the change in how the company was booking line costs. Instead, he said "there were no storms on the horizon," urging them to "go out and buy stock." f) Second Quarter 2001 Capitalizing WorldCom's line cost expenses left another problem unaddressed: revenues were not growing at the 12% annual rate that Ebbers had predicted. Missing the revenue growth target was likely to lower WorldCom's stock price. Sullivan, Ebbers, and a handful of other executives created a new program called "Close the Gap" to "get [the] operating performance . . . up to the market guidance expectations" by finding new items to include in revenue. Each month, and sometimes more often, the business operations group presented revenue data to Ebbers in detail as part of the "Close the Gap" program. Sullivan told Ebbers that there was no basis for including many of the opportunities presented in the "Close the Gap" program in reported revenues. In a voicemail to Ebbers, Sullivan described some of the items eventually included in reported revenues as "accounting fluff," "one-time stuff," and "junk." In July 2001, Ebbers sent a memorandum to Chief Operating Officer ("COO") Ron Beaumont, who was involved in the "Close the Gap" program, asking him "[w]here we stand on those one time events that had to happen in order for us to have a chance to make our numbers." Ebbers and Sullivan were aware that the company's true results fell far short of analysts' expectations, but ordered the improper revenue accounting so that those expectations would be met. Once again, Sullivan told Ebbers that the company could reach the analysts' estimates only by capitalizing a portion of its line costs. Ebbers attended one of the line cost meetings around this time, and explained to the employees there that his "lifeblood was in the stock of the company" and that if the price fell below about $ 12 per share, he would be wiped out financially by margin calls. Although the line costs had improved slightly since the previous quarter, the accounting staff still had to capitalize over $ 610 million in line costs in order to meet earnings estimates. g) Third Quarter 2001 In the third quarter of 2001, WorldCom's actual revenue growth rate, as reported internally to Ebbers, had fallen to about 5.5%. However, Ebbers announced that WorldCom had sustained its 12% revenue growth rate when the third quarter results were reported. The "Close the Gap" program added several new revenue items, largely one-time items not previously counted in revenue. Sullivan told Ebbers that the purpose of the adjustments to revenue was to reach the 12% growth target. WorldCom's press release announcing the quarterly results quoted Ebbers as saying the company had "delivered excellent growth this quarter." During the earnings conference call with analysts, Ebbers said "[w]e were able to achieve very solid growth." However, over $ 700 million in line costs had to be capitalized to create the appearance of meeting the earnings target for the quarter. 3 458 F.3d 110, *; 2006 U.S. App. LEXIS 19190, **; Fed. Sec. L. Rep. (CCH) P93,921 At the time, WorldCom was in merger negotiations with Verizon. Concerned that Verizon might discover the capitalization of line costs and the revenue adjustments in the course of a due diligence inquiry, Ebbers abruptly ended the merger negotiations. At the board meeting in June 2001, board members began to ask about the "Close the Gap" program when COO Ron Beaumont presented several slides on it to them. One board member approached Sullivan privately to question the program. When Sullivan broached the subject with Ebbers, Ebbers told Beaumont and Sullivan that the next board presentation should be at a higher level and not include "Close the Gap" information. Beaumont's next board presentation, in September 2001, did not include any information about the "Close the Gap" program. h) Fourth Quarter 2001 By the fourth quarter of 2001, even the "Close the Gap" program could not generate enough one-time revenue opportunities to create double-digit revenue growth. Nor could the staff find ways to adjust the line cost expenses sufficient to hit the earnings target. After Myers capitalized over $ 941 million in line costs, the accounting staff still had to adjust the SG&A (sales, general, and administrative) expenses in order to reach the target. On the fourth quarter earnings conference call, Ebbers assured investors that "[w]e stand by our accounting," and later said in a CNBC interview that "[w]e've been very conservative on our accounting." i) First Quarter 2002 WorldCom's revenue declined in the first quarter of 2002. The accounting staff added new sources of revenue to improve the results but were unable to bring the revenue up to analysts' expectations. Sullivan informed Ebbers that even with the improper revenue adjustments and the capitalization of line costs, the company would be unable to meet investors' expectations that quarter. The accounting staff capitalized about $ 818 million in line costs, but WorldCom still had to announce that its results had fallen below investors' expectations. j) Investigation, Trial, and Sentence In March 2002, the Securities and Exchange Commission ("SEC") began to investigate WorldCom. At the end of April 2002, WorldCom's board asked Ebbers to resign, which he did on April 29th. Ebbers began to liquidate some of his assets in order to pay back his debts, but during May 2002 he also bought three million more shares of WorldCom stock. A month after Ebbers' departure, WorldCom's Internal Audit Department learned of the line cost capitalization, and alerted the new CEO. Sullivan was soon fired, and WorldCom disclosed the fraud to the public on June 25, 2002. WorldCom's stock collapsed, losing 90% of its value, and the company filed for bankruptcy. On September 15, 2004, Ebbers was charged in a superseding indictment with one count of conspiracy to commit securities fraud and related crimes, one count of securities fraud, and seven counts of making false filings with the SEC. See 18 U.S.C. ß 371 (conspiracy); 15 U.S.C. ßß 78j(b) & 78ff (securities fraud); 15 U.S.C. ßß 78m(a) & 78ff (false filings). A jury convicted Ebbers on all counts on March 15, 2005. The pre-sentence report ("PSR") recommended a base offense level of six, plus sentencing enhancements of 26 levels for a loss over $ 100 million, of four levels for involving more than 50 victims, of two levels for receiving more than $ 1 million from financial institutions as a result of the offense, of four levels for leading a criminal activity involving five or more participants, and of two levels for abusing a position of public trust, bringing the total offense level to 44 levels. The government also sought a two-level enhancement for obstruction of justice on the basis of Ebbers' having testified contrary to the jury's verdict. With Ebbers' criminal history category of I, the Guidelines range calculated in the PSR was life imprisonment. The Probation Department recommended a 30-year sentence. Judge Jones declined to apply the enhancements for deriving more than $ 1 million from financial institutions or for obstruction of justice. She also denied Ebbers' motions for downward departures based on the claims that, inter alia, the loss overstated the seriousness of the offense, his medical condition was poor, and he had performed many beneficial community services and good works. She determined that his total offense level was 42 and that the advisory Guidelines range would be 30 years to life. She then sentenced Ebbers to 25 years' imprisonment and three years' supervised release, and imposed a $ 900 special assessment but no fines. This appeal followed. DISCUSSION Ebbers argues that: (i) he was deprived of a fair trial when the government refused to immunize certain potential witnesses and the district court erred in its rulings on related issues; (ii) the court should not have charged the jury on con- 4 458 F.3d 110, *; 2006 U.S. App. LEXIS 19190, **; Fed. Sec. L. Rep. (CCH) P93,921 scious avoidance; (iii) the government should have been required to allege and prove violations of GAAP; and (iv) the sentence imposed is unreasonable. [Sections of opinion omitted] f) Reasonableness of Sentence With regard to his sentence, Ebbers urges that the district court's loss calculation was incorrect and that his sentence was unreasonably long. After Booker, we review a district court's conclusions of law de novo, its application of the Guidelines on issues of fact for clear error, and its exercise of discretion with respect to departures for abuse of that discretion. United States v. Fuller, 426 F.3d 556, 562 (2d Cir. 2005). 1. Loss Calculation The district court applied the loss calculation from then-applicable the fraud Guidelines at U.S.S.G. ß 2B1.1 (2001). No detailed definition of loss relevant to the issues before us is set out in the Guidelines. The Commentary does state, "The court need only make a reasonable estimate of the loss." U.S. Sentencing Guidelines Manual ß 2B1.1 cmt. 2(c) (2001). Moreover, where fraud in investments is concerned, the loss to a buyer or seller who relied upon the fraud is not to be reduced by the gain to an innocent seller or buyer on the other side of the transaction. Id. at cmt. 2(F)(iv). In this case, therefore, the loss is that suffered by those investors who bought or held WorldCom stock during the fraud period either in express reliance on the accuracy of the financial statements or in reliance on what described as the "integrity" of the existing market price. Basic, Inc. v. Levinson, 485 U.S. 224, 247, 108 S. Ct. 978, 99 L. Ed. 2d 194 (1988). Determining this amount is no easy task. One version of the so-called market capitalization test would, in its simplest form, take the share price on the date of a fraudulent statement -- X-day, we shall call it -- subtract from it the share price on the day after the fraud is revealed -- Y-day -- and multiply that amount by the number of outstanding shares. There is a problem, however, with this simplistic analysis. If the truth had been told on X-day, shareholder A would have suffered an immediate loss commensurate with the fraud loss because potential buyers at the earlier price would have immediately disappeared upon the bad news. When perpetrated, therefore, the fraud would not damage A any more than the truth, at least immediately. However, were investor B to buy the stock after the fraudulent statement and in reliance upon the integrity of the market price, B would suffer a loss in the amount of the price paid less the intrinsic value, which, under the market capitalization test, would usually be deemed to be the price after the disclosure of the fraud on Y-day. While shareholder A is as damaged by the truth as by the fraud on X-day, many frauds are ongoing, and, contrary to the testimony of Ebbers' expert, shareholder A may suffer a loss over time in being misled in assessing whether to hold or sell the stock. While A can be said not to have lost anything as a result of the fraud on X-day -- assuming no prior disclosure obligation on the defendant's part -- if new fraudulent statements are issued on X+1, X+2, etc., and the company's true value has further diminished on each occasion, the succeeding X-day frauds would have the effect of preventing A from making an informed judgment about holding the stock. The securities laws are intended to allow investors to buy, sell, or hold based on accurate information. An investor who buys securities before an extended fraud begins, and holds them during the period of the fraud, may therefore be little different from one why buys in mid-fraud. For example, the ongoing fraud here involved a series of periodic, fraudulent financial reports that systematically inflated WorldCom's operating profits. If the first report had been accurate, some decrease in fundamental value would have been revealed, but the decrease would have been far less than that revealed in June 2002 after several more fraudulent reports. Investors who held their stock throughout the fraud period were therefore denied the opportunity to reassess and perhaps sell according to their own informed estimates of the declining performance. The loss to investors who hold during the period of an ongoing fraud is not easily quantifiable because we cannot accurately assess what their conduct would have been had they known the truth. However, some estimate must be made for Guidelines' purposes, or perpetrators of fraud would get a windfall. Moreover, revelation of an extended period of fraudulent financial statements may cause losses beyond that resulting from the restatement of financial circumstances because confidence in management and in even the truthful portions of a financial statement will be lost. AUSA Life Ins. Co. v. Ernst & Young, 206 F.3d 202, 230 (2d Cir. 2000) (Winter, C.J., dissenting) ("Reasonable investors surely view firms with an untrustworthy management and auditor far more negatively than they view financially identical firms with 5 458 F.3d 110, *; 2006 U.S. App. LEXIS 19190, **; Fed. Sec. L. Rep. (CCH) P93,921 honest management and a watch-dog auditor."). Credit may become totally unavailable even where an otherwise viable firm remains. Worse, there is another variable. The loss must be the result of the fraud. United States v. Olis, 429 F.3d 540, 547 (5th Cir. 2005). Many factors causing a decline in a company's performance may become publicly known around the time of the fraud and be one cause in the difference in price between X-day and Y-day. Id. at 548 (explaining that numerous factors, not just defendant's fraud, contributed to stock price decline). For example, the dot-com bubble burst and its likely negative future effect on WorldCom's business was public knowledge. The effect of that knowledge would be a downward pressure on share price not attributable to the defendant. Losses from causes other than the fraud must be excluded from the loss calculation. Id. at 547. Other complications would undoubtedly appear in a case where more than the grossest calculation is needed. This is not such a case. All of Ebbers' arguments with regard to the loss calculation encounter a hard fact. A 26-level loss calculation has a $ 100 million threshold, which is easily surpassed under any calculation. For example, the Probation Office calculated the loss at $ 2.23 billion, based on a price of $ 0.83/share on June 25, 2002, when the company announced the improper accounting and restated its results, and the price on July 1, 2002, $ 0.06. There were about 2.9 billion shares of WorldCom stock outstanding on June 25, 2002. Id. Even excluding the 20,436,193 shares owned by Ebbers, the 5,000 shares owned by Sullivan, and shares owned by other guilty executives, there was still a $ 2.2 billion loss to investors not involved in the conspiracy, using the Probation Office's estimate of 77 cents loss per share. To be sure, this calculation is flawed. Ebbers' expert testified that at least some of the decline in WorldCom's stock price immediately after June 25, 2002, was attributable to factors other than accounting fraud, citing "(1) planned sharp reductions in capital expenditures, (2) lay-offs affecting 17,000 employees, (3) the abandonment of non-core businesses, and (4) the deferral or elimination of dividends." His expert estimated that these other factors might have been responsible for 35% or more of the stock decline. Even so, the loss amount is still well above $ 1 billion, or ten times greater than the $ 100 million dollar threshold for the 26-level enhancement. U.S. Sentencing Guidelines Manual ß 2B1.1 (2001). Moreover, it is probably the case that large numbers of investors holding shares on June 25, 2002, had either held the shares during the period when the repeated fraudulent financial statements were used or had bought them during the scheme at prices much higher than 83A [cent] per share. And neither their loss nor those of bondholders -- estimated by the Probation Office at $ 10 billion -- is included in the Probation Office's calculations. Even a loss calculation of $ 1 billion is therefore almost certainly too low, and there is no reasonable calculation of loss to investors that would call for a remand. 3 3 Ebbers relies upon United States v. Canova, 412 F.3d 331, 355-56 (2d Cir. 2005), for the proposition that a $ 5 million error in the calculation of the loss amount is sufficient to support a remand for resentencing. However, in that case the total loss alleged by the government was $ 5 million, which would have enhanced the defendant's offense level by thirteen levels, and the district court erred in declining to add any loss enhancement. Id. at 355. While a $ 5 million calculation error is obviously significant in such a case, no putative error here is of remotely comparable significance. See U.S. Sentencing Guidelines Manual ß 2B1.1 (2001). 2. Sentence Disparities Ebbers argues that his sentence should have been closer to those imposed on his co-defendants: CFO Scott Sullivan, who received five years; Controller David Myers, who received one year and one day; Accounting Director Buford Yates, who received one year and one day; Director of Management Reporting Betty Vinson, who received five months; and Director of Legal Entity Accounting Troy Normand, who received three years on probation. District courts must consider "the need to avoid unwarranted sentence disparities among defendants with similar records who have been found guilty of similar conduct," 18 U.S.C. ß 3553(a)(6), and we may remand cases where a defendant credibly argues that the disparity in sentences has no stated or apparent explanation. See United States v. McGee, 408 F.3d 966, 988 (7th Cir. 2005) (remanding for reconsideration of sentencing disparities between equally culpable codefendants). However, a reasonable explanation of the different sentences here is readily apparent, namely, the varying degrees of culpability and cooperation between the various defendants. All of those named above cooperated and pled guilty. Ebbers did not. Moreover, each was a subordinate of Ebbers. Ebbers, as CEO, had primary responsibility for the fraud. 3. Reasonableness 6 458 F.3d 110, *; 2006 U.S. App. LEXIS 19190, **; Fed. Sec. L. Rep. (CCH) P93,921 At oral argument, the overall reasonableness of the sentence was raised by the court. Twenty-five years is a long sentence for a white collar crime, longer than the sentences routinely imposed by many states for violent crimes, including murder, or other serious crimes such as serial child molestation. However, Congress has directed that the Guidelines be a key component of sentence determination. Under the Guidelines, it may well be that all but the most trivial frauds in publicly traded companies may trigger sentences amounting to life imprisonment -- Ebbers' 25-year sentence is actually below the Guidelines level. Even the threat of indictment on wafer-thin evidence of fraud may therefore compel a plea. For example, a 15A [cent] decline in share price in a firm with only half the number of outstanding shares that WorldCom had would constitute a loss of $ 200 million. No matter how many reasons other than the fraud may arguably account for the decline, a potential defendant would face an enormous jeopardy, given the present loss table, and enhancements for more than 250 victims, for being a leader of a criminal activity involving 5 or more participants, and for being an officer of the company. 4 4 U.S. Sentencing Guidelines Manual ß 2B1.1 (2005) (setting the offense level of 28 for a loss of $ 200 million or more, 6 levels for a crime involving 250 or more victims, and 4 levels for being the officer of a publicly traded company); ß 3B1.1 (2005) (adding 4 levels for leading a criminal activity with five or more participants); Sentencing Table (2005) (setting the sentence at thirty years to life for an offense level of 42 for an offender in criminal history category I). However, the Guidelines reflect Congress' judgment as to the appropriate national policy for such crimes, United States v. Rattoballi, 452 F.3d 127, 2006 WL 1699460, at *5 (2d Cir. June 21, 2006) (stating that the court will "continue to seek guidance from the Sentencing Commission as expressed in the Sentencing Guidelines and authorized by Congress.") (citation omitted), and Ebbers does not argue otherwise. Moreover, the securities fraud here was not puffery or cheerleading or even a misguided effort to protect the company, its employees, and its shareholders from the capital-impairing effects of what was believed to be a temporary downturn in business. The methods used were specifically intended to create a false picture of profitability even for professional analysts that, in Ebbers' case, was motivated by his personal financial circumstances. Given Congress' policy decisions on sentences for fraud, the sentence is harsh but not unreasonable. CONCLUSION For the reasons stated, we affirm. 7 Page 1 UNITED STATES, Appellee, -v- MARK P. KAISER, Defendant-Appellant. Docket No. 07-2365-cr UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT 609 F.3d 556; 2010 U.S. App. LEXIS 13463; Fed. Sec. L. Rep. (CCH) P95,789 July 6, 2009, Argued July 1, 2010, Decided JUDGES: Before JACOBS, Chief Judge, CALABRESI, and POOLER, Circuit Judges. OPINION BY: POOLER OPINION POOLER, Circuit Judge: Mark P. Kaiser ("Kaiser") appeals from a judgment of conviction and sentence entered on May 18, 2007, following a jury trial in the United States District Court for the Southern District of New York (Griesa, J.). The government alleged at trial that Kaiser, a high-level executive at U.S. Food Services ("USF"), made fraudulent misrepresentations regarding the financial condition of USF, and ultimately, the financial condition of Royal Ahold N.V. ("Ahold"), which acquired USF in April 2000. Count One of the indictment alleged that from April 2000 to February 2003, Kaiser participated in a conspiracy to commit securities fraud, to make false filings with the Securities and Exchange Commission ("SEC"), and to falsify books and records, in violation of 18 U.S.C. ß 371. Count Two charged that Kaiser committed securities fraud in violation of 15 U.S.C. ßß 78j(b) & 78ff, 17 C.F.R. ß 240.10b-5, and 18 U.S.C. ß 2. Counts Three, Four, Five, and Six charged that Kaiser made or caused to be made a false filing to the SEC on behalf of Ahold, in violation of 15 U.S.C. ßß 78m(a) & 78ff, 17 C.F.R. ß 240.13a-1, and 18 U.S.C. ß 2. The jury returned a verdict convicting Kaiser on all five counts of the indictment. With respect to Count One, the conspiracy count, the jury found that the objectives of the conspiracy included making false filings and falsifying books and records, but not committing securities fraud. Judge Griesa sentenced Kaiser principally to a term of 84 months' imprisonment and imposed a $ 50,000 fine. Kaiser has been released on bail pending resolution of this appeal. Kaiser argues that there were two errors in the district court's jury instructions, three erroneous evidentiary rulings, and two errors in sentencing. With regard to the jury instructions, Kaiser contends that the district court made errors on the conscious avoidance theory and the "willfulness" element of securities fraud. Kaiser argues that the district court also erred in admitting 1) evidence of his fraudulent dealings before the charged securities fraud began in April 2000, 2) certain business planners under the business records exception to the hearsay rule, and 3) a hearsay statement that USF's General Counsel wanted to report Kaiser to the SEC. Finally, Kaiser argues that the district court improperly calculated his sentence. We conclude that the district court erred in its instructions with respect to the conscious avoidance theory and in admitting the statement of USF's General Counsel, but reject Kaiser's other claims on appeal. Because we vacate and remand the matter to the district court for a new trial, we do not reach Kaiser's claims that the district court's sentencing determination was in error. I. BACKGROUND USF is one of the largest distributors of food and related products in the United States. Its primary business is to serve as a middleman by purchasing various food products from manufacturers and selling them to restaurants. Between 1994 and 2001, Kaiser supervised employees in USF's Purchasing Department, which managed the company's dealings with Page 2 609 F.3d 556, *; 2010 U.S. App. LEXIS 13463, **; Fed. Sec. L. Rep. (CCH) P95,789 its food vendors. In the Purchasing Department, Kaiser negotiated payments from vendors known as "promotional allowances," or "PAs," a type of rebate paid to USF upon satisfaction of certain purchasing targets. These PA payments are an important source of revenue for USF and a profitable aspect of its business. The indictment issued against Kaiser charged that he devised a scheme to fraudulently inflate USF's PA income for the years 2001 and 2002, that he engaged in further fraudulent acts to hide the inflated numbers from outside auditors, and that he made various misrepresentations to the auditors concerning the PA agreements with vendors. The government's case against Kaiser was primarily built around the testimony of three cooperators, all of whom testified pursuant to plea agreements with the government: 1) Tim Lee, a USF employee in the Purchasing Department, 2) Bill Carter, who worked for Lee at USF, and 3) Gordon Redgate, who owned two corporations that provided services to USF related to the scheme. Lee and Redgate testified that Kaiser engineered the scheme and knew it was illegal. Kaiser, on the other hand, argued that he had been set up by Lee and Redgate as a scapegoat and that he had been unaware of the fraud. A. Promotional Allowance ("PA") Income Scheme Lee testified that, beginning in the 1990s, Kaiser negotiated PA contracts that required vendors to prepay PAs, subject to the condition that USF would repay the amount if it did not meet its targets. Although the PA payments were not actually earned until USF met the conditions in the contract, Kaiser immediately recorded the prepayments as income in USF's books and records, thereby artificially inflating the amount of revenue USF had earned from PA payments to ensure that USF met its earnings and other budgetary targets. USF executives, including Kaiser, only received bonuses when USF met these targets, providing a powerful motive for Kaiser to inflate USF's PA income. As an example, Lee testified about Kaiser's involvement with vendor Puritan Chemical. According to Lee, Kaiser negotiated a $ 26.5 million PA from Puritan Chemical in 1999 to be earned over a term of ten years. The agreement provided for an $ 18 million prepayment to USF, despite the fact that none of the conditions of the PA had been met. To disguise the payment, Kaiser sent Puritan Chemical's check to a third-party intermediary company owned by Redgate, which broke up the payment into six smaller checks and sent them to USF. Kaiser argued that it was Lee who was responsible for most of the vendor contracts containing prepayments, pointing out that "[o]f the 80 contracts in the record from 2000 and before, Kaiser signed 9 and Lee signed 45." Lee also testified that Kaiser developed a scheme in the 1990s whereby Kaiser would take "PA deductions" out of amounts that USF owed to vendors for goods, thereby increasing the amount of PA income on the books. Many of these deductions were inaccurate and not authorized by the vendors. If a vendor complained, Kaiser would either negotiate with the vendor to pay back the deductions the following year, thereby allowing USF to meet current-year budget targets, or he would stall until the year-end audits had been completed. Both the PA prepayment scheme and the PA deduction scheme resulted in inflated PA income on USF's books. B. Scheme After Ahold's Acquisition of USF In April 2000, Ahold acquired USF. In early 2001, Kaiser was named the Chief Marketing Officer of USF, and his focus shifted away from purchasing to the retail side of the business. According to Lee, however, Kaiser continued to be involved in a constellation of PA-related schemes to boost USF's revenue. For instance, Lee testified that Kaiser coordinated approximately $ 100 million in fraudulent PA deductions in 2001. Kaiser, however, alleged that it was Lee who executed the deductions and that Kaiser believed them to be valid. Kaiser also pointed out that his departure from the Purchasing Department coincided with a dramatic increase in the number of vendor contracts, many of which had prepayment terms, and that it was Lee and Carter who were responsible for them. Kaiser signed only one contract after 1999, and that contract had no prepayment term. Lee also testified concerning Kaiser's role in setting the "PA rate," or the amount of PA income USF expected to receive in a given fiscal year. 1 The rate was calculated based on PA income received in previous fiscal years and then adjusted for increases or decreases in sales and projected sales. However, because USF's PA income had been inflated in previous years, the PA rate for fiscal year 2001 was also inflated. In order to compensate for this shortfall, the government argued that Kaiser recorded and caused others to record non-existent PAs in "top-side journal entries" on the company books. This resulted in phantom accounts receivable for PA payments that USF was not, in fact, owed. By January 2002, the accounts receivable balance for PA payments had grown to $ 300 million. By the end of 2002, the balance had ballooned to more than $ 700 million. Page 3 609 F.3d 556, *; 2010 U.S. App. LEXIS 13463, **; Fed. Sec. L. Rep. (CCH) P95,789 1 Kaiser denies being responsible for setting the PA rate. Lee testified that he was not certain who set the rate, but that Kaiser was involved in certain conversations about it. However, the government introduced a July 11, 2001 email document in which Kaiser informed other USF employees of the "rate that you should be accruing" based on Kaiser's assessment of the accounting. C. Deloitte's Audit of USF After Ahold acquired USF, the accounting firm Deloitte & Touche ("Deloitte") was hired to audit USF's year-end financial statements. Although Kaiser was no longer the head of the Purchasing Department, he was still responsible for helping Deloitte conduct its audit of USF's PA income. Most of the acts charged in the indictment concern Kaiser's involvement with the Deloitte audit. 1. Fraudulent Accounting Practices According to the government, because Kaiser knew that a high PA accounts receivable balance would raise the suspicion of Deloitte auditors, he began manipulating ordinary, non-PA payments to make them appear to auditors as if vendors were paying down their PA balance. For example, in the 2001 audit, there was a $ 10.6 million payment from Redgate's company that was treated as a PA even though it was not related to any PA transaction. Kaiser sent Redgate a backdated letter requesting that the payment be treated as a PA and asked Redgate to send auditors only the top part of the check so that they would not know the purpose of the payment. Redgate wrote in his planner on February 5, 2002, that Kaiser had called to say he "needs top copy of check dated 4/11/02 for 10 million. Top portion only!" The government also cited a $ 1.6 million payment received from the vendor Frozen Farms, which was recorded as a PA payment from another vendor, Koch Poultry Farms. Later, Kaiser signed and sent Koch Poultry Farms a confirmation letter stating that it owed USF $ 3.18 million. By reallocating the $ 1.6 million that had been received from Frozen Farms to the PA-related account receivable for Koch Poultry, the government argues that Kaiser endeavored to mislead Deloitte auditors by creating the false impression that the approximately $ 3.18 million PA figure was legitimate and that it was being paid down by Koch Poultry. Kaiser responded to these allegations at trial by emphasizing that the allocation of PAs among vendors had innocuous explanations, including that the reallocation of funds was necessary to account for changes in USF's business. 2. Fraudulent Misrepresentations In addition to attempting to hide the inflated PA income, Kaiser allegedly lied to Deloitte auditors about two facts related to the PA agreements. First, the government alleged that in order to hide the existence of PA prepayments, Kaiser told the auditors that USF did not receive prepayments. In a document that appears to have been prepared for a November 29, 2000 Audit Committee Meeting, with "Mark Kaiser," typed on the front cover, there is a statement that appears to have been drafted by USF management to Deloitte. The statement provides that ...
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Case Write Up
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CASE WRITE UP

The case between the United States as appellee-cross-appellant versus Daniel Milikowsky as
the defendant-appellant-cross-appellee involves the two parties seeking reversal and vacating of the
conviction of the former. Milikowsky was a principal businessman in charge of several small
businesses dealing with the purchase and selling of steel. He was convicted of price fixing, which is
a violation of the Sherman Act with a minimum sentence of nine years as well as a fine (Kearney et
al, 2014).
However, he got a two years conviction consisting of six-months-probation and 150 hours of
community service. This was after the defendant argued that his imprisonment would have adverse
effects on his family and employees in his holding...


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