JL Sentencing Transcript

Case 1:10-cr-10388-DPW Document 261 Filed 07/20/12 Page 1 of 58
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 BEFORE:
UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS
UNITED STATES OF AMERICA vs. JON LATORELLA, Defendant.
) ) ) ) ) No. 1:10-cr-10388-DPW-1 ) ) ) )
THE HONORABLE DOUGLAS P. WOODLOCK
SENTENCING HEARING
John Joseph Moakley United States Courthouse Courtroom No. 1 One Courthouse Way Boston, MA 02210 Thursday, June 14, 2012 2:00 p.m.
Brenda K. Hancock, RMR, CRR Official Court Reporter John Joseph Moakley United States Courthouse One Courthouse Way Boston, MA 02210 (617)439-3214
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APPEARANCES: UNITED STATES ATTORNEY'S OFFICE By: Andrew E. Lelling, AUSA Paul G. Levenson, AUSA 1 Courthouse Way, Suite 9200 Boston, MA 02210 On behalf of the United States of America. GREENBERG TRAURIG LLP By: Martin G. Weinberg, Esq. Robert M. Goldstein, Esq. 20 Park Plaza, Suite 1000 Boston, MA 02116 On behalf of the Defendant Latorella.
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(The following proceedings were held in open court before the Honorable Douglas P. Woodlock, United States District Judge, United States District Court, District of Massachusetts, at the John J. Moakley United States Courthouse, One Courthouse Way, Courtroom 1, Boston, Massachusetts, on Thursday, June 14, 2012): THE CLERK: All rise.
(The Honorable Court entered the courtroom at 2:00 p.m.) THE CLERK: This is Criminal Action 10-10388, United
States versus Jon Latorella. THE COURT: Well, there is a preliminary matter I
think I should take up in this case that came to mind in review of the defendant's Sentencing Memorandum. There are two
letters here from persons who are acquaintances in Ipswich, where I now live, the grandparents of two of the defendant's children; acquaintances of mine in the sense that you run into people in a small town, more acquaintances, I suspect, of my wife. I have thought about it. My own view is it will not
influence my judgment in the case, but I need to make it known to the parties here for whatever view you have with respect to it. I will treat those letters the way I would treat the
letters of any grandparents of the children of a defendant for the information they provide, but I am satisfied for myself that I will not be influenced here.
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But that is a question that it seems to me the parties, probably the Government more specifically, will want to think about. five minutes. So, what I would propose to do is just take If there is an issue you want to pursue, then we But you will want to think about it at
can take more time. this point.
So, we will take a five-minute recess. All rise.
THE CLERK:
(The Honorable Court exited the courtroom at 2:05 p.m.) THE CLERK: All rise.
(The Honorable Court entered the courtroom at 2:10 p.m.) THE CLERK: You may be seated. THE COURT: continuing here? MR. LELLING: MR. WEINBERG: THE COURT: Not from the Government, your Honor. Not from the defense, your Honor. So, are there any objections to my This Honorable Court is back in session.
So, let us turn to the Presentence Report,
and I guess I have to put it in a broader context. Ordinarily, my view is I have to calculate the Guidelines. There are occasions on which I do not. Those
occasions are marginal when the potential for dispute is really not material to understanding the nature of the culpability. Here, I think it is. I am being invited to avoid making a determination with respect to broadly conceived loss and also with respect to
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restitution.
I do not think that I can properly calculate the
culpability for purposes of making whatever determination I have to make on the defendant's sentence. Now, I recognize that this is a particular kind of plea, not a (C) plea but something very close to it, in which the parties agree to a sentence that is at the top of what is available under the remaining charges and that, presumptively, caps my capacity to do anything beyond that. that in a moment. But even there, I want to make some informed decision about the degree of loss, which is the driving culpability in this case. There is a second issue that is raised by the I will return to
Supplemental Sentencing Memorandum of the defendant, which quite properly indicates -- or distances itself from various of the letters that I received, because a number of the letters that I received must be read as not arguing for the agreed-upon disposition by the parties. That raises a third question, which is one that has not been explored but I have been thinking a bit about it in other contexts recently, of whether if I find that the agreed-upon disposition or any disposition within the range of sentences available under the one count does not adequately reflect or accurately reflect culpability, whether I should reject the plea altogether. on to sentencing. I have accepted the plea and moved
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There is some case law out there that suggests that, once a judge has done that, the judge cannot then turn around and withdraw the acceptance. is fully considered. I am not sure that that case law
But assume the following, the
circumstance in which I find that the loss is extraordinary and, without doing so at this point, adopt the view of the Probation Office that the proper guideline here involves a Total Offense Level of 38, which would generate a sentence quite beyond what the parties have agreed to and capped it by the plea that involves dismissal of charges. So we are clear with respect to that, the Guideline range, I guess, under the Probation Office calculation is in the range of 200 months, and the Government makes an alternative argument -- I say the "range." months. It is well above 60
And the Government makes an argument that the proper
guideline range is 151 to 188 months. The question I think that is raised by that is does a judge faced with that disproportion -- I am not adopting it, I am just noting it -- have to accept a plea or continue to accept a plea or withdraw it, withdraw acceptance? that at the outset. I guess the first question is, I know the argument that has been made more generally by the defendant about calculating the Guidelines, that it is not necessary because under any conceivable reading of the Guidelines, the Guideline So, I raise
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sentence would be above 60 months. Maybe you will disagree with that as well, Mr. Weinberg, but I think that is the state of the record. MR. WEINBERG: THE COURT: Yes.
So, what is the Government's view on it? Is that simply to say it is this Is that what your calculation is
I have got your calculation. much and by a wide margin?
supposed to do, or is it supposed to influence me in some other fashion? I will put to one side the Plea Agreement, but what
do I do when I am presented with a low-end guideline of 155 months and I have a set of charges that could support that guideline but for the Government's decision or statement that it will dismiss them? MR. LELLING: I think there are a few points that I
can make here that may or may not help the Court. Mr. Weinberg and I talked at length yesterday, and I actually came around to agreeing with him on the point that in this instance the Court need not calculate the Guidelines because under any iteration, including Mr. Weinberg's as well, in excess of five years. I understand that in the Court's mind
that begs the question of why that is. I think there are a few policy reasons for that. case and the investigation before it have gone on for quite some time. We have given a substantial amount of thought to This
what we believed was the low end of fair for a sentence in this
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case.
A few things come to mind. As to the first one, Mr. Levenson, who is the Chief of
the Economic Crimes Unit, might be able to address this one further. But, as a matter of policy, we believe that at this
particular point, 2B1.1, as it relates to securities offenses, is a little bit out of whack. I actually respectfully disagree
with the Court that the loss drives sentencing in securities cases under 2B1.1. If you take on their face the enhancements,
which Probation does, you can get to a substantially higher sentence without breaking a sweat in a case that involves almost no loss. Consider a CEO, for a moment. or seven. You have a base of six
You get four levels for being the officer of a
publicly traded company involved in a securities fraud. THE COURT: I think I understand that. I am not
trying to cut you off, but when I say it drives it, it is the base Offense Level, and it adds 18 points when you have got this much -- I will use "loss" broadly, because loss requires a fairly nuanced evaluation in this context. MR. LELLING: THE COURT: well. MR. LELLING: You can get to 12 additional levels that I agree.
But, yes, there are these enhancements as
are almost definitional in any securities case, sophisticated means, more than 10 or more than 50 or more than 250 victims,
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role in the offense, the new plus four for being an officer of a publicly traded company. doing anything. THE COURT: And that is, I think, probably true in We're at 12 levels without even
most securities cases involving the officers or directors, and I think I share the view that there is a kind of Guidelines accelerant that is being poured over this kind of white-collar case; because it works the same way, frankly, in the Base Offense Level, that it is not geometric but it is pretty close to that in terms of what it does to the Guidelines. That all having been said, and whether or not I am prepared to depart from the Guidelines, the whole purpose of the evaluation that has been required by the First Circuit, in particular, is to first figure out where the Guidelines put you and then interact with the Guidelines in whatever form you wish to, including saying this is just arithmetic gone mad. But I
cannot say that until I know what the arithmetic adds up to, I do not think, unless I just say, "Never Mind." MR. LELLING: Well, the Court knows what ballpark the
arithmetic is in, which is why we are having this -THE COURT: I keep interrupting you, but so you have
got the full range of things to address, I have got restitution to consider. The Government wants me to consider restitution, The
and restitution is just another way of saying loss, maybe.
defendant does not think that restitution is appropriate, or it
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takes too long or whatever the reasons why you take a pass at restitution. this. MR. LELLING: the Court raised that. On the issue of restitution, I am glad Again, in light of my conversation with I am not so sure I feel that way in a case like
Mr. Weinberg, he raised a good point, which I fully agree with, which is the Government's position is there is no reason to calculate a restitution figure today with Mr. Fields' case pending resolution. In our view, the better course -- we can We did not
address it today, if the Court wants to do that. assume that the Court would adopt this view.
But our view is the better course is to have one restitution hearing after Mr. Fields' case is resolved; that we don't need to have two hearings. We have had victim
information trickling in over time, some as most recent as this week. We may get additional victim information. If Mr. Fields
goes to trial, which I think is likely, that may result in more finely honed information from victims who testify in that proceeding, and it would be more efficient and probably lead to a better result if we simply had the restitution hearing once after Mr. Fields' case is resolved. So, what we were going to suggest -- and I have dug into the case law in this area -- and after a key Supreme Court decision in 2010 called Dolan, essentially what the Court would need to do, if Mr. Weinberg and I are reading the case law
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correctly, which I think we are, the cases are pretty consistent, is decide today whether, in fact, restitution would be appropriate in this case. If the Court decides that it is,
defer calculation of the amount until after Mr. Fields' case is resolved. have seen. THE COURT: I think that is fair. That is a direction That would be legal and proper under every case I
that I would be leaning toward on this, simple because it is clear to me that there is going to be substantial contest over this, not to mention, if Mr. Fields is ultimately adjudged guilty, whether he will add something to the mix in this. MR. LELLING: THE COURT: side. Now I am back to the core, which is that I should not evaluate the question of loss, and I am putting it in the direct sense that I tried to raise before, which is to say, if I find that the loss, having gone through it, is rather substantial and it would drive my decision in this case, why should I not simply say I decline to continue to accept the plea, however we style it? Now, I understand, because this is an issue that has arisen in related cases that have given me some thought recently and I have under advisement, that the Government's position is once you accept it, or at least for other cases Correct.
So, I will put the restitution to one
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once you accept it you are ratcheted in; the judge does not get to withdraw it, and both sides say, "We do not want you to withdraw it," which I suspect will be the view here. sure I agree with that. MR. LELLING: And I certainly will not venture an I have not given it I am not
answer to that particular legal question. any thought.
I think what I can do or, really, all I can do is
say a little bit about why we thought this was a fair resolution. THE COURT: Yes, go ahead. We are fully aware that it is a generous
MR. LELLING:
resolution, and we considered our case against these two defendants fairly strong. There were certain factors that to
us militated in favor of making it five years, and what they really are is variations on a 3553 theme. First, we are of the view that the Guidelines for securities cases are out of whack and need to be revised. THE COURT: taking this down. MR. LELLING: THE COURT: Am I speaking very fast? However fast you are speaking, what You understand that the court reporter is
No.
you are saying is being taken down. MR. LELLING: your Honor. THE COURT: Me too. I know. I crossed that bridge long ago,
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MR. LELLING:
Second, there are certain factors
specific to the investigation which softened our position slightly. For example, this investigation took a very long time, longer than we would want in the normal course. its investigation in this case in late 2006. The FBI began
For various Now, that
reasons, the case was not charged until late 2010.
does not create a substantive right for the defendant, meaning there was no bad faith on our part. The investigation took We are
longer than we thought, and it took a very long time.
cognizant of the fact that the defendant is existing under a cloud for that extended period of time. Third, it is a case involving public trading of a penny stock in which the defendants essentially attempted in one of the scams that makes up the conspiracy a pump and dump -- this would be the Omni Data aspect of the conspiracy -that didn't work, meaning, they announced a $7.2 million deal to the public in late 2004. all. The stock price responded not at
There was an uptick in volume at the time, but it is
difficult to allege a true market-wide fraud in that regard. Now, there are other aspects of it that would be important to a loss calculation. For example, because of the
defendant's actions, the stock was probably publicly trading long after it should have been in the first place, and so that would be an issue. But it is unlike other sort of classic
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pump-and-dump cases where you see a real spike, a lot of people buy into the market because of the upward trend, and then the bottom falls out when there is a restatement. kind of case. It is not that
At the end of the day, it is a penny stock
company, employing about 50 people on the North Shore. So, these are some of the things we thought about in coming up with a sentence; but, again, they are all really variations on 18 U.S.C. 3553. Assuming the defendant took responsibility, which however belatedly Mr. Latorella did, we viewed five years as the low end of sufficient punishment. never been in jail before. amount time out of his life. He has no record, he has
Five years will be a substantial There has been some discussion in
Mr. Weinberg's papers about his dependence and that sort of thing. In our discussions, which were lengthy on this point, I think Mr. Levensons' view and mine was this is the low end of sufficient if he, however late, accepted responsibility for what he did. If he did not accept responsibility and went to
trial, we would be asking for something higher, but unlikely that we would be asking for the low end of the advisory range even after trial, because it would strike us, one, as a matter of the equities, excessively high, and, two, it, frankly, would strike us as extremely unlikely that the Court would adopt it. We would have come in at something lower than that, I think,
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even after trying the case. THE COURT: Embedded in that are a series of
assumptions, including that the Government's recommendation is based on handicapping what the judge is going to do with the sentence. And maybe, Mr. Levenson, you want to speak to this as well. I do not mean that Mr. Lelling has not, but there is a
larger policy issue. I will put it in a more specific sense. I have under
advisement now a case in which the Government obtained assistance from an individual -- you may or may not be familiar with the case -- in the healthcare setting, obtained assistance from an individual cooperator. felony. The individual pled to a
The Government asked me to put off the sentencing for
an extended period of time until the trial of the case. The case started on trial. There was some suggestion
that the Government's case was weaker, perhaps embarrassingly weaker than they had anticipated or maybe not, but, in any event, it came out. The Government in the midst of trial pled
the company to a misdemeanor with a substantial multi-million-dollar fine and then came back for sentencing of the cooperator who started. I raised the question whether or not, having taken a misdemeanor plea from the corporation for the conduct the corporation was responsible for in part by the individual, that
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perhaps greater parity would be to plead the individual to a misdemeanor, too. The Government's position is, no, it is not. I will add one
And there are other factors that are involved. further dimension. I said, All right.
I am going to withdraw
the acceptance of the plea, and you can go do what you want to do. Both parties came back and said, No, we would like to stay
with the plea, and the Government made the argument that the Court is not in a position to reject a plea after it has accepted the plea. It raises significant issues, that case -- different from this, I think -- raises significant issues about what the role of the Court is when confronting contractual negotiations between the parties: is it an independent role, or has the
Court given up its independence, basically, when accepting the plea? Here, there is a different dimension. the disparity that is evident in the other case. There is not There is a
disparity that is evident to me in the cooperator's sentence by Judge Wolf as opposed to here. MR. LELLING: THE COURT: Right.
But it does not raise those kinds of
issues, and, to some degree, Courts are supposed to be, I think, deferential to negotiations between the parties, certainly negotiations over charge decisions, which have the effect of capping what the Court does.
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But I have expressed this in the past.
I am not In
someone who necessarily takes (C) pleas without question.
fact, I suspect -- I should have kept over the years count -- I suspect in about half of the (C) pleas I reject them, because they suggest to me that the parties do not trust me or that there is something in the case that they would prefer I just did not focus on. So, I raise all of those issues, and perhaps you want to add to that, Mr. Levenson, maybe you do not, but in support of the proposition that basically what I would be doing here -I think both of the parties are asking me to do this -- is to say the Guidelines, whatever they are, however they would ultimately be determined, are higher than 60 months, the low end of the Guidelines is higher than 60 months here, and rather than devote time to the calculation of the Guidelines with some specificity, most specifically with respect to loss, I simply move on. Mr. Levenson, anything you want to add to that? MR. LEVENSON: I want to be careful that I do not want I understand that it sets a
in any way to address the matter.
background for your thinking, but I simply -- it is not a matter under my supervision, not a matter -THE COURT: I do not view this as the Government
committing itself to a long-term view in securities cases involving officers and directors of companies, but a candid
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discussion about what is involved in the choice that was made by the respective parties about plea. MR. LEVENSON: I think it is fair to say a couple of
things about the broader view of the Guidelines and what do the Guidelines mean for cases like this. And I think it is fair to
say that, as the Sentencing Commission is now grappling with what these Guidelines should look like and what do they capture about culpability -- if the Guidelines are intended to be a congener for culpability in some ways, I think the Court has it exactly right that we use a starting point of the Guidelines as the starting point for a discussion. In other words, we calculate the Guidelines because it is an available template, but then the next inquiry, in my view at least, ought to be how well do these Guideline factors capture, on the one hand, the features of the offense and the defendant that we are talking about, and, on the other hand, how well do they embody the core senses of culpability that are at issue here? And those two exercises take us in a couple of different directions here. In one direction -- and I guess I
will add one third premise, if you will bear with me, to this, which is, while it is very difficult to argue against your formulation that handicapping the judge's outcome is not what should -- it is very hard to come before a judge and try and persuade you by saying, Well, shucks, we really thought you
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were going to come in here, so we are arguing for that. To phrase it very differently and, I think, appropriately, one of the things that I am conscious of as a lawyer practicing before the Court is whether or not the arguments I make or the assistants I work with make are helpful to the Court. It often appears unhelpful and my view is it's
unhelpful when prosecutors simply come in and say, Well, we did the math, this is the number, and if you do not give the number there is not a lot to talk about. So, while I do think it can be a useful exercise, I think there's something to be said for saying whether or not you deem Mr. Latorella a four-level leader or a organizer because we can find five people who are arguably culpable in one way or another, some of them with only a hazy sense of any bigger picture of fraud, but they sign something they shouldn't have signed, and, therefore, we found five culpable people that makes him a four-level leader or organizer rather than a two-level leader or organizer. The question one has to ask is,
is that helping us refine and sharpen our sense of this man's culpability? The core features of this crime, as reflected in the Guidelines, are, for the most part, important and worth considering. The fact that somebody is a director or an The
officer of a public company matters, we would suggest.
fact that it was not individual conduct but collective conduct
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matters, although those tend to go together; not always, but they tend to go together. Crimes committed by directors of
companies tend to involve numbers of people, they tend to more often involve complex matters, they tend to more often involve large dollars, the measurement of dollars as a congener for culpability. I'm sure it wasn't the beginning of the debate, but I first really tuned into a decision by Judge Charles Breyer some years ago at a time when the Guidelines were still mandatory that very persuasively suggested that in situations where there are multiple -- particularly when you are talking about price-earning ratios, you get multipliers, and a falsification of revenues is multiplied in the market in a way that, on the one hand, it would be unreasonable to say, well, the fraud is simply the amount by which you overstated revenues, if the fraud was motivated by a desire to move the market. On the other hand, I have stood before this Court for sentencing, for example, in connection with the Inso (ph) matter and the $200 million loss as a starting point was not necessarily a helpful gauge of what is the culpability of the individuals whose liberty is in the hands of the Court, which is a long way of saying any way you calculate these Guidelines, they are way above five years. All of the parties discussing the matter knew that. We have entered into a five-year agreement because, as Mr.
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Lelling said, it was the low end of what, when Mr. Weinberg said, "Come on, what's the very least you could live with?" that is the number we got to. We are prepared to persuade the Court that that number, or to try to persuade the Court that that number does meet the core purposes of sentencing as set forth under 3553. If it's helpful for the Court to go through item by item of the Guidelines, certainly that is doable, and I believe Mr. Lelling has laid out cogent positions on every one of them, but I think any way you slice it, we are all some -- not quite order of magnitude -- but some very significant margin above the five-year number. So, I suppose that leaves us with the
question of, if the Court finds unpersuasive our reasoning about why five years is, in our view, the lowest sufficient sentence, then that opens the second set of questions about whether the Court should accept the plea. THE COURT: Well, I think it proceeds this way: The
first order of business is, ordinarily, calculation of the Guidelines. I will, obviously, hear from Mr. Weinberg, but the
parties are in agreement that the Guidelines are in excess of the single count here, and they have an agreement that they are both going to recommend the highest amount under the charge. That could mean going immediately to Section 3553 factors without going through with great care the specifics of the Guidelines.
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I am inclined to think that that is, having listened to you, probably the best way to do it, particularly with restitution being put over for a period of time until we have got the resolution of all outstanding charges in the case. The
question of withdrawing the plea, which is on my mind simply because there are other cases, including Mr. Fields' case, that raise questions of when is a plea withdrawn, can it be withdrawn once it has been tendered to the Court or some agreement, whether a fuller agreement or not is presented to the Court, is shaping my thought about this but not a lot. This seems to me to be an area in which the Court ought to be deferential to charge bargaining as well as sentence bargaining, because the parties have made some kind of rough evaluation, but also includes questions of cost and likelihood of conviction on the part of the Government, I suspect, without having to go into that. uncertainty in any case. But there is always
So, I suppose I should be deferential
in that fashion and not be a slave to the Guidelines in this context. So, with each iteration I try to refine what I have to
But, Mr. Weinberg, do you have something? MR. WEINBERG: Not a great deal, your Honor. I do
think that there are occasions when I was an advocate and deeply disappointed in the Government's charge choices, for
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instance, minimum mandatory sentencing, which have the result of extinguishing judicial discretion. In this case, the Executive Branch, the U.S. Attorney, headed by two mature prosecutors, not inexperienced people, certainly not people I had the capacity to take advantage of in plea negotiation, came, I think, to a responsible decision in their discretion to dismiss charges, which I think adds an extra element to the kind of legal difficulty of the standards that your Honor would have to address were you to think that a five-year sentence is inappropriate or not equitable. I think five years is an enormity to a man like Mr. Latorella. I think it's a fair sentence. It's one I am
prepared to recommend, as I negotiated away from recommending anything but five years. The Government negotiated too. They
took into consideration a wide variety of variables, came to the conclusion that five was consistent with 3553, and I do believe this is an appropriate case for your Honor to endorse the joint recommendation of both parties. I should also say, and I do not want to bring child pornography into this, but this is not the only area where the Guidelines in all of its overlapping enhancements have come under judicial scrutiny. All across the country courts have
criticized the kind of Draconian application of child pornography Guidelines. I had a case in Puerto Rico recently
where Judge Fuste set a five-year sentence with a 17-year
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Guideline. Again, I think it is a credit to wise and mature prosecutors not to seek a sentence on Mr. Latorella that exceeds the least-necessary sentence that's consistent with all of the purposes of sentencing. THE COURT: Well, I guess I am persuaded that I should
proceed on sentencing here without doing a precise calculation of the Guidelines. I will simply note, because the Judgment
and Committal order will require, that I am not revising the Guideline determination; I chose not to inquire further than what was provided. I am not going to do it on the basis of
saying, well, the guideline alternatively calculated by the Government is "X." I will include it and indicate I am
adopting them in the sense that I have not chosen to modify them and go to the 3553 dimension of the case, which we have touched on already, of course. And I am going to put off the question of restitution until the entire case is resolved. That may or may not yield
very substantial amounts of money, which act as a stalking horse for loss here, but I think that is the practical way of dealing with it. And, ultimately, the Guidelines have created this illusory mathematical certainty about what goes on in the sentencing process, and at its best -- and, frankly, this discussion indicates to me something of its best -- it is an
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iterative process of discussion, a conversation between the Court and the parties about what it is that sentencing is supposed to be about and capture in which the various parties have their own prerogatives, one of which is obviously the Government's prerogative to charge and decline to pursue charges in a way that shapes the sentence itself. If push comes to shove, which it rarely does, that may call for some discussion about whether or not a judge says, "I am not going to permit leave to drop the charges," but I do not think this is that case, and defense counsel is in a position of making some hard judgments about what the proper and available and practical resolution should be. I tend to favor transparency in discussion of respective roles, and I have received that here. I do not find
in this a sense that, while the Guidelines may lead to a much larger number, that the numbers that are available here would be unreasonable. They are in the reasonable range, I think.
So, I am prepared to go forward on that basis. So, do you wish to be heard some more, Mr. Lelling, on the 3553 factors? MR. LELLING: Yes, your Honor. Thank you.
As the Court has heard, the joint recommendation of the parties is five years' incarceration for Mr. Latorella. We
would add three years of supervised release, restitution in an amount to be calculated at later date, after Mr. Fields' trial
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is resolved. In our view, this is truly the least that is sufficient to reflect the severity of the crimes Mr. Latorella committed, and it only meets that standard because he did accept responsibility, if only at the last minute. The crimes involved are fairly common -- I know the
Court has seen them before -- inflating revenue, lying to the accountants, lying to the SEC, and so, thus, lying to investors about the health and nature of the company that they were investing in. I know the Court has seen these cases.
What sets this case apart for us, it's a theme we stumbled upon very early on in the investigation, was, in short, the enthusiasm and callousness with which the defendants pursued the crimes in this case. The conspiracy here involves
three primary, three major scams, the first being Andover Secure Resources, which is essentially fabricating an asset on the company's books, in part to hide the fact that the company failed to meet its target in its IPO. The second is Omni Data,
sort of a classic revenue-recognition scam in which they announce a deal with an outside company that does not exist, they fabricated it. In fact, at the time the deal was
announced in late November -- I think it's late October of 2004, the company with which Locateplus allegedly has a contract has no existence at all, even on paper. It took six
more months for James Fields to incorporate the company and
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open the P.O. Box and open some bank accounts for it. Third, you have the Paradigm Tactical Products scam, which is the defendants fabricating wholesale an array of accredited investors for a company called Paradigm Tactical Products in order to deceive the NASD, or what used to be called the NASD, and the SEC into approving it for a public quotation on the Pink Sheets while not having to register with the SEC and so do quarterly and yearly SEC filings. On top of
that in the period of the conspiracy, there's various petty embezzlements that Mr. Latorella and Mr. Fields commit, and they abuse their position in other ways: extensive misuse of corporate credit cards, etc. To pull all of this off, they essentially betray everyone around them, betray and manipulate everyone around them: professional colleagues, lovers, friends. matter who it was. in this prosecution. So, for example, Ms. Kristie Chapman, a Junior Sales Associate at Locateplus around 2000, has a romantic relationship with Mr. Latorella when he is the CEO. Several It didn't
That was really a defining element for us
years later he schmoozes her into being the quote, unquote president of Omni Data. She is emotionally fragile, she is
having financial difficulties, and he sets her up in this job working for a company that she doesn't know doesn't exist, and then Mr. Latorella and Mr. Fields watch for a few months as she
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does her darnedest to do work for this fake company. Or Ms. Caroline Hashem, mother of two of Mr. Latorella's children, who he induces to help him with the Paradigm Tactical Products scam by signing false paperwork to open a brokerage account basically containing information showing that she is an accredited investor, when, in fact, she is nothing of the sort, opening a bank account, again under false pretenses, signing checks in blank and then giving them to Mr. Latorella so that he can do what he wants with the checkbook, being the trustee, the fake trustee of a fake trust. That is one of the Paradigm Tactical Products investors. children. In total, Mr. Latorella uses the identities of six women, six with whom he had romantic relationships over the preceding years: Kristie Chapman, Caroline Hashem, Keeley This is what he does to the mother of two of his
Valliere, Julie Hastings, Patricia Leonard, and Ksenia Sirotinskaia. Name, date of birth, Social Security number,
address and phone number for every single one of them he takes and uses as the identities of fake Paradigm Tactical Products investors. He victimizes the dead. resurrected on paper. Timothy Rodden unwillingly
Mr. Rodden died in 1985, yet Mr. Rodden
has a P.O. Box, an e-mail address, a brokerage account, a bank account, and he, too, invested in Paradigm Tactical Products.
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Finally, the accountants.
They are, obviously, a
factor in every case of this nature when you are dealing with a publicly traded company, since the accountants have to sign off on the financials. But there is real harm here. The
manipulation of the accountants, first CCR, and then later Livingston & Haynes in Wellesley, goes on for years. And what occasionally happens in these kinds of cases, as the Court knows, I think, better than I do, is, not only the accountants get to be publicly humiliated when the indictment comes out, because it becomes clear they didn't catch the fraud, if the SEC decides they did not work to whatever the applicable professional standards were, then they get sanctioned by the SEC to boot. That's what happened here.
These accountants were not participants in the fraud; they just had the misfortune of coming into the orbit of Mr. Latorella and Mr. Fields. So, they are deceived along with
the various other people I have mentioned for years as to the nature of what the defendants are doing, and then for their troubles they also get sanctioned by the SEC, which has real professional reputational costs to these people and probably also a financial cost On that note, Mr. Bill Wood, one of the accountants who worked on the Locateplus accountant, is here today and would like to give a victim impact statement. THE COURT: In that connection, perhaps I should have
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said it at the outset, but I was going to say it after the Government had completed, to inquire whether any persons who might be considered to be victims here wish to speak orally. MR. LELLING: he is here in the back. Finally, there are victims to every scam of this nature. The Government did not pursue sort of a broad The Government, Yes. He is the only one, Mr. Wood, and
fraud-on-the-market approach to loss here.
instead, looked for specific victims, and victims there are. The accountants are victims, but there are also investor victims. investor. Randy Jurecka, the classic individual After 9/11 he thought He
He lives outside Charlotte.
that security-related companies might be a good investment. follows the press releases for Locateplus. invests. Eventually, he
He considers himself cautious, because when a press
release comes out he doesn't jump to invest, he watches to see what happens. So, in late 2004, the company announces Omni Data. His interest is piqued but he doesn't jump in. what happens. He waits to see
Well, then the press releases start coming out
touting substantial increases in revenue in 2005 and that is, of course, attributable to the fake Omni Data contract. begins investing. He is a victim in this case. He
And there are institutional investors, like Special Situations Fund, who also invested, who are victims, and they
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have submitted victim impact statements to the Court in writing. So, in short, put aside the concerns about the Guidelines for the moment. The five years, in the Government's
view, is the low end of enough in this kind of circumstance. It is a substantial hit for the defendant, who will lose liberty for five years, someone who has no prior record, but it is the least that is enough in light of, A, the extent of the fraud they attempted, and, B, as I said before, the enthusiasm and callousness behind it. You can commit a securities fraud
without the wholesale manipulation of everyone you know, but that is not what happened here, and that factor, to us, is something of an aggravating factor. So, in closing, I would say five years is the least that is sufficient, and that is what the defendant should receive. THE COURT: All right. Thank you.
So, I will hear from Mr. Wood, then, if he is present. Mr. Wood, if you would use the podium right there. MR. WOOD: Thank you, your Honor. I am a CPA with
My name is William W. Wood.
Livingston & Haynes, and I was the reviewer on the Locateplus audit. In addressing the Government's statement of the extent of the fraud, we have dealt in private companies with frauds,
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but they were usually limited to the one or two people absconding with assets, etc., classic. We have never dealt
before with one where it was this widespread and thoroughly corrupt. We had hoped that, with the passage and the attention
given to the Sarbanes-Oxley Act, that it would at least affect the CEO and CFO when they provided us with management assurances and signed off on them, that they would take that into consideration, particularly when we asked about specific items related in this case to Paradigm. down. Steps were taken that are odd to see in a revenue-recognition fraud in that real money came in. Now, That did not slow them
that came in apparently from other fraudulent activities separate and some from misstatements relating to paying down some of the debt of the company that was legitimate debt. As to the damages, our firm is 80 years old. I know
1932 probably was not a great time to open a new professional firm, but it has been successful since that time. We have
never had an action against us, never had any question professionally. As it stands now, we have been censured by the
SEC for not having followed this more in depth. THE COURT: Can you explain to me what the censure
consists of, what specifically the Commission has done. MR. WOOD: Okay. They took an action against us for
violation primarily of Reg. 10b, which is that, in the event we
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find criminal activity, that we report it to the Board, and if they don't take action, then the next day we report it to the SEC. We had suspicions that did not -- you know, I realize
that in this environment we are used to charging people with crimes, but in a civil environment this is something you don't do without considerable backing. We brought our suspicious to the Board. They asked He
for their outside counsel to follow up on some issues. assured us they had been resolved.
The main thing was that
there was a whistleblower involved, and we were told by the outside counsel that it had been examined, it had been a personal matter between he and Mr. Latorella, and that there was some debt involved, it had been repaid and the person was fine. The person did not contact us after that, and we were
not able to contact them. THE COURT: In terms of the sanction that the SEC
imposed -- you called it a "censure" -- what does it consist of, a public admonition or something like that? MR. WOOD: It's a public admonition to the firm, We certainly would have
coupled with a fine of $130,000.
fought it further, but, obviously, we have limited resources in terms of finances for legal fees, and these matters are not covered by insurance. Personally, like I say, just, for
example, several years back PCAOB, the Public Company Accountant Oversight Board, held a conference in Boston and had
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a discussion panel of their members, SEC members and one member of the local audit community from a small firm, and that was myself. I am currently banned from practice before the SEC for
three years. THE COURT: companies? MR. WOOD: Personally, I can do none; I cannot Should I leave public Does that mean you cannot do any public
contribute to the work on them.
accounting, I cannot be the financial officer or CEO of a publicly held company for that same period. can ask to be reinstated. I had planned to retire sometime prior to this, but I intend now to remain in public practice until I am able to be reinstated. We have lost at least one major client directly At that point I
related to this because, again, there is an association with the people who certify your financial statements. Like I said, we have been censured. We are in a
competitive field, and it's obviously easy enough for another firm to say, "You don't want to be with them," which contributes further to the damage to our reputation. And, again, personally the ban -- there have been, perhaps, six cases in the SEC literature where only a 10b violation has been asserted or the somewhat related 10a, and this is one of them. example, literally. So, I will probably become the textbook
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Again, our agreement with the SEC is that we neither accept nor deny their findings. I am not offering this in
denial of their findings; obviously, additional skepticism possibly would have cut through, but, again, I also do not accept it as definitive. Personally, if we were to look at financial issues, and I know it is a small amount, but I have taken a 50-percent reduction in pay. I was not highly compensated to begin with, So, that relates to $50,000 a year,
but we are a small firm.
because I felt, first of all, we had money that the firm had to pay out and it's not fair that my other partners should be hit with any part of that. Essentially, the money is not the issue, though. It I
is a matter of reputation, it is a matter of personal honor. am a retired Army officer. I been a CPA for 30 years. Honor
is what you have in those businesses.
I realize that does not
come under the Sentencing Guidelines and is certainly not subject to restitution, unfortunately. THE COURT: Thank you very much.
So, Mr. Weinberg. Unless there is some other person who comes within the Crime Victims Act who wants to speak. MR. LELLING: Not that I know of that is present, your
THE COURT:
Mr. Weinberg.
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MR. WEINBERG:
Thank you, your Honor.
Mr. Latorella stands, or will shortly stand before you as a 47-year-old man who had no business being an officer of a public company. He had a skill in technology, he had a skill
in being able to create searchable databases that were of utility to agencies from the FBI to local police to private investigators. Had he only had the good fortune to limit his
company to a private company, he probably would not have fallen within the radar of the SEC or the U.S. Attorney's Office, but he chose to go public, and he is responsible and has pled guilty because he is responsible for a lot of misbehavior, some of which he knew about, much of which he was deliberately or willfully ignorant of. But, as the CEO, he signed the forms. Even though he never met Mr.
He is responsible to Mr. Woods.
Woods, the Government's investigative reports show that he was thought of as a ghost to the auditors. They didn't even have But that But
his e-mail till March '07, when he left the company.
was all delegated and done by others, not Mr. Latorella. he is the CEO. He signed his name, he is responsible.
If he
didn't know the details of the forms that were being submitted to the SEC, he certainly knew that they reported Omni revenues. Mr. Woods said it's unusual to have these incoming revenues that are attributable to a source other than a real customer. This Omni company, which I think is at the core or
the epicenter of the Government investigation, was begun in
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good faith.
They were to be a successful small company to fill
another customer that Locateplus lost when a company called Intelius, which was making lots of money, decided they didn't want to pay for the data. They set up Omni, they set it up in
the wrong way with the wrong post office with the wrong people, and when Omni didn't match their wild expectations, Mr. Latorella, instead of simply being transparent and closing that, tried his best to match dollar for dollar the kinds of revenues that Locateplus had advertised and was expecting from Omni. And it's a mitigating factor. As the Government has
identified certain aggravating factors, the man went bankrupt. He took money from his own pocket and put it into Locateplus. He literally borrowed over a million, maybe close to two, maybe over $2 million, much at high interest rates, some from banks, some from lenders that are currently being alleged in the Bankruptcy Court to be people of ill repute. But he did that It was
because Locateplus was more than some detached company. his baby.
It is what he lived with for 16 or 18 hours a day. And I am not here to in any way mitigate or justify
the many things that an even half-competent CEO would have made sure didn't happen. It did happen. It happened on his watch.
They constitute regulatory crimes, they constitute criminal crimes. But he is bankrupt. He is not Jeff Skilling. He
didn't go to Harvard Business School, he didn't get trained at
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MacKenzie, he didn't get trained at Goldman Sachs.
He got no
training to be a public officer, and he failed and failed miserably. He is going to jail and he is leaving a loving family and leaving his mother and leaving his family knowing when he made his decision to enter that plea agreement that he was going to jail for a substantial number of years for a man who never expected to go to jail. criminal. He is not a professional
He is a person who broke the law in this case in
this circumstance who was drowning in responsibility, when all he wanted to do was fix hard drives and create better search engines. He was required to do more. He failed to do more.
He used drugs, he used alcohol to try to fill the void, was just in a spiral down. He owed money to people he
borrowed money from to give back to Locateplus, ended up being a participator in the Paradigm event. The Government evidence is very clear that some portion of the Paradigm stock sales went directly to Mr. Latorella, to Omni and into Locateplus, again attributed to a company that wasn't generating revenues. But a large part,
from his perspective, of why the Paradigm event occurred was to repay these creditors and to put more money into Locateplus to try to match some of the revenues that they told stockholders was going to be realized from an arm's-length customer that, in fact, didn't become a viable company. That's Omni.
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So, when the Government and I negotiated this plea, I felt five years was a substantial sentence. I didn't
appreciate the wrongdoing or the case or the many examples where he should have acted, in the words of Mr. Woods, more honorably. Five years is an enormity to Mr. Latorella. I
think it's a fair sentence. THE COURT: All right. Thank you.
So, Mr. Latorella, I will hear from you, if there is something you would like to say at this point. THE DEFENDANT: Yes, your Honor. Thank you for giving
me the opportunity to talk to you and to tell you a little bit about myself. I wrote some things down, because, frankly, I've
never talked to a federal judge, and I'm scared about the whole thing, obviously. When I was a boy, my dad told me that the road to hell is paved with good intentions, and certainly my road has been paved with my good intentions. I'm standing before you today
because of my own neglects, and things that I did wrong, and failures and things that I should have done and didn't do, and I couldn't be more sorry for it. I want you to know a little bit about me, because you have heard a lot of the things, and I just want to frame it in the context of what really is what happened, and me. big-time CEO and any of that, as my attorney said. all I ever wanted to be was a police officer. I'm not a In fact,
I got accepted
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to Mass. State Police Academy, and that was my dream, and it quickly faded as I got a knee injury and got a medical discharge from there. It was devastating to me, but I figured I kept taking
that I would recover and I just pursued it. exams and trying to get on again.
In the interim, I started a company called "Worldwide Information," and I started it with my partner, Sonia Berjoni (ph), and we wanted to make this great CD-ROM product that would help police solve crime, and that they would be able to search motor vehicle records in a way that they never could before, with partial plates. we had in this company. So, we invested every penny that
I worked 18 hours a day every day,
sleeping, and not even bathing, on bubble wrap on a table, cashing in all my bonds my grandmother gave me, just to run this company. But it was worth it. We made this product at It solved countless
Worldwide Information that was amazing. violent crimes:
rapes and even homicides and a bank robbery in And that gave us so much pride
Saugus and over and over again.
that we made this product that would help people, because that's what we were about. people. We started the company to help We
We never wanted to make all this money and scam.
just wanted to build a product to help people, and that's all it was about. I never had any intention of growing any further than
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this Massachusetts Motor Vehicle disc on CD-ROM until someone I knew said to me, "Oh, if you had more money could you make something, could you do more states?" And I said, "Well,
yeah," I said, "but I have invested every penny I had in this." In fact, I wasn't even making a salary. I worked details on a
road detail that the full-time police didn't want because they were going to get killed on it. So, I worked there to earn a So, he said,
living so we could make the CD-ROM product.
"Yeah, I know I can get you money in this thing called a 'private placement.'" what that is, but..." I'm like, "Okay. Well, I don't know
He said, "Yeah, I can get you hundreds I said, "All
of thousands of dollars and you can make it." right. Well, that sounds good."
And I knew that there were,
like, government forms and whatever, but I got it from him and the lawyers did whatever they did, and we bought more data and we made more states, and we made Wisconsin and we did the same great thing that we did for Massachusetts and these other states, and everyone was really happy. So, as that grew, they said, "Well, if I can get you more money, could you do it with other data?" And I said,
"Yeah, there's all this other data that we could link in the same way and do it." So, yet again, I took another private
placement and started Locateplus. And, your Honor, Locateplus was an amazing company. It always was. But it was more than a company to me. It was
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my baby. crimes.
I dreamed of helping police everywhere and solving
So, we built this company, worked day and night, and we did build it. We built it into this great big company that I got awards. I was in the newspaper for
was solving crimes.
the crimes we solved.
The Violent Fugitive Task Force of
Massachusetts gave me an award for violent fugitives that they apprehended. It was a great company. It wasn't just great for
me, it was great for my employees. loved it.
We all worked hard and we
When 9/11 happened in 2001, the Government contacted us and said, Hey, we need people run on the planes, the passengers, who they know and who they are connected with, and we did it instantly. weren't about money. We never asked them for money. It was never about money. We
And the They worked
employees who worked there didn't ask for money.
over and over all night long that night, like, getting boxes of paper to the government to help them. about. And that's what we were
That's what all of us were about, not just me, but the We were not about being rich or taking money.
whole company.
We were about helping people, and that's what we did. Locateplus cost an enormous amount of money to run, and I did everything to save money. I sat on the floor
screwing together hard drives for 15,000 that cost a quarter million by LexisNexis so that we could compete with them. I
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mean, LexisNexis was enormous.
But that is what we did.
So, I kept trying do this and grow the company, but it was so expensive and we were getting new private placements, and my stress just got worse and worse and worse. taking anxiety pills to just deal with it. And then LexisNexis came to me, and they offered me $25 million, $25 million to sell the company. I had just taken I started
one of these private placements, that now I had done a few of them, and the last round, because they would change the prices on them, the investors came in, and they would have lost money at $25 million. I would have netted $15 million in my pocket.
I would have been gone long before any of this stuff, and I would have put $15 million in my pocket. can't do that, we have to do something. So, the accounting people said, Well, you can give up your stock and do this rights offering and all of this stuff. So, I diluted myself from owning the majority of this company, 60 percent. come down. I just gave my stock away so that the price would And I never took the deal, because I believed in I was the biggest shareholder. I wasn't selling And I said, No, we
the company. my stock.
I was out there trying to build this company. I never had any thoughts of going public at all. I
interviewed a gentleman for the accounting job, and he said, "Oh, you know, I want to take you public and make all this money." And I was, like, really skeptical, like, "Okay." I
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just want to build a database and make a great product, and that's what I wanted to do. But I listened to him, and I hired him as my CFO, and he put together this IPO, and he hired this brokerage firm, which turned out to be unscrupulous, with a lot of bad people in it, people who new about stocks and cared about, you know, like pump and dump, or whatever, all of these things. It wasn't his fault, that CFO, that first CFO. He
should have known better, but he really wanted to make the company grow also. And I should have cared that everything was I wasn't caring. I just We
being done correctly, and I wasn't. cared about getting the money.
You know, we were in debt.
had to pay employees, we had to do all of this stuff. couldn't have been more wrong. my fault.
And I It's
I did everything wrong.
This is my fault, because I did everything wrong
that I could do wrong. But the mistakes were compounded by the fact that these IPO brokers brought bankers in when there wasn't enough money that I thought were legitimate. There were big banks,
and, unknown to me, there were organized crime gangsters ultimately making threats and whatever. But they set up these I put my
high-interest loans that I personally guarantied.
house up on it, because I wasn't trying to, like, protect myself. I put my house up on it, and I got deeper and deeper
in the loans and put myself in a worse spot.
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So, you know, we kept trying to think of something to Omni Data was a business project. I mean, the God's
truth, it was a business project that we thought we could get sales on, and when it didn't work I should have just stopped it. I should have said something and I didn't, because I was So, I figured that, okay, whatever It It
trying to protect my baby.
money I get I'll throw into it and it will protect it.
wasn't to pump stock, it wasn't to do any of those things. was to get money into Locateplus, and I did it at all cost.
Instead of caring about what the law was -- I didn't even know what the law was; I didn't even pay attention. I said, just, And
let the money in, as long as it comes in to Locateplus. that's what I did.
I allowed press releases to go out, and I And I said, it doesn't matter. As long
never looked at them.
as the money's coming into Locateplus, and I couldn't be more wrong for what I did, but my intention was good. Your Honor, please understand that I am not even telling you these things because I am mitigating anything I did. My remorse and regret couldn't be higher. But I just
want you to know that it was with the good intentions that we tried to do it; it wasn't to take any money. I'm not a corporate person. I look back and find it
hard -- I went from making this little product that police use to standing before a federal judge that's possibly going to put me in jail. I've never been in jail, I've never been arrested.
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In fact, I've only had a few traffic violations, minor traffic violations, in my whole life. I love my family, I love my kids, and I taught them to work hard -- they're here today -- never steal and to love everybody. I work hard today doing a marketing product to
protect kids, because I love kids. I take care of my mom, who is 92 years old, who lives alone, and I do my best to provide for my fiance, Megan, who is in law school, and I love her very much. (Pause) THE DEFENDANT: We have two beautiful children, our Excuse me.
son, Henry, and our daughter, Madeline, and I work hard to be a good dad to them and to give them a good life and to teach them to do the right things, be honest and careful, careful that I wasn't and I am so sorry for. We are expecting our third child. Megan's pregnant
with our child, Emmet, who is going to be Emmet, who is due in August. This is who I am, your Honor. I'm here today to say
to all the people that have come here who believe in me, who know me, that I am sorry. I'm sorry for everyone I let down.
I'm sorry for everything I did and to promise to you, to everyone here, to God, if you grant mercy to my family, who needs me, so I can care for them, you will never see me here again, ever. I'll care for them with all my heart and spend
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the rest of my life making up for my mistakes. never be led astray with good intentions again.
I promise I'll I want to do
the right things and help people with good acts instead of good intentions. Thank you, your Honor. THE COURT: Thank you, Mr. Latorella.
Well, the bottom line here is that I will accept the recommendation of the parties with respect to the sentence of incarceration of five years. The reasons for doing that, to
some degree, have been developed here, but let me outline them in the protocol of Section 3553, which is the overarching set of considerations that Courts are supposed to have in mind when they sentence individuals. The first broad topic that I have to address is the nature and seriousness of the offense and the character of the offender. The nature and seriousness of the offense cannot be The integrity of our commercial system depends
understated.
upon the integrity of the persons who are involved in it, and the process, particularly in public companies, of eroding that cannot be more dangerous to us as a commercial society, one that depends upon the capacity of its courts and commercial activities to make judgments that will serve the broader good of the public. It is not, I think, accurate to refer to that as a matter of regulatory violation. It is fundamental, whether or
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not you can trust other people that you do business with. are at large because we are dealing in markets that are not directly face-to-face. So, the nature and seriousness of the offense is substantial, and here it is affected by the manipulation of
We
persons who were working in that company, affiliated with the defendant in ways that simply are unacceptable. That brings me to the character of the defendant. I
do not, for a moment, wish to suggest that there are not very good aspects of the defendant's life and that he has not been supportive of those persons he has been closest to and those for whom he bears responsibility, like children. another dimension here. But there is
It is the manipulation of persons who
have developed relationships with him to serve broader ends. Mr. Weinberg is correct, I think, that the defendant was not someone who should have been a Chief Executive Officer of a company for any of a number of reasons, but not the least of them being that his focus on success of his entity led him to pursue a path that abused others in ways that he did not abuse others in his own life. Listening to the discussion that Mr. Latorella had gives me the sense of someone who is, to use the psychobabble of the moment, in denial about what was really going on here, and what was really going on here and what brings him here is a fundamental character flaw and a willingness to manipulate
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others.
There is collateral damage, to be sure, and that
collateral damage is loved ones who will not for a period of time receive his support, which has been real and genuine but is corroded as well by these activities. I look at the question of what we call "specific deterrence;" what do we need to make Mr. Latorella not do something like this again? Well, circumstances may take him I am not sure that he yet
out of the game as a result of this.
recognizes that there were fundamental choices that he made that were not just to make his "baby" flourish but, rather, to do so in a fashion that is fundamentally reprehensible. So,
circumstantially, maybe Mr. Latorella will not be able to do this again, but that is not because, as I perceive this, he is fully cognizant of how wrong what he did was. I turn to the question of general deterrence, that is, the idea that someone in Mr. Latorella's position who is familiar with what the costs are of this conduct would think twice. Here, the cost-benefit analysis is, to a large degree, no risk, no return. The bigger the risk, the
speculative:
bigger the return. So, you look at this and say is five years going to keep these people from doing that in a system in which the likelihood of detection is relatively low, in which the opportunities for manipulation are relatively high and the rush of self-esteem is so high that, even looking at the costs, they
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are not going to be deterred?
Hard to say, but five years is a
long time, and someone looking at this with a cold eye, considering whether it makes sense to manipulate the market or face the prospect of five years, may be deterred. I look at the question of what is the role of prison here. The role of prison, insofar as I can see, is that It is not a matter of
Mr. Latorella will be confined.
developing for himself new skills or education, although that may follow. Not that I would send people to prison to benefit
themselves independent of personal culpability, but there is a benefit to what appears to be a substantial drug-abuse problem that defense counsel have properly said should be addressed by the extended treatment program that is available in the Bureau of Prisons, but, for the most part, the benefit to Mr. Latorella personally in terms of advancing skills and so on is going to be minimal. There is another, however, dimension to it. It seems
contrived for me to say it, but having last week spent a day at two federal facilities in New Jersey, it came clearer to me that there are people who are in prison like Mr. Latorella, with Mr. Latorella's skills or background or personal characteristics, who can be of some benefit to others who are not as gifted, who can provide some larger advice within the prison system to people who are less skilled and, perhaps, unaware of what possibilities could be for their lives and also
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the dangers of continuing on a particular route. kind of informal counseling.
That is a
It seems contrived, but I do not
think so, having, as I said, spent some recent time evaluating prison systems. There is a question of what is called "unwarranted disparity" among sentences. That is the driver, frankly, for
the Sentencing Guidelines, in creating the Sentencing Guidelines for providing some mechanism for keeping them more or less aligned, and, in fact, was a major driver for the Sentencing Guidelines generally. That is to say, the political
bargain that was struck, if we have to personify it, was between Senator Kennedy, Senator McDermott and Senator Thurmond wanting heavier sentences for what I will call "blue-collar crimes" and Senator Kennedy wanting heavier sentences for white-collar crimes. So, strange bedfellows sometimes lead to
unnatural acts, and this was the outcome, a set of Guidelines that created tough, tough sentences on their face for white-collar criminals. But having been in the system for a while, I have some sense of the range of sentences that are imposed in cases like this, and while I think this is at the low end of similar cases, I think it is in the competitive range of what is being meted out for people who are involved in white-collar crimes. There are, of course, the outlier cases, the cases that do not demonstrate anything other than the particulars of it, and
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today, just as I came down, I saw that a very substantial sentence was imposed on Mr. Stanford for a Ponzi scheme. in the stock-manipulation area, this sentence is perhaps a little on the low side, but, as I say, in the competitive range. So, for those reasons I am prepared to accept and do accept the effectively agreed-upon recommendation, because it is the top of whatever I could do in this case by the parties. Now, the sentence, as I have indicated, is 60 months' incarceration. I am not going to impose a fine, because I am But
not making a determination at this stage but deferring the question of the restitution, whatever conceivable restitution there would be, and it is important for us to identify right now what the calculation of the Probation Office has made will be of $6,257,323.98. Whatever it is going to be, it is going
to be substantial and should not be diluted by a fine, and to the degree there is other money available under these circumstances, of course it ought to be devoted to people for whom Mr. Latorella is responsible and has taken responsibility. I have to emphasize that again. There will be a period of supervised release of three years. The defendant is obligated to report to the Probation
Office within 72 hours of his release from custody. I anticipate that he will have restitutionary obligations, and in order to enforce those restitutionary
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obligations I am going to impose certain financial dimensions to the period of supervised release. The first is that the
defendant will be obligated to pay his restitutionary obligations during the period of supervised release. To the
degree that he has not paid them, he is obligated not to incur any new credit obligations without the specific authorization of the Probation Office. He is obligated to provide the
Probation Office with any requested financial information, and he is obligated to -- or I should phrase it somewhat differently -- he must understand that that information will be provided to the Financial Litigation Division of the United States Attorney's Office for such actions they may consider necessary here. He may not change his address without
notifying the United States Attorney for this District within 30 days of any change in mailing or residence that he has. I will make the recommendation that he be considered for the Residential Drug Treatment Program in the Bureau of Prisons, but I will extend that to the conditions of supervised release. That is to say, the defendant is going to be
obligated to submit to drug testing in the amount of no greater than 104 drug tests per year to permit an evaluation of whether or not he has reverted to drug misuse of the type that I think he, himself, recognizes is problematic. He has an obligation to provide a DNA sample, as directed by the Probation Office.
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He may not commit another federal, state or local crime, nor illegally possess a controlled substance. He is prohibited from possessing a firearm or other dangerous weapon. The larger issues of what I will call mental-health treatment here are not salient, but I am leaving to the Probation Office the authority to fashion a program in connection with drug treatment that addresses problems of broadly conceived mental health that may have been drivers to his abuse of drugs in this case. There is a Special Assessment that the defendant is obligated to pay. It is $100. It will be paid immediately.
If not, it will be paid pursuant to a financial responsibility program that will be administered by the Probation Office. I will take up the question of voluntary surrender and request for recommendation with respect to the Bureau of Prisons in a moment, but I just want to see if there are any other conditions that the parties would have me consider? MR. LELLING: your Honor. MR. WEINBERG: THE COURT: None come from the defense. None come to mind for the Government,
So, let us turn to the question of
voluntary surrender and recommendation, at least, for the Bureau of Prisons. MR. WEINBERG: Thank you, Judge.
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Mr. Latorella is expecting his third child with his current wife in August, and he would ask the Court to consider two reasons: one being his desire to be there for her birth or
his birth; and, two, being a desire to not be locked up but be able to attend the restitution hearing that logically would occur -- if there was an acquittal it would occur in November, since the trial of Mr. Fields occurs in October. If there was
a conviction, it would presumably occur around the January month or 60 to 90 days after the trial. It is an important event to Mr. Latorella, who wants to be able to provide for his family, and these restitution issues are very complicated. We have the chief, the two
largest alleged victims at different times stating that their losses were due to failure to register stock and have it publicly traded when it was, apparently, restricted. So, he
has asked me to ask the Court whether or not he could attend those hearings and attend them prior to rather than after the start of his incarceration. I know the Government is content with his surrender date being on or about September 30. I would ask the Court to
extend that surrender date mostly so he could be there for the first few months of his next child's life, and also so that he could attend the restitution hearing without the burdens of being locked up in a local prison and then transported to wherever the Bureau of Prisons designates him.
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I know it's his plan and Megan's plan after she finishes law school to move to Florida, and I would ask the Court to recommend the Federal Prison Camp at Pensacola. THE COURT: Do you want to be heard on that?
Let me tell you my initial response, which is September 30 is the proper date here. I do not think that
extending beyond that for purposes of the restitution hearing is appropriate, although I will take whatever steps are necessary to bring him in so that he can consult with his attorneys on that. That may not be an ideal situation because
it delays designation here, but I just do not see extending the period of release beyond September 30. MR. WEINBERG: I would ask, then, that he be
designated at the restitution hearing, that not delay his designation, because I do think that being locked up at Wyatt or Plymouth is a difficult time. THE COURT: Well, I am going to, then, simply say that
he will report to the institution to which he is designated by the Bureau of Prisons no later than September 30, and the question of bringing him back, if it is necessary, will be from the designated facility rather than from Wyatt or someplace like that. I will, as well, make a recommendation that he be designated to a facility in Florida that meets his security needs without going into Pensacola Camp.
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Is there anything else that we need to take up? MR. LELLING: THE COURT: Not from the Government, your Honor.
You should understand, Mr. Latorella, you
have a right of appeal, and you will want to discuss with Mr. Weinberg whether that makes any sense under these circumstances. I have tried to be as candid in dealing with these issues as I can and explaining why I have done what I have done. You have heard a lot more, probably, than you want to
know about how sentencing is conducted in the federal courts, but ultimately it is an evaluation of culpability, individual culpability, and once it is imposed the next step is rehabilitation. If you face candidly what you have done, you If you, and I will
are on the first step to rehabilitation.
have to say, continue to deny your involvement, rehabilitation is going to take a very long time and may not be successful. But now, like before, it is up to you. Do you understand? THE DEFENDANT: THE COURT: be in recess. MR. LELLING: THE CLERK: Thank you, your Honor. Yes, sir.
If there is nothing further, then we will
All rise.
(The Honorable Court exited the courtroom at 3:50 p.m.) (WHEREUPON, the proceedings adjourned at 3:50 p.m.)
58
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Date:July 20, 2012
C E R T I F I C A T E
I, Brenda K. Hancock, RMR, CRR and Official Reporter of the United States District Court, do hereby certify that the foregoing transcript constitutes, to the best of my skill and ability, a true and accurate transcription of my stenotype notes taken in the matter of United States of America v. Jon Latorella, No. 1:10-cr-10388-DPW-1.
/s/ Brenda K. Hancock Brenda K. Hancock, RMR, CRR Official Court Reporter

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Case 1:10-cr-10388-DPW Document 261 Filed 07/20/12 Page 1 of 58

UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS

UNITED STATES OF AMERICA vs. JON LATORELLA, Defendant.

THE HONORABLE DOUGLAS P. WOODLOCK

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can take more time. this point.

So, we will take a five-minute recess. All rise.

So, let us turn to the Presentence Report,

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I do not think that I can properly calculate the

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But assume the following, the

And the Government makes an argument that the proper

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I have got your calculation. much and by a wide margin?

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You get four levels for being the officer of a

But, yes, there are these enhancements as

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and restitution is just another way of saying loss, maybe.

defendant does not think that restitution is appropriate, or it

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So, I will put the restitution to one

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answer to that particular legal question. any thought.

I think what I can do or, really, all I can do is

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Second, there are certain factors

For various Now, that

reasons, the case was not charged until late 2010.

longer than we thought, and it took a very long time.

There was an uptick in volume at the time, but it is

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At the end of the day, it is a penny stock

Five years will be a substantial There has been some discussion in

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The Government asked me to put off the sentencing for

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But it does not raise those kinds of

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But I have expressed this in the past.

someone who necessarily takes (C) pleas without question.

in any way to address the matter.

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officer of a public company matters, we would suggest.

fact that it was not individual conduct but collective conduct

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So, I suppose I should be deferential

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where Judge Fuste set a five-year sentence with a 17-year

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more months for James Fields to incorporate the company and

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That was really a defining element for us