jl sentencing transcript
TRANSCRIPT
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UNITED STATES DISTRICT COURTDISTRICT OF MASSACHUSETTS
UNITED STATES OF AMERICA
vs.
JON LATORELLA,
Defendant.
)))))))))
No. 1:10-cr-10388-DPW-1
BEFORE: THE HONORABLE DOUGLAS P. WOODLOCK
SENTENCING HEARING
John Joseph Moakley United States CourthouseCourtroom No. 1
One Courthouse WayBoston, MA 02210
Thursday, June 14, 20122:00 p.m.
Brenda K. Hancock, RMR, CRROfficial Court Reporter
John Joseph Moakley United States CourthouseOne Courthouse WayBoston, MA 02210(617)439-3214
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APPEARANCES:
UNITED STATES ATTORNEY'S OFFICEBy: Andrew E. Lelling, AUSA
Paul G. Levenson, AUSA1 Courthouse Way, Suite 9200Boston, MA 02210On behalf of the United States of America.
GREENBERG TRAURIG LLPBy: Martin G. Weinberg, Esq.
Robert M. Goldstein, Esq.20 Park Plaza, Suite 1000Boston, MA 02116On 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. So, what I would propose to do is just take
five minutes. If there is an issue you want to pursue, then we
can take more time. But you will want to think about it at
this point. So, we will take a five-minute recess.
THE CLERK: All rise.
(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: This Honorable Court is back in session.
You may be seated.
THE COURT: So, are there any objections to my
continuing here?
MR. LELLING: Not from the Government, your Honor.
MR. WEINBERG: Not from the defense, your Honor.
THE COURT: 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. I will return to
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
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. I have accepted the plea and moved
on to sentencing.
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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. I am not sure that that case law
is fully considered. 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." It is well above 60
months. 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? So, I raise
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
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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: Yes.
THE COURT: So, what is the Government's view on it?
I have got your calculation. Is that simply to say it is this
much and by a wide margin? Is that what your calculation is
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. This
case and the investigation before it have gone on for quite
some time. We have given a substantial amount of thought to
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. You have a base of six
or seven. 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: I agree.
THE COURT: But, yes, there are these enhancements as
well.
MR. LELLING: You can get to 12 additional levels that
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. We're at 12 levels without even
doing anything.
THE COURT: And that is, I think, probably true in
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,
and restitution is just another way of saying loss, maybe. The
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. I am not so sure I feel that way in a case like
this.
MR. LELLING: On the issue of restitution, I am glad
the Court raised that. Again, in light of my conversation with
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
address it today, if the Court wants to do that. We did not
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. That would be legal and proper under every case I
have seen.
THE COURT: I think that is fair. That is a direction
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: Correct.
THE COURT: So, I will put the restitution to one
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
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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. I am not
sure I agree with that.
MR. LELLING: And I certainly will not venture an
answer to that particular legal question. I have not given it
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.
MR. LELLING: We are fully aware that it is a generous
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: You understand that the court reporter is
taking this down.
MR. LELLING: Am I speaking very fast?
THE COURT: No. However fast you are speaking, what
you are saying is being taken down.
MR. LELLING: I know. I crossed that bridge long ago,
your Honor.
THE COURT: Me too.
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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. The FBI began
its investigation in this case in late 2006. For various
reasons, the case was not charged until late 2010. Now, that
does not create a substantive right for the defendant, meaning
there was no bad faith on our part. The investigation took
longer than we thought, and it took a very long time. We are
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. The stock price responded not at
all. 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. It is not that
kind of case. 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. He has no record, he has
never been in jail before. Five years will be a substantial
amount time out of his life. 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. The individual pled to a
felony. 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.
And there are other factors that are involved. I will add one
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. There is not
the disparity that is evident in the other case. There is a
disparity that is evident to me in the cooperator's sentence by
Judge Wolf as opposed to here.
MR. LELLING: Right.
THE COURT: 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
someone who necessarily takes (C) pleas without question. In
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
in any way to address the matter. I understand that it sets a
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
officer of a public company matters, we would suggest. The
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. But there is always
uncertainty in any case. 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
say.
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. It didn't
matter who it was. That was really a defining element for us
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
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. This is what he does to the mother of two of his
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
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. Timothy Rodden unwillingly
resurrected on paper. 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: Yes. He is the only one, Mr. Wood, and
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
fraud-on-the-market approach to loss here. The Government,
instead, looked for specific victims, and victims there are.
The accountants are victims, but there are also
investor victims. Randy Jurecka, the classic individual
investor. He lives outside Charlotte. After 9/11 he thought
that security-related companies might be a good investment. He
follows the press releases for Locateplus. Eventually, he
invests. 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. He waits to see
what happens. 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. He
begins investing. He is a victim in this case.
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.
My name is William W. Wood. I am a CPA with
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. That did not slow them
down.
Steps were taken that are odd to see in a
revenue-recognition fraud in that real money came in. Now,
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
for their outside counsel to follow up on some issues. He
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,
coupled with a fine of $130,000. We certainly would have
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: Does that mean you cannot do any public
companies?
MR. WOOD: Personally, I can do none; I cannot
contribute to the work on them. Should I leave public
accounting, I cannot be the financial officer or CEO of a
publicly held company for that same period. At that point I
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
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. So, I will probably become the textbook
example, literally.
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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,
but we are a small firm. So, that relates to $50,000 a year,
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
is a matter of reputation, it is a matter of personal honor. I
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
Honor.
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.
He is responsible to Mr. Woods. Even though he never met Mr.
Woods, the Government's investigative reports show that he was
thought of as a ghost to the auditors. They didn't even have
his e-mail till March '07, when he left the company. But that
was all delegated and done by others, not Mr. Latorella. But
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
because Locateplus was more than some detached company. It was
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. He is not a professional
criminal. 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. I'm not a
big-time CEO and any of that, as my attorney said. In fact,
all I ever wanted to be was a police officer. 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
that I would recover and I just pursued it. I kept taking
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. So, we invested every penny that
we had in this company. 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
Worldwide Information that was amazing. It solved countless
violent crimes: rapes and even homicides and a bank robbery in
Saugus and over and over again. And that gave us so much pride
that we made this product that would help people, because
that's what we were about. We started the company to help
people. We never wanted to make all this money and scam. We
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
living so we could make the CD-ROM product. So, he said,
"Yeah, I know I can get you money in this thing called a
'private placement.'" I'm like, "Okay. Well, I don't know
what that is, but..." He said, "Yeah, I can get you hundreds
of thousands of dollars and you can make it." I said, "All
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. I dreamed of helping police everywhere and solving
crimes.
So, we built this company, worked day and night, and
we did build it. We built it into this great big company that
was solving crimes. I got awards. I was in the newspaper for
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. We all worked hard and we
loved it.
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. We never asked them for money. We
weren't about money. It was never about money. And the
employees who worked there didn't ask for money. They worked
over and over all night long that night, like, getting boxes of
paper to the government to help them. And that's what we were
about. That's what all of us were about, not just me, but the
whole company. We were not about being rich or taking money.
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. I started
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
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. And I said, No, we
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. I just gave my stock away so that the price would
come down. And I never took the deal, because I believed in
the company. I was the biggest shareholder. I wasn't selling
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
being done correctly, and I wasn't. I wasn't caring. I just
cared about getting the money. You know, we were in debt. We
had to pay employees, we had to do all of this stuff. And I
couldn't have been more wrong. I did everything wrong. It's
my fault. 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
high-interest loans that I personally guarantied. I put my
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
do. 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
trying to protect my baby. So, I figured that, okay, whatever
money I get I'll throw into it and it will protect it. It
wasn't to pump stock, it wasn't to do any of those things. It
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,
let the money in, as long as it comes in to Locateplus. And
that's what I did. I allowed press releases to go out, and I
never looked at them. And I said, it doesn't matter. As long
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. Excuse me.
(Pause)
THE DEFENDANT: We have two beautiful children, our
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. I promise I'll
never be led astray with good intentions again. 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
understated. The integrity of our commercial system depends
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. We
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
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. But there is
another dimension here. 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
out of the game as a result of this. I am not sure that he yet
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,
speculative: no risk, no return. The bigger the risk, the
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
Mr. Latorella will be confined. It is not a matter of
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. That is a
kind of informal counseling. 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. But
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
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: None come to mind for the Government,
your Honor.
MR. WEINBERG: None come from the defense.
THE COURT: 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: Not from the Government, your Honor.
THE COURT: 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
are on the first step to rehabilitation. If you, and I will
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: Yes, sir.
THE COURT: If there is nothing further, then we will
be in recess.
MR. LELLING: Thank you, your Honor.
THE CLERK: All rise.
(The Honorable Court exited the courtroom at 3:50 p.m.)
(WHEREUPON, the proceedings adjourned at 3:50 p.m.)
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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.
Date: July 20, 2012 /s/ Brenda K. Hancock
Brenda K. Hancock, RMR, CRR
Official Court Reporter
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