Argued: May 12, 2016
from the United States District Court for the Western
District of North Carolina, at Charlotte. Robert J. Conrad,
Jr., District Judge. (3:10-cr-00182-RJC-DSC-1)
Paul Waxman, WILMER CUTLER PICKERING HALE AND DORR LLP,
Washington, D.C., for Appellant.
Elizabeth Ray, OFFICE OF THE UNITED STATES ATTORNEY,
Asheville, North Carolina, for Appellee.
Stephen D. Councill, ROGERS & HARDIN LLP, Atlanta,
Georgia; Claire J. Rauscher, WOMBLE CARLYLE SANDRIDGE AND
RICE LLP, Charlotte, North Carolina; Brent J. Gurney, Jeannie
S. Rhee, Kelly P. Dunbar, Matthew Guarnieri, WILMER CUTLER
PICKERING HALE AND DORR LLP, Washington, D.C., for Appellant.
Westmoreland Rose, United States Attorney, Maria K. Vento,
Assistant United States Attorney, OFFICE OF THE UNITED STATES
ATTORNEY, Charlotte, North Carolina, for Appellee.
GREGORY, Chief Judge, and NIEMEYER and HARRIS, Circuit
GREGORY, CHIEF JUDGE
Rand was convicted of conspiracy, in violation of 18 U.S.C.
§§ 371 and 1349, and obstruction of justice, in
violation of 18 U.S.C. § 1512(b)(3), (c)(1), and (c)(2),
following his involvement in earnings mismanagement and
improper accounting transactions while acting as chief
accounting officer at Beazer Homes USA, Inc. Rand appeals
several aspects of his convictions and sentence. Finding no
error, we affirm.
2010, the government charged Michael Rand with accounting
fraud based on his work at Beazer Homes USA, Inc.
("Beazer"), a home-building company, from 2000 to
2007 and with obstructing an investigation into Beazer's
mortgage origination practices. Rand, a certified public
accountant, was Beazer's controller and later its chief
accounting officer from 1999 to 2007. He reported to
Beazer's CEO and CFO.
government's accounting charges concerned earnings
management: it believed that Rand attempted to adjust
Beazer's reported earnings over time so that Beazer would
hit consensus- that is, the quarterly earnings amount that
Wall Street predicted. This practice involved "cookie
jar" accounting with respect to Beazer's reserve
accounts, where funds are set aside for future expenditures
or revenue. It is generally accepted that the amount put into
a reserve account is what the company reasonably anticipates
needing to meet the expected expense. It is not appropriate
to increase or decrease funds in reserve accounts to
understate or inflate its actual earnings. Instead, if a
company determines that it does not need the reserve funds,
those funds "are to be taken back as income as soon as
[the company] know[s] that they are no longer required."
government attempted to prove that Rand manipulated the
accounting to reduce earnings when Beazer was beating
consensus. E.g., J.A. 3720 ("If you have more
than 100k extra, hide it."); id. at 3722
("To achieve the 'goal' $ for this year,
let's squirrel $ away in places which will turn around in
the next year; not be so 'open.'"); id.
at 1982-83 ("We may have $5 million to squirrel away, so
if you have ant [sic] ideas, let me know. Joavan's cookie
jar has no more room."). This practice resulted in a
misrepresentation of Beazer's earnings in many quarters,
including each quarter in fiscal year 2006.
government also alleged that Rand improperly accounted for
transactions involving model homes Beazer sold to and leased
back from GMAC, an investment company. In 2005, Beazer sought
to enter into model-home sale-leaseback agreements. Under
these agreements, Beazer would sell model homes to investors
and rent the homes back from the investors until the
subdivision was complete and the model home could be sold to
a third party.
a seller cannot count the transaction as a sale and recognize
revenue until "all risks and rewards of ownership"
are transferred to the buyer. J.A. 2056. A seller may not
have any "continuing involvement" with the property
for it to be counted as a sale. Id. A transaction is
not counted as a sale if the seller retains the ability to
share in the appreciation of the home after it is sold.
& Touche ("Deloitte") served as Beazer's
auditors. Rand consulted with Deloitte senior manager, Corbin
Adams, about a potential sale-leaseback arrangement with
GMAC. In December 2005, Rand sent Adams a draft Master Sale
and Rental Agreement ("MSRA") that did not include
any provision for Beazer to benefit from later appreciation
in the value of the homes. He later confirmed that Beazer
would not be able to "participate in appreciation of
[the] leased assets." Id. at 2074. Meanwhile,
Rand was assuring Beazer's employees that Beazer would
share in the upside-the future profits from appreciation in
value before GMAC eventually sold them. The same day Beazer
entered into the MSRA, a Property Management Agreement
("PMA") between GMAC entities was executed,
providing that Beazer would share in the upside of any
consumer transactions. In the next nine months, Beazer
entered into two more MSRAs, followed by PMAs, agreeing that
Beazer would share in appreciation when the model homes sold.
Beazer received $117 million for the model homes it sold and
reported $24.8 million in total profit.
Rand was charged with obstruction of justice stemming from
his allegedly deleting emails following a grand jury
subpoena. In March 2007, the FBI began investigating Beazer
for mortgage fraud. On March 23, 2007, a federal grand jury
issued a subpoena requiring Beazer to retain all documents,
including emails, related to mortgages or home sales.
March 28, Beazer initiated an "email dumpster, "
which would save all deleted emails from permanent deletion.
Beginning March 29, all deleted emails were caught in this
dumpster without the employee's knowledge. At 2:58 p.m.
on March 30, Beazer's CEO Ian McCarthy sent a memorandum
to Rand and other senior management notifying them that
Beazer was providing documents in response to the subpoena
and would be providing an updated document-retention
memorandum. Around 4:20 p.m., Deborah Danzig, an in-house
attorney, sent an email to all employees in the corporate
office, including Rand, with this memorandum, instructing
them not to destroy any records. Danzig also testified that
she told Rand directly that "he was required to keep
everything and destroy nothing." Id. at 975.
5:55 p.m. on March 29 and 5:45 p.m. on March 30, 2007, Rand
deleted nearly 6, 000 emails dating back to 1999. Some of the
emails were responsive to the grand jury's subpoena and
contained evidence of mortgage fraud. Other emails that Rand
deleted were related to the cookie-jar accounting scheme.
Others still appeared irrelevant to either set of charges.
after the subpoena was issued, Beazer's audit committee
hired the law firm Alston & Bird to conduct an internal
investigation. Mike Brown, a partner at Alston & Bird,
interviewed Rand as part of that investigation. On June 15,
2007, during their first interview, Rand told Brown that he
had not destroyed or deleted any documents or emails since
the investigation had begun. On June 26, 2007, Brown met with
Rand again. Brown had learned that the email dumpster had
recovered thousands of emails that Rand had attempted to
delete. At that meeting, Rand initially provided that he did
not delete any emails, but he eventually admitted that he
might have deleted "a couple of emails" to reduce
the size of his mailbox. Id. at 1072. On further
questioning, Rand said that he deleted "a series of
emails" from one particular coworker on March 30.
Id. at 1073.
July 2008, the FBI conducted between six and eight interviews
with Rand as part of a proffer. During these interviews,
conducted by FBI Agent Douglas Curran and others, Rand
admitted to manipulating Beazer's earnings, admitted that
that was illegal, and expressed remorse. Curran testified
that he also asked Rand about the GMAC transaction, and Rand
admitted that there was a "verbal side agreement to
share in the appreciation of the model homes when they were
ultimately sold." Id. at 2780.
also asked Rand about the email deletions. Curran testified
that Rand admitted that "he was certain that by March
27th he was for sure at the latest aware that there was a
federal investigation in Charlotte." Id. at
2784. Rand also admitted that he had spoken with Danzig and
understood that the document-retention memorandum applied to
him, when he "went back to his office and started
performing mass deletions of emails." Id. at
2784-85. Explaining that he was "essentially in a state
of panic, " he deleted the emails because "[t]here
were a lot of stressful events going on in his life at that
time, and on top of that he was aware of the federal grand
jury investigation that was focused in Charlotte and he did
not want to be associated with that investigation in any
way." Id. at 2785. Rand admitted that he
"understood that he was deleting evidence pertinent to
the investigation" and "[h]e knew it was
wrong." Id. at 2786.
went to trial twice. Before the first trial, Rand sought
leave to subpoena computer forensic evidence of Rand's
email deletions and records from Beazer's accounting
system to show Rand's accounting was reasonable and
justified and to contextualize and refute the
prosecution's accounting records. The district court
denied both requests.
first trial, the government presented evidence of emails
relevant to the grand jury's investigation into
Beazer's mortgage division and that Rand deleted from his
Beazer email account. Aaron Philipp, a computer forensics
expert, testified that based on Beazer's backup tapes, 3,
272 emails were deleted between March 23 and 28, while
another 5, 936 were deleted on March 30, after the email
dumpster was put into place.
jury deliberated for twenty hours and returned a split
verdict, convicting Rand on seven counts and acquitting on
four. A new trial was later granted due to juror misconduct.
advance of the second trial, Rand again sought to subpoena
Beazer to obtain records from its accounting system. Again,
the district court denied the request. Rand also tried again
to get the backup tapes from Beazer of the March 23-28 email
deletions, and this time, the court granted the request.
Rand's expert examined the data on the backup tapes and
concluded that approximately 2, 500 of the approximately 3,
200 emails that Philipp testified during the first trial were
deleted between March 23 and March 28, 2007 (prior to the
dumpster being in place), were not, in fact, deleted,
explaining that "there [were] various technical
explanations why Mr. Philipp could not find them on the tape
the first time." Id. at 719.
government dropped Philipp from its witness list, halted all
efforts to prove the March 23-28 deletions, and moved to
strike parts of the indictment relating to those deletions.
The government also moved to preclude Rand from introducing
evidence or mentioning the false accusations at the retrial.
The court granted the prosecution's request ruling that
the evidence was irrelevant and excludable under Federal Rule
of Evidence 403 as distracting or confusing because the
prosecution was no longer seeking to prove the March 23-28
addition to dropping the count tied most closely to the March
23-28 deletions, the government also abandoned its effort to
prove Rand had committed securities fraud. It thus proceeded
only with the conspiracy counts (counts 1 and 2), in
violation of 18 U.S.C. § 371 (conspiracy) and 18 U.S.C.
§ 1349 (wire fraud conspiracy), and three obstruction of
justice counts (counts 6, 9, and 11), in violation of 18
U.S.C. § 1512(b)(3), (c)(1), and (c)(2). Rand was
ultimately convicted on all five counts.
to sentencing, Rand's probation officer calculated a
total offense level of 43 and an advisory guideline range of
life based, in part, on the finding that the loss reasonably
foreseeable to Rand was between $100 and $200 million. Rand
objected to this loss calculation, and the district court
conducted a full-day sentencing hearing. During the hearing,
both parties presented expert testimony on the appropriate
calculation of loss under U.S. Sentencing Guideline §
2B1.1 and, in particular, the effect on the value of
Beazer's stock of three separate announcements Beazer
made to the market related to Rand's offense conduct.
district court adopted the government's expert's most
"conservative methodology" and found a loss of $135
million. Id. at 3279. Based in part upon that
finding, the district court calculated the total offense
level of 51, resulting in an adjusted offense level of 43 and
an advisory guideline sentence of life in prison. After
considering the appropriate sentencing ...