ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA (D.C. Criminal No. 02-cr-00192-1) District Judge: The Honorable William L. Standish
Before: Sloviter and Nygaard, Circuit Judges.
and SHADUR,*fn1 District Judge.
The opinion of the court was delivered by: Nygaard, Circuit Judge.
Appellee, Fred Cooper, pleaded guilty to one count of securities fraud, in violation of 15 U.S.C. § 78j(b) and 18 U.S.C. § 2, and to one count of making and subscribing to a false tax return, in violation of 26 U.S.C. § 7206(1). He also accepted responsibility for under-reported income. The District Court sentenced him to thirty-six months probation, including six months house arrest, after granting him a downward departure based on his charitable works and donations. The government appeals this sentencing decision, and we will affirm.
I. FACTUAL AND PROCEDURAL BACKGROUND
Sentencing is essentially a fact-driven analysis, even under the standards announced in Prosecutorial Remedies and Tools Against the Exploitation of Children Today Act of 2003 ("PROTECT Act"), Pub.L. No. 108-21, 117 Stat. 650. Our review of sentences imposed by a district court is likewise driven by the particular factual background of each case. We must therefore first turn our attention to the undisputed evidence presented to the District Court in the present case.
Cooper is the former CEO and CFO of Biocontrol Technology, Inc. ("BICO"), a publicly-traded Pennsylvania corporation engaged in the development of medical devices. Under Cooper, BICO stock lost 98.5 percent of its value, declining to a mere $.05 per share. Eventually, BICO declared bankruptcy, leaving thousands of shareholders, including Cooper himself, with worthless stock. And yet ironically, while at BICO, Cooper received valuable bonuses in the form of warrants to purchase stock, in addition to his substantial salary, which doubled from just under $600,000 in 1996 to $1.3 Million by 2000. In 1994 he exercised some of these warrants, generating $321,217 in taxable income. Although he did not sell the stock and thus receive actual cash income from it, the tax code required Cooper to report the exercise of the warrants as income. He did not do so. Nor did he report the fact that he pledged these warrants as collateral for personal loans. Between 1995 and 1997, Cooper continued to exercise warrants, generating $891,153 in taxable income—albeit without actual cash realization—which he again failed to report. As a result, his total unpaid tax liability for 1994 through 1997 was approximately $487,000.
In addition, in 1996 Cooper and two other BICO officers pledged BICO certificates of deposit as collateral for three personal loans totaling $623,000 without getting approval from the BICO board of directors. Although required by law to report these actions to the Securities and Exchange Commission, Cooper did not do so, thereby misleading the investing public about BICO's financial condition.
For his failure to fully report his 1994 income, Cooper pleaded guilty to one count of making and subscribing to a false tax return, in violation of 26 U.S.C. § 7206(1). For his failure to report the use of the certificates of deposit, Cooper also pleaded guilty to one count of securities fraud, in violation of 15 U.S.C. §§ 78j(b) and 18 U.S.C. § 2. As part of the terms of his plea agreement, Cooper accepted responsibility for the under-reported income in his tax returns between 1995 and 1997.
At the sentencing hearing, several witnesses testified on Cooper's behalf, including: Cooper's oldest son, Garrett; two men from a church in Aliquippa; Alonzo Roebuck, a young man Cooper helped through high school and college; and former Pittsburgh Steeler Mel Blount, who runs a boys' home in Pennsylvania. The District Court also received twenty-four letters concerning Cooper, most pleading for leniency. The witnesses and letters described a variety of Cooper's charitable donations and activities. They recount his generosities with both his money and his time for the benefit of others. Specifically, the evidence showed that Cooper engaged in the following "good works":
1) For twenty-seven years Cooper threw an annual Christmas party for underprivileged children, buying them valuable gifts with his own money.
2) He founded and funded, at an unknown cost, an area athletic organization entitled "Athletes Against Drugs and Violence," and provided equipment for the organization.
3) He organized two youth football teams—one of which included his son—and went into inner-city Pittsburgh to offer kids the chance to participate, driving many of them back and forth to the suburbs for practice.
4) He donated his own money to enable four boys who participated on one of the football teams to leave their inner-city school and attend a better school in the suburbs. He also ...