Opinion
No. 02 Cr. 336 (RWS)
February 7, 2003
SENTENCING OPINION
Defendant Michael Graye ("Graye") pleaded guilty on March 27, 2002 to conspiracy to commit securities fraud in violation of Sections 78j(b) and 78(ff) of Title 15, United States Code, and Title 17, Code of Federal Regulations, Section 240.10b-5, 18 U.S.C. § 371. For the reasons set forth below, Graye's sentence will consist of 16 months in federal custody, to be followed by a three year term of supervised release, and a $5,000 fine, subject to the sentencing hearing now set for February 6, 2003. The Court, in a January 16, 2003 letter from Robert Golstein, Crown Counsel, Federal Prosecution Service of Canada, forwarded from the U.S. Attorney, has been informed that Graye will plead guilty to the Canadian charges in the matter of Her Majesty the Queen v. Thomas B. Baker and Michael Graye, No. F348-2000, an unrelated case, after he finishes serving his U.S. sentence. A special assessment fee of $100 is mandatory and will be due immediately.
The Defendant
Graye was born on September 8, 1948 in Toronto, Canada, one of two children born to Joan Dorothy and Russell Stanley Graye. Prior to his death in 1992, Russell Graye owned a company that installed heavy equipment. His mother, aged 82, resides in Scarborough, Canada. Graye's sister, Shirley Diane Graye, is a retired accountant residing in Toronto, Canada.
On September 15, 1990, Graye married Belinda Daku, now 38 years old, a registered nurse living in Stevensville, Ontario, with their two children, Adam, age 9, and Alana, age 5. Graye completed high school and in 1976 received a degree in accounting from McMaster University in Hamilton, Ontario.
From 1998 to 2001, Graye owned and operated Vinex Consultant, formerly located at 93 Regents Street, Welland, Ontario. From 1992 to 1998, he was a wine consultant at Vignoble Consultants which had offices in France and Canada. From 1993 to 1998, he was employed as a consultant with MKG Enterprise Ltd., a financial holding company located in Vancouver. Graye did not provide a financial statement or salary history. A letter of January 31, 2003 from the Canadian Department of Justice indicates that Graye does not have any significant offshore assets or income and that at the time of his arrest Graye was living a fairly modest lifestyle.
The Offense
Graye was arrested on October 4, 2001. Graye, Roger Detrano, and others conspired to manipulate the price of common stock of Vinex Wines, Inc. ("Vinex"). They agreed to cause Vinex to issue shares of restricted common stock to various international business corporations that Detrano, Graye and others controlled. They registered these restricted shares with the Securities and Exchange Commission ("SEC") and fraudulently and misleadingly disguised the fact that the shares would be beneficially owned by the conspirators who were officers and control persons of Vinex. They further agreed to artificially increase the demand for and the price of Vinex common stock through a promotion campaign and collusion with market makers and then sell the shares to unsuspecting investors at inflated prices.
The conspiracy was stopped before any investors suffered any losses. The potential loss was estimated at between $500,000 and $800,000. Graye has pleaded guilty before Canadian authorities to related offenses.
The Guidelines
Section 2F1.1.1(a) of the year 2000 United States Sentencing Guidelines (the "Guidelines") provides that a violation of 15 U.S.C. § 78J(b) and 78ff and 17 U.S.C. § 240.10b-5 receives a base level of six. Because the intended losses were between $500,000 and $800,000, ten points are added, pursuant to § 2F1.1.1(b)(1)(K). See § 2F1.1 Note 8 ("an intended loss . . . will be used if it is greater than the actual loss"). As the offense involved more than minimal planning, two levels are added. § 2F1.1(b)(1)(2). Because the offense involved relocating the scheme to another jurisdiction to evade law enforcement or regulatory officials, a substantial amount of the scheme was to be committed outside the U.S., and otherwise involved sophisticated means, the offense is increased by two. § 2F1.1(b)(1)(6). Due to defendant's recognition of responsibility, three levels are subtracted.
Because Graye has no criminal history points, his Criminal History Category under the Guidelines is I. According to the Guidelines, the range for imprisonment for a defendant with a total offense level of 17 and a criminal history category of I is 24-30 months.
Graye has moved for downward departure and for a sentence of time-served, which amounts to a period of about 16 months. The Government has indicated that any downward departure the Court deems appropriate would be on the motion of both parties and thus the Court will treat Graye s motion as one by the Government pursuant to § 5K1.1, cased on Graye's cooperation in the pending Canadian prosecution.
Graye's cooperation is described in letters from Canadian prosecutor Goldstein of January 16, 2003 and of February 2, 2003. Graye apparently has provided substantial assistance to Canadian authorities, including consenting to disclosure of documents shielded by Cayman Islands secrecy laws; providing relevant documents; and testifying for 19 days in the trial of Baker. In Canada the case against Graye and Baker is considered to be an extremely large and important tax fraud prosecution as Baker is a prominent lawyer and famous in Canadian legal circles as the partner in a "blue-chip" Bay Street law firm and president of Seven Up Canada. The highly publicized trial has taken almost one full year and will conclude this Spring. Until Grayes testimony along with the documents he provided, Mr. Goldstein informs this Court, there was no direct evidence of Baker's guilt and in that regard Graye has been very helpful to the Canadian case.
Following Graye's arrest in the U.S. on October 4, 2001, Graye was transferred to Canada pursuant to the Canada — U.S. Mutual Legal Assistance Treaty in April 2002 and spent approximately 8 months in Canada before being returned to the United States. Graye has been in U.S. custody, be it by Canadian or U.S. authorities for approximately 16 months since October 2001. It is the court's understanding that this entire period will be included in calculating the amount of time chat Graye has served towards his U.S. sentence. Graye's attorney notes that Graye will receive less credit in Canada towards Canadian parole for the 8 months in pretrial detention than if he had been able to plead guilty right away, which he was not able to do as he was first expected to return to the U.S. for sentencing. However, since the offenses in the U.S. and Canada are not related, and Grayes sentence here will take into account his time in Canada, Graye is already receiving credit in the U.S. for the time in pretrial detention in Canada.
The Sentence
Given the sophisticated nature of the offense, a sentence of 27 months, in the middle of the Guidelines' range, would be appropriate. However, given Graye's cooperation with Canadian authorities in a separate case, and the Government's support for a downward departure, Graye will be sentenced to 16 months based on that cooperation.
This term is to be followed by three years of supervised release. Graye is to report to the nearest Probation Office within 72 hours of release from custody, and supervision shall be in the district of residence. As mandatory conditions of supervised release, Graye shall (1) not commit another federal, state, or local crime; (2) not illegally possess a controlled substance; and (3) not possess a firearm or destructive devise. Graye shall also abide by the standard conditions of supervision (1-13). Further, Graye shall pay a fine of $5,000.
As a special condition of supervised release, Graye shall comply with the directives of the Immigration and Naturalization Service and the immigration laws.
A special assessment fee of $100 will be due immediately.
This sentence is subject to modification at the sentencing hearing now set for February 11, 2003.
It is so ordered.