§305 Calculation of Loss in Fraud Cases
1st Circuit upholds loss based on testimony from lawyer of insurance company victims. (305) Defendant participated in a fraudulent car insurance scheme in which he and his co-conspirator staged car crashes and then, through defendant’s repair shop, prepared inflated estimates for insurance claims. Based on testimony by an attorney for the defrauded insurance companies, the district court found that the loss attributable to defendant was in excess of $500,000, which was less than the $600,000 that the victim supplied to the court as its total loss. The First Circuit affirmed. The lawyer’s testimony that the losses were attributable to defendant’s participation in the insurance fraud scheme established that they were relevant conduct for sentencing purposes, and defendant did not offer any evidence to the contrary. Although defendant challenged the reliability of the attorney’s claim, he made no effort to impeach the testimony, nor did he offer an alternative estimate. U.S. v. Flores-Seda, 423 F.3d 17 (1st Cir. 2005).
1st Circuit refuses to reduce fraud loss by return of fraudulently obtained property. (305) Defendants were convicted of fraud charges stemming from their misuse of program funds provided by the federal government. The First Circuit rejected a number of challenges to the district court’s loss calculation. First, the district court properly refused to reduce the loss by the $1.1 million recovered from the sale of forfeited properties which were themselves purchased with the embezzled funds. A return of fraudulently take property to the victim does not warrant a reduction in the loss calculation where the return occurs after the crime has been discovered. Defendants were not entitled to credit for the certain properties they purchased that were allegedly used for the victim’s benefit. The victim did not agree to have the defendants divert their funds to purchase properties through a straw organization. Each act of embezzlement placed the victim’s funds in jeopardy. Finally, the district court properly included markups on food and medical supplies purchased by defendants’ straw organization for the victim’s clients. There was ample evidence that the markups were payment for nothing. U.S. v. Cacho-Bonilla, 404 F.3d 84 (1st Cir. 2005).
1st Circuit includes loss incurred year before wire transfer. (305) Defendant participated in an investment fraud scheme that ran from October 1998 until December 2001. The leader of the scheme used most of the money for personal expenses, but also used some of the money from a second set of investors, recruited in May 1999, to repay the first set of investors, recruited in October 1998. Defendant argued that losses suffered by the May 1999 lenders were not attributable to her as “relevant conduct” under § 1B1.3, noting that she was not required to pay restitution for May 1999 losses because of the “sufficient temporal difference” between those amounts and the limited offense of conviction (a $500 wire transfer in June 2000). The First Circuit held that the May 1999 losses were attributable to defendant as relevant conduct. Defendant received the $500 wire transfer as part of her effort to help the leader repay the May 1999 lenders whom she knew had not been repaid. The district court correctly found that the $500 wire transfer was in furtherance of this larger scheme. The fact that there was a one-year lag between the defrauding of the 1999 lenders and the $500 wire transfer did not undermine this conclusion. In addition, the court decided not to order restitution largely because defendant had no money. U.S. v. Maxwell, 351 F.3d 35 (1st Cir. 2003).
1st Circuit holds that niece who bought house for less than market value was not entitled to restitution. (305) Defendant was convicted of making a false oath in bankruptcy and concealing assets based on his representation that he had sold his home to his niece for $40,000. He actually sold the house to her for $72,000. The First Circuit held that the court’s calculation of an intended loss between $20,000 and $40,000 was supported by the evidence. Defendant concealed from the bankruptcy court his receipt of about $32,000 when he stated in his bankruptcy petition that he sold his house for $40,000. However, the court erred in ordering restitution of $21,000 to defendant’s niece. Defendant’s misconduct underlying the offense of conviction was not the “but-for” cause of his niece’s loss. The bankruptcy trustee stated that even if the bankruptcy petition had truthfully stated that the niece had bought the house for $72,000, he still would have initiated an adversary proceeding because the sale price was still below the appraised value of $102,000. U.S. v. Cutter, 313 F.3d 1 (1st Cir. 2002).
1st Circuit includes in loss all charges on same unauthorized credit card number. (305) Defendant pled guilty to using one or more unauthorized credit cards. He argued that because the American Express card he used was not a stolen card, but rather a card manufactured using an illegally obtained card number, the government did not prove he made all of the fraudulent charges on the account number. He contended that the likelihood was very low that a person would go to the trouble of fraudulently obtaining a credit card number only to produce just one fake card. He highlighted two instances where the fraudulent card was used in New York and New Hampshire on the same date. The First Circuit found no error in the loss calculation. Most of the charges attributed to defendant occurred in a tight geographical area – New Hampshire and Massachusetts – and many were gift cards. The court concluded that the preponderance of the evidence demonstrated defendant likely made the purchases. Of the 76 transactions charged to the American Express card, only three were made in New York, which was outside the tight geographical area. The district court concluded that defendant could have made these charges himself, likely over the phone or in person. U.S. v. Acosta, 303 F.3d 78 (1st Cir. 2002).
1st Circuit affirms loss from marketing fraud. (305) Defendant’s company, Big Top, marketed vending machines. After its manufacturer cancelled its contract with defendant’s company, Big Top continued to market its product. Big Top eventually owed 175 machines to more than 60 customers who had paid deposits. The district court found defendant to be responsible for a loss of between $350,000 and $500,000, determined by adding the amounts paid by each Big Top customer during the conspiracy period for machines never received. Defendant argued that because the company started as a legitimate business, the district court was required to make a finding on whether his conduct with regard to the disputed loss was actually criminal. The First Circuit affirmed the district court’s loss calculation, since there was evidence from which the court could find that all Big Top customers who did not receive the machines they paid for during the conspiracy were victims of defendant’s common scheme and plan. Big Top representatives followed a similar sales pitch using scripts issued to them by defendant, gave a money-back guarantee, and promised delivery within six to eight weeks. The loss estimate included only sales that occurred during the charged conspiracy and excluded intended loss for attempted sales and back-end frauds as well as loss by victims the government had not contacted. U.S. v. Ranney, 298 F.3d 74 (1st Cir. 2002).
1st Circuit holds that price paid by consumers for adulterated milk constituted loss. (305) Defendant, a licensed dairy farmer, adulterated milk from his dairy farm with water and salt. The water increased the volume of the milk for which he was compensated; the salt masked detection of the water by increasing the weight of the adulterated product. Once the adulterated milk was mixed into the silos of his assigned processing plant, defendant’s scheme caused 197,906 liters of adulterated milk to be disseminated to the public. For purposes of calculating the loss from the scheme, the First Circuit held that (1) the adulterated milk had a value of zero; (2) the total amount of milk in the silos into which defendant’s milk was mixed became adulterated, and its reduced quality constituted a loss; and (3) the price paid by consumers for the adulterated milk was the proper measure of the loss. Although the processing plant was also a victim of defendant’s crimes and paid money directly to defendant for the worthless milk, the plant was able to pass along the contaminated milk to distributors for the same price it would have received had the milk been pure. It was the ultimate consumers who suffered a real loss as a result of the scheme. They believed they were purchasing Grade A milk when in fact they paid value for a tainted product. U.S. v. Gonzalez-Alvarez, 277 F.3d 73 (1st Cir. 2002).
1st Circuit uses intended loss for “true con artist.” (305) Defendant falsely posed as a man of vast wealth, and used this to bid $2.1 million on a yacht at an auction. While the transaction was being finalized, he used the yacht, which he did not yet own, as collateral for other business ventures. The district court found that a reasonable estimate of the intended loss was the face value of the $2.1 million fraudulent bond defendant presented to the seller that was issued by a fictitious company. The First Circuit affirmed, rejecting defendant’s claim that the loss should be measured only by the actual goods and services rendered to him. This was not a case involving a defendant who fraudulently obtained a contract but fully intended to perform. Defendant was a “true con artist,” who never intended to perform the undertaking. The district court did not clearly err in sentencing him accordingly to the intended loss. U.S. v. Blastos, 258 F.3d 25 (1st Cir. 2001).
1st Circuit refuses to deduct annual mortgage and insurance payments from intended loss. (305) Defendants concealed their ownership interest in a summer home from the bankruptcy court. The district court found that the amount of the intended loss was $74,000, since the property sold for $175,000, and $73,906.66 remained after the mortgages, tax obligations and brokerage commissions were deducted from the escrow. Defendants argued that the court should have taken into account the five years of carrying costs that they paid while the property grew in value from its $120,000 purchase price in 1990 to its $175,000 sale price in 1996. During this time period, defendants made insurance and mortgage payments totaling about $70,000. The First Circuit ruled that the district court did not err in refusing to subtract defendants’ annual insurance and mortgage payments from the intended loss calculation. For each of the five previous years that defendants held the property, their exclusive control gave them the economic use of the property in addition to the profit they later realized when the property was sold. U.S. v. Stein, 233 F.3d 6 (1st Cir. 2000).
1st Circuit rules intended loss had “some prospect of success.” (305) Defendant was mayor of a municipality that qualified for federal disaster assistance through FEMA after being struck by Hurricane Georges. He and a friend were convicted of corruptly soliciting a $2.5 million bribe from a private company as the cost of the company’s obtaining the debris cleanup contract for the area. Although the district court calculated the intended loss as $2.5 million, defendant argued that FEMA never would have paid that amount of money and so a loss of $2.5 million was not possible. Under circuit law, an intended loss finding should be upheld “where there is good evidence of actual intent and some prospect of success.” See U.S. v. Robbio, 186 F.3d 44 (1st Cir. 1999). The First Circuit ruled that this standard was met here. Defendants were going to submit certified fraudulent dump truck tickets and landfill log entries and a fraudulent survey from a licensed surveyor hired to inflate to FEMA the amount of debris at the site. In light of the need for speedy disaster relief, FEMA usually relies on the goodwill and candor of local municipal officials, rather than perform its own independent surveys. Given the steps defendant took to make their fraud successful, it was inconsistent for them to now argue that the scheme had no prospect of success and that they therefore should receive a sentencing break. U.S. v. Orlando-Figueroa, 229 F.3d 33 (1st Cir. 2000).
1st Circuit finds insufficient evidence to support estimate of defendant’s interest in house. (305) Defendant failed to reveal to the bankruptcy court his ownership interest in a house. The district court ruled that the intended loss was the value of defendant’s interest in the house, and that although outstanding loans and attachments on the house made the value of his interest unclear, a willing buyer and seller would have valued the property at more than $20,000. The First Circuit found insufficient evidence to support the district court’s estimate of the value of defendant’s interest in the house. The house was worth between $130,000 and $140,000, but two mortgages and a number of attachments encumbered the property. The first mortgage had a balance of $10,500 and the second had a balance of $50,000. Moreover, there were several attachments on the property, one of which was for $600,000. These obligations arguably rendered defendant’s interest in the property worthless. The court’s estimate of a $20,000 loss was both inconsistent with the record and had no discernible connection to the amounts that the government, which estimated the loss at $60,000, and defendant, who estimated the loss to be $0, had proposed. U.S. v. Rowe, 202 F.3d 37 (1st Cir. 2000).
1st Circuit says receipt of insurance proceeds did not reduce loss. (305) Defendant was president of a finance company that specialized in refinancing residential mortgages. The company often failed to pay off the borrower’s existing first mortgage, and then sold the new loans to other lenders, in each case representing that the purchaser had received a first mortgage. Citibank lost $3,100,000 as a result of the scheme, but managed to recoup 2/3 of this amount from defendant, reducing its net loss to $1,200,000. This amount was reimbursed by the title insurer. Defendant argued that Citibank, because it enjoyed the benefit of title insurance, never ran a risk of losing anything on the mortgage transactions. The First Circuit upheld the decision not to shrink the amount of loss by the amount of title insurance proceeds. Insurance, unlike pledged assets, does not diminish the impact of the fraud. Rather, insurance simply shifts the loss to another victim (the insurance company), so it is irrelevant in calculating the loss for sentencing purposes. U.S. v. Alegria, 192 F.3d 179 (1st Cir. 1999).
1st Circuit upholds consideration of intended loss where additional counterfeit checks were found. (305) Defendant and several co-conspirators repeatedly purchased merchandise with counterfeit checks, and then returned the goods for cash refunds. The district court included in the loss $115,985 of actual loss, representing the total face value of the 714 counterfeit checks passed by the conspirators, as well as intended loss of $121,500, representing the 750 blank checks found during the execution of a search warrant. An intended loss finding will be upheld “where there is good evidence of actual intent and some prospects of success …” The First Circuit upheld the use of intended loss here since there was strong evidence that defendant intended to create and pass additional counterfeit checks: notably, the package of blank check paper found next to the computer in defendant’s basement, his statement in a recorded conversation that he and a co-conspirator would “go to Caldor’s” and hit some “Caldor’s,” and his statement that he would “get everything ready for tomorrow.” There was also ample evidence of defendant’s prospect of success had he not been arrested – he and his co-conspirators had already executed the scheme more than 700 times before they were interrupted. U.S. v. Robbio, 186 F.3d 37 (1st Cir. 1999).
1st Circuit says defendant’s loss argument was attempt to challenge refusal to depart. (305) Defendant was convicted of fraud based on five wire transfers made to pay liens on property he owned. He argued that the court should have excluded from its loss calculation $16.5 million that co-conspirator Christopher diverted from an insurance company’s bank account because in Christopher’s case, the government argued that Christopher alone was responsible for that loss. The First Circuit refused to review the matter since defendant was attempting to recast a challenge to the district court’s refusal to depart as an attack on the court’s loss calculation. Loss caused by factors extraneous to defendant’s conduct are not deducted from total loss. Instead, note 10 says that a downward departure may be warranted where the total dollar loss overstates the seriousness of defendant’s conduct, which “typically occur[s]” when defendant’s fraud “is not the sole cause of the loss.” The district court refused to depart based on defendant’s argument that the loss overstated the seriousness of his offense. The refusal to depart was not reviewable. U.S. v. Reeder, 170 F.3d 93 (1st Cir. 1999).
1st Circuit bases loss on total amount defendant siphoned from companies. (305) Defendant orchestrated his company’s acquisition of an insurance company and its holding company. To buy these companies, defendant used assets of the acquired companies to pay part of the agreed purchase price and to clear liens from property put up as collateral in the transaction. In so doing, defendant violated promises to state insurance regulators that he would not use the acquired companies’ assets to pay for their purchase and that pre-existing liens on the collateral would be cleared by the closing. Both companies subsequently went into receivership. The First Circuit affirmed a loss of $26.7 million by totaling up the monies defendant siphoned from the companies in payment of their purchase price and to clear liens on collateral for the purchase notes. The sums defendant siphoned were actual “net” losses, not merely gross losses. If the deal had proceeded as defendant promised, these large amounts of cash would not have been diverted from the two companies while the notes to the companies would have been secured by lien-free collateral. U.S. v. Christopher, 142 F.3d 46 (1st Cir. 1998).
1st Circuit refuses to consider civil settlement in determining loss. (305) Defendant was convicted of conspiracy to commit bank fraud in connection with the fraudulent procurement of a loan. He argued that the loss to the bank was zero because the bank’s receiver, the FDIC, had reached a civil settlement with him. The First Circuit held that the civil settlement did not reduce the loss under § 2F1.1 because loss is a proxy for the seriousness of the offense. A loss of zero is presumptively wrong in this case because it did not remotely approximate defendant’s wrongdoing. Defendant intentionally diverted $1.6 million. The settlement was made well after the fraud was known. In addition, the FDIC knew little about defendant’s criminal behavior when it made the settlement. The settlement also did not affect the restitution order, although restitution is not appropriate when it would represent a double recovery. However, the settlement did not compensate the bank for the $1.6 million loss reflecting the funds diverted from the loan. U.S. v. Parsons, 141 F.3d 386 (1st Cir. 1998).
1st Circuit refuses to reduce loss by speculative benefit to defrauded customers. (305) Defendant was convicted of mail and wire fraud for defrauding customers of money by representing that his company could lawfully receive and recycle customers’ virgin petroleum-contaminated soil. Defendant argued that the loss should be reduced by the benefit the defrauded customers received from the transportation of the soils from their sites. The First Circuit found this “benefit” too speculative to include in the loss calculation, particularly since it was likely the defrauded customers would face additional costs in the remediation context. Loss under § 2F1.1 need not be determined with precision, but must only be a reasonable estimate given the available information. Moreover, the district court departed downward one level due to its uncertainty as to whether the loss had been properly determined. U.S. v. Henry, 136 F.3d 12 (1st Cir. 1998).
1st Circuit uses entire intended loss from government sting in counterfeiting case. (305) Defendant provided five counterfeit checks totaling $273,950 to two co-conspirators. One of the co-conspirators was to deposit the counterfeit checks in his business’s bank accounts and then withdraw the funds after the checks had cleared. The three were to share in the illegal proceeds. Unbeknownst to defendant, the co-conspirator who was to deposit the checks was cooperating with the FBI. The checks were actually deposited in a “shell” account at the bank. The First Circuit found that the district court properly included in the 2F1.1 loss the entire $273,950 generated by the sting operation, since this was the amount of the intended loss. Defendant admitted that he intended to inflict a $273,950 loss. Under note 7, this represents the appropriate amount of loss. U.S. v. Rizzo, 121 F.3d 794 (1st Cir. 1997).
1st Circuit includes potentially exempt property in loss from bankruptcy fraud. (305) Defendant concealed from the bankruptcy trustee several checks he received as advances on insurance policies and from his pension plan. He argued that the loss calculation should not include these amounts because these funds were exempt under the Bankruptcy Code. The First Circuit disagreed. Virtually all property of the debtor becomes the property of the state by operation of law without regard to whether it is listed on the schedules. Property does not become exempt by operation of law unless no party in interest objects to the exception claim within the allotted 30-day period. U.S. v. Shadduck, 112 F.3d 523 (1st Cir. 1997).
1st Circuit has no jurisdiction to review refusal to depart for multiple causes of loss. (305) Defendant fraudulently obtained a real estate loan by misrepresenting the purchase price of a property he was purchasing. He argued that the bank’s $2.2 million loss had more to do with the economic climate in which the bank later sold the property than with his conduct. The First Circuit refused to review the matter since defendant was challenging the court’s refusal to depart downward. The loss table in § 2F1.1 presumes that the defendant alone is responsible for the entire amount of the victim loss determined by the court. The commentary states that a sentencing court may depart downward where it finds the loss was caused by factors in addition to the defendant’s conduct. An appellate court lacks jurisdiction to review a sentencing court’s discretionary decision not to depart downward. U.S. v. D’Andrea, 107 F.3d 949 (1st Cir. 1997).
1st Circuit holds loss is amount of fraudulent loan not repaid at time offense was discovered. (305) Defendant fraudulently obtained a $160,000 credit union loan to purchase property by representing that the purchase price was $205,000 rather than $120,000. The lawyer who handled the closing for the credit union helped the fraud by preparing two different closing statements. After the loan became delinquent and the credit union discovered the fraud, the lawyer’s law firm, wanting to keep the credit union as a client, arranged for its pension fund to pay the union $160,000 and take over the mortgage. Defendant argued that because the pension fund “purchased” the mortgage for the full $160,000, this figure should be excluded from the loss calculation. The First Circuit held that the amount repaid after the fraud was discovered did not reduce the loss. Note 7(b) provides that with fraudulent loans, the loss is the amount of the loan not repaid at the time the offense is discovered. The seller’s $60,000 second mortgage was also properly included in the loss calculation. The second mortgage was worthless because the property had an appraised value of $96,000 and a first mortgage of $160,000. U.S. v. Fraza, 106 F.3d 1050 (1st Cir. 1997).
1st Circuit relies on sworn affidavit, rather than underlying evidence, to calculate loss. (305) Defendant fraudulently obtained credit cards, used them, and then reported them as stolen. In determining that the loss was between $100,000 and $200,000, the district court relied on a Secret Service agent’s affidavit describing his investigation and the evidence recovered from defendant’s home, defendant’s signed statement upon his arrest admitting that the loss was about $176,000, and the bankruptcy petition filed by defendant that discharged many of his debts. Defendant argued that the loss should have been based on the underlying evidence—the credit cards, receipts, sales slips, and other documents collected during the investigation. The First Circuit held that the district court properly relied on the sworn affidavit of the investigating officer. Defendant provided no evidence that legitimate payments he made were improperly taken into account in determining the loss amount. U.S. v. Phaneuf, 91 F.3d 255 (1st Cir. 1996).
1st Circuit uses value of collateral to lender rather than debtor. (305) Defendant made fraudulent statements to obtain an SBA loan to refinance his commercial lobster boat. The loan was secured by a mortgage on the vessel and a third mortgage on defendant’s house. The house was appraised at $130,000, and subject to two superior mortgages totaling $95,000. A SBA loan officer testified that it was standard practice in the banking industry to value property to be liquidated at 80% of appraisal value, or $104,000 for defendant’s house. In addition, there was an estimated $5000 to $8000 in auction expenses. Thus, the district court determined that foreclosure would yield between $1 and $4,000. Defendant argued that the sentencing court must accept the value of the collateral to the defendant, rather than the victim lending institution, and that he should have been credited with the full $35,000 in equity he could have obtained if he sold the house on the open market. The First Circuit rejected this claim. The guidelines specify that valuation of collateral is the amount the “lending institution” can expect to receive from pursuing a security interest. The fact that the court denied restitution did not mean the SBA did not suffer a loss. U.S. v. Kelley, 76 F.3d 436 (1st Cir. 1996).
1st Circuit includes accrued mortgage loan interest in loss. (305) Defendant made false statements to lenders in order to obtain loans for buyers in his condominium development. The First Circuit upheld including $726,637 in accrued mortgage loan interest. Although note 7 to § 2F1.1 excludes interest the victim could have earned, under U.S. v. Goodchild, 25 F.3d 55 (1st Cir. 1994), accrued interest is not lost “opportunity costs” but can be included in the amount of loss. There is no principled difference between interest earned on a credit card and interest earned on other types of loans. U.S. v. Gilberg, 75 F.3d 15 (1st Cir. 1996).
1st Circuit refuses to reduce loss by amount fraud victim allegedly owed defendant. (305) Defendant withdrew over $300,000 from several limited partnerships without the required permission and created false invoices on the letterhead of a construction company to account for the withdrawals. He argued that the government failed to show an actual or intended loss because the partnerships allegedly owed him in excess of $700,000. The First Circuit refused to reduce the loss by the amount the fraud victim owed defendant. As long as a theft or diversion is concealed or disguised, the victim has no reason to think that its debt has been reduced. U.S. v. Lopez, 71 F.3d 954 (1st Cir. 1995).
1st Circuit values unpledged assets on date they were seized rather than date of sentencing. (305) Defendant owned a coin-trading company that specialized in U.S. silver dollars. He obtained loans secured by coins falsely appraised at well above their actual value. When the offense was discovered in May 1989, the balance of the unpaid loans was $2.5 million. To calculate loss, the court reduced this by the value of the pledged assets, and subtracted an additional $336,951, the value of silver dollars seized from defendant in August 1990. Defendant argued that the seized coins should have been valued as of the date the offense was discovered. The First Circuit upheld valuing the unpledged coins as of the date of seizure. This was a question of law and fact involving the application of generally phrased language to specific facts. It was sufficient that the district court reached a reasonable conclusion. Defendant could not challenge the reasonableness of the trustee’s sale of other company assets that he had pledged to another bank. Using unpledged assets to reduce loss gives a free ride to wealthy defendants and is at odds with the guidelines. U.S. v. Chorney, 63 F.3d 78 (1st Cir. 1995).
1st Circuit agrees intended loss equaled aggregate credit limits of purchased credit cards. (305) On four occasions, defendant purchased credit cards from an undercover agent. The first three transactions involved a total of 11 cards, while the last transaction involved 40 cards. Defendant was immediately arrested after the fourth sale and did not have the opportunity to use the cards. The First Circuit agreed that the intended loss under § 2F1.1 equaled the aggregate credit limits of all of the purchased cards. Although defendant only realized 53 % of the aggregate limits of the cards from the first three transactions and nothing from the final batch, there was evidence that he had instructed his runners to obtain cash from the banks at the card limits. The 53 % figure represented only the amount that defendant had secured at the time his scheme was interrupted by arrest. Where there is good evidence of actual intent and some prospect of success, a court is not required to engage in a refined forecast of how successful the scheme is likely to be. Defendant was not entitled to a reduction under § 2X1.1 for a partially completed offense. Although the question was close, the court concluded that § 2X1.1 is limited to cases where the substantive offense has not been completed. Here, defendant had completed his substantive crime by purchasing the cards. U.S. v. Egemonye, 62 F.3d 425 (1st Cir. 1995).
1st Circuit approves downward departure where there were multiple causes for loss. (305) Defendants, who were condominium developers, misrepresented to the bank that their buyers were making 10 percent down payments to acquire the condos, when in fact they were not. The district court found that the lender’s loss (between $2 and $5 million) overstated the seriousness of the offense and departed under note 11 to § 2F1.1. The court noted (1) the bank’s overeagerness to participate in the condominium boom led senior bank officials to condone defendants’ conduct, (2) the buyers were willing participants in the scheme, and (3) the unforeseen collapse of the real estate market. The First Circuit agreed that under the pre-1991 guidelines applicable here, a downward departure is permitted where there are multiple causes of a loss. The extent of the departures, although substantial, were reasonable, particularly given the government’s refusal, at the court’s request, to recommend an appropriate degree of departure. U.S. v. Rostoff, 53 F.3d 398 (1st Cir. 1995).
1st Circuit says uncharged but relevant loans must be included in loss calculation. (305) Defendant was charged with obtaining $900,000 in fraudulent loans. The government claimed that an additional $1,016,000 in loans should be considered as relevant conduct for loss calculation purposes under § 2F1.1. The 1st Circuit agreed. The district court found, as a matter of law, that it was inappropriate to consider the uncharged loans. This is clearly wrong. A sentencing court may not simply disregard relevant conduct. The district court also erred in reducing the loss by amounts defendant repaid as part of the settlement of a civil lawsuit. Although the settlement came 10 months before defendant was indicted, it occurred after his offense was discovered. Under note 7(b) to § 2F1.1, the “actual loss” to the victim banks is the sum of the illegal loans involved in the offense of conviction and the loans constituting relevant conduct, less the amount of these loans that defendant had repaid before the discovery of his offense, and less the amount the victim banks had recovered, or could expect to recover, from assets pledged to secure these loans. U.S. v. Bennett, 37 F.3d 687 (1st Cir. 1994).
1st Circuit says defendant waived challenge to consideration of loss from relevant conduct. (305) Defendant argued that the court should not have considered a $205,000 loss that was not included in the indictment. He further claimed that by considering this relevant, the court violated his plea agreement. The 1st Circuit held that defendant waived his claims by failing to raise them below. At sentencing, defense counsel acknowledged that he had read the PSR and expressly waived any challenge to its factual accuracy. Counsel also conceded that the correct amount of loss was $665,000 as stated in the report. In considering the relevant conduct, the court did not breach the plea agreement, because it stated that the court was not bound by the parties’ sentencing recommendations. U.S. v. Benjamin, 30 F.3d 196 (1st Cir. 1994).
1st Circuit examines relevant conduct requirements in fraud conspiracy. (305) Defendant and others were involved in the construction and sales of a real estate development. When sales began to slacken, they conspired to defraud lenders by secretly giving money, secured by late-filed second mortgages, to any purchaser who lacked the minimum down payment to purchase a house. In holding defendant responsible under section 2F1.1 for all the losses caused by the conspiracy, the 1st Circuit examined the standards for determining relevant conduct under section 1B1.3(a)(1)(B). The sentencing court must determine what acts and omissions of others were in furtherance of the defendant’s jointly undertaken activity, and to what extent such acts and omissions were reasonably foreseeable to defendant. Here, defendant helped found the conspiracy, and played an integral part in its operation. He served as the titular head of the firm that oversaw the construction, marketing, financing and sale of every home. Any reasonable person in defendant’s position, at the time of his agreement, would have recognized that 90 or more homes might be sold in this corrupt fashion. U.S. v. Lacroix, 28 F.3d 223 (1st Cir. 1994).
1st Circuit holds defendant waived challenge to use of uncharged conduct to determine loss. (305) Defendant’s revised presentence report increased the loss under § 2F1.1 by the losses caused by defendant’s uncharged conduct. At sentencing, defense counsel told the court that defendant had no objections to the presentence report. The 1st Circuit held that defendant waived his objection to the court’s consideration of his uncharged conduct. It also held that it lacked jurisdiction to review the district court’s refusal to depart downward under note 10 to § 2F1.1. The district court made it “abundantly clear” during the sentencing hearing that it was aware of its power to depart downward based on the amount of loss, but would not do so. U.S. v. O’Connor, 28 F.3d 218 (1st Cir. 1994).
1st Circuit includes unconsummated loans in intended loss. (305) Defendant applied for and received three fraudulent student loans. He also applied for, but never received, several other student loans. The 1st Circuit held that the unconsummated loans were properly included in the loss calculation under section 2F1.1. The 1988 version of application note 7 states that intended loss should be used if it can be determined and it is larger than the actual loss. The district court could properly find that the unconsummated loans defendant applied for were part of the intended loss. U.S. v. Guyon, 27 F.3d 723 (1st Cir. 1994).
1st Circuit includes finance charges and late fees in loss from unauthorized credit card use. (305) Defendant was convicted of using two unauthorized credit cards. The district court included finance charges and late fees in the loss under section 2F1.1. Defendant argued that this was barred by note 7 to section 2F1.1, which states that loss does not include interest that the victim could have earned on such funds had the offense not occurred. The 1st Circuit held that this does not apply to fraudulent use of a credit card. This phrase refers to opportunity cost interest. Finance charges and late fees are a contractual obligation on which the credit card company relies each time it extends credit to a cardholder. Such charges are therefore properly included in the loss valuation. U.S. v. Goodchild, 25 F.3d 55 (1st Cir. 1994)
2nd Circuit bases loss calculation on drop in stock price after announcement of fraud. (305) Defendant was the Chief Executive Officer of WorldCom, Inc., a publicly traded global telecommunications company. He engineered a scheme to disguise WorldCom’s declining operating performance by falsifying its financial reports. Loss was suffered by those investors who bought or held WorldCom stock during the fraud period, either in express reliance on the accuracy of the financial statements or in reliance on the “integrity” of the existing market price. The Second Circuit found that determining the loss was not easy because of the difficulty in knowing what investors would have done had they known the truth, and determining what portion of any loss was a result of the fraud. Nonetheless, 26-level loss enhancement applied by the district court, which had a $100 million threshold, was easily surpassed under any calculation. There were about 2.9 billion shares of WorldCom stock outstanding on the date the company announced the improper accounting and restated its results. Within a week, the price per share dropped from 83 cents to six cents. A 77 cent loss per share resulted in a loss of over $2 billion. Even if other factors contributed to the decline of the stock, the loss was still well above $1 billion, or ten times greater than the $100 million threshold for the 26-level enhancement. U.S. v. Ebbers, 458 F.3d 110 (2d Cir. 2006).
2nd Circuit holds that court erred in finding no loss from Medicare fraud scheme. (305) Defendant, the vice-president of a company that tested pacemakers for Medicare, was convicted of fraud charges based on the company’s failure to comply with Medicare testing requirements. The district court found insufficient evidence to support the probation office’s loss calculation of five million dollars, but the Second Circuit ruled that the district court erred in finding a loss of zero. A victim who pays for goods or services on the fraudulent representation that they confirm to certain specifications has suffered a loss. Loss is properly measured by the “reasonable foreseeable costs of making substitute transactions and handling or disposing of the product delivered” plus the “reasonably foreseeable cost of rectifying the disruption to the victim’s operations caused by the product substitution.” Moreover, defendant engaged in a second fraud from which intended loss could be determined. He made false representations to Medicare to obstruct an audit of the company. The government was legally entitled to recoup from the company its full payment for any pacemaker tests not performed according to Medicare specifications. Defendant’s fraudulent scheme to prevent Medicare from recovering payments made to the company pursuant to the testing fraud itself caused a calculable “intended loss.” U.S. v. Canova, 412 F.3d 331 (2d Cir. 2005).
2nd Circuit bases loss on amount of misbranded drugs sold by defendants. (305) Defendant was convicted of distributing misbranded drugs and related prescription drug law violations. The district court found that the loss suffered by the victims was $4.1 million, based on the sales figures for the prescription drugs that defendant and his co-conspirators sold from 1991-93. The Second Circuit found no error. This determination properly reflected the guidelines as they were applicable to defendant, and as they were later clarified. In 2001, Note 2(F)(v) was added, which states that in similar cases, fraud loss “shall include the amount paid for the property, services or goods transferred, rendered, or misrepresented, with no credit provided for the value of those items or services.” Although this clarification might not be directly applicable, since it was adopted after defendant was sentenced, it clarified the law as it stood when defendant was sentenced. U.S. v. Milstein, 401 F.3d 53 (2d Cir. 2005).
2nd Circuit holds that district court properly relied on plea agreement stipulation to determine loss. (305) Defendant was involved in a scheme to defraud a jeweler by purchasing jewelry with a counterfeit certified bank check. Defendant argued that the district court erred in calculating the loss amount using a co-conspirator’s estimate of the jewelry’s $590,000 “cost,” rather than the co-conspirators’ estimate of what they would have to pay for the jewelry. The Second Circuit held that the court properly relied on defendant’s stipulation in his plea agreement to calculate loss. Under circuit precedent, a stipulation in a plea agreement, although not binding, may be relied upon in finding facts relevant to sentencing. Because defendant’s loss amount stipulation was knowing and voluntary, the district court could have properly found loss amount based solely on the stipulation, as long as it also considered any other relevant information presented to it. There was ample evidence in the record supporting a loss finding of between $500,000 and $800,000. U.S. v. Granik, 386 F.3d 404 (2d Cir. 2004).
2nd Circuit holds that loss included full amount transferred out of employer’s account. (305) Without Durr’s knowledge or consent, defendant instructed Durr’s investment advisor to transfer all the money in Durr’s Advest account ($914,098.35), an account over which defendant had no investment authority, to Durr’s FFP account, an account over which defendant did have investment authority. By the time the fraud was discovered, about $208,000 remained in the FFP account mingled with $700,000 that Durr had originally entrusted to defendant in the FFP account. The balance of the money was lost through “wildly unsuccessful” securities trading. The district court found that the full $914,098.35 was loss, even though some of these fund were never transferred out of Durr’s FFP account. The Second Circuit found no error, since there was ample evidence that defendant intended to deprive Durr of the full $914,098.35. Defendant repeatedly attempted to obtain control over the $914,098.35 in the Advest account through requests to manage the entire amount before the fraud occurred; he also systematically deceived Durr about the status and location of that amount after the perpetration of the fraud. Moreover, “loss in fraud cases includes the amount of property taken, even if all or part has been returned.” Here, defendant removed from defendant’s agent, and assumed improper control over, the entire $914,098.35. U.S. v. Coriaty, 300 F.3d 244 (2d Cir. 2002).
2nd Circuit refuses to reduce loss by amount of loan bank would have extended absent fraud. (305) Defendant obtained a revolving credit loan for his company. The loan was secured by the company’s assets, including its accounts receivable. At the closing, defendant submitted company invoices as collateral, including 25-30 falsified invoices representing $130,000 in sales that never occurred. Defendant continued to submit falsified invoice in order to induce the bank to permit the company to draw on its line of credit. An independent accountant hired by the bank found that the falsified invoices had allowed the company to obtain $120,000 in loans from the bank. However, after being paid from the proceeds of the company’s liquidation, the bank lost $358,881.88. In determining that the § 2F1.1 loss was $358,881.88, the district court relied on Note 8(b), which states that loss due to a fraudulent loan application is equal to the unpaid balance of the loan when the offense is discovered, reduced by the value of the collateral used to secure the loan. The Second Circuit affirmed. The note does not, as defendant would read it, permit a reduction in the loss by the amount of the loan that the bank presumably would have extended absent any fraud. The fraudulent documents used to secure the loans were not independent from the loan application that induced the loan. U.S. v. Abbey, 288 F.3d 515 (2d Cir. 2002).
2nd Circuit may count losses incurred by the lawful activities of an unwitting participant in the scheme. (305) Defendant was convicted of stock fraud and the district court based the loss on the intended increase in the price per share from $2 to $5, for a total increase of $3. Defendant objected to using $2 per share as the bottom limit for measuring the intended increase because the increase from $2 to $3 per share was due solely to the “market making activities” of an unwitting participant. The Second Circuit rejected defendant’s argument, relying on its opinion in U.S. v. Carrozzella, 105 F.3d 796, 804 (2d Cir. 1997), which suggested that in certain instances in the calculation of a criminal sentence, a defendant may be held responsible for the lawful activities of unwitting participants in the criminal scheme. Two other circuits have adopted the Carrozzella standard: U.S. v. Wilson, 240 F.3d 39, 47-50 (D.C. Cir. 2001) and U.S. v. Helbling, 209 F.3d 226, 244-48 (3d Cir. 2000). The panel here held that a defendant may be responsible under § 2F1.1(b)(1) for the losses incurred by the lawfully activities of an unwitting participant where (1) the activities were organized or led by the defendant with specific criminal intent, (2) the services of the unknowing participant were peculiar and necessary to the criminal scheme, and (3) these services were not fungible with others generally available to the public. Here, it was proper to include these losses. U.S. v. Manas, 272 F.3d 159 (2d Cir. 2001).
2nd Circuit upholds five-level upward departure for non-monetary harm caused by identity theft. (305) Defendant was convicted of various crimes relating to identity theft and fraudulent applications for credit cards. The district court departed upward under Note 12 to § 2F1.1 because the loss calculation did not take into account the harms caused to the individuals whose identities and social security numbers were used. In October 1998, Congress enacted the Identity Theft and Deterrence Act, which directed the Sentencing Commission to review and amend the guidelines to provide for appropriate sentences for identity theft offenses. As of the date of defendant’s July 1999 sentencing, the Sentencing Commission had not yet implemented this Congressional directive. Defendant contended that this failure to act indicated that the Commission had specifically forbidden departures based on identity theft. The Second Circuit disagreed, and affirmed the departure. This argument did not account for a recent guideline amendment. Section 2F1.1(b)(5) now provides for a two-level increase for identity theft offenses involving certain aggravating features. Prior to the changes to the guidelines, they did not take into account the type of non-monetary harms that identity theft risks imposing. The five-level departure here was considerable but not so excessive as to be vacated. U.S. v. Karro, 257 F.3d 112 (2d Cir. 2001).
2nd Circuit upholds $80 million loss estimate from sale of fictitious leases. (305) Defendant’s family business leased photocopying machines to state and local government offices. After originating a lease, the company often sold the lease to an investor; the company would collect payments on the lease for the investor, who was supposed to get a low-risk stream of cash. Defendant ran a massive pyramid scheme through the company, selling fictitious leases to investors and pledging or selling legitimate leases twice over to different parties. The probation department found that the annual income from the sale of leases to investors exceeded the value of the leases by more than $200 million in 1994 and again in 1995. By the time defendant’s company filed for bankruptcy, the aggregate shortfall between the amount owed lease investors and the value of the collateral was about $600 million. A court, relying on findings of the probation department, “need only make a reasonable estimate of the loss, given the available information.” USSG § 2F1.1, Note 9. Accordingly, the Second Circuit was satisfied that the district judge properly estimated a loss in excess of $80 million. U.S. v. Bennett, 252 F.3d 559 (2d Cir. 2001).
2nd Circuit says Apprendi not applicable to guideline factors that do not increase sentence beyond statutory maximum. (305) Defendant’s argued that Apprendi v. New Jersey, 530 U.S. 466, 120 S.Ct. 2348 (2000) required the jury to determine the extent to which the loss involved in his fraud case exceeded $100. This issue was relevant only to his guideline range and did not increase his sentence above the statutory maximum. The Second Circuit joined the other nine circuits that have ruled that a guideline factor, unrelated to a sentence above a statutory maximum, or to a mandatory statutory minimum, may be determined by a sentencing judge and need not be submitted to a jury. Although one member of the Apprendi majority intimated in a footnote that Apprendi’s reasoning might extend to fact-finding under the Sentencing Guidelines, this footnote was an insufficient basis to extend Apprendi to a straight-forward guidelines case. See Apprendi, 120 S.Ct. at 2380 n.11 (Thomas, J., concurring). U.S. v. Garcia, 240 F.3d 180 (2d Cir. 2001).
2nd Circuit applies charitable/ educational organization increase to government fraud. (305) Defendants defrauded the Department of Education Pell Grant Program by falsely enrolling thousands of people in schools offering mentor-based independent study programs. Most of the “students” enrolled at one fictitious school that received over $11 million in Pell Grants, but never existed except on paper. The district court applied an increase under § 2F1.1(b)(4)(A) for an offense involving “a misrepresentation that the defendant was acting on behalf of a[n] … educational … organization.” Defendants argued that the enhancement applies only where a defendant exploits the altruism of private individuals, not where he simply defrauds government agencies. All of the examples listed in the application notes involve misrepresentations to private individuals, and the background notes suggest that the increase is meant to punish “defendants who exploit victims’ charitable impulses or trust in government” because such actions “create particular social harm.” However, the Second Circuit refused to limit the enhancement to frauds of private individuals. The supporting materials did not clearly express an intent that § 2F1.1(b)(4)(A) not apply in this case. The examples listed in the notes were not exhaustive. U.S. v. Berger, 224 F.3d 107 (2d Cir. 2000).
2nd Circuit upholds loss where defendant artificially inflated stock price. (305) Defendant executed a series of frauds designed to artificially inflate the share prices of his company’s stock. The government introduced evidence that estimated the loss at from $7.1 million to $18.3 million based on the decline in the company’s share price upon revelation of fraud. The district court also had an analysis from the class action plaintiffs’ expert determining loss to the plaintiffs to be $30 million. Accordingly, the Second Circuit ruled that the district court acted well within its discretion in finding the loss was between $5 million to $10 million. U.S. v. Moskowitz, 215 F.3d 265 (2d Cir. 2000), abrogated on other grounds by Crawford v. Washington, 541 U.S. 36, 124 S.Ct. 1354 (2004).
2nd Circuit says court properly combined actual loss from one lie with intended loss from second lie. (305) Defendant’s loan agreement permitted his company to receive loans based on the total amount of accounts receivable. To increase the amount the company could borrow, defendant created invoices for items not yet shipped. The company then included these pre-billed invoices as eligible accounts receivable in submissions to the bank. Focusing on two of these misstatements, the district court found that defendant had caused the bank to lose $195,840. The Second Circuit affirmed. Defendant conceded that the balance owed the bank before the recovery of any assets was $674,230. Thus, even though the bank recovered about $100,000 from off-balance sheet inventory, deduction of this amount from the bank’s net loss still left $574,230. It was not improper to combine actual loss from one inventory misrepresentation with the potential loss stemming from an accounts receivable misrepresentation. Logically, intended loss must include both the amount the victim actually lost and any additional amount that the defendant intended the victim to lose. Therefore, the district court correctly added the actual loss from the first misrepresentation to the amount the bank would have lost had it acted on the second misrepresentation. U.S. v. Carboni, 204 F.3d 39 (2d Cir. 2000).
2nd Circuit refuses to reduce fraud loss by offsets. (305) The government argued that the loss from defendant’s fraud was between $10 and $20 million, resulting in an offense level of 27. Defendant argued that it was between $1.5 and $2.5 million, due mainly to a series of offsets that defendant argued should apply, resulting in an offense level of 25. The Second Circuit, relying on U.S. v. Carrozzella, 105 F.3d 796 (2d Cir. 1997), rejected defendant’s claim about the offsets, because they all involved money that was “necessary for the scheme to continue.” Loss in fraud cases includes the amount of property taken, even if all or part has been returned. Moreover, disputes about applicable guidelines need not be resolved where the sentence falls within either of two arguably applicable guideline ranges and the same sentence would have been imposed under either guideline range. The court indicated that defendant would have received the same sentence regardless of whether the offsets were included. U.S. v. Koh, 199 F.3d 632 (2d Cir. 1999).
2nd Circuit says impossibility of actual loss does not require zero loss figure. (305) Defendant offered a sham investment opportunity to an undercover agent posing as a pension fund accountant. Defendant was led to believe that the “accountant” planned to misappropriate ten million dollars from the pension fund for a short-term investment. Relying on U.S. v. Galbraith, 20 F.3d 1054 (10th Cir. 1994), defendant argued that the court should have used a zero loss figure because an actual loss was impossible. The Second Circuit rejected Galbraith, and held that impossibility of actual loss, such as where the defendant is caught in a sting operation, does not require use of a zero loss figure. See also U.S. v. Studevent, 116 F.3d 1559 (D.C. Cir. 1997); U.S. v. Schlei, 122 F.3d 944 (11th Cir. 1997). The district court properly based defendant’s offense level on intended loss, as opposed to a zero loss figure. U.S. v. Klisser, 190 F.3d 34 (2d Cir. 1999).
2nd Circuit says defendant not entitled to offset for stock received after theft from pension plan. (305) Defendant was the president, sole shareholder and pension plan trustee of a company. He took money withheld from employees’ payroll checks for pension plan purposes and used the funds to pay the company’s operating expenses. He recorded on its books a corresponding current liability to the pension plan. Defendant later sold the company’s assets. Rather than replenishing the misused pension plan funds, the purchaser transferred 1.5 million shares of its common stock. Defendant argued that the district court erroneously undervalued the offset to which he was entitled for the purchaser’s stock by estimating its market price as of the wrong date. The Second Circuit held that defendant was not entitled to any offset for the value of the stock, even if it were held to repay the pension plan. To calculate a sentencing loss, a thief or embezzler has no right to claim an offset for the value of monies returned to the victim between the initial wrongdoing and the time of detection. At best, defendant’s efforts were an attempt to repay the pension plan for a loss already caused by his criminal conduct, rather than a contemporaneous transfer that might be seen as reducing the amount of loss. U.S. v. Corace, 146 F.3d 51 (2d Cir. 1998).
2nd Circuit holds defendant accountable for entire loss from fraud where he played heightened role. (305) A “bust-out” is a fraudulent scheme in which a travel agency sells airline tickets to customers but then fails to remit the proceeds to the airlines. To increase the volume of quick sales, the busting-out agency will typically employ other agencies to assist in selling tickets, paying them a large commission for their sales. Defendant participated in the bust-outs of several travel agencies, earning a commission for each sale he made. In determining the § 2F1.1 loss, the district court generally held him responsible only for the amount of his own sales. However, it held him responsible for the entire $502,000 loss caused by the bust-out of the Kiwi Travel Agency. The Second Circuit held that because of his heightened involvement in the bust-out of this agency, defendant was properly held accountable for the entire loss. Unlike the other bust-outs, defendant’s role in the Kiwi bust-out was much more than that of a salesman. Defendant suggested the bust-out, and, posing as Kiwi’s owner in conversations with an airline auditor, he stalled the airlines’ discovery of the bust-out. U.S. v. Germosen, 139 F.3d 120 (2d Cir. 1998).
2nd Circuit includes agreed-upon interest and principal of unauthorized note in loss. (305) Defendant embezzled money from a union’s employee pension plan. In one instance, he loaned $600,000 of the plan’s money to a corporation in which he was a principal. The district court included in the loss the unpaid interest and penalties payable on the corporation’s note. The Second Circuit upheld the inclusion of the interest in the loss calculation. The court acknowledged that note 2 to § 2B1.1 and note 7 to § 2F1.1 say that a sentencing court should not include an estimate of the interest or investment return the victim might have earned if the money had not been taken. However, this does not apply where, as here, the money stolen includes both principal and agreed-upon interest. U.S. v. Nolan, 136 F.3d 265 (2d Cir. 1998).
2nd Circuit refuses to reduce loss by value of services where defendant’s services were not valuable. (305) Defendant was convicted of bankruptcy fraud in connection with payments to him from Braniff Airlines that he attempted to conceal from the bankruptcy court. Relying on U.S. v. Maurello, 76 F.3d 1304 (3d Cir. 1996), he argued that the loss amount should be reduced by the value of his services to Braniff. The Second Circuit found that Maurello had no applicability because the district court found that defendant did not provide valuable services to Braniff. The court found that defendant was incompetent and it did not understand how anyone could have entrusted him with the operation of the airline. U.S. v. Spencer, 129 F.3d 246 (2d Cir. 1997).
2nd Circuit includes profits to tippees in loss from insider trading. (305) Defendant received inside information from AT & T employees concerning AT&T’s proposed acquisition of three publicly held companies. He arranged for others to purchase securities on behalf of the AT&T employees and himself. The Second Circuit included in the § 2F1.1 loss the trading profits made by the individuals to whom defendant gave the inside information. Defendant was acting “in concert with” his tippees. After he received the information, he did not make purchases in his own name, but swiftly thereafter his brother, his close friend, and his girlfriend each traded heavily in the target companies in accounts held at the same brokerage firm. The friend opened the account the very day he purchased the call options. Moreover, when one of the AT&T employees went to the restaurant owned by defendant to pick up his trading profits, defendant directed him to the back of the restaurant to pick up the money from his brother. U.S. v. Cusimano, 123 F.3d 83 (2d Cir. 1997).
2nd Circuit holds defendant accountable for all loss caused by fraudulent telemarketing firms. (305) Defendant was part owner of three telemarketing firms that fraudulently induced victims to send them money as taxes and fees for “prizes” they had allegedly won. The Second Circuit affirmed attributing to defendant the $2 million loss caused by the entire enterprise. The district court arrived at the $2 million figure based on victims’ checks and business records of the various companies. All of the money received by the businesses constituted loss, because every person who sent money was defrauded—each person was told he would receive a gift worth at least $5000 and no one did. The entire loss was foreseeable to defendant. He was part owner of three of the four companies involved and was a manager of the fourth. He was responsible for obtaining leads and sending out gifts, and was aware of the misrepresentations made by the sales staff to the scheme’s victims. The court did not impermissibly double-count his role by noting his “vital role” in the conspiracy in making its foreseeability determination. Separate enhancements are permitted where they reflect different facets of the defendant’s conduct. It was proper to attribute all of the loss to defendant even though some co-defendants who pled guilty had their loss calculations based upon their personal gain. Sentencing information available to a judge after a plea will usually be less than after a trial. U.S. v. O’Neil, 118 F.3d 65 (2d Cir. 1997).
2nd Circuit uses face value of fraudulent drafts as intended loss. (305) Defendant was involved in a “Debt Elimination Program” in which unwitting debtors were enticed to purchase “certified drafts” drawn on non-existent entities in Mexico. The debtor was instructed to submit the draft to the creditor, together with a demand for the return of any collateral or evidence of indebtedness. Banks would accept the draft, but would decline to release the collateral until the draft cleared, which of course never happened. Thus, the debtor was out the 15% of face value they paid for the draft, and the bank was out any expenses it incurred attempting to collect on the draft. The Second Circuit affirmed the use of the face value of the fraudulent drafts to determine the intended loss under § 2F1.1. Although the actual loss was limited to the amounts paid by the debtors for the worthless drafts plus the banks’ costs, intended loss was a more difficult question. Any additional loss caused by the bank discharging debts would not accrue to the benefit of the conspirators. Nonetheless, the district court found that the object of the scheme was for the bank to discharge the customer’s debt in exchange for the draft. Based on the conspirators’ instructions to the debtors, this finding was not clearly erroneous. U.S. v. Jacobs, 117 F.3d 82 (2d Cir. 1997).
2nd Circuit refuses to reduce loss by amount repaid after check kiting scheme was discovered. (305) Defendant was convicted of check kiting. The Second Circuit held that the district court properly refused to reduce the loss under § 2D1.1(b)(1) by the amount defendant repaid after discovery of the scheme. Note 7 to § 2F1.1 refers to the commentary under § 2B1.1 for a discussion of loss valuation. Note 2 to § 2B1.1 defines loss as “the value of the property taken.” Note 7 to § 2F1.1 also states that if intended or probable loss can be determined, that figure should be used if it is larger than the actual loss. Thus, it does not matter that defendant made restitution to the banks after the scheme was uncovered. U.S. v. Matt, 116 F.3d 971 (2d Cir. 1997).
2nd Circuit departs upward where zero loss did not adequately reflect fraud. (305) Defendant attempted to obtain a bank loan by lying about his income, employment, and credit history. Because the loan would have been adequately secured by property and defendant did not intend a loss, the § 2F1.1 loss was zero. The Second Circuit affirmed an upward departure under note 7 to § 2F1.1, which provides that an upward departure may be warranted where the loss understates the seriousness of defendant’s crime. Although the lender’s capital was not actually put at risk because the crime was discovered before the loan was made, the bank was sucked into a transaction with a person insensitive to his credit obligations and skilled in the extraction of multiple loans from unsuspecting lenders, secured by the identical security interest. U.S. v. Bobowick, 113 F.3d 1302 (2d Cir. 1997).
2nd Circuit refuses to reduce loss by amounts returned to investors. (305) Defendant induced clients to entrust money to him for investment. When the investments began to perform poorly, defendant misrepresented to his investors that the investments were doing well and continued to solicit new funds. The new money was used to pay interest to old investors. The Second Circuit refused to reduce the loss by the amount he repaid investors. Loss in fraud cases includes the amount of property taken, even if all or part has been returned. The reason for this is that, as here, the return of money as interest or other income is often necessary for the scheme to continue. U.S. v. Carrozzella, 105 F.3d 796 (2d Cir. 1997).
2nd Circuit includes salary defendant received in loss. (305) Defendant was the program manager for a water association that was funded by federal grants. While employed full time, he entered into a full time graduate program at Harvard University, Although the water association maintained its office in Vermont, defendant leased an apartment in Cambridge, Massachusetts on behalf of the association. The lease payments were made with federal funds. The district court included in the loss calculation $13,463 for the apartment, and a salary loss of $8,723. The Second Circuit upheld the inclusion of lost salary even though defendant claimed he fulfilled all of his obligations to the water association. A plausible argument could be made that the loss consisted of all the federal grant money received by the water association because it never would have been paid if defendant had disclosed his Harvard attendance. The district court, however, adopted an approach much more favorable to defendant. The court determined the number of hours defendant devoted to actual participation in the Harvard program and multiplied that figure by a reasonable estimate of his hourly rate. U.S. v. Burns, 104 F.3d 529 (2d Cir. 1997).
2nd Circuit says wholesaler who accepted food stamps from restaurants caused loss. (305) Defendant owned a business that supplied wholesale food to Chinese restaurants. Over several years, some of the restaurants paid for defendant’s supplies with food stamps. Defendant had no authority to receive food stamps. Wholesalers and most restaurants are prohibited from accepting them. Under note 7(d) to § 2F1.1, in a case involving diversion of government program benefits, loss is the value of the benefits diverted from the intended recipients or uses. Defendant argued that only those who illegally obtain food stamps from the original recipients divert the stamps from their intended recipients. The Second Circuit found a loss under note 7(d) because, by accepting the stamps, defendant helped the initial wrongdoer convert the stamps to cash, thereby causing a loss much like someone who receives stolen property from a thief. The district court’s decision to order restitution was also proper. Although defendant may have bought and sold the stamps at a discount, it was highly probable that a later holder redeemed them at full value, causing the government the actual loss of the full value of the stamps. U.S. v. Cheng, 96 F.3d 654 (2d Cir. 1996).
2nd Circuit says court should have used present value rather than total payments to determine loss. (305) Defendant, the vice president of a company that contracted to provide computer products and services to NASA, failed to disclose to NASA the company’s true costs of fulfilling the contract. The company was able to finance the purchase of hardware at a 10.5% interest rate, rather than the 13.77% rate disclosed by defendant. The district court calculated the loss by totaling the 57 monthly payments in the original contract, calculated at a 13.77% rate, and then subtracting a revised stream of payments calculated at a 10.5% rate. The Second Circuit held that the district court should have used the difference between the present value of the two contracts, rather than the difference between the total payments of the two lease streams. The sum of payments in a lease stream does not accurately represent the value of that lease stream because it fails to account for the time value of money. U.S. v. Broderson, 67 F.3d 452 (2d Cir. 1995).
2nd Circuit refuses to reduce loss by embezzler’s $24,000 deposit to account. (305) Defendant embezzled funds from a homeowners’ association. He argued that the loss calculation should have been reduced by the $24,000 he deposited into the association’s account. He asserted that the first $24,000 he took from the association during the period specified in the indictment was simply a return of the $24,000 he had earlier deposited as a “loan” to the association in 1990. The Second Circuit held that the $24,000 deposit should not have been subtracted from the loss since before he made the deposit, he had already embezzled a total of $59,000. Thus, the court was entitled to conclude that the $24,000 deposit was not a loan to the association, but a partial repayment of previously stolen funds. U.S. v. Valenti, 60 F.3d 941 (2d Cir. 1995).
2nd Circuit approves loss based on difference between actual and represented price of bonds. (305) Defendant, the investment officer for a trust company, purchased a number of bonds for 40 trust clients. When the price of the bonds fell sharply, he overstated their value in two financial statements. When the trust company discovered the fraud, they bought all of the bonds at their original value, and sold them for a loss. The district court determined there were two fraud victims—the trust company and the individual trust clients. The trust company was the victim of the bank fraud and false statements counts. The loss for these counts was $462,600, the difference between the bonds’ value when the fraud began and when it was discovered. The individual customers were the victims of the mail fraud. The loss from these counts was the amount by which the bonds’ price had been misrepresented. The loss from both statements totaled $393,400. On appeal, the Second Circuit affirmed. U.S. v. Stanley, 54 F.3d 103 (2d Cir. 1995).
2nd Circuit includes in loss all services that were billed to doctors’ Medicaid numbers. (305) Defendants, all physicians, participated in a racketeering enterprise that defrauded the New York State Medicaid system of 8 million dollars. The Second Circuit upheld the district court’s finding that the reasonably foreseeable losses under § 2F1.1 included all services that were billed to each defendant’s Medicaid provider number. The district court found that no medical care whatsoever was administered at the clinics where the patients were seen, and all the billings were fraudulent. U.S. v. Khan, 53 F.3d 507 (2d Cir. 1995).
2nd Circuit agrees that intended loss in arson/insurance fraud case was amount of insurance policy. (305) Defendant destroyed a building he owned in an attempt to collect insurance proceeds. The Second Circuit agreed that the “intended loss” under § 2F1.1(b)(1) was the $14 million face amount of defendant’s insurance policy. Defendant had insured the property for this amount on a replacement cost basis. Defendant’s insurance claim stated that he was seeking replacement cost, and there was no indication that he intended to settle his claim for less than the replacement cost. U.S. v. Mizrachi, 48 F.3d 651 (2d Cir. 1995).
2nd Circuit says defendant not responsible for unforeseeable losses or losses after he withdrew from conspiracy. (305) Two conspirators fraudulently obtained equipment that enabled them to build a phony ATM machine. Defendant then joined the conspiracy, and assisted in installing the phony ATM at a mall. They used information from the phony ATM to create counterfeit ATM cards. From April 27 to May 18 they used the counterfeit cards to withdraw $107,000. Defendant claimed that on May 14, he told his conspirators that he no longer wished to be a part of the conspiracy. Nonetheless, the district court held him accountable under § 2F1.1 for the value of the stolen equipment ($100,000) plus the full $107,000 withdrawn with the counterfeit ATM cards. The Second Circuit remanded, holding that defendant was responsible for the stolen equipment only if the theft was in furtherance of defendant’s jointly undertaken criminal activity and was reasonably foreseeable. The district court did not make findings on these issues. In addition, if, as defendant claimed, he told the conspirators that he no longer wished to be a part of the conspiracy, then he withdrew from the conspiracy and was not responsible for losses that occurred after his withdrawal. U.S. v. Greenfield, 44 F.3d 1141 (2d Cir. 1995).
2nd Circuit includes amounts repaid to investors and investors’ tax deductions in loss. (305) Defendant was convicted of mail and wire fraud as a result of misrepresentations he made about real estate partnerships he organized and promoted. The 2nd Circuit refused to reduce the loss under section 2F1.1 by amounts defendant repaid to investors or by the amount of tax deductions the victims could take as a result of their loss. The court also included personal loans that defendant received from his sister-in-law, since they were obtained by fraud. U.S. v. Harris, 38 F.3d 95 (2nd Cir. 1994).
2nd Circuit approves loss calculation equal to potential bank claims made upon HUD. (305) Defendant was convicted of bank fraud and making false statements on HUD loan application forms. Defendant argued that the amount included in calculating the losses from nine loans in foreclosure did not reflect the loss suffered since HUD might recover some money when the properties were sold at foreclosure. The 2nd Circuit held that the district court could properly base the loss calculation on the potential bank claims to made against HUD, without reduction for amounts HUD might recover at a foreclosure sale. First, if a probable or intended loss can be determined, this figure can be used if greater than the actual loss. Second, the amount of loss need not be precise. The court need only make a reasonable estimate. Here, other costs, such as the costs of maintaining the property and interest charges, might cancel any potential recoupment derived from the foreclosure sales. U.S. v. Reese, 33 F.3d 166 (2nd Cir. 1994).
2nd Circuit considers conduct outside statute of limitations to determine loss. (305) Defendant fraudulently received social security benefits from May 1979 until November 1991. He argued that the statute of limitations barred consideration of losses outside its five-year window. The 2nd Circuit disagreed, holding that a court may rely on conduct outside the statute of limitations in calculating a term of imprisonment under the guidelines. Where a defendant engages in an identifiable and repetitive pattern of criminal activity, as in this case, the court may rely on such conduct as relevant, regardless of whether it is charged as part of the offense of conviction. Statute of limitations jurisprudence does not alter this analysis. U.S. v. Silkowski, 32 F.3d 682 (2nd Cir. 1994).
2nd Circuit says loss in drug diversion scheme is difference between street value and retail value. (305) Defendant was a “first-level diverter” who purchased legally issued prescription drugs from Medicaid recipients. He repackaged the drugs and sold them to “high-level diverters,” who sold their inventories to other diverters or to pharmacists. The pharmacists then dispensed the drugs at retail prices to unsuspecting customers. Defendant argued that there was no loss to the ultimate purchasers because there was no showing that they did not receive valuable and effective drugs. The 2nd Circuit held that the loss was the difference between the retail value and the street value of the drugs. A retail customer would pay less for prescription drugs packaged without expiration dates and lot numbers that had been through the process to which defendant subjected them. It was reasonable to conclude that the price paid by the undercover agent represented the actual value of the drugs. The district court’s valuation was a reasonable estimate. U.S. v. Gomez, 31 F.3d 28 (2nd Cir. 1994).
2nd Circuit counts as loss, money defendant returned to investors to maintain their confidence. (305) On several occasions defendant induced a client to send him money to be invested in Australian government bonds. In fact, defendant pocketed the money. When the client demanded that defendant send him the bonds, defendant sent counterfeit bonds. The district court increased defendant’s offense level by 13 under §2F1.1(b)(1)(N) based on a loss of $2.65 million, the total sum defendant fraudulently induced the client to place under his control. The court noted that the same enhancement would apply even if it calculated the loss at $3.2 million, the face value of the bogus bonds. The 2nd Circuit affirmed. Minor typographical errors did not render the bonds “obviously fraudulent.” The court properly refused to reduce the loss by amounts defendant returned to his client and other investors. These amounts were paid as part of an effort to maintain their confidences. Finally, it was irrelevant that defendant took the money to impress people, rather than for a more sinister purpose. U.S. v. Mucciante, 21 F.3d 1228 (2nd Cir. 1994).
3rd Circuit does not resolve whether interest amendment was substantive or clarifying. (305) Defendant was involved in a mortgage and bank fraud conspiracy. He challenged the inclusion $132,000 of bargained-for interest in the loss calculation. On November 1, 2001, the Sentencing Commission amended the commentary to § 2B1.1 to exclude interest from the loss calculation. Prior to that amendment, the Third Circuit had included bargained-for interest in calculating loss in bank fraud cases. The district court used the 2000 Guidelines in effect when the crimes were completed in June 2001 to calculate defendant’s sentence because other amendments to the 2001 Guidelines significantly increased the enhancements related to the amount of loss. The court refused to consider the 2001 amendment excluding all interest from the loss calculation under § 2B1.1, finding that the amendment was substantive, not clarifying. The Third Circuit found it unnecessary to resolve whether the 2001 amendment was a clarification or a substantive change because any error was harmless. Excluding the interest from the total loss of $2.7 million would have resulted in the same 13-level enhancement for losses between $2.5 million and $5 million. U.S. v. Jimenez, __ F.3d __ (3d Cir. Jan. 14, 2008) No. 05-4098.
3rd Circuit refuses to reduce loss based on speculative amount victim bank might receive from sale of property. (305) Defendant was involved in a mortgage and bank fraud conspiracy. He argued that the loss from one commercial loan should have been reduced by the value of the property pledged to secure the loan. At the time of sentencing, the loan had been in default for over five years, the victim bank had charged off a balance of $165,000 on the loan, the borrower had filed bankruptcy, the collateral was tied up in that proceeding, and the bank’s priority was subordinate to another loan and to the bankruptcy trustee. The court reduced the loss amount by the proceeds that the bank had received from the bankruptcy trustee by the time of sentencing (about $27,000) but refused to reduce the amount further for any potential future recovery from the sale of the pledged real estate because of the speculative nature of any recovery. The Third Circuit found no error. Given the conflicting evidence of the value of the collateral, the bank’s subordinate position, and the uncertainty of collection, the district court did not clearly err in determining that the bank suffered a loss of about $138,000 at the time of the sentencing hearing. U.S. v. Jimenez, __ F.3d __ (3d Cir. Jan. 14, 2008) No. 05-4098.
3rd Circuit says loss of exemption during bankruptcy proceeding does not impact actual loss. (305) Defendant filed a bankruptcy petition in which he vastly understated the property he owned. Defendant argued that his creditors incurred no actual loss because the property that he did not report would not have been reachable by his creditors even if he had disclosed it because it was held by him and his wife as tenants by the entireties. Instead of holding a hearing to determine whether or not the property would have been exempt if defendant had acted lawfully, the court accepted the government’s position that in bankruptcy proceedings a debtor is not entitled to claim an exemption for property that he fraudulently concealed. Thus, the court determined that the calculation of actual loss would not exclude the property defendant claimed was exempt. The Third Circuit found this reasoning flawed, because the loss of an exception during a bankruptcy proceeding does not impact upon the determination of actual loss (for restitution or sentencing purposes). The bankruptcy court, unlike the district court, is not calculating the harm caused by the defendant’s crime. To determine harm, and thus actual loss, the court must compare what actually happened with what would have happened if the defendant had acted lawfully. The panel remanded so that the district court could determine actual loss and thus the proper amount of restitution, if any. However, the loss calculation under § 2F1.1 could be upheld if defendant intended a loss greater than the amount of actual loss determined by the court. Although defendant claimed that he intended no loss and merely wanted to expedite the bankruptcy process, defendant’s intent could be inferred from the fact that he concealed a large amount of assets, and two of the vehicles he concealed were not even arguably exempt. Thus, even though the court erred in determining actual loss, the § 2F1.1 loss enhancement could be upheld on the basis of the court’s implied finding as to defendant’s intended loss. U.S. v. Feldman, 338 F.3d 212 (3d Cir. 2003).
3rd Circuit says defendant intended loss in amount of counterfeit checks. (305) Defendant was convicted of bank fraud for negotiating counterfeit checks, despite her claim that she did not know that the checks were counterfeit. Because the bank suffered no actual loss (the bank discovered the checks were counterfeit), the district court sentenced defendant on the loss she intended, i.e., the face value of the counterfeit checks. See Note 8 to § 2F1.1. Defendant argued that because she did not know the checks were counterfeit, she intended no loss, and thus the court erred in finding that $20 million was the amount of loss. The Third Circuit found no error. Because the bank fraud statute reached defendant’s conduct, and the jury found her guilty under the statute, defendant intended to cause the bank loss. The government set out a prima facie case of intended loss by showing that the two checks defendant attempted to negotiate had a face value of about $20 million. Defendant did not offer any evidence to disprove this amount of loss. U.S. v. Khorozian, 333 F.3d 498 (3d Cir. 2003).
3rd Circuit holds that court properly included profits from concealed assets in bankruptcy fraud loss. (305) While a suit filed by the SEC against defendant was pending, defendant took almost $4 million worth of bearer bonds to an offshore company that assisted individuals in shielding assets from potential creditors. After a $75 million judgment was entered against defendant in the SEC suit, he filed for bankruptcy. Defendant failed to disclose his ownership of the bearer bonds in his bankruptcy petition, and failed to disclose when he arranged for the bearer bonds to be cashed in and invested. Defendant was indicted on charges of concealing from the bankruptcy court $500,000 in casino gaming chips and the $4 million in bearer bonds. The Bankruptcy Code, 11 U.S.C. § 541(a)(6) provides that “proceeds, products, offspring, or profits of or from, property of the estate” are included in the bankruptcy estate. The Third Circuit held that the district court properly included in the bankruptcy fraud loss the $18 million in profits defendant earned on the investments he made with the bearer bonds. Defendant’s concealment was a continuing offense. The actual loss included the $18 million in profits because defendant was obligated to declare those proceeds every month through June of 1997, not just in August of 1995. Moreover, even if those profits were not considered actual loss from the continuing fraud, defendant’s concealment was at least uncharged relevant conduct the district court was entitled to consider. U.S. v. Brennan, 326 F.3d 176 (3d Cir. 2003).
3rd Circuit says defendant who withdrew from conspiracy was liable for loss he intended prior to withdrawal. (305) Defendant participated in a conspiracy to produce and cash counterfeit checks. In total, members of the conspiracy negotiated $38,452.95 worth of checks. After defendant learned the scheme was under investigation, he surrendered to the Secret Service, admitted his wrongdoing, and handed over 219 preprinted checks, with a face value of $455,102.29, which had not yet been presented for payment. The district court based its loss calculation on the face value of all of the checks produced by the conspiracy, $498,300.64, rather than the $38,452.95 that had actually been deposited. Defendant argued that his withdrawal from the conspiracy made it improper to include the face value of the unused counterfeit checks that he surrendered to authorities. The Third Circuit held that the district court correctly found that defendant intended to cause the loss associated with the uncashed counterfeit checks, even though he voluntarily surrendered those checks to the government. Even after withdrawal from a conspiracy, a defendant remains liable for his previous agreement and for the previous conspiratorial acts taken in furtherance of the conspiracy. The law of the guidelines is the same in calculating a defendant’s intended loss. Even when a defendant’s intent changes as he withdraws from the conspiracy, the loss for sentencing purposes remains the loss that the defendant intended during his active participation in the conspiracy. U.S. v. Kushner, 305 F.3d 194 (3d Cir. 2002).
3rd Circuit finds court has authority to depart where intended loss overstates seriousness of crime. (305) Defendant participated in a conspiracy to produce and cash counterfeit checks. When he learned of the government investigation into the scheme, he surrendered to the Secret Service and turned over preprinted checks with a face value $455,102.99. Following Note 8 to § 2F1.1, these checks were included by the district court in its calculation of intended loss. Note 11 to § 2F1.1 provides that a downward departure may be warranted where the loss overstates the seriousness of the offense. At sentencing, defendant contended that because he had himself surrendered the unnegotiated checks that would being used to support an enhanced sentence, the “intended loss” they represented overstated the seriousness of his offense. The district court disagreed, believing that allowing a downward departure under Note 11 because Note 8 produced an unwarrantedly harsh sentence “is in effect to say I disagree with … Note 8, which I can’t do.” The Third Circuit found that the district court “took an unnecessarily restricted view of Note 11. The Note’s language indicates that there may be situation where the loss understates or overstates the seriousness of an offense. The fact that Note 8 clarifies that “loss” refers to “intended loss” where that figure can be ascertained did not limit Note 11’s reach. “Intended loss” can understate or overstate the seriousness of an offense just as much as “actual loss.” U.S. v. Kushner, 305 F.3d 194 (3d Cir. 2002).
3rd Circuit holds that loss is the amount victim paid for visits caseworker never made. (305) Defendant worked as a caseworker for a medical managed-care consulting firm. The Philadelphia Housing Authority (PHA) contracted with the firm for in-person, on-site monitoring of the medical care administered to PHA employees who received treatment for on-the-job injuries. Defendant devised and executed a scheme to obtain additional bonuses by reporting that she had visited PHA claimants when in fact she had not. The district court calculated loss as the amount PHA paid for invoices tied to fraudulent reports. Defendant argued that PHA suffered no actual loss because her reports accurately set forth medical information about the claimants that she gleaned from medical reports, rather than from personal visits with claimants and doctors. The Third Circuit rejected this argument. PHA bargained and paid for in-person, on-site monitoring of claimants, and was fraudulently deprived of this service. A PHA employee testified that this aspect of the caseworker’s service was “very, very important” to PHA to ensure that medical care was appropriate and that the claimants were not perpetrating frauds or malingering. When a person pays for a service that the person did not receive, the loss is the value of the service to the person in question, which is the amount that the person paid. U.S. v. Tiller, 302 F.3d 98 (3d Cir. 2002).
3rd Circuit bases loss on value of stocks on date fraudulent scheme ceased operations. (305) Defendant argued that the loss should not have been calculated at the date when the fraudulent scheme ceased operations because some stocks increased in value and certain customers could have mitigated their losses by selling. The Third Circuit rejected the argument, finding no authority suggesting that the defendant’s responsibility should be diminished because the defrauded investor could have mitigated the losses by selling the stocks. “We see no error in selecting the end of the conspiracy as an appropriate date from which to calculate loss.” U.S. v. Hart, 273 F.3d 363 (3d Cir. 2001).
3rd Circuit says defendant’s gain from securities fraud was salary, commissions and bonuses. (305) Because each investor who lost money had not been identified, the court estimated the losses for defendant Hart based on a calculation of his gain. This was determined by tallying his salary, commissions and bonuses, reduced by 15% to reflect the percentage of the operation’s profits that were not attributable to the fraudulent scheme. On appeal, the Third Circuit found no plain error, rejecting defendant’s argument that the gain should have been limited to the commissions. U.S. v. Hart, 273 F.3d 363 (3d Cir. 2001).
3rd Circuit holds sale price of collateral was most reliable in calculating fraud loss. (305) In U.S. v. Sharma, 190 F.3d 220 (3d Cir. 1999), the Third Circuit held that the district court improperly credited Sharma only $40,000 for property that had been appraised at $80,000. In reversing, the court reasoned that because the bank eventually was successful in its pursuit to obtain the parcel of land, Sharma was entitled to a credit for the full value of the land less the bank’s expenses in the litigation to acquire title. In the present case, defendant argued that Sharma required the district court to use the appraised value of the property, i.e. $480,000. The district court disagreed, relying instead on the actual sale price of the property in an arms-length transaction, $307,500. This is what the collateral sold for one month after it was acquired by the lender in a sheriff’s sale. On appeal, the Third Circuit affirmed, holding it was reasonable for the district court to find that the market had declined in the period following the appraisal. There was no clear error. U.S. v. Napier, 273 F.3d 276 (3d Cir. 2001).
3rd Circuit says state anti-deficiency law does not limit “loss.” (305) Defendant argued that because the victim lender failed to file a petition to fix the fair market value of the property six months after the forced sale, the lender was conclusively presumed to have recovered in full the balance due on the property, including interest, fees, and costs, pursuant to Pennsylvania’s Deficiency Judgment Act. The Third Circuit rejected the argument, holding that the state anti-deficiency law should not control the determination of loss in a federal criminal action. Under § 2F1.1, Commentary Note 8(b), actual loss is the loss the victim is actually sustained or expects to sustain, not presumptions of loss created by state law. U.S. v. Napier, 273 F.3d 276 (3d Cir. 2001).
3rd Circuit holds that court erred by treating potential loss as intended loss without further analysis. (305) As part of his mail fraud scheme, defendant mailed out 119,575 fraudulent invoices for $147 each, for an invoice total of $17,577,525. It was impossible to determine how many of these invoices were sent back to defendant with payment, but the government intercepted $647,000 worth of checks that were intended to pay the fraudulent invoices. If this $647,000 constituted all of the money that was sent to defendant, it would represent about a 3% return, which is what defendant maintained was the norm for this type of scam. Thus, while the record indicated a potential loss of $17,577,525, defendant argued that his intended loss was only $647,000. The district court, without analysis, found that the intended loss was $17,577,525. The Third Circuit, held that under U.S. v. Geevers, 226 F.3d 186 (3d Cir. 2000), the district court erred by equating potential loss with intended loss “without deeper analysis.” The fraud guideline, “has never endorsed sentencing based on the worst-case scenario potential loss. Intended loss refers to the defendant’s subjective expectation, not to the risk of loss to which he may have exposed his victims. It is the government’s burden to prove intended, not possible loss, if its seeks to apply a loss enhancement under § 2F1.1. U.S. v. Titchell, 261 F.3d 348 (3d Cir. 2001).
3rd Circuit says court must determine whether any portion of services rendered by defendant had value. (305) To obtain a job as a social worker, defendant forged her qualifications and worked for several years for three New Jersey social service agencies. The district court found that the total salary paid to defendant in all of her fraudulently obtained employment should have been assessed as the amount of loss. The Third Circuit held that under U.S. v. Maurello, 76 F.3d 1304 (3d Cir. 1996), the court should have attempted to determine whether any of the services performed by defendant had value, and if so, reduced the loss by that value. In Maurello, the defendant was a lawyer who had been disbarred for ethics violations. The Maurello court held that it was possible to estimate the value of the services the defendant had performed so that the entire amount he had taken would not be charged as a loss. The district court here found Maurello inapplicable because defendant lacked the minimum educational requirements for the job, while Maurello was “qualified” for the work performed. The panel rejected this distinction, refusing to find Maurello’s ethics violation and lack of a license merely a “technicality.” Defendant worked for one agency for nearly five years, and received several positive job evaluations. At another job, she was promoted and given a raise. Thus, it was clear that defendant intended to provide, and did provide, actual services in exchange for her salary, necessitating an inquiry into the value of those services. On remand, the Maurello calculation should be made, perhaps with the aid of an expert in social work who could evaluate defendant’s files. U.S. v. Hayes, 242 F.3d 114 (3d Cir. 2001).
3rd Circuit bases loss on full face value of checks in check kiting scheme. (305) Over a one-year period, defendant repeatedly opened accounts at various banks by depositing checks from closed accounts or accounts with insufficient funds, and then attempted to withdraw a portion of the deposited funds before the victim banks realized that the funds were not backed. The district court found that the intended loss was the total face value of the deposited checks. Defendant argued that he did not intend to cause the full amount of the potential loss because he could not have successfully withdrawn those funds. The Third Circuit upheld the district court’s use of the full face value of the deposited checks as the § 2F1.1 loss. Expectation is not synonymous with intent when a criminal does not know what he may expect to obtain, but intends to take what he can. The sentencing court could plausibly conclude that defendant would likely have taken the full amount of the deposited checks if that were possible. Defendant was free to come forward with evidence to demonstrate that he actually intended something less, but the government made its prima facie case. The panel also joined the majority of circuits to hold that impossibility is not in and of itself a limit on the amount of intended loss. U.S. v. Geevers, 226 F.3d 186 (3d Cir. 2000).
3rd Circuit holds that total amount fraudulently deposited into account was intended loss. (305) Defendant deposited into a fraudulently opened bank account a dishonored $240.65 third-party check, and a stolen Treasury check in the amount of $66,021.94. The following day, defendant attempted to withdraw $24,900 from the account, but the bank refused to permit the withdrawal. The Third Circuit ruled that the correct measure of loss was the entire amount that defendant fraudulently deposited into the bank, since this was the amount of the intended loss. If the intended loss can be determined, this figure should be used if it is greater than actual loss. See note 8 to § 2F1.1. There was little doubt that defendant intended to obtain the full amount deposited. Within a two-week period, in two accounts (neither of which was in defendant’s name), three branches of the same bank were hit by defendant and a cohort with a rubber check, a stolen check, and an attempted withdrawal of more than one-third of the fraudulent deposits. It was reasonable to infer that defendant intended to withdraw the balance of the deposits before the stolen check surfaced as stolen. U.S. v. Torres, 209 F.3d 308 (3d Cir. 2000).
3rd Circuit holds telemarketer liable for entire loss generated by conspiracy. (305) Defendant joined the All–Win telemarketing scam in January 1991, shortly after it commenced operations. Defendant became one of the All-Win’s top telemarketers and often trained new recruits. When All-Win decided to relocate to New Jersey in June 1991, the principals asked defendant to join them in setting up the new business. One owner testified that she considered defendant, as well as two other experienced telemarketers, crucial to a successful relocation. The Third Circuit upheld the district court’s decision to attribute to defendant the entire loss generated by the conspiracy ($1.2 million), rather than just the amount of loss he generated through his own efforts (about $155,000). First, all of the losses generated by the conspiracy were in furtherance of the jointly undertaken activity. Second, all of the losses were within the scope of defendant’s agreement. He knew that All-Win was fraudulent. He received a substantial salary from All-Win, not just commissions based on his own fees. Finally, all of the losses were reasonably foreseeable to defendant. All of the telemarketers worked side by side in one large room, they joked about the naïve applicants from whom they received fees, and a daily tally was kept of the fees received. U.S. v. Duliga, 204 F.3d 97 (3rd Cir. 2000).
3rd Circuit rejects zero loss where misrepresentations allowed insurer to continue to receive premiums. (305) Defendant leased worthless stocks to Teale, who represented these leased stocks as assets available to pay claims under reinsurance contracts with World Life. When these assets were called upon to pay outstanding medical reinsurance claims, the stocks were deemed worthless. The district court found no loss, since World Life had issued the policies, and was thus committed to pay the $6.4 million in claims, before any conduct by defendants. The Third Circuit found this analysis flawed. First, if there was a causal connection between the misrepresentations and Teale’s continued receipt of premiums after defendant joined the scheme, defendant was responsible for an actual loss equal to the premiums received after he joined the scheme (less any amount paid by Teale in satisfaction of policy claims). Although the record strongly suggested a causal connection, the district court did not make a finding of such a connection. In addition, there might be a causal nexus between the misrepresentations and the unpaid claims. But for the misrepresentations, World Life might have obtained reinsurance from a solvent reinsurer, who would have paid the claims. U.S. v. Yeaman, 194 F.3d 442 (3d Cir. 1999).
3rd Circuit holds that bargained-for interest due on a loan should be included in loss. (305) In U.S. v. Kopp, 951 F.2d 521 (3d Cir. 1991), disapproval recognized by U.S. v. Wood, 486 F.3d 781 (3d Cir. 2007), the Third Circuit held that interest on a loan obtained by a fraudulent application should be included in the calculation of loss. In 1992, the Sentencing Commission amended note 8 to § 2F1.1 to state that loss does not include “interest the victim could have earned on such funds had the offense not occurred.” The Third Circuit, agreeing with the majority of circuits to decide this issue, held that bargained-for interest due on a loan should be included in the calculation of loss. See, e.g. U.S. v. Nolan, 136 F.3d 265 (2d Cir. 1998). The Sentencing Commission intended to distinguish bargained-for interest from opportunity-cost interest. Opportunity-cost interest is the interest the victim could have earned; bargained-for interest is an integral part of the borrower’s obligation to the lender. The former is speculative; the latter is specifically defined. Note 8 requires the exclusion of opportunity-cost interest, not bargained-for interest, from the valuation of the victim’s loss. U.S. v. Sharma, 190 F.3d 220 (3d Cir. 1999).
3rd Circuit says defendants were entitled to credit for full value of property acquired by bank after default. (305) Defendants obtained loans and extensions of credit by misrepresenting their finances to their lender. Defendants argued that in calculating the loss, the district court erred by not giving them credit for the value of assets pledged to the bank. The Third Circuit rejected most of the proposed credits, but agreed that the district court erroneously gave them only a $40,000 credit rather than an $80,000 credit for a tract of land that the bank’s appraiser valued at $80,000. Because the bank ultimately obtained the parcel of land by suit after the defendants’ default, defendants were entitled to a credit for the full value of the land, less the bank’s expenses in the litigation to acquire title. Since the bank’s own appraiser valued the property at $80,000, the court erred in crediting only $40,000 to defendants. However, the error was harmless since it did not affect defendants’ offense level. U.S. v. Sharma, 190 F.3d 220 (3d Cir. 1999).
3rd Circuit reverses where findings were inadequate to attribute all losses from conspiracy to defendant. (305) Defendant was convicted of fraud based on a scheme that staged car accidents and then submitted insurance claims for non-existent medical treatment. The scheme operated in New York, Pennsylvania, and New Jersey, but defendant played a significant role in its Pittsburgh, Pennsylvania operations. Defendant argued that since his activity was limited to a single clinic, the losses from the other ten clinics were not foreseeable and should not be attributed to him. The Third Circuit agreed, ruling that the court’s findings were not sufficient to hold defendant accountable for all of the losses in the scheme. The district court concluded, without referring to specific evidence, that the losses caused by the eleven clinics were “a result of the conspiracy . . . and foreseeable” to defendant. This finding was inadequate because it focused on the conspiracy as a whole, rather than defendant’s involvement. U.S. v. Evans, 155 F.3d 245 (3d Cir. 1998).
3rd Circuit finds court’s conclusory statement inadequate for loss determination. (305) Defendant was convicted of fraud based on a scheme that staged car accidents and then submitted insurance claims for non-existent medical treatment. He argued that in calculating loss, the court improperly considered funds obtained from legitimate insurance claims submitted on behalf of legitimate accident victims. The Third Circuit agreed, holding that the district court did not make adequate findings to support its conclusory statement that the loss exceeded $2.5 million. Although the determination need not be exact and can be based on the trial record as well as the sentencing record, an appellate court should not be asked to rummage through the entire record without guidance from the district court as to the legal and factual basis for its determination. U.S. v. Evans, 155 F.3d 245 (3d Cir. 1998).
3rd Circuit affirms loss estimate in government contract fraud case. (305) Defendant’s company contracted to operate a waste-water treatment plant at an Army depot. The contract provided that the Army would reimburse the company for its costs to “change out” its metal tanks that held filtering carbon. Defendant misrepresented to Army consultants that the high level of pollutants in the waste-water required the use of virgin carbon, a more expensive type of carbon than reactivated carbon. He also misrepresented that 20,000 pounds of carbon were needed for each “change out.” The Third Circuit rejected defendant’s claim that the district court underestimated the amount of carbon used in the change outs. The court properly rejected an employee affidavit submitted by defendant, since it was uncorroborated and had not been subjected to cross-examination. The court relied on a government agent’s testimony and other evidence produced at trial. The court also did not err in refusing to give defendant credit for his occasional use of virgin carbon in the change outs. The heart of the scheme was that there was never any need to use virgin carbon and defendant’s representations allowed him to charge the government unnecessary sums. U.S. v. Sain, 141 F.3d 463 (3d Cir. 1998).
3rd Circuit uses policyholders’ claims as loss where company fraudulently obtained insurance license. (305) Defendant misrepresented the amount of his company’s initial capital in order to be licensed to issue insurance in the Virgin Islands. Hurricane Hugo hit the Virgin Islands and the company was unable to meet the resulting claims of its policyholders. The Third Circuit used the claims of the policyholders, $24,438,748, minus the company’s $4 million in reinsurance, to reach a loss of $20,438,748. It was proper to use the actual loss, rather than the amount of loss defendant intended to inflict. This case was not analogous to a contract case in which the defendant was planning to perform, even though he obtained the contract by fraud. Defendant not only misrepresented his initial capital investment; he also engaged in fraudulent conduct to keep the business going. During the 18 months the company was in business, the Insurance Division could not locate basic accounting records to assess the company’s assets and liabilities. Moreover, examiners found a commingling of funds between the company and another of defendant’s companies. Judge Becker dissented. U.S. v. Neadle, 72 F.3d 1104 (3d Cir. 1995), amended, 79 F.3d 14 (3d Cir. 1996).
3rd Circuit uses gross gain as measure of loss where fraud scheme resembled embezzlement. (305) Defendant was the chief financial officer of a company that administered health care benefits. He prepared false financial reports that concealed the company’s true disbursements and administrative costs, thereby allowing the company to retain a higher amount than reported. The district court calculated the loss as the difference between the amount the company reported to be its administrative retention and the amount it actually retained. Defendant argued that the client did not suffer this loss because if it had known the truth, at most it could have negotiated lower premium contracts. He also claimed that the loss should not include the amount derived from one dental contract, since the company was not obligated to refund premiums under this contract. The Third Circuit upheld the court’s use of the “amount taken” or “gross gain” as the measure of fraud loss since this was a case comparable to embezzlement. Certain breaches of fiduciary duty comparable to embezzlement may justify estimating fraud loss by using the “gross gain” approach discussed in note 8 to § 2F1.1. This was such a case. U.S. v. Coyle, 63 F.3d 1239 (3d Cir. 1995).
3rd Circuit rejects defendants’ gain as § 2F1.1 loss where actual loss could be estimated. (305) Defendants ran a business that repossessed cars on behalf of banks. Rather than obtaining bids for the cars “as is,” defendants submitted false bids to the banks, sometimes based on falsified condition reports. If the false bid was accepted, defendants would acquire the vehicle instead of the fictitious bidder, repair and detail the car, and resell it for a profit. The district court calculated loss by taking the gain received by defendants from the sale of the cars and deducting their expenses. The Third Circuit rejected using defendant’s gain as a surrogate for loss under § 2F1.1, because it appeared feasible to estimate actual loss. The actual loss to the banks was the fair market value of the vehicles less what defendants paid for them. Although defendant’s conduct impaired the court’s ability to estimate the vehicle’s value in the “as is” market, the court could reasonably have used 85% of the “blue book” value of the cars as an estimate. If, on remand, the court finds a loss estimate is still not feasible, then in determining defendants’ gain, the court must deduct additional expenses such as salespersons’ commission and auction and transportation expenses. U.S. v. Dickler, 64 F.3d 818 (3d Cir. 1995).
3rd Circuit says check kiting loss is measured at time of offense rather than at sentencing. (305) Defendant was convicted of bank fraud as a result of his check kiting scheme. Sentencing was delayed to permit defendant to get his business affairs in order and to attempt to make restitution. By the time of sentencing, defendant had settlement agreements with three of the four victim banks. The district court found that the actual loss at the time of sentencing was the total loss of $462,309, less the amounts under the settlement agreements. There was no intended loss. The 3rd Circuit reversed, holding that the victims’ loss in a check kiting scheme should be calculated when the offense is detected, rather than at the time of sentencing. U.S. v. Kopp, 951 F.2d 521 (3rd Cir. 1991), disapproval recognized by U.S. v. Wood, 486 F.3d 781 (3d Cir. 2007), which says that loss should be calculated at the time of sentencing, applies to secured loan frauds. Check kiting is more akin to theft than a secured loan frauds. A reduction in sentence because of restitution would unfairly discriminate in favor of those with greater financial resources. U.S. v. Shaffer, 35 F.3d 110 (3rd Cir. 1994).
3rd Circuit holds loss is not reduced by restitution offered after crime is discovered. (305) Defendant, a former executive officer of a bank, fraudulently caused the bank to loan $95,000 to finance construction of a house for a partnership. Defendant argued that the bank suffered no loss under section 2F1.1, because after the fraud was discovered, one of the partners offered to sign the property over to the bank if the property was not sold. The 3rd Circuit held that the court properly refused to reduce the loss by the amount of restitution offered after the crime was discovered. Under note 7(b) the loss is the actual loss to the bank at the time of sentencing ($95,000) reduced by the amount the bank has recovered or can expect to recover from any assets pledged to secure the loan ($0). The fact that the partner offered, after defendant’s crime was detected, to make a gratuitous transfer of the property did not alter this calculation. U.S. v. Mummert, 34 F.3d 201 (3rd Cir. 1994).
3rd Circuit finds lender’s cost of completing project was not caused by defendants’ fraud in disclaiming bonds. (305) Defendants were convicted of various counts of fraud stemming from their attempts to disclaim performance and payments bonds issued in connection with a construction project. The district court based the loss under § 2F1.1 on the lender’s cost to complete the project after taking it over from the developer. The 3rd Circuit reversed, holding that the lender’s cost of completing the project was not caused by defendants’ fraud. The loss was caused by the failure of the two general contractors to fulfill their contractual obligations in a timely fashion. There was nothing in the record to suggest that the lender had to pay outstanding debts of subcontractors at the time it took over the project. The lender was not harmed by the issuance of the bonds, nor by defendants’ efforts to deny the existence of the bond. U.S. v. Daddona, 34 F.3d 163 (3rd Cir. 1994).
4th Circuit upholds finding that intended loss was amount of concealed assets. (305) Defendant was convicted of bankruptcy fraud and perjury. He challenged a 2F1.1 loss enhancement, arguing that there was no actual loss to the creditors since under the reorganization plan, all of the creditors were to be paid in full. He also asserted that his intention in transferring his wife’s personal property to auction houses without permission of the bankruptcy trustee was to sell it to raise money to pay the creditors sooner, not to harm them. The Fourth Circuit found no error. At the time of the concealment of assets, it was far from clear that there would be sufficient assets to pay the creditors in full. The district court inferred from this that defendant “wished to preserve [the concealed] assets and not have them taken potentially in litigation ….” The district court properly found the amount of intended loss was the value of the assets concealed by defendant. U.S. v. Hughes, 401 F.3d 540 (4th Cir. 2005).
4th Circuit holds that court was not bound by loss finding in co-conspirator’s separate proceeding. (305) Defendant was convicted of ten counts of mail fraud in connection with a bingo operation. He argued that he could not be held liable for a loss exceeding $200,000 because, in separate proceedings involving defendant’s co-conspirators, the government stipulated and the district court found that the loss was no greater than $200,000. Thus, defendant argued that the government should be estopped from attributing to him any loss greater than the amounts previously found by the district court in his co-conspirator’s case. However, defendant was not a party to those cases, and the Fourth Circuit found that the civil doctrine of nonmutual collateral estoppel had no application in criminal sentencing. The district court was free to estimate the loss resulting from the fraud based on the information available to it in this case. U.S. v. Pierce, 400 F.3d 176 (4th Cir. 2005), vacated, U.S. v. Pierce, 409 F.3d 228 (4th Cir. 2005).
4th Circuit rejects use of expected loss where actual loss has already materialized. (305) Defendant, the owner of a construction company, was convicted of a variety of fraud counts in connection with use of false performance and payment bonds for two projects for which he was unable to obtain bonding. The district court found that the defendant exposed his victims to a potential loss of $3,000,000, resulting in a 13-level enhancement under U.S.S.G. § 2F1.1(b)(1) (N). Note 8(b) to § 2F1.1 provides that in “fraudulent loan application cases and contract procurement cases, the loss is the actual loss to the victim (or if the loss has not yet come about, the expected loss)….” The Fourth Circuit reversed, holding that because the actual loss had come about, expected loss was not the applicable standard. Defendant’s sentence could be enhanced only on a finding of actual loss or intended loss. However, the district court found that there was no intended loss. Instead, the court based its adjustment on the conclusion that the reasonable amount of loss the victim could have faced was $3 million. However, in cases where the loss has already materialized, comment 8(b) does not provide for damages based on the risk of loss to which the defendant exposes the victim, but only based on intended or actual loss. U.S. v. Pendergraph, 388 F.3d 109 (4th Cir. 2004).
4th Circuit agrees that defendant intended for liquor to be smuggled into Canada. (305) Defendant was involved in an operation that smuggled liquor from the U.S. to Canada in order to avoid Canadian taxes. He challenged the calculation of loss under § 2F1.1, arguing that the record contained no evidence that he actually transported or assisted others in importing the liquor he had picked up in Maryland into Canada. The Fourth Circuit rejected this argument. Proof that defendant actually transported or assisted others in importing the liquor into Canada was not required, although it could be reasonable inferred from the number of times a vehicle registered to defendant crossed into Canada and then ceased such activity immediately after defendant abandoned the liquor laden rental truck. Rather, all that was required was sufficient evidence from which to make a reasonable inference that defendant intended that such liquor would eventually be smuggled into Canada in order to avoid paying applicable excise duties and other taxes. The evidence supporting defendant’s conviction supported this finding. U.S. v. Pasquantino, 336 F.3d 321 (4th Cir. 2003).
4th Circuit holds that fraud loss was full amount of forged checks. (305) Defendant was a principal in a three-party brokerage account with her brother and father, for whom she held power of attorney. Checks from the account could be negotiated only if they carried the endorsement of each principal. Defendant forged her brother’s endorsement on numerous checks that she deposited into a bank account she controlled. She then obtained a cash advance on these funds, which were used for defendant’s own purposes. Defendant challenged the court’s calculation of the fraud loss, contending that the court erroneously considered her brother, rather than the bank, to be the “victim” of her crime. The Fourth Circuit found no error. A sentencing court may consider all relevant conduct in determining fraud loss. Defendant did not have an ownership interest in the brokerage account. She had no legal right to any of the funds in the account, absent her brother’s signature. The court properly used the full value of the forged checks in calculating the fraud loss. Elliott v. U.S., 332 F.3d 753 (4th Cir. 2003).
4th Circuit affirms most of fraud loss calculation but rejects one item that witness admitted might be proper expense. (305) Defendant was convicted of charges resulting out of a complex Medicaid fraud scheme. She challenged the inclusion in her fraud loss of: (1) her salary and that of a physician’s assistant, (2) certain invoices, and (3) costs included on the cost reports for which supporting invoices could not be found. The Fourth Circuit held that the first two items were properly included in the loss. The salaries of defendant and the physician’s assistant were not allowable in the costs reports, and there was an ample basis for the court’s finding that defendant was responsible for the misclassification of these salaries. There also was ample evidence that defendant’s triple expensing of one invoice originally issued for a ventilator equipment purchase was a fraudulent act rather than an accounting error. However, there was insufficient evidence to support including the costs for which the supporting invoices could not be found. The government present a single witness, who admitted that the documentation underlying those costs appeared to be legitimate. Defendant, on the other hand, came forward with an explanation of why the missing invoice costs were legitimate, and she produced affidavits corroborating, to some extent, her position. U.S. v. Bolden, 325 F.3d 471 (4th Cir. 2003).
4th Circuit holds that findings as to amount of fraud loss were inadequate. (305) Defendants planned and perpetrated an elaborate fraud scheme through which they improperly obtained tens of thousands of dollars from North Carolina’s Medicaid program. At sentencing, defendant unsuccessfully sought to exclude about $82,000 in lease transactions from his fraud loss calculation. He contended that the court failed to find that he directly participated in the lease transaction or that those transactions were in furtherance of jointly undertaken criminal activity. The Fourth Circuit agreed that the court’s findings were inadequate. The fact that defendant was convicted of conspiracy to commit mail and wire fraud, which included the lease transactions, did not necessarily mandate a finding that the losses from those transactions constituted relevant conduct. Notwithstanding the verdict, the court was obliged to make individualized on fraud loss. The government also argued that the lease transactions were attributable to defendant under the second prong of § 1B1.3(a)(1), i.e. that they were reasonably foreseeable and “in furtherance of the jointly undertaken criminal activity.” However, neither the PSR nor the court make findings on the scope of the criminal activity defendant agreed to jointly undertake, or whether all the lease transactions were reasonably foreseeable. U.S. v. Bolden, 325 F.3d 471 (4th Cir. 2003).
4th Circuit upholds use of intended loss even if it exceeds amount actually possible. (305) Defendant argued that the guidelines limit intended loss to that which is likely or possible, and therefore, the district court erred in basing his intended loss on the amount he improperly billed Medicare and Medicaid, rather than the payments those programs allowed. Although the Sixth and Tenth Circuit has adopted such a view, see U.S. v. Santiago, 977 F.3d 517 (10th Cir. 1992), U.S. v. Watkins, 994 F.2d 1192 (6th Cir. 1993), the majority of circuits in more recent cases have rejected this “economic reality” approach. See, e.g. U.S. v. Edwards, 303 F.3d 606 (5th Cir. 2002). The Fourth Circuit adopted the majority view, and held as a matter of law that the guidelines permit courts to use intended loss in calculating a defendant’s sentence, even if this exceeds the amount of loss actually possible, or likely to occur, as a result of the defendant’s conduct. This approach better accords with the text of the commentary and is more consistent with the guidelines’ principle of matching punishment with culpability. Moreover, the Sentencing Commission has recently agreed that the majority interpretation of § 2F1.1 best conforms with the objectives of the guidelines, and amended the definition of loss in 2001 to clarify this point. U.S. v. Miller, 316 F.3d 495 (4th Cir. 2003).
4th Circuit upholds use of amount billed to Medicare and Medicaid as intended loss. (305) Defendant pled guilty to mail fraud for over billing third party insurers for services rendered in his medical practice. He contended that the court should not have based its calculation of intended loss on the amount he billed to Medicare and Medicaid, claiming that he did not have “reasonable expectation” of receiving the full amount billed. The Fourth Circuit held that the district court did not clearly err in relying on the amount defendant billed Medicare and Medicaid as prima facie evidence of the amount of loss he intended. The presumptive purpose of a bill is to notify the recipient of the amount to be paid. While the parties may introduce additional evidence to suggest that the amount billed either exaggerated or understated the billing party’s intent, defendant offered no evidence to rebut the government’s prima facie case. U.S. v. Miller, 316 F.3d 495 (4th Cir. 2003).
4th Circuit upholds use of intended rather than actual loss in mail fraud scheme. (305) Defendant pled guilty to mail fraud for over billing third party insurers for services rendered in his medical practice. Note 8(d) to § 2F1.1 states that “in a case involving diversion of government program benefits, the loss is the value of the benefits diverted from intended recipients or uses.” Defendant argued that Note 8(d) instructs courts to use only actual losses to government programs rather than intended losses. The Fourth Circuit rejected this interpretation, holding that the district court properly used defendant’s intended loss, rather than just the lesser actual loss, in calculating his offense level. Note 8(d) does not speak to the issue of whether courts can use intended rather than actual loss. Rather, Note 8(d) directs courts to include the diversion of government programs benefits as losses, even if the government funds ultimately go to eligible recipients, i.e. loss is value of the benefits diverted, as opposed to merely the value of benefits that ultimately end up in the hands of ineligible recipients. U.S. v. Miller, 316 F.3d 495 (4th Cir. 2003).
4th Circuit rules that post-conversion deposits were sufficiently linked to bankruptcy fraud conspiracy. (305) Defendant’s trucking company originally filed a Chapter 11 bankruptcy petition. On May 25, the bankruptcy court converted the case to a Chapter 7 bankruptcy under which the company’s assets were to be liquidated. Before the May 25th conversion, defendant misrepresented to the trustee that he had a right to the company’s receivables under a “factoring” agreement. After the conversion, the company changed its name and continued to do business, unbeknownst to the trustee. During this time, defendant deposited into his own special account checks to the trucking business totaling nearly $400,000. Defendant was convicted of bankruptcy fraud and conspiracy; however, the court dismissed several fraud counts relating to checks deposited after the May 25 conversion to Chapter 7. The Fourth Circuit ruled that the district court erred in omitting the post-conversion deposits from the loss calculation; evidence established that the post-conversion deposits were conduct relevant to the conspiracy. The district court overlooked two sources of evidence. First, many of the checks were payable to the original bankrupt company, a strong indication that they belonged to that company. Second, the bankruptcy court determined that the companies involved were really one company during the entire relevant period. That finding linked all of the checks to the bankrupt estate and to the conspiracy. U.S. v. Butner, 277 F.3d 481 (4th Cir. 2002).
4th Circuit holds that court properly used defendant’s profit as proxy for loss. (305) Rather than locate an outside broker to sell recycled goods to his employer, defendant created his own brokerage firm. The company fraudulently represented itself to defendant’s employer as an independent broker; it purchased recycled materials from various vendors and sold them to the employer, collecting a commission on each sale. Defendant argued that the court improperly used his gain as a proxy for loss in calculating his sentence since there was no actual or intended loss to his employer. He further contended that loss under § 2F1.1(b)(1) should be judged by whether the defrauded party suffered an absolute economic loss on the transaction, and if the transaction was profitable, then there was no loss. The Fourth Circuit ruled that the relevant question was not whether the victim lost money on the transaction, but whether the victim was deprived of assets or services it would have possessed absent the fraud. The issue of loss therefore turned on how much the employer paid for defendant’s company’s broker-services versus how much it would have paid for those services absent defendant’s fraud scheme. The district court found that if defendant had disclosed his capacity to handle the recycling operation, the employer would have brought the vast majority of the services in-house. Thus, the profit earned by defendant’s company in its dealings with the employer constituted the excess amount the employer paid as a result of the fraud. U.S. v. Vinyard, 266 F.3d 320 (4th Cir. 2001).
4th Circuit holds that loss enhancement did not violate due process or Apprendi. (305) Defendant’s company, a subcontractor for firms having contracts with the Virginia Department of Transportation (VDOT), regularly submitted inflated invoices to VDOT’s prime contractors, who in turn passed the invoices on to VDOT for payment. Defendant’s sentence was based on a calculated loss of $435,038.33, which resulted in a nine-level increase under § 2F1.1. Defendant argued that the loss should have been limited to the loss reflected by the individual invoices listed in the indictment ($19,008), and that the loss calculation became the “tail which wags the dog of the substantive offense,” in violation of his due process rights. See McMillan v. Pennsylvania, 477 U.S. 79 (1986). Also, he contended that the amount of loss was an essential element of the offense of conviction not proven beyond a reasonable doubt, in violation of Apprendi v. New Jersey, 530 U.S. 466 (2000). The Fourth Circuit found no due process violation and no Apprendi violation. The fines and terms of imprisonment imposed upon defendants were within the statutory maximums allowed for the offenses of conviction. Thus, defendant’s Apprendi argument was foreclosed by U.S. v. Kinter, 235 F.3d 192 (4th Cir. 2000). Moreover, the sentencing increase based upon the additional loss was not so great or disproportionate as to otherwise implicate due process concerns discussed in McMillan. U.S. v. Photogrammetric Data Services, 259 F.3d 229 (4th Cir. 2001), abrogated on other grounds by Crawford v. Washington, 541 U.S. 36, 124 S.Ct. 1354 (2004).
4th Circuit finds no victim misconduct or extraordinary restitution in check kiting scheme. (305) Defendant and his brother concocted a massive check-kiting scheme that generated $64,000 in insufficient funds fees per year at one bank alone. The district court departed downward, finding the $3 million loss suffered by one bank overstated the seriousness of defendant’s conduct. The court cited four factors: (1) the bank delayed taking action; (2) the bank’s conduct led the family to believe that their actions were not unlawful; (3) the bank’s CEO mistakenly believed that the bank profited from the overdraft fees; and (4) the bank reached a settlement with the family. The Fourth Circuit reversed. Section 5K2.10 authorizes a departure if the victim’s wrongful conduct contributed significantly to provoking the offense. However, in non-violent cases, victim misconduct will warrant a reduction only in unusual cases. The victim’s conduct must not only be provocative, but “the victim must actually have done something wrong.” Provocation involves deliberate conduct that stirs a defendant to action. Such conduct was clearly absent here—the bank in no way goaded defendant into launching the check kiting scheme. Moreover, the overdraft fees were not profit, but a reimbursement for overhead that a bank must use to return checks. Defendant’s settlement agreement with the bank was not extraordinary. Defendant and his brother merely promised to make full restitution in four or five years. U.S. v. LeRose, 219 F.3d 335 (4th Cir. 2000).
4th Circuit says defendant not entitled to same departure in loss calculation as co-conspirator. (305) Defendant corporation, a government contractor, fraudulently represented that Brothers, a “disadvantaged business enterprise” (DBE), had performed work on a highway construction project, as required by defendant’s contract. Defendant challenged the district court’s finding of a $146,710.52 loss, since co-conspirator Ware, the president of Brothers, was only held responsible for a loss of $10,000. The Fourth Circuit found no error. The sentencing court arrived at the $10,000 loss for Ware by departing downward because the guideline amount overstated the seriousness of Ware’s individual conduct. Thus, for defendant to argue that it was entitled to the $10,000 loss figure was to argue that it was entitled to a downward departure because Ware received one. Apart from the fact that sentencing court cannot depart merely because of a disparity in sentencing, there were obvious differences between the two defendants. U.S. v. Brothers Const. Co. of Ohio, 219 F.3d 300 (4th Cir. 2000).
4th Circuit says fraud resulted in loss even though defendant ultimately met contract requirements. (305) Defendant corporation, a government contractor, fraudulently represented that Brothers, a “disadvantaged business enterprise” (DBE), had performed work on a highway construction project, as required by defendant’s contract. Defendant and Brothers argued that no loss was attributable to their conduct under § 2F1.1, since after the government determined that Brothers had not contributed to the project, defendant was permitted to use another certified DBE to perform additional work on the project, at no additional cost to the government. Moreover, the government counted excess DBE “credit” from other projects of defendant, so that defendant was ultimately credited as having satisfied the DBE requirement on the highway project. Nonetheless, the Fourth Circuit found that there was a loss under the guidelines. Over $185,000 was earmarked for DBE project participation by Brothers. Even though defendant’s DBE goal was met, the funds were not put to the intended use—to compensate Brothers for its work on the underdrain construction. Moreover, defendant conspired in a scheme to divert this money to a non-DBE. If not for the audit, the DBE funds would not have reached a DBE. Loss under § 2F1.1 can be based on the intended loss. U.S. v. Brothers Const. Co. of Ohio, 219 F.3d 300 (4th Cir. 2000).
4th Circuit holds that loss was difference between benefits received and benefits defendant should have received. (305) Defendant received federal disability benefits after he became totally disabled while working for the postal service. In forms filed with the government in February and December of 1997, defendant failed to report his employment in the illegal drug business. At sentencing, the district court found that the loss was the amount of benefits defendant had received during the period covered by the two forms, or $64,536. The Fourth Circuit reversed, holding that the loss was the difference between the benefits actually paid to defendant and the amount he would have received had he truthfully and accurately completed the federal form. The government claimed that it lost the entire amount of benefits defendant received during the time covered by the two relevant forms, since by making a false statements, defendant disentitled himself to all compensation benefits. See 5 U.S.C. § 8148(a); 20 C.F.R § 10.529 (1999). However, this argument was rejected in U.S. v. Parsons, 109 F.3d 1002 (4th Cir. 1997), which held that the amount forfeited by a defendant does not constitute a loss to the government for guideline purposes. Forfeiture is a penalty imposed on a criminal independent of any loss to the crime victim. U.S. v. Dawkins, 202 F.3d 711 (4th Cir. 2000).
4th Circuit says loss from co-conspirator’s fraudulent credit card use was reasonably foreseeable. (305) Defendant participated in a credit card fraud scheme. She contended that the total loss caused by the scheme, $214,245.28, was not reasonable foreseeable to her because she only used one card for a total loss of $647. The Fourth Circuit found that the loss caused by the use of all the cards was reasonably foreseeable to defendant. Defendant indicated by initialing police documents that she used five of the cards at issue. She later stated that she signed the backs of other cards but did not personally use all of those cards. She also accompanied her co-conspirator during many of his transactions. Although there was no direct evidence that defendant helped her co-conspirator use the cards with men’s names, (1) there was great overlap in the days during which men’s and women’s cards were used; (2) the co-conspirator accompanied defendant whenever the women’s cards were used; (3) the co-conspirator ultimately retained the possession of all of the cards; and (4) many of the overlapping fraudulent transactions occurred within close geographic proximity of each other. U.S. v. Akinkoye, 185 F.3d 192 (4th Cir. 1999).
4th Circuit includes face amount of unsent fraudulent notes in loss. (305) After the IRS issued a $1.8 million assessment against defendant, he attended a seminar presented by the Freeman. A portion of the seminar focused on the use of fraudulent financial instruments known as comptroller warrants. Defendant acquired several warrants and sent them to creditors along with cover letters notifying the creditors that the warrants were intended to satisfy debts owed to them. The Fourth Circuit held that in calculating loss, the district court properly included warrants that were in sealed envelopes but never mailed to the addressee. The guidelines state that the intended loss figure may be used if it can be determined and it is greater than the actual loss. Here, the intended loss figures could be determined by the face values of the warrants. No conjecture or estimates were needed because the warrants in defendant’s possession were completed. U.S. v. Wells, 163 F.3d 889 (4th Cir. 1998).
4th Circuit upholds finding that government’s loss figure was too speculative. (305) Defendant’s company contracted to supply shipboard motor controllers meeting military specifications to a government contractor. It assembled the controllers itself, but placed the trademark of an approved military supplier on the controllers. The government calculated the loss by using the number of counterfeit trademark tags that remained unaccounted for by defendant’s company. The company countered, however, that the government’s calculation resulted in a gross sales number that did not take into account sales to customers other than the U.S. The district court accepted this explanation and found the government’s method of proving loss too speculative. Instead, the court confined its findings of loss to those items for which invoices and other direct evidence of government sales were provided. The Fourth Circuit held that the court’s loss calculation was not clear error. U.S. v. Brooks, 111 F.3d 365 (4th Cir. 1997).
4th Circuit rules loss did not include amounts employee was authorized to spend. (305) Defendant, a postal service employee, filed partially fraudulent travel vouchers in connection with her transfer from Wisconsin to North Carolina. She filed a total of three expense reports, each of which sought reimbursement for both legitimate and nonexistent expenses. The district court held that if a portion of the report was fraudulent, then the entire amount requested, including legitimate expenses, constituted a § 2F1.1 “loss” to the government. It based its ruling on 28 U.S.C. § 2514, which provides that filing a fraudulent claim against the U.S. results in the forfeiture of the entire claim. The Fourth Circuit rejected this analysis, holding that the § 2F1.1 loss did not include the legitimate expenses for which defendant was entitled to seek reimbursement. Loss is not typically measured by the gross amount involved in the fraudulent scheme. In cases involving the diversion of government program benefits, loss is not the total amount of the benefits the defendant received, because some benefits may be rightfully due; instead loss is measured by the amount diverted from proper purposes. U.S. v. Parsons, 109 F.3d 1002 (4th Cir. 1997).
4th Circuit refuses to reduce loss by amount repaid to early investors in Ponzi scheme. (305) Defendant operated a Ponzi‑type investment scheme in which early investors were paid “interest” with the money paid by later investors. The Fourth Circuit upheld the district court’s refusal to reduce the loss by the $98,000 defendant paid the earlier investors. The district court found that the $98,000 was returned to defrauded investors in order to perpetrate the scheme. The payments were made to allow defendant to continue stealing. It is proper to hold a defendant responsible for the amount of loss intended, rather than the actual loss, where the payments are vital to the longevity of the scheme. U.S. v. Loayza, 107 F.3d 257 (4th Cir. 1997).
4th Circuit holds that loss calculation did not bear reasonable relation to harm from fraud. (305) Defendants formed a new Louisiana insurance company. In order to avoid being shut down for inadequate reserves, defendants placed worthless or overvalued assets on the books of the company. The district court calculated the § 2F1.1 loss based on the false or inflated value of the “rented” or nonexistent assets reported on the company’s annual and quarterly statements. The Fourth Circuit reversed, finding this method bore no reasonable relation to the actual or intended harm of the offense. The district court did not explain how the “losses to the company” were related to the harm inflicted on the insured. The overvalued or nonexistent assets were merely the mechanism through which defendants disguised the insolvent condition of their insurance company and thereby continued to sell insurance policies to the public. The harm to the public was the losses to the individual insureds caused by the sale of insurance policies backed by an insolvent insurance company. U.S. v. Krenning, 93 F.3d 1257 (4th Cir. 1996).
4th Circuit rules altered drug caused loss where new ingredients changed drug’s bioequivalence. (305) Defendant was the president and CEO of a manufacturer of generic drugs. After receiving FDA approval for a certain drug, the company ran into problems with dissolution tests. Without receiving FDA approval, the company added two inactive ingredients. Defendant, relying on U.S. v. Chatterji, 46 F.3d 1336 (4th Cir. 1995), argued that there was no economic loss since the drug he marketed was exactly what it purported to be—a safe, effective, FDA‑approved generic drug. The Fourth Circuit disagreed, distinguishing Chatterji. In Chatterji, the modification to the drug formula implicated only the shelf life of the drug; it did not affect the bioequivalence of the drug or its safety or therapeutic value. Here, however, the reason for the modification was the problem in passing dissolution tests, a problem bearing on the therapeutic value of a time‑released drug. Defendant conceded that the modification would have been viewed by the FDA as significant enough to require additional bioequivalence testing. U.S. v. Marcus, 82 F.3d 606 (4th Cir. 1996).
4th Circuit approves use of defendant’s gain as proxy for loss from Medicare fraud. (305) Defendant, a doctor, received kickbacks from another doctor for referring Medicare patients. The Fourth Circuit approved the use of defendant’s gain as a proxy for the loss under § 2F1.1. Under note 8, when the amount of loss caused by a defendant’s conduct cannot be determined, the amount of defendant’s gain is an acceptable alternative measure of estimating loss. U.S. v. Chatterji, 46 F.3d 1336 (4th Cir. 1995) was not applicable here, because defendant’s conduct did cause a loss. Defendant’s gain was an appropriate measure of the loss suffered by the American taxpayers, since the kickbacks paid to defendant represented dollars that the other doctor apparently did not need to receive from federal funds in order to cover the costs of the care he provided. Thus, the kickbacks were dollars that were needlessly drained from the Medicare system. U.S. v. Adam, 70 F.3d 776 (4th Cir. 1995).
4th Circuit includes defense contractors’ illegal profits in loss. (305) Defendants and their companies made illegal profits from the sale of materials to the Navy. They bought parts from a related company, an unapproved source, at a price substantially below the approved price. They charged the Navy the price they paid the related company for the parts, plus a nine percent inventory support charge and a five percent handling charge. The Fourth Circuit held that the district court properly used defendants’ illegal profits as a measure of the loss. The parties agreed that the nine percent inventory support cost should be included as loss, since it was illegal under the contract. In addition, defendants’ contract with the Navy was a “cost plus” contract, not a “fixed price” contract. Thus, the Navy was entitled to the cost savings represented by the profits made by the related company in selling the parts at inflated prices, rather than at the cost of producing the parts. The Navy did suffer a loss, since the contract called for approved parts, and defendants supplied unapproved parts. U.S. v. Castner, 50 F.3d 1267 (4th Cir. 1995).
4th Circuit finds no loss from pharmaceutical company’s regulatory fraud. (305) Defendant submitted data to the FDA from two different research batches of one drug, but represented that the data was from three batches, as required by FDA guidelines. The FDA approved the drug based on the two batch records. The FDA also approved the company’s application to market a second drug. The company later made a minor change to an inert ingredient in the drug without obtaining FDA approval. The Fourth Circuit reversed the district court’s determination of loss under § 2F1.1 based on the company’s sales from the two drugs, finding there was no economic loss caused by the fraud. The false statements did not render the FDA’s approval void. The drugs were exactly what they purported to be, and consumers suffered no loss. When a drug possesses FDA approval, poses no threat to the health and well-being of the consumer, and meets all of the goals of the FDA requirements for safety and efficiency, there is no actual, monetary loss attributable to the regulatory fraud by which the FDA approval was obtained. Judge Murnaghan dissented. U.S. v. Chatterji, 46 F.3d 1336 (4th Cir. 1995).
4th Circuit finds bank fraud uncompleted so that loss should be calculated under § 2X1.1. (305) Defendants’ company executed a master loan agreement under which the lender issued separate loans to finance new contracts entered into by the company. Payments under the contracts were to be made jointly to the company and the lender. Defendants were convicted of bank fraud after diverting funds due to the lender. The 4th Circuit held that this was not a completed fraud, and therefore note 9 to § 2F1.1 directed the loss to be calculated under § 2X1.1. The only reason that the amounts diverted by defendants were not equal to the total amounts of the contracts was that defendants were caught before they could divert all of the money. Thus, this case involved a smaller completed fraud within a larger uncompleted fraud. Under note 4 to § 2X1.1, where there is a completed fraud included within an incomplete fraud, the offense level is the greater of actual completed fraud, or the intended fraud minus three levels. Actual loss is the amount of the diverted checks. Loss was not reduced by the amount of pledged collateral, since the collateral (the proceeds on the contracts) was the very thing stolen by defendants. U.S. v. Mancuso, 42 F.3d 836 (4th Cir. 1994).
4th Circuit excludes interest from loss calculation, but includes it in restitution order. (305) Defendant submitted false loan applications to obtain low interest student loans. The 4th Circuit held that the district court should not have included interest in its loss calculation. Note 7 to section 2F1.1 states that loss is the value of money taken, and does not include interest the victim could have earned on the funds if the offense had not occurred. However, the interest could properly be considered in the restitution order. Finally, the district court’s use of the principal figures set forth in the Bill of Information was proper. U.S. v. Hoyle, 33 F.3d 415 (4th Cir. 1994).
4th Circuit says victim’s 1099A form did not reflect loss from fraud. (305) Defendant sold townhouses to his brother and misrepresented to the lender that a 20 percent down payment was made. The brother failed to make any mortgage payments and the lender foreclosed and sold the properties. The district court determined that the bank lost $45,000 on each of the ten townhouses, and increased defendant’s sentence under § 2F1.1 based on a loss of between $200,000 and $500,000. Defendant argued that the 1099A forms submitted by the lender to the IRS at the time of resale showed no loss on the sale of the properties. The 4th Circuit found that the form was not relevant to the loss calculation. A 1099A form is generated to reflect the gross transaction amount as the basis for establishing a capital gain or loss on a sale. The form did not reflect any loss or gain by the bank at the time the form was submitted. The court properly considered the loss from all ten loans, not just the amounts associated with the two loans for which defendant was convicted. U.S. v. Smith, 29 F.3d 914 (4th Cir. 1994).
4th Circuit rules that undervaluing assets in bankruptcy was part of fraud loss. (305) Defendant was convicted of perjury and bankruptcy fraud. He argued that the court erred in finding that the loss caused by his fraudulent conduct exceeded $200,000. The 4th Circuit affirmed, since defendant admitted that he undervalued his personal property is his Statement of Financial Affairs by more than $245,000. This admission, wholly independent of the government’s calculation of loss, conclusively established that the amount of loss exceeded $200,000. U.S. v. Walker, 29 F.3d 908 (4th Cir. 1994).
4th Circuit says loss based on fraudulent insurance claims may be overstated. (305) Defendant and others bought multiple car insurance policies and then submitted falsified claims based on non-existent or staged accidents. The claims totaled $367,000, of which defendant personally submitted $271,000, and the amount actually paid out to the various conspirators was $110,000. The district court used a loss figure under § 2F1.1 of $77,000, noting that “anything one sends to an insurance company is subject to an immediate discount.” The 4th Circuit agreed that because insurance claims are frequently inflated, basing probable loss on the claim does not reflect economic reality. For example, one $23,019 claim was settled by the conspirators for $4,000. Most of the other claims were settled in a similar manner. U.S. v. Dozie, 27 F.3d 95 (4th Cir. 1994).
5th Circuit holds that participant in crime constituted “victim” for loss purposes. (305) Defendant, the Chief of Police, established a program using federal funds that allowed police officers to earn extra money by serving warrants for the city. At some point, defendant and Cooper, another officer, were the only officers involved in the program, and they began serving warrants together and splitting the proceeds. Defendant then decided to stop serving the warrants, but persuaded Cooper to serve the warrants on his own, but submit paysheets with both officers’ name. Defendant then continued to collect half of the reimbursements. The Fifth Circuit ruled that Cooper, who was a participant in the fraud offense, could be considered a “victim” for purposes of determining the amount of actual loss under U.S.S.G. § 2B1.1. Cooper’s agreement to participate in defendant’s scheme to defraud the city was not entirely voluntary. Defendant was Cooper’s superior and controlled access to the warrant service program. Cooper’s agreement was similar to an agreement to an extortion demand. U.S. v. Geeslin, 447 F.3d 408 (5th Cir. 2006).
5th Circuit says that court overstated loss caused by defendant’s fraud. (305) Defendant was convicted of a securities fraud based on a complex transaction that was designed to make it appear to auditors and lenders as if defendant’s company had a positive cash flow. Defendant preserved a claim of Booker error, and because the government could not prove beyond a reasonable doubt that the court would have imposed the same 292-month sentence under an advisory guideline system, the Fifth Circuit remanded. On resentencing, the court will have to recalculate loss. The court elected to rely solely on the testimony concerning a $105 million loss suffered by one company shareholder. However, this testimony was offered at trial to prove guilt, and defense counsel was not placed on notice that the same evidence might later pertain to the guidelines loss calculation. Thus, other significant extrinsic causes of the stock loss were not explored or quantified. The victim purchased its holdings at the top of the market. However, two-thirds of the drop in stock price occurred either before the revelation of the scheme or more than a week after the announcement. Under the court’s own analysis, a substantial portion of the entire loss could not have been caused by defendant’s scheme. The court refused to consider evidence defendant offered that explored other influences on the company stock price. Thus, the court’s approach to loss did not take into account the impact of intrinsic factors on the company’s stock price. U.S. v. Olis, 429 F.3d 540 (5th Cir. 2005).
5th Circuit says court improperly found intended loss based on proposed loan that was never funded. (305) Defendant made fraudulent representations to a bank about his financial status in an effort to obtain a business loan of $232,000. After the loan was approved, defendant’s purchase of the business fell through because of environmental problems. Defendant found a different business to purchase for a lower price, and resubmitted his loan application for a new loan of only $77,500, which was fully funded. Defendant and his business filed for bankruptcy after making only three loan payments. Applying the 1995 guidelines, the probation office determined that the actual loss was $76,767.69; however, the district court found that the § 2F1.1 loss calculation should be based on an intended loss of $232,000. The Fifth Circuit rejected the use of intended loss where, as here, the $77,500 loan was fully funded and the amount of actual loss could be determined. The proposed $232,000 loan was separate and distinct. Once the “loan package” was modified to limit the loan amount to $77,500, there was no legal basis upon which the bank would be at risk to loan any amount of money more than $77,500, and if defendant were ever determined to have an intention not to repay the bank, such intentions would only exist as to the sum of $77,500. U.S. v. Sanders, 343 F.3d 511 (5th Cir. 2003).
5th Circuit holds that uncharged fraud was similar enough to charged scheme to include in loss. (305) Defendant was the president and CEO of MACE, a nonprofit rural development organization funded in part by federal grants. Certain funds MACE received were intended to provide living stipends for members working in a particular program, but instead, a significant portion of the grants was used to pay the salaries of MACE employees that were ineligible for the funding. The Fifth Circuit held that the district court properly included in its loss calculation $88,000 that defendant misapplied from a different federal grant program. Although defendant was never charged with the misapplication of these funds, in both frauds defendant defrauded the government out of social services funds; with both, she certified that she would abide or had abided by the various requirements of the programs. Defendant used the funds acquired by both frauds to pay for numerous activities related to the operation of MACE, rather than for the limited purposes for which the grants were specified. Both frauds therefore shared a common purpose: to prop up a cash-strapped MACE. The common victims, common purpose, and similar modus operandi paired the two frauds in a common scheme. U.S. v. Buck, 324 F.3d 786 (5th Cir. 2003).
5th Circuit says defendant need not be capable of obtaining intended loss. (305) Defendant was convicted of a number of fraud counts, including one in which he staged a heist, and then reported to police that artwork had been stolen. He then claimed the maximum $4 million due under an insurance policy. The district judge determined that the intended loss from the scheme was $4 million, the amount of defendant’s fraudulent insurance claim. Citing U.S. v. Santiago, 977 F.2d 517 (10th Cir. 1992), defendant argued that this was clearly erroneous because $4 million was factually impossible for him to obtain. (The prints allegedly stolen were worth much less than $4 million.) Santiago held that under § 2F1.1, where an intended loss is greater than the potential loss of a fraud, the potential loss forms the upper limit of the amount of loss. Under Santiago, the loss is the value of the allegedly stolen object, which the court reasoned was the maximum the insurer would pay on the policy, rather than the much higher amount of the policy. The Fifth Circuit noted that it has previously rejected Santiago, holding that “nothing in § 2F1.1 … requires the defendant be capable of inflicting the loss he intends.” U.S. v. Edwards, 303 F.3d 606 (5th Cir. 1992). The district court did not err in finding that defendant intended a loss of $4 million, even if it was not within his power to achieve such a loss. U.S. v. Messervey, 317 F.3d 457 (5th Cir. 2002).
5th Circuit rejects departure where pecuniary loss from each fraud was included in total loss. (305) The district court departed upward under Note 4 to § 3D1.3, which explains that where offenses are grouped together, sometimes one offense goes completely unconsidered for sentencing purposes. The district court found that defendant’s four separate fraud schemes were not accounted for because adding the value of all four schemes together resulted in the same penalty as if defendant had just committed one fraud. The Fifth Circuit found Note 4 inapplicable, because the pecuniary loss from each of the four frauds was considered in arriving at the amount of loss under § 2F1.1. The fact that one scheme was several magnitudes larger than the other schemes did not change the fact that all the smaller scheme were included in arriving at the offense level. As all four schemes were included in the guideline amount of total loss, it was an abuse of discretion to depart based on Note 4. U.S. v. Messervey, 317 F.3d 457 (5th Cir. 2002).
5th Circuit upholds fraud loss calculation based on small portion of overall loss from scheme. (305) Defendant was convicted of various charges arising out of a scheme to defraud medical insurance companies. He challenged the district court’s finding that he was accountable for $961,287.50 in losses. However, the PSR attributed over $43 million in losses to defendant, a figure representing the entire amount billed to insurance companies during the course of the conspiracy. The district court elected to hold defendant responsible for only those bills that reflected charges for one particular portion of the fraud. The guilty verdict returned against defendant, together with the PSR, constituted a sufficient evidentiary basis for this finding. Therefore, the Fifth Circuit found no clear error. U.S. v. Bieganowski, 313 F.3d 264 (5th Cir. 2002).
5th Circuit includes amount of checks written on closed account in fraud loss. (305) After defendant’s computer business encountered financial problems, he defrauded his suppliers by making underpayments on invoices, paying with checks drawn on a closed account, and forging vendor authorizations for delivery. In determining that the loss exceeded $120,000, the district court included two classes of transactions: (1) defendant forged letters from the vendors and faxed the letters to the carriers to alter delivery terms; (2) defendant paid vendors with company checks drawn on a closed business account. The Fifth Circuit affirmed the loss calculation. Although defendants claimed that one of his employees ordered computer equipment, faxed the false approval to the carrier, and wrote a $46,533 check on the closed account, defendant’s admission that he used this same scheme on other separate occasions sufficed to show his involvement with this fraud. As to the second category of loss, the district court concluded that intentionally writing checks on closed accounts was part of the larger fraudulent scheme. Where the government has proven the defendant had a specific intent to defraud and used bad checks as part of a broader scheme, courts have upheld sentences based on the value of the kited or bad checks. Defendants defrauded the vendors out of their computer equipment. Thus, this case was distinguishable from Williams v. U.S., 458 U.S. 279 (1982), which involved bank fraud. U.S. v. Cothran, 302 F.3d 279 (5th Cir. 2002).
5th Circuit holds that loss was not improperly based on defendant’s gain. (305) Defendant was convicted of mail fraud and money laundering in connection with his operation of a number of corporate entities formed by the state of Mississippi to stimulate business development. The district court calculated the loss attributable to defendant by adding amounts paid by Magnolia Venture, one of the entities, to defendant and corporations he controlled. The Fifth Circuit affirmed, rejecting defendant’s claim that the calculation was incorrectly based on his gain. The court sought to determine the total amount that Magnolia Venture actually lost as a result of defendant’s scheme by focusing on the amounts it paid to defendant and his companies. Because the court calculated loss in this manner, defendant did in fact gain a substantial portion of the total loss.” The loss calculation properly accounted for services defendant rendered. By excluding certain amounts from loss, such as defendant’s salary, health and life insurance, the court sufficiently accounted for any services that defendant provided to Magnolia Venture. Moreover, Amendment 617, which provides for the deduction of value for services rendered as of November 2001, is a substantive change rather than a clarification. Thus it was not retroactively applicable to defendant’s sentence. U.S. v. Caldwell, 302 F.3d 399 (5th Cir. 2002).
5th Circuit holds defendant accountable for reasonably foreseeable counterfeit checks. (305) Defendant was involved in a conspiracy to defraud banks by depositing counterfeit checks into several different bank accounts. The district court included in the loss six checks totaling over $700,000 that were deposited into accounts maintained by Khayambashi, a co-conspirator. Defendant claimed that he was not responsible for these checks because there was no connection between him and Khayambashi aside from the fact that defendant “allegedly” referred Khayambashi to one of the banks. The Fifth Circuit held that defendant was responsible for these six checks, because the checks were foreseeable to defendant, he received the profits from them, and he was heavily involved in the entire scheme. U.S. v. Dadi, 235 F.3d 945 (5th Cir. 2000).
5th Circuit refuses to reduce loss by amount defendant claimed to have spent seeking financing for victims. (305) The district court found that defendant’s fraudulent “advance fee” scheme caused an aggregate loss of $ 3,609,937.79. This amount included the losses of victims who did not testify at trial, but who were listed in the PSR. Defendant’s attorney did not object to a restitution order in that amount, although he declined to stipulate to the amount. Since defendant did not present any evidence rebutting the facts in the PSR upon which the district court relied, the Fifth Circuit ruled that the district court’s loss calculation was not clearly erroneous. The district court was not required to subtract from the loss amount the expenses defendant incurred seeking financing for the victims. This argument presupposed that defendant incurred those expenses in a legitimate effort to find financing for the victims, an assumption at odds with the jury verdict. U.S. v. Davis, 226 F.3d 346 (5th Cir. 2000).
5th Circuit bases loss on amount of food stamps illegally purchased and redeemed. (305) Defendant and his co-conspirators illegally redeemed about $1.5 million in food stamps through three businesses. The district court calculated defendant’s loss based on the total amount of food stamps redeemed ($1,506,128), less the reported gross sales of the stores ($239,810.94), for a total of $1,266,317.06. Defendant argued that his counsel was ineffective for failing to investigate cases that would show that the district court overstated its loss calculation. The Fifth Circuit disagreed. The district court’s reliance on the actual amount of food stamps purchased and redeemed was not unreasonable. Restitution is not limited to the amount of profit made in the illegal food stamp scheme. See U.S. v. Lewis, 104 F.3d 690 (5th Cir. 1996). Lewis held that the amount of restitution should be the full face value of the food stamps that the defendant illegally redeemed. Since this was the amount used by the district court, there was no error. U.S. v. Glinsey, 209 F.3d 386 (5th Cir. 2000).
5th Circuit holds that stolen RV could be considered as loss under fraud guideline. (305) Defendant pled guilty to conspiracy to transport stolen motor vehicles across state lines, to possess stolen motor vehicles, to make and possess forged state securities, to produce false identification documents, and to possess implements for making forged state securities and false identification documents. He argued that the district court should not have used the value of a stolen RV in the loss under both the theft guideline (§ 2B1.1) and the fraud guideline (§ 2F1.1). The Fifth Circuit disagreed. First, because his offenses were grouped, only the higher theft offense level was used in calculating defendant’s sentence. Moreover, there was no error. Since defendant pled guilty to a multiple-object conspiracy, the probation officer correctly looked to the guidelines for the substantive offenses. Because the substantive offenses fell under both the theft guideline and the fraud guideline, they were properly grouped under § 3D1.2(d). The amount of loss is a specific offense characteristic under the fraud guideline. Thus, the district court did not err in using the value of the stolen RV as the amount of loss under the fraud guideline, because the stolen RV was part of “the combined offense behavior taken as a whole.” U.S. v. Myers, 198 F.3d 160 (5th Cir. 1999).
5th Circuit holds that adjustment to restitution did not affect loss enhancement. (305) Defendant, a body shop manager, pled guilty to wire fraud stemming from a fraudulent warranty claim. The district court determined that the loss was $75,104.18, and applied a six-level enhancement for a loss between $70,000 and $120,000. After sentencing, the government advised the court that the restitution to the victim insurance companies and individuals was lower, $67,938.72. The district court lowered the restitution amount accordingly. Defendant argued that lowering the amount of restitution owed the defrauded insurance companies moved him out of the $70,000 to $120,000 range. The Fifth Circuit found the argument meritless. The $75,104.18 the district court attributed to defendant included a loss of $69,548.32 to the insurance companies and individuals, and loss of $5,555.75 to General Motors Corporation. The amendment to defendant’s judgment affected only the amount he owed in restitution to the insurance companies and individuals. There was no adjustment to the amount due General Motors as restitution. Thus, the total loss still exceeded $70,000. U.S. v. Brown, 186 F.3d 661 (5th Cir. 1999).
5th Circuit rejects defendant’s gain as alternative valuation of loss. (305) Defendant was convicted of one count of mail fraud based on a corporation’s application for a video poker license that failed to disclose the true owners of the business. The district court did not increase defendant’s offense level under § 2F1.1 for the amount of loss, finding that Louisiana had not suffered any “actual or intended monetary loss” from defendant’s having fraudulently obtained the license. The government argued that the district court should have used defendant’s gain as an alternative method of valuation, and thus should have increased her offense level based on the corporation’s $1.4 million annual gain. The Fifth Circuit found there was no gain to attribute to defendant. Throughout trial and at all subsequent forfeiture proceedings, the government successfully argued that defendant was not, in fact, the “true owner” of the corporation. Thus, defendant was not accountable for the corporation’s $1.4 million gain. U.S. v. Bankston, 182 F.3d 296 (5th Cir. 1999), reversed in part on other grounds by Cleveland v. U.S., 531 U.S. 12 (2000), and Goodson v. U.S., 531 U.S. 987 (2000).
5th Circuit says salespeople were not responsible for losses incurred outside period of employment. (305) Defendants committed bank fraud in the financing of A-1 mobile homes by obtaining bank financing for customers who had not made adequate down payments. The Fifth Circuit found that the district court properly determined the loss attributable to three “key men” in the conspiracy (a bank vice president, the owner of the mobile home franchises, and his partner). However, the court committed clear error by attributing to sales representatives losses incurred outside their period of employment with A-1. These employees gathered and submitted false information as a function of their job at a particular A-1 lot. Thus, the scope of the criminal activity each salesperson agreed to jointly undertake was limited to those loans that were processed at the particular lot at which that defendant was employed. The sales reps should not have been held accountable at sentencing for fraudulent loans made after leaving A-1’s employ. U.S. v. Morrow, 177 F.3d 272 (5th Cir. 1999).
5th Circuit upholds use of intended loss in fraudulent financing case. (305) Defendant committed bank fraud in the financing of A-1 mobile homes by obtaining bank financing for customers who had not made adequate down payments. The district court calculated the loss to the bank as the total loan amounts that were fraudulently procured at each lot. Various amounts were attributed to each defendant based on the dates the individuals starting working at A-1 and the loan amount incurred at a specific lot. The district court found that each applicable loan amount manifested “intended loss” because the defendants acted with indifference or reckless disregard by exposing the bank to a loss of the total loan without considering whether repayment could ever be made. The Fifth Circuit upheld the district court’s use of intended, rather than actual loss, because the defendants had no control over whether the mobile home consumers would repay the loans. There was no evidence that the defendants intended to repay the loans if the mobile home consumers failed to make their payments. The district court properly characterized the defendants as “consciously indifferent or reckless” about the repayment of the loans. U.S. v. Morrow, 177 F.3d 272 (5th Cir. 1999).
5th Circuit uses intended loss in fraudulent loan case. (305) Defendant entered into four separate loan agreements in which he assigned his company’s interest in various timber deeds to the bank as collateral. Defendant later renewed these loans, falsely representing to the bank that he would repay the loan from proceeds of the sale of timber on the collateral property when, in fact, defendant had already had harvested and sold the timber in question. The four loans defendant fraudulently renewed totaled $92,369. However, because the bank later sold collateral substituted by defendant, the actual loss to the bank was only $42,309.58. The Fifth Circuit upheld the use of the value of the renewed loans, which was the intended loss, rather than the amount of actual loss suffered by the bank. Under note 7(b) to § 2F1.1, in fraudulent loan application cases, the intended loss should be used to calculate the base offense level where it is greater than the actual loss. Moreover, because the grouping provisions of § 3D1.4, defendant’s base offense level would not change even if the district court had sustained the objection. U.S. v. Anderson, 174 F.3d 515 (5th Cir. 1999).
5th Circuit requires use of defendant’s gain where no identifiable loss to victim. (305) Defendant purchased pharmaceutical drugs in Mexico and transported them to the U.S., where he sold them to U.S. customers. Defendant was able to sell at discounted prices because he bypassed all regulatory oversight in the U.S. The district court found no loss under § 2F1.1 because defendant’s customers knew the drugs were from Mexico. The government did not show that any of the drugs defendant sold performed differently from their U.S. counterparts. The Fifth Circuit found that because the government proved little, if any, loss, the district court did not clearly err in finding defendant’s fraud produced no loss. However, under U.S. v. Smithson, 49 F.3d 138 (5th Cir. 1995), a § 2F1.1 “loss” enhancement is appropriate even when there has been no identifiable loss. Smithson interprets the commentary to require the district court to use the defendant’s gain to estimate the severity of the fraud when the court cannot calculate any loss. In this case, the record suggested that all of defendant’s operations circumvented FDA regulations. Thus, defendant’s gain from his fraudulent scheme was those monies he received from the company by way of salary and profits. U.S. v. Haas, 171 F.3d 259 (5th Cir. 1999).
5th Circuit estimates company’s value as amount defendants were willing to spend to acquire company. (305) Defendants entered into a stock subscription agreement with a bankrupt business under which defendants’ company was provide the business with needed capital. Shortly after the stock subscription agreement was incorporated in the bankruptcy court’s order, defendants began fraudulently diverting various payments due the business. As a result, the bankruptcy trustee was unable to save the business and was forced to close it. The district court included in the § 2F1.1 loss $656,000, which was described in the PSR as the value of the business at the time of the bankruptcy court’s order of confirmation. The Fifth Circuit affirmed this loss figure, even though the document the PSR purported to rely on did not contain this figure. The evidence at trial showed that defendants were willing to expend $656,000 in total capital in order to gain control of the business. That figure consisted of $225,000 in cash, a $250,000 line of credit, a $145,000 purchase of equipment, and $36,000 in leasing costs. Although $656,000 might not be the precise valuation of the business’s worth, it was a reasonable estimate of its value given available information. Izydore, 167 F.3d 213 (5th Cir. 1999).
5th Circuit says bankruptcy trustee’s fees cannot be included in loss calculation. (305) Defendants entered into a stock subscription agreement with a bankrupt business under which defendants’ company was provide the business with needed capital. Shortly after the agreement was incorporated in the bankruptcy court’s order, defendants began fraudulently diverting various payments due the business. As a result, the trustee was unable to save the business and was forced to close it. The district court included in the § 2F1.1 loss $210,158 in expenses associated with the appointment of the bankruptcy trustee, attorney, and auditor needed to investigate the reorganization plan. The Fifth Circuit held that the trustee’s fees were consequential losses that could not be considered in the § 2F1.1 loss calculation. The commentary to § 2F1.1 describes “loss” as “the value of the money, property, or services unlawfully taken.” Although the trustee’s fees were a consequence of defendants’ unlawful conduct, mere “but for” causation is not the litmus test for loss under § 2F1.1. The appropriate measure is the value of the thing taken, and the trustee’s fees were not the “thing taken” from the bankrupt business. U.S. v. Izydore, 167 F.3d 213 (5th Cir. 1999).
5th Circuit rejects use of offender’s gain because amount of loss not difficult to determine. (305) Defendant helped a friend defraud the RTC and the FDIC. He claimed that the court erred in holding him responsible for $48,600 in losses because he only received $4,193 for his part in the scheme. Under note 8 to § 2F1.1, a sentencing court may use the offender’s gain as an alternative valuation method for assessing the amount of loss when the loss is difficult to determine. The Fifth Circuit rejected the use of defendant’s gain as the amount of loss because defendant did not show that the amount of loss was difficult to ascertain. U.S. v. Burns, 162 F.3d 840 (5th Cir. 1998).
5th Circuit holds telemarketer liable for all losses from conspiracy. (305) Defendant worked for two years as a broker and a telemarketer for a company that defrauded over 100 investors of more than $2.3 million. The Fifth Circuit ruled that defendant was properly held accountable for all the losses caused by the conspiracy. The losses were reasonably foreseeable to defendant and his agreement embraced the entirety of the conspiracy. His nearly two years of involvement, in which he worked alongside other “brokers” who peddled the conspiracy’s fraudulent pitches, evidenced both his notice of and acquiescence to the scope of the conspiracy. The court made sufficiently particularized findings that the elements of foreseeability and scope of agreement had been met. U.S. v. Hull, 160 F.3d 265 (5th Cir. 1998).
5th Circuit says defendant acquitted of conspiracy still liable for losses caused by co-conspirators. (305) Defendant worked as a salesman for an investment company that defrauded over 100 investors of more than $2.3 million. He contended that his acquittal on conspiracy charges precluded the court from holding him liable for losses caused by his co-defendants. The Fifth Circuit held that defendant was accountable for losses caused by his co-defendants, despite the conspiracy acquittal. To get a conviction, the government must prove all elements of a criminal offense beyond a reasonable doubt. However, the findings of fact for sentencing purposes need only meet the lower preponderance of the evidence standard. Thus, a finding that defendant was a conspirator for sentencing purposes is not inconsistent with a finding that he was not guilty of conspiracy. A defendant is liable for the reasonably foreseeable acts of co-defendants in joint criminal activity. Defendant had a close association with his co-defendants and transported checks he knew they had obtained by fraud. U.S. v. Hull, 160 F.3d 265 (5th Cir. 1998).
5th Circuit says government’s loss from default should not have been included in bankruptcy fraud loss. (305) Defendant acquired several properties by assuming the loans on the properties. When they did not generate as much income as expected, she filed bankruptcy. She pled guilty to making false statements on one of her bankruptcy petitions by giving a false name and social security number and by falsely claiming she had no prior bankruptcies. The district court included in the § 2F1.1 loss the loss sustained by HUD and the VA in disposing of the properties after defendant defaulted. The Fifth Circuit held that the district court erred in including HUD’s and the VA’s losses because these losses were not caused by defendant’s fraudulent conduct. The various fees and expenses would have been incurred during any foreclosure, regardless of whether a bankruptcy petition was filed. At most, the fraud may have delayed the government agencies’ ability to foreclose on the property. That delay might have deprived the government of rental income that it could have otherwise earned and may have caused the loss from the short sales to be somewhat worse if the properties lost value during the delay. U.S. v. Randall, 157 F.3d 328 (5th Cir. 1998).
5th Circuit holds loss from bankruptcy fraud was amount insiders received during year before petition. (305) Defendants were partners in a real estate limited partnership that went bankrupt. As part of the bankruptcy proceedings, defendants revealed that $498,995 had been paid to insiders in the year before the bankruptcy petition was filed. However, they mischaracterized the payments as the repayment of legitimate pre-existing business debts. The representative for the trustee’s office said that if she had known that those debts had already been repaid, she would have sought the appointment of an independent trustee, who would have sued to recover the partnership income appropriated by defendants. Defendants argued that they were entitled to the income under state law. The Fifth Circuit held that defendant’s right to the income under state law was irrelevant, since under the Bankruptcy Code, they could be forced to disgorge those monies unless they were entitled to the ordinary-course-of-business defense. By no stretch of the imagination were the $498,995 in payments made in the ordinary course of business. Thus, the full amount was properly included in the loss calculation. U.S. v. Sheinbaum, 136 F.3d 443 (5th Cir. 1998).
5th Circuit finds Social Security Agency was victim of clerk’s extortion of recipients. (305) Defendant, a clerk for an administrative law judge, accepted bribes to help individuals fraudulently obtain Social Security benefits. The PSR, which the district court found accurate, identified the Social Security Administration as the victim, and found that the total fraudulent claims amounted to $69,673.85. Defendant argued that the only victims in the case were the individuals from whom she took money and only their payments to her should be considered in determining the amount of the loss. The Fifth Circuit found that the Social Security Administration was a victim of defendant’s extortion because it paid monies due to defendant’s actions that it otherwise might not have paid. U.S. v. Parker, 133 F.3d 322 (5th Cir. 1998).
5th Circuit uses total of debts in false bankruptcy petition as amount of loss. (305) Defendant sold the assets of his family business for $75,000, and he and his father assumed personal responsibility for the company’s pre-sale debts. The next month, the corporation filed for bankruptcy, claiming that it had no assets and that the purchaser of the business had been allowed to operate the business without making any payments. The Fifth Circuit upheld the use of the total of the debts listed in the fraudulent bankruptcy petition as an appropriate measure of loss. Given the facts of the case, defendant’s claim that the only loss intended was the $2,000 to $12,000 in used assets of the corporation was unpersuasive. Moreover, defendant sought to gain through the bankruptcy fraud full insulation of the sales price of $75,000 received from the sale of corporation’s assets. U.S. v. Saacks, 131 F.3d 540 (5th Cir. 1997).
5th Circuit rules loss is full amount of fraudulent claims submitted to insurers. (305) Defendant, a physician, submitted fraudulent claims to insurance carriers for services that either were never performed or were performed by non-physician employees. The FBI estimated that 74% of defendant’s billings from one year and 68% of his billings from a second year were fraudulent. Defendant argued that he never intended to recover the face amount of the fraudulent claims and that the loss should be reduced by the value of the services performed by non-physician employees. The Fifth Circuit upheld the court’s refusal to reduce the loss. The record contradicted defendant’s claim that he never intended to collect the full amount of the fraudulent claims. The private insurers generally paid defendant only 80%, while some government programs paid as law as 50% of the amounts billed for defendant’s services. But defendant accepted cash payments from patients to supplement the amounts paid by insurance companies, and obtained credit card numbers from patients to bill them directly when the insurance companies did not pay. There was no evidence to distinguish between services that were not performed, services that were performed improperly, and services performed by non-physician employees. Defendant provided no evidence of the value, if any, of services performed by non-physicians. U.S. v. Sidhu, 130 F.3d 644 (5th Cir. 1997).
5th Circuit holds defendant accountable for losses caused by doctor’s foreseeable conduct. (305) Defendant worked for a doctor who defrauded private insurers and government programs such as Medicare and Medicaid. Defendant, who was trained as a doctor in Mexico but failed to pass Texas medical exams, purported to perform biofeedback services on the doctor’s patients, but many patients testified that they never saw biofeedback equipment and that defendant generally just talked to them. Some of his services were billed as psychotherapy sessions with the doctor. Defendant argued that the § 2F1.1 loss should be limited to the harm he directly caused or intended. The Fifth Circuit held defendant accountable for the losses caused by the doctor’s foreseeable conduct in furtherance of their conspiracy. The district court properly limited the loss calculation to the period during which he was employed by the doctor, and treated defendant as a minor participant. U.S. v. Sidhu, 130 F.3d 644 (5th Cir. 1997).
5th Circuit affirms upward departure for attempted frauds not included in loss calculation. (305) Defendant used false Social Security numbers to mask her poor credit history and to secure credit to buy cars, to qualify for other bank loans, and to obtain an apartment lease. The Fifth Circuit affirmed an upward departure based on certain loans that defendant fraudulently attempted to obtain that were not included in the loss calculation. The intended loss from her scheme did not include two collateralized car loans, two attempts to secure loans for a Lexus automobile and furniture which also would have been collateralized. It also did not include another loan for which the application was terminated before completion. Note 7(b) to § 2F1.1 authorizes an upward departure where the intended monetary loss significantly understates the seriousness of the defendant’s conduct. There was never any actual risk from the additional loans. But, as in U.S. v. Bobowick, 113 F.3d 1302 (2d Cir. 1997), “the bank was being sucked into a transaction with a person insensitive to his credit obligations and skilled in the extraction of multiple loans from unsuspecting lenders.” U.S. v. Ravitch, 128 F.3d 865 (5th Cir. 1997).
5th Circuit orders loss reduced by services defendant provided and intended to provide under contract. (305) Defendant owned a company that sold counseling services. In 1990, he misrepresented his academic and professional qualifications in his bid to obtain a five-year contract to provide counseling services to IRS employees. In 1994, he misrepresented his credentials again to obtain a second contract. Under the first contract, the IRS paid defendant’s company $166,323. Defendant provided qualified counselors for most of the sessions. However, defendant, who was not qualified, personally provided some counseling and also billed the IRS for sessions that never occurred. The district court found the loss was the total amount paid under the first contract plus the total amount to be paid under the second contract. The Fifth Circuit held that defendant should be given credit for the qualified counseling services he provided under the first contract and the qualified services he intended to provide under the second contract. There was no basis for finding defendant actually caused or intended to cause a loss equal to the total value of the two contracts. There is a distinction between one who perpetrates fraud to win a contract with no intent to perform and one who uses fraud to procure a contract but intends to provide the services. U.S. v. Sublett, 124 F.3d 693 (5th Cir. 1997).
5th Circuit uses full amount of bogus money orders to calculate loss. (305) Defendants participated in a scheme involving blank “certified money orders” (CMOs) that debtors used to pay off their debts. When the institution sent the CMO for redemption as directed on the instrument, it received an item entitled “certified banker’s check” (CBC) in the same amount as the CMO. The institution was instructed to credit the CBC to the debtor’s account. When the CBC was returned to the “bank” from which it was issued, the conspirators would stamp it “paid in full.” There was no money behind the CMOs or CBCs. Since there was no actual loss in the instances in which defendants personally used or assisted others in using the CMOs, they argued that there was insufficient evidence to prove that they did not intend to repay the loans. The Fifth Circuit found no error in using the full amount of the bogus money orders to calculate loss. The district court’s findings regarding intended loss were consistent with the jury’s verdict that defendants intentionally participated in a scheme to defraud creditors by sending creditors bogus CMOs. Although defendant ultimately paid their loans, in view of their previous attempts to coerce the institutions to accept the bogus money orders, the finding of attempted loss was not clear error. U.S. v. Moser, 123 F.3d 813 (5th Cir. 1997).
5th Circuit counts face amount of fraudulently endorsed CD in loss calculation. (305) Defendant was arrested attempting to negotiate a $50,000 certificate of deposit in the name of an elderly woman for whom defendant was working as a companion. On three previous occasions, defendant had fraudulently withdrawn a total of $9,500 from the woman’s bank account. The district court found that the § 2F1.1 loss included both the $9,500 in successfully embezzled funds and the $50,000 face amount of the fraudulently endorsed negotiable instrument. The Fifth Circuit upheld using the face amount of the fraudulently endorsed CD in the loss calculation. There is no discernible distinction between a fraudulently endorsed CD and a forged check for the purpose of measuring loss under § 2F1.1 (b)(1). By endorsing the instrument, defendant gained access to its face amount. The fact that defendant had not yet presented the instrument for payment in full did not determine the amount of the loss. U.S. v. Oates, 122 F.3d 222 (5th Cir. 1997).
5th Circuit finds court properly excluded value of products received, refunds, etc. from loss. (305) Defendant operated a fraudulent telemarketing promotion company. He argued that the district court’s loss figure overstated the loss to the victims, since it purported to represented the total amount collected in the scheme, but did not account for the value of products received by the victims, refunds, bounced checks, and stop payment orders. The Fifth Circuit found no error. The district court found that the government, in generating the total loss figure, had done its best to exclude such items from its calculations. The district court’s findings were not clearly erroneous. U.S. v. Palmer, 122 F.3d 215 (5th Cir. 1997).
5th Circuit holds that defendant could foresee losses from telemarketing fraud scheme. (305) Defendant was involved in a telemarketing scheme in which callers were promised loans once they paid an advance fee of $299. No loans were actually made. The district court held defendant accountable for $685,543 in aggregate losses based on the amount of loss during his period of employment. On appeal, the Fifth Circuit affirmed, holding that defendant could reasonably foresee the losses caused during his employment. Defendant received faxes from telemarketers working as “loan brokers,” and then, without ever doing a credit check or other investigation, called the loan applicants on the list and informed them that they were approved for a loan and should contact the loan broker to complete arrangements. This arrangement was by its nature suspicious. Several other employees testified that they knew within a few days that the operation was fraudulent. U.S. v. Gray, 105 F.3d 956 (5th Cir. 1997).
5th Circuit affirms loss estimate where defendant could not offer precise amount. (305) Defendant was convicted of mail and bank fraud in connection with his operation of an insurance company. He challenged the district court’s estimate of loss, claiming he was not convicted of rendering the insurance company insolvent, but only with operating it after it was already insolvent and continuing to collect premiums. He argued that the loss should have been whatever increased loss was caused by the continued operation of the company after it was insolvent. He said the district court should have subtracted certain amounts from the $39 million loss estimate. The Fifth Circuit affirmed because defendant offered no calculation or alternative amount. His position was that there was no way to determine the actual number. Because a competent CPA estimated the loss at $39 million, and defendant was unable to offer a different number, the court’s estimate was proper. U.S. v. Blocker, 104 F.3d 720 (5th Cir. 1997).
5th Circuit directs court to decide whether relevant conduct was criminal. (305) Defendant was convicted of violating SEC Rule 10b‑5 in connection with the sale of securities to a union. Defendant promised the union an “immediate” $100,000 return on its initial investment. The union only received $45,558 from defendant, and was never provided the additional $54,442. There was also evidence that defendant had been diverting funds from the partnership in which the union and others had been investing. Evidence from a civil suit filed by investors showed that defendant had failed to distribute at least $1.3 in partnership funds. The district court included in the loss calculation both the $54,442 and the $1.3 million. The Fifth Circuit found that defendant could be held accountable under § 2F1.1 for the $1.3 million only if the district court found that defendant’s conduct was criminal, rather than a mere violation of his fiduciary agreement. However, the $54,442 was properly included in the loss determination because it was clearly related to the offense of conviction, i.e., making a misrepresentation in connection with the sale of a security. U.S. v. Peterson, 101 F.3d 375 (5th Cir. 1996).
5th Circuit uses intended loss from credit card fraud even though it exceeded credit limit. (305) Posing as legitimate business owners, defendants defrauded various banks and credit card companies by processing hundreds of fraudulent charges on stolen credit cards to obtain cash. Defendant challenged the inclusion of about $90,000 of card charges that were attempted at two of the fraudulent businesses. The credit card companies declined to process the charges. Defendant argued that intended loss calculation for stolen credit cards is determined by the maximum available credit limit on each card. Since the charges were declined because they were in excess of the credit card limit, the charges should have been excluded. The Fifth Circuit held that available credit did not limit the intended loss. Available credit limits can be used as a measure of loss when the credit cards are stolen but not used. But available credit is simply one way of determining intended loss. Here, defendant actually attempted to make charges with the credit cards, so using the dollar amounts of the attempted charges was more accurate than using the maximum available credit. U.S. v. Ismoila, 100 F.3d 380 (5th Cir. 1996).
5th Circuit upholds loss from fraudulent roofing company. (305) Defendants operated a roofing company that successfully bid on a $1.1 million roofing project for the VA. The company presented fraudulent invoices to the VA requesting a progress payment, and the VA wired $450,972 to the company’s escrow account as payment. The Fifth Circuit upheld the court’s determination that the VA suffered losses totaling $523,631. The number was calculated using the amount defendants overcharged the VA, the amount of false bond premiums, the amount of additional materials the VA had to purchase to complete the project, and the amount of physical damage caused by defendants’ company. These losses resulted directly from defendants’ scheme to defraud. U.S. v. Leahy, 82 F.3d 624 (5th Cir. 1996).
5th Circuit bases loss on potential loss from clients’ fraudulently obtained loans. (305) Defendant counseled people with poor credit. He provided them with false social security numbers and gave them instructions on how to apply for loans using those numbers. As a result, many of defendant’s clients were able to obtain loans for which they would not otherwise have qualified. The realized loss at the time of sentencing was $21,681, but the court based the loss on the “potential” loss of $865,643—the amount of applied‑for loans. The Fifth Circuit affirmed, agreeing that the potential loss from the applied‑for loans was the intended loss. Although defendant instructed his clients to pay their bills on time and not to lie to any governmental agency, there was no evidence that he had any control over the repayments or intended to replace them if necessary. U.S. v. Tedder, 81 F.3d 549 (5th Cir. 1996).
5th Circuit holds officers responsible for full amount of loss from bad loans they hid from regulators. (305) Defendants were officers of a failing bank. They instructed employees to remove from loan files certain documents related to ailing loans, thus making the loans look healthier to federal regulators and preventing the regulators from taking remedial measures. The Fifth Circuit used, as the § 2F1.1 loss, the bank’s losses for each of the loans for which defendants hid information. The sentencing court was not required to determine the portion of the loss for which defendants were solely responsible. Defendants exposed the bank to the possibility of loss for the entire loan amount when they chose to impede regulators from considering information that could have led them to intercede on the bank’s behalf. U.S. v. Stedman, 69 F.3d 737 (5th Cir. 1995).
5th Circuit finds no plain error in considering losses before defendants entered conspiracy. (305) Three defendants were involved in a telemarketing scam. They all contended that the district court erroneously attributed to them losses occurring before they joined the conspiracy. Under U.S. v. Carreon, 11 F.3d 1225 (5th Cir. 1994), reasonable foreseeability under § 1B1.3(a)(1)(B) is prospective only, and cannot include conduct occurring before the defendant joined the conspiracy. Only one of the three defendants objected to the PSR`s use of all of the losses caused by the conspiracy. The Fifth Circuit held that the other two defendants did not show that the district court’s consideration of the losses that occurred before they joined the conspiracy was plain error. Neither defendant demonstrated how the court’s error prejudiced them, and thus neither showed that the error affected her substantial rights. Absent a showing that a substantial right has been compromised, no remedy is available. U.S. v. Sneed, 63 F.3d 381 (5th Cir. 1995).
5th Circuit refuses to reduce check kiting loss for presentence restitution. (305) Defendant pled guilty to check kiting. He argued that the district court should have reduced his § 2F1.1 loss by the amount of restitution he made before he was sentenced. The Fifth Circuit disagreed, holding that payments of restitution do not allow a court to reduce its loss calculation. Although defendant’s voluntary repayments to the bank were commendable, they did not decrease the seriousness of his crime. U.S. v. Akin, 62 F.3d 700 (5th Cir. 1995).
5th Circuit approves loss equal to full amount of loan obtained by fraudulent statement. (305) Defendant’s PSR calculated the loss from his offense as $89,000, the full amount of the loan he obtained using a false statement. After auctioning the property, HUD actually incurred a loss of only $35,000. Defendant argued that his counsel’s failure to object to the PSR’s use of the higher amount constituted ineffective assistance. The Fifth Circuit disagreed, finding no prejudice resulted. Under note 7(b) to § 2F1.1, the loss is the greater of the actual or intended loss to the victim. It is proper to calculate loss based on the risk engendered by the defendant’s criminal conduct, even where the actual loss is lower. Even if defense counsel had objected to use of the full loan amount, it would have been within the district court’s discretion to use the full amount as loss. Moreover, even if the court had accepted the objection, the failure to make the objection did not prejudice defendant. Defendant’s 30-month sentence fell within the range that would have been applicable even if the court had reduced the loss as suggested by defendant. U.S. v. Brewer, 60 F.3d 1142 (5th Cir. 1995).
5th Circuit remands because court attributed all loss to defendant without foreseeability finding. (305) Defendant, a prison guard, was involved in an altered money order scheme organized by the prison’s inmates. The district court held her accountable for the total $10,186 loss from the scheme, rather than the $1,200 she actually handled. The Fifth Circuit remanded because the district court attributed all of the loss to defendant without finding what amount was reasonably foreseeable to her. A sentencing court cannot assume that all acts of each participant in a jointly undertaken criminal activity were reasonably foreseeable to all participants. In making the foreseeability determination, the court should consider the defendant’s relationship with co-conspirators and her role in the conspiracy. U.S. v. Scurlock, 52 F.3d 531 (5th Cir. 1995).
5th Circuit says loss from concealment of option is value of option, not value of property. (305) Defendant and his counsel fraudulently concealed two real estate option contracts from the bankruptcy court. The Fifth Circuit held that the district court incorrectly calculated the value of the options in determining the loss under § 2F1.1. The sentencing enhancement must be based on the value of the options, not the value of the property purchased. The loss to the estate from the concealment was probably zero, since the trustee would have been unwilling to borrow the purchase price to exercise the options. However, under note 8, the gain to the offenders could be used. The district court could consider the price of the options, and the money paid to extend the options. However, the court could not consider the $15,000 legal fee from the eventual sale of one property, nor the $31,476 that defendant received from the sale of one property to an unrelated purchaser, because the option on this property had expired and defendant’s earnest money had been forfeited. U.S. v. Smithson, 49 F.3d 138 (5th Cir. 1995).
5th Circuit bases loss on face value of fake securities pledged as collateral. (305) Defendant and an associate “rented” fake Government National Mortgage Association securities to individuals or companies who needed assets to use as collateral, or to enhance their balance sheets. The amount paid to defendant by those who “rented” the securities was $800,000. The face value of those securities was $69 million. The Fifth Circuit approved a loss valuation under § 2F1.1 of $69 million. The “intended loss” that defendant attempted to inflict was the face value of the securities. If defendant’s clients had pledged the securities as collateral, the potential loss was $69 million because the securities were worthless to defendant’s clients. Because defendant had no ownership interest in the “rented” securities, he could not have intended to replace them with actual securities if it became necessary. U.S. v. Hill, 42 F.3d 914 (5th Cir. 1995).
5th Circuit finds bank suffered loss where defendant improperly used money to pay holding company’s debts. (305) Defendant was the president of a bank and the principal shareholder of the bank’s holding company. Defendant took funds that were supposed to be used to make a capital injection into the bank and used the money to pay debts of the holding company. The district court held the bank suffered no loss under § 2F1.1, finding that the companies were a single entity. The 5th Circuit rejected this conclusion. A benefit to a holding company is not necessarily a benefit to the subsidiary. The bank had no liability for the holding company’s indebtedness, and therefore it did not benefit from the payment of these debts. If the holding company had defaulted on its loan payments, creditors might have acquired its assets, including the stock of the bank. If this had occurred, the bank would have had new owners, but the bank’s own balance sheet would not have been affected. U.S. v. Palmer, 31 F.3d 259 (5th Cir. 1994).
6th Circuit holds that defendant could not reasonably foresee large fraudulent check deposited into bank account. (305) Defendant opened a bank account in the name of “Tommy Cypress” as part of a scheme to enable illegal immigrants without bank accounts to cash their payroll checks. Defendant was to receive a fee for setting up the account and cashing the checks. Nine months after the account was opened, a fraudulent check in the amount of $155,160 was deposited. The check had been stolen from a corporation, and was altered to name “Tommy Cypress” as the recipient. Three weeks later, defendant was arrested after trying to purchase an expensive television with a check. The district court applied a seven-level enhancement based on its finding that the amount of loss was greater than $120,000. The Sixth Circuit reversed. With regard to the $155,000 check, defendant contended that he did not deposit the check and did not even know of its existence. While it was reasonably foreseeable to defendant that payroll checks would be deposited into the fraudulent account, it was not reasonably foreseeable that a check originally payable to a corporate entity, that was drawn on an account with insufficient funds, in an amount far exceeding a payroll check, would be deposited into the account. U.S. v. Tudeme, 457 F.3d 577 (6th Cir. 2006).
6th Circuit agrees that loss equaled amount of fraudulent “charge back.” (305) Defendants were convicted of fraud relating to a scheme involving bogus “charge backs” on orders their medical supply company placed with a pharmaceutical manufacturer. They misrepresented that certain sales they made were to federal facilities eligible for a reduced price, and the manufacturer would credit defendant’s account with the difference between the discounted price and the contract price. That difference was known as a “charge back.” The Sixth Circuit held that the district court properly based the loss and restitution on the amount of the fraudulent “charge backs.” The standard test for determining fair market value is to look at “the price a willing buyer would pay a willing seller at the time and place the property was stolen.” The original price that the manufacturer sold the pharmaceuticals to defendant was the market price. U.S. v. Sosebee, 419 F.3d 451 (6th Cir. 2005).
6th Circuit finds no Sixth Amendment violation where sentence was based on facts admitted by defendant. (305) The district court found that the amount of loss was $132,000 based primarily on evidence that defendant wrote a check for that amount to the IRS on a closed account. Defendant argued that the district court’s decision violated his rights under Blakely v. Washington, 124 S.Ct. 2531 (2004) and U.S. v. Booker, 543 U.S. 220 (2005) because the amount of loss was not submitted to a jury for determination beyond a reasonable doubt. The Sixth Circuit ruled that defendant’s sentence did not pose a problem under Blakely or Booker because the sentence imposed was authorized “solely on the basis of facts … admitted by the defendant.” Defendant’s plea agreement included an admission that the IRS levy was $132,000, and that he caused the forged release to be sent with the intent to defraud the IRS of the amount it could collect under the levy. Because facts sufficient to support the sentence were admitted by defendant, his Sixth Amendment rights were not violated. The court noted that this opinion did not foreclose a defendant from arguing that a remand was necessary on the ground that the district court regarded the guidelines as mandatory at the time of sentencing. However, defendant did not make such an argument. U.S. v. Murdock, 398 F.3d 491 (6th Cir. 2005).
6th Circuit holds that loss calculated by judge met plain error standards. (305) In the wake of Blakely v. Washington, 124 S.Ct. 2531 (2004), defendant argued for the first time on appeal that the district court’s loss calculation violated the Sixth Amendment. Following U.S. v. Oliver, 397 F.3d 369 (6th Cir. 2005), the Sixth Circuit found that the plain error test had been met. The district court rejected both defendant’s and the government’s loss calculations and made it own loss assessment based on its independent review of the evidence. By making this determination, the district court did exactly what the Supreme Court found to be a violation of the Sixth Amendment in U.S. v. Booker, 543 U.S. 220 (2005). The sentence plainly violated the Sixth Amendment, and the panel agreed with Oliver that allowing it to stand would “diminish the integrity and public reputation of the judicial system and would diminish the fairness of the criminal sentencing system.” Judge Cook concurred to note that Booker does not forbid all judicial fact-finding. Post-Booker, “judges may enhance sentences based upon facts not found by the jury, provided they do not consider themselves required to do so.” U.S. v. Davis, 397 F.3d 340 (6th Cir. 2005).
6th Circuit reverses loss where no causation between defendant’s fraud and later loan default. (305) Defendant, a contractor with the Small Business Administration disaster relief program, filed a false request for progress payments of $103,370. In spite of the false certification, defendant claimed that he replaced the funds that he fraudulently obtained from the SBA and that such funds were used in the construction of the building. Defendant ended up defaulting on the loan and the SBA foreclosed. The district court found a loss of between $70-$130,000. The Sixth Circuit reversed, because the court ignored causation rules for determining loss. Defendant’s act of fraudulently obtaining one or more progress payments in an otherwise legitimate loan transaction could not reasonably be considered to have caused the SBA’s loss under either a “but for” or a legal cause analysis. The SBA incurred the loss on foreclosure because defendant was unable to make the loan repayments. Neither the district court nor the government provided any explanation of why or how defendant’s fraudulent conduct during the construction of the building made it more likely that defendant would later default on the loan. U.S. v. Rothwell, 387 F.3d 579 (6th Cir. 2004).
6th Circuit remands where court was not aware of authority to depart for overstated loss. (305) Defendant submitted bad checks to the county treasurer’s office to purportedly pay the real estate taxes on the residences of a judge, two attorneys, and an IRS revenue agent. Defendant then filed four involuntary bankruptcy petitions against the four victims, using the statements from the treasurer’s office as evidence of his creditor status. Even though defendant would never have succeeded in obtaining possession of his victims’ residences, the district court felt obligated to use the residences’ value in its intended loss calculation because intended loss includes “harm that would have been impossible or unlikely to occur.” However, “out of an abundance of caution,” the court reduced the probation officer’s loss figure by 15 percent. The Sixth Circuit held that the intended loss properly included the total market value of the residences, despite the fact that defendant could never have caused the victims to lose their homes. See Amendment 617 to Sentencing Guidelines. However, Note 18(C) to § 2B1.1 provides that a downward departure may be proper where the offense level “substantially overstates the seriousness of the offense.” Here, the impossibility that defendant’s scheme would succeed, and the gross disparity between the actual loss of $800 and the intended loss (over $1 million) demonstrated such overstatement. Because the record suggested that the judge did not recognize his authority to depart, the panel remanded for resentencing. U.S. v. McBride, 362 F.3d 360 (6th Cir. 2004).
6th Circuit finds Rule 32 violation where court did not respond to defendant’s objections to loss calculation. (305) Defendant was involved in a large-scale fraud scheme in which he stole personal information of individuals from mortgage applications they filed at his places of employment and sold that information to his co-conspirators. The PSR recommended that defendant was responsible for more than $400,000 in damages under § 2B1.1(b)(1)(H), and defendant objected, challenging several aspects of this calculation. The district court accepted the government’s calculation, without giving any indication as to how it calculated the loss. The Sixth Circuit held that the district court violated Rule 32 of the Federal Rules of Criminal Procedure when it rejected defendant’s challenge to the loss calculation without responding to his specific objections. Even a cursory glance at the government’s loss exhibit raised concerns, since some of the sheets contained no dates and did not indicate how several identified people fit into the conspiracy in relation to defendant. From the record, the appellate court could not determine whether the district court “carefully considered the evidence” because it failed to respond to defendant’s objections. U.S. v. Nelson, 356 F.3d 719 (6th Cir. 2004).
6th Circuit upholds decision to permit the government to proceed on new theory of relevant conduct. (305) In its first sentencing memo, the government attributed $211,193.99 in losses to defendant, which included over $100,000 in losses caused by defendant’s brother and sister. After the court expressed concern about using the losses caused by defendant’s siblings, the government abandoned this position, and instead argued that the additional relevant conduct for which defendant should be held responsible involved defendant’s own fraudulent conduct beyond that charged in the indictment. The district court accepted the government’s rationale and found defendant to be responsible for between $200,000 and $350,000 in losses. The Sixth Circuit held that the district court did not act improperly in permitting the government to change theories between sentencing hearings. The rationale on which the amount of losses was calculated was perfectly reasonable, and defendant received notice of this change in position when a copy of the government’s second sentencing memo was sent to him. There was no error in the district court’s decision to permit the government to proceed on its new theory regarding relevant conduct. U.S. v. Reaume, 338 F.3d 577 (6th Cir. 2003).
6th Circuit holds that defendant accountable for loss even though co-conspirator was more direct cause. (305) Defendant defrauded insurance companies by providing false information on applications for hospital indemnity policies, which pay a fixed amount directly to the insured for each day the insured spends in the hospital. He and his girlfriend, Long, obtained 12 such policies that listed defendant as the insured. Long later filed false claims under the policies. The district court held defendant accountable for a total loss of $26,717, which was the amount paid on claims made under all 12 of the policies that listed defendant as the insured. He argued that he was not directly responsible for any loss, since this amount was caused primarily by Long. The Sixth Circuit found no error, since loss is attributable to a defendant even where there are other, more direct causes for the loss. While a downward departure may be proper is certain cases where there are other, more proximate causes for a loss, U.S. v. Kopp, 951 F.2d 521 (3d Cir. 1991), disapproval recognized by U.S. v. Wood, 486 F.3d 781 (3d Cir. 2007), defendant never sought a downward departure, instead claiming that none of the $26,717 loss was attributable to him under § 2F1.1(b). He therefore waived any claim for a downward departure. Moreover, he was not a compelling candidate for such a departure. He and his co-defendants executed a fraudulent scheme that caused a total loss of over $1 million. The $26,717 loss attributed to defendant did not overstate the seriousness of his conduct. U.S. v. Ware, 282 F.3d 902 (6th Cir. 2002).
6th Circuit holds that failure to examine factors in determining intended loss was not plain error. (305) The district court included in the intended loss from defendant’s check-kiting scheme $722,000, determined by multiplying the average amount of the counterfeit checks defendant actually passed by the number of blank checks found at his residence. The district court added this amount to the actual loss caused by defendant to determine the total intended loss. The Sixth Circuit held that the district court’s properly included actual loss in its calculation of intended loss. Moreover, although the court erred by failing to examine the factors listed in U.S. v. Watkins, 994 F.2d 1192 (6th Cir. 1993), the error was not plain because it did not seriously affect the fairness, integrity, or public reputation of the judicial proceedings. The record supported a finding that defendant satisfied all three factors of Watkins. Defendant passed additional counterfeit checks after the initial search of his residence and seizure of the blank unsigned checks, and also passed counterfeit checks while he was awaiting trial. This was sufficient to show defendant’s intent to cause loss, his ability to cause the loss, and that but for the intervention of police, defendant would have caused the loss by counterfeiting the blank unsigned checks. U.S. v. Wade, 266 F.3d 574 (6th Cir. 2001).
6th Circuit rules defendant joined credit card fraud conspiracy when he helped conspirator thwart charges. (305) Mozee stole credit cards, used the cards to purchase computers and other merchandise, and then sold the goods to Gordon’s pawn shop. Defendant, a police officer, provided a police presence at a pawn shop and assisted Mozee in thwarting earlier felony charges of credit card fraud. Defendant was convicted of a credit card fraud conspiracy and extortion charges. He argued that for purposes of calculating loss, he should only be held to have joined the conspiracy in September or October of 1997, which was when Gordon explicitly told defendant that Mozee was selling illegally obtained merchandise. However, the district court found that defendant joined the conspiracy on April 11, 1997, the date that he assisted Mozee in obtaining a reduced criminal charge. The Sixth Circuit affirmed. The district court had reasonable grounds to determine that defendant could foresee Mozee’s future acts, because Mozee was brought to court in April 1997 for using a fraudulent credit card to purchase merchandise, the same acts involved in the conspiracy. Moreover, other evidence, such a defendant’s recorded conversations and the testimony of defendant’s co-conspirators, supported the conclusion that, by April of 1997, defendant was aware that Mozee was engaged in an ongoing conspiracy to commit credit card fraud. U.S. v. Hamilton, 263 F.3d 645 (6th Cir. 2001).
6th Circuit holds that relevant conduct must involve offense for which imprisonment can be imposed. (305) Defendant falsely certified to the government that his company had paid workers on a government contract the prevailing wage pursuant to the Davis-Bacon Act, 40 U.S.C. § 276a. The district court included in its loss calculation as relevant conduct the amount of overtime that defendant failed to pay his workers for their work on non-government contracts, in violation of the Fair Labor Standards Act, 29 U.S.C. § 207(a)(1). The Sixth Circuit held that a court may not include conduct in its sentencing calculation under § 1B1.3(a)(2) unless the conduct amounts to an offense for which a criminal defendant could potentially be incarcerated. The FLSA provides for a fine for the first violation; a prison sentence is only available for a defendant previously convicted of violating the Act. Because defendant had no prior convictions under the FLSA, he could not have received any prison time had he been criminally prosecuted for the FLSA violations. Thus, the unpaid overtime wages could not be included as relevant conduct. U.S. v. Shafer, 199 F.3d 826 (6th Cir. 1999).
6th Circuit includes loss from second telemarketing operation as relevant conduct. (305) To determine the loss from defendant’s fraudulent telemarketing scheme, the district court subtracted the value of the products/gifts shipped to victims and the checks remitted but unpaid because of insufficient funds from the gross receipts of defendant’s two “businesses.” Defendant argued that one of the businesses was legitimate, noting that only four “customers” and one salesperson testified that the company “victimized” its customers. The Sixth Circuit held that the district court properly included the losses from the second company in its sentencing calculation. There was sufficient evidence to infer that defendant’s activities at the second corporation mirrored his activities at the first corporation. A sentencing court need not hear from all of the victims of a fraudulent scheme. The evidence established a pattern from which the court could infer that multiple targets were victimized. The fact that the second corporation was registered with the California Attorney General did not make it legitimate. If anything, the district court was overly generous in attributing to defendant only his net gain. The facts suggested that the intended loss exceeded the actual loss. The insufficient funds checks and the discarded leads were part of defendant’s intended loss. U.S. v. Brawner, 173 F.3d 966 (6th Cir. 1999).
6th Circuit relies on hearsay to include relevant conduct in loss from telemarketing schemes. (305) Defendant was employed as a telemarketer at various times in 1993-95. The district court included in its loss calculation both the $376,643 loss to current victims and the over $600,000 in losses from defendant’s two prior telemarketing schemes. Evidence regarding these activities were presented at sentencing through the testimony of an IRS agent, based upon her prior conversation with an FBI Special Agent in California. The Sixth Circuit held that the district court properly relied on the hearsay evidence to hold defendant accountable for losses from the previous telemarketing schemes. Hearsay evidence is admissible in guideline sentencing hearings. This case was similar to U.S. v. Brown, 147 F.3d 477 (6th Cir. 1998), where the court included losses from prior telemarketing schemes which had the same modus operandi and purpose. The evidence here also established a similar modus operandi and an ongoing series of similar offenses. U.S. v. Davis, 170 F.3d 617 (6th Cir. 1999).
6th Circuit refuses to reduce loss by “value” received by telemarketing victims. (305) Defendant was employed as a telemarketer for a company that defrauded numerous victims of large sums of money. Defendant contended that in calculating loss the district court erred in refusing to consider that the victims received some value for their expenditures. The Sixth Circuit held that the district court did not err in refusing to find any measurable value to the items that the telemarketing victims received. The items received were not what the victims ordered, but were “extras” or “gimmes,” and thus part of the scheme to “hook” the victim. These items did not provide any value measurable under the guidelines. U.S. v. Davis, 170 F.3d 617 (6th Cir. 1999).
6th Circuit includes in loss subsidies improperly paid to financially eligible recipients not on waiting list. (305) Defendants, employees of the Detroit Housing Department, helped friends improperly obtain federal housing subsidies. To calculate loss, the district court added the amounts paid to individuals who received improper subsidies plus the amounts on already-issued vouchers that were not paid because HUD discovered the fraud. Defendant argued he did not intend any loss and that in fact no loss occurred because all of the recipients were qualified financially and were only technically ineligible because they were not on the subsidy waiting list. The Sixth Circuit upheld the loss calculation. By improperly issuing the certificates and vouchers, defendant diverted funds from the recipients contemplated by the applicable regulations. It was irrelevant that the actual recipients were financially eligible, because they were not “next in line” for benefits. Also, the fact that the HUD investigation prevented the redemption of some already-issued certificates did not matter because defendant clearly intended for the certificates and vouchers to be used. U.S. v. Brown, 151 F.3d 476 (6th Cir. 1998).
6th Circuit holds telemarketer accountable for total loss from current and previous telemarketing jobs. (305) Defendant worked for a telemarketing company that defrauded hundreds of elderly victims out of money by convincing them they had won a valuable prize. Defendant worked for the firm for nine months, during which time he became the top “reloader,” generating over $443,209. Defendant had worked eight years in the telemarketing industry at companies using similar fraudulent schemes. The district court included in the loss calculation the total sales for the time defendant worked for this telemarketing company¾$2,677,000, and included $1,173,647 in sales for defendant’s work at other companies. The Sixth Circuit affirmed. The total loss from the current offense was reasonably foreseeable to defendant because the salespeople had access to each other’s sales logs. Defendant occasionally led sales meetings, the obvious purpose of which was to increase sales. The district court properly included the additional amounts defendant earned from previous telemarketing agencies as relevant conduct. These firms had the same modus operandi and purpose. Defendant took the same leads with him from job to job and victimized the same people on several occasions. U.S. v. Brown, 147 F.3d 477 (6th Cir. 1998).
6th Circuit says loss from bankruptcy fraud should have been based on larger intended loss. (305) After filing for bankruptcy, defendant attempted to conceal from the trustee six real properties in which he had an interest. The bankruptcy trustee learned of the deception, and eventually sold defendant’s interest in the properties for $143,520.70. The district court found that the best estimate of defendant’s intended loss to his creditors was the $143,520.70 for which the properties sold. However, the court concluded that a more accurate estimate was the actual loss to the creditors, which it calculated to be about $133,000, including interest. This resulted in a seven-level enhancement under § 2F1.1(b)(1)(H) for a loss greater than $120,000. The Sixth Circuit found that the district court erred by including interest in the amount of its actual loss calculation, but that enhancement was still warranted because the proper measure of loss was the intended loss of $143,520.70. The intended loss figure also resulted in a seven-level increase to defendant’s sentence. U.S. v. Guthrie, 144 F.3d 1006 (6th Cir. 1998).
6th Circuit rules court failed to make findings of fact to support loss calculation. (305) Defendant was convicted of various fraud charges for manipulating the financial records of his drugstore chain. The PSR valued the loss at over $2 billion, and recommended the maximum guideline enhancement of 18 for a loss exceeding $80 million plus a four point upward departure. Defendant argued that the PSR calculation overvalued the loss because it did not offset the amount of collateral the lenders could recover or the residual value of the company’s stock after the fraud was discovered. At sentencing, the government argued that a hearing on this issue was not necessary because the loss was easily beyond the $80 million maximum in the guidelines. The court stated that it would enhance the base level by 18 because it was convinced that the defendant was responsible for at least $80 million. The Sixth Circuit ruled that the district court failed to make the required findings of fact as required by Rule 32(c)(1). Although the court found the loss exceeded $80 million, it did not explain how it calculated the amount of loss or respond to the defendant’s specific factual objections to the methods of calculations included in the PSR. The court also did not issue written findings of fact as required by Rule 32. U.S. v. Monus, 128 F.3d 376 (6th Cir. 1997).
6th Circuit rules loss was entire amount of tuition government paid in “degree for contracts” scheme. (305) Defendant, a graduate engineering student, was involved in a scheme under which professors who owned a science research firm provided students with written materials and help from employees of the firm so that the student could complete his or her thesis or dissertation, and receive an advanced degree, through significant plagiarism and with a minimum of effort. A majority of the students were government personnel, who in return, abused their position with the government to secure for the firm lucrative government research contracts. Defendant challenged the calculation of loss on a count charging her with defrauding the government of her tuition money. The district court found that defendant had defrauded the government of $2,159, the full amount of the invoice at issue. Defendant argued that NASA only lost about $750 because she educated herself by working hard to understand the report which she would pass off as her thesis, and because she did not engage in the fraudulent scheme until her last semester, when she submitted her thesis. The Sixth Circuit found no error. NASA was not paying for defendant to gain some minimal understanding of a topic in order to pass her oral defense, but to get a degree based on a legitimate thesis. U.S. v. Frost, 125 F.3d 346 (6th Cir. 1997).
6th Circuit measures loss from food stamp fraud by profits lost by authorized food stamp retailers. (305) Defendant, a store owner, falsely stated in her application for authorization to accept food stamps that no member of her family had ever been convicted of a felony, when in fact her husband was a felon. To calculate loss, the district court did not find that the store had exchanged food stamps for unauthorized products. It relied on an alternative theory of loss—the foods stamps would have been used at other stores if they had not been used at defendant’s market. The court found that the other stores would have received an additional $30,891 in food stamp business but for the fraud. The Sixth Circuit rejected this loss calculation because it did not account for the inventory the other stores would have parted with if they redeemed the additional $30,891 in food stamps. The net loss to the other retailers was the amount of profits that properly authorized retailers failed to realize as a result of the business going to defendant’s market rather than their own. U.S. v. Arnous, 122 F.3d 321 (6th Cir. 1997).
6th Circuit refuses to reduce loss by amount returned to victims. (305) Defendant defrauded his family and others of over $1 million by pretending to operate an investment firm. He kept the scam going with periodic assurances that the “investments” were profitable and with pay-backs totaling $353,275 to those who pressed him for a return. The Sixth Circuit refused to reduce the loss by the amount defendant returned to the fraud victims to keep the scheme afloat. Section 2F1.1 requires a loss calculation be based on intended loss if it can be determined and it is greater than the actual loss. The district court found that defendant intended to inflict a loss of more than $1 million, that part of the money was returned only as a means of perpetuating the fraud, and that the scheme would have continued indefinitely had the victims not discovered what was happening. U.S. v. Dobish, 102 F.3d 760 (6th Cir. 1996).
6th Circuit finds loss from insurance fraud was amount of premiums paid by victims. (305) Defendant started an insurance company using false financial data, and the company never paid any claims made against it. The district court calculated the amount of loss for sentencing purposes as the amount of premiums collected by the entire conspiracy, which totaled $729,139. Defendant argued that the loss was the $97,835 that he was ordered to pay in restitution to the victims. The Sixth Circuit held that the loss was the amount of premiums collected. Defendant and his co-conspirators sold worthless insurance policies for $729,139, the total amount of premiums collected. The worthless insurance policies were akin to worthless securities described in note 7 to § 2F1.1, and the amount of premiums was the value of the money taken. U.S. v. Sanders, 95 F.3d 449 (6th Cir. 1996).
6th Circuit approves use of defendant’s gain as proxy for employer’s loss from her fraud. (305) Defendant, an administrative assistant, became involved in a scheme in which she received 10% “commission” payments in exchange for recommending a certain subcontractor to her employer. The company told defendant that the “commission” resulted in reduced profits for it rather than increased prices for her employer, so her employer would not be harmed by the payments. Nonetheless, defendant did not disclose the payments to her employer. The Sixth Circuit upheld the use of defendant’s gain from the scheme, $362,000, as a proxy for the employer’s loss. There clearly was a loss to the employer, since if it had known of the payments, it could have negotiated to receive all or a portion of the money for itself. Defendant’s fraud cost the employer the opportunity to reach such an arrangement. Since there was a loss, the sentencing court was required to make a “reasonable estimate” of the loss. Since the employer lost the opportunity to receive the 10% commission itself, this was a reasonable estimate of its loss. U.S. v. Parrish, 84 F.3d 816 (6th Cir. 1996).
6th Circuit divides bankruptcy totals by four to determine loss from providing false credit references. (305) Defendant provided fake credit references to sham businesses that obtained merchandise on credit, sold the goods, made no payments for the goods, and then disappeared. The district court calculated the loss by taking the bankruptcy total of defendant’s associates and dividing by four because defendant was one of four regular credit references for the sham businesses. Defendant argued that the losses should have been determined from trial testimony by adding together all the amounts lost by victims in reliance on his credit references. The Sixth Circuit affirmed, since defendant did not show that the evaluation of loss was inaccurate or outside the realm of permissible computations. Dividing the bankruptcy totals by four was not arbitrary. U.S. v. Cobleigh, 75 F.3d 242 (6th Cir. 1996).
6th Circuit bases loss on percentage of unsecured debt listed in defendant’s bankruptcy petition. (305) Defendant was involved in a “bustout” fraud scheme in which a temporary business obtained merchandise on credit, sold the goods, made no payments for the goods, and then disappeared. In determining the loss under § 2F1.1, the district court considered the $1.9 million unsecured debt listed on defendant’s bankruptcy petition. Defendant contended this figure was highly inflated due to his fear that he would not receive a complete discharge in bankruptcy. A consultant sampled 10% of the bankruptcy creditor’s records. Based on this information, the district court discounted the estimated loss by 50%. The Sixth Circuit approved this estimate of loss. The valuation was not “outside the realm of permissible computations.” U.S. v. Cobleigh, 75 F.3d 242 (6th Cir. 1996).
6th Circuit upholds use of relevant conduct to determine loss from loans to fictitious customers. (305) Defendant, a bank officer, made loans to fictitious customers and then used the proceeds for his own use. Virtually all of the loans were written off by the unsuspecting bank as a bad debt. He argued that the loss should be limited to the four counts to which he pled guilty. The Sixth Circuit upheld the use of relevant conduct to determine the loss. All of the fraudulent loans were clearly part of the same course of conduct. U.S. v. Berridge, 74 F.3d 113 (6th Cir. 1996).
6th Circuit says restitution offered after offense is discovered is not the same as pledging collateral. (305) Defendant, a bank officer, committed bank fraud totaling $75,546.22. After the indictment was filed, defendant’s employment was terminated. Defendant informed the bank that he was negotiating a $2.6 million lease transaction for which the bank stood to make $250,000, and defendant would have been entitled to a commission of $64,712.40. Defendant offered to complete the transaction and allow the bank to keep the commission to offset losses. The Sixth Circuit held that the district court properly refused to deduct the commission from the loss under § 2F1.1. The retained commission was not akin to secured collateral because it was earned and offered after the offense was discovered. The relevant point in time for determining the amount of loss in a fraud case is the time the crime is detected, rather than at sentencing. Making voluntary restitution is not equivalent to posting collateral. U.S. v. Scott, 74 F.3d 107 (6th Cir. 1996).
6th Circuit uses retail value of fraudulently obtained CDs and cassettes. (305) Using numerous false names and addresses, defendant signed up with a record club. After receiving the free tapes and CDs (which he later sold on the street), defendant then refused the later invoices that were sent to the false names. The club sent defendant 1811 CDs and 506 cassettes. Based on a club employee’s testimony that each CD was valued at $15.00 and each cassette at $10.00, the total value of the items sent to defendant was $31,670. Defendant argued that the court erred using retail value to determine the “fair market value” for loss purposes. Instead, he argued that goods should have been valued at the $1.00 per tape for which he allegedly sold them. The Sixth Circuit found no error. The record club was acting in the retail market by selling to consumers. Defendant was acting in this same market by selling the tapes to the same consumers. Judge Kennedy dissented, since the club actually sold the products for less than $15.00 and $10.00, and there was no showing that anyone else sold the products for these prices. U.S. v. Ellerbee, 73 F.3d 105 (6th Cir. 1996).
6th Circuit refuses to reduce loss by amount bankruptcy trustee might collect. (305) Defendant ran a liquidation company that was initially hugely successful for its investors. However, when the company began to experience difficulties, defendant began using money from the recruitment of new investors to pay off earlier investors. Defendant argued that the proper measure of loss was the net loss after the bankruptcy trustee recovered 90-95% of the victims’ losses from previous investors. The Sixth Circuit disagreed, holding that the agency of another cannot be used to reduce the amount of loss. Defendant could not reduce the magnitude of his own crime by relying on the actions of the bankruptcy trustee. Moreover, the set-off of such monies would create a rule difficult to administer, and the amounts that might be recovered were wholly speculative. U.S. v. Wolfe, 71 F.3d 611 (6th Cir. 1995).
6th Circuit bases loss from Ponzi scheme on loss to victims and not defendant’s gain. (305) Defendant’s liquidation company was initially successful, but eventually it became a Ponzi scheme, using money from new investors to pay off earlier investors. The Sixth Circuit held that the district court properly used the loss to the victims, rather than the gain to defendant. The fact that defendant received only $360,000 in salary from his scheme was irrelevant, because first-time investors lost $4.2 million. U.S. v. Wolfe, 71 F.3d 611 (6th Cir. 1995).
6th Circuit says loss does not include amounts lender can easily recover by set-off, attachment, foreclosure or demand. (305) Defendant made false statements to obtain three bank loans. On the first loan, the bank had the right to foreclose under a mortgage on some real estate and the right to set off cash funds in other accounts—both of which the bank did, resulting in no actual loss. On the third loan there was no loss because the defendant was not the debtor on the loan but made a false statement about a deed of trust, and the debtor then collateralized the note to the bank’s satisfaction when the bank raised the issue. The district court nonetheless assessed of loss of over $173,000 on the three loans. The Sixth Circuit remanded, finding that the district court attempted to follow the example in note 7(b) to § 2F1.1, but that the example was inconsistent with the rest of the commentary. The commentary says the standard is the greater of “actual loss,” “intended loss,” and “expected loss.” The example, however, refers to an offset for pledged assets, which has a specific legal term. The loss should not include amounts that a bank can and does easily recover by foreclosure, set-off, attachment, simple demand for payment, immediate recovery from the actual debtor and other similar legal remedies. Judge Batchelder dissented. U.S. v. Wright, 60 F.3d 240 (6th Cir. 1995).
6th Circuit holds loss from check-kiting scheme is determined at time fraud is discovered. (305) Defendants executed a check-kiting scheme. When the scheme was discovered, one bank returned to the second bank about $1.1 million in dishonored checks. The second bank exercised its right to offset against $84,000 that defendants had at another account with that bank. One year later, defendants sold their business and by the time they were convicted and sentenced, they had repaid all of the money they owed to the bank. The Sixth Circuit held that the loss under § 2F1.1 was the gross amount of the loss at the time of detection of the fraud ($1.1 million), less funds available for offset ($84,000) and secured collateral ($0), resulting in a net loss for sentencing of $1,016,000. The loss is based on the time the crime is detected, rather than at sentencing. Defendants cannot “buy” their way out of jail by making voluntary restitution. Nor did the fact that defendant did not intend to permanently deprive the bank of the illegally obtained funds transform the completed check-kiting activity into a mere attempt for purposes of determining loss. U.S. v. Flowers, 55 F.3d 218 (6th Cir. 1995).
6th Circuit upholds estimate of loss caused by cellular phones that allowed user to avoid charges. (305) Defendant sold 500 mobile cellular phones that had been converted with a “tumbling” microchip to circumvent the carrier’s service monitoring procedures and allowed the user to avoid phone charges. The Sixth Circuit upheld a loss estimate under § 2F1.1 between $800,000 and $1.5 million. The estimate was conservatively based on the average usage by a paying customer. It was reasonable to assume that non-paying customers would have a heavier usage. In addition, defendant admitted that he sold the 500 phones for an average price of $1600 each, which yields a total sales figure of $800,000. It is reasonable to infer that, in order for the transactions to make economic sense, the buyers of the phones must have anticipated obtaining use value at least equivalent to the unit purchase price. U.S. v. Ashe, 47 F.3d 770 (6th Cir. 1995).
6th Circuit holds intended loss is amount defendant subjectively intended not to repay. (305) Defendant provided false information to a group of private lenders to obtain a $1,750,332 loan. The false information related to the collateral that he pledged to secure the loan. The lenders discovered the false statements after the loan was issued, but were able to stop payment on the checks before defendant cashed them. Nevertheless, the lenders recovered all of their money. The district court determined that the intended loss was $1.7 million. The 6th Circuit held that in a fraudulent loan application case, intended loss is the amount of loss the defendant subjectively intended to inflict on the victim, i.e., the amount the defendant intended not to repay. “Loss” under § 2F1.1 is not the potential loss, but is the actual loss to the victim, or the intended loss to the victim, whichever is greater. Here, there was no factual basis for finding that defendant intended a loss of $1.7 million. Defendant testified that he intended to repay the loan, and the government did not present any contrary evidence. U.S. v. Moored, 38 F.3d 1419 (6th Cir. 1994).
6th Circuit holds defendant responsible for all loss caused by his fraud scheme. (305) Defendant pled guilty to charges of mail, wire and credit card fraud. He argued that he could not be held accountable for the total loss attributable to the insurance and credit card fraud because he could not have foreseen the full scope of criminal activity undertaken by his accomplices. He characterized his associates as independent contractors who received instruction from defendant on how to run a fraudulent racket. The 6th Circuit disagreed with this characterization. The district court reasonably concluded that the criminal activity was jointly undertaken and reasonably foreseeable to defendant, based on evidence that defendant was “intimately involved” in each transaction. U.S. v. Jackson, 25 F.3d 327 (6th Cir. 1994).
7th Circuit upholds loss based on price realized on foreclosure of property. (305) Defendant was convicted of mail and wire fraud in connection with a scheme to obtain real estate loans through false representations. The court found an actual loss amount of $115,979 and an intended loss of $108,500. The Seventh Circuit affirmed an eight-level enhancement for a loss of between $70,000 and $120,000. While the court’s calculation of actual loss was problematic, the intended loss of $108,500 also supported the eight-level enhancement. The court arrived at the $108,500 intended loss amount by deducting the price realized upon foreclosure of one property ($170,500) from the amount of the loan that the mortgage company intended to issue ($279,000). There was no error in the court’s decision to base its loss calculation on a certain figure (the price realized on foreclosure) rather than a sum determined by conjecture. U.S. v. Radziszewski, 474 F.3d 480 (7th Cir. 2007).
7th Circuit upholds loss based on fraudulent demand amount tacitly approved by defendants. (305) Defendants were convicted of mail fraud stemming from their involvement in a scheme to collect money from an insurance company for a fraudulent automobile accident. The district court found a loss of $30,00 to $70,000, which was based on a $52,414 claim submitted in a demand letter to the insurance company on their behalf. The amount was three times the amount of actual medical costs. The claim was formulated by their attorney (who was working with the government), and defendants argued that he formulated the demand without their specific knowledge, although they learned of the demand amount later. They ultimately settled for less than $21,000. However, there was no evidence that they repudiated the demand amount, and the attorney testified that defendants “wanted more money” than they received, and had expected to receive three times the amount of their medical bills. Because the intended loss figure was rationally based on claims submitted and defendants tacitly approved this request, the Seventh Circuit affirmed. U.S. v. Al-Shahin, 474 F.3d 941 (7th Cir. 2007).
7th Circuit says defendant is liable for client losses caused by his own conduct but not losses from auditors’ malpractice. (305) Defendant was convicted of two securities laws violations for operating his registered broker-dealership without enough money in its reserve accounts. The Seventh Circuit upheld the district court’s loss calculation. Most of the $1.2 million in loss was attributable to relevant conduct that was part of defendant’ scheme to operate his brokerage firm without enough money on hand to comply with securities law requirements. When the authorities shut the company down, there was not enough money to pay clients what they were owed. Insurer’s payments were made to cover these client losses, and the district court did not clearly err by including them in the loss amount calculation. However, the $190,000 payment by the brokerage firm’s auditors’ malpractice carrier should not have been included in the loss calculation. This money was attributable to losses sustained by the brokerage’s clients as a result of the auditor’s acts or omissions, not defendant’s. Finally, the district court properly applied a § 2F1.1(b)(6)(A) increase for substantially jeopardizing the safety and soundness of a financial institution. The court did not have to consider defendant’s relevant conduct, since operating the brokerage even for a single day meant that it could not pay its debts on demand. U.S. v. Frith, 461 F.3d 914 (7th Cir. 2006).
7th Circuit upholds use of check register to determine intended loss. (305) To help determine intended loss in a check kiting scheme, the district court relied on a “check register” that detectives found stored in a computer. Defendant argued that the check register should be excluded because it in included “hearsay statements as to dates, amounts, payees,” and it was unreliable because it was unknown what computer hardware or software was used to generate the document, there was no evidence as to how the report was generated, how the dates and check numbers were inserted on the checks, and whether the listed checks were “spoiled checks.” The Seventh Circuit held that the district court properly considered the check register in determining the intended loss. The check register had sufficient indicia of reliability. The government presented evidence that defendant purchased software, and other items that could be used to create counterfeit checks. Fingerprint reports showed that defendant’s prints were on blank and printed check stock found at the conspiracy’s apartment. In addition, the government recovered about $16 million in checks that were intended to go into a bank account in Israel, Defendant’s fingerprints were found on some of these checks. U.S. v. Sliman, 449 F.3d 797 (7th Cir. 2006).
7th Circuit holds that court applied proper standard for determining loss amount. (305) Defendant admitted that he intended to complete a $ 4 million check kiting scheme. The district court, however, found that the intended loss was the amount of loss that was reasonably foreseeable to defendant that the conspiracy was designed to cause — $20 million. The Seventh Circuit found no error in the court’s legal standard for determining intended loss. Defendant was a participant in a conspiracy, and thus his offense level was determined by examining all reasonable foreseeable acts and omissions of defendant and his co-conspirators in furtherance of the jointly undertaken criminal activity. Note 2 to § 1B1.3 provides that a defendant will be held accountable for the relevant conduct of others when that conduct is (1) in furtherance of a jointly undertaken criminal activity, and (2) reasonably foreseeable in connection with that activity. The district court applied the correct legal standard in determining the intended loss amount. U.S. v. Sliman, 449 F.3d 797 (7th Cir. 2006).
7th Circuit rejects finding that loss included loan balance. (305) Defendant obtained a $550,000 revolving line of credit secured by the assets of his company, KB Supply. After defendant began having difficulty making payments, the bank began a replevin action to liquidate collateral. Defendant asked the bank to postpone the action so that the business could be sold as a going concern. Under a forbearance agreement, defendant provided the bank with security in certain real estate. However, the bank later learned that the day before providing the security, defendant had transferred the ownership of the real estate to someone else. The bank went to KB Supply to repossess collateral, but found only three rolls of carpeting. Defendant pled guilty to making a false statement to influence a bank to defer action on replevin of collateral. The district court included in its loss calculation the loan balance of $521,231.87. The Seventh Circuit reversed. There was no evidence that defendant fraudulently obtained the $550,000 loan. There also was no evidence that the bank could have collected $521,231.87 in collateral on the day that the forbearance agreement was signed. The government presented no evidence that the bank suffered any actual loss by delaying its collection actions for three weeks following the signing of the forbearance agreement. As for intended loss, there was no basis for finding that defendant believed his business to be worth $521,231.87 on the date the forbearance agreement was signed. U.S. v. Berheide, 421 F.3d 538 (7th Cir. 2005).
7th Circuit holds that court erred in holding defendant accountable for full amount of fraud loss. (305) Defendant was involved in an investment fraud and money laundering conspiracy. He challenged the district court’s decision to hold him accountable for the entire scam loss amount. There was no evidence that pointed to defendant entering the conspiracy at its outset in 1994. The evidence showed only that he entered the conspiracy at some point, and that was not sufficient to hold him liable for the entire loss. The fact that defendant was convicted of participating in the conspiracy was not a finding of precisely when he joined. The Seventh Circuit remanded and ordered resentencing in accordance with U.S. v. Booker, 543 U.S. 220 (2005). U.S. v. Turner, 400 F.3d 491 (7th Cir. 2005).
7th Circuit rejects upward departure for unrealized appreciation of artwork. (305) Defendant was convicted of fraud in connection with the sale of Walt Disney animation cels. The district court originally found that the total loss stemming from defendant’s fraudulent activities (both charged and uncharged) was $231,000. A 7th Circuit panel remanded because there were no findings that defendant’s uncharged conduct was unlawful. On remand, a different judge found that the total loss from sales to the three identified victims was $81,801, and then sua sponte added a three-level upward departure because the identifiable losses grossly understated the actual loss: (1) one level because defendant’s overall earnings of $420,000 from 1994-1999 was virtually all fraudulently generated; (2) one level because the extent of the intended loss as shown by the seizure of $500,000 in inventory, and (3) one level because of the loss to purchasers from unrealized appreciation. The Seventh Circuit affirmed the first two grounds for departure, but rejected the departure based on unrealized appreciation. Although misrepresentation of a rate of return may in some circumstances be included in a loss calculation, unrealized appreciation may not be used without a guaranteed rate of return or other indication of a specific degree of appreciation. While defendant promised his customers they would realize an appreciation in value because he was selling his artwork at below market value, he did not make specific representations as to actual market value of those pieces. U.S. v. Schaefer, 384 F.3d 326 (7th Cir. 2004).
7th Circuit finds no error in failure to reduce intended loss by amount victims allegedly received. (305) Defendants falsified customer complaints to their employer, using third-party names, and causing refund checks to be issued to these third parties. In total, defendants caused their employer to issue 178 warranty checks in the amount of $100,254.88. Defendants argued that the district court improperly failed to offset the amount of loss to the employer by the value defendants claimed the employer gained through the resale of defective parts that defendants allegedly sent to the employer to facilitate their fraud. The Seventh Circuit found that defendants waived this issue at sentencing by withdrawing their objections to the loss calculations. The argument also failed on the merits, since the government demonstrated that the intended loss was $100,254.88. Moreover, even if intended loss amounts should be reduced by any value received by the victim, the record contained no mention of any amount of value received by the employer in conjunction with the fraud scheme. U.S. v. Sensmeier, 361 F.3d 982 (7th Cir. 2004).
7th Circuit holds defendant accountable for total amount of fraudulent deposits. (305) Over a several year period, defendant manufactured counterfeit checks on his home computer and used them to defraud about 20 different banks and investment companies. Before being caught, he caused over $1 million of actual loss to his victims. He argued that the district court failed to explain its conclusion that he intended to inflict over $10 million of loss. The Seventh Circuit found no error in the court’s finding that defendant intended to steal the total amount of the fraudulent deposits and wire transfers. The district court clearly resolved the controversy and provided a basis for its ruling, in accordance with Rule 32. When the court adopted the government’s theory of the case (rather than defendant’s claim that he only intended to steal as much as necessary to satisfy his personal debts), the court cited relevant case law, explained that it agreed with the government’s analysis of the facts, and then explained that it was rejecting defendant’s calculations because it believed that he intended to steal the total amount of money he deposited into the accounts. The court was not required to accept defendant’s claim about the portion of the worthless deposits he hoped to access. U.S. v. Sykes, 357 F.3d 672 (7th Cir. 2004).
7th Circuit holds that intended loss was equal to debts that defendant sought to discharge in bankruptcy fraud. (305) Under defendant’s divorce decree, defendant’s former wife was to use about $ 36,000 in 401(k) funds to pay marital debts. She failed to pay the creditors. Defendant later filed for bankruptcy, misrepresenting that he had no assets or money to satisfy debts that equaled about $80,000. He was convicted of bankruptcy fraud, and argued that the district court should have calculated the loss at zero dollars because he intended to force his former wife to pay the debt as was required by their divorce decree, and because he intended no loss be visited upon his creditors. The Seventh Circuit disagreed. It was undisputed that defendant intended to leave the creditors with the false impression that he had insufficient funds to pay his debts. A successful discharge would have left the creditors without recourse against defendant. Therefore, defendant intended a loss equal to the amount to be discharged in bankruptcy. While defendant may have intended that his creditors be paid, his overall intent was that he would not be the one to pay them. U.S. v. Mutuc, 349 F.3d 930 (7th Cir. 2003).
7th Circuit finds loss even though defrauded buyers were made whole by bank. (305) Defendant managed a company that built single-family homes. Customers financed the homes with loans through a bank, who agreed to disburse the funds based on the buyer’s certification of various stages of completion. Defendants persuaded the customers to allow them to certify on the customer’s behalf, and then began to make the certifications prematurely, using new customers’ funds to finish older projects. The company became insolvent, leaving buyers with loan obligations but no houses, the bank with little security for its advances, and unpaid subcontractors holding liens against unfinished houses. The bank paid the subcontractors to complete houses already underway and told the buyers of houses that had not been started that they need not repay the loans. Defendant argued that because the bank made the borrowers whole, the scheme did not inflict any loss under the guidelines. The Seventh Circuit disagreed, since the lender was as much a victim as the borrowers; the bank contracted for security (the houses in progress) that it did not get. In addition, a collateral source of recovery does not eliminate but just shifts the loss. U.S. v. Castellano, 349 F.3d 483 (7th Cir. 2003).
7th Circuit uses of retail price of copyrighted software where infringing item was equivalent to infringed item. (305) Defendant belonged to a group dedicated to the unauthorized dissemination of copyrighted software over the Internet. The 1998 version of § 2B5.3(b)(1) directed a court to use the loss table in § 2F1.1 if the retail value of the loss exceeded $2000. Under Note 1, the value of the loss was measured by the retail value of the “infringing items,” defined as “the items that violate the copyright or trademark laws.” In non-software cases, the Seventh Circuit has calculated the value of infringing items based on the retails value of those goods on the black market. The Seventh Circuit ruled that where there is little or no evidence of the value of the infringing item, the court may consider the retail value of the infringed item. The use of the retail price of the copyrighted software was reasonable here, since the pirated programs were exact digital copies, and thus the virtual equivalent of the original copyrighted program. U.S. v. Slater, 348 F.3d 666 (7th Cir. 2003).
7th Circuit assumes that defendant would have continued faking disability until insurance coverage ended. (305) Defendant and his wife defrauded insurers plus the Social Security Administration by pretending that defendant was disabled. In calculating the intended loss (the loss the insurers would have suffered if defendant had not been caught, see U.S.S.G. § 2B1.1 Note 2(A)(ii)(I)), the district judge assumed that defendant would have continued faking disability until he reached 65, the age at which most policies’ coverage ended. The Seventh Circuit affirmed. Defendant set out to take the insurers for all they were worth, and that meant benefits through age 65. Other than being caught, there was nothing that would have induced him to disclaim benefits earlier. U.S. v. Rettenberger, 344 F.3d 702 (7th Cir. 2003).
7th Circuit holds that finding that defendant was not entitled to departure was not reviewable. (305) Defendant pled guilty to wire fraud. He sought a downward departure under U.S.S.G. § 5K2.0, arguing that the $8.7 million portion of the intended loss would have been impossible to achieve because it involved a government sting operation. The district court refused to depart, finding “it is not unreasonable to conclude that intended loss of an additional eight million dollars was contemplated by the defendant and that a loss based on the additional eight millions dollars is not impossible or fanciful.” This statement revealed that the court recognized it could depart, but refused to depart because it made the factual determination that the intended loss in this case was not impossible. The Seventh Circuit held that it lacked jurisdiction over this issue. Moreover, the court had a separate and independent reason for refusing to depart downward. The court also stated that even if the loss was impossible, it would not grant a downward departure because “based on the defendant’s criminal history, particularly his recent criminal history at an advanced age, that it would not be the appropriate exercise of this court’s discretion to grant such a downward departure.” This alternative reason for refusing to depart was an exercise of the court’s discretion that was not reviewable on appeal. U.S. v. Aron, 328 F.3d 938 (7th Cir. 2003).
7th Circuit holds that amounts paid by third-party guarantors do not decrease loss. (305) Defendant, a real estate developer, was convicted of fraud based on fraudulent statements he made to bank officials concerning his financial stability. Defendant argued that no actual loss occurred because the bank was fully reimbursed for $1.7 million when he defaulted on his loan. Additionally, the third party that reimbursed the loan on defendant’s behalf stated they suffered no loss (the third party earned substantial interest income so that by the time it paid the $1.7 million, it claimed to have profited by about $69,000). The district court took these factors into account at sentencing and reduced defendant’s offense level by one point to more accurately reflect the loss. The Seventh Circuit held that amounts paid by third-party guarantors are to be deducted from a loss calculation. The fact that the third party chose to honor its guarantee and pay off defendant’s obligations after his default did not decrease the magnitude of his crime. See U.S. v. Wilson, 980 F.2d 259 (4th Cir. 1992). U.S. v. Lane, 323 F.3d 568 (7th Cir. 2003).
7th Circuit says court erred in equating foreseeability with knowledge. (305) Defendant was involved in a counterfeiting conspiracy. The district court found that $4300 in counterfeit currency found in a co-conspirator’s house was not foreseeable to defendant and therefore excluded it from the amount attributable to her. The Seventh Circuit concluded that the district court erred in its foreseeability determination because it equated foreseeability with knowledge. A defendant need not know of a co-conspirator’s actions for those actions to be reasonably foreseeable to the defendant. The district court stated: “So the issue therefore is the issue of foreseeability, … and that is, did [defendant] reasonably know that the conduct of the other conspirator … included bringing in $12,500 in March of 2001?” The court concluded: “There’s nothing that would fairly support an inference that [defendant] was knowledgeable about that amount [the $4300 found at the co-conspirator’s house].” Such a requirement that defendant have had “knowledge” of the amount of counterfeit currency was an error of law. U.S. v. Hernandez, 325 F.3d 811 (7th Cir. 2003).
7th Circuit rejects use of gain as proxy for loss where actual loss could be reasonably estimated. (305) Defendant, an officer of a labor organization, was involved in a “loans-for-deposits” scheme, in which he deposited large sums of union money in various banks in exchange for overly generous terms and conditions on personal loans. The government argued that the district court erred by failing to calculate loss using the almost $475,000 that defendant derived from the scheme through his investments. The Seventh Circuit rejected the use of defendant’s gain as a proxy for loss, since it should only be used when the loss to the victim cannot be reasonably estimated. The district court reasonably estimated the loss from the loans-for-deposits to be equal to the additional amount the union entities could have earned at banks offering more favorable rates on CDs. To use the $475,000 that defendant earned suggested that the unions would have received an astounding 1900 percent return on their investments, a wholly unsubstantiated claim. U.S. v. Serpico, 320 F.3d 691 (7th Cir. 2003).
7th Circuit upholds loss estimate based on average of counterfeit cards’ credit limits. (305) Defendant was involved in a conspiracy to use counterfeit credit cards. The government argued that the loss was the sum of the maximum credit limits of all the counterfeit credit card used during the conspiracy. To estimate the credit limit of all the cards, the government separated the cards with known credit limits into three categories based on when or where the cards were used or seized. It excluded from its calculation two cards with unusually high credit limits. The government then multiplied the average maximum credit limits of the cards with known limits in each category ($12,066.67, $6,942.86, and $12,854.64) by the total number of cards known to have been used for each category (25, 160, and 34) and added the results for a total of $1,918,172.27. The Seventh Circuit upheld the court’s use of this estimate as the intended loss from the conspiracy. There was sufficient information for the court to estimate the intended loss, and the methodology it used was appropriate. Where the total number of counterfeit cards is known but the total amount of credit placed at risk is not, multiplying the average credit limits of cards with known limits by the total number of cards involved in the conspiracy results in a reasonable estimate of the loss. Considering that two cards with unusually high credit limits were excluded from the mix, the district court’s estimate was reliable and conservative. U.S. v. Mei, 315 F.3d 788 (7th Cir. 2003).
7th Circuit holds that possible error was harmless where defendant stipulated total loss involved in fraud. (305) Defendant was involved in a scheme to defraud his employer by pretending to send broken pieces of machinery to non-existing companies for repairs. Defendant challenged the district court’s finding that he was responsible for a loss of $430,752. The Seventh Circuit found that any miscalculation by the court in determining defendant’s compensation harmless, because defendant stipulated that the fraud netted a total of $430,752. The percentage of compensation for defendant was irrelevant. Once the court found that defendant was thoroughly involved in the scheme, he became liable for all of the losses that the group’s fraudulent activity entailed. The panel rejected defendant’s contention that the fraud involved multiple schemes, and he was involved in a single, separate scheme which resulted in a loss of only $104,000. Defendant’s participation was essential to the success of the overall scheme because with multiple signators, no single person’s name appeared on all of the paperwork as authorizing repairs or approving payments. Defendant’s interaction with, and dependence on, the other co-defendants demonstrated that there was a single overarching scheme. U.S. v. Gramer, 309 F.3d 972 (7th Cir. 2002).
7th Circuit reverses loss calculation for thwarting foreclosure sale of worthless property. (305) Defendant thwarted the foreclosure sale of a building owned by her husband by faxing the sheriff’s office a forged “notice of automatic stay,” which falsely represented that her husband had filed for bankruptcy. Although the mortgagee, EMC, was owed $47,000 on the mortgage, it had been planning to bid $37,000 for the building at the foreclosure sale. The sale was rescheduled, but before it could occur, EMC discovered that the building had numerous code violations. After concluding that it would cost too much to bring the building up to code, the sale was cancelled, the building was demolished, and EMC wrote off the debt. In calculating the loss from defendant’s fraud, the judge found that the building was worthless, but that since EMC had been planning to bid $37,000 for it, this was the amount of intended loss. The Seventh Circuit rejected this approach. EMC’s only interest was in collecting as much of the $47,000 it was owed as it could. After the thwarted foreclosure, defendant’s husband still owed $47,000. In fact, if the foreclosure sale had occurred as planned, defendant’s husband would have owed EMC only $10,000, the remaining debt after the discharge of the mortgage. If defendant believed the building was worthless at the time of the offense, then it was difficult to see how EMC was hurt by the delay in foreclosing on it. U.S. v. Fearman, 297 F.3d 660 (7th Cir. 2002).
7th Circuit holds that relevant conduct is limited to criminal conduct. (305) Defendant was convicted of a variety of fraud charges arising out of his sale of animation art. To support a $231,000 loss calculation, the PSR estimated that about 55 percent of defendant’s $420,000 in business receipts from 1994 to 1999 was attributable to fraudulent business practices. The 55 percent was derived from a sample of three sales made to customers in which 55 percent of the purchase price was attributable to false representations. These sales provided about 20 percent of defendant’s total receipts during their five-year period. Defendant argued that the government failed to prove that any of the losses incurred by defendant’s customers were the result of criminal conduct, and therefore they could not be considered relevant conduct. The Seventh Circuit agreed that relevant conduct under § 1B1.3 is necessarily limited to criminal conduct. The government failed to prove that the additional conduct relied on in the loss calculation was criminal. Although defendant’s entire business was “permeated with fraud,” that characterization may have both civil and criminal aspects. The primary defect in the district court’s loss calculation was that it failed to make explicit findings identifying with specificity the relevant unlawful conduct that allegedly caused the $231,000 loss. U.S. v. Schaefer, 291 F.3d 932 (7th Cir. 2002).
7th Circuit agrees that defendant intended to sell entire warehouse full of adulterated meat. (305) Defendant pled guilty to improperly storing adulterated poultry and meat products held for sale. Because the court found that defendant would have attempted to sell everything in the warehouse if inspectors had not intervened, the court based its loss calculation on what the value of the entire inventory would have been had it been in suitable condition. That computation totaled $258,310. Defendant argued that the court should have only considered the goods that he actually sold or attempted to sell on the day of the seizure, which totaled less than $2,000. The Seventh Circuit held that the district court did not clearly err in finding that defendant intended to sell all of the products in the warehouse. Defendant made a brazen attempt to sell adulterated meat after inspectors had red-tagged the cooler and were still inspecting the warehouse. Although defendant claimed that he intended to destroy or return the spoiled products in the upstairs freezer, this claim was belied by several facts. First, defendant lied to inspectors about the existence of the upstairs freezer and the products it contained, which implied that he was trying to hide something. Second, defendant moved the frozen products from the company’s old warehouse to its new one rather than simply destroying them or returning them to suppliers. Third, some of the products contained fraudulently marked expiration dates, suggesting that defendant still intended to sell them. U.S. v. Mantas, 274 F.3d 1127 (7th Cir. 2001).
7th Circuit holds that attorneys’ and executor’s fees should not have been included in loss calculation. (305) After the man who rented a room in defendant’s house died, defendant stole the deceased man’s assets by depositing forged checks into his own bank account. The executor of the deceased man’s 1983 will was able to reverse many of the fraudulent transactions, and the estate recovered all but $79,050 of the over $260,000 that defendant had tried to acquire. Defendant then produced a competing will, in which the deceased left his entire estate to defendant. Defendant filed the fraudulent will with the probate court, which forced the executor into a legal battle to defend the 1983 will. Defendant was convicted of fraud and money laundering. The district court calculated the intended loss at $390,558.41, which included the $79,050 in actual losses, the $181,508 in intended losses from the transactions the executor was able to reverse, and $130,000 in attorneys’ and executor’s fees that the probate court assessed against defendant after it determined that the later will was fraudulent. The Seventh Circuit held that the attorneys’ fees and executor’s fees were consequential or incidental damages that should not have been included in the loss calculation. However, on remand, the government was free to argue that the appropriate amount of intended loss was the full value of the estate, given that success of the will fraud scheme would have left defendant as the sole inheritor. U.S. v. Seward, 272 F.3d 831 (7th Cir. 2001).
7th Circuit holds that court’s findings were too vague to support intended loss figure. (305) Defendant gave an auto dealer a $69,990 check drawn on a closed bank account. Defendant asked the dealer to hold the check because he was closing the bank account. He promised to replace that check with another one drawn on his new bank. The dealer agreed, and allowed defendant to take one of his cars with him that day. The next day, defendant went to a second bank and opened an account. He presented the second bank with a $420,000 check drawn on the closed account. Defendant then returned to the car dealer with the $420,000 deposit slip, and wrote out a new check for $69,990. The dealer accepted the check and delivered a second car to defendant. The district court found that defendant intended to impose a loss amounting to the entire $420,000. The Seventh Circuit held that the district court did not properly determine the intended loss. The district court never made a finding about how much loss defendant actually intended to inflict on the bank. The judge stated only that defendant’s motivation for depositing the $420,000 check was to make the car dealer feel that defendant was a legitimate businessman. The court’s findings were too vague to support a conclusion that defendant intended to inflict the full $420,000 loss. U.S. v. Higgins, 270 F.3d 1070 (7th Cir. 2001).
7th Circuit finds loss where consumers did not get FDA-approved product they bargained for. (305) Defendants were convicted of offenses related to the manufacture and distribution of mislabeled and/or adulterated pharmaceutical products. Relying on U.S. v. Chatterji, 46 F.3d 1336 (4th Cir. 1995), defendant argued that there was no actual loss to consumers since none of the drugs were shown to be medically ineffective and there was no evidence that anyone fell ill or died. The government relied on U.S. v. Marcus, 82 F.3d 606 (4th Cir. 1996) to argue that there was loss to consumers because consumers paid for FDA-approved drugs, but received drugs that were not manufactured according to the Federal Food, Drug and Cosmetic Act and FDA regulations. The district court agreed with the government’s position. The Seventh Circuit affirmed. “The medical effectiveness of the drug or its dangerousness after adulteration ought not be the core of the inquiry; rather, the district court was justified in determining that there was a loss because consumers did not get what they bargained for… [T]here was indeed loss to consumers because consumers bought drugs under the false belief that they were in full compliance with the law.” Defendant’s gain was the appropriate measure of that loss. U.S. v. Bhutani, 266 F.3d 661 (7th Cir. 2001).
7th Circuit uses full amount of fraudulently obtained loan even though never fully disbursed. (305) Defendant was convicted of making false statements in connection with loans from the Small Business Administration. The Seventh Circuit upheld the finding that the offense involved a loss of more than $200,000. Defendant received or had commitments to receive $205,000 from the SBA. Relying on note 8(d) to § 2F1.1, the court found that defendant diverted the full $205,000 from the intended recipients of SBA loans, even though the agency had not gotten around to disbursing everything by the time the scheme unraveled. This is a proper interpretation of that guideline. U.S. v. Kosth, 257 F.3d 712 (7th Cir. 2001).
7th Circuit refuses to base gain on hypothetical scenario. (305) Defendant was convicted of offenses related to a scheme that included bribery of public officials to obtain assistance in the approval and financing of construction projects. One aspect of his offense was co-opting a local government to sponsor tax-free industrial revenue bonds, some proceeds of which were used to finance a project (and other proceeds of which were diverted to defendant’s personal benefit). The court concluded that the gain defendant had reaped by offering tax-free bonds (and correspondingly the loss to the Treasury) was $14 million. Defendant argued that the $14 million figure was flawed because it supposed that he would have raised the same amount of money with taxable bonds had he lacked access to tax-free instruments. Higher interest rates could have led to a change of plans, for an increase in the price of one project leads an entrepreneur like defendant to shift to another. The Seventh Circuit found this irrelevant, because the Sentencing Guidelines do not determine a wrongdoer’s gain based on “what-if scenarios.” The gain and loss rules in the guidelines call for approximations, not exact figures. Here, defendant got access to tax-free bonds, raising $135 million that he held for 12 years. A similar amount lent by investors who had to pay taxes would have cost defendant much more than what he actually paid in interest. The district court’s finding that the gain was $14 million was supported by the record. U.S. v. Krilich, 257 F.3d 689 (7th Cir. 2001).
7th Circuit finds no double counting where investigator went through files by hand. (305) Defendant defrauded Medicare and Medicaid through her home health care supply company. She billed these programs for supplies that patients never ordered, for supplies that patients never received, and for supplies that were not ordered or prescribed by a doctor. LaPosa, a Medicaid fraud investigator, and Hemberger, a special agent from the Department of Health and Human Services, calculated loss by adding up three different categories of loss, some of which overlapped. LaPosa calculated the loss to Medicaid by hand. Hemberger calculated the loss to Medicare using a computer. To prevent double counting, Hemberger testified she subtracted the total amount she calculated under the first two steps from the computer-generated amount calculated under the third step. She further testified that LaPosa did not have to account for the possibility of double counting in the same manner because she could avoid it as she went through the files individually. The Seventh Circuit held that the district court did not err in accepting the Medicaid loss calculation without adjusting it to account for double counting. The court had before it Hemberger’s testimony that LaPosa did not have to make the same adjustments as Hemberger did because she had gone through the files individually. The district court was entitled to rely on this difference in methodology in concluding that no double counting of loss occurred. U.S. v. Duncan, 230 F.3d 980 (7th Cir. 2000).
7th Circuit upholds use of extrapolation where precise calculation of loss was impractical. (305) Defendant defrauded the federal government by submitting false Medicare reimbursement claims on behalf of an ambulance company she operated. The large number of fraudulent claims (over 8000) and the extensive period over which the claims were submitted (seven years) made a precise calculation of loss impractical. To estimate loss, government experts selected a sample of 200 claims from a 15-month period and determined how much of the Medicare money was fraudulently obtained. This result was then extrapolated to estimate how much of the Medicare money defendant fraudulently took in over the 15-month period. The Seventh Circuit upheld the district court’s use of this estimate as the amount of fraud loss. First, the amount of loss was calculated over only a 15-month period, even though the fraudulent activity took place over a seven-year period. Thus, the estimate was quite conservative. Moreover, defendant was given the benefit of the doubt with respect to each claim (in the 200 sampled) that for one reason or another could not be evaluated. Thus, there was nothing unreasonable about the district court’s loss determination. U.S. v. Freitag, 230 F.3d 1019 (7th Cir. 2000).
7th Circuit upholds loss calculation despite different methodology used for co-conspirator. (305) Defendant engaged in “property flipping,” under which he would purchase inner city real estate at low prices and then create sham transactions designed to entice lenders to fund loans that exceeded the value of the property. He challenged the court’s loss calculation because his sentencing judge used a different methodology and different data than another judge used to sentence a co-conspirator. The other judge calculated loss by taking the value of the properties and subtracting that from the aggregate loan proceeds. At the time, the best evidence available for the value of the properties was their 1996 assessed values, which were then adjusted by 5% to reflect 1997 values. By the time defendant’s own sentencing took place, newer appraisals of the value of the properties were available. This produced a loss of about $1.4 million, while the earlier calculation found a loss of only $675,000. The Seventh Circuit held that the fact that a different judge reached a different calculation of loss did not undermine an otherwise valid calculation of loss under the guidelines. Co-defendants have no enforceable right to have sentences that are precisely congruent with one another. The only thing that matters is that the sentence complies with the guidelines, and defendant’s did. U.S. v. Haehle, 227 F.3d 857 (7th Cir. 2000).
7th Circuit upholds use of defendant’s gross revenue as loss. (305) Defendant produced and sold equipment that buyers could use to transform cable television converters into devices that could descramble all encrypted cable programming. The government proposed a loss calculation based on the value of the cable television programming to which the descramblers afforded unauthorized access. The district court rejected this calculation because it assumed that each purchaser used the descrambler illegally to view all available premium programming. More importantly, the calculation assumed that had defendant not sold descramblers, his customers would have purchased all of the available premium channels from the cable companies. Accordingly, the district court opted to compute loss based on defendant’s gross revenue. The Seventh Circuit held that the district court’s calculation was not clearly erroneous. Courts may use gain from participation in the fraud when the exact amount of the loss to the victim is unknown. U.S. v. Gee, 226 F.3d 885 (7th Cir. 2000).
7th Circuit uses co-conspirator’s profit to calculate loss. (305) Defendant, the president of a credit union, helped Binet, the chairman of the board, defraud the credit union by using $8.8 million of the credit union’s money to purchase a collateralized mortgage obligation residual (CMOR). The CMOR was sold for a $1 million gain, but only part of the profit was provided to the credit union, with the rest going to Binet. The district court calculated the § 2F1.1 loss using Binet’s estimated profit, even though the court determined that there was no “actual loss” because the $8.8 million “borrowed” from the credit union was returned. The Seventh Circuit affirmed the use of the co-conspirator’s gain as an estimate of loss. Under Note 8 of the 1989 guidelines, “[t]he offender’s gross gain from committing fraud is an alternative estimate that ordinarily will understate the loss.” A defendant’s gain may be used as an approximation of loss when evidence of the exact amount of loss is not available. Binet testified that the CMOR transaction was purportedly made on behalf of the credit union, but that 20 percent of the profit was to go to defendant and him. Defendant was involved in helping to transfer the money. Thus, any estimated profit that Binet made on the investment was correctly determined to be a loss to the credit union. Binet’s profit would not have been realized without his illegal use of the credit union’s funds. U.S. v. Lopez, 222 F.3d 428 (7th Cir. 2000).
7th Circuit agrees that unlicensed investment manager only entitled to 1/5 of amount paid to him. (305) Defendant, the president of a credit union, helped Binet, the chairman of the board, defraud the credit union in a number of transactions. Binet received $399,500 as compensation during the four years he managed the credit union’s investment portfolio. Defendant argued that this amount should be deducted from the credit union’s losses because Binet was worth that much for managing a portfolio of about $82 million, and that the portfolio earned money during every year in question. However, Binet was not a certified or licensed investment broker or manager, nor was he registered with the SEC. The board was never given the opportunity to determine what they might wish to pay him or someone else. Testimony indicated that most credit unions do not have salaried investment managers. The district court determined the offset to be 1/5 of the $ 399,500, or $79,900 for the four-year period. The Seventh Circuit agreed that Binet’s services should not be calculated on a par with a licensed professional who does not commit embezzlement or fraud with a client’s money. The district court’s fee of $19,975 per year was a “reasonable estimate” and was not “outside the realm of permissible computations.” U.S. v. Lopez, 222 F.3d 428 (7th Cir. 2000).
7th Circuit refuses to reduce loss by trade-in value of cars improperly purchased with credit union funds. (305) The district court included in the loss the original capital outlay for two cars defendant and a co-conspirator purchased for their own use with their company’s funds. Defendant argued that the trade-in or resale value of each car should be deducted from the loss amount. The district court did deduct the trade-in/resale value from the restitution amount, but stated that “the loss was determined by the amount of [the victim’s] money that was expended to purchase these items or lease them….” The Seventh Circuit held that the district court did not clearly err in using the purchase price of the cars for sentencing purposes. U.S. v. Lopez, 222 F.3d 428 (7th Cir. 2000).
7th Circuit holds defendant accountable for all checks involved in fraud scheme. (305) In calculating loss, the district court held defendant accountable not only for the two checks he fraudulently received, but also for the three checks a co-conspirator fraudulently received. Defendant argued that these three checks were beyond the scope of his criminal activity, relying on the multi-factor test articulated by the Second Circuit in U.S. v. Studley, 47 F.3d 569 (2d Cir. 1995). The Seventh Circuit held that so long as the facts permit the inference that the defendant agreed to jointly undertake the acts for which he is being held accountable, it will sustain the district court’s determination, even if those facts do not fit neatly within the Studley framework. Here, the facts supported the court’s finding that defendant agreed to a joint undertaking that embraced the entire scheme and not just the checks he received. There was a single scheme to defraud a single victim, Motorola. Defendant and his two co-conspirators took virtually identical steps in setting up mailing addresses and bank accounts for the fictional vendors of Motorola. They did so in the same eight to nine week period, and contemporaneously with a Motorola employee’s efforts to arrange for the issuance of the checks. Multiple telephone calls between phones associated with defendant and his co-conspirators supplied confirmation that all three defendant were coordinating their activities. There also was evidence that the conspirators were sharing the proceeds of the checks. U.S. v. Adeniji, 221 F.3d 1020 (7th Cir. 2000).
7th Circuit holds that court properly reduced loss by value of defendant’s legitimate medical services. (305) Defendant, a medical doctor, involved as many as 130 patients in a complicated scheme to defraud insurance companies by charging for services he did not provide. He argued that in calculating loss, the district court improperly failed to subtract the value of the legitimate medical services he rendered. The Seventh Circuit agreed that defendant did perform some legitimate medical services, and that the amount paid by the insurers should be reduced by the value of these services. However, there was no evidence in the record that the court failed to perform this calculation. The government placed the loss at greater than $200,000, based on the $265,000 paid out by insurers. The court agreed that the loss was probably greater than $200,000, but to be conservative, used the loss chart, which calculated the fraudulent billing at $150,000, of which insurers paid nearly $130,000. This chart was composed only of those bills in which fraudulent information was submitted. In addition to showing the total amount of loss, the chart showed the ratio of legitimate services provided to fraudulent services claimed. The district court made a reasonable approximation of the loss given the factual complexity of defendant’s scheme. Loss need not be calculated with precision. U.S. v. Vivit, 214 F.3d 908 (7th Cir. 2000).
7th Circuit calculates loss as full amount fraudulently deposited into bank account. (305) Over a two-month period, defendant wrote checks on one bank account for $46,355, $20,000, $60,000, and $45,000 and deposited them into a second bank account. Defendant then faxed a fraudulent letter to the second bank, printed on the first bank’s letterhead, stating that defendant was a customer in good standing, that she had $800,000 in funds available, and that the second bank should have no concerns regarding the deposits by defendant or any subsequent withdrawals. Defendant and her husband wrote eight checks on the second account for withdrawals totally $39,500. The second bank honored these checks based on defendant’s fraudulent deposits. Defendant argued that the loss should be limited to $38,219.92, the second bank’s actual loss. The Seventh Circuit held that the district court properly based the loss on the full amount of the fraudulent deposits ($171,355), since defendant intended to defraud the second bank out of this entire amount. The fraudulent letter stated that she had reserves of $800,000, more than enough to cover the deposits into the second account. There was nothing to limit the amount of funds available for withdrawal to less than the total amount deposited into the account. This was not a check-kiting case in which checks are circulated back and forth between two accounts to create a “float,” a situation which limits the amount available for withdrawal and the corresponding risk of loss. U.S. v. Kipta, 212 F.3d 1049 (7th Cir. 2000).
7th Circuit upholds calculation of loss in food stamp fraud case. (305) Defendant, whose market was licensed to accept food stamps, purchased large quantities of food stamps from neighborhood grocers who were not licensed to accept food stamps. The district court calculated the loss by subtracting the market’s actual total sales ($209,700) from its actual food stamp redemption ($1,241,573) for a total loss of $1,031,873. The Seventh Circuit affirmed. In U.S. v. Barnes, 117 F.3d 328 (7th Cir. 1997), the court defined “loss” in the context of food stamp fraud as “the value of the benefits diverted from intended recipients or uses.” The district court’s calculation followed this reasoning. The court rejected defendant’s claim that not every illegal transaction of food stamps creates a loss for the government. The mere fact that a store owner accepted food stamps for authorized goods was not the issue. The violation occurs when the unlicensed store owner accepts the stamps and then sells them to a licensed store owner to be redeemed. These illegal cash transfers constitute an illegal diversion from the food stamp program’s intended uses and recipients under § 2F1.1 U.S. v. Hassan, 205 F.3d 1072 (7th Cir. 2000).
7th Circuit holds that defendant could foresee all losses from fraud scheme. (305) Defendant and others engaged in a phony investment scheme through which they bilked nearly 30 investors out of more than $15 million. The Chicago Housing Authority (CHA) lost more than a third of its pension fund, some $13 million, in the scheme. Although defendant was personally responsible for only $450,000 in losses, the district court held him accountable for the entire $10-20 million loss. The Seventh Circuit agreed that the entire loss from the conspiracy was reasonably foreseeable to defendant. Defendant was a salesman of fraudulent securities for Konex. Defendant and a CHA insider were fellow participants in a Konex meeting. Defendant also used the CHA insider as a reference (playing the role of a “satisfied investor”) to facilitate his sales. This evidence justified a finding that defendant participated in the scheme as a whole and its activities were reasonably foreseeable to him. U.S. v. Polichemi, 201 F.3d 858 (7th Cir. 2000).
7th Circuit holds runner accountable for all losses from telemarketing scheme. (305) Defendant was one of several “runners” in Illinois who collected money wired to them by victims of a telemarketing scheme operating in Atlanta. Defendant argued that in holding him accountable for all the losses caused by the scheme, the district court looked at foreseeability, but failed to recognize that his participation in the conspiracy was limited to being a runner in the transactions he actually handled. The Seventh Circuit ruled that all the losses were within the scope of defendant’s agreement. Defendant was closely linked with the ringleaders of the scam, two of whom were lifelong friends. Defendant’s activities spanned more than two years. He went along with another runner on some of the latter’s pick-ups, which evidenced at least minimal cooperation among the runners. Defendant’s use of aliases to wire money exhibited an understanding of the scope of the offense and the roles of the various actors. Finally, his agreement to serve as a runner was essential to the success of the scheme and furthered the criminal activity of the group as a whole. U.S. v. Thomas, 199 F.3d 950 (7th Cir. 1999).
7th Circuit bases intended loss on face value of fraudulently obtained insurance policies. (305) Defendant and a co-conspirator obtained life insurance on critically ill individuals under employee group life policies, without their knowledge, and then collected when they died. The actual loss to the insurance companies was $600,000. The district court found that the intended loss was $4.2 million, the face value of the fraudulently obtained policies. The Seventh Circuit upheld the use of intended loss. Defendant’s actions, including his decision to continue to pay premiums on the policies, showed that he intended to collect their face values. The fact that the “insureds” had not yet died made no difference, because future events that are beyond defendant’s control do not affect his intent. The Seventh Circuit further rejected defendant’s claim that he was entitled to a three-level reduction under § 2X1.1 for a “partially completed offense.” The substantive offense of attempted mail and wire fraud was complete. See U.S. v. Coffman, 94 F.3d 330 (7th Cir. 1996). U.S. v. Lorefice, 192 F.3d 647 (7th Cir. 1999).
7th Circuit upholds calculation of defendant’s gain from fraud scheme. (305) Defendant worked at a beauty school that defrauded the federal government of thousands of dollars through a scam involving the distribution of Pell Grant funds. Although the total loss from the scam was about $ 1.3 million, the court only held defendant accountable for the amount she gained, or $40,000. Defendant argued that the district court computed her commissions incorrectly, impermissibly included her legitimate salary into the calculation, and incorrectly based these figures on her earnings from 1990-92. The Seventh Circuit found no error. The district court was not clearly erroneous in determining the amount defendant received for recruiting fictitious students. Defendant’s 1099 tax forms stated that for the years 1990-92, she earned $41,900 in commissions. The district court found the testimony of witnesses who said defendant had recruited fictitious students and her 1099 tax form more credible than the evidence to the contrary. The district court did not, as defendant claimed, include her legitimate salary amount in its loss calculation. Finally, there was more than sufficient evidence that the scam began before August 1991. U.S. v. Craig, 178 F.3d 891 (7th Cir. 1999).
7th Circuit holds that bank president’s illegal transactions were part of common scheme. (305) Defendant, the president of a credit union, pled guilty to charges stemming from her creation of a fictitious loan to cover up the existence of an account with a negative balance. She argued that the district court erred by including irrelevant transactions in the loss caused by her conduct. The Seventh Circuit disagreed, holding that the contested financial transactions fell within both §§ 1B1.3(a)(1) and 1B1.3(a)(2). Although defendant pled guilty to a single count of falsifying the credit union’s books, she also (1) created fictitious loans and falsified loan documents to conceal the credit union’s declining financial status; (2) surreptitiously applied for, and directed proceeds of, life insurance proceeds she knew the credit union had issued without knowledge of the impropriety; and (3) misapplied credit union funds by waiving fees and making disbursements to friends and family. All of the transactions had factors common to the offense of conviction and demonstrated a “common scheme or plan.” The transactions had a common victim (the credit union), a common purpose (concealing the credit union’s declining financial condition), and a common modus operandi (manipulating credit union funds). U.S. v. Brierton, 165 F.3d 1133 (7th Cir. 1999).
7th Circuit refuses to reduce loss by amount repaid after government learned of fraud. (305) Defendant repeatedly submitted incomplete personal financial statements and loan applications to various banks. The district court based the § 2F1.1 loss on the amount of money defendant owed the various institutions on the date the government discovered his fraudulent conduct. Defendant argued that the court should have focused on the date the individual financial institutional discovered the fraud. This would result in a loss of zero because, although his employer and the FBI knew about his fraud before repayments, all of his outstanding loans had been repaid before the lenders learned of his actions. The Seventh Circuit agreed with cases holding that an offense is discovered for loss calculation purposes when the victim or the proper authorities discover the fraud, whichever comes first. After discovery has occurred, money subsequently repaid on fraudulently procured loans may not be set-off against the amount of the loss. U.S. v. Swanquist, 161 F.3d 1064 (7th Cir. 1998).
7th Circuit says judgment defendant sought to discharge was part of bankruptcy fraud loss. (305) Defendant and her husband concealed the income they received from a corporation they jointly owned. Various investors obtained a $454,000 judgment against defendant’s husband and the corporation. Two days later, her husband and the corporation filed for bankruptcy. Defendant and her husband then transferred and concealed assets in which they had an interest. They were convicted of tax evasion, bankruptcy fraud, and money laundering. The Seventh Circuit held that defendant was responsible under § 2F1.1 for a loss of $454,000, the amount of the default judgment sought to be discharged by defendant’s husband and the corporation by filing for bankruptcy. The petitions to commence the bankruptcy proceedings were filed only two days after the default judgment had been entered against her husband and the corporation. The acts of bankruptcy fraud were an attempt to conceal her husband’s and the corporation’s assets in order to obtain a discharge of the $454,000 default judgment. U.S. v. Holland, 160 F.3d 377 (7th Cir. 1998).
7th Circuit says improbability of intended loss might be basis for downward departure. (305) Defendants ran an organization that, for a $500 donation, provided a packet of blank Certified Money Orders (CMOs) to debtors. The debtors were told they could legally discharge a debt by sending a creditor a CMO. The CMO indicated that it could be redeemed by sending it to a post office box. If the lender sent it in, defendants sent the lender a Certified Bankers Check. If the creditor sent the check for redemption, it would be returned stamped “paid in full.” Over the course of several years, none of the debtors ever managed to use a CMO to discharge a debt. The district court found defendants intended to inflict a loss of over $80 million based on defendants’ records of the face value of the CMOs presented to creditors. Defendants argued that a loss of $80 million was not a realistic possibility. The Seventh Circuit affirmed, holding that economic reality is not a part of intended loss. The only hint that economic reality is relevant is the provision that allows a downward departure for transparently bogus schemes. Although the extreme improbability of a loss might undermine a finding of intent, defendants did not challenge the intent finding. However, the district court misunderstood its authority to depart based on the variance between the intended loss and the realistic possibility of such a loss. An $80 million loss might seriously overstate the seriousness of defendants’ offenses. U.S. v. Stockheimer, 157 F.3d 1082 (7th Cir. 1998).
7th Circuit holds defendants who owned 59 percent of company accountable for full amount of corporate loss. (305) Defendants owned 59 percent of an aluminum smelting company. The remaining 41 percent belonged to a venture capital operation run by a Wisconsin utility corporation. Defendants entered into a scheme in which a co-conspirator’s company submitted false invoices, or invoices to cover personal work at defendants’ houses, to the smelting company. Defendants would write checks to cover these invoices, and defendants and the co-conspirator would split the proceeds. Defendants argued that the court should have reduced the amount of loss by 59 percent because they owned 59 percent of the smelting company and could not steal from themselves. The Seventh Circuit ruled defendants were accountable for the full amount of corporate loss because the corporation was a separate entity. The utility participated as a fully participating co-owner of the corporation: the utility demanded that the company followed corporate formalities, it helped direct the company, and it closely monitored defendants’ compensation. Defendants stole from the company, not from themselves. U.S. v. Mankarious, 151 F.3d 694 (7th Cir. 1998).
7th Circuit refuses to reduce loss by amount defendant returned. (305) Defendant and his co-conspirators fraudulently obtained $50,000 from the company of which he was part owner. A few months later, however, defendant telephoned a co-conspirator and explained that the IRS was snooping around. He returned the money and told the co-conspirator to use it as prepayment on future bills. The Seventh Circuit refused to reduce the § 2F1.1 loss by the $50,000 that defendant returned. Defendant intended the loss and returned the money only because of an emerging investigation. Defendants not only attempted to obtain the $50,000, they actually did obtain the money. U.S. v. Mankarious, 151 F.3d 694 (7th Cir. 1998).
7th Circuit holds stipulated facts in plea agreement waived any challenge to amount of loss. (305) Defendant pled guilty to conspiring to commit theft from a program receiving federal funds. He signed a plea agreement in which he stipulated to the facts underlying his crime and to additional uncharged crimes. Sometime before the sentencing hearing, defendant contested many of the facts to which he had stipulated. The court rejected defendant’s objections. On appeal, defendant attacked the factual basis of the court’s findings of the amount of loss associated with his offense. The Seventh Circuit found no error in the court’s reliance on the stipulated facts to calculate loss. Defendant stipulated to a loss amount even greater than the one used by the district court. Although defendant now claimed that his losses were lower, he waived this claim by his stipulations in the plea agreement. U.S. v. Newman, 148 F.3d 871 (7th Cir. 1998).
7th Circuit adds additional intended loss to actual loss to reach total loss. (305) Defendant, an employee benefits manager, diverted $15 million in pension fund money to con men running a Ponzi scheme and induced other persons to invest additional money in the scheme. A total of $19.9 million was lost. Had the scheme not been discovered when it was, an additional $5 million might have been lost. The district court held defendant accountable for a loss of more than $20 million by adding the $19.9 million in actual loss to the $5 million in additional intended but unrealized loss. The Seventh Circuit held that the district court properly added the unrealized intended loss to the actual loss. There were multiple victims, and it was proper to add the actual loss of one victim to the intended loss of another victim. In some sense the full 24.9 million was the intended loss. The amount of intended loss, for sentencing purposes, is the amount that the defendant placed at risk by misappropriating money or other property. Here defendant intended to place the full $24.9 million of pension fund and investors’ money at risk by shunting it to con men. U.S. v. Lauer, 148 F.3d 766 (7th Cir. 1998).
7th Circuit uses full amount of premiums as intended loss in bogus insurance case. (305) Defendants conspired to sell bogus auto insurance policies to innocent consumers. On the day the state closed down the scheme, the conspirators had only netted $176,561.56 but had sold policies obligating the victims to pay $622,140 in premiums. The district court found the intended loss under § 2F1.1 was $622,140. Defendants argued that the $622,140 was speculative because they had only collected a fraction of that amount and it was unlikely that all the customers would pay. The Seventh Circuit upheld the use of the full $622,140 as the intended loss. Intended loss is not the same thing as probability of success. The relevant inquiry is not “How much would the defendants probably have gotten away with?” but “How many dollars did the culprits’ scheme put at risk?” The fact that the conspirators were able to collect only $176,000 before they were shut down was not important. The crime was complete when the policies were sold. Although note 10 authorizes a downward departure if a scheme is so ridiculous that it could not possibly deceive anyone, this was not such a case. U.S. v. Bonanno, 146 F.3d 502 (7th Cir. 1998).
7th Circuit includes represented appreciation in loss to defrauded investor. (305) Defendant, a licensed stockbroker, misappropriated money entrusted to him by clients for investment. One client gave him $50,000 to invest, but defendant applied the money for his own uses, and periodically sent the client statements indicating that the account had appreciated. The district court found that the loss to this client exceeded $51,586.61, which was the amount necessary to make the total loss exceed $500,000. Defendant contended that because no specific rate of return was guaranteed on the client’s original $50,000 investment, any appreciation was speculative and could not be included in the § 2F1.1 loss calculation. The Seventh Circuit rejected this assertion. Although defendant did not initially guarantee the client any specified rate of return, he represented that the client had earned a fairly healthy return (over $14,000) in the first year of the investment. He also said that the client could expect a return of about 8% in the future. This was not a case of “speculative opportunity cost interest” because it did not involve merely the time value of money had the fraud not occurred. This was a case of accrued interest or appreciation that the investor was told he had earned. U.S. v. Porter, 145 F.3d 897 (7th Cir. 1998).
7th Circuit finds loss to competitors and downstream consumers too speculative to calculate. (305) Defendant manufactured “premixes” for veal calves ¾ mixtures that livestock growers add to animal feed. Some of defendant’s premixes contained drugs that were unapproved by the FDA for use in either food-producing animals or veal calves. The Seventh Circuit ruled that the loss to defendant’s competitors and downstream consumers was too speculative to include in the § 2F1.1 sentencing calculation. With respect to competitor losses, the government did nothing more than establish that other companies sell premix. There was no evidence that the illegal substances drew customers to defendant from its competitors. Most of defendant’s direct customers were aware that the premixes contained unapproved drugs and thus were not defrauded. Although at some point innocent purchasers consumed the tainted veal, the proper measure of loss would be the difference between what the consumers would have paid if they had all the facts and the price the consumers actually paid. This was too speculative to calculate. Although the court could depart to account for the risk to human and animal health, it could not punish defendants for this harm by including speculative losses in its § 2F1.1 calculation. U.S. v. Vitek Supply Corporation, 144 F.3d 476 (7th Cir. 1998).
7th Circuit includes loss to Customs where shipments were mislabeled as duty-free. (305) Some of defendant’s cattle feed premixes contained drugs that were unapproved by the FDA for use in either food-producing animals or veal calves. Defendant smuggled these drugs into the U.S. with the help of its Dutch parent corporation. In shipments from the parent to defendant, the companies either misdescribed the drugs in documents submitted to the U.S. Customs Service or failed to declare the substances altogether. In applying § 2F1.1, the district court included a $29,452.65 loss suffered by Customs. The Seventh Circuit affirmed reliance on the loss to Customs, rejecting defendant’s claim that the shipments were duty-free. In order for a shipment to be duty-free under the applicable regulation, it must be a preparation used in feeding animals, and contain at least six percent grain product. The remainder of the preparation must consist of feedstuffs ¾ sources of nutrition. The unapproved substances in defendant’s premixes were not sources of nutrition. Thus, defendant’s shipments were dutiable and Customs suffered a loss under § 2F1.1. U.S. v. Vitek Supply Corporation, 144 F.3d 476 (7th Cir. 1998).
7th Circuit includes losses to meat processor that destroyed calves who ate tainted feed. (305) The Seventh Circuit upheld the court’s consideration under § 2F1.1 of losses to a meat processor that destroyed its calves after learning that they had been fed defendant’s tainted products. Although the FDA did not order the meat processor to destroy the calves, the FDA refused to assure the processor that it would not initiate an enforcement action if the processor sold the meat. The FDA also informed the processor that it was free to pursue judicial resolution of the issue, and that any decision to destroy the meat “would be purely voluntary.” However, the fact that the processor could have argued in court that the meat was safe for human consumption did not make the processor’s decision to destroy the calves “voluntary” for loss purposes. The processor was a victim, even though the vice president of the feed company that the processor employed to recommend feeds and additives knew the products contained a banned substance. The vice president was not an agent of the processor, but an employee of one of the processor’s independent contractors. U.S. v. Vitek Supply Corporation, 144 F.3d 476 (7th Cir. 1998).
7th Circuit holds defendant accountable for losses from frauds perpetrated by co-conspirators. (305) Defendant was involved in a scheme in which an Asian male approached victims asking for help to transfer money out of Hong Kong before its return to China. Three victims gave the co-conspirators bank account information. The conspirators deposited fraudulent cashier’s checks into the victims’ account, the victims removed money from their account, gave it to their contact, and the conspirators disappeared. Defendant argued that his loss should be limited to the amount involved in the first fraud only, because he did not play a role in the other two frauds. The Seventh Circuit held that defendant was accountable for the losses caused by his co-conspirators. All three scams were part of the same scheme. Defendant traveled from California to Milwaukee with two others for the purpose of carrying out a fraudulent scheme and he directly participated in one of the frauds, which used the same check-passing tactic that were used in the other two frauds. Defendant rented in his own name the car used in one of the other transactions. Defendant’s close collaboration with his cohorts established that the Hong Kong money scam was a joint undertaking. U.S. v. Giang, 143 F.3d 1078 (7th Cir. 1998).
7th Circuit holds loss findings were sufficiently specific. (305) Defendant, the business manager of his local union, was convicted of mail fraud and embezzlement of union funds. The Seventh Circuit rejected defendant’s claim that the judge’s findings as to loss were not sufficiently specific. The judge added the sums expended from the general fund, the inflated “pay” received by defendant’s girlfriend, and the loss to secretaries who lost their jobs as a result of defendant’s plot to decertify their union. The sum of these figures exceeded $120,000, and the judge’s findings were sufficiently specific not to be clearly erroneous. U.S. v. Carlino, 143 F.3d 340 (7th Cir. 1998).
7th Circuit upholds loss amount in food stamp fraud case. (305) Defendants, the operators of two small grocery stores, were convicted of food stamp fraud. The government argued that the loss was $427,965, based on the total amount of food stamps redeemed minus 50 percent of the stores’ gross food sales. Defendants argued that because a witness testified that about 3/4 of all the sales she experienced were made by food stamps, only 1/4 of the total stamps redeemed, or $155,484, could have been fraudulent. The court accepted neither recommendation and concluded that the loss exceeded $315,000. The Seventh Circuit held that the record amply supported the court’s loss determination, even though the court could have been more specific in explaining its calculation. The court listened to over 2 hours of testimony and actively questioned witnesses and counsel about the figures and methods being advanced. Contrary to defendants’ claims, there was no evidence that the court relied on the sales tax returns, nor that it did not consider a cash-back theory. U.S. v. Brown, 136 F.3d 1176 (7th Cir. 1998), superseded by statute on other grounds by U.S. v. Rodriguez-Cardenas, 362 F.3d 956 (7th Cir. 2004).
7th Circuit bases bankruptcy loss estimate on statement defendant made to employee. (305) Defendant owned two stores that specialized in sports collectibles. After filing for bankruptcy, he instructed store employees to pull all of the cards worth more than $75 from the display case, mix up the remaining cards so that it did not look like any of the cards were missing, and to put the boxed cards in his van. The government never located the missing cards. The Seventh Circuit affirmed the court’s finding that the loss caused by defendant’s concealment of the cards exceeded $70,000. An employee testified that defendant told him that the value of the cards taken out of the store was “over $110,000.” That testimony provided a sufficient basis for the court’s loss estimate. Defendant was the party who, by taking the cards, made it impossible for the government to provide a more accurate figure. U.S. v. Liporace, 133 F.3d 541 (7th Cir. 1998).
7th Circuit rejects use of bonuses defendant received to estimate loss. (305) Defendant was an accountant for a small commodities futures trading firm. The firm gave him permission to become a trader in a very limited capacity. Defendant was to get a bonus of 50% of his profits and share 50% of his losses. Defendant’s trading exceeded his limits. To conceal his unauthorized trades, he altered the daily printout of the firm’s trading activity. The government and the PSR argued that the victim’s loss was $202,041, and the defense argued it was $111,697. However, during the sentencing hearing, defendant twice said the government’s overall loss figure was correct. Instead of adopting either of these positions, the district court used only the gain made by defendant–two bonuses totaling $37,008. The Seventh Circuit held that it was error to use defendant’s gain as an estimate of loss when defendant twice affirmed to the court that the government’s $202,041 loss figure was correct. The court never explained why it found that the loss only consisted of the bonuses paid to defendant. U.S. v. Maxwell, 131 F.3d 622 (7th Cir. 1997).
7th Circuit holds defendant accountable for full amount of loss despite claimed intent to repay. (305) Defendant, an insurance agent, established his own insurance business. When the business began to experience financial difficulties, he sold debenture bonds that were guaranteed by his business and personal assets. He made false statements to the investors about how the money would be used, and used it to pay personal, rather than business expenses. He admitted making the misrepresentations, but maintained that he always intended to repay the bonds on or before their due date with commissions he claimed he was owed. The Seventh Circuit held that the total amount of the bonds was properly characterized as loss. The district court found that despite defendant’s claims, he did not intend to pay the bondholders back. This determination was based on evidence that defendant did not have the ability to pay the bondholders back, and was not actually owed commissions. Because defendant did not intend to repay the bondholders, the case was properly characterized as a simple theft. He simply took the bondholders money and never intended to return it. U.S. v. Saunders, 129 F.3d 925 (7th Cir. 1997).
7th Circuit holds defendant accountable for all losses from telemarketing scheme. (305) Defendant was a major participant in a telemarketing scam that netted $360,000 from its victims. Defendant alone defrauded victims of $282,000. The Seventh Circuit held that defendant was responsible for all the losses from the scheme. Defendant contributed over 3/4 of the take, he developed the most successful scam, other members of the operation used his “rap,” and most importantly, defendant knew from the beginning that the scheme had other participants. A defendant is responsible for reasonably foreseeable losses caused by co-conspirators. U.S. v. Senn, 129 F.3d 886 (7th Cir. 1997).
7th Circuit reduces loss only by assets pledged at time the offense is discovered. (305) Defendant took out a series of loans, using cattle and 250 acres of farmland from his father’s estate as collateral. To obtain a credit extension, he falsely reported that the estate owned 164 head of cattle worth $105,000, when in fact it owned no cattle. At the time the fraud was discovered, defendant’s loans totaled $540,000. The court deducted from this the value of the land defendant had pledged as collateral, thus reducing the total loss to $377,000. Defendant argued that the court should have further reduced the loss by those assets pledged after discovery of the offense. The Seventh Circuit rejected this argument. Loss is only reduced by those assets securing the loans at the time the offense is discovered. Although a lending institution may demand additional assets to secure a loan after a fraudulent application is discovered, Application note 7(b) should not be construed to reduce a loss by this amount. This would, in effect, allow a defendant to buy a reduced sentence. U.S. v. Downs, 123 F.3d 637 (7th Cir. 1997).
7th Circuit holds seller who defrauded buyer also accountable for fraud against supplier. (305) In selling her oil business, defendant misrepresented to the buyer that several liens on the property had been paid in full. At the time of the sale, the company also owed $40,928.83 to its supplier for oil delivered before the sale. Defendant’s company had paid for the oil with checks on accounts with insufficient funds. The oil had already been delivered to the company’s customers at the time of the sale. The Seventh Circuit agreed that the loss to the supplier was relevant conduct that was properly included in the § 2F1.1 loss calculation. The loss was properly attributable to defendant, rather than the company’s manager. Defendant was fully aware of and involved in running the oil business, and she directed the actions of the manager and the company’s bookkeeper. Although the company may have received payments from its customers for some of the oil, defendant did not deposit them into the company’s account. It was not necessary for defendant to personally take all the amounts owed to the supplier for it to be counted toward the loss. U.S. v. O’Brien, 119 F.3d 523 (7th Cir. 1997).
7th Circuit affirms loss calculation from unemployment compensation fraud. (305) Defendants fraudulently procured unemployment compensation checks for fictitious employees of the bar and restaurant they owned. To determine loss, the government investigated each unemployment claim in which defendants’ businesses were identified as the employer. The government verified the falsity of each such claim by at least one of the following: (1) interviewing the actual persons in whose names the claims had been submitted, (2) reviewing the records of the claimants’ actual employers, and (3) confirming through Social Security records that the claims contained erroneous biographical information. The Seventh Circuit upheld the court’s calculation of loss. Defendants failed to address why the verification was unreliable. The court did not err in attributing the entire $569,741 loss to one defendant. This defendant not only was a source of names for the scheme, but also provided her residence as a mailing address, forged documents, and appeared in person at the state unemployment office pretending to be a claimant. Given defendant’s “absolutely integral and essential” role in the scheme, the district court properly found that the entire $569,741 loss was foreseeable to her. U.S. v. Zaragoza, 117 F.3d 342 (7th Cir. 1997).
7th Circuit refuses to reduce loss from food stamp fraud by amount defendant paid for the food stamps. (305) Defendant, who operated two grocery stores, illegally bought food stamps for 67 percent of their face value and redeemed them at his local bank. During a seven-year period, he redeemed $3,524,754 in food stamp coupons at his bank, even though his two stores generated only $1,283,232 in gross sales during the same period. The Seventh Circuit affirmed a loss estimate determined by taking the aggregate food stamp redemptions and subtracting the actual food sales. Note 7(d) says that in a case involving diversion of government program benefits, loss is the value of the benefits diverted from the intended recipients or uses. The court was not required to subtract the amount defendant paid for the food stamps. Although defendant may have paid the intended recipients 67% of the food stamps’ value, he still diverted a full one hundred percent of the value of the food stamps coupons he purchased from their intended “use”– the purchase of specified food products from authorized dealers. U.S. v. Barnes, 117 F.3d 328 (7th Cir. 1997).
7th Circuit permits considering acts beyond statute of limitations as relevant conduct. (305) From 1978 to 1992, defendant failed to report to the Veterans Administration the income he earned. As a result, he received a larger VA pension than he was entitled to receive. He pled guilty to two counts relating to the false reports he filed 1991 and 1992. The district court calculated the loss as the total overpayment from 1978 to 1992. Defendant maintained that the loss should be limited to the false reports he filed within the five-year statute of limitations period. Because he was indicted in March 1996, the five-year statute of limitations would have excluded any acts before March 1991. The Seventh Circuit held that a court may properly consider acts beyond the statute of limitations as relevant conduct. Six other circuits have held that relevant conduct should not be limited by the statute of limitations. Relevant conduct does not focus on acts for which the defendant is criminally accountable. U.S. v. Matthews, 116 F.3d 305 (7th Cir. 1997).
7th Circuit holds nurse who created false medical bill accountable for full amount. (305) Defendant participated in a conspiracy that staged auto accidents, made false medical claims, and then collected fraudulent insurance proceeds. Defendant, a nurse at a clinic, oversaw the creation of fraudulent bills from the clinic, which were used to obtain a settlement from insurance companies. The district court included in the § 2F1.1 loss both the amount of the medical bills from the clinic ($18,858) as well as the amounts above that sum that the various insurance companies paid out, for a total of $46,840. The Seventh Circuit held that defendant was accountable for the total amount paid by the insurance companies. An attorney involved in the scheme testified that insurance companies usually pay 3-4 times the amount of a victim’s medical bills to settle a claim. Two insurance adjusters testified to the same effect, that medical bills were used as the starting point to settle a claim. Furthermore, a victim’s claims of lost wages are made believable by the existence of medical bills. U.S. v. Green, 114 F.3d 613 (7th Cir. 1997).
7th Circuit holds defendant accountable for all fraudulent checks cashed by co-conspirators. (305) Defendant and others conspired to defraud merchants and businesses by passing worthless checks on defendant’s closed checking accounts. The Seventh Circuit held defendant accountable under § 2F1.1 for all the checks his co-conspirators cashed. Defendant aided and abetted all of his co-conspirators’ check cashing activities, by providing the co-conspirator with a place to store merchandise and submitting statements and false affidavits so that neither he nor the co-conspirator would be implicated in cashing the checks. Defendant was aware that one co-conspirator had stolen some of his checks and still continued to give the co-conspirator checks up until the time of arrest. U.S. v. Laurenzana, 113 F.3d 689 (7th Cir. 1997).
7th Circuit holds defendant accountable for full amount of insurance company’s loss. (305) Defendant’s co‑conspirator staged a car accident, then defendant and three others entered the damaged vehicle and pretended to be victims of a hit‑and‑run accident. All four received unnecessary emergency medical care at a nearby hospital and then retained the same attorney to file claims with the insurance company. The insurance company paid out a total of $21,000. Of that, defendant received $4600. The Seventh Circuit held that defendant was accountable for the full $21,000. The total loss was caused by jointly undertaken activity. The other passengers’ claims were within the scope of defendant’s agreement. It was implausible to suggest that defendant agreed to a scheme in which, although she was one of four passengers feigning injuries, she and she alone would make a fraudulent claim against the insurance company. There was abundant evidence that the fraud was a joint effort, including getting into the car together, jointly faking injuries, giving the same account of the accident and using the same attorney to make claims. U.S. v. Boatner, 99 F.3d 831 (7th Cir. 1996).
7th Circuit affirms loss from telemarketing scam equal to amount paid by victims less cost of goods to defendant. (305) Defendant operated a scam in which telemarketers advised victims that they had won one of five “prizes.” To receive the “prize” the victim had to send the company $250 for promotional fees and taxes. The “prize” usually was vacation vouchers for which the telemarketing firm had paid $45. The district court calculated the § 2F1.1 loss by treating the scam as a sale in which the value of the goods was misrepresented and then determining the defendant’s profit from these “sales” (i.e. the amount collected for goods minus actual cost of goods to seller). Defendant argued that the vacation vouchers were worth more than $45. The Seventh Circuit held that the court’s valuing of the vouchers at $45, the price defendant paid for them, was very reasonable under the circumstances. The $45 price was a reasonable estimate of their market value, especially since defendant did not offer any other evidence of market value. Moreover, the method of calculating loss was very conservative and may have underestimated the loss to the victims. The victims never agreed to buy anything. They believed they would be receiving something worth substantially more than the money sent to defendant. Thus, the loss to the victims was arguably much greater. U.S. v. Jackson, 95 F.3d 500 (7th Cir. 1996).
7th Circuit says previous fraud using same worthless stock was not relevant conduct. (305) In 1989, defendant attempted to obtain a $300,000 loan from a brokerage firm using worthless stock as collateral. The district court added to the loss the amount which one defendant had bilked from some purchasers of the same worthless stock in 1987. The Seventh Circuit held this was error because the previous fraud was not relevant conduct. The use of the same instrument of crime on separate occasions involving different victims does not establish relevant conduct under the guidelines. There was no more a common scheme or the same course of conduct than if defendant had used the same gun to hold up two different people two years apart. The error was harmless since defendant was still held accountable for loss of between $200,000 and $500,000. U.S. v. Coffman, 94 F.3d 330 (7th Cir. 1996).
7th Circuit uses amount of loan defendants attempted to fraudulently obtain from victim. (305) Defendants attempted to obtain a $300,000 loan from a brokerage firm using worthless stock as collateral. The Seventh Circuit approved a loss figure of $300,000, the amount that defendants intended to obtain fraudulently from the firm. It did not matter that the FBI interceded before any money changed hands, thus ensuring that the actual loss would be zero. Cases cited by defendants involved fraud that would have done no harm even if the defendant had not been interrupted. Here, there was a real victim who would have been harmed if the fraud had been completed. This was a clear case of attempted fraud, where the intended loss is the relevant benchmark rather than actual loss. Moreover, because the sentence is to be based on the intended rather than the actual loss, the three level downward departure for attempts in § 2X1.1(b)(1), is inapplicable. U.S. v. Coffman, 94 F.3d 330 (7th Cir. 1996).
7th Circuit agrees that losses caused by other conspirator were reasonably foreseeable. (305) Defendants operated sham businesses that obtained credit and other personal information which they used to fraudulently obtain credit cards, bank loans and checking accounts. The district court determined that one defendant’s fraudulent procurement of certain bank loans constituted relevant conduct for purposes of determining the second defendant’s offense level, and held the second defendant accountable for the loss. The Seventh Circuit affirmed, agreeing that the first defendant’s fraudulent bank loans were reasonably foreseeable acts performed in furtherance of their jointly undertaken criminal activity. The guidelines do not require that the second defendant have been aware of each and every action committed by the first defendant. The second defendant knew that the first defendant was purchasing properties, and knew that his activities would help the first defendant accomplish that objective. U.S. v. Akindele, 84 F.3d 948 (7th Cir. 1996).
7th Circuit says intervening causes do not reduce loss. (305) Defendants, bank officers, were convicted of fraud in connection with the bank’s $10 million offering of subordinated capital notes. They failed to approve an additional $9.3 million in loan loss reserves recommended by bank management. The district court concluded that the actual loss to the victims was the face amount of the notes. Defendants argued that they should not be charged with all this loss because other factors actually caused the bank’s demise. The Seventh Circuit held that intervening causes do not reduce the amount of loss attributable to a defendant’s fraud. They may be a basis for a downward departure under note 11 to § 2F1.1. But the district court understood that it could depart if it believed the loss overstated the seriousness of the offense. Its refusal to depart was not reviewable. U.S. v. Morris, 80 F.3d 1151 (7th Cir. 1996).
7th Circuit upholds estimate of loss from educational loan fraud scheme. (305) Defendant, the founder and officer of a business school, converted federal financial aid funds and student loans for his own use. The Seventh Circuit approved the district court’s estimate of loss. A government witness testified that loan refunds owed withdrawn students totaled between $885,597 and $938,178. The school also owed $552,049.52 in grant overdrafts. The district court properly estimated the loss at about $1.4 million. U.S. v. Ross, 77 F.3d 1525 (7th Cir. 1996).
7th Circuit aggregates monetary losses from fraud scheme. (305) Defendant, the former president of a postal workers union, committed numerous acts of fraud, embezzlement and tax evasion. In one scheme, he arranged with a finance company to set up a loan program for postal employees. In return, the finance company kickbacked money to defendant for each loan. Defendant also sent notice that each non-union loan applicant was required to pay a $12 associate membership fee. Defendant personally received $120,000 in kickbacks from the finance company, and over $84,000 in associate membership fees. The Seventh Circuit found that the district court properly aggregated the total monetary loss to the union and its members. The $120,000 in kickbacks and the associate membership fees properly should have gone to the union and thus represented loss. The court properly grouped the multiple losses in different counts to determine defendant’s sentence. Section 1B1.3(a)(2) provides that all act that were part of the same course of conduct or common scheme or plan as the offense of conviction should be considered in determining the appropriate offense level. U.S. v. Briscoe, 65 F.3d 576 (7th Cir. 1995).
7th Circuit holds defendant accountable for losses caused by co-conspirator. (305) On the same day, defendant and a partner each engaged in a speculative and fraudulent stock trading scheme called a “Texas hedge.” Defendant realized a profit of $1.4 million; his partner had a loss of $8.5 million that bankrupted the clearing firm that guaranteed their trades. The Seventh Circuit agreed that defendant was accountable for the $7 million loss ($8.5 million loss less defendant’s $1.4 million gain) suffered by the clearing firm. Defendant could have foreseen his partner’s conduct and thus could have foreseen the losses the partner caused. The two plotted for months and discussed making trades thousands of times larger than their past activities. They planned “to take down the world financial system.” Carrying out this plan depended on the actions of both men. Furthermore, both men agreed to split their profits in case one of them lost money, and nothing indicated that the men agreed to stop at any certain point. U.S. v. Catalfo, 64 F.3d 1070 (7th Cir.1995).
7th Circuit upholds loss equal to amount of altered money orders and checks deposited into account. (305) Defendant attempted to open an investment account with five money orders purporting to be worth $1,000 each. The money orders had been altered and were actually worth $20.50. He supplemented that deposit with a cashier’s check purporting to be worth $85,000 that was actually worth $5.00. The district court calculated the loss at $90,000 (the amount of the altered money orders and cashier’s check). Defendant argued that only $5,000 should be counted, because this was the only check drawn on the account. The altered $85,000 check was discovered before any funds could be drawn on it. The Seventh Circuit held that the district court properly used the amount of the intended loss as the loss under § 2F1.1 The court declined to adopt the Sixth Circuit’s position that a court can determine intended loss under § 2F1.1 note 7 only by applying the attempt guideline of § 2X1.1(b)(1). U.S. v. Yusufu, 63 F.3d 505 (7th Cir. 1995).
7th Circuit rejects prior opinion and includes promised interest in loss. (305) Defendant obtained a series of nine loans by using various false statements. The district court included in the § 2F1.1 loss the interest that defendant had agreed to pay on the loans at issue. The Seventh Circuit affirmed, holding that the promised interest was properly included in the loss, despite a prior circuit opinion to the contrary, U.S. v. Clemmons, 48 F.3d 1020 (7th Cir. 1995). Note 7 to § 2F1.1, which excludes interest the victim could have earned on the funds had the offense not occurred, refers to the speculative “opportunity cost” interest. It does not refer to a guaranteed, specific rate of return that a defendant contracts or promises to pay. The instant opinion was circulated among the 7th Circuit judges and a majority agreed that Clemmons should be overruled to the extent that it conflicts with this opinion. U.S. v. Allender, 62 F.3d 909 (7th Cir. 1995).
7th Circuit says repayment of overdrafts after check-kiting scheme was discovered did not reduce loss. (305) Over a six-month period, defendant engaged in a check-kiting scheme between two bank accounts. When the scheme was discovered, one account was overdrawn by $160,000. Defendant argued that the amount of loss from his check-kiting was $0 because he promptly repaid the $160,000 in overdrafts, and the bank suffered no actual loss. The Seventh Circuit disagreed, since under circuit precedent the amount of loss resulting from a check-kiting scheme is determined at the time the scheme is discovered. While defendant’s repayment showed acceptance of responsibility, it did not reduce the § 2F1.1 loss. U.S. v. Asher, 59 F.3d 622 (7th Cir. 1995).
7th Circuit refuses to reduce loss by stock owned by loan guarantor. (305) Defendant fraudulently obtained four loans by misrepresenting the value of his company’s collateral. He argued that because he had pledged all of his assets as a personal guaranty for each of the four loans, the value of certain stock he owned should have been deducted from the § 2F1.1 loss. The Seventh Circuit held the loss was properly calculated because the stock was not a “ready source” of income. The stock was potentially unmarketable with little, if any, net worth. Furthermore, “unrealized plans to repay” do not reduce loss. U.S. v. Channapragada, 59 F.3d 62 (7th Cir. 1995).
7th Circuit holds that money repaid to other creditor was loss in bankruptcy fraud. (305) Defendant operated a car dealership that went into bankruptcy. He agreed to turn over to his lender all post-petition assets, including all vehicle inventory and proceeds from all vehicle sales. Shortly before this was to take place, defendant received an order for two trucks. Unable to finance the deal himself, he arranged for a nearby dealership to order the trucks and have them shipped to defendant, who would then sell the trucks and reimburse the other dealer for the cost of the trucks. Defendant was convicted of bankruptcy fraud for taking the funds he received for the trucks and paying the dealer $33,400. Defendant argued there was no loss under § 2F1.1 because the dealer was entitled to the $33,400. The Seventh Circuit disagreed, holding that the lender’s loss was $33,400. Defendant violated the court-ordered agreement. The agreement gave the lender a first priority security interest in all vehicle inventory and proceeds from all vehicle sales, whether or not the lender financed the purchase. U.S. v. Gunderson, 55 F.3d 1328 (7th Cir. 1995).
7th Circuit approves use of sales price as loss from sale of forgeries. (305) Defendant, the owner and operator of a chain of art galleries, sold numerous forgeries as originals. In assessing the loss, the government argued that nothing defendant sold had any actual value. The government based its opinion on its inspection of defendant’s inventory as well as about 100 previously sold pieces, almost all of which were worthless fakes. The district court adopted the government’s methodology in calculating a loss of between $2.5 and $5 million. The Seventh Circuit approved the use of the sales price as the loss from the forgery scheme. Because defendant’s inventory contained almost nothing but worthless fakes, the district court properly estimated that the value of the artwork sold by defendant was zero. U.S. v. Austin, 54 F.3d 394 (7th Cir. 1995).
7th Circuit says loss from reduced market value was due to lender fraud but not title fraud. (305) Defendant obtained a clear title commitment by falsely representing to a title insurance company that a lender’s first mortgage had been satisfied. He then misrepresented to a second lender that four lots pledged as collateral were free of existing liens. When the fraud was discovered, the title company made good its commitment by taking a mortgage assignment from the first lender. This caused the original mortgage to become subordinate to the second lender’s mortgage. When defendant defaulted on the loans, the second lender suffered a loss of $183,043 as a result of the property’s reduced market value. The Seventh Circuit agreed that this was a consequential loss not directly attributable to the title fraud, because the title company made good its commitment. However, defendant also committed a second fraud. By failing to disclose the lien, he precluded the second lender from accurately assessing his likelihood of default. The lender’s loss was directly caused by this misrepresentation and thus could be considered under § 2F1.1. U.S. v. Barrett, 51 F.3d 86 (7th Cir. 1995).
7th Circuit agrees that defendant could foresee scope of check kiting conspiracy. (305) Defendant was involved in a conspiracy to defraud banks and merchants by “kiting” checks that were stolen, forged or otherwise worthless. The Seventh Circuit held that defendant could foresee the scope of the conspiracy and therefore was accountable for all of the losses resulting from the conspiracy. The government linked defendant directly to approximately $64,000 in losses–one third of the total amount attributed to the conspiracy. In addition, defendant assisted others during the conspiracy, and had joint access to a box containing checks used by the conspirators. Defendant was aware of the broad scope of the scheme and should have anticipated losses resulting from the activities of other participants. He did not need to have specific knowledge of the other transactions to be held responsible for them. U.S. v. Blackwell, 49 F.3d 1232 (7th Cir. 1995).
7th Circuit holds defendants accountable for loss incurred in entire fraud scheme. (305) Over a several year period, defendants engaged in a fraudulent “Ponzi” scheme that resulted in a loss of $1 million to investors. They pled guilty to one count of mail fraud based on checks they mailed to one of the investors. The Seventh Circuit held that defendants were properly accountable for the losses incurred in the entire fraud scheme, not just the losses of the named investor. The indictment alleged that the mailing to this investor was for the purposes of executing a scheme. Defendants admitted this scheme in their plea agreement. U.S. v. Brown, 47 F.3d 198 (7th Cir. 1995).
7th Circuit rejects using defendant’s gain to measure loss caused by veterinary drug scheme. (305) Defendants operated a veterinary clinic and ran a “side” business in unregistered veterinary drugs. The Seventh Circuit rejected the use of defendants’ gain as an estimation of loss under § 2F1.1. Although gain is usually an appropriate means of estimating loss, this case presented an unusual situation where the relationship between defendants’ gain and any loss suffered by competitors or customers was extremely tenuous. The government presented no evidence of any financial loss suffered by competitors. In fact, there was evidence that there were insufficient veterinarians in the area to meet the demand for services. Moreover, there was no evidence that defendants’ customers suffered a loss. The customers were aware that the drugs were not approved by the FDA, but were nonetheless pleased with defendants’ services. Defendants did, however, cause harm to the public through their violations of FDA rules. This non-monetary harm could be the basis for an upward departure. U.S. v. Andersen, 45 F.3d 217 (7th Cir. 1995).
7th Circuit refuses to reduce loss despite repayment agreement after loss was discovered. (305) Defendant kited numerous checks between three different bank accounts over a period of seven months. When the kite ended, defendant had a overdraft at one bank totaling $69,862.86. He signed a note for the overdraft, collateralized by certain property he owned. Defendant eventually defaulted on the note and two other loans he had with the bank. As permitted by the terms of his loan agreement, the bank applied $75,000 from the sale of the property to the other two loans. The bank still was owed $130,000 on these loans, plus $66,862 as a result of the kite scheme. The district court determined that the loss from the check kiting scheme was $66,862. The Seventh Circuit agreed, holding that the loss should not be reduced by the repayment agreement defendant executed after the kite scheme was discovered. A check kiting scheme is not analogous to a fraudulent loan application. The bank actually lost $66,892 and it was not required to consider the collateral defendant put up to cover the note as offsetting that loss. U.S. v. Mau, 45 F.3d 212 (7th Cir. 1995).
7th Circuit holds defendant accountable for all stolen checks cashed by conspiracy. (305) Defendant argued that he was not responsible for all losses caused by a stolen check conspiracy because he did not join it at the beginning and was acquitted of or not charged with other counts of the indictment. The Seventh Circuit found that defendant was accountable for all of the stolen checks successfully deposited by the group. Defendant was involved from the beginning of the conspiracy as one of two people with whom the leader discussed cashing a $1.2 million stolen check. Although the check was returned because of its large sum, defendant told the leader to “look out for him” at the inception of the scheme, indicating his willingness and agreement to join the scheme. Thus, although defendant may not have actually participated when the group cashed its first three stolen checks, those checks were within the scope of the conspiracy and reasonably foreseeable to defendant. U.S. v. Dillard, 43 F.3d 299 (7th Cir. 1994).
7th Circuit uses dismissed counts to determine fraud loss. (305) Defendant argued that conduct underlying a dismissed count should not be used to determine loss under § 2F1.1. The 7th Circuit held that the dismissed count was properly considered as relevant conduct. Note 6 to § 2F1.1 states that the cumulative loss produced by a common scheme or plan or course of conduct should be used in determining the offense level, regardless of the number of counts of conviction. U.S. v. Martinson, 37 F.3d 353 (7th Cir. 1994).
7th Circuit finds defendant was responsible for later disbursements in scheme. (305) Defendant was involved in a complicated scheme that permitted telemarketers, through the use of intermediaries, to gain access to credit card funds. He argued that he was “expelled” from the conspiracy in April 1991 and that disbursements made to him after this date were not relevant conduct. The 7th Circuit rejected this claim. Defendant remained an active and influential leader and beneficiary of the scheme after April 1991. He accepted wire transfers from three merchant accounts generated by a co-conspirator. U.S. v. Brown, 31 F.3d 484 (7th Cir. 1994).
7th Circuit refuses to offset loss where no portion of investment was for legitimate purposes. (305) Defendant fraudulently induced five “investors” to give him money to sell self-help manuals through telemarketing and radio ads. In fact, his entire operation was a scam. He argued that loss under section 2F1.1 should be reduced by amounts he spent on “legitimate” business expenses, such as radio ads, telemarketing and legal fees. The 7th Circuit held that defendant was not entitled to a reduction. Money spent as part of his fraudulent scheme did not become legitimate business expenses simply because other legitimate businesses also incur these expenses. The funds were intertwined with and an ingredient of defendant’s overall fraudulent scheme. Defendant’s case was distinguishable from U.S. v. Schneider, 930 F.2d 555 (7th Cir. 1991), because he never intended to return a dime of the investors’ investment or fulfill his promises to them. U.S. v. Marvin, 28 F.3d 663 (7th Cir. 1994).
7th Circuit rules that loss does not include amounts title insurer paid to settle lawsuits. (305) Defendant was the owner of a title insurance company that sold title insurance written by Ticor. Defendant issued policies representing that purchasers were obtaining clear title to time share condominiums. In fact, the titles were heavily encumbered. When Ticor discovered the fraud, it spent $476,000 to eliminate the liens and clear title. Defendant closed the resort. Purchasers of the units threatened to sue Ticor for fraud. To avoid a lawsuit, Ticor bought all the units back at a total cost of $565,000. The 7th Circuit held that the money spent by Ticor to avoid the lawsuit was consequential damages that could not be included in the loss calculation under § 2F1.1. The fraudulently issued title insurance policies only promised to make the purchasers whole for any defects in title. The policies did not obligate Ticor to buy back the time-shares should title prove defective. Ticor fulfilled its promise under the policies when it spent $476,000 to clear titles. The loss in value and the closing of the resort was not caused by the defective titles, and thus was not a loss caused by defendant’s fraud. U.S. v. Marlatt, 24 F.3d 1005 (7th Cir 1994).
8th Circuit says defendant admitted amount of loss when he did not object to PSR. (305) Defendant challenged the district court’s sentencing enhancements under Blakely v. Washington, 542 U.S. 296 (2004). The Eighth Circuit found that the objection to the loss enhancement was without merit. A fact in a PSR not specifically objected to is a fact admitted by the defendant for purposes of Booker. U.S. v. McCully, 407 F.3d 931 (8th Cir. 2005). Defendant’s PSR indicated that he fraudulently obtained $293,112.62 through his illicit transactions. Although he objected to having received about $77,000 of that amount, the uncontested total amount of fraud still exceeded $200,000. Thus, for Booker purposes, defendant admitted to the amount of loss triggering the 12-level enhancement. U.S. v. Crawford, 414 F.3d 980 (8th Cir. 2005).
8th Circuit relies on loss estimate by victim’s employees as to value of stolen software. (305) Defendant was the employee of a company hired by the state of Arkansas to develop and install document production software in facilities such as drivers’ license stations. He stole a copy of the software and used it to produce high-quality, false identification documents and to perpetrate various forms of fraud. Trial evidence demonstrated that the stolen software was at the heart of the contractor’s $10 million contract with Arkansas. The software was developed specifically to ensure security and deter counterfeiting in the production of state identification documents; development cost for the software was about $700,000; the software was not generally available for sale separate from an installation contract so there was not a verifiable “fair market value.” An employee of the contractor estimated the fair market value for a copy of the software to be about $1 million. In addition, the contractor estimated that it spent between 300 to 500 man hours over the course of two years dealing with the fallout from the software theft. The district court found that the loss under § 2B1.1(b) was about $1.4 million, and the Eighth Circuit affirmed. The panel rejected defendant’s claim that the contractor’s own estimates about the value of its software was tainted by self-interest. There was a contract that placed the value of the software substantially above the figure adopted by the court. Further, the contractor’s employees testified as to their estimates of development cost and the value of a single copy of the software in light of the development cost and the overall contract with the state. The guidelines do not demand precision in loss calculation. U.S. v. Ameri, 412 F.3d 893 (8th Cir. 2005).
8th Circuit holds that court should have reduced intended loss by value of collateral. (305) At a real estate closing, defendant gave the title company a fake check for $249,493, the purchase price of the house. The title company issued a check for $76,000 to the seller, a participant in the fraud, which he cashed before the title company discovered the fraud. The bank, which was owed about $170,000 on the mortgage, foreclosed on the mortgage and sold the house, receiving only about $85,000 for the house. The parties agreed that the actual loss was about $161,000. At issue was the amount of intended loss – whether the apparent value of the house should be deducted from the intended loss. The Eighth Circuit held that courts should consider collateral when determining the intended loss amounts attendant to transactions like the one involved here. If a reasonable person intends for the collateral to revert to the defrauded party (or understands that it will), then he or she does not intend to obtain the value of that collateral. The defendant’s intent is the touchstone. Here, intended loss was less than the actual loss. A reasonable person in defendant’s position would not have thought that he could keep the house because a house cannot be hidden like a car or other mobile form of security. In addition, a reasonable person would have thought that the house was worth at least as much as the outstanding value of the mortgage, and hence could be sold to recoup much of the loss. Since the actual loss of $161,000 was greater than the intended loss, it should have been used to calculate defendant’s offense level. U.S. v. Staples, 410 F.3d 484 (8th Cir. 2005).
8th Circuit holds that unfulfilled leases with other victims constituted relevant conduct. (305) Defendant operated an aircraft leasing company. On one occasion, the company accepted a $400,00 deposit from Access Air for the leases on two planes, but never delivered the jets and never refunded the money. During its seven years of operation, the defendant’s company never actually leased any aircraft. The district court concluded that the unfulfilled leases with the other carriers constituted relevant conduct under § 1B1.3, and the Eighth Circuit affirmed. The district court’s finding of defendant’s relevant conduct was entirely consistent with holdings in similar cases. Defendant used his company as the common business front from which to solicit his victims. Each case was premised on the company securing a lease for a transport grade aircraft. Further, defendant executed substantially similar documents in setting up each separate fraudulent transactions. The four acts occurred within months of each other. Defendant operated the scheme with the same accomplice. Defendant’s dealings were part of the same common plan or scheme. Thus, defendant’s sentence was reasonable. U.S. v. Killgo, 397 F.3d 628 (8th Cir. 2005).
8th Circuit remands for development of record as to loss where government presented no evidence. (305) Defendant was convicted of various counts involving a home health care fraud scheme. The PSR recommended a loss amount in excess of $ 1 million. The government responded by indicating it was recommending a loss of $122,336. This was consistent with the plea agreement, which recommended a ten-level enhancement, which corresponded to a loss between $120,000 to $200,000. The plea agreement recited that defendant disputed this loss amount. The district court found the loss was $122,336. However, the Eighth Circuit was unable to determine from the record the basis for this finding. After the court stated it was imposing the amount mentioned in the PSR, defendant’s attorney stated that she disputed that amount and set forth the reasons for the dispute. The government presented no evidence to support the $122,386 figure. Accordingly, the panel remanded for further development of the record as to the amount of loss. U.S. v. Liveoak, 377 F.3d 859 (8th Cir. 2004).
8th Circuit says middleman’s profit should have been included in loss from fraud. (305) Defendants participated in a conspiracy to commit fraud in the sales and distribution of Freon through Sam’s Club. The district court found that the amount of loss to Sam’s Club was the total amount of kickbacks, $459,047.02, instead of the full amount of money retained by all of the conspirators. The Eighth Circuit agreed that the middleman’s profit of $277,412.98 should have been included in the loss calculation. When defendants conspired with the middleman for the middleman to purchase Freon from a third party and then sell the same Freon to Sam’s Club for a profit, Sam’s Club was improperly deprived of the net profit shared by the co-conspirators, including the middleman. U.S. v. O’Malley, 364 F.3d 974 (8th Cir. 2004).
8th Circuit holds that defendant adequately preserved objection to loss calculation. (305) Defendant pled guilty to mail fraud based on payments made by Blue Cross to his company for consulting services that were never performed. He argued that the court’s $585,559 loss amount improperly included invoices for legitimate work his company performed for Blue Cross. The government argued that defendant waived the argument by not objecting on this basis before the district court, but the Eighth Circuit held that defendant adequately preserved the issue. Defendant did not file written objections to the PSR, but he did file a position paper in which he noted that the loss amount in the PSR did not account for the fact that his company provided legitimate services to Blue Cross. At sentencing, his counsel raised this issue again, to which the court responded that the probation officer had accounted for that issue and the loss had “been adjustment appropriately” to which defense counsel responded “I just wanted to make sure.” This was based on the amended addendum to the PSR where the probation officer advised the court that $585,559 was “the total amount of the fraudulent invoices.” However, in the face of the objection, the statements in the PSR and its Addendum were no longer sufficient, and the court erred in basing its loss finding solely on the assertions of fact contained in the PSR without taking additional evidence. U.S. v. Camacho, 348 F.3d 696 (8th Cir. 2003).
8th Circuit remands where court did not reduce loss by amount secured lender received from sale of collateral. (305) After filing for bankruptcy, defendant failed to list all of his assets and fraudulently obtained the discharge of a $256,000 loan secured by a pleasure boat and $22,320 owed to various unsecured creditors. The discharged debts totaled $278,320. To determine loss under § 2F1.1 of the 1997 guidelines, the district court added the debts discharged in bankruptcy to the other losses to produce a total fraud loss of $305,133.38. The government conceded that the actual loss attributable to the boat loan was the secured lender’s net loss after sale of the collateral, $110,973, not the total debt of $256,000 that was discharged in bankruptcy. See Note 7(b) to § 2F1.1. However, it argued that defendant intended to discharge the entire boat debt, leaving the secured lender to its own devices, and therefore $256,000 was the intended loss. The Eighth Circuit refused to resolve this issue, since intended loss was a question of fact for the district court to address in the first instance on remand. The government’s contention that the revised bankruptcy loss was at least $133,293 could not be upheld. The district court made no finding as to the value of the assets defendant concealed, and thus it was unclear whether they were worth more or less than the debts left unpaid. U.S. v. Shevi, 345 F.3d 675 (8th Cir. 2003).
8th Circuit holds that intended loss from bankruptcy fraud was assets concealed from creditors, not amount sought to be discharged. (305) After filing for bankruptcy and representing that he had no assets or income, defendant sold his lawn-car business and customer list for $8,500. He was convicted of bankruptcy fraud and making false statements in order to obtain disability benefits. Defendant had sought to have $139,528.71 in debts discharged in bankruptcy, and the district court found that amount was the loss from his offense. Defendant argued that the most he could have intended his creditors to lose was $64,600.70, the assets of his lawn-car business and the amount he improperly received in disability benefits. The Eighth Circuit agreed. It would ignore reality to argue that defendant intended to defraud his creditors of everything he owed them solely because he failed to disclose all of his modest assets. Material misrepresentation to creditors must be limited to the assets they would have known about if the petition had been truthful. U.S. v. Wheeldon, 313 F.3d 1070 (8th Cir. 2002).
8th Circuit holds that loss from payments to amateur athletes included forfeited scholarships, investigation costs, and fines. (305) Over a several year period, defendant assembled elite high school basketball players and compensated them for their participation on his traveling basketball team. Players submitted statements to universities where they were to play basketball that falsely certified they had not previously received payments to play basketball. These schools awarded scholarships to these athletes, enrolled them in classes, and allowed them to play on NCAA basketball teams. The Eighth Circuit affirmed a loss calculation that included forfeited scholarships, investigation costs, and fines. The court rejected defendant’s claim that he did not intend any loss to the universities, and that if the payments had not been discovered the universities would have incurred no loss. It was undisputed that defendant intended to deprive the universities, their athletic conferences, and the NCAA of the intangible right to award scholarships to amateur players and maintain a system of amateur athletic competition. Even if his scheme had never been discovered, the school would have been deprived of the services of honest, amateur basketball players. U.S. v. Piggie, 303 F.3d 923 (8th Cir. 2002).
8th Circuit agrees that loss from counterfeit check cashing scheme exceeded $70,000. (305) Defendant was involved in a counterfeit check cashing scheme. The district court found that he was responsible for a loss of at least $70,000 but less than $120,000. Defendant argued that the evidence presented at sentencing consisted mainly of hearsay and lacked the indicia of reliability needed to support his sentence. The Eighth Circuit disagreed. Defendant admitted that he was responsible for a loss of at least $17,146.29 drawn on the accounts of Waste Management, Follett Educational Services, and United Rentals. Testimony at sentencing showed that defendant also supplied checks to two other individuals totaling a loss of $25,407.10. All checks involved in the scheme were drawn on one of five checking accounts, and defendant was the source for at least one counterfeit check drawn on each of these five accounts. Additionally, the logo for one of the businesses was found on defendant’s home computer. The loss attributable to counterfeit checks drawn on this account alone totaled $24,713.72. Defendant’s cell phone records also indicated that he had telephone contact with at least four other individuals involved in the scheme. The evidence presented at sentencing was sufficiently reliable to uphold defendant’s sentence. U.S. v. Tucker, 286 F.3d 505 (8th Cir. 2002).
8th Circuit finds defendant directly responsible for losses so no need to examine conspiratorial liability. (305) Defendant was convicted of conspiring to commit credit card fraud. He argued that the district court should not have included in its loss calculation the losses resulting from fraudulent credit card transactions that Brooks, an admitted co-conspirator, committed with Timmons and Tate. The Eighth Circuit upheld the district court’s decision to hold defendant accountable for all of the losses, finding sufficient evidence that there was only one conspiracy. Defendant, by providing the rental application to Brooks to be used in the fraudulent scheme, knowingly aided and abetted the challenged transactions. Because there was evidence from which the district court could have found that defendant’s own direct conduct justified the sentence he received, it was unnecessary to address whether the losses resulting from the conduct of others was wrongly attributed to him. U.S. v. Burns, 276 F.3d 439 (8th Cir. 2002).
8th Circuit holds that losses to other investors was relevant conduct. (305) Defendant was charged with a conspiracy involving his sale of unregistered promissory notes issued by his company, Global Productions. He diverted the money generated by these sales and never used it for Global’s business purposes. In addition, defendant borrowed money from Cowden promising that it would be used to further the business of Global, and he took money from the Wardens purportedly to buy stock in Global, and gave them a handwritten note promising repayment. In both cases, he diverted the money to other uses. The Eighth Circuit held that the losses to Cowden and the Wardens constituted relevant conduct that could be included in the § 2F1.1 loss calculation. Defendant’s dealings with Cowden and the Wardens bore a strong resemblance to the sale of unregistered promissory notes with which the indictment charged defendant. In all of these transactions, defendant used Global Productions as an investment lure, and a promise of repayment to convince his victims to give him money, and then diverted the money rather than devoting it to the purposes he originally proposed. The transactions shared a common purpose, and a similar modus operandi, and so could be deemed part of a common scheme or plan. U.S. v. Bush, 252 F.3d 959 (8th Cir. 2001).
8th Circuit holds that Iowa investment fraud scheme was relevant conduct to charged investment fraud. (305) Defendant and a co-conspirator were involved in two investment fraud schemes, one in Iowa and the other in New York. Although defendant was only charged and convicted of the conduct involved in the New York scheme, the district court held him accountable at sentencing for losses stemming from the Iowa scheme. The Eighth Circuit affirmed, agreeing that defendant’s actions in Iowa were “part of the same course of conduct or common scheme or plan as the offense of conviction.” § 1B1.3(a)(2). Defendant told both Iowa investors that they could pool their money to “trigger a line of credit” to purchase annuities, which would then be resold at a profit. This claim was identical to the ones made to the investors involved in the indicted offense. In addition, defendant’s actions in Iowa and the charged offense involved the same modus operandi: either defendant or one of his accomplices was responsible for the withdrawal and wire transfer of investor funds to unauthorized accounts. Moreover, both in Iowa and in the charged offense, either defendant or an accomplice secured the services of well-respected and unsuspecting businesses to aid in the scheme. U.S. v. Howard, 235 F.3d 366 (8th Cir. 2000).
8th Circuit holds defendant accountable for losses that occurred outside U.S. (305) Defendant sold slot machines to customers in South Africa. To aid his customers in avoiding a large South African duty on the value of the goods, defendant sent his customers false sales invoices that grossly understated the value of the slot machines. He also sent the false invoices to his freight forwarders, who used the invoices to fill out documentation for U.S. customs. Defendant was convicted, in part, of making false statements to the United States. Citing U.S. v. Chuna-Plaza, 45 F.3d 51 (2d Cir. 1995) and U.S. v. Azeem, 946 F.2d 13 (2d Cir. 1991), he argued that the loss in duties to the South African government should not have been considered at sentencing because the loss occurred outside the United States. The cited cases held that if extraterritorial acts are not crimes against the United States, they cannot be included in determining the offense level. The Eighth Circuit found these cases distinguishable, because here, defendant’s false statements were domestic acts, and the crime charged was one against the United States. The courts in Chuna-Plaza and Azeem were concerned about intruding into foreign jurisdictions and jurisprudence. It is no intrusion to gauge the severity of defendant’s domestic crime by measuring the damage done to his extraterritorial victims. U.S. v. Chmielewski, 218 F.3d 840 (8th Cir. 2000).
8th Circuit rejects face value of foods stamps as loss in atypical food stamp fraud. (305) Defendant, who sold meat door-to-door, accepted food stamps from customers, even though he did not have USDA authorization. Defendant then sold the food stamps for 95% of their face value to Murphy, who had USDA authorization. The district court ruled that the loss was the entire proceeds from defendant’s food stamp sales to Murphy. The Eighth Circuit reversed. In a typical food stamp fraud case, when a defendant purchases food stamps from their intended recipients for cash, he deprives them of the intended program benefits, food. The loss is the full face value of the food stamps unlawfully purchased. Here, however, defendant sold meat to the food stamp recipients and resold the stamps to Murphy. He was not authorized to engage in either transaction, but the face amount of the food stamps bore little if any relationship to the harm he inflicted. By not obtaining USDA authorization, defendant evaded program requirements intended to ensure that recipients receive nutritious food at competitive prices. The government did not attempt to prove that defendant deprived food stamps recipients of these program benefits, but was free to do so on remand. If the court finds that defendant’s violation did not involve either an actual or intended diversion of program benefits that could reasonably be estimated, then defendant committed a category one regulatory offense, for which the unadjusted offense level would be appropriate. U.S. v. Griffin, 215 F.3d 866 (8th Cir. 2000).
8th Circuit relies on loss “guesstimate” defendant provided to Secret Service. (305) While incarcerated in state prison, defendant admitted to a Secret Service agent that she orchestrated an extensive identity takeover scheme. She “guesstimated” that she either caused or intended to cause her victims to lose more than $70,000. However, in defendant’s plea agreement, the government and defendant agreed that the total amount of loss fell between $40,000 and $70,000. Nonetheless, the PSR concluded that the total loss was between $70,000 and $120,000. The district court used the higher loss figure, relying upon the “guesstimate” conveyed by defendant to the Secret Service agent. The Eighth Circuit held that the district court properly found defendant’s detailed statement to the Secret Service agent more credible than her statement of loss provided during the sentencing hearing. The court’s decision was, in essence, based on witness credibility. Questions of witness credibility are committed squarely to the domain of the sentencing court and are virtually unreviewable on appeal. U.S. v. Sample, 213 F.3d 1029 (8th Cir. 2000).
8th Circuit remands for determination of when defendant joined conspiracy. (305) Defendant and several co-conspirators formed nine phony supply companies that billed the college where they worked for supplies that it never received. The district court held defendant accountable for the losses caused by all nine companies, even those under the control of his co-conspirators. Defendant claimed that a large portion of the combined losses occurred prior to his joining the illegal scheme and therefore were not attributable to him. The Eighth Circuit remanded for additional proceedings to determine when defendant joined the conspiracy. The district court made no finding regarding the precise time that defendant joined the conspiracy. The court found that the supply company scheme began about June 1991, and that defendant did not join until a later time. However, the court made no specific finding regarding the latter date, and there was insufficient evidence in the record to determine it. The close working relationship between defendant and co-conspirator Knudsen, the college’s vice president of business affairs, suggested that defendant may have already joined the conspiracy in January of 1992, when he was hired by the college. However, conflicting evidence suggested defendant may not have entered the scheme until September 1992 or mid-1994. U.S. v. Bad Wound, 203 F.3d 1072 (8th Cir. 2000).
8th Circuit holds defendant accountable for losses from co-conspirators’ companies. (305) Defendant and several co-conspirators formed nine phony supply companies that billed the college where they worked for supplies that it never received. The Eighth Circuit ruled that defendant was accountable both for the losses caused by his own three companies and for the losses caused by the six companies formed by his co-conspirators. The acts of his co-conspirators were reasonably foreseeable to defendant and were in furtherance of a joint scheme. First, although defendant did not realize financial gain directly from the phony companies not under his control, he benefited from his co-conspirators’ activities. For example, co-conspirator Knudsen issued checks from the college to each of the nine bogus companies, knowing that the college was receiving nothing in return. Second, defendant was substantially committed to the overall scheme, not just as it related to his three companies. Defendant and Knudsen discussed defendant destroying cancelled checks and vendor records to cover-up the scheme. Finally, defendant and his co-conspirators shared a close working relationship and the acts of fraud committed by each individual were remarkably similar. U.S. v. Bad Wound, 203 F.3d 1072 (8th Cir. 2000).
8th Circuit refuses to reduce fraud loss by amount of later repayments. (305) Defendant, a licensed insurance agent, misappropriated several insurance premium payments she received from elderly clients. She argued that the court erred in including certain losses in its sentencing calculations since she refunded those losses. The Eighth Circuit affirmed the loss calculation since repayments made after the fraud was discovered do not affect the amount of loss. Moreover, the district court found that the losses were not refunded. U.S. v. Baker, 200 F.3d 558 (8th Cir. 2000).
8th Circuit says proceeds from unpledged assets did not reduce loss but did support downward departure. (305) Defendant misrepresented the amount of cattle he owned in order to secure a loan. At the time the fraud was discovered, defendant owed the bank $894,000. Defendant immediately began making extraordinary efforts to insure that his debt to the bank was repaid, including pledging to the bank assets not previously pledged. The district court found that the intended loss was zero, and the actual loss was $58,000, the amount of debt remaining after defendant’s payments. The Eighth Circuit held that the district court was not permitted to reduce the actual loss by the amount of payments made after the fraud was discovered, unless the payments were proceeds from the sale of pledged assets. Of the $808,000 paid to the bank, only $65,000 was from the sale of pledged assets, making the actual loss $829,000. However, note 8(b) to § 2F1.1 permits a departure if the loss significantly overstates the risk to the lending institution. In the present case, the $829,000 loss significantly overstated the bank’s risk. Defendant had sufficient unpledged assets to support the loan and to pay the bank most of the amount it was owed. Thus, a downward departure was warranted to a level that corresponded to a loss of $58,000. U.S. v. Oligmueller, 198 F.3d 669 (8th Cir. 1999).
8th Circuit rules 1980 investment was not relevant conduct to 1993 fraud scheme. (305) In 1993, defendant solicited $1,540,000 from Minnesota investors to produce an electric car, and then converted the money for his own use. In calculating the § 2F1.1 loss, the district court took into account an additional $1,549,000 that different investors lost to defendant in other electric-car investments from as early as 1975. The Eighth Circuit reversed the loss calculation since at least one of the earlier investments was not relevant conduct. The offense of conviction, as defined in the indictment, was the 1993 fraud. One of the claimants from the earlier fraud filed a forfeiture claim for $1,000,000 based upon a 1980 loan to a different electric car company. There was no evidence this transaction was related to the offense of conviction in any significant way. Thus, it was not relevant conduct as a matter of law. Reducing the $3,090,000 loss by this $1,000,000 reduced the total fraud loss to $2,090,000, which is in the same fraud loss category as the $1,540,000 loss that defendant conceded. See USSG § 2F1.1(b)(1)(M) (mandating 12-level increase for loss of more than $1,500,000 but less than $2,500,000). U.S. v. Ramirez, 196 F.3d 895 (8th Cir. 1999).
8th Circuit says repayments after fraud discovered does not reduce loss. (305) Defendants were convicted of RICO charges stemming from their operation of several insurance companies. The district court included in the fraud loss calculation $649,090 defendant transferred out of one insurance company’s account and used for purposes other than paying members’ health insurance claims. Defendants argued that the court ignored evidence that their management company paid $674,102 to or on behalf of members after closing the bank account. Since the amount of fraud loss is the greater of the loss defendants intended to inflict at the time of the fraud, or the actual loss, the Eighth Circuit held that the later repayments did not affect the loss determination under § 2F1.1. U.S. v. Coon, 187 F.3d 888 (8th Cir. 1999).
8th Circuit says actual loss in check kiting scheme is determined at time of discovery. (305) Defendant engaged in a check kiting scheme involving four banks and five checking accounts. The district court found that the actual loss was $4000, which was the total amount in float when the scheme was discovered. The government argued that the loss was $ 30,823, which included the cumulative amount of overdrafts, and disregarded any deposits made before the discovery of the scheme. Defendant contended that the actual loss was zero because he pledged $4000 to satisfy the amount in float. The Eighth Circuit upheld the $4000 loss finding, since under U.S. v. Akbani, 151 F.3d 774 (8th Cir. 1998), the amount of actual loss is determined at the time the check kiting scheme is discovered, not at the time of sentencing. Thus, any restitution made after discovery does not offset the total amount of loss. Note 8 to § 2F1.1 directs a court to consider the actual loss if this figure exceeds the intended loss. Since the district court found the intended loss was zero, the court was correct in considering the actual loss. U.S. v. Whitehead, 176 F.3d 1030 (8th Cir. 1999).
8th Circuit includes uncashed fraudulent checks in loss. (305) Defendant orchestrated a fraudulent check writing scheme under which he purchased the contents of stolen purses, replaced the photos in the driver’s licenses with pictures of accomplices, provided the accomplices with counterfeit payroll checks and stolen personal checks that matched the names on the driver’s licenses, and helped them cash the fraudulent checks. The Eighth Circuit upheld including uncashed checks in the amount of loss. There was substantial evidence of defendant’s pattern and practice of fraudulent check negotiations over a period of years. Losses attributable to defendant’s past transactions in stolen personal checks were evidence of his likely intent with respect to the blank checks. Co-conspirators testified that they negotiated the first few checks in each stolen checkbook for defendant’s benefit, and kept the remainder for their own use. The checks varied from $100 to more than $800, with one conspirator testifying that she usually cashed checks for just under $500, because the store where she cashed them had a policy of cashing any check under that amount. Two co-conspirators had been involved in this scheme for about five years. U.S. v. Jackson, 155 F.3d 942 (8th Cir. 1998).
8th Circuit refuses to reduce loss by amount of worthless liens and settlement payments. (305) Defendants were convicted of bank fraud for misrepresentations they made to obtain an SBA-guaranteed bank loan. The district court found that the amount of loss was the full amount of the loan, i.e., $305,000. Defendants argued that they did not intend to defraud the bank of the entire amount, pointing out that they made a couple of loan payments before they defaulted, that the bank possessed subordinate liens on the properties they pledged as security, and that they repaid almost $130,000 to the SBA under a settlement agreement. The Eighth Circuit found that none of these factors reduced the § 2F1.1 loss. Even deducting the payments defendants made, which were less than $20,000, the loss was well above the $200,000 level for an eight-level enhancement. The $130,000 repayment to the SBA did not negate the § 2F1.1 loss, particularly because it was in response to legal action taken by the SBA. As for the liens, they proved to be worthless, even though defendants had led the bank to believe it had first priority liens. U.S. v. Brekke, 152 F.3d 1042 (8th Cir. 1998).
8th Circuit rules court should not have relied on disputed part of PSR to find loss. (305) Defendant persuaded friends and relatives to allow him to invest money for them. He was convicted of 13 counts of mail fraud after he used his clients’ money for gambling and other personal expenses. He challenged the court’s inclusion in the fraud loss of $99,984 that was wired to his account from a Shanghai bank. The PSR found that the bank was an offshore investor who was defrauded, even though no government witness identified the bank at trial. Defendant timely objected to this PSR finding. The district court overruled defendant’s objection because “relevant conduct for purposes of sentencing can mean things other than occurred at trial.” The Eighth Circuit ruled that the district court improperly relied on a disputed portion of the PSR. A PSR to which the defendant has objected may not be evidence at sentencing. U.S. v. Shoff, 151 F.3d 889 (8th Cir. 1998).
8th Circuit calculates check-kiting loss after fraudulent checks have been presented for payment. (305) Defendant executed a check-kiting scheme using two separate checking accounts at different banks. He argued that the loss should be determined by the amount of float at the time the scheme was discovered. Since both accounts had positive balances on the date the scheme was discovered, he claimed the loss was zero. The Eighth Circuit held that the loss in a check-kiting scheme cannot be determined until all of the checks in the scheme are presented for payment. The nature of a check-kiting scheme is that the balances of the accounts are over-represented. At the moment of discovery there will be no evident overdraft. The amount of loss becomes apparent only after the scheme unravels and the fraudulent checks cease to artificially support each other. Although loss must be determined when the scheme is discovered rather than at sentencing, this does not mean the loss must be determined as of the exact moment of discovery, at which point the balances of the bank accounts are still artificially inflated by the very scheme for which the defendant is being sentenced. U.S. v. Akbani, 151 F.3d 774 (8th Cir. 1998).
8th Circuit reverses for insufficient findings to support loss calculation. (305) Defendant was involved in a scheme in which an Indian tribe obtained excess federal property and immediately resold it to defendant’s company. The company would then sell it for a much higher price than it paid the tribe. The tribe received about 10% of the proceeds. The district court found that the loss was the gross margin on the sale of excess property by defendant’s company from 1991 to 1994. The Eighth Circuit reversed, because the district court failed to specify whether the amount it used represented intended or actual loss, or both. Moreover, the court failed to determine whether the conspiracy existed over the entire 1991-1994 time span, and whether defendant was part of the conspiracy for the entire period. There was evidence that defendant quit in May of 1993. A person cannot be held liable for the loss caused by other conspirators before he entered the conspiracy, and he should not be responsible for losses that occur after he exits the conspiracy. However, the fact that defendant was only a 24.5% shareholder in the corporation selling the property did not make it unfair to attribute all of the company’s profits to him. U.S. v. Oseby, 148 F.3d 1016 (8th Cir. 1998).
8th Circuit includes bank funds used to pay off personal debts in loss from bank fraud. (305) Defendant, the largest stockholder and president of an Arkansas bank, was convicted of bank fraud, embezzlement and related counts. In one instance, he created false documents to move $14,000 from the bank’s data processing account to an account of a business he created with five other bank officers. Later, he and two other bank officers each withdrew $4000 from the account as a “personal bonus.” On another occasion, defendant took out a $30,000 loan from the bank, and in a complicated set of transfers, eventually used bank funds to repay the bank $30,027.86. The district court found the loss exceeded $40,000 by adding the undisputed $14,000 loss to the $30,027.86 of bank funds that defendant used to pay off his personal debt to the bank. The Eighth Circuit found no error. The bank funds used to pay off defendant’s personal debt were unlawfully taken because defendant had no legal claim to them for his personal use. U.S. v. Patterson, 148 F.3d 1013 (8th Cir. 1998).
8th Circuit uses retail profit margin to estimate loss from mislabeled meat. (305) Defendants, a group of cattle producers, organized a company to market and sell the beef derived from their own cattle. The company advertised that its beef had been genetically bred and carefully fed a special diet, which did not include hormones or antibiotics. However, to meet the high demand for their product, defendants bought commercial beef trim from outside suppliers, blended it with their own meat, and sold this blended product to its customers while making the same advertising claims. In determining loss, the district court found that the price the victims would have paid for defendants’ meat if properly labeled could not be determined from the evidence presented. To estimate loss, the court found that the retail profit margin on the meat bought from defendants was one percent. The court found that the retail profit margin represented an estimate of the actual loss suffered by the victims. To determine loss, the court multiplied the total dollar amount of mislabeled meat attributable to a particular defendant by the one percent profit margin. The Eighth Circuit found that this “novel approach” to calculating loss was not clearly erroneous. The loss figure need only be an estimate, it need not be determined with precision. U.S. v. Jorgensen, 144 F.3d 550 (8th Cir. 1998).
8th Circuit rules that thefts from clients were relevant conduct to lawyer’s insider trading scheme. (305) Defendant, a senior partner in a large law firm, bought stock in a company in which a client was contemplating making a tender offer. When the tender offer was announced, he realized a profit of over $4 million. He used the profits to conceal his previous embezzlements and conversions of clients’ trust funds. Section 2F1.2, the insider trading guideline, calls for enhancement based on the “gain resulting from the offense.” The district court found the gain exceeded $5 million by adding the $4.2 in gain from the stock transaction to the $1.9 million defendant had stolen from his clients. Defendant argued that the $1.9 million he stole from his clients (which had resulted in eight state court convictions) should not have been included. The Eighth Circuit suggested that defendant might be estopped from raising this claim because he had successfully argued that his state crimes were part of his federal conduct, which precluded them from being counted in his criminal history and allowed him to receive 23 months’ credit for time served for the state crimes. Nonetheless, even on the merits, the court found no error in including the state thefts from the clients in the relevant conduct. U.S. v. O’Hagan, 139 F.3d 641 (8th Cir. 1998).
8th Circuit directs court to calculate loss and criminal history based on date defendant admitted entering conspiracy. (305) Defendant and his brothers conspired to commit mail fraud in soliciting investments for their company. In his plea agreement, defendant admitted entering the conspiracy in September 1993. However, the court found that he entered the conspiracy in August 1993, and held him liable for the entire loss caused by the scheme, regardless of when he entered the conspiracy. The Eighth Circuit directed the court to calculate the loss and defendant’s criminal history based on the date he admitted entering the conspiracy. Under note 2 to § 1B1.3, defendant was not liable for individual losses before he joined the conspiracy. The district court’s August 1993 finding was based on the incorporation of a company that provided management services for the investment company. Defendant was a principal stockholder in the management company, but there was no evidence to support the court’s characterization of the management company as part of the conspiracy. Thus, there was no basis for finding that defendant entered the conspiracy when the management company was incorporated. On resentencing, the court should use September 1993 as the date of defendant’s entry into the conspiracy, and calculate the loss and criminal history accordingly. U.S. v. Cain, 134 F.3d 1345 (8th Cir. 1998).
8th Circuit refuses to reduce loss by telemarketing company’s business expenses. (305) Defendants were principals in a telemarketing firm that induced victims to spend $400-$800 on anti-drug materials that cost the firm $40 and donate them to a local church or school. The victims were also promised various prizes if they purchased the anti-drug materials. The district court calculated the loss by determining the firm’s gross revenues, minus money lost from refunds and checks on which payment was stopped, the money the company spent on prizes, and the money spent on the anti-drug products that were actually shipped to the schools. The Eighth Circuit upheld the court’s refusal to reduce the loss by a “reasonable profit” and the overhead of running their business, i.e. the costs of salaries for employees, of handling the prizes and the anti-drug products, and of shipping those prizes and products. Defendants’ business was a conspiracy to commit wire fraud, and thus defendants were not entitled to a profit for defrauding people or a credit for money spent perpetrating the fraud. U.S. v. Whatley, 133 F.3d 601 (8th Cir. 1998).
8th Circuit says sales before defendant joined conspiracy were not relevant conduct. (305) Defendant fraudulently induced several people to invest in his company of which he was president by misrepresenting that their investments were guaranteed by an escrow fund. The trial court found that the conspiracy ran from December 1992 to December 1993, and although defendant was not hired until July 1993, he was liable for all the stock sold during the conspiracy. The Eighth Circuit disagreed. When defendant was hired in July, he knew of the stock sales previously made by company officers and could reasonably foresee future sales. He also knew that the summary sheet being presented to investors misrepresented that an escrow fund existed. As of mid-July 1993, defendant at least tacitly agreed to the use of that summary sheet in future stock sales. However, there was insufficient evidence that defendant joined the conspiracy before he was hired. Thus, the sales that occurred before defendant was hired were not relevant conduct. U.S. v. Cain, 128 F.3d 1249 (8th Cir. 1997).
8th Circuit approves estimate of loss from cloned cellular telephones. (305) Defendant trafficked in cloned cellular telephones. To calculate the loss to the cellular companies, the court first identified all the cloned telephones on which calls to defendant were placed between January and June 1996. The court then added up the charges for all calls made from these telephones during the same six-month period. Defendant questioned the assumption that he sold the cloned phones on which these calls to him were placed, but the Eighth Circuit upheld the calculation as a reasonable estimate of the losses. First, only calls placed during the first six months of 1996 were taken into account, despite the fact that defendant had been selling cloned phones since 1994. Further, the estimate did not capture losses from purchasers who bought cloned phones from defendant but did not happen to call him during this six month period. U.S. v. Williams, 128 F.3d 1239 (8th Cir. 1997).
8th Circuit reduces loss by amount of future payments owed on lease assignment. (305) Defendants owned a business that leased and serviced copier equipment. They obtained financing by selling their right to income under lease/service agreements. Because defendants still were obligated to service the leased copier equipment after the assignment of the leases, banks generally required defendants to maintain a cash reserve account with the bank. In order to avoid this reserve requirement, defendants misrepresented to the banks their service obligations under these lease/service agreements. The Eighth Circuit held that the district court did not err in deducting future lease payments from the § 2F1.1 loss calculation. The right to collect future payments based on an assignment protects the banks to the same extent as does the right to collect future lease payments after asserting the rights of a secured creditor. In both cases the bank’s interests are protected to the extent of monies recovered from lease payments. Since the transaction was being treated, by analogy, as a “loan,” the banks’ interest in receiving future lease payments could properly be treated, by analogy, as assets pledged to secure that loan. The court did not err in deducting future lease payments and recoveries from the loss calculation. U.S. v. Wells, 127 F.3d 739 (8th Cir. 1997).
8th Circuit measures intended loss by defendant’s intent rather than potential or possible loss. (305) Defendants were convicted of making false statements to banks. The district court found that defendants did not intend to cause any loss to the banks, and that the actual loss to the banks was between $20,000 and $40,000. The government claimed that “intended loss” under § 2F1.1 is measured by the potential or possible loss that could arise from the charged crime, not by the amount of loss that the defendant intended to cause. The Eighth Circuit held that “intended loss” means the loss the defendant intended to cause the victim, and possible loss is just one element of proof to be considered, along with all other evidence, in determining intended loss. The court here did not commit clear error in determining that there was no intention to cause the bank a loss. The court found that defendants intended that the copier lessees would make all of the payments due under their lease assignment agreements. U.S. v. Wells, 127 F.3d 739 (8th Cir. 1997).
8th Circuit finds expenses in fraudulently obtaining narcotics were relevant conduct to insurance fraud. (305) Defendant staged “slip and fall” accidents throughout the country, gained admission to local hospitals complaining of pain, sought and received controlled substances, and submitted liability insurance claims to the insurance carriers for the businesses in which he claimed to have fallen. The Eighth Circuit held the hospital and medical expenses related to obtaining controlled substances constituted relevant conduct to the insurance fraud count. All of defendant’s fraudulent activity involved a common modus operandi—he would appear at hospitals falsely complaining of pain caused by either injuries suffered from a staged slip and fall accident or alleged painful medical conditions. He operated the scheme in a continual manner from October 1995 until April 1996. In that short time, defendant was admitted to hospitals 53 times and defrauded 17 hospitals and insurance carriers. U.S. v. Heath, 122 F.3d 682 (8th Cir. 1997).
8th Circuit holds attorney liable for all losses from client’s bankruptcy fraud. (305) Defendant, an attorney, helped a client commit bankruptcy fraud and conceal property from the bankruptcy estate. The district court found the actual loss was at least $200,000 and the intended loss about $340,000. The court took the total liability set forth in defendant’s bankruptcy petition ($1,376,558.91), subtracted the amount of property included in the bankruptcy schedules ($446,500) and the total amount to be paid via negotiated settlements with creditors ($590,000). Defendant argued that he was only responsible for those losses that resulted from the settlements in which he participated. The Eighth Circuit held that as a co-conspirator, defendant was responsible for all losses suffered by the client’s creditors as a result of the conspiracy. The court was not bound to accept defendant’s self-serving assertions at sentencing that he intended no loss to his creditors. U.S. v. Dolan, 120 F.3d 856 (8th Cir. 1997).
8th Circuit holds bank’s loss could not be equated with defendants’ profit. (305) The first defendant worked as president of a bank that was attempting to increase its liquidity to attract buyers. He accepted bribes from a financial entity run by the other defendants to sell certain loans for less than market price. The other defendants then turned around and resold the loans for a profit, and the first defendant received a percentage of the profits. In addition, one purportedly non-performing loan paid about $97,000 to defendants shortly after the sale. Another charged-off loan paid $700,000 to defendants after the sale. The district court included all these amounts, including the defendants’ profits from the resale of certain of the loans, in the § 2F1.1 loss. The Eighth Circuit held that under these circumstances, the district court clearly erred in equating “loss” solely with the defendants’ profit. The district court apparently found that the entire profit defendants made from the resale of the loans was money that should have gone to the bank. However, the government never established by a preponderance of the evidence what defendants would or should have paid for those loans had the sales been legitimate. U.S. v. Van Brocklin, 115 F.3d 587 (8th Cir. 1997).
8th Circuit finds clients’ losses were foreseeable result of adoption fraud scheme. (305) Defendant worked for an adoption agency that required clients desiring to adopt children to pay an up‑front fee. When the demand for children exceeded the agency’s anticipated supply, the agency began lying to clients about the number of waiting clients and birth mothers. Defendant argued that she was not responsible for losses to 13 couples who were agency clients before she joined the agency and losses to eight couples from New York who had no contact with her and only paid fees pursuant to a New York law that limited fees to services rendered. The Eighth Circuit held that the losses to the New York couples were a foreseeable consequence of the fraudulent scheme. The fact that New York prohibits agencies from charging for services not yet rendered was irrelevant because the payments made by the New York clients were all based on the agency’s misrepresentations, and none of those clients successfully adopted a child through defendant’s agency. The amount of loss attributable to defendant exceeded $500,000 regardless of whether she was held accountable for losses suffered by clients acquired by the agency before she joined it. U.S. v. Stover, 93 F.3d 1379 (8th Cir. 1996).
8th Circuit refuses to address loss argument where it would not affect offense level. (305) Defendant, an insurance agent and broker, was involved in establishing four companies that collected premiums for health insurance but failed to provide that insurance. The district court calculated the total loss the victims at $2,745,412—premiums of $2,000,000 and outstanding claims of $745,412. Defendant argued that the loss should have been calculated from the exact premium amounts testified to at trial—$1,873,870—rather than the approximate figure of $2,000,000. The Eighth Circuit refused to address the issue, since it would not change defendant’s offense level. Even using the more precise premium amount would yield a loss of $2,505,171—which was still more than $2,000,000. Defendant was properly held accountable for premiums collected after he left two of the four companies. A defendant is responsible for all reasonably foreseeable acts of others in furtherance of jointly undertaken criminal activity. U.S. v. Sandow, 78 F.3d 388 (8th Cir. 1996).
8th Circuit considers consequential damages from defendant’s use of unapproved pesticide. (305) Defendant was hired by General Mills to apply a pesticide to raw oats to be used in making cereal. Instead of purchasing an EPA‑approved pesticide, defendant purchased and used a cheaper product not approved by the EPA for use on raw oats. When the contamination was discovered, General Mills was forced to discard 16 million bushels of oats and 160 million boxes of cereal, and sustained additional expenses cleaning its production facilities. The Eighth Circuit upheld the consideration of these consequential damages in calculating the § 2F1.1 loss. Note 7(c) contains special provisions for determining the loss in product substitution cases because damages in such cases are frequently substantial. It provides that, in addition to direct damages, consequently foreseeable damages can be used to compute loss. U.S. v. Roggy, 76 F.3d 189 (8th Cir. 1996).
8th Circuit says failure to make findings on controverted matter was harmless error. (305) Defendant established four companies that collected health insurance premiums but failed to provide the insurance. The district court calculated the loss at $2,745,400—premiums of $2 million and outstanding claims of $745,400. Defendant argued that the district court failed to make findings on “controverted matters” required by Fed. R. Crim. P. 32(c)(1). The Eighth Circuit held that the court’s failure to make a finding on defendant’s objection was harmless error, because it would not have changed the offense level. Defendant’s only objection was that the calculation did not account for legitimate expenses incurred by the companies. These amounts totaled $132,000, which, when subtracted from $2,745,400, still left more than $2.5 million as the amount of loss. Defendant’s claim that he “never received anything” from two of the companies did not raise a factual question, as the loss did not depend on the proceeds he personally received. U.S. v. Allen, 75 F.3d 439 (8th Cir. 1996).
8th Circuit bases loss on fixed civil statutory damages provision. (305) Defendant ran a business that modified and sold units that descrambled premium channel broadcasts. The district court estimated that defendant sold 270 modification/cloning packages to various satellite dealers and individual customers. The court then estimated that each package was worth $10,000 by reference to the minimum statutory civil award for each violation authorized under 47 U.S.C. § 605(e)(3)(C)(i)(II). Defendant argued that the district court erred in basing the amount of loss on a fixed civil statutory damages provision rather than the actual or intended amount of loss. The Eighth Circuit affirmed the use of statutory award, since the evidence supported a finding that the actual loss caused by defendant’s conduct was far greater than $2.7 million. A district court’s loss calculation need not be precise. The district court’s estimate was supported by the testimony of an HBO analyst who projected the actual loss to be $6.9 million. That figure was a conservative estimate of actual revenue loss to HBO alone based on her review of defendant’s records. The use of the statute did not violate the ex post facto clause since it was merely referred to for guidance and did not directly control the loss calculation. U.S. v. Manzer, 69 F.3d 222 (8th Cir. 1995).
8th Circuit approves calculation of intended loss in bankruptcy fraud case. (305) Defendant concealed assets from the bankruptcy court and his creditors. The value of the concealed assets exceeded the $1.4 million in liabilities that defendant listed in his bankruptcy petition. The district court found that defendant intended a loss of $340,000, calculated by subtracting from his estimated total liabilities ($1,376,559) the sum of the assets he listed ($446,500) and the settlements defendant actually made ($590,000). Defendant caused an actual loss of $244,971, which represented claims that either were not paid or were settled for less than their probable value. The district court used the greater of the two amounts as the estimated loss under § 2F1.1, and the Eighth Circuit affirmed. The district court was not bound to accept defendant’s self-serving claim that he intended no loss to his creditors. The court very carefully linked its calculation to defendant’s intent. The maximum potential loss was much larger ($1.4 million in claims less $446,500 in revealed assets). However, the court gave defendant credit for $590,000 in settlements he made during the bankruptcy proceedings. U.S. v. Anderson, 68 F.3d 1050 (8th Cir. 1995).
8th Circuit says defendant who filed false tax return in co-worker’s name intended to inflict loss. (305) Following a dispute with a co-worker, defendant filed a false amended tax return in the co-worker’s name. The amended return showed nearly $390,000 in unreported gambling income with an additional tax liability of $103,697.90. The Eighth Circuit agreed that defendant attempted to inflict a financial loss of $103,697.90 under § 2F1.1(b)(1)(G). Defendant anticipated that the IRS would assess the co-worker for additional taxes owing on the fictitious income. To keep the IRS’s suspicion focused on the co-worker, defendant denied knowledge of the false returns, furnished a disguised handwriting exemplar, and altered the typewriter he used to type the false return. A loss was possible if the deception succeeded. Defendant took all the steps necessary to succeed unless the co-worker could persuade the IRS that he was a victim instead of a tardy taxpayer. U.S. v. Sheets, 65 F.3d 752 (8th Cir. 1995).
8th Circuit uses total of unauthorized charges as loss from credit card fraud. (305) Defendant was involved in a fraud scheme involving the unauthorized use of store charge cards. She argued that she was only responsible for the wholesale value of the merchandise charged, minus the value of merchandise recovered from her co-conspirators. The Eighth Circuit upheld the use of the total unauthorized charges as the loss from the scheme. Under § 2F1.1, a defendant is responsible for the total loss she attempted to inflict rather than the actual loss. The dollar value of the unauthorized charge card purchases represented the loss that defendant attempted to inflict on the stores. U.S. v. Smith, 62 F.3d 1073 (8th Cir. 1995).
8th Circuit refuses to reduce bankruptcy fraud loss by amount of lien on property. (305) Defendant attempted to hide his one-half interest in a property by falsely claiming he had previously transferred the interest to a trust. The district court determined that the amount of loss was $100,000, which was one-half of the property’s net equity of $200,000. Defendant argued that the district court should have reduced the value of the property by the value of a $55,000 lien recorded against the property. The Eighth Circuit refused to reduce the § 2F1.1 loss by the amount of the lien, since if the trust had been accepted by the bankruptcy court, the lien holder would have become a bankruptcy creditor and would have been subject to the bankruptcy distribution. As a result, defendant would have been able to retain the full value of his one-half interest in the property. U.S. v. Graham, 60 F.3d 463 (8th Cir. 1995).
8th Circuit uses total amount of fraudulently obtained federal funds in loss. (305) Defendant ran a company that assisted school districts in obtaining federal funds for asbestos removal. When he discovered that the funds obtained for one district were substantially in excess of what was needed for the asbestos removal project, he developed a scheme to submit false claims in order to use the additional money for other unrelated renovation projects at the district. The district court found that the amount of loss was $153,476, the full amount of the false claims defendant and others submitted. Defendant argued that because the program was in part a loan program, the loss should only include the amount the government was unlikely to recover from the school’s collateral. The Eighth Circuit approved the use of the full amount of the false claims as the § 2F1.1 loss. This amount was effectively diverted from other intended recipients. Moreover, even if a portion of the $153,476 could be characterized as a interest free loan, it was still best characterized as a government benefit, rather than the type of commercial loan that note 7(b) to § 2F1.1 appears to contemplate. U.S. v. Peters, 59 F.3d 732 (8th Cir. 1995).
8th Circuit rejects use of settlement to determine loss to fraud victim. (305) Defendant and friends staged a car collision, and then defendant fraudulently collected disability insurance benefits. Although he received over $215,000 from one carrier, he contended that the § 2F1.1 loss was only $50,000 because he was involved in a second, genuine collision that contributed to his disability. The carrier had paid only about $50,000 of the disability benefits before the second collision. In addition, the carrier had settled its claim against defendant before trial for $50,000. The Eighth Circuit held that the full amount of the fraudulently obtained benefits should be included in the loss. All $215,000 were paid based on the first car accident, not the second. Although defendant and the carrier settled their civil lawsuit for $50,000, their agreement expressly stated that the carrier paid defendant over $215,000 based on the staged collision. The later accident did not change the amount of loss defendant intended to cause when he staged the first accident. U.S. v. Irons, 53 F.3d 947 (8th Cir. 1995).
8th Circuit holds that truck thefts were relevant conduct to insurance fraud scheme. (305) Defendant falsely reported to his insurance company that his truck had been stolen. The truck was recovered by police on the farm of defendant’s friend. Police also recovered from the farm four other trucks that various dealers had reported stolen. The district court included the value of the four stolen trucks in the loss calculation under § 2F1.1. The 8th Circuit agreed that the truck thefts were part of the same course of conduct as defendant’s insurance fraud scheme. Defendant switched parts from the stolen trucks with parts from his own truck in order to disguise his truck and allow him to continue to use it. Stealing and using the parts from the others trucks was integral to defendant’s concealment and continuing use of his truck. Senior Judge Heaney dissented, believing the majority “stretched the concept of ‘relevant conduct’ beyond the breaking point.” U.S. v. Ballew, 40 F.3d 936 (8th Cir. 1994).
8th Circuit says defendant waived challenge to loss by admitting extent of conspiracy. (305) Defendant and a cohort fraudulently used government credit cards. Defendant argued that the court should have excluded from its loss calculation amounts that accrued after he withdrew from the conspiracy. The 8th Circuit held that defendant waived this challenge by admitting in his plea agreement that he was involved in a conspiracy that extended to December 1987. The district court had sufficient evidence from the plea agreement and the parties’ stipulations to determine that defendant had not withdrawn from the conspiracy. U.S. v. Bender, 33 F.3d 21 (8th Cir. 1994).
8th Circuit refuses to reduce loss by amount of collateral victim released to settle civil suit. (305) Defendant fraudulently obtained numerous bank loans. In settlement of a civil lawsuit between defendant and the bank, the bank released its deed of trust on defendant’s home and its personal guarantee from defendant’s father. Defendant later pled guilty to a single count of bank fraud. The 8th Circuit rejected defendant’s claim that the loss under section 2F1.1 should be reduced by the value of the collateral the bank released in settlement of the civil lawsuit. The amount of loss does not turn on whether the bank recovered or could have recovered its potential loan losses by foreclosing on the pledged security. Even if the bank had not released its interest in the additional collateral, the availability of that collateral would not reduce the loss calculation for purposes of section 2F1.1. U.S. v. Sheahan, 31 F.3d 595 (8th Cir. 1994).
8th Circuit agrees that losses from other frauds were part of same course of conduct. (305) After defendant’s checking accounts were closed, the bank’s president allowed defendant to continue to write checks on the closed accounts. The checks were cleared by drawing on defendant’s line of credit. To reduce the amount outstanding before a bank audit, defendant deposited in the line of credit insufficient funds checks written on another bank account. The president credited the line of credit before the checks were presented to the second bank for payment. Defendant eventually pled guilty to a single bank fraud count relating to an insufficient funds check written on the second bank account. The district court included in the loss under section 2F1.1 the checks written on the closed accounts, loan agreements defendant signed with the bank president, and the collateral pledged by defendant to cover those accounts. The 8th Circuit affirmed that this was all “relevant conduct” under section 1B1.3, and properly included in calculating the loss. Senior Judge Heaney dissented. U.S. v. Sheahan, 31 F.3d 595 (8th Cir. 1994).
8th Circuit finds loss even though defrauded retailers were able to resell mislabeled meat. (305) Defendant was the president of a meat wholesaler and a beef packing plant. He mislabeled meat that these companies sold to their retail and wholesale customers. He argued that because the retailers to whom the companies sold the ungraded meat were able to sell it as “choice” meat to consumers, the victims suffered no loss under § 2F1.1. The 8th Circuit disagreed. It is true that note 7(a) to § 2F1.1 says the loss is the difference between the amount paid by the victim and the amount for which the victim could resell the product. But this assumes that the victim will not perpetuate the fraud by misrepresenting the quality of the product to the next buyer of the product. Loss here was the price the retailers paid for the “choice” meat, less the value of the ungraded meat they received. The companies sold more than 2.6 million pounds of mislabeled meat. Choice meat costs about five cents per pound more than ungraded meat. The district court properly calculated the total loss at $130,000. U.S. v. Strassburger, 26 F.3d 860 (8th Cir. 1994).
8th Circuit finds defendant accountable for 30 fraudulent tax returns. (305) Defendant assisted others in filing false electronic tax returns. The 8th Circuit held her responsible under section 2F1.1(b)(1) for all 30 fraudulent tax returns involved in the conspiracy. Defendant was involved in the conspiracy at all levels. She recruited others to file fraudulent tax returns, gave instructions on how to file fraudulent returns, prepared fraudulent W-2’s, and went with at least two individuals when they filed their false returns. Her brother’s office served as the headquarters for the conspiracy, and numerous friends and family members filed fraudulent returns. The close working relationship between defendant and her co-conspirator, and the similarities between all 30 fraudulent returns showed that the full extent of the conspiracy was reasonably foreseeable to defendant. U.S. v. Atkins, 25 F.3d 1401 (8th Cir. 1994).
8th Circuit includes amount improperly transferred, even though no loss occurred. (305) Defendant, a bank vice president, misapplied bank funds by improperly debiting one customer’s line of credit, and improperly crediting that amount to the loan accounts of two other bank customers, including $327,929 to his father’s loan account. The funds to his father’s account were ultimately returned. The 8th Circuit included the $327,929 as loss. Defendant misapplied these funds and improperly adjusted the loan accounts of his father because he was concerned that his father’s outstanding loan balance was not supported by his financial statements. He commenced the actions when the agricultural economy was depressed and many farmers were overextended. Defendant’s actions placed the bank at risk of loss for the full $327,929. Although the bank did not ultimately lose any money, this was largely because the recovery of the farm economy enabled defendant to reverse the entries which he previously made. U.S. v. Hulshof, 23 F.3d 1470 (8th Cir 1994).
8th Circuit considers transfer of funds as relevant conduct for misapplication. (305) Defendant, a bank vice president, misapplied bank funds by improperly debiting one customer’s line of credit, and improperly crediting that amount to the loan accounts of two other bank customers, one of which was his father. In another series of transactions, defendant transferred $104,000 from his father’s checking account to his own personal account. The 8th Circuit agreed that transfer of the $104,000 was relevant conduct to the misapplying bank funds count. Defendant conducted a series of misleading withdrawals from his father’s account at the same time he was misapplying bank funds. He falsified bank records in both offenses in much the same manner. U.S. v. Hulshof, 23 F.3d 1470 (8th Cir 1994).
9th Circuit does not reduce loss from funds returned after victims demanded their money back. (305) Defendant masterminded a fraudulent scheme in which he solicited $37 million. When defendant failed to pay the investors the promised returns, some of the investors demanded their money back. Eventually, defendant returned much of the investors’ principal. At his sentencing on fraud charges, the district court found that defendant did not return any funds until his scheme had been detected by the investors and declined to give defendant credit in calculating the loss amount for the money that he returned to investors. The Ninth Circuit upheld the district court’s finding that the investors “discovered” defendant’s crime when they wrote to him demanding their money back. For that reason, the court held, the district court properly calculated the loss without regard to the funds that he returned to his investors. U.S. v. Garro, __ F.3d __ (9th Cir. Feb. 28, 2008) No. 06-50513.
9th Circuit clarifies loss calculation for “pump and dump” schemes. (305) Defendant participated in a pump-and-dump scheme in which he disseminated false information in order to inflate the price of stocks of legitimate companies. In calculating the loss caused by defendant’s fraud, the district court found that the underlying value of the stock was zero. The Ninth Circuit held that when a stock continues to have residual value after a fraudulent scheme is revealed, a sentencing court may not assume that the loss inflicted by the scheme equals the full price of the stock before the fraud. Instead, a court must disentangle the underlying value of the stock, inflation of that value due to the fraud, and any change in the stock’s value due to causes unrelated to the fraud. Because the companies whose stock price the defendant fraudulently inflated were not entirely sham operations, the court of appeals held that the district court erred in calculating loss on the assumption that the stock of those companies was worthless. U.S. v. Zolp, 479 F.3d 715 (9th Cir. 2007).
9th Circuit says 1995 guidelines did not include “contractual interest” in loss. (305) In 1995, the commentary to § 2F1.1, which was then the guideline for fraud offenses, defined loss to exclude interest that the victim could have earned on funds that he lost. Defendants engaged in a scheme in which they fraudulently obtained lines of credit from banks and ran up large expenses. Using the 1995 guidelines, the district court calculated the loss to include interest and finance charges assessed by the victim banks. The Ninth Circuit held that the 1995 guidelines did not allow for the inclusion of any interest, including “contractual interest” on lines of credit and vacated defendants’ sentences. U.S. v. Morgan, 376 F.3d 1002 (9th Cir. 2004).
9th Circuit finds that altered check in defendant’s possession properly included in loss calculation. (305) Defendant was convicted of possession of stolen mail and receipt of stolen treasury checks based on his possession of altered checks stolen from the mail. He challenged the inclusion in his loss calculation of a check found in his motel room, but made out to his accomplice. The Ninth Circuit held that the check was properly included in the loss calculation even though it was made out to the accomplice and did not bear defendant’s fingerprints. U.S. v. Soriano, 361 F.3d 494 (9th Cir. 2004).
9th Circuit refuses to reduce loss by funds returned to victims who discovered fraud or funds seized by law enforcement. (305) Defendant ran a scheme that defrauded numerous victims of small sums. Before law enforcement officers discovered the scheme, defendant repaid some of the victims who discovered the fraud and demanded their money back. Defendant’s accomplice also stole some of the fraudulently obtained funds, and federal officers seized some of the stolen funds when they arrested defendant. The Ninth Circuit held that defendant was not entitled to a reduction in the loss attributed to his fraud for (1) money returned to victims who discovered the fraud prior to its detection by law enforcement; (2) money taken by an accomplice during the scheme; or (3) money seized by loss enforcement. U.S. v. Bright, 353 F.3d 1114 (9th Cir. 2004).
9th Circuit calculates loss in government fraud case from date government received allegation of fraud. (305) After receiving an anonymous letter stating that defendants were obtaining disability benefits when they were able to work, Social Security Administration investigators began surveillance of defendants and learned that they were working. Defendants were convicted of falsely obtaining government benefits. Guideline 2B1.1 provides that the loss in such cases shall be “not less than the value of the benefits obtained.” The district court calculated the government’s loss as the amount of benefits paid to defendants from the date on which the government received the anonymous tip, and not the date the government began its investigation. The Ninth Circuit upheld this calculation as not clearly erroneous. U.S. v. Somsamouth, 352 F.3d 1271 (9th Cir. 2003).
9th Circuit holds that amount recovered in loan fraud case does not decrease intended loss. (305) Guideline § 2B1.1 provides that the loss in fraud cases should be “the greater of actual or intended loss.” Application Note 2(E)(ii) provides, however, that loss is to be reduced by the amount that the victim has recovered at the time of sentencing from the disposition of any collateral pledged by the defendant. Here, defendant fraudulently obtained a car loan of more than $10,000. When the bank discovered the fraud, it repossessed the car and recouped some of its loss. The Ninth Circuit held that defendant’s offense level should be calculated based on the intended loss of more than $10,000 and that the reduction provided for in Application Note 2(E)(ii) applies only when a loss calculation is based on actual loss. U.S. v. McCormac, 309 F.3d 623 (9th Cir. 2002).
9th Circuit finds no clear error in district court’s refusal to treat losses as loans. (305) At sentencing, defendants asked the district court to reduce the amount of loss caused by their embezzlement from an ERISA-protected pension fund on the ground that the amount they withdrew from the pension fund was a loan. The Ninth Circuit noted that the promissory notes evidencing the purported loans were prepared long after the government began to investigate defendants’ withdrawal of the funds. The district court was not clearly erroneous in rejecting defendants’ proposed loss calculation. U.S. v. Wiseman, 274 F.3d 1235 (9th Cir. 2001).
9th Circuit calculates loss in false certification case, as the net profits minus the partial benefit conferred. (305) Defendant corporation was convicted of conspiracy and making false statements based on its false certification that it had supplied products that complied with government contracts, when in fact it had used improper shortcuts to produce the products. The district court calculated the government’s loss under § 2F1.1 by estimating defendant’s net profit from the contracts and then reducing that figure by 25 percent because the government was able to use the products delivered. The Ninth Circuit affirmed, holding that use of net profits, reduced to account for the partial benefit conferred, is a “reasonable ‘realistic, economic approach’“ to the loss calculation in false certification cases because it approximates the intended loss. U.S. v. West Coast Aluminum Heat Treating Co., 265 F.3d 986 (9th Cir. 2001).
9th Circuit upholds estimating loss in fraud case. (305) The government offered two ways to estimate the number of fraudulent solicitations sent by the defendant in the course of his mail fraud scheme. The court accepted the lower option and estimated the loss at between $200,000 and $350,000. On appeal, defendant challenged the loss computation. The Ninth Circuit upheld the court’s finding. The court had noted the precise amount of societal harm was impossible to calculate, there were conflicting estimates presented to the court, the loss calculation of the scheme was inherently difficult to calculate, and Application Note 9 to § 2F1.1 allows the court to make a reasonable estimate of the loss, given the available information. U.S. v. King, 257 F.3d 1013 (9th Cir. 2001).
9th Circuit bases fraud loss on entire amount of loan, without deduction for collateral. (305) The Ninth Circuit held that the district court’s finding that defendant did not intend to repay the loan of $5.4 million was not clearly erroneous. Under the guidelines, the court had discretion to grant a downward departure based on the collateral pledged to secure the loan. See U.S. v. Shaw, 3 F.3d 311, 314 (9th Cir. 1993). However here the district court acknowledged its authority to grant a downward departure but declined to do so. Relying on U.S. v. Lipman, 133 F.3d 726, 729 (9th Cir. 1998), the Ninth Circuit said it had “no jurisdiction to review a district court’s discretionary denial of a downward departure request.” U.S. v. Najjor, 255 F.3d 979 (9th Cir. 2001).
9th Circuit requires resale value of substituted goods to offset costs of disposal and replacement. (305) Defendant’s company sold generic products to the Defense Department (DOD) rather than products specified in the contract. He was convicted of making false statements in violation of 18 U.S.C. § 287, and the court computed the actual loss to DOD by combining the cost of disposing of the products with the cost of replacing them. On appeal, the 9th Circuit held that the court erred in failing to attempt to compute the resale value of the substituted goods, even though DOD simply threw them out. Note 8(a) to § 2F1.1 (expectation damages) must be read in conjunction with note 8(c) (consequential damages) in product substitution cases. The titles of both notes refer to product substitution cases, and the result is consistent with the requirement in contract law to attempt to mitigate damages. The market value of the goods disposed of should be offset against the disposal costs when calculating actual loss. U.S. v. Silver, 245 F.3d 1075 (9th Cir. 2001).
9th Circuit holds loss calculation in a Ponzi scheme should not be offset by victims’ recovery. (305) Agreeing with the Second, Fourth, Fifth, and Seventh Circuits, the Ninth Circuit held that the loss calculation in a Ponzi investment scheme should not be offset by the amount of the victims’ recovery. The panel noted that the Eleventh Circuit is the only circuit that has not adopted this “risk” theory of loss calculation. See U.S. v. Orton, 73 F.3d 331, 334 (11th Cir. 1996), but that court was not directly presented with the issue. A Ponzi scheme, in which new investor funds are used to pay returns to prior investors, “creates a situation where the business will inevitably collapse at the expense of the investors.” Thus, “whether a Ponzi scheme produces some value for the investors is irrelevant to calculating the intended loss.” Thus, the panel rejected defendant’s argument that the total loss should be offset by the amounts recovered by the victims through payments made during the scheme as well as amounts recovered after one of the victims took over the business, reorganized it and sold it for a profit several years later. U.S. v. Munoz, 233 F.3d 1117 (9th Cir. 2000).
9th Circuit requires “clear and convincing evidence” for fourteen level increase in fraud case. (305) Two defendants in this Ponzi scheme received a fourteen level upward adjustment on the basis of uncharged relevant conduct – even though each was convicted of only two fraudulent sales. This increased their sentencing ranges from 12-18 months to 41-51 months. Relying on its recent decisions in U.S. v. Mezas de Jesus, 217 F.3d 638, 643 (9th Cir. 1999), and U.S. v. Hopper, 177 F.3d 824, 829 (9th Cir. 1999), the Ninth Circuit held that this increase was sufficiently disproportionate to trigger the “clear and convincing evidence” burden of proof at sentencing. Since the court applied the preponderance standard, the sentence was reversed and remanded for new findings under this heightened standard of proof. U.S. v. Munoz, 233 F.3d 1117 (9th Cir. 2000).
9th Circuit says failure to resolve factual disputes over role “infected” loss determination. (305) The Ninth Circuit held that the district court’s failure to comply with Rule 32(c)(1), Fed. R. Crim. P. in finding that defendant had a managerial or supervisory role “infected” its conclusion that she should be held accountable for a loss of over $1,500,000 in the conspiracy to counterfeit fraudulent securities. “A minor participant is not held responsible, for sentencing purposes, for the criminal acts of others after the minor participant has been taken into custody.” By contrast, “a managerial or supervising participant may be held accountable for transactions occurring after arrest.” Because the district court did not comply with Rule 32, the sentence was vacated and the case was remanded for resentencing. U.S. v. Carter, 219 F.3d 863 (9th Cir. 2000).
9th Circuit refuses to deduct amounts telemarketer spent on gifts, refunds, and charity. (305) Defendant was convicted of operating a telemarketing scheme called “Feed America.” He argued that in calculating the loss, the district court should have subtracted the amount that Feed America returned to its victims in the form of cash awards and cheap trinkets and the “paltry amount” it gave to charity. The Ninth Circuit rejected the argument, noting that it previously held in U.S. v. Blitz, 151 F.3d 1002, 1012 (9th Cir. 1998) that a court need not deduct the cost of refunds and recoveries from the total amount taken where, as here, the services permitted the fraudulent scheme to continue. Such costs are part of the scheme where they “enabled the Telemarketers to continue their scheme for a longer period by staving off detection.” Blitz, 151 F.3d at 1012. Here, the gifts helped to preserve Feed America’s reputation as a legitimate organization. U.S. v. Ciccone, 219 F.3d 1078 (9th Cir. 2000).
9th Circuit holds that relevant conduct includes acts beyond the statute of limitations. (305) In sentencing defendant for embezzlement under § 2B1.1, the court included twelve checks written more than five years before the return of the indictment, which were beyond the applicable statute of limitations. Including these amounts increased defendant’s base offense level by one level. On appeal, the Ninth Circuit affirmed, agreeing with eight other circuits which have held that consideration of conduct outside the statute of limitations is permitted under the guidelines. This is consistent with Congress’s directive in 18 U.S.C. § 3661 that “[n]o limitation shall be placed on the information concerning the background, character, and conduct of a person convicted of an offense which a court of the United State may receive and consider for the purpose of imposing an appropriate sentence.” U.S. v. Williams, 217 F.3d 751 (9th Cir. 2000).
9th Circuit requires to be reduced by “intervening, independent, and unforeseeable criminal misconduct.” (305) Applying a “proximate cause” analysis, the Ninth Circuit held that for purposes of computing fraud loss under § 2F1.1, “losses caused by the intervening, independent and unforeseeable criminal conduct of a third party do not ‘result[ ] from’ the defendant’s crime and may not be considered.” In this case, defendant argued that the person who the bank hired to sell the properties in foreclosure engaged in criminal misconduct that resulted in the properties’ being sold at unreasonably low prices. Distinguishing U.S. v. Davoudi, 172 F.3d 1130, 1135 (9th Cir. 1999) the Ninth Circuit noted that defendant did not complain that the market fell, nor that the bank was improvident, nor even that the bank was grossly negligent. Rather, he argued that, after his crime was complete and fully discovered, a new criminal showed up and committed a different crime, inflicting new losses on the bank. “This case is no different than one in which, on the day of a planned foreclosure sale, an arsonist damages the bank’s collateral.” Because the district court heard no evidence and made no findings with respect to defendant’s allegations about the intervening criminal conduct, the case was remanded with instructions to conduct a hearing. U.S. v. Hicks, 217 F.3d 1038 (9th Cir. 2000).
9th Circuit finds no need for hearing on loss where information came from defendant himself. (305) Defendant argued that the district court should have held a hearing on the loss valuation in his fraud case. The government has the burden of proving the loss defendant caused or intended to cause by a preponderance of the evidence. However, the court need only make a reasonable estimate of the loss, given the available information. In this case, the district court used values obtained from documents prepared by defendant himself. The Ninth Circuit held that this valuation was not clearly erroneous, and the failure to hold an evidentiary hearing was not an abuse of discretion. U.S. v. Lawrence, 189 F.3d 838 (9th Cir. 1999).
9th Circuit upholds extrapolating loss from 13% sample in telemarketing case. (305) The presentence report identified ten solicitations involving known actual loss of $18,350 and 12 solicitations involving known intended loss totaling $41,350. The probation officer divided this total dollar amount by 22, yielding an average loss of $2,714 per solicitation and then multiplied the average loss by 120, which represented the total number of out of state calls placed on the calling cards that the police confiscated from the defendants. The panel found “no plausible explanation for [defendant’s] calls to these elderly individuals other than to defraud them.” Thus, the Ninth Circuit said it was “satisfied that the statistical sample employed here is a reasonable estimate of the loss.” U.S. v. Scrivener, 189 F.3d 944 (9th Cir. 1999).
9th Circuit upholds refusal to deduct business operating expenses from “loss.” (305) Defendant operated an unlicensed insurance company. She argued that the value of money lawfully received as membership or deposit fees should have been excluded from the loss calculation. The Ninth Circuit recognized that “value may be rendered even amid fraudulent conduct,” and that in calculating loss, the district court should give credit for any legitimate services rendered to the victims. U.S. v. Blitz, 151 F.3d 1002, 1012 (9th Cir. 1998). However, if the “value” to the victim is merely part of the fraudulent scheme, the defendant is not entitled to credit. Here, the district court declined to credit defendant with any of the expenses of operating her unlicensed insurance company, because the company was “permeated with fraud.” That finding was not clearly erroneous. U.S. v. Sayakhom, 186 F.3d 928 (9th Cir. 1999).
9th Circuit requires reduction in loss amount where some hazardous waste was properly disposed of. (305) Eleven truck loads of hazardous waste were delivered to defendants for disposal, and they were paid a total of $254,000 for that disposal. The district court found that the contract to dispose of the waste was fraudulent from its formation and therefore the intended loss was the entire amount under the contract. The Ninth Circuit reversed, holding that because two of the eleven shipments were properly disposed of, there was no loss as to these two loads, and the loss calculation should have been reduced accordingly. U.S. v. Fiorillo, 186 F.3d 1136 (9th Cir. 1999).
9th Circuit upholds loss calculation where defendant posed as surety for government contracts. (305) Defendant was convicted of fraud and making false statements after he fraudulently posed as a surety for at least nine government contracts, causing substantial losses to the government through the improper awarding of contracts. He argued for the first time on appeal that he could not have reasonably foreseen that he would be accepted as a surety on certain government contracts, and therefore should not have been held responsible for those losses. The Ninth Circuit rejected the argument, holding that defendant was “not being held responsible for anything other than that which has been caused by his own activity in the furtherance of his own scheme.” Thus, “reasonable foreseeability” under § 1B1.3(a)(1) (B) was satisfied. U.S. v. Palomba, 182 F.3d 1121 (9th Cir. 1999).
9th Circuit refuses to reduce loss by value of legitimate services rendered to the victim. (305) The City of San Diego paid defendant’s company $566,000 to transport sewage sludge and compost it in Thermal, California. Instead, defendant transported the sludge to Imperial County and spread it on farmland. Defendant was convicted of mail fraud and environmental violations, and the district court calculated the loss at $566,000. Defendant objected, arguing that the City lost no money and benefited from having the sludge hauled away. Relying on a similar case, U.S. v. Frank, 156 F.3d 332, 335-36 (2d Cir. 1998), the Ninth Circuit upheld the loss finding, noting that the value to the city from removing the sludge was offset by the harm caused by the company’s failure to compost and legally dispose of it. Defendant’s actions exposed the city to potential cleanup liability and the loss of its permit. The district court did not clearly err in using the invoice amount for the shipments as a “reasonable, if rough, estimate of the intended loss.” U.S. v. Cooper, 173 F.3d 1192 (9th Cir. 1999).
9th Circuit calculates sentencing loss differently than restitution. (305) Defendant made false statements on a loan application to obtain a $318,700 mortgage to refinance his property. He defaulted on the loan almost immediately and the bank eventually foreclosed and sold the property four years later for $180,000. For purposes of both custodial sentencing and restitution, the district court gave defendant credit for the $180,000 recovered by the bank. On appeal, the Ninth Circuit affirmed this credit in calculating the loss for sentencing purposes, but held that for restitution purposes, the court should have deducted the value of the property as of the date the bank foreclosed on it. See U.S. v. Smith, 944 F.2d 618, 624-625 (9th Cir. 1991). The case was remanded to decide whether this would have reduced defendant’s restitution obligation. However, for purposes of calculating the sentence under § 2F1.1, the defendant was properly held responsible for consequential losses due to a falling market or even due to the bank’s own improvident management after the fraud was discovered. U.S. v. Davoudi, 172 F.3d 1130 (9th Cir. 1999).
9th Circuit treats interest the same for restitution and fraud loss purposes. (305) The Ninth Circuit held that interest should be treated the same whether calculating restitution under 18 U.S.C. § 3663 or fraud loss under guideline section 2F1.1. However, interest is “an all or nothing proposition. Either both the interest due and the interest paid at the time the offense is discovered should be considered, or neither should be considered.” Thus, the district court properly refused to offset defendant’s loss by over $100,000 in interest that he paid to the bank before defaulting on the loan, because the court did not include in the loss calculation the interest still due when the offense was discovered. The court found it unnecessary to decide how late fees should be treated. U.S. v. Davoudi, 172 F.3d 1130 (9th Cir. 1999).
9th Circuit finds defendant received more than $1 million from offense, even though business had legitimate income. (305) Defendant pled guilty to fraud charges in connection with businesses owned by Bruce McNall, including the Los Angeles Kings hockey team. McNall and his business entities obtained over $260 million in bank loans based on false or misleading information. At sentencing, the district court increased defendant’s sentence by four levels on the ground that he derived more than $1 million from an offense that affected a financial institution. Defendant claimed that he could prove that the $2.3 million in payments he received from the businesses followed infusions of legitimate income, such as season ticket payments. The Ninth Circuit rejected the argument, noting that the record supported a finding that without the receipt of over $260 million in illegal bank loans, “any infusions of legitimate income would have gone to pay the debts and operating expenses of the businesses, rather than [to defendant], or in the alternative, that such income would not have been generated at all because the entities would have gone out of business.” A defendant may not escape the application of § 2F1.1(b)(6)(B) by claiming that payments to him were derived from legitimate business activities when those businesses were only able to continue to operate and generate revenue by virtue of the defendant’s on-going fraudulent conduct. U.S. v. Nesenblatt, 171 F.3d 1227 (9th Cir. 1999).
9th Circuit prohibits double-counting amount lost by a financial institution. (305) In U.S. v. Kohli, 110 F.3d 1475 (9th Cir. 1997), the Ninth Circuit held that if the government wished to attribute loss to one defendant for purposes of applying the increase for loss to a financial institution under § 2F1.1(b)(6)(B), it must show that the amount received by one defendant was not also attributed to another defendant. In the present case, however, even though the co-defendant stipulated that he derived more than $1,000,000 from his offense, it was not necessary for the district court to apply to the co-defendant any of the 2.3 million dollars attributed to defendant. Thus the district court could apply the enhancement without double counting the funds already applied to the co-defendant for purposes of the same enhancement. U.S. v. Nesenblatt, 171 F.3d 1227 (9th Cir. 1999).
9th Circuit holds telemarketers liable for entire loss as relevant conduct. (305) Defendants argued that the sales by other Nortay telemarketers were not within the scope of the criminal activity they had agreed to undertake and therefore they should have been held accountable only for their own telemarketing sales under the “relevant conduct” section of the guidelines, 1B1.3. They relied on the Second Circuit’s decision in U.S. v. Studley, 47 F.3d 569, 576 (2d Cir. 1995) which held that the facts of that case could not support a finding that the defendant was responsible for the activities of other telemarketers. The Ninth Circuit founds Studley distinguishable. Unlike the telemarketers in Studley, the Nortay telemarketers did not work alone. They all worked together to further the scheme. Moreover, unlike the sales people in Studley, Nortay employees did not work on a pure commission basis. Instead, most of them received a salary. Thus Nortay’s sales people depended on the success of the Nortay operation as a whole for their financial compensation. Thus, the Ninth Circuit agreed with other courts of appeals which have held telemarketers responsible for the losses caused by other telemarketers in their fraudulent company. U.S. v. Blitz, 151 F.3d 1002 (9th Cir. 1998).
9th Circuit rejects 6th Circuit’s statement that fraud loss must not only be intended but also possible. (305) The telemarketers in this case sought to rely on the Sixth Circuit’s statement that the loss must not only be intended, but also possible of infliction. See U.S. v. Watkins, 994 F.2d 1192, 1196 (6th Cir. 1993). However, the Ninth Circuit has “roundly rejected” that theory. It has also been rejected in the Seventh Circuit. See U.S. v. Yusufu, 63 F.3d 505, 513-14 (7th Cir. 1995). U.S. v. Blitz, 151 F.3d 1002 (9th Cir. 1998).
9th Circuit upholds basing fraud loss on telemarketers’ sales log. (305) Witnesses at the trial testified that the amounts entered into the sales log ($1,015,703 in all) reflected the amounts promised or pledged by the victims of the telemarketers. While the telemarketers insisted that the amounts were merely a “wish list,” the witnesses testimony provided ample evidence for the district court to conclude that the amounts were pledges that the telemarketers intended to extract from their victims. The telemarketers argued, based on U.S. v. Allison, 86 F.3d 940, 943 (9th Cir. 1996), that it was not “realistic” to believe that they would collect all the money pledged by the victims. Nevertheless, the Ninth Circuit held that the telemarketers intended to obtain all of this money even if that intent was thwarted. U.S. v. Blitz, 151 F.3d 1002 (9th Cir. 1998).
9th Circuit rejects “attempt” reduction for telemarketing fraud. (305) The telemarketers argued that their offense levels should have been reduced because at least some of their intended frauds were only attempts in which they did not actually succeed in obtaining money from the victims. The Ninth Circuit rejected the argument, noting that each completed telemarketing call was a “separate completed fraud offense.” Certainly, if the money came in it would be the proceeds of the fraud. “But with or without the money the offense was complete.” The intended loss was also complete at that point. Moreover as a practical matter, the district court found that by the time a sale was entered into the sales log, the fraud was completed and the only question was whether the money would flow in. Accordingly, the telemarketers were not entitled to have their offense levels reduced by three levels for attempt. U.S. v. Blitz, 151 F.3d 1002 (9th Cir. 1998).
9th Circuit holds telemarketers were not entitled to credit for refunds to victims. (305) The Ninth Circuit held that telemarketers were not entitled to credit for the refunds they purportedly gave to some of their victims. The district court found that if the company did return some money to its victims, it was for the sole purpose of deflecting serious disruption of their schemes and making the operation look legitimate. This in turn enabled the company to defraud a greater number of victims. The Ninth Circuit cited with approval the Eighth Circuit’s decision in U.S. v. Whatley, 133 F.3d 601, 606 (8th Cir. 1998) which declined to reduce the amount of loss for the overhead expended in running a fraudulent telemarketing scheme. This included the cost of handling and shipping “prizes” to the customer. Nor did the district court err when it failed to give the telemarketers a credit for the small amount of recovery the company allegedly obtained for its customers. U.S. v. Blitz, 151 F.3d 1002 (9th Cir. 1998).
9th Circuit says consequential expenses may not be included in restitution. (305) The district court ordered restitution of $116,223, because this was the amount of money that defendant made in the real estate market with the $30,000 that he misappropriated from the bank. The Ninth Circuit reversed, relying on U.S. v. Sablan, 92 F.3d 865, 870 (9th Cir. 1996) for the proposition that “restitution can only include losses directly resulting from defendant’s offense.” For that reason, a restitution order must be based on losses “directly resulting from the defendant’s criminal conduct.” Id. at 870. “Consequential expenses may not be legally included in an order of restitution.” As noted in U.S. v. Catherine, 55 F.3d 1452, 1464 (9th Cir. 1995), loss under 18 U.S.C. § 3663 is the “actual loss.” Judge Ferguson dissented, arguing that defendant “deliberately took away a business opportunity” from the bank and therefore should be required to make restitution of the profit he made with the misappropriated funds. U.S. v. Stoddard, 150 F.3d 1140 (9th Cir. 1998).
9th Circuit declines to reduce loss for repayments made after the offense was discovered. (305) Defendant misappropriated bank funds from escrow accounts. When a bank officer inquired about the missing money, defendant repaid it with interest. Nevertheless, the district court included the full amount of the misappropriated funds in the loss for sentencing purposes. On appeal, defendant argued that the “economic reality” test of U.S. v. Allison, 86 F.3d 940, 943 (9th Cir. 1996) required the court to find no loss. The Ninth Circuit rejected the argument, holding that Allison “only applies to amounts repaid by defendant to the victim prior to discovery of the offense. Repayments do not apply to actual loss if they are made after discovery of the offense but prior to indictment.” This is because “[r]epayments before detection show an untainted intent to reduce any loss.” On the other hand, “[r]epayments after detection may show no more than an effort to reduce accountability.” U.S. v. Stoddard, 150 F.3d 1140 (9th Cir. 1998).
9th Circuit reverses departure where $6.3 million loss did not “substantially exceed” $5 million. (305) Application note 10 to the pre-1989 version of § 2F1.1 suggests that a departure may be appropriate if the loss “substantially exceeds” $5 million. In U.S. v. Vargas, 67 F.3d 823, 826 (9th Cir. 1995), the Ninth Circuit upheld a four level departure for a twenty-million dollar loss, so the government argued that the one level upward departure for the $6.3 million loss was reasonable in this case. In a 2-1 opinion, the Ninth Circuit reversed, holding that the $6.3 million loss did not “substantially exceed” $5 million. Judge Rymer dissented, arguing that under Koon v. U.S., 518 U.S. 81, 116 S.Ct. 2035 (1996), the departure was appropriate. U.S. v. Stein, 127 F.3d 777 (9th Cir. 1997).
9th Circuit calculates loss where defendant impersonated a doctor. (305) Defendant worked part-time, impersonating a doctor at a plasma center that sold donated plasma to third parties. He performed physical examinations on potential blood donors and signed test results on the donated plasma. The district court calculated the “loss” under § 2F1.1 at four million dollars, based on a portion of the center’s gross revenues, even though defendant received only $181,989 in total wages. The Ninth Circuit reversed, holding that defendant should have been credited for the value of the services he provided satisfactorily because “value may be rendered even amid fraudulent conduct.” The court suggested that an upward departure may be warranted if the loss does not fully capture the harmfulness of defendant’s conduct. On the other hand, when defendant worked as a doctor at various medical clinics, the patients paid for the “express purpose of seeing a licensed medical doctor,” and therefore the district court correctly valued their total loss as the full amount billed to them for defendant’s treatment. U.S. v. Barnes, 125 F.3d 1287 (9th Cir. 1997).
9th Circuit says “loss” in clone phone case can include estimated losses. (305) Defendant was convicted of fraudulently “cloning” cellular telephones. A search of his residence revealed a virtual phone cloning factory with computer equipment to scan, erase, and reprogram account numbers for cellular phones, 38 cellular telephones, 600 stolen cellular phone combinations, and records indicating defendant had produced and sold 1003 cloned cellular phones. The district court imposed a 12-level enhancement of defendant’s base offense level under § 2F1.1 based on a loss estimate of approximately $2 million. This figure was determined by ascertaining the actual loss for a sample of the 600 stolen cellular phone combinations, calculating an average loss per combination, and then extrapolating for the entire 600 combinations. The Ninth Circuit, citing Application Note 8 to § 2F1.1, observed that only a “reasonable” estimate of loss is required. The method followed here met that test. U.S. v. Watson, 118 F.3d 1315 (9th Cir. 1997).
9th Circuit reverses where loss was based on theory that medical practice was “permeated with fraud.” (305) Based on the conclusion that defendant’s medical practice was “permeated with fraud,” the district court found a loss of more than $10,000,000 to Medicare. On appeal, the Ninth Circuit reversed, holding that the phrase “permeated with fraud” is too indefinite and conclusory to support a sentence. The defendant must be given credit for the medical services that he rendered that were justified by medical necessity. “As always, the burden is on the government to establish what services were not medically necessary.” The “global estimate of loss made by the district court cannot stand.” U.S. v. Rutgard, 116 F.3d 1270 (9th Cir. 1997).
9th Circuit upholds loss from entire scheme, not just victims who testified. (305) Defendant argued that the loss from his telemarketing scheme should have been calculated based on the loss for those customers whom the government proved were defrauded, rather than all his customers. The testifying victims lost approximately $42,000, not the $1.5 million the court found was obtained from the scheme. The Ninth Circuit rejected the argument, based on U.S. v. Kelly, 993 F.2d 702, 704 (9th Cir. 1993). Under application note 8 to § 2F1.1, the district court must only make a “reasonable estimate of the loss, given the available information.” The presentence report provided the amount of revenue generated by the telemarketing company. The loss may be calculated based on the intended loss to intended victims, even if this exceeds defendant’s gain from the illegal business. Thus, there was no abuse of discretion in basing the loss on the “total number of customers (the intended victims), not on the total number of testifying customers.” U.S. v. Amlani, 111 F.3d 705 (9th Cir. 1997).
9th Circuit upholds loss to lenders from inflated appraisals. (305) Defendants argued that the lenders suffered no loss from making loans based on inflated appraisals because the properties that secured the loans had sufficient value to cover the amount of the loans if the lenders did not sell at a “fire sale” but instead held the property in anticipation of a rise in the market. However, a government expert submitted data showing that as a result of the fraudulent appraisals, the amounts of the loans exceeded the lender’s own later appraisals by as much as 83% of the appraised value. Thus, the government expert concluded that the losses aggregated over two million dollars. The Ninth Circuit upheld the district court’s finding of loss based on this evidence. U.S. v. Kohli, 110 F.3d 1475 (9th Cir. 1997).
9th Circuit says receiver’s fees were part of loss, not consequential damages. (305) The district court found that the loss in this limited partnership mail fraud case was $886,000. This was the amount of money invested minus the amount returned by the receiver who was appointed to manage the investment. Defendant argued that the loss should have been reduced by the amount of the receiver’s fees of $92,000 and the $59,000 in fees the receiver paid to attorneys. On appeal, the Ninth Circuit affirmed, holding that the receiver’s fees and the attorney’s fees were not “consequential damages.” Rather, they were the direct result of defendant’s fraud. They were necessary expenses to obtain repayment of the funds that were returned to the investors. Thus the actual loss was the total amount the investors did not regain. U.S. v. Ortland, 109 F.3d 539 (9th Cir. 1997).
9th Circuit upholds calculation of loss from cloning cellular telephones. (305) Defendant was convicted of cloning cellular telephones in violation of 18 U.S.C. § 1029(a). The district court arrived at a loss figure of $50,000 based on the amount of loss that two telephone companies reported from the 29 cellular telephone ID numbers found in defendant’s possession. Defendant argued that there was no evidence linking him with the entire $50,000 loss, because only a fraction of the illicit calls could be traced to him. He argued that other people could have obtained the same ID numbers and cloned them. The Ninth Circuit found this argument unpersuasive. The district court could have arrived at similar loss figures using several different methods, and each of these methods would have resulted in the same or a higher offense level. U.S. v. Clayton, 108 F.3d 1114 (9th Cir. 1997)
9th Circuit finds loss even though stolen goods were recovered and loss was limited by insurance. (305) Defendant stole Sony CD players and Nike shoes from an interstate freight company. He argued that if the police had not recovered the stolen property, the loss would have been limited to the amount of liability under the freight company’s insurance contract. The Ninth Circuit rejected the argument, noting that if the freight company’s liability was limited, the manufacturer’s of the goods would lose the difference between the market value and the liability amount. Defendant also argued that because the police recovered the stolen property, no loss occurred. But in U.S. v. Napier, 21 F.3d 354, 355 (9th Cir. 1994), the Ninth Circuit held that “the amount of loss can mean potential loss had [the defendant] not been apprehended.” U.S. v. Choi, 101 F.3d 92 (9th Cir. 1996).
9th Circuit says “intended loss” in fraud guideline is not unconstitutionally vague. (305) Application Note 7 to guideline § 2F1.1 provides that if the “intended loss” can be determined, it should be used if it is greater than the actual loss. Defendant argued that this definition conflicted with the ordinary understanding of the term and therefore was unconstitutionally vague. The Ninth Circuit disagreed, holding that the definition is sufficiently clear. In this case, defendant succeeded in obtaining $1,000 from the First Interstate Bank. He accomplished this by causing two fraudulent checks totaling $3,000 to be deposited into a checking account, from which he intended to withdraw all the money. Therefore the intended loss was $3,000.U.S. v. Gallagher, 99 F.3d 329 (9th Cir. 1996).
9th Circuit uses intended loss from counterfeit credit cards in government sting. (305) Defendants were caught in a government sting operation after they agreed to sell 2,000 counterfeit Discover credit cards. Agents seized various counterfeiting supplies and equipment, including over 1,400 counterfeit credit cards in various stages of completion, 12,000 pieces of blank white plastic to be used in counterfeit cards, and Discover card signature panels. Defendants argued that no loss was realistically possible because they were caught in a government sting operation. The district court rejected both arguments and found that the intended loss was at least $250 per card, for a total of $500,000. On appeal, the Ninth Circuit reaffirmed its holding in U.S. v. Koenig, 952 F.2d 267 (9th Cir. 1991) that § 2F1.1 does not require the intended loss to be realistically possible. The court thus rejected decisions from the Tenth Circuit which have held that intended loss should not be used when it was not realistically possible. “Simply put, criminal defendants cannot expect sentencing leniency merely because they are caught in a government sting operation rather than an ongoing crime.” U.S. v. Robinson, 94 F.3d 1325 (9th Cir. 1996).
9th Circuit includes profit margin and overhead in calculating loss from computer fraud. (305) After being fired from the bank, defendant reentered the closed bank, logged onto the computer and changed several files and deleted others. In calculating the loss from the damaged files, the district court included the cost of repairs and other activities necessary to restore the bank’s files to their original condition. The court used the bank’s standard hourly rate for its employees time, computer time and administrative overhead, including the bank’s profit margin. The Ninth Circuit held that it was proper to include the profit margin and administrative overhead because the bank would have incurred these costs if it had hired an outside contractor. Similarly, “had it not been necessary for the bank to devote its employees time and computer time to making these repairs, the administrative overhead and profit would have been paid to the bank by its normal customers.” U.S. v. Sablan (Bernadette), 92 F.3d 865 (9th Cir. 1996).
9th Circuit says loss of employees’ time to meet with FBI was “consequential” loss. (305) In calculating the loss from defendant’s computer fraud, the court included $4,000 which reflected the value of a meeting of bank managers with the FBI, $1,000 for a staff meeting to discuss the incident, and $350 for handling crank calls during the repair time. “These expenses, while probably foreseeable, were not required to repair the damage.” Thus, the Ninth Circuit held that they were “consequential losses.” There is some uncertainty in the case law as to whether consequential damages may be considered in valuing loss under the guidelines. Compare U.S. v. King, 915 F.2d 269, 272 (6th Cir. 1990) (yes) with U.S. v. Wilson, 993 F.2d 214, 217 (11th Cir. 1993) (no). The court found it unnecessary to resolve this question because the $4,000 figure did not affect defendant’s sentence. U.S. v. Sablan (Bernadette), 92 F.3d 865 (9th Cir. 1996).
9th Circuit subtracts resale proceeds from the gross loan value in calculating loss. (305) Following the rule in other circuits, the Ninth Circuit held that the “actual loss” in the case of fraudulent loan applications, must take into account the amount recovered or reasonably anticipated to be recovered from collateral that secured the loan, plus loan payments made prior to default. In this case, the district court properly subtracted the resale proceeds from the gross loan value in arriving at the loss figure. U.S. v. Allen, 88 F.3d 765 (9th Cir. 1996).
9th Circuit excludes interest payments from loss, because accrued interest was not included in calculating amount of loan. (305) If the district court had included the accrued interest in calculating the amount of the loan, then interest payments made prior to default should have been taken into account. See U.S.S.G. § 2F1.1 comment n.7(b). However, in this case the district court used only the loan principle to calculate the “amount of the loan;” it did not consider the accrued interest. Therefore payments made toward interest cannot be considered as repayments made on the loan. Accordingly the district court correctly excluded the $54,989.15 in interest payments from the loss calculation. U.S. v. Allen, 88 F.3d 765 (9th Cir. 1996).
9th Circuit holds credit card “loss” is outstanding balance, not the total amount charged. (305) Defendant conspired with a loan processor at a bank card center to obtain credit cards that were not supported by an application. They made a total of $40,208.35 in charges, but paid $5,357.28 on the outstanding balance before the fraud was discovered. The district court sentenced defendant under the fraud table in 2F1.1 based on the total amount charged. On appeal, the Ninth Circuit reversed, applying its “realistic, economic approach” to losses in fraud cases. The court held that the loss was “the outstanding credit card balance prior to the discovery of the offense, not the total amount charged on the four credit cards.” The court noted that the Fifth Circuit in U.S. v. Sowels, 998 F.2d 249 (5th Cir. 1993), cert. denied, 114 S.Ct. 1076 (1994), held that the “loss” was the sum total of the credit card limits of the stolen cards, even though Sowels had not used the cards at all. The court distinguished Sowels on the ground that the defendant there was charged with theft of the credit cards, whereas defendant here was charged with obtaining the credit cards by fraud. U.S. v. Allison, 86 F.3d 940 (9th Cir. 1996).
9th Circuit says total amount of loss from bank fraud was “reasonably foreseeable.” (305) Under guideline section 1B1.3, a conspirator’s sentence is to be based not on the actions of the conspiracy as a whole but rather on those actions that fall within the “scope of his or her agreement, or are otherwise “reasonably foreseeable.” Here, defendant argued that the failure to repay the loan resulted from the conduct of defendant’s codefendants—conduct over which defendant had no control and which was itself not part of the conspiracy. The Ninth Circuit disagreed, noting that, under the loss table of § 2F1.1, the sentence is properly based on actual loss even if this may be greater than the intended, expected, or foreseeable loss. While it may have been true that the failure to repay the loan was no fault of the defendant, there was no doubt that he conspired to obtain the money in the first instance. “It . . . was reasonably foreseeable that the falsification of documents in support of a loan application might lead to the approval of that loan request.” U.S. v. Sarno, 73 F.3d 1470 (9th Cir. 1995).
9th Circuit upholds one level upward departure by extrapolation from fraud table. (305) The applicable version of the guidelines authorized a departure for losses “substantially exceeding” $5 million, the maximum loss then covered by the loss table in § 2F1.1. The district court found a loss of $11 million, and extrapolated from a numerical sequence followed by the applicable loss table (which increased the offense level by one for each doubling of the loss). The Ninth Circuit upheld this one level departure as reasonable and sensible under the circumstances. U.S. v. Sarno, 73 F.3d 1470 (9th Cir. 1995).
9th Circuit upholds four level upward departure for $20 million fraud loss. (305) If the district court had been required to extrapolate from the applicable 1987 version of the fraud loss table in § 2F1.1, a departure of only two levels would have been appropriate for a loss of $20 million. Nevertheless, the Ninth Circuit upheld a four level increase, stating that the district court is not required in every case to extrapolate mechanically from the relevant provision. “In light of the Commission’s decision to give the district court discretion to depart upward when the amount of loss substantially exceeds $5 million rather than to continue with the pattern contained in the loss table, we will not reverse the district court for following a reasonable path.” Judge Reinhardt vigorously dissented. U.S. v. Vargas, 67 F.3d 823 (9th Cir. 1995).
9th Circuit upholds enhancement for intended loss despite lower actual loss. (305) Defendants devised a fraudulent credit card scheme and suggested in a meeting that they would be able to make $100,000 in fraudulent charges. They actually made only $34,000 in charges before they were caught. Relying on § 2F1.1, the Ninth Circuit upheld a six-level enhancement for the intended $100,000 loss, despite the lower actual loss. U.S. v. Alonso, 48 F.3d 1536 (9th Cir. 1995).
9th Circuit finds fraud losses were “direct,” not incidental or consequential. (305) Relying on U.S. v. Wilson, 993 F.2d 214 (11th Cir. 1993), defendant argued that “loss” under the guidelines does not include incidental or consequential damages. The Ninth Circuit found Wilson inapposite, because here the losses were the direct result of defendant’s fraudulent misrepresentations. Without a binding guarantee of repayment, the banks would not have issued the loans. Once the borrowers defaulted, the victim banks incurred $13,000,000 in losses as a direct result of defendant’s companies’ refusal to honor their contractual obligations. In addition, stock losses of $647,000 and additional actual losses of $500,000 directly resulted from the fraud. U.S. v. Mende, 43 F.3d 1298 (9th Cir. 1995).
9th Circuit reverses fraud loss calculation in equity-skimming scheme. (305) Defendant tricked homeowners into believing that if they sold him their federally-insured homes they would no longer be obligated on their mortgages and their credit histories would not show that they had been foreclosed upon. Instead, defendant simply rented out the homes, and absconded with the rents. The district court found the loss from the fraud was the fair market value of the 150 to 300 homes foreclosed upon. On appeal, the 9th Circuit reversed, ruling that “[t]he proper measure is the actual economic value of that which [defendant] obtained from his various victims.” Here, that would include “the rents he received, any amounts renters were induced to pay or expend which are not reflected in the rents, monetary losses inflicted upon the lenders and the government, and any other economic loss that can be proved.” The court added that on remand a departure would be warranted if the value so obtained did not “fully capture the harmfulness and seriousness of [defendant’s] conduct.” U.S. v. Harper, 32 F.3d 1387 (9th Cir. 1994).
9th Circuit reverses computation of fraud loss. (305) The 9th Circuit ruled that “[a]ll the losses from a scheme to defraud must be taken into account,” and this was true even if the corporate officers of the wineries were aware of the fraud on consumers. However, in refusing to order restitution, the court stated that “I can’t for the life of me figure out who Mr. Licciardi owes, if anybody, and what he owes, if anything.” The 9th Circuit opined that “[i]f the court was unable to determine what Mr. Licciardi owed, we have difficulty in seeing how it could determine the loss.” The case was remanded for findings on this issue as well as whether defendant should be given credit for the value of the wine grapes that were delivered, even though they were misrepresented. U.S. v. Licciardi, 30 F.3d 1127 (9th Cir. 1994).
9th Circuit applies minimum loss for stolen credit cards to stolen credit card numbers. (305) Defendant was convicted of offenses involving the unauthorized use of access devices arising out of a scheme to make unauthorized use of over 8,500 stolen credit card numbers. In calculating loss, the district court applied application note 4 to §2B1.1 and multiplied the minimum $100 loss per card by 7,000 of the cards. The Ninth Circuit upheld the use of the $100 minimum per stolen number even though the application note refers to stolen credit cards. Nothing in §2F1.1 or §2B1.1 suggests that loss having to do with unauthorized charges made with stolen credit card numbers should be treated differently from unauthorized charges made with the plastic itself. In both cases, the value of the unauthorized use exceeds the intrinsic value of the device. U.S. v. Yellowe, 24 F.3d 1110 (9th Cir. 1994).
9th Circuit finds unpaid rents and mortgage payments proper amount of loss. (305) Defendant was convicted of bankruptcy fraud based on false statements made in filing his bankruptcy petitions. The petitions had the effect of staying defendant’s eviction from properties he had purchased. The district court based the amount of loss on the unpaid rents and mortgage payments due on the properties. The Ninth Circuit upheld the loss calculation finding the actual, and not the intended, loss was the proper figure. Defendant was apparently willing to occupy the victims’ property without compensating them for as long as possible. The record did not support defendant’s claim that settlements were made. U.S. v. Lindholm, 24 F.3d 1078 (9th Cir. 1994).
9th Circuit allows downward departure where defendant pledged collateral for loan. (305) In the original opinion in this case, U.S. v. Hutchison, 983 F.2d 1497 (9th Cir. 1993), the Ninth Circuit found that where a defendant did not intend to repay a fraudulently obtained loan, the gross amount of the loan determined the intended loss. In this reissued opinion, the Ninth Circuit noted that a defendant who pledges collateral to secure the loan may reduce his culpability so that the gross amount of the loan overstates the seriousness of the offense. When viewed in comparison with a defendant who fraudulently obtains a loan without collateral, or a defendant who outright steals the same amount of money, defendant was less culpable because he believed the bank would recover something of value upon default. At resentencing, defendant is free to argue for a downward departure on this basis. U.S. v. Hutchison, 22 F.3d 846 (9th Cir. 1994), abrogation on other grounds recognized by U.S. v. Nash, 115 F.3d 1431 (9th Cir. 1997).
10th Circuit includes promised but unpaid interest in loss from fraudulent Ponzi scheme. (305) Defendants ran an investment fraud scheme, taking in almost $14 million by promising investors that they would double their money. Money from later investors was used to pay earlier investors. To determine loss, the court took the total principal received from investors ($13.7 million), and subtracted the amount of principal voluntarily returned ($3.1 million) and the amount regained for investors in liquidation ($1.8 million). It thus calculated the total lost principal to be roughly $8.8 million. To this it added the total promised but unpaid interest ($2.9 million), to arrive at the total loss figure of $11.7 million. The Tenth Circuit upheld the inclusion of unpaid interest in the amount lost. Under U.S. v. Lowder, 5 F.3d 467 (10th Cir. 1993), when a defendant fraudulently promises a particular return on an investment, the victims of the fraud are legally entitled to the benefit of their bargain (the contracted for interest). Thus, the proper measure of damages included any amounts promised but unpaid. U.S. v. Aptt, 354 F.3d 1269 (10th Cir. 2004).
10th Circuit upholds loss calculation where defendant did not provide evidence in support of his contrary figure. (305) Defendant embezzled money from two different employers and used the mail to cover up his embezzlement. In calculating loss, the district court explicitly referred to the evidence it considered, including the victim’s spreadsheets itemizing each check written during the relevant period and noting whether each check was authorized or not. The court also considered the victim’s affidavit as to the amount of loss. Although defendant asserted the amount was actually much lower than the figures put forward by the victim, he did not point to any evidence supporting the figure he advocated, nor any evidence disputing the reliability of the victim’s calculations. Therefore, the Tenth Circuit affirmed the court’s finding that the loss from defendant’s embezzlement was $529,006.99. U.S. v. Peterson, 312 F.3d 1300 (10th Cir. 2002).
10th Circuit treats uncharged loan as relevant conduct in calculating loss. (305) Defendant was convicted of making false statements in connection with bank loans secured by his Jaguar automobile. In calculating loss for sentencing, the district court included a third loan from a private individual, which was also secured by the same Jaguar automobile. In obtaining each loan, the defendant used his unlawful possession of car title documents to induce the trust of his creditors. The Tenth Circuit held that these facts were sufficient to support an inference of an “ongoing series of offenses, common purpose and common modus operandi,” thereby making the private loan relevant conduct for calculating loss with regard to the crimes of conviction. U.S. v. Williams, 292 F.3d 681 (10th Cir. 2002).
10th Circuit refuses to deduct value of collateral, where defendant concealed the collateral. (305) After paying only $400 on his $60,000 principal, defendant transported the Jaguar he had pledged as collateral from Salt Lake City to Hawaii. The Tenth Circuit held that it was reasonable to conclude that defendant intended to permanently deprive the lender of the collateral, and therefore the district court did not clearly err in refusing to subtract the value of the Jaguar from its calculation of intended loss. Nevertheless, it was clear error for the district court not to make any findings with respect to the tools that were also pledged as collateral, because defendant alleged that the tools were worth $60,000. Because the district court did not consider the pledged tools, the sentence was clearly erroneous. U.S. v. Williams, 292 F.3d 681 (10th Cir. 2002).
10th Circuit departs for targeting large number of elderly victims, loss, and defiance of injunction. (305) Defendant devised a fraudulent estate planning scheme that targeted elderly victims. He argued that each of the district court’s grounds for an upward departure was already covered by the guidelines. The Tenth Circuit disagreed. The court’s first two bases for departure were defendant’s targeting of elderly victims and the large number of victims. These factors were not considered in the 1997 guidelines. The court also departed based on the victims’ emotional strain caused by their monetary losses. Although dollar loss is specifically accounted for in § 2F1.1, Note 10 provides that where “the loss determined under subsection (b)(1) does not fully capture the harmfulness and seriousness of the conduct, an upward departure may be warranted.” Finally, the district court departed due to defendant’s continued criminal activity in defiance of the injunction obtained by the Texas State Bar. Although the guidelines provide a two-level increase for disregarding an injunction, defendant did more than simply ignore a court order. He intentionally frustrated the injunction’s purpose by changing the name of his business, and through this contrivance, was able to continue his scheme for more than two years. The extent of the departure, adding about 13 years to defendant’s seven-year guideline sentence, was not unreasonable. U.S. v. Davenport, 286 F.3d 217 (5th Cir. 2002).
10th Circuit based intended loss on value of collateral converted by defendant. (305) Defendant borrowed money from his bank to finance his cattle operation. When his line of credit with the bank ran out, defendant sold cattle out of trust and then filed false cattle count reports with the bank to conceal his fraud. Based on a bank officer’s testimony that defendant converted about 500 head of cattle with a fair market value of about $270,000, the district court determined that the intended loss was between $200,000 and $350,000. Defendant argued that the bank had been repaid in full and suffered no actual loss. Because the evidence of actual loss was conflicting, the district court refused to award any restitution due to its inability to determine actual loss. Nonetheless, the Tenth Circuit held that the district court properly used intended loss to determine defendant’s sentencing increase. When actual loss cannot be determined but intended loss can be ascertained, the latter is to be used for sentencing purposes. In the intended loss calculation, the amount of money repaid to a fraud victim is not included in the loss amount unless the defendant voluntarily returned value to the victim as part of the ongoing fraud. At the time of the fraud, the value of defendant’s collateral equaled the amount of his debt to the bank. When he began converting the cattle, there was no extra collateral available to secure the bank in the absence of the cattle themselves. U.S. v. Schild, 269 F.3d 1198 (10th Cir. 2001).
10th Circuit holds defendant accountable for losses caused by co-conspirators. (305) Defendant printed on his home computer several counterfeit checks drawn on his employer’s account. The checks were cashed by a minor female conspirator. On September 18 and 19, two minor co-conspirators cashed several additional counterfeit checks, resulting in losses of over $9000. Although defendant disclaimed prior knowledge of the girls’ activities, one of the girls testified that defendant had created and printed half of these checks. In additional, defendant’s fingerprint was found on one of the checks. Finally, on September 30, the conspirators were arrested after cashing three more counterfeit checks. The Tenth Circuit ruled that defendant was properly held accountable for the losses caused by his co-conspirators on September 18 and 19. In his plea agreement, defendant admitted responsibility for the September 18 and 19 checks. By admitting legal responsibility for the acts of his co-conspirators on September 18 and 19, defendant necessarily admitted that those acts were reasonably foreseeable and were undertaken in furtherance of the conspiracy. Thus, there was sufficient evidence to support the court’s finding that defendant was responsible for losses in excess of $20,000. U.S. v. Suitor, 253 F.3d 1206 (10th Cir. 2001).
10th Circuit holds that court properly used intended loss from fraudulent insurance claim. (305) In his application for disability insurance, defendant fraudulently misrepresented his current and prior income. In fact, he had no source of income other than money he fraudulently obtained from his investors. The day after the policy went into effect, he injured his elbow. In his disability claim, he asserted that his prior income level entitled him to $5,000 a month in disability benefits. The district court found that he intended to inflict a loss in excess of $800,000, since under the policy he was entitled to $5,000 a month until he was 65 years old. Defendant argued that the evidence did not show that he reasonably intended a $800,000 loss, pointing out that during the settlement negotiations, the insurance company’s highest settlement offer to him was only $140,000. The Tenth Circuit found no error. Defendant was entitled under the terms of his disability policy to receive monthly benefits of $5,000 during his working lifetime. He was 37 at the time of his disability claim, and the monthly payments he sought from the insurance company would have totaled about $1.6 million, far in excess of the court’s finding of $800,000. The loss that defendant intended the insurance company to suffer was economically feasible because he was capable of inflicting that loss and had some reasonable prospect of success. U.S. v. Haber, 251 F.3d 881 (10th Cir. 2001).
10th Circuit holds that court properly included loss from elk that defendant intended to kill. (305) Defendant captured wild elk, held them captive, and organized at least one commercial elk hunt, without a license. He was convicted of violating the Lacy Act, 16 U.S.C. §§ 3371-3378. The district court sentenced defendant based on the death of two elk, one actually killed, and one intended. He argued that there was no evidence to indicate that he entered or intended to enter into an agreement with an undercover Fish & Wildlife Agent to kill the second elk. The government contended that there was ample evidence that defendant intended to kill another elk, and that a calculation based on intended loss was proper under § 2F1.1. In light of the testimony of a Fish & Wildlife Agent, the Tenth Circuit ruled that the district court reasonably concluded that defendant intended to cause the killing of a second elk. U.S. v. Lewis, 240 F.3d 866 (10th Cir. 2001).
10th Circuit says government did not prove defendant intended to deprive lender of value of home loan. (305) Defendant used false social security numbers and variations on his name to obtain loans, including a home loan. The trial court found that defendant intended to deprive the lender of the full amount of the home loan, but the Tenth Circuit reversed. The home loan was fully secured by the mortgage, and the home was appraised at more than the value of the loan. Although the mere presence of collateral does not automatically reduce loss where it can be shown that the defendant intended to permanently deprive the creditor of the collateral through concealment, see U.S. v. Banta, 127 F.3d 982 (10th Cir. 1997), this was not such a case. Unlike a vehicle, defendant could not conceal his house. There was no evidence defendant intended to deprive the lender of the full amount of the loan. He provided mostly correct information on his loan application, and made a number of payments on the house. Although he did not make payments for one year pending Chapter 13 bankruptcy, he continued making payments even after learning that he was going to be prosecuted for using a false social security number. The house was the sole residence of defendant and his family. The district court also clearly erred in finding that defendant intended to inflict a loss in the full amount of a $4200 loan that he obtained to pay for the repair of a sewer line in his new home. Defendant made monthly payments on the loan for almost two years, and was current on paying back the loan at the time of sentencing. U.S. v. Nichols, 229 F.3d 975 (10th Cir. 2000).
10th Circuit rules government did not prove defendant intended to deprive lender of full value of vehicle. (305) Defendant used false social security numbers and variations on his name to obtain loans, including a car loan. The rest on the information on the application, including his address, place of employment and home and business telephone numbers, was valid. He also made a $1000 down payment. After taking possession of the vehicle and driving it for three weeks, defendant was notified by the dealer that the lender would not accept the contract. He promptly and voluntarily returned the vehicle undamaged. One month later, defendant signed a contract with another lender, made an additional down payment of $792, and chose another vehicle. After three weeks, the lender discovered the false social security number and repossessed the vehicle. The Tenth Circuit ruled that for loss purposes, the government failed to demonstrate any intent by defendant to deprive the lender of the value of the vehicle. There was no evidence that defendant failed to make payments or damaged the vehicles or did any act consistent with concealment. In fact, the accurate information defendant provided on the loan application allowed the lender to easily repossess the second vehicle. U.S. v. Nichols, 229 F.3d 975 (10th Cir. 2000).
10th Circuit holds that loss from fraudulently obtained credit card should be reduced by security deposit. (305) Defendant used a false social security number to obtain a MasterCard. He put up a security deposit of $1000 to obtain the card. The district court included the high balance on the card, $2002, as the intended loss, which was greater than the actual loss at the time the account was closed. The Tenth Circuit held that the district court erred in failing to reduce the loss by the $1000 security deposit given by defendant prior to issuance of the card. U.S. v. Nichols, 229 F.3d 975 (10th Cir. 2000).
10th Circuit holds that full restitution before learning of criminal charges did not reduce loss. (305) Defendant opened a checking account using a false social security number. He wrote a number of bad payroll checks, causing the bank to lose $2,438.70. Defendant made full restitution to the bank before he became aware of any criminal charges. The trial court determined that defendant intended a loss in the full amount of $2,438.70. The Tenth Circuit agreed that the fact that defendant had already made full restitution before being aware of the charges did not reduce the loss. The purpose of intended loss is to measure the magnitude of the crime at the time it was committed. U.S. v. Nichols, 229 F.3d 975 (10th Cir. 2000).
10th Circuit holds that intended loss includes amount returned to victim after civil lawsuit. (305) Defendant served as a “like kind” accommodator to facilitate transactions under IRC § 1031. Defendant used client funds for his own personal expenses and to repay the closing proceeds from other clients’ transactions. The Tenth Circuit held that the district court properly included in the § 2F1.1 intended loss $42,000 recovered by the one victim family in their civil lawsuit against defendant. That money was not returned through defendant’s voluntary actions, but through action by the victim after the discovery of the fraud. Although defendant claimed that he intended to return the family’s money even before they commenced legal action, the district court did not believe him. Moreover, defendant may have intended to repay the family by misappropriating other clients’ funds. The reasoning of U.S. v. Holiusa, 13 F.3d 1043 (7th Cir. 1994), which held that moneys repaid to earlier investors in a pyramid scheme did not reflect intended loss, did not apply here. In Holiusa, the money was paid back prior to detection of the scheme. Burridge, 191 F.3d 1297 (10th Cir. 1999).
10th Circuit includes uncharged fraud in loss calculation. (305) Defendant served as a “like kind” accommodator to facilitate transactions under IRC § 1031. A taxpayer would give the proceeds of a real estate sale to defendant, who would hold the proceeds until the taxpayer located another piece of real estate to purchase. Defendant then provided the deposited funds to close on the second property. Defendant began to use client funds for his own personal expenses and to repay the closing proceeds from other clients’ transactions. The Tenth Circuit held that the district court properly included in the loss calculation $2,000 that one client gave to defendant in a similar but uncharged transaction. It is well established that sentencing calculations can include as relevant conduct actions that do not lead to separate convictions. The $2,000 was relevant to defendant’s sentencing because it constituted an element of “the same course of conduct or common scheme or plan” as defendant’s charged acts of wire fraud. Burridge, 191 F.3d 1297 (10th Cir. 1999).
10th Circuit holds defendant accountable for full amount of intended loss. (305) Defendant was a surety on a government contract. When the contractor defaulted, he and the other surety agreed to complete the work with a contractor of their choice. The agreement barred the sureties from receiving any compensation for the work performed except for actual costs and expenses. Although Skyline, their new contractor, agreed to complete the contract for $1.2 million, the sureties submitted agreements stating that Skyline would complete the work for $1,690,000, the entire amount remaining on the original contract. Skyline agreed to pay the sureties the difference ($490,000) as finder’s fees and consulting fees. The Tenth Circuit held that defendant was properly held accountable for the full $490,000 intended loss. The court rejected defendant’s claim that he was unaware of the amount of the intended loss. Defendant agreed with his co-conspirators to defraud the government on the Skyline contract. He knew of both the original Skyline bid and the submitted inflated bid. He was also receiving money from work he did not do and which his agreement with the government did not permit. The fact that he did not know how the $490,000 was to be distributed was irrelevant. U.S. v. Schluneger, 184 F.3d 1154 (10th Cir. 1999).
10th Circuit rejects loss enhancement where fraud had no possibility of success. (305) Defendant presented a document to the U.S. Marshal’s Office which falsely indicated that he had prevailed in a civil action against a bank, when in fact, the action had been dismissed. This document indicated that the lawsuit entitled defendant to possession of certain real property. The district court sentenced defendant based on the uncontested value of the property, $540,700. The Tenth Circuit rejected the loss enhancement because the fraud had no possibility of success. Under U.S. v. Galbraith, 20 F.3d 1054 (10th Cir. 1994), “the loss defendant subjectively intended to cause is not controlling if he was incapable of inflicting that loss.” There was no way in which defendant’s scheme could have been successful. Although defendant persuaded a deputy clerk to sign his document, the properties he sought had already been sold to third parties. There was not even a remote possibility that defendant could have either obtained the properties or the proceeds from the sale of the properties. Although a number of other circuits have disagreed with Galbraith’s analysis of intended loss, one panel is bound by the precedent of an earlier panel absent en banc reconsideration. Judge Anderson dissented. U.S. v. Ensminger, 174 F.3d 1143 (10th Cir. 1999).
10th Circuit bases loss on entire amount of disability benefits received. (305) Defendant injured his back while working for the Bureau of Prisons and was awarded disability benefits. For several years, he failed to report to the government modest amounts of income that he earned as a result of his self-employment. The district court calculated the § 2F1.1 loss as the total amount of disability paid to defendant from the first fraudulently filed form until his conviction. Defendant argued that the proper calculation of “loss” was the difference between what he actually received and what he would have received if his reports had been truthful. The Tenth Circuit upheld the district court’s decision to base the loss on the total amount of benefits defendant received. The plain terms of the statute, 18 U.S.C. § 1920, pertain to “the amount of the benefits obtained,” not the amount of benefits obtained minus the amount that would have been obtained if no false statement had been made. Judge Henry dissented, pointing out that the fact that the underlying statute gives the government a cause of action to forfeit the entire amount of benefits received does not mean that defendant’s actions caused a loss of the entire amount of benefits received. U.S. v. Henry, 164 F.3d 1304 (10th Cir. 1999).
10th Circuit says failure to make Rule 32(b) loss findings was not plain error. (305) Defendant was involved in the fraudulent sale of American securities in Germany. In calculating loss, the district court used defendant’s $650,000 gain, rather than the estimated $18-25 million in actual loss to the victims. The government contended for the first time on appeal that the district court erroneously failed to make findings explaining why defendant’s gain was a reasonable estimate of loss. The Tenth Circuit found no plain error. The government chose not to ask the trial court to explain its reasons. The failure to make specific findings under Rule 32(c)(1) does not rise to the level of obvious and substantial error. U.S. v. Brown, 164 F.3d 1146 (10th Cir. 1998).
10th Circuit uses gain as estimate of loss where foreign losses were not relevant conduct. (305) Defendant was involved in the fraudulent sale of American securities in Germany. In calculating loss under § 2F1.1, the district court used defendant’s $650,000 gain, rather than the estimated $18-25 million in actual loss to the victims. The Tenth Circuit affirmed. Relying on a defendant’s gain is per se unreasonable only where the actual or intended loss is non-existent. Here, the district court properly found that a co-conspirator’s activities in Germany, and the losses those activities created, did not constitute relevant conduct attributable to defendant. Many of the co-conspirator’s acts could not have been reasonably foreseen by defendant. The co-conspirator was the mastermind behind the enterprise and its driving force. Defendant had little input regarding the co-conspirator’s activities in Germany: he rarely contacted and never directly supervised the sales persons in Germany; he was not otherwise involved with or in control of the sale practices of the German operations; and he was kept in the dark by the co-conspirator about many of the German activities. U.S. v. Brown, 164 F.3d 1146 (10th Cir. 1998).
10th Circuit approves using relevant conduct in fraud loss calculation. (305) Defendant was the president of a company that sold telephone equipment to pay telephone service providers. The company advertised its products as new, when in fact the main circuit board in its telephones was used. Defendant was convicted of fraud and conspiracy in connection with the sale of 55 pay telephones to a particular customer. The Tenth Circuit approved counting defendant’s dealings with other customers as relevant conduct in calculating the § 2F1.1 loss. The other customers purchased used telephones that they believed were new, received defective equipment, or received their orders late or did not receive refunds for undelivered orders. All of these transactions occurred between 1990 and 1996, with most between 1992 and 1995. The court properly treated all of these incidents as relevant conduct for sentencing purposes because they involved the same course of criminal behavior. U.S. v. McClelland, 141 F.3d 967 (10th Cir. 1998).
10th Circuit refuses to reduce loss by amount recovered by victims after discovering crime. (305) Defendant, a private financial consultant, loaned to third parties and transferred to his own accounts large sums of money belonging to a client. The district court found the loss was $1,556,601, calculated as follows: $2,263,000, the total misappropriated funds deposited in accounts under defendant’s control, minus $776,399, which he spent on authorized expenses of the clients, plus $80,000, which he unsuccessfully attempted to take from a client account after the fraud was reported. Defendant argued that the court should have deducted $250,824, which the clients recovered from one of defendant’s accounts after it was frozen, and the amounts the clients ultimately recovered from third party borrowers after defendant’s crimes were discovered. The Tenth Circuit upheld the district court’s refusal to reduce the loss by amounts the clients recovered after the fraud was discovered. The guidelines measure the magnitude of the crime at the time it was committed. The fact that the victims were able to recover part of their loss after discovery of the fraud did not diminish defendant’s culpability or responsibility for the full crime. U.S. v. Janusz, 135 F.3d 1319 (10th Cir. 1998).
10th Circuit includes acquitted and uncharged conduct in loss calculation. (305) Defendant recruited drivers to drive tow trucks. The drivers were required to pay defendant’s company about $4000 each as down payments on their tow truck leases. Thirty-six recruited drivers paid their money to defendant’s company but did not receive tow trucks or refunds. The company then went bankrupt. Defendant was convicted of two counts of mail fraud and acquitted of five other counts. At sentencing, the court based the loss on the total losses to 40 drivers who paid down payments to defendant, even though defendant had been acquitted of defrauding some of those drivers and had not been charged with defrauding most of the rest. The Tenth Circuit held that the court properly considered all of defendant’s conduct, including acquitted and uncharged conduct. The court agreed with defendant that the PSR inflated the magnitude of his victims’ losses and in places was inconsistent, careless and ambiguous. However, until this appeal, defendant never challenged the factual accuracy of the PSR. Accordingly, his factual challenge was waived. U.S. v. Yarnell, 129 F.3d 1127 (10th Cir. 1997).
10th Circuit refuses to reduce intended loss where defendant tried to hide collateral from banks. (305) Defendant submitted fraudulent loan applications to purchase two vehicles for a total price of $49,987.65. Several months later, the bank repossessed the vehicles and resold them at a loss of $17,962.62. The district court found that defendant intended to cause a loss of the total purchase price of the vehicles. Because this was greater than the actual loss, the district court used the intended loss to determine the § 2F1.1 offense level. The Tenth Circuit affirmed the use of the intended loss since the record strongly suggested that defendant did not intend to repay the loans. He provided the bank with a false social security number, and an incorrect address, phone number and place of employment, making it difficult for the lender to locate the vehicles. Defendant failed to make any legitimate payments during the period he had the vehicles in his possession. The district court properly refused to reduce the intended loss by the amount of the collateral, since defendant intended to permanently deprive the bank of the collateral by concealing the vehicles. U.S. v. Banta, 127 F.3d 982 (10th Cir. 1997).
10th Circuit says loss from insurance fraud was not limited to amounts paid directly to defendant. (305) Defendant organized at least two fake automobile crashes involving family members in order to secure insurance payments. He challenged the district court’s calculation of loss. The Tenth Circuit rejected defendant’s claim that he should only be held accountable for sums paid directly to him by the defrauded insurance companies. Specific offense characteristics are to be determined on the basis of all reasonably foreseeable acts in furtherance of jointly undertaken criminal activity. Defendant did not provide any particularized argument as to why the facts supporting the court’s calculation of loss were erroneous. U.S. v. Knox, 124 F.3d 1360 (10th Cir. 1997).
10th Circuit says loss was foreclosure value at time of false statement. (305) In April 1987, defendant borrowed money from a bank to finance his farming and ranching activities. The loan was secured by defendant’s cattle, crops, farm, and equipment. In December 1989, defendant showed a bank inspector a herd of about 464 head of cattle, valued at $218,969. In fact, defendant did not own most of the cattle. The district court, without any explanation, calculated the loss at $183,149.09. The Tenth Circuit remanded for further proceedings to precisely define the loss and how it was determined. The loan here was legitimately obtained, and defendant’s false statements were made after the loan was issued. In such a case, the § 2F1.1 loss is the loss that can be attributed to the false statement. Thus, the crucial question here is what the bank would have recovered if it had foreclosed following the December 1989 inspection. U.S. v. Copus, 110 F.3d 1529 (10th Cir. 1997).
10th Circuit uses property’s fair market value to calculate loss from bankruptcy fraud. (305) Defendant concealed various assets from the bankruptcy court, including his interest in certain partnership property and a promissory note. The district court found that the property was worth $130,000, and had an equity value of $65,000, half of which belonged to defendant. It also found that the $246,845 note was worth $20,000, the amount the obligor paid the trustee to get the note back. The Tenth Circuit affirmed. The parties stipulated that the property’s value in 1990 was $131,000. After subtracting the mortgage balance, this left defendant’s share at $32,500. The $5,000 ultimately paid for the partnership interest was merely a liquidation price, which was not a proper valuation of loss. The $20,000 estimate for the $246,845 promissory note was conservative. Although defendant presented a witness who concluded that the note was unenforceable and therefore worthless, the note had some redeemable value since its obligor paid $20,000 to get it back. U.S. v. Messner, 107 F.3d 1448 (10th Cir. 1997).
10th Circuit upholds court’s decision to limit loss from Medicaid fraud to charged counts. (305) Defendant, a licensed psychiatrist, was convicted of submitting false claims to Medicare, Medicaid and CHAMPUS. Although the PSR recommended a loss of $259,922, the district court determined that the loss to the government was only $12,573, the amount defendant claimed for services provided by an unlicensed employee. This amount formed the basis for all the counts in the indictment except a conspiracy count. The government contended that the loss to the three programs greatly exceeded the amounts involved in the charged counts. The Tenth Circuit upheld the court’s decision to limit the loss to the charged counts. The record supported the court’s determination of loss. While the court could have adopted the PSR’s recommendation as to loss, its failure to do so was not clear error. U.S. v. Jaramillo, 98 F.3d 521 (10th Cir. 1996).
10th Circuit remands to find whether defendant intended to return rented vehicles. (305) Defendants used stolen credit card numbers to finance a trip across the country. The district court included in the loss the market value of two rental cars that defendants fraudulently rented and then abandoned, plus the market value of the rented truck they were driving when they were arrested. The Tenth Circuit remanded to determine defendant’s intent with respect to the vehicles. The district court erred in relying on § 2B1.1. Where a defendant uses a stolen credit card number, § 2F1.1 applies. The question is whether defendant intended not to return the vehicles. Such intent may be inferred from a defendant’s is indifference or recklessness regarding the owner’s recovery of the vehicle. Here, it was impossible to determine whether defendants intended to inflict a loss that included the entire fair market value of each of the rented vehicles. There was limited evidence surrounding the abandonments and no finding as to recklessness or indifference. U.S. v. Moore, 55 F.3d 1500 (10th Cir. 1995).
10th Circuit includes in loss money repaid to investors and amount of fraudulently requested bank loan. (305) Defendant operated a Ponzi scheme in which money from later investors was used to pay monthly interest and principal payments to earlier investors. The district court found that the fraud resulted in a loss of $1.8 million. Defendant argued that the court should have subtracted the $300,000 repaid to investors before the indictment. The Tenth Circuit found no error. Of the over $300,000 returned to investors, only $50,000 was paid as a return of principal. It was reasonable for the court to calculate the loss based on the total amount of principal without subtracting any amount repaid, especially since the court chose not to add the interest due to investors based on the promises made to them. The court also calculated the loss from a bank fraud as $800,000, the amount requested on the loan application. This would have been the amount of loss if the loan had been granted. U.S. v. Kunzman, 54 F.3d 1522 (10th Cir. 1995).
10th Circuit includes in loss the amount the loan was discounted based on misrepresentations. (305) Defendants defaulted on some bank loans. The lender agreed to discount the outstanding loans by $279,000, leaving defendants $280,000 in debt. At the same time, defendants negotiated with a second lender to receive up to $850,000 to settle their indebtedness. Defendants then forged a letter from the first lender to the second lender, requesting payments of $405,000 to settle their debts to the first lender—$125,000 more than defendants actually owed. Before disbursing the loan monies, the second lender discovered the fraud. The Tenth Circuit held that defendants’ conduct resulted in a loss of $279,000 to the first lender, because the first lender would not have agreed to discount defendants’ loans by this amount but for their deception regarding their capacity to borrow from the second lender. Defendants told the first lender that their borrowing capacity was $200,000 when it actually was $850,000. A bank officer for the first lender testified that he would not have discounted the loans if he had known that defendants had access to $850,000. U.S. v. Sapp, 53 F.3d 1100 (10th Cir. 1995).
10th Circuit approves upward departure where loss in sting operation was zero. (305) Defendant was convicted of securities fraud, mail fraud and wire fraud after being caught in a government sting operation. The district court determined that the loss under section 2F1.1 was zero, since there was neither actual loss to real victims or true intended loss. The court ruled that because defendant had anticipated receiving $147,000, this amount would be used to justify a 6 level upward departure. The 10th Circuit approved the upward departure. Sting operations that expose fraud are not adequately addressed in the guidelines because the result is an intended loss of zero. A zero loss did not adequately address the seriousness of defendant’s conduct. The extent of the departure was reasonable, since his anticipated share of the intended profits reflected his greater culpability. U.S. v. Sneed, 34 F.3d 1570 (10th Cir. 1994).
10th Circuit refuses to reduce loss by tax benefits victims received from their investments. (305) Defendant fraudulently induced investors to buy interests in oil and gas leases and properties. Defendant argued that the court should have reduced the amount of loss under § 2F1.1 by (a) $1.1 million for amounts pledged by investors but not paid, and (b) $2 million for tax benefits obtained by the victims from their investments. The 10th Circuit rejected the claim. Because the court never added the $1.1 million into its loss calculation, the court correctly refused to reduce the loss by $1.1 million. The court also correctly refused to give defendant a $2 million credit because the victims were able to obtain tax benefits on their investments. In previous cases where loss has been reduced by the value of something a victim received, the defendant himself has been responsible for the victim’s receipt of the thing of value. U.S. v. McAlpine, 32 F.3d 484 (10th Cir. 1994).
10th Circuit includes loss from investors who did not respond to postal investigator’s inquiries. (305) Defendant fraudulently induced investors to buy interests in oil and gas leases and properties. A postal inspector testified that he attempted to contact 65 investors to gather information concerning their individual losses. Thirty-seven responded, and their losses totaled $5.3 million. The district court reduced this figure to $4.2 million based on the value of oil and gas properties. The court then found that the 28 investors who did not respond also suffered losses, and enhanced defendant’s sentence under § 2F1.1 based on a loss in excess of $5 million. The 10th Circuit affirmed. One investor testified that all the investors shared in the expenses on a pro rata basis. Given that 37 investors lost $4.2 million, a court could reasonably conclude that the other 28 investors lost at least $800,000. U.S. v. McAlpine, 32 F.3d 484 (10th Cir. 1994).
10th Circuit limits loss and restitution to amount received after defendant knew his father was dead. (305) Defendant had power of attorney from his aging father and cashed his father’s pension checks for his own use while his father was alive and after his father’s death in 1982. The government was unable to prove that Au defendant was aware of his father’s death before gust 9, 1990. The 10th Circuit held that the amount of loss under section 2F1.1 and the amount of restitution was limited to the amount defendant received after August 9, 1990. There was no evidence of a fraudulent scheme before 1990. U.S. v. Jackson, 26 F.3d 999 (10th Cir. 1994).
10th Circuit remands to determine fair market value of degree from unaccredited institution. (305) Defendant established various mail-correspondence universities. He misrepresented to prospective students that the school was accredited and had numerous faculty associated with it. The district court included student checks deposited into the school’s bank account in the loss calculation under §2F1.1. The court also considered the government’s estimate of the continued revenue flow into the bank account for the period just prior to defendant’s arrest. Deposit slip information was not available, so the estimate relied entirely on the assumption that the revenue flow would continue at the same rate as the previous two years. The 10th Circuit upheld the use of these figures to estimate the gross loss, but remanded because it was unclear whether the court determined the net loss. Loss should be calculated as the value of the tuition payments made to the school against the value of what students received, a degree of dubious nature. If the court implicitly valued the resulting degree as worthless, then its calculation of gross tuition received by defendant would properly reflect net losses. U.S. v. Reddeck, 22 F.3d 1504 (10th Cir. 1994).
11th Circuit holds that zero loss estimate was unreasonable in Medicare fraud case. (305) Defendant, a private health care consultant, was involved in a Medicare fraud scheme designed to hide the “related party” status of corporations providing goods and services to home health agencies. Under Medicare regulations, if a provider receives services from a “related” organization, its reimbursement is limited to the supplier’s cost rather than the amount paid by the provider. Although experts opined that the loss was between three and six million dollars, the district found that the government incurred no loss. It found that the loss was the amount by which each of the defendants exceeded the applicable Medicare reimbursement caps, which was zero because the companies operated below the applicable caps. The Eleventh Circuit held that the district court’s finding of no loss was not a reasonable estimate. The purpose of the related party rule is to prevent the payment of artificially inflated consulting fees. Medicare’s willingness to pay up to its costs caps did not absolve defendant from his violation of the related party regulations or from his liability for submitting false claims to Medicare. The amount the government paid in response to the false claims was an appropriate measure of damages. U.S. v. Gupta, 463 F.3d 1182 (11th Cir. 2006).
11th Circuit approves increase based on total amount issue by police department to defendant’s fraudulent business. (305) Defendant, a police officer formerly in charge of seized and unclaimed money, formed a company that assisted clients in reclaiming money from the police department. The company relied on confidential information obtained by defendant to locate and contact potential clients. In some cases the company misled prospective clients into believing that the company provided the only means to reclaim the money; in other cases it used forged documents to obtain money, and some money was never distributed to its rightful owners. In total, the police department issued $710,262 to defendant’s company. The counts of conviction only involved $33,900 of this total. The Eleventh Circuit held that the district court properly used the full $710,262 paid to defendant’s company as the loss. The district court found that the scheme was inherently fraudulent. Every dollar the company took resulted from depriving the city of defendant’s honest services. U.S. v. Woodard, 459 F.3d 1078 (11th Cir. 2006).
11th Circuit uses defendant’s gain as proxy for loss in misbranded prescription drug case. (305) Defendants were involved in a scheme to market and sell without prescriptions two treatments for erectile dysfunction. Sales literature and marketing efforts misrepresented that the treatments were available without a prescription and had no side effects. In addition, the treatments’ success rate was 30-40%, the same as a placebo. To determine loss, the court found that the company’s gross sales of the products less returns and refunds was $2.21 million. Because some customers arguably benefited from the products, the court reduced this number by 30% to reach a final loss of $1.547 million. Although defendant’s gain amount should not be used for loss where a reasonable estimate of the victims’ loss is feasible, under the unique circumstances of the fraud here, the Eleventh Circuit found no error in the loss calculation. The number of individual victims was hard to determine, since even those customers who might have been happy with the product did not get the product they thought they were buying (a safe, non-prescription treatment more effective than a placebo). In addition, given the nature of the product, many victims might have been embarrassed to come forward. U.S. v. Munoz, 430 F.3d 1357 (11th Cir. 2005).
11th Circuit holds defendant accountable for entire loss generated by fraud and money laundering scheme. (305) Defendant was convicted of fraud and money laundering in connection with an illegal Ponzi scheme. The Eleventh Circuit upheld the district court’s finding that the loss attributable to defendant for sentencing under § 1B1.3(a)(1)(B) was $51 million, the total amount of money laundered in the conspiracy. For a defendant convicted of conspiracy, the district court must first determine the scope of criminal activity the defendant agreed to jointly undertake, and then consider all reasonably foreseeable acts and omissions of others in the jointly undertaken criminal activity. Defendant was involved in contacting and recruiting clients into the fraud scheme. More importantly, he was involved in the scheme from nearly its inception, and placed a critical role in its success. Although he did not “design” the program, he concocted the method in which he could continue to pull investors into the program and further the scheme. U.S. v. McCrimmon, 362 F.3d 725 (11th Cir. 2004).
11th Circuit says profit from non-authorized sales was reasonable estimate of loss. (305) Defendant was the vice president of a company that distributed prescription drugs at wholesale prices to pharmacies and other outlets. Misrepresenting himself as the vice-president of a mail-order pharmacy that sold prescription drugs directly to home health patients, defendant negotiated with BIPI, a pharmaceutical company, to sell one of its prescription drugs. BIPI agreed to sell the drug to defendant at a lower price based on the understanding that the drug would only be resold to home health patients. Defendant then diverted the product to his employer, who re-sold the drug at a market advantage. Defendant contended that BIPI did not suffer a loss from his conduct, because BIPI made a substantial profit from the sale of the drug to him. The Eleventh Circuit disagreed. Defendant took from BIPI the unrestricted right to distribute the drug. The loss was difference between the value of the unrestricted right to distribute the product over the restricted right. A reasonable estimate of this value was the profit obtained by defendant from the non-authorized sales. Defendant’s profit would be expected to correlate with the profit BIPI could have made through its own sales of the drug to these non-authorized purchasers. U.S. v. Yeager, 331 F.3d 1216 (11th Cir. 2003).
11th Circuit holds that court erred in failing to make particularized loss findings for each defendant. (305) Defendants were participants in a counterfeit corporate cash checking ring that operated in South Florida from January 1997 until August 2000. The district court held three sentencing hearings and found that each defendant should be held responsible for the $125,000 in actual losses. The Eleventh Circuit held that the district court erred in determining each defendant’s relevant conduct. Although the court made findings regarding reasonable foreseeability, it did not determine the scope of the criminal activity that each defendant agreed to jointly undertake. Rather, the court held simply that because each defendant knew that he or she was part of a ring, he or she should be held accountable for all of the acts of all of the members. Because the court did not make particularized findings regarding the scope of defendants’ agreements, as required by U.S.S.G. § 1B1.3(a)(1)(b), the case was vacated and remanded for resentencing. U.S. v. Hunter, 323 F.3d 1314 (11th Cir. 2003).
11th Circuit says court erred in ruling calculating loss to stockholders was not feasible. (305) Defendants falsified data from clinical studies on a drug to treat CTCL, a relatively rare and potentially fatal form of skin cancer. After the false results were announced, their company’s stock rose. The stock fell dramatically after the fraud was announced. A government CPA calculated the loss at $34.4 million, the amount stockholder were deemed to have lost due to the fraud. The district court found this number highly speculative, and found that the better calculation of loss was the intended or potential gain attributable to defendants. This resulted in a loss of between $200,000 and $350,000. The Eleventh Circuit ruled that the trial court erred when it found that calculating the loss to victims was not feasible. As a result of the fraud, a large number of individuals and institutions were induced to purchase the stock at an artificially inflated price. Their losses were substantially undervalued by using the gain to defendants’ approach. However, the CPA’s calculation overestimated the actual loss because the stock here was not totally worthless after the conspiracy was discovered. On remand, the court might calculate loss by focusing on the period between the May 31, 1995 press release announcing the drug was “effective” in treating CTCL, and the days immediately following the announcement of the fraud on June 16, 1995. U.S. v. Snyder, 291 F.3d 1291 (11th Cir. 2002).
11th Circuit affirms upward departure where fraud caused a loss not adequately considered by guidelines. (305) Defendant was convicted of distributing in interstate commerce a prescription drug without a prescription with intent to defraud or mislead. In departing upward, the district court identified several factors that took defendant’s acts outside of the “heartland” of typical fraud cases, including the harm posed to the public by defendant’s scheme to defraud the government. Such a risk of non-monetary harm is specifically identified by the guidelines as an appropriate grounds for departure. See Note 11(a) to § 2F1.1. The Eleventh Circuit agreed that the loss caused by defendant’s fraud was not adequately taken into account by the guidelines. During sentencing, the district court concluded that an enhancement based on the monetary loss caused by the defendant’s conduct was improper. This conclusion, however, did not mean that defendant’s fraud did not cause harm or create loss. Fraud against government regulatory agencies does pose a threat of harm to the public. U.S. v. Kimball, 291 F.3d 726 (11th Cir. 2002).
11th Circuit reverses arbitrary estimate of loss where government did not prove what percentage of claims were fraudulent. (305) Defendants were convicted of submitting false claims to the Civilian Health and Medical Program of Uniformed Services (CHAMPUS) and Medicare. The claims failed to disclose that medical services were performed by defendant Renick, a doctor who had been excluded from participating in the federal insurance programs. The government claimed a $2,830,515.70 loss based on the total per diem charges billed to CHAMPUS for services provided at one facility. Although the government claimed that all of the CHAMPUS billings were for Renick’s patients, the district court found this was not supported by the evidence. Nonetheless, the court stated that it was going to estimate the loss by “arbitrarily pick[ing] a number between $70,000 and $120,000.” The Eleventh Circuit rejected the government’s argument that the district court should have attributed the total amount of the CHAMPUS billings to Renick’s participation and found that the total amount was a loss. However, the court’s arbitrary assignment of at least $70,000 loss to the CHAMPUS billings was an abuse of discretion and contrary to law. There was no basis for making a reasonable estimate as to the CHAMPUS loss. The court’s loss determination in excess of $30,871.28, the amount of loss from a second facility run by defendants, must be reversed. U.S. v. Renick, 273 F.3d 1009 (11th Cir. 2001).
11th Circuit bases loss on credit limits of fraudulently obtained credit cards. (305) Defendant stole credit card applications out of the U.S. mail, and used them to obtain credit cards whose total credit limits was $43,000. Resolving an issue left open in U.S. v. Dominguez, 109 F.3d 675 (11th Cir. 1997), the Eleventh Circuit found no clear error in basing defendant’s sentence on the total credit limits of the fraudulently obtained credit cards. Although the actual charges made using the cards was less, and it was unclear whether defendant knew the actual credit limits on the cards, there was no evidence to show that defendant’s intent was anything other than to make full use of the line of credit. U.S. v. Nosrati-Shamloo, 255 F.3d 1290 (11th Cir. 2001).
11th Circuit holds that shrimp washed under government supervision could not be included in loss. (305) Defendant fraudulently imported, adulterated, and distributed frozen shrimp from India and China. When several of defendant’s customers complained about the shrimp, defendant decided to test the returned shrimp. If the shrimp met certain standards, defendant “washed” the shrimp by soaking it in Sea Fresh, a mixture of copper sulfate, chlorine, and lemon juice. If the shrimp passed a new test, defendant refroze the shrimp and resold it to other customers. On February 23, 1995, the FDA entered defendant’s plant, put a “stop sale” order on all of defendant’s shrimp that was to be washed or had been washed, and ordered defendant to cease washing its shrimp in Sea Fresh. The Eleventh Circuit held that the district court improperly included in its loss calculation shrimp washed after February 23, 1995. After this date, any shrimp washing that occurred at defendant’s plant was done under government supervision and with government approval. Thus, it was not a crime, and defendants could not be punished for participating in it. However, the court properly based its calculation on the intended loss rather than the gain to the offender. If the court had calculated the loss based on defendant’s profit, rather than on what defendant intended its victims to lose, the court would have been crediting defendant for the material required to propagate its fraud. U.S. v. Sigma, 196 F.3d 1314 (11th Cir. 1999).
11th Circuit says estimate of debt to guarantor did not double count loss. (305) Defendant, the president of FTM, fraudulently obtained numerous letters of credit for FTM. The letters of credit were guaranteed by Thrifty, FTM’s parent corporation. The district court included in its loss calculation some $20,639,757 that FTM owed Thrifty at the time the fraud was discovered. This figure represented funds Thrifty, as guarantor, had paid the bank on the fraudulent letters of credit. The Eleventh Circuit rejected defendant’s claim that the court double counted letters of credit when calculating FTM’s debt to Thrifty. The total amount FTM owed Thrifty for letters of credit was $27,593,258. The district court could not precisely calculate the amount attributable to fraud because much of the documentation was missing and FTM frequently did not indicate on its payments to Thrifty which letters of credit were being repaid. Therefore, the court had to estimate what percentage of $27,593,258 the fraudulent letters of credit encompassed. Using bank documents, the court determined the percent of fraudulent letters of credit outstanding for each quarter from September 1986 until March 1991. Using the average of those percentages (74.8%), the court applied that number to the $27,593,258 that was outstanding on March 31, 1991. Although the result was not precise, it was reasonable under the guidelines. U.S. v. Miller, 188 F.3d 1312 (11th Cir. 1999).
11th Circuit approves reliance on undisputed, but conclusory, statements in PSR to calculate fraud loss. (305) Defendant, a registered representative of several brokerage firms, participated in a conspiracy to fraudulently inflate the price of a particular stock and sell the overvalued stock to the public. He contended that the court improperly relied on conclusory statements in the PSR to sentence him based on the entire loss caused by a scheme. The Eleventh Circuit held that the court properly relied on the PSR’s conclusory statements, since defendant did not object to them. These undisputed statements supported the court’s finding that defendant caused, or reasonably foresaw, the acts that resulted in a $92 million loss because they established that he played an important role in the overall conspiracy. Defendant helped disseminate false information that created a market for the worthless stock, and played a central role in selling the conspirators’ stock and covering up their illegal activities. The district court correctly sentenced defendant based on the actual $92 million loss, even though defendant claimed this was greater than the amount he believed would result from the scheme. Section 2F1.1 loss is not limited by the amount defendant knew would be inflicted. U.S. v. Hedges, 175 F.3d 1312 (11th Cir. 1999).
11th Circuit requires proof linking defendant to fraudulent calls. (305) Defendant was convicted of possessing cellular telephone cloning equipment. At defendant’s home, police found numerous Electronic Serial Number/ Mobile Identification Number (ESN/MIN) combinations on a computer disk, on a computer-generated list and in defendant’s computer. A cellular service provider assigns a ESC/MIN combination to each cellular telephone subscriber to access service. Cloners obtain these combinations illegally and reprogram them into cloned phones. The district court based the loss on the total amount of fraud the cellular service providers reported for all of the ESN/MIN combinations defendant possessed. The Eleventh Circuit held that telephone cloning fraud is attributable to a defendant only if the government provides reliable proof linking the defendant to the ESN/MIN combinations fraudulently used. The government could not attribute the entire fraud loss associated with ESN/MIN combinations to defendant solely because the defendant possessed those combinations. Multiple unauthorized users often use the same ESN/MIN combinations simultaneously. The government must provide proof to attribute the unauthorized calls made with the ESN/MIN combinations to the defendant. U.S. v. Cabrera, 172 F.3d 1287 (11th Cir. 1999).
11th Circuit refuses to reduce loss by amount of insurance reimbursement. (305) Defendant operated a company that administered self-funded health benefit plans for employers. He converted for his own use $295,359.90 that should have been used for one of his client’s health plans. The Eleventh Circuit refused to reduce the loss by the $81,250 defendant’s insurance policy reimbursed the victim. The partial reimbursement did not change the amount defendant embezzled. It only substituted defendant’s insurance company as another victim. The district court ordered defendant to reimburse his insurance company for the amount it paid the victim. U.S. v. Daniels, 148 F.3d 1260 (11th Cir. 1998).
11th Circuit includes proceeds from sale of hidden assets in loss. (305) Defendant pled guilty to five counts of bankruptcy fraud. The FBI found two cars for sale on the grounds of a business owned by defendant’s brother. The contact telephone number on the cars belonged to defendant. The bankruptcy trustee then seized the cars and sold them at a public auction. The Eleventh Circuit upheld the inclusion of the auction proceeds in the § 2F1.1 loss calculation. Defendant had engaged in an 18-month scheme to defraud the bankruptcy court in a multitude of ways. Given his efforts to defraud the bankruptcy court, his failure to disclose his intent to sell the cars, and his placement of the cars on his brother’s property rather than his own, the court could reasonably conclude that defendant would have concealed the proceeds from the sale of the cars. U.S. v. Hernandez, 145 F.3d 1433 (11th Cir. 1998).
11th Circuit uses Application Note to calculate loss under procurement contract. (305) Defendant was hired by the FDIC to be the property manager for a golf resort in which the FDIC was the receiver. His FDIC contract required him to disclose all related parties who received money to provide goods or services to the property. He contracted with a company in which he was a principal to perform various maintenance work for the resort, without disclosing to the FDIC his position in the company. The district court calculated loss based on the gross amount of funds defendant and his wife received under the company’s contract. The Eleventh Circuit held that the loss should have been calculated under the application note for contract procurement cases, not the theft guideline. This case did not involve a simple theft, but the fraudulent procurement of a contract. Note 7(b) to § 2F1.1 provides that in such a case, the perpetrator may not intend any loss and the § 2F1.1 loss is the actual loss to the victim. Defendant here contended that there was no actual loss because the company actually performed the services in maintaining the golf course. On remand, if the district court finds there is no actual loss and no intended loss, then there should be no loss enhancement. U.S. v. Tatum, 138 F.3d 1344 (11th Cir. 1998).
11th Circuit upholds calculation of loss in fraudulent billing scheme. (305) Defendants were convicted of charges relating to a fraudulent credit card billing scheme. The Eleventh Circuit upheld the court’s calculation of loss for each defendant. Each defendant’s PSR contained a detailed recitation of the enterprise, including the deposits, transfers and losses pertaining to each merchant account. Moreover, the bank’s legal coordinator testified regarding the bank’s losses resulting from defendant’s scheme, presenting a documented summary of all losses. The losses did not include transactions executed by co-conspirators outside the scope of the conspiracy. Regardless of whether defendants received profits from each of these transactions, the transactions were part of the same conspiracy. Although one defendant claimed he was not responsible for $80,000 in losses that occurred after he left the conspiracy, a mere cessation of participation in the conspiracy was insufficient to prove withdrawal. A defendant must take affirmative steps to demonstrate his complete repudiation of the conspiracy’s objective. Defendant’s physical distance from the conspiracy was insufficient to establish withdrawal. U.S. v. Dabbs, 134 F.3d 1071 (11th Cir. 1998).
11th Circuit includes in loss items returned before detection. (305) Defendant used her employer’s credit cards to make unauthorized purchases of more than $500,000. The Eleventh Circuit held that the district court properly included in the loss calculation items purchased with the credit cards but returned before detection. All credit charges made by defendant should be included in the amount of actual loss. The unauthorized use occurred at the moment of purchase, when the items were paid for with the victim’s credit cards. At that point the pertinent crime was complete and an actual loss resulted. The fact that defendant later returned the merchandise obtained by using the card was not important to the sum of unauthorized charges. U.S. v. Bald, 132 F.3d 1414 (11th Cir. 1998).
11th Circuit holds relevant conduct did not include losses before defendant joined conspiracy. (305) Defendant was convicted of mail fraud for his involvement in a fraudulent securities scheme. However, he did not join the conspiracy until several months after it began. The district court attributed the losses from the entire conspiracy to defendant. The Eleventh Circuit reversed, noting that Note 2 to § 1B1.3 provides that a defendant’s relevant conduct does not include the conduct of members of the conspiracy prior to the defendant joining the conspiracy, even if the defendant knows of that conduct. Although this note was an amendment to prior commentary to the sentencing guideline provision, it was relevant because it clarified the guideline. U.S. v. Word, 129 F.3d 1209 (11th Cir. 1997).
11th Circuit bases loss from credit card fraud on average amount per card charged before arrest. (305) Defendants pled guilty to a RICO conspiracy for a scheme in which, using phony credit cards, they made large purchases of expensive goods from luxury stores. The district court calculated the loss of $2.5 million by adding the number of completed false cards, unembossed false cards, signature panels, other unembossed cards found in a safe in a hotel where some of the defendants were staying, and a list of account numbers. The total number was multiplied by the $6900 average amount charged per account during the two weeks prior to defendants’ arrest. The Eleventh Circuit affirmed, since the use of averaging to calculate loss is acceptable. An intended loss need not be realistically possible. Nothing in § 2F1.1 requires a defendant be able to inflict the loss he intends. U.S. v. Wai-Keung, 115 F.3d 874 (11th Cir. 1997).
11th Circuit rejects loss estimate in “cloned” cellular telephone case. (305) Defendants possessed “cloned” cellular telephones programmed to charge unauthorized calls to subscribers’ accounts. The government presented evidence that $80,924.63 in unauthorized calls were made using the codes in defendants’ possession. However, multiple unauthorized users often use the same unauthorized codes and calls cannot be conclusively traced to a particular origin. Telephone company records do show the “cell site” and sector within the “cell site” from which the call originated. The store from which defendants made calls was located on the corner of sector A and B within the cell site, so the court attributed to defendants a loss of over $40,000, since $42,124 in calls originated from sectors A and B. The Eleventh Circuit held that the government did not prove by a preponderance of the evidence that the loss exceeded $40,000. Although “bouncing” between cell sites and sectors occurs during busy times, there was no evidence that more calls bounced out of sector A than into it and thus no evidence as to what portion, if any, of the sector B calls were more likely than not attributable to defendants. The government offered no evidence that the margin of error in its calculation was less than $2,124 or that its analysis was more likely to underestimate than overestimate the calls attributable to defendants. U.S. v. Sepulveda, 115 F.3d 882 (11th Cir. 1997).
11th Circuit uses amount of available credit as loss from counterfeit credit cards. (305) Defendant sold 9 counterfeit credit cards to an undercover agent. The parties negotiated a price of $40,000 for the cards, based upon a percentage of the cards’ available credit. The Eleventh Circuit held that the available credit was a reasonable estimate of the intended loss from the counterfeit cards under § 2F1.1. Because defendant knew that he was producing cards with about $200,000 in available credit and because the price charged reflected a percentage of that credit, the district court properly estimated that defendant intended a loss in excess of $200,000. U.S. v. Dominguez, 109 F.3d 675 (11th Cir. 1997).
11th Circuit refuses to reduce loss by illegitimate loans. (305) Defendant, a city council member, used his influence to reduce the rent of certain airport concessionaires by substantial amounts, in return for payments from the concessionaires. Defendant argued that the loss amount should be reduced by $400,000 in “loan amounts.” The Eleventh Circuit refused to reduce the loss by the loans, because the loans involved were proven to be illegitimate. U.S. v. Paradies, 98 F.3d 1266 (11th Cir. 1996).
11th Circuit uses intended loss in Medicare fraud. (305) Defendant was responsible for obtaining Medicare reimbursements for a group of psychiatric hospitals. He was convicted of fraud for signing Medicare cost reports claiming amounts he knew not to be reimbursable. The Eleventh Circuit upheld the use of intended loss of $31,000, even though Medicare’s actual loss was zero. Attempted or intended loss is a valid measure of culpability. At sentencing, defendant admitted that, if the disputed claims had not been intercepted by an auditor, the claims could have netted his employer an additional $31,000 in reimbursements. That admission was sufficient to establish that in making the false statements defendant intended the government to suffer a loss in that amount. U.S. v. Calhoon, 97 F.3d 518 (11th Cir. 1996).
11th Circuit relies on relevant conduct outside statute of limitations. (305) Defendant, an insurance agent, converted for his own use $12,000 given to him by a client to fund a pension fund. The district court included in the loss over $300,000 that the insurance company lost as a result of defendant’s other thefts, verbal misrepresentations and unauthorized withdrawals from client accounts. Defendant argued that these losses occurred outside the statute of limitations. The Eleventh Circuit held that a court may consider as relevant conduct all conduct that occurred outside the statute of limitations. The government has no duty to advise a defendant before he pleads guilty which relevant conduct the court will use to enhance his sentence. The relevant conduct is unknown to both the government and the defendant when the plea is entered, since the parole officer has not yet prepared a PSR. The government does not have a duty to disclose information it does not possess. U.S. v. Behr, 93 F.3d 764 (11th Cir. 1996).
11th Circuit uses entire loan as loss even though fraud was discovered before proceeds were disbursed. (305) Defendant applied to the SBA for a disaster loan in excess of $360,000. He claimed he had suffered this amount of physical loss as a result of Hurricane Andrew when in fact he suffered no loss. The fraud was discovered while the application was being processed. The Eleventh Circuit upheld the use of the entire loan amount as the loss, since defendant had no intention of paying off the loan. The commentary does not require an actual loss to have occurred before an intended loss can be considered. The fact that no loss occurred was immaterial to the inquiry of whether defendant intended to keep the entire loan amount. U.S. v. Toussaint, 84 F.3d 1406 (11th Cir. 1996).
11th Circuit holds that court must estimate actual, attempted or intended loss from Ponzi scheme. (305) Defendant ran a Ponzi scheme and obtained a total of $525,865.66 from his 44 victims. As part of the scheme, defendant used money “invested” by later victims to pay “interest” to earlier victims. The net loss to his victims was $283,352.01. However, 12 of defendant’s victims received back more money than they had invested. The total lost by the other victims (i.e. those who suffered net losses) was $391,540.01. The Eleventh Circuit upheld the use of the “loss to the losing victims,” or $391,540.01, as the loss caused by defendant’s scheme. The individuals who received a return or broke even on the scheme were not victims for § 2F1.1 purposes. This opinion does not require the use of the “loss to the losing victim” in every case involving a Ponzi scheme. A court is not generally required to make detailed findings of individualized losses to each victim in every case. All that is required is that the court make a reasonable estimate of the loss, given the available information. U.S. v. Orton, 73 F.3d 331 (11th Cir. 1996).
11th Circuit holds that fraud guideline adequately considers consequential damages. (305) Defendants operated a loan brokerage firm that fraudulently received “advance” fees for loans that were never obtained. The district court correctly limited the loss to the amount paid in advance fees. The court then made a two-level departure under § 5K2.5 based upon consequential financial damages to the victims. The Eleventh Circuit reversed, holding that fraud guideline adequately considered consequential damages. The Sentencing Commission expressly considered and rejected consequential damages as a factor in determining offense levels, except for cases involving government procurement and product substitution frauds. However, departure may be appropriate if the consequential damages are “substantially in excess” of what ordinarily is involved in an advance fee scheme case. The consequential damages considered here included travel fees, accounting fees, phone bills, attorneys fees and appraisals. These type of expenses are typical of a crime of fraud and cannot be the basis for a departure. Even the $7,333 loan defendants obtained using one victim’s power of attorney was not so “outside the heartland” of the crime of fraud as to warrant a departure. U.S. v. Thomas, 62 F.3d 1332 (11th Cir. 1995).
11th Circuit directs court to hold evidentiary hearing on loss from stolen bearer bonds. (305) A carton of 1500 bearer bonds was stolen from a shipment. Defendant was incarcerated at the time of the theft. However, after his release, some of the stolen bonds were found in his possession. The district court rejected defendant’s request for an evidentiary hearing on the number of bonds attributable to him and their value, instead holding him accountable for a loss in excess of $5 million. The Eleventh Circuit directed the court to hold an evidentiary hearing on the actual number of bonds for which defendant was responsible, and on the value of the bonds, with proper consideration to the exchange rate of American dollars for Canadian dollars. The face value of the bonds provided a reasonable quantification of the risk to unsuspecting buyers or lenders. An unpublished Ninth Circuit opinion involving bonds stolen from the very same shipment used the face value of the bonds and discounted them at a stipulated rate of 80 American cents to each Canadian dollar. The court added to this figure the future value of the bonds’ interest coupons. This was in accordance with Eleventh Circuit law. U.S. v. Goldberg, 60 F.3d 1536 (11th Cir. 1995).
11th Circuit includes in loss amount of fraudulent loan repaid. (305) Members of defendant’s family received student grants and guaranteed student loans to attend a school of cosmetology operated by defendant. Instead of enrolling, they performed personal services and errands for the owners of the school. The Eleventh Circuit held that the district court properly included in the loss under § 2F1.1 the amounts of the loans and the amounts which defendant’s son had repaid. First, § 2F1.1 clearly permits including the loans, and not just the grants, in the loss. Second, the district court determined that the repayments came too late to reduce the loss (although they did reduce the amount of restitution). No payments were made toward the loans until after the offense was discovered by authorities. Under note 7(b), the court properly considered the amount of the loss when the offense was discovered. U.S. v. Norris, 50 F.3d 959 (11th Cir. 1995).
11th Circuit uses contract value as amount of loss from defense contractor’s fraud. (305) Defendant, the general manager of a defense contractor, used false documents to obtain payments on government contracts that defendant knew his company had not performed to military specifications. The Eleventh Circuit upheld the use of the contract value to determine the government’s monetary loss under § 2F1.1. Frequently, loss in a fraud case will be the same as in a theft case. Where market value is difficult to ascertain or inadequate to measure harm to the victim, the court may measure loss in some other way, such as reasonable replacement cost to the victim. U.S. v. Cannon, 41 F.3d 1462 (11th Cir. 1995).
D.C. Circuit holds that parallel fraud transactions were relevant conduct. (305) Defendant conspired with Powell, a buyer for a NASA contractor, to inflate the prices NASA spent on supplies from defendant’s company, and the two split the profits. Powell operated a similar scheme with two other companies. The D.C. Circuit held that the parallel transactions with the other two companies were relevant conduct, and thus the profits from these schemes could be included in defendant’s loss calculation. Defendant helped launder the proceeds of several of the parallel transactions with one corporation, and his explanations for doing so were inconsistent. This provided ample basis for finding that the transactions with this corporation fell within the scope of the conspiracy in which defendant agreed to participate. While the evidence tying defendant to the second corporation was weaker, the district court did not clearly err in finding that they were relevant conduct. Although defendant claimed he withdrew from the conspiracy in the summer of 1997 by ceasing to do business with Powell, defendant acknowledged that on one occasion Powell sent him a check after the summer of 1997. U.S. v. Seilor, 348 F.3d 265 (D.C. Cir. 2003).
D.C. Circuit agrees that intended loss was maximum penalty avoided by fraudulent statement. (305) While under investigation by the SEC, defendant submitted to it a sworn financial statement in which he failed to disclose numerous assets, income, cash transfers, and other accounts he controlled. After the SEC filed a complaint, defendant and the SEC entered into a settlement agreement. The allegations in the complaint carried a maximum penalty of $100,000 per violation, but based on his sworn financial statement showing a negative net worth, the agreement sought a penalty of only $10,000. He was later convicted of making a material false statement to the SEC. The district court found that defendant hid his assets to evade the maximum possible fine, and therefore the intended loss was $90,000 (the $100,000 he sought to evade, less the $10,000 penalty he paid). Because defendant failed to raise his challenge to the use of intended loss below, his claim could be considered only under a plain error standard of review. The D.C. Circuit ruled that the court’s calculation and use of intended loss was not plain error. Intent to inflict loss may be inferred from the concealment of large amounts of assets. The only evidence contrary to the court’s finding of intent was defendant’s own explanation, which the district court was entitled to dismiss. There was nothing “wildly implausible” in inferring that a defendant who conceals assets in the face of a penalty does so to avoid the penalty to which he is subject, and as much as possible. U.S. v. Bolla, 346 F.3d 1148 (D.C. Cir. 2003).
D.C. Circuit bases loss on fair-market value of lottery tickets before drawing, rather than value of winning tickets. (305) Defendant operated a terminal that printed and dispensed lottery tickets for sale. He used the terminal to generate tickets with a face value of $525,586 for which he did not pay. The winning tickets among these had a total redemption value of $296,152, of which defendant successfully obtained all but $72,000. The D.C. Circuit upheld the district court’s decision to value the § 2F1.1 loss at $503,650–the market value of the tickets less the commission defendant would have received from the Lottery Board had he sold those tickets. The value of the winning tickets was not the proper measure of loss. The value of a lottery ticket is the value of a chance to win. Prior to the drawing, all tickets have the same market value because they all have the same chance of winning a prize. After the drawing, the value of the losing tickets go to zero. Numerous goods, however change in value soon after they are purchased. For purposes of sentencing, the loss associated with their fraudulent procurement is equal to the value of the goods at the time of the offense. Although the act of printing the tickets cost the D.C. Lottery nothing, the panel rejected the suggestion that market price is an inadequate measure of loss merely because the fraudulently obtained good has a low marginal cost of production. U.S. v. Bae, 250 F.3d 774 (D.C. Cir. 2001).
D.C. Circuit holds that loss was properly based on collateral’s actual sale price. (305) Note 8(b) to § 2F1.1 says that in fraudulent loan application cases, “the loss is the amount of the loan not repaid … reduced by the amount the lending institution has recovered (or can expect to recover) from any assets pledged to secure the loan.” It was undisputed that the amount of the unpaid loan to defendant’s company was $296,014.00, and that the SBA ultimately recovered a total of $24,113.22 by selling the company’s pellet making machine back to its manufacturer at a liquidation sale. Defendant argued that the SBA should have been able to obtain more for the machine, since it had been purchased for $385,000 only two years before. The D.C. Circuit ruled that the district court properly based the loss offset on the amount that the lending institution actually recovered for the collateral. There was no evidence that the liquidation sale was a sham, or that the SBA artificially depressed the value of the recovery. All circumstances indicated that this was an arms-length, business transaction. U.S. v. McCoy, 242 F.3d 399 (D.C. Cir. 2001).
D.C. Circuit refuses to limit intended loss even if no actual loss is possible. (305) Defendant stole a blank check and then sold it to his employer. He then became the target of an FBI investigation. Over a several month period, he sold 11 stolen checks to an FBI agent posing as a fence. The FBI agent told defendant to whom to make the checks payable and gave a ballpark figure for the amount of each check. Defendant decided the actual amounts and signed the checks. Including the one sold to defendant’s employer, checks were made for a total of $535,592.35. Defendant received $5700 from the FBI agent for the 11 checks. Defendant argued that the court should have excluded the checks he sold to the FBI agent from the loss calculation since there was no possibility of actual loss. The D.C. Circuit refused to add an impossibility or improbability limitation onto the intended loss provision. Defendant’s proposal to limit the use of intended loss in cases involving government stings has no support in the guidelines. Note 7 to § 2F1.1 does not qualify intended loss in any way. Although the Sentencing Commission is currently considering whether to add language to the note regarding impossibility, unless or until the Commission acts, the note should be applied as written. In cases where intended loss overstates the gravity of an offense, note 10 provides that a court has the discretion to depart downward. U.S. v. Studevent, 116 F.3d 1559 (D.C. Cir. 1997).
D.C. Circuit rejects use of average price on loan portfolio to decide price on one loan. (305) Defendant defaulted on a fraudulently obtained bank loan. The government claimed that the loss under § 2F1.1 was 39.5% of the loan’s principal balance. The defrauded bank had sold the loan as part of a portfolio of non-performing loans and had realized a price on the portfolio amounting to 60.5% of the total of the principal balances. The D.C. Circuit held that the government failed to prove a loss, since the average value of the loans, without more, provides no evidence of the value of any particular loan. The appraisals submitted by defendant, which were the only evidence directly bearing on the value of the mortgaged property, suggested that the bank may not have taken a loss at all. On remand the government would not be permitted to offer new evidence to support its loss claim. There was no reason why it should get a “second bite at the apple.” Leonzo v. U.S., 50 F.3d 1086 (D.C. Cir. 1995).
Commission combines theft and fraud guidelines. (305) In a sweeping modification of the guidelines for economic crimes, the Commission combined the guidelines for theft, fraud, and property destruction into a revised § 2B1.1. The combined theft and fraud Loss Table applies to all economic crimes, decreasing penalties at the low end of the Table and increasing penalties at the high end. The amendment resolves numerous circuit conflicts over the meaning of “loss,” redefining “actual loss” as “reasonably foreseeable pecuniary harm,” and clarifying related issues in specific kinds of cases. The Commission deleted the two-level increase for more than minimal planning and replaced it with victim-related increases. The amendment also resolves circuit conflicts over (1) being “in the business of” receiving and selling stolen property, (2) claiming to act on behalf of a charity or government agency. Amendment 617, effective November 1, 2001.
Article offers sentencing strategies in defending white collar cases. (305) Defense attorneys Alan Ellis and James Feldman suggest that in fraud cases, defense counsel should ensure that losses are not double-counted, that defendants receive credit for value received by victims, and that losses that are not caused by the fraud do not impact the sentence. They point out that when fraud defendants have also been convicted of money laundering, some courts have permitted a downward departure from the higher money laundering offense level on the ground that the money laundering was simply incidental to the fraud. See, e.g., U.S. v. Hemmingson, 157 F.3d 347 (5th Cir. 1998). The article includes an extensive discussion of cases upholding departures in white collar cases on a variety of grounds. Alan Ellis and James H. Feldman, Jr., Representing the White-collar Client at Sentencing, 14 A.B.A. Criminal Justice 41 (Winter 2000).
Articles explore proposals to change fraud and theft guidelines. (305) Professor Frank O. Bowman is guest editor for a series of articles in the Federal Sentencing Reporter debating current proposals to increase the guidelines for theft and fraud, and to clarify the definition of “loss.” Federal Defender Barry Boss disputes the notion that sentences for economic crime are too low, arguing that it only seems that way because drug sentences are too high. Judge Phil Gilbert’s statement to the Commission on behalf of the Judicial Conference Criminal Law Committee supports increasing the offense levels in the fraud and theft tables, and adoption of a simplified definition of loss. Probation Officer Fred S. Tryles argues that modifications to the fraud and theft guidelines are “necessary,” beginning with “a single coherent, more encompassing definition of loss.” James Gibson, Attorney-Advisor at the Sentencing Commission, points out the difficulties in applying current loss definitions to cases involving procurement fraud, loan application frauds, credit card thefts and inchoate offenses. Defense Attorney John D. Cline urges the Commission to adopt the “economic reality doctrine” to discount harms that a defendant intended but did not actually risk. AUSA Carol C. Lam suggests that health care fraud defendants should not receive credit for services or goods provided. AUSAs Stephen V. Manning and Barbara Bailey Jongbloed point out that loss calculations in fraudulent loan cases can be “quite complex,” urging an amendment to determine the actual loss at the time of sentencing, rather than when the offense was discovered. Professor Russell Coombs advocates a completely different approach, arguing that economic criminals should be sentenced primarily for future dangerousness. Defense Attorney James E. Felman contributes interesting excerpts from the testimony at the Commission’s October, 1997 hearing on the definition of “loss.” Frank O. Bowman, III, Back to Basics: Helping the Commission Solve the “Loss” Mess With Old Familiar Tools, 10 Fed. Sent. Rptr. 115 (1997).