Sentencing Commission Seeks Comment on Potential Reduction to Drug Trafficking Sentences - Part II

Posted by Chris Morales on Mon, Feb 03, 2014 @ 09:10 AM

Sentence Adjustments
(Chapter 3)
United States v. Rushton
738 F.3d 854 (7th Cir. 2013)
Abuse of trust enhancement impermissible double counting;
PSR miscalculated base offense level under §3D1.3(a)

The defendant operated a commodity pool, an investment fund made up of contributions by a
number of different investors. The contributions were to be commingled and used by the commodity pool operator to buy and sell futures contracts. In this case, the defendant used the funds to run a Ponzi scheme that defrauded numerous people including relatives, friends, and elderly individuals. The defendant pled guilty to mail fraud and money laundering. At sentencing, the judge imposed a fourlevel enhancement under §2B1.1(b)(18)(B)(iii) (for
commodity poss operator fraud), a two-level enhancement for Abuse of Trust, under §3B1.3, and sentenced the defendant to 96 months. On appeal, the Seventh Circuit reversed, citing the plain language in §2B1.1, Application Note 14(c), which bars the Abuse of Trust enhancement in a fraud case if the enhancement for being a commodity pool operator applies. Because commodity pool operators “are subject to heightened fiduciary duties imposed by securities law or commodities law” the sentencing court “is not required to determine specifically whether the defendant abused a position of trust.” Applying the Abuse of Trust enhancement amounted to double counting because the enhancement was specifically forbidden by the application note.  

The sentencing in this case was described by the appeals court as “a thoroughly botched sentencing in which the parties, the probation service, and the sentencing judge are all implicated.” In addition to the double counting, the PSR calculated the base offense level using only the fraud offense and “completely ignored the money laundering plea in calculating his guideline range. That was error. The report should have calculated offense level for both counts . . . and selected the higher of the two as a basis for calculating the defendant’s guidelines sentencing range under §3D1.3(a), Applicationn Note 2. And the higher level was the offense level for the money laundering.” Instead of speculating what the sentencing judge might have done, the matter was remanded.

United States v. Seidling
737 F.3d 1155 (7th Cir. 2013)
Court properly denied three-point reduction for acceptance of responsibility

From 2003 to 2009, the State of Wisconsin operated small claims courts in order to resolve
smaller disputes more quickly and efficiently. If a claimant was granted relief and was unable to locate a defendant to serve the lawsuit, or a defendant did not appear before the court, a default judgment would be granted. After following the prescribed rules, a claimant could seek execution of the judgment against the defendant’s nonexempt property. Beginning in 2003, the defendant filed small claims actions against twenty-four individuals and one corporation. He used fourteen fake business names to file the claims in ten counties, and typically sought judgments of no more than $5,000. His claims contained various false statements and misrepresentations, including false addresses for the named defendants. He knew that none of the defendants lived or did business at the addresses he provided and none of them were served with the complaints, summons, or other pleadings. When the defendants did not appear, the small claims courts issued default judgments in each case. The defendant successfully obtained approximately five orders directing sheriffs to execute the collection of various defendants’ property. Based on this conduct, the government indicted the defendant with fifty counts of mail fraud. The parties agreed to resolve the case through a bench trial on the stipulated facts and the district court found him guilty on all fifty charges. The PSR calculated an offense level of nineteen, based on an intended loss amount of $370,220. The PSR also recommended a three-level reduction under §3E1.1 for acceptance of responsibility. At sentencing, the district court judge declined to apply the acceptance reduction on the basis that the defendant had not done anything to suggest that he felt any responsibility for the harm he caused the victims and sentenced him to 36 months.

The district court made clear that it would have imposed the same sentence even if it had granted the acceptance reduction. On appeal, the defendant argued that the district court lacked any foundation to deny him acceptance. The Seventh Circuit affirmed the sentence finding that although the defendant stipulated to the facts, “he continuously rejected the contention that his conduct caused damage to the victims.” The court cited two examples: 1) in his response to a letter written one victim the defendant stated, “I am sorry that Ms. Stepan feels the way she does” and 2) his response to a victim who testified at sentencing, he stated that the victim “exaggerated and misstated the events” in the matter. In both of these examples, the court found that the defendant had done nothing to suggest that he believed he committed any real offense or that he felt any responsibility for the harm he caused the victims. “Given [the defendant’s] history of fraudulent behavior, his lack of remorse towards his numerous victims, and the extensive details of his scheme provided in the record, we find that the district court did not err in denying a reduction in sentencing for acceptance of responsibility.”

United States v. White
737 F.3d 1121(7th Cir. 2013)
Vulnerable victim enhancement under §3A1.1(b)(1) supported by facts

The defendant led a major mortgage fraud scheme in which he and others tricked homeowners
facing foreclosure into entering a convoluted “program,” through the aptly named “Eyes Have Not Seen” mortgage-bailout company created by the defendant. In this program, homeowners transferred their homes to “investors” for one year. The investors were to make the mortgage payments while the homeowners were given one year to work on their financial situation, while paying rent to the investors, and then reassume the mortgages at the end of the one year period. Instead, the investors were given title to the homes and the defendant would pressure appraisers to place a higher value on the properties than their true value. The defendant would then assess “transaction fees” equal to the actual equity the homeowners had plus and the equity based on the inflated appraisals. At the year end, the homeowners were ordinarily unable to buy back their homes, and the homes were often foreclosed upon. The homeowners were unaware that they were actually selling their properties to the investors. The defendant would submit fraudulent loan applications on behalf of the investors with the intention that the loan proceeds were to be used to pay the mortgages for a year. In most instances they were, but the defendant withdrew more equity from the sale than was necessary to cover the mortgage and costs. The defendant was ultimately convicted of seven counts of wire fraud and received a sentence of 266 months, which included an enhancement under §3A1.1(b)(1) for vulnerable victims. On appeal, the defendant argued that the victims of the offense were not vulnerable. The Seventh Circuit explained that enhancement applied “if the defendant knew or should have known that a victim of the offense was a vulnerable victim.” “Vulnerable victim” is defined as a person “who is a victim of the offense of conviction and any conduct for which the defendant is accountable,” and “who is unusually vulnerable due to age, physical or mental condition, or who is otherwise particularly susceptible to the criminal conduct.” The court affirmed the enhancement, finding that the victims were vulnerable because they were in a position where they were about to lose their homes, and financially desperate for assistance to keep that from happening. Some of the victims lost the equity they had in their homes, while the financial health of many of the victims had been affected, either through having to pay greater living expenses in renting their own home from the investor or by having to file bankruptcy. While the defendant argued that many of the homeowners would have lost their homes anyway had he not intervened, the court found that the homeowners were tricked and did not make an informed choice to sell their homes. The defendant’s actions deprived them of the opportunity to recover equity or work out other options to stop foreclosure. As a result, the enhancement was upheld.

Published By Joaquin & Duncan, L.L.C.;
A Law Firm of Federal Sentencing Attorneys 

Website for more information:

We would like to thank our friends Joaquin & Duncan, L.L.C for sharing this information with us. 

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Tags: defendant, guilty, fraud, case, money laundering, victim