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Loss Calculations
United States v. Ovid, No. 09-CR-216 (JG), 2010 WL 3940724 (E.D.N.Y. Oct. 1, 2010)
Judge Gleeson takes pen to paper again, but selects the fraud guidelines and the DOJ's June 28, 2010 letter to the Sentencing Commission as the target. In sum, Judge Gleeson sentenced a white-collar offender to 60 months imprisonment, notwithstanding an advisory Guidelines range of 210 to 262 months (there was, of course, a 60 month statutory cap). The whole decision is a "must read" for any defense lawyer. Indeed, Judge Gleeson has important things to say about sentencing disparity as well as the role that appellate courts should play in cabining same. But what's perhaps most interesting for defense lawyers is his "Preliminary Statement," which is quoted in full below:
In a letter dated June 28, 2010 to the Chair of the United States Sentencing Commission, the Director of the Office of Policy and Legislation of the United States Department of Justice (“DOJ” or the “Department”) decries the “evolution” of “two distinct and very different sentencing regimes.” Letter from Jonathan J. Wroblewski to the Hon. William K. Sessions III, at 2, 1 (June 28, 2010) (“DOJ Letter”). One “regime,” the letter contends, “includes the cases sentenced by federal judges who continue to impose sentences within the applicable guideline range for most offenders and most offenses.” Id. at 1. This is apparently the good regime. The “second regime,” by contrast, “has largely lost its moorings to the sentencing guidelines.” Id. at 2. This regime is a cause of concern for the Department. It consists of judges who sentence fraud offenders, especially in high-loss cases, “inconsistently and without regard to the federal sentencing guidelines.” Id. at 4. The Department concludes on this issue (the letter addresses various others as well) that “[t]he current sentencing outcomes in [fraud] cases are unacceptable, and the Commission should determine whether some reforms are needed.” Id . at 5. In short, the premise of the letter is that unless the sentences in fraud cases are “moored” to the advisory ranges provided by the United States Sentencing Guidelines, they produce “unwarranted sentencing disparities” that are “extremely problematic.” Id. at 2.
The DOJ Letter recommends, inter alia, a systemic analysis and synthesis by the Commission of the federal sentencing data it has collected, followed by a report that “explore[s] how to create a single sentencing regime that will earn the respect of the vast majority of judges, prosecutors, defense attorneys, Members of Congress, probation officers, and the public.” Id. at 3. It also suggests that “reforms might include amendments to the sentencing guideline for fraud offenses.” Id. at 5.
The Department is an important influence in the formulation of sentencing policy. Jonathan Wroblewski, the author of the letter, is a thoughtful and well-respected expert in the area. Finally, the Attorney General enjoys ex officio membership on the Sentencing Commission, and Mr. Wroblewski is the Attorney General's designee to that post. For all these reasons, the DOJ Letter to the Commission will carry great weight.
The sentencing of Isaac Ovid on July 30, 2010 illustrates well the fact that, here in the trenches where fraud sentences are actually imposed, there is a more nuanced reality than the DOJ Letter suggests. The letter describes two “dichotomous regimes” in fraud cases-one moored to the Guidelines, the other adrift in the vast regions beneath the low end of the advisory Guidelines ranges. Id. at 2. But Ovid's sentencing shows otherwise. Specifically, it shows how the fraud guideline, despite its excessive complexity, still does not account for many of the myriad factors that are properly considered in fashioning just sentences, and indeed no workable guideline could ever do so. This reality does not render the Guidelines irrelevant in fraud cases; they are in fact quite useful in all sentencings. But sentencing judges know that a full consideration of “the nature and circumstances of the offense and the history and characteristics of the defendant,” 18 U.S.C. § 3553(a)(1), implicates offense and offender characteristics that are too numerous and varied, and occur in too many different combinations, to be captured, much less quantified, in the Commission's Guidelines Manual. A consideration of those and the other factors set forth in § 3553(a) produces sentences that are moored to fairness, and to the goals of sentencing set forth in § 3553(a)(2) but sometimes not so much to the advisory Guidelines range. Indeed, in some cases the fair sentence can drift quite far away from the advisory range, which is, after all, but one of eight factors the sentencing judge must consider.
Ovid's sentencing reveals that the Department knows this as well. Aggressive, experienced, successful white collar prosecutors understand that it does not undermine the Sentencing Guidelines at all, much less create some kind of rogue sentencing regime, when the consideration of factors set forth in 18 U.S.C. § 3663(a) produces a sentence that happens to be substantially below the advisory range.
I support the Department's call for Sentencing Commission review of fraud sentences. But in determining whether reforms are needed, and especially in determining whether the existing guideline should be burdened with even more adjustments, the Commission should examine whether our system already provides an adequate solution for the claimed “unacceptable” outcomes the Department complains about. I suggest that it does, in the form of appellate review, and for all of the handwringing in the DOJ Letter about unacceptable sentences, the Department for the most part has not even tried to avail itself of that solution.
United States v. Kumar, Docket Nos. 06-5482-cr(L), 06-5654-cr (CON) (2d Cir. Aug. 12, 2010) (found here) This decision is the appeal of the convictions sustained by Sanjay Kumar and Stephen Richards in the Computer Associates. Here's the Second Circuit's opening paragraph: Appeal by Defendants from separate judgments entered in the United
States District Court for the Eastern District of New York (I. Leo
Glasser, Judge), following guilty pleas by Defendants to several counts
of conspiracy, securities and wire fraud, obstruction of justice, and
perjury. We hold that Richards’s guilty plea was not constitutionally
infirm and that he was properly charged with, and convicted on his
guilty plea to, obstruction of justice. We therefore AFFIRM Richards’s
judgment of conviction in all respects. We further conclude that the use
of the Sentencing Guidelines in effect at the time of sentencing to
calculate Defendants’ Guidelines ranges for their fraud offenses, rather
than the Guidelines in effect at the time of the commission of those
offenses, did not violate the Ex Post Facto clause. We further conclude
that the district court properly calculated the loss amount underlying
Defendants’ monetary fines and that the district court did not abuse its
discretion by denying Kumar an acceptance of responsibility credit in
determining his Guidelines range. We further conclude that the district
court erroneously failed to award Richards a two-point reduction for
acceptance of responsibility. Thus, we AFFIRM Kumar’s sentence in all
respects and VACATE Richards’s sentence and REMAND for resentencing.
Now that the end of the story is known, let's dig a little deeper into the details. Did the Sentence Violate the Ex Post Facto Clause? Kumar and Richards contended that application of the 2005 Guidelines book to their fraud offenses -- which were completed in 2000 -- violated the ex post facto clause. The Second Circuit found the claim to be without merit. More specifically, the Second Circuit found that "there is no question that application of the 2005 Guidelines disadvantaged the defendants by subjecting them to the higher ranges of the 2005 Guidelines compared to the 1998 version of the Guidelines." The only question with which the Second Circuit had to deal was "whether application of the 2005 Guidelines" -- using the one book rule because certain of the offenses were grouped together but took place at different times -- "to the defendants's sentences was 'retrospective'" -- a question on which the court had "previously reserved ruling." In a nutshell, the Second Circuit concluded that the "one-book" rule does not violate the ex post facto clause, at least as applied to a series of similar offenses (like those in this matter). Was the Loss Calculation Clearly Erroneous? Loss was sharply disputed between the defense and the government. The most significant area of disagreement centered on how to properly frame the economic impact of certain conduct for which they pled guilty. The district court held a Fatico hearing, and questioned the experts for both the defense and the government. Ultimately, the district court accepted the government's calculation (as expressed through its expert). The Second Circuit was not persuaded that the district court's reliance on this loss analysis was "clearly erroneous." Because district court's have such leeway in determining loss, it's often difficult to challenge a loss calculation on appeal. After all, a sentencing court is not required to calculate loss with precision. Instead, it need only make a reasonable estimate of loss. And since district courts have the evidence in front of them, appellate courts find that their loss determinations are entitled to a high level of deference. Since losses in financial fraud cases so often are the driving force behind any Guidelines calculation, though, perhaps district court loss calculations should be held to a higher standard and subjected to a more rigorous appellate review. Were the Defendants Properly Denied Acceptance of Responsibility Credit? The defendants pled guilty. But they got no credit whatsoever for acceptance of responsibility (neither a 2 nor 3 level reduction in offense level). For Kumar, the district court found that he obstructed justice and waited until the eve of trial before pleading guilty, and therefore was not entitled to any acceptance of responsibility credit. The Second Circuit rejected Kumar's argument that he was entitled to that credit, finding that it needn't resolve any of the flaws identified by Kumar on appeal "because an examination of the record shows that he engaged in sufficient objectionable post-indictment conduct to justify a rejection of his request for acceptance of responsibility credit. Specifically, Kumar . . . acted in ways that the district court reasonably found to be inconsistent with a full acceptance of responsibility." Read the decision for the details, but suffice it to say that deference to the district court played a large role in this appellate loss. Richards is another story. The district court relied on a single factor in denying acceptance of responsibility points -- the lateness of his plea. Timeliness is an appropriate consideration for acceptance of responsibility. The two-level reduction provided for in U.S.S.G. § 3E1.1(a) is for demonstration of acceptance of responsibility. By contrast, the Guidelines specifically provide that timeliness of a plea is primarily relevant to the reduction of an additional point under U.S.S.G. § 3E1.1(b). Here, the lateness of Richards' plea was not a sufficient reason to totally reject acceptance of responsibility points. Thus, the Second Circuit remanded for resentencing. Richards will get his two points. But it likely won't take much (if anything) off of his seven year sentence which itself was a non-Guidelines sentence (a variance from the life sentence recommended by the Guidelines).
United States v. Kurland, No. 10 Cr. 69 (VM), 2010 WL 2267509 (S.D.N.Y. May 26, 2010) Kurland pled guilty to insider trading in what is known as the Galleon hedge-fund insider trading case. At sentencing, he moved for a finding that he was a minor-participant in his offense, a downward departure based on his "extraordinary physical impairment," and a non-Guidelines sentence based on on his contributions to family and the community. The court rejected all. And, in doing so, it had some choice words for Kurland -- words that reflect the attitude that white-collar defendants might well face in any case brought in today's economic environment. Here are some selections: In
coming to its sentencing decision, the Court has considered Mr.
Kurland's significant contributions to his family and to the larger
community. The letters from friends, family, and associates paint a
picture of the model citizen and family man; a man held in the highest
regard by those around him. The Court particularly notes Mr. Kurland's
involvment in his daughter's nonprofit organization, as well as his
generous donations to St. Christopher's School for Kids and other
charities. Today, Mr. Kurland's attorney reiterates the message
conveyed by the letters: that Mr. Kurland is known for his commitment
to philanthropy and the public good, kindness to friends, and devotion
to family. Unfortunately,
however, Mr. Kurland's presentation to the Court, though stressing
points that argue for uniqueness, distinction, and individual
consideration, is in fact not uncommon in the world of white collar
crime and has been made in this courtroom many times before. Mr.
Kurland urges the Court to consider that he has already shown full
rehabilitation and earned redemption; that there is absolutely no
likelihood of recidivism and thus no threat of future harm to society;
that no further need exists to punish him because he has been wracked
long enough by shame, by ruin of his family and personal life, by loss
of his primary means to earn a livelihood. Mr. Kurland argues that the
purposes of sentencing have already been satisfied, that a sentence of
incarceration would serve little or no useful purpose, and that
probation would be enough. Let
me stress at this point that the Court is not unmindful or
unsympathetic to these points. There is much in the Defendant's plea to
commend the compassion it seeks to evoke. But the argument, compelling
as it sounds on the surface, fails in essential ways. Fundamentally, it
is flawed by what it omits. In particular it makes no account of
several other circumstances courts are instructed to weigh adequately
in ordering a fitting sentence: to reflect the severity of the crime;
to promote general respect for the law; to avoid unwarranted sentencing
disparities; and to consider the impact of the crime not only on its
immediate victims, but on the larger social order. These principles are
interrelated. They share vital links with some basic concepts, ideals
emblematic of the law, profoundly significant for sentencing to ensure
a right and just result for all concerned: fairness, balance,
proportionality, and equality of treatment under law for relatively
similar persons and circumstances. In sentencing, these principles seek
to ensure that judgments overall fairly align so as to achieve, like
bodies in orbit, a special form of equilibrium, a proper balance in the
delicate symmetry of justice. . . . . In
the context of securities fraud, the whole range of harm caused cannot
be measured solely by the defendant's net losses or gains. By centering
entirely on effects on him, Mr. Kurland's calculus of injury improperly
discounts material harm his offense caused to larger societal
interests. Mr. Kurland's actions, stemming from a recognized leader of
the industry, compromised the financial market's integrity at a time of
financial crises and widespread concern about corruption, rampant
recklessness, and arrogant greed at the highest levels of the industry,
a culture of oblivion to the meaning of reasonable limits that
contributed significantly to bring about the worst economic collapse in
the country since the Great Depression. As has emerged from various
public investigations of the aftermath, those practices played a role
in the disintegration or bankruptcy of some of the most venerable
financial institutions and required government rescue efforts at a cost
of hundreds of billions of public dollars. It
is this Court's view of matters now common knowledge, that to some
extent this country's financial meltdown was fueled precisely by the
attitudes manifest by Mr. Kurland in this proceeding, and repeated by
defendants in other related cases. These offenders express a view that
forms a pattern: They minimize their conduct, they suggest that their
roles were really minor, that the gains they made were relatively
small, that others are more to blame for more culpable offenses, that
the markets were not really hurt, so that the offenses charged
essentially amount to victimless crimes. These
rationalizations are beside the point. Fundamentally they suggest a
perception that the law applies only to the other guy, and that what
are self-servingly dismissed as minor infractions have no cumulative
impact on the larger community, or indeed on the nation as a whole.
This view, if not effectively curtailed, can quickly deteriorate to a
philosophy in which moral bounds blur or disappear altogether,
engendering a reality in which everything is permitted. The real point
for Mr. Kurland here was that he had a choice. As a leader of the
financial industry, he could have led by law abiding example. Instead,
he chose to follow. He became a joiner, surrendering to the spree of
the financial market's virtual mob mentality that nearly brought down
this nation's economy in the quest for ever bigger and faster gains.
Today I published an op-ed in the Des Moines Register -- Life in Prison for Rubashkan Is Too Harsh -- concerning the Sholom Rubashkan case. As you
may have read elsewhere, Rubashkan is the former owner of an Iowa kosher slaughterhouse (AgriProcessors) charged and convicted on dozens of federal fraud charges. (The case initiated with a raid and arrest related to more than two hundred undocumented workers). He's to be sentenced on April 28, and federal prosecutors are seeking a Guidelines sentence of life imprisonment. While not excusing Rubashkan's conduct, my piece
addresses the issue of federal guidelines in large-scale fraud cases
that are sometimes disconnected from any common sentencing sense. I hope you'll read it and let me know if you have any thoughts.
United States v. Byors, Docket No. 08-4811-cr (2d Cir. Oct. 29, 2009) (found here) On appeal, Byors argued that the district court erred in: (1) not offsetting the loss attributable to his fraud by amounts that represented legitimate investment in his business; and (2) applying a two-level enhancement for obstruction of justice relating to an offense underling his money laundering offense but not the money laundering offense itself (an issue of first impression in the Second Circuit). With regard to the first issue, the Second Circuit found that the "plain language of Application Note 3(E) [of Section 2B1.1] readily disposes of defendant's argument." Specifically, the "Guidelines do not require a loss to be offset by any legitimate expenditures . . . but rather [only] by 'value' that has been conferred on victims in the form of money or property returned or services rendered" (emphasis in original). With regard to the second issue, the Second Circuit found that the issue revolved around the question of what to do "where a defendant has obstructed the investigation or prosecution of an underlying offense but has not obstructed the investigation or prosecution of a subsequent money laundering offense." The Second Circuit solved that riddle by closely reading Sections 3C1.1 and 2S1.1 together, leading it to conclude that the defendant's obstructive conduct related not only to the offense of conviction, but also to relevant conduct or at least an offense that was closely related to the money laundering offense.
United States v. Pearson, No. 07-0142-cr (2d Cir. July 2, 2009) (found here) Pearson appealed from a judgment convicting him, following a guilty plea, of multiple counts of producing, transporting, receiving and possessing child pornography. He was sentenced to fifteen years imprisonment and ordered to pay $974,902 in restitution to the child victims of his crime to account for future medical expenses. On appeal, Pearson challenged whether a restitution order pursuant to 18 U.S.C. § 2259 may include an amount for future estimated medical expenses and, if so, whether the amount of restitution ordered was reasonable. The Second Circuit answered "yes" to the first question (future medical expenses are authorized by the statute), but concluded "no" on the second question (the amount of the restitution ordered was not reasonable). The Second Circuit acknowledged that it had not yet addressed the question of whether Section 2259 authorizes compensation for future medical expenses. Relying on the conclusions of three of its sister circuits, the Second Circuit agreed that future medical expenses are contemplated by Section 2259 because "the amount of loss is too difficult to confirm or calculate." But the Second Circuit also concluded that the district court failed to properly estimate those future medical expenses. Specifically, "although the record contains evidence of the victims' need for long-term counseling and of the cost of that counseling, the district court did not explain how it estimated the victims' future expenses. . . . [W]ithout more information as to how the district court reached the lower figure, we are unable to conduct even deferential review of whether the final restitution order reflect a reasonable estimate of the cost of future counseling." Accordingly, the Second Circuit remanded "to secure a more thorough explanation from the district court as to the basis for its restitution determination." Could this have wide implications for, say, restitution in financial fraud cases in circumstances in which a district court does not build a sufficient record concerning restitution? With United States v. Rutkoske in mind, is the Second Circuit signaling increased interest and awareness of restitution decisions?
United States v. Scott, No. 08-1489-cr (2d Cir. April 14, 2009) (found here) On appeal Scott contended that the district court incorrectly calculated the amount of restitution he owed his victims because it had included "lost investment returns, calculated as of the date of sentencing from funds that when stolen were invested in either a variable annuity or an IRA." More specifically, Scott argued that "his victims' losses would be fully compensated by an award of the nominal value of the property he stole from their accounts and that the district court therefore erred by including lost investment earnings in the restitution award." The Second Circuit disagreed. It found that Scott had stolen from customer retirement accounts, and that "[h]ad the assets remained in those accounts, two of the three accounts would have increased in value by the date of sentencing. . . . Accordingly, the actual value of the stolen property, the funds in the retirement accounts, at the time of sentencing was the nominal value of the stolen funds plus the subsequent investment gains lost as a result of the theft." Hmmm...In light of the performance of the financial markets in the past year, the Second Circuit's analysis begs an interesting question. Say a defendant steals money from a client's IRA account last June, and say that IRA account had a value of $100,000 on the date of the theft. Say further that the defendant is coming up for sentencing today, when the value of that IRA account -- if no theft had occurred -- would have dropped 40% because of the turmoil in the financial markets. Would that individual be responsible for: (A) the value of the account on the date of the theft ($100,000); or (B) the value of the account on the date of sentencing ($60,000)? In other words, is the Second Circuit giving an inadvertent windfall to those who have committed financial frauds in the past twelve months?
United States v. Iqbal, No. 08-2262-cr (2d Cir. March 31, 2009) (found here)
On appeal, Iqbal challenged his 24 month sentence, asserting that the district court's loss calculation was erroneous. Specifically, the district court determined that the loss amount exceeded 400,000 based on testimony provided at a Fatico hearing that the fraud at issue involved fraudulent credit card charges of $413,838.02.
It is well established that a court "need only make a reasonable estimate of loss." U.S.S.G. § 2B1.1 cmt. 3(C). And to that the Second Circuit added the following nugget: "We have never required that a district court find a loss amount to the penny, so long as the amount it estimates based on the record is not clearly erroneous."
United States v. Alatsas, No. 06-CR-473 (JBW), 2008 WL 238559 (E.D.N.Y. Jan. 16, 2008)
Notwithstanding a loss figure of $450,000 and an advisory Guidelines range of 24 to 30 months imprisonment, the Court imposed a probationary sentence based on: (1) Alatsas' substantial cooperation with the Government; (2) the good relationship he had with his wife and three children; and (3) most significantly from a defense perspective, his status as "an ethical entrepreneur except for this one aberrant offense."
A solid argument for counsel representing defendants convicted of financial frauds.
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