-
USCA1 Opinion
November 3, 1994
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
______________________
No. 93-1732
UNITED STATES,
Appellant,
v.
GEORGE S. BENNETT, JR.,
Defendant, Appellee.
_______________
ERRATA SHEET ERRATA SHEET
The opinion of this Court issued on September 20, 1994 is
amended as follows:
On page 23, delete footnote 14.
On page 29, fourth line from the bottom, after ". . .
clearly erroneous." Add new footnote (and renumber subsequent
footnotes). The text of the new footnote is as follows:
Having stressed that post-trial acceptance of
responsibility is the exception and must
normally be borne out by pre-trial actions,
we nevertheless do not intend to establish
any blanket rule; the guideline's own
application note leaves open the possibility
of exceptions. But we do think that unless
some obvious basis is apparent from the
record, it may be difficult to uphold a
reduction in cases where the defendant went
to trial, asserted his or her innocence, and
has nothing substantial in the way of pre-
trial conduct to show earlier acceptance of
responsibility -- unless the district court ______
is able to point to some persuasive reason
for this determination. Thus, even where
there may ordinarily be no special
requirement for a statement of reasons in
making sentence determinations, cases like
this one may present situations in which an
explanation by the district court is as a
practical matter essential to establish that
the guideline's rather stringent standards
for post-trial conversions have been
satisfied.
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
____________________
No. 93-1732
UNITED STATES,
Appellant,
v.
GEORGE S. BENNETT, JR.,
Defendant, Appellee.
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Edward F. Harrington, U.S. District Judge] ___________________
____________________
Before
Selya, Circuit Judge, _____________
Campbell, Senior Circuit Judge, and ____________________
Lagueux, District Judge.* ______________
____________________
William P. Stimson, Assistant U.S. Attorney, Economic Crimes ____________________
Division, with whom Donald K. Stern, United States Attorney, was on ________________
brief for appellant.
Morris M. Goldings, with whom John F. Aylmer, II and Mahoney, ___________________ ____________________ ________
Hawkes & Goldings were on brief for appellee. _________________
____________________
September 20, 1994
____________________
____________________
*Of the District of Rhode Island, sitting by designation.
CAMPBELL, Senior Circuit Judge. George S. Bennett, ____________________
Jr., defendant-appellee, was formerly a general manager,
officer, and director of Daniel Webster Mortgage Company,
Inc., which originated, underwrote, and sold mortgage loans.
Bennett was also an attorney. On December 2, 1991, Bennett
was charged, in a nine-count indictment, with violating the
bank fraud statute, 18 U.S.C. 1344 (1988).1 The
indictment alleged that, from August 1988 until October 1989,
Bennett obtained nine loans corresponding to the nine
counts totaling $900,000 by, among other things, providing
knowingly false and misleading information concerning the
identity of the borrower or borrowers and by concealing his
and his wife's interest in the loans.
On February 16, 1993, a jury trial began in the
United States District Court for the District of
____________________
1. 18 U.S.C. 1344 provides:
Whoever knowingly executes, or attempts
to execute, a scheme or artifice
(1) to defraud a financial
institution; or
(2) to obtain any of the moneys,
funds, credits, assets, securities, or
other property owned by, or under the
custody or control of, a financial
institution, by means of false or
fraudulent pretenses, representations, or
promises;
shall be fined not more than $1,000,000
or imprisoned not more than 30 years, or
both.
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Massachusetts. Eight days later, the jury found Bennett
guilty on all nine counts. Following a sentencing hearing on
May 18 and 19, 1993, the district court sentenced Bennett to
twenty-four months probation with six months home detention.
He was also ordered to pay a special assessment of $450
pursuant to 18 U.S.C. 3013 (1988). Judgment was entered on
May 24, 1993. The Government appeals from the sentence.2
We vacate and remand for resentencing.
I.
BACKGROUND __________
A. The Scheme __________
Daniel Webster Mortgage Company, Inc. ("Daniel
Webster"), which maintained a place of business in
Marshfield, Massachusetts, originated and underwrote
residential mortgage loans for consumers. To finance its
mortgage underwriting activities, Daniel Webster borrowed
money under lines-of-credit that it maintained with Plymouth
Federal Savings Bank ("Plymouth Federal") a federal mutual
savings bank with its principal place of business in
Plymouth, Massachusetts and New Bedford Institution for
Savings (NBIS) a state-chartered bank based in New
____________________
2. Bennett cross-appealed from the conviction, but the
cross-appeal was later voluntarily dismissed pursuant to Fed.
R. App. P. 42(b).
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Bedford, Massachusetts.3 To obtain line-of-credit advances,
Daniel Webster needed only to contact the banks by telephone
and provide a borrower's name and an amount to be disbursed.
After making a mortgage loan, Daniel Webster would assign the
promissory note and the accompanying mortgage from its
customer to whichever bank advanced the funds. Daniel
Webster would also record the mortgage and the assignment at
the appropriate registry of deeds. When the mortgage loan
was sold on the secondary market, Daniel Webster would use
the proceeds to repay the principal borrowed from the lending
bank, plus accrued interest.
George S. Bennett, Jr. was general manager of
Daniel Webster from August 1985 until May 3, 1990, when he
was asked to resign. He was also an officer of the company
from May 1986 and a director from April 1987. On May 20,
1988, Bennett obtained two mortgage loans from Daniel
Webster, each for $159,000. Bennett used the proceeds to
purchase two parcels of real property in Hingham,
Massachusetts. Title to these parcels was taken in the names
of two nominee realty trusts, Prospect Woods Realty Trust and
Prospect Forest Realty Trust. Bennett and his wife, Patricia
A. Bennett, were the sole beneficiaries of each trust, and
Mrs. Bennett was appointed trustee. Bennett's plan was to
____________________
3. We will refer to Plymouth Federal and NBIS collectively
as "the banks."
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develop two homes on the parcels, occupy one, and sell the
other.
In or about September 1988, Bennett applied
directly to Robert E. Dawley, then-president of Plymouth
Federal, for financing to construct the two residences on the
Hingham property. He sought loans of $410,000 and $425,000.
Dawley thought that Plymouth Federal should not lend Bennett
this money. Accordingly, after consulting with Plymouth
Federal's loan committee, Dawley rejected Bennett's
applications.
Thereafter, Bennett used his position with Daniel
Webster to cause the banks to lend him money under their
lines-of-credit.4 On more than ten separate occasions,
Bennett obtained advances under the lines-of-credit by
misrepresenting to the banks that he was financing mortgage
loans underwritten by Daniel Webster in its regular course of
business. To conceal his personal interest in the loans,
Bennett, on many occasions, gave the banks fictitious
borrower names such as "Woods," "Forest," "Foster," "Floras,"
"Powers," and "Kallan." Although Bennett and/or his wife
executed promissory notes and mortgages for each new loan,
____________________
4. Eight of the loans described in the indictment were
originally funded using advances from the Plymouth Federal
line-of-credit, and one such loan was funded using an advance
from the NBIS line-of-credit. By May 1990, however, Plymouth
Federal had purchased all the loans at issue that had been
charged to the NBIS line-of-credit.
-7-
Bennett failed to record any of the mortgages or assign them
to the banks. Consequently, the line-of-credit advances were
effectively unsecured, and Bennett avoided creating a public
record of his borrowing activity. Bennett also created a
lender loan file for each new loan that contained "filler"
documents such as settlement statements, credit
applications, title insurance policies, and real estate
appraisals that, upon close inspection, bore no
relationship to the particular loan. Rather, many of these
documents were photocopies of the materials prepared in
connection with the two $159,000 loans obtained by Bennett in
May 1988. To avoid detection, Bennett kept the promissory
notes, mortgages, and loan files in his personal possession.
In or about March and April 1990, the Federal
Deposit Insurance Corporation (FDIC) examined Plymouth
Federal, including the Daniel Webster line-of-credit. One
examiner demanded the supporting documentation for a $125,000
advance under the name "Bennett" Count 7 of the
indictment. In response, Bennett provided, among other
things, a promissory note, a mortgage, and an assignment of
the mortgage to Plymouth Federal. The mortgage and the
assignment had recording stamps, bearing instrument numbers
36241 and 36242, indicating that they had been received by
the Plymouth County Registry of Deeds on May 12, 1989, at
-8-
12:12 p.m. On further inspection, however, the mortgage and
the assignment were found to be unrecorded, and the recording
stamps to have been forged. A search at the Plymouth County
Registry of Deeds revealed that the instrument numbers
belonged to documents filed in an unrelated transaction.
The full extent of Bennett's borrowing was revealed
on or about May 3, 1990. Plymouth Federal thereupon
terminated its line-of-credit, putting Daniel Webster out of
business. Bennett was asked to resign from Daniel Webster.
On May 22, 1990, Plymouth Federal and Daniel
Webster sued Bennett, claiming, inter alia, that he had ___________
committed fraud. Bennett denied liability. On February 1,
1991, the parties entered into a settlement agreement.
Bennett agreed to turn over to Plymouth Federal certain cash
and other property, including the part of the Hingham
property that had not earlier been sold. The district court
found the value of the cash and property transferred in the
settlement to be "at least" $660,000.
B. The Flow of Funds _________________
During the civil law suit, Bennett, in answers to
interrogatories, listed the loans that he had obtained from
May 20, 1988, through March 1, 1990. The Government provides
the following chart, which includes the nine transactions,
designated A through I, charged in the indictment:
Whether "Borrower Date Princ.
Charged/ Name" on Princ. Balance
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Date Design. Amount Bank Docs. Repaid (5-3-90) ____ _______ ______ __________ ______ ________
5-20-88 no $159,000 Bennett - $159,000
5-20-88 no 159,000 Bennett - 159,000
7-5-88 no 180,000 Bennett 9-30-88
8-11-88 yes (A) 40,000 Woods 9-22-88
9-22-88 no 185,000 Bennett 10-13-88
9-22-88 yes (B) 90,000 Forest 7-7-89
10-4-88 no 100,000 Bennett - 100,000
10-4-88 yes (C) 141,700 Woods 7-7-89
10-4-88 yes (D) 145,300 Foster 7-7-89
3-31-89 yes (E) 75,000 Woods - 75,0005
3-31-89 yes (F) 105,000 Floras 7-7-89
5-12-89 yes (G) 125,000 Bennett - 125,000
8-2-89 yes (H) 67,000 Powers 9-30-89
10-2-89 yes (I) 111,000 Kallan - 111,000
3-1-90 no 108,000 Sou - 108,000 ________ ________
$1,791,000 $837,000
As the Government's chart indicates, several of the loans
were repaid before May 3, 1990, the date when Bennett's
offense was discovered. According to Bennett, the remaining
loans were repaid when he entered into the settlement
agreement with Daniel Webster and Plymouth Federal on
February 1, 1991.
C. Sentencing __________
At sentencing, the Government maintained that,
because Bennett's scheme to defraud continued after the
November 1, 1989, amendment to the loss table in U.S.S.G.
____________________
5. The Government's appellate brief indicates that this loan
was actually repaid on September 30, 1989. Bennett states in
his brief, however, that he did not repay the $75,000 loan
until February 1, 1991. This later date is consistent with
representations made by the Government to the district court.
Accordingly, we will assume that the $75,000 loan was still
outstanding as of May 3, 1990. If our assumption is
incorrect, the district court should make the necessary
correction on remand.
-10-
2F1.1(b)(1), there was no ex post facto problem created by __ ____ _____
using as is ordinarily done the version of the
Guidelines Manual that was in effect (i.e, November 1, 1992) ___
when Bennett was sentenced. The Government also argued that
(1) in addition to the $900,000 in charged loans, the
district court should consider $1,016,000 in other loans as
relevant conduct, for a total loss of $1,916,000;6 (2) the
$1,916,000 loss figure should not be reduced to reflect any
repayments made by Bennett because this was not a "fraudulent
loan application" case within the meaning of U.S.S.G.
2F1.1, comment. (n.7(b)); (3) Bennett did nothing to manifest
any appreciation of the criminality of his conduct; and (4)
the district court should apply upward adjustments to the
offense level under U.S.S.G. 2F1.1(b)(2) and 3B1.3.
Accordingly, the Government urged the district court to
determine Bennett's Total Offense Level as follows:
2F1.1(a) (base offense level) 6
2F1.1(b)(1)(M) (loss of $1,916,000) 12
2F1.1(b)(2) (more than minimal planning) 2
3B1.3 (abuse of position of trust) 2 __
TOTAL OFFENSE LEVEL 22
____________________
6. On appeal, the Government maintains that the total amount
of charged and uncharged transactions amounts to $1,791,000
as opposed to $1,916,000. See chart, supra. The Government ___ _____
explains that, at sentencing, the $1,916,000 figure included
a $236,000 loss on the "Kallan" loan (Loan I). On further
reflection, however, the Government concedes that only
$111,000 of this loan can be shown to have been funded with
bank money.
-11-
This offense level, says the Government, would have resulted
in a sentencing range of 41 to 51 months incarceration and a
fine range of $7,500 to $75,000.
The district court refused to accept the
Government's position. Finding that the last date of the
offense of conviction was October 2, 1989, it decided to use
the November 1, 1988, Guidelines Manual which contained
the loss table in effect prior to the November 1, 1989,
amendment to avoid violating the Ex Post Facto Clause of
the United States Constitution. Moreover, for purposes of
calculating the loss to the banks, the district court, after
a two-day sentencing hearing during which it considered the
issue, included only those loans, totaling $900,000, that had
been charged in the indictment. From this gross loss figure,
the district court subtracted (1) the amount of the charged
loans that Bennett had repaid prior to the May 1990 discovery
of his crime (i.e., $589,000), and (2) the value of the ____
February 1991 settlement with Plymouth Federal and Daniel
Webster.7 Accordingly, the district court concluded that
the net loss to the banks was $0. It said, "[I]t's obvious
that what was charged in this case as criminal conduct was
$900,000, and that all of it, every cent, was paid off prior
____________________
7. The exact value of the settlement agreement is not
entirely clear. The presentence report pegged the value at
$694,707.15. The district court said the value was "at least
$660,000."
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to the initiation of any criminal proceeding." Moreover, the
district court determined that Bennett had accepted
responsibility for his conduct. In light of these findings,
the district court calculated Bennett's Total Offense Level
to be 8. According to the Government, the district court's
computations were as follows:
2F1.1 (base offense level) 6
2F1.1(b)(1) (zero loss) 0
2F1.1(b)(2) (minimal planning) 2
3B1.3 (abuse of position of trust) 2
3E1.1 (acceptance of responsibility) -2 __
TOTAL OFFENSE LEVEL 8
Based on this Total Offense Level and Bennett's Criminal
History Category (I), the district court concluded that the
sentencing range was 2 to 8 months imprisonment, with 24 to
36 months supervised release, and that the fine range was
$5,000 to $50,000. Nevertheless, the district court
sentenced Bennett to 24 months probation with 6 months home
detention. He was also directed to pay $450 in special
assessments. No fines were imposed.
II.
The Government argues that the following three
errors were committed during sentencing: the district court
improperly (1) calculated loss under U.S.S.G. 2F1.1(b)(1),
(2) granted Bennett a downward adjustment in his offense
level for accepting responsibility pursuant to U.S.S.G.
-13-
3E1.1, and (3) used the November 1, 1988, Guidelines Manual.
We turn to each of these arguments.
A. The District Court's Loss Calculation _____________________________________
1. Relevant Conduct ________________
The Government argues that the district court erred
in calculating the banks' losses by refusing to consider any
loans except the ones for which Bennett was charged.
According to the Government, U.S.S.G. 1B1.3 requires
sentencing courts to consider relevant conduct, even if such
conduct does not fall within any count of conviction. The
district court should, it says, have included in the loss
calculation the other loans for which Bennett was not
indicted. Bennett replies that the district court determined
that evidence of the uncharged loans was too meager to amount
to relevant conduct under U.S.S.G. 1B1.3.
To resolve these arguments, we need to decide
whether the district court determined, as a matter of law, ___________________
that, in calculating the loss, it would disregard loans that
were not alleged in the indictment, or whether it determined,
as a matter of fact, that the Government had failed to ______________________
establish, by a preponderance of the evidence, the existence
of relevant non-indicted loans.8 With regard to the former,
____________________
8. In United States v. Williams, 10 F.3d 910 (1st Cir. _____________ ________
1993), we said, "Only after the government has met its burden
of establishing, by a preponderance of the evidence, ``a
sufficient nexus between the [extraneous] conduct and the _________________
offense of conviction,' may the sentencing court, in its
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"[t]he legal determination as to the
proper interplay among related guidelines
is subject to plenary review." United ______
States v. Schultz, 970 F.2d 960, 962 (1st ______ _______
Cir. 1992), cert. denied, U.S. , ____________
113 S. Ct. 1020, 122 L. Ed. 2d 167
(1993). Therefore, we review de novo the
district court's application of the
relevant conduct guideline, U.S.S.G.
1B1.3, to the [fraud or deceit]
guideline, U.S.S.G. [2F1.1].
United States v. Carrozza, 4 F.3d 70, 74 (1st Cir. 1993), _____________ ________
cert. denied, U.S. , 114 S. Ct. 1644, 128 L. Ed. 2d 365 ____________
(1994). Regarding the latter, "[a]bsent a mistake of law, we
review ``relevant conduct' findings for clear error." United ______
States v. Williams, 10 F.3d 910, 913 (1st Cir. 1993) (citing ______ ________
United States v. Wood, 924 F.2d 399, 403 (1st Cir. 1991)). _____________ ____
The transcript of Bennett's two-day sentencing
hearing strongly indicates that the district court
determined, as a matter of law, that it would not consider,
in establishing the loss to the banks, loans that were not
alleged in the indictment. At the very beginning of the
sentencing hearing, the district court asked:
And how much money was obtained,
according to the counts? Because my
understanding is that the determination
of how much time the guidelines call for,
is it determined on the amount charged in
the counts?
____________________
sound discretion, make a ``relevant conduct' adjustment." Id. ___
at 913 (quoting United States v. Sklar, 920 F.2d 107, 110 _____________ _____
(1st Cir. 1990)) (emphasis added in Williams). ________
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A short time later, the district court engaged in the
following colloquy with the Government:
MR. STIMSON: You have to live with the
guidelines, your Honor.
THE COURT: I understand you have to look
at the guidelines, but I'll tell you,
when you start getting into relevant
conduct that is not charged, that goes
against my sense of justice. I don't
mind sentencing somebody on something
that he's been charged with. When you're
trying to get [$]800,000 more on
something he's not charged with, there is
something that is unjust about it. . . .
MR. STIMSON: Your Honor, the
government's position is based upon the
total amount of each loan.
Now, we can put[] aside for a moment
the issue of whether we're talking just
about the loans that were described in
the indictment or about the other loans.
THE COURT: I want to go with those
charged in the indictment.
MR. STIMSON: Okay.
THE COURT: Because if you're asking for
any more time than that, it's going to be
tried. I'm not sentencing anybody on
time [sic] that he's not been tried on.
I'm not going to. So stick with the
[$]900,000 as charged or anything else
that you say is charged within the nine
counts.
Towards the end of the first day of the sentencing hearing,
the district court stated the manner in which it was inclined
to calculate the net loss to the banks:
I'll tell you [w]hat, have we all
got the issue, and I want it on the
record. [T]he issue is this: The
$900,000 charged less money paid back to
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the victim bank in whatever form prior to
the initiation of criminal action . . .
iswhat I amgoing to determineas the law.9
The district court further said that it was "willing to
disregard the relevant conduct."
During the second day of the sentencing hearing,
the district court once again visited the issue of relevant
conduct. In this regard, it made the following observations
and findings:
I can see that maybe a significant
portion, if not all of the charged loans,
ha[s] been paid. However, we have this
concept of related conduct. It's obvious
that, although he's paid off over
$900,000 and maybe close to [$1,200,000],
he hasn't paid off all the related loans.
So if I do not take those into
consideration, then you may have a short-
lived victory, because the upper [c]ourt,
____________________
9. The parties dispute whether the last word of this
statement was "law" or "loss." On June 3, 1994, counsel for
Bennett filed an affidavit of Patricia A. Casey-Price, the
official court reporter at Bennett's sentencing hearing.
Attached to the affidavit were revised pages of the
sentencing hearing transcript, indicating that the court had
said "loss" not "law." Subsequent to oral argument, however,
the Government submitted a supplemental affidavit of Patricia
A. Casey-Price, dated June 9, 1994. In it she said, "Based
upon a careful review of my stenographic notes, . . . I have
concluded that . . . I in fact recorded the word ``law,' not
the word ``loss.'"
The parties did not follow the correct procedure for
correcting the record. See Fed. R. App. P. 10(e) (describing ___
the correct procedure for correcting or modifying the
record). But the difference between "law" and "loss" is of
little consequence. In either event, the district court was
setting forth the legal framework in which it was inclined to
calculate the net loss.
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I am absolutely confident, [is] going to
require them to be taken into
consideration.
***
On the other hand, there is some
relevant conduct resulting in debts in
excess of $900,000, which under the
current interpretation of the guidelines
has to be considered.
When the so-called relevant conduct
is considered, that is matters not
charged, there is a debt owing. It's
very difficult to determine what that
precise amount is, but it's my judgment,
based on all the evidence in the case,
that it's somewhere between [$100,000]
and $200,000.
So I'm in a position, were I to
sentence strictly with respect to charged
conduct, the loss I would find is
nothing. If I am to sentence him on the
basis of charged conduct and related
activity, the loss is between [$100,000]
and $200,000.
Notwithstanding its conclusion that there was relevant
conduct and that the net loss to the banks, if the relevant
conduct were considered, was between $100,000 and $200,000,
the district court sentenced Bennett only on the basis of the
loans for which he was charged, finding a net loss to the
banks of $0. It explained:
Here is what I'm going to have to
do, have it set up for a new trial.
In some types of cases relevant
conduct is appropriate. Loss under the
cases is not just mathematical, it's
intended loss. My judgment, based on
hearing this case, and the amount of
money that's been paid back by this
defendant, [is] that it was always his
intention to [re]pay the money. That ____
being so, there is no evidence in this _________________________________________
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record, in the trial or in anything _________________________________________
that's happened subsequent thereto, _________________________________________
that's going to allow me, in determining _________________________________________
the [e]lusive concept of cause,10 to _________________________________________
take into consideration loans which were _________________________________________
not subject to any criminal charge[;] nor _________________________________________
has anyone said that they were false in _________________________________________
any way. _______
So the first decision I'm making is
that I'm concerned with loss resulting
from criminal conduct, because that's all
that's really relevant to the sentencing
of this individual. That being so, it's
obvious that what was charged in this
case as criminal conduct was $900,000,
and that all of it, every cent, was paid
off prior to the initiation of any
criminal proceeding.
(emphasis and footnote added).
In light of the court's comments, we see little
merit in Bennett's insistence that the district court found,
as a matter of fact, that the Government did not establish by
a preponderance of the evidence that the uncharged loans
amounted to relevant conduct. Rather the court's message was
____________________
10. The parties dispute whether Judge Harrington said
"cause" or "loss." On June 3, 1994, counsel for the
defendant submitted the affidavit of Patricia A. Casey-Price,
the court stenographer, in which she indicated that Judge
Harrington had said "loss." However, in a June 9, 1994,
supplemental affidavit, filed by the Government, Ms. Casey-
Price said, "[After] listening to the magnetic audiotape of
the May 19, 1993[,] proceedings, I have confirmed that, on
May 19, 1993, Judge Harrington in fact used the word ``cause,'
not the word ``loss.'"
As we described, see supra note 9, the parties have not ___ _____
followed the proper procedure for correcting the transcript.
See Fed. R. App. P. 10(e). In any event, we see nothing to ___
be gained by asking the district court to clarify the record.
Our decision is not influenced by whether Judge Harrington
said "cause" or "loss."
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that, no matter what the evidence, it was not going to "take
into consideration loans which were not subject to any
criminal charge[s]." Any possible doubt as to this
interpretation is removed by the court's finding that there
was relevant conduct, which, if considered, would result in a
net loss to the banks of between $100,000 and $200,000.
Because the court thought it unfair to consider relevant
conduct here, it sentenced Bennett only on the basis of the
loans for which he was charged and convicted, concluding that
the net loss to the banks from these was $0, and disregarding
the losses on other loans.
A sentencing court may not, however, simply
disregard relevant conduct. E.g., United States v. Restrepo, ____ _____________ ________
946 F.2d 654, 655 (9th Cir. 1991) (accepting defendant's
argument that the Sentencing Guidelines severely reduce the
district court's sentencing discretion and require the court
to consider the sentencing effect of uncharged crimes), cert. _____
denied, U.S. , 112 S. Ct. 1564, 118 L. Ed. 2d 211 ______
(1992); Lauren Greenwald, Relevant Conduct and the Impact of ___________________________________
the Preponderance Standard of Proof Under the Federal _____________________________________________________________
Sentencing Guidelines: A Denial of Due Process, 18 Vt. L. _________________________________________________
Rev. 529, 530 (1994) ("The guidelines altered the effect that
these aggravating factors had on sentencing by changing the
judge's consideration of relevant conduct from discretionary
to mandatory."); see United States v. Schaper, 903 F.2d 891, ___ _____________ _______
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897-98 (2d Cir. 1990) (finding error in the district court's
refusal to consider amounts of narcotics that were not
charged in the indictment because "[t]he Sentencing
Guidelines clearly provide . . . that a sentencing court must
consider a defendant's involvement with quantities of
narcotics not charged in the count(s) of conviction when such
conduct was undertaken in the same course of conduct as the
offense of conviction"). Accordingly, we vacate the sentence
and remand for resentencing. On remand, the district court
shall include in the loss calculation the dollar amount of
any and all uncharged loans that constitute relevant conduct.
2. Deductions from the Loss ________________________
In calculating the loss to the banks, the district
court credited Bennett with, inter alia, the estimated value __________
of his February 1, 1991, settlement of the civil suit brought
against him by Plymouth Federal and Daniel Webster. The
Government assigns error, citing, U.S.S.G. 2F1.1, comment.
(n.7(b)) (Nov. 1, 1993):11
In fraudulent loan application cases and
contract procurement cases, the loss is
____________________
11. Application Note 7(b), in its present form, took effect
on November 1, 1992. Hence, it was not in the Guidelines
Manual used by the district court. Nevertheless, it is
appropriate to consider Note 7(b) because it represents a
clarification, not a substantive change, of the Sentencing
Guidelines. See U.S.S.G. App. C, amend. 470; U.S.S.G. ___
1B1.11(b)(2) ("[I]f a court applies an earlier edition of the
Guidelines Manual, the court shall consider subsequent
amendments, to the extent that such amendments are clarifying
rather than substantive changes.").
-21-
the actual loss to the victim (or if the __________________________
loss has not yet come about, the expected
loss). For example, if a defendant _______________________________
fraudulently obtains a loan by _________________________________________
misrepresenting the value of his assets, _________________________________________
the loss is the amount of the loan not _________________________________________
repaid at the time the offense is _________________________________________
discovered, reduced by the amount the _________________________________________
lending institution has recovered (or can _________________________________________
expect to recover) from any assets _________________________________________
pledged to secure the loan. However, _____________________________
where the intended loss is greater than
the actual loss, the intended loss is to
be used.
(emphasis added). The Government contends that, in light of
Note 7(b), the district court, in calculating the actual loss
to the banks, could not credit Bennett with amounts repaid
after May 3, 1990, the date his offense was discovered.
Bennett counters that the district court properly considered
the amount of his settlement which came ten months before
he was indicted in calculating the banks' actual loss.
Bennett cites United States v. Gallegos, 975 F.2d 712 (10th ______________ ________
Cir. 1992), in which the Tenth Circuit said that a settlement
agreement entered into between the defendant and the victim
bank after the offense was discovered could "be viewed as an
offset." Id. at 712-13. ___
Notwithstanding the Tenth Circuit's decision,
Application Note 7(b) is binding on the federal courts.12
Stinson v. United States, U.S. , 113 S. Ct. 1913, 1915, _______ _____________
123 L. Ed. 2d 598 (1993) ("[C]ommentary in the Guidelines
____________________
12. The Tenth Circuit cited Application Note 7(b), but did
not discuss it.
-22-
Manual that interprets or explains a guideline is
authoritative unless it violates the Constitution or a
federal statute, or is inconsistent with, or a plainly
erroneous reading of, that guideline."). The parties agree
that Application Note 7(b) applies to "fraudulent loan
application cases and contract procurement cases . . . ."
Note 7(b) instructs how to calculate the actual loss in cases
where "a defendant fraudulently obtains a loan by
misrepresenting the value of his assets." Here, Bennett
fraudulently obtained line-of-credit advances by, among other
things, misrepresenting the existence and, a fortiori, the _ ________
value of residential mortgages. Accordingly, as Note 7(b)
goes on to describe, "[T]he loss is the amount of the loan
not repaid at the time the offense is discovered, reduced by
the amount the lending institution has recovered (or can
expect to recover) from any assets pledged to secure the
loan." Because the parties agree that the full extent of
Bennett's borrowing activity (i.e., his offenses) was ____
discovered on May 3, 1990, the district court erred in giving
Bennett credit for payments made after that date. It should
have calculated the "actual loss" to the victim banks as
follows:
1. The amount of the illegal loans
(i.e., those for which Bennett was ____
convicted),
plus
-23-
2. the amount of the loans constituting
relevant conduct,
less
3. the amount of the loans in 1 and 2
that Bennett had repaid as of May 3,
1990,
less
4. the amount the victim banks have
recovered (or can expect to recover) from
any assets pledged to secure the loans in
1 and 2.
This is the framework adopted by other courts of appeals that
have construed Application Note 7(b). E.g., United States v. ____ _____________
Jindra, 7 F.3d 113, 114 (8th Cir. 1993) (holding that, in ______
light of Application Note 7(b), the loss was the amount of
the loans outstanding when the offense was discovered because
the defendant did not pledge assets to secure the loans),
cert. denied, U.S. , 114 S. Ct. 888, 127 L. Ed. 2d 82 ____________
(1994); United States v. Menichino, 989 F.2d 438, 441 (11th _____________ _________
Cir. 1993) ("[I]n a loan application case involving
misrepresentation of assets, the loss is the amount of the
loan not repaid at the time the offense is discovered,
reduced by the amount the lender could recover from
collateral.").
B. Downward Adjustment for Acceptance of Responsibility ____________________________________________________
The Government contends that the district court
erred in granting Bennett a two-level downward adjustment in
his offense level pursuant to U.S.S.G. 3E1.1 because there
-24-
is nothing in the record to support its conclusion that
Bennett accepted responsibility for his criminal conduct.13
It insists that, from the time Bennett's crime was discovered
and through his sentencing hearing, Bennett never conceded
that he had engaged in bank fraud or expressed any remorse or
contrition for his conduct. Furthermore, the Government
submits that Bennett's settlement with Plymouth Federal and
Daniel Webster was not a "voluntary payment of restitution," _________
U.S.S.G. 3E1.1, comment. (n.1(c)) (Nov. 1, 1993) (emphasis
added), that would entitle Bennett to a downward adjustment
in his offense level. Bennett responds that the district
court's decision was justified by his settlement offer and
____________________
13. Apparently, the district court adopted the presentence
report's recommendation when it awarded Bennett a two-point
reduction for acceptance of responsibility. That report, as
amended on November 1, 1992, said, inter alia: __________
On 2/1/91, prior to Bennett's indictment
on the instant offense, he entered into a
settlement agreement with the Plymouth
Federal Savings Bank in which a portion
of restitution was paid by the defendant.
The payment of restitution suggests that
the defendant has accepted responsibility
for his actions. Per [U.S.S.G. 3E1.1,
comment. (n.1(c)) (Nov. 1, 1993)], in
determining whether a defendant qualifies
for the acceptance of responsibility
reduction, appropriate considerations
include voluntary payment of restitution
prior to adjudication of guilt.
Considering the fact that restitution was
paid prior to the guilty verdict in the
instant matter, Bennett will be granted a
two-level reduction for acceptance of
responsibility.
-25-
eventual settlement with Plymouth Federal and Daniel Webster
prior to conviction, and by his demonstration of contrition
and remorse at the sentencing hearing. We cannot agree.
Although a district court's conclusion that a
defendant has accepted responsibility "is entitled to great
deference on review[,]" U.S.S.G. 3E1.1, comment. (n.5)
(Nov. 1, 1993); e.g., United States v. Royer, 895 F.2d 28, 29 ____ _____________ _____
(1st Cir. 1990) (describing "clearly erroneous" standard of
review), there must be some articulable basis or foundation
for it, e.g., United States v. Amos, 952 F.2d 992, 995 (8th ____ ______________ ____
Cir. 1991), cert. denied, U.S. , 112 S. Ct. 1774, 118 L. ____________
Ed. 2d 432 (1992). We find no such basis for the district
court's decision.
To begin with, U.S.S.G. 3E1.1 "is not intended to
apply to a defendant who puts the government to its burden of
proof at trial by denying the essential factual elements of
guilt, is convicted, and only then admits guilt and expresses
remorse."14 U.S.S.G. 3E1.1, comment. (n.2) (Nov. 1,
____________________
14. This version of Application Note 2 became effective on
November 1, 1990. Hence, it was not included in the November
1, 1988, Guidelines Manual used by the district court.
Application Note 2 in that manual read:
Conviction by trial does not preclude a
defendant from consideration under this
section. A defendant may manifest
sincere contrition even if he exercises
his constitutional right to a trial.
This may occur, for example, where a
defendant goes to trial to assert and
preserve issues that do not relate to
-26-
1993) (footnote not in original). Bennett pleaded not guilty
to all nine counts and denied "the essential factual elements
of [his] guilt." During his opening statement, Bennett's
counsel asserted and suggested, among other things, that (1)
there was nothing "out of the ordinary" about Bennett's
loans, (2) the lending banks were adequately secured, (3) the
slumping real estate market, not Bennett's conduct, caused
Plymouth Federal's losses, and (4) Bennett never had any
intent to defraud the banks. Bennett's counsel reiterated
this last point at the very end of his closing argument when
he said, "And I suggest no intent to defraud has been shown
beyond a reasonable doubt on this evidence."
After he was convicted, Bennett apologized to his
family and said that he accepted the verdict, but steadfastly
maintained that he had never intended to defraud the banks.
At the close of the sentencing hearing, Bennett told the
district court:
I just want to say . . . how sorry I
am to have been the force behind the
series of events that led to this trial
in February, to the sentencing hearing
____________________
factual guilt (e.g., to make a ____
constitutional challenge to a statute or
a challenge to the applicability of a
statute to his conduct).
See U.S.S.G. App. C, amend. 351. As we described, see supra ___ ___ _____
note 11, it is appropriate to consider the current
Application Note 2 because it constitutes a clarifying,
rather than a substantive, change. See U.S.S.G. ___
1B1.11(b)(2).
-27-
here in a criminal case. That I've put a
terrible burden on my wife and my
children and my mother and sisters and
the rest of my family who has supported
me through it. I never intended to . . . _________________________
defraud anybody. I never intended to _______________
harm anybody.
I'm not here to fight the verdict, I ____________________________________
accept the verdict. I had simply _____________________
intended to try to build a couple of
houses, and at a time when it looked like
a good thing to do[ ]one to live in and
one to sell to make it an affordable
project. And when I, after having
discussed with the bank over a period of
six months for construction financing for
that project, and eventually being turned
down, or at least they failed to make the
loan to me, I responded poorly to it in
the way that I financed it.
(emphasis added). Even assuming the above was meant to
express remorse or contrition, Application Note 2 expressly
says that U.S.S.G. 3E1.1 is not intended to apply to a ___
defendant who challenges essential factual elements of guilt,
is convicted, and only then admits guilt and expresses __________
remorse.
This is not to say that by going to trial a
defendant necessarily loses his opportunity for a downward
adjustment under U.S.S.G. 3E1.1. Application Note 2 goes
on to state:
Conviction by trial . . . does not
automatically preclude a defendant from
consideration for such a reduction. In
rare situations a defendant may clearly _________________________________________
demonstrate an acceptance of _________________________________________
responsibility for his criminal conduct _________________________________________
even though he exercises his
constitutional right to a trial. This
may occur, for example, where a defendant
-28-
goes to trial to assert and preserve
issues that do not relate to factual
guilt (e.g., to make a constitutional ____
challenge to a statute or a challenge to
the applicability of a statute to his
conduct). In each such instance,
however, a determination that a defendant
has accepted responsibility will be based
primarily upon pre-trial statements and
conduct.
U.S.S.G. 3E1.1, comment. (n.2) (emphasis added). The
downward adjustment this commentary allows is reserved for
"rare situations" where a defendant who exercises his right
to trial may "clearly demonstrate" an acceptance of
responsibility for his criminal conduct. An example of such
a situation, described in Application Note 2, occurs "where a
defendant goes to trial to assert and preserve issues that do
not relate to factual guilt." This case does not fit within
that example. Bennett, it is true, made the somewhat
unattractive legal argument that 18 U.S.C. 1344 did not
apply to his conduct as any fraud allegedly committed by him
was a fraud upon the Daniel Webster Mortgage Company, which
was not a financial institution under the statute. But he
denied his factual guilt also. At closing, Bennett's counsel
argued:
Now the key position of the defense
in this case is that the vital element of
these charges, that the defendant must be
proved to have intentionally, with
criminal specific intent, attempted or
intended to defraud the banks. That's
the key that I'm going to suggest to you
by a review of the evidence and in
particular several of the exhibits,
-29-
that's the key where the government has
failed and that consequently the
defendant is entitled to an acquittal.
There are other "rare situations," not described in
Note 2, in which courts have allowed a downward adjustment
even though a defendant puts the Government to its burden of
proof at trial by denying the essential factual elements of
his guilt. E.g., United States v. McKinney, 15 F.3d 849, ____ ______________ ________
852-855 (9th Cir. 1994) (holding "that, in appropriate
circumstances[,] the reduction is also available in cases in
which the defendant manifests genuine contrition for his acts
but nonetheless contests his factual guilt at trial[]").
Where a defendant exercises his right to trial, however, a
determination that he has clearly demonstrated acceptance of
responsibility for his criminal conduct "will be based
primarily upon pre-trial statements and conduct." U.S.S.G.
3E1.1, comment. (n.2). The issue then is whether Bennett, by
settling the lawsuit brought by Plymouth Federal and Daniel
Webster before trial, clearly showed that he had accepted
responsibility for his illegal activities. We think not.
Settling a pending lawsuit scarcely demonstrates
contrition. Nor does it indicate a "willingness to adhere to
political society's laws." United States v. Bean, 18 F.3d _____________ ____
1367, 1369 (7th Cir. 1994). In Bean, the defendant, Bill ____
Gene Bean, kited checks, totaling $75,000, "to cover a cash-
flow shortage in his recycling business." Id. at 1368. Bean ___
-30-
was charged with committing bank fraud in violation of 18
U.S.C. 1344. Over a period of two years before trial, Bean
repaid the $75,000. He then went to trial, denying that he
had intended to defraud a bank, and was convicted by a jury
as charged. In these circumstances, the Seventh Circuit
observed:
The Sentencing Guidelines permit a judge
to reduce the sentence for repayment
whether or not the defendant pleads
guilty to the charge. Application Note
1(c) to 3E1.1 lists "voluntary payment
of restitution prior to adjudication of
guilt" as an independent reason for a
two-level acceptance-of-responsibility
reduction. Bean repaid the bank before
the adjudication of guilt, and the
district court therefore was entitled to
award a reduction for acceptance of
responsibility even though Bean denied
guilt.
Bean, 18 F.2d at 1368. ____
Unlike Bean, Bennett paid restitution here as part
of the settlement of a civil lawsuit.15 We agree with the
Government that Bennett's payment by way of settlement was
not a "voluntary payment of restitution prior to adjudication _________
of guilt," U.S.S.G. 3E1.1, comment. (n.1(c)), that
____________________
15. Bennett indicates that a settlement offer he made to
Daniel Webster and Plymouth Federal in May 1990, before they
filed their civil suit, was rejected. Even if we accept this
assertion at face value, for purposes of acceptance of
responsibility under the Sentencing Guidelines, an offer to
pay restitution is not the same as actually paying it. See ___
U.S.S.G. 3E1.1, comment. (n.1(c)) (Nov. 1, 1993)
("voluntary payment of restitution prior to adjudication of _______
guilt").
-31-
justifies a reduction for acceptance of responsibility.
Under U.S.S.G. 3E1.1, the downward adjustment "must be
consistent with the attitude the Commission took toward
restitution, which is that restitution is relevant to the
extent it shows acceptance of responsibility." United States _____________
v. Miller, 991 F.2d 552, 553 (9th Cir. 1993). Accordingly, ______
"the payment [must] have been genuinely voluntary, rather ____________________________________________________________
than motivated primarily by a collateral consideration such _____________________________________________________________
as a desire to settle the civil lawsuit [brought] by the _____________________________________________________________
bank[s]." Id. (emphasis added). _______ ___
We hold that the district court's decision to grant
Bennett a two-level reduction for acceptance of
responsibility was clearly erroneous16.
C. Use of the November 1, 1988, Guidelines Manual ______________________________________________
____________________
16. Having stressed that post-trial acceptance of
responsibility is the exception and must normally be borne
out by pre-trial actions, we nevertheless do not intend to
establish any blanket rule; the guideline's own application
note leaves open the possibility of exceptions. But we do
think that unless some obvious basis is apparent from the
record, it may be difficult to uphold a reduction in cases
where the defendant went to trial, asserted his or her
innocence, and has nothing substantial in the way of pre-
trial conduct to show earlier acceptance of responsibility --
unless the district court is able to point to some persuasive ______
reason for this determination. Thus, even where there may
ordinarily be no special requirement for a statement of
reasons in making sentence determinations, cases like this
one may present situations in which an explanation by the
district court is as a practical matter essential to
establish that the guideline's rather stringent standards for
post-trial conversions have been satisfied.
-32-
Effective November 1, 1989, the loss table in
U.S.S.G. 2F1.1(b)(1) was amended. Among other things, the
amendment "increase[d] the offense levels for offenses with
larger losses to provide additional deterrence and better
reflect the seriousness of the conduct." U.S.S.G. App. C,
amend. 154. All of the line-of-credit advances that
corresponded with the nine counts of conviction were obtained
prior to the November 1, 1989, amendment to the loss table.
Consequently, when Bennett was sentenced in May 1993, there
was an issue as to whether using the version of the
Guidelines Manual then in effect (i.e., the November 1, 1992, ____
edition) which included the amended loss table would
violate the Ex Post Facto Clause of the United States
Constitution. U.S. Const. art. I, 9, cl. 3; see United ___ ______
States v. Havener, 905 F.2d 3, 5 (1st Cir. 1990) ("[T]he ______ _______
Constitution's [E]x [P]ost [F]acto [C]lause forbids the
application of any law or rule that increases punishment to _________
preexisting criminal conduct." (emphasis in original)). With
this concern in mind, the district court, pursuant to
U.S.S.G. 1B1.1117 and the presentence report's
____________________
17. U.S.S.G. 1B1.11 (Nov. 1, 1993) states in relevant
part:
(a) The court shall use the Guidelines
Manual in effect on the date that
the defendant is sentenced.
(b) (1) If the court determines that
use of the Guidelines Manual in
-33-
recommendation, employed the November 1, 1988, version of the
Guidelines Manual.
The Government complains of this decision. It
contends that using the November 1, 1992, Guidelines Manual
would not violate the Ex Post Facto Clause. According to the
Government, where a defendant engages in a series of offenses
comprising separate executions of a single scheme or plan,
and that scheme "straddles" the old law and the new law,
applying the new law does not violate the Constitution. The
Government maintains that each of the nine counts against
Bennett was a separate execution of a common scheme to
defraud the banks. It points out that certain activities
ancillary to one of the fraudulently induced loans, namely,
the loan of May 12, 1989, charged in Count 7, actually
occurred as late as April 1990. At this time, in an attempt
to conceal his borrowing activities, Bennett provided FDIC
examiners and Plymouth Federal employees with a doctored
mortgage and assignment that bore forged recording stamps.
Because of that conduct, the Government would have us view
the entire scheme to defraud, as reflected in all nine
____________________
effect on the date that the
defendant is sentenced would
violate the ex post facto __ ____ _____
clause of the United States
Constitution, the court shall
use the Guidelines Manual in
effect on the date that the
offense of conviction was
committed.
-34-
counts, as continuing until at least April 1990, several
months after the November 1, 1989, amendment to the loss
table. We are not persuaded.
In rejecting the Government's argument, we are
guided by U.S.S.G. 1B1.11, comment. (n.2) (Nov. 1, 1993),
which states:
Under subsection (b)(1), the last date of
the offense of conviction is the
controlling date for ex post facto __ ____ _____
purposes. For example, if the offense of
conviction (i.e., the conduct charged in ____
the count of the indictment or
information of which the defendant was
convicted) was determined by the court to
have been committed between October 15,
1991[,] and October 28, 1991, the date of
October 28, 1991[,] is the controlling
date for ex post facto purposes. This is __ ____ _____ _______
true even if the defendant's conduct _________________________________________
relevant to the determination of the _________________________________________
guideline range under 1B1.3 (Relevant _________________________________________
Conduct) included an act that occurred on _________________________________________
November 2, 1991 (after a revised _________________________________________
Guideline[s] Manual took effect). ________________________________
(emphasis added). This Application Note requires district
courts to determine the last date of the offense of
conviction. In so doing, they must necessarily distinguish
"the conduct charged in the count of the indictment . . . of
which the defendant was convicted" from relevant conduct,
which is immaterial for ex post facto purposes, see U.S.S.G. __ ____ _____ ___
1B1.11, comment. (n.2).
The probation officer who prepared the presentence
report found that "the counts of conviction terminated on
10/2/89." She further concluded that Bennett's April 1990
-35-
acts of concealment, while relevant conduct, were not the
conduct charged in Count 7 of which Bennett was convicted.
The district court adopted these findings, which we think are
sound.
The indictment charged Bennett with nine counts of
bank fraud in violation of 18 U.S.C. 1344. Each count
corresponded with a different line-of-credit advance the
first on August 11, 1988, and the last on October 2, 1989.
The allegations in Count 7, which corresponded with the May
12, 1989, loan, were virtually identical to those of the
other counts. The only difference was that Count 7 did not
allege that Bennett had made false statements about the
identity of the borrower,18 and it included a paragraph,
not found in the other counts, which stated:
Created and caused to be created forms of
mortgage and assignment of mortgage for
Loan G, which documents indicated that
they had been duly recorded in the
Registry of Deeds for the County of
Plymouth, when in fact, as the defendant
then well knew, such documents had not
been recorded; and the defendant placed
and caused to be placed such false and
fraudulent documents in the lender loan
file for Loan G, where such documents had
the capacity to influence Plymouth
[Federal].
The Government argues that the above conduct, occurring in
April 1990, lengthens the last date of the offense of
____________________
18. The loan that corresponded with Count 7 differed from
the other charged loans in that it was the only one in which
Bennett used his real name. See chart, supra. ___ _____
-36-
conviction until then. Our problem with this argument is
that the Government itself, in the prefatory section of the
indictment, alleged merely that defendant's obtaining of
illegal loans extended from August 1988 until October 1989.
In determining "the last date of the offense of conviction"
for ex post facto purposes and the Application Note, it is _____________
only reasonable to hold the Government to its own alleged
dates. Count 7 alleged that Bennett knowingly executed, and
knowingly attempted to execute, a scheme and artifice to
defraud Plymouth Federal "in connection with a loan granted
on or about May 12, 1989." This was the focus of the illegal ____________
activity charged in Count 7. While the deceptive activities
in April 1990 were unquestionably related to the charged
fraud, and fit well into the definition of "relevant conduct"
set out in U.S.S.G. 1B1.3, the date of relevant conduct is
not controlling for ex post facto purposes. We accept the ______________
probation officer's view, impliedly adopted as a finding by
the district court, that Bennett's April 1990 chicanery was
relevant conduct, rather than an integral part of the offense
of conviction itself, the last date of the latter having been
October 2, 1989. We find no error in the district court's
decision to use the November 1, 1988, Guidelines Manual.
In this regard, the Government's reliance on United ______
States v. Regan, 989 F.2d 44 (1st Cir. 1993), is misplaced. ______ _____
There, the defendant was charged with having committed 55
-37-
counts of embezzlement in violation of 18 U.S.C. 656
(1988). The conduct in the indictment of which the defendant
was convicted was expressly alleged to have run from November
1987 to July 16, 1991. Thus, some of the acts of
embezzlement charged in the indictment occurred after the
November 1, 1989, amendment to the relevant loss table in
U.S.S.G. 2B1.1(b)(1). Here, by contrast, the last alleged
date of the offense of conviction was October 2, 1989
prior to the November 1, 1989, amendment to the loss table in
U.S.S.G. 2F1.1(b)(1).
III.
Because the district court improperly calculated
the loss to the banks, and erroneously granted Bennett a
downward adjustment in his offense level for acceptance of
responsibility, we vacate the district court's sentencing
decision and remand for resentencing consistent with this
opinion. The district court's decision to use the November
1, 1988, Guidelines Manual is affirmed.
So ordered. __________
-38-
Document Info
Docket Number： 93-1732
Filed Date： 9/20/1994
Precedential Status： Precedential
Modified Date： 3/3/2016