United States v. Arthur Ross ( 2000 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 98-4100
___________
United States of America, *
*
Plaintiff-Appellee, *
* Appeals from the United States
v. * District Court for the
* District of Minnesota.
Arthur Schuyler Ross, *
*
Defendant-Appellant. *
___________
No. 98-4106
___________
United States of America, *
*
Plaintiff-Appellant, *
*
v. *
*
Arthur Schuyler Ross, also known as *
John Ross, *
*
Defendant-Appellee. *
___________
Submitted: October 22, 1999
Filed: April 21, 2000
___________
Before McMILLIAN, LAY, and FAGG, Circuit Judges.
___________
LAY, Circuit Judge.
Following a jury trial in federal district court, Arthur S. Ross was found guilty
of fifteen counts of wire fraud and eighteen counts of money laundering. The court
ordered restitution of $2.7 million and imposed a fifteen month prison sentence on the
wire fraud counts and an eighty-seven month sentence for money laundering, with both
sentences to be served concurrently. Ross appeals his conviction; on cross-appeal, the
Government challenges the court’s downward departures at sentencing and its failure
to impose a four-level enhancement for Ross’ aggravating role in the offenses. We
affirm the convictions but reverse and remand for resentencing.
I. Background
In early 1994, Ross formed Consortium International, Inc. (Consortium), a
Bloomington, Minnesota, corporation that purported to finance business transactions.
Initially, Ross was the President of Consortium, then later assumed the position of
Chairman of the Board of Directors.
The scheme charged in the indictment alleged that Consortium would provide
its “Standard Information Package” describing available services to any interested
person or organization, and containing a list of closed and funded transactions
exceeding $165 million in which Consortium’s principals had acted as “principals,
investors, lenders, investment/merchant bankers, syndicators and/or advisors.” Persons
interested in Consortium’s services would then submit an executive summary
describing the business to be financed, its current assets, cash flow projections, and
personal financial statements of all principals. If Consortium found the executive
summary feasible, Consortium would invite the person to present a project proposal to
its officers in Minnesota. Thereafter, the borrower paid Consortium a $10,000 expense
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retainer and the parties entered into “preliminary commitment agreements” (PCA)
which expressly disclaimed any guarantee of funding. Consortium billed its costs of
evaluating the proposed project against the $10,000 retainer with the promise that any
unexpended monies would be returned to the payer if the project failed to proceed to
funding.
If all parties agreed to proceed beyond the evaluation phase, a “formal
commitment agreement” (FCA) was prepared and the potential borrower was required
to pay Consortium a non-refundable fee of one percent of the loan amount, half of
which was due at FCA execution. Unlike its predecessor agreement, the twenty-plus
page formal commitment agreement did not contain a disclaimer of funding, but instead
“approved” the loan amount subject to a number of conditions precedent, the most
notable of which was that no loan would be approved without final ratification by
Consortium’s Board of Directors.1
Between Consortium’s inception in early 1994 and Ross’ arrest on August 27,
1996, Ross admits that nearly two hundred PCAs were executed, only thirty-four of
which proceeded to FCA execution. From these transactions, Consortium collected in
excess of $3.3 million. Throughout its course of business, Consortium never fully
funded a loan.
The Government contended Consortium was operating an illegal “advance fee”
scheme through which it fraudulently obtained fees from individuals and businesses
1
Consortium’s Board of Directors consisted of Ross, Andrew Druck (Druck)
(Consortium’s President), Gregory Adelman (Adelman) (its Vice President) and, at
some point, Mary Cummins. Ross had authority by proxy to vote on Cummins’ behalf.
Both Druck and Adelman entered into plea agreements with the Government in
exchange for testimony against Ross. Druck pleaded guilty to wire fraud and Adelman
pleaded guilty to filing a false tax return.
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seeking financing with neither the intent nor the ability to do so. Following a pretrial
status conference, the court granted the Government’s motion to dismiss two counts.
Over Ross’ objection, the court also granted in part the Government’s motion to amend
the indictment.
Ross proceeded pro se at a twenty-two day jury trial in federal district court
which began on October 1, 1997, and was convicted on all thirty-three counts.2 On
November 24, 1997, the jury returned a special forfeiture verdict finding that properties
in the amount of $88,216.86 were traceable to the money laundering violations and
were therefore subject to forfeiture. At sentencing on November 12, 1998, the court
found the amount of loss in the instant case to be $3.2 million and ordered restitution
in excess of $2.7 million. The court also imposed a prison sentence of fifteen months
for the wire fraud convictions and eighty-seven months for money laundering, with the
sentences to be served concurrently.
On appeal, Ross argues that his convictions should be set aside for various
reasons: (1) his actions did not involve the “proceeds” of unlawful activity under 18
U.S.C. § 1956(a)(1); (2) the court erred in denying funding as to one of Ross’ two
requested expert witnesses; (3) the amendment of the indictment deprived him of his
right to indictment by grand jury; and (4) the district court erred in awarding victim
restitution to those 173 persons who executed PCAs but never proceeded to FCA
execution.
2
The evidence against Ross comprised of volumes of documents. Lacking
personal funds, Ross petitioned the court under the Criminal Justice Act, 18 U.S.C.
§ 3006A(e), for funding for two expert witnesses. The court only certified one expert
as necessary to an adequate defense, finding that the testimony of both would be
duplicative.
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The Government cross-appeals arguing that the district court abused its
discretion under the United States Sentencing Guidelines Manual (Guidelines) by
departing downward from the sentencing range on both the money laundering and wire
fraud convictions and erred in failing to impose a four-level enhancement for Ross’
aggravating leadership role in the scheme.
II. Discussion
A. Sufficiency of the Evidence
Ross first challenges the sufficiency of the evidence for the money laundering
conviction, arguing that the financial transactions charged did not involve the
“proceeds” of an unlawful activity under the money laundering counts.3
3
Section 1956 identifies the crime of money laundering as follows:
(a)(1) Whoever, knowing that the property involved in a financial
transaction represents the proceeds of some form of unlawful activity,
conducts or attempts to conduct such a financial transaction which in fact
involves the proceeds of specified unlawful activity–
(A)(i) with the intent to promote the carrying on of specified
unlawful activity; or
...
(B) knowing that the transaction is designed in whole or in part . .
. to conceal or disguise the nature, the location, the source, the
ownership, or the control of the proceeds of specified unlawful
activity . . . .
18 U.S.C. § 1956(a)(1) (emphasis added).
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The gravamen of Ross’ argument is that the money laundering convictions must
be reversed because the Government did not prove an essential element of the crime;
namely, that the funds deposited into Consortium’s business account were “proceeds”
of some previously completed illegal activity. Instead, he argues that the indictment
merely charged the receipt and deposit of proceeds and contends that the mere deposit
of money received from the underlying wire fraud does not evidence his use of
proceeds to “promote” the “carrying on” of illegal activity under § 1956(a)(1)(A)(i).
The cases relied upon by Ross are readily distinguishable from this case to
the extent they are factually inapposite from the instant case. These cases, such as
United States v. Shoff, 151 F.3d 889 (8th Cir. 1998) (the money laundering statute may
not be so broadly construed that it becomes a money spending statute) are based on
violations of the Money Laundering Control Act of 1986 not charged in Ross’
indictment and turn on the fact that the allegations of money laundering are based on
the same transaction charged in the predicate act thereby raising double jeopardy
concerns. See generally, United States v. Johnson, 971 F.2d 562 (10th Cir. 1992)
(§ 1957 money laundering charge predicated on wire fraud transfers to defendants
account where wire fraud counts charged the same wire transfers); United States v.
Christo, 129 F.3d 578 (11th Cir. 1997) (reversing conviction for money laundering
where the money laundering counts were based on the same transmission of funds as
the underlying criminal activity of bank fraud and misapplication of bank funds).
We rejected an argument substantially similar to Ross’ in United States v.
Hildebrand, 152 F.3d 756 (8th Cir. 1998). The defendants in Hildebrand were involved
in a conspiracy through which they collected a $300 fee from persons for the purpose
of filing a claim on their behalf in a pro se class action suit. The co-conspirators
represented that for their participation, claimants could share in a substantial damage
award. Throughout the course of the conspiracy, the group collected over $1.3 million.
Id. at 761. Like Ross, the defendants were indicted under 18 U.S.C. § 1956(a)(1)(A)
and (a)(1)(B) for participating in a conspiracy to launder money. Following conviction,
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three defendants appealed arguing the Government failed to prove the elements of the
crime. Id. at 762. We affirmed the convictions based on the evidence that the
defendants deposited over $1.1 million in mail fraud proceeds into bank accounts and
then expended the proceeds to promote the ongoing scheme to defraud by paying for
office supplies, secretarial services, and staff wages. Id. See also United States v.
Kennedy, 64 F.3d 1465, 1477-78 (10th Cir. 1995) (affirming § 1956 conviction for
money laundering predicated on acts of mail fraud separate and distinct from acts
charged as money laundering); Johnson, 971 F.2d at 566 (finding jury could conclude
defendant promoted fraudulent scheme in violation of § 1956 where evidence showed
he used illegal proceeds to purchase Mercedes to impress investors and paid off
mortgage on residence from which he operated fraudulent scheme).
Ross’ wire fraud convictions were predicated on facsimile transmissions of
various documents to potential borrowers (e.g., FCAs, letters promising to fund loans,
and a letter terminating a loan agreement). The money laundering convictions arose
from related, but separate and distinct transactions, namely the deposit of wire fraud
proceeds and subsequent acts promoting the carrying on of illegal activity.
At trial, the Government presented proof that Consortium was engaged in a
broad scheme to defraud and that Consortium’s continuing operation was funded
almost exclusively by fees received from potential borrowers due to fraudulent means.
The evidence showed these funds were deposited into Consortium’s business account
and thereafter checks were written on the business account to partially fund another
loan, fund employee travel to Luxembourg in order to establish bank accounts abroad
to conceal assets from the United States, and to pay Consortium’s rent and overhead
to maintain its appearance of validity throughout the scheme. Further, trial testimony
indicated that the salaries of Druck and Adelman were artificially inflated in order to
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allow each to pay Ross $1,000 cash every two weeks in lieu of Ross receiving
traceable compensation from Consortium.4
From this evidence, a jury could reasonably find that the deposited funds were
the proceeds of wire fraud and that Ross thereafter used the deposited proceeds to
sustain and promote the illegal scheme in violation of § 1956(a)(1). Because we find
ample evidence in the record to support the jury’s verdict, we affirm the money
laundering convictions.
B. Expert Witness Funding
Ross argues that the trial court’s denial of funding for an expert witness to testify
regarding venture capital industry practice violated the Criminal Justice Act, 18 U.S.C.
§ 3006A(e) and his Fifth Amendment right of due process. We disagree.
The Criminal Justice Act Revision of 1986 permits a “financially unable”
defendant to request funding for “investigative, expert, or other services necessary for
adequate representation . . . .” 18 U.S.C. § 3006A(e). In analyzing this claim, we
consider whether Ross demonstrated a reasonable probability that the requested expert
would aid in his defense and that denial of funding would result in an unfair trial. See
Little v. Armontrout, 835 F.2d 1240, 1244 (8th Cir. 1987) (en banc), cert. denied, 487
U.S. 1210 (1988). At the time of his request, Ross must do more than allege the
services would be helpful, rather he must show they are “necessary” to afford him “‘an
adequate opportunity to present [his] claims fairly within the adversary system.’” Ake
v. Oklahoma, 470 U.S. 68, 77, 80 (1985) (quoting Ross v. Moffitt, 417 U.S. 600, 612
(1974)). The decision of whether to fund an expert rests in the sound discretion of the
4
Testimony suggests Ross established this procedure in order to avoid personal
income which would have been garnished by the Internal Revenue Service to satisfy
a tax lien.
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trial court and we will not reverse absent an abuse of discretion. See United States v.
Casal, 915 F.2d 1225, 1230 (8th Cir.1990).
Ross applied for court approval to hire two accountants as expert witnesses: (1)
Henry Langer (Langer), a certified fraud examiner and retired Internal Revenue Service
agent, at a cost of $8,350; and (2) Richard Rosenbaum (Rosenbaum), a certified public
accountant with venture capital experience, at a cost of $19,300. Following an ex parte
hearing, the magistrate judge found that the services of both experts would be
cumulative and unnecessary. Based on this finding, the court certified the funding of
Langer’s services and denied funding as to Rosenbaum.
Ross argues that the denial of expert witness funding for Rosenbaum deprived
him of a fair opportunity to defend himself. Specifically, he argues that Langer could
do no more than follow the paper trail of money and loan agreements, but that
testimony from Rosenbaum would have supported his position that his business
practices were both lawful and consistent with industry practice.
In the application for expert services as to Langer, Ross stated Langer’s
testimony would show that “the allegations of the Government with respect to the
Defendant’s involvement with money matters set forth in the indictment are incorrect
and that the defendant acted lawfully . . . .” Ross indicated that Rosenbaum would
“testify as to the appropriateness of acts by the Defendant to rebut the Government’s
allegations of fraud and money laundering” and could summarize the “overall business
dealings” of Consortium with third parties.
Based on Ross’ characterization of the nature of the testimony of each witness
and our review of the record, we agree with the district court that the purported
testimony of the two expert witnesses, both schooled in accounting and testifying as to
the legality of Ross’ behavior, would be cumulative and unnecessary to his defense.
Further, we agree that Ross failed to demonstrate a reasonable probability that
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Rosenbaum’s services would aid his defense and that denial would result in an unfair
trial. Thus, we find no abuse of discretion in the court’s decision and cannot say that
denial of Rosenbaum’s services rendered the trial fundamentally unfair.
C. Amendment of the Indictment
As a general rule, an indictment may not be amended. See United States v.
Burnett, 582 F.2d 436, 438 (8th Cir. 1976) (citing Ex parte Bain, 121 U.S. 1 (1887)).
The court may, however, amend an indictment by striking language that is “‘merely a
matter of form,’” id. (quoting Russell v. United States, 369 U.S. 749, 770 (1962)), or
where the language omitted is surplusage and nothing is thereby added to the
indictment and the remaining allegations state the elements of an offense. Id. (citing
Salinger v. United States, 272 U.S. 542, 548-549 (1926)).
In relevant part, the general allegations in the original indictment stated:
JOHN ROSS, purportedly acting on behalf of Consortium International,
Inc., and aided and abetted by others, devised and executed an “advance
fee” scheme by which he fraudulently obtained approximately $3,500,000
in “fees” collected from individuals and businesses seeking financing.
(DEN 1 at 1).
On motion of the Government, the indictment was subsequently amended by
deleting the underscored words and eliminating two counts of money laundering. Ross
contends this changed a substantive element of a violation under 18 U.S.C. § 13435 and
5
The crime of wire fraud is committed by a person who:
having devised or intending to devise any scheme or artifice to defraud,
or for obtaining money or property by means of false or fraudulent
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impermissibly broadened the scope of the indictment. Ross’ argument is premised on
the belief that the deleted $3.5 million dollar figure is the only language in the original
indictment that alleged that the preliminary commitment agreements were a part of the
scheme to defraud. Importantly, Ross concedes that if the acts pertaining to the
preliminary commitment agreements were not necessary to the allegations of an
advance fee scheme, then deletion of the $3.5 million figure was mere surplusage under
United States v. Miller, 471 U.S. 130 (1985).
The Court in Miller considered whether a defendant’s right to indictment by
grand jury under the Fifth Amendment is violated when he is tried under an indictment
alleging a broad scheme to defraud and is convicted on trial proof that is significantly
more narrow and limited, yet included in the more broad fraudulent scheme delineated
in the indictment. 471 U.S. at 131.
Initially, the Court observed that the facts at trial conformed to one of the two
theories in the indictment, thus giving Miller “clear notice” of the allegations against
him. Id. at 134. Then, it held that the right to indictment by grand jury is normally not
violated where the indictment alleges other means of committing the crime, so long as
the crime and elements sustaining conviction are clearly and fully set forth in the
indictment. Id. at 136.6
pretenses, representations, or promises, transmits or causes to be
transmitted by means of wire . . . in interstate or foreign commerce, any
writings, signs, signals, pictures, or sounds for the purpose of executing
such scheme or artifice . . . .
18 U.S.C. § 1343.
6
The Miller Court expressly overruled that portion of Ex parte Bain, 121 U.S.
1 (1887) on which Ross relies, writing: “To the extent Bain stands for the proposition
that it constitutes an unconstitutional amendment to drop from an indictment those
allegations that are unnecessary to an offense that is clearly contained within it, that
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The Miller Court found no violation of a right to indictment by grand jury. Id.
at 135. In doing so, it observed:
Convictions generally have been sustained as long as the proof upon
which they are based corresponds to an offense that was clearly set out
in the indictment. A part of the indictment unnecessary to and
independent of the allegations of the offense proved may normally be
treated as “a useless averment” that “may be ignored.”
Id. at 136 (quoting Ford v. United States, 273 U.S. 593, 602 (1927)).
Contrary to Ross’ assertion, the $3.5 million figure is not the only indication in
the original indictment that acts pertaining to preliminary commitment agreements were
a part of the alleged scheme to defraud.7 It is clear, therefore, that the altered
indictment gave Ross notice of the charges against him. Further, elimination of the
$3.5 million figure did not remove or add an element to the charges against him
because the charged wire fraud neither requires proof of a precise dollar amount nor
requires the scheme be successful or complete or result in actual harm or injury to the
case has simply not survived.” United States v. Miller, 471 U.S. 130, 144 (1985).
7
The original and altered indictment alleged that the scheme was accomplished
by having a victim sign a preliminary commitment agreement and pay a $10,000
expense retainer against which Consortium would charge expenses associated with its
proposal evaluation. Both the original and amended indictments also alleged that, as
part of the scheme, Ross never intended to obtain and could not obtain funding at the
time he induced the borrowers to pay the expense retainer and the formal commitment
fees.
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victim.8 See United States v. Jain, 93 F.3d 436, 441 (8th Cir. 1996) (Government must
merely show “that some actual harm or injury was contemplated by the schemer.”).
We find, therefore, that the court’s elimination of the dollar value of the scheme
to defraud was merely, as Ross conceded, an innocuous alteration to remove
“surplusage” and did not violate Ross’ right to indictment by a grand jury. This is
particularly true given the fact that the indictment clearly set forth the scope of the
scheme to defraud. We also find that Ross failed to show that the elimination of the
language at issue prejudiced his defense as it did not add to the general allegations in
the original indictment and neither eliminated an essential element of the crime of wire
fraud nor resulted in any surprise at trial. See U.S. v. Krall, 835 F.2d 711, 715 (8th Cir.
1987).
D. Victim Restitution
The district court ordered victim restitution in excess of $2.7 million. This
amount is comprised of the various fees (including expense retainer fees associated
with preliminary commitment agreements) paid to Consortium by persons seeking
financing. On appeal, Ross argues that the court erred in ordering restitution to persons
who are not “victims” as defined in the Mandatory Victims Restitution Act, 18 U.S.C.
§ 3663, et seq., (MVRA). We first note that the district court has wide discretion in
ordering restitution. See United States v. Manzer, 69 F.3d 222, 229 (8th Cir. 1995).
Reviewing the restitution order for abuse of discretion and the court’s application of
the statute de novo, see United States v. Lively, 20 F.3d 193, 200 (6th Cir. 1994), we
affirm the ruling of the district court.
8
The essential elements of wire fraud are: (1) a scheme to defraud, (2) use of
interstate wires incident to the scheme, and (3) intent to cause harm. See United States
v. Ramirez, 196 F.3d 895, 897 (8th Cir. 1999) (citing United States v. Lefkowitz, 125
F.3d 608, 614 (8th Cir.1997)).
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Under the MVRA, the court shall order a defendant guilty of “an offense against
property under this title, including any offense committed by fraud or deceit” to pay
restitution to victims. 18 U.S.C. § 3663A(c)(1)(A)(ii). The Act defines “victim” as
a person directly and proximately harmed as a result of the commission
of an offense for which restitution may be ordered including, in the case
of an offense that involves as an element a scheme, conspiracy, or pattern
of criminal activity, any person directly harmed by the defendant’s
criminal conduct in the course of the scheme, conspiracy, or pattern.
18 U.S.C. § 3663A(a)(2).
Ross argues that only the thirty-four persons who executed formal commitment
agreements (as opposed to the remainder who only executed preliminary commitment
agreements) are “victims” entitled to restitution because the language of the preliminary
commitment agreements expressly stated that Consortium made no guarantees,
warranties, or promises regarding the likelihood that a loan would be funded and that
the $10,000 expense retainers were legitimately earned by Consortium.
Our precedent makes clear that victim restitution may be ordered for criminal
conduct that is part of a broad scheme to defraud, without regard to whether the
defendant is convicted for each fraudulent act in the scheme. See Manzer, 69 F.3d at
229-30 (affirming victim restitution of $2.7 million based on defendant’s unlawful sale
of 270 satellite descrambling discs, despite conviction on only two counts of mail fraud,
two counts of wire fraud, and one count of copyright infringement). In this case, the
jury convicted Ross of fifteen counts of wire fraud and eighteen counts of money
laundering under an indictment that alleged a broad scheme to defraud. The court was
presented evidence that 173 persons lost $3.5 million throughout the course of the
scheme to defraud. The $3.5 million merely reflects the fees collected by Consortium
and does not include expenditures made by would-be borrowers in reliance on the
promise of funding, which trial testimony suggests far exceeds the challenged
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restitution ordered. Based on the evidence presented, there is little doubt that each of
the persons who executed preliminary commitment agreements, paid expense retainers
of $10,000, and were thereafter rejected for a loan by Consortium, were directly and
proximately harmed by the scheme to defraud and fall well within the ambit of
Congress’ definition of “victim” under the MVRA. Ross’ argument to the contrary is
without merit.
E. Government’s Cross-Appeal
On cross-appeal, the Government contends the district court erred in failing to
enhance Ross’ offense level for his role as a leader or organizer in the scheme and
abused its discretion in departing downward on Ross’ sentences for money laundering.9
The Supreme Court directs that appellate courts apply a “unitary abuse-of-
discretion standard” when reviewing sentencing departures. Koon v. United States,
518 U.S. 81, 99-100 (1996); see also United States v. Woods, 159 F.3d 1132, 1135
(8th Cir. 1998) (Under Koon, appellate court should not review departure decision de
novo.). For reasons explained below, we reverse and remand for resentencing.
1. Aggravating Role Enhancement
9
The Government also argued that the district court abused its discretion when
it imposed a 15-month sentence on the wire fraud counts without offering a basis for
its departure despite a Guideline range of 46-57 months. Without deciding whether the
Government preserved the question for appeal, we do not reach this issue based on the
Government’s acknowledgment at oral argument that affirmance of the money
laundering convictions would render moot the appeal of the downward departure on the
concurrent wire fraud sentence.
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The Government argues the court made a mistake of law in failing to impose a
four-level enhancement under U.S.S.G. § 3B1.1(a) for Ross’ leadership role in the
offense.10 Absent a mistake of law, the district court’s factual findings regarding Ross’
role in the offense will be reversed only if clearly erroneous. See United States v.
Willis, 997 F.2d 407, 419 (8th Cir. 1993). We give due deference to the sentencing
court’s application of the Guidelines to the facts, see United States v. Gomez, 165 F.3d
650, 654 (8th Cir. 1999), and will reverse only if we are left with a “definite and firm
conviction that a mistake has been made.” United States v. Harry, 960 F.2d 51, 53 (8th
Cir. 1992).
In order to impose a two-level enhancement for role in the offense under
§ 3B1.1(c), the court must first determine that neither § 3B1.1(a) nor § 3B1.1(b) apply.
See U.S.S.G. § 3B1.1(c) (1998) (two-level enhancement applies where defendant was
leader, organizer, manager or supervisor in criminal activity other than that described
in (a) or (b)).
10
The Guidelines provide for an increase in the offense level based on a
defendant’s aggravating role in the offense as follows:
(a) If the defendant was an organizer or leader of a criminal activity that
involved five or more participants or was otherwise extensive, increase
by 4 levels.
(b) If the defendant was a manager or supervisor (but not an organizer or
leader) and the criminal activity involved five or more participants or was
otherwise extensive, increase by 3 levels.
(c) If the defendant was an organizer, leader, manager, or supervisor in
any criminal activity other than described in (a) or (b), increase by 2
levels.
U.S.S.G. § 3B1.1 (1998).
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Before sentencing, Ross objected to the four-level enhancement recommended
in the presentence investigation report for his aggravating role in the offense.
Specifically, he argued that even if the court found he was a leader or organizer of
criminal activity, the evidence presented at trial did not prove that the activity either
“involved five or more participants” or was “otherwise extensive.” U.S.S.G.
§ 3B1.1(a) (1998). Asserting the absence of such evidence, Ross urged the court to
find no enhancement was warranted or to impose, at most, a two-level enhancement
under U.S.S.G. § 3B1.1(c). On appeal, the Government contends the court erred in
failing to impose the four-level enhancement as recommended by the probation officer.
In imposing the two-level enhancement, the court stated:
The issue of the defendant’s role in the offense, the Court has
examined this issue carefully. The probation officer has recommended a
four-level increase for Mr. Ross’s role in the offense. Having examined
that carefully, I am going to partially grant the objection that [defendant’s
counsel] has made and give a role increase, a two-level increase for role
in the offense, and not a four-level increase.
I do believe that this was an establishment that Mr. Ross played a
primary role and an organizer role, but I do not believe that he alone was
responsible for what went on in Consortium. So therefore, I will grant the
objection to the extent that I will not give a four-level increase.
(Sent. Tr. at 45).
The court’s statement leaves no doubt that it found Ross was an organizer or
leader of criminal activity. Indeed, there is ample record evidence to support such a
finding given the trial testimony that Ross controlled virtually every aspect of
Consortium’s operation. Less clear, however, is the court’s finding, if any, regarding
the number of participants involved or the extensiveness of the criminal activity. The
court’s comments evidence a finding that other persons were also responsible for
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Consortium’s misdeeds, which is supported by the record; however, such a finding
sheds no light on the point we must address which is whether the court found the
criminal activity involved five or more participants or was otherwise extensive. We
believe the district court is best suited to make such a finding and did not do so in the
instant case. Because the sentencing record does not clearly indicate the requisite
finding, we reverse and remand for resentencing to permit the court to make the
necessary finding.
2. Downward Departure on Money Laundering
In response to Ross’ motion, the district court made a three-level downward
departure under U.S.S.G. § 5K2.0 (the general grounds for departure) concluding that
the case fell outside the guideline “heartland” for money laundering. On cross-appeal,
the Government argues that the district court abused its discretion in so departing when
it (1) relied on an impermissible factor for downward departure, namely, the court's
finding that not all of the $3.2 million wire fraud proceeds were put to fraudulent use;
and (2) determined that Ross’ conduct fell outside the guideline “heartland”11 for
money laundering.
11
The Guidelines state:
The Commission intends the sentencing courts to treat each guideline as
carving out a “heartland,” a set of typical cases embodying the conduct
that each guideline describes. When a court finds an atypical case, one
to which a particular guideline linguistically applies but where conduct
significantly differs from the norm, the court may consider whether a
departure is warranted.
U.S.S.G. ch. 1, pt. A., intro. comment 4(b) (1998).
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The Supreme Court instructs that if a case is an “ordinary” one, the district court
must impose a sentence within the applicable Guideline range. Koon, 518 U.S. at 92.
If however, the case is an “unusual” or “atypical” one, the sentencing court may
depart from the applicable Guideline range if “the court finds that there
exists an aggravating or mitigating circumstance of a kind, or to a degree,
not adequately taken into consideration by the Sentencing Commission in
formulating the guidelines that should result in a sentence different from
that described.”
Id. (quoting 18 U.S.C. § 3553(b)). Thus, the Guidelines require a district court to
determine whether the case at bar presents “aggravating or mitigating circumstances
of a kind or degree not adequately taken into consideration” by the Commission when
formulating the Guidelines. Id. at 94.
A fair reading of the sentencing transcript indicates the court departed downward
for two reasons. First, because it found not all the advance fees were put to a
fraudulent use, and second, due to the “unfortunate” variation between the Guidelines’
treatment of basic fraud and money laundering.12 These two factors, the court
12
At sentencing, the district court articulated the following basis for its downward
departure:
The Court finds that although it is very difficult to determine, even
after having sat through the trial in this matter, exactly how much of the
advanced fees were actually put to a fraudulent use, the Court finds that
not all of the advanced fees was [sic] put to a fraudulent use in this case.
That is a factor to be considered.
The money laundering charges in this case, the convictions on
money laundering, do vary greatly. And that’s unfortunate from the
guidelines that are applicable for the basic fraud charges. And I think that
is perhaps an additional rationale that supports a downward departure
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reasoned, supported a conclusion that the case presented characteristics taking it
outside the heartland money laundering guideline.
We find that the district court abused its discretion in departing from the
guideline money laundering sentence by departing, at least in part, due to what it
viewed as an “unfortunate” disparity between and the “particular problem” with the
Guidelines’ treatment of wire fraud and of money laundering, concluding that “the
original guidelines amount is – or level, is outside of the heartland of the cases
considered by the Sentencing Commission.” The Guidelines make clear that
“dissatisfaction with the available sentencing range or a preference for a different
sentence than that authorized by the guidelines is not an appropriate basis for a
sentence outside the applicable guideline range.” U.S.S.G. § 5K2.0, comment. (1998);
see also, United States v. Wong, 127 F.3d 725, 727 (8th Cir. 1997) (reversing court’s
under Section 5K2.0.
But specifically, the Court is finding that not all of the advanced
fees were put to a fraudulent use. That takes the case out of the guideline
heartland. It makes it an unusual case, unusual circumstances that
warrant a downward departure.
Now, having said that, I’m going to depart downward by three
levels, so that the guideline range that I’m applying is a guideline range
for level 29, and that is 87 through 108 months.
The Court finds that the particular problem between the guideline's
treatment of money laundering convictions and the guideline's treatment
of fraud convictions, as they are applied in this particular case, to this
particular set of facts, warrants a conclusion that the original guidelines
amount is — or level, is outside of the heartland of the cases considered
by the Sentencing Commission.
(Sent. Tr. 48-49).
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downward departure due to court’s disagreement with Guideline range applicable to
defendants).
The Guidelines fix the base offense level at 23 for Ross’ violation of
§ 1956(a)(1), a full three levels higher than convictions for other money laundering
violations that do not involve the reinvesting of illegal proceeds to further criminal
activity. See U.S.S.G. § 2S1.1(a) (1998) (base offense level of 23 for § 1956(a)(1)
violations as compared to base offense level of 20 for other money laundering
violations). This variance reflects Congress’ intent that money laundering crimes which
promote further illegal activity should be punished more severely than those that do not.
See Hildebrand, 152 F.3d at 763 (Guidelines punish more severely the form of money
laundering that involves reinvesting of proceeds to further illegal activity). Based on
our case law, the plain language of the Guidelines, and the court’s statements at
sentencing, we find the court abused its discretion in departing due to its disagreement
with the disparity between a money laundering sentence under § 2S1.1 and one for wire
fraud under § 2F1.1.
Additionally, we question the court’s departure based on its finding that not all
of the $3.2 million proceeds were put to fraudulent use. As stated in Koon, a district
court may depart if the court finds that there exists an “aggravating or mitigating
circumstance of a kind, or to a degree, not adequately taken into consideration” by the
Commission. 518 U.S. at 93 (emphasis added). A violation of 18 U.S.C. § 1956(a)(1)
is predicated on the commission of “specified unlawful activity” which expressly
includes a financial transaction involving fraud or any scheme to defraud. See 18
U.S.C. § 1956(a)(1), (c)(7). The Commission, in consideration of the increased harm
resulting from money laundering activity that promotes or furthers illegal activity,
established a guideline that imposed a higher base offense level for § 1956(a)(1)
violations than for other money laundering violations. Compare U.S.S.G. § 2S1.1(a)(1)
with U.S.S.G. § 2S1.1(a)(2) (1998). Additionally, the Commission has taken into
consideration the factor of the amount of funds laundered by including in the guideline
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specific offense characteristics that impose increasingly higher sentences for crimes
involving correspondingly increasing amounts of proceeds. See U.S.S.G. § 2S1.1
(1998) (e.g., no increase if less than $100,000 laundered; six-level increase if funds
laundered exceed $2 million but less than $3.5 million). Where, as here, the
Commission has taken a factor into consideration, a sentencing court may use the
considered factor as a basis for departure only if it “determines that, in light of unusual
circumstances, the weight attached to that factor under the guidelines is inadequate or
excessive.” U.S.S.G. § 5K2.0, p.s. at p. 357 (1998).
In urging affirmance on this point, Ross suggests that his case is closely aligned
with United States v. Woods, 159 F.3d 1132 (8th Cir. 1998). In Woods, we affirmed
a court’s determination that the case fell outside the “heartland” money laundering
guideline. The defendant in Woods pleaded guilty to one count of bankruptcy fraud
under 18 U.S.C. § 152 and one count of money laundering in violation of 18 U.S.C. §
1957 for failing to disclose to a bankruptcy trustee certain stock assets valued at less
than $20,000. 159 F.3d at 1133. After filing for bankruptcy, Woods liquidated her
stocks and deposited the proceeds into her husband’s bank account and thereafter used
the money to pay personal expenses. Id.
We do not read Woods as support for the district court’s departure and note the
significant factual dissimilarity between Woods and the present case. Woods involved
concealment of assets in a bankruptcy action and subsequent liquidation and deposit
of approximately $20,000 in proceeds. Ross’ conviction, however, was based on his
actions as the leader of an international scheme to defraud that transpired over two
years and fraudulently induced over two hundred people to pay in excess of $3.2
million in fees in a futile effort to obtain a loan, the proceeds of which were used to
maintain Consortium’s operation.
We believe that the evidence was sufficient to support the jury’s determination
that the illegal proceeds of wire fraud were thereafter used to promote the carrying on
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of the illegal scheme as alleged in the money laundering counts of the indictment. The
proceeds generated from the underlying wire fraud were, in large part, the income
stream that allowed Consortium to continue to maintain the appearance of legitimacy
for a number of years. Indeed, the evidence showed that virtually all of the $3.2 million
in fees was reinvested into Consortium’s business and expended to maintain the
operation.
While we appreciate the court’s apparent discomfort with the proportionately
larger sentence for money laundering than for the crime of wire fraud, for the purpose
of resentencing we caution that the variation represents Congress’ intent that money
laundering crimes that promote further illegal activity are more dangerous to society
and therefore should be punished more severely. We are not, however, foreclosing the
possibility that the court may find Ross’ case presents additional unique or atypical
features that take it outside the money laundering guideline heartland similar to those
in United States v. Smith, 186 F.3d 290 (3d Cir. 1999) (Gibson, John R., J.); we merely
find that the sentencing transcript does not set forth an adequate basis for such a
departure.
Accordingly, we reverse the district court’s downward departure on the money
laundering sentence and remand for resentencing.
A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
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