United States v. Frederick Craiglow ( 2005 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 04-3904
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United States of America, *
*
Appellee, *
* Appeal from the United States
v. * District Court for the
* Eastern District of Arkansas.
Frederick Freeman Craiglow, *
*
Appellant. *
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Submitted: October 11, 2005
Filed: December 23, 2005 (Corrected 3/14/07)
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Before BYE, BEAM, and SMITH, Circuit Judges.
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SMITH, Circuit Judge.
Frederick Freeman Craiglow pled guilty to mail fraud in violation of 18 U.S.C.
§ 1341. The district court1 calculated the amount of loss to be over $1 million and
imposed a Guidelines sentence of 41 months' imprisonment. In consideration of
Blakely v. Washington, 542 U.S. 296 (2004), the court announced alternative
sentences: 41 months, in the event the United States Sentencing Guidelines were
found to be unconstitutional in their entirety; and, 24 months, based only on
Craiglow's admissions, in the event that the Guidelines were found only partially
1
The Honorable Susan Webber Wright, United States District Judge for the
Eastern District of Arkansas.
unconstitutional. Craiglow appeals, arguing that the district court imposed a sentence
contrary to the principles set forth in United States v. Booker,___U.S.___, 125 S. Ct.
738 (2005) and erred in determining the amount of loss. For the reasons discussed
below, we affirm.
I. Background
Craiglow pled guilty to mail fraud for a scheme in which he solicited
individuals to purchase automated teller machines ("ATMs") as investments. Craiglow
misused investors' funds and provided them with fraudulent accounting information.
He collected over $1.7 million from approximately 25 investors in the ATM scheme.
Collectively, Craiglow paid those 25 investors less than $350,000 in "returns."
Craiglow's plea agreement stipulated that: (1) the base offense level would be
six as determined by U.S.S.G. § 2B1.1(a); (2) Craiglow would receive a two-level
increase because there were more than 10, but fewer than 50, victims of his fraud; and
(3) Craiglow would receive a three-level reduction for acceptance of responsibility.
However, Craiglow and the government disagreed as to the amount of loss and
restitution. Craiglow argued that the district court should give him credit for his
business expenses. If given such credit, he contended that the amount of loss was
actually less than $200,000. The government's position, however, was that the amount
of loss exceeded $1 million. The parties submitted the amount of loss and restitution
issues to the district court at a subsequent sentencing hearing.
At the plea proceeding, the government asserted that Craiglow received more
than $1.6 million from the investors over two and one-half years. At the end of the
government's statement, Craiglow acknowledged that the statement was accurate. The
United States Probation Office prepared a presentence report ("PSR"), which found
a total net loss to investors of $1,525,544.40. The PSR calculated a total offense level
of 21 and a criminal history category of I, giving Craiglow a sentencing range of 37
to 46 months.
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After Craiglow's plea, but before his sentencing, the United States Supreme
Court decided Blakely. Not surprisingly, Craiglow argued in a pre-sentence pleading
that Blakely prohibited the district court from making a finding of fact regarding the
amount of loss. Thus, Craiglow argued that his base offense level of six could only be
raised by the two-level increase to which he stipulated regarding the number of
victims. In addition, he contended that the district court should give him credit against
the amount of loss for "business expenses" he incurred during the fraud scheme.
Anticipating the Court's application of Blakely to the Guidelines, the district
court announced that it would impose alternative sentences. Neither party objected.
The district court then heard testimony from numerous witnesses, including Craiglow.
Special Agent Michael Lowe of the Federal Bureau of Investigation (FBI) testified
that Craiglow's scam operated as a Ponzi2 scheme. Craiglow paid investors with
money from newer investors, not from business profits. Janet Finkenbinder, a
financial analyst with the FBI, calculated the loss amount as approximately $1.5
million.3 She testified that she found evidence of only about $100,000 to $110,000 in
business-related expenses for the entire period of the scheme. Craiglow testified,
however, that the amount of loss was only $194,758 because he "deserved an income
to feed [his] family." Craiglow admitted that his expense figures were estimates and
lacked substantiation.
At the conclusion of the hearing, the district court refused to award Craiglow
credit for his alleged business expenses, finding that Craiglow's calculations were
"fraught with inaccuracies." The court entered an order of restitution for
2
A Ponzi scheme establishes a fraudulent corporation that operates and
continues to operate at a loss. Hirsch v. Arthur Anderson & Co., 72 F.3d 1085, 1088
n.3 (2d Cir. 1995).
3
Finkbinder calculated the loss by taking the total amount of monies invested
by the investor and subtracting the money Craiglow paid to that investor. According
to Ms. Finkenbinder, the total amount invested was $1,777,268.93.
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$1,398,322.71. In addition, the district court sentenced Craiglow to a term of 41
months' imprisonment under the Guidelines. The district court then proceeded to
impose two alternative sentences. The first alternative sentence would take effect if
the Court declared the United States Sentencing Guidelines unconstitutional in their
entirety. In that event, the court's sentence would be 41 months' imprisonment.
However, if the Court declared the Guidelines only partially unconstitutional, and
severed the constitutional provisions from the unconstitutional provisions, Craiglow
would be sentenced to 24 months' imprisonment, based on his admissions. This appeal
ensued from the district court's judgment and commitment order and supplemental
order setting forth the two alternative sentences.
II. Discussion
A. Reasonable Sentence
Craiglow's first argument on appeal is that the district court's pre-Booker
sentence was unreasonable. Craiglow objected to the use of mandatory Guidelines and
thus preserved his constitutional challenge to their use in his sentencing. United States
v. Londondio, 420 F.3d 777, 791 (8th Cir. 2005). We therefore review Craiglow's
sentence under the harmless error standard. Under this standard, the government bears
the burden of proving that any error in the use of mandatory guidelines was harmless.
United States v. Mendoza-Mesa, 421 F.3d 671, 672 (8th Cir. 2005). Rule 52(a) of the
Federal Rules of Criminal Procedure provides that harmless error is "any error which
does not affect substantial rights." Id. (citations omitted). If the error is of a
constitutional magnitude, the government must prove harmless error beyond a
reasonable doubt. Id. (finding that the government had to prove harmless error beyond
a reasonable doubt because the district court sentenced the defendant under a
mandatory Guidelines regime on the basis of a fact-based sentencing enhancement
that was not tried to a jury). If the error is not of such a magnitude, then the
government must only establish that there is no "'grave doubt' as to whether the error
substantially influenced the outcome of the proceedings." Id. at 673. In deciding
whether the error was harmless, we "look to whether the district court's application of
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the guidelines as mandatory, and not advisory, substantially influenced the outcome
of the case." United States v. Marcussen, 403 F.3d 982, 984 (8th Cir. 2005).
We have held that no grave doubt exists as to whether a defendant would have
received a more favorable sentence absent Booker error where the district court states
at sentencing that it would impose the same alterative sentence if the Guidelines were
deemed invalid. Grave doubt does not exist even if the district court's alternative
sentence assumes the Guidelines to be wholly unconstitutional and not advisory.
Londondio, 420 F.3d at 791; see also United States v. Henderson, 416 F.3d 686, 695
(8th Cir. 2005) (stating that the most significant indicator that the district court's
sentencing error was harmless was the district court's statement that it was using the
Guidelines only as a guide if they were found to be unconstitutional); United States
v. Archuleta, 412 F.3d 1003, 1006 (8th Cir. 2005) (finding harmless error where the
district court refused to find the Guidelines unconstitutional but gave the defendant
an alternative sentence); United States v. Shannon, 414 F.3d 921, 923 (8th Cir. 2005)
(affirming the judgment of the district court where the district court clarified that it
would have imposed the same sentence even without regard to the Sentencing
Guidelines); United States v. Marcussen, 403 F.3d 982, 985 (8th Cir. 2005) (affirming
the judgment of the district court even though the district court's alternative sentence
presumed that the court had total discretion rather than an obligation to treat the
Guidelines as advisory).
The district court stated in its order that "[t]he Court has fully considered the
evidence presented, statements of counsel and defendant, reviewed the Presentence
Investigation Report, and using the Guidelines as advisory, finds that the above
sentence [of 41 months] imposed is appropriate for this defendant." Nothing in the
record causes us grave doubt as to whether Craiglow would have received a more
favorable sentence if re-sentenced post-Booker. Just as in Londondio, the district court
stated at sentencing that it would impose the same alternative sentence if the Court
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declared the Guidelines unconstitutional. Any error in Craiglow's sentencing is thus
harmless.
We also find that the district court's alternative sentence of 41 months was
reasonable. The district court stated that it was sentencing Craiglow "in the mid range
of the Guidelines to a sentence of 41 months." "While we have not yet held that a
sentence within a correctly calculated Guideline range is reasonable per se, [Craiglow]
has put forth no reason to establish that he should have been sentenced outside of that
range." Archuleta, 412 F.3d at 1007. Because the district court fully considered all
the evidence and engaged in a thorough analysis, we hold that a 41-month sentence
for mail fraud stemming from a scheme to defraud 25 investors was reasonable.
Additionally, while Craiglow argues that Booker is applicable to the imposition
of restitution because restitution is an increase in punishment, this question is no
longer an issue for our court. In United States v. Carruth, 418 F.3d 900, 904 (8th Cir.
2005), we held that "neither Apprendi nor Blakely prohibit judicial fact finding for
restitution orders."
B. Amount of loss
Craiglow's final argument on appeal is that the district court erred in
determining the amount of loss because it did not consider the fair market value of the
services he rendered to investors nor deduct his legitimate business expenses.
Craiglow argues he was entitled to credit against loss for any restitution or monies
returned to the investors in the offense; the value of the property he actually
purchased; and the cost of the services rendered in the business venture, including the
costs of the ATM's and the costs of services to maintain those machines. We review
the district court's interpretation of the term "loss," as used in the Guidelines, de novo,
while we review its calculation of loss for clear error. See United States v. Swanson,
394 F.3d 520, 527 (7th Cir. 2005). "Although the burden is on the government to
prove loss, a defendant's wholly unsubstantiated statements are not enough to counter
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or even question the court's acceptance of proof of loss." Id. The district court's
method for calculating the amount of loss must be reasonable, but the loss "need not
be determined with precision." United States v. Whatley, 133 F.3d 601, 606 (8th Cir.
1998).
Craiglow cites U.S.S.G. § 2B.1.1, commentary 3(E)(i) for support but we find
it unavailing. We have previously rejected the argument that one who commits a fraud
is entitled to his business expenses "in perpetrating a fraud." Id. (affirming the district
court's rejection of the defendants' argument that the district court should reduce the
amount of loss by allowances for a reasonable profit and overhead expenses). When
a defendant is involved in a "fraudulent investment scheme, such as a Ponzi scheme,"
the court shall not reduce the loss "by the money or the value of the property
transferred to any individual investor in the scheme in excess of that investor's
principal investment (i.e., the gain to an individual investor in the scheme shall not be
used to offset the loss to another individual investor in the scheme)." Application Note
3(F)(iv) to U.S.S.G. § 2B1.1.
Here, the district court found that Craiglow was involved in a scheme to defraud
investors in which he used later investors' money to pay early investors. He is not
entitled to deduct any business expenses. The record contains no evidence any victim
received fair market value of any legitimate business service. We affirm the district
court in all respects.
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