United States v. Edelkind

United States Court of Appeals
For the First Circuit
Nos. 05-2125, 05-2228
UNITED STATES OF AMERICA,
Appellee,
v.
JAMIE EDELKIND,
Defendant, Appellant.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Morris E. Lasker,* Senior U.S. District Judge]
Before
Boudin, Chief Judge,
Torruella and Dyk,** Circuit Judges.
Michael J. Liston, by appointment of the court, for appellant.
Paul G. Levenson, Assistant United States Attorney, with whom
Michael J. Sullivan, United States Attorney, and Kristina E.
Barclay, Assistant United States Attorney, were on consolidated
brief for appellee.
October 31, 2006
*
Of the Southern District of New York, sitting by designation.
**
Of the Federal Circuit, sitting by designation.
BOUDIN, Chief Judge. Jamie Edelkind was convicted of
four counts of bank fraud directed against federally insured banks,
18 U.S.C. § 1344 (2000),1 and he now appeals. The story can be
briefly told, reserving details for our discussion of specific
issues raised on appeal. So far as those issues concern
sufficiency of the evidence, we set forth the facts assuming that
the jury resolved credibility disputes and drew inferences in the
government's favor. United States v. Romero-Carrion, 54 F.3d 15,
17 (1st Cir. 1995).
Facing bankruptcy in the summer of 2000, Edelkind
concocted a false resume for his stay-at-home wife Linda, forging
documents to make her appear to be a well-paid executive in a
(sham) technology company he called "Apostille, Inc." Using the
forged documents, Edelkind convinced a lender, America's Moneyline
("Moneyline"), to extend a mortgage of $800,000 in Linda's name in
order to purchase the former "Honey Fitz" mansion in Hull,
Massachusetts.
1
Section 1344 makes it unlawful, inter alia, to "knowingly
execute[], or attempt[] to execute, a scheme or artifice . . . to
defraud a financial institution . . . ." For reasons explained in
United States v. Brandon, 17 F.3d 409, 424 n.11 (1st Cir. 1994),
the term "financial institution" is read restrictively in light of
another definition, 18 U.S.C. § 20 (2000), confining the statute's
reach to certain types of financial institutions including banks
that are "federally insured." Brandon, 17 F.3d at 424. The
statute also makes it unlawful to deprive a financial institution
of property by reason of fraud but the parties have focused upon
the defrauding provision.
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Edelkind then repeatedly refinanced the Hull property for
larger and larger amounts, each time paying down outstanding
previous loans and retaining the surplus or "cash out" amount. He
persuaded lenders to extend the loans on the basis of false
representations and fabricated documents, including tax forms,
showing Linda to be earning from $200,000 to over $1 million per
year. Specifically:
•In September 2001, Edelkind refinanced
the Hull property by securing a $1 million
mortgage in Linda's name from South Shore
Savings Bank ("South Shore"), a federally
insured lender. He retained $143,781.53 after
paying down the Moneyline loan.
•In spring 2002, Edelkind used the
property as collateral to obtain several home
equity loans in Linda's name, including a
$350,000 line of credit from Wells Fargo, a
federally insured bank.
•In March 2003, Edelkind refinanced the
Hull property again, this time with a $2.1
million mortgage in Linda's name from
Washington Mutual Bank ("Washington Mutual"),
another federally insured bank. He retained
$205,370.29 after paying off South Shore,
Wells Fargo, and other lenders.
•In August 2004, representing that
Linda's income was $1.1 million a year,
Edelkind obtained a $3.3 million loan through
Fairmont Funding ("Fairmont"), a non-federally
insured mortgage broker, which funded the loan
with the approval of Aurora Loan Services
("Aurora"), itself a subsidiary of Lehman
Brothers, a federally insured bank. Lehman
Brothers later purchased the loan. Edelkind
used the proceeds to pay off the Washington
Mutual loan and an additional $356,242.38 that
had been run up on the Wells Fargo credit
-3-
line, leaving him with $569,878.83 in cash
surplus.
Remarkably, the last of these loans was secured after the
government in March 2004 had filed a three-count information
charging Edelkind with bank fraud in connection with the loans from
South Shore, Wells Fargo, and Washington Mutual. In early November
2004, Linda and her children fled to Norway. Approximately
$273,000 was wired to Norway and $47,000 withdrawn from ATMs in
Massachusetts and Norway between August and December 2004.
In February 2005, the government filed a superseding
information adding a fourth count directed to the Fairmont
transaction and including criminal forfeiture allegations under 18
U.S.C. § 981(a)(1)(C) (2000) and 28 U.S.C.A. § 2461(c) (West Supp.
2005) (subsequently amended 2006). After a jury trial later that
month, the district court entered a judgment of conviction on each
of the four counts. In June, the court forfeited the Hull property
and two bank checks deemed to be funds derived from the offenses.
In July, Edelkind was sentenced to 60 months in prison and ordered
to pay restitution.
Edelkind's first claim on appeal is that no proper
verdict of conviction was ever returned by the jury. Instead of
having the jury return a written verdict of "guilty" or "not
guilty" on each count, the district judge submitted to the jury a
four-part form whose first question asked the jury to say ("yes" or
"no") whether they "unanimously find that the government has proven
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beyond a reasonable doubt that Jamie Edelkind knowingly executed or
attempted to execute a scheme to defraud" South Shore. The form
then asked the same question as to Wells Fargo, Washington Mutual,
and Fairmont, respectively.
The jury returned a written verdict of "yes" on all four
counts. The judge then asked the foreperson, "As I read your
verdict, your answer, whether you find the defendant guilty as to
Count 1, is 'yes'; on Count 2 is 'yes'; on Count 3 is 'yes'; and
Count 4 is 'yes.' Am I correct?" The foreperson responded, "Yes."
Defense counsel declined the judge's offer to poll the jury and
also did not inquire whether the jury intended its verdict to be
one of "guilty" on each count.
Although we have not adopted a flat rule against special
interrogatories in criminal cases, they pose special dangers. See,
e.g., United States v. Spock, 416 F.2d 165, 182 (1st Cir. 1969)
(progression of special questions can exert judicial pressure on
jury). They also sometimes offer benefits, notably in very complex
criminal cases, where they can reduce risk of juror confusion.
See, e.g., United States v. Palmeri, 630 F.2d 192, 202 (3d Cir.
1980). The present appeal better illustrates the dangers than the
benefits.
Edelkind's broadest claim is that no guilty verdict was
delivered by the jury on any of the counts. The form did not in
terms ask whether Edelkind was guilty, and his appellate counsel
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suggests that the foreperson's response when questioned by the
trial judge was ambiguous. Counsel posits that the foreperson
might have meant only that the "yes" lines had been checked--not
that the jury had intended to find Edelkind "guilty" of the
offenses specified in the indictment.
Nothing in the rules requires a written verdict at all.
See Fed. R. Crim. P. 31. Here, there was a written verdict which,
if ambiguous, was clarified when the judge asked whether the
defendant has been found "guilty" on each count. The lack of any
objection when the foreperson answered and the judge proceeded to
enter a judgment of conviction shows that trial counsel had no
doubt that the jury had equated its verdict with guilt. There was
no error, plain or otherwise, in treating the verdict as one of
guilty on each count.
A narrower version of the argument, also made on appeal,
has more bite. Edelkind points out that the phrasing of the
verdict form itself omitted, for each count, an element of the
statutory offense--specifically, that the defrauded institution be
one that was federally insured. This is itself an example of the
problems with using detailed verdict forms rather than simply
asking whether the defendant was guilty of the offense charged.
Nevertheless, we conclude that there was no prejudicial
error in the omission of the federally insured requirement from the
verdict form. Special verdicts are not required in criminal cases,
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and, when they are used, there is no automatic requirement that a
special verdict form include every element of the offense so long
as the jury is instructed as to all elements. See, e.g., United
States v. Stonefish, 402 F.3d 691, 699 (6th Cir. 2005). Here the
jury was specifically instructed that they “must be convinced
beyond a reasonable doubt” of each of the four elements of the
offense, including (as one of the four elements) that “the
financial institution in question was federally insured.”
The defendant's next argument is that the verdict form
and the jury instructions charged him with defrauding Fairmont and
not with defrauding Lehman Brothers, and that he could not properly
be convicted of defrauding Fairmont, which was not a federally
insured institution. The district court’s initial jury instruction
(which was given orally but later provided to the jury in written
form) described count 4 as charging Edelkind with executing “a
scheme to defraud . . . upon Fairmont Funding, LTD, which [is a]
financial institution.” The special verdict form submitted to the
jury asked, as to count 4, whether the government had proved
a scheme to defraud Fairmont Funding, LTD in
connection with a loan . . . originated by
Fairmont Funding, LTD, and subsequently
assigned to Lehman Brothers Bank, FSB.
Just before the court read the jury instructions and
provided the jury with the special verdict form, Edelkind filed a
motion for judgment of acquittal arguing that “Count Four is
entirely dependant on Fairmont Funding [and] the Government has
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failed to prove federal jurisdiction” because Fairmont is not a
financial institution under 18 U.S.C. § 20. The basis for defense
counsel's motion was that Edelkind had to know that a "financial
institution" would be the ultimate victim of his fraud. The
district judge rightly found this position to be at odds with
Brandon, 17 F.3d at 425, and rejected the motion for acquittal.
After the instructions were read to the jury, defense
counsel orally objected to them and to the verdict form on the
ground that Fairmont was not a financial institution, and
reiterated his position that Edelkind needed to know that a
"financial institution" would be injured. The court then provided
a curative instruction stating that “Lehman Brothers but not
Fairmont was a financial institution." Since the court had already
told the jury that a financial institution had to be defrauded or
deprived of money by fraud,2 the jury was informed that it could
not convict on the theory that the defendant had defrauded Fairmont
alone.
It is quite true that the curative instruction came late
in the day and apparently Edelkind's counsel did not ask for a
2
The instructions required that the jury find that Edelkind
executed “a scheme or artifice (1) to defraud a financial
institution or (2) to obtain any of the money . . . under the
custody or control of a financial institution by means of false or
fraudulent pretenses.” The court specified that “scheme to defraud
a financial institution” meant “any deliberate course of conduct by
which someone intends to deceive or cheat that financial
institution and to obtain – and intends to obtain something of
value, such as money.”
-8-
transcript page reflecting it to accompany the original written
instructions sent into the jury room; but the curative instruction
was virtually the last instruction that the jury heard before
retiring. Nor was defense counsel entitled to have the jury ignore
the fraud upon Fairmont; on the government's theory of the case,
false representations to it were the instrument by which money was
secured from Lehman Brothers.
The question then becomes whether the jury was adequately
advised that it needed to find fraud on Lehman Brothers. In this
respect both the verdict form and the instructions were deficient.
The verdict form made only passing mention of Lehman Brothers as
having acquired the loan. While the "cured" instructions generally
required a finding that a financial institution had been defrauded
and that Lehman Brothers was a financial institution, the
instructions failed to specifically identify Lehman Brothers as
allegedly defrauded.
Edelkind did not request revision of the verdict form or
an instruction that, in order to convict on count 4, the jury had
to find that Lehman Brothers was defrauded. Indeed, Edelkind's
counsel objected (unsuccessfully) to any mention of Lehman Brothers
in the supplemental instruction. Counsel had good reason to direct
attention away from Lehman Brothers; but Edelkind was surely on
notice that the government's own theory of the case was that Lehman
Brothers had been the victim of the fraud (albeit indirectly)
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because the fraud on Fairmont had operated to deprive Lehman
Brothers of its money.3
Under these circumstances, we conclude that Edelkind's
failure to object to the instruction and verdict form as omitting
Lehman Brothers makes those errors reviewable only for plain error.
Fed. R. Crim. P. 52(b); United States v. Newton, 891 F.2d 944, 949
(1st Cir. 1989). Edelkind says that trial counsel had a duty to
object only to mistakes inimical to his client's interest, not to
ones that would undermine any verdict against his client. The
potential of such errors to undermine the verdict is why an
objection is required at the time--not an excuse for failing to
make a timely objection.
Edelkind also says that the errors were "structural,"
requiring reversal without regard to prejudice. "Structural
errors" comprise a small category of mistakes so identified by the
Supreme Court, but generally exclude erroneous jury instructions
(despite the fact that they "preclud[e] the jury from making a
finding on the actual element of the offense"). See Neder v.
United States, 527 U.S. 1, 9-10 (1999) (collecting examples). The
error in Neder itself–-the omission of an element of the offense
3
For example, at the charge conference, defense counsel
stated: "And it's the government's view that when a defendant deals
with somebody like Fairmont Funding . . . and then they happen to
sell their . . . paper to a federally insured bank like Lehman
Brothers, that you just assume the risk so-to-speak."
-10-
from the instructions-–was not deemed structural; mere lack of
clarity is clearly a lesser error and not "structural."
To establish "plain" error, Edelkind must show (1) error,
(2) plainness, (3) prejudice, and (4) an outcome that is a
miscarriage of justice or akin to it. United States v. Olano, 507
U.S. 725, 732-37 (1993). The flaws in the initial instructions and
verdict form were error and only partly corrected as to the former;
we will assume that any remaining error was plain. The problems
for Edelkind are to show prejudice and miscarriage of justice.
The banking institutions defrauded in the first three
counts were federally insured. As to count 4, the evidence
(discussed below) amply permitted a reasonable jury to find that
Lehman Brothers was defrauded. Therefore Edelkind cannot show that
the mistakes probably altered the outcome or undermine our
confidence in the verdict, United States v. Dominguez Benitez, 542
U.S. 74, 81-82 (2004); Olano, 507 U.S. at 734, let alone constitute
a miscarriage of justice.
Turning to the sufficiency of the evidence, Edelkind's
attack on this ground is directed only to count 4. The government
questions whether his motion for a judgment of acquittal in the
district court preserved all of the claims he now makes under this
head. Because we find that the evidence was sufficient in each of
the aspects raised, we bypass the waiver issue (which poses
difficulties of its own).
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Section 1344, as already noted, makes criminal the
knowing execution of a scheme to defraud a federally insured bank.
See note 1, above. Neither Fairmont nor Aurora was federally
insured. Edelkind says that there is no proof that Lehman
Brothers, although federally insured, was the intended or direct
victim of his scheme to defraud, and therefore the scheme cannot
have been one "to defraud a financial institution" as defined by
Congress.
The statute says that the scheme to defraud a protected
financial institution must be "knowingly" executed. In Brandon, 17
F.3d at 425, this court held that the government does not have to
show that the defendant knew which particular bank might be injured
or that it was federally insured. Id. at 426. The statute gives
fair warning that bank fraud is unlawful: one who defrauds a bank
simply assumes the risk that the victim is federally insured. Id.The greater difficulty, and the main focus of Edelkind's
objection, concerns whether Lehman Brothers was in fact defrauded.
Edelkind secured the count 4 loan from Fairmont, which was not
federally insured. But the government offered evidence that
Fairmont did no more than "table fund" the loan, that is, it agreed
to make the loan only if another lender first agreed to purchase
the loan thereafter. The other lender, on the government's theory,
was Lehman Brothers.
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Edelkind argues on appeal that Lehman Brothers was not
the victim of his scheme to defraud because his fraudulent
statements about his wife's credentials and earnings never reached
Lehman Brothers; he says the misrepresentations only reached
Aurora, Lehman Brothers' non-federally insured subsidiary. So,
Edelkind says, he never defrauded Lehman Brothers as section 1344
requires.
Neither the statute nor the case law fully instructs just
how tight a factual nexus is required to allow a jury to decide
that a scheme, formally aimed at one (uninsured) company, operates
in substance to defraud another (insured) entity with whom the
defendant has not dealt directly. In our view the statute does
apply where the federally insured institution takes part in an
integrated transaction and is thereby injured by the defendant, who
intended to defraud another party to the transaction. Scienter
exists, the causal connection is sufficient, and under Brandon the
defendant cannot escape liability by virtue of his ignorance of the
overall arrangement.
Here, the government offered evidence that Lehman
Brothers' forms and guidelines were used by Fairmont and Aurora in
table funding the loan, that a Lehman Brothers official (not just
its subsidiary Aurora) signed off on the loan before Fairmont made
it, and that Fairmont transferred the loan to Lehman Brothers--not
to Aurora--about a month after the closing between Edelkind and
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Fairmont. Thus the loan--although formally made by Fairmont--was
from the outset part of an integrated transaction, the first step
of which was dependent on approval by Lehman Brothers, and the pre-
planned second step of which was a transfer of the mortgage to
Lehman Brothers itself.
Given these predicates--Edelkind's intent to defraud, the
integrated transaction, and the financial injury to which Lehman
Brothers was exposed--the jury was entitled to find that Edelkind
defrauded Lehman Brothers, a federally insured bank.4 The
situation would be quite different, and liability might well be
doubtful, if the involvement of the federally insured entity was
not contemplated at the outset and came about later from a separate
transaction, for example, by the happenstance of an insured bank
purchasing an earlier loan under-secured because of an earlier,
independent fraud. We leave such line-drawing for a case that
poses the issue.
We turn now to an ancillary order of forfeiture following
the jury verdict. In this criminal proceeding, the government
sought forfeiture, pursuant to 18 U.S.C. § 981(a)(1)(C) and 28
U.S.C.A. § 2461(c), of the Hull property used in the scheme and of
$579,805.73 in proceeds traceable to the final loan. Edelkind
4
Edelkind says the government offered no proof that Lehman
Brothers was federally insured on the day that it took over the
Fairmont loan, but Lehman Brothers was insured when it approved the
Fairmont loan, thus exposing itself to ultimate loss.
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argues that the two forfeiture statutes invoked by the government
do not allow this forfeiture to be implemented in a criminal
proceeding, but rather only in a separate civil proceeding.5
The argument turns upon a difference in the scope of the
main federal statutes governing civil and criminal forfeitures, 18
U.S.C. §§ 981, 982, on a bridging statute, 28 U.S.C.A. § 2461(c),
and on a related factual premise. The civil forfeiture statute, 18
U.S.C. § 981(a)(1)(C), pertinently subjects to forfeiture any
property "which constitutes or is derived from proceeds traceable
to" a violation of section 1344; by contrast the criminal
forfeiture statute, 18 U.S.C. § 982(a)(2)(B), subjects to
forfeiture "any property constituting, or derived from, proceeds
the person obtained directly or indirectly, as the result of" such
a violation (emphasis added).
Edelkind says that the property forfeited here was
obtained by his wife and therefore is not property that he ("the
person") ever obtained. Therefore, he concludes, the property was
open to a civil forfeiture action but not a criminal one. The
government answers by saying that the bridging statute, 28 U.S.C.A.
§ 2461(c), allowed it to rely upon the civil forfeiture provision
5
There is good reason to think that Edelkind waived this
argument at sentencing. When the judge stated that "there is no
legal question that forfeiture will be required. I haven't heard
the defense counsel argue to the contrary," defense counsel then
replied: "I think we are out of it at this point, Your Honor." No
mention was made of the argument now made on appeal. Nonetheless,
we reach the merits to resolve the issue definitively.
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in the criminal case. The statute, as it stood between 2000 and
2006, provided (emphasis added):
If a forfeiture of property is authorized in
connection with a violation of an Act of
Congress, and any person is charged in an
indictment or information with such violation
but no specific statutory provision is made
for criminal forfeiture upon conviction, the
Government may include the forfeiture in the
indictment or information in accordance with
the Federal Rules of Criminal Procedure, and
upon conviction, the court shall order the
forfeiture of the property . . . .
Edelkind argues that section 2461(c) does not apply in
this case because a "specific statutory provision is made for
criminal forfeiture upon conviction," namely, section 982, which
expressly applies to violations of the bank fraud statute. The
government responds that section 982 was not available in this case
on Edelkind's own premise that the forfeited property was not his
own, and therefore it could use the bridging statute to enforce
section 981 in the criminal case.
Edelkind's best argument is that Congress could not have
intended section 2461(c) to apply to offenses for which it
deliberately drafted criminal forfeiture provisions narrower in
scope than the corresponding civil forfeiture provisions.
Otherwise, section 2461(c) would override the extra limitations
that Congress imposed in the original criminal forfeiture statute
(here, the requirement that the defendant personally obtain the
property forfeited criminally).
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The government's response is that section 2461(c), as it
stood when this case was tried, fills the gap between criminal and
civil forfeiture by making criminal forfeiture available in every
criminal case that the criminal forfeiture statute does not reach
but for which civil forfeiture is legally authorized. On this
view, Edelkind's own argument that the criminal statute did not
reach the property (because it was not his) shows why the civil
statute is available (because the property was traceable to the
fraud).
The case law is of little help. Edelkind cites to United
States v. Croce, 345 F. Supp. 2d 492, 496 (E.D. Pa. 2004), but it
has since been repudiated by the Third Circuit, see United States
v. Vampire Nation, 451 F.3d 189, 199 (3d Cir. 2006). United States
v. Day, 416 F. Supp. 2d 79, 86 (D.D.C. 2006), followed Croce but
United States v. Schlesinger, 396 F. Supp. 2d 267, 275 (S.D.N.Y.
2005), came out the other way.
Neither language nor case law is conclusive, but it seems
to us that Congress intended for section 2461 to apply in this
situation. This intuition is supported by the legislative history
of the bridging statute itself. Far from wanting to limit the
substantive reach of the criminal forfeiture statute, Congress made
clear in enacting the bridging statute that it hoped to encourage
the use of criminal forfeiture procedures, with their greater
protections, "whenever any form of forfeiture is otherwise
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authorized by statute." H.R. Rep. 105-358(I), 1997 WL 677201 at
*35-36 (1997).6 Our intuition is further confirmed by Congress'
later amendment that resolves doubts for the future in the
government's favor. See USA PATRIOT Improvement and Authorization
Act of 2005, Pub. L. 109-177, § 410 (2006).
Thus, if Edelkind is right that section 982(a)(2) would
not authorize forfeiture in this case, then "no specific statutory
provision" provided for criminal forfeiture upon his conviction,
and section 2461(c) authorizes the court to apply section
981(a)(1)(C) to fill the gap. If Edelkind's premise is wrong and
section 982(a)(2) would authorize criminal forfeiture in this case,
then section 2461(c) does not apply--but neither has Edelkind been
prejudiced by the government's citation error. See Rule 7(c)(3).
The last issue on this appeal concerns the calculation of
Edelkind's sentence. The sentencing guideline range is driven in
part by the amount of loss resulting from the offense and in part
by other factors. U.S.S.G. §2B1.1(b). Using the 2004 edition of
the guidelines, the district court determined that Edelkind's
violations had inflicted a net loss exceeding $1 million--bringing
the offense level to 23, §2B1.1(a)(1), (b)(1)(I); and that a
6
See also H.R. Rep. 106-1048, 2001 WL 67919 at *61 (2001)
(Congress intended to make criminal forfeiture available "wherever
federal law allows for civil forfeiture of property involved in a
specific crime..."); H.R. Rep. 105-358(I) at *35 (stating that the
purpose of the amendment was to "give the government the option of
pursuing criminal forfeiture as an alternative to civil forfeiture
if civil forfeiture is otherwise authorized.").
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further two level enhancement (to 25) was required because--in the
words of the guideline--"the defendant derived more than $1,000,000
in gross receipts from one or more financial institutions as a
result of the offense." Id. §2B1.1(b)(13)(A).
At sentencing, the judge proposed to use an offense level
of 25, and defense counsel began to argue that the net loss was
under $1 million, which would have substantially reduced the
offense level; but counsel conceded that if the gross receipts
enhancement applied, the language of section 2B1.1(b)(13)(D)
prescribed a minimum offense level of 24 regardless of a smaller
net loss. The judge, it appears, adopted this solution, departing
downward slightly in the final sentence.7
Edelkind does not dispute that he inflicted gross losses
in excess of $1 million; but he says that the "gross receipts"
enhancement should not have been applied because the gross receipts
were derived not by Edelkind, but by his wife--in whose name the
Hull property had been acquired and to whom the proceeds of the
refinancing loans were directed. He adds that a prenuptial
agreement with his wife provided that property and assets obtained
by her were to be and remain her personal property.
7
An adjusted offense level of 24, given Edelkind's criminal
history, corresponded to a range of 63 to 78 months. Because the
judge thought that the criminal history points overstated
Edelkind's past wrongdoing, the judge departed downward to the 60-
month sentence ultimately imposed.
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The district court rejected this argument, reading the
guideline to refer not to a defendant's formal legal control of the
gross receipts, but instead to his individual culpability. The
district judge stated: "It seems to me that if you procure funds
for somebody else and the other person gets the advantage of it,
that your moral responsibility is the same whether you take the
money or not, particularly if the person you get it for is your
wife." We review de novo the meaning of the guideline. See United
States v. Alli, 444 F.3d 34, 37 (1st Cir. 2006).
What case law exists largely supports a realistic rather
than a formal approach to applying the "gross receipts"
enhancement. Several cases support the enhancement where the
wrongfully obtained funds went to a company controlled by the
defendant even though the funds were held in the corporation's
name. See United States v. Pendergraph, 388 F.3d 109, 113 (4th
Cir. 2004) (defendant had controlling interest in company and "thus
controlled the fraudulently acquired funds"); United States v.
Stolee, 172 F.3d 630, 631 (8th Cir. 1999) (per curiam) (defendant
was "the sole owner and president" of the company); United States
v. Bennett, 161 F.3d 171, 192-93 (3d Cir. 1998) (defendant had 100%
interest in company). Compare United States v. Colton, 231 F.3d
890, 911-12 (4th Cir. 2000) (distinguishing non-controlling
interest).
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To sustain the result in this case, it is enough here to
hold that the enhancement is not automatically defeated because
formal ownership of the "gross receipts" is in another. Rather,
given its aim, the guideline may be applied where the defendant
either controls (even though indirectly) the fraud proceeds
attributed to him or where he causes them to be lodged in another
with the expectation that he will enjoy the benefits. Whether any
lesser showing would suffice need not be decided.
This reading distinguishes property that goes solely to
a co-conspirator and, on the affirmative side, it charges the
defendant with proceeds that he controls or enjoys. Such proceeds
can, as a matter of language, be regarded as individually derived
by the defendant. Given the guideline's concern with culpability,
this reading makes far more sense than making the guideline turn
solely upon formal ownership under state marital or real property
law.
United States v. Castellano, 349 F.3d 483, 485-87 (7th
Cir. 2003), relied upon by Edelkind, is arguably sound on its own
facts and easily distinguishable. There the defendant had founded
the company holding the proceeds but did not own any stock; and
only a modest portion ($200,000) of what the fraud netted the
company could be traced through to the defendant's compensation.
So far as Castellano is read to make state law formalities
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conclusive, it would conflict with the realistic approach taken by
other circuits, which we follow here.
The pre-sentence report notes that "[w]ith the borrowed
money, Edelkind... financed a lavish lifestyle for himself and his
family." Although Edelkind objected to certain details in the
report's assertion, the thrust of the report is supported by other
evidence and reasonable inference. Thus, the record confirms that
Edelkind enjoyed the fruits of the scheme to defraud, and having
masterminded the scheme and enjoyed benefits from it, Edelkind
himself "derived" the illegal loan proceeds within the terms of the
guideline.
Edelkind next says that the $1 million gross receipts
figure can be met only if the Fairmont loan proceeds are included--
it being the largest of refinancings–and that they should not be
included because under section 2B1.1(b)(13)(A) of the guidelines,
the receipts exceeding $1 million must be derived "from one or more
financial institutions" (emphasis added). As noted, Fairmont was
not a financial institution within the meaning of section 1344.
However, the guideline has its own definition of
"financial institution" which includes "any state or foreign bank,
trust company, credit union, insurance company, investment company,
mutual fund, savings (building and loan) association, union or
employee pension fund;... and any similar entity, whether or not
insured by the federal government." §2B1.1 Application Note 1
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(emphasis added). In other words, it is the character of the
institution and not federal insurance that matters to the
guideline.
Fairmont was described by its witness at trial as "a
mortgage bank, mortgage lender" and referred to in its affidavit as
a "licensed private mortgage lender." Edelkind offers us no reason
to think that Fairmont falls outside the circle of "similar
entities," and the case law confirms a broad interpretation.
United States v. Ferrarini, 219 F.3d 145, 161 (2d Cir. 2000)
("premium finance company" is within the application note); see
also Brandon, 17 F.3d at 426 (using the term "financial
institution" colloquially to include uninsured mortgage brokers).
Finally, Edelkind points to an apparent computational
error in determining the amount of net loss from his frauds--the
figure that drove the initial determination of his offense level
(before the gross receipts enhancement). The district court
calculated the gross amount of the frauds and then, as the
guideline provides, subtracted the present value of the mortgaged
Hull property, which remained available to offset the losses.
U.S.S.G. §2B1.1 Application Note 3(E).
In calculating the value of the Hull property, the
district judge picked a figure between the widely differing
estimates offered by the government and by Edelkind. Well after
sentencing, it emerged from a newly discovered memorandum that--in
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making his own calculation--the district judge had apparently
adopted a final net loss figure $500,000 higher than he had
intended. At sentencing, counsel knew the final figure adopted but
not the judge's private miscalculation.
The time for correcting the sentence had passed, Fed. R.
Crim. P. 35(a), and this appeal had already been lodged with this
court. The district judge said at a post-sentencing conference
concerning the calculation error that he would leave the matter to
this court, which could remand, if necessary. The judge said that
he was not prepared to say whether use of the lower net loss figure
he had intended would have made any difference to the sentence.
It is clear that the error did not matter. The district
court used an offense level of 24 in determining Edelkind's
sentence before departing downward. As already explained, the
gross receipts enhancement prescribed a minimum offense level of 24
regardless of the net loss. §2B1.1(b)(13)(D). Edelkind concedes
in his brief that "[i]f the §2B1.1(b)(13) enhancement applies"--as
we have found that it does--"the offense level would rise to 24 in
both cases." Thus, the net loss figure, whether in error or not,
had no ultimate effect on the sentence.
Affirmed.
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