United States v. Charles J. Spinelli

[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FILED
FOR THE ELEVENTH CIRCUIT U.S. COURT OF APPEALS
________________________ ELEVENTH CIRCUIT
May 15, 2008
No. 07-14879 THOMAS K. KAHN
Non-Argument Calendar CLERK
________________________
D. C. Docket No. 05-60212-CR-AJ
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
versus
CHARLES J. SPINELLI,
Defendant-Appellant.
________________________
Appeal from the United States District Court
for the Southern District of Florida
_________________________
(May 15, 2008)
Before MARCUS, WILSON and FAY, Circuit Judges.
PER CURIAM:
Charles Spinelli appeals his 21-month sentence, imposed after he pled guilty
to conspiracy to commit wire fraud, in violation of 18 U.S.C. §§ 1341, 1343, and
1349 (“Count 1”), and misprision of felony, or concealing and failing to alert
authorities of his knowledge of wire fraud being committed by another, in violation
of 18 U.S.C. § 4 (“Count 2”). Spinelli challenges the district court’s loss-amount
finding with regard to Count 2. The wire fraud upon which this charge was based
involved passing off more than $40 million worth of fraudulent letters of credit
(“LOC”) as collateral for worker’s compensation insurance policies. Spinelli
discovered that one of the LOCs was fraudulent. In sentencing Spinelli on Count
2, the district court held Spinelli responsible for the full $40 million in loss
suffered by the worker’s compensation insurance provider. Spinelli argued that he
should not have been held responsible for any loss because he could not foresee
that the fraudulent LOCS would cause a loss or, alternatively, only should have
been held responsible for the value of the LOC that he came to know was
illegitimate, or $1.53 million.1 For the reasons discussed below, we affirm
Spinelli’s sentence.
1
According to U.S.S.G. § 2B1.1(b), which applies to misprision of felony claims based
on wire fraud, the defendant’s base offense level should be increased by 22 points if he is
responsible for between $20 million and $50 million in loss, but only by 16 levels if he is
responsible for between $1 million and $2.5 million in loss. In Spinelli’s case, being held
responsible for the full $40 million in loss resulted in a guideline imprisonment range of 21 to 27
months, while being held responsible for only $1.53 million in loss would have resulted in a
guideline imprisonment range of 8 to 14 months.
2
I.
In pleading guilty, Spinelli stipulated to the following facts. As to Count 1,
Spinelli was the owner and chief executive officer of Brentwood Capital
Corporation (“Brentwood”). He sought to purchase, through Brentwood, a
worker’s compensation insurance company. To do so, he needed approval from
the state insurance regulatory board, or Florida Department of Insurance
Regulation (“FDIR”). To obtain this approval, Spinelli sought to artificially inflate
Brentwood’s assets. Spinelli contacted William Leyton, who owned a company
that offered a service called “balance sheet enhancement[].” Leyton and Spinelli
agreed that Leyton would open a bank account in the name of “Brentwood Capital”
and deposit $5 million in the account. While Leyton would control the $5 million,
Spinelli could list the money as a Brentwood asset for the FDIR. In turn, Spinelli
applied to purchase a specific insurance company, claiming that the $5 million was
an unencumbered asset of Brentwood’s. While the application was pending,
Brentwood operated the insurance company for approximately 18 months.
Ultimately, the FDIR denied the application for unrelated reasons.
As to Count 2, an acquaintance of Spinelli’s, Anthony Huff, owned The
Cura Group, Incorporated (“Cura”), a company that acquired worker’s
compensation insurance on behalf of its client companies. To acquire worker’s
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compensation insurance policies from insurance providers, Cura needed to provide
collateral that the insurance provider could draw on in the event that Cura
defaulted on its obligations to pay premiums and deductibles on the policies. Huff
sought to purchase worker’s compensation insurance policies from CNA Financial
Corporation (“CNA”). Accordingly, Huff sought a source of collateral to post to
CNA. With Spinelli’s help, Huff contacted Leyton for assistance. Leyton agreed
to furnish LOCs, purportedly from a bank and backed by funds under Leyton’s
management, to serve as the required collateral. Leyton would issue the LOCs on
behalf of Cura for the benefit of CNA and would pass them to CNA through
Brentwood. All of Leyton’s LOCs were fraudulent.
On one occasion, Spinelli became aware that the bank letterhead on one of
the LOCs had fallen off of the LOC, suggesting that Leyton had affixed the
letterhead to the LOC himself. Despite this obvious sign that the LOC was
potentially illegitimate, Spinelli did not advise authorities of the potential fraud
taking place. Even when Spinelli was questioned by an attorney with the
Securities and Exchange Commission in the course of a separate investigation of
Cura’s parent company, and specifically asked about the LOCs, Spinelli said
nothing. Ultimately, Brentwood “received or brokered” approximately 18 LOCs at
a face amount exceeding $40 million. When CNA finally discovered that the
LOCs were fraudulent, it suffered a loss equal to this face amount.
4
At Spinelli’s sentencing hearing, the stipulated facts were supplemented as
follows. The government explained that, over the course of the scheme, CNA paid
worker’s compensation insurance claims on behalf of Cura thinking that the claims
were secured by the LOCs. However, in approximately June 2003, Cura filed for
bankruptcy, and CNA learned that the LOCs were fraudulent, could not recover
any funds from the fraudulent LOCs, and, therefore, suffered a loss exceeding $40
million.
Mike Sputo, an agent with the Federal Bureau of Investigation (“FBI”),
testified that, during an interview he conducted of Leyton, Leyton stated that, early
in the course of the LOC scheme, he received a telephone call from two individuals
about a bank letterhead “popping off” of one of the LOCs. The individuals may
have been Huff and Spinelli, but could have been Huff and another co-conspirator.
Leyton told them simply to “glue [the letterhead] back on.” Through subsequent
investigation, Sputo determined that, of the 18 total LOCs issued, 3 or 4 included a
glued- or taped-on bank letterhead. These were the first three or four issued.
Spinelli testified that, in approximately October 2002, Huff showed him an
LOC for $1.53 million from which the bank’s letterhead had fallen off. Huff and
another co-conspirator called Leyton to discuss the letterhead issue. Later, Huff
told Spinelli that Leyton had indicated that the LOC in question was not an original
and was just a sample for Huff’s files. By that time, the LOC “program” was in its
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fourth or fifth month, and six or seven LOCs had been issued to CNA. While
Spinelli found it suspicious that one LOC had a glued-on letterhead capable of
falling off, he did not suspect that all of the past LOCs were “fake” because
persons at CNA’s collateral collection department had received, authenticated, and
accepted these past LOCs. Rather, Spinelli was inclined to believe that the LOC in
question was not meant to be issued. He did not know if it ever was given to CNA.
Based on the above facts, Spinelli admitted that CNA had suffered more
than $40 million in loss as a result of the LOC scheme, but argued that he should
not be held responsible for any of the loss because he did not actively conceal the
fraud and could not have foreseen that Cura would default on its obligations and
cause CNA a loss. Spinelli alternatively argued that he should be held responsible
for only $1.53 million in loss because he did not become aware of the scheme until
six or seven months after it had begun and could not be held accountable for the
loss resulting from every LOC issued.
The government argued that Spinelli should be held accountable for the full
$40 million in loss to CNA because he discovered the possible illegitimacy of the
LOCs early in the conspiracy and, therefore, could have forestalled any loss by
alerting CNA that all of the LOCs may have been fraudulent. The government
explained that CNA’s loss did not occur when Leyton issued the LOCs or when
CNA paid the worker’s compensation insurance claims for Cura, but rather when
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Cura declared bankruptcy and defaulted on its premium and deductible obligations.
The government likewise explained that this event occurred long after the
letterhead incident and, indeed, after all 18 LOCs were issued. The government
further explained that, had Spinelli alerted CNA, CNA could have demanded
substitute collateral from Cura long before it defaulted and, thus, suffered no loss.
The district court found that Spinelli was responsible for the full amount of
loss. The district court reasoned that, from the time that Spinelli discovered in
October 2002 that the LOCs may have been illegitimate until the time when Cura
declared bankruptcy in June 2003, approximately nine months passed during which
Spinelli could have alerted the authorities and CNA could have obtained substitute
collateral to avoid or mitigate its loss.
II.
We review the district court’s amount-of-loss finding for clear error. See
United States v. Cabrera, 172 F.3d 1287, 1292 (11th Cir. 1999). Because the
district court is in a unique position to assess the evidence and determine the
appropriate loss amount, the district court’s finding is entitled to deference.
U.S.S.G. § 2B1.1, comment. (n. 3(C)). The government must prove the
attributable loss by a preponderance of the evidence. United States v. Dabbs, 134
F.3d 1071, 1081 (11th Cir. 1998). The government must offer “reliable and
specific evidence” to satisfy this burden. Id.7
Pursuant to § 2B1.1, which applies to misprision of felony claims based on
wire fraud, the loss that the defendant should be held responsible for at sentencing
is “the reasonably foreseeable pecuniary harm that resulted from the offense,” or
the “pecuniary harm that the defendant knew, or, under the circumstances,
reasonably should have known, was a potential result of the offense.” U.S.S.G.
§ 2B1.1, comment. (n. 3 (I), (iv)). Likewise, pursuant to U.S.S.G. § 1B1.3, which
defines the relevant conduct that should be considered when sentencing a
defendant, “all reasonably foreseeable acts and omissions of others in furtherance
of [a] jointly undertaken criminal activity” should be weighed in determining the
amount of loss for which the defendant is responsible. See U.S.S.G.
§ 1B1.3(a)(1)(B). This provision applies even when the defendant is not charged
or convicted of conspiracy for his or her role in the scheme. Id.
III.
The district court did not clearly err in holding Spinelli responsible for the
full $40 million loss to CNA. See Cabrera, 172 F.3d at 1292. A preponderance of
the evidence suggests that the total value of all of the LOCs issued was the
reasonably foreseeable pecuniary harm that would result from Leyton’s actions.
See Dabbs, 134 F.3d at 1081; U.S.S.G. §§ 2B1.1, comment. (n. 3 (I), (iv)),
1B1.3(a)(1)(B). This evidence demonstrates that Spinelli knew, or should have
known, under the circumstances, that all of the LOCs potentially were illegitimate,
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that CNA may eventually need to draw on these LOCs, and that, in that event,
CNA would suffer a loss. See U.S.S.G. § 2B1.1, comment. (n. 3 (I), (iv)).
Specifically, because Spinelli pled guilty to misprision of felony and
stipulated to facts describing the felony as fraud related to passing off illegitimate
LOCs as collateral, it is clear that Spinelli knew that Leyton was engaging in this
felonious activity. Any argument that Spinelli did not know of this fraud is
without merit, given the guilty plea and stipulated facts. Also, the stipulated facts
point to the letterhead incident as the source of Spinelli’s knowledge, such that it is
clear that Spinelli at least knew that the LOC in question was illegitimate and,
therefore, could reasonably have foreseen a loss of $1.53 million to CNA.
However, the evidence suggests that, once Spinelli knew that this one LOC
was illegitimate, he had ample reason to believe that all of the LOCs were
illegitimate. From Spinelli’s guilty plea to Count 1 and the stipulated facts
pertaining to this conviction, it is evident that Spinelli knew that Leyton’s business
revolved around fraud. Knowing that Leyton’s business activities were fraudulent
and that one of the LOCs issued by Leyton indeed was fraudulent, Spinelli
reasonably should have known that any LOC issued by Leyton likely was
fraudulent also. Moreover, the evidence demonstrates that Spinelli knew the
number and worth of these LOCs, as each made its way through Spinelli’s
company. Thus, Spinelli could reasonably have foreseen that CNA may
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experience a loss stemming from each of the LOCs, rather than simply the one.
Furthermore, given that Spinelli was a businessman who operated a worker’s
compensation insurance company for 18 months, the evidence suggests that he
understood the purpose of the LOCs. Thus, Spinelli could reasonably have
foreseen that CNA may one day draw on this source of collateral to cover its
client’s deductible- and premium-paying obligations. Any claim that Cura’s
bankruptcy and CNA’s attempt to draw on the LOCs were unforeseeable
intervening causes that removed Spinelli from responsibility is without merit, as
serving as collateral to be drawn on in the event of a default was the very purpose
of the LOCs.
Moreover, also given Spinelli’s business experience, the evidence suggests
that Spinelli likely knew that, if he alerted CNA that even one of the LOCs was
illegitimate, CNA would have investigated and either demanded other collateral
from Cura or stopped doing business with Cura altogether, thereby limiting its loss
significantly. Thus, Spinelli could reasonably have foreseen that he could have
done something to prevent CNA’s loss, such that the evidence illustrates that, but
for Spinelli’s silence, CNA would not have suffered the $40 million loss.
Therefore, reliable and specific evidence supports the district court’s amount-of-
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loss finding. See Dabbs, 134 F.3d at 1081.2 Accordingly, because the district
court did not clearly err in determining the loss amount, we affirm Spinelli’s
sentence. See Cabrera, 172 F.3d at 1292.
We note that the Sixth Circuit’s recent decision in United States v, Sosebee,
419 F.3d 451 (6th Cir. 2005), supports our conclusion. In that case, our sister
circuit considered whether a defendant convicted of misprision of felony was
responsible for the full amount of financial loss suffered by the victim for the
purposes of a restitution order. Id. at 455, 459. The defendant owned a
pharmaceutical sales company and entered into an agreement with a
pharmaceutical supply company whereby her company could sell products to
government agencies for a lower price. Id. at 454-55. Her company initially
would pay full price and then, upon selling the products to a government agency,
would alert the supply company and receive a refund for the difference in cost. Id.However, the defendant eventually began selling the products to non-government
2
We note that Spinelli also has argued on appeal that the district court’s amount-of-loss
finding was clearly erroneous because it differed significantly from the amount-of-loss finding
made in sentencing a similarly situated co-conspirator. Spinelli points to Jose Kaufman. The
evidence demonstrates that Kaufman signed one of the LOCs, representing that he was the senior
vice president of the bank that Leyton claimed issued the LOCs. Kaufman also let Leyton use
Kaufman’s telephone number on certain LOCs, representing that it was the number of the bank.
Kaufman further forwarded messages from telephone callers looking for the bank to Leyton. In
pleading guilty, Kaufman only stipulated to facts pertaining to the one LOC he signed. Because
the evidence demonstrates that Kaufman saw only a single LOC when every LOC passed
through Brentwood, and that Kaufman’s stipulated facts did not reference all 18 LOCs, when
Spinelli’s did, Spinelli’s argument is not convincing. Rather, it appears that the district court had
reason to determine that Kaufman and Spinelli did not merit analogous sentences.
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agencies and claiming otherwise and demanding a refund. Id. When the supply
company became suspicious and asked for proof that companies were indeed
government agencies, the defendant provided fraudulent documents. In this
manner, she ultimately received more than $2 million in improper refunds. Id. On
appeal, the defendant argued that she was not liable for any restitution, because her
act of concealment took place only after the loss from the fraud occurred. Id. at
459. The Sixth Circuit rejected this argument, reasoning that the record
demonstrated that “[the defendant] knew of the fraud while the conspiracy was in
progress, perhaps even from its beginning. . . and concealed the scheme while it
was in progress” and that “but for her continuing concealment of the losses being
incurred by [the supply company], those losses might have been avoided altogether
or stemmed to a significant degree.” Id.Although the question in that case was not how much of the loss was
attributable to the defendant for the purposes of setting a base offense level, as
here, but rather whether the defendant was responsible for any of the loss for the
purposes of ordering restitution, the concept that the defendant is accountable for
the entire loss where he discovered, and could have done something to prevent, the
potential loss in the course of the fraudulent scheme is applicable.
AFFIRMED.
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