United States v. Frenkel

15-2660
United States v. Frenkel
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
Rulings by summary order do not have precedential effect. Citation to a summary order
filed on or after January 1, 2007, is permitted and is governed by Federal Rule of Appellate
Procedure 32.1 and this court’s Local Rule 32.1.1. When citing a summary order in a
document filed with this court, a party must cite either the Federal Appendix or an
electronic database (with the notation “summary order”). A party citing a summary order
must serve a copy of it on any party not represented by counsel.
At a stated Term of the United States Court of Appeals for the Second Circuit, held at the
Thurgood Marshall United States Courthouse, at 40 Foley Square, in the City of New York, on
the 8th day of March, two thousand seventeen.
Present: ROBERT A. KATZMANN,
Chief Judge,
ROSEMARY S. POOLER,
GERARD E. LYNCH,
Circuit Judges.
________________________________________________
UNITED STATES OF AMERICA,
Appellee,
v. No. 15-2660
EPHRAIM FRENKEL,
Defendant-Appellant.
_____________________________________________
For Defendant-Appellant: PETER J. TOMAO, Garden City, NY.
For Appellee: ANDREW S. DEMBER (Micah W.J. Smith, on the brief),
Assistant United States Attorneys, for Preet Bharara, United
States Attorney for the Southern District of New York, New
York, NY.
Appeal from the United States District Court for the Southern District of New York
(Román, J.).
ON CONSIDERATION WHEREOF, IT IS HEREBY ORDERED, ADJUDGED,
and DECREED that the judgment of the district court is AFFIRMED.
Defendant Ephraim Frenkel appeals from a judgment of conviction and sentence entered
against him on August 17, 2015, by the United States District Court for the Southern District of
New York (Román, J.). Following a jury trial, Frenkel was convicted on one count of conspiracy
to commit wire fraud in violation of 18 U.S.C. § 1349 and on one count of wire fraud in violation
of 18 U.S.C. §§ 1343 and 2.1 The evidence adduced at trial showed that Frenkel fraudulently
induced Citigroup to lend Frenkel’s co-conspirator Mark Stern — and entities controlled by
Stern — $126 million to finance the purchase of shopping malls. Frenkel did so in his capacity as
the escrow agent on the loan transactions, fabricating a series of documents to support fictitious
closing costs and otherwise misrepresenting the extent to which Stern had invested his own
capital in the acquisition of the malls. On appeal, Frenkel contends that the district court erred in
precluding him from introducing evidence of Citigroup’s alleged negligence in conducting due
diligence on the loan transactions and that the district court improperly instructed the jury on the
standard for materiality. He further contends that the district court erred in determining that the
loss amount attributable to Frenkel’s offense under the Sentencing Guidelines was $70 million
and in ordering Frenkel to make restitution to Citigroup in the joint and several amount of $70
million. We assume the parties’ familiarity with the underlying facts, the procedural history of
the case, and the issues on appeal. For the reasons that follow, we affirm.
1
The trial proceeded before the Honorable Warren W. Eginton, of the United States District
Court for the District of Connecticut, sitting by designation. Prior to sentencing, the case was
reassigned to the Honorable Nelson S. Román.
2
We review evidentiary rulings, such as the district court’s decision to preclude Frenkel
from arguing that Citigroup was negligent, for abuse of discretion. See United States v. Kelley,
551 F.3d 171, 174 (2d Cir. 2009). “We will find an abuse of discretion only where ‘the trial
judge ruled in an arbitrary or irrational fashion.’” Id. at 175 (quoting United States v. Pipola, 83
F.3d 556, 566 (2d Cir. 1996)). Frenkel’s argument that the district court erred in precluding him
from arguing that Citigroup was negligent fails because a victim’s negligence is not a defense
under the federal fraud statutes. See United States v. Thomas, 377 F.3d 232, 240–43 (2d Cir.
2004) (upholding conviction for travel fraud and “refus[ing] to accept the notion that the legality
of a defendant’s conduct would depend on his fortuitous choice of a gullible victim,” id. at 243(internal quotation marks omitted)). The essential elements of the crime of wire fraud “are (1) a
scheme to defraud, (2) money or property as the object of the scheme, and (3) use of the mails or
wires to further the scheme.” United States v. Greenberg, 835 F.3d 295, 305 (2d Cir. 2016)
(internal quotation marks omitted). A victim’s negligence negates none of those elements.
Moreover, Frenkel’s argument is irreconcilable with the Supreme Court’s holding in Neder v.
United States that the “common-law requirements of ‘justifiable reliance’ and ‘damages’ . . .
plainly have no place in the federal fraud statutes.” 527 U.S. 1, 24–25 (1999).
“We review challenged jury instructions de novo but will reverse only if all of the
instructions, taken as a whole, caused a defendant prejudice.” United States v. Bok, 156 F.3d 157,
160 (2d Cir. 1998); see also United States v. Moran-Toala, 726 F.3d 334, 344 (2d Cir. 2013)
(noting that a non-structural error in jury instructions is harmless if it is “clear beyond a
reasonable doubt that a rational jury would have found the defendant guilty absent the error”
(internal quotation marks omitted)). In proving the first element of wire fraud (a scheme to
defraud), the government must prove that the misrepresentations at issue were material. See
3
United States v. Autuori, 212 F.3d 105, 115 (2d Cir. 2000). Frenkel argues that the district court
erred in instructing the jury that the materiality of the misrepresentations was to be assessed from
the objective perspective of a reasonable person, rather than from the subjective perspective of
the victim. In support, he relies on the Supreme Court’s observation in Neder that “[i]n general, a
false statement is material if it has ‘a natural tendency to influence, or [is] capable of influencing,
the decision of the decisionmaking body to which it was addressed.’” Neder, 527 U.S. at 16(quoting United States v. Gaudin, 515 U.S. 506, 509 (1995)). However, Neder itself makes clear
that the definition of materiality for purposes of wire fraud, mail fraud, and bank fraud, was
incorporated from the common law, id. at 22–23, and that, at common law, a matter is material if
“a reasonable man would attach importance to its existence or nonexistence in determining his
choice of action in the transaction in question,” id. at 22 n.5 (emphasis added). See also United
States v. Lindsey, 827 F.3d 865, 869 (9th Cir. 2016) (quoting Neder’s definition of materiality in
reviewing elements of wire fraud and noting that “[t]he element of materiality is evaluated under
an objective test, in which the Court must examine the intrinsic capabilities of the false statement
itself, rather than the possibility of the actual attainment of its end” (internal quotation marks
omitted)). In any event, to the extent the district court should have instructed the jury using
Neder’s formulation of materiality, cf. United States v. Litvak, 808 F.3d 160, 170, 172 (2d Cir.
2015), any such error was harmless. There was overwhelming evidence in the record that
Frenkel’s misrepresentations influenced Citigroup’s decision to approve the $126 million loan.
Next, Frenkel challenges the district court’s determination at sentencing that Frenkel was
responsible for $70 million in loss under § 2B1.1 of the Sentencing Guidelines. We review a
district court’s loss determination under the Guidelines for clear error. See United States v.
Lacey, 699 F.3d 710, 719 (2d Cir. 2012). “[B]ecause the sentencing court ‘is in a unique position
4
to assess the evidence and estimate the loss based upon that evidence,’ the sentencing court’s
‘loss determination is entitled to appropriate deference.’” Id. at 720 (quoting U.S.S.G. § 2B1.1
cmt. 3(C)).
The Guidelines define loss in relevant part as pecuniary harm that resulted from the
offense “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 cmt. 3(A)(iv); see also id. § 2B1.1 cmt.
3(A)(i). Frenkel primarily argues that he could not have foreseen the collapse in the real estate
market that led Citigroup to sell the shopping malls at foreclosure for a significant loss after
Stern defaulted on the loans. But an unforeseeable decline in the value of collateral is not
relevant to calculating loss under § 2B1.1 of the Guidelines. See United States v. Turk, 626 F.3d
743, 749 (2d Cir. 2010) (rejecting substantially the same argument because, under § 2B1.1, “the
decline in value in any purported collateral need not have been foreseeable to [the defendant] in
order for her to be held accountable for th[e] entire [unpaid principal]”). Here, Frenkel knew or
reasonably should have known that default — and the attendant loss to Citigroup of unpaid
principal that could not be recovered through foreclosure — was a potential result of deceiving
Citigroup into extending a loan that did not meet its underwriting standards. Frenkel’s argument
that his conduct did not cause Citigroup to enter into the loan transactions is squarely belied by
the record. The district court was required only to “make a reasonable estimate of the loss,”
U.S.S.G. § 2B1.1 cmt. 3(C), and it did not commit clear error in doing so here.
Finally, Frenkel challenges the district court’s restitution order, arguing that the district
court erred (1) in failing to reduce the amount of restitution to account for funds that Citigroup
had recouped from certain law firms and (2) in failing to provide that the amount of restitution
would be reduced by Citigroup’s recovery of its loss from others. We review challenges to
5
restitution orders imposed pursuant to the Mandatory Victims Restitution Act for abuse of
discretion, and because Frenkel did not object below, our review here is for plain error. See
United States v. Zangari, 677 F.3d 86, 91 (2d Cir. 2012). Frenkel’s arguments fail because the
district court imposed joint and several restitution, such that Citigroup is not entitled to recover
from Frenkel what it has already recovered from others (as would be prohibited under the
Mandatory Victims Restitution Act regardless). See United States v. Nucci, 364 F.3d 419, 424
(2d Cir. 2004) (holding that a district court does not err in failing to specify in a restitution order
“that a given victim would not be allowed to receive compensation in excess of his loss,” as
“there is no legal basis to permit an award that allows a victim to recover more than his due”). In
other words, the restitution order already effectively does what Frenkel wants it to do, just not as
explicitly as he would prefer. The district court did not commit plain error. Regardless, we would
expect the government to notify Frenkel should others pay Citigroup monies that would reduce
the amount of restitution owed by Frenkel so that he could move for a modification of the
restitution order. See, e.g., United States v. Dawson, 250 F.3d 1048, 1051 (7th Cir. 2001)
(“[W]ere [the defendant’s] co-schemers to pay [the victim] any amounts in restitution, we expect
that the government would notify [the defendant] of that occurrence so that [he] could properly
file a request for modification of restitution. See 18 U.S.C. § 3664(j)(2).”).
We have considered all of the defendant’s arguments on this appeal and find in them no
basis for reversal. Accordingly, we AFFIRM the judgment of the district court.
FOR THE COURT:
CATHERINE O’HAGAN WOLFE, CLERK
6