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Seventh Circuit White Collar Litigation Update – March 2018

Bank’s Alleged Part in Loan Fraud Scheme Not Basis to Reduce Defendant’s Sentence 
United States v. Tartareanu, No. 17-2759 (March 8, 2018)

The defendants were convicted of a mortgage fraud scheme involving the recruitment of unqualified buyers of residential properties.  Their original sentences were vacated and remanded because they included restitution orders in favor of Bank of America, which the Court concluded was not truly a “victim” for purposes of restitution.  Specifically, the Court found that the bank was either reckless or deliberately indifferent to the scheme and, therefore, not entitled to restitution for the loan losses.  On remand, defendants argued that the logic for excluding Bank of America’s losses from restitution applies to calculating loss under the Guidelines for purposes of determining the sentence.

The district judge disagreed, and the Court affirmed.  In a loan fraud scheme, “intended loss” under the Guidelines is based on the amount of money the defendants intended to place at risk.  The lender’s alleged culpability in the fraud, according to the Court, is not material to the analysis.

In-Court Identification of White Collar Defendants Not Essential
United States v. Armenta, No. 17-2296 (March 5, 2018)

Defendant went to trial health care fraud charges.  Although the government presented numerous witnesses in its case-in-chief, including many who knew defendant personally, it did not ask any of them to identify her in court.  At the close of the government’s case, she moved for a judgment of acquittal based on the lack of an identification, which the district court denied.

The Court affirmed, holding that an in-court identification is not essential in fraud cases where the jury could reasonably infer “from the circumstances” defendant’s identity beyond a reasonable doubt.  That defendant’s name is the same as the indicted person and was referred to by witnesses and in documents submitted in evidence, and that none of the witnesses suggested that this person was not in the courtroom, were significant to the Court.  Perhaps more important to the holding, however, was that defendant’s lawyer did not raise a misidentification defense.  The Court did not explain how that rationale squares with the government’s burden of proof or with the defendant’s right to not present any evidence whatsoever.  Indeed, the Court implicitly acknowledged that conflict by stating that “an in-court identification of the defendant is preferred to prove identity.”

Brady Violation for Failure to Disclose Witness was Subject of Prior Investigation 
United States v. Ballard, No. 17-2640 (March 19, 2018)

A day after the jury returned a guilty verdict for bank fraud, Ballard’s lawyer learned that one of the government’s many witnesses had been the subject of a prior FBI undercover probe.  The government possessed undisclosed recordings of that witness reflecting his involvement in unrelated criminal conduct.  Although that evidence was not directly exculpatory of the defendant, it was clearly impeaching of the witness’s credibility – that is, his bias toward the government for getting a pass for those separate offenses.  The trial court granted defendant’s motion for a new trial.  

The government appealed, arguing that the lack of disclosure was immaterial because the evidence was simply impeaching, rather than exculpatory, and cumulative because numerous other witnesses established Ballard’s guilt.  The Court rejected that argument, and instead deferred to the district judge who “is best equipped” to determine whether that single witness’s testimony was sufficiently important that the inability to impeach him deprived defendant of a fair trial.

Defendant’s Plea to “Dates of Scheme” is Not Conclusive for Sentencing
United States v. White, No. 17-1131 (March 2, 2018)

White pleaded guilty to a wire fraud scheme originated by others.  In fact, having been in prison for the first year of that scheme, he was a late-joining participant.  But parroting the indictment, he acknowledged in the factual basis to his plea agreement that the scheme lasted for four years, including the year he was in custody:  “Beginning no later than in or around the fall of 2009 and continuing until at least in or around the summer of 2013 . . . VANCE WHITE . . ., together with other individuals, . . . [engaged in the scheme to defraud].”  Based on that admission, the district court found him responsible for the losses occurring during the entirety of the scheme, even though he did not actually join the scheme until late 2010 after his release from custody.

The Court vacated his sentence because of the incorrect calculation of loss under the Sentencing Guidelines.  It found that a defendant’s admission in a plea agreement regarding the dates of a scheme or a conspiracy does not conclusively establish his participation during that entire time, and it therefore is not sufficient to attribute to him all losses arising from that scheme.  Although defendant admitted that the scheme lasted for four years and that he was a part of the scheme, he did not admit that he was involved for the entire four years.  

The Court also rejected the government’s argument that the error was harmless because the sentence was below the wrongly-calculated Guidelines range.  Although the Court again encouraged district judges to state at sentencing whether a “tricky” guideline issue would make a difference to the ultimate sentence, thus making any error harmless, the judge here did not do so.

This article was first published in the March 2018 issue of the Seventh Circuit White Collar Litigation Update on the 7th Circuit Bar Association’s website.

Loeb & Loeb partner Corey Rubenstein authors this monthly newsletter containing helpful summaries and practice pointers for key Seventh Circuit Court opinions involving civil and criminal white collar matters.