Articles Posted in Wire Fraud, Mail Fraud, Tax Fraud and other Federal Fraud Cases

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In U.S. v. Elliot, the defendant was convicted of the federal crime of robbery and brandishing a firearm during and in relation to a crime of violence. The district court in Alabama imposed a life sentence after determining that two of his prior felony convictions qualified him for a career enhancement under the federal sentencing guidelines, U.S.S.G. §4B1.1. On appeal Elliot challenge a photo lineup on grounds that it was unduly suggestive because there was a substantial likelihood existed that the witness’s eyewitness identification was not based on her own independent recollection, but instead was tainted by her observation of photos of him on the internet, on printed flyers, and on a portion of a surveillance videotape. The Eleventh Circuit federal court of appeals found no federal due process violation because the photo lineup arranged by the police was not suggestive. The lineup contained photographs of the defendant and five other men who were selected by a computer program for their physical similarities to the defendant. The officer conducting the lineup did not suggest which person should be picked not did he pressure the witness to pick anyone. Furthermore the police had no involvement in the witness’ independent viewing of Elliot’s photos at the store or on the internet, or the surveillance video.

Prior youthful offender conviction qualified for career offender status.

One of Elliot’s prior convictions arose when he was 20 years old when he robbed a man of $150 and a pack of cigarettes while armed with a pistol. He was charged with a first degree robbery and received a youthful offender adjudication and placed on probation. He violated probation with a subsequent robbery. He argued on appeal that his youthful offender adjudication does not qualify for a conviction under the career offender provision of 4B1.1 because under the Alabama youthful offender adjudication cannot be counted under Alabama law. The Alabama law youthful offender Act applies to anyone who is under the age of 21 at the time the offense was committed.

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The defendant in U.S. v. Rodriguez was convicted and sentenced to 120 months for conspiracy to commit the crime of federal wire fraud. He raised two issues on appeal. First he argued the evidence was not sufficient to support the conviction. The evidence at trial showed that from 2003 through 2007 Rodriguez owned and operated four different companies that sold coffee machines and other vending machines to the public. His companies tried to generate sales by posting ads on the internet seeking investors looking to a own their own small business by offering investment in new coffee machine, vending machine or drinking water machine. Rodriguez or his associates induced customers to buy products by offering a number of guarantees. Sales people would routinely guarantee the amount of money that customers would make each day and how quickly they would recoup their money. They promised to provide advanced marketing analytics to secure high-end locations where machines would have plenty of potential patrons. The companies also promised technical support and assistance and if not satisfied they could return the machines for a full refund. These guarantees were too good to be true. The machines arrived in months rather than weeks, if they arrived at all. When they did arrive, many customers found they did not work or they cost more to operate than they had been advertised. The locations the machines were placed in were in remote locations rather than high-end venues and they could barely cover their operational costs. Many customers testified their machines generated zero profits or substantial losses. None said they were able to recoup the cost of the initial investment. When they asked Rodriguez for help with the machines, there was no technical support as promised. Rodriguez almost never honored the money back guarantee when customers asked for a refund. Furthermore, the evidence showed that Rodriguez knew that this was happening and yet he continued to sell the machines to customers and guaranteed profit figures he knew were not real. Even after receiving a cease and desist order from the Maryland Attorney General, he created new companies selling different machines. While trying to hide his ties to the earlier companies from his prospective customers.

To support a conviction for wire fraud the evidence must show the defendant intentionally participated in a scheme to defraud another of money or property and used or caused the use of wires for executing the fraud. Evidence to sustain a conspiracy conviction requires proof the defendant knew and willfully joined the unlawful scheme to defraud. While puffing or sellers talk is not a crime under the federal fraud statutes, fraud requires proof of a material misrepresentation or the omission of a material fact calculated to deceive another out of money or property. The evidence showed Rodriguez did not simply puff up the profitability of his machines to prospective customers, rather he made material misrepresentations of fact in the course of an ongoing scheme to defraud. Rodriguez guaranteed specific profit figures and provided a definitive time for when his customers would recoup their investments, and he did this knowing his representations were completely unfounded. He knew his sales associates did no research on the placement of the machines and placed them in haphazard locations. He was not just overstating the facts to sell his product but he was actively concealing relevant information from potential customers. This type of federal crime is commonly prosecuted in Miami and the Southern District of Florida.

Rodriguez argued against the 4 level enhancement based on the number of victims. At sentencing he argued the government only proved 10 victims. At the sentencing the government presented 42 affidavits from victims who suffered losses and presented a summary chart indicating there were 238 victims but it provided no witnesses nor did it provide any underlying data for the chart. The court erred in finding the offense involved more than 50 victims because the government presented no witnesses to authenticate what the chart represented, how it was prepare, or by whom. While the district court could consider trial evidence, there was no testimony or evidence tying the summary chart to any of the trial evidence. There was no witness to verify that the information on the chart was correct. The summary chart amounted to little more than an allegation by the government on a piece of paper that Rodriguez’ offense involved more than 50 victims.

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In U.S. v. Edwards, the defendant was convicted of wire fraud, mail fraud, and money laundering arising out of an investment scheme in which Edwards promised investors astronomical returns of 75% to 800 %. Edwards claimed to own the First National bank of Georgia and he pitched his investment scheme by packaging it as a special investment scheme reserved for high net worth investors. Edwards told his victims that he could allow multiple small investors to pool their money and access these investments through his banking connections. He guaranteed the high yields were completely risk free because the money was only pledged and would never leave the bank he owned. In reality, the investment proceeds were used by Edwards in this federal white collar crime for extravagant personal expenditures including houses, cars and cruises.

Edwards was convicted following trial. His presentence report recommended restitution of $6,820,620 for victims. On appeal Edwards challenges his restitution order claiming the trial court should have asked the court to consider his dependents and financial condition in determining the amount of restitution. Second, he claimed the court should not have included in the restitution amount restitution to victims whose counts were dismissed at trial, and third the trial court should not have included restitution for losses to a victim for an unrelated real estate investment scheme.

The court of appeals held that the trial court did not err in imposing the full restitution without considering Edward’s financial condition. It held the trial court is prohibited from considering Edwards financial resources when determining the amount of restitution under the Mandatory Victim Restitution Act (MVRA), which expressly requires the court to grant the “full amount of restitution.”

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In U.S. v. Philador the two defendants pled guilty to conspiracy to steal government funds in violation of 18 U.S.C. §371 and to the charge of theft of government funds in violation of 18 U.S.C. §641. Their offenses involved a scheme to submit fraudulent tax returns to the Internal Revenue Service using stolen social security numbers. They then received refund checks from the government and deposited the funds into various corporate accounts of companies they controlled. The presentence investigation report recommended a six-level enhancement to their offense level pursuant to guidelines section §2B1.1(b)(2)(c) because it claimed the offense involved 250 or more victims. Only twenty-six of the taxpayer victims had been positively identified by the government. The defendants objected to the enhancement, and while they conceded there were more than 250 social security numbers used to file over 250 fraudulent tax returns, the defendants argued that the government failed to meet its burden because the government failed to show by a preponderance of the evidence that 250 of the social security numbers were authentic and belonged to living people.

In rejecting the defendant’s argument, the 11th Circuit found the district court did not err in finding there 250 victims. There was no dispute that over 250 social security numbers were used to cause the Internal Revenue Service to issue fraudulently submitted returns. Because the Internal Revenue Service issued refunds for tax returns associated with those numbers, the district court made the “legitimate” inference that social security numbers corresponded to actual persons. The 11th Circuit has stated in prior cases that it is not necessary for the government to show that in the context of a government issued identification the government verifies an individual’s identity before it issues a driver’s license or a passport. It is reasonable to conclude that the government routinely obtains an applicant’s identity to verify the authenticity of that identity. Here the district court could infer, based on common sense and ordinary human experience that the Internal Revenue Service verifies identifying information, like social security number, before issuing a tax refund. The fact that the Internal Revenue Service paid the refund to the defendants indicates that the social security number used to procure the refunds are associated with real people and the district court’s conclusion was not erroneous.

Additionally, the district court did not err in applying the six-level enhancement without first finding the victims were living. A victim in this context under the sentencing guidelines a victim is a person whose means of identification was used unlawfully. A means of identification is limited to an actual, and not fictitious, individual. The 11th Circuit found the plain meaning of the phrase “actual” does not distinguish between living and deceased persons. Therefore it was not necessary for the district court to make this finding.

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In U.S. v. Whatley, the defendant was charged with four armed bank robberies that took place from 2003 through 2006. He was arrested following an aborted robbery attempt in 2007, to which he pled guilty. At his federal criminal trial on the earlier four bank robberies, the government called 14 different bank employees as witnesses who identified Whatley. The defendant challenged the admission of the in-court identifications by the 14 bank employees claiming a violation of the Due Process Clause. Whatley relied on 11th Circuit precedent which held that the admission of an in-court identification may violate a defendant’s federal right to due process if the identification procedure is so impermissibly suggestive as to give rise to a substantial likelihood of misidentification. (Code v. Montgomery) Whatley argued the in-court identification was unnecessarily suggestive because he was the only African American in the courtroom other than courtroom personnel, he had never been identified in a line-up or photo array before trial, and he was first seen by the witnesses during their testimony.

The panel held that in Perry v. New Hampshire the Supreme Court abrogated the 11th Circuit’s in-court identification precedent. Perry held that the Due Process Clause does not require a preliminary judicial inquiry into the reliability of an eyewitness identification when the identification was not arranged by law enforcement officers. Perry rejected the argument that due process requires judicial prescreening of all identifications obtained under suggestive circumstances. Because the identification was not the result of improper police conduct, there was no due process violation. The 11th Circuit ruled that the defendant’s right to due process was protected byt the right to confront all eyewitnesses who identified him in court, the right to offer impeachment evidence, and the limiting instructions given by the district court given before each in-court identification.

Prior attempted bank robbery was admissible

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Jimenez was convicted of violating 18 U.S.C. § 666 for misapplying funds from a federally funded program. He challenged the factual sufficiency of his conviction to the 11th Circuit arguing that he did not misapply funds within the meaning of 666(a)(1)(A). The 11th Circuit found in United States v. Jimenez that no federal crime took place and reversed the conviction with directions to enter a judgment of acquittal. Because the facts are important in a judgment of acquittal, the background is set out here.

Jimenez was Deputy Director of Fiscal and Administrative Services for Hillsborough County’s Head Start Program, a federally funded program that provides educational and health care to preschool children from low-income families. Jimenez’s wife Melendez, a microbiologist, wrote a children’s book intended to educate children “about germs and their relationship to disease” She sent her husband, Jimenez, an email suggesting that Head Start could use to the book to “encourage kids to read.” Jimenez relayed the information to his peer at Head Start, Mason, who served as the Deputy Director of Program services. Mason knew that Jimenez’s wife authored the book. Jimenez and Mason brought a copy of the book to Bell, a registered nurse with Head Start and asked Bell to look at the book for her opinion on whether to order copies of the book for the Head Start children. Bell nixed the idea because she thought the book was too advanced. Bell showed the book to Navejar, another official at Head Start, who recommended against purchasing the book because it implicated a conflict of interest for Jimenez’s wife to profit from a head Start transaction. Bell and Navejar brought this concern to the attention of Knight, Bell’s supervisor. Despite Bell and Navijar’s concerns, Mason, who supervised Knight, told Bell to order the book. Because Bell did not have purchasing privileges, she referred the task to Navejar. Soon after, Jimenez e-mailed Navejar price quotes on the book. Mason initiated and approved a $9,000 order for 750 copies of the book. Melendez delivered the books, a report authorizing payment to Melendez was issued, and Jimenez signed a form acknowledging the books had been received. Shortly afterwards a check was issued to Melendez. Throughout this period, Head Start required every employee to complete disclosure forms within 45 days of any change in the conflict of interest status, including circumstances in which an employee’s spouse entered into a contractual relationship with Head Start. Jimenez failed to file a disclosure the conflict of interest stemming from his wife’s transaction with Head Start.

Jimenez was indicted and convicted of misapplying funds from a federal program and honest services fraud. The judge entered a judgment of acquittal for the honest services count but upheld the § 666(a) conviction. A conviction under § 666(a) requires the prosecution to show (1) Jimenez was an agent of Head Start, (2) he obtained funds by fraud or intentionally misapplied property of Head Start property in excess of 5,000, and (3) Head Start received federal assistance. The prosecution’s theory was that Jimenez “intentionally misapplied” $9,000 in Head Start funds by brokering 750 copies of his wife’s book. The court found the term “misapply” connotes the offender exercises some degree of power over the funds of the agency. There was no evidence demonstrating that Jimenez misapplied any Head Start funds. Even though there may have been an conflict of interest, standing alone without evidence of bribe or kickback is insufficient to sustain a conviction for intentionally misapplying funds for a violation of §666. The evidence showed it was Mason, not Jimenez, who approved purchase and directed the Head Start funds for payment of the book. Though Jimenez did not disclose his wife’s financial stake in the transaction, the 11th Circuit is “reluctant to metamorphose every municipal misstep into a federal crime” and the court would not stretch the language of §666 to find a white collar crime here.

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The issue here is whether the unauthorized transfer of an individual’s identifying information to another party involves the actual use of that information for a fraudulent purpose such that the individual whose identifying information was transferred is as victim under U.S.S.G 2B1.1(b)(2)(B). This sentencing guideline provides for a 4 level enhancement if the offense involved at least 50 but less than 250 victims. The defendant in U.S. v. Hall pleaded guilty to bank fraud conspiracy, identity theft and access device fraud and wrongfully obtaining and transferring individually identifiable health information for personal gain. The district court applied a four level enhancement because the offense involved more than 50 but less than 250 victims. Hall challenged the enhancement arguing that the unlawful transfer or sale of identifying information does not equate to the actual use of identifying information for a fraudulent purpose. The conspirators actually used 12 of the 141 individuals to obtain fraudulent credit cards the so Hall claimed there were less than 50 victims and the 11th Circuit agreed.

Hall worked as an office assistant in a Coral Springs doctor’s office where she had access to patients’ dates of birth, social security numbers and other protected information. She received $200 for each individual’s information she provided to the coconspirators. She received only $200 though sent the codefendants 65 to 141. Her conspirators used 12 of the patients’ personal information to obtain fraudulent credit cards. The government’s position was that all 141 patients whose information was transferred were victims.

The 11th Circuit found that while the 12 individuals were victims, the remaining individuals whose information was merely transferred were not victims under the Application notes which define victims as “any person who sustained any part of an actual loss…who sustained bodily injury as a result of the offense.” Under this enhancement, whether an individual was a victim depends on whether their identification was used. The conspiracy’s purpose was to obtain cash advances and purchase using fraudulent credit cards. Hall’s mere transfer of the personal identifying information, without more action, did not involve using the information to procure fraudulent credit cards and cash and the personal information was not used until the coconspirators secured the credit cards.

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In U.S. v. Broughton, the defendants were charged in one count with conspiracy to commit mail fraud, wire fraud, and insurance fraud and in a second count with money laundering. The fraud conspiracy was a scheme to create fraudulent capitalization for insurance companies. State and federal law requires that companies offering insurance or credit backing on behalf of other companies in the United States must be licensed. To be licensed, a company must show it has sufficient capital to meet the insuree’s obligations and that it possesses sufficient capital reserves in the event of future claims. The capital requirements include Treasury Notes, Certificates of Deposits, stocks, and bonds but this capital can only be claimed as an asset on an insurance company’s financial statement if it is owned and controlled by the company claiming the assets. Beginning around 1996 the I.R.S. launched an insurance fraud investigation that looked at companies/people that “rented” assets that others owned to include in their own balance sheet as assets. The investigation focused on individuals and companies that marketed themselves as insurance providers on the basis of rented assets. Evidently, these fraudulent companies would collect insurance proceeds without intending to pay out any claims.

The I.R.S. investigation led to meeting between a co-conspirator and an I.R.S. agent posing as a businessman looking for assets to start an insurance company. Over time, the defendants described how they market their fraudulent shell company with its “unqualified audit opinion” and they provide the appearance of nonexistent Treasury Notes and CDs as rented assets. The conspirators described how to structure the insurance company with subsidiary companies holding the fraudulent rented assets. The undercover agents agreed to rent $10 million in assets to capitalize their insurance company and made cash payments in exchange.

The defendants moved to dismiss the indictment returned January 17, 2006, on statute of limitations grounds arguing that the statute was improperly suspended under 18 U.S.C. § 3292. This provision allows the district court to suspend the running of the statute of limitations if, prior to filing the indictment, the government makes an official request to a foreign country or court for evidence that reasonably appears to be located in the country to which the request was made. The defendants argued the government failed to satisfy these requirements for the following reasons:

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In U.S. v. Merrill, the defendant was convicted in federal court in Miami of the federal crime of knowingly selling ammunition made by a Communist Chinese military company to the U.S. Army. Here are the facts. AEY, a munitions dealership based in Miami Beach, Florida, placed a bid with U.S. Army for a contract to supply the Afghanistan Security Forces with various types of military munitions including 500 million rounds of AK-47 ammunition. The contract called for AEY to supply certain ammunition to the Afghan National Police and the Afghan National Army over a two year period. As an investor in AEY, Merrill advised AEY how to prepare the bid, and used his contacts in the arms business to find prices for ammunition. When the army requested details about the financial viability of AEY, Merrill provided letters from two of his companies promising a loan of $36 million to support the contract. Merrill and codefendant agreed to split the profits. Their bid price of $298 million was accepted by the U.S. Army. AEY acquired its munitions from a munitions supplied called MEICO located in Albania. When one of the AEY representatives went to Albania to oversee shipping, he discovered Chinese characters on the wooden crates containing the ammunition and contacted the other principles of AEY. One of the coconspirators sent an email to the Directorate of Defense Trade Controls Response Team at the State Department asking about the legality of brokering Chinese ammunition to the Army if it had been sitting for about 20 years with a company in Albania that acquired it before the U.S. enacted the arms embargo against China purchasing military equipment manufactured by the Communist Chinese military companies. The response given by the State Department was that the transaction could not be authorized. The coconspirators went ahead with it anyway by removing the Chinese characters form the crates and packaging. As the ammunition was shipped, the coconspirators sent about 30 certificates of conformance containing false statements that MEICO was the manufacturer of the ammunition and not the Communist Chinese military company that actually made it. Merrill was charged federal crimes of making false statements to the Army; defrauding the Army by making false statements, wire fraud against the Army, and defrauding the government in the procurement of property.

1. The court rejected Merrill’s motion to dismiss indictment.

Merrill challenged the indictment on the grounds that MEICO had acquired the ammunition from Communist China forty years before AEY acquired it from MEICO. It also argued that AEY had no contract with the Chinese military company. The 11th Circuit held that the charges were valid, finding that the ban on any sales of ammunition made by Communist Chinese military company does not include any exception for munitions that left China before the regulation was enacted. Merrill’s interpretation would leave a “gaping” loophole that the Department of Defense could not have intended.

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In U.S. v. House the defendant was charged with the federal crimes of depriving a person of the constitutional right to be free from unreasonable seizure by a law enforcement officer, in violation of 18 U.S.C. §242, and with making false statements within the a matter within the jurisdiction of the Federal Protective Service, in violation of 18 U.S.C. §1001. House was a law enforcement officer for the Federal Protective Services, a federal law enforcement agency whose jurisdiction is limited to properties owned by the General Services Administration (GSA). He wore a uniform with a badge, and carried a police officer type utility belt with gun, radio, and handcuffs. He drove a vehicle with markings, siren, emergency lights on the roof similar to a police car. He looked like a police officer. House had an ugly habit of stopping motorists who did not violate any traffic laws, but he accused them of driving carelessly or recklessly. Essentially, he was charged with making unlawful traffic stops of about seven different individuals and submitting false information about each of the incidents to his agency. In some cases he would call the local police and give false information about what the driver had done. He gave false information in the reports he was required to give his agency about any incident where he used his emergency lights. The motorists where recounted their feeling of intimidation by his siren and uniform, believing he was a police officer with full authority to stop and detain. In fact, his agency gave him no authority to pull over a driver outside of GSA property. In addition to this charge, he was charged with making false statements to the Federal Protective Service.

Sufficiency of the Evidence.

House argued the evidence was insufficient to establish that he seized motorists. The 11th Circuit recounted the evidence given by various motorists pulled over by House who described how he pulled them over with emergency lights activated and walked up to them wearing what appeared to be a police uniform. The motorists said they pulled over because that is what law abiding citizens must do. They described House’s tone as “scary” and felt intimidated. The jury was entitled to find that House seized the defendant by detaining them or forcing them to stop. The evidence was sufficient to show that the seizures were unreasonable. The jury was also able to find from the testimony that there was no probable cause to seize them because of a lack ofprobable cause or reasonable suspicion they broke any motor vehicle laws. Evidence was sufficient to establish that House acted willfully given the sheer number of persons he seized and his behavior during the encounters.

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