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Sentencing enhancement reversed where defendant was not aware of an FTC judgment against him for deceptive practices

In U.S. v. Mathauda the defendant was convicted of conspiracy to commit mail and wire fraud in violation of federal criminal law. The case arose from his operation and of a business offering fraudulent business opportunities. From a call room in Costa Rica, the defendant would entice victims by advertising business opportunities in the United States. Toll free numbers connected people to the call center where promotional materials were sent and interested persons were connected with the co-conspirators posing as references who claimed to make money through the defendants companies. The defendant made millions of dollars from victims.

The one issue that the court considered an appeal was whether the district court erred in adding a two level sentence enhancement and for violation of a prior court order. Prior to the criminal case, the defendant was the subject of a civil action brought by the Federal Trade Commission. The FTC complaint alleged he was involved in unfair and deceptive acts and commercial practices. After the complaint was served on the defendant, he received a copy of a temporary restraining order. In response he hired an attorney to represent him in the case and in the meantime you continue to operate his conspiracy. Unknown to the defendant his attorney did nothing about the FTC case and had a default judgment was entered against him.

At sentencing, the presentence investigation report and recommended a two-level enhancement against a defendant, based on a knowing violation of a prior the judicial order. The defendant objected and claiming that he retained counsel and did not know his attorney failed to respond and that a default judgment had eventually been entered against him. He did not know that he had been judicially ordered to cease his fraudulent activity. The government argued that the enhancement was proper up because the defendant was willfully lying to the court’s order and that willful blindness to an order constitutes knowledge of the order.

Whether willful blindness satisfies the knowing requirement of the guideline section is an issue of first impression for the 11th Circuit. The court compared the facts hear to the facts in U.S. vs. Bisong, a case out of the District of Columbia, which held that the sentencing enhancement was proper despite a defendant’s alleged lack of knowledge of the order because the defendant was willfully blind to the order which he had violated. The 11th Circuit agreed that an enhancement for willful blindness is proper if the defendant purposely contrived to avoid learning of the facts where the defendant was aware of a high probability of the fact in dispute and consciously avoided confirming the fact. The facts in this case do not support willful blindness because the defendant did retain in an attorney and his attorney did nothing in the case. Unlike Bisong, the defendant was not an active participant in the FTC proceedings and had no knowledge of what happened in those proceedings.

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