Seventh Circuit Holds That Amount of Loss for Sentencing Enhancement, Restitution and Forfeiture Requires “Reasonable Forseeability” and “Proximate Cause”

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In a very important case, the Seventh Circuit departed from the overwhelming majority of cases that with a broad brush, enhance defendants for the full amount of the fraud and order forfeiture and restitution in the full amount, regardless of a defendant’s limited role in the crime.  This case is a breath of fresh air in that it requires that the defendant’s actions be the “proximate cause” of the victim’s losses and that the losses be “reasonably forseeable.”

In United States v. Burns, No. 15-2824, 843 F. 3d 679 (7th Cir. Dec. 12, 2016), the Court of Appeals found it was plain error for the sentencing judge to include in his sentence calculation the entire $3.3 million loss to all the victims, where the government failed to prove that the defendant’s actions were the proximate cause of the victims’ loss. The defendant, Burns, had been convicted in the United States District Court for the Northern District of Illinois for wire fraud and mail fraud, for making fraudulent misrepresentations when soliciting investments for his employer, USA Retirement Services. (“USARMS”). Burns told investors that he had experience managing investments and that he personally invested in USARM’s promissory notes. These statements were false, but in addition, the promissory notes turned out to be a Ponzi scheme, which Burns was not aware of.

Despite the fact that the government never alleged that Burns knew of or participated in this Ponzi scheme, they sought to hold him responsible for the entire amount of money the investors lost because of the Ponzi scheme perpetrated by USARMS – $3.3 million. The district court sentenced Burns based on the entire $3.3 million loss and ordered restitution and forfeiture in that amount. Burns appealed his sentence, arguing that the district court erred in calculating the loss amount as the total victim loss instead of only calculating the loss Burns himself proximately caused. Reviewing for plain error, the Seventh Circuit stated that in calculating the amount of loss, sentencing courts should determine whether the loss was reasonably foreseeable, which “requires causation analysis [which] includes but for causation and proximate causation.” The Seventh Circuit emphasized that simply because “his conduct was unreasonable, does not necessarily mean that he proximately caused the victims’ loss. Without a clear ruling on proximate cause, the district court erred.” Thus, the error was found to be plain. The Seventh Circuit court also found that the error affected Burns’ substantial rights and that it had increased the defendant’s sentencing range from what should have been only 12-8 months to 108-135 months, seriously infringing on “the fairness, integrity, and public reputation of judicial proceedings.” The Seventh Circuit further held that the same analysis applies to restitution and forfeiture, and therefore, the lower court further erred in ordering full restitution and forfeiture.  These errors were held to be reversible plain error.

This case is a major victory for the defense of white collar cases.

Categories: Federal Law, Fraud

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