United States v. Robert Brown, Jr. , 771 F.3d 1149 ( 2014 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
UNITED STATES OF AMERICA, No. 12-10227
Plaintiff-Appellee,
D.C. No.
v. 2:09-cr-00074-JAM-1
ROBERT CEPHAS BROWN, JR.,
Defendant-Appellant.
UNITED STATES OF AMERICA, No. 12-10230
Plaintiff-Appellee,
D.C. No.
v. 2:09-cr-00074-JAM-2
DUANE ALLEN EDDINGS,
Defendant-Appellant. OPINION
Appeal from the United States District Court
for the Eastern District of California
John A. Mendez, District Judge, Presiding
Argued and Submitted
September 8, 2014—San Francisco, California
Filed November 7, 2014
Before: Carlos T. Bea, Sandra S. Ikuta,
and Andrew D. Hurwitz, Circuit Judges.
Opinion by Judge Hurwitz
2 UNITED STATES V. BROWN
SUMMARY*
Criminal Law
The panel affirmed Duane Allen Eddings’s convictions,
affirmed in part and vacated in part the district court’s
sentencing determinations concerning Eddings and Robert
Cephas Brown, Jr., and remanded for resentencing in a case
arising from a Ponzi scheme and bankruptcy fraud.
The panel held that the district court’s denial of the
government’s motion pursuant to U.S.S.G. § 5K1.1 to reduce
Brown’s sentence on account of his assistance was proper,
and that Brown’s 188-month sentence is not substantively
unreasonable.
Regarding Eddings’s mail fraud charges related to
bankruptcy fraud, the panel held that even assuming Eddings
was charged under an improperly overbroad theory of
defrauding the bankruptcy court and trustee in addition to
creditors, there was no plain error because he was tried under
the valid theory that he committed mail fraud by filing
schedules that failed to disclose certain assets and artificially
inflated his debts in order to enable him to obtain a “no asset
discharge” without paying his creditors, and the government
never argued that the bankruptcy court or the trustee was
defrauded.
*
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
UNITED STATES V. BROWN 3
The panel held that there was sufficient evidence to
support Eddings’s convictions on Ponzi scheme mail fraud
charges.
The panel held that Eddings’s bankruptcy fraud
convictions were properly grouped for sentencing with his
Ponzi scheme convictions pursuant to U.S.S.G. § 3D1.2(d).
The panel held that application of a leadership role
adjustment to Eddings’s sentence pursuant to U.S.S.G.
§ 3B1.1(c) was erroneous, where the district court noted that
it was not “really made clear” whether Eddings controlled a
particular participant, and the record does not indicate that he
controlled any other criminally responsible participant in the
scheme.
The panel held that the district court erroneously imposed
on both defendants an enhancement under U.S.S.G.
§ 2B1.1(b)(15)(B)(iii) for endangering the solvency or
financial security of 100 or more victims, where the
government did not provide evidence of the impact of the
crimes on the requisite number of victims. The panel left it
to the district court to decide whether to take new evidence on
this adjustment on remand.
The panel held that increasing Eddings’s sentence under
U.S.S.G. § 2B1.1(b)(2)(C) for having 250 or more victims
was erroneous, where the district court relied on 148 victims
who were not included in the loss calculation under U.S.S.G.
§ 2B1.1(b)(1).
The panel rejected the defendants’ arguments that remand
should be to a new judge.
4 UNITED STATES V. BROWN
COUNSEL
Heather Williams, Federal Defender, David M. Porter
(argued), Assistant Federal Defender, Rachelle Barbour,
Research and Writing Attorney, Sacramento, California, for
Defendant-Appellant Robert Cephas Brown, Jr.
John Balazs (argued), Attorney at Law, Sacramento
California, for Defendant-Appellant Duane Allen Eddings.
Benjamin B. Wagner, United States Attorney, Camil A.
Skipper, Appellate Chief, Michael D. Anderson (argued) and
Todd A. Pickles, Assistant United States Attorneys,
Sacramento, California, for Plaintiff-Appellee.
OPINION
HURWITZ, Circuit Judge:
Indicted for operating a Ponzi scheme, Robert Brown
pleaded guilty to one count of wire fraud. His partner in the
scheme, Duane Eddings, proceeded to trial and was convicted
of six counts of mail fraud, one count of wire fraud, three
counts of money laundering, and three counts of tax evasion.
Some of Eddings’s convictions arose from the Ponzi scheme
and others from a bankruptcy fraud. Brown appeals his
sentence; Eddings appeals his convictions1 and sentence.
1
Eddings does not challenge his convictions on one count of mail fraud
(count 2), one count of wire fraud (count 7), and three counts of money
laundering (counts 8–10).
UNITED STATES V. BROWN 5
We have jurisdiction under 28 U.S.C. § 1291, and we
affirm in part, vacate in part, and remand for resentencing.
I. Factual Background
A. The Ponzi scheme.
In 2000, after a Vallejo, California newspaper article
touted Robert Brown’s investment capabilities, he organized
a public seminar. Some attendees requested that Brown
invest for them, and he agreed to do so. Unfortunately,
Brown invested only some of the investors’ money and took
the rest “off the top” for his own use. Brown’s investments
were initially successful enough to mask his wrongdoing, but
they soon turned south.
Brown then began a classic Ponzi scheme: he would “lie
to [investors] and make them feel that everything was still
going well,” and use money from new investors to pay off
past investors. Brown told investors he felt “blessed” by his
ability to generate returns to “give back to the community.”
He also told investors he would not take management fees;
rather, one hundred percent of their funds would be invested,
and he would be paid only after he doubled their money.
Duane Eddings had seen Brown driving around town in
his Ferrari and had wanted to meet him for some time. In the
summer of 2005, Eddings introduced himself to Brown. The
meeting was fortuitous, because Brown was then “desperate
for new money.” Brown and Eddings promptly established
a “business relationship” under which Eddings brought in
new investors for “15 or 20 percent of the new money.”
6 UNITED STATES V. BROWN
At Brown’s instruction, Eddings opened up separate bank
accounts to keep the investors he recruited apart from
Brown’s; one account was for “WISE Investors.” Soon after
their relationship was established, Eddings became aware of
the Ponzi scheme. By September 2005, Brown was sending
“lulling letters” to investors, “trying to basically stall people,
hoping that they wouldn’t go to the authorities.” Brown
testified that Eddings “was getting people complaining to
him” about their investments and that the two talked about
“what was going to go into the letters.” Bank records showed
that in November 2005 Eddings deposited new investor funds
into his WISE Investors account and then immediately used
that money to pay old investors.
Brown and Eddings jointly solicited new investors
through seminars at a Berkeley restaurant; Brown was the
primary presenter and Eddings was responsible for the
“finance and the contracts.” Generally, Eddings transferred
funds from his account to Brown’s to pay Brown’s investors;
at least once, however, Eddings paid Brown’s investors
directly from his WISE Investors account.
Over time, it became increasingly difficult to pay
investors, and Eddings complained to Brown about needing
money to “pay some of his own bills and a credit card he had
got behind on.” Brown agreed to increase Eddings’s “referral
fee” to fifty percent of the funds Eddings obtained.
From 2005 to 2007, Eddings personally received over
$1,866,000 from the WISE Investors account.
Approximately 165 investors deposited funds into that
account. The last transfer of money from the WISE Investors
account to Brown was on May 22, 2007. Brown continued
UNITED STATES V. BROWN 7
the Ponzi scheme thereafter, taking in several hundred
thousand dollars in 2007.
B. Eddings’s bankruptcy fraud.
On September 30, 2008, Eddings filed a Chapter 7
bankruptcy petition. Eddings’s bankruptcy filings and tax
returns claimed little or no income for 2005 to 2007; his
bankruptcy schedules listed total assets of only $33,000. The
petition claimed a fictitious $2.5 million loan from Brown as
Eddings’s largest debt. In light of the filings, the bankruptcy
trustee abandoned any effort to obtain a recovery for
creditors. Eddings received a discharge on January 5, 2009.
II. Procedural Background
A. Brown’s plea; Eddings’s trial.
In February 2009, Brown and Eddings were indicted in
the Eastern District of California on four counts of mail fraud,
18 U.S.C. § 1341, eight counts of wire fraud, 18 U.S.C.
§ 1343, and ten counts of money laundering, 18 U.S.C.
§ 1957. In April 2010, Brown pleaded guilty to a single
count of wire fraud and agreed to testify against Eddings. In
exchange, the government agreed to dismiss the remaining
counts of the indictment, seek a sentence at the low end of the
Guidelines range, and recommend reductions for acceptance
of responsibility and cooperation.
On May 12, 2011, the government filed a superseding
indictment against Eddings. It included three new charges of
tax evasion, 26 U.S.C. § 7201, arising from the returns he
filed during his bankruptcy. In October 2011, the district
court dismissed two of the wire fraud counts as beyond the
8 UNITED STATES V. BROWN
statute of limitations. Eddings then was tried; the jury found
Eddings guilty on all remaining counts.
B. Brown’s sentencing.
1. Government’s motion under U.S.S.G.
§ 5K1.1 and application of 18 U.S.C.
§ 3553(a) factors.
The government filed a United States Sentencing
Guidelines Manual (U.S.S.G.) § 5K1.1 motion, seeking to
reduce Brown’s sentence to 100 months because of his
assistance. The district court acknowledged that Brown “did
cooperate” and “accepted responsibility,” but found the
government’s proposed 100 month sentence “too great of a
reduction.”
The court then analyzed the “[18 U.S.C. §] 3553(a)
factors.” The judge concluded that Brown was still “a danger
to the public given the depth and length of this scheme” and
that “a lengthy sentence [wa]s necessary . . . to protect the
public from further crimes of this defendant.” Although the
court credited Brown for accepting responsibility and
assisting the government, he found that after application of
the § 3553(a) factors, “it basically [was] a wash.” The court
denied the § 5K1.1 motion under these “unique
circumstances,” and sentenced Brown to 188 months, a
within-Guidelines sentence at the top of the range.2
2
The district court reduced Brown’s offense level by three levels for
acceptance of responsibility under U.S.S.G. § 3B1.2(b).
UNITED STATES V. BROWN 9
2. I n c r e a s e under U.S.S.G.
3
§ 2B1.1(b)(15)(B)(iii) for “endanger[ing]
the solvency or financial security of 100 or
more victims.”
The pre-sentence report (PSR) suggested that Brown’s
sentence should be increased by two levels4 under U.S.S.G.
§ 2B1.1(b)(15)(B)(iii) because the “offense substantially
endangered the solvency or financial security of 100 or more
victims.” Brown timely objected, arguing that the
government had failed to specifically identify 100 such
victims. The court overruled the objection, finding that the
“information that probation ha[d] before it” was sufficient to
establish by a preponderance of the evidence that “there were
at least 100 victims whose solvency was endangered.”
3
The current (2013) version of the U.S.S.G. numbers this provision
§ 2B1.1(b)(16)(B)(iii), while the 2011 and 2012 versions of the Guidelines
cited by the district court and the probation office number the provision
§ 2B1.1(b)(15)(B)(iii). Because there is no substantive difference, this
opinion refers to § 2B1.1(b)(15)(B)(iii).
4
Pursuant to U.S.S.G. §§ 2B1.1(b)(15)(C), (D), the cumulative
adjustment from subsections 2B1.1(b)(2) and (b)(15)(B) cannot exceed
eight levels. Brown does not challenge the six-level upward adjustment
he received under § 2Bl.l(b)(2)(C) for having more than 250 victims; thus,
the maximum possible upward adjustment under U.S.S.G.
§ 2Bl.l(b)(l5)(B)(iii) was two levels, rather than the standard four. See
U.S.S.G. § 2B1.1(b)(15)(C).
10 UNITED STATES V. BROWN
C. Eddings’s sentencing.
1. Grouping counts 1–4 and 7–12 under
U.S.S.G. § 3D1.2(d).
Eddings’s PSR recommended that counts 1–4 (Ponzi
scheme mail fraud), 7–10 (Ponzi scheme wire fraud and
money laundering), and 11–12 (bankruptcy fraud) be grouped
under U.S.S.G. § 3D1.2(d) because “the offense level is
determined largely on the basis of the total amount of harm
or loss.” Eddings objected, arguing that the grouping was
improper because the bankruptcy counts “involve different
victims and modes of fraud and are unrelated to the
investment scheme in manner and in time.” The district court
overruled Eddings’s objection.
2. Increase under U.S.S.G. § 3B1.1(c) for
leadership role.
The PSR recommended that Eddings’s sentence not be
increased under U.S.S.G. § 3B1.1 for a leadership role. The
government objected, arguing that Eddings recruited others
“who knowingly or unknowingly worked on the defendant’s
behalf to recruit victims.” The district court found this a
“close question,” but determined that the government had
proved that Eddings had acted as a leader and applied the
adjustment.
UNITED STATES V. BROWN 11
3. I n c r e a s e under U.S.S.G.
§ 2B1.1(b)(15)(B)(iii) for “endanger[ing]
the solvency or financial security of 100 or
more victims.”
Over Eddings’s objection, and with little discussion, the
district court also applied a two-level increase under
§ 2B1.1(b)(15)(B)(iii) to Eddings’s sentence. The court
determined that, for “the same reasons . . . stated in Mr.
Brown’s sentencing,” the increase was “applicable to Mr.
Eddings as well.”
4. Increase under U.S.S.G. § 2B1.1(b)(2)(C)
for having 250 or more victims.
Eddings’s PSR determined that he had 154 victims. The
government objected, arguing that the total should include an
additional 147 victims who invested with Brown prior to
Eddings’s involvement but to whom Eddings made lulling
payments. The district court determined that the 147 victims
“had at least some communication or contact with Mr.
Eddings [and] therefore they should be added to his victim
total as well.” Consequently, Eddings’s offense was
increased by six levels under § 2B1.1(b)(2)(C).
5. Eddings’s ultimate sentence.
Based on Eddings’s offense level of 39, the Guidelines
range was 262 to 327 months. U.S.S.G. Chapter 5 Part A.
The district court was “concerned” about sentencing disparity
because even a low-end sentence for Eddings would be over
six years more than Brown’s sentence. The court reviewed
the “3553(a) factors” and noted that, without his reduction for
acceptance of responsibility, Brown would have faced 210 to
12 UNITED STATES V. BROWN
262 months. The court found that range also “appropriate”
for Eddings’s conduct, and gave a “downward variance,”
sentencing Eddings to a total term of 210 months.
III. Discussion
A. The denial of the government’s motion to
reduce Brown’s sentence under U.S.S.G.
§ 5K1.1 was proper.
We review the district court’s interpretation of the
Guidelines de novo and its factual findings for clear error.5
United States v. Cantrell, 433 F.3d 1269, 1279 (9th Cir.
2006). In rejecting the government’s § 5K1.1 motion, the
district court properly exercised the “wide latitude” given by
the Guidelines for “evaluating the significance and usefulness
of the defendant’s assistance. . . .” United States v. Awad,
371 F.3d 583, 586 (9th Cir. 2004) (citation and internal
quotation marks omitted). The court gave the “substantial
weight” required by the Guidelines to the government’s
evaluation of the defendant’s assistance. See U.S.S.G.
§ 5K1.1 cmt. 3. But, the court also determined that any
benefit to which Eddings was entitled under § 5K1.1 was
offset by the aggravating nature of the § 3553(a) factors.
Rather than granting the government’s § 5K1.1 motion, but
then upwardly departing because of the § 3553(a) factors, the
district court simply denied the § 5K.1.1 motion. This arrived
5
There is a long-standing intra-circuit split on whether the district
court’s application of the Guidelines to the facts is reviewed de novo or
for abuse of discretion. See, e.g., United States v. Swank, 676 F.3d 919,
921–22 (9th Cir. 2012); United States v. Staten, 466 F.3d 708, 713 n.3 (9th
Cir. 2006) (discussing conflict dating to 1999). Because the result in this
case is the same under either standard of review, we need not resolve the
conflict here.
UNITED STATES V. BROWN 13
at the same result and was not erroneous. U.S.S.G. § 5K1.1
cmt. background; see also United States v. Tadio, 663 F.3d
1042, 1046 (9th Cir. 2011) (permitting consideration of the
§ 3553(a) factors in the context of a post-sentencing motion
for a reduction for substantial assistance).
B. Brown’s 188-month sentence is not
substantively unreasonable under 18 U.S.C.
§ 3553(a).
As required by § 3553(a), the district court judge
specifically considered Brown’s offense and his personal
characteristics in imposing the 188 month sentence. The
court noted that Brown “preyed upon particularly vulnerable
victims,” used victims’ monies “for personal gains,”
“continued this scheme for a number of years, and impacted
an incredible number of victims.” The victim impact
statements chronicled “not just monetary impacts,” but also
that Brown “caused individuals to file for bankruptcy” and
“caused a number of his victims to become homeless,” and
the court therefore concluded that the Guidelines did not
“capture[]” the “full extent of the crime.” The district court
fully explained its reasons for rejecting the sentence
recommendations of the probation office and the government
and gave a within-Guidelines sentence; this was not
unreasonable. Rita v. United States, 551 U.S. 338, 351
(2007) (“[W]hen the judge’s discretionary decision accords
with the Commission’s view of the appropriate application of
§ 3553(a) in the mine run of cases, it is probable that the
sentence is reasonable.”).
14 UNITED STATES V. BROWN
C. Eddings’s mail fraud convictions related to the
bankruptcy fraud were based on a legally valid
theory.
Counts 11 and 12 of the superseding indictment alleged
that Eddings had
knowingly devised and intended to devise a
material scheme and artifice to defraud the
Bankruptcy Court, the Bankruptcy Trustee,
and various creditors of the Bankruptcy Case
. . . [by filing] schedules and a statement of
financial affairs, in which he falsely
misrepresented and/or failed to disclose
income, interests in assets, and bank accounts,
and liabilities, in order to defraud the
Bankruptcy Court, the Bankruptcy Trustee,
and various creditors of money and
property. . . .
Citing Cleveland v. United States, 531 U.S. 12 (2000), and
McNally v. United Sates, 483 U.S. 350 (1987), Eddings
argues that these charges impermissibly “allege a scheme to
defraud the bankruptcy court and public fiduciary rather than
individuals. . . .” Because Eddings did not raise this objection
at trial, we review only for plain error. United States v.
Olano, 507 U.S. 725, 731–32 (1993).
As an initial matter, the indictment does allege a scheme
to defraud creditors; it also alleges that the Bankruptcy Court
and Trustee were defrauded as well. But, even assuming
Eddings was charged under an improperly overbroad theory,
there was no plain error here because he was not tried under
that theory. The superseding indictment was not introduced
UNITED STATES V. BROWN 15
at trial, and the judge described counts 11 and 12 to the jury
as “mail fraud counts . . . that relate . . . to the defendant’s
bankruptcy.” The government argued that Eddings had
committed mail fraud by filing bankruptcy schedules that
failed to disclose certain assets and artificially inflated his
debts in order to enable him to obtain a “no asset discharge”
without paying his creditors. The government never argued
that the bankruptcy court or the trustee was defrauded. There
was no plain error.
D. The evidence was sufficient to sustain
Eddings’s convictions on the Ponzi scheme
mail fraud charges.
In reviewing a claim of insufficient evidence, the
“relevant question is whether, after viewing the evidence in
the light most favorable to the prosecution, any rational trier
of fact could have found the essential elements of the crime
beyond a reasonable doubt.” Jackson v. Virginia, 443 U.S.
307, 319 (1979) (citation omitted); see also United States v.
Hsiung, 758 F.3d 1074, 1091 (9th Cir. 2014).
1. Count 1 – mail fraud based on lulling letter
from Brown to Teresa R. dated August 30,
2006.
Brown drafted a lulling letter dated August 30, 2006 and
postmarked September 5, 2006 to Teresa R. Eddings argues
that, because Teresa R.’s interactions were with Brown, not
him, there was no evidence from which to conclude that the
letter was in furtherance of a joint fraud scheme.
But, because Eddings knowingly participated in the Ponzi
scheme, he “is liable for his co-schemers’ use of the mails or
16 UNITED STATES V. BROWN
wires.” United States v. Blitz, 151 F.3d 1002, 1006 (9th Cir.
1998) (citation and internal quotation marks omitted).
Brown’s mailing was part of the scheme because it served
“the purpose of lulling [the] victims.” United States v.
Sampson, 371 U.S. 75, 78, (1962).
Substantial evidence supports the conclusion that Eddings
was participating in the Ponzi scheme when the letter was
sent to Teresa R. Brown testified that, by that time, Eddings
was aware of the lulling letters. Moreover, in November
2005, Eddings deposited new investor money to his WISE
Investors account and immediately used those funds to pay
Brown’s old investors; he continued to deposit investor funds
in that account through May 7, 2007.
2. Counts 3 and 4 – mail fraud based on
lulling letters from Brown to Persia M. and
Teresa B. dated May 18, 2007.
A lulling letter from Brown dated May 18, 2007 was sent
to Persia C. on May 22, 2007 and another to Teresa B. on
May 23, 2007. Because the last investor deposit into
Eddings’s WISE Investors account was made on May 7,
2007, Eddings argues that there was no evidence to show that
he was involved in the Ponzi scheme after that date. He
therefore contends the evidence was insufficient for any
rational juror to conclude that the May 22 and 23 lulling
letters were in furtherance of a joint fraud scheme.
However, Persia C. and Teresa B. were both recruited by
Eddings, not Brown. And, although the last deposit to
Eddings’s account was made on May 7, a transfer from that
account to Brown’s bank accounts was made on May 22,
2007, the date of the Persia C. letter. Moreover, Brown’s
UNITED STATES V. BROWN 17
testimony established that Eddings was still involved in the
scheme on May 22.
Even assuming that Eddings withdrew from the scheme
on May 22, 2007, he is still liable “for uses of the mails or
wires that are an inevitable consequence of actions taken
while the defendant was a knowing participant in the
scheme.” United States v. Stapleton, 293 F.3d 1111, 1117
(9th Cir. 2002) (citation omitted). Because Teresa B. was
recruited by Eddings, the jury could reasonably conclude that
Brown’s lulling letter sent one day later was such a
consequence.
3. Counts 11 and 12 – mail fraud based on
notice of bankruptcy case and discharge.
Eddings’s bankruptcy schedules falsely listed Brown as
a creditor with a $2.5 million unsecured loan. The
convictions on counts 11 and 12 were premised on mailings
by the Bankruptcy Court of the Notice of Chapter 7
Bankruptcy Case and the Notice of Discharge. Eddings
argues that these two mailings “were not incident to an
essential part of the charged fraud scheme.”
However, the bankruptcy fraud alleged in counts 11 and
12 did not arise from the Ponzi scheme but from Eddings’s
separate scheme “to defraud . . . various creditors of the
Bankruptcy Case.” The issue is thus whether the mailing of
the bankruptcy notices was “incident to an essential part of
the scheme, or a step in the plot.” Schmuck v. United States,
489 U.S. 705, 711 (1989) (citations omitted); see also id. at
713–15 (holding that a government entity’s mailing of a
routine document can create liability for mail fraud); United
18 UNITED STATES V. BROWN
States v. Mitchell, 744 F.2d 701, 703–04 (9th Cir. 1984)
(same).
Trial testimony established that mailings to creditors are
integral parts of any bankruptcy. An assistant bankruptcy
trustee testified that the notice of filing is essential to the
bankruptcy process and that a discharge is “the golden ring
that people want in a bankruptcy. It’s a declaration that all
debts that are dischargeable are discharged and [the debtor]
no longer personally owned any of the debt.” There was
sufficient evidence of the mailings’ importance to Eddings’s
bankruptcy fraud scheme to support his convictions on counts
11 and 12.
E. Eddings’s bankruptcy fraud convictions were
properly grouped for sentencing with his Ponzi
scheme convictions.
The district court properly grouped Eddings’s convictions
on the bankruptcy fraud counts together with his Ponzi
scheme convictions under U.S.S.G. § 3D1.2(d), which
provides that offenses “covered by” certain Guidelines
sections “are to be grouped under this subsection.” U.S.S.G.
§ 3D1.2(d) (emphasis added.) All of Eddings’s grouped
convictions fall under § 2B1.1, one of the Guidelines sections
specifically covered in § 3D1.2(d). Eddings was convicted of
mail and wire fraud based on “various schemes” that “each
involve[d] a monetary objective,” precisely the sort of
offenses that the application notes indicate should be
grouped. U.S.S.G. § 3D1.2(d) cmt. 6, example 3.
Relying on United States v. Defterios, 343 F.3d 1020,
1023 (9th Cir. 2003), Eddings argues this grouping was
improper because the bankruptcy fraud and Ponzi scheme
UNITED STATES V. BROWN 19
were “two separate crimes that were distinct in time, place,
and victims.” In Defterios, however, the two crimes were
separately charged and tried. Id. at 1022–23. Here, the two
crimes were charged and tried together. More importantly,
Eddings’s bankruptcy fraud arose, at least in part, from his
efforts to conceal his participation in the Ponzi scheme by
identifying the fruits of that crime as a fictitious “loan” from
Brown; thus, the crimes were not separate.
F. Applying a leadership role adjustment to
Eddings’s sentence under U.S.S.G. § 3B1.1(c)
was erroneous.
The district court applied a two-level adjustment after
finding that Eddings was “an organizer, leader, manager, or
supervisor” in a criminal activity that was not “otherwise
extensive.” U.S.S.G. § 3B1.1(b), (c). The adjustment was
based on Eddings’s introduction to some victims as Brown’s
business partner and Eddings’s recruitment of investors. The
district court also noted that “there was some suggestion” at
trial that “Mack [M.] was really under the direction of Mr.
Eddings,” but explicitly stated that Eddings’s control over
Mack M. “wasn’t really made clear.”
The application notes to U.S.S.G. § 3B1.1 provide:
To qualify for an adjustment under this
section, the defendant must have been the
organizer, leader, manager, or supervisor of
one or more other participants. An upward
departure may be warranted, however, in the
case of a defendant who did not organize,
lead, manage, or supervise another participant,
but who nevertheless exercised management
20 UNITED STATES V. BROWN
responsibility over the property, assets, or
activities of a criminal organization.
U.S.S.G. § 3B1.1 cmt. 2 (emphasis added). Eddings can only
be subject to an adjustment as a leader under § 3B1.1(c) if he
exercised “‘some degree of control or organizational
authority over others. . . .’” United States v. Bonilla-Guizar,
729 F.3d 1179, 1186 (9th Cir. 2013) (quoting United States
v. Mares-Molina, 913 F.2d 770, 773 (9th Cir. 1990)). Here,
the district court noted that it was not “really made clear”
whether Eddings controlled Mack M., and the record does not
indicate that Eddings controlled any other “criminally
responsible participant[]” in the scheme. United States v.
Luca, 183 F.3d 1018, 1024 (9th Cir. 1999). Nor did the
district court impose an upward departure for Eddings’s
“management responsibility over the property, assets, or
activities” of the Ponzi scheme. The two-level adjustment
under § 3B1.1(c) was therefore improper.
G. Increasing both defendants’ sentences under
U.S.S.G. § 2B1.1(b)(15)(B)(iii) for
“endanger[ing] the solvency or financial
security of 100 or more victims” was
erroneous.
U.S.S.G. § 2B1.1(b)(15)(B)(iii) requires an increase if
“the offense . . . substantially endangered the solvency or
financial security of 100 or more victims. . . .”
The district court found that the government had proved
by a preponderance of the evidence that there were at least
100 victims whose solvency or financial security was
endangered by the two defendants’ actions. The total number
of victims is not at issue; Brown conceded he had 405
UNITED STATES V. BROWN 21
victims, and Eddings conceded he had at least 154. The
question on appeal is whether there is sufficient evidence that
each defendant’s actions substantially endangered the
solvency or financial security of at least 100 of these victims.
There was some direct evidence on this topic presented at
trial and at sentencing. Sixteen victims testified; none was
wealthy.6 Several victims testified that the defendants had
convinced them to refinance their homes or to take out loans
in order to have funds to invest. Both during trial and the
sentencing proceedings testimony was presented that these 16
victims and their family members who invested with them
were “affected dramatically” by investment losses: they lost
homes to foreclosure, had cars repossessed, emptied
retirement accounts, and liquidated investments and savings.
There was thus sufficient evidence presented to demonstrate
a significant endangerment of these witnesses’ and their
family members’ financial security.
At sentencing, the government relied entirely on victim
impact statements to close the gap between the victims
addressed in direct testimony and the required 100. The
prosecutor represented that “over a hundred statements were
submitted.” If the record actually contained 100 victim
impact statements attesting to the impact of the crimes on the
6
Their occupations included: a supervisor for the dementia care
department of an assisted living facility, a station agent for the Bay Area
Rapid Transit system, a caregiver, a self-employed caregiver for
developmentally disabled clients, a correctional officer with the California
Department of Corrections, a makeup artist, a retired county personnel
services supervisor, a manager of a community health center, a
professional figure skater, a school district employee, a project manager
installing hardware and software for a dental company, a marketing
director for a family entertainment center, and an in-home caregiver.
22 UNITED STATES V. BROWN
victims’ finances—or even testimony about 100 such
statements—there might well be sufficient evidence to
support the adjustment . But, there are no victim impact
statements in the record, and it is unclear how many were
actually submitted. When questioned how many victim
impact statements he had received, the probation officer
replied: “Approximately a hundred. 79, still counting, still
coming through,” noting that they “mostly said the same
thing.”7 The district court, however, was provided with only
29 victim impact statements; of those, 27 “indicated that [the
victim] suffered either complete insolvency or complete
financial disaster. . . .” The record does not reflect whether
any of these impact statements came from the 16 witnesses
who testified at the trial or the victims about whom they
testified.
In the absence of specific evidence that 100 victims had
their solvency or financial security endangered, the district
court extrapolated from the impact statements before it in
applying the adjustment :
I think based on the information that
probation has before it, and probation’s
representations to the Court, and probation’s
determination that this is applicable, I do find
that the government has proven by a
preponderance that there were at least 100
7
Eddings conceded that 53 of his victims submitted victim impact
statements. At the sentencing hearing, the judge stated, “I have a
statement from a probation officer that says there are between 100 and 150
of these [victim impact] statements, all similar.” There is nothing in the
record specifically stating that there were “between 100 and 150 [victim
impact] statements, all similar.”
UNITED STATES V. BROWN 23
victims whose solvency was endangered.
Based simply on the sampling, as well as what
the Court has reviewed, almost 95 or 96 or 97
percent of those victims, just a small
sampling, indicated that their solvency was
endangered. So, I do think, under the facts of
this case, that has been proven by a
preponderance and [the adjustment] is
applicable.
There are no published decisions or Guidelines
commentary providing direction about how the government
meets its burden of proof under § 2B1.1(b)(15)(B)(iii). But
it is clear that the adjustment requires two findings: (1) that
there were at least 100 victims, and (2) that the defendants’
actions substantially endangered the solvency or financial
security of at least that number of victims.
The government can rely on estimates to establish the
total amount of loss suffered as a result of criminal activity,
given the “difficulties inherent in calculating monetary loss.”
United States v. Showalter, 569 F.3d 1150, 1160 (9th Cir.
2009). But here, the total amount of the loss is not in dispute.
Rather, the issue is whether the government provided
insufficient evidence to prove that at least 100 of the victims
had their “solvency or financial security” substantially
endangered as required by § 2B1.1(b)(15)(B)(iii). The
language of the Guidelines requires linking the requisite
endangerment to 100 specific victims.
We reject the government’s argument that the district
court could determine that 100 victims had their financial
security substantially endangered solely by extrapolating
from the 27 out of 29 victim impact statements provided to it.
24 UNITED STATES V. BROWN
There is nothing in the record to support the conclusion that
this same ratio would hold across all victims. There is no
evidence that the 27 were representative of the group of
victims at large, nor any evidence from which the court could
draw the conclusion that the impact of the losses the 27
suffered was representative of others.
Because the victim impact statements are not in the
record, we cannot tell whether some were submitted by the
trial and sentencing witnesses or their families. But, even if
the 27 victims whose impact statements were reviewed by the
district court are added to the trial and sentencing witnesses,
this amounts to fewer than 50 victims for whom the
government has provided proof of substantial endangerment.
The government failed to provide any other direct
evidence that the remaining investors had their financial
security threatened. The probation officer testified that he
had reviewed 79 victim impact statements, each of which
“mostly said the same thing.” Even assuming that each of
these victim impact statements came from other victims, the
simple statement that they “mostly said the same thing” is not
sufficient evidence that each of these 79 individuals had their
solvency or financial security substantially endangered.
This is not to say that the crimes didn’t significantly
impact the financial security or solvency of other investors.
A report from the probation department showed that over
$7.5 million in investor money was deposited into Eddings’s
WISE Investors bank account while he and Brown together
UNITED STATES V. BROWN 25
operated the Ponzi scheme.8 Only one of those investors paid
in less than $1,000. Of the 154 investors who paid funds into
the WISE Investors account, 105 paid in $10,000 or more,
and 83 invested $15,000 or more. The top 100 investors who
paid in the most money put in between $15,000 and
$550,000; their average investment was $79,233.98.
But the report does not attempt to determine whether any
of those investors had their financial security or solvency
“substantially endangered” by the scheme. It seems quite
likely that this was the case; the average sums invested are
large and at least the investors who testified do not appear to
have been wealthy. But § 2B1.1(b)(15)(B)(iii) requires at
least some showing by the government that the financial
security or solvency of 100 individual victims was
“substantially endangered” by the scheme. A $15,000 loss or
even a $1,000 loss might well qualify, but we cannot
conclude as a matter of law that this is the case for 100
victims. The government provided sufficient evidence of the
victims’ losses, but it has not provided sufficient evidence of
the impact of those losses on 100 victims.
This burden would not be difficult to discharge. We do
not suggest that the government must provide financial
statements from individual victims or other detailed proof.
The impact statements referred to by the district court
apparently contained ample information that the Ponzi
scheme had imposed the requisite damage on at least 27
victims. A probation officer might well be able to provide the
required information from a review of victim impact
8
The PSR asserts that Brown was responsible for nearly $9 million in
losses. But the record contains no information about the individual
investments made by Brown’s victims prior to Eddings’s involvement.
26 UNITED STATES V. BROWN
statements or from other materials. We hold only that the
government, which almost surely could have done so, did not
in this case provide evidence of the impact of the crimes on
the requisite number of victims. We therefore find that the
adjustments under § 2B1.1(b)(15)(B)(iii) were imposed in
error.
Because there has not been “a full inquiry into the factual
question at issue,” we leave it to the district court to decide
whether to take new evidence on this adjustment on remand.
United States v. Flores, 725 F.3d 1028, 1043 (9th Cir. 2013).
H. Increasing Eddings’s sentence under U.S.S.G.
§ 2B1.1(b)(2)(C) for having 250 or more
victims was erroneous.
U.S.S.G. § 2B1.1(b)(2)(C) provides: “If the offense . . .
involved 250 or more victims, increase by 6 levels.” Each of
the victims “must have sustained a loss that is ‘monetary or
that otherwise is readily measurable in money’ and that loss
must be included in the loss calculation” made pursuant to
U.S.S.G. § 2B1.1(b)(1). United States v. Armstead, 552 F.3d
769, 780–81 (9th Cir. 2008) (quoting U.S.S.G. § 2B1.1 cmt.
1.3(A)(iii)).
The district court found that the total loss attributable to
Eddings under § 2B1.1(b)(1) was $7,129,448.20. Eddings
conceded that the number of victims associated with this loss
is approximately 154. The district court found that an
additional 148 victims who had had “at least some
communication or contact with Mr. Eddings” could be
“added to his victim total as well.” But, because these
additional 148 victims were not included in the loss
calculation under § 2B1.1(b)(1), they cannot increase his total
UNITED STATES V. BROWN 27
number of victims under § 2B1.1(b)(2)(c). Armstead,
552 F.3d at 780–81.
The government concedes as much, but argues that the
error was harmless because, under U.S.S.G.
§ 2B1.1(b)(15)(C), the “cumulative adjustments from
application of both subsections [2B1.1](b)(2) and
[2B1.1](b)(15)(B) shall not exceed 8 levels.” Because
Eddings received a two-level adjustment under
§ 2B1.1(b)(15)(B)(iii) and a six-level adjustment under
§ 2B1.1(b)(2)(C), meeting the eight-level cap, the
government contends that any error under § 2B1.1(b)(15)(C)
is immaterial.
However, we today have vacated the four-
level adjustment to Eddings’s sentence under
§ 2B1.1(b)(15)(B)(iii). Thus, the cap set in
§ 2B1.1(b)(15)(C) has not been met, and the district court’s
erroneous calculation of Eddings’s total number of victims
under § 2B1.1(b)(2) is not harmless error.9
I. Remand will be to the same district court
judge.
We reject the defendants’ arguments that remand should
be to a new judge because the district court judge’s denial of
the government’s § 5K1.1 motion during Brown’s sentencing
indicates that he would be unable to “put aside his prior
views” on that issue. The district court dealt with that issue
appropriately and there has been no other showing that this
9
Because Eddings conceded he had more than fifty victims, his offense
level remains subject to a four-level increase under U.S.S.G.
§ 2B1.1(b)(2)(B).
28 UNITED STATES V. BROWN
case meets the “unusual circumstances” required for remand
to a different judge. United States v. Paul, 561 F.3d 970, 975
(9th Cir. 2009) (per curiam) (citation omitted).
IV. Conclusion
We affirm the district court’s denial of the government’s
§ 5K1.1 motion in Brown’s sentencing and the court’s
application of the 18 U.S.C. § 3553(a) factors to him. We
vacate the adjustment under U.S.S.G. § 2B1.1(b)(15)(B)(iii)
to Brown’s sentence for substantially endangering the
solvency of 100 or more victims.
We affirm Eddings’s convictions on all counts appealed.
We affirm the grouping of counts 11 and 12 with counts 1–4
and 7–10 under U.S.S.G. § 3D1.2(d); vacate the application
of a leadership role adjustment under § 3B1.1(c); vacate the
adjustment under § 2B1.1(b)(15)(B)(iii) for substantially
endangering the solvency of 100 or more victims; and vacate
the determination under § 2B1.1(b)(2)(C) that Eddings had
more than 250 victims.
This case is remanded to the district court for the
resentencing of each defendant.
AFFIRMED IN PART, VACATED IN PART AND
REMANDED.