United States v. Joseph Paul Zada , 706 F. App'x 500 ( 2017 )

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[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 16-10435
Non-Argument Calendar
________________________
D.C. Docket No. 9:13-cr-80173-KAM-1
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
versus
JOSEPH PAUL ZADA,
Defendant-Appellant.
________________________
Appeal from the United States District Court
for the Southern District of Florida
________________________
(August 11, 2017)
Before MARTIN, ROSENBAUM, and ANDERSON, Circuit Judges.
PER CURIAM:
After a lengthy jury trial, Joseph Zada was convicted of fifteen counts of
mail fraud, in violation of 18 U.S.C. § 1341, for operating a scheme to defraud
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investor-victims of tens of millions of dollars over a period of more than ten years.
Zada makes the following claims on appeal: (1) the district court abused its
discretion in admitting a recorded conversation made by a government witness that
contained gaps in the recording; (2) the court abused its discretion in excluding
certain exhibits as inadmissible hearsay; and (3) the court clearly erred in applying
a four-level role enhancement to Zada’s sentence, pursuant to U.S.S.G. § 3B1.1(a),
for operating a scheme that was “otherwise extensive.” After careful review, we
affirm.
I. Background
A. The Fraudulent Scheme
Zada was convicted following a 22-day jury trial. The evidence introduced
at trial established that Zada operated a scheme to defraud investors of tens of
millions of dollars from approximately 1997 through 2013. Although Zada does
not challenge the sufficiency of the evidence to support his convictions, we recount
some of the evidence to give context to his arguments on appeal.
Broadly speaking, Zada used his appearance of extravagant wealth and
exclusive connections to Middle Eastern oil ventures to solicit investments from
individuals in Florida, Michigan, and elsewhere. Zada represented that investors
could earn high returns by investing through him with a secret board in London,
and he encouraged investors to invest as much money as possible, even if it meant
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mortgaging a home or borrowing money. While the investors believed that Zada
was investing their money in oil ventures or other foreign investments, Zada
instead used much of the money to furnish his lavish lifestyle.
Zada cultivated potential investors by hosting extravagant parties, inviting
them to one of his lavish homes, or purchasing expensive items from them, such as
exotic cars or jewelry. He also told investors that he wanted to help them out
either because they were “like family” or because they were public servants, like
firefighters. And although he said that the investment was exclusive, he sometimes
encouraged investors to invite their family and friends to join in.
In return for their investments, many investors received “promissory notes,”
which Zada said were a way to guarantee their principal in case something
happened to him. For the same reason, Zada encouraged investors to write “loan”
on their checks and wire transfers to him.
To maintain the appearance of legitimacy, Zada apprised the investors of
their quarterly returns, which generally exceeded 10%. Zada also paid out
purported returns to some of the investors, but he discouraged investors from
withdrawing their principal. He introduced some investors to his purported
connections to the secret board (a man known as Wolfgang) and to the Saudi royal
family (a name named Mohamed Zarrouk). And he enlisted attorneys to
correspond with investors who wanted to cash out their investments.
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When investors asked for the return of their investments, Zada and his
attorneys made excuses about why the money was not available and assured them
that it would be coming soon. Both Zada and his attorneys gave assurances to
investors that they would soon be paid back because he was going to receive an
inheritance in excess of $250 million. For example, a jeweler who had asked for
the return of his investment received a letter from an attorney representing Zada,
which stated in part,
[Zada] has asked me to provide you some information concerning a
large inheritance he will receive from a deceased individual. I have
been working on this inheritance for over two years. I have seen
independent documentation to support the information [Zada] has
provided. I also have in my possession a letter and financial statement
from an internationally recognized accounting firm stating that the
value of the assets to which [Zada] will be entitled as a result of the
inheritance are far in excess of $250 million. . . . [The law firm] is
currently engaged in discussions that will lead to [Zada] actually
receiving the inheritance, which hopefully will not be too far in the
future.
At some point in 2007, Zada began telling investors that he would be closing
out the investments. Over the course of the next two years, Zada sent the investors
agreements for satisfaction of debt and release, promising to make payments that
were never made. He sent checks allegedly to return the investors’ principal plus
interest, usually with the caveat that they should wait for Zada’s authorization to
deposit the checks. But either he never gave his authorization or, if the checks
were deposited anyway, the bank did not honor the checks for insufficient funds.
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Later on, Zada entered into agreements wherein he consented to the immediate
entry of a judgment in favor of the investor if he failed to pay an agreed-upon lump
sum by a certain date. Again, Zada failed to make the promised payments.
B. The Government’s Evidence
The government proved its case primarily through the testimony of
numerous victims, who presented consistent testimony about their experiences and
transactions with Zada. The government’s case-in-chief also included two oral
recordings of Zada. The first recording was a message Zada left for one of the
victims on an answering machine. In the recording, Zada advised the victim that
his money could not yet be returned, assured him that the funds would be available
soon, and said that his money had “doubled . . . in one year” “due to the fact that
these funds were invested in multiple . . . investments and those investments need
to be drawn out and terminated in order to pay you.”
The second recording was made surreptitiously by victim Salvatore Martone
III during a meeting at Zada’s house about Martone’s investment with Zada. On
the recording, Zada discussed, among other things, the investment “portfolio” and
rates of return on the investment. The recording contained gaps in the
conversation apparently caused by starting and stopping of the recording device.
Martone testified at trial about his own investments with Zada and the
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circumstances surrounding the making of the tape recording. A transcript of the
conversation was submitted to the jury.
Zada had moved in limine to exclude the recording and accompanying
transcript after receiving Jencks material from the government after the trial began.
The material included an FBI report of an interview with Martone, which indicated
that Martone had admitted to manually turning off the recording during times in
which he spoke. Based on that admission, Zada argued that the tape should be
excluded because it could not be authenticated, was far more prejudicial than
probative, and violated the rule of completeness.
Outside of the jury’s presence, the district court heard testimony from
Martone about the making of the recording. Contrary to what was suggested in the
FBI report, Martone told the court that the gaps in the recording were not
intentional, but instead were caused by him fumbling with the device, with which
he was unfamiliar because he had purchased it the same day of the recording.
Martone also told the court that there was very little of the conversation that was
not captured on the tape.
The district court denied Zada’s motion in limine. In issuing its ruling, the
court stated that it had listened to the complete recording three times, replayed
various specific portions, reviewed the transcript of the recording, and considered
Martone’s testimony. The court found that the interruptions in the recording were
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not substantial and did not render the entire recording untrustworthy or unreliable.
Noting Martone’s testimony that he was not proficient in operating the recording
device, the court found that he was proficient enough to obtain a reliable and
trustworthy recording. Finally, the court determined that the probative value of the
recording outweighed the prejudicial effect caused by the absence of portions of
the conversation. Accordingly, the district court admitted the recording and
accompanying transcript.
C. Zada’s Theory of the Defense
Zada’s theory of the defense was that he had merely borrowed money from
numerous others in good faith in anticipation of receiving a large inheritance. The
inheritance never materialized, however, leaving him unable to repay his debts.
Unable to recoup the money they had lent him, the lenders fabricated the theory
that their transactions with Zada were investments and not loans, either to mitigate
the tax consequences of their loss or to punish Zada.
As part of that defense, Zada sought to present evidence regarding the efforts
made by his lawyers to verify the legitimacy and value of the anticipated
inheritance. In particular, Zada tried to introduce documents drafted by members
of the (former) law firm of Hyman Lippitt, which represented Zada. These
documents, all of which conveyed similar information, included three letters to
bank employees, a letter to another law firm asking for tax advice, and an internal
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memorandum of the law firm. For example, Zada’s attorney, Norman Lippitt, sent
the following letter to a bank officer in June 2004:
I, along with my firm, represent Joseph P. Zada. Joe has asked
that I provide you certain confidential information with respect to his
affairs.
I have represented Joe for approximately five years, and I am
very familiar with his business and personal life.
Joe has asked me to provide you some information concerning
a large inheritance he will receive from a deceased individual. I have
been working on this inheritance for over two years. I have seen
independent documentation to support the information Joe has
provided. I also have in my possession, a letter and financial
statement from an internationally recognized accounting firm stating
that the value of the assets to which Joe will be entitled as a result of
the inheritance are far in excess of Two Hundred Fifty Million
($250,000,000.00) Dollars. I am arbitrarily using that number just to
be conservative. The accounting firm has also confirmed that
approximately sixty-five perfect (65%) of the assets are liquid. We
are currently engaged in discussions that will lead to Joe actually
receiving the inheritance, which hopefully, will not be too far in the
distant future.
Zada claimed that the documents were admissible as proof of his good-faith belief
in the inheritance because they showed that he had been advised by counsel that
the inheritance was real.
The district court excluded the proffered exhibits as inadmissible hearsay.
The court found that the documents were being offered for the truth of the matter
asserted, which made them hearsay, and that they did not meet any exception to the
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rule against hearsay. 1 The court rejected Zada’s contention that the documents
could be admitted for the nonhearsay purpose of showing the effect of his
attorneys’ advice to Zada about the existence of the inheritance.
Nevertheless, despite the exclusion of Zada’s proffered exhibits, similar
evidence came in during the government’s case. A similar letter to an investor is
excerpted above. In addition, during a bank CEO’s testimony, the government
introduced a letter one of Zada’s lawyers sent to the bank in connection with a
pending loan application. That letter stated, in part,
This firm represents Mr. Joseph P. Zada. We have been asked to
provide certain information with regard to our client. I have
represented Mr. Zada for over seven years in many business and
personal transactions both domestic and international. . . . I understand
that Mr. Zada has advised you of his expectancy that he is to receive a
large bequest as an inheritance from a deceased individual. . . . I am
authorized to confirm that I have been provided with documentation
from an internationally recognized private accounting firm stating that
the value of the assets to which Mr. Zada will be entitled as a result of
that expected inheritance is in excess of $250 million[.]
D. Jury Verdict
Zada was tried on fifteen counts of mail fraud, in violation of 18 U.S.C.
§ 1341, and three counts of making false statements on a loan application, in
violation of 18 U.S.C. § 1014.2 The jury returned a guilty verdict on all mail-fraud
1
More precisely, the district court concluded that the documents did not qualify as
business records, under Rule 803(6), Fed. R. Evid., or as statements of Zada’s then-existing state
of mind, under Rule 803(3). Zada does not challenge these rulings on appeal.
2
Other counts charged in the superseding indictment were dismissed by the district court
before trial as barred by the statute of limitations.
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counts and two of the three false-statement counts. In finding Zada guilty of the
two false-statement counts, the jury reported that it had not unanimously found that
Zada knowingly made false statements that he expected an inheritance in excess of
$250 million. Thereafter, the district court granted Zada’s motion for judgment of
acquittal on the false-statements counts and adjudicated him guilty on the mail-
fraud counts.
E. Sentencing Proceedings
In a revised presentence investigation report (“PSR”), a probation officer
calculated a total offense level of 37 under U.S.S.G. § 2B1.1. That offense level
included sentencing enhancements for the extent of the loss (more than $20 million
but less than $50 million), the number of victims (10 or more), the sophisticated
means used in the offense, and Zada’s role as an organizer or leader of criminal
activity that was “otherwise extensive.” Zada had no criminal history, placing him
in criminal history category I. His total offense level of 37 and criminal history
category of I established a guideline range of 210 to 262 months of imprisonment.
Zada objected to the enhancements for sophisticated means and his role in
the offense. Regarding his role in the offense, Zada argued that the four-level role
enhancement did not apply because the criminal activity did not involve five or
more participants and it was not “otherwise extensive” for purposes of U.S.S.G.
§ 3B1.1(a).
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At sentencing, the district court considered additional evidence introduced
by the government, including a deposition from John Whittles, one of Zada’s
attorneys, and heard argument from the parties on the objections. Ultimately, the
district court sustained Zada’s objection to the sophisticated-means enhancement
but overruled his objection to the aggravating-role enhancement. Regarding the
role enhancement, the court found that both Wolfgang and Zarrouk, Zada’s
purported connections to the secret board and the Saudi royal family, respectively,
were participants in the fraud and that the criminal activity directed by Zada was
“otherwise extensive.” The court cited the length and scope of the criminal
activity and Zada’s use of numerous others as “unwitting” participants in the fraud.
Without the sophisticated-means enhancement, Zada’s total offense level
was 35, and his advisory guideline range was 168 to 210 months of imprisonment.
The district court sentenced Zada to a total term of 210 months of imprisonment.
This is Zada’s appeal.
II. Evidentiary Challenges
Zada first challenges two evidentiary rulings at trial. He argues that the
district court abused its discretion both by admitting Martone’s secretly made
recording and by excluding his proffered exhibits regarding the alleged legitimacy
of the inheritance.
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We review the district court’s rulings on admission of evidence for an abuse
of discretion. United States v. Rutgerson, 822 F.3d 1223, 1239 (11th Cir. 2016).
A district court’s factual findings underlying an evidentiary ruling are reviewed for
clear error. United States v. Lebowitz, 676 F.3d 1000, 1009 (11th Cir. 2012). We
give substantial deference to the district court’s credibility determinations. United
States v. Clay, 483 F.3d 730, 744 (11th Cir. 2007).
We will reverse an erroneous evidentiary ruling only if the “error was not
harmless.” United States v. Bradley, 644 F.3d 1213, 1270 (11th Cir. 2011). An
evidentiary error is harmless unless there is a reasonable likelihood that it affected
the defendant’s substantial rights. Rutgerson, 822 F.3d at 1239. Reversal is not
warranted “where an error had no substantial influence on the outcome, and
sufficient evidence uninfected by error supports the verdict.” Id. (quotation marks
omitted).
A. Trustworthiness of the Tape Recording
To introduce a recording at trial, “the government must establish that it is an
accurate reproduction of relevant sounds previously audited by a witness.” United
States v. Reeves, 742 F.3d 487, 501 (11th Cir. 2014) (internal quotation marks
omitted). To that end, the government must prove “(1) the competency of the
operator; (2) the fidelity of the recording equipment; (3) the absence of material
deletions, additions, or alterations in the relevant portions of the recording; and (4)
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the identification of the relevant speakers.” Id. Those requirements need not all be
satisfied, if there is independent evidence of the accuracy of the tape recording. Id.
Because the district court has broad discretion whether to allow a recording to be
played for the jury, the court’s determination of authenticity will not be disturbed
“unless there is no competent evidence in the record to support it.” Id. (internal
quotation marks omitted).
Here, the district court did not abuse its discretion in admitting the tape
recording, notwithstanding the gaps in the recording. District courts may admit a
recording with inaudible portions or gaps so long as the inaudible portions or gaps
are not “so substantial as to render the recording as a whole untrustworthy.”
United States v. Lively, 803 F.2d 1124, 1129 (11th Cir. 1986) (quotation marks
omitted). Sufficient competent evidence supports the district court’s finding that
that the gaps in the recording were not substantial or material and that the
recording as a whole was reliable and trustworthy. 3
The district court based its determination on Martone’s in-court testimony
and the court’s thorough review of the recording and the accompanying transcript.
Martone testified that the recording accurately captured a substantial portion of his
conversation with Zada, that only a “very small amount” of the conversation was
3
Zada does not challenge the district court’s findings as to the competency of the
operator, the fidelity of the recording equipment, or the identification of the relevant speakers.
See Reeves, 742 F.3d at 501.
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not on the tape, that the gaps in the recording were brief, and that he did not ask
questions during the breaks. Nor did Martone delete, add, or alter anything on the
recording after it was made. In addition, the transcript of the recording generally
shows complete sentences capable of comprehension without further context. For
instance, as the district court noted, one section of the tape was essentially an
uninterrupted monologue of Zada speaking for over four minutes, which
constituted about half of the total recording. Thus, the record shows that the
district court had a sufficient evidentiary basis to conclude that the recording was
reliable and trustworthy.
Zada contends that the district court’s analysis is fundamentally flawed
because the court failed to address or appreciate the fact that Martone deliberately
manipulated the recording by selectively recording only parts of the conversation.
A deliberately manipulated recording, according to Zada, cannot meet the standard
of trustworthiness. Zada claims that the case should, at the very least, be remanded
to the court to resolve the factual conflict of whether the gaps in the recording were
deliberately created by Martone, as suggested by the FBI report, or whether the
gaps were inadvertently made due to his fumbling with the recording device, as
Martone testified in court.
Although the district court did not make an explicit finding as to this factual
issue, remand is unnecessary under the circumstances. In concluding that the
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recording was reliable and trustworthy, the court appears to have credited
Martone’s in-court testimony about his operation of the recorder over the
conflicting statement in the FBI report. We infer that implied credibility
determination, though unstated, because it is consistent with the court’s crediting
of other aspects of Martone’s testimony and with its ultimate ruling on the
admissibility of the recording. See United States v. $242,484.00, 389 F.3d 1149,
1154 (11th Cir. 2004) (“[W]e and other federal appellate courts have inferred from
a district court’s explicit factual findings and conclusion implied factual findings
that are consistent with its judgment although unstated.”). And because the district
court was in a better position to assess Martone’s credibility, we defer to its
credibility determination. See Clay, 483 F.3d at 744.
For these reasons, the district court’s determination that the omitted portions
of the recording were not material or substantial was a reasonable determination
supported by competent evidence in the record. See Reeves, 742 F.3d at 501–02;
Lively, 803 F.2d at 1129. In light of that conclusion, the court did not abuse its
discretion in concluding that the probative value of the recording outweighed the
prejudicial effect of any omitted portions. See Fed. R. Evid. 403.
Even if the district court erred in admitting the recording, however, the error
was harmless because other evidence in the record, including other statements
from Zada, overwhelmingly showed that the transactions were investments.
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Numerous victims testified and told consistent stories about how their transactions
were investments, and the jury heard another recording involving a different victim
where Zada explicitly referred to the victim’s funds as having been “invested.” In
light of the substantial evidence of guilt uninfected by any error, Zada cannot show
that the outcome of the trial would have been different had the recording been
excluded. See Rutgerson, 822 F.3d at 1239.
B. Zada’s Exhibits Regarding the Alleged Inheritance
Zada next challenges the district court’s finding that exhibits written by his
attorneys regarding the alleged inheritance were inadmissible hearsay. Hearsay is
generally not admissible. Fed. R. Evid. 802. Hearsay is an out-of-court statement
offered “in evidence to prove the truth of the matter asserted.” United States v.
Rivera, 780 F.3d 1084, 1092 (11th Cir. 2015). An out-of-court statement is not
hearsay if it is offered to show its effect on the person who heard or read the
statement. Id. Such a statement is relevant because it was made, not because it is
truthful.
Zada contends that he offered the proposed exhibits for the nonhearsay
purpose of showing his good-faith belief that he would receive a substantial
inheritance, not for the truth of the matters asserted in any of the documents. He
asserts that the exhibits were circumstantial evidence that he was privy to
information which suggested that the inheritance was real. He claims that the case
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of United States v. Cancelliere, 69 F.3d 1116 (11th Cir. 1995), is a “mirror image
of the case at bar.”
In Cancelliere, the district court admitted in evidence letters the defendant
received from his father because they were relevant to the defendant’s “state of
mind, knowledge, beliefs or intent as a consequence of reading them.” 69 F.3d at
1122. The court found that the letters, which informed the defendant that his trust
fund was depleted and that his father would not help him financially, were
probative of whether the defendant knowingly made contrary, false statements to
banks. See id. at 1122–23. On appeal, the defendant argued that the letters were
inadmissible hearsay because the statements in the letters were relevant only if
they were true. We upheld the admission of the letters not for the truth of the
matters asserted in the letters, but rather for their effect on the defendant’s state of
mind—that is, to show that he “knew when he made the statements to the banks,
that the statements were false.” Id. at 1123.
Here, the district court did not abuse its discretion because the exhibits were
inadmissible hearsay. Unlike in Cancelliere, the documents in this case were not
admissible for their effect on Zada because there is nothing in the record to suggest
that he ever saw them. What Zada’s attorneys told others has no bearing on Zada’s
state of mind. And, as the district court noted, much of the information in the
documents came from Zada himself. Zada’s contention that the documents are
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admissible to show the information and advice he received from his attorneys is
dubious. The documents themselves do not suggest what his attorneys told him,
and even if they did, that would not get around the hearsay problem. The
statements in the documents still appear to be offered for the truth of the matters
asserted therein—for instance, that the attorney had seen independent
corroborating documentation of the inheritance.
But even if the exhibits were admissible for Zada’s purported nonhearsay
purpose, any error was harmless. Similar exhibits were introduced as part of the
government’s case-in-chief, so Zada was able to argue his good-faith theory to the
jury. Indeed, the record suggests that the jury accepted his argument about the
inheritance, since it found that he did not knowingly make false statements about
the inheritance in connection with the false-statements counts. Nevertheless, the
jury still concluded that he was guilty of mail fraud based on his
misrepresentations to the victims regarding their investments, about which there
was ample evidence in the record. Viewed in the context of the entire trial, Zada
has not shown that the exclusion of the documents was anything other than
harmless. See Rutgerson, 822 F.3d at 1239.
III. Sentencing
Finally, Zada contends that the district court erred in imposing a sentencing
enhancement for his role as an organizer or leader of “otherwise extensive”
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criminal activity. See U.S.S.G. § 3B1.1(a). We review the district court’s factual
finding of a defendant’s role in an offense for clear error. United States v. Moran,
778 F.3d 942, 979 (11th Cir. 2015). “For a factual finding to be clearly erroneous,
we must be left with a definite and firm conviction that a mistake has been
committed.” Id. The sentencing court’s factual findings may be based on evidence
heard during trial, undisputed facts in the presentence investigation report, or
evidence presented during the sentencing hearing. United States v. Polar, 369 F.3d
1248, 1255 (11th Cir. 2004).
Role adjustments under § 3B1.1 are designed primarily to address “concerns
about relative responsibility.” U.S.S.G. § 3B1.1 cmt. background. The
adjustments are based on two main factors: “the size of a criminal organization (i.e.
the number of participants in the offense) and the degree to which the defendant
was responsible for committing the offense.” Id. The largest adjustment, a four-
level increase to the offense level, is for a defendant who “was an organizer or
leader of a criminal activity that involved five or more participants or was
otherwise extensive.” Id. § 3B1.1(a). A “participant” is someone “who is
criminally responsible for the commission of the offense, but need not have been
convicted.” Id. § 3B1.1 cmt. n.1.
The district court found that § 3B1.1(a) applied because the criminal activity
Zada organized was “otherwise extensive.” According to the commentary to this
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provision, sentencing courts should consider “all persons involved during the
course of the entire offense,” including outsiders who unknowingly provided
services. Id. § 3B1.1 cmt. n.3. So, for example, “a fraud that involved only three
participants but used the unknowing services of many outsiders could be
considered extensive.” Id. “[N]o set number of criminally responsible participants
is required” for criminal activity to be sufficiently extensive, except that there must
be at least one “participant” other than the defendant. United States v. Holland, 22
F.3d 1040, 1045 & n.8 (11th Cir. 1994).
This circuit does not “employ a precise definition for the ‘otherwise
extensive’ standard.” Holland, 22 F.3d at 1045. We have, however, identified
factors relevant to the extensiveness determination, including “the length and scope
of the criminal activity as well as the number of persons involved.” Id.; cf. United
States v. Sosa, 777 F.3d 1279, 1301–02 (11th Cir. 2015) (holding that a Medicaid
fraud scheme was otherwise extensive where, among other things, the defendant
recruited patients, falsified medical records, and received almost $119,000”);
United States v. Rodriguez, 981 F.2d 1199, 1200 & n.3 (11th Cir. 1993)
(concluding that criminal activity was “otherwise extensive” based on its extensive
geographic reach and the amount of cocaine involved).
Here, the record amply supports the district court’s finding that the criminal
activity was “otherwise extensive” for purposes of applying the four-level
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enhancement under § 3B1.1(a). The length and scope of the criminal activity
plainly were extensive. See Holland, 22 F.3d at 1046. Zada organized and
operated a fraud that lasted for over ten years and resulted in the loss of over $20
million. He was intimately involved in all aspects of the criminal activity and was
its primary, if not sole, beneficiary. The fraud included at least one other
participant, Wolfgang, as Zada concedes. See id. at 1045 n.8. And Zada used the
unknowing services of numerous others to perpetrate the fraud. See U.S.S.G.
§ 3B1.1 cmt. n.3. We are convinced that this criminal activity meets the
“otherwise extensive” standard that this Circuit has applied.
In response, Zada argues that this reasoning sweeps too broadly. Relying on
the approach of the Second and Sixth Circuits, among others, Zada contends that
the primary focus in the extensiveness inquiry should be on “numerosity”—that is,
the size of the criminal organization. According to the Sixth Circuit, for example,
the principal inquiry for determining extensiveness under § 3B1.1(a) is whether
“the offense in question was somehow the functional equivalent of a crime
involving five or more participants.” See United States v. Anthony, 280 F.3d 694,
699 (6th Cir. 2002); see also United States v. Carrozzella, 105 F.3d 796, 802–03
(2d Cir. 1997). The inquiry primarily is one of head counting, focusing on the
persons involved and requiring consideration of “how significant the role and
performance of an unwitting participant was to the ultimate criminal objective.”
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Anthony, 280 F.3d at 701. Zada contends that any other approach runs the risk of
impermissibly double counting factors, such as the loss amount, the number of
victims, and the complexity of the means used, which are accounted for by other
guideline provisions.
Other circuits, however, use a broader approach. The First Circuit, for
example, determines extensiveness based on the totality of the circumstances,
“including not only the number of participants but also the width, breadth, scope,
complexity, and duration of the scheme.” United States v. Colon-Munoz, 318 F.3d
348, 364–65 (1st Cir. 2003). While we have not expressly addressed the circuit
split, Holland suggests that this circuit uses a broader, totality-of-the-
circumstances-based approach. See Holland, 22 F.3d at 1046 (stating that
extensiveness depends on “the length and scope of the criminal activity as well as
the number of persons involved”).
In any case, even using Zada’s preferred inquiry, the criminal activity in this
case was the “functional equivalent of a crime involving five or more participants.”
See Anthony, 280 F.3d at 699. To begin with, there were at least two knowing
participants, Zada and Wolfgang. See Holland, 22 F.3d at 1045 (“when
determining the number of participants, the defendant is considered to be one of
the five”). And at least four other unwitting participants provided services that
were essential to the fraudulent scheme, at Zada’s direction. Zada told some
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Case: 16-10435 Date Filed: 08/11/2017 Page: 23 of 23
investors that Zarrouk 4 was his liaison to the Saudi royal family and used him to
convince investors that Zada’s connections to Saudi oil were legitimate. Zada also
used and directed at least three attorneys to communicate with investors for the
purposes of deceiving them about their investments and when they would receive
their money. The attorneys gave an appearance of legitimacy to the fraud and
delayed the eventual reporting of the investors’ claims to the authorities. Even
some of the victims, such as hockey great Sergei Federov, could be considered the
functional equivalent of participants, since Zada used them to extend the reach of
the criminal activity by recruiting and managing other investors. 5 In sum, the
criminal activity Zada organized and led qualifies as “otherwise extensive” even
under a stricter numerosity-based approach. Accordingly, the district court did not
err in applying the four-level enhancement under U.S.S.G. § 3B1.1(a).
For all of these reasons, we affirm Zada’s convictions and sentence.
AFFIRMED.
4
Zada contests the district court’s finding that Zarrouk was a knowing participant, but we
need not resolve the matter because, even if he lacked criminal intent, he qualifies as the
functional equivalent of a participant.
5
Zada suggests that counting the victims themselves as the functional equivalent of
participants “seems to raise at least the specter of double-counting,” given that these victims are
also accounted for in the enhancement for number of victims. We disagree. It is one thing to
defraud a person of money, and thereby make that person a victim, but quite another to use that
person’s unwitting services to help defraud someone else.
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