United States v. Matthew Giovenco , 773 F.3d 866 ( 2014 )

In the
United States Court of Appeals
For the Seventh Circuit
Nos. 13-3283 & 13-3537
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v.
MATTHEW GIOVENCO and
GUY POTTER,
Defendants-Appellants.
Appeals from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 11 CR 316 — Rebecca R. Pallmeyer, Judge.
ARGUED SEPTEMBER 11, 2014 — DECIDED DECEMBER 9, 2014
Before BAUER, MANION, and KANNE, Circuit Judges.
BAUER, Circuit Judge. Matthew Giovenco and Guy Potter
(collectively “Appellants”) were charged, tried, and convicted
on six counts of mail fraud in violation of 18 U.S.C. § 1341.
Following his conviction, Giovenco filed a renewed motion
for acquittal, which the district court denied. Thereafter, both
Giovenco and Potter were sentenced. On appeal, Giovenco
asserts that the district court erred in denying his motion for
2 Nos. 13-3283 & 13-3537
acquittal as he was no longer part of the mail fraud scheme at
the time of the relevant mailings. Potter appeals as well, but on
different grounds. Potter contends that the district court
erroneously enhanced his offense level at sentencing because
the victim did not suffer a loss. For the reasons that follow, we
affirm the district court’s rulings as to both Appellants.
I. BACKGROUND
Since 1990, the City of Chicago has operated The Minority
and Women-owned Procurement Program designed to give an
advantage to businesses owned by minorities (“MBEs”) in the
award of city contract money. The City promotes the use of
MBEs by requiring companies contracting with the City to
expend certain amounts of money hiring or subcontracting
with MBEs. To gain MBE status, a local business must be
at least 51 percent owned by one or more members of a
minority group, and its management and daily operations
must be controlled by those minority-group members. Busi-
nesses wishing to qualify must submit documentation to the
City supporting the minority-ownership requirements. If the
City is satisfied that a business qualifies, it submits an official
certification letter and includes the business on an online
directory identifying MBEs.
RCN Telecom Services of Illinois, LLC (“RCN”), a cable
provider, participates in the MBE program through its fran-
chise agreement with the City. Pursuant to its agreement, RCN
is required to exercise its best efforts to ensure that qualified
MBEs receive 40 percent of RCN’s expenditures for goods and
services. To satisfy its requirement, RCN seeks out MBE
subcontractors offering cable installation services using the
Nos. 13-3283 & 13-3537 3
City’s online directory. It was through this directory that RCN
found Appellants’ cable company in 2003.
Starting in April 2003, and continuing into 2006, Appellants
participated in a scheme to defraud RCN, in which they held
out their cable installation business, ICS Cable, Inc., (“ICS”) as
a legitimate MBE. As a purported MBE, ICS was eligible to
provide cable services in return for the expenditures contractu-
ally reserved for MBEs. ICS, however, was a fraud. Appellants,
along with other co-schemers at ICS, used false documentation
to obtain MBE certification. They also hired a black front-man,
Jerone Brown, to pose as ICS’s president, when in reality he
had no managerial responsibilities; Appellants, white men,
actually controlled ICS. Appellants maintained this scheme for
three years, throughout which RCN was ICS’s only client and
sole source of income. In total, RCN paid ICS $8,303,562 for
the annual subcontracts earned as an apparent MBE. The
profits of these fraudulently obtained contracts were shared
among Giovenco, Potter, Brown, and another co-schemer,
Cheronne Mayes.
The scheme continued into 2006 when Giovenco signed that
year’s subcontract agreement with RCN on behalf of ICS.
Shortly thereafter, Giovenco was fired from ICS because the
senior vice president of RCN found it difficult to work with
Giovenco, and ICS did not want to risk losing its subcontract
with RCN. According to Giovenco, however, he was fired
because Potter suspected him of stealing business from ICS.
Whatever the reason for his termination, Giovenco continued
to receive checks generated by the scheme after he was fired,
receiving at least two in February 2006 and one in April 2006.
Potter and the remaining members of ICS continued the
4 Nos. 13-3283 & 13-3537
scheme until August 2006, when the City began investigating
ICS’s MBE status. At that point, the members dissolved ICS in
an apparent effort to avoid detection.
As a result of the City’s investigation, Appellants were
indicted charging six counts of mail fraud relating to their
scheme under 18 U.S.C. § 1341. Each of the six mailings
charged in the indictment occurred between May 1, 2006, and
October 4, 2006, after Giovenco had been fired from ICS. The
mailings were checks sent from RCN to Potter’s residence
pursuant to the 2006 subcontract agreement signed by
Giovenco. At trial, the government presented evidence that
both Giovenco and Potter intentionally defrauded RCN and
created ICS as an MBE for the sole purpose of being awarded
RCN contracts.
The day before closing arguments, Giovenco moved for
judgment of acquittal. He argued that he was entitled to the
judgment because he was no longer part of the scheme when
the charged mailings took place. He also argued that acquittal
was appropriate because RCN suffered no tangible loss as a
result of the scheme. The government disagreed, arguing that
withdrawal is not a defense to mail fraud and that it was not
required to prove a loss. The district court did not rule on
Giovenco’s motion at that time and the case went to the jury.
The jury found Giovenco guilty on all six counts. Giovenco
filed a renewed motion for judgment of acquittal following the
verdict, raising only the withdrawal argument. The district
court denied both motions before sentencing. A separate jury
also found Potter guilty on all six charges.
Nos. 13-3283 & 13-3537 5
At sentencing, the district court imposed a 16 offense level
increase on each Appellant’s sentence according to United
States Sentencing Guidelines § 2B1.1 and based on RCN’s loss.
Potter was sentenced to 54 months’ imprisonment, and
Giovenco was sentenced to 36 months’ imprisonment.
Giovenco now appeals the district court’s denial of his
motions to acquit, arguing that because he no longer worked
for ICS at the time of the six mailings underlying the mail
fraud charges, he cannot be held legally accountable for the
scheme. Potter also appeals, but he does not challenge his
conviction. Instead, Potter argues that the district court
improperly imposed the 16 offense level increase because RCN
did not actually suffer a loss. Because Appellants appeal on
separate grounds, we will consider their arguments individu-
ally, beginning with Giovenco.
II. DISCUSSION
A. Giovenco’s Conviction
We review a district court’s denial of a motion for judgment
of acquittal de novo in the light most favorable to the prosecu-
tion. United States v. Seidling, 737 F.3d 1155, 1159–60 (7th Cir.
2013). If any rational trier of fact could have found the essential
elements of the crime beyond a reasonable doubt, we must
uphold the jury’s conviction. Id. A mail fraud conviction
requires three elements: (1) a scheme or artifice to defraud, (2)
the use of the mailing system for the purpose of executing the
scheme, and (3) the defendant’s participation in the scheme
with the intent to defraud. 18 U.S.C. § 1341; Seidling, 737 F.3d
at 1160.
6 Nos. 13-3283 & 13-3537
Giovenco’s challenge centers on the third element. He
argues that because he was fired before the six charged
mailings were sent, he cannot be considered a participant in
the scheme. Essentially, Giovenco claims he withdrew from the
scheme, precluding conviction. Withdrawal, however, is not a
recognized defense to mail fraud. United States v. Read, 658 F.2d
1225 (7th Cir. 1981). This is because unlike conspiracy where
withdrawal is an available defense, no agreement is necessary
for mail fraud liability. Id. at 1240. See also United States v.
Adeniji, 221 F.3d 1020, 1026 (7th Cir. 2000) (“The joint agree-
ment that is essential to a defendant’s liability for the crime of
conspiracy is not a prerequisite to a conviction for mail
fraud.”). While conspiracy punishes membership in an
agreement to commit illegal activity, mail fraud punishes the
act of using the mail system to further a scheme to defraud.
Read, 658 F.2d at 1240. Therefore, “[a] party’s ‘withdrawal’
from a scheme is … no defense to the crime because member-
ship in the scheme is not an element of the offense.” Id. Instead,
association and participation in the criminal venture are
sufficient for liability. Id. See also Adeniji, 221 F.3d at 1026(concluding adequate evidence of “knowing participation in
the … scheme” was sufficient to support a mail fraud convic-
tion).
This fundamental distinction between conspiracy and mail
fraud is also consistent with the longstanding rule that a mail
fraud conviction does not require proof that a defendant
personally mailed the letters at issue. United States v. Daniel,
749 F.3d 608, 615 (7th Cir. 2014); see also United States v. Briscoe,
65 F.3d 576, 583 (7th Cir. 1995) (stating that the government
need only prove that a scheme existed in which use of mails
Nos. 13-3283 & 13-3537 7
was reasonably foreseeable). All that is required is that “the
use of the United States mail system was reasonably foresee-
able to [the defendant] and that an actual mailing occurred in
furtherance of the scheme.” Daniel, 749 F.3d at 615.
The undisputed facts presented at trial show Giovenco’s
participation in the mail fraud scheme. The government
presented testimony that Giovenco admitted to investigators
that he and Potter founded ICS as an MBE for the purpose of
obtaining contracts from RCN. He also stated he knew ICS
received its payments from RCN in the form of checks mailed
to Potter’s residence. Although Giovenco no longer worked for
ICS at the time of the charged mailings, it was reasonably
foreseeable that the mailings would continue to occur as a
result of his prior participation. In fact, the relevant mailings
were caused by Giovenco—he signed the very contract that
obligated RCN to send the checks in issue. Based on these facts
alone, Giovenco’s conduct satisfies the participation with intent
to defraud element of mail fraud.
As to the remaining elements, the record contains ample
evidence in support of both the existence of a scheme and the
use of the mailing system to execute the scheme, neither of
which Giovenco challenges. Because a rational trier of fact
could have found all three essential elements of mail fraud
beyond a reasonable doubt, Giovenco’s conviction must stand.
B. Potter’s Offense Level Enhancement
By contrast, Potter does not challenge his conviction, but his
sentence. Pursuant to Application Note 3(F)(v) of United States
Sentencing Guidelines § 2B1.1, the district court determined
that the amount of loss was $8.3 million. Based on that loss
8 Nos. 13-3283 & 13-3537
amount, the district court found that a 22 offense level
increase1 was warranted, but departed downward and im-
posed a 16 offense level increase instead. Potter argues that the
16 offense level increase should not have been applied to his
sentence because RCN did not actually suffer a loss. Accord-
ingly, he asks the court to remand this matter for a new
sentencing hearing.
We review the district court’s interpretation and application
of the Guidelines de novo. United States v. Natour, 700 F.3d 962,
975 (7th Cir. 2012). We also review de novo whether the facts as
found are sufficient to support an enhancement under the
Guidelines. Id. at 974. As stated above, the district court
applied § 2B1.1 of the Guidelines for Potter’s sentence, which
provides the base offense level for defendants convicted of
mail fraud and includes various offense level increases
depending on the amount of loss at issue. United States
Sentencing Commission Guidelines Manual § 2B1.1 (2013).
None of the parties dispute that RCN spent $8.3 million on
expenditures with ICS. However, Potter challenges whether
that $8.3 million can truly be characterized as a loss. In his
view, because RCN still received its contracted cable services
from ICS, it is of no consequence for a loss calculation that ICS
was a false MBE.
As the district court noted during Potter’s sentencing
hearing, Application Note 3(F)(v) of § 2B1.1 appears to
contemplate the scheme here. Application Note 3(F)(v)
1
As a point of clarification, the district court applied a 22 offense level
increase, but the proper offense level increase for an $8.3 million loss is
actually 20 based on § 2B1.1(b)(1)(K) of the Sentencing Guidelines.
Nos. 13-3283 & 13-3537 9
provides that where regulatory approval by a government
agency is obtained by fraud, the “loss shall include the amount
paid for the property, services, or goods transferred, rendered,
or misrepresented, with no credit provided for the value of
those items or services.” United States Sentencing Commission
Guidelines Manual § 2B1.1 cmt. n.3(F)(v) (2013). It is undis-
puted that ICS obtained MBE certification from the City of
Chicago through fraud, putting Potter’s conduct squarely
within the scheme considered by Application Note 3(F)(v). It
is also undisputed that RCN paid $8.3 million for ICS’s
services. Taken together, RCN’s $8.3 million expenditure is
within the ambit of Application Note 3(F)(v).
Thus, because Application Note 3(F)(v) applies in this
situation, the district court correctly calculated loss consistent
with its terms. Applying Application Note 3(F)(v), the district
court properly measured RCN’s loss as its total expenditures
to ICS without credit for the value of ICS’s services, and was
within its discretion to depart downward from the Guidelines
and impose a 16 offense level increase instead of the applicable
20 offense level increase. See United States v. Lane, 323 F.3d 568,
588 (7th Cir. 2003) (“Once the amount of loss is calculated
under the guidelines, the court has the discretion to modify the
amount of loss to more accurately reflect the economic realities
of the crime.”). In sum, the facts as found in the record support
the district court’s 16 offense level increase.
To that end, it is worth noting that the alternative measure-
ment of loss in this case would have resulted in the same 16
offense level increase. If loss cannot be reasonably determined,
the court must measure loss by the amount of gain
that resulted from the scheme. United States Sentencing
10 Nos. 13-3283 & 13-3537
Commission Guidelines Manual § 2B1.1 cmt. n.3(B) (2013). The
ICS scheme generated $2.2 million in net profits, which would
indicate a 16 offense level increase under the Guidelines. Id. at
§ 2B1.1(b)(I). Even under the more lenient measure, Potter still
properly bears the 16 offense level increase to his sentence.
III. CONCLUSION
We AFFIRM the district court’s denial of Giovenco’s motion
for acquittal. We also AFFIRM the district court’s offense level
enhancement for Potter.