United States v. Sean Meadows , 866 F.3d 913 ( 2017 )

United States Court of Appeals
For the Eighth Circuit
___________________________
No. 16-3241
___________________________
United States of America
lllllllllllllllllllll Plaintiff - Appellee
v.
Sean M. Meadows
lllllllllllllllllllll Defendant - Appellant
____________
Appeal from United States District Court
for the District of Minnesota - St. Paul
____________
Submitted: March 10, 2017
Filed: August 8, 2017
____________
Before WOLLMAN, COLLOTON, and SHEPHERD, Circuit Judges.
____________
SHEPHERD, Circuit Judge.
Sean Meadows orchestrated a seven-year Ponzi scheme during which he stole
more than $10 million dollars from at least 69 victims. He pled guilty to eleven
different counts, and the district court sentenced him to 300 months imprisonment.
Thereafter, he appealed to this court arguing that the district court erred in applying
certain sentencing enhancements and asserting that his sentence was substantively
unreasonable. United States v. Meadows, 637 F. App’x 255, 255 (8th Cir. 2016) (per
curiam). Without reaching Meadows’s substantive arguments, we reversed and
remanded for resentencing because the district court failed to consider the factors
presented in 18 U.S.C. § 3553(a) in determining whether Meadows’s sentence on the
different counts should be consecutive or concurrent. Id. at 256. On remand, the
district court1 addressed the concerns we noted in Meadows’s first appeal, and again
imposed a 300-month sentence. Meadows now reasserts the substantive arguments
he advanced in his first appeal, and we affirm.
I. Background
Meadows began working as a financial adviser in Minnesota in the late 1990s.
Around 2002, he opened Meadows Financial Group. From 2002 through 2014, he
amassed more than 100 clients, primarily from Minnesota, Arizona, and Indiana.
Meadows marketed himself as a full-service financial adviser, but his primary
business concerned the sales of annuities, stocks, and bonds.2
In the annuity business, a broker receives a commission from the annuity
provider after every sale of that provider’s product. Annuity providers also offer
customers bonus incentives that vest at a predetermined number of years into the life
of the annuity. Early on, Meadows began “churning” his clients’ annuity
accounts—transferring the clients’ accounts from one annuity to another after a short
period of time in order to receive multiple commissions from the same investment.
Although Meadows received immediate payments from these transfers, his clients
1
The Honorable Susan Richard Nelson, United States District Judge for the
District of Minnesota.
2
Under Minnesota law, an individual must be licensed as an insurance producer
in order to sell annuities. Meadows held such a license from 1997 through 2014.
Likewise, Meadows was a licensed securities broker from 1997 through 2006.
-2-
often faced surrender fees of up to ten percent of the value of the annuity. Meadows
appeased his clients by telling them that the bonus payments they would receive from
the new annuities would more than offset the fees for the transfer. Given that his
clients were not, by and large, savvy investors, they continued to trust Meadows’s
advice.
Around 2007, Meadows announced a high-interest bond held by Meadows
Financial Group, and he began soliciting investments from his clients. He assured his
clients that the bond was safe, liquid, and guaranteed a high rate of return. In reality,
however, the bond did not exist. Over the next seven years, his clients invested over
$13 million in this sham bond. During this period, Meadows used about $3.6 million
to make Ponzi payments to certain investors who needed the money for one reason
or another, but he spent the rest on himself or his family. He used it for personal
expenses and salary payments to himself. He made payments to his wife and
purchased a new car. He bought investment properties and paid personal credit card
bills. He used it to take extravagant trips and spent large sums of money on adult
entertainment on multiple occasions. All in all, Meadows spent just over $10.2
million of his clients’ money.
In August of 2014, Meadows was indicted on twelve counts: Counts 1 through
3 alleged mail fraud in violation of 18 U.S.C. § 1341; Counts 4 through 10 alleged
wire fraud in violation of 18 U.S.C. § 1343; Count 11 alleged money laundering in
violation of 18 U.S.C. § 1956(a)(1)(B)(i); and Count 12 alleged a transaction
involving fraud proceeds in violation of 18 U.S.C. § 1957. Meadows pled guilty to
Counts 1 through 10 and Count 12.
-3-
At the original sentencing hearing, the district court imposed a sentence of 300
months imprisonment.3 According to the presentence investigation report (PSR),
Meadows had a base offense level of seven. The PSR recommended application of
five enhancements: (1) a 20-level enhancement for a total loss amount between $7
million and $20 million; (2) a 4-level enhancement for an offense involving more
than 50 but less than 250 victims; (3) a 2-level enhancement for using sophisticated
means in furtherance of the crime; (4) a 4-level enhancement for an offense involving
a violation of securities law; and (5) a 2-level enhancement for vulnerable victims.
Prior to the hearing, Meadows conceded the applicability of the enhancements
for loss amount and number of victims, but he contested those for sophisticated
means and violation of securities law. The court overruled Meadows’s objections and
applied the enhancements. First, noting that the sophisticated means enhancement
is only appropriate when the offense conduct as a whole is more intricate than the
garden-variety offense, the court found that Meadows’s conduct satisfied the standard
because he was able to continue the fraud for such a long period of time by repeatedly
lying to the victims and making Ponzi payments. Second, the court found that the
enhancement for violation of securities law was appropriate because Meadows was
an investment adviser at the time and, notwithstanding the fact that the bonds never
actually existed, he was recommending the purchase of the securities to his clients.
After application of the enhancements, Meadows’s total offense level rose to
39, leading to an advisory imprisonment range of 262 to 327 months. Accounting for
the § 3553(a) factors, the court stated that it decided on a 300-month sentence
primarily as a result of the egregiousness of Meadows’s actions. “My biggest
concern,” the court noted, “is that you pose a great danger to the public, and that is
3
Because the issues presented in this appeal concern only Meadows’s
objections to issues raised at the original sentencing hearing, we need not discuss the
resentencing hearing at length.
-4-
why you are serving a very long sentence.” Additionally, the court stated that, in its
opinion, Meadows had shown very little remorse for his actions. The original
sentence consisted of 300 months imprisonment on Counts 1 through 10 and 120
months imprisonment on Count 12, all to be served concurrently.
On resentencing, the court again imposed a 300-month sentence, reiterating
much of its original reasoning. It clarified, however, that Meadows was sentenced
to 240 months for Counts 1 through 10, all to be served concurrently, and 60 months
for Count 12, to be served consecutively to the sentence on the rest of the counts.
Accounting for the concerns we expressed in Meadows’s first appeal about the
court’s failure to explain its reasoning for imposing concurrent or consecutive
sentences, the court stated that concurrent sentencing on all counts would fail to
achieve adequate punishment. Thus, the court concluded, a consecutive sentence was
“necessary to produce a combined sentence equal to the total punishment.”
II. Discussion
Meadows argues that the district court committed procedural error when it
applied sentencing enhancements for the use of sophisticated means and violation of
securities law, and he also argues that his sentence is substantively unreasonable. Our
first task is to “‘ensure that the district court committed no significant procedural
error, such as failing to calculate (or improperly calculating) the Guidelines range,
treating the Guidelines as mandatory, failing to consider the [18 U.S.C.] § 3553(a)
factors, selecting a sentence based on clearly erroneous facts, or failing to adequately
explain the chosen sentence.’” United States v. Beckman, 787 F.3d 466, 494 (8th Cir.
2015) (alteration in original) (quoting Gall v. United States, 552 U.S. 38, 51 (2007)).
In so doing, “[w]e review the district court’s factual findings for clear error and its
construction and application of the Guidelines de novo.” Id. (alteration in original)
(internal quotation marks omitted). If we find no procedural errors, we “then consider
-5-
the substantive reasonableness of the sentence imposed under an abuse-of-discretion
standard.” Gall, 552 U.S. at 51.
We reject each of Meadows’s contentions, and address his arguments in turn.
A. Sophisticated Means
Under USSG § 2B1.1(b)(10)(C), a two-level enhancement applies if “the
offense . . . involved sophisticated means and the defendant intentionally engaged in
or caused the conduct constituting sophisticated means.” The commentary to this
section defines “sophisticated means” as “especially complex or especially intricate
offense conduct pertaining to the execution or concealment of an offense.” Id.
§ 2B1.1, comment. (n.9(B)). “The sophisticated-means enhancement is proper when
the offense conduct, viewed as a whole, was notably more intricate than that of the
garden-variety [offense].” United States v. Jenkins, 578 F.3d 745, 751 (8th Cir.
2009) (alteration in original) (internal quotation marks omitted). “Repetitive and
coordinated conduct, though no one step is particularly complicated, can be a
sophisticated scheme.” United States v. Finck, 407 F.3d 908, 915 (8th Cir. 2005).
That a scheme involved “sophisticated means” is a factual finding reviewed for clear
error.4 Beckman, 787 F.3d at 496 (internal quotation marks omitted).
Although there is no mechanical test to determine whether a scheme is
sufficiently sophisticated to qualify for the enhancement, we have in the past looked
at the following factors: (1) the overall length of the scheme, see Jenkins, 578 F.3d
4In their briefs, the parties articulate varying standards of review on this issue.
In United States v. Huston, 744 F.3d 589, 592 n.2 (8th Cir. 2014), we observed that
an intra-circuit split had developed regarding whether our review was de novo or
clear error, and we clarified that clear error was the proper standard under the first-in-
time rule we announced in Mader v. United States, 654 F.3d 794, 800 (8th Cir. 2011)
(en banc).
-6-
at 752 (“[T]he temporal and geographic reach of this scheme demonstrate [r]epetitive
and coordinated conduct, which can serve as a basis for the sophisticated-means
enhancement.” (second alteration in original) (internal quotation marks omitted));
United States v. Bistrup, 449 F.3d 873, 883 (8th Cir. 2006) (“Given the extent of the
fraudulent scheme, [and] the coordination and planning needed to maintain the
scheme for almost five years, . . . the district court did not err in enhancing [the]
sentence for use of sophisticated means.”); (2) the use of forged or false documents,
see United States v. Edelmann, 458 F.3d 791, 816 (8th Cir. 2006); and (3) the use of
Ponzi-type payments, see Bistrup, 449 F.3d at 883.5 Overall, “the sophistication of
the offense conduct is associated with the means of repetition, the coordination
required to carry out the repeated conduct, and the number of repetitions or length of
time over which the scheme took place.” United States v. Laws, 819 F.3d 388, 393
(8th Cir. 2016).
The enhancement was properly applied. Meadows’s scheme lasted for around
seven years and defrauded an exorbitant amount of money from a large number of
people. In order to perpetuate a scheme of this magnitude, Meadows convincingly
lied to his investors on a regular basis and made Ponzi payments to appease them.
See Bistrup, 449 F.3d at 883. And the organization required to facilitate such a
longstanding fraud demanded “repetitive and coordinated conduct.” See Beckman,
787 F.3d at 496 (internal quotation marks omitted). Further, when combined with his
improper use of tax and investment forms and his admitted use of forged statistics on
at least one occasion, Meadows’s conduct suffices to trigger the enhancement despite
the fact that none of his actions, taken alone, was especially intricate. See Edelmann,
458 F.3d at 816; Finck, 407 F.3d at 915.
5
This is not an exhaustive list. The factors chosen simply represent those
implicated by the case at bar.
-7-
B. Violation of Securities Law
Under USSG § 2B1.1(b)(19)(A), a four-level enhancement applies “[i]f the
offense involved . . . a violation of securities law and, at the time of the offense, the
defendant was . . . an investment adviser.” Meadows concedes that he is an
investment adviser, so our analysis focuses on whether there was a violation of
securities law. His sole argument on this issue is that there can be no violation of
securities law here because the bonds he sold never existed. We disagree.
To define “securities law,” the Guidelines incorporate the meanings given to
the term in “18 U.S.C. §§ 1348, 1350, and the provisions of law referred to in section
3(a)(47) of the Securities Exchange Act of 1934 (15 U.S.C. § 78c(a)(47)).” Id.
§ 2B1.1, comment. (n.15(A)). Section 78c(a)(47), in turn, incorporates the entirety
of “the Securities Act of 1933 (15 U.S.C. [§] 77a et seq.), the Securities Exchange Act
of 1934 (15 U.S.C. [§] 78a et seq.), . . . [and] the Investment Advisers Act of 1940 (15
U.S.C. [§] 80b et seq.).” Importantly, “[a] conviction under a securities law . . . is not
required in order for subsection (b)(19) to apply.” USSG § 2B1.1, comment.
(n.15(A)). Instead, the Government is required to show only by a preponderance of
the evidence that the enhancement is applicable. See Beckman, 787 F.3d at 494.
Before the district court, the Government listed a number of provisions it
claimed supported application of the enhancement. Among them was Rule 10b-5,
which the Securities and Exchange Commission promulgated under the Securities
Exchange Act of 1934 (the “Act”). See USSG § 2B1.1, comment. (n.15(A)) (stating
that the definition of “securities law” also includes “the rules, regulations, and orders
issued by the Securities and Exchange Commission”). Under that rule, when done
“in connection with the purchase or sale of any security,”
[i]t shall be unlawful for any person . . . , by the use of any means or
instrumentality of interstate commerce, . . .
-8-
(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or to omit to state a
material fact necessary in order to make the statements made, in the light
of the circumstances under which they were made, not misleading, or
(c) To engage in any act, practice, or course of business which operates
or would operate as a fraud or deceit upon any person.
17 C.F.R. § 240.10b-5. Here again, Meadows does not contest that he sold fake
bonds. Thus, he employed a “device, scheme, or artifice to defraud,” made “untrue
statement[s] of a material fact,” and “engage[d] in an[] act, practice, or course of
business which operate[d] . . . as a fraud or deceit upon” his victims. See id.Meadows’s specific argument, therefore, is that he did not commit this fraud “in
connection with the purchase or sale of any security,” see id., because he never
actually purchased or sold any securities.
This argument is foreclosed by the broad statutory text. Under the Act, “[t]he
term ‘security’ means any . . . bond.” 15 U.S.C. § 78c(a)(10) (emphasis added).
Similarly, the Act includes “any contract to . . . purchase” and “any contract to sell”
in its respective definitions of “purchase” and “sale.” Id. § 78c(a)(13)-(14) (emphases
added). Although derivations of Meadows’s argument have arisen infrequently in the
past, courts have unanimously found that fictitious securities qualify as “securities”
under the Act. See United States v. Schlei, 122 F.3d 944, 972-73 (11th Cir. 1997)
(“The district court did not abuse its discretion in instructing the jury that counterfeit,
forged, and nonexistent securities are included within the definition of a security.”);
Seeman v. United States, 90 F.2d 88, 89 (5th Cir. 1937) (“It is difficult to imagine any
transaction that would be better calculated to deceive and defraud a purchaser than
to sell and ship him forged imitations of genuine bonds.”); SEC v. Markusen, 143 F.
Supp. 3d 877, 888 (D. Minn. 2015) (“By extracting fake research fees, Markusen and
Archer violated the scheme liability provisions of . . . Rule 10b-5(a) and (c) . . . .”).
Further, it is axiomatic that Meadows’s acceptance of $13 million in exchange for
-9-
these securities qualifies as a “sale.” We find these cases persuasive and hold that the
sale of a fraudulent bond violates Rule 10b-5.
Our holding is reinforced by the policies underlying the securities laws.
Among others, “Congress’ objectives in passing the Act w[ere] to insure honest
securities markets and thereby promote investor confidence after the market crash of
1929 . . . [and] to substitute a philosophy of full disclosure for the philosophy of
caveat emptor.” SEC v. Zandford, 535 U.S. 813, 819 (2002) (citations omitted)
(internal quotation marks omitted). In its use of the broad language outlined above,
Congress thus sought “to achieve a high standard of business ethics in the securities
industry,” see id. (internal quotation marks omitted), by “prevent[ing] further
exploitation of the public by the sale of unsound, fraudulent, and worthless securities
through misrepresentation,” United States v. Naftalin, 441 U.S. 768, 775 (1979)
(internal quotation marks omitted). Meadows’s interpretation of the “in connection
with” language would effectively lessen his sentence because he stole all of the
money his clients entrusted to him, rather than investing some and stealing the rest.
Such an outcome stands at odds to these Congressional objectives.
The district court therefore properly applied the enhancement for violation of
securities law by an investment adviser.
C. Substantive Reasonableness
Meadows’s final contention is that his 300-month sentence is substantively
unreasonable. His primary arguments on this point are that the district court failed
to consider his post-conviction rehabilitative efforts and that the sentence creates a
forbidden sentencing disparity, but he also asserts that the court improperly weighed
the § 3553(a) factors. We discern no abuse of discretion.
-10-
“Sentences within the guideline range are presumed to be substantively
reasonable.” United States v. Rubashkin, 655 F.3d 849, 869 (8th Cir. 2011). When
assessing the substantive reasonableness of a sentence, our review is guided by the
factors from § 3553(a). United States v. Callaway, 762 F.3d 754, 760 (8th Cir. 2014).
“[D]istrict courts are allowed wide latitude to weigh the § 3553(a) factors in each case
and assign some factors greater weight than others in determining an appropriate
sentence.” Id. (internal quotation marks omitted). “Where [a] district court in
imposing a sentence makes an individualized assessment based on the facts presented,
addressing the defendant’s proffered information in its consideration of the § 3553(a)
factors, such sentence is not unreasonable.” United States v. Parker, 762 F.3d 801,
812 (8th Cir. 2014) (alteration in original) (internal quotation marks omitted).
Given that this sentence is within the Guidelines range of 262 to 327 months,
we begin from a presumption of reasonableness. See Rubashkin, 655 F.3d at 869.
Citing Pepper v. United States, 562 U.S. 476 (2011), Meadows first contends that the
court failed to give significant weight to his post-conviction rehabilitation evidence.
To be sure, Pepper held that “a district court may consider evidence of a defendant’s
rehabilitation since his prior sentencing and that such evidence may, in appropriate
cases, support a downward variance from the advisory Guidelines range.” Id. at 490.
But “nothing in Pepper requires a district court to reduce—or increase—a sentence
based on such evidence.” Parker, 762 F.3d at 812. The court here acknowledged that
it had received and reviewed all of this evidence, and it even referenced the evidence
when discussing its reasons for imposing the 300-month sentence. Despite
Meadows’s belief that the court should have assigned greater weight to the evidence,
the record reveals that the court acted within its discretion. See United States v.
Midkiff, 614 F.3d 431, 445 (8th Cir. 2010) (“Although Midkiff believed that his
charitable deeds should have been given greater weight, the district court did not find
his arguments for leniency sufficiently compelling to warrant a greater variance and
did not abuse its discretion in determining the extent of the variance.”).
-11-
Meadows’s final arguments both concern his disagreement with the court’s
application of § 3553(a). Prior to both sentencing hearings in this case, the parties
extensively briefed and argued over the sentence each deemed appropriate. During
both hearings, the court heard argument from both attorneys, testimony from
Meadows’s victims, and testimony from Meadows himself. The court recited the
§ 3553(a) factors and acknowledged that the recommended Guidelines range was
merely a starting point. The court then applied the individual factors to Meadows’s
case, and arrived at the 300-month sentence. Given the district court’s thorough
consideration of the entire record, the sentence was not unreasonable. Parker, 762
F.3d at 812.
III. Conclusion
We find no procedural error because the district court properly applied the
enhancements for sophisticated means and violation of securities law. Further, the
sentence imposed was substantively reasonable. We therefore affirm Meadows’s
sentence.
______________________________
-12-