The Third Circuit Shows How The Sentencing Guidelines For Fraud Are Complicated; Victims And Losses Bamboozle The Government And District Court

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The federal sentencing guidelines are probably the most problematic in three areas - fraud, child pornography, and drugs.

Today's case, United States v. Diallo, illustrates two of the big problems with the fraud guidelines. First, they're really complicated - so complicated that federal prosecutors sometimes don't really understand how they work. In this case, the prosecutor at sentencing took a position so clearly inconsistent with the guidelines that the government abandoned it for the appeal.

(An astute reader will notice that this means the district court went along with the federal prosecutor's flawed guidelines understanding. It's a shame, but c'est la guerre.).

Second, the fraud guidelines are driven by what the "intended loss" is. And "loss" for sentencing guidelines purposes is a squishy notion. And squishy notions are bad when you're trying to figure out how much prison time to give someone.

785364_creditcard.jpgCredit Card Problems

Issa Diallo had a problem with credit cards. Sure, like many Americans, he charged more than he should of. Unlike many Americans, he put these charges on cards that weren't issued to him.

He went into a Wegman's (it's a grocery store, for our geographically diverse readers) and bought 26 gift cards with a counterfeit credit card. The next day he came back to do it again and was arrested.

Law enforcement went into his car with a warrant. They found a treasure trove of stolen identity documents:

53 counterfeit credit cards, a counterfeit Louisiana driver's license, 24 gift cards, a Global Positioning System (GPS), a laptop computer, a thumb drive, and a skimming device, which is a hand-held device that copies, stores, and encodes credit card information from a credit card's magnetic strip. A subsequent search by Secret Service agents resulted in the discovery of a second thumb drive and another gift card. Searches of the laptop and thumb drives revealed over 200 compromised Discover, Visa, and MasterCard credit card accounts.

He pled guilty to having counterfeit credit cards under 18 U.S.C. § 1029(a)(3). In the plea, there was no agreement about the number of victims or the amount of the loss. These are, of course, massively important to figuring out the guidelines range under U.S.S.C. § 2B1.1.

What's It Take To Be A Victim?

At sentencing, a Secret Service agent testified that there were credit cards for 51 financial institutions in Mr. Diallo's possession.

There's a four-level guidelines enhancement if there are more than 50 victims.

The government said that meant there were more than 50 victims, so the enhancement for more than 50 victims should apply.

The defense lawyer argued that "victim" for purposes of the number of victims enhancement, means people who actually lost money as a result of Mr. Diallo's criminal conduct.

What's the loss amount?

The Secret Service Agent testified that only $160,000 was actually charged on the cards that Mr. Diallo had. Though when you add up the credit limits for each of the cards, the total amount that could have been charged was $1.6 million.

So, since "loss" for the guidelines purposes means the higher of actual loss or "intended loss" - the amount that a person could reasonably think could have been lost as a result of the office - the government said that Mr. Diallo should have known that the loss could have been $1.6 million.

Mr. Diallo's attorney was able to get the agent to acknowledge that there was no way Mr. Diallo could have known what the credit limit on the cards was absent a subpoena.

The District Court Speaks

These were hotly contested questions. There was testimony and argument. The Third Circuit reports that:

The Court's analysis on these two issues consisted of the following: "The intended loss for credit cards he personally used and the cards he manufactured and provided to others totaled $1.6 million. Over 50 financial institutions were affected by his actions. So obviously it is a very serious offense."

It's not the most satisfying way to grapple with a hotly litigated legal issue.

The Appeal

On appeal, the government - perhaps reading the commentary for the sentencing guidelines that applied to this case relating to the number of victims enhancement for the first time - acknowledged that "victim" means "someone who suffered a loss."

Since not all of the financial institutions had cards that were actually used by Mr. Diallo, there weren't 50 or more companies that were actually harmed. So the government abandoned the "number of victims" argument.

Good on them for admitting their error. Perhaps it would have been better to do that before the sentencing hearing, but better late than never.

Turning to the loss amount issue, the Third Circuit started by setting the stage

This appeal requires us to determine how sentencing courts should calculate what "pecuniary harm was intended to result" from credit card fraud when the fraud's perpetrator did not know the credit limit, which is the potential loss amount from the stolen credit card.

The appellate court reasoned that if the district court had really done a searching analysis and decided that there was a reasoned basis for thinking that Mr. Diallo meant to take the full limit of each card, that could be supported, perhaps, depending on how good the reasoning was.

But that's not what happened here. And the Third Circuit was really not impressed with what the district court did.

from the District Court's statement at sentencing--"The intended loss for credit cards he personally used and the cards he manufactured and provided to others totaled $1.6 million" App. 30-31--we would be speculating as to what evidence or argument was the basis for the District Court's finding that $1.6 million was Diallo's intended loss amount. This type of "speculation 'is inappropriate' in light of the inherently discretionary nature of the sentencing court's decision."

The case was sent back for resentencing.

If you'd like to speak with us, please call (202) 640-2850. Odds are we'd love to talk to you.

 

Topics:  Credit Cards, Federal Sentencing Guidelines, Fraud, Intended Loss

Published In: Criminal Law Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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