U.S. v. Bennett

• Citation: 161 F.3d 171
• Decision Date: 16 November 1998
• Docket Number: No. 97-1816,97-1816
• Parties: -7204, 50 Fed. R. Evid. Serv. 909 UNITED STATES of America v. John G. BENNETT, Jr., Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)

Page 171

161 F.3d 171

82 A.F.T.R.2d 98-7204, 50 Fed. R. Evid. Serv. 909

UNITED STATES of America v. John G. BENNETT, Jr., Appellant.

No. 97-1816.

United States Court of Appeals,

Third Circuit.

Argued June 4, 1998.

Decided Nov. 16, 1998.

Peter Goldberger (Argued), Ardmore, Pennsylvania, for Appellant.

Richard W. Goldberg (Argued), Judy Goldstein-Smith (Argued), Office of United States Attorney, Philadelphia, Pennsylvania, for Appellee.

Before: SCIRICA, NYGAARD and

SEITZ, ^* Circuit Judges

OPINION OF THE COURT

SCIRICA, Circuit Judge.

This is an appeal from a judgment of sentence and certain pretrial rulings on a nolo contendere plea entered by defendant John G. Bennett, Jr., President of New Era Philanthropy. Bennett was sentenced to 144 months in prison for perpetrating the largest charity fraud in history, a six-year scheme in which he solicited over $350 million in contributions for a bogus "matching" program. We will affirm.

I. FACTUAL BACKGROUND AND PROCEEDINGS

In 1989, Bennett encountered financial difficulties in connection with several of his businesses. As a consequence, he devised a check-kiting scheme using his bank accounts at Philadelphia National Bank and Merrill Lynch, writing checks from one account to another on insufficient funds and creating false balances reflecting fictitious amounts. To cover the overdrafts, Bennett solicited participation in a new program called the New Concepts in Philanthropy Program, using the initial checks received from New Concepts donors to pay down the overdrafts at Merrill Lynch and the Philadelphia National Bank.

Under the New Concepts Program, individual donors gave money for charitable purposes to be held for several months by another Bennett organization, the Foundation for New Era Philanthropy. Bennett told potential investors that a wealthy donor, who wished to remain anonymous, would match their contributions at the end of the holding period. The doubled funds would then be transferred to a charity of the donor's choice. ¹ In reality, there was no anonymous donor. Bennett used the donations of subsequent investors to "double" the deposits of the original investors, and he routinely invaded the held funds to benefit his for-profit businesses.

The "ponzi" scheme grew into a pyramid scheme as the base of investors grew. Bennett expanded the New Concepts Program to allow nonprofit organizations to participate. ² Eventually, the Foundation for New Era Philanthropy received both tax-exempt status and a license to act as a charity in Pennsylvania. Bennett established and maintained these licenses through a series of falsehoods. For example, he omitted any mention of the matching program from all documents filed with the Internal Revenue Service or state authorities. In these submissions, Bennett also listed a nonexistent board of directors consisting of prominent individuals and he significantly underestimated New Era's liabilities. During a subsequent I.R.S. audit, Bennett provided fabricated board-of-directors minutes, again failed to disclose the existence of the New Concepts Program, and misrepresented the true condition of New Era's assets. As a result, New Era received a favorable audit letter from the I.R.S.

In response to due diligence inquiries by potential donors, Bennett made additional false representations:

a) The anonymous donors had signed trust agreement § pledging to match contributions made through New Era.

b) The anonymous donors matched the funds deposited with New Era.

c) Bennett received no compensation from New Era.

d) New Era had a board of directors made up of prominent individuals.

e) Funds deposited with New Era were held in escrow or "quasi-escrow" accounts.

f) The expense of running New Era was paid from the interest earned by deposited funds during the holding period.

Having satisfied investors and auditors that New Era was a legitimate charity, Bennett then systematically transferred New Era funds to his struggling for-profit businesses through loans and stock purchases.

By 1994, Bennett could no longer cover the "doubled" funds solely through new donations. Consequently, he obtained a loan from a brokerage account at Prudential Securities to cover the shortfall. The loan was secured by United States treasury bills that Bennett had purchased with funds donated to New Era by charitable organizations. Bennett informed several of these organizations their money was invested in United States treasury bills and they could call Prudential to confirm that a treasury bill had been purchased in the name of the organization. But instead of revealing the treasury bills were serving as collateral for a loan, Bennett told the organizations their money was being held in low-risk, interest-bearing accounts and escrow or "quasi-escrow" accounts at major financial institutions. The Prudential loan eventually totalled $50 million.

In the final nine months before New Era's collapse, Bennett drew increasingly larger margin loans on his account at Prudential. In May 1995 Prudential called the loan. Unable to meet his obligations, Bennett agreed to place New Era into bankruptcy and then revealed the anonymous donors had never existed.

In September 1996, Bennett was charged in an eighty-two-count indictment for offenses committed in connection with the Merrill Lynch and Philadelphia National Bank accounts. The indictment charged Bennett with one count of bank fraud (18 U.S.C. § 1344), sixteen counts of mail fraud (18 U.S.C. § 1341), eighteen counts of wire fraud (18 U.S.C. § 1343), one count of making false statements to the government (18 U.S.C. § 1001), three counts of filing false tax returns (26 U.S.C. § 7206), one count of impeding the administration of revenue laws (26 U.S.C. § 7212), fifteen counts of money laundering (18 U.S.C. § 1957), and twenty-seven counts of money laundering to promote unlawful activity (18 U.S.C. § 1956(a)(1)(A)(i)). Bennett originally pleaded not guilty and prepared for trial. Before trial, the District Court ruled to exclude certain questions that Bennett proposed to ask of his expert witness regarding Bennett's mental capacity.

In March 1997, Bennett decided to enter a conditional plea of nolo contendere to all the charges. ³ In an accompanying press release, Bennett emphasized he did not admit guilt or "adopt as true the government's version of the facts, insofar as those facts relate in any way to the issue of his intent to commit the crimes alleged in the indictment." Following Bennett's entry of the nolo contendere plea, the Probation Office compiled its Presentence Investigation Report in anticipation of the sentencing hearing.

A. The Presentence Investigation Report

The presentence report grouped the charges as follows: (1) bank fraud; (2) mail fraud; (3) wire fraud; (4) false statements; (5) false tax returns; and (6) impeding the administration of revenue laws. It then calculated Bennett's adjusted offense level beginning with a base offense level of six under U.S.S.G. § 2F1.1. The presentence report recommended against a reduction in the base offense level for acceptance of responsibility under U.S.S.G. § 3E1.1:

The defendant has entered a plea of nolo contendere in this case. However, he continues to deny any factual guilt and criminal intent for his actions. In his press release dated March 26, 1997, announcing his plea of nolo contendere, the defendant stated that he does not admit or adopt as true, the government's version of the facts, insofar as those facts relate in any way to the issue of his intent to commit the crimes alleged in the Indictment. The defendant further stated in his press release that he believes that his choice to cooperate with the bankruptcy trustee by surrendering substantially all of his assets to the trustee, which he claims had no relation to New Era, and to cooperate with the Attorney General of the Commonwealth of Pennsylvania and the United States Securities and Exchange Commission regarding civil enforcement activities brought by those entities regarding the collapse of New Era, indicates that he has accepted responsibility. It appears that his choice to cooperate with the bankruptcy trustee and the other parties bringing civil action against him benefits him in the same way as his plea of nolo contendere in the criminal matter. In other words, the defendant arrives at an outcome which may have been inevitable anyway, but with much less negative publicity and stress to himself and his family. His cooperation is not an indication that he admits wrongdoing. In fact, he stated as much in his press release. Furthermore, the defendant's for profit companies received approximately $7 million as a result of his fraudulent activities, which ultimately resulted in benefit to him.

The presentence report also called for an eighteen-level increase for the loss caused by Bennett's conduct, suggesting "[t]he loss in this case at the time the offense was discovered was approximately $135,000,000; although the total amount of funds taken from the victims was approximately $354 million. Pursuant to § 2F1.1(b)(1)(S), because the loss in this case was over $80 million, 18 levels are added." It also recommended that two levels be added because the offense involved "more than minimal planning" under § 2F1.1(2)(A) and (B): "[T]he defendant committed repeated fraudulent acts over a period of time, and ... this offense involved a scheme to defraud more than one victim."

The report suggested an additional two-level increase because the criminal conduct involved the misrepresentation that Bennett was acting on behalf of a charitable, educational, religious, or political organization:

The misrepresentation took place in three ways. First, the defendant was able to secure a favorable rating from the Internal Revenue Service for the Foundation for New Era Philanthropy as a charitable organization, by submitting fraudulent documentation to the IRS, and by failing to disclose...