U.S. v. Iannone

• Decision Date: 10 December 1998
• Parties: (3rd Cir. 1999) UNITED STATES OF AMERICA, v. JOHN MICHAEL IANNONE, Appellant NOS. 98-3373 and 98-3374 Argued:
• Court: U.S. Court of Appeals — Third Circuit

Page 214

184 F.3d 214 (3rd Cir. 1999)

UNITED STATES OF AMERICA, v. JOHN MICHAEL IANNONE, Appellant

NOS. 98-3373 and 98-3374

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

Argued: December 10, 1998

Filed July 12, 1999

On Appeal From the United States District Court For the Western District of Pennsylvania (D.C. Crim. Nos. 97-4 and 98-1) District Judge: Honorable Robert J. Cindrich

[Copyrighted Material Omitted]

LINDA L. KELLY, ESQUIRE, United States Attorney, BONNIE R. SCHLUETER, ESQUIRE, Assistant United States Attorney, PAUL E. HULL, ESQUIRE (ARGUED), Assistant United States Attorney, U.S. Attorney's Office, 633 U.S. Post Office and Courthouse, Pittsburgh, PA 15219, Counsel for Appellee

STANLEY W. GREENFIELD, ESQUIRE (ARGUED), Greenfield, Brewer, Bailor & Kay, Greenfield Court, 1035 Fifth Avenue, Pittsburgh, PA 15219, Counsel for Appellant

Before: BECKER, Chief Judge, STAPLETON, Circuit Judge, and HARRIS^* District Judge.

OPINION OF THE COURT

HARRIS, District Judge:

Defendant-appellant John Michael Iannone ("Iannone") appeals from the sentence imposed after his guilty plea to six counts of interstate transportation of property taken by fraud, one count of mail fraud, and one count of wire fraud. In determining Iannone's sentence pursuant to the United States Sentencing Guidelines ("U.S.S.G."), the district court applied several enhancements to the offense level. Iannone challenges two actual and one de facto enhancements: (1) a two-level increase pursuant to S 3A1.1 for a vulnerable victim; (2) a two-level increase pursuant to S 3B1.3 for abuse of a position of private trust; and (3) an upward departure, achieved via a two-level increase, pursuant to S 5K2.0 for conduct outside the "heartland" of the fraud guideline. We affirm the sentence.

I. FACTUAL BACKGROUND

Essentially, Iannone defrauded people by encouraging them to invest in oil and gas drilling ventures, but then using the investors' money for his personal expenses rather than for the promised purposes. Iannone committed these frauds against several victims, living in different states, over the course of several years. The total of the funds Iannone fraudulently obtained amounted to more than $600,000.

A. The Pennsylvania Frauds

In 1991 or 1992, Iannone started his own company, Horizon Natural Resources ("HNR"), after leaving his job as an executive at Consolidated Natural Gas. HNR was an oil exploration and natural gas tract leasing company, with an office in Wexford, Pennsylvania. At least initially, HNR was a legitimate business.¹ Iannone was HNR's sole owner and operator, giving himself the title of Chief Executive Officer ("CEO").

In early 1992, Iannone secured several leaseholds and two contractual farm-out arrangements with Exxon Corporation to drill and operate oil wells. Pursuant to the Exxon arrangement, Iannone contracted to drill a test well, Horizon No. 1, by a stated deadline. Despite two or three extensions of the deadline, Iannone never drilled the test well. By November 1992, Iannone's business appeared to be failing. He had not drilled any wells, all but one of his leaseholds had expired, and Exxon had terminated one of the two farm-out arrangements.²

In December 1992, Iannone began to solicit investment monies from his neighbors, ostensibly for the purpose of drilling and operating two wells, Horizon Nos. 1 and 2. Unaware of the precarious state of Iannone's business, his neighbors invested approximately $320,000 with him. Included among those investors were several members of one family, the Stringerts. Iannone had been a friend and neighbor of the Stringerts for several years. Iannone sold the Stringerts what he labeled "interests" or "shares" in Horizon Nos. 1 and 2 and entered into contracts with the Stringerts on behalf of HNR. However, rather than investing the money in the drilling project, Iannone used it for his own personal expenses.

Having spent all of that money by the end of October 1993, Iannone began to solicit further investments in the Horizon drilling project. Iannone told his victims various lies in order to encourage their investment. For example, he told one investor that the wells already were drilled and producing and told others that the wells were going to be drilled in December 1993 and that he had acquired Exxon's overriding royalty interest in the wells. As a result of these solicitations, Iannone received another $170,000 in investment monies from neighbors and acquaintances in October, November, and December 1993. As with the prior investments, Iannone used this money for personal expenses.

From the time Iannone received the first investment monies in December 1992 until he absconded in January 1994, Iannone continually lied to the Stringerts and the other investors in order to conceal his conversion of their money to his personal use. He told some investors that he had used their money to hire a drilling company and that he was in contact with Exxon about a process that would increase their yield from the wells. When one investor -- Howard Stringert -- became suspicious, Iannone agreed to buy back his $100,000 investment in the oil well project once he received a settlement from a pending suit against Consolidated Natural Gas. However, those representations were false. Iannone had not hired a drilling company, was not in contact with Exxon about a process to increase the wells' yield, and had already settled the litigation with Consolidated Natural Gas over a year-and-a-half earlier for only $17,000. Iannone did not use any of the investment monies for the drilling project; he took it all for his personal use.

Throughout the period in which Iannone was soliciting his neighbors to invest in the Horizon project, he was falsely posing as a decorated Vietnam veteran. This adopted military hero persona helped Iannone gain the trust of the Stringert family. He provided some members of the Stringert family with a resume falsely indicating that he had spent three years in Vietnam as a Captain in the U.S. Army Special Forces and that he had been awarded several medals, including the Purple Heart and the Silver Star, and he represented that he had received a recommendation for the Congressional Medal of Honor. He provided the Stringerts with a false citation recounting the heroic acts for which he supposedly received the Silver Star. Howard Stringert described the story recounted in the citation as "Ramboesque."³ One member of the family, Janice Stringert-Streich, visited Iannone's home where he had a Silver Star medal prominently displayed. Janice and her brother Howard Stringert both testified at the sentencing hearing that their family had great respect for military veterans and that this influenced their decisions to invest with Iannone.

By October 1993, some investors had become suspicious of Iannone, and he prepared for his disappearance, buying a truck under a false name with some of the investment money. On January 11, 1994, Iannone disappeared, leaving his wife and three children behind. Approximately $70,000 to $110,000 in investment funds were unaccounted for at the time of his abscondance. In order to avoid being pursued, Iannone faked his own death. He left behind a letter claiming that he had left on a secret mission for a government "alphabet agency" and that he feared it might result in his death. He then left his van, splattered with blood and littered with shell casings from a weapon, parked at the Greater Pittsburgh International Airport. Local police quickly realized both that the scene had been fabricated and that Iannone had not been the victim of a crime.

B. The Colorado Frauds

After his disappearance from Pennsylvania, Iannone settled in Colorado where he adopted the alias Wayne D. Hamilton, the name of a deceased Vietnam veteran. He continued to masquerade as a Vietnam war hero and told acquaintances that his family had been killed by a drunk driver. Posing as a Vietnam veteran, he befriended several people, including Clancy O'Dowd and Diana Hegler, through an America Online chat room for veterans. He developed a close friendship with O'Dowd, based on their supposed shared combat experiences in Vietnam.

Apparently, Iannone lived off the Pennsylvania fraud proceeds for about three years. When he ran low on money, Iannone essentially repeated his Pennsylvania scheme. As head of W. D. H. Associates, a sham oil and gas company, Iannone offered his new friends and neighbors the opportunity to invest in oil and/or gas wells in Texas and Nebraska. Several of his friends and neighbors acquiesced, buying percentage shares of oil and/or gas well leases from Iannone. As with the Pennsylvania frauds, Iannone did not invest this money for the purpose that it was entrusted to him, but used it for personal expenses. He received approximately $115,500 from the Colorado frauds.

Again, Iannone lied to the investors in order to conceal his fraud. Iannone told investors that the wells were producing and that they should expect their first royalty checks to arrive in March or April of 1997. When the checks did not materialize, Iannone again disappeared. On or around June 3, 1997, Iannone left Colorado, falsely informing most investors that he was going to Texas to check on the wells. He told one investor, O'Dowd, a different lie: that he was going to confront the drunk driver who had killed his family. When some of the investors began to communicate with each other and became suspicious, Iannone sent them an electronic message claiming to be an employee of an "alphabet agency" in the witness protection program. Iannone was arrested by the Federal Bureau of Investigation in July 1997.

C. The District Court's Sentence

Iannone pled guilty to six counts of interstate transportation of property taken by fraud, one count of mail fraud, and one count of wire fraud. The district court conducted a two-day sentencing hearing at which four of Iannone's victims testified: O'Dowd,...