U.S. v. Rose

• Citation: 20 F.3d 367
• Decision Date: 01 April 1994
• Docket Number: 93-10001,Nos. 92-10742,s. 92-10742
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Joseph W. ROSE, Defendant-Appellant. UNITED STATES of America, Plaintiff-Appellee, v. Michael Allen PETERSON, Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 367

20 F.3d 367

UNITED STATES of America, Plaintiff-Appellee, v. Joseph W. ROSE, Defendant-Appellant.

UNITED STATES of America, Plaintiff-Appellee, v. Michael Allen PETERSON, Defendant-Appellant.

Nos. 92-10742, 93-10001.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Jan. 11, 1994.

Decided April 1, 1994.

Jeffrey L. Staniels, Asst. Federal Public Defender, Sacramento, CA, for defendant-appellant Joseph Rose.

Dwight M. Samuel, Sacramento, CA, for defendant-appellant Michael Peterson.

Geoffrey Goodman, Asst. U.S. Atty., Sacramento, CA, for plaintiff-appellee.

Appeals from the United States District Court for the Eastern District of California.

Before: CHOY, SCHROEDER, and NOONAN, Circuit Judges.

CHOY, Circuit Judge.

In November 1992, Appellants Joseph W. Rose and Michael A. Peterson were each found guilty in separate jury trials in the United States District Court for the Eastern District of California of twelve counts of mail fraud, three counts of wire fraud, eight counts of money laundering and four counts of interstate transportation of stolen property under 18 U.S.C. Secs. 1341, 1343, 1956(a)(1)(A)(i) and 2314. In addition, Peterson was convicted of one charge of obstruction of justice under 18 U.S.C. Sec. 1503.

Peterson was sentenced to 240 months on each of the money laundering counts, 120 months on each of the interstate transportation counts and 60 months on each of the remaining counts, all sentences to be served concurrently. Rose was sentenced to 70 months on each of the money laundering counts and 60 months on each of the remaining counts, all sentences to be served concurrently. Having consolidated their appeals to consider their related contentions of error, we are asked to determine whether the district court erred in (1) increasing their offense levels by grouping funds involved in fraud and money laundering offenses under U.S.S.G. Sec. 3D1.2(d); (2) increasing Peterson's offense level based on his role in the money laundering scheme as an organizer; and (3) declining to depart downward in sentencing Rose notwithstanding disparities in the sentencing schedules for the same conduct under the respective money laundering and fraud guidelines. In addition, the Government challenges the jurisdiction of this court to review what it characterizes as a discretionary decision by the district court not to grant Rose a downward departure. We affirm.

I.

Appellants' convictions arose out of the fraudulent money lending and laundering activities of two companies organized and controlled by Peterson, Inter-coastal Financial Services, Inc. ("ICF"), a California corporation with headquarters in Sacramento, California and regional offices in Phoenix, Arizona and Newport Beach, California, and Pantecock and Brau Investments, Inc. ("PBI"), a California corporation. Contributing initial capital of $20,000, Peterson incorporated ICF in April, 1988 for the ostensible purpose of mortgage brokering.

In July, 1988 Peterson hired Rose to work for and co-manage ICF in various executive capacities, including senior vice president and chief financial officer. Almost simultaneously with Rose's hiring, Peterson purportedly transformed ICF into a direct commercial lender after failing to obtain a brokering license and being ordered by the California Department of Real Estate to cease and desist from further unlicensed mortgage brokering activities.

The essence of Peterson's scheme, facilitated by Rose, was to secure only nominally refundable advance fees from loan applicants in exchange for sham loan commitments. Driven by a tight lending market to seek alternative sources of capital, potential borrowers were baited with promises of highly competitive interest rates on direct loans from ICF and bogus promotional brochures listing projects completed with ICF funding.

To foster further the illusion of legitimacy and financial security, Appellants surrounded ICF with an elaborate corporate shell. In October 1988, with Rose's knowledge and cooperation, Peterson formed PBI with funds from ICF. Masquerading as the fictitious Messrs. Pantecock and Brau, Appellants misrepresented PBI to investors as ICF's separately managed and owned "deep pocket". Moreover, they reassured hesitant borrowers seeking references with letters signed by PBI's fabricated president, Anton Pantecock, or with spurious documents or other communications with ICF employees, including Rose, posing as PBI loan officers or account managers.

Promises of substantial offshore reserves, including a multi-million dollar warehouse line of credit, completed the illusion that ICF had money to lend. However, Peterson was unable to prove that ICF could or did draw upon this line of credit, and the Government continued at trial to dispute the existence of any such resources.

Lured by this corporate facade, interested borrowers would then sign a standard form loan commitment letter provided by Appellants, tender a "lock-in" deposit of $5,000, and pay a much larger "commitment fee". In most cases borrowers were assured that the deposit and commitment fee were refundable and would be segregated in a trust account pending the closing of the loan. In the meantime ICF would generate padded billing reports for the processing of the would-be borrower's application. Although Peterson claimed in a few instances to have brokered a loan for applicants from a third party, notwithstanding the cease and desist order against further brokering and his lack of a broker's license, ICF never gave a loan or refund to any of the victims named in the indictment. ¹

Contrary to their usual representations to applicants, Appellants would then deposit an applicant's advance fee only temporarily into a trust fund before transferring the fee the same day or within a few days to one of several general operating accounts drawn on by ICF, PBI and other Peterson-owned entities. During the period covered by the indictment, approximately $3.5 million dollars flowed into these accounts, as well as two million dollars in inter-account transfers not taken into account for sentencing purposes. Rose assisted Peterson at this stage by depositing incoming checks, transferring funds between accounts and, on Peterson's instruction, disbursing funds to accounts payable. Peterson admitted that a majority of the $3.5 million received by ICF came from loan application and commitment fees.

Ignoring the daily complaints of dissatisfied or concerned clients, Peterson then spent these monies in their entirety on the operating costs of PBI and ICF, which primarily consisted of accountants' fees of at least $734,000 and his own salary in excess of $100,000 per year, as well as overhead, phoney solicitation materials, and payroll for several employees, including Rose's ending salary of $96,000.

As the specified closing date for a loan approached, Rose and Peterson would temporize by returning loan documentation on the pretense that corrections were needed or by attempting to extend the funding date unilaterally. Once the closing date passed without ICF having performed, Appellants would stall further by claiming that documentation delays had arisen, that the borrower owed additional processing or commitment fees, or that the borrower had failed to perform some concocted, minor or previously waived contractual obligation.

To appease disgruntled applicants, Appellants would also promise to seek another lender in ICF's stead or claim to have assigned the commitments, resulting in additional fees but rarely, if ever, in a third party loan. The parties disputed the extent to which such third party funding occurred, the significance of its occurrence, and the degree to which the sentencing report failed to deduct resulting "legitimate" fees from the value of funds laundered.

The record substantially contradicted Peterson's contention that ICF was a conduit for even some legitimate business. Behind the elaborate corporate veil, Peterson instructed at least one employee that his job was to ensure that loans were not funded. On a few occasions Peterson even emphasized to his employees that his interest was expressly to generate only the appearance of being willing and able to provide loans. In his defense Rose professed a more categorical belief that ICF was an entirely legitimate business. However, Rose's admission to his administrative assistant that "there are no funds" at ICF for commercial lending suggested that this profession was disingenuous. Also at odds with this profession was Rose's testimony before the grand jury, as well as a comment to a co-worker, that his salary was instrumental in his decision to continue working for ICF, despite its shady dealings, until the closing of its Sacramento office in January 1991.

Appellants were indicted on June 6, 1991. On the Government's motion, six counts were dismissed from the original 34 count indictment and the jury was given a renumbered superseding indictment. Peterson received an additional count for obstruction of justice when he inadequately responded to the district court's order that he comply with four subpoenas for business documents. After the jury convicted Appellants on all charges, presentence reports were submitted to the district court with recommendations that Rose and Peterson receive sentences of 96 and 240 months respectively.

The presentence report recommended a four-level increase for Peterson's role in the offense as "an organizer or leader of a criminal activity that involved five or more participants or was otherwise extensive" under U.S.S.G. Sec. 3B1.1(a). The report observed that Peterson supervised a criminally responsible party (viz., Rose) and in his extensive corporate network employed 60 persons who, knowingly or unknowingly, assisted him in the perpetration of fraud and money laundering. Peterson did not object to the four-level increase prior to this appeal.

The presentence report also recommended...