233 F.3d 1117 (9th Cir. 2000), 99-50195, United States v. Munoz

Docket Nº:99-50195, 99-50196, 99-50203.
Citation:233 F.3d 1117
Party Name:UNITED STATES OF AMERICA, Plaintiff-Appellee, v. DAVID PHILLIP MUNOZ; BENNIE E. MCGREGOR; DONALD L. THOMSON, Defendants-Appellants.
Case Date:December 06, 2000
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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233 F.3d 1117 (9th Cir. 2000)

UNITED STATES OF AMERICA, Plaintiff-Appellee,

v.

DAVID PHILLIP MUNOZ; BENNIE E. MCGREGOR; DONALD L. THOMSON, Defendants-Appellants.

Nos. 99-50195, 99-50196, 99-50203.

United States Court of Appeals, Ninth Circuit

December 6, 2000

Argued and Submitted October 12, 2000

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Michael D. Abzug, Los Angeles, California, for defendant appellant David P. Munoz.

William J. Kopeny, William J. Kopeny & Associates, Irvine, California, for defendant-appellant Bennie E. McGregor.

Thomas H. Wolfsen and James M. Crawford, Orange, California, for defendant-appellant Donald L. Thomson.

Alejandro N. Mayorkas, United States Attorney, and George S. Cardona and Paul G. Stern, Assistant United States Attorneys, Los Angeles, California, for the plaintiff-appellee.

Appeal from the United States District Court for the Central District of California Alicemarie H. Stotler, District Judge, Presiding. D.C. Nos.CR-96-00155-AHS-2 CR-96-00155-AHS-3 CR-96-00155-AHS-1

Before: Robert Boochever, A. Wallace Tashima, and Richard C. Tallman, Circuit Judges.

TALLMAN, Circuit Judge:

David Munoz, Bennie McGregor, and Donald Thomson appeal their convictions and sentences for mail fraud and aiding and abetting under 18 U.S.C. SS 1341 & 2 (2000). After a month-long trial a jury found all three defendants guilty of mail fraud for participating in a fraudulent "Ponzi" investment scheme. We have jurisdiction and affirm their convictions but vacate the sentences of Munoz and McGregor and remand for resentencing. We affirm Thomson's conviction and sentence.

The three defendants press numerous claims of error on appeal. Two major questions predominate. First, we must decide whether for the purposes of calculating loss under U.S.S.G. S 2F1.1 the district court erred in refusing to offset the intended loss by (1) payments made to investors as an alleged return on their investment and (2) the actual value of the investment after the illicit company reorganized in bankruptcy and began doing business as a legitimate enterprise. We hold that the district court properly calculated the loss for sentencing purposes by using the intended loss standard, without offsetting the loss by the value recovered by the victims.

Second, we must decide whether the district court erred at sentencing by using the preponderance of the evidence standard in determining the relevant conduct of Munoz and McGregor. The relevant conduct determination resulted in a fourteen-level rather than a five-level upward adjustment for each defendant. Because the law has changed since Munoz and McGregor were sentenced, we vacate their sentences and remand for resentencing. The district court should reexamine the relevant conduct evidence using the clear and convincing evidence standard in considering the appropriate sentence for these two defendants.

I. FACTUAL BACKGROUND

To understand the issues better, we set forth the relevant facts in some detail.

In 1986, Jean Claude Leroyer formed a corporation called Metro Display Advertising, Inc. (MDA) to sell bus stop shelters as investments to the public. From 1986 to 1991, MDA ostensibly sold bus stop shelters to investors through its sales agents for $10,000 each, then leased the shelters back from the investors for a fee of $200 per month, less a $30 maintenance fee. As part of the sales contract, MDA agreed to repurchase the shelters from the investors after five years for $10,000. MDA was to solicit advertisers to place ads on the shelters

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in order to generate the necessary revenue to make the lease payments.

Over the five years that MDA was in business, it sold approximately 4,600 bus stop shelters to 1,442 investors, but installed no more than 2,600 shelters. MDA's advertising revenues were insufficient to cover the lease payments and overhead, so MDA used the capital investments from new investors to cover those expenses. In short, the shelter investment was a Ponzi scheme.

In December 1991, MDA agreed with the Securities and Exchange Commission, after a ten-month investigation, to stop selling the bus stop shelter investment. The investment scheme inevitably collapsed. MDA no longer made lease payments to investors and promptly filed for bankruptcy, declaring over $100 million in debt and less than $1 million in assets.

The company subsequently reorganized and was taken over by an investor. The investor, with the help of other victim investors, rebuilt the company into a legitimate, profit generating business. In 1998 it was sold to a bona fide purchaser and $37 million in proceeds from that sale were deposited in escrow as restitution for the victim investors.

The three defendants, Munoz, McGregor, and Thomson, were independent sales agents of MDA. They made several fraudulent and misleading statements to perpetuate the scheme. For example, they and their agents told investors that MDA was a financially sound company with adequate advertising revenues to cover its lease payments. Moreover, they concealed from investors the fact that the SEC was investigating MDA for potential securities violations beginning in March of 1991.

To generate sales they used a sales brochure given to them by MDA. The sales brochure contained a breakdown of the costs of the shelter accounting for the entire $10,000 investment. The brochure itemized $9,000 in materials, labor, and permits for the construction of the shelter, and $500 each for "marketing fees" and "consulting fees." This led investors to believe that sales agents were only receiving $1,000 in commissions. The sales agents, however, were receiving $2,500 total in commissions from each $10,000 shelter sale.

The defendants also used opinion letters prepared by attorneys, which stated that the sales contracts were not securities. The attorneys based their opinions on the representations of Leroyer that the investments were not advertised to the public and that purchasers would be only sophisticated investors who were financially qualified in advance to purchase. The defendants did not, however, financially pre-qualify the investors as required.

Munoz, McGregor, and Thomson were indicted on ten counts of mail fraud stemming from the mailing of lease payments to ten investors on December 15, 1991. The jury convicted Munoz and McGregor on two counts each, only for those mailings to the investors to whom they or their companies directly sold the shelters. Thomson was convicted on all ten counts.

A. Defendant David Munoz.

Munoz sold shelters from 1989 to 1991, first as a sub-agent of Thomson, then as a direct agent of MDA through his company, IBT Financial. IBT sold approximately 883 shelters during its operation for a total of $8.7 million in investor loss. The jury convicted Munoz on two counts for the December 15, 1991, mailings of lease payments to two investors who purchased shelters from IBT. The sales were made in October and November of 1991.

Using the "intended loss" standard under U.S.S.G. S 2F1.1, cmt. n.8, the probation officer in the presentence report (PSR) calculated the loss caused by Munoz's conduct at $8.7 million, the total amount of investment money generated by IBT. This resulted in a fourteen-level upward adjustment, which, when combined with a two-level upward adjustment for

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"more than minimal planning," put Munoz's offense level at 22 with a corresponding guideline range of 41 to 51 months.

Munoz objected to the loss calculation on two grounds. He argued first that he should only be held accountable for the loss to the two investors named in the indictment, not for all of the investors to whom IBT sold shelters. He also argued that the loss should be offset by the amount of money recovered by the two investors through the lease payments and the 1998 sale of MDA, placing the total loss amount at $62,890.37. Offsetting the loss by investor recovery returns would have resulted in a five-level upward adjustment to an offense level of 13, with a corresponding guideline range of 12 to 18 months.

The district court agreed with the recommendation in the PSR and found that the intended loss formula was the appropriate standard. The court further concluded that the relevant conduct for which Munoz was accountable included all sales by IBT to investors, not merely the sales to the two investors named in the indictment. Finally, the court found that the value of the investments at the time of the transactions was negligible. Thus, the court would not offset the loss by the amount of the lease payments and the revenue the victims realized by selling MDA six years after MDA declared bankruptcy. The court sentenced Munoz to 41 months' imprisonment and three years of supervised release. He was ordered to pay restitution in the amount of $97,200.

B. Defendant Bennie McGregor.

McGregor sold shelters from 1989 to 1991 through his companies, McGregor Financial Group, Inc., and McGregor Investment Group, Inc. (MFG and MIG). MFG and MIG sold approximately 550 shelters during their operation for a total of $5,505,000 in investor loss.

The jury convicted McGregor on two counts for the December 15, 1991, mailings of lease payments to two investors who purchased shelters from MIG and MFG. The sales to those investors were also made in October and November of 1991.

The PSR calculated the loss caused by McGregor's conduct at $5.5 million based upon the total amount of investment money generated by MFG and MIG. McGregor challenged the loss calculation at sentencing on the same grounds as did Munoz...

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