U.S. v. Harris

• Decision Date: 15 June 2007
• Docket Number: No. 05-4259.,05-4259.
• Citation: 490 F.3d 589
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Charles HARRIS, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

490 F.3d 589

UNITED STATES of America, Plaintiff-Appellee, v. Charles HARRIS, Defendant-Appellant.

No. 05-4259.

United States Court of Appeals, Seventh Circuit.

Argued January 9, 2007.

Decided June 15, 2007.

Tyler Murray (argued), Office of the U.S. Attorney, Chicago, IL, for Plaintiff-Appellee.

William P. Murphy, Kristen M. Frost (argued), Chicago, IL, for Defendant-Appellant.

Before BAUER, RIPPLE and EVANS, Circuit Judges.

RIPPLE, Circuit Judge.

Charles Harris was charged in a one-count information with defrauding investors through the use of interstate wires. See 18 U.S.C. § 1343. Mr. Harris entered a plea of guilty on June 23, 2005 and on October 6, 2005, the district court sentenced him to 168 months' imprisonment and three years of supervised release. The court further ordered restitution in the amount of $13,861,849. Mr. Harris filed a motion for reconsideration of his sentence on October 31, 2005; this motion was denied on November 1, 2005. Mr. Harris timely appealed. For the reasons set forth in this opinion, we affirm the judgment of the district court.

I BACKGROUND

In September 1996, Mr. Harris formed Tradewinds International, Limited Partnership ("Tradewinds"), a hedge fund that engaged in trading various currency, bond and equity products. Tradewinds was structured as a limited partnership; Mr. Harris was the general partner, and the patrons of the fund were limited partners. Mr. Harris also formed two other hedge fund entities, all of which are collectively known as "Tradewinds"; Mr. Harris was the only manager of those entities.

Mr. Harris sent Tradewinds investors quarterly statements via mail or e-mail. The wire fraud charge to which Mr. Harris pleaded guilty arose out of e-mail communications in which he made material misstatements and omissions concerning the profitability of Tradewinds, the use and/or profitability of funds received from investors and the status of each investor's investment. He was charged in a one-count information with defrauding investors through the use of interstate wires in violation of 18 U.S.C. § 1343,¹ and entered a plea of guilty to the information on June 23, 2005.

In the Presentence Investigation Report ("PSR"), the probation officer calculated a total offense level of 36, for which the advisory guidelines range is 188-235 months. Mr. Harris then submitted his objections to the PSR in which he challenged the inclusion of the "financial institution enhancement," see U.S.S.G. § 2B1.1(b)(13)(B)(i).² He contended that Tradewinds was not a "financial institution" as that term is employed in the advisory Guidelines. He also objected that he should not have received the sophisticated means enhancement, see § 2B1.1(b)(9)(C).³

Mr. Harris and his wife forfeited most of their real and personal property in order to compensate the victims of his misrepresentations. Mr. Harris also submitted letters to the district court, written by himself, family members and friends, that described his role as a devoted husband and father. Furthermore, Mr. Harris fully cooperated with Government officials at all times during his proceedings.

Relevant to this appeal, the district court analyzed, at Mr. Harris' sentencing, whether Mr. Harris should receive the "financial institutions" enhancement under § 2B1.1(b)(13)(B)(i). This section of the advisory sentencing guidelines provides for a four-level upward adjustment to a defendant's offense level when the crime "substantially jeopardized the safety and soundness of a financial institution." U.S.S.G. § 2B1.1(b)(13)(B)(i).

At the sentencing hearing, Mr. Harris contended that Tradewinds was not a financial institution. In reply, the Government relied upon our opinion in United States v. Collins, 361 F.3d 343 (7th Cir. 2004), which held that an "investment company" was a "financial institution" for purposes of the enhancement. Id. at 347. The Government submitted that, because Tradewinds invested people's money, it should be considered an investment company and therefore a financial institution.

Mr. Harris' attorney countered that Collins was not controlling because the "institution" at issue in Collins was a sham corporation. The district court rejected that argument, noting that the petitioners in Collins had made, unsuccessfully, the same argument. In Collins, we held that whether a corporation was a "sham" had no bearing on whether it could be considered a financial institution. The Government proceeded to argue that, because Tradewinds was a "hedge fund," it was distinguishable from the "investment company" at issue in Collins. Neither the Sentencing Guidelines nor the relevant application note references specifically hedge funds; the statutory definition, at 18 U.S.C. § 20,⁴ also does not refer specifically to hedge funds. Because the statutory definition refers to "investment companies," and not hedge funds, Mr. Harris urges that hedge funds cannot be considered "financial institutions" under the statute.

The district court inquired about the investments Tradewinds allegedly had made, and the prosecutor stated that Tradewinds was supposedly investing in bonds and securities; Mr. Harris added that the company traded "commodities," "going long and short, and also other types of investments." R.80-1 at 26.

The district court determined that Collins largely forecloses Mr. Harris' argument that Tradewinds is not a financial institution. The district court noted that it was theoretically disputable whether Tradewinds could be considered an investment company. However, it noted that, in footnote 2 of Collins, this court had referenced a definition of "investment company" that defined the term as "`a company substantially engaged in the business of investing in securities of other companies.'" Collins, 361 F.3d at 346 n. 2 (citing United States v. Savin, 349 F.3d 27, 37 (2d Cir.2003)). The district court then stated that, because it viewed Tradewinds as essentially an organization substantially engaged in the business of investing in securities of other companies, Tradewinds should be characterized as a financial institution for purposes of the sentencing enhancement. Mrs. Harris spoke at the sentencing about her husband's remorse. Mr. Harris' attorney also spoke on his behalf, and Mr. Harris himself expressed his contrition to the district court.

The court then discussed the nature and circumstances of the offense, referring to submissions from victims of the fraud. The harm to the victims, stated the court, is "really beyond quantification." R.80-2 at 72. In discussing Mr. Harris' family history and characteristics of the crime, the court determined that Mr. Harris' family circumstances weighed in favor of a shorter sentence; the court also noted that Mr. Harris had made efforts to locate the assets. In discussing the countervailing consideration of the seriousness of the offense and the concomitant need to promote respect for the law and to provide just punishment, the court emphasized that the criminal acts were repeated and had occurred over a long period of time. Furthermore, because the crime was one that required a significant amount of forethought on Mr. Harris' part, the court determined that a significant sentence also would contribute to the goal of deterrence. Considering the issue of remorse, the court observed that, at the time he "announced" his wrongdoing to the partners in the organization, Mr. Harris did not appear remorseful, although he certainly was remorseful at sentencing. The district court further observed that Mr. Harris did not need training, care or correctional treatment. The district court also recognized the importance of restitution in a case involving financial wrongdoing.

The district court then addressed the need to avoid unwarranted sentencing disparities among people with similar records. Mr. Harris urged that individuals charged in large-scale financial fraud cases such as Enron and WorldCom had received lesser sentences. The district court determined that these cases should have little effect on its decision because it knew little about the particular facts of those cases. Finally, the district court looked to the advisory sentencing guidelines calculation, which put the range at 151-188 months, and determined that a sentence within that range was sufficient but not greater than necessary. The court then imposed a sentence in the middle of the range, 168 months, to be followed by three years of supervised release. The court also imposed a restitution obligation of $13,861,849.

II DISCUSSION

A.

When sentencing a defendant, a district court must consider all sentencing factors enumerated in 18 U.S.C. § 3553(a);⁵ United States v. Dean, 414 F.3d 725, 728 (7th Cir.2005). Here, the district court properly consulted the advisory guidelines in the course of fulfilling its statutory obligation. After calculating Mr. Harris' base offense level, the court applied the financial institution enhancement in § 2B1.1(b)(13)(B)(i); this section directs a sentencing court to impose a four-level upward adjustment to a defendant's offense level when the crime "substantially jeopardized the safety and soundness of a financial institution." U.S.S.G. § 2B1.1(b)(13)(B)(i). Mr. Harris submits that the district court should not have considered Tradewinds to be a "financial institution" for purposes of the advisory guidelines calculation. The Government, however, takes the view that Tradewinds is clearly an investment company; it then reasons that, because this court has held that an investment company is a financial institution,⁶ Tradewinds is a financial institution for purposes of the enhancement.

Whether the district court was correct in its determination that Tradewinds is a financial institution for purposes of this guidelines section is a question of law that we review de novo. United States v. Jones, 313 F.3d 1019, 1021 (7th Cir.2002). Specifically, we review de novo judicial application of the...