United States v. Brown, s. 12–10227
| Decision Date | 07 November 2014 |
| Docket Number | 12–10230.,Nos. 12–10227,s. 12–10227 |
| Citation | 771 F.3d 1149 |
| Parties | UNITED STATES of America, Plaintiff–Appellee, v. Robert Cephas BROWN, Jr., Defendant–Appellant. United States of America, Plaintiff–Appellee, v. Duane Allen Eddings, Defendant–Appellant. |
| Court | U.S. Court of Appeals — Ninth Circuit |
OPINION TEXT STARTS HERE
Heather Williams, Federal Defender, David M. Porter (argued), Assistant Federal Defender, Rachelle Barbour, Research and Writing Attorney, Sacramento, CA, for Defendant–Appellant Robert Cephas Brown, Jr.
John Balazs (argued), Attorney at Law, Sacramento, CA, for Defendant–Appellant Duane Allen Eddings.
Benjamin B. Wagner, United States Attorney, Camil A. Skipper, Appellate Chief, Michael D. Anderson (argued) and Todd A. Pickles, Assistant United States Attorneys, Sacramento, CA, for Plaintiff–Appellee.
Appeal from the United States District Court for the Eastern District of California, John A. Mendez, District Judge, Presiding. D.C. Nos. 2:09–cr–00074–JAM–1, 2:09–cr–00074–JAM–2.
Before: CARLOS T. BEA, SANDRA S. IKUTA, and ANDREW D. HURWITZ, Circuit Judges.
Indicted for operating a Ponzi scheme, Robert Brown pleaded guilty to one count of wire fraud. His partner in the scheme, Duane Eddings, proceeded to trial and was convicted of six counts of mail fraud, one count of wire fraud, three counts of money laundering, and three counts of tax evasion. Some of Eddings's convictions arose from the Ponzi scheme and others from a bankruptcy fraud. Brown appeals his sentence; Eddings appeals his convictions 1 and sentence.
We have jurisdiction under 28 U.S.C. § 1291, and we affirm in part, vacate in part, and remand for resentencing.
In 2000, after a Vallejo, California newspaper article touted Robert Brown's investment capabilities, he organized a public seminar. Some attendees requested that Brown invest for them, and he agreed to do so. Unfortunately, Brown invested only some of the investors' money and took the rest “off the top” for his own use. Brown's investments were initially successful enough to mask his wrongdoing, but they soon turned south.
Brown then began a classic Ponzi scheme: he would “lie to [investors] and make them feel that everything was still going well,” and use money from new investors to pay off past investors. Brown told investors he felt “blessed” by his ability to generate returns to “give back to the community.” He also told investors he would not take management fees; rather, one hundred percent of their funds would be invested, and he would be paid only after he doubled their money.
Duane Eddings had seen Brown driving around town in his Ferrari and had wanted to meet him for some time. In the summer of 2005, Eddings introduced himself to Brown. The meeting was fortuitous, because Brown was then “desperate for new money.” Brown and Eddings promptly established a “business relationship” under which Eddings brought in new investors for “15 or 20 percent of the new money.”
At Brown's instruction, Eddings opened up separate bank accounts to keep the investors he recruited apart from Brown's; one account was for “WISE Investors.” Soon after their relationship was established, Eddings became aware of the Ponzi scheme. By September 2005, Brown was sending “lulling letters” to investors, “trying to basically stall people, hoping that they wouldn't go to the authorities.” Brown testified that Eddings “was getting people complaining to him” about their investments and that the two talked about “what was going to go into the letters.” Bank records showed that in November 2005 Eddings deposited new investor funds into his WISE Investors account and then immediately used that money to pay old investors.
Brown and Eddings jointly solicited new investors through seminars at a Berkeley restaurant; Brown was the primary presenter and Eddings was responsible for the “finance and the contracts.” Generally, Eddings transferred funds from his account to Brown's to pay Brown's investors; at least once, however, Eddings paid Brown's investors directly from his WISE Investors account.
Over time, it became increasingly difficult to pay investors, and Eddings complained to Brown about needing money to “pay some of his own bills and a credit card he had got behind on.” Brown agreed to increase Eddings's “referral fee” to fifty percent of the funds Eddings obtained.
From 2005 to 2007, Eddings personally received over $1,866,000 from the WISE Investors account. Approximately 165 investors deposited funds into that account. The last transfer of money from the WISE Investors account to Brown was on May 22, 2007. Brown continued the Ponzi scheme thereafter, taking in several hundred thousand dollars in 2007.
On September 30, 2008, Eddings filed a Chapter 7 bankruptcy petition. Eddings's bankruptcy filings and tax returns claimed little or no income for 2005 to 2007; his bankruptcy schedules listed total assets of only $33,000. The petition claimed a fictitious $2.5 million loan from Brown as Eddings's largest debt. In light of the filings, the bankruptcy trustee abandoned any effort to obtain a recovery for creditors. Eddings received a discharge on January 5, 2009.
In February 2009, Brown and Eddings were indicted in the Eastern District of California on four counts of mail fraud, 18 U.S.C. § 1341, eight counts of wire fraud, 18 U.S.C. § 1343, and ten counts of money laundering, 18 U.S.C. § 1957. In April 2010, Brown pleaded guilty to a single count of wire fraud and agreed to testify against Eddings. In exchange, the government agreed to dismiss the remaining counts of the indictment, seek a sentence at the low end of the Guidelines range, and recommend reductions for acceptance of responsibility and cooperation.
On May 12, 2011, the government filed a superseding indictment against Eddings. It included three new charges of tax evasion, 26 U.S.C. § 7201, arising from the returns he filed during his bankruptcy. In October 2011, the district court dismissed two of the wire fraud counts as beyond the statute of limitations. Eddings then was tried; the jury found Eddings guilty on all remaining counts.
The government filed a United States Sentencing Guidelines Manual (U.S.S.G.) § 5K1.1 motion, seeking to reduce Brown's sentence to 100 months because of his assistance. The district court acknowledged that Brown “did cooperate” and “accepted responsibility,” but found the government's proposed 100 month sentence “too great of a reduction.”
The court then analyzed the “[18 U.S.C. § ] 3553(a) factors.” The judge concluded that Brown was still “a danger to the public given the depth and length of this scheme” and that “a lengthy sentence [wa]s necessary ... to protect the public from further crimes of this defendant.” Although the court credited Brown for accepting responsibility and assisting the government, he found that after application of the § 3553(a) factors, “it basically [was] a wash.” The court denied the § 5K1.1 motion under these “unique circumstances,” and sentenced Brown to 188 months, a within-Guidelines sentence at the top of the range.2
The pre-sentence report (PSR) suggested that Brown's sentence should be increased by two levels 4 under U.S. S.G. § 2B1.1(b)(15)(B)(iii) because the “offense substantially endangered the solvency or financial security of 100 or more victims.” Brown timely objected, arguing that the government had failed to specifically identify 100 such victims. The court overruled the objection, finding that the “information that probation ha[d] before it” was sufficient to establish by a preponderance of the evidence that “there were at least 100 victims whose solvency was endangered.”
Eddings's PSR recommended that counts 1–4 (Ponzi scheme mail fraud), 7–10 (Ponzi scheme wire fraud and money laundering), and 11–12 (bankruptcy fraud) be grouped under U.S.S.G. § 3D1.2(d) because “the offense level is determined largely on the basis of the total amount of harm or loss.” Eddings objected, arguing that the grouping was improper because the bankruptcy counts “involve different victims and modes of fraud and are unrelated to the investment scheme in manner and in time.” The district court overruled Eddings's objection.
The PSR recommended that Eddings's sentence not be increased under U.S.S.G. § 3B1.1 for a leadership role. The governmentobjected, arguing that Eddings recruited others “who knowingly or unknowingly worked on the defendant's behalf to recruit victims.” The district court found this a “close question,” but determined that the government had proved that Eddings had acted as a leader and applied the adjustment.
Over Eddings's objection, and with little discussion, the district court also applied a two-level increase under § 2B1.1(b)(15)(B)(iii) to Eddings's sentence. The court determined that, for “the same reasons ... stated in Mr. Brown's sentencing,” the increase was “applicable to Mr. Eddings as well.”
Eddings's PSR determined that he had 154 victims. The government objected, arguing that the total should include an additional 147 victims who invested with Brown prior to Eddings's involvement but to whom Eddings made lulling payments. The district court determined that the 147 victims “had at least some...
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