United States v. Burns

• Decision Date: 12 December 2016
• Docket Number: No. 15-2824,15-2824
• Parties: United States of America, Plaintiff–Appellee, v. John T. Burns, III, Defendant–Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

843 F.3d 679

United States of America, Plaintiff–Appellee,

v.John T. Burns, III, Defendant–Appellant.

No. 15-2824

United States Court of Appeals, Seventh Circuit.

Argued September 13, 2016

Decided December 12, 2016

Stuart D. Fullerton, Attorney, Office of the United States Attorney, Chicago, IL, for Plaintiff–Appellee.

Russell D. Mangas, Attorney, Mary R. Alexander, Attorney, Latham & Watkins LLP, Chicago, IL, for Defendant–Appellant.

Before Bauer, Kanne, and Hamilton, Circuit Judges.

Kanne, Circuit Judge.

John Burns made fraudulent misrepresentations when soliciting investments for his employer, USA Retirement Services ("USARMS"). Burns told investors that he had experience managing investments and that he had personally invested in USARMS's promissory notes. His statements were false. Moreover, without Burns's knowledge, the investment opportunity was fraudulent. USARMS's owners were operating a Ponzi scheme.

With USARMS's owners out of the picture for various reasons, the government filed a superseding indictment against Burns. The government alleged that Burns committed fraud by making material misrepresentations to investors. A jury convicted Burns on two counts of wire fraud and three counts of mail fraud. Despite not alleging that Burns knew of or participated in the Ponzi scheme, the government sought to hold Burns accountable for the entire $3.3 million the investors that he solicited lost as a result of the Ponzi scheme. The district court enhanced Burns's sentence, ordered restitution, and ordered forfeiture based on the victims' $3.3 million total loss.

On appeal, Burns argues that there was insufficient evidence to convict him of making material misrepresentations. Burns also challenges the sentencing enhancement and the restitution order on grounds that the district court did not determine that he proximately caused the victims' loss. Finally, Burns argues that the forfeiture order was improper because it was based on the victims' loss and not on his gain. Because there was sufficient evidence to convict, we affirm Burns's conviction. But because the district court erred in calculating the sentence, restitution order, and forfeiture order, we remand for resentencing.

I. BACKGROUND

At USARMS, Burns's primary job was to provide estate-planning services to clients. In addition to those services, Burns would offer clients an opportunity to invest in promissory notes that USARMS sold. The notes were allegedly backed by Turkish bonds. USARMS's owners, Francois Durmaz and Robert Pribilski, claimed to have a connection in the Turkish government that allowed them to purchase the bonds at a below-market rate. USARMS guaranteed an 8.5 percent rate of return and told investors that returns could be as high as 14 percent.

As the high guaranteed rate of return might have hinted, the investment opportunity was too good to be true. USARMS never purchased Turkish bonds. Instead, Durmaz and Pribilski used the investments for their personal use and to pay earlier investors "returns" on their investment—indicia of a classic Ponzi scheme.

The government's original criminal complaint charged only Durmaz with wire fraud in connection with the Ponzi scheme. Perhaps aware that the scam had run its course and was about to collapse, Durmaz fled the country before the original complaint was filed. Roughly two years later, the government filed an indictment against Durmaz, Pribilski, and Burns, charging them with various counts of wire and mail fraud. Pribilski pled guilty to the charges. But before he could be sentenced, he died.

With only Burns left alive and in the United States, the government filed a superseding indictment. The government alleged that Burns had induced certain victims to invest in USARMS by falsely telling them that he had experience managing investments and that he and his family had invested in the Turkish bonds. The superseding indictment made no reference to the Ponzi scheme. In its response to Burns's motion in limine , the government stated that the "Defendant is not alleged to have knowingly participated in the Ponzi scheme" and that the lies about his credentials and his personal investment are "the only crimes that defendant is alleged to have committed." (R. 104 at 4.)

At trial, the government called six of the victims Burns had solicited investments from. Five victims testified that they had relied on Burns's statements that he and his family had invested in the Turkish bonds. A sixth victim testified that Burns said that he had experience handling investments and that he personally allocated Turkish bonds to investor accounts.

At the close of evidence, the jury convicted Burns on two counts of wire fraud and three counts of mail fraud. The district court sentenced Burns to eighty-four months in prison and three years' supervised release. When calculating the sentence, the district court applied an 18–level enhancement to account for the roughly $3.3 million Burns's victims lost in their investment with USARMS. The district court also entered a restitution order and forfeiture order, both for $3.3 million. Burns filed a motion for judgment of acquittal and a motion for a new trial. The district court denied the motions, and this appeal followed.

II. ANALYSIS

On appeal, Burns challenges his conviction, his sentence, the restitution order, and the forfeiture order. Burns argues that his statements about his financial background and his personal investment in USARMS were puffery and thus could not have been material misrepresentations. Regarding the length of his sentence and the restitution order, Burns contends that the district court did not establish that he proximately caused the victims' loss. Accordingly, Burns claims that the court improperly enhanced his sentence and ordered him to pay more in restitution than the loss that he caused. Finally, Burns challenges the forfeiture order because the court ordered forfeiture based on the victims' $3.3 million loss instead of the amount that he gained from his unlawful conduct.

A. Sufficiency of the Evidence

We review de novo the denial of a motion for the judgment of acquittal. United States v. Peterson , 823 F.3d 1113, 1120 (7th Cir. 2016). In reality, however, we apply the same analysis that we use when reviewing for the sufficiency of the evidence. Id. The burden for proving insufficiency of the evidence is "heavy" and "nearly insurmountable." United States v. Dessart , 823 F.3d 395, 403 (7th Cir. 2016). Burns must prove "that even after viewing the evidence in the light most favorable to the prosecution, no rational trier of fact could have found him guilty beyond a reasonable doubt." Id. (internal quotation marks omitted); see also United States v. Clarke , 801 F.3d 824, 827 (7th Cir. 2015).

A statement is material if it has the ability to influence a person's decision. United States v. Seidling , 737 F.3d 1155, 1160 (7th Cir. 2013) (citing Neder v. United States , 527 U.S. 1, 16, 119 S.Ct. 1827, 144 L.Ed.2d 35 (1999) ). Burns's argument that his statements were puffery, akin to a used-car salesman's sales pitch, is unavailing. "Puffing" is "[t]he expression of an exaggerated opinion—as opposed to a factual misrepresentation—with the intent to sell a good or service." Black's Law Dictionary 1269 (8th ed. 2004). We have said that puffery is nonactionable because no reasonable person would rely on such "empty superlatives." F.T.C. v. Trudeau , 579 F.3d 754, 765 (7th Cir. 2009).

Whereas puffery involves ambiguous and vague promises, Burns's comments were factual and specific. He told investors that he and his family had invested in the bonds and were reaping the rewards of having done so. He told investors that he had a history of managing investments. He told investors that he had quit a reputable bank job to work at USARMS. All of these were factual misrepresentations, not exaggerated opinions. All of these were a far cry from promises of a "good" investment, "can't miss" opportunity, or other equivocal sales pitches buyers hear every day and are expected to discern and discount. United States v. Coffman , 94 F.3d 330, 334 (7th Cir. 1996). Accordingly, the jury's verdict will be affirmed.

B. Sentencing, Restitution, and Forfeiture

The government argues that Burns waived or at least forfeited his arguments about his sentence, the restitution order, and the forfeiture order. Consequently, we must first determine whether he preserved, forfeited, or waived his objection to the calculations.

1. Waiver

To preserve an issue for appeal, an appellant must make a "timely and specific objection" at trial in order to notify the court and the opposing party of the potential error and the ground for objection. United States v. Ousley , 698 F.3d 972, 975 (7th Cir. 2012).

Burns failed to preserve his objections in this case. When discussing the restitution and forfeiture orders at sentencing, Burns asked only if he alone would be responsible for the $3.3 million or if the awards would be apportioned (presumably among USARMS's owners and himself). The apportionment argument does not articulate a specific objection to how restitution and forfeiture were calculated.

Nor did Burns specifically object to the loss calculation used to enhance his sentence. At sentencing, Burns argued that he should be responsible for 10 percent of the victims' $3.3 million loss. But that argument was based on the fact that $3.3 million was only 10 percent of the entire loss that the Ponzi scheme caused. Although Burns intimated that he was not responsible alone for the loss, he never articulated the proximate-cause objection that he makes here.

Because Burns did not properly preserve his objection during sentencing, we must determine whether Burns waived or merely forfeited his objection. "Waiver is the intentional relinquishment of a known right" and precludes judicial review by extinguishing the error. United States v. Butler , 777 F.3d 382, 387 (7th Cir. 2015) (citing United States v. Olano , ...