United States v. Harder
| Docket Number | 3:12-cr-485-SI |
| Decision Date | 26 October 2023 |
| Parties | UNITED STATES OF AMERICA v. JON MICHAEL HARDER, Defendant. |
| Court | U.S. District Court — District of Oregon |
Claire M. Fay, Assistant United States Attorney, UNITED STATES ATTORNEY'S OFFICE, 1000 SW Third Avenue, Suite 600 Portland, OR 97204. Of Attorneys for United States of America.
Kevin M. Sali, KEVIN SALI LLC, 1500 SW First Avenue, Suite 1020 Portland, OR 97201; and K. Lawson Pedigo, MILLER KEFFER & PEDIGO PLLC, 3100 Monticello Avenue, Suite 480, Dallas, TX 75205. Of Attorney for Jon Michael Harder.
Before the Court is the government's motion for an order requiring that Defendant Jon Michael Harder pay restitution to the victims of his fraudulent scheme. Mr. Harder opposes this motion. On October 12 and 13, 2023, the Court held a two-day evidentiary hearing. The government and Mr. Harder each presented two witnesses. Both sides offered exhibits, including summaries, which the Court received without objection. The parties presented oral argument and submitted legal memoranda, both before and after the evidentiary hearing. For the reasons stated below, the Court orders Mr. Harder to pay restitution in the total amount of $74,062,211.92 to 1,488 claimants, who will be identified by name, address, claim number, and amount due in Exhibit A to a forthcoming Second Amended Judgment. The Court will file Exhibit A under seal. The Court also waives interest on Mr. Harder's restitution obligation.
In 2015, Mr. Harder pleaded guilty to one count of wire fraud in violation of 18 U.S.C. § 1341 and one count of money laundering in violation of 18 U.S.C. § 1957, in connection with the operation of Sunwest Management, Inc. (SMI) and its affiliated businesses (collectively, Sunwest). The parties, however, did not agree on the scope of the fraud. Instead, they agreed that the Court would hold an evidentiary hearing, which occurred in 2015. The government called 14 witnesses and offered more than 200 exhibits, and the defense called seven witnesses and offered more than 400 exhibits. After extensive briefing and argument, the Court concluded that between January 1, 2006, and July 7, 2008, Mr. Harder deceived, lied to, and misled more than 1,200 investors nationwide. ECF 207 (Sentencing Memorandum and Order), United States v. Harder, 144 F.Supp.3d 1233, 1234 (D. Or. 2015), aff'd, 705 Fed.Appx. 643 (9th Cir. 2017). The Court concluded, for loss calculation purposes at sentencing, that Mr. Harder's conduct caused actual losses exceeding $120 million. ECF 207 at 2 (Sentencing Memorandum and Order); see also ECF 201 at 13 (Government's Sentencing Memorandum); ECF 194 ¶¶ 37, 53 (Presentence Investigative Report); ECF 189 (), United States v. Harder, 116 F.Supp.3d 1197 (D. Or. 2015).
In the parties' plea agreement, the government agreed to recommend a sentence of imprisonment of not more than 15 years, and Mr. Harder agreed to recommend a sentence not less than five years. The parties also agreed that Mr. Harder would be required to pay restitution to his victims, as follows:
The Court shall order restitution in the full amount to the victims as required by law for the counts of conviction and determined by the Court. The defendant expressly consents to the entry of an order of full restitution for all victims that are outside the counts of conviction consistent with the court's determination in the initial sentencing proceeding of the scope of the defendant's scheme to defraud. The government anticipates that restitution will not exceed $130,000,000. In entering this plea, defendant acknowledges and understands that restitution may be as much as $130,000,000.
ECF 109, ¶ 9 (emphasis added). The Court sentenced Mr. Harder to a term of imprisonment of 15 years and ordered him to pay restitution in an amount to be determined by the Court after the government provided victim-specific restitution calculations. The government, however, did not promptly provide that information.[1]
Mr. Harder began serving his prison sentence in February 2016. In December 2017, the Ninth Circuit affirmed Mr. Harder's conviction and sentence. Harder, 705 Fed.Appx. 643. On January 13, 2021, then-President Donald J. Trump commuted Mr. Harder's prison sentence to time served but left “intact and in effect . . . all other components of [Mr. Harder's] sentence.” Executive Grant of Clemency. ECF 267-2 at 1. Ninety-three days later, the government moved for an order of restitution. ECF 267. Mr. Harder opposed the government's motion. He argued that ordering restitution nearly six years after his sentence violated both the Mandatory Victims Restitution Act of 1996 (MVRA), 18 U.S.C. § 3663A, and the Due Process Clause. He also asserted that ordering restitution after the President commuted his sentence violated the principle of separation of powers. In a written Opinion and Order, the Court granted the government's request to order restitution, overruled Mr. Harder's objections, and directed the parties, after conferring, either to file a stipulation (without prejudice to Mr. Harder's right to appeal) regarding the precise amount of restitution to be ordered and a list of the victims to be paid or contact the Courtroom Deputy to schedule an evidentiary hearing on any remaining disputed matters. ECF 277, United States v. Harder, 552 F.Supp.3d 1144 (D. Or. 2021). The parties conferred, exchanged numerous documents, and jointly requested and received numerous extensions from the Court. Ultimately, however, they were unable to agree, requiring that the Court hold an evidentiary hearing.
A detailed factual background of Mr. Harder's scheme to defraud is thoroughly stated in the Court's Amended Findings of Fact and Conclusions of Law dated November 4 2015. ECF 189, Harder, 116 F.Supp.3d at 1208-27. In essence, Mr. Harder, both directly and through others under his control, solicited investments across the United States in various Sunwest-affiliated businesses. Sunwest acquired, managed, and constructed senior housing facilities, also known as “assisted living facilities” (ALFs). Investors were enticed with false promises, misrepresentations, and half-truths, including, among others: (1) that investor funds would be invested in a specific ALF; (2) that any return on an investor's investment, which would be paid to the investor in the form of “rent” from the specific facility into which the investor decided to invest, would be based solely on the financial performance of that facility and be independent of the success or failure of other Sunwest properties; (3) that Sunwest was a financially strong and successful company; (4) that Sunwest had a history of never missing a “rent” payment to an investor; and (5) that reserve accounts would cover expenses for a specific facility, including “rent” payments, until that facility became profitable. In fact, however: (1) an investor's money in a particular ALF was commingled with investments from investors in other ALFs as well as with bank loans; and (2) at least as far back as 2006, Sunwest was losing millions of dollars each year. Through Sunwest, Mr. Harder raised more than $300 million from more than 1,400 investors throughout the United States. As Sunwest began to collapse and as its losses mounted, Mr. Harder went on an acquisition binge to fund his business empire and mask his losses and commingling of funds.
Mr. Harder solicited three types of investments related to Sunwest: tenancy-in-common (TIC) investments in existing (or already developed) ALFs; TIC “dirt” investments; and preferred membership interest (PMI) investments. Regarding TIC investments in existing ALFs, one of the benefits for many investors was beneficial tax treatment they could receive under Section 1031 of the Internal Revenue Code, 26 U.S.C. § 1031 (§ 1031). That provision sets forth tax recognition rules for gains or losses that result from the “like-kind” exchange of certain types of real property. A tax deferral of gains is available for owners of real property who exchange one property for another of like kind, provided that certain additional requirements are satisfied. One requirement provides that the taxpayer designates, or identifies, a replacement property within 45 days after the first sale and then closes on the purchase of the replacement like-kind property within 180 days of that first sale. Another requirement is that the ownership interest being exchanged is not in a business entity, such as a partnership. In 2002, the Internal Revenue Service issued Revenue Procedure 2002-22, which provides guidelines for structuring exchange transactions involving TIC ownership interests in real property to make them more likely to qualify for tax-deferred treatment under § 1031. Sunwest offered investors TIC interests to facilitate the purchase of ALFs managed by Sunwest. Each TIC investor in a Sunwest-affiliated ALF invested in a single purpose limited liability company (LLC). To maintain the tax advantages provided under § 1031, a TIC investor would sell real property and have the proceeds deposited directly with a third-party § 1031 accommodator. The accommodator would then transfer cash to Sunwest to complete the like-kind property acquisition of the investor's purchase of a TIC interest in the LLC.
In addition to selling TIC interests to persons interested in investing in existing ALFs, Sunwest sold two other types of investments, both of which involved purchasing undeveloped land (referred to, on occasion, as “bare land” or “dirt” deals), with the intention of later developing or building ALFs. Sunwest sold TIC investments as well...
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