United States v. Maccallum, 1:15-CR-00204 EAW

• Decision Date: 15 June 2018
• Docket Number: 1:15-CR-00204 EAW
• Parties: UNITED STATES OF AMERICA, v. JAMES A. MACCALLUM, Defendant.
• Court: U.S. District Court — Western District of New York

UNITED STATES OF AMERICA, v. JAMES A. MACCALLUM, Defendant.

1:15-CR-00204 EAW

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF NEW YORK

June 15, 2018

DECISION AND ORDER

I. INTRODUCTION

On March 24, 2017, a jury convicted defendant James A. MacCallum ("Defendant") of mail fraud in violation of 18 U.S.C. § 1341. A revised presentence investigation report ("PSR") dated November 9, 2017, concluded that the total offense level that applied to Defendant's conviction was 31. (Dkt. 84 at ¶ 57). The PSR's calculation of the offense level included an 18-level enhancement pursuant to United States Sentencing Guideline ("U.S.S.G.") § 2B1.1(b)(1)(J) based on a finding that the total loss amount was $3,761,774; a two-level enhancement pursuant to U.S.S.G. § 2B1.1(b)(2)(A)(iii) based on a finding that the offense resulted in substantial hardship to one or more victims; and a two-level enhancement pursuant to U.S.S.G. § 2B1.1(b)(10)(C) based on a finding that the offense involved sophisticated means. (Id. at ¶¶ 48-50).¹ Defendant objects to the loss amount calculation, as well as the sophisticated means and substantial hardship enhancements.

For the reasons set forth below, the Court concludes that the total loss amount is greater than $2,000,000, but less than $2,500,000, warranting a 16-level, rather than an 18-level, enhancement. In addition, the Court finds that the Government established by a preponderance of the evidence that the offense resulted in substantial hardship to one or more victims and involved sophisticated means. However, because application of the two-level substantial hardship enhancement pursuant to U.S.S.G. § 2B1.1(b)(2)(A)(iii) would violate the ex post facto clause of the Constitution, the Court uses the 2010 Guidelines Manual to calculate Defendant's offense level. The 2010 Manual does not contain the substantial hardship enhancement. As a result, the Court calculates a total offense level of 27.

II. BACKGROUND AND PROCEDURAL HISTORY

A grand jury returned a single-count indictment on November 5, 2015, charging Defendant with mail fraud in violation of 18 U.S.C. § 1341. (Dkt. 1 ("the Indictment")). The Indictment alleged as follows:

1. Beginning in or about January 2008 and continuing to on or about December 13, 2010, the exact dates being unknown to the Grand Jury, in the Western District of New York, and elsewhere, the defendant, JAMES A. MACCALLUM, did devise, and intend to devise, a scheme and artifice to defraud investors ("victim investors"), persons known to the Grand Jury, and to obtain money and property from the victim investors by means of materially false and fraudulent pretenses, representations and promises.

2. It was part of the scheme and artifice that the defendant, JAMES A. MACCALLUM, who at all times relevant to this Indictment was an attorney who practiced law in Chautauqua and Cattaraugus Counties, New York, offered false and fraudulent investment opportunities to persons with purported guaranteed rates of return ranging from 12 to 15 percent.

3. It was further part of the scheme and artifice that, in order to entice prospective investors to invest money with the defendant, JAMES A. MACCALLUM, . . . falsely and fraudulently represented that the investments would be secured by real estate and life insurance policies, and that the investors would receive monthly and/or quarterly interest payments throughout the term of the investment, with the principal returned at the end of the investment. The defendant also offered victim investors the opportunity to "roll over" their investment at the end of the term thereby extending the time period of the investment.

4. It was further part of the scheme and artifice that the defendant, JAMES A. MACCALLUM, counseled victim investors to liquidate other investments in order to purportedly benefit from the false and fraudulent higher rates of return the defendant offered on investments.

5. It was further part of the scheme and artifice that the defendant, JAMES A. MACCALLUM, provided some victim investors with interest payments that came from money received from other victim investors in order to encourage the victim investors to invest more money with the defendant or to "roll over" their investments.

6. It was further part of the scheme and artifice that the defendant, JAMES A. MACCALLUM, used a very small portion of the investor funds to purchase real estate.

7. It was further part of the scheme and artifice that the defendant, JAMES A. MACCALLUM, deposited funds from victim investors into bank accounts maintained by the defendant and from these accounts, the defendant paid personal and other expenses including, but not limited to, salaries, office expenses, personal travel and life insurance premiums.

8. It was further part of the scheme and artifice that from in or about January 2008, and continuing to on or about December 13, 2010, the defendant, JAMES A. MACCALLUM, received approximately $3,423,737 from victim investors.

9. For the purpose of executing, and attempting to execute, the scheme and artifice, on or about December 13, 2010, in theWestern District of New York, the defendant, JAMES A MACCALLUM, did deposit, and caused to be deposited, to be sent and delivered by a private and commercial interstate carrier, a promissory note dated December 13, 2010, to A.M., a person known to the Grand Jury, in New Brunswick, Canada.

(Id.).

At trial, the Government presented evidence that from 2008 until 2010, Defendant received money from numerous victim investors and used the incoming money to pay other investors in furtherance of a classic Ponzi scheme, where one investor's money funded payments to other investors. The jury heard testimony from five victim investors, each of whom described how he or she sent money to Defendant with the intent that Defendant would invest the money with guaranteed rates of return in excess of 12 percent. Those victims did not receive the return that Defendant promised, and the evidence established that Defendant did not use the money as promised. Instead, Defendant paid his own personal expenses and used the money to further his fraudulent scheme. In some cases, Defendant invested victims' money in other schemes that turned out to be fraudulent. The evidence established that, as part of the scheme, one of the victims (A.M.)²—who was a citizen and resident of Canada—received a promissory note dated December 13, 2010, from Defendant sent by commercial interstate carrier. The note promised to pay $500,000,but at the time, Defendant had only approximately $5,000 available to make any such payment.

In addition to the victim investors, the jury heard testimony from Defendant's former business associates, employees of the Federal Bureau of Investigation ("FBI"), and perhaps most importantly, Defendant himself when he confessed to FBI Special Agent Brent Isaacson that he had perpetrated the Ponzi scheme. (See Dkt. 95-1 at 4-7). In his written statement, Defendant affirmed that he received about $4 million from his former father-in-law, R.G., from 2002 through 2010, for purposes of investing the money in properties and real estate development. The investments failed, causing Defendant to owe a significant debt to his father-in-law. In an effort to recover those losses, starting in approximately 2008, Defendant recruited other investors, falsely telling them that he would return a significant interest rate, typically 12 to 15 percent annually. Defendant then used the money from new investors to make payments to earlier investors. (See id.).

A jury trial commenced on March 20, 2017, and on March 24, 2017, the jury returned a guilty verdict. (Dkt. 70). A presentence investigation report was filed on June 6, 2017 (Dkt. 74), and sentencing was scheduled for July 11, 2017 (Dkt. 69). The Court adjourned sentencing at Defendant's request (Dkt. 76; Dkt. 78), and a revised presentence investigation report dated November 9, 2018, was filed on November 13, 2017 (Dkt. 84). The PSR calculated the base offense level of seven pursuant to U.S.S.G. § 2B1.1(a)(1), and then, as relevant to this Decision and Order, applied the following Specific Offense Characteristics:

(1) Concluding that the total loss was $3,761,774, the PSR increased theoffense level by 18 pursuant to U.S.S.G. § 2B1.1(b)(1)(J), because the total loss was more than $3.5 million but less than $9.5 million (id. at ¶ 48);

(2) Concluding that the offense resulted in substantial hardship to one or more victims, the PSR increased the offense level by two pursuant to U.S.S.G. § 2B1.1(b)(2)(A)(iii) (id. at ¶ 49); and

(3) Concluding that the offense involved sophisticated means and Defendant intentionally engaged in or caused the conduct constituting sophisticated means, the PSR increased the offense level by two pursuant to U.S.S.G. § 2B1.1(b)(10)(C) (id. at ¶ 50).

Defendant objected to the PSR, arguing that the appropriate increase in the offense level due to the loss amount was 16 levels pursuant to U.S.S.G. § 2B1.1(b)(1)(I) because the total loss was $2,830,591.³ (Dkt. 79 at ¶¶ 3-7). Defendant's initial dispute concerning the loss amount focused on the inclusion of alleged losses to R.G. (his father-in-law), who Defendant contended had not been shown to be a victim investor. (Id.). Defendant also contended that the two-level increases pursuant to U.S.S.G. §§ 2B1.1(b)(2)(A)(iii) and 2B1.1(b)(10)(C) should not apply. (Id. at ¶¶ 8-9).

The Government responded to Defendant's objections on November 9, 2017 (Dkt. 83), and Defendant replied on November 13, 2017 (Dkt. 85). Sentencing did not proceed as scheduled on November 14, 2017, as it was apparent that transcripts from the trial needed to be ordered in order to address Defendant's objections. After the preparation ofthe transcripts, the Government filed a supplemental submission on January 10, 2018 (Dkt. 95), and Defendant filed a supplemental submission on January 31, 2018 (Dkt. 96). In its supplemental submission, the Government took the...