United States v. Smith
| Decision Date | 28 April 2021 |
| Docket Number | No. 18-15106,18-15106 |
| Parties | UNITED STATES OF AMERICA, Plaintiff-Appellee, v. GARY TODD SMITH, a.k.a. Todd Smith, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Eleventh Circuit |
[DO NOT PUBLISH]
Non-Argument Calendar
D.C. Docket No. 8:16-cr-00120-EAK-TGW-1
Appeal from the United States District Court for the Middle District of Florida
Before JILL PRYOR, LUCK, and LAGOA, Circuit Judges.
Gary Todd Smith appeals the 480-months total sentence imposed following his convictions for (1) conspiracy to commit mail and wire fraud and (2) wire fraud affecting a financial institution. On appeal, he raises several arguments: (1) the district court incorrectly applied several sentencing guideline enhancements; (2) the district court clearly erred in determining the loss amounts for purposes of sentencing and restitution; and (3) the district court imposed a procedurally and substantively unreasonable sentence. For the following reasons, we affirm.
On March 16, 2016, a federal grand jury indicted Smith on two counts: (1) conspiracy to commit mail and wire fraud, in violation of 18 U.S.C. § 1349; and (2) wire fraud affecting a financial institution, in violation of 18 U.S.C. § 1343. The indictment alleged that Smith, as Chief Operating Officer ("COO") of Smith Advertising and Associates, Inc. ("Smith Advertising"), along with his father, Gary Truman Smith, as Chief Executive Officer, and other co-conspirators made false representations and produced fraudulent documents in order to secure loans to cover the corporation's losses. In short, Smith orchestrated a complicated loan-fraud scheme involving invoice-factoring fraud and bridge-loan fraud that caused tens of millions in losses to the victim-lenders.
Part of the scheme involved Smith Advertising obtaining financing by a practice known as "invoice factoring." In these transactions, the loan recipient borrows money against an account receivable, which is represented by a bona fide invoice from the loan recipient reflecting a third party's obligation to pay money for the goods or services that the loan recipient had provided.
Since at least 2005, Smith Advertising had been experiencing financial difficulties. To raise capital to operate the business, it entered into a factoring arrangement with CapitalPlus Equity, LLC ("CapitalPlus"). Smith, through Smith Advertising, submitted fake invoices, which CapitalPlus relied on as evidence of valid accounts receivable to lend money to Smith Advertising under their factoring agreement. Smith opened a series of post office boxes in Florida, Illinois, New Jersey, and New York to serve as addresses for the "clients" to whom the false invoices were addressed. This scheme appeared to work for a while until sometime in early 2009 when CapitalPlus notified Smith Advertising that it would begin sending statements directly to the clients, rather than relying on Smith Advertising to notify them.
Ostensibly to preempt CapitalPlus from uncovering the scheme, Smith began to look for a replacement lender. Eventually, Smith turned to an old business associate, who, with two other principals, formed Receivable Management Funding,LLC ("RMF"), as Smith's new funding source. RMF had the same Sarasota, Florida, address as Smith Advertising, and Smith Advertising had an ownership interest in RMF. Smith Advertising and RMF entered into a factoring arrangement shortly thereafter.
In March or April 2009, CapitalPlus uncovered Smith Advertising's fraud because of the statements now being directly mailed by CapitalPlus to Smith Advertising's clients and notified Smith Advertising in May 2009 that it was in default under the terms of the factoring agreement, declaring all of Smith Advertising's obligations immediately due and payable. CapitalPlus, however, agreed not to report Smith to law enforcement if: (1) Smith Advertising paid it an outstanding obligation of approximately $4.5 million, (2) Smith and his father, Gary Truman Smith, provided written confessions, and (3) Smith and his father capped their salaries at $25,000 per month. CapitalPlus falsely told RMF that it was ending its relationship with Smith Advertising purely for business reasons, omitting that it had uncovered fraud from Smith Advertising. At some point in December 2009, all sides negotiated a deal for RMF to replace CapitalPlus.
The other part of Smith's scheme involved bridge loans, which are short-term loans that are used until permanent financing is secured or existing debt is removed.In this scheme, at least 129 individuals loaned money directly to Smith Advertising to fund what they thought were advance bulk purchases of advertising space. In reality, Smith Advertising used the money simply to stay current on its debt and to pay Smith's and his fellow conspirators' salaries. When its lenders asked for documentation, Smith Advertising provided fake invoices, unlawfully using the identities of people and entities to show that it owed money for having made an advance purchase of advertising space at a discount. Seventy-four lenders claimed a total loss exceeding $55 million.
Smith Advertising kept an instruction manual, known as the "Dark Side manual," that described how to create fake invoices and promissory notes, where to store them within the computer system, and which vendors to choose when fabricating invoices. The scheme even involved fabricating entire email threads, purchase orders, contracts, and other business-transaction documents. Smith Advertising also maintained two sets of financial books—one accurate and one false. According to the accurate set of books, Smith Advertising's total assets by February 2012 were valued at almost -$67 million and its total equity at approximately -$103 million.
Smith used several means to conceal the fraud. In late January 2012, he sent an altered screenshot of his account balance at Bridgeview Bank to his largest lender's bank, showing an account balance of $12.4 million when the actual balancewas -$12.4 million. He also sent his victims altered emails of conversations between him and a bank official in an effort to convince his victims that the company's bounced checks were the results of clerical errors. Additionally, Smith sent RMF a forged purchase order for $8 million, and he gave victim-lenders falsified balance sheets and records that showed Smith Advertising's income growing.
The scheme came to an abrupt end in early March 2012, collapsing under the weight of its increasing debt burden. The total loss to all victims was just short of $58 million and more than twenty-five victims lost all or part of their life savings. Less than a week earlier, in late February 2012, Smith Advertising's comptroller, Dawn Jackson, gave federal agents a balance sheet that reflected Smith Advertising's true financial position—a valuation of -$67 million and total equity of -$103 million.
Smith pleaded guilty as charged before a magistrate judge, who recommended that the district court accept his guilty pleas. The district court accepted the recommendation and adjudged Smith guilty on both counts. The Presentence Investigation Report ("PSI") assigned a base offense level of 7. See U.S.S.G. § 2B1.1(a)(1). The PSI then added the following enhancements:
It then reduced the offense level by 3 for Smith's accepting responsibility, pursuant to U.S.S.G. § 3E1.1(a), (b), bringing Smith's total offense level to 42. Under the Sentencing Guidelines, Smith's range was 360 to 720 months, and restitution was recommended in an amount just shy of $58 million.
Smith's sentencing hearing lasted five days, which included two days devoted almost entirely to victim impact statements, one day to sworn testimony, and the remaining two days to argument. Smith objected to several parts of the PSI, including the 22-level loss-amount enhancement, the 2-level sophisticated-means enhancement, the 2-level vulnerable-victim enhancement, and the 2-level abuse-of-trust enhancement. The district court overruled each objection. Of note, the district court imposed a 24-level loss-amount enhancement based on its calculation that the intended loss from the scheme was in excess of $70 million. The district court thenturned to restitution and found the amount was $63,491,769.08. Smith then requested a downward variance.
In its colloquy, the district court asked Smith why he did not walk away from his father's company and walk away from the fraud the company perpetrated. The district court continued:
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