Philadelphia Criminal Defense Blog

Zak Goldstein 12/22/22 Zak Goldstein 12/22/22

Third Circuit: Loss in Fraud Cases Means Actual Loss, Not Intended Loss

Zak T. Goldstein, Esquire - Criminal Defense Lawyer

The United States Court of Appeals for the Third Circuit, which is the federal appellate court for Pennsylvania and New Jersey, has found that the loss amount in a fraud case must be calculated based on the actual loss inflicted on the victim. Despite suggestions in the commentary to the sentencing guidelines, loss means actual loss - not the intended, hypothetical loss that a defendant may have attempted to cause. This will drastically reduce the guideline range for sentencing purposes for many federal criminal defendants.

In this case, a jury convicted Banks of wire fraud, and the District Court sentenced him to 104 months’ incarceration and three years’ supervised release. On appeal, Banks argued multiple issues, but the issue of significance was whether the District Court erred in applying the loss enhancement, USSG §2B1.1, to the fraud guideline in the United States Sentencing Guidelines because there was no “actual loss.”

The Third Circuit concluded that the loss enhancement in the Guideline’s application notes impermissibly expands the word “loss” to include both intended loss and actual loss. Thus, the District Court erred when it applied the loss enhancement because Banks’s crimes caused no actual loss.

The facts of United States v. Banks

In January 2016, a federal grand jury indicted Frederick Banks for wire fraud, aggravated identity theft, and false statements. The wire fraud charges related to interlocking schemes carried out by Banks to fraudulently gain the money and property of others in relation to the FOREX.COM international exchange system by submitting phony registration information for himself and then using those registrations to execute bogus trades that would drop money into bank accounts that he had set up.

How do you calculate loss in federal fraud cases?

Banks was eventually convicted. He proceeded to sentencing. Before issuing a sentence in a federal case, the district judge must always carefully calculate the applicable sentencing guidelines. In fraud and theft cases, the guidelines are based very heavily on the amount of loss in question. Thus, stealing a small amount can lead to a recommended sentence of federal supervised release or a short jail sentence, while stealing a large amount can lead to a recommendation of an incredibly long amount of prison time. The issue becomes complicated because the definition of loss is not so clear. In this case, the issue was whether loss means the amount that the victims actually lost or instead included the amount that Banks tried to steal.

In computing a sentencing range, Banks’s offense level under the United States Sentencing Guidelines, as calculated by the district judge, included a special offense characteristic for the attempted loss Banks intended to inflict on Gain Capital. The attempted loss, based on fraudulent deposits, was $324,000. Therefore, the base offense level was increased by 12 levels because the attempted loss was greater than $250,000 but less than $550,000. USSG §2B1.1(b)(1)(G) (As a general rule, loss is the greater of actual loss or intended loss, pursuant to Application Note 3 to the sentencing guidelines).

The 12-level increase raised Banks’s adjusted offense level from 7 to 19. During sentencing, the District Court explained that the Sentencing Guidelines defined loss to not only include the actual loss, but to also include the intended loss. And the application notes indicate that the intended loss counts for purposes of calculating the loss amount even if it’s determined to be improbable or impossible that such a loss could have occurred. In this case, the victim suffered $0 in actual losses. The district court, however, used the intended loss amount, which was much higher than $0.

Recently, however, the Courts of Appeals have begun to question whether the application notes, which are essentially comments to the sentencing guidelines, are binding, or whether the court should be limited to using the guideline itself.

The district court used the intended loss figure, and the defendant appealed. On appeal, the Third Circuit reversed and remanded for a new sentencing, finding that loss means actual less. The Court of Appeals relied on Kisor v. Wilkie and Auer v. Robbins in interpreting the Guidelines. Under Kisor, a court must exhaust all the “traditional tools” of construction and consider the “text, structure, history, and purpose of a regulation.” Only then does a court apply Auer, which requires courts to defer to the Sentencing Commission’s commentary for a Guideline unless that interpretation is plainly erroneous or inconsistent with the Guideline.

The Court used a “plain text” analysis to see if there was ambiguity in the way the section was written. The Guideline does not mention “actual” versus “intended” loss; that distinction appears only in the commentary. That absence alone indicates that the Guideline does not include intended loss because there is nothing ambiguous about the term loss. Thus, the ordinary meaning of “loss” in the context of § 2B1.1 is “actual loss.

The Court also reviewed other sources for their definition of loss citing Webster’s New International Dictionary and the 1988 edition of Webster’s Ninth New Collegiate Dictionary. Both of which had matching definitions of “loss.” Next the Court reviewed sister jurisdictions on their conclusions and cited the Sixth Circuit which concluded the definition to be actual loss.

Because the commentary expanded the definition of “loss” by explaining that generally “loss is the greater of actual loss or intended loss,” the Court determined the commentary should have no weight. In other words, the commentary conflicted with the plain language of the guideline itself and so could not be applied.

Ultimately, the Third Circuit Court of Appeals held that “loss” in the context of U.S.S.G. § 2B1.1 is not ambiguous. Therefore, the Court vacated the judgment of sentence and remanded the case. The district court must re-sentence Banks without the additional levels for intended loss.

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Goldstein Mehta LLC Criminal Defense Lawyer Zak Goldstein

If you are facing criminal charges or under investigation by the police, we can help. We have successfully defended thousands of clients against criminal charges in courts throughout Pennsylvania and New Jersey. We have successfully obtained full acquittals in cases involving charges such as Conspiracy, Aggravated Assault, Rape, and Murder. We have also won criminal appeals and PCRAs in state and federal court. Our award-winning Philadelphia criminal defense lawyers offer a free criminal defense strategy session to any potential client. Call 267-225-2545 to speak with an experienced and understanding defense attorney today.

Zak Goldstein 12/20/22 Zak Goldstein 12/20/22

PA Supreme Court: Judges Should Not Use Hypotheticals to Define Reasonable Doubt for Jury

Philadelphia Criminal Defense Attorney Zak T. Goldstein, Esquire

The Pennsylvania Supreme Court has decided the case of Commonwealth v. Drummond, holding that trial judges should not use hypothetical situations like making the decision to have surgery or purchase a house when describing reasonable doubt for a jury. This is an important decision because these hypotheticals often reduce the standard below what it should be; many people go through with purchasing a house or having a surgery even when they are not certain that it is the right thing to do. By avoiding the hypotheticals, judges can better ensure that juries probably understand how high of a standard beyond a reasonable doubt is.

The Facts of Drummond

Police arrested the defendant and a co-defendant for the murder of two people. At the conclusion of trial, the judge provided the jury with instructions as is normal in a criminal case. The controversy in this case centered on the judge’s definition of reasonable doubt. In this case, the judge used the hypothetical of making the decision to have surgery and equated making that decision as no longer having reasonable doubt. The trial attorney did not object to the judge’s hypothetical. The defendant was convicted, and his direct appeals were denied.

The defendant eventually filed a Post-Conviction Relief Act Petition. In the PCRA Petition, the defendant alleged that his trial attorney provided the ineffective assistance of counsel in failing to object to the court’s instruction on reasonable doubt. The trial court denied the PCRA, and the defendant appealed to the Pennsylvania Superior Court.

The Superior Court Ruling

The Superior Court affirmed the trial court’s denial of the PCRA Petition. That court concluded that an imperfect jury instruction does not trigger automatic reversal in collateral proceedings like PCRA litigation. The court also did not have a significant problem with the analogy, and it noted that other portions of the instruction aligned closely with the suggested reasonable doubt instruction in the Pennsylvania Suggested Standard Jury Instruction Manual. The Superior Court concluded because the instruction never relieved the Commonwealth of its burden of proof or removed the presumption of innocence, it was not reasonably likely that the jury applied a diminished reasonable doubt standard. The defendant then filed for allocatur to the Pennsylvania Supreme Court, and the Pennsylvania Supreme Court accepted the case.

The Supreme Court’s Ruling

The Pennsylvania Supreme Court limited its review to one issue: “[w]as trial counsel ineffective for not objecting to the trial court’s jury instruction on reasonable doubt?”

The standard for an ineffective assistance of counsel claim comes from the United States Supreme Court case Strickland v. Washington. Pennsylvania has adapted that standard and required a PCRA petition tis how that: (1) that the underlying claim has arguable merit; (2) that no reasonable basis existed for counsel’s actions or failure to act; and (3) that the petitioner suffered prejudice as a result of counsel’s error.

In assessing whether there is arguable merit, the Court first analyzed whether the jury instruction did not meet basic constitutional requirements as set in Boyde v. California, “whether there is a reasonable likelihood that the jury has applied the challenge in a way that violates the Constitution.”

Neither the United States Supreme Court nor the Pennsylvania Supreme Court have ever construed the United States Constitution or the Pennsylvania Constitution as flatly prohibiting hypotheticals or analogies. The Court, however, found that the jurors were told not to consider reasonable doubt objectively and dispassionately but instead in an emotional and personal way. This instruction therefore arguably violated due process because it allowed the jury to interpret the relevant burden in a way that was a “degree of proof below” proof beyond a reasonable doubt, thus meeting the arguable merit prong.

The Court therefore rejected the hypothetical and strongly suggest that it should not be used by trial courts. At the same time, however, the Court found that the trial court properly denied the PCRA petition because at the time of the decision, there was no opinion from a Pennsylvania appellate court in which a jury verdict had been invalidated due to the use of similar hypotheticals. Instead, the Superior Court had actually affirmed under these circumstances. Therefore, counsel could not have been under an obligation to predict that the law would change and to raise an objection. The Court therefore denied the appeal.

As the Court found that counsel acted reasonably, it did not reach the prejudice portion of the test. A PCRA petitioner must meet all three prongs of the test in order to show the ineffective assistance of counsel. If the petitioner cannot show even one element, then the petitioner will lose. This petitioner lost, but the case remains important because these hypotheticals may often contribute to a conviction by improperly lowering the Commonwealth’s burden.

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Zak Goldstein 12/14/22 Zak Goldstein 12/14/22

PA Superior Court: Trial Court Must Hold Ability to Pay Hearing Before Finding Parolee in Violation

The Pennsylvania Superior Court has decided the case of Commonwealth v. Reed, finding that the trial court erred in sentencing the defendant to prison for violating parole by failing to pay costs and fines without first holding a hearing to make sure that the defendant was actually able to make those payments. Courts may sentence a defendant to prison for failing to pay restitution, court costs and fines, but they can only do that where the failure to pay is willful. Therefore, a court must first hold a hearing to determine whether or not a defendant can afford to pay before sentencing a defendant to jail.

The Facts of Reed

The defendant was given a sentence of six months to two years, minus a day, of incarceration. In addition, he was ordered to refrain from illicit drug use, pay fines and costs, complete a drug and alcohol evaluation and treatment, and report to probation. About six months later, the court granted parole. Then, 16 months later, the defendant received notice that he had allegedly violated his parole.

The defendant appeared for a violation of probation (VOP) hearing. The trial court found the defendant violated his parole by (1) using illicit drugs, (2) failing to pay court-ordered fines and costs, (3) failing to submit to a drug and alcohol evaluation, and (4) failing to report to his parole officer. The court revoked the defendant’s parole and sentenced him to his back time. Back time is the time during which the defendant would have been on parole had he not violated.

The Issues on Appeal

On appeal, the defendant raised three issues. First, he challenged the adequacy of the notice of the parole violation. The defendant argued that the notice sent to him through the mail did not adequately inform him of all the details of the alleged parole violation. The Superior Court found this issue waived because the defendant had not brought it up in the trial court.

Second, the defendant argued that the conditions of parole which he was accused of violating had not actually been made a part of his sentence, and he could not violate something which was not part of his sentence. The Superior Court rejected this challenge, finding that paying fines and costs, submitting to drug assessments, refraining from the use of illegal drugs, and reporting were all part of the defendant’s sentence.

Finally, the defendant argued that the trial court erred in violating him for failure to pay costs and fines without first holding an ability to pay hearing. The Superior Court cited Pennsylvania Rule of Criminal Procedure 706(A). The rule provides:

A court shall not commit the defendant to prison for failure to pay a fine or costs unless it appears after hearing that the defendant is financially able to pay the fine or costs.

The Superior Court further cited Commonwealth v. Cooper, recognizing that when a defendant is found in violation of their parole and recommitted, if failure to pay was part of the violation, then the defendant is entitled to an ability to pay hearing. Here, the Superior Court found there was an error by the trial court.

The Superior Court’s Ruling

The Superior Court ruled that even though the trial court properly found violations of parole and sentenced the defendant based on those violations, the trial court was required to hold an ability to pay hearing before ordering any sentence of incarceration. The trial court erred in failing to give the defendant the opportunity to establish his inability to pay his costs and fines prior to imposing an incarceration sentence. Therefore, the court vacated the sentence and remanded the case for an ability to pay hearing and re-sentencing.

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Zak Goldstein 12/11/22 Zak Goldstein 12/11/22

PA Superior Court: Prosecution May Cross Examine Defendant on Prior Arrests if Defendant Opens the Door

Philadelphia Criminal Defense Lawyer Zak T. Goldstein, Esquire

The Pennsylvania Superior Court has decided the case of Commonwealth v. Bullock, holding that where the defendant testifies in an unprompted manner that they’ve never been arrested before, the prosecution may then introduce evidence of prior arrests as impeachment evidence. Although there is a general rule that a defendant may not be cross examined on prior criminal convictions, that rule gives way to false testimony by the defendant which makes the prior convictions admissible impeachment evidence.

The Facts of Bullock

In 2018, the defendant’s children found the defendant passed out on the porch of their home. The children called the police. The police came to the scene, and they found the defendant stumbling, going in and out of consciousness, and smelling of PCP. The police arrested the defendant.

The children were placed with their grandparents. They then disclosed that the defendant, their mother, had allegedly been abusing them. The Commonwealth charged her with aggravated assault, strangulation, unlawful restraint, false imprisonment, and three counts of endangering the welfare of a child.

The Criminal Trial

The defendant proceeded by way of bench trial. The trial court found her guilty of the endangering the welfare of a child counts, but it acquitted her of everything else. The court sentenced her to time served to 23 months’ incarceration followed by a year of probation. She filed timely post-sentence motions. The court denied those motions, and she appealed to the Pennsylvania Superior Court.

The Issue on Appeal

At trial, the Commonwealth introduced evidence of the defendant’s prior conviction for public drunkenness. Her defense attorney objected to admission of that evidence, but the trial court overruled the objection and allowed the evidence to be admitted.

Pennsylvania has a statute which generally prohibits the Commonwealth from cross-examining the defendant themselves about prior convictions, even where the defendant testifies. The statute provides:

§ 5918. Examination of defendant as to other offenses
No person charged with any crime and called as a witness in his own behalf, shall be asked, or if asked, shall be required to answer, any question tending to show that he has committed, or been charged with, or been convicted of any offense other than the one wherewith he shall then be charged, or tending to show that he has been of bad character or reputation . . .

The statute, however, has exceptions that allow the Commonwealth to do so when:

(1) he shall have at such trial, personally or by counsel, asked questions of the witness for the prosecution with a view to establish his own good reputation or character, or has given evidence tending to prove his own good character or reputation; or
(2) he shall have testified at such trial against a co-defendant, charged with the same offense.

Here, the defense attorney asked the defendant if she used PCP or alcohol on the day in question, and she denied that she had consumed either. Later, on cross-examination, the prosecutor asked if she had ever used drugs or alcohol, and she denied that, as well. Obviously, that was untrue as the defendant had a conviction for public drunkenness. The prosecution then the evidence of that conviction.

Additionally, while testifying on direct examination, the defendant testified that she felt terrible that day, was not really sure what happened, and that she had never been arrested before. That was not true, however, as she had the prior conviction.

Following the denial of her post-sentence motions, she appealed the conviction to the Superior Court and challenged the trial court’s decision to allow the prior conviction into evidence.

The Superior Court’s Ruling on Appeal

On appeal, the Superior Court affirmed the conviction. The Court ruled that the trial court should not have allowed the prosecutor to ask if she ever used drugs or had ever used alcohol. She had not denied ever using them on direct examination; she had only denied using them that day. She had, however, suggested that she had never been arrested before. This was not true, and that statement did not come in response to the Commonwealth’s questioning but rather the questioning of her own attorney. Therefore, the Commonwealth properly impeached her with evidence of her prior conviction in response to her insistence that she had never been arrested before. The Superior Court therefore denied the appeal.

It is possible, however, that a subsequent lawyer could challenge trial counsel’s performance in a Post-Conviction Relief Act Petition as trial counsel should not have asked a question which opened the door to a prior conviction. Thus, the issue may be one of ineffective assistance of counsel rather than error by the trial court. Either way, the Court ruled that the conviction will stand.

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