Enhancements, Examples and Appeals
It is a federal judicial tradition for the sentencing judge to
consider every convicted person as an individual and every case
as a unique study in the human failings that sometimes mitigate,
sometimes magnify, the crime and the punishment to ensue. The facts
of a given case remain the most important factor driving the possibility
of prison vs. probation.
Nationwide from 1993 to 1997, about one white-collar defendant
was sentenced to prison for every two convicted, according to the
Transactional Records Access Clearinghouse, a group of researchers
at Syracuse University.
Various factors in the guidelines give prosecutors leeway on how
to charge such as deciding which charges to bring. There is also
discretion in which cases to bring, and which to leave for state
Federal sentencing guidelines tend to dictate, based on the amount
of loss lower level telemarketers might have caused, what sentences
they get. One rip and tear defendant was sentenced to 10 years
in prison following his conviction by a jury.
A number of the ringleaders of major operations have received
sentences that have gone as high as 14 years though in one case
a principal received a sentence of almost 20 years.
Many federal judges also apply the Bail Reform Act to prohibit
telemarketers from engaging in any form of telemarketing while
pending trial. Additionally, all convicted telemarketers are prohibited
from engaging in any form of telemarketing during their period
of supervised release or probation.
Money laundering is also a frequent tool in pre-indictment bargaining.
Prosecutors may tell the target of an investigation that if he
agrees to plead guilty, the prosecutors will limit the indictment
to mail fraud.
If a prosecutor finds a defendant's help to be substantial, the
prosecutor can make a motion noting that fact. Without that motion,
the judge has no authority to reduce the offender's sentence. In
some cases, prosecutors demand that the information lead to the
conviction of another person.
The principles in the grouping guidelines are that
(1) counts involving substantially the same harm are grouped together,
to prevent prosecutors from enhancing sentences by multiplying
charges for substantially the same harm;
(2) the group with the highest offense level, that is, the worst
crimes, furnishes a base;
(3) additional crimes add units to the base, so that punishment
will be greater for those who commit more crimes.
The rules in this Part seek to provide incremental punishment
for significant additional criminal conduct. The most serious offense
is used as the starting point. The other counts determine how much
to increase the offense level. In order to limit the significance
of the formal charging decision and to prevent multiple punishment
for substantially identical offense conduct, this Part provides
rules for grouping offenses together.
Convictions on multiple counts do not result in a sentence enhancement
unless they represent additional conduct that is not otherwise
accounted for by the guidelines. In essence, counts that are grouped
together are treated as constituting a single offense for purposes
of the guidelines.
The goal of federal sentencing guidelines is so that the same
conduct yields the same punishment. Once a point total is determined,
judges must sentence the defendant within certain fairly narrow
To address fraud cases involving mass marketing or sophisticated
concealment techniques and crimes that impact large numbers of
vulnerable victims, the United States
Sentencing Commission adopted an amendment providing for increased
Estimates of the combined effect of the amendments will be to
increase sentences in telemarketing fraud cases from a current
average of 21 months to a minimum of 33 months, representing an
approximate 57% increase.
On May 1, 1998 (prior to the enactment of the Act),
the Commission adopted and submitted to Congress two important
guideline changes designed to enhance the punishment for telemarketing
frauds and other similar offenses.
First, the Commission added a two-level enhancement
(on average an approximate 25% sentence
increase) for offenses that are committed through mass-marketing
which is a central component of telemarketing fraud and distinguishes
it from other types of fraud.
Second, the Commission added a two-level enhancement
(on average, an additional 25% sentence
increase) for fraud offenses that involve conduct, such as sophisticated
concealment, that makes it difficult for law enforcement authorities
to discover the offense or apprehend the offenders.
That enhancement also contains a minimum offense
level of level 12, which would mean 10 to 16 months imprisonment.
The enhancement contained provisions aimed at different
forms of concealment such as conducting their operations in locations
outside the United States and relocating their schemes to other
jurisdictions once they know or suspect that enforcement authorities
have discovered the scheme.
If the offense substantially jeopardized the soundness of a financial
institution and derived more than $1,000,000 in gross receipts
from the offense, increase by 4 levels. If the resulting offense
level is less than level 24, increase to level 24.
Mass-marketing, means a plan, program, promotion, or campaign
that is conducted through solicitation by telephone, mail, the
Internet, or other means to induce a large number of persons to
(A) purchase goods or services; (B) participate in a contest or
sweepstakes; or (C) invest for financial profit.
Under the Guidelines the defendant's offense level must be increased
by two levels if the defendant knew or should have known that a
victim of the offense was unusually vulnerable due to age, physical
or mental condition, or that a victim was otherwise particularly
susceptible to the criminal conduct. If the offense involved a
large number of vulnerable victims, the offense level is increased
by two additional levels.
During sentencing the fraudsters invariably claim that their customers
were not vulnerable victims at all. Contrary to that assertion,
their "leads" are people specifically identified as willing
to send in money in the hope of winning a valuable prize. These
people are predisposed to the scam they are running and is the
very reason the telemarketers buy "lead lists".
The vulnerability of these people is also evident from the reloading
process whereby those known to have already succumbed to a scheme
are contacted again and again, thereby further honing the original
list into a sucker list.
The readiness of some people to fall for the telemarketing rip-off,
not once but multiple times demonstrates that their personalities
make them vulnerable in a way and to a degree not typical of the
Moreover, the list usually contains the ages of the respondents
who, predominantly older, are even more susceptible to these scams.
The susceptibility of the victims is a known quantity from the
start. Ample evidence usually supports the conclusion that the
victims were targeted because they were vulnerable.
Some might argue that you can hardly blame these defendants for
having the "good business sense" to prey upon persons
who were the easiest to victimize. From the standpoint of the over-
all financial success of their ventures, the reloading tactic is
very efficient and highly profitable.
It is clearly the intent of the sentence enhancement, however,
to punish such optimizing behavior more harshly. And ultimately
it is quite reasonable to punish the "clever crooks" more
harshly, both because they may be more dangerous and in order to
give special protection to the most vulnerable among us.
Calculation of Losses
In cases where a defendant has committed fraud by using a Ponzi
or pyramid scheme, taking money from victims and giving part of
it to other victims in order to further the scheme, the sentencing
court must estimate the actual or intended loss to the victims.
While the perpetrator fraudulently obtains the full amount of
the "investment," he or she has no intent to keep the
entire amount. Indeed, the very nature of the scheme contemplates
payments to earlier victims in order to sustain and conceal the
The amount of loss for sentencing calculations is calculated by
totaling the net losses of all victims who lost all or part of
the money they invested.
This method takes into consideration the nature of a Ponzi scheme
by holding a defendant fully accountable for all losses suffered
by those victims who lose money, but does not allow the defendant
to fully benefit from payments made to others. It does not reward
a defendant who returns money in excess of an individual's initial "investment" solely
to entice additional investments and conceal the fraudulent conduct.
At a similar Ponzi related trial, the perpetrators used in their
defense the testimony from satisfied investors who made money from
the scheme by being lucky enough to be one of the first involved.
Although the owners did not receive a separate investment adviser's
fee, they did receive compensation for providing investment advice
so the anti-fraud provisions of the Investment Advisers Act apply
This compensation element is satisfied by the receipt of any economic
benefit, whether in the form of an advisory fee or some other fee
relating to the total services rendered, commissions, or some combination
of the foregoing.
Telemarketers are not entitled to a credit for cancelled sales
for they intend to defraud every victim whose name is on the sales
log. That some victims cancel does not affect the telemarketers'
intent. They are also not entitled to a credit for refunds, for
refunds do not constitute legitimate services but are part of the
fraudulent scheme. The occasional refund is merely a cost of doing
Telemarketers may not inflict all of the loss they really want
to inflict, but that is not from any lack of intent. They are responsible
for the full reach of their intent, even when that intent was thwarted.
They will fail in their attempt to have their offense levels reduced
on the theory that at least some of their intended frauds were
only attempts because they did not actually succeed in euchring
all of their victims out of all of their funds.
In one case two factors suggested that the "intended" loss
exceeded the actual loss. Some of the victims' checks were returned
for insufficient funds because they had no money left to lose.
The sentencing court nonetheless subtracted the value of the unredeemable
checks from the gross receipts resulting in a "credit" on
their sentences. Second, a box marked "no sale" was found
full of discarded leads. They intended, indeed attempted to, defraud
these prospects as well but it did not count against them either.
While many of the victims received some items, it was not what
they had ordered. The items, not based upon the wishes of the victims,
were "extras" or "gimmies," part of the scheme
to "hook" the victims. Accordingly, these items did not
provide any value measurable under the guidelines to reduce loss-calculation.
Every expenditure - even those that temporarily benefited a recipient
- is an integral part of the ongoing, fraudulent scheme. Furthermore,
it is doubtful whether any "customer" would value the
junk that is actually shipped so the loss figures are calculated
by subtracting the cost of the prizes sent from the total money
collected from victims during the time periods that they work for
an operation even though the defendants maintain that loss figures
should be determined by subtracting the value of the prizes awarded,
not simply their wholesale cost.
This is denied due to the fact that the victims never agreed to
buy anything. They agreed to send in "taxes and fees" on "prizes" they
had won. The victims believed that they would be receiving something
worth substantially more than the money sent in. After all, how
could taxes and fees on a prize amount to more than the cost of
the prize itself?
Thus the loss to victims, in terms of the difference in value
between what they expected to receive and what they actually received,
was arguably much greater than the money the defendants made on
the deal so the court's method of calculating the loss caused to
the victims was conservative, reasonable, and quite fair.
The 66 year old self-described chairman and CEO of
MainStreet Enterprises, began to induce individuals to invest in
his company by saying that it was in commercial import-export of
such things as cars and cigarettes; that it made substantial profits;
and that he would share these profits with investors in the form
of interest payments, which would result in annualized returns
anywhere from 50% to 1,000%.
In fact, MainStreet Enterprises never purchased merchandise in
commercial quantities for resale, but only bought merchandise,
such as crystal and jewelry, in sample quantities. The money paid
to investors as "interest" was simply money that had
been received from other investors.
The investors put in about $3 million and received back about
$1 million before the scheme collapsed. He used the investors'
funds to purchase or lease expensive cars for himself and others. He
was sentenced to 115 months of imprisonment based on three mail
You're Allowed 1-800 Call
A telemarketer was sentenced to two years of probation and ordered
to pay a $1,000 fine and a special assessment of $100 for his role
in an advance fee telemarketing scheme that netted more than $1.1
All-Win and A-1 placed nationwide newspaper ads and offered personal
loans to persons with poor credit histories. When consumers called
the 1-800 number in the ads they were told that they had qualified
for the loan program and that all they needed to do was send a
fee ranging between $199 and $249 to process the loan. None of
the thousands of consumers who sent such fees to All-Win or A-1
ever received their loans.
Jack Of All Fraudulent Trades
Charged with racketeering conspiracy, money laundering conspiracy
and multiple counts of wire fraud stemming from his participation
in the operation of nine different fraudulent telemarketing rooms
over five years one scam operator was sentenced to a term of imprisonment
of 87 months, to be followed by three years of supervised release
and ordered to pay $400,000 in restitution to the victims of his
His various schemes included selling advertising products to small
companies based upon the promise that the purchasers were eligible
to win prizes which never existed; accepting expensive art work
from sellers on a consignment basis, which he later stole; accepting
fees for auto listings based upon fraudulent promises that a system
was in place to match buyers with sellers; and various "bust
out" schemes through which he obtained goods on credit from
wholesalers based upon phony credit references.
The victims of these schemes included private individuals and
businesses which marketed various products, including computer
equipment, clothing, consumer products and bingo supplies.
You've Won The Biggest Prize
The owner of a sweepstakes scam was sentenced to
the maximum term allowed of 30 years in prison and ordered to
repay $8 million dollars in restitution for a telemarketing scheme
that bilked more than $10 million dollars from 350 victims throughout
the United States.
The judge stated: "it is clear that you had
no feeling for the victims in this case, who suffered in an extraordinary
way" and that "you were motivated by unmitigated greed".
Tears Don't Cut It
Crying, after he made his admission about committing obstruction
of justice and perjury, didn't hold any weight with the prosecutor
who on 03/31/00 moved for an upward departure from level 12 to
level 41, or a sentence in the range of between 324 to 405 months,
for Patrick Bennett.
When his companies collapsed, they owed about $1 billion to banks
and individual investors. The prosecuting attorney stated
that the actual losses in the Bennett Funding scam
of Syracuse, from approximately 10,000 victims, exceeded $600 million. With
only twenty different monetary loss levels, the enhancements stop
at $80 million with a 14 level enhancement above a level of six.
Sold as leases on office equipment, many elderly victims had the
scheme pitched to them as a very safe alternative to conservative
investments such as municipal bonds. While many of the leases
were fakes; others were real, but were sold to as many as seven
The S.E.C. had determined that the equipment leasing was a fraud
and filed a civil case against the Bennett Companies but ultimately
they have no criminal powers and little control over people who,
like the Bennetts, are not technically in the securities business.
Bennett stated "I did not and would not engage in any fraudulent
business activity with a criminal intent to cause financial harm
or loss to investors of the company."
"However, with that said, as a businessman, I do feel responsible
for what happened, I was the Chief Financial Officer of the company,
and the company did bear my name. And as a person, I feel very
sorry and probably as or more sad than even sorry."
This sentiment was referred to as an exercise in self-delusion,
the vein hope of someone who thinks that no matter how bad things
get, something will come and save the day. "He lied about
the way in which these leases were marketed to investors. He lied
about the way the sham transactions were conducted. And he falsely
portrayed a person of contrition on the witness stand, someone
who is remorseful."
His attorney's suggestion that even Milliken’s or Boesky's
sentence, which was only about ten years later reduced to approximately
three, did not carry any weight with the judge who felt that insider
trading does not have the same dramatic impact on individuals that
frauds such as those committed by Mr. Bennett do.
One victim stated "This Court represents the tools of justice.
You tell us that we should not tear Mr. Bennett limb from limb
because the system will take care of it for us. This is as it should
be and is how we have order in a civilized society. Revenge is
institutionalized and a proper part of criminal law."
The judge indicated that one of the most devastating impacts on
the investors from this fraud is to see themselves living in near
poverty levels while Mrs. Bennett lives on a horse farm built with
their money. Her testimony that she never discussed the fact
that she took over $500,000 from their joint account and used it
to buy property and then build a home without discussing it with
her husband, was deemed to be absolutely incredible.
The Court felt that assets, including shares in a racetrack, were
still under the control of Patrick Bennett, that they were transferred
to his wife pursuant to a conspiracy in which he and his wife engaged
to defraud potential creditors, so they could not be attached after
it was obvious that an investigation was ongoing .
Trying not to be insensitive to the fact that sentencing today
is real-time sentencing; that years being imposed are real years,
and defendants only get one-sixth time off for good behavior; the
judge gave Bennett two choices.
First, if all of the money were to be turned over and all the
assets turned over to the trustee within 30 days, Mr. Bennett would
be sentenced to 240 months. However, if the money was not returned
he would impose a sentence of 360 months.
Such large-scale ponzi schemes, in which early investors are paid
off by later victims' money, appear to be on the rise. Investors
lost almost $500 million investing in bonds and notes sold by Towers
Financial, a failed bill-collection agency run by Steven Hoffenberg
who was recently sentenced to 20 years in prison.
In other recent cases, the S.E.C. has accused Better Life Club
of Washington of preying on low- and middle-income investors who
lost about $50 million, and regulators have called the First Interregional
companies in New Jersey the "Baby Bennett" case because
it, too, involved equipment leases.
It's Not My Job!
In court, one boiler-room telemarketer argued that he had no intent
to defraud because he was a legitimate salesman who left it up
to the owners and managers to ensure that the customers received
the appropriate merchandise and one-in-five prizes.
Just Checking On Their Health
Some individuals have devised a simple strategy to avoid detection.
They place the fraudulent telephone calls from various motel rooms,
always using pre-paid telephone calling cards. They then have victims
send their money to private mailboxes rented under various false
On appeal, one complained that the courts had assumed that 120
out-of-state phone calls to elderly people listed in the records
of his calling cards were part of his telemarketing scheme.
At sentencing, the government challenged him to present an innocent
explanation to rebut the substantial evidence suggesting that the
120 calls were made with the intent to defraud elderly persons.
He offered nothing.
Our Preferred Customers
In one scheme, which resulted in the collection of approximately
$1.3 million in less than one year, a telemarketer was convicted
for his role as a "reloader" and sentenced to forty-one
months in prison.
In his appeal he argued that countless legitimate vendors maintain
lists of previous purchasers, and that the mere willingness to
make repeat purchases does not make a consumer a "vulnerable
In this, as in most cases, fronters "cold-called " people
from customer lists, which typically consisted of names of people
who had filled out contest or sweepstake entry forms at shopping
centers. The "fronters" induced these people to purchase
pens and other products with promises of significant awards that
greatly exceeded in value the purchase price of the products. In
exchange for the money, the customer was sent a product and an
The company typically spent between ten and twelve percent of
the money that customers send in on the products and awards. The
records indicate that no customer ever received more in value than
At some point after a customer sent in money, a "reloader" received
a copy of the initial sales order form (also called "reload
paper"), and called the customer again to attempt to "reload" the
customer into making another order.
The difference between repeat purchasers in general and the "reloaded " victims
here, however, is the latter's vulnerability to fraudulent sales
schemes. This is what makes them "victims," rather than
It's Even Posted On The Wall
One scammer claimed that his operation was a legitimate business
simply because it was registered with the California Attorney General.
It ought to be self-evident that compliance with state registration
law is no assurance of a business's legitimacy.
Collective Responsibility For Restitution
Claire Peck, aka Cathy Jackson, was tried on
charges arising out of her employment as a salesperson for the Canadian
Gemstone Association, which fraudulently marketed gemstones
CGA marketed the stones as investment-grade gems whose supply
was supposedly controlled by a cartel in Colombia and whose value
was therefore projected to increase substantially. The evidence
at trial showed that Peck and the other employees at CGA made false
statements and representations to induce customers to purchase
and invest in gemstones at vastly inflated prices.
Between 1993 and 1996, over 700 victims paid more than $5 million
for stones marketed by them.
In June 1997, a federal grand jury returned a 38-count indictment
charging Peck and eight others with conspiracy, mail fraud and
wire fraud. All defendants, which included BRENT BOYD, AGNES
CARTMELL, aka Bea Cartmell, MARK BOYD,
aka Joe Prescott, ALBERT MCAMMOND, aka Albert
Adams, DAVID BECKLER, aka David Edwards, GEORGE
MAZIOTIS, aka Martin Brook, ROBERT ROSS,
aka Robert Stevens, HERVE SOURATI, aka Brian Sinclair,
were charged in each count.
She was convicted on five counts of mail fraud in violation of
18 U.S.C. 1341, and one count of wire fraud in violation of 18
U.S.C. 1343, and she was acquitted on one count of conspiracy,
18 U.S.C. 371 in the United States District Court for the District
of Vermont (Sessions, J.).
She is to serve concurrent 30-month terms of imprisonment, to
be followed by three years of supervised release. The district
court also ordered her to pay (jointly and severally with all co-defendants)
restitution of more than $4,000,000.
She appealed the restitution order (Docket No. 99-1500 Decided:
August 09, 2000) but it was ruled that if the court finds that
more than one defendant has contributed to the loss of a victim, the
court may make each defendant liable for payment of the full amount
of restitution or may apportion liability among the
defendants to reflect the level of contribution to the victim's
loss and economic circumstances of each defendant.
Congress broadened the scope of restitution from losses attributable
solely to the offense of conviction to all losses caused in the
course of a defendant's criminal conduct, whether the defendant
is convicted of each of those offenses or not.
The restitution statute applicable to members of a telemarketing
conspiracy is mandatory and provides that every member of a conspiracy
be liable for full restitution regardless of the role that each
may have performed. See 18 U.S.C. 2327(b)(4)(A).
Restitution in this matter is a joint and several obligation with
the co-defendants in this case. While she was acquitted of the
conspiracy count the jury concluded that she participated in the
conspiracy for purposes of the Pinkerton counts so the appeals
court found she had sufficient knowledge of the operations to require
that she participate jointly and severally in the obligations to
make restitution payments
No reservations needed at Florida
'Club Fed' hotspot
By Paul Thomasch
NEW YORK, 06/15/03 (Reuters) - Forget
Disney World, Miami's South Beach or the Florida Keys.
For some of Corporate America's
best-known bad acts, the Florida destination of choice
this year may be a spot just outside Ft. Walton Beach,
where they can relax in the sun, make a few phone calls
or play an occasional game of tennis or softball.
Welcome to Eglin Federal
Prison, a minimum security facility where white-collar
criminals dress in khaki uniforms, do manual labor
and reside in dormitory style facilities.
Eglin is the prison
of choice for white-collar criminals, who have
dubbed the facility "Club Fed." Forbes
Magazine once ranked it as the "Best Place
to be Incarcerated."
The all-male prison
has a staff of 143 to oversee about 850 inmates
who are eligible for furloughs, can receive
visitors and are allowed to make collect phone
calls, said Myra Lowery, a spokeswoman for
the prison, located on a sprawling U.S. Air
"We have inmates
who are nonviolent, who have no serious history
of violence or escapes," Lowery said. "We
may receive drug offenders, and there may be
someone with a number of other crimes that
you consider white collar, like mail fraud,
bank fraud or tax evasion."
To be sure, prison time won't be easy
for executives -- even at Eglin, which once allowed inmates to
wear their own clothes and have overnight guests. Prison authorities
have since removed some of the niceties.
"How has it changed? Rules
and regulations change," said Lowery, the Eglin spokeswoman. "That
doesn't mean it's for the bad or the good."
Telemarketer Sentenced to Prison for Charity
By David Rosenzweig, Times Staff Writer
02/05 - CA - The victims of his telemarketing fraud included a recent
widow undergoing chemotherapy treatments for cancer and an elderly woman
living on fixed income while caring for her handicapped adult children.
On Monday, U.S. District Judge John F. Walter sentenced Kenya Markisha
Hutson, 30, of Woodland Hills to 15 years in prison, calling him a shameless "sociopath."
It was one of the stiffest sentences meted out in recent years for telemarketing
fraud, said Assistant U.S. Atty. Curtis A. Kin.
Hutson was convicted by a jury last June on 14 counts of fraud stemming
from his operation of E-Med, a front company that he used to steal more
than $1.3 million from investors, according to prosecutors.
Investors were told that their money would be used to refurbish and sell
state-of-the-art body scanners to medical facilities nationwide, including
Loma Linda University Hospital and UC Irvine Medical Center.
Instead, Hutson used nearly all of the funds to buy a luxurious home
and fancy cars, the jury determined.
In pronouncing sentence, the judge said that Hutson's testimony during
the trial was "smug" and "preposterous" and amounted to obstruction of
Defense attorney Michael Evans said he disagreed with the judge's assessment
of his client and plans an appeal.