s from its review of the record of europe who's making a ritual siders case occurred at a time that was later than the other group that was just referred to in oral argument the previous case we went to trial about ten months later in terms of the proffer of the lindsay information miss cruz may go to europe is make owen my case offered to judge mendez for his consideration an expert report by sean martin professor sean morton from the university of san diego who had prepared a report regarding the industry standards generally at the time of the that predated the mortgage meltdown and in his report professor martin outlined what he believed was a lack of concern generally throughout this industry regarding the information as to the particular borrow instead the importance of the fact that there was a generally rising standard of property values and it was a security itself it was the underlying property that was more significant despite that proffer the district court excluded that particular information from being considered by the jury and as a result europe was make was not allowed to present evidence to show that the misrepresentations that were alleged to have been submitted to first franklin financial were irrelevant well what the proffer as to what he was going to say says the us and  their specific evidence regarding how securitization of mortgages created an incentive for the first franklin financial to engage in project contact conduct sorry and the second one is the testimony is the support of the lender criminal liability as a defense that's different from what you're talking about today well at the time of course we were pretty linsey as yes i mean i understand why but and we obviously tried to direct our arguments in focus to first franklin financial at the time but his report went beyond just refer alone to first franklin financial he also refers to bank of america and merrill lynch and talks about the standards generally for these so called as he terms them liar loans that were current throughout the industry at the time he generally gave it an overview of how the lenders would divide these the these loans into tranches for resale on the secondary market and really weren't interested in whether the borrowers themselves were qualified and the point is that when that particular information was excluded from consideration by the jury what it did was essentially cleansed vivian hanson the expert witness and first franklin from consideration by the jury about whether or not there was any participation on their part in this environment of encouraging statements in one applications that really didn't matter i'm but matters right but i guess get down to the standard of review that argument was not presented to the judge right the argument you just made as as to the admission of the expert testimony and i grant you that that those statements are in the report but basically the defense said i want to put on an expert as to incentives to create and for a first franklin to engage in fraud project conduct which is not permitted under under lindsey and  to lender criminal liability is a defense and the second point would be far more general than the first and that would be the in the general environment it may not of us talk about materiality it may not have been articulated in in precisely the way that lindsay later would made clear but nevertheless by the time the second round case came with ms ciders in and vera cruz may go at that point this information had been revealed to judge mendez in terms of being provided for sentencing purposes for the first group of defendants and then was being proffered by viera whose manco to to attack generally what was happening in the mortgage industry as well as specifically the first franklin and i recognize that under lindsay which came afterwards that the portion about what was going on specifically with first franklin would not have been admissible but having listened to the previous argument what it ended up doing is it put first franklin in a position where the jury was never allowed to consider information that what was important first frankland was property values continuing to rise as as part of this general throughout the industry standard we weren't even allowed to go with her we were completely precluded from presenting that information and as a result when cross examining miss hansen and in addition the other two sets of witnesses that the government presented in this case which would have been either cooperating witnesses in the scheme or so called straw buyers there was never any development about what with the source of the particular information would have been we weren't allowed to fully cross examine regarding whether the information they disclose would have been material throughout the lending industry as a whole at that time but suppose the indictment had charged first franklin and your clients together in a criminal conspiracy and also a charge the wire fraud and there is something disquieting about the notion that if you make a false statement to a person who is also acting fortunately and they don't care about it because they have their own motives for fraud it's then not material as i said before clearly the answer was material right i think what if they had said that they had these these actual buttes they would have gotten a loan and the fact that the person who you're making it to across the industry that everyone was doing right obviously there would have been some reason why first franklin or any other lender in that position in that time would have wanted to state what it was just different from we don't care what the answer to this question is they didn't care what the answer the question was they just may not have cared whether it was true but that they but they did care what the answer was they take care to have the answer and the paperwork in the right goes and next step on the resale market exactly but that would be in in the loan applications but the important and significant consideration for the industry generally was this expectation that property values are going to continue to rise this statements themselves these so called liar loans there were was this general perception that it could be argued based on the expert that they didn't matter and the lenders were not relying on that the reason they the market collapsed was precisely because the people could buy their loans and and there was enormous for that if his testimony had been allowed to be presented to the jury he would have been able to offer that it wasn't so much the lack of reliability of the borrowers but the lenders expectation that market values were going to continue to be where they were that they were protected because as long as you have a rising tide lifts all boats you never had to worry about deficiency judgments in going after the borrowers because the property would have been enough to secure it and we weren't even allowed to present that argument as an alternative to say look there was really no intent to defraud here these were investors who were going out and and giving the industry generally what it was asking for at the time your time is running out but i wanted to ask you would you address the government's harmless argument well and you raised the issue of the last calculation regarding the harmless argument the government is arguing essentially that what happened here is not harmless because it allowed the cleansing i referred to earlier of both the first franklin witness who was present and all of the co participants and the straw buyers to make them look at it  if they came in with clean hands and had been victimized by someone when in fact they were participating in this same general overall environment in the lending industry at the time that anything goes and you know as the of evidence to support the twenty level increase that was given to my side us there was absolutely nothing in the record that allowed for this increase and under the howard case the burden was on the on the government in order to show the facts on why there was a twenty level increase our case says that the burden places howard places the burden of proof on the party seeking to adjust the fence level here the offense level is approximately six was increased over twenty points the government was seeking a special favor at the sensing and therefore the government bear the burden at that point to show why in other banking cases that are done at sensing the banks have come forward and they've shown that there were interest that they were applying that there were fires that they were applying that when they were late payments they were applying those costs and you know in one case in particular those fines and interest payments you know were several hundred thousand dollars so you know when you multiply this by the number of counts that were gets myside this is just untenable that we had nothing in the record to be able  methodology yes some complain about the methodology also because in order to have a proper methodology you have to have the proper calculation right in the calculation here would have been right and some of the other cases that the complaint is that because the securitization and the the bank in fact did not lose money when there was foreclosure and because they had already recovered all their officer get the number was about sixteen million from the government needed you didn't say there is no basis for the sixteen we said there was no basis for the sixty million and we need it so we needed a formula or some type of calculation fro protested the government's responses we should have asked whatever to treat hearing well the burden is not on us once we objected in our paper they said the evidence they said the amounts were in the were before the court i couldn't quite figure out where they were where it was but they kept saying it's in the record it was not in the record it was not before the court not as we have argued that well what about the government exhibit one which i think is on e r one one three nine there are there is a detail transactions last why wasn't that sufficient because it doesn't give the breakdown for us in the in the last case that a case i had where the breakdown was ok they were putting in x amount of money for fines they were putting in x amount of money for fees they were putting in x amount of money for late payments and all those cannot be calculated into the calculation i mean the courts have said that's improper and so when we're when we're giving nothing in fact here there was no victim impact report that was submitted in the last case i was in the bank some of the very detailed victim impact label because they were trying to get all the money of their loss and in that statement they include a lot of cost that they weren't entitled to and so we were able to attack those costs but all the bank did i thought all the government did here was to say this this was the amount of the along this is what was recovered in foreclosure and the difference is the loss that was that that's what they did right yes what's wrong with that because we don't know you have to go below those numbers your honor i mean when i understand it but with the basic methodology seems to be sanctioned by our case law i don't think it is because in the case law it says that there are certain costs that are not attribut amount of each loan there are costs that make up that total amount and those were the those are the numbers that we were trying to get that those were the numbers that we were right and you didn't you didn't have them right correct so we don't know you don't we don't know what your theory is about what the amount of losses true right so if we but i mean that's a discovery issue not necessarily an error on the just record and in what was presented not because once once we filed our our papers the government then had the burden of proving you know how they are getting to this increase in fact that's what the howard k says right the burden then is on them and so we're asking sue for a resurgence in so that we can go back and argue that issue and determine how much the law should have been ok thank you good morning your honour's bickley on behalf of the united states may please the court i was trial counsel in this case let me start with last because that's where we ended up in terms of defendants arguments at the time of sentencing the defendants were not objecting to the calculation of the loss nobody said this law should be fifteen million vs sixteen billion in fact in their briefs and in their argument the defendants argued our position on that is that the loss amount calculation is erroneous by its very nature because it takes the high inflated value of the property and uses the low value of the property upon resale for closure and takes no account whatsoever into the fact that first franklin was reselling these loans on a secondary market for a profit they were arguing they do say they did say in their sentencing memorandum that the numbers used to calculate the last year are not set out with any specificity the liberal government do but they also admitted that they knew what the basis for the numbers were that it was prince a law amount versus resale value well they knew that that was how it was had to be calculated but my understanding is that their complaint is that and i don't know whether this is so or not that there was no setting out alone by alone where these numbers came from that is just not true at the time they were not focused on the calculation itself and it was in the record where in the record is it because  yes but you can find the calculation because all the loan principal amounts are found at s t r eleven thirty three thirty four so if you take all the principal amounts by lender and minus it you find the calculation in addition what you mean minus minus by the foreclosure crisis and where were the foreclosure prices that specifically was not in the record in terms of the case however at the time you try and go to the  calculations and figure out whether the numbers are right you can do those calculations because you can take the principal amounts of the loans and then you know what the resulting amount is fifteen million dollars and you can see the foreclosure prices in their back by by reverse engineering i reverse engineering your honor and i'll add that i also tell you that before the court at the time we had a binder for every every specific loan which the defendant in discovery and which the court had for its review include a different foreclosure price which included the foreclosure prices it had a whole chart with respect to principal amount minus foreclosure price and the final amount that final mount was what was put in the p s stars and it had supporting document all if you added that was all up there would and they would all add up oh isn't that marked as an exhibit your honor in retrospect we probably should've in the sentencing argument but it wasn't mean all you said in your brief here was complete generalities well we talked about the reverse engineering that you could you your honor but with respect to whether it was included we should included at least a summary you know spreadsheet right you are correct for your honor in retrospect i would've included that two page summary however there was enough in this record for the last amount to be  gather your argument is if they had raised the specific objection they're raising here you would have put it on oh you're completely right i mean it's a two page summary i mean it was in discovery it was a binder provided to the court to the court had looked at it previously so you are one hundred percent right your honor going back to the test the issue of the expert testimony here's a case where the trial court got it right it excluded an expert that was to testify regarding the reliance negligence and intentional disregard of one specific lender in this case first franklin and not general lending standards in the mortgage industry this is the case where the defendants did proffer for the record what they were intending to do and they specifically said at the time of trial that they wanted to introduce testimony to support an inference that first franklin financial knew an improved of bar representations in loan applications they proffered that the expert would provide specific evidence regarding how securitization of mortgages create an incentive for first franklin financial to engage in franklin merrill lynch and bank of america it doesn't say discuss general lending practices in the industry and if you got it in if you go through paragraph after paragraph paragraph thirty five this is on merrill lynch and bank of america so the report is specific with respect to the lenders in this case and point and part not so it would have been at least in part and mr ball and so the question is do we look at the report and we look at what they said their reasoning was well i think you need to look at what they said that their reasoning is i mean we can see the district court shouldn't have to speculate with respect to what could be introduced in testimony here we specifically had the defendant's proffer what they were going to use that report for and it was very specific to first franklin and that's what the court ruled on the very it was with respect to the loan applications so for example was whether a bar represented on the loan application that she would live in a property something that could have been significant to first frankl so i would like another explanation of why that isn't inconsistent with lindsay itself well it's not inconsistent with lindsay because here we're talking about what's happening on a loan application and the idea is what judge a person you were trying to get out earlier that these representations actually didn't matter that on a loan application well at least in the other trial i have not read the transcript in this one she said at points that they would investigate and that what mattered was the truth of it not just what was on the piece of paper in this case we were specific to what was on the loan application in our questioning and in addition i mean this hanson was called for various different races in this case she was called as doing you to record to talk about what the loan applications were what the supporting documents were she testified generally t potential significance of certain misrepresentations on a loan application she wasn't testifying to rely upon that's what i mean potential misrepresentations in alone application and show she was testifying is she not testifying as honor so that is specific evidence with regard to a particular lender and it seems to me well and she says isn't supposed to happen i don't know why it shouldn't happen it makes sense that it happens but lindsay says it's not supposed to happen in lindsay case and i also draw the court's attention to the bets on case which was more recent seventh circuit case in both of those cases lender representatives were called on but i don't understand how the standard only runs in one direction well your honor it doesn't run in not only one direction because for example the defendants were able to cross examine hanson on all of the statements that she was making but you're saying and saying that they weren't allowed to put on any evidence about first franklin but the evidence that they were proposing to put on a back first franklin would not have been contrary to ms hanson's testimony when she says that they cared about the truth of these and they said that they were going to put on evidence what they did they say were going to pursuant to their disclosure put on evidence with respect to the incentives for first franklin to intention they disregard information they work for example going to challenge that first franklin actually did have a policy in place that offered one hundred percent financing to primary residence for investment properties they weren't going to put on testimony that first franklin verified income with bank statements ten ninety nine thousand w two s they weren't actually going to be challenging her testimony that expert was a different subject area your honor and going back to what the court in this case did the court in this case granted the government's motion to exclude professor martin's testimony as it found the testimony concerned the lender and reliance on lender negligence for one lender it's sickly referred to the light of scase and if you look at the latest case there's a case where the court held that evidence that bank of america one of the lenders in this case and other banks to him false statements were made in that case did not rely on the false statements given away to the defendants false statements or negligent to the point of complicity was not exculpatory so the court was ruling on what the defense had proffered and that was pacific to first frankl and under the lindsay decision and also under the bets based on decision in from the seventh circuit that was appropriate here with respect to the martin report as we said the court should not have been required to speculate on what it was going to be used with used for that and in addition the defendants with respect to ms hanson they were able to cross examine her at length they asked about what representations were important to first franklin case these are not the stated income loans that the defendants seem to be crying about these are full document loans the defendants in this case spent thousands of dollars to fake bank statements the defendants in this case spent money to thank the tax returns to choose these documents these loans were fully supported with lots of supporting the material and the defendants went to great efforts in order to make them supported in that and if this court should find that this case is was error to exclude mr martin's testimony the united states position is that it would be harmless there and you don't just need to look at the evidence in terms of materiality here you need to also look at what the nature of the testimony is not professor martin regardless of any sort of proffer or what is in his report no one was going to say that a certain income did not have to be reflected on these loans no one was going to testify that the primary residence c did not have to be checked and this goes to your point in one of the earlier arguments here the determination is you need to make a false statement and it needs to be capable of influencing a person to part with money here no expert was ever going to testify that it was not capable of and influencing any of these lenders to part with money and that's materiality so regardless of what this expert was going to testify to it wouldn't have to disprove materiality then in addition with respect to harmless error the evidence in this case was overwhelming one bit teary ality here we have the defendants breaching themselves by millions and millions of dollars by faking bank statements faking tax returns they believe that these statements were objective lee material they even knitted that these statements were objective fully materialize for example if your kuzmenko herself was giving money to some of the straw buyers to put in their bank accounts she told them that the banks wouldn't approve the loans without want to send her well i understand that materiality it helps to prove materiality yes because because manco is a licensed real estate agent she is working at that time and she is funding bank accounts because she believes that those are the  banks would not approve the loans that's her experience that is very strong evidence of metairie ality the same thing with respect to the other admissions that some of these defendants made and there was testimony for example  sighters instructed to or for employees to withhold information and certain dispersement and payments out of escrow she told for example her codefendant leah i so that the reason for this is that the loans would not get funded unless funded the loans in this case if certain statements weren't made not manco one of the co defendants you're going to hear about in a few minutes she told isom that certain payments should not be disclosed great efforts and spent a lot of money to think think statements in this case why would they spend thousands of dollars if these statements were not material they created invoices work orders loan requests for verification of renter mortgage they created fake business licenses tax preparer letters tax returns letters of explanation again and again through their actions and through their statements these defendants ha admitted that these statements were material then in addition if you look at what the lenders were saying and this isn't specifically mentioned in the brief however it is meth change in the documents in  covenant number eight that material representations include but are not limited to representations concerning the borrowers occupancy of the property as the borrowers principal residence these defendants were told that that occupancy declaration was material and so it is somewhat troubling that they come in here now and say oh no there was not evidence of that in addition with respect to harmless  these were full document loans as i said document after document after document was curt created and required by these lenders underwriters would review the loan packages to determine if a bar was qualified for the loan the bank  es here to bank statement analysis you can look to the documents themselves for example at sixteen fifty one and sixty and sixty five they take these fake bank statements and they do analysis of them in this case regardless of what any lender was going to testify to beyond reasonable doubt the jury was going to find materiality in this case when you look at the evidence and also what you look at any it aeration be your honour's have any questions with respect to spillover effect i know it wasn't specifically mentioned with respect to the defendant's arguments here and i think those out of really presented the briefs so in conclusion we this is numbers include attorneys fees and those numbers include late fees that those numbers include any fees another procreated under the calculation in that is really what we were asking for and once we may know that specific way to ask for it i mean it looking at your sentencing memorandum it was rather a general statement as far as i can tell it was a general statement you're on about where to ask i mean i wouldn't have known from what i just by they read in fire of the district judge that that's what you were asking for another words that you would have been satisfied with i gather what you had or could go backwards to determine that that is what was the loan and what was the foreclosure sale on and that they you not contesting that if you that at least those numbers add up are you i'm protesting that i don't know how the ad properly add those numbers up is i don't know what the equation was for those for those whole while suppose it was just the foreclosure sale subtracted from the amount of the that the house sold for us as i was understanding the description it was the amount of the loan minus what the house sold for did you figure that much out we could figure that much all right where did you ask for something more specific than that when in our sensing memorandum when we asked you specially what a specific breakdown was your honor at that point the burden was on the government to come up with but that was their breakdown i mean in other words and it was pretty apparent from that breakdown that there wasn't any thing else they weren't taking out taxes or attorney's fees or anything else they were taking out the amount of the address the issue of guarding materiality particularly the government's argument essentially seem to amount to well there was this overwhelming evidence in these documents and as i indicated initially what had happened to the exclusion of  professor martin's documents is what i referred to earlier as this cleansing of the two of the three groups of witnesses the cleansing of the first franklin witness and the cleansing of the straw buyers and the the  cooperators in terms of what the rule was in the production of the evidence that the government characterizes overwhelming they were lie primarily on circumstantial evidence regarding this ciders and miscues menko and there were obviously inference s that we would have asked the fact finder to draw that were different if we had been able to lab rate and present additional evidence from professor martin about what was the standard in the industry generally not just with well  example i say that's all rather vague can you give me an example of a trade perfectly specific about that there were documents that were fax back and forth from voyager trucking which relates to a company run by edward sheff stop one of the other defendants the the government repeatedly attributed those to varicose manco because they came from a fax machine at v k tax services but the fact of the matter is the rules witnesses were cross examined and shown to have more connection to mr chefs dog than to miscues menko the the government attributes all of that information to their accused manco when the fact of the matter is less than having anything to do with the testimony well the expert testimony would have shown that generally that there was this perception not just among people in the industry but among the common populace as well that these things didn't matter to the lenders and would have been used as an alternative explanation for why i the source of this information was not you're a cosmic original siders but these other participants who came in appeared to be clean because of the way the government was ever able to circumscribe our cross examination i see my