address the first issue concerning loss in the twenty point increase that they're doing to the base offense level the bottom line is that what the government's trying to do is punish mr bass for conduct that is lawful originally this case had been tried at the district court level there had been a conviction for conspiracy to distribute controlled substances among other things it came up to the fifth circuit this fifth circuit reversed in remanded and when it went back down to the district court the government chose not to prosecute again for conspiracy for controlled substances what they are trying to do is research re sentence mr bayh's for controlled substances when there are now on the conspiracy to commit mail fraud for quote controlled substances cases are the special rules that the government and then the court imposed in coming up with the twenty additional points so the district judge that did make a finding that it was a controlled substance or that it was an analog of a controlled substance as part of the sentencing is that correct or not there's a difference between an analog or a look a large or substantial similarity in quote controlled substance under mcfadden for a controlled substance to be i understand mcfadden that sure but i'm asking what what is required at this saying to people in order to get this enhanced me controlled substance the counts one and two are the council conviction those are fraud offenses it's fraud on the government so we look at last in the fraud on government context why do we need a controlled substance at all because what the with the district court used and what the government ok so loss is determined by the fraud loss guidelines and that that's not the guidelines the district court used though whether you have relevant conduct or not i mean if you have relevant conduct and you're using the relevant conduct guidelines you don't have a relevant conduct before may thirteen of twenty thirteen which is outside of the time that the substances were controlled well you know i again times going to be limited in this is difficult and complex but by the time the last the focus had shifted to gain as an alternate estimate of loss ok even under gain is the ultimate alternate method of a determination there has to be a showing of monetary monetary l not something that is speculative and what the government had talked about your authority for that in other words when the federal government is the victim it's obviously not gaining f d a is f d a concern is that no customer b something that's mislabeled and in those context it's very hard to know what a loss is so the guidelines say you look at proceeds revenue how much did your company your clients company make when the product out there was mislabeled as not for use in humans what the government argued was purely speculative they talked about that some customers were arrested and merely being arrested doesn't have any why do we care about customers either this is count one is fraud on the federal government and in those cases they cite ha h a a s i'm sure you're familiar with it when it's fraud on the government you look at the corporate revenues legal and there was nothing illegal about the sale and distribution of these controlled substances and the prior panel said that's not it the prior panel said that the fact that customers may have been in on the joke their expression is no excuse for defrauding the federal government but once again your own or what they were using is mail fraud in the context of controlled substances you under the guidelines that they were using what about the haas case just address that's the one that really sticks in my mind i think the only thing i can tell you is that i think what they've got here is pure speculation we don't have  actual loss the customers got everything that they had been requested to get and at the time that they received that it was legal is the monster measured by what the customers lost or by what the government well it seems to be that the that the government is arguing with the customers last that's what i deem it seemed to be  quote the last under these alternative provisions were quote some persons were arrested and i don't think we have either proof by a preponderance of the evidence and certainly not by beyond reasonable doubt or in this instance beyond preponderance of the evidence when you've got speculation that the customers did not receive what they thought they were getting that there was a misrepresentation of the product well  according to what the government argued what they were arguing is that some customers were sted i can't tell you what the product was i can't tell you which customers that's not sufficient to be a preponderance of the evidence standard that's purely speculative and loss requires more than than pure speculation i get those alternative lost provisions you have to show specific no provable loss in a flawed case that's correct because i don't believe that that i believe that the conduct that mister basin gagetown is is lawful conduct and under what the government is arguing w have guilty verdicts that it's not lawful you can't really they gave we have a fraud count one on the government we have a fraud count two on the customers of the prior panel that's lower the case the customers were defrauded so what's your position is there no loss even though the government and other customers were defrauded no last zero my my position is that you can't increase the base offense level by the additional twenty points no loss you're saying ross you know i guess how but you acknowledge that the the corporate record show during the period january to april approximately seven billion dollars or proceeds none of that is a loss even though all of it was mislaid none of that was a loss under what the government was arguing with the go the theory that the government had that the loss was to the customers that was not a loss to the customers it was not it was not a loss to the real customers or is part of that in the sting operation or any of that  the revenue amount in any way and saying it's not actual revenue of the company well i mean we're disputing revenue in the sense that the again the mail fraud was based on quote these the senate sing god lines for controlled substances your position that they were selling other things to their part of that revenue or is that how you know what they're selling what they're selling and here are these these analogs or be substances right so but it is t that you have to in order to get this enhanced meant you have to have an actual controlled substance right and it has to have been proven that it's an actual controlled substance why a preponderance or beyond a reasonable doubt i think you have to have the conviction first under that fountain they don't have a can you're not going to have a conviction for that that's right so you cannot use those guidelines that they were using here in the case of a controlled substance because there's no quote controlled substance which means it has to be controlled it has to be specifically on the schedule and to under mcfadden he also has to know that it's controlled so those guidelines are just those are the relevant conduct guidelines are applicable in this situation that's correct under the prior senate which is the issue number three when they were trying to bring in this prior said ok don't know your time is expired but i had to subtract to get the search for you that's so your position is that you can't use these guidelines at all because there is no controlled substance and then your other position is under the government's theory of loss right there is no loss and so it was improper to use gaining right that's correct ok and that's is that you do right have your argument i believe ok is it your who is going to be arguing about the issue with the two level enhanced meant for moving to the different state to me oh he's raising his hand ok so you ok well i have a order to try to be lawful not to try to skirt the law that's carette and that the evidence supports that it was this state has a laxer law and so we like to make the product in the state with the lapsed laws and so that's actually compliance not not hiding from the law is that yes i mean they complied with the law i mean he remained in the state in which they indiana which they had passed a little boy law if he was trying to skirt the law he would have moved to but he stayed there they were trying to be legal in what it is that they did in aaron parish who was the bookkeeper did not testify that they moved in order to skirt or evade the law he specifically was asked why did you move and he answered we moved because indiana passed a look alike law ok and the last question that i have is what is  not anything that was that was here i you know i don't know what the government's going to come back we have but it's certainly take away this intent to enhancement what is the brain sheesh do you know that i i did not calculate that i was basing it on an offense level of thirty five and that doesn't include the twenty point and handsome it but certainly if it moves from a category three down to a category one it's one sixty eight to ten  but i believe that that base offense level is thirty five so you would have to drop the the twenty points off of that so it's going to be even lower ok thank you there's one thing for you before you remain a of that was outside of there that period because relevant conduct doesn't start until after that date ok after the fifteen period i dance with all of them if count it would that be true as to count one two i'm sorry what the relevant conduct period why is it relevant why is it any any sale why would it be relevant conduct if they're convicted of a mislabeling offense again because both the government and the district court relied on specific rules or senate sing god lines quote in cases of controlled substances and they also talked about that they also relied on the other rules for substantial similarity if you do not have a controlled substance these particular god lines do not apply you cannot convict him and in the case of a controlled substance under these guidelines if you don't have a controlled substance what you're trying what they're trying to do is backdoor punishment when they could not get a conviction beyond a reasonable doubt or for conspiracy to distribute if they've got a problem with that what they need to do is retry the case if that's what they want to do or or just drop the whole thing but the predicate is to have a controlled substance so that those drugs must be scheduled at the time of distribution which they weren't and they also have to show that he knew that they were controlled thank you for your client there's not an issue on the knowledge like the other yeah there is an issue on the knowledge should never proved that he knew it i mean this is the same issue that was in  important point you may have clarified on the overlook your client's only convicted of count two now he's convicted of count one also so the way i see this case is very simple there is no controlled substance of the case left right all there is a fraud case are the only reason this is indicted as a mail fraud jaysus and twenty years whatever sums they could get i mean let's face it five years on three seventy one case is no big deal if you don't get some sort of sense out question earlier about where were the guidelines be on this this would be a level six on the guidelines and because there is no loss in my client b n a a  criminal history category one he would be eligible for probation in both cases instead of serving fifteen years as a just your client or both calking own my client just my client so it's a very serious matter to him and who follow him on similar sentencing there doesn't have to be lost when you have a fraud case and that's quite what commonly the case i mean you catch somebody trying to defraud a bike before it goes through these customers are there and the end users are no more than an indicted coconspirators in that case so how can you have a loss when somebody a doesn't complain of l coconspirator what about the prior panels remark about hey they're in on the joke it doesn't count that only that that's what that's what that was all about out there in on the job there they're part of this conspiracy but on and at it when you say it would fun and it was a reasonably established last in that case because in a footnote it acknowledges the tenth circuit is opposite the it's complicated ok it's their presentation of the censoring made issue of the fact that they all knew it was a controlled substance anyway of course it wasn't a controlled substance what they mixed up the government mixed up their language that's not a crime that are not controlled substances thank you ok thank  you may it please the korean program for the united states the appellant in this case asked the court to ignore the plain language of the guidelines to reverse their sentences but for two reasons those sentences should be affirmed the first this the prior panel's decision confirmed the nature of the fraud counts in this case which was then adopted by the district court for last calculation purposes and the second is that the second component of that calculation the street value is completely uncontested by the appellants all of the facts underscoring the street value kalari real problems with that because the street value multiplied out is more than we know they made well possibly use loss at nine million if we know they only made seven that yet that argument was made to the district court and when the court said their responses when you're looking at the different provisions for an office that involves the controlled substances the commission felt that the street value was the better measure of culpability because as i mean read again no because why am i wrong there is no school controlled substantive case left we've bake a did that it goes back down you've got t i would think the government would be saying this is a fraud case right and we're going to look at fraud and loss and then we i think you get into difficult terrain but at the moment circuit law that tells you one thing it may cap out of five though it would help if you at least write one economy we're not going to retry the three week trial we're not going to go through another trial on those counts there was no admission of lack of knowledge or mislabeling to prove it doesn't have to be drugs just mislabeled it's mislabeling and it's fraud and this case is different from other mislabeling cases because here we have if you look at the record these letters of affirmation that were sent which with each and every shipment where they affirmatively represented that these substances were in compliance with the federal and state law you don't see that and in typical misbranding cases so this takes us outside the realm of something that maybe maybe should be capped at five years to the land of thirty eight different states were receiving these shipments with letters of affirmation personally signed by mr bay's attesting to their legality when they were in fact illegal controlled substance analogs so this is not just a misbranding case as yet absolutely a fraud on direct appeal limited it to mislabeling i mean you've got to you know by heart it was mislabeling because it was labeled intended for human consumption not so they did the court didn't affirm the fraud convictions on on the whole controlled substance they absolutely did they absolutely did if you look at the court's decision count one was based on the participants awareness of the a and their actions taken to circumvent the regulatory guidelines for the f d a count two they specifically found that material misrepresentations were made as to the controlled substances and their status as legal under federal and state law ok if they don't agree with that part if we do not believe that it was found to be in fact illegal controlled substance analog that sin is that you just said if that's gone out of this case can you the alternative ground for a firm and says is the game calculation and the hospice vision spoke in the alternative it said whether it fraud on the f d a or its fraud on the consumers both of those are difficult to calculate in a case like this so we're going to it to consumers or the buyers the middle min right that they suffered any loss what financial loss whatsoever in this record right the prior panel found that the record evidence supported that customers actually loss you have to actually say twelve customers had this in they we estimate that each one lost five hundred dollars a shipment because they couldn't resell it because they would be in file ation or they did resell it and they had these kind of they went to jail and it cost him two hundred thousand for their lawyer because they thought you know you have to have you have no specifics correct that's correct but you can have evidence of a los difficult to quantify and you have to have actual evidence of a financial loss to begin with the and i will point you to the case i'm probably butchering the pronunciation of that name but in other cases where you've looked at these  distribution of products that are represented as one thing whether it's f d a compliant prescription drugs after market products the courts have found that the consumers the dollar amount paid out of pocket is your evidence of loss because they paid for something they never received in this case they got caught they were getting they were on it not in this case they got something that was represented to them as lawful as in compliant with with federal and state law they absolutely and that evidenced by the fact that there were customers that receive the shipments didn't trust the letters of affirmation did their own testing and when they found out that it contained illegal substances send it back the appellant's in that case just redistributed those products to other customers don't suffer a loss because they got their money back but the people who did that did not lose they got their money back in this case the customers that paid money out of pocket for products that were marketed to them specifically marketed to them as legal pot we're cool guys we're ahead of the law there's nothing illegal about this they absolutely received something that made them vulnerable to legal prosecution under the law and they suffered a loss as a result that that position is it has been adopted a number of circuits if you look at this case out of the first circuit them you know some cases out of the eleventh circuit and the boot on a case out of the seventh circuit each of those cases confirms that where you have this type of difficult a lost it's difficult to calculate but you have customers that paid out of pocket for something they did not receive the last exists and again calculation is an appropriate alternative  i understand that argument but that is independent of and i'm just going to read our circuit all our circuit seems to have taken the position that a last unhandsome it is appropriate even when there has been no a dent filed  so you are not i think it has to be the prior panels determination that they bought assuming it was legal that's the only theory that and that the record supports actual reliance on those actionable misrepresentation notwithstanding that gain calculation the government does maintain that we're worried about it you're very good to know this and tell us that am i wrong in remembering the brief that you had cited high and if that's not good but it wasn't for this problem for a different district court took this court this prior panel's findings the nature of the fraud to be one point one says you can't calculate lost until you figure out what kind of fraud you have and so the district court looked and said what kind of fraud do we have here the p s r said this fraud involved controlled substances that's a two step testing chemical structure substantial similarity and physiological effect there's no proof it involved controlled substances any more that was wiped out when you made the stipulation when it was reversed and you made the stipulation the proof is still in the record even if the substantive counts are not you can absolutely still look at the record evidence that was presented at trial to determine that controlled substances were involved and in fact this court's decision in stanford supports that stanford was another spice case it was bounced back after mcfadden for lack of mens rea at that time the court had the remaining counts which were money laundering and misbranding and there was a cross reference in the guidelines to said if your of relation to another oftens to conceal or further another often than apply the guideline provision for that often the district court said even though we have dismissed the drug counts i'm allowed to look at that as relevant conduct one b one point three let me look at that even if it's no longer an often and i determined by preponderance of the evidence that the other often so in this case was your drug offense and i apply the cross reference and i used to be one point i want to sentence you because your money laundering was to further that other and even though it's not still account of conviction this court affirmed that reasoning and that logic because at that point your controlled substances are not a count of conviction but they're absolutely relevant conduct one by one point three specifically says you're going to have different burdens of proof for your counts of conventional little so what is the government what is your strongest argument to affirm the sentences they got now is it is a relevant conduct argument absolutely oka absolutely by preponderance of the evidence the expert testimony at trial showed that the definition of an l long was seven analog was met for the substances that were used during the three month last calculation period those substances five f p p twenty two and p p twenty two were the only substances used during that three month period that's not contested the experts at trial testified both on chemical structure and physiological similarity those are also not contested by the appellants in this case so the district court said i find quote more than ample evidence in the record from trial that controlled substances were involved i don't buy your argument that they weren't controlled so i find that they were involved in as a result the street value controls does i mean argument would be even if you want to read scienter into it which you shouldn't because this court's precedent is clear if it's if the plain language of the guideline doesn't require knowledge this court doesn't either that the commission knows full well how to require knowledge and if you look at amendment eight zero seven which took effect last week november first the commission added a four level enhancement for defendants that knowingly misrepresent or market substances with fentanyl or fentanyl analogue the commission knows how to put signed her into an analog enhanced meant when they want to and they didn't do it here and then this court has consistently adhere to the plain language of those guidelines when deciding if scienter is required there must have been multiple mcfadden remains we had one of yes and i'm t evidence of knowledge but we have a published circuit opinion wrestling with some of these issues shifting the law into a world of fraud and yet that is the only case that has applied three if six following make fadden but there is a lot of binding precedent the stands for the proposition that the plain language of the enhancement control we don't look beyond that we don't impose a time to requirement from a substantive count when that's not at issue the only thing at issue here is an objective determination that the office quote involved controlled substances you can find that by preponderance of the evidence you don't need a jury verdict you don't need beyond a reasonable doubt that's a completely different question here if we have a preponderance of the evidence that those substances qualified as analogs that's all that is required to apply that last calculation there are lot there are policy reasons that support that calculation i know it's like you said there's tension because it's a large and handsome and but what we have here is difficult because you had the opportunity to narrow on remained in charge then but you chose not to so there's discomfort with ok we get to sentencing and we cope which didn't trial on the one hand we're being criticized for stacking counsel on the other hand we're being criticized for not stacking more so the government made the decision to look at sentencing exposure and say this is going to be this is going to be sufficient we're not going to put everybody through another three week trial it's cake and eat it too you don't have to do you know have to prove it and you still get the ban well the the proof is there and the proof is undisputed by the appellants they don't challenge the expert testimony they don't challenge the quantity they don't challenge the street value the only thing they try to do is ask the court to read a quote inherent mean it is out of proportion with the gain from the conspiracy but the policy reasons for that are are based on the fact that in this type of fraud where your fraud involves the controlled substances your culpability is going to be off kilter with the money that you make the danger to society that the vast nature of the conspiracy the commission has determined that that may not be the proper measure of the harm that that you caused and of the culpability that you should be sentenced for and that's why that enhancement is they are if they didn't feel like the street value was a better measure that wouldn't be an option to use in a case like this where as we discussed at length the traditional last calculation is challenging to employ in this type of case the actually intended loss it's like fitting a square peg into a round hole so you've got a guideline provision that fits better if it's better because there's no question that this oftens involved controlled substances the evidence is clear and so when your fraud the nature of your frog the central focus of your fraud was misrepresenting to your customers that these substances were lawful and when that's the type of fraud you have then you're culpable for the street value of th council it doesn't appear that the district court made a finding that there was a law the district made a finding about that this isn't a analog you know but but the district court never said there was a loss and the real cursory the district court did assess it as an alternative calculation i would agree that the primary focus of the recent seeing hearing was on the ability to use analogues as controlled substances but the court did loss i mean we've had several cases in the past couple of years where we sent them back and said that they were proven or that they're finding people who didn't suffer a loss and so there was no business saying that there was a last week i mean i can think of other panels that have been on stuff the top of my head without doing the research so what is it what's the issue i mean why would you do you not have i know some expert come in and go through this all in a that he did not have the people in what they lost at the loss here as defined by other courts that have considered similar cases is paying for something you don't get that's how they're quantifying loss in these types of cases that's difficult to quantify which is why you wind up using an alternate bail calculation but that's that the damage here is i'm paying you for something that you're telling me is legal and now i'm on the hook of something that that is not legal and exposes me not only to additional liability but i didn't get what i paid for ok so if we don't think that that's true because we think they were in on it as the previous court noted as well then then then you don't get this deal we still do because the other cases that have made that finding the customers were also quote in on it those are pharmaceutical cases where they know they're getting something in from mexico they know they're getting something that hasn't gone through the f d a regulatory process and they're doing they're doing it to get cheaper drugs so the courts in those cases made the same finding they were in on it they knew it but at the same time they found that if there were some evidence in the record that at least some of the customers thought that they were getting something that way say for compliance under federal law that the last was there so this case is in line with each of those cases that found that even if you're in on it in a certain respect the last is still there now they were not in on it with respect to the legality did they know it was supposed to be smoked yes did they know that it was for human consumption those are not the actionable misrepresentations you're actionable misread are the letters of affirmation and the statements made that it's f d a and state law compliance that's what was relied on to get my money out of my pocket and have you ship that to me because i want something that's going to get me in trouble with the law those are the mis reps that relied on and they were not in on that absolutely not in on that they were in on the gig for the spice but they were not in on whether it was in compliance with federal law can you help me with the two level and handsome and yes all the money and that's only mr challenge in this case the only thing he's done on appeal to point to an alternate reasonable inference from the effort that from the evidence here is what is going to you know i don't see what was the basis i understand his alternate reasonable inference but i don't understand what supported the other and what in the record supports the other inference there was testimony at trial that when indiana was prepared to pass lookalike law that made the manufacture of these substances illegal the decision was made to move across state lines to ohio so that they could continue manufacturing and not be under law enforcement scrutiny but that the positive thing you want people to follow laws then they kept shipping it back to indiana and there was a huge point of contention kyle border testif coconspirator trial that moving across state lines would mean they were going to comply but then they turned around and kept shipping it right back into the state where they knew that substance was no longer legal to shipping it back after they made it that demonstrates your intent to evade law enforcement and that's what changed the district court's mind about the inference that applied if they shipped it back to indiana at that point to make more money we were customer origin in indiana and then shipped to the purchasers from india manufactured in ohio and then shipped to gas stations smoke shops individual customers and thirty eight different indianness pro prohibition was to the manufacture of it or possession of it or what specifically was the change in the law i believe it was to the manufacturer of it but what they were concerned about is if we stay here we're going to be under state scrutiny so we're going to move across state lines and keep shipping it which was a violation of federal law a continued violation of federal law that was no different than what they were doing already that's correct but the action of moving their ship their operations was an act in furtherance of evading law enforcement to further disguise their operations of nationwide as to understand that because it's if it's if it's to comply with the law and one state so you're not a fate it's to comply with state law not to evade federal law because you're already evading federal law either way the and all i can speak to that is the eviden showed that five months before they moved the business and mr bay's home were raided they were put on notice that what they were doing was potentially problematic indiana got ready to pass the law they decided we're going to move across state lines that keep shipping one reasonable inference from that might be they were trying to comply but an equally reasonable inference would be and as the district court termed it he was a sophisticated operator and at least one reason not the only reason but the district found that at least one reason for moving the business was to evade law enforcement and that's sufficient for application of the enhanced i think there was an employee testimony would just absolutely but the employee doesn't say then it was two of a law enforcement question there the employee testified and the district court drew what inference from that speech the district court drew the inference that that move was for the purpose of evading law enforcement scrutiny of their operations and they would and therefore that inference is assessed by us for clear or yes and in this case plainer as conceited because the grounds for that affirmation my time is about to expire but i'd like to finish answering your question they raise a brand new alter ego argument and their brief that was not raised in the trial court so it's actually playing error review of that argument and then they resurface in their reply brief this inference of lawful compliance so it's plain air review of the argument made in their opening brief that his status as an alter ego remaining behind in indiana precluded application of that enhancement if i could briefly conclude for the reasons previously mentioned the government would ask that  thank you we have your argument do you want to say you you have you're really bad i did not we did not take it away from you but it's up to you whether you want to do it yeah i just want to confirm she had talked about the relevant conduct and that her case was hinting on relevant  conduct the relevant conduct provisions specifically say you have to have reasonably forseeable x and furtherance of jointly undertaking criminal activity and the court in silly talked about acts can be considered as relevant conduct but specifically the conduct must be criminal i want to go back to to the position even though she keeps saying concludes in a conclusory fashion that these are console controlled substances because they're analogs that doesn't make them controlled substances mere substantial similarity and the stimulant effect that you get doesn't make it controlled it must be on this controlled substance list and in mcfadden chief justice roberts talked about two different substances one was legal or one was controlled which is hydrocodone and the other one was a lookalike of hydrocodone and what chief justice roberts sa d is that both these substances are sometimes used for recreational use and you don't have someone who would necessarily know that this other look alike was  was was legal or or illegal because it wasn't necessarily known kind of like heroin so we don't have any criminal activity here with respect to  the the laws in indiana changing and the evading all of that all of this stuff is what the government is reading into the record doesn't support it mr parrish had had been asked by the prosecutor why did you move and his answer was the laws in indiana were changing what do you mean the laws were changing they were getting ready to pass what i believe was a look alike and we didn't think we were going to be able to continue making the product in the state of indiana he never said we may have so we could have a we could have a state law and then in the base opinion the actual text of the court's base opinion also does not state that they moved to evade the law with the fifth circuit opinion rees's in may two thousand and thirteen b n b moved its production facility from indiana to ohio in response to proposed indiana legislation concerning spice manufacturing there is nothing either in the testimony by the employee or in the fifth circuit space opinion that says they moved in order to evade the law so i don't see where we're coming up with this two point enhanced moment because we don't even have a preponderance of the evidence standard to support that out from from what i'm hearing the government saying over and over and over again is we have a controlled substance here and merely reate it reiterating we have a controlled substance doesn't make it controlled and merely because a substance is a lookalike of a scheduled substance that is controlled under the controlled substances act or the controlled substances analogue act doesn't make it controlled or illegal to sell of and distribute and so none of the substance s that we have here were illegal substances at the time of distribution and the government and the lower court cannot punish mr babies for legal conduct just because the government couldn't obtain a conviction for conspiracy to distribute concert controlled substances thank you thank you have your argument this case