Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-12-10230/USCOURTS-ca9-12-10230-0/pdf.json

Parties Involved:
Duane Allen Eddings
Appellant
United States of America
Appellee

Document Text:

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

v.

ROBERT CEPHAS BROWN, JR.,

Defendant-Appellant.

No. 12-10227

D.C. No.

2:09-cr-00074-JAM-1

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

v.

DUANE ALLEN EDDINGS,

Defendant-Appellant.

No. 12-10230

D.C. No.

2:09-cr-00074-JAM-2

OPINION

Appeal from the United States District Court

for the Eastern District of California

John A. Mendez, District Judge, Presiding

Argued and Submitted

September 8, 2014—San Francisco, California

Filed November 7, 2014

Before: Carlos T. Bea, Sandra S. Ikuta,

and Andrew D. Hurwitz, Circuit Judges.

Opinion by Judge Hurwitz

 Case: 12-10230, 11/07/2014, ID: 9305251, DktEntry: 48-1, Page 1 of 28
2 UNITED STATES V. BROWN

SUMMARY*

Criminal Law

The panel affirmed Duane Allen Eddings’s convictions,

affirmed in part and vacated in part the district court’s

sentencing determinations concerning Eddings and Robert

Cephas Brown, Jr., and remanded for resentencing in a case

arising from a Ponzi scheme and bankruptcy fraud.

The panel held that the district court’s denial of the

government’s motion pursuant to U.S.S.G. § 5K1.1 to reduce

Brown’s sentence on account of his assistance was proper,

and that Brown’s 188-month sentence is not substantively

unreasonable.

Regarding Eddings’s mail fraud charges related to

bankruptcy fraud, the panel held that even assuming Eddings

was charged under an improperly overbroad theory of

defrauding the bankruptcy court and trustee in addition to

creditors, there was no plain error because he was tried under

the valid theory that he committed mail fraud by filing

schedules that failed to disclose certain assets and artificially

inflated his debts in order to enable him to obtain a “no asset

discharge” without paying his creditors, and the government

never argued that the bankruptcy court or the trustee was

defrauded.

* This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

 Case: 12-10230, 11/07/2014, ID: 9305251, DktEntry: 48-1, Page 2 of 28
UNITED STATES V. BROWN 3

The panel held that there was sufficient evidence to

support Eddings’s convictions on Ponzi scheme mail fraud

charges.

The panel held that Eddings’s bankruptcy fraud

convictions were properly grouped for sentencing with his

Ponzi scheme convictions pursuant to U.S.S.G. § 3D1.2(d).

The panel held that application of a leadership role

adjustment to Eddings’s sentence pursuant to U.S.S.G.

§ 3B1.1(c) was erroneous, where the district court noted that

it was not “really made clear” whether Eddings controlled a

particular participant, and the record does not indicate that he

controlled any other criminally responsible participant in the

scheme.

The panel held that the district court erroneously imposed

on both defendants an enhancement under U.S.S.G.

§ 2B1.1(b)(15)(B)(iii) for endangering the solvency or

financial security of 100 or more victims, where the

government did not provide evidence of the impact of the

crimes on the requisite number of victims. The panel left it

to the district court to decide whether to take new evidence on

this adjustment on remand.

The panel held that increasing Eddings’s sentence under

U.S.S.G. § 2B1.1(b)(2)(C) for having 250 or more victims

was erroneous, where the district court relied on 148 victims

who were not included in the loss calculation under U.S.S.G.

§ 2B1.1(b)(1).

The panel rejected the defendants’ arguments that remand

should be to a new judge.

 Case: 12-10230, 11/07/2014, ID: 9305251, DktEntry: 48-1, Page 3 of 28
4 UNITED STATES V. BROWN

COUNSEL

Heather Williams, Federal Defender, David M. Porter

(argued), Assistant Federal Defender, Rachelle Barbour,

Research and Writing Attorney, Sacramento, California, for

Defendant-Appellant Robert Cephas Brown, Jr.

John Balazs (argued), Attorney at Law, Sacramento

California, for Defendant-Appellant Duane Allen Eddings.

Benjamin B. Wagner, United States Attorney, Camil A.

Skipper, Appellate Chief, Michael D. Anderson (argued) and

Todd A. Pickles, Assistant United States Attorneys,

Sacramento, California, for Plaintiff-Appellee.

OPINION

HURWITZ, Circuit Judge:

Indicted for operating a Ponzi scheme, Robert Brown

pleaded guilty to one count of wire fraud. His partner in the

scheme, Duane Eddings, proceeded to trial and was convicted

of six counts of mail fraud, one count of wire fraud, three

counts of money laundering, and three counts of tax evasion. 

Some of Eddings’s convictions arose from the Ponzi scheme

and others from a bankruptcy fraud. Brown appeals his

sentence; Eddings appeals his convictions1 and sentence.

1 Eddings does not challenge his convictions on one count of mail fraud

(count 2), one count of wire fraud (count 7), and three counts of money

laundering (counts 8–10).

 Case: 12-10230, 11/07/2014, ID: 9305251, DktEntry: 48-1, Page 4 of 28
UNITED STATES V. BROWN 5

We have jurisdiction under 28 U.S.C. § 1291, and we

affirm in part, vacate in part, and remand for resentencing.

I. Factual Background

A. The Ponzi scheme.

In 2000, after a Vallejo, California newspaper article

touted Robert Brown’s investment capabilities, he organized

a public seminar. Some attendees requested that Brown

invest for them, and he agreed to do so. Unfortunately,

Brown invested only some of the investors’ money and took

the rest “off the top” for his own use. Brown’s investments

were initially successful enough to mask his wrongdoing, but

they soon turned south.

Brown then began a classic Ponzi scheme: he would “lie

to [investors] and make them feel that everything was still

going well,” and use money from new investors to pay off

past investors. Brown told investors he felt “blessed” by his

ability to generate returns to “give back to the community.” 

He also told investors he would not take management fees;

rather, one hundred percent of their funds would be invested,

and he would be paid only after he doubled their money.

Duane Eddings had seen Brown driving around town in

his Ferrari and had wanted to meet him for some time. In the

summer of 2005, Eddings introduced himself to Brown. The

meeting was fortuitous, because Brown was then “desperate

for new money.” Brown and Eddings promptly established

a “business relationship” under which Eddings brought in

new investors for “15 or 20 percent of the new money.”

 Case: 12-10230, 11/07/2014, ID: 9305251, DktEntry: 48-1, Page 5 of 28
6 UNITED STATES V. BROWN

At Brown’s instruction, Eddings opened up separate bank

accounts to keep the investors he recruited apart from

Brown’s; one account was for “WISE Investors.” Soon after

their relationship was established, Eddings became aware of

the Ponzi scheme. By September 2005, Brown was sending

“lulling letters” to investors, “trying to basically stall people,

hoping that they wouldn’t go to the authorities.” Brown

testified that Eddings “was getting people complaining to

him” about their investments and that the two talked about

“what was going to go into the letters.” Bank records showed

that in November 2005 Eddings deposited new investor funds

into his WISE Investors account and then immediately used

that money to pay old investors.

Brown and Eddings jointly solicited new investors

through seminars at a Berkeley restaurant; Brown was the

primary presenter and Eddings was responsible for the

“finance and the contracts.” Generally, Eddings transferred

funds from his account to Brown’s to pay Brown’s investors;

at least once, however, Eddings paid Brown’s investors

directly from his WISE Investors account.

Over time, it became increasingly difficult to pay

investors, and Eddings complained to Brown about needing

money to “pay some of his own bills and a credit card he had

got behind on.” Brown agreed to increase Eddings’s “referral

fee” to fifty percent of the funds Eddings obtained.

From 2005 to 2007, Eddings personally received over

$1,866,000 from the WISE Investors account. 

Approximately 165 investors deposited funds into that

account. The last transfer of money from the WISE Investors

account to Brown was on May 22, 2007. Brown continued

 Case: 12-10230, 11/07/2014, ID: 9305251, DktEntry: 48-1, Page 6 of 28
UNITED STATES V. BROWN 7

the Ponzi scheme thereafter, taking in several hundred

thousand dollars in 2007.

B. Eddings’s bankruptcy fraud.

On September 30, 2008, Eddings filed a Chapter 7

bankruptcy petition. Eddings’s bankruptcy filings and tax

returns claimed little or no income for 2005 to 2007; his

bankruptcy schedules listed total assets of only $33,000. The

petition claimed a fictitious $2.5 million loan from Brown as

Eddings’s largest debt. In light of the filings, the bankruptcy

trustee abandoned any effort to obtain a recovery for

creditors. Eddings received a discharge on January 5, 2009.

II. Procedural Background

A. Brown’s plea; Eddings’s trial.

In February 2009, Brown and Eddings were indicted in

the Eastern District of California on four counts of mail fraud,

18 U.S.C. § 1341, eight counts of wire fraud, 18 U.S.C.

§ 1343, and ten counts of money laundering, 18 U.S.C.

§ 1957. In April 2010, Brown pleaded guilty to a single

count of wire fraud and agreed to testify against Eddings. In

exchange, the government agreed to dismiss the remaining

counts of the indictment, seek a sentence at the low end of the

Guidelines range, and recommend reductions for acceptance

of responsibility and cooperation.

On May 12, 2011, the government filed a superseding

indictment against Eddings. It included three new charges of

tax evasion, 26 U.S.C. § 7201, arising from the returns he

filed during his bankruptcy. In October 2011, the district

court dismissed two of the wire fraud counts as beyond the

 Case: 12-10230, 11/07/2014, ID: 9305251, DktEntry: 48-1, Page 7 of 28
8 UNITED STATES V. BROWN

statute of limitations. Eddings then was tried; the jury found

Eddings guilty on all remaining counts.

B. Brown’s sentencing.

1. Government’s motion under U.S.S.G.

§ 5K1.1 and application of 18 U.S.C.

§ 3553(a) factors.

The government filed a United States Sentencing

Guidelines Manual (U.S.S.G.) § 5K1.1 motion, seeking to

reduce Brown’s sentence to 100 months because of his

assistance. The district court acknowledged that Brown “did

cooperate” and “accepted responsibility,” but found the

government’s proposed 100 month sentence “too great of a

reduction.”

The court then analyzed the “[18 U.S.C. §] 3553(a)

factors.” The judge concluded that Brown was still “a danger

to the public given the depth and length of this scheme” and

that “a lengthy sentence [wa]s necessary . . . to protect the

public from further crimes of this defendant.” Although the

court credited Brown for accepting responsibility and

assisting the government, he found that after application of

the § 3553(a) factors, “it basically [was] a wash.” The court

denied the § 5K1.1 motion under these “unique

circumstances,” and sentenced Brown to 188 months, a

within-Guidelines sentence at the top of the range.

2

2 The district court reduced Brown’s offense level by three levels for

acceptance of responsibility under U.S.S.G. § 3B1.2(b).

 Case: 12-10230, 11/07/2014, ID: 9305251, DktEntry: 48-1, Page 8 of 28
UNITED STATES V. BROWN 9

2. I n c r e a s e u n d e r U . S . S . G .

§ 2B1.1(b)(15)(B)(iii)3for “endanger[ing]

the solvency or financial security of 100 or

more victims.”

The pre-sentence report (PSR) suggested that Brown’s

sentence should be increased by two levels4

under U.S.S.G.

§ 2B1.1(b)(15)(B)(iii) because the “offense substantially

endangered the solvency or financial security of 100 or more

victims.” Brown timely objected, arguing that the

government had failed to specifically identify 100 such

victims. The court overruled the objection, finding that the

“information that probation ha[d] before it” was sufficient to

establish by a preponderance of the evidence that “there were

at least 100 victims whose solvency was endangered.”

3 The current (2013) version of the U.S.S.G. numbers this provision

§ 2B1.1(b)(16)(B)(iii), while the 2011 and 2012 versions ofthe Guidelines

cited by the district court and the probation office number the provision

§ 2B1.1(b)(15)(B)(iii). Because there is no substantive difference, this

opinion refers to § 2B1.1(b)(15)(B)(iii).

4 Pursuant to U.S.S.G. §§ 2B1.1(b)(15)(C), (D), the cumulative

adjustment from subsections 2B1.1(b)(2) and (b)(15)(B) cannot exceed

eight levels. Brown does not challenge the six-level upward adjustment

he received under § 2Bl.l(b)(2)(C) for having more than 250 victims; thus,

the maximum possible upward adjustment under U.S.S.G.

§ 2Bl.l(b)(l5)(B)(iii) was two levels, rather than the standard four. See

U.S.S.G. § 2B1.1(b)(15)(C).

 Case: 12-10230, 11/07/2014, ID: 9305251, DktEntry: 48-1, Page 9 of 28
10 UNITED STATES V. BROWN

C. Eddings’s sentencing.

1. Grouping counts 1–4 and 7–12 under

U.S.S.G. § 3D1.2(d).

Eddings’s PSR recommended that counts 1–4 (Ponzi

scheme mail fraud), 7–10 (Ponzi scheme wire fraud and

money laundering), and 11–12 (bankruptcyfraud) be grouped

under U.S.S.G. § 3D1.2(d) because “the offense level is

determined largely on the basis of the total amount of harm

or loss.” Eddings objected, arguing that the grouping was

improper because the bankruptcy counts “involve different

victims and modes of fraud and are unrelated to the

investment scheme in manner and in time.” The district court

overruled Eddings’s objection.

2. Increase under U.S.S.G. § 3B1.1(c) for

leadership role.

The PSR recommended that Eddings’s sentence not be

increased under U.S.S.G. § 3B1.1 for a leadership role. The

government objected, arguing that Eddings recruited others

“who knowingly or unknowingly worked on the defendant’s

behalf to recruit victims.” The district court found this a

“close question,” but determined that the government had

proved that Eddings had acted as a leader and applied the

adjustment.

 Case: 12-10230, 11/07/2014, ID: 9305251, DktEntry: 48-1, Page 10 of 28
UNITED STATES V. BROWN 11

3. I n c r e a s e u n d e r U . S . S . G .

§ 2B1.1(b)(15)(B)(iii) for “endanger[ing]

the solvency or financial security of 100 or

more victims.”

Over Eddings’s objection, and with little discussion, the

district court also applied a two-level increase under

§ 2B1.1(b)(15)(B)(iii) to Eddings’s sentence. The court

determined that, for “the same reasons . . . stated in Mr.

Brown’s sentencing,” the increase was “applicable to Mr.

Eddings as well.”

4. Increase under U.S.S.G. § 2B1.1(b)(2)(C)

for having 250 or more victims.

Eddings’s PSR determined that he had 154 victims. The

government objected, arguing that the total should include an

additional 147 victims who invested with Brown prior to

Eddings’s involvement but to whom Eddings made lulling

payments. The district court determined that the 147 victims

“had at least some communication or contact with Mr.

Eddings [and] therefore they should be added to his victim

total as well.” Consequently, Eddings’s offense was

increased by six levels under § 2B1.1(b)(2)(C).

5. Eddings’s ultimate sentence.

Based on Eddings’s offense level of 39, the Guidelines

range was 262 to 327 months. U.S.S.G. Chapter 5 Part A. 

The district court was “concerned” about sentencing disparity

because even a low-end sentence for Eddings would be over

six years more than Brown’s sentence. The court reviewed

the “3553(a) factors” and noted that, without his reduction for

acceptance of responsibility, Brown would have faced 210 to

 Case: 12-10230, 11/07/2014, ID: 9305251, DktEntry: 48-1, Page 11 of 28
12 UNITED STATES V. BROWN

262 months. The court found that range also “appropriate”

for Eddings’s conduct, and gave a “downward variance,”

sentencing Eddings to a total term of 210 months.

III. Discussion

A. The denial of the government’s motion to

reduce Brown’s sentence under U.S.S.G.

§ 5K1.1 was proper.

We review the district court’s interpretation of the

Guidelines de novo and its factual findings for clear error.5

United States v. Cantrell, 433 F.3d 1269, 1279 (9th Cir.

2006). In rejecting the government’s § 5K1.1 motion, the

district court properly exercised the “wide latitude” given by

the Guidelines for “evaluating the significance and usefulness

of the defendant’s assistance. . . .” United States v. Awad,

371 F.3d 583, 586 (9th Cir. 2004) (citation and internal

quotation marks omitted). The court gave the “substantial

weight” required by the Guidelines to the government’s

evaluation of the defendant’s assistance. See U.S.S.G.

§ 5K1.1 cmt. 3. But, the court also determined that any

benefit to which Eddings was entitled under § 5K1.1 was

offset by the aggravating nature of the § 3553(a) factors. 

Rather than granting the government’s § 5K1.1 motion, but

then upwardly departing because of the § 3553(a) factors, the

district court simply denied the § 5K.1.1 motion. This arrived

5 There is a long-standing intra-circuit split on whether the district

court’s application of the Guidelines to the facts is reviewed de novo or

for abuse of discretion. See, e.g., United States v. Swank, 676 F.3d 919,

921–22 (9thCir. 2012); United States v. Staten, 466 F.3d 708, 713 n.3 (9th

Cir. 2006) (discussing conflict dating to 1999). Because the result in this

case is the same under either standard of review, we need not resolve the

conflict here.

 Case: 12-10230, 11/07/2014, ID: 9305251, DktEntry: 48-1, Page 12 of 28
UNITED STATES V. BROWN 13

at the same result and was not erroneous. U.S.S.G. § 5K1.1

cmt. background; see also United States v. Tadio, 663 F.3d

1042, 1046 (9th Cir. 2011) (permitting consideration of the

§ 3553(a) factors in the context of a post-sentencing motion

for a reduction for substantial assistance).

B. Brown’s 188-month sentence is not

substantively unreasonable under 18 U.S.C.

§ 3553(a).

As required by § 3553(a), the district court judge

specifically considered Brown’s offense and his personal

characteristics in imposing the 188 month sentence. The

court noted that Brown “preyed upon particularly vulnerable

victims,” used victims’ monies “for personal gains,”

“continued this scheme for a number of years, and impacted

an incredible number of victims.” The victim impact

statements chronicled “not just monetary impacts,” but also

that Brown “caused individuals to file for bankruptcy” and

“caused a number of his victims to become homeless,” and

the court therefore concluded that the Guidelines did not

“capture[]” the “full extent of the crime.” The district court

fully explained its reasons for rejecting the sentence

recommendations of the probation office and the government

and gave a within-Guidelines sentence; this was not

unreasonable. Rita v. United States, 551 U.S. 338, 351

(2007) (“[W]hen the judge’s discretionary decision accords

with the Commission’s view of the appropriate application of

§ 3553(a) in the mine run of cases, it is probable that the

sentence is reasonable.”).

 Case: 12-10230, 11/07/2014, ID: 9305251, DktEntry: 48-1, Page 13 of 28
14 UNITED STATES V. BROWN

C. Eddings’s mail fraud convictions related to the

bankruptcy fraud were based on a legally valid

theory.

Counts 11 and 12 of the superseding indictment alleged

that Eddings had

knowingly devised and intended to devise a

material scheme and artifice to defraud the

Bankruptcy Court, the Bankruptcy Trustee,

and various creditors of the Bankruptcy Case

. . . [by filing] schedules and a statement of

financial affairs, in which he falsely

misrepresented and/or failed to disclose

income, interests in assets, and bank accounts,

and liabilities, in order to defraud the

Bankruptcy Court, the Bankruptcy Trustee,

and various creditors of money and

property. . . .

Citing Cleveland v. United States, 531 U.S. 12 (2000), and

McNally v. United Sates, 483 U.S. 350 (1987), Eddings

argues that these charges impermissibly “allege a scheme to

defraud the bankruptcy court and public fiduciary rather than

individuals. . . .” Because Eddings did not raise this objection

at trial, we review only for plain error. United States v.

Olano, 507 U.S. 725, 731–32 (1993).

As an initial matter, the indictment does allege a scheme

to defraud creditors; it also alleges that the BankruptcyCourt

and Trustee were defrauded as well. But, even assuming

Eddings was charged under an improperly overbroad theory,

there was no plain error here because he was not tried under

that theory. The superseding indictment was not introduced

 Case: 12-10230, 11/07/2014, ID: 9305251, DktEntry: 48-1, Page 14 of 28
UNITED STATES V. BROWN 15

at trial, and the judge described counts 11 and 12 to the jury

as “mail fraud counts . . . that relate . . . to the defendant’s

bankruptcy.” The government argued that Eddings had

committed mail fraud by filing bankruptcy schedules that

failed to disclose certain assets and artificially inflated his

debts in order to enable him to obtain a “no asset discharge”

without paying his creditors. The government never argued

that the bankruptcy court or the trustee was defrauded. There

was no plain error.

D. The evidence was sufficient to sustain

Eddings’s convictions on the Ponzi scheme

mail fraud charges.

In reviewing a claim of insufficient evidence, the

“relevant question is whether, after viewing the evidence in

the light most favorable to the prosecution, any rational trier

of fact could have found the essential elements of the crime

beyond a reasonable doubt.” Jackson v. Virginia, 443 U.S.

307, 319 (1979) (citation omitted); see also United States v.

Hsiung, 758 F.3d 1074, 1091 (9th Cir. 2014).

1. Count 1 – mail fraud based on lulling letter

from Brown to Teresa R. dated August 30,

2006.

Brown drafted a lulling letter dated August 30, 2006 and

postmarked September 5, 2006 to Teresa R. Eddings argues

that, because Teresa R.’s interactions were with Brown, not

him, there was no evidence from which to conclude that the

letter was in furtherance of a joint fraud scheme.

But, because Eddings knowingly participated in the Ponzi

scheme, he “is liable for his co-schemers’ use of the mails or

 Case: 12-10230, 11/07/2014, ID: 9305251, DktEntry: 48-1, Page 15 of 28
16 UNITED STATES V. BROWN

wires.” United States v. Blitz, 151 F.3d 1002, 1006 (9th Cir.

1998) (citation and internal quotation marks omitted). 

Brown’s mailing was part of the scheme because it served

“the purpose of lulling [the] victims.” United States v.

Sampson, 371 U.S. 75, 78, (1962).

Substantial evidence supportsthe conclusion that Eddings

was participating in the Ponzi scheme when the letter was

sent to Teresa R. Brown testified that, by that time, Eddings

was aware of the lulling letters. Moreover, in November

2005, Eddings deposited new investor money to his WISE

Investors account and immediately used those funds to pay

Brown’s old investors; he continued to deposit investor funds

in that account through May 7, 2007.

2. Counts 3 and 4 – mail fraud based on

lulling letters from Brown to Persia M. and

Teresa B. dated May 18, 2007.

A lulling letter from Brown dated May 18, 2007 was sent

to Persia C. on May 22, 2007 and another to Teresa B. on

May 23, 2007. Because the last investor deposit into

Eddings’s WISE Investors account was made on May 7,

2007, Eddings argues that there was no evidence to show that

he was involved in the Ponzi scheme after that date. He

therefore contends the evidence was insufficient for any

rational juror to conclude that the May 22 and 23 lulling

letters were in furtherance of a joint fraud scheme.

However, Persia C. and Teresa B. were both recruited by

Eddings, not Brown. And, although the last deposit to

Eddings’s account was made on May 7, a transfer from that

account to Brown’s bank accounts was made on May 22,

2007, the date of the Persia C. letter. Moreover, Brown’s

 Case: 12-10230, 11/07/2014, ID: 9305251, DktEntry: 48-1, Page 16 of 28
UNITED STATES V. BROWN 17

testimony established that Eddings was still involved in the

scheme on May 22.

Even assuming that Eddings withdrew from the scheme

on May 22, 2007, he is still liable “for uses of the mails or

wires that are an inevitable consequence of actions taken

while the defendant was a knowing participant in the

scheme.” United States v. Stapleton, 293 F.3d 1111, 1117

(9th Cir. 2002) (citation omitted). Because Teresa B. was

recruited by Eddings, the jury could reasonably conclude that

Brown’s lulling letter sent one day later was such a

consequence.

3. Counts 11 and 12 – mail fraud based on

notice of bankruptcy case and discharge.

Eddings’s bankruptcy schedules falsely listed Brown as

a creditor with a $2.5 million unsecured loan. The

convictions on counts 11 and 12 were premised on mailings

by the Bankruptcy Court of the Notice of Chapter 7

Bankruptcy Case and the Notice of Discharge. Eddings

argues that these two mailings “were not incident to an

essential part of the charged fraud scheme.”

However, the bankruptcy fraud alleged in counts 11 and

12 did not arise from the Ponzi scheme but from Eddings’s

separate scheme “to defraud . . . various creditors of the

Bankruptcy Case.” The issue is thus whether the mailing of

the bankruptcy notices was “incident to an essential part of

the scheme, or a step in the plot.” Schmuck v. United States,

489 U.S. 705, 711 (1989) (citations omitted); see also id. at

713–15 (holding that a government entity’s mailing of a

routine document can create liability for mail fraud); United

 Case: 12-10230, 11/07/2014, ID: 9305251, DktEntry: 48-1, Page 17 of 28
18 UNITED STATES V. BROWN

States v. Mitchell, 744 F.2d 701, 703–04 (9th Cir. 1984)

(same).

Trial testimony established that mailings to creditors are

integral parts of any bankruptcy. An assistant bankruptcy

trustee testified that the notice of filing is essential to the

bankruptcy process and that a discharge is “the golden ring

that people want in a bankruptcy. It’s a declaration that all

debts that are dischargeable are discharged and [the debtor]

no longer personally owned any of the debt.” There was

sufficient evidence of the mailings’ importance to Eddings’s

bankruptcyfraud scheme to support his convictions on counts

11 and 12.

E. Eddings’s bankruptcy fraud convictions were

properly grouped for sentencing with his Ponzi

scheme convictions.

The district court properlygrouped Eddings’s convictions

on the bankruptcy fraud counts together with his Ponzi

scheme convictions under U.S.S.G. § 3D1.2(d), which

provides that offenses “covered by” certain Guidelines

sections “are to be grouped under this subsection.” U.S.S.G.

§ 3D1.2(d) (emphasis added.) All of Eddings’s grouped

convictions fall under § 2B1.1, one of the Guidelines sections

specifically covered in § 3D1.2(d). Eddings was convicted of

mail and wire fraud based on “various schemes” that “each

involve[d] a monetary objective,” precisely the sort of

offenses that the application notes indicate should be

grouped. U.S.S.G. § 3D1.2(d) cmt. 6, example 3.

Relying on United States v. Defterios, 343 F.3d 1020,

1023 (9th Cir. 2003), Eddings argues this grouping was

improper because the bankruptcy fraud and Ponzi scheme

 Case: 12-10230, 11/07/2014, ID: 9305251, DktEntry: 48-1, Page 18 of 28
UNITED STATES V. BROWN 19

were “two separate crimes that were distinct in time, place,

and victims.” In Defterios, however, the two crimes were

separately charged and tried. Id. at 1022–23. Here, the two

crimes were charged and tried together. More importantly,

Eddings’s bankruptcy fraud arose, at least in part, from his

efforts to conceal his participation in the Ponzi scheme by

identifying the fruits of that crime as a fictitious “loan” from

Brown; thus, the crimes were not separate.

F. Applying a leadership role adjustment to

Eddings’s sentence under U.S.S.G. § 3B1.1(c)

was erroneous.

The district court applied a two-level adjustment after

finding that Eddings was “an organizer, leader, manager, or

supervisor” in a criminal activity that was not “otherwise

extensive.” U.S.S.G. § 3B1.1(b), (c). The adjustment was

based on Eddings’s introduction to some victims as Brown’s

business partner and Eddings’s recruitment of investors. The

district court also noted that “there was some suggestion” at

trial that “Mack [M.] was really under the direction of Mr.

Eddings,” but explicitly stated that Eddings’s control over

Mack M. “wasn’t really made clear.”

The application notes to U.S.S.G. § 3B1.1 provide:

To qualify for an adjustment under this

section, the defendant must have been the

organizer, leader, manager, or supervisor of

one or more other participants. An upward

departure may be warranted, however, in the

case of a defendant who did not organize,

lead, manage, or supervise another participant,

but who nevertheless exercised management

 Case: 12-10230, 11/07/2014, ID: 9305251, DktEntry: 48-1, Page 19 of 28
20 UNITED STATES V. BROWN

responsibility over the property, assets, or

activities of a criminal organization.

U.S.S.G. § 3B1.1 cmt. 2 (emphasis added). Eddings can only

be subject to an adjustment as a leader under § 3B1.1(c) if he

exercised “‘some degree of control or organizational

authority over others. . . .’” United States v. Bonilla-Guizar,

729 F.3d 1179, 1186 (9th Cir. 2013) (quoting United States

v. Mares-Molina, 913 F.2d 770, 773 (9th Cir. 1990)). Here,

the district court noted that it was not “really made clear”

whether Eddings controlled Mack M., and the record does not

indicate that Eddings controlled any other “criminally

responsible participant[]” in the scheme. United States v.

Luca, 183 F.3d 1018, 1024 (9th Cir. 1999). Nor did the

district court impose an upward departure for Eddings’s

“management responsibility over the property, assets, or

activities” of the Ponzi scheme. The two-level adjustment 

under § 3B1.1(c) was therefore improper.

G. Increasing both defendants’ sentences under

U.S.S.G. § 2B1.1(b)(15)(B)(iii) for

“endanger[ing] the solvency or financial

security of 100 or more victims” was

erroneous.

U.S.S.G. § 2B1.1(b)(15)(B)(iii) requires an increase if

“the offense . . . substantially endangered the solvency or

financial security of 100 or more victims. . . .”

The district court found that the government had proved

by a preponderance of the evidence that there were at least

100 victims whose solvency or financial security was

endangered by the two defendants’ actions. The total number

of victims is not at issue; Brown conceded he had 405

 Case: 12-10230, 11/07/2014, ID: 9305251, DktEntry: 48-1, Page 20 of 28
UNITED STATES V. BROWN 21

victims, and Eddings conceded he had at least 154. The

question on appeal is whether there is sufficient evidence that

each defendant’s actions substantially endangered the

solvency or financial security of at least 100 of these victims.

There was some direct evidence on this topic presented at

trial and at sentencing. Sixteen victims testified; none was

wealthy.

6 Several victims testified that the defendants had

convinced them to refinance their homes or to take out loans

in order to have funds to invest. Both during trial and the

sentencing proceedings testimonywas presented that these 16

victims and their family members who invested with them

were “affected dramatically” by investment losses: they lost

homes to foreclosure, had cars repossessed, emptied

retirement accounts, and liquidated investments and savings. 

There was thus sufficient evidence presented to demonstrate

a significant endangerment of these witnesses’ and their

family members’ financial security.

At sentencing, the government relied entirely on victim

impact statements to close the gap between the victims

addressed in direct testimony and the required 100. The

prosecutor represented that “over a hundred statements were

submitted.” If the record actually contained 100 victim

impact statements attesting to the impact of the crimes on the

6 Their occupations included: a supervisor for the dementia care

department of an assisted living facility, a station agent for the Bay Area

Rapid Transit system, a caregiver, a self-employed caregiver for

developmentallydisabled clients, a correctional officer with the California

Department of Corrections, a makeup artist, a retired county personnel

services supervisor, a manager of a community health center, a

professional figure skater, a school district employee, a project manager

installing hardware and software for a dental company, a marketing

director for a family entertainment center, and an in-home caregiver.

 Case: 12-10230, 11/07/2014, ID: 9305251, DktEntry: 48-1, Page 21 of 28
22 UNITED STATES V. BROWN

victims’ finances—or even testimony about 100 such

statements—there might well be sufficient evidence to

support the adjustment . But, there are no victim impact

statements in the record, and it is unclear how many were

actually submitted. When questioned how many victim

impact statements he had received, the probation officer

replied: “Approximately a hundred. 79, still counting, still

coming through,” noting that they “mostly said the same

thing.”7 The district court, however, was provided with only

29 victim impact statements; of those, 27 “indicated that [the

victim] suffered either complete insolvency or complete

financial disaster. . . .” The record does not reflect whether

any of these impact statements came from the 16 witnesses

who testified at the trial or the victims about whom they

testified.

In the absence of specific evidence that 100 victims had

their solvency or financial security endangered, the district

court extrapolated from the impact statements before it in

applying the adjustment :

I think based on the information that

probation has before it, and probation’s

representations to the Court, and probation’s

determination that this is applicable, I do find

that the government has proven by a

preponderance that there were at least 100

7 Eddings conceded that 53 of his victims submitted victim impact

statements. At the sentencing hearing, the judge stated, “I have a

statement froma probation officer that says there are between 100 and 150

of these [victim impact] statements, all similar.” There is nothing in the

record specifically stating that there were “between 100 and 150 [victim

impact] statements, all similar.”

 Case: 12-10230, 11/07/2014, ID: 9305251, DktEntry: 48-1, Page 22 of 28
UNITED STATES V. BROWN 23

victims whose solvency was endangered. 

Based simply on the sampling, as well as what

the Court has reviewed, almost 95 or 96 or 97

percent of those victims, just a small

sampling, indicated that their solvency was

endangered. So, I do think, under the facts of

this case, that has been proven by a

preponderance and [the adjustment] is

applicable.

There are no published decisions or Guidelines

commentary providing direction about how the government

meets its burden of proof under § 2B1.1(b)(15)(B)(iii). But

it is clear that the adjustment requires two findings: (1) that

there were at least 100 victims, and (2) that the defendants’

actions substantially endangered the solvency or financial

security of at least that number of victims.

The government can rely on estimates to establish the

total amount of loss suffered as a result of criminal activity,

given the “difficulties inherent in calculating monetary loss.” 

United States v. Showalter, 569 F.3d 1150, 1160 (9th Cir.

2009). But here, the total amount of the loss is not in dispute. 

Rather, the issue is whether the government provided

insufficient evidence to prove that at least 100 of the victims

had their “solvency or financial security” substantially

endangered as required by § 2B1.1(b)(15)(B)(iii). The

language of the Guidelines requires linking the requisite

endangerment to 100 specific victims.

We reject the government’s argument that the district

court could determine that 100 victims had their financial

security substantially endangered solely by extrapolating

from the 27 out of 29 victim impact statements provided to it. 

 Case: 12-10230, 11/07/2014, ID: 9305251, DktEntry: 48-1, Page 23 of 28
24 UNITED STATES V. BROWN

There is nothing in the record to support the conclusion that

this same ratio would hold across all victims. There is no

evidence that the 27 were representative of the group of

victims at large, nor any evidence from which the court could

draw the conclusion that the impact of the losses the 27

suffered was representative of others.

Because the victim impact statements are not in the

record, we cannot tell whether some were submitted by the

trial and sentencing witnesses or their families. But, even if

the 27 victims whose impact statements were reviewed by the

district court are added to the trial and sentencing witnesses,

this amounts to fewer than 50 victims for whom the

government has provided proof of substantial endangerment.

The government failed to provide any other direct

evidence that the remaining investors had their financial

security threatened. The probation officer testified that he

had reviewed 79 victim impact statements, each of which

“mostly said the same thing.” Even assuming that each of

these victim impact statements came from other victims, the

simple statement that they “mostly said the same thing” is not

sufficient evidence that each of these 79 individuals had their

solvency or financial security substantially endangered.

This is not to say that the crimes didn’t significantly

impact the financial security or solvency of other investors. 

A report from the probation department showed that over

$7.5 million in investor money was deposited into Eddings’s

WISE Investors bank account while he and Brown together

 Case: 12-10230, 11/07/2014, ID: 9305251, DktEntry: 48-1, Page 24 of 28
UNITED STATES V. BROWN 25

operated the Ponzi scheme.8 Only one of those investors paid

in less than $1,000. Of the 154 investors who paid funds into

the WISE Investors account, 105 paid in $10,000 or more,

and 83 invested $15,000 or more. The top 100 investors who

paid in the most money put in between $15,000 and

$550,000; their average investment was $79,233.98.

But the report does not attempt to determine whether any

of those investors had their financial security or solvency

“substantially endangered” by the scheme. It seems quite

likely that this was the case; the average sums invested are

large and at least the investors who testified do not appear to

have been wealthy. But § 2B1.1(b)(15)(B)(iii) requires at

least some showing by the government that the financial

security or solvency of 100 individual victims was

“substantially endangered” by the scheme. A $15,000 loss or

even a $1,000 loss might well qualify, but we cannot

conclude as a matter of law that this is the case for 100

victims. The government provided sufficient evidence of the

victims’ losses, but it has not provided sufficient evidence of

the impact of those losses on 100 victims.

This burden would not be difficult to discharge. We do

not suggest that the government must provide financial

statements from individual victims or other detailed proof. 

The impact statements referred to by the district court

apparently contained ample information that the Ponzi

scheme had imposed the requisite damage on at least 27

victims. A probation officer might well be able to provide the

required information from a review of victim impact

8 The PSR asserts that Brown was responsible for nearly $9 million in

losses. But the record contains no information about the individual

investments made by Brown’s victims prior to Eddings’s involvement.

 Case: 12-10230, 11/07/2014, ID: 9305251, DktEntry: 48-1, Page 25 of 28
26 UNITED STATES V. BROWN

statements or from other materials. We hold only that the

government, which almost surely could have done so, did not

in this case provide evidence of the impact of the crimes on

the requisite number of victims. We therefore find that the

adjustments under § 2B1.1(b)(15)(B)(iii) were imposed in

error.

Because there has not been “a full inquiry into the factual

question at issue,” we leave it to the district court to decide

whether to take new evidence on this adjustment on remand. 

United States v. Flores, 725 F.3d 1028, 1043 (9th Cir. 2013).

H. Increasing Eddings’s sentence under U.S.S.G.

§ 2B1.1(b)(2)(C) for having 250 or more

victims was erroneous.

U.S.S.G. § 2B1.1(b)(2)(C) provides: “If the offense . . .

involved 250 or more victims, increase by 6 levels.” Each of

the victims “must have sustained a loss that is ‘monetary or

that otherwise is readily measurable in money’ and that loss

must be included in the loss calculation” made pursuant to

U.S.S.G. § 2B1.1(b)(1). United States v. Armstead, 552 F.3d

769, 780–81 (9th Cir. 2008) (quoting U.S.S.G. § 2B1.1 cmt.

1.3(A)(iii)).

The district court found that the total loss attributable to

Eddings under § 2B1.1(b)(1) was $7,129,448.20. Eddings

conceded that the number of victims associated with this loss

is approximately 154. The district court found that an

additional 148 victims who had had “at least some

communication or contact with Mr. Eddings” could be

“added to his victim total as well.” But, because these

additional 148 victims were not included in the loss

calculation under § 2B1.1(b)(1), they cannot increase his total

 Case: 12-10230, 11/07/2014, ID: 9305251, DktEntry: 48-1, Page 26 of 28
UNITED STATES V. BROWN 27

number of victims under § 2B1.1(b)(2)(c). Armstead,

552 F.3d at 780–81.

The government concedes as much, but argues that the

error was harmless because, under U.S.S.G.

§ 2B1.1(b)(15)(C), the “cumulative adjustments from

application of both subsections [2B1.1](b)(2) and

[2B1.1](b)(15)(B) shall not exceed 8 levels.” Because

Eddings received a two-level adjustment under

§ 2B1.1(b)(15)(B)(iii) and a six-level adjustment under

§ 2B1.1(b)(2)(C), meeting the eight-level cap, the

government contends that any error under § 2B1.1(b)(15)(C)

is immaterial.

However, we today have vacated the fourlevel adjustment to Eddings’s sentence under

§ 2B1.1(b)(15)(B)(iii). Thus, the cap set in

§ 2B1.1(b)(15)(C) has not been met, and the district court’s

erroneous calculation of Eddings’s total number of victims

under § 2B1.1(b)(2) is not harmless error.9

I. Remand will be to the same district court

judge.

We reject the defendants’ arguments that remand should

be to a new judge because the district court judge’s denial of

the government’s § 5K1.1 motion during Brown’s sentencing

indicates that he would be unable to “put aside his prior

views” on that issue. The district court dealt with that issue

appropriately and there has been no other showing that this

9 Because Eddings conceded he had more than fifty victims, his offense

level remains subject to a four-level increase under U.S.S.G.

§ 2B1.1(b)(2)(B).

 Case: 12-10230, 11/07/2014, ID: 9305251, DktEntry: 48-1, Page 27 of 28
28 UNITED STATES V. BROWN

case meets the “unusual circumstances” required for remand

to a different judge. United States v. Paul, 561 F.3d 970, 975

(9th Cir. 2009) (per curiam) (citation omitted).

IV. Conclusion

We affirm the district court’s denial of the government’s

§ 5K1.1 motion in Brown’s sentencing and the court’s

application of the 18 U.S.C. § 3553(a) factors to him. We

vacate the adjustment under U.S.S.G. § 2B1.1(b)(15)(B)(iii)

to Brown’s sentence for substantially endangering the

solvency of 100 or more victims.

We affirm Eddings’s convictions on all counts appealed. 

We affirm the grouping of counts 11 and 12 with counts 1–4

and 7–10 under U.S.S.G. § 3D1.2(d); vacate the application

of a leadership role adjustment under § 3B1.1(c); vacate the

adjustment under § 2B1.1(b)(15)(B)(iii) for substantially

endangering the solvency of 100 or more victims; and vacate

the determination under § 2B1.1(b)(2)(C) that Eddings had

more than 250 victims.

This case is remanded to the district court for the

resentencing of each defendant.

AFFIRMED IN PART, VACATED IN PART AND

REMANDED.

 Case: 12-10230, 11/07/2014, ID: 9305251, DktEntry: 48-1, Page 28 of 28