Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-06-50513/USCOURTS-ca9-06-50513-0/pdf.json

Parties Involved:
James F. Garro
Appellant
United States of America
Appellee

Document Text:

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

UNITED STATES OF AMERICA, 

No. 06-50513 Plaintiff-Appellee,

D.C. No.

v.  CR-02-02429-MJL

JAMES F. GARRO,

OPINION Defendant-Appellant. 

Appeal from the United States District Court

for the Southern District of California

M. James Lorenz, District Judge, Presiding

Argued and Submitted

September 25, 2007—Pasadena, California

Filed February 28, 2008

Before: J. Clifford Wallace, Sandra S. Ikuta, and

N. Randy Smith, Circuit Judges.

Opinion by Judge Wallace

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COUNSEL

Frank J. Ragen, Julie A. Blair, and Michael Pancer, San

Diego, California, for the appellant James Garro. 

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Karen P. Hewitt, United States Attorney, Bruce R. Castetter

and Mark R. Rehe, Assistant United States Attorneys, San

Diego, California, for appellee the United States. 

OPINION

WALLACE, Senior Circuit Judge: 

Garro appeals from his 135-month prison sentence after a

jury conviction of eight counts of wire fraud, see 18 U.S.C.

§ 1343, eleven counts of money laundering, see 18 U.S.C.

§§ 1956 (a)(1)(A)(i), (a)(1)(B)(i), and one count of tax evasion, see 26 U.S.C. § 7201. He argues that the district court

erroneously applied the Sentencing Guidelines and imposed

an unreasonable sentence under 18 U.S.C. § 3553(a). We

have jurisdiction pursuant to 18 U.S.C. § 3742 and we affirm

Garro’s sentence.1

I.

In September and October of 1999, Garro, holding himself

out to be a self-employed financial consultant for foreign

countries wanting to stimulate their economies, raised $37.5

million dollars from five investors: (1) TLC America ($20

million); (2) Child’s Hope ($10 million); (3) Kelldeer & Carrington ($3.5 million); (4) Veronica Disabello ($2 million);

and (5) Curtis Martin ($2 million). The money was for the

purpose of entering what Garro called a “Leveraged Investment Program,” which would buy and resell “medium term

bank notes” in foreign markets. Each investor entered into a

written contract with Garro’s business entity, Sienna Financial, Ltd., and was promised at least double his or her investment in fifteen days. 

1We affirmed Garro’s conviction, which he challenged along with his

sentence, in a separate disposition. 

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On October 28, 1999, Garro sent investors a letter indicating that one phase of the program was complete and that each

investor could expect a wire transfer of profits no later than

November 1, 1999. Garro prepared this letter with the help of

Louis Cimaglia. During the course of the scheme, Garro used

Cimaglia as a “long-distance secretary” from Cimaglia’s

home in Maryland. Cimaglia was a point of contact with

investors and would create documents, send and receive

faxes, and field investor telephone calls for Garro. For his role

in Garro’s scheme, Cimaglia pled guilty to one count of conspiracy to commit wire fraud. 

November 1 came and went without payment of any profits. After this date passed, investors began contacting Garro

with concerns. On November 10, 1999, Garro sent a letter

apologizing and explaining that the profits were even greater

than anticipated but were so high that they “had come under

strict scrutiny” and been delayed. The letter promised that

200% profits would be in investors’ bank accounts no later

than November 17, 1999. 

November 17 passed with no disbursement of profits. On

December 3, 1999, Garro had Cimaglia send another letter

indicating that the money was ready for disbursement but that

Garro had to travel personally to banks to effect the wire

transfers. Contrary to that and subsequent assurances, no

investor received promised profits. In the end, no investor

received any profits. 

In fact, the investor money was never invested at all. Investors deposited the money into an escrow account and later

released it into Garro’s control. Garro then moved the money

from the escrow to a couple of Bank of America accounts

held by a corporation that he incorporated and owned, Navajo

Capital. Once the money was in Garro’s Navajo Capital corporate accounts, he used it to buy and remodel three homes,

manipulating the transactions to mask his involvement in the

purchases. 

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For example, Garro purchased a Santa Fe, New Mexico,

residence through Santa Fe Abstract, Ltd. To do this, he

moved $30 million from one of Navajo Capital’s Bank of

America accounts to one of its Union Bank accounts, then

moved $25 million from the Union Bank account to a U.S.

Bank account held by Citation Financial Management to

obscure his transactions further. That money was then moved

to another account at U.S. Bank. Then, $17.49 million was

transferred from the second Citation Financial Management

account to a Texas Bank One account held by Merlin Financial, an entity Garro owned, and then to yet another Texas

Bank One account held by Merlin Financial. Merlin Financial

then wired $2,344,635 to Santa Fe Abstract. Garro, through

another of Navajo Capital’s Bank of America accounts, had

also directly wired $260,000 to Santa Fe Abstract. The Santa

Fe home was then paid for in cash by Camelot International,

LLC, another entity created by Garro. Garro signed the purchase agreement in the name “Elissa M. Dee,” his employee.

He also wrote a letter, signed Elissa Dee, directing the seller

that the buyer’s name remain confidential. 

Garro used similarly complex transactions involving multiple bank accounts, corporate shells, cash, and others’ names

to purchase homes in La Jolla and Encinitas, California. Most

of the rest of the investor money stayed in accounts held by

Garro and his corporate entities. No money was ever put into

the investment programs he described to investors. 

After failing to receive profits, the investors each eventually demanded their money back. TLC America, after investing $20 million on September 13, 1999, became worried

when no profits appeared. On October 12, 1999, Garro

returned $4 million of its principal. On November 5, 1999,

after TLC America’s president, Ernest Cossey, told Garro that

he was very concerned about the investment, Garro sent TLC

America another $2 million along with a letter assuring

Cossey that the program was still working and profits were

forthcoming. This failed to reassure Cossey, who wrote Garro

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on November 12, 1999, stating that TLC America did not

wish to remain in the program and asking Garro to return the

rest of its principal. Garro asked Cossey to be patient, telling

him that the money was coming, and returned another $4 million of TLC America’s principal on December 16, 1999. TLC

America continued to contact Garro asking for its money back

without success. Finally, on September 29, 2000, Garro

agreed to convey his La Jolla home to TLC America to repay

the remainder of TLC America’s principal. 

Child’s Hope also became concerned after investing $10

million on September 24, 1999, and failing to see profits

within the promised fifteen days. Child’s Hope’s director

began to “dog [Garro] every day to get [Child’s Hope’s] funds

back.” On November 18, 1999, a Child’s Hope lawyer sent

Garro a letter demanding that he return the money in full and

threatening legal action. Garro initially refused to comply but

on November 24, 1999, he returned $3.5 million to Child’s

Hope. Child’s Hope signed a release acknowledging that it

had received the $3.5 million on December 8, 1999, but at

that point “didn’t feel like there was any validity to the program itself” and wanted to get out of the scheme. After

months of pestering, Garro wired Child’s Hope the remaining

$6.5 million of its principal on January 20, 2000. 

Kelldeer & Carrington never received back the $3.5 million

that they had invested, despite negotiations and agreements

with Garro. Disabello eventually received all but $550,000 of

her principal. Martin received all $2 million of his principal

in November 1999. 

The Federal Bureau of Investigation (FBI) began investigating Garro in 2000. He was arrested in October 2002 for

wire fraud. On March 15, 2005, a twenty-count indictment

charged Garro with wire fraud, money laundering, and tax

evasion. On April 4, 2005, after a seven-day trial, a jury

returned guilty verdicts on all twenty counts. Following a

two-day sentencing hearing, on August 25, 2006, Garro was

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sentenced to 135 months in prison, three years of supervised

release, and over six-million dollars in restitution.

II.

We review the district court’s interpretation of the Sentencing Guidelines de novo, the district court’s application of the

Guidelines to the facts for abuse of discretion, and the district

court’s factual findings for clear error. United States v. Cantrell, 433 F.3d 1269, 1279 (9th Cir. 2006). Although the

Guidelines are only advisory, a material error in calculating

the sentencing range is grounds for resentencing. Id. at 1280.

A.

[1] Garro first argues that the district court erroneously calculated the amount of loss for sentencing purposes. Under the

applicable set of Sentencing Guidelines, Garro’s crime carried

a base level of six. See USSG § 2F1.1(a) (1998). The district

court found that the amount of loss in Garro’s fraudulent

scheme exceeded $20 million, resulting in a sixteen-level

increase. See USSG § 2F1.1(b)(1)(Q) (1998). Garro contends

that the district court erred in calculating the amount of loss

for sentencing purposes by failing to offset the money that he

received by the money that he returned to investors. A calculation of the amount of loss is a factual finding reviewed for

clear error. See United States v. Lawrence, 189 F.3d 838, 844

(9th Cir. 1999). The “loss need not be determined with precision,” but “need only [be] a reasonable estimate . . . given the

available information.” United States v. Bussell, 504 F.3d

956, 960 (9th Cir. 2007) (quoting USSG § 2F1.1, cmt. n.8

(1994)). 

[2] Although Garro did, in some form or another, return a

substantial portion of the money he had taken, the district

court found that most of the money that Garro returned could

not be credited to him because it was returned after his

scheme was detected, and an amount of loss for sentencing

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purposes is only offset by money returned “prior to the discovery of the offense.” United States v. Bright, 353 F.3d

1114, 1118 (9th Cir. 2004); United States v. Stoddard, 150

F.3d 1140, 1146 (9th Cir. 1998). 

The district court found that Garro’s offense was “discovered” by TLC America on November 12, 1999, and by

Child’s Hope on December 8, 1999, the dates on which TLC

America and Child’s Hope contacted Garro requesting their

money back. The court found that TLC America’s November

12, 1999 letter to Garro, stating unequivocally that TLC

America “did not wish to remain” in the program and asking

for the return of its full deposit, sufficed to show that TLC

America was “on notice of irregularities” by that date, especially because two weeks had gone by since Garro told TLC

America that it would receive its profits no later than November 1, 1999. The court also found that Child’s Hope’s steps

to retrieve money, particularly the release that it signed on

December 8, 1999, showed that it, too, was “on notice” of

deceptive conduct on Garro’s part. 

Not counting the money returned to TLC America after

November 12, 1999 and to Child’s Hope after December 8,

1999, the amount of loss occasioned by Garro’s scheme

totaled $20 million. Add to that Veronica Disabello’s

$550,000 and Kelldeer & Carrington’s $3.5 million, which

Garro admits was never repaid, and the amount exceeds $20

million without regard to any other losses. 

[3] Garro disputes these findings, arguing that the investors’ requests to receive their money back was not a discovery

of the offense because the investors had not discovered the

criminal nature of Garro’s actions. This argument is unavailing; we do not require that victims discover the actual crime

to determine that a fraud has been “discovered.” In Bright, for

example, we held that a defendant’s fraud had been “discovered” when investors wrote to him demanding their money

back. 353 F.3d at 1118. 

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[4] Here, the district court did not clearly err in determining

that Garro’s fraud had been “discovered” for sentencing purposes on dates when his investors, after waiting and never

receiving a cent of promised profits after delays and empty

reassurances, began demanding their money back. Investors

need not make any specific criminal accusations or say any

magic words for a court to conclude that the offense has been

discovered. 

Garro’s claim that the investors merely got cold feet in a

high-stakes investment scheme is belied by the fact that, by

the time they requested their money back, the investors had

been promised a 100% return on their investments within fifteen days and had been told that they would see the money no

later than November 1, 1999. Indeed, on November 10, 1999,

Garro promised investors that the profits had already been

made and that they had only to wait for disbursement. When

the dates by which Garro promised payment came and went

without disbursement of a single penny, investors not only

had reason to be disappointed that their financial bets did not

work out, they also had reason to believe that the entire program was a sham. While fraud may not be “discovered”

merely when investors voice concerns, what happened in this

case went considerably further. The failure of Garro to deliver

on his unqualified promises coupled with investors’ demands

for their money back shows the district court’s findings were

not clearly erroneous. The district court properly applied the

“economic reality approach” by refusing to credit repayments

Garro made as part of “an effort to reduce accountability”

after the investors discovered Garro’s fraud. Stoddard, 150

F.3d at 1146. 

B.

Garro also argues that the district court employed the

wrong standard of proof in arriving at its loss calculation: the

district court used a “preponderance of evidence” rather than

a “clear and convincing” standard of proof. As Garro failed

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to object in the district court, we review for plain error. See

United States v. Jordan, 256 F.3d 922, 925 (9th Cir. 2001).

[5] Although a preponderance of evidence standard is ordinarily applied to establish facts used in sentencing, when the

combined effect of contested enhancements would have “an

extremely disproportionate effect on the sentence imposed,”

we apply a balancing test to determine whether the higher

“clear and convincing” standard of proof should apply. See

United States v. Staten, 466 F.3d 708, 718 (9th Cir. 2006);

United States v. Riley, 335 F.3d 919, 926-27 (9th Cir. 2003);

Jordan, 256 F.3d at 928-29. In identifying the appropriate

standard of proof, we have distinguished between enhancements based upon charged conduct for which the defendant

has been convicted, and enhancements based upon uncharged

conduct. See, e.g., Riley, 335 F.3d at 926-27. In Riley, we

declined to apply the clear and convincing standard of proof

because the enhancement at issue was “based entirely on the

extent of the conspiracy to which [the defendant] pled guilty.”

Id. at 926. Here, the government’s indictment charging Garro

with a wire fraud scheme specifically alleged that he raised

$37.5 million dollars. A jury found Garro guilty of the conduct alleged in the indictment. Thus, the district court’s

enhancement to Garro’s sentence for loss exceeding $20 million was based on conduct for which Garro was charged and

convicted. As the sentencing enhancement for amount of loss

was not based on uncharged or acquitted conduct, it was not

plain error for the district court to use a preponderance of evidence standard of proof. 

[6] Garro’s argument fails for another reason. Even if the

district court’s application of a preponderance standard of

review were an error, it would not be “plain.” Jordan, 256

F.3d at 926. The court’s use of the preponderance standard of

proof did not, in light of the evidence at trial and the court’s

findings at sentencing, “seriously affect[ ] the fairness, integrity, or public reputation of the judicial proceedings.” Id.

(internal quotation marks omitted). 

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C.

Garro next contends that the district court erroneously

included $13 million dollars of money that he returned to

investors when it calculated that he had laundered $78 million. Even if that were true, which we do not decide, the error

would be harmless: the twelve-level enhancement imposed by

the district court applies to sums between $60 and $100 million dollars. Thus, even excluding the $13 million, the total

amount of money Garro laundered still falls within the range

to which a twelve-level enhancement applies. Therefore, the

alleged error is harmless and thus not a ground for resentencing. See, e.g., United States v. Crawford, 185 F.3d 1024, 1029

(9th Cir. 1999) (sentencing errors reviewed for harmlessness).

D.

[7] Garro also argues that the district court erred in enhancing his sentence for using “sophisticated means.” The district

court found that Garro had “used and incorporated numerous

shell corporations, many of which he incorporated during this

scheme,” that he had intentionally “left behind numerous confusing and misleading documents” regarding the investors’

funds, that he had forged signatures on real estate transactions, and had made “other associates sign for him for other

real estate purchases, to avoid having his name appear on the

transaction or assets.” Garro’s objection notwithstanding, his

conduct was precisely what the Sentencing Guidelines

describe as indicating “sophisticated means”: “conduct such

as hiding assets or transactions, or both, through the use of . . .

corporate shells.” USSG § 2F1.1, cmt. n.15 (1998). 

[8] Garro also argues that it was improper for the district

court to impose an enhancement for both more than minimal

planning and the use of sophisticated means. We have not

addressed that specific issue, but the Eleventh Circuit has

rejected the same argument. See United States v. Humber, 255

F.3d 1308, 1314 (11th Cir. 2001) (“We conclude that USSG

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§ 2F1.1(b)(2)(A) and USSG § 2F1.1(b)(5)(C) are to be

applied cumulatively, and not in the alternative”). We agree

with the Eleventh Circuit’s approach because it accords with

the language and structure of the Guidelines, as well as our

precedent on related issues. 

[9] First, the Guidelines suggest, at least generally, that the

two enhancements can be applied together. The application

notes to the Guidelines explain that “[t]he offense level

adjustments from more than one specific offense characteristic within an offense guideline are cumulative (added

together) unless the guideline specifies that only the greater

(or greatest) is to be used.” USSG § 1B1.1, cmt. n.4 (1998).

Indeed, in the Guidelines, elements that are intended to be

alternative rather than cumulative are clearly defined as such.

See, e.g., USSG § 2F1.1(b)(2) (1998) (“If the offense

involved (A) more than minimal planning, or (B) a scheme to

defraud more than one victim, increase by 2 levels”). There

is no such definition of the enhancements for more than minimal planning and sophisticated means. Each is in a separate

section, and the application notes do not provide that the

enhancements are mutually exclusive. See id. § 2F1.1(b)(2),

(6), cmt. nn.2, 15. The Guidelines on their face, then, permit

the enhancements to be applied cumulatively. 

[10] Moreover, our interpretation is supported by the fact

that application note 15 provides, “[i]f the conduct that forms

the basis for an enhancement [for sophisticated means] is the

only conduct that forms the basis for an adjustment under

§ 3C1.1 (Obstruction of Justice), do not apply an adjustment

under § 3C1.1.” Just as the Guidelines provisions explicitly

indicate when one enhancement excludes imposition of

another, the application notes also indicate when imposition

of one enhancement impacts or excludes imposition of

another. Neither the Guidelines nor their commentary provide

that enhancements for more than minimal planning and

sophisticated means are mutually exclusive, and we will not

create such a rule. 

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Garro points out that § 2F1.1 cmt. n.15 provides that “[t]he

enhancement for sophisticated means . . . requires conduct

that is significantly more complex or intricate than the conduct that may form the basis for an enhancement for more

than minimal planning.” From this he argues that the enhancement for more than minimal planning is therefore encompassed in the enhancement for sophisticated means, and that

the two enhancements cannot be applied cumulatively. We

will not embrace this interpretation because the comment note

does not state that the two enhancements are mutually exclusive, unlike the express statements precluding the concurrent

application of other enhancements.

E.

Garro argues that the district court erred in imposing a twolevel enhancement based on his involvement of another person, Cimaglia, in his scheme. The district court’s finding that

Garro was a leader or organizer is reviewed for clear error.

See United States v. Lopez-Sandoval, 146 F.3d 712, 716 (9th

Cir. 1998). 

The two-level aggravating role enhancement applies “[i]f

the defendant was an organizer, leader, manager, or supervisor in any criminal activity.” USSG § 3B1.1(c) (1998). Contrary to Garro’s argument, the law does not require that the

supervised person be substantially involved in the criminal

scheme. See United States v. Melvin, 91 F.3d 1218, 1225-26

(9th Cir. 1996). 

[11] Cimaglia testified at trial that he prepared materials for

Garro and interacted with investors under Garro’s direction;

additionally, there were tape recordings and writings presented as evidence at trial that showed Garro directing

Cimaglia in execution of Garro’s scheme. Based on this evidence, the district court did not clearly err in finding that

Garro supervised Cimaglia.

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F.

Garro disputes the district court’s two-level sentence

enhancement for obstruction of justice. A factual finding that

a defendant obstructed justice is reviewed for clear error.

United States v. Jimenez, 300 F.3d 1166, 1170 (9th Cir.

2002). The Guidelines state that perjury is obstruction of justice for enhancement purposes. USSG § 3C1.1, cmt. n.4(b)

(1998). For a court to find that a defendant obstructed justice

through perjury, it must find that (1) the defendant gave false

testimony, (2) on a material matter, (3) with willful intent.

United States v. Jimenez-Ortega, 472 F.3d 1102, 1103 (9th

Cir. 2007). 

The district court found that Garro willfully offered several

false, material statements at trial. Many of these statements

expressly contradicted documents that he had prepared and

sworn affidavits he had made. Additionally, in an attempt to

place the blame on Cimaglia, Garro played a tape at trial contending that it related to the investment scheme at issue; the

district court, however, found that it was obvious that the tape

related to an entirely different investment scheme. 

[12] Garro does not dispute these findings, but argues that

he had a “grandiose/delusional/demented mental status” and

that he lacked the necessary mental state to act “willfully.” He

relies on the findings of a psychologist who evaluated him

after one meeting and concluded that he had “unrealistic ideas

about reality” and showed signs of dementia. The psychologist never concluded or suggested, though, that Garro was so

impaired that he could not act willfully or that he actually

believed his trial testimony to be true. Most important, the

psychologist never suggested that Garro suffered from

dementia at the time he testified. The district court found that,

possible dementia notwithstanding, Garro was not credible

and that his false testimony was willful. The district court’s

decision in light of the entire record and its observation of

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Garro is plausible and thus not clearly erroneous. See Cantrell, 433 F.3d at 1283-84.

III.

We review a district court’s sentence for reasonableness in

light of the sentencing factors set forth in 18 U.S.C. § 3553(a)

and we reverse a sentence free of procedural error only if the

district court abused its discretion. See Gall v. United States,

128 S. Ct. 586, 594, 597 (2007). A district court is required

only to state the reasons for the sentence imposed in enough

detail to satisfy an appellate court that it has “considered the

parties’ arguments and has a reasoned basis for exercising

[its] own legal decisionmaking authority.” Rita v. United

States, 127 S. Ct. 2456, 2468-69 (2007). 

[13] Garro argues that his sentence, which was fifty-three

months below the correctly-calculated Guidelines range, was

unreasonable and that the district court failed to account properly for the factors enumerated in 18 U.S.C. § 3553(a). However, the district court gave careful consideration to the

section 3553 factors and supported its conclusions with reasoned analysis. In particular, it carefully considered the nature

and circumstances of Garro’s offense and the need to protect

the public and deter crime. It listened to and considered

Garro’s arguments concerning his history and personal characteristics, including his psychological state and age, and

awarded Garro a nearly three-level downward departure based

on those factors. Though Garro argues that his sentence

creates unwarranted sentencing disparities between him and

others involved in his and other financial crimes, the district

court reasoned that Garro was not similarly situated to those

with whom he compared himself because they had either pled

guilty or had committed different crimes. The district court

did everything required by the Supreme Court and its chosen

sentence was neither unreasonable nor reflective of an abuse

of the ample discretion we afford to the district court under

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Gall. 128 S. Ct. at 597-602. 

SENTENCE AFFIRMED.

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