Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca7-08-02850/USCOURTS-ca7-08-02850-0/pdf.json

Parties Involved:
Melvin Dokich
Appellant
United States of America
Appellee

Document Text:

In the

United States Court of Appeals

For the Seventh Circuit

No. 08-2850

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

v.

MELVIN DOKICH,

Defendant-Appellant.

Appeal from the United States District Court 

for the Northern District of Illinois, Eastern Division.

No. 06 CR 359—Milton I. Shadur, Judge.

ARGUED NOVEMBER 3, 2009—DECIDED JULY 21, 2010

Before EASTERBROOK, Chief Judge, and WOOD and

TINDER, Circuit Judges.

WOOD, Circuit Judge. Melvin Dokich sold stock for

Efoora, Inc., a company that claimed to be developing

diagnostic tests for HIV, mad-cow disease, and blood

glucose levels. Unfortunately, Efoora in the end was

nothing but a phony. The company invited potential

investors and customers to its headquarters in Buffalo

Grove, Illinois, where they received tours of manuCase: 08-2850 Document: 38 Filed: 07/21/2010 Pages: 15
2 No. 08-2850

facturing facilities staffed by temporary laborers and

filled with fake test kits and empty boxes. Dokich and

others who sold stock lied about Efoora’s sales figures,

promised that the company would soon be traded

publicly, and falsely said that federal agencies were

poised to approve its diagnostic tests for sale in the

United States. During his time with Efoora, Dokich and

his group defrauded thousands of investors of millions

of dollars.

It is impossible to run such a scam forever, and Efoora

was no exception. In 2006, a grand jury returned an

indictment charging Dokich—along with David Grosky,

Efoora’s CEO, and Craig Rappin, its COO—with nine

counts of mail and wire fraud, 18 U.S.C. §§ 1341 and 1343;

four counts of money laundering, 18 U.S.C. § 1956(a)(1);

four counts of illegal monetary transactions, 18 U.S.C.

§ 1957; and 33 counts of illegal structuring transactions,

31 U.S.C. § 5324(a)(3). Without reaching an agreement

with the government, Dokich pleaded guilty to one

count of mail fraud and all of the structuring charges. The

district court sentenced him to 84 months’ imprisonment and ordered him to pay $55,971,122 in restitution,

jointly and severally with Grosky and Rappin. Dokich

did not object to the restitution order at sentencing, but

he argues on appeal that the district court plainly erred

by failing to make a finding that Efoora’s victims

suffered $55,971,122 in actual loss. Because we find no

miscarriage of justice that requires us to overturn the

district court’s decision, we affirm.

Case: 08-2850 Document: 38 Filed: 07/21/2010 Pages: 15
No. 08-2850 3

I

Dokich’s challenge to the district court’s restitution

order requires us to delve into the details of the various

estimates submitted to the court between August 2007,

when Dokich entered his guilty plea, and July 2008,

when he was sentenced, of the loss suffered by his victims. As of mid-2007, the government estimated that

Efoora’s fraud caused “approximately $35,000,000” in

loss. Two months later, the government told the probation officer in charge of Dokich’s presentence investigation report (“PSR”) that Efoora had deprived 5,000 investors of $35 million and suggested that Dokich could

have foreseen $20-50 million in loss. Based on this information, the PSR concluded that $35 million was likely to

be the appropriate amount for restitution, but it noted

that the government intended to provide more specific

numbers at the time of sentencing.

By February 2008, the U.S. Postal Inspection Service had

completed an extensive investigation of Efoora. This

information prompted the government to file a new

calculation of loss with the district court; in this version,

it asserted that Efoora had defrauded shareholders of

$57,769,237 over the course of the scheme. Of that total,

$55,130,612 represented the amount for which Dokich,

who had been an Account Executive from 1999 to 2006,

was responsible. The filing incorporated the postal

agent’s detailed report, which explained how loss was

calculated. First, the postal agent identified 6,000 stock

certificates (representing more than 160 million shares

in Efoora), which were dubbed “victim” certificates

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4 No. 08-2850

because investors bought the securities and never saw

any return. Next, the postal agent calculated the total

amount paid for those outstanding securities. This figure

was based on reports from investors of actual expenditures on “victim” certificates, and, where that information

was not available, on the estimated amount someone

would have paid for the stock based on the average

share price at the time of the sale in question. The postal

agent noted that the current value of Efoora’s shares “was

discounted to ‘zero,’ to maximize the recovery to investors,” and so the total of $57,769,237 was simply the

amount investors had paid for all outstanding shares.

Along with its new calculation, the government gave

the district court an appendix detailing the amounts lost

by individual victims.

In March, the probation officer supplemented Dokich’s

PSR again. This time, it noted that even though the estimated losses had increased from $35 million to over

$55 million, the government “was not seeking the [U.S.

Sentencing Guidelines] enhancement for a loss of

between $50,000,000 and $100,000,000.” The probation

officer disapproved of that decision and recommended

that the district court use the $55,130,612 figure to calculate both restitution and Dokich’s offense level under

the guidelines. Dokich objected to the supplemental PSR;

he took the position that he could have foreseen only

$1 million in losses. In response, the government dismissed Dokich’s estimate as meritless and reiterated that

“[a]lthough the actual loss was more than $50 million,

the government is not arguing for a higher guideline level.”

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No. 08-2850 5

Five days before the sentencing hearing, the government submitted a final calculation of loss to the victims

and required restitution. It updated its calculation

based on further review of information submitted by

Efoora’s victims, and it added close to $1 million in

losses based on newly discovered securities called “Revenue Royalty Rights,” which Efoora had sold to a number

of investors. According to the final calculation, Dokich

was responsible for $55,971,122.

At sentencing in July 2008, Dokich agreed to take responsibility for $10 million of fraudulent stock sales. The

court, however, decided to accept the government’s

figures. The court noted that Efoora’s victims “had invested in a situation in which they were defrauded . . . to

the tune of the figures I have seen in the government’s

response,” which reflected $20-50 million in loss. The

district court used that range to calculate Dokich’s sentence. Over the government’s objection, the court relied on

the April 2003 supplement to the guidelines. Adopting

the sentencing recommendation from the supplemental

PSR, the court increased Dokich’s base offense level of

six by 22 to reflect $20-50 million in loss, U.S.S.G.

§ 2B1.1(b)(1)(L), and by an additional six levels because

the crime involved more than 250 victims, § 2B1.1(b)(2)(C).

After reducing the range for acceptance of responsibility,

the court found that Dokich’s final offense level was

31, and it placed him in criminal history category I, resulting in a guidelines range of 108-135 months. The

court sentenced Dokich to 84 months, below the calculated range.

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6 No. 08-2850

At the end of the sentencing hearing, the district court

turned to restitution. Noting that a restitution award was

required by statute and lamenting that any award “would

amount to tapping an empty barrel,” the district court

reviewed the government’s filings on loss and the

lengthy appendix detailing the experience of individual

victims. At various points, the court recognized that the

government had asked for restitution of “almost

$56 million as to Mr. Dokich.” After expressing concern

that the number of victims would make restitution difficult to administer, the court concluded, “I will make

the determination that the amounts of restitution are

joint and several in the sum . . . that’s provided by the

government, $55,971,122.” On the same day, the court

entered a judgment and commitment order, which included restitution, and noted, “All the victims are listed

in the list provided to the U.S. District Clerk’s office.”

Dokich did not object to this part of the judgment.

We appointed Susan Kister to represent Dokich in his

appeal. Unable to identify any nonfrivolous issue, Attorney Kister filed a motion to withdraw. Anders v. California, 386 U.S. 738 (1967). Dokich responded, arguing

that even though he had received a below-guidelines

sentence, the district court should have sentenced him

based on $10 million in loss, not $20-50 million. Although

we found no merit in that argument, we noted that

there was a conflict between the order imposing restitution in the amount of $55,971,122 and the guidelines

calculation, which was based on a maximum of

$50 million in loss. Concluding that “[a] restitution

award can never exceed the actual loss suffered by vicCase: 08-2850 Document: 38 Filed: 07/21/2010 Pages: 15
No. 08-2850 7

tims,” we asked Attorney Kister to proceed with the

appeal. She did, and we thank her for her assistance to

this court and to her client.

II

Dokich’s only argument at this point is that the restitution component of the judgment cannot stand, because

the court never made a finding that Efoora’s victims

actually lost $55,971,122. The remedy, in his view, is to

vacate that order and remand for reconsideration. Because Dokich failed to object to the district court’s calculations, he concedes that this court may review the

decision only for plain error. United States v. Allen, 529 F.3d

390, 395 (7th Cir. 2008). Under that standard of review,

Dokich must show that the district court committed an

obvious error that affected substantial rights. Puckett v.

United States, 129 S. Ct. 1423, 1429 (2009). If Dokich

makes that showing, we have discretion to remedy the

error, though the Supreme Court has recently stressed

that our discretion “ought to be exercised only if the

error ‘seriously affect[s] the fairness, integrity or public

reputation of judicial proceedings.’ ” Id. (quoting United

States v. Olano, 507 U.S. 725, 736 (1993)). While there were

problems in the calculations of loss, we conclude that

Dokich has not identified any error that resulted in the

sort of miscarriage of justice that would require reversal.

The Mandatory Victims Restitution Act of 1996

(“MVRA”), requires district courts to order restitution

in cases of mail fraud, among other federal crimes. 18

U.S.C. § 3663A(c)(1)(A)(ii); United States v. Pawlinski, 374

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8 No. 08-2850

F.3d 536, 539 (7th Cir. 2004). The statute makes restitution available to victims of fraud to the extent that those

victims would have been entitled to recover in a civil

suit against the criminal. United States v. Martin, 195 F.3d

961, 968 (7th Cir. 1999). While restitution awards typically

require a direct causal relationship between the defendant’s personal conduct and a victim’s loss, we have

recognized that in the case of mail fraud, a crime that

“involves as an element a scheme, conspiracy, or pattern

of criminal activity,” the MVRA imposes joint liability

on all defendants for loss caused by others participating

in the scheme. 18 U.S.C. § 3663A(a)(2); Martin, 195 F.3d at

968-69. As a result, Dokich is jointly responsible to pay

restitution for all loss actually caused by Efoora’s fraud.

According to Dokich, it is impossible to tell from the

confused record of the proceedings below whether the

district court’s calculations represent actual or intended

loss. Part of the problem is that the calculations are relevant to two distinct parts of the sentence: the offense

level under the guidelines, and the amount of restitution that is owed. When calculating the offense level for

someone convicted of mail fraud, the guidelines require

courts to begin with a base level of six, § 2B1.1(a)(2), and

then to increase the level according to the amount of loss

caused by the scheme, see § 2B1.1(b)(1). “Loss,” for this

purpose, is defined as “the greater of actual loss or intended loss.” § 2B1.1 cmt. n.3(A); see also United States v.

Wasz, 450 F.3d 720, 727 (7th Cir. 2006). For restitution, on

the other hand, the MVRA “implicitly requires that the

restitution award be based on the amount of loss

actually caused by the defendant’s offense.” United States

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No. 08-2850 9

v. Rhodes, 330 F.3d 949, 953 (7th Cir. 2003). Thus, for

restitution, the distinction between actual and intended

loss was critical.

As far as we can tell, the district court never determined the higher of actual or intended loss when it calculated Dokich’s guidelines range; in fact, it never said

whether it was discussing actual or intended loss during

sentencing. This makes it difficult to tell whether the

$55,971,122 restitution figure reflects actual loss suffered

by Efoora’s victims or the loss that perpetrators of the

scheme intended to inflict (implying that actual loss

might be lower). The guidelines define “actual loss” as “the

reasonably foreseeable pecuniary harm that resulted from

the offense,” whereas “intended loss” is “the pecuniary

harm that was intended to result from the offense,”

including that which “would have been impossible or

unlikely to occur.” § 2B1.1 cmt. n.3(A).

The government, as Dokich points out, presented

varying calculations of loss before the sentencing

hearing, including some materials that ambiguously

referred to “intended and actual loss.” But we should

not place too much emphasis on a few words here or

there. The evolving estimate took into account the information that was coming to light in the Postal Inspection

Service’s unfolding investigation of Efoora. The postal

agent’s reports and the government’s corresponding

filings provided detailed lists of investors, the amount

each spent on Efoora’s securities, and explanations of

how the government used this data to calculate its

final estimates. These documents make reasonably clear

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10 No. 08-2850

that both the postal agent and the U.S. Attorney’s

Office intended to provide the district court with a

figure representing actual loss. Contrary to Dokich’s

suggestion, the fact that the government included the

amount paid for so-called “Revenue Royalty Rights” in its

final calculation is not evidence that the final number

incorporated intended loss. Investors who bought

Revenue Royalty Rights paid $2,500 for the right to 2% of

Efoora’s revenues over a five-year period. The government determined that dozens of investors paid a total of

$847,500 for these royalty contracts, and it added that

figure to the amount that Efoora’s victims spent on stock

contracts, yielding a final estimate. By including the

amount that Efoora made selling Revenue Royalty

Rights, the government was not presenting evidence

that Dokich (or any other person involved in Efoora’s

fraudulent acts) intended to inflict additional, unrealized

pecuniary harm. See United States v. Middlebrook, 553

F.3d 572, 578 (7th Cir. 2009) (“In determining the intended loss amount, the district court must consider

the defendant’s subjective intent.”). Instead, the out-ofpocket amount that investors paid for royalty contracts,

like the amount that they paid for stock contracts, represented actual loss to Efoora’s victims.

If the court had made it clear that the $55.9 million

represented actual loss, and then it had used the same

number for both the offense level and restitution, we

would probably not be here. But it did not, and the confusion only deepened when it decided to use a higher

loss amount for restitution than it did for the guidelines

calculation. We have recognized that “[a] court could

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No. 08-2850 11

find that a defendant intended a large amount of loss

for sentencing purposes, but then order a muchreduced amount in restitution in light of the actual

losses suffered by the victims.” Allen, 529 F.3d at 396-97.

That result should occur whenever intended loss exceeds

actual loss and restitution is imposed. Strictly speaking

(by which we mean considering the guidelines before

18 U.S.C. § 3553(a) enters the picture), the opposite is

impossible: because courts must rely on the greater of

intended or actual loss to calculate a guidelines sentence, a restitution order should never exceed the loss

used to calculate a sentence. The district court ignored

that rule, basing Dokich’s guidelines calculation on $20-

50 million in loss while imposing $55,971,122 in restitution. If the latter number was the higher of actual or

intended loss, then the advisory guideline range

should have been based on it, and it was error not to do

so. While district courts enjoy sentencing discretion after

United States v. Booker, 543 U.S. 220 (2005), the Supreme

Court requires them to “begin all sentencing proceedings

by correctly calculating the applicable Guidelines range,”

Gall v. United States, 552 U.S. 38, 49 (2007). Had the

district court used the same figure to calculate Dokich’s

sentence as it did for restitution purposes, Dokich’s guidelines range would have been 135-168 months, not 108-135

months. Compare § 2B1.1(b)(1)(L), with § 2B1.1(b)(1)(M).

Because the government did not take an appeal, however,

and Dokich has nothing to gain from a higher advisory

guidelines range, we will not consider this point further.

Perhaps the district court, by deliberately basing

its guidelines calculation on a lower amount of loss,

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12 No. 08-2850

intended in this way to give Dokich a break. If this was

its intent, however, the way to achieve that goal would

have been to explain why under § 3553(a) it deemed a

lower sentence to be reasonable. But here is where the

plain error standard has teeth. Nothing about the district

court’s decision to give Dokich a slightly lower term of

imprisonment casts doubt on the fact that the court made

a specific finding about the actual loss that Efoora’s

fraudulent operations caused. The court had the government’s calculations of loss, the postal agent’s reports, and

the long appendix of individual victims in hand when

it ordered restitution “in the sum . . . that’s provided by

the government, $55,971,122.” We see nothing in the

record that would support a finding that this was anything but the court’s determination of the actual loss

suffered by Efoora’s victims. Indeed, nothing in the

record suggests there was some amount of intended loss

greater than the loss actually inflicted.

We note in concluding that Dokich has not argued that

the district court used the wrong methodology in calculating actual loss. The focus in calculating actual loss

must be on net detriment to the victims, rather than the

gross amount of money that changes hands. United States

v. Mount, 966 F.2d 262, 265 (7th Cir. 1992) (interpreting

§ 2F1.1 in the 1990 guidelines, now incorporated in

§ 2B1.1); see also United States v. Vivit, 214 F.3d 908, 915

(7th Cir. 2000). The defendant’s gain from an offense

should be used “as an alternative measure of loss only if

there is a loss but it reasonably cannot be determined.”

§ 2B1.1 cmt. n.3(B); see also United States v. Serpico, 320

F.3d 691, 698 (7th Cir. 2003). Similarly, in the context of

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No. 08-2850 13

restitution awards, the government’s evidence of actual

loss must deduct any financial benefit realized by victims

of the fraud. Allen, 529 F.3d at 396-97; United States v.

Swanson, 483 F.3d 509, 515-16 (7th Cir. 2007). 

It is conceivable that the district court’s finding with

respect to the total amount of actual loss is overstated by

a small amount. Efoora’s fraud consisted of convincing

investors to buy securities at a price higher than their

value. At oral argument, the government noted that

Efoora sold products overseas, creating a meager revenue

stream. In addition, Efoora apparently had at least some

assets. This means that at least some of the Efoora stock

sold was worth something. While the government

points out that it discounted its estimate of loss by the

amount Efoora paid back to investors before its crime

was discovered, see Application Notes 3(E) and 3(F)(iv)

to § 2B1.1, there is no evidence that the postal agent,

the government, or the district court adjusted the investors’ loss to take account of the value of the securities they

bought. In fact, the postal inspector said the value of

Efoora’s stock “was discounted to ‘zero,’ to maximize the

recovery to investors.” Perhaps in the end this was a

reasonable estimate. Again, we need not pursue the

possibility, because Dokich has not relied on it. E.g.,

Williams v. REP Corp., 302 F.3d 660, 666 (7th Cir. 2002).

Although we are well aware that it is not the court’s job

to decide which charges to bring, we expressed some

surprise at oral argument that this case was not prosecuted as a securities fraud. Section 5 of the Securities

Act of 1933 requires a valid registration statement before

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14 No. 08-2850

securities are sold in or by means of interstate commerce,

15 U.S.C. § 77e, and it does not appear that Efoora

meets any of the exemptions to that requirement, see

generally United States v. Spirk, 503 F.3d 619, 620-21 (7th

Cir. 2007). Sections 11 and 12 of the 1933 Act make rescission the usual remedy for the sale of unregistered stock.

15 U.S.C. §§ 77k(e), 77l(a). In a securities-fraud prosecution, there would have been no doubt about how

much Efoora owed its victims: rescission would have

permitted the defrauded investors to return securities

purchased in exchange for the price that they had paid.

S.E.C. v. McNamee, 481 F.3d 451, 457 (7th Cir. 2007). If the

government had prosecuted the case as securities fraud,

the calculation of loss that it submitted to the district

court would have been exactly right.

Finally, there is good reason to believe that remanding

this case for a re-evaluation of the amount Dokich owes

as restitution would not make any practical difference.

Whether he is ordered to pay $55,971,122, $55.1 million

(the amount in the order less Efoora’s gains from

Revenue Royalty Rights), or $10 million (the amount

Dokich himself conceded was due), the odds that he

will repay his debt appear to be slim. Dokich will be

close to 70 years old when he is released from prison.

The judgment order specified that he would then be

required to make payments on this debt “in an amount

of 15% of [his] net monthly income.” Our decision in

United States v. Sawyer, 521 F.3d 792, 797-98 (7th Cir.

2008), shows why that number is probably too low, as an

actuarial matter, but once again the government has not

raised this as a point on appeal and Dokich has no incenCase: 08-2850 Document: 38 Filed: 07/21/2010 Pages: 15
No. 08-2850 15

tive to complain. When we asked about Dokich’s ability

to pay at oral argument, his attorney said there was

virtually no chance he would ever pay a single penny to

his victims. If that proves to be true, Dokich can always

avail himself of the procedure set forth in 18 U.S.C.

§ 3664(k) and seek a modification of his schedule; by the

same token, if he turns out to have resources that would

permit more substantial payments, his payments can be

adjusted upward, id. and § 3664(n).

We conclude that the district court did not plainly err

when it included a requirement that Dokich pay

$55,971,122 in restitution to his victims. We therefore

AFFIRM the court’s judgment.

7-21-10

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