Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-07-10542/USCOURTS-ca9-07-10542-0/pdf.json

Parties Involved:
Keith W. Griffen
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, No. 07-10529

v.  D.C. No.

MIRZA ALI, CR-02-40081-CW

Defendant-Appellant. 

UNITED STATES OF AMERICA, 

Plaintiff-Appellee, No. 07-10539

v.  D.C. No.

SAMEENA ALI, CR-02-40081-CW

Defendant-Appellant. 

UNITED STATES OF AMERICA, 

No. 07-10542 Plaintiff-Appellee,

D.C. No.

v.  CR-02-40081-CW

KEITH W. GRIFFEN,

OPINION Defendant-Appellant. 

Appeal from the United States District Court

for the Northern District of California

Claudia A. Wilken, District Judge, Presiding

Argued and Submitted

November 2, 2009—San Francisco, California

Filed August 25, 2010

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Before: Pamela Ann Rymer, M. Margaret McKeown, and

N. Randy Smith, Circuit Judges.

Opinion by Judge N.R. Smith

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COUNSEL

Karen L. Landau, Oakland, California, for appellant Sameena

Ali.

Chris Cannon, San Francisco, California, for appellant Mirza

Ali.

David J. Cohen, Bay Area Criminal Lawyers, PC, San Francisco, California, for appellant Keith Griffen.

Joseph P. Russoniello, Barbara J. Valliere, and Hartley M. K.

West, for appellee, the United States of America. 

OPINION

N.R. SMITH, Circuit Judge:

This case arises from a scheme whereby Mirza Ali, Sameena Ali, and Keith Griffen (collectively “Defendants”) purchased Microsoft software at discounted prices then resold the

software for a profit. The case calls upon us to interpret and

apply the mail and wire fraud statutes, 18 U.S.C. §§ 1341 and

1343. Significantly, we hold Defendants were properly convicted of mail and wire fraud, because (1) a right to payment

of money for the sale of software is “money or property” as

defined in 18 U.S.C. §§ 1341 and 1343, and (2) neither statute

requires a transfer directly to the defendant from the party

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deceived by the defendant. Further, sufficient evidence sustains all of the convictions with the exception of the promotion money laundering counts. Lastly, the district court did

not err with regard to sentencing or with respect to Sameena

Ali’s motion for substitute counsel.

FACTUAL AND PROCEDURAL HISTORY

A. Microsoft’s Software Distribution System

Microsoft sells software1 in a variety of ways, one of which

is Microsoft’s Authorized Education Reseller (“AER”) program. Through the AER program, Microsoft sells Academic

Edition (“AE”) software. While the AE software is in all relevant ways equivalent to the retail version, Microsoft sells its

AE software only to authorized distributors, who have agreed

to sell the AE software only to AERs. These AERs have

agreed to sell the AE software only to qualified educational

users. Microsoft charges distributors of AE software a much

lower price than it charges distributors for comparable nonacademic editions. Distributors in turn generally sell AE software to resellers at a lower price than non-AE software. 

In order to become an AER, an entity must submit an application to Microsoft. As part of the application process, the

entity promises, inter alia, to abide by the resale restrictions

on AE software imposed by Microsoft. Upon approval of the

application, the AER agreement requires that, if an AER sells

software in violation of the agreement, the AER would be liable to Microsoft for “the difference between [Microsoft’s]

estimated retail price for AE product and . . . commercial versions of the same products.” 

1As is common in the software industry, Microsoft does not “sell” its

product in the traditional sense of the word. Rather, Microsoft licenses its

software to end users. Nevertheless, because even within the industry such

transactions are referred to as “sales,” we use that terminology here. 

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B. Defendants’ Buying and Selling of AER

Defendants devised a scheme to fraudulently attain AER

status for various companies and then sell AE software to

unauthorized users (those who did not qualify as educational

users). Defendants first began purchasing AE software

through a company called Samtech Research, Inc.

(“Samtech”). Sameena Ali was president of Samtech and,

while president, submitted an AER application to Microsoft

on behalf of the company in September 1996. Microsoft

reviewed and approved the application, thereby allowing

Samtech to act as an AER. Over the course of the next four

or five months, Samtech purchased about $3.4 million of AE

product. In January 1997, Microsoft terminated Samtech’s

AER agreement, because Samtech was in breach of the agreement for selling AE software to unauthorized users. Undeterred, over the next four years, all three Defendants engaged

in a scheme whereby they (1) created new companies under

false names and (2) purchased existing companies (which

were already AERs) in order to continue acquiring AE software from Microsoft. Over this period, Defendants’ companies acquired approximately $30 million of AE software.

Defendants did not buy AE software directly from Microsoft

but rather purchased the software from other AERs. Had

Microsoft known of Defendants’ involvement, the parties

both agree and have stipulated that Microsoft would not have

authorized Defendants’ companies as AERs (which would

have prevented Defendants from acquiring AE product from

Microsoft or other AERs). Defendants resold the AE product

to 120 different entities, 90% of which were unauthorized to

purchase AE software. Defendants used the mail and wires as

part of this scheme. 

C. Disposition of the Proceeds of the Sales

The Alis owned four bank accounts into which they deposited proceeds from the sale of the AE software. They used

funds from these accounts to purchase nominee companies,

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additional software, and real property in the name of their son.

They also transferred some of the funds from these accounts

to Pakistan. Additionally, they used proceeds from the sales

of AE software to purchase real property at 9900 Longview

Lane, Pleasanton, California and 1069 Canyon Creek Terrace,

Fremont, California. These transactions are the bases of the

money laundering charges.

D. Indictment and Trial

A grand jury in the Northern District of California indicted

Mirza Ali, Sameena Ali, Keith Griffen, and William Glushenko2

of mail fraud, wire fraud, and money laundering on April 10,

2002. 

On March 19, 2003, citing difficulties in the relationship

with his client, Sameena Ali’s appointed counsel moved to

withdraw, at Sameena Ali’s request. The court referred the

motion to the magistrate court for further review and to determine whether Sameena Ali was eligible for appointed counsel. However before referral, the court informed counsel and

Sameena Ali that they could revisit the motion if they could

not mend their differences. The magistrate found that Sameena Ali was eligible for appointed counsel, but neither counsel nor Ali herself raised the motion before the court again.

On March 10, 2005, the grand jury returned a 31 count

superseding indictment. Count 1 of the indictment charged

conspiracy to commit mail and wire fraud under 18 U.S.C.

§ 371, Counts 2-5 charged mail fraud in violation of 18

U.S.C. § 1341, Counts 6-9 charged wire fraud in violation of

18 U.S.C. § 1343, Count 10 charged conspiracy to launder

money under 18 U.S.C. § 1965(h), Counts 11-20 charged promotion money laundering under 18 U.S.C. § 1956(a)(1)(A)(i),

Counts 21-26 charged concealment money laundering under

2Glushenko pleaded guilty, did not stand trial with the defendants

named in this appeal, and is not party to this appeal. 

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18 U.S.C. § 1956(a)(1)(B)(i), Counts 27-30 charged exportation money laundering under 18 U.S.C. § 1956(a)(2)(B)(i),

and Count 31 charged criminal forfeiture under 18 U.S.C.

§ 982. Mirza and Sameena Ali were charged with all 31

counts, and Keith Griffen was charged with counts 1-9. 

On March 6, 2006, Defendants waived their right to a jury

trial. Instead they entered into an agreement with the government for a bench trial based on stipulated facts, but limiting

the sentence to a maximum of 60 months for the Alis and 33

months for Keith Griffen. After trial, the court found all three

Defendants guilty on Counts 1-9 and Mirza and Sameena Ali

guilty on Counts 10-31. 

E. Sentencing

The court sentenced Mirza and Sameena Ali to 60 months

incarceration and three years’ supervised release on each

count, running concurrently, $20 million restitution, and a forfeiture judgment of about $5 million. The pre-sentence report

had calculated 60 months as the appropriate range for count

one and 121-151 months for counts 2-30 based on the sentencing guidelines and seriousness of the offenses. (Again,

count 31 charged criminal forfeiture.) However, the report

finally recommended a total sentence of 60 months, because

the parties had agreed to a 60-month cap when they stipulated

to the facts and agreed to the bench trial. 

The court sentenced Keith Griffen to 33 months incarceration and three years supervised release (on each count), and

$20 million restitution. Like the Alis, the pre-sentence report

calculated a longer sentence (46-57 months) based on the

guidelines, but ultimately recommended 33 months based

upon the pre-trial agreement.

As to the restitution amount, the judge relied upon spreadsheets prepared by IRS agents to calculate Microsoft’s loss at

$20 million. The agents prepared these spreadsheets based on

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an analysis of Defendants’ bank records as well as invoices

from Microsoft’s distributors. With regard to all Defendants,

the court pointed out that the sentences imposed would still fit

the guideline range, even if the loss amount were later determined (possibly by a higher court) to be much lower (as low

as $200,000). The district court also confirmed that it would

impose the same sentences even if the loss were smaller.

Defendants appeal their convictions, arguing: (1) the indictment was insufficient in that it failed to state an offense

because Defendants did not take “money or property” from

Microsoft; (2) there is insufficient evidence to support their

convictions; and (3) their sentences are substantively unreasonable and the district court erred in its calculation of their

sentences. Sameena Ali appeals the district court’s actions

with respect to her motion for substitute counsel.

DISCUSSION

I. A right to payment is “money or property” under

18 U.S.C. §§ 1341 and 1343.

A. Standard of Review

We review de novo a district court’s construction of a criminal statute. United States v. Blixt, 548 F.3d 882, 886 (9th Cir.

2008). We also review de novo a district court’s denial of a

motion to dismiss an indictment for failure to state an offense.

Id.

B. Analysis

[1] Mail and wire fraud are both defined as “any scheme

or artifice to defraud, or for obtaining money or property by

means of false or fraudulent pretenses, representations, or

promises.” 18 U.S.C. §§ 1341, 1343. Defendants challenge

their convictions on the ground that the indictment failed to

state an offense under either statute, because Microsoft was

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only deprived of “potential profits” which are not “money or

property” under the law. We do not agree.

There are four main Supreme Court cases interpreting the

phrase “money or property” in the relevant statutes: McNally

v. United States, 483 U.S. 350 (1987), superseded by statute,

18 U.S.C. § 1346; Carpenter v. United States, 484 U.S. 19

(1987); Cleveland v. United States, 531 U.S. 12 (2000); and

Pasquantino v. United States, 544 U.S. 349 (2005). McNally,

chronologically first, held that the definition of property does

not reach “the intangible right of the citizenry to good government.” McNally, 483 U.S. at 356. Later that same year in Carpenter, the Court clarified that “McNally did not limit the

scope of § 1341 to tangible as distinguished from intangible

property rights.” Carpenter, 484 U.S. at 25. In Carpenter, the

Court also held that “[c]onfidential business information”

qualified as property under the mail fraud statute. Id. at 26.

Cleveland held that business licenses issued by a state “do not

qualify as ‘property’ within § 1341’s compass.” Cleveland,

531 U.S. at 15. The Court went on to explain that to qualify

as property “the thing obtained must be property in the hands

of the victim.” Id.

[2] Finally, in Pasquantino, the Supreme Court held that

“an entitlement to collect money from [a party]” is money or

property under the mail and wire fraud statutes. 544 U.S. at

355. In Pasquantino, the defendants engaged in a scheme to

avoid Canadian excise taxes on liquor. The Court found that

the defendants were attempting to “deprive Canada of money

legally due,” id. at 356, and that “Canada’s right to uncollected excise taxes . . . is ‘property’ in its hands,” id. at 355.

Under this line of cases, we conclude that Microsoft’s right to

full payment for that software is “money or property.” Microsoft had a right to full payment for its software and was

deprived of that right when Defendants fraudulently obtained

the software for less than full payment. We therefore reject

Defendants’ characterization of Microsoft’s loss as only the

expectation of “potential profits.” It does not affect our analyUNITED STATES v. ALI 12815

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sis that Defendants obtained the software through third party

distributors. Microsoft only sold the software to those distributors with the agreement that it would only be resold to other

AERs or to AE users. The mere fact that the software traveled

through other hands on its way from Microsoft to Defendants

is immaterial: Microsoft sold the software only for limited

distribution and Defendants fraudulently obtained it for indiscriminate distribution.3

Of course, in some transactions, Defendants did not obtain

the software directly from Microsoft. Thus, Defendants argue

that this right to payment was not “property in the hands of

the victim” as Cleveland requires. Cleveland, 531 U.S. at 15.

Defendants are mistaken. Here, Microsoft’s third party resellers were not deprived of any payment: they purchased software licenses at the wholesale AE price and resold the

licenses for a corresponding price. Microsoft, on the other

hand, had a right to full payment when the software was sold

outside the AE restrictions by Defendants. Just as the Canadian government’s deprivation of payment rightly due was “in

its hand,” here, Microsoft—the only party deprived of proper

payment—lost property “in its hand.”

Defendants contend that these cases together stand for the

proposition that only “traditionally recognized forms of property” constitute property under the statutes. Defendants then

argue that the right to be paid is not traditionally recognized

as a form of property. Pasquantino prevents us from accepting their argument.

Defendants, citing our opinion in United States v. Bruch3Because we conclude that Microsoft’s right to payment for that software is money or property under the statute, we need not address the cases

cited by Defendants holding that market share (Lancaster v. Cmty. Hosp.

v. Antelope Valley Hosp. Dist., 940 F.2d 397 (9th Cir. 1991)) and contract

rights (TransWorld Airlines, Inc. v. Am. Coupon Exch., Inc., 913 F.2d 676

(9th Cir. 1990)) are not money or property. 

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hausen, 977 F.2d 464 (9th Cir. 1992), also argue that Microsoft was only deprived of post sale control of its software, not

of any money or property. This argument fails, because

Microsoft was deprived of more than downstream control in

this case. Defendants are correct that, in Bruchhausen, we

held that the right to control the future sales of property is not

an interest cognizable as property under the mail fraud statute.

Id. at 467. There the defendants had made false representations in order to obtain firearms which they then sold to foreign nations. Id. at 466. The manufacturers would not have

sold the weapons had they known the defendants’ true intent.

Id. We found that there was no property interest of the manufacturers at stake in that case. Id. at 467. 

Bruchhausen is substantially different from the case at bar.

There, the defendants paid full price for the firearms and did

not use the misrepresentations in order to obtain a different

price. Here, Microsoft’s loss was not the lost ability to control

the downstream disposition of its products, but lost revenue

when the products were sold at a discount as a result of the

fraud. Thus, Microsoft’s right to receive full payment for its

product mirrors the loss of taxes due in Pasquantino and not

a mere loss of control as in Bruchhausen.

The Tenth Circuit made a similar distinction in United

States v. Stewart, 872 F.2d 957 (10th Cir. 1989). There the

defendants obtained pharmaceuticals at a discounted cost

based on their fraudulent representations of how they intended

to distribute the drugs. The defendants in Stewart argued that

the only thing they had deprived the manufacturer of was the

business expectation relating to how the products would be

sold, but the Tenth Circuit disagreed. That court found that

the defendants had, in actuality, taken from the manufacturers

“money which they should have received on sales of pharmaceuticals to wholesalers.” Id. at 960; cf. United States v. Nelson, 988 F.2d 798 (8th Cir. 1993) (holding defendants

deprived IBM of property where they fraudulently obtained

computer components at reduced prices). We agree with this

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analysis and hold that here, like in Pasquantino and Stewart,

4

Defendants deprived the victim of money properly due based

on the nature of the transaction. 

[3] Defendants also argue, in the alternative, that even if a

right to payment constitutes property, “the stipulated facts do

not establish that Microsoft lost any future profits.” Defendants make this argument, because the stipulated facts do not

state that consumers who purchased AE software from Defendants would have otherwise purchased full price software.

This argument is misplaced. It does not matter whether those

who purchased lower priced software from Defendants would

have paid the higher price otherwise. Rather, the fact that

Defendants acquired the lower priced software when they

should have paid the higher price establishes Microsoft’s loss.

5

II. There was sufficient evidence for the district court

to find (1) Defendants guilty of the mail and wire fraud

charges and (2) the Alis guilty of conspiracy to launder

money, concealment money laundering, exportation

money laundering, and criminal forfeiture. However,

4Defendants attempt to distinguish Stewart, because there the defendants purchased the pharmaceuticals directly from the manufacturer. This

argument is not compelling. Microsoft lost payment rightly due as a result

of the Defendants’ misrepresentations, regardless of the fact that the software was not purchased directly from Microsoft. 

Defendant Griffen makes the related argument that, because there was

no agency relationship between Microsoft and its distributors and Microsoft was paid the full AE price for the software, Microsoft was not

deprived of anything as a result of Defendants’ conduct. We disagree.

Again, it is not necessary that Defendants obtain the property directly from

Microsoft or an agent in order to engage in a scheme to defraud Microsoft.

5We also note that defendant Griffen argues that the rule of lenity

should apply with regard to the definition of property under the statutes.

The rule of lenity only applies when the application of a term is ambiguous. In the context of this case, “property” is not ambiguous and, therefore, this argument is unavailing. 

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there is insufficient evidence to support the Alis’ convictions for promotion money laundering.

A. Standard of Review

“There is sufficient evidence to support a conviction if,

‘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.’ ” United

States v. Sullivan, 522 F.3d 967, 974 (9th Cir. 2008) (quoting

Jackson v. Virginia, 443 U.S. 307, 319 (1979)). 

B. Analysis

1. Mail and Wire Fraud

Mail and wire fraud both consist of using the mail or wires

in “any scheme or artifice to defraud, or for obtaining money

or property by means of false or fraudulent pretenses, representations, or promises.” 18 U.S.C. § 1341, 1343. Furthermore, as explained in more detail below, courts have

interpreted these statutes to require that the property taken

come from the “victim” of the deception. 

Defendants challenge the sufficiency of the evidence as to

the mail and wire fraud charges6 in three ways: (1) the evidence was insufficient to show Microsoft was deprived of

property; (2) the evidence was insufficient to show that

Microsoft was the “victim” of the fraud; and (3) based on the

evidence, this case is only about a violation of antitrust or

copyright law, not mail or wire fraud.

6Defendants do not separately challenge the conspiracy to commit mail

and wire fraud under Count 1. Rather, Defendants only challenge conspiracy inasmuch as they challenge the sufficiency of the evidence as to the

mail and wire fraud charges themselves. 

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a.

We have already addressed Defendants’ first challenge.

There is sufficient evidence to show that Microsoft was

deprived of money or property because Microsoft’s right to

proper payment for its software is money or property within

the meaning of the statute. Furthermore, not only was Microsoft properly entitled to the payment, no other party—

including the authorized distributors—was deprived of any

right to proper payment.

b.

[4] Second, Defendants contend that precedent requires

that Microsoft be the “victim” of the fraud and that the evidence is insufficient to support such a finding here. There are

two relevant cases on this point. First, Cleveland requires that

the property taken be property “in the hands of the victim,”

531 U.S. at 15, suggesting that at least some level of convergence between the fraud and the loss is required. Second, we

held in United States v. Lew, 875 F.2d 219 (9th Cir. 1989),

that, for mail fraud, “the intent must be to obtain money or

property from the one who is deceived.” Id. at 221. 

[5] Cleveland cannot be read to mean the property must

actually be taken directly from the victim; depriving a victim

of property rightfully due is enough. See Pasquantino, 544

U.S. at 355-56 (holding that Canada’s right to receive tax payments on imported liquor was “ ‘property’ in its hands” under

Cleveland). On sufficiency of the evidence review, viewing

the evidence in the light most favorable to the government,

we hold that Microsoft’s right to full payment was “property

in its hands” under Cleveland and Pasquantino.

[6] In Lew, we held that for mail fraud, “the intent must be

to obtain money or property from the one who is deceived.”

875 F.2d at 221. Defendants made misrepresentations directly

to Microsoft in order to obtain AER status. Defendants rightly

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point out, however, with respect to the companies (already

certified as AERs) purchased by Defendants, that Defendants

made no misrepresentation directly to Microsoft.7 We nevertheless conclude that there is sufficient evidence to support

Defendant’s convictions with respect to all the transactions.

[7] The Defendants’ acquisition of companies with AER

status was part of a larger scheme to defraud Microsoft, so

Defendants need not have made a misrepresentation directly

to Microsoft in order to be guilty of mail and wire fraud.

“Under the mail fraud statute the government is not required

to prove any particular false statement was made. Rather,

there are alternative routes to a mail fraud conviction, one

being proof of a scheme or artifice to defraud, which may or

may not involve any specific false statements.” United States

v. Munoz, 233 F.3d 1117, 1131 (9th Cir. 2000) (citations

omitted), superseded by statute, 18 U.S.C. § 2B1.1. Defendants acquired these AER companies as part of an overall

scheme to defraud Microsoft, in which they made misrepresentations to Microsoft. Therefore, we conclude that there is

sufficient evidence to demonstrate that Defendants were

engaged in a scheme to defraud Microsoft, even if there were

no specific false statements made to Microsoft.

Further, under Lew, Microsoft must be the victim from

whom property was taken. Again, we have no trouble finding

7The parties do not cite any case that stands for the proposition that

Defendants had a duty to disclose that they were purchasing companies

that had previously been certified as AERs even though they knew Microsoft would have likely terminated the agreements had Microsoft known

Defendants were in possession of these companies. While Defendants did

purchase and establish nominee companies in order to shield their identities from Microsoft, this court has held in a RICO case that “[a]bsent an

independent duty, such as a fiduciary duty or an explicit statutory duty,

failure to disclose cannot be the basis of a fraudulent scheme.” California

Architectural Bldg. Prods., Inc. v. Franciscan Ceramics, Inc., 818 F.2d

1466, 1472 (9th Cir. 1987). Here, Defendants had no independent duty to

disclose their identities to Microsoft in connection with the purchase of

these companies. 

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sufficient evidence to show that Microsoft was deprived of its

right to payment for its software and that Defendants deprived

Microsoft of this money or property, even though the transfer

also involved third party distributors. 

Defendants counter that, at most, they are only in breach of

contract with Microsoft and that a contract dispute is not itself

grounds for mail or wire fraud. Defendants cite the Eleventh

Circuit in United States v. Chandler, 388 F.3d 796, 800 (11th

Cir. 2004) and the Second Circuit in United States v. Handakas, 286 F.3d 92 (2d Cir. 2002), overruled on other

grounds by United States v. Rybicki, 354 F.3d 124 (2d Cir.

2003), which both came to the conclusion that the mail and

wire fraud statutes cannot be read to criminalize every breach

of contract. Further, Chandler found that the object of mail or

wire fraud must be the underlying criminal behavior. Chandler, 388 F.3d at 804-05. 

We do not read Handakas or Chandler to preclude Defendants’ criminal prosecution in this case. The simple fact that

Microsoft may have brought a civil contract claim against

Defendants does not immunize Defendants’ conduct from

criminal prosecution if that conduct meets the elements of the

criminal statutes as well. Further, we need not decide if Chandler is correct that underlying criminal activity is always necessary; the criminal activity in this case is straightforward.

Defendants’ deprived Microsoft of revenue when they purchased AE software through false pretenses.

c.

Third, Defendants argue that this case is controlled by

copyright or antitrust law, not fraud. Even if Microsoft were

in violation of copyright or antitrust law, the appropriate remedy would be found in copyright or antitrust law, and such

illegal behavior by Microsoft would not immunize Defendants’ fraud. United States v. Weinstein, 762 F.2d 1522, 1533

(11th Cir. 1985) (whether a pricing scheme is illegal is imma12822 UNITED STATES v. ALI

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terial to the issue of fraud because “[i]f defendants doubted

the legality of that practice their recourse would have been

through antitrust action, not through a scheme of misrepresentations communicated through U.S. mails and wires”). 

2. Money Laundering

[8] In order to show money laundering, 18 U.S.C.

§ 1956(a)(1) requires the government to prove that a defendant participated in a financial transaction using the “proceeds” of an unlawful activity. “Proceeds” generally means

“that which is obtained . . . by any transaction.” United States

v. Akintobi, 159 F.3d 401, 403 (9th Cir. 1998) (quotation

marks omitted). More recently, we have recognized that this

broad definition must be narrowed in certain contexts. See

United States v. Van Alstyne, 584 F.3d 803, 814-15 (9th Cir.

2009) (discussing United States v. Santos, 553 U.S. 507

(2008)). Specifically, we distinguish between the profits and

gross receipts of an illegal venture when defining proceeds as

gross receipts results in the merger of two crimes charged

against a defendant. Id. at 810. This “merger” problem arises

when a money laundering count essentially serves to increase

the sentence for the very same behavior constituting the

underlying criminal violation. Santos, for example, dealt with

an illegal lottery. 553 U.S. at 507. Payments to lottery winners

from the gross receipts of the operation are necessary to the

function of the illegal activity and, categorizing such payments as promotion money laundering also essentially

increases the penalty for conducting an illegal lottery. See Van

Alstyne, 584 F.3d at 810. By showing that profits (as opposed

to gross proceeds) are used in furtherance of the illegal operation, a merger problem is avoided. Id. at 814. Likewise, use

of proceeds (whether they be profits or not) outside the illegal

operation does not implicate the merger problem, making the

distinction between gross proceeds and profits irrelevant in

that context. United States v. Fernandez, 559 F.3d 303, 317

(5th Cir. 2009) (holding that use of receipts outside of the

criminal enterprise necessarily means that those receipts are

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profits as the funds are, necessarily, not needed to run the

operation).

[9] In the case at bar, the Alis were convicted of: 10 counts

of promotion money laundering under 18 U.S.C.

§ 1956(a)(1)(A)(i); six counts of concealment money laundering under 18 U.S.C. § 1956(a)(1)(B)(i); and four counts of

exportation money laundering under 18 U.S.C.

§ 1956(a)(2)(B)(i). With respect to all of these counts, the

government did not specifically show that profits were used

to conduct the money laundering activities. The Alis only

challenge the sufficiency of the evidence as to their convictions for money laundering,8

 based on this failure to show that

profits were used in the transactions. Under the Van Alystne

standard, the money laundering charges will only be supported by sufficient evidence if there is no merger problem.

[10] The Alis’ convictions for promotion money laundering cannot stand. The government did not show that profits

were used to purchase additional software and companies in

furtherance of Defendants’ scheme. Under Van Alstyne, without such a showing, a conviction for promotion money cannot

be supported. Just as an illegal lottery will pay winners, an

illegal scheme to buy and sell discounted software will continue to buy and sell software to perpetuate the scheme. Thus,

the promotion money laundering counts implicate the merger

problem discussed in Van Alstyne and Santos and, because the

government did not show that only profits were used, there is

insufficient evidence to support the Alis’ conviction under the

promotion money laundering counts.9

[11] The same is not true with respect to the counts for

concealment and exportation money laundering. The Alis

8As with the fraud charges, the Alis do not separately challenge the conspiracy to commit money laundering count. 

9We note that Van Alstyne was decided after the district court handed

down its decision in this case. 

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stipulated that they used proceeds from the software operation

(1) to purchase two parcels of real estate and (2) in transfers

of funds from the United States to Pakistan. These uses of the

funds do not implicate the merger problem, as they were used

for purposes outside the scheme to defraud Microsoft. Thus,

the distinction between profits and proceeds is not relevant as

to these counts. Because Defendants stipulated that proceeds

of the illegal operation were used in these transactions, there

is sufficient evidence to sustain the Alis’ convictions for concealment money laundering and exportation.

3. Criminal Forfeiture

[12] Because the concealment and exportation money

laundering counts are supported by sufficient evidence, we

also affirm the criminal forfeiture count. We need not reach

the Alis’ argument that, in the indictment, the criminal forfeiture count was never based on mail or wire fraud.

III. The district court did not err with regard to the

sentences imposed.

Defendants present four challenges to the sentences

imposed by the court.

A. Standard of Proof

First, Defendants argue that the court applied an incorrect

standard of proof with regard to the calculation of loss. Specifically, Defendants contend that the court should have

required the government to prove loss by clear and convincing evidence. The government concedes that the district court

applied a preponderance of the evidence standard to calculate

the loss here, but argues that this was not error.

[13] We hold that the district court did not err in using a

preponderance of the evidence standard. In United States v.

Riley, 335 F.3d 919, 925 (9th Cir. 2003), we held that courts

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should look to a “totality of the circumstances” when determining what standard to apply in sentencing and that the clear

and convincing standard is appropriate when “contested

enhancements would have ‘an extremely disproportionate

effect on the sentence imposed.’ ” Garro, 517 F.3d at 1168

(citation omitted). In this case, the sentences and the loss calculated are not extremely disproportionate. The sentences are

well within the maximum sentence for mail and wire fraud

(30 years) and the court reduced the loss calculations to fit

within the agreed upon sentence caps. Furthermore, we

decline application of the clear and convincing standard for

establishing losses in fraud cases where the losses are “based

on conduct for which [defendant] was charged and convicted.” United States v. Garro, 517 F.3d 1163, 1169 (9th Cir.

2008). Here, the loss being calculated was based on the

Defendants’ charged and convicted conduct.

B. Calculation of the Loss

Defendants challenge the district court’s method of calculating loss. A district court’s method of calculation is

reviewed de novo while the determination of the amount is

reviewed for clear error. See United States v. Santos, 527 F.3d

1003, 1006 (9th Cir. 2008). 

[14] The district court relied upon spreadsheets, created by

IRS agents, that approximated the difference between the full

retail price of the software sold by Defendants and the AE

price Defendants paid for it. Though these spreadsheets were

admittedly hearsay, the district court was justified in relying

upon them. See United States v. Littlesun, 444 F.3d 1196,

1200 (9th Cir. 2006) (“[H]earsay is admissible at sentencing,

so long as it is accompanied by some minimal indicia of reliability.”) (citation and internal quotation marks omitted). The

spreadsheets contained substantial detail and were reviewed

both by the IRS agents (who also sent in sworn affidavits

regarding the methodology) and Microsoft consultants who

reviewed the information. Therefore, the district court did not

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err in its method of calculation of the loss. There is sufficient

indicia of reliability for the district court to have relied on

these spreadsheets.10

Given this record, the determination of the loss amount was

not clearly erroneous. The district court made “a reasonable

estimate of the loss, given the available information.” United

States v. Bussell, 504 F.3d 956, 960 (9th Cir. 2007) (citation

and internal quotation marks omitted). 

C. Reasonableness of the Sentence 

Defendants argue that the district court failed to impose a

substantially reasonable sentence by failing to consider the

factors in 18 U.S.C. § 3553(a)(2). “We consider the substantive reasonableness of a sentence under an abuse-of-discretion

standard.” United States v. Carter, 560 F.3d 1107, 1120 (9th

Cir. 2009) (citing Gall v. United States, 552 U.S. 38, 51

(2007)). A district court need not provide a lengthy explanation of the § 3553 factors in order for its explanation to be

sufficient. See Rita v. United States, 551 U.S. 338, 356

(2007). 

[15] Defendants contend that the court already had in mind

the desired sentence (the agreed upon cap) and, therefore, did

not adequately take into account the § 3553(a) factors. The

record does not support Defendants’ argument. During sentencing the district court specifically stated, “I still think that

the sentences that were agreed upon were the appropriate sen10Defendants present a related argument that, because the government

did not adequately prove loss, the court ordered $20 million in restitution

was in error. A restitution order itself is reviewed for abuse of discretion,

while the “factual findings supporting [the] order . . . are reviewed for

clear error” and the “valuation methodology . . . reviewed de novo.”

United States v. Da Liu, 538 F.3d 1078, 1090 (9th Cir. 2008) (citations

omitted). For the same reasons noted with the loss argument with regard

to sentencing, $20 million was a reasonable estimate of Microsoft’s loss

and the district court did not abuse its discretion in ordering restitution. 

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tences pursuant to a departure from the guidelines, as well as,

pursuant to the 3553 Sections.” Defendants’ contention that

the court abused its discretion by failing to consider the

§ 3553(a) factors is wholly without merit.

D. Sentencing Methodology

Defendants present the related argument that the district

court’s sentencing methodology was flawed, in that the court

already had in mind the desired sentence prior to analyzing

the guidelines or other sentencing criteria. We review “the

district court’s application of the Guidelines to the facts for

abuse of discretion.” Garro, 517 F.3d at 1167. 

[16] Defendants’ argument fails. Again, the court explicitly stated that “I still think that the sentences that were agreed

upon were the appropriate sentences pursuant to a departure

from the Guidelines.” The court considered the guidelines and

imposed what it felt was the appropriate sentence, Defendants

present no persuasive argument that this was an abuse of the

district court’s decision.

E. Harmless Error

[17] Finally, even if the district court did err in any of the

respects outlined by Defendants, any error was harmless.

When an “alleged error is harmless [it is] not a ground for

resentencing.” Garro, 517 F.3d at 1169 (citing United States

v. Crawford, 185 F.3d 1024, 1029 (9th Cir. 1999)). All the

departures made by the court were to lessen the sentences the

court could have imposed on Defendants. If there was any

error, the error was harmless in that there is no evidence any

of these alleged errors, if changed, would result in a shorter

sentence for any of the Defendants. Indeed, the court stated

that, even if the loss calculation were much different, based

on the § 3553(a) factors, the same sentences would have been

imposed. 

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IV. The district court did not err with regard to 

Sameena Ali’s request for substitute counsel.

A district court’s denial of a request for substitute counsel

is reviewed for an abuse of discretion. United States v.

George, 85 F.3d 1433, 1438 (9th Cir. 1996).

Sameena Ali contends that the district court abused its discretion in denying her motion for substitute counsel. However, the district judge did not deny this motion. When

presented with the motion for substitute counsel, the district

judge expressed some concern over whether Sameena Ali was

actually eligible for court appointed counsel and whether

appointment of substitute counsel would solve any problems.

Thus, the district judge referred the matter to the magistrate

judge and invited counsel and Sameena Ali to revisit the substitute counsel issue if (1) Sameena Ali was eligible and (2)

Sameena Ali and her attorney could not work out their differences. Notwithstanding this invitation, they did not again

bring the matter before the district judge after the magistrate

ruled that Sameena Ali was indeed eligible for court

appointed counsel. Sameena Ali does not argue that it was an

abuse of discretion for the district court to defer ruling on this

motion.

CONCLUSION

We AFFIRM: (1) Defendants’ convictions as to Counts 1-

9; and (2) the Alis’ convictions as to Counts 21-31. We

REVERSE the Alis’ convictions under Counts 11-20. We

also AFFIRM Defendants’ sentences and find no error in the

district court’s actions with regard to Sameena Ali’s motion

for substitute counsel.

AFFIRMED in part and REVERSED in part.

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