UNITED STATES COURT OF APPEALS

For the Fifth Circuit

Nos. 92-8108 & 92-8109

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

VERSUS

LOUIS G. REESE, III,

Defendant-Appellant.

Appeals from the United States District Court

for the Western District of Texas

(August 13, 1993)

Before WISDOM, JOLLY, and DeMOSS, Circuit Judges.

DeMOSS, Circuit Judge:

I.

Lewis G. Reese III (Reese) and his Dallas based companies were

major developers of real estate in Texas. During the middle 1980's

Reese financed several of his real estate deals with Lamar Savings

and Loan Association (Lamar) and Western Savings and Loan

Association (Western).

On August 7, 1990, Reese along with four Lamar officials, were

indicted in the Western District of Texas, Austin Division, in

Cause No. A-91-CR-85 for conspiracy to defraud the United States

and its agency, the Federal Home Loan Bank Board, in violation of2

18 U.S.C. §371. Count one of the indictment charged Reese as a coconspirator involved with conduct to defraud the United States, to

misapply federally insured funds in violation of Title 18 U.S.C. §

657; to cause false entries to be mad e in the books, reports and

statement of Lamar Savings Association, a federally insured savings

and loan, in violation of Title 18 U.S.C. § 1006; and to make false

and fraudulent statements to the Federal Home Loan Bank Board in

violation of Title 18 U.S.C. § 1001. On June 19, 1991, a one-count

information was filed in the Northern District of Texas in Cause

No. A-91-CR-85, charging Reese with conspiring to defraud the

United States by impeding and impairing the lawful functions of the

Internal Revenue Service, in vio lation of 18 U.S.C. § 371. The

case was subsequently transferred to the Western District of Texas

and consolidated with Criminal Cause No. A- 90-CR-117, the Lamar

case.

Although both cases arose out of Reese's real estate dealings,

each case involved independent events.

A. The Lamar Savings and Loan Association Case

Lamar was a sa vings and loan institution located in Austin,

Texas. In 1985, The Federal Home Loan Bank Board (FHLBB) notified

Lamar that there were deficiencies in its net worth related to real

estate which Lamar had acquired through forec losure (REO

Properties); and that Lamar would be required to dispose of these

REO properties in order to correct the deficiencies and to avoid a

supervisory agreement ordered by FHLBB.1 The "loan to-one-borrower" limitation rule restricts the amount of money

which a financial institution can lend to any single borrower.

3 Lamar decided that it would be difficult to dispose of the REO

properties in the ordinary course of business because the real

e state market was poor at that time. Consequently, it devised a

plan whereby borrowers would be required to purchase an REO

property as a condition of receiving a loan on other property,

thereby making it appear to the regulators that Lamar had sold off

the REO property. Lamar would finance both the legitimate loan and

the REO property sale by lending more money to the bo rrower than

the original loan request would have required. Lamar executed its

scheme by lending more money to a single borrower than permitted by

the regulators and disguised these excess loans to one borrower by

using nominee borrowers. 1 Lamar was therefo re able to deceive the

federal regulators as to Lamar's true financial condition.

In order to carry o ut its plans, Lamar contacted potential

borrowers and let them know that Lamar was prepared to lend money

but only under the above stated conditions.

Reese needed financing to purchase and develop a 225 acre

parcel of land located in DeSoto, Texas (the DeSoto property). On

June 29, 1985 Lamar agreed to lend $37, 000,000 to Reese's

corporation, Louis Reese, Inc. with the DeSoto property as

collateral.

As a condition of the loan, Reese agreed to acquire or cause

someone else to acquire two of the REO properties, the "Witte" and

"Ponderosa" properties, which were classified as non-performing2 A shelf corporation is a corporation formed for future purposes and left

on the shelf until that purpose come to pass or another purpose is selected.

4 assets on Lamar's books. The down payment for these properties was

funded by Lamar lending excess money with respect to the DeSoto

property and the borrower, Louis Reese, Inc., would pass the funds

on to the nominee purchaser. The DeSoto property was thus used to

generate money which would be used to purchase the Witte and

Ponderosa properties from Lamar. Proceeds from the DeSoto loan

were $14,634,663 in excess of the purchase price needed to purchase

the DeSoto property. Approximately $11,000,000 of the excess funds

were used to facilitate the purchase of the Witte and the Ponderosa

properties. These sham transactions created false entries and

artificially inflated Lamar's net worth, resulting in deception of

the FHLBB.

Beca use the aggregate of the $37,000,000 loan and the loans

for the balance of the sales price of the REO properties would have

exceeded Lamar's legal lending limits to any one borrower, Reese

gave a business acquaintance, Robert Brown, all of the stock of

Berkshire Realty, Inc. (Berkshire), a shelf corporation 2 owned by

Reese and arranged for Berkshire, to purchase the Witte and

Ponderosa properties as a nominee for Reese. Brown and Berkshire

were thereby used in the loan transaction to circumvent the "loanto-one-borrower" limitation.

The entire transact ion proved to be unsuccessful, and Lamar

eventually foreclosed on the Witte and Ponderosa properties and

took back the DeSoto property in se ttlement of the loan. Reese5

agreed to forego any li tigation against Lamar for its alleged

breaches of promises to Reese.

Lamar was able to later sell the two REO properties for a

profit of $1,626,8 57. However, the DeSoto property which was

deeded back to Lamar in August 1986 was appraised in October, 1986

for $ 13,000,000. Lamar was subsequently taken over by the Federal

Deposit Insurance Corporation (FDIC).

B. The IRS Case

In 1984, two individuals, identified as "A" and "B" approached

Reese and proposed a real estate transaction.

Individual "A" had advanced $2,300,000 toward the purchase of

a horse farm in Kentucky and wanted to use Reese's equity in a

parcel of land, LBJ/Central property, located in Dallas, Texas, to

fund the remainder of the purchase price. Reese, Individual "A"

and a third party, Individual "B" agreed to form Slew Farms, Inc.,

a Cayman Island partnership, to control the property. Individual

"A" also formed Haft, Inc. in Nevada. Haft, Inc. was wholly owned

by Slew Farms.

On October 19, 1984, Reese conveyed the LBJ/Central property

to Haft, Inc. for $15,900,000. On the same day, Haft, Inc. sold

the same property to a corporation owned by "B" for $28,186,565.

Western Savings Association financed the sale with a $29,000,000

loan to "B"'s corporation. Haft, Inc. thus realized a $12,000,000

profit on the sale. "A" then wire transferred the $12,000,000

proceeds from the sale, plus the proceeds from a $2,000,000 loan,

through an Allied Bank account in Dallas, Texas, to a Guiness Mahon6

Cayman Trust Ltd. account in New York City, to an account in the

name of Warrenton Farms, Inc. in Fayette Commerce Bank in

L exington, Kentucky. Warrenton Farms, Inc., was wholly owned by

Slew Farms, Inc. Individual "A" used the $14,000,000 to buy the

Kentucky horse farm. Haft, Inc. never filed a corporate income tax

return and did not pay any corporate income taxes.

These transactions were planned in such a manner that the true

nature of the deal was not disclosed in the loan documents to

Western and the loan docu ments did not disclose the relationship

between the parties to the sale of the LBJ/Central property.

Western suffered a $12,100,000 loss as a result of the scheme.

On July 9, 1991, pursuant to a plea agreement, Reese entered

a plea of guilty to Count one of the indictment in the Lamar case,

Cause No. A-90-CR-117, and to the one-count information in the IRS

case, Cause No. A-91-CR-85.

C. The Sentences

The federal probation department concluded in a court-ordered

presentence investigative report (PSR) that there was a $9,265,829

loss with respect to the Lamar transaction and that Western lost

$12,100,000 as a result of its loan to B's corporation.

O n February 19 1992, the trial court held a hearing on

restitution. Federal Bureau of Investigation Agent Matt Gravelle,

a Certified Public Accountant, testified for the government about

the loss created by the DeSoto loan in the Lamar transaction.3 The first theory Gravelle testified about was as follows:

Total disbursed

$28,717,000

DeSoto appraised value

after return - October 17, 1986

13,000,000

15,717,000

CD return

3,700,000

Loss

$12,017,000

The second theory calculated the loss as follows:

Outside normal scope of DeSoto closing

$12,274,000

CD Return

3,700,000

8,574,000

+Brokers' payments - Ponderosa

146,000

8,720,000

+Brokers' payments - Witte

544,000

$ 9,264,000

4 The $3,700,000 certificate of deposit was purchased by Louis G. Reese,

Inc., a Texas corporation, out of the original DeSoto loan funds. Louis G.

Reese, Inc., at the time it deeded the DeSoto property back to Lamar Savings

through a deed in lieu of foreclosure, surrendered this certificate of deposit to

obtain release of both Louis G. Reese, Inc. and Reese who had guaranteed the debt

from personal liability on the original $37,000,000 note.

7 Agent Gravelle offered two calculations to determine the loss. 3 In

the second computation, the o ne eventually adopted by the court,

the loss was determined by tracing monies expended at the closing

of the DeSoto loan that Gravelle considered not related to the

acquisiti on or development of the DeSoto property. According to

Gravelle, out of the $28,717,000 funded at the DeSoto loan closing,

$12,274,000 were funds not related to the DeSoto loan. From that

amount, Reese was credited with the $3,700,000 certificate of

deposit that Reese ultimately returned to Lamar Savings. 4 This

produced a figure of $8,574,000 to which loan brokerage fees of5 Title 18 U.S.C. § 3579 (1985) under which Reese's restitution was ordered

was renumbered as 18 U.S.C. § 3663 (Supp. 1990). This opinion will refer to the

restitution provisions under their current designation.

8 $129,000 from the Ponderosa loan and $544,000 from the Witte loan

were added. The result, the $9,264,000 number, was very similar to

the restitution sum submitt ed by the FDIC and the PSR; and the

court adopted that amount.

The district court sentenced Reese in the Lamar case, to three

years in prison, $50 special assessment fee and ordered him to pay

restitution of $9,265,829 pursuant to 18 U.S.C. § 3579. 5 The court

also sentenced Reese in the IRS case to a consecutive two-year term

of imprisonment and $50 special assessment fee. No restitution was

ordered in the IRS case.

On appeal Reese raises four grounds of relief as follows:

1. Whether the district court erred in requiring Reese to pay

restitution for the loss incurred on the Desoto property.

2. Whether the district court erred when it imposed the

restitution without considering Reese's inability to pay and the

impact of a restitution order upon Reese's dependents.

3. Whether the district court correctly computed the amount of

restitution.

4. Whether the district court erred in considering a loss to

Western at sentencing when Reese was not charged with the loss.

We AFFIRM in part and VACATE and REMAND in part.

II.

WHETHER THE DISTRICT COURT ERRED IN REQUIRING REE SE TO PAY

RESTITUTION FOR THE LOSS INCURRED BY THE FORECLOSURE OF THE DESOTO

PROPERTY9

Reese's first claim is that the district court erred in

impos ing restitution for Reese's role in the DeSoto loan

transaction because the DeSoto component of the loan was not a

criminal transaction.

Reese c laims that the Lamar loan transaction consisted of

distinct components: the Witte and Ponderosa components which he

concedes were illegal and the other component which he claims was

not illegal because it simply involved a regular loan secured by

real property located in DeSoto, Texas. He contends that because

the DeSoto property l oan transaction was legal, the restitution

imposed applied to the non-criminal component of the consp iracy

and, therefore, any loss incurred with respect to it should not be

attributed to Reese. 18 U.S.C. § 3663. S ee

, e.g.

, Hughey v.

United States

, 110 S. Ct. 1979 (1990); United States v. Paredo

, 884

F.2d 1029 (7th Cir. 1989). Reese points out that Lamar actually

realized a gain of $1,626,857 with respect to the two distressed

properties. Therefore, no restitution is due there either. Reese

concludes that Lamar's remedy for its loss is of a civil nature,

not a criminal one.

The legality of a restitution order is reviewed de novo

, and,

i f the sentence is legal, the award is reviewed for a buse of

discretion. U nited States v. Chaney

, 964 F.2d 437, 451-52 (5th

Cir. 1992).

Reese admits that over funded monies in the Lamar loan for the

purchase of the DeSoto properties were used to purchase distressed

properties owned by Lamar; that this transaction caused false10

entries in the books an d records of Lamar and caused the "net

worth" of Lamar to be falsely inflated; that he participated in the

criminal conduct associated with the DeSoto loan transaction when

he provided a "nominee borrower," Berkshire Realty, Inc. and Robert

Brown, to the transaction in an effort to circumvent the "loans-toone-borrower rule"; that he was aware that Lamar wanted to improve

their balance sheet by removing the two pieces of property from

their books and avoid a regulatory order and that he knew that the

loan on the DeSoto property would not have been made unless he

agreed to buy the other property.

The illegal transaction to which Reese p led guilty involved

all of the loans relating to three pieces of property. The entire

DeSoto loan transaction was criminal. Reese cannot separate one

portion of a criminal transaction from the whole transaction. As

long as there is any illegal taint to a transaction, the entire

transaction is considered illegal. Chaney , 964 F.2d 437.

III.

WHETHER THE DISTRICT COURT ER RED WHEN IT IMPOSED THE RESTITUTION

WITHOUT CONSIDERING REESE'S INABILITY TO PAY AND THE IMPACT OF A

RESTITUTION ORDER UPON REESE'S DEPENDENTS

Reese next argues that the court erred when it disregarded

certain information in the PSR and in its own findings and ordered

Reese to pay the $9,265,829 in restitution.

Reese claims that the PSR indicated that he had millions of

dollars of civil cl aims against him and that his only asset of

substance was the family homestead, an exempt asset under Texas

law. The financial information available to the Court made it11

cle ar, moreover, that the impact of any restitution order would

affect Reese's family and dependents. Finally, he says that at

sentencing the district judge acknowledged that Reese did not have

the financial resources to pay the restitution, but that the court

ignored that determination and awarded the restitution anyway. He

claims that this procedure is directly contra ry to the statutory

requirements which require a Cour t to consider a defendant's

ability to pay and the impact of the restitution order upon a

defendant's dependents and that it was unreasonable and excessive.

18 U.S.C. § 3664 (a). S ee

, e.g.

, United States v. Peden

, 872 F.2d

1303 (7th Cir. 1989); United States v. Bruchey , 810 F.2d 456 (4th

Cir. 1987). U nited States v. Mahoney

, 859 F.2d 47 (7th Cir. 1988).

United States v. Pollack

, 844 F.2d 145 (3 rd Cir. 1988). H e says

that the Court retains discretion under the Victim and Witness

Protection Act to refuse restitution in an appropriate case. 18

U.S.C. § 3664, See

, e .g.

, United States v. Owens , 901 F.2d 1457,

1458-9 (8th Cir. 1990).

An order of restitution will be reversed on appeal only when

t he defendant shows that it is probable that the court failed to

consider a mandatory factor and the failure to consider the

mandatory factor influenced the court. U nited States v. Gomer

, 764

F.2d 1221, 1223 (7th Cir. 1985). The Court's failure to follow the

statutory requirements is reviewed for abuse of discretion. U nited

States v. Barndt , 913 F.2d 201 (5th Cir. 1991).

Reese's claim that the district court made a specific finding

of Reese's inability to pay restitution is based on the court's12

remarks at the completion of the sentencing in which it responded

to the government's request that Reese be require d to pay

r estitution in some method other than installment payments. The

Court stated:

I di dn't say anything about that. As far as I am

concerned, he can pay the $9,000,000 today, if he wants

to or has the ability to pay. I'm sure he's not going to

do that or doesn't have the ability. But that's part of

this judgment.

Reese interprets this comment to be a finding by the court

that Reese was unable to pay the restitution at all. We do not

understand the judge's comment as such, but rather interpret it as

merely a refusal by the judge to venture a guess as to whether or

not Reese could pay the f ull restitution amount on the day of

sentencing. The judge made it clear by his statement that he had

ordered no set method of payment of the restitution to be made by

Reese, but that the payment should be paid within the statutory

time limits.

Title 18 U.S.C. § 3664(a) man dates that the district court

co nsider "[t]he amount of the loss sustained by any victim as a

r esult of the offense, the financial resources of the defendant,

the financial needs and earning ability of the defendant and the

defendant's dependents, and such other factors as the court deems

appropriate." But 18 U.S.C. § 3664 (d) imposes on the defendant

the burden of demonstrating he lacks the financial resources to

comply with a restitution order. See United States v. Rochester

,

898 F.2d 971, 981-82 (5th Cir. 1990).13

Reese never raised the issue of inability to pay in any of his

o bjections to the PSR nor did he demonstrate to the court his

financial inability to comply with a restitution order. No

spe cific finding was requested of the court by Reese as to his

inability to pay. Even after the court imposed the restitution

order on Reese, Reese did not object to the order based on Reese's

inability to pay. Reese has failed to carry his burden of proving

an inability to pay restitution. We are satisfied that the

district court did not fail to take into consideration the

necessary elements in assessing restitution.

IV.

ASSUMING RESTITUTION IS PROPER, WHETHER THE DISTRICT COURT

CORRECTLY COMPUTED THE AMOUNT OF RESTITUTION

Reese next argues that the district court erred because it

did not correctly compute the amount of that restitution.

At the restitution hearing, Reese submitted the testimony of

his own expert witness, an appraiser named Harry Schroeder who

appraised the undeveloped value of the DeSoto property in May of

1985 at $37,000 ,000 and the "as developed" value at $45,000,000.

Schroeder concluded that, based upon comparable land sales in

August 1986 (but subject to the fact that he had not done a

complete appraisal), that a conservative value of the 225 acre

piece of property would be in excess of $2 per square foo t

(approximately $19,600,000).

Schroeder testified that the government appraisal was

incorrectly based upon "fair value", a fictit ious figure which

discounted the value of the property based upon the assumption that14

the property would not be resold for three to four years as opposed

to "fair market value," an estimate of the price that a buyer would

p ay in an arm's length transaction in August of 1986. Schroeder

also suggested that the government's appraisal included comparables

that were 1985 sales of much smaller tracts and thus would

potentially affect the validity of the appraisal made.

Schroeder noted that Lamar made a profit on the Witte and

Ponderosa properties of almost $2,000,000, and that Lamar suffered

no loss on the DeSoto transaction because when Lamar foreclosed

upon the DeSoto property it was worth at leas t the amount that

Lamar had lent.

The Court nevertheless rejected Schroeder's opinion and

Reese's t estimony, found Agent Gravelle's estimate of the

restitution amount of $9,265,829 to be credible testimony, and

adopted the government's computation of loss.

Reese sub mits three reasons as to how the court incorrectly

computed the restitution amount:

1. The District Court valued the DeSoto property based upon

an appraisal dated several months after the date the property was

surrendered to the financial institution;

2. The government's appraisal used "fair value"; and

3. The District Court excluded the $6,500,000 payment that

was made to L amar at closing for the down payment on the REO

properties.

There is no error in connection with the first two reasons

submitted by Reese. However, we find the failure of the judge to15

give credit for the amount of the down payment on the REO property

to be clearly erroneous.

The standard of revie w on appeal for a court's restitution

order is whether the district cou rt abused its discretion in

directing the restitution. U nited States v. Paden

, 908 F.2d 1229,

1237 (5th Cir. 1990). District Courts are accorded broad

discretion in ord ering restitution. I d. at 1237. The burden of

proof for establishing restitution is upon the government by a

preponderance of the evidence. 18 U.S.C. § 3664(d). The court, in

determining the appro priate amount of restitution, may consider

affidavits and letters by the injured party. See

, United States

v. Rochester , 898 F.2d 971 at 982; United States v. Hairston , 888

F.2d 1349, 1354 (11th Cir. 1989); and may consider other hearsay

evidence that bears minimal indicia of reliability so long as the

defendant is given an opportunity to refute that evidence. U nited

States v. Rodriquez

, 765 F.2d 1546, 1555 (11th Cir. 1985). If the

restitution was computed in violation of statute, it is i llegal,

and the correct standard of review is de novo

. Otherwise an order

of restitution will be reversed on appeal only when the defendant

shows that it is probable that the court failed to consider one of

the mandatory factor and the failure to consider the factor

influenced the court. U nited States V. Gomer

, 764 F.2d 1221, 1223

(7th Cir. 1986); United States v. St. Gelais

, 952 F.2d 90 (5th Cir.

1992).

Restitution in property crime cases is governed by 18 U.S.C.

§ 3663(b) which provides:16

The order may require that such defendant--

(1) in the case of an offense resulting in damage to or

loss or destruction of property o f a victim of the

offense--

(A) return the property to the owner of the property or

someone designated by the owner; or

(B) if return of the property under subparagraph (A) is

impossible, impractical, or inadequate, pay an amount

equal to the greater of--

(i) the value of the property on the date of the damage,

loss, or destruction, or

(ii) the value of the property on the date of

sentencing,

less the value (as of the date the property is returned)

of any part of the property that is returned; . . . .

The cases have made clear that the measure defined in this

statute is exclusive. S ee United States v. Keith , 754 F.2d 1388

(9th Cir. 198 5); United States v. Husky , 924 F.2d 223 (11th Cir.

1991); United States v. Mitchell

, 876 F.2d 1178 (5th Cir. 1989).

Under subparagraph (A) of this statute, a return of the property to

the owner is the first measure of restitution. Looking first at

the Witte and Ponderosa aspects of the transactions, we assume the

"property" is land and improvements so labelled which w ere

transferred by Lamar to the fictional purchasers as a result of the

fraudulent scheme devised by the defendants. While the record is

not clear, it appea rs that these properties were ultimately

returned to Lamar, probably as a result of foreclosure. The trial

court in its statement of findings about restitution indicated that

it would consider "gain" realized on the Witte and Ponderosa

properties by Lamar after return of the properties. We see nothing17

in the statutory provision which would give a defendant credit for

t he gain on resale realized by the victim after return of the

p roperty to the victim. Of course the trial judge didn't really

award the $10,390,000 that he found to be the amount of restitution

owed, but rather simply adopted the claim of $9,265,829 which was

described in the letter from the FDIC and in the PSR.

Subparagraph (B) of the cited statutory provision ind icates

that "if return of the property under subparagraph (A) is

impossible, impractical, or inadequate" the court may require the

defendant to pay as restitution, a dollar amount defined therein.

The application of subpart (B) is conditioned upon a finding that

return of the property under subparagraph (A) is "impossible,

impractical, or inadequate"; and there is no such finding in the

record.

As to the Desoto property loan side of the transaction, it

would appear that the "property" as to which Lamar might have

suffered "damage to or loss or destruction of" could only be loan

proceeds funded in cash at the original closing of this loan.

Lamar's interest in the Desoto property, (i.e. the land and

contemplated improvements) was never anything except a lien holder;

and we doubt that such a security interest would qualify as

"property of the victim. " The trial court found that the money

funded at closing was $28,717, 448 which Lamar advanced against a

promissory note of $37,000,000. If the "property" is the cash

funds advanced at closing, then to determine whether there has been

"damage to or loss or destruction of" such property, you would have18

to first determine what cash, if any, came back to Lamar as part of

the closing itself. Typically, lenders require a borrower to pay

t hem points for making the loan, various fees and charges in the

nature of expenses incurred by the lender and, in some cases,

prepaid interest, all of which would normally be deducted out of

initial loan proceeds as reflected on the closing statement

regarding the loan transaction. Likewise, in this case, it appears

from the evidence that the funds advanced at closing on the Desoto

loan included funds which Louis Reese, Inc., the borrower, passed

on to the nominal pur chaser Berkshire/Brown under the fictional

purchase transaction, and those funds were used in the closing of

the separate purchase transaction to pay the cash down payment due

to Lamar for the sale of the Witte and Ponderosa properties.

Apparently, these closings were all done simultaneously at the same

title company, and there was no way that the cash proceeds advanced

to Reese, so it could advance them to Berkshire/Brown, could have

ever been used by Reese for any other purpose. Therefore, at the

end of the closings, the cash down payment, due to Lamar as seller,

less any closing expenses which Lamar would normally i ncur as

seller (i.e. owner's title insurance, prorated taxes, surveys,

etc.), would have come back t o Lamar as a net reduction in the

total amount of cash advanced on the Desoto loan. Obviously, these

funds would not h ave come back to Lamar as a payment against the

amount which Reese, Inc. owed on its promissory note; but for

purposes of restitution, it seems only fair that the "cash" which

Lamar advanced as part of this illegal loan transaction, should be19

reduced by those sums which came back to Lamar in "cash" as part of

the closing of the illegal loan. Neither the government's expert

witness nor the court ultimately recognized these reductions in the

amount of "cash" which was actually put at risk by the illegal loan

transaction.

The trial judge says there was no obligation to give a credit

for the cash down payment on Witte and Ponderosa because to do so

would simply change the gain of $1,600,000 on the Witte and

Ponderosa property to a loss of $4,400,000. But, neither the

amount claimed by the FDIC in its letter nor the amount stated in

the PSR gave any recognition to t he $1,600,000 gain on Witte and

Ponderosa; and since, in spite of the trial court's own finding,

the tr ial court ultimately adopted the $9,265,000 figure as the

amount of restitution, the reason cited for not considering the

cash down payment is moot as far as the actual fi gure ultimately

awarded by the trial judge. In any event, as we said earlier, the

Witte and Ponderosa properties were returned "in kind" to Lamar;

and there is no evidence in the record that these properties were

damaged while owned by the fictitious buyer, nor is there any

testimony that these properties were less valuable when returned to

Lamar than they were when conveyed out by Lamar at the original

closing.

Now, analysis of the testimony of the go vernment's expert

about the $9,265,000 amount, indicates that it starts with a figure

of $12,274,000 which was labelled "payments outside the n ormal

scope of the Desoto closing." On cross examination, he itemized20

the various amounts which went in to this $12,000,000 dollar

figure. There is no testimony which explains what criteria this

"expert" used in determining what constituted "payments outside the

normal scope of the DeSoto closing." Furthermore, there is nothing

in the statute that would call for a dete rmination of what was

"outside the normal scope of the Desoto closing." If that loan is

illegal because in effect it was made in violation of the "loans to

one borrower" limit, then it seems to us that the whole of the loan

proceeds which may be lost as a result of the offense, would be at

risk and not just some portion categorized by the expert as being

"outside the normal scope of a closing."

Looking now at the credits given by the government's expert in

determination of restitution amounts for the $3,700,000 involved in

the letter of credit and the $13,000,000 which was the appraised

value of the Desoto property after it was returned to Lamar by deed

in lieu of foreclosure, we have little doubt that the surrender of

a letter o f credit to the issuer is close enough in legal

contemplation to the payment of cash to Lamar that it should

constitute at least a partial "re turn" of the "cash proceeds

advanced at loan closing." We are puzzled why under one theory the

government expert gave credit for the $13,000,000 appraised value

of the Desoto property, but did not under his other theory, which

is the one closest to the amount actually a dopted by the trial

c ourt. Conceptually, it would seem to us that when a lender

accepts conveyance of the secured property in lieu of foreclosure,

the value of such property should constitute a partial return of21

the "cash loan proceeds." We have no problem with the trial court

accepting the appraised value of the DeSoto property, as indicated

by the appraisal done two months after the deed in lieu of

foreclosure, rather than the appraisal testimony of fered by the

defendants at the restitution hearing. That is a credibility call,

and the trial judge is in the best position to make that decision.

As to the amount of restitution ordered by the trial judge, we

conclude:

a. The theory for calculation of restitution in the amount of

$9,265,000, testified to by the government expert, and as claimed

by the FDIC a nd reported in the PSR, finds no support in the

statutory definition;

b. The first theory used by the government expert, and the

findings described by the trial judge, started out on the right

tra ck (i.e. the property is the "cash proceeds advanced at

closing,") but fail to take into consideration payments which

returned to Lamar as a result of the closing, and, therefore,

reduced the quantum of the cash proceeds which were actually at

risk. Those reduction items would include points paid back to the

lender, reimbursement of various lender expenses, prepaid interest,

and the net cash returned to Lamar from the sale of the Witte and

Ponderosa properties after reduction of normal expenses that Lamar

incurred as seller in those sales transactions. Likewise, the

appraised value of the DeSoto property when deeded to Lamar

constitutes a partial return of the property as does the letter of

credit which was surrendered.22

c. The testimony and evidence in the restitution hearing is

inadequate to permit the appellate court to arrive at a correct

determination of these amounts; and

d. We VACATE the portion of the sentence related to

restitution, and REMAND the issue of restitution for a further

hearing in accordance with the provisions hereof.

V.

WHETHER THE DISTRICT COURT ERRED IN CONSIDERING A LOSS TO WESTERN

AT SENTENCING WHEN REESE WAS NOT CHARGED WITH A LOSS

In addit ion to the illegal transaction above, Reese pleaded

guilty to a conspiracy to defraud the IRS when he participated in

a real estate transaction that was structured in a complicated

fashion to conceal the gain from that transaction from the IRS. At

sentencing, the trial court imposed no restitution penalties for

the financial loss to the fina ncial institution involved in the

conspiracy and no loss was due on the IRS charge because no

determination was ever made as to the amount of the tax loss by the

IRS. Reese's PSR nevertheless contained a statement that Western

lost $12,100,000 when Western financed some portion of the real

estate transaction that enabled Reese and his co-co nspirators to

defraud the IRS.

At his sentencing hearing, Reese objected to the inclusion in

his PSR of the loss to Western because he says that he pleaded

guilty to a scheme to defraud the IRS, but did not plead guilty to

fraud with respect to a financial institution. Therefore, he

complains his PSR should not have stated that Western lost

$12,100,000 on the lo an. Reese states that he objected to the6 This Rule is applicable to offenses, like Reese's, committed prior to

November 1, 1987.

23 foregoing statement on the ground that the loss suffered by Western

h ad nothing to do with the crime; that the government did not

explain how the $12,100,000 loss was computed; and that the

government did not demonstrate that the loss resulted from criminal

conduct.

Reese wants the loss suffered by Western removed from the PSR

because he claims that the figure is incorrect and prejudicial in

that it would potentially affect his sentence and jeo pardize his

treatment by the United States Bureau of Prisons and the United

States Parole Commission.

R eese argues that his objections to alleged factual

inacc uracies in the PSR triggered Rule 32(c)(3)(D), but that the

court failed to comply with the Rule by not making a finding as to

these inaccuracies. U nited States v. Aubrey

, 878 F.2d 825 (5th

Cir. 1989).

Rule 32(c)(3)(D) provides as follows: 6

If the comments of the defendant and the defendant's

counsel or testimony or other information introduced by

them allege any factual inaccuracy in the pre sentence

investigation report or the summary of the report or part

thereof, the court shall, as to each matter controverted,

make (i) a finding as to the allegation, or (ii) a determination that no such finding is necessary because

the matter controverted will not be taken into account in

sentencing. A written record of such findings and

determinations shall be appended to and accompany any

copy of the presentence investigation report thereafter

made available to the Bureau of Prisons or the Parole

Commission.24

Where a challenge is raised by the defendant regarding the

factual accuracy of the PSR, the judge must either make a finding

as to each objection or state that a finding is unnecessary because

he is disregarding the controverted information in making the

sentencing decision. U nited States v. Piazza

, 959 F.2d 33, 36 (5th

Cir. 1992); U nited States v. Lawal

, 810 F.2d 491, 492 (5th Cir

.

1987). However, the finding need not be in any particular form, as

long as this Court is able to determine from the record whether the

district court found the challenged fact in favor of or against the

defendan t and whether the fact affected the sentence. U nited

States v. Puma

, 937 F.2d 151, 155-56 (5th Cir. 1991), cert. denied

,

U.S. , 112 S. Ct. 1165 (1992); United States v. Perrera , 842

F.2d 73, 75-76 (4th Cir.), cert. denied , 488 U.S. 837 (1988).

The government argues that Reese's arguments fail for several

reasons. Upon review we agree.

Reese argues that the facts found in the PSR do not establish

that any loss to Western was relevant to the conspiracy charge or

that the loss was the result of criminal conduct. In objecting to

the Western loss statement in the PSR, Reese claims that he was not

personally in volved in obtaining the loan which resulted in the

l oss. But the PSR does not allege that Reese was personally

involved in obtaining the loan. It simply alleges the transaction

as part of the conspiracy.

The record reflect that the loan obtained from Western was an

integral part of the conspiracy. The loss to Western was the25

result of criminal conduct by which income was obtained and

concealed.

"[O]nly historical, objectively verifiable information

reported in the PSI, antedating the report and existing independent

of it, can pr operly be contested as a `fact' under Rule 32."

United States v. Jones , 856 F/2d 146, 150 (11th Cir. 1988).

Reese fails to allege any such "factual inaccuracies" in his

PSR which would trigge r Rule 32(c)(3)(D). But rather his

objections go "merely to tone, form, or style of the report." He

attacks only the district court's application of the report's legal

conclusion, based on the facts therein. He does not deny that the

information was accurate, only that it was not properly admissible.

Ree se therefore failed to make the requisite showing that the

information in the PSI report was "materially untrue." U nited

States v. Flores , 875 F.2d 1110, 1113 (5th Cir. 1989), Piazza , at

37. United States v. Aleman

, 832 F.2d 142, 145 (11th C ir. 1987;

United States v. Cox

, 934 F.2d 1114, 1126 (10th Cir. 1991). U nited

States v. Hand , 913 F.2d 854, 857 (10th Cir. 1990); United States

v. Pellerito , 918 F.2d 999, 1002-003 (1st Cir. 1990).

Moreover, there is evidence that the court did comply with its

duty to make a finding as to the alleged factual inaccuracies and

with Rule 32(c)(3)(D). When Reese objected that the loss to

Western should not have been included in the PSR because Reese was

not r esponsible for that loss, the court requested a response

thereto from the government. The probation officer explained that

Reese was responsible because he was a member of the conspiracy and26 c:br:opin:92-8108p.jm that the amount of the loss, $12,100,000, had been confirmed by the

United States Attorney's office in Dallas. The trial court

overruled Reese's objection . It thereby resolved the disputed

facts against him and accepted the findings of the PSR that the

conspiracy resulted in a $12,100,000 loss to Western. S ee

, United

States v. Puma

, 937 F.2d at 155-56. The court attached a written

record of its findings, an addendum entitled "Controverted

Presentence M atters" to the PSR which indicates that Reese's

objecti ons "re: 12,100,000" were overruled by the trial court.

Puma , at 155-56.

The District Court's decision to overrule Reese's objection

was correct. Reese admitted that he was a member of the conspiracy

and that it was the intent of the co-conspirators to impede the IRS

from determining the correct taxable income of the real estate

transaction and that the transactions were intentionally structured

to conceal their true nature from Western. Because the loan from

Western wa s an integral part of the conspiracy, Reese was

responsible for the actions of his co-conspirators. Pinkerton v.

United States

, 328 U.S. 640 (1946); Chaney

, 964 F.2d 437; United

States v. Acosta , 763 F.2d 671, 681 (5th Cir.), cert. denied , 474

U.S. 863 (1985).

Finally, we do not believe that Reese was deprived of any

information a s to the number and the accuracy of the loss to

Western. The record reflects that the court did consider the

accuracy of the $12,100,00 figure set forth in the PSR as the loss

to Western when the Probation Officer informed the trial court that27 c:br:opin:92-8108p.jm this figure was verified by the United States Attorney's office.

The basis of the $12,100,000 figure is evident from the face of the

PSR.

VI.

CONCLUSION

We AFFIRM the district court's judgment as to all allegations

of error asserted by Reese except the determination of the amount

of restitution; and find that the trial court did not correctly

compute the amount of restitut ion. We, therefore, VACATE the

portion of the district court's judgment as to the amount of

restitution and REMAND that portion to the dist rict court for

redetermination.