Cir. 2000). In Brothers, like this case, a contractor obtained
contracts intended for minority owned businesses by fraudulently
misrepresenting the ownership of his company. The Fourth Circuit
upheld the district court’s determination that loss should be the
amount of the contract. I nevertheless held that for purposes of
determining a Guideline “loss” I would rely on Seventh Circuit
authority which has held that loss is equal to the contract price
minus the benefit provided, which in this case I determined to be
the profit on the contracts.’ I did, however, take loss in the
larger amount of the contract diversion into account in determining
the appropriate sentence under 18 U.S.C. sec. 3553, as noted during
sentencing and discussed further below. With regard to the amount

of the profit, the Government and Mr. Duff put on evidence. I

7 E.g., United States v. Schneider, 930 F.2d 555, 558 q7t
Cir. 1991). In Schneider, the Government failed to prove any loss
in a case in which a contract was performed. In this case, even if
Mr. Duff’s argument were accepted that the City got the value of
the cleaning services for which it contracted, the profit to Mr.
Duff is not a value given the City and the Government reasonably
proved this amount as loss in this case. In writing this opinion,
I am less convinced that I was correct in determining “loss” not to
be the entire amount of the contract. Schneider did not involve a
minority/women set aside program in which the contract amounts
represent business to be provided to historically disadvantaged
groups. The loss of that money for those programs exists whether

or not the City obtained services. Under the Guidelines, the
preferable route might have been to follow Brothers, but to
consider a reduction as a downward departure. United States v

Lane, 323 F.3d 568, 588 (7** Cir. 2003) (“Once the amount of the loss
is calculated under the guidelines, the court has the discretion to
modify the amount of loss to more accurately reflect the economic
realities of the crime ...”) But as stated above, I did take the
larger amount into consideration in determining a reasonable
sentence under United States v. Booker.

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indicated that in post-Booker sentences, there is leeway to consider
more than one Guideline range under alternative factual
determinations.

Booker requires that I consider and specifically look at the
factors listed in 18 U.S.C. sec. 3553(a) in determining the
appropriate sentence. Foremost among my consideration was the
directive that that the sentence be “sufficient but not greater than
necessary, to comply with the purposes set forth” in paragraph 2 of
the paragraph. Those include the need for the sentence “to reflect

the seriousness of the offense, to promote respect for the law, and

to provide just punishment for the offense; ... to afford adequate
deterrence to criminal conduct; ... to protect the public from
further crimes of the defendant....” The statute also directs me

to consider the nature and circumstances of the defendant and the
kinds of sentences available.

I first looked at the seriousness of Mr. Duff’s offense. Mr.
Duff's wrongdoing was extensive. His fraud on the City of Chicago
and on the insurance companies each took place over many years. As
the City noted in a letter to the court in connection with Mr.
Duff's sentencing hearing, Mr. Duff's actions in obtaining over
$100,000,000 in City contracts under the false pretense that his
companies were minority or women owned and run harmed the
credibility of the City’s programs, and of course the opportunities

for minority/women owned businesses to gain entry and experience in

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At the sentencing hearing I made various other Guidelines
rulings: that each scheme involved more than minimal planning, that
the offense conduct (other than the tax scheme) involved
sophisticated means, that Mr. Duff was a leader and organizer and
that the insurance scheme victimized 50 or more insurance companies.

The Government objected to any reduction for acceptance of
responsibility. As noted above, Mr. Duff's initial attempt to plead
“guilty” was based on a factual statement that was a blatant attempt
to avoid conviction on most of the charges. When I rejected that
attempt, he did enter into a plea to the actual charges in this
case, but his plea took hours due to his efforts to admit the very
fewest facts that I and the Government would find necessary for a
valid plea. At the sentencing hearing, Mr. Duff presented the
testimony of two experts, one of whom I did not find credible, and
one of whom was not provided evidence by Mr. Duff that the expert
agreed was relevant to his opinion. At the hearing, Mr. Duff’s
attitude, expressed through the expert opinions and arguments of his
attorneys, continued to be that no one had really been hurt by his
fraudulent conduct or tax evasion. He continued to argue that no
one else could competently have done the work his companies did for
the City. He also continued to take the position that Mr. Stratton
and family members were paid for actual work, contrary to the
evidence in this case. Although Mr. Duff gave a prepared speech

just before sentencing, it was clear to me throughout Mr. Duff’s


agreed with the Government's determination for reasons stated during
the sentencing hearing and calculated the profit as $10,933,000.
Loss was also calculated on Mr. Duff’s insurance scheme. The
Probation Department concluded that this loss was the amount of
unpaid workers’ compensation insurance premiums. The Government
agreed with this approach. Mr. Duff maintained that at most this
was $300,000 (arguing that since premiums exceeded paid claims there
was really no loss). I concluded that the Government’s evidence was
more persuasive and its expert more credible than Mr. Duff’s and
determined that the loss, after offsets for revised experience
modifiers, was approximately $1,093,000. I also heard testimony
with respect to the loss on the tax counts and giving Mr. Duff the
benefit of the doubt as to the meaning of certain provisions under
the Guidelines, allowed him credit for the tax payments made by
others to the federal Government. (While he improperly deducted as
salaries millions of dollars that went to family members which were
in reality gifts, they paid income tax on the amounts. The
Government belatedly attempted to show that lost gift tax was not
paid, which would have changed the equation, but I concluded that
there was insufficient evidence of the amount that should have been
paid.) As a result, for purposes of the Guidelines, I limited loss
to the base offense level (increased to level 12 under §

2T1.1(b) (1)).


inconsistent with acceptance of responsibility. Id.; 1998
Guidelines, § 3E1.1, application note l(a).

Mr. Duff argued that given his guilty plea I had no discretion
to deny him acceptance of responsibility, citing United States v.
Carroll, 346 F.3d 744 (7 Cir. 2003). In Carroll the Court of
Appeals concluded that the district court erred in concluding that
a defendant had obstructed justice and in otherwise denying
acceptance of responsibility, noting the defendant had participated
in numerous proffer sessions in which he had described his illegal
conduct in detail. The language of the opinion, however, can be read
to deny discretion to deny acceptance of responsibility in any case
in which a defendant provides a “bare-bones” description of guilt.
Id. at 750. While I believe that interpretation would be a change
from the approach and discretion noted in the cases discussed above,
I stated at the sentencing hearing that it is possible that under
Carroll, on these facts if I were limited to the Sentencing
Guidelines that I could not deny the Guideline reduction for
acceptance of responsibility despite my belief that his guilty plea
is simply “spin control.” Since this sentence, under Booker, is not
limited to consideration of a narrow range following a strict
determination of points under a particular Guidelines Manual,
however, I considered the sentencing range that would be applicable
with or without acceptance of responsibility. See United States v.

Crosby, 397 F.3d 103, 112 (2d Cir. 2005), in which the court


IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

UNITED STATES OF AMERICA,
Plaintiff,
No. 03 CR 922

Vv.

JAMES M. DUFF,

Defendant.
MEMORANDUM OPINION

James Duff was charged in a 33 count indictment with engaging

in a racketeering conspiracy under 18 U.S.C. sec. 1962(d) involving

fraud against the city of Chicago, another fraud scheme involving

Workmen’s Compensation insurance, and money laundering. He was

also charged with tax fraud. Mr. Duff pled guilty to all charges

shortly before his trial was to begin. I held a three-day

sentencing hearing in his case on May 16-18, 2005 and ultimately

sentenced Mr. Duff to 118 months in the custody of the Bureau of

Prisons. This memorandum is written for the purpose of explaining

the factors that entered into my decision as to Mr. Duff's
sentence.

Mr. Duff was indicted in September, 2003, along with six
others who were alleged to have participated with Mr. Duff in
various criminal activity. Trial was set for October 4, 2004, but
reset to January 24, 2005 on Mr. Duff's motion. On December 24,

2004, Mr. Duff notified the Government that he wanted to plead


from further crimes of the defendant....” It was clear that a
substantial sentence was required to deter others from engaging in
similar fraud, to punish the lengthy and extensive criminal conduct,
and to promote respect for the law. I also believed that a
substantial sentence was necessary to deter further crimes by Mr.
Duff. His criminal actions, covering a multitude of victims,
statutes and schemes, went on for a decade or more.

Section 3553 also requires that I consider the nature and
circumstances of the defendant. At sentencing, as is common,
letters written in support of Mr. Duff indicated he is a good family
man. But the crimes to which Mr. Duff pled guilty, and the
testimony heard at trial that implicated him, paint a different
picture of Mr. Duff.? Mr. Duff’s actions were not driven by any
even perceived necessity. Motivated purely by greed, he was willing
to risk harm to all those who worked with him, commanding them to
participate in his conduct, and even requiring criminal conduct by
his mother. At trial, there were witnesses who were clearly afraid
of Mr. Duff, and there was testimony that he threatened physical
harm to at least one witness and his family when he believed the

witness might stand in the way of his obtaining the City contracts.

2 The sentencing was delayed several times so that both of
Mr. Duff’s attorneys would have the opportunity to read the trial
transcript. While they indicated prior to the sentencing hearing
that they intended to refute specific “untrue” trial testimony, no
evidence at the sentencing gives me any reason to doubt the facts
noted here.

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the marketplace. Mr. Duff, out of pure greed, successfully enriched
himself and his family, and to the extent of more than $100,000,000
in contracts, prevented legitimate minority/women owned businesses
from developing their own experience, credibility, employees, and
livelihood. At the same time Mr. Duff was engaged in defrauding the
City of Chicago, he engaged in a twelve-year fraud in connection
with workmen’s compensation insurance. In that scheme, Mr. Duff
succeeded for many years in paying low cost premiums for clerical
workers while he in fact employed much higher risk manual laborers.
Mr. Duff was also guilty of income tax fraud over a three-year
period.

Mr. Duff’s criminal conduct is worse because of the people he
corrupted. Six people were indicted with Mr. Duff. Three have been
found guilty, one is set for a later trial, and his own mother
failed to stand trial only because of her deteriorating health. In
addition five others who testified at trial were given immunity from
prosecution because of their cooperation but were clearly
participants in his illegal ventures. Mr. Duff corrupted
(obviously, with their cooperation) all of the people found guilty
or given immunity.

In sentencing Mr. Duff for these crimes, I was also required
to consider the need for the sentence “to promote respect for the
law, and to provide just punishment for the offense; ... to afford

adequate deterrence to criminal conduct; ... to protect the public

a1


sentencing hearing that, while like most defendants he is very sorry
that he will have to pay the consequences of his actions and is
sorry that his family will be hurt, he has never accepted morai
responsibility for any wrongdoing.

The Seventh Circuit has held “that in the absence of evidence
of sincere remorse or contrition for one’s crimes, a guilty plea
entered for the apparent purpose of obtaining a lighter sentence
does not entitle a defendant to a reduction for acceptance of
responsibility.” United States v. Hammick, 36 F.3d 594, 600 (7
Cir. 1994). “Rather than relying solely on the defendant’s guilty
plea to award the reduction, the sentencing judge is required to
look beyond formalistic expressions of culpability and to determine
whether the defendant has manifested an acceptance of personal
responsibility for his offense in a moral sense.” Id. The
judicial inquiry “is a search for expiatory deeds and, failing
those, ... for conscience.” Id., quoting from United States v.
Beserra, 967 F.2d 254, 256 (7*" Cir. 1992). A defendant can be
required to “provide a complete and credible explanation of the
conduct involved in the offense of conviction.” Hammick at 599.
The defendant has the “burden of demonstrating that he has actually
accepted responsibility for his actions.” United States v.
Taliaferro, 211 F.3d 412, 414 (7 Cir. 2000). Lies and frivolous

denial of relevant conduct that the court has concluded is true is


companies involved in the City fraud to a separate company through
2001, the 2001 Manual should apply. I concluded that since his
companies had been “decertified” as minority/women owned businesses
before this time, I would look at the 1998 Manual in considering his
sentence.

Mr. Duff’s three-day sentencing hearing was largely consumed
with an attempt to determine “loss” under the Sentencing Guidelines.
The first “loss” issue involved the harm caused by Mr. Duff
successfully defrauding the City of Chicago out of more than
$100,000,000 in contracts. The Probation Department determined that
the amount of loss involving this fraud was $112,406,580, which was
the value of the benefits diverted from the City’s WBE/MBE set aside
program. The Government supported this position, arguing that USSG
sec. 2F1l.1, Application Note 8(d) in the 1998 Guideline Book, or
2{(F) (ii), Special Rules, to USSG sec. 2B1.1 (2001 Book), both
provide that “loss is the value of the benefits diverted from
intended recipients or uses” (1998 Book) or “in the case involving
Government benefits (...entitlement programs), loss shall be
considered to be not less than the value of the benefits obtained
by unintended recipients or diverted to unintended uses,...” (2001
Book). Mr. Duff contended that his company performed the work under
the contract and that therefore there was no loss at all. The
position of the Probation Department and the Government is supported

by United States v. Brothers Const. Co. of Ohio, 219 F.3d 300 (4


Mr. Duff created another company to which he diverted millions of
dollars in proceeds from the City contracts. He pled guilty to
money laundering charges in connection with this conduct. In a
second fraudulent scheme, Mr. Duff over a long period of time
misled and concealed from insurance companies the fact that most of
the workers employed by his companies were manual laborers, which
required a higher workman’s compensation premium, rather than
clerical workers, which he represented the workers to be. Mr. Duff
also pled guilty to income tax fraud involving two of his companies
over a three-year period.

The principles involved in determining Mr. Duff's sentence are
directed by United States v. Booker, 125 S. Ct. 738 (2005). In
that case the Supreme Court held that the United States Sentencing
Guidelines must be “merely advisory” in order to avoid violating
the Sixth Amendment to the United States Constitution, and that the
trial judge retains “broad discretion in imposing a sentence within
a statutory range.” Id. at 750. In addition to considering the
Sentencing Guidelines, I am to consider the factors listed in 18
U.S.C. § 3553(a).

The Government and Mr. Duff disagreed over the appropriate
Guidelines Manual that should be considered in this case. While the
Government agreed that the 1998 Manual would be applicable to Mr.
Duf£’s co-defendants, it argued that because he continued to reap

the benefits of the City fraud and to divert money from the


guilty. When he appeared for his guilty plea, however, on January
6, 2005, he attempted to plead to a factual statement that did not
encompass the charges brought by the Government. On January 10,
2005, he again appeared before the court and in a plea colloquy
that took four hours due to his reluctance to admit to the facts
that would sustain the charges, eventually pled guilty to the
charges in the superceding indictment. Trial of four of the other
defendants began on January 24, 2005. The jury returned a verdict
of guilty as to all but one of these defendants on February 24,
2005. One of the remaining defendants, who was ill, is scheduled
for trial this fall. The last defendant was Mr. Duff's mother,
Patricia Duff. She was dismissed when it was determined that she
was not competent to stand trial.

In summary, the indictment to which Mr. Duff pled guilty
charged, and the evidence demonstrated, that Mr. Duff obtained in
excess of $100,000,000 in contracts from the City of Chicago that
had been set aside for minority and women owned businesses by
falsely representing that two companies actually owned and
controlled by him were owned and operated either by his mother or
another defendant, William Stratton. Neither of these defendants
in fact had control or operated either business. Mr. Stratton, an
African American, was essentially the chauffeur and companion of
Mr. Duff’s father. His mother had nothing to do with the business.

To disguise his actual ownership and control of these businesses,


After considering each of these factors, and the advisory

Guidelines, I concluded that a sentence of 118 months was
“sufficient, but not greater than necessary” to satisfy the concerns
expressed in the statute. The sentence also included restitution,

the imposition of costs, and a term of supervised release.

ENTER ORDER:

OC PBeak ln

Elaine E. Bucklo
United States District Judge

Dated: May 27, 2005

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