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IN THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF OREGON 

PORTLAND DIVISION 

UNITED STATES OF AMERICA, )

 ) 

 Plaintiff, ) Case No. 3:15-cr-00438-JO 

 ) 

 v. ) 

 ) October 22, 2018 

WINSTON SHROUT, )

 ) 

 Defendant. ) Portland, Oregon 

________________________________) 

SENTENCING 

TRANSCRIPT OF PROCEEDINGS 

BEFORE THE HONORABLE ROBERT E. JONES 

UNITED STATES DISTRICT COURT SENIOR JUDGE 

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Case 3:15-cr-00438-JO Document 175 Filed 11/26/18 Page 1 of 63
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APPEARANCES 

FOR THE PLAINTIFF: 

 STUART A. WEXLER 

 Department of Justice 

 Tax Division 

 601 D Street NW 

 Washington, DC 20004 

FOR THE PLAINTIFF: 

 LEE F. LANGSTON 

 Department of Justice 

 Tax Division 

 601 D Street NW 

 Washington, DC 20004 

FOR THE DEFENDANT: 

 RUBEN L. INIGUEZ 

 Federal Public Defender's Office 

 101 SW Main Street 

 Suite 1700 

 Portland, OR 97204 

COURT REPORTER: Jill L. Jessup, CSR, RMR, RDR, CRR, CRC 

 United States District Courthouse 

 1000 SW Third Avenue, Room 301 

 Portland, OR 97204 

 (503)326-8191 

* * * 

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Case 3:15-cr-00438-JO Document 175 Filed 11/26/18 Page 2 of 63
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TRANSCRIPT OF PROCEEDINGS 

(October 22, 2018) 

(In open court:) 

THE COURT: Good morning, everybody.

MR. WEXLER: Good morning, Your Honor.

MR. LANGSTON: Good morning, Your Honor.

THE COURT: Have a seat, please.

We'll hear from the government.

MR. WEXLER: Yes, Your Honor. Good morning. We're

here in the matter of the United States v. Winston Shrout,

3:15-cr-438, for the purpose of sentencing.

If I may, Your Honor, the Court has the government's

detailed brief. It's certainly not my intention today to read

that brief into the record, but I do want to highlight for the

Court some areas that I believe would be helpful for the Court

to focus on when considering a sentence in this case.

I want to start just by reiterating what the government's

recommendation is in this case, and that is 20 years of

imprisonment followed by five years of supervised release, with

special conditions as outlined in the government's sentencing

memorandum, and an order of restitution to the Internal Revenue

Service for $191,226.10.

Now, not surprisingly, the defense disagrees with the

government's recommendation. I think the first point of

disagreement appears to be around the calculation of loss and

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Case 3:15-cr-00438-JO Document 175 Filed 11/26/18 Page 3 of 63
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how the Court should handle that. The defendant's position is

that loss in this case is only approximately $150,000, which is

related to the defendant's failure to file and pay taxes and

that there's essentially no other harm. But that position is

incorrect for two reasons. First, the intended loss in this

case is significantly higher, and both the sentencing

guidelines and Ninth Circuit case law are clear that the Court

should consider intended loss when applying the guidelines.

And this includes even where the defendant's fraud was

impossible or unlikely to occur or where the defendant's

fraudulent intent was thwarted.

And there was significant evidence at trial, including the

defendant's own admissions, that he intended for his fraud to

work. And even if the defendant's -- even the defendant's

sentencing memo implies that the loss was intended to occur.

I mean, why else would the defendant focus on his supposed

beneficent motivations for doing the conduct? Why do the

conduct at all if you're not intending for it to work, if

you're not intending for the loss to occur?

So the Court can and should include the intent of the

defendant's fraud even if he never succeeded or couldn't have

succeeded.

And the second reason is that the actual harm in this case

is really closer to $30 million if the Court considers relevant

conduct.

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Now, the guidelines and the Ninth Circuit both state that

the Court can consider conduct that isn't charged or is not an

element of the conviction if it was part of the same course of

conduct or common scheme or plan as the offenses of conviction,

and the Ninth Circuit specifically says to focus on similarity,

regularity, and temporal proximity.

The defendant's seminars, which were a large part of the

government's case, weren't limited to promoting and teaching

the use of fictitious financial instruments. The defendant

also promoted other fraudulent schemes, including a scheme

known as the false form 1099-OID scheme, which the --

essentially involved the filing of false tax returns using a

fraudulent IRS form, and the government's brief goes into a

little bit more detail as to what the OID scheme is essentially

about.

And the defendant's promotional activity resulted in a

number of related convictions, including family, friends, and

customers. The government provided a list of approximately two

dozen cases -- that was attachment C to the government's

sentencing memorandum -- where individuals used portions of the

defendant's schemes learned through attending a seminar,

viewing or reading a product, such as a video or a book, or

receiving one-on-one coaching. And those cases defrauded the

federal government out of at least $30 million, and that's the

amount of ordered restitution. That's real harm.

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And that conduct only includes cases where there was a

federal tax nexus. It doesn't include any cases that may have

occurred at the state level. It doesn't include any cases that

may have not had a tax nexus, such as mortgage fraud or bank

fraud.

THE COURT: What does it include?

MR. WEXLER: It includes cases -- a number of cases

related to the OID scheme and a number of cases related to the

fictitious -- filing of fictitious instruments.

THE COURT: You now say 30 million loss?

MR. WEXLER: Yes, sir.

THE COURT: Loss to whom?

MR. WEXLER: Loss to the federal government,

Your Honor. I think, in some of those cases, it may have been

third-party loss to banks, but essentially it's loss to the

federal government for -- either related to false tax returns

or --

THE COURT: Are you talking about the taxation of

30 million, or are you talking about the gross amount?

MR. WEXLER: I'm talking about the gross amount,

Your Honor. So this would have been, for example, someone

would have filed a false tax return using the OID scheme, and

they would have received a fraudulent refund as a result. Some

of these refunds were quite large, and so that's the loss. The

government is out that loss, and that was the basis of the

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Case 3:15-cr-00438-JO Document 175 Filed 11/26/18 Page 6 of 63
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restitution.

MR. INIGUEZ: Your Honor, if I may, I wanted to wait

until my turn; however, I was going to object not only to the

government's exhibit, but to this evidence.

THE COURT: I know you do, and you wait your turn.

MR. INIGUEZ: Okay. Thank you, Judge.

THE COURT: Now, while we're on the -- I appreciate

that there's no -- all you can do is give it your best

estimate.

Do you know how many people over the years actually

attended these seminars?

MR. WEXLER: Your Honor, it would be in the hundreds.

I don't know the exact number, but I have reviewed records from

BEADS, which was the organization that ran a number of the

seminars, and I know that they received customer payments from,

at times, at least a hundred people for a given seminar.

THE COURT: That's just for one seminar.

MR. WEXLER: That's just one seminar, Your Honor.

This is conduct that went on for at least ten years. The

seminars went on for at least ten years.

THE COURT: I'm trying to get at a total number of

attendees, if you figured that out, of your best estimate.

MR. WEXLER: Your Honor, I -- I don't -- I would --

it would just be an estimate, and it would be in the hundreds.

I can't put together a better -- because, one, the government

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Case 3:15-cr-00438-JO Document 175 Filed 11/26/18 Page 7 of 63
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is not aware of every seminar that the defendant gave.

THE COURT: Do you know approximately how many

seminars he conducted?

MR. WEXLER: Your Honor, if I can have a moment,

Special Agent Casey Hill, who's here today, who would have a

better sense of that number, if I can just ask him?

THE COURT: Of course.

MR. WEXLER: Thank you.

THE COURT: You know, he's welcome to pull over a

chair and sit at counsel table.

MR. WEXLER: Thank you, Your Honor.

THE COURT: Counsel, you can slide over just a little

bit. Thank you.

MR. WEXLER: Agent Hill's best estimate is, in terms

of organized seminars, 15 to 20 organized seminars that we know

of. I personally know of at least half a dozen private

coaching seminars where individuals hired the defendant to come

out to them and give them a personal private seminar. So we're

up to at least two dozen seminars that we know of.

THE COURT: Over the ten-year period?

MR. WEXLER: Over the ten-year period, beginning

in -- I will say the defendant's seminar activity has trailed

off in the last few years. So it's really between 2006 -- I

mean, the defendant has been under indictment. So I would say

between 2006 and 2015. So really an eight- to ten-year period.

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And that, of course --

THE COURT: What was the charge? How much were the

participants charged?

MR. WEXLER: That would range, Your Honor, but the --

Your Honor saw the defendant's advertisement for a new seminar

during the competency hearing, and I believe the fee was $575

for that. I would imagine the defendant charged different

rates over different periods.

Do you know?

From -- Agent Hill's recollection, it's from $350 on up.

This, of course, Your Honor, is just related to the

seminars. The defendant also sold copies of his seminars

through DVD sales on his website, and the government's PayPal

records, which were part of the government's evidence at trial,

showed that the defendant made 1 -- over 1,000 individual

transactions -- individual sales of his material from April of

2014 to April of 2015. That's just a one-year period. Over

1,000 transactions of selling his material.

THE COURT: So to backtrack over the whole period of

time, you think it was how many people, again, over a ten-year

period went to seminars?

MR. WEXLER: Your Honor, I would say, conservatively,

2,000 seminars, 50 people per seminar. So about a thousand

people.

THE COURT: Now, how do you reach your 30 million?

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MR. WEXLER: Your Honor, that's just the cases that

we provided you in attachment C, are cases Agent Hill --

Agent Hill can take the stand if Your Honor would prefer to

hear from him under oath, but Agent Hill sent out a national

inquiry to IRS investigative agents, asking if they had or were

aware of cases that had a connection to the defendant. And the

cases that we have listed in our attachment C are cases that

came back where those defendants either attended a seminar put

on by the defendant, they received a private seminar put on by

the defendant, they relied on videos or one-on-one coaching.

In all of those cases, there's a connection between the scheme

the defendant used and what the defendant was teaching, and

those defendants were in possession and were known to have

relied on that material.

THE COURT: I don't know how you jump from 100 plus

the sales at -- at the seminars to 30 million. How do you get

there?

MR. WEXLER: Well, Your Honor, that's the -- the

restitution amounts that are in those cases, that's the

30 million. So the government's argument is that the defendant

should be responsible, in part, for that loss because it was

his schemes that were relied on in those cases. So the

30 million is loss from those cases. So for --

THE COURT: How is it loss?

MR. WEXLER: From successful fraud, Your Honor.

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These were restitution amounts that were ordered because

individuals succeeded in defrauding the government out of those

amounts. So they were ordered to pay restitution in the amount

of the fraud loss.

THE COURT: You mean, now -- let's just take your

maximum number of attendees again. State the number of

attendees over a ten-year period. It's how many?

MR. WEXLER: I would very conservatively say at least

a thousand, Your Honor.

THE COURT: A thousand. All right.

Out of a thousand, they paid so much to go to it.

MR. WEXLER: Yes, Your Honor.

THE COURT: That adds up to how much?

MR. WEXLER: Hundreds of thousands. The

government's -- I don't have the exact income amounts that the

government presented at trial to the defendant, but it would

have been hundreds of thousands over that period of time.

THE COURT: And then how do you get up to 30 million?

MR. WEXLER: So let me just take a step back,

Your Honor, because I think we're probably passing each other

here.

THE COURT: Well, I keep asking you the same

question. I'm trying to get a -- an amount that makes sense.

MR. WEXLER: Sure, Your Honor.

THE COURT: If we're talking about him charging, I --

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I thought it would be many more seminars than what you propose,

from what I heard, so I'm -- we'll limit it to no more than

what you said.

Then so much income came from those, and you gave me a

figure in the hundreds of thousands. But I don't know how that

lines up. And then you jump to 30 million, and I don't know

how you get there from here.

MR. WEXLER: Yes, Your Honor. So the $30 million

number is related to conduct that the government is arguing is

relevant conduct, and it's not -- and it's not loss associated

with the defendant charging at a seminar. It's loss associated

with a customer of the defendant's defrauding the government.

THE COURT: Okay. Now, how many customers defrauded

the government?

MR. WEXLER: Well, Your Honor, I don't have a certain

number of that, but what I do have is what we presented in

attachment C, which is at least two dozen cases that went to

indictment, trial, and conviction.

I don't -- I don't know who, beyond that, went and tried

to defraud the government. It could be -- if each individual

at the seminar did exactly what they were taught, then it could

be everybody. But I don't have a number for that.

What I do know is that the cases that we included in our

attachment C, I can confirm that all of those two dozen cases

had a connection to what the defendant taught and those people

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learned it.

THE COURT: Those two dozen cases amount to how much?

MR. WEXLER: The restitution amounts that were

ordered in those cases total approximately $30 million.

THE COURT: Okay. That's where I wanted to get.

So we're talking about the restitution amounts of the

people that were, quote, students of the defendant, applied his

tax evasion scheme, amounted to $30 million.

MR. WEXLER: Yes, Your Honor.

THE COURT: To your best estimate?

MR. WEXLER: Yes, Your Honor.

THE COURT: Thank you. Go ahead with your

presentation.

MR. WEXLER: Thank you, Your Honor.

Loss, as the Court is well aware, is a significant part,

but it's also just one part of the Court's consideration when

determining an appropriate sentence. And the Court must also

consider factors under Section 3553(a).

The government feels that one of the most helpful factors

for this case is the need to avoid unwarranted sentencing

disparities. This leads me to the discussion of the similar

cases that the government presented in its brief and the one

case that the defense presented in its brief.

The first case that the government's presented was

United States v. Teresa Marty. 

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Now, in that case, Marty pleaded guilty to, in part,

defrauding the United States through the use of the false OID

scheme. This may actually help the Court understand sort of

the nexus.

And Ms. Marty received ten years in prison.

And the case -- Marty's case is related to this case

because Teresa Marty actually presented at the defendant's

seminar. She was a guest speaker at the defendant's Orlando

seminar, which was part of the government's case at trial,

where she talked about how to do the OID scheme.

And the government would suggest that the ten-year

sentence represents really a floor for the sentence in this

case because Ms. Marty was just a guest speaker at the

defendant's seminars. The defendant's conduct goes beyond that

for a number of years and a number of schemes and a number of

individuals.

And so Ms. Marty got ten years, but she was just a small

part of the defendant's overall fraudulent activity.

THE COURT: Any criminal history?

MR. WEXLER: In this case, Your Honor, or Ms. Marty?

None that I'm aware of in Teresa Marty's case, Your Honor.

THE COURT: Thank you.

MR. WEXLER: The next case that the government

provided was United States v. Dennis Alexio. In that case

Alexio was convicted of filing false returns that used the OID

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Case 3:15-cr-00438-JO Document 175 Filed 11/26/18 Page 14 of 63
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scheme and the use of fictitious financial instruments, just

like the defendant here was convicted of. 

And there was actually a client folder for Dennis Alexio

on the defendant's computer that was found during the search of

the defendant's computer, and it contained a false OID tax

return. And Dennis Alexio received 15 years, but he was just a

client of the defendant. Just one of hundreds.

But, finally, the government presented the case of

United States v. James Timothy Turner, and that's the case the

government feels most clearly reflects the defendant's conduct

in this case.

Turner received a sentence of 18 years for producing and

using fictitious financial instruments that totaled over

$2 trillion. Now, the Court there also considered Turner's

other conduct, such as hosting seminars, where he spread his

fraud schemes; teaching others how to use fictitious

instruments, to pay tax and other debts, and failing to report

the income he received from customers from his seminars.

The Turner court was also persuaded by the fact that

Turner caused many of his customers to lose money as a result

of the schemes or to accrue criminal charges themselves, and

that's exactly like the defendant.

THE COURT: Now, we're talking about your allegation

of 300 fictitious financial instruments worth in excess of

$100 trillion?

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MR. WEXLER: Yes, Your Honor. Those instruments were

found on the defendant's computer. Mr. Kerr testified at trial

as to those instruments. The government would argue that under

the guidelines they can be considered as relevant conduct.

THE COURT: So you're -- thank you.

MR. WEXLER: But the connection between the Turner

case and this case is -- is -- goes beyond just the fictitious

instruments, as I just mentioned.

In fact, the government provided to the Court in its brief

the intelligence report from the Southern Poverty Law Center

from 2010 that labeled both Timothy Turner and the defendant

here as leaders of the same sovereign citizen movement for

promoting the same schemes and doing essentially the same

conduct.

The only difference really is that the defendant did it

for longer than Timothy Turner did.

Now, on the other hand, the defendant -- the defendant

only gave one case, and that's the case of United States v.

Richard Ulloa. But the defense mischaracterized the facts in

that case. While the Court did a guidelines calculation based

on actual loss, that came to 21 to 27 months, as the defense

stated, the Court actually found that range too low, when

considering Ulloa's overall conduct, and sentenced him to

60 months.

The extent of Yoloa's conduct in that case is far, far

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less than the extent of the defendant's conduct in this case.

Now, an important goal embodied in the sentencing

guidelines is the concept of uniformity of punishment. Similar

conduct in the federal system should be punished similarly. It

simply cannot be a fair and just system if the defendant's

conduct in this case, which is virtually identical to

Timothy Turner's conduct in the Middle District of Alabama, is

sentenced much differently than Timothy Turner's conduct was.

So I would like to transition to just talk briefly about

the actual offense conduct and the nature of the offense under

3553(a).

Your Honor, Section 514, which covers fictitious

obligations, is a serious crime. As the government noted in

its brief, the Court can look to the Congressional Record for

the why of 514 being enacted. But the Court should also make

note that Congress made it a Class B felony, a very serious

felony that's not eligible for a probationary sentence.

In other words, Congress did not intend for people who

commit this crime to receive probationary sentences; yet that

is exactly what the defendant is asking for. The defendant is

asking for one day, but the credit received -- the defendant

receives credit for being processed by the marshals, so he's

essentially only served one day. So it's essentially only a

fully probationary sentence.

Congress went so far as to not only criminalize --

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THE COURT: Well, technically, the defense gets

around that by saying one day and then followed by supervised

release. It ends up having the same personnel handling it, the

same conditions. So it's just a matter of nomenclature than

anything else.

MR. WEXLER: Yes, Your Honor.

And Congress went so far as to not only criminalize intent

in 514, but also simply possessing fictitious instruments with

an intent to defraud is a crime.

The breadth of the statute itself speaks to just how

serious Congress considered this conduct.

Now we're talking about a 20-year pattern of conduct. By

the defendant's own admission, the defendant got on the stand

and said he's been doing this for at least 20 years.

Now, as I mentioned earlier, the Court should consider

this relevant conduct that the defendant is promoting, multiple

schemes, including this OID scheme, which is widespread and

harmful. He's not simply someone who didn't file his taxes and

try to defraud the government and banks with fictitious

instruments. He's a nationwide, even worldwide promoter of

antigovernment fraud schemes. The government put on evidence,

as evidence at trial, the defendant's seminar from London, and

the defendant has also given seminars in Canada and Australia.

THE COURT: Now, in respect to that --

MR. WEXLER: Yes, Your Honor.

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THE COURT: -- has there been any calculation as to

the amount of world travel that he's engaged in -- he says they

admired him in Australia, and he went to London on these

excursions -- as to how that was paid for or what it was -- the

costs at all?

MR. WEXLER: If I can have a moment, Your Honor?

THE COURT: Really, I just need a feeling as to how

much travel there was. Were these isolated?

Go ahead.

MR. WEXLER: Yes, Your Honor. There's at least a

half dozen to a dozen seminars that the defendant gave abroad.

Most of them are in Canada because it's close. The defendant

did give one in Panama, in London, and -- in London, England;

in Australia. 

Right after he was indicted, the defendant went on a

cruise to Mexico called the Conspira-Sea Cruise, where he spoke

on that. The government provided a citation in its brief to a

review of what he actually stated on that cruise.

THE COURT: Thank you.

You answered my question.

MR. WEXLER: Thank you. And, of course, Your Honor,

as I mentioned, the promotion activity that the defendant

engaged in led to criminal conduct by family members, by

friends, and by at least the two dozen cases that the

government cited in its brief. But as we discussed, the number

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Case 3:15-cr-00438-JO Document 175 Filed 11/26/18 Page 19 of 63
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is really a lot more.

And none of that reflects well on the defendant's

character.

The defendant, in his brief, seems to view himself as some

sort of Robin Hood. But the jury rejected that. They heard

the defendant on the stand, and they still convicted him. The

defendant knew his family, friends, and customers were going to

jail using the things that he was teaching, and he kept going.

And the defendant seemed to ignore, in his brief, the fact that

one of the fictitious instruments that he was convicted of was

sent to the United States Treasury, and it was for payment to

him. 

The defendant's sentencing memo talks about how none of

this was payment to him. He was just doing this for other

people. But it completely ignores the fictitious instrument.

The nonnegotiable bill of exchange the defendant sent to the

Treasury for his own benefit. He's not Robin Hood. He's just

robbing people.

THE COURT: How much for this?

MR. WEXLER: That was 1.9 billion, this instrument,

Your Honor.

THE COURT: Thank you.

MR. WEXLER: There are no mitigating health issues in

this case. Dr. Pelton's letter, which the government provided

to the Court from the Bureau of Prisons, says the defendant's

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physical ailments are nothing new. In fact, there's an entire

system within BOP for handling inmates with physical conditions

like the defendant.

The case law that the government provided in its brief

says that the defendant's age, his advanced age, is not -- does

not necessitate a lenient sentence, and the defendant's mental

health, frankly, is mischaracterized in the defendant's brief.

First, the Court presided over the competency hearing.

It's not settled that there's any delusion at all. The Court

can completely discard Dr. Martin's report. She did not

testify at the hearing. And most importantly, her report does

not include any consideration of subculture, which both

Drs. Millkey and Lopez said was critical to their analysis. So

the Court can discard that.

So really the Court is left with Dr. Millkey versus

Dr. Lopez. And they come up to differing conclusions. The

defendant just relies on Dr. Millkey and completely ignores

Dr. Lopez.

Second, even if the defendant is delusional, Dr. Millkey

was clear that the delusion is not related to the conduct in

this case. Dr. Millkey said the defendant believed in aliens.

Dr. Millkey never said that the defendant couldn't act

purposely or intentionally to defraud somebody, which is what

they -- the defendant's sentencing memo actually says that

Dr. Millkey -- Dr. Millkey never made that conclusion. 

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Really, the entire mental health issue is just an intent

to nullify the verdict. The first attempt was to have the

competency hearing itself and to avoid sentencing entirely.

And now the second attempt is to claim some sort of diminished

capacity. But the jury concluded that there was no diminished

capacity at the time of the defendant's actions. There's --

there was no discussion from Dr. Millkey or Dr. Lopez regarding

whether the defendant was actually suffering from any

diminished capacity when he was committing these acts.

The defendant can't split the baby. He can't argue that

he's led a law-abiding life and poses no threat to society but

at the same time has mental issues to prevent him from

controlling behavior that he knows is wrong.

The fact is that the defendant's mental health, as it

relates to his criminal conduct, is fine. It's always been

fine.

He's always known exactly what he was doing.

Your Honor, I just would like to finish with a discussion

about deterrence.

Now, deterrence is an area that often gets short shrift

but is part -- I believe a particular important factor for the

Court to consider in this case. First, there is the issue of

specific deterrence.

The defendant says the issue of one day in prison is

sufficient. But we're talking about a 20-year pattern of

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conduct. The defendant, throughout that period, was repeatedly

put on notice of the criminality of its conduct, and it had no

effect.

When the defendant was indicted, he simply responded with

a commercial lien and threats against the Court and law

enforcement. He still does weekly and regular podcasts that

appear on YouTube and in other venues where he's flouted his

case as being part of his larger plan, and the pod -- he gave a

podcast the day after his competency hearing in which he said

that even though he took down his website, it would all be back

when there's a change in government. Whatever that means. But

what it does mean is that the government is not deterred -- the

defendant is not deterred.

It's laughable now that, frankly, the defendant would

argue that just one day in jail would deter conduct that's gone

undeterred for 20 years. Despite knowing his friends and

family were going to prison, his customers were going to jail,

he was under investigation for his conduct. He was under

indictment for his conduct. He was convicted for his conduct.

None of that has deterred him.

But, Your Honor, perhaps of even greater importance here

is the concept of general deterrence. Frequently, in tax

cases, the government highlights the importance of tax

enforcement and deterring noncompliance with the tax code, and

those are important issues.

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But more importantly here is that the defendant is a

prominent figure in the sovereign citizen and tax defrauding

community. As I stated earlier, he had over 1,000 customers in

a one-year period, from April of 2014 to April of 2015. The

government provided a link to a YouTube video of defendant

speaking that has over 160,000 views. This case has been

followed by the local press here in Portland. It's been

followed by national organizations, like the Southern Poverty

Law Center and The Anti-Defamation League.

All of this is to say that people are paying attention.

People of like mind with the defendant, who see him as a

leader, as an authority figure, in a matter of hours, news of

this Court's sentence here today will spread throughout that

community, and those folks, which is hundreds of people, if not

thousands, will either be emboldened by defendant walking away

with merely a slap on the wrist and think that their conduct is

worth that risk, or they'll be deterred. They will see that

the risk is too great, and they won't want to spend a good

portion of their lives in prison for that conduct.

They'll turn away. They'll choose a different path.

And the Court has the power here today to alter the path

of hundreds of like-minded individuals. And the government

asks that the Court seize that opportunity, consider the

government's brief and all that I've discussed here today, and

sentence the defendant to 20 years in prison.

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THE COURT: Thank you, sir.

MR. WEXLER: Thank you, Your Honor.

THE COURT: Counsel?

MR. INIGUEZ: Good morning, Your Honor.

Your Honor, I have appeared before this Court many times

in the last 20, 25 years. This is probably the single case

where I have seen such a difference in perspective between the

parties. The government here is arguing that this Court should

exercise its sound discretion and sentence this 70-year-old

gentleman, whose commission of these offenses resulted in no

violence, no actual loss, and I'm asking you to consider all

the personal history and characteristics.

20 years imprisonment; one day in prison, five years of

supervision. That is a big gap. I don't envy the Court's

decision. I think what Mr. Wexler just told the Court -- I

know the Court is not concerned with public -- the public.

It's concerned with justice, fairness, reasonableness, and I

wanted to start out by reading what Congress directed the

Sentencing Commission 34 years ago when it initiated the

sentencing guidelines that we operate under in this courtroom,

and I'll quote from Title 28 U.S. Code § 994(j), the Sentencing

Reform Act of 1984. And what Congress instructed was that the

general appropriateness of imposing a sentence other than

imprisonment in cases in which the defendant is a first

offender who has not been convicted of a crime of violence or

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an otherwise serious offense -- this was not a crime of

violence. This is a first-time offender. This is an older

gentleman who does have a lifetime of accomplishment, who

stands before you.

I'm not trying to stay that this is not serious. He's

been found convicted, guilty of these offenses. But, again,

I'll go to the issue that you first addressed with the

government, which is the issue of loss here, Judge. And that

is why I am objecting to the guideline calculations here

because it is undisputed. These over -- I think it was 300

documents that they're claiming is relevant conduct, worth over

100 -- supposedly $100 trillion is the purported face value.

The fact is not one of those fictitious instruments was

negotiated, honored, transacted, accepted by any person or any

entity, including the federal government.

You heard the government talk about that one document sent

to IRS. That, of course, just like what the bank did, was look

at it. It's ludicrous on its face. And this, Your Honor, I

think, ties directly into the notion that whether the

government likes it or not, there are two professional expert

opinions, both who found Mr. Shrout to suffer from delusional

disorder. I know they want to ignore that and say, "Oh, it's

not proven. It's not accepted." It is. We had testimony

about that.

And that is key in this case, Judge, because if Mr. Shrout

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was a perfectly functioning individual without a mental

disorder, then that would say this person perfectly intended

for other people to suffer loss.

In fact, no actual loss. I'll get into this issue of

$30 million because I do have a very, I think, strong objection

there, Judge. Everything that you're hearing from the

government, your questions are well directed, and I think

they're getting at the point here.

The government, until its submission of this sentencing

document and this listing of other cases, listening -- reading

their brief and listening to the presentation this morning, it

strikes me how much of the government's case is talking about,

not Mr. Shrout, but other people, restitution of $30 million of

other individuals in other cases who they claim -- and that's

all they do, is claim -- attended a seminar. Read -- read

something, listened to a DVD, and somehow, because someone --

part of what they read -- you know, my bookshelf is full of

books. Simply because I read a poem by Robert Frost, is he

culpable for something that I later do because they can show I

bought his book? 

What they want to say is these people committed acts on

their own. We don't know anything about those individuals,

anything about their characteristics, anything about those

facts, and, yet, the government comes in here today and tries

to say, "He should be held responsible for everything these

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other people that we say are somehow associated with him --

they attended a seminar, they read a book, and therefore he

should be held responsible for something they have already been

held responsible for." 

No one, not Mr. Shrout, no one has that much power to

control and direct. Did he not control and direct these

individuals. That argument, that use of that amount -- why

does the government do this, Judge? Why is it trying to use

restitution in other cases as actual loss here? Because it has

no actual loss.

These instruments, again, undisputed. I would challenge

my colleague to tell the Court about any single instrument that

was honored by anyone. The answer is he cannot because it did

not occur. There is no actual loss. The only loss in this

case is the tax loss for the failure to file that the

government suffered, that Mr. Shrout agrees he must pay and he

will pay.

THE COURT: The 191,000?

MR. INIGUEZ: I believe the number proven at trial,

Judge, was a little over 157. The government is arguing that

the Court should allow penalties and interest. It did provide

information last week that the defense has not had an

opportunity to review.

As I suggest, the statute allows us to set over

restitution only for a period where we can get to the bottom of

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Case 3:15-cr-00438-JO Document 175 Filed 11/26/18 Page 28 of 63
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exactly how much. But the bottom line is this: It's less than

$250,000. We both agree. Their position is 191; mine is 157.

We'll figure out whether the loss and the penalties apply. The

reason that less than 250 is important is because when you look

at the tax table -- go to 2T1.1, and 1.4 is the table -- that

is a base offense level of 16. That is where we should begin

this discussion. Not at this level seven plus. Because the

loss was over $100 trillion of intended loss, we're going to go

up 30 levels to more than 20 years, that's where the government

comes up with this number, Judge. And that's just not -- this

case really shows us how the guidelines, try as they might to

be reasonable and fair, it's not one size fits all.

We have no actual loss. My argument, and, again, it

ties -- this case cannot be decided without looking at

Mr. Shrout's mental health. And the guidelines define intended

loss as purposefully inflicting pecuniary harm or intending to

inflict pecuniary harm. Even if it's unlikely, as the

government says, or impossible to occur, right, but it has to

be intentional, purposeful, and that's why this conduct here

does not satisfy the definition of intended loss.

The loss we're dealing with really is less than $250,000

under the tax table, and that's where we should start.

Now, going back to these other cases that the government

is talking about, Judge, you know, my objection is this: The

need -- they're really focused on the need to avoid unwarranted

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Case 3:15-cr-00438-JO Document 175 Filed 11/26/18 Page 29 of 63
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sentence disparity. He discusses it. 20 percent of the

government's brief addresses that issue, addresses other cases,

not Mr. Shrout's case. That's where they would like the Court

to spend its time and attention. Not on this unique individual

before the Court and that the Court must judge.

They discuss the Marty case right now orally. A guest

speaker. You heard Mr. Wexler admit she, not him, advocated

this OID scheme. Not Mr. Shrout; her. She's responsible for

her own conduct, but somehow the government wants to say she

was a speaker; so, therefore, because she did that, you should

attribute that to him and hold him equally or more accountable.

Here is really my -- they talked about Alexio and Turner,

too, Judge, but here is the bottom line: The government, in

much of its brief, acknowledges Ninth Circuit law that applies

but not when it comes to this issue that they spend so much

time discussing. Here is the Ninth Circuit law that guides the

Court on the issue of unwarranted disparity. We both cited

this case, and it's United States v. Treadwell. It's a 2010

Ninth Circuit case. The citation being 593 F.3d 990. Here is

what the Court -- the Ninth Circuit in that case says I would

like to quote. A district court need not, and, as a practical

matter, cannot compare a proposed sentence for defendant to the

sentence of every criminal defendant who has ever been

sentenced before. Too many factors dictate the exercise of

sound sentencing discretion in a particular case to make the

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Case 3:15-cr-00438-JO Document 175 Filed 11/26/18 Page 30 of 63
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inquiry that the government urges helpful or even feasible.

That's at page 1012 of Treadwell. It is a bit of a long

quote, but I'm going to read it, Judge. Because here is

what -- here is what the defendant in Treadwell was trying to

do, was use the same argument the government was saying. Look

at all these other people around the country at other times and

in other cases who got lighter sentences. So you should

compare me not with the defendants in this case; right? That's

what you do with sentence disparities. Look at defendants in

their particular case, not at people from all around the

country. And the Court shot that argument down.

It doesn't matter, for the purposes of 3553(a), said the

Court, that the government could point to a specific criminal

defendant who may have received a greater sentence for a

different fraud. A district court considers the 3553(a)

factors to tailor a sentence to the specific characteristics of

the offense and the defendant, and they quote from the

Supreme Court. It has been uniform and constant in the federal

judicial tradition for the sentencing judge to consider every

convicted person as an individual. And every case as a unique

study in the human failings that sometimes mitigate, sometimes

magnify the crime and the punishment to ensue. That's a quote

from the Supreme Court.

The mere fact that here the government can point to a

defendant convicted at a different time of a different fraud

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Case 3:15-cr-00438-JO Document 175 Filed 11/26/18 Page 31 of 63
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and sentenced to a term of imprisonment, greater -- here

greater than the defendant's -- does not create unwarranted

sentence disparity.

For one thing, we aren't presented with the records in

those cases on which the government relies. That is really my

argument, Judge, that they're asking you to consider something

that you should not. It's illegal. They can't ask the Court

to consider these other cases when deciding the sentence here.

The focus here -- the focus here, as always, is on this unique

defendant, these unique circumstances, this particular offense.

Judge, I -- I cannot presume, with the Court's

experience -- I know this Court has sentenced thousands of

defendants. You, better than my colleague, better than myself,

can look at this case. I know we have had this case for years.

Mr. Shrout has appeared before you several times. Not only at

trial, but at the competency hearing. And I trust that the

Court can look at this case and say, you know, 20 years

imprisonment. Prison? Years in prison? Really? For a

defendant who is nonviolent, who's had the kind of background

and history -- you can see from his family -- sons, daughters,

grandchildren --

THE COURT: On that score, I received a letter from

his common-law wife.

MR. INIGUEZ: Charlotte?

THE COURT: What?

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Case 3:15-cr-00438-JO Document 175 Filed 11/26/18 Page 32 of 63
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MR. INIGUEZ: Charlotte Killips?

THE COURT: Yes. She says that Winston raised 18

children, consisting of 12 sons and 6 daughters. Is that -- is

that the correct number? Would you ask him?

THE DEFENDANT: Yes.

MR. INIGUEZ: Yes, Judge.

THE COURT: All right. And apparently all the

children have done very well?

MR. INIGUEZ: They have.

THE COURT: Have been crime-free?

MR. INIGUEZ: Yes. Yes.

MR. WEXLER: Your Honor, they actually haven't.

MR. INIGUEZ: One is a stepdaughter.

THE COURT: Well, that was a stepdaughter. That was

a separate thing completely. I kept it out before the jury. I

keep it out of my thinking for this sentence.

MR. INIGUEZ: Judge, you know, the first factor under

3553(a), if I may, is personal history and characteristics, and

that's really what I'm asking you to consider here, among other

things. Not only his age. You know, it strikes me as so

incredible sometimes when the government can come in and just

pooh-pooh someone's age and health and treat it like it just

should not be considered. It should and it must, and Congress

has dictated that it should and must.

This gentleman has several health issues. I have heard,

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Case 3:15-cr-00438-JO Document 175 Filed 11/26/18 Page 33 of 63
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as I'm sure the Court has, so many times, the government come

in and try out the fact that the Bureau of Prisons can take

care of this. "It's okay. Send him to prison. He'll be fine

with the Bureau of Prisons." There are studies upon studies,

most recently from this year, where the Bureau of Prisons is

woefully inadequate. They cannot -- they say they can, but

they cannot address these sorts of physical health conditions.

The government could sit here before you and say that they

can, but it's just a claim. The studies bear it out. They're

not able to. And that's a factor that the Court can consider.

Those health conditions, as we all know, during the past almost

three years that he's been on pretrial supervision, with the

Court's authority, he's traveled outside the country because

it's less extensive get hip replacements, to have his back

worked on. He suffers from chronic pain. I -- I think during

the time that we've seen him in this process, he's -- his

health has substantially deteriorated. The cataracts, the

heart condition, the --

THE COURT: Hernia?

MR. INIGUEZ: The hernias, the condition of his legs

that he's about to have treated, Judge. Those are all things

that we need to consider.

The other thing we just discussed -- and these are, I

think, extraordinarily strong family ties and support.

Marriages of many years. Ms. Killips, who you just discussed

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Case 3:15-cr-00438-JO Document 175 Filed 11/26/18 Page 34 of 63
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in the letter, that is his common-law wife of almost 40 years.

THE COURT: Is she here today?

MR. INIGUEZ: She is not -- oh, where is Charlotte?

She's right there, next to Ms. Bekken.

THE COURT: Yeah, she said in her letter to me that

she had been here constantly.

MR. INIGUEZ: Your Honor, military service. You

know, it's not insignificant. And, again, the government wants

to turn it on its head and somehow say, wow, let's treat it --

because he stands convicted of offenses that he does, that we

should just disregard his military service and treat it as if

he's dishonorable. He's not. He served three years --

four years in the Vietnam War.

THE COURT: Well, he wasn't in the Vietnam War. He

was stationed in Okinawa, and he received -- he was a tech

sergeant in the Marine Corps, and he served his time honorably.

He's a sharpshooter.

MR. INIGUEZ: That's right.

THE COURT: So he did a good job.

MR. INIGUEZ: Judge, also his education. Clearly,

and, you know, this is the thing about delusional disorder --

and we heard it from the witness stand -- it is not unusual for

this to offset in later life. 

And, I think, Judge -- again, I know you've seen so many

defendants, so many witnesses, and what I'm hoping is that it's

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Case 3:15-cr-00438-JO Document 175 Filed 11/26/18 Page 35 of 63
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come clear to us every time Mr. Shrout stands before you that,

you know, it's difficult for me to stand in front of a client

and say, "I'm sorry, but you suffer from delusion. You don't

recognize it. You don't see it, but the experts do." And it's

inextricable to sit here and try to disentangle beliefs in

people from Pleiades and the fact you're a walk-in from another

planet at the age of 5, from the idea that you -- you too were

fed these lies.

Mr. Shrout did not invent these theories that we're here

discussing today. You know, they want to point him as some

sort of, I think, a leader, a guru. He did not invent these

things. He, too, later in life, read them, listened to them,

and was gullable enough and delusional enough to believe them

and spew them back out.

But we have to consider -- we're not looking at someone as

the government tries to portray, a monovalent, greedy terrible

person. The evidence is very much to the contrary, Judge. 

Like I say, I think we've all seen him. I am sorry. But

Mr. Shrout is not functioning mentally the same way that

Your Honor does, the same way that I do and that the prosecutor

does. Those beliefs -- it's a little different; right? The

jury found those beliefs -- they found him guilty, but

Mr. Shrout, because of that disorder, holds those beliefs. But

it goes back to the issue that is critical here of intention

and purposefulness. 

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And, again, I think we can't dissect this stuff. We can't

say, "Oh, look he got a BS in psychology in 1976, and back then

he had a high IQ, so, therefore, this was all purposeful. It

was intentional." No. Things happen to people at different

points in their lives.

THE COURT: His IQ is labeled at 136?

MR. INIGUEZ: Back in the day.

THE COURT: That was the Marine Corps level. Do you

have anything more fresh?

MR. INIGUEZ: No, I don't, Judge. I'm sorry.

I do know the IQ you're preferring to, I think, was back

at 40, 45 years ago.

THE COURT: Yeah.

MR. INIGUEZ: Yeah. Judge, his employment history as

well. A very long career of hard work supporting that family.

He worked hard. A journeyman carpenter for 20 years. He

worked for the government with a clearance. All these things

have to be considered.

Again, I can't stress it enough.

THE COURT: Journeyman carpenter?

MR. INIGUEZ: Yes. That's right, Judge.

THE COURT: Apparently.

MR. INIGUEZ: Yeah, for 20 years. And then he's been

retired. And that, Judge, I think, again it coincides with the

end of his employment, retirement, the onset of this disorder,

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and that's when these things start.

Again, not violent offenses. Congress says, you know,

when you've got a violent offender, sentence of imprisonment

should be presumed. But when you don't and it's a first-time

offender, the presumption is the other way. There should not

be prison.

Again, no actual loss. No intended loss. The commission

of the offenses are inextricably intertwined with delusional

disorder. I'm asking -- the government acts like it's no big

deal, but we have a felon -- convicted felon, who I believe --

I strongly believe supervision by this Court will go the same

way that supervision by the Court has for the last three years.

He will comply. He will comply now more than ever because, as

you just heard, the day after the competency hearing, he shut

down the website. We've discussed the fact of these conditions

that we agree with. No further conduct, behavior -- it's not

really employment, but whatever we want to call it, regarding

seminars, books, DVDs, tax laws, anything, it's over with.

It's done. He's complied with -- for three years. He will

comply with five years, Judge. This is not, I think --

THE COURT: How many books did he author?

THE DEFENDANT: Three.

MR. INIGUEZ: Three books, Your Honor.

THE DEFENDANT: One all on UFOs.

MR. INIGUEZ: One on UFOs.

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THE COURT: Thank you.

MR. INIGUEZ: Judge, five years of supervision. We

don't have this -- this idea of future harm, future crimes. I

think we can tell from his past, before the onset of this

disorder, before these offenses for which he stands convicted,

no crimes. None at all. As a juvenile; as a young adult. Now

that he's been made fully aware, regardless of his disordered

beliefs, he understands now fully this is over. It's done.

So when I look at -- here is one of the things I look at:

When we have a case where there's tax loss -- as I say, that's

the only loss; right? This idea that we should be sentencing

this gentleman for hundreds of trillions of dollars, as I point

out in my brief, that's outrage. Everybody knew it was

outrageous. No one acted on it because it's so, I'm sorry,

crazy.

Only three of these documents for which he was convicted

were worth less than the gross domestic product of the world's

leading economy -- the United States. That's insane; right?

If I were to get a piece of paper by anybody that said it was

worth trillions of dollars, I would have to laugh. I'm not

going to believe that. No one is going to believe that. This

was not only impossible or not likely to occur, it would never

have occurred. And, in fact, it did never occur.

THE COURT: Well, he also wanted to have all those

trillions of dollars to bail out the people who suffered

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foreclosure from the fall of 2008. That was his goal.

MR. INIGUEZ: Isn't that, Your Honor, on its face,

when I hear that, although, I think, well, that's well-meaning,

but that's incredible. The fact that anybody would believe

that they single-handedly had the power to write up a document,

put a number on it, and solve the world's problems -- it sure

would be nice if that's how things worked. But I think, again,

Judge, I think we all know from our own personal experience,

that is a strong indicator of just how disordered this

particular mind is.

I wish I could solve the world's hunger crisis by writing

a check, but I can't. No one can. Most of us know that.

This, I think, Judge -- to sentence this man to prison, my

humble opinion, would be a travesty. 

I know the government wants to, for lack of a better word,

scare, threaten, impress upon at least, the Court that, "Oh, my

God, if you were to send him home and supervise him and

give him -- let him have the medical treatment and mental

health treatment that he needs, all these people out there in

the world are going to be emboldened. They're all watching,

Judge. Hours from now everybody is going to see what you did,

and, wow, you should be really harsh, not consider the

individual circumstances. Look at all these people and what

happened in their cases that we don't have any information for

you about, other than our claim that they're somehow related

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here, and treat him the same way. Forget about who he is as an

individual. Forget about everything we know about him. Don't

do the just and reasonable and fair thing, but be vindicative

and be harsh, as we would like you to do."

I know this Court has the perspective to put this case in

perspective with other cases.

Judge, you know, I'm not going to -- I'll deal with the

issue of restitution just briefly for this purpose. Again,

we're between -- we're less than 250,000, but between 157 and

191. I think we can decide that issue with finality in due

course. 

Supervision. Five years will allow the repayment of

restitution. If, in fact, what the government is after is not

an eye for an eye but recompense --

THE COURT: How is he going to pay any restitution if

he's got multiple disks, still is disabled, has no other

source -- he can't return to carpentry. How in the world is he

going to pay anything, realistically? Certainly not selling

books.

MR. INIGUEZ: Not at all.

THE COURT: Or conducting seminars.

MR. INIGUEZ: That is for sure.

THE COURT: That may be a moot issue.

MR. INIGUEZ: Actually, Judge, you know, when we keep

talking about here the loss, the actual tax loss was the amount

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of taxes due. Not all of his income is from this scheme.

His income -- he had a considerable amount of income from

a pension because of that 20 years as a carpenter, a journeyman

carpenter. So I would respectfully submit that that is where

that money can come from, as -- in addition to family members

and friends that want to help him.

But I think he can do that. In prison, he can't.

THE COURT: You have 90 days to resolve that issue.

MR. INIGUEZ: Yes.

THE COURT: After I sentence.

MR. INIGUEZ: Thank you, Judge.

THE COURT: I would like to hear from the government. 

MR. INIGUEZ: Judge, if I might just make one other

point, since we're talking about, it seems like, money, I just

wanted to note one thing I find rather remarkable. That's the

cost of imprisonment for 20 years versus supervision.

THE COURT: $36,000 a year.

MR. INIGUEZ: Or $726,000 total versus $21,000.

That's three percent of the cost of prison by putting him on

supervision. If we're really at the government -- if the

government is really concerned about money, it does not make

sense.

Thank you, Judge.

THE COURT: All right. We'll take a recess so you

can regroup here, and we'll pick up in ten minutes.

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MR. WEXLER: If you want, Your Honor, I'm ready to

go.

THE COURT: Well, we have a court reporter.

MR. WEXLER: Thank you, Your Honor.

THE COURT: Thank you. We'll take ten minutes.

(Recess taken.) 

THE COURT: Counsel.

MR. WEXLER: Thank you, Your Honor.

Your Honor, Mr. Iniguez's comments earlier are --

essentially amount to a second try at closing argument. All of

the arguments regarding the defendant's conduct were made

during trial, and the jury found none of those arguments

compelling and convicted the defendant for all of the conduct

that Mr. Iniguez now says nobody could possibly believe.

The jury believed him, and they convicted the defendant.

The verdict -- the defense is asking for the judge to impose

your judgment in lieu of the jury's verdict.

He's saying that the seminars that he conducted had no

impact at all; that people, for some reason, attended them for

no reason; that they paid hundreds of dollars to attend them

for no reason; that they asked him for private coaching for no

reason; and that his -- the fact that his stepdaughter went to

jail is mere coincidence.

MR. INIGUEZ: Your Honor, I object. It's repeated

reference despite your admonition to the stepdaughter and her

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conviction, Your Honor.

MR. WEXLER: Your Honor --

THE COURT: Let's leave the stepdaughter out of it,

period. You don't need it. You have plenty other to talk

about.

MR. WEXLER: Very well, Your Honor.

THE COURT: I don't know how you -- you want to get

into a subject that is -- is not helpful to the Court. I've

made that clear to you. 

Now, I want is help from you as to what the guidelines

should be and what the -- your -- your rebuttal is to what

counsel has to say.

MR. WEXLER: Yes, Your Honor.

THE COURT: He didn't say anything about the

stepdaughter, did he?

MR. WEXLER: There is a reason for that, Your Honor,

but I'll move on.

THE COURT: Please do.

MR. WEXLER: Thank you. Your Honor, regarding

restitution, there's no need for a 90-day extension for

resolving restitution. The government provided a number.

THE COURT: I would like to get right to the essence

of the case.

MR. WEXLER: Very well, Your Honor.

THE COURT: The restitution is a minor, minor matter.

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Let's just talk about what rebuttal you have to his argument.

MR. WEXLER: Yes, Your Honor.

Mr. Iniguez talked about the defendant's unordered mind

and that he read all of his stuff and his delusions caused him

to believe it. The government put on video evidence at trial

where the defendant stated that he was making up these

documents, that he was changing the documents to make them more

successful, to have a better chance of working.

In fact, he said, "We added this stub so that it would

look more official." That's evidence of an ordered mind.

That's evidence of someone who's making stuff up of their own,

and that's why people paid the defendant to come to his

seminars.

If he was just repeating what everybody else is repeating,

why did they come to him? They came to him because he had new

stuff. He was working hard on creating all of these new

documents, and that's why they paid him. And they used it to

their detriment, and they're in jail, and they're paying

restitution.

Mr. Iniguez talks about $36,000 a year. All the

defendants that used the defendant's scheme and are now in

jail, the government is paying for them to be in jail. Why

would they -- the government have to pay for them to be in jail

but not the defendant who taught them the scheme?

And regarding the connection between those cases,

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Your Honor, as the government has stated in its brief,

Agent Hill is here and available to testify. If the Court

wants to hear as to how each of those cases are connected to

the defendant --

THE COURT: I do not.

MR. WEXLER: Very well.

Your Honor, I sort of glanced over this, but now I see

that perhaps I shouldn't have given it short shrift in my own

argument, but the tax system is one of voluntary compliance,

and Mr. Iniguez says the Court shouldn't be considering

punishment here. But punishment -- the fact of the matter is

punishment is an essential deterrence. People will look at

Mr. Shrout, who didn't -- by his own admission, didn't file or

pay taxes for 20 years. And if he walks out of this courtroom

today and just has to spend some time in his house -- which, by

the way, is where he broadcasts his YouTube podcasts from

anyway -- that in no way is going to encourage somebody to

comply with a voluntary compliance system. Instead, it's going

to embolden them to not comply. Punishment is an essential

aspect of the sentencing regime. To completely ignore it, I

think would be improper for this Court.

Another example of the Court's order -- the defendant's

order of mind, Your Honor, is the government put on evidence

from an undercover agent Mark Morini at trial. And Mr. Morini

testified to how he went through an extended back and forth by

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Case 3:15-cr-00438-JO Document 175 Filed 11/26/18 Page 46 of 63
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email with the defendant about producing a fictitious financial

instrument.

The defendant said, "Do this." Agent Morini tried it and

sent it back. Defendant said, "No, no, no. You have to change

this, change this, change this, and do that." 

That's not delusional. That's focused and -- a focused

fraud that the defendant is well aware of. There's nothing in

the defendant's mental history -- in fact, Mr. Iniguez stood up

at the Faretta hearing so many months ago, years ago, and told

this Court, "The defendant is competent. The defendant is

competent to represent himself at trial." 

The judge asked, "Mr. Iniguez, do you know of any reason

why I should not find this defendant competent?" 

Mr. Iniguez, "No, Your Honor. I spent a lot of time with

him. He's perfectly competent." 

That's what Mr. Iniguez said, and now Mr. Iniguez is

coming back saying, "He was crazy the whole time. He couldn't

possibly have known what he was doing." 

You can't have it both ways, and he's not crazy. I mean,

there's no evidence of that.

THE COURT: Well, that's correct. The

psychiatrist -- psychotherapist, at least as far as I'm

concerned, found that he does not suffer from a specific

psychosis, delusional disorder, but is grandiose.

I think that was the fair conclusion that he was

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Case 3:15-cr-00438-JO Document 175 Filed 11/26/18 Page 47 of 63
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competent, and that's why we're having this hearing today,

because I have found him competent.

MR. WEXLER: Yes, Your Honor.

And Mr. Iniguez continues -- Mr. Iniguez brought attention

to this -- what he thinks will be the effect of the Court

sentencing the defendant here today to just one day in prison

by referring to the fact that the defendant took down his

seminar advertisement two weeks ago. 

And the Court should really take note that part of the

defendant's release conditions was to not have that seminar.

So just by advertising it, he was in violation of his release

conditions. He advertised it years after he was indicted in

this case, and then -- and he was going to have it the weekend

before -- this past weekend. His sentencing is today. The

seminar was scheduled for this past weekend. The only reason

the defendant took down the seminar application and took down

his website is because the Court told him specifically, at the

competency hearing, "If you don't do this, I am going to

sentence you more harshly." That's the motivation. He knew

that the gambit was up. All his delays had been expended.

Sentencing was facing him, and the Court told him, "Hey, if you

don't do this, you'll face a harsher penalty." So it came

down. 

The day after the competency hearing, he went on YouTube

and said, "It's all coming back up. Just wait for the change

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Case 3:15-cr-00438-JO Document 175 Filed 11/26/18 Page 48 of 63
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in government." Who knows what that means? But it's clear

that the defendant took it down for the sole reason of getting

favor with the Court today and out of no intention to comply

with taking it down forever.

And with -- I'll -- I'll pass on that last thing I was

going to mention.

THE COURT: That's okay. When I wave you off of a

couple of issues, I'm trying to give you the direction that I

really need. There's no criticism to you. You've been

doing -- as all counsel, you've been doing an exceptionally

professional job. Thank you.

MR. WEXLER: Thank you, Your Honor.

And throughout this process, the defendant has shown no

remorse. After he was convicted, he's been on YouTube. It's a

weekly podcast, as the government put in it's sentencing brief.

It's called the GoldFish Report. He appears weekly on that

report. And ever since he was convicted, ever since he was

indicted, he's never shown one ounce of remorse. He's never

apologized to anybody who ended up in prison. He never did

anything to even -- he admitted he did the conduct on the

stand. He admits that he does this all -- on all of his

videos. But he's never apologized, never shown an ounce of

remorse for any of this conduct.

And, I mean, to use a metaphor, he's not just trying to

rob a bank. He's actively and consistently advocating for

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Case 3:15-cr-00438-JO Document 175 Filed 11/26/18 Page 49 of 63
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others to rob the bank and telling them there's no -- there's

no problem; there's no penalty. He's telling them that this is

legitimate; this is what you should do. 

And now he says that the Court should ignore all of that

and simply focus on his charged conduct and focus not on the

fictitious instruments, but just focus on that he didn't pay

taxes. 

I mean, as -- as I said, Your Honor, 514 is a serious

crime. And, yet, the Court should not just simply ignore all

of that conduct because there happens to be an ascertainable

loss associated with his failure to pay taxes. The guidelines

provide and Ninth Circuit case law provide a framework for the

court to use in these types of situations, and that's using

intended loss. 

And I -- Your Honor, it just -- it would be -- I'll

rephrase that, Your Honor.

THE COURT: Careful.

MR. WEXLER: Yes, Your Honor. I guess one last thing

I want to -- I just want to point this out. I believe I

pointed it out in my brief as well. But when the defendant met

with Dr. Millkey, Dr. Millkey asked him if he understood "Why

are you meeting with me?" And the defendant said -- and this

is from Dr. Millkey's report -- "the public defender has a

conscience and thinks I was railroaded. He's trying to

backtrack without getting an appeal. The shortcut is getting

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Case 3:15-cr-00438-JO Document 175 Filed 11/26/18 Page 50 of 63
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me declared weird." 

That's what this is all about. That's what their entire

argument is all about. It's about undoing the jury's verdict,

trying to avoid an appeal, and just having the Court look at

the defendant, who looks elderly, looks frail, walks with a

cane, all -- and the government doesn't -- you know, he -- he

is the age that he is. He has the ailments that he has. But,

I mean, to use a cliche, don't judge a book by its cover,

Your Honor. You are what your record says you are. 

And the defendant, for at least 20 years, is a tax cheat

and an individual who has convinced others to scheme against

the government and perform their own frauds on top of his, and

he's responsible for significant harm to the United States, and

he should be sentenced accordingly. 

Thank you, Your Honor.

THE COURT: Thank you, sir.

MR. INIGUEZ: Judge, may I just respond very briefly

to a few points?

THE COURT: No.

MR. INIGUEZ: No? Just --

THE COURT: We have the opening argument, your

closing argument, and the rebuttal. 

If you're bursting with some -- one sentence.

MR. INIGUEZ: Just four points, Judge, in terms of --

THE COURT: All right.

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MR. INIGUEZ: -- what he read about Dr. Millkey, he's

right. I have a conscience. I thought from the beginning of

this case, had I been counsel I would have raised this issue at

the beginning of the case. That's why I told Mr. Shrout, "It's

too late to," as he says, "undo the convictions." But we have

to raise this issue because I have an ethical obligation.

That's the one point.

The issue of no remorse. You also heard -- it's

antithetical. You just heard him admit. And this is what

happened at trial. Mr. Shrout admitted he didn't pay taxes.

He admitted the six counts of the taxes. And he admitted that

he produced and shipped these instruments. He made those

his --

THE COURT: Okay. That's enough.

MR. INIGUEZ: Okay. So he has shown remorse, Judge.

THE COURT: Thank you.

You can make a statement if you choose to do so.

THE DEFENDANT: Is it on?

MR. INIGUEZ: Yes. You press it. There you go.

THE DEFENDANT: Just a few short comments. I'm

really sorry about all of this trouble we had to go through to,

you know, get to the point we're at today.

THE COURT: You're not under any time constraint.

The other issue was procedural. You have all the time you

want.

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THE DEFENDANT: Well, like I say, I'm not here to

retry the case or anything like that. You know, I've been

studying the law, if you will, for, gosh, I don't know, well

over 20 years. Some of it seems to be pretty simple and some

of it seems to be pretty confusing, so -- but I have made an

attempt, you know, in my life to understand these things, and I

have drawn conclusions I have about things from things I've

studied.

So, anyway, in regards to this whole matter about remorse,

yeah, I'm very sorry just this whole thing happened. It's --

it's been very confusing for me to understand how it happened

and why and so forth. But as mentioned, at the time of trial I

took full responsibility for exactly what I have done. That's

the way I was trained. That's the way I was taught as a child.

You know, you take responsibility for what it is you do right

or wrong.

Any regards to this -- this business with the psychiatrist

and so forth, let me just say some of the comments I made to

them would be considered tongue-in-cheek. My mother was a

psychiatric nurse for all -- basically all her career and --

THE COURT: Your father was a prison guard?

THE DEFENDANT: Yeah, uh-huh.

Anyway, my mother had a certain disdain for psychiatrists,

because she didn't believe they were helping the patients, and

so she passed it on to me. So sometimes when I get in the

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Case 3:15-cr-00438-JO Document 175 Filed 11/26/18 Page 53 of 63
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presence of those type of professionals, I think some of my

mother rubs off on me, you know, when I make comments to them.

In regards to -- you know, certainly I have no intention

of continuing on in these matters that seem objectionable, you

know, to the Court and to the government and so forth. I had

not -- when I started out, I had no belief that they would be

objectionable. But apparently it turned out that they are.

And so if I have offended in any manner, then I ask your

forgiveness. I mean, I was taught to do that a long time ago. 

And in regards to -- to some of the subjects, he talks

about these podcasts and things I do. You know, that's true.

But the subject matter that we go over in those has to do with

the teachings in the Kings James Version of the Holy Bible. If

you go and listen to them, we try to -- or I try to relate our

present world to the circumstances and bring it forward from

2,000 years ago to see how that applies in our modern society,

hopefully, so other people will have a better life.

So, again, you know, when we start to talk about

intention, I have never had any intention to harm anyone or

anything. And if -- if I have offended or harmed someone, then

I'm truly sorry, and I would simply ask your forgiveness. 

And also to the matter in regards to all the things that

have gone on, I freely forgive others as well. 

So that's basically all I have to say, Your Honor.

Thanks.

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THE COURT: Very well.

In respect to this matter, if you would please stand.

Well, you can sit down. You can just sit down if it's more

comfortable.

MR. INIGUEZ: Thank you, Judge.

THE COURT: As defense counsel pointed out, I perhaps

never or seldom have seen a case of what -- such a range in

requested sentences from 20 years to essentially no sentence at

all. The case has been complex, to say the least. The

representation has been remarkable. I could not have asked for

a more helpful professional presentation from the government or

from the defense. They have been very honorable and

straightforward.

The defense has had to work with the handicap of being an

advisor, as opposed to regular counsel, and has done an

outstanding job in that limited capacity.

As far as the defendant is concerned, he is also a very

remarkable person. 70 years. He came from a stable family; a

religious family. He did his service to his country honorably.

He has never had a criminal issue. He has not had any

substance abuse. He had a brother who was a terrible alcoholic

and died of it, but other -- he stayed away from that. He has

never abused alcohol or drugs in his life. He has enormous

support from all the people that know him. They besieged the

Court, to which I welcome, with kind comments about his

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Case 3:15-cr-00438-JO Document 175 Filed 11/26/18 Page 55 of 63
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generosity and helpfulness to other people.

But, as they say, the other side of the story is he has

grandiose ideas as to who he is and what he can do. He is not

psychotic, as the psychiatrist said, but he believes he is a

descendant of Christ and Mary, that he comes from a different

planet, that he is a nonresident alien, that he was put in a

form as a human at age 5. These things he believes to this

day.

He says that the federal government is not -- doesn't have

control over him, that the federal government need not be

obeyed, that the -- he has some -- the usual sovereign nation

lack of mentality of thinking the Uniform Commercial Code

controls our government and all their other totally

unacceptable beliefs. The -- you are not being sentenced

because of your bizarre beliefs. You are being sentenced

because of your conduct. You definitely feel that you are

smarter than most everybody you encounter. You have become

their teacher. You want to be called the head of your

organization. You want to be recognized as a highly -- high

intellectual with a vast knowledge of the law. Unfortunately,

that isn't the case.

You have been a nonproductive person. You have advocated

hundreds, if not thousands, of people through the years that

they need not pay their taxes and support our government. That

is not acceptable.

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When you tell people that they should violate the law --

the tax laws, you are advocating other people to violate the

law. The fact of the matter is other people have followed your

instruction and tutelage and have violated the law.

There is almost no way to track the amounts of money that

were actually not reported by your many, quote, students, end

quote. But there's no question, in the Court's mind, that you

intended -- your intention was to sign these documents and

have them be effective for trillions of dollars. And your

motive was to rescue the people that were besieged with

foreclosures under the 2008 crash. This is what you believe

and what you did.

When you add up the -- your -- this was your intention.

Whether anybody was a damfool to follow them is another matter,

but the -- the guidelines call for relevant conduct from

262 months to 327 months. That's the calculation, and it's

based upon what you intended for people to act. Whether they

would be, as you used the phrase, crazy enough to act on these

concepts, that's up -- that's irrespective -- that's

irrelevant. It's what you intended to do, and that is no

question that you intended to do that. 

But then the guidelines are discretionary. We have

a guidelines -- I hesitated to mention this, but

Judge James Burns and myself were strong advocates of the

guidelines. We taught sentencing guidelines to -- nationally,

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to 120 judges at a time, and we give them a set of facts,

including a homicide that happened in a barroom. And the

disparity that we received ran from probation to death in the

judges that were there. So we felt very compelled to support

the sentencing guidelines.

Judge Burns was a member of the Sentencing Commission. I

fought for the same thing on the state level with Judge Beatty.

But they are still advisory. You just cannot put into

individuals a set of numbers. But we start out with the

guidelines, but they are advisory only. And, thank heavens, in

this case, they are not mandatory.

The recommendation of the government is for 20 years. The

recommendation for -- from the presentence writer is for

15 years. My sentence -- and you will be going to prison -- is

for 10 years. Because you're 70 years old, you not only have

your eye problem and your hernia problem, you -- and your disk

problems, you also have other problems of your general health,

that this may well be a life sentence. I'm well aware of that.

But you will -- I'll be recommending the facility that the

government -- Bureau of Prisons best recommends for a person of

your age and your disability.

I think that you can be accommodated right here at

Sheridan where you will be near your beloved lady who's here

today. And your family -- a lot of them are Utah, where you

went -- graduated from college. But the final call will be

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Bureau of Prisons. Unless I hear otherwise, I'll recommend

Sheridan facility.

There will be no fine. The fee assessment for all

accounts totals $1,450. I can set the restitution at

$191,226.10 at this time, but if you wish to be heard and

challenge that, that can be done after he starts -- after the

Bureau of Prisons makes their selection as to when and where he

should report.

I am concerned about releasing you to clear up your

matters because of your activity and being able to travel

internationally and into Canada willy-nilly.

I just know that you have been very faithful in reporting

to the Court as directed and that I will need your personal

problem from -- promise from you to me that you will appear as

directed by the marshal to the institution if I allow you to

self-report.

THE DEFENDANT: Yes.

THE COURT: You make that promise?

THE DEFENDANT: Yes.

THE COURT: And you know that if I -- you don't and

you are ever caught and if I'm still around, I'll give you the

maximum. You understand that?

THE DEFENDANT: Yes.

THE COURT: All right. You do have a right to

appeal. Counsel can raise the issues that he wishes to raise.

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At that time, I accept the presentence report as written with

the conditions of supervised release, except that you do not

need conditions about alcohol or substance abuse.

Are there any objections to the other criteria?

MR. INIGUEZ: Your Honor, I would only maintain the

objections that I made in writing with respect to the

presentence report's guideline calculations.

THE COURT: Yes. I'm talking about conditions of

supervised release.

MR. INIGUEZ: Right. No objections to those,

Your Honor. Just the two points you raised that might warrant

some discussion. First, if you would see fit to recommend the

federal prison camp at Sheridan, I think that would be

appropriate, given his age.

THE COURT: That's where we put the bankers and the

lawyers and the like.

MR. INIGUEZ: Thank you, Judge.

And with respect to restitution -- well, restitution, I

guess, ties in with the self-surrender issue. If we can set --

the restitution hearing, we have up to 90 days -- that would be

my calculation -- is the very beginning of January. I think I

have January 9th. If we can set it a couple of days earlier,

it may be that the parties can try to resolve that issue. If

so, we'll inform the Court that the hearing is not necessary.

But if we can set the hearing for January 7th, and I would ask

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Case 3:15-cr-00438-JO Document 175 Filed 11/26/18 Page 60 of 63
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the Court to set a self-surrender date two weeks after that

hearing date for Mr. Shrout.

THE COURT: I don't know what you're talking about.

What that adds up to be -- normally, we have 30 days. No.

Becky how long do we have?

DEPUTY COURTROOM CLERK: Usually they turn themselves

in within 30 days.

THE COURT: He'll be directed to follow the

availability at the Sheridan facility, if that's where the

person is going to be designated within 30 days.

As far as restitution, I want you to clear that up

within 30 days.

MR. INIGUEZ: Okay. So we'll -- so we'll --

THE COURT: Get it all behind us.

MR. INIGUEZ: 30 days for both surrender and --

THE COURT: And restitution.

MR. INIGUEZ: And restitution.

THE COURT: Final restitution. I expect you to

resolve that.

MR. INIGUEZ: Very good.

THE COURT: The amount of restitution, I often waive

interest, if that's any help.

MR. INIGUEZ: That is one of the issues, Your Honor.

That's one of the issues.

THE COURT: He's going to have a tough time paying

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the 151,000.

MR. INIGUEZ: Judge, just for the issue of the

self-surrender, I do have his passport, and I'm prepared to

give this to Pretrial Services. You have his word and he'll be

appearing in 30 days.

THE COURT: Yes?

THE PROBATION OFFICER: Your Honor, we just ask for

clarification that Counts 1 through 13 he's sentenced to 120

months and then Counts 14 to 19 for the statutory maximum of

12 months, all to run concurrent to each other, with five years

supervised release.

THE COURT: And supervised release, yes.

THE PROBATION OFFICER: Thank you.

THE COURT: Any further questions from the

government?

MR. WEXLER: No, Your Honor.

THE COURT: Anything further for the defense?

MR. INIGUEZ: Not at this time, Your Honor. Thank

you.

THE COURT: Thank you. Court is in recess.

(Hearing concluded.) 

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Case 3:15-cr-00438-JO Document 175 Filed 11/26/18 Page 62 of 63
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C E R T I F I C A T E 

United States of America v. Winston Shrout 

3:15-CR-00438-JO 

SENTENCING 

October 22, 2018 

I certify, by signing below, that the foregoing is a 

true and correct transcript of the record, taken by 

stenographic means, of the proceedings in the above-entitled 

cause. A transcript without an original signature, conformed 

signature, or digitally signed signature is not certified. 

/s/Jill L. Jessup, CSR, RMR, RDR, CRR, CRC 

___________________________________________ 

Official Court Reporter Signature Date: 10/29/18 

Oregon CSR No. 98-0346 CSR Expiration Date: 9/30/20 

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Case 3:15-cr-00438-JO Document 175 Filed 11/26/18 Page 63 of 63