10

- 1800(L) 10 10

- 1800(L)

USA v. Juncal UNITED STATES COURT OF APPEALS 1 2 FOR THE SECOND CIRCUIT 3 4 March Term, 2012 5 6 Argued: March 8, 2012 7 8 Decided: July 2 3 , 2013 9 10 Docket Nos. 10

- 1800

- cr(L), 10

- 2047

- cr(CON), 10

- 3314

- cr(CON) 11 12

______________________________________________________________________________ 13 14 UNITED STATES OF AMERICA, 15 16 Appellee
, 17 18

v. 19 20 EMERSON EARL CORSEY, 21
Defendant
, 22

JOHN GILBERT JUNCAL, RODNEY ZECHARIAH SAMPSON, and JAMES ANDERSON 23

CAMPBELL, JR., 24
Defendants

- Appellants

. 25

26 27 Before: KATZMANN and WESLEY, Circuit Judges , and UNDERHILL
, District Judge

. * 28 29
Appeal from convictions for conspiracy to commit mail and wire fraud and from 30
sentences of twenty years ’ imprisonment imposed on each appellant by the District Court for the 31

Eastern District of New York ( Feuerstein, J .) . The conspiracy, which involved a scheme to 32

* Stefan R. Underhill, of the United States District Court for the District of Connecticut, sitting by designation.2

obtain a three billion dollar loan supposedly intended to finance construction of a pipeline across 1

Siberia, resulted in no actual loss. We affirm the convictions but vacate the sentences for 2
procedural errors and remand for resentencings. 3
Affirmed in part and vacated in part and remanded for resentencings. 4

5 6

Fo r Defendant

- Appellant Juncal: J OHN S. W ALLENSTEIN , Law Office of John S. 7 Wallenstein, Garden City, N.Y. 8 9 Fo r Defendant

- Appellant Sampson: J ONATHAN I. E DELSTEIN , Edelstein & Grossman, 10 New York, N.Y. 11 12 For Defendant

- Appellant Campbell: J OHN A. C IRANDO (Bradley E. Keem, Elizabeth 13 deV. Moeller, Vicki Jo Beighley, on the brief ), D.J. 14 & J.A. Cirando, Esqs., Syracuse, N.Y. 15 16 For Appellee: C HRISTOPHER C. C AFFARONE (Amy Busa, on the 17 brief ), Assistant United States Attorneys, for Loretta 18 E. Lynch, United States Attorney for the Eastern 19 Distric t of New York. 20 21

___________ ___________________ _____________________________________ 22 23

24

Per Curiam : 25
This appeal principally raises two issues: (1) whether the misrepresentations underlying 26

these convictions were not material because no reasonable financia l professional would have 27
believed them, and (2) whether the sentences imposed on appellants are procedurally 28

unreasonable. We affirm the District Court’s denial of appe llants’ motions for acquittal, but 29
vacate appellants’ sentences and remand for resente ncings. 1 30

1 The appeal filed by co

- defendant Emerson Corsey was severed from these consolidated appeals and heard by a different panel. Corsey’s conviction was affirmed by summary order, but his sentence was vacated for procedural3

1

I. BACKGROUND 2

This appeal arises out of a conspiracy to defraud a non

- existent investor of three billion 3

dollars. In the spring of 2006, defendants John Juncal, James Campbell, Rodney Sampson, and 4
Emerson Corsey were arrested and charged with one count of conspiracy to commit mail fraud 5

and wire fraud in violation of 18 U.S.C. § § 1341, 1343, and 1349. Over the preceding four 6
months, the defendants had attempted to lure a broker, Thomas Re, into procuring financi ng for 7

a n imaginary Siberian oil pipeline. The two sides exchanged information about possible 8
partners, and the best structure for a loan. But in reality each side duped the other

– Juncal and 9
his colleagues had no plans to build a pipeline across the Ru ssian tundra, and Re never 10
represented a hedge fund interested in lending billions to the defendants to do so. 11

A. The Scheme 12

Re was the CEO of Universal Lending Group (“ULG”) , a small brokerage firm based in 13
Garden City, N ew Y ork

. Re acted as a “salesperson and networker” for the company; he 14
solicited companies looking for financing and his associate
, Joseph Bianco
, then matched 15
projects with a hedge fund or bank to act as lender . Re was also an informant for the FBI: 16

Before he worked at ULG, Re sold vendin g machine routes to snack

- food companies

. On 17

occasion, Re sold distributors a fake route

— the distributors would arrive at a location and find 18

no machine

— and the FBI eventually caught up with him

. In the hopes of receiving a lighter 19
sentence, Re agreed to turn over information to the FBI about other s participating in the vending 20

machine scam

. 21

error and remanded for resentencing. United States v. Corsey , No. 10

- 3333

- cr., 2013 WL 599536 (2d Cir. Feb. 19, 2013).4

Re encountered t he defendants seven months after he began working with the FBI

. Re 1

received a call from an acquaintance, Charles Frazier, who told him to look out for a financier 2

named Emer son Corsey

— Juncal, Campbell , and Sampson’s co

- defendant. Corsey called a few 3
days later a nd explained that he was the Chief Operating Officer of Magnolia International Bank 4

and Trust (“MIBT”), a ban k that Corsey described as holding assets of sovereign wealth f und s

. 5
Corsey said that MIBT wanted to borrow three billion dollars to build a pipeline in Siberia and 6

could offer five billion dollars in U.S. T reasury notes (“T

- note s ”) as collateral for the loan. Re 7

said he woul d think about it. 8

Re told his associates about th e proposal and
, after a brief G oogle search
, they told him 9

the deal “smelled.” J. A pp ’x at 516

. Re then reported the potential fraud to his FBI handler , who 10

instructed Re to record his convers ations with Corsey

. 11

Over the next few months, Re recorded the defendants as they baited him with an 12

esc alating series of lies : Corsey explained that MIBT was the central bank for scores of Native 13
American governments, in cluding the Yamasee Indian tribe, a nation with trillions of dollars in 14

assets

. Corsey then said that the bank currently represented John Juncal, a “counsel 15
extraordinaire” for the Republic of Buryatia who had been appointed “Vice Premier of Record 16

under the Edict of the Ukase” by the Buryatian government , and the official charged with finding 17
backers for the pipeline

. When Re expressed skepticism, Corsey sent him an email with copies 18

of “bond indentures.” J. App ’x at 1021

- 22. The indenture s bore the sea l of the Vice

- President of 19
Buryatia, and stated that they were valued at five billion U.S. dollars and secured by T

- Notes

. 20

The certificates were assigned to “the Great Siberian Pipeline Corporation,” which was “a 21
Republic of Wyoming Corporation.” Id

. The email also contained proof tha t Juncal controlled 22

the T

- notes : Corsey included another certificate signed by Juncal that listed CUSIP numbers for 235

the T

- notes (as an expert would later testify, CUSIP numbers are alphanumeric code created by 1
the U.S. Treasury to identify individual bonds). 2
Prompted by his handler to record statements by more of the defenda n ts, Re asked to 3
speak with Sampson, the purported C hief F inancial O fficer of MIBT. Sampson laid out the math 4

behind the deal: MIBT’s client , John Juncal, would assign the T

- notes to Re’s client

. The T

5

notes would yield a minimum of 3.9% interest per year and generate over fourteen billion dollars 6
in profit ov er the course of five years. When R e asked for additional evidence of the T

- notes ’ 7
authenticity , Sampson sent Re an email from an AOL account for MIBT
, rather than from 8

MIBT’s own domain name

. Attached to the email were unformatted files containing copie s of 9

the T

- notes ; Re had to use Word Pad to open those files

. Sampson then e

- mailed Re a “Letter of 10
Acceptance” t hat re

- explained the financing. The lett er stated that, in exchange for a loan of 11

three billion dollars, Re ’s client would receive T

- notes that would yield a 171% return on 12

investment. 13

Re next pressed Corsey and Sampson to show him physical evidence of the T

- notes ’ 14

existence. And at that point, Corsey put Re in touch with James Campbell, an associate of 15

Juncal’s. Campbell explained that J uncal had hid den the bonds in Austria in order to prevent 16
enemies from “basically steal[ing] these from him and bump [ing] him out of the corporation.” J. 17
App ’x at 1109

. Re pretended to buy the excuse, but later a sked if he could speak with Juncal 18
directly

. Juncal agreed , and sought to assuage Re’s fears by comparing his role to the historic 19

secret mission of Christopher Columbus. 20
During his testimony at trial, Re admitted that much of the talk struck him as ridiculous, 21
and that at some point he stopped believing the deal was real. But b ecause of his relationship 22
with the FBI, he continued working with the quartet of pipeline pipe

- dreamers. In March, it 236

came time for the deal to close, and Re arranged to meet Campbell and Sampson in New York to 1
sign doc uments memorializing their agreement

. On the day of the closing, the F BI arrested all 2

four defendants ; Campbell and Sampson we re arrested in New York, Corsey was arrested in 3

Atlanta, and Juncal was arrested at his home, a motel in Whitefish, Montana

. 4

A t trial, the government relied almost exclusively on Re’s testimony. No defendant took 5

the stand, and the defense attorne ys focused their defense on attacking Re’s testimony. After a 6
short deliberation, the jury returned a verdict of guilty for all four d efendants. The appellants’ 7
motions for judgment of acquittal were denied and the cases proceeded to sentencing. 8

B. The Sentences 9

In each case, but for the statutory maximum term of imprisonment, the appellants’ 10
Sentencing Guideline s recommended range would have been a life sentence , because th e offense 11
level was driven off the Guidelines’ Sentencing Table by an intended loss amount of three billion 12

dollars

. Though each appellant argued that the intend ed loss grossly overest imated the 13

seriousness of the off ense , the District Court disagreed. In March of 2010, the District Court 14

sentenced all four de fendants to twenty years’ incarceration, the statutory maximum and the 15

Guidelines recommended sentence

. 16

1. Campbell’s Sentencing 17

The District Court gave a very bri ef explanation of the reasons for Campbell’s sentence
, 18
and largely adopted the logic and recommendations in his Pre

- Sentence Investigation Report 19
(“PSR”)

. Under the Guidelines applicable in 2010, t he PSR calculated Campbell’s total offe nse 20

level to be 47. Under U.S.S.G. § 2B1.1, his base offense level was 7. Thirty points were added 21
because Campbell had intended to defraud an investor of over $ 400 million

. The PSR then 227

added points for four additional enhancements: Campbell received four points because he 1

oversaw five or more co

- conspirators, U.S.S.G. § 3B1.1; two levels because he offered fake 2

CUSIPs as an “authentication feature,” U.S.S.G. § 2B1.1(b)(1 0 )(A)(ii); two levels because 3
Campbell misrepresented himself as a representative of a government or agency, U.S.S.G. § 4

2B1.1(b)(8)(A); and two levels because the sche me involved sophisticated means, U.S.S.G. § 5

2B1.1(b)(9 )(C). 6
At the sentencing hearing, the government withdr ew its request for a role enhancement 7
pursuant to U.S.S.G. § 3 B1.1

. The District Court asked if that change affected the guideline 8

range: 9
COURT: And where does it put the guidelines recommendation? 10 11 MR. MISKIEWICZ: We’re not privy to the probation officer’s recommendations 12 to the Court. I believe that that is stil l , at least sent to your Honor. We’ re never 13 given a copy. 14 15 COURT: Well, my question really is: the original guidelines calculation put it in 16 the 240 month range. Correct? 17 18 THE PROBATION OFFICER: That would be the maximum, the statutory 19 maxim

. 20 21 J. App ’x at 1373

- 74. The District Court then inquired why the Guideline s calculation was so far 22

above the statutory maximum. The prosecutor answered: 23
MR. MISKIEWICZ: Our position, your Honor, and I think counsel has agreed 24 with this; is a level 43, that is 47 minus 4, it is still life. If he were one point below 25 that he would still be at a 360 to life sentence. So he is in many ways well over 26 the statutory maximum. And we, the government, has in our letter asked for the 27 20 years statutory maximum here. 28 29 THE COURT: And that is what I am inclined to give him

. 30 318

J. App ’x at 1375. The defense then presented its case against enhancements and for downward 1
departures. The District Court rejected each one , explaining its general approach by referencing 2

other recent financial fraud cases: 3
I don’t know how you can say in this economic age
, considering all of the people 4 who have been scammed and defrauded

— people of, one would say superior 5 knowledge in finance s

— I don’t know how we can say th at hypothetically had 6 Thomas [Re] not existed and not been available, and not been the contact, this 7 scheme would not have been uncovered. 8 9 J. App ’x at 1388

- 89

. The District Court then explained the reason for imposing a 20

- year 10

sentence: 11

[ T ] he Probation Department’s extensive report of your clie nt’s history, and the 12 factors in 3553, and the fact that to date he still shows really no remorse for this 13 crime

— still blaming others, and depicting himself as a messenger

— I believe this 14 sentence will send a message of deterren ce to the defendant
, as well as to others. 15 16 J. App ’x at 1393. 17

2. Sampson’s Sentencing 18 Sampson’s PSR contained an identical offense level score. His attorney objected to all 19

f ive enhancements, but the District Court only accepted Sampson’s arguments on the role 20
enhancement (the government again withdrew its request for the enhancement ). As with 21
Campbell, the C ourt also dismissed the need to recalculate the Guidelines range, explaining that 22
“the maximum is 20 yea rs so it really has no effect.” 23
Sampson was then asked if he wished to make a statement. Sampson said yes, and 24
launched into an impassioned account of the trials of the Yamasee tribe. He stated that the tribe 25

had waged a centuries

- long battle against Western encroachment, only signing a treaty with 26
Georgia in 2003. He referred to the people of Buryatia as a “sovereign aboriginal indigenous 27

nation.” He then explained the motive of the fraud scheme as “doing something to help the 289

people of Buryatia and the people of the Yamasee nation in order to help as far as education, 1

health, welfare, et c etera, to do for ourselves.” 2

The District Court then sentence d Sampson. Unlike Campbell, Sampson had no prior 3

convictions , but he had been charged with two additional counts of frau d perpetrated while out 4

on bail

— he attempted to secure $100 million for a fake oil field, and actually secured $35,000 5

from another i nvestor through a “lifecycle fraud.” But the C ourt did not mention these 6
distinctions, nor any other details of Sampson’s case. Instead, the Court made one curt reference 7

to deterrence: 8

9 COURT: Anything else you wish to say? These are items counsel can raise on 10 appeal

. 11 12 MS. GAFFEY: Yes. 13 14 COURT: That being said, Mr. Sampson, I am going to sentence you at this time to 15 240 months in prison, th ree years supervised release with the following special 16 conditions

. . . . I believe this sentence, which is the maximum permissible under 17 the law, will establish both respect for the law and deterrence to you and perhaps 18 hopefully to others for efforts to engage in fraud. 19 20 J. App ’x at 1412

- 13

. 21 22

3. Juncal’s Sentencing 23

24 The District Court again adopted the PSR’s calculations, including the role enhancement, 25
despite the fact that the government was no longer seeking it

. The District Court also found that 26

Junc al had a criminal h istory category of II. Juncal ’s only prior convictions were imposed over 27
fifteen years before he tried to sell R e on the Siberian Pipeline, and thus were no t countable. 2 28

See U.S.S.G. § 4A1.2e

. In his interview with probation , however, Juncal indicated that he had 29

2 Indeed, Juncal’s most recent brush with the law was in 1997, a case that the government declined to prosecute after Juncal was f

ound incompetent to stand trial.10

dreamed of building the Siberian pipeline pr oject since the days of “Reagan

. ” The District Court 1

credited this statement
, and found that he had commenced planning the Siberian fraud scheme 2
decades before he was caug ht , and determined his prior convictions were countable

. The District 3

Court then calculated the Guidelines in a cursory way: 4
COURT: Well, I believe probation is right. They feel that you r objections were 5 not substantiated, and that the present g uidelines range stands. 6 7 MR. WALLENSTEIN: I take it then, that the court has found that the guideline 8 range noted by probation in the original presentence report is the guideline range 9 that the court finds. 10 11 COURT: It is. 12 13 J. App ’x at 1433

. 14

Juncal ch ose to spea k on his own behalf. He explained that he suffered from a crippling 15
bone marrow disease, and he only had a few years to live. “ [ T ] here is no consequence to 16
whether I die in jail or die outside,” he lamented. J. App ’x at 1438

. He then went on to cite his 17
extensive diplomatic service, mo st of it invented. A s with his co

- defendants, the District Court 18
imposed the statutory maximum sentence: 19
COURT: As recommended by the probation department, 20 years of custody, plus 20 thr ee years of supervised release. 21 22 J. App ’x at 1444

. The C ourt made no mention of its consideration of any of the factors set forth 23 24 in 18 U.S.C. § 3553(a) other than the Sentencing Guidelines and the need for deterrence

. 25 26

II. DISCUSSION 27 Appellants challenge both their convictions and the sentenc es imposed as a result of those 28

convictions. 29

30

3111

A. Appellants ’ Motion s for Acquittal: Material Misrepresentations 1 We first turn to appellants ’ contention that there was insufficient evidence for a 2
reasonable jury to conclude that any misrepresentations they made were material. A defendant 3
challenging the sufficiency of the evidence bears a “heavy burden.” United States v. Gaskin , 364 4

F.3d 438 , 459 (2d Cir. 2004). We review the evidence “in the light most favorable to the 5
government, crediting every inference that could have been drawn in the government’s favor.” 6

United States v. Chavez , 549 F.3d 119, 124 (2d Cir. 2008). A conviction must be affirmed if 7

“ any rational trier of fact could have found the essential elements of the crime beyond a 8

reasonable doubt.” Jackson v. Virginia , 443 U.S. 307, 319 (1979) (emphasis in the original)

. 9
Fraud requires more than deceit

. A person can dissemble a bout many things, but a lie can 10
support a fraud conviction only if it is m aterial, that is, if it wou ld affect a reasonable person ’s 11
evaluation of a proposal. “In general, a false statement is material if it has a natural tendency to 12
influence, or is capa ble of influencing, the decision of the decisionmaking body to which it was 13

addressed.” Neder v. United States , 527 U.S. 1, 16 (1999) (internal quotation marks and brackets 14

omitted). The appellants a rgue that this test requires a jury to conduct a subjec tive inquiry. 15
According to the appell ants, Neder requires a jury to assess whether a person with characteristics 16

similar to the targeted victim would have been convinced by the defendants’ false statement

. 17

And in this case, appellant s posit, no reasonable investment professional would have bought the 18
conspirators’ absurd story ; any brok er would have laughed in disbelief the moment he opened an 19
email from a wealthy bank sent from an AOL email address, found doctored copies of T

- note s , 20

and learn ed that a long

- disbanded Native American tribe owned them

. 3 Thus, the argument 21

3 Defendants also suggest that every bank has a duty to engage in due diligence, so that no bank could ever be induced to loan money without first checking out a potential client. In this case, any bank that researched the appellants’ backgrounds would have backed out of a deal. Appellants, however, do not point to any decision that conditions a finding of fraud on some affirmative step that a victim might take. The question is not whether victims might smell a rotten deal before they hand over money. See United States v. Gotti , 459 F.3d 296, 331 (2d Cir. 2006)12

goes, because no potential victim of this particular fraud would have ever fallen for it, the 1
appellant s ’ lies were not “capable of influencing the decision of [any] decisionma king body.” 2

We have not directly addressed whether Neder requires something more than an objective 3

assessment of whether a defendant’s lies were believable . In a related context, we have held that 4
a defendant is liable for an objectively absurd lie if a subjectively foolish victim believes it. 5

Otherwise “ the legality of a defendant’ s conduct would depend on his fortuitou s choice of a 6
gullible victim. ” United States v. Thomas , 377 F.3d 232, 243 ( 2d Cir. 2004) (citations omitted)

. 7
Appell ants aim to flip this rule so that a defendant is not liable for an objectively absurd lie if a 8
subjectively sophisticated victim would never believe it. But no court has ever extended “the 9
gullible victim” doctrine in this way, and we need not reach the question whether we should. 10
Taking the facts in the light most favorable to the government, we conclude that a 11
reasonable jury could find that appellants ’ misrepresentations were material , regardless of 12

whether Re, or other s like him, should have heeded t hem or not

. Appellants engaged in an 13
illegal conspiracy to defraud potential investors the moment that Corsey offered Re billions of 14

dollars in fake T

- n otes as collateral for a large loan

. Re testified that he was convinced enough 15
by Corsey’s statements to ve t the deal with his colleagues. Corsey’s misrepresentation , then, 16
actually influenced Re to investigate the proposal. And Re testifi ed that his colleagues quickly 17
performed G oogle searches to see if Re should explore the deal. Everything that foll owed that 18

conversation and that initial internet search

— the analogy to Christopher Columbus
, the 19
promised 171% rate of return , the crudely doctored certificates of authenticity

— made Corsey’s 20

lie on behalf of the conspirators seem ridiculous in retrospe ct. But the initial misrepresentation 21

(“[I]n wire fraud cases, it is the scheme itself, rather than its success, that is the required element for conviction.”)

. Instead, a misrepresentation is material if it is capable of influencing the decisionmaker, no matter what the victim decides to do.13

remains material; a reasonable jur y could find that a promise of five billion dollars in collateral 1
could persuade Re, his co lleagues, and reasonable lende rs to make a three

- billion

- dollar loan. 4 2

B. Sentencing: Review f or Reasonable ness 3

We review a district court’s sentence for “reasonableness, which is ‘akin to review for 4
abuse of discretion, under which we consider whether the sentencing judge exceeded the bounds 5

of allowable discretion, committed an error of law in th e course of exercising discretion, or made 6
a clearly erroneous finding of fact.’” United States v. Leslie , 658 F.3d 140, 142 (2d Cir. 2011) 7
(per curiam) (quoting United States v. Williams , 475 F.3d 468, 474 (2d Cir. 2007)). This broad 8
discretion is due to district courts because they are a better positioned institutionally to determine 9
the appropriate sentence in a particular case. United States v. Fernandez , 443 F.3d 19, 27 (2d 10

Cir. 2006). 11
We begin our analysis with a revi ew of the sentences’ procedural reasonableness. A 12
district court will normally “begin all sentencing proceedings by correctly calculating the 13
applicable Guidelines range,” Gall v. United States , 552 U.S. 38
, 49 (2007), and will then 14

consider the factors l isted in 18 U.S.C. § 3553(a) before imposing a final sentence

. United States 15
v. Preacely , 628 F.3d 72, 7 9 (2d Cir. 2010). A judge need not utter “robotic incantations” 16
repeating each factor that motivates a sentence. United States v. Crosby, 397 F.3d 103, 113

- 14 17
(2d Cir. 2005) (abrogated on other grounds). Nonetheless, the j udge must explain enough about 18

the sentence for a reviewing court both to understand it and to assure itself that the judge 19
considered the principles enunciated in federal statutes and the Guidelines

. Rita v. United States
, 20

551 U.S. 338, 357 (2007). Here, appellants offer two critiques of the way the District Court 21

4 In fact, appellants completed the crime of conspiracy th e minute they agreed amon g themselves to offer five billion dollar s in collateral for a loan and took a step in furtherance of that plan using the mail or wires . In other words, even if they never actually influenced anyone they could still have been found guilty of the crime of c onspiracy to commit mail or wire fraud

.14

imposed their sentences. Fir st, they argue that the D istrict C ourt either miscalculated the 1

G uideline s range or failed to calculate the range entirely. Second, defendants claim that the 2
District Court did not appropriately weigh the factors e nunciated in 18 U.S.C. § 3553 (a)

. 3

The District Court technically may have c ut a corner when it glossed over the c alculation 4

of appellants ’ precise adjusted offense level, but that shortcut had no effect on appellants ’ 5

ultimate G uideline s range. In each case, the amount of intended loss catapulted appellants ’ 6
offense levels to 37, a number yielding a suggested period of incarceration above the statutory 7
maximum of 20 years. Once the offense level crossed that threshold, any additional 8

enhancement would have had at most an academic impact on the G uideline s range; the 9

recommended term of incarceration would have always reve rted back to twenty years. U.S.S.G. 10

§ 5G1.1(a) ( “ [w]here the statutorily authorized maximum sentence is less than the minimum of 11
the applicable guideline range, the statutorily authorized maximum sentence shall be the 12
guideline sente nce.” ). Rather than resolve technical argumen ts about each enhancement, the 13

District C ourt chose a more pragmatic approach

— it calculated the Guidelines in sufficient 14
detail to know that the resulting sentencing range would inevitably equal 20 years rega rdless 15
whether certain additional enhancements applied

. 16
The District Court was free to prioritize efficiency over an exercise in futility. In Rita v. 17

United States
, the Supreme Court instructed district courts to begin each sentencing evaluation 18

wi th a proper calculation of the G uidelines range. 551 U.S. at 351. We have interpreted that 19

command to hold that a dist rict court “ commits procedural error where it fails to calculate the 20
Guidelines range.” United States v. Cavera , 550 F.3d 180, 190 (2d Cir. 20 08 )

. Even in cases 21
where courts depart or impose a non

- Guidelines sentence , the G uidelines range sets an important 22

benchmark against which to measure an appropriate sentence. For this reason, we have vacated 2315

sentences where a distric t court skipped a step in the G uidelines calculation because it had 1

a lready decided to impose a non

- G uidelines sentence. See United States v. Oliveras , 3 59 F. 2
App ’x 257, 25 9 (2d Cir. 2010) (vacating sentence where district court never add ressed career 3

offender enhancement because it intended to reduce criminal history score that overstated 4
severity of defendants’ prior convictions). But we have never held that a court commits 5
procedu ral error where it bypasses a minefield of tricky determinations and still arrives at the 6

c orrect Guidelines recommended sentencing range

. To do so would be the equivalent of docking 7
a test grade even though a student found a quicker route to the right answer. Cf. Cruz v. Miller
, 8
255 F.3d 77, 86 (2d Cir. 2001) (“[W]e are determining the reasona bleness of the state courts’ 9
‘decision’ . . . not grading their papers.”)

. Here, the District Court fulfilled its duty to calculate 10
the Sentencing Guidelines sufficiently fully to determine the correct recommended period of 11
incarceration, 20 years, and its particular method of arriving at that determination under the 12

circumstance s of these sentencings did not constitute reversible error. 5 13
But the District Court still had an obligation to weigh the factors listed in section 3553 (a)
, 14

and we are not certain that occurred. See Fernandez , 443 F.3d at 28 (declining to hold within

15

Gui delines sentence presumptively reasonable)

. Here
, appellants ’ maximum sentences had an 16
air of inevitability. Because appellants’ Guidelines range s prior to application of the section 17
5G1.1 limit soared past the statutory maximum, the District Court seeme d to assume that 18
imposing a statutory maximum sentence reflected a per se reasonable sentence. At Campbell’s 19
hearing, the District C ourt chastened the defense attorney by noting that “even without [an] 20

enhancement there would still be a maximum of a life sentence. C orrect?” J. App’x at 1373

. 21
After a confusing colloquy with the probation officer and the prosecutor, the C ourt then correctly 22

5 In other words, any misstep in calculating the Guidelines range was at most harmless error

. See United States v. Jass , 569 F.3d 47, 68

- 69 (2d Cir. 2009)

.16

noted that as a technical matter the G uideline s range would revert back to the statutory 1

maximum. That unavailable life sentence, however, hung in the air and fra med the C ourt’s 2
perfunctory analysis of the section 3553 (a) factors. A similar dynamic occurred during Sampson 3
and Juncal’s sentencing hearings. See Sampson Hearing (noting that enhancement “rea lly has no 4

effect” because court was forced to ra tchet G uidelines range down to a twenty

- year sentence); 5
Juncal Hearing (skipping independent G uidelines analysis and imposing statutory maximum). 6

The r ecord, then, is muddied by the District C ourt’s elision of t wo questions

—how to understand 7

the reversions of the G uidelines range to the statutory maximum of 240 months, and whether a 8

statutory maximum sentence was sufficient but not greater than necessary to serve the purposes 9
of sentencing enunciated in secti on 3553 (a)

. 10

If in fact the District C ourt treated 240 months as the only reasonable sentence (because 11
the statutory max imum p rohibited imposition of a true G uidelines sentence closer to life), then it 12
committed procedural error. Even when section 5G1.1(a) ratchets down a range , the lower 13

Guidelines range is still the recommendation , and should be treated as a starting point in a deeper 14
analysis, not a revision that ob viates the need to consider further what sentence to impose

. See 15

Cavera , 550 F.3d at 189

- 90 (stating that our review for procedural reasonableness “requires that 16
we be confident that the sentence resulted from the district court’s considered judgment as to 17
what was necessary to address the various, often conflicting, purposes of sentencing”). If, 18

however, the District C ourt understood the effect of section 5G1.1(a) , and still chose to impose 19
the maximum sentence after considering the command s of section 3553 (a) , then the sentence 20
may have been procedurally sound. But the rec ord here is ambiguous, and we have often 21

vacated and remanded sentence s where a “the judge’s sentencing remarks create ambiguity as to 22
whether the judge correctly understood an available option.” United States v. Thorpe , 191 F.3d 2317

339, 342 (2d Cir. 1999) (c itations omitted) ; see also United States v. Jones , 531 F.3d 163, 181 1
(2d Cir. 2008) (vacating sentence where “district court’s explanation for its decision to impose a 2
Guidelines sentence is ambiguous as to its un derstanding of an area of law”); United St ates v. 3
Toohey
, 448 F.3d 542, 545 (2d Cir

. 2006 ) (counseling that remand is appropriate where record 4
reflects “misunderstanding by a district court as to the statutory requirements and the sentencing 5

range

. . . or misp erception about their relevance” ). In a case clouded by the possibility of error, 6
we feel it appropriate to give the District Court an opportunity to clarify its thinking. 7
Remand is also appropriate for two additional reasons. First, the sentencing court gave 8
only a passing mention to an y of the section 3553 (a) factors. In each case, the District C ourt 9
j ustified a maximum sentence by relying almost exclusively on one word

— “deterrence.” 10
Certainly, a judge need not chronicle the deliberative journey taken to arrive at a sentence, but 11

she must still create enough of a record so that an appellate court can “be confident that the 12
sentence resulted from the district court’s considered judgment as to what was necessary to 13
address the various, often conflicting, purposes of sentencing.” Cavera
, 550 F.3d 189

- 90. In 14
other words, just as we do not insist upon “robotic incantations,” we require more than a few 15
magic words. 16
This is especially true in light of the appellants’ arguments for lighter sentences. 17
“[W] here the appellant or prosecutor prese nts nonfrivolous reasons for imposing a different 18
sentence . . . the judge will normally go further and explain why he has rejected those 19
arguments.” Rita
, 551 U.S. at 357 (2007). Here, appellants’ lawyers highlighted significant 20

issues with the intended loss calculation both in their briefs and at sentencing. Given the low 21

risk that any actual loss would result

— what hedge fund would fall prey to a purported coalition 22

of Bur y a tian nationals and Yamasee tribesmen usi ng AOL email accounts to off er five billion 2318

dollars in collateral for a loan to build a pipeline across Siberia?

— counsel argued that a 30

- 1
point mega

- enhancement vastly overstated both the seriousness of the offense, and the danger of 2
appellants to their community. The G uidelines a cknowledge that potentiality; a pplication note 3

19(C ) to U.S.S.G. § 2B1.1 indicates that a downward de parture may be warranted where the 4
offense level resulting from a loss calculation overstates the seriousness of an offense. But the 5
sentencing court neve r resolved appellants’ significant arguments. At Sampson’s hearing the 6

District C ourt did draw a comparison between other financial crimes and this case, but it nev er 7
resolved the question rais ed by the appellants

– whether treating intended loss like act ual loss 8

under all the circumstances of this case leads to a sentence consistent with the dictates of section 9

3553 (a)

. 10

In addition
, the District Court appears to have assumed that it could incorporate by 11

refe rence comments made during one appellant ’s sentencing hearing when conducting another

. 12
When Sampson’s attorney attempted to argue that the loss was overstated, the District Court 13

referenced a re

joinder made at Campbell’s h earing. Even i n multi

- defendant cases, the court 14

must sentence each defen dant separately. Though it should of course avoid disparities among 15
defendants of equal culpability, the court must come to an independent determination of the 16
appropriate punishment for each defendant, and must create a record of that individualized 17

dete rmination. See 18 U.S.C. § 3553(c) (obligating sentencing court to state reasons for imposing 18
a punishment in open court). That did not occur here, and we counsel the District Court to make 19

individualized records on remand. 20

For these reasons, the appella nt s’ sentences were procedurally unsound and appellants are 21
entitled to resentencing

. Although we find procedural error, we decline appellants’ request to 22

consider whether their sentence s were substantively unreasonable. 2319

II. CONCLUSION 1

We affirm the appellants’ convictions, but vacate their sentences and remand for 2
resentencings consistent with this decision. 3

4UNDERHILL, District Judge , concurring:

1

Although I agree that appellants’ sentences should be vacated and remanded for 2
procedural error, the real problem is that those sentences are shockingly high. For that reason, I 3
would reach the question of substantive reasonableness and would reverse on t he merits. 4
In my view, the loss guideline is fundamentally flawed, and those flaws are magnified 5
where, as here, the entire loss amount consists of intended loss. Even if it were perfect, the loss 6
guideline would prove valueless in this case, because th e conduct underlying these convictions is 7
more farcical than dangerous. If substantive review of sentences actually exists other than in 8
theory, it must be undertaken at least occasionally. This would have been an appropriate case in 9

which to do so, beca use it raises so starkly the problems with the loss guideline. Until this Court 10
weighs in on the merits of the loss guideline, sentences in high

- loss cases will remain wildly 11
divergent as some district judges apply the loss guideline unquestioningly while others 12
essentially ignore it. The widespread perception that the loss guideline is broken leaves district 13
judges without meaningful guidance in high

- loss cases; that void can only be filled through the 14
common law, which requires that we reach the substan tive reasonableness of these sentences. 15
Ordinarily, we review a sentence to determine whether there was a procedural error in a 16
district court’s sentencing before we consider “the substantive reasonableness of the sentence 17
imposed under an abuse

- of

- discret ion standard, taking into account the totality of the 18

circumstances.” United States v. Rigas , 583 F.3d 108, 121 (2d Cir. 2009) (internal quotation 19

marks omitted). That approach is wholly appropriate in the vast majority of sentencing appeals. 20
Nothing, however, “prevents us from reaching both the procedural and substantive 21
reasonableness of the sentence in the course of an appeal where we find both types of error.” 22

United States v. Dorvee , 616 F.3d 174, 182 (2d Cir. 2010) (citations omitted). Indeed, 232

a ddressing both procedural and substantive reasonableness in the same appeal can serve the 1
interest of judicial economy. Id. It is also the only means of addressing systemic problems with 2
the Sentencing Guidelines. In short, “because procedural error and substantive error are 3
permeable concepts

. . . postponing the consideration of substantive reasonableness [can be] a 4
mistake and a missed opportunity.” United States v. Stewart , 597 F.3d 514, 515 (2d Cir. 2010) 5
(Jacobs, C.J., concurring) (denying reheari ng in banc). 6

Substantive review of sentences provides “a backstop for those few cases that, [even if] 7
procedurally correct, would nonetheless damage the administration of justice because the 8
sentence imposed was shockingly high, shockingly low, or otherwis e unsupportable as a matter 9

of law.” Rigas , 583 F.3d at 123 (citation and footnote omitted). Not surprisingly, we have only 10
rarely held that a sentence is substantively unreasonable. E.g.
, Dorvee , 616 F.3d at 181, 184 11
(vacating “a within

- Guidelines sent ence”; “the amount by which a sentence deviates from the 12
applicable Guidelines range is not the measure of how ‘reasonable’ a sentence is. 13
Reasonableness is determined instead by the district court’s individualized application of the 14
statutory sentencing factors” (citing Gall v. United States , 552 U.S. 38, 46

- 47 (2007) ) ). In sum, 15

we will set aside a district court’s substantive determination of the appropriate sentence only “in 16
exceptional cases where the trial court’s decision cannot be located within th e range of 17
permissible decisions.” United States v. Cavera , 550 F.3d 180, 189 (2d Cir. 2008) (citation and 18
internal quotation marks omitted). This is such a case. 19

The twenty

- year sentences imposed on appellants are not merely harsh, they are 20
dramatically more severe than can be justified by the crime the appellants committed

. This was 21
a clumsy, almost comical, conspiracy to defraud a non

- existent investor of three billion dollars. 22
That scheme never came close to fruition. During his first meeting with Thomas Re, Emerson 233

Corsey described Magnolia International Bank and Trust as the central bank for scores of Native 1
American governments, including the Yamasee Indian tribe, which a Wikipedia search would 2

have revealed as a tribal confederation that was bro ken up and defeated early in the 18 th c entury. 3

See http://en.wikipedia.org/wiki/Yamasee . It took only a brief Google search for Re and his 4
associates to understand that the proposal “smelled”

– which is why the appellants were recorded 5
by Re for months before their arrest. At one point, Corsey provided Re with a certificate signed 6
by John Juncal that listed CUSIP numbers for the T

- notes; when Re shared the certificate with 7
his colleagues, they responded by bursting into laughter. Even the terms of the proposed deal 8
itself were laughable: the lender of three billion dollars would, according to the appellants, 9
receive fourteen billion dollars in profit over five years. This scheme amounted to a series o f 10
absurd lies piled on top of even more absurd lies. Appellants’ conduct was not dangerous 11
because they had absolutely no hope of success. 12

A single factor

— loss, specifically intended loss

— drove the Guideline s calculation
, 13
and a single section 3553(a) factor

— deterrence

— provided the basis for accepting the 14
Guidelines recommended sentence. A district court may not presume that a sentence within the 15
Guidelines range is reasonable. Cavera , 550 F.3d at 189. Although the District Court used the 16
intended loss amount correctly for purposes of calculating the Sentencing Guidelines range, the 17
Court erred by failing to dramatically discount that calculation when weighing the section 18
3553(a) factors against the totality of the circumstances of this ca se. This conspiracy to defraud 19
involved no actual loss, no probable loss, and no victim. The scheme was treated as 20
sophisticated, but could be more accurately described as a comedic plot outline for a “Three 21
Stooges” episode. Because the plan was farcic al, the use of intended loss as a proxy for 22
seriousness of the crime was wholly arbitrary: the seriousness of this conduct did not turn on the 234

amount of intended loss any more than would the seriousness of a scheme to sell the Brooklyn 1
Bridge turn on whet her the sale price was set at three thousand dollars, three million dollars, or 2
three billion dollars. By relying unquestioningly on the amount of the intended loss, the District 3
Court treated this pathetic crime as a multi

- billion dollar fraud

– that is, one of the most serious 4
frauds in the history of the federal courts. See United States v. Parris , 573 F. Supp. 2d 744, 753 5
(E.D.N.Y. 2008) (collecting sentences for major securities fraud convictions). 6

The error of accepting intended loss as a proxy for the seriousness of this crime was 7
“compounded by the fact that the district court was working with a Guideline that is 8
fundamentally different from most and that, unless applied with great care, can lead to 9

unreasonable sentences that are inconsistent wit h what § 3553 requires.” Dorvee , 616 F.3d at 10
184. The loss guideline, like the child pornography guideline at issue in Dorvee , was not 11
developed by the Sentencing Commission using an empirical approach based on data about past 12
sentencing practices. As s uch, district judges can and should exercise their discretion when 13
deciding whether or not to follow the sentencing advice that guideline provides. See Kimbrough 14

v. United States , 552 U.S. 85, 109

- 10 (2007); see also United States v. Diaz
, No. 11

- Cr.

- 0082 1

- 15

2(JG), 2013 WL 322243 at * 3

- 7 (E.D.N.Y. Jan. 28, 2013) (expressing disagreement with 16
Guidelines ranges for drug trafficking offenses because they are not based on empirical data and 17
national experience). 18

The fraud guideline was initially set forth in G uideline section 2F1.1. The Sentencing 19
Commission set the original 1987 Guidelines for economic offenses higher than historical 20
sentences in order to further the deterrence and just punishment goals of sentencing. In 1989, in 21
response to the savings and loan crisis, Congress passed legislation increasing the maximum 22
penalties for financial fraud offenses and directing the Sentencing Commission to include 235

specific offense characteristic enhancements in the fraud guideline. See Robert S. Bennett, et al., 1

Ta king it to the Banks: The Use of the Criminal Process to Regulate Financial Institutions, 109 2

B ANKING L. J. 28 , 28

- 34 (1992). In 2001, the Sentencing Commission amended the Guidelines 3
to combine the fraud, theft and embezzlement, and property destruction guidelines into a single 4
guideline, section 2B1.1. That change was accompanied by the publication of a new loss table 5
that had the effect of increasing offense level calculations, especially for high

- dollar

- value 6

crimes. See U.S. S ENTENCING C OMM ’ N , R EPOR T TO THE C ONGRESS : I NCREASED P ENALTIES 7

U NDER THE S ARBANES

- O XLEY A CT OF 2002 at 7 (2003). Most recently, the fraud guideline was 8
amended in 2003 in response to Congressional directives in the Sarbanes

- Oxley Act. Id. Those 9
amendments included further chang es to the loss table that added offense level points in the 10
highest loss cases. U.S.S.G. app. C a mend. 647 (Nov. 1, 2003). The three sets of amendments 11
to the loss table of the fraud guideline alone have effectively multiplied several times the 12

recommen ded sentence applicable in 1987 for large

- loss frauds , which itself was set higher than 13

historic sentences . Each of the three increases in the recommended Guideline ranges for fraud 14
crimes was directed by Congress, without the benefit of empirical study of actual fraud sentences 15
by the Sentencing Commission. 16

The history of bracket inflation directed by Congress renders the loss guideline 17
fundamentally flawed, especially as loss amounts climb. The higher the loss amount, the more 18
distorted is the guidelin e’s advice to sentencing judges. As a well

- known sentencing 19
commentator has put it, “For the small class of defendants . . . convicted of fraud offenses 20
associated with very large guidelines loss calculations, the guidelines now are divorced both 21

from the objectives of Section 3553(a) and, frankly, from common sense. Accordingly, the 22
guidelines calculations in such cases are of diminished value to sentencing judges.” Frank O. 236

Bowman, III, Sentencing High

- Loss Corporate Insider Frauds After Booker, 20 F ED

. S ENT ’ G 1

R EP

. 167 , 168 (2008). 2

When the Guideline s range zooms off th e sentencing table , sentencing judges are 3
discouraged from undertaking close examination of the circumstances of the offense and the 4
background and characteristics of the offender. Th at certainly happened here. But the low 5
marginal utility of the guideline in this very high intended loss case should have prompted 6
greater, not lesser, reliance on the section 3553(a) factors other than the Guidelines. As one 7
District Court applying the loss guideline put it, “Where the Sentencing Guidelines provide 8
reasonable guidance, they are of considerable help to any judge in fashioning a sentence that is 9
fair, just, and reasonable. But where, as here, the calculations under the guidelines have so run 10
amok that they are patently absurd on their face, a Court is forced to place greater reliance on the 11
more general considerations set forth in section 3553(a), as carefully applied to the particular 12
circumstances of the case and of the human being who will bear the consequences.” United 13

States v. Adelson , 441 F. Supp. 2d 506, 515 (S.D.N.Y. 2006), aff’d mem. , 301 F. App’x 93 (2d 14

Cir. 2008). 15

In this case, it is impossible to describe the sentences imposed on appellants as 16

s ubstantively reasonable. In my view, none of the section 3553(a) factors, singly or in 17
combination, can justify these shockingly high punishments, which are far greater than necessary 18
to punish or deter appellants’ conduct. The District Court provided “no reason why the 19

maximum senten ce of incarceration was required to deter [the appellants] and offenders with 20
similar history and characteristics.” Dorvee , 616 F.3d at 184. The bare assertion of the need to 21
deter, unconnected to the background and characteristics of a defendant or the nature and 22
circumstances of a crime, provides only superficial support for a sentence of imprisonment. 237

Here, the factor of deterrence simply cannot “bear the weight assigned it under the totality of 1

circumstances in the case.” Cavera , 550 F.3d at 191. N one of the appellants had ever served a 2
significant term of imprisonment and two of the three had spent no time in prison whatsoever. 3
This raised the question whether a statutory maximum sentence is necessary to deter future 4
wrongdoing. See United States v. Mishoe , 241 F.3d 214, 220 (2d Cir. 2001) (counseling district 5
courts to consider previous terms of incarcerations and calibrating new sentences to reflect prior 6
time behind bars). That is especially true here because appellants are older than most defen dants 7
and, accordingly, can be expected to have a lower risk of recidivism than most. See U.S. 8
Sentencing Commission, M EASURING R ECIDIVISM : T HE C RIMINAL H ISTORY C OMPUTATION OF 9

THE F EDERAL S ENTENCING G UIDELINES 16 (2004). Ind eed, one of the appellants wil l sur ely die 10

in prison, if required to serve a sentence anywhere close to twenty years; although an effective 11

life sentence , by definition, provi des complete deterrence, imposing such a sentence for the 12

conduct und erlying this conviction would be senseless. 13

The absence of any actual loss whatsoever and especially the absence of a victim 14
significantly undercut any argument that this crime was particularly serious. Outside the context 15
of Sentencing Guidelines calculations, intended loss is always le ss serious than actual loss, so its 16
value as a proxy for seriousness of a crime must be carefully examined. And not all actual loss is 17
equally serious. A fraud that results in the loss of even a few thousand dollars by an elderly or 18
sick person who, as a result of the loss, becomes unable to afford the necessities of life or 19

medical care is much more serious than a fraud that results in ten or a hundred times that loss by 20
a large corporation able to absorb the financial consequences without a need to clos e plants, fire 21
employees, or even declare the loss as material in public financial reports. Simply put, contrary 22
to the assumption underlying the loss guideline, not all dollars of loss are fungible. 238

Moreover, the convictions in this case were for conspir acy, which proscribes an 1
agreement to commit fraud and punishes that agreement the same whether or not a fraud was 2
actually committed. “[W]e punish unconsummated efforts to cause harm as ‘attempts’ or 3
‘conspiracies’ (albeit usually less severely than comp leted crimes) so long as the would

- be

4
perpetrator has come close enough to success that we can be confident his malignant designs 5
were real and not mere fantasy, and thus that his conduct was morally blameworthy.” Frank O. 6

Bowman, III, Coping with ‘Loss’: A Re

- examination of Sentencing Federal Economic Crimes 7

Under the Guidelines
, 51 V AND

. L. R EV

. 461 , 559 (1998). The circumstances of these 8
convictions put them very close to the boundary of mere fantasy (or perha ps the boundary of 9
mental competence ) and t he sentences should have reflected that fact. As with most attempt 10
crimes and unconsummated conspiracies, the actual loss here was zero. The wrongfulness of the 11
appellants’ conduct does not turn in any meaningful sense on the amount that the conspirators 12
sought to obtain; all other things equal, an effort to secure $3 billion for construction of an 13
imaginary pipeline is not 100 times as serious as an effort to secure $30 million for construction 14
of an imaginary factory. Accordingly, factors other than in tended loss become critical in 15

disti nguishing the seriousness of un consummated criminal conduct. 16

District judges are not permitted to treat the Sentencing Guidelines as reasonable. 17

Cavera , 550 F.3d at 189. The corollary of that proposition is that distr ict judges have an 18
obligation to consider whether a sentence other than a Guideline s sentence would be sufficient, 19
but not greater than necessary, to serve the purposes of sentencing. 18 U.S.C. § 3553(a). 20
Accordingly, district judges have an obligation t o consider whether to depart from the Guideline s 21
sentencing range or to impose a non

- Guideline s sentence in every case. That duty will 22
frequently require judges applying the loss guideline to evaluate whether the calculated 239

Guidelines range substantially overstates the seriousness of a crime. See U.S.S.G. § 2B1.1 1
application n ote 19(C) (“There may be cases in which the offense level determined under this 2
guideline substantially overstates the seriousness of the offense. In such cases, a downward 3
departur e may be warranted.”). That duty went unfulfilled in this case, and the result was the 4
imposition of shockingly high sentences on the appellants. 5

The Court of Appeals missed an opportunity in this case to provide much needed 6
guidance to district judges who must apply the misguided loss guideline. Thankfully, the District 7
Court will have the opportunity at resentencing to undertake the difficult task of weighing all of 8

the section 3553(a) factors under the circumstances of these cases to reach sentences that are 9
sufficient, but not greater than necessary, to serve the purposes of sentencing. 10

11

12