Source: https://www.herringandherringlaw.com/calculating-loss-for-economic-crimes-under-the-united-states-sentencing-guidelines/
Timestamp: 2019-02-21 03:48:52
Document Index: 284122864

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Calculating “loss” for economic crimes under the United States Sentencing Guidelines | Herring & Herring Law
Calculating “loss” for economic crimes under the United States Sentencing Guidelines
by Herring & Herring Law | Oct 1, 2013 | Florida Legal News, General |
Calculating loss under the federal sentencing guidelines is the amount of actual loss sustained by the victim or the loss intended by the perpetrator, whichever is greater. If the amount of loss cannot be reasonably calculated, then the amount of gain by the perpetrator is the proper measure of loss for sentencing purposes. Below is the primer for determining loss with appropriate citation under s. 2B1.1 (b) (1) U.S.S.G.:
I. THE DEFINITION OF “LOSS” UNDER §2B1.1.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
A. Actual Loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
B. Intended Loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
C. No “Economic Reality Principle” Under the Guidelines.. . . . . . . . . . . . . . . . . . . . 7
D. Loss Calculations Post-Booker. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
II. GAIN AS ALTERNATIVE MEASURE.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
III. ESTIMATING LOSS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
A. Fair Market Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
B. Cost of Repairs.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
C. Number of Victims Multiplied by Loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
D. Reduction in Value of Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
E. More General Factors.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
IV. EXCLUSIONS FROM LOSS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
A. Interest, Finance Charges, Late Fees, Penalties and Similar Costs. . . . . . . . . . . . 18
B. Costs to the Government and Costs Incurred by Victims. . . . . . . . . . . . . . . . . . . 18
V. CREDITS AGAINST LOSS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
A. Money and Property Returned. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
B. Collateral. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
VI. SPECIAL RULES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
A. Stolen or Counterfeit Credit Cards and Access Devices. . . . . . . . . . . . . . . . . . . . 22
B. Government Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
C. Davis-Bacon Act Violations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
D. Ponzi and Other Fraudulent Schemes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
E. Certain Other Unlawful Misrepresentation Schemes.. . . . . . . . . . . . . . . . . . . . . . 24
F. Value of Controlled Substances.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
G. Value of Cultural Heritage Resources. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
VII. CONCLUSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Loss Primer
This primer discusses issues often raised about economic loss and loss calculation under
USSG §2B1.1.1 Effective November 1, 2001, the Commission consolidated theft and fraud
guidelines into §2B1.1 and modified the definition of loss to be based on reasonably foreseeable
pecuniary harm and to include intended loss. This primer focuses discussion on some applicable
cases and concepts and is not intended as a comprehensive compilation of all case law addressing
I. THE DEFINITION OF “LOSS” UNDER §2B1.1
The sentencing guidelines define “loss” as “the greater of actual loss or intended loss.”2
The sentencing judge “need only make a reasonable estimate of the loss.”3 The estimate should
be based on available information and the court may consider a variety of different factors.4 The
court may also choose from competing methods of calculating loss.
Actual loss is often referred to as “but for” loss and the guideline application notes relate
that this means “the reasonably foreseeable pecuniary harm that resulted from the offense.”5 For
example, in United States v. Neadle, a defendant committed fraud in order to be licensed to write
property and casualty insurance. The actual loss for which he was held accountable at sentencing
included millions in losses of his insureds who suffered catastrophic damages caused by a
hurricane and were unable to recover from the defendant’s insurance company.6 Thus, all
reasonably foreseeable losses that flow directly, or indirectly, from a defendant’s conduct should
be included in the loss calculation.
Actual loss includes all relevant conduct. In United States v. Hoffman-Vaile, the
defendant was convicted of defrauding Medicare and, at sentencing, the district court included
the losses not only to the Medicare program but to private insurers and patients.7 The appellate
1 See United States Sentencing Commission, Guidelines Manual, §2B1.1 (Nov. 2010).
2 USSG §2B1.1, comment. (n. 3).
3 USSG §2B1.1, comment. (n. 3(C)).
5 USSG §2B1.1, comment. (n.3(A)(i)); see United States v. Ary, 518 F.3d 775 (10th Cir. 2008) (holding
that when a defendant objects to facts stated in the PSR, the government must prove those facts by a preponderance
of the evidence at the sentencing hearing).
6 See United States v. Neadle, 72 F.3d 1104 (3d Cir. 1995), amended by 79 F.3d 14 (3d Cir. 1996).
7 United States v. Hoffman-Vaile, 568 F.3d 1335, 1343-44 (11th Cir. 2009).
court affirmed, holding that the private insurers and patients were victims of the same fraud
scheme and, while not charged, those acts constituted relevant conduct for the purposes of loss
calculation.8
The loss figure is not limited to the losses that are directly attributable to acts of the
defendant. Losses caused by the acts of co-conspirators that were reasonably foreseeable to the
defendant should also be included in the loss calculation.9 The sentencing court should,
however, limit the defendant’s liability to those acts of co-conspirators that were reasonably
foreseeable and part of the criminal activity that the defendant “agreed to jointly undertake.”10
Pecuniary harm is reasonably foreseeable if it is “harm that the defendant knew or, under
the circumstances, reasonably should have known, was a potential result of the offense.”11
Several circuit courts have recently rejected arguments that defendants in mortgage fraud cases
could not have “reasonably foreseen” the downturn in the housing market. In United States v.
McKanry, the defendant obtained numerous mortgage loans through applications overstating the
named purchaser’s net worth and income, leading to default and subsequent foreclosure.12 The
district court calculated the actual loss as the difference between the unpaid principal balance of
the twelve mortgages and the subsequent sales price of the properties.13 The defendant argued
that the government had failed to prove that the loss amount was fully attributable to him, as
opposed to normal market conditions.14 The circuit court disagreed, holding that the appropriate
test is not whether market factors impacts the loss amount, but whether “the market factors and
the resulting loss were reasonably foreseeable.”15 The circuit court in United States v. Woolf
Turk also rejected the argument that it was the housing crash and other “extrinsic factors” that
caused individual investors’ losses, because, had the housing market been healthy, the defendant
9 United States v. Catalfo, 64 F.3d 1070, 1082-83 (7th Cir. 1995); see also United States v. Wilkins, 308 F.
App’x 920 (6th Cir.), cert. denied, 129 S. Ct. 2805 (2009); United States v. Mauskar, 557 F.3d 219 (5th Cir.), cert.
denied, 129 S. Ct. 2756 (2009); United States v. Nash, 338 F. App’x 96 (2d Cir. 2009); United States v. Jenkins-
Watts, 574 F.3d 950 (8th Cir. 2009), cert. denied, 130 S. Ct. 1915 (2010); United States v. Hayes, 574 F.3d 460 (8th
Cir. 2009); United States v. Treadwell, 593 F.3d 990 (9th Cir.), cert. denied, 131 S. Ct. 488 (2010) ; United States v.
Robinson, 603 F.3d 230 (3d Cir. 2010). But see United States v. Goodheart, 345 F. App’x 523, 525 (11th Cir.
2009) (finding that the sentencing judge “made no required individualized findings” about when the defendant
actually joined the conspiracy for the purposes of establishing loss).
10 United States v. McClatchey, 316 F.3d 1122, 1128 (10th Cir. 2003).
11 USSG §2B1.1, comment. (n.3(A)(iv)).
12 United States v. McKanry, 628 F.3d 1010, 1014-15 (8th Cir. 2011).
13 Id. at 1019.
could have sold the properties at profit and covered the investors’ loans.16 Instead, the appellate
court noted that the loss to investors was the principal value of the loans made to the defendant
that were never paid back, because the defendant had failed to collateralize their interests.17
Finally, the actual loss must have a causal link to the conduct of the defendant. In United
States v. Whiting, the defendant was convicted of converting funds from employees paychecks
that were intended for medical benefits and making false statements related to those employees’
health benefits.18 The “actual loss” was calculated using the total amount of unpaid medical
claims made by the employees.19 However, the sentencing judge stated on the record that he had
found no “causal link” between the defendant’s misstatements about benefits and the losses
caused by the medical claims in the case.20 The appellate court reversed, finding that there must
be a causal link to the conduct of the defendant to determine an “actual loss.”21 In United States
v. Rothwell, the appellate court found that there was no reasonable link between the fraud
committed by the defendant during the construction of a building and the subsequent default on
the construction loan.22 Therefore, the losses from the loan could not be attributable to the
defendant during sentencing.
B. Intended Loss
Intended loss means “pecuniary harm that was intended to result from the offense” and
includes loss that would have been impossible or unlikely.23 For example, in United States v.
Lane, a bank fraud case, the defendant was able to acquire a loan based on fraudulent statements
and the amount of intended loss was determined to be “the amount of money that the defendant
places at risk as a result of the fraudulent loan application.”24 In cases of Medicare or Medicaid
fraud the intended loss is the billed figure even when the defendant receives a much smaller
16 United States v. Woolf Turk, 626 F.3d 743, 747 (2d Cir. 2010).
17 Id. at 748.
18 United States v. Whiting, 471 F.3d 792, 793 (7th Cir. 2006).
19 Id. at 802.
22 United States v. Rothwell, 387 F.3d 579, 584 (6th Cir. 2004).
23 USSG §2B1.1, comment. (n.3(A)(ii)).
24 United States v. Lane, 323 F.3d 568, 585 (7th Cir. 2003); see United States v. Neal, 294 F. App’x 96,
103 (5th Cir. 2008) (holding that although the actual loss was calculated at $150,000, inclusion of the intended loss
of $11 million was “proper” under §2B1.1, particularly in view of the nature of the scheme which sought to leave
thousands of workers without worker’s compensation coverage); see United States v. Middlebrook, 553 F.3d 572
(7th Cir. 2009).
payment.25 In United States v. Mikos, the court noted that while the payment of $1.8 million in
fraudulent Medicare bills was highly unlikely, that figure did represent the intended loss
regardless of whether or not Medicare paid.26
There need not be any calculation of actual loss before the court can rely on the intended
loss figure, and in some cases it may be easier “as a matter of proof” to show intended loss.27
Additionally, actual losses, or losses actually completed before discovery, are to be included in
any calculation of intended loss.28 A defendant may not argue that the categories are mutually
exclusive and cannot be combined to calculate an overall intended loss.29
When calculating the intended loss, absolute accuracy is not required as long as the
calculation is not “outside the realm of permissible computations.”30 An estimate made by the
sentencing judge “need not be determined with precision.”31 There is no “clear error” when a
loss calculation is supported by the presumptively reasonable facts from the presentence report
and the defendant fails to rebut those facts.32 For instance, in United States v. Al-Shahin, a case
involving a fraudulent insurance claim, the court calculated the intended loss by using the figure
quoted in the demand letter sent by the defendant’s lawyer to the insurance company although the
defendant ultimately collected a settlement amount that was less than half the demand amount
from the insurance company.33 In a case in which a defendant sold stolen credit cards to others,
the sentencing judge fixed the intended loss at the total credit limits of all of the credit cards.34
The court concluded that the defendant could reasonably expect such a loss as “the natural and
25 United States v. Martinez, 588 F.3d 301, 326-27 (6th Cir. 2009), cert. denied, 131 S. Ct. 538 (2010).
The Commission is currently in the process of promulgating an amendment to the guidelines regarding the definition
of “intended loss” in cases involving “Federal health care offenses relating to Government health care programs”.
Readers of this primer should consult the Commission’s webpage at www.ussc.gov for updates on the amendment
26 United States v. Mikos, 539 F.3d 706, 714 (7th Cir. 2008).
27 United States v. Thurston, 358 F.3d 51, 68 (1st Cir. 2004), vacated on other grounds, 543 U.S. 1097
28 See United States v. Ware, 334 F. App’x 49 (8th Cir. 2009).
29 Id. at 50.
30 United States v. Lopez, 222 F.3d 428, 437 (7th Cir. 2000).
31 United States v. Miller, 316 F.3d 495, 503-06 (4th Cir. 2003).
32 United States v. McClain, 280 F. App’x 425, 430 (5th Cir. 2008).
33 United States v. Al-Shahin, 474 F.3d 941, 950 (7th Cir. 2007).
34 United States v. Alli, 444 F.3d 34, 38-39 (1st Cir. 2006); see also United States v. Edmondson, 349 F.
App’x 511 (11th Cir. 2009).
probable consequences of his or her actions.”35 Similarly, in United States v. Wilfong, the
defendant fraudulently opened credit accounts at local businesses in the names of victims and the
court calculated intended loss by totaling up the credit limits of all open accounts even though
the defendant had not used all of the available credit.36 At least one circuit has also concluded
that simply obtaining information regarding a credit account creates an intended loss presumption
that must be rebutted by the defendant.37
In cases involving fraudulent or forged checks the face value of the instruments are often
used to calculate the intended loss figure.38 The sentencing judge may treat the face amount of
the checks as prima facie evidence of the defendant’s intent but still allow the defendant to offer
evidence to rebut that figure.39 If the defendant does not provide “persuasive evidence” to rebut
intent, then the courts are “free to accept the loss figure” taken from the face value of the
instruments.40 Further, some courts have held that the “intended loss” in a fraudulent check
scheme can include the value of counterfeit checks turned over by the defendant at the time of his
voluntary surrender even if those checks were never used.41 Similarly, in a case where the
defendant unsuccessfully attempts to obtain cash advances from stolen credit cards, each
unsuccessful attempt represents an intended loss.42
When confronted with an ongoing scheme, a sentencing judge may have to extrapolate to
find the intended loss. For example, in United States v. Rettenberger, where the defendant faked
a disability to collect federal benefits, the sentencing judge assumed that the defendant would
35 Alli, 444 F.3d at 38-39; see also United States v. Harris, 597 F.3d 242 (5th Cir. 2010) (looking to
whether the defendant “recklessly jeopardized” the property in question (credit card limits)).
36 United States v. Wilfong, 475 F.3d 1214 (10th Cir. 2007).
37 United States v. John, 597 F.3d 263 (5th Cir. 2010).
38 United States v. Himler, 355 F.3d 735, 740-41 (3d Cir. 2004); see also United States v. Grant, 431 F.3d
760 (11th Cir. 2005).
39 United States v. Khorozian, 333 F.3d 498, 509 (3d Cir. 2003); United States v. Santos, 527 F.3d 1003
(9th Cir. 2008) (agreeing with the Third and the Eleventh Circuits that the face value of the stolen checks is
“probative” of the defendants’ intended loss, but the court must also consider any evidence presented by the
defendant tending to show that he did not intend to produce counterfeit checks up to the full face value of the stolen
checks); United States v. Dullum, 560 F.3d 133, (3d Cir. 2009).
40 Khorozian, 333 F.3d at 509 (quoting United States v. Geevers, 226 F.3d 186, 194 (3d Cir. 2000)); see
also United States v. Serino, 309 F. App’x 637 (3d Cir. 2009).
41 United States v. Kushner, 305 F.3d 194, 198 (3d Cir. 2002).
42 United States v. Ravelo, 370 F.3d 266, 273 (2d Cir. 2004); see also United States v. Powell, 320 F.
App’x 842, 844-45 (10th Cir. 2009) (holding that a defendant engaged in an “empty envelope” scheme is liable for
the total value of the fraudulent deposit to the victim bank even though she only withdrew a portion of the amount
before she destroyed the account’s ATM card and the bank discovered the fraud).
have continued to collect benefits until the age of 65 and assessed the intended loss as that full
amount.43 In United States v. Willis, the defendant submitted several fraudulent applications for
FEMA relief.44 For some she had only received a portion of funds available which were
automatically disbursed by FEMA, but for other applications she had taken more steps to obtain
additional funds, so the sentencing judge did not clearly err by considering the full value of all
the applications filed even though the defendant had not attempted to obtain all available funds
from each application.45 In United States v. Kosth, the intended loss was the full amount of loan
commitments the defendant secured from the Small Business Administration because, although
the defendant did not receive the full amount, that sum was diverted from the intended
recipients.46 Similarly, in United States v. Crawley, the sentencing judge determined that the
intended loss constituted the defendant’s salary and pension for a several year period when the
defendant committed fraud to obtain the position of union president.47 On appeal the circuit
court concluded that the sentencing judge’s reasonable estimate of the intended loss was not
“clearly erroneous.”48 The defendant had argued that any loss figure should be reduced by the
amount of “legitimate services” he provided the union, but the sentencing judge determined that
there were no “legitimate services” provided since he procured the position by fraud.49
In the case of real property, unless the defendant was “so ‘consciously indifferent or
reckless’ about the repayment of the loans as to impute to him the intention that the lenders
should not recoup their loans,” intended loss will not likely be the appropriate measure of loss
since the real property serves as collateral and will be recoverable should the owner default.50
However, at least one Circuit has suggested that a defendant’s disguising the identity of the
actual owners (through straw purchase) along with false statements regarding encumbrances
43 United States v. Rettenberger, 344 F.3d 702, 708 (7th Cir. 2003); see United States v. Moneymaker, 347
F. App’x 893 (4th Cir. 2009). But see United States v. Peel, 595 F.3d 763, 772 (7th Cir. 2010) (noting that if a
defendant “present[ed] credible evidence for discounting a stream of future payments to a [lower] future value, the
district court must consider [that evidence]”), cert. denied 131 S. Ct. 944 (2011).
44 United States v. Willis, 560 F.3d 1246, 1250-51 (11th Cir. 2009).
46 United States v. Kosth, 257 F.3d 712, 722 (7th Cir. 2001); see also United States v. Conroy, 567 F.3d
174, 179-80 (5th Cir. 2009) (holding that where the defendant only asked for $70,000 in a fraudulent grant
application, but was approved for $100,000, the appropriate intended loss was the higher value), cert. denied, 130 S.
Ct. 1502 (2010).
47 United States v. Crawley, 533 F.3d 349 (5th Cir. 2008).
48 Id. at 356-57.
50 United States v. Goss, 549 F.3d 1013, 1018 (5th Cir. 2008).
makes foreclosure by the victim banks more difficult and adds to the intended loss figure.51
“Intended loss” is not simply “potential loss,” and the “court errs when it simply equates
potential loss with intended loss without deeper analysis.”52 The calculation of intended loss is
determined by what loss the government can reasonably show the defendant intended to cause.53
But at least one Circuit Court has suggested that intended loss may include “probable” losses that
may not have been directly foreseen by the defendant.54
C. No “Economic Reality Principle” Under the Guidelines
Prior to the November 2001 amendments to the sentencing guidelines, some courts noted
an exception to the use of intended loss when a defendant had devised a scheme obviously
doomed to fail which caused little or no economic loss. Under the revised definition of intended
loss, this exception is no longer available. Loss calculations should thus include harm that would
have been “impossible or unlikely to occur.”55 It is possible that the sentencing judge might
consider these same factors as a basis for a downward departure. In United States v. McBride,
the court ruled that impossible losses are to be included in the loss figure but remanded the case
for the sentencing judge to consider a departure based on “economic reality.”56
D. Loss Calculations Post-Booker
At least one Circuit has explored the application of 18 U.S.C. § 3553(a) factors to the
calculation of loss and the application of upward variances based on loss. In United States v.
Hilgers, the presentence report first suggested an “intended loss” based on the amount a down
payment and fees for a mortgage loan would have been absent the defendant’s fraud.57 The
sentencing judge agreed with the defendant’s argument that the PSR’s calculation was “too
speculative” and found a guideline loss of zero, but then stated that this case was “outside the
heartland” and sentenced the defendant to five years which constituted an upward variance of
over three years above the top of the applicable guideline range.58 Upon review, the Ninth
51 United States v. Stathakis, 320 F. App’x 74, 77-78 (2d Cir. 2009).
52 Geevers, 226 F.3d at 192.
53 Miller, 316 F.3d at 505.
54 United States v. Baum, 555 F.3d 1129, 1133-35 (10th Cir. 2009).
55 USSG §2B1.1, comment. (n.3(A)(ii)); see also United States v. Messervey, 317 F.3d 457, 464 (5th Cir.
2003) (intended loss can include impossible losses); United States v. Dinnall, 313 F. App’x 241 (11th Cir. 2009).
56 United States v. McBride, 362 F.3d 360, 376 (6th Cir. 2004).
57 United States v. Hilgers, 560 F.3d 944, 945-48 (9th Cir. 2009).
Circuit panel made a point of noting that “the district court’s consideration of the large potential
loss that could result from Hilger’s action was not unreasonable” and considering “the potential
loss to victims” was chief among the various § 3553(a) factors to be considered in the sentence.59
Other courts have also suggested that a proper review of the criteria in § 3553(a) would include
consideration of the loss caused by the defendant’s actions.60
In a case where additional loss amounts attributable to unidentified victims could not “be
determined precisely enough” to apply the guidelines, the sentencing judge in United States v.
Carroll found sufficient evidence to “consider a greater loss in judging the seriousness of the
defendant’s conduct” and vary upwards nearly 25 percent over the top of the calculated
guidelines range.61
Simply rejecting the government’s evidence as to loss without a sufficient explanation on
the record constitutes procedural error on the part of the sentencing judge and is grounds for
reversal.62 In United States v. Wilkinson, the sentencing judge stated on the record that he found
the government’s loss expert to be knowledgeable and credible, but then rejected the expert’s
calculations completely, finding zero loss, without any explanation.63 Without any record of
what argument (if any) the sentencing judge accepted for loss, the Fourth Circuit found the
sentence procedurally unreasonable.64 However, other courts have concluded that some
procedural errors in the calculation of loss are harmless and do not rise to the level of clear
error.65
60 United States v. Livesay, 587 F.3d 1274, 1278-79 (11th Cir. 2009) (“[A] sentence of probation for a
high-ranking officer in a corporation where over a billion dollars of fraud was perpetrated … is not reasonable” under
the factors listed in § 3553(a)). But see United States v. Edwards, 595 F.3d 1004 (9th Cir. 2010), r’hg denied, 622
F.3d 1215 (upholding a probationary sentence far below the guideline range as substantively reasonable in a fraud
case where the sentencing judge stated that the guideline range calculated using intended loss “overstated the
circumstances” of the defendant’s case).
61 United States v. Carroll, 691 F. Supp. 2d 672, 676 (W.D. Va. 2010).
62 United States v. Wilkinson, 590 F.3d 259, 269-70 (4th Cir. 2010).
65 United States v. Mukhtaar, 355 F. App’x 541, 542-43 (2d Cir. 2009) (holding that the sentencing judge
did not commit procedural error by adding together both actual and intended loss because intended loss necessarily
includes actual loss and any additional amount that the defendant intended the victims to lose); see also United
States v. Breon, 357 F. App’x 615, 617 (5th Cir. 2009) (determining that it was not error for the sentencing judge to
fail to specify what method was used to calculate the loss figure as long as all three methods considered by the court
would have garnered a similar result), cert. denied, 130 S. Ct. 2126 (2010); United States v. Venkataram, 356 F.
App’x 541, 542-43 (2d Cir. 2009) (determining that the sentencing judge did not commit error by relying on a
calculation provided by the government which was mislabeled as “loss” when it was actually “gain,” provided that
At least one Circuit Court has also found that a sentencing judge’s refusal to consider
gain as an alternative measure in a case where a “probable” but difficult to calculate loss exists is
reversible error.66
II. GAIN AS ALTERNATIVE MEASURE
The sentencing guidelines instruct the sentencing court to “use the gain that resulted from
the offense as an alternative measure of loss only if there is a loss but it reasonably cannot be
determined.”67 Even when there is no identifiable loss to the victims, the court should calculate
the gain to the defendant as an alternative means to determine loss. In United States v. Haas, the
defendant sold prescription drugs imported from Mexico in circumvention of FDA regulations.
While there was no evidence that the drugs sold were inferior or that the purchasers of the drugs
were cheated in any way, the court concluded that an alternative measure of loss in such a case
should be the gain realized by the defendant through the commission of the offense.68 In United
States v. Munoz, it was highly impractical to identify and contact the victims because many were
elderly and spoke only Spanish. Consequently, the sentencing judge used the gain as an alternate
calculation of loss.69 Similarly, in United States v. Randock, where the loss to victims in a
fraudulent academic credential scheme could not reasonably be determined, the court concluded
that gain was a reasonable alternative.70
Substituting the gain for the loss is not the preferred method as it “ordinarily
underestimates the loss.”71 Sentencing judges are cautioned against “abandoning a loss
calculation in favor of a gain amount where a reasonable estimate of the victims’ loss is
feasible.”72 Courts cannot use gain “as a proxy” for each defendant’s culpability and must
the sentencing judge made a reasonable estimate based on the evidence provided), cert. denied, 131 S. Ct. 809
66 United States v. Vrdolyak, 593 F.3d 676, 681 (7th Cir. 2010).
67 USSG §2B1.1, comment. (n. 3(B)).
68 United States v. Haas, 171 F.3d 259, 268-69 (5th Cir. 1999).
69 United States v. Munoz, 430 F.3d 1357, 1369-71 (11th Cir. 2005).
70 United States v. Randock, 330 F. App’x 628, 629-30 (9th Cir. 2009); see also United States v. McMillan,
600 F.3d 434 (5th Cir. ) (holding that, where a trial court cannot reasonably calculate the loss for a company that,
while victimized by fraud, was already struggling financially, the court was justified in calculating the loss based on
the defendant’s salaries), cert. denied, 131 S. Ct. 504 (2010).
71 United States v. Triana, 468 F.3d 308, 323 (6th Cir. 2006) (citing United States v. Snyder, 291 F.3d
1291, 1295 (11th Cir. 2002)).
72 Munoz, 430 F.3d at 1371 (quoting United States v. Bracciale, 374 F.3d 998, 1004 (11th Cir. 2004)).
properly calculate loss when possible to do so.73 But at least one Circuit has determined that
gain can be “used as a proxy for a portion of the total loss where some, but not all, of the loss can
be determined.”74 A sentencing court cannot substitute gain where it is previously determined
that there is “no loss” as opposed to an incalculable loss.75
III. ESTIMATING LOSS
The sentencing court “need only make a reasonable estimate of the loss.”76 This estimate
may be made using available information to determine the value and the sentencing judge is
“entitled to appropriate deference” because of the court’s unique position to assess the
evidence.77 For example, the court may consider the value of assets concealed in a bankruptcy
fraud as relevant evidence in determining intended loss.78
The evidence the sentencing judge uses to calculate loss can include hearsay if the
hearsay has a sufficient indicia of reliability.79 In United States v. Flores-Seda, the sentencing
judge relied on the hearsay testimony of the victim’s attorney to estimate loss.80 In United States
v. Humphrey, the sentencing judge utilized the defendants’ personal journal which detailed the
names of their victims and amounts collected in a loan fraud scheme.81 On appeal, the court
agreed that such material provided a “sufficient indicia of reliability” to be used to calculate an
estimated loss.82 In United States v. Hahn, the sentencing judge relied on the cash deposits made
73 United States v. Gallant, 537 F.3d 1202, 1240 (10th Cir. 2008).
74 United States v. Armstead, 552 F.3d 769, 778 (9th Cir. 2008).
75 United States v. Miller, 588 F.3d 560, 567 (8th Cir. 2009).
76 USSG §2B1.1, comment. (n.3(C)); see United States v. Bennett, 252 F.3d 559 (2d Cir. 2001); United
States v. Schaefer, 384 F.3d 326 (7th Cir. 2004); United States v. Gordon, 495 F.3d 427 (7th Cir. 2007).
77 USSG §2B1.1, comment. (n.3(C)); see United States v. Parish, 565 F.3d 528 (8th Cir. 2009); United
States v. Whitfield, 590 F.3d 325 (5th Cir. 2009).
78 United States v. Holthaus, 486 F.3d 451, 456-57 (8th Cir. 2007); see also United States v. Kimoto, 588
F.3d 464 (7th Cir. 2009) (affirming decision because the actual loss paled in comparison to the intended loss figure
which could have been calculated using the number of names on a lead list for a fraudulent telemarketing scheme
combined with expert testimony that suggested the rate of return on such lead lists was between 1-2% of the total list
and the lowest of prices at which the card was offered), cert. denied, 130 S. Ct. 2079 (2010).
79 United States v. Sliman, 449 F.3d 797, 802 (7th Cir. 2006).
80 United States v. Flores-Seda, 423 F.3d 17, 21 (1st Cir. 2005).
81 United States v. Humphrey, 104 F.3d 65, 71 (5th Cir. 1997).
into the defendant’s account to determine the loss from multiple cash thefts.83 A defendant who
challenges a district court’s loss calculation carries a heavy burden and must show that the
calculation was not just inaccurate, but “outside the realm of permissible computation.”84
The sentencing judge also may choose the method to calculate loss he or she prefers even
if there is a viable competing method.85 There is a “heavy burden” placed on the defendant to
disprove the reasonableness of the sentencing judge’s calculation of loss.86 The factual findings
supporting a sentencing judge’s loss calculation are reviewed by the appellate courts under a
clear error standard.87
The sentencing judge, however, cannot assign a loss figure “arbitrarily” or with no
findings. The court must develop some evidence to support the loss figure rather than settle on a
number.88 In United States v. Liveoak, the sentencing judge’s adoption of a loss figure taken
from a co-defendant’s plea (without fact-finding in the defendant’s case) was held to be
83 United States v. Hahn, 551 F.3d 977, 980-81 (10th Cir. 2008).
84 United States v. Wheeler, 540 F.3d 683, 693 (7th Cir. 2008).
85 United States v. King, 246 F.3d 1166, 1177-78 (9th Cir.), superseded on other grounds, 257 F.3d 1013
(9th Cir. 2001); See also United States v. McMillan, 600 F.3d 434, 458-59 (5th Cir.) (holding that when the
sentencing court has contradictory and “hotly contested” testimony and evidence regarding loss, the appellate court
cannot conclude that the sentencing court committed clear error in selecting one or the other theory), cert. denied,
131 S. Ct. 504 (2010); United States v. Scher, 601 F.3d 408, 413 (5th Cir. 2010) (holding that the defendant has the
burden “to produce reliable evidence supporting an alternate number or demonstrating that the information [the
sentencing judge relied on] was inaccurate or materially untrue”).
86 United States v. Ameri, 412 F.3d 893, 901 (8th Cir. 2005); see also United States v. Harris, 335 F. App’x
623 (7th Cir. 2009); United States v. Hassan, 211 F.3d 380 (7th Cir. 2000); United States v. Lewis, 594 F.3d 1270,
1289 (10th Cir.) (holding that a defendant must provide “substantial ground for rejecting the district court’s
determination that the evidence used by the government was reliable”), cert. denied, 130 S. Ct. 3441 (2010).
87 See United States v. Harris, 597 F.3d 242, 250-51 (5th Cir. 2010) (noting, however, that the method of
calculating loss chosen by the district court is reviewed de novo); United States v. McKanry, 628 F.3d 1010, 1019
(8th Cir. 2011).
88 United States v. Renick, 273 F.3d 1009, 1027 (11th Cir. 2001); United States v. Oseby, 148 F.3d 1016,
1025-1027 (8th Cir. 1998) (reversing the sentence due to insufficient findings on loss calculations); see also United
States v. Higgins, 270 F.3d 1070, 1075-76 (7th Cir. 2001) (sentencing judge made insufficient findings regarding
loss); United States v. Ross, 502 F.3d 521, 531 (6th Cir. 2007) (The “court may not merely summarily adopt the
factual findings in the presentence report or simply declare that the facts are supported by a preponderance of the
evidence.”); United States v. Drayer, 364 F. App’x 716, 720-21 (2d Cir. 2010) (remanding for resentencing where
the application of the guidelines is heavily dependant on factual findings and “the absence of a developed record
affords no basis for meaningful review.”); United States v. Gupta, 572 F.3d 878, 889 (11th Cir. 2009) (reversing loss
calculation where the sentencing judge “pick[ed] a figure … about halfway in between” two competing estimates
without giving any non-arbitrary reason therefor), cert. denied, 130 S. Ct. 1302 (2010); United States v. Warshak,
631 F.3d 266, 329-30 (6th Cir. 2010) (remanding where the district court’s explanation of its loss determination was
inadequate); United States v. Hall, 610 F.3d 727 (D.C. Cir. 2010).
unreasonable.89 Neither can a sentencing judge ignore a defendant’s offer of proof to rebut a
loss calculation.90 Such a failure is clear error.91 Further, it is not the defendant’s burden to
disprove loss amounts; the government must prove loss by a preponderance of the evidence.92 If,
however, a defendant fails to rebut evidence as to loss, he cannot expect the sentencing judge to
draw favorable inferences.93
Some circuits allow a sentencing judge to consider the stipulated loss figure in the
defendant’s plea agreement as long as the court also considers any loss evidence that is presented
by the parties and “the record clearly demonstrates that the defendant fully understood the
potential consequences of his stipulation.”94 The Seventh Circuit, however, has determined that
such stipulated facts waive any challenge by the defendant at sentencing.95 In United States v.
Elashyi, the defendant reserved his right to argue that there was “no loss” while
contemporaneously stipulating in the plea agreement to a specific loss figure (should a loss be
found). The circuit court determined that if the sentencing judge found that there was a loss then
the defendant had no further grounds to challenge the stipulated figure even if there was “no
evidence” to support the calculation of the stipulated figure in the plea agreement.96
Although the guidelines are now advisory, a sentencing judge must still make factual
findings as to the amount of loss and a “reasonable estimate” of loss to satisfy the evidentiary
requirements. A court’s failure to do so will render a loss calculation invalid.97
Restitution and loss are separate issues and there is no authority supporting the idea that
89 United States v. Liveoak, 377 F.3d 859, 866-67 (8th Cir. 2004); see also United States v. Pierce, 400
F.3d 176, 182 (4th Cir. 2005) (ruling that the court is not bound by the loss figure in the co-defendant’s sentencing).
90 United States v. Newson, 351 F. App’x 986, 988-89 (6th Cir. 2009) (holding that it was clear error for the
sentencing judge to ignore the defendant’s offer of proof that she had refused to accept an automobile after she filled
out a fraudulent loan application, thus showing her intention to abandon the scheme).
92 United States v. Hartstein, 500 F.3d 790, 796-97 (8th Cir. 2007).
93 United States v. Ravelo, 370 F.3d 266, 272-73 (2d Cir. 2004).
94 United States v. Granik, 386 F.3d 404, 413 (2d Cir. 2004); United States v. Camacho, 348 F.3d 696,
699-700 (8th Cir. 2003).
95 United States v. Gramer, 309 F.3d 972, 975 (7th Cir. 2002); see also United States v. Woods, 554 F.3d
611, 614 (6th Cir. 2009).
96 United States v. Elashyi, 554 F.3d 480, 509 (5th Cir. 2008).
97 United States v. Medina, 485 F.3d 1291, 1304-5 (11th Cir. 2007); see United States v. Ali, 508 F.3d 136
(3d Cir. 2007); United States v. Johnson, 270 F. App’x 839 (11th Cir. 2008).
there must be “symmetry” between the two.98
“Fair market value” can be determined by the court through comparison or replacement
cost to the victim. In United States v. Whitlow, an odometer fraud case where the court took
judicial notice of the National Automobile Dealers Association (NADA) guide to determine the
value of the vehicles,99 the appellate court noted that a value determination by the district court in
such cases cannot be disturbed unless it is “clearly erroneous.”100 The Tenth Circuit has noted,
however, that there is “more than one permissible way to measure loss in criminal odometer
tampering cases” and a court’s choice between them cannot be clearly erroneous.101
Replacement costs can also be used to make a loss estimate, as in United States v.
Shugart, where the court determined that “replacement cost may be used to value items for which
market value is difficult to ascertain.”102
“Fair market value” of certain services, such as insurance coverage, can be determined by
their cost or premium value.103
The court can assess the “fair market value” of a loss even if the replacement cost or
production costs are lower than the determined market value. For instance, in United States v.
Bae,104 a lottery retailer generated $525,586 in lottery tickets with a winning redemption value of
$296,153 and argued that the losing tickets had no “fair market value.” The district court
reasoned that the value of the tickets at the time they were purchased was the appropriate fair
98 United States v. Patterson, 595 F.3d 1324, 1327-28 (11th Cir. 2010): see also United States v. Riddell,
328 F.App’x 328, 329 (6th Cir. 2009) (holding that a district court may look to intended loss in calculating total loss
for the purposes of §2B1.1, but must base its order of restitution on actual losses).
99 United States v. Whitlow, 979 F.2d 1008, 1011 (5th Cir. 1992).
100 Id. at 1012 (quoting United States v. Bachynsky, 949 F.2d 722, 734-35 (5th Cir. 1991)).
101 United States v. Sutton, 520 F.3d 1259, 1264 (10th Cir. 2008); see also United States v. Lige, __ F.3d
__, 2011 WL 802809 (5th Cir. Mar. 9, 2011) (holding that the use of replacement costs as a measure of loss is only
appropriate where the fair market value is impractical to determine).
102 United States v. Shugart, 176 F.3d 1373, 1375 (11th Cir. 1999) (holding that replacement costs of
burned church were accurate measure of loss).
103 United States v. Simpson, 538 F.3d 459, 463 (6th Cir. 2008).
104 United States v. Bae, 250 F.3d 774, 776 (D.C. Cir 2001); see also United States v. Onyiego, 286 F.3d
249 (5th Cir. 2002) (holding that face value is accurate value to use when determining loss).
market value.105
“Fair market value” of items that have a wholesale or retail value are typically determined
on a case by case basis. In United States v. Hardy, the court determined that the loss should be
the wholesale value of the stolen items since the true owner intended to sell the items at
wholesale prices.106 When the items in question were taken from a retailer, the courts have
reasoned that “the price at which the retailers would have sold that merchandise serves as a
reasonable estimate of loss.”107
The sentencing judge should determine “fair market value” on the date the fraud ceased
operations in cases where loss may fluctuate.108 The courts have ruled that there is “no error in
selecting the end of the conspiracy as an appropriate date from which to calculate loss.”109 In
United States v. Radziszewski, the defendant objected to the sentencing judge’s use of a
foreclosure value for a property secured with a fraudulent loan rather than a higher appraisal of
the property after the fraud.110 The court declined to use the defendant’s preferred value in part
because it was not the value at the time of fraud.111 In a case involving the fair market value of
real property that has not been recently sold (at foreclosure or otherwise), however, the defendant
may rebut the government’s proposed value or the basis on which that value was calculated.112
When a current market value for real property is not available, the court need not use the most
recent valuation if more than one prior valuation exists.113
B. Cost of Repairs
The cost of repairing property can also be used to estimate loss as long as the cost does
not exceed the fair market value. In United States v. Cedeno, the circuit court remanded for
105 Bae, 250 F.3d at 776.
106 United States v. Hardy, 289 F.3d 608, 613-14 (9th Cir. 2002).
107 United States v. Wasz, 450 F.3d 720, 727 (7th Cir. 2006).
108 United States v. Hart, 273 F.3d 363, 374 (3d Cir. 2001) (upholding the sentencing judge’s decision to
decline to calculate loss at the time of sentencing where defendant argued the victims could have mitigated losses by
selling at a later date).
110 United States v. Radziszewski, 474 F.3d 480, 487 (7th Cir. 2007).
112 United States v. Siciliano, 601 F. Supp. 2d 623, 633 (E.D. Pa. 2009).
113 United States v. Nathan, 318 F. App’x 273, 275-76 (5th Cir. 2009).
resentencing because the sentencing judge included both the original fair market value of
damaged watches and the costs to repair the watches in the loss calculation. The circuit court
noted that “there is no damage that can be done beyond total destruction.”114 Courts cannot
“double count” fair market value and repair costs.115
Repairs that may also be improvements of property can be included in loss. In United
States v. Lindsley, the court concluded that improvements made to a victim company’s computer
system after a hacker broke in could be attributed to the loss figure as necessary repair costs.116
There are some estimated repair costs that are specific to certain offenses. For example,
in United States v. Shumway, the court had to apply special provisions relating to Archaeological
Resources Protection Act to determine “repair costs” to damaged Native American sites on
federal lands.117
C. Number of Victims Multiplied by Loss
It is appropriate for the sentencing judge to take an average loss per victim and multiply it
across an approximate number of victims to generate a total loss figure in cases where specific
losses for individual victims are not easily calculated118 In United States v. Mei, a credit card
fraud case, the sentencing judge estimated intended loss based on the average credit card limit
multiplied by the number of cards used.119 Further, such an estimation can include victims who
are not aware they have been defrauded or even those who “relay their satisfaction with [the]
fraudulent treatment.”120
D. Reduction in Value of Securities
The guidelines state that the reduction in value of securities and other corporate assets
114 United States v. Cedeno, 471 F.3d 1193, 1195 (11th Cir. 2006).
115 Id. at 1196.
116 United States v. Lindsley, 254 F.3d 71 (5th Cir. 2001) (unpublished table decsion).
117 United States v. Shumway, 112 F.3d 1413, 1424-26 (10th Cir. 1997); see also United States v.
Christianson, 586 F.3d 532 (7th Cir. 2009) (holding that the loss was properly calculated as the cost of replacing a
government experiment the defendants destroyed), cert. denied sub nom. by Lefey-Rivera v. United States, 130 S. Ct.
2350 (2010).
118 USSG §2B1.1, comment. (n.3(C)(iv)); see United States v. Abiodun, 536 F.3d 162, 167-68 (2d Cir.
2008); United States v. Showalter, 569 F.3d 1150 (9th Cir. 2009); United States v. Barnes, 375 F. App’x 678 (9th
119 United States v. Mei, 315 F.3d 788, 792 (7th Cir. 2003).
120 United States v. Curran, 525 F.3d 74, 80 (1st Cir. 2008).
due to the defendant’s conduct may be considered in the estimate of loss.121 The determination of
“the extent to which a defendant’s fraud, as distinguished from market or other forces, caused
shareholders’ losses inevitably, cannot be an exact science. … The Guidelines’ allowance of a
‘reasonable estimate’ of loss remains pertinent.”122 Such determinations must still be made on the
evidence when available.123
Some courts have concluded that the difficulty in calculating loss in some securities cases
calls for the use of the “rescissory measure,” or the difference between the value of the security at
the disclosure of the fraud and the price the injured party initially paid for the stock.124 To
determine loss with this method some courts have taken the average selling price of the security
during the life of the fraud and subtracted the average selling price after the fraud was disclosed
but before the next major announcement concerning the security.125 In a case involving the
fraudulent or misleading sale of securities, such as when a defendant “promote[s] worthless stock
in worthless companies,” a “rescissory measure” calculation is unnecessary and all resulting
losses are attributable to the defendant.126
When discussing the estimation of value of securities for the purposes of loss some courts
have sought guidance from civil damage measures. In United States v. Olis, the defendant was
charged with a massive accounting fraud at Dynegy Corporation and the sentencing judge
concluded the loss was over $100 million, thus generating a 292-month sentence.127 The loss
was calculated only through trial testimony of one witness regarding the purchase price and sale
price for Dynegy stock that the victims paid.128 The Fifth Circuit pointed out that there were
other factors that affected the value of the stock that were not properly considered by the
sentencing judge and that, at a minimum, a sentencing judge in a securities case should look to
121 USSG §2B1.1, comment. (n.3(C)(v)).
122 United States v. Rutkoske, 506 F.3d 170, 179-80 (2d Cir. 2007); United States v. Rigas, 583 F.3d 108
(2d Cir. 2009) (holding that the district court properly reasoned that even if the defendants’ fraud only minimally
affected share price, the loss would still meet the guidelines threshold found at sentencing), cert. denied, 131 S. Ct.
140 (2010).
123 United States v. Zolp, 479 F.3d 715, 720-21 (9th Cir. 2007) (holding that the sentencing court’s
determination that the stock was “worthless” was erroneous when the stock continues to have residual value, even if
the value is close to zero because “close to zero is not zero”).
124 United States v. Grabske, 260 F. Supp. 2d 866, 871-74 (N.D. Cal. 2002); see United States v. Bakhit,
218 F. Supp. 2d 1232 (C.D. Cal. 2002).
126 United States v. Kelley, 305 F. App’x 705, 709 (2d Cir.)., cert. denied, 129 S. Ct. 2756 (2009).
127 United States v. Olis, 429 F.3d 540 (5th Cir. 2005).
128 Id. at 548.
the principles of loss calculation in civil cases.129 In particular, the court noted that “there is no
loss attributable to a misrepresentation unless the truth is subsequently revealed and the price of
the stock accordingly declines.”130 In Olis, approximately two-thirds of the losses suffered by the
victims through the decline in Dynegy stock took place before the defendant’s fraud was
announced or more than a week after earnings were restated due to the fraud.131 Additionally,
some courts have noted that a disclosure by a third party may, in some cases, cause a decline in
value that is not the result of the defendant’s conduct nor attributable to the loss figure.132
The Second and Tenth Circuits have endorsed the use of the civil damages approach used
by the Fifth Circuit in Olis.133 The Ninth Circuit, however, has rejected this approach as
inappropriate for criminal sentencing where the amount of loss should be related to the “harm
that society as a whole suffered from the defendant’s fraud.”134 The Eighth Circuit has also
rejected use of the civil loss measure in insider trading cases sentenced under USSG §2B1.4.135
E. More General Factors
The sentencing judge’s estimated loss can also include more general factors, such as the
scope and duration of the offense and the revenues that have been generated by similar
operations.136
129 Id. at 545-46, (citing Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336, 341-43 (2005)); see also
United States v. Nacchio, 573 F.3d 1062, 1078-79 (10th Cir. 2009) (suggesting that the Olis approach would be
appropriate); but see United States v. Brown, 595 F.3d 498, 527, fn.32 (3d Cir. 2010) (wherein the court expressed
no opinion regarding the merits of the approaches in Olis and Berger), cert. denied, 131 S. Ct. 903 (2010).
130 Olis, 429 F.3d at 548.
132 United States v. Reifler, 446 F.3d 65, 107-10 (2d Cir. 2006) (holding that in calculating the guidelines
offense level with respect to the amount of loss, the district court properly found that the fraud itself, and not the
government’s disclosure of the fraud, was the cause of the decline in the company’s stock price and thus the cause of
the shareholder losses).
133 United States v. Rutkoske, 506 F.3d 170, 179 (2d Cir. 2007); United States v. Nacchio, 573 F.3d 1062
134 United States v. Berger, 587 F.3d 1038, 1042-45 (9th Cir. 2009). Notably, in Berger, the Ninth Circuit
was confronted with USSG §2F1.1, which has since been repealed and consolidated with §2B1.1. Id. Because the
Ninth Circuit also concluded that the civil damages measure “collides” with the overvaluation measure example cited
in USSG §2F1.1, cmt.n.7(a), which was not included in §2B1.1 when revised, it is unclear how the court might rule
if a sentencing judge used the civil damages measure in a case controlled by §2B1.1. Id.
135 United States v. Mooney, 425 F.3d 1093, 1100 (8th Cir. 2005).
136 USSG §2B1.1, comment. (n.3(C)(vi)).
IV. EXCLUSIONS FROM LOSS
A. Interest, Finance Charges, Late Fees, Penalties and Similar Costs
The application notes of §2B1.1 of the Sentencing Guidelines create an exclusion from
loss for any interest, finance charges, late fees, penalties, amounts based on an agreed-upon
return or rate of return, or similar costs.137 In United States v. Morgan, the court concluded that
the sentencing judge was in error to include interest and finance charges in the amount of loss
determined.138
B. Costs to the Government and Costs Incurred by Victims
The costs to the government and the costs to the victims to aid in the prosecution of the
defendant are not included in any loss calculation.139 In United States v. Schuster, the court
reversed a loss figure that included the victims’ costs and expenses to aid in the prosecution of
the defendant through testimony.140 By contrast, costs incurred by a bank for investigating its
own employee (the defendant) are not consequential damages barred from loss by §2B1.1,
Application Note 3(D), because the investigation was an “immediate response” to the
defendant’s conduct.141
V. CREDITS AGAINST LOSS
A. Money and Property Returned
Loss shall be reduced by money and property returned as well as services rendered by the
defendant (or those acting jointly with the defendant) to the victim before the offense was
detected.142 The time of detection is the earliest of: (1) the time the offense was discovered by
the victim or the government; or (2) the time the defendant knew or reasonably should have
137 USSG §2B1.1, comment. (n.3(D)(i)).
138 United States v. Morgan, 376 F.3d 1002, 1014 (9th Cir. 2004); see also United States v. Dunn, 300 F.
App’x 336, 338-39 (6th Cir. 2008) (holding that the sentencing court improperly included interest in its loss
calculations for sentencing purposes).
139 USSG §2B1.1, comment. (n.3(D)(ii)).
140 United States v. Schuster, 467 F.3d 614, 618-20 (7th Cir. 2006); see also United States v. Klein, 543
F.3d 206, 214-15 (5th Cir. 2008) (holding that a doctor who improperly over-billed insurance carriers for medicines
he provided to patients should still get credit for the value of medicines properly delivered to patients, and the
sentencing judge’s failure to do so was reversible error).
141 United States v. DeRosier, 501 F.3d 888, 895 (8th Cir. 2007).
142 USSG §2B1.1, comment. (n.3(E)(i)).
known that the offense was detected or about to be detected.143
Property returned after detection will not be credited against the loss figure. In United
States v. Swanson, the sentencing judge declined to subtract the value of money returned after
discovery of the offense reasoning that “the fact that a victim has recovered part of its loss after
discovery does not diminish a defendant’s culpability for purposes of sentencing.”144 Restitution
paid prior to sentencing but subsequent to detection, whether voluntarily or not, will not be
subtracted from the loss amount.145 Property that is forfeited by the defendant in the same or
related proceeding will also not be credited to the defendant’s loss figure.146
Timing is not the only consideration when determining whether a credit applies against
the loss figure. In United States v. Hausmann, a personal injury lawyer who directed kickbacks
from a chiropractor to whom he referred clients, argued at sentencing that the loss figure should
be reduced by the “valuable free services” and legal fee reductions he provided the victim
clients.147 The court declined to adopt this approach since these services were routinely provided
to all of the lawyer’s clients, not just those defrauded, and the “net detriment” to those victims
was not lessened relative to the other clients.148 Additionally, even if property is returned or
services are rendered prior to discovery, it may not qualify the defendant for a credit against loss
if the beneficiaries of the property or service were not eligible to receive them. In United States
v. Ekpo, the defendant did not return any of the monies received from the government to provide
wheelchairs to Medicare participants and failed to present evidence that the beneficiaries would
have been medically eligible to receive the wheelchairs provided, so the court did not allow a
credit for the wheelchairs’ value.149 Also, when a defendant engages in fraud to raise money for
his business operation the portion of those funds used for business expenses cannot be credited
against any loss.150
143 Id.; see United States v. Stennis-Williams, 557 F.3d 927 (8th Cir. 2009).
144 United States v. Swanson, 360 F.3d 1155, 1168-69 (10th Cir. 2004) (citing United States v. Nichols, 229
F.3d 975, 979 (10th Cir. 2000)).
145 United States v. Akin, 62 F.3d 700, 702 (5th Cir. 1995).
146 United States v. Cacho-Bonilla, 404 F.3d 84, 92 (1st Cir. 2005).
147 United States v. Hausmann, 345 F.3d 952, 959-60 (7th Cir. 2003).
149 United States v. Ekpo, 266 F. App’x 830 (11th Cir. 2008); see also United States v. Phipps, 595 F.3d
243, 248 (5th Cir.) (holding that without evidence provided by the defendant as to the value of property provided the
court “ha[s] no reason to consider such a reduction” in loss), cert. denied, 130 S. Ct. 3336 (2010).
150 United States v. Byors, 586 F.3d 222, 225-26 (2d Cir. 2009).
A defendant who intentionally defrauded Social Security by collecting disallowed
disability payments cannot seek a credit against loss based on overpayment of Social Security
taxes in another context.151 However, when a defendant does provide services rendered, he can
get credit against loss for that value.152 In United States v. Anders, the court determined that
while a construction contractor committed fraud in the bidding process to secure a contract, the
contractor was to be credited the value of services rendered prior to the customer cancelling the
contract.153
The value of any property returned prior to discovery is set at the time the property is
returned, not at the time of sentencing. In United States v. Holbrook, the defendant argued that
loss should not include the value of a software company that the victim bank acquired via lien
after discovery of the fraud.154 The software company was not producing a profit prior to the
time the victim bank took it over via lien and invested $10 million to turn the company
profitable. The defendant did not contest the sentencing court’s finding that the value of the
software company at the time of the sentencing was “either entirely or almost entirely” due to the
victim bank’s investment, but rather argued for a “literal interpretation” of Note 3(E)(ii). The
court declined.
In United States v. Warner, the defendant’s employer had a policy whereby it would
match any donation to charity made by an employee with five times the donated amount.155 The
defendant organized a scheme with a charity whereby he would receive a kickback of a portion of
these funds after he fraudulently informed his employer he (and other employees with money
fronted by the defendant) had made such donations.156 At sentencing, the defendant argued that
the he should be credited the amounts sent by his employer that actually went to the charities.
The Third Circuit disagreed and noted that “but for” the defendant’s fraud, the employer would
not have donated any money to the charity.157 Similarly, a defendant who embezzled money
from his employer disguised as commissions for auto loans argued that his loss calculation
should be reduced by the profits later made by the company from those auto loans.158 The Eighth
Circuit declined to follow this “astonishing proposition” and noted that any profits the company
151 United States v. Cline, 332 F. App’x 905, 911 (4th Cir. 2009).
152 United States v. Anders, 333 F. App’x 950, 954-55 (6th Cir. 2009).
154 United States v. Holbrook, 499 F.3d 466, 468-70 (5th Cir. 2007).
155 United States v. Warner, 338 F. App’x 245, 247-48 (3d Cir. 2009).
158 United States v. Lange, 592 F.3d 902, 905 (8th Cir. 2010).
made were not the “fair market value” for the defendant’s services.
A defendant’s loss calculation is not reduced by costs incurred in defrauding victims. In
United States v. Pelle, the defendant marketed and sold internet kiosks by deliberately and
fraudulently fabricating the value of these items and their profit potential to investors.159 The
court refused to reduce the loss amount by the value of the kiosks.160
Additionally, credits will not be applied toward any intended loss figure unless the return
of property was intended by the defendant to be a result of the offense.161
In a case involving collateral pledged or provided by defendant, the loss shall be reduced
by the amount the victim has recovered at sentencing.162 A sentencing judge should examine
whether a defendant intended for the collateral to go back to the victim.163 In United States v.
MacCormac, the court stated that a sentencing judge “must also consider whether a defendant
planned to return the collateral or anticipated that such collateral would be repossessed or
foreclosed on by the lending institution.”164 In United States v. Lane, the intended loss in a bank
fraud was reduced by the value of real property used to collateralize the fraudulently obtained
loan.165 It is important to note, however, that in the case of an asset with a value “either entirely
or almost entirely” due to the victim’s investment subsequent to seizure by the victim the
defendant shall not receive credit for the value of the asset at the time of sentencing.166
At least one circuit has construed USSG §2B1.1 (n.3(E)(ii)) to mean that the “pledge” of
such collateral must, like money and property returned, be done prior to discovery.167 In United
States v. Austin, the court reasoned that allowing collateral to be “pledged” as late as sentencing
159 United States v. Pelle, 263 F. App’x 833, 839-40 (11th Cir. 2008).
161 See United States v. Sensmeier, 361 F.3d 982 (7th Cir. 2004).
162 USSG §2B1.1, comment. (n.3(E)(ii)).
163 United States v. McCormac, 309 F.3d 623, 629 (9th Cir. 2002).
165 United States v. Lane, 323 F.3d 568, 590 (7th Cir. 2003); United States v. Downs, 123 F.3d 637, 642-44
(7th Cir. 1997) (the value of collateral must be deducted from the loan amount to determine loss).
166 Holbrook, 499 F.3d at 466 et seq.
167 United States v. Austin, 479 F.3d 363, 367-70 (5th Cir. 2007).
“would be totally at odds with the principles embodied in subsection (i) and would alter the longstanding,
well-recognized rule that post-detection repayments or pledges of collateral do not
reduce loss.”168
One circuit has also determined that in a case where victims (the original lenders) have
re-sold the fraudulently obtained mortgage to the successor lenders, it is improper to calculate the
loss based on the original loan amount minus the final foreclosure sale proceeds collected by the
successor lenders.169 The court concluded that the actual loss in such a case would be the
difference between the outstanding balance on the original loan and what the original lender
received when it sold the loan.170
Additionally, at least one Circuit has adopted a rule where an intentional loss figure
cannot be reduced by the return of property, even before discovery, if at the time of the fraud
itself no property was pledged.171 In United States v. Severson, the defendant secured a
fraudulent loan with collateral four months after originally receiving the loan proceeds but before
discovery of the fraud.172 The court declined to credit the defendant for the value of the collateral
when calculating intended loss.173
VI. SPECIAL RULES
A. Stolen or Counterfeit Credit Cards and Access Devices
Loss calculation for stolen credit cards and other access devices will include all
unauthorized charges and shall not be less than $500 per item.174 Items that include
telecommunication access codes will not have a loss assessed less than $100.175 A defendant in
possession of credit card numbers, whether they are actually on cards or simply on a list, have
169 United States v. James, 592 F.3d 1109, 1113-16 (10th Cir. 2010).
171 United States v. Severson, 569 F.3d 683, 689-90 (7th Cir. 2009).
174 USSG §2B1.1, comment. (n.3(F)(i)).
175 Id. (“if the unauthorized access device is a means of telecommunications access that identifies a specific
telecommunications instrument or telecommunications account (including an electronic serial number/mobile
identification number (ESN/MIN) pair), and that means was only possessed, and not used, during the commission of
the offense, loss shall not be less than $100 per unused means”).
been used or not, will be responsible for each one as a separate “access device.”176 In United
States v. Alli, the credit card provision in the application note did not overcome a larger intended
loss figure where the defendant had “a reasonable expectation, if not knowledge, that the cards
would be used to the fullest extent possible.”177 For this reason the $500 figure should be seen as
a minimum amount applicable, not as a universal application for credit card loss, and in
situations in which the sentencing judge can determine there is a higher intended loss that figure
should be used.178
The loss in cases involving government benefits should not be less than the amount of
unintended benefits received or diverted.179 In United States v. Tupone, the court reasoned that
the loss derived by the defendant’s fraudulent receipt of worker’s compensation benefits was “the
difference between the amount of benefits actually obtained […] and the amount the government
intended him to receive.”180 A sentencing judge should not calculate loss based on the total
amount of benefits received if a portion of those benefits would have been received absent the
fraud.181
C. Davis-Bacon Act Violations
The loss involving a violation of 40 U.S.C. § 276a will be no less than the difference
between the legally required wages and the wages that were actually paid by the defendant.182
D. Ponzi and Other Fraudulent Schemes
If payments made before detection are deemed to be a necessary part of the scheme or
fraud, they too may not be deducted from the loss figure. For example, in Ponzi scheme cases
where payments are routinely made to some or all of the victims, the defendant will receive no
credit for payments made to “any individual investor in the scheme in excess of that investor’s
176 United States v. Jones, 332 F. App’x 801, 807 (3d Cir. 2009), cert. denied, 130 S. Ct. 1916 (2010).
177 Alli, 444 F.3d at 38-39.
179 USSG §2B1.1, comment. (n.3(F)(ii)).
180 United States v. Tupone, 442 F.3d 145, 154 (3d Cir. 2006).
181 United States v. Harms, 442 F.3d 367, 380 (5th Cir. 2006).
182 USSG §2B1.1, comment. (n.3(F)(iii)).
principal investment.”183
E. Certain Other Unlawful Misrepresentation Schemes
When defendants pose as licensed professionals, represent that products are approved by
the government when they are not, fail to properly obtain approval for regulated goods, or
fraudulently obtain approval for goods from the government, the loss shall be calculated with no
credit provided for those items or services provided.184 A defendant will receive no credit in such
cases where products are misbranded or falsely represented as being approved by a government
agency regardless as to the actual fitness or performance of those products.185 In United States v.
Millstein, the defendant received no credit for the value of the misbranded prescription drugs sold
to victims even though there was no evidence that the drugs that were delivered did not perform
as promised.186
F. Value of Controlled Substances
The loss in a case involving controlled substances is the estimated street value of those
items.187
G. Value of Cultural Heritage Resources
The value of a “cultural heritage resource” shall include the archaeological value, the
commercial value, or the cost of restoration.188 The court “need only make a reasonable
estimate” of the loss to a cultural heritage resource based on available information.189
183 USSG §2B1.1, comment. (n.3(F)(iv)); see also United States v. Craiglow, 432 F.3d 816, 820 (8th Cir.
2005). But see United States v. Hartstein, 500 F.3d 790, 797-800 (8th Cir. 2007) (holding that it is the government’s
burden to provide evidence of the “defendant’s intent as to any particular victim or group of victims” before it can be
proved that any scheme was intended to be a “Ponzi scheme,” and thus apply the provisions of §2B1.1, Application
Note 3(F)(iv), which disallows credits for the gain of one victim offsetting the loss of another).
184 USSG §2B1.1, comment. (n.3(F)(v)).
186 United States v. Millstein, 401 F.3d 53, 74 (2d Cir. 2005).
187 USSG §2B1.1, comment. (n.3(F)(vi)).
188 USSG §2B1.1, comment. (n.3(F)(vii)); USSG §2B1.5, comment. (n.2(A)); see also Shumway, 112 F.3d
at 1424-26.
189 USSG §2B1.5, comment. (n.2(B)); see also United States v. McCarty, 628 F.3d 284, 290-91 (6th Cir.
2010) (discussing the commentary regarding the value of a cultural heritage resource in the context of stolen antique
USSG §2B1.1 covers a wide range of possible loss scenarios, from a clearly defined theft
or embezzlement case to complex securities frauds such as Olis.190 A sentencing judge can apply
case-specific facts within the guideline framework to determine loss in even the most complex
cases, and even when there are competing methods of calculation. The court may be called on to
review or make an estimate of loss based on available evidence, and the court’s decision will be
reviewed for reasonableness and fair application of the facts presented by the government and the
defendant. While there are rules for exclusions, credits, and special application for loss
calculation, the guidelines and reviewing courts recognize the sentencing judge’s “unique
position” to assess the evidence.
190 United States v. Olis, 429 F.3d 540 (5th Cir. 2005).