Opinion ID: 4574496
Heading Depth: 2
Heading Rank: 2

Heading: The Gross Receipts Adjustment

Text: In calculating the money laundering offense level, the District Court also applied the gross receipts adjustment, which calls for a 2-level adjustment when “the defendant derived v. Cruzado-Laureano, 440 F.3d 44, 49 (1st Cir. 2006) (“[A]pplication note 2(C) to the money-laundering guideline provides that Chapter Three adjustments should be determined with reference to the money-laundering offense and not to the underlying offense[.]”). 8 Capps received a sentence well below the range the District Court had calculated. How, if at all, a resentencing affects his final sentence is a matter for the District Court on remand and our opinion today implies nothing about that. 14 more than $1,000,000 in gross receipts from one or more financial institutions[.]” U.S.S.G. § 2B1.1(b)(17)(A). Gross receipts “includes all property, real or personal, tangible or intangible, which is obtained directly or indirectly as a result of such offense.” U.S.S.G. § 2B1.1 cmt. n.13(B). Capps advances two arguments in his effort to persuade us that the District Court erred in making that adjustment. First, he asserts that, in light of United States v. Stinson, 734 F.3d 180 (3d Cir. 2013), Vanguard should not be viewed as the source of the funds. Second, he says that a remand is appropriate because the District Court made inconsistent statements about the amount of the gross receipts, making it unclear whether his gross receipts met the $1 million threshold. He’s wrong on the first point but right on the second.
The sentencing guidelines’ definition of “financial institution” is broad and expressly includes investment companies. 9 U.S.S.G. § 2B1.1 cmt. n.1. Vanguard is, as the 9 “‘Financial institution’ includes any institution described in 18 U.S.C. § 20, § 656, § 657, § 1005, § 1006, § 1007, or § 1014; any state or foreign bank, trust company, credit union, insurance company, investment company, mutual fund, savings (building and loan) association, union or employee pension fund; any health, medical, or hospital insurance association; brokers and dealers registered, or required to be registered, with the Securities and Exchange Commission; futures commodity merchants and commodity pool operators registered, or required to be registered, with the Commodity Futures Trading Commission; and any similar 15 indictment recognizes, one of the world’s largest investment companies. No contention has been made to the contrary. It thus clearly fits within the definition of a “financial institution,” for purposes of § 2B1.1 of the guidelines. It is also true that Vanguard has a property interest in the accounts it manages. Although its customers, the account holders, obviously have property rights in their funds, Vanguard too has a possessory property interest in them. The Supreme Court’s decision in Shaw v. United States, 137 S. Ct. 462 (2016), explains that both account holders and financial institutions have property interests in funds held by the institutions. The context in Shaw was the theft of a depositor’s funds in a scheme “to defraud a financial institution” in violation of 18 U.S.C. § 1344(1), and the Court explained that, even when a bank merely assumes possession of a customer’s funds, “the bank is like a bailee, say, a garage that stores a customer’s car. And as bailee, the bank can assert the right to possess the deposited funds against all the world but for the bailor (or, say, the bailor’s authorized agent). This right, too, is a property right.” Id. at 466 (citations omitted). Vanguard is not a bank, but it holds its account holders’ funds in a fashion similar enough to a bank to warrant following the reasoning in Shaw. We thus conclude that, for purposes of § 2B1.1, Vanguard had a property interest in the funds in its possession. Capps points to Stinson to argue that Vanguard’s interest in the funds was nevertheless insufficient to apply the entity, whether or not insured by the federal government.” U.S.S.G. § 2B1.1 cmt. n.1. 16 gross receipts adjustment. 10 But his understanding of that case is misguided. In Stinson, we explained that a financial institution is a source of the gross receipts when it exercises dominion and control over the funds and has unrestrained discretion to alienate the funds. A financial institution is not the source of all funds that have passed through the institution, as might occur during a simple wire transfer. Accordingly, mere tangential effects on financial institutions will not support application of the enhancement. 734 F.3d at 186. Although that language indicates the need for a significant degree of control over the funds at issue, we do not read it to mean that a financial institution’s having less than the unrestrained right to treat the funds as its own means that crimes against the institution lie outside the reach of the gross receipts adjustment. Here, Vanguard possessed the funds. Its control of them was much more than the tangential control exercised by a bank handling a wire transfer. See Stinson, 734 F.3d at 186. In fact, Vanguard’s dominion and control over the abandoned funds is what allowed Capps to commit his fraud: it was through his employment at Vanguard that he was able to identify and draw checks on abandoned accounts. Stinson, rightly understood, asks for nuanced factfinding. The defendant in that case had a fraudulent scheme in 10 At the time, the provision was U.S.S.G. § 2B1.1(b)(15)(A); now, it is U.S.S.G. § 2B1.1(b)(17)(A). 17 which he set up a sham fund and used investors’ money for a variety of personal business ventures. 734 F.3d at 181-82. As part of the fraud, the defendant entered into agreements with two independent financial advisory firms whereby the firms would refer investors to his sham fund in exchange for referral fees. Id. at 182. We said that, while some investors exercised “individual decisions to invest with [the sham fund] on the advice of their investment advisors at each firm[,] … some of the victim impact statements suggest that [the independent financial advisory firms] retained control over the assets of certain clients and invested in [the sham fund] on their behalf.” Id. We remanded to the district court because, while the funds from individuals who made the decision to invest should not be considered under the adjustment, “we [we]re unable to conclude definitively that the enhancement d[id] not apply because the record [wa]s unclear as to whether [the independent financial advisory firms] invested any money on behalf of their clients.” Id. at 187. We therefore recognized that a firm that invests client funds can exercise sufficient dominion and control over the funds to justify application of the gross receipts adjustment, even though the clients also had control over those funds. Capps argues that Vanguard’s control over the funds here was especially weak because the funds were due to escheat. He points to the Supreme Court’s statement in Delaware v. New York that “[f]unds held by a debtor[, here, Vanguard, the holder of the funds,] become subject to escheat because the debtor has no interest in the funds[.]” 507 U.S. 490, 502 (1993). But, if anything, the fact that the money Capps stole was due to escheat strengthens the argument that Vanguard exercised the necessary dominion and control over them for the gross receipts adjustment to apply. Delaware v. 18 New York focused on which sovereign could lay claim to abandoned property. Id. The observation that the holder of the property, without an ownership interest in it, does not get to keep it was a statement about the relative rights of a sovereign and the holder of the abandoned property. It does not mean that, as the holder of funds before they escheat, institutions like Vanguard lack the ability to exercise dominion and control over them. On the contrary, Vanguard was the only one exercising dominion and control over the abandoned funds at issue here, until they escheated. Thus, it was not error – let alone plain error – for the District Court to conclude that the funds were derived from Vanguard.
Commentary Note 13(A) to money laundering guideline § 2B1.1, states that “[f]or purposes of [the gross receipts adjustment], the defendant shall be considered to have derived more than $1,000,000 in gross receipts if the gross receipts to the defendant individually, rather than to all participants, exceeded $1,000,000.” U.S.S.G. § 2B1.1(b)(17)(A) cmt. n.13(A) (emphasis added). Capps argues that we should remand to the District Court for clarification of inconsistent statements about whether he met the $1 million threshold on an individual basis. The government does not try to say that the District Court’s comments were clear but argues that the Court must have found that Capps met the threshold because “the loss in this case (which Capps was ordered to repay to Vanguard) is $2,137,580.81.” (Answering Br. at 21 n.4.) According to the government, “[t]here is no question that the ‘gross receipts’ in this case – not Capps’ personal receipts after dividing the 19 proceeds – was far over $1 million.” (Id.) Even if true, that assertion manages to explicitly avoid the relevant question. It ignores the requirement from the commentary that the threshold must be applied in terms of what Capps himself received, individually. The District Court’s statements did not answer the relevant question either. During sentencing, the Court said, “Mr. Capps himself admitted just now that he took approximately one half of [approximately $2 million] or a million dollars” (App. at 96) (emphasis added), and that Capps stole “almost over a million dollars, or receiving a million dollars,” (App. at 97) (emphasis added). Accordingly, we will remand so that the District Court can clarify whether the gross receipts that Capps received individually exceeded the milliondollar threshold.