Opinion ID: 3000377
Heading Depth: 2
Heading Rank: 1

Heading: Fraud Loss Amount

Text: Swanson first argues that the district court erred in calculating a $6.7 million fraud loss. The court’s calculation subjected Swanson to a 14-level upward adjustment under the 1998 version of the guidelines. See U.S.S.G. § 2F1.1(b)(1)(O), (P) (1998) (increasing offense level by 14 if loss caused by fraud totals more than $5 million but less than $10 million). The two largest components of the loss stem from Swanson’s conduct during Countrymark’s acquisition of Malta Clayton, an agriculture feed company, and his role in promoting a start-up company called GreenHeat, LLC. He says the loss figure is overstated since it includes (1) amounts that even now he characterizes as “closing costs” for the Malta Clayton No. 05-4432 5 acquisition, (2) investments in GreenHeat that Swanson says were lost because the company failed and not because of his fraud, and (3) losses stemming from conduct not charged in his indictment. As to the acquisition, Swanson told Countrymark’s board of directors that acquiring Malta Clayton would cost $33 million. In fact, as Swanson knew, the actual cost was only $31 million, but he collected a total of $35 million for the deal from Countrymark and another investor. Swanson left the $4 million surplus in a bank account that he alone controlled, and from that account he diverted half to his personal use before he was discovered. At trial the chairman of Countrymark’s board confirmed that Swanson misrepresented the acquisition cost to be $33 million. The government also introduced phony invoices that Swanson created to convince Countrymark that nearly all of the $2 million he used for personal expenses and funneled to his private accounts had gone to Vickers and Allen, Inc., a consulting firm, for “closing costs” associated with the acquisition. Swanson did not disclose to the board that he controlled this firm, and its two named principals testified that they were unaware of any work performed in connection with the Malta Clayton acquisition. After Countrymark discovered it had been bilked and forced Swanson to resign, he began promoting a start-up company called GreenHeat, LLC, which purportedly was developing an environmentally friendly fuel derived from soybeans. Swanson amassed a sizable amount of capital for the venture, including a $1.13 million investment by Archer Daniels Midland Company (“ADM”). But instead of using this money to develop GreenHeat, Swanson used it to pay for personal expenditures and to make several installment payments to Countrymark under the terms of a settlement agreement the company reached with Swanson. Ultimately, ADM and the other investors lost 6 No. 05-4432 all of the money they contributed to GreenHeat. At trial an ADM representative testified that he reviewed some of GreenHeat’s financial information provided by Swanson shortly before writing off the investment and could detect no misstatements. But at Swanson’s first sentencing hearing, an agent from the Internal Revenue Service (“IRS”) testified that she had reviewed GreenHeat’s bank and tax records and concluded that the start-up was never viable and that Swanson converted the company’s funds to his personal use. All of this was adequately established, and at resentencing the district court found that the “amount put at risk” by Swanson included the entire $4 million he diverted during the Malta Clayton acquisition. The court likewise included ADM’s investment in GreenHeat. Although the GreenHeat swindle was not alleged in the indictment, the court noted that loss for guidelines purposes encompasses other acts that are part of a “common scheme or course of conduct.” And, the court reasoned, Swanson’s theft of ADM’s $1.13 million investment in GreenHeat was just another step in his scheme of “obtaining funds through mergers, acquisitions and joint ventures.” Swanson first challenges the district court’s loss finding because, he asserts, some of the extra $4 million he took for the Malta Clayton acquisition might really have been used for legitimate closing costs. To support this position, Swanson points to trial testimony by an Ernst & Young accountant (and government witness) who stated during cross-examination that the fees charged by Vickers and Allen for the Malta Clayton acquisition fell within the range calculated under a standard formula used to determine broker’s fees. A district court need only make a reasonable estimate of the loss flowing from a fraudulent scheme, see U.S.S.G. No. 05-4432 7 § 2B1.1 cmt. n.3(C); United States v. Vivit, 214 F.3d 908, 915 (7th Cir. 2000), and we will not disturb the court’s loss calculation—a factual finding—unless it is clearly erroneous, United States v. Berheide, 421 F.3d 538, 540 (7th Cir. 2005). Loss cannot include the value of services a defendant legitimately performed for the victims of his fraud, Vivit, 214 F.3d at 915, but it does include the “amount that the defendant placed at risk by misappropriating money or other property,” United States v. Lauer, 148 F.3d 766, 768 (7th Cir. 1998) (counting all money placed in Ponzi scheme as intended loss, even though portion was recovered, because entire amount was placed at risk); see also Swanson I, 394 F.3d at 527. The district court did not commit clear error. The court properly concluded that Swanson put the surplus funds for the Malta Clayton acquisition at risk. He obtained control over the $4 million by intentionally overstating the acquisition cost of Malta Clayton, and once he had the money he placed it in a bank account over which he maintained sole control. Swanson then created false invoices to cover the diversion of $2 million from that account, and the remaining $2 million was at risk of a similar fate. Moreover, defense counsel’s unsupported assertion that Swanson might have legitimately spent some of the $4 million on closing costs is frivolous. See Swanson I, 394 F.3d at 527 (“[A] defendant’s wholly unsubstantiated statements are not enough to counter or even question the court’s acceptance of the government’s proof of loss as outlined in the presentence investigation report.”); Campania Mgmt. Co., Inc. v. Rooks, Pitts & Poust, 290 F.3d 843, 853 (7th Cir. 2002) (stating that counsel’s representations are not evidence); United States v. Krankel, 164 F.3d 1046, 1054-55 (7th Cir. 1998) (holding that “bald, unsupported assertions” by defendant cannot refute presentence investigation report). The Ernst & Young accountant’s testimony is irrelevant. The purported 8 No. 05-4432 closing costs might have been reasonable had Vickers and Allen actually performed work on the acquisition, but the principals of that firm denied doing any such work, and they would know. There is no mystery about what Swanson did with the funds he diverted; he sent a sizable amount to a lawyer in Switzerland and moved the rest to his personal bank account. Swanson also contests the inclusion in the fraud loss of ADM’s $1.13 million investment in GreenHeat. Swanson still insists that GreenHeat was a legitimate venture that simply failed; he points to the testimony of the ADM representative who reviewed the financial information Swanson provided and found nothing suspect. But that is the point: Swanson was the source of the information, and it was false. That is why the IRS agent, after studying tax and bank records, concluded that Swanson once again siphoned company funds for personal use, and that GreenHeat was never viable. Swanson also argues that the district court should have excluded the GreenHeat swindle from the fraud loss because it was not charged in the indictment. But relevant conduct not charged in the indictment is always fair game at sentencing. The court was required to include the GreenHeat losses if they were “part of the same course of conduct or common scheme or plan as the offense of conviction.” U.S.S.G. § 1B1.3(a)(2); see United States v. Firth, 461 F.3d 914, 917-18 (7th Cir. 2006). An offense is part of a “common scheme or plan” if it is “substantially connected” to the offense of conviction “by at least one common factor, such as common victims, common accomplices, common purpose, or similar modus operandi.” U.S.S.G. § 1B1.3 cmt. n.9(A); see United States v. Delatorre, 406 F.3d 863, 867 (7th Cir. 2005). Here, the court found that the common scheme was defined by a similar modus operandi: “obtaining funds through mergers, acquisitions and joint ventures.” Swanson specialized No. 05-4432 9 in misusing his positions to convert to his own use funds invested in the agricultural businesses he was promoting. He followed this scheme in procuring ADM’s investment in GreenHeat, just as he did in promoting Countrymark’s acquisition of Malta Clayton. The district court’s inclusion of this fraud as relevant conduct is not clearly erroneous. Under the 1998 guidelines used by the district court at resentencing, Swanson’s imprisonment range is sustainable with a fraud loss of between $5 and $10 million, see U.S.S.G. § 2F1.1(b)(1)(O), (P) (1998), and the losses to Countrymark ($4 million) and ADM ($1.13 million) are enough to put Swanson within this range.