Opinion ID: 6500514
Heading Depth: 3
Heading Rank: 3

Heading: Victim Number Enhancement

Text: Pelullo also argues that the District Court erred in treating each FirstPlus shareholder as a victim of Pelullo’s offenses. Because FirstPlus had 1,254 shareholders when the Defendants’ fraudulent scheme took place, Pelullo received a six-level enhancement for offenses “involv[ing] 250 or more victims[.]” U.S.S.G. § 2B1.1(b)(2)(C). He claims, however, 133 that the FirstPlus shareholders were not victims, since the government did not prove that the fraud made them lose money or made the stock price drop. That argument is spectacularly wrong. A victim is “any person who sustained any part of the actual loss determined under subsection (b)(1).” U.S.S.G. § 2B1.1 cmt. n.1. A person counts as a victim if he “suffer[ed] permanent ‘pecuniary harm,’” which is “harm that is monetary or that otherwise is readily measurable in money.” United States v. Smith, 751 F.3d 107, 118 (3d Cir. 2014) (quoting U.S.S.G. § 2B1.1 cmt. n.3(A)(iii)). FirstPlus’s shareholders easily fit that definition. After its subsidiary emerged from bankruptcy, FirstPlus was receiving substantial periodic payments based on those proceedings. When the Defendants took over the company, they diverted and appropriated the funds for themselves, depriving the shareholders “of the waterfall payments that they were entitled to[.]” (JAF at 44.) As the District Court observed, once the fraud was revealed, FirstPlus fell into bankruptcy and its shares were left with “no value whatsoever.” (JAF at 45.) Pelullo quarrels with those findings by parsing the timeline finely. He notes that FirstPlus’s stock price was higher when he resigned than when he first joined, and he faults the District Court for failing to compare the stock price before and after the fraud. Neither of those points acknowledges the fundamental effect that the fraudulent scheme had on FirstPlus and its shareholders. The Defendants extracted millions of dollars from a public company, all the while covering up their fraud. All “who bought or held stock when the false information was disseminated by [Pelullo] suffered a loss,” United States v. Peppel, 707 F.3d 627, 647 (6th Cir. 2013), 134 especially once the scheme rendered FirstPlus “insolven[t]” and forced it into bankruptcy. (JAF at 45.) No creative measurement of the stock price at different times, no willful ignorance of the effect that the misrepresentations had on the stock price, and no attempts to blame the company’s downfall on the government’s discovery of the fraudulent scheme can rewrite reality. Pelullo fails to identify any errors at all, let alone clear errors, in the District Court’s findings of fact.89 Finally, Pelullo claims that the shareholders “acquiesce[d]” in the conspirators’ misdeeds. (SP Opening Br. at 125.) During the Defendants’ tenure, the shareholders let FirstPlus sue to terminate a trust that allocated more than 50% of the waterfall payments to them, and they later voted against issuing dividends. Pelullo says those actions amounted to acquiescence in the fraudulent enterprise he and his coconspirators ran. But people can’t consent to something they don’t know is happening. The conspirators kept investors in the dark, hiding Pelullo’s and Scarfo’s involvement, William Maxwell’s hefty fees, and the sham character of the 89 Pelullo objects that the government only called one shareholder to testify at trial. That did not prevent the District Court from also counting as victims the rest of the shareholders who bought or held stock while the scheme was ongoing. Other evidence in the record showed that they suffered loss, as their shares became worthless and they were deprived of their portion of the waterfall payments. See, e.g., United States v. Naranjo, 634 F.3d 1198, 1206, 1214 (11th Cir. 2011) (affirming district court’s “reli[ance] at sentencing on estimates of the number of victims and amount of losses” based on investigator’s testimony). 135 transactions FirstPlus was forced to enter. The District Court did not err in counting FirstPlus’s shareholders as victims. They obviously were.