1loles gregory govt sentencing memo

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UNITED STATES DISTRICT COURT

DISTRICT OF CONNECTICUT

UNITED STATES OF AMERICA

v.

GREGORY P. LOLES

CRIMINAL NO. 3:10CR 237 (AWT)

November 7, 2012

GOVERNMENTS SENTENCING MEMORANDUM: GUIDELINES CALCULATION

This memorandum is submitted in aid of the sentencing of Defendant Gregory P. Loles,

who stole more that $8 million from friends, clients, and the endowment fund of a Church in

Orange, Connecticut, St. Barbaras Greek Orthodox Church (the Church or St. Barbaras).

The purpose of this filing is two-fold. First, to provide information to the Court regarding the

underlying criminal conduct and second, to set forth the Governments initial Guidelines

calculation pursuant to the United States Sentencing Guidelines. Sentencing is currently

scheduled before this Court for February 27, 2013.

This memorandum is also submitted in response to the Defendants initial sentencing

memorandum filed July 25, 2012 and captioned: Defendants Sentencing Memorandum I,

(herein after Def. Mem.), in which the Defendant explicitly requests that the Court ignore the

holding of United States v. Booker and its progeny, entirely disregard the applicable United

States Sentencing Guidelines, and impose a non-Guideline sentence. It bears mention that the

Defendants request to the Court that it effectively ignore the United States Sentencing

Guidelines and his unapologetic assertion that he will file a memorandum urging that a

sentence significantly below the guideline range is sufficient to attain the objectives of

sentencing . . . (Def. Mem. at 1) were made prior to a Guidelines range being calculated by the

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United States Probation Office and the Court. Accordingly, it seems clear at this point that no

matter what the Defendants ultimate Sentencing Guidelines range is determined to be and no

matter how fair and reasonable a sentence within that range would be, the Defendant will

reflexively assert it is too high.

The Court, after discussion with the parties, determined that it would be an efficient use

of the Courts resources and those of the United States Probation Office to address first the

United States Sentencing Guidelines, the Defendants resulting adjusted offense level, and the

corresponding Sentencing Guidelines range. Thereafter, the Court will consider any grounds for

upward or downward departures, the 3553(a) factors, and then impose the Defendants

ultimate sentence consistent with 18 U.S.C. 3553(a) and the controlling case law.

It is the Governments position that in faithfully considering the Guidelines and the all

the applicable specific offense characteristics including: the seriousness of the offense, the

millions of dollars of loss, the large number of victims (including the parishioners of Saint

Barbaras Greek Orthodox Church), the misrepresentations made by the Defendant about his

work on behalf of Saint Barbaras Greek Orthodox Church, the sophisticated means employed in

the scheme, the fact that the Defendant committed the scheme while acting as an investment

advisor, and the fact that the Defendant laundered the funds to conceal and disguise the proceeds

of the fraud, the Defendants Guidelines range should be 235-293 months.

I. Brief Procedural Background

On November 30, 2010, Defendant Loles was charged in a 32-count indictment with

violations of mail fraud in violation of 18 U.S.C. 1341; wire fraud in violation of Title 18

U.S.C. 1343; securities fraud in violation of violation of Title 15 U.S.C. 78j(b) and 78ff

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and Title 17 Code of Federal Regulations Section 240.10b-5; and money laundering, in violation

of Title 18 U.S.C. 1956(a)(1)(B).

On July 26, 2011, the defendant pleaded guilty before the Honorable Mark R. Kravitz, to

four counts of the thirty-two counts charged in the indictment. Specifically, the defendant

pleaded guilty to Count Four, charging him with mail fraud in violation of 18 U.S.C. 1341;

Count Nine, charging him with wire fraud in violation of Title 18 U.S.C. 1343; Count Twenty,

charging him with securities fraud in violation of violation of Title 15 U.S.C. 78j(b) and 78ff

and Title 17 Code of Federal Regulations Section 240.10b-5; and Count Thirty-Two, charging

him with money laundering, in violation of Title 18 U.S.C. 1956(a)(1)(B). The statutory

maximum penalty for each count to which the Defendant pleaded guilty is twenty (20) years

making the maximum term of imprisonment 80 years. The Defendant is also subject to a

maximum fine, pursuant to 18 U.S.C. 3571(d) of twice the gross gain or loss.

II. The Offense Conduct

A. The Impact On The Victims and Their Families

The impact of the Defendants crime is broad and wide-sweeping and goes well beyond

the numbers associated with the more than $8 million that he stole from his victims through

fraud and the millions more that he received from an overseas source that he systematically

laundered to conceal and disguise his crimes. Moreover, the true impact goes well beyond the

large number of victims, which is well in the hundreds when the Court considers the parishioners

who each suffered part of the actual loss as a result of the Defendants stealing $1.4 million

funds from the St. Barbaras endowment fund and building fund. (See Attachment 1). The true

financial and emotional impact on the victims and their families is illustrated, in part, by the

victim impact statements, only a portion of which are included herein. As one victim wrote:

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Gregory Loles has caused so many problems for my family. We all have beenunder so much stress, and our days are mostly filled with pain and sadness insteadof happiness. I am left with a broken heart, and am upset with myself that wewere fooled by him. . . . Gregorys crimes have hurt us so much. We lost myhusbands retirement savings and I am so ashamed to say that we trusted Gregory

with a large amount of money that we were keeping safe for our daughter. Sheworked so hard when she was young and saved $90,000 by the time she graduatedcollege. That money was supposed to be for when she got married and set off onher adult life. My Husband [ ] and I trusted our friend Gregory to help us investthe money in what he promised was a safe account. We trusted him because hewas our friend a long time, and other successful people we knew had given himmoney to invest for them and everything seemed to be going well. He alsoseemed to have made a lot of money for our Church. We gave him this moneyfrom our daughters account from the beginning and everything seemed to be likehe promised. It was a shock to find out this was just a lie. . . .

Gregorys cruelty to us lasted to the very end. You should know that we gaveGregory my $67,000 IRA sometime the year before his company fell. He kepttelling me that I should not keep all my eggs in one basket. He said it was amistake to keep all of my retirement in Fidelity, that I should give it to him. Hesaid these words in my own house and sitting at my kitchen table while looking atmy portfolio. I had done what he told me to do and to roll the money over to hiscompany . . . Gregorys rollover form was fake just like his company. . . .

Gregorys last act with us was about two months before he fell, when heconvinced me to give the rest of my savings to him because he said he would paymuch more interest than the bank. That was my last $90,000. So he took $90,000from our daughter and $157,000 from my husband and me. It was all we hadworked so hard to earn and save. That was the amount we gave him. He musthave known by then that his fake investment business was falling apart and hecould not save himself, but somehow he could not let one last chance to take ourmoney get past him.

(Victim Impact Statement, Attachment 4A (filed under seal)).

As another victim wrote:

I trusted Greg Loles, as so many other individuals did, with my entire estate andlife savings. The amount of anger I experienced is unimaginable being aChristian it has affected me physically as well as spiritually. Im 64 years of ageand I along with my deceased husband have worked and sacrificed our wholelives for a better life for our children. He has taken everything from me. I alsogave him my deceased husbands life insurance policy, and even took a secondmortgage loan on my current residence to invest with him. Each time hereassured me that my capital was always secure due to the type of insurance and

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provisions his company/investment firm had, therefore he led me to believe myinvestments were secure and safe. . . . I have feelings of immense despondence,unrelenting animosity and appalling trepidation.

(Victim Impact Statement, Attachment 4B (filed under seal)).

As yet another wrote:

In January 2006, my husband passed away from [ ] cancer . . . . I reached out toGreg Loles to help me manage the finances. With trust, I turned over to him themoney from my husbands insurance policies, his 401Ks, and IRA. By December2009, I had invested with him over $900,000. As a result of this crime I lostalmost all of my money and forced to sell my home. . . . My husband worked veryhard and made many sacrifices to provide the best for us, and I feel Greg Lolessactions have made my husbands effort all go in vain. Its a shame becausebefore passing away, my husband told me to trust and consult Greg Loles

regarding our finances.

(Victim Impact Statement, Attachment 4C (filed under seal)).

A fourth wrote the following:

When Greg Loles is in front of your bench for sentencing, I would like for you toconsider the deviousness by which this man manipulated his victims. Whetherthis was an individual or his own Church, he displayed no moral values.

It [his ploy] was sooo subtle, oh, I have another investor interested in puttingmoney into my fund, which is continuing to return 8% Just sent a check to Mr.____ covering his interest earned in Apeiron.

Financially, we lost a major portion of our retirement funds. I am facingemotional stress owing to my wifes continuing to remind me that she questionedthe wisdom of my investing funds in Apeiron Capital Management. Our totalfinancial loss is 350,000 dollars.

(Victim Impact Statement, Attachment 4D (filed under seal)).

To truly get a more full sense of the impact of the Defendants crimes on the victims and

their families, the Court should review as it no doubt will all of the victim impact statements.

Moreover, the Government expects that a number of victims will request to speak at the

Defendants sentencing.

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B. The Investment Fraud Scheme Generally

As illustrated by the statements of just a selection of his numerous victims, the Defendant

methodically, callously, and with a level of sophistication befitting of his degree and background

in engineering and finance, devised and executed an intricate investment scheme that lasted over

eight years and garnered him tens of millions of dollars. The Defendant executed the scheme

using lies, deceit, and deception, including using his experience as a licensed broker, his position

as a board member and parishioner of the Church, the use of shell companies, multiple bank

accounts, authentic looking computer generated phoney account statements reflecting fictitious

bond prices and returns on investments, and multiple wire transfers from account to account

designed to conceal the true source of funds. He engaged in this sophisticated scheme in order

to defraud friends, fellow parishioners, St. Barbaras Church and all its parishioners out of their

endowment fund, as well as a number of clients of his Farnbacher-Loles street performance

Porsche automobile racing team. Additionally, the Defendant took in and laundered another $14

million that he received from an off-shore entity for the purpose of hiding it from foreign tax

authorities or park-it in his account. However, the defendant did not merely park the funds in

his accounts but instead laundered the funds through his various accounts and used these

additional millions to perpetuate the scheme prevent discovery of the fraud and to support his

financially failing automobile business.

The Defendant fraudulently represented himself to be a registered investment adviser and

claimed to have a legitimate investment firm that he owned and operated named Apeiron Capital

Management, Inc. (Apeiron or Apeiron Capital). The Defendant had previously taken and

passed the Series 7 and Series 63 licensing exams and had previously been licensed as a

Registered Representative. He drew upon this experience to conduct financial transactions in the

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names of multiple entities and to create the appearance that funds provided to him were actually

being invested.

Apeiron Capital was an investment adviser and broker dealer registered with the U.S.

Securities and Exchange Commission (SEC) from 1995 through 1998, until the registrations

were cancelled. Despite the cancelled registrations, the Defendant continued to operate Apeiron

as an unregistered investment adviser and falsely represented Apeiron to be a registered

investment management firm. The Defendant controlled bank accounts at various financial

institutions including among others, accounts at Citibank in the names of Apeiron Capital,

Knightsbridge Holdings, Farnbacher Loles, Farnbacher Loles Motorsports, Farnbacher Loles

Racing, and Farnbacher Loles Street Performance. The numerous bank accounts allowed him to

transfer proceeds from the investment scheme from account to account which allowed him to

create the appearance that funds sent back to investors from the Knightsbridge Holdings bank

account, for instance, were coming from an investment security he purportedly had invested in,

called he Knightsbridge Holdings arbitrage bonds. In reality the funds he was sending them

were merely victim funds from his Ponzi scheme. Similarly, the numerous bank accounts

allowed the Defendant to take money from investors and transfer it through his various

Farnbacher-Loles bank accounts which allowed him to make it appear to vendors, employees,

clients, and others that the funds he was using to support his car racing endeavors were proceeds

or profits from his Farnbacher-Loles businesses. In truth and in fact the money used was money

from victim-investors (and from a foreign entity Millbury Holdings described below (See

Attachment 9 at 1-5)). This tactic was clearly designed to allow the Defendant to avoid

detection of the fraud, which he did for approximately 8 years.

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Using the fraudulently obtained proceeds allowed the Defendant to move into and resided

in a huge house in Easton Connecticut. (SeeAttachment 3A, 3B, and 3C). Throughout the fraud

the Defendants primary source of income was the fraudulently obtained funds The Defendant

attended St. Barbaras and was an active member of the Church community. He held himself out

to members of the Church as a successful broker and investment advisor. He even took out a

regular advertisement in the bulletin of St. Barbaras Church, which advertised his services as an

Investment Management and providing Brokerage Services. He actively solicited business1

from friends and fellow parishioners. The Defendant used this facade of a successful investment

advisor to join the board of St. Barbaras and was selected to serve on the board of the Churchs

Endowment Fund.

Beginning in approximately 1996, the Defendants company Apeiron Capital was the

executing broker for the Endowment fund. At some point in time, the Defendant assumed a

fiduciary control over the money of the endowment fund. The Defendant then transferred the

investments to his own control. (SeeAttachment 6, Hadjimical Witness Interview at 2-3).

Thereafter, the Defendant began to manage the Churchs endowment fund and building fund.

Having established his bonafides as an investment advisor albeit falsely the Defendant

falsely represented to numerous victim-investors, including individuals who were his friends and

fellow parishioners of St. Barbaras and the Board of the Church itself, that he would act as their

investment advisor and invest their funds through Apeiron in various securities, including in

what he described as Arbitrage Bonds. He claimed these bonds would pay a safe and steady

return. The Defendant falsely represented that the primary investment securities he was

Previous issues of the St. Barbaras Church bulletin containing the advertisement can be found online. See, e.g.,1

The Ministry 38 (September 2008), http://www.saintbarbara.org/pdf/ministries/sep_08_min.pdf; The Ministry 10(January 2005), http://www.saintbarbara.org/pdf/ministries/jan_05_min.pdf; The Ministry 10 (February 2004),http://www.saintbarbara.org/pdf/ministries/feb_04_min.pdf.

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investing in were arbitrage bonds issued by Knightsbridge Holdings, which he claimed would

pay a safe and steady the rate of 7.75% per annum. In addition to Knightsbridge Holdings, the

Defendant also falsely represented to the numerous investor-victims that he would invest their

money in General Electric Arbitrage Bonds, Travelers Insurance Arbitrage Bonds, and Applied

Materials Arbitrage Bonds, also claiming that these were actual safe and secure bonds from

actual entities in which the investors could safely invest and earn a steady return. In truth and

fact, the Arbitrage Bonds as described by the Defendant did not exist. These bonds were also

non-existent.

The Defendant took individual victim-investors funds from whomever he could con. He

took funds from victims that had previously been invested in IRAs, 401(k)s, and represented

proceeds of life insurance payments. The Defendant even encouraged a victim, whose husband

had recently passed away, to take out a second mortgage on her home to invest with him. The

Defendant sought to use his knowledge and expertise as an investment adviser to gain control of

the Churchs funds, including the Endowment Fund by claiming he would invest in, among other

things, the same Arbitrage Bonds. At one point in time, the Defendant told one of his victims,

who was a significant benefactor for the Church, that he, the Defendant, needed additional funds

so that he could trade on the Churchs behalf and the proceeds would go to the Church. The

Defendant told the victim that he could not perform day-trading with the funds in the

endowment fund, but that if this individual provided the Defendant $750,000 in the form of a

loan to the Church, that the Defendant would execute trades and generate money for the Church.

The victim did in fact provide this money, thinking he was helping the Church, and the

Defendant took the money as he did the other investor funds. (See Attachment 7, victim

interview memorandum at 2; Attachment 8, Loles interview memorandum at 2-3.)

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The sad irony of the Defendant using his position on the Churchs Endowment Fund to

defraud the Church and its parishioners is underscored by the fact that the Defendant was

repeatedly thanked for helping the Church. He was even honored by the Church for his

contributions to the Church and for making a significant pledge to help the Church, all the while

he was stealing from the Church and every member of the parish who contributed to the Church.

He was stealing from those who were to have benefitted from the money in the endowment fund

and the funds that were to go to a proposed new building. In this regard, every member of the

Church is a victim of the fraud in that they all suffer in the financial loss of the Church. To put

the Churchs loss in perspective, in the Summer of 2012, the Church received 610 stewardship

pledge cards from Church members and families pledging a total of $261,989 toward the 2012

goal of $350,000. (Seewww.saintbarbara.orgSummer 2012/the Ministry). By comparison, the

Defendant stole $1.4 million from the Church and the other approximately $700,000 that had

been loaned to him for the benefit of the Church. (Seeattachment 1.)

Instead of investing the funds of the individual investor-victims and of the Church, the

Defendant cleverly conceived and executed an extensive Ponzi scheme perpetrated over a

number of years that caused losses in the millions of dollars to a wide array of individuals. The

Defendant diverted investors funds for his own personal use and benefitincluding distributing

large amounts of the funds to his luxury street performance automobile racing company,

Farnbacher Loles. Money also went to hotel, foreign and domestic travel, credit cards, and his

childrens tuition to premier preparatory schools and colleges. There is a certain bitter irony in

the fact that the Defendant took the money for, among other things, his own flamboyant lifestyle

and his own childrens education, given that the endowment fund was set up to fund the

retirement of the priests and clergy, as a scholarship fund children of the Parish, for community

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outreach and development, and to fund a Greek language school for children. (SeeAttachment

6 at 1.) It can not be debated that in a very real sense each member of these groups is also a

victim of the scheme the retired priests, the children that received less funding for school or

Greek classes, and those that received smaller scholarships or none at all given the loss of the

endowment funds.

In executing the money laundering aspect of the scheme, the Defendant took his victim-

investors funds and transferred them to Farnbacher-Loles accounts to conceal the true source of

funds. He would then transfer funds to an account he controlled in the name of Knightsbridge

Holdings to disguise the nature and source of the funds and to make it appear as if the checks

drawn on the Knightsbridge Holdings account which were sent to investors as lulling payments

were the promised proceeds from the Arbitrage Bonds, which they of course were not.

Throughout the scheme, the Defendant falsely represented to the victim-investors,

including the Churchs Endowment Fund Board and other members of the Church, that he was

achieving a consistent and positive return on the investment funds. In order to create the

appearance of legitimacy, Loles periodically provided investors fraudulent, yet official looking

computer-generated account statements containing false transactions purportedly representing

their principal and any retained interest on their investments, false prices for the fictitious

securities, and false balances. (SeeAttachment 10.) The Defendant sought to lull investors into

believing that their investment funds had been invested as represented. He prevented and

delayed the discovery of the true use of investors funds by issuing periodic payments to the

investors purportedly representing a return of earned interest on their investments or partial

return of capital. These periodic interest payments were initiated from the Knightsbridge

Holdings account that the Defendant opened and controlled and thus created the appearance that

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the payments were actually from Kinghtsbridge and that their investments were safe and earning

the promised returns, when in truth and in fact, he was using portions of other victim-investors

funds to make such payments.

During the life of the scheme, which lasted almost eight years, beginning in or about

November 2001 and continuing until in or about December 2009, the Defendant took in over $10

million in investments from his victim-investors here in the United States through lies deceit and

deception. He used approximately $2 million to $3 million dollars to make the periodic lulling

payments, including the payments out of the separate bank accounts opened up in the name of

Knightsbridge.

As mentioned above, instead of investing the money, the Defendant diverted investors

funds for his own personal use and benefit, including to pay personal expenses such as credit

card bills, his home, his family expenses, tuition for his children, domestic and foreign travel, a

failing Porsche car servicing business, and most notable his hobby of racing street-

performance automobiles (generally Porsche stock-cars) around in circles on race tracks located

throughout the United States. Remarkably, as described below, the Defendant also took in over

$14 million in overseas wire transfers from an off-shore entity looking to park its money with

the Defendant in order to evade detection and avoid taxes in foreign jurisdictions. In an almost

unbelievable display of greed and gluttony, he spent approximately $21 million dollars on

himself, his family, and his luxury-car servicing and car racing business.

For the vast majority of his victims, the Defendant misappropriated all or a significant

portion of their investment. His victim-investors, who included widows, retirees, the Parish

priest with a disabled child, lost all or most of their savings, their retirement nest-egg, and even

the life insurance benefits of their deceased spouses. Moreover, based on the representations

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made, the phoney interest payments, and the official looking statements, the victims believed

that not only was there principal safe, but, in many instances, that they had earned additional

retained interest or profits the promised 7.75% year after year such that they believe they

were even more economically secure than they actually were. Moreover, many had based their

future, be it retirement, college education for the children, or improvements to their home, based

on his lies and the belief their investment principle and the earnings were safe and secure.

In additional to defrauding the investor-victims and the Church out of over $8 million

(seeattachment 1), the Defendant also laundered approximately $14 Million that he had received

from an overseas entity. (SeeAttachment 2; Attachment 9, Loles interview memorandum at 2-

5). The Defendant used this money to continue the facade that he was running a successful

investment management company, Apeiron, and that he was running a successful luxury

automobile street performance racing team and service center, Farnbacher-loles. Neither of

which was true. As demonstrated by the financial records, the Defendant co-mingled these funds

with the funds from Apeiron, spent the addition $14 million as if it were his own, and used it to

prop up his Ponzi scheme and his failing luxury automobile businesses. These funds were

integral to keeping the scam going as they allowed to keep up the appearances of a successful

investment advisor and business owner, when in reality he was spending his way through

approximately $21 million.

Moreover, by his own acknowledgment, the foreign entity had provided him the funds to

park them in an attempt to avoid foreign taxes and possibly repatriation back to the foreign

company. This other relevant conduct underscores the full extent of the Ponzi scheme and

money laundering conduct to conceal and disguise the source of the funds and to promote and

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perpetuate the investment scheme. There can be no doubt that without these additional funds,

the Defendants house of cards would have tumbled much sooner.

III. The Need for Determining an Appropriate Sentence

The Defendant suggests in his initial sentencing memorandum that the Court should not

faithfully consider the United States Sentencing Guidelines in connection with his sentencing

and endeavors to give them the proverbial back of his hand as a factor that is not really worthy

of weighty consideration. The United States Supreme Court and the Second Circuit however,

disagree. In United States v. Crosby, 397 F.3d 103, the Second Circuit explained that, in light of

United States v. Booker, 543 U.S. 220 (2005), district courts should engage in a three-step

sentencing procedure. First, the district court must determine the applicable Guidelines range,

and in so doing, the sentencing judge will be entitled to find all of the facts that the Guidelines

make relevant to the determination of a Guidelines sentence and all of the facts relevant to the

determination of a non-Guidelines sentence. Crosby, 397 F.3d at 112. Second, the district

court should consider whether a departure from that Guidelines range is appropriate. Id.at 112.

Third, the court must consider the Guidelines range, along with all of the factors listed in

section 3553(a), and determine the sentence to impose. Id.at 112-13.

The Second Circuit has instructed district judges to consider the Guidelines faithfully

when sentencing. Crosby, 397 F.3d at 114. Bookerdid not signal a return to wholly

discretionary sentencing. United States v. Rattoballi, 452 F.3d 127, 132 (2d Cir. 2006) (citing

Crosby, 397 F.3d at 113). The fact that the Sentencing Guidelines are no longer mandatory does

not reduce them to a body of casual advice, to be consulted or overlooked at the whim of a

sentencing judge. Crosby, 397 F.3d at 113. The Defendant argues that the Guidelines are not

based on empirical evidence (Def. Mem. at 4-5), citing to a collection of narcotics related cases.

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However, the Supreme Court disagrees, finding that the Guidelines are the product of careful

study based on extensive empirical evidence derived from the review of thousands of individual

sentencing decisions, Gall v. United States, 128 S. Ct. 586, 594 (2007), and concluding that as a

result, district courts must treat the Guidelines as the starting point and the initial benchmark

in sentencing proceedings. Id.at 596;see also Rattoballi, 452 F.3d at 133 (the Guidelines

cannot be called just another factor in the statutory list, 18 U.S.C. 3553(a), because they are

the only integration of the multiple factors and, with important exceptions, their calculations

were based upon the actual sentences of many judges.) (quoting United States v. Jiminez-

Beltre, 440 F.3d 514, 518 (1st Cir. 2006) (en banc);Kimbrough v. United States, 128 S. Ct. 558,

574 (2007). The Second Circuit has recognize[d] that in the overwhelming majority of cases, a

Guidelines sentence will fall comfortably within the broad range of sentences that would be

reasonable in the particular circumstances. United States v. Fernandez, 443 F.3d 19, 27 (2d

Cir. 2006);see also Kimbrough, 128 S. Ct. at 574 (We have accordingly recognized that, in the

ordinary case, the Commissions recommendation of a sentencing range will reflect a rough

approximation of sentences that might achieve 3553(a)s objectives.) (quotingRita v. United

States, 127 S. Ct. 2456, 2465 (2007));Rattoballi, 452 F.3d at 133 (In calibrating our review for

reasonableness, we will continue to seek guidance from the considered judgment of the

Sentencing Commission as expressed in the Sentencing Guidelines and authorized by

Congress.).

A. Fraud Guideline Applicability

Because the Defendants Sentencing Memo went to such great lengths to challenge the

applicability of the fraud guidelines, it bears mention as to why the fraud guidelines in particular

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remain relevant and why those guidelines, when used as the starting point, truly advance the

purposes of the Federal Sentencing statutes.

The fraud guidelines, unlike the crack guidelines examined inKimbrough, were drafted

by the Commission, bas[ing] its determinations on empirical data and national experience,

guided by a professional staff with appropriate expertise. Kimbrough, 128 S.Ct. at 574 (citing

United States v. Pruitt, 502 F.3d 1154, 1171 (10 Cir. 2007)). The fraud guidelines amendmentsth

made pursuant to the economic crime package and the Sarbanes-Oxley Act exemplify the

Commissions role to respond to both Congressional needs while serving the sentencing goals

set forth in 18 U.S.C. 3553(a). Furthermore, the fraud guidelines in substance operate to

promote the 3553(a) sentencing goals. Through the loss table, and the other specific offense

characteristics such as number of victims, sophisticated means, and others, the fraud guidelines

operate to assist the Court in fashioning a sentence that will reflect the seriousness of the

offense, promote respect for the law, and . . . provide just punishment for [an] offense,

18 U.S.C. 3553(a)(2)(A) and provide significant guidance to avoid unwarranted sentence

disparities among defendants that have been found guilty of similar conduct. 18 U.S.C.

3553(a)(6).

1. Amendments to Fraud Guidelines Since 2001 Exemplify The Commissions Role

in Sentencing Determinations

The amendments made to the fraud guidelines in 2001, 2002, and 2003 are of particular note

because they represent milestones in the history of the Sentencing Guidelines. The 2001

amendment, promulgated through the economic crime package, represented not only the first

overhaul of a major guideline, but was also one of the most public and transparent amendments

to the Guidelines to take place to date. The Sarbanes-Oxley amendments, first promulgated in

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2002 and made permanent in 2003, exemplify the Sentencing Commissions ability to respond to

Congressional directive in a way that was reasoned and statistically sound.

a. The Economic Crime Package

The economic crime package amendment, passed in 2001, was the result of a six-year-

long effort to gather information, hold hearings, and create an amended theft and fraud

guidelines regimethat remedied deficiencies that had come to light in the prior version of the

guidelines. SeeFrank O. Bowman, III, The 2001 Federal Economic Crime Sentencing Reforms:

An Analysis and Legislative History(hereinafter Economic Crime), 35 Ind. L. Rev. 5, 7-8

(2001). The Commission sought input from the defense bar, the Justice Department, probation

officers, the Criminal Law Committee of the U.S. Judicial Conference (Judicial Conference),

and academic commentators. Id.at 7. What emerged was a complete overhaul of 2B1.1 and

2F1.1, remedying perceivedproblems that had existed since the implementation of the

Guidelines. Specifically, the 2001 economic crime package consolidated 2B1.1 and 2F1.1,

revised the loss table to afford higher punishments for high-loss offenders and lower

punishments for low-loss offenders, and redefined the term loss to avoid the ambiguity that

had previously made it one of the most commonly litigated issues in federal sentencing law.

Id.at 26; U.S.S.G. App. C 617. In all, this redrafting of such a major crime category one

which accounted for up to 20% of federal sentences was both unprecedented in not only its

breadth of change but also the transparent public process by which the change occurred. See

Bowman,Economic Crimeat 8.

The economic crime package of 2001 has been described as the first federal sentencing

reform initiative in the guidelines era to have been conducted in the public eye from its

inception. Id. Furthermore, the economic crime package was not the result of a Congressional

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directive, but rather of a lengthy fact-finding mission to respond to comments from the

Department of Justice and the Judicial Conference, among others, that the offenses sentenced

under the guidelines . . . under-punishindividuals involved with moderate and high loss

amounts, relative to penalty levels for offenses of similar seriousness sentenced under other

guidelines. U.S.S.G. App. C 617. The Sentencing Commission did not model this amendment

to blithely follow Congressional statute in lockstep, as the Supreme Court critically suggested of

the crack guidelines inKimbrough. Rather, the Sentencing Commission made its own

determinations, of its own volition, seeking to craft the most effective means to avoid unwanted

disparities in sentencing and better reflect the seriousness of the various offenses sentenced

under the fraud guidelines. SeeU.S.S.G. App. C 617.

b. The Sarbanes-Oxley Amendments

In 2002, the Sarbanes-Oxley Bill was passed in the wake of the Enron, Worldcom, Tyco

and Adelphia scandals. This time, the Sentencing Commission was given the directive by

Congress to expeditiously consider the promulgation of new sentencing guidelines or

amendments to existing sentencing guidelines to provide an enhancement for officers or

directors of publicly traded corporations who commit fraud and related offenses. Sarbanes-

Oxley Act of 2002, Pub. L. No. 107-204, 1104, 116 Stat. 745 (2002). The Commission was

also directed to report its findings to Congress. Id. In response to this directive, the Commission

made a number of amendments to the recently revamped fraud guidelines. It added guideline

enhancements for offense characteristics such as offenses involving 250 or more victims,

offenses that endanger the solvency or financial security of a substantial number of victims,

and offenses committed by officers or directors of publicly traded companies. 2002 Report to

the Congress: Increased Penalties Under the Sarbanes-Oxley Act of 2002 (hereinafter Report)

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i-ii (available on the internet at: http://www.ussc.gov/r_congress/S-Oreport.pdf). These

amendments served to enhance the economic crime package by allowing the fraud guidelines to

account for loss on a larger scale than originally foreseen. As set forth below, having taken over

$8 million (see Attachment 1) from friends, clients, and parishioners, including from the

Endowment fund, and having done so while acting as an investment advisor, the Defendant is

subject to the additional enhancements associated with these specific offense characteristics.

The Sarbanes-Oxley amendments to the Guidelines exemplify the Commissions

thoughtful reconsideration of its 2001 amendments in light of the new and previously unforeseen

circumstancesnamely, the vast economic damage caused by large economic crimes that effect

individuals and entities executed by those who hold positions of trust inside organizations.

It is important to emphasize, however, that although Congress directed the Commission

to reconsider the fraud guidelines, it did not specifically direct any changes to be made, much

less dictate what those changes would be. In effect, the directive contained in the Sarbanes-

Oxley Act compelled the Commission only to reexamine its prior amendments from 2001 and

make any necessary changes. These resulting changes were not as dramatic as the economic

crime package but served only to complement it.

In determining the 2002 amendments, the Commission held a hearing in which it

solicited input and examined empirical data. See2002 Report App. C. From this information,

amendments were promulgated that increased penalties for the most egregious white collar

crimes: those that betrayed the public trust, endangered the financial solvency of cornerstone

American corporations, and resulted in monetary losses in the hundreds of millions. SeeU.S.S.C.

App. C 647. The Commission further took into account its duties to draft guidelines that reflect

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the seriousness of the offense, 18 U.S.C. 3553(a)(2)(A), and give due weight to the public

concern generated by the offense. 28 U.S.C. 994(c)(5).

The Commission considered the impact of its actions and estimated that 95.6 percent of

fraudsters would be unaffectedby the amendment increasing fraud guideline levels relative to

number of victims harmed. See 2002 Report at 3. It went on to estimate that only half of all

cases involving securities fraud would be affected by upward offense level adjustments based

upon this provision. Id. The vast range of offense levels between the majority of fraudsters and

those who commit serious securities frauds in terms of loss and numbers of victims suggests that

the Commission set out to impose a sentence sufficient, but not greater than necessary to meet

the goals of sentencing, 18 U.S.C. 3553(a), while adequately reflecting the seriousness of

perpetrating a large-scale economic fraud. In other words, under the Commissions

amendments, only a very small proportion of people who commit the most serious frauds

(including those with backgrounds in the securities business) face substantial sentence increases.

The Commission did not seek to indiscriminately increase punishment for small garden variety

fraud. They increased punishments for offenders who caused large losses, to large numbers of

victims, that effected institutions, and/or used positions as insiders or as securities professionals

to accomplish the frauds.

The Commission further served its role by responding to the Sarbanes-Oxley directives

with guidelines which took into account the community view of the gravity of the offense and

the public concern generated by the offense. 28 U.S.C. 994(c)(4-5). Further illustrating the

shock and lament of the recent financial scandals, Representative Rogers of Michigan recounted

the following experience:

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The other day I had a woman at a coffee [sic] who came in, an elderly woman,and she could not get three words into her story before she started to shake andtears started running down her face because she was just informed that theywould not be able to retire in 12 months. Too much of their 401(k), too much oftheir retirement, was gone.

148 Cong. Rec. H4839 (daily ed. July 17, 2002) (statement of Rep. Rogers). The white collar

crimes at the time of Sarbanes-Oxley elicited serious public concern, as reflected in Rogers

comment, and were considered grave offenses which could jeopardize the financial security of

countless innocent victims. The Commission rightly took these societal attitudes and concerns

into account when drafting the amendments to the fraud guidelines. The crimes committed by

the Defendant herein are remarkably similar to the anecdotal evidence provided in connection

with the Sarbanes-Oxley legislation and the subsequent Guideline amendments, thus it is

difficult if not impossible to argue credibly that the amendments were not meant for cases such

as that of the Defendant herein.

As shown in the foregoing, the recent amendments to the fraud guidelines exemplify the

role of the Sentencing Commission: the amendments are in line with both the Commissions

sentencing goals as illustrated in 18 U.S.C. 3553(a) and the Commissions statutory duties set

forth in 28 U.S.C. 994. Furthermore, the Commission established its directives by bas[ing] its

determinations on empirical data and national experience, guided by a professional staff with

appropriate expertise. Kimbrough, 128 S.Ct. at 574.

c. Loss Calculation Serves the Purposes of 3553(a)

The Defendant has also argued that loss is not an appropriate measure of harm. This

argument simply belies credulity. Loss has enjoyed a long history as the preferred method to

measure the severity of economic crimes. Additionally, there is a logical justification behind

adhering to a loss-structured analysis, as loss reflects the severity of a given offense. The

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comprehensive nature of the fraud guidelines, and the various safeguards in place within the

Guideline rubric and well as those fashioned by judges afterBookermore than adequately

control for any danger caused by inapplicable skyrocketing loss figures. Furthermore,

sentencing determinations using the fraud guidelines are especially important to serve the

interests of avoiding unwarranted sentence disparities among defendants that have been found

guilty of similar conduct, 18 U.S.C. 3553(a)(6), by providing some uniformity for crimes that

impact victims who may be dispersed across different judicial districts as is often the case in

white collar crimes.

The use of loss amount as a factor in determining a defendants fraud guidelines is serves

as a proxy to determine both the harm to the victims and in many instances, as is the case herein,

the culpability of the defendants state of mind. SeeBowers,Economic Crimeat 39; U.S.S.G.

2B1.1, comment. (backgd.). The calculation of loss as a measure of severity of theft has deep

roots in our common law jurisprudence. As early as the year 1275, English common law

developed divisions of larceny which hinged on the calculation of loss. Grand or petit larceny

was charged solely based upon the value of the goods stolen. SeeBower,Economic Crimeat 13.

Throughout history, while distinctions between crimes againstpersonsbecame more refined

(the creation of various degrees of murder and assault, for example), there still remained only

one recognized, commonly codified determinant of the degrees of seriousness of economic

crimes the value of the thing stolen. Id. at 16. Even today,

[n]o one disputes the notion that stealing more is worse than stealing less.Similarly, almost no one disagrees with the basic judgment at the heart ofboth the former and newly adopted economic crime guidelines that thesentences of thieves and swindlers should be determined in somesignificant part by the magnitude of the economic deprivations theycaused or intended.

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Id. at 27.

The rationale behind using loss to determine the severity of theft is simple, that loss

adequately measure the severity of harm. Courts are in accord with this straightforward concept.

See United States v. Innarelli, 524 F.3d 286 (1st Cir. 2008) (upholding district courts

calculation of intended loss and Guideline sentence, agreeing with the district courts statement

that loss in a fraud case is a yardstick for moral culpability (internal quotations and brackets

omitted)); United States v. McCoy, 508 F.3d 74, 79 (1st Cir. 2007) (noting that expected loss is a

measure for the defendant's culpability); United States v. Wittig, 528 F.3d 1280, 1285 (10th

Cir. 2008) (holding district courts use of estimates of intended loss and gross receipts proper

guideposts in determining defendants sentence).

Additionally, although sentencing courts have always had the discretion to depart from

loss figures which substantially overstate the severity of the offense, SeeU.S.S.G. 2B1.1

comment. (n.19 (C)), courts have repeatedly adhered to loss figures, even post-Booker. See

United States v. Cutler, 520 F.3d 136 (2d Cir. 2008); United States v. Gale, 468 F.3d 929 (6th

Cir. 2006); United States v. Mickens, 453 F.3d 668 (6th Cir. 2006); United States v. Serrano, 234

F.Appx 685 (9th Cir. 2007). The Courts use of the fraud guidelines loss figures further

justifies their position as an adequate and reasonable method to measure harm.

The Defendant has also argued that loss calculations, particularly those post-Sarbanes-

Oxley, create unduly harsh sentences which fail to reflect the severity of an offenders crime.

This is simply not the case. It is true that the fraud guidelines have increased the Guidelines

range for a term of imprisonment for major economic crimes, however, an enhancement of this

magnitude appropriately responds to the pertinent directive [from Congress] and reflects both the

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extensive nature of such offenses and the large scale victimization caused by them. Henning,

Atmosphericsat 252; 2002 Report 3.

White collar crime is very serious and has the potential to dramatically alter the lives of

vast numbers of innocent investors. The havoc white collar criminal wreak when they steal

millions of dollars from the pockets and pensions of their victims is almost unfathomable. For

the victims their lifetimes worth of savings are lost. The college tuition for their children and/or

grandchildren are gone and their retirement years are literally taken away. As reflected in the

victim impact statements, they are left feeling hopeless, broken hearted and helpless.

Moreover, the belief or assumption that society at large does not ostracize white collar

criminals in the same way as violent offenders militates in favor of longer sentences as opposed

to shorter. SeeHenning,Atmosphericsat 256. The collateral effects of a felony conviction, such

as social stigma, are largely lost on white collar criminals. Many are able to successfully reenter

society post-conviction, often reprising similar roles as those they once held. As such, a lengthy

term of imprisonment is arguably more important than other available punishments to provide

adequate deterrence for such crimes.

Finally, the use of the Guidelines in loss cases is further justified by the scope of many

white collar crimes. The Court that ultimately sentences a white collar criminal, like the

Defendant herein, must protect the interests of numerous victims from numerous jurisdictions

and even foreign victims. An undue variation in sentences and a complete disregard of the

Guidelines calculation as suggested by the Defendant does little to inspire confidence in the

federal judicial system and does not serve the interests of sentencing. In such large-scale cases,

courts should be particularly careful to avoid unwarranted sentence disparities among

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defendants with similar records who have been found guilty of similar conduct. 18 U.S.C.

3553(a)(6).

IV. Guideline Calculation

The Government asserts that as a result of the seriousness of the Defendants crimes, the

more than $8 million in loss, the large number of victims, the misrepresentations made by the

Defendant about his work on behalf of Saint Barbaras, the sophisticated means employed, the

fact that the Defendant committed the scheme while acting as an investment advisor, and the fact

that the Defendant laundered funds to further and perpetuate the fraud and to conceal and

disguise the proceeds of the fraud, the Defendants Guidelines range is 292 - 365 months.

A. Sentencing Guideline Range

The Defendant stands before the Court convicted of mail fraud (in violation of 18 U.S.C.

1341), wire fraud (in violation of 18 U.S.C. 1343), securities fraud (in violation of 15 U.S.C.

78j(b) and 78ff and Title 17 Code of Federal Regulations Section 240.10b-5); and money

laundering (in violation of 18 U.S.C. 1956). Each of the violations has a statutory maximum

sentence of 20 years. The fraud convictions are covered under United States Sentencing

Guideline 2B1.1 and the money laundering is covered under 2S1.1.

The base offense level pursuant to the Guidelines is 7 when the offense charged has a

statutory maximum of 20 years or more. See U.S.S.G. 2B1.1(a)(1). Therefore, the

Defendants base offense level here is 7.

The amount of loss suffered as a result of the fraud clearly greater than $7,000,000 but

less than $20,000,000. Therefore, the offense level is increased by 20 pursuant to U.S.S.G

2B1.1(b)(1). It bears note that while the Defendant also laundered an additional $14 million

and while the grouping rules require the Court to group the fraud counts and the money

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laundering counts, under U.S.S.G 3D1.2(d)(1), the Government is advancing the position that

total the sum of money for loss purposes, is the money lost through the fraud and subsequent

laundering (i.e., the victim funds in attachment 1) while the additional funds from the off-shore

entity (Seeattachment 2) is other relevant conduct, but should not result in a total loss amount of

$22 million. Nevertheless the Court can and should consider this conduct pursuant to 18 U.S.C.

3553(a).

Assuming the Court reaches the conclusion that the offense involved more than 250

victims, the offense level would be further increased by 6. See U.S.S.G 2B1.1(b)(2)(C). As

set forth in Attachment 1, by simply counting the names and bank accounts of the individuals

and funds that were victims, there clearly are more than 10 victims. Thus a two-level increase

would apply pursuant to U.S.S.G 2B1.1(b)(2)(A). However, as discussed in more detail

below, the Court should consider as victims the hundreds of parishioners who donated to the

endowment fund. These parishioners gave money and were relying on the health and security of

the endowment fund to support the Church, the clergy, the scholarship programs, and other

Church programs. The funds being stolen leaves them as a member of the church in a serious

financial crises. It is fair to conclude that each and member of the Church suffered a part of the

financial loss. St. Barbaras Church is when they practice their religion, but even more so it is

part of the cultural community. The Church members rely on the programs of the Church and on

the funds to provide those programs.

The $1.4 million in loss is staggering. By comparison, according to the Churchs website

a total of 610 parishioners and families pledged to give money to the Church in 2012. Those 610

pledges, as generous as they are, will only replace a fraction of the $1.4 million of dollars stolen

by the Defendant. (Seewww.SaintBarbara.org)

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The offense involved a misrepresentation that the defendant was acting on behalf of a

religious and charitable organization. Therefore, the offense level is further increased by 2. See

U.S.S.G 2B1.1(b)(8)(A). This section is applicable for two reasons, first because the

Defendant explicitly told one victim that if he provided the Defendant a $700,000 loan for the

benefit of the Church, the Defendant would used the money for the Churchs benefit and to make

more money for the Church through day-trading. This was of course a lie. This section is also

applicable because each of the victims believed the Defendant was acting on behalf of the

Church and relied on that fact when investing.

The offense also involved sophisticated means to carry out the offense, and to conceal the

offense from the victims and from law enforcement. Therefore, the offense level is further

increased by 2. See U.S.S.G. 2B1.1(b)(9)( C).

The offense also involved fraud in violation of securities law while the defendant was an

investment advisor to the victims. Therefore, the offense level is further increased by 4 pursuant

to U.S.S.G. 2B1.1(b)(18)(A)(iii). Since this section applies, there are not the two additional

levels added for an abuse of position of trust pursuant to U.S.S.G. 3B1.3, which would of

course normally apply when a defendant holds himself out as an investment advisor and

defrauds his client-victims. See U.S.S.G. 3B1.3, Appl. Note 3. But see U.S.S.G.

2B1.1(b)(18)(A)(iii) Appl. Note 14( C).

The Guideline for a violation of 18 U.S.C. 1956 is found in 2S1.1(a)(1), which

provides that the base offense level is the offense level for the underlying offense from which the

funds were derived because (A), the defendant committed the underlying offense, and (B) the

offense level for that offense can be determined. For the money laundering count, the Court

should apply U.S.S.G. 2S1.1(a)(1), which imports the adjusted offense level from the wire

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fraud and mail fraud securities fraud counts to the money laundering count. Next, the Court

adds 2 levels pursuant to 2S1.1(b)(2)(B) because the defendant was also convicted of violating

18 U.S.C. 1956. Therefore, to arrive at a single offense level for the multiple counts, the Court

should use the adjusted offense level on the money laundering count and applied 3D1.3(a),

which calls for adopting the higher of the adjusted offense levels.

The defendant has made a timely acceptance of responsibility, and thus is to receive a

decrease in the offense level by 3. See U.S.S.G. 3E1.1.

In total, the offense level is 36 if the Court does not find the parishioners to be victims, or

level 40 if the Court does so find pursuant to U.S.S.G 2B1.1(b)(2)(C). The defendant has no

criminal history. Therefore, the guideline sentencing range would be 188 to 235 months or 292

to 365 months. (See alsosummary table, infra).

Base Offense Level 7Loss Greater than $7,000,000 +20More than 250 Victims (or more than 10 victims) +6 (or +2)Charitable Misrepresentation +2Sophisticated Means +2Violation of Securities Law while acting as Investment Advisor +4

Money Laundering in Violation of 1956 +2Acceptance of Responsibility -3

Total 40 or 36

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1. Nature of the Conduct

Here, the Defendant engaged in a fraud that was extensive and caused significant

financial harm. This fraud caused harm in the millions of dollars to numerous victims. The

funds that were taken in were used by the defendant to live a lavish lifestyle racing luxury cars.

All the while, he led the victims to believe that the funds were safely invested. Many of the

victims sent significant portions of their retirement savings to the defendant because of repeated

assurances, including phoney account statement and lulling payments that the money invested

with him was safe and was earning significant returns. The Board of St. Barbaras Church

entrusted the defendant with their endowment, and honored him for his successes with their

investments. This conduct by an individual with experience as a securities broker, who was

entrusted with the funds of others, clearly calls for a significance period of incarceration.

2. Determination of Loss and Number of Victims

The specific offense characteristic for loss results in an increase of 20 levels pursuant

to U.S.S.G. 2B1.1(b)(1)(K). This loss is determined by the loss suffered as a result of the mail

fraud, wire fraud, and securities fraud. Pursuant to the Sentencing Guidelines the cumulative

loss amount should be used. (SeeU.S.S.G. 2B1.1 appl. note 18.). At a minimum, the

defendant defrauded 42 investors out of $8,037,258. (SeeAttachment 1). Moreover, were the

Court to take an aggressive posture in evaluating the Defendants relevant conduct, the Court

could well find that the additional $21 million taken in by the Defendant, from Milbury Holdings

(Attachment 2), could be included in the loss amount. As the Second Circuit has repeatedly

held, the court in determining the amount of loss for purposes of calculating the offense level

for a fraud, [must] include all such acts and omissions that were part of the same course of

conduct or common scheme or plan as the offense of conviction. United States v. Carboni, 204

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F.3d 39, 47 (2d Cir. 2000) (quoting United States v. McCormick, 993 F.2d 1012, 1013 (2d Cir.

1992) (quoting U.S.S.G. 1B1.3(a)(2)).

In that regard the money taken in from overseas was used in such a way (i.e., to

perpetuate and further the scheme) as to make it part of the same course of conduct and common

scheme or plan. (SeeAttachment 2). Nevertheless, the Government is merely advancing the

position that $8,037,258 is the appropriate loss figure for the Court to use. This figure credits

the Defendant with the amount of money returned to the victims during the course of the Ponzi

scheme. SeeU.S.S.G. 2B1.1 appl. note 3(E). The other conduct can be evaluated by the Court

pursuant to 18 U.S.C. 3553(a).

The number of victims is not as straight forward. As explained above, by simply

counting the names and bank accounts of the individuals that were defrauded and the

Endowment fund as a single victim, the Court would conclude that there were approximately 42

victims. (SeeAttachment 1.) Were this the case, since there were clearly more than 10 victims a

two-level increase would apply pursuant to U.S.S.G 2B1.1(b)(2)(A).

However, this does not end the discussion. The Government contends that the Court

should count as victims the hundreds of parishioners who donated to the endowment fund and

who were relying on the health and security of the endowment fund. The Church members who,

as a whole support donated to the Endowment fund to support the Church itself, the clergy, the

scholarship programs, and other Church programs. In a very real sense the Church members

have suffered part of the financial loss as many of them also benefit and participate in the

various programs.

The definition of a victim under 2B1.1(b)(1) does not mirror the definition of a

victim under 18 U.S.C. 3663(a)(2) or 3663A(a)(2) (defining a victim as a person

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directly and proximately harmed as a result of the commission of an offense for which restitution

may be ordered), or 18 U.S.C. 3771(e) (defining a crime victim as a person directly and

proximately harmed as a result of the commission of a Federal offense). A victim is defined

in the Guidelines as any person who sustained any part of the actual loss . . . U.S.S.G.

2B1.1, App. Note 1. See United States v. Abiodun, 536 F.3d 162, 169 (2d Cir. 2008) (concluding

that when a court makes a finding as to actual loss, a victim enhancement must be based on those

who sustained losses as determined by the loss calculation guidelines.) The Second Circuit

has stated that victims of fraud counts are those persons who have lost money or property as a

direct result of the fraud. United States v. Napoli, 179 F.3d 1, 7 (2d Cir. 1999).

Here, there can be no doubt that the Endowment fund and thus the Church suffered part

of the actual loss, in fact approximately $1.4 million of the loss. Nor can it be doubted that the

Church is a victim. However, since the Church is, in reality, comprised of its parishioners and

since the Church operates for the religious and secular benefit of those parishioners, it seems

clear that each and every parishioner suffered a part of the financial loss. The Church is not only

where they practice their religion but is also where they participate in the various family

programs and cultural programs. The loss of $1.4 million has had a direct financial impact on

them. The endowment fund was set up to fund the retirement of the priests and clergy, to pay for

scholarships for the children of the Parish, to fund a Greek language school for children, and for

community outreach and development. (SeeAttachment 6 at 1). Clearly, each student who

received a smaller scholarship or received no scholarship at all because of the fraud is a victim.

Moreover, by its very nature an endowment fund provides funds for programs year after

year almost in perpetuity. Thus the number of Church members who will suffer financially as a

result of the fraud will in a real sense be seen as growing each year. Where a group of people

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give to a charity or collectively benefit from a fund and the fund has been defrauded the

individuals can be considered victims. In United States v. Longo, 184 Fed.Appx. 910, 2006 WL

1674267 (11th Cir. 2006) (unpublished per curiam), the Eleventh Circuit held that the district

court did not err in counting as victims all 110 individual members of an employee benefit plan

from which the defendant embezzled. See also id. at 970 n.1 (noting that the record showed

that Longos fraud and theft diminished the total plan assets). The Eleventh Circuit's analysis

inLongoapplies here. There each participant in the employee benefit plan put money into the

plan and seeks to draw on it in the future. When the plans funds were diminished each employee

was determined to be a victim. Here, since the money was going to the st. Barbara Endowment

fund, each parishioner relied on the fact that it would be there in the future to support the Church

and its programs. Since the Endowment fund was stolen they all suffered part of the financial

loss.

Moreover, to the extent that the donors to the Endowment fund relied on the fact that the

Defendant was touted as earning money for the Church by managing the fund and placing the

money in the safe and secure bonds, those donors would be considered victims. See, United

States v. Gonzalez, 647 F.3d 41, 64 (2d Cir. 2011) (finding there to be more than 50 victims and

noting that while a not-for-profit organization rather than the donors is generally considered the

victim, when donors to a non-profit relied on misrepresentations as to the intended uses of the

funds they were therefore considered the victims).

Finally, regardless of what the Court determines for Guidelines purposes, the Court must

nonetheless consider the real-life impact that the Defendants stealing of the Endowment funds

had on the members of the Church community. In that regard, to the extent that the Court

determines that a mere two-level increase is appropriate, the Government will reserve the right to

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argue for an upward departure. The true loss was suffered by the parishioners as members of the

church, not by the fund itself as a legal entity or as a bank account. Thus, they should all be

considered in someway by the Court.

3. Misrepresentation that the Defendant was Acting on Behalf of a

Charitable or Religious Organization

Section 2B1.1(b)(8)(A) provides for a 2-point enhancement to the base offense level if1

the offense involved a misrepresentation that the defendant was acting on behalf of a charitable,

educational, religious, or political organization, or a government agency. The Application

Notes clarify that the enhancement applies in any case in which the defendant represented that

the defendant was acting to obtain a benefit on behalf of a charitable educational, religious, or

political organization . . . when, in fact, the defendant intended to divert all or part of that

benefit. U.S.S.G. 2B1.1 app. n. 7(B).

[T]his guideline is aimed at enhancing punishment for those who prey upon and exploit

a persons tendency to be humanitarian. United States v. Treadwell, 593 F.3d 990, 1006 (9th

Cir. 2010). It thereby punishes both those that solicit funds under false charitable pretense. See,

e.g. United States v. Berger, 224 F.3d 107 (2d Cir. 2000);United States v. Kinney, 211 F.3d 13

(2d Cir. 2000). It is also applicable to those using their legitimate charitable ties to further their

own ends, while falsely purporting to act for the charity. See, e.g. United States v. Reasor, 541

F.3d 366 (5th Cir. 2008); United States v. Wiant,314 F.3d 826(6th Cir. 2003); United States v.

Marcum, 16 F.3d 599 (4th Cir. 1994.)

Courts have read the provision broadly, and require only that a defendant has represented

even vaguely that the funds will be allocated to a charitable ends, not necessarily to a

Several of the cases cited reference an alternative section of the Sentencing Guidelines. Before 1998, the1

appropriate provision was located at 2F1.1(b)(3); from 1998 through 2001, the provision was located at 2F1.1(b)(4);from 2001 through 2004, the provision was located at 2B1.1(b)(7)(A). The provision was given its current numberingin the revision of the U.S.S.G. dated November 1, 2004.

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particular charitable organization. See, e.g., Treadwell, 593 F.3d at 990 (defendant stated some

of the programs that were involve in, a certain percentage of the returns that we do uh, gain

from these projects do have to be returned into humanitarian needs); United States v. Edelman,

458 F.3d 791 (8th Cir. 2006) (defendant stated that part of this money would be used for

humanitarian projects.)

Moreover, section 2B1.1(b)(8)(A) requires only that the offense involve a

misrepresentation about charities, not that the investors be misled or otherwise motivated by the

misrepresentation. Treadwell, 593 F.3d at 1008. Courts have applied the enhancement even

when the target of the misrepresentation was motivated by profit. See, e.g., Treadwell, 595 F.3d

990 (investors seeking for-profit investments); [t]aking advantage of a victims self interest

does not mitigate the seriousness of [a defendants] conduct. U.S.S.G. 2B1.1 cmt. (backgd).

[T]he focus of [the courts] inquiry must be on the defendants motivation for making the

prohibited misrepresentation. United States v. Ferrera, 107 F.3d 537, 541 (7th Cir. 1997).

The Defendant now before the Court made the misrepresentations, that he was managing

the Churchs Endowment fund and that he needed a loan so he could day-trade for the benefit of

the Church. He made these misrepresentations so that the victim-investors would trust him with

their money and examine him with less scrutiny when evaluating him as an investment advisor.

His role as the Churchs money manager gave him the imprimatur of an honest money manager

and no doubt caused the victims to let their guard down or put them more at ease than they

would normally be with an investment advisor. Furthermore, this Guideline section is not

limited to fraudulent solicitations directly from charitable donors, but also to those frauds in

which misrepresentation is merely one component of the fraud.

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For example, In United States v. Reasor, 541 F.3d 366 (5th Cir. 2008), a church

employee wrote checks to herself from church accounts, and cashed them at a local grocery

store. See Reasor, 541 F.3d at 368. The court found this section applicable, reasoning that the

defendant therein did misrepresent that she was acting wholly on behalf of the church in her

fraudulent conduct [of cashing the check], which is all that is required. Id. at 372. Here the

Defendant misrepresented himself as acting for the Church in managing the Endowment fund. A

fund the contents of which he stole, just as the defendant inReasorcashed the checks to take the

churchs funds.

Similarly, in United States v. Wiant,314 F.3d 826(6th Cir. 2003), the defendant was an

employee of the American Cancer Society, who transferred $7 million of American Cancer

Society funds to his personal account in Austria, under the ruse that it was for a research grant.

See Wiant,314 F.3d at 828. His misrepresentation was made to the bank performing the

transfer, when he misrepresented that he was acting wholly on behalf of the American Cancer

Society when he was really acting on his own behalf. Id. at 829. The court explained two

reasons why the defendants offense was consistent with the harm targeted by the enhancement.

First, those that misrepresent a charitable status take advantage of others kind intentions

towards charities. See id. (Bank officials might easily have been put at ease by the ostensibly

charitable purpose). Second, the social harm Wiant caused by tarnishing the reputation of the

American Cancer Society is closely analogous to the social harm caused by scam artists who

exploit victims willingness to contribute to charity. Id. Both tend to discourage donations and

diminish charitable impulses, and therefore were specifically the type of harm addressed by the

guideline. See id.

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Turning to the case here, the Defendant repeatedly misrepresented himself to the

members of the Church, the board at the Church, his clients at Farnbacher-loles, and the public

in general that he was acting on behalf of St. Barbaras Church as manager of their Endowment

fund and that he was making money on behalf of the Church. He received recognition for the

success, was mentioned prominently in the church bulletin, received standing ovations, and was

even bestowed honors by the church. His misrepresentations regarding his record of consistent

success encouraged parishioners to contribute to the very same organization from which he was

diverting funds. Moreover, his misrepresentations put individual investors at ease in their

personal dealings with him. As one victim stated [w]e trusted him because he was our friend a

long time, and other successful people we knew had given him money to invest for them and

everything seemed to be going well. He also seemed to have made a lot of money for our

Church. (Attachment 4A).

Even if it was not his direct purpose, the parishioners and donors to the endowment fund

believedthat their donations would grow and were growing at 7.75%. In making the

misrepresentations about his affiliation with the Church, he abused the goodwill that the

parishioners have towards charitable and religious institutions. Additionally, his

misrepresentations were actually a means by which he generated additional capital to perpetuate

the Ponzi scheme. Such a scheme requires a constant influx of new capital to pay false returns to

previous investors. Without the misrepresentations, there would have been fewer contributions

to the endowment fund, fewer new victims to grow the Ponzi scheme and thus less capital to

continue the scheme. Thus, the misrepresentations about his charitable affiliations were

fundamental to the scheme. Accordingly, it is appropriate to apply the enhancement on this

basis. As the Sixth Circuit has noted, members of the public may tend to be easily put at ease

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when dealing with an agent of a charity, as an expression of their good will. See Wiant, 314 F.3d

at 826 (Had Wiant been employed by a private, for-profit corporation, bank officials might

have been more skeptical).

The Defendant also explicitly represented to a specific victim that $700,000 in funds that

were loaned to the Defendant purportedly for day-trading were being used for the benefit of

the church. This money was not invested, was not used for the benefit of the Church but was

used to provide additional money for the Ponzi scheme. The fact that the Defendant explictitly

and blatantly told this particular victim that the $700,000 was a loan to the Church makes the

charitable misrepresentation enhancement applicable on this basis alone. (See Attachment 7 at

1-2)

4.Use of Sophisticated Means to Carry Out and Conceal the Offense

United States Sentencing Guidelines 2B1.1(b)(10) provides for a two-level

enhancement [if] the offense otherwise involved sophisticated means. [S]ophisticated

means means especially complex or especially intricate offense conduct pertaining to the

execution or concealment of an offense. U.S.S.G. 2B1.1 app. n. 8(B). By way of example,

the guidelines state that [c]onduct such as hiding assets or transactions, or both, through the use

of fictitious entities . . . also ordinarily indicates sophisticated means. Id.

Each individual step in the scheme need not be intricate or sophisticated; rather, it is only

necessary that the offense conduct when viewed as a whole, [is] notably more intricate than that

of a garden-variety [ ] fraud scheme. United States v. Cole, 296 Fed. Appx. 195 (2d Cir. 2008)

(quoting United States v. Hance, 501 F.3d 900, 909-910 (8th Cir. 2007)); United States v. Lewis,

93 F.3d 1075, 1083 (2d Cir. 1996) (holding, in tax case, that sophisticated means enhancement

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applied even when each step in the planned tax evasion was simple, [because] when viewed

together, the steps comprised a plan more complex than merely filling out a false tax return).

In United States v. Regensberg, 2010 WL 2501042, 1 (2d Cir. 2010) the Court applied

the enhancement when a defendant ran a Ponzi scheme and the execution of the scheme included

creation of fraudulent [ ] documents, detailed reporting of fake earnings, use of Ponzi scheme

payments to lull his investors, and alteration of an account statement to make it appear as if he

had not lost his investors' money. Regensberg, 2010 WL 2501042, 1 (2d Cir. 2010). The

Second Circuit determined that this conduct over three years was the sort of repetitive conduct .

. . [that] demonstrates that more than routine planning was involved, and agreed that the

enhancement for sophisticated means was appropriate. Id.

In United States v. Cole, 296 Fed. Appx. 195 (2d Cir. 2008), the Second Circuit found

that fabricating financial statements constituted, at least in part, sophisticated means, where

Cole also fabricated financial statements and utilized a mail forwarding service to make it look

as though his victims were receiving the financial statements from an address in Nevada, where

his shell corporation was located. In United States v. Jones, the Tenth Circuit noted that the

defendants' creation of checks with a home computer, while not requiring considerable

technical acumen, added to the scheme's sophistication in that the tactic was designed to avoid

detection of fraud. Jones, 530 F.3d 1292, 1306 (10th Cir. 2008) (emphasis added). See also,

United States v. Halloran, 415 F.3d 940, 945 (8th Cir.2005) (applying sophisticated means

enhancement where defendant created fraudulent mortgages using a corporate entity, numerous

fraudulent documents and forged notary stamps) (emphasis added).

In United States v. Kostakis, 364 F.3d 45 (2d Cir. 2004)altering entries in an official log

book on a repeated basis was found to be sophisticated means. Kostakis, 364 F.3d 45 (2d Cir.

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2004). InKostakis, an oil tankers engineer was convicted of making materially false statements

in order to conceal the discharge of contaminants from the Coast Guard. See id. at 48. The

defendant falsified two logs, over a nine-month period, on 30 separate occasions, and the entries

had numerous technical components. See id. at 52. The Second Circuit noted that Kostakis's

conduct appears to have been rather sophisticated and remanded to the district court for

findings of fact.Id.

Indeed, even seemingly less sophisticated conduct has been held by Courts to constitute

sophisticated means. For instance in United States v. Rettenberger, 344 F.3d 702 (7th Cir.2003)

the Court found the applicable the sophisticated means enhancement where a husband faked an

injury and his wife collaborated with him in order to collect insurance.

In this case, the Defendants conduct was significantly more complex than that in

Kostakis, orRettenbergerand remarkably similar if not indistinguishable from that in

Regensberg. Here the Defendant falsified hundreds of documents, opened up numerous bank

accounts, controlled what proved to be a shell companies in Apeiron and Kinghtsbridge

Holdings, and did so for nearly eight years. As inRegensberg andJones, he used his computer

to create fake forms and account statements, maintained careful and detailed records to organize

and keep track of all the victims in the scheme, sent out the correct amount interest payments

each month to the penny and sent client-specific records to each one when asked. He also

created an elaborate story about the nature of the Knightsbridge transaction, and varied the

scheme to include other fake bonds (the GE ARB and Travelers ARB) to give his scheme

more plausibility, and continue to conceal it from his victims. This conduct clearly constitutes

sophisticated means for the purpose of the enhancement.

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Additionally, to the extent that the Court examines the money laundering aspect of the

scheme and the use of the off-shore funds to prolong and perpetuate the scheme, the Government

is not seeking an upward adjustment for sophisticated laundering pursuant to U.S.S.G.

2S1.1(b)(3). See U.S.S.G. 2S1.1(b)(3) Appl. Note 5(B).

5. Violation of Securities Law While An Investment Advisor

United States Sentencing Guidelines 2B1.1(b)(17)(A)(iii) provides for a four-level2

enhancement to the offense level [i]f the offense involved a violation of securities law and, at

the time of the offense, the defendant was . . . an investment adviser, or a person associated with

an investment adviser.

Courts of Appeals have upheld the enhancement in cases where defendants sold

fabricated investments that were actually Ponzi schemes,see, e.g., United States v. Ogale, 2010

WL 1857351 (11th Cir. 2010);United States v. Ramunno, 289 Fed. Appx. 359 (11th Cir. 2008)

(background in 599 F.3d 1269), as well as cases where the defendants drained funds from

previously legitimate investments. See, e.g., United States v. Kelley,305 Fed. Appx. 705 (2d

Cir. 2009) (background in 551 F.3d 171); United States v. Longo, 184 Fed. Appx. 910 (11th Cir.

2006).

The first requirement of the enhancement is a violation of securities law, defined in

U.S.S.G. 2B1.1 app. n. 14(A) by reference to 15 U.S.C. 78c(a)(47), which in turn refers to

the Securities Act of 1933 (15 U.S.C. 77a et seq.). While the Guidelines dictate that [a]

conviction under a securities law . . . is not required in order for subsection (b)(17) to apply,

(U.S.S.G. 2B1.1 app. n. 14(B)) here th

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