Tuesday, November 03, 2009

Cash and Quarry

United States v. Byors, No. 08-4811-cr (2d Cir. October 29, 2009) (Cabranes, Livingston, CJJ, Korman, DJ)

Defendant, while ostensibly raising money for a Vermont marble quarry, made material misrepresentations to his investors. He also converted substantial amounts of their money to pay for his personal expenses, including vacation homes, cars and horses. He pled guilty to multiple fraud and money laundering offenses and was sentenced to 135 months’ imprisonment. On appeal, he raised two unsuccessful challenges to his Guidelines calculations.

He first argued that the district court should have deducted from the loss calculation - about $9 million - the “legitimate business expenditures” that went into his efforts to “capitalize” the quarry business. The circuit disagreed. Under the “plain language” of Application Note 3(E) to the fraud guideline, the loss amount is only offset by any “value” that the victims receive, and not by legitimate expenditures. Byors' expenditures conferred nothing of value and no benefit to his victims. He rendered no “services” to them and did not deliver any return on their “investment.” Even accepting his claim that he used the money for the purposes he promised his victims, there was no error here. Byors' victims were left with nothing of value when the fraud was uncovered.

Byor, who tampered with a witness during the investigation into his fraud, also raised an issue about the interaction between the general obstruction of justice guideline, § 3C1.1, and the specific provision dealing with obstruction in the money laundering Guideline, § 2S1.1, comment. n.2(C). These two provisions seemingly conflict in cases where the defendant has obstructed a predicate offense, but not the subsequent money laundering offense itself.

The money laundering guideline provides that the application of § 3C1.1 “shall be determined based on the [laundering of criminally derived funds] ... and not on the underlying offense from which the laundered funds were derived.” Byors argued that under this provision the Chapter 3 adjustment could only apply if the obstruction related to the money laundering offense, and not the underlying fraud. The circuit disagreed. The Chapter 3 obstruction enhancement covers the offense of conviction, “any relevant conduct,” or “a closely related offense.” The fraud that underlay the money laundering offense, during which Byors obstructed justice, was either relevant conduct or “closely related” to the money laundering offense.

The court refused to conclude that an application note to a separate offense conduct guideline “creates an exception” to § 3C1.1, since that would be contrary to its practice of seeking to “harmonize” commentary with the Guidelines.

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