Second Circuit Issues Notable Decision Defining "Intended Loss" Under the Guidelines

The often ludicrously high sentences in federal fraud cases are driven mainly by the provisions in the Sentencing Guidelines relating to actual and intended loss.  The Second Circuit, in an opinion authored by Judge Newman, has once again injected some common sense into this often harsh and unreasonable area.  You may recall that in another Newman-authored opinion, United States v. Rutkoske, 506 F.3d 170 (2d Cir. 2007), a case involving stock market manipulation (discussed here), the Court defined "actual loss" to mean, well, actual loss caused by the defendant (as causation is defined in civil cases), and not all loss suffered by the victim.  Thus, actual loss would exclude loss caused by other factors such as market conditions.

Now, in United States v. Confredo, 06-3201-cr (2d Cir. June 10, 2008), the Court brings the same common sense reasoning to "intended loss."  In a case involving fraudulent loan applications (but obviously with wider ramifications for many fraud cases), the Court held that "intended loss" means the defendant's "subjective expectation" rather than "the worst case scenario" of the potential loss of the scheme. The Court thus rejected prior precedent defining intended loss as the aggregate face value of the fraudulently obtained loans, regardless of the defendant's expectations or belief.

Procedurally, the Court approved the "rebuttable presumption" approach of the Third Circuit in United States v. Geevers, 226 F.3d 186 (3d Cir. 2000), in determining the amount of intended loss: "The district court may presume that the defendant intended the victims to lose the entire face value of the instrument, but the defendant may rebut the presumption by producing 'evidence to demonstrate that he actually intended' to cause a lesser loss."  For Confredo, charged with submitting over $24 million in fraudulent loan applications on behalf of clients, this means his sentencing court will be given an opportunity to reconsider whether Confredo has "proven a subjective intent to cause a loss of less than the aggregate amount of the loans" - i.e. that he expected a number of the loans would be denied and a number of those granted would be paid.  In real terms, he gets to try to reduce his whopping 262-month sentence by 27 months.

The Court ends its analysis of this issue by adding “[a]s with all loss calculations, absolute precision is not required." 

UPDATE (6/12/08):  Richard Willstatter adds the following insights:  In Confredo, the Court applied a relaxed plain error evaluation for guidelines issues. This will be terrific for other appeals (although in Confredo's case, since there was a full re-sentencing, it seems the fact that the issue was not raised initially should be immaterial as it was fully vetted at the second sentencing). This revised standard of review permits appellate counsel somewhat more freedom to argue guidelines issues on appeal that were not properly raised in the district court.

With regard to Confredo's substantive holding, defense counsel should begin to think of how they might prove, by the least controversial means, the facts supporting the position that the intended loss was less than the total amount. For example, if you contend that the client intended to steal a line of credit, as did the defendant in United States v. Ravelo, you might produce documents showing the then-extant line of credit instead of relying on the defendant's say so. Obviously, the government can always argue the defendant's statements are self-serving and obstructive (with the threat of loss of acceptance points and the addition of obstruction points). Counsel should try to convince the government to concede the proposed factual argument even if they disagree on whether those facts mean the Court should find a lesser loss amount. For example, if we can show that 10% of Confredo's mortgages were fully paid, maybe the government will agree that is true even if they still contend the loss amount should be 100% of the mortgages.