United States District Court, S.D. New York
March 30, 2004.
UNITED STATES, -against- BERNARD JAFFE, JR. Defendant
The opinion of the court was delivered by: ALVIN HELLERSTEIN, District Judge
OPINION AND RULINGS ON SENTENCING; FAMILY
CIRCUMSTANCES: ACCEPTANCE OF RESPONSIBILITY; AND
Bernard Jaffe, Jr. pleaded guilty on May 2, 2003 to violating
18 U.S.C. § 1014, by knowingly making false statements to influence the
lending determinations of an FDIC-insured bank. As a direct result of his
fraud, Jaffe obtained a $20 million line of credit from the Bank of New
York, and became indebted to it in the amount of $20,342,562.13,
including interest. I conducted sentencing hearings on October 24 and
December 5, 2003, and February 3, 2004, and sentenced defendant to
fifty-seven months imprisonment, three years of supervised release, and
restitution of $18,154,242.77 plus interest, payable according to a
schedule of lump-sum and percentage of gross income payments. I write to
discuss the principle sentencing issues: denying his motion for downward
departure because of the alleged needs and dependency of his 43-year old
daughter; finding sufficient acceptance of responsibility despite
reservations arising from his resistance to full disclosure of assets and
to making restitution; and fixing the scope and extent of required
payments in the context of a mix of defendant's assets and income, and
the claimed applicability of Florida's homestead, and federal and state
Bernard Jaffe, Jr. is seventy-three years old. He had a wealthy, but
unloving childhood, had a college education, and honorably served our
country as a first lieutenant in Korea towards the end of the Korean War.
He was twice married, once widowed and once divorced, with a child from
each marriage: Brenda, now forty-three and single, and Anthony, now forty
and married. Brenda lives close to Jaffe, in Delray Beach, Florida, and
is said to be dependent on him, as discussed below. Anthony lives in Los
Jaffe worked as a stockbroker, beginning as a trainee with a salary of
$55 per week, and ending as a partner of a large firm, successful in
securities and commodities investments and trading, for himself and for
his customers. He retired as a Senior Vice President of his
stockbrokerage company on January 18, 2002, when his offenses came to
Each year from 1986 to 2000, Jaffe obtained an unsecured line of credit
from the Bank of New York (BNY). The size of this loan grew from $300,000
in 1986 to approximately $20 million in 2000. Each year, he "cleaned up"
his line of credit by repaying BNY and not borrowing from it for a
thirty-day period (although it appears that he borrowed from another bank
in the interim, both to help clean up his BNY indebtedness and for
general purposes). Each year's loan was induced by a current personal
Beginning several years before his extensive frauds were discovered,
Jaffe presented false and fraudulent financial statements, overstating
his assets and understating his liabilities, each year in increasingly
larger amounts. In the summer of 2000, as in previous years, Jaffe
cleaned up his line of credit, paying it, as in prior years, with
substantial help from a short-term loan from a different bank, Chase
Manhattan Bank. By 2000, he represented that his net
worth had increased to become $171 million, a sum which was two
orders of magnitude greater than Jaffe's actual net worth. Jaffe thereby
induced BNY to extend a $20 million line of credit to him for the year
beginning August 24, 2000 and ending August 31, 2001. Jaffe drew upon the
entire line, but was unable to repay it at maturity. The decline of the
stock market during 2000 and 2001 dried up his credit and was too large
to bridge, and Jaffe defaulted. BNY extended maturity to January 15,
2002, but still Jaffe could not repay. Jaffe then disclosed that he
did not own over $162 million of the assets he had claimed to have,
and asked for five years to repay. The Bank, however, having become
suspicious of Jaffe's integrity, launched a private, and then
instigated a criminal, investigation, which found a massive fraud
on Jaffe's part. On May 2, 2003, Jaffe pled guilty to an Information
which charged him with violating 18 U.S.C. § 1014, for knowingly
making false statements on a loan application to influence the action
of an FDIC-insured bank.
Jaffe's plea agreement stipulated to an offense level of 27, less a
three-level reduction for timely acceptance of responsibility, yielding a
net offense level of 24. See U.S. Sentencing Guidelines Manual
(U.S.S.G.) § 3E1.1 (Nov. 1, 2000). That net offense level, in the
absence of any previous criminal history, produced a range of
imprisonment of 51 to 63 months. The plea agreement left Jaffe with one
ground to move for departure: extraordinary family circumstances related
to his daughter, Brenda Jaffe. The government reserved the right to
Jaffe's use and application of the money he had fraudulently procured
over the years could not be adequately traced. Large portions of it were
given to Jaffe's daughter and son, and to a female companion; other
portions increased Jaffe's exempt assets, including a sumptuous
residential property in Florida and his "401-K;" and still other portions
were spent on
a high style of living, which included leases of two luxury cars,
memberships in two country clubs, dinners at pricey restaurants, trips
with his companion to New York for shopping and stays at luxury hotels,
and the like. Some of it went to repay the prior year's bridge loan from
Chase Manhattan Bank. Another large chunk, according to Jaffe, was lost
in the stock market. In all, BNY could find only $10 million, and could
recover only $5 million, against its $20 million outstanding indebtedness
and accumulated interest.
Despite protests to the contrary, Jaffe cooperated very little in BNY's
investigation, forcing it to engage in expensive discovery and turn-over
proceedings, in New York and Florida state courts. It took a warning from
me that Jaffe was jeopardizing my ability to find that he would
be entitled to a sentencing credit for acceptance of responsibility
before he opened his records to BNY sufficiently to allow it
to gain some confidence concerning Jaffe's financial condition. Even
now, it appears that Jaffe is unable to account for material amounts
of the funds he had fraudulent procured.
Extraordinary Family Circumstances
Jaffe moved for a downward departure based on extraordinary family
circumstances, pursuant to U.S.S.G. § 5H1.6. Jaffe asks that his jail
time be reduced, and his restitution obligations qualified, to enable him
to care for his 43-year-old daughter, Brenda. Brenda is single and lives
near her father in Delray Beach, Florida.
According to the materials submitted by Jaffe, Brenda suffers from
depression and anxiety disorders, stemming from the death of her mother
when she was two years old and the divorce of her father and step-mother
when she was twelve, and first emerging when she was
seven. Brenda is currently recovering from breast cancer after
surgery and radiation. According to Jaffe, she refuses to take her
medications or attend to medical appointments concerning a possible
recurrence of cancer, yet she worries obsessively over her condition.
Jaffe states that she calls him constantly, at all hours of day and
night, and is helpless without him. According to Jaffe, she has never
held a full-time or permanent job. Her younger half-brother Anthony,
forty years old, lives in California with his own family, and cannot be
expected to displace his father's role, even though he may wish to do so.
On the other hand, Brenda works part-time and lives alone. Although Jaffe
claims that she relies upon her father for financial support, that
appears to be as much owing to their high style of living as to any
"Family ties and responsibilities . . . are not ordinarily relevant"
in determining whether a sentence should be reduced on grounds of
departure. U.S.S.G. § 5H1.6 (Policy Statement). The grounds for
departure from the applicable guideline range must be "extraordinary,"
United States v. Walker, 191 F.3d 326, 338 (2d Cir. 1999),
particularly when the dependent is an adult. Thus, in United States
v. Brechner, a departure was granted because the 37-year-old claimed
dependent not only suffered from drug and emotional problems, but also
had four times attempted suicide and could not be released from her
hospitalization unless she was placed in her father's care. The sentence
was later vacated on other grounds. Brechner, 99 F.3d 96 (2d
Cir. 1996), vacating 1995 WL 804580 (E.D.N.Y. Oct. 15, 1995).
In other cases, departures were granted because defendants had to care
for spouses suffering from extraordinary illnesses or parents who were
frail and elderly. For example, in United States v. Alba,
933 F.2d 1117 (2d Cir. 1991), a departure was granted to a defendant who
worked at two jobs to support his wife, two children, grandmother, and a
disabled father who
depended on the defendant's physical strength to help him get in
and out of his wheelchair. As the Court of Appeals ruled in United
States v. Johnson, 964 F.2d 124 (2d Cir. 1992), in affirming a
departure where the defendant was the sole parental figure for three
minor children, including one infant and one institutionalized child, and
a baby grandchild, departure is appropriate only where necessary to avoid
"wreak[ing] extraordinary destruction on dependents." Id. at
129. "Disruption of the defendant's life, and the concomitant
difficulties for those who depend on the defendant, are inherent in the
punishment of incarceration," Id. at 128, and have already been
presumptively considered by the Sentencing Commission when it drew up the
Guidelines. See also United States v. Madrigal, 331 F.3d 258,
260 (2d Cir. 2003) (departure reversed; only one of defendant's six
children under age eighteen, and other caretakers available); United
States v. Faria, 161 F.3d 761, 763 (2d Cir. 1998) (departure
reversed; ex-wife available for minor children); United States v.
Sprei, 145 F.3d 528, 535 (2d Cir. 1998) (departure reversed; family
not uniquely dependent on defendant).
Brenda Jaffe, despite her alleged mental fragility, is not a minor
child, and is not uniquely dependent on her father for support. She is a
well-educated adult woman, who lives on her own and has successfully
worked part-time at various jobs. Having worked part-time, she can again
find suitable work to sustain herself, perhaps not in the lavish style
that her father provided her from fraudulently procured funds, but in an
adequate style common to most people.
Acceptance of Responsibility
The crime to which Bernard Jaffe, Jr. pleaded, adjusted for the amount
of money he fraudulently procured, is punishable by imprisonment of 70 to
87 months. U.S.S.G. § 2F1.1.
By pleading guilty and accepting responsibility for his offense, he
potentially became entitled to a downward adjustment of two levels, and
an additional level for timeliness, thereby reducing the sentencing range
to which he was subject to 51 to 63 months. But Jaffe had to "clearly
demonstrate" his acceptance of responsibility, Id. §
3El.l(a), and his conduct with regard to making restitution to the victim
of his fiaud created substantial doubt that he was eligible for the
adjustment he sought. As Jaffe was seventy-three years of age, the issue
assumed great importance.
Jaffe's allocution at the time of his plea was entirely satisfactory.
But his conduct was quite something else. Jaffe's words were eloquent: "I
accept responsibility. I am very embarrassed by what I did, I was
under strain. I should never have done it." But he engaged in every
artifice that he and his counsel could concoct to hold onto his
fraudulently procured funds and frustrate his victim, The Bank of New
York, seeking to mitigate his own culpability by blaming the Bank for
lending selfishly and carelessly. He refused to give a full and fair
accounting, became involved in acrimonious litigation in the state courts
of Florida and New York, zealously cloaked his fraudulently procured
funds in state and federal exemptions, liberally showered gifts upon his
two children and companion and encouraged them to resist any return of
those gifts, and lived and traveled lavishly all the while.
A three-level adjustment does not follow automatically from a guilty
plea. The eloquence of a defendant does not suffice, for it is his
conduct that must be judged. As the Application Notes make clear,
"truthfully admitting the conduct comprising the offense(s) of
conviction, and truthfully admitting or not falsely denying any
additional relevant conduct for which the defendant is accountable," is
but one of several factors to be considered. U.S.S.G. §
3E1.1, App. Note 3. The court must also inquire if the defendant,
among other things, has shown a "voluntary payment of restitution prior
to adjudication of guilt." Id. As Application Note 3 provides:
Entry of a plea of guilty prior to the
commencement of trial combined with truthfully
admitting the conduct comprising the offense of
conviction, and truthfully admitting or not
falsely denying any additional relevant conduct
for which he is accountable . . . will
constitute significant evidence of acceptance of
responsibility for the purposes of subsection (a).
However, this evidence may be outweighed by
conduct of the defendant that is inconsistent with
such acceptance of responsibility.
The issue of a defendant's acceptance of responsibility, and his
entitlement to the three-level downward adjustment authorized by the
Sentencing Guidelines, must be considered by the sentencing judge,
evaluating all relevant facts and exercising wise discretion.
Id. App. Note 5; United States v. Guzman,
282 F.3d 177
, 184 (2d Cir. 2002) (sentencing judge has discretion in making
this "factual determination"); see also United States v. Fisher,
38 Fed. Appx. 39, 42 (2d Cir. 2002) (same); United States v.
Ortiz, 218 F.3d 107
, 109 (2d Cir. 2000) (same); United States
v. Goodman, 165 F.3d 169
, 175 (2d Cir. 1999) (same). Thus, in
Fisher, a case of tax, mail and bankruptcy fraud, the Court of Appeals
affirmed Judge Amon's finding that defendant was not entitled to the
downward adjustment, for his "acceptance of responsibility . . . was
not clear," was equivocating, "guarded," and "disingenuous." 38 Fed.
Appx. at 41. Similarly, in United States v. Zichettello,
208 F.3d 72
(2d Cir. 2000), Judge Batts denied the three-point adjustment
and the Second Circuit affirmed where defendant reneged
on his promise to pay restitution from funds available to him for that
purpose. See also United States v. Harris, 38 F.3d 95
(2d Cir. 1994) (no adjustment; failure to pay promised restitution and
attempted bribery of witnesses).*fn1
Several cases have suggested that the determination of acceptance of
responsibility, far from being a legal checklist or formalistic
determination, imports into the law a moral concept. See,
e.g., Mitchell v. United States, 536 U.S. 314, 330
(1999) (linking "the determination of a lack of remorse" with that of
"acceptance of responsibility for purposes of the downward adjustment
provided in § 3E1.1"). In United States v.
Hernandez-Fundora, 58 F.3d 802, 813 (2d Cir. 1995), the Second
Circuit quoted with approval Judge McAvoy's statement that "[a]cceptance
of responsibility entails more than just admitting that certain conduct
was committed. It also entails the concept that that conduct was wrong,
violative of the law and that the individual accept the idea that he now
has to be punished for it." United States v. Reves,
9 F.3d 275, 280 (2d Cir. 1993), approved of an inquiry into the defendant's
"remorse or contrition." Zichettello cited to United
States v. Wells, 154 F.3d 412 (7th Cir. 1998), where Judge Posner
discussed the concept of acceptance of responsibility:
The purpose of the acceptance of responsibility
discount is not only to induce guilty pleas, but
also to identify defendants who, having
demonstrated sincere remorse for their crime, are
less likely either to delay the course of justice
or to engage in further criminal activity when
they complete their sentence. [Collecting
sources.] Talk is cheap, and so Beserra
emphasizes that acceptance of
responsibility is to be inferred from deeds, not
from weepy mea culpas at sentencing. . . . The
remorseful or repentant criminal would want to do
everything possible to rectify the harmful
consequences of his crime, and so if he still has
any of the loot he will return it. . . .
If authority is needed for what strikes us as a
self-evident proposition, it can be found in
Claudius's prayer soliloquy in Hamlet (Act III,
sc. 3, 11. 36-72). By murdering Hamlet's father,
the king of Denmark, Claudius had become king and
also had married the king's widow. He is frank in
acknowledging his crimes. "0, my offense is rank!
It smells to heaven." He tries to pray for
forgiveness, but realizes that this is impossible
. . . what form of prayer Can serve my turn?
"Forgive me my foul murder"? That cannot be,
since I am still possessed Of those effects for
which I did the murder: My crown, mine own
ambition, and my queen. May one be pardoned and
retain the offense?
Id. at 413-14 (citations omitted), cited in
Zichettello, 208 F.3d at 107.
To the extent that the term "acceptance of responsibility" seeks to
import a moral concept into the law, civilized society long before
Shakespeare concluded that genuine acceptance of responsibility
encompasses not simply an eloquent statement, but a recognition of the
wrong committed, a resolve never to repeat it, and an attempt to
ameliorate its effects to the extent possible. Leviticus 5:20-26 provides
that one who wrongfully takes property of another, by theft or by fraud,
cannot gain absolution unless he first restores to his victim all that he
took, and a fifth more; only then is he eligible to gain absolution. As
early as 397 C.E., Augustine understood that a mere recitation of the
lips may not suffice to constitute a true confession: "O Lord, the depths
of man's conscience lie bare before your eyes. . . . I make my
confession, not in words and sounds made by the tongue alone, but with
the voice of my soul and in my thoughts which cry aloud to you." Saint
Augustine, Confessions, Book X:2, at 207 (R.S. Pine-Coffin
trans., Penguin Books 1961).
Maimonides, almost eight centuries later, in approximately 1185, also
that remorse must be demonstrated through actions and not only
through words: "What is repentance? It is when the sinner abandons his
sin and removes it from his thoughts, and resolves in his heart that he
will no longer commit it." Maimonides, Laws of Repentance 2:2
(Eshkol ed. 1986). Repentance requires the wrongdoer to "change his ways
entirely toward good," and, Maimonides concludes, "we do not forgive him
until he repays his fellow what he owes to him and appeases him."
Id. at 2:4,9.
The requirement of true remorse for prior wrongdoing is as fundamental
today as it was centuries earlier. See, e.g., Editorial, A
Lame Confession from Pete Rose, N.Y. Times, Jan. 7, 2004, at A20
(opining that "there is not a lot of redemption visible here" because
Pete Rose did not "show much contrition"). Fay Vincent, the former
Commissioner of Major League Baseball, made the point eloquently:
Ever since St. Augustine set the bar pretty high,
there has been a certain style to confessional
tomes. Now we have a mea culpa by Mr. Rose and no
saint is he. Augustine, having lived it up, saw
the light and wrote with a sense of guilt and
regret. He even anguished over having stolen a
pear. Early reports are that Mr. Rose confronts
his past with very little remorse. Between him and
Augustine, there is little doubt whose book will
Fay Vincent, Op-Ed, The Confessions of Pete Rose, N.Y.
Times, Jan. 2, 2004, at A17.
Thus, § 3E1.1 requires that acceptance of responsibility be shown
"clearly," Id., and the Application Notes direct that an
evaluation consider such factors as a truthful admission, voluntary
termination of criminal conduct, and voluntary payment of restitution. Id
App. Note 1. Acceptance of responsibility is a matter of the full persona
the head and heart, as well as the lips.
Jaffe's conduct, at and prior to the sentencing hearing of October 24,
2003 left me
entirely unconvinced that he had "clearly" accepted responsibility
for his actions. At my invitation and his request, I deferred any finding
on this issue for another six weeks, until an adjourned sentencing
hearing to be held December 5, 2003.
Jaffe used the interval constructively. He gave useful disclosure of
his financial condition to the Probation Department and to the Bank of
New York, and substantially dispelled the Bank's suspicion that he was
hiding assets and was unduly obstructive. The Bank reported that the gap
between it and Jaffe had been narrowed in tracing the income and assets
that Jaffe had enlarged by fraudulently obtained loan proceeds. Tr. Dec.
5, 2003, at 8. The Bank's issue "ultimately [came] down to . . .
dollars and cents," Id.; but I still had to determine whether
Jaffe clearly had demonstrated that he accepted responsibility for his
crime. I found, with some lingering reservation, that Jaffe made that
1. The Statutory Scheme
Under the Mandatory Victim Restitution Act of 1996, "the court shall
order . . . that the defendant make restitution to the victim of the
offense." 18 U.S.C. § 3663A(a)(1). Restitution is mandatory for all
offenses against property, "in the full amount of each victim's losses as
determined by the court." Id. §§ 3663A(c)(1)(A)(ii);
3664(f)(1)(A); see also Id. § 3663(a)(1)(A).
Defendant's circumstances are not to be considered, except in fashioning
an order as to the manner in which restitution is to be paid.
Id. § 3664(f)(1)(A). The factors provided by statute to be
considered in fashioning such an order are as follows:
"Upon determination of the amount of restitution
owed to each victim, the court shall . . . specify
in the restitution order the manner in which, and
the schedule according to which, the restitution
is to be paid, in consideration of
(A) the financial resources and other assets of
the defendant, including whether any of these
assets are jointly controlled;
(B) projected earnings and other income of the
(C) any financial obligations of the defendant;
including obligations to dependents."
Id. § 3664(f)(2).
The restitution order may require "a single, lump-sum payment, partial
payments at specified intervals, in-kind payments, or a combination of
payments at specified intervals and in-kind payments." Id.
§ 3664(f)(3)(A). The sentencing judge is given continuing
jurisdiction to amend or adjust the restitution order to consider
"material change[s] in the defendant's economic circumstances."
Id. § 3664(k), (o). At the end of the period of supervised
release, upon request of the victim, an abstract of judgment may be
issued, which "shall be a lien on the property of the defendant."
Id. § 3664(m)(1)(B).
The Sentencing Guidelines incorporate the statutory provisions.
U.S.S.G. § 5E1.1(a), (e).
2. Total Restitution and Rate of Interest
The parties have reached agreement on the net principal amount for
Jaffe's order of restitution: $15,639,008.26, reflecting the Bank's total
loss of $20,342,562.13, less sums thus far recouped. I rule that interest
shall run on the Bank's net loss at the rate of nine per cent per annum
from the date of loss to the date of sentence, December 5, 2003, yielding
$18,154,242.77, and at the same rate thereafter. Jaffe objects to a nine
percent rate, both pre- and post-judgment.
Federal law does not provide an interest rate for orders of
restitution. Were restitution to be considered a fine, Jaffe would have
had to pay two percent per annum. See
18 U.S.C. § 3612(f).*fn2 Restitution, however, is intended to return to the
victim that which was wrongfully wrested from him and, since he was deprived
of the use and benefit of his funds, restitution should reflect that loss as
well. Accordingly, the statutory interest rate used for civil judgments
in both federal and state courts in this district provides a more
suitable remedial base, that is, nine percent. See N.Y.
C.P.L.R. § 5004.
I should not assume that the omission from 18 U.S.C. § 3612(f) of
an interest rate applicable to orders of restitution was accidental.
Although expresio unius est exclusio alterius is a canon of
construction rather than a rule of law, see William N.
Eskridge, Jr., et al., Legislation 824-25 (3d ed. 2001); Kent
Greenawalt, Legislation 202-05 (1999), the sound policy to
favor remediation of loss argues for an interest rate different from that
prescribed for fines. Federal courts have regularly turned to state law
to fill in statutory gaps, consistent with the federal policy to be
served. See generally Hanna v. Plumer, 380 U.S. 460 (1965);
Guaranty Trust Co. v. York, 326 U.S. 99 (1945). Federal courts
have applied this holding to interest rates. See, e.g.,
Baltimore & Ohio Railroad Co. v. United States,
279 U.S. 781, 786 (1929) (setting interest "at the rate established by the
law of the State in which such sums were paid"); Memorial Drive
Consultants. Inc. v. ONY, Inc., 29 Fed. Appx. 56, 63 (2d Cir. 2002)
("we hold that the district court was correct to apply New York's
nine-percent pre-judgment interest rule, under N.Y. C.P.L.R. 5004");
Amoco. Transport Co. v. Dietze, Inc., 582 F. Supp. 804, 808
("In a diversity action, the rate of interest to be applied is that
specified under the law of the state where the federal court is sitting.
In New York, the specified legal rate of interest is nine percent per
annum. N.Y. Civ. Prac. Law § 5004."). A nine percent interest rate is
standard for both pre-and post-judgment payments in the Southern District
of New York, for all kinds of commercial cases, including cases requiring
restitution, that is, restoring loss to the aggrieved party. Just as a
nine percent interest rate is part of the remediation to which a civil
aggrieved is entitled, so it should be applied to restitution awarded as
part of a criminal judgment.
Unlike most civil judgments, the Sentencing Guidelines give me
discretion with regard to orders of restitution. U.S.S.G. § 5E1.1(e).
But Jaffe has shown nothing to cause me to choose a lower interest rate.
The hardships Jaffe cites have to do with providing for himself after he
leaves jail and maintaining a "comfortable" style of life for his
daughter. These considerations do not balance against the policy to
provide remediation to the victim of Jaffe's fraud. One might also argue
that nine percent is higher than current rates paid by banks on savings
accounts and mutual funds on liquid asset investments, but Jaffe's
creditworthiness hardly equates to that of banks or mutual funds. If
adjustments should equitably be made in the context of future hardships,
I am given continuous jurisdiction to make such adjustments as might be
appropriate in light of future considerations. 18 U.S.C. § 3664(k),
Accordingly, I hold that a nine percent interest rate is appropriate,
and I order that Jaffe pay restitution in the sum of 518,154,242.77,
reflecting principal and accrued interest to December 5, 2003, and
interest at nine percent thereafter.
3. Restitution Schedule
The "manner" of Jaffe's restitution obligation to the Bank, that is,
the mix of lump-sum and regular payments to be ordered, must take into
consideration Jaffe's "financial resources and other assets," his
"projected earnings and other income," and "any financial obligations
. . ., including obligations to dependents."
18 U.S.C. § 3664(f)(2). I discuss the last consideration first, Jaffe's
obligations to others, including "dependents."
Jaffe argues that he has an obligation to support his daughter, Brenda,
and that this obligation should be considered in fixing his restitution
payment schedule. However, as I discussed in denying Jaffe's motion for
downward departure, Brenda is not a dependent, and Jaffe owes her no
financial obligation, legal or moral, to prefer her over the victim of
his fraud. Brenda is a 43-year old adult, who has been living
independently, without objective evidence that she is in need of
continuing financial assistance to remain independent. There has been no
determination, judicial or otherwise, that she is a mental incompetent,
that she retains the status of a dependent, or that her father is
obligated to support her. Jaffe's desire to continue to funnel proceeds
gained from his frauds to his family does not constitute a "financial
obligation . . . to dependents" which should be considered, under
18 U.S.C. § 3664(f)(2)(C), in fashioning a restitution payment schedule
to the victim of his fraud.
In considering Jaffe's "financial resources and other assets" and his
"projected earnings and other income," the statute directs me to the
Presentence Investigation Report prepared by the probation officer.
See Id. § 3664(a), (d). The Presentence
Investigation Report sets out, as of October 24, 2003, a summary of
Jaffe's financial condition as Jaffe represented it to the probation
1. Cash on hand totaling $20,417.00;
2. Individual Retirement Account and other accounts totaling
3. A Florida condominium valued at $1.3 million (presumably, at the
lower of cost or market value); and
4. A car valued at $ 15,680.00.
Jaffe's total acknowledged net worth is $3,457,985. Jaffe also
represents that he receives monthly income of $17,934 from Social
Security, his IRA, and other distributions, or $215,208 per year. Under
26 C.F.R. § 1.401(a)(9)-5 and (a)(9)-9, Jaffe is required to
withdraw, at a minimum, nearly $80,000 annually from his IRA alone. I
take note, also, that Jaffe's asset values mainly consist of marketable
securities valued at a historically low point in time and a prime
Southern Florida residential property, and that such values are likely to
rise over time. BNY alleges, as well, based on Jaffe's inability or
unwillingness to account for all proceeds he obtained from his
fraudulently induced loans, that there are hidden assets. Jaffe also has
made substantial transfers of funds to his daughter, son, and companion,
and may be able to obtain transfers back to him if he is unable to make
timely restitution payments pursuant to my order without selling assets.
He cannot complain if the transfers have left him without sufficient
funds short of invading other assets as to which he might claim an
Bearing all this in mind, and my duty to fashion a proper restitution
order pursuant to 18 U.S.C. § 3664(f)(2), I ordered at sentencing
that Jaffe pay restitution according to the following schedule:
(1) $100,000 by March 19, 2004*fn3;
(2) $1.5 million by January 31, 2005; and
(3) Installments of the greater of $150,000 or fifteen percent of
Jaffe's post-tax annual net income, by January 31, 2005, and every
successive January 31 thereafter.
My rationale for this schedule was as follows. Jaffe's cash on hand,
the value of his car (which he will not need in jail), and monthly income
are available sources for the first payment due earlier this month,
forty-five days after I pronounced his sentence. If Jaffe needs
additional sums, they are available to him from his IRAs as distributions
to a person over 70 54 years of age. Jaffe's victim, BNY, is entitled to
a prompt beginning on the restitution due to it, particularly after
Jaffe's aggressive campaign to postpone his day of reckoning.
Jaffe's second payment, due a year from sentencing, by January 31,
2005, will require him to save from his monthly income, draw as much as
he can from available sources, perhaps gather funds which he earlier
transferred to his companion, son or daughter, or perhaps liquidate
assets. Jaffe argues that he will certainly have to sell his Florida
condominium, even though Florida's homestead exemption prevents
creditors from distraining residential properties, however lavish. Fla.
Const. Art. X, § 4(a). But that is not my order. While he may
determine that he will satisfy his restitution obligations by selling
his homestead, I do not require that, and instead I leave him free to
choose his manner of making restitution. See United States v.
Kalani, 2003 U.S. Dist. Lexis 8762 (S.D.N.Y. May 23, 2003)
(holding that a lump-sum restitution order
is valid where it does not specify the source of the restitution or
direct liquidation of specific assets and the defendant may have other
sources of payment).
Jaffe argues that he will have no choice but to sell his Florida
condominium, and that the restitution order would therefore circumvent
the enforcement provisions of the Mandatory Victim Restitution Act (MVRA)
and contradict a protection granted to persons in his status by the
Constitution of the State of Florida. Fla. Const. Art. X, § 4(a);
see United States v. Lampien, 89 F.3d 1316, 1322 (7th Cir.
1996) (restitution order vacated because it required sale of a specific
asset). In Lampien, the district court ordered the defendant
to execute a quitclaim deed to her homestead. The Court of Appeals
reversed, holding that such an order would circumvent the detailed
enforcement provisions of the Victim and Witness Protection Act (VWPA),
the predecessor to the MVRA, and the VWPA did not authorize the
enforcement mechanism adopted by the district court. My order, in
contrast, does not require Jaffe to sell or transfer any specific
property. Furthermore, Lampien has not been adopted by the
Second Circuit and is uncertain law even within its own circuit.
See United States v. Hoover, 175 F.3d 564, 569
(7th Civ. 1999) (rule of Lampien superceded by MVRA, providing that
restitution be paid to specific victims). Jaffe's order of restitution
did not explicitly require sale of a particular asset; the manner by
which he makes restitution was fixed pursuant to the statutory factors
provided by 18 U.S.C. § 3664(f)(2). Jaffe's argument is wrong on the
facts and on the law.
Jaffe has several available sources from which to pay the required
restitution. These include distributions from pensions and IRAs that are
available to persons his age, transfers back of funds that he gave to his
companion, son, and daughter, sales of assets, and such other assets as
might not yet have been disclosed to BNY. Quite possibly, however, once
liquid assets are spent, the next available asset might be Jaffe's
home. If that is the case, Florida homestead law will not protect him
with respect to his duty to provide restitution to his victim. It is
significant that the Court of Appeals for the Eleventh Circuit, the Court
of Appeals most familiar with Florida's laws and Constitution, has held
that under the Supremacy Clause, U.S. Const. Art. VI, § 1, cl. 2.,
Florida's homestead exemption cannot apply against contrary federal law.
See United States v. 817 N.E. 29th Drive, Wilton Manors,
Florida, 175 F.3d 1304, 1311 n.14 (11th Cir. 1999) (federal
forfeiture statute covers Florida homestead); United States v. 3262
Southwest 141 Ave., 33 F.3d 1299, 1301 n.6 (11th Cir. 1994) (same);
United States v. Lot 5. Fox Grove. Alachua County. Florida,
23 F.3d 359, 363 (11th Cir. 1994) (same); United States v. 18755 North
Bay Road 13 F.3d 1493, 1498 (11th Cir. 1994) (same).
18 U.S.C. § 3613(a) provides that restitution may be enforced against all
property, save certain enumerated exemptions, and these exemptions do not
include a defendant's home.
Jaffe argues, similarly, that yearly restitution obligations of the
greater of $150,000 or 15 percent of his net income after taxes,
beginning by January 31, 2005, almost a year after sentencing, will
require him to liquidate pension assets that creditors cannot distrain
under federal and state law. Jaffe argues that his net annual income
after taxes will be approximately $139,000, not enough to make the
required payments and leaving nothing for his personal needs.
Jaffe has represented that his annual income from all sources is
$215,208. I am not in a position to calculate the deductions that he may
have against this income. To the extent that his monthly income will not
be sufficient to discharge his restitution obligation, he can draw upon
the variety of assets and income he has at his disposal. His living
expenses during his
imprisonment will be minimal, leaving the bulk of the funds
available to him each year as sources to draw upon in order to discharge
his yearly obligation to make restitution to his victim. See United
States v. Corbett, 357 F.3d 194, 195 (2d Cir. 2004) (affirming
restitution order of "75% of the household cash flow" as complying with
18 U.S.C. § 3664(f)(2), but remanding for clarification of "cash flow").
Jaffe also argues that if BNY prevails in its civil litigation, he will
have no money left with which to satisfy the restitution order, leaving
him and his daughter indigent. The contention is specious. If BNY
recovers, and Jaffe is forced to pay more than the restitution order
requires, he can apply for relief. As sentencing judge, I retain
jurisdiction to amend or adjust the restitution order, particularly if
there arises a "material change in the defendant's economic
circumstances." See 18 U.S.C. § 3664(k), (o). At this
point, the outcome of the civil litigation is speculative, and should not
affect an order to make restitution.
Jaffe contends that he receives $52,000 annually from his pension plan,
and that as a tax-qualified pension plan subject to ERISA, a restitution
order requiring payment of his pension would violate the anti-alienation
provision of ERISA, 29 U.S.C. § 1056(d)(1). See Guidry v. Sheet
Metal Worker's National Pension Fund, 493 U.S. 365, 376 (1990)
(strong federal policy against alienation of pension benefits in order
"to safeguard a stream of income for pensioners"); United States v.
Smith, 47 F.3d 681 (4th Cir. 1995) (defendant "cannot be forced to
relinquish his ERISA pension benefits for restitution"); United
States v. Jackson, 229 F.3d 1223 (9th Cir. 2000) (same).
However, nothing in Jaffe's restitution order requires him to alienate
his pension plan. As I have analyzed his statement of financial
condition, he has funds available to him that
he can use to discharge his restitution obligations. Furthermore,
"ERISA's anti-alienation clause does not apply to pension funds that have
already been distributed to the beneficiary." Jackson, 229 F.3d
at 1225. Pension funds, once distributed, are subject to restitution
orders and are not protected by ERISA. Robbins v. DeBuono,
218 F.3d 197, 203 (2d Cir. 2000) ("this statutory scheme protects benefits
only while they are held by the plan administrator and not after they
reach the hands of the beneficiary"); Kalani, 2003 U.S. Dist.
Lexis 8762, at *3-*5 (restitution order valid, since the schedule of
required payments lump sum of $60,000 plus 10% of gross monthly
earnings did not specify source of funds to be paid in
restitution, or direct liquidation of specific assets, and because
defendant had other potential sources of payment); cf. Lampien,
89 F.3d at 1322 (restitution order vacated because it required sale of a
single specific asset).*fn4
Accordingly, Jaffe has not given any legal, factual or moral argument
to avoid the restitution order of his sentence. I order that he comply
with its terms.
For the reasons stated, defendant Bernard Jaffe, Jr. sufficiently
demonstrated timely acceptance of responsibility (although with certain
misgivings) entitling him to a downward adjustment of three levels under
U.S.S.G. § 3E1.1, but was not entitled to a downward departure on the
basis of extraordinary family circumstances under U.S.S.G. § 5H1.6. I
sentenced Jaffe to 57 months incarceration, followed by a
three-year term of supervised release. As to restitution, I ordered that
Jaffe pay BNY, the victim of his fraud, restitution in the net amount of
$18,154,242.77, plus interest at the annual rate of 9 percent beginning
December 5, 2003, according to the following schedule:
(1) $100,000 by March 19, 2004;
(2) $ 1.5 million by January 31, 2005; and
(3) Installments of the greater of $150,000 or fifteen percent of
Jaffe's post-tax annual net income, by January 31, 2005, and every
successive January 31 thereafter.
Other terms of Jaffe's sentence are set out in the judgment filed March