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United States of America v. Kirk Lacey

November 7, 2012

UNITED STATES OF AMERICA, APPELLEE,
v.
KIRK LACEY, OMAR HENRY, DEFENDANTS-APPELLANTS, LAVETTE M. BILLS, PETER CHEVERE, WAYNE GREEN, SHERESE GLENN, REVLON HINDS, JOSEPH EVANS, JERRY CALONGE, MARK BARNETT, DEFENDANTS.



The opinion of the court was delivered by: Gerard E. Lynch, Circuit Judge:

11-2404-cr(L)

United States v. Lacey, Henry

Submitted: May 17, 2012

Before: WINTER, STRAUB, and LYNCH, Circuit Judges.

Defendants-appellants Kirk Lacey and Omar Henry were convicted by jury on charges stemming from their involvement in a fraudulent mortgage scheme. They appeal only from the sentences and restitution orders imposed by the district court. We hold that the district court interpreted U.S. Sentencing Guidelines § 2B1.1(b)(2)(A)(ii), which increases an offense by two levels if it was "committed through mass-marketing," too broadly, and remand for the district court to make additional findings. We find no error in the district court's calculation of the loss amount for sentencing guidelines purposes. Finally, we agree with the parties that the district court's restitution calculation was erroneous. Therefore, we vacate the sentences and restitution orders and remand for further proceedings.

VACATED and REMANDED.

Judge STRAUB dissents in part in a separate opinion.

Defendants-appellants Kirk Lacey and Omar Henry were convicted by jury in the United States District Court for the Southern District of New York (Kimba M. Wood, J.) on charges stemming from their involvement in a fraudulent mortgage scheme. They appeal their sentences and restitution orders but not their convictions. We hold that U.S. Sentencing Guidelines § 2B1.1(b)(2)(A)(ii), which increases an offense by two levels if it was "committed through mass-marketing," applies only if the audience of the mass- marketing was in some sense victimized by the scheme; because the record is unclear in this case, we remand for the district court to make additional findings. We find no error, however, in the district court's calculation of loss amount for sentencing. Finally, we agree with the parties that the district court's restitution calculation was erroneous. Therefore, we VACATE the sentences and restitution orders and REMAND the cases for further proceedings consistent with this opinion.

BACKGROUND

I. Facts

Because the defendants were convicted after trial, we recite the facts taking the evidence in the light most favorable to the verdict. See, e.g., United States v. Hsu, 669 F.3d 112, 114 (2d Cir. 2012).

Lacey and Henry participated in a fraudulent mortgage scheme operated by MTC Real Estate, Inc ("MTC"). The chief executive officer of MTC was co-defendant Lavette Bills, a licensed real estate broker. The contours of the scheme were simple. In the typical case, MTC purchased a property at a favorable price in a "short sale" from a financially distressed homeowner by negotiating with the homeowner's mortgage lender. The defendants then typically resold ("flipped") the property at a higher price to a "straw buyer" who had no intention of actually living at the property or making all of the loan payments.*fn1

MTC engaged in extensive radio advertisements featuring Lavette Bills. The advertisements produced potential straw buyers, or "radio leads," and MTC employees followed up with the leads to find buyers. The advertisements told buyers they could receive up to $50,000 for buying a house with MTC, and some straw buyers actually did receive such payments. The ads also helped MTC find financially distressed homeowners willing to sell their homes in short sales.

MTC employees worked with straw buyers to submit false mortgage applications and documentation in order to make it more likely that loans would be approved. If the mortgage was approved and the sale went forward, MTC sometimes made a few payments on the straw buyer's behalf so that the loan did not immediately go into default, to avoid setting off a "red flag" with the lending bank. When the straw buyer did ultimately default, the lending bank typically obtained title to the property by foreclosing on its mortgage.

After a three-week jury trial, both Lacey and Henry were found guilty on December 21, 2010. Lacey was convicted of conspiracy to commit bank and wire fraud, in violation of 18 U.S.C. §§ 1343, 1344, and 1349 and of substantive bank and wire fraud in violation of 18 U.S.C. §§ 1343, 1344, and 2; Henry was convicted only of conspiracy.

II. Sentencing

At sentencing, the government sought a two-level increase in both defendants' Guidelines range under U.S.S.G. § 2B1.1(b)(2)(A)(ii) because, it argued, the scheme "was committed through mass-marketing" within the meaning of that provision. Defendants argued that the enhancement should not apply because the radio advertisements were directed at potential property sellers and straw buyers, not at the banks who were the victims of the fraud. The district court agreed with the government, noting that "the MTC marketing campaign was critical to the success of the fraud" because the marketing was "how MTC found people with distressed properties that could be exploited." The district court therefore held that although the mass-marketing was not directed at the victims of the fraud (that is, the banks that made the mortgage loans), the mass-marketing was still "relevant conduct" to the offense and so the enhancement should apply.

The parties also disputed the amount of loss caused by the scheme. Under U.S.S.G. § 2B1.1(b)(1), the base offense level for various crimes resulting in financial loss is enhanced based on the amount of loss. The government argued that the loss in this case should be calculated as the total of the differences between what MTC paid for each property at short sale and the value of the mortgage loan ultimately made on each property. This calculation resulted in losses of $731,077 attributable to Henry and $536,077 attributable to Lacey; both figures result in a 14-level enhancement under § 2B1.1(b)(1). Defendants argued principally that because the banks had received title to the properties after default, the court should use the appraised value of the property that formed the basis for the fraudulent mortgage, rather than the short-sale price. Defendants also proposed that since the loss amount was difficult to ascertain, the court should instead base its sentence on the amount of financial gain to defendants, a mechanism described in Application Note 3(B) to U.S.S.G. § 2B1.1. Defendants asserted that the evidence at trial had shown that Lacey gained approximately $15,000 through the scheme, which would produce a 4-level enhancement.*fn2 The district court, however, accepted the government's loss calculation and the corresponding 14-level enhancement for each defendant.

The court sentenced Henry principally to a term of imprisonment of one year and one day and Lacey to a term of 46 months. The district court also ordered that Henry and Lacey, along with their co-defendants Bills and Peter Chevere, be jointly and severally liable for restitution in the amount of $411,161.52 to OneWest Bank, one of the victims of the scheme. Defendants jointly moved to vacate the restitution orders because they did not account for the value of the collateral OneWest received.*fn3 This appeal followed.

DISCUSSION

We review a district court's sentencing decision for procedural and substantive reasonableness. See United States v. Cavera, 550 F.3d 180, 189-90 (2d Cir. 2008) (en banc). "A district court commits procedural error where it makes a mistake in its Guidelines calculation, does not consider the § 3553(a) factors, or rests its sentence on a clearly erroneous finding of fact." Hsu, 669 F.3d at 120 (internal quotation marks and alterations omitted); see also Gall v. United States, 552 U.S. 38, 51 (2007). We review the district court's legal determinations de novo. Hsu, 669 F.3d at 120. Defendants make three arguments, which largely repeat those made to the district court at sentencing: that the two-level enhancement for mass-marketing was erroneously imposed; that the 14-level loss enhancement was based on an incorrect calculation of loss; and that the amount of restitution was incorrectly calculated.

I. Mass-marketing enhancement

Defendants argue first that the district court erred by applying a two-level enhancement to their sentences for an offense "committed through mass-marketing." See U.S.S.G. § 2B1.1(b)(2)(A)(ii). After a careful reading of the Guidelines and other relevant authority, we hold that the mass-marketing enhancement is properly applied only when the targets of the mass-marketing are also in some way victims of the scheme. Because it is not clear on the current record whether the straw buyers who were the targets of the mass-marketing in this case were in some sense victims, we will remand to the district court for further factfinding.

To interpret the Guideline, we look first to its text. Section 2B1.1(b)(2) reads:

If the offense -

(A) (i) involved 10 or more victims; or (ii) was committed through mass-marketing, increase by 2 levels;

(B) involved 50 or more victims, increase by ...


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