United States v. Stuck

          RULING RE SCOPE OF RELEVANT CONDUCT FOR SENTENCING

          Jeffrey Alker Meyer United States District Judge.

         As federal practitioners well know, the U.S. Sentencing Guidelines follow a “modified real-offense” system of sentencing. It is a not-so-popular compromise between the extremes of a “charge offense” system and a “real offense” system. See generally Julie R. O'Sullivan, In Defense of the U.S. Sentencing Guidelines' Modified Real-Offense System, 91 Nw. U. L. Rev. 1342 (1997).

         In a charge-offense system, a judge bases a sentence solely on the defendant's charged and proven conduct, while disregarding any uncharged misconduct no matter how obvious. By contrast, in a real-offense system, a judge may base a sentence on all manner of uncharged facts or other crimes that a judge concludes to be the “real” offense worthy of punishment.

         With its adoption of a modified real-offense system, the Sentencing Guidelines try to strike a balance between the formalistic limits of a charge-offense system and the potential for unfair excess of a real-offense system. It's not easy to do. The Guidelines' solution is a concept known as “relevant conduct.” See U.S.S.G. § 1B1.3. If a defendant pleads guilty to one crime but the prosecution thinks that he should be sentenced as well for other crimes, then these other crimes may count toward a defendant's offense level under the Guidelines if they qualify as “relevant conduct.” It is the meaning and limits of the Guidelines “relevant conduct” provision that is the focus of this ruling.

         Defendant Barton Stuck pleaded guilty to a $50, 000 fraud that occurred in late 2015. But the Government insists that for several years before, from 2006 to 2011, he raked in another $8.7 million by defrauding his investors. The Government did not charge Stuck with this prior fraud, but it argues that the prior fraud qualifies as “relevant conduct” and thereby warrants an enormous enhancement of several years' imprisonment for Stuck under the Sentencing Guidelines.

         I do not agree. I find that Stuck's uncharged fraud does not meet the definition of “relevant conduct” under the Sentencing Guidelines. And even if I were to conclude that the uncharged fraud met the definition of “relevant conduct, ” I would likely exercise my discretion to vary downward. In my view, it does not promote respect for the law for a court to accept a defendant's guilty plea on one charge and then to impose a sentence that is driven and dominated by much older conduct that the Government has not chosen to charge as a crime and to which the defendant has not admitted as part of his plea agreement.

         Background

         Defendant Barton Stuck controlled a group of related business entities-known as the “Signal Lake entities”-through which investors could invest in various technology companies. He solicited millions of dollars in investments until his funds failed in 2011, with large losses for many investors.

         The Government has filed a memorandum detailing specific losses to particular Signal Lake investors from 2006 to 2011. Doc. #50 at 4-19. Stuck does not dispute that his investors from that era lost money but he does dispute the Government's contention that these losses were due to his fraud. All told, the Government alleges that Stuck defrauded investors of about $8.7 million from 2006 to 2011, with the lion's share of these losses occurring before 2009. Ibid. The Government does not identify any specific investor losses occurring after April 2011.

         In response to investor complaints, the Federal Bureau of Investigation (FBI) launched a criminal investigation. In August and September 2015, an undercover FBI agent posed as a person who wished to buy out the Signal Lake stake of one of Stuck's investors. Stuck tried to defraud the undercover agent. He falsely assured the agent that his investment would quickly double in value. Stuck also wildly exaggerated Signal Lake's bank holdings. Stuck further solicited from the agent a $50, 000 “repayable fee, ” supposedly to cover the additional accounting and legal fees that Signal Lake would incur in the transfer of the investment interest. At Stuck's behest, the agent wired the “fee” of $50, 000 to a Wells Fargo account in October 2015.

         More than two years went by before the Government charged Stuck in February 2018 with wire fraud based on his effort to defraud the FBI undercover agent. Doc. #1. Stuck has entered a guilty plea to the wire fraud charge as well as to additional crimes of related money laundering and false statements to the U.S. Securities and Exchange Commission (SEC).^[1]

         Stuck now faces sentencing, but the parties do not agree on how the Sentencing Guidelines should apply in this case. Their disagreement is about how I should calculate “loss” for purposes of U.S.S.G. § 2B1.1(b). Although the parties agree that Stuck's “loss” calculation should include the $50, 000 that he solicited from the FBI agent in 2015, they disagree whether it should include any losses of the Signal Lake investors from 2006 to 2011. As noted above, the Government maintains that Stuck defrauded his investors of about $8.6 million from 2006 to 2011, and it suggests-consistent with a stipulation in the plea agreement-that I should adopt a conservative estimate of a total loss of $3.5 million for Sentencing Guidelines purposes.

         For a $50, 000 loss, Stuck's offense level would be increased by 6 levels. See U.S.S.G. § 2B1.1(b)(1)(D) (loss between $40, 000 to $95, 000). But for a $3.5 million loss, Stuck's offense level would be increased by 16 levels. See U.S.S.G. § 2B1.1(b)(1)(I) (loss between $1.5 and $3.5 million). Moreover, because the alleged fraud from 2006 to 2011 involved many more victims, Stuck's sentencing offense level would be subject to, as the presentence report recommends, an additional 2-level increase for more than 10 victims. See U.S.S.G. § 2B1.1(b)(2)(A)(i).

         The upshot is that, if I include Stuck's alleged investor fraud from 2006 to 2011 in the Guidelines calculation, Stuck's offense level will increase by at least 12 more levels. This increase would result in a Guidelines range for imprisonment that is about four times as high as it would be without these enhancements.^[2]

         The parties have filed extensive submissions and requested that I decide whether Stuck's prior fraud losses from 2006 to 2011 qualify as “relevant conduct” for purposes of the Sentencing Guidelines. Although Stuck reserves the right to contest the truth of the Government's allegations that he previously defrauded investors, his principal argument at this time is that-even accepting the Government's factual allegations as true-the prior losses at ...