The opinion of the court was delivered by: Conti, District Judge.
MEMORANDUM OPINION AND ORDER
On November 10, 2010, defendant Vasilia Berger ("Defendant" or "VB") pleaded guilty to Count I (wire fraud conspiracy, in violation of 18 U.S.C. § 1349) and Count II (money laundering conspiracy, in violation of 18 U.S.C. § 1956(h)) of the Indictment filed at the instant criminal action. The wire fraud conspiracy involved fraudulent activity undertaken in connection with mortgage brokerage businesses. For sentencing purposes the court must determine the loss amount attributable to Defendant under the United States Sentencing Guidelines (the "Guidelines"), U.S.S.G. §§ 1B1.3, 2B1.1. VB argues that the loss amount attributable to her is $2,863,171.78, which is more than $2,500,000 but less than $7,000,000. ECF No. 64 at 11, 30. Under her position, the base offense level should be increased by 18 levels. U.S.S.G. § 2B1.1(b)(1). The government, on the other hand, argues that the loss amount is between $20,000,000 and $40,000,000,*fn1 ECF No. 67 at 40, which would result in a 22-level increase to the base offense level. U.S.S.G. § 2B1.1(b)(1). After review, the court determines that the loss amount attributable to VB is $6,694,745.27, which is more than $2,500,000, but less than $7,000,000. For sentencing purposes under the Guidelines, VB's base offense level will be increased by 18 levels to reflect the loss amount attributable to her.
The conduct of the following individuals needs to be considered for
the purposes of determining the loss amount: VB, Jay Berger ("JB"),
Elleni Berger ("EB"), and Kenneth Cowden ("Cowden").*fn2
JB pleaded guilty to wire fraud conspiracy and money
laundering conspiracy, EB pleaded guilty to wire fraud conspiracy, and
Cowden pleaded guilty to conspiracy to commit offenses against the
During the relevant timeframe, VB owned and operated Steel City Mortgage ("SCM"), a mortgage brokerage business. ECF No. 60 at 5.*fn3 The business was first located in Munhall, Pennsylvania. It later moved to Freeport Road, Aspinwall, Pennsylvania, and then to Brilliant Avenue, also in Aspinwall, Pennsylvania. Id. at 125. JB owned and operated First Federated Mortgage ("FFM"), a mortgage brokerage business. Id. at 5. VB and JB were married in 2003 and merged their two businesses. ECF No. 47 at 1. By reason of the merger, those entities will sometimes be referred to as "SCM/FFM."
Cowden was a tax preparer who prepared income tax returns for JB. ECF No. 60 at 7. Sometime in 2000, JB introduced VB to Cowden. Cowden began preparing VB's tax returns.
Id. For both JB and VB, Cowden prepared tax returns understating their income. Id. at 7. Because JB liked the way Cowden "worked with the numbers", JB suggested Cowden become a real estate appraiser. Id. at 7. Cowden prepared some appraisals for FFM even though he was not a licensed real estate appraiser. Id. at 7-9.
Sometime prior to September 2000 (probably August 2000), VB introduced Cowden to Mr. Louis Spartis ("Spartis"), who was a licensed appraiser. Id. at 9, 11-12. VB arranged Cowden's meeting with Spartis. The purpose of the meeting was to determine whether Spartis would allow Cowden to use his license. Id. at 8, 10. Pursuant to the agreement which was drawn up by VB, Spartis would sign appraisals prepared by Cowden. Spartis was paid $2,000 per month for Cowden being able to use his name and license. Id. at 12. The formal agreement between Spartis and Cowden was witnessed by VB (at the time known as Vasilia Klimantis) and executed on September 1, 2000. Id. at 13; Ex. E. As part of the agreement, Spartis provided rubber stamps of his signature to Cowden and VB. Id. at 11. Except for the first three appraisals prepared under the agreement, Cowden issued appraisal reports under Spartis' rubber-stamped signature without first providing them to Spartis for his review. Id. at 12. Cowden was permitted to sign appraisals under Spartis' name for FFM and SCM only and he needed authorization from VB if he wanted to do appraisals for any other individual or entity. Id. at 15. Cowden prepared an average of forty appraisals per month and charged $300 per appraisal in 2000. Id. at 15. The agreement was in force in 2001. In 2001, Cowden prepared roughly 400 appraisals for FFM and SCM and earned $130,000. Id. at 15-16. An appraisal prepared by Cowden would overstate the value of the property a minimum of $20,000. On average, the value of a property would be overstated by $40,000. Id. at 17-18. Pictures of the relevant property being appraised would be altered to support the higher appraised value and the description of the condition of the property would not be accurate. Id. at 19.
EB, who is VB's sister, was also a mortgage broker. She owned and operated All Credit Finance ("ACF"). VB introduced Cowden to EB for the purpose of preparing EB's tax returns. Id. at 22. After Cowden was authorized by VB, he began preparing fraudulent appraisals for ACF. Id. at 22-23, 76. Cowden's appraisals for ACF were inaccurate in the same way as the appraisals he prepared for FFM and SCM and contained similar misrepresentations. Appraisals prepared for SCM, however, were more "aggressive" in that VB would ask Cowden to overstate the values and alter the pictures more than EB would. Id. at 24.
With respect to the way the appraisals were prepared, Cowden testified that VB would tell him to what extent the value of a property was to be inflated, what features the "pictures" were to show, and whether there were other specific requests for misrepresenting the property, its condition, its value, or its features. Id. at 17-21. While at the beginning of the arrangement Cowden would actually check the property for which the appraisal was to be prepared, later on Cowden did not check because he was told by VB, in essence, that it was not necessary. Id. at 20.
Sometime before February 15, 2002, investigators from the Pennsylvania State Board of Certified Real Estate Appraisers (the "Board") approached Cowden regarding an investigation into violations of the Pennsylvania Real Estate Appraisers Certification Act, 63 PA. STAT. ANN. § 457.1, et seq. Cowden informed VB, JB, and EB about the questioning. Id. at 27. After conducting its investigation, the Board, on February 15, 2002, issued an order directing Cowden to cease and desist from performing real estate appraisals and fined him $10,000. Id. at 28. Because Cowden failed to contact the Board, the fine was raised to $15,000. Id. Cowden notified JB, VB and EB that he had been fined and ordered not to perform appraisals. Id. at 29. Cowden did not stop performing fraudulent appraisals and VB, JB and EB did not stop using his services. Id. One week before the fine was due, Cowden contacted JB about the fine, hoping that he might borrow some money from him to pay the fine. JB instead told him not to worry about the fine because "it would be paid." Id. at 30. Within a day from this conversation, JB faxed Cowden "a copy of the check that it was paid on and advised that it was not a loan . . . [and] that [SCM], [ACF], and [FFM] each paid five thousand dollars of it. They figured it was worth it to keep me in business." Id. at 30
Because Cowden could no longer use Spartis' name, Cowden contacted other mortgage brokers, including VB, to find out whether they were willing to provide him with the name of a licensed appraiser who would be willing to "work with him." Id. at 30-31. Cowden promised shorter turnarounds for issuing appraisals to brokers who provided names of willing licensed appraisers. Id. Cowden initiated the search for a broker willing to lend his name to fraudulent appraisals. Id. at 67. Eventually, Raymond Faber ("Faber"), an employee of EB's company, was the first one willing to "work with him" in issuing fraudulent appraisals. Id. at 31.
Cowden later "worked with" several other licensed appraisers for the purpose of issuing fraudulent appraisals for SCM, FFM, and ACF, and other mortgage brokers. Id. at 34. Cowden spoke with VB on a daily basis about the "business" and discussed with her that he was operating under different names given state investigators were "watching" him. Id. at 33. VB was aware that Cowden was providing his services to mortgage brokers, other than SCM/FFM and ACF, using other appraisers' names. Id. at 37. This way of doing business went on for several years (until 2005) when the FBI conducted a search of Cowden's residence. Id. at 31, 172-73.
Another witness for the government, Michelle Sacramento ("Sacramento"), testified about the scheme. Sacramento worked for VB's company, SCM, from 2000 to 2004. In 2005 she worked for EB's company, ACF. Id. at 104. Sacramento described her job as follows: "I held the same position at both companies and performed the same actions in regards to the fraudulent activity of both companies. There really wasn't any difference at either place as far as my job duties were concerned." Id. at 118. Sacramento was aware that Cowden was providing fraudulent appraisals and that EB and VB jointly paid the $15,000 fine imposed by the Board. Id. at 108-09. As described by Sacramento, the criminal enterprise included more than fraudulent appraisals. Specifically, the "creative financing", a term used within SCF and ACF to describe their common illegal practices, included: fraudulent verifications of employment, fraudulent verifications of deposit, fraudulent homeowner's insurance policies, fraudulent payment histories, fraudulent pay stubs, fraudulent bank statements, fraudulent checks and verifications of mortgage, fraudulent CPA letters, and more. Id. at 110-22. The person supervising the "creative financing" at SCM was VB, while EB directed similar practices at ACF. Id. at 119. SCM/FFM and ACF used Pittsburgh Settlement Company ("PSC") for closings. Id. at 122. PSC was operated by JB and VB. Id. Sacramento testified that VB and EB were "very close" and that she overheard conversations between them in which they were talking about some of the "creative financing" techniques mentioned above. Id. at 124.
When Cowden first started preparing fraudulent appraisals (2000-2001), he was doing it only for SCM and FFM and did not keep a record of all transactions. Later on, when he started preparing appraisals for other brokers, Cowden developed and maintained a "rack sheet". Id. at 17. The "rack sheet" was a "listing of every appraisal that was received in [his] office, every request for an appraisal to be done by a company, by date, by who requested it. Id. at 43. There are 2,233 transactions listed on the rack sheet. Gov't Ex. A.
From the rack sheet, the government created several spreadsheets which were different subsets of the entire "rack sheet", including, Government Exhibit B (Cowden's appraisals between 2002 and 2005 prepared for SCM/FFM and ACF), Government Exhibit C (Cowden's appraisals for SCM and FFM), and Government Exhibit D (79 properties which went through foreclosure and for which SCM/FFM requested an appraisal from Cowden).
After holding hearings to determine the loss amount for the purpose of sentencing, VB filed her proposed findings of fact and conclusions of law (ECF No. 64) and the government filed its proposed findings of facts and conclusions of law (ECF No. 67).
In United States v. Duliga, 204 F.3d 97 (3d Cir. 2000), the Court of Appeals for the Third Circuit stated:
Under U.S.S.G. § 2F1.1(a) [now U.S.S.G. § 2B1.1(a)], a defendant convicted of a crime of fraud receives a base offense level of six [or seven]. This offense level, however, is subject to increase depending on the amount of loss generated by the fraud. See U.S.S.G. § 2F1.1(b) [now U.S.S.G. § 2B1.1(b)]; see also United States v. Boatner, 99 F.3d 831, 835 (7th Cir. 1996). In calculating the amount of loss generated by the fraud, a sentencing court obviously may include amounts directly attributable to the fraudulent conduct of the defendant. See U.S.S.G. § 1B1.3(a)(1)(A). In addition, where, as here, the crime of fraud for which the defendant has been convicted involves jointly undertaken criminal activity, the sentencing court may also attribute to the defendant amounts of loss resulting from the "reasonably foreseeable acts and omissions of others in furtherance of the jointly undertaken criminal activity." See U.S.S.G. § 1B1.3(a)(1)(B); see also Boatner, 99 F.3d at 835. However, to do so, the loss resulting from the acts or omissions of others must be: (1) in furtherance of the jointly undertaken activity; (2) within the scope of the defendant's agreement; and (3) reasonably foreseeable in connection with the criminal activity the defendant agreed to undertake. See United States v. Evans, 155 F.3d 245, 254 (3d Cir.1998); United States v. Price, 13 F.3d 711, 732 (3d Cir.1994); United States v. Collado, 975 F.2d 985, 995 (3d Cir. 1992).
Additionally, the Court of Appeals for the Third Circuit commented on the burden of proof applicable to the determination of loss amounts:
The Government bears the burden of establishing, by a preponderance of the evidence, the amount of the loss for purposes of the sentencing enhancement. See United States v. Napier, 273 F.3d 276, 279 (3d Cir. 2001), cert. denied, 535 U.S. 1066, 122 S.Ct. 1937, 152 L.Ed.2d 842 (2002). Although the burden of persuasion remains with the Government, once the Government makes out a prima facie case of the loss amount, the burden of production shifts to the defendant to provide evidence that the Government's evidence is incomplete or inaccurate. [United States v.] Geevers, 226 F.3d , 193 (3d Cir. 2000)]. United States v. Jimenez, 513 F.3d 62, 86 (3d Cir. 2008).
The loss amount need not be proved with absolute certainty. The Court of Appeals for the Third Circuit noted: "[t]o determine loss, a sentencing court 'need only make a reasonable estimate' based on the available evidence--precision is not required. United States v. Ali, 508 F.3d 136, 145 (3d Cir.2007) (quoting U.S.S.G. § 2B1.1 cmt. 3(C))." United States v. Norman, Nos. 08-1658, 08-3876, 08-3849, 08-3969, 08-4556, 08-4816, 2012 WL 719342, at *8 (3d Cir. Mar. 7, 2012).
Given the nature of the wire fraud conspiracy and the evidence presented, it is a difficult, if not daunting, task for the court to determine the appropriate loss amount under the relevant Guidelines. Defendant argues that the loss amount attributable to her is more than $2,500,000 but less than $7,000,000. The government, on the other hand, argues that the loss amount is between $20,000,000 and $40,000,000. In any event, the base offense level must be increased by several levels. The only question is whether the base offense level should be increased by 18 levels, as suggested by Defendant, by 22 levels, as suggested by the government, or some other level based upon this court's determination of the amount of loss attributable to Defendant. The court will first need to consider the scope of the jointly undertaken criminal activity and second will need to determine a reasonable estimate of the loss amount. With respect to the scope of jointly undertaken criminal activities the court will need to determine whether, as the government argues, EB's criminal activities and the criminal activities of other mortgage brokers were jointly undertaken with VB.
A. Scope of the Jointly Undertaken Criminal Activity*fn4
1) Criminal Activities of EB
One major area of contention is whether the losses attributed to ACF, EB's company, should be included in the loss amount attributable to VB for the purpose of determining the actual guideline range for her sentence. Upon consideration, the court concludes that those losses should be attributable to VB. As explained below, the criminal activities of EB and VB were jointly undertaken.
Section 1B1.3 of the Guidelines promulgated by the United States Sentencing Commission, in relevant part, provides:
(a) Chapters Two (Offense Conduct) and Three (Adjustments). Unless otherwise specified, (i) the base offense level where the guideline specifies more than one base offense level, (ii) specific offense characteristics and (iii) cross references in Chapter Two, and (iv) adjustments in Chapter Three, shall be determined on the basis of the following:
(1)(A) all acts and omissions committed, aided, abetted, counseled, commanded, induced, procured, or willfully caused by the defendant; and
(B) in the case of a jointly undertaken criminal activity (a criminal plan, scheme, endeavor, or enterprise undertaken by the defendant in concert with others, whether or not charged as a conspiracy), all reasonably foreseeable acts and omissions of others in furtherance of the jointly undertaken criminal activity, that occurred during the commission of the offense of conviction, in preparation for that offense, or in the course of attempting to avoid detection or responsibility for that offense; . . . .
U.S.S.G. § 1B1.3(1)(A)-(B).
The Court of Appeals for the Third Circuit discussed what kind of losses would be included under § 1B1.3 "[i]n order to be included in determining the defendant's offense level, the loss resulting from the acts or omissions of others must be: '(1) in furtherance of the jointly undertaken activity; (2) within the scope of the defendant's agreement; and (3) reasonably foreseeable in connection with the criminal activity the defendant agreed to undertake.' " United States v. Gricco, 277 F.3d 339, 356 (3d Cir.2002) (quoting United States v. Duliga, 204 F.3d 97, 100 (3d Cir. 2000)).
United States v. Robinson, 603 F.3d 230, 233 (3d Cir. 2010).
The commentary to § 1B1.3 of the Guidelines, in relevant part, states:
1.The principles and limits of sentencing accountability under this guideline are not always the same as the principles and limits of criminal liability. Under subsections (a)(1) and (a)(2), the focus is on the specific acts and omissions for which the defendant is to be held accountable in determining the applicable guideline range, rather than on whether the defendant is criminally liable for an offense as a principal, accomplice, or conspirator.
2.A "jointly undertaken criminal activity" is a criminal plan, scheme, endeavor, or enterprise undertaken by the defendant in concert with others, whether or not charged as a conspiracy.
In the case of a jointly undertaken criminal activity, subsection (a)(1)(B) provides that a defendant is accountable for the conduct (acts and omissions) of others that was both: (A) in furtherance of the jointly undertaken criminal activity; and (B) reasonably foreseeable in connection with that criminal activity.
Because a count may be worded broadly and include the conduct of many participants over a period of time, the scope of the criminal activity jointly undertaken by the defendant (the "jointly undertaken criminal activity") is not necessarily the same as the scope of the entire conspiracy, and hence relevant conduct is not necessarily the same for every participant. In order to determine the defendant's accountability for the conduct of others under subsection (a)(1)(B), the court must first determine the scope of the criminal activity the particular defendant agreed to jointly undertake (i.e., the scope of the specific conduct and objectives embraced by the defendant's agreement). The conduct of others that was both in furtherance of, and reasonably foreseeable in connection with, the criminal activity jointly undertaken by the defendant is relevant conduct under this provision. The conduct of others that was not in furtherance of the criminal activity jointly undertaken by the defendant, or was not reasonably foreseeable in connection with that criminal activity, is not relevant conduct under this provision.
In determining the scope of the criminal activity that the particular defendant agreed to jointly undertake (i.e., the scope of the specific conduct and objectives embraced by the defendant's agreement), the court may consider any explicit agreement or implicit agreement fairly inferred from the conduct of the defendant and others.
Note that the criminal activity that the defendant agreed to jointly undertake, and the reasonably foreseeable conduct of others in furtherance of that criminal activity, are not necessarily identical. For example, two defendants agree to commit a robbery and, during the course of that robbery, the first defendant assaults and injures a victim. The second defendant is accountable for the assault and injury to the victim (even if the second defendant had not agreed to the assault and had cautioned the first defendant to be careful not to hurt anyone) because the assaultive conduct was in furtherance of the jointly undertaken criminal activity (the robbery) and was reasonably foreseeable in connection with that criminal activity (given the nature of the offense).
U.S.S.G. § 1B1.3, cmt. n.1, 2 (2011) (emphasis added).
In United States v. Collado, 975 F.2d 985 (3d Cir. 1992), which dealt with criminal activities involving controlled substances, the Court ...