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United States v. Poulson

United States Court of Appeals, Third Circuit

September 14, 2017


          Submitted under Third Circuit L.A.R. 34.1(a) on April 28, 2017

         On Appeal from the District Court for the District of New Jersey (District Court No. 1-14-cr-00309-001) District Court Judge: Honorable Renee M. Bumb

          Mark E. Coyne Office of United States Attorney Deborah P. Mikkelsen Office of United States Attorney Camden Federal Building & Courthouse Counsel for Plaintiff-Appellee United States of America

          Robert Epstein Brett G. Sweitzer Federal Community Defender Office for the Eastern District of Pennsylvania Counsel for Defendant-Appellant Randy Poulson

          Before: McKEE, VANASKIE and RENDELL, Circuit Judges


          RENDELL, Circuit Judge

         From 2006 through 2011, Appellant Randy Poulson tricked homeowners facing foreclosure into selling him their homes and engaged in a multi-million-dollar Ponzi scheme that defrauded investors in those distressed properties. Poulson pleaded guilty to one count of mail fraud in violation of 18 U.S.C. § 1341, and the District Court calculated his total fraud to be $2, 721, 240.94. The District Court concluded that this fraud resulted in "substantial financial hardship" for more than twenty-five victims. The District Court accordingly sentenced Poulson to 70 months' imprisonment followed by three years of supervised release. As a condition of supervised release, the District Court prohibited Poulson from working in the real estate industry for five years. Poulson now appeals, urging that the District Court erred with respect to two aspects of his sentence: (1) the District Court's determination of the number of victims who, as a result of Poulson's fraud, suffered a "substantial financial hardship" under § 2B1.1 of the U.S. Sentencing Guidelines ("Guidelines"), and (2) the District Court's imposition of a five-year occupational restriction as part of the terms of his supervised release. Because we conclude that the District Court properly used the considerable discretion afforded to it by § 2B1.1, we will affirm the District Court's finding as to the number of victims who endured a "substantial financial hardship" under the Guidelines. We agree with Poulson, however, that the District Court erred in imposing the five-year occupational restriction on his three-year term of supervised release, and we will vacate and remand the case to the District Court to correct the sentence with respect to the terms of Poulson's supervised release only.


         Beginning around July 2006, Poulson used a variety of sources to construct and perpetuate a fraudulent real estate investment scheme. Poulson targeted homeowners facing foreclosure on their properties and offered to purchase the deeds to their residences, falsely promising that he would pay their mortgages in return for the sales. He conducted these transactions through Equity Capital Investments, LLC ("Equity Capital"), a limited liability real estate investment company that he established. Poulson ultimately acquired the deeds to more than twenty-five distressed homeowners' residences.

         Poulson also established Poulson Russo LLC, a real estate investment education company through which he organized speeches, seminars, monthly dinners, and private tutorials that purported to teach real estate investing tips to individuals who paid fees to attend the events. Poulson solicited the attendees at these events to invest in Equity Capital and falsely claimed in written and oral materials that the investors' money would be used to fund the purchase, maintenance, and improvement of specific residential properties. He also drew on his contacts from the South Jersey Real Estate Investors Association, where he had previously served as president, as well as on family and friends.

         Poulson ultimately convinced over fifty people to invest in Equity Capital, and those investors sent him their money either by wire transfer or through the U.S. Postal Service. Poulson promised them that their money would be used to purchase and improve properties, which would then be rented, and he assured them that their investments would be secured by mortgages. The investors typically executed promissory notes with Equity Capital that guaranteed a 10% to 20% return, monthly interest payments, and a fixed maturity date. Poulson used the properties he had purchased from the distressed homeowners to secure the promissory notes, but with a group of over fifty investors, he often used-unbeknownst to them-the same properties to secure multiple investments. Poulson also used the funds invested to finance his personal expenses.

         When this "business model" began to "unravel and fall apart, " A. 213, Poulson fashioned a classic Ponzi scheme and used newly obtained money to repay earlier investors. The scheme soon collapsed, eventually leading Poulson to stop paying the monthly mortgages on the properties and causing those mortgages to go into foreclosure-all without the distressed homeowners' knowledge. Poulson's fraud ultimately cost over fifty of his investors more than $2.7 million.

         On June 23, 2015, Poulson pleaded guilty to one count of mail fraud in violation of 18 U.S.C. § 1341. Poulson's sentencing took place over the course of two days. At the first sentencing hearing, held on December 16, 2015, the District Court recognized that the term "substantial financial hardship" was a "new provision" in the 2015 Guidelines that increases an offense level based on the extent of harm that particular victims suffer as opposed to the previous version of the enhancement that looked primarily at the total number of victims.[1] (A. 116.)

         At the second sentencing hearing on January 20, 2016, the District Court addressed Poulson's objection regarding the application of § 2B1.1 as it related to certain victims. The District Court examined the contours of the newly amended enhancement and rejected Poulson's contention that it needed to know "how much money [each victim] started with" in order to determine whether a "substantial financial hardship" occurred. (A. 169.) The District Court reasoned:

I don't care if it was someone who started with a million dollars or a hundred thousand dollars, if they filed for bankruptcy because they lost their money they qualified. . . . It is hard to envision that what is contemplated by this [G]uideline is that the victims must come forward and lay out their financial wherewithal. . . . It seems to me that if victims fill out a victim statement or a victim declaration and say that they lost their retirement funds, not all but some, that they had to file bankruptcy, that they had to move in with their daughter or whatever, that those are substantial financial hardships. We're not talking about the Donald Trumps.

(A. 170-71.) The District Court then reviewed and incorporated the impact statements submitted by the victims into its findings, using them to determine whether each victim suffered a "substantial financial hardship." It ultimately found that at least twenty-five victims had experienced this type of harm.

         The District Court's computation of Poulson's offense level under the 2015 Guidelines[2] went as follows: Poulson's offense under 18 U.S.C. § 1341 put him at a base offense level of seven. U.S.S.G. § 2B1.1(a)(1). The District Court found that the amount of the loss ranged between $1.5 million and $3.5 million, increasing the offense level by sixteen, U.S.S.G. § 2B1.1 (b)(1)(I), and that over twenty-five investors endured a "substantial financial hardship, " increasing the offense level by six, U.S.S.G. § 2B1.1(b)(2)(C). The District Court also found that the "sophisticated means" and "obstruction of justice" enhancements, which would have each increased the offense level by two, U.S.S.G. §§ 2B1.1(b)(10) and 3C1.1, did not apply. With the total offense level then at 29, the District Court found that Poulson deserved credit for accepting responsibility under U.S.S.G. §§ 3E1.1(a) and (b), and it reduced the offense level to twenty-six. This calculation placed Poulson's sentence in a range of 63 to 78 months' imprisonment under the Guidelines. The District Court then analyzed the 18 U.S.C. § 3553(a) factors and sentenced Poulson to 70 months' imprisonment followed by three years of supervised release with an occupational restriction that barred him from working in the real estate industry for five years.[3] This timely appealed followed.


         A. "Substantial Financial Hardship"

         Poulson challenges the District Court's application of the § 2B1.1 enhancement based on eight victims who Poulson contends did not suffer the level of "substantial financial hardship" contemplated by the Guidelines. If the District Court had correctly applied the enhancement, Poulson argues, "it would have counted fewer than 25 victims who suffered such hardship, and thus it would not have triggered the 6-level increase." (Appellant's Br. 11.) We will first address the enhancement in general and then turn to the specific victims whose inclusion Poulson challenges.

         Section 2B1.1 of the Guidelines provides for increased offense levels for economic crimes that "result[] in substantial financial hardship" to victims. U.S.S.G. § 2B1.1(b)(2)(A)- (C). This enhancement is a recent addition to the Guidelines that took effect on November 1, 2015. It advises sentencing courts to consider the extent of the harm rather than merely the total number of victims of the offense (as its predecessor did) in an effort to "place greater emphasis on the extent of harm that particular victims suffer as a result of the offense." Sentencing Guidelines for the United States Courts, 80 Fed. Reg. 25, 782, 25, 791 (May 5, 2015). The newly amended § 2B1.1 is thus "[c]onsistent with the Commission's overall goal of focusing more on victim harm" and "ensures that an offense that results in even one victim suffering substantial financial harm receives increased punishment, while also ...

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