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Is credit given if some of the money is paid back to defrauded investors?


Yes, the court should. Ponzi schemes seem to stand the test of time. There never seems to be a shortage of people willing to invest in a so-called 'sure thing'. And people continue to perpetrate these crimes without the thought of the prison time they risk going forward with these schemes. As a Jacksonville criminal lawyer, I have seen many such schemes.

Consider the recent decision in U.S. v. Snelling, decided September 22, 2014 by the sixth Circuit Court of Appeals. Jasen Snelling defrauded investors in a classic Ponzi scheme by soliciting funds for two fictitious financial companies. These companies supposedly invested their clients ' money in overseas mutual funds and promised investors an annual return of 10-15%. In reality, Snelling and his partner simply paid back earlier investors with a portion of the new investor's money The remainder of the new deposits were used by Snelling and his partner to live extravagantly. They issued false quarterly statements and submitted false trading-account statements to a federal grand jury. The documents reflected a balance of $8.5 million in their accounts when, in fact, they held just $995.88.

Snelling plead guilty to conspiracy to commit mail and wire fraud, tax evasion and obstruction of justice ( he could have avoided the obstruction count had he not submitted false documents to the grand jury). The only real issue was how much prison time Snelling would get. The federal sentencing guidelines take into account the overall amount of money that was taken. The more money taken, the more prison time.

In federal court, a probation office prepares a Presentence Investigation Report (PSR) which contains, among other things, a calculation reflecting a total loss figure (in cases of theft). And, as you might think, the higher the calculation, the more prison time one faces. While these reports are supposed to be objective, they are, in my opinion, often skewed to support the prosecutors viewpoint and seek to calculate the highest amount of prison time possible. Judges consider these PSR's very carefully and give them great weight.

In this case, the probation officer came up with a total loss figure of $7,000,000. (a figure likely supplied by the prosecutor). Snelling, on the other hand, took the position that he should receive credit for the money he returned to the victims (the earlier investors) during the scheme and came up with his own loss figure, that is, $5,336,187.78. The prosecutors believed that Snelling should not receive credit for the money he paid back to the earlier investors because this was done only to perpetuate the scheme. The court came up with it's own, even higher loss calculation of $8,924,451.46, based on total amount of money taken in by the Ponzi scheme from its investor victims. As a result, this high loss figure translated into a prison sentence of 121-151 months (the court settled on 131 months), significantly higher than Snelling's calculations of a range of 97-121 months. Snelling appealed his sentence.

The appeals court agreed with Snelling, that the loss figure the district court came up with should be reduced by the amount of money he returned to the earlier investors. Snelling's case will be sent back to the district court, where he will be re-sentenced to less prison time.

Lesson Learned:

Since the massive Ponzi scheme orchestrated by Bernard Madoff, in which thousands of investors lost their life savings (see my blog of July 3 ,2014), the courts have treated white collar schemers of this type with little sympathy. Judges will try to find a way to throw the book at these individuals. In any case regarding the theft of money, a good criminal defense lawyer must carefully scrutinize any loss figures calculated by the courts and be ready to calculate their own realistic loss figures in order to have their clients avoid unnecessarily lengthy prison sentences.

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