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How is 'actual loss' calculated in a fraud case in federal court?

Answer:

One would think that in a case involving the theft of money or a financial fraud, the 'actual loss' would be the amount of money taken or stolen, right? It's not. 'Actual loss' is a term of art and it means not just real loss, but intended loss. Why does this matter? Because, under the Federal Sentencing Guidelines, the more the actual loss (or intended loss), the higher the sentence. But what if the actual loss is zero, that is, what if no one lost any money or had any money actually taken from them? As a Jacksonville criminal attorney, I have seen cases where prosecutors try to inflate loss figures, even when the real loss is minimal.

Consider the case of U.S. v. Markert, decided by the Eight Circuit Court of Appeals on Decenber 18, 2014. John Markert, while president of a bank, approved five nominee loans by the bank to friends and family of George Wintz, a good bank customer. The loan proceeds were used to cover a nearly $1.9 million overdraft in Wintz's checking account at the bank. Wintz borrowed more money from the bank than he could pay back and so persuaded five friends and family members to sign documents obligating them to repay all the money. Each nominal borrower understood that Wintz was the real borrower and would be responsible for principal and interest payments. So, in essence, the loans were not real loans. Furthermore, the loans were documented by Markert as investments in Wintz's business. While this practice was not legal, the bank was covered and suffered no losses.

A jury convicted Markert of willful misapplication of bank funds by a bank officer, because of the way he disguised the true nature of the loans and covered up the $1.9 million overdraft without informing the bank's board of trustees. Even though the bank didn't lose any money, the court found that Markert caused an 'actual loss' to the bank equal to the total amount of the nominee loans, that is, $1.9 million. That resulted in a staggering 16 level enhancement of Markert's sentence and a range of 87 to 108 months in prison. That's a long prison sentence (7-9 years) for someone who didn't actually steal any money!

Markert appealed his sentence and the higher court asked the prosecutors to prove actual loss, which they have the burden of doing. The prosecutors were unable to show an actual loss. Since the prosecutors couldn't prove any actual loss, the court determined that the actual loss to the bank was zero. It noted that actual loss is reasonably foreseeable pecuniary harm, that is, harm that is monetary. While the bank was caused to disburse loan proceeds to a borrower who defaulted (Wintz), the money never left the bank. The higher court thus reduced Markert's sentencing range to 12-18 months.

Lesson Learned:

Prosecutors always attempt to assert the highest loss figures possible in any fraud or theft case, because that means a longer prison sentence. This was a well thought out, reasoned and common sense decision by a higher court that realized a bank officer who mislabels loans to cover a potential bank loss of $1.9 million is not the same as a bank officer who steals $1.9 million. The prosecutors attempted to come up with a ridiculous loss figure which they were unable to prove.

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