Opinion
Case No. 1:05-CR-65.
April 13, 2006
ORDER
Defendant Erica Crum pleaded guilty to a three count information charging her with conspiracy to commit mail fraud affecting a financial institution, in violation of 18 U.S.C. § 371 (Count 1), mail fraud affecting a financial institution, in violation of 18 U.S.C. § 1341 (Count 2), and money laundering, in violation of 18 U.S.C. § 1956(a)(1)(B)(i) (Count 3). As described in the information and the statement of facts accompanying the plea agreement, these charges arose out of a property flipping scheme in which, inter alia, the Defendant, acting as a mortgage broker, submitted false documents to lending institutions to secure financing for buyers of real property with artificially inflated sales prices.
For purposes of calculating the Sentencing Guidelines offense level, the presentence investigation report established an intended loss of $1,748,726.63 from the Defendant's offenses. PSI ¶ 46. However, because of the complexity of the fraud involved, the probation officer was not able to determine the amount of restitution owed to victims of the Defendant's offenses at the time of sentencing on December 29, 2005. PSI ¶ 97. Therefore, pursuant to 18 U.S.C. § 3664(d)(5), the Court established February 28, 2006 as the deadline for the government to identify victims of the Defendant's offenses and the amounts of restitution claimed. This matter then came before the Court on April 10, 2006 for a final evidentiary hearing on the restitution obligation to be imposed.
The government identified only three potential victims of the Defendant's offenses, the first two of which may be readily disposed of as claimants. Fremont Investment Loan company notified the Court that it actually has suffered no losses as a result of loans initiated by the Defendant. See Doc. No. 20. Ashore Funding claimed a loss of $18,213.56 from the Defendant's offenses. This claimed loss, however, was unsubstantiated. Ashore Funding claims that it extended a loan to an Ed Mincy based on allegedly falsified leases created by the Defendant. The government, however, presented no documentation or evidence in support of Ashore Funding's claim that the lease documents behind the loan were in fact falsified and the witness who testified as to this loan, Liz Venn, had no first hand knowledge of the transaction. Moreover, the presentence investigation report indicates that the Defendant and Ashore Funding agreed to a civil settlement in regards to this loan. PSI ¶ 71; United States v. McDaniel, 398 F.3d 540, 555 (6th Cir. 2005) (victim may not obtain multiple recoveries for the same loss). Accordingly, the government failed to sustain its burden of proof with respect to the claim of Ashore Funding.
The government bears the burden demonstrating the amount of loss sustained by a victim by a preponderance of the evidence. 18 U.S.C. § 3664(e).
The final and most problematic claimant is Alfred Sagrati. Sagrati claims a loss of $16,799.96 arising out of his November 2003 sale of 4824 Laurel Avenue, Blue Ash, Ohio to Stuart Baker and Doreen Reinhart (collectively "the Bakers"). The Defendant was the mortgage broker on this transaction. Sagrati contends that the Defendant paid him only $10,509.38 of the $27,309.34 that was due him at the closing according to his HUD-1 statement. There are problems with Sagrati's claim, however, which transcend the illegibility of the documentation he submitted to the Court.
The Mandatory Victims Restitution Act ("MVRA"), 18 U.S.C. § 3663A, applies in this case, United States v. Jamieson, 427 F.3d 394, 418 (6th Cir. 2005), and requires the Court to order the Defendant to pay full restitution to the victims of her offense regardless of her ability to pay. 18 U.S.C. § 3664(f)(1)(A). Under the MVRA, a "victim" is "a person directly and proximately harmed as a result of the commission of an offense for which restitution may be ordered including, in the case of an offense that involves as an element a scheme, conspiracy, or pattern of criminal activity, any person directly harmed by the defendant's criminal conduct in the course of the scheme, conspiracy, or pattern." 18 U.S.C. § 3663A(a)(2). The Court is also required to impose a restitution obligation if so agreed by the parties in a plea agreement. Id. § 3663A(a)(2). Thus, as explained by the Seventh Circuit, under the MVRA the Court is authorized to order restitution be paid: 1) to a victim directly harmed by the specific conduct that is the basis of the offense of conviction; 2) to a victim who is directly harmed by the offender's conduct in the course of committing an offense that involves as an element a scheme, conspiracy, or pattern; or 3) as agreed to in a plea agreement. United States v. Randle, 324 F.3d 550, 556 (7th Cir. 2003).
In this case, Sagrati does not fall within the first category of victims because he was not directly harmed by the specific conduct that is the basis of the offense of conviction. As stated, the Defendant was charged with and pleaded guilty to defrauding financial institutions. Sagrati, an individual and a seller of property, was not a financial institution and thus was not directly harmed by conduct of the offense of conviction. The plea agreement provides only that the Defendant shall pay restitution "on a schedule and in an amount to be determined by the Court." Plea Agreement (Doc. No. 2) ¶ 3(f). Therefore, there was no explicit agreement between the Defendant and the United States to pay restitution to Sagrati or to sellers of property as a class of victims affected by the fraud. Consequently, Sagrati does not fall within the third class of victims. Thus, the question is whether Sagrati is a victim who was directly harmed by the Defendant's conduct in the course of committing an offense that involves as an element a scheme, conspiracy, or pattern. In this case, however, the record tends to show that Sagrati was not so much a victim of the Defendant's fraudulent conduct as he was a participant in it.
While the Defendant also pleaded guilty to money laundering, society at large is generally considered to be the victim of this offense. United States v. Szur, 289 F.3d 200, 215 (2nd Cir. 2002).
The testimony adduced at the evidentiary hearing showed that Sagrati bought 4824 Laurel Avenue as investment at the suggestion of his daughter, Laura Sagrati, for about $85,000. Unfortunately, Sagrati's home inspector was not as diligent as he might have been and failed to detect several major flaws in the house. These omissions caused Sagrati to spend tens of thousands of dollars in repairs to the house before it could be sold. It was evident from his testimony that Sagrati was frustrated with his ownership of this property and wished to be rid of it.
Sagrati was renting 4824 Laurel Avenue to the Bakers at this time and they were interested in buying it from him. It should also be noted that during this time, Alfred Sagrati, Laura Sagrati, and the Defendant were close friends. In any event, it is not disputed that the Defendant structured the deal and facilitated the sale of Sagrati's property to the Bakers. According to the Defendant's testimony, Sagrati set a purchase price of about $130,000 because he wanted to net approximately $13,000 from the sale of the house. The Bakers, while interested in buying the property, were only eligible to borrow 90% of the purchase price. The Defendant testified that she told Sagrati that if the property were appraised higher, she could arrange a down payment for the Bakers in a transaction which would net him $13,000 in proceeds. Defendant further testified that Sagrati was "Okay with that."
It is undisputed that Sagrati's other daughter, Christina Bayliss, ultimately performed the appraisal for the transaction and that she appraised the house for $145,000. The Defendant's records show that she advanced the Bakers $14,800 for their down payment, which she later recovered out of the loan proceeds. Although the HUD statement indicates that the seller was due $27,309.34, Sagrati, who was out of the country at the time of the closing, claims that he was unaware that the Defendant failed pay him all of the proceeds he was due from the sale until two years later because he kept getting utility bills for the property. It was then that he learned that the title company had not transferred the title to the property to the Bakers, which in turn apparently prompted him to review his records from the transaction. Defendant contends that despite what the HUD statement shows the seller was to be paid, Sagrati expected and agreed that he was going to net approximately $13,000, not $27,000, from the sale of the property.
Laura handled the closing on his behalf as power-of-attorney.
On this record, the Court finds that Sagrati's claim to be a victim of the Defendant's offenses lacks credibility and that, therefore, he is not a "victim" under the MVRA. A number of factors, when considered together, lead the Court to this conclusion. First, as the presentence investigation report indicates, a successful flipping scheme typically targets a lender and requires the cooperation and collusion of a buyer, a seller, a title agent, a mortgage broker, and an appraiser. Thus, Sagrati, as a seller of property, would more likely be a participant in a flipping scheme than a victim of one. Second, at the time of the transaction, the Defendant and the Sagratis were friends, which would have made it easier for them to collude together in a flipping transaction. Third, Sagrati had a motive for disposing of the property as quickly as possible. The property turned out to be a poor investment and he needed cash for traveling. Fourth, Sagrati's daughter Christina Bayliss performed the property appraisal for the transaction. Since her father was a party to the transaction, Bayliss obviously had a conflict-of-interest in performing the appraisal. Moreover, an appraisal indicating a 70% appreciation in the property after only two years of ownership is inherently suspect, particularly given the extensive repairs the house required just to make it worth the original purchase price. Fifth and finally, even though he was out of the country at the time, Sagrati's claim that he did not realize he was due an additional $16,000 from the sale until two years later lacks credibility. Were this truly an arm's-length transaction, it would have been immediately apparent to even a casual observer that something was amiss. Indeed, as his representative at a legitimate transaction, Laura Sagrati should not have concluded the closing without receiving a check for the amount indicated by the HUD-1 statement. The fact that the transaction went through despite what otherwise would appear to be a glaring breach of the terms of the sale supports the Defendant's contention that Sagrati received what he expected from the deal. For all of those reasons, this record does not support a conclusion that Alfred Sagrati was a victim of the Defendant's offenses.
In summary, the Court finds that the government has not sustained its burden of showing that any victim is entitled to restitution as a result of the Defendant's offenses. Accordingly, the Court shall not impose a restitution obligation as a part of the Defendant's sentence.
IT IS SO ORDERED.