Wednesday, May 05, 2021

When calculating intended loss, the question is not whether the defendant could have sold the items at the prices claimed by the government but whether the defendant intended to do so

The defendant in United States v. Kirschner,  __ F.3d __, 2021 WL 1570250 (3d Cir. April 22, 2021), imported counterfeit coins and bullion and then, posing as a federal law enforcement agent, sold them as genuine articles to unsuspecting customers. While most of the counterfeit coins and bars were common collector items, priced at approximately $100 each, a small minority of the coins were counterfeits of exceptionally rare coins. Despite the extreme rarity of the coins, the government attempted to estimate the fair market value of the rare coins as it had the fair market value of the common collector coins. The government estimated that the intended loss of the rare coins accounted for approximately 97 percent of the total estimated intended loss.

On appeal, Kirschner argued that the district court never found that he purposely sought to inflict the losses the government argued he intended to inflict on the rare coins because he never had access to the markets presupposed by the government's fair market value methodology, i.e., ultra-wealthy collectors like King Farouk of Egypt, never attempted to access such markets, had no knowledge of the prices for which genuine versions of the rare coins had sold, and never would have attempted to sell the coins at those prices.

The Third Circuit agreed. While the district court focused on what Kirschner intended to do with the rare coin counterfeits, it never found Kirschner intended to sell the rare coin counterfeits for the prices the government claimed. The principal question for the Third Circuit was not whether Kirschner could have sold the high-value counterfeits at the prices claimed by the government. The question is whether he intended to. Indeed, the District Court admitted that it did not know “[w]hat [Kirschner] intended to do specifically, logistically, with these valuable coins,” only that, “by a preponderance of the evidence, at some point he was going to try to sell those coins as legitimate coins.” 

The Third Circuit held that, in order to estimate the losses a defendant intended to cause his victims under U.S.S.G. § 2B1.1 cmt. n.3(C), a district court must conduct a “deeper analysis” to make sure the defendant purposely sought to inflict each component of the losses the government claims he intended to inflict. In conducting that analysis, the court is free to make reasonable inferences about the defendant's mental state from the available facts. The government need only prove a defendant's intent by a preponderance of the evidence, and the court need only make a “reasonable estimate” of the intended loss. If the losses associated with the defendant's past conduct are easily extrapolated to losses the defendant intended to cause in the future (as in stealing credit cards and charging the same amount on each before discarding), the district court is free to estimate intended losses using one governing methodology (say, number of stolen but unused cards times dollar amount charged on used and discarded cards). But if the losses associated with the defendant's past conduct do not neatly map to intended future losses, the district court must finely tune its methodology to ensure it does not underestimate or overestimate a defendant's intended losses. Accordingly, the Third Circuit vacated Kirschner's sentence and remanded for reconsideration of the intended loss.

Kirschner also challenged two other enhancements, for abuse of position of trust and sophisticated means. The Third Circuit rejected both challenges. First, the Court found that Kirschner's impersonation of federal law enforcement officer played a significant role in execution of his scheme, for purpose of application of abuse-of-trust enhancement, since impersonation protected his counterfeits or money earned from them from robbery. Second, the Court found that Kirschner's offense level could be increased for use of sophisticated means because although Kirschner did not create counterfeits he sold or intricate packaging in which he sold them and his conduct could have been more sophisticated, he deployed various other strategies to conceal his fraud by using pseudonym to conceal his identity, and he created fake businesses, social media accounts, and sale invoices to give his scheme veneer of legitimacy and played major roles in commission and concealment of his crimes

** Note: The Third Circuit noted that only Application Note 3(A) to §2B1.1, not the Guidelines' text, says that defendants can be sentenced based on the losses they intended. By interpreting “loss” to mean intended loss, it is possible that the commentary “sweeps more broadly than the plain text of the Guideline.” United States v. Nasir, 982 F.3d 144, 177 (3d Cir. 2020) (en banc) (Bibas, J., concurring). However, Kirschner assumed the comment was correct, so the Circuit did too. 

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