United States v. Evans
2014 U.S. App. LEXIS 4490
10th Cir.2014Background
- Evans ran real-estate limited partnerships and raised over $16 million from investors to buy/renovate low-income apartment complexes; offering materials disclosed substantial risk.
- From 2003–2005 operations were legitimate, but by April 2005 Evans faced cash-flow problems, commingled funds, made false accounting entries, and furnished inflated financial statements to investors and lenders.
- Evans contributed about $4.5 million of his own funds to keep projects afloat; a receiver took control in 2007, later solicited an additional $3 million from investors, and ultimately properties foreclosed after market declines.
- Evans pleaded guilty to conspiracy to commit mail and wire fraud; the government initially estimated investor losses at $9.7M, later ~$12M; plea agreement included a government representation to request a 3-level acceptance reduction, but government later declined the §3E1.1(b) motion.
- District court calculated loss as initial investment minus returns (i.e., unpaid principal), denied consideration of pre-fraud depreciation and certain extrinsic factors, awarded only a two-level §3E1.1(a) reduction, and sentenced Evans to 168 months; Evans appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Proper loss measure under U.S.S.G. §2B1.1 | Evans: loss must exclude decline that occurred before fraud began and must be the reasonably foreseeable loss to value of securities at fraud onset | Government/District: loss = initial investments minus returns (unpaid principal); extrinsic factors irrelevant | Court: Vacated — must start with value when fraud began; exclude pre-fraud declines and account for foreseeability of non-fraud factors when computing actual loss |
| Role of extrinsic factors (receiver actions, market) in foreseeability | Evans: district court should consider receiver and market effects and foreseeability when attributing loss to fraud | Government relied on Turk/Crowe to treat unpaid principal as loss regardless of foreseeability of collateral decline | Court: Turk/Crowe inapplicable; here investors held equity-like securities so court must consider foreseeability and effect of non-fraud forces when assessing legal causation of loss |
| Credit for $4.5M Evans personally infused | Evans: his capital contributions were "services rendered" and should reduce loss | Government/district: funds prolonged operations and did not confer recoverable benefit to victims, so no credit | Court: Affirmed district court’s refusal to credit $4.5M because funds did not ultimately benefit investors or return value |
| §3E1.1(b) one-level acceptance motion by government | Evans: government had agreed to move for the third point and its reversal was arbitrary; he was entitled to the extra point | Government: declined because Evans disputed loss amount and acceptance was incomplete | Held: Government’s refusal lacked a rational relation to legitimate ends here; court erred—Evans entitled to the additional one-level reduction |
Key Cases Cited
- United States v. Turk, 626 F.3d 743 (2d Cir. 2010) (mortgage-loan fraud case treating unpaid principal as victims’ loss without requiring foreseeability of collateral decline)
- United States v. Crowe, 735 F.3d 1229 (10th Cir. 2013) (adopted Turk’s approach for loan-credit cases and distinguished credits-against-loss from initial foreseeability inquiry)
- United States v. Copus, 110 F.3d 1529 (10th Cir. 1997) (loss attributable to post-loan false statements equals outstanding loan less recoupment and less estimated loss had statement been true)
- United States v. Gordon, 710 F.3d 1124 (10th Cir. 2013) (standards for reviewing Guidelines loss calculations and allocation of burden regarding non-fraud factors)
- United States v. Byors, 586 F.3d 222 (2d Cir. 2009) (funds used to operate and capitalize business were not "services rendered" that reduce loss when they conferred no benefit to victims)
- United States v. Naramor, 726 F.3d 1160 (10th Cir. 2013) (government’s discretion to file §3E1.1(b) motion is broad but reviewable for irrationality)
- United States v. Moreno-Trevino, 432 F.3d 1181 (10th Cir. 2005) (framework for district court rejecting government’s refusal to move for acceptance reduction)
- United States v. Wilson, 980 F.2d 259 (4th Cir. 1992) (approach for attributing loss in fraud where false statements were made after loans issued)