United States v. John Farano
2014 U.S. App. LEXIS 7340
| 7th Cir. | 2014Background
- Four defendants (Brunt, Farano, Murphy, Scullark) convicted of mail/wire fraud, money laundering, and related charges for a Chicago real‑estate financing fraud during the 2000s housing bubble; sentences ranged from 72 to 151 months and restitution was ordered.
- Scheme: defendants used a HUD‑certified nonprofit (Westwood) as a front to buy discounted HUD properties intended for low/moderate income buyers, paid kickbacks to Westwood personnel, then sold properties to investor‑buyers who did not intend to occupy them.
- The defendants induced banks to make large mortgages by submitting false appraisals and falsified borrower income/asset/occupancy information; loan officers and appraisers were bribed.
- Roles: Brunt and Scullark recruited buyers and appraisers and managed rehabs (often cosmetic); Farano and Murphy (both lawyers) handled financing, paperwork, and transactions.
- Post‑fraud losses: banks suffered defaults and foreclosures when the market fell; HUD lost the value of the discounted housing intended for low/moderate income occupants.
- Procedural posture: joint trial (defendants’ severance requests denied), convictions affirmed in part; appellate court affirmed convictions, addressed sentencing loss calculations and restitution, vacated restitution awards to refinancing lenders and remanded for further proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Severance / joinder | Government: joint trial efficient and appropriate; witnesses would testify same way in separate trials | Defendants: joint trial prejudiced them by admitting codefendant testimony and other evidence tied to co‑defendants | Denied reversible error; severance not required; admissibility objections are separate from joinder and no prejudice shown |
| Admissibility of codefendant testimony | Gov: testimony relevant and admissible against each defendant | Defendants: testimony by codefendants (e.g., Brunt) introduced inadmissible, highly prejudicial evidence | Court applied Zafiro; found rulings proper or harmless given overwhelming evidence |
| Leader/organizer enhancement (U.S.S.G. §3B1.1) | Gov: enhancement appropriate for organizers/leaders (sought 4‑level for some) | Defendants: challenge enhancements/omissions as inconsistent or unwarranted | Court found enhancement for Farano and Murphy supported; questioned omission for Brunt and Scullark but government did not appeal; affirmed sentences as calculated |
| Loss causation for sentencing (foreseeability) | Gov: losses to lenders and HUD were reasonably foreseeable from the fraud and count toward Guidelines loss | Defendants: refinancing breaks causal chain; later lenders’ losses not attributable | Court held defendants liable for foreseeable loss to original lenders and HUD; refinancing does not absolve liability for the earlier, foreseeable loss |
| Restitution to refinancing banks | Gov: refinancing banks suffered loss and are victims entitled to restitution | Defendants: refinancing banks were not directly and proximately harmed by defendants’ fraud | Vacated restitution awards to refinancing lenders; remanded to determine whether refinancing banks actually relied on defendants’ fraud and thus qualify as victims under restitution statute |
Key Cases Cited
- Zafiro v. United States, 506 U.S. 534 (1993) (standards for severance and pretrial joinder prejudice)
- United States v. Morris, 80 F.3d 1151 (7th Cir. 1996) (loss defined by reasonably foreseeable pecuniary harm for Guidelines)
- United States v. Robers, 698 F.3d 937 (7th Cir. 2012) (method for calculating restitution value date — property sale date governs)
- United States v. Yeung, 672 F.3d 594 (9th Cir. 2012) (refinancing banks may be restitution victims where they relied on defendant’s fraud)
- United States v. Rosales, 716 F.3d 996 (7th Cir. 2013) (critique of §3B1.1 multifactor leadership/organizer analysis)