United States v. John T. Burns, III
2016 U.S. App. LEXIS 22035
| 7th Cir. | 2016Background
- John Burns, an estate-planning employee at USA Retirement Services (USARMS), solicited investments in promissory notes purportedly backed by Turkish bonds and told investors he had investment-management experience and personally invested in the notes. Those statements were false.
- Unknown to Burns, USARMS principals Durmaz and Pribilski operated a Ponzi scheme; investors’ funds were misused and earlier investors were paid with later investors’ money.
- The government indicted Durmaz, Pribilski, and Burns; Durmaz fled, Pribilski pled guilty and later died, and a superseding indictment charged Burns with making material misrepresentations (wire/mail fraud) without alleging he knew of the Ponzi scheme.
- At trial six victims testified about relying on Burns’ representations; the jury convicted Burns on two wire-fraud and three mail-fraud counts.
- At sentencing the district court applied an 18-level Guidelines enhancement based on a $3.3 million loss (the amount lost by investors Burns solicited), imposed restitution and forfeiture of $3.3 million, and sentenced Burns to 84 months’ imprisonment.
- On appeal the Seventh Circuit affirmed the conviction but vacated the sentence, restitution, and forfeiture orders and remanded for resentencing because the district court failed to analyze proximate causation for loss and to base forfeiture on Burns’ gain.
Issues
| Issue | Plaintiff's Argument (Government) | Defendant's Argument (Burns) | Held |
|---|---|---|---|
| Sufficiency of evidence that Burns made material misrepresentations | Burns told investors specific factual lies about his experience and personal investment; victims testified they relied on those statements | Burns argued statements were mere puffery/sales talk and not materially misleading | Affirmed conviction — statements were specific factual misrepresentations, not nonactionable puffery |
| Sentencing enhancement based on $3.3M loss (Guidelines loss calculation / causation) | The $3.3M loss attributable to the 12 victims supports an 18-level enhancement; Burns’ conduct made the loss foreseeable | Burns argued the district court failed to find proximate causation — he was not alleged to know of the Ponzi scheme so cannot be held responsible for entire loss | Vacated enhancement and remanded — district court erred by not addressing proximate causation; plain-error review required reversal because substantial rights affected |
| Restitution under MVRA (proximate-cause requirement) | Restitution equal to victims’ $3.3M loss is proper because offenses involve a scheme to defraud | Burns argued MVRA requires restitution only to those directly and proximately harmed by his offense; the court did not make that proximate-cause determination | Vacated restitution order and remanded — court failed to determine whether Burns proximately caused the full $3.3M loss |
| Forfeiture amount (proceeds/gain vs victims’ loss) | Forfeiture may encompass proceeds resulting from jointly generated proceeds if reasonably foreseeable | Burns argued forfeiture must be tied to his actual gain (he may have received little/no additional profit beyond salary/bonus) and cannot be the full victims’ loss | Vacated forfeiture order and remanded — forfeiture must be based on defendant’s proceeds/gain (or properly attributable foreseeable proceeds), not simply victims’ total loss |
Key Cases Cited
- United States v. Peterson, 823 F.3d 1113 (7th Cir.) (standard of review for judgment of acquittal)
- United States v. Dessart, 823 F.3d 395 (7th Cir.) (burden and scope when challenging sufficiency of the evidence)
- United States v. Clarke, 801 F.3d 824 (7th Cir.) (sufficiency review principles)
- United States v. Seidling, 737 F.3d 1155 (7th Cir.) (materiality standard for false statements)
- Neder v. United States, 527 U.S. 1 (U.S.) (materiality element explained)
- F.T.C. v. Trudeau, 579 F.3d 754 (7th Cir.) (distinction between puffery and actionable misstatements)
- United States v. Coffman, 94 F.3d 330 (7th Cir.) (examples of nonactionable sales puffery)
- United States v. Domnenko, 763 F.3d 768 (7th Cir.) (need for causation analysis in Guidelines loss calculation)
- United States v. Whiting, 471 F.3d 792 (7th Cir.) (but-for and proximate causation in loss calculations)
- United States v. Contorinis, 692 F.3d 136 (2d Cir.) (limits on forfeiture based on proceeds received by others; foreseeability requirement)
- United States v. Webber, 536 F.3d 584 (7th Cir.) (forfeiture focuses on defendant’s gain rather than victims’ loss)