Case Information
*1 Before P OSNER R IPPLE , and K ANNE , Circuit Judges . P OSNER Circuit Judge
. Robert Brunt, John Farano, Charles Murphy, Tracey Scullark charged with mail wire fraud Brunt Scullark also money launder ing theft federal government funds. U.S.C. §§ 1957(a). All crimes relating an elaborate real estate financing fraud scheme Chicago during housing bubble early 2000s. A jury con victed defendants, sentenced *2 ‐ months prison, to to Scullark to 78. He ordered them all to pay restitution.
We need to describe criminal scheme. U.S. De ‐ partment Housing Urban Development sells proper ‐ ties owns at to percent discount buyer property certified nonprofit organization agrees to resell property to low ‐ or moderate ‐ income person or family who intends to live there. defendants obtained properties HUD by using HUD certified non profit named Westwood Community Development, they corrupted (although surprisingly neither Westwood nor its principals appear to prosecuted), to buy properties them. Westwood effect “fronted” for defendants, who paid kickbacks, sometimes labeled “dona tions,” to Westwood personnel who assisted scheme. Having obtained properties Westwood, defen dants resold them to persons low moderate income instead persons wanted invest real estate rather use real estate they bought place side. To recruit these investors defendants misrepre sented value properties promising rehabili tate them so worth even more, find tenants properties. Some properties did rehabilitate all; others gave “cosmetic rehabs” little value. investor buyers little money,
needed large mortgages finance purchases properties. obtained mortgages them submitting false information regarding con ditions investors’ assets, income, employment, intentions occupy properties. A *3 officer mortgage brokerage company bribed ‐ sist in the scheme, and appraisers were bribed submit fraudulent appraisals of the properties. defendants played different roles administering
the scheme. Brunt and Scullark recruited the investors (that is, buyers of properties) appraisers, and Brunt arranged for “cosmetic rehabs,” while Farano Murphy, who lawyers, financed transactions—the purchase (from HUD via Westwood) sale of properties bank financing. did paperwork many transactions. Many of investors ruined when housing bubble collapsed lost money result defaults because now worth less unpaid balances mortgages them.
All defendants except asked be tried sepa ‐ rately other defendants. refused, justifia bly, because severance caused massive duplica tion effort. With severance entire scheme all its complexity proved anew each case government’s witnesses, included investors, ap praisers, HUD officers. superior efficiency trying jointly complex criminal (provided it isn’t complex jury can’t understand multiple defendants) justification making only cri terion severance “prejudice” one more defen dants. Fed. R. Crim. P. 14(a). claim prejudice judge’s refusal
sever allowed admission very damaging inadmissible against particular form testi mony codefendants, notably Brunt. their real complaint, apparent word “inadmissi *4 3276 ble” in the preceding sentence, has nothing to do with the refusal sever; concerns, rather, the judge’s rulings the defendants’ motions under Rules and 404(b) exclude specific testimony. As the Supreme Court explained in Zafiro U.S. (1993), “a defendant nor mally would not be entitled exclude the testimony a former codefendant if the district court did sever their trials, we see reason why relevant and competent testi mony be prejudicial merely because witness is codefendant.” If should have granted some motions exclude he denied, defendants challenged those denials we decide his rulings erroneous errors not harmless, defendants grounds reversal their convictions. Admissibility severance separate concerns.
In decision Supreme Court affirmed in Zafiro said “persons charged in connection same crime be tried separately only is seri ous risk joint trial prevent jury from mak ing reliable judgment about guilt innocence one more defendants,” in “a complex many some whom might be peripherally in volved alleged wrongdoing. danger bit players may able differentiate themselves ju rors’ minds stars.” 1991) (emphases original). This such case. None “bit player” conspiracy. In fact principals; bit players investors misrepresented ability repay mortgage loans needed order able buy defendants, bribed officer, crooked apprais ers. *5 3180,
Nor was trial so long or complex jury’s ver ‐ dict cannot be thought reliable. One can imagine a trial ex ‐ pected be long no employed person could take time off his job serve on jury, with result jury might unrepresentative. “Professionals often cannot afford (or employers will abide) jury service on protracted cases. Consequently, courts frequently excuse them upon a showing undue hardship extreme incon ‐ venience. hardship results projected pay over a lengthier trial. Collectively, these two practices com bine seriously suppress percentage persons higher education serve juries in complex cases.” Franklin Strier, “The Educated Jury: A Proposal Complex Litigation,” DePaul L. Rev. 72–73 (1997); see “De velopment in Law—III. Jury Selection Composi tion,” Harv. L. Rev. (1997); Gordon Van Kessel, “Adversary Excesses American Criminal Trial,” Notre Dame L. Rev. 478–79 (1992). trial this case long—nine weeks—but is indication jury incompetent, virtue professional exemptions hardship exclusions, render sound decision. fact jury spent seven days deliberating acquitted some some counts (and fifth de fendant count against him) suggests jury attentive conscientious.
A second situation said Zafiro opinion may require severance “where exculpatory evidence essential defendant’s will unavailable—or highly prejudi cial unavoidable—if he tried another de fendant. … There cases person refuse testify codefendant joint trial fear incrimi nating himself, yet tried separately convicted might *6 ‐ thereafter willing to testify might give testimony ex culpating other defendant.” 886. That’s really two situations, one in which would oppose severance other in which government oppose it. Neither one case.
Our case illustrates a third situation discussed Zafiro of “mutual antagonism, finger ‐ pointing, other manifestations characterizations of effort of one de fendant to shift blame from himself to codefendant”; but those things, said, “neither control nor illuminate question of severance.” Id . Consider Farano’s complaints about Brunt’s testimony Farano used racial slur against him Scullark, both of whom black; Farano white. But his lawyer didn’t object Brunt’s testimony about racial slur. He did object Brunt’s testimony Farano used his law license theft; sus tained objection. Other objections by Farano Brunt’s testimony overruled—but instead alleging judicial error ruling on objections, insists mistakenly his been severed Brunt’s.
Defendant Murphy objects introduction evi dence he claims not introduced on trial him. evidence related Brunt’s rehab building West 72nd Street Chicago, connection he obtained $155,000 title company used most it buy Rolls Royce. his laundering fraud induced ceipt $155,000 using buy Rolls used government bolster money laundering charge against Brunt; one Brunt’s partners West 72nd Street project. he accused par *7 ticipating in Brunt’s fraud money laundering with respect to project. ruled sensibly that fact that “Murphy knew how establish a proper rehabilitation loan [for a construction project] which funds paid out incrementally after submission proof work had actually been done other trans actions which he Brunt collaborated obtain large amounts money unsuspecting before any reha bilitation work done deliberately fraudulent” (emphasis original)—contrary Murphy’s claim unsophisticated about real estate transactions. procure ment rehabilitation loan showed Murphy knew what lawful rehabilitation was, implying turn a so phisticated knowledge real estate transactions. This evi dence been admissible against Murphy even Brunt hadn’t been on trial with him.
Brunt been represented one time lawyer named McDermott, testified Murphy attended meeting with him McDermott during became clear McDermott, shared an office with Murphy, Murphy’s puppet. This testimony, Murphy argues, forced him call McDermott witness. So McDermott testified—and obligingly denied having Murphy’s puppet. So far, good, Murphy. on cross examination McDermott acknowledged Murphy’s presence several his meetings Brunt, though he insisted his (that is, McDermott’s) advice based his independent professional judgment. There ground thinking joinder Brunt, “forcing” call McDermott witness, hurt Murphy’s defense; McDermott’s testimony whole favorable Mur phy. *8 12 ‐ 3276
There are other objections district judge’s rulings at trial, but fall objections that we’ve already discussed. We add of defendants’ guilt overwhelming, and there were any erroneous rulings (which we don’t think there were) therefore harm ‐ less. We turn sentences. each received four ‐ level enhance
ment of guidelines sentencing range ground each an organizer or leader of criminal activity least five participants or “otherwise extensive.” U.S.S.G. § 3B1.1(a). Both conditions satis fied. Scullark, however, did receive en
hancement. omission puzzling, may reflect ambiguity of Application Note guideline. It states “in distinguishing leadership organizational role one of mere management supervision … court consider” factors “include [but necessar ily exhausted by] exercise of decision making authority, nature participation commission offense, recruitment accomplices, claimed right larger share fruits crime, degree participation planning organizing offense, nature scope illegal activity, degree control authority exercised over others.”
Years ago observed this multifactor, open ended, unweighted called test “contributes murk sur rounding review § 3B1.1 adjustments.” United States v. Mustread F.3d n. (7th Cir. 1994). We elabo rated concerns Rosales 2013), complaining “as most multifac *9 tor tests, application note’s seven factor test is none too clear. No weighting of factors is indicated (so really ‘multifactor test’ be called ‘list of factors’). And a majority of factors vague or redundant. That is true of ‘the nature of [the defendant’s] participation in com mission of offense,’ ‘the degree of participation in plan ning organizing offense,’ ‘the nature and scope illegal activity,’ and even ‘the degree control and author ity exercised over others.’ For what is difference between ‘control’ and ‘authority’? And matter is dif ference between ‘leader’ and an ‘organizer’? The phrase ‘a leadership and organizational role’ appears fuse them.” We noted “the apparent equation ‘organizer’ ‘leader’ another oddity. The ‘organizer’ an entire enter prise usually be thought person who started it; he might running it; he might leader.” Id . 998.
We don’t understand singling out Farano and sole leaders organizers fraudulent scheme. gang officers and enlisted men. The officers were four defendants. enlisted men were buyers who misrepresented financial situation, bribed ap praisers, bribed officer. four all leaders, though led different domains. lawyers, Murphy, played decisive role financial negotiations Westwood banks. Brunt Scullark responsible recruiting investors (the buyers properties) appraisers. dealt Westwood managed cosmetic rehabs, doubtless meant he charge workers didn’t know assisting fraud. determin ing how extensive criminal enterprise purposes *10 ‐ leader/organizer enhancement, “unknowing … outsiders” assisting enterprise count. U.S.S.G. § 3B1.1, Application Note 3.
Scullark might been thought manager or supervi ‐ sor, type leader who receives three ‐ level en ‐ hancement. U.S.S.G. § 3B1.1(b); see Fi ‐ gueroa 695–97 2012). government sought four level enhancement for Brunt, no enhance ‐ ment Scullark, though her presentence report had rec ommended three level enhancement her. judge imposed section 3B1.1 enhancement either one. This especially puzzling with regard Brunt, who according his presentence report had “organized led nominee buyers’ activities, submission loan applications, gave specific directives Defendants Scullark, D’Aifallah, Jackson. In addition, Defendant Brunt primarily sponsible identifying acquire. … Although each defendant participated scheme own voli tion, Defendant brought parties gether. Without Defendant Brunt, neither Defendant Defendant knowledge specific proper ties relationships an appraiser officer who readily participate scheme; mention Defendant Brunt’s relationship individuals who served nominee buyers, appear easily duped by defendants.” government has ap pealed denial enhancement. length defendants’ prison sentences influ
enced amount district found caused fraudulent scheme. See U.S.S.G. § 2B1.1. There losses two types: losses made *11 mortgage loans to the investors because misrepresenta tions the investors’ financial situation, losses HUD equal the percent discount at which sold prop erties Westwood never used provide low ‐ moderate income housing.
All four defendants object the losses the banks ten occurred after the secured the bank loans refinanced. (In the case five such properties, the losses attributed defendants $768,450.) Suppose one investors bought property $80,000 nominally from Westwood but actually from defendants, obtained $100,000 mortgage basis phony ap praisal, later refinanced property by obtaining $110,000 mortgage another bank, replacing original mortgage. And suppose later still, when bubble burst, mortgagor defaulted mortgagee fore closed, but foreclosure sale property brought $60,000. government such would assess loss $40,000 ($100,000 original amount, minus $60,000 foreclosure sale proceeds), ignore further $10,000 loss refinancing bank. $40,000 loss incurred refinancing banks rather dealt; argue refinancing breaks causal link tween original fraud loss.
Not true. Morris 1171–72 1996). Actual defined “reasonably foresee able pecuniary harm resulted offense,” “reasonably foreseeable pecuniary harm” “pecuniary harm defendant knew or, under circumstances, reasonably known, potential result *12 ‐ *13 uct is stolen en route you. money you pay to buy product you never receive loss.
Of course the could not have foreseen the precise loss the lenders (as distinct the loss HUD), because, while must have known that the buyers the properties very likely default, having overpaid the properties fraudulently obtained mortgage loans, could know what the properties bring at foreclosure sale, given uncertainty about future real estate prices. Far more financially sophisticated people defendants, employed companies like Bear Stearns, Leh man Brothers, American International Group, failed predict housing crash. remember loss guideline requires “pecuniary harm defen dant knew or, under circumstances, reasonably known, potential result offense.” U.S.S.G. § 2B1.1, Application Note 3(a)(iv). key word “poten tial,” means “could happen.” losses lenders “potential result” defendants’ fraud, de fendants well knew. last issue involves judge’s calculation
amount restitution ordered pay. Remember calculating loss purposes de termining defendants’ prison sentences, judge had ignored loss banks refinanced sold defendants, distinct loss originally financed sales incurred had those banks’ mortgages been refinanced. Yet lesser loss, used calculating defendants’ prison sentences, actually borne refinancing banks, know; original lenders repaid *14 14 12 3178, 3180, 3276 when their loans refinanced. And cluded victims entitled restitution refinancing banks, deemed them entitled restitution only initial loss, loss first tier banks would have borne had their loans been repaid. In our example prop erty which first bank lent $100,000 refi nancing bank $110,000 property went into default brought only $60,000 foreclosure sale, loss dependent refinancing $40,000, would amount restitution ordered.
In arguing restitution refinancing banks, government confounds amount, requires only “pecuniary harm defendant knew or, under cir cumstances, reasonably have known, potential result offense,” U.S.S.G. § 2B1.1, Application Note 3(A)(iv), restitution, authorized “victim,” de fined “a person directly proximately harmed sult the” defendant’s crime. 18 U.S.C. § 3663A(a)(2); see United States v. Shepard , F.3d 886–87 (7th Cir. 2001); cf. United States v. Donaby , F.3d (7th Cir. 2003); United States v. Marino F.3d (2d Cir. 2011). refinancing banks may have caught up housing bubble willing therefore make “liars’ loans,” is, loans made without requiring proof ability repay. $110,000 example may such loan. banks making such loans coauthors loss, since required proof financial soundness borrowers refinanced question. Yeung 2012), held bought fraudulently obtained *15 12 3180, 3276 15 mortgages victims of the fraud entitled restitution because part of the defendant’s fraud “the borrower each had misrepresented his financial ability repay the loan” the banks relied on fraudulent infor mation, concocted by Yeung. There is yet this case of such reliance the refinancing banks, its absence those banks cannot counted “victims” restitution purposes, though is loss under section 2B1.1 thus usable determining the de fendants’ prison sentences.
A second question concerning restitution concerns method calculating it victims entitled restitution. argue method used wrong, cit ing United States v. Robers , F.3d 939 (7th Cir. 2012), cert. granted, S. Ct. (2013). victims mortgage lender mortgage guarantor (for sim plicity we’ll call them both “mortgagees”). They correspond defrauded case. As result Robers’s fraud, worth less balance mortgages mortgagees could recover bal ance when mortgagors defaulted. restitution statute entitles victim “the value [victim’s] property on date sentencing, less value (as date property is returned) any part property is turned.” U.S.C. §§ 3663A(b)(1)(B)(i)(II), (ii). question whether “the date property returned” date foreclosure or, later, when property sold (presumably mortgagee, assumption mortgagee acquired title property fore closure sale). We held latter. Four circuits agree this approach, United States v. Statman F.3d 2010); James *16 16 12 3007, 3178, 3180, 3276 1244–47, (10th Cir. 2009); United States v. Innarelli , F.3d (1st Cir. 2008); United States v. Himler , F.3d (3d Cir. 2004), maybe fifth. See United States v. Boc cagna , F.3d 115–20 (2d Cir. 2006). Two disagree. United States v. Holley F.3d 914–15 (5th Cir. 1994); Smith 625–26 1991). Supreme Court will decide; until does, we’ll stick our Robers decision.
Since the refinancing banks probably were not victims therefore entitled restitution, the choice transaction date use measure restitution have due them they victims irrele vant. all banks awarded restitution refi nancers—some owners original mortgages, thus entitled restitution. Robers make amount restitution banks suffered when they sold acquired after foreclosed their mortgages, just district court calculated.
That completes our analysis colorable issues pre sented by defendants. We affirm judgments against them except order restitution refinancing lenders, vacate. district judge will consider on whether refinancing seeking restitution based refinancing decision whole part on fraudulent representations by defen dants, and, depending outcome consideration, judge may recalculate restitution de fendants owe. And course Supreme Court verse modify decision Robers case, will guided Court’s opinion rather this opinion calculating amount restitution.
We remiss ended this opinion without expressing concern length time this has taken reach us—six half years since indictment. The initial delays attributable largely complexity government’s investigation defendants, which continued after indictment was returned resulted superseding indictment added defen dant. Trial was scheduled begin on January 2011— already more than three years since initial indictment— eve trial switched lawyers, sult trial postponed nine months; shouldn’t postponed long reason. The trial took nine weeks, after allowed two months briefing their motions acquittal, followed seven months later sentencing. filed notices appeal July other than Murphy, filed October year. defendants’ lawyers withdrew, new counsel appointed. ap peal argued until months after original tices appeal. delay troubles us, especially must now further proceedings district court.
A FFIRMED IN P ART R EVERSED IN P ART AND R EMANDED . offense.” U.S.S.G. § 2B1.1, Application Notes 3(A)(i), (iv). The defendants knew that properties were overpriced that buyers (the “investors”) underfinanced. They could therefore foresee likelihood default consequent loss. additional loss—the $10,000 example for which defendants not punished—had resulted decision refinance, decision that may well have been influenced factors, such declining interest rates, that couldn’t be assumed have foreseen; for incremental loss would held re ‐ sponsible. could no doubt sponsible for $40,000 loss, foreseeable loss first lender borrower refi nanced. assessed HUD amount discounts HUD gave Westwood sales proper ties intended, HUD thought—as it motivation for discount—for low ‐ moderate ‐ income housing, yet never used purpose because sold discounted properties investors interest providing low ‐ moderate income housing. defen dants argue HUD lost nothing because it sold discount someone else. argu ment unsound. HUD led believe it buying something value it amount discounts, namely low ‐ moderate income housing; defen dants stole money, thus depriving HUD thing value promised. It’s you order product, pay advance, never receive it, because prod