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Second Circuit Issues Notable Decision Defining "Intended Loss" Under the Guidelines

The often ludicrously high sentences in federal fraud cases are driven mainly by the provisions in the Sentencing Guidelines relating to actual and intended loss.  The Second Circuit, in an opinion authored by Judge Newman, has once again injected some common sense into this often harsh and unreasonable area.  You may recall that in another Newman-authored opinion, United States v. Rutkoske, 506 F.3d 170 (2d Cir. 2007), a case involving stock market manipulation (discussed here), the Court defined "actual loss" to mean, well, actual loss caused by the defendant (as causation is defined in civil cases), and not all loss suffered by the victim.  Thus, actual loss would exclude loss caused by other factors such as market conditions.

Now, in United States v. Confredo, 06-3201-cr (2d Cir. June 10, 2008), the Court brings the same common sense reasoning to "intended loss."  In a case involving fraudulent loan applications (but obviously with wider ramifications for many fraud cases), the Court held that "intended loss" means the defendant's "subjective expectation" rather than "the worst case scenario" of the potential loss of the scheme. The Court thus rejected prior precedent defining intended loss as the aggregate face value of the fraudulently obtained loans, regardless of the defendant's expectations or belief.

Procedurally, the Court approved the "rebuttable presumption" approach of the Third Circuit in United States v. Geevers, 226 F.3d 186 (3d Cir. 2000), in determining the amount of intended loss: "The district court may presume that the defendant intended the victims to lose the entire face value of the instrument, but the defendant may rebut the presumption by producing 'evidence to demonstrate that he actually intended' to cause a lesser loss."  For Confredo, charged with submitting over $24 million in fraudulent loan applications on behalf of clients, this means his sentencing court will be given an opportunity to reconsider whether Confredo has "proven a subjective intent to cause a loss of less than the aggregate amount of the loans" - i.e. that he expected a number of the loans would be denied and a number of those granted would be paid.  In real terms, he gets to try to reduce his whopping 262-month sentence by 27 months.

The Court ends its analysis of this issue by adding ?[a]s with all loss calculations, absolute precision is not required." 

Full post as published by New York Federal Criminal Practice on June 10, 2008 (boomark / email).