In every federal criminal indictment, trial, and sentencing after a plea or conviction, a defendant’s fate is guided by the actual financial loss the criminal acts caused. In United States v. Banks, — F.4th —- (Nov. 30, 2022), Frederick Banks was convicted of fraud. At sentencing, the federal judge applied the USSG § 2B1.1(b)(1)(G)’s enhancement for the intended fraud loss, not actual loss, because there was no actual monetary loss. Banks appealed and on November 30, 2022, the 3d Circuit court of appeal reversed his sentence. The court found that the issue of actual loss controls loss enhancement and the Guideline’s application impermissible expands the word “loss” to include both intended loss and actual loss. In revering the district court for sentencing only, the appeal court has for the first time addressed this major sentencing issue.
Bank’s scheme, reduced to the simplest terms, was a check kiting scheme. He opened trading accounts in fraudulent client names, deposited checks from banks accounts purporting to have sufficient funds, and then immediately used those new account funds for trading. All fund deposits were drawn on bank accounts with insufficient funds. He then tried to withdraw funds from these accounts, “with the goal being to complete the withdrawals/transfers before the lack of supporting funds could be detected.” To support his scheme, Banks made fraudulent representations through text message, telephone conversations, and emails. He misrepresented his identity, his income, his occupation, his net worth, and the balances in his bank accounts. Importantly, the trading entity suffered no actual loss. Banks made fraudulent deposits of $324,000 and unsuccessfully executed 70 withdrawals/transfers totaling $264,000. Gain Capital, however, did not transfer a single dollar to Banks.
USSG § 2B1.1(b)(1)(G) guides federal sentencing courts. This provision requires an offense level enhancement for any actual loss more than $6500. As a general rule, loss is defined as the greater of actual loss or intended loss. (i) Actual Loss means the reasonably foreseeable pecuniary harm that resulted from the offense. The base level offense for a fraud/theft conviction is a 7, and then incrementally increases based upon the dollar value of the actual loss. https://guidelines.ussc.gov/gl/%C2%A72B1.1.
There are many check kiting cases of theft or fraud. The case’s significance, as applied to all future fraud theft cases, is now, if banks, financial institutions, or individuals do not suffer an actual loss, there is no sentencing enhancement! The court determines the Sentencing Commission’s commentary swept more broadly than the plain language of the guideline it interprets. Also, the court concludes “in the context of a sentence enhancement for basic economic offenses, the ordinary meaning of the word “loss” is the loss the victim actually suffered” not intended.
This is monumental because a defendant with no prior record, accused of fraud, with no actual loss, may either not be charged, or only be exposed to a potential probationary sentence of 0-6 months. https://www.ussc.gov/guidelines/2018-guidelines-manual/2018-chapter-5. This is compared to the defendant accused of a potential or intended loss of more than $250,000 – to whom a 12 point level offense enhancement is applied – who is going to federal prison for 37-45 months when no loss was actually incurred! https://www.ussc.gov/guidelines/2018-guidelines-manual/2018-chapter-5.