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UNITED STATES v. BOULA

September 26, 1991

UNITED STATES OF AMERICA, Plaintiff,
v.
KENNETH F. BOULA and EARL DEAN GORDON, Defendants



The opinion of the court was delivered by: DUFF

 BRIAN BARNETT DUFF, UNITED STATES DISTRICT JUDGE

 REVISED NOTICE OF GROUNDS FOR POSSIBLE SENTENCING DEPARTURE

 In the mid-1970's, the defendants in this matter, Kenneth F. Boula and Earl Dean Gordon, began to operate a venture known as Financial Concepts. The defendants used Financial Concepts to create a number of real estate partnerships and they were quite successful in attracting a large number of investors to those partnerships (approximately three thousand people invested in one or another of defendants' partnerships). The defendants' marketing scheme "targeted", among others, older investors seeking retirement income to supplement their social security payments. The defendants often made themselves "trustees" of investors' IRA's and even obtained powers of attorney from some of their investors.

 Financial Concepts was in fact a "Ponzi" or "pyramid" scheme, which eventually collapsed. In fact, the properties marketed by the defendants were not worth nearly the amounts defendants represented them to be; in a number of cases the defendants had never even conveyed title to the properties to the partnerships. Eventually, the defendants began using the money invested for new partnerships to cover the expenses of the older partnerships. Despite the fact that it was becoming more and more difficult to repay their investors, the defendants maintained an extravagant lifestyle, spending even more of their investors money on, among other things, luxury homes and cars, a boat and an airplane.

 In March, 1988, the Illinois Secretary of State issued an order prohibiting the defendants from continuing to establish their partnerships. The defendants quickly diverted about $ 270,000 of their investors' funds to Swiss bank accounts. In April of that year, defendants' investors initiated a class action against them, and the court hearing that action appointed a receiver to control defendants' properties, partnerships and companies. The defendants hid the Swiss bank account from the receiver for a time, and altered company records to hide other improper diversions of investors' funds.

 In early 1990 the defendants pleaded guilty to three counts of mail fraud. Later that same year this court sentenced each of them to 108 months of incarceration. That sentence was greater than the amount prescribed by the Sentencing Guidelines and this court articulated at the sentencing hearing three reasons supporting its departure from the Guidelines. The court of appeals held that two of the grounds upon which this court relied did not justify the departure, but that the third did, and remanded the case for resentencing consistent with its opinion. United States v. Boula, 932 F.2d 651 (7th Cir. 1991).

 Upon the return of the case, this court issued a notice to both the government and the defendants of the possibility of an upward departure at defendants resentencing, pursuant to the Supreme Court's recent decision in Burns v. United States, 115 L. Ed. 2d 123, 59 U.S.L.W. 4625, 111 S. Ct. 2182 (June 13, 1991). In that notice, dated July 15, 1991, the court informed the parties that it was considering an upward departure because defendants' crime "involved more than minimal planning and more than one victim, thus warranting upward departure pursuant to Guideline ยง 2F1.1."

 Since issuing that notice, the court has carefully considered the Sentencing Guidelines applicable to this matter, the specific characteristics of defendants' offenses, and the information contained in the latest pre-sentence report. In light of that extensive review, the court finds it appropriate to issue this revised notice, setting forth more fully the considerations which will guide it in sentencing the defendants.

 The court first considers which Guidelines govern defendants' sentence. Generally, courts sentence according to the Guidelines in effect at the time of sentencing, rather than at the time the defendants committed the relevant crime. *fn1" There are, however, necessary exceptions to this general rule. To apply amendments not in effect at the time the defendant committed the crime, but which would result in an increased sentence for the defendant by raising the "offense level", would violate the ex post facto clause of the Constitution. See generally Miller v. Florida, 482 U.S. 423, 96 L. Ed. 2d 351, 107 S. Ct. 2446 (1987). *fn2"

 In Messrs. Boula and Gordon's cases two amendments are in issue. The first is an "application note" which, in its amended form, would prohibit the court from departing based upon the large number of defendants' victims and the fact that defendants' crime required "more than minimal planning". The second relevant amendment is a substantive provision which increases the base offense level for crimes involving more than $ 5 million. The defendants argue that because the application note has been superseded, it is not a valid ground for departure, and that the second amendment is inapplicable because of the ex post facto clause.

 The Seventh Circuit has noted (without much discussion) that it is not improper to sentence a defendant according to the guidelines in effect at the time of the crime (rather than at the time of sentencing) if the guidelines in effect at the time of sentencing would have the effect of raising the defendant's base offense level. U.S. v. Scott, 914 F.2d 959, 961, n. 2 (7th Cir. 1990). In its opinion in Messrs. Boula and Gordon's case, the court noted that the amendment increasing the base offense level did not apply. 932 F.2d at 657, n. 6. The court was more ambiguous on the question whether the superseded application note continued to provide a valid basis for departure. On that point, the court stated in one portion of its opinion that this court's departure based upon the application note was "proper". Id. at 656, but in a footnote stated that "this pre-November 1989 Guidelines application note allowing upward departure . . . has been superseded. * * * Therefore, this ground for departure given by the district court would no longer be appropriate." Id., n. 5.

 The court is thus faced with a dilemma of sorts. Clearly the court cannot apply the guidelines tables in effect now, which would raise defendants' base offense level due to the amount of money involved in their fraudulent scheme. The question is whether the court is also prohibited from departing based upon the superseded application note. Defendants would have this court use the earlier base offense level and the later application note, thus (not coincidentally) achieving the lowest possible sentencing range.

 The defendants offer nothing in support of their argument except for the ambiguous statement in the Seventh Circuit's opinion, discussed above, and it has not decided in any other case the question whether the Guidelines should be applied in the piecemeal fashion suggested by defendants. Other courts, however, have addressed that suggestion--and rejected it. In United States v. Stephenson, 921 F.2d 438, 441 (2d Cir. 1990) the ...


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