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UNITED STATES v. BOULA

March 18, 1992

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



The opinion of the court was delivered by: BRIAN BARNETT DUFF

 This case involves several complicated sentencing issues. Kenneth F. Boula and Earl Dean Gordon, the defendants, were convicted of mail fraud in 1990 and were sentenced accordingly. The defendants appealed their sentences. On appeal, the defendants' original sentences were vacated; and the case was remanded on May 14, 1991 for resentencing.

 BACKGROUND

 In the late 1970s, Kenneth F. Boula and Earl Dean Gordon established a business venture known as Financial Concepts. Through this venture, the defendants were able to conduct a massive mail fraud scheme which involved inducing a large number (approximately 3,300) of people to invest in a series of limited real estate partnerships. The defendants advertised these partnerships, offered free seminars, personalized investment counseling, and real estate tours, all in an effort to attract investors. Messrs. Boula and Gordon informed the investors that their financial contributions would be used to purchase property and to make improvements. The investors were further informed that after the property sold they would receive their principal investment plus interest. Contrary to what the investors were promised, the defendants attracted more investors and used these funds to pay interest to both the old and new investors. As a result of this pyramid or Ponzi scheme, the investors' losses were approximately $ 5.2 million. The defendants were able to acquire an additional $ 1.8 million through three income partnerships. Rather than using the money for the income partnerships in the manner that the defendants had represented that it would be used, they diverted these funds towards operational costs and paying off other investors' demand notes. In March of 1988, the Illinois Secretary of State issued an order prohibiting the defendants from continuing to establish their limited real estate partnerships.

 The defendants were charged with three counts of mail fraud in violation of 18 U.S.C. § 1341, in an information filed February 15, 1990. The defendants pled guilty to these three mail fraud counts. Following a hearing on June 15, 1990, the defendants were sentenced to 108 months of incarceration by this court. At that time, the court made the following findings: (1) that the initial real estate, Ponzi, and income partnership schemes were a part of the fraudulent criminal activity; (2) the total loss from the fraud was $ 7 million; (3) the defendants targeted vulnerable victims, among them older investors who were seeking retirement income to supplement their social security payments; and (4) that they used the spoils from their criminal activity to support an "extravagant" lifestyle. United States v. Boula, 932 F.2d 651, 653 (7th Cir. 1991).

 The defendants appealed that sentencing determination and made two essential arguments. First, that this court's application of sections 2F1.1 and 3B1.1 of the United States Sentencing Guidelines ("Guidelines") resulted in impermissible double counting (i.e. inappropriate sentence enhancement through the application of two Guidelines provisions to the same conduct). The defendant's second argument asserted that this court's upward departure from the applicable Guidelines range was unwarranted and improper. United States v. Boula, 932 F.2d 651 (7th Cir. 1991). The Seventh Circuit rejected the defendant's double counting argument. *fn1"

 In reviewing this court's departure from the Guidelines sentencing range, the Seventh Circuit noted the following three grounds on which the ten-point departure was based:

 (1) the commentary to section 2F1.1 explains that when the offense involves more than minimal planning and more than one victim, upward departure may be warranted;

 (2) the Commission did not account for fraud schemes involving as many victims as in this case; and

 (3) the $ 7 million loss exceeded the $ 5 million floor in the highest loss category for fraud defenses.

 The Seventh Circuit held that departure based on the first stated ground was proper reasoning that, "the Commission explicitly provided for departure in such a situation and . . . the defendants' scheme so exceeded the Guidelines base provisions in section 2F1.1(b)(2)". Boula at 656. The court rejected, however, the remaining two grounds for departure. In evaluating the degree of departure, the court held that the ten-point increase was unreasonable. The court then vacated the defendants' sentences and remanded the case for resentencing.

 DISCUSSION

 A. Accounting for the Number of Victims under the Sentencing Guidelines

 The Seventh Circuit's discussion of this court's second stated reason for departure uses conclusive phrases such as "highly likely" and "surely more than mere oversight" to assert that the number of victims in this fraud case is not "outside the heartland of the fraud provisions." Boula at 656. The policy statement, however, referred to in the Seventh Circuit opinion actually supports this court's action in creating a vector system and thereby refining the sentencing provision "more than one" victim to distinguish between 2 victims and 3,300. The policy statement asserts as follows :

 The Commission intends the sentencing courts to treat each guideline as carving out a "heartland", a set of typical cases embodying the conduct that each guideline describes. When a court finds an atypical case, one to which a particular guideline linguistically applies but where conduct significantly differs from the norm, the court may consider whether a departure is warranted.

 U.S.S.G. Ch. I, pt.A (4)(b), pp.1.5-1.6 (policy statement).

 The court relied on two provisions when it made an upward departure in the sentencing of the defendants. The first provision, 18 U.S.C. Section 3553(b) provides ...


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