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United States v. Channapragada

July 6, 1995

UNITED STATES OF AMERICA,

PLAINTIFF-APPELLEE,

v.

RAO CHANNAPRAGADA,

DEFENDANT-APPELLANT.



Appeal from the United States District Court for the Central District of Illinois.

No. 94-CR-20010--Harold A. Baker, Judge.

Before POSNER, Chief Judge, and FLAUM and EASTERBROOK, Circuit Judges.

FLAUM, Circuit Judge.

ARGUED JUNE 5, 1995

DECIDED JULY 6, 1995

Defendant Rao Channapragada was convicted by a jury of violations of 18 U.S.C. sec. 495 and sec. 1001 for making fraudulent and false statements, and for counterfeiting and forgery. The district court sentenced him to fifteen months in prison. Channapragada now challenges his sentence, arguing that the district court erred in adding six levels for the amount of loss and two levels for more than minimal planning. We affirm.

I.

Rao Channapragada was president of Memory Storage Devices, Inc. ("MSD"), a subsidiary of Media Technology International, Inc. ("MTI"). In the fall of 1988, Channapragada approached the Champaign County Regional Planning Commission (the "Commission") and began negotiating for financial assistance for MSD in the form of operating capital to build a CD Rom factory in Champaign, Illinois. Channapragada discussed this plan with John Dimit, Community Development director for the Commission, and informed Dimit that he intended to build a factory that would employ about 150 people. After further discussions, Dimit informed Channapragada that the Commission would loan MSD $250,000 in Community Development Block Grant ("CDBG") money that the Department of Housing and Urban Development ("HUD") gives to the State Department of Commerce and Community Affairs, who then gives the grant to Champaign County.

The loan required Channapragada to provide at least $250,000 worth of collateral. In December, 1988, Channapragada offered a $550,000 piece of machinery to be manufactured in California as collateral. This proposal fell through, however, because MSD was unable to provide the Commission with a first security interest. After another unsuccessful attempt to secure a different piece of machinery as collateral, Channapragada offered electronic component parts supposedly owned by MTI and located in a factory in India. Unable to judge the value of the collateral, the Commission required the company to provide evidence of its value.

In an effort to provide this evidence, Channapragada created two invoices, one claiming the parts were worth $250,000 and another stating their value at $321,000. He manufactured these invoices by cutting and pasting from the original invoices for these parts; the original invoices indicated that these parts were obsolete and only worth $89,581. Channapragada sent to the Commission these fraudulent invoices and a letter asserting that his cost basis in the parts was $275,850.

In completing the loan documents, Channapragada signed a security agreement that falsely represented that MTI had the right to pledge the electronic parts "free and clear of all encumbrances." In fact, Channapragada had previously pledged to the Bank of India on December 1, 1986, in order to secure a $300,000 line of credit. MTI eventually defaulted on that loan and the Bank of India sued Channapragada and MTI in January, 1989. Channapragada filed his answer to this complaint on April 5, 1989. The Bank obtained a judgment on October 31, 1989.

Along with his problems in procuring adequate collateral for the Commission loan, Channapragada was unable to secure additional private financing for his project. As a result, the Commission decided to protect itself by using multiple loan closings and making several smaller loans. Channapragada closed on the first loan for $30,000 on April 7, 1989. Channapragada later borrowed $34,000 on May 24, 1989, another $30,000 on October 10, 1989, and $30,000 more on March 20, 1990. In each of the four transactions, Channapragada completed nearly identical paperwork, making the same representations that the collateral was worth approximately $321,000 and was owned free and clear of all encumbrances.

Ultimately, Channapragada never built the factory and defaulted on the Commission loans. Upon taking possession of the collateral, the Commission sold it and recovered only $4,500. Later, the Commission found the original undoctored invoice and discovered that the value of the equipment was far less than Channapragada had held it out to be. Excluding interest ($7,219.05) and attorney's fees ($38,764.33), the total actual loss to the Commission after selling the collateral was $111,793.18.

Channapragada was indicted and a jury convicted him of four counts of making fraudulent and false statements, in violation of 18 U.S.C. sec. 1001, and four counts of counterfeiting and forgery, in violation of 18 U.S.C. sec. 495. In sentencing him under the United States Sentencing Guidelines ("U.S.S.G.") sec. 2F1.1, the district court set Channapragada's base offense at six. It added two levels for "more than minimal planning" based on a finding of "repeated acts" and enhanced the level by six based on a net loss to the victim of $111,793.18. The district court refused to give Channapragada credit for acceptance of responsibility, resulting in a total offense level of fourteen, and a sentencing range of ...


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