United States District Court, Central District of Illinois, Springfield Division
May 1, 2002
UNITED STATES OF AMERICA, PLAINTIFF,
BRUCE W. RHODES, DEFENDANT.
The opinion of the court was delivered by: Richard Mills, United States District Judge
"No man profiteth but by the loss of others."
Montaigne: Essays, I.xxi.
Evidently taking Montaigne's words to heart, Bruce W. Rhodes swindled
over 240 investors out of $1,104,557.39.
However, he will spend the next 37 months of his life in the custody of
the Bureau of Prisons because of his actions.
According to his written plea agreement, Bruce W. Rhodes worked as an
investment representative for the investment brokerage firm Magna
Investments, Inc., between
October 1997 and July 1999. During that
time, Rhodes devised a scheme whereby, in certain instances, he knowingly
misdirected funds that customers had entrusted to him and to Magna
Investments in order to obtain more money for himself. Rhodes did so in
First, Rhodes misused customers' money by directing funds which were
in, or intended to be placed in, the customers' accounts to be deposited
into one of his accounts so that he could use that money for personal
expenses (hereinafter "the direct embezzlement victims").*fn1 Second,
Rhodes misused customers' funds by directing, in certain instances, that
the customers' money be used to purchase investments which the customers
did not request (such as long-term callable certificates of deposit and
annuities) but which paid him and Magna Investments a higher commission
than would have been paid on the investments which the customers had
requested (hereinafter "the unrequested investment victims").*fn2 To
cause the misdirection of customers' funds, Rhodes, on several
occasions, made false statements, prepared false documents, and made use
of the United States mails in order to facilitate his fraudulent scheme.
On January 4, 2001, a federal grand jury returned a six count
Indictment against Rhodes as a result of this conduct. Counts I through
IV charged him with mail fraud in violation of 18 U.S.C. § 1341;
Counts V and VI charged him with wire fraud in violation of
18 U.S.C. § 1343. On July 2, 2001, Rhodes changed his plea before
United States Magistrate Judge Byron G. Cudmore from not guilty to guilty
to one Count of mail fraud in violation of 18 U.S.C. § 1341.*fn3 On
July 18, 2001, the Court accepted Magistrate Judge Cudmore's Report and
Recommendation regarding Rhodes' adjudication of guilt. At his
sentencing hearing, Rhodes raised the following unresolved objections to
his Presentence Investigation Report ("PSR").
II. OBJECTIONS AND FINDINGS
A. Paragraph 21
Rhodes objects to paragraph 21because he denies that he wrongfully
diverted any funds from his grandmother, Grace Shrive. In support of his
argument, Rhodes points to a letter written by his grandmother to the
Court wherein Mrs. Shrive denies that Rhodes ever diverted any funds from
her account into his.
However, even assuming that Rhodes did divert money from his
grandmother without her permission, neither paragraph 21 nor any other
paragraph within the PSR employs that money in calculating the amount of
loss for Sentencing Guidelines purposes or for purposes of calculating
restitution. Accordingly, because Rhodes' objection to paragraph 21 does
not affect his sentencing, the Court declines to make a factual finding
on that objection pursuant to Federal Rule of Criminal Procedure
B. Paragraphs 105, 106, 111, & 112
Rhodes objects to paragraphs 105, 106, 111, and 112 wherein he receives
an eleven level increase, pursuant to U.S.S.G. § 2F1.1(b)(1)(L), to
his base offense level because the amount of loss attributable to him is
more than $800,000.00 but less than $1,500,000.00. Rhodes argues that
the Court should find the appropriate guideline section to be U.S.S.G.
because the correct amount of loss which his fraud
caused is more than $20,000.00 but less than $40,000.00, thereby adding
only four additional points to his base offense level. Rhodes makes
three arguments in support of this position.
First, Rhodes asserts that his offense of conviction and his alleged
relevant conduct are so separate and distinct that they cannot constitute
part of the same course of conduct, common scheme, or plan.
Specifically, Rhodes contends that he only pleaded guilty to fraudulently
converting funds from Roy Bertelli and June Myers (two of the direct
embezzlement victims) which are crimes akin to theft by deception or
embezzlement. Rhodes claims that this conduct is vastly different than
his conduct regarding the 240 unrequested investment victims. Rhodes
claims that the Government has presented no evidence that the
embezzlement victims and the unrequested investment victims are in any
way connected by a common factor such as a common victim, common
accomplices, a common purpose, or a similar modus operandi.
Second, Rhodes argues that his conduct did not cause any loss to the
240 unrequested investment victims; rather, he suggests that the only
reason that these investors lost any money at all was due to the rising
interest rates which resulted in a decline in the market value of
long-term certificates of deposit — a decline which was not
reasonably foreseeable. In fact, Rhodes claims that, had interest rates
fallen, the victims would have made more money on the investments which
he made for them versus the investments which they had requested. In any
event, Rhodes contends that his sentence should not depend upon the
fortuity of the interest rate fluctuations because it would make one of
the Sentencing Guidelines' purposes (i.e., uniformity) virtually
Third, Rhodes argues that Magna Investments is not a "victim" for
purposes of the Sentencing Guidelines. Because Magna Investments was
under no legal obligation to do so but, rather, voluntarily elected to
reimburse the investors for the losses which they realized on the re-sale
of the long-term callable certificates of deposit in which he had
invested their money and for the surrender charges incurred in connection
with the rescission of the unrequested annuity contracts, Rhodes asserts
that Magna Investments has only suffered "consequential damages" which
are excluded from the amount of loss calculation. U.S.S.G. § 2F1.1,
comment., (n. 8(c)); United States v. Marlatt, 24 F.3d 1005, 1007 (7th
Cir. 1994). Rhodes claims that Magna Investments reimbursed these
investors in order to protect its own business interests in fending off
law suits, adverse publicity, and the wrath of regulators.
Moreover, because Magna Investments decided when to sell the victims'
unrequested, long-term certificates of deposit and annuities, Rhodes
argues that Magna Investments was the architect of its own losses. Had
Magna waited until the interest rate market reversed itself, Rhodes
claims that the amount of loss would not have been as great. As such,
Rhodes contends that this reimbursement money paid by Magna Investments
to its customers who received investments which they had not requested
should not be considered in calculating the amount of loss for sentencing
Furthermore, Rhodes argues that Magna Investments' own conduct in
failing to regulate him and by providing false and misleading monthly
statements to investors caused the loss which it has suffered. In
short, Rhodes asserts that his conduct did not cause investors to lose
money. Rather, two extraneous events totally beyond his intent and
control occurred after
he had effected sales of the long-term
certificates of deposit to the investors: (1) interest rates increased
(an event not reasonably foreseeable) causing a decline in the market
values, which in turn resulted in "unrealized" or "paper" losses and (2)
Magna Investments voluntarily chose to realize those "losses" by selling
the instruments for market value. Accordingly, Rhodes claims that the
money paid by Magna Investments to reimburse the 240 investors who
received unrequested investments should not be counted in calculating the
amount of loss for purposes of determining his adjusted offense level.
The Court finds that the proper amount of loss attributable to Rhodes
for purposes of calculating his adjusted offense level is $1,104,557.39
as set forth in the PSR. U.S.S.G. § 2F1.1(b)(1)(L). The United
States Court of Appeals for the Seventh Circuit has held:
Under § 2F1.1(b)(1), the defendant's offense level
is increased incrementally based on the amount of loss
caused by the fraud. Application Note 3 to § 2F1.1
provides guidance as to how the loss caused must be
calculated, stating: "For the purpose of subsection
(b)(1), the loss need not be determined with
precision. The court need only make a reasonable
estimate of the loss, given the available information . . .
The offender's gain from committing the fraud is
an alternative estimate that ordinarily will
underestimate the loss." U.S.S.G. § 2F1.1, Comment
(Note 8). When calculating the amount of loss
attributable to the defendant's fraudulent scheme, the
sentencing court is to consider all relevant conduct
under § 1B1 .3(a) and is not limited to loss
caused by the offense of conviction. United States v.
Sykes, 7 F.3d 1331, 1335-36 (7th Cir. 1993).
"Relevant conduct," in turn, is defined as "all acts
and omissions committed . . . or willfully caused by
the defendant . . . that occurred during the
commission of the offense of conviction, in
preparation for that offense, or in the course of
attempting to avoid detection or responsibility for
that offense." U.S.S.G. § 1B1 .3(a)(1)(A).
United States v. O'Brien, 119 F.3d 523, 534 (7th Cir. 1997).
Defendant's first argument (that the money lost by the unrequested
investors should not be considered as part of relevant conduct) misses
the mark. U.S.S.G. § 1B1.3(a)(2) provides that relevant conduct
includes "all acts and omissions described in subdivision (1)(A) and
(1)(B) above that were part of the same course of conduct or common
scheme or plan as the offense of conviction. . . ." Id. Contrary to
Rhodes' apparent belief, he has not been charged with, nor has he been
convicted of, embezzlement or theft by deception. Rather, Rhodes pleaded
guilty to the offense of mail fraud in violation of 18 U.S.C. § 1341.
Thus, the focus on Rhodes' "relevant conduct" centers upon whether or
not his other activities should be considered to be part of a common
scheme or plan or part of the same course of conduct as his mail fraud
conviction. The focus is not, as Rhodes would like it, upon whether the
actions he took in directly embezzling funds from investors — such
as forging signatures and manipulating documents — are similar to
the misrepresentations he made to the investors to whom he provided
investments which they had not requested.
When the inquiry is properly framed, the answer to the question of
whether Rhodes' actions with regard to the 240 investors who received
unrequested investments should be considered relevant conduct under
U.S.S.G. § 1B1.3 is easily answered in the affirmative. Initially,
the Court notes that, had Rhodes been convicted
of all six Counts charged
in the Indictment, those Counts would have been grouped together for
sentencing purposes pursuant to U.S.S.G. § 3D1.2(d). See United
States v. Fitzgerald, 232 F.3d 315, 319 (2d Cir. 2000) (noting that
"[b]ecause U.S.S.G. § 1B1.3(a)(2) defines relevant conduct in terms
of the grouping rules of § 3D1.2(d), a good first step is to
determine whether or not . . . [offenses] should be grouped under §
3D1.2(d)."). This fact lends support to the conclusion that Rhodes'
actions regarding the 240 unrequested investment customers should be
considered to be relevant conduct.
Furthermore, commentary note 9(A) to U.S.S.G. § 1B1.3 provides that
in order "[f]or two or more offenses to constitute part of a common
scheme or plan, they must be substantially connected to each other by at
least one common factor, such as common victims, common accomplices,
common purpose, or similar modus operandi." Id. Here, there were common
victims — Magna Bank and Magna Investments investors/customers; a
common purpose — defrauding investors for personal gain in order to
pay for his high monthly living expenses; and a similar modus operandi
— use of the mails to facilitate his crimes. See United States v.
Palomba, 31 F.3d 1456, 1465 n. 8 (9th Cir. 1994) (holding that the
defendant's "separately charged transmittals by mail and facsimile were
roughly contemporaneous events, constituted essentially similar modus
operandi, and were sent in furtherance of the same criminal objective.
Given this nexus between the wire fraud counts on which [the defendant]
was properly convicted and the mail fraud counts, the three criteria for
`relevant conduct' appear to have been met."). Thus, contrary to Rhodes'
argument, the Court believes that his dealings with the 240 unrequested
investment victims constitute relevant conduct because his actions toward
them were part of a common scheme or plan to defraud investors for
personal gain and to use the mail in order to accomplish this goal.
U.S.S.G. § 1B1.3.
However, even if the Court were to agree that Rhodes' actions were not
part of a common scheme or plan, his dealings with the six direct
embezzlement victims as compared to that of the 240 unrequested
investment victims certainly would have to be classified as being part of
the same course of conduct. Commentary note 9(B) to U.S.S.G. § 1B1.3
Offenses that do not qualify as part of a common
scheme or plan may nonetheless qualify as part of the
same course of conduct if they are sufficiently
connected or related to each other as to warrant the
conclusion that they are part of a single episode,
spree, or ongoing series of offenses. Factors that
are appropriate to the determination of whether
offenses are sufficiently connected or related to each
other to be considered as part of the same course of
conduct include the degree of similarity of the
offenses, the regularity (repetitions) of the
offenses, and the time interval between the offenses.
Here, the offenses are strikingly similar. In his position as a
registered representative or broker for Magna Investments, Rhodes, over a
two year period of time, defrauded investors for personal financial
gain, used his position of trust (more on that infra) in order to conceal
and to perpetuate his fraud, and used the mail and/or wires in order to
accomplish this goal.
Perhaps most tellingly, in his sentencing commentary, Rhodes admits
that two of the investors (Roy Bertelli and Evelyn Wright) fell into both
categories of victims: Rhodes directly embezzled money from
them, and he
invested their money in programs which they had not requested.
Therefore, Rhodes' conduct toward the two "types" of victims, obviously,
bears some relation to one another.
Moreover, in the written plea agreement which both he and his counsel
signed, Rhodes admitted that between October 1997 and July 1999, he
knowingly misdirected funds that customers entrusted to him and to Magna
in order to obtain more money for himself. Rhodes also admitted that his
scheme involved two components (i.e., direct embezzlement of customer
funds and giving customers unrequested investments). Thus, Rhodes has
admitted that his scheme had two components with the same goal of
defrauding Magna Investments customers.
In addition, Rhodes' count of conviction (Count IV) includes elements
of both the embezzlement and the unrequested investment parts of his mail
fraud scheme. Therefore, the Court finds that the PSR properly
calculated Rhodes' amount of loss, including relevant conduct.*fn4
As for his second argument, the Court finds it too to be unavailing. The
Seventh Circuit has explained:
Mail fraud and wire fraud offenses fall under
U.S.S.G. § 2F1.1, which establishes a base offense
level of 6, and then requires that level to be
increased depending on the amount of the loss
involved. Application Note 8 discusses the way in
which loss should be calculated, incorporating by
reference the methodology set forth in U.S.S.G. §
2B1.1 (the guideline for larceny, embezzlement, and
other forms of theft). That Application Note states
that "[a]s in theft cases, loss is the value of the
money, property, or services unlawfully taken. . . ."
It then explains that "[c]onsistent with the
provisions of § 2X1.1 (Attempt, Solicitation, or
Conspiracy), if an intended loss that the defendant
was attempting to inflict can be determined, this
figure w ill be used if it is greater than the actual
United States v. Lorefice, 192 F.3d 647
, 654 (7th Cir. 1999); see United
States v. Lauer, 148 F.3d 766
, 767 (7th Cir. 1998) (noting that "[l]oss
is defined as either the actual or the intended loss-whichever is
Here, the investors suffered an actual loss of $1,104,557.39 because
that is the amount of money Magna Investments had to dole out in order to
make its customers whole as a result of Rhodes' fraud. This amount also
represents the intended loss which the Seventh Circuit defines as "the
amount that the defendant placed at risk by misappropriating money or
other property." Id. The fact that Rhodes may not have intended to
cause a loss of over a million dollars is irrelevant; in fact, he
probably intended just the opposite. Nevertheless, the loss was an
intended consequence of Rhodes' fraud. Id. at 767-78 (holding that it "is
the same sense in which the author of a Ponzi scheme might not intend
that any of his investors lose anything — might intend that the
scheme continue until the end of the world, in which event there would be
no losers. Likewise an embezzler might not intend to impose a loss on
his employer, might instead intend to use the money to gamble and win and
thus be able to replace every penny he had taken. Suppose that he is
caught before he has a chance to gamble with any of the money, and every
cent is recovered. He is nevertheless an embezzler to the full extent
of the amount he took, no matter how golden his intentions or happy the
More importantly for Rhodes' interest rate fluctuation argument, the
Seventh Circuit has opined that "future events that are beyond the
defendant's control do not affect his intent." Lorefice, 192 F.3d at
655, citing United States v. Bonanno, 146 F.3d 502, 510 (7th Cir. 1998)
(emphasis added). In any event, the Seventh Circuit instructs that the
time to take into account the economic realities of the defendant's
conduct is in considering a request for a downward departure. United
States v. Stockheimer, 157 F.3d 1082, 1089 (7th Cir. 1998; Bonanno, 146
F.3d at 510; United States v. Downs, 123 F.3d 637, 643-44 (7th Cir.
Finally, as for Rhodes' policy argument that the fluctuation in
interest rates should not constitute the driving force for his sentence,
the Court believes that Rhodes, rather than the victims, should bear the
risk of forces beyond his control. The victims came to Rhodes and asked
him to place their money in a short-term, relatively risk free
investment, and he gave them a long-term, higher-risk investment in order
to receive a greater profit for himself. See U.S.S.G. § 2F1.1,
comment., (n. 8(a)) (discussing calculating the amount of loss in product
substitution cases). Thus, to the extent that the interest rates have
come into play in calculating the amount of loss, they have done so due
to Rhodes' own conduct.
As for his third argument, the Court, likewise, rejects it. Magna
Investments should be lauded, not punished, for stepping up to the plate
and making its customers whole. Contrary to Rhodes' argument, the Court
believes that an argument could be made that Magna Investments has a
legal obligation to reimburse its customers based upon its agent's
(Defendant) fraudulent activity pursuant to the doctrine of respondeat
superior.*fn5 All that Magna Investments did, in effect, through its
reimbursements is to reduce the number of victims from approximately 240
Furthermore, "[t]he fact that the victims have been able to
recover . . . their loss after the discovery of the fraud does not diminish
[the defendant's] culpability and responsibility for purposes of
sentencing." United States v. Janusz, 135 F.3d 1319, 1324
(10th Cir. 1998); see Downs, 123 F.3d at 643-44 (rejecting the argument
that the amount of loss calculation should be reduced by post-discovery
restitution); see also United States v. Wilson, 980 F.2d 259,
261-62 (4th Cir. 1992) (holding that the amount of loss under U.S.S.G.
§ 2F1.1 includes amounts that the victim ultimately
recovers from a third party guarantor). As United States District Judge
Charles Norgle recently opined:
Loss calculation analysis with its graduated
punishment scheme properly focuses on the objective
financial risk to victims caused by the defendant's
criminal conduct, without consideration of third party
guarantees or that the full exposure of risk did not
come to pass. That a victim . . . was able to
mitigate its losses through the good faith performance
of a third party guarantor is an event that does not
inure to the benefit of the perpetrator of the fraud.
To that end, the defendant is not entitled to a lower
loss calculation because the victim of the defendant's
fraud lessened its "bottom line" losses through third
guarantees or other agreements that do not
involve the defendant.
United States v. Lane, ___ F. Supp.2d ___, 2002 WL 122493, *12
(N.D.Ill. Jan. 30, 2002) (internal citations omitted). Accordingly, the
Court finds that the PSR correctly calculates the amount of loss
attributable to Rhodes for purposes of calculating his adjusted offense
level, and his objections to paragraphs 105, 106, 111, & 112 are denied.
C. Paragraphs 23, 24, 30, 31, 63, 70, & 71
Defendant objects to paragraphs 23, 24, 30, 31, 63, 70, and 71 which
calculate the amount of loss at $150,282.00 for the six victims from whom
he directly embezzled funds. Rhodes argues that he should only be held
accountable for $31,122.00 because of the reimbursements which he has
made to these victims. Rhodes asserts that these paragraphs' implication
that the $119,160.00 in reimbursement payments were made with funds from
illegitimate sources is baseless and without any evidentiary support, and
thus, he should receive the additional reduction in the amount of loss
calculation for the reimbursement payments which he has made.
However, even if the Court were to make the reduction which Rhodes
requests, it would not affect his Sentencing Guideline range because the
Court has, supra, found that the losses suffered by the 240 victims who
received investments which they had not requested (and which Magna
Investments has subsequently reimbursed) constitute relevant conduct for
purposes of determining the amount of loss for which Rhodes should be held
accountable for sentencing purposes. As such, even if the Court were to
make the reduction, Rhodes' amount of loss would still be more than
$800,000.00. Accordingly, because Rhodes' objections to paragraphs 23,
24, 30, 31, 63, 70, and 71 do not affect his sentencing, the Court
declines to make a factual finding on those objections pursuant to
Federal Rule of Criminal Procedure 32(c)(1).
D. Paragraph 115
Rhodes next objects to paragraph 115 wherein he receives a two level
enhancement, pursuant to U.S.S.G. § 3B1.3, for abusing a position of
trust. Rhodes argues that on June 17, 1998, Magna Investments notified
the National Association of Securities Dealers that it had severely
reprimanded Rhodes and that it had placed him under more rigorous
supervision. Rhodes claims that this supervision rendered his functions
with Magna Investments comparable to that of a bank teller or a similar
position not characterized by the managerial-type discretion necessary in
order to receive an enhancement under the Sentencing Guidelines for
abusing a position of trust. Rhodes contends that there is no evidence
to suggest that he held himself out to be an experienced financial
advisor in order to gain any particular victim's confidence or trust and
that most of the victims had a pre-existing relationship with Magna Bank
and/or Magna Investments prior to dealing with him.
In fact, Rhodes claims that he had no more discretionary authority than
a bank teller. Finally, Rhodes asserts that there is no evidence that he
possessed any broad discretion to act upon the victims' behalf.
Accordingly, Rhodes objects to the two level enhancement for abusing a
position of trust.
The Seventh Circuit has explained:
In order for the increase [for abusing a position of
trust] to be appropriate, the government must
demonstrate that "(1) the defendant occupied a
position of trust; and (2) the defendant's abuse of
the position of trust significantly facilitated the
commission of the offense."
United States v.
Davuluri, 239 F.3d 902, 908 (7th Cir. 2001). . . .
[T]he "sentencing court must look beyond formal labels
to the relationship between the victim and the
defendant and the responsibility entrusted by the
victim to the defendant." Davuluri, 239 F.3d at 908.
In other words, whether [a defendant] occupied a
position of trust turns upon whether she had "access
or authority over [other persons'] valuable things."
Strang, 80 F.3d at 1220; Brown, 47 F.3d at 205.
United States v. Frykholm, 267 F.3d 604
, 612 (7th Cir. 2001).
In the instant case, the Court finds the enhancement under U.S.S.G.
§ 3B1.3 to be appropriate. Initially, the Court notes that the
stricter scrutiny applied to Rhodes' transactions by Magna Investments
did not occur until after many of the fraudulent transactions detailed in
the Indictment, including the transaction outlined in his Count of
conviction, had occurred. Moreover, contrary to his assertions
otherwise, Rhodes w as subject to little, if any, supervision prior to
June 1998 (his immediate supervisor worked in St. Louis, Missouri, some
100 miles away), and the "strict scrutiny" to which Magna Investments
subjected Rhodes after June 1998 was, obviously, lax at best given the
fact that he continued to engage in the same sort of fraudulent activity
after June 1998 which had engendered his reprimand.
In any event, the Court finds that Rhodes clearly occupied a position
of trust and that his abuse of this position of trust significantly
facilitated the commission of his offense. In his capacity as a licensed
stock broker and a registered representative for Magna Investments,
Rhodes had access to customers' Social Security numbers, their mailing
addresses, their signatures, and their money; he also had access to Magna
Investments' forms, accounting procedures, and investment practices.
Thus, Rhodes clearly had access or authority over others' valuable
things. See United States v. Paneras, 222 F.3d 406, 412-13 (7th Cir.
2000) (finding that the defendant held a position of trust because he
held a Series 7 license, because of his knowledge of financial markets,
and because of his willingness to exploit that trust); see also United
States v. Bhagavan, 116 F.3d 189, 193 (7th Cir. 1997) (finding the
enhancement to be proper because the defendant "personally opened the
mail, decided how each customer should pay its invoices, restricted the
information available to his own office manager and accountant, and
adjusted invoices to reflect his side payments."); see also United
States v. Strang, 80 F.3d 1214, 1216, 1220 (7th Cir. 1996) (holding that
those who make use of the corporate form of doing business assume a
fiduciary duty and, thus, occupy a position of trust).
Moreover, Rhodes' access to these "valuable things" significantly
facilitated his crime as he w as able to transfer funds using his
victims' forged signatures and Social Security numbers, and he was able
to have statements and other financial documents which may have alerted
his victims to the fraud mailed to him rather than to his victims. See
United States v. Sonsalla, 241 F.3d 904, 910 (7th Cir. 2001) (upholding
the abuse of a position of trust enhancement because the defendant "would
not have been able to execute his fraudulent scheme had he not occupied
such a `sensitive position' with the bank. His position allowed him
access to large amounts of cash, including funds customers had given him
personally to deposit into their accounts."); see also United States v.
Stewart, 33 F.3d 764, 769 (7th Cir. 1994) (affirming the enhancement
because the defendant, a licensed insurance broker, mailed communications
to clients and others containing false representations that concealed his
clients' funds); see also United States v. Dion,
32 F.3d 1147, 1150 (7th Cir. 1994) (upholding the enhancement because
defendant, based upon his position at the bank, was able to misapply
funds and conceal the funds' location by re-characterizing
transactions); see also United States v. Christiansen, 958 F.2d 285, 288
(9th Cir. 1992) (affirming the enhancement because defendant's position
allowed her to conceal her theft for an extended period of time). As for
six of his victims, they trusted Rhodes to invest their money for them,
and he did not; for 240 victims, they trusted him to invest their money
as requested, and he did not. Therefore, the Court believes that Rhodes
fits comfortably within the Sentencing Guideline's definition of one who
abuses a position of trust, and therefore, his objection to Paragraph 115
E. Paragraphs 170, 171, & 172
Rhodes also objects to paragraphs 170, 171, and 172 which establish the
amount of restitution owed by him to Magna Investments to be
$1,104,557.39. Rhodes argues that he did not actually "cause" that amount
of loss; rather, he blames the loss, if any, upon the volatility and
unpredictability of the interest rates and upon Magna Investments' desire
to avoid bad publicity and civil litigation. Rhodes asserts that, because
he did not receive a financial benefit any where near $1,000,000.00, he
cannot be said to have been the immediate cause of the loss, and
therefore, restitution in that amount is not warranted.
Furthermore, Rhodes contends that he does not possess the financial
wherewithal to pay any significant amount of restitution. Rhodes claims
that the PSR has ignored the provisions of his August 1, 2001, net worth
statement which show first, second, and third mortgages upon his family
residence which exceed its fair market value. W hen these mortgages are
considered, Rhodes asserts that his negative net worth becomes —
$39,264.82. In addition, Rhodes argues that he cannot pay restitution in
the amount established by the PSR based upon his familial commitments.
Therefore, Rhodes asks the Court to impose only a minimal, if any, amount
During his sentencing hearing Rhodes conceded that his financial
condition is not a factor for this Court's consideration when imposing
restitution, and rightfully so. Defendant's offense is one "covered by
the Mandatory Victim Restitution Act (MVRA), 18 U.S.C. § 3663A, which
prohibits the court from examining the defendant's ability to pay
restitution." United States v. Chay, 281 F.3d 682, 686 (7th Cir. 2002),
citing 18 U.S.C. § 3664(f)(1)(A); United States v. McIntosh,
198 F.3d 995, 1003-04 (7th Cir. 2000); and United States v. Szarwark,
168 F.3d 993 (7th Cir. 1999). The only inquiry into his ability to pay
which the Court must make is if it were to establish a payment schedule
for the ordered restitution amount. 18 U.S.C. § 3664(f)(2)-(3);
McIntosh, 198 F.3d at 1004; Szarwark, 168 F.3d at 997.
Here, however, the Court has ordered that restitution is due
immediately. See United States v. Jaroszenko, 92 F.3d 486, 492 (7th Cir.
1996) (holding that "`immediate payment' does not mean `immediate payment
in full;' rather it means `payment to the extent that the defendant can
make it in good faith, beginning immediately.'"); see also United States
v. Ahmad, 2 F.3d 245, 249 (7th Cir. 1993) (holding that "[a] judge
`may', but need not, establish a schedule."). Thus, inquiry into Rhodes'
financial condition is not necessary.
Furthermore, the Court has rejected, supra, Rhodes' argument that he
did not "cause" and that Magna Investments
did not suffer a loss in the
amount of $1,104, 557.39. Restitution is not limited to Rhodes' personal
gain. Chay, 281 F.3d at 686. Rather, "restitution tracks `the recovery to
which [the victim] would have been entitled in a civil suit against the
criminal.'" United States v. Behrman, 235 F.3d 1049
, 1052 (7th Cir.
2000), quoting United States v. Martin, 195 F.3d 961
, 968 (7th Cir.
1999). In this case, there is a causal connection between Rhodes'
fraudulent conduct and the restitution amount stated in the PSR.*fn6
Accordingly, Rhodes' objections to paragraphs 170, 171, and 172 are
F. Downward Departure
Finally, Rhodes asks the Court for a downward departure because the
amount of loss over-represents the seriousness of his crime. Rhodes
reiterates his argument that his sentence should not depend upon the
fortuity of the interest rate fluctuations because it would make one of
the Sentencing Guidelines' purposes (i.e., uniformity) virtually
unattainable. Moreover, as to the 240 victims who received investments
which they had not requested, Rhodes asserts that he did not personally
derive a financial benefit anywhere near the amount of loss figure
calculated in the PSR; rather, he simply earned a small commission per
transaction in the ordinary course of business. Accordingly, Rhodes
claims that because he did not personally benefit in an amount equal to
the amount of loss, the Court should grant him a downward departure
because the amount of loss over-represents the seriousness of his crime.
The Court clearly possesses the authority to grant Rhodes the downward
departure which he seeks if it finds that the amount of loss
significantly overstates the seriousness of his conduct. U.S.S.G. §
2F1.1, comment. (n. 8(b)); United States v. Saunders, 129 F.3d 925, 933
(7th Cir. 1997). However, the Court declines to so exercise its
discretion because it does not believe that the amount of loss
significantly overstates the seriousness of his conduct. Rhodes preyed
upon elderly investors by embezzling funds which they had provided to him
for investment. For those investors for whom he actually invested
money, Rhodes invested in financial plans which would most benefit him
and not in programs which the victims had requested or, in some cases,
would be suitable for them.*fn7 Rhodes took these actions in order to
fuel and to fund his high personal monthly expenses. Thus, the Court
does not believe a downward departure is warranted under the facts of
In fact, if a departure is warranted at all, the Court would upwardly
depart. After pleading guilty, Rhodes continued to engage in shady
financial dealings with next employer, and he attempted to open a line of
credit without the approval of the Court in violation of his bond. Such
conduct could be construed as Rhodes' failure to truly accept
responsibility for his crime and could result in the Court revoking his
three level reduction for acceptance of responsibility. See U.S.S.G.
§ 3E1.1, comment. (n. 1(b) (providing that "[i]n determining whether
a defendant qualifies [for the acceptance of responsibility decrease],
appropriate considerations include . . . voluntary termination or
withdrawal from criminal conduct"); see also U.S.S.G. § 3E1.1,
comment (n. 3) (providing that "this evidence may be outweighed by
the defendant that is inconsistent with such acceptance of
responsibility."); see also United States v. Rhodes, 894 F. Supp. 1, 5
(D.D.C. 1995) (holding that an acceptance of responsibility "reduction is
unwarranted because, following a Court appearance in this case, the
Rhodes w as arrested on February 10, 1995 for the same conduct for which
he was convicted.").
Nevertheless, Rhodes has pleaded guilty, has saved judicial resources,
prosecutorial resources, and tax payer money, and therefore, the Court
will not remove his acceptance of responsibility decrease. However, the
Court declines to downward depart from Rhodes' sentence because it does
not believe that the amount of loss attributed to him for sentencing
purposes significantly overstates the seriousness of his conduct.
Ergo, Rhodes's objections to the PSR are DENIED. Therefore, Rhodes has
an adjusted offense level of 20 and a criminal history within category
I, yielding a sentencing range of 33 to 41 months of imprisonment.
Accordingly, Bruce W. Rhodes is hereby sentenced to a term of
imprisonment of 37 months to be followed by a 3 year term of supervised
release upon being discharged from the Bureau of Prisons. Rhodes is
ordered to pay a special assessment of $100.00 and to pay restitution in
the amount of $1,104,557.39 to Magna Investments, Inc., Attn: Kent
Knickmeyer, 1 Firststar Plaza, St. Louis, Missouri, 63101,
immediately.*fn8 No fine is ordered. Finally, the Court
recommends to the Bureau of Prisons that Rhodes be placed in a facility
as close to Springfield, Illinois, as possible.