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United States of America v. Manu Shah and Shah Engineering

December 16, 2011

UNITED STATES OF AMERICA, PLAINTIFF-APPELLEE,
v.
MANU SHAH AND SHAH ENGINEERING, INC., DEFENDANTS-APPELLANTS.



Appeal from the United States District Court for the Central District of Illinois, Division. No. 3:07-cr-30003-JES-BGC-Jeanne E. Scott, Judge.

The opinion of the court was delivered by: Tinder, Circuit Judge.

ARGUED NOVEMBER 1, 2010

Before ROVNER, WOOD, and TINDER, Circuit Judges.

Manu Shah pled guilty to two counts of mail fraud and one count of submitting false documents; Shah Engineering pled guilty to one count of mail fraud. See 18 U.S.C. §§ 1001, 1341. Their sentences included an order of restitution of $10 million for which they are jointly and severally liable. They appeal from the district court's January 15, 2010, order that denied them the credit they claim is due toward restitution. They seek "full, dollar-for-dollar credit for the value of the monies and securities that Mr. Shah deposited with the Clerk of Court at the time of their deposit," which deposits were made pre-judgment. For the reasons following, we dismiss Shah's appeal and affirm the district court's judgment against Shah Engineering.

I. Background

Manu Shah was the sole shareholder, owner, and operator of Shah Engineering, Inc., a Chicago-based corporation. Shah Engineering worked for many years as a contractor and subcontractor for numerous Illinois governmental entities, including the Illinois Department of Transportation ("IDOT"), the Illinois State Tollway Authority, and the City of Chicago. In connection with these contracts, Shah and Shah Engineering prepared and submitted invoices for the work performed. The invoices were supposed to be supported by documentation of the hours worked, costs, and expenses associated with the contracts, which documentation was to be maintained by Shah Engineering.

In 2003, IDOT decided to audit Shah and Shah Engineering. During its review of Shah Engineering's records, IDOT uncovered numerous irregularities and falsified documents, and it alerted the United States Attorney's office. On January 22, 2007, Shah and Shah Engineering were charged with mail fraud in violation of 18 U.S.C. § 1341 and Shah was charged with submitting false documents in violation of 18 U.S.C. § 1001.

On February 1, 2007, Shah waived indictment and pled guilty to all charges against him pursuant to a binding plea agreement, which contained a waiver of Shah's right to appeal. Later that month, Shah Engineering likewise waived indictment and pled guilty to one count of mail fraud. Shah's plea agreement acknowledged that the court may order restitution. The agreement set forth certain obligations that Shah agreed to undertake including:

The defendant will deposit the sum of $2,500,000 with the Clerk, U.S. District Court, by certified check, money order, or stock certificates (if acceptable with the Court) within 15 (fifteen) days of the filing of this agreement. The defendant will deposit an additional $1,000,000.00 to this fund each 30 (thirty) days after the initial deposit for a period of 90 days, until a total of $5,500,000 in principal is on deposit. . . . The defendant agrees to the entry of any order necessary for the Clerk to invest the funds in an interest-bearing account.

The clerk will hold this deposit in escrow . . . . The funds in escrow shall be used for the payment of any order of the Court for restitution to the victims of these offenses and the remainder will be used to pay the fine to be imposed on Shah Engineering, Inc. Once the fine, restitution and special assessments ordered are fully satisfied, the remainder, if any, less the 10% accumulated interest, should be returned to the defendant. Should the restitution order exceed the amount on deposit, the defendant will be obligated to pay the balance within 30 days.

Shah Plea Agreement ¶ 14 (emphases added). In consideration of these deposits, the United States Attorney agreed that it would not institute any "forfeiture actions to forfeit property as the proceeds of the unlawful activity outlined in the information." Id. ¶ 16. The parties further agreed that Shah "demonstrated . . . acceptance of personal responsibility for [his] criminal conduct in accordance with Section 3E1.1 of the Sentencing Guidelines," a "two-level reduction in the offense level is appropriate," and Shah qualified for an additional one-point reduction under § 3E1.1(b)(2), if such reduction was available. Id. ¶ 18(b). The plea agreement was signed by Shah's two trial attorneys, the Assistant United States Attorney ("AUSA"), and Shah himself.

Shah Engineering entered into a plea agreement that stated "an appropriate sentence for this offense will be a term of probation and a fine up to the amount of $500,000.00, and an order for restitution to the victim(s) of this offense in an amount determined by the Court" and "[t]he fine shall be satisfied by the funds submitted to the Clerk of the Court pursuant to paragraph 14 of the plea agreement executed by Manu Shah." Shah Eng'g Plea Agreement ¶ 11. Its plea agreement, like Shah's, contained a waiver of appeal rights. The plea agreement was signed by Shah on behalf of Shah Engineering, defense counsel, and the AUSA. Both plea agreements were filed with the district court on January 22, 2007.

At Shah's plea hearing, the magistrate judge reviewed with Shah in detail the plea agreement, including paragraph 14 regarding the deposits to be made. (The parties consented to proceeding before the magistrate judge.) The judge questioned whether the Clerk could accept stock certificates, and the AUSA said that "the intent here is to make sure that there is a pool for restitution when that figure is decided by the Court . . . and anything that goes towards that intent is acceptable to the government." (emphasis added). The judge and deputy clerk clarified that the Clerk's "office said that holding stock certificates is satisfactory[.]" At that point, the judge expressed concern about how the stock certificates would be valued. Shah stated that he understood his obligation under paragraph 14 and thought he could fulfill it. The judge then recited the express language stating that "[t]he clerk will hold this deposit in escrow" and "[t]he funds in escrow shall be used for the payment of any order of the Court for restitution to the victims of these offenses and the remainder will be used to pay the fine imposed on Shah Engineering." The AUSA added that the agreement contemplated that any monies remaining after payment of restitution and the fine "would be returned to Mr. Shah." The judge confirmed that was Shah's understanding as well. He also confirmed Shah's understanding that " '[s]hould the restitution order exceed the amount on deposit, the defendant will be obligated to pay the balance within 30 days.' So if this money that is up is short, then you have 30 days to pay the difference, understood?" Shah answered, "Yes."

At the end of the hearing, the magistrate judge asked defense counsel if he had reviewed the government's proposed order concerning paragraph 14 of the plea agreement. Shah's counsel stated that he had read it and had "no objection." The judge said that the order would be entered that day. As promised, later that day the court issued an order regarding the deposits Shah agreed to make with the Clerk. The order stated that it was "[p]ursuant to the Plea Agreement filed on January 22, 2007, and local Rule 67.2," and instructed Shah to deposit $2.5 million by February 7, 2007, and to make three deposits of $1 million each by March 7, 2007, April 9, 2007, and May 7, 2007. The order said that "if the deposits made by the defendant are cash or cash equivalents, the Clerk of the Court is directed to invest such in an interest-bearing account with the Registry Account by the defendant and retain said funds until further order of the Court." With respect to deposits of stock certificates, the order provided that "the Clerk of the Court shall hold such until further order of the Court." And on February 27, 2007, at Shah Engineering's plea hearing, the magistrate judge thoroughly reviewed the plea agreement, including the provisions regarding restitution with the corporate representative, who stated that he understood the terms of the agreement.

The magistrate judge determined that the guilty pleas of Shah and Shah Engineering were knowing and voluntary and that the crimes charged were supported by an independent factual basis as to each element of the offenses. He recommended that the guilty pleas be accepted and the defendants be adjudged guilty. No objections were filed to these recommendations and the district judge accepted them. Sentencing was set for June 4, 2007.

Shah did not adhere to the deadlines for making deposits. However, the Clerk received, on Shah's behalf, about $2.5 million in stock certificates on March 23, 2007, about $2 million in stock certificates on May 17, 2007, about 250,000 shares in stock certificates worth about $1 million on August 24, 2007, and 21,666 shares in stock certificates on February 27, 2008, with a total fair market value of about $5.5 million at the time of deposit. (Apparently the last deposit did not add any value to the total.) The parties do not dispute that these were the stocks' worth in the market as of the dates of deposit.

The judge repeatedly continued sentencing to allow for the completion of the audit of Shah Engineering's contracts, calculation of the loss and restitution amounts, and sufficient preparation and narrowing of the issues by the parties. Meanwhile, the stocks Shah deposited with the Clerk during a historic bull market, see Oliver Silverstein, Historic, Multi-Year Bull Market in U.S. Stocks Likely Over, Ins ideIn fo r m a t io n D a ily .info (N ov. 18, 2007), http://insideinformationdaily.info/Historic-Multi-Year-Bull-Market-in-U.S.-Stocks-Likely-Over.htm ("I believe this is the END of the bull market in stocks that we've grown up with. I believe you've just seen an historic top."), depreciated significantly. Shah contends that their value had fallen to below $2 million about one year after deposit. Not all the stocks went down in value though; a few actually appreciated. In July 2007, Shah's stockbroker, Michael Brcic, contacted a Clerk's office employee by email and advised that some of the deposited stocks were nearing a "target price" (i.e., the price at which Brcic had agreed with Shah to sell them) and requested that they be "swapped" for other stock of equal or higher value. The Clerk's employee responded that "it is not the Court's intention that the stock be 'swapped' out at anytime [sic], whether or not it gets to the target price." The record contains no indication that Shah or his counsel contacted the government, the district judge, or the magistrate judge to make a request to sell any of the stocks on deposit.

On April 29, 2008, the district judge held a hearing attended by Shah, Shah Engineering, and counsel. The AUSA stated that the parties' sentencing memoranda revealed they were far apart on the amount of the loss and restitution, but they had been trying to reach an agreement. The government was seeking "an exceptional showing of acceptance of responsibility," which would allow "Shah to earn back that acceptance of responsibility that is now no longer in the Pre-Sentence Report." (Just three months before, the government had expressed concerns over whether Shah was living up to his obligations under the plea agreement, claimed that "documentation supplied by Shah cannot be trusted," and asserted that he was obstructing justice in the course of negotiating the loss and restitution amount.) To that end, the parties agreed that before sentencing, Shah would post the total amount of an agreed upon loss/restitution figure of $10 million. The government asked for a six-month continuance of the sentencing hearing to allow Shah to accomplish this. The AUSA stated that Shah committed to a payment plan regarding the amounts "to be posted." The AUSA continued:

But at the end, by the time the sentencing comes up, the full ten million dollars in cash; not in stock or any other negotiable instruments; but the ten million dollars will be posted with the Court and subject to be paid out as restitution at the time.

That is our goal . . . to make sure that the victims are made whole, or as close as possible, at the time of sentencing.

(emphasis added). The court invited a response by defense counsel, and Shah's attorney confirmed that the parties had agreed to a restitution amount of $10 million.

Counsel stated, however, that a lot of Shah's money was illiquid and "we need to work with other people to make sure that this money is properly loaned to Mr. Shah in order to make restitution." He explained:

Mr. Shah posted five and a half million dollars of stock at the beginning of this case . . . [which] is now worth I think 4.1 million dollars.

What we are going to do . . . is to move around some of the stock, sell some, cash it in, and then every month make a payment to the escrow in the amount of a half million dollars.

At the end of the six months we should have approximately 8 million dollars or 8.5 million dollars in that escrow. There would then be a balloon payment which would be made on November 15th which would be the balance of the 10 million dollars.

(emphases added). Shah's counsel stated that some of the defrauded agencies actually owed Shah money for work performed, to the tune of $1.5 million. He intended to work with the government to try to use that money toward the $10 million. The court then confirmed defense counsel's understanding that the parties agreed the amount of loss and amount of restitution would be $10 million. At that point, the court advised:

In the event you, counsel, and his financial advisors, think it advisable to sell the stock that was deposited, if you are all agreeable to do that and put forth a plan on how to do it, and substitute the cash, I would entertain this during this six months hiatus; rather than ...


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