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United States v. Rosen

United States Court of Appeals, Seventh Circuit

August 14, 2013

United States of America, Plaintiff Appellee,
Harold N. Rosen, Defendant Appellant.

Argued October 22, 2012

Appeal from the United States District Court for the Southern District of Illinois. No. 3:11-cr-30017-MJR-1 — Michael J. Reagan, Judge.

Before Bauer and Rovner, Circuit Judges, and Randa, [*] District Judge.

Bauer, Circuit Judge.

On October 2, 2011, Harold N. Rosen pleaded guilty to seven counts of wire fraud for his perpetration of a fairly elaborate fraud scheme, centered around the development of an affordable housing project that was to be built in East St. Louis, Illinois. Rosen now appeals the district court's calculation of the loss amount, the determination that Rosen was an organizer or leader of criminal activity, and the reasonableness of his sentence. We affirm.


Rosen, the owner of Kully Construction, LLC, submitted a development plan to the city of East St. Louis ("the City") to develop an affordable housing project known as the Bowman Estates. The project was to be constructed through a combination of private and public investment and was to be developed by Kully Construction and Rosen. The project's plans called for a $5, 624, 050 development, approved by the City council, that allowed for the contribution of $800, 000 of federal grant funds, $1, 124, 810 in Tax Increment Financing ("TIF"), and a contribution of $3, 699, 240 in private funding by Rosen and Kully Construction, as a condition of receiving the public financing funds.

To obtain this contract, Rosen lied at nearly every turn. First, Rosen submitted a development plan to the City. The proposal was almost entirely fictitious. The plan falsely stated that Kully Construction had over twenty years of experience in completing successful housing projects. The plan named Tracy Hawkins as CEO of Kully Construction and lauded her more than ten years' of housing development experience; in reality, Hawkins was a secretary and part-time hairdresser. The plan falsely asserted that Rosen was a seasoned project manager with over twenty years of experience on major housing projects; in truth, he had never worked as a developer.

There was even a news article published in the St. Louis Post Dispatch on March 17, 2006, supporting Rosen's business proposal and affirming his credentials. The article recounted how Rosen obtained a forty-million-dollar contract with the Philippine Government to develop a trash-to-energy power plant. Rosen claimed he became involved in the business of converting trash into usable power as a result of his deep- rooted sympathy for the children exposed to garbage dumps in the Philippines. The article also noted that Rosen was awarded a twenty-five year contract, at the conclusion of which he would turn the plant over to the Philippine Government. Rosen now admits that he had no such investment in the Philippines and that the entire story was concocted in hopes of bolstering his reputation as a successful developer.

A. Scheme to Substitute Prefab Modular Housing for New Construction

Duped by his ploy, the City contracted with Rosen for the construction of a thirty-two unit housing project. After meeting with a consultant on July 1, 2008, however, it was brought to Rosen's attention that his project was underfunded by approximately $2.7 million dollars because the projected rental income was inadequate to support the anticipated expenses. Rosen concealed his under funding problem from the City, and instead addressed the issue by offering to "upgrade" the project—from thirty-two units to fifty-six units—at no additional cost. Rosen misrepresented to the City that he could increase the scope of the project so that the anticipated income from the additional twenty-four rental units would appear to support the projected expenses. The East St. Louis Financial Advisory Authority ("FAA") questioned how Rosen could increase the scope of the project without increasing the construction expenses. Rosen told the FAA that construction costs had fallen so significantly, due to the recent economic downturn, that it allowed him to add twenty-four more units to the project with no additional costs.

Of course Rosen could not actually build a fifty-six unit property for the same cost as a thirty-two unit property. In order to make up the difference, Rosen chose to substitute less expensive prefab modular housing units in place of the new construction that was contracted for in the development agreement—without notifying or receiving approval from the FAA, the East St. Louis Planning Commission, or the City Council. To prevent the FAA from discovering that he in- tended to substitute prefab modular housing, Rosen sent the FAA two facsimile transmissions misrepresenting his plans for the construction of the project. The first fax, dated June 16, 2009, contained an itemized list of materials and expenses related to the construction of the housing units. The list was created by the manufacturer of the prefab modular housing units. Rosen, however, removed the manufacturer's name, address, phone number, and fax number from the document to prevent the FAA from discovering that he planned to substitute prefab modular housing. The second fax was sent on June 18, 2009, and outlined a construction timeline for the project. The timeline listed the anticipated completion date of each phase of the new construction, including framing exterior walls, plumbing, insulation, drywall, and painting. Of course none of these phases of construction would occur because the prefab modular housing is completely manufactured off-site and then shipped to the project's location.

B. Scheme to Fraudulently Obtain Private Financing

The terms of the agreement between Rosen and the City required Rosen to obtain $3, 699, 240 in private funding toward the completion of the project. The FAA granted approval for the project subject to the condition that Rosen verify that Kully Construction actually obtained private financing through a commercial loan by submitting a copy of the closing documents. As neither Rosen nor Kully Construction were credit- worthy, Rosen solicited his accounting firm to create false financial statements and tax returns to exaggerate his income and assets.

On November 10, 2009, Rosen faxed his newly-created fictitious 2006 tax return to Amerisource Funding, in support of his application for private financing of the project. The submitted tax return falsely stated that Rosen owned a separate business with gross sales of $2, 014, 019, had an ordinary business income of $272, 572, and total assets of $898, 991. On November 20, 2009, Rosen again had his accountant send to Amerisource similarly false and fraudulent financial statements, balance statements, and statements of retained earnings for tax years 2006 and 2007.

Rosen then supplied the City with a series of letters that purported to verify that Kully Construction had obtained private financing for the developer's contribution to the Project. The FAA accepted a "commitment letter" from MDE Capital as verification of private financing so that construction could begin on the project. On June 23, 2009, the FAA passed FAA Resolution No. 09–0623–89, which granted an approval for the project, subject to the condition that Rosen actually close a commercial loan and provide proof of the loan closing to the FAA. In reality, Rosen had not obtained a commitment to lend from MDE Capital, as he had represented; rather, MDE Capital refused to do business with Rosen after he requested that a representative provide him with a fraudulent closing document. Even without private financing, however, Rosen moved ahead on the development of the project, and began incurring costs, including the purchasing and clearing of the land on the proposed construction site.

Meanwhile, as Rosen was still representing to the City that he had obtained private financing through MDE Capital, he continued to secretly, and unsuccessfully, seek private financing through other financial institutions. When the FAA tried to confirm that Rosen had actually closed the commercial loan with MDE Capital, Rosen responded by supplying the FAA with closing documents from a different lender, First Monetary Group, Inc. The documents ...

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