United States District Court, N.D. Illinois, Eastern Division
OPINION AND ORDER
JOAN H. LEFKOW, District Judge.
On December 3, 2013, defendant Jacqueline Kennedy pleaded guilty in a blind plea to counts 1, 6, 12, 17, and 18 of the superseding indictment filed against her on July 2, 2013. (Dkt. 449.) The court heard argument on objections to the Presentence Investigation Report ("PSR") on May 30, 2014, and heard argument on relevant factors under 18 U.S.C. § 3553 on June 12, 2014. For the following reasons, the court finds that Kennedy's proper offense level under the United States Sentencing Guidelines ("the Guidelines") is 37. Her criminal history category is I. The resulting Guidelines sentencing range is 210-262 months and Kennedy's restitution obligation is $4, 815, 740.
On April 17, 2012, Kennedy was indicted in a 55-count indictment. (Dkt. 1.) A superseding indictment followed on July 2, 2013 (dkt. 326), charging Kennedy and numerous co-defendants with fraudulent schemes. The first is a tax fraud scheme operating between approximately January 2008 and April 2010. The indictment charges Kennedy with using three companies she owned and managed, ATAP Financial Enterprises, Inc., ATAP Tax & Business Solutions, Inc., and ATAP Tax Services, Inc. (collectively, "ATAP"), to prepare false and fraudulent income tax returns. Kennedy attached false W-2 forms from fictitious entities to her clients' tax returns to inflate their Earned Income Tax Credit ("EITC"). The fraudulent scheme involves unemployment insurance ("UI") benefits and operated between approximately February 2009 and December 2012. The indictment charges Kennedy and her co-defendants with registering the fictitious companies they created with state unemployment agencies and then filing false UI benefits claims for fictional employees who were purportedly terminated from the fictitious companies without fault. Proceeds from the UI claims were deposited on debit cards that Kennedy and her co-defendants used to withdraw the proceeds of their scheme. In all, Kennedy and her co-defendants are charged with bilking state unemployment insurance agencies in multiple states out of approximately $9.1 million dollars.
Kennedy initially self-surrendered and appeared before Magistrate Judge Susan Cox on April 30, 2012, at which time Magistrate Judge Cox entered an order setting the conditions of Kennedy's pretrial release and Kennedy was released on her own recognizance. (Dkts. 30-32.) Even though she had already been indicted, Kennedy continued her UI scheme. For example, on the day that she was released on bond she used fraudulently-obtained debit cards to withdraw over $2, 200. (Dkt. 172 at 3.)
Kennedy continued to certify false UI claims so the claims would remain active and withdrew money using the debit cards during the spring and summer of 2012, causing the government to move to revoke her bond. (Dkt. 172.) Kennedy failed to appear at a hearing on the bond motion on September 19, 2012, and the court issued a bench warrant for Kennedy. (Dkt. 175.) On October 10, 2012, the court received a hand-written letter from Kennedy informing the court that when she did turn herself in, "it will be because I respect you & your position." (Dkt. 194 at 3.) But instead of turning herself in, Kennedy continued her scheme, creating more fictitious companies and filing for UI benefits in different states. It took government agents over two months to find her. When they did locate Kennedy, who was living as a fugitive on the south side of Chicago, they found evidence of her ongoing UI scheme in her apartment. ( See Government Sentencing Exhibits ("Gov't Sen. Ex.") 28-38.)
After she was located, Kennedy was placed in pretrial detention and the parties began preparing for trial, which was set for January 6, 2014. (Dkt. 311.) On December 4, 2013, however, the court held a change of plea hearing for Kennedy at which she pleaded guilty to counts 1, 6, 12, 17, and 18 of the superseding indictment. (Dkt. 449.) These counts included two counts relating to the tax fraud scheme, one count of wire fraud and one count of submitting false claims to the government in violation of 18 U.S.C. §§ 1343 and 287. (Gov't Sen. Ex. 1 at 8.) Kennedy admitted that she prepared approximately70 false and fraudulent personal income tax returns, causing the IRS to issue approximately $158, 000 in fraudulent tax refunds. ( Id. at 19-20.) She also pleaded guilty to three counts of mail fraud, 18 U.S.C. § 1341, relating to the UI scheme. ( Id. at 8-9.) She admitted that she created eight fake companies in Illinois and Indiana for the purpose of filing fraudulent unemployment claims. ( Id. at 21.) She admitted that she caused an actual loss of at least approximately $379, 000 and a potential loss of at least approximately $589, 000. ( Id. at 23.)
Following her guilty plea, Pretrial Services completed its PSR as to Kennedy and calculated Kennedy's recommended sentence pursuant to the Guidelines. ( See dkt. 498 ("PSR").) The PSR calculates Kennedy's offense level at 39 and criminal history category at I, which results in a suggested sentencing range of 262-327 months. The PSR also calculates her restitution obligation at $9, 947, 883.85. (Dkt. 498.) The parties filed briefs with objections to and arguments on the relevant sentencing factors (dkts. 559, 564, 566), and the court heard argument on objections to the PSR on May 30, 2014 ("the May 30 sentencing hearing"), and argument on the 18 U.S.C. § 3553(a) factors on June 12, 2014.
The court rules as follows with respect to Kennedy's objections to the PSR.
I. Tax Fraud Counts
A. Loss Amount
Kennedy objects to the loss amount of $546, 619, arguing that (i) it includes tax returns that the government failed to prove that she prepared or caused to be prepared, and (ii) it fails to accurately credit portions of refunds to which the taxpayers were legitimately entitled. She devoted little time at May 30 sentencing or space in her sentencing papers to this objection, however, recognizing that the tax offense is unlikely to affect Kennedy's Guidelines range.
Regardless, the court agrees with the government's proposed loss amount. The government explained that this amount does not include refunds to which taxpayers were legitimately entitled. It its second supplemental version of the offense, the government clearly explains how the IRS calculated this amount and why this amount is, if anything, a conservative estimate. ( See dkt. 514 at 3 ("Because some of the taxpayers did have some legitimate income during the tax years in question, the IRS calculated the tax loss for the 208 false and fraudulent returns by removing the fraudulent Form W-2 from the tax return submitted on behalf of the taxpayer and recalculating the refund due and owing without that income."); see also dkt. 566, Government's Sentencing Memorandum ("Gov't Memo") at 6-7 (explaining method of calculating tax loss amount).)
The government also tied the tax returns to Kennedy herself. It produced examples of Kennedy's tax preparation invoices that include mysterious upward "adjustments" of roughly $600 that represented the fee for Kennedy's fraudulent tax preparation. ( See, e.g., Gov't Sen. Ex. 10.) The government also provided information regarding the fictitious companies used for the fraudulent W-2s, and many are the companies that Kennedy herself admitted to creating when she pleaded guilty. (Dkt. 514 at 4-9.) The government has shown by more than a preponderance of the evidence that Kennedy caused a loss to the IRS of at least $546, 619 due to her tax fraud.
B. Sophisticated Means
Kennedy objects to the two-level enhancement in the PSR for using "sophisticated means" in her tax fraud scheme. This enhancement applies where the defendant engaged in "especially complex or especially intricate offense conduct... such as hiding assets or transactions, or both, through the use of fictitious entities." U.S.S.G. § 2T1.1(b)(2) cmt. n.5. The Seventh Circuit has held that the sophisticated means enhancement was properly applied even though "even more elaborate mechanisms to conceal [defendant's] fraudulent activities were possible" where a defendant arranged to have tax refund checks mailed to five different addresses, evaded discovery for six years, and used knowledge as a certified public accountant to structure the scheme in a way unlikely to attract IRS's attention. United States v. Madoch, 108 F.3d 761, 766 (7th Cir. 1997).
Kennedy created fictitious corporations and fake W-2s for her clients stating that they had been employed at those fictitious corporations. She then submitted these tax returns with her clients' taxes so that they could receive larger EITCs. She cites no cases for the proposition that the sophisticated means enhancement was not intended to apply in this sort of situation. The PSR properly applies this two-point enhancement.
II. UI Fraud Counts
A. Loss Amount
By far, the most contentious issue in this sentencing is the loss amount for which Kennedy should be held responsible in relation to the UI fraud scheme. There are two main issues: whether Kennedy should be held responsible for losses caused by Kennedy's co-defendant Tara Cox, and whether Kennedy should be held responsible for the actual loss that she caused or the intended loss amount.
1. Loss caused by Cox
As noted, Kennedy recruited multiple co-defendants into her scheme. One of those was Cox. After Kennedy pulled Cox into the scheme, Cox began creating fictitious companies on her own, many of which Kennedy was not aware and for which Kennedy received no share of the profits. Of the 97 fictitious entities created in this overall scheme ( see Gov't Sen. Ex. 62), the government argues that twelve are entities that Cox created at the request or direction of Kennedy ( see Gov't Sen. Ex. 76) and 36 are companies that Cox created on her own ( see Gov't Sen. Ex. 77 (documenting 61 companies in total linked to Kennedy).)
a. Companies created by Cox for herself
Kennedy argues that she cannot be held accountable under Section 1B1.3 of the Guidelines for the losses caused by the companies Cox set up on her own because Cox's acts did not constitute "jointly ...