Opinion
CAUSE NO. 3:21cr103 DRL
2023-06-29
UNITED STATES of America, Plaintiff, v. Charles Ray SMITH, Defendant.
Luke N. Reilander, U.S. Attorney's Office, South Bend, IN, for Plaintiff. David E. Vandercoy, Federal Community Defenders Inc. South Bend, IN, for Defendant.
Luke N. Reilander, U.S. Attorney's Office, South Bend, IN, for Plaintiff. David E. Vandercoy, Federal Community Defenders Inc. South Bend, IN, for Defendant.
SENTENCING MEMORANDUM
Damon R. Leichty, Judge
From February 2017 to August 2021, Charles Ray Smith conned multiple victims into giving him hundreds of thousands of dollars for a fake investment scheme. He pleaded guilty to count four of a six count indictment—wire fraud. See 18 U.S.C. § 1343.
SENTENCING GUIDELINES
The court must first calculate the guideline range correctly, then decide what sentence is right and reasonable for this defendant. Dean v. United States, 581 U.S. 62, 67, 137 S.Ct. 1170, 197 L.Ed.2d 490 (2017); United States v. Swank, 37 F.4th 1331, 1334 (7th Cir. 2022). The 2021 guidelines apply. See Peugh v. United States, 569 U.S. 530, 537-38, 133 S.Ct. 2072, 186 L.Ed.2d 84 (2013); U.S.S.G. § 1B1.11.
Without objection, the court adopts as its findings ¶¶ 1-147 of the presentence report. Mr. Smith starts at level 7 because he committed wire fraud and because this offense has a statutory maximum imprisonment term of 20 years. U.S.S.G. § 2B1.1(a)(1). Twelve levels are added because the loss exceeded $250,000 but was less than $550,000. U.S.S.G. § 2B1.1(b)(1)(G). His clear and timely acceptance of responsibility on count four reduces his offense level to level 16. U.S.S.G. § 3E1.1.
The sentencing guidelines assess no criminal history points and place Mr. Smith in criminal history category I. U.S.S.G. chap. 5A. There the sentencing guidelines recommend a sentencing range of 21-27 months, below the statutory maximum of twenty years (240 months). 18 U.S.C. § 1343.
DISCUSSION
The court decides the sentence under 18 U.S.C. § 3553(a) and United States v. Booker, 543 U.S. 220, 125 S.Ct. 738, 160 L.Ed.2d 621 (2005). Turning to the statutory factors, the court must arrive at a reasonable sentence: one sufficient but not greater than necessary to satisfy the statute's purposes. 18 U.S.C. § 3553(a).
For over four years, Mr. Smith conducted a fraudulent investment scheme. He induced his victims to invest money in "Chicago Investment Group"—a fake entity—and instead purchased his home and financed a business (a bar). The nature of the scheme proves aggravating. It was long-running—from at least February 2017 to August 2021—with numerous opportunities to pause and correct course rather than lure new victims and string along those who already had invested. Mr. Smith instead persisted. See 18 U.S.C. §§ 3553(a)(1), (a)(2)(A).
Mr. Smith used the bar from the first victim's investment for personal entertainment and for storing his luxury car collection. Mr. Smith invited potential victims to the bar so that they would believe he was wealthy. He created fake money managers (devising the names Barry, Bob, and Terry) and used different cellphone numbers to cloak the scheme and put off inquiries from his victims, all the while promising high returns on investment. He directed his girlfriend to set up one of the phones to insulate himself. One victim paid $100,000; then a second came, then a third, then at least a fourth victim. This wasn't a one-time or one-victim scheme. See 18 U.S.C. §§ 3553(a)(1), (a)(2)(A), (a)(2)(C).
A fifth victim was repaid before this criminal case.
The law certainly has seen investment schemes of greater reach and harm, but the loss amount of $315,020 over six deals (putting aside the reports of other amounts paid to Mr. Smith for other things) exceeds the typical loss for federal economic crimes generically, see United States Sent. Comm'n (USSC), Quick Facts: Theft, Property Destruction, and Fraud Offenses 1 (2022) (median loss amount for all types was $134,086 in FY 2021), and the average sentence length nationally hovers within the range recommended by the guidelines today, see id. and infra; 18 U.S.C. § 3553(a)(6). Mr. Smith broke the law for over four years, and he still reaps the benefits—the home this scheme bought continues to appreciate. See 18 U.S.C. §§ 3553(a)(1), (a)(2)(C).
Mr. Smith purchased the home for $98,000 in 2018. Mr. Smith sold the property for $0 to his business, Gunman Properties LLC, two months after he purchased it. It is now valued at $279,600. This company was administratively dissolved in Indiana on March 5, 2021. The court takes judicial notice of the county's property records available at https://s3.amazonaws.com/assets.elevatemaps.io/ElkhartIN/PRC/20-06-05-133-007.000-012. pdf.
During this same time, harm to the victims has not ceased. See 18 U.S.C. § 3553(a)(2)(C). To his credit, Mr. Smith paid restitution, see United States v. Warner, 792 F.3d 847, 852-54 (7th Cir. 2015), and the court today will order its distribution to the victims. Also to his credit, the restitution exceeds the offense of conviction (count four). See 18 U.S.C. §§ 3663A(a)(1), (a)(2); United States v. Frith, 461 F.3d 914, 920 (7th Cir. 2006). But these dollars are worth less now than they were years ago when they were entrusted, and he cheated the victims out of the opportunity to grow their value with interest or other investment. He stole dreams and happiness all too difficult to measure—that emotional betrayal all too common to this offense. The victims are whole only in a sense. See 18 U.S.C. §§ 3553(a)(1), (a)(2)(A), (a)(2)(C).
Though the guidelines exclude interest in calculating the loss amount, see U.S.S.G. § 2B1.1 app. n.3(D)(i), the law permits an award of interest on the restitution award, see, e.g., United States v. Rutley, 482 F. Appx. 175, 179 (7th Cir. 2012); United States v. Clavielle, 429 F. Appx. 617, 620 (7th Cir. 2011); United States v. Shepard, 269 F.3d 884, 886 (7th Cir. 2001). The government has not requested interest or presented evidence of a reasonable rate, and the parties agreed in the plea agreement to set numbers for restitution. See also Frith, 461 F.3d at 920.
Respect for the law sometimes is harder won. Two victims instituted civil suits, and one obtained a judgment, so the restitution that has been paid, and paid to his credit, has come through both civil and criminal process, not just altruistic intentions. See 18 U.S.C. §§ 3553(a)(1), (a)(2)(A). And lest we forget, Mr. Smith swindled $100,000 to package a total $140,000 to buy the bar, and then sold the bar for over twice what he paid to finance the restitution here. His ill-gotten return on investment at this victim's expense is what in part finances his restitution. He is paying victims back in part with the return they lost on their own money, so the deposit of restitution, while mitigating, must be contextualized.
Mr. Smith no longer sees truth as black and white, but something to be manipulated to his liking so that people see colorfully what he wants them to see. He still searches for his truth—an altogether common feature and critical concern with fraud-based crime. See 18 U.S.C. § 3553(a)(1). Mr. Smith admitted truthfully the conduct comprising his offense of conviction (count four), with a sound factual basis, and the court has incorporated a reduction for acceptance in his guideline range.
But Mr. Smith denied—under oath—intending to defraud another victim (C.H.), buying a home for his personal use with money given by one victim (D.E.) (though he admits using the money to buy the home), and telling victims that their investments were legitimate; and he otherwise waffled at his plea. He need not volunteer or admit relevant conduct, see U.S.S.G. § 3E1.1 app. n.1(A), and the court on balance has not removed his offense-level reduction for acceptance. But his qualifiers are ruses. In their inaccuracy the court has deliberated today on the sentence that will better promote his respect for the law. See 18 U.S.C. § 3553(a)(2)(A).
Statements at sentencing confirm that his full recognition—of the need for truth, including that expected of him by law, and of the harm caused to these victims by his conduct—still eludes him. Testimony established that he has not been forthright in his financial disclosures within the presentence report. And his statements present a scattershot of blame—for his partner's death, or collusion by the victims—anything other than where the blame should rest, and that is with his conduct. The court sentences a defendant as he stands at sentencing, and in doing so accounts for these statements in weighing his characteristics and the need to promote respect for the law. See 18 U.S.C. §§ 3553(a)(1), (a)(2)(A); Pepper v. United States, 562 U.S. 476, 487, 131 S.Ct. 1229, 179 L.Ed.2d 196 (2011).
Mr. Smith argues that the court should consider under § 3553(a) the Sentencing Commission's proposed amendment to U.S.S.G. § 4C1.1. Even if adopted by Congress, this amendment would afford a two-level reduction for only certain zero-point offenders. See USSC, Amendments to the Sentencing Guidelines (Preliminary) 80 (2023). Mr. Smith would not qualify by its terms, nor does the court think it appropriate guidance here. Quite additionally to vocalized threats, the reduction won't apply to defendants who "personally cause substantial financial hardship." Proposed U.S.S.G. § 4C1.1(a)(6); see also U.S.S.G. § 2B1.1 app. n.4(F). One victim describes drowning in heavy credit card debt and an inability to pay taxes because of Mr. Smith's fraud. Another says the IRS now has a tax lien on her home (and loss of 401K) because of the scheme.
These facts could be the start to finding a basis for a two-level enhancement, see U.S.S.G. § 2B1.1(b)(2)(A)(iii) (increasing offense level for substantial financial hardship to one or more victims), but the government has not argued that today.
Not unusual for fraud offenders, Mr. Smith has little criminal history. See USSC, Quick Facts: Theft, Property Destruction, and Fraud Offenses 1 (2022) (71 percent of economic offenders in FY 2021 were in criminal history category I); see also USSC, The Criminal History of Federal Offenders 2, 6 (May 2018) (52.4 percent of fraud offenders had at least one previous conviction). Other individuals allege that they too have been victimized by Mr. Smith in ways other than this particular scheme, but the court must act, and does act today, only on reliable information. See 18 U.S.C. § 3661; United States v. Perez, 956 F.3d 970, 976-77 (7th Cir. 2020); United States v. Freeman, 815 F.3d 347, 354 (7th Cir. 2016). The level of detail, similarity in experience, use of common tools (including fake persona and phone number), and consistency with truthful accounts afford sufficient indicia of reliability to one other account (E.G.) that tells the court that Mr. Smith's conduct wasn't aberrant, and that the call for deterrence and public protection doesn't end just with this scheme. See 18 U.S.C. §§ 3553(a)(2)(B), (a)(2)(C).
Mr. Smith has considerable medical conditions, not least uncontrolled diabetes, and also uses a wheelchair because of chronic foot ulcers. Together his conditions are serious and worthy of continued medical attention. They aren't so extraordinary as to counsel a different sentence. See 18 U.S.C. §§ 3553(a)(1), (a)(5); U.S.S.G. § 5H1.4. For instance, the Bureau of Prisons has thoughtful measures on not just housing but treating inmates with MRSA, see BOP, Antimicrobial Stewardship 24-28 (Nov. 2022), and the BOP is capable of addressing his other conditions too.
Save one diagnosis (chronic obstructive pulmonary disease), Mr. Smith had each of these medical conditions when he executed this fraudulent scheme, and they were no deterrent. He has not cogently shown why his conditions, which never hindered his crime, now warrant less punishment. See United States v. Washington, 385 F. Appx. 570, 574 (7th Cir. 2010). For over four years, he arranged meetings with investors, spent time at his bar to impress as wealthy, and carried out his scheme. He claims to have been mostly bedbound for the last two or three years, but the record belies this. He was still engaging in this scheme two years ago; and, one year ago (March 31, 2022), he asked the court to let him travel to his warehouse to supervise mechanical projects for up to ten hours a day. He does side jobs too.
The request included two days weekly, with one of these days each week including a ten-hour day [ECF 35].
Health conditions can wax and wane, but a mostly-bedbound person isn't taking meetings to defraud victims at a bar or working ten-hour days. And if as indigent as he reports, based on his finances and court-appointed counsel, probation could be worse. See United States v. Dowell, 388 F.3d 254, 255 n.1 (7th Cir. 2004). The court certainly views his conditions in total to be serious and mitigating, but not so disabling that the court believes a different sentence to be appropriate today. See 18 U.S.C. § 3553(a)(1); United States v. Krilich, 257 F.3d 689, 693-94 (7th Cir. 2001) (overturning downward departure pre-Booker when health condition was not debilitating or extraordinary).
Mr. Smith had a difficult upbringing. See 18 U.S.C. § 3553(a)(1). His father offered a poor example of abuse and alcoholism. His mother divorced when Mr. Smith was still young. She worked hard, though they grew up poor in a violent neighborhood in Elkhart. Mr. Smith began working in a factory at age 13 to contribute. Around that time, he dropped out of school and moved out, staying in a hotel on his own for years. He is a self-taught mechanic. He later earned his GED. He has a long and varied work history. He has started businesses in the past, though he used one to lure his victims. He has some family support. He has complied with pretrial release conditions, though not erasing all concern.
Never presuming their reasonableness, see Gall v. United States, 552 U.S. 38, 50, 128 S.Ct. 586, 169 L.Ed.2d 445 (2007), the sentencing guidelines ordinarily pose the best hope for avoiding unwarranted sentencing disparities among similarly situated defendants, see 18 U.S.C. § 3553(a)(6). Nationally in 2022, the average prison term for CHC I, § 2B1.1 offenders, ages 51-60, was 26 months, and 24 months if one factors in a GED, with the majority of offenders receiving prison time. See USSC, Interactive Data Analyzer (visited June 27, 2023); cf. USSC, What Does Federal Economic Crime Really Look Like? 26, 28-29 (2019) (90 percent of securities and investment fraud offenders receive prison terms, though 86 percent are in CHC I).
This offense is a prime candidate for general deterrence, given the cold and rational approach to this scheme's risks and rewards. See United States v. Brown, 880 F.3d 399, 405 (7th Cir. 2018). There are mitigating factors here; but, in addition to the significant aggravators, see supra, serving his sentence in a 3,000 square foot home that his victims bought, enjoying all its comforts and perks, won't provide just punishment, protect the public, or serve sentencing goals. See 18 U.S.C. §§ 3553(a)(1), (a)(2)(A), (a)(2)(B), (a)(2)(C). Nor will it when, from at least one credible account from a 20-year local business owner (F.M.), he continues to groom potential victims in that home, and not least when he proves willing to vocalize standing threats to victims, whether boastful or not. A review of all § 3553(a) factors persuades the court that a sentence of 24 months is sufficient but not greater than necessary to satisfy the statute's purposes.
The court may impose a supervised release term of not more than 3 years. 18 U.S.C. § 3583(b)(2); U.S.S.G. § 5D1.2(a)(2) (recommending 1-3 years). A term of 3 years is appropriate.
The court may fine Mr. Smith up to $250,000, 18 U.S.C. § 3571(b), and the guidelines recommend a fine of $10,000 to $100,000, U.S.S.G. § 5E1.2(c)(3). In light of Mr. Smith's recent restitution payment, and his financial condition, he cannot pay a fine, even if given a reasonable installment schedule. Restitution will be ordered and distributed. A special assessment of $100 is mandatory. 18 U.S.C. § 3013.
SENTENCE
Accordingly, it is the court's judgment that the defendant, Charles Ray Smith, is hereby committed to the custody of the Bureau of Prisons to be imprisoned for a total term of 24 months. Under 18 U.S.C. § 3585, the court leaves it to the Bureau of Prisons to determine the appropriate amount of time served to be credited toward the defendant's sentence.
Upon release from prison, the defendant will be placed on supervised release for a term of 3 years. While on supervised release, he must comply with the terms of supervision set forth in ¶¶ 148-157 of the presentence report, which paragraphs the court incorporates as part of this sentence having made an independent judgment that they should be imposed under 18 U.S.C. § 3583(d). The defendant expressly waived reading in open court of these supervisory conditions. The court directs the probation officer to provide the defendant with a written statement of all conditions.
The defendant must make restitution payments for disbursement to the four victims in accordance with the presentence report and plea agreement—namely, $100,000 to C.H., $199,000 to D.E., $3,020 to A.W., and $13,000 to M.W., for a total of $315,020. Restitution is due in full immediately. The court orders the clerk to make these disbursements to these four victims from the funds deposited by the defendant.
The court imposes no fine. The defendant must pay to the United States a special assessment of $100.00, which is due immediately.
The court grants the motions to seal the victim and community member letters [ECF 76, 78]. The court also grants the government's motion to dismiss the remaining counts of the indictment (counts 1-3, 5-7) against the defendant.
SO ORDERED.