Argued: March 20, 2013
On Appeal from the United States District Court for the Eastern District of Pennsylvania (No. 2-10-cr-00724-001) District Judge: Hon. Michael M. Baylson
Leigh M. Skipper, Esq. Brett G. Sweitzer, Esq. Keith M. Donoghue, Esq. [ARGUED] Federal Community Defender Office for the Eastern District of Pennsylvania
Zane David Memeger, Esq. Robert A. Zauzmer, Esq. David L. Axelrod, Esq. [ARGUED] Office of United States Attorney Counsel for Appellee
Before: FUENTES, CHAGARES, and BARRY, Circuit Judges.
CHAGARES, Circuit Judge.
Robert Stinson pled guilty to a twenty-six count indictment that arose out of a fraud scheme that he operated from 2006 to 2010. Stinson appeals his sentence and argues that the District Court improperly applied a fraud enhancement, committed procedural error during sentencing, and imposed a sentence that was substantively unreasonable. His appeal requires us to define the scope of U.S.S.G. § 2B1.1(b)(15)(A), which increases a defendant's offense level by two points when "the defendant derived more than $1, 000, 000 in gross receipts from one or more financial institutions as a result of the offense." We conclude that the enhancement applies only when financial institutions are the source of a defendant's gross receipts. We will therefore vacate Stinson's judgment of sentence and remand for resentencing in accordance with this opinion.
Stinson's conviction arose from a fraud scheme that began in 2006 when he sought investors for a fund called Life's Good S.T.A.B.L. Mortgage Fund, LLC ("Life's Good"). Around the same time, Stinson also founded the Keystone State Corporation, which he used to market the fund to potential investors. The alleged purpose of Life's Good was to originate mortgage loans and Stinson advertised the fund as a way for investors to recoup a sixteen percent annual return. Stinson targeted investors with individual retirement accounts ("IRAs") and those who maintained accounts with self-directed IRA custodians. When he began his scheme, Stinson primarily solicited money for the fund by hiring telemarketers to "cold call" potential investors. Those telemarketers advertised the fund as a risk-free investment.
In reality, Life's Good was a sham. Stinson did not use investors' money to make mortgage loans. Instead, he diverted the money to a variety of personal business ventures that employed his family and friends without requiring them to work. These businesses, none of which turned a profit, included a healthcare consulting firm, an athlete representation company, an online television station, and an artist representation agency.
In 2009 and 2010, Stinson expanded his efforts. He created a fictitious prospectus that purported to explain the fund's activity from 2007 to 2008. The prospectus misrepresented the amount originated in mortgage loans, the fund's annual returns, and results from an independent audit that never occurred. Stinson also misrepresented his education and employment history and concealed his prior convictions for fraud. In addition, he used false information to convince Morningstar, an independent investment rating agency, to give Life's Good funds a favorable rating. Many of the fund's investors relied on this rating when deciding to invest their IRAs with Life's Good.
Stinson began to communicate with two independent financial advisory firms, Brentwood Financial ("Brentwood") and Total Wealth Management ("TWM"), in 2009. At least one of those firms, Brentwood, was a registered investment advisor, which means that the organization had registered with the Securities and Exchange Commission ("SEC"). Stinson's relationship with these institutions formed the basis for the application of the disputed fraud enhancement. Both firms entered into agreements with Stinson to refer investors to Life's Good in exchange for referral fees. During 2009 and 2010, Brentwood and TWM used the fund's fictitious marketing materials to solicit numerous investors, who collectively invested millions of dollars in the fund. It appears as though the clients of Brentwood and TWM made individual decisions to invest with Life's Good on the advice of their investment advisors at each firm. However, some of the victim impact statements suggest that Brentwood and TWM retained control over the assets of certain clients and invested in Life's Good on their behalf.
In June 2010, the SEC initiated a civil enforcement action against Stinson. Stinson eventually admitted to the details of his scheme and in November 2010 a grand jury returned a twenty-six count indictment that charged him with wire fraud in violation of 18 U.S.C. § 1343, mail fraud in violation of 18 U.S.C. § 1341, money laundering in violation of 18 U.S.C. § 1957, bank fraud in violation of 18 U.S.C. § 1344, filing false tax returns in violation of 26 U.S.C. § 7206(1), obstruction of justice in violation of 18 U.S.C. § 1505, and making false statements in violation of 18 U.S.C. § 1001. The SEC's analysis of Stinson's accounts ultimately showed that Life's Good solicited over $17.6 million from at least 262 investors and returned approximately $1.9 million. Because Stinson targeted those with IRAs, many individuals lost part or all of their retirement savings as a result of their investments in Life's Good.
On August 15, 2011, Stinson entered an open guilty plea. He was sentenced on April 10, 2012. At sentencing, Stinson challenged two conclusions contained in the presentence investigation report ("PSR"): that there were more than 250 victims of his crime and that he derived more than $1 million from financial institutions on the basis that his gross receipts totaled less than $1 million. After hearing testimony from an SEC accountant, the District Court rejected both of Stinson's challenges and adopted the PSR, which calculated an advisory United States Sentencing Guidelines ("Guidelines" or "U.S.S.G.") initial offense level of seven and applied five fraud-related sentencing enhancements. The largest of those enhancements applied a twenty-level increase for a total loss amount between $7 million and $20 million. The court also imposed the enhancement that is at issue in this appeal, an increase of two offense levels because "the defendant derived more than $1, 000, 000 in gross receipts from one or more financial institutions as a result of the offense." U.S.S.G. § 2B1.1(b)(15)(A). The five fraud enhancements, combined with a separate enhancement for obstruction of justice and a downward adjustment for acceptance of responsibility, resulted in ...