United States v. Lacey, No. 11-2404-cr (2d Cir. November 7, 2012) (Winter, Straub, Lynch, CJJ)
Defendants Lacey and Henry were convicted after a jury trial of various offenses resulting from their involvement in a mortgage fraud scheme. In the scheme a real estate company, MTC, would purchase “short-sale” properties from distressed homeowners, then resell them to straw buyers, who would obtain mortgages on the properties, without intending to live in them or make payments. MTC helped the straw buyers complete fraudulent mortgage applications to ensure that they would be approved, and sometimes made a few payments on the loans to further deceive the banks, but eventually the loans defaulted and the lending banks took title to the properties through foreclosure.
One component of the fraud involved radio ads, through which MTC recruited straw buyers. Those ads told buyers that they could earn a fee by buying a house through MTC – some actually did receive a fee – and also recruited distressed homeowners looking to sell.
On appeal, the defendants argued that these radio ads should not have triggered the “mass-marketing” enhancement of § 2B1.1(b)(2)(A)(ii), and a divided panel agreed. The majority concluded that the enhancement is “properly applied only when the targets of the mass-marketing are also in some way victims in the scheme.” This is so because the guideline applies to an offense “committed through mass-marketing.” As the Eighth Circuit has already observed, an offense is “committed through mass- marketing” only when mass-marketing is used to recruit or commit victims. It is not enough for the scheme to be advanced by mass-marketing.
This interpretation is also bolstered by the surrounding text; the enhancement is surrounded by provisions that relate to the number of victims; thus it is designed to measure “the scope of the wrong by the number of victims.” The use of mass-marketing is relevant to this calculus because it provides for an enhancement when the number of actual victims is small, but the marketing creates a large number of potential victims.
Here, the record was unclear whether some of the consumers targeted by the radio ads were “in some sense victimized,” even though the “main thrust of the fraud was directed at banks.” Obviously, any buyer who was in on the scheme or who received payment from MTC could not be seen as a victim. But some straw buyers complained that their credit scores were ruined, and others complained that MTC misled them into believing that the scheme would result in a legitimate sale and that they would be able to pay for the properties through rental income.
The record was also unclear whether the radio ads even constituted mass-marketing at all. The relevant provision applies to a scheme intended to “induce a large number of persons to … invest for financial profit.” Here, while the record contained some evidence that this was true, it did not establish it sufficiently clearly.
The court accordingly vacated the sentence and remanded to the district court for findings on whether the defendants engaged in “mass-marketing” at all, and if so, whether the targets of the marketing were “also in some sense victims” of the scheme, in that they were injured by it.
Judge Straub, in dissent, believed that the enhancement was properly applied because the “offense” – using the relevant conduct definition – employed mas-marketing. He disagreed that the enhancement applies only where the victim is targeted by the mass-marketing.
The panel was unanimous, however, in concluding that the restitution order erroneously failed to credit the value of the collateral underlying the foreclosed loans.