Trace Amounts

United States v. Gonzalez, 10-2202-cr (2d Cir. July 22, 2011) (Kearse, Miner, Chin, CJJ)

Former state senator Efrain Gonzalez, Jr., pled guilty to various fraud-related charges in connection with two sham charities that he set up while in office. This opinion contains an interesting discussion of the concept of “tracing” criminal proceeds. In it, the court concludes that tracing is not required to determine the number of victims under § 2B1.1, but is required, to some degree at least, to calculate the actual loss for restitution purposes.

The case arose from the actions of two supposed charities, West Bronx Neighborhood Association (WBNA) and United Latin American Foundation (ULAF). Each received both public money and private donations, and each – although supposed to be engaged in charitable activities – instead spent most of its money enriching Gonzalez by paying his personal bills – and those of some of his cronies – and funding a lavish lifestyle.

Gonzalez ultimately pled guilty to mail fraud, federal-program fraud, wire fraud and conspiracy. He later tried, unsuccessfully, to take the plea back – the circuit’s rejection of that issue, while very long, is straightforward and is not summarized here – and ultimately received a below-guideline 84-month sentence and restitution.

In challenging the length of his prison sentence, Gonzalez argued that the district court erred in concluding that the offense involved 50 or more victims under § 2B1.1(b)(2)(B). He claimed that, although more than 50 individuals donated money to WBNA, the government had not traced back the misappropriated funds to those particular donors. The circuit rejected this argument. It is not true that “before a person who has made a charitable contribution can be considered a victim within the meaning of § 2B1.1(b)(2)(B), his donation must be traced to a particular misallocation by the defendant.” Rather, a victim is a person who sustained any part of the actual loss, with no need that he be “linked with a specific part of the loss.” Such a holding is particularly apt given the specific instruction in the commentary to § 2B1.1 that defendants who exploit victims’ charitable impulses “create particular social harm.”

Interestingly, the court reached a somewhat different conclusion with respect to the restitution amount. In fixing restitution, the district court relied on WBNA’s donor lists. While it is true that any such donor could be a victim for restitution purposes, the circuit disagreed that each donor should be compensated for the full amount donated, since some of them “received value in return for their donations.” Some donated to and attended a WBNA gala that offered a “Buffet Supper” and an “Open Bar,” and others donated money for advertisements that appeared in the event’s program. The district court’s view that these donors expected that 100 per cent of their contributions would be used for charitable purposes was sufficient to make the determination that they were victims for restitution purposes, but was not sufficient to order full restitution of the amounts they gave. The circuit remanded the restitution order for “further proceedings to determine to what extent donors suffered [actual] losses.”