In 2006, Toby Wayne Goss, a mortgage broker, was convicted in federal court of 19 of mail fraud, wire fraud, and money-laundering charges for submitting false documents like verifications of rent, W-2 Forms, and Social Security benefit letters in order to obtain mortgages for clients. Goss was sentenced in August 2007. One of the main issues for sentencing in a federal fraud case under the now-advisory sentencing guidelines is the amount of financial loss to the victims -- in this case, the lenders who provided mortgages in reliance on the falsified documents. Goss was sentenced to 57 months in prison after the district judge concluded that the amount of financial loss to the victims was the full amount of the loans at issue, which should not be reduced by the value of the collateral - the real estate - pledged for the loans.
The Fifth Circuit reversed the district court's calculation of the financial loss under the federal sentencing guidelines. Although the guidelines are now only advisory in nature, district courts are still required to properly calculate the guideline sentencing range in deciding the sentence to impose. For assessing financial losses, a court should use the greater of the "actual loss" or the "intended loss."
Actual loss means the "reasonably foreseeable pecuniary harm that resulted from the offense." Intended loss means the pecuniary harm intended (even if it all of it is not realized by the victim), including damages that would have been impossible or unlikely to occur, such as in a government sting operation or an insurance fraud where the claim exceeded the insured value.
The court held that Goss did not intend for lenders to lose the full amount of the loan, because the loans were backed by the real estate that secured the loans. Accordingly, actual loss should be used, and therefore the value of the real estate at the time of sentencing should have been off-set against the loans when considering the actual loss. The court also required the district court to estimate a fair market value for each property to determine this off-set.
Quote of note: "[T]he relevant losses in the case at hand are actual losses; and, on remand, the district court shall conduct a loan-by-loan inquiry to explore the factors discussed [in the opinion], as well as others it deems relevant. After making the necessary findings of fact with respect to the collateral's likelihood of recovery and its fair market value at the time of the initial sentencing, the district court, for its loss calculation, should: deduct the fair market value of collateral likely to be recovered from the total value of the loans, using the court-determined value of that collateral; and obviously, should not deduct the value of collateral not likely to be recovered." The opinion is available here.