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United States v. Pitts

United States District Court, M.D. Alabama, Northern Division

June 14, 2018




         This matter is pending sentencing before the District Judge on Defendant's plea of guilty to one count of wire fraud affecting a financial institution. After Defendant filed a sentencing memorandum and hundreds of pages of supporting documents, the District Judge entered an Order (Doc. 117) noting that Defendant appeared to be arguing that the loss amount to be utilized at sentencing should be drastically less than that calculated by the United States Probation Office in the pre-sentence investigation report (PSR). Accordingly, the District Judge referred the matter to the undersigned “for a report and recommendation as to the calculations of the total loss or intended loss for the purposes of sentencing guidelines calculations as well as restitution.” Doc. 117. For the reasons that follow, the undersigned RECOMMENDS that the District Judge reject Defendant's arguments and adopt the amount of loss set forth in the PSR for purposes of calculating both the sentencing guidelines offense level and restitution.

         I. BACKGROUND

         On February 2, 2016, Defendant was charged in the Indictment (Doc. 1) with nine counts of wire fraud affecting a financial institution. In relevant part, the Indictment charged that in 2005 Defendant, then a practicing attorney licensed in Alabama, contracted with the United States Department of Housing and Urban Development (“HUD”) to serve as the closing attorney for sales of single-family homes owned by HUD located in northern and central Alabama. Defendant's contracts with HUD were renewed for one year in 2006 and 2007, with an expiration set for the Fall of 2008. Pursuant to the contracts, Defendant was to establish escrow accounts for each of the contracts, one covering certain counties in northern Alabama and the other covering certain counties in central Alabama. For each closing he conducted, Defendant was to receive the funds to purchase the home, deduct closing costs, including his fee of $575.00 per closing, and wire the remaining funds to HUD via the United States Treasury.

         The Indictment further alleges that, by March 2008, a shortage had arisen in Defendant's HUD escrow accounts, causing Defendant to misuse his HUD escrow accounts and commingle funds with other accounts. For instance, Count One alleges that, on August 6, 2008, contrary to the terms of his contracts with HUD, Defendant opened a new account at Regions bank and began using that account to receive and disburse funds from HUD transactions, regardless of whether the related funds should have been handled through the designated HUD account corresponding with the region where the transaction occurred. Then, from August 19, 2008, through October 9, 2008, Defendant wired money from his HUD accounts to other accounts and used those funds to pay personal and/or business expenses of Defendant and his wife. Thus, the Indictment charged in Count One that, because Defendant failed to disclose to HUD the existing shortfalls in his escrow accounts, that he lacked funds required to pay to HUD money that it was owed, and that he had utilized funds from his escrow accounts to pay personal debts, he had obtained property belonging to HUD before converting it to his own use and had utilized the wires to perpetrate this scheme to defraud HUD, in violation of the federal wire fraud statute. Likewise, Counts Two through Nine identified eight different real estate closings spanning from October 17, 2008, through November 13, 2008, for which Defendant received wire transfers to his HUD escrow accounts but failed to remit to HUD any of the proceeds as required by the contracts. According to the Indictment, Defendant utilized the wires by, inter alia, emailing a HUD employee on November 21, 2008, documents he knew to be false in that they represented that Defendant had requested that his bank wire the funds for these eight transactions when he had not, in fact, made such request of his bank.

         On July 14, 2016, pursuant to a written plea agreement, Defendant appeared before the undersigned to change his plea of not guilty on Count One of the Indictment to guilty. In doing so, Defendant specifically admitted that he sent the November 21, 2008, email to HUD in order to execute his fraudulent scheme against HUD. Doc. 52 at ¶ 16(j). After Defendant entered his guilty plea, the District Judge set this matter for sentencing on November 10, 2016. Doc. 55. However, as Defendant and the Government filed several motions concerning, inter alia, the scope of evidence to be presented at sentencing, actually conducting the sentencing proceeding proved to be elusive. Upon Defendant's motion, sentencing was continued to January 12, 2017. Doc. 59. Sentencing then was reset for February 16, 2017, and then again for February 23, 2017, and then again for April 13, 2017. Docs. 66, 76, 80. Then, based upon the Government's motion, sentencing was continued to May 31, 2017. Doc. 82. On April 26, 2017, Defendant filed his pro se Motion to Withdraw Guilty Plea. Doc. 83. Defendant then filed amended Motions to Withdraw his Guilty Plea on May 5, 2017 (Doc. 85), May 13, 2017 (Doc. 87), and June 8, 2017 (Doc. 90). Ultimately, the District Judge denied Defendant's request for leave to withdraw his plea (Doc. 107) and again set this matter for sentencing on January 18, 2018. Doc. 110. After sentencing was reset for February 2, 2018 (Doc. 113), Defendant filed his above-mentioned sentencing memorandum and exhibits on January 26, 2018.

         After the District Judge referred this matter to the undersigned, a scheduling conference was held on February 6, 2018, at which the undersigned advised Defendant of his need to clarify his sentencing memorandum's arguments and the relevance of the substantial documents he had submitted in support of the memorandum. The undersigned reduced those concerns to an Order (Doc. 120) requiring Defendant to file a revised sentencing memorandum and allowing the Government time to respond. As Defendant's revised sentencing memorandum and the Government's response have been filed, the matter is ripe for the following recommendation to the District Judge.


         The PSR's loss calculation is the aggregate of fifteen closings for which Defendant received funds but did not transfer funds to HUD, as required by his contracts. The fifteen closings occurred in October and November of 2008, and the total amount owed, but not delivered, to HUD from the subject closings is $1, 090, 888.53.


         Notably, Defendant does not argue that he remitted to HUD any of the funds from the fifteen transactions that comprise the total loss calculated in the PSR. Rather, in his Revised Sentencing Memorandum, Defendant argues that the money he failed to deliver to HUD was lost for a “multitude of reasons, including negligence, before October 2008 and November 2008[.]” Doc. 121 at 1. He asserts that these losses caused a “shortfall” in his HUD escrow accounts that prevented him from paying the funds owed to HUD for the subject fifteen transactions, which were the final transactions Defendant participated in pursuant to his HUD contracts. Id. at 1-2. Defendant maintains that the shortfall in his HUD accounts, which he indicates was actually $1, 418, 229.47, “was a result of negligence and not criminal in nature.” Id. at 2. He argues that, pursuant to his plea agreement with the United States, he “should not be held responsible for monies lost and or not accounted for due to” the following: “Stolen, embezzled, or converted HUD monies by employees or others;” “Monies negligently or Recklessly Misapplied;” “Unfunded Closings (Dry Closings);” “Funds Not Received;” “Voided/cancelled checks that cleared accounts;” “Duplicate and over payments to HUD;” “Returned deposited items;” and “Missing deposits.” Id. at 3.

         Defendant asserts that the greatest part of his “shortfall” was due to “unfunded closings” in which “money was never received or replaced.” Doc. 121 at 3. Defendant identifies sixteen such “unfunded closings, ” resulting in a shortfall of $1, 039, 526.14 in his HUD accounts. Id. at 3-14. Defendant's proof of these “unfunded closings” consists of, for each closing, photocopies of the deeds and/or mortgages associated with the closing and printouts of excerpts of bank statements that do not reflect the deposit of the subject funds into his HUD accounts. See, e.g., Doc. 121, Exs. A - P.

         In addition to “unfunded closings, ” Defendant identifies a number of other circumstances that contributed to his shortfall that should not be included in any loss calculation for sentencing purposes. For example, Defendant claims a further $130, 450.56 shortfall resulting from “duplicate/over payments to HUD.” Doc. 121 at 14. Defendant's proof of such duplicate or overpayments to HUD consists of excerpts from his HUD account statements indicating duplicate wire transfers to HUD on September 14 and 21, 2007, in the amount of $27, 965.53, on November 1 and December 5, 2007, in the amount of $63, 361.31, and on February 22 and 29, 2008, in the amount of $38, 853.71. See Doc. 121, Ex. Q. Defendant also argues that $111, 726.37 of his shortfall was the result of “Returned Deposited Items” that “were never refunded, recovered or replaced.” Doc. 121 at 15. Here, Defendant again points to bank statements showing, on six instances, returned deposits in his accounts. See Doc. 121, Ex. R. Defendant also argues that $83, 891.03 of his shortfall was the result of “missing deposits/funds not received” from HUD buyers. Doc. 121 at 16. Defendant's proof of such missing deposits is a January 31, 2008, letter from his bank showing that the bank “lost proof” of four separate deposits totaling that amount. Doc. 121, Ex. S.

         Defendant also argues that $31, 204.50 of his shortfall was the result of “fifty (50) voided/cancelled checks from November of 2006 until October of 2008 that cleared the bank . . . [but] were never refunded, recovered or replaced.” Doc. 121 at 16. Defendant's proof of such appears to be a spreadsheet he prepared or had prepared on his behalf. See Doc. 121, Ex. T. Defendant also argues that $21, 430.87 of his shortfall was the product of “bank fees” that “were never refunded, recovered or replaced.” Doc. 121 at 17. Defendant's proof consists of monthly bank statements for his three accounts which indicate the bank's fees for each month. See Doc. 121, Ex. U. Defendant also claims he should get a “credit” for $633, 912.31 for funds he paid to HUD from his non-HUD account. Doc. 121 at 17. Defendant's proof of such payments ...

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