Justia U.S. 7th Circuit Court of Appeals Opinion Summaries

Articles Posted in White Collar Crime

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The defendants were indicted for committing and conspiring to commit wire fraud, 18 U.S.C. 1343 & 1349, by extracting money from lenders (including Bank of America) that had financed the sale of defendants' Gary, Indiana properties. The defendants had represented that buyers of the properties were the source of the down payments; the defendants had actually given the buyers the money to enable them to make the down payments. They had also helped the buyers provide, in loan applications, false claims of creditworthiness. The judge ordered restitution of $893,015 to Bank of America. The Seventh Circuit remanded, directing the court to consider an alternative remedy. Restitution is questionable because Bank of America, though not a coconspirator, did not have clean hands. It ignored clear signs that the loans were “phony.” The court referred to a history of “shady” practices and characterized the Bank as “reckless.” The court acknowledged that the Mandatory Victim Restitution Act requires “mandatory restitution to victims,” 18 U.S.C. 3663A, for “an offense resulting in damage to or loss or destruction of property of a victim of the offense,” but stated that Bank of America was deliberately indifferent to the risk of losing its own money, because it intended to sell the mortgages and transfer the risk of loss to Fannie Mae for a profit. View "United States v. Tartareanu" on Justia Law

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Dr. Kohli, a board-certified neurologist with extensive training in the treatment of chronic pain, operated the Kohli Neurology and Sleep Center in Effingham, Illinois. Irregularities in the practice eventually caught the attention of federal officials; he was indicted on three counts of healthcare fraud, two counts of money laundering, and 10 counts of illegal dispensation of a controlled substance (Controlled Substances Act, 21 U.S.C. 841(a)). During a 15-day trial, the jury learned about Dr. Kohli’s prescribing practices from law enforcement and healthcare professionals, expert witnesses, and his patients and their family members. The Seventh Circuit affirmed, upholding various evidentiary rulings and jury instructions and finding the verdict supported by substantial evidence. The court rejected an argument that the district court somehow conflated the standards for civil and criminal liability, or that it otherwise misled the jury into believing that it could find Dr. Kohli criminally liable for engaging in mere civil malpractice. View "United States v. Kohli" on Justia Law

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Plaintiffs alleged that, beginning in 1997, Swiech Group looted Krakow Business Park’s assets, diluting the value of the firm and of their shares. All of the claimed actions, including sham contracts, took place in Poland. Some of Swiech’s proceeds were allegedly funneled to Chicago‐area businesses and properties. Adam Swiech was arrested by the Polish authorities and charged with money laundering, forgery, tax evasion, and leading an organized crime ring, in connection with his conduct at the Business Park. He has been convicted on some of the charges. In a second round of litigation, plaintiffs alleged violations of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. 1962(d) (RICO), naming multiple defendants related to Swiech, including attorneys. The district court concluded that plaintiffs were estopped from asserting certain aspects of their claim and that nothing in the complaint plausibly asserted that the lawyer-defendants stepped over the line between representation of their clients and participation in a RICO conspiracy. The Seventh Circuit affirmed, citing the scope of its appellate jurisdiction, and reasoning that any wrongdoings in the course of lawyers' representation were outside the scope of the asserted RICO conspiracy. “Although the supplemental complaints paint a dismal picture of these attorneys’ behavior, assuming the truth of the allegations of disregard for the alleged neutrality principle, misleading billing statements, and the like, these problems must be addressed in a different forum.” View "Domanus v. Locke Lord LLP" on Justia Law

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In 2007 Sentinel Management Group collapsed. Sentinel managed short-term cash investments for futures commission merchants, individuals, hedge funds, and other entities. Its bankruptcy left customers and creditors in the lurch: over $600 million was lost. Sentinel’s president and CEO, Bloom, was convicted of 18 counts of wire fraud and investment adviser fraud, based on evidence that Bloom, despite assuring customers otherwise, put their funds at significant risk by using them as collateral for Sentinel’s risky proprietary trading; that Bloom fraudulently manipulated the rates of return paid to clients on their investments; and that Bloom continued to accept new customer funds even after he knew that Sentinel was about to collapse. The Seventh Circuit affirmed, rejecting challenges to the sufficiency of the evidence and to evidentiary rulings and claims of prosecutorial misconduct by characterization of evidence and by accusing the defense of wasting time. The court upheld the district court’s choice of a jury instruction on the meaning of a federal regulation governing futures commission merchants and its imposition of a sentence of 168 months in prison. View "United States v. Bloom" on Justia Law

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The Seventh Circuit affirmed Trudeau’s fraud conviction and his $38 million civil contempt judgment after he refused to surrender profits made from violating Federal Trade Commission orders. Trudeau claimed to be destitute. The FTC demanded that firms thought to be affiliated with Trudeau turn over business records. One such entity, Website Solutions, hired the Law Firms to represent it in connection with the demand. The district judge concluded that Website was under Trudeau’s control and appointed a receiver to marshal assets of Website and Trudeau’s other entities. The receiver collected approximately $8 million. The court approved the receiver’s plan, rejected the Firms’ request for compensation from funds in the receiver’s custody, approved the receiver’s compensation, accepted the final report, and authorized the receiver to send remaining funds to the FTC, closing the receivership. The Seventh Circuit affirmed, rejecting an argument that the Firms’ fees should be paid ahead of compensation for Trudeau’s victims. Before the Firms were hired by Website, a federal court had already directed Trudeau to turn over all proceeds of his improper commercial activities. That order created a lien on Website’s assets, senior to any claim created later. As a proxy for Trudeau, Website had no right to make commitments to pay third parties with funds belonging to Trudeau’s victims. View "Federal Trade Commission v. Trudeau" on Justia Law

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At USARMS, Burns provided estate-planning services and offered clients an investment in promissory notes that USARMS sold. The notes were allegedly backed by Turkish bonds. USARMS’s owners, Durmaz and Pribilski, claimed to have a connection in the Turkish government that allowed them to purchase the bonds at a below-market rate. USARMS guaranteed an 8.5 percent rate of return and told investors that returns could be as high as 14 percent. In reality, USARMS never purchased Turkish bonds. Durmaz and Pribilski used the investments for their personal use and to pay earlier investors “returns.” Burns was unaware of that deception. Before charges were filed, Durmaz fled the country and Pribilski died. Based on the government’s assertion that that Burns had induced victims to invest by falsely telling them that he had experience managing investments and that he and his family had invested in the bonds, a jury convicted Burns of wire fraud and mail fraud. The district court enhanced Burns’s sentence, ordered restitution, and ordered forfeiture based on the victims’ $3.3 million total loss in the Ponzi scheme. The Seventh Circuit affirmed the conviction, rejecting a claim of insufficient evidence of material misrepresentations. The court remanded the sentencing enhancement and the restitution order because the district court failed to address proximate cause. View "United States v. Burns" on Justia Law

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Attorney Goodson received an email from “Fumiko Anderson,” stating that she wanted to hire Goodson to recover money that she was owed in a divorce. Fumiko later stated that her ex-husband had agreed to settle and would mail a check to cover Goodson’s fee plus the settlement amount. The check was drawn on the First American account of an Illinois manufacturer. Goodson deposited the $486,750.33 check in his Citizens Bank client trust account. Fumiko told Goodson she needed the money immediately. Goodson directed the bank to transfer it to a Japanese entity that he believed to be Fumiko. It actually was an Internet-based fraudulent scheme: the “Fumiko Bandit.” When the fraud was discovered First American reimbursed its depositor and sought recovery from Citizens Bank, Goodson, and the Federal Reserve Bank. The Seventh Circuit affirmed judgment for the defendants, rejecting a breach of warranty argument. First American had received a “truncated” electronic image from the Federal Reserve but could have demanded a “substitute check” or could have refused to honor the check. First American was the victim of a mistake, but Illinois law provides no remedy for such a victim against “a person who took the instrument in good faith and for value.” The lawyer and the banks reasonably believed that they were engaged in the commonplace activity of forwarding a check; they did not fall below “reasonable commercial standards of fair dealing.” There was no “negligent spoliation of evidence” in Citizens Bank’s destruction of the original paper check. Goodson owed no professional duty to First American. View "First American Bank v. Federal Reserve Bank of Atlanta" on Justia Law

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From 2006-2013, Lewis fraudulently held herself out as a Fidelity account representative to at least 12 “investors,” ages 75-92. Although she had been a Financial Industry Regulatory Authority registered broker, 1990-2006, she was neither a registered broker nor affiliated with Fidelity. Lewis set up joint accounts for her investors, including her name on each. Lewis obtained debit cards and forged signatures on checks associated with the accounts to embezzle more than $2 million. She pled guilty to wire fraud, 18 U.S.C. 1343; the government agreed to recommend no more than 10 years’ imprisonment. The court imposed a sentence of 15 years’ imprisonment. The Seventh Circuit remanded for resentencing based on her conditions of supervised release. Before the resentencing hearing, Lewis filed a motion, arguing for the first time, that the government had breached the plea agreement. The district court denied the motion, holding that Lewis had waived this argument, then again sentenced Lewis to a 15‐year term. The Seventh Circuit affirmed, upholding the court’s refusal to consider Lewis’s argument. The court erred by not affirmatively acknowledging that it could have considered it, but the error was harmless because it alternatively rejected the argument, and the argument is meritless. The court did not err with respect to the vulnerable-victim enhancement; the sentence was substantively reasonable. View "United States v. Lewis" on Justia Law

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Kolbusz, a dermatologist, submitted thousands of claims to the Medicare system and private insurers for the treatment of actinic keratosis, a skin condition that sometimes leads to cancer. He received millions of dollars in payments. Convicted of six counts of mail or wire fraud, 18 U.S.C. 1341, 1343, he was sentenced to 84 months in prison plus $3.8 million in restitution. The Seventh Circuit affirmed. The evidence permitted a reasonable jury to conclude that many, if not substantially all, of the claims could not have reflected an honest medical judgment and that the treatment Kolbusz claimed to have supplied may have failed to help any patient who actually had actinic keratosis. Because the indictment charged a scheme to defraud, the prosecutor was entitled to prove the scheme as a whole, and not just the six exemplars described in the indictment. The judge did not err in excluding evidence that, after his arrest and indictment, Kolbusz continued to submit claims to Medicare, and many were paid. “It would have been regrettable to divert the trial into an examination of Medicare’s claims-processing procedures in 2013 and 2014, rather than whether Kolbusz knew that he was submitting false claims in 2010 and earlier." View "United States v. Kolbusz" on Justia Law

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In 2008, Johnston, a horse racetrack executive, promised a $100,000 campaign contribution to then-Governor Blagojevich in exchange for his signature on a bill to tax the largest casinos in Illinois for the direct benefit of the Illinois horse racing​ industry. After Blagojevich’s corruption came to light, the casinos sued the racetracks, alleging a conspiracy to violate the federal Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. 1961, and state‐law claims for civil conspiracy and unjust enrichment. A jury awarded the casinos $25,940,000 in damages, which was trebled under RICO to $77,820,000. The Seventh Circuit affirmed in part, holding that the jury did not have legally sufficient evidence to support a verdict finding a conspiracy to engage in a “pattern” of racketeering activity, as required for liability on a RICO conspiracy theory. The casinos are still entitled to the $25,940,000 in damages on the state‐law claims, but not to have those damages trebled under RICO. View "Empress Casino Joliet Corp. v. Balmoral Racing Club, Inc." on Justia Law