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

Through Amusements Inc., owned by Szaflarski, a criminal enterprise distributed “video gambling devices” to bars and restaurants. The machines allow customers to deposit money in return for virtual credits and are legal for amusement only. The enterprise and the establishments, however, permitted customers to redeem credits for cash. The devices were modified to track money coming in and payouts, so that establishment owners and the enterprise could divide the profits. When a rival company encroached on Amusements Inc.’s turf, the enterprise placed a pipe bomb outside the rival’s headquarters. In addition to gambling, the enterprise committed home and jewelry‐store robberies, fenced stolen items through Goldberg Jewelers, owned by Polchan, and dealt in stolen cigarettes and electronics. Sarno was at the top of the enterprise’s hierarchy, followed by Polchan. Volpendesto was a perpetrator of robberies. The three were indicted for conspiracy to violate the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. 1962(d). Sarno and Polchan were indicted for conducting an illegal gambling business, 18 U.S.C. 1955; and Polchan for additional counts, including use of an explosive device, conspiracy to do so, 18 U.S.C. 844(i) and (n), and conspiracy to obstruct justice, 18 U.S.C. 1512(k). Others indicted included Szaflarski and Volpendesto’s father, and two police officers. Most entered pleas. Volpendesto, Polchan, and Sarno were convicted. The Seventh Circuit affirmed, rejecting challenges to the sufficiency of the evidence, jury instructions, evidentiary rulings, and the sentences. View "United States v. Sarno" on Justia Law

Abair emigrated from Russia in 2005 and married an American citizen. Abair owned an apartment in Moscow. After her divorce, Abair sold the apartment and deposited the proceeds with Citibank Moscow. She signed a contract to buy an Indiana home for cash. Citibank refused to transfer funds because her local account was in her married name and the Moscow account used her birth name. Over two weeks Abair withdrew the daily maximum ($6400) from Citibank ATMs and deposited $6400 to $9800 at her local bank. A deposit on Tuesday, May 31 followed the Memorial Day weekend and was posted with one made on Saturday, pushing her “daily” deposit over the $10,000 trigger for reporting, 31 U.S.C. 5313(a). Abair was charged with structuring financial transactions to evade reporting. IRS agents testified that during her unrecorded interview, Abair, who is not fluent in English, revealed knowledge of the reporting rules. Abair testified that she was aware of the limit when she spoke with the agents, but had learned about it after making the deposits, when she asked why identification was required. She said her deposit amounts were based on how much cash would fit in her purse. Abair was convicted and agreed to forfeit the entire proceeds. The Seventh Circuit remanded, finding that the government lacked a good faith basis for believing that Abair lied on tax and financial aid forms and that the court erred (Rule 608(b)) by allowing the prosecutor to ask accusatory, prejudicial questions about them. On the record, Abair is at most a first offender, according to the court, which expressed “serious doubts” that forfeiture of $67,000 comports with the “principle of proportionality” under the Excessive Fines Clause. View "United States v. Abair" on Justia Law

Sentinel specialized in short-term cash management, promising to invest customers’ cash in safe securities for good returns with high liquidity. Customers did not acquire rights to specific securities, but received a pro rata share of the value of securities in an investment pool (Segment) based on the type of customer and regulations that applied to that customer. Segment 1 was protected by the Commodity Exchange Act; Segment 3 customers by the Investment Advisors Act and SEC regulations. Despite those laws, Sentinel lumped cash together, used it to purchase risky securities, and issued misleading statements. Some securities were collateral for a loan (BONY). In 2007 customers began demanding cash and BONY pressured Sentinel for payment. Sentinel moved $166 million in corporate securities out of a Segment 1 trust to a lienable account as collateral for BONY and sold Segment 1 and 3 securities to pay BONY. Sentinel filed for bankruptcy after returning $264 million to Segment 1 from a lienable account and moving $290 million from the Segment 3 trust to the lienable account. After informing customers that it would not honor redemption requests, Sentinel distributed the full cash value of their accounts to some Segment 1 groups. After filing for bankruptcy Sentinel obtained bankruptcy court permission to have BONY distribute $300 million from Sentinel accounts to favored customers. The trustee obtained district court approval to avoid the transfers, 11 U.S.C. 547; 11 U.S.C. 549. The Seventh Circuit, noting the unique conflict between the rights of two groups of wronged customers, reversed. Sentinel’s pre-petition transfer fell within the securities exception in 11 U.S.C. 546(e); the post-petition transfer was authorized by the bankruptcy court, 11 U.S.C. 549. Neither can be avoided.View "Grede v. FCStone LLC" on Justia Law

In 2009 Betty and Wayne submitted a tax return on behalf of a Betty Phillips Trust, signed by Betty, who was listed as the trustee, claiming income of $47,997. A second return on behalf of a Wayne Phillips trust, was signed by Wayne, but Betty was listed as trustee. This return reported income of $1,057,585. Both returns claimed that all income had gone to pay fiduciary fees, so that the trusts had no taxable income. The Wayne Trust claimed a refund of $352,528. The Betty Trust claimed $15,999. The IRS issued a check for $352,528. They endorsed the check and deposited it into a joint account. The returns were fraudulent. The IRS had no record of any taxes being paid by the trusts. In December, the IRS served summonses. That month, the couple withdrew $244,137 remaining from their refund proceeds using 13 different locations. They followed the same strategy the next year, but did not receive checks. A jury convicted Betty of conspiracy to defraud the government with respect to claims (18 U.S.C. 286), and of knowingly making a false claim to the government (18 U.S.C. 287.1). The district court sentenced her to 41 months’ imprisonment and ordered them to pay $352,528 in restitution. The Seventh Circuit affirmed, rejecting claims that the court improperly admitted evidence, and that the government constructively amended the indictment and violated Betty’s right against self‐incrimination.View "United States v. Phillips" on Justia Law

Woodard was the director of a non‐profit grant organization, Gideon’s Gate, which provided educational and tutoring services to children. The Department of Education, not satisfied with Gideon’s performance, stopped providing funds. Woodard then enrolled Gideon as an Indiana Medicaid provider for outpatient mental health services, but continued to operate as an educational service provider. To fraudulently bill Medicaid, Woodard illegally obtained clients’ personal information from a welfare‐to‐work provider operated by a friend. Woodard submitted 2,437 false claims for $8.9 million worth of services to 378 patients. Woodard was charged with health care fraud, 18 U.S.C. 1347. Before trial Woodard filed several motions to change counsel. After appointing a third attorney, the court ordered a competency examination. A doctor concluded that Woodard was competent to stand trial. Two years later, after more delays and new attorneys, Woodard asked for another competency evaluation, which was denied. She pled guilty and was sentenced to 80 months in prison. The Seventh Circuit remanded for resentencing because the court applied the wrong version of the guidelines, but otherwise affirmed. The district court reached a reasonable conclusion after reviewing a previous psychological evaluation, considered advice from two mental health professionals, and considered Woodard’s interactions with her attorney. Although Woodard claimed that she did not knowingly and voluntarily plead guilty, the record shows that she did and that nothing would have alerted the court to the contrary. View "United States v. Woodard" on Justia Law

Castaldi, involved in fraudulent schemes since high school, operated a Ponzi scheme that collapsed in 2008. Net losses to investors and the IRS totaled about $40 million. When the scheme was near collapse, Castaldi turned himself in to the government. He eventually pled guilty to just one count of mail fraud, 18 U.S.C. 1341, and one count of corruptly impeding the IRS, 26 U.S.C. 7212(a). The district court imposed the longest prison sentence possible under the plea agreement: consecutive sentences of 20 years on the mail fraud charge and three years on the tax charge, about 50percent longer than the high end of the agreed Sentencing Guideline range. The Seventh Circuit affirmed the sentence, finding that the court adequately considered the fact that Castaldi told the government about his scheme and cooperated with its investigation, but also considered the devastating financial harm Castaldi inflicted on family members, friends, and neighbors of modest financial means. View "United States v. Castaldi" on Justia Law

The Halims own named WR Property Management. The company’s predecessor had contracted to buy natural gas from CES for the Halims’s 41 Chicago-area rental properties. CES delivered, but the company stopped paying and owed about $1.2 million when CES cut off service and filed suit. An Illinois court awarded $1.7 million, including interest and attorney fees. The company did not pay; the Halims had transferred all of its assets to WR. CES filed a diversity suit under the Illinois Fraudulent Transfer Act. The district court granted CES summary judgment and entered a final judgment for $2.7 million on fraudulent‐conveyance and successor‐liability claims. The Seventh Circuit affirmed, stating: “If the Halims are wise, they will start heeding the adage: if you’re in a hole, stop digging.” View "Centerpoint Energy Servs., Inc. v. WR Prop. Mgmt., LLC" on Justia Law

Dachman was indicted on and pled guilty to 11 counts of wire fraud for stealing funds elderly individuals had invested in his sleep‐related illness‐treatment companies. By selling shares in those companies, he had raised more than $4 million from 51 people. Although Dachman had a history of seven bankruptcies, he represented that he was a successful businessman and researcher and that he had obtained a Ph.D. from Northwestern University. He actually used the money for personal expenses. At sentencing, the district court denied him credit for acceptance of responsibility and sentenced him to 120 months’ incarceration. The Seventh Circuit affirmed, rejecting challenges that the court erred in calculating the loss amount, by denying him credit for acceptance of responsibility, and by imposing an “objectively unreasonable” term of imprisonment in light of his severe infirmities. View "Unted States v. Dachman" on Justia Law

Over 40 years, Rachuy accumulated almost 30 convictions, mostly for fraud. In a recent scheme, he “purchased” six vehicles by writing bad checks drawn on bank accounts that he knew were closed or had no funds. He was indicted for five counts of transporting stolen vehicles across state lines, 18 U.S.C. 2312, and pled guilty to one count in exchange for the government’s agreement to recommend that the court calculate loss amount based only on checks returned on four bank accounts involved in the purchase of the vehicles; recommend a five‐year prison sentence; and not oppose Rachuy’s request for the return of his property held by authorities. The district court rejected the parties’ recommendation, sentenced him to 90 months’ imprisonment based on its determination that he “is the epitome of a career offender.” The Seventh Circuit affirmed, rejecting arguments that the government breached the plea agreement: by referencing Rachuy’s lengthy criminal history, by failing to recommend that his loss amount be based solely on the checks used to purchase the vehicles charged in the superseding indictment; and by reminding the court that it did not have the power to command local and state authorities to release Rachuy’s property. View "United States v. Rachuy" on Justia Law

Williams pleaded guilty to misusing social security numbers, 42 U.S.C. 408(a)(7)(B), identity theft, 18 U.S.C. 1028(a)(7), making a false statement to an IRS agent, 18 U.S.C. 1001(a)(2), and aggravated identity theft, 18 U.S.C. 1028A(a)(1). The district court used the guidelines in effect at sentencing to calculate his imprisonment range, sentencing him to 56 months’ imprisonment, in addition to 24 months imposed for aggravated identity theft. Because of an upward adjustment for involving more than 10 victims, his guidelines range was higher than it would have been if calculated under the guidelines in effect when Williams committed his crimes. The defense did not raise the issue at sentencing. While his case was on appeal the Supreme Court held that applying the guidelines in effect at sentencing violates the ex post facto clause if it raises the defendant’s imprisonment range. Because the trial judge did not say that he would have given the same sentence if the range had been lower, the Seventh Circuit vacated and remanded for resentencing. View "United States v. Williams" on Justia Law