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United States v. Vargas

filed: October 3, 1995.

UNITED STATES OF AMERICA, PLAINTIFF-APPELLEE,
v.
LOUIS VARGAS, DEFENDANT-APPELLANT.



Memorandum Filed November 9, 1994. Appeal from the United States District Court for the Central District of California. D.C. No. CR-92-00483-SVW-2. Stephen V. Wilson, District Judge, Presiding.

Before: J. Clifford Wallace, Chief Judge, Stephen Reinhardt and Melvin Brunetti, Circuit Judges. Opinion by Chief Judge Wallace; Dissent by Judge Reinhardt.

Author: Wallace

WALLACE, Chief Judge:

Vargas challenges the sentence imposed for his securities fraud conviction. The district court had jurisdiction pursuant to 18 U.S.C. § 3231. We have jurisdiction pursuant to 18 U.S.C. § 3742 and 28 U.S.C. § 1291. We affirm.

I

In 1985, Vargas began working for Reserve Financial Group, which was formed in 1984 by John Anthony Genetti for the purpose of creating, selling, and marketing bogus municipal bonds. Genetti masterminded the scheme in which Vargas and three others participated. Vargas falsely represented to prospective investors that the securities were backed by governmental agencies, that they were triple-A rated, and completely liquid, when in fact the securities did not even exist.

In October 1992, Vargas pleaded guilty to two counts of securities fraud, in violation of 15 U.S.C. §§ 77 and 78, and to one count of submitting a false loan application to a federally insured institution, in violation of 18 U.S.C. § 1014. The two counts of securities fraud charged Vargas with sales of bogus bonds on November 4 and November 19, 1987. The third count charged him with submitting a false loan application on or around October 15, 1991. Although Vargas and the government had stipulated to an offense level which was based on application of the 1991 Guidelines, the district court realized during the course of an extensive sentencing hearing that the 1987 Guidelines would have to be applied to the securities fraud counts due to ex post facto concerns. Convinced that the base offense level provided by section 2F1.1 of the 1987 Guidelines did not adequately reflect Vargas's culpability, the district court departed upward four levels on the basis of the extraordinary amount of loss caused by the scheme.

In an earlier memorandum Disposition, we concluded that the district court had the legal authority to depart upward on the ground that the amount of loss was substantially greater than the maximum amount of $5 million provided for in loss table to section 2F1.1, and on the ground that application note 10 expressly authorized such departures. See United States v. Vargas, No. 93-50236 (9th Cir. Nov. 9, 1994) (unpublished Disposition). However, the district court did not make adequate findings concerning the amount of loss or provide a reasoned explanation for the extent of the departure. We therefore remanded to the district Judge to provide him an opportunity to make such findings and to provide a reasoned explanation of the extent of the departure.

On remand, the district court found that the amount of loss was at least $20 million and again departed upward four levels. See Supplemental Findings of Fact and Conclusions of Law, United States v. Vargas, No. CR92-483(a) (C.D. Cal. Feb. 23, 1995). The district court enumerated several justifications for the extent of the departure. First, the district court justified the four level departure by reference to the subsequently enacted Guidelines, which impose stiffer penalties for amounts greater than $5 million. However, as explained in our previous memorandum Disposition, reliance on the subsequently enacted Guidelines is erroneous because the subsequently enacted version of the loss table in section 2F1.1 alters rather then merely clarifies preexisting law. See United States v. Martinez, 946 F.2d 100, 102 (9th Cir. 1991) (Martinez).

The district court also reasoned that "departing upward one level for each $5,000,000 increase in loss reasonably addresses the gravity of the harm not otherwise accounted for in the applicable version of the guidelines." It went on to explain that its departure was proportionate, on a linear basis, given the amount of loss involved.

II

The district court's factual finding that the amount of the loss exceeded $20 million is not clearly erroneous and is sufficiently precise to enable us to determine whether the extent of the departure was reasonable. The question that remains is whether the departure was reasonable in light of the "structure, standards and policies of the Act and Guidelines." See United States v. Lira-Barraza, 941 F.2d 745, 746-51 (9th Cir. 1991) (en banc).

The only possible problem with the district court's basic approach of adding one offense level for each additional $5 million in loss is that the loss table in section 2F1.1 does not follow a simple linear pattern. Rather, the loss table in the applicable 1987 version of section 2F1.1 roughly adds one offense level each time the amount of loss doubles. If the district court were required to extrapolate from the loss table, a departure of only two levels would be appropriate for a loss of $20 million.

The question before us is whether the district court was permitted to follow a linear approach in determining the extent of the departure, or whether the district court was required to extrapolate from the loss table and follow its rough exponential pattern. We hold that it was reasonable for the district court to add one offense level for each additional $5 million in loss. In the 1987 version of section 2F1.1, the Sentencing Commission chose to end the loss table at $5 million and stated that "departures above the applicable guideline may be warranted if the loss substantially exceeds that amount." U.S.S.G. ยง 2F1.1 (n.10) (1987). There is no basis for assuming that the Commission intended the district court to follow the pattern provided in the loss table when the loss substantially exceeded $5 million. If the Commission had intended such a result it could easily have said so. Indeed, that the Commission ended the loss table at $5 million and ...


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