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United States v. Lillard

United States District Court, W.D. Washington, Seattle

March 2, 2018





         The defendants, Lonnie Eugene Lillard and Nathaniel Wells entered pleas of guilty to a single count indictment charging them with conspiring to commit bank fraud in violation of Title 18, United States Code, Sections 1344 and 1349. Dkt. 53 at 1-2. Two other co-defendants, Melissa Sanders and Erin Terril Wiley, were also charged in that same indictment and both of them also entered pleas of guilty. Ms. Sanders is awaiting sentencing while Mr. Wiley has already been sentenced. Mr. Lillard and Mr. Wells entered their guilty pleas without the benefit of a plea agreement. Dkt. 112, 114. They stipulated to no facts relevant to sentencing except with respect to asset forfeiture. Both defendants Lillard and Wells contest the government's calculation of the loss amount, restitution and their specific role in the conspiracy. Accordingly, the Court held an extensive evidentiary hearing consisting of the testimony of several witnesses and thousands of pages of admitted exhibits from the government as well as from the defendants. This order resolves the outstanding sentencing issues for both Mr. Lillard and Mr. Wells.

         In this case, based on the facts contained in the plea agreements and the presentence reports of co-defendants Wiley and Sanders, as well as the evidence presented during the evidentiary hearing, it's clear the object of this conspiracy was to obtain funds by using point-of-sale (POS) terminals reprogrammed with misappropriated merchant identification numbers without the authorization of the merchant. The co-defendants and unindicted co-conspirators, used the POS to process fraudulent refunds from merchants and load the funds onto debit cards, gift cards, and other instruments issued by banks and retailers. The defendants and co-defendants would then use these prepaid instruments to withdraw cash from various banks and automatic teller machines. In addition to withdrawing cash from banks and ATMs, the conspirators converted the credits to funds by using the fraudulently loaded cards to purchase money orders and precious metals, to buy goods and return them for cash, and through other means of converting the credits to cash.

         To facilitate the scheme, the conspirators used a portable POS machine, a digital device that scans debit, credit, and gift cards, to process purchases and returns. POS terminals are typically found next to a merchant's cash register and are programmed with information unique to that merchant (merchant ID). To conduct a purchase or refund transaction, the card is “swiped” through the POS terminal which in turn transfers funds from the customer's account to the merchant account during a purchase, or from the merchant to the customer account in the case of a return or refund.

         A merchant ID is a unique identifier assigned to a business or other entity to process debit and credit transactions. The merchant ID is programmed into a POS terminal to identify the associated retailer or business to which the transactions should be associated. If a business has multiple locations and retail outlets, there may be hundreds of merchant ID's associated with that business. When there are multiple merchant ID's, it's a common practice to assign sequential merchant ID's to the business's outlets. Some merchants print their merchant ID on customer receipts and therefore, merchant ID's can be directly obtained or easily guessed.

         During the course of the conspiracy, between July 2014 and January 5, 2016, the conspirators used one or more reprogrammed POS devices to process fraudulent returns. As testified to by Ms. Sanders and unindicted co-conspirator Mikah Quinn, defendant Lillard would travel to various hotel or motel rooms and other locations, with a binder full of credit, debit, and gift cards, and program the POS terminals to process numerous fraudulent returns, often for hours at a single location. This fraudulent activity created three categories of victims; individual merchant retailers, credit processing companies, and individual banks.

         The Court heard the testimony of several law enforcement witnesses including;

1. Kevin Brennan, F.B.I. Special Agent in charge of this case,
2. Derek Hill, F.B.I. Task Force member,
3. Kiersten Rogowski, F.B.I. Special Agent,
4. Brian Snead, F.B.I. Forensic Accountant, and
5. Keith Evans, Bureau of Prisons, Intel Operations Specialist.

         Additionally, two civilian witnesses testified, codefendant Melissa Sanders and unindicted co-conspirator Mikah Quinn. The defendants declined to testify and did not call any witnesses. While each of the witnesses was cross examined, often extensively by the defense, there was no conflicting or contradictory evidence raised by cross examination that the Court finds material to deciding the issues of loss amount, restitution or role in the offense. The Court thereby fully credits the testimony of each of the witnesses, finding it to be truthful and credible. The Court references specific testimony of a particular witness where appropriate in this order.


         A. Loss Amount

         The United States Sentencing Guidelines provides that a conviction for Conspiracy to Commit Bank Fraud has a base offense level of seven. USSG § 2B1.1. Additionally, the Guidelines provide for an upward adjustment to the base offense level if the amount of loss exceeds $6, 500; the amount of the upward adjustment depends on the amount of the loss. USSG § 2B1.1(b)(1). In determining the loss amount, the Court is to determine the greater of actual loss or intended loss. “Actual loss” is the reasonably foreseeable pecuniary harm that resulted from the offense. “Intended loss” is the pecuniary harm that the defendant sought to inflict even if it includes harm that would have been impossible or unlikely to occur.

         In determining the loss amount the Court need not be exact, but may make a reasonable estimate of the loss. USSG § 2B1.1, cmt. 3(C). And, when calculating loss amount in a case where the defendant participated in jointly undertaken criminal activity such as a conspiracy, the Court is to consider all acts of others that were “(i) within the scope of the jointly undertaken criminal activity, (ii) in furtherance of that criminal activity, and (iii) reasonably foreseeable in connection with that criminal activity, ” whether the acts occurred during, in preparation for, or in attempting to avoid detection or responsibility for the offense. USSG § 1B1.3(a)(1)(B). In making its calculation the Court is free to consider all relevant factors such as the approximate number of victims, the average loss per victim, the scope and duration of the offense, and the revenues generated by other conduct. USSG § 2B1.1, cmt. 3(C). Further, where unauthorized access devices are involved, loss can also be calculated per access device, in an amount no less than $500 each. USSG § 2B1.1, cmt. 3(F)(i).

         The victims of this conspiracy were credit processors (payment processors), banks and individual merchants. In calculating the loss amount the Court is mandated that it must never “double count” any specific loss. The Court thereby proceeds cautiously, and conservatively, when examining the government's evidence of actual or intended loss. The testimony showed that the five individual payment processing companies shouldered the vast bulk of the losses from this scheme by making the majority of individual retailers, who utilized that specific payment processor for their transactions, whole after discovering the fraud. Some of these payment processors are wholly owned by other financial institutions. For example, Chase Paymentech is a wholly owned subsidiary of JP Morgan Chase. However, for purposes of this order, the corporate structure is not relevant and the Court will refer to these five institutions as payment processors. Therefore, although there was testimony that some individual merchant retailers also suffered losses and some failed to report some of their losses, in calculating loss amounts the Court focuses on those five payment processors, Vantiv, Chase Paymentech, First Data, Green Dot, and INCOMM, as the most impacted victims.

         1. Actual and Intended Loss

         a. Vantiv

         Vantiv is a payment processor that fell victim to the scheme of this conspiracy. Vantiv provided five spreadsheets setting out each of the transactions, both successful and unsuccessful, that were determined by Vantiv to have occurred as a result of activity by these conspirators during the relevant time frame. In reviewing the testimony as well as the exhibits received in evidence during the hearing, the Court's primary concern was that the government bore the burden of establishing that the claimed victim losses were, in fact attributable to the actions of the conspirators and that there was no ...

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