How is the Loss Amount Calculated in a Fraud Case in Federal Court?

How is the loss amount calculated in a fraud case?

What does loss amount mean in a fraud case? The loss amount, which is calculated by the prosecutor, probation agent, and contained in a defendant’s presentence report, can increase a defendant’s sentencing range by years – even decades, in some cases.

If the loss amount is not calculated correctly, the defense attorney can object and argue the loss amount at sentencing. At trial, the government must prove the loss amount before it can be applied to the defendant’s potential sentence. On appeal, the defendant’s case can be remanded for sentencing when the court applies the wrong loss amount under the federal sentencing guidelines.

Below, I’ll discuss how the loss amount is calculated in a fraud case in federal court, which methods of calculating the loss amount are acceptable, and when it is okay for the court to estimate the loss amount in a fraud case.

What Does Loss Amount Mean in a Fraud Case in Federal Court?

First, loss amount does not mean restitution, although the two are closely related concepts.

Restitution is the amount of money that a defendant must pay to compensate a crime victim for the harm that the defendant has done.

Loss amount in a fraud case is an estimate of the damage done that is applied to the sentencing guidelines to increase the defendant’s potential sentence.

When a person is convicted in some state courts, including South Carolina state courts, there is a set, predetermined sentencing range for the crime.

For example, a burglary first-degree conviction in SC state court carries a potential sentence of 15 years to life in prison. Except for purposes of restitution, the court does not calculate a loss amount and there are no sentencing guidelines to apply before the court decides the sentence.

In federal court, however, there is 1) a set, predetermined minimum and maximum sentence determined by statute and 2) a sentencing range that is determined by application of the federal sentencing guidelines – the guidelines range is not mandatory, but most of the time judges will stay within the guidelines and, if they do not, they must justify their upward or downward departure.

The guidelines range is determined by a defendant’s “offense level” and their “criminal history category.” The higher the offense level and the higher the criminal history category, the higher the range of potential prison time, and the offense level can be increased dramatically by the loss amount that is applied to a defendant’s case…

Offense Levels in Federal Court

A defendant’s “base offense level,” or their starting point, is determined by the alleged crime.

Under the US Sentencing Guidelines (USSG) §2B1.1, the base offense level is:

(1) 7, if (A) the defendant was convicted of an offense referenced to this guideline; and (B) that offense of conviction has a statutory maximum term of imprisonment of 20 years or more; or

(2) 6, otherwise.

The base offense level is then increased based on 1) the loss amount, and 2) any enhancements provided for in the guidelines. The loss amount can increase a defendant’s offense level by as much as 28 levels for the highest category of loss amount:

Why does it matter?

The loss amount calculation can increase a defendant’s sentence by years – many years in some cases. One way that a loss amount can be miscalculated – and challenged at sentencing and on appeal – is the method used to calculate the loss amount.

How is the Loss Amount Calculated in a Fraud Case in Federal Court?

Comment 3 to USSG §2B1.1 provides guidance for how the court should calculate the loss amount in a fraud case, including when it is appropriate to use actual loss, intended loss, or the defendant’s gain, and when it is acceptable for the court to estimate the loss amount.

Actual Loss, Intended Loss, or Gain

The loss amount is the greater of either 1) the actual loss or 2) the intended loss.

Actual loss the actual harm that resulted from the charged offense – not necessarily the amount that the defendant gained, but the harm caused to the alleged victims:

(i) Actual Loss.—“Actual loss” means the reasonably foreseeable pecuniary harm that resulted from the offense.

When it is a higher amount, the court will use the intended loss, however – a measure of the harm that the defendant intended to cause to the alleged victims, even when the harm was unlikely to result:

(ii) Intended Loss.—“Intended loss” (I) means the pecuniary harm that the defendant purposely sought to inflict; and (II) includes intended pecuniary harm that would have been impossible or unlikely to occur (e.g., as in a government sting operation, or an insurance fraud in which the claim exceeded the insured value).

The court can also use the defendant’s gain – the amount of money or property the defendant received as a result of the fraud – to calculate the loss amount, but only in cases where the loss amount cannot reasonably be determined:

(B) Gain.—The court shall use the gain that resulted from the offense as an alternative measure of loss only if there is a loss but it reasonably cannot be determined.

Exclusions from Loss

Some things cannot be included in the loss amount, including:

(i) Interest of any kind, finance charges, late fees, penalties, amounts based on an agreed-upon return or rate of return, or other similar costs[, and]

(ii) Costs to the government of, and costs incurred by victims primarily to aid the government in, the prosecution and criminal investigation of an offense.

Credits Against Loss

In some cases, a defendant can receive “credits” against their loss amount when the defendant returns money or property to the alleged victim before the offense was detected:

(i) The money returned, and the fair market value of the property returned and the services rendered, by the defendant or other persons acting jointly with the defendant, to the victim before the offense was detected. The time of detection of the offense is the earlier of (I) the time the offense was discovered by a victim or government agency; or (II) the time the defendant knew or reasonably should have known that the offense was detected or about to be detected by a victim or government agency.

Estimation of Loss

The loss calculations do not have to be exact, but the court must make a reasonable estimate of the loss based on the available information.

An estimate of loss that is unreasonable can result in an unfair sentence and can be grounds for appeal, however.

For example, in US v. Annamalai Anamalai, the government used a process of statistical extrapolation, or sampling, to determine the loss amount. Although statistical extrapolation, in and of itself, is not inappropriate, the government based its analysis on faulty data.

The Eleventh Circuit reversed and remanded for resentencing where the government based their loss amount on 85 files out of a total of 467 disputed credit card transactions (467 followers who had paid for spiritual services disputed transactions that they claimed were unauthorized).

The government’s extrapolation of loss amounts from the 85 files to the 467 disputed transactions was faulty because:

• The government admitted that there was not evidence of fraud in all the files;
• The government treated every dispute as fraudulent despite a lack of information;
• Several of the files contained a notation “credit not processed;”
• The government did not know whether the disputes were resolved in favor of the defendant or the alleged victims; and
• Some of the disputes had been resolved by the defendant and the alleged victims.

Although courts can make a reasonable estimate of the loss amount in a fraud case, “courts must not speculate concerning the existence of a fact which would permit a more severe sentence under the guidelines.”

Federal Criminal Appellate Attorney in Columbia, SC

Elizabeth Franklin-Best is a federal white collar criminal defense and federal appeals lawyer located in Columbia, SC.

For more information, call us at (803) 331-3421 or send us an email to set up a consultation about your case.