Disciplinary Action in and out of the Commonwealth of Pennsylvania

Today I write about a 2004 Pennsylvania Supreme Court decision which discussed the implication of a foreign jurisdiction’s disciplinary actions on Pennsylvania licensees and Pennsylvania’s ability to use that disciplinary record in a Pa disciplinary proceeding. In the consolidated cases of Kahn and Butt v State Board of Auctioneers, 577 PA. 166 (2004), the Pennsylvania Supreme Court addressed the issue of when can an uncontested foreign discipline for minor violations of another jurisdiction’s professional licensing regulations form the basis for a reciprocal discipline by a Commonwealth of Pennsylvania licensing board. In each case the disciplinary agreements in the foreign discipline included language specifically stating that such “did not constitute wrongdoing” and “should not be characterized as a disciplinary action by Pennsylvania.”

The court determined that in order to render the imposition of a reciprocal discipline improper, a petitioner must show that 1) no disciplinary action was taken in the foreign disciplinary proceeding; 2) a pending appeal from the disciplinary action; 3) the foreign disciplinary proceeding lacked the fundamental due process afforded in Pennsylvania; or 4) the misconduct established in the foreign disciplinary action is a substantially different discipline in the Commonwealth Pennsylvania.

With these guide posts in mind, it is important to fight every out-of-state disciplinary action and consider its potential affect on your Pennsylvania license. When being disciplined out-of-state, do not stipulate in any disciplinary agreement that your behavior constituted a violation of that jurisdiction’s regulatory scheme. This will insure that the Commonwealth cannot claim the foreign discipline constitutes a per se violation of the Commonwealth’s disciplinary scheme.

Kahn addressed this significant issue because in his case, the foreign disciplinary action was entered based upon an agreement that did not include an admission or finding of guilt of a foreign violation, but rather simply an agreement for a sanction. Kahn argued that as such, there was no predicate violation for the PA Auctioneer Board to summarily find a violation and impose a penalty.

For the first time, the Supreme Court ruled that such an order does not constitute an automatic basis for discipline in the Commonwealth of Pennsylvania. In Kahn the Pennsylvania Board of Auctioneers argued the sanction provided the justification for the finding of a per se violation and thus the discipline of Kahn. The Court ruled that the licensing board was precluded from imposing a reciprocal discipline when there is no discipline admitting any wrongdoing.

Kahn also argued that he was denied due process in the other jurisdiction, not Pennsylvania, but that Pennsylvania’s court could rectify this by not imposing discipline. The court disagreed finding that when Pennsylvania’s reciprocal licensing board provides notice of the intended discipline, the charges, and the ability to respond and testify and present evidence, Pennsylvania satisfies its procedural due process requirements. It is not for the Pennsylvania Board to rectify the foreign jurisdiction’s deficient procedural due process violation. As such you must respond in both jurisdictions because once a discipline has been meted out in a foreign jurisdiction, Pennsylvania will use it against you.

Please call me to discuss your foreign jurisdiction disciplinary proceedings and their effect on your Pennsylvania license

Mortgage Fraud Sentencing Enhacements

My last blog talked about the central issues of scope of criminal activity and actual loss in a mortgage fraud federal sentencing hearing. The recent case of U.S. v. David McCloskey, 2013 U.S. Dist. Lexis 168220 (November 26, 2013), discusses numerous issues guilty pleas or guilty verdicts these cases present. This blog shall discuss the secondary, but equally important, sentencing enhancements based upon the number of victims, type of scheme, leadership roles, and obstruction of justice.

These cases typically involve forged appraisals, engaging in mortgage brokering without a license, submitting fraudulent bank and asset information upon which mortgage qualification documents are based (this is fake W-2 forms, bank account statements, asset information) and complex clients . Please review http://www.phila-criminal- lawyer.com/Publications/201031202-Hark.pdf,  and my other published articles for a simple discussion of the process of a federal sentencing.

The secondary enhancements include: 1) a four-level enhancement for an offense involving more than fifty victims pursuant to U.S.S.G. § 2B1.1(b)(2); 2) a two-level enhancement for the use of sophisticated means pursuant to U.S.S.G. § 2B1.1(b)(10)(C); 3) a four-level enhancement for defendant’s leadership role in the offense pursuant to U.S.S.G. § 3B1.1(a); and 4) a two-level enhancement in defendant’s offense level calculation for obstruction of justice pursuant to U.S.S.G. § 3C1.1.

The judge in McCloskey stated “Application note 8(B) defines “sophisticated means” as especially complex or especially intricate offense conduct pertaining to the execution or concealment of an offense. For example, in a telemarketing scheme, locating the main office of the scheme in one jurisdiction but locating soliciting operations in another jurisdiction ordinarily indicates sophisticated means. Conduct such as hiding assets or transactions, or both, through the use of fictitious entities, corporate shells, or offshore financial accounts also ordinarily indicates sophisticated means. U.S.S.G. § 2B1.1 cmt. n.8(B).

“‘Application of the adjustment is proper when the conduct shows a greater level of planning or concealment than a typical fraud of its kind.'” Other courts of appeals have stated that the enhancement only applies when “‘the offense conduct, viewed as a whole, was notably more intricate than that of the garden-variety offense.'” The courts have therefore interpreted the enhancement at § 2B1.1(b)(10)(C) to refer to offense conduct generally, not the individual defendant’s conduct. As noted above, the guidelines define offense conduct for purposes of determining specific offense characteristics as “all reasonably foreseeable acts and omissions of others in furtherance of the jointly undertaken criminal activity.” U.S.S.G. § 1B1.3(a)(1)(B).

The leadership four level enhancement under section U.S.S.G. § 3B1.1(a) provides that defendant’s offense level should be increased by four levels “[i]f the defendant was an organizer or leader of a criminal activity that involved five or more participants or was otherwise extensive.” Leadership activities include recruiting helpers, coordinating drafting the loan applications, fraudulent appraisals, fraudulent court documents, fraudulent pay stubs, concealing fraudulent documents, and instructing potential co-defendants that they should falsify the necessary documents to justify and applicants particular assets. Not every requirement of the four level enhancement subsection is required. Rather, the Third Circuit has advised that if the defendant’s role in the offense is the central criterion for the application of the enhancement. If the defendant recruited individuals, shared in the flutists fine, may disbursements with the funds, the evidence will reflect the specific defendants exercise of degree of control over the other members of the scheme.

The final issue of obstruction of justice deals with the defendant’s attempt to obstruct justice by testifying under oath falsely, destroying documents, falsely answering questions to FBI officer or a bank investigator, or otherwise engaging in attempts to intimidate witnesses. The obstruction claim stems from U.S.S.G. § 3C1.1 if a defendant files false affidavits with the court asserting his actual innocence in an attempt to withdraw his guilty plea. Section 3C1.1 provides, if (1) the defendant willfully obstructed or impeded, or attempted to obstruct or impede, the administration of justice with respect to the … sentencing of the instant offense of conviction, and (2) the obstructive conduct related to (A) the defendant’s offense of conviction and any relevant conduct; or (B) a closely related offense, increase the offense level by 2 levels. U.S.S.G. § 3C1.1.

The application notes to § 3C1.1 identify “producing or attempting to produce a false …record during an official investigation or judicial proceeding” and “providing materially false information to a judge” as conduct that falls within the scope of the enhancement. U.S.S.G. § 3C1.1 cmt. n.4(C), (F). The notes further define “material” evidence as “evidence, fact, statement, or information that, if believed, would tend to influence or affect the issue under determination.” U.S.S.G. § 3C1.1 cmt. n.6. The government bears the burden of proving the applicability of § 3C1.1 by a preponderance of the evidence. In order to constitute “willful” obstruction of justice, the court must find that defendant had the specific intent to obstruct justice. The application notes explain that “not all inaccurate testimony or statements necessarily reflect a willful attempt to obstruct justice.” U.S.S.G. § 3C1.1 cmt. n.2 (“In applying this provision in respect to alleged false testimony or statements by the defendant, the court should be cognizant that inaccurate testimony or statements sometimes may result from confusion.”) In sum, Producing a false record during a judicial proceeding and providing “materially false” information to a judge is conduct that warrants an enhancement pursuant to § 3C1.1. U.S.S.G. § 3C1.1 cmt. n.4(C), (F).

Once this occurs and the obstruction enhancement is applied, equally important in the revocation of sentencing deductions for acceptance of responsibility. Please call to discuss your case and your sentencing hearing.

Mortgage Fraud, Scope of Criminal Activity and Actual Loss

The end of the housing bubble and mortgage fraud induced economic downturn is giving birth to numerous prosecutions for mortgage fraud. The recent case of U.S. v. David McCloskey, 2013 U.S. Dist. Lexis 168220 (November 26, 2013), is indicative of the numerous issues guilty pleas or guilty verdicts in these cases preset. Issues of forged appraisals, engaging in mortgage brokering without a license, submitting fraudulent bank and asset information upon which mortgage qualification documents are based (this is fake W-2 forms, bank account statements, asset information) must be addressed head on with competent counsel.

The facts of these cases, when incorporated in a guilty plea or form the basis for a guilty verdict, significantly expand a potential base line sentence in accordance with the federal sentencing guidelines. Please review http://www.phila-criminal-lawyer.com/Publications/201031202-Hark.pdf, for my publication in the Legal Intelligencer discussing of the process of a federal sentencing.  This blog will discuss the major issues of scope of criminal activity and the resulting loss calculus.  A second blog will address secondary sentencing enhancements.

Sentencing enhancements are one of the major issues mortgage fraud cases confront. In accordance with the Guidelines, the first issue to be addressed controls the entire sentencing scheme: what is the scope of the criminal activity. The Guidelines define scope as a criminal plan, scheme, endeavor, or enterprise undertaken by the defendant in concert with others, whether or not charged as a conspiracy, for which “sentencing adjustments are determined by considering “all reasonably foreseeable acts and omissions of others in furtherance of the jointly undertaken criminal activity.” U.S. Sentencing Guidelines Manual § 1B1.3(a)(1)(B). The importance of this scope of criminal activity definition is that all losses associated with the scope of activity are then attributed to the defendant and for which the guidelines provide a sentencing enhancement.

The amount of loss is defined at in U.S. Sentencing Guidelines Manual § 2B1.1(b)(1). It is the government’s burdened by a preponderance of the evidence to establish scope of loss Once the government makes out a prima facie case about the amount of loss, the burden of production shifts to the defendant to provide evidence showing that the government’s evidence is incomplete or inaccurate.” The ultimate burden of persuasion, however, remains with the government. The court “need only make a reasonable estimate of the loss.” Id.; U.S.S.G. § 2B1.1 cmt. n.3(C).

The accordance with U.S.S.G. § 2B1.1 cmt. n.3(F)(v), “services were fraudulently rendered to the victim by persons falsely posing as licensed professionals[,] … loss shall include the amount paid for the property, services or goods transferred, rendered, or misrepresented, with no credit provided for the value of those services.” This amount includes fake mortgage service appraisal fees, broker fees, and attorney’s fees.

Objections to unearned or fake broker’s fees, sometimes amounting to millions of dollars, will not win. Case law indicates that: “A victim’s loss will count against the defendant at sentencing if it would not have occurred but for the fraud. In this context, but for the fraud’ means ‘had the defendant refrained from the conduct that gave rise to the fraud, not had the defendant engaged in such conduct but did so lawfully (rather than fraudulently).” Although a defendant and his bank could have earned these fees legally, the professional fees paid to borrowers will be appropriately considered loss under U.S.S.G. § 2B1.1 because the loans closed due to fraudulently inflated appraisals.

A second aspect of losses includes the amount of the bank’s losses due to default and mortgage foreclosure. The calculations also multiply each loss by the total number properties purchased in the scheme. Each house’s price and therefore loss calculus may be derived from the HUD-1 loan amount.

However, it benefits the defendant to use the value of the foreclosure judgment, excluding interest, finance charges, late fees and penalties. The guidelines specifically exclude interest, finance charges, late fees, and penalties from the loss calculation. U.S.S.G. § 2B1.1 cmt. n.3(D)(i). In one case, a court found the judgment amount to be a reasonable estimate of loss because the government did not include other expenses associated with foreclosure–such as closing costs, insurance payments, and management fees -in its loss calculation. This equation also must include mortgage payments made and foreclosure prices paid. This equation will produce the lowest possible figure in most cases.

Importantly, the courts have found that the government loss cannot be based upon a percentage of been appraised value. Typically, the property price or value will vary. The courts have held that with a variance this high, it cannot make a reasonable estimate of the principal amount at foreclosure from the appraised value alone. The court has stated “[T]he 80% formula value is not a reasonable estimate unless there is evidence to indicate that the relevant loan was for the purchase. As well the appraised value does not factor in specifically property sold at sheriff sale, money paid down, tax value, actual value, or a correct appraised value.

It fighting the scope of criminal activity and actual loss calculation, a defendant must contest every aspect of the government calculated loss. Consideration must be paid attention to the principal owed at the time of foreclosure, the foreclosure sales price which permits a credit to the lost value, the resale price after the foreclosure, and then the actual loss calculated. The issues as to brokerage fees and appraisal fees must also be addressed to come to ascertain the gross loss value. There, however, must be a balance so as to not loss any acceptance of responsibility deductions.

Please call to discuss your case.

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