In U.S. v. Robertson the 7th Circuit weighed in on the factors that should be taken into account when sentencing the perpetrators of non-criminal fraud – in this case, bankruptcy and mortgage fraud. Here the Defendants, a husband and wife, appeared to have reformed themselves and were contributing to their community when the matter came to a head.
Facts: The defendants bought up residential properties then sold them to straw men at inflated prices. The inflated bank loans were justified using false information about the buyers’ finances, down payment resources, and intentions about remaining in the properties. Before it collapsed, the scheme had resulted in 37 transactions that cost the lenders involved more than $700,000.
Once their scheme collapsed the Defendants declared bankruptcy. They were questioned in the process about their business, but not immediately prosecuted by the U.S. Attorney. Once they received their discharge, the Debtors settled down, got regular jobs, and raised 3 children. The Court even determined that they had become, essentially, upstanding citizens “fully engaged” in their community.
Legal Theory: One day before the statute of limitations would have expired, the U.S. Attorney charged the couple with a single count of wire fraud under 18 U.S.C. 1343 and 2 counts of bank fraud under 18 U.S.C. 1344. The Defendants quickly plead guilty. Using prevailing sentencing guidelines the wife was sentences to 41 and the husband to 63 months in prison; and both were ordered to pay more than $700,000 in restitution.
Opinion: On appeal, the Seventh Circuit vacated the sentences handed out by the District Court and remanded the case with the admonition that the sentencing Judge take the unusually strong evidence of the couple’s self-motivated rehabilitation into account.
The Upshot: Hard not to read too much into this case. At first blush it looks like the 7th Circuit was trying to balance the unilateral and inflexible nature of the Sentencing Guidelines imposed on the courts by Congress in response to the mortgage debacle. Read more narrowly however, the truly self-motivated rehabilitation of the Defendant/Debtors seemed to be the key. In other words, this was an exception, not a crack in the rules.