- The court’s decision deviates from a long history of guideline enhancements based on intended loss for crimes like fraud and embezzlement.
- The Third Circuit’s analysis relied on recent U.S. Supreme Court precedent.
- As the government continues to prosecute more PPP loan fraud cases, Banks may prove particularly important.
The Bottom Line
Practitioners should be aware of the increased burden that proving “actual loss” imposes on the government, and should consider that any challenges made to the government’s contentions regarding loss may result in a reduction of the applicable range within the sentencing guidelines.
On November 30, 2022, the Third Circuit in United States v. Banks held that loss enhancement under U.S.S.G. § 2B1.1 is limited to actual loss, not intended loss. The court’s decision deviates from a long history of guideline enhancements based on intended loss for crimes like fraud and embezzlement.
In United States v. Banks, Frederick Banks was convicted of four counts of wire fraud and one count of aggravated identity theft. Mr. Banks perpetrated a scheme in which he attempted to defraud Gain Capital Group (Gain Capital) by making electronic deposits into Gain Capital from bank accounts with insufficient funds. Mr. Banks made fraudulent deposits of $324,000 and unsuccessfully executed 70 withdrawals/transfers totaling $264,000. Because Gain Capital never transferred funds to Mr. Banks, Gain Capital did not suffer any actual loss from Mr. Banks’s scheme.
During Mr. Banks’s sentencing, the district court, relying on the application notes in § 2B1.1, defined “loss” to include intended loss. Based on Mr. Banks’s fraudulent deposits, the court calculated intended loss to be greater than $250,000 but less than $550,000, which resulted in a 12-point increase to the base offense level. See §2 B1.1(b)(1)(G). The district court sentenced Mr. Banks to 104 months imprisonment and three years of supervised release. The Third Circuit reversed on the issue of loss enhancement, and remanded the case for resentencing based on actual loss.
The Third Circuit’s analysis relied on recent U.S. Supreme Court precedent—Kisor v. Wilkie, 139 S. Ct. 2400, 2415 (2019)—which modified the way in which courts should interpret the rules and commentary of agencies, such as the Sentencing Commission. Prior to Kisor, courts deferred to the Sentencing Commission’s interpretation of its own regulations. Applying Kisor, however, the Third Circuit in Banks analyzed the plain text of § 2B1.1 and the ordinary meaning of “loss” to determine that § 2B1.1 does not include intended loss. Indeed, the word “intended” is only mentioned in the commentary for § 2B1.1, and the ordinary meaning of “loss” is “actual” loss.
This decision is likely to have a significant impact on any federal criminal prosecutions for fraud, embezzlement, or any other violation that references § 2B1.1. The government will now have to show evidence of actual loss in order to enhance sentencing guidelines. Where a defendant may have sought or intended to receive certain ill-gotten gain, but the victim was not deprived of that amount, then the loss will be the actual loss sustained by the victim. Banks illustrates the classic example of this situation, and there will be many others like it. As the government continues to prosecute more PPP loan fraud cases, Banks may prove particularly important.
The Banks decision also raises many questions for future cases, such as timing issues when a victim that initially was out of pocket due to the scheme receives reimbursements or repayments prior to sentencing. Further, Banks could impact the application of sentencing provisions for other offenses. For example, the provision governing most tax fraud offenses, U.S.S.G. § 2T1.1, also focuses on intended loss by defining “tax loss” as “the loss that would have resulted had the offense been successfully completed.” Unlike in Banks, however, that definition is not in the commentary, but in the “special instructions” included in the body of § 2T1.1 itself.
Government scrutiny of corporate and individual conduct has high-stakes ramifications for executives and organizations. Ballard Spahr attorneys conduct internal investigations and represent clients facing actual or threatened prosecution. We also represent clients in civil fraud litigation and administrative proceedings. Please contact us for more information.
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