Third Circuit Limits Sentencing Guidelines to Actual Loss:Implications for Fraud and Possibly Antitrust Sentencing
Key Takeaways
- The Third Circuit recently decided that the loss enhancement to the fraud guideline in the U.S. Sentencing Guidelines applies only to "actual loss" and not to "intended loss."
- While the primary impact of this decision is on federal sentencing in fraud cases, the Third Circuit decision potentially has broad-reaching sentencing implications, including in criminal antitrust cases such as recent attempted monopolization prosecutions.
On Nov. 30, 2022, following the U.S. Supreme Court's 2019 decision in Keiser v. Wilkie and contrary to the guidelines' own commentary, the Third Circuit decided that the loss enhancement to the fraud guideline in the U.S. Sentencing Guidelines ("USSG") applies only to "actual loss" and not to "intended loss." This distinction, the limitation to actual loss, is enormous, particularly for criminal defendants whose conduct caused little to no actual loss, despite any intent to do so. If other circuits follow suit, if courts apply this reasoning to other sections of the USSG, or if this case makes its way to the Supreme Court, the implications could be even more significant for all federal sentencing. The Third Circuit may have begun a revolution in white collar federal sentencing.
Banks and Its Holding
The facts of the Third Circuit case, United States v. Banks,1 provide the perfect stage to illustrate the decision's magnitude. Frederick Banks attempted a relatively straightforward scheme to steal money from clients of Capital Gain Group (d/b/a Forex.com). He planned to make fraudulent deposits from accounts with insufficient funds and then withdraw the funds before Capital Gain could detect that the money was not supported. Although Banks made $324,000 in fraudulent deposits and attempted to withdraw approximately $264,000, Capital Gain never transferred any of the money to Banks, thereby suffering no actual loss from his fraudulent conduct.
When Banks was sentenced, the District Court applied a 12-point enhancement to his offense level based on $324,000 of intended loss (the amount Banks unsuccessfully attempted to steal), consistent with USSG § 2B1.1's own definition of loss as "not only [] actual loss, but [] intended loss . . . even if it's determined to be improbable or impossible of occurrence." The District Court then sentenced Banks to nearly nine years' imprisonment and three years of supervised release.
Rather than defer to the agency's interpretation of the term, the Third Circuit ruled that "loss" is an unambiguous term and, therefore, the Court owed the agency no deference. It came to this conclusion in large part based on Keiser v. Wilkie,2 a hugely consequential 2019 administrative law decision from the Supreme Court. In that case, a divided 5-4 Court ruled that when an agency rule is unambiguous, courts should apply the standard tools of statutory construction and are not bound by the agency's interpretation of its rules. Only in cases where the rule is genuinely ambiguous, the agency's interpretation is reasonable, and the agency's expertise is reflected in the interpretation should courts defer – in other words, apply the traditional Auer doctrine.3
Once untethered from the guidelines commentary, per Keiser, the Third Circuit turned to a collection of dictionary definitions, concluding that the plain meaning of loss is actual loss and that the guideline commentary "improperly expand[ed]" the definition by incorporating intended loss. Accordingly, it remanded Banks' case to the District Court for resentencing. Given the difference in the intended versus actual loss ($364,000 vs. $0), Banks is likely to get a dramatically reduced sentence.
Possible Antitrust Implications of Banks
While federal sentencing in fraud cases is most directly implicated by this decision, we are also looking at these developments from a criminal antitrust perspective. Banks is not an antitrust case, but it is the first application we've seen of Keiser to the USSG, which also apply to antitrust crimes.
We wonder, for example, how the "volume of commerce" enhancement under USSG § 2R1.1 (Bid-Rigging, Price-Fixing or Market-Allocation Agreements Among Competitors) might be interpreted under the Banks precedent. In a price-fixing case, for instance, volume of commerce is typically based on sales affected by the conspiracy rather than on actual harm or overcharge. In addition, pursuant to USSG § 2R1.1(d)(1), corporate fines in antitrust cases use a proxy of 20 percent of the volume of affected sales in lieu of pecuniary loss. This application could be particularly problematic post-Banks if the Department of Justice sought to apply USSG § 2R1.1(d) in recently reinvigorated criminal antitrust attempted monopolization cases, where there is no completed crime and thereby a strong argument that no commerce is actually affected.
Conclusion
It certainly will be interesting to see what happens to Banks' sentence on remand, if any further appeals ensue, and what path other circuit courts will take post-Banks when they inevitably face similar questions. Further appeals and circuit splits in this hotly contested area of sentencing loss are probable, and the issue could well make its way to the Supreme Court in time. We look forward to sharing those updates as they come.
Footnotes
1. United States v. Banks, ___ F.4th ___, 2022 WL 17333797 (3d Cir. Nov. 30, 2022).
2. Keiser v. Wilkie, 139 S. Ct. 2400 (2019).
3. Auer v. Robbins, 519 U.S. 452 (1997).
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