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Ponzi Schemer Gets Credit for Refunds Despite Ignoble Intentions

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By William Peacock, Esq. on September 23, 2014 3:39 PM

Is a good deed any less good if it was done with less-than-noble intentions?

Maybe so. But the Ponzi scheme guidelines don't care about motive -- they care about money. And Jason Snelling, in the end, only stole $5.3 million, returning the other $3.6 million to his investors in order to lure them into "investing" more money into his Ponzi scheme.

The district court declined to credit Snelling for the returned funds, but the Sixth Circuit reversed the sentence as procedurally unreasonable.

Guidelines Say...

Snelling argued on appeal that his sentence was procedurally unreasonable -- a miscalculation of his guideline sentence, in other words.

He points to Application Note 3(E), "Credits Against Loss," which requires that the "[l]oss shall be reduced by ... [t]he money returned, and the fair market value of the property returned, and the services rendered, by the defendant ... to the victim before the offense was detected."

It seems pretty self-explanatory to us: Refunds are credited against the intended loss. The Sixth Circuit called the argument "persuasive" and pointed to the 2001 revisions, which added the credit for refunds provision, as further proof that the Sentencing Commission intended for such credits to apply.

Judge Danny J. Boggs summed up the court's reluctant but clear holding:

Admittedly, there is intuitive appeal to the government's argument that Snelling should not be allowed to benefit from the payments he made 'not to mitigate the losses suffered ... but to create the means to convince new victim-investors to pay him even more money.' We need not reflect, however, on whether it is unseemly for Snelling to benefit from the money he paid out to investors in an effort to perpetuate his Ponzi scheme. Undoubtedly, it is. The only question we must consider is whether the district court correctly applied the Guidelines and whether it used a correct Guidelines range.

Sorry Eighth Circuit, But...

The government pointed to an Eighth Circuit case from 2005, United States v. Nichols, as support for its argument that there shouldn't be credit for refunds issued "to perpetuate the fraud."

The Sixth Circuit clearly disagreed, stating that the Eighth Circuit "in spite of § 2B1.1's clearly-worded Application Notes ... chose to apply the logic of several cases that dealt with loss calculations [which] ... pre-dated the 2001 amendments."

"It does not matter that those earlier courts convincingly applied equitable principles to Ponzi-scheme loss calculations," Judge Boggs wrote. "Once the Sentencing Commission promulgated new Guidelines provisions, those provisions became the controlling terms under which district courts were required to calculate a defendant's sentence."

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