A win for those accused of fraud: New Third Circuit opinion throws out “intended loss” for federal theft and fraud offenses.

Last month in United States v. Banks, 55 F.4th 246 (3d Cir. 2022), the Third Circuit rejected enhanced sentences for federal theft and fraud offenses based on the “intended loss” to the victim. The court held that sentences for those offenses must depend on the “the loss the victim actually suffered.” Importantly, the court declined to defer to the Sentencing Commission’s Commentary interpreting the Federal Sentencing Guidelines (“FSG”), which defined “loss” as including “intended loss.”

In addition to marking the end of “intended loss” in the Third Circuit, Banks represents a potential shift in how courts interpret the FSG. Not only will Banks likely lead to lower sentences for many people convicted of federal theft and fraud offenses, but also, it provides a framework for defending against the government’s overreaching interpretations of the FSG.

The Role of “Loss” in Sentencing for Federal Theft and Fraud Offenses

The primary factor affecting the sentence of someone convicted of a federal theft or fraud offense is the monetary “loss” involved. For example, someone convicted of wire fraud starts with a baseline recommended sentence of 0 to 6 months for a first offense under the FSG. From there, the particular Guideline increases the recommended sentence on a graduated basis depending on the amount of the “loss.” Such was the case in Banks, where the sentencing judge determined the “loss” exceeded $250,000. That increased the recommended sentence from 0 to 6 months to 30 to 37 months (for a non-violent, first offense).

In Banks, however, the victim did not actually suffer any loss, as Frederick Banks’s alleged scheme was unsuccessful. The sentencing judge found that the “loss” exceeded $250,000 based on the Sentencing Commission’s Commentary, which defines the word “loss” in the FSG as “the greater of actual loss or intended loss.” The Commentary further defines “intended loss” as “the pecuniary harm that the defendant purposely sought to inflict,” including “intended pecuniary harm that would have been impossible or unlikely to occur.” Mr. Banks had deposited $324,000 from accounts with insufficient funds into new accounts, and then unsuccessfully tried to withdraw funds from the new accounts. The sentencing judge found that the “loss” exceeded $250,000 based on the “intended loss” of $324,000, regardless of the “actual loss” of $0.

On appeal, the Third Circuit rejected the Commentary’s addition of “intended loss” to the definition of “loss” in the FSG, ordering that Mr. Banks be resentenced based on the actual loss to the victim. Thus, people convicted of such offenses in the Third Circuit will no longer be subject to sentences based on a hypothetically determined “intended loss,” and calculating the actual loss the victim suffered will be an essential focus of sentencing.

How the Supreme Court’s Decision in Kisor v. Wilkie Led the Court to Reject “Intended Loss”

The reasoning in Banks was based on the Supreme Court’s decision in Kisor v. Wilkie, 139 S. Ct. 2400 (2019), which modified the extent to which courts defer to agencies’ interpretations of their own legislative rules. Before Kisor, courts had to defer to an agency’s interpretation of its own legislative rule unless the interpretation was “plainly erroneous or inconsistent with” the rule—a hard standard to overcome. Under the Supreme Court’s decision in United States v. Stinson, 503 U.S. 36 (1993), the Sentencing Commission’s Commentary to the FSG are “treated as an agency’s interpretation of its own legislative rule.” Thus, courts routinely deferred to the Commentary’s definitions.

The Third Circuit first addressed whether Kisor applied to the Commentary in United States v. Nasir, 17 F.4th 459 (3d Cir. 2021). There, the court explained that since the Commentary is treated like an agency’s interpretation of its own legislative rules under Stinson, Kisor applied to the Commentary. The court explained that now, under Kisor, “[i]f the Sentencing Commission’s commentary sweeps more broadly than the plain language of the guideline it interprets, we must not reflexively defer. The judge’s lodestar must remain the law’s text, not what the Commission says about that text.”

Building on Nasir, the court in Banks explained that there was nothing ambiguous about the word “loss” in the relevant Guideline. The court first pointed out that the Guideline makes no mention of “intended loss,” which only appears in the Commentary. The court explained “[t]hat absence alone indicates that the Guideline does not include intended loss.” The court then looked to the dictionary definition of “loss” and found that, in the context of the Guideline for economic offenses such as theft or fraud, “the ordinary meaning of the word ‘loss’ is the loss the victim actually suffered.” The court therefore gave no deference to the Commentary’s expansion of that definition to include “intended loss.”

The court also explained that even if the language of a Guideline is “genuinely ambiguous,” the Commentary’s interpretation would only receive deference if the “character and context” of that interpretation is within the “zone of ambiguity” identified in the Guideline. Thus, even if a Guideline were determined to be ambiguous (unlike in Banks), there is still room to argue that the Commentary’s interpretation should not be afforded deference because it unreasonably expands the language of the Guideline. Defense attorneys should pay close attention to the reasoning in Banks and use all the tools identified by the court to resist sentences based on interpretations in the Commentary that go beyond the language of the FSG. Of course, defense attorneys must be cautious as there are interpretations of various Commentary that help the criminally accused.

At Brown, Goldstein & Levy, our experienced criminal defense attorneys represent clients during all phases of the criminal process—from investigation to trial to appeal. We also represent clients in the quasi-criminal realm of corporate internal investigations, government investigations, and Title IX proceedings. Lady Justice might be blind, but she usually stands with BGL and our clients. Our criminal defense lawyers have obtained acquittals, dismissals of charges, and declinations of prosecutions. If you have any questions about a federal theft or fraud matter, please call Kobie Flowers in our Washington, D.C. office at 202-742-5969 for a consultation today.

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Kobie Flowers Partner