Melissa Beecroft was convicted, after a jury trial of conspiracy along with two counts each of mail and wire fraud. She was sentenced to three years in prison, five years of supervised release and ordered to pay restitution of $2,275,025. In addition, the court entered a criminal forfeiture order against Beecroft in the sum of $107 million for the conspiracy count and an additional $1,420,000 for the remaining four counts of mail and wire fraud. Beecroft appealed, arguing the amounts of restitution and forfeiture were not properly calculated and violated the Eighth Amendment prohibition against excessive fines.
FACTS
From roughly 2003 through 2008, Beecroft took part in a multi-million dollar residential mortgage-fraud scheme in the Las Vegas area which was led by Steven Grimm and Eve Mazzarella. The conspirators recruited and paid straw purchasers to buy homes at substantially inflated prices, sometimes with 100% mortgage financing. Once the mortgage loans were funded, Grimm and Mazzarella caused title and escrow companies to disburse excess funds to various shell corporations they owned, under the pretense of using the money to make repairs and improvements to the homes, though such repairs were never made. Grimm and Mazzarella also arranged to have participating mortgage brokers and loan officers remit a portion of their commissions and fees to Grimm. After each sale, the straw buyers would then transfer ownership in the properties themselves to Grimm and Mazzarella’s shell corporations.
The scheme involved more than 400 straw-buyer transactions and 227 properties purchased for more than $100 million. The vast majority of the loans involved went into default, causing the lenders to lose tens of millions of dollars.
Beecroft’s role began after September 2002, when she was hired as an administrative assistant at Grimm’s company, Desert Funding. In April 2003, Beecroft began working as an independent loan processor for Select Equities, another company Grimm owned, and she later became the owner and manager of a third company, Secured Mortgage Services, in which the majority of her business consisted of mortgages she prepared for Grimm. Beecroft participated extensively in Grimm’s mortgage-fraud scheme, completing loans for Grimm, handling false information that was given to banks on behalf of straw buyers and directing to whom fraudulent third-party disbursements would be made. Beecroft participated in the scheme for years—joining Grimm even before Mazzarella did—and was described by at least one witness as Grimm’s “right hand.” According to the government, Beecroft’s participation caused 143 of the 227 properties to go into default. The government believed she made in excess of $400,000 from commissions and fees generated during the scheme.
At sentencing, the district court concluded that, although Beecroft was in some sense “the hub” of the scheme, she was “not anywhere near as culpable as Mr. Grimm or Miss Mazzarella,” and did not orchestrate the conspiracy or perhaps even fully understand it.
DECISION
The court first considered the challenges that the restitution amount was not supported by adequate evidence and violated the Eighth Amendment. Lender restitution is calculated as the total amount of unpaid principal still owed on the relevant loans, less whatever money the banks recovered from sale of the collateral properties. The court found that the government submitted sufficient evidence and that the underlying court utilized the correct formula for determining the restitution amount – noting that the government requested the court order restitution of $52 million and the court ordered a much lesser amount. The defendant’s “bare speculation” that the process was deficient is not sufficient. The court also held that the restitution was not excessive noting that the court has previously found that, because restitution under the Mandatory Victim’s Restitution Act is inherently linked to the culpability of the offender, it would be difficult to find any mandatory restitution under the MVRA cruel and unusual.
The court next considered the forfeiture order. Pursuant to 18 USC 982(a)(2), a person convicted of these crimes must be ordered to forfeit to the US, any property constituting or derived rom, proceeds the person obtained directly or indirectly as a result of the crime. Forfeiture is not intended to restore the victim and so, in the case of a fraudulently obtained loan, the proceeds for purposes of forfeiture equal the amount of the loan and, when a conspiracy is involved, the proceeds equal the total of all loans obtained by the conspiracy as a whole. Thus, the underlying court ordered Beecroft to forfeit the total amount of money obtained from the fraudulent loans on the conspiracy count. First, the court found the evidence sufficient as to the amount and that it was proper that a defendant be ordered to forfeit the entire amount obtained by the conspiracy even though they did not receive it personally.
The court then addressed the argument that the amount is excessive agreeing, in the first instance, that the forfeiture order was properly subject to excessiveness review – finding that a forfeiture order, as distinguished from an order of restitution, is intended to punish – particularly in cases of in personam forfeiture orders.
In determining whether the fine is grossly disproportional to the gravity of a defendant’s offense, and thus violates the excessive fines clause of the Eighth Amendment, the court considers (1) the nature and extent of the crime, (2) whether the violation was related to other illegal activities, (3) the other penalties that may be imposed and (4) the extent of the harm caused. The court found that the amounts ordered on the four counts of wire and mail fraud were not excessive. With respect to the conspiracy forfeiture amount of $107 million, the court found that she was ordered to forfeit an sum more than 100 times greater than the maximum fine of $1M on that count and 5,000x greater than the lowest fine. Even considering the guideline prison time, the forfeiture amount was disproportionate. The court noted that it has previously rejected forfeitures that had much less disparity from the potential fines. The court concluded that, without any argument or discussion at the hearing to justify the amount, an order which so vastly outpaced the otherwise available penalties runs afoul of the excessive fines clause. The court vacated the $107M forfeiture order and remanded for reconsideration in light of the Eight Amendment’s Excessive Fines Clauase.
