Wednesday, August 16, 2017

Court Affirms Restitution, Non-Recusal In Mortgage Fraud Case

US v. Stone: Stone ran a mortgage fraud scheme, where she "convinced financially distressed homeowners to engage her services as a real estate agent to negotiate 'short sales' with the mortgage holders on behalf of those homeowners." She would buy the properties at an artificially low price, then "flip" the houses, selling them to "predetermined buyers" for much higher prices. As a result, she was charged with numerous fraud offenses as well as conspiracy. Prior to trial she filed a pro se (and "largely unintelligible") motion for the district court to recuse itself because he "sits in consort with the accuser(s)." At a hearing on the motion, Stone (still acting pro se on this issue, although she was represented by counsel) asked if the court had stock or other interests in any of the banks involved in the mortgages. The court responded that "if there was a conflict I wouldn't be here," repeatedly, and denied the motion. Stone was found guilty by a jury on all counts. Prior to sentencing, the PSR calculated the losses of the various mortgage lenders to be just over $2.3 million. Stone objected to that figure for sentencing purposes, but not restitution, arguing that it inflated the true losses suffered and "gives the lenders and windfall the never would have realized." The district court adopted the PSR's calculation, sentenced to Stone to 60 months in prison and required her to pay the full amount in restitution.

While the appeal was pending. Stone filed a motion for a new trial, arguing that the district court should have recused himself due to "an alleged conflict of interest stemming from its ownership of stock in some of the victim banks." The court denied the motion, but did admit that it "did have a financial interest in some of the victim banks" but that still did not require recusal.

On appeal, the Fourth Circuit affirmed Stone's conviction and sentence. Reviewing the amount of restitution for plain error, the court found no error at all, concluding that the "preponderance of evidence shows that Stone fraudulently induced the lenders to approve the short sales and forego the full value of the mortgages." Particularly, Stone had not presented any evidence to support her argument that the lenders wouldn't have gotten the full value of the mortgages in the regular course of business anyway. For the same reason, the court also concluded that the district court did not clearly err in calculating the loss amount for purposes of calculating the advisory Guideline range.  On the recusal, the court found that the "district court's ownership of stock in the victim lenders is not a . . . financial interest" that required recusal because "the victim lenders here are not parties to the action; this is a criminal case between Stone and the Government." Moreover, any financial interest involved is so small as to be practically nil where the $2.3 million in restitution "will have a negligible effect, if any, on the value of these lenders, each of which is worth many hundreds of millions - if not billions - of dollars."

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