Third Circuit Vacates Sentence of Former Vanguard Employee Accused of Money Laundering, Mail Fraud, and Tax Evasion

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Scott Capps, a former employee of The Vanguard Group, pled guilty to conspiracy to commit mail fraud, money laundering, and tax evasion in March of 2019. He also admitted to filing false tax returns in 2013 and 2014 to cover up the scheme. By challenging the upward adjustments to the Federal Sentencing Guidelines, he will have his sentence recalculated because the trial court erroneously applied the abuse of position and gross receipts sentence adjustments.

Upward Adjustments to Federal Sentencing Guidelines for Conspiracy to Commit Mail Fraud, Money Laundering, and Tax Evasion

Capps was sentenced to four years in prison followed by three years of supervised release, and ordered to pay $2,137,580 in restitution and $648,600 in forfeiture for a fraud scheme that he perpetrated while he was employed by Vanguard.

Between 2011 and 2014, Capps had access to dormant accounts that were due for escheatment, the process of turning over abandoned funds to the state. Capps stole passwords from his subordinates and used them to access the Vanguard check issuing system. Capps submitted requests to have checks issued on dormant accounts to a co-conspirator, who would deposit the checks into one of his own accounts then issue checks to Capps drawn on those accounts. Capps and his co-conspirator stole more than $2.1 million.

Capps appealed his sentence to the Third Circuit Court of Appeals, contending that the trial court erroneously applied two upward adjustments in calculating his sentencing guidelines range. US v. Capps, 3rd Cir. No. 19-3033.

First, Capps claimed that the trial court incorrectly applied an adjustment for abuse of a position of trust. Second, he argued that the trial court erroneously applied a sentencing adjustment for deriving more than $1 million from a financial institution.

On appeal, the Third Circuit Court of Appeals found that the trial court erred in applying the abuse of trust adjustment, and that it was unclear from the record whether Capps met the threshold for deriving more than $1 million from a financial institution.

Because Capps did not object to the adjustments at sentencing, the Third Circuit Court of Appeals reviewed the case for plain error. To overturn a case under this standard of review requires an error that is clear or obvious, and that, but for the error, the outcome would have been different. If there was an error, the appellate court should exercise its discretion to correct the error if it “seriously affects the fairness, integrity, or public reputation of judicial proceedings.”

Trial Court Erred in Applying an Adjustment for Abuse of Trust

The trial court failed to individually analyze the mail fraud guidelines and the money laundering guidelines in this case. What happened here is that all of the enhancements were simply added together without regard to whether they applied to the mail fraud or money laundering offense. The result was that the adjustments were applied regardless of their applicability to the criminal activity charged and this resulted in a higher offense level.

The Third Circuit held that the lower court violated Commentary Note 2(C) to U.S.S.G. §2S1.1 by incorrectly basing the application of the abuse of trust adjustment on the defendant’s conduct in the underlying offense, the mail fraud. In this case, the defendant did not hold a position of trust with regard to money laundering; it was only with respect to his position at Vanguard which enabled him to commit mail fraud. Note 2(C) provides: “...application of any chapter Three adjustment shall be determined based on the offense covered by this guideline (i.e., the laundering of criminally derived funds) and not on the underlying offense from which the laundered funds were derived.”

Federal Sentencing Guideline §3B1.3 provides for an enhancement of two levels “if the defendant abused a position or public or private trust, or used a special skill, in a manner that significantly facilitated the commission or concealment of the offense.” U.S.S.G. §2S1.1, Commentary Note 2(C) requires that the adjustment is to be applied to the money laundering behavior alone, not the underlying offense from which the laundered funds were derived. The court explained that “the abuse of a position of trust has to be manifested in how the money laundered, not in how the money was gained.”

Capps was charged with money laundering based on two checks that were issued to him by a co-conspirator, knowing that the funds represented the proceeds from mail fraud. While Capps did indeed hold “a position of public or private trust,” that position was irrelevant to his commission or concealment of money laundering.

As a result, the appellate court found that it was plain error to apply an upward adjustment of the Federal Sentencing Guidelines in Capps’s case.

Error in Applying the Gross Receipts Adjustment

The trial court also applied a 2-level adjustment based on Capps’s gross receipts. Federal Sentencing Guideline §2B1.1(b)(17)(A) calls for a 2-level adjustment when “the defendant derived more than $1,000,000 in gross receipts from one or more financial institutions.”

Capps claimed that application of the gross receipts adjustments was incorrect because the account holders, and not Vanguard, were the source of the funds, and because it is unclear whether Capps’s gross receipts met the $1 million threshold.

While the appellate court was unpersuaded by Capps’s first argument, it found that the trial court was unclear as to whether his gross receipts exceeded the $1 million threshold and, as a result, remanded the case for resentencing.

A Commentary Note to Federal Sentencing Guideline §2B1.1 states that “the defendant shall be considered to have derived more than $1 million in gross receipts if the gross receipts to the defendant individually, rather than to all participants, exceeded $1,000,000.”

Neither the statements of the government nor the statements of the trial court directly answered the question of whether Capps’s individual receipts exceeded the $1 million threshold. Therefore, the appellate remanded the case to the trial court to clarify whether Capps’s individual receipts were in excess of $1 million.

Fighting for Downward departures from Federal Sentencing Guidelines

The Capps case highlights the complexities of federal sentencing guidelines and why you need an experienced federal criminal defense attorney on your side who understands the nuances of federal sentencing and will fight to ensure that the guidelines are applied fairly and accurately.

New York City federal criminal defense attorney Hope Lefeber has more than 30 years’ experience defending people who have been accused of crimes in federal court. She is a fierce and aggressive advocate for her clients who meticulously prepares every case she takes on.

Defense Against Federal Charges of Conspiracy to Commit Mail Fraud, Money Laundering, and Tax Evasion

In the Capps case, the defendant was charged with conspiracy to commit mail fraud and money laundering because he used subordinates’ passwords and worked with another Vanguard employee to cause Vanguard to mail checks drawn on dormant accounts. He then failed to report the income on his federal tax returns, which led to the charge of tax evasion.

These are serious charges, and conviction carries severe penalties. By challenging the upward adjustments to the Federal Sentencing Guidelines, Capps was able to have his case remanded for resentencing.

If you have been charged with a crime in federal court, you need an experienced, aggressive criminal defense lawyer on your side who will do everything possible to protect your constitutional rights and seek justice on your behalf.

Hope Lefeber has earned a reputation among her colleagues in the federal bar, federal court judges, and with her clients as a fierce and aggressive criminal defense attorney who is committed to seeking justice on her clients’ behalf.

If you have been charged with a federal crime, Hope Lefeber should be your first call. Contact Hope Lefeber today to schedule a free, confidential consultation to discuss your case.