01-1837 U.S. v. Schaefer

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“[T]he government has attempted to justify the loss calculation by relying on generalized allegations of continuing fraud. While we agree with the government’s comment that Schaefer’s entire artwork business was ‘permeated with fraud,’ that characterization may have both civil and criminal aspects. As the cases cited by Schaefer make clear, only the latter category implicates sec. 1B1.3 of the Guidelines. The simplest and most direct way for the government to support its theory of the case is to point out how the specific elements of mail and wire fraud, which were the crimes specified in the fourteen-count indictment, were an integral part of Scheafer’s artwork business from 1994 to 1999. It might also be possible to justify the $231,000 loss calculation by demonstrating that Schaefer’s business practices routinely violated other criminal statutes (e.g., the criminal fraud provisions of Indiana law). However, the government has failed to direct this court, or the district court, to any additional statutory authority criminalizing Schaefer’s conduct.”

“Although the government in this case has convincingly demonstrated that Schaefer’s routine dealings were, at a minimum, disreputable and unethical, the plain terms of the Guidelines make clear that such a showing is not enough. For all of Schaefer’s business receipts to be included in a sec. 2F1.1(b)(1) loss calculation, the government must demonstrate, by a preponderance of evidence, that all of Schaefer’s business activities were unlawful. Moreover, if the loss calculation is not based entirely on the counts of conviction, the district court must make specific findings on the relevant conduct (i.e., unlawful conduct) on which it relies to make its sec. 2F1.1(b)(1) calculation of loss.”

Vacated and remanded.

Appeal from the United States District Court for the Southern District of Indiana, Dillin, J., Cudahy, J.