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UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Criminal Action No. 04-cr-103-1-REB UNITED STATES OF AMERICA, Plaintiff, v. NORMAN SCHMIDT, Defendant. __________________________________________________________ REPORTER'S TRANSCRIPT (Sentencing Hearing) __________________________________________________________ Proceedings before the HONORABLE ROBERT E. BLACKBURN, Judge, United States District Court, for the District of Colorado, commencing at 1:31 p.m. on the 29th day of April, 2008, Alfred A. Arraj United States Courthouse, Denver, Colorado.

A P P E A R A N C E S FOR THE PLAINTIFF: MATTHEW T. KIRSCH and WYATT ANGELO, U.S. Attorney's Office - Denver, 1225 17th St., Suite 700, Denver, CO 80202 FOR THE DEFENDANT: PETER BORNSTEIN, Attorney at Law, 1600 Broadway, Suite 2350, Denver, Co 80202 THOMAS HAMMOND, Attorney at Law, 1544 Race St., Denver, CO 80206

DARLENE M. MARTINEZ, RMR, CRR United States District Court For the District of Colorado

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APRIL 29, 2008 (Proceedings commence at 1:31 p.m.) THE COURT: be seated. Good afternoon. Thank you, and please

Thank you.

This is Case 04-cr-103, identified

for our purposes as United States of America v. Defendant No. 1, Norman Schmidt. for sentencing. The Government appears by Assistant United States Attorneys Matthew Kirsch and Wyatt Angelo. good afternoon. MR. KIRSCH: MR. ANGELO: THE COURT: Good afternoon. Good afternoon, Your Honor. Joined by Special Agent Stephanie Hahn. Gentlemen, The matter is before this Court

The defendant, Mr. Norman Schmidt, is present in Good afternoon. THE DEFENDANT: THE COURT: Good afternoon.

Together with his co-counsel, Peter Gentlemen, good afternoon.

Bornstein and Thomas Hammond. MR. BORNSTEIN: MR. HAMMOND: THE COURT:

Good afternoon, sir. Good afternoon, Your Honor.

The architect of our pre-sentence

report and author of our pre-sentence report and three addenda, Caryl Ricca, is present from the probation department. Good afternoon. Good afternoon, Your Honor.

PROBATION OFFICER:

DARLENE M. MARTINEZ, RMR, CRR United States District Court For the District of Colorado

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THE COURT:

Assuming that we are prepared to

proceed to sentencing as stated and understood by the Court, I first find and conclude, importantly, that as required under 18 U.S.C. Section 3552 and Federal Rules of Criminal Procedure 32, the probation department has conducted a pre-sentence investigation and filed a pre-sentence report, now with three addenda. In fact, the pre-sentence report in total now consists of the following: The initial pre-sentence

report, dated February 29, 2008; the addendum to the pre-sentence report, dated March 13, 2008; the second addendum to the pre-sentence report, dated April 14, 2008; and the third addendum to the pre-sentence report, dated February 15, 2008 -- make that April 21, 2008, excuse me. I have received, read and reviewed carefully the pre-sentence report and these three concomitant addenda. Has the Government? MR. ANGELO: THE COURT: We have, Your Honor. Additions or corrections of a material

or substantive nature not now of record? MR. ANGELO: THE COURT: Nothing, Your Honor. Thank you.

Has the defense? MR. BORNSTEIN: Your Honor, I think -- yes, we have

the pre-sentence reports, yes, and we made our written
DARLENE M. MARTINEZ, RMR, CRR United States District Court For the District of Colorado

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objections, and we have nothing to add to the pre-sentence report that is not contained in our written objections. THE COURT: Very well, thank you.

And has the pre-sentence report and three addenda been discussed with the defendant? MR. BORNSTEIN: THE COURT: Yes. Thank you. Now, counsel,

Very well.

before I receive your anticipated sentencing presentations, please note that I have received, read and reviewed carefully all of the facts asserted, reasons stated, arguments advanced, and authority cited by you and the probation officer in all of the various papers relevant to sentencing. Also, I have reviewed the record of the trial and the loss hearing conducted on February 1, 4 and 5, 2008. So during this hearing, please do not simply present some kind of soporific reiteration of that which I already know. please. Very well, gentlemen of the defense, do you wish to make a statement on behalf of the defendant, offer additional information in mitigation of punishment, comment further on the probation officer's calculations and determinations, and on other matters relating to the appropriate sentence, Mr. Bornstein?
DARLENE M. MARTINEZ, RMR, CRR United States District Court For the District of Colorado

I encourage and challenge you to go beyond that,

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MR. BORNSTEIN: THE COURT:

We do, Your Honor.

And you may, counsel. If I might begin, Your Honor, I

MR. BORNSTEIN:

would like to -- the Court noted the three pre-sentence report and the addenda by date. The Court referred to the

other filings generically, and I would just like to try to make some record of what those other filings were on behalf of the defendant. THE COURT: I can assure you that I will mention

all of those filings by title, date and/or Docket No. and filing date during the course of my own sentencing statement. But, of course, you may duplicate that. As long as there is somewhere in

MR. BORNSTEIN:

this record that those exist, that is good enough for me. THE COURT: There should be, and hopefully will be.

If not, I will give you a chance at the conclusion of my own sentencing statement to complete the record in that specific regard. MR. BORNSTEIN: THE COURT: That will do, thank you.

Very well, you are welcome. And also, if I might, I would like

MR. BORNSTEIN:

to divide our statement up between myself and Mr. Hammond, along the lines of I would like to talk to the Court about the loss calculation, the objections to the guideline calculation, and let Mr. Hammond talk about our request
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for a variance from the guideline calculation. THE COURT: Leave is granted as requested. And I want to preface all of these

MR. BORNSTEIN:

remarks by saying to the Court, when I was first appointed to take over and handle the defense of Mr. Schmidt, I, as part of one of my initial activities, looked at the potential punishments and sentences that Mr. Schmidt was facing in regard to this case. And in my initial early calculations, using guidelines, it might have even been mandatory back then when I first was appointed to the case, I calculated that Mr. Schmidt was looking at a life sentence. And in our

conversations over the course of the years with the counsel for the Government, it became clear to me that the Government was looking for and would settle for nothing less than a life sentence. And faced with the defense of a human being who is looking at spending the rest of his life in a Government-sponsored prison, basically, a cage in a Government-sponsored prison, it became obvious to me that the course of defense needed to be one in which we would not go gently into that good night. And that we would be,

of course, required to vigorously challenge every possible piece of evidence that the Government sought to enter, challenge their conclusions, challenge their witnesses,
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challenge their procedure, and take the Government and hold their feet to the proverbial fire. And if the Court at some point in time during the course of the last four years felt that we, as a defense, were in some way being obstreperous or in some way putting stumbling blocks that ought not to be there, or being too vigorous, we would simply say to the Court that we saw that as our job, and we saw that as the way to perform our job and perform our duty for Mr. Schmidt, as the way this case ought to be defended. And if we were wrong, well,

then we were wrong, but that is how we saw our duty as we saw it. Let me transition into the loss calculation. In

the transcript of the loss hearing, held on February 1, 2008, beginning at page 170, and going on beyond there, we -- or I cross-examined Agent Marcy particularly about the Government's attempt to prove what this loss calculation was using its FBI database, which we objected to, using summaries, and using financial databases and other databases as the source of the information. And as the Court, I am sure in reviewing that hearing noted, my cross-examination of Agent Marcy went specifically to those alleged victims on those alleged -those summary sheets for whom he could not testify that there was an interview with the victim.
DARLENE M. MARTINEZ, RMR, CRR United States District Court For the District of Colorado

Because it was

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then my intent, and now -- we didn't get to argue, so now I get to argue, that in order for the Government to meet its burden of proof on the loss calculation, they would need to put in something more than the fact that there was a deposit into a bank account by someone who their witness didn't know had been interviewed and could not point to an interview statement. And we believed then, and I argue now, that absent that piece of proof that simply the depositing of checks into a bank account or five bank accounts by people who -for whom the Court cannot make a finding of fact as to who they are and why they spent their money, because the Government didn't give them -- didn't give a statement as to who they were and why they spent their money or whether they were making an investment or why they were making an investment or if the money was an investment, then that would not be a finding that could be supported by the burden of proof. And that raises the question of what is the burden of proof for that loss calculation? The present position,

as I understand it, is that that burden of proof is proof by a preponderance of the evidence, because the guidelines say it's proof by a preponderance of the evidence. But if those guidelines are not mandatory guidelines, then that provision in the guidelines is no
DARLENE M. MARTINEZ, RMR, CRR United States District Court For the District of Colorado

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more mandatory than any other provision.

In other words,

the burdens are not mandatory, either, and the allocations are not mandatory and, therefore, to say that the guideline says that the burden of proof is proof by a preponderance of the evidence, is to take the guideline as a statement of law rather than a statement of guidance and policy. We would present to the Court the position that the statement of loss has to be proven beyond a reasonable doubt. And that the reason why it has to be proven beyond

a reasonable doubt is that it is, in the language of Booker and Fanfan, a sentence enhancement that is other than a criminal history. And as a sentence enhancement other than a criminal history, it is, therefore, one that should have been presented to the jury, number one, but if it is not presented to the jury -- and I guess we want to preserve that issue, so I am raising it here -- that the proof of loss above and beyond that which was presented in open court to the jury is a violation of the Booker and Fanfan doctrine. But if it is presented to the Court as proof of loss, then it has to be done beyond a reasonable doubt, because it is an enhancement other than one's criminal history, and it is not an obvious enhancement, especially
DARLENE M. MARTINEZ, RMR, CRR United States District Court For the District of Colorado

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in a case like this, because in the average run of the mill case, the Government will have probably put on all of the victims in their case. They would have testified. They would have

They would have testified to their loss.

testified to all of the material elements to prove a fraud charge. But in this case, where the Government has put on less than 10 percent of their alleged victims, it is more important that the proof be beyond a reasonable doubt than it be by a preponderance of the evidence. That being said, that takes me to the next question. The probation department says that it doesn't

matter what the proof of loss is, whether it's the $20 million number or the $40 million number, because they're all within the parameters of the 2002 guidelines, or the 2007 or, I guess, now -8 guidelines, if the proposal is that you have to use the guidelines at the time of sentencing. We have presented -- and we maintain that the use of the concept of a conspiracy, which carries a 5-year maximum, to drive a guideline calculation towards a life sentence, by using the guideline calculation, that it was not in effect at the time of the individual counts, but only the one in effect at the time that covers the span of the alleged conspiracy, is inherently unfair and
DARLENE M. MARTINEZ, RMR, CRR United States District Court For the District of Colorado

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inherently unreasonable. And going back, again, to the Rita and Gall analysis, we are here to be within the boundaries of Congress; reasonable and fair, rather than mandated by a Sentencing Commission who has, in their review, determined when their own guidelines should be promulgated -- or when their own guidelines should be used and what to do if various crimes, and in this case, a multi-count Indictment, spans over several guideline calculation changes. But I think we did cover some of that in our

written submission, and I just reiterate it now. Finally, Your Honor, in terms of my oral presentation, the guideline calculation has an enhancement in the pre-sentence report of two levels for abuse of position of trust. It's a contention that the Government

and the defense obviously disagrees with, and the probation department has taken the position that the evidence that Mr. Schmidt claimed to have some kind of a Federal Reserve number that let him trade with the Federal Reserve, makes a difference. We say it does not make a difference. It is no

different than a stock broker who says they have a seat on the New York Stock Exchange or on the NASDAQ Exchange or any other exchange. A stock broker is one of the examples

used by the Tenth Circuit in United States v. Edwards and
DARLENE M. MARTINEZ, RMR, CRR United States District Court For the District of Colorado

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United States v. Spear to distinguish who was in a position of trust from doctors or lawyers or accountants; professionals, from people like bank employees, bank tellers, loan officers and stock brokers. Finally, Mr. Schmidt has been presented to this Court as a leader and an organizer. But, more than that,

he has been presented as kind of a kingpin of a criminal organization. And I don't believe, based on my having

represented him and seen the testimony and the evidence, that he deserves that appellation. When I wrote in the submission that I thought that he was a figurehead rather than a real organizer or leader, what I meant by that was that the concept and the idea of what this scheme to defraud was, was developed by people earlier than Mr. Schmidt and who attempted to apparently teach him what this scheme was. But I call the Court's attention to that videotape in the hotel room, and in that videotape in the hotel room, when the FBI agent poses as an investor and Mr. Lewis and Mr. Schmidt are talking to him about the investment, it is clear that in that hotel room where there was a videotape or whatever, the conference room, it became clear to me, watching it over and over again, that the presentation being made by Mr. Schmidt or Mr. Lewis made no sense whatsoever, and that the questions being
DARLENE M. MARTINEZ, RMR, CRR United States District Court For the District of Colorado

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asked by the FBI agent were questions that neither -- that Mr. Schmidt couldn't even answer those questions. And that, finally, they said, let's get George Beros on the phone, because George Beros can explain this to you in a coherent and cogent way. So they got George

Beros on the phone, and he explained what this investment scheme was, and his explanation was not even close to the one that Mr. Schmidt was trying to give. The lesson that I tried to draw from that, is this; far from being a leader or an organizer, Mr. Schmidt barely understood his own sales pitch, if you will; barely understood what this meant and where it meant and was unable to answer significant questions posed, say in this case, by an FBI agent. It took people far smarter and better than he, such as George Beros, such as others who were indicted with him, to answer those questions. And when all is said and

done, this so-called kingpin, never lived like a kingpin. There were no redstone castles in his portfolio. were no bank accounts in the Cayman Islands in his portfolio. He lived in a modest apartment in Denver. worked out of a modest office. particularly opulently. He didn't dress He There

He spent his money, or the money

that he was found guilty of having obtained from other
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people fraudulently, he spent his share of that money trying to help his son have a race car team. Beyond that, most of the money, I think some $17 million, was still sitting around in banks waiting for the FBI to come and seize it. There were no boats. jewelry. There were no trips abroad. There was no

There were no yachts.

No evidence that Mr. Schmidt here, or in the

pre-sentence report, lived or acted like a kingpin. Therefore this 4-level enhancement for the aggravation that he was the organizer and leader, we believe is inappropriate. All that being said, Your Honor, I will now sit down. Obviously, I could probably speak on this case for

a long time, but as the Court said, I don't want to be soporific. THE COURT: Mr. Hammond? MR. HAMMOND: THE COURT: MR. HAMMOND: Thank you, Your Honor. You are welcome. As Mr. Bornstein stated, I would like I Counsel, thank you.

to address the issue of variance in Mr. Schmidt's case. guess, to some degree, I apologize that I got my Motion for Variance in later than I wanted to. But I became

nothing less than absolutely fascinated as I went through the docket report and the case law and the news reports
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regarding -- and I apologize, because I have to make a correction. In the motion I said that I was berating the

Court with 22 examples, and I believe it turned out to be about 28 examples. Going through each case and finding out what was in the minutes of the case was nothing less than fascinating, which I never thought I could actually say in a securities fraud case. Then I received Mr. Kirsch's response to the

Motion for Variance, and the chart that had been done by the United States Attorney's Office from another district, I believe it was in 2006, citing another, I believe it was 38 cases and, again, I found that simply fascinating. And the reason I found it simply fascinating is because there is a little overlap, and I believe it is four cases, so there is about 24 for me and 38 for Mr. Kirsch, and I believe, although I am horrible at math, I believe that is about 62 cases. No one has been able to find a case that justifies a life sentence. No one has been able to find a case that

justifies a 330-year sentence, as is recommended by the probation department. No one has found a case more than

660 months, which is 55 years. Ms. Ricca and I have talked a number of times about the mortality rates, and that there may be somebody in the world who is somewhere around 122 years old.
DARLENE M. MARTINEZ, RMR, CRR United States District Court For the District of Colorado

That may be

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the record. that bill.

I dare say that Mr. Schmidt will never fit And that is part of why I think that this case

needs a variance, and I think it needs a dramatic variance. And I want to make something else clear, and that is that in Mr. Kirsch's response regarding my Motion for Variance, he said that I did -- I singled out one factor, and that factor being the need to avoid unwarranted sentence disparities among defendants with similar records who have been found guilty of similar conduct. And I agree that that is the major focus of the motion, but I think that I've also stated in the motion that there are other factors. Mr. Schmidt's age. And one of those factors is There is a point

He is 71 years old.

at which a horrendous sentence, hundreds of years on a 71-year-old man convicted of a white collar crime, begins to approach the ridiculous. Mr. Kirsch mentioned a man, Mr. Hoover, I believe it was, People of the State of Colorado v. Hoover, who was sentenced in the last couple years by the Denver District Court and got a hundred year sentence. And I wish I had

it on my computer, but I don't have the internet hookup so I can't refer to the exact date of the article. Mr. Lewis, I think, is from the Denver Post wrote an article about the size of the sentence.
DARLENE M. MARTINEZ, RMR, CRR United States District Court For the District of Colorado

And following

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that on the internet section of the Denver Post, was a blog of citizens who uniformly, although not exclusively, thought that the sentence of 100 years was ridiculous for this man. One of them was Mr. Hoover's sister, but there were other people who did not appear to be connected in the case in any way, and they were citizens. And it seemed to

tell me that there is a point where we lose the consideration. And, frankly, it has never happened in

this jurisdiction, in my experience, or any of the experience of anyone I have been associated with, where the sentence becomes so far out of whack that it starts to defy reality. Mr. Schmidt can't do 330 years, 230 years or 130 years. It is a simple and plain fact. At some point I

think the reason why Congress said that we should make a sentence that doesn't have to be longer than necessary, is so that we don't get into those sentences that start to really toy with what is reality, let alone with what is reasonable. I want to put the book down, but I am not ready to yet, because I think there are a number of issues that this case, and in relation to the cases that you have reviewed that I have mentioned and that Mr. Kirsch has mentioned, provide that there are other factors in 3553;
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namely to reflect the seriousness of the offense and to promote respect for the law. When a man -- and his name is Brandau, Fredrick Brandau, B-R-A-N-D-A-U, this is in the Government's response, is sentenced to 660 months for causing $117 million in losses, one would think that someone thought when they sentenced Mr. Brandau that that would be sufficient to promote respect for the law. Similarly, when -- and I am just going to highlight the major cases that I found. Jeffrey Skilling, 292

months, $45 million; Larry Schwartz, 210 months, $32.38 million; Eduardo Masferrer, $31.7 million; Rafael Levy, $32.3 million; Marc Levine, $49 million. sentences of 235 to 290 months. These are all

Kevin Lawrence, 240

months, $91.6 million; Walter Hoyt, 235 months, $102 million. And I think that is very interesting, in when you compare it to some of the other people that I found, who really go to the stratosphere, those people being Sanjay Kumar, who got 144 months, requiring a billion dollars in restitution. He actually caused $3 billion in losses, but

his family was able to come up with $2 billion, and that is how, apparently, he got a 144 month sentence. Shelton, 120 months, $3.275 billion. Kirk

Walter Forbes, 151

months, $3.3 billion; Samuel Israel, 240 months, $300
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million, losses approximately of $450 million. I was able to speak to one of the lawyers for John and Timothy Rigas this morning, and they are pinning re-sentencing, and I am not sure exactly what the issue is on re-sentencing, but Mr. -- well, Timothy Rigas was originally sentenced to 240 months, John Rigas was sentenced originally to 180 months. somewhere over a billion dollars. The restitution amount calculated by the defense at this point in time, as it was conveyed to me, was around $750 million. At some point it concerns me, because it Those losses were

makes me wonder if what we do when we have these kinds of calculations and they fit under the guidelines, it makes me wonder if the artfulness that may be disguised in terms of sentencing guideline reasonableness, is really in the drafting of an Indictment. How can somebody be responsible for $3.2 billion and have a sentence that is nowhere near Mr. Schmidt? The

only answer that there can be -- and I have to bring up an example, and that is Mr. Pace, who was responsible, I believe it was for over a hundred million dollars, there were over 30,000 victims, that is a bit more than involved in this case, and yet he is looking at 100 months. can that disparity be explained? And I think the only way the disparity is actually
DARLENE M. MARTINEZ, RMR, CRR United States District Court For the District of Colorado

How

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explained is in the art of drafting the Indictment. don't know how that is fair. And that is one of the

I

reasons why I think that the variance is required in this case. In terms of the statute, to protect the public from further crimes of the defendant, wherever Mr. Schmidt goes, he is going to go for the rest of his life. There

is no way that the Court can sentence him, in my wildest dreams, to less than 20 years. years old. That would put him at 91

I don't think he is going to live that long.

Wherever he is, there is no opportunity for him to engage in any further crime, therefore, the public is protected. To provide the defendant with needed

educational, vocational training, medical care or other correctional treatment in the most effective manner. The

interesting thing about Mr. Schmidt, as we know from the pre-sentence report, is that he has had one or two significant heart attacks. He has high blood pressure. I

believe he is on medication at the federal detention center. He does have medical issues that need to be

addressed. In addition to that, he has some vocational ability, in that he leads the chapel meetings in the Federal Detention Center and could continue to do that in another setting. So I think that there are a number of
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factors, not simply one, under the statute, under 3553, that allow the Court to reduce the sentence from the guideline calculation significantly. Mr. Brandau, at 55 years, 660 months, is still -was a man who was sentenced to less than -- I think it was a sixth of the sentence that Mr. Schmidt is looking at right now under the guideline calculations. There is another issue, I think, that is interesting here, and that is there is some inconsistency that was not completely addressed during the course of the trial, and that inconsistency has to do with Mr. Beros. Mr. Beros got a sentence of 12 months. cooperated, I understand that. On the other hand, one of the things that Mr. Beros testified about was he really believed that this system could work. system work. He was doing everything he could to make the He said that on the stand under oath. I Mr. Beros

have no reason to disbelieve that he had that belief to himself at heart. If that's true, why wouldn't Mr. Schmidt have believed that Mr. Beros could help him come out of the impending mess that was there, because didn't Mr. Beros have a good idea of the mess? One of the issues that I'm not sure exactly how to deal with is Mr. Schmidt's criminal history.
DARLENE M. MARTINEZ, RMR, CRR United States District Court For the District of Colorado

I don't want

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to address it in terms of the guidelines, because that's not my job here. My job is to address it in terms of

comparing him to other defendants. I can't help, though, but state that even under the guideline calculation, his prior felony conviction for securities fraud is not counted. Under the guideline

calculation, most of his criminal history is not counted. Now, I understand that because we're post-sentencing guidelines, that the Court can certainly look at his past criminal history. But under the guideline calculation of, I believe it is 7 criminal history points, 5 are attributed to a single case in which Mr. Schmidt was convicted of driving while his ability was impaired, a traffic misdemeanor. That was 3 points. And 2 additional points on his

criminal history came as a result of him being on a work release or other sentence unrelated to that DWAI during the course of this case. So I'm not going to say as much as I kind of attempted to, I am not going to say that his criminal history is over represented. What I am going to say is

that the Court still has to look at his criminal history in the entire context of how it sentences Mr. Schmidt. Mr. Schmidt has at least one prior felony conviction, it is not related to securities fraud, and that is for being
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a habitual traffic offender. That is a violation that, by and large, has been returned back to its misdemeanor status. That was a

number of years ago, and then was raised by the Colorado legislature to a felony, and has now been dropped for almost every aspect of it -- unless one is alluding a police officer -- back to a misdemeanor. So in that context, I don't think that Mr. Schmidt's criminal history stands out all that far from anyone else. I find it fascinating when I look at

cases such as Bernard Ebbers and Andrew Fastow and John and Timothy Regis, Dennis Kozlowski and Mark Swartz and Walter Forbes and Peter Lumbardi and Tone Grant, and a number of other people who lived like kings, who absolutely took the money and spent it as lavishly as they could, spending millions upon millions of dollars for one spouse's birthday party. Spending millions of dollars on

personal residences in their roles as officers and executives of corporations. Spending those millions, and

ultimately billions of dollars that belong to investors, that belong to the shareholders. That kind of disparity exists between those people and Mr. Schmidt, and yet their sentences are so much dramatically lower. And there is one other correction I In my motion I said that I

had to make, Your Honor.

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couldn't find Gregory Sester's case number or docket report on Pacer, and I didn't find it because his name is actually Setser, S-E-T-S-E-R, and I did find that last night when I was looking at some of the other stuff the Government had on Mr. Brandau. It wasn't him, it was one

toward the bottom, but I finally figured out who both men were. And Mr. Setser, in the article that I wrote -- in the article that I read, had restitution in the amount of $58 million. The docket report minutes reflect that the

amount of restitution was actually $61 million. The Government's chart, I thought, was very interesting given the number of people who were involved and the amounts of sentences. I put all of the sentences

together and found that of the 38 cases that were mentioned, the majority of cases, eight -- and this is one of those means/average things that the statistics people do better than I do -- eight of those cases were sentenced in the 300-month range. the 292-month range. Four of them were sentenced in

And two in the 262-month range. Anything

That's 12 out of 38 cases; one-third.

above 300 months, there was one at 324; four at 360; one at 480; and one at 660. Nothing else has approached this,

and they went down as low as 180 months. There is always some tension, I think, when
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somebody is arguing at sentencing knowing full well that an appeal is pending or will be pending. The factors that

I am bringing to the Court's attention are factors under Section 3553. They are more than one factor, they are a

number of factors. I think that there are reasons for everyone to look at a sentence that is not astronomical, so that everyone can have respect, not just Mr. Schmidt, but for other people in the community and the public at large, who can see that the Court understands that at some time, when the sentence becomes so astronomical under a guideline calculation to be 330 years, that it begins to lose its -it begins to not make sense at all. May I have just a moment? THE COURT: MR. HAMMOND: Counsel, you may. Thank you.

The last issue that concerns me is an

issue that has to do with the Bureau of Prisons and classification of any offender. And I really wanted to I only

have these statistics, and I don't have them.

looked at about four of the defendants, and I don't have -- I can't match up what name they are. One was sentenced to a lengthy sentence in a federal prison camp. The remainder that I was able to

find were sentenced to federal correctional institutions. I don't know, but I would certainly guess, because I have
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some experience in the amount of time being a factor in a Bureau of Prison sentence, and the only other thing that I can factor in myself that would justify such a huge sentence, is to get Mr. Schmidt out of the ability to be recommended for an FCI, as opposed to the United States Penitentiary. And I think that we all know, given our recent news with the Federal Correctional Complex in Florence, that the United States Penitentiary is a different setting for a different kind of person. person. And so in closing, Your Honor, I would ask you to consider somewhere on the order of what I have seen to be the 300-month sentence to something that approaches the 480-month sentence as being more than sufficient to sentence Mr. Schmidt. And I would ask the Court to Mr. Schmidt is not that

consider a recommendation for Mr. Schmidt of the Federal Correctional Institution in Englewood. THE COURT: Counsel, thank you. Thank you.

Mr. Schmidt, before I impose sentence on you this afternoon, you first have the legal right and opportunity now, if you choose, to make your own statement to this Court and/or to offer additional information in mitigation, lessening of your sentences. First, do you

understand that you now have that right and opportunity?
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THE DEFENDANT: THE COURT:

Yes, sir.

Second, having that important right and

opportunity in mind, do you wish to make any such statement or offer any such information? THE DEFENDANT: Just one, Your Honor, that's I ask

for just -- for forgiveness of anybody that I have harmed. That is all I have to ask and all I have to say. THE COURT: Very well. Thank you.

Gentlemen for the Government, do you wish to be heard on matters material to the imposition of sentence? MR. KIRSCH: Yes, Your Honor. I would ask we be

allowed to similarly divide our time to address the various topics. THE COURT: The tag-team approach is approved for You may proceed.

the Government, as well. MR. KIRSCH:

Your Honor, I intend to address what I

perceive to be the new arguments that were made by Mr. Bornstein with respect to the Sentencing Guideline calculation. The major new argument was Mr. Schmidt's

contention that a burden of proof that the Court should use in determining the loss with respect to his sentencing is the beyond a reasonable doubt standard. The Government's contention is that is simply inconsistent with all of the exigent law. Booker, it

is -- first of all, it is inconsistent -- and his argument
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was in two parts.

The first part of that argument was

that because the guidelines are now not mandatory, the burden of proof that is set forth in the guidelines should not be mandatory, either. That's inconsistent with the method of analysis that the Supreme Court and the Tenth Circuit has specified courts should use in sentencing. That is that the courts

should apply the guidelines and should do so correctly; meaning in accordance with all of the directives laid out in the Guidelines Manual; that the Court's application of the guidelines on appeal will be reviewed substantively as a matter of law to see if it was done correctly; that the Court should then separately analyze the factors, the other sentencing factors set forth in 3553. That scheme is inconsistent with Mr. Bornstein's suggestion that the Court should toss out one part of the guidelines in the course of its guideline analysis. Mr. Bornstein also suggested that the burden of proof should be beyond a reasonable doubt because these are sentencing enhancements under the doctrine of Booker and Fanfan. The Government's position is that that is what the first part of Booker and Fanfan suggested. However, as

the Court knows, the second part of Booker and Fanfan fixed that problem by making the guidelines non-mandatory,
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thus making these not sentencing enhancements that are not subject to proof beyond a reasonable doubt. The only other thing that I intend to say with respect to the guideline calculations, Your Honor, is that Mr. Bornstein suggests today, I believe, for the first time, that Mr. Schmidt couldn't have been a leader because he barely understood his own scheme. It's clear from all

of the evidence that was presented throughout the course of this trial and at the sentencing hearing, that Mr. Schmidt was directing the activities of many other participants. It is clear from all of the evidence that was presented throughout the course of this trial and these proceedings, that Mr. Schmidt clearly understood the lies that he needed to tell and that he needed to have others tell on his behalf to the more than a thousand people that gave him millions of dollars, and he understood that the effect of those lies was to have those people give him millions of dollars that he and his associates could then spend. I don't have anything else to add unless the Court has any questions about any of the pleadings that we filed with respect to the guideline calculation. THE COURT: MR. KIRSCH: Counsel, I do not. Thank you.

Thank you, Your Honor.
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MR. ANGELO:

Thank you.

Your Honor, I will keep my

remarks very brief, but in responding to Mr. Hammond's comments concerning the variance, I would point out to the Court that essentially he has done exactly the same thing in the courtroom today as he did with respect to his Motion for Variance, which is to focus on a very narrow area for the purpose of convincing the Court to vary the sentence from what the guideline sentence would be. In this particular case, he relies upon the loss amounts of the various cases that he cited to the Court rather than asking the Court to look at all of the factors and balancing those factors in a manner which you might consider to be consistent with it being in his client's best interest. That is really no different and no more helpful than the way the cases were, in fact, represented in his motion. And the Court is left with no other helpful

information concerning the criminal history category of those persons. guilty or not. Whether, in fact, they cooperated or pled Whether, in fact -- or what, in fact,

their guideline calculation was, which is obviously part of the factors to be considered in 3553(a). He's also referenced the contracts between Mr. Schmidt and Mr. Beros, in that Mr. Beros' testimony concerning the fact that he thought that he could make
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this thing work, and that Mr. Schmidt may have relied upon that. And I parse our argument into two sections with respect to that matter, Your Honor. The first of which

Mr. Beros, as the Court recalls from the trial, did not even begin participating with Mr. Schmidt in the development of the supposed trading platform until the summer of 2002. Mr. Schmidt had been in business from

1999 until that period of time taking person's money and representing to them that their money was being traded. It is not that there was some mistake being made here. Mr. Schmidt was basically taking money under false Whether, in fact, the existence

pretenses at that time.

of that trade-in program after Mr. Beros' participation is to be a mitigating factor for Mr. Schmidt's good-faith belief that it occurred -- and we can only surmise about that, it doesn't change all of the other lies that were, in fact, being represented to investors concerning the fact that their moneys were, in essence, being pilfered and being used for purposes other than investing in trading programs. I suggest to the Court that one of Mr. Schmidt's victims would call spending millions of dollars to build a NASCAR team around his sole son as anything other than lavish, and in contrast to the arguments made about
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Mr. Koslowski. Thank you, Your Honor. THE COURT: Counsel, while you are at the podium,

let me ask, through your knowledge, have the victims of these crimes as committed by this defendant, been afforded their rights described in 18 U.S.C. Section 3771(a), which is a part of the Justice For All Act of 2004? MR. ANGELO: Your Honor, I can represent to the

Court as not only our office's practice, but that was checked on earlier this week before sentencing. The

letter concerning the notification of this particular sentencing proceeding was obtained and placed into our file, and Mr. Schmidt -- or Mr. Kirsch conferred with our victim witness people to make sure that letter had gone out. Your Honor, I have not received, nor has Mr. Kirsch received, any notifications that persons involved as victims in this particular case wish to address the Court. I cannot speak for who may be in the courtroom at this point, however. THE COURT: Would you quickly canvas the courtroom

to determine whether there are victims or their lawful representatives present who may wish to be heard. MR. ANGELO: I can do that, Your Honor, if you will

grant me 30 seconds or so.
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THE COURT: MR. ANGELO:

And I do.

We will be at ease.

Your Honor, based on that short

canvas, I can tell the Court there are no victims here that wish to address the Court. THE COURT: Thank you. In considering, fashioning

and imposing hopefully condign and constitutional sentences, I have considered all known relevant matters of fact and law, including the following. The list is long.

All relevant adjudicative facts in the file and record of this action as developed pro tanto which are relevant to Mr. Schmidt. All relevant evidence, both direct and circumstantial, adduced during pretrial proceedings, the lengthy trial, submitted in pretrial papers, and during the loss hearing held on February 1, 4 and 5, 2008, which, importantly, focused on a determination of loss under United States Sentencing Guideline Section 2B1.1(b)(1), relevant conduct under Guideline Section 1B1.3(a), and restitution. The nature and circumstances of these offenses, focusing on their real conduct. The history and characteristics of the defendant as an offender. The sentences permitted or authorized by law under 18 U.S.C. Section 3551.
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The pre-sentence report and three addenda, in total, which are thoughtful, thorough, and most helpful to the Court and other parties in interest. on the record to you, Ms. Ricca. The basic purposes of criminal punishment as declared by Congress in the Sentencing Reform Act of 1984; the deterrence, incapacitation, punishment, and rehabilitation. The purposes and goals of sentencing as proscribed by Congress at 18 U.S.C. Section 3553(a)(2). The individual and discrete factors which must be considered as a matter of law in the imposition of sentence, codified at 18 U.S.C. Sections 3582(a) and 3553(a)(1) through (7). The constitutional and relevant provisions of the now advisory United States Sentencing Guidelines as they apply to these offenses, this offender, and all relevant conduct. The kinds of sentences and sentencing ranges established under those advisory sentencing guidelines for these applicable categories of offenses committed by this applicable category of offender, citing to 18 U.S.C. Section 3553(a)(4). The important need always to avoid unwarranted sentencing disparities by, in the words of the Booker
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Thus, my thanks

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court, ensuring similar sentences for those who have committed similar crimes in similar ways. The important need to restitute victims. All pertinent policy statements of the United States Sentencing Commission. The need to impose sentences that reflect the principles and requirements of 18 U.S.C. Section 3553(a)(2); that reflect the seriousness of these offenses; that promote request for the law; that provide just punishment for these offenses; that afford adequate deterrence by protecting the public from further crimes of the defendant; and that provide defendants with needed educational or vocational training, medical care, or other correctional treatment in the most effective manner. The advancement of the seminal congressional goals of honesty, uniformity and proportionality in sentencing. The important principle and requirement, now codified at 18 U.S.C. Section 3553(a), to impose sentences that are sufficient but not greater than necessary to achieve the congressional goals and purposes of sentencing. The propriety or necessity of imposing concurrent or consecutive sentences. After considering for each

count of conviction the provisions of 18 U.S.C. Section 3584(a) and (b), and Guideline Section 5G1.2(d).
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The position of all parties in interest, including the probation department, the Government, and the defense. Norman Schmidt's Motion for Variance from a guideline sentence, Docket No. 1503, filed April 25, 2008. All victim impact statements. And all evidence presented, reasons stated, arguments advanced and authorities cited by the parties during the trial, the February loss hearing, in their papers, and during their presentations in open court this afternoon. Having engaged in that comprehensive sentencing calculus, I go on to make the following sentencing statement, which I must under 18 U.S.C. Section 3553(c). Therefore, on this record, considered as a whole, I enter the following findings of fact, conclusions of law, judgments of conviction, sentences, and orders. First, my findings and conclusions: Initially, but

importantly, I approve, adopt and incorporate the myriad matters, which I have considered carefully and noted now for the record. The defendant has filed objections to the Therefore, pursuant to Federal Rules

pre-sentence report.

of Criminal Procedure 32(i)(3)(B) and Guideline Section 6A1.3(b), I must resolve those pending objections. The defendant's objections to the pre-sentence report and concomitant agenda are stated in the following
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three papers:

First, defendant Norman Schmidt's Response

to Government's Sentencing Statement, Docket No. 1330, filed July 20, 2007. And, second, Defendant's Sentencing

Statement, Re Loss Calculations, dated February 25, 2008. And, third and finally, Defendant's Objections to Pre-Sentence Report, dated April 11, 2008. Because this third paper effectively includes the defendant's objections as stated in his other two papers, I address and resolve the objections in the order they appear in his April 11, 2008 paper. Defendant Schmidt's

first objection is to paragraphs 9, 10 and 11 of the pre-sentence report, and is based on his claim that the use of the November 2007 edition of the Sentencing Guideline Manual violates the United States Constitution's ex post factor clause. The first premise for this claim that the 1999 guidelines apply to most of the crimes for which he stands convicted is inaccurate. As the pre-sentence

investigation report notes correctly, the guidelines direct the use of the Guidelines Manual in effect on the date that the offenses of conviction were committed. is found at Guideline Section 1B1.11(b)(1). And the That

guidelines, themselves, further direct that the last date of the offense of conviction is the controlling date for ex post facto analysis, found at that same guideline
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section in comment note 2. The guidelines also provide that if a defendant is convicted of two offenses, the first committed before and the second after a revised edition of the Guidelines Manual became effective, the revised edition of the Guidelines Manual is to be applied to both offenses. Again, citing to Guideline Section 1B1.11(b)(3). The commentary to that subsection explains: When

the defendant is convicted of two offenses, the first committed before and the second after a revised edition of the Guidelines Manual became effective, the revised edition of the Guidelines Manual is to be applied to both offenses, even if the revised edition results in an increased penalty for the first offense, found at comment note 2. The Tenth Circuit, relevantly, has held that the application of this one-book rule does not violate the ex post facto clause, citing to United States V Sullivan, 255 F.3d 1256, at pages 1260 through -63, Tenth Circuit, 2001. The Tenth Circuit has held also that when a conspiracy begins during a period where the application of certain guidelines would be controlling, and extends into a period when another guideline application would be appropriate, there is no violation of the ex post facto clause in applying the guidelines in effect at the time of
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the last act of the conspiracy; citing to United States v. Stansberry, 963 F.2d 1323, at page 1327, Tenth Circuit, 1992. Here defendant Schmidt does not contest that the conspiracy for which he was convicted continued into the period in which the November 2002 Guidelines Manual became effective, a manual that relevantly is the same in all relevant aspects as the November 2007 Guidelines Manual, which was used by the probation officer in this pre-sentence report. He also does not contest that he was convicted of multiple offenses after the effective date of the November 2002 Manual, all of which are properly grouped with the conspiracy count. And, finally, he provides no cogent

explanation as to why long-standing Tenth Circuit precedent is inapplicable in his case. overruled. Defendant Schmidt's second objection is to paragraphs 13, 14 and 15 of the pre-sentence report, and is based on the pre-sentence report's reliance on the Government's loss calculation of $43,017,320. Critical to This objection is

the sentencing of the defendant and other defendants, is a determination of loss under Guideline Section 2B1.1(b)(1) and relevant conduct under Guideline Section 1B1.3(a). I held an evidentiary hearing specifically to
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address those and all related issues, including restitution and forfeiture, on February 1, 4 and 5, 2008. I rely heavily on the relevant evidence adduced during the trial and this three-day loss hearing. The relevant

evidence from the loss hearing included the sworn testimony of James Marcy of the IRS, and Special Agent Stephanie Hahn of the FBI, and Government Loss Hearing Exhibits 1, 6 and 10 through 15. Based on the evidence adduced at trial and at the February 2008 loss hearing, the Government's loss figure is, in fact, conservative, and easily constitutes a reasonable estimate of the loss; citing to Guideline Section 2B1.1 comment note 3(C). The actual loss under Section 2B1.1(b) and comment note 2, reasonably attribute to this defendant losses totaling $43,017,320, which includes relevant conduct under Section 1B1.3(a). Hearing Exhibit 1. Consistent with the exigent Supreme Court and Tenth Circuit precedent, the burden of proof as to a determination of loss and relevant conduct is by a preponderance of the evidence. I find by a preponderance I refer to Government's Loss

of the evidence that it is more probable than not that the deposits documented at trial and reiterated during the loss hearing in February 2008, represented investments in
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the fraud scheme that was charged in the Second Superseding Indictment. therefore, overruled. Defendant Schmidt's third objection is to paragraph 64 of the pre-sentence report, and his receipt of a two-level enhancement under Guideline Section 3B1.3 for abuse of a position of trust. I find and conclude that The second objection is,

the pre-sentence report correctly applies this enhancement based on both defendant Schmidt's exercise of complete discretion and control over these supposed non-depleting accounts into which investors' money was deposited; and that his false claim, that he possessed some sort of federal license or trading number issued by the Federal Reserve or the United States Government. Defendant Schmidt claims that United States v. Edwards and United States v. Spear prohibit the application of this enhancement to him, but without further explanation. In fact, my reading of both these

cases leads me to conclude that they emphasize the importance of a defendant's authority and discretion in determining whether this enhancement is applicable; citing to Spear at 491 F.3d, at pages 1154 and -55, and Edwards at 325 F.3d, at pages 1187 through -88. As explained in Spear, and quoting the Court: enhancement is concerned with persons in positions of
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An

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authority abusing their lack of supervision to commit or conceal wrongdoing. Therefore, it is reserved for those

with professional or managerial discretion, end quote; 491 F.3d at page 1154. Defendant Schmidt meets this bill. He had complete And

control over these so-called non-depleting accounts.

that control gave him exactly the kind of discretion which allowed him to commit and conceal the misuse -- the gross misuse of investors' moneys. Similarly, his false representations that he was one of the few people in the world possessing a trading number or license issued by the Federal Reserve, suggested that he possessed the kind of authority and discretion to engage in the supposed trading programs and gave him the same opportunity to commit a difficult-to-detect crime than he would have had if such numbers or licenses actually existed; citing to Guideline Section 3B1.3 comment note 3. Therefore, this objection is overruled.

Defendant Schmidt's fourth objection is to paragraph 63 of the pre-sentence report, and his receipt of a 4-level enhancement under Guideline Section 3B1.1(a) as an organizer or leader. Again, the facts fit the bill.

Although defendant Schmidt was correct that he was not the primary organizer and leader in the initial stages of this criminal scheme to defraud, witness after witness of
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investors, to people like Susan Veik, who were inside this organization, testified credibly at trial that at least by 2001, defendant Schmidt made the decisions, called the shots, held himself out as, "the trader", recruited accomplices, recruited punitive experts, and received a greater share of the criminal proceeds; citing Guideline Section 3B1.1, comment note 4. factually and legally. Enhancement is warranted

This objection is overruled.

Defendant Schmidt's fifth objection is to paragraph 60 of the pre-sentence report and his receipt of a 2-level enhancement under Guideline Section 2B1.1(b)(8)(C) for violation of the Nebraska cease and desist order. This

objection appears to be based on a claim that conflates or confuses the concept of grouping counts under the guidelines with the calculus of imposing consecutive sentences to reach a sentence within an applicable guideline range. And in this case, and concerning this defendant, all of the conspiracy and fraud counts have been grouped properly. The defendant's violation of the Nebraska order

and his failure to inform investors of its existence was alleged as an integral part of the conspiracy in each of the fraud counts for which he was convicted. Thus, application of this enhancement is consistent with Guideline Section 1B1.3(a)(1). There is no -- strike

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that.

There is ample factual and legal basis for this Contrastingly, there is no factual basis for This objection is overruled.

enhancement. the objection.

Defendant Schmidt's sixth objection is to paragraph 61 of the pre-sentence report and his receipt of a 2-level enhancement under Guideline Section 2B1.1(b)(9)(C) because these offenses involved sophisticated means. Here, the

defendant essentially blames the victims as both gullable and/or greedy. However, the facts from the evidence establish that this was a sophisticated scheme to defraud, which involved and used inter alia; complicated contract documents, multiple corporate shells, fictitious entities, multiple bank accounts, bogus non-depleting accounts, false insurance documents supported by fraudulent opinion letters, and a sophisticated scheme of trading medium-term bank notes by a trader officially sanctioned by the Federal Reserve. The evidence clearly supports this enhancement under Guideline Section 2B1.1(b)(9)(C) and comment note 8(B). This objection is overruled. Defendant Schmidt's final objection is to the recommendation of the probation officer in the pre-sentence report that he receive a sentence at the bottom end of the guideline range of 330 years.
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This

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objection does not implicate directly the correctness or accuracy of the calculation of the guideline sentencing range. Instead, it is quintessentially an argument for a

sentence variance. Thus, I will address this argument in my consideration and discussion of the defendant's request for a sentence variance based primarily on his c