Free Motion for Miscellaneous Relief - District Court of Colorado - Colorado

Case 1:04-cr-00103-REB

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IN THE UNITED STATES DISTRICT FOR THE DISTRICT OF COLORADO CASE NO. 04-CR-103-RB UNITED STATES OF AMERICA, Plaintiff, v. 1. NORMAN SCHMIDT,

Defendant. _____________________________________________________________________ NORMAN SCHMIDT'S MOTION FOR VARIANCE FROM A GUIDELINE SENTENCE ____________________________________________________________________ COMES NOW, Defendant Norman Schmidt, by and through his attorneys, Peter R. Bornstein and Thomas J. Hammond, and moves this Court for a variance from any sentence that would be imposed on the basis of being calculated by the United States Sentencing Guidelines. This motion assumes, as a premise, that the sentence recommended by the probation department correctly follows the United States Sentencing Guidelines calculations; Mr. Schmidt's earlier objections to the pre-sentence report which are noted in the Addendum to the Pre-Sentence Report, are not waived or withdrawn. 1. Mr. Schmidt's statutory basis for this motion is 18 USC 3553, 18 USC

3582, and relevant case law. Mr. Schmidt also wishes to preserve his objection to the loss calculation in that there has been insufficient proof of the amount of loss to a jury. United States v. Booker, 543 U.S. 220, 125 S.Ct. 738, 160 L.Ed.2d 621 (2005); United States v. Olin, 429 F.3d 540 (Fifth Cir. 2005). 1

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2.

The probation department has recommended a sentence of approximately

330 years based upon a guideline calculation. Pre-Sentence Report at page R-1. 3. Mr, Schmidt is 71 years old. Mr. Schmidt simply cannot serve a sentence of

330 years. Imposition of a 330 year sentence is beyond that which is contemplated by Congress in the federal sentencing structure. 4. More important, it appears that after reviewing numerous white collar cases,

with emphasis on securities fraud cases, no one in a similar position to Mr. Schmidt has received anywhere near the sentence that is recommended by the probation department in this case. The following cases provide a startling contrast to the position of the government and the probation department in this case. The majority of the cases involve securities fraud convictions under federal jurisdiction as opposed to state jurisdiction, although some state cases have been illustrated, most notably the Dennis Kozlowski and Mark Swarz cases from New York. The cases are also illustrative of the amount of loss in relation to the sentence that was imposed. The cases below demonstrate that a sentence of 330 years for Mr. Schmidt's convictions would constitute an unwarranted disparity compared to defendants with similar records who have been found guilty of similar conduct. 18 U.S.C. 3553 (a)(6). 5. Joseph Nacchio, before his conviction was reversed by the Tenth Circuit

Court of Appeals, received a sentence of 72 months in 2007, and was required to pay restitution in the amount of $52 million. He was fined $19 million. Hundreds of retired Qwest employees saw their retirement accounts crash as the value of Qwest stock plummeted. 6. In 1992, Meyer Blinder, of Colorado, was convicted of racketeering and 2

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sentenced to 46 months in prison. United States v. Blinder, 90 CR 00038, United States District Court, District of Nevada. 7. On July 26, 2001, Robert Brennan was convicted of bank fraud, money

laundering, and contempt, and sentenced to 110 months in prison. Mr. Brennan was the founder of First Jersey Securities. He was ordered to pay over $4 million in restitution. United States v. Brennan , 326 F.3d 176 (3rd Cir. 2003); 00-cr-490-GEB-1 USDC, D.N.J. SEC litigation shows that Mr. Brennan was responsible for more than $100 million in losses. 8. On May 14 2002, Randolph Pace received a sentence of 100 months for an

investment scheme in which investors lost over $130 million. He pled guilty to 13 counts of a 26 count indictment alleging conspiracy, securities fraud and money laundering. The case involved IPO schemes through a company called VTR Capital, Inc., in which Mr. Pace and others defrauded over 30,000 investors. Mr. Pace was ordered to pay $134,900,000.00. This case was accessed through PACER, 98-cr-01247-LAP, United States District Court, District of Manhattan (see docket #152). 9. On September 10, 2003, former Enron Treasurer Ben Glisan was sentenced

to 60 months in prison upon pleas of guilty to conspiracy to commit securities and wire fraud in September, 2003. He forfeited $938,000 to the government. The Court

recommended a minimum security facility. On March 20, 2008, the Court granted an unopposed motion to terminate supervised release. United States v. Glisan, 02-cr-006652, United States District Court, Southern District of Texas. 10. Andrew Fastow was charged in a 78 count indictment with conspiracy

to commit securities fraud, money laundering, wire fraud, conspiracy to commit wire fraud, 3

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obstruction of justice, and false statements in connection with the Enron debacle. On September 26, 2006 Mr. Fastow was sentenced to two consecutive 36 month sentences. The docket does not contain any information regarding restitution, and counsel was unable to access the plea agreement through PACER. United States v. Fastow, 02-cr-00665-1, United States District Court, Southern District of Texas. 11. Also in 2005, John Rigas, the founder of Adelphia Communications

Corporation, was sentenced to 180 months in prison. Mr. Rigas was indicted on counts alleging conspiracy to defraud the United States, securities fraud, wire fraud and bank fraud. Timothy Rigas, John Rigas' son and the CFO of Adelphia, was sentenced to 20 years in prison. United States v. Rigas, 02-cr-01236-LBS-1,United States District Court, Southern District of New York. John Rigas and Timothy Rigas are the subjects of a separate indictment which alleges that they conspired to transfer $1.8 billion from Adelphia corporate accounts for their personal use. The case is pending. United States v. John J. Rigas and Timothy J. Rigas, 05-cr-0402, United States District Court, Middle District of Pennsylvania. 12. In June, 2005, Dennis Kozlowski was sentenced to serve 8 ½ to 25 years in

prison for fraud in connection with the Tyco scandal. He was ordered to pay $97 million. Co-defendant Mark Swartz was also sentenced to 8 ½ to 25 years and was ordered to pay $37 million. 13. In 2005, Bernard Ebbers, the former CEO of World Comm, was sentenced

to serve a 25 years sentence for securities fraud. Mr. Ebbers was ordered to forfeit $45 million in assets. According to the Associated Press, Mr. Ebbers' was sentenced for leading the largest corporate fraud in the history of the United States, involving $11 billion. 4

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The AP article stated that, "The 25-year term is the harshest yet as corporate executives have been paraded through American courtrooms in a series of eye-popping business scandals that have cost investors untold billions." Mr. Ebber's case can be found on PACER. United States v. Ebbers, 02-cr-1144-BSJ-3. United States District Court,

Southern District New York. 14. Jeffrey Skilling received a sentence of 24 years and 4 months for his role in

the securities fraud involving World Comm in 2005. The superceding indictment contained 52 counts. The Judgment of Conviction indicates that Mr. Skilling was ordered to pay restitution in the amount of $45 million. United States v. Skilling, 04-cr-00025, United States District Court , Southern District of Texas. 15. In February, 2005 Jamie Olis, a former mid-level executive for Dynegy

Corporation in Houston, Texas, was sentenced to 24 years (292 months) after being convicted of securities fraud, wire fraud, mail fraud, and conspiracy to commit wire fraud, mail fraud and securities fraud. The case involved a natural gas trading scheme. The trial court valued the shareholder losses at $105 million. The trial court also found that there were more than fifty victims. The Christian Science Monitor at the time declared that the sentence was the "longest-ever sentence for securities fraud." The Fifth Circuit reversed the sentence (United States v. Olis, 429 F.3d 540, Fifth Cir. 2005) and Mr. Olis was resentenced to six years. The trial case docket report is accessible through PACER under United States v. Olis, 03-cr-00217-1, United States District Court for the District of Texas. 16. According to the FBI Financial Crimes Report of 2006, Gerald Small was

convicted with six other defendants in Denver of mortgage fraud that caused losses to financial institutions of approximately $35 million. According to the Judgment of Conviction, 5

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Mr. Small was sentenced to a combined sentence of 101 months. He was ordered to pay over $35 million in restitution. United States v. Small, 04-cr-00153-LTB-01, United States District Court, District of Colorado. Brent Michael was convicted of more than 104 counts alleging mortgage fraud in Kansas City, Missouri. Losses were approximately $11.8 million. Mr. Michael was sentenced to 151 months (12 years, 7 months) and was ordered to pay $11,206,419.00 in restitution. 17. In October, 2006, Sanjay Kumar was sentenced to 12 years in prison for

conspiracy, securities fraud, obstruction of justice and false statements. Mr. Kumar was the former CEO of Computer Associates. The fraud cost shareholders over $3 billion, according to the Chicago Tribune. Under the terms of the Stipulation and Order of Settlement, Mr. Kumar was order to pay restitution in the amount of $798,600,000.00. The actual amount of restitution was $1,023,000,000, but was reduced by $225,000.000 which was paid by Computer Associates. United States v Kumar, 04-cr-0846-ILG, United /States District Court, Eastern District New York. 18. In January, 2007, former Cendant Corp. CEO Walter Forbes was

sentenced to 151 months in prison. Mr. Forbes was ordered to pay $3.3 billion in restitution, for securities fraud, wire fraud, and conspiracy to defraud the United States. Mr. Forbes actions were said to cost shareholders over $14 billion. United States v. Forbes, 02cr-00264-AHN-1, United States District Court, District of Connecticut (New Haven). 19. The vice president of Cendant Corp., E. Kirk Shelton, was sentenced to 120

months in prison. Mr. Shelton was found guilty of eight counts of the indictment, which alleged conspiracy to defraud the United States, securities fraud, wire fraud, and false 6

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statements. Mr. Shelton was also ordered to pay $3.275 billion in restitution. United States v. Shelton, 02-cr-00264-AHN-2. 20. On January 19, 2007, Peter Lombardi was convicted of securities fraud in

the Southern District of Florida. Mr. Lombardi was the former President of Mutual Benefits Corp., a viatical insurance firm. Mr. Lombardi was sentenced to 240 months in prison. The scheme cost 28,000 investors over $800 million. According to the FBI Financial Crimes Report, Mr. Lombardi agreed to $956 million in restitution. However, the docket report indicates that Mr. Lombardi was ordered to pay restitution in the amount of $826,839,642.00. United States v. Lombardi, 06-cr-20665-PCH-1. 21. In May, 2007, Jamin Epstein was sentenced on securities fraud counts to 41

months in prison and required to pay $214,000 in restitution. The case was heard in the United States District Court in Pittsburgh, Pennsylvania. 22. In June, 2007, Gregory Sester was sentenced to 40 years in prison for his

role in a Ponzi scheme directed at evangelical communities in Texas, Florida, California and Ontario. The fraud involved $58 million. Mr. Sester's sister received a 15 year sentence, and his son received a sentence of 24 months. The cases were lodged in the Northern District of Texas. This case represents the highest sentence that undersigned counsel has been able to find among white collar cases generally and securities fraud cases in particular. Interestingly, counsel was unable to find this case on PACER. 23. On October 10, 2007, Vincent Bazemore entered a guilty plea to a charge

that carries a maximum 5 years in prison for securities fraud, in United States District Court for the Northen District of Texas. He was a sales representative for AmeriFirst Funding. The SEC charged that AmeriFirst officials, including Mr. Bazemore, bilked investors out of 7

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approximately $55 million, according to a Department of Justice press release issued on October 19, 2007. Mr. Bazemore was to have been sentenced on February 15, 2008. His sentencing has been continued to July 23, 24. 2008. United States v. Bazemore, 07-cr312-M. 24. Also in October 2007, John Whittier was convicted of securities fraud and

sentenced to 36 months in prison. According to the indictment, Mr. Whittier was the founder of Wood River Partners, L.P. The case involved fraud in the context of hedge funds. Investor losses totaled approximately $88 million according to the Department of Justice press release issued on October 15, 2007. United States v. Whittier, 07-cr-00087- JSR-1, United States District Court, Southern District New York. The restitution order was not available on PACER. 25. In December, 2007, Conrad Black was sentenced to 6 ½ years in prison. Mr.

Black was convicted of wire fraud, mail fraud, obstruction of justice, and other charges. There were three other co-defendants with Mr. Black. According to the New York Times, the jury found that he had taken $6.1 million of $32 million that should have gone to shareholders of Hollinger International. The case was tried in the Northern District of Illinois. (See United States v. Black, Slip Copy 2007 WL 3254452). 26. On April 10, 2007, Martin Armstrong was sentenced to begin serving a 5 year

prison sentence for conspiracy to commit securities fraud. United States v. Armstrong, 99 CR 00997, United States District Court, Southern District NewYork. Mr. Armstrong was ordered to pay $80 million in restitution. 27. On April 14, 2008, Samuel Israel was sentenced to 20 years in prison for

defrauding investors of $450 million. Mr. Israel was one of the principal owners of the Bayou 8

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Group, LLC. In re Bayou Hedge Fund Litigation, 534 F.Supp 2d 405, 407 (S.D.N.Y. 2007), describes Bayou Group as a "fraudulent Ponzi scheme." The district court case caption under which Mr. Israel was sentenced is 05 CR 1039 (CM) from the Southern District of New York. According the to Wall Street Journal (April 15, 2008),Mr. Israel was ordered to pay $300 million in restitution. 28. On April 18, 2008, Tone Grant was convicted of five counts involving

conspiracy to commit fraud against the United States. Mr. Grant's case involves fraud amounting to $2.4 billion. According to the Associated Press in an article written on April 18, 2008, Mr. Grant could receive a maximum sentence of 85 years. United States v. Grant, 05 CR 1192, United Sates District Court, Southern District of New York. 29. In stark contrast to the American sentences, stands the case of Takafumi

Horie. Mr. Horie committed securities fraud in Japan, by faking profit at his internet company, Livedoor. When the fraud was exposed, "Livedoor's shares had fallen 80 percent and the scandal had sparked a two-day sell off that erased $327 billion in Japanese equity value. Mr. Horie received a sentence of 2 ½ years. The government prosecutors wanted 4 years. Business Report, March 19, 2007. www.busrep.co.za. 30. The above noted cases dramatically illustrate how the government and the

probation department are over-reaching in their positions regarding Mr. Schmidt. 31. The mandate of sentencing in federal cases is clear. "The court shall impose

a sentence sufficient, but not greater than necessary, to comply with the purposes set forth in paragraph (2) of this subsection." 18 U.S.C. 3553 (a). It is clear from a review of twentytwo cases outlined in this motion, that the position of the government and the probation department is completely inconsistent with sentences of defendants for similar conduct, 18 9

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U.S.C. 3553 (a)(6), and the factors outlined in 18 U.S.C. 3553 (a)(2). A sentence that is fourteen times the sentence of defendants who caused vastly greater losses to investors is nothing short of outrageous. Only one case cited involved a 40 year sentence, which is still almost nine times the sentence recommended in this case. The majority of sentences involving losses from $11 million to over $3 billion did not exceed 25 years. If Mr. Schmidt was to be sentenced to a 25 year term, he would be eligible for supervised release in approximately 21 years; he would be 93 years old, if he should live that long. As the Court is aware, Mr. Schmidt has a history of heart disease and has had at least two heart attacks; regardless of mortality tables, there is no practical basis upon which to suggest that Mr. Schmidt will even be alive at 93. There is no just punishment in a 350 year sentence. Such a sentence is frankly more theatrical than practical, let alone just, and is not appropriate for this defendant or this jurisdiction. This Court can certainly find that the public will be protected from further crimes by a sentence that does not exceed 25 years. This Court also knows that a sentence of 25 years certainly reflects the seriousness of the offense and promotes respect for the law; in fact other courts in other jurisdictions have clearly made that very finding in the majority of the case outlined above. 32. Clearly, Mr. Schmidt has a prior criminal history that may distinguish him

from other defendants outlined in this motion. To the extent that the Court believes that Mr. Schmidt's criminal history is a significant factor in sentencing, it should be noted that Mr. Schmidt was convicted a an habitual traffic offender, under a law that has been since been changed from a felony to a misdemeanor. Mr. Schmidt's prior conviction for securities fraud 10

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is too old to be considered even under a Guideline calculation. It is interesting that five of the seven criminal history points attributable to Mr. Schmidt relate to a single case, a misdemeanor DWAI. 33. convicted. 34. It is unreasonable to expect that Mr. Schmidt will live to 100. A sentence The loss calculation appears to include counts for which Mr. Schmidt was not

beyond that is both unreasonable and impossible, and threatens to make a mockery of the federal sentencing process. WHEREFORE, Mr. Schmidt moves for a variance from a sentence based upon the United States Sentencing Guidelines, and requests that this Court impose a sentence that is much more realistic and which falls in line with sentences imposed upon other defendants for similar conduct as outlined in this motion. Respectfully submitted,

s/ Peter R. Bornstein Peter R. Bornstein 1600 Broadway, Suite 2350 Denver, Colorado 80202 (303)861-2500

s/ Thomas J. Hammond Thomas J. Hammond 1544 Race Street Denver, Colorado 80206 (303)321-7902 CERTIFICATE OF SERVICE

I hereby certify that on April 25, 2008, a copy of the foregoing NORMAN SCHMIDT'S MOTION FOR VARIANCE FROM A GUIDELINE SENTENCE was delivered in the United States mail to: Mitchell Baker [email protected] Peter R. Bornstein [email protected], [email protected]

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Paula M. Ray [email protected] Richard N. Stuckey [email protected] Richard Kent Kornfeld [email protected], [email protected] Thomas Edward Goodreid [email protected] Matthew T. Kirsch [email protected], [email protected], [email protected] Ronald Gainor [email protected] Wyatt Burwell Angelo [email protected], [email protected], [email protected], [email protected] s/ Thomas J. Hammond Thomas J. Hammond

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