Free Motion for Hearing - District Court of Arizona - Arizona

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PAUL K. CHARLTON United States Attorney District of Arizona LARRY W SZALEK State of W isconsin Bar No. 1003722 MARK T. ODULIO District of Maryland Bar No. 26348 Trial Attorneys U.S. Department of Justice Tax Division Two Renaissance Square 40 N. Central Avenue, Suite 1200 Phoenix, Arizona 85004-4408 Telephone (602) 514-7661

UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA United States of America, Plaintiff, CR03-00345-PHX-ROS Joint Status Report on Sentencing Issues

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v. 1. John J. Rizzo; 2. Carol A. Rizzo; Defendants.

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Plaintiff, United States of America, by and through its counsel of record, Larry J. Wszalek and Mark T. Odulio, Trial Attorneys, Department of Justice, Tax Division, along

Caplan, do hereby submit to this court a JOINT STATUS REPORT ON SENTENCING ISSUES.

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INTRODUCTION Since the last sentencing hearing held on September 12, 2005, the parties have agreed to the following issues affecting the sentencing guidelines. First, the Government concedes that both defendants are entitled to a third point for acceptance of responsibility pursuant to §3E1.1. Second, the Government concedes that Defendant Carol Rizzo is not responsible for aiding in the preparation of false tax returns as charged in counts 14-20 of the superseding indictment and therefore her applicable guideline section is §2T1.1 rather than §2T1.4. As a result, Carol Rizzo is not eligible for the 2-point enhancement set forth at §2T1.4(b)(1). However, Defendant John Rizzo's base offense level continues to be governed by §2T1.4. Beyond these two areas of agreement, there remain nine unresolved issues for this Court to consider at sentencing. They include the following: 1. 2. 3. 4. 5. 6. John Rizzo Tax Loss; Carol Rizzo Tax Loss; John Rizzo - Derived a substantial portion of income from the instant offense; John & Carol Rizzo - Sophisticated Means; John Rizzo - Role in the Offense; Carol Rizzo - Role in the Offense; John Rizzo - Obstruction of Justice; Carol Rizzo - Obstruction of Justice; and

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7. 8.

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John & Carol Rizzo - Extent of 5K1 Downward Departure. JOHN RIZZO TAX LOSS §2T4.1

ISSUE 1: 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23

Government's position (Level 20). It is the Government's position that the tax loss attributable to Defendant John Rizzo equals $1,090,303. The tax loss consists of two parts: Part A is the tax due from income earned from the sale of the Millennium 2000 Reliance Package (M2K package); and Part B is tax loss from assisting individuals in the preparation of false tax returns. Part A. It is the Government's position that the tax loss from the sale of M2K packages equals $528,638. The only disagreement between the parties in this calculation is the amount of a commissions paid to the principals of the Institute of Global Prosperity (IGP). The Government contends that John Rizzo is entitled to a 10% deduction for commission expenses while John Rizzo argues he is entitled to a 50% deduction for commission expenses. Part B. It is the Government's position that the tax loss attributable to John Rizzo for assisting third parties in the preparation of false tax returns equals $561,665. The Government contends that John Rizzo is responsible for the tax loss associated with the count of conviction (Braden Fox return)(count 18) as well as the tax loss from three other individuals whom he assisted in preparing false tax returns. (Adair, Redd, Carr). The three

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other individuals are identified in the superseding indictment at counts 14, 15, 16, 17, 19, and 20. It is the Government's position that by virtue of the rules of relevant conduct, Defendant

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John Rizzo is responsible for the tax loss associated with these three other individuals. The bulk of the tax loss for Part B stems from the Adair tax returns (counts 14 and 15) which equals $527,815. The tax loss attributable to the count of conviction (Fox return - count 18) equals $8,008. John Rizzo's Position (Level 16). Defendant John Rizzo contends that the tax loss attributable to him equals $191,000. He agrees that the tax loss consists of two parts but asserts that each part is much less than that advocated by the Government. Part A. It is John Rizzo's position that the tax loss from the sale of the M2K package is $183,000. This figure results from adopting a 50% deduction for commission payments to the principles of IGP rather than a 10% deduction advocated by the Government. It also includes losses incurred through the theft by Island Getaway, a credit card processing agency. That company processed approximately $191,000 in credit card sales of the M2K Program, which amount was included by the government in gross sales, but was never in fact remitted to the Rizzos. Although the government admittedly cannot demonstrate that the Rizzos ever received these proceeds from Island Getaway, it will not recognize this loss unless the Rizzos can produce evidence of a final judgment from a Bahamian Court in their favor and against Island Getaway. John Rizzo has produced evidence that suit was filed against Island

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Getaway, and were told by their Bahamian attorney that a judgment had in fact been entered.

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In addition, the Rizzos claim that there are other deductions which the government's accountant did not identify in calculating the amount of taxes owing. These will be identified by defendants in a separate pleading to be filed no later than Tuesday, October 11, 2005. Part B. It is John Rizzo's position that the tax loss stemming from aiding and assisting in the preparation of false tax returns should be limited solely to the count of conviction (Fox return - count 18) and the corresponding tax loss of $8,008. John Rizzo contends that the amounts attributable to the three other individuals (Adair, Redd, Carr) do not constitute relevant conduct and should not be included in the tax loss for Part B. In addition, John Rizzo reserves the right to challenge the tax loss calculations for Doug Adair. This challenge will be addressed in a separate pleading to filed by Tuesday, October 11,

ISSUE 2:

CAROL RIZZO TAX LOSS

§2T4.1

Government's Position (Level 20). It is the Government's position that the tax loss attributable to Carol Rizzo equals $528,638. This amount is based on the sales of the M2K package using a 10% ratio for commission payments. The Government concedes that Carol Rizzo is not responsible for any tax loss arising from John Rizzo's aiding and assisting in the preparation of false tax returns.

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Carol Rizzo's Position (Level 16). It is Carol Rizzo's position that the tax loss attributable to her equals $181,000, which is premised on a 50% ratio for commission

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payments. It also includes losses incurred through the theft by Island Getaway, a credit card processing agency. That company processed approximately $191,000 in credit card sales of the M2K Program, which amount was included by the government in gross sales, but was never in fact remitted to the Rizzos. Although the government admittedly cannot demonstrate that the Rizzos ever received these proceeds from Island Getaway, it will not recognize this loss unless the Rizzos can produce evidence of a final judgment from a Bahamian Court in their favor and against Island Getaway. John Rizzo has produced evidence that suit was filed against Island Getaway, and were told by their Bahamian attorney that a judgment had in fact been entered. In addition, the Rizzos claim that there are other deductions which the government's accountant did not identify in calculating the amount of taxes owing. These will be identified by defendants in a separate pleading to be filed no later than Tuesday, October 11, 2005. ISSUE 3: JOHN RIZZO - INCOME DERIVED FROM INSTANT OFFENSE §2T1.4(b)(1)

Government's Position (2 points). It is the Government's position that Defendant John Rizzo derived a substantial portion of his income through the promotion of a tax

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scheme: the sale of the M2K package. The Government further contends that John Rizzo assisted individuals in preparing false tax returns through his Tax Recovery Program.

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John Rizzo's Position. It is John Rizzo's position that he did not derive a substantial part of his income from the act of failing to file his income tax returns. In addition, he did

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not regularly prepare or assist in the preparation of tax returns for profit.

ISSUE 4:

JOHN & CAROL RIZZO - SOPHISTICATED MEANS §2T1.4 (b)(2) (John) and §2T1.1 (b)(2) (Carol)

Government's Position (2 points). It is the Government's position that both defendants John and Carol Rizzo are eligible for the sophisticated means enhancement because they concealed income through the use of bank accounts and third party merchant accounts located offshore. John and Carol Rizzo's Position. It is the defendants' position that they do not qualify for a sophisticated means enhancement because their conduct fails to meet the requirements set forth for application of the Sophisticated Means Enhancement set forth in Application Note 4 of Guidelines Section 2T1.1. Their bank accounts were not in fictitious entities, all bank accounts were in their own names, including on-shore and off-shore accounts." ISSUE 5: JOHN RIZZO - ROLE IN THE OFFENSE §3B1.1

Government's Position (2 points). It is the Government's position that John Rizzo is subject to a 2-point enhancement for role in the offense because he managed the activities of Cheryl Cully and Leslie Nix while operating the business Millennium Publishing.

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John Rizzo's Position. It is John Rizzo's position that the role in the offense enhancement does not apply to him because the M2K business was not fraudulent and

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therefore any directing of other individuals he may have done was in furtherance of a legitimate business. It is John Rizzo's further position that under the Apprendi, Blakely, Booker line of cases, this enhancement is improperly applied to conduct that was not admitted in defendant's plea, and Paragraph 6a of his Plea Agreement specifically reserves his right to challenge such enhancement. ISSUE 6: CAROL RIZZO - ROLE IN THE OFFENSE §3B1.1

Government's Position (2 points). As with John Rizzo, it is the Government's position that Carol Rizzo is subject to a 2-point enhancement for role in the offense because she also managed the activities of Cheryl Cully and Leslie Nix while operating the business Millennium Publishing. Carol Rizzo's Position. It is Carol Rizzo's position that the role in the offense enhancement does not apply to her because the M2K business was not fraudulent and therefore any directing of other individuals she may have done was in furtherance of a legitimate business. It is Carol Rizzo's further position that under the Apprendi, Blakely, Booker line of cases, this enhancement is improperly applied to conduct that was not admitted in defendant's plea, and Paragraph 6a of his Plea Agreement specifically reserves his right to challenge such enhancement. ISSUE 7: JOHN RIZZO - OBSTRUCTION OF JUSTICE §3C1.1

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Government's Position (2 points). It is the Government's position that an enhancement for obstruction of justice applies to John Rizzo based on his conviction for

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perjury (count 2) and the treatment of said conviction as set forth in Application Note 8, of §3C1.1. John Rizzo's Position. It is John Rizzo's position that any enhancement for obstruction of justice constitutes an impermissible double-penalty. In addition, John Rizzo contends that his perjury conviction was improperly grouped with the other counts of conviction under §3D1.2. ISSUE 8: CAROL RIZZO - OBSTRUCTION OF JUSTICE §3C1.1

Government's Position (2 points). It is the Government's position that Carol Rizzo is subject to an enhancement for obstruction of justice because she counseled co-defendant Cheryl Cully to provide untruthful testimony to a federal grand jury. Carol Rizzo's Position. It is Carol Rizzo's position that the obstruction of justice enhancement does not apply to her because she did not advise Cheryl Cully to testify falsely before a federal grand jury. Carol Rizzo further argues that she refused to plead guilty to this offense, which is to be dismissed at sentencing, and its application would violate the Apprendi, Blakely, Booker line of cases.

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ISSUE 9:

JOHN & CAROL RIZZO - EXTENT OF 5K1 DEPARTURE

Government's Position. The Government adheres to its position set forth in its previous sealed submission entitled United States' Motion for Downward Departure filed in May 2005. Defendant's Position. John and Carol Rizzo each reserve the right to argue the existence and extent of any downward departure motion. This will be addressed by defendants in a separate pleading to be filed by Tuesday, October 11, 2005 CONCLUSION The forgoing sets forth the parties position as it relates to the sentencing issues in this

Respectfully submitted this 7 TH day of October, 2005. /s/ LARRY J. WSZALEK Trial Attorney United States Department of Justice Tax Division /s/ MARK T. ODULIO Trial Attorney United States Department of Justice Tax Division /s/ ALAN P. CAPLAN Attorney for JOHN RIZZO Attorney for CAROL RIZZO

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I hereby certify that on October 7, 2005, I electronically transmitted the attached document to the Clerk's Office using the CM/ECF system for filing and transmittal of a Notice of Electronic Filing to the following CM /ECF registrants: Alan P. Caplan 630 Carolina St. San Francisco, CA 94107 [email protected]

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