In the
United States Court of Appeals
For the Seventh Circuit
No. 10-1543
U NITED S TATES OF A MERICA,
Plaintiff-Appellee,
v.
A RMANDO N AVARRETE,
Defendant-Appellant.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 07 CR 794-2—Matthew F. Kennelly, Judge.
A RGUED N OVEMBER 2, 2011—D ECIDED JANUARY 19, 2012
Before E ASTERBROOK, Chief Judge, and P OSNER and
W OOD , Circuit Judges.
P OSNER, Circuit Judge. A jury convicted the defendant
of defrauding LaSalle Bank, a large bank in Chicago
(later acquired by Bank of America), in violation of
federal bank-fraud law, and of related federal offenses.
The district judge sentenced him to 96 months in prison
and ordered him to forfeit the money that he had ob-
tained from the fraud, which the judge determined to
2 No. 10-1543
be $16,241,202, plus property that he had bought with
proceeds of the fraud, and to pay restitution to
the bank also in the amount of $16,241,202. The only
challenge by the defendant’s lawyer on appeal is to the
order of restitution. We permitted the defendant to file
his own “supplementary” briefs, which raise addi-
tional issues—but they are frivolous.
A confusing feature of the case is that the government
tells us that it’s planning to convey any forfeited assets
that turn up to the bank (which is to say to its successor,
Bank of America). One might think that if the govern-
ment does that, the order of restitution will be moot—
the victim of the fraud will have been made whole, es-
pecially since the amount of the forfeiture exceeds the
bank’s loss because of the property that was ordered for-
feited. The cases, moreover, interpreting vague statutory
language, see 18 U.S.C. §§ 981(a)(1)(C), 982(a)(2)(A); 28
U.S.C. § 2461(c), allow the sentencing judge to make
the forfeiture order in personam rather than in rem,
so that it is a personal judgment against the defendant
rather than a claim to specified assets. E.g., United States
v. Baker, 227 F.3d 955, 970 (7th Cir. 2000); United States v.
Newman, 659 F.3d 1235, 1242 (9th Cir. 2011); United States
v. McGinty, 610 F.3d 1242, 1246 (10th Cir. 2010). The
judge did that in this case, and so the order will remain
in force when the defendant is released from prison,
just like the order of restitution. He appears to be a
capable businessman, so, while he has no money now
(he was permitted to appeal in forma pauperis), he may
eventually be able to pay both debts in full. If so, the
No. 10-1543 3
government will not be permitted to pay the bank twice
the bank’s loss, because restitution (as we’ll see) cannot
exceed the victim’s loss; instead the government will
pocket the proceeds of the forfeiture. So the defendant
if able will be paying twice the victim’s loss, though not
to the victim. And so a successful attack on the restitu-
tion order will reduce the defendant’s total liability by
almost half (“almost” because of the property forfeited
along with the defendant’s monetary gain from the
fraud—but remember that he is not attacking the for-
feiture order).
It might seem that a defendant should never have to
pay more than his victim’s loss, and therefore that a
forfeiture order and a restitution order should be con-
sidered alternative rather than cumulative punishments.
But the cases hold otherwise. United States v. Emerson,
128 F.3d 557, 566-67 (7th Cir. 1997); United States
v. Newman, supra, 659 F.3d at 1240-42; United States v.
McGinty, supra, 610 F.3d at 1246-48. That’s not much of a
paradox. It means, very appropriately in a fraud case
since fraud is a concealable offense, that the combina-
tion of a forfeiture order and a restitution order results
in a form of punitive damages piled on top of
the other penalties for the defendant’s crime, such as
imprisonment.
The defendant owned a company called Illinois
National Safe (we’ll call it “the Company”) that was in
the business of installing and maintaining security
devices, such as surveillance cameras, closed-circuit
television, locks, and fire and burglar alarms. One of its
4 No. 10-1543
customers was LaSalle Bank. In 1998 George Konjuch, the
bank’s vice president in charge of security, told the de-
fendant that he would authorize the Company to pro-
vide additional services for the bank in exchange for
bribes—and that he would cut off the Company if the
defendant refused his offer. The defendant accepted the
offer. Years passed. The Company’s sales to the bank
soared—it went from servicing 30 branches of the bank
to servicing almost 150—and Konjuch received larger
and larger bribes until he was receiving more than
$40,000 a month from the defendant. Eventually
LaSalle’s management became suspicious of the large
amounts of money being paid to the Company because
the bank was being billed by it in hundreds of invoices
each for less than $5,000. Konjuch kept them below that
level and thus within the range in which he could autho-
rize payments without a supervisor’s approval; in addi-
tion, a large bank like LaSalle makes many small pay-
ments on a daily basis, and he could hope that his su-
periors wouldn’t add them up and learn how much
the bank was paying the Company. The tactic failing,
in 2006 the bank stopped doing business with the Com-
pany, having paid it more than $45 million since 2001.
The defendant had paid Konjuch $1.3 million in bribes.
For purposes of calculating a prison sentence, if the
victim’s loss can’t be estimated the offender’s gain can
be used to approximate the loss. U.S.S.G. § 2B1.1, Applica-
tion Note 3(B); United States v. Vrdolyak, 593 F.3d 676, 680
(7th Cir. 2010); United States v. Chatterji, 46 F.3d 1336,
1340 (4th Cir. 1995). But an order of restitution, unlike
either a prison sentence or an order of forfeiture (in-
No. 10-1543 5
cluding the order of forfeiture in this case, which added
to the defendant’s monetary gain the property that he
bought with the proceeds of the fraud), can be based only
on the victim’s loss, 18 U.S.C. § 3664(f)(1)(A); United
States v. George, 403 F.3d 470, 474 (7th Cir. 2005);
United States v. Galloway, 509 F.3d 1246, 1253 (10th Cir.
2007); see also 18 U.S.C. §§ 3663A(c)(3)(B), 3664(e), even
though disgorgement of an ill-gotten gain is a standard
example of restitution in civil cases.
It is not clear whether the district judge understood
the relation between forfeiture and (criminal) restitution.
He did not discuss restitution separately in sentencing
the defendant except to say that the restitution would
be equal in amount to the forfeiture.
After severing its relationship with the Company, the
bank hired Ingersoll Rand to provide security services
that the Company had provided. The government’s
experts (forensic accountants) compared Ingersoll
Rand’s prices to the Company’s prices, found that the
former were lower, and used the difference to calculate
the loss that the fraud had caused the bank between
2001 and 2006. The figure they came up with was
$29.6 million. But the judge, in calculating the amount
of the bank’s loss for purposes of determining the length
of the defendant’s prison sentence, rejected the govern-
ment’s loss estimate, noting that the services provided by
the Company were not identical to those provided
by Ingersoll Rand when it replaced the Company as the
bank’s vendor and that had the Company charged the
same prices that Ingersoll Rand charged it would have
6 No. 10-1543
been operating at a loss—which could mean that the
Company’s services had been better or more extensive
than Ingersoll Rand’s and that that was why they cost
the bank more. The judge didn’t think there was persua-
sive evidence that the Company’s cost structure had
been significantly “inflated” as a result of the bribes,
though the bribes had gotten the Company more
business with the bank. He was sure the bank had
suffered a loss, but threw up his hands at quantifying
it: “I am persuaded that LaSalle Bank paid [the
Company] significantly more than it would have paid
Ingersoll Rand or another similar company for the
same services, but I just can’t reasonably determine
exactly how much more.” Despairing of determining
the loss, the judge ordered the defendant to pay restitu-
tion equal to the defendant’s gain from the fraud.
Though conceding as it must that the amount
awarded as restitution must be based on the victim’s
loss rather than on the defendant’s gain, the govern-
ment defends the award (it thinks the amount should
have been higher, but didn’t cross-appeal). It argues that
since the bank would not have paid the Company a
dime had it known the defendant was bribing Konjuch,
the bank “lost” the money that ended up in the
defendant’s pocket; his gain was the bank’s loss. That
is too hasty. Suppose the Company’s (and so the defen-
dant’s) gain from the bribes was based on a combination
of charging the bank more than it would have had to
pay a competitor of the Company for identical services
and selling more services to the bank—that is, edging
out competitors. Imagine that instead of selling the
No. 10-1543 7
bank 1000 burglar alarms at a price of x that would
yield a profit of $50 for each alarm (which let us say
was the pre-bribe quantity and price sold by the
Company to the bank), the defendant had been able by
bribing Konjuch to induce the bank to buy 1500 burglar
alarms from the Company at a price, $x + $10, that
would yield a $60 profit per alarm, displacing a com-
petitor who had been selling the bank 500 alarms each
year also at $x apiece. The Company’s ill-gotten gain
would have been $40,000 (1000 x ($60 – $50 = $10) + 500 x
$60), consisting of the entire profit on the additional 500
alarms the Company sold to the bank and the inflated
profit (the extra $10 per alarm) on the original 1000 alarms
that it had sold to the bank. But the bank’s loss would
have been only $15,000 (1500 x ($60 – $50 = $10)), consisting
of the $10 excess profit obtained by the Company on
all 1500 alarms that it sold to the bank. There is, it is
true, another victim of the fraud—the competitor who
was edged out as a result of the bribes. But the only
victim for whom restitution is being sought in the
present case is the bank.
According to the government’s own figures, the Com-
pany’s sales to the bank rose from $2,404,622 in 2001 to
$14,797,364 in 2004—an increase of 515 percent. Is it
conceivable that the Company increased its prices by
515 percent in three years? Or that Konjuch could have
concealed a 515 percent excess markup from his
superiors for so long a period without being caught?
There is no evidence of that. The Company must there-
fore have been selling more to the bank. Maybe the
bank was paying more for the extra services than it
8 No. 10-1543
would have had to pay a competitor edged out by the
fraud, as in our example; or maybe they were services
that the bank didn’t want and would not have bought
had it not been for Konjuch’s treachery. There is little if
any evidence to support either conjecture. Remember
that in 1998 the Company was servicing 30 branches and
in 2006 150. We don’t know exactly how much of
this growth took place between 2001 and 2004. We
know only that the Company added an average of
15 branches each year over the period of the fraud
(which had begun in 1998), which suggests (no
stronger word is possible, because we don’t know how
much variance there was), that in 2001 the Company
was servicing 75 branches (30 + (3 x 15)) and by 2004 120
(75 + (3 x 15)). This is only a 60 percent increase, consistent
with the hypothesis that the Company kept raising its
prices dramatically, but as we said we don’t know how
much variance in the growth rate there was from year to
year, and, more important, we do not know whether
the Company was providing the same quality and
quantity of services to each branch. In addition, in 2004
the Company and the bank signed a $7.8 million mainte-
nance contract, which doubled the Company’s revenues
from selling to the bank—from $7.16 million in 2003
to $14.8 million the following year.
It’s true that the bank paid less to Ingersoll Rand, the
Company’s honest replacement, for comparable services
than it had paid the Company. But the bank may have
been effecting economies that it thought would make
it more attractive to potential buyers, because it was
looking to sell itself—and 18 months later it did. And
No. 10-1543 9
the bank’s demand for the kind of services that the Com-
pany had provided to it may have shrunk for reasons
unrelated to overpricing or gold plating by the Company
or even wanting to save money. Or perhaps the
services that the Company had provided and Ingersoll
Rand did not provide were still being bought by the
bank, only from some other company or companies.
Maybe the government’s experts explored all these
possibilities and their $29.6 million figure is an accurate
estimate. But the thrust of the government’s response
to the appeal is not to defend its experts’ loss assess-
ment against the judge’s criticisms or the defendant’s
criticisms but instead to insist that in computing the
defendant’s illicit gain the judge was—without knowing
it—computing the victim’s loss. The government bases
this argument not on evidence, however, but on the
proposition that any payment pursuant to contracts
obtained by fraud must enrich the seller by the precise
amount paid by the purchaser, net of the seller’s costs.
That is not correct, as we have said. Indeed, in an
extreme case, where the only effect of the fraud is to
transfer business between two sellers whose prices and
quality are the same, there is no loss to the purchaser.
The price of the Ingersoll Rand replacement contract
could, however, be made the starting point for com-
puting the loss to the bank. If that contract price was x
percent lower than the Company’s price, then x percent
of the quantity of services (in dollars) that the Company
sold to the bank could be treated as the bank’s prima
facie loss. The defendant could rebut by showing that
10 No. 10-1543
the quality or quantity of services rendered under the
Company’s contracts exceeded the quality or quantity of
services rendered under Ingersoll Rand’s contract; if so,
the bank’s loss would be less, and maybe zero (or even
negative). Much of the relevant information may be
buried in the worksheets of the government’s forensic
accountants.
So maybe the judge threw up his hands too soon, and
should try to estimate the bank’s loss along the lines
just suggested, though alternatively he may decide
to invoke 18 U.S.C. § 3663A(c)(3)(B), which allows
the sentencing judge to decline to award restitution if
he “finds, from facts on the record, that . . . determining
complex issues of fact related to the cause or amount of
the victim’s losses would complicate or prolong the
sentencing process to a degree that the need to provide
restitution to any victim is outweighed by the burden
on the sentencing process.” That is a choice for the
district judge to make in the first instance; we note that
the need to determine the bank’s loss is limited in this
case because of the government’s decision to convey
forfeited assets to the victim up to the limit of the
victim’s loss. All that is clear is that the order of restitu-
tion cannot stand. The rest of the judgment is affirmed.
A FFIRMED IN P ART, R EVERSED IN P ART,
AND R EMANDED .
1-19-12