15‐1676‐cr
United States v. Huggins
In the
United States Court of Appeals
for the Second Circuit
AUGUST TERM 2016
No. 15‐1676‐cr
UNITED STATES OF AMERICA,
Appellee,
v.
CHARLES HUGGINS, AKA SEALED DEFENDANT 1,
Defendant‐Appellant,
CHRISTOPHER BUTCHKO,
Defendant,
ANNE THOMAS,
Defendant.*
ARGUED: SEPTEMBER 28, 2016
DECIDED: DECEMBER 19, 2016
The Clerk of Court is directed to amend the official caption as set forth above.
*
Before: WINTER and CABRANES, Circuit Judges, and RESTANI, Judge.†
This case concerns an appeal from the judgment of the United
States District Court for the Southern District of New York (Sidney H.
Stein, Judge), convicting Defendant‐Appellant‐Charles Huggins of
wire fraud and conspiracy to commit wire fraud and sentencing him
to a term of imprisonment of 120 months. We conclude that the
district court erred in applying sentencing enhancements for
receiving gross receipts in excess of $1 million from a financial
institution pursuant to United States Sentencing Guidelines (“the
Guidelines” or “U.S.S.G.”) § 2B1.1(b)(16)(A) and for abuse of a
position of trust pursuant to U.S.S.G. § 3B1.3. In a summary order
published contemporaneously with this opinion, we affirm the
judgment of conviction and find no error in the loss calculation. In
addition, we decline to address Huggins’s limited ineffective
assistance of counsel claim raised before us. Accordingly, the
judgment of the district court is AFFIRMED, in part, and
VACATED, in part, and REMANDED for resentencing.
JONATHAN T. SAVELLA (Marc Fernich, on
the brief), Law Office of Marc Fernich, New
York, New York, for Defendant‐Appellant.
EDWARD IMPERATORE, Assistant United
States Attorney (Karl Metzner, Assistant
United States Attorney; Preet Bharara,
† The Honorable Jane A. Restani, Judge for the United States Court of
International Trade, sitting by designation.
2
United States Attorney, on the brief),
Southern District of New York, New York,
New York, for Appellee.
RESTANI, Judge:
Defendant‐Appellant Charles Huggins (“Huggins”) was
convicted on May 14, 2015, after a two‐week jury trial in the United
States District Court for the Southern District of New York (Sidney H.
Stein, Judge) for wire fraud and conspiracy to commit wire fraud in
violation of 18 U.S.C. §§ 1343 and 1349. The district court sentenced
him to 120 months in prison, entered an order of forfeiture in the
amount of $2.4 million, and ordered restitution in the amount of $2.4
million.
On appeal, Huggins argues that his conviction was improper
because the indictment lacked specificity and failed to inform him of
the nature and cause of the accusations against him in violation of the
Fifth and Sixth Amendments of the United States Constitution.
Huggins also argues that the district court incorrectly applied
sentencing enhancements based on a loss figure of $8.1 million, gross
receipts from a financial institution in excess of $1 million, and abuse
of a position of trust. In addition, he brings an ineffective assistance
of counsel claim.
In a summary order published contemporaneously with this
opinion, we affirm the district court’s judgments on the indictment
and sentencing enhancement for a loss figure of $8.1 million, and
3
decline to resolve Huggins’s ineffective assistance of counsel claim at
this time. For the reasons set forth below, we conclude that the
district court erred in applying the two sentencing enhancements for
receiving gross receipts in excess of $1 million from a financial
institution pursuant to U.S.S.G. § 2B1.1(b)(16)(A) and for abuse of a
position of trust pursuant to U.S.S.G. § 3B1.3.
BACKGROUND
In the early 2000s, Huggins ran sham oil companies—he
promised investors he would use their money to make a profit in
West African oil, but in fact simply pocketed the money. (See Trial
Tr. 352)1 Beginning in the mid‐to‐late 2000s, Huggins began running
sham diamond and gold mining companies—JYork Industries Inc.
(“JYork”) and Urogo Inc. (“Urogo”). (Id. 73, 77, 354, PSR ¶ 8)
Huggins informed investors that their investments in JYork would be
used to acquire diamonds and gold in Sierra Leone, and that
investments in Urogo would be used to acquire the same in Liberia.
(Trial Tr. 354, 437) Huggins convinced dozens of investors to invest
in these companies, establishing friendships with at least two of the
investors. (A:246–48; Trial Tr. 72, 743) In total, Huggins received
approximately $2.4 million from investors for JYork and Urogo.
(Gov’t Br. at Add. 41–42) Including the receipts attributable to the
sham oil companies from the early 2000s, Huggins received
approximately $8.1 million from investors. (A:235, 246–48) The
investors sent this money to JYork and Urogo accounts at Bank of
1 “Trial Tr.” can be found at the trial court docket entry (“DE”) numbers 283–301.
The pagination refers to the original numbering found on the top right hand of the page.
4
America in New York. (Trial Tr. 374–75) Huggins withdrew money
from these accounts by ATM, wire transfer, or by having his
assistant, Anne Thomas, cash checks. (See id. 387–89, 874–75)
Although Huggins told investors that JYork and Urogo would
use their money to acquire diamonds and gold in Sierra Leone and
Liberia, Huggins used practically none of the investors’ money to do
so. (See Trial Tr. 437–39) Instead, Huggins used the money for a
wide variety of personal expenses, including rent payment and other
personal bills, distributions to family members and friends, meals at
expensive restaurants, the purchase of a Mercedes car, and gifts for a
young actress. (Trial Tr. 394–95, 417, 437–39, 445) The government
filed an indictment against Huggins on March 6, 2013. (Indictment,
DE 15) The superseding indictment, filed on September 4, 2014,
alleged two counts: wire fraud under 18 U.S.C. § 1343, and
conspiracy to commit wire fraud under 18 U.S.C. § 1349.
(Superseding Indictment, DE 248)
On May 14, 2015, after a two‐week jury trial, Huggins was
found guilty on both counts. At sentencing, the district court found
Huggins’s base offense level to be 7. (Sentencing Tr. 24, DE 358) The
government recommended that all of the relevant sentencing
enhancements be applied to Huggins. The district court applied
these enhancements to calculate the Guidelines range,2 including:
(1) a twenty‐level enhancement for a loss figure of $7,000,001 or
All references to the Guidelines refer to the 2014 version, as those are the
2
provisions governing Huggins’s May 2015 sentence.
5
greater under U.S.S.G. § 2B1.1(b)(1)(K) (2014); (2) a two‐level
enhancement for deriving over $1 million in gross receipts from a
financial institution as a result of the offense under U.S.S.G.
§ 2B1.1(b)(16)(A); and (3) a two‐level sentencing enhancement based
on abuse of a position of public or private trust under U.S.S.G.
§ 3B1.3. (Id.) The district court concluded the total offense level to be
39, which when combined with Huggins’s criminal history category
of I, yielded a Guidelines range of 262 to 327 months. (Id. at 28)
The district court determined that the range “is greater than
necessary to meet the ends of the criminal justice system” and
considered Huggins’s age of sixty‐nine years old at the time of
sentencing. (Id. at 33) Accordingly, it sentenced Huggins to 120
months on each count to run concurrently. (Id. at 27, 33)
JURISDICTION
The district court had original jurisdiction over this case under
18 U.S.C. § 3231. We have appellate jurisdiction under 28 U.S.C.
§ 1291. Both parties agree that our Court has jurisdiction over this
appeal.
DISCUSSION
I. Financial Institution Enhancement
We review the district court’s application of the enhancement
under U.S.S.G. § 2B1.1(b)(16)(A) de novo. See, e.g., United States v.
6
Conca, 635 F.3d 55, 62 (2d Cir. 2011).3 U.S.S.G. § 2B1.1(b)(16)(A)
provides for a two‐level sentencing enhancement if “the defendant
derived more than $1,000,000 in gross receipts from one or more
financial institutions as a result of the offense[.]” “‘Gross receipts
from the offense’ includes all property, real or personal, tangible or
intangible, which is obtained directly or indirectly as a result of such
offense.” U.S.S.G. § 2B1.1 cmt. n.12(B). Huggins argues that
withdrawals of money from his companies’ Bank of America
accounts by ATM, check, and wire transfer did not trigger this
enhancement on the grounds that routine withdrawals from a bank
account are not “derived” from “a financial institution.” (Huggins
Br. at 33–34; Huggins Reply Br. at 15) The government contends that
the passage of money through a financial institution, even when
3 The government argued at oral argument that “plain error” review should
apply because, although Huggins objected to the financial institution enhancement
before the district court, he did not raise a specific rationale for the objection. The
government did not cite legal authority for this proposition, and, indeed, our precedent
is to the contrary. United States v. Sprei, 145 F.3d 528, 533 (2d Cir. 1998) is instructive:
Rule 51 of the Federal Rules of Criminal Procedure governs objections made
to sentencing orders. . . . In interpreting Rule 51, we have emphasized
that “[a]n objection is adequate which fairly alerts the court and opposing
counsel to the nature of the claim.” United States v. Rodriguez‐Gonzales, 899
F.2d 177, 180 (2d Cir. 1990). Our precedents demonstrate that to communicate
the “nature” of a claim, a party does not have to present precise or detailed legal
arguments. See, e.g., United States v. Shumard, 120 F.3d 339, 340 n.1 (2d Cir.
1997) (finding that the government’s request that the district court “consider” a
two‐level adjustment for defrauding more than one victim was sufficient to
preserve argument on appeal that the district court had erred in calculating the
number of victims without regard for “relevant conduct” in addition to the
actual offense of conviction)[.] (second alteration in original).
Given the facts of this case, the objection adequately conveyed the nature of the issue.
7
individual investors are the primary source, is enough to trigger this
enhancement.4 (Gov’t Br. at 45–46) We disagree.
Our analysis begins with the text of the enhancement. United
States v. Young, 811 F.3d 592, 601 (2d Cir. 2016). The financial
institution enhancement applies only if the defendant’s derivation of
gross receipts from a financial institution is “as a result of the
offense.” When a defendant derives gross receipts from a financial
institution at which he has an account, whether by ATM, check, or
wire transfer, he does so simply as a result of having sufficient funds
4
Both parties agree that Bank of America falls within the definition of a
“financial institution.” Indeed, the definition is broadly defined to capture
virtually all regulated entities and could be applied in a wide range of cases:
[A]ny institution described in 18 U.S.C. § 20, § 656, § 657, § 1005,
§ 1006, § 1007, or § 1014; any state or foreign bank, trust company, credit
union, insurance company, investment company, mutual fund, savings
(building and loan) association, union or employee pension fund; any
health, medical, or hospital insurance association; brokers and dealers
registered, or required to be registered, with the Securities and Exchange
Commission; futures commodity merchants and commodity pool
operators registered, or required to be registered, with the Commodity
Futures Trading Commission; and any similar entity, whether or not
insured by the federal government. ‘Union or employee pension fund’
and ‘any health, medical, or hospital insurance association,’ primarily
include large pension funds that serve many persons (e.g., pension funds
of large national and international organizations, unions, and corporations
doing substantial interstate business), and associations that undertake to
provide pension, disability, or other benefits (e.g., medical or
hospitalization insurance) to large numbers of persons. U.S.S.G. § 2B1.1
app. n.1.
8
in his account, not “as a result of the offense.” In this sense, a
financial institution acted as little more than a conduit of funds as
opposed to being the victim who lost funds as a result of the fraud.
The Guidelines provide no basis to enhance penalties for a defendant
who stores his fraudulent proceeds in a financial institution before
withdrawing, while allowing a defendant who avoids use of a
financial institution to receive a lesser punishment.
Our precedents focus on whether the financial institution
suffers some type of loss or liability in providing the requisite funds.
Indeed, no case in this Circuit has applied this enhancement where a
financial institution did not suffer some type of loss or liability. See,
e.g., United States v. Goldstein, 442 F.3d 777, 779–81, 785–86 (2d Cir.
2006) (applying the enhancement for stealing banking and credit card
information); United States v. Khedr, 343 F.3d 96, 98–99, 100–02 (2d
Cir. 2003) (fraudulently obtaining car loans); United States v. Savin,
349 F.3d 27, 30–39 (2d Cir. 2003) (stealing money from a foreign
investment company); United States v. Millar, 79 F.3d 338, 340–42,
345–46 (2d Cir. 1996) (bank robbery).5
Focusing on whether the financial institution suffers a loss or
incurs liability comes from the enhancement’s requirement that the
gross receipts be “derived . . . from” a financial institution “as a result
of the offense”, i.e., that the financial institution must suffer a loss or
5 Prior to 2001, U.S.S.G. § 2F1.1(b)(8)(B) provided a four‐level enhancement if the
offense “affected a financial institution and the defendant derived more than $1,000,000 in
gross receipts from the offense.”
9
liability. (emphasis added)6 By stealing or fraudulently borrowing
from a financial institution, the criminal is putting that institution’s
financial safety and soundness at risk. The sentencing enhancement
thereby penalizes the criminal for this reckless behavior. That was
the theory behind the 1989 Act creating this enhancement. Financial
Institutions Reform, Recovery, and Enforcement Act of 1989, Pub. L.
No. 101‐73, § 961, 103 Stat. 183, 501 (1989). For example, when a
defendant fraudulently obtains a mortgage or car loan and fails to
pay the money back, the financial institution suffers a loss. By
contrast, when a defendant simply withdraws money he deposited in
6 The only other circuit to consider how to determine whether funds are derived
from a financial institution concluded that the enhancement applies when a financial
institution “was the source of the $1 million in gross receipts.” United States v. Stinson,
734 F.3d 180, 183–86 (3d Cir. 2013) (finding financial institution not the source of gross
receipts of fraud scheme). In so concluding, the court stated that “[a] financial
institution is a source of a defendant’s gross receipts if it owns the funds. Hence, a
financial institution is a source of the gross receipts when it exercises dominion and
control over the funds and has unrestrained discretion to alienate the funds.” Id. This
articulation of the standard is problematic, however, because normally a financial
institution exercises dominion and control over funds deposited in customer accounts.
See Shaw v. United States, No. 15–5991, 2016 WL 7182235, at *3 (U.S. Dec. 12, 2016). For
the reasons explained above, we focus on the loss or liability incurred by the financial
institution.
The Supreme Court considered a related situation in Shaw, where it concluded
that a defendant “defraud[s] a financial institution” under 18 U.S.C. § 1344(1) by stealing
money in which a bank has property rights, even if the bank ultimately does not suffer a
monetary loss. Id. at *3 (defendant taking money in another depositor’s account).
Because the enhancement, unlike the statute in Shaw, only applies when the gross
receipts are “derived . . . from” a financial institution “as a result of the offense”, control
of an account containing the depositor’s own ill‐gotten gains is insufficient to trigger the
enhancement’s application.
10
a bank, the financial institution is not incurring any meaningful new
liability nor is the criminal leveraging the financial institution’s
balance sheet to support criminal activity.
Here, Huggins derived the funds for his fraudulent companies
from individual investors, not Bank of America. The bank did not
incur a meaningful loss or liability when Huggins withdrew money
from his companies’ accounts because investors had deposited this
money in his companies’ accounts. Applying the enhancement to all
cases where a defendant merely withdraws money from his own
bank account at a financial institution cuts too broadly and is
inconsistent with the primary purpose of the enhancement, i.e., to
penalize an individual for placing a financial institution at risk by
borrowing or stealing funds to support criminal activity.
Accordingly, we conclude that Huggins did not derive more
than $1,000,000 in gross receipts from a financial institution as a
result of his offense within the meaning of § 2B1.1(b)(16)(A).
II. Abuse of Private Trust Enhancement
Whether Huggins occupied and abused a position of private
trust is a legal question that we review de novo. United States v.
Jolly, 102 F.3d 46, 48 (2d Cir. 1996).7 Huggins argues the district court
improperly applied a two‐level sentencing enhancement based on
7 At oral argument, the government requested the court to review the district
court’s application of this enhancement for clear error. However, Huggins is not arguing
that the district court applied the enhancement based on erroneous facts, but that the facts
are legally insufficient to constitute a position of private trust. ( See Huggins Br. at 34–
36) Thus, we apply de novo review.
11
abuse of a position of private trust under U.S.S.G. § 3B1.3. (Huggins
Br. at 34–36) He argues that he did not occupy a position of trust,
that he was simply a salesman who had no discretionary authority
over the victims’ financial assets and who engaged in typical
commercial transactions. (Id.) The government contends that
Huggins occupied a position of private trust because he personally
solicited funds from investors and held himself out as the companies’
leader with discretion over the use of funds. (Gov’t Br. at 39–43;
Gov’t July 7, 2016 28(j) Letter, ECF No. 86‐1) Upon review of the
record, we conclude that Huggins did not occupy a position of trust
within the meaning of U.S.S.G. § 3B1.3.
U.S.S.G. § 3B1.3 applies a two‐level sentencing enhancement
“[i]f the defendant abused a position of public or private trust, or
used a special skill, in a manner that significantly facilitated the
commission or concealment of the offense[.]” The Guidelines
Commentary explains that:
“Public or private trust” refers to a position of public or
private trust characterized by professional or managerial
discretion (i.e., substantial discretionary judgment that is
ordinarily given considerable deference). Persons
holding such positions ordinarily are subject to
significantly less supervision than employees whose
responsibilities are primarily non‐discretionary in
nature. For this adjustment to apply, the position of
public or private trust must have contributed in some
significant way to facilitating the commission or
concealment of the offense (e.g., by making the detection
12
of the offense or the defendantʹs responsibility for the
offense more difficult).
U.S.S.G. § 3B1.3 cmt. n.3. Under United States v. Thorn, this
abuse of trust enhancement involves a two‐prong analysis:
(1) whether the defendant occupied a position of trust from the
victim’s perspective and (2) whether that abuse of trust “significantly
facilitated the commission or concealment of the offense.” 446 F.3d
378, 388 (2d Cir. 2006). Here, we need not analyze the second prong
because Huggins did not occupy a “position of trust.”
We have repeatedly held that a “position of trust” is held by
one who was accorded discretion by the victim and abused a position
of fiduciary or quasi‐fiduciary status. “Whether a position is one of
‘trust’ within the meaning of § 3B1.3 is to be viewed from the
perspective of the offense victims[.]” United States v. Wright, 160
F.3d 905, 910 (2d Cir.1998). A victim’s view of a position as one of
trust must, of course, be objectively reasonable. United States v.
Santoro, 302 F.3d 76, 82 (2d Cir. 2002). A purely arm’s‐length
contractual relationship between the defendant and the victims does
not create a position of trust. See Jolly, 102 F.3d at 48 (“[T]he abuse of
trust enhancement applies only where the defendant has abused
discretionary authority entrusted to the defendant by the victim.”);
Wright, 160 F.3d at 911. Instead, “an abuse of trust enhancement
must involve a fiduciary‐like relationship that goes beyond ‘simply
the reliance of the victim on the misleading statements or conduct of
the defendant.’” United States v. Ntshona,156 F.3d 318, 320 (2d Cir.
1998) (quoting Jolly, 102 F.3d at 49).
13
The government does not direct us to any evidence that
Huggins held a fiduciary‐like relationship with his victims. Unlike
other cases where the defendant served as a financial adviser or had
discretionary authority for the victim’s financial portfolio, Huggins
was merely a salesman for an investment scheme. See United States
v. Rivernider, 828 F.3d 91, 114 (2d Cir. 2016) (affirming abuse of trust
enhancement where defendant “functioned essentially as an
investment advisor for a number of victims”); United States v.
Hirsch, 239 F.3d 221, 228 (2d Cir. 2001) (explaining that investment
advisors are “entrusted with the discretionary authority to manage
the assets of his or her clients” (quoting United States v. Queen, 4
F.3d 925, 929 (10th Cir. 1993))). He contracted at arm’s‐length with
his victims for the sole purpose of soliciting funds for his purported
West African mining ventures. (Trial Tr. 51, 196, 202, 315, 377–78,
752, 1176, 1236–37, 1304). In the case of one victim, Huggins even
worked with the victim’s financial advisor—who had the fiduciary
relationship with the client. (Huggins Br. at 11–12). The fact that
Huggins was a friend of at least two investors is part and parcel of
being a salesman. By itself, personal friendship is not evidence that
the victims viewed Huggins as occupying a fiduciary‐like position
that conferred trust over their financial matters. Santoro, 302 F.3d at
82. The district court relied heavily on the fact that Huggins
occupied a managerial role that afforded him the freedom to commit
a difficult‐to‐detect wrong. Although he was the principal organizer
of the scheme, it would be double counting for the U.S.S.G. § 3B1.3
enhancement to capture all organizers of fraudulent schemes. Every
small‐scale fraud led by a single person would qualify for this
14
enhancement because he or she was the principal organizer,
irrespective of whether the organizer was acting in a fiduciary‐like
capacity or held a position of trust.
Our holding in Jolly is precisely on point. In that case, the
defendant was president of a company formed to sell computer
hardware and software. He raised loans from investors and sent
false statements to them, but the company existed only on paper and
the money was used to pay for the defendant’s personal expenses.
Jolly, 102 F.3d at 47–48. The district court applied the private trust
enhancement and we reversed on appeal: “[T]he lenders’ trust in
[the defendant] was simply their reliance on his representations
about [his company’s] ongoing business and the appearance created
by the repayments. Such reliance is the hope of every defendant who
engages in fraud.” Id. at 49. Huggins’s involvement with his
investors was no more extensive than Jolly’s contact with his
customers. Mere reliance on false statements does not qualify for this
enhancement.
This case is distinguished from Hirsch, where the defendant
“developed ‘personal relationships with his clients wherein they
relied on and trusted him,’” supporting the conclusion that the
defendant occupied a position of trust. 239 F.3d at 228. In Hirsch,
however, the defendant acted as an investment advisor on behalf of
his victims. Id. at 227. Although a friendship between the defendant
and victim may be some evidence that the defendant occupies a
position of trust, friendship with victims alone does not trigger the
enhancement. Unlike in Hirsch, nothing in the record here suggests
15
that Huggins acted as an investment advisor or broker, that is, an
individual who typically “is entrusted with the discretionary
authority to manage the assets of his or her clients through the
application of specialized knowledge.” Hirsch, 239 F.3d at 228
(citation omitted). Huggins simply purported to invest the victims’
money in his mining ventures through arm’s‐length contracts. It
would not be accurate to impute such discretionary authority to a
mere salesman. See Wright, 160 F.3d at 910 (“[I]n connection with a
fraud offense, a defendant who merely procures loans to his
company does not hold a position of trust vis‐à‐vis the lenders.”).
If the enhancement were to apply here, the enhancement
would apply in virtually all fraud cases where a fraud victim relies
on a defendant’s false statements. Jolly, 102 F.3d at 49. Such a broad
reading would transform this abuse‐of‐trust enhancement into a
vehicle for double counting, relying on a necessary element of the
crime as a basis for applying the enhancement. “The trust in short is
a specific offense characteristic of fraud, and a Section 3B1.3
enhancement is inappropriate. . . . Such reliance is the hope of every
defendant who engages in fraud.” Id. Although Huggins breached
his victims’ trust by using their money for personal gain, he did not
occupy a position of trust within the meaning of § 3B1.3.
CONCLUSION
The financial institution and abuse of trust sentencing
enhancements under U.S.S.G. §§ 2B1.1(b)(16)(A) and 3B1.3 were
intended as additional penalties for particularly reckless behavior.
16
They should not be read so broadly as to apply to every instance in
which a fraud offense is committed. Nor should prosecutors
recommend the maximum possible sentencing enhancements
without reference to the defendant’s particular conduct. In
particular, prosecutors should acknowledge in their briefs when no
caselaw supports their position, as in the financial institution
enhancement, or where considerable caselaw weighs against it, as in
the abuse of trust enhancement. For the reasons stated above, we
hold that the sentencing court erred in applying the sentencing
enhancements under U.S.S.G. §§ 2B1.1(b)(16)(A) and 3B1.3 in a
manner that was plainly inconsistent with our precedents. We
VACATE the district court’s sentence and REMAND to the district
court for resentencing. Huggins’s judgment of conviction and the
district court’s application of other sentencing enhancements, as
discussed in the summary order filed contemporaneously with this
opinion, however, are AFFIRMED.
17