January 7, 2013

By: Fourth Circuit Reverses $20 Million Restitution Order In Sweepstakes Fraud Case

The Fourth Circuit Court of Appeals recently reversed a $20 million criminal restitution order, finding that the order exceeded the mandate of its prior remand of the case to the district court.  United States v. Pileggi, No. 10-5273 (4^th Cir. January 2, 2013).  With that decision, the court vacated the restitution order and remanded the case with instructions to reinstate a prior restitution order, directing the defendant to pay restitution in the amount of $4,274,078.40.

Following a trial in the U.S. District Court for the Western District of North Carolina, Giuseppe Pileggi  was convicted of conspiracy to commit wire fraud, mail fraud and travel fraud, in violation of 18 U.S.C. §37, and 22 counts of wire fraud, in violation of 18 U.S.C. §§1343 and 2.  All of these charges arose out of his participation in an elaborate fraudulent sweepstakes scheme out of Costa Rica that primarily targeted elderly United States’ citizens.

Mr. Pileggi was originally sentenced to 600 months (50 years) in prison, ordered to pay restitution in the amount of $4,274,078.40 and to forfeit $8,381,962 to the United States.  In his initial appeal, the Fourth Circuit reversed the 600 month prison term, finding that the district court had committed a significant procedural error by imposing a “de facto” life sentence, based on “indisputably false information” provided by the government with respect to its extradition agreement with Costa Rican authorities, which had included an express agreement by the U.S. that Pileggi would not be subject to a life sentence.  United States v. Pileggi, 361 F. App’x 475, 477-79 (4^th Cir. 2010).  The restitution and forfeiture orders, however, were not the subject of that appeal.

On remand, the district court imposed a sentence of 300 months (25 years) and ordered Pileggi to pay restitution in the amount of $4,274,078.40.  The government then asked to address the amount of restitution.  The basis for the government’s request was its claim that the manner of calculating restitution amounts had been altered by a subsequent decision by the Fourth Circuit in a related case, United States v. Llamas, 599 F.3d 381 (4^th Cir. 2010).  The government argued that the original $4.2 million figure was “tainted” because the trial judge had chosen to group losses attributable to Pileggi’s activity to losses related to other operations with which he was not involved.  The government argued that, although the government “didn’t mind the $4.2 million figure,” it argued that Pileggi would likely contend on appeal that he had been wrongly held responsible for losses from other operations.

While the government’s argument appeared on its face to be an attempt to make sure that Pileggi was not held responsible for more loss than appropriate, just the opposite was at work.  Following on its argument regarding the “taint” of the $4.2 million figure, the government asked that the forfeiture amount ($8.3 million) be used as a restitution figure, even though it claimed that the government had gone back and done another analysis demonstrating that the loss was even higher.  At the time, the Court did not alter its $4.2 million restitution figure, but held the restitution component open, and allowed the government to file its amended figures.

At a second hearing focused solely on restitution, the government provided information indicating that an additional analysis of records had increased the restitution amount from $8.3 million to about $20 million.  Pileggi argued that the district court lacked authority to reconsider the restitution amount.  The district court rejected this argument, and ordered restitution in the amount of $20,726,005.18.

On appeal, Mr. Pileggi argued that the district court lacked authority to change the restitution amount, arguing (1) the mandate from the appeals court remanded the case only to correct the prison sentence that was in violation of the extradition agreement; (2) the restitution amount was not addressed on his direct appeal; and (3) the government did not file a cross-appeal claiming that the restitution was too low.

The Fourth Circuit agreed with Pileggi indicating that “we unhesitatingly conclude that the mandate rule barred the district court from reconsidering the restitution order on remand.”  The Court noted that neither party had raised the issue on the initial appeal (relating to the length of prison sentence), and concluded that the government is not permitted to “use the accident of a remand to raise … an issue that [it] could just as well have made in the first appeal.”

The court rejected the government’s argument that the Supreme Court’s recent decision in Pepper v. United States, 131 S.Ct. 1229 (2011), supported its position that the restitution amount could be amended on resentencing.  In Pepper, the Supreme Court rejected a contention that the “law of the case” required a new judge, on remand, to adhere to the prior sentencing judge’s downward departure from the advisory guidelines sentence.  Pepper, 131 S.Ct. at 1251.  The Fourth Circuit distinguished that case, noting that in Pepper the appellate court had set aside the entire sentence and remanded it for a de novo resentencing, thereby effectively wiping the slate clean.  The Court then contrasted the Pileggi case where it had only vacated Pileggi’s 600 month term, not his entire sentence.

The full opinion can be found here: http://www.ca4.uscourts.gov/Opinions/Published/105273.P.pdf