UNITEDSTATES DISTRICT COURT

NORTHERNDISTRICT OF TEXAS

DALLASDIVISION

UNITEDSTATES OF AMERICA, )      CRIMINAL ACTIONNO.

                                           )

              Plaintiff,                )      3:01-CR-011-H

                                           )

v.                                         )

                                           )

XXXXXX, )

                                           )

              Defendant.             )

)

OBJECTIONSTO THE PRESENTENCE REPORT

         Defendant,XXX XXX, hereby files the following objections to the Presentence Report (the“PSR”) prepared by the United States Probation Office for the Northern Districtof Texas.

I.LOSS AMOUNT

         ThePSR suggests a loss amount of $14,035,440. This is incorrect for a myriad of reasons.  First, the purported loss amountincludes $13,910,040 in loss that is alleged to be “relevant conduct,”nevertheless, such loss does not fall within the definition of “relevantconduct” as set forth in U.S.S.G. § 1B1.3. Second, the use of such a loss amount violates the dueprocess clause to the United States Constitution. Finally, even assuming that such “loss” does, in fact,qualify as relevant conduct and that the use of such a loss amount does notoffend the due process clause, the computation of such loss is grosslyincorrect.

A.  Alleged Fraudulent Loan Scheme NotRelevant Conduct

         Mr.XXX pleaded guilty to Count 1 of the indictment filed in this case.  Count 1 accuses him of taking a loancheck in the amount of $50,000 made payable to Hyo Song Kim, forging hersignature, cashing it for himself and using the proceeds without Ms. Kim’spermission. The other count in theindictment accuses him of doing the identical thing with a loan check in theamount of $75,000 made payable to Sun Hui Kim. In short, the appropriate loss amount in this case is$125,000.

         Nevertheless,the PSR, without any explanation, adds an additional loss of $13,910,040 tothis loss amount. This amountcomes from an alleged scheme wherein Mr. XXX would obtain loans for individualsin the Korean community by assisting the individuals in submitting false loanapplications. Although the PSRdoes not explicitly state, it appears that it considers this alleged false loanapplication scheme to be “relevant conduct” to the forgery scheme set forth inthe count of conviction.

         Tobe considered “relevant conduct,” an additional loss figure must be determinedto be “part of the same course of conduct or common scheme or plan as theoffense of conviction.” U.S.S.G. § 1B1.3(a)(2). “Common scheme or plan” requires that the conduct set forthin the count of conviction and the conduct at issue “must be substantiallyconnected to each other by at least one common factor, such as common victims,common accomplices, common purpose, or similar modus operandi.” U.S.S.G. § 1B1.3 (Application Note 9). “Same course of conduct” requires that the conduct set forthin the count of conviction and the conduct at issue be “sufficiently connectedor related to each other as to warrant the conclusion that they are part of asingle episode, spree, or ongoing series of offenses.” Id. Relevant to the “samecourse of conduct” inquiry is whether the conduct can "readily be brokeninto discrete, identifiable units that are meaningful for purposes ofsentencing." Id. U.S.S.G. §1B1.3 (Background). For U.S.S.G. §1B1.3(a)(2) to apply, “the government must demonstrate a connection between[the alleged relevant conduct] and the offense of conviction....” United States v. Pinnick,47 F.3d 434, 438, 39 (D.C. Cir. 1995) (emphasis in original).

         Clearlythe alleged scheme to obtain false loans for clients by submitting false loanapplications to banks is not “part of the same course of conduct or commonscheme or plan” as the scheme to essentially steal loan checks from the two Ms.Kims. Indeed, the two schemes donot involve common victims, common accomplices, common purposes (other than thegeneral purpose to obtain money) or similar modus operandi and, therefore, the two schemes do not qualify as“common schemes. “ Likewise, the two schemes can “readily be broken into,discrete, identifiable units that are meaningful for purposes of sentencing”and, therefore, cannot be said to involve the “same course of conduct.”

         TheUnited States Court of Appeals for the District of Columbia faced a similarcase in Pinnick. There, Pinnick was indicted on four counts of fraud ina single indictment. Pinnick,47 F.3d at 436. Countsone, two and four alleged he used different aliases in order to cashcounterfeit checks. Id. Countthree alleged that he used an alias to file a fraudulent application for acredit card and make purchases of almost $ 5,000 using the credit card. Id. Pinnick pleaded guiltyto Count 4, however, the District Court included the other counts as relevantconduct. Id. TheCourt of Appeals held that the inclusion of Count 3 as relevant conduct was“clear error.”

Wedo not agree...that the credit card fraud alleged in count three constitutespart of the same course of conduct as count four, the offense of conviction.Unlike counts one, two, and four, count three did not involve counterfeitchecks. Like the embezzlement count in Jones, count three is both separately identifiable from count four and of adifferent nature. That counts three and four both involved fraud to obtainmoney is not enough....The credit card fraud in count three is thus not part ofthe same course of conduct as the offense of conviction. The district courtcommitted clear error in treating it as relevant conduct.

Id. at 439.

 Likewise United States v. Moored, 997 F.3d 139 (6th Cir. 1993).  In that case:

Defendantapplied for loans in the total amount of $1,750,332 from various privatelenders. Defendant indicated to the lenders that $400,000 of the loan proceedswould be used to pay a debt owed to Jordan College.... He had engaged invarious financial transactions with the college, including loans, donations,and real property transactions, based in part on promises that he failed tokeep and representations that proved untrue.

Thedebt to Jordan College was comprised of a $100,000 loan that the college madeto Defendant, a $ 50,000 undisclosed lien on property that Defendant sold tothe college, and a $ 175,000 downpayment on that same property that Appellanthad promised to return to the college.

Id.at 140. The District Court included the $325,000 owed to JordanCollege in the loss amount. Id. at 141 (“[T]he loss to Jordan College...was sointertwined in this particular transaction as to find great difficulty insegregating it or separating it. Ifind they were all part of the scheme and plan of this Defendant to aggrandizehimself and his enterprises at the expense of other persons and otherentities.”). The SixthCircuit found this to be “clearly erroneous.” Id. at 143-44 (“We cannot agree with the district court'sdetermination that Defendant's activities with the college were part of thesame course of conduct as the offense conduct or of a common scheme or plan.The connection between the events is simply too tenuous for the district courtto have properly included the potential loss to the college in the computationof the total loss. As did the Kappespanel, we find that the district court's reasoning impermissibly stretches theimagination.”).

         Justas in Pinnick and Moored, it would be clearly erroneous to conclude that thealleged scheme to obtain false loans for clients by submitting false loanapplications to banks was “part ofthe same course of conduct or common scheme or plan” as the scheme to steal andnegotiate loan checks made payable to other individuals.  Reasoning to the contrary“impermissibly stretches the imagination.” Id. at 44.

B.One Hundred Fold Increase in Loss Amount as a Result of “Piling On” Offends DueProcess

         Asdiscussed above, the loss amount for the count of conviction was $50,000 andthe defense agrees that an additional $75,000 should be included as relevantconduct pursuant to U.S.S.G. §1B1.3. Nevertheless, the use of $13,910,040 as additional relevant conductincreases the loss amount more than one hundred times. Likewise, it takes Mr. XXX’s guideline imprisonment range from 15-21months to 51-63 months.

         TheUnited States Court of Appeals for the Eight Circuit recognized that adefendant can be denied due process when relevant conduct is sodisproportionate that it becomes the ‘tail that wags the dog.’ United States v. Wise, 976 F.2d 393, 401 (8th Cir. 1992) (enbanc), cert. denied, 507 U.S. 989 (1993), citing, McMillanv. Pennsylvania, 477 U.S. 79, 87-88(1986). Indeed, prosecutors shouldnot be able to indict for a relatively minor offense only to “pile on”disproportionate relevant conduct. United States v. Bacallao,149 F.3d 717, 721 (7th Cir. 1998). (“[W]e again remind prosecutors ‘not to indict defendants on relativelyminor offenses and then seek enhancement sentences later by asserting that thedefendant has committed other more serious crimes for which, for whateverreason, the defendant was not prosecuted and has not been convicted.’”)(citation omitted).

         Inthis case, Mr. XXXwas never charged with the alleged scheme to fraudulentlyobtain loans nor was he afforded a jury determination regarding his guilt orinnocence on these charges. Cf.  Apprendi v. New Jersey, 530 U.S. 466 (2000). The government, instead, chose to indict Mr. XXXfor onescheme involving a loss of $125,000 and then “pile on” and sentence Mr. XXXforanother scheme involving an alleged loss of almost $14 million.  The resulting three fold increase inhis imprisonment range under the United States Sentencing Guidelines violatesthe Due Process Clause to the United States Constitution.

C.  Loss Amount Not Calculated Correctly[1]

         Whenone looks at the PSR, especially the restitution amounts, it is obvious thatthe Probation Department did no independent investigation of the transactionsin this case and, instead, blindly relied upon information given to it from thegovernment. Unfortunately, as thegovernment agents will candidly admit, the government did not itselfindividually investigate the 287 loans alleged to be at issue.  Instead, the government simply reliedupon charts provided to them by Compass Bank and Bank of Texas which purport tolist every loan that Mr. XXXwasconnected to at the two banks.[2]

         Theend result is that the loss figure set forth in the PSR bears no relationshipto the actual loss in this case. First, as noted in the PSR, Mr. XXX’s obtained loans on behalf ofindividuals in the Korean Community and dealt solely with Mike Jones and BarryXXX. Nevertheless, the bankcharts list numerous loans made to Americans with whom Mr. XXX does not recallany relationship, loans made with officers other than Mike Jones and Barry XXXwhich Mr. XXX does not recall and, remarkably, two loans made before Mr. XXXmoved to Dallas and while he was working at a Japanese restaurant in SeattleWashington. Clearly, these problems are indicative of the PSR’sunreliability. Second, neither theProbation Department nor the government made any attempt whatsoever todetermine which loans were obtained by providing materially falseinformation. It is simply notproper to total any loan that Mr. XXX was connected to, even if the loan wasnot obtained by providing materially false information. Third, as to the loans that were, infact, obtained by providing materially false information, neither the ProbationDepartment nor the government made any attempt whatsoever to determine whetherMr. XXX knew the information was false or whether he was simply relying uponinformation provided to him by his clients.

         Likewise,the loss figure set forth in the PSR ignores Application Note 8(b) to theU.S.S.G. § 2F1.1. That ApplicationNote provides:

Infraudulent loan application cases and contract procurement cases, the loss isthe actual loss to the victim (or if the loss has not yet come about, theexpected loss). For example, if a defendant fraudulently obtains a loan bymisrepresenting the value of his assets, the loss is the amount of the loan notrepaid at the time the offense is discovered, reduced by the amount the lendinginstitution has recovered (or can expect to recover) from any assets pledged tosecure the loan. However, where the intended loss is greater than the actualloss, the intended loss is to be used.

Nevertheless,the PSR includes loans that were declined. Likewise, it fails to account for loans that were repaid andamounts that the banks “can expect to recover” either through future payment ofsecurities. Finally, the PSRacknowledges that the result of any false statements on the fraudulent loanapplications were that a loan was approved “for an amount in excess of that XXX knew the banks would approve.” See PSR ¶ 22 (emphasis added). Therefore, when all is said and done, any loans that wereproperly included in the loss amount would be limited to the difference betweenthe loan as made and the loan amount that would have been approved absent thefalse information.[3]

1.The PSR includes 115 loans with which Mr. XXX had no connection.

         Asnoted above, the Bank of Texas chart which the government and the ProbationDepartment simply accept at face value contain numerous loans with non-Koreanbusinesses with which Mr. XXX had no connection:

         •James Norton Tompkins          •FastFashion Trading Corp

         •Mark E. Segal, MD PA •Finest Products, Inc.

         •TechnologyRepresentatives, Inc •DalPark Enterprise, Inc.

         •CapriInternational, Inc. •ThomasC. Sheils

         •Icom,Inc. •PogueEngineering

         •BenBortnem •RandallC. Doty

         •MartinB. Monjaras •ResidentialHomes of Dallas

         •JesusR. Trevizo •TripleWay Construction

         •DavidRandhawa •HwanHurh

         •JtinderSingh •FibyaInternational, Inc.

         •SeasonFlower International, Inc. •TheOutlaw Corporation

         •CharlesS. Kang •CharlesM. Hunt & Company

         •TommyWan •TrungLam

         •SulemanRaheemani •MarkR. XXXCompany, Inc.

         •IndustrialSales Consultants •OdysseyWatches, Inc.

         •GeneP. Fritts, Inc •DallasD&K Corporation

         •DonG. Jones •PatriceMorin Spatz

         •CharlieLee •DuaneG. Toone

         •RichardTang •DurangoMotors

         •BeataLama •EskenderAlex Berhe

         •MaruBakery •Ayaz,Inc.

         •QuinMing Trading Co, USA, Inc. •AsiaWorld, Inc.

         •ShaxsEnterprises, Inc. •LoreleVanazant[4]

         •Ekram& Nasir Corporation •JeanConnections, inc.

         •RawlingerCorporations •WeckerlingScientific

         •MonaLisa Dermatology •TDEngraving Services, Inc.

         •MagnoliaRetailers, Inc. •TheRuben Company, Inc.

         •NWH,Inc.         •Crainco, Inc.

         •SunbeltTile & Marble •OwnersManagement Company

         •ElegantHardwoods, Inc. •QCPlus Computer, Inc.

         •DiversifiedReimbursement Systems •ROCRawlings

         •Tatari                                                    •KirkHoffman

         •LingleCorporation •TilesPlus, Inc.

         •ShamAhn Constructions, Inc. •Ressan,Inc.

         •LoreleVanzanat •LialucaInvestments, Inc.

         •TexStar Contracting Services •VajubhalVaghela

         •RickJ. Mullen •AlBanna & Al Banna Enterprise

         •Dr.Hun K. Lee •RichmanPetroleum, Corp.

         •RedmondSales Company •KarimSachwani

         •LilikaM. Barina •SouthwestAuto Textiles, Inc.

         •TheSpecial Photo Store, Inc. •DeniseK. McNamara, Inc.

         •SaleemK. Raheemani •KeyCompany Printing, Inc.

         •AliMoolji •DavidDunaway

         •Brianna,Inc. •WeatherguardIndustries, Inc.

         •AeroscapeLandscape, LLC •Strican,Inc.

         •EconoLube Parts Supply •VinniWalia

         •SharmeenInternational, inc. •JeffForrest XXX, P.C.

         •MichaelHailemariam •AltafSachwani

         •CarolHermanovski •HongKong Realty Corp.

         •NorthTexas Auto Salon, Inc. •MPMarket Development Corp.

         •MohammadI. Banna[5]

         Inaddition, the Compass Bank chart contains loans from loan officers other thanMike Jones and Barry XXX. Mr. XXXdoes not recall having any connections with these loans.

         •A1Gift Shop •AceMart

         •CrossroadDonuts

         Remarkably,the Compass Bank chart also contains two loans made before Mr. XXX came toDallas and while he was working in a Seattle, Washington restaurant

         •KingSport (3/3/99)[6]                            •SunArt Gallery (1/18/99)

         Finally,there are several loans on the Compass Bank chart which Mr. XXX has no recordof and, therefore, is of the opinion that the loans were not connected withhim.

         •Baker’sSquare & Donut •CometCleaners

         •LBNail Times •OhJewelry

         •Shoes& Jewelry •SuperWash & Dry

         •WigPlace of Texas •PaylessSupply

         •4Seasons Cleaners

         These115 loans, using the line of credit applied for, amount to$4,425,040.81.

2.  The PSR includes 133 loans that werebased on valid information or which Mr. XXX thought to be valid information.

         TheProbation Department, again relying upon the bank charts without conducting anyindependent investigation, includes all loans with which Mr. XXX was connected(and, as noted above, numerous loans with which he was not connected), in theloss amount. It makes no attemptto separate out the loans that were based on valid information.[7]  Likewise, it includes loans where, iffalse, the false information was given to Mr. XXX by others, including hisclients, and where Mr. XXX had no knowledge that the applications containedmaterial false information. Apparently the FBI argues that Mr. XXX should have known the information was false through duediligence, but the criminal justice system is not based upon a negligencestandard. Mr. XXX can only be heldresponsible for the loan applications that he willfully submitted knowing they contained false information.   After the 115 loans noted aboveare separated out, 172 remain. Attached hereto as Attachment A and Attachment B are charts of thethirty-nine loans that Mr. XXX concedes were obtained using applications heknew contained false information.

3.  The PSR loss figure should be basedupon actual loss to the bank.

Application Note 8(b) to U.S.S.G. § 2F1.1 providesthat fraudulent loan cases are to be treated differently than other fraud casesencompassed by that guideline. Indeed, the loss figure is obtained by using the actual or expected lossunless the intended loss is shown to be greater. In this case, Mr. XXX had every expectation that the loansbased upon false applications would be paid off. Indeed, although Mr. XXX admits increasing the client’sincome and years in business on some applications, none of these loans wouldhave been approved without the client having an excellent credit history asverified by the banks’ underwriting department. Likewise, many of these loans were collateralized.  In short, the intended loss in thiscase was $0. As for the actualloss, that figure should be calculated under Method#1 below.  Alternatively, although it leads to anexaggerated loss amount, the loss could be figured based upon Method#2.

METHOD#1: Amount Written Off + Amount Past Due-Amount that Would have been  Approved Minus the Fraud=Loss Amount

METHOD#2: Amount Written Off + Amount Outstanding +Rewritten Loans- Amount  Expected to be Recovered-Amount thatWould have been Approved Minus  the Fraud= Loss Amount[8]

         Basedupon undersigned counsel’s calculations, the loss amount is as follows:

COMPASS BANK[9] BANK OFTEXAS[10]

METHOD#1: $172,013 + $88 - ?=< $172,102       ? + ? -?=?

METHOD#2: $172,013+ $232,052 + $177,671 - ? - ?=<$753,749 ? + $642,362 + ? - ? - ?=?

         Giventhe Court’s power to “make a reasonable estimate of the loss, given theavailable information” when the loss cannot “be determined with precision” (see U.S.S.G. § 2F1.1 (Note 9), undersigned counselsubmits that, unless more accurate figures can be provided by the banks, theloss be set at between $300,000. Therefore, even assuming that the Court believes the loan scheme to berelevant conduct and that the inclusion of such losses would not violated theDue Process Clause, the total loss amount for the forged checks and the loansshould be held to total $425,000.

II.  LEADERSHIP ENHANCEMENT

         ThePSR, without any explanation whatsoever, assigns Mr. XXX two point leadershipenhancement pursuant to U.S.S.G. § 3B1.1(c). Defense counsel is left to surmise that the ProbationDepartment believes that Mr. XXXwas an “organizer, leader, manager, orsupervisor” of Barry XXX and/or Mike Jones. This does not support a leadership enhancement.

         First,as noted above, the alleged scheme involving the fraudulent bank loans does notconstitute “relevant conduct” in this case. See supra. pp.1-5. Second, while it is true thatMr. XXX paid XXX and Jones to “grease the skids” for the fraudulent bank loans,there is no evidence presented that Mr. XXX was their “organizer, leader,manager, or supervisor.” SeeUnited States v. Jobe, 101 F.3d 1046 (5thCir. 1996) (Enhancement under U.S.S.G. § 3B1.1 was error in case of check kiting defendants who usedother defendants who were bank employees to assist them in getting kited checksapproved), cert. denied sub. nom., Sutton v. United States, 522 U.S. 823 (1977). Indeed, it was Jones that recruited Mr. XXX to become a loanbroker for Bank of Texas having full knowledge of false loan applications.  Finally, the leadership enhancementrequires a finding that Mr. XXX was the organizer, leader, manager orsupervisory of at least one “criminally responsible” participant.  U.S.S.G. § 3B1.1 (Application Notes 1and 2). Nevertheless, it wasthrough Mr. XXX’s cooperation that the government determined that XXX and Joneswere “criminally responsible” participants in the fraudulent loan scheme.  This information is protected underU.S.S.G. § 1B1.8.

III.RESTITUTION

         Nowhereis the Probation Department’s blind reliance on what it was told by thegovernment (who, in turn, simply provided the Probation Department figuresobtained from Compass Bank and Bank of Texas) more evident than the Restitutionportion of the PSR. Indeed, thePSR claims that restitution should be ordered in the amount of $6,560,020 toCompass Bank and $5,013,392.81 to Bank of Texas. Nevertheless, as of April 16, 2001, the loan balances of allthe loans (including even the 115 with which Mr. XXX had not connection)totaled $1,518,244 at Compass Bank and, as of December 31, 2000, the loanbalances (including even the 115 with which Mr. XXX had not connection) totaled$4,717,858.57 at Bank of Texas. Presumably, the loan balances were even lower at the time thePresentence Report was prepared and will be lower at the time ofsentencing. Additionally some ofthe loans were made prior to January 1, 2000 and, therefore, are not subject toa restitution order. See Plea Agreement at ¶ 4. In short, the PSR’s restitution figure is off atleast $5,337,310.

         Inaddition, the PSR fails to make the Court aware that many of the loans arestill being paid on by the loan beneficiaries and that several of the loanswere rewritten by the banks. Therefore, any restitution will have to be offset by the amounts thatthe banks continue to collect on the loans and any loans rewritten.  As of April 16, 2001, Compass Bank hadonly charged off $455,742 in loansand had $4,712 in past due balances. Similar figures were not provided by Bank of Texas.  Moreover, if one limits the loans tothose that Mr. XXX knew were based upon fraudulent applications, Compass Bankshad charged off only $172,013 and had $88 in past due balances; again, similarfigures were not provided by Bank of Texas.

                                                               Respectfullysubmitted,

                                                               F.Clinton Broden

                                                               Tx.Bar 24001495

                                                               Broden& Mickelsen

                                                               2715Guillot

                                                               Dallas,Texas 75204

                                                               214-720-9552

                                                               214-720-9594(facsimile)

                                                               Attorneyfor Defendant

                                                               XXXXXX
CERTIFICATE OF SERVICE

         I,F. Clinton Broden, certify that on August 2, 2001, I caused the foregoingdocument to be served by hand delivery on:

MichaelSnipes

AssistantUnited States Attorney

1100Commerce Street, Third Floor

Dallas,Texas 75242

CaseyKimble

UnitedStates Probation Department

1100Commerce Street

Dallas,Texas 75242

         _________________________________

                                                               F.Clinton Broden

---

[1] Ofcourse, the burden is on the government to prove the correct loss amount. United States v. Alfaro, 919 F.2d 962, 965 (5th Cir. 1990) (”[T]he partyseeking an adjustment in the sentence level must establish the factualpredicate justifying the adjustment.”).

[2] Giventhat the Probation Department nor the government conducted independent reviewsof the loan files in question, it will be necessary to have a full blownsentencing hearing wherein each loan is evaluated. The PSR states that there are 287 loans.  If, on average, direct and cross examination on each loan file is limited tothree minutes, the sentencing hearing would take at least fourteen hours.

[3] Inpreparing these objections, it must be remembered that all of these loans weremade one to three years ago. Nevertheless, Mr. XXX kept detailed records and bases these objectionson his memory and records.

[4] Itappears that this loan might have been included in the Bank of Texas charttwice.

[5] Someof the name on this list are Asian names, but not Korean names.  Two of the names are Korean names (ShamAhn Constructions, Inc. and Dr. Hun K. Lee), however these were not loans withwhich Mr. XXX was associated.

[6] Thisloan also involves a broker other than XXX or Jones.

[7] Forexample, the Compass Bank list includes a loan to Mr. XXX’s wife that was basedupon legitimate information and securedby a certificate of deposit.

[8] Allfigures should be determined on or about the sentencing date and should onlyinclude those loans which are connected with Mr. XXX and which Mr. XXX knewwere based on false application.

[9] CompassBank figures are based upon the amount of loans outstanding as of April 16,2001.

[10] Bankof Texas figures are based upon the amount of loans outstanding as of December31, 2000.