United States District Court, D. Minnesota
Robert
M. Lewis and Kimberly A. Svendsen, UNITED STATES
ATTORNEY'S OFFICE, for plaintiff.
Lousene M. Hoppe and John W. Lundquist, FREDRIKSON &
BYRON, P.A., for defendant Jeffrey Allen Gardner.
ORDER
PATRICK J. SCHILTZ, UNITED STATES DISTRICT JUDGE
Defendant
Jeffrey Gardner owned Hennessey Financial, LLC
(“Hennessey”), a financing company that made
subordinated loans to land-development companies (most of
which were also owned by Gardner). Gardner solicited
individuals to invest in Hennessey; many of those individuals
were unsophisticated and had limited assets. In 2006,
Gardner's land-development companies started to fail, and
Hennessey began to struggle as those land-development
companies defaulted on their loans. By 2008, Hennessey's
collapse was complete, and its investors suffered millions of
dollars in losses. Some lost their life savings.
Gardner
was convicted by a jury of charges of fraud and making false
statements in loan applications. The presentence
investigation report (“PSR”) originally found a
loss amount of nearly $17 million and a tentative restitution
amount of $16, 626, 831.27, including $787, 956.58 to the
Federal Deposit Insurance Corporation (“FDIC”).
At
sentencing, Gardner objected to the amount of loss on the
ground that almost all of the victims' losses were due
not to fraud, but rather to the collapse of the real- estate
market in 2006. Gardner conceded that he could be held
responsible for amounts that victims invested after Gardner
knew (and failed to disclose) that his companies were in dire
financial trouble, but Gardner contended that that date was
no earlier than March 2, 2007. After an evidentiary hearing,
the Court ruled that Gardner's fraudulent failure to
disclose his companies' financial condition to
prospective investors began no later than July 1, 2006, and
that any new money invested by investors on or after that
date would be included in calculating the loss amount. The
Court sentenced Gardner to a total of 90 months in prison and
deferred the issue of restitution.
This
matter is before the Court on the government's motion for
an order of restitution. The government seeks a total of $4,
259, 049.66. According to the government, this amount
represents the new investments made by victims on or after
July 1, 2006, as well as the loss to the FDIC. The names of
the victims, and the amount of “new money” that
each victim invested on or after July 1, 2006, are set forth
in a spreadsheet that was admitted into evidence at the
restitution hearing. See Gov't Hr'g Ex. 1.
The government also offered the testimony of Andria Brutsche,
an analyst with the United States Postal Inspection Service.
Brutsche testified that she prepared Exhibit 1 based on
underlying bank records from Gardner's companies.
Gardner
disputes this amount on several grounds. First, Gardner
reasserts his argument that the fraud did not begin until
March 2007 at the earliest. The Court has already found,
however, that Gardner's fraud began no later than July 1,
2006. ECF No. 280 at 12-14. Anyone who invested new money on
or after that date would not have done so if Gardner had
truthfully disclosed the financial condition of his
companies. As a result, all such investors qualify as victims
entitled to restitution. See 18 U.S.C. §
3663A(a)(2) (defining “victim” to mean “a
person directly and proximately harmed as a result of the
commission of an offense for which restitution may be
ordered”).
Gardner
next argues that there is no evidence that the victims listed
in Exhibit 1 are in fact investors-that is to say,
noteholders-rather than shareholders in the Gardner
companies. He suggests that shareholders are not similarly
situated to investors because they may have had access to
information about the Gardner companies that investors did
not have. The evidence does not bear this out, however:
Nearly every victim listed in Exhibit 1 also appears on
Government Trial Exhibit 150, which is a spreadsheet of
Hennessey investors.[1] Setting that aside, there is no evidence
that shareholders received any more information about the
Gardner companies than investors did. To the contrary, Lynna
Jacobs-Schauer, one of the shareholders to whom Gardner
refers, testified at trial that she was not given material
information about Gardner's companies. Trial Tr. 750,
754, 761-62 [ECF No. 204].
Gardner
next points to several discrepancies between Exhibit 1 and
Government Trial Exhibit 150. As noted, however, the
information in Exhibit 1 is derived from underlying bank
records and includes only new money invested on or after July
1, 2006. By contrast, Trial Exhibit 150 was prepared by a
Hennessey consultant in April 2008 and represents a
“snapshot” of the total amount that Hennessey
owed each of the investors at that time, including rollover
investments. Trial Tr. 807-10 [ECF No. 204]. Given the
different purposes for which the documents were prepared-as
well as the fact that the government cannot be expected to
vouch for the accuracy of a document created by a Hennessey
consultant nearly a decade ago-it is not surprising that
there are some discrepancies between the two documents. The
more salient fact is that the record provides no reason to
doubt that Exhibit 1 is an accurate summary of the underlying
bank records.[2]
Finally,
Gardner objects to being ordered to pay restitution to the
FDIC. The Court sustained an identical objection by
Gardner's codefendant, Stuart Voigt. The government
argues, however, that Gardner's objection is untimely
because he did not raise it before his sentencing hearing.
Ordinarily,
a defendant must raise objections to the PSR before the
sentencing hearing. United States v. May, 413 F.3d
841, 849 (8th Cir. 2005). In this case, however, the original
PSR indicated that its conclusions concerning restitution
were not final and that a confidential victim list with exact
restitution amounts would be forthcoming. PSR ¶ 117 [ECF
No. 233]. No such list was provided to the Court or counsel
before sentencing and, as a result, the Court deferred the
issue of restitution. Under similar circumstances, the Eighth
Circuit has held that, after the government discloses a
complete list of victims and claimed restitution amounts, the
defendant must be given an opportunity to object. United
States v. Chaika, 695 F.3d 741, 747-48 (8th Cir. 2012).
The
Court therefore treats Gardner's objection as timely.
Having done so, the Court sustains Gardner's objection
for the same reasons that it sustained Voigt's objection.
The FDIC incurred loss after Hennessey defaulted on loans
from First Commercial Bank. Gardner was convicted of making
false statements in the applications for those loans. As the
Court explained in detail at Voigt's sentencing hearing,
however, the proximate cause of the loss to First Commercial
Bank was not Gardner's (or Voigt's) false statements,
but instead the bank's failure to perfect its security
interest in Hennessey's assets. That failure was not
foreseeable to Voigt or Gardner. Because Gardner's false
statements in his loan applications did not “directly
and proximately” harm the bank, see 18 U.S.C.
§ 3663A(a)(2), the Court will not award restitution for
that loss.
The
Court therefore sustains Gardner's objection to any award
of restitution to the FDIC or to Lancelot Investors Fund PL.
The ...