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The Commonwealth of Massachusetts
Office of the Commissioner of Banks
One South Station
Boston, MA 02110
ARGEO PAUL CELLUCCI, GOVERNOR
JANE SWIFT, LIEUTENANT GOVERNOR
THOMAS J. CURRY, COMMISSIONER
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January 24,2001
Alphonse Mourad
125 West Street
Hyde Park,MA 02136
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Re:
Winter Hill Federal Savings Bank
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Dear Mr. Mourad.
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Your complaint against the above-captioned party has been received. Since the institution involved holds a federal charter, by copy of this letter, we are forwarding your correspondence to:
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Richard Denby, Manager Office of Thrift Supervision Department of the Treasury
10 Exchange Place 18th, floor Jersey City,
New Jersey 07302
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If you have any questions regarding this matter, you can contact the above at:
1-800-253-2181
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Very truly yours,
Michael J. Galvin, Director
Consumer Assistance Unit Division of Banks
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TEL (617) 956-1500 * FAX (617) 956-1599 * TDD (617) 956-1577 * http://www.state.ma.us/dob/
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United States Circuit Court
District of Massachusetts
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JUDGMENT IN A CRIMINAL CASE
(For Offenses Committed On or After
November 1, 1987)
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Case #: CR 95-10351-RGS
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UNITED STATES OF AMERICA
v.
LEROY H. KEIHN
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Kathy B. Weinman, Esq.(Defendent's Atorney)
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THE DEFENDANT:
(1). pleaded guilty to count(s): Count 1 of an Information____________________
(2). pleaded nolo contendere to count(s). which was accepted by the court
(3). Was found guilty on count(s), after a plea of not guilty.
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Title & Section
Nature of Offense
Date Offense Count Numbers
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Title 18, USC, Section 1006, Fraudulent Participation in Bank Loan -- 12/88 Count
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The defendant is sentenced as provided in pages 2 through 5 of this judgment. The sentence is imposed pursuant to the Sentencing Reform Act of 1984.
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The defendant has been found not guilty on
count(s):___________________________
Count(s) _________________ (is)(are) dismissed on the motion of the United States.
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IT IS FURTHER ORDERED that the defendant shall notify the United States Attorney for this district within 30 any change of name, residence, or mailing address until all fines, restitution, costs, and special assessments impa this judgment are fully paid.
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Defendent's SS#:478-03-9344
Defendent's D.O.B. 10-16-18
Defendent's USM #: 00209-030
Defendant's Residence Address:
147 Park Avenue
Medford, MA 02155
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Februay 20, 1996
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RICHARD G. STEARNS, U. S. DISTRIC
Judge--February 26, 1996
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Defendendant: LEROY H. KEIHN
Case #: CR 95-10351-RGS
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The defendant is hereby placed on probation for a term of ONE (1) YEAR.
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SPECIAL CONDITIONS OR PROBATION:
1. The defendant shall not purchase or possess a firearm or any oth dangerous weapon;
2. The defendant shall pay a fine in the amount of $25,000 forthwith.
3. The defendant shall pay a Special Assessment of $50.00.
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The defendant shall not commit another federal, state, or local crime.
The defendant shall not unlawfully possess a controlled substance. For offenses committed on or after September 13,1994:
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The defendant shall refrain from any unlawful use of a controlled substance. The defendant shall submit to one drug test within 15 days of placement on probation and at least two periodic drug tests thereafter, as directed probation officer.
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The above drug testing condition is suspended based on the court's determination that the defendant low risk of future substance abuse. (Check, if applicable.)
The defendant shall not possess a firearm as defined in 18 U.S.C. § 921. (Check, if applicable.)
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If this judgment imposes a fine or a restitution obligation, it shall be a condition of probation that the defendamnt pay any such fine restitiuation in accordance w/ the Schedule of Payments set fourth in the criminal Monetary Penalties sheet of this judgment.
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The defendant shall comply with the standard conditions that have been adopted by this court (set forth below). The defendant shall also comply with the additional conditions on the attached page.
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STANDARD CONDITIONS OF SUPERVISION
l) the defendant shall not leave the judicial district without the permission of the court or probation officer.
2) the defendant shall report to the probation officer and shall submit a truthful and complete written report within the first five days of each month;
3) the defendant shall answer truthfully all inquiries by the probation officer and follow the instructions of the probation officer:
4) the defendant shall support his or her dependents and meet other family responsibilities:
5) the defendant shall work regularly at a lawful occupation unless excused by the probation officer for schooling, training, or other acceptable reasons;
6) the defendant shall notify the probation officer ten days prior to any change in residence or employment:
7) the defendant shall refrain from excessive use of alcohol;
8) the defendant shall not frequent places where controlled substances are illegally sold. used. distributed, or administered:
9) the defendant shall not associate with any persons engaged in criminal activity, and shall not associate with any person convicted of a felo unless granted permission to do so by the probation officer;
10) the defendant shall permit a probation officer to visit him or her at any time at home or elsewhere and shall permit confiscation of any
(contraband observed in plain view of the probation officer;
11) the defendant shall notify the probation officer within seventy-two hours of being arrested or questioned by a law enforcement officer:
12) the defendant shall not enter into any agreement to act as an informer or a special agent of a law enforcement agency without the permission of the court;
13) as directed by the probation officer, the defendant shall notify third parties of risks that may be occasioned by the defendant's criminal record or personal history or characteristics, and shall permrt the probation officer to make such notifications and to confirm the defendant compliance with such notification requirement.
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UNITED STATES DISTRICT COURT °^ FOR THE DISTRICT OF MASSACHUSETTS ^
UNITED STATES OF AMERICA
V.
LEROY KEIHN
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Criminal #: 95-10351-RGS
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SENTENCING MEMORANDUM ON BEHALF OF DEFENDANT LEROY KEIHN
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On December l, 1995, Defendant Leroy Keihn, former presider and director of the Winter Hill Federal Savings and Loan Association ("Winter Hill"), pleaded guilty to a one-count Information charging him with fraudulently participating in a
loan in violation of 18 U.S.C. § 1006. Mr. Keihn, a seventy-seven year old man who suffers from a multiplicity of serious medical conditions, submits this memorandum in support of his request-that the Court impose a sentence of probation.
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In view of the nature of the offense charged and the fact that no loss resulted from his offense, as well as Mr. Keihn's advanced age, complicated medical condition (including a recent diagnosis of Alzheimer's disease), and assistance to the government, straight probation for one year is the appropriate sentence to impose in this case. Although the government recommends six months of hon confinement, under the plea agreement the government has agreed not to oppose a downward departure for Mr. Keihn's age and infirmity.
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During the last two years, Mr. Keihn has developed a loving friendship with Geneva Collins, whom he met through his participation in reunion activities for the U.S.S. Denver. (Ms Collins' deceased husband was a shipmate.) Mr. Keihn spends virtually all his time visiting Ms. Collins in Grove City, Ohio where she resides. Ms. Collins describes Mr. Keihn as an adopt* member of her family, which includes her three grown daughters and their own families. Letter of Geneva A. Collins. Just as Mr. Keihn has contributed to the Somerville community for three decades, he now generously dedicates time and resources to various community groups in the Grove City, Ohio community. Id.
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As Ms. Collins describes it, "[t]he past year Roy has been devastated by the charges that a mistake in judgment in 1985 turned out to be a federal offense in 1995. He has suffered physically and mentally, and has come to depend on me for suppol and in many other ways." As she has indicated to the probation officer, they pray that the Court sentences Mr. Keihn to straigl-probation so that they can live out their remaining years together. Even home confinement would separate them with Mr. Keihn in Massachusetts and Ms. Collins in Ohio.
B. Offense Conduct
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Mr. Keihn has pleaded guilty to a one-count Information charging him with fraudulent participation in a loan in violatic of 18 U.S.C. § 1006. While president and a director of winter Hill, Mr. Keihn unlawfully received money and benefits through a loan made by Winter Hill to Maplewood Heights Realty Trust in the amount of $5.9 million by failing to disclose his 13.3% interest in Maplewood Heights. The Information further charges that he acted with intent to defraud the Federal Savings and Loan Insurance Corporation ("FSLIC"). The gravamen of Mr. Keihn's offense was an undisclosed conflict of interest.2
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In the mid-1980's, Mr. Keihn, like many others in Massachusetts, invested in the real estate market. In the summe of 1985, James Karabelas, a real estate and property developer from whom Mr. Keihn had previously purchased a condominium, sought investors to purchase a 120-unit apartment complex locate on Whipple Street in Worcester. The purchase price for the apartment buildings was $6.5 million. Mr. Karabelas believed that he could successfully convert the apartments into condominiums and, after minimal renovations, sell them for a profit. Mr. Karabelas needed investors for the venture because he and his partner did not have sufficient cash for the downpayment.3 Mr. Keihn, along with others, went to Worcester
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2 The governments suggestion in its response to the Presentence Report that Mr. Keihn pleaded guilty to an "anti-kickback" statute is nonsensical. Addendum to Presentence Repor at 23. While the cases cited by the government stand for the proposition that a kickback may be prosecuted under 18 U.S.C. § 1006, bribery and kickbacks are not elements of the offense an were not charged in this case. The implication that Mr. Keihn received a kickback when he invested $66,000 of his own funds in Maplewood Heights is absurd.
3 Although Mr. Karabelas and his partner, Bruce Anderson, had little cash on hand, the financial statements they submitted to Winter Hill indicated that Mr. Karabelas and his wife had a net worth of over $620,000; Mr. Anderson had a net worth over $264,297; and John Sarno, a close associate of Mr. Karabelas who also participated, had a net worth over $3 million.
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To look at the project, reviewed Mr. Karabelas' financial projections, and, optimistic about the burgeoning condominium market, concluded that it was a worthwhile personal investment. Maplewood Heights was formed to acquire the property. At Mr. Karabelas' invitation, Mr. Keihn, together with his friends Joseph Howard and Charles Andronica, formed a partnership to acquire a 40% interest (13.3% each) in Maplewood Heights. They paid $200,000 or approximately $66,000 each for their shares.
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Maplevood Heights needed to secure short-term financing foi part of the purchase price and incidental expenses. It was decided tha-t Winter Hill would enter into a participation agreement with two other banks in the total amount of $5.9 million. Winter Hill retained $1.4 million of the loan, upon which it earned a proportionate share of the origination fee anc interest. The loan was treated no differently than any other transaction at Winter Hill.4 Mr. Keihn believed that this was a sound investment for Winter Hill. Mr. Keihn was so convinced that the project would be a success that he himself purchased three units after the conversion.
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Mr. Keihn's assessment on behalf of Winter Hill was based substantially on an independent appraisal of the property performed for Winter Hill by David J. Brown Associates, whose principal vas a member of the Appraisal Institute and a Certified
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4 Although Winter Hill's Board of Directors did not approvi the loan until after it was made, this was typical. Winter Hill's Board frequently ratified loan decisions of the Appraisal Committee after the fact. The Board's busy members could not meet frequently enough to approve most loans in advance.
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Massachusetts Assessor with over thirty years of experience who originally had been recommended to the bank by an examiner of tl Federal Home Loan Bank. As described in the appraisal, the property consisted of four well-maintained buildings on 5.83 acres of land with a swimming pool and picnic area in the rear. It was located in a residential area close to the College of th< Holy Cross and public transportation. Using a market approach, the appraiser valued the property in the range of $6.6 ("as is";
to $9 million (upon conversion to condominiums and resale of th< units). Two other banks which participated in the loan ($1.5 million and $3.4 respectively) apparently reached the same conclusion and agreed to finance an even greater portion of the project than Winter Hill.
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Mr. Keihn wrongfully failed to disclose his interest in Maplewood Heights. Although Mr. Keihn knew there were limits on what he personally could borrow from Winter Hill, he did not realize that the regulations prohibited Winter Hill from grantir a loan to an entity in which he held a minority interest (13.3%). While the government contends that Mr. Keihn failed to disclose his interest to avoid having to provide a personal guarantee of the Maplewood Heights loan, this is not the case. Mr. Keihn rightfully believed that he had both a moral and a legal obligation to repay the loan if Maplewood Heights defaulted.
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Mr. Keihn's optimism about Maplewood Heights proved to be c the mark. Within six months. Winter Hill's loan to Maplewood Heights was fully repaid and Mr. Keihn earned a profit of $129,893 on his investment of $66,000 through the sale of the units.
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Winter Hill was among the several banks which made first mortgage loans to various buyers, many of whom purchased units for investment purposes. The majority of the loans was acquirec from an independent mortgage company, several were made to existing customers of the bank, and others were made to persons Mr. Karabelas referred. Winter Hill, however, did not grant or acquire every loan. The bank rejected certain loan applications because the borrower's income was insufficient.
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Not surprisingly, not every loan weathered the devastating real estate decline of the 1990's. But those losses cannot be attributed to Mr. Keihn's wrongful conduct. Rather, they resulted from the collapse of the real estate market beginning in the late 1980's. See Report of Broadwater Associates, Exhibit E The undisclosed third mortgage loans granted by Mr. Karabelas --about which Mr. Keihn knew nothing until reading the government' version of the offense -- undoubtedly exacerbated an already disastrous situation.
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Mr. Keihn regrets very much the embarrassment and pain this matter has caused the bank and voluntarily disgorged to Winter Hill the $129,893 profit he earned from his investment in Maplewood Heights as compensation to Winter Hill for the aggravation, burdens, and other intangible damage that the bank has incurred because of this matter. See Second Amendment to Plea Agreement.
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II. SENTENCING
Contrary to the positions taken by the governnent and the probation department, the following U.S. Sentencing Guidelines calculations apply in this case:
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U.S.S.G. § 2F.l(a)
(base offense level--6)
U.S.S.G. § 2Fl.l(b)(2)
(more than minimal planning--2)
U.S.S.G. § 3F1.1
acceptance of responsibility--(-2)
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Accordingly, Mr. Keihn falls within the range for which straight probation is an appropriate sentence.
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In addition, the Court should depart downward pursuant to (1) the government's motion under U.S.S.G. § 5K1.1 on account of Mr. Keih's substantial assistance and (2) under U.S.S.G.
§ 5H1. because of Mr. Keihn's advanced age and infirmity. Pursuant to the plea agreement, the government has agreed not to oppose any downward departure under U.S.S.G. § 5H1.1. The defense respectfully submits that straight probation is the appropriate sentence here.
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A. Offense Level Calculation
1.There Should Be No Enhancement for Loss Because There Were No Losses._____________________
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The position of the probation department and the government that there should be a seven-level enhancement based on loss pursuant to § 2Fl.l(b)(l) is without factual or legal basis. Extrapolating from the erroneous proposition that loss should be calculated on the basis of gain, the government asserts that the loss calculation should include not only Mr. Keihn's profit from
the sale of the condominium units, but also the profit earned by Messrs. Andronica, Howard, and Sarno. The probation department, erroneously citing § 2Fl.l(b) for the proposition that loss should be based on the "amount of fraud," takes the position tha loss should be calculated on the basis of Mr. Keihn's profit, together with Mr. Howard's, plus the $149,000 in losses on defaulted Winter Hill end unit loans. Both positions are unprecedented and wholly unsupported by the plain language of § 2Fl.l(b) and the case law interpreting it. For the reasons discussed below, there was no loss and thus there should be no offense level enhancement under § 2Fl.l(b).
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The Victim Was the FSLIC. Not Winter.Hill
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The Information states that Mr. Keihn, with intent to defraud the FSLIC, participated in a loan from Winter Hill. Mr. Keihn did not and would not have defrauded Winter Hill, to which he devoted three decades of his life. In essence, Mr. Keihn disregarded FSLIC regulations requiring him to disclose any interest he held in a borrowing entity. Mr. Keihn admits that h knowingly failed to disclose his 13.3% interest in Maplewood Heights in violation of FSLIC regulations. Mr. Keihn, however, was not aware that federal regulations would have prevented Winter Hill from granting the loan had he disclosed his interest Since Mr. Keihn did not act with intent to defraud Winter Hill into making an impermissible loan, he did not act with intent to deceive winter Hill and the FSLIC is the only victim.
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The loan to Winter Hill was fully repaid. For that reason Winter Hill did not become insolvent as a result of Mr. Keihn's misconduct. Indeed, Winter Hill never failed. The FSLIC, therefore, has incurred no loss and there should be no enhancement pursuant to § 2Fl.l(b).
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(b). Even if Winter Hill Was a Victim, There Was No Actual, Probable, or Intended Loss.
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Section 2Fl.l(b)(l) of the 1987 version of the Guidelines provided that "[i]f the estimated, probable or intended loss exceeded $2,000" the offense level should be increased. U.S.S.C § 2Fl.l(b)(l) (1987).5 Actual loss is the starting point in the calculation. Indeed, the Guidelines specifically provide that in cases involving fraudulent loan applications such as this, "the loss is the actual loss to the victim." U.S.S.G. § 2F1.1, comment. (n.7(b)) (1995).6 This is clearly a fraudulent loan application case as the government charges that Mr. Keihn's failure to disclose his interest in Maplewood Heights thus secured hin a benefit he would not otherwise have been able to obtain. Cf. United States v. Bennett. 37 F.3d 687, 695 (1st Cii 1994) (application note 7(b) applied where director of mortgage company obtained advances from a bank by misrepresentingexistence of mortgage, using fictitious names, and failing to disclose his interest in loans.
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5 The government and Mr. Keihn have agreed that the 1987 Guidelines should be applied in this case. Plea Agreement H 4.
6 The Court may properly consider the current application note because the addition of this note was intended as a clarification. United States v. Bennett. 37 F.3d 687, 694 n.ll (1st Cir. 1994); U.S.S.G. App. C., amendment 393.
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It is undisputed that Winter Hill suffered no losses as a result of the $5.9 million loan to Maplewood Heights. The loan to Maplewood Heights was repaid in full within six months (years before Mr. Keihn came under investigation). See United States \ Huqhes. 775 F. Supp. 348, 349-50 (E.D. Cal. 1991) (falsification of four mortgage loan applications resulted in no loss where twc properties had been sold at a profit and remaining two loans wer current and well-secured); United States v. Smith. 951 F.2d 1164 1166-67 (10th Cir. 1991) (false representation that borrowers ha made a downpayment did not result in loss where none of the loar was in default and each loan was secured).
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There was no intended loss either, which may be used if it is greater than the actual loss. United States v. Rothberq, 954 F.2d 217, 219 (4th Cir. 1992) (actual loss, taking into account value of collateral, to be used where there was no intent to cause a loss). Contrary to the government's assertion, the fact that Mr. Keihn's interest was held by a nominee does not evidenc any intent not to repay Winter Hill's loan. The cases cited by the government in its objections to the Presentence Report are inapposite. In United States v. Johnson. 908 F.2d 396 (8th Cir. 1990), there was no question that the defendant, who used a fals name to obtain a car loan, never intended to repay the loan. In United States v. Johnson. 16 F.3d 166 (7th Cir. 1994), the defendant, who had a very poor credit history, submitted a false
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social security number, falsified tax returns, and misrepresented his income and the value of his assets. The lender obtained a favorable credit report when it investigated the false social security number. On the basis of these combined factors, the court calculated loss as the full value of the loan because the defendant had greatly increased the bank's risk of loss and made it unlikely that the bank would be able to recover any of the value of the collateral. Id. at 173.
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Here, there is no evidence that Mr. Keihn intended to abscond with the proceeds of the loan. The funds were used precisely as represented -- to acquire an apartment complex with a value exceeding the loan and sell off units as condominiums, f-. number of other interest-holders were identified and there was nc attempt to deprive Winter Hill of its interest in the collateral. The fact that Mr. Keihn's interest was held by a nominee proves nothing more than that which is charged in the Information to which Mr. Keihn pleaded guilty -- that he failed to disclose his interest in Maplewood Heights.
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On the contrary, all of the evidence confirms that Mr. Keihn intended the loan to be repaid. He could not have recouped his $66,000 investment or realized a profit unless the bank was repaid in full. Moreover, had Maplewood Heights defaulted, Mr. Keihn would have incurred personal liability. Although Mr. Keihn did not execute a personal guaranty, Charles Andronica did. As Mr. Andronica's partner, Mr. Keihn would have been jointly and severally liable, just as if he himself had executed, a guarantee.
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See M.G.L. c. 108A, § 15 ("All partners are liable: . . . (b) Jointly for all other debts and obligations of the partnership."); Hushion v. McBride. 296 Mass. 4, 9 (1936) (where one executes contract in own name, but is acting on behalf of a partnership, he and all undisclosed partners are jointly liable).7
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(c).Since There Was No Loss, Use of Gain as an
Alternate Measure of Loss Is Improper.
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Section 2F1.1 provides that "[i]f the loss exceeded $2,000," the offense level is to be increased as prescribed. U.S.S.G. § 2Fl.l(b)(l) (emphasis supplied). The only mention of gain in § 2F1.1 is found in the second paragraph of application note 8, which addresses the methods for determining loss when the actual or intended loss is not readily calculable. Note 8 directs that "[t]he amount of loss need not be precise." It notes that "[t]he offender's gross gain from committing the fraud is an alternative estimate that ordinarily will understate the loss." U.S.S.G. § 2F1.1, comment, (n.8) (emphasis added). Thus, the commentary permits the use of gain only where there is a loss that cannot be readily calculated.
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7 There was no probable loss to Winter Hill either because, as the government concedes, the $5.9 million loan was secured by real estate with an appraised value of $6.6 to $9 million. See United States v. Huhhes. 775 F. Supp. 348, 351 (E.D. Cal. 1991) (no probable loss in view of the favorable ratio between the loan amount and the fair value of the collateral). Cf. United States v. Shaw. 3 F.3d 311, 313 (9th Cir. 1993) (loss is not to be determined on the basis of possible loss). Compare United States v. Menichino. 989 F.2d 438, 442 (llth Cir. 1993) (where defendant secured false appraisal to obtain $280,000 loan based on collateral worth only $240,000, intended loss of $40,000 constitutes § 2Fl.l(b) loss).
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