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United States v. Castaldi

United States Court of Appeals, Seventh Circuit

February 24, 2014

United States of America, Plaintiff-Appellee,
Frank A. Castaldi, Defendant-Appellant.

Argued May 23, 2012

Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. No. 09 cr 059 - John W. Darrah, Judge.

Before Manion, Rovner, and Hamilton, Circuit Judges.

Hamilton, Circuit Judge

Defendant Frank A. Castaldi made an entire career out of a Ponzi scheme. When it collapsed in December 2008, net losses to the investors and the Internal Revenue Service totaled roughly $40 million. When the scheme was on the brink of collapse, Castaldi found a lawyer and turned himself in to the government. He eventually pled guilty to just one count of mail fraud, 18 U.S.C. § 1341, and one count of corruptly impeding the IRS, 26 U.S.C. § 7212(a). The district court imposed the longest prison sentence possible under the plea agreement-maximum consecutive sentences of twenty years on the mail fraud charge and three years on the tax charge. Castaldi appeals his sentence, which is about 50 percent longer than the high end of the agreed Sentencing Guideline range.

Castaldi's strongest argument on appeal is that the district judge said too little about one important mitigation argument, the fact that he told the government about his scheme and cooperated with its investigation. The judge's few references to this argument give us pause under United States v. Cunningham, 429 F.3d 673, 679 (7th Cir. 2005), and its progeny, which instruct district courts to address expressly a defendant's principal arguments in mitigation. In Cunningham and many other cases, however, we have also made clear that a judge imposing sentence "need not belabor the obvious" or be explicit where anyone acquainted with the facts would have known without being told why the judge did not accept the argument. E.g., United States v. Gary, 613 F.3d 706, 709 (7th Cir. 2010), citing Cunningham, 429 F.3d at 679. That is the case here. The sentencing transcript shows that the judge was well aware of all the mitigation arguments, including Castaldi's disclosure and cooperation, and that the judge gave thoughtful and individualized consideration to the case. The transcript makes clear that the judge found that the devastating financial harm Castaldi inflicted on the family members, friends, and neighbors he victimized simply overwhelmed all of his arguments in mitigation. We need not remand so that the judge can belabor the obvious in a new sentencing hearing. Castaldi's remaining arguments on appeal also are not persuasive. We therefore affirm his sentence.

I. Castaldi's Ponzi Scheme and its Collapse

Castaldi is actually a second-generation fraud artist. He began helping his father in his accounting and other businesses in the 1960s when he was still in high school and later joined his father's businesses full time. The most important business consisted of selling promissory notes to investors with fraudulent promises of between ten and fifteen percent annual interest. Castaldi also assured his "investors" that the interest need not be reported to the IRS as taxable income. In fact, the proceeds from selling the notes were used for Castaldi's benefit. When investors were paid interest or return of their principal, the payments were made with only the later investments of new investors, so this was a Ponzi scheme. See Cunningham v. Brown, 265 U.S. 1 (1924) (sorting out assets available in bankruptcy of the original Charles Ponzi); Ponzi v. Fessenden, 258 U.S. 254 (1922) (authorizing federal authorities to produce Ponzi for trial on criminal charges in state court). Such a scheme can work for a while, but it will inevitably collapse when the supply of new investors dries up or enough earlier investors ask for their money back. See, e.g., In re Bernard L. Madoff Inv. Securities LLC, 654 F.3d 229, 232 (2d Cir. 2011), affirming 424 B.R. 122, 128 (Bankr. S.D. N.Y. 2010).

In November 2008, one of Castaldi's investors demanded the return of $500, 000 within ten days. Castaldi did not have it. He tried to get the money by soliciting new victims, but he could not raise enough to make the payment. He consulted counsel and then met with the United States Attorney's Office to confess his decades-long fraud. When Castaldi made his disclosure to the government, it had no prior indications of his fraud scheme. Until that time, Castaldi had been able to make all demanded payments of principal and interest to his "investors." After the initial disclosure, he met with the government repeatedly, providing detailed records of his fraud and the victims in at least thirty meetings without any assurances of leniency.

II. The Plea Agreement

Castaldi and the government agreed eventually on the terms of a plea agreement, but the sentencing terms were not binding on the court. Castaldi would waive indictment and plead guilty to one count of mail fraud and one count of impeding the IRS, and would fully cooperate by providing complete and truthful debriefings and testimony if called upon to do so. The parties agreed on preliminary Sentencing Guideline calculations that would produce a total offense level of 34 and criminal history category I, for a guideline range of 151 to 188 months in prison. The government agreed to recommend a sentence at the low end of the guideline range. The agreement allowed Castaldi to argue for a below-guideline sentence.[1]

III. The Sentencing Decision

Castaldi submitted a detailed sentencing memorandum with supporting evidence and letters. He argued for a below-guideline sentence of 100 months. He based this argument on several arguments in mitigation, including the circumstances of the offense (Castaldi in effect inherited the Ponzi scheme from his father and convinced himself he had to keep it going to protect his father); his lack of intent to cause harm; the absence of a greedy or lavish lifestyle; his extraordinary cooperation by voluntarily disclosing the scheme and laying out the details for the government without assurances of leniency; his wife's serious health problems; his own age (then 57 years old) and health problems; and numerous letters from family and friends attesting to his good character and genuine remorse. The government's memorandum was much shorter. It urged the court to impose a low-end guideline sentence and acknowledged both the harm to victims and Castaldi's voluntary disclosure of his scheme and its details.

Judge Darrah began the sentencing hearing by establishing that there were no objections to the presentence report and its guideline calculations. He established that he had read the defendant's memorandum and all 44 attachments. He had also read the government's memorandum and all the victims' letters and statements submitted by the government. The judge reviewed with defense counsel the arguments in mitigation and then summarized the many letters written on Castaldi's behalf.

The judge reviewed the government's memorandum with the prosecutor and then began reading from and summarizing many letters from victims. To describe these letters as compelling is an understatement. Victims described how Castaldi had deprived them of their life savings, college money for their children, money saved for retirement, money saved to start a business, money for medical care, and the life insurance money when a spouse died. One of Castaldi's last victims described how he convinced her family to take out a new mortgage for $200, 000 and invest it with him in late 2008, meaning it was lost. One letter pointed out that on November 15, 2008, when Castaldi knew his scheme was collapsing, he conned his own 92-year-old aunt to "invest" $120, 000 with him so she could pay a care-giver with the interest. The aunt's money was also lost, of course.

Letter after letter described the victims' loss of financial security and self-confidence, and their new lives of sleepless nights, stress, worry, and depression. In short, these victims trusted Castaldi not only with their money but also with their security, their pride, their hopes, and their dreams. That's what he stole when he stole their money.

The hearing then shifted to oral statements by victims exercising their right to be heard under the Crime Victims' Rights Act, 18 U.S.C. § 3771. They described how they had loved Castaldi and trusted him with their life savings only to have him steal everything. The oral statements were similar in content and power to the victims' letters. As one victim said, "Frank Castaldi was able to send his daughters to college. I won't be able to help my granddaughter … [go] to college." So many victims wanted to speak that the judge eventually imposed time limits and limited repetition. Passions ran high in the courtroom. Some victims applauded or otherwise disturbed the decorum of the proceeding from time to time. The judge had to insist on order several times, and he warned audience members they could be removed if the disturbances continued.

After the victims finished their statements, Castaldi's lawyer spoke. He first acknowledged that it had been "an extraordinary afternoon" and that it was hard to imagine a more moving presentation. He reminded the court again of Castaldi's confession, unprompted by an investigation, and his efforts to help the government sort out the case. The prosecutor also spoke once more, acknowledging that the government had not been aware of the Ponzi scheme when Castaldi confessed. Castaldi then exercised his right of allocution and briefly stated his apologies to the victims and his family.

IV. The Explanation of the Sentence

Then it was the judge's turn to impose the sentence and explain it. He reviewed accurately the legal framework for sentencing under 18 U.S.C. ยง 3553(a) and the Sentencing Guidelines. He outlined the case in terms of those factors, beginning with the nature and circumstances of the offense, focusing on the 22 years of fraud in the charges, the hundreds of victims, and the ...

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