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United States v. Harmelech

United States Court of Appeals, Seventh Circuit

June 24, 2019

United States of America, Plaintiff-Appellee,
v.
Ishaihu Harmelech, Defendant-Appellant.

          Argued November 28, 2018

          Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 15-CR-724 - Elaine E. Bucklo, Judge.

          Before Rovner, Hamilton, and Brennan, Circuit Judges.

          Brennan, Circuit Judge.

         A federal grand jury indicted Ishaihu Harmelech on two counts of mail fraud under 18 U.S.C. § 1341. Harmelech pleaded guilty to the first count, and the government dismissed the remaining count. In pleading guilty, Harmelech, who owned and operated multiple cable installation companies, admitted to setting up hundreds of DIRECTV accounts under a fraudulent scheme and pocketing the money that should have been paid for servicing those accounts. He now appeals his sentence, arguing the district court erred in calculating DIRECTV's losses and in applying a four-level sentencing enhancement pursuant to Sentencing Guideline § 3B1.1(a). Because we see no error in the district court's loss calculation and sentencing determination, we affirm.

         I. The Scheme

         Between 2005 and 2011, Harmelech owned and operated three companies that installed cable television services at single-family residences and in multi-dwelling unit properties, such as hospitals, nursing homes, motels, senior living facilities, and apartment buildings. Harmelech managed nine different employees across his three companies, and he was responsible for the day-to-day operations. He continuously held himself out as an authorized dealer and distributor of cable installation services, despite his authorization having lapsed in 2005. As an "authorized" dealer, Harmelech contracted directly with cable providers-including DIRECTV- to install receivers in over 150 multi-dwelling unit properties.

         Unlike single-family residences, multi-dwelling units typically have one master antenna system with multiple cable receivers placed in a rack called a "headend." Each receiver in the headend is tuned to one channel, and the signal is then distributed throughout the building. Each television set in the building may access multiple channels through the headend. For multi-dwelling unit buildings, it is usually the building owner or manager (rather than individual unit residents) who contracts with a cable provider for the entire building's service. A multi-dwelling receiver is generally more expensive than the same receiver installed in a single-family residence because it provides service to the entire building.

         DIRECTV provides satellite television programming to single-family and multi-dwelling customers by installing a satellite receiver on the customer's property and charging a subscription fee. Each receiver bears a unique identification code, which helps tie that receiver to an individual account. The cost of a subscription depends on the type of account (single-family or multi-dwelling) and the channels provided. As is standard industry practice, DIRECTV charges more for multi-dwelling subscriptions than for single-family subscriptions. This rate structure reflects the different installation and service requirements for multi-dwelling unit buildings described above.

         Authorized dealers and distributors routinely contract with DIRECTV to install receivers in multi-dwelling unit buildings. Despite lacking authorization, Harmelech installed DIRECTV receivers and exploited the multi-dwelling receiver configuration to commit fraud. Harmelech misrepresented his authority to customers to gain their trust and access their personal information to set up fraudulent accounts, as well as used fictitious names, to open approximately 384 single-family residential accounts. Once a fraudulent single-family account was created, he would place the receiver meant for that account into the headend at a multi-dwelling building, tuning the receiver to a channel not already included in the building's subscription-usually a premium channel with a higher price. Harmelech would then charge the building customer for the fraudulently-installed channel as part of a multi-dwelling subscription. The building customer would pay Harmelech directly for all channels installed under a multi-dwelling subscription, despite being billed by DIRECTV (through Harmelech) at a single-family rate. Harmelech would then pay DIRECTV the lower-billed rate, pocketing the difference between what was charged and what the building customer paid. Ultimately, Harmelech's scheme caused DIRECTV to provide multi-dwelling buildings with channels for which neither Harmelech nor the customers were paying.

         This scheme continued for over six years and involved several other participants who acted at Harmelech's direction. For instance, Harmelech's secretary assisted him in opening fraudulent accounts and used her personal credit card to make payments for those accounts on Harmelech's behalf. Another employee aware of the fraud also opened fraudulent accounts for Harmelech and installed single-family receivers in multi-dwelling buildings under Harmelech's control. Harmelech also directed the activities of seven other employees and convinced four separate companies that were authorized DIRECTV dealers to provide additional receivers to increase the number of fraudulent accounts he could open.

         In August 2009, suspecting Harmelech was committing fraud, DIRECTV opened an internal investigation, and hired an outside firm, Signal Audit, to assist. As part of the investigation, DIRECTV and Signal Audit attempted to locate and access the headend at each multi-dwelling building that Harmelech serviced. Once inside a building, investigators inspected each receiver in the headend to determine which type of account (single-family or multi-dwelling) was associated with the unique identification code on the receiver. This allowed investigators to determine whether receivers tied to single-family accounts were being used to provide programming for the entire building.

         DIRECTV and Signal Audit were able to inspect five multi-dwelling buildings in the Chicago area. For those five buildings, investigators identified the account type tied to each receiver in the headends and found the receivers did not correspond to the buildings' DIRECTV accounts. Investigators also obtained from each building manager a list of the channels the building's residents received. The investigation produced no evidence that residents were aware of any fraud occurring on their accounts.

         Once Harmelech learned of the investigation, he instructed the building managers to not cooperate and directed his employees to remove receivers from the remaining buildings he serviced before they could be inspected. Harmelech eventually stopped making payments to DIRECTV on behalf of all buildings with fraudulent accounts, causing hundreds of accounts to become ...


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