Scammer Doesn't Owe Victims of Different Scam
(CN) - A Montana mortgage broker convicted of securities fraud need not pay $166,000 to the victims of a separate scam orchestrated by his former partner, the 9th Circuit ruled.
Shawn Anthony Swor of Missoula formed DTF Consulting Group in 2008 with fellow Montanan Dan Two Feathers and Terrence Paulin of Ashland, Ky.
DTF claimed it would leverage modest investments to secure much larger credit lines and invest loan proceeds in discounted government securities sold at a premium.
Two Feathers had Paulin create a fake $1.5 billion letter of credit, purportedly from Wachovia Bank, "to entice potential investors." When Two Feathers tried to use it to buy a $13 million home, a realtor raised suspicions, and the FBI seized the letter. Swor and Paulin cut ties with DTF just four months after founding it.
By the time DTF dissolved, Swor had received more than $200,000 from its investors.
Two Feathers continued to tout the scheme using a new front company, TLT Holdings. He contacted a potential investor named Eric Schultz, whom he met through Swor earlier that year, and persuaded him to transfer $200,000 to TLT's Bermuda account. The money Schultz invested came from his own investors, through a joint venture capital program he had modeled after Two Feathers' investment "strategy."
All four men were eventually convicted of investment fraud.
Paulin faces up to 20 years in federal prison, the U.S. Attorney's Office announced in 2012. Two Feathers was sentenced to six years in prison followed by three years of parole and was ordered to pay a special assessment of $400 and more than $2.4 million in restitution.
Swor pleaded guilty, and a federal judge in Missoula sentenced him to 27 months in prison and ordered him to pay more than $747,000 in restitution.
He appealed, arguing that the judge miscalculated his sentence by failing to give him a "minor role" sentencing reduction and including more than $166,000 in restitution for Schultz's investors.
The 9th Circuit partially vacated Swor's sentence Tuesday and remanded, saying the lower court should not have included investors' losses from Schultz's separate scheme.
"The district court held Swor accountable in its restitution order for the losses of Schultz's victims as a result of their entrusting Schultz to invest in Two Feathers' TLT scheme - a scheme that began two months after, and was separate in its participants, 'front' entity, and operational details from the one in which Swor was involved - on the ground that Swor had introduced Schultz to Two Feathers some months earlier," the unsigned ruling states.
"But as far as the record shows, before Schultz made the investment, and before Two Feathers put together the TLT scheme at issue, Swor and Two Feathers had severed ties. '[T]he causal nexus between [Swor's] conduct and [Schultz's] loss,' amounted, essentially, to introducing two people to each other in the course of carrying out a fraudulent scheme, where the two later, and independently, became involved in a separate, operationally different fraudulent scheme."
The court acknowledged that Schultz likely would not have participated in the TLT scheme had Swor not introduced him to Two Feathers.
"But the intervening events - the dissolution of DTF, the severance of a business connection between Two Feathers and Swor, Two Feathers' independent decision once again to promote a somewhat different fraudulent securities scheme, and Swor's lack of involvement in the resulting TLT scheme, including the invitation to Schultz to participate in that scheme - made Swor's connection to Schultz's losses (actually, that of his victims) in the TLT scheme simply 'too attenuated' to impose liability on Swor for Schultz's victims' losses," the panel wrote.
It capped Swor's restitution on remand to just over $580,000.
The court also rejected Swor's claim that he's eligible for a reduced sentence based on his "minor role" in the fraud. "Swor co-founded DTF, traveled to promote the scheme to potential investors, and derived profits from that enterprise," the panel noted, upholding the lower court's refusal to apply that sentencing reduction.