United States v. Schaefer, Ronald T.

In the

United States Court of Appeals

For the Seventh Circuit

No. 01-1837

United States of America,

Plaintiff-Appellee,

v.

Ronald T. Schaefer,

Defendant-Appellant.

Appeal from the United States District Court

for the Southern District of Indiana, Indianapolis Division.

No. IP99-CR-109-01 D/F--S. Hugh Dillin, Judge.

Argued October 23, 2001--Decided May 28, 2002

Before Harlington Wood, Jr., Cudahy, and

Kanne, Circuit Judges.

Cudahy, Circuit Judge. A jury convicted

Ronald Schaefer of three counts of mail

fraud and two counts of wire fraud, 18

U.S.C. sec.sec. 1341, 1343, arising from

the sale of Walt Disney animation art.

One count of wire fraud was subsequently

thrown out by the district court. The

convictions carry a six (6) Base Offense

Level under U.S.S.G. sec. 2F1.1(a)

(2000). The district court adopted the

Pre-Sentence Report, which prescribed

several upward adjustments, and sentenced

Schaefer to 37 months on each count, to

be served concurrently. Schaefer now

appeals, claiming that the district judge

improperly calculated the amount of the

financial loss under sec. 2F1.1(b)(1).

Because the district court did not make

specific findings of fact that would

allow us to conclude with confidence that

the relevant conduct relied upon to make

the sec. 2F1.1(b)(1) calculation of loss

consisted of unlawful conduct, we vacate

and remand for further proceedings.

I.

On August 25, 1999, a federal grand jury

indicted Ronald Schaefer on eight counts

of mail fraud and six counts of wire

fraud, in violation of 18 U.S.C. sec.sec.

1341, 1343. The alleged crimes occurred

through Schaefer’s business activities as

an art dealer, though he often presented

himself to his customers as a collector

who did not derive his livelihood from

the sale of art. Schaefer’s specialty was

animation art associated with the

production and promotion of various Walt

Disney movies. At issue in all of the

charges are "cels," which are painted

drawings of popular cartoon characters on

clear plastic or acetates. The most

valuable of these for collectors are

"production cels." These pieces are one-

of-a-kind artwork that are photographed

and used as actual frames in an animation

film. There are various other categories

of cels, such as limited edition,

publicity and sericels, which command

less money than production cels as

collectibles. Whether the cels are matted

and framed may also affect their value.

Because the true market value of his

wares varied according to their specific

characteristics, Schaefer made it a habit

to be purposefully ambiguous about the

proper classification of his cels, often

referring to publicity cels as "original

hand-painted cels." He also boasted about

the windfalls they would generate for

their buyers as investments. On some

occasions, he actually reduced to writing

claims that certain publicity or

counterfeit cels were production cels.

Moreover, he often resorted to the ruse

that he was selling art from his dead

mother’s estate at below-market prices

that were mandated by her will, a story

that was found to be a total fabrication

at trial. Schaefer’s deceptive business

practices eventually included a scheme

that involved an Indianapolis school

teacher, Greg Shelton, who created cels

depicting Mickey Mouse drawing a picture

of Walt Disney. Schaefer portrayed

Shelton to his customers as a former

Disney animator and persuaded Shelton to

author a letter that falsely touted the

distribution and value of these

paintings.

Eventually, Schaefer’s sharp business

practices attracted the attention of

federal investigators, including the

Federal Trade Commission (FTC) and the

Indianapolis office of the FBI.

Conversations recorded by undercover

agents revealed additional lies and

misrepresentations by Schaefer. Federal

authorities subsequently seized

Schaefer’s art inventory. In turn,

Schaefer sought relief through an action

filed under the Federal Tort Claims Act.

Although Schaefer has often presented

himself as a private collector, or as a

faithful son discharging duties for his

dead mother’s estate, he submitted

documents to federal officials as

evidence that selling art was his

"business" and that he earned between

$5,000 and $10,000 per month through this

activity. These figures were relied on by

the government in making the sec.

2F1.1(b)(1) loss calculation, which was

included in the Pre-Sentence Report (PSR)

and later adopted by the district court.

The present case is not Schaefer’s first

run-in with the law. In 1992, the FTC

filed a complaint against Schaefer and

others, alleging that they engaged in

deceptive practices in the promotion and

sale of collectibles. The Final Judgment

and Order for Permanent Injunction

arising out of those proceedings

prohibited Schaefer from engaging in

deceptive practices in the sale of

"investment offerings," including

animation art. See Federal Trade

Commission v. World Wide Classics, Inc.,

Civ. No. 92-3363TJH (EEX), at 4-6 (C.D.

Cal., Dec. 15, 1993) (hereinafter the

"1993 Order"). The 1993 Order also

required that Schaefer post a $200,000

bond before engaging in the "business of

telemarketing," which was broadly defined

as any business that employed telephone

presentations, "either exclusively or in

conjunction with the use of the mails or

any commercial parcel delivery service."

In the current action, Schaefer was

indicted on charges of federal mail and

wire fraud. Although Schaefer was

released on his own recognizance, his

pretrial release stipulated that he could

not travel outside the Southern District

of Indiana. On December 22, 1999, the

U.S. Parole and Probation Office filed a

Notice of Violation of Order Setting

Release Conditions, alleging that

Schaefer had violated the terms of his

release. In fact, Schaefer had traveled

to Nashville, Tennessee and sold an

animation cel for $27,000. In addition,

Schaefer had also contacted other

potential customers and advised them of

the dates he planned to be in their area.

On January 4, 2000, a federal magistrate

judge ruled that Schaefer had violated

the terms of his release and further

restricted Schaefer’s ability to travel.

Schaefer then made a motion to the court

requesting that the new pretrial terms be

modified in order to permit him to make

artwork sales though reputable gallery

and auction houses. After another hearing

on February 9, 2000, the magistrate judge

denied Schaefer’s motion. The magistrate

judge also noted the likelihood that

Schaefer had lied under oath during the

earlier January 4, 2000 proceedings.

At the subsequent criminal trial,

Schaefer was convicted on five counts of

mail and wire fraud and acquitted on nine

others. One count of conviction was

eventually vacated by the district court

for a possible retrial because there was

some reason to believe that the

government had improperly withheld

exculpatory evidence in violation of

Brady v. Maryland, 373 U.S. 83 (1963). Of

the four remaining counts, both mail and

wire fraud qualify as a six (6) Base

Offense Level under U.S.S.G. sec. 2F1.1

(1997)./1 The PSR recommended a two (2)

level increase for "more than minimal

planning," see sec. 2F1.1(b)(2)(A); a two

(2) level increase for violation of a

judicial order, see sec. 2F1.1(b)(3)(B);

a two (2) level increase for obstruction

of justice, see sec. 3C1.1; and an eight

(8) level increase for a total loss to

victims in excess of $200,000, see sec.

2F1.1(b)(1)(I). The specific loss

calculation provided in the PSR is

$231,000, which was based on a

purportedly representative sample of

Schaefer’s business activities that was

then extrapolated over a five-year

period. The district court adopted the

PSR recommendations and sentenced

Schaefer to thirty-seven months of

incarceration. The court also ordered

Schaefer to pay restitution in the amount

of $41,574.

On a motion for reconsideration,

Schaefer requested that the district

court substantially reduce its loss

calculation. Although Schaefer submitted

a verified statement, which was offered

to rebut the government claims that

Schaefer knowingly deceived a large

number of his customers, the district

court ruled that Schaefer’s past

courtroom testimony demonstrated that he

was not a credible witness. The district

court’s sentencing order did not,

however, include any specific findings

that Schaefer, under a more lenient

preponderance of evidence standard,

committed most or all of the crimes

charged in the indictment, or was guilty

of other uncharged criminal conduct.

Schaefer now appeals only from the

$231,000 calculation of loss. Schaefer

contends that the maximum loss stemming

from the crimes of which he was convicted

amounts to $1,875. This relatively small

sum would not warrant any increase from

the Base Offense Level. Under Schaefer’s

method of calculation, he would receive a

six to twelve month sentence.

II.

The sole issue in this case is whether

the district court erred in adopting the

loss calculation of the PSR. The meaning

of "loss" under sec. 2F1.1(b)(1) presents

a question of law that is subject to de

novo review. See United States v. Lopez,

222 F.3d 428, 436 (7th Cir. 2000).

However, when analyzing the district

court’s calculation of loss caused by a

defendant’s fraudulent conduct, we review

the calculations for clear error. See

United States v. Vivit, 214 F.3d 908, 914

(7th Cir. 2000). Reversal is warranted

only if the district court’s loss

calculation evokes a "definite and firm

conviction that a mistake has been made."

Id. (citing United States v. Strache, 202

F.3d 980, 984-85 (7th Cir. 2000)).

In order to support the calculation of

a $231,000 loss from fraudulent activity,

the PSR estimated that approximately 55

percent of Schaefer’s $420,000 in

business receipts from 1994 to 1999 was

attributable to fraudulent sales

practices. The 55 percent figure was

derived from a sample of three sales made

to customers in which 55 percent of the

purchase price was attributable to false

representations made by Schaefer. Since

these sales provided approximately 20

percent of Schaefer’s total receipts

during this five-year period and were

therefore asserted to be representative

of the total, and since there was reason

to believe that all of Schaefer’s sales

of animated art were shot through with

deceptive business practices, the

government reasoned that approximately 55

percent of all of Schaefer’s receipts was

attributable to an ongoing fraudulent

scheme (i.e., 55% x $420,000 =

$231,000)./2

The government maintains that the

entirety of Schaefer’s artwork business

represents "relevant conduct" under

U.S.S.G. sec. 1B1.3(a)(2); it therefore

argues that all of Schaefer’s business

receipts from 1994 to 1999 can be relied

upon to support the $231,000 loss

calculation. Under U.S.S.G. sec.

2F1.1(b)(1) of the sentencing guidelines,

which deals with loss arising from fraud

or deceit, this amount of financial harm

warrants an eight-level increase. Under

the prevailing case law of this circuit,

a determination of relevant conduct is a

finding of fact disturbed only if clearly

erroneous. United States v. Ofcky, 222

F.3d 428, 438 (7th Cir. 2000), cert.

denied, 121 S. Ct. 1601 (2001). In the

present case, the PSR relies on an

estimate of Schaefer’s artwork

transactions from 1994 to 1999 to

calculate the sec. 2F1.1(b)(1) loss; the

district court in turn adopted the

recommendations of the PSR.

To attack the government’s loss

calculation, Schaefer makes three

arguments on appeal. First, the

government failed to prove that any of

the losses incurred by Schaefer’s

customers were the result of criminal

conduct, and therefore these losses

cannot be considered relevant conduct

under the Sentencing Guidelines. Second,

the government improperly relied on

unreliable hearsay to determine the scope

of the relevant conduct that allegedly

produced the $231,000 loss. Third, the

government’s methodology for

extrapolating the loss was improper and

grossly inflates the victim impact that

can be fairly attributed to Schaefer.

Each of these arguments will be addressed

in order.

A.

Schaefer claims that "relevant conduct"

under sec. 1B1.3, which specifies the

conduct to be relied upon for sentencing

determinations under the Guidelines, is

necessarily limited to criminal conduct.

To buttress this assertion, he cites case

law from the Third, Fourth, Fifth, and

Eight Circuits that have adopted this

standard. See, e.g., United States v.

Dove, 247 F.3d 152, 155 (4th Cir. 2001)

(rejecting argument that "non-benign"

rather than illegal conduct "may properly

be considered as relevant conduct");

United States v. Peterson, 101 F.3d 375,

385 (5th Cir. 1996) ("For conduct to be

considered ’relevant conduct’ for the

purpose of establishing one’s offense

level that conduct must be criminal.");

United States v. Dickler, 64 F.3d 818,

830 (3d Cir. 1995) (agreeing with other

circuits that relevant conduct must be

criminal); United States v. Sheahan, 31

F.3d 595, 600 (8th Cir. 1994) (noting

that government has burden of proving by

a preponderance of evidence that

defendant’s conduct was criminal in

nature before the district court can rely

on it as relevant conduct). To further

support his position, Schaefer points to

the commentary to sec. 2F1.1, which

states that "loss is the value of the

money, property, or services unlawfully

taken." sec. 2F1.1, comment. (n. 8)

(emphasis added).

In deciding whether conduct under the

Sentencing Guidelines to be relevant must

be criminal or unlawful, we have not been

much helped by the government. In its

brief, the government has failed to cite,

let alone distinguish, the cases on the

criminal nature of relevant conduct from

the Third, Fourth, Fifth, and Eighth

Circuits. Instead, the government has

attempted to justify the loss calculation

by relying on generalized allegations of

continuing fraud. While we agree with the

government’s comment that Schaefer’s

entire artwork business was "permeated

with fraud," that characterization may

have both civil and criminal aspects. As

the cases cited by Schaefer make clear,

only the latter category implicates sec.

1B1.3 of the Guidelines. The simplest and

most direct way for the government to

support its theory of the case is to

point out how the specific elements of

mail and wire fraud, which were the

crimes specified in the fourteen-count

indictment, were an integral part of

Scheafer’s artwork business from 1994 to

1999. It might also be possible to

justify the $231,000 loss calculation by

demonstrating that Schaefer’s business

practices routinely violated other

criminal statutes (e.g., the criminal

fraud provisions of Indiana law).

However, the government has failed to

direct this court, or the district court,

to any additional statutory authority

criminalizing Schaefer’s conduct. Here,

the government’s briefing style is a bit

long on evidence, but a bit short on

analysis./3

In addition, the district court

summarily adopted the PSR without making

any specific findings with respect to the

relevant conduct relied on to make the

sec. 2F1.1(b)(1) loss calculation. Here,

a fourteen-count indictment resulted in

an acquittal on nine charges and a

conviction on only four. One count was

set aside for retrial because of a

possible Brady violation. Although

relevant conduct for sentencing purposes

can certainly include uncharged conduct,

see United States v. Smith, 218 F.3d 777,

782 (7th Cir. 2000), and even conduct

that forms the basis of an acquittal, see

United States v. Banks, 964 F.2d 687, 692

(7th Cir. 1992) (citing United States v.

Fonner, 920 F.2d 1330, 1333 (7th Cir.

1990)), the district court must still

make findings clearly identifying the

relevant conduct and explaining how that

conduct leads to a particular sentencing

determination. The transparency of this

process is especially important in a case

such as this one, where the $231,000 loss

calculation adopted by the district court

is far in excess of the $1,875 loss that

flows from the counts of conviction.

While it is certainly possible that the

PSR contains sufficient evidence of

uncharged and acquitted conduct to

support the much larger loss calculation,

it is very difficult for us to sift

through the contents of the PSR to

determine whether there is a sufficient

legal and factual basis for a particular

criminal sentence. Although a district

court’s findings as to relevant conduct

are reviewed for clear error, see Ofcky,

22 F.3d at 438, even such deference will

not cure an absence of findings.

In attempting to distill what must be

determined here, we turn first to the

text of sec. 1B1.3, which is entitled

"Relevant Conduct (Factors that Determine

the Guideline Range)." Section sec.

1B1.3(a) defines relevant conduct for the

purposes of Chapters Two and Three./4

Subsections (a)(1) and (a)(2) of sec.

1B1.3 refer to activity that is clearly

criminal in nature./5 Subsection (a)(3)

includes as relevant conduct all harm

that flows from the criminal activities

described in subsections (a)(1) and

(a)(2). Finally, subsection (a)(4)

defines as relevant conduct "any other

information specified in the applicable

guideline." In short, sec. 1B1.3(a)

explicates the fundamental rule that

relevant conduct must be criminal in

nature, though subsection (a)(4)

indicates that each applicable guideline

may also specify additional relevant fac

tors.

Since sec. 2F1.1 is in Chapter Two, this

framework necessarily applies to a sec.

2F1.1(b)(1) loss calculation. Therefore,

in addition to crimes that were committed

in connection with the offense of

conviction, see sec. 1B1.3(a)(1), or

criminal acts or omissions that were part

of the same course of conduct or common

scheme as the offense of conviction, see

sec. 1B1.3(a)(2), a loss calculation

under sec. 2F1.1(b)(1) also involves "the

value of the money, property, or services

unlawfully taken." sec. 2F1.1, comment.

(n. 8). Arguably, there may be instances

in which "unlawful" conduct is a slightly

broader category than criminal conduct,

but neither Schaefer nor the government

has attempted to claim or explain such a

distinction.

Although the government in this case has

convincingly demonstrated that Schaefer’s

routine dealings were, at a minimum,

disreputable and unethical, the plain

terms of the Guidelines make clear that

such a showing is not enough. For all of

Schaefer’s business receipts to be

included in a sec. 2F1.1(b)(1) loss

calculation, the government must

demonstrate, by a preponderance of

evidence, that all of Schaefer’s business

activities were unlawful. Moreover, if

the loss calculation is not based

entirely on the counts of conviction, the

district court must make specific

findings on the relevant conduct (i.e.,

unlawful conduct) on which it relies to

make its sec. 2F1.1(b)(1) calculation of

loss.

Our holding that relevant conduct under

sec. 1B1.3 of the Guidelines is limited

to criminal conduct is amply supported by

the case law in other circuits. For

example, in Petersen, supra, the Fifth

Circuit vacated a sec. 2F1.1(b)(1) loss

calculation in a securities fraud case

because the district court "made no

determination as to whether the

defendant’s conduct with regard to the

$1.3 million loss to the ABFL was

actually criminal conduct rather than a

violation of the fiduciary agreement

making the defendant civilly liable." 101

F.3d at 385. The Fifth Circuit expressed

concern that if relevant conduct were not

limited to criminal conduct, defendants

could be more severely punished by

"having their guideline range increased

for activity which is not prohibited by

law but merely morally distasteful or

viewed as simply wrong by the sentencing

court." Id.; accord United States v.

Dove, 247 F.3d 152, 155 (4th Cir. 2001)

(rejecting argument that "non-benign"

conduct "may properly be considered as

relevant conduct" and following

Petersen).

Similarly, in Dickler, supra, the Third

Circuit reviewed a sec. 2F1.1(b)(1) loss

calculation that was based on a long-

running scheme to submit false bids for

the purchase of repossessed cars. The

defendants had submitted false bids to

the Resolution Trust Corporation (RTC),

which had been appointed custodian of two

failed banks. The defendants were

subsequently charged with concealing

assets from the RTC, in violation of 18

U.S.C. sec. 1032(2). However, this

statute was not enacted until November

29, 1990. From 1985 to 1990, the

defendants had been submitting false bids

to the predecessor banks. Without citing

any statutory basis to demonstrate that

the defendant’s pre-1990 conduct was

unlawful, the government attempted to

include at sentencing the 1985 to 1990

time period as relevant conduct. Although

the Third Circuit observed that "it is

highly likely that the defendants’

conduct during the challenged period did

violate some criminal statute," it

determined that "[d]ue process requires

that the defendants have fair notice of

exactly why the government believes their

conduct during this period was criminal

and a fair opportunity to counter the

government’s case on that score." 64 F.3d

at 831. It therefore remanded the matter

to the district court with instructions

to require the government to identify

"the statute or statutes its relies upon

and to identify the record evidence that

satisfies each element of the offense

proscribed." Id.

Finally, in Sheahan, supra, the Eighth

Circuit upheld a sec. 2F1.1(b)(1) loss

calculation in a case involving bank

fraud despite the fact that a substantial

portion of the total loss was attributed

to nine criminal counts that had been

dismissed as part of the defendant’s plea

bargain. 31 F.3d at 600. The court

emphasized that the dismissed counts

"clearly alleged offenses that are

subject to prosecution under 18 U.S.C.

sec.sec. 1344 and 1346." Id. The sole

remaining issue, therefore, was whether

the government had demonstrated the

unlawfulness of the defendant’s relevant

conduct by a preponderance of the

evidence. The Eighth Circuit went on to

rule that the government had met this

burden. See id.

Limiting sec. 1B1.3 relevant conduct to

criminal activity, with appropriate

modifications based on specific

provisions contained elsewhere in the

Guidelines, can be easily reconciled with

the single case in this circuit which has

touched on the distinction between

illegal and legal conduct for sentencing

purposes. In United States v. Marvin, 28

F.3d 663 (7th Cir. 1994), the defendant

in a wire fraud scheme argued that the

district court erred when it refused to

grant him a sec. 3E1.1 sentence reduction

for acceptance of responsibility. After

the defendant entered a guilty plea but

before his sentence was imposed, the

district court determined that the

defendant had engaged in several acts of

deceit, including renting a residence

under a false name and writing checks

from an overdrawn account, which were

inconsistent with acceptance of

responsibility. Id. at 665. On appeal,

the defendant contended that this

activity could not be relied upon for a

sentencing determination because it could

not be properly characterized as

"illegal." Id. at 666. Relying on the

commentary to sec. 3E1.1, we ruled:

A sentencing judge may properly consider

any "conduct of the defendant that is

inconsistent with such acceptance of

responsibility" which would outweigh the

defendant’s earlier guilty pleas as a

proxy for acceptance of responsibility.

U.S.S.G. sec. 3E1.1, comment. (n. 3).

Therefore, although possibly relevant, it

is not necessary that the sentencing

judge consider only illegal or criminal

activity. The sentencing judge may

consider other conduct which is

inconsistent with the defendant’s

acceptance of responsibility.

Id. at 666.

Marvin is entirely consistent with the

framework that we have discussed. The

language of sec. 1B1.3 clearly limits

relevant conduct, for the purposes of

Chapters Two and Three sentencing

determinations, to criminal conduct.

However, an additional relevant criterion

is "any other information specified in

the application guideline." sec.

1B1(a)(4). Therefore, in Marvin, this

court properly looked to the commentary

to sec. 3E1.1 to determine the range of

evidence, beyond sec. 1B1.3 relevant

conduct, that could be considered in an

acceptance of responsibility ruling. As a

result, Marvin is distinguishable from

the rulings by the Third, Fourth, Fifth,

and Eight Circuits that have limited sec.

1B1.3 relevant conduct to criminal

activities.

In the case now before us, the

government has provided us with no basis

for departing from the clear weight

ofauthority. Under the circumstances, we

must remand to the district court with

instructions to require the government to

identify the specific unlawful conduct

relied upon to justify the sec.

2F1.1(b)(1) loss calculation. In

addition, to justify the $231,000 loss

calculation recommended by the PSR, the

district court must make specific

findings, based on a preponderance of

evidence, that all of Schaeffer’s artwork

business from 1994 to 1999 constituted

unlawful conduct.

B.

In this case, there is a significant gap

between the loss that flows from the

counts of conviction ($1,875) and the

loss calculated by the PSR ($231,000),

which was subsequently adopted by the

district court. In order to support this

much larger loss calculation, the

government submitted a sworn affidavit

from FBI Special Agent Robert Brouwer

(Brouwer declaration), which provided a

detailed summary of a lengthy joint

investigation of Schaeffer conducted by

the FBI, the Federal Trade Commission

(FTC) and the Department of Justice

(DOJ). The Brouwer declaration recounted

the facts and circumstances surrounding a

variety of attempted and completed

artwork sales by Schaefer, including

several transactions that did not form

the basis of the criminal indictment.

Although the district court never made

any explicit findings on relevant

conduct, the order rejecting Schaefer’s

motion for reconsideration of the loss

calculation ruled that it had relied, in

part, on the Brouwer declaration. This

document arguably provides the district

court with a basis to expand the scope of

Schaefer’s relevant (unlawful) conduct

beyond the counts of conviction.

Schaefer argues that the district court

erred when it relied on the Brouwer

declaration to adopt the loss calculation

in the PSR. Schaefer states that some of

the information in the declaration was

based on evidence collected by other

government investigators, which in turn

was summarized by Brouwer. Schaefer

asserts that this evidence constitutes

highly unreliable "hearsay on hearsay"

testimony. Although this case will be

vacated and remanded to the district

court for further proceedings, we will

address the hearsay issue now because it

is also relevant to a proper resolution

of the loss calculation.

As a threshold matter, Schaefer

correctly observes that hearsay testimony

can be utilized for sentencing purposes

if it is "reliable." United States v.

Morrison, 207 F.3d 962, 967 (7th Cir.

2000). However, his underlying argument

is flawed because the legal authorities

he relies on to impugn Brouwer’s

declaration as unreliable hearsay are a

series of Seventh Circuit cases in which

the amount of drugs for sentencing

purposes was adduced from the hearsay

testimony of other criminal defendants

who failed to testify at trial. See,

e.g., United States v. Palmer, 248 F.3d

569, 571 (7th Cir. 2001) (rejecting

hearsay statements made by individual two

years after the alleged drug transaction;

noting that no testimony was available at

the sentencing hearing because the

declarant cited his Fifth Amendment

rights); United States v. Robinson, 164

F.3d 1068, 1071 (7th Cir. 1999)

(rejecting hearsay statements made by

another criminal defendant involved in

the same drug transaction because

statements were internally inconsistent

and lacked "the kind of ’indicia of

reliability’ upon which a sentencing

judge could comfortably rely").

In contrast, the information collected

by Special Agent Brouwer was obtained

from several of Schaefer’s customers who

did not testify at trial. In addition,

many the transactions included in the

Brouwer declaration did not serve as the

basis for the fourteen-count federal

indictment. Nonetheless, the examples of

fraud and misrepresentation summarized by

Brouwer were consistent with live

testimony from other Schaefer customers

that described Schaefer’s modus operandi.

The Brouwer declaration therefore further

corroborated the overall picture of

Schaefer’s conduct that emerged at trial.

Schaefer also claims that Brouwer relied

on the work of other FBI agents in

preparing his declaration, thus resulting

in "hearsay on hearsay." Our review of

Brouwer declaration suggests that Special

Agent Brouwer conducted many of these

interviews personally, and that during

this process, the FBI was working closely

with other investigators from the FTC and

the DOJ./6 But Brouwer states the basis

for his information in considerable

detail, which conveys a strong impression

of exhaustive and well-documented police

work. Although the declaration does

constitute hearsay, it nonetheless

appears to have sufficient indicia of

reliability to permit its use for

sentencing purposes.

Schaefer’s "hearsay on hearsay" argument

also falters for lack of legal support.

Schaefer has failed to direct this court

to any legal authority which suggests

that more than one layer of hearsay in an

affidavit by a law enforcement agent

summarizing the findings of a

comprehensive investigation conducted by

himself and other agents (1) precludes

its use for sentencing purposes, or (2)

is of dubious reliability and, therefore,

should be weighed accordingly. Certainly,

Schaefer’s counsel had the opportunity to

make the latter case. Brouwer was present

during Schaefer’s sentencing hearing. If

Schaefer wanted to impeach Brouwer’s

methods of investigation or his

truthfulness, Schaefer was free to put

him on the stand, but he elected not to

do so. Hence, we see no error in reliance

on Special Agent Brouwer’s statements.

Finally, Schaefer’s Verified Statement,

which was submitted to the district court

for sentencing purposes, attacks the

accuracy of the Brouwer declaration.

However, in denying Schaefer’s motion for

reconsideration of the sec. 2F1.1(b)(1)

loss calculation, the district court

specifically determined that Schaefer’s

Verified Statement could not be relied

upon. Based on Schaefer’s pretrial

testimony and overwhelming evidence from

the government that Schaefer committed

perjury, the district court ruled that

"the defendant is not a credible

witness." In contrast, the district court

noted that Special Agent Brouwer

"testified at the trial of this cause,

and is a credible witness." Assessing the

credibility of witnesses is a matter

uniquely within the province of the fact

finder. Absent a showing of clear error,

we will not reverse a district court on

matters that hinge on the credibility of

witnesses. See United States v. Lindsey,

123 F.3d 978, 980 (7th Cir. 1997).

Schaefer’s hearsay argument is therefore

unavailing because it is inextricably en

meshed with issues of credibility. On

remand, the district court may rely on

Brouwer’s testimony and affidavit in

making its loss calculation.

C.

Schaefer’s last argument in challenging

his sec. 2F1.1(b)(1) loss calculation is

that the extrapolation method followed in

the PSR is flawed to the point of being

clearly erroneous. Part of this argument

is essentially a rehash of the relevant

conduct and hearsay issues we have

already discussed. However, Schaefer adds

the additional claim that the

government’s loss calculation failed to

consider that the majority of Schaefer’s

artwork was sold at fair market value.

Even if the value of this work had been

misrepresented to his customers, Schaefer

asserts that the district court erred in

accepting the testimony of expert witness

Lentz, who assigned a value of zero to

many pieces of art despite the fact that

they had been professionally matted and

framed. Schaefer also points out that he

was acquitted on nine out of fourteen

counts of the indictment. Since these

acquittals suggest that many of his

artwork transactions were untainted by

fraud, Schaeffer argues that a loss

calculation based on all of his business

receipts is over-inclusive and grossly

inflates the total amount of the loss.

The primary defect in the district

court’s loss calculation is that it

failed to make explicit findings

identifying with specificity the relevant

unlawful conduct that allegedly caused

the $231,000 loss. However, Schaefer’s

argument with respect to the actual

mechanics of the loss calculation lacks

merit. Since sentencing determinations,

as opposed to criminal convictions, are

made under the preponderance of evidence

standard, see United States v. Gee, 226

F.3d 885, 898 (7th Cir. 2000) (citing

United States v. Watts, 519 U.S. 148, 157

(1997)), the district court may consider

uncharged conduct or even conduct that

was acquitted. Moreover, the commentary

to the Guidelines specifically addresses

the use of estimates in making loss

calculations:

For the purposes of subsection (b)(1),

the loss need not be determined with

precision. The court need only make a

reasonable estimate of the loss, given

the available information. This estimate,

for example, may be based on the

approximate number of victims and an

estimate of the average loss to each

victim, or on more general factors, such

as the nature and duration of the fraud

and the revenues generated by similar

operations.

U.S.S.G. sec. 2F1.1(b)(1), comment. (n.

9). In this case, the $231,000 loss

figure was determined by multiplying

total business receipts during the last

five years ($420,000) by 55 percent. The

figure of 55 percent is derived from

sales to three of Schaefer’s customers

that formed the basis for the indictment

on multiple counts of wire and mail

fraud. As discussed earlier, these three

customers accounted for approximately 20

percent of Schaefer’s total receipts from

1994 to 1999. If the district court

concludes, under a preponderance of

evidence standard, that all of Schaefer’s

artwork business was unlawful, this

extrapolation method may not be

unreasonable.

The sampling technique set forth in the

PSR and adopted by the district court

also finds support in the case law. In

United States v. Austin, 54 F.3d 394, 402

(7th Cir. 1995), this court upheld a loss

calculation for the sale of art forgeries

despite the fact that government experts

inspected only a fraction of the artwork

involved in the disputed sales. In

Austin, a value of zero was imputed to

every sale of art made by the defendant

over a six-year period, since government

experts determined that his current

inventory was comprised entirely of

counterfeits. We concluded that, even if

the pieces Austin sold between 1984 and

1990 were not completely worthless, as

the defendant maintained, $0 was the best

estimate of their worth. See id.

Here, the loss calculation adopted by

the district court was based on the

apparently reasonable premise that 55

percent of Schaefer’s business receipts

were tainted with fraudulent

misrepresentations. Although this

sampling method did not "credit" Schaefer

for the value of misrepresented artwork

that had been matted and framed, the dec

laration by expert witness Lentz

concluded that "the frame and matting

surrounding counterfeit or misrepresented

cheap cels have no market value other

than scrap value." In denying Schaefer’s

motion to reconsider the loss

calculation, the district court cited

both Lentz’s testimony at trial and his

declaration submitted during the

sentencing proceeding to conclude that

Lentz was a credible witness. As stated

earlier, this court will not reverse a

credibility finding by a district court

absent a showing of clear error. See

Lindsey, 123 F.3d at 980. Schaefer has

not undermined Lentz’s credibility in any

way. Moreover, there is no basis for

demanding that Schaefer be given full

credit for the cost of matting and

framing artwork, when the art itself has

been misrepresented to the consumer. Cf.

United States v. Saykhom, 186 F.3d 928,

947 (9th Cir. 1999) (observing that

defendant should not be given credit for

business services that were merely part

of a fraudulent scheme).

Finally, Schaefer maintains that $1,875

is the proper loss calculation because

this is the amount that can be attributed

to the counts of conviction, and the nine

acquittals cast doubt on Schaefer’s

overall culpability. However, the

commentary to the Guidelines specifically

states that the "offender’s gain from

committing the fraud is an alternative

estimate that ordinarily will

underestimate the loss." U.S.S.G. sec.

2F1.1(b)(1), comment. (n. 9) (emphasis

added). In the present case, if the

district court determines by a

preponderance of the evidence that all of

Schaefer’s transactions from 1994 to 1999

were tainted with unlawful conduct, there

is ample evidence that a loss calculation

limited to the counts of conviction would

substantially understate the total loss

to Schaefer’s customers.

Finally, the district court may have

been correct when it characterized its

loss estimate as "conservative." The loss

calculation did not include any "intended

loss" that might be ascribed to

Schaefer’s entire $500,000 art inventory

that was seized by government officials.

See United States v. Strozier, 981 F.2d

281, 284-85 (7th Cir. 1992) (ruling that

a loss calculation can be based on

probable losses that would have occurred

but for the intervention of law

enforcement). The loss calculation also

did not include any adjustment for the

appreciation in value that Schaefer told

his consumers they would enjoy because he

was selling his artwork at below-market

prices under the requirements of his dead

mother’s estate. As the district court

correctly observed, such amounts can be

considered in a sec. 2F1.1(b)(1) loss

calculation. See United States v. Porter,

145 F.3d 897, 901 (7th Cir. 1998) (ruling

that misrepresentations of a rate of

return made in furtherance of fraudulent

scheme can under some circumstances be

included in a loss calculation). However,

before the district court can rely on

these additional approaches to justify

its loss calculation, it must make

specific findings as to how much of

Schaefer’s business was tainted by

unlawfulness.

III.

The relevant conduct relied upon by the

district court to make its loss

calculation under sec. 2F1.1(b)(1) has

not been adequately articulated and

justified. Therefore, we VACATE and REMAND

to the district court for further

proceedings consistent with this opinion.

FOOTNOTES

/1 The district court adopted the findings and

recommendations of the PSR. Paragraph 51 of the

PSR states that its recommendations were based on

the 1997 Guidelines Manual because the offenses

predated Nov. 1, 1998. According to the PSR, the

1998 edition contained a special offense enhance-

ment that was unfavorable to the defendant.

Although this provision is not specifically

identified by the PSR or the district court, the

version of sec. 2F1.1(b)(3) in effect at the time

of Schaefer’s sentencing authorized a new 2-level

upward adjustment for an "offense committed

through mass-marketing," which Schaefer may have

been qualified for. In addition, the text of the

obstruction of justice enhancement under sec.

3C1.1 was revised some time between the 1997 and

the 2000 Guidelines Manual. Ordinarily, "a court

imposes a sentence based upon the guidelines in

effect as of the date of sentencing." United

States v. Kosmel, 272 F.3d 501, 507 (7th Cir.

2001) (citing U.S.S.G. sec. 1B1.11(a); United

States v. Hall, 212 F.3d 1016, 1022 (7th Cir.

2000)). In this case, the 2000 Guidelines Manual

was in effect at the time of sentencing. However,

ifapplying the current guidelines would violate

the ex post facto clause of the Constitution,

"the court shall use the Guidelines Manual in

effect on the date that the offense of conviction

was committed." sec. 1B1.11(b)(1); accord Kosmel,

272 F.3d at 507; United States v. Booker, 70 F.3d

488, 490 n.3 (7th Cir. 1995). The PSR appeared to

flag a possible ex post facto problem and there-

fore relied on the 1997 Guidelines Manual. The

district court then adopted the PSR. Because

neither party has raised this issue on appeal, we

will confine our review to the 1997 Guidelines.

The loss calculation provision which is relevant

to this appeal--sec. 2F1.1(b)(1)--is the same

under both the 1997 and 2000 Guidelines Manual.

/2 The remaining 45 percent of each transaction

would therefore represent fair market value of

the goods sold.

/3 One sentence in the government’s brief seems to

suggest that the $230,000 loss calculation is

appropriate because all of Schaefer’s business

dealings from 1994 to 1999 were in violation of

the 1993 Order. Appellee’s Br. at 35. However,

premising Schaefer’s loss calculation on the

violation of the 1993 Order raises serious issues

of double counting. See United States v. Parolin,

239 F.3d 922, 928 (7th Cir. 2001) ("’Double

counting occurs when identical conduct is de-

scribed in two different ways so that two differ-

ent adjustment apply.’" (quoting United States v.

Haines, 32 F.3d 290, 293 (7th Cir. 1994))).

Schaefer has received a two-level enhancement

under sec. 2F1.1(b)(4)(C) for violation of the

1993 Order, which he has not contested on appeal.

In addition, the PSR states that the U.S. Dis-

trict Court for the Central District of Califor-

nia has issued an Order to Show Cause why Schaef-

fer should not be held in criminal contempt of

the 1993 Order. A contempt trial was supposedly

set for July 5, 2000. Because of the possible

double-counting problem and the fact that the

government did not adequately develop this argu-

ment in its brief, this court will not consider

it as a basis for affirming the district court.

/4 Under the Sentencing Guidelines, the chapter is

denoted by the first number, followed by a let-

ter, which denotes the part. Thus, sec. 1B1.1

denotes chapter one, part B, subsection 1.1.

/5 For example, sec. 1B1.3(a)(1) states that rele-

vant conduct includes "all acts and omissions

committed, aided, abetted, counseled, commanded,

induced, procured, or willfully caused by the

defendant" that occurred "during the commission

of the offense of conviction, in preparation for

that offense, or in the course of attempting to

avoid detection or responsibility for that act."

If the character of the offense requires grouping

of multiple counts, sec. 1B1.3(a)(2) includes as

relevant conduct "all acts or omissions . . .

that were part of the same course of conduct or

common scheme or plan as the offense of convic-

tion."

/6 Paragraph One of the Brouwer declaration reads in

part: "I have worked with other FBI Agents, and

officials from the Office of the United States

Attorney, the Department of Justice, and the

Federal Trade Commission . . . concerning the

subject matter of this affidavit. This affidavit

is based on my personal knowledge and information

and belief."