United States v. D'Ambrosia, Jeffrey

In the

United States Court of Appeals

For the Seventh Circuit

____________

Nos. 02-1635 & 02-1636

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

v.

JEFFREY D’AMBROSIA and DUANE PEDE,

Defendants-Appellants.

____________

Appeals from the United States District Court

for the Western District of Wisconsin.

No. 01 CR 121—Barbara B. Crabb, Chief Judge.

____________

ARGUED SEPTEMBER 27, 2002—DECIDED DECEMBER 16, 2002

____________

Before POSNER, RIPPLE, and MANION, Circuit Judges.

MANION, Circuit Judge. Duane Pede and Jeffrey

D’Ambrosia pleaded guilty to using wire communication

facilities to transmit wagering information in interstate

and foreign commerce in violation of 18 U.S.C. §§ 2, 1084

(“Wire Wagering Act”), and to making false and fraud-

ulent statements on income tax returns in violation of 26

U.S.C. § 7206(1). Pursuant to the terms of their plea agree-

ments, the defendants also stipulated that from 1997 to 1999

they conspired to defraud the Internal Revenue Service

by using the profits of an illegal offshore sports bookmak-

ing operation to pay vendors and bettors, and by placing

2 Nos. 02-1635 & 02-1636

profits from that operation and personal income in offshore

bank accounts under nominee names. The district court

sentenced each defendant to 60 months’ imprisonment. The

defendants appeal their sentences, and we affirm.

I.

This case involves an elaborate scheme by Duane Pede

and Jeffrey D’Ambrosia to operate an illegal sports book-

making operation and to conceal income and assets from

the Internal Revenue Service. In July 1995, Pede and

D’Ambrosia merged their respective sports betting handi-

capping companies—The Scoreboard, Inc. (Pede) and

NSN, Inc. (D’Ambrosia)—to form Sports Spectrum, L.L.C.

1

(“Sports Spectrum”). Sports Spectrum provided its cus-

tomers with: (1) up-to-the-minute betting lines for sport-

ing events over the telephone for a fee; (2) up-to-the-min-

ute scores on sporting events over the telephone for a fee;

(3) “guaranteed” winning picks on sporting events over the

telephone through handicapping services; (4) sports bet-

ting and online casino gambling through one of two

sports books; and (5) internet access.

In August 1996, Pede and D’Ambrosia expanded Sports

Spectrum’s business interests by founding Gold Medal

2

Sports Book (“Gold Medal”), an offshore internet-based

sports bookmaking operation incorporated and located

on the island of Curacao in the Netherlands Antilles. Pede

1

Sports Spectrum had offices in Las Vegas, Nevada, where

D’Ambrosia resided, and in Nelsonville, Wisconsin, where Pede

resided.

2

Gold Medal entered a plea of guilty to RICO charges on

December 3, 2001, agreeing to forfeit $3,528,617 and discontinue

its business operations.

Nos. 02-1635 & 02-1636 3

and D’Ambrosia placed profits from Gold Medal’s opera-

tions in offshore bank accounts in the Bahamas under

nominee names, some of which they used to pay Sports

Spectrum (for printing services, database support, statis-

tical analysis, and consulting and technical support ser-

3

vices), The Scoreboard (for consulting and technical sup-

4

port services), other vendors, and winning bettors. The

defendants also directed the distribution of Gold Medal

profits to offshore banks as part of a deferred compensa-

tion program concocted by David Tedder, an attorney in

Orlando, Florida, who marketed estate planning and asset

3

Pede and D’Ambrosia also owned a printing company and

bulk mailing business called Signature Press, which handled

all of the printing jobs for the various Sports Spectrum entities,

including the printing of scoring schedules for The Score-

board; tout letters for the handicapping services of Jeff Allen

Sports, Dan Pastorini Sports, Mike Wynn Sports, and Razor

Sharp Sports; and marketing brochures for the sports book

companies utilized by Sports Spectrum (i.e., Gold Medal and

Seven Palms Casino). Gold Medal mailed letters and brochures

to United States residents advertising its sports booking services,

and solicited those individuals to place wagers over the tele-

phone lines from the United States to Gold Medal in Curacao via

a toll-free betting line.

4

Gold Medal handled telephone and internet sports bets in

excess of $33 million in 1996; $167 million in 1997; $119 million

in 1998; $78 million in 1999, and $5.7 million in the first quarter

of 2000. During the three and a half years it conducted busi-

ness, Gold Medal took in approximately $402.7 million in wa-

gers. A portion of the profits were distributed to investors

as dividends or “return on capital,” while a significant portion

of the corporation’s net profits were placed in deferred compen-

sation accounts for the defendants and other senior staff in

the manner described infra.

4 Nos. 02-1635 & 02-1636

5

protection devices to his clients. The defendants hired

Tedder prior to the commencement of Gold Medal’s busi-

ness operations, and, following his advice, enrolled in a

foreign deferred compensation program that he devel-

oped and maintained. Under this program, the defendants

resigned from Sports Spectrum and entered into employ-

ment agreements with Surety Services Limited (“Surety

Services”), a corporation located in Dublin, Ireland, which

then loaned the defendants out to an independent United

States employee leasing company known as Personal Leas-

ing Services Company, Inc. (“PLSC”). PLSC, in turn, con-

tracted with Sports Spectrum for the defendants’ services.

Sports Spectrum paid PLSC for these services, PLSC trans-

ferred the defendants’ wages, i.e., “lease payments,” to

Surety Services, and Surety Services funneled the lease

payments to offshore bank accounts in nominee names.

According to Tedder, this process rendered the defen-

dants’ earnings “tax-free,” and made the money available

for use by them at any time by way of loans. D’Ambrosia

joined Tedder’s deferred compensation program in June

1997, placing a sizable portion of his personal savings into

the plan from the outset. After entering into the program,

D’Ambrosia’s untaxed earnings and profits from Gold

Medal were placed into an offshore account labeled Corpus

Harem #XIII at Barclays Bank in Nassau, Bahamas. From

1997 to 1999, D’Ambrosia’s untaxed earnings were ap-

proximately $3,638,234. Pede joined Tedder’s program in

December 1997, and his untaxed earnings and profits from

Gold Medal were thereafter placed in an offshore ac-

count labeled Corpus Harem #VIII at Surety Bank and

Trust in Nassau, Bahamas. From 1997 to 1999, Pede had

5

Unbeknownst to the defendants, Tedder had been disbarred

from the practice of law at the time they retained his services.

Nos. 02-1635 & 02-1636 5

untaxed earnings of $1,467,352 diverted to this offshore

bank account.

In 1999, Pede and D’Ambrosia filed fraudulent income

tax returns for tax year 1998. Schedule B, Part III, Line 7(a)

of the 1998 1040 form required the defendants, under pen-

alty of perjury, to answer the following question: “At any

time during 1998, did you have any interest in or signa-

ture or other authority over a financial account in a foreign

country, such as a bank account, securities account, or

other financial account?” Each defendant falsely answered

“no” to this question on their respective tax returns, not-

withstanding the fact that they both had financial inter-

est in and signature authority over numerous foreign bank

6

accounts.

On November 16, 2001, a three-count information was

filed against Pede and D’Ambrosia. Count One charged

the defendants with using wire communication facilities

to transmit wagering information in interstate and foreign

commerce in violation of 18 U.S.C. §§ 2, 1084. Count Two

charged defendant Pede with filing a false income tax re-

turn for tax year 1998 in violation of 26 U.S.C. § 7206(1).

Count three charged defendant D’Ambrosia with filing a

false income tax return for tax year 1998 in violation of

7

26 U.S.C. § 7206(1).

6

The defendants had signature authority over at least four

foreign bank accounts: a Gold Medal account at ORCO Bank

in Curacao; and accounts at Surety Bank in Nassau, Bahamas

in the names of Gold Medal, Research Technology, and Global

Access. They also had “actual authority” of the deferred com-

pensation accounts noted supra.

7

The government’s investigation also determined that Pede

and D’Ambrosia had engaged in money laundering and mail

(continued...)

6 Nos. 02-1635 & 02-1636

On December 3, 2001, the defendants waived indictment

and pleaded guilty to the three-count information. In

written plea agreements, the defendants also stipulated

that from 1997 to 1999 they conspired with one another and

others to defraud the IRS by using Gold Medal’s profits to

pay Sports Spectrum, vendors, and bettors, and by placing

some of the company’s profits in offshore bank accounts

under nominee names. The defendants stipulated that

the tax loss resulting from this tax conspiracy amounted

to $1,429,565. The district court accepted the defendants’

guilty pleas, and in doing so held: (1) that the tax offenses

and stipulated conduct (i.e., “tax conspiracy offenses”)

could be grouped together under U.S.S.G § 3D1.2(b)

8

and (d); and (2) that the tax conspiracy offenses could

7

(...continued)

fraud. The defendants were not, however, charged with either

of these offenses.

8

Section 3D1.2—“Groups of Closely Related Counts”—provides

that “[a]ll counts involving substantially the same harm shall

be grouped together into a single Group.” Counts involve sub-

stantially the same harm within the meaning of this rule:

(a) When counts involve the same victim and the same act

or transaction.

(b) When counts involve the same victim and two or more

acts or transactions connected by a common criminal ob-

jective or constituting part of a common scheme or plan.

(c) When one of the counts embodies conduct that is

treated as a specific offense characteristic in, or other ad-

justment to, the guideline applicable to another of the counts.

(d) When the offense level is determined largely on the

basis of the total amount of harm or loss, the quantity of a

substance involved, or some other measure of aggregate

(continued...)

Nos. 02-1635 & 02-1636 7

then be grouped with the wagering offense under U.S.S.G.

§ 3D1.2(c) “because [the wagering offense] embodies con-

duct (criminal activity producing the source of income not

correctly reported) that is treated as a specific offense

9

characteristic in guideline 2T1.1, which is applicable to

8

(...continued)

harm, or if the offense behavior is ongoing or continuous

in nature and the offense guideline is written to cover

such behavior.

The defendants do not challenge the propriety of the district

court’s decision to group the tax offenses with the stipulated

conduct.

9

Section 2T1.1, “Tax Evasion; Willful Failure to File Return,

Supply Information, or Pay Tax; Fraudulent or False Returns,

Statements, or Other Documents,” provides:

(a) Base Offense Level:

(1) Level from § 2T4.1 (Tax Table) corresponding to the

tax loss; or

(2) 6, if there is no tax loss.

(b) Specific Offense Characteristics

(1) If the defendant failed to report or to correctly

identify the source of income exceeding $10,000 in

any year from criminal activity, increase by 2 levels. If

the resulting offense level is less than level 12, increase

to level 12.

(2) If the offense involved sophisticated means, in-

crease by 2 levels. If the resulting offense level is less

than level 12, increase to level 12.

(c) Special Instructions

For the purposes of this guideline—

(1) If the offense involved tax evasion or a fraudulent

or false return, statement, or other document, the tax

(continued...)

8 Nos. 02-1635 & 02-1636

the stipulated conduct that constitutes a separate count

for the purpose of sentencing.” In calculating the defen-

dants’ sentences under the guidelines, the district court

concluded that a four-level increase in the offense level

was appropriate for their role in the grouped offense be-

cause it determined that Pede and D’Ambrosia “were the

leaders and organizers of criminal activity that involved

more than five participants or was otherwise extensive.”

The district court then used the offense level for the tax

10

conspiracy (24), pursuant to U.S.S.G. § 3D1.3(a), as the

offense level for the grouped offenses, resulting in a sen-

tencing guideline range of imprisonment of 51 to 63

months. The district court then sentenced each defendant

to 60 months’ imprisonment followed by one year of su-

pervised release, and a fine of $100,000. The defendants

appeal their sentences, challenging the district court’s

decision to group the wagering offense with the tax con-

spiracy offenses and to apply a four-level increase to their

offense levels for being leaders or organizers of the tax

conspiracy under U.S.S.G. § 3B1.1(a).

9

(...continued)

loss is the total amount of loss that was the object of

the offense (i.e., the loss that would have resulted had

the offense been successfully completed).

10

Section 3D1.3(a), “Offense Level Applicable to Each Group of

Closely Related Counts,” provides that “[i]n the case of counts

grouped together pursuant to § 3D1.2(a)-(c), the offense level

applicable to a Group is the offense level, determined in ac-

cordance with Chapter Two and Parts A, B, and C of Chapter

Three, for the most serious of the counts comprising the Group,

i.e., the highest offense level of the counts in the Group.”

Nos. 02-1635 & 02-1636 9

II.

We review the district court’s application of the United

States Sentencing Guidelines de novo, but defer to the court’s

findings of fact unless they are clearly erroneous. See, e.g.,

United States v. Febus, 218 F.3d 784, 795-96 (7th Cir. 2000).

The issue before us is whether the district court erred

in applying a four-level enhancement to each of the de-

fendants’ sentences for being leaders or organizers of a

tax conspiracy under U.S.S.G § 3B1.1. The defendants

make two arguments on appeal. First, they contend that

the district court should have applied the adjustment for

role in offense, under § 3B1.1, prior to grouping as re-

11

quired by U.S.S.G. § 1B1.1(d). Second, the defendants

maintain that the district court erred in grouping the

wagering offense with the tax conspiracy offenses, and

that but for this error they would not have received four-

level “organizer or leader” enhancements for the tax con-

spiracy offenses. Without the four-level sentencing enhance-

11

Section 1B1.1(d) provides that “[i]f there are multiple counts

of conviction, repeat steps (a) through (c) for each count. Apply

Part D of Chapter Three to group the various counts and adjust

the offense level accordingly.” Id. Section 1B1.1(a)-(c) provide

the following “application instructions”:

(a) Determine, pursuant to § 1B1.2 (Applicable Guidelines),

the offense guideline section from Chapter Two (Offense

Conduct) applicable to the offense of conviction. See § 1B1.2.

(b) Determine the base offense level and apply any appro-

priate specific offense characteristics, cross references, and

special instructions contained in the particular guideline

in Chapter Two in the order listed.

(c) Apply the adjustments as appropriate related to victim,

role, and obstruction of justice from Parts A, B, and C of

Chapter Three.

10 Nos. 02-1635 & 02-1636

ment, the defendants would have been subject to a lower

sentencing range, and therefore, presumably, would have

received less prison time.

Because we conclude that the defendants are subject to

the four-level “organizer-leader” enhancement regardless

of whether the wagering offense and tax conspiracy of-

fenses are analyzed separately or grouped together under

§ 3D1.2, we need not address whether the district court’s

grouping of these offenses was proper. See, e.g., Williams

v. United States, 503 U.S. 193, 203 (1992) (holding that a

remand is not necessary for a district court’s misapplica-

tion of the sentencing guidelines if we conclude, on the

record as a whole, that the error was harmless because it

did not affect the district court’s selection of the sentence

imposed); United States v. Saunders, 129 F.3d 925, 932 (7th

Cir. 1997) (same).

Our analysis in this case begins with the defendants’

stipulations in their respective plea agreements that they

conspired with David Tedder to defraud the IRS. Their

stipulations are identical and provide as follows:

12

Pursuant to USSG § 1B1.2(c), the defendant stipulates

that the government could prove that from 1997 to 1999,

the defendant conspired with David Tedder [and co-

defendant] to defraud the Internal Revenue Service

by hiding income and assets. The defendant further

stipulates that the government could prove that the

tax loss associated with the conspiracy was $1,429,565,

and was reasonably foreseeable to the defendant.

12

Section 1B1.2(c) directs that “[a] plea agreement . . . containing

a stipulation that specifically establishes the commission of

additional offense(s) shall be treated as if the defendant had

been convicted of additional count(s) charging those offense(s).”

Nos. 02-1635 & 02-1636 11

In analyzing whether the defendants played an “aggra-

vating role” in the tax conspiracy, we turn to § 3B1.1, which

“provides adjustments to the offense level based upon the

role the defendant played in committing the offense.”

§ 3B1.1, introductory commentary. Section 3B1.1(a) directs

that “[i]f the defendant was an organizer or leader of a

criminal activity that involved five or more participants

or was otherwise extensive, increase by 4 levels.”

The defendants readily concede that they were leaders

and/or organizers of an offshore sports book, Gold Medal,

and that a four-level enhancement for their role in the

wagering offense, under § 3B1.1(a), was therefore appro-

priate. The defendants take issue, however, with the dis-

trict court’s determination that they were also organizers

and/or leaders of the tax conspiracy. They contend that

their participation in the tax conspiracy was limited to

their role as clients of David Tedder. In support of their

argument, the defendants direct us to the fourth applica-

tion note of § 3B1.1, which provides that:

In distinguishing a leadership and organizational role

from one of mere management or supervision, titles

such as “kingpin” or “boss” are not controlling. Factors

the court should consider include the exercise of deci-

sion making authority, the nature of participation in

the commission of the offense, the recruitment of ac-

complices, the claimed right to a larger share of the

fruits of the crime, the degree of participation in plan-

ning or organizing the offense, the nature and scope

of the illegal activity, and the degree of control and

authority exercised over others. There can, of course,

be more than one person who qualifies as a leader or

organizer of a criminal association or conspiracy. This

adjustment does not apply to a defendant who merely

suggests committing the offense.

§ 3B1.1, commentary n.4.

12 Nos. 02-1635 & 02-1636

Pede and D’Ambrosia contend that while they were

participants in the tax conspiracy (i.e., providing the

necessary funding and making investment suggestions),

they did not control the total number of participants or the

manner in which the monies were diverted as part of the

deferred compensation scheme. The defendants also as-

sert that they neither participated in the recruitment of

accomplices nor “claimed right to a larger share of the

fruits of the crime.” In short, they claim that Tedder was

the mastermind of the tax conspiracy because he: (1) de-

veloped and implemented the tax deferment scheme;

(2) directed and employed associates and assistants who

helped him manage their investments; (3) established the

necessary banking relationships; (4) controlled the de-

fendants’ investments; (5) managed the offshore bank ac-

counts; and (6) claimed the largest share of the fruits of the

tax conspiracy by misappropriating the defendants’ money.

As such, the defendants maintain that the district court

erred in applying a four-level “organizer or leader” en-

hancement to their tax conspiracy offenses per § 3B1.1(a).

The defendants’ argument, however, fails to recognize

that the determination of whether a defendant is an “orga-

nizer or leader” under § 3B1.1 “is to be made on the basis

of all conduct within the scope of § 1B1.3 (Relevant Con-

duct), i.e., all conduct included under § 1B1.3(a)(1)-(4),

and not solely on the basis of the elements and acts cited in the

count of the conviction.” § 3B1.1, introductory commentary

(emphasis added). Thus, in evaluating the extent of the

defendants’ role in the tax conspiracy under § 3B1.1, we

look not only to their participation in the tax conspiracy

but to any other conduct relevant to that conspiracy. See,

e.g., United States v. Bjorkman, 270 F.3d 482, 496 (7th Cir.

2001); United States v. Baker, 227 F.3d 955, 966 (7th Cir.

2000); United States v. Montague, 29 F.3d 317, 323-24 (7th

Cir. 1994). Relevant conduct includes “all acts and omis-

Nos. 02-1635 & 02-1636 13

sions committed, aided, abetted, counseled, commanded,

induced, procured, or willfully caused by the defendant,”

§ 1B1.3(a)(1)(A), and “all reasonably foreseeable acts and

omissions of others in furtherance of the jointly undertak-

en criminal activity,” § 1B1.3(a)(1)(B), that “occurred dur-

ing the commission of the offense of conviction, in prepara-

tion for that offense, or in the course of attempting to avoid

detection or responsibility for that offense.” § 1B1.3(a)(1)

(A)-(B).

Here, there is no question that the defendants’ operation

of a multi-jurisdictional offshore sports bookmaking em-

pire is clearly relevant in assessing their role in the tax

conspiracy. Pede and D’Ambrosia were the leaders of their

respective businesses, Sports Spectrum and Gold Medal.

They consulted with one another frequently and togeth-

er made decisions affecting these businesses, including

decisions on investing money in the scheme established

13

and managed by Tedder. Specifically, the defendants

conspired to evade taxes by placing the profits of Gold

Medal in offshore bank accounts in nominee names and

by using these nontaxed profits to fund Gold Medal’s on-

going operations—i.e., paying vendors and winning bettors.

In doing so, they directed staff within their own organiza-

tions to transfer money to accounts controlled by Tedder

and assigned accountant Randy Moreau the task of mon-

itoring the deferred compensation accounts for them. Fur-

thermore, as the district court noted, “[t]he tax shelters . . .

were an integral part of the corporate structure [of the

defendants’ gambling operation] . . . . Not only did the tax

13

Tedder controlled his part of the organization by directing

his staff to run component businesses that were “shell corpora-

tions” as part of the deferred compensation program.

14 Nos. 02-1635 & 02-1636

shelters increase the profits obtained from the operation

of the illegal betting scheme, they helped hide the exis-

tence of the corporations from federal regulators because

the [defendants] did not report the income from the corpo-

rations.”

That Pede and D’Ambrosia were neither organizers nor

leaders of Tedder’s deferred compensation program is of

no consequence. The tax conspiracy offenses address the

extent to which each defendant used Tedder’s program to

conceal from the IRS the income and assets they derived

from Gold Medal’s operations. We, therefore, agree with

the district court that “it is not determinative whether

[the defendants] exercised a leadership role over David

Tedder and his colleagues. [They] exercised a leadership

role over the entire scheme, a part of which was to hide

assets and income through an illegal tax shelter.” See, e.g.,

United States v. Nicolaou, 180 F.3d 565, 574 (4th Cir. 1999)

(holding that defendant’s leadership role in illegal gam-

bling was relevant conduct supporting four-level leader-

ship sentencing enhancement “because [the conduct] oc-

curred during ‘the commission of, and in preparation for’

the money laundering . . . [and] [w]ithout the illegal gam-

bling, there would have been no ill-gotten gains to laun-

der.”). See also Febus, 218 F.3d at 796 (holding that defen-

dant’s interim leadership of long-running illegal lottery was

relevant conduct to gambling and conspiracy offenses,

thus supporting four-level “organizer or leader” enhance-

ment); United States v. Damico, 99 F.3d 1431, 1437 (7th Cir.

1996) (rejecting defendant’s argument that his racketeer-

ing conduct was not relevant to his extortion-related

conduct, for purposes of § 3B1.1(a)—i.e., that the extortion-

related conduct involved only one person other than him-

self—because “section 3B1.1’s use of the phrase ‘criminal

activity’ is ‘broad enough to include the entire racketeer-

Nos. 02-1635 & 02-1636 15

ing conspiracy rather than the particular predicate act

14

alone.’ ”) (citation omitted).

The defendants’ final argument is that their roles as

leaders and organizers of the wagering offense should have

no bearing on whether they were organizers and/or leaders

of the tax conspiracy because “[t]he purpose of U.S.S.G.

§ 3B1.1 is [to] permit the district court to assess the relative

culpability of one defendant to another participant . . . .” We

rejected this same argument, however, in United States

15

v. Bjorkman, 270 F.3d 482 (7th Cir. 2001), noting:

[The defendant] correctly notes that the purpose of

§ 3B1.1 is to assign punishment to defendants based

upon their relative degree of responsibility for the “of-

fense.” However, this proposition aids [the defendant’s]

argument only if the term “offense” is construed nar-

rowly as denoting only the offense of conviction,

not including relevant conduct. Since we have rejected

this construction of “offense,” we must also reject

[the defendant’s] derivative argument from § 3B1.1’s

purpose.

Id. at 497.

14

That the defendants consider Tedder to be the “bigger fish”

in the tax conspiracy, even if true, has no bearing on whether

they organized or exercised a leadership role in the tax conspir-

acy. See § 3B1.1, cmt. 4 (“There can, of course, be more than

one person who qualifies as a leader or organizer of a criminal

association or conspiracy.”). Cf. Bjorkman, 270 F.3d at 497 n.1.

15

The dissent suggests that our reliance on Bjorkman is some-

how misplaced because that case involved a grouping of mul-

tiple counts under § 3D1.2(d), an issue we do not address

here. The fact that § 3B1.1 and § 3D1.2 both refer to § 1B1.3(a),

however, makes this a distinction without a difference. As

such, we see no reason why the Bjorkman Court’s analysis is

any less persuasive outside of the grouping context.

16 Nos. 02-1635 & 02-1636

Therefore, whether the defendants’ wagering and tax

conspiracy offenses are evaluated separately or grouped

together, the result remains the same: the tax conspiracy

offenses incorporate the defendants’ relevant conduct in

operating a multi-jurisdictional offshore sports book bet-

ting empire, thus subjecting them to a four-level “organizer

or leader” enhancement under § 3B1.1(a). See, e.g., Nicolaou,

180 F.3d 565, 574 (4th Cir. 1999) (holding “that even if

grouping of money laundering and gambling were im-

proper, or if a role adjustment were only to be applied

prior to grouping, the four-level enhancement to the

money-laundering sentence on the basis of a leadership

role in the gambling offenses would be appropriate under

the Guidelines [pursuant to § 1B1.3(a)(1)-(2)]”).

III.

For the reasons noted herein, we conclude that the dis-

trict court’s decision to apply a four-level “organizer or

leader” enhancement to the defendants’ tax conspiracy

offenses, pursuant to § 3B1.1, was proper. The judgment

of the district court is, therefore, AFFIRMED.

Nos. 02-1635 & 02-1636 17

POSNER, Circuit Judge, dissenting. The district court

imposed the organizer enhancement on these two defen-

dants after grouping the tax and gambling offenses. My

colleagues now affirm on a different ground, that the

gambling offense was relevant conduct.

I disagree but I wish they had at least said that the

grouping was improper, as it plainly was, rather than

ducking the issue. The government’s defense of the dis-

trict court’s ruling was irresponsible. Not only was it a

palpable error for the district court to group the two of-

fenses, but since grouping usually results in a more lenient

sentence (and would have done so here had the judge not

improperly enhanced the sentences) the government is

arguing against its long-term interests. Once again a local

office of the Justice Department, indifferent as it seems to

the implications of its position for the Department as a

whole, has embraced a position rejected by the Department

in its other cases. See Adler v. Espy, 35 F.3d 263, 264 (7th

Cir. 1994); Ortega v. United States, 270 F.3d 540, 548-49

(8th Cir. 2001); United States v. Bartlett, 856 F.2d 1071, 1080

n. 13 (8th Cir. 1988); cf. Woodhill Corp. v. Federal Emergency

Management Agency, 168 F.3d 1025, 1027-28 (7th Cir. 1999);

United States v. White, 882 F.2d 250, 252 (7th Cir. 1989).

Grouping—the purpose and usual effect of which are

to limit the defendant’s sentence to the punishment for the

most serious of the grouped offenses, U.S.S.G. ch. 3, pt. D,

Introductory Commentary; United States v. Runyan, 290

F.3d 223, 251 (5th Cir. 2002); United States v. Kalust, 249

F.3d 106, 110 (2d Cir. 2001); United States v. Reetz, 18 F.3d

595, 598 and n. 3 (8th Cir. 1994); United States v. Patterson,

947 F.2d 635, 636-37 (2d Cir. 1991)—is done when a defen-

dant is convicted of multiple counts so closely related

that they essentially merge into a single offense; or, in the

words of the guideline, when they inflict “substantially the

18 Nos. 02-1635 & 02-1636

same harm.” U.S.S.G. § 3D1.2. When, as in this case, the

victims are different (the victims of the gambling offense

are the community as a whole, as in other “victimless”

crimes, and perhaps the gamblers themselves, if a paternal-

istic view is taken, while the victims of the tax offenses

are the members of the taxpaying public), grouping is

improper, as several cases hold with regard to the closely

related question whether to group fraud and tax evasion.

Weinberger v. United States, 268 F.3d 346, 354-55 (6th

Cir. 2001); United States v. Astorri, 923 F.2d 1052, 1056-57 (3d

Cir. 1991); United States v. Vitale, 159 F.3d 810, 813-15 (3d

Cir. 1998); United States v. Lindsay, 184 F.3d 1138, 1142-43

(10th Cir. 1999).

I acknowledge the existence of contrary precedents,

illustrated by United States v. Gordon, 291 F.3d 181, 189-90

(2d Cir. 2002), and United States v. Haltom, 113 F.3d 43, 46

(5th Cir. 1997), that allow the grouping of fraud and

tax evasion, but their reasoning is not persuasive, especially

if carried over to a case like this. It is common for illegal

gambling enterprises to pay income taxes in order to avoid

compounding their offenses, especially since, as this case

illustrates, the tax offense will often be more serious than

what in the case of gambling is little more than a “morals”

offense. Gambling is extremely widespread in the United

States and broadly approved; the moral distinction be-

tween the gambling that is legal and the gambling that

is illegal is faint to the point of invisibility.

In all the cases I have cited or could cite on both sides

of the question, except Gordon, where the government

grudgingly acknowledged the existence of binding cir-

cuit precedent that required grouping, the government was

arguing against grouping, which is to say against the

position it is arguing for in this case. See also Brief for the

United States in Glover v. United States (531 U.S. 198 (2001)),

No. 99-8576, pp. 39-44.

Nos. 02-1635 & 02-1636 19

I said that the usual effect, not the invariable effect, of

grouping is to lighten the defendant’s sentence. In United

States v. Bjorkman, 270 F.3d 482, 495-97 (7th Cir. 2001) (per

curiam), we held, pursuant to U.S.S.G. § 1B1.3(a)(2), that

when offenses constituting parts of the “same course of

conduct or common scheme or plan” are grouped under

section 3D1.2(d) of the guidelines (which is done “when

the offense level is determined largely on the basis of the

total amount of harm or loss, the quantity of a substance

involved, or some other measure of aggregate harm, or if

the offense behavior is ongoing or continuous in na-

ture . . .”), a managerial role in one of the grouped offenses

can be automatically attached to the offense of conviction.

For by definition offenses grouped on such a basis in such

circumstances are not merely different characterizations

of the same basic criminal activity but different building

blocks of an overarching offense. A typical example would

be where the defendant’s offense level is determined by

what may have been the relatively minor amount of drugs

that he handled but it was part of a larger course of con-

duct in which he played a managerial role.

Bjorkman was such a case; this is not; the difference

is made clear by United States v. Ritsema, 31 F.3d 559, 565-66

(7th Cir. 1994), which held that “section 1B1.3(a)(2) cannot

be read to make Ritsema’s obstruction of justice conduct

relevant to his silencer offense [possession of an unregis-

tered silencer] because by its terms, it applies only to

offenses which would be grouped as multiple counts

under section 3D1.2(d).” Substitute gambling for obstruc-

tion of justice and tax evasion for possessing an unregis-

tered silencer and you have this case. In any event, my

colleagues decline to decide whether grouping was prop-

er in this case, making unintelligible their reliance on Bjork-

man, a case that presupposed grouping—and under the

inapplicable § 3D1.2(d), to boot. Pretending that the de-

20 Nos. 02-1635 & 02-1636

fendants had been convicted only of the tax offense, my

colleagues adopt the government’s alternative argument

that since that offense was related to the gambling of-

fense and the sentencing guidelines provide that in decid-

ing whether a defendant is an organizer the sentencing

court should consider “relevant conduct,” U.S.S.G. ch. 3,

pt. B, Introductory Commentary; United States v. Billingsley,

115 F.3d 458, 465 (7th Cir. 1997); United States v. Febus,

218 F.3d 784, 796 (7th Cir. 2000), the defendants should

be deemed organizers of the tax offense. This is a fiction.

Their role in the tax offense was merely to accept the il-

legal advice of their tax lawyer. He concocted, organized,

and implemented the offense. They are guilty too of course

but are no more organizers of the offense than a thief

who sells stolen property to a fence is an organizer of the

fencing operation.

Is it a fiction commanded or countenanced by the sen-

tencing guidelines? It is not. So far as bears on this case

(since it is not a grouping case, or treated as one by the

majority), relevant conduct is criminal activity “that oc-

curred during the commission of the offense of convic-

tion, in preparation for that offense, or in the course of

attempting to avoid detection or responsibility for that of-

fense.” U.S.S.G. § 1B1.3(a)(1). The offense of conviction

was tax evasion, and the gambling activity that generated

the income on which the defendants failed to pay taxes

was not “in preparation for that offense.” We have made

clear that “factually related to” is not synonymous with “in

preparation for.” United States v. Tai, 994 F.2d 1204, 1213

(7th Cir. 1993). Nor is this a case like United States v. Lewis,

79 F.3d 688, 691-92 (7th Cir. 1996), where the relevant con-

duct was money laundering undertaken to shield the

offense of conviction, which was the sale of cocaine, from

detection. The government has it backwards: the tax eva-

sion was an attempt to avoid discovery of the gambling

Nos. 02-1635 & 02-1636 21

offense, not vice versa. And while the gambling offense

and the tax offense overlapped in time, for an offense to

“occur . . . during the commission of the offense of convic-

tion” implies more than a temporal overlap, as we held

in United States v. Ritsema, supra, 31 F.3d at 566-67; see

also United States v. Taylor, 272 F.3d 980, 982-84 (7th Cir.

2001); compare United States v. Ellison, 113 F.3d 77, 83

(7th Cir. 1997). Otherwise, if the defendants had beaten

their wives during the period in which they were beating

taxes, the wife-beating offense would be deemed relevant

conduct. The purpose of “during the commission” is, we

explained in Ritsema, “to free the [sentencing] court from

the strict confines of the indictment so that it may hold

the defendant accountable for the full range of harms

that stemmed from his offense conduct.” 31 F.3d at 567.

The harm from the defendants’ tax evasion was not aug-

mented by the fact that the income on which they evaded

taxes was generated by gambling. The harm would have

been the same had it been generated by lawful business

dealings.

The guidelines’ directive to consider relevant conduct

in determining a defendant’s status as an organizer per-

tains to situations in which the relevant conduct enables

the court to identify the defendant as an organizer of the

offense of which he was convicted. Suppose that that

offense is a single sale of drugs to an undercover agent by

the defendant at the door of a crack house and the rele-

vant conduct is defendant’s ownership and management

of the crack house. Then it would be apparent that his role

in relation to the sale had been that of an organizer rather

than merely that of a sales clerk. See United States v.

Noble, 246 F.3d 946, 954 (7th Cir. 2001); United States v.

McClinton, 135 F.3d 1178, 1191 (7th Cir. 1998); see also

United States v. Lillard, 929 F.2d 500, 503 (9th Cir. 1991); cf.

my earlier discussion of grouping under U.S.S.G. § 3D1.2(d).

22 Nos. 02-1635 & 02-1636

But the relevant conduct here, which is to say the gam-

bling enterprise, does not demonstrate that the defen-

dants played an organizing role in relation to the tax of-

fense. All it demonstrates is the motive and source of

funds for their dealings with the crooked tax lawyer.

A true Copy:

Teste:

_____________________________

Clerk of the United States Court of

Appeals for the Seventh Circuit

USCA-02-C-0072—12-16-02