Free Sentencing Memorandum - District Court of Connecticut - Connecticut

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UNITED STATES DISTRICT COURT DISTRICT OF CONNECTICUT UNITED STATES OF AMERICA : : : : : : : : : No. 3:02CR00264 (AWT)

v.

July 12, 2005

E. KIRK SHELTON

SENTENCING MEMORANDUM OF THE UNITED STATES

CHRISTOPHER J. CHRISTIE JOHN J. CARNEY NORMAN GROSS JAMES MCMAHON RICHARD J. SCHECHTER Special Attorneys U.S. Department of Justice 970 Broad Street, Room 700 Newark, NJ 07102 Tel: (973) 645-2700 Fax: (973) 645-2702

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Introduction The United States submits this sentencing memorandum in connection with the July 18-22, 2005 sentencing of defendant E. Kirk Shelton and in opposition to Shelton's July 5, 2005 "Memorandum in Aid of Sentencing" ("Shelton Mem."). Consistent with his refusal to accept any responsibility for the crimes for which a jury adjudged him guilty beyond a reasonable doubt, Shelton declines to offer a single word of remorse in his 110 page sentencing submission. Thus, while detailing with painstaking care all of the favorable things that his friends and relatives have said about him in preparation for this sentencing, Shelton's only apparent regret about his crimes is that the value of his own holdings of Cendant stock were depressed when the fraud was disclosed. Having filled

his sentencing brief with encomiums to himself and his "lifetime of good deeds," Shelton fails to utter a word of sympathy for the thousands of people who were defrauded because they trusted Shelton and his co-conspirators to truthfully inform the investing public about CUC's true earnings. Shelton's self-serving and self-laudatory memorandum is designed to convince the Court that he (not the shareholders) is the real "victim" in this case. Thus, the only "victim" that

Shelton refers to in his sentencing submission is himself. Shelton Mem. 63, 87.1 In an effort to escape any meaningful

1

Shelton's remarkable contention that he "placed himself in (continued...) 1

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punishment whatsoever for his criminal conduct, Shelton has the audacity to ask the Court to impose a sentence of probation, the proverbial slap on the wrist sought by white collar offenders. Shelton Mem. 7. Given the magnitude of the crimes he committed,

coupled with his lack of remorse, the Court should impose the term of incarceration that Shelton has earned, within the Sentencing Guidelines range of 151 to 188 months. Earlier this year, the Supreme Court clarified the continuing role of the Sentencing Guidelines and the scope of the sentencing court's discretion in United States v. Booker, 125 S.Ct. 738 (2005). Booker makes clear that this Court must

consider both the sentencing factors set forth in 18 U.S.C. Section 3553(a), and the Sentencing Guidelines in fashioning a reasonable sentence. Id. at 764. While the Sentencing

Guidelines are no longer mandatory following Booker, they must still be considered in determining the appropriate sentence. Second Circuit has recognized the continuing relevance of the Sentencing Guidelines following Booker in determining an appropriate sentence: [I]t is important to bear in mind that Booker/ Fanfan and section 3553(a) do more than render the Guidelines a body of casual advice, to be consulted or overlooked at the whim of a sentencing judge. Thus, it would be a mistake to think that, after Booker/Fanfan, district judges The

1

(...continued) the exact same position as the victims" (Shelton Mem. 87) (emphasis in original) conveniently overlooks the fact that other "victims" who were mere shareholders but not executive officers of CUC and Cendant did not know about and direct the fraud. 2

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may return to the sentencing regime that existed before 1987 and exercise unfettered discretion to select any sentence within the applicable statutory maximum and minimum. On the contrary, the Supreme Court expects sentencing judges faithfully to discharge their statutory obligation to "consider" the Guidelines and all of the other factors listed in section 3553(a). We have every confidence that the judges of this Circuit will do so, and that the resulting sentences will continue to substantially reduce unwarranted disparities while now achieving somewhat more individualized justice. United States v. Crosby, 397 F.3d 103, 113-14 (2d Cir. 2005). Under the non-mandatory Guideline regime established by Booker and Crosby, the sentencing judge is empowered to make the factual findings necessary for determining what the recommended Guideline Sentence is in a particular case. Crosby, 397 F.3d at

113 ("the sentencing judge is entitled to find all the facts appropriate for determining either a Guidelines sentence or a non-Guidelines sentence"). As requested by this Court, this memorandum contains two parts: Part 1 is a discussion of: (a) the Sentencing

Guideline provisions that are applicable to Shelton's criminal conduct; and (b) the reasons why Shelton should not receive a downward departure from the applicable Guideline range. Part 2

addresses the other sentencing factors contained in 18 U.S.C. § 3553. Part 1 Guidelines Issues Although no longer binding upon the Court, the United States Sentencing Guidelines represent the considered judgment of 3

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the United States Sentencing Commission, a body of experts, drawn from all areas of the legal profession. Drawing on previous

sentences imposed in particular cases, the guidelines were specifically created to ensure that appropriate and consistent sentences were imposed in federal courts throughout the nation. Both the Booker and Crosby Courts stressed the continuing significance of the Guidelines under the new sentencing framework. In this case, the sentence called for by the

Sentencing Guidelines properly reflects the seriousness of Shelton's crimes. Thus, the United States requests that the

Court impose a sentence within the applicable Guideline range, rather than the sentence of probation requested by Shelton. Shelton Mem. 12. A. The Appropriate Offense Level is 34. The United States agrees with the Probation Office that the applicable sentencing Guideline range is offense level 34 with a Criminal History Category of I. This offense level

calls for a Guideline imprisonment range of 151 to 188 months. Pre-Sentence Report ("PSR"), Par. 150. A sentence within that

range would reflect the seriousness of the offenses of conviction and the particular aggravating factors relating to Shelton's conduct. Using the 1997 Sentencing Guidelines Manual,2 Shelton's

2

Shelton does not challenge the determination of the Probation Office that the November 1, 1997 edition of the United States Sentencing Guidelines Manual applies in this case. All references to the guidelines in this memorandum refer to that edition of the Guidelines Manual, unless otherwise noted. 4

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offense level, as calculated in the PSR (Par. 106 - 116), is as follows: Base Offense Level (2F1.1(a)) Loss (2F1.1(b)(1)(S) (more than $80 million)) More than minimal planning, and more than one victim (2F1.1(b)(2)(A) and (B)) Abuse of Position of Trust (3B1.3) Organizer and Leader (3B1.1(a)) Obstruction of Justice (3C1.1) No Acceptance of Responsibility (3E1.1) Offense Level Total Guideline Range + 6 18

+ 2 + 2 + 4 + 2 0 __________ 34 151 to 188 Months

Although Shelton has raised numerous objections to the Guideline calculations set forth above, the record amply supports each of these adjustments. 1. Base offense level: (Begin at level 6). PSR,

The PSR recommends a base offense level of 6. Par. 107. Shelton does not object to the base level. 2. The Loss Amount: (Add 18 levels).

The PSR recommends an increase of 18 levels for the loss amount, finding that the "loss exceeded $80 million." Par. 108, see also PSR Pars. 81-85, 87. PSR,

Although Shelton does

not and could not reasonably claim that the fraud in this case caused less than $80 million in loss, he does argue that an 18 level enhancement for loss exceeds the seriousness of his crimes. Shelton Mem. 78-90. If anything, the 18 level increase Cendant's

understates the seriousness of Shelton's conduct.

shareholders lost more than $14 billion in one day -- on April 16, 1998, the day after the fraud was announced to the public.

5

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This $14 billion loss is more than one hundred times greater than the $80 million cap in the 1997 Guidelines Manual. An offense

level increase based on only $80 million in loss, when the actual loss exceeds that number by many fold, substantially understates, rather than overstates the seriousness of Shelton's crimes. a. The Loss Substantially Exceeds $80 Million.

By any measure, the loss suffered by the victims of Shelton's crimes is staggering. Under the Sentencing Guidelines:

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. § 2F1.1, App. Note 8; see United States v. Manas, 272 F.3d 159, 164 (2nd Cir. 2001); United States v. Bryant, 128 F.3d 74, 76 (2d Cir. 1997). At sentencing, the government must prove United States v. Tiller,

loss only by a preponderance standard. 302 F.3d 98, 106 n.4 (3d Cir. 2002).

Pursuant to U.S.S.G. §

2F1.1, Shelton deserves an 18 level enhancement as the loss caused by the offense exceeded $80 million. The Guidelines describe how to measure loss where the defendant causes a victim to purchase equity stock at a fraudulently inflated price: A fraud may involve the misrepresentation of the value of an item that does have some value (in contrast to an item that is worthless). Where for example a defendant fraudulently represents that stock is worth 6

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$40,000 and the stock is worth only $10,000, the loss is the amount by which the stock was overvalued (i.e. $30,000). U.S.S.G. § 2F1.1., App. Note 7(a). Here, Shelton and his co-

conspirators caused many victims to purchase Cendant and CUC stock for a price far in excess of what the market would value the stock based on all material information. In United Statses v. Moskowitz, 215 F.3d 265, 272 (2d Cir, 2000), the defendants were convicted of various offenses, including conspiracy, securities fraud, and making false statements to the SEC, arising from their involvement in a scheme to fraudulently inflate the price of publicly traded stock. At

sentencing, the government presented evidence that estimated the loss at from $7.1 million to $18.3 million based on the decline in the company's share price upon the revelation of fraud. Government also presented an analysis from the class action plaintiffs' expert determining loss to the plaintiffs to be $30 million. Based on that information, the district court The

determined that the actual losses were in the range of $5 million to $10 million. 215 F.3d at 272.

On appeal, the Second Circuit rejected the defendants' claim that the district court erred by considering the amount of the settlement in the civil class action lawsuit, that: In light of the ample evidence that would have permitted a reasonable fact finder to determine actual losses to be higher than the range of $5 million to $10 million that the district court found applicable to Moskowitz, the court was well within its discretion in reaching its loss 7 explaining

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calculation. Id. (emphasis in original), abrogated on other grounds by Crawford v. Washington, 541 U.S. 36 (2004); see United States v. Snyder, 291 F.3d 1291, 1296 (11th Cir. 2002)(directing the district court on a sentencing remand of a securities fraud criminal prosecution to make a "a reasonable estimate of the victims' loss based on existing information"). The same information which properly informed the district court's calculation of the fraud loss in Moskowitz demonstrates that the loss in this case was at least $8 billion. Beginning in or about the late 1980's and continuing for about a decade, CUC, and later Cendant, regularly reported financial results to Wall Street and its shareholders that were intentionally inflated by hundreds of millions of dollars. Upon

learning of the overstatement in early spring 1998, Cendant's new management issued a press release on April 15, 1998 announcing that the company would restate previously reported financial results for 1997, including reducing 1997 net income by $100 to $115 million, because of accounting irregularities relating to certain business segments of CUC. See Government Ex. 827. On

the day before this announcement, Cendant's stock price was trading at more than $35 per share. On April 16, after the

marketplace had the opportunity to assimilate the news of the restated financial results, Cendant's stock price closed at $19.06 a share, down from $35.62. Tr. 1461, 7104-15, 7513-14;

Gov. Ex. 2039 and 2039a; In Re: Cendant Corporation Litigation, 8

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264 F.3d 201, 221 (3d Cir. 2001). At the time of the announcement Cendant had approximately 1 billion shares issued and outstanding, which translated into a loss of market capitalization of over $14 billion. Subsequent announcements by the corporation that it

would be necessary to restate their 1995, 1996 and 1997 financial statements and the disclosure of the Audit Committee's internal investigation resulted in Cendant's share price falling to $11 5/8 on August 31, 1998. All told, Cendant shareholders lost more In Re: Cendant The stock has never

than $20 billion in market capitalization. Corporation Litigation, 264 F.3d at 222. fully recovered.3

In the related Cendant securities class action proceeding in the District of New Jersey, the plaintiffs were

3

Shelton attempts to minimize the impact his crimes had upon his victims by arguing that the price of Cendant's stock "rebounded" to CUC's summer 1997 price of $24 twelve days after the fraud was publicly revealed in April 1998. Shelton Mem. 7, 82. Shelton's argument boils down to little more than the idea that he should not be held accountable because his crimes did not impact those shareholders who held CUC/Cendant shares for approximately a year or more as much as it did others because those longer-term shareholders suffered only a paper loss. Aside from the problems with his comparison of CUC apples with Cendant oranges, Shelton conveniently ignores two central facts of his crime: 1) Cendant's shareholders together lost more than $14 billion in a single day; and 2) the shareholders have yet to recover that loss seven years later because Cendant's stock price has not come close to its pre-disclosure level. His argument conveniently ignores those shareholders, such as the State of New Jersey pension fund, who bought CUC or Cendant shares at significantly higher prices from September 1997 through April 14, 1998. Shelton also fails to mention that Cendant's stock price dropped again after an additional disclosure of fraud was made in July 1998. 9

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required to prove the damages sustained by the class shareholders as a result of the fraud. The plaintiffs presented an expert

report which calculated the loss from the fraud to be approximately $8.8 billion. Litigation, 264 F.3d at 241. In Re: Cendant Corporation Cendant and the corporation's

auditors, Ernst & Young, agreed to settle the class action lawsuits by paying more than $3.2 billion in damages to the victims of the accounting fraud. Id. at 226; see also May 19,

2005 letter from Cendant counsel, Exhibit B to this memorandum. By any reasonable measure, the loss caused by Shelton's criminal conduct far exceeds the $80 million figure that triggers an 18 level increase under U.S.S.G. § 2F1.1(b)(1)(S). Accordingly, an

18 level increase, far from overstating the seriousness of Shelton's crimes, is favorable to Shelton. b. An 18 Level Enhancement for Loss Does Not Overstate the Seriousness of Shelton's Crimes. Given that the largest loss range within § 2F1.1 (under the 1997 Manual) is only $80 million, the multi-billion dollar loss here is not fully captured by use of a table that tops out at $80 million. See U.S.S.G. § 2F1.1., App. Note 10 ("In cases

in which the loss determined under subsection (b)(1) does not fully capture harmfulness and seriousness of the conduct, an upward departure may be warranted"). While the United States is

not moving for an upward departure on this basis, this factor militates strongly against a downward departure for overstatement of the harm to the victims caused by their financial loss.

10

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Shelton's other arguments to reduce the loss amount in this case are also unavailing. i. Shelton's Intended Harm Argument is Baseless. In an effort to avoid full responsibility for the devastating losses suffered by his victims, Shelton contends that there was no intended harm. Shelton Mem. 88-89. Even assuming

arguendo that Shelton intended that the shareholders would not lose any money (e.g. Shelton may have believed that the fraud would continue undetected and thus, the stock price would never drop), such an argument is unavailing where an actual loss occurred. U.S.S.G. § 2F1.1, App. Note 7 (to determine loss under

the Guidelines, use the greater of intended loss and actual loss); see United States v. Hedges, 175 F.3d 1312, 1315-16 (11th Cir. 1999) (because the actual loss was greater than the loss that defendant subjectively believed would result from securities fraud scheme, court correctly sentenced him based on the actual loss; knowledge was not necessarily relevant to the amount of loss that is attributed to a defendant for sentencing purposes). Given his role in the company, his business acumen, his MBA training and his Ivy League education, Shelton could also reasonably foresee the full extent of the harm the fraud would cause. Moreover, as the second highest ranking employee at CUC

(and unlike his corporate subordinates Corigliano, Pember and Sabatino, who merely carried out the orders of their superiors to implement the accounting aspects of the fraud), Shelton had authority at CUC that was second only to that of defendant Walter 11

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Forbes.

As such, he could have stopped the fraud or altered its

magnitude by virtue of his leadership position. Shelton claims that he did not intend to harm shareholders, but to the contrary, believed and hoped that fraudulently overstating earnings in public disclosure documents would necessarily enure to the benefit of shareholders. Mem. 63, 87-88. Shelton

Aside from the fact that Shelton has never

admitted that he participated in the fraud, much less identified his motives for that participation, this claim should be rejected. It reduces to the claim that the conspirators hoped

that the Ponzi-scheme type fraud could continue indefinitely and that the shareholders who purchased CUC and Cendant stock at fraudulently inflated prices would ultimately be able to sell the shares to others at even higher fraudulently inflated prices. Shelton is not entitled to a reduced sentence because the conspirators mistakenly hoped that their fraud would go on even longer than it did. In any event, whether or not Shelton believed that the elaborate scheme could continue indefinitely, he knew that he and his co-conspirators had caused the victims to pay more for the stock than it was worth based on the disclosure of true information. At the very least, Shelton took a highly

unreasonable risk that disclosure of the fraud would cause the stock price to come crashing down, as it ultimately did, and that investors would lose huge amounts of money, as they eventually did. 12

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Shelton resurrects the argument (which formed the basis for his failed pre-trial motion to dismiss the mail and wire fraud counts) that, because this was not a simple fraud by which the criminal induced the victims to place their money directly in the hands of the criminals, his offense was somehow less culpable. Shelton Mem. 87-88. To the contrary, the conspirators

knew that, by falsely inflating CUC's earnings, they caused any person who purchased CUC or Cendant stock during the conspiracy period to pay more for the stock than they would have been willing to pay had they known what CUC's real earnings were. Thus, the conspirators intended the shareholders to part with a portion of the purchase price of the stock solely because they were gulled by the fraud. That the shareholders received

something of value in return for their investment does not mean that Shelton and his coconspirators could possibly believe that they were acting in the interests of the shareholders when they inflated CUC's earnings. Shelton also seeks credit for the success that Cendant has been able to achieve after Shelton was fired from the company, and points out that his crimes did not cause Cendant to become bankrupt and its employees to lose their jobs. Mem. 64-66. Shelton

As the July 5, 2005 letter from Cendant's counsel

demonstrates (Exhibit A to this memorandum), any success that Cendant has achieved since it was forced to restate its financial statements in 1998 occurred because other persons who remained at the company and who did not participate in the fraud were able to 13

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overcome the substantial harm and expenses that Shelton's fraud imposed on that company. ii. Shelton, Who Pleaded Not Guilty, Is Not Entitled to the Benefits of the Plea Agreements of His CoConspirators. The negotiated plea agreements signed by Corigliano and Pember contain a stipulation that, as to them (who carried out Shelton's directives), the $80 million loss figure overstates the seriousness of their crimes.4 Shelton is not a party to those Shelton

plea agreements or, indeed, to any plea agreements.

nevertheless contends that he should receive the benefit of the negotiated stipulation in Corigliano's and Pember's plea agreements. Shelton Mem 85. This argument should be rejected.

The Government stipulated that Corigliano's and Pember's involvement in the fraud was less serious than the 18 level fraud enhancement would require because of their inferior roles in the fraud, relative to the roles of Shelton and Walter Forbes. One who causes subordinates to commit a crime is for

that reason more culpable than those who follow the directives in order to avoid the loss of employment benefits. Corigliano and

Pember would not have committed the fraud but for the orders they were given to engage in the fraud by Walter Forbes, Shelton, and Stuart Bell. Shelton has advanced no such excuse or explanation

4

As the Court has already noted, the stipulations in those plea agreements are not binding on the Court. See Transcript of October 16, 2003, p. 99-100. 14

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for his own conduct.5 Shelton nevertheless contends that he is less culpable than Corigliano or Pember because they knew more details about the fraud they were ordered to perform by Shelton and others. That Shelton merely directed his subordinates to manage the numbers in order to meet Wall Street earnings targets, but did not take the additional step of directing them to undertake particular accounting practices, such as the accelerated recognition of revenue, does not make Shelton less culpable than those to whom he gave orders. Shelton told his subordinates, in Shelton's

effect, "get it done, and spare me the details."

argument simply disregards the important and reasonable policy choice of the Sentencing Commission that those who occupy a

5

Pointing to the multiple of 250 between $80 million (which the Government has agreed overstates the seriousness of Corigliano's and Pember's crimes) and $20 billion (the total drop in Cendant's market capitalization from April 15, 1998 and August 31, 1998, when Cendant announced the restatements amounts for fiscal years 1995-97), Shelton contends that he is not 250 times more culpable than Corigliano and Pember and thus, that he can not be held responsible for $20 billion in losses if they are not held responsible for even $80 million in losses. The Government, however, is not seeking a sentence for Shelton that is remotely 250 times greater than whatever sentence it will ultimately seek for Pember and Corigliano. Shelton has apparently misread the Corigliano plea agreement when he claims (Shelton Mem. 63), that the Government has agreed not to oppose a sentence of home confinement for Corigliano. What the plea agreement actually states is that, if this Court grants a downward departure from the applicable Sentencing Guidelines range for Corigliano that would authorize this Court to impose a sentence of house arrest, the Government would not oppose such a sentence. Gov. Ex. 1546 (Corigliano plea agreement). 15

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higher position in the conspiratorial hierarchy are more blameworthy than those whom they supervise.6 Shelton further suggests that he, like Corigliano and Pember, "cooperated" with federal law enforcement officials and with the Audit Committee because he met with them and gave them a self-serving exculpatory explanation of events. Shelton Mem 86.

Unlike the two cooperating witnesses who admitted their involvement in the fraud to federal law enforcement officials, if not to the Audit Committee investigators, Shelton's false selfexculpatory statements obstructed, rather than advanced, the investigation. iii. The Case Law Does Not Support Shelton.

In support of his contention that an $80 million loss amount overstates the seriousness of an offense that cost its victims billions, Shelton erroneously attempts to seek comfort He

in United States v. Restrepo, 936 F.2d 661 (2d Cir. 1991).

declines to mention that the defendants in that money-laundering prosecution who received a downward departure "were laborers whose sole function was to load the boxes of money at the warehouse" on a single occasion. 936 F.2d at 667. As such, they

had no say in the volume of money-laundering which their leaders in the money-laundering conspiracy undertook.

6

In fashioning an appropriate sentence for Shelton, this Court must take into consideration the fact that it will later have to fashion proportionately lower sentences for Corigliano, Pember, and Sabatino, who were not only less culpable than Shelton, but who, unlike him, pleaded guilty and agreed to cooperate with the Government. 16

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Here, by contrast, Shelton was not a menial functionary in a fraud that was organized, directed, and executed by others who occupied a superior position in the conspiracy to his own. Rather, with the exception of Stuart Bell and defendant Walter Forbes, Shelton directed the activities of all other participants. Analogizing Shelton's role in this crime to the

menial servants in Restrepo stands logic on its head. Also inapposite is another case cited by Shelton, United States v. Koczuk, 166 F.Supp.2d 757 (E.D.N.Y. 2001). district court in that case granted a departure because the defendant "was not actively involved in [the unlawful] business. . . was merely a low-level employee in [the] operation serving mainly as a chauffeur and interpreter, [and] primarily was taking orders from [the leader of the conspiracy] and made small sums of money)." 166 F.Supp.2d at 763 (internal punctuation omitted). The

The defendant's role in Koczuk is more akin to the role played in the instant crime by the CUC staff accountant Mary Sattler, who was not even charged in this case. Neither United States v. Greenfield, 44 F.3d 1141 (2d Cir. 1995) nor United States v. Nachamie, 121 F.Supp.2d 285 (S.D.N.Y. 2000) support Shelton's claim that an 18 level enhancement for loss overstates the seriousness of Shelton's offense. In the former, Greenfield and Pace fraudulently

acquired equipment, worth about $20,000, which they used to build a phony automated teller machine ("ATM"), which recorded bank account and personal identification numbers of cards that were 17

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placed in the machine.

Greenfield and Pace also fraudulently

acquired additional equipment, worth about $80,000, which they used to create fraudulent ATM cards. suppliers for any of that equipment. They never paid the 44 F.3d at 1144, 1149. A

third person, Lyons, then joined the conspiracy, and assisted Greenfield and Pace in using the phony ATM to obtain account access information and fraudulently obtain cash from legitimate ATMs. Id. at 1144. At sentencing, the district court attributed to Lyons all $100,000 in loss resulting from Greenfield's and Pace's fraudulent procurement of the equipment used to build the phony ATM and create the phony ATM cards. Although properly concluding

that Lyons should have known that his co-conspirators had fraudulently obtained, before Lyons joined the conspiracy, the equipment needed to build the phony ATM, the district court failed to make any findings about whether Lyons reasonably should have known that his co-conspirators had also fraudulently obtained the equipment used to create the phony ATM cards. The

Government conceded that a remand was necessary for the district court to determine the foreseeability to Lyons of the latter aspect of the fraud. Id. at 1149.

Here, there is abundant evidence from which this Court can conclude that at the very least, $80 million of loss from the fraud was reasonably foreseeable to Shelton. Indeed, in

Cendant's fiscal year ending December 31, 1997 alone, during which Shelton's extensive involvement in the fraud was thoroughly 18

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established by the trial evidence, the conspirators overstated Cendant's income by at least $176 million. Ex. 10110. Tr. 10666-68; Gov.

In the three years during which Shelton's direct

involvement in the fraud was established by the evidence, the conspirators overstated CUC's and Cendant's income by at least $300 million. Tr. 10665-68; Gov. Ex. 10110. As the evidence

also established, every dollar of fraudulent overstatement of CUC's and Cendant's income translated into at least several dollars of loss to the Cendant shareholders when the fraud was disclosed. Thus, unlike Lyons, Shelton's entry into the fraud

predated all of the fraudulent activity to which the loss was attributed. In Nachamie, a Medicare fraud prosecution against physicians, the Government sought to increase the fraud loss based on amounts for which co-conspirators double-billed Medicare for a single claimed procedure, which procedure was never in fact performed. The district court concluded that the Government had

failed to establish that the defendant physicians, although intending to bill Medicare once for non-existent procedures, had also intended to double-bill Medicare for those claims, or reasonably foresaw that double-billing. 121 F.Supp.2d at 294.

Here, by contrast, the Government does not seek a sentence based on the full amount of the loss, amounting to billions of dollars, but only a tiny fraction of that amount, $80 million. Even if

the Government could not establish that Shelton could reasonably foresee the details of all of the fraudulent accounting 19

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machinations put into operation by his corporate subordinates, he certainly knew about, intended to cause, and reasonably could foresee, a sufficiently inflated overstatement of CUC's and Cendant's earnings to cause an $80 million dollar loss. iv. Shelton's "Loss Amount" is More Than $80 Million.

Shelton contends that the $80 million cut-off in U.S.S.G. § 2F1.1(b)(1)(S) overstates the harm in this case because "estimates of loss are highly speculative." 81. Shelton Mem.

Shelton elsewhere concedes, however, that the loss was "at

least" $80 million, since the loss in market capitalization which occurred when the fraud was disclosed was, by all measurements, in the billions of dollars, not in the tens or hundreds of millions. Shelton Mem. 67. That the Government would have to

undertake additional, substantial expenses to hire expert witnesses to calculate the exact amount of the fraud loss hardly means that Shelton is entitled to a reduced sentence because the precise amount of the loss has not been determined. Shelton

cites neither authority nor general sentencing principles to support his contention that he is entitled to a reduced sentence because he elected to engage in a fraud that does not lend itself to easy loss calculations. By any reasonable measure, Shelton's

crimes were so extensive that they caused greater monetary loss than is contemplated by the applicable Sentencing Guideline. Shelton contends that an additional 18 levels added to his offense level reflecting $80 million of loss overstates the seriousness of the offense because the fraud did not leave the 20

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stockholders with "worthless pieces of paper." This argument is a non sequitur.

Shelton Mem. 82.

If the fraud had caused the

price of Cendant stock to fall to zero, the loss amount would be substantially greater than it was, but that does not mean that a Sentencing Guidelines level that reflects only $80 million of loss understates the seriousness of this crime. Shelton contends that his sentence should be reduced because he delegated the nuts and bolts of cooking the books (to mix a metaphor) by directing his subordinate Cosmo Corigliano to "manage the numbers . . . to meet Wall Street expectations" without telling him to undertake that management. at 83-84. Shelton Mem.

He argues that because he did not specifically

authorize Corigliano to establish phoney topside adjustments, improperly accelerate the recognition of revenue, or intentionally understate the need for a membership cancellation reserve, any loss derived from those practices should be wholly disregarded. Shelton Mem 81.

This argument fails, as the Government was not required to prove that Shelton knew about all of the phony accounting practices undertaken by his subordinates, but only that their conduct, all of which was undertaken in furtherance of the conspiracy for which Shelton was convicted, was reasonably foreseeable to him. See U.S.S.G. § 1B1.3, App. Note 2; United

States v. Rosen, 409 F.3d 535, 552 (2d Cir. 2005)(prosecution for securities fraud; "Where the offense is the product of joint criminal activity, a defendant is responsible for `all reasonably 21

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foreseeable acts and omissions of others in furtherance of the jointly undertaken criminal activity.' quoting U.S.S.G. § 1B1.3(a)(1)(B)); United States v. Lopreato, 83 F.3d 571, 576 (2d Cir. 1996).7 Whether or not Shelton personally directed or was even aware of each of the details of those improper practices is immaterial since all were reasonably foreseeable to someone who occupied Shelton's leadership position in the fraud. See United

States v. Hedges, 175 F.3d at 11315-16 (rejecting the contention that the defendant could not be held responsible for the full amount of the loss resulting from the fraudulent overstatement of the value of publicly traded stock because he supposedly was not aware that the stock was virtually worthless when he was touting it; "Because it was this false information [promulgated by Hedges] that induced the public to invest in Cascade (and thereby suffer $92 million in losses), Hedges' action made him responsible for the entire loss that the public suffered from the fraudulent scheme."); see generally United States v. Lucien, 347 F.3d 45, 55 (2d Cir. 2003)(district court properly attributed to a defendant convicted of health care fraud who participated jointly with others as one of several automobile passengers in
7

By Shelton's misguided reasoning, a mobster who orders his underling to kill the victim but spare the mobster the details is less guilty than the mobster who tells his underling precisely how to accomplish the murder. Criminal organizers and leaders who elect to ignore precisely how the crime is committed are no less culpable because of their decision to remain above the details of the crime than those who elect to micro-manage the crime. Both have made the fateful decision to authorize and support a crime which they have power to prevent. 22

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scheme involving passengers' faking injuries from staged automobile collision the total loss from amounts attributable to other passengers in same car, because those loses were reasonably foreseeable to the defendant); United States v. Murad, 954 F.Supp. 772, 783 (D.Vt. 1997)(district court properly attributed to a defendant convicted of conspiracy to commit bankruptcy fraud the loss caused by the diversion of particular bankruptcy estate assets, even if the defendant had no actual knowledge of that particular diversion, where his participation in the conspiracy put him in a position to reasonably foresee efforts by others within family to transfer those funds).8 v. Shelton Benefitted Greatly From the Fraud.

As the market's harsh reaction to the disclosure of the fraud on April 15, 1998 revealed, the conspirators would not have
8

Had Shelton committed the identical crimes after November 2004 rather than when he did, the 2004 Sentencing Guideline Manual would call for a loss enhancement of 30 levels (more than $400 million), not 18 levels, a victim enhancement of 6 levels, not 2 levels, and an additional 2 level enhancement since Shelton was an officer of a publicly traded company convicted of a violation of securities laws. See United States Sentencing Guidelines Manual, §§ 2B1.1(b)(1)(P), 2B1.1(b)(2)(B), and 2B1.1.(15)(A)(November 1, 2004). Given the other applicable enhancements for leadership, abuse of trust, and perjury, along with the base offense level of 6, Shelton's total offense level under the current version of the Sentencing Guidelines would be level 52. Level 43 is the highest level in the Sentencing Table, and correlates with a Guideline range of life imprisonment for a defendant with a Criminal History category of I. Although the United States is not moving for an upward departure on this basis, the fact that an identically situated defendant who commits the same crimes today would literally be facing a life sentence under the Guidelines should be considered by the Court when it addresses Shelton's downward departure requests. 23

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enjoyed the same level of financial success of managing CUC had they accurately reported the company's earnings during the conspiracy period. Thanks to the fraud, however, the company, For example, as the second

and its executives, prospered.

highest ranking official at CUC, Shelton received $60 million from CUC in salary, bonuses, stock options, and stock price appreciation (Tr. 12625), dwarfing the payments to other culpable individuals such as Sabatino, Speaks and Kearney. Shelton's huge

gains demonstrates that an $80 million loss figure does not overstate the seriousness of his conduct. See U.S.S.G. § 2F1.1.,

App. Note 8 ("The offender's gain is an alternative estimate that ordinarily will underestimate the loss.") Shelton nevertheless contends that he personally received no gain from the fraud, and indeed, was one of its victims, thus justifying a sentence below what the loss amount would call for. Shelton Mem. 81, 87 and n. 20, 88.9 This

argument suggests that Shelton committed this economic crime without any rational financial motive, as if out of spite against the thousands of shareholders who were strangers to him. But of

9

Even assuming arguendo that Shelton did not act solely for personal monetary gain, a departure based on a defendant's purported lack of personal gain from the offense is "discouraged". United States v. Broderson, 67 F.3d 452, 458-59 (2d Cir. 1995) ("Nor is lack of personal profit ordinarily a ground for departure, because the Commission generally took that factor into account in drafting the Guidelines."). A departure on this ground is particularly unwarranted here because, although Shelton did not sell stock immediately prior to the fraud being uncovered (like defendant Forbes), Shelton still retained a $30 million net worth even after the fraud was discovered. Tr. 12625. 24

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course, Shelton's motives are easy to discern.

He received

employment promotions and election to the Young President's Organization while earning millions of dollars in salary, bonuses, and stock options because of the consistent success enjoyed by CUC, success that was created by the illusion of consistently growing earnings. 3. More Than Minimal Planning, Multiple Victims: (Add 2 levels).

The PSR recommends a two level enhancement pursuant to U.S.S.G. § 2F1.1(b)(2) due to the fact that Shelton's criminal conduct involved more than minimal planning and a scheme to defraud more than one victim. PSR, Par. 109. Shelton does not While it is only

object to this enhancement, and rightfully so.

necessary for the scheme to involve more than minimal planning or more than one victim, both factors are present here. First,

there can be no dispute that the multi-year fraud perpetrated by Shelton and his conspirators involved more than minimal planning. The repeated acts of fraud each quarter, each year, and in each fraudulent financial statement filed with the SEC demonstrates that the fraud was hardly a spur of the moment or opportunistic crime. See United States v. Rosen, 409 F.3d at 553-55 (district

court properly applied more than minimal planning enhancement to a defendant convicted of securities fraud offenses, where the orchestration of a circular "daisy chain" of securities sales in order to inflate the price of a corporation's shares was foreseeable to the defendant). Second, each of the many thousands of Cendant 25

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shareholders as of April 15, 1998 was defrauded as a result of the actions of Shelton and others. Hence, there can be no doubt

that Shelton's criminal conduct involved repeated acts of fraud over a period of years and multiple victims. 4. Abuse of a Position of Trust: (Add 2 levels).

The PSR recommends that Shelton receive a two level enhancement for abuse of a position of trust, pursuant to U.S.S.G. § 3B1.3. PSR, Par. 111. Shelton properly concedes the

application of this two level enhancement, which is amply supported by the record. As President of CUC, Shelton's position of trust was characterized by "managerial discretion, that is, substantial discretionary judgment that is ordinarily given considerable deference" by other persons in the organization. 3B1.3, App. Note 1. U.S.S.G. §

Unlike a low-level member of the fraud such

as Mary Sattler, Shelton was subject to relatively little supervision, particularly since Walter Forbes delegated the dayto-day management of the company to Shelton. Id. Additionally,

Shelton's position of trust contributed in a significant way to facilitate the commission and concealment of the criminal conduct, by making the detection of the offense more difficult. Id. Persons like Shelton who hold senior management positions at publicly held corporations owe a clearly defined fiduciary duty of trust under the law to the shareholders of those corporations. United States v. Mabrook, 301 F.3d 503, 510

26

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(7th Cir. 2002)(enhancement for abuse of a position of private trust pursuant to U.S.S.G. § 3B1.3 applied to a defendant who served as a corporate officer, and utilized fraudulent documents to induce investors, and employ the corporate form to conduct criminal activity); United States v. Olson, 22 F.3d 783, 786 (8th Cir. 1994)(vice president of savings and loan association who was in charge of corporate lending had a position of private trust for purposes of U.S.S.G. § 3B1.3); see United States v. Jolly, 102 F.3d 46, 48-49 (2d Cir. 1996)(explaining that a corporation's management owes a fiduciary obligation to shareholders because management has substantial discretionary control over corporate assets and shareholders cannot engage in direct monitoring of management's conduct or cheaply obtain protective contractual provisions) citing Guth v. Loft, 5 A.2d 503, 510 (Del.Supr. 1939) and Frank H. Easterbrook & Daniel R. Fischel, The Economic Structure of Corporate Law, 90-93 (1991). Hence, the enhancement

for Shelton's abuse of his position of trust is eminently proper. 5. Role in the Offense: (Add 4 levels). The PSR recommends that Shelton receive a four level enhancement for his leadership role in the offense pursuant to U.S.S.G. U.S.S.G. § 3B1.1(a). PSR, Par. 110. In his continuing

effort to play the role of a "victim" (Tr. 12621-22) rather than the criminal role determined by the jury, Shelton seeks a four level reduction in his offense level claiming that he is a "minimal participant" in the fraud. Shelton Mem. 68. The Court

should adopt the four level enhancement recommended by the PSR as

27

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Shelton was indeed a leader, not a follower, of the fraud. In determining whether Shelton was an organizer or leader, the Guidelines direct that the sentencing court should consider the following factors: the exercise of decision-making

authority, the nature of participation in the commission of the offense, the recruitment of accomplices, the claimed right to a larger share of the fruits of the crime, the degree of participation in planning or organizing the offense, the nature and scope of the illegal activity, and the degree of control and authority exercised over others. U.S.S.G. § 3B1.1, App. Note 4;

see United States v. Beaulieau, 959 F.2d 375, 379-80 (2d Cir. 1992). Thus, the "organizer or leader" enhancement is

appropriate where the defendant "played a crucial role in the planning, coordination, and implementation of a criminal scheme." United States v. Paccione, 202 F.3d 622, 624 (2d Cir. 2000). A defendant may qualify for the four-level organizer/leader adjustment as long as he organized or led even one other participant, so long as the criminal activity involved at least five participants. See United States v. Zichettello,

208 F.3d 72, 107 (2d Cir. 2000) (under § 3B1.1(a), defendant need only organize or lead one other person, so long as the criminal activity involved at least five participants). Nor is there any

requirement that one single person be identified as the leader or organizer. Rather, "[t]here can, of course, be more than one

person who qualifies as a leader or organizer of a criminal association or conspiracy." U.S.S.G. § 3B1.1, App. Note 4.

28

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Accordingly, "comparative [analysis is] irrelevant, since one conspirator's leadership role is not dispositive on the question of whether another was also a leader." United States v. Duncan,

42 F.3d 97, 105 n.6 (2d Cir. 1994); see United States v. Garcia, 936 F.2d 648, 656 (2d Cir. 1991). Under these standards, Shelton plainly qualifies as an organizer or leader. Corigliano and Pember's testimony made it

clear that they looked to Shelton for direction and approval in implementing the fraudulent accounting machinations. Without

Shelton's command to manage the numbers, and his repeated directions and approval, the enormous fraud could not have occurred.10 As Corigliano's, and later Pember's immediate boss, and as the day to day manager of the CUC companies, Shelton directed and controlled the criminal activity of at least one other participant (Corigliano and later Pember). Not only did Shelton

direct Corigliano in a memo to manage the earnings to meet Wall
10

Shelton is not entitled to a four point reduction in his offense level for being a minimal participant pursuant to U.S.S.G. § 3B1.2(a). This section provides that "the downward adjustment for a minimal participant will be used infrequently." U.S.S.G. § 3B1.2, App. Note 2. "It is intended to cover defendants who are plainly among the least culpable of those involved in the conduct of a group." Id., App. Note 1. Given Shelton's leadership role in both the company and the fraud, and his receipt of millions of dollars in salary, stock awards, and stock value appreciation as a result of the fraud, his role is neither minimal nor minor. See Memorandum of the United States in Opposition to Shelton's Motion For a Judgment of Acquittal Pursuant to Rule 29 and for a New Trial Pursuant to Rule 33, 1550. Shelton has cited no case where the second highest ranking employee of a corporation who directly supervised a subordinate CFO who engaged in fraud was rewarded with a downward adjustment under this Guideline section. 29

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Street expectations (Gov. Ex. 3), Shelton repeatedly met with Corigliano to discuss the cheat sheets and, together with coconspirator Walter Forbes, to decide how much fraudulent earnings would take place each quarter and year. During those meetings,

Shelton exercised decision making authority in the criminal activity that was greater than the decision making authority of others such as Corigliano and Pember. Shelton also demonstrated

his leadership role by seeking to recruit Scott Forbes into the conspiracy, and by deciding the amount of merger reserves ($20 million vs $25 million) that would be used to increase January 1998 earnings. Tr. 2897, 7414-15. Certainly, Shelton had access

to a larger share of the fruits of the crime than Corigliano and Pember as Shelton received a higher salary, higher bonus and greater stock awards than every other criminal participant except defendant Walter Forbes. Given the magnitude of the fraud in

terms of duration and market loss, and the number of corporate employees (such as Pember, Corigliano, Sabatino, corporate controllers Speaks and Kearney and accounting employee Mary Sattler) that knowingly assisted the fraud, there can be no doubt that the fraud was "otherwise extensive."11

It is of no consequence that other conspirators lower down in the company and in the conspiracy did not know that Shelton was a conspirator. A person who gives an order to a subordinate to kill a rival is a leader of criminal activity, even where the subordinate hires a hitman to perform the murder and the hitman is unaware of who gave the ultimate order. Nor is the person who gave the order to kill less culpable by virtue of the fact that he remains unaware of how the rival was killed, where the rival was killed, and where the rival's body was buried. 30

11

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Finally, there is certainly more than five participants in this criminal activity. Shelton was found guilty by the jury.

Corigliano, Pember and Sabatino have pled guilty to charges arising from the criminal activity and it was demonstrated at trial that Stuart Bell was also involved in criminal activity.12 Steven Speaks and Kevin Kearney, while not charged in the criminal activity, both admitted at trial that they knowingly engaged in activity that was fraudulent. Hence, Shelton was an

organizer and leader of criminal activity that involved five or more participants and was otherwise extensive. 6. Perjury, Obstruction of Justice: (Add 2 levels).

The PSR recommends that Shelton should receive a two level upward adjustment based on his perjurious trial testimony. PSR Pars. 60-69, 72-73, 75-79, 103. enhancement. Shelton objects to this

The recommendation of the Probation Office is based

on sound reasoning and should be adopted by the Court. U.S.S.G. § 3C1.1 mandates a two-level upward adjustment of the applicable offense level if the Court finds that: the defendant willfully obstructed or impeded, or attempted to obstruct or impede, the administration of justice during the course of the investigation, prosecution, or

Shelton also now concedes that Bell was one of the "architects of the fraud" (Shelton Mem. 89), even though he simultaneously seeks a new trial because this Court declined to force the Government to immunize Bell so that he could deny any involvement in the fraud. The Government agrees with Shelton's current assessment of Bell's involvement in the fraud, which further supports this Court's decision regarding the compelled immunity issue. 31

12

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sentencing of the instant offense of conviction, and . . . the obstructive conduct related to the defendant's offense of conviction . . . . U.S.S.G. § 3C1.1. This enhancement applies where a defendant,

testifying under oath, "gives false testimony concerning a material matter with the willful intent to provide false testimony, rather than as a result of confusion, mistake or faulty memory." (1993). United States v. Dunnigan, 507 U.S. 87, 94

In other words, the enhancement applies where a See U.S.S.G. § 3C1.1, App. Note 3(b).

defendant commits perjury.

In Dunnigan, the Supreme Court upheld the constitutionality of the obstruction guideline. As noted by the

Court, "[t]he commission of perjury is of obvious relevance" in sentencing, "because it reflects on a defendant's criminal history, on her willingness to accept the commands of the law and the authority of the court, and on her character in general." 507 U.S. at 94. The Court further explained:

It is rational for a sentencing authority to conclude that a defendant who commits a crime and then perjures herself in an unlawful attempt to avoid responsibility is more threatening to society and less deserving of leniency than a defendant who does not so defy the trial process. The perjuring defendant's willingness to frustrate judicial proceedings to avoid criminal liability suggests that the need for incapacitation and retribution is heightened as compared with the defendant charged with the same crime who allows judicial proceedings to progress without resorting to perjury. Id. at 97-98. The enhancement applies when a defendant like Shelton, under oath, testified: (a) untruthfully at trial; (b) with 32

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respect to a material matter; that (c) was designed (given with willful intent) to substantially effect the outcome of the case and not as a result of confusion, mistake or faulty memory. Dunnigan, 507 U.S. at 94-95. Thus, the sentencing judge must materially (3)

"find that the defendant (1) wilfully (2) and committed perjury, which is (a) the

intentional (b) giving of United States v.

false testimony (c) as to a material matter." Zagari, 111 F.3d 307, 329 (2d Cir. 1997).

In this context,

"material" means "evidence, fact, statement or information that, if believed, would tend to affect or influence the issue under determination." U.S.S.G. § 3C1.1, App. Note 5); see also

United States v. Fayer, 573 F.2d 741, 745 (2d Cir. 1978) ("The test of materiality is whether the false testimony was capable of influencing the fact finder in deciding the issue before him"). In imposing an upward adjustment based on a defendant's trial perjury, a district court should "review the evidence and make independent findings necessary to establish a willful impediment to or obstruction of justice, or an attempt to do the same, under the perjury definition we have set out." 507 U.S. at 95. Dunnigan,

The Second Circuit has construed Dunnigan as

"requiring the district court to find that the defendant knowingly made a false statement under oath," and that "separate findings of fact [concerning each of the perjury requirements] are not required as long as a general finding of obstruction tracks those factual predicates necessary to support a finding of perjury." United States v. Williams, 79 F.3d 334, 337 (2d Cir.

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1996) (internal quotation marks and citations omitted); see also United States v. Catano-Alzate, 62 F.3d 41, 42 (2d Cir. 1995) (same); United States v. Fan, 36 F.3d 240, 247 (2d Cir. 1994) (same); and United States v. Shonubi, 998 F.2d 84, 88 (2d Cir. 1993) (same). The jury's verdicts in this case fully support the application of a perjury enhancement. During the course of ten

days of sworn testimony, Shelton repeatedly lied to the jury about his knowledge and role in the fraud by claiming he had no hint, no clue, no indication, and no knowledge that any fraud had been committed at CUC and later Cendant. 39. Tr. 11578-80, 12537-

Shelton contradicted the inculpatory testimony of Anthony

Menchaca, Tr. 12542-44, Michael Monacao, Tr. 12568-74, and Scott Forbes, Tr. 13358-60, none of whom had any incentive to "frame" Shelton for crimes he did not commit. The United States

maintains that Shelton's testimony, given in contradiction of these witnesses' testimony, is also perjurious. Shelton also repeatedly contradicted the testimony of Pember which directly inculpated Shelton in the charged crimes. E.g., Tr. 12313-14, 12378-79, 12397-98, 12439, 12500-01, 1253759, 12554, 13021-23, 13212-13, 13327-28, 13345-46. Given the

convictions of Shelton on all counts, however, the jury likely credited Pember's testimony that inculpated Shelton.13
13

Shelton

Thus, the United States also maintains that Shelton's testimony, in which he directly disputed Pember's testimony, is perjurious. Additional examples of Shelton's perjurious testimony is contained in a Table attached to this memorandum as (continued...) 34

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also repeatedly contradicted the testimony of Corigliano that directly inculpated Shelton in the charged crimes. E.g., Tr.

11746, 11786-87, 11797, 11915-16, 12026-28, 12101, 12133-35, 12163-68, 12237, 12283-87, 12296-98, 12360-62, 12400-02, 1251415. By convicting Shelton on all 12 counts in which he was

named, the jury unanimously found beyond a reasonable doubt that Shelton's repeated claims of innocence were false. The jury's conviction of Shelton on each count in the Indictment demonstrates that the jury simply did not believe him when he claimed to have no clue, no hint and no idea that improper accounting was occurring at CUC. Simply put, if the

jury had credited Shelton's testimony, it would not have convicted him. This fact alone supports a finding that Shelton As the Second Circuit has recognized, where,

perjured himself.

as here, "the defendant's testimony relates to an essential element of his offense, such as his state of mind or his participation in the acts charged in the indictment, the judgment of conviction necessarily constitutes a finding that the contested testimony was false." United States v. Bonds, 933

F.2d 152, 155 (2d Cir. 1991); accord United States v. Onumonu, 999 F.2d 43, 46-47 (2d Cir. 1993); United States v. Shonubi, 998 F.2d 84, 87 (2d Cir. 1993). Specific examples of Shelton's false testimony are identified in the PSR at Paragraphs 61-69 (the Interval cover

13

(...continued) Exhibit D. 35

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story); Paragraphs 72-73 (Exhibit 530 budget schedule ripped up by Shelton); and Paragraphs 75-79 (Walter Forbes plane expenses).14 Shelton's testimony on each of those matters

pertained to highly material issues that pertained directly to Shelton's knowledge of and participation in the charged fraud. Finally, Shelton's testimony was designed and was given with the specific intent to effect the jury's verdict.15 Given his obvious

incentive to exculpate himself and the critical importance of the facts as to which he testified falsely, it is inconceivable that Shelton's false testimony was anything but an intentional effort to mislead the jury in pursuit of an acquittal. Accordingly, the perjury enhancement, as recommended in
14

The PSR recommends that the perjury enhancement be applied as a result of Shelton's testimony concerning the Interval cover story and Exhibit 530 but not Shelton's testimony concerning Walter Forbes' plane expenses. PSR, Par. 103. Since the United States is asking only that one perjury enhancement be applied, it is not necessary for the Court to conclude that Shelton perjured himself in more than one instance. In any event, the United States contends that Shelton also lied when he testified at trial that the 1995 and 1996 plane expenses were merger related. Tr. 13180-83. This conclusion is not based solely on the fact that Shelton's testimony on this point conflicted with that of defendant Walter Forbes. Rather, it is based on the fact that Shelton's trial testimony, seven years after the event, was the exact opposite of what he told the Audit Committee investigators months after the incident. See also June 20, 2005 Letter from the United States to the Probation Office, Par. 10. The United States requests that the Court consider Shelton's multiple acts of perjury when fashioning Shelton's sentence.
15

While there is no doubt that Shelton sought to mislead the jury, there is no requirement that the perjury ultimately affect the outcome of the case. All that is required is that the perjury be "designed" to effect the outcome of the case. See United States v. Ahmad, 202 F.3d 588, 603 (2d Cir. 2000) (statement was "material" where, "if believed, would tend to influence or affect the issue under determination"). 36

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the PSR, should be adopted by the Court.

Any other conclusion

would result in providing defendants like Shelton with a license to commit perjury in their own defense -- a right that the Supreme Court has repeatedly held does not exist. United States

v. Dunnigan, 507 U.S. at 96 (citing cases); United States v. Ruggiero, 100 F.3d 284, 293 (2d Cir. 1996) (once the factual predicates have been established, the obstruction adjustment is mandatory). Shelton correctly states (Shelton Mem. 72, n. 15) that the Second Circuit requires "clear and convincing evidence" to support a two-level perjury enhancement under U.S.S.G. § 3C1.1. United States v. Ruggiero, 100 F.3d at 294. He incorrectly

claims, however, that "there is support in Booker for the proposition that the applicable burden of proof in sentencing determinations is now proof beyond a reasonable doubt." Mem. 72, n.5. Shelton

To the contrary, the Second Circuit has explained

that, post-Booker, with the mandatory use of the Guidelines excised, the traditional authority of a sentencing judge to find all facts relevant to sentencing will encounter no Sixth Amendment objection. Thus, the sentencing judge will be entitled to find all of the facts that the Guidelines make relevant to the determination of a Guidelines sentence and all of the facts relevant to the determination of a non-Guidelines sentence. United States v. Crosby, 397 F.3d 103, 112 (2d Cir. 2005) (footnote omitted); see also United States v. Vaughan, , 2005 WL 1340327 (8th Cir., June 8, 2005)("the remedial opinion in Booker held that such judicial fact-finding [under the F.3d

37

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preponderance of the evidence standard] for sentencing purposes does not violate the Sixth Amendment when made as part of an advisory Guidelines regime"). Shelton's contrary argument that

this Court must find that Shelton committed perjury beyond a reasonable doubt before it can impose the two-level obstruction enhancement misinterprets the Supreme Court's decision. The significance of Booker is that the Guidelines are only one factor to consider in reaching an appropriate sentence. Courts continue to apply a preponderance of the evidence standard in making evidentiary determinations for sentencing purposes. United States v. Green, 2005 WL 1460176, *2-*3 (S.D.Ohio, June 21, 2005).16 Shelton cites United States v. Ben-Shimon, 249 F.3d 98 (2d Cir. 2001)(Shelton Mem. 71), in which the Second Circuit vacated a sentence that included an obstruction of justice enhancement because the enhancement was no