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JOSEPH P. RUSSONIELLO (CABN 44332) United States Attorney BRIAN J. STRETCH (CABN 163973) Chief, Criminal Division HARTLEY M. K. WEST (CABN 191609) Assistant United States Attorney 450 Golden Gate Ave., Box 36055 San Francisco, California 94102 Telephone: (415) 436-7200 Fax: (415) 436-7234 E-Mail: hartley.west@usdoj.gov Attorneys for Plaintiff

9 10 11 12 13 UNITED STATES OF AMERICA, 14 Plaintiff, 15 v. 16 RAFIC LABBOUN, 17 Defendant. 18 19 20 21 22 23 24 25 26 27 28 A. Offense Conduct The trial evidence proved that, in late 2002, Labboun engaged in a credit card bustout scheme on seven of his credit card accounts, as well as an uncharged eighth account. As explained by bust-out expert Barbara Simcox, the build phase of the scheme GOVTS SENTENCING MEM. CR 09-0058 RMW ) ) ) ) ) ) ) ) ) ) No. CR 09-0058 RMW GOVERNMENTS SENTENCING MEMORANDUM Date: July 19, 2010 Time: 9:00 a.m. UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA SAN JOSE DIVISION

On April 1, 2010, a jury found defendant Rafic Labboun guilty on seven counts of bank fraud, in violation of 18 U.S.C. 1344. Sentencing is scheduled for July 19, 2010, at 9:00 a.m. The United States submits this Sentencing Memorandum to address the offense conduct and sentencing guidelines calculation, as well as to advise the Court of its sentencing recommendation. DISCUSSION

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involved maxing out the credit cards. Labboun maxed out his cards through balance transfers to his checking account with the San Jose Municipal Employees Credit Union (MECU). He then withdrew these funds through cashiers checks payable to himself, which depleted his account, and promptly moved to Lebanon. In October 2002, Labboun executed the bust-out phase. He used bad checks, drawn on his depleted and then closed MECU account, to pay off the account balances on his credit cards. He then exploited the window of time between the banks instant crediting of the bad checks and the banks realizations that the checks had bounced. Promptly after depositing the bad checks, Labboun incurred, and to attempted to incur, high-risk charges (e.g., gold center, jewelry store, and cash balance transfer) up to the credit limit. Where successful, the banks were left with actual losses of approximately twice the credit limit. In some instances, Labboun attempted a double bust-out by using a second bad check to pay off the balance from the successful first bust-out, thereby making the credit limit again available for exploitation. Where Labboun was not successful, some account records reflect attempted charges that the banks declined, while another account had already been suspended for nonpayment by the time the bank received the bad check. Based on Labbouns practice with his other credit card accounts, the evidence established and the jury found that Labboun intended to perpetrate the same scheme on the suspended account as well. On Chase-0259 (ct. 1), Labboun paid off his $9,802.98 balance on October 10, 2002, and charged $10,137.18 at a Saudi Arabian gold center on October 11. The check bounced October 21, leaving Chase with an actual loss of $22,823.43 (for a $10,000 credit limit). On Chase-1700 (ct. 2), Labboun paid off his $1,247.60 balance on October 10, and charged $1,703.27 at the same Saudi Arabian gold center on October 11. The check bounced on October 21, leaving Chase with an actual loss of $3,728.98 (for a $1,700 credit limit). GOVTS SENTENCING MEM. CR 09-0058 RMW

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On First USA/Chase -5858 (ct. 3), Labboun paid off his $9,229 balance on October 10, charged a $8,900 balance transfer on October 14, and made a $8,900 check payment to the account on October 15. Also on October 15, the first check bounced; the second check bounced on October 17. The actual loss to Chase was $20,194.43 (on a $9,500 credit limit). The intended loss, including the second bad check for $8,900, is $29,097.43. On Citibank-8240 (ct. 4), Labboun paid off most of his credit balance with an $8,000.02 check on October 11, and attempted to charge $7,796 on October 15, but Citibank declined to authorize it. The $8,000.02 check bounced, and Citibank was left with an actual loss of $11,110.08 (for a $8,000 credit limit). The intended loss, including Labbouns authorization attempt, is $18,906.08. On MBNA-6267 (ct. 5), Labboun paid of his $10,945.06 balance on October 9, and attempted a charge of $10,985 on October 10, but MBNA declined it. The $10,945.06 check bounced on October 17. On October 23, Labboun issued another check, for the new balance of $10,989.06, which bounced on October 30. MBNA was left with an actual loss of $12,323.95 (on a $11,000 credit limit). The intended loss, including the attempted $10,985 charge and the second bad check for $10,989.06, is $34,298.01. On MBNA-4679 (ct. 6), Labboun paid of his $4,937.71 balance on October 9, and attempted to charge $4,886.10 in Saudi Arabia on October 10. This attempt was declined, but account records show that after a phone call confirming Labbouns identity, he successfully charged $4,928.80 the same day. Labboun then submitted a second check to pay off this new balance of $4,943.80 on October 15, and attempted another $4886.10 charge on October 16, which was again declined. The first check bounced on October 17, and the second on October 21. MBNA was left with an actual loss of $11,022.93 (on a $5,000 credit limit). The intended loss, including the two $4,886.10 attempted authorizations, is $20,795.13. On ATT Universal/Citibank-2993 (ct. 7), Labboun sent in a $10,000 check to pay GOVTS SENTENCING MEM. CR 09-0058 RMW

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of his balance on October 10, but the account had already been suspended due to two months nonpayment. As with all the other accounts, the check bounced. Due to the suspension, witnesses explained, the account records would not reflect authorization attempts. The bank was left with an actual loss of $11,827.86 (on a $10,000 credit line). The intended loss, including the $10,000 check submitted to free up the $10,000 credit limit for busting out, is $21,827.86. On American Express-3001 (uncharged), Labboun made four charges at a Saudi Arabian jewelry center, totaling $9,179.33, between October 8 and 17. AmEx was left with an actual loss of $9,179.33. B. Loss Analysis The Sentencing Guidelines provide that loss is the greater of actual loss or intended loss. U.S.S.G. 2B1.1, App. N. 2(A) (2001). For Labboun, the loss is thus his intended loss of $160,656.25. This includes the actual losses on the seven accounts charged in the indictment and the relevant conduct account (AmEx), as well as the attempted authorizations. See United States v. Thornton, 511 F.3d 1221, 1224 (9th Cir. 2008) (recognizing that intended loss includes unsuccessful attempts to cause loss). The intended loss figure also includes the amounts of the worthless checks that Labboun knowingly passed with intent to defraud. See United States v. Gallagher, 99 F.3d 329, 334 (9th Cir. 1996) (loss included fraudulently-passed checks, even where one was not honored by the bank); see also United States v. Higgins, 270 F.3d 1070, 1073-74 (7th Cir. 2001); United States v. Bonnett, 877 F.2d 1450, 1454-55 (10th Cir. 1989). Labbouns alleged scheme was to defraud the banks by using worthless checks to artificially decrease his credit balance, thus increasing his credit line. Through such a scheme, Labboun intended to expose the bank to a risk of loss, regardless of whether he was able to successfully exploit his credit line. See United States v. Wolfswinkel, 44 F.3d 782, 785-786 (9th Cir. 1995) (establishing risk of loss is one of several possible ways of proving intent to defraud under 1344(1)); see also United States v. Mason, 902 F.2d 1434, 1442 (9th Cir. 1990) (use of false statements to secure credit supports bank fraud GOVTS SENTENCING MEM. CR 09-0058 RMW

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under 1344(2)). In arguing that his loss amount should be only $42,000, Labboun minimizes the scope of his criminal scheme as charged and proved at trial. First, he entirely omits the $8,900 charge (balance transfer) on First USA/Chase -5858 (ct. 3), the attempted charges of $7,796 on Citibank-8240 (ct. 4), the fraudulently-passed $10,989.06 in a second bustout attempt on MBNA-6267 (ct. 5), the $4,928.80 charge (Labboun incorrectly understates it as $4,828.00) and the fraudulently-passed $4,886.10 in a second bust-out attempt on MBNA-4679 (ct. 6), and the fraudulently-passed $10,000 in an attempt to bust out his ATT-2993 account (ct. 7). Second, prior to trial, the Court found that the scope of the charged fraud scheme includes what the governments bust-out expert referred to as the build phase, which preceded the bust-out phase. While it was in October 2002 that Labboun busted out his cards, it was a couple months prior that he set the scene he maxed out his credit lines through balance transfers to his checking account, then depleted his checking account through cashiers checks payable to himself, immediately before leaving the country to carry out the bust phase. Indeed, the very nature of the bust-out scheme involves trying to maximize the value obtained from the bank, which includes the build. Even were the build phase not considered part of the offense conduct itself, it still constitutes relevant conduct. Relevant conduct encompasses all acts and omissions . . . that occurred during the commission of the offense of conviction [or] in preparation for that offense. U.S.S.G. 1B1.3(a)(1). At minimum, the build was in preparation for the bust out. Moreover, the build charges were part of the same course of conduct or common scheme or plan as the offense of conviction. U.S.S.G. 1B1.3(a)(2). The evidence showed that Labboun incurred the balance transfer charges with the intent to defraud the credit card companies he maxed them out to get cash for himself right before leaving the country, and did not in fact pay off the balances (even while making a student load installment), all the while keeping clean his Wells Fargo account, which card he was carrying when arrested. GOVTS SENTENCING MEM. CR 09-0058 RMW

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Similarly, the bad checks that Labboun passed in an attempt to increase his credit line also constitute relevant conduct, for they were part of the same course of conduct and common scheme to obtain money (or jewelry) from the banks by fraud. This includes the bad checks passed in preparation for a double bust-out $8,900 (ct. 3) and $10,989.06 (ct. 5) as well as the bad check passed on the suspended account ($10,000 on count 7). Where Labboun followed the passing of the bad check with an attempted (or successful) authorization, the government includes in its loss calculation only the attempted (or successful) authorization, and not the check amount, to avoid doublecounting. C. Section 3553 Factors In objecting to the draft PSR, Labboun claimed to the probation officer that [h]e has led a lawful and exemplary life since the offenses in this case. See Ex. 1, p.3. This knowingly false statement borders on obstruction of justice. See, e.g., United States v. Christman, 894 F.2d 339, 342 (9th Cir.1990) (upholding obstruction enhancement where defendant knew his prior drug conviction was a felony but told his probation officers that he had been convicted of a misdemeanor). In fact, Labboun has committed fraud in varying forms each time he has set foot in this country since moving to Lebanon 2002. Upon his first reentry to the United States in 2006, see Ex. 2 (border crossing data), Labboun falsely stated in his Customs form that he was residing in the United States, when he truly resided in Lebanon. See Ex. 3 (Customs form). On December 31, 2008, within hours of second reentry, Labboun fraudulently obtained a California Drivers License, despite his continued residence in Lebanon. The United States obtained, and produced, a certified copy of Labbouns DMV records. See Ex. 4 (California DMV records). And on January 12, 2009, at the time of his arrest on the bank fraud charges for which he is about to be sentenced, Labboun had in his possession a letter referencing a $13,690.35 check, payable to Labboun, from Enron Corporations securities class action GOVTS SENTENCING MEM. CR 09-0058 RMW

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settlement claims administrator. This check was issued based on a false claim, which requested that the check be issued in Labbouns name, to an address belonging to Labbouns close friend in Oregon. Labboun was not, in fact, entitled to any of the settlement funds. Nonetheless, he had already cashed the check. See Ex. 5 (check). A Complaint filed in March 2010 in the U.S. District Court for the District of Oregon identifies Labboun as involved in a conspiracy to fraudulently obtain securities class action settlement funds. See Ex. 6 (Complaint, 5, 13-14). As counsel discussed with the Court before trial and following conviction, the prosecuting attorney has advised Labbouns attorney that charges are expected. D. Calculation of the Sentencing Guidelines The government concurs with the guidelines calculation set forth in the PSR: A Base Offense Level of 6, under U.S.S.G. 2B1.1(a), with an adjusted offense level of 18 due to the intended loss value (+10) and Labbouns commission of a substantial part of the scheme from outside the United States (+2). The resulting guidelines range is 27-33 months. E. Governments Sentencing Recommendation The government recommends the high end of the guidelines range, 33 months, based on the factors set forth in 3553(a). Although the scheme itself is not extraordinary, so far as bustouts go, the government believes that a high-end sentence is necessary to promote respect for the law and protect the public from further crimes by this defendant. See 18 U.S.C. 3553(a)(2). Labbouns repeated frauds after the offenses of conviction the false statements to the United States on the Customs form and to the State of California on his drivers license, as well as his securities fraud scheme show that he has no respect for the laws of this country, and that he is likely to attempt fraud again. The government does not object to foregoing imposition of a fine (range: $6,000$1,000,000) to promote Labbouns ability to pay restitution to the defrauded banks. See 18 U.S.C. 3553(a)(7). The government requests that the Court order restitution as set forth in the PSR.

GOVTS SENTENCING MEM. CR 09-0058 RMW

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CONCLUSION The United States asks the Court to sentence Labboun to 33 months in custody, three years supervised release, restitution of $102,213.99, and a $700 special assessment.

Respectfully submitted, JOSEPH P. RUSSONIELLO United States Attorney

________/s/_____________________ HARTLEY M. K. WEST Assistant United States Attorney