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UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF ILLINOIS WESTERN DIVISION UNITED STATES OF AMERICA v. RITA A. CRUNDWELL ) ) ) ) )

No. 12 CR 50027 Judge Philip G. Reinhard

UNITED STATES MOTION FOR UPWARD VARIANCE The UNITED STATES OF AMERICA, by GARY S. SHAPIRO, United States Attorney for the Northern District of Illinois, respectfully submits the following motion for upward variance: I. DISCUSSION In United States v. Booker, 125 S.Ct. 738, 767 (2005), the Supreme Court held that the Sentencing Guidelines are advisory. United States v. Alburay, 415 F.3d 782, 785 (7th Cir. 2005). Booker further held that appellate courts must now review sentences for reasonableness. United States v. Rodriguez-Alvarez, 425 F.3d 1041, 1045 (7th Cir. 2005) (citing Booker, 125 S.Ct. at 765-66). Pursuant to Booker, the reasonableness of a sentence is guided by the factors set forth in 18 U.S.C. 3553(a). Alburay, 415 F.3d at 786. These factors include: (1) the nature and circumstances of the offense; (2) the history and characteristics of the defendant; (3) the seriousness of the offense; (4) the sentence necessary to promote respect for the law; (5) the sentence necessary to provide just punishment for the offense; (6) the sentence that would provide adequate deterrence; (7) the sentence needed to provide defendant with needed educational training, medical care, etc.; (8)

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the need to avoid unwarranted sentencing disparities among defendants with similar records whove been found guilty of the same offense(s); and (9) the sentencing guidelines range. Rodriguez-Alvarez, 425 F.3d at 1045. Although [t]he concept of departures has been rendered obsolete in post-Booker sentencing,the district court may apply those departure guidelines by way of analogy when analyzing the factors in 18 U.S.C. 3553(a). United States v. Lucas, 670 F.3d 784, 791 (7th Cir. 2012) (quoting United States v. Miranda, 505 F.3d 785, 792 (7th Cir. 2007)); United States v. Guyton, 636 F.3d 316, 320 n. 2 (7th Cir. 2011); United States v. Rice, 520 F.3d 811, 821 (7th Cir. 2008)). The Seventh Circuit will uphold an aboveguidelines sentence so long as the district court offered an adequate statement of its reasons, consistent with 18 U.S.C. 3553(a), for imposing such a sentence. United States v. McIntyre, 531 F.3d 481, 484 (7th Cir. 2008). But see United States v. Jackson, 547 F.3d 786, 792-93 (7th Cir. 2008)(stating: An above-guidelines sentence is more likely to be reasonable if it is based on factors sufficiently particularized to the individual circumstances of the case rather than factors common to offenders with like crimes. Wachowiak, 496 F.3d at 750). The district courts duty is to properly calculate the guidelines range and then come up with a reasonable sentence under 3553(a). Id. (citing United States v. Munoz, 610 F.3d 989, 994 (7th Cir. 2010)). If a district court decides that an outside the Guidelines sentence is warranted, it must consider the extent of the deviation and ensure that the justification is sufficiently compelling to support the degree of the variance. Gall v. United States, 552

CCCaaassseee::: 333:::111222---cccrrr---555000000222777 DDDooocccuuummmeeennnttt ###::: 555222 FFFiiillleeeddd::: 000111///333111///111333 PPPaaagggeee 333 ooofff 111666 PPPaaagggeeeIIIDDD ###:::333222666

U.S. 38, 50 (2007). A sentence above the range is more likely to be reasonable if it is based on factors sufficiently particularized to the individual circumstances of the case rather than factors common to offenders with like crimes. United States v. Aljabari, 626 F.3d 940, 952 (7th Cir. 2010). In the plea agreement, defendant pleaded guilty to wire fraud as charged in the indictment and stipulated to committing money laundering in violation of 18 U.S.C. 1956(a)(1)(B)(i). R. 45, 6-7.1 The PSR has calculated defendants offense level for the wire fraud conviction as 35. PSR at 33. This calculation includes a base offense level of 7 provided by Guideline 2B1.1(a) and enhancements as follows: 24 levels pursuant to Guideline 2B1.1(b)(1)(M) because the loss as a result of the offense was more than $50,000,000, 2 levels pursuant to Guideline 2B1.1(b)(10)(C) because the offense involved sophisticated means, and 2 levels pursuant to Guideline 3B1.3 because defendant abused a position of public trust. PSR at 27-31. The PSR has calculated the offense level for the stipulate offense of money laundering offense as 37. PSR at 40. This calculation includes a base offense level of 35 pursuant to Guideline 2S1.1(a)(1) and a 2 level increase pursuant to Guideline 2S1.1(b)(2)(B) because the stipulated offense constitutes a violation of 18 U.S.C. 1956. PSR at 34-35. Pursuant to Guidelines 3D1.2(c) and 3D1.3(a), the offense of conviction and the stipulated offense are grouped together resulting in a total offense level of 37. PSR at 26, 41. The

All citations to the record are denoted "R" and followed by the applicable document number. All citations to the Pre-Sentence Investigation Report are denoted "PSR" and followed by the applicable paragraph number. 3

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government agrees with the Guidelines calculations contained in the PSR. However, as explained below, the application of the 3553(a) factors to the defendant warrant an upward variance to defendants total offense level of at least 4 levels. A. Nature and Circumstances of the Offense and the History and Characteristics of the Defendant

The nature and circumstances of the offense and defendants history and characteristics warrant a sentence above the Guidelines range. In 1970, defendant began working for finance department for the City of Dixon, Illinois while still in high school. PSR at 75, 79. In 1983, defendant was appointed as the comptroller/treasurer for the City of Dixon. PSR at 79. Defendant commenced her scheme to defraud the City of Dixon on December 18, 1990, when she opened a secret account at Fifth Third Bank in Dixon, Illinois, that was in the name of the City of Dixon. PSR at 16. The name of the account was RSCDA - Reserve Fund. Id. Defendant did not disclose the existence of this account to the City of Dixon. Id. Defendant created the RSCDA account to use to deposit funds that she stole from various City of Dixon accounts. Id. The initials RSCDA stood for Reserve Sewer Capital Development Account, although no such account actually existed for the City of Dixon. In January 1991, shortly after creating the RSCDA account, defendant began transferring money from City of Dixon accounts and converting it to her own use. G. Ex. 4.2 As set forth in Government Exhibits 1-4, defendant transferred over $181,000 to the RSCDA account

All references to government exhibits are denoted G. Ex. followed by the applicable exhibit number. 4

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that she converted to her own use in 1991. As the scheme continued, the yearly amounts that defendant stole from the City of Dixon increased from $181,000 in 1991 to a high of over $5.8 million in 2008. Id. During the course of the scheme, defendant took over $53 million from the City of Dixon. Id. Defendant took an average of over $2.5 million dollars per year over the 20 year course of the scheme. Id. While defendant was taking these large sums of money from the City of Dixon, she participated in budgeting meetings with City Council members and various department heads for the City of Dixon. During those meetings, defendant repeatedly stated that the City needed to make spending cuts due to a lack of sufficient funds. Defendant stated that the lack of funds was due to a downturn in the economy and because the State of Illinois was behind in its payments. At the time defendant was making those statements, she was stealing millions of dollars from the City of Dixon. Defendants fraud scheme resulted in the City of Dixon having to make various cuts to its budget and these cuts had a significant impact on the operations of the City of Dixon. Summaries of the Dixon City Council minutes regarding the budgeting process for the years 1991-2012 are contained in Government Exhibit 5. Government Exhibit 5 further sets forth some of the personal expenditures that defendant made using City of Dixon funds during the same time period that she attending those meetings and advising the City of Dixon representatives that they needed to make budget cuts due to a lack of funds. Defendant started her horse breeding business, RC Quarter Horses, LLC in 1990. PSR at 78. Defendant used millions of dollars in City of Dixon funds to 5

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run and expand the operations of RC Quarter Horses. Id. At the time of her arrest in April 2012, defendant owned over 400 quarter horses. While the majority of the horses were kept at her ranch and home in Dixon and at a ranch in Beloit, Wisconsin, defendant also boarded horses in several other states. Defendant used fraud proceeds to travel throughout the country during the course of her scheme to defraud to compete with at national and international quarter horse competitions. Defendant and her horses won numerous awards at those competitions including defendant being named the leading owner by the American Quarter Horse Association for eight consecutive years prior to her arrest. Id. Defendant also used City of Dixon funds to renovate her home in Dixon and to purchase a home in Florida. G. Ex. 5. Defendant also used the fraud proceeds to purchase the property where she operated her horse breeding business and to construct buildings on the property. Id. Defendant purchased land on Dutch Road in Dixon and constructed a house on that property. Id. In addition, defendant purchased numerous vehicles including a $2 million motor home, semi-tractor trailers, trucks, horse trailers, and other vehicles. Id. Government Exhibit 5 contains a two page list of the vehicles that defendant purchased with fraud proceeds and that have been seized for forfeiture. Id. Defendant also purchased hundreds of thousands of dollars in jewelry. Id. Between January 2007 and January 2012, defendant also hosted an annual birthday party in Venice Beach, Florida. Id. A news article describing the January 2010 party is contained in Government Exhibit 5. Although the article claims that the

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party was hosted by defendants boyfriend, defendants American Express credit card records show that she paid $4,143 to the restaurant on the date of the party. Those credit card records further show that defendant paid similar amounts to the same restaurant on her birthdays as follows: $2,300 in January 2007, $3,687 in January 2008, $4,496.25 in January 2009, $4,457.47 in January 2011, and $4,603.70 in January 2012. Defendants conduct in continuing to take millions of dollars from the City of Dixon to support her living of this lavish lifestyle while she knew that the City of Dixon was in dire financial straits was especially egregious. The lengthy of the scheme also weighs in favor of a sentence above the Guidelines range. While defendant has no prior criminal history, she executed this scheme for over 20 years. Day after day, for more than 20 years, defendant would work with employees of the City of Dixon and interact with citizens in her capacity as comptroller while lying about the reason the City of Dixon lacked funds and concealing the fact that she was stealing millions of dollars from the City. Thus, while having no prior convictions, defendant engaged in an on-going and continuous course of criminal conduct for over 20 years prior to her arrest in this case. In addition to merely taking the money, defendant went to elaborate steps to conceal the detection of her fraud so that she could continue to her scheme. Defendant disguised the source of the funds and created fictitious invoices to hide the theft. Defendant created fictitious invoices purportedly from the State of Illinois to justify the withdrawals from the Citys Capital Development Fund. PSR at 16. For example, to cover up her transfer of $350,000 in City of Dixon funds on September 8, 2009 to the 7

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RSCDA account so that defendant could purchase the horse, Pizzazy Lady, defendant created a fictitious invoice to support the payment of $350,000 to the State of Illinois that falsely indicated that the payment was for a sewer project in the City of Dixon that the State of Illinois completed. R. 45, 7(d). A copy of that invoice created by defendant is attached hereto as Exhibit 6. Defendant created 159 such fictitious invoices between 2001 and 2012 to help to conceal her fraud scheme. All of these relating to defendants history and characteristics and the nature and circumstances of the offense weigh in favor of a sentence above the guidelines range. B. Seriousness of the Offense

Pursuant to Title 18, United States Code, Section 3353(a)(2)(A), when imposing a sentence, a district court must consider the seriousness of the offense. In the present case, the loss calculation for purposes of the Sentencing Guidelines does not adequately reflect the seriousness of defendants fraud and money laundering offenses. In the PSR, the Probation Officer states that the loss caused by defendants fraud offenses was $53,740,394. PSR at 19. While the United States agrees that the Probation Officer has correctly calculated the fraud loss, this loss figure does not adequately reflect the full extent of the harm caused by defendants fraud. Application note 19 of Guideline 2B1.1 states: There may be cases in which the offense level determined under this guideline substantially understates the seriousness of the offense. In such cases, an upward departure may be warranted. The

application note goes on to provide a non-exhaustive list of factors a district court should consider in determining whether an upward departure (or variance) is 8

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appropriate. One of these factors is whether: [t]he offense caused . . . substantial nonmonetary harm. USSG 2B1.1, application note 19(A)(ii). Pursuant to Guideline 5K2.7, if the defendants conduct resulted in

significant disruption of a government function, the court may increase the sentence above the authorized guideline range to reflect the nature and extent of the disruption and the importance of the governmental function affected. This guideline does not apply to cases involving offenses such as bribery or obstruction of justice where interference with a government function is inherent in the offense. USSG 5K2.7. The Seventh Circuit has held that where a defendants actions result in a loss of public confidence in the honesty and integrity of elected officials, that the loss of public confidence is both a non-monetary harm as defined in application note 19 of USSG 2B1.1, and a disruption of government function. United States v. Pabey, 664 F.3d 1084, 1099 (7th Cir. 2011). In Pabey, the defendant, the mayor of East Chicago, embezzled funds and used government workers to renovate a home he purchased for his daughter. Id. at 1087-1090. The Court found that the district court did not abuse its discretion when determined that an upward departure from the Guidelines range of 27-33 months was warranted and imposed a sentence of 60 months. Id. at 1091, 1099. The Court found that the district court properly considered the 3553(a) factors which included the district courts finding that Pabeys actions caused a loss of public confidence in the honesty and integrity of elected officials and that this loss of confidence was both a non-monetary harm and a disruption of government function. Id. at 1099. See also, United States v. Paulus, 419 F.3d 693, 696-699 (finding that the 9

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court did not err in departing upward and increasing defendants offense level by six levels based, in part, on the fact that defendants conduct of accepting bribes as a state prosecutor in exchange for leniency on criminal cases he prosecuted caused a significant disruption of government function pursuant to Guideline 5K2.7). The enhancement for disruption of a government function can be applied to sentences for theft of government resources and when the disruption was a loss of public confidence in the government. United States v. Gunby, 112 F.3d 1493, 1500 n. 10, 1502 (11th Cir. 1997). In Gunby, the defendant pleaded guilty to mail and tax fraud relating to his embezzlement of filing fees from a county magistrate court over which he presided. Id. at 1494. The district court found that Gunbys conduct caused a significant disruption of a governmental function and increased Gunbys offense level from 16 to 20, which raised the sentencing range from 21-27 months to 33-41 months. Id. at 1502. The district court sentenced Gunby to 41 months, a more than 50 percent increase over the maximum sentence possible at the lower offense level. Id. The Court further rejected the defendants argument that there was no evidence of disruption of a government function because there was no evidence that any of the cases handled by Gunby were affected by his crimes. Id. The Court found that the district court did not abuse its discretion when it inferred that the revelations of embezzlement and tax evasion by a chief magistrate judge shook the confidence of the county residents in the integrity of the court system. Id. at 1503. In so finding, the

10

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Court found that the term disruption encompasses this loss of confidence in the government. Id. In the present case, defendants fraud offenses have also caused both nonmonetary harm and the disruption of governmental function. The loss of public confidence caused by defendants conduct in executing the wire fraud scheme constitutes a significant impairment of government function as contemplated by Guideline 2K2.7. Defendants conduct in this case warrants a substantial variance upward from the guidelines range. Due to defendants theft of funds from the City of Dixon, the police department was prevented from making an approximate $80,000 upgrade to the radio equipment for its squad cars and was not able to make new hires due to lack of funds. Due to the lack of available funds caused by defendants fraud scheme, the City of Dixon reduced the staff of its Street Department from 9 to 6 by not replacing employees who retired. In addition, in the 10 years prior to defendants arrest, the City of Dixon was only able to resurface 60 blocks of the over 100 miles of city streets and has not been able to upgrade the trucks used by the Street Department. In 2002, the City of Dixon constructed a new waste water treatment facility. In 2008, the year that defendant stole over $5.8 million from the City of Dixon, the City had to postpone an $80,000 maintenance project at the waste water treatment facility which involved the sandblasting and repainting of screw pump to prevent rusting due to the lack of funds. The City of Dixon completed the maintenance of the waste water treatment facility in August 2012 after defendants arrest. However, due to the delay of the project, the cost 11

CCCaaassseee::: 333:::111222---cccrrr---555000000222777 DDDooocccuuummmeeennnttt ###::: 555222 FFFiiillleeeddd::: 000111///333111///111333 PPPaaagggeee 111222 ooofff 111666 PPPaaagggeeeIIIDDD ###:::333333555

increased from $80,000 to over $400,000. In 2011, the City of Dixon was forced to issue bonds in the amount of $3 million in order to meet its financial obligations. As shown in Government Exhibit 1, defendant stole over $4.6 million from the City of Dixon in 2011. During the three years prior to defendants arrest, due to the budget problems the City was facing, none of the City of Dixon employees received pay raises and when employees retired no one was hired to replace them. Prior to defendants arrest in April 2012, the City of Dixon department heads were considering layoffs of certain employees due to the severe budget crisis. While defendant was stealing millions of dollars from the City of Dixon, she also collected a salary from the City. PSR at 79. Defendants theft of over $53 million dollars from the City of Dixon during a 20 year period while she was employed as the Citys comptroller has caused a loss of confidence in the City of Dixons governmental officials resulting in a significant disruption of governmental function. This Court can take judicial notice of the fact that defendants conduct has caused a loss of public confidence in the government for the City of Dixon. See Paulus, 419 F.3d 698 (district court was permitted to take judicial notice of the fact that public confidence in the state judicial system had been undermined in making the determination that the defendants conduct in caused a significant disruption of government function). The government has also attached a sample of the news articles that have reported the loss of confidence that the citizens of Dixon has expressed in their governmental officials as a result of defendants conduct in stealing $53 million from the City of Dixon while employed as the Citys

12

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comptroller. G. Ex. 7. Citizens of Dixon have questioned the integrity and competence of other City officials and employees as a result of defendants conduct. Id. Defendants conduct in stealing $53 million from the City of Dixon over a 20 year time period while she was employed as the Citys comptroller, severely undermined the confidence that the citizens of Dixon have in their government. The loss of public confidence caused by defendants conduct is at least equivalent to the loss of public confidence caused by the embezzlement of approximately $14,000 by a mayor during a two year period, Pabey, 664 F.3d at 1091, 1099, the embezzlement of $400,000 by a magistrate judge during a five year period, Gunby, 112 F.3d at 1502, and the accepting of $48,000 in bribes by a state prosecutor during a two year period, Paulus, 419 F.3d at 696-699. In Pabey, Gunby and Paulus, the district court judges imposed sentences that varied upward from the guidelines range by at least 4 levels based in part on a finding of disruption of governmental function. See Pabey, 664 F.3d at 1091, 1099 (departed upward from Guidelines range of 27-33 months and imposed a sentence of 60 months); Gunby, 112 F.3d at 1502 (4 level increase); Paulus, 419 F.3d at 696-699 (6 level increase). Therefore, the significant impairment of governmental function caused by defendants conduct, which was of much greater magnitude in terms of the amount of the loss and duration of the fraud scheme, warrants a variance above the applicable guidelines range in at least the same proportion imposed by the judges in Pabey, Gunby and Paulus. A disruption of government function departure can be applied in conjunction with an enhancement for abuse of a position of public trust pursuant to Guideline 13

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3B1.3. PSR at 31; See Gunby, 112 F.3d at 1501 (holding that because an abuse of public trust and the disruption of a governmental function are analytically distinct, sentencing court can apply 3B1.3 and 5K2.7). Here, the abuse of public trust enhancement is based on the fact that defendant used her position as comptroller to commit and conceal her fraud and money laundering offenses. The disruption of governmental function departure is based on the loss of public confidence in the City of Dixon government officials due to defendants theft of $53 million dollars during the course of the wire fraud scheme defendant committed during a 20 year time period. C. Other 3553(a) Factors Weigh in Favor of an Upward Variance

A variance above the Guidelines range is necessary to promote respect for the law, provide just punishment and to provide general and specific deterence. Defendant engaged in the scheme to defraud the City of Dixon for over 20 years. Defendant continued to take millions of dollars as she turned a blind eye to the fact that the City of Dixon was facing severe financial hardship and forced to reduce the services it provided to its citizens, jeopardizing their well-being and safety. Because defendant had to pay for the care of the over 400 horses she had acquired during her fraud scheme and had no other legitimate source of income to continue to finance her horse business, there is no evidence that defendant ever intended to cease her scheme to defraud the City of Dixon. A sentence above the Guidelines range is necessary to provide a just punishment for her crimes as well as to provide deterence in order to ensure that she does not commit further crimes. In addition, a sentence above the 14

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Guidelines range is necessary to deter others who contemplate engaging in similar conduct. Considering all of the other 3553(a) factors, a sentence above the Guidelines range in this case will not create unwarranted sentencing disparities. This court may, in its discretion, sentence above the guideline range and even create disparity when other 3553(a) factors warrant it. United States v. Bartlett, 567 F.3d 901, 907-08 (7th Cir. 2009) Id. at 908-09. For all of the reasons discussed above, a sentence above the Guidelines range is warranted because of the nature and circumstances of the offense, defendants history and characteristics, the seriousness of the offense, the nonmonetary harm and substantial disruption of government function caused by defendant, the need to promote respect for the law, provide just punishment and to provide general and specific deterence. II. CONCLUSION For the reasons set forth above, the United States respectfully moves that this court vary upward from the Guidelines range by adding at least four levels to defendants total offense level. Respectfully submitted, GARY S. SHAPIRO United States Attorney

By: s /Joseph C. Pedersen JOSEPH C. PEDERSEN Assistant United States Attorney 327 South Church Street Suite 3300 Rockford, IL 61101 (815) 987-4444 15

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CERTIFICATE OF SERVICE The undersigned Assistant United States Attorney hereby certifies that on January 31, 2013, in accordance with FED. R. CRIM. P. 49, FED. R. CIV. P. 5, LR5.5, and the General Order on Electronic Case Filing (ECF), the following document: United States Motion for Upward Variance was served pursuant to the district courts ECF system as to ECF filers.

By: s /Joseph C. Pedersen JOSEPH C. PEDERSEN Assistant United States Attorney 327 South Church Street Suite 3300 Rockford, Illinois 61101 815-987-4444