You are on page 1of 26

Case 3:12-cr-00035-SRU Document 24

Filed 06/27/12 Page 1 of 26

UNITED STATES DISTRICT COURT DISTRICT OF CONNECTICUT UNITED STATES OF AMERICA : : : : : : : : :

V.

CRIM. NO. 3:12cr35 (SRU)

KEVIN COLEMAN

JUNE 27, 2012

DEFENDANT KEVIN COLEMANS MEMORANDUM IN AID OF SENTENCING Defendant Kevin Coleman submits this memorandum in aid of sentencing to assist the Court in fashioning a sentence that is sufficient, but not greater than necessary, to fulfill the federal sentencing requirements of 18 U.S.C. 3553(a). Sentencing is scheduled for July 10, 2012 at 4:00 p.m. Introduction Through his pre-indictment guilty plea, Mr. Coleman has promptly accepted responsibility for his self-indulgent and reckless behavior while he was the CEO at Latex International (Latex), a pattern of behavior for which he is now branded a convicted felon. His behavior has also cost him his reputation, his career, his friends, and his marriage. In the span of just two years, Mr. Coleman has gone from earning hundreds of thousands of dollars as a top corporate executive to collecting unemployment and living alone in a house in Minnesota that he will soon need to vacate as part of his divorce. At this stage of the proceedings, in terms of punishment, many of the goals of sentencing have already been achieved. While additional punishment is clearly

Case 3:12-cr-00035-SRU Document 24

Filed 06/27/12 Page 2 of 26

warranted, the only question is how much more is necessary to achieve general deterrence, protect the public, rehabilitate this defendant, and provide for restitution. The offense conduct in this case is not in dispute. As noted in the Pre-Sentence Report (PSR), for a period of two years, from 2008 to 2010, Mr. Coleman abused his position as CEO by purchasing expensive personal items on company credit cards and failing to reimburse the company for those charges. His offense conduct included lavish spending while traveling abroad on business; he bought expensive clothing and jewelry for himself and his wife before their eventual divorce; and he wined and dined a girlfriend who lived in England who has since abandoned him. All of these business expenses and personal expenditures were paid for by Latex. Mr. Colemans conduct did not occur in a vacuum, however. What has become increasingly clear is that his behavior was fueled by rampant alcohol and drug abuse, and it appears he was tempted by an atmosphere within the company that overlooked the spending habits of its executives and directors. As alluded to in the sentencing memorandum filed by the other individual prosecuted in this case, Joanne Osmolik, the corporate culture at Latex was rampant with excessive spending. Executives and

company directors (Coleman included) participated in expensive dinners, entertained themselves lavishly on business trips, made improvements to their personal residences, accepted gifts from the company (including beds and flat screen TVs), and routinely overlooked the companys policies concerning business reimbursement and use of company credit cards. 1

According to Ms. Osmoliks sentencing memorandum there clearly was extravagant and reckless spending by Joanne Osmolik, Kevin Coleman, and others (including one or more individuals still employed by Latex). This irresponsible spending took the form of international business trips, long vacations, gaudy raffles, exorbitant home improvements, flashy parties, expensive cars, material goods

Case 3:12-cr-00035-SRU Document 24

Filed 06/27/12 Page 3 of 26

In the final analysis, however, every criminal case comes down to what the defendant did and what harm that the defendant caused. It is not about what others also did, or may have done. Moreover, in this particular case, what Mr. Coleman and

Ms. Osmolik did during their time at Latex pales in comparison to what others in the company may have done during the same time frame. Mr. Coleman has accepted this fact, which is why he authorized his counsel to bring this matter to a close in the most expeditious way possible, without further contesting the loss figures pressed by Latex and the Government. By pleading pre-indictment, Mr. Coleman allowed the

Government to focus its resources on other cases and he spared the victim in the case, Latex, from having to incur any additional burden associated with participating in a lengthy and complex trial. Instead, on February 27, 2012, Mr. Coleman returned to Connecticut from his home in Waseca, Minnesota, waived his right to be indicted by a grand jury, and pled guilty to a two-count information charging him with one count of wire fraud in violation of 18 U.S.C. 1343 (Count 1) and one count of tax evasion in violation of 18 U.S.C. 7201 (Count 2). As noted in the PSR, the wire fraud charge relates to the credit card

scheme, which caused a fraud loss of $1,700,459. See PSR 6-14. The additional tax charge stems primarily from Mr. Colemans failure to file tax returns for the years 2007 2011, conduct that overlapped with the commission of the wire fraud offense. Although his accountant filed extensions with the IRS for those years, Mr. Coleman

(gifts), purchases in lieu of raises, golf clubs, fancy watches, baby shower gifts, gift card bonuses to salesmen, Halloween costumes, alcohol/wine/liquor for Mr. Coleman and for the customers just to name a few. See United States v. Osmolik, 3:12CR248 (SRU), Sentencing Mem. at 7 [Doc. 18].

Case 3:12-cr-00035-SRU Document 24

Filed 06/27/12 Page 4 of 26

never got around to filing the returns when the extensions expired, believing he would eventually do so. 2 By this memorandum, Mr. Coleman respectfully requests that the Court sentence him to a period of incarceration of no more than 48 months, followed by a period of supervised release. A fine should not be imposed in order to enhance Mr. Colemans ability to make restitution. Such a sentence would be the least restrictive sentence that accomplishes all of the goals of sentencing in this case, a case in which the Court must balance the societal need for punishment against the need for Mr. Coleman to begin the process of making restitution to Latex and the IRS. A sentence of 48 months would also avoid any unwarranted disparity between the sentences imposed on Mr. Coleman and Ms. Osmolik; it would be a sentence consistent with the Guideline stipulation agreed to by the parties as part of Mr. Colemans pre-indictment plea; and it would enable Mr. Coleman to seek employment as soon as possible a significant factor in determining how successful he will be in meeting his weighty restitution obligations. With regard to the restitution order itself, the Court should enter a restitution order requiring payment of the specific amounts stipulated to by the parties. The Court should refrain from including any additional amounts, unless and until the requesting party has provided the Court and Mr. Coleman with detailed information supporting the

While it is true that the mere passive failure to file a tax return is insufficient to establish the crime of tax evasion, in this case the Government was prepared to argue that Mr. Colemans affirmative decision to minimize his withholding and his efforts to conceal the underlying embezzlement crime were sufficient to prove a tax evasion motive. See Spies v. United States, 63 S.Ct. 364, 368 (1943) (If the tax-evasion motive plays any part in such conduct the offense may be made out even though the conduct may also serve other purposes such as concealment of other crime.) But compare United States v. Mesheski, 286 F.2d 345, 347 (7th Cir.1961 (reprehensible actions, designed to hinder detection of the strictly local crime of embezzlement, do not constitute such affirmative conduct as clearly and reasonably infers a motive to evade or defeat the tax.).

Case 3:12-cr-00035-SRU Document 24

Filed 06/27/12 Page 5 of 26

demand and Mr. Coleman has had a meaningful opportunity to contest the additional amounts requested. Argument A sentence that is sufficient, but not greater than necessary under 18 U.S.C. 3553(a) is the lowest possible sentence that accounts for all of the relevant statutory factors. Those statutory factors include: (1) the nature and circumstances of the offense and the history and characteristics of the defendant; (2) the need for the sentence to reflect the seriousness of the offense, to promote respect for the law, and to provide just punishment; (3) the kinds of sentences available; (4) the Guidelines range; (5) policy statements issued by the Sentencing Commission; (6) the need to avoid unwarranted sentencing disparities; and (7) the need to provide restitution. See 18 U.S.C. 3553(a). As discussed below, consideration of these factors supports a sentence of no more than 48 months incarceration for Mr. Coleman. I. PERSONAL HISTORY AND CHARACTERISTICS / NATURE CIRCUMSTANCES OF THE OFFENSE 18 U.S.C. 3553(a)(1) AND

Children raised in physically abusive, alcoholic households can sometimes become alcoholics themselves. They can also become impulsive by nature, sometimes locking themselves into a course of action without giving serious consideration to alternative behaviors or possible consequences. This impulsivity leads to confusion, self-loathing, and loss of control of their environment. As a result, they spend tremendous amounts of time cleaning up their messes. All of these observations apply to Kevin Coleman. Mr. Coleman never knew his biological father. His mother remarried and Mr. Coleman grew up in a household with his biological siblings and several half-siblings. 5

Case 3:12-cr-00035-SRU Document 24

Filed 06/27/12 Page 6 of 26

His step-father was an alcoholic who routinely beat Mr. Coleman. See PSR 52. [T]he the abuse started when he was just 3 years old and did not stop until he was big enough to fend it off at 16 years old. Id. Even more tragic, Mr. Coleman also

witnessed his own mother being punched, hit, and beaten by his step-father. Id. When Mr. Coleman turned 16, he turned to alcohol. It was not long before it became a daily habit. His drinking and discipline problems in high school eventually caused his mother to request assistance from the state, which resulted in Mr. Coleman being admitted to an in-patient program at a local hospital. He was supposed to only stay for 30 days, but he ended up being a patient for nearly 200 days. See PSR 70. Over the course of the next 35 years, Mr. Coleman has continued to struggle with his use of alcohol, a fact confirmed by Mr. Coleman, his mother, and his criminal history. His drinking contributed to two DWI convictions before the age of 40, and played a role in another conviction for driving while under suspension, for which he was ordered to undergo outpatient treatment. See PSR 33-36. His drinking also carried over into his professional life. When he was CEO at Latex, he and another senior member of

management would go out to restaurants and get drunk two to three times per month. They even would come up with reasons to have dinner meetings so that they could get drunk and run up large dinner tabs that would be expensed to the company. When he traveled abroad, Mr. Coleman went on drinking binges and ran up enormous traveling expenses. According to Mr. Coleman, during the last three to four years he worked at Latex International, he drank 90% of the nights. PSR 64. In addition to his drinking, Mr. Colemans impulsive personality caused him to experiment with illegal and prescription drugs, including marijuana, cocaine,

Case 3:12-cr-00035-SRU Document 24

Filed 06/27/12 Page 7 of 26

speed/crystal methamphetamine, Oxycontin, mushrooms, and LSD. See PSR 65-69. In 2007 and 2008, the years leading up to his spending spree, Mr. Coleman began abusing Oxycontin, a drug he was first exposed to when he was recuperating from surgery. He used the pills when he had difficulty sleeping a product of his heavy alcohol use, constant hours of working, and frequent international business trips. This Oxycontin habit ballooned from 30 mg pills to 1000 mg pills, and he was taking 9000 mg of Oxycontin per day in the days and months after his resignation from Latex. See PSR 68. During his pre-sentence interview, Mr. Coleman lamented that his marriage and family life suffered through the years as a result of financial stresses, his drinking, his drug abuse, and his constant traveling for work. Of note is the fact that Mr. Coleman and his wife, Wendy, suffered financially as a result of their daughters medical bills. Their daughters pre-existing diabetes condition prevented her from getting health insurance coverage and the family became insolvent under the weight of unpaid medical bills, eventually filing for bankruptcy in 1997. In the years after the bankruptcy, the family finances were, once again, tight. In 2002, Mr. Coleman gave in to temptation for the first time, misusing $14,596.44 in company funds while he was employed by a company in Minnesota. See PSR 38. The matter was charged criminally, but later dismissed when Mr. Coleman made full restitution in 2005. In 2005, he was hired by Latex International, a privately held bedding manufacturing company headquartered in Shelton, Connecticut. He was hired as a vice-president and was quickly promoted through the ranks, eventually becoming CEO in June 2008. While his professional career flourished, his marriage continued to suffer.

Case 3:12-cr-00035-SRU Document 24

Filed 06/27/12 Page 8 of 26

Mr. Coleman was rarely home in Minnesota and lived most of the time at a Hilton Garden Inn in Connecticut. His wife, Wendy, visited when she could, but the trips became less frequent after Mr. Coleman became CEO. Mr. Coleman, in turn, occupied himself by drinking, going out to expensive restaurants, and traveling as much as he could. Around this time, in 2008, Latex created a British marketing company called DMAD Marketing Services to assist in selling off the assets of a defunct manufacturing facility in Malaysia purchased by Latex. To help finance work on the transaction,

Latexs Board of Directors authorized the issuance of credit cards through the DMAD entity, one of which was given to Mr. Coleman. Over the next two years, Mr. Coleman used his DMAD credit card to take cash advances while traveling, pay for jewelry for himself and his wife, and buy gifts for a woman he began seeing on his trips abroad to the United Kingdom. He also used the credit card to pay for first class airfare and other high-end travel accommodations, most of which were booked by his administrative assistant, Joanne Osmolik. By virtue of her role, Osmolik had access to Colemans credit card information and she began making purchases for herself, many of which were unknown to Mr. Coleman. Mr. Coleman ran most of his business expenditures for the years 2008 to 2010 through the DMAD credit card. These included both legitimate and illegitimate

expenses. Although he never prepared his own expense summaries or reports, Latexs Board of Directors knew that he was running virtually all of his business expenses through DMAD. At one point, the majority shareholder/director of Latex joked that if Mr. Coleman ever got around to actually submitting expense reports, the director would

Case 3:12-cr-00035-SRU Document 24

Filed 06/27/12 Page 9 of 26

have to close his eyes when they signed them. According to the records provided by Latex to the Government, these DMAD charges exceeded $1M for the years 2008 through 2010. The scheme was largely successful because of the manner in which the credit card bills were paid by Latex. The process was one in which invoices would be issued from DMAD asking for payment of the credit card charges. The invoice from DMAD was never detailed, and no explanation of the charges was ever requested by Latex, or provided to the Board by Coleman. Latex simply paid the charges and moved on. In late 2010, Mr. Coleman was contacted by Latex International to discuss questions surrounding his company credit card charges. Included among the

expenditures were jewelry purchases, personal vacation expenses, a Mercedes twodoor convertible car, and a pair of Harley Davidson motorcycles. Mr. Coleman declined to explain the purchases to the audit committee and instead submitted his resignation. Approximately one month later, he accepted another position in the industry working for Sealy, a well-known bedding manufacturing company with a factory in Wilkes Barre, Pennsylvania. Later in 2011, after he learned of the criminal investigation by the FBI, Mr. Coleman retained counsel to discuss the nature of the allegations with counsel for the Government. Through this dialogue, Mr. Coleman was provided with pre-indictment discovery and he learned that Latex had turned over the results of an internal investigation to the Government and that this internal investigation was the basis for a planned wire fraud charge.

Case 3:12-cr-00035-SRU Document 24

Filed 06/27/12 Page 10 of 26

In December 2011, when Ms. Osmoliks guilty plea became public, Mr. Coleman was afforded the opportunity to resign or be terminated. He chose to resign and

relocated from Pennsylvania back to Minnesota. Then, in January 2012, his divorce proceedings with his wife became final. Having hit rock bottom, Mr. Coleman decided to tackle the drinking and drug use that had fueled his excessive lifestyle and begin the process of making amends for his criminal conduct. On January 10, 2012, Mr. Coleman submitted to a substance abuse evaluation at Fountain Centers, a residential treatment program in Minnesota affiliated with the Mayo Clinic. See PSR 71. He was determined to be alcohol and drug dependent, with attendant depression and emotional difficulties stemming from the criminal investigation. After attending the program for between 21-24 days, disputes over payment by his former employer required him to transfer to the out-patient program. There, he attended two group counseling sessions per week, as well as one individual counseling session. When not in group sessions or individual counseling, Mr. Coleman attended AA meetings. Today, as noted in the PSR, Mr. Coleman has been sober for almost 6 months the longest period of sobriety since he was a teenager. See PSR 72. He stands before the Court deeply remorseful and he has a better understanding what caused him to engage in such reckless conduct. Seeking treatment for his alcohol and prescription drug abuse was only the first step in this process. He also intends to seek further counseling to address any personality traits linked to his alcoholism and the physical abuse he experienced as a child. While his difficult upbringing and his addictions do not fully explain his conduct, they do shed some light on the impulsive and irresponsible

10

Case 3:12-cr-00035-SRU Document 24

Filed 06/27/12 Page 11 of 26

actions that gave rise to the charges in this case. By promptly pleading guilty and affirmatively seeking treatment, Mr. Coleman has begun the process of cleaning up the mess he created. He deserves some credit for taking those steps, and we urge the Court to factor those efforts in to its ultimate sentencing decision. II. AVAILABLE SENTENCES 18 U.S.C. 3553(a)(3) Mr. Coleman faces a maximum of 20 years imprisonment on the wire fraud count and a maximum of 5 years on the tax evasion count. See PSR 91. There is no mandatory minimum. His Guideline range, as discussed below, suggests that a term of imprisonment is appropriate, and we do not dispute that recommendation. Assuming that he is sentenced to a term of imprisonment, Mr. Coleman can expect to serve 87.1 percent of whatever sentence the Court imposes. See Barber v.

Thomas, -- U.S. --, 130 S.Ct. 2499 (2010) (affirming BOPs time credit calculation formula). If he is sentenced consistent with the Guideline stipulation set forth in the plea agreement (41-51 months), Mr. Coleman can expect to serve between 36-45 months in BOP custody. A period of between one and three years of supervised release is also called for by statute and is consistent with the period recommended by the Guidelines. See PSR 94-95. We note that, contrary to popular perception, this non-custodial portion of the sentence is indeed punishment under our federal sentencing laws. In Gall v. United States, the U.S. Supreme Court squarely rejected the notion that probation and other non-custodial sentences are not punishment under 18 U.S.C. 3553(a): Offenders on probation are nonetheless subject to several conditions that substantially restrict their liberty . . . Inherent in the very nature of probation is that probationers do not enjoy the absolute liberty to which every citizen is entitled. . . .Probationers may not leave the judicial district, 11

Case 3:12-cr-00035-SRU Document 24

Filed 06/27/12 Page 12 of 26

move, or change jobs without notifying, and in some cases receiving permission from, their probation officer or the court. They must report regularly to their probation officer, permit unannounced visits to their homes, refrain from associating with any person convicted of a felony, and refrain from excessive drinking. Most probationers are also subject to individual "special conditions" imposed by the court. Gall, 128 S.Ct. at 595-96; United States v. Desmond, 2008 WL 686779, *3 (N.D. Ill. March 11, 2008) (citing Gall) (finding that a sentence of probation is sufficient, but not greater than necessary for mail and wire fraud defendant facing 60 months under the Guidelines, and noting that [a] term of probation, including a significant term of home confinement, will be a significant restriction on [the defendants] freedom); see also ABA STANDARDS
ON

CRIMINAL JUSTICE, Sentencing 18-6.4(a), p. 227 (3rd ed. 1994) (A

sentencing court should prefer sanctions not involving total confinement in the absence of affirmative reasons to the contrary.). Thus, to the extent that the Court is considering punishment beyond the 48 months, it should consider whether other, non-custodial alternatives could achieve the same sentencing objective. For example, this Court might choose to extend Mr.

Colemans 48-month sentence by including a period of home confinement as part of his supervised release. This would constitute extended punishment, but it would also have the added benefit of enhancing Mr. Colemans ability to search for employment a significant need in light of his restitution obligations to Latex and the IRS. III. THE SENTENCING GUIDELINES 18 U.S.C. 3553(a)(4) In United States v. Rita, 127 S.Ct. 2456 (2007), the Supreme Court discussed the role of the Guidelines and the duties of a sentencing judge as follows: The sentencing judge, as a matter of process, will normally begin by considering the presentence report and its interpretation of the Guidelines. 18 U.S.C. 3552(a); Fed. R. Crim. P. 32. He may hear arguments by 12

Case 3:12-cr-00035-SRU Document 24

Filed 06/27/12 Page 13 of 26

prosecution or defense that the Guidelines sentence should not apply, perhaps because (as the Guidelines themselves foresee) the case at hand falls outside the heartland to which the Commission intends individual Guidelines to apply, U.S.S.G. 5K2.0, perhaps because the Guidelines sentence itself fails properly to reflect 3553(a) considerations, or perhaps because the case warrants a different sentence regardless. Rita, S.Ct. at 2465 (emphasis added). In a recent Second Circuit opinion, United States v. Jones, 531 F.3d 163, 171 (2008), the Court of Appeals thoroughly discussed the Supreme Courts sentencing decisions in Booker, Rita, Gall, and Kimbrough: In short, while a sentencing court is statutorily obligated to give fair consideration to the Guidelines before imposing sentence, 18 U.S.C. 3553(a)(4); United States v. Williams, 524 F.3d at 215 (holding district court committed procedural error by using sentence for which case could have been plea-bargained in Westchester County, rather than Guidelines range as initial benchmark), in the end, it must make an individualized assessment of the sentence warranted by 3553(a) based on the facts presented, Gall, 129 S.Ct. at 597. The Court of Appeals continued: Sentencing is not, after all, a precise science. Rarely, if ever, do the pertinent facts dictate one and only one appropriate sentence. Rather, the facts may frequently point in different directions so that even experienced district judges may reasonably differ, not only in their findings of fact, but in the relative weight they accord competing circumstances. Such reasonable differences necessarily mean that, in the great majority of cases, a range of sentences frequently extending well beyond the narrow ranges prescribed by the Guidelines must be considered reasonable. Id. (internal citations omitted and emphasis added). Thus, while a sentencing court must give respectful consideration to the Guidelines, the court also has discretion to determine that, in a particular case, a within-Guidelines sentence is greater than necessary to serve the objectives of sentencing. United States v. Regalado, 518 F.3d 143, 146 (2d Cir. 2008) (quoting

13

Case 3:12-cr-00035-SRU Document 24

Filed 06/27/12 Page 14 of 26

United States v. Kimbrough, 128 S.Ct. 558, 564 (2007)). In fact, in fashioning an appropriate sentence, the judge is not prohibited from including in that consideration the judges own sense of what is fair and just under the circumstances. United States v. Jones, 460 F.3d 191, 194-96 (2d Cir. 2006) (concluding that sentencing judges sentence, which was imposed in part based on judges gut feeling and sense that the defendant could do better, was reasonable). In Mr. Colemans case, the PSR has calculated the Guidelines in manner that is different than what the parties anticipated when they entered into the Guideline stipulation in the plea agreement. In response, Mr. Coleman has objected to the

revised calculations, urging the Court instead to use a lower Guideline range as the starting point in the sentencing analysis. Depending on how the Court wishes to

proceed at sentencing, this disagreement about which Guideline range applies in Mr. Colemans case could be rendered academic. For example, given the overlapping

sentencing ranges, the Court could make the issue moot by imposing a sentence of 48 months, which is within both the 41-51 months calculated in the plea agreement and the slightly higher 46-57 months calculated in the PSR. In the alternative, the Court could choose, in its discretion, to impose a non-Guidelines sentence. Regardless of which path the Court chooses, an accurate calculation of the Guidelines is procedurally necessary, and so we address the central Guideline issues below. A. Grouping Under U.S.S.G. 3D1.2(d)

As noted in the PSR, Mr. Coleman objects to the PSRs calculation of his the total offense level under the grouping provisions of U.S.S.G. 3D1.2(d). If this grouping method is used, Mr. Coleman faces a Guidelines range of 46-57 months, which is

14

Case 3:12-cr-00035-SRU Document 24

Filed 06/27/12 Page 15 of 26

above that stipulated to the plea agreement. If a different grouping method is used, as discussed below, Mr. Colemans range would be 41-51 months. resolve this Guideline dispute in one of the following ways. First, assuming the Court intends to group the wire fraud and tax fraud counts under U.S.S.G. 3D1.2(d), an approach endorsed by the Second Circuit in United States v. Gordon, 291 F.3d 25, 181, 188-90 (2d Cir. 2002), the Court should not adopt the PSRs use of the role in the offense enhancement under U.S.S.G. 3B1.1(c) when calculating the offense level under the tax guideline. While Mr. Coleman has stipulated that he was an organizer, leader, manager, or supervisor during the commission of the wire fraud offense, Mr. Coleman did not (and could not) play such a role in committing the tax evasion. Nevertheless, the PSR has applied the enhancement when calculating Mr. Colemans tax guideline offense level, citing as support for his approach the introductory commentary to U.S.S.G. 3B1.1, which states: The determination of a defendants role in the offense is to be made on the basis of all conduct within the scope of 1B1.3 (Relevant Conduct), i.e., all conduct included under 1B1.3(a)(1)-(4), and not solely on the elements and acts cited in the count of conviction. That provision, however, insofar as it applies to grouping under U.S.S.G. 3D1.2(d), permits consideration of role in the offense conduct only if it was 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). Here, Mr. Colemans inexcusable delay in filing his tax returns, and his further failure to pay taxes on his ill-gotten gains, was not part of the wire fraud scheme. The Court could

15

Case 3:12-cr-00035-SRU Document 24

Filed 06/27/12 Page 16 of 26

If the two-level enhancement is not used, his offense level is 24, less three points for acceptance, yielding a total offense level of 21. This total offense level is the same as the total offense level reached under the fraud guideline and is consistent with the guideline range reached in the plea agreement (41-51 months). 3 Alternatively, the Court may wish to consider grouping the tax evasion count with the wire fraud count under subsection (c) of U.S.S.G. 3D1.2. Subsection (c) governs [w]hen one of the counts embodies conduct that is treated as a specific offense characteristic in, or other adjustment to, the guideline applicable to another of the counts. Here, subsection (c) could be used because mail fraud appears to be a specific offense characteristic of tax fraud: when the source of unreported income exceeding $10,000 is criminal activity, the offense level for the tax offense is increased two levels. Gordon, 291 F.3d at 196 (Newman, J., concurring). Grouping under

subsection (c) would also be consistent with the position taken at least informally by the U.S. Sentencing Commission. See id. at 198 (citing United States Sentencing

Commission, Most Frequently Asked Questions About the Sentencing Guidelines No. 45, at 14 (7th ed. June 1, 1994)). If the Court were to apply the grouping provisions of subsection (c), then the wire fraud guideline would yield the highest offense level, as provided for in the plea agreement, as follows: The tax guideline would have a base offense level of 20 based on a tax loss of $741,029, see U.S.S.G. 2T1.1(a)(1) & 2T4.1, plus two points under for failure to report the income derived from the wire fraud, see U.S.S.G. 2T1.1(b)(1), and less three points for acceptance. This would

There is typo in the plea agreement; it mistakenly calculates the offense level as 22, when the calculations in the stipulation plainly amount to an offense level of 21 (i.e., an offense level 24, less 3 points for acceptance, equals level 21). The plea agreement correctly states that this yields a range of 41-51 months.

16

Case 3:12-cr-00035-SRU Document 24

Filed 06/27/12 Page 17 of 26

result in a total offense level of 19. (If a role in the offense enhancement is used an approach we believe is inappropriate, as discussed above the addition of the two levels under U.S.S.G. 3B1.1(c) would still only result in a total offense level of 21.) The wire fraud guideline would have a base offense level of 7, plus 16 levels under U.S.S.G. 2B1.1(b)(1)(I), based on a wire fraud loss of $1,700,459, plus two levels under U.S.S.G. 3B1.1(c), based on Mr. Colemans role in the offense, less three points for acceptance. This would yield a total offense level of 21.

Because the offense level for the wire fraud guideline under the above analysis would be higher (or the same) as the tax guideline offense level, the Court would adopt the higher wire fraud guideline. This would result in a Level 21, CHC I (41-51 months), and a sentence of 48 months falls comfortably within that range. B. Downward Departure and/or Non-Guidelines Sentence to Give Effect to Parties Plea Agreement

Another approach to resolving this Guideline dispute would be a departure. If the Court agrees with PSRs revised range of 46-57 months, the Court could downwardly depart to give effect to the range contemplated by the plea agreement. See PSR 103; United States v. Fernandez, 877 F.2d 1138 (2d Cir. 1989) (a district court presently may depart from a Guidelines sentence in order to give effect to a plea bargain if such a departure is warranted). Tracking the reasoning of Fernandez, Judge Gleeson

(E.D.N.Y.) has suggested that district courts can and should defer to the parties bargained-for exchanges: Judges should welcome sentence bargains because they conserve judicial resources at both the district and appellate levels. The Second Circuit has encouraged bargaining for precisely this reason. See Hon. John Gleeson, Sentence Bargaining under the Guidelines, 8 Fed. Sent. R. 314-315 (1996) (citing United States v. Pimentel, 932 F.2d 1029, 1033 (2d Cir. 1991)); see also Hon. John Gleeson, The Sentencing Commission and Prosecutorial Discretion: 17

Case 3:12-cr-00035-SRU Document 24

Filed 06/27/12 Page 18 of 26

The Role of the Courts in Policing Sentence Bargains, 36 Hofstra L.R. 3, 639-661 (Spring 2008). In the alternative, the Court may wish to resolve the issue by imposing a nonGuidelines sentence, an approach explicitly condoned by the Second Circuit in United States v. Crosby: Now that the duty to apply the applicable Guidelines range is not mandatory, situations may arise where either of two Guidelines ranges, whether or not adjacent, is applicable, but the sentencing judge, having complied with section 3553(a), makes a decision to impose a nonGuidelines sentence, regardless of which of the two ranges applies. This leeway should be useful to sentencing judges in some cases to avoid the need to resolve all of the factual issues necessary to make precise determinations of some complicated matters, for example, determination of monetary loss. Similarly, close questions may sometimes arise as to the precise meaning or application of a policy statement authorizing a departure, and a judge who has considered policy statements concerning departures need not definitively resolve such questions if the judge has fairly decided to impose a non-Guidelines sentence. 397 F.3d 103, 112 (2d Cir. 2005). D. Many of the Purposes of Sentencing Have Already Been Achieved

Mr. Coleman has been punished severely by the very public nature of the prosecution, the significant financial sanctions involved, the loss of his jobs at both Latex and Sealy, and the shame and public embarrassment that comes with pleading guilty to a federal felony. See United States v. Myers, 353 F. Supp.2d 1026, 1031 (S.D. Iowa 2005) (stating that once a defendant is convicted, the defendant has been branded a felon and being known as such by family, friends, and society is no small punishment).

18

Case 3:12-cr-00035-SRU Document 24

Filed 06/27/12 Page 19 of 26

In addition to the consequences noted above, Mr. Coleman lost his corporate investment in Latex. During his employment, he was loaned $215,000 by Pouschine Cook Capital Management, LLC (the controlling shareholder of Latex) to purchase shares in Latex. The shares were pledged as collateral for the loan. When Mr.

Coleman lost his job at Latex, and thereafter was terminated from Sealy in the wake of this investigation becoming public, he could not repay the loan, prompting Pouschine Cook to exercise its rights to take his shares. Mr. Coleman did not challenge the

valuation of these shares which Latex placed at less than $250,000 but Mr. Coleman now has reason to believe that the shares may have been worth much more. Some of this money could have been used to support himself and his family, pay restitution, and/or satisfy his tax obligations. That possibility is now lost. At the end of the day, when all is said and done, Mr. Coleman will have lost two jobs, his corporate investment in Latex, his reputation, his friends, his wife of 30 years, and he will be obligated to make restitution payments for the rest of his life. Such harsh collateral consequences demonstrate that many of the goals of sentencing have been achieved in this case by the prosecution itself. Under such circumstances, a departure or non-Guidelines sentence is permissible. See, e.g., United States v. Redemann, 295 F.Supp.2d 887, 894-896 (E.D. Wis.2003) (downward departure under U.S.S.G. 5K2.0 warranted where purposes of sentencing, including punishment, specific deterrence and general deterrence already partially achieved through imposition on defendant of, inter alia, payment of substantial restitution, public shame, and collateral damage to family).

19

Case 3:12-cr-00035-SRU Document 24

Filed 06/27/12 Page 20 of 26

IV.

THE NEED FOR THE SENTENCE IMPOSED TO ACCOMPLISH THE GOALS OF SENTENCING 18 U.S.C. 3553 (a)(2) Having given due consideration to a defendants history and characteristics and

to the nature and circumstances of the offense, the Court must, subject to the principle of parsimony, identify a sentence that reflects the seriousness of the offense, promotes respect for the law, provides a just punishment for the offense, affords adequate deterrence to criminal conduct, and protects the public from further crimes of the defendant, though a particular purpose may apply differently, or even not at all, depending on the kind of sentence under consideration. Tapia v. United States, -- U.S. --, 131 S.Ct. 2382, 2387-88 (2011); see United States v. Crosby, 397 F.3d 103, 112-14 (2d Cir. 2005). In other words, the Court is tasked with balancing the goals of
ON

sentencing in determining a fair and appropriate disposition. See ABA STANDARDS

CRIMINAL JUSTICE, Sentencing 18-6.1(a), p. 219 (The sentence imposed should be no more severe than necessary to achieve the societal purposes for which it is authorized.). There is no doubt that the mess Mr. Coleman created was accomplished through the commission of very serious crimes. Now more than ever, the community at large relies on upon executives to abide by their fiduciary obligations, and each and every American citizen must be diligent in paying their taxes. Here, Mr. Colemans

embezzlement activities and his simultaneous failure to file timely tax returns for four years even if he intended to file them at some future date deserve harsh punishment. With regard to general deterrence, it is clear that the impact of this prosecution on Mr. Coleman both financially and emotionally has already been severe. As a 20

Case 3:12-cr-00035-SRU Document 24

Filed 06/27/12 Page 21 of 26

result of his guilty plea, Mr. Coleman has agreed to pay over $3M in restitution, which is a significant sanction in view of Mr. Colemans fragile financial condition and diminishing employment opportunities. When combined with the very public nature of the

prosecution which has been followed closely in the press there can be no question that a message has been sent to the community (and to others in the corporate community) that similar conduct will be prosecuted vigorously. V. THE NEED TO AVOID UNWARRANTED SENTENCING DISPARITIES 18 U.S.C. 3553(a)(6) Pursuant to 3553(a)(6), a sentencing court must also take into account the need to avoid unwarranted sentencing disparities among defendants with similar records who have been found guilty of similar conduct. See also United States v. Wills, 476 F.3d 103, 109 (2d Cir. 2007) (the plain language of 3553(a)(6) does not on its face restrict the kinds of disparity a court may consider); United States v. Fernandez, 443 F.3d 19, 31 n. 9 (2d Cir. 2006) (same). By virtue of its day-to-day experience in federal sentencing, this Court is uniquely situated to assess this statutory factor. Here, the Court is faced with a situation in which Mr. Coleman is not the only Latex executive to be convicted and sentenced. Earlier this year, on April 26, 2012, the Court sentenced Mr. Colemans colleague, Joanne Osmolik, to a non-Guidelines sentence of 48 months. This sentence was above Ms. Osmoliks Guideline range of 3341 months and was harsher than anything contemplated by Ms. Osmoliks plea agreement. Heading into this sentencing proceeding, we understand and appreciate that it is likely that the Court may impose the same sentence here in view of the comparable fraud loss numbers and the harm caused to Latex. What we urge the Court

21

Case 3:12-cr-00035-SRU Document 24

Filed 06/27/12 Page 22 of 26

not to do, however, is impose a sentence more than 48 months, as it would be greater than necessary to achieve the goals of sentencing with respect to Mr. Coleman. Several factors are worthy of consideration in this regard. First, Mr. Coleman has affirmatively demonstrated his acceptance of responsibility and that he is genuinely remorseful. He intends to address the Court further on this issue at sentencing. As noted in the PSR, he checked himself in to a substance abuse treatment program, successfully completed it, and he has been fully compliant with his conditions of release since the time of his change of plea over four months ago. This behavior suggests that Mr. Coleman can abide by court conditions and he is amenable to non-incarceration alternatives in lieu of additional incarceration. Second, to the extent Mr. Coleman may be viewed as more culpable based on his position as CEO, this factor has already been accounted for in his Guideline calculations through a role in the offense enhancement, resulting in a sentencing range above Ms. Osmoliks range: Mr. Colemans advisory range is 41-51 months under his plea agreement and 46-57 months according to the PSR. Finally, while it is true that Mr. Coleman has pled to the additional crime of tax evasion for failing to pay taxes on his ill-gotten gains, that fact alone does not warrant a harsher sentence. Ms. Osmolik was guilty of essentially the same thing. While she filed her tax returns, it is now clear that she filed false returns, because she failed to report and pay taxes on the money she embezzled from Latex. In other words, were it not for an exercise of prosecutorial discretion, Ms. Osmolik could have been charged with and convicted of a tax offense, just like Mr. Coleman. Here, Mr. Coleman should not be

22

Case 3:12-cr-00035-SRU Document 24

Filed 06/27/12 Page 23 of 26

punished more harshly than Ms. Osmolik simply because he chose to delay filing his tax returns, instead of lying on them. For all these reasons, justice would not be served by sentencing Mr. Coleman to a period of incarceration longer than Mr. Osmolik, an individual who engaged in similar conduct and who was equally culpable. VI. RESTITUTION 18 U.S.C 3553(a)(7) As noted above, the personal and financial ramifications of Mr. Colemans plea are substantial. Mr. Colemans reputation has been ruined, his professional career is lost, and now he must make restitution payments to Latex and the IRS for the rest of his life. By virtue of his plea agreement, Mr. Coleman must pay a total of $1,700,459.00 in restitution to Latex, and another $1,375,627.83 in taxes, penalties and interest to the IRS. Because he is unemployed, and because the scheme involved lavish spending on restaurants, hotels, dinners, and first class airfare none of which can be recouped or liquidated now Mr. Coleman has been unable to come forward with a substantial restitution payment. Any hope of upfront restitution would have to come from the sale of the tangible items recovered by the Government. To date, approximately $181,884.00 worth of jewelry and other items subject to forfeiture have already been recovered by the Government. Another $148,585.00 in forfeiture items remains outstanding. Mr. Coleman has agreed to the forfeiture of these items and has communicated with counsel for Latex and the Government about how the proceeds of any forfeiture could be paid to the Latex as the victim. Recently, in connection with Ms. Osmoliks sentencing, outside counsel for Latex submitted a victim impact letter discussing other potential losses identified by Latex.

23

Case 3:12-cr-00035-SRU Document 24

Filed 06/27/12 Page 24 of 26

This letter was provided to the Government and was included as an attachment to the Governments sentencing memorandum in Ms. Osmoliks case. That letter from latex catalogs a number of business decisions made by Latex, the cost of which Latex now claims were a consequence of Mr. Colemans conduct. These additional losses include: a reduction in the Latex work force; factory shut downs; longer lead times to key customers due to financial constraints; loss of advertising; suspension of the 401(k) plan; $300,000 in attorney and professional fees; and a $250,000 penalty imposed by a bank for additional borrowing by Latex. While Mr. Coleman is genuinely remorseful, and while he also recognizes that his conduct and faulty leadership may have jeopardized the financial health of the company, he cannot agree that all of the losses set forth in Latexs victim impact letter were proximately caused by his embezzlement. The legal and factual reasons

supporting his position are set forth in defense counsels PSR objection letter dated May 8, 2012, which is appended to the PSR. Even assuming, however, that any of those losses can be tied directly to Mr. Colemans conduct, we are unaware of any statutory provision that provides Latex with standing to prosecute such claims in these proceedings. Although restitution does resemble a judgment for the benefit of the victim, the context in which it is imposed undermines that conclusion. The victim has no control over ... the decision to award restitution. Kelly v. Robinson, 479 U.S. 36, 52, 107 S.Ct. 353 (1986). Cf. 18 U.S.C. 3554(e) (identifying the Government as the party with the burden of demonstrating the amount of the loss sustained by the victim). Given the enormous restitution amounts already stipulated to by Mr. Coleman, the Court should exercise its discretion and simply order restitution in the amount

24

Case 3:12-cr-00035-SRU Document 24

Filed 06/27/12 Page 25 of 26

agreed to by the parties in the plea agreement. See 18 U.S.C.A. 3663A(c)(3)(B) (court need not order restitution for full amount of victims losses if determining complex issues of fact related to the cause or amount of the victim's losses would complicate or prolong the sentencing process to a degree that the need to provide restitution to any victim is outweighed by the burden on the sentencing process). Conclusion For all of the foregoing reasons, and based on any additional grounds that may be brought to the attention of the Court prior to sentencing, Mr. Coleman respectfully requests that the Court impose a sentence of no more than 48 months, followed by a period of supervised release, with a restitution order entered in accordance with the amounts stipulated to in the plea agreement. Respectfully submitted, /s/ Robert M. Frost, Jr. Robert M. Frost, Jr. (ct 19771) FROST BUSSERT, LLC 129 Church Street, Suite 226 New Haven, CT 06510 Tel: (203) 495-9790 Fax: (203) 495-9795 Email: rmf@frostbussert.com Attorney for Kevin Coleman

25

Case 3:12-cr-00035-SRU Document 24

Filed 06/27/12 Page 26 of 26

CERTIFICATION I hereby certify that on this date a copy of the foregoing pleading was filed electronically and served by mail on anyone unable to accept electronic filing. Notice of this filing will be sent by e-mail to all parties by operation of the Court's electronic filing system and by mail to anyone unable to accept electronic filing as indicated on the Notice of Electronic Filing. Parties may access this filing through the Court's CM/ECF system. Courtesy copy via email to: January Satrazemis United States Probation Officer U.S. Probation Office 915 Lafayette Blvd, Room 200 Bridgeport, Connecticut 06604

Dated at New Haven, Connecticut on this 27th day of June, 2012.

/s/ Robert M. Frost, Jr. Robert M. Frost, Jr.

You might also like