Case 3:12-cr-00035-SRU Document 25

Filed 07/09/12 Page 1 of 11

UNITED STATES DISTRICT COURT DISTRICT OF CONNECTICUT UNITED STATES OF AMERICA v. KEVIN COLEMAN, Defendant. : : : : : : :

Crim. No. 3:12cr35(SRU) July 8, 2012

GOVERNMENTS RESPONSE TO DEFENDANTS MEMORANDUM IN AID OF SENTENCING I. INTRODUCTION Kevin Coleman was the Chief Executive Officer of Latex International. He reached a level of importance, prestige and income that very few people reach. But instead of fulfilling his responsibilities and obligations to the companys owners and employees, he pillaged Latex to fund an absurdly extravagant lifestyle. Coleman also cheated the IRS and his fellow citizens out of approximately $791,000 in taxes. He did not even file his tax returns for four years. His crimes are egregious, and he should be sentenced to a lengthy period of incarceration to punish him and to deter others from committing such crimes. Colemans crimes were audacious. He fraudulently purchased hundreds of thousands of dollars of jewelry for himself, his wife and his mistress in London. Indeed, he purchased with Latexs money an emerald cut diamond for a ring for himself valued at $56,900. He purchased a Mercedes convertible for his mistress with Latexs money. He fraudulently purchased hundreds of thousands of dollars in merchandise at Frontgate, Bulgari, Christian Dior, Louis Vuitton, Nordstrom and other merchants, all with Latex money. He spent Latex money on lavish

Case 3:12-cr-00035-SRU Document 25

Filed 07/09/12 Page 2 of 11

travel expenses for him and his family. Coleman engaged in a shocking and widespread crime spree all at the companys expense, monetarily and otherwise. Nothwithstanding the fact that he was earning wage income of between $359,000 and $460,000 in the tax years 2007 to 2010, Coleman never filed a federal tax return in those years. During that period, he directed Osmolik to minimize federal tax withholdings from his wage income. The loss to the government in taxes was nearly $800,000. Coleman must be sentenced to a lengthy period of imprisonment to pay for his crimes. This Court sentenced Joanne Osmolik, a vice president and Colemans subordinate, to 48 months of imprisonment for her embezzlement of approximately the same amount of money. Given that sentence, the government respectfully requests that this Court sentence Coleman to a nonguidelines sentence of substantially higher than 48 months in prison. Coleman not only embezzled from Latex, but also evaded hundreds of thousands of dollars in taxes. Moreover, Coleman was Osmoliks superior and a CEO who led by example the worst possible example. While Osmolik was clearly responsible for what she embezzled, it seems clear that Osmolik was following Colemans lead in pilfering from Latex to satisfy her own desire for material goods that she could not otherwise legally obtain. In sentencing Osmolik to four years of imprisonment, this Court stated the following about the impact her crime had on the victim, Latex: The sentence of imprisonment is a non-Guideline sentence that reflects the exceptionally adverse impact of Osmoliks crime on the victims of her offense. Her former employer laid off 43 individuals, temporarily shut down a factory, lost sales, closed a plant in England, and suspended the 401(k) plan for employees, among other things, in an effort to survive the financial impact of this fraud. The financial and emotional toll from Osmoliks conduct will be felt for a generation.

Case 3:12-cr-00035-SRU Document 25

Filed 07/09/12 Page 3 of 11

Judgment, United States v. Osmolik, 3:11cr248(SRU) [Doc. #25, 05/21/12]. Colemans crime, of course, had the very same devasting impact, and his responsibility for that impact given his position as CEO and his role in the offense as Osmoliks supervisor is clearly greater than Osmoliks. Accordingly, he should be sent to prison for a substantially longer period than 48 months.

II.

THE OFFENSE CONDUCT The PSR accurately summarizes the offense conduct at paragraphs 6 through paragraph

16 of the PSR. From approximately October 2008 to approximately November 2010, Coleman engaged in a scheme defraud Latex International. Coleman fraudulently enriched himself by converting and embezzling corporate funds belonging to Latex International and using those funds for substantial personal expeditures. The scheme included, but was not limited to, misusing corporate credit cards and expense accounts and concealing their fraudulent use from others. Coleman and Osmolik charged substantial personal expenditures on corporate credit cards belonging to Latex International. Coleman and Osmolik prepared, and cause to be prepared, expense reports in order to obtain and use Latex International corporate funds to pay off the amount owed on the credit cards for their personal expenditures and to use for other personal expenditures not charged to corporate credit cards. Coleman and Osmolik affirmatively concealed from individuals at Latex International and others, including representatives of Latex Internationals owner, that they were using corporate funds to pay for substantial personal expenditures.

Case 3:12-cr-00035-SRU Document 25

Filed 07/09/12 Page 4 of 11

Coleman made use of a credit card provided to Coleman by a United Kingdom subsidiary of Latex International. Coleman used the credit card to charge hundreds of thousands of dollars in diamond jewelry at Exclusively Diamonds in Minnesota. Coleman charged tens of thousands of dollars in merchandise at Harrods in London, tens of thousands of dollars at Harley Davidson, and hundreds of thousands of dollars at other merchants, such as Frontgate, Bulgari, Christian Dior, Louis Vuitton and Nordstrom. Coleman also fraudulently obtained cash advances from the card. Coleman directed Osmolik to charge personal items to the Latex International AmEx card of an employee working at Latex International (hereinafter referred to as Employee #1) in order to conceal the expenses of Coleman and Osmolik, and the nature of those expenses from the finance department at Latex International. Those expeneses included tens of thousands of dollars in personal travel expenses for him and his family, including travel to St. Martin and to Europe. The expenses also included a weekend at the Four Seasons in New York that cost $14,964. Coleman instructed Osmolik to destroy expense reports so as to conceal their fraudulent nature from others at Latex International. Osmolik carried out those instructions and destroyed the records. Altogether, Coleman embezzled approximately $1,700,459 from Latex International, which does not include an additional $1,777,791 in fraudulent personal expenditures incurred by Osmolik. It is the defendants position that the fraudulent expenditures by Osmolik were not undertaken at COLEMANs direction, and the Government has agreed not to argue otherwise. Coleman and Osmolik used and caused the use of wire communications in interstate and foreign commerce in furtherance of the scheme, including email, the internet, and interstate and 4

Case 3:12-cr-00035-SRU Document 25

Filed 07/09/12 Page 5 of 11

international telephone calls, and the use of wire communications in interstate and foreign commerce in furtherance of the scheme was reasonably foreseeable to both of them. On October 13, 2009, Latex International wired $100,000 USD to DMAD Marketing Services LTD in the United Kingdom. This payment was a partial payment to settle the debt from DMADs September 2009 invoice for services. Part of that invoice included $200,713 USD (124,000 GBP) worth of charges made on COLEMANs DMAD card, including $78,276 USD (48,502 GPB) for jewelry purchased and given to COLEMANs wife. The wire was sent from Latex Internationals Wachovia Account in the United States (Account #xxxxxxxxxx276) to DMADs HSBC Bank in London (SWIFT/CHIPS Account #xxxxxxxBHX). COLEMAN did not file a federal income tax return for the tax years 2007, 2008, 2009, and 2010 when due. During that time period, COLEMAN directed Osmolik to minimize federal tax withholdings from his wage income. The tax loss resulting from the offense is $741,029, as set forth by relevant tax year in the following table: 2007 Wages Unreported Other Income Balance of Tax Due $371,230 N/A 2008 $460,569 N/A 2009 $359,776 $614,030 2010 $393,553 $1,086,429 Total $1,585,128 $1,700,459

$45,445

$65,851

$225,604

$404,129

$741,029

III.

SENTENCING GUIDELINES The PSR calculates Colemans guidelines range to be 46 to 57 months (total offense

level 23). PSR at 92. The guidelines are calculated at paragraphs 23 to 31 of the PSR.

Case 3:12-cr-00035-SRU Document 25

Filed 07/09/12 Page 6 of 11

The government and the defendant agreed to the following guidelines calculations in the plea agreement: Base offense level ( 2B1.1(a)(1)): Loss of more than $1,000,000 ( 2B1.1(b)(1)(I)): Role in the offense ( 3B1.1(c)): Adjusted Offense Level: Acceptance of Responsibility Total Offense Level: 7 16 +2 =25 - 3 = 22 (41 - 51 months)

The parties agreed that the defendant owes restitution to Latex International in the amount of $1,700,459, and that the defendant owes restitution to the IRS in the amount of $1,375,627.83. The latter number should be corrected to read $1,372,711.66, and the judgment should reflect as much.1

IV.

COLEMAN SHOULD BE SENTENCED ABOVE THE GUIDELINES RANGE. A sentence above the guidelines range of 41-51 months agreed to by the parties is

warranted here and will promote the sentencing goals of 18 U.S.C. 3553(a).2 A. Application of the 3553(a) Factors Section 3553(a) provides that the sentencing court shall impose a sentence sufficient, but not greater than necessary, to comply with the purposes set forth in paragraph (2) of this subsection, and then sets forth seven specific considerations:

Two other corrections should be noted for the record which will not be part of the Courts order. First, in Count Two, Colemans taxable income for 2010 was $1,451,916 (not $1,457,358). Second, also in Count Two, the amount of income tax on that taxable income in 2010 was $478,479 (not $480,383). The plea agreement makes clear that both parties reserved the right to advocate for a non-guidelines sentence: The Government and the defendant reserve their rights to seek a departure or a non-[g]uidelines sentence, and both sides reserve their right to object to a departure or non-guidelines sentence. Plea Agreement at 5. 6
2

Case 3:12-cr-00035-SRU Document 25

Filed 07/09/12 Page 7 of 11

(1) (2)

(3) (4) (5) (6) (7)

the nature and circumstances of the offense and the history and characteristics of the defendant; the need for the sentence imposed (A) to reflect the seriousness of the offense, to promote respect for the law, and to provide just punishment for the offense; (B) to afford adequate deterrence to criminal conduct; (C) to protect the public from further crimes of the defendant; and (D) to provide the defendant with needed educational or vocational training, medical care, or other correctional treatment in the most effective manner; the kinds of sentences available; the kinds of sentence and the sentencing range established [in the Sentencing Guidelines]; any pertinent policy statement [issued by the Sentencing Commission]; the need to avoid unwarranted sentence disparities among defendants with similar records who have been found guilty of similar conduct; and the need to provide restitution to any victims of the offense.

Here, a review of the 3553(a) factors demonstrates that a sentence above the guidelines range, either as calculated by the parties (41-51) or the PSR (46-57) is warranted. 1. The Nature and Circumstances of the Offense

As this Court well knows, the nature of the offense is serious: Coleman fraudulently obtained over $1.7 million in Latex money and property for his personal benefit. The circumstances of the offense are appalling: Coleman (and Osmolik) went about secretly siphoning off millions of dollars for their extravagant lifestyles, driving the company to the brink of bankruptcy and concealing their theft from others. Letter, James I. Glasser to Eric J. Glover, dated April 24, 2012, at page 2 (hereinafter Latex Victim Letter) (attached as Exhibit A to the governments sentencing memorandum in Osmolik). Coleman, like Osmolik, did not undertake his crime spree out of need. He undertook it out of greed. His wage income as CEO was ranged between $359,000 and $460,000 in the years in question. That was not enough for Coleman. And in fact, it is hard to purchase hundreds of 7

Case 3:12-cr-00035-SRU Document 25

Filed 07/09/12 Page 8 of 11

thousands of dollars in jewelry and to support a mistress in London with that salary. So Coleman just stole the money he needed from Latex, and of course did not file a tax return and pay the government almost $800,000 in taxes that were due and owing. 2. History and Characteristics of Coleman

Colemans personal history and characteristics not provide him with any mitigation from the offenses he has committed. While many people have to cope with substance abuse issues, very few of them end up committing the kinds of crimes on the scale of magnitude that Coleman has. Most relevant from Colemans personal history is that the fact Coleman embezzled from a previous employer, Progress Castings Group Incorporated, for whom he worked as Vice President of Operations. PSR at 38-43. Coleman was arrested for this conduct in July 2002 and later pled guilty to the charge. Colemans manner in carrying out the embezzlement in that case was similar to the manner in which he carried out the embezzlement at issue in this case, albeit on a much larger scale. PSR at 40 (discussing how Coleman made sure that no one in the company would see documents that would incriminate him). This prior criminal conduct clearly gives the lie to Colemans notion that he was somehow enticed by the corporate culture at Latex to embezzle from the company. Coleman Sent. Mem. at 2. Coleman had no regard for complying with the law, either as CEO of Latex or as a citizen with an obligation to file a tax return and pay taxes. In addition to his multiple embezzlements, he engaged in tax evasion for many years. He failed to file a tax return for the four years leading up to the detective of the current offense.

Case 3:12-cr-00035-SRU Document 25

Filed 07/09/12 Page 9 of 11

3.

The Guidelines Sentence Would Satisfy the Goals of General Deterrence.

A sentence substantially in excess of 48 months would serve to advance the goal of general deterrence. This Courts sentence of 48 months for Joanne Osmolik made it clear that anyone who steals significant sums of money from ones employer will go to prison for a long period of time. A sentence in excess of that for Coleman, which is warranted given his role and his tax evasion, would do the same. This Court can and should send a strong message that persons like Osmolik and Coleman, who are handsomely compensated in corporate positions but still decide to steal to fund a lavious lifestyle, will be punished by imprisonment for a meaningful period of time. 4. The Need to Promote Respect for the Law and to Provide Just Punishment.

A sentence in excess of 48 months will promote respect for the law and provide just punishment. Colemans crime calls out for a meaningful term of imprisonment, and a sentence in excess of 48 months will provide that. 5. Full Restitution is Mandatory and Should Be Ordered.

Under the Mandatory Victim Restitution Act (MVRA), 18 U.S.C. 3663A and 3664, this Court is required to impose an order of restitution in this case in favor of Latex, the victim of the defendants crime, for the full amount of its losses, without consideration of the defendants ability to pay that amount. 18 U.S.C. 3664(f)(1)(A) (In each order of restitution, the court shall order restitution to each victim in the full amount of each victims losses as determined by the court and without consideration of the economic circumstances of the defendant.); see United States v. Ekanem, 383 F.3d 40, 44 (2d Cir. 2004); United States v. Johnson, 378 F.3d

Case 3:12-cr-00035-SRU Document 25

Filed 07/09/12 Page 10 of 11

230, 244-45 (2d Cir. 2004); see also U.S.S.G. 5E1.1 (directing the sentencing court to enter a restitution order if there is an identifiable victim). Here, the Court should impose an order of restitution to Latex in an amount agreed to by the parties of $1,700,459, and to the IRS in the amount of $1,372,711.66. V. CONCLUSION For the reasons set forth above, the Government respectfully requests that the defendant be sentenced to a term of imprisonment substantially in excess of 48 months.

DAVID B. FEIN UNITED STATES ATTORNEY /s/ Eric J. Glover ERIC J. GLOVER ASSISTANT UNITED STATES ATTORNEY Federal Bar No. Ct23923 eric.glover@usdoj.gov 157 Church Street New Haven, Connecticut 06510 Tel. (203) 821-3700

10

Case 3:12-cr-00035-SRU Document 25

Filed 07/09/12 Page 11 of 11

CERTIFICATE OF SERVICE I hereby certify that on July 8, 2012, a copy of the foregoing was filed electronically. Notice of this filing will be sent by e-mail to all parties by operation of the Courts electronic filing system. Parties may access this filing through the Courts system.

/s/ Eric J. Glover ERIC J. GLOVER (CT23923) ASSISTANT U.S. ATTORNEY Connecticut Financial Center 157 Church Street, 23rd Floor New Haven, CT 06510 Phone: (203) 821-3735 Fax: (203) 773-5378 E-mail: eric.glover@usdoj.gov