Criminal Practice – No Recusal for Judge’s Stock Ownership

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U.S. v. Stone (Lawyers Weekly No. 001-166-17, 19 pp.) (Agee, J.) No. 15-4510, Aug. 2, 2017; USDC at Alexandria, Va. (Hilton, J.) 4th Cir.

Holding: A defendant cannot overturn her fraud convictions for orchestrating a scheme to defraud mortgage companies by claiming the trial judge erred in refusing to recuse himself because he owned stock in some of the companies; the 4th Circuit also affirms the district court’s loss calculation and order requiring defendant to pay $2.3 million in restitution.

Recusal Motion

The indictment charged that defendant convinced financially distressed homeowners to engage her services as a real estate agent to negotiate “short sales” with the mortgage holders on behalf of those homeowners. Defendant fraudulently reported short sale prices to the mortgage holders in lower amounts than the sale proceeds she actually received, transferring ownership of the properties to herself, her husband or one of her controlled entities, then “flipped” the properties for more than the amounts paid to the mortgage companies from the short sales. Defendant also collected commissions and other fees on the sales, although she was not licensed to sell real estate.

The trial judge initially denied defendant’s request that he recuse himself, made in an unsupported pro se motion inquiring about the judge’s financial interests. After sentencing, defendant moved for a new trial based on the judge’s alleged conflict of interest. The district court determined that the 4th Circuit has held that a judge’s interest in the victim of a crime does not necessarily require recusal. While conceding that it did have a financial interest in some of the victim banks during the period the case was assigned to the court, it nonetheless concluded defendant had not shown that either the interest or the court’s restitution order was so substantial as to require recusal. The court also noted that the banks at issue – Wells Fargo, PNC and JP Morgan Chase – “are all large corporations that seemingly would not be significantly affected by the restitution ordered here.”

Restitution

Because defendant failed to object to the restitution order, we review for plain error.

Defendant argues that the district court should have calculated restitution by subtracting the amounts defendant paid the mortgage holders from the proceeds defendant actually received from the undisclosed “flip” sales instead of from the balances owed on the mortgages. We conclude, however, that the evidence supports the district court’s calculation.

The evidence shows that the majority of short sales were at best premature and not warranted by the homeowners’ actual financial circumstances. Moreover, there is no evidence that defendant obtained in the flip sales a fair market value for the houses.

Defendant quickly sold the properties to make a profit, flipping the homes the day of or day after the short sale. Bank representatives testified that lenders would not approve the short sale of a property that would be flipped the next day because they would not get fair market value.

There is no evidence defendant did any due diligence in attempting to solicit the highest possible price. The district court was justified by the record evidence not to rely on the sale price of any given home as its market value for purposes of establishing the restitution amount.

The government’s evidence clearly supports the mortgage balances as the value of those mortgages and thus the loss amount for purposes of restitution. Defendant did not provide any evidence to support her contention that the proceeds she received from the short sales were the values of the mortgages.

We also affirm defendant’s below-guidelines 60-month prison sentence based on the court’s loss calculation. The evidence before the district court supported a finding of loss in the amount of the mortgage balances less the proceeds defendant sent to the lenders, and because any other valuation of the mortgages was too speculative, the court’s loss calculation was reasonable.

Finally, the district court did not err in denying the motion for recusal. Our decision in U.S. v. Sellers, 566 F.2d 884 (4th Cir. 1977), controls the disposition of this case.

There we held there was no reason why owning stock in a holding company owning a bank that is robbed would lead to any reasonable apprehension that the stockholder judge would be partial. In that case, neither the bank nor its parent company was a party to the case, and the positions of the judge’s brother in the holding company and bank did not warrant recusal.

Here, the district court’s ownership of stock in the victim lenders is not a financial interest under 28 U.S.C. § 455(b)(4). The victim lenders here are not parties to the action; this is a criminal case between defendant and the government. Nor is the district court’s stock ownership at issue.

Defendant failed to adduce any evidence that the district court owned enough stock in the massive corporate lenders to remove this case from the ambit of Sellers. The district court did not abuse its discretion in denying the motion.