Case 3:10-cr-00221-VLB Document 11 Filed 01/12/11 Page 1 of 14

UNITED STATES DISTRICT COURT

DISTRICT OF CONNECTICUT

UNITED STATES OF AMERICA : Criminal No. 3:10cr221 (VLB)

:
: January 12, 2011
v. :
:
:
CARLOS GARCIA :

UNITED STATES’ MEMORANDUM IN AID OF SENTENCING

I. Introduction

Carlos Garcia defrauded his own family, friends, and other trusting people

by holding himself out as an investment advisor and hedge fund manager. He

induced his victims to “invest” money with him and then simply spent the money

on himself and his own family in support of a lifestyle he could not afford. Garcia

abused his position of trust–as an investment advisor, as a relative and as a

friend. Many of Garcia’s victims are at or near retirement age and will not be able

to recoup these losses. While Garcia now faces the prospect of being sentenced

for his fraud, his victims and their families are only just beginning to deal with the

consequences of Garcia’s scheme–consequences that in many cases extend far

beyond their immediate financial losses.

For the reasons stated below, the government respectfully requests that

the Court sentence Garcia to a term of imprisonment within the stipulated

guidelines range of 51 to 63 months.

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II. Background

On November 4, 2010, the defendant pled guilty to a six-count Information

charging him with mail fraud (18 U.S.C. § 1341, Count 1), wire fraud (18 U.S.C.

§ 1343, Count 2), and tax evasion (26 U.S.C. § 7201, Counts 3-6). Sentencing is

set for January 25, 2011 at 2:00 p.m.

The parties entered into a stipulation of offense conduct, stipulating that

the base offense level is 7, with a 16-level enhancement for loss between

$1,000,000 and $2,500,000. Two-levels are added for 10 or more victims, and two

levels are added for abuse of private trust. After three levels are subtracted for

acceptance of responsibility, defendant’s total offense level is 24 and, based on a

criminal history category I, his advisory guidelines range is 51 to 63 months. The

defendant reserved his right to seek a departure or non-Guidelines sentence, and

the Government reserved its right to object and seek whatever sentence it deems

appropriate.

The PSR concurred with the parties calculation except that it added

another two levels for vulnerable victim, finding a total offense level of 26. With a

criminal history category I, the PSR found the resulting Guidelines sentencing

range to be 63 to 78 months of incarceration.

III. Restitution

Defendant agreed to pay restitution in the amount of $2,061,604.42 of which

$38,145 is owed to the IRS. A list of the individual victims has been provided to

Probation.

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IV. Offense Conduct

A. The Scheme to Defraud

Defendant’s fraud in the financial sector has spanned at least a decade. He

worked as a registered broker dealer agent at Paine Webber until about August

2001, when he was fired as a result of numerous client complaints about him

having traded on the clients’ accounts without their authorization and having lost

client money. The defendant then started Paramount Equity Partners, LLC and

Garcia Capital Management, LLC, two entities that were supposed to be hedge-

fund type vehicles in which clients could invest.

In between 2002 and 2009, the defendant took about $3 million from his

victims with a promise that he would earn them better returns. Once he had their

money, the defendant had complete discretion over what to do with it. Instead of

investing their money as promised, the defendant spent most of it on himself and

his family, maintaining a lifestyle he could not nearly afford.

The defendant used the mails to further his scheme by instructing his

victims to surrender stock holdings and obtain the surrender checks by mail.

The defendant then simply deposited the checks into his the account he used for

personal expenses (the Garcia Capital Management account), and used the

money to pay living expenses. The defendant also created and mailed false and

fraudulent account statements to his victims purporting to show the returns they

were earning on their investments.

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The defendant also used the mails to transmit false and fraudulent tax

documents that he had created to his clients. For example, on or about March 21,

2007, Garcia mailed a document that purported to be a Partnership Form 1065

Schedule K-1 for tax year 2006 to A.B. and B.B.1 This fraudulent K-1 reflected a

capital gain on which A.B. and B.B. paid income tax as reflected in the Victim

Impact Statement submitted by A.B. and B.B. Garcia created and mailed

numerous other false K-1 documents to A.B. and B.B. (also reflected in A.B. and

B.B.’s Victim Impact Statement).

The defendant used interstate wire communications in various ways to

further his fraud scheme. For example, on multiple occasions (April 27, 2007,

August 29, 2007 and March 3, 2008), Garcia directed victim J.M. to wire transfer

money directly from J.M.’s bank in Worcester, MA to the bank account for

Paramount Equity Partners. The defendant then transferred the money into his

personal spending account in the name of Garcia Capital Management, LLC, and

used the money for personal expenses.

During the scheme, Garcia made periodic lulling payments to some of his

clients. For example, victim D.L. invested money with the defendant in 2000 with

the intention of being paid $2,000 per month to cover some of her expenses in a

retirement facility. As long as D.L. received payments from the defendant she did

not feel any cause for concern. However, D.L. stopped receiving monthly checks

from the defendant in or around December 2008 and he stopped returning her

1
Victims are listed in the chart in the PSR, ¶ 14, and referred to herein by
their initials.

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telephone calls. Similarly, Victim H.C. received what she believed were

“distributions” from the defendant in 2007, but did not get one in 2008. When she

asked the defendant about it, he told her he was working on it. H.C. never

received a distribution for 2008 or any time after that, and the defendant stopped

returning her telephone calls.

The defendant also willfully evaded the payment of income taxes for the tax

years 2005, 2006, 2007 and 2008. Garcia’s unreported income was estimated by

totaling the mortgage payments on his personal residence, car payments, and

money he transferred to his wife during those years. Garcia has been given

credit for substantial itemized deductions (including interest deductions on a

$1,100,000 home mortgage he could obviously not afford), thereby reducing the

total amount of taxable income for those years. Defendant owes a total of

$38,145 to the IRS.

The total fraud loss is $2,023,459.42 and the total tax loss is $38,145.00, for

a total loss of $2,061,604.42.

V. Sentencing Guidelines Issues

A. Under § 2B1.1(b)(2)(A)(I), Two Levels Should Be Added

Because There Were More Than 10 Victims

The PSR provides for a two-level enhancement under § 2B1.1(b)(2)(A)

because the offense involved more than 10 victims and the parties have agreed

that this enhancement applies.

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B. Under § 3B1.3, Two Levels Should Be Added Because

Defendant Abused A Position of Private Trust

The PSR agrees with the parties’ stipulation that a two-level enhancement

under Section 3B1.3 for abuse of a position of private trust should be applied.

1. Legal Standard

Section 3B1.3 of the Sentencing Guidelines provides for a two-level

enhancement if the defendant “abused a position of public or private trust or

used a special skill, in a manner that significantly facilitated the commission or

concealment of the offense.” USSG §3B1.3. The sentencing court must

undertake a two-prong analysis to determine whether the enhancement is

warranted. See United States v. Hirsch, 239 F.3d 221, 227 (2d Cir. 2001). First,

the court must determine whether the defendant occupied a position of trust. Id.

See also United States v. Thorn, 446 F.3d 378, 388 (2d Cir. 2006). That question is

viewed from the perspective of the victim and focuses on “the extent to which the

position provides the freedom to commit a difficult-to-detect wrong.” Id. In other

words, the defendant’s position must have involved discretionary authority and

that discretion must have been entrusted to the defendant by the victim. Id.

Accord United States v. Kaye, 23 F.3d 50, 54 (2d Cir. 1994) (“[t]his enhancement is

concerned primarily with certain factors that make a crime more easy to commit .

. . “).

Second, the court must find the defendant used the position of trust in a

way that significantly contributed to the crime. Thorn, 446 F.3d at 388. Thus, the

enhancement is warranted if the victim entrusted defendant with discretionary

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authority that enabled defendant either to commit a crime or evade detection. Id.

The government must prove both prongs by a preponderance. See United

States v. DeSimone, 119 F.3d 217, 228 (2d Cir. 1997).

Because of the significant discretion they have over client monies,

investment advisors have often been found to have abused positions of trust.

For example, in Hirsch, 239 F.3d at 227, defendant was an investment advisor

who ran two Ponzi schemes. The Second Circuit affirmed the trial court’s finding

that a two-level enhancement for abuse of trust should apply based on

defendant’s “admitted personal relationships with his clients wherein they relied

on and trusted him for continued investment in his worthless schemes.”

See also United States v. Queen, 4 F.3d 925, 929 (10th Cir. 1993) (“An investment

advisor/broker is typically an individual who is entrusted with the discretionary

authority to manage the assets of his or her clients through the application of

specialized knowledge. Such a person is well positioned to commit a difficult-to-

detect wrong. This is especially true where the investment advisor/broker is his

own employer, as [defendant] was in the instant case, and is therefore subject to

no internal supervision or authority.”).

2. Garcia Abused His Victims’ Trust

Defendant held himself out as providing investment advice to his victims.

In order to do that job, defendant exercised professional and managerial

discretion over his clients’ money. Indeed, once a victim invested with him, the

defendant had complete discretion and control over what to do with the money.

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Further, defendant was his own employer and was therefore not subject to any

internal supervision either.

Many of defendant’s victims no doubt believed that such supervision was

not necessary since they were related to him by marriage or knew him from

church, and had a close personal relationship with him. Defendant exploited his

position and personal relationships to induce people to invest with him and to lull

his victims into a false sense of security, repeatedly telling them that their money

was safe, and that he would earn them better returns. Defendant’s victims felt

reassured by his statements, even if they now feel they should not have believed

him. These facts are more than sufficient to show an abuse of trust. See, e.g.,

Hirsch, 239 F.3d at 228 (affirming abuse of trust finding where defendant was an

investment advisor entrusted with investment discretion by his investors and

because he had a fiduciary and personal relationship (rather than an arms-length

relationship) with his investors).

C. Vulnerable Victim

The parties stipulated to a guidelines range that did not include an

enhancement for vulnerable victim. The PSR determined that such an

enhancement is appropriate. PSR, ¶¶ 13, 20, 27. The Government does not

quarrel with the probation officer’s consideration of this factor, but stands by the

guidelines calculations it agreed to in the plea agreement. The Government

requests that, if the Court finds one or more of defendant’s victims to be

“vulnerable” within the meaning of § 3A1.1(b)(1), then the Court give effect to the

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parties’ plea bargain by departing downward two levels to a total offense level 24.

United States v. Fernandez, 877 F.2d 1138, 1145 (2d Cir. 1989) (holding that

district court retains discretion to depart from a Guidelines sentence to give

effect to a plea bargain so long as the sentence that results reflects the

seriousness of the crime and deters future misconduct). The stipulated

guidelines range is not unduly lenient; indeed, the top of the parties’ stipulated

guidelines range overlaps with the bottom end of the guidelines range

recommended by Probation. The Government’s position is that a sentence

anywhere within the stipulated range of 51 to 63 months’ imprisonment would be

a reasonable and appropriate sentence.

VI. The Court Should Impose A Sentence Within the Guidelines Range

A. Legal Framework

The Sentencing Guidelines are no longer mandatory, but rather represent

one factor a district court must consider in imposing a reasonable sentence in

accordance with Section 3553(a). See United States v. Booker, 543 U.S. 220, 258

(2005); see also United States v. Crosby, 397 F.3d 103, 110-18 (2d Cir. 2005).

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:

(1) the nature and circumstances of the offense and the history
and characteristics of the defendant;
(2) the need for the sentence imposed—

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(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;
(3) the kinds of sentences available;
(4) the kinds of sentence and the sentencing range established [in
the Sentencing Guidelines];
(5) any pertinent policy statement [issued by the Sentencing
Commission];
(6) the need to avoid unwarranted sentence disparities among
defendants with similar records who have been found guilty of
similar conduct; and
(7) the need to provide restitution to any victims of the offense.

18 U.S.C. § 3553(a).

In United States v. Crosby, this Court explained that, in light of Booker,

district courts should now engage in a three-step sentencing procedure. First,

the district court must determine the applicable Guidelines range, and in so

doing, “the sentencing judge will be entitled to find all of the facts that the

Guidelines make relevant to the determination of a Guidelines sentence and all of

the facts relevant to the determination of a non-Guidelines sentence.” Crosby,

397 F.3d at 112. Second, the district court should consider whether a departure

from that Guidelines range is appropriate. Id. at 112. Third, the court must

consider the Guidelines range, “along with all of the factors listed in section

3553(a),” and determine the sentence to impose. Id. at 112-13. The fact that the

Sentencing Guidelines are no longer mandatory does not reduce them to “a body

of casual advice, to be consulted or overlooked at the whim of a sentencing

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judge.” Id. at 113. A failure to consider the Guidelines range and to instead

simply select a sentence without such consideration is error. Id. at 115.

The Second Circuit has declined to “establish any presumption, rebuttable

or otherwise, that a Guidelines sentence is reasonable.” United States v.

Fernandez, 443 F.3d 19, 27 (2d Cir. 2006). Nonetheless, the Second Circuit has

“recognize[d] that in the overwhelming majority of cases, a Guidelines sentence

will fall comfortably within the broad range of sentences that would be

reasonable in the particular circumstances.” Id.; see also United States v.

Rattoballi, 452 F.3d 127, 133 (2d Cir. 2006) (“In calibrating our review for

reasonableness, we will continue to seek guidance from the considered judgment

of the Sentencing Commission as expressed in the Sentencing Guidelines and

authorized by Congress.”).

Moreover, the Second Circuit found no procedural error under Booker

where a district court stated during the sentencing hearing that the guidelines

should be given “significant deference,” noting that the recommended guideline

range “should serve as ‘benchmark or a point of reference or departure’” for a

sentencing court. United States v. Capanelli, 479 F.3d 163, 165 (2d Cir. 2007) (per

curiam) (emphasis in original) (quoting Fernandez, 443 F.3d 19, 28 (2d Cir. 2006).

Indeed, in Capanelli the Second Circuit stated:

A sentencing judge’s decision to place special weight

on the recommended guidelines range will often be
appropriate, because the Sentencing Guidelines reflect
the “considered judgment of the Sentencing
Commission,” Rattoballi, 452 F.3d at 133, “‘are the only

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integration of the multiple [§ 3553(a)] factors and, with

important exceptions, . . .were based on the actual
sentences of many judges,’” id. (quoting United
States v. Jiménez-Beltre, 440 F.3d 514, 518 (1st Cir.
2006)).

Capanelli, 479 F.3d at 165; see also Rattoballi, 452 F.3d at 133 (“[T]he Sentencing

Commission is an expert agency whose statutory charge mirrors the § 3553(a)

factors that the district courts are required to consider.”).

B. Application of the 3553(a) Factors

Here, a review of the § 3553(a) factors confirm that a sentence within the

guidelines range, calculated after enhancements, is appropriate.

C § 3553(a)(1): The offense is a serious one, in that defendant stole

millions of dollars directly from people who trusted him and relied on
his advice. The history and characteristics of the defendant weigh in
favor of a severe sentence as the defendant used his apparent
respectability in the community as a way of earning people’s trust.

C § 3553(a)(2):

C § 3553(a)(2)(A): A sentence within the guidelines range will

reflect the seriousness of the offense, promote respect for the
law, and provide just punishment for the offense.

C § 3553(a)(2)(B): In order to afford adequate deterrence to

criminal conduct, the sentence here must be one that will get
the attention of would-be fraudsters like Garcia and perhaps
dissuade them from embarking on illegal investment schemes.
A sentence within the guidelines range will accomplish that
goal without being unduly harsh. Deterrence may be of
particular concern for a defendant like Garcia who engaged in
such a prolonged scheme.

C § 3553(a)(2)(C): It is critical to protect the investing public from

Garcia. Only a term of incarceration consistent with the
guidelines range will isolate Garcia from society and prevent
him from defrauding other would-be investors.

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C § 3553(a)(4), (a)(6): A sentence within the guidelines range will avoid

unwarranted sentence disparities nationally among defendants with
similar records who have engaged in schemes of similar magnitude.

C § 3553(a)(7): There is a need to provide restitution to the victims of

the offense.

V. Conclusion

For the reasons set forth above, the Government respectfully requests that

the defendant be sentenced within the guidelines range of 51 to 63 months’

imprisonment.

Respectfully submitted,

DAVID B. FEIN
UNITED STATES ATTORNEY

/s/ Susan L. Wines

SUSAN L. WINES (phv2327)
ASSISTANT U.S. ATTORNEY
157 Church Street, 23rd Floor
New Haven, CT 06510
Phone: (203) 821-3700
Fax: (203) 821-3829
E-mail: susan.wines@usdoj.gov

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CERTIFICATE OF SERVICE

I HEREBY CERTIFY that on January 12, 2011, a copy of the foregoing 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 or 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.

/s/ Susan L. Wines

SUSAN L. WINES (phv2379)
ASSISTANT U.S. ATTORNEY
Connecticut Financial Center
157 Church Street, 23rd Floor
New Haven, CT 06510
Phone: (203) 821-3700
Fax: (203) 821-3829
E-mail: susan.wines@usdoj.gov