Sentencing in federal fraud cases is driven by loss amounts. To seek a higher sentencing guidelines range, the government often relies on a defendant’s “intended” loss,” rather than the “actual” loss. That approach no longer works in the Third Circuit. In United States v. Banks, the court of appeals ruled that “loss” as stated in the U.S. Sentencing Guidelines § 2B1.1 refers only to “actual” and not “intended” loss. Although currently limited to the Third Circuit, the ruling’s implications are dramatic.

In health care fraud cases, the government frequently asserts a high “intended loss” based on amounts billed to payers, even when amounts actually paid were far less. Likewise, sentencings for attempted frauds, early-stage conspiracies, and sting operations are often based on intended loss. Moreover, the rationale of the Banks decision—not to defer to the Guidelines’ commentary—could call into question other long-standing approaches to sentencing, and give defendants arguments for lower sentences, including fines.

Banks Decision

In Banks, the appellant was convicted of wire fraud and other crimes related to his attempt to defraud Gain Capital Group, a foreign currency exchange broker. Banks was convicted of making fraudulent electronic deposits into Gain accounts from other accounts that had insufficient funds. Banks then tried to withdraw the “deposited” funds before Gain realized the funds were not actually there. In all, Banks purported to deposit $324,000 in Gain accounts and attempted 70 withdrawals totaling $264,000. But Banks’ attempted withdrawals were not successful, and Gain never actually transferred any funds to Banks.

At sentencing, the district court calculated an advisory Guidelines range under U.S. Sentencing Guidelines § 2B1.1 based on Banks’ intended loss. Section 2B1.1 provides for a base offense level of seven and additional increases based upon the amount of “loss.” Section 2B1.1 does not itself define loss, but the Sentencing Commission’s commentary states that “loss” is “the greater of actual or intended loss,” with “intended loss” being “pecuniary harm that the defendant purposely sought to inflict,” regardless of whether the loss “would have been impossible or unlikely to occur.” Id. at cmt. 3(A); (ii). Using Banks’ intended loss of greater than $250,000 and less than $550,000, the court increased the offense level by 12. See U.S.S.G. § 2B1.1(b)(1)(G). The court ultimately sentenced Banks to 104 months in prison. 

On appeal, the Third Circuit rejected the commentary to § 2B1.1 that defined “loss” to include intended loss. Banks was guided by a prior Third Circuit decision that held that the Supreme Court’s decision in Kisor v. Wilkie, 139 S. Ct. 2400 (2019) narrowing Auer deference applied to the Sentencing Commission’s commentary.¹ In the Third Circuit’s view, “[i]f the Sentencing Commission’s commentary sweeps more broadly than the plain language of the guideline it interprets, we must not reflexively defer.” The court of appeals found no ambiguity in § 2B1.1’s use of the word “loss,” and held that the commentary’s addition of “intended loss” swept beyond the word’s plain language. The court remanded the case for resentencing. 

Implications of Ruling

The Third Circuit’s ruling carries significant implications for sentencing in federal cases. First and most clearly, the ruling is important in any fraud case where intended losses exceed actual losses. Health care fraud cases are a prime example. In these prosecutions, the government often asserts that the entire amount billed to a payer is the intended loss for purposes of setting the Guidelines range.² However in those cases, the actual loss is almost always far less. Payers, such as Medicare and Medicaid, commonly pay only a fraction of any billed amount, depending upon factors such as fee schedules, deductibles, co-pays, and other adjustments to payable amounts. Moreover, under the Third Circuit’s ruling, claims that are denied and not paid will no longer be included in loss amounts. 

Second, the ruling opens questions in any fraud case where actual loss is unclear. Cases involving conspiracies that are stopped early or sting operations often involve little actual loss. Likewise, cases that involve assets that can be recovered and credited against losses—such as mortgage fraud matters—may be affected. In short, in any cases falling under § 2B1.1, defense counsel should consider carefully how to show that actual loss is less than the government asserts.

Finally, the Third Circuit’s application of Kisor v. Wilkie to the Guidelines calls into question myriad other commentary provisions. For example, the rationale of Banks could affect the “volume of commerce” enhancement under U.S. Sentencing Guidelines § 2R1.1 for a criminal antitrust attempted monopolization case, which the DOJ has recently demonstrated is an area of revived enforcement. In these cases, no crime has been completed and therefore arguably no commerce has actually been affected. Further, when calculating corporate criminal fines for antitrust cases pursuant to § 2R1.1, typically 20 percent of the volume of affected sales is used instead of determining pecuniary loss. These is one of numerous examples in which the Guidelines’ commentary are open to attack.

Time will tell whether other circuits follow the Banks’ ruling. A circuit split appears likely, which could require resolution by the U.S. Sentencing Commission or the Supreme Court. In the meantime, defense counsel should be sure to raise and preserve a “Banks” argument when their clients are facing sentencing based on intended loss—or any other Guidelines enhancement that is based solely on the Guidelines’ commentary.

FOOTNOTES

¹ Citing United States v. Nasir, 17 F.4th 459 (3d Cir. 2021) (en banc).  Auer deference refers to how courts consider an agency’s interpretation of its own regulations. 

² See, e.g., United States v. Melgen, 967 F. 3d 1250, 1265-66 (11th Cir. 2020) (“the aggregate dollar amount of fraudulent bills constitutes prima facie evidence of the amount of the intended loss, if not rebutted”); United States v. Miller, 316 F.3d 495, 504 (4th Cir. 2003) (“the district court did not clearly err in relying on the amount Miller billed Medicare and Medicaid as prima facie evidence of the amount of loss he intended to cause”).