For years, it has been unsettled in the Fourth Circuit Court of Appeals whether a white-collar defendant may be held accountable for intended loss amounts during sentencing in fraud and other financial harm cases. Prosecutors have often argued intended loss amounts represent the substance of the defendant’s criminal intent. Accordingly, prosecutors argue the use of intended loss to inflate a defendant’s sentencing guidelines range, either in connection with a plea bargain or at the sentencing hearing, is appropriate. This is true, even where the actual monetary loss sustained by the victim is substantially lower or, even where the victim suffered no actual pecuniary loss whatsoever. The concept of "intended" loss is found only in the commentary to the guidelines, whereas the guidelines themselves only speak to the amount of a victim’s "loss."
On August 23, 2024, in United States v. Boler, the Fourth Circuit (which includes North Carolina, South Carolina, Maryland, West Virginia, and Virginia) provided clarity on this issue — specifically, whether it was permissible for district courts to rely on the concept of intended loss in calculating a defendant’s guidelines range. In a split decision, the three-judge panel affirmed the district court’s decision to calculate the guidelines based on all of the fraudulent proceeds the defendant had attempted to obtain — even including her unsuccessful fraud attempts. The court held that the guidelines' use of the term "loss" was sufficiently ambiguous to permit deference to the commentary’s expansion of the term to include intended losses.
Although many district judges within the Fourth Circuit had already embraced this commentary, the court’s ruling now affirms judges' discretion to consider both the actual and intended loss amounts when calculating a recommended sentencing range under the guidelines. Because the intended loss approach typically results in significantly increased sentencing guidelines ranges, the ruling grants prosecutors added leverage. It further reinforces the importance of mutually agreed-upon guidelines applications during plea bargaining. The ruling also emphasizes the need for companies to develop robust monitoring practices that are able to detect compliance issues relating to potential fraud at their very outset, given that unsuccessful but intended losses will still count towards the overall loss amounts.
Case Background
In Boler, a South Carolina woman was accused of six counts of presenting false claims against the United States by submitting false tax returns to the IRS. She was also accused of making a false statement on her fraudulent Paycheck Protection Program (PPP) loan application. She submitted six tax returns but only received refunds on four of them.
The dispute concerned whether her sentencing range should be based on the entire financial harm she intended to cause, including funds from the two denied tax returns.
During the sentencing hearing, the district court relied on the commentary to the relevant section of the sentencing guidelines, which defined loss as the "greater of actual loss or intended loss." The commentary further stated that intended loss refers to "the pecuniary harm that the defendant purposely sought to inflict," which includes any harm that "would have been impossible or unlikely to occur," according to the sentencing guidelines. In light of this commentary, the defendant’s sentencing range was based on all six fraudulent tax returns plus her fraudulent PPP loan.
On appeal, the defendant argued that the district court should not have deferred to the commentary’s embrace of intended loss. According to the defendant, the term "loss" in the sentencing guidelines was unambiguous, such that it could only mean the tangible, actual loss suffered. The Fourth Circuit disagreed with this limited understanding of the term "loss."
Fallout From Fourth Circuit’s Ruling and What Comes Next
In light of this ruling opening the door to increased loss amounts, the Department of Justice maintains their oft flexed leverage in Fourth Circuit courts. Accordingly, the ruling places added importance on plea negotiations, in that uncertainty over disputes about intended losses can be mitigated by agreeing on a loss amount in advance of sentencing.
To the casual observer, the distinction between actual and intended loss may seem de minimus. In practice, the difference can have catastrophic consequences on the defendant. In the aftermath of the 2008 financial crisis, for example, defendants were charged with fraudulently inflating the appraisal values of several houses in a neighborhood, resulting in actual loss of a few hundred thousand dollars. Prosecutors argued the defendants' intended fraud impacted whole neighborhoods, moving the loss amount into the millions, and increasing the sentencing guidelines range by decades in prison. The Boler ruling strengthens the prosecutor’s position.
Because the Fourth Circuit’s panel decision was split, the defendant sought en banc review from the full Fourth Circuit. After the court’s denial of the en banc petition on September 20, a circuit split now exists. The Fourth Circuit’s ruling conflicts with a ruling two years ago out of the Third Circuit, when that court invalidated the use of intended loss as a sentencing enhancement.
However, this split may be short lived. The United States Sentencing Commission has recently proposed an amendment, which would move the intended loss approach from the commentary to the guidelines themselves, thereby abrogating the Third Circuit decision and any further dispute over this issue. Absent such an amendment, the question of whether "loss" may include intended financial harm may require U.S. Supreme Court resolution.
For now, white-collar defendants should continue to recognize that the government may seek to hold them accountable at sentencing for intended pecuniary harm.
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