[00:00:12] Speaker 04:
Good morning, Your Honors, and may it please the Court, I would like to reserve two minutes for rebuttal.

[00:00:18] Speaker 04:
There are two independent grounds for reversal in this case.

[00:00:22] Speaker 04:
First, the District Court deferred to guideline 2B1.1's former application note 3A, which states that loss is the greater of actual loss or intended loss.

[00:00:35] Speaker 04:
This deference was not proper under Kaiser.

[00:00:38] Speaker 04:
On the second ground, the district court failed to adequately explain its sentencing decision, specifically omitting a decision and findings of facts related to the key contested issue of whether or not the victim's collateral, the taking of the collateral, should be credited against the loss amount.

[00:00:57] Speaker 04:
Under either ground, this decision should be reversed.

[00:01:01] Speaker 04:
If your honors may, I would start with the issue of collateral offsets.

[00:01:06] Speaker 04:
In the government's and the defendant's sentencing memoranda and at the sentencing hearing, both sides heavily contested whether or not the victim's taking of collateral from Mr. Kunkel should be credited against the loss amount.

[00:01:20] Speaker 04:
The district court did not make any findings of fact relevant to the substantial case law presented by the parties.

[00:01:27] Speaker 04:
For example, under Stoddard, the government argued

[00:01:31] Speaker 04:
that the taking of any collateral before the discovery of the offense should or should not count towards the loss amount.

[00:01:38] Speaker 04:
The district court made no findings in this regard.

[00:01:41] Speaker 04:
Under Blitz, a question was presented as to whether or not the collateral was used to add a patina of legitimacy to the fraudulent scheme.

[00:01:49] Speaker 04:
This, too, the district court did not address.

[00:01:53] Speaker 02:
So is your contention that the collateral was taken and people were repaid before the crime was discovered?

[00:02:01] Speaker 04:
Your honor, the truth is the record is murky on this front.

[00:02:04] Speaker 02:
Does it make a difference in your view?

[00:02:06] Speaker 04:
It does if you take the government's argument under stoddard at face value.

[00:02:10] Speaker 02:
What they would argue is that if... Let's let the government speak for itself.

[00:02:15] Speaker 02:
What I want to know is, does your client not have an argument on the merits here if the district court were to come back and say the collateral was obtained after Rosenfall was arrested?

[00:02:29] Speaker 04:
So, Your Honor, there is some evidence that there was one or two victims that may have discovered the offense before the collateral was taken back.

[00:02:38] Speaker 04:
However, there is no evidence as to the other nine victims, and it is our position

[00:02:42] Speaker 04:
that the offense was not discovered at the time.

[00:02:45] Speaker 04:
And so on the merits, if you were to send this back, we do think that Mr. Rosendahl would prevail at least as to nine of the victims.

[00:02:52] Speaker 04:
But that said, again, Your Honor, there were no findings as to any of the 11 victims.

[00:02:57] Speaker 02:
Why does your client get credit for Mr. Kunkel's collateral?

[00:03:00] Speaker 04:
Your Honor, I think that note 3E2 is just plain.

[00:03:04] Speaker 04:
It says, without caveats and without exceptions,

[00:03:07] Speaker 04:
that in any case, the collateral taken by the victims before sentence should be credited against the loss.

[00:03:14] Speaker 04:
And so taking that guideline commentary at face value, that is what should happen.

[00:03:19] Speaker 04:
Again, the government and the defense did point to case law that may weigh in on the issue, but admittedly, none of those cases actually address the plain text of that guideline commentary.

[00:03:30] Speaker 04:
So again, to the extent that the district court

[00:03:32] Speaker 04:
never address that guideline, even though it was put on notice of the defendant's argument about the collateral loss issue.

[00:03:39] Speaker 04:
It should be remanded so the district court can address that specific guideline commentary directly.

[00:03:45] Speaker 04:
Your Honor, if it is okay, I would actually like to make a correction at this point as well.

[00:03:49] Speaker 04:
In my opening brief, I had argued that the failure to explain

[00:03:53] Speaker 04:
Issue should be reviewed under a plain-error standard that was wrong in preparation for this oral argument I reviewed the case law and the record again And I think it is very clear that under Holguin Hernandez the correct standard of review is de novo the Ninth Circuit of course is held in Taylor that the preservation of the substantive issue Will also preserve an argument as to a failure to explain, but I'm looking at the note on the credits against losts

[00:04:20] Speaker 02:
So it says that the money returned, the fair market value of the property returned services rendered by the defendant or other persons acting jointly with the defendant.

[00:04:28] Speaker 02:
Do you think that Mr. Kunkel qualifies for that?

[00:04:31] Speaker 04:
Well, actually, Your Honor, I believe you might be looking at 3E1.

[00:04:34] Speaker 04:
The relevant note here is 3E2.

[00:04:36] Speaker 04:
Okay, let's go to 2.

[00:04:37] Speaker 02:
Yes.

[00:04:38] Speaker 02:
In a case involving collateral pledged or otherwise provided by the defendant.

[00:04:41] Speaker 04:
Yes.

[00:04:43] Speaker 02:
Did your client provide collateral?

[00:04:46] Speaker 04:
No, I would argue that it was, quote, otherwise provided.

[00:04:49] Speaker 04:
Not by the defendant, just otherwise provided.

[00:04:51] Speaker 02:
Fetched or otherwise provided by the defendant.

[00:04:55] Speaker 02:
Mr. Kunkel, who was not charged here, is the one who provided the collateral.

[00:05:00] Speaker 04:
Yes, Your Honor.

[00:05:01] Speaker 04:
And of course, again, if you look at the government's position and its sentencing positions at trial and on appeal, their argument is that Mr. Rosenthal used Mr. Kunkel to provide said collateral as some form of lolling payment, et cetera.

[00:05:14] Speaker 04:
Again, although I don't agree with that argument, if you take that argument at face value, the collateral must be reduced under this guideline note.

[00:05:23] Speaker 03:
Even if it wasn't provided by defendant?

[00:05:26] Speaker 04:
Even if it wasn't provided by the defendant by the plain text of this commentary note, it says provided by the defendant or otherwise provided.

[00:05:33] Speaker 04:
It doesn't say otherwise provided.

[00:05:34] Speaker 03:
But it says pledged or otherwise provided by the defendant.

[00:05:39] Speaker 03:
I mean, you're reading out of the by the defendant part by saying otherwise carries the weight.

[00:05:44] Speaker 03:
And I'm not sure I understand how the plain text of this note reaches to that point.

[00:05:51] Speaker 04:
Yes, Your Honor, you're right.

[00:05:52] Speaker 04:
I did accidentally omit those last few words.

[00:05:55] Speaker 04:
I have it in front of me now, a case involving collateral pledged or otherwise provided by the defendant.

[00:06:00] Speaker 04:
And again, I would reiterate that it is the government that is arguing that the collateral was otherwise provided by Mr. Rosenthal through Mr. Kunkel.

[00:06:08] Speaker 04:
Again, if that argument is to be taken at face value and the government is deemed correct here, then that collateral does have to be reduced under this guideline commentary.

[00:06:17] Speaker 03:
If it wasn't, I mean, I'm still caught, I'm afraid, on the by the defendant part.

[00:06:24] Speaker 03:
If this collateral was not provided by the defendant, how is it the defendant can claim benefit of it?

[00:06:32] Speaker 04:
Yes, Your Honor.

[00:06:33] Speaker 04:
We would argue that the collateral was not provided by the defendant.

[00:06:38] Speaker 03:
In this case... So it wasn't, so why does he get benefit for it?

[00:06:41] Speaker 03:
I mean, we don't disagree on that.

[00:06:42] Speaker 03:
It was not provided by the defendant.

[00:06:44] Speaker 04:
Right, Your Honor.

[00:06:46] Speaker 04:
But again, it is the government's position that it was provided by the defendant.

[00:06:49] Speaker 04:
So the argument is, if the trial court, if you read the sentencing transcript and interpret the trial court saying that the collateral was provided by the defendant in some manner, that's just not logically coherent with failing to include these credits against loss.

[00:07:04] Speaker 02:
So if your client had a rich aunt came forward and said, honey, you're my only beneficiary, let's just solve this right now and just refund it all the money.

[00:07:17] Speaker 02:
There would be zero loss?

[00:07:19] Speaker 04:
In that case, Your Honor, the answer would be no, because the question is what the relationship between Mr. Rosenthal and the aunt would be with regard to this fraud.

[00:07:28] Speaker 04:
There obviously needs to be some nexus between the aunt's payments and the fraud.

[00:07:33] Speaker 04:
Here the government is claiming that there is a nexus, that these collateral pledged by Mr. Kunkel served as some kind of lulling payment to add some kind of legitimacy here.

[00:07:42] Speaker 04:
In the case of a naive and beneficial aunt, I don't see that nexus here.

[00:07:46] Speaker 04:
I think that would be a distinguishable case.

[00:07:49] Speaker 02:
And so your client in that case then would be liable under the guidelines for the full amount of loss of 3.9?

[00:07:55] Speaker 04:
I would also say, Your Honor, there are other inquiries as to this anti-hypothetical here as well as within this case, right?

[00:08:01] Speaker 04:
Again, under Blitz and Stoddard and McCormick, there are questions as to the timing of when things were repaid, whether Mr. Rosenthal ever intended to repay back the victims.

[00:08:11] Speaker 04:
Those are also two inquiries that would be relevant to your question about the anti-hypothetical.

[00:08:17] Speaker 01:
Great.

[00:08:17] Speaker 01:
Thank you.

[00:08:18] Speaker 01:
I assume you want to reserve the rest of your time?

[00:08:20] Speaker 04:
Yes, Your Honors.

[00:08:21] Speaker 04:
Thank you.

[00:08:32] Speaker 00:
May it please the court?

[00:08:33] Speaker 00:
Stephen Arker for the United States.

[00:08:37] Speaker 00:
If I can address, because this is my only time, the primary issue that the defendant raised on the Kaiser issue, although I know the panel's concerns were on the collateral offset, which I will address.

[00:08:48] Speaker 00:
But on the primary issue of Kaiser, which is whether the district court in sentencing improperly relied on the commentary, that's specifically the application note 3A saying,

[00:08:58] Speaker 00:
apply the greater of actual or intended loss, that's not an issue this court need to reach because the district court in sentencing did not rely on intended loss.

[00:09:10] Speaker 00:
The district court did not make a calculation of intended loss and separately actual loss.

[00:09:17] Speaker 00:
The district court applied actual loss and that's at ER 107

[00:09:23] Speaker 00:
when the district court say, quote, I agree with the government's assessment of loss.

[00:09:29] Speaker 00:
I consider the loss to be actual loss.

[00:09:32] Speaker 00:
So the district court never made a finding of intended loss.

[00:09:36] Speaker 00:
There was no intended loss number identified in the record that the defendant is pointed to.

[00:09:42] Speaker 00:
The district court didn't say I was using the grader of actual or intended loss.

[00:09:47] Speaker 00:
And the district court applied the actual loss of $3.9 million.

[00:09:54] Speaker 00:
Unless the court has any further questions on the Kaiser issue, which really is in a sense around herring in this case because the district court used actual loss, not intended loss, I will move to the collateral offset.

[00:10:11] Speaker 00:
With that in mind, the argument, as my colleague has said, was teed up and fully vetted before the district court as to whether there should be offsets applied either for collateral that was posted by, as Judge Barry pointed out, basically another victim, Mr. Kunkel.

[00:10:31] Speaker 00:
And also there were lulling payments that were made to various victims in smaller amounts.

[00:10:38] Speaker 00:
So those are the two areas that the defense was asking the district court at sentencing to be used to offset the actual loss, the lulling payments.

[00:10:49] Speaker 00:
And the collateral that was Mr. Kunkel, another victim, as became clear at the sentencing through the other victims and the victim impact statement was a victim.

[00:11:00] Speaker 00:
But it was Mr. Kunkel's property that was posted in promissory notes or loans that the victims, at least one particular victim, signed in giving the money to the defendant for this made up Alibaba IPO scheme.

[00:11:18] Speaker 00:
It's clear from the record that the government's sentencing brief, this is at ER 394 to 395, said referencing, as Judge Clifton pointed out, the application note that these offsets are not entitled to be provided to the defendant if it's not the defendant's property or it was in furthers of the scheme.

[00:11:43] Speaker 00:
There were cases that were pointed out.

[00:11:44] Speaker 00:
At the hearing and in colloquy with the sentencing judge, the prosecutor repeated the argument that the defendant was not entitled to credits or offsets for payments to victims for the purpose of concealing and continuing the Alibaba scheme or offsets for amounts the victims recovered by taking title to collateral pledged by Kunkel.

[00:12:09] Speaker 00:
This is at ER 70 and 72.

[00:12:13] Speaker 00:
the district court very well aware of the arguments just clarified with the prosecutor at that time at that same site around ER 7071.

[00:12:24] Speaker 00:
So if a defendant is operating a Ponzi scheme and as part of that scheme makes lulling payments to be able to continue the scheme, to avoid lawsuits, to avoid the

[00:12:37] Speaker 00:
the victims from coming forward to the authorities, to quote in the district court's words, to give them some sense of false hope, those monies that are returned are not to be credited towards the lost figure.

[00:12:51] Speaker 01:
Did the district court say that the actual loss was 3.9 million, but apparently the court did not include the additional 1.2 million for the marijuana dispensary?

[00:13:00] Speaker 01:
Did the court ever actually explain why it didn't include the 1.2 million as part of the actual loss?

[00:13:06] Speaker 00:
It was the government's position that it should be included, and it was included and referenced by the district court for making some findings on other sentencing enhancements, but, Judge Lee, as to your point, for the actual loss, the number was still the 3.9, and there was nothing in the record as to why the higher figure of 5 million wasn't

[00:13:28] Speaker 00:
I think it's a practical matter because the sentencing guideline range needed to be above 3.5 million, so I think the next range would have been over 9, 9.5 million.

[00:13:39] Speaker 00:
The government didn't need to find an actual loss.

[00:13:45] Speaker 00:
the 3.9 versus the 5 million because it was still going to be the same plus 18 level enhancement.

[00:13:50] Speaker 00:
What would be at issue was the restitution and the way that extra amount of loss to this victim, Paul Otolesco, was captured in the restitution was after the initial sentencing hearing there was a supplemental restitution hearing for that cannabis scheme involving that victim and there the restitution of the additional 1 million was added.

[00:14:21] Speaker 00:
I don't think it mattered when the lolling payments were made or when the collateral was put up under the case law.

[00:14:30] Speaker 00:
If these amounts were part of the scheme, and from this case, by having in the promissory notes a collateral that would

[00:14:44] Speaker 00:
the willingness of people to loan money, that from the beginning was part of the scheme and the fraud.

[00:14:53] Speaker 00:
And again, the key point that it wasn't defendant's collateral, so he shouldn't get the offset.

[00:14:59] Speaker 00:
This is reminiscent of a case from the Ninth Circuit in which the district, citing the district court's statement at the sentencing, it would be like the arsonist who burns his house down, and then in the insurance fraud,

[00:15:14] Speaker 00:
at the loss at sentencing claims that he should have offset his loss by the amount of the insurance premiums.

[00:15:25] Speaker 00:
And that's in a sense what defendant Rosenthal was doing by setting up and having another victim, Mr. Kunkel, pledge collateral that was able to be recovered by the victim.

[00:15:41] Speaker 00:
Unless the court has

[00:15:43] Speaker 00:
Further questions the government would submit that this district court's sentence should be affirmed.

[00:15:50] Speaker 01:
Great, thank you.

[00:16:05] Speaker 04:
Your honors, I would like to return briefly to the questions posed to me by Judges Bybee and Judges Clifton.

[00:16:12] Speaker 04:
The question of whether or not this collateral was, quote, otherwise provided by the defendant and the timing of the discovery of when the offense occurred are positions that, of course, I could take here on this appeal.

[00:16:23] Speaker 04:
But that would not be appropriate at this stage.

[00:16:26] Speaker 04:
The bottom line is the trial court didn't make any findings of fact or decisions as to these issues.

[00:16:31] Speaker 04:
And under Chavez Meza and Emmett, that failure to explain warrants a remand.

[00:16:36] Speaker 04:
That is the appropriate remedy here.

[00:16:38] Speaker 02:
So here's where I'm having trouble.

[00:16:40] Speaker 02:
I'm having trouble understanding what the district court's choices might be and how those have any consequences for your client.

[00:16:47] Speaker 04:
Yes, Your Honor.

[00:16:48] Speaker 04:
To run through them, the first would be the district court would agree with the government that these were lulling payments that were used to provide a legitimacy to the fraudulent scheme, that the victims discovered the offense before the collateral was repaid.

[00:17:01] Speaker 04:
In that circumstance, under the application note, the district court is still required to reduce the collateral taken, again, by that plain text of that commentary note and by the case law cited by the government.

[00:17:13] Speaker 04:
Or the district court could agree with me that none of these were lulling payments, that these victims had discovered the offense at a different time.

[00:17:22] Speaker 04:
In that case, perhaps I would concede

[00:17:24] Speaker 04:
that the collateral should not be reduced.

[00:17:26] Speaker 04:
But again, I think you have to take a look at the guidelines straight and directly as well as the case law and allow the district court to make those decisions.

[00:17:35] Speaker 02:
Now I'm really, really confused because if I understood your argument, if we take the government's argument, your client gets the benefit of the collateral.

[00:17:45] Speaker 02:
If we take your argument, your client doesn't get the benefit of the collateral.

[00:17:49] Speaker 02:
That just seems completely backwards to me.

[00:17:52] Speaker 04:
Yes, Your Honor.

[00:17:53] Speaker 04:
I do realize that this is, we have now descended into a point of confusion from which I cannot return.

[00:17:58] Speaker 04:
But again, if it is collateral that was, quote, provided by the defendant or pledged in another way, and that's what the, oh, that's what you or the district court finds, ultimately it has to be reduced.

[00:18:08] Speaker 03:
Even if it's part of the scheme.

[00:18:10] Speaker 04:
No, Your Honor, again, and that goes to the case law that was disputed before the district court.

[00:18:14] Speaker 04:
Those multiple findings when it comes to the timing, the legitimacy, that is relevant too and was never discussed by the district court in any way.

[00:18:22] Speaker 04:
I do want to spend just a few seconds on the Kaiser issue, Your Honors, even though I do realize that I'm out of time.

[00:18:28] Speaker 04:
I do want to emphasize that it is not a reasonable interpretation under Kaiser of a guideline that says the word loss to require a district court to say in any circumstance, regardless of the case, that the loss amount has to be the greater of one of these two amounts for the reason stated in my brief.

[00:18:46] Speaker 01:
Thank you.

[00:18:47] Speaker 01:
Thank you both.

[00:18:48] Speaker 01:
The case has been submitted.

[00:18:49] Speaker 04:
Thank you.