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Note: In an effort to start Dayton International Tire Recycling (Recycling Company) in Ohio, Paul David Musgrave (Applicant) became involved with Raymond Goldberg (Co-Owner). Under the arrangement between Applicant and Co-Owner, Applicant invested USD 300,000 in Recycling Company and Co-Owner provided a “[USD] 350,000 ‘cost reduction.’” Co-Owner concealed his ownership of Recycling Company through Intercontinental Trading of the British Virgin Islands (Shell Corporation). Co-Owner was to provide the equipment necessary for the Business through Rubber Solutions (Co-Owner’s Equipment Company), which was based in Australia.

Applicant received a loan to purchase the equipment from Mutual Federal Savings Bank (Creditor) that was guaranteed by the United States Small Business Administration (Guarantor). Creditor and Guarantor required Applicant to secure a standby letter of credit through U.S. Bank (Issuer) in order for the loan to be disbursed to the Australian bank used by Co-Owner to purchase the equipment. The letter of credit specified in its terms that the equipment was to be shipped from Australia to Ohio. Co-Owner falsified documents that purported to show that the equipment was to be shipped from Australia, but the equipment was actually ordered from a company in Oregon.

Co-Owner’s Equipment Company was unable to complete the purchase of a vital piece of equipment for Recycling Company because his bank had seized most of the disbursed loan to cover an overdraft by Co-Owner, and Co-Owner had used the rest of the loaned funds to satisfy other creditors unrelated to Recycling Company. Applicant contacted various American and Australian authorities regarding Co-Owner’s fraud, and an investigation began. Recycling Company failed and Guarantor incurred USD 1,700,000 in losses from the venture.

In 2011, both Applicant and Co-Owner were indicted for defrauding Creditor and Guarantor through concealment and misrepresentation of facts. The fraudulent misrepresentation was primarily evidenced by the concealment of Co-Owner’s status as an owner, the fact that Shell Corporation had provided a cost reduction rather than a cash investment, Co-Owner’s falsification of a packing list to indicate that the vital equipment had been shipped from Australia, and the source of Applicant’s investment. In the United States District Court for the Southern District of Ohio, Black, J., Applicant was convicted of conspiracy to commit wire and bank fraud and make false statements to a financial institution, two counts of wire fraud, and bank fraud. The Judge sentenced Applicant to one day of imprisonment with credit for the one day of processing, three years supervised release with no home confinement, and no fine. The government appealed the trial court’s sentence in the United States Court of Appeals for the Sixth Circuit, arguing that it was substantively unreasonable, and appellate court vacated the sentence and remanded to the trial court for resentencing. The trial court subsequently granted Applicant’s motion for downward variance once again and resentenced Applicant to one day of imprisonment with credit for one day of processing, five years of supervised release with two years of home confinement, and a USD 250,000 fine. The government once again appealed the sentencing as substantively unreasonable because the sentence failed to promote general deterrence, it was based on an impermissible consideration of Applicant’s socioeconomic status, and was not justified by other sentencing factors. The United States Court of Appeals for the Sixth Circuit Court, Stranch, J., affirmed, ruling that the sentencing was within the discretion of the district court judge, and was therefore not substantively unreasonable.

[CTR]

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