United States v. Larry Reynold

Filing

OPINION FILED - THE COURT: ROGER L. WOLLMAN, DIANA E. MURPHY and RAYMOND W. GRUENDER. Roger L. Wollman, Authoring Judge (PUBLISHED) [3801287] [10-3130]

United States Court of Appeals
FOR THE EIGHTH CIRCUIT

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No. 10-3130
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United States of America,
Appellee,
v.
Larry Reynolds,
Appellant.

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* Appeal from the United States
* District Court for the
* District of Minnesota.
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Submitted: March 17, 2011
Filed: June 24, 2011
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Before WOLLMAN, MURPHY, and GRUENDER, Circuit Judges.
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WOLLMAN, Circuit Judge.
Larry Reynolds assisted Tom Petters in routing $12 billion in investor funds
through Reynolds’s company’s California bank account. Petters had told investors
that their funds were used to purchase consumer electronics, when in fact Reynolds
directed that the funds be sent to Petters’s company. Petters then used the funds to
perpetrate a massive Ponzi scheme. Reynolds pleaded guilty to conspiracy to commit
money laundering, in violation of 18 U.S.C. § 1956(h), and was sentenced by the
district court1 to 130 months’ imprisonment. Reynolds appeals from his sentence,
1

The Honorable Richard H. Kyle, United States District Judge for the District
of Minnesota.

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arguing that the district court failed to adequately explain the sentence, failed to
properly consider the sentencing factors set forth in 18 U.S.C. § 3553(a), assigned too
much significance to irrelevant factors, and imposed a sentence greater than necessary
to achieve federal sentencing goals. We affirm.
I.
Reynolds owned Nationwide International Resources, Inc. (Nationwide), a
wholesale business that sold discounted shoes and clothing to retail outlets. In 2001,
Petters, a Minnesota businessman who had purchased goods from Nationwide,
approached Reynolds and asked if he could wire funds through Nationwide’s bank
accounts. Petters promised to pay Reynolds a fraction of a percent of the funds
moving through the accounts. From 2002 until September 2008, Reynolds accepted
and transferred $12 billion in investor funds, garnering $9.9 million for his role in
Petters’s scheme.
The scheme was a classic Ponzi scheme. Investors were told that their money
would be used to purchase consumer electronics that would be sold to big box retailers
at a substantial profit. Petters, along with his colleagues—including Deanna Coleman
and Robert White—used fabricated documents that purported to show the purchase
of goods from vendors and the resale of the goods to retailers. Other fabricated
documents showed Petters’s company wiring funds to the vendors, giving the
appearance that the company was investing its own funds. Early investors realized a
return on their investment, but that return came from funds from new investors, funds
from legitimate transactions, and, in some cases, funds from their own investments.

Investors often wanted to send their investment funds directly to the vendor that
was supplying Petters’s company with consumer electronics, believing that by doing
so they were ensuring against fraud, that is, guaranteeing that their funds were being
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used to purchase merchandise. To this end, they wired their funds to the accounts of
supposed vendors, Nationwide and Enchanted Family Buying Company, a company
created by Michael Catain, in amounts that ranged from $2 million to $25 million.
Reynolds and Catain then transferred the money to Petters’s company and reaped a
commission. Both knew that Petters had made false representations to investors and
that investors believed that the funds were used for the purchase of merchandise.
Reynolds also assisted Petters in other ways. To show that Petters’s company
stored inventory, Reynolds helped secure warehouse space in California, Nevada, and
Kansas. Reynolds also deceived an institutional investor about the quantity and value
of certain inventory, claiming it to be greater than it actually was. Furthermore,
Reynolds vouched for Petters’s dealings and, on at least one occasion, pretended to
be a significant supplier, thereby allaying an investor’s concerns.
In September 2008, Coleman went to the U.S. Attorney’s Office and revealed
that she had assisted Petters in the execution of a multibillion-dollar Ponzi scheme that
spanned more than ten years. She was fitted with a recording device and recorded
hours of conversations with Petters, White, and Reynolds, among others, capturing
discussions regarding the history and mechanics of the scheme and the plan to avoid
responsibility if the fraud was discovered.
Reynolds was arrested on October 3, 2008, and pleaded guilty on October 23,
2008, two weeks after Coleman, White, and Catain had entered their guilty pleas. He
was released on a $2.5 million bond, subject to electronic home monitoring and
reporting to the U.S. Probation and Pretrial Services Office. Reynolds testified
against Petters at trial, and it is undisputed that his testimony was helpful and was
corroborated by recordings, documents, and other witnesses’ testimony. Petters was
found guilty and was sentenced to fifty years’ imprisonment.

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Following Petters’s conviction, a presentence investigation report (PSR) was
prepared for Reynolds. Reynolds had a total offense level of 37, a criminal history
category of I, and an advisory sentencing range of 210 to 240 months’ imprisonment,
under the U.S. Sentencing Guidelines Manual (guidelines). Over Reynolds’s
objection, the PSR concluded that he was not entitled to a minor role reduction,
pursuant to guidelines § 3B1.2, because he was not substantially less culpable than
other participants. The PSR also set forth Reynolds’s criminal and personal history.
Although Reynolds’s prior convictions were too old to warrant any criminal history
points, he had had extensive past criminal dealings, including theft of property from
insurance companies, conspiracy to possess with intent to distribute more than 1,000
pounds of marijuana, conspiracy to commit wire fraud, wire fraud, and interstate
transportation of stolen property.
In his sentencing memorandum, Reynolds requested a forty-eight-month
sentence. He argued that his offense level overstated his conduct and that he qualified
for a minor or minimal role reduction. Reynolds compared his offense conduct to that
of the other participants, arguing that he “was nothing more than the switchman of the
washing machine in the money operation developed and fueled by Petters, Coleman,
White and Wehmoff.”2 Moreover, he argued, he and Catain did not breach any
fiduciary duty.
Reynolds further argued that a lighter sentence was warranted based on the
assistance he had provided in the case against Petters and his cooperation in turning
over significant assets for forfeiture. The government agreed that Reynolds had
offered valuable assistance, noting that “Reynolds’ quick guilty plea hastened the
resolution of the criminal investigation” and that Reynolds had participated in at least
eight interviews, testified before the grand jury, and “repeatedly reviewed bank

2

James Wemhoff was an executive vice president at Petters’s company from
2004 through 2007. He pleaded guilty to mail fraud and money laundering.
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records, email, and business records, providing the government with valuable insights
into the facts of a conspiracy that extended over a decade.” Although the government
did not move for a downward departure based on Reynolds’s assistance pursuant to
guidelines § 5K1.1, it urged the district court to consider Reynolds’s cooperation and
impose a sentence below the advisory sentencing range.
Nonetheless, the government maintained that Reynolds’s involvement in
Petters’s scheme warranted severe punishment. Its sentencing memorandum detailed
Reynolds’s lengthy relationship with Petters: he began generating fake invoices for
Petters in 1998; he later falsely certified that Petters was involved in legitimate
merchandise deals; and he regularly carried out the transactions described above,
laundering $12 billion over the course of almost seven years. According to the
government, Reynolds’s and Catain’s money laundering allowed the Ponzi scheme
to grow “from a million dollar fraud to a billion dollar fraud.” The government
argued that without the crucial assistance Reynolds provided to Petters, the scheme
would have collapsed more quickly and fewer victims would have been defrauded.
At sentencing, Reynolds reiterated the arguments that his role was relatively
minor and that his assistance was relatively great, when compared to the other
participants in the Ponzi scheme. Reynolds asked that his age and health be
considered in fashioning his sentence, that he be credited for the period of electronic
home monitoring, and that he be given thirty days to surrender himself to the Bureau
of Prisons. Following arguments by counsel and statements by Reynolds and his
daughter, the district court imposed the 130-month sentence. It denied any credit for
home monitoring, stating that such a request was a matter for the Bureau of Prisons
to rule on, and ordered that Reynolds be taken into custody immediately.
II.
We review the reasonableness of a defendant’s sentence under a “deferential
abuse-of-discretion standard,” ensuring that the district court committed no significant
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procedural error and that the sentence is substantively reasonable. Gall v. United
States, 552 U.S. 38, 41, 51 (2007); United States v. Feemster, 572 F.3d 455, 461 (8th
Cir. 2009) (en banc).
A.
Reynolds argues that the district court committed procedural error when it failed
to provide an adequate explanation for his sentence and when it characterized
Reynolds as a “major player” in the scheme. Procedural error occurs when the district
court fails to calculate (or improperly calculates) the guidelines range, treats the
guidelines as mandatory, fails to consider the § 3553(a) factors, selects a sentence
based on clearly erroneous facts, or fails to adequately explain the defendant’s
sentence. Gall, 552 U.S. at 51. Because he did not object at sentencing, we review
Reynolds’s challenges to the sentencing procedure for plain error. United States v.
San-Miguel, 634 F.3d 471, 474-75 (8th Cir. 2011).
We conclude that the district court engaged in a sufficiently detailed explanation
of its reasons for imposing the sentence in this case. As required by 18 U.S.C. §
3553(a)(1), it considered the nature and circumstances of the offense, providing, in
part:
[T]here’s no question in my mind that you, Mr. Reynolds, are deserving
of a lengthy sentence. I think your conduct here was serious and you
were a major player in the—what is commonly known as the Petters
fraud. I think without you or someone in the role you had, this could
have collapsed maybe long ago; and . . . as it went on you did it for
profit, for profit to yourself. And in doing that you knew exactly, I
think, what you were doing and the wrongs that were being inflicted on
others[.]
The district court also compared Reynolds’s cooperation with Coleman’s cooperation,
finding that Coleman was “in a league by herself” and that the information she
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provided was essential. Nonetheless, the district court determined that Reynolds
provided “the equivalent of substantial assistance” and remarked that it was “going
to factor that into the sentence I’m about to issue.” Reynolds contends that the district
court failed to explain why his sentence was greater than that imposed upon most of
the scheme’s participants, but the record is clear that the district court considered the
other participants’ conduct and sentences, remarking that Reynolds’s sentence was
“higher than the others, other than Mr. Petters. Probably higher than anyone else is
going to get in this case. But I think under all the circumstances here it is required,
at least as I read 3553(a).” Furthermore, in considering Reynolds’s personal
characteristics and criminal history, the district court noted that Reynolds had lived
a life of crime.
In weighing the sentencing factors set forth in 18 U.S.C. § 3553(a)(2), the district
court determined that although a guidelines range sentence was greater than necessary,
a lengthy sentence was required to reflect the seriousness of the offense, promote
respect for the law, and provide just punishment. It discussed the sentencing goals of
affording adequate deterrence and protecting the public from the types of fraud crimes
that Reynolds had helped perpetrate. Given this detailed explanation, we conclude
that the district court did not fail to adequately explain Reynolds’s sentence, which
was well below the guidelines range.
The district court’s comment that Reynolds was a “major player” did not
constitute a clearly erroneous finding. Reynolds had objected to the PSR’s
determination that he was an average participant and its denial of a minor role
reduction under guidelines § 3B1.2. The district court adopted the finding that
Reynolds was an average participant,3 and its use of the term “major player” can
properly be read as response to Reynolds’s renewed request for a minor role
reduction. Although the record reflects that there were participants who played a

3

We note that neither the PSR nor the district court considered applying an
aggravating role adjustment under guidelines § 3B1.1.
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greater role than Reynolds and caused greater loss to the victims, the district court
found that Reynolds’s role was essential to the continued success of the scheme.
Finally, to the extent Reynolds argues that the district court failed to properly
calculate his offense level, we find his argument to be without merit. Reynolds
contends that his offense level overstates the seriousness of his offense because it is
based on the amount of money he laundered, rather than the profits he garnered.
Guidelines § 2S1.1(a)(2) instructs that the base offense level for money laundering is
“8 plus the number of offense levels from the table in § 2B1.1 . . . corresponding to
the value of the laundered funds.” Accordingly, the PSR properly increased
Reynolds’s offense level based on the $12 billion in laundered funds, and we find no
support for Reynolds’s argument that its calculation should instead have been based
on his $9.9 million profits.
B.
Reynolds argues that his sentence is substantively unreasonable because the
district court failed to consider and properly weigh the sentencing factors. We
consider the totality of the circumstances when reviewing the substantive
reasonableness of a sentence, and we will not reverse absent a showing that the district
court abused its discretion. Gall, 552 U.S. at 51. “A district court abuses its
discretion when it fails to consider a relevant factor, gives significant weight to an
irrelevant or improper factor, or considers only appropriate factors but nevertheless
commits a clear error of judgment by arriving at a sentence that lies outside the limited
range of choice dictated by the facts of the case.” San-Miguel, 634 F.3d at 475
(quoting United States v. Jones, 509 F.3d 911, 913 (8th Cir. 2007)); see also Gall, 552
U.S. at 59 (noting that the range of choice dictated by the facts of a case was
significantly broadened after the guidelines became advisory). “The district court has
wide latitude to weigh the § 3553(a) factors in each case and assign some factors
greater weight than others in determining an appropriate sentence.” San-Miguel, 634
F.3d at 476 (quoting United States v. Bridges, 569 F.3d 374, 379 (8th Cir. 2009)).
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The district court did not commit a clear error of judgment when it considered
Reynolds’s criminal history. Although his prior convictions were from the 1970s and
1980s, and thus did not result in any criminal history points, Reynolds’s criminal
dealings suggest a pattern of unlawful, fraudulent behavior. The PSR set forth
Reynolds’s criminal history, and the district court heard the details of his prior
criminal conduct during Reynolds’s testimony in the Petters trial. That conduct
included participating in check scams, creating fraudulent documents, and submitting
false and inflated claims to insurance companies, both as an attorney and (after he was
disbarred) as a business owner. Although Reynolds owned and operated legitimate
businesses from the mid-1980s through the 1990s, he also engaged in some fraudulent
activity during that time period and returned to crime in 2001 when presented by
Petters with a fast-money opportunity. The district court thus acted within its
discretion when it considered Reynolds’s criminal history.
Reynolds also contends that the disparate sentences among the
participants—ranging from probation to fifty years’ imprisonment—demonstrate the
unreasonableness of his sentence. To show an unwarranted disparity between
Reynolds’s sentence and the sentences of the other participants, Reynolds and the
other participants “must have ‘similar records’ and must ‘have been found guilty of
similar conduct.’” United States v. Frausto, 636 F.3d 992, 997 (8th Cir. 2011)
(quoting 18 U.S.C. § 3553(a)(6)). Reynolds, however, is not similarly situated to the
other participants. Of the participants, Reynolds and Catain served similar roles.
Both were found guilty of similar conduct, and Catain was sentenced to 90 months’
imprisonment. Reynolds, however, offered Petters assistance beyond laundering
funds and had a lengthy criminal record. Moreover, Catain pleaded guilty and began
cooperating with the government before Reynolds did. Thus, the disparity in the
length of their sentences was not unwarranted.
Finally, the district court was well aware of Reynolds’s age and health, the time
he had spent on home detention, and the assistance he had provided to the government
in its case against Petters. The fact that it had presided over the Petters trial and had
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sentenced the other participants gave the district court a comprehensive view of the
scheme, the relative culpability of its participants, and the extent, timeliness, and value
of their cooperation with the government.
In summary, we conclude that Reynolds’s sentence does not transgress the
parsimony principle set forth in 18 U.S.C. § 3553(a) and that his sentence is not
substantively unreasonable.
III.
The sentence is affirmed.
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