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United States of America v. Larry Reynolds

June 24, 2011

UNITED STATES OF AMERICA, APPELLEE,
v.
LARRY REYNOLDS, APPELLANT.



Appeal from the United States District Court for the District of Minnesota.

The opinion of the court was delivered by: Wollman, Circuit Judge.

Submitted: March 17, 2011

Before WOLLMAN, MURPHY, and GRUENDER, Circuit Judges.

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 court*fn1 to 130 months' imprisonment. Reynolds appeals from his sentence, 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 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.

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."*fn2 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 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 ...


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