IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND UNITED STATES OF AMERICA * * v. * HARVEY NUSBAUM, ET AL. * * Criminal No. JFM-09-0328 ORDER Upon consideration of Fred Schulte's motion to intervene and to unseal portions of the record (document 225), it is, this 10 th day of February 2011 ORDERED 1. The motion is granted in part and denied in part; 2. Fred Schulte is granted leave to intervene; and 3. The Clerk is directed to send in paper copy to Mr. Schulte (a) a copy of the Sentencing Memorandum filed by the United States, (b) the Addendum Attachment A (a declaration of John Reiff) to the Sentencing Memorandum, and (c) Addendum Attachment B (a letter from the United States to defense counsel) from which the Clerk is to redact the first paragraph. . Frederick Motz United States District Judge Case 1:09-cr-00328-JFM Document 175 Filed 04/14/10 Page 1 of 21 IN UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND UNITED STATES OF AMERICA V. CRIMINAL NO. JFM-09-0328 HARVEY M. NUSBAUM Defendant. UN TED STATES'S SENTENCING MEMORANDUM WITH RESPECT TO HARVEY M. NUSBAUM The United States respectfully submits this Sentencing Memorandum in connection with the sentencing of Harvey M. Nusbaum which is scheduled for May 4, 2010. Mr. Nusbaum is an attorney, a former Internal Revenue Service agent, and a well-to-do business man. He engaged in a six-year criminal conspiracy that corrupted the competitive bidding process for tax lien auctions held by Maryland's largest city and five of its counties. This criminal collusion affected liens on the property of thousands of homeowncrs and the amount of money available to the auctioning governments to use for government services. Mr. Nusbaum bought the liens through rigged auctions to obtain the right to foreclose the homeowners' right of redemption on the liens he obtained through the auctions he rigged. In turn, he collected: (a) millions of dollars in attorneys fees for processing foreclosure actions against the property of prospective victi s; (b) half the proceeds of foreclosures on victims' property; and, (c) half the statutory interest payments paid on liens he won in the rigged auctions. To avoid unwarranted sentencing disparities and because of the significant need for the sentence imposed to provide adequate general deterrence--a concern explicitly recognized by the Case 1:09-cr-00328-JFM Document 175 Filed 04/14/10 Page 2 of 21 Sentencing Commi o on's position that the prospect of prison will serve as a significant deterrent to others compared to a term of probation the United States recommends that this Court impose a sentence consistent with the Sentencing Guidelines, including a period of imprisonment of eighteen months and a criminal fine of $800,000.00, payable in installments. 8. BACKGROUND Harvey M. Nusbaum ("defendant") was indicted on June 16, 2009, along with his business partner Jack W. Stollof on one count of violating the Sherman Antitrust Act, 15 U.S.C. ? I. The Indictment charged that, beginning in or around the Spring of 2002 and continuing until at least August 9, 2007, defendant and other conspirators entered into and engaged in a combination and conspiracy to suppress and eliminate competition by submitting noncompetitive and collusive bids at certain auctions for tax liens conducted by a municipality and various counties within the District of Maryland in unreasonable restraint of interstate trade and commerce. The Indictment further stated that the charged combination and conspiracy consisted of a continuing agreement, understanding, and concert of action among defendant and his coconspirators, the substantial terms of which were to rig bids for tax liens being auctioned by a municipality and certain counties within the District of Ma land. Defendant pled guilty to the Indictment on February 23, 2010 pursuant to a Plea Agreement. (Docket # 141). II. Aims of the Conspiracy in the Tax Lien Auction Industry The way in which tax lien auctions work has been described in considerable detail in the United States's Sentencing Memorandum with respect to Jack W. Stollof at 2-4 ("U. S. Stollof Sentencing Memorandum"). That description will not be repeated here, but will be described in -2- Case 1:09-cr-00328-JFM Document 175 Filed 04/14/10 Page 3 of 21 the course of the sentencing hearings of both Nusbaum and Stollof on May 4, 2010. It is worth describing again here. however, the manner in which the conspiracy engaged in by Nusbaum worked. The conspiracy allocated tax liens or groups of tax liens among the three groups of conspirators: (1) the Nusbaum and Stollof group; (2) the Steve Bcrman group; and (3) a third group of bidders not charged in this case, DRT Fund 1_,LC ("DRT"). The group that was allocated a specific lien or group of liens bid on the lien; the other two groups either refrained from bidding on that lien or group of liens or submitted an intentionally low bid designed not to win the bid, to make it appear that competitive bidding was occurring when, in fact, it was not ("cover bids"). Bid prices were agreed-upon among some of the conspirators for certain of the auctions. This same basic methodology was used whether the auction was an in-person auction, a sealed bid auction or an intemet auction. Although a large number of bidders participate in tax lien auctions in Maryland, only a handful of bidders are in a position to bid on and win large numbers of liens in these auctions. Over most of the conspiracy period the major tax lien auctions were largely dominated by: (1) companies jointly owned by defendant and his business partner, Jack Stollof; (2) companies owned by Steven L. Berman; and (3) companies for which DRT did the bidding. These are the major groups that had access to sufficient financial resources to pay the high bid premiums needed to perfect winning bidder status and that were affiliated with local attorneys. Because the amount of the high bid premium due on a tax lien typically dwarfs the amount of taxes owed on -3- Case 1:09-cr-00328-JFM Document 175 Filed 04 0 Page 4 of 21 that property, access to financial resources is critical.' A iating with a local attorney permits the winning tax lien bidder to generate income in the form of legal fees in the course of filing legal actions to foreclose the property owner's right of redemption on his property. Defendant was an Nkocncy. His law firm filed the lawsuits to foreclose the right of redemption of the homeowners with tax liens won by him and his co-defendant in the rigged auctions. The primary aims of the conspiracy were to: (1) reduce the amount bid and, therefore, reduce-- (a) thc amount of the high bid premium that had to be paid up-front to the auctioning jurisdictions, and thereby reduce the cost of financing tax lien purchases; (b) the amount that would have to be paid to a homeowner of a property actually foreclosed upon; and (2) help assure the winning of a large number of tax liens upon which the conspirators could collect during the redemption process-(a) statutory interest on tax liens at a rate of between 12-20%; and (b) attorneys fees and other fees such as title fees. Attorneys fees can run to thousands of dollars per lien and are not dependent on the amount of taxes or other fees owed by the homeowner.. Title fees can be $250 per lien or more, while the cost of performing the title work was no more than half that amount. ' Through his business partner and co-defendant, defendant had a long-standing relationship with Provident Bank and obtained large loans to finance their participation in tax lien auctions. -4- Case 1:09-cr-00328-JFM Document 175 Filed 04/14/10 Page 5 of 21 (John Reiff Decl.), Addendum Exhibit A.2 By agreeing to allocate liens or groups of liens among these three groups of bidders, the conspirators eliminated the need to hid high enough to outbid their two strongest and most feared competitors for those liens. They needed only to bid high enough to outbid weaker and less wellfinanced bidders. By colluding with their strongest competitors, defendant and his partner assured themselves of obtaining a significant number of liens on which they could earn income from statutory interest and attorneys and other fees at the lowest possible cost. In sum, the defendant and his co-conspirators colluded to win tax liens at the lowest possible cost and reap profits in multiple ways. In addition, defendant colluded to assure himself a large number of tax liens against which he could file lawsuits and generate attorneys fees for his law firm. This was a crime of greed. In the process. defendant subverted the competitive process at the expense of the homeowners and the governments that conducted the auctions he rigged. III. OFFENSE CONDUCT At his rearraignment on February 23, 2010, defendant admitted his involvement in the conspiracy charged in thc Indictment--that from at least Spring 2002 continuing at least until August 2007. defendant, through various limited liability companies, participated in a conspiracy the primary purpose of which was to suppress competition for tax liens by refraining from full competitive bidding at certain public auctions for tax liens conducted by a municipality and counties within the State of Maryland.' These auctions included: 2004-2007 Anne Arundel 2 Exhibits filed in the Addendum are filed under seal. 3 Steven L. Berman pleaded guilty to this same conspiracy on June 10, 2008 in United States v. Steven L. Berman, Crim. No. JFM-08-0266. No date has yet been set for Mr. Berman's sentencing. Stollof also pleaded guilty to this same conspiracy. United States v. Jack W. Stollof, -5- Case 1:09-cr-00328-JFM Document 175 Filed 04/14/10 Page 6 of 21 County; 2002-2003,2005-2007 Baltimore City, 2004-2007 Baltimore County; 2007 Howard County; 2004-2007 Montgomery County; and 2005-2007 Prince George's County. Letter of Nancy McMillen to counsel for Nusbaum (July 14, 2009), Addendum Exhibit B. A. Defendant's Involvement Nusbaum and his long-time business partner, Jack W. Stollof, were partners in this bidrigging conspiracy. Each had his role. Whereas StoHors contribution to the conspiracy included his personal, intimate knowledge of real estate values in the Baltimore area, access to funds through Provident Bank, and control of the checkbook and computer resources of the LLCs, Nusbaum was the attorney for the LLCs. He filed the lawsuits required to collect attorneys fees and title fees, as well as to foreclose on properties where homeowners would not or could not redeem them. Like Stollof, Nusbaum personally participated in meetings among the coconspirators, reached agreements to rig bids, and participated in carrying out those agreements by bidding in rigged auctions. He policed the agreement at some of the live auctions, telling other conspirators when to stop winning too many bids. He was involved in allocating the liens among conspirators for some of the auctions and in coming up with the profit margins both he and one of his conspirators would earn on their rigged bids. He handled the preparation of written bids the Nusbaum/Stollof LLCs submitted for the rigged sealed bid auctions. He also reached out to the DRT group to involve them in the sealed bid auction portion of the conspiracy. Nusbaum was personally involved in agreeing to rig bids as early as 2002, and by the 2003 live auction at Baltimore City was actively involved in reaching the agreement to rig bids and in carrying out the agreement. FBI FD-302 of Dackman (Apr. )7,2009), at 4-6, Addendum Crim. No. 09-0328. -6- Case 1:09-cr-00328-JFM Document 175 Filed 04/14/10 Page 7 o 21 Exhibit C (hereinafter "Dackman 302"). At the live auctions where competition sometimes started out aggressively, he and his co-conspirators would at some point discuss and agree to develop a rotation so they would no longer be competing against one another. FBI FD-302 of John Reiff (Nov. 15, 2007), at 2, 9, Addendum Exhibit D (hereinafter "Reiff 302-2"). Nusbaum approached one of his conspirators at the 2006 Baltimore County auction during the first break and told him "to be a gentleman and cut this out and take turns." FBI FD-302 of Richard Turer (Nov. 4, 2007), at 14. Addendum Exhibit E (hereinafter "Turer 302"). The conspirators agreed. During at least two of the live auctions, Nusbaum policed the agreement, telling conspirators how to bid to control the bid results. For example, at the 2003 Baltimore City live auction, Nusbaum ordered a co-conspirator to stop bidding, saying they would "assign enough liens after the auction so that it would work out right." Dackman 302 at 6. Similarly, at the 2005 Baltimore County auction, Nusbaum told Berman that Beinian "was ahead of Nusbaum in the number of liens won" and told Berman he "was winning too many bids." FBI FD-302 of Steven Berman (Oct. 18, 2007), at 8, Addendum Exhibit F, (hereinafter "Berman 302-1"). In the sealed bid auctions, Nusbaum typically prepared the sealed bids for the Nusbaum/Stollof LLC that was bidding in that auction. She 1 Stollof GJ Transcript, at 42, Addendum Exhibit G, (hereinafter "Sheryl Stollof GJ Tr."). In the 2004 Montgomery County sealed bid auction, he also submitted a sealed bid for Berman's company. Once Berman won his liens, he transferred half of them to an LLC owned by Nusbaum and Stollof. Berman said that "Nusbaum was hiding the fact that he was working it out later with Berman." Berman 302-1 at 9. Nusbaum worked with Stollor s computer expert and Berman's computer expert to divide the liens to be allocated among the conspirators into pools. See Berman 302-1 at 11-12. He also -7- Case 1:09-cr-00328-JFM Document 175 Filed 04/14/10 Page 8 of 21 came up with the "yield - or profit margin for the bids submitted by both the Nusbaum/Stollof and Berman companies. Berman 302-1 at 11. Prior to the 2006 Montgomery County sealed bid auction, it was Nusbaum who reached out to DRT to invite them to join that part of the conspiracy that involved sealed bid auctions. FBI FD-302 of Anthony DeLaurentis (Oct. 25, 2007), at 12, Addendum Exhibit H (hereinafter -DeLaurentis 302"); see also 1131-FD-302 of John Reiff (Nov. 5, 2007), at 8, Addendum Exhibit (hereinafter "Reiff 302-1"). Because DRT did not want it to be obvious o anyone that the conspirators had rigged the auction, one of the DRT members called Nusbaum to tell him DRT planned to put in cover bids for liens allocated to the Nusbaum/Stollof and Berman groups. Turer 302 at 15; see also Reiff 302-1 at 9. DDT told Nusbaum the range of the bid prices it intended to submit as cover bids. Turcr 302 at 15. "Nusbaum told [DRTJ bids in that range were fine." Id. Baltimore City, in 2006 and 2007, was the only jurisdiction to hold on-line auctions. During the rigged Baltimore City on-line auction in 2006, Berman was not present, so Nusbaum bid for Berman's company that year. Berman 302-1 at 16. During the meeting to rig the Prince George's County sealed bid auctions in 2007, Nusbaum divided the liens among the conspirators and the amount of cash that would need to be paid to the auctioning governments. FBI FD-302 Steven Berman (Nov. 9, 2007), at 6, Addendum J (hereinafter "Berman 302-2"). Defendant was actively involved in reaching the agreements to rig all of the auctions that were part of the conspiracy and actively participated in implementing those agreements with respect to each and every auction rigged during the course of the six-year conspiracy. generally, See Berman 302-1; Berman 302-2; Reiff 302-1; Reiff 302-2; Turer 302; and DeLaurentis 302. -8- Case 1:09-cr-00328-JFM Document 175 Filed 04/14/10 Page 9 of 21 B. Defendant's Motive and Personal Gain Defendant participated in the conspiracy to maximize the revenue that flowed to him and his law firm (composed largely of family members) as a result of the tax lien business. According to Steve Berman, "Nusbaum .. . just wanted to make money off of the attorney fees" and interest. Berman 302-1 at 6. Nusbaum and Stollof won 14,923 liens over the course of the conspiracy.' Under Maryland law in place during most of the conspiracy period, the winner of a tax lien was entitled to recover "reasonable" attorneys fees if a homeowner did not redeem the lien on his home within six months of the tax sale. An estimated forty percent of all liens are not redeemed within six months of tax sales. Reiff Interview, at 5, Addendum Exhibit K (hereinafter "Reiff Interview"). Therefore, Nusbaum collected attorneys fees on an estimated 6,000 liens over the course of the conspiracy. Attached as Exhibit L are letters from homeowners against whom Nusbaum filed lawsuits to collect attorneys fees. Not one of those letters relates to attorneys fees under $1,000.00 and many are for $3000.00 or more. If Nusbaum collected attorneys fees of only $1,000.00 per lien--a very conservative estimate--he gained a minimum of $6 million in attorneys fees over the course of this six-year conspiracy from homeowners whose tax liens he and his partner won as a result of rigged auctions. Not satisfied with that, more than one source has informed the United States that Nusbaum sought to enhance those fees by refusing to return calls from homeowners in time to allow homeowners to redeem their liens within six months, a period during which attorneys fees are limited to only $400 so the homeowners would be required to pay him perhaps This number of liens actually understates the number of liens they held as a result of the conspiracy because it does not include liens assigned to Nusbaum/Stollof LLCs by other conspiracy member, as in the case of the 2004 Montgomery County auction. -9- Case 1:09-cr-00328-JFM Document 175 Filed 04/14/10 Page 10 of 21 thousands of dollars more under the -reasonable" attorneys fces standard. and Addendum Exhibit M at 5-6. See Berman 302-2 at 4 Defendant also earned income as a result of his collusion from statutory interest he earned on liens acquired through rigged auctions and profits on the sale of foreclosed property. During the course of the conspiracy, defendant and his partner earned over $1.5 million from statutory interest on rigged tax liens acquired in the jurisdictions wherc he and his co-conspirators colluded. 5 Defendant foreclosed on at least nine properties acquired in rigged auctions and sold eight of these properties for $247,902.17 more than he bid for them.' 13y way of example, defendant foreclosed on a property obtained as a result of the collusion located at 818 Academy Lane, Owings Mills, Maryland. Defendant's company paid $120,000 for the tax lien, but sold the property after foreclosure for $231,218.76--a gain of $111,218.76. In summary, defendant was integrally involved in all aspects of the conspiracy. His motive was to make money for himself and his law firm through attorneys fees, interest payments and foreclosure profits. He clearly did benefit financially in those ways. IV. VICTIM IMPACT At the sentencing hearing, one victim from each of the following classes of persons victimized by defendant's crime is expected to testify: (1) the municipality and counties that held 5 This figure does not include the interest from the 2002 Baltimore City rigged auctions, for which the United States does not possess data. The $1.5 million figure is based on tax forms for defendant's companies that bid in the rigged auctions. Moreover, defendant's companies have continued to receive interest payments after defendant's indictment about which the United States has no information. 6 No information concerning the ninth property was produced in discovery to the United States. Furthermore, any discovery by the United States ceased prior to defendant's indictment in June 2009. There may have been additional foreclosures unknown to the United States. -10- Case 1:09-cr-00328-JFM Document 175 Filed 04/14/10 Page 11 of 21 the tax lien auctions that were rigved; and (2) owners of the properties for which a tax lien was won in the rigged auctions by defendant and his co-conspirators and upon which title to the property was taken through foreclosure. The victims in the first class include, among others, Baltimore City. Baltimore County, Anne Arundel County, Baltimore County. Montgomery County and Prince George's County. A representative of Baltimore City held the largest tax lien auctions in the state of Ma land will testify. the jurisdiction that Baltimore City and the other governments were injured in several ways. First, the conspiracy was designed, among other things, to reduce the amount paid by the conspirators to the auctioning jurisdiction as the winning bidder for a tax lien. The money received for tax liens sold at auction is invested, and the money earned on it is used for municipal or county services. As a result, by reducing the money received at auction for tax liens sold, the municipality has less money for services for its residents. Second, an auctioning jurisdiction has an interest in having a competitive tax sale and assumes it receives competitive bids. This interest is harmed by collusion. Third, an auctioning jurisdiction has an interest in seeing that its property owners receive the amount to which they are fairly entitled if their properly is foreclosed. If collusion reduces the amount bid on properties that go into foreclosure, the properly owners receive less than they should have at the end of the foreclosure process. A homeowner victim who lost her home to defendant and his co-conspirators will also testify. Even though the attorneys fees that homeowners were required to pay to keep their homes were not determined by the amount bid in the rigged auctions, the plight of the homeowners caught up in this conspiracy deserves consideration. Take, for example, homeowner Kevin Case 1:09-cr-00328-JFM Document 175 Filed 04/14/10 Page 12 of 21 Shoop. against whoni Nusbaum's office filed suit to collect on a tax lien from one of the rigged auctions. In his letter to the Court handling the proceeding against his home, Shoop says he learned that the attorneys fees being demanded were over $4000.00. When he contacted the law office to find out if anything could be worked out, he was told "You will pay." Exhibit L. The debts upon which the liens were based typically were for much less than the legal fees demanded by Nusbaum. Consider Craig Beasley, sued by Nusbaum's firm over a $400 tax lien of which he had received no notice and for which he had to pay $4000.00 in attorneys and other fees to recover his home. Exhibit L. Moreover, Nusbaum rarely, if ever, provided an itemized statement in support of the fees or receipts. For example, Laurie Gross owed $199.57 in taxes, but Nusbaum demanded $3972.00 in fees to avoid foreclosure. Exhibit L, Answer/Petition To Redeem The Property Known As 5500 Friendship Boulevard, Unit 408P T il l 1, 12-13, 2004 Montgomery LLC v. Laurie H. Gross, Case No. 261023-V, Circuit Court for Montgomery County, Maryland. Nusbaum refused to provide receipts or an itemized bill in support of those fees, claiming that such information was "work product." Id. As reflected in Exhibit L. there are many similar examples of homeowners from whom Nusbaum demanded large fees on relatively small debts. Such homeowners, many of whom had no idea that they owed taxes or water bills, did not object to paying their debt when they learned of it. They could hardly afford to pay attorneys fees sometimes 1000 percent more than their debts into the pocket of defendant only because he won the right to collect those attorneys fees in rigged tax lien auctions.' In December 2007, Judge Cannon issued an opinion limiting the amount attorneys could charge for legal fees and requiring additional documentation of those fees with respect to Baltimore City liens. In re Attorney's fees in Tax Sales Foreclosures, In The Circuit Court For Baltimore City, Case No. 24-C-03-3443 (December 11, 2007). In addition, in 2008, the Maryland legislature set new limits on attorneys fees. Maryland Code at Tax Property, Title 14 -12- Case 1:09-cr-00328-JFM Document 175 Filed 04/14/10 Page 13 of 21 V. A SENTENCE OF INCARCERATION OF EIGHTEEN MONTHS IS APPROPRIATE Defendant agrees that the application of the Sentencing Guidelinesresults in an offense level of seventeen. (Plea Agreement lj 8(f).) Defendant further agrees that there exist no aggravating or mitigating circumstances of any kind, or to a degree, not adequately taken into consideration by the Sentencing Commission in formulating the Guidelines to justify a departure under U.S.S.G. ?85H1.4/5K2.0. (Plea Agreement II 8(g).) The United States does not oppose a two-level reduction in defendant's adjusted offense level, based upon defendant's acceptance of responsibility. (Plea Agreement 9.) The appropriate total offense level, therefore, is fifteen and the appropriate sentence for this defendant, based on all thosc factors, is a period of incarceration at the bottom of the applicable Guidelines range of eighteen months. A. The Fourth Circuit Requires An Ordinary White Collar Criminal Such as Defendant to Be Sentenced in Accordance with the Guidelines In imposing a sentence. the Court must impose a substantively reasonable sentence based on an individualized assessment of the particular facts of the case. United States v. Carter, 564 F.3d 325, 328 (4th Cir. 2009). This assessment includes a review of the relevant factors of 18 U.S.C. ? 3553(a). The Fourth Circuit has made clear that it would be inappropriate to grant this typical white collar defendant a sentence of probation because there are no unusual circumstances that distinguish this defendant from any other defendant convicted of various white collar offenses, including antitrust violations. The facts of this case and the characteristics of this defendant are merely run-of-the-mill. Accordingly, a Guidelines sentence of eighteen months of incarceration and a fine of $800,000 is most appropriate. Procedure, Chapter 8 Collection (? 14-843). -13- Case 1:09-cr-00328-JF Document 175 Filed 04/14/10 Page 14 of 21 In United States v. Morace, 594 F.3d 340 (4111 Cir. 2010), the Fourth Circuit reversed a sentence of probation for a defendant convicted of child pornography whose advisory Guideline range was 41-51 months, noting that commonplace circumstances, such as the defendant's status as a first-time offender, his honorable military discharge, his efforts at rehabilitation, and his enrollment in college were not so unusual, without some adequate explanation, as to warrant a downward variance in light of the applicable policy statements condemning child pornography offenses. Likewise, in United States v. Engle, 592 F.3d 495 (4th Cir. 2010), the Fourth Circuit reversed a sentence of probation for a "mine run," or run-of-the-mill, tax cheat, whose advisory Guideline range was 24-30 months. In doing so, the Court specifically noted the Sentencing Commission's policy guidance to impose jail terms for the commission of economic crimes, including fraud. U.S.S.G. Ch. 1, Pt. A, introductory cot. 4(d) ("Under pre-guidelines sentencing practice, courts sentenced to probation an inappropriately high percentage of offenders guilty of certain economic crimes, such as theft . .. fraud, and embezzlement."). In reversing the probationary sentence, the Court of Appeals repeated with approval the Commission's belief that "there must be a real risk of incarceration for the Guidelines to have a significant deterrent effect." Engle, 592 F.3d ut 501-02; see also U.S.S.G. Ch. 1, Pt. A, introductory cmt. 4(d) ("The Commission concluded that the definite prospect of prison .. will serve as a significant deterrent."). In this case, as in Engle, the offense committed by defendant must be considered serious and warrants the imposition of a term of imprisonment. Bid rigging is typically a clandestine effort made to line the pockets of unscrupulous businessmen at the expense of unsuspecting consumers--in this case, at the expense of homeowners and county and city governments. In principle, bid rigging is no different from any -14- Case 1:09-cr-00328-JFM Document 175 Filed 04/ 4 0 Page 15 of 21 other common theft of money or property. It is criminal fraud, pure and simple. Because it has such a pernicious effect on competition, it is conclusively presumed to be unreasonable and illegal without inquiry as to the precise harm it causes or, indeed, whether it has in fact caused any harm at all, N. Pac. R.R. Co. v. United States, 356 U.S. 1, 5 (1958); United States v. SoconyVacuum Oil Co., 310 U.S. 150, 222-23 (1940); United States v. Portsmouth Paving Corp., 694 F.2d 312, 317 (4th Cir. 1982). Nothing about this defendant sets him far enough apart from the typical white collar defendant so as to impose a variant sentence. That the defendant was a successful businessman with a solid upbringing and secure financial condition, who knew that he was dividing up liens with competitors in order to make more money, makes these offenses particularly egregious and aggravates, not mitigates, his criminal culpability. That he is an attorney and a former Internal Revenue Service agent only further aggravates the seriousness of his actions. The typical bid rigger or price fixer is often a well-respected and powerful businessperson with an otherwise exemplary record. Many come from positions of responsibility and trust in their communities. These individuals take advantage of their positions of responsibility and privilege to engage in calculated illegal conduct. And, unlike a criminal who acts out of desperation resulting from deprivation, poverty or addiction, the antitrust offender often acts out of greed, having coldly calculated the potential benefits of his crime. As set forth in Engle and Morace, factors attributable to most white collar defendants, such as "carrying a burden of guilt," "the humiliation and degradation of character following indictment and prosecution," and being a "convicted felon," with the attendant loss of valuable civil rights, are improper considerations on which to predicate a variance. Instead, these are -15- Case 1:09-cr-00328-JFM Document 175 Filed O4/14 Page 16 of 21 /1O typical considerations already taken into account by the Guidelines. Engle, 592 F.3d at 502 (quoting United States v. Kimbrough, 552 U.S. 85, 109 (2007)) (explaining closer appellate review -may be in order" when a non-Guidelines sentence is imposed on a mine run defendant). The late Judge J. Skelly Wright made a similar observation regarding income tax violators in stressing the need for incarceration to deter other would-be white collar criminals: We are usually dealing with an outstanding leader in the community, a pillar of the church sometimes. A leader in civic affairs, or political affairs--a man who doesn't need to go to jail. He has been punished enough. The very publicity of his offense has ruined him, has broken him. Consequently, no jail sentence can add to that punishment to any degree. So we say then, why send such a man to jail? And 1 say to you the answer is that the only real purpose of an income tax sentence is its deterrent value. Unless we use the income tax sentence as a deterrent, we are overlooking one of our responsibilities as judges. . . .And I suggest to you that the highest responsibility of the Judge in sentencing income tax offenders is not to think of the offender himself, particularly, but to think of the purpose for which the income tax law was passed, and why it was made a criminal offense. Wright, Sentencing the Income Tax Violator: Statement of the Basic Problem, 30 F.R.D. 185, 303-306 (1962). Judge Wright's conclusion applies with equal force to the case of this defendant. B. Expressions By Congress And The Clear Language Of The Sentencing Guidelines Would Send This Defendant To Jail Both Congress and the Sentencing Commission have recognized the seriousness of antitrust violations and the need for courts to impose jail sentences on those convicted of antitrust crimes in order to provide sufficient deterrence to others from such conduct. As such, in 2004, Congress enacted the Antitrust Criminal Penalty Enhancement And Reform Act of 2004, 2004 HR. 1086, 108th Cong. (2nd Sess. 2004) ("2004 Act"), which increased the maximum jail time for antitrust offenders from three to ten years in recognition of the seriousness of the offense. -16- Case 1:09-cr-00328-JFM Document 175 Filed 04/14/10 Page 17 of 21 Chairman Sensenbrenner of the House Judiciary Committee stated at the time of the final House passage of the 2004 Act, that the increased penalty provisions "send an unmistakable message to those who consider violating the antitrust laws that if they are caught they will spend much more time considering the consequences of their actions within the confinement of their prison cells." 150 Cong. Rec. H3657 (daily ed. June 2, 2004). The Sentencing Commission similarly concluded that antitrust offenders should serve time in jail. Specifically, Commentary Note Five to U.S.S.G. ?2R1.1 states that "Hit is the intent of the commission that alternatives such as community confinement not be used to avoid imprisonment of antitrust offenders." The Sentencing Commission has also recognized that a term of incarceration for defendants charged with antitrust crimes should be typical, since "in very few cases will the guidelines not require that some confinement be imposed." See U.S.S.G. ?2R1.1 cmt. background. In fact, one court of appeals concluded that a district court abused its discretion when it imposed a non-jail sentence on a defendant who pled guilty to antitrust crimes based, in part, on the fact that the District Court failed to take into account the relevant policy statement, noting that "Nile Guidelines reflect a considered determination by the Commission that jail terms are the most effective deterrent for antitrust violations." United States v. Rattoballi, 452 F.3d 127, 135 (2d Cir. 2006). The deterrent value of sentencing this defendant to an eighteen-month prison sentence cannot be overstated. Defendant's sentence will serve not only as a benchmark for others sentenced in this investigation; it will also be particularly important to send a message of deterrence to others who may think of rigging tax lien auctions. Tax lien auctions are held by an estimated thousands of municipal and county governments all across the United States. Other -17- Case 1:09-cr-00328-JFM Document 175 Filed 04/ 4 0 Page 18 of 21 bidders considering rigging tax lien auction bids elsewhere need to get the message that such crimes will not be tolerated and will require them to pay a high personal price. And instead of this price being paid solely by monetary means. something bid rigging defendants who reap the rewards of their crime often have in abundance! other potential criminals need to realize that they will have to spend time behind bars. As former Assistant Attorney General in charge of the Antitrust Division J. Paul McGrath explained: I think it is important to recognize that, indeed, antitrust felons do steal money from the American public as realistically as do robbers. They ought to go to jail. And, if they don't we are very concerned as to the deterrent negative. We regard jail sentences and publicity about jail sentences as the strongest deterrent there is to price fixing. For that reason, the imposition of jail sentences is very important. J. Paul McGrath, Assistant Attorney General, U.S. Dcp't ofJustice, Antitrust Division, Remarks before the American Bar Association Section of Antitrust Law, Washington, D.C. (March 23, 1984). C. The Need for Unwarranted Sentencing Disparities Under 18 U.S.C. ? 3553(a) Requires a Term of Imprisonment of Eighteen Months, Not Probation Here, a Guidelines sentence of imprisonment for eighteen months will avoid unwarranted sentencing disparities. The United States has reviewed those sentences imposed on defendants who pleaded guilty to bid rigging and who were sentenced after both the 2004 Act became law and the Sentencing Guidelines were changed to reflect the higher jail sentences authorized by the 2004 Act. Of these, six sentences involved defendants who pleaded guilty to rigging bids, but were not charged with any other crimes in addition to bid rigging, whose conduct affected a Defendant, for example, has agreed to pay a fine of $800,000, a small price indeed compared to his personal net worth of nearly four million dollars, which is only a portion of the millions he earned from interest payments, profits on foreclosures and from legal fees on liens won during rigged auctions. -18- Case 1:09-cr-00328-JFM Document 175 Filed 04/14/10 Page 19 of 21 similar volume of commerce as did defendant in the instant ease. 9 All of these defendants were sentenced to a term of imprisonment, ranging from 366 days to twenty-four months. An eighteen month sentence is perfectly in line with these sentences, particularly considering the fact that all of the above defendants received credit for cooperation in those cases, which the defendant in this case will not, and were foreign nationals who voluntarily surrendered to the jurisdiction of U.S. courts. 9 United States v. Christian Caleca, Crim. No. 07-6026999-CR-KAM (S.D. Fl.) (425 days in jail); United States v. Jacques Cognard, Crim, No. 07-60269-CR-KAM (S.D. Fl.) (425 days in jail); United States v. Bryan Allison, Crim. No. H-07-487-01, (S.D. Tx.)(730 days in jail); United States v. David Brammar, Crim. No. H-07-487-02 (S.D. Tx.) (605 days in jail); United States v. Charles J. Gillespie, Crim. No. 4:08-CR-00234 (S.D. Tx) (366 days in jail); and United States v. Robert L. Furness, (S.D. Fl.) (366 days in jail). Allison and Brammar are UK citizens who agreed to subject themselves to the jurisdiction of courts in the United States and would not otherwise have been subject to jurisdiction in this country. Allison and Brammar's plea agreement provided that they could serve their prison time in the United Kingdom ("UK"), rather than in the United States, as long as UK courts sentenced them to a term of imprisonment at least as long as the term of imprisonment recommended by the United States in its plea agreement. They were, in fact, sentenced by UK courts to the same terms of imprisonment as recommended in the U.S. plea agreements. -19- Case 1:09-cr-00328-JFM Document 175 Filed 04/14/10 Page 20 of 21 CONCLUSION For all the foregoing reasons, the United States requests that the Court sentence defendant Harvey M. Nusbaum to eighteen months in prison. The United States also recommends. jointly with the defendant, that he be sentenccd to a fine of $800,000.00, payable in installments, as set out in the Plea Agreement. Respectfully submitted, /s/ Nancy H. McMillen NANCY H. MCMILLEN Mark C. Grundvig Matthew J. Bester Trial Attorneys, Antitrust Division U.S. Department of Justice 450 5th Street, N.W., Suite 11300 Washington, D.C. 20530 Telephone: (202) 307-5777 Facsimile: (202) 514-6525 E'o`aLnoncy.nocmiDcn@b/xdoj.gov Case 1:09-cr-00328-JFM Document 175 Filed 04/14/10 Page 21 of 21 CERTIFICATE OF SERVICE 1 hereby certify that on this 14th day of April, 2010, the foregoing UNITED STATES'S SENTENCING MEMORANDUM WITH RESPECT TO HARVEY M. NUSBAUM was served via CM/ECF on counsel for defendant I larvey M. Nusbaum. /s/ Nancy H. McMillen NANCY H. MCMILLEN Mark C. Grundvig Matthew J. Bester Trial Attorneys, Antitrust Division U.S. Department of Justice 450 5th Street, N.W., Suite 11300 Washington, D.C. 20530 Telephone: (202) 307-5777 Facsimile: (202) 514-6525 Email: nancy.memillen@usdoj.gov ADDENDUM EXHIBIT A IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND UNITED STATES OF AMERICA CRIMINAL NO. A/M-09-0328 v. JACK W. STOLLOF Defendant. DECLARATION OF JOHN REIFF 1. My name is John Reiff. I am a partner in DRT Fund LLC (DRT). At the time of the events in question, DRT was composed of myself, Richard Turer, and Anthony DeLaurentis. 2. Beginning during the Baltimore City auction in 2003 and continuing until so etime before the Anne Arundel auction in 2007, Richard Turer, Anthony DeLaurentis and I participated in an agreement with Jack W. Stollof, his business partner Harvey Nusbaum, and others, the primary purpose of which was to suppress competition for tax liens by refraining from full competitive bidding at certain public auctions for tax liens conducted by a municipality and certain counties within the State of Maryland. During the conspiracy period, DRT bid on behalf of several companies, including DRT, Heartwood 88 LLC, Sunrise Atlantic LLC, and Mooring Asset Group LLC, among others. 3 The conspiracy worked by allocating tax liens or groups of tax liens among the three groups of conspirators. The three groups were: the Nusbaum and Stollof group; Steve Beiman; and DRT. The group that was allocated a specific lien or group of liens bid on that lien or group of liens and the other two groups either refrained from bidding or submitted an intentionally low bid designed not to win the bid. I referred to such an intentionally low bid as a cover bid. 4. Although a large number of bidders participated in tax lien auctions in Maryland, during most of the period 2003 through 2007 in the auctions in which DRT agreed with Stollof and others, only a handful of other bidders were in a position to bid on and win large numbers of lines. Over most of the conspiracy period, the tax lien auctions in Baltimore City, Baltimore County, Anne Arundel County, Montgomery County and Prince George=s County were largely dominated by companies owned by Stollof and his business partner, companies owned by Steve Berman and, companies for which DRT did the bidding. These were the major groups with access to sufficient financial resources to pay the high bid premiums needed to pay for large numbers of liens won at the auctions and that were affiliated with local attorneys. Because the amount of the high bid premium due on a tax lien typically dwarfs the amount of taxes owed on that property, access to financial resources is very important. Affiliation with a local attorney penilits the high bidder to generate income in the foim of legal fees in the course of filing legal actions to foreclose the property owner's right of redemption. 5. The primary aims of the conspiracy were to: (a) reduce the amount bid on the tax lien or group of tax liens and therefore reduce; (1) the amount of the high bid premium that had to be paid up-front to the auctioning jurisdictions, and thereby reduce the cost of 2 financing tax lien purchases; (2) the amount that would have to be paid to a homeowner of a property actually foreclosed upon; and (b) help assure that each group in the agreement would win a large number of tax liens upon which the conspirators could collect during the redemption processE (1) interest on tax liens at the statutory rate of between 12 and 20 percent; (2) attorneys fees and other fees such as title fees. Attorneys fees can run to thousands of dollars per lien and are not dependent on the amount of taxes or other fees owed by the homeowner. The attorneys fees collected by Nusbaum were generally higher than the fees my firm collected at the same time. 6. 1 never told Jack Stollof or said in his presence that what we were doing with regard to allocating our bids in the tax lien auctions was legal. I affirm under penalty of peijury under the law of the United States of America that to the best of my knowledge the foregoing is true and correct. Sworn to before me this 17th day of March, 2010. , r 44-it_J AitAl" a/14/ NOTARY PUBLIC I ANESSA DANtELS Not'iry Public o Maryland City of Baltimore My ..ommission Expires on September 8, 2013 EXHIBIT U.S. Department ofiustice An ust Lr berry Square Building 450 5th Sfreet, NW Washington, DC 25001 july 14, 2009 HAND DELIVERY Paul Mark Sandler, Esq. Matthew Esworthy, Esq. Shapiro, Sher, Guinot & Sandler, P.A. 36 South Charles Street Suite 2000 Baltimore, MD 21201 Re: Information Voluntarily Provided By the United States in the Case of United States v. Nusbaum, Criminal No. JFM-09-0328 Dear Mr. Sandler: The United States voluntarily provides the following information in connection with the above-named case: 2 The auctions for tax liens conducted by a municipality and various counties within the District of Maryland referred to in Paragraph 2 of the Indictment are the annual tax lien auctions conducted b y the followin.:. Hrisdictions in the specified years: 2004-2007 Anne Arundel County; 2002-2003, 2005-2007 Baltimore City; 2004-2007 Baltimore County; 2007 Howard County; 2004-2007 Montgomery County; and 2005-2007 Prince George's County. Very truly yours, ancy H. McMillen Trial Attorney National Criminal Enforcement Section Antitrust Division U. S. Department of Justice 7