Court filing
Transcript of Motion Hearing as to Eric Dean Sheppard held on 04/08/2024 — USA v. Sheppard (Dkt. 302, S.D. Fla.)
Filed October 23, 2024 in USA v. Sheppard; one of 253 filings from this case.
Record facts
| Court | U.S. District Court for the Southern District of Florida |
|---|---|
| Filed | 2024-10-23 |
U.S. District Court for the Southern District of Florida · No. 1:22-cr-20290-BB · Doc. 302 · 2024-10-23 · Docket on CourtListener
Full text
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Yvette Hernandez, Official Court Reporter
400 North Miami Avenue, 10-2
Miami, Florida 33128
(305) 523-5698
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF FLORIDA
MIAMI DIVISION
CASE NO. 1:22-cr-20290-BB-1
UNITED STATES OF AMERICA,
Plaintiff,
April 8, 2024
9:06 a.m.
vs.
ERIC DEAN SHEPPARD,
Defendant.
Pages 1 THROUGH 59
______________________________________________________________
TRANSCRIPT OF MOTION HEARING
BEFORE THE HONORABLE BETH BLOOM
UNITED STATES DISTRICT JUDGE
Appearances:
FOR THE GOVERNMENT: UNITED STATES ATTORNEY'S OFFICE
AIMEE C. JIMENEZ, AUSA
ANA MARIA MARTINEZ, AUSA
99 Northeast 4th Street
Miami, Florida 33132
FOR THE DEFENDANT: BLACK SREBNICK, PA
HOWARD M. SREBNICK, ESQ.
201 South Biscyane Boulevard, Suite 1300
Miami, Florida 33131
SALE & WEINTRAUB, PA
JAYNE C. WEINTRAUB, ESQ.
2 South Biscayne Boulevard, 21st Floor
Miami, Florida 33131
NELSON MULLINS
JONATHAN ETRA, ESQ.
CHRISTOPHER C. CAVALLO, ESQ.
2 South Biscayne Boulevard, 21st Floor
Miami, Florida 33131
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Yvette Hernandez, Official Court Reporter
400 North Miami Avenue, 10-2
Miami, Florida 33128
(305) 523-5698
APPEARANCES CONTINUED:
FOR THE DEFENDANT:
O'MELVENY
JASON ZARROW, ESQ.
JEFFREY L. FISHER, ESQ. (via Zoom)
400 South Hope Street, 18th Floor
Los Angeles, California 90071
COURT REPORTER: Yvette Hernandez
U.S. District Court
400 North Miami Avenue, Room 10-2
Miami, Florida 33128
yvette_hernandez@flsd.uscourts.gov
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Yvette Hernandez, Official Court Reporter
400 North Miami Avenue, 10-2
Miami, Florida 33128
(305) 523-5698
(Call to order of the Court, 9:06 a.m.)
COURTROOM DEPUTY: Calling Criminal Case Number
22-20290, United States of America v. Eric Dean Sheppard.
Counsel, please state your appearances for the record.
MS. JIMENEZ: Good morning, Your Honor. Aimee Jimenez
on behalf of the United States.
MS. MARTINEZ: Annie Martinez on behalf of the United
States. Good morning, Your Honor.
THE COURT: Good morning.
MS. WEINTRAUB: Good morning, Your Honor. Jayne
Weintraub on behalf of Eric Sheppard. Along with me,
co-counsel Jonathan Etra, who you know; Jason Zarrow, who is
here from O'Melveny Myers from Los Angeles; Chris Cavallo;
Howard Srebnick, and our client is present before the Court --
oh. And I apologize -- and Jeff Fisher is as well -- same
firm. He is on Zoom.
THE COURT: All right. Good morning to each of you.
Who is going to be presenting the arguments on behalf
of the Defendant?
MR. ZARROW: I will be, Your Honor.
MS. WEINTRAUB: Mr. Zarrow.
THE COURT: All right. Thank you, sir.
MS. WEINTRAUB: As well as Mr. Fisher.
THE COURT: I'm sorry. So there will be two
individuals?
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Yvette Hernandez, Official Court Reporter
400 North Miami Avenue, 10-2
Miami, Florida 33128
(305) 523-5698
MR. ZARROW: No, Your Honor. Just me.
THE COURT: All right, then.
And on behalf of the Government?
MS. JIMENEZ: Myself, Your Honor.
THE COURT: All right. Thank you.
Before the Court for hearing are two separate motions,
both filed by the Defendant, docket Entry 204, the Defendant's
Motion for a New Trial, and Docket Entry 205, the Defendant's
Motion for Judgment of Acquittal. I'm not certain how you
would like to divide the argument by way of the motions, but I
have reserved an hour for the hearing. So I would suggest that
you use the available time.
MR. ZARROW: Your Honor, thank you.
We'd like to focus today on the acquittal motion. If
you have questions on the new trial motion, of course we'll
answer them, but otherwise I'd like to spend my time on the
Rule 29. And I defer to you, of course, on how you'd like to
structure the argument.
I have three points today. I think it might be more
convenient for everyone if I make a point, the Government
responds to that first point, and then I reply, and then the
same thing for the second point, and then the third point. Two
of them relate to the Dubin case, and then one is about the
wire fraud convictions.
THE COURT: Yeah. What I would suggest -- and I want
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Yvette Hernandez, Official Court Reporter
400 North Miami Avenue, 10-2
Miami, Florida 33128
(305) 523-5698
to make sure -- it's Mr. Zarrow? Yes?
MR. ZARROW: Zarrow.
THE COURT: Zarrow.
Mr. Zarrow, what I would request is, rather than going
back and forth, if you want to focus on the Motion for Judgment
of Acquittal, then I would suggest that you make argument with
regard to the wire fraud, the traditional property interest,
the focus on the Ciminelli case, and also focus on the Dubin
case and the issue with regard to Dubin and at the crux of
criminality. Because what I'm trying to avoid is just a going
back and forth. Obviously, the Government will have an
opportunity to respond to each of your arguments, and I'm
certainly going to give you the opportunity to rebut that
response.
MR. ZARROW: Sure. Thank you.
Good morning. May it please the Court. Jason Zarrow
on behalf of Eric Sheppard.
As I said, I'd like to spend my time today on three
issues. I'll actually start --
(Court reporter interruption.)
MR. ZARROW: Sorry.
Good morning. May it please the Court. Jason Zarrow
on behalf of Eric Dean Sheppard.
I'd like to spend my time today on three issues. Two
of them relate to the Dubin case. One of them relates to the
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Yvette Hernandez, Official Court Reporter
400 North Miami Avenue, 10-2
Miami, Florida 33128
(305) 523-5698
wire fraud convictions. I'll start with the Dubin argument.
And the first argument accepts everything the Government has
said in its opposition brief as true and demonstrates that
Mr. Sheppard is not guilty of aggravated identity theft under
the Supreme Court's decision in Dubin.
So what does Dubin say? Dubin says: "A defendant
uses another person's means of identification in relation to a
predicate offense when this use is at the crux of what makes
the underlying conduct criminal." That's at Pages 131 and 132.
THE COURT: When the use of the means of
identification...
MR. ZARROW: Correct.
THE COURT: Right. So in this case, I just want to
understand that the argument is -- on the part of the
Government, and certainly as the Court stated in the Fullerton
case -- and I understand that with regard to the Fullerton case
that that is a district court in Texas. Although certainly it
recognizes the Gladden case, and obviously we're going to focus
on the Eleventh Circuit. But I want to focus on that specific
issue with regard to what the Government's claim is.
The Government's claim is that Mr. Sheppard forged
Cupersmith's signature on this 1065 in order to lend
credibility and reliability to the tax returns, so that the
Defendant's application could receive less scrutiny by the
lenders. Is that -- in sum and substance, that's what they're
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Yvette Hernandez, Official Court Reporter
400 North Miami Avenue, 10-2
Miami, Florida 33128
(305) 523-5698
arguing.
MR. ZARROW: That's what I understand their argument
to be, and that's why I think that the convictions must be
vacated. Because lending credibility to a fraud is, by
definition, just semantically and linguistically not at the
crux of the fraud for the reasons we state, citing many
dictionary definitions in the Dubin case in our reply brief;
something that lends credibility to the fraud, might facilitate
a fraud, might move the fraud along, might make it easier for
the loan applications to be approved. But that is
definitionally different than being at the crux of the fraud.
And what Dubin says is that the crux of the fraud is
what makes the underlying conduct fraudulent. And this Court
has already said in its January 5th order that what makes the
underlying fraud fraudulent is misrepresentations about the
nature of Mr. Sheppard's businesses, not misrepresentations
about anybody's identity. So I think, when you state the
Government's argument like that, that is our case for why the
convictions must be vacated.
THE COURT: But do you see a difference, Mr. Zarrow,
between an overbilling, which is what Justice Sotomayor
observed, and she focused on not the "who," but she focused on
the "what" and the "when" -- but in terms of an overbilling
versus the use of a tax return and a CPA's name on that tax
return?
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Yvette Hernandez, Official Court Reporter
400 North Miami Avenue, 10-2
Miami, Florida 33128
(305) 523-5698
MR. ZARROW: Yes. But I don't think the difference is
material to this case. And I think this goes to the heart of
the problem with the Government's argument, which is that they
are confusing necessary and sufficient conditions for there to
be aggravated identity theft under Dubin.
So what Dubin says is you need two things -- two
different things for there to be a conviction for aggravated
identity theft. You need a use that is deceptive, and that
deceptive use must be at the crux of the fraud. The
Government's position in this case is that you only need the
first thing; you only need a deceptive use. But that, of
course, writes out of Dubin the at the crux of the fraud
element. The deceptive use needs to be at the crux of the
fraud.
And so what I think the Government is saying in this
case -- if we want to put this in terms of the statutory title
or really just a shorthand, the Government is saying it is
sufficient to convict somebody of aggravated identity theft
under Section 1028A when you have ordinary identity theft. But
the statute, of course, punishes aggravated identity theft.
And Dubin says aggravated identity theft is ordinary identity
theft, plus, it must be at the crux of the underlying
fraudulent scheme.
And so I think a really easy way to sum this up is
there must be ordinary identity theft to commit aggravated
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Yvette Hernandez, Official Court Reporter
400 North Miami Avenue, 10-2
Miami, Florida 33128
(305) 523-5698
identity theft. That's the necessary condition. But it
doesn't mean that every ordinary identity theft is also
aggravated identity theft. You need something more. And
what's lacking in this case is that something more.
In the Dubin case, what you had was there was no
forgery -- no forgery that was at the crux of the fraud. In
this case, what you're missing is the nexus, the relationship
between the use or alleged misuse of Mr. Cupersmith's identity
and what made the underlying conduct fraudulent. And the
reason I put emphasis on that last phrase is I think it's
really important in Dubin that what you're looking at is the
relationship between the use or misuse of the ID and what made
the underlying conduct fraud. And this Court has already
said -- and I think the Government will have to agree -- that
what made the underlying conduct fraudulent were
misrepresentations about the nature of Mr. Sheppard's
businesses, not misrepresentations about Mr. Cupersmith's
identity.
THE COURT: So if we look specifically at the
exhibit -- that is, the 1065 -- it's the amount that was paid
to the employees that is at the crux of the criminality,
correct?
MR. ZARROW: Correct. Correct.
THE COURT: So I'm trying to wrestle with that
argument. Because if, in fact, the Court accepts this
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Yvette Hernandez, Official Court Reporter
400 North Miami Avenue, 10-2
Miami, Florida 33128
(305) 523-5698
interpretation, any time that a defendant files a tax return
claiming an overpayment, where the underlying criminality is
the theft of those funds -- right -- that individual is
entitled to an overpayment -- and uses the accountant's name
and that accountant's PTIN, that doesn't constitute aggravated
identity theft?
MR. ZARROW: So I think a tax case might actually be
different because there might be a tighter nexus between an
accountant's name and a tax fraud, when what matters is you're
substantiating the amount owed or --
THE COURT: But isn't that what this, in essence, is?
It's -- the applications are an amalgamation of all these
documents, including what's required, which is the 1065, that
is the partnership income.
MR. ZARROW: No, Your Honor. And the second point is,
I think it would matter how the Government, in a tax case like
that, presents its case. If the Government wants to say to the
jury: "You should convict this person of tax fraud because
they misrepresented who the tax preparer was" -- if that's the
Government's case -- what's at the crux of the Government's
case -- I think maybe, maybe you would have aggravated identity
theft under Dubin.
But this case is certainly one step removed, because I
don't even think -- I'm fairly certain, in fact, in this case
that the Government is not claiming that at the crux of the
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Yvette Hernandez, Official Court Reporter
400 North Miami Avenue, 10-2
Miami, Florida 33128
(305) 523-5698
fraud were misrepresentations -- what made the underlying
conduct fraudulent were misrepresentations about Cupersmith's
name. They said to the jury -- I think you've identified it --
that the point of this was to move the fraud along, to lend
credibility to the fraud. Just definitionally that cannot be
at the crux of the fraud because at the crux of the fraud is
what made the conduct fraudulent.
THE COURT: But the focus in this case is what
Mr. Sheppard did with the means of identification, right? He
fraudulently used the name and the PTIN and the EIN, and that
was the means of identification. Isn't that the focus?
MR. ZARROW: So the focus is two things. As I said
earlier, you need a deceptive use, what you're calling a
fraudulent use, and you need a nexus to the underlying offense.
And what's missing in this case is the nexus to the underlying
offense. There is a nexus, of course. Because as the
Government says, it lent credibility to the fraud. And my
second argument is going to take issue with just the factual
support for that argument.
But accepting everything the Government says as true,
as a legal matter, that is not a sufficient nexus under Dubin
because the Government's position in this case is essentially
that facilitating a fraud -- lending credibility to a fraud, is
the same as facilitating a fraud -- is sufficient under Dubin.
And Dubin expressly says facilitating is not enough. You need
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Yvette Hernandez, Official Court Reporter
400 North Miami Avenue, 10-2
Miami, Florida 33128
(305) 523-5698
more than facilitating.
THE COURT: So let's look at the Eleventh Circuit case
law. Obviously, the Court is bound by Dubin, but the Court is
certainly equally bound by the Eleventh Circuit's
interpretation of Dubin. And in the Gladden case, the Court
drew a distinction between the two individuals, Ms. Linton and
Mr. Gladden. So can you explain the distinction and how that
supports your argument?
MR. ZARROW: Yes, Your Honor. So I think Gladden, of
course, maps on exactly to Dubin because the Eleventh Circuit
was applying Dubin. So it's the same crux of the fraud test --
COURTROOM DEPUTY: Slow down. Counsel, slow down.
MR. ZARROW: I'm sorry. I'm sorry.
The basic question that the Eleventh Circuit was
asking and was posing to district courts is: Why was the
person convicted of fraud, what was at the crux of the
underlying fraud? And with respect to the defendants who were
convicted of aggravated identity theft, and their convictions
were sustained on appeal, what was at the crux of their
underlying frauds were lies about patients' names and doctors'
names, whereas that was not at the crux of the fraud with
respect to the one person whose convictions was vacated.
And I would point the Court to Pages 1245 and 1246 of
the Gladden opinion, if you want to see the Eleventh Circuit's
verbal formulation, their gloss on Dubin's crux of the test.
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Yvette Hernandez, Official Court Reporter
400 North Miami Avenue, 10-2
Miami, Florida 33128
(305) 523-5698
And they repeat this twice, which is why you know this is
significant. I'm looking at the last paragraph -- the last
sentence of the paragraph that carries over from 1245 to 1246.
And the court says: "Because Dr. Almirol's signature on the
prescription form directly enabled" -- that's the keywords,
"directly enabled" -- "Linton to bill for the medically
unnecessary products, the means of identification specifically
was a key mover in the criminality." And "key mover," of
course, is a synonym for "at the crux" in the Dubin case.
So what the Eleventh Circuit says -- their verbal
formulation is directly enabled. And that was true of the
person who lied about the doctors and the patients because
Medicaid doesn't -- or the insurance companies don't reimburse
for prescriptions that aren't written to real people or by real
doctors.
In this case, you can map that on to the Government's
argument about lending credibility. In this case,
misrepresentations about Mr. Cupersmith's identity did not
directly enable him to get PPP funds. They maybe facilitated
him getting PPP funds, but what directly enabled him to get the
PPP funds is exactly what this Court said was at the crux of
the fraud in its earlier order; misrepresentations about having
W-2 employees, construction industry, revenue decline, things
about his business. And so I think if you look at Gladden, and
you apply the verbal formation that Gladden uses, you get to
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Yvette Hernandez, Official Court Reporter
400 North Miami Avenue, 10-2
Miami, Florida 33128
(305) 523-5698
the same result as our argument under Dubin. The same would be
true, of course, under Carter.
THE COURT: Let me ask you to square that with the
court's statement. And it actually states -- and I'm looking
now on Page 1244, where the court notes that, in Dubin, the
court clarified that: "The statute proscribes uses of a means
of identification involving fraud or deceit about identity,
thus, directs the statute's focus to offenses built around what
the defendant does with the means of identification in
particular."
So in this case, as the Court noted, didn't
Mr. Sheppard use Mr. Cupersmith's means of identification as
part of the scheme to defraud or the wire fraud?
MR. ZARROW: Well, we disagree with that factually.
But even if you accept that as true, you still have to ask: Is
it the sufficient type of relationship? Is the nexus close
enough between the underlying conduct? And both Dubin and
Gladden say that the answer to that question is no.
What you're looking for is direct enabling, to use the
language of Gladden, or at the crux of the fraud, the heart of
the fraud, the gravamen of the heart of the fraud -- you can
come up with any number of synonyms for the point. But what I
really want to focus on and draw attention to is: You need to
look at what makes the underlying conduct fraudulent. And if
the reason the underlying conduct is fraudulent is because
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Yvette Hernandez, Official Court Reporter
400 North Miami Avenue, 10-2
Miami, Florida 33128
(305) 523-5698
there was a misrepresentation about somebody's identity, then
you have aggravated identity theft. That was true in Gladden
for the two defendants whose convictions were sustained because
they lied. Their fraud -- part of their fraud was lying about
who the doctors were that wrote prescriptions or who the
patients were that received the prescriptions.
THE COURT: So the focus should be on the
misrepresentation about the identity, as opposed to the use of
the means of identification?
MR. ZARROW: So it's the relationship -- the focus
should be on the relationship between the use of the means of
identification and the underlying fraud, the reason the person
was convicted of the underlying crime. That's what Dubin says
right at the end at 130 and 132, when the court announces the
test: "Petitioner's use of the patient's name was not at the
crux of what made the underlying overbilling fraudulent."
So what the Supreme Court is looking at there is: Why
was the person guilty -- why was David Dubin guilty of
healthcare fraud and was it because of the misuse of the means
of identification? Same analysis in Gladden. But what you're
looking at is the relationship between the use of the means of
identification in the underlying crime. And the Government's
argument in this case just means, as a matter of law, that
there isn't a sufficient nexus.
The Court's January 5th order identifying what's at
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Yvette Hernandez, Official Court Reporter
400 North Miami Avenue, 10-2
Miami, Florida 33128
(305) 523-5698
the crux of the fraud means the exact same thing. Lending
credibility to a fraud is not the same thing as being at the
crux of a fraud. Those are mutually inconsistent categories --
mutually exclusive categories. And so the Government's
position in this case demonstrates why we think the convictions
must be vacated as a matter of law, accepting everything they
say about the evidence as true.
THE COURT: So what is the distinction, Mr. Zarrow,
between your argument and the Government's argument that the
Defendant's use of Mr. Cupersmith's identity was like Linton's
use in the Gladden case -- Linton's use of the doctor's
identity to claim the prescriptions were authorized by the
doctors? Here, the use of the means of identification was that
the accountant authorized, in fact, was the individual that
prepared the form. So how is there a distinction here?
MR. ZARROW: So I think that's actually very
different, and I think that points up why the convictions need
to be vacated in this case.
In the Gladden case, the use directly enabled the
person to get billing receipts from the insurance company
because insurance companies don't reimburse unless there's a
doctor who's writing a prescription. If I wrote a
prescription, no insurance company would reimburse it,
obviously. So what's at the crux -- part of what is at the
crux of the fraud in the Gladden case is a misrepresentation
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Yvette Hernandez, Official Court Reporter
400 North Miami Avenue, 10-2
Miami, Florida 33128
(305) 523-5698
about who the prescribing doctor is. That was the fraud. The
healthcare fraud was lying about who the doctor is.
In this case, as Your Honor has already noted, the
fraud isn't putting Mr. Cupersmith's name on the Form 1065 --
and I'll get to the factual component of the argument in a
second -- but even if you accept the Government's factual
recitation, the fraud was lying about the nature of
Mr. Sheppard's businesses. And that is very different than the
Gladden case, where the fraud was a lie about who somebody was.
It was a lie about who the doctor was.
And so I think that is the key difference, and you've
honed right in on it. What directly enabled Mr. Sheppard --
using the language in Gladden, what directly enabled him to get
PPP funds? According to the Government, misrepresentations
about the nature of his businesses, not misrepresentations
about anybody's identity. And I think that's it.
THE COURT: Thank you.
MR. ZARROW: If I may, I'll move on to the second part
of our Dubin argument.
THE COURT: Thank you.
MR. ZARROW: And so, Your Honor, do you mind if I just
actually grab a water cup?
THE COURT: Not at all.
(Pause in proceedings.)
MR. ZARROW: So the first argument accepted everything
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Miami, Florida 33128
(305) 523-5698
the Government has said in this case as true and explained why
just as a matter of logic, as a matter of English, lending
credibility to a fraud can't be at the crux of the fraud. It
just doesn't work.
The second argument is that, as a matter of undisputed
fact, Mr. Cupersmith's identity didn't actually lend
credibility to this fraud. And I think the first question the
Court might have is: Well, why does that matter? Why does
this factual argument matter at all? And it matters under
Dubin because on Page 131 of the Dubin opinion --
THE COURT: Hold on. Let me follow you.
Okay.
MR. ZARROW: On Page 131 of the Dubin opinion, right
before the all caps Gorsuch, J. concurring, the Supreme Court
says: "To be clear, being at the crux of the criminality
requires more than a causal relationship, such as facilitation
of the offense, or being a but-for cause of its success." And
in this case, as a matter of undisputed fact, we have no causal
relationship, no but-for cause of its success. And so under
this aspect of Dubin, the clarification of what the at the crux
of the fraud test means, and as a matter of three undisputed
facts, the conviction also needs to be vacated. Although our
opinion is you don't need to reach this question, because even
if you accept everything the Government has said, as you've
summarized their argument, it's not just aggravated identity
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400 North Miami Avenue, 10-2
Miami, Florida 33128
(305) 523-5698
theft.
So the three undisputed facts. The three undisputed
facts are: First, as Your Honor has noted, Mr. Cupersmith's
name appeared on a 1065 tax form. So the question is, in this
case: Did the tax form matter? Did Mr. Cupersmith's name
matter? And the three facts are: First, no witness with
personal knowledge testified that any of the banks reviewed,
looked at, the 1065 tax form. If nobody looked at the 1065 tax
form, then obviously they could not have looked at
Mr. Cupersmith's name on the tax form.
Second, the documentary evidence from the banks, from
the loan processors, shows what documents the banks and loan
processors looked at, and they did not look at the Form 1065.
The Form 1065 is not listed on any of the documents considered.
This is Government's Exhibit 23. And this is -- which is
Exhibit, I think, A to our Rule 29 Motion and Exhibit D to our
Rule 29 Motion with respect to the Cross River loan. So the
supporting documents, the actual documentary proof in this
case, refutes the Government's factual contention.
Even if you disagree with us on those first two
points, we still win because the third point is dispositive and
undisputed. The Government cannot dispute the fact that there
is no evidence, none whatsoever, not testimonial and not
documentary, that anyone looked at Mr. Cupersmith's name and
attached any significance to it in approving the loans. What
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400 North Miami Avenue, 10-2
Miami, Florida 33128
(305) 523-5698
matters, as we've just discussed, is the role played by
Mr. Cupersmith's name in relation to the underlying fraud, and
there's no evidence that anybody even looked at his name.
THE COURT: But if I may ask, Mr. Zarrow, do you see
in any of these cases a requirement that, in a PPP or otherwise
a loan fraud case, where the bank relies on the forms, there
has to be shown that reliance?
MR. ZARROW: So let me answer that question in two
parts, Your Honor. The first is: Right now, we're just
applying the exact language of Dubin. Dubin says what you need
is more than a causal relationship, and what I'm demonstrating
here is there is less than a causal relationship. There's no
causal relationship.
And the second point is, I don't think there are any
cases addressing this. I'm not sure it's come up yet. The
Dubin opinion is pretty fresh. It was last term. And so I'm
not sure. This might be a novel question before this Court.
So I don't know that anyone has grappled with this, but the
language of Dubin is directly on point.
THE COURT: And I understand. But since Dubin, has
any court focused on the reliance of, in this case --
MR. ZARROW: Not to my knowledge.
THE COURT: -- the bank?
MR. ZARROW: Not to my knowledge.
So the third point, as I was saying, is there's no
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400 North Miami Avenue, 10-2
Miami, Florida 33128
(305) 523-5698
evidence that anyone looked at Mr. Cupersmith's name, that it
played any role whatsoever, not even a but-for role, in the
fraud. And I think this hole in the Government's case is by
design. The Government could have called the loan processors,
the people who looked at the documents, but they didn't.
Presumably, they didn't call them because those people didn't
look at Mr. Cupersmith's name.
Again, the theory here is that one of the people at
the loan processors took the Form 1065, went to the bottom, or
the top, or wherever Mr. Cupersmith's name was, and thought to
themselves: "Aha. This is a credible PPP application." But
there's no evidence that that happened in this case. And that
point is undisputed. The Government cannot get up here and say
somebody actually looked at Mr. Cupersmith's name.
And as I understand the Government's response, they
say there's no proof that the banks -- that the loan processors
didn't look at Mr. Cupersmith's name. I'm not sure, in
fairness to the Government, they really engaged with the
Mr. Cupersmith's name aspect of it or his identification
number, et cetera. I think really what they are saying is
there's no proof that anyone looked at the Form 1065.
But regardless -- I disagree with the Government's
characterization with respect to the 1065. The Government
doesn't get to prove its case through a negative. The
Government can't sustain a conviction that carries with it a
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400 North Miami Avenue, 10-2
Miami, Florida 33128
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two-year mandatory minimum to be run consecutively to the
penalty for the underlying fraud by saying there's no proof
that something didn't happen.
It is Government's burden to prove through evidence
beyond a reasonable doubt that Mr. Sheppard committed
aggravated identity theft. What that means under Dubin is they
have to prove through evidence that Mr. -- his use of
Mr. Cupersmith's identity -- alleged use -- played more than a
causal relationship, and they haven't done that with evidence
in this case.
THE COURT: But in looking at the causation
requirement between the use of the means of identification and
the offense -- I just want to turn it on its head, Mr. Zarrow,
because if, in fact, there was a bank officer that said: "We
specifically looked at Neal Cupersmith's signature and that
played a role in allowing us to determine it was legitimate,
and it gave credibility" -- let's say that all of that, which
is really the Government's argument -- was part of the case, is
that really important for purposes of the Court's focus?
In other words, does the means of identification have
to have caused the success of the underlying offense, is really
the heart of the question. Because I don't know if the
testimony would have changed Dubin's analysis. Right? Because
it has to be at the crux of the criminality. So does it really
matter who relied upon it and who didn't?
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Miami, Florida 33128
(305) 523-5698
MR. ZARROW: Well, that's exactly our first argument,
Your Honor. Even if the Government proved that
Mr. Cupersmith's name lent credibility to the fraud, we would
still have the missing at the crux element. Our point now is
simply they also didn't prove that it lent credibility. And I
think under this aspect of Dubin that we've been talking about,
that's also important. They have to prove as a matter of fact
what their theory before the Court is.
Their theory before the Court is that it lent
credibility. And what I'm saying is there is no evidence that
that happened. And I don't think that the Government can get
up here and represent to you that it did happen because there's
a hole in the record. And when there's a hole in the record in
a criminal case on an important point, that means the
conviction must be vacated.
So those are our two Dubin arguments, Your Honor. If
you have any questions remaining, I'm happy to address them.
Otherwise, I'll move on to fraud --
THE COURT: Well, it was really going to be my
question to the Government, where -- the requirement that the
bank has to rely on the form, but I think you've fleshed that
out.
MR. ZARROW: Thank you, Your Honor.
My colleague, Mr. Fisher, who argued the Dubin case in
the Supreme Court, reminds me that, in the Dubin case, the name
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400 North Miami Avenue, 10-2
Miami, Florida 33128
(305) 523-5698
was actually pretty important to the fraud. It was a Medicaid
billing case, and the specific patient's name was important to
the fraud. It was a Medicaid billing case, and Medicaid
allocates eight hours per year of refunds for psychological
testing to each eligible patient. And Mr. David Dubin
represented that Patient L received psychological services in
order to get Medicaid reimbursement.
And by using that specific patient's name, what he did
was unlock benefits for this specific patient, Patient L. So
in that sense, Mr. Dubin's use of Patient L's identity in that
case was really a but-for cause of getting reimbursement for
Medicaid. And what we have in this case, and the reason we say
in our briefs that this is an easier case than Dubin, is you
don't even have that but-for relationship. There's no proof.
In Dubin, the Government did prove that the name was
at least necessary to get Medicaid reimbursement. It unlocked
those eight hours. In this case, you don't have that evidence.
So in that sense, I think this is an easier case for us than it
was in Dubin.
THE COURT: And maybe Mr. Fisher can answer that
question. It was my understanding that the patients actually
had received the services.
MR. ZARROW: So Your Honor, I was on the briefs with
Mr. Fisher, so I'm familiar --
THE COURT: I'm looking at the Dubin case. In this
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400 North Miami Avenue, 10-2
Miami, Florida 33128
(305) 523-5698
case, the patient's means of identification was not used
deceptively.
MR. ZARROW: Correct. That was what was missing -- at
the end of the day, the Supreme Court said that was missing in
the Dubin case.
THE COURT: Right. But isn't that a distinction from
the use of the means of identification here?
MR. ZARROW: Correct. And that's why in the first
part of the argument I was talking about confusing necessary
and sufficient conditions.
And just to summarize what the important point I think
is, the Government's position is that Mr. Sheppard committed a
violation of Section 1028A by committing ordinary identity
theft by using a means of identification deceptively. But what
Dubin says is not only do you need ordinary identity theft, you
also need something aggravating, and that something aggravating
is the causal relationship.
So I agree with Your Honor's point that this case is
somewhat -- somewhat factually distinguishable from the Dubin
case, but it is not distinguishable from the legal rule that
the Supreme Court articulated to resolve the Dubin case. And
my point about the Medicaid billing in Dubin is simply that in
that case the use of the means of identification, although
arguably not deceptive -- there was a big dispute with the
Government about that -- at least was a but-for cause of the
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400 North Miami Avenue, 10-2
Miami, Florida 33128
(305) 523-5698
fraud's success. Whereas, in this case, there is no evidence
that the use of the means of identification was a but-for cause
in the fraud's success, which is why on that aspect of Dubin, I
think this is actually an easier case than Dubin.
MR. FISHER: Your Honor, since you asked, if you would
like, I could give a quick supplement to my colleague there.
THE COURT: Certainly. Of course.
Thank you, Mr. Fisher.
MR. FISHER: And then I will turn it back over to
those of you in the courtroom.
THE COURT: Thank you, sir.
MR. FISHER: So just to answer the question that you
asked about the use of the patient's name in Dubin, you're
right the patient received services in Dubin. But the patient
did not receive the services that were identified on the form.
And so, for that reason, the Government said it was a
fraudulent form because it claimed a service that was
reimbursable at a higher rate than the service that was noted
on the form.
And so the point -- the argument the Government made
in Dubin was because you cannot get Medicaid reimbursement
without a patient's name on the form, that patient's name was
essential to the commission of the Medicaid fraud, and --
THE COURT: Well -- but was it essential? Mr. Fisher,
was it essential or did Justice Sotomayor find that was
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400 North Miami Avenue, 10-2
Miami, Florida 33128
(305) 523-5698
ancillary and it wasn't at the crux? In fact, didn't Justice
Sotomayor say that the petitioner's use of the patient's name
was not at the crux of what made the underlying overbilling
fraudulent, the crux was a misrepresentation about the
qualifications of the petitioner's employee?
MR. FISHER: You're right. It was not at the crux,
but it was essential. And the Government emphasized --
THE COURT: Where would the Court find that?
Mr. Fisher, where would the Court find the Supreme Court
stating that the use of the patient's name was essential, as
opposed to ancillary?
MR. FISHER: Well, there's two places I would point
you to. Just -- I'm working here off memory, but it is up and
down the Government's brief in the case, and we never disputed
that it was essential --
THE COURT: I'm speaking of the Court's opinion. I
understand it may have been in the brief.
MR. FISHER: I'm just giving you the background before
a direct answer.
THE COURT: Of course.
MR. FISHER: The Government argued up and down the
case that you cannot get reimbursement for a Medicaid claim
without an actual patient's name and a proper Medicaid ID. We
never disputed that. Then when the court said -- the court, at
the beginning of the opinion, recited the Government's
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400 North Miami Avenue, 10-2
Miami, Florida 33128
(305) 523-5698
arguments, again, using some of the words that have been used
today, the court, Justice Sotomayor, summarized the
Government's argument at the beginning of the opinion, saying
the Government says the name facilitated the fraud because you
cannot receive Medicaid benefits without a Medicaid patient's
name, and she said: "That's not enough."
And I think the thing you would look for in a court's
opinion -- I'm not sure the precise language you've asked me
for is there, but the argument the court rejected was that
having a name be the but-for cause of completing the fraud is
not enough. And I think, you know, the idea of a but-for cause
would be something that would facilitate the fraud, or -- you
know, I think that's even more than lending credibility to the
fraud. So that's just the thing I wanted to make clear from
Dubin, is the idea that's being propounded today would have
been the case in Dubin as well, but the court said that was not
enough.
THE COURT: And Mr. Fisher, before I turn it back over
to Mr. Zarrow, I just want to make clear that in the case
before the Supreme Court that you argued the means of
identification -- that is, the patients' names here -- were not
used in a manner that was fraudulent or deceptive, correct?
MR. FISHER: Well, that was a matter of dispute. The
Government said it was used in a fraudulent manner because it
claimed certain services given to that patient that was not
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400 North Miami Avenue, 10-2
Miami, Florida 33128
(305) 523-5698
given to the patient. And what the court said is -- I think
the court just left that argument to the side, and said none of
that matters because the real dispute here -- I'm sorry -- the
real fraud here is just overbilling for a service, not lying
about who received the service.
THE COURT: Right. I mean, the court specifically
stated that the fraud was in misrepresenting how and when the
services were provided to a patient, not who received the
services.
MR. FISHER: That's correct.
MR. ZARROW: Your Honor, if I may?
THE COURT: Thank you, Mr. Fisher. Appreciate it.
MR. FISHER: Thank you. Thanks for your indulgence.
MR. ZARROW: If I may, I don't think the last point
you made is distinguishable from your January 5th order, where
you said that the crux of the fraud of this case were
misrepresentations about the nature of Mr. Sheppard's
businesses. I don't think that point, which goes to the heart
of the Dubin case, is distinguishable from this one, as you've
already identified.
And the point I really want to hammer home before I
move on to fraud, is that a deceptive use is not sufficient --
it is a necessary condition under Dubin, but it is not
sufficient to sustain an aggravated identity theft conviction
because you need to look at the relationship between that
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400 North Miami Avenue, 10-2
Miami, Florida 33128
(305) 523-5698
deceptive use and the underlying crime. And the -- what's
missing in this case legally and factually is the requisite
relationship between the two.
If I may, I'll move on to the fraud convictions.
THE COURT: Thank you.
MR. ZARROW: So I'd like to begin, Your Honor, by
situating this in context a little bit. This conviction in
this case implicates the fraudulent inducement theory of fraud.
And there's an ongoing debate in the Courts of Appeals between
the Government and criminal defendants about whether and in
what circumstances fraudulent inducement can constitute wire
and mail fraud.
You have the Eleventh Circuit's decision in Takhalov.
That was 2016. That is binding published precedent of the
Eleventh Circuit. Three years later, Chief Judge Pryor writes
a concurrence, in United States v. Feldman, criticizing
Takhalov's treatment of fraudulent inducement, but that's a
concurrence. And then you have the Ciminelli case. And what
happened in the Ciminelli case, when we were in the Supreme
Court, is the Government abandoned its right to control theory,
and said in its opposition brief that Mr. Ciminelli, much like
the Government argues here, fraudulently induced the victims to
enter into a transaction.
Mr. Ciminelli's response was: "Well, perhaps, but the
victims in that case got everything that they bargained for."
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400 North Miami Avenue, 10-2
Miami, Florida 33128
(305) 523-5698
And the reason that matters, if you look at our reply brief in
that case, is that the wire fraud statute punishes a scheme
that, if completed as intended, would amount to fraud at common
law. And at common law, in 1872, when the mail fraud statute,
which uses the same language as the wire fraud statute, was
enacted, a misrepresentation that does not cause injury was not
actionable fraud.
So, of course, in Neder v. United States, the Supreme
Court says: "You don't need a completed fraud and therefore
you don't need injury." But that doesn't mean that injury is
irrelevant to fraud. What you need is a scheme that if it went
all the way to the end would amount to actionable fraud at
common law. It's the same concept as punishing attempt. It
still has to be an attempt that would amount to the ultimate
crime if completed all the way through.
Of course, Ciminelli didn't resolve that argument, but
Takhalov did. Takhalov precedent in the Eleventh Circuit says:
"A defendant is innocent of the fraud if the defendant," quote,
"has tricked the victims into entering a transaction" -- that's
fraudulent inducement -- "but nevertheless gave the victims
exactly what they asked for and charged them exactly what they
agreed to pay." That's no injury. So what Takhalov said is
fraudulent inducement with no injury is not fraud under the
wire fraud statute.
The Government in this case has hypothesized two
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victims, as we've said in our briefing. There's the SBA and
there are the lending banks. I'm actually going to start
today -- I know we started in our briefs with the SBA, but I'd
like to start today with the banks because the banks as victims
theory maps on directly to that holding in Takhalov.
Mr. Sheppard did not scheme to defraud the banks under
Takhalov because of the banks got exactly what they bargained
for. They bargained for a PPP loan, with a PPP interest rate
and processing fees, and that's exactly what they got. Any
misrepresentation about eligibility to participate in the PPP
program did not go to the bank's financial interests, i.e.
property interest in the transaction. It went to the
Government's administrative interests in administering the PPP
program, but it did not -- and this is a crucial point -- go to
the bank's property interest in the transaction.
And I think an easy way to see this is to imagine a
hypothetical universe in which Mr. Sheppard's businesses loan
applications were rejected -- they, according to the
Government, truthfully reported W-2 wages and were rejected.
And I think in that hypothetical universe there are two
possibilities. One is the banks make a PPP loan to some other
qualifying borrower. I think that's likely, because as we all
know the PPP program was very popular. It eventually ran out
of money. And in that universe, the banks would be in the
exact same position they are today. They would get the
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Miami, Florida 33128
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processing fees. They would get the interest rate. It would
just be someone else, not Mr. Sheppard. So certainly no harm
in that case.
The other alternative is that the banks make no other
PPP loan. The banks sit on their money. In which case, at
least as the record in this case shows, they are worse off than
they are today having made a loan to Mr. Sheppard because they
lose out on the interest and the processing fees.
The Government's theory, as I understand it, Your
Honor, is that when the Government points to harm, it says the
banks lost the time value of money. They point to the one
percent interest rate, which they call, quote, very
advantageous. And the major problem with that theory is
there's no evidence in support. The Government did not put on
any evidence that the banks would have been in any different
position financially, much less better off, had they not made a
loan to Mr. Sheppard and had they made a loan to someone else.
The Government can't support a criminal conviction
with speculation about what might have been. They need
evidence. If the Government wants to say the banks lost the
time value of money, it needed to put on a witness to say the
banks would have lent at seven percent interest and it would
have outweighed the processing fees and the one percent
interest for Mr. Sheppard.
THE COURT: So this argument somewhat goes outside of
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Ciminelli. I mean, you're basically arguing that the bank was
not harmed because it got what it bargained for.
MR. ZARROW: That's exactly right.
THE COURT: So could there ever be a scenario of wire
fraud where -- I mean, the bank provides a loan to one who
otherwise is not eligible. I mean, the bank is getting the
interest, the bank enters into an agreement, the bank now
recoups the money because it's fully reimbursed. Couldn't
there always be that argument that the banks are never harmed?
MR. ZARROW: It depends on what role the eligibility
criteria play. And this is what the Takhalov decision says.
If it speaks to the finances of the transaction, if the
eligibility criteria, for example, are the amount of
collateral, then that would speak, of course, to the bank's
financial risk in a transaction, then I think the answer is
yes.
If the eligibility criteria speak to the bank's
property interest -- and this is the significance of
Ciminelli -- if it relates to the bank's property interest,
then yes, you may have fraud -- wire fraud. But if the
eligibility criteria don't speak to the bank's financial
interests -- to the bank's property interest, then the answer
is no. And what the Government has failed to prove in this
case is that the PPP eligibility criteria spoke to the bank's
property interest in a transaction. In the words of Takhalov,
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the banks got exactly what they bargained for.
If the Government wanted to prove that the banks
didn't get what they bargained for financially, it was
incumbent on the Government to put on that proof, and it
didn't. And that, we submit, should be the end of wire fraud
convictions in this case.
THE COURT: So if the Court follows the argument
that's being made -- I want to understand how I got it wrong in
this Court's order on the Rule 29 Motion for Judgment of
Acquittal. Because this Court relied upon the Eleventh
Circuit's decision in United States v. Vernon, where the
Eleventh Circuit found that the Government had provided
sufficient evidence of the defendant's intent to participate in
a scheme to defraud as part of a wire fraud, where the
defendant received loan proceeds. How is that case
distinguishable from this case?
MR. ZARROW: Your Honor, as I understand the Court's
order, what you were identifying there is that loan proceeds
are a property interest. It is a traditional property interest
that comes within the ambit of the Ciminelli decision. And we
agree with that, but simply identifying a property interest is
not enough. Under Takhalov, and under the common law that's
incorporated into the wire fraud statute, you also need a harm
to the property interest.
Candidly, I don't recall at this moment what the facts
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of Vernon are. I do know the facts of this case. And on the
facts of this case, the Government has not proved a scheme that
would harm a traditional property interest. But there's no
dispute, to be sure, that loan proceeds are property. They
most certainly are. The point I'm making now is that there is
no harm to that property interest because under Takhalov the
banks got exactly what they bargained for.
And I think if -- you can filter through any number of
hypotheticals simply by asking: Was the misrepresentation
material to the finances of the transaction? Was it material
to the bank's property interest in the transaction? If the
answer is yes, you might have wire fraud. If the answer is no,
you don't have wire fraud.
In this case, the misrepresentations about PPP
eligibility -- the Government did not prove that
misrepresentations about PPP eligibility were material to the
bank's financial interest in the transaction.
THE COURT: So post-Takhalov, what cases should the
Court look to that would support your argument that there is a
requirement to show an intent to harm the lenders or a direct
harm to the lenders? Where would the Court look for that
argument and that decision that would instruct this Court?
MR. ZARROW: Your Honor, we cited an Eleventh Circuit
decision called Masino. It's an unpublished -- I think it's
Masino. It's an unpublished decision. That's a case about
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fraud being run by a charity, but the charities were not
harmed. They got what they bargained for.
We cited to a Sixth Circuit opinion by Judge Sutton.
That one involved fraud relating to the sale of pills,
medications. And the Sixth Circuit holds in that case -- I
think it's Waters -- that buying pills for their market price,
even if you have misrepresented something sort of ancillary to
that, is not fraud. I think those are the two leading cases.
Other than Takhalov itself, of course. And Takhalov
is the law of the Eleventh Circuit until the court goes en banc
and changes it if a petition comes up.
THE COURT: Of course.
MR. ZARROW: I think there was a case out of
the Western -- I believe it was the Western District of Texas
somewhat recently -- that's obviously in the Fifth Circuit --
called Constantinescu, 2024 --
THE COURT: Hold on. Because it's not in your brief.
Hold on.
MR. ZARROW: It's not, Your Honor.
THE COURT: Give me an opportunity to write it down.
MR. ZARROW: Constantinescu.
THE COURT: All right. And the cite?
MR. ZARROW: 2024 Westlaw 1221579.
That case -- the Fifth Circuit follows Takhalov, so it
talks a lot about the intent to harm element. But I think if
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the only case we had was Takhalov, we would still win because
Takhalov says a defendant does not commit wire fraud when the
supposed victim gets exactly what they bargained for. And in
this case, the banks did get exactly what they bargained for.
Any harm that was suffered in this case was administrative harm
suffered by the Government.
And if Your Honor doesn't have any other questions
about the bank as victims theory, I think this would be a good
opportunity to turn to the SBA as victims theory.
THE COURT: Thank you, sir.
MR. ZARROW: So the SBA as victims. I think, Your
Honor, this one -- this argument by the Government fails for
two interrelated reasons. The first reason is that
Mr. Sheppard did not obtain anything from the SBA. The
Government points to loan guarantees that the SBA made to the
banks. But Mr. Sheppard didn't obtain those loan guarantees.
They ran from the Government to the banks. And under the wire
fraud statute, the Defendant must obtain the property from the
victim. I would direct the Court -- this is in our brief -- to
United States v. Walters. That's Judge Easterbrook's opinion
for the Seventh Circuit, 992 F.2d 1219, where Judge Easterbrook
persuasively lays out why this obtaining aspect of fraud is
required under the statute.
And an important point. This is not just any
well-reasoned Seventh Circuit case. It was cited approvingly
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and affirmed by the United States Supreme Court v. Kelly -- in
Kelly v. United States at Footnote 2. So Judge Easterbrook's
opinion was right, the Supreme Court says, in its evaluation of
wire fraud.
The second interrelated reason is not only did
Mr. Sheppard not obtain anything from the SBA, but SBA loan
guarantees were not the object of the fraud. The object of the
fraud in this case, Your Honor has already said in your
mid-trial Rule 29, and the Government's already said in its
briefs at Page 7 that the object were loan proceeds from the
bank. It is true, I will concede, that SBA guarantees made to
the banks may have been an incidental byproduct of the fraud.
They actually may have been a foreseen or foreseeable
incidental byproduct of the fraud. But under Kelly v. United
States -- that's the Bridgegate case -- that is not sufficient.
The object of the fraud needs to be the victim's property
interest. And the SBA's property interest in a loan guarantee
was not the object of Mr. Sheppard's fraud.
So for those two reasons, the SBA cannot be a victim
in this case. And Your Honor --
THE COURT: Mr. Zarrow, I know I have given you -- I
just want to ask that perhaps you'll wrap up, so I can give the
Government an opportunity to respond.
MR. ZARROW: Sure. I can be done now. Thank you very
much.
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THE COURT: Thank you, sir.
Did you want to -- I don't want to stop you
mid-sentence. I think you had finished your sentence. But is
there anything further you want to say before the Government
responds?
MR. ZARROW: No, Your Honor. I'll cover anything in
rebuttal. Thank you.
THE COURT: All right, then.
MR. ZARROW: Thank you.
MS. JIMENEZ: Your Honor, I don't think I can speak
fast enough with the three minutes that I have.
So --
THE COURT: Could we start with that argument,
Ms. Jimenez, in terms of the case law that Mr. Zarrow has asked
the Court to rely upon, Takhalov, and the cases that interpret
Takhalov.
MS. JIMENEZ: Your Honor, in Takhalov, the issue was
the Court essentially broke up scheme to defraud into two
parts, intent to deceive and intent to defraud. Intent to
defraud is intent to cause harm, intent to cause financial
harm. I think what the Court said in its previous order is
still unrebutted here and really un-rebuttable, which is:
"Sheppard does not argue, nor can he, that loan proceeds are
not money or property within the meaning of the wire fraud
statute." There was intent to deceive and intent to defraud.
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THE COURT: I think I'm focusing on the harm.
MS. JIMENEZ: Right. And what the Defense does is say
this is not about intent to harm or intent to defraud. This is
about having harm. And that's not -- in other words, having
actual injury, having actual harm. That is not what Takhalov
says. Takhalov says you need intent to deceive and intent to
defraud.
And in Takhalov, the court talks about the nature of
the bargain, whether the lie or the deceit goes to the nature
of the bargain. The gentlemen go into the club. They purchase
Grey Goose Vodka. They get Grey Goose Vodka. Intent to
defraud here, it goes -- the fraud or the deceit went to the
nature of the bargain, the loan. The loan should not have been
issued to the Defendant.
There was one actual harm because the loan went to the
Defendant, instead -- to the Defendant's business, instead of
going to other businesses. The money was disbursed. There was
actual harm. But of course actual harm is not required, as the
Court knows, and that's basic of wire fraud, which I've pointed
out in the Bradley Eleventh Circuit decision. You can have an
unexecuted wire fraud scheme and there's still wire fraud.
So -- but Takhalov, again, does not say what the
Defense is saying, that you need a harm. What it says is that
you need intent to harm. And that is the Defendant's intent,
and that is -- there's plenty of evidence in this case about
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that.
And then going on to the SBA --
THE COURT: I just want to -- which case, Ms. Jimenez,
from the Eleventh Circuit -- because I know that Mr. Zarrow has
focused the Court's attention to Sadler, to Walters, to
Kelly -- but which case in the Eleventh Circuit post-Takhalov
states specifically that there is -- that it is irrelevant
whether, in fact, the bank or whoever it may have been was
directly harmed?
MS. JIMENEZ: You know, I haven't looked at that, Your
Honor. I mean, I looked at Takhalov. And obviously I don't
think Takhalov is a problem in this case at all because, like I
said, it divides intent to deceive and intent to defraud. And
clearly we have intent to defraud. You do not need actual
harm. And I'm not aware that these cases stand for the
proposition that you need to have actual harm.
Although in this case we do. The loan proceeds went
to the Defendant's businesses, when they should not have gone
to the Defendant's businesses. That was harm. That was -- in
other words, he got the money as a result of the fraud that he
committed. I mean, that's the harm. It's money that should
have gone elsewhere. And the Bradley decision does pre-date
Takhalov, but it's an undisputed principle that for wire fraud
you do not need actual harm. It mays: "Mail and wire fraud
statutes punish unexecuted, as well as executed schemes." And
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so you do not need the harm, but you have it here. The banks
disbursed the money.
And on the SBA side, they had both a regulatory
interest and a financial interest. The PPP loan program was a
government program. When the government money ran out, the
banks did not continue to lend. And there was something in --
and I mentioned how the forms that the Defendant filled out
were SBA forms. And something I had neglected to point out
about those forms was the very basic 2483 form that the
Defendant executed, and that we spent a lot of time focusing
on. And the main certification on that form, where the
Defendant certifies that all the information and documents
provided would be true and accurate in all material respects --
I neglected to point out that the very next sentence on that
certification says: "I understand that knowingly making a
false statement to obtain a guaranteed loan from SBA is
punishable under the law." The Defendant is being told he is
receiving a guaranteed loan from the SBA. That was on every
single form that he filled out.
So this was -- I mean, this was both -- I mean, the
focus on regulatory is misplaced because this was a government
program. And I did cite the Griffin decision, which is out of
the Seventh Circuit, which I think is -- it talks about the SBA
guarantee being a property interest. But focusing on the
financial interest, this was a government program. And when
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the government money ran out, the program ended.
So I mean, the argument that this -- that there was no
intent to defraud because there was no intent to harm, is, I
think -- I think an argument that is really baseless because
going back to the point that the Court made in its prior order,
the loan proceeds are property, and that's what the Defendant
sought here, that's the intent that he had, and that's what he
achieved -- I think answers all of those questions.
On Dubin, Your Honor, I'd like to just -- if I can,
just sort of go back to the basics.
THE COURT: Hold on one second.
MS. JIMENEZ: Dubin -- the Supreme Court in Dubin was
focused on the very broad language in the identity theft
statute that the use without lawful authority of a means of
identification of another person during and in relation to a
predicate offense was very broad language, and it was concerned
about the Government's overbroad reading of that language. And
the court said: "The Government's reading would, in practice,
place garden variety overbilling at the core of Section 1028A."
And the court went on to give those examples, about
the lawyer rounding up when they bill, about -- and obviously,
there's a client's name involved there -- when the waiter
switches out the meat at the restaurant and provides the bill
to the customer. Any type of billing situation --
THE COURT: But the court noted that the defendant's
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use of the means of identification of another person must have
been used not merely as an ancillary feature of the wire fraud.
So if the Court looks at cases since Dubin, particularly the
Gladden case from the Eleventh Circuit --
MS. JIMENEZ: Right. And I just want to point out,
though, that in the sort of -- I think the Defense plucks out
phrases and language from Dubin without putting it into
context. The but-for cause in Dubin, which existed, was the
fact that you need to -- in order to submit a claim, in order
to have a claim to Medicare -- Medicaid in this case -- you
need to have the patient's identification. And so you don't
get off the ground without it. That is a but-for cause. But
that is quintessentially ancillary to the fraud because it had
nothing to do with the lies. And that is what Dubin was
focused on.
THE COURT: Well, when you say "the lies," there's the
use of another means of identification, which must be a key
mover in the criminality. That means it must be used in a
manner that is fraudulent or deceptive. So we spent a lot of
time, at least with Mr. Zarrow -- I'd like to spend some time
with you -- understanding the Eleventh Circuit's decision in
Gladden and the two individuals, Linton and Gladden. And how
do you distinguish the Defendant Gladden and the Defendant's
fraud here. That is, Gladden merely misrepresented that the
prescriptions were medically necessary. Here, didn't the
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Defendant merely misrepresent that the loans were economically
necessary by virtue of having the accountant's name?
MS. JIMENEZ: No. And I think -- and if I could just
go back to this point that I would like to make, is I think the
Defense is trying to say that there are important lies and
unimportant lies in a fraud scheme.
And I don't think that's what the court said in
Dubin -- that, rather, in the constellation of lies that
constitute the fraud, a lie must pertain to the identity that
is the subject of the aggravated identity theft. And the
question is: Does the lie go to the identity -- that is, the
means of identification -- and was the means of identification
used in a manner that was fraudulent or deceptive? The answer
in Dubin, of course, was no. The means of identification was
not used in a manner that was fraudulent or deceptive.
In Gladden, obviously, with respect to Ms. Linton,
those prescriptions were signed by the doctor and they were
altered to add medications, more expensive medications. And
that was found to be sufficient under Dubin. Here, we have tax
returns -- and obviously, in 2021, the lenders, pursuant to the
SBA's requirements, were not requesting a lot of documents. It
was just a few documents, essentially your payroll and your tax
return. And the submission of the tax return with the false --
materially false information, purported to be authored and
prepared by this accountant was, one, used deceptively and at
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the crux of what made the conduct criminal, that is, the
submission of false information and false documents to qualify
for this loan.
And I think in certain respects it's more egregious
than Linton because you had a preexisting prescription that was
authored by the doctor. Here, you have not just the
information that's false on the tax return, now you have
Mr. Cupersmith's signature that's also forged on this document
that's purported to be his. So I think it's more significant.
I think -- I'd like to address the argument about
Mr. Cupersmith being superfluous to the fraud or to the tax
return. I think the Defendant could have potentially submitted
a tax return without Mr. Cupersmith's name on it, and I think
that there are multiple ways to commit the fraud. There's
multiple ways of committing PPP fraud. And I think what that
underscores is the use of Mr. Cupersmith's identity being
aggravated identity theft. He could have done something else.
And again, the focus here is on the Defendant's conduct, his
criminality, what he did to commit this fraud.
He could have submitted a tax return with no
accountant, presumably, that might have succeeded or might have
not succeeded, but that's a different fraud. That's not the
case we have here. The case we have here does use
Mr. Cupersmith's identity. It forges his signature. It
submits this document that claims to be prepared by him
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essentially on his behalf. That is at the crux of what made
this -- this conduct criminal.
THE COURT: But why -- I guess I'm trying to square
how that's at the crux. What do you see is the nexus that's
required between the use of Mr. Cupersmith's name and PTIN and
EIN and the underlying offense? Because it would appear to the
Court that it was Mr. Sheppard representing the companies
getting the loans -- or the company. The company actually got
the loan. So is there a misrepresentation as to who received
the loan? Isn't Mr. Cupersmith's name ancillary to the actual
intent of the 1065, and that is to show the income or the
amount that's paid by the partnership?
MS. JIMENEZ: Well, I think it goes back to Dubin and
the fact that the way the Defense has framed or -- has framed
Dubin, I think, misrepresents what that case says. And when I
go back to the points that I made before, which is there aren't
important lies versus unimportant lies in the context of the
fraud, as long as there was a lie involving the use of -- or
the misuse of someone's identity in a way that is deceptive.
And being at the crux of the criminality is -- it doesn't mean
it is the thing -- and I think the Court posed that question to
the Defense -- it doesn't mean it's the thing that caused the
loan to be approved, because at the end of the day we don't
look to whether the banks relied on this particular document or
not.
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So it is at the crux because it is part of the fraud.
I mean, the fraud was a submission of these documents to get
the loan approved. That's what the Defendant did. That was
the conduct of his criminality. And so I don't think Dubin
says that this has to be the thing that causes the fraud to be
successful. In Dubin, you simply had the identification of the
patient having really nothing to do with the lies, the fraud in
the case.
If the Defendant had submitted a letter saying:
"Lebron James is my best friend," there is potentially the use
or misuse of Mr. Lebron James's identity, but it doesn't go to
the fraud.
THE COURT: Well, that would be a broad interpretation
of 1028A, if, in fact, someone wrote a letter and said that
someone is my best friend in order to receive certain monies
and that was the key mover in the criminality. Is that how the
Court should interpret --
MS. JIMENEZ: No. No. No. I'm saying that this is
not that. I'm saying that if he had submitted a letter saying:
"Lebron James is my best friend," he's using Lebron James's
name without lawful authority, but that does not go to the
fraud. It has nothing to do with the fraud, which is not what
we have here.
The tax document was one of the documents requested --
one of the few documents requested. Again, it's payroll and
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tax return -- and it was false. It had false information. It
was purported to be prepared by this very individual whose
identity was used. He had nothing to do with that tax return.
And so it is at the crux of this criminal conduct, which was to
persuade the banks to approve the loan.
So I don't know if the Court misunderstood my example.
The example was to point out how taking someone's name, but
then it doesn't have to do with the fraud. I think that's what
Dubin was getting at, which is the patient's name is
necessarily on this form, but it has nothing to do with the
actual fraud that was committed. And so I do think this case
is outside of Dubin. I think I would -- one second.
(Pause in proceedings.)
MS. JIMENEZ: One thing that I would like to say also
about the jury instructions --
THE COURT: I don't believe there's been an argument
that the jury instruction was improper.
MS. JIMENEZ: No. And that's the point, that the jury
was instructed -- with respect to these aggravated identity
theft counts, the jury was instructed post-Dubin. It was
instructed --
THE COURT: That's correct.
MS. JIMENEZ: -- with Dubin language. And the jury
found beyond a reasonable doubt that the evidence supported
those counts with respect to Mr. Cupersmith.
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Case 1:22-cr-20290-BB Document 302 Entered on FLSD Docket 10/23/2024 Page 50 of 59
51
Yvette Hernandez, Official Court Reporter
400 North Miami Avenue, 10-2
Miami, Florida 33128
(305) 523-5698
And so -- and I would just like to -- it's a basic
tenet that's not in dispute. But in United States v. Stone,
Eleventh Circuit, 1993, 9 F.3d 934, it says: "Few tenets are
more fundamental to our jury trial system than the presumption
that juries obey the court's instructions. The crucial
assumption underlying the system of trial by jury is that
juries will follow the instructions given them by the trial
judge."
The jury was instructed regarding Dubin. So the
Defendant wants this Court to overturn the jury's verdict. And
not just this jury's verdict, but to find that no reasonable
jury could have found the Defendant guilty of aggravated
identity theft on this evidence, and this is evidence the Court
must view in the light most favorable to the Government.
And so -- and I would add that -- I don't have time
now, but obviously the cases the Government cited, in
particular, the PPP cases, I think support the Government's
view here that Mr. Cupersmith's identity -- the use of his
identity satisfies Dubin.
THE COURT: I know I spent some time with Mr. Zarrow
with regard to the reliance factor and the testimony that was
presented at trial. Do you believe that that plays a role in
determining whether there has been a violation of 1028A?
MS. JIMENEZ: There was a lot of questions by the
Defense regarding the issue of reliance, and there's no case
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Yvette Hernandez, Official Court Reporter
400 North Miami Avenue, 10-2
Miami, Florida 33128
(305) 523-5698
that I have seen that requires reliance to be -- to play any
role here.
(Pause in proceedings.)
THE COURT: Is there anything further, Ms. Jimenez?
MS. JIMENEZ: No, Your Honor.
MR. ZARROW: Your Honor, I'll be brief because I know
we're past time.
On Dubin, Section 1028A is not an anti-forgery
statute. There is a statute that prohibits forgery. It's not
Section 1028A. Section 1028A is the aggravated identity theft
statute.
Second, the Government says that the misrepresentation
does not need to be one of the things that caused the loan to
be approved. That was the core argument from the Government.
Gladden is directly to the contrary. The test that the
Eleventh Circuit used in Gladden is whether it directly enabled
the bills in that case to be paid. In this case, the
Government has admitted that misrepresentations about
Mr. Cupersmith's identity did not directly enable the PPP loans
to be funded. The Government has just admitted that
Mr. Sheppard's scheme would have succeeded even in the absence
of Mr. Cupersmith's name.
Third, I heard no response to our argument that
lending credibility to a fraud semantically, just as a matter
of logic, as a matter of the language used in Dubin, cannot be
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Case 1:22-cr-20290-BB Document 302 Entered on FLSD Docket 10/23/2024 Page 52 of 59
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Yvette Hernandez, Official Court Reporter
400 North Miami Avenue, 10-2
Miami, Florida 33128
(305) 523-5698
at the crux of the fraud. It just doesn't work. And the
Government's theory in this case about lending credibility is
just another way of saying that Mr. Cupersmith's name
facilitated the fraud. It's the same exact concept. And the
Supreme Court expressly rejected in Dubin the idea that
facilitating a fraud was sufficient.
Fourth, there was a question about the jury
instructions. We did object to the jury instructions in this
case on Dubin, and my --
THE COURT: Is that the basis of your motion for a new
trial? Because I didn't see that --
MR. ZARROW: No.
THE COURT: -- in your arguments.
MR. ZARROW: No, Your Honor. We objected at the
charge conference. It's not part of our new trial motion. If
the convictions are sustained, we'll take it up on appeal. But
I submit that the reason we're here is because there was
instructional error.
Even if you don't think there's instructional error,
the nature of sufficiency review is always that there's been a
jury verdict and the defendant claims that it's wrong. But in
this case, there was actually, in our view, an instructional
error exactly on this point. And the problem in the
instruction and in the Government's argument is that it treats
a deceptive use as sufficient in and of itself to constitute
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Case 1:22-cr-20290-BB Document 302 Entered on FLSD Docket 10/23/2024 Page 53 of 59
54
Yvette Hernandez, Official Court Reporter
400 North Miami Avenue, 10-2
Miami, Florida 33128
(305) 523-5698
aggravated identity theft without the requisite relationship to
the underlying fraud. That's the core error here, the
Government's argument -- what they told the jury in this case,
lending credibility is just facilitation.
And the last point loops into something Your Honor
said, which is the arch of Supreme Court case law on fraud
statutes, aggravated identity theft statute. Over the past
decade or so, the Supreme Court has been emphatic that
prosecutorial overreach with these kind of statutes should not
be permitted, that the Government has been overprosecuting,
overcharging, and stretching these statutes beyond what their
words and Supreme Court case law interpreting them allow.
This is another case, with respect to the aggravated
identity theft conviction, where the Government is stretching
Dubin beyond its breaking point. I would point the Court to
the Supreme Court decisions in Ciminelli, in Kelly, in
Muscarello, in Dubin, and other cases of that ilk where the
Supreme Court says if you have two debatable interpretations,
the narrower one is the one that needs to win. And in this
case, the narrower interpretation, and the correct
interpretation, is that lending credibility to a fraud is not
aggravated identity theft that carries with it a two-year
mandatory minimum that must run consecutive to the underlying
crime. It's a very serious statute. The narrower reading must
prevail.
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55
Yvette Hernandez, Official Court Reporter
400 North Miami Avenue, 10-2
Miami, Florida 33128
(305) 523-5698
On the wire fraud convictions, the Government focused
on -- tried to draw a distinction between intent to harm and
actual harm. And I do think there's a distinction between
those two things, and I think both of them are important.
Under Takhalov, what you need is an intent to harm. And what
Takhalov says an intent to harm is, is a lie that is material
to the finances of the transaction. And I never heard from the
Government any argument about how a misrepresentation about PPP
eligibility criteria were material to the finances of the
transaction from the perspective of the banks who are posited
as victims.
The Government argued that the harm in this case is
that loans would have been made to other qualifying businesses,
but that's our point. The banks would have been in exactly the
same position that they are today if they made the loan to
somebody else. The banks don't care whether it's Mr. Sheppard
or someone else. Financially, it's all the same.
On top of that, the Government's victim in that
scenario is the other business that didn't get the loan.
Right? They've been crowded out of the market for PPP loans.
But that's not a charged victim in this case. We're talking
about the banks and we're talking about the SBA.
On the point of actual harm, I think the Government is
misreading Neder v. United States, and the Eleventh Circuit
case law applying Neder. What those cases say is that because
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56
Yvette Hernandez, Official Court Reporter
400 North Miami Avenue, 10-2
Miami, Florida 33128
(305) 523-5698
Congress punished a scheme to defraud, essentially, an intent
crime, you don't need the scheme to be completed and actual
harm to manifest. That does not mean that the scheme to
defraud -- that harm is irrelevant because it still has to be a
scheme to defraud. And so the question is: What is fraud?
What is intent to commit fraud? And fraud requires injury. At
common law, fraud requires injury. And that is why a scheme to
defraud necessarily must be a scheme that if it was
completed -- and in this case it was completed -- is -- is a
scheme that causes injury. We don't have that in this case.
Last point is on the SBA loan guarantee. I think the
Government is relying exclusively on United States v. Griffin.
That's the Seventh Circuit case from 2023. As we pointed out
in our reply brief, Griffin is a case about the relationship
between the banks and the government lenders and the SBA, not
between borrowers and the SBA. There's a huge difference
because the lenders obtain the guarantee from the SBA. And the
object of the lender's fraud is the guarantee from the SBA.
That is not true when it comes to a borrower. I didn't hear
any response to our argument on that.
And so, I'll leave the Court with this: As I said in
connection with the Dubin case, the Supreme Court has sort of
reined in fraud interpretations of these statutes. I think the
Government is offering a very expansive interpretation of both.
It's a fraudulent inducement bereft of injury interpretation of
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Yvette Hernandez, Official Court Reporter
400 North Miami Avenue, 10-2
Miami, Florida 33128
(305) 523-5698
wire fraud, and it is a capacious definition of aggravated
identity theft. Following the Supreme Court's instructions,
following the Eleventh Circuit's decision in Takhalov, we think
all of the convictions in this case need to be vacated.
Thank you.
THE COURT: Thank you, Mr. Zarrow. I appreciate the
argument.
MS. JIMENEZ: Just one -- I'm sorry. Just one point
on the jury instruction. The Court gave the Defense's jury
instruction.
THE COURT: I thought that I did. But then again,
it's not part of the two motions that are before the Court. So
the argument that perhaps was raised at the charge conference,
I'm assuming you have preserved. But be that as it may, it's
not for the Court's consideration at this time, so I don't need
to hear further argument.
I want to say that I appreciate everyone's time. I
know that in the request for a hearing there were many other
responsibilities and obligations. So I do appreciate you
accommodating your schedule to appear here today.
We obviously are -- when I say "we," myself and my law
clerk have spent a considerable amount of time reviewing the
cases, and we will continue to review the cases in light of the
argument that was presented today and issue a written opinion.
Thank you-all for your time.
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Case 1:22-cr-20290-BB Document 302 Entered on FLSD Docket 10/23/2024 Page 57 of 59
58
Yvette Hernandez, Official Court Reporter
400 North Miami Avenue, 10-2
Miami, Florida 33128
(305) 523-5698
MS. WEINTRAUB: Judge, does the Court have -- you
know, we knew that this was going to be rather lengthy and it's
a matter of picking and choosing at this point because of the
limited time from the Court, which we appreciated and
understand. And I just wanted to know if the Court had any
questions with regard to the motion for a new trial. We are
prepared, because of the scheduling, to rest on the briefs. We
know the Court will read it carefully. There are significant
points that were raised. But if the Court has any questions,
I'm prepared to answer them.
THE COURT: With regard to ECF 104, let me -- I don't
think -- I would have asked Mr. Zarrow. I think I went through
the open questions that I had. And that's why I started the
hearing with recognizing that both were scheduled for hearing.
So to that extent, no, I don't have any additional questions
that I prepared for either the Government or the Defendant, but
thank you.
MS. WEINTRAUB: Yes, ma'am.
THE COURT: Okay. Have a nice afternoon. And thank
you, Mr. Fisher. I'm going to go ahead and end this.
MR. FISHER: Thank you very much, Your Honor.
THE COURT: Okay, sir.
(Proceedings concluded at 10:29 a.m.)
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Case 1:22-cr-20290-BB Document 302 Entered on FLSD Docket 10/23/2024 Page 58 of 59
59
Yvette Hernandez, Official Court Reporter
400 North Miami Avenue, 10-2
Miami, Florida 33128
(305) 523-5698
UNITED STATES OF AMERICA )
ss:
SOUTHERN DISTRICT OF FLORIDA
)
C E R T I F I C A T E
I, Yvette Hernandez, Certified Shorthand Reporter in
and for the United States District Court for the Southern
District of Florida, do hereby certify that I was present at,
and reported in machine shorthand, the proceedings had the 8th
day of April, 2024, in the above-mentioned court; and that the
foregoing transcript is a true, correct, and complete
transcript of my stenographic notes.
I further certify that this transcript contains pages
1 - 59.
IN WITNESS WHEREOF, I have hereunto set my hand at
Miami, Florida, this 23rd day of October, 2024.
/s/Yvette Hernandez
Yvette Hernandez, CSR, RPR, CLR, CRR, RMR
400 North Miami Avenue, 10-2
Miami, Florida 33128
(305) 523-5698
yvette_hernandez@flsd.uscourts.gov
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