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Case 4:16-cr-00199-YGR Document 8 Filed 05/27/16 Page 1 of 40
2
BRIAN J. STRETCH (CABN 163973)
United States Attorney
DAVID R. CALLAWAY (CABN 121782)
3 Chief, Criminal Division
4 JOHN
H.
HEM
ANN
(CABN 165823)
Assistant United States Attorney
5
450 Go
ld
en Gate A venue, Box 36055
6 San Francisco, Ca
li f
ornia
94
102-3495
Telephone: (415) 436-7478
7 FAX: (415) 436-7234
John.Hemann@usdoj .gov
Attorneys for United States of Ame1ica
8
9
10
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
SAN FRANCISCO DIVISION
12
GIL -
DO I J J f()...P_
UNI
TE
D STATES OF AMERICA, ) UNITED STATES SENTENCING
14 MEMORANDUM, MOTION TOWAIVE
Plaintiff,
PRESENTENCE REPORT, AND MOTION FOR
15
EXPEDITED SENTENCING
v.
16
Date: June 3, 2016
DISCOVERY SALES, INC., Time:
3:00pm
17
Defendant.
18
19
20 The United States
of
Ameri
ca
files t
hi
s sentencing memorandum pursuant to Criminal Local
21 Rule 32-5(b) in supp
oti of
its reco
mm
endation
th
at the Court sentence defendant Di scovery Sales, Inc.
22 (DSI) to pay an agreed-upon fine of 8 million and restitution to Fannie Mae and Freddie Mac in the
23 combined amount of
3
million. The United States also respectfully moves this Court, pursua
nt
to
24 Federal Rule
of
Criminal Procedure 32(c)( I)(A)(ii) and Criminal Local Rules 32-l (b) and 32-2, to waive
25 the presentence report in this matter and sentence DSI on an expedited basis on June 3, 2016, after
26 accepting DSI s guilty plea. DSI will separately file papers indicating that it waives its right to a
27 presentence report and, as provided in the Plea Agreement, requests expedited sentencing.
28 This memorandum provides the factual background for the Comt and outlines the material terms
SENTENCfNG MEMORANDUM
CR 16-0199 YGR
u t
No.
1st cl Court
Cri
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Ca
a
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Case 4:16-cr-00199-YGR Document 8 Filed 05/27/16 Page 2 of 40
of the Plea Agreement between the United States and DSI, in the event the Court waives the presentence
2 report and grants the parties' re
qu
est
to
impo
se
a sentence
on
June 3, 20 16. A copy of the DSI
3 (c)( l )(C) Plea Agreeme
nt
is attached as Ex hibit
A.
Federal Rule ofCriminal Procedure 32(c)(1)(A)
4 permits the Court to sentence the corporate defendant in thi s matter without the
pr
epara
ti
on
of
a
5 presentence report ifthe Co
mt
finds that the in formation in the record enables it to exerci se its sentencing
6 authority meaningfully under 18 U.S.C. § 3553, and the Co urt explains its finding on the record. See also
7 Criminal Local R
ul
e 32
l
(b
.
The United States submits that the information contained in
thi
s
8 memorandum and the attached Plea Agreement, as well as the reco
rd
in a number of related cases
9 described below , are sufficient to enable the Court to exerci se its sentencing authori ty under 18 U.S .C.
10 3553 without the need
of
a presentence report.
If
the Coutt finds that it does not have sufficient
11
infom1ation to a
ll
ow for
th
e imposition of sentence on the scheduled date of the plea hearing, the pat
ties
12 are prepared to submit additional infonnation requested by the Coutt.
3
I.
B CKGROUND ND OFFENSE CONDUCT
14 On July 18, 20 13, the United States
fi
led an Information charging DSI with bank fraud, in
15 violation of 18 U.S.C. § 1344. DSI will waive indictment when arraigned on the [nformation at
9:30am
16 onJtme3, 2016.
17 DSI was a company created by Albert Seeno III to se ll new homes built by Discovery Builders,
l
18 Inc. ( DBI ), Albett D. Seeno Constmction Co., Inc. ( AD Seeno ), and other entities affi liated with
19 Albert Seeno III a
nd
the Seeno fami ly ( the builders ). The homes were built in developments
20 throughout the East Bay Area, including in Contra Costa a
nd
Alameda Counties.
21 DSI is the sales a
nn
of a group
of af
fili ated construction compa
ni
es
th
at build new homes in the
22 East Bay and I-80 corridor. When the housing market began to soften in 2006-2008, DSI took steps to
23
avoid losing its positi
on
in the market - it had to keep selling houses at a certain price point. The steps
24 taken by DSI included incentivizing new home buyers by paying
tb
eir downpayments and subsidizing
25 their mortgage payments. DSI, its employees, and others worked to ensure that these incentives were not
26 disclosed in the
mmt
gage loan applications
or
related documents submi tted
to
mmtgage lenders.
If
they
27 had been disclosed, bank underwriters would not have approved the loans.
28 Over 325 Seeno and Discovery homes during the period 2006 - 2008 involved the use of
SENTEN ING MEM
OR NDUM
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Case 4:16-cr-00199-YGR Document 8 Filed 05/27/16 Page 3 of 40
incentives. The total sales for those homes exceeded 200 million.
2 The
In
fo rma
ti
on filed against DSI is the m
os
t r
ecent
case filed in connection with an inves tigation
3 by the FBI into a scheme to se ll homes built by affi liates ofDSl to unqualified buyers at inflated prices.
4 In co
nnec ti
on with this investigation,
th
e U.S. A ttorn
ey's
Office has filed and resolved charges aga
in
st
5 nine individuals,
tlu·
ee ofwhom are s till pending sentencing:
6 •
United States v. Tony Phan.
g u l
Arenas, George Zevad
a nd
Ch
ng
Park,
Case No. 13-0556
7 YGR.
Ph
an
was
an underw
ri t
er for a mortgage lender
ca
lled Homeco
min
gs Financia
l
Arenas
was
a tax
8 prepare
r
Zevada and Chang wo
rk
ed for a Southe
rn
California mo1tgage broker. Together, they
9 conspired to anange for fraudulent loans for U qualified buyers, including buyers of homes for DST This
10
Co
urt
se
nt
en
ce
d Phan
an
d Arenas to terms
of
probation
an
d Zevada to six
mon
ths in prison.
Ph
an h
as
not
I
ye
t been
se
nten
ce
d.
12 •
Un ited States v. Sharon Wang
nd
Heather
Yin
,
Ca
se
No. CR 11-0686 JSW. Wang a
nd
Yin
we
re
13 r
ea
l estate
agent
s and loan brokers. T hey broug
ht
bu
ye
rs to DSI who were
un
able to f
und
home purchases
14 legitimately They recei
ve
d large commissions, generally 30,000, in exchange for introducing the
15 buyers to DSI
Th
ese buyers filled out phony loan applications, which Wang directed to a co-conspirator
16 who was employed by Bank of America. Wang a
nd
Yin were
se
ntenced by the Hon
orab
le JeffreyS.
J7 W
hi
te to
se
ntences of probation.
18 • Un it
ed States v. Jason Sterlino, Case
No. CR 13 -023 1 JSW . Sterlino was a
sa
les manager for
9
DSI He received a kic
kback
from Wang and Yin from
th
e commissions
th
ey r
ece
ived
from
DS
I
He
20
kn
ew that the bu
ye
rs
Wan
g and Yin
we
re bringing to
him
were not qualified for the loans they
we
re
2 1 rece iving Sterlino also
kn
ew that the loan appli
ca
tions being submitted to the mo
rt
gage lenders did not
22 discl
ose
the
vari
ous incenti
ves
DSI
pr
ovid
ed
to the
bu
yers. Sterlino had been in structed to ensme
th
at
th
e
23 incen
ti
ves remain
hidden
from the le
nd
ers. Sterlino was
sen
tenced by
Jud
ge White to six months in
24 prison.
25 • Uni ed States
v
Carey Hendrickson, Case No. CR 12-0292 YG R. Hendrickson was a man
age
r at
26 DSI who rep mi ed to
Aym
an Shahid.
He
ndrickson was invol
ve
d in administer ing the in
ce
nti
ve
programs
27 that fonn the basis for the charges against DS
I
Hendrickson also persona lly participa ted in one of the
28 fraud
sc
heme utilized by DSl to move homes a t inflated sales prices. HendJickson bought,
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UM
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Case 4:16-cr-00199-YGR Document 8 Filed 05/27/16 Page 4 of 40
simultaneously, three homes from DSJ. Without putting
dow
n any
of
her own money, Hendrickson
2 purchased three DSI homes using loans obtai11ed from three different mortgage lenders. Neither she nor
3 DSI disclosed to the lenders that she was purchasing three homes simultaneously. Two
of
th
e homes
4 went into foreclosure.
5 • United States
v
Ayman Shalzid Case No .
CR
14-0271 YGR. Shahid s conduct fonns the
6 primary basis for the charge against DSL Shahid was the vice president
of
DSI, repmiing to Albert Seeno
7 III, dming the 2006-2008 time period.
8 The following information
was
obtained through the
FBI
investigation, and the United States
9 would be
pr
epared to prove it were the case against DST to go to trial. From 2006 to 2008,
DSI
inflated
I
0 the sale price
of
new
homes by offering significa
nt
cash and other incentives to new home buyers.
The
I I
primary purpose of the
pr
ice inflation was to support a large line of credit the builders maintained, which
12 was collateralized
by
the new homes and the propetty
on
which the homes would be bui l
t If
the
hom
e
3
and propetty values dropped, the va lue
of
the
co
llateral wo
uld
drop and the line of credit would be
14 r
ed
uced or tem1inated, or additional
co
llateral would be required to secure the line
of
credi t
15
Accordingly, it was necessary to maintain inflated h
ome
sales ptices, and pa1ticipated in schem es and
16 devices to accomplish this goa l Thi s is what i s
common
ly known as a builder bailout scheme.
17 During 2006-2008, buyers with little or no money of th
eir
own were purchasing homes at prices
18 that we re infl ated through the use of incentives. As Shah id explained in hi s plea agreement:
19
The buyers were not required to possess or
post
any
oft
h
eir own
mon
ey
when buying a
home; DSI, the builders, and their affil iates wou ld pr
ov
ide money to buyers to make
20 down payments . The loans were secured by homes that were in so me cases worth less
than the loan amount; DSI did not make an effo11 to determine the true value
of
th
ese
21 homes. As the financial crises worsened, the prob lem was exacerbated
by
the falling
mark
e
t
22
23
24
25
26
27
28
It
was part
of
the sch
eme
to ensure that evidence
of
the incentiv
es
i
not appear in the
bank
loan
fi les. If the incentives appeared in the bank l
oan
files, the loan underwriters wou ld likely rej ect the
loans, primarily because the loan-to-va lue ratio would not support the requested loan on the inflated
sales price of the home. For this reason, DSI employees took steps to ensure that the details of the
incentives that were being given to spec ific buyers did n
ot
appear in the bank loan files, including not
informing appraisers of the incentives that were being given to buyers.
SENTENCfNG
MEMOR NDUM
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1 One of the incentive programs used by DSI and the builders was a down payment assistance
2 program. The builders created an entity called the Collateral Financing Group ( CFG ) to make what
3 were characterized as loans to home buyers for the purpose of funding their down payments. I knew
4 that these loans were either expressly forgivable
or
forgivable in fact because neither CFG nor the
5 builders made substantial efforts to obtain loan repayment from the buyers. No effort was made to
6 determine whether the buyers were capable of repaying CFG loans. Although managers of the prefen·ed
7
lenders were aware of the incentive programs, it was pa1i of the scheme that the amount ofCFG loans
8 made to particular buyers and the fact that they were forgivable and/or forgiven in fact was not disclosed
9
by
DSI to the mortgage lenders.
10 The banks that were originating the loans would sell the mortgages in a seconda
ry
mark
et
shortly
after origination. It was, therefore, important to ensure that buyers would keep current
on
mortgage
12 payments. DSI, and its employees and affiliates, created various devices, including the Existing
3 Mmigage Assistance Program (EMAP), to make cash payments to buyers for a short
pe
riod
oftime
so
14 that they would not default. EMAP was treated, instead, as a way ofproviding undisclosed cash
5
incentives to home buyers.
6 In the plea agreement, DST agrees that it is guilty ofbank fraud based a respondeat superior
7 theory ofliability derived from their guilty pleas. DSI agrees that Shahid, as vice president
ofDSI
and
8 Carey Hendrickson and Jason Sterlino, all ofwhom were employed
by
DSI dudng the relevant time
9 period, committed bank fraud and engaged in a conspiracy to commit bank fraud by fraudulently
20 causing bank underwriters to approve mortgage loans for unqualifi
ed
buyers. Corporate liability may be
2 predicated on respondeat superior liability. See, e.g. United States v Hughes Aircraft 20 F.3d 974 (9
1
h
22 Cir. 1994).
23 DSI also agrees, as a matter of factual
proof
, that from 2006 to 2008, certain buyers wit little
or
24 no funds of their own were induc
ed
to pmchase homes at prices that were increased through the use of
25 fmancial incentives that were
not
clisclosed to the mortgage lenders. DSI acknowledges that these
26 buyers were
not
required to possess
or
post any of their own funds when buying a home; DSI
ananged
27 through its affiliates for money
to
be provided to these buyers to make down payments and cover
28
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existing mortgage payments. DSI agrees tbat the mortga
ge
lenders and secondary purchasers of
2 mmigage loans affected by the fraud schemes were federally insured financial institutions.
3
4
II
MATERIAL TERMS OF THE DSI PLEA AGREEMENT
5 The material tem1s of the plea agreement, attached hereto as Exhibit A, between DSI and the
6 U.S. Attorney ' s Office include:
7
1 DSI will waive indictment, waive all rjghts as enumerated in the plea agreement, and
8 plead gu il ty to a one-count Information cha rging it with bank fraud, in violation of 18 U.S.C. § 1344.
9 DSI will agree that there is a factua l basis for the plea, as set fmih in Paragraph 2 of the Plea Agreement.
10
The
United States would be ab le to prove at trial those facts, as we
ll
as
the facts set forth in the
plea
11 agreements for former
DSI
employe
es Ayman
Shahid, Carey Hendrickson, and Jason Sterlino.
12
2.
DSI and the United States agree that the approptiate sentence in tlus case is a fine of 8
13 million, a special assessment of 400 , and a 5 year term of probation. The fine will paid in five
14 installments and
sec
ured by a litigation bond. The first
in
stallment of 1 ,333,333 shall be paid on the
15
one year anniversary of sentencing
in
tlus matter, with three subsequent 1,333,333 installments on each
16 yearly anniversary thereafter unti l the fina l paymen
t
Interest will accrue beginnjng on the date of entry
17 of udgment and the fifth and fina l installment will be 2,666,668, plus any remaining interest due and
18 owing.
19
3.
DSI will pay res titution in the
amount
of 3,000,000 witrun 120 days of sentencing.
Th
e
20 basis for this restitution paym
en
t is
exp
lained below.
21
4. The Uruted States agrees not to file additional charges related to its investigation into
22 undisc losed incentives and related practices against DSI, its affiliates, or employees or DSI or its
23 affiliates, except the three former employees already charged, as set fotih in paragraph 18 of the Plea
24 Agreement.
25 III
SENTENCING GUIDELIN SCALCULATIONS
26 The offense level calculation for DSI is the same calculation used in the plea agreement of
27 Ayman Sbahid, the fmmer DS l officer on whose gu il ty p lea DSI 's
responde t superior
liability is in
28 part based. The tota1loss using the N inth Circuit-approved formula is 75 mi llion, which measures the
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NG
MEMORANDUM
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1 difference between the loan amount and, essentially, the amount the home sold for after default. This
2 loss amount was calc
ul
at
ed
by Navigant, an independent consultant retained by the United States, and
3 reviewed and agreed to by counsel for both Shahid and DSI. The parties and Naviga
nt fo
llowed the
4 formula approved
by
the Ninth Circuit in United States v .Morris 744 F.Jd 1373 (9
Cir. 20
14
.
1
A
$75
5 million loss results in a 24 level increase
in
the offense l
eve
l under U.S.S.G.
§
2B 1.1.
6 The final offense level includes a downward departure because the patties agree that the $75
7 million number is overstated as to DSI and Shahid. This conclusion is based prim arily on the
8
contributory culpability of the mortgage lenders who funded the loans at issue. The parties agree that
9 the preferred mortgage lenders, Wells Fargo and
J.P .
Morgan Chase, were on some notice that DSI was
10 engaged
in
various shenanigans to inflate the value
oftheir
homes. Employees
ofthe
preferred lenders
were embedded with
DSI
emp loyees,
and
OS[ continued se
ll
ing homes and maintained prices, even as
12 the market was crumbling around it.
The
banks periodically told DSI to
be
sure disclose
all
incentives,
13
yet
did
little to ensure that DSI was doing
s
which it was not. Something was amiss, yet the preferred
14 lenders continued to pump out loans on DSI properties and gene
ra
te fees and payments on those loans
15 before se lling the loans on the secondary market.
6 To
that point, the evidence does not prove that the originating lenders lost $75 million . Tllis is a
17 result of the practice, prevalent at the time, of secmitizing poorly performing mortgages. fter
8 originating loans, the mortgage lenders very quickly dumped most of them into the secondary secmities
19 market. For the most part,
th
e mortgage lenders who miginated the loans on DSI homes made money in
20 the migination then got rid of the loans by selling them in the secondary markets. As the Comt can see
21
from tllis trajectory ofthe investigation that led to this case, everyone was making money ganling the
22
23
1
«We adopt the two-step approach first articulated
by
the Eastern District of Virginia, and sub
seq
uently
24 adopted by the Second , Sixth, and Tenth Circuits. In calculating loss in mortgage fraud cases, these
Circuits hold that the fir
st
step is to calculate the greater of actual or intended loss, where actual
lo
ss is
25 the reasonably foreseeable pecuniary harm from the fraud. T
lli
s amount wi
ll almost
always
be
the entire
value of the principal of the loan, as it is reasonably foreseeable to an unqualified borrower that the
26 entire amount ofa fraudulently obtained loan may
be
lost. The second step is to apply the cred
it
s
against loss provision and deduct from the initial measure of loss
any
amo
w1
t recovered
or
recoverable
27 by the creditor from the sa le of the collateral. This second ca lculation is made without any consideration
of reasonable foreseeability. United States v Morris 744 F.3d 1373,
13
75 (9th Cir. 2014)
28
SENTENCING MEMOR NDUM
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Case 4:16-cr-00199-YGR Document 8 Filed 05/27/16 Page 8 of 40
sys
tem , or at least trying to do so: the builders, the buyers, the real estate agents, the
mort
gage brokers,
2 and the o riginating banks, and
th
e banks who securitized the bad l
oa
ns. This is why tagg
in
g one
3 participant, the builder, with a loss
number
using the normal formula which ass
um
es a
co
mpletely
4 inn
ocent
bank victim
2
is n
ot
fa
ir
or
ju
st
and th
e U
ni t
ed St
ates
acco
rdin
gly r
ecomm
e
nd
s a d
ow
nwa
rd
5 departu re of four levels, a depatture to which both DSI and Shahid have agreed.
6 The patt ies agree that the offense level should be calc
ul
ated as fo
ll
ows, resulting
in
a base fin e o f
7
8.5 million:
8
9
10
11
12
13
Offense Level (U.S.S .G. §§ 8C2 .3 and 2B 1 1 )
Base Offense L
ev
el , U.S.S.G. § 2Bl.l :
Specific Offen
se
Characteristic,
U.S.S.G
.
§
2B 1.1:
Downwa rd Departure, U.S.S.G. § 2 8
l.l
, cmt. 20(c):
Total Offense Level :
Base Fine
7
24
-4
27
S8.5 million
14 Ln the case of a cor
po
rate plea , the ultimate fine is detenuined by ca lcula ting the c ulpability score
15 w1d er U.S.S.G. § 8C2.5, applying the fm e multiplier under U.S.S.G.
§
8C2.6, and then the fme range
16 under U.S .S.G. § 8C2.4. The parties agree that the fine range, here, is 6.8 to 13.6 million.
17
18
19
20
2 1
22
23
Culpability Score (U.S.S.G.
§ 8C2.5)
Base Score, U.S.S .G. § 8C2.5(a):
Involve ment or Tolerance, U.S.S.G.
§
8C2.5(b)(5):
Acceptance, U. S.S.G. § 8C2.5(g)(3):
To tal Culpability Score:
Fine Multiplier, U .
S
S.G.
§
8C2.6 :
Fine Range, U.S.S.G.
§
8C2.4(
d):
5
2
4
.8-
1
6
6.8 to 13.6 milli
on
24
The 8 million fine to w hich the
parties ag
ree is within the fine range pr
esc
ribed by the
25
26
2
To be clea r, the scheme invo lved DSI causing fa lse statements to be made to the originating
27 bank s. These fa lse statements made the loans look clean , which allowed the origi
natin
g banks to se ll the
l
oa
ns i 1 the
seco
ndary markets. The
ince
ntives were
occas
ionally disc l
ose
d accide
nt
a ll y in the loan
28 d
oc
uments or to appraisers, which required the miginating ban
ks
either to reject them or,
if
too late,
keep them in the
ir ow
n
port
folios.
SENTENC
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MEMORANDUM
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Sentencing Guide ines.
2
IV.
OND POSTED Y DSI
3 The parties have agreed on the filing ofa litiga tion bond, under which the fine will be paid
if
DSI
4 defaults on any payment. The bond should be lodg
ed
w
ith th
e Clerk of omi and , if defendant defaults
5 on any payment, judgment should be issued on the bond in favor of the United States.
6
v RESTITUTION
7 Because of the practice of selling loans in the secondary markets and as part of large securities
8 crea
ted
by investment banks, it was not possible to identify the individual companies or individuals who
9 lo
st
money as a result of the scheme, with
th
e exception of the government-sponsored lending
I
0 institutions, Fannie Mae a
nd
Freddie Mac. These two in
st
itutions lost a total
of
approximately $3
11 million from DSI homes originally sold during 2006-2008, and that is the restitution t
he
United States
12 seeks through the plea agreement.
13
Dmin
g
th
e time period of the Infonnation, DSI worked with two "
prefen
·ed lenders," Wells
14 Fargo and J.P. Morgan Chase. Ce iain employees and managers ofthese two preferred lenders knew
5 about the incentive programs offered by DSI and the builders, and kn
ew
that the incentives were not
16 being disclosed in the loan files. Bank executives informed DS r hat
th
ey required deta ils regarding
7
incentives to be included in the lo
an
files, but in truth the
prefen
ed lenders performed little or no
18 diligence to see that the incentives they knew were being provided were disclosed in the loan files.
19
The originating lenders who made loans to purchase DSI properties, including Wells Fargo and
20 J.P. Morgan Chase, generally wou
ld
not keep the mortgages and thus did not end up losing money
as
a
21
result
of
the DSI fraud scheme. Instead, they would se ll the mmigages to other banks who would
22 package them in securities that were sold to other investors. These securities fai led
when the underl ying
23 mortgages went in to default.
It
was impossible to trace the majority of the mortgage loans on the over
24 300 homes so
ld
by DSI that were the subject
of
the FBI inves tigation; it would have been ha rder yet to
25 identify individual victin1s
of
he fraud given that the
mort
gages were secwi
ti
zed and traded.
26 The United States was able to trace a number of the mmigage loans on homes sold by DSI to
27 Fannie Mae and Freddie Mac. The Federal Housing F i ance Agency, Office of nspector General, was
28 able to identify 20 specific
hom
e mortgages that were acquired by Fannie Mae and Freddie Mac and
SEN
TE
N
I
NG
MEMORAN D
UM
CR 16 0199
Y R
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then went [n to default Both Fannie Mae and
Freddie
Mac obtained these mortgage loans after
th
ey had
2 been originat
ed by
other banks. The spreadsheet attached hereto as Exhibit B shows
the
financial
3 impact on Fannie Mae and Freddie Mac of foreclosures related to h
om e
s sold by DSI during the period
4
of
the fraudule
nt
incentive scheme.
3
The parties agreed that vmious minor differences
over
the
5 calculation of the loss to Fannie Mae and Freddie Mac were best reso lved by a comprom i
se
at a $3
6
milli
on restitution figure.
7
Th
e largest victim of defendant 's conduct was the Uni ted States economy, which suffered in
8 2007
an
d 2008 in diverse ways as a resul t of the conduct of defendant and the mru1y other culpable
9 participants in the mortgage crisis. Because
ofthe
practice of secw·itization and the cu lpabili ty of the
10
lender
s themselves,
it
wa
s n
ot
po
ss
ibl
e to identi fy a
ll
of
the losses
caus
ed by defendru1t's
con
du
ct.
Under U.S.S.G. § 8Bl.l (b)(2), restitution n
eed
not be ordered to the exte
nt
th
at
the number of
12 identifiable victims is so large as to make res titution impracticable, or de termining complex issu
es
of
13 fact re lated to the cause or amount of the victim
's
losses would complica te or prolong the sentencing
4 process to a degree that the need to
pro
vide restitution to any victim is outweighed
by
the burden on the
15 sentencing p rocess.
16
How
ever, with this plea agreement, the two
ta
xpayer-sponsored financial services com panies
17 that lost money as a direct result , Fannie Mae and
Fr
eddie
Mac
, will be made whole by the defendant
18 through the $3 million restitution payment. This ob ligation was calculated by the independent inspector
19 general for the Federal Housing financ
e Agency and it is one th
at
t
he
parties agree is appropriate.
20
ll
21 ll
22 ll
23 ll
24
ll
25 ll
26
l
27
28
One of
h
e loans,
2209
Truman, ultimately so ld for more than
the
loan amount and. therefore,
the tota l loss runow1t was reduced by $41 6,000.
SENTENCrNG
MEMORANDUM
CR 6
01
99 Y R
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1 VI CONCLUSION
2 The United States respectfully requests that the Court accept the propo
se
d DSI plea agreement
3 waive the presentence report and sentence DSI on June 3 20 16. Because the parties are requesting an
4 expedited sentenc ing the United States has
pr
epared a draft
jud
gment attached as Exhibit C.
5
6
7
8
9
10
12
13
14
15
16
17
8
19
20
21
22
23
24
25
26
27
28
Dated: May 26 20 16
SENTENCING
MEMORANDUM
CR 16-0 199 YGR
Respectfully submitted
BRIAN
J.
STRETCH
United States Attorney
t u v
JOHN
H.
HEMANN
Assistant United States Attomey
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Exhibit A
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BRIAN J STRETCH (CABN 163973)
United States Attorney
2
DAVrDR.
CALLAWAY(CABN 121782)
Chi ef, Criminal Division
3
JOHN
H.
HEMANN
(CABN 165823)
4 Assistant U
ni
ted States Attorney
5
6
7
450 Golden Gate Avenue, Box 36055
San Francisco, California
94
102-3495
Telephone: (415) 436-7234
John.Hemann@usdoj .gov
Attorneys for
United
States of America
8
9
10
1 I
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
OAKLAND
DIVISION
12
3
UNITED STATES
OF
AMERICA,
14
Plaintiff,
15
v.
16
DI
SCOVERY
SALES, INC.,
17 Defendant.
18
) NO.
) PLEA
AGREEMENT
)
19 Defendant,
DISCOVERY
SALES, fNC.
( DISCOVERY
SALES ), and the United States
20
Attorney's Office for the Northern District
of
Ca lifornia (hereafter the government ) enter into this
21 w1itten plea agreement (the Agreement ) pursuant to Rule (c)( l) (C)
of
the Federal Rules
ofCximinal
22 Procedure:
23 The
Defendant's
Promi
ses
24
I
DISCOVERY
SALES agrees that,
as
a corporate defendant it is liable for
the
actions of
25 its employees and agents performed in the course and scope
of
the
ir
employment or agency.
26 Accordingly, DISCOVERY SALES agrees to plead guilty to Count One
of
he captioned Jnfonnation
27 charging it with bank fraud in violation
of
18 U.S.C. § 1344.
DISCOVERY
SALES agrees that the
28 elements of the offense are as follows: ( I) th e defendant knowingly executed a scheme to defraud a
PLEA
AGREEMENT
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financial institution as to a material matter; 2) the defendant did so with the intent to defraud the
2 financial in stitution; and 3) the financial institution was insured
by
the Federal De
po
sit Insurance
3
CoqJoration. DISCOVERY SALES
ag
rees
that
the maximum penalties for a violation
of18
U.S.C.
4
§
1344 are as follows:
5
6
7
8
9
10
2.
a.
b.
c.
d.
Maximum
fine
Maximum
probation term
Mandatory Special Assessment
Restitution
1
,000 ,000 or twice the gross gain or loss,
whichever is greater 18 U.S.C.
§
357 l(c),
d))
5 years 18 U.S.C. § 3561)
400 18 U.S.C. § 3013)
DIS
COVE
RY SALES agrees that it is guilty of the offense to whi
ch
it is pleading guilty,
12 and agrees that the following facts are true: DISCOVERY SALES agrees that during the years 2006
13
through 2008 its then-employee and officer, Ayman Shahid, committed the crime
ofbank
fraud, with
14 which he was charged
and
has
pleaded
guilty. DISCOVERY SALES further agrees that Shahid, as vice
15 president of DISCOVERY SALES, a
nd
Carey Hendrickson and
Ja
son Sterl ino, a ll of whom were
16 e
mplo
yed by
DISCOVERY
SALES during the relevant time period,
comm
itted
bank
fraud and e
ngag
ed
17
in
a conspiracy to commit bank fraud by fraudulently causing bank underwriters to approve mortgage
18 loans for unqualified buyers. From 2006 to 2008, certain buyers with little or no funds of their own
19 were induced to purchase homes at prices that were increased through the use of financial incentives.
20 These buyers were not required to possess
or po
st any of their own funds when buying a
hom
e;
21 DIS
COVE
RY SALES arranged for mon
ey
to be provided to th
ese
buyers to make
down
payments.
22 DISCOVERY SALES further agrees
that
during the 2006 through 2008 time period the sales
23 prices of certain homes were increased by offering financial incentives to new home buyers.
24 DISCOVERY SALES arranged loans that were secured by the bu
yers'
existing homes that were
in some
25 cases worth less than the loan amount, and DISCOVERY SALES did
not
make an adequate effort to
26 detennine the true value of these
hom
es. Certain former employees of DISCO VERY SALES, including
27 Shahid, committed bank fra
ud by taking steps to ensure inf01mation that wou ld reduce the va lue of the
28 homes was kept
out of
bank loan files . Specifically, the details of the incentives that were being given
PLE REEMENT
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to specific buyers
were
knowingly
withheld
from the bank
loan approval documents beca
use the true
2
loan
-to-va lue
ratio
would
not
support the requested loan on
the
increased sal
es price
of the home. If the
3 incentives bad appeared in the bank loan files, the l
oan
underwriters would likely have rejected the
4
loan
s.
5 DISCOVERY
SALES
agrees
that
numero us
mortgage
lenders and
seco
ndary pw-chasers of
6
mortgage
loans
affec
ted by
th
e bank fraud schemes desc
ribed herein
were federally insured financial
7 institutions.
8
3.
DISCOVERY
SALES agrees that
by entering this guilty plea
it her
eby waives all
9 objections to
the
fonn of
th
e c ha
rging document
s, and adm its
that
it is in
fact guilty
of
the
offen se
to
10 w
hich
it i s
pleading
guilty as
set
f 11h in the Infom1ation.
11
4.
DISCOVERY SALES agrees to appear at the plea
and
sentencing heari ngs through a
12 duly authorized corporate representative.
3 5. DISCOVERY
SALES knowing
ly
and
voluntarily
waives
the following rights through its
14 guilty plea: a) the right to plead not guilty; b) the
ri
ght to a speedy and public trial before a jury;
15
c) the right to effective assistance ofcow1Sel
at
trial; d) the right to be presumed innocent until guilt
16
has been established at
trial beyond a reasonable
doubt;
e)
the
r
ight
to
confront and
cross-
exami
ne
7 government
witnesses
at
trial; f)
th
e
right
to compel or s
ubpoena
wi tn
esses
to
appear on
DISCOVERY
18 SALES s behalf at trial; g) the right to move to suppress evidence or raise any other Fourth or Fifth
9 Amendment claims; h) the right to any further
discovery
from the govermnent
and
to purs
ue
any
20 affirmative d
efenses and present
ev idence; i) the
right
to
appeal
a
fmding
of guilt, any
orders
of
he
2 1 Court,
and
an y
aspec
t
of
its se
nt
e
nce
,
including
restitution;
and
U) the 1ight
to bring any
collateral
attack
22
against
DIS COVERY SAL
ES s conviction
or sentence, including a
petition
under
28
U.S.C. §
2255
or
23 28 U.S.C.
§
224 1,
or
motion under 18 U.S.C.
§
3582, except as it may re late to effectiveness of legal
24 representation.
25 6. DISCOVERY SALES agrees not to ask the Court to withdraw its guilty plea
at any
time
26
after it
is
entered
unless
the
Com1 declines
to
accept
the sentence
agreed to
by th
e parties .
27
DISCOVERY SALES and the
government
mutually agree that either party may
withdraw
from this
28
Agreement if the Court
does not
accept the agreed
upon
se
nten
ce set ou
t below. DISCOVERY
SALES
EA AGREEMENT
3
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further agrees that the criminal statute oflimit
at
ions shall be to lled from the date it signed the
2
Ag
reement unt
il
it has made all payments required under this agreement. DISCOVERY SALES
3
un
de
rstands that
by
ente
ri
ng into this Agreemen t: (a) it agrees that the facts set forth in Paragraph
2
of
4 this
Agreement
shall be admi
ss
ible against it under Fed. R. Evid. 80 1 d)(2)(A) in any subsequent
5 proceeding, incl uding
at
t rial, in the
event
it violates any of the terms ofthis Agreem
en t
, and (b)
it
6 expressly wa ives any and a
ll ri
ghts under Fed. R Crim. P.
ll
(f) and Fed. R. Evid.
41
0 with regard to the
7 facts set forth in Pa ragra
ph
2 of this Agreement in any such subsequ
ent
pro
cee
ding. DISCOVERY
8 SA LES unde rstands that the government will not preserve any physical evidence obtained
n
tllis case.
9 7. DISCOVE RY
SALES
agrees that the Co
ur
t will u
se
the
Se
nt
enc
ing Guideli
nes
to
10 calculate its sentence. DI
SCOVE
RY
SA
L
ES
unde rsta
nd
s that the Court
must cons
ult the Guidelines,
11
including Chap ter Eight, and take them into account when se ntencing, togeth
er
w ith the factors set f
or t
h
12 in 18 U.S.C. § 3553(a). DISCOVERY
SALES
agrees that the following Sentencing Guideline
13 ca lculations appl y:
14 a. Offen
se
Level (U .S.S.G. §§ 8C2.3 and 2B l. 1)
15
16
17
18
19
20
21
22
23
24
25
26
27
8.
b.
c.
d.
Base
Of
fen
se
Level, U.S .S.G. § 2
Bl.l
(a)( l):
Spec
ific
Of
fen
se
Char
ac
tetistic, U.S.S.G.
§
2
Bl.l
(b)(l)(M)
:
7
24
4
27
D
ow
nward Departure, U.
S.S.G
. § 2B
1.
1, cmt. 20(C):
T
ota
l Offense Leve
l:
Base F ine, U.S.S.G.
§ 8C2
.4 :
Culpability Score (U.S.S.G. §
8C2.5)
B
ase
Score, U.S.S.G. § 8C2.5(a) :
Invo lvement o r Tolerance , U .S.S.G. § 8C2.5(b)(5):
Accep tance, U.S.S.G. § 8C2.5(g)(2):
To ta l Culpability Score:
Fi.ne Multiplier, U.S.S.G. § 8C2.6:
Fine Range, U.S.S.G. § 8C2.4(d):
8.5 mi
ll
ion
5
-2
4
.8 1 .6
6.8 to 13.6 million
D
ISC
OVERY
SALES
agrees th
at
a reasona
bl
e a nd approp r
ia
te disposition ofthis case
28 under the Sentenc ing G uide lines and 18 U.S.C. § 3553(a
),
and the senten
ce
to wh
ic
h
th
e parties have
PLEA AGREEMENT
4
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agreed is, as follows:
a. Criminal Fine:
DISCOVERY
SALES shall pay a criminal fine of 8,000,000,
3 which fine amount takes into account, among other things, the government 's investigation cost in this
4 matter. The fir
st
insta llment of 1 ,333 ,333 shall be paid on the one year anni
versa
ry of sentenc ing in
5 tlus matter, with three subsequent 1,333,333 installments
on
each yearly anniversary thereafter until the
6 final payment. Inter
est
will
accr
ue beginning
on
the date of entry of
ud
gment and the fifth
and
final
7 installment will be 2,666,668, plus any remaining interest due and owing. DISCOVERY SALES
may
8 pre-pay all or part of he total fine.
9 b. Probation: DISCOVERY SALES will be placed on probation for a tenn of 5
10 years for the purpose
of
co
mt
supervision
of
payment
of
the fi
ne
and rest itution,
star
ti
ng the day
11 DISCOVERY SALES is sen tenced by the Comt. As a te
nn
of its probation, DISCOVERY SALES
12 shall
co
mmit no further violations of federal, state , or local law, and shall conduct a ll its operations in
13 accordance with the laws ofthe United States.
14 c. Mandatory Special Assessmen
t:
Pursuant to 18 U.S.C.
§
30 13, DISCOVERY
15 SALES will pay a
400
mandatory special assessment at the time of sentencing.
16 d. Restitution: DI
SCOVERY
SALES will
pay
restitution in the
amount
of
17 3,000,000 within 120 days of sentencing. The restitution amount sha ll be paid to the Clerk, United
18 States District Court fo r the Northern District
of
California, which wi
ll
process and disburse the
19 pay
ments to the victims.
20
9. DI
SCOVERY
SALES agrees that the fine a
nd
restitution impo
sed
by the Court against it
21 will be due and payable as set fo1th herein. If DIS
COVERY
SALES fails to ma
ke
any payment as
22 prescribed by this
Agreement
, the entire amount of the fine and restitution ( 11 million) shall become
23 immediately due and payable and subject to immediate
co
llection
by the
government, a
nd
DISCOVERY
24 SALES understands that the govemment may seek immediate collection of he entire fine and restitution
25 from any
assets
of
DIS
COVE
RY SALES. DISCOV
ERY
SALES agrees that it will make a good-faith
26 effo1t to pay the fme and restitution it is order
ed
to pay. DISCOVERY SALES agrees to pay the special
27 assessment
at
the time of sentencing.
28 I0. DISCOVERY SALES shall provide a bond to secure payment of the outstanding amount
PLE AGREEMENT
5
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of the fine set forth in Paragraph 8(a) above, payable to the Clerk, United States District Coun for the
2 Northern District
of California. Such bond wi ll be lodged with the Clerk
of
Court along with this
3 Agreement at the time
of
the plea.
4
11 DISCOVERY
SALES agrees that regardless
of
any other provision of this Agreement,
5 the government may and will provide the Court with a ll in formation relevant to the charged offenses and
6 the sentencing decision. The United States and DISCOVERY SALES jointly submit that this Plea
7 Agreement, together with the record that will be created
by
the United States and DISCOVERY SALES
8 at the plea and sentencing beat
ing
and the existing record of related cases before
the
Court, wil l provide
9 sufficient information concerning the defendant, the crime charged in this case, and the defendant s role
I0 in the crime to enable the meaningful exercise of sentencing authority by the Court under 18 U.S.C.
§ 3553. The Unit
ed
States and DrSCOVERY SALES agree to request jointly that the
Court
accept the
12 defendant s gui lty
plea and
impose
se
ntence on an expedited schedule as early
as
the date
of
the
13 arraignment, based upon the record provided by the defendant and the United States, under the
14 provisions
of
Fed. R. Crim. P. 32(c)( l)(A)(ii), U.S.S.G.
§
6A l
.l,
and Crim. L.R. 32-l (b). The Court s
15 denia l of this
joint
request and refen·al to the Probation Department for a Presentence Report will not
16
void this Plea Agreement.
17 J2. DISCOVERY SALES agrees not to commit or attempt to commit any
ctimes
before
18 sentence is imposed; to provide truthful infom1ation to the Court, the Probation Office, and the
19 government; and
to co
mpl y with all of the
other
promises t has made in this Agreement.
DISCOVERY
20 SALES agrees that if it fails to comply with any promises it h
as
made in this Agreement, then the
21 government will be released from a ll of its promises in this Agreement, including those set forth in the
22 Government s Promises Section below, but DISCOVERY SALES will not be released from its guilty
23 plea .
24
13.
IfDISCOVERY
SALES changes its name, the renamed company shall
be ob
liged to
25 meet all
of
the obligations
ofDISCOVERY
SALES under this Agreement. IfDISCOVERY SALES
26 merges with or is purchased by another company, the
merger
partner or purchaser shall be obliged to
27
meet all
of
the obligations of
DISCOVERY
SALES under this Agreement.
28 14. DISCOVERY SALES agrees that this Agreement contains all
of
the promises and
E GREEMENT
6
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agreements between it
and
the
govemment, and
supersedes any other agreements, written or oral. No
2 modification
of
this Agreement shall be effective unless it is in writing
and
signed by all parties.
3 15.
DISCOVERY SALES
agrees
that
the Agreement
bind
s
the
U.S.
Attorney s
Office for
the
4
Nmthern
District
of
California only,
and does not
bind any
other
federal, s tate, or local agency.
5
The
Govemment s Promises
6 16.
The government
agrees
not
to file any additional charges against
DISCOVERY
SALES
7 as a
result of
the investigation that led to the captioned Infonnation.
8
17. The
g
overnment
agrees
that
the reasonable
and
appropriate sentence
in
this case is
as set
9 forth above, as secured by
the bond
to
be
filed pursuant to paragraph 10, unless the defendant violates
I
0
any
tem1 of this Agreement or fails to accept responsibility.
8 The
government
ag
ree
s that
it
will
not
bring criminal charges related to
the
investigation
12
into undisclo
se
d incentives
and
practices
used
by DIS
COVERY SALES, among other
things, that
led
to
3
the charge alleged
in
the captioned Information
aga
inst any affiliated or related entity
of
defend
an
t
or
4 any current or fanner owner, member, shareholder, director, officer, or
emp
lo
yee
of the defendant or its
15
related or affi liated entities,
except
that the prot
ec
tions granted in this paragraph shall not apply to
16
Ayman
Shahid, Ca rey Hend1ickson, and
Ja
s
on
Sterlino, and
do not extend
to employees
of
oint
7 ven
tur
es
between
DISCOVERY
SALES
and
preferred
lenders
during
the time frame alleged in the
8
Infonnation.
The government
wi
ll
not
be
bound
to th
e te
1m
s
of
this paragraph
if defendant
fa ils to
make
9 any
payment
required und
er
paragraph 8
of
this Agreement, eith
er
directly or
through the su
rety.
20 DISCOVERY SALES s Affim1ations
21 19.
DISCOVERY SALES
represents that this Agreement shall bind DISCOVERY
SALES,
22 its
successor
corporation
if any
, a
nd
any
other person or
entity
that
assw11es the
ob
ligations contained
23
herein
( successors-in-
in t
erest ).
DISCOVERY SALES
, or its
successors-in-inte
rest,
if
applicable,
24
shall provide the
government
w
ith
immediate notice of any
name
change, change
in
corporate or
25 individual control, change in
ow
nership, merger, change
oflegal
sta
h1s sa
le or
purchase of
assets,
26 divestiture
of
assets, or simil
ar
action affecting their abi lity to
pay
the fine
or
otherwise
comply
with tlus
27 Agreement.
No
change
in
name,
change
in corporate
or
individual control,
change
in ownership,
28 merger,
change oflegal
status,
sa
le
or purchase of
assets, divestihrre
of
assets,
or
s
imilar
action sha
ll
PLEA AGREEMENT
7
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alter
DISCOVERY
SALES s obligations und
er
this Agreement.
DISCOVERY
SALES shall not engage
2 in any action to seek to avoid the
ob
ligations set forth in this Agreement.
3
20
DISCOVERY
SALES represents that it is authorized to enter into this Agreement. On or
4 before the date
of
entry and filing
of
the
Agreem
ent DISCOVERY SALES shall provide to the
5
govemment
and the
Court
a notarized written statement certifying that
DISCOVERY
SALES is
6 authorized to ent
er
into and comply
with
all
of
the provisions
of
this Agreement.
The
resolutions further
7 shall authorize a
co
rporate representative to enter into this Agreement and that a ll corporate fonnalities
8 for such auth01izations have been observed.
9
21
DISCOVERY
SALES confirms that it has had adequate time to discuss this case the
10
evidence and the
Agreement
with its attorney
and
that its attomey has provided it with all the legal
advice that
DISCOVERY
SALES requested.
12
22 .
DISCOVERY SALES confim1s
that
its decision to enter a guilty
plea
is made knowing
13
the charges that have been brought
aga
inst it any possible defenses and the benefits and po
ss
ible
14 detriments
of
proceeding to trial.
DISCOVERY
SALES also confirms that its decision to plead gui lty is
5 made voluntari ly and no
one
coerced or threatened it to enter into this Agreement
16
Dated:
7
18
9
20
21
Dated:
22
23
24
ll
25
ll
26
ll
27
ll
28
ll
PLE AGREEM T
8
WILLIAM
GOODMAN
for
DISCOVERY SALES INC.
BRIAN J. STRETCH
United States Attorney
JOHN
H. HEMANN
Assistant United States Attorney
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Case 4:16-cr-00199-YGR Document 8 Filed 05/27/16 Page 21 of 40
23. I have fully explained to
my
client all the rights that a criminal defendant has
and
all the
2 terms of this Agreement. In my opinion my client understands a ll the
tetm
s of this Ae rreement and all
3 the rights my client s giving up by plea
ding
guilty and based on the information now known to me, my
4 clie
nt s
dec
ision
to pl
ea
d guilty is knowing and voluntary.
Dated:
6
WILLIAM GOODMAN
WILLIAM
KEANE
7
Attorneys for Defendant
8
9
10
12
3
14
15
16
17
8
19
20
2
22
23
24
25
26
27
28
PLEA AGREEMENT 9
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Exhibit B
Case 4:16-cr-00199-YGR Document 8 Filed 05/27/16 Page 22 of 40
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Exhibit C
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O
24
5E (
Rev
. 1
21
0
3)
Judgment inn C
rim
i
na
l Case for Org
an
iz
ati
onal Defendants
Sheet
I
UN1TED STATES DISTRICT COURT
Northern
UNITED STATES OF AMERICA
v.
DISCOVERY
SA
L
ES
, INC.
THE
DEFENDANT ORGANIZATION:
District
of
Ca
forn ia
JUDGMENT IN A CRIMINAL CASE
(For Organ izat
ion
al Defendants)
CASE
NUMB
ER: CR 16-0199 YGR
William Goodman Willia m Keane
Defendant Org
an
ization s Atto
rn
ey
i' pleaded guilty
to
cou n
t(
s) one
-------------------------------------------------------------
0 ple
ad
ed nolo contendere to count(s)
which was accepted by the co
urt.
0 wa s found gu ilty on count(s)
after a plea
of
not gui lty.
The organizational defendant is adju
di
cated g
ui
lty of hese offense
s:
Title Section
18 U.S.C. 1344
Nat
ut
·e of
Offense
Bank Fra ud
The defendant organiza
ti
on is sentenced as provided
in
pages 2 throu gh
0
The defendant orga
ni
zation has been fou nd n
ot
g
ui
lty on count(s)
Offense End ed
_ _ of this judgm ent.
0
Count(s)
0
is
0
a
re
dis
mi
ssed
on
the motion of
th
e United States.
Co
unt
One
It is ordered that the defendant oroanization mu st noti v the United States attorn
ey
for this district within 30 days ofany change
ofname, principalbus
in
ess address, or maiiing
add
ress until all fin es, restitution,costs, and special assessments imposed by this ud gment
a
re fu
lly paid.
If
ordered to pay restitution,
th
e defendant organization
mu
st notify
th
e cou rt and Un ited States attorney of mate
ri
al
changes in econom ic circumstances .
D
efe
nda
nt
Or
ga
ni
za
tion s
Fede
ral
Empl oye r J.D. No.:
:0: :0: :
: :0: :3 :9
_:3
Defe
n
dant
Organiza
ti
on s Prin
ci
pal
Bu
siness Addr
ess:
4061 Port Chicago Highway
Concord, California 95420
De
fendant Org
an
ization s
Mai lin
g Addre
ss:
4061 Port Chicago Highway
Concord ,
Ca
lifo
rni
a 95420
6/3/2
01
6
Dat
e ol lmp
os iti
on of
Ju
dgm
en
t
Signature of
Jud
ge
Yvonne Gonza lez-Rogers
U.S. District
Judge
Na
me of Judge
Title
of
Ju
dge
6/3/2016
Date
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Case 4:16-cr-00199-YGR Document 8 Filed 05/27/16 Page 26 of 40
AO 245E Rev. 12/03) Judgment in a C
r
minal Case for Orga
zat onal Defendants
Sheet lA
DEFENDANT
OR
GAN IZATION : DISCOVERY SALES INC.
CASE
NUMBER CR 16-0199 YGR
Judgment- Page
ADDITIONAL COUNTS OF CONVICTION
Title Section Nature
of
Offense Offen
s
Ended
of
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AO
245E (Rev. 12103} Judgment
in
a Criminal Case
for
Organizational Dcfcndan S
Sheet 2 - Probation
DEFENDANT
ORGAN IZATION: DISCOVERY SALES, INC.
CASE NUMBER:
CR 16-0199 YGR
PROB TION
The
defendant organization is hereby sentenced to probation for a
tenn
of:
5 years
The defen
dant
organizat ion shall not commit another federal, state or loca l crime.
Judgment-
Pa
ge
2
of
6
If this judgment imposes a fine or a restituti
on
obl i_garion, it is a cond ition of probation that the defendant organ ization
pay
in
accordat
ice
w ith
the
Schedule
of
Payments sh
eet of
tnis judgment.
The defendant organization mu
st
con
ply
with the standard conditions tha t have been adopted by this
coutt
as we ll as with any
additional conditions on the attached page if mdicated below).
Defendant shall pay the 3 million restitution ordered by the Court within 180 days of sentencing.
Defendant shall pay the 8 million fine imposed by the Court on the fo
ll
owing schedule: The first installment of
1,333,333 shall be paid on the one year anniversary of sentencing in this matter, with three subsequent 1,333,333
installments on each yearly anniversary thereafter until the final payment. Interest wi ll accrue beginning on the date
of
entry
of
udgment and the fifth and final installment will be 2,666,668, plus any remaining interest due and owing.
Defendant shall lodge with the Clerk of Court on the day of sentencing a surety bond in the amount of 8 million
pa ya ble to the Clerk of Court, Northern District of California.
f
defendant fails to make any fine payment on the
schedule set forth above, the total amount of the bond shall be forfeit to the United States.
ST ND RD CONDITIONS OF SUPERVISION
I) within thitty days from the date ofthis judgment, the defendant organ ization sha
ll
des ignate an official of
th
e organ ization to act
as the organizations s representative and to be the primary contact with the proba tion officer;
2)
t11e
defendant organization sha
ll
answer
truth fully a
ll
inquir ies by the probation officer
and
fo
ll
ow
the instructions
of
he probation
officer;
3) d1e
defendant organ ization shall notifY the pr
obat
ion officer ten days prior to any change in principal business or
ma
iling address;
4) d1e defendant organi zation sha ll permit a probation officer to v isit
th
e orga nization at any of its operating bus iness si tes;
5)
de.fendant orgat:J iza t
i
on shall
o ~ t y
the probation of
f
cer.w ithin
seve
nty-two hours
of
any criminal prosecution, major civil
lt tt
gatw
n, or admmtstrahve proceed
tn
g agamst the orgall tzat
tOn
;
6)
the defendant organization shall not disso lve, change its name, or chanoe
th
e name under which it does business un less
th
is
jud_gment a
nd
a ll cr iminal mor:tetary pena lties i rnposea by this court are e itfler fully satisfi ed or are eq ua lly enforceab le again
st
the
derendant
s
succe
sso
rs or ass tgnees; and
7) the defendant organ ization sha ll n
ot
waste, nor witho ut perm iss ion of the probation officer, se ll, ass ign, or transfer its assets.
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AO 245E Rev. 12/03 )
Judgmem
in
a
Crimin
al
Case for Organi
za
t ional Defe
ndants
S
he
et
A Probation
DEFENDANT ORGANIZ
AT
lON: DISCOVERY SAL
ES
INC .
CASE
NUMBER CR
16
-0199 YGR
DDITION L PROB TION TERMS
Judgment Page
o
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AO 245E
Rev
12/03) Judgment
in
aC
riminal
Case forOrganizmional Defendants
Sheet
B -
Probat
io
n
DEF
EN
DANT ORGANIZATION DISCOVERY SALES
IN
C.
CASENUMBER CR 16-0199 YGR
Judgment- Page
SPECI L CONDITIONS OF SUPERVISION
o
6
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AO
245
E Rev. 12/03 Judgment in aCriminal Case forOrganizational Oe tendants
Sheet C Probation
DEFE
ND NT
ORG NIZATION: DISCOVERY SALES INC.
CASENUMBER
CR 16-0199 YGR
Ju
dgment-
Page of
DDITION L ST ND RD CONDITIONS OF SUPERVISION
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AO 245E (
Rev 12
/03) Judg
ment in
a C
riminal
Case for Organ izatio
nal
Defendants
Sheet 3 - Criminal Monetary Penalti
es
DEFENDANT
ORGANIZATION: DISCOVERY
SA
LES, I
NC
. Judgment -Page _
CASE NUMBER:
CR 16-0199 YGR
CRilVIINAL
MONETARY
PENALTIES
of
6
The defendant organization must pay the followi
ng
total criminal
mon
etary penalti
es
under the schedule
of
paymen
ts
on Sheet 4.
TOTALS
Assessment
400.00
D The determ
in
ation of restitution is deferred until
e
nt
er
ed
after s
uch
determination.
Fine Restitution
8 000 000.00
3 000
,000.00
An mended Judgment in a Criminal Case (AO 245C) w
ill
be
D The defendant organization sha ll make restitution ( includ
in
g commun ity restitution) to the follow
in
g payees
in
the amount listed
below.
If
the defendant organization makes a partial payment, each payee shall receive an approx
im
ately pro
p01ti
oned payment, uoless speci
f
othe
rwi
se in the pnority orderor percentage payment column below How ever, pursuant to 18 U S.C.§ 3664(i), all nonfeoera lvict im sm
be paid before the United States is paid.
Name of Pavee
FH
LMC
FNMA
Tota l Loss*
Restitution Ordered Prioritv or Percentage
1 ,175 000.
00
1,825,000.00
TOTALS
0.00
3,000 000.00
lit Res titution amount ordered pursuant to
pl
ea agreement 3,000,000.00
lit
The defendant organization shall pay interest
on
restitution or a
fi
ne
of
more than 2,500,
unl
ess t
he re
s
ti
t
uti
on
or
fin
e is paid
in full
before the fifteenth day after the date of the judgme
nt
, pursuant to 18
U
S.C § 3612(f). A
ll
of the payment opt ions on Sheet 4
ma
y
be subject to penalties for del inquency and default, pursuant to 18 U.S.C. § 3612(g).
D The
co
urt deter
min
ed that the defendant organi
za
tion does not hav e
th
e ability to
pay
interest, and it is o
rd
e
red
tha
t:
D the interest requirement is waived
for
the D
fm
e D restitution .
0 th
e inter
es
t requireme
nt
for the
D fine D
restitution is modified as follows:
Findings for the totalamount of osses are required und er Chapters I09A, I I0, I IOA, and I 13A ofTitle 18 for offenses committed on or afte
Se
ptemb er 13, 1994, but before April 23,
19
96
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AO 245E Rev. 12/03) Judgment in a Criminal Case or Organizational Defendants
Shee t 3A - Criminal Monetary Penalties
DEFENDANT ORGANI
ZATIO
N DISCOVERY SALES INC.
CASENUMBER: CR
6
-0199 YGR
Jud
gment
Page of
DDITION L TERMS OR CRIMIN L MONET RY PEN LTIES
6
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AO 245E Rev . 12/03) Judgment in a Crim in
al
Case for Organizational De fenda
nts
Sh
ee
t 8 C
riminal
Monetary P
ena
ltie s
DE
FEN
DANT
ORGAN
I
ZAT
ION: DISCOVERY SALES, INC.
CASE NUMBER: CR 16-01
YGR
Judgment -
Page
of
ADDITIONAL RESTITUT
IO
N PAYEES
Name of Pavee Tota l Loss*
P
ri
ority or
Res titution O
rd
er·ed
Pe
rce
nt
a2e
6
Findings for the total amount
of
losses are req
ui
red by Chapters I09A, I I0, II OA , and I
3
A
of
Title
8
fo
r offenses committed o
or after September 3 , 1994, but before April 23, 1996.
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Case 4:16-cr-00199-YGR Document 8 Filed 05/27/16 Page 34 of 40
245E Rev. 12/03) Judgment
in a
Criminal Case
fo
r Organizational Defendants
Sheet 4 -
Schedule ofPayments
DEFENDANT ORGAN
IZATION : DISCOVERY SALES, INC.
CASENUMBER: CR 16-0199 YGR
SCHEDULE OF P YMENTS
Jud gment- Page
_
H
av
ing assessed the organizat
ion
's
ab ility
to pay, payment
of
th
e total criminaI
mon
eta
ry
penalties are due as
fo
ll
ows:
A 0
Lump s
um
payment
of
due immediately, balance due
0 not later than
0
in accordance with
0 C
or
, or
0
D below; or
B 0
Pa
yment
to
begin
imm
ediately (
ma
y be combined with
OCor
0 D below); or
of
C 0 Payment in (e.g., equal, weekly, monthly, qua1terly)
in
stallments
of
over a period
of
(e.g., months or years),
to
commence (e.g., 30 or 60 days) after the
da
te
of
this judgment; or
0 Special instructions regarding the payment
of
cri
min al mon
etary penalties:
The 3,000,000 restitution payment shall
be
made within
18
days
of
the date
of
se
nt
encing.
6
The first installment
of
1,333,333 shall be paid on the one year anniversary
of
sentencing, with three subsequent
1,333,333 insta
ments on each yearly anniversary thereafter until the final payment. Interest will accrue beginning on
the date of entry
of
udgment and the fifth and final installment will be 2,666,668, plus any remain ing interest due and
owing. Defendant may prepay all or part
of
the total prior to dates on which installments are due.
Al
l cr iminal monetary penalties are made to
th
e clerk
of
the cotu
t.
The defendant organiza tion shall receive credit
for
a
ll
payments previously made toward any ctiminalmonetary penalties
imp
osed.
0
Joint and Several
Defendant and Co-Defendant Names and Case Nu mb ers (including defendant num ber), Total Amount, Jo
in
t and Several Amount, an
corresponding payee,
if
appropriate.
0 The defend ant organization shal l pay the cost of prosecution.
0
The defendant or
ga
nization sha
ll
pay the following
co
urt cost(s):
0 The defendant orga nization shall forfeit the defend ant organ iza tion s interest
in
the follow
in
g property to the Un ited States:
Payme
nt
s sha
ll
be applied
in
the fo llowing order: ( I) assessment, (2) resti tution principal , (3) restitution
in
terest, (4) fine principal,
(5) fine interes
t,
(6) communi
ty
restituti
on
, (7) pena
lti
es and (8) costs, including cost
of
prosecution
an
d
co
urt costs.
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AO 245E Rev. 1
2103
Judgment
in
a Criminal Ca
se
for Organizational
De
fendants
Sheet A Schedu le of Payments
DEFENDANT ORGANIZATION: DISCOVERY SALES INC.
CASE NUMBER:
CR 16-0199 YGR
Judgment- Page
of
ADDITIONAL DEFENDANTS AND CO-DEFENDANTS HELD JOINT AND SEVERAL
Case Number
Defendant
and
Co-Defendant
Names including defenda
nt
number Total Amount
Joint
and
Several
Amount
Corresponding
Payee,
if
appropnate
6
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2
5E
R
ev
. 12/03) Judgme
nt
in
a
Criminal Case lor Or
ganiza ti
onal
Defe
ndantS
Sheet 48 - Sched ule
o
Payments
DEFENDANT
ORGANJZATION DISCOVERY SALES INC.
CASE NUMBER: CR 16-0199 YGR
DDITION L FORFEITED PROPERTY
J
udgm
ent -
Page
of
6
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Case 4:16-cr-00199-YGR Document 8 Filed 05/27/16 Page 37 of 40245E (Rev . 12/03) Judgment in a Criminal Case . Jrganizational Defendants
A
tt
achment - Statement
of Reas
ons
.
DEFENDANT
ORGAN IZATION: DI
SCOVERY S LES, INC.
C SE NUMBER:
CR 16-
01
99 YGR
STATEMENT OF REASONS
0 The cour t adopts the presentence report and guidel
in
e applications WI
THOUT
CH NCE.
R
Judgmcn t -
Page __
_
0
The
co
urt adopts the prese
nt
en
ce
report gu
ide
li
ne a
ppl
ica
ti
ons BUT WI
TH TH
ESE
CHANG
ES
:
G uideline Ran
ge
Determined
by
the C
our
t:
0
The defe
nd
a
nt
organization is a crimin al purpose organiza
ti
on pu rsuant
to
U.S.S.
G.
§8C 1.1.
R
of
0 The calculation of the guideline fine range is
tm
necessary because the defenda nt organization cannot pay restitution pursuan t to
U.S.S.G. §8C2.2(a).
R
To
tal Offense Leve l: _2_ _______
Base Fin e:
8,500,000.00
Total Cul pabi
lity
Score: _4______
Fine Range: 6,800,000.00 to 13,600,000 .00
is added
to
fine pursuant
to
U.S.S.G. §8C2.9.
Disgorgemen t amo
un
t of
0 Fine offset amount
of
is subtracted from fine
pu
rsuant to U.S.S.G. §8C3.4.
0
Fine wa ived or below the gu
id
el
in
e range because of
in
a
bi
lity to pay pursuant to U.S.S.G. §8C.3.3.
R
ES
TITUTION DETERMIN TIONS
Total Amount of Restitution:
3
000,000.00
O For offenses for which res
ti
tution is otherwise mandatory under 18 U.S.C.
&
3663A, resti
tu
tion is not order
ed
because the num ber
id
entifiable victims is so large as to make r
es
titution imprac ticable
und
er 18 O.S.C. § 3663A(c)(3)(A).
O For offenses for
wh
ich
res
ti tut ion is o
th
erwi
se ma nd
atory under 18 U.S.C. § 3663A, restit
uti
on is not ordered because determining comp
l
issues of fact and relating them to the cause or amount of the vic
tim
's losses
wo
uld complicate or
pro
long
th
e sentencing process to a
de
r
that the need to provide res titut ion
to
any victim wou ld be outweigh
ed
by the burden on the sentencing process under 18 U.S.\....
3663A(c)(3)(B).
0
For offenses for which restit
ut io
n is autho
ri
zed under 18 U.S.C. § 3663 and/or re
qu
ired
by th
e senten
ci
na
gu
idel
in
es, rest
it
ut
ion is n
ordered because the c
om
plication a
nd
pro longa tion of he se
nt
enc
in
g o e s s resulting from
th
e fash
io
ning o'ta restitution order outweig
th
e need to provide restitut
ion
to any victims under 18 U.S.C. § 365J(a)( I (B)(ii).
0 Restitution is not ordered for other reasons:
0 Partia l rest
itu
t
ion is
ordered pursuant to 18 U.S.C. § 3553(c) fo r the fo llow ing reason(s):
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nn
izational Ddcndants
Attac
hm
ent
A -
Statementof Reasons
.
DEFENDANT
ORGANIZAT
ION: DISCOVERY SALES IN .
CASENUMBER R 16-0199 YGR
ST TEMENT OF RE SONS
Judgment - P
age
6
of
6
Th
e
se
ntence is wit
hin
th
e guide
lin
e range and
th
e
co
urt
find
s no reason
to
de
pmt
from
th
e sentence called for
by
the app
li
cation
of
the guidel ines.
R
D
The sente
nc
e departs from
th
e guideline ran
ge
:
D
upon
motion
of
he govemm ent, as a result of a defendant s s
ub
stantial assistance, or
0
for the following specific reason s):
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Case 4:16-cr-00199-YGR Document 8 Filed 05/27/16 Page 39 of 40\02451:. Rev . 12/03) Judgment in a Criminal Case . rganizational Defendants
Attachment B- Statement of Reasons
QEFENDANT ORGANIZATION: DISCOVERY SALES
IN
C
C SE NUMBER:
CR 16-0199 YGR
Judgment - a
ge
DDITION L FINDINGS ND GUIDELINE PPLIC TION CH NGES
of
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Attachment Statement ofReasons
DEFENDANT ORGANJZATION: DISCOVERY SALES C.
CASE
NUMBER
CR 16-0199 YGR
Judgment - Page
o
DDITION L RE SONS OR DEP RTURE FROM THE GUIDELINE R NGE
6