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United States v. Coviello, 225 F.3d 54 (1st Cir. 2000) (full-text).
Factual Background Edit
Defendants Robert and Maxine Simons owned and operated a discount computer products store, called Crazy Bobs, that sold stolen Microsoft software. Marc Rosengard was the buyer for Crazy Bob's. Gerald Coviello was a friend of Robert’s who aided in the selling of some stolen Microsoft software. They all were charged with conspiracy to transport stolen property in interstate commerce.
In 1994 the Simons met David LaPointe, who was able to obtain stolen computer diskettes, tapes and CDs from KAO Infosystems. The Simons would purchase these items and resell them at their store at a signifigant discount. In June 1996 LaPointe sold to Crazy Bob's more than 10,000 Microsoft Windows 95 CD-ROMs, at $15 each, even though these disks regularly cost $165 each. LaPointe insisted on cash payments from Rosengard, and Maxine Simons structured these payments in increments less than $10,000 each so to avoid the Treasury Department's reporting requirements.
In December 1996 Crazy Bob’s again purchased through LaPointe around 13,962 copies of Microsoft Office 97 Professional Edition, but Rosengard agreed to pay LaPointe in a series of installments because he didn't want to attract suspicion. Because these stolen discs did not have the necessary "key codes" to access the software, Rosengard and others at Crazy Bob’s devised new key code stickers for the CDs. From the sale of these [disc]]s, Crazy Bob's made $908,108 in profits.
In March 22, 1997, an employee of Crazy Bob's was arrested by the FBI. Rosengard began the documentation to transfer $425,000 of stolen property from Crazy Bob's account to another account, which was closed after the checks were distributed. Crazy Bob's was able to dispose of 8,000 discs before the FBI obtained a search warrant. Rosengard offered to sell the discs to Jasper Knabb, the owner of a computer store in North Carolina, stating that he needed to get rid of the discs fast because they were "hot." Knabb reported this and became an informant for the FBI, and agreed to set up a meeting with Coviello to set up the transaction. Coviello negotiated a cash payment from Knabb and set up a meeting at a restaurant, where he was eventually arrested by the FBI.
The Simons', Coviello, and Rosengard were all indicted for conspiracy to transport stolen property. The Simon’s and Rosengard were charged with sixteen counts of interest transportation of stolen property. The Simon’s were also charged with one count of conspiracy to launder money. and eleven counts of money laundering. Maxine was charged with three counts of structuring to evade reporting requirements, and one count of making false statements to federal agents. The money laundering counts against Maxine were dismissed.
Appellate Court Proceedings Edit
Robert and Rosengard pled guilty and now appeal their sentences. Maxine and Coviello proceeded to trial and now appeal both their convictions and sentences.
The main issue was whether the loss to Microsoft was properly calculated. This argument is posed in three different categories, (1) that the district court erred in deciding Microsoft instead of KAO Systems was the victim, meaning a higher figure; (2) if "fair market value" approach to loss calculation is employed, the amount reached was still incorrect; and (3) the "fair market value" approach was inappropriate.
The Court of Appeals affirmed the ruling District Court. The Court applied the relevant statute, Section 2B1.1(b)(1) of the Sentencing Guidelines ("Guidelines"), which calls for enhancements to the base offense level in cases involving the transfer of stolen property depending on the amount of "loss." According to the statute, "loss" is "the value of the property taken, damaged or destroyed . . . ordinarily[ meaning] the fair market value of the particular property at issue." The "loss need not be determined with precision" and the the court need only "make a reasonable estimate of the loss, given the available information."
In regards to the first category disputed, the District Court determined that Microsoft was the owner of the property for the purposes of this statute because the value of the CDs was not from the physical ownership of the CD itself, but from the intellectual property contained on the CD, that belonged to Microsoft. As a result, the court determined the loss would be calculated as such:
|“||Relying on testimony from Microsoft and one of its large wholesale customers, the court concluded that Microsoft could have sold the 32,000 Office CD-ROMs wholesale for $486 each and that it could have sold the 10,000 Windows CD-ROMs wholesale for $165 each. Thus the loss caused by the Simonses and Rosengard through the sale of all of these discs was $17 million, resulting in the seventeen-level enhancement that applies to loss between $10 and $20 million. See § 2B1.1(B)(1)(R). The court found Coviello responsible only for the 8,000 Office discs he attempted to sell, resulting in a loss figure of $3.9 million and a sentencing enhancement of 15 levels. See § 2B1.1(B)(1)(P) (15 level enhancement for loss between $2.5 and $5 million).||”|
In regards to the second category, the appellate court concluded the district court properly calculated the loss figure because, despite Defendants arguments that Microsoft occasionally sold their CDs at lower prices, there was no indication here that these CDs were destined to be discounted. Furthermore, Defendants would have to show a dramatic decrease in worth in order to lower the enhancement according to the statute.
|“||For the Simonses and Rosengard to prevail on this theory, they would have to show that the lack of packaging reduced the fair market value of the discs from $17 million by approximately forty percent to the less than $10 million required for a lower enhancement under the Guidelines. Coviello would have to demonstrate . . . [a] reduced value from $3.9 million by approximately thirty-five percent to less than $2.5 million. The district court did not clearly err in failing to make such a dramatic reduction.||”|
Finally, the appellate court concluded that another measure other than "fair market value" was inappropriate. The defendants suggest that the loss be measured by the gain of the defendants — about $1.3 million. Defendants rely on a portion of the statute which states "where the fair market value is difficult to ascertain or inadequate to measure harm to the victim, the court may measure loss in some other way, such as reasonable replacement cost to the victim." The court decides that there is an easily ascertainable market value, which would be what Microsoft would sell the CDs for and rejected the defendants' notion.