Kenneth Rijock

Kenneth Rijock

Wednesday, January 14, 2015

ILLARRAMENDI SEEKS TIME SERVED IN HIS $300M HEDGE FUND PONZI SCHEME



Counsel for Francisco Illarramendi, the hedge fund operator who is looking at a possible sentence of life in prison, without any possibility of release prior to his death in custody, has belatedly filed his 74-page Sentencing Memorandum. After an extensive argument, he concludes that Illarramendi should receive a sentence of such short duration, that he would be eligible for immediate release; you be the judge of the merits of his position.

A summary of the lengthy arguments, which contain profuse citations to legal authorities, and which include numerous efforts to mitigate, or excuse his criminal conduct, might be helpful, for most  readers will not choose to read the entire text of the memorandum:

(1) Irrespective of the fact that the defendant admitted that he was running a Ponzi scheme to stay afloat,  that he was guilty of fraud, and had engaged in illegal bribes and kickbacks, in order to stay in business, his hedge fund activities were not a Ponzi scheme.

(2) His motive was to protect his investors; any criminal conduct that he engaged in was merely aberrant behavior, as he had good intentions, but erred in his methods of problem solving.

(3) PDVSA, the Venezuelan Government oil monopoly, was guilty of unclean hands. he was merely seek to keep himself and his family alive in a sea of vipers.

(4) The Sentencing Guidelines computation, by the US Probation Office, was calculated at Level 43, which is a Life Sentence. Under the Sentencing Reform Act, there is no good, or gain time for a life sentence, and he will not be released until his death, if that is his sentence.

(5) The computation includes a 28-level increase, due to the $200m-$400m loss calculation. The actual loss suffered by the victims is zero, because the receiver has acquired $354m in assets, as against $250m in valid claims. Therefore, 100% of the claims will be paid, and if you disallow a number of smaller enhancements, and give him credit where credit is due, he ends up at a Level 11.

(6) A Level 11, given that he has spent 2 years in pre-trial confinement, after his bond was revoked, means that any sentence in that range translates to time served, meaning that he should be release forthwith.

(7) Counsel submits that six months of halfway house or home confinement (house arrest), and five years of Supervised Release, is appropriate after his release.

(8) "Actual imprisonment is not necessary," given his work history and background as a legitimate financial services professional.

Having read this persuasive argument, I want you to consider the definition of loss. Federal decisions hold that loss is the greater of actual or intended loss. Intended loss is the "pecuniary harm that was intended to result from the offense.*"

There were actual losses here. You cannot walk away from criminal conduct because the subsequently-appointed Receiver had not been extremely effective in assembling assets, there would have been substantial net losses at the end of the case. By any definition, actual or intended, there were nine-figure losses when the hedge funds crashed and burned.

Of course, there is always the possibility that defense counsel is populating the record with citations to authority, which may aid his appeal of the sentence ultimately handed down, where he will seek an appellate reversal, and remand, for re-sentencing.  

We now await the filing of the reply of the US Attorney's Office;  you can be certain that it will respond in detail to defense counsel's arguments, focus on his criminal conduct, and seek a penalty in accordance with the Guidelines computation of the USPO. It may recommend 20-30 years, rather than life imprisonment, for that could be considered harsh in a white-collar case, and not in line with the Ponzi sentences meted out to Alan Stanford and Scott Rothstein. Sentencing looms on the horizon.





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