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The 2d U.S. Circuit Court of Appeals has reversed the low sentences imposed on a hotel group’s former general counsel and its chief financial officer in connection with a $100 million bank fraud scheme. U.S. v. Cutler, No. 05-2516. The circuit court threw out the term of probation for one-time Days Inn Worldwide Inc. General Counsel Sanford Freedman and the sentence of one year and one day meted out to the hotel chain’s former chief financial officer, James Cutler. Friedman and Cutler were convicted in a bank fraud scheme in connection with the rapid expansion of a hotel network that included Days Inn and several independent hotels. Before Judge Loretta Preska of the U.S. District Court for the Southern District of New York, prosecutors argued that the proper calculation under the Federal Sentencing Guidelines would have Cutler serving a prison sentence of between 6 1/2 years to eight years, one month, and Freedman a sentence of between nine years and 11 years, three months. Preska departed downwardly from the guideline ranges for both defendants. She also ordered Cutler to pay restitution of $29.8 million and forfeit $1.4 million. Freedman was ordered to pay $14.6 million in restitution and forfeit $3 million. The 2d Circuit reversed. Writing on behalf of the court, Judge Amayla Kearse said that “the sentences imposed did not properly interpret certain of the sentencing factors that the court was required to consider under 18 U.S.C. � 3553(c), such as ‘punishment’ and deterrence of others; and . . . some of the court’s rationales would promote disrespect for the law.” For Cutler, the circuit said, “The magnitude of the losses suffered by the defrauded banks was precisely what the coconspirators intended, and there can be no doubt that Cutler knew the goal and took significant steps to achieve it.” In Freedman’s case, the circuit court said the lower court erred by not adding a two-step increase to his offense level for obstruction of justice for false statements he made to Internal Revenue Service investigators. As in Cutler’s case, it found error in the lower court’s decision that the loss attributed to Freedman overstated his culpability. “Here, the massive losses incurred by the banks not only were foreseeable, they were the express goal of a highly orchestrated conspiracy,” Kearse said. “Further, Freedman’s participation in that conspiracy was pervasive.” Preska had found that a prison term would ordinarily be merited, but that Freedman had already received “just punishment” because of “the public nature of the prosecution, the public humiliation” he suffered, “the loss of his law license” and other consequences. Kearse said “the consequences listed by the court are hardly unusual.” Though Freedman was 69 years old and in poor health at the time of sentencing, the “departure is most troublesome because of the implications of the court’s findings with respect to the Bureau of Prisons to care for prisoners who have heart conditions and because the evidence as to the ailment on which the court principally relied indicated that the ailment was not caused by Freedman’s heart condition and was neither permanent nor constant,” Kearse said. The 2d Circuit remanded the case for resentencing.

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