The Criminal Defense Blog

DOJ announced that Gary James Harmon of Cleveland, Ohio, was sentenced to four years and three months in federal prison for stealing over 712 bitcoin. The bitcoin, which was worth approximately $4.8 million at the time of the theft, were the proceeds of the darknet bitcoin mixer Helix and subject to forfeiture in a then-pending criminal case against Harmon's brother, Larry Dean Harmon.

Larry Harmon was arrested in February 2020 for operating Helix, a darknet-based cryptocurrency money laundering service, also known as a "mixer" or "tumbler." Helix allegedly laundered over 350,000 bitcoin, valued at more than $300 million at the time, on behalf of its customers, primarily from darknet markets. Following the arrest, law enforcement seized various assets, including a cryptocurrency storage device that contained Larry Harmon's illegal proceeds generated through the operation of Helix. However, the device's additional security features initially prevented law enforcement from recovering the bitcoin. Crypto Criminal Defense Lawyer Blog 

The government alleged that Gary Harmon took advantage of their inability to access the bitcoin on the seized device by using his brother's credentials to recreate the wallets stored on it. The government further alleged he then covertly transferred over 712 bitcoin to his own wallets, stealing the funds and obstructing the pending criminal forfeiture proceeding against his brother. To further conceal the theft, Gary Harmon was alleged to have laundered the proceeds through two online bitcoin mixer services before using the laundered bitcoins to finance large purchases and other expenditures.

As part of his sentence, Gary Harmon agreed to the forfeiture of cryptocurrencies and other properties derived from the fraudulently obtained proceeds, including over 647.41 Bitcoin (BTC), 2.14 Ethereum (ETH), and 17,404,400.64 Dogecoin (DOGE). Due to the increase in market prices, the total value of these forfeitable properties now exceeds $20 million.

This blog post was prepared with the assistance of ChatGPT-4 AI. Nothing in this post should be considered legal advice or the creation of an attorney-client relationship. This blog is strictly for informational purposes only.

I had the pleasure of speaking this weekend at the New York State Bar Association’s CLE conference at NYU entitled: Deep Dive Into The Metaverse And Web3: The First Global Law Symposium on the topic of money laundering and blockchain crime. 

The conference was put on by the State Bar’s Task Force on Emerging Digital Finance and Currency—which is leading the nation in helping to educate and on-board lawyers into digital asset tech law. The featured speakers at this first of its kind Global Law Symposium were some of the top lawyers in the world on the subject of blockchain and web3 technology. I was truly honored to be a part of this amazing event. Crypto Criminal Defense Lawyer Blog  

One of the subjects we covered was how transnational criminal organizations profile and target unsuspecting victims through a sophisticated social engineering fraud practice known as “pig butchering”. 

What is Pig Butchering?

“The victims in Pig Butchering schemes are referred to as ‘pigs’ by the scammers because the scammers will use elaborate storylines to ‘fatten up’ victims into believing they are in a romantic or otherwise close personal relationship,” according to the affidavit in support of the Los Angeles seizure warrant. “Once the victim places enough trust in the scammer, the scammer brings the victim into a cryptocurrency investment scheme.” DOJ Press Release 

"Pig butchering" is an internet fraud scheme that primarily targets individuals looking for romantic relationships online. The term is derived from the practice of raising a pig and feeding it until it is ready for slaughter. Similarly, in this scam, the fraudster (also known as the "pig butcher") gains the trust of their victim (the "pig") over a period of time before eventually defrauding them of their money or personal information.

The FBI noted in its 2023 IC3 Report that a new form of romance scam is on the rise. know as “pig butchering” has overtaken business email compromise (BEC) scams and become the preferred cyber criminal fraud scheme. 

Confidence/Romance Fraud: An individual believes they are in a relationship (family, friendly, or romantic) and are tricked into sending money, personal and financial information, or items of value to the perpetrator or to launder money or items to assist the perpetrator. This includes the Grandparent’s Scheme and any scheme in which the perpetrator preys on the complainant’s “heartstrings.” 2023 IC3 Report

How Does Pig Butchering Work?

The pig butchering scheme typically involves the following steps:

1. Establishing Contact: The fraudster creates a fake online profile on a dating website or social media platform, often using stolen pictures and fabricated personal information. They then initiate contact with potential victims by sending messages expressing interest in forming a relationship.

2. Grooming the Victim: Once contact has been established, the fraudster works to build trust with the victim through regular communication, sharing personal stories, and even sending gifts. This stage is crucial in establishing an emotional bond, making it more difficult for the victim to suspect foul play.

3. The Hardship Story: After gaining the victim's trust, the fraudster will introduce a hardship story. This could range from a sudden financial crisis, a sick relative, or legal trouble, ultimately leading to a request for financial assistance from the victim.

4. Extraction of Money or Information: If the victim decides to help, the fraudster will request money transfers or personal information such as bank account numbers or Social Security numbers, which can be used for identity theft or other fraudulent activities.

5. Disappearance: Once the fraudster has obtained the desired funds or information, they will typically sever contact with the victim and disappear, leaving the victim emotionally and financially devastated.

After showing the victim some phony realized gains on the initial investment, pig butchers will then use that initial “win” to extract more money from unsuspecting victims. When the victims try and take profits, they are often met with some excuse why the funds are not available. The fraudsters then prey on the emotions of the victims and persuade them to send even more money to an anonymous wallet address. 

Victims of pig butchering schemes are very often either embarrassed or refuse to accept that they have been taken advantage of until it’s too late. This hesitation to report the behavior often leads to victims doubling and even tripling-down on their initial fraudulent investment to try and recoup their original losses. The fraudsters are very good at creating new “opportunities” for these victims to invest additional money to try and either make back losses on their initial investment or to try and gain access to the original investment that is typically somehow been locked-up in inaccessible. 

This is just one of the many examples of how transnational criminal enterprises can use blockchains to facilitate fraud. Another type of crypto fraud involves the recruitment of sometimes unsophisticated parties to assist in the movement of cash from fraud schemes overseas in exchange for a commission. Fraudsters will recruit individuals to receive large bulk cash, run that cash through their bank accounts, and then move the cash to a centralized crypto currency exchange. The fraudsters will then instruct these individuals to send the money in the form of crypto to a wallet address connected to the transnational fraud organization. 

These transactions often trigger bank alerts that are reported to law enforcement. Once law enforcement gets involved they usually are able to very easily trace the money back to the individual who deposited the illicit cash proceeds. These individuals then face the possibility of criminal prosecution for wire fraud, money laundering and acting as an unlicensed money services business. 

Sadly, these unwitting pawns are often the only individuals that the government can find and prosecute for these fraud schemes. It’s rare that the government can reach back overseas and successfully find and arrest the transnational fraud players who received the laundered crypto funds. The local facilitators of these laundering schemes are therefore often left suffering the brunt of the consequences for these schemes that can result in felony convictions, prison or probation sentences and an order to make full restitution for the losses suffered by the victims. 

This blog post was prepared with the assistance of ChatGPT-4 AI. Nothing in this post should be considered legal advice or the creation of an attorney-client relationship. This blog is strictly for informational purposes only.

In United States v. Dupree, No. 19-13776, at *23 (11th Cir. Jan. 18, 2023), the Eleventh Circuit held that inchoate offenses like conspiracy do not qualify as "controlled substance offenses" for the purposes of the career offender enhancement under § 4B1.1(a) of the Sentencing Guidelines. 

“Inchoate crimes involve "[a] step toward the commission of another crime, the step in itself being serious enough to merit punishment." Inchoate Offense, Black's Law Dictionary (11th ed. 2019). "The three inchoate offenses are attempt, conspiracy, and solicitation." Id.” United States v. Dupree, No. 19-13776, at *5 n.1 (11th Cir. Jan. 18, 2023).

Dupree argued that the definition of "controlled substance offense" in § 4B1.2(b) unambiguously excludes inchoate offenses, and the court should not defer to the commentary's broader definition, which includes such offenses. The Eleventh Circuit agreed with Dupree, relying on the framework established by the Supreme Court for determining the impact of the Guidelines' commentary on their interpretation. Tyler Criminal Defense Lawyer Blog

“We begin, as Kisor instructs, with the text of § 4B1.2. After applying our traditional tools of statutory interpretation, we conclude that the plain language definition of "controlled substance offense" in § 4B1.2 unambiguously excludes inchoate offenses.” Id.; citing Kisor v. Wilkie, 139 S.Ct. 2400 (2019).

The Eleventh Circuit held that the definition of "controlled substance offense" in § 4B1.2(b) does not include inchoate offenses like conspiracy and attempt. To the extent that this holding conflicts with the prior precedent set in Weir and Smith, the Eleventh Circuit overruled that precedent.

Under today's holding, Dupree's conviction for conspiracy to possess with intent to distribute heroin and cocaine in violation of § 846 is not a controlled substance offense because the plain text of § 4B1.2(b) unambiguously excludes inchoate crimes. Dupree must be resentenced without application of the career offender enhancement.

United States v. Dupree, No. 19-13776, at *22 (11th Cir. Jan. 18, 2023).

This blog post was prepared with the assistance of ChatGPT-4 AI. Nothing in this post should be considered legal advice or the creation of an attorney-client relationship. This blog is strictly for informational purposes only.

In United States v. Diaz-Menera, No. 21-6127, at *1 (10th Cir. Feb. 28, 2023, Diaz-Menera challenged his sentence for money laundering, arguing that the district court erroneously determined his base offense level under § 2S1.1(a)(1) rather than § 2S1.1(a)(2) of the United States Sentencing Guidelines (U.S.S.G. or the Guidelines). Section 2S1.1(a)(1) applies when a defendant convicted of money laundering either committed or was personally involved in the underlying offense, and it calculates the defendant's base offense level using the offense level for the underlying offense. By contrast, if the defendant was not involved in the underlying offense, § 2S1.1(a)(2) applies, the the court generally calculates the defendant's offense level according to the amount of laundered funds. Tyler Criminal Defense Lawyer Blog 

To calculate Diaz-Menera's base offense level, the presentence investigation report (PSR) first looked to the money-laundering guideline in U.S.S.G. § 2S1.1. Concluding that the laundered funds came from drug sales, the PSR applied § 2S1.1(a)(1) and looked to the guideline for drug conspiracy in U.S.S.G. § 2D1.1 to set Diaz-Menera's base offense level. In so doing, the PSR attributed 321 kilograms of methamphetamine to Diaz-Menera, calculated by adding the $1.5 million that Diaz-Menera admitted to laundering, the $99,900 found in his vehicle, and the over $400,000 found at the Oklahoma City residence, then dividing that total by a perkilogram price of methamphetamine in Oklahoma City. The PSR therefore set Diaz-Menera's base offense level under the drug-conspiracy guideline at 38. And after various enhancements and the two- and one-level reductions under § 3E1.1(a) and (b), it set Diaz-Menera's total offense level at 43. The PSR further determined that with a criminal-history score of I, Diaz-Menera's Guidelines sentencing range was life in prison. But because the statutory maximum for Diaz-Menera's moneylaundering conviction was 20 years, the PSR ultimately set his Guidelines range at 240 months. See 18 U.S.C. § 1956(a)(2)(B)(i) and (h).

Diaz-Menera objected to the PSR's calculation of his base offense level, arguing that relying on the drug-conspiracy guideline was improper because (1) he did not personally possess or distribute drugs, (2) he was not a member of the underlying drug conspiracy, and (3) aside from the $99,900 discovered in his vehicle, there was no evidence tying the other laundered funds to drug sales. The district court granted the objection in part. It first concluded that using the drug-conspiracy guideline was appropriate because Diaz-Menera was a member of the underlying drug conspiracy and because "some of the laundered funds were proceeds from the sale of methamphetamine for which he can be accountable." R. vol. 3, 79. But it limited the relevant quantity of methamphetamine attributable to Diaz-Menera to just over 15 kilograms, based on the $99,900 in Diaz-Menera's vehicle that was most strongly and obviously connected to the sale of methamphetamine. The district court declined to connect the other amounts of money to drugs, noting "[t]he government simply ha[d] not presented enough" evidence to conclude that all of the other laundered funds derived from methamphetamine sales. Id. at 93-94. 

In Diaz-Menera, the district court applied § 2S1.1(a)(1) based on its finding that he was a member of the underlying drug conspiracy. Diaz-Menera argues that such finding was insufficient to trigger application of § 2S1.1(a)(1) because he did not personally possess or distribute drugs. 

On appeal, the Tenth Circuit held that: 

Caselaw therefore provides little guidance, leaving us with Diaz-Menera's reliance on the relevant-conduct limitation in § 2S1.1(a)(1)(A) and the guideline's commentary. For the reasons we have explained, we do not find these arguments persuasive. We therefore reject Diaz-Menera's argument that drug conspiracy cannot be the underlying offense from which the laundered funds were derived for purposes of § 2S1.1(a)(1). And because Diaz-Menera does not challenge the district court's factual finding that he was a member of the underlying drug conspiracy, the district court did not err in using the drug-conspiracy guideline to set his base offense level for money laundering.

United States v. Diaz-Menera, No. 21-6127, at *15-16 (10th Cir. Feb. 28, 2023)

The Tenth Circuit essentially held that because a drug conspiracy can be an underlying offense for purposes of applying § 2S1.1(a)(1), they found no error in the district court's sentencing decision. But because the government concedes Diaz-Menera's second argument- agreeing that it breached the plea agreement by failing to move for a one-level reduction under U.S.S.G. § 3E1.1(b)-the Tenth Circuit did vacate Diaz-Menera's sentence and remand for resentencing. 

Although not binding precedent in anyway, there is partial dissent opinion in Diaz-Menera observing that: 

The majority's opinion permits a drug-money launderer to be sentenced for the distribution of drugs even though the money launderer played no part in drug distributions. This cannot be right, nor can it be squared with our precedent. Instead, I would remand this case to the district court for resentencing without this enhancement.

United States v. Diaz-Menera, No. 21-6127, at *18 (10th Cir. Feb. 28, 2023).

This blog post was prepared with the assistance of ChatGPT-4 AI. Nothing in this post should be considered legal advice or the creation of an attorney-client relationship. This blog is strictly for informational purposes only.

In the case of United States v. Sharp, No. 22-20222, at *1 (5th Cir. Mar. 20, 2023), Nolan Sharp appealed his sentence following a guilty-plea conviction of being a felon in possession of a firearm. Sharp argued that the district court erred in enhancing his sentence under U.S.S.G. § 2K2.1(b)(4)(B), which applies only when a defendant's firearm "had an altered or obliterated serial number," because there was no evidence that his rifle ever had a serial number. The Fifth Circuit Court of Appeals agreed with Sharp and joined all other circuits that have considered this question, vacating Sharp's sentence and remanding for further proceedings. Tyler Criminal Defense Lawyer Blog 

Sharp was arrested in possession of two firearms, one of which was a rifle without a serial number. He was charged with a single count of possession of a firearm by a convicted felon and pleaded guilty without a plea agreement. The district court applied a four-level enhancement under § 2K2.1(b)(4)(B), but Sharp objected, arguing that the provision did not apply since there was no evidence that his rifle ever had a serial number.

On appeal, both Sharp and the government agreed that the imposition of the sentencing enhancement was an error, and the Fifth Circuit held that § 2K2.1(b)(4)(B) does not apply when there is no evidence that the firearm ever had a serial number. The court vacated Sharp's sentence and remanded the case to the district court for further proceedings.

This blog post was prepared with the assistance of ChatGPT-4 AI. Nothing in this post should be considered legal advice or the creation of an attorney-client relationship. This blog is strictly for informational purposes only.