Appeals court vacates sentences in unemployment fraud case

Aug. 27--Two Sutter County men convicted in an unemployment insurance fraud scheme were denied the right to challenge the monetary amounts used by a judge to determine their prison terms, a federal appeals court ruled.

The 9th U.S. Circuit Court of Appeals in San Francisco sided with Mohammad Adnan Khan and his father, Mohammad Nawaz Khan, sentenced in 2015 to 108 and 150 months, respectively.

The court sent their cases back to U.S. District Judge Morrison C. England Jr., who recently asked attorneys in the case to file a joint status report by Sept. 1 on how he should address issues raised in the appellate court's decision.

The Khans pleaded guilty to conspiracy to commit mail fraud for devising and participating in a fictitious wage scheme to defraud the Employment Development Department .

Federal prosecutors said Mohammad Nawaz Khan, 60, led family members in a decades-long scheme to sell fake pay stubs to more than 400 Yuba City community members, who then used the pay stubs to claim unemployment and disability benefits.

"This is one of the longest-running, most sophisticated fraud schemes that I have ever seen," England said in sentencing Mohammad Nawaz Khan.

In its decision, the court said England failed to allow the Khans to object to the estimates of losses attributed to them in their presentence reports.

"The district court here made no factual findings on the Khans' objections regarding the loss amounts. The (presentence reports) estimated an actual loss of $6.7 million and an intended loss of $13.2 million for Adnan, and estimated an actual loss of $7.1 million and an intended loss of $14.1 million for Nawaz," the opinion said. "The Khans specifically objected to these estimates of intended and actual loss, contending that the estimates were inflated and wrongfully included amounts paid by EDD for legitimate benefits claims."

England "summarily overruled those objections and adopted the estimated loss amounts set forth in the PSRs without making any specific factual finding on the Khans' objections. A district court may not simply rely on the factual statements in a (presentence report) when a defendant objects to those facts," the appeals court said in its decision last month.

England "clearly erred" when he "accepted the estimates of the loss amounts set forth in the (presentence reports) to apply a 20-level enhancement to their sentences ... for a loss exceeding $7 million."

The enhancement "for loss amount unquestionably had a material impact on the Khans' sentences. Indeed, it was the most significant factor in the calculation of their offense levels under the sentencing guidelines," the appeals court said.

According to the opinion, there was "no explanation or analysis of how those estimates were calculated, what proportion of those estimates were attributable to legitimate payments made by EDD for legitimate benefits claims and why those payments were included in the estimates" provided to England.

The omission was "particularly problematic," the appeals court said, especially when as much as 30 percent of the EDD payments went to "legitimate claimants."

The appeals court said it was "left guessing as to the explanation or analysis supporting the loss amounts."

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