The First Circuit Court of Appeals has affirmed the securities fraud conviction and sentence of Carlos Maldonado-Vargas, also known as Carlos Maldonado. Maldonado was found guilty of running a Ponzi scheme through his company, Business Planning Resource International Corporation (BPRIC). He appealed his conviction and sentence on several grounds, all of which the court rejected.
Background of the Case
In 2005, Maldonado established BPRIC with the stated goal of raising money to help individuals develop businesses. The company’s promoters, including some insurance agents, convinced clients to enter into “Productive Development Contracts.” These contracts promised a fixed rate of return on the clients’ initial investments. The details of these contracts varied, with different amounts invested, earnings promised, and agreement durations.
However, BPRIC failed to meet its obligations to its clients. In 2016, a grand jury indicted Maldonado on one count of securities fraud and fifteen counts of bank fraud. The prosecution alleged that Maldonado operated a Ponzi scheme, using money from new investors to pay earlier ones, despite BPRIC never turning a profit. The indictment detailed twelve transactions involving eight clients (some being households). These clients testified at trial, revealing investments ranging from $10,000 to $164,000. The indictment also claimed Maldonado committed bank fraud by depositing investor checks into BPRIC’s bank account, harming the clients’ financial institutions.
Trial and Key Evidence
The trial lasted nine days and included testimony from twenty-three government witnesses. An attorney testified about the nature of Ponzi schemes, explaining how they involve shuffling money instead of generating profit.
Fifteen witnesses who had provided money to Maldonado testified. They presented their Productive Development Contracts, checks, promotional materials, and correspondence with BPRIC and Maldonado. They stated they believed they were “investing” their money in BPRIC, with the understanding that the money would be used to develop other companies. The witnesses mentioned specific companies BPRIC would supposedly invest in, including Datavos, Pet Card Systems, and Glorimar Fashions and Tailoring LLC. Maldonado also touted potential profits from ventures like “Chinese bonds” and mining operations in Brazil.
Alwin Díaz, a promoter for Maldonado, testified that Maldonado instructed promoters on how to present the company to prospective clients. Maldonado allegedly taught promoters to say BPRIC would “distribute [their] money among each one of the companies that were under” BPRIC. He also advised them not to use the word “investment,” but instead to use the phrase “capital accumulation.”
Mirelis Domínguez, a forensic accountant for the FBI, analyzed approximately 10,000 transactions in Maldonado’s bank accounts. She created a spreadsheet, Exhibit 327, which was admitted into evidence. The spreadsheet included a “general category” column, where Domínguez assigned labels to each transaction like “Investor,” “Promoter,” or “Investment.” She based these categorizations on “supporting documentation,” including interviews with potential victims.
Domínguez used the spreadsheet to create additional tables and graphs, including pie charts and flow charts. For example, Exhibit 306 listed each individual categorized as an investor, their cash inflows and outflows, and their net gains or losses. The government introduced Domínguez’s exhibits under Rule 1006 of the Federal Rules of Evidence, which permits “summaries” of voluminous evidence.
Maldonado objected to several exhibits, including Exhibits 306 and 327. He argued that Domínguez improperly incorporated hearsay into the exhibits by relying on interviews with alleged victims. He also claimed that the exhibits included Domínguez’s assumptions and conclusions, making them not neutral summaries as required. The district court overruled these objections.
The jury found Maldonado guilty on all counts, and the parties prepared for sentencing. The U.S. Probation Office drafted a Presentence Investigation Report (PSR), and Maldonado objected to several findings, including the application of sentencing enhancements for “loss exceeding $3,500,000” and for substantial financial hardship to twenty-five or more victims. The court rejected Maldonado’s objections and ultimately sentenced him to 135 months’ imprisonment.
The district court also ordered Maldonado to pay restitution based on the PSR, which listed forty-four victims with collective losses of over $2.1 million. The court explained that it would require restitution under the Mandatory Victim Restitution Act of 1996 (MVRA) for the bank fraud convictions and also as a condition of supervised release for the securities fraud conviction.
Maldonado appealed the verdict, and the government filed a Rule 28(j) letter stating it was no longer pursuing Maldonado’s bank fraud convictions.
The Appeals Court’s Decision
The First Circuit Court of Appeals addressed Maldonado’s arguments in detail, ultimately upholding his conviction and sentence.
Rule 1006 Challenge: Maldonado argued that the district court should not have admitted the summary exhibits under Federal Rule of Evidence 1006 because they were based on hearsay. The court acknowledged that some hearsay might have been included in the exhibits, as Domínguez had relied on interviews. However, the court found any error in admitting the evidence was harmless because the properly admitted evidence overwhelmingly supported the guilty verdict. The court emphasized that Maldonado did not challenge the admissibility of the underlying bank records. The court also pointed to unchallenged summary exhibits, like Exhibit 328, which showed transactions that supported the government’s claim that Maldonado was running a Ponzi scheme.
Securities Fraud: Maldonado contested the jury’s conclusion that the Productive Development Contracts were securities. He argued that the government did not prove that the contracts met the definition of an investment contract. The appeals court disagreed, stating that the evidence showed that clients invested money in a common enterprise with the expectation of profits solely from the efforts of Maldonado. The court also rejected Maldonado’s claims that the government failed to show he knew the contracts were securities, stating that the evidence demonstrated that Maldonado knew that BPRIC was a common enterprise.
Sentencing Calculations: Maldonado argued that there were mathematical errors in calculating his sentence. The court found no mathematical errors and said the district court properly relied on the PSR. The court also rejected Maldonado’s argument that the district court should not have considered losses suffered by individuals who didn’t testify at trial, citing that sentencing courts have discretion in determining what sources are reliable, even considering uncharged conduct.
Restitution Order: Finally, Maldonado challenged the district court’s restitution order. He argued that the court was limited to specific transactions listed in the indictment and that there wasn’t enough evidence to conclude that non-testifying individuals were victims of criminal conduct. The appeals court found that Maldonado had forfeited these objections by failing to raise them properly below. The court determined the district court did not plainly err in its restitution order.
The First Circuit Court of Appeals thus vacated Maldonado’s bank fraud convictions, as requested by the government, but affirmed his securities fraud conviction and sentence, including the restitution order.