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Case 4:16-cr-00199-YGR Document 8 Filed 05/27/16 Page 1 of 40

2

BRIAN J. STRETCH (CABN 163973)

United States Attorney

DAVID R. CALLAWAY (CABN 121782)

3 Chief, Criminal Division

4 JOHN

H.

HEM

ANN

(CABN 165823)

Assistant United States Attorney

5

450 Go

ld

en Gate A venue, Box 36055

6 San Francisco, Ca

li f

ornia

94

102-3495

Telephone: (415) 436-7478

7 FAX: (415) 436-7234

John.Hemann@usdoj .gov

Attorneys for United States of Ame1ica

8

9

10

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN FRANCISCO DIVISION

12

GIL -

DO I J J f()...P_

UNI

TE

D STATES OF AMERICA, ) UNITED STATES SENTENCING

14 MEMORANDUM, MOTION TOWAIVE

Plaintiff,

PRESENTENCE REPORT, AND MOTION FOR

15

EXPEDITED SENTENCING

v.

16

Date: June 3, 2016

DISCOVERY SALES, INC., Time:

3:00pm

17

Defendant.

18

19

20 The United States

of

Ameri

ca

files t

hi

s sentencing memorandum pursuant to Criminal Local

21 Rule 32-5(b) in supp

oti of

its reco

mm

endation

th

at the Court sentence defendant Di scovery Sales, Inc.

22 (DSI) to pay an agreed-upon fine of 8 million and restitution to Fannie Mae and Freddie Mac in the

23 combined amount of

3

million. The United States also respectfully moves this Court, pursua

nt

to

24 Federal Rule

of

Criminal Procedure 32(c)( I)(A)(ii) and Criminal Local Rules 32-l (b) and 32-2, to waive

25 the presentence report in this matter and sentence DSI on an expedited basis on June 3, 2016, after

26 accepting DSI s guilty plea. DSI will separately file papers indicating that it waives its right to a

27 presentence report and, as provided in the Plea Agreement, requests expedited sentencing.

28 This memorandum provides the factual background for the Comt and outlines the material terms

SENTENCfNG MEMORANDUM

CR 16-0199 YGR

u t

No.

1st cl Court

Cri

minal

Ca

a


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of the Plea Agreement between the United States and DSI, in the event the Court waives the presentence

2 report and grants the parties' re

qu

est

to

impo

se

a sentence

on

June 3, 20 16. A copy of the DSI

3 (c)( l )(C) Plea Agreeme

nt

is attached as Ex hibit

A.

Federal Rule ofCriminal Procedure 32(c)(1)(A)

4 permits the Court to sentence the corporate defendant in thi s matter without the

pr

epara

ti

on

of

a

5 presentence report ifthe Co

mt

finds that the in formation in the record enables it to exerci se its sentencing

6 authority meaningfully under 18 U.S.C. § 3553, and the Co urt explains its finding on the record. See also

7 Criminal Local R

ul

e 32

l

(b

.

The United States submits that the information contained in

thi

s

8 memorandum and the attached Plea Agreement, as well as the reco

rd

in a number of related cases

9 described below , are sufficient to enable the Court to exerci se its sentencing authori ty under 18 U.S .C.

10 3553 without the need

of

a presentence report.

If

the Coutt finds that it does not have sufficient

11

infom1ation to a

ll

ow for

th

e imposition of sentence on the scheduled date of the plea hearing, the pat

ties

12 are prepared to submit additional infonnation requested by the Coutt.

3

I.

B CKGROUND ND OFFENSE CONDUCT

14 On July 18, 20 13, the United States

fi

led an Information charging DSI with bank fraud, in

15 violation of 18 U.S.C. § 1344. DSI will waive indictment when arraigned on the [nformation at

9:30am

16 onJtme3, 2016.

17 DSI was a company created by Albert Seeno III to se ll new homes built by Discovery Builders,

l

18 Inc. ( DBI ), Albett D. Seeno Constmction Co., Inc. ( AD Seeno ), and other entities affi liated with

19 Albert Seeno III a

nd

the Seeno fami ly ( the builders ). The homes were built in developments

20 throughout the East Bay Area, including in Contra Costa a

nd

Alameda Counties.

21 DSI is the sales a

nn

of a group

of af

fili ated construction compa

ni

es

th

at build new homes in the

22 East Bay and I-80 corridor. When the housing market began to soften in 2006-2008, DSI took steps to

23

avoid losing its positi

on

in the market - it had to keep selling houses at a certain price point. The steps

24 taken by DSI included incentivizing new home buyers by paying

tb

eir downpayments and subsidizing

25 their mortgage payments. DSI, its employees, and others worked to ensure that these incentives were not

26 disclosed in the

mmt

gage loan applications

or

related documents submi tted

to

mmtgage lenders.

If

they

27 had been disclosed, bank underwriters would not have approved the loans.

28 Over 325 Seeno and Discovery homes during the period 2006 - 2008 involved the use of

SENTEN ING MEM

OR NDUM

CR 16-0 199YGR


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incentives. The total sales for those homes exceeded 200 million.

2 The

In

fo rma

ti

on filed against DSI is the m

os

t r

ecent

case filed in connection with an inves tigation

3 by the FBI into a scheme to se ll homes built by affi liates ofDSl to unqualified buyers at inflated prices.

4 In co

nnec ti

on with this investigation,

th

e U.S. A ttorn

ey's

Office has filed and resolved charges aga

in

st

5 nine individuals,

tlu·

ee ofwhom are s till pending sentencing:

6 •

United States v. Tony Phan.

g u l

Arenas, George Zevad

a nd

Ch

ng

Park,

Case No. 13-0556

7 YGR.

Ph

an

was

an underw

ri t

er for a mortgage lender

ca

lled Homeco

min

gs Financia

l

Arenas

was

a tax

8 prepare

r

Zevada and Chang wo

rk

ed for a Southe

rn

California mo1tgage broker. Together, they

9 conspired to anange for fraudulent loans for U qualified buyers, including buyers of homes for DST This

10

Co

urt

se

nt

en

ce

d Phan

an

d Arenas to terms

of

probation

an

d Zevada to six

mon

ths in prison.

Ph

an h

as

not

I

ye

t been

se

nten

ce

d.

12 •

Un ited States v. Sharon Wang

nd

Heather

Yin

,

Ca

se

No. CR 11-0686 JSW. Wang a

nd

Yin

we

re

13 r

ea

l estate

agent

s and loan brokers. T hey broug

ht

bu

ye

rs to DSI who were

un

able to f

und

home purchases

14 legitimately They recei

ve

d large commissions, generally 30,000, in exchange for introducing the

15 buyers to DSI

Th

ese buyers filled out phony loan applications, which Wang directed to a co-conspirator

16 who was employed by Bank of America. Wang a

nd

Yin were

se

ntenced by the Hon

orab

le JeffreyS.

J7 W

hi

te to

se

ntences of probation.

18 • Un it

ed States v. Jason Sterlino, Case

No. CR 13 -023 1 JSW . Sterlino was a

sa

les manager for

9

DSI He received a kic

kback

from Wang and Yin from

th

e commissions

th

ey r

ece

ived

from

DS

I

He

20

kn

ew that the bu

ye

rs

Wan

g and Yin

we

re bringing to

him

were not qualified for the loans they

we

re

2 1 rece iving Sterlino also

kn

ew that the loan appli

ca

tions being submitted to the mo

rt

gage lenders did not

22 discl

ose

the

vari

ous incenti

ves

DSI

pr

ovid

ed

to the

bu

yers. Sterlino had been in structed to ensme

th

at

th

e

23 incen

ti

ves remain

hidden

from the le

nd

ers. Sterlino was

sen

tenced by

Jud

ge White to six months in

24 prison.

25 • Uni ed States

v

Carey Hendrickson, Case No. CR 12-0292 YG R. Hendrickson was a man

age

r at

26 DSI who rep mi ed to

Aym

an Shahid.

He

ndrickson was invol

ve

d in administer ing the in

ce

nti

ve

programs

27 that fonn the basis for the charges against DS

I

Hendrickson also persona lly participa ted in one of the

28 fraud

sc

heme utilized by DSl to move homes a t inflated sales prices. HendJickson bought,

SENTENCING MEMORAND

UM

CR 16-0 199 Y R


4/40


simultaneously, three homes from DSJ. Without putting

dow

n any

of

her own money, Hendrickson

2 purchased three DSI homes using loans obtai11ed from three different mortgage lenders. Neither she nor

3 DSI disclosed to the lenders that she was purchasing three homes simultaneously. Two

of

th

e homes

4 went into foreclosure.

5 • United States

v

Ayman Shalzid Case No .

CR

14-0271 YGR. Shahid s conduct fonns the

6 primary basis for the charge against DSL Shahid was the vice president

of

DSI, repmiing to Albert Seeno

7 III, dming the 2006-2008 time period.

8 The following information

was

obtained through the

FBI

investigation, and the United States

9 would be

pr

epared to prove it were the case against DST to go to trial. From 2006 to 2008,

DSI

inflated

I

0 the sale price

of

new

homes by offering significa

nt

cash and other incentives to new home buyers.

The

I I

primary purpose of the

pr

ice inflation was to support a large line of credit the builders maintained, which

12 was collateralized

by

the new homes and the propetty

on

which the homes would be bui l

t If

the

hom

e

3

and propetty values dropped, the va lue

of

the

co

llateral wo

uld

drop and the line of credit would be

14 r

ed

uced or tem1inated, or additional

co

llateral would be required to secure the line

of

credi t

15

Accordingly, it was necessary to maintain inflated h

ome

sales ptices, and pa1ticipated in schem es and

16 devices to accomplish this goa l Thi s is what i s

common

ly known as a builder bailout scheme.

17 During 2006-2008, buyers with little or no money of th

eir

own were purchasing homes at prices

18 that we re infl ated through the use of incentives. As Shah id explained in hi s plea agreement:

19

The buyers were not required to possess or

post

any

oft

h

eir own

mon

ey

when buying a

home; DSI, the builders, and their affil iates wou ld pr

ov

ide money to buyers to make

20 down payments . The loans were secured by homes that were in so me cases worth less

than the loan amount; DSI did not make an effo11 to determine the true value

of

th

ese

21 homes. As the financial crises worsened, the prob lem was exacerbated

by

the falling

mark

e

t

22

23

24

25

26

27

28

It

was part

of

the sch

eme

to ensure that evidence

of

the incentiv

es

i

not appear in the

bank

loan

fi les. If the incentives appeared in the bank l

oan

files, the loan underwriters wou ld likely rej ect the

loans, primarily because the loan-to-va lue ratio would not support the requested loan on the inflated

sales price of the home. For this reason, DSI employees took steps to ensure that the details of the

incentives that were being given to spec ific buyers did n

ot

appear in the bank loan files, including not

informing appraisers of the incentives that were being given to buyers.

SENTENCfNG

MEMOR NDUM

CR 16-0 199 YGR


5/40


1 One of the incentive programs used by DSI and the builders was a down payment assistance

2 program. The builders created an entity called the Collateral Financing Group ( CFG ) to make what

3 were characterized as loans to home buyers for the purpose of funding their down payments. I knew

4 that these loans were either expressly forgivable

or

forgivable in fact because neither CFG nor the

5 builders made substantial efforts to obtain loan repayment from the buyers. No effort was made to

6 determine whether the buyers were capable of repaying CFG loans. Although managers of the prefen·ed

7

lenders were aware of the incentive programs, it was pa1i of the scheme that the amount ofCFG loans

8 made to particular buyers and the fact that they were forgivable and/or forgiven in fact was not disclosed

9

by

DSI to the mortgage lenders.

10 The banks that were originating the loans would sell the mortgages in a seconda

ry

mark

et

shortly

after origination. It was, therefore, important to ensure that buyers would keep current

on

mortgage

12 payments. DSI, and its employees and affiliates, created various devices, including the Existing

3 Mmigage Assistance Program (EMAP), to make cash payments to buyers for a short

pe

riod

oftime

so

14 that they would not default. EMAP was treated, instead, as a way ofproviding undisclosed cash

5

incentives to home buyers.

6 In the plea agreement, DST agrees that it is guilty ofbank fraud based a respondeat superior

7 theory ofliability derived from their guilty pleas. DSI agrees that Shahid, as vice president

ofDSI

and

8 Carey Hendrickson and Jason Sterlino, all ofwhom were employed

by

DSI dudng the relevant time

9 period, committed bank fraud and engaged in a conspiracy to commit bank fraud by fraudulently

20 causing bank underwriters to approve mortgage loans for unqualifi

ed

buyers. Corporate liability may be

2 predicated on respondeat superior liability. See, e.g. United States v Hughes Aircraft 20 F.3d 974 (9

1

h

22 Cir. 1994).

23 DSI also agrees, as a matter of factual

proof

, that from 2006 to 2008, certain buyers wit little

or

24 no funds of their own were induc

ed

to pmchase homes at prices that were increased through the use of

25 fmancial incentives that were

not

clisclosed to the mortgage lenders. DSI acknowledges that these

26 buyers were

not

required to possess

or

post any of their own funds when buying a home; DSI

ananged

27 through its affiliates for money

to

be provided to these buyers to make down payments and cover

28

SENTENCING MEMORANDUM

CR 16 0 1

Y R


6/40


existing mortgage payments. DSI agrees tbat the mortga

ge

lenders and secondary purchasers of

2 mmigage loans affected by the fraud schemes were federally insured financial institutions.

3

4

II

MATERIAL TERMS OF THE DSI PLEA AGREEMENT

5 The material tem1s of the plea agreement, attached hereto as Exhibit A, between DSI and the

6 U.S. Attorney ' s Office include:

7

1 DSI will waive indictment, waive all rjghts as enumerated in the plea agreement, and

8 plead gu il ty to a one-count Information cha rging it with bank fraud, in violation of 18 U.S.C. § 1344.

9 DSI will agree that there is a factua l basis for the plea, as set fmih in Paragraph 2 of the Plea Agreement.

10

The

United States would be ab le to prove at trial those facts, as we

ll

as

the facts set forth in the

plea

11 agreements for former

DSI

employe

es Ayman

Shahid, Carey Hendrickson, and Jason Sterlino.

12

2.

DSI and the United States agree that the approptiate sentence in tlus case is a fine of 8

13 million, a special assessment of 400 , and a 5 year term of probation. The fine will paid in five

14 installments and

sec

ured by a litigation bond. The first

in

stallment of 1 ,333,333 shall be paid on the

15

one year anniversary of sentencing

in

tlus matter, with three subsequent 1,333,333 installments on each

16 yearly anniversary thereafter unti l the fina l paymen

t

Interest will accrue beginnjng on the date of entry

17 of udgment and the fifth and fina l installment will be 2,666,668, plus any remaining interest due and

18 owing.

19

3.

DSI will pay res titution in the

amount

of 3,000,000 witrun 120 days of sentencing.

Th

e

20 basis for this restitution paym

en

t is

exp

lained below.

21

4. The Uruted States agrees not to file additional charges related to its investigation into

22 undisc losed incentives and related practices against DSI, its affiliates, or employees or DSI or its

23 affiliates, except the three former employees already charged, as set fotih in paragraph 18 of the Plea

24 Agreement.

25 III

SENTENCING GUIDELIN SCALCULATIONS

26 The offense level calculation for DSI is the same calculation used in the plea agreement of

27 Ayman Sbahid, the fmmer DS l officer on whose gu il ty p lea DSI 's

responde t superior

liability is in

28 part based. The tota1loss using the N inth Circuit-approved formula is 75 mi llion, which measures the

SENTENCJ

NG

MEMORANDUM

R

16 0 199

YGR


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1 difference between the loan amount and, essentially, the amount the home sold for after default. This

2 loss amount was calc

ul

at

ed

by Navigant, an independent consultant retained by the United States, and

3 reviewed and agreed to by counsel for both Shahid and DSI. The parties and Naviga

nt fo

llowed the

4 formula approved

by

the Ninth Circuit in United States v .Morris 744 F.Jd 1373 (9

Cir. 20

14

.

1

A

$75

5 million loss results in a 24 level increase

in

the offense l

eve

l under U.S.S.G.

§

2B 1.1.

6 The final offense level includes a downward departure because the patties agree that the $75

7 million number is overstated as to DSI and Shahid. This conclusion is based prim arily on the

8

contributory culpability of the mortgage lenders who funded the loans at issue. The parties agree that

9 the preferred mortgage lenders, Wells Fargo and

J.P .

Morgan Chase, were on some notice that DSI was

10 engaged

in

various shenanigans to inflate the value

oftheir

homes. Employees

ofthe

preferred lenders

were embedded with

DSI

emp loyees,

and

OS[ continued se

ll

ing homes and maintained prices, even as

12 the market was crumbling around it.

The

banks periodically told DSI to

be

sure disclose

all

incentives,

13

yet

did

little to ensure that DSI was doing

s

which it was not. Something was amiss, yet the preferred

14 lenders continued to pump out loans on DSI properties and gene

ra

te fees and payments on those loans

15 before se lling the loans on the secondary market.

6 To

that point, the evidence does not prove that the originating lenders lost $75 million . Tllis is a

17 result of the practice, prevalent at the time, of secmitizing poorly performing mortgages. fter

8 originating loans, the mortgage lenders very quickly dumped most of them into the secondary secmities

19 market. For the most part,

th

e mortgage lenders who miginated the loans on DSI homes made money in

20 the migination then got rid of the loans by selling them in the secondary markets. As the Comt can see

21

from tllis trajectory ofthe investigation that led to this case, everyone was making money ganling the

22

23

1

«We adopt the two-step approach first articulated

by

the Eastern District of Virginia, and sub

seq

uently

24 adopted by the Second , Sixth, and Tenth Circuits. In calculating loss in mortgage fraud cases, these

Circuits hold that the fir

st

step is to calculate the greater of actual or intended loss, where actual

lo

ss is

25 the reasonably foreseeable pecuniary harm from the fraud. T

lli

s amount wi

ll almost

always

be

the entire

value of the principal of the loan, as it is reasonably foreseeable to an unqualified borrower that the

26 entire amount ofa fraudulently obtained loan may

be

lost. The second step is to apply the cred

it

s

against loss provision and deduct from the initial measure of loss

any

amo

w1

t recovered

or

recoverable

27 by the creditor from the sa le of the collateral. This second ca lculation is made without any consideration

of reasonable foreseeability. United States v Morris 744 F.3d 1373,

13

75 (9th Cir. 2014)

28

SENTENCING MEMOR NDUM

CR 16-0199

YGR


8/40


sys

tem , or at least trying to do so: the builders, the buyers, the real estate agents, the

mort

gage brokers,

2 and the o riginating banks, and

th

e banks who securitized the bad l

oa

ns. This is why tagg

in

g one

3 participant, the builder, with a loss

number

using the normal formula which ass

um

es a

co

mpletely

4 inn

ocent

bank victim

2

is n

ot

fa

ir

or

ju

st

and th

e U

ni t

ed St

ates

acco

rdin

gly r

ecomm

e

nd

s a d

ow

nwa

rd

5 departu re of four levels, a depatture to which both DSI and Shahid have agreed.

6 The patt ies agree that the offense level should be calc

ul

ated as fo

ll

ows, resulting

in

a base fin e o f

7

8.5 million:

8

9

10

11

12

13

Offense Level (U.S.S .G. §§ 8C2 .3 and 2B 1 1 )

Base Offense L

ev

el , U.S.S.G. § 2Bl.l :

Specific Offen

se

Characteristic,

U.S.S.G

.

§

2B 1.1:

Downwa rd Departure, U.S.S.G. § 2 8

l.l

, cmt. 20(c):

Total Offense Level :

Base Fine

7

24

-4

27

S8.5 million

14 Ln the case of a cor

po

rate plea , the ultimate fine is detenuined by ca lcula ting the c ulpability score

15 w1d er U.S.S.G. § 8C2.5, applying the fm e multiplier under U.S.S.G.

§

8C2.6, and then the fme range

16 under U.S .S.G. § 8C2.4. The parties agree that the fine range, here, is 6.8 to 13.6 million.

17

18

19

20

2 1

22

23

Culpability Score (U.S.S.G.

§ 8C2.5)

Base Score, U.S.S .G. § 8C2.5(a):

Involve ment or Tolerance, U.S.S.G.

§

8C2.5(b)(5):

Acceptance, U. S.S.G. § 8C2.5(g)(3):

To tal Culpability Score:

Fine Multiplier, U .

S

S.G.

§

8C2.6 :

Fine Range, U.S.S.G.

§

8C2.4(

d):

5

2

4

.8-

1

6

6.8 to 13.6 milli

on

24

The 8 million fine to w hich the

parties ag

ree is within the fine range pr

esc

ribed by the

25

26

2

To be clea r, the scheme invo lved DSI causing fa lse statements to be made to the originating

27 bank s. These fa lse statements made the loans look clean , which allowed the origi

natin

g banks to se ll the

l

oa

ns i 1 the

seco

ndary markets. The

ince

ntives were

occas

ionally disc l

ose

d accide

nt

a ll y in the loan

28 d

oc

uments or to appraisers, which required the miginating ban

ks

either to reject them or,

if

too late,

keep them in the

ir ow

n

port

folios.

SENTENC

ING

MEMORANDUM

CR 16-01

99

YGR


9/40


Sentencing Guide ines.

2

IV.

OND POSTED Y DSI

3 The parties have agreed on the filing ofa litiga tion bond, under which the fine will be paid

if

DSI

4 defaults on any payment. The bond should be lodg

ed

w

ith th

e Clerk of omi and , if defendant defaults

5 on any payment, judgment should be issued on the bond in favor of the United States.

6

v RESTITUTION

7 Because of the practice of selling loans in the secondary markets and as part of large securities

8 crea

ted

by investment banks, it was not possible to identify the individual companies or individuals who

9 lo

st

money as a result of the scheme, with

th

e exception of the government-sponsored lending

I

0 institutions, Fannie Mae a

nd

Freddie Mac. These two in

st

itutions lost a total

of

approximately $3

11 million from DSI homes originally sold during 2006-2008, and that is the restitution t

he

United States

12 seeks through the plea agreement.

13

Dmin

g

th

e time period of the Infonnation, DSI worked with two "

prefen

·ed lenders," Wells

14 Fargo and J.P. Morgan Chase. Ce iain employees and managers ofthese two preferred lenders knew

5 about the incentive programs offered by DSI and the builders, and kn

ew

that the incentives were not

16 being disclosed in the loan files. Bank executives informed DS r hat

th

ey required deta ils regarding

7

incentives to be included in the lo

an

files, but in truth the

prefen

ed lenders performed little or no

18 diligence to see that the incentives they knew were being provided were disclosed in the loan files.

19

The originating lenders who made loans to purchase DSI properties, including Wells Fargo and

20 J.P. Morgan Chase, generally wou

ld

not keep the mortgages and thus did not end up losing money

as

a

21

result

of

the DSI fraud scheme. Instead, they would se ll the mmigages to other banks who would

22 package them in securities that were sold to other investors. These securities fai led

when the underl ying

23 mortgages went in to default.

It

was impossible to trace the majority of the mortgage loans on the over

24 300 homes so

ld

by DSI that were the subject

of

the FBI inves tigation; it would have been ha rder yet to

25 identify individual victin1s

of

he fraud given that the

mort

gages were secwi

ti

zed and traded.

26 The United States was able to trace a number of the mmigage loans on homes sold by DSI to

27 Fannie Mae and Freddie Mac. The Federal Housing F i ance Agency, Office of nspector General, was

28 able to identify 20 specific

hom

e mortgages that were acquired by Fannie Mae and Freddie Mac and

SEN

TE

N

I

NG

MEMORAN D

UM

CR 16 0199

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then went [n to default Both Fannie Mae and

Freddie

Mac obtained these mortgage loans after

th

ey had

2 been originat

ed by

other banks. The spreadsheet attached hereto as Exhibit B shows

the

financial

3 impact on Fannie Mae and Freddie Mac of foreclosures related to h

om e

s sold by DSI during the period

4

of

the fraudule

nt

incentive scheme.

3

The parties agreed that vmious minor differences

over

the

5 calculation of the loss to Fannie Mae and Freddie Mac were best reso lved by a comprom i

se

at a $3

6

milli

on restitution figure.

7

Th

e largest victim of defendant 's conduct was the Uni ted States economy, which suffered in

8 2007

an

d 2008 in diverse ways as a resul t of the conduct of defendant and the mru1y other culpable

9 participants in the mortgage crisis. Because

ofthe

practice of secw·itization and the cu lpabili ty of the

10

lender

s themselves,

it

wa

s n

ot

po

ss

ibl

e to identi fy a

ll

of

the losses

caus

ed by defendru1t's

con

du

ct.

Under U.S.S.G. § 8Bl.l (b)(2), restitution n

eed

not be ordered to the exte

nt

th

at

the number of

12 identifiable victims is so large as to make res titution impracticable, or de termining complex issu

es

of

13 fact re lated to the cause or amount of the victim

's

losses would complica te or prolong the sentencing

4 process to a degree that the need to

pro

vide restitution to any victim is outweighed

by

the burden on the

15 sentencing p rocess.

16

How

ever, with this plea agreement, the two

ta

xpayer-sponsored financial services com panies

17 that lost money as a direct result , Fannie Mae and

Fr

eddie

Mac

, will be made whole by the defendant

18 through the $3 million restitution payment. This ob ligation was calculated by the independent inspector

19 general for the Federal Housing financ

e Agency and it is one th

at

t

he

parties agree is appropriate.

20

ll

21 ll

22 ll

23 ll

24

ll

25 ll

26

l

27

28

One of

h

e loans,

2209

Truman, ultimately so ld for more than

the

loan amount and. therefore,

the tota l loss runow1t was reduced by $41 6,000.

SENTENCrNG

MEMORANDUM

CR 6

01

99 Y R


11/40


1 VI CONCLUSION

2 The United States respectfully requests that the Court accept the propo

se

d DSI plea agreement

3 waive the presentence report and sentence DSI on June 3 20 16. Because the parties are requesting an

4 expedited sentenc ing the United States has

pr

epared a draft

jud

gment attached as Exhibit C.

5

6

7

8

9

10

12

13

14

15

16

17

8

19

20

21

22

23

24

25

26

27

28

Dated: May 26 20 16

SENTENCING

MEMORANDUM

CR 16-0 199 YGR

Respectfully submitted

BRIAN

J.

STRETCH


t u v

JOHN

H.

HEMANN

Assistant United States Attomey


12/40

Exhibit A



13/40


BRIAN J STRETCH (CABN 163973)


2

DAVrDR.

CALLAWAY(CABN 121782)

Chi ef, Criminal Division

3

JOHN

H.

HEMANN

(CABN 165823)

4 Assistant U

ni

ted States Attorney

5

6

7

450 Golden Gate Avenue, Box 36055

San Francisco, California

94

102-3495

Telephone: (415) 436-7234

John.Hemann@usdoj .gov

Attorneys for

United

States of America

8

9

10

1 I

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

OAKLAND

DIVISION

12

3

UNITED STATES

OF

AMERICA,

14

Plaintiff,

15

v.

16

DI

SCOVERY

SALES, INC.,

17 Defendant.

18

) NO.

) PLEA

AGREEMENT

)

19 Defendant,

DISCOVERY

SALES, fNC.

( DISCOVERY

SALES ), and the United States

20

Attorney's Office for the Northern District

of

Ca lifornia (hereafter the government ) enter into this

21 w1itten plea agreement (the Agreement ) pursuant to Rule (c)( l) (C)

of

the Federal Rules

ofCximinal

22 Procedure:

23 The

Defendant's

Promi

ses

24

I

DISCOVERY

SALES agrees that,

as

a corporate defendant it is liable for

the

actions of

25 its employees and agents performed in the course and scope

of

the

ir

employment or agency.

26 Accordingly, DISCOVERY SALES agrees to plead guilty to Count One

of

he captioned Jnfonnation

27 charging it with bank fraud in violation

of

18 U.S.C. § 1344.

DISCOVERY

SALES agrees that the

28 elements of the offense are as follows: ( I) th e defendant knowingly executed a scheme to defraud a

PLEA

AGREEMENT


14/40


financial institution as to a material matter; 2) the defendant did so with the intent to defraud the

2 financial in stitution; and 3) the financial institution was insured

by

the Federal De

po

sit Insurance

3

CoqJoration. DISCOVERY SALES

ag

rees

that

the maximum penalties for a violation

of18

U.S.C.

4

§

1344 are as follows:

5

6

7

8

9

10

2.

a.

b.

c.

d.

Maximum

fine

Maximum

probation term

Mandatory Special Assessment

Restitution

1

,000 ,000 or twice the gross gain or loss,

whichever is greater 18 U.S.C.

§

357 l(c),

d))

5 years 18 U.S.C. § 3561)

400 18 U.S.C. § 3013)

DIS

COVE

RY SALES agrees that it is guilty of the offense to whi

ch

it is pleading guilty,

12 and agrees that the following facts are true: DISCOVERY SALES agrees that during the years 2006

13

through 2008 its then-employee and officer, Ayman Shahid, committed the crime

ofbank

fraud, with

14 which he was charged

and

has

pleaded

guilty. DISCOVERY SALES further agrees that Shahid, as vice

15 president of DISCOVERY SALES, a

nd

Carey Hendrickson and

Ja

son Sterl ino, a ll of whom were

16 e

mplo

yed by

DISCOVERY

SALES during the relevant time period,

comm

itted

bank

fraud and e

ngag

ed

17

in

a conspiracy to commit bank fraud by fraudulently causing bank underwriters to approve mortgage

18 loans for unqualified buyers. From 2006 to 2008, certain buyers with little or no funds of their own

19 were induced to purchase homes at prices that were increased through the use of financial incentives.

20 These buyers were not required to possess

or po

st any of their own funds when buying a

hom

e;

21 DIS

COVE

RY SALES arranged for mon

ey

to be provided to th

ese

buyers to make

down

payments.

22 DISCOVERY SALES further agrees

that

during the 2006 through 2008 time period the sales

23 prices of certain homes were increased by offering financial incentives to new home buyers.

24 DISCOVERY SALES arranged loans that were secured by the bu

yers'

existing homes that were

in some

25 cases worth less than the loan amount, and DISCOVERY SALES did

not

make an adequate effort to

26 detennine the true value of these

hom

es. Certain former employees of DISCO VERY SALES, including

27 Shahid, committed bank fra

ud by taking steps to ensure inf01mation that wou ld reduce the va lue of the

28 homes was kept

out of

bank loan files . Specifically, the details of the incentives that were being given

PLE REEMENT


15/40


to specific buyers

were

knowingly

withheld

from the bank

loan approval documents beca

use the true

2

loan

-to-va lue

ratio

would

not

support the requested loan on

the

increased sal

es price

of the home. If the

3 incentives bad appeared in the bank loan files, the l

oan

underwriters would likely have rejected the

4

loan

s.

5 DISCOVERY

SALES

agrees

that

numero us

mortgage

lenders and

seco

ndary pw-chasers of

6

mortgage

loans

affec

ted by

th

e bank fraud schemes desc

ribed herein

were federally insured financial

7 institutions.

8

3.

DISCOVERY

SALES agrees that

by entering this guilty plea

it her

eby waives all

9 objections to

the

fonn of

th

e c ha

rging document

s, and adm its

that

it is in

fact guilty

of

the

offen se

to

10 w

hich

it i s

pleading

guilty as

set

f 11h in the Infom1ation.

11

4.

DISCOVERY SALES agrees to appear at the plea

and

sentencing heari ngs through a

12 duly authorized corporate representative.

3 5. DISCOVERY

SALES knowing

ly

and

voluntarily

waives

the following rights through its

14 guilty plea: a) the right to plead not guilty; b) the

ri

ght to a speedy and public trial before a jury;

15

c) the right to effective assistance ofcow1Sel

at

trial; d) the right to be presumed innocent until guilt

16

has been established at

trial beyond a reasonable

doubt;

e)

the

r

ight

to

confront and

cross-

exami

ne

7 government

witnesses

at

trial; f)

th

e

right

to compel or s

ubpoena

wi tn

esses

to

appear on

DISCOVERY

18 SALES s behalf at trial; g) the right to move to suppress evidence or raise any other Fourth or Fifth

9 Amendment claims; h) the right to any further

discovery

from the govermnent

and

to purs

ue

any

20 affirmative d

efenses and present

ev idence; i) the

right

to

appeal

a

fmding

of guilt, any

orders

of

he

2 1 Court,

and

an y

aspec

t

of

its se

nt

e

nce

,

including

restitution;

and

U) the 1ight

to bring any

collateral

attack

22

against

DIS COVERY SAL

ES s conviction

or sentence, including a

petition

under

28

U.S.C. §

2255

or

23 28 U.S.C.

§

224 1,

or

motion under 18 U.S.C.

§

3582, except as it may re late to effectiveness of legal

24 representation.

25 6. DISCOVERY SALES agrees not to ask the Court to withdraw its guilty plea

at any

time

26

after it

is

entered

unless

the

Com1 declines

to

accept

the sentence

agreed to

by th

e parties .

27

DISCOVERY SALES and the

government

mutually agree that either party may

withdraw

from this

28

Agreement if the Court

does not

accept the agreed

upon

se

nten

ce set ou

t below. DISCOVERY

SALES

EA AGREEMENT

3


16/40


further agrees that the criminal statute oflimit

at

ions shall be to lled from the date it signed the

2

Ag

reement unt

il

it has made all payments required under this agreement. DISCOVERY SALES

3

un

de

rstands that

by

ente

ri

ng into this Agreemen t: (a) it agrees that the facts set forth in Paragraph

2

of

4 this

Agreement

shall be admi

ss

ible against it under Fed. R. Evid. 80 1 d)(2)(A) in any subsequent

5 proceeding, incl uding

at

t rial, in the

event

it violates any of the terms ofthis Agreem

en t

, and (b)

it

6 expressly wa ives any and a

ll ri

ghts under Fed. R Crim. P.

ll

(f) and Fed. R. Evid.

41

0 with regard to the

7 facts set forth in Pa ragra

ph

2 of this Agreement in any such subsequ

ent

pro

cee

ding. DISCOVERY

8 SA LES unde rstands that the government will not preserve any physical evidence obtained

n

tllis case.

9 7. DISCOVE RY

SALES

agrees that the Co

ur

t will u

se

the

Se

nt

enc

ing Guideli

nes

to

10 calculate its sentence. DI

SCOVE

RY

SA

L

ES

unde rsta

nd

s that the Court

must cons

ult the Guidelines,

11

including Chap ter Eight, and take them into account when se ntencing, togeth

er

w ith the factors set f

or t

h

12 in 18 U.S.C. § 3553(a). DISCOVERY

SALES

agrees that the following Sentencing Guideline

13 ca lculations appl y:

14 a. Offen

se

Level (U .S.S.G. §§ 8C2.3 and 2B l. 1)

15

16

17

18

19

20

21

22

23

24

25

26

27

8.

b.

c.

d.

Base

Of

fen

se

Level, U.S .S.G. § 2

Bl.l

(a)( l):

Spec

ific

Of

fen

se

Char

ac

tetistic, U.S.S.G.

§

2

Bl.l

(b)(l)(M)

:

7

24

4

27

D

ow

nward Departure, U.

S.S.G

. § 2B

1.

1, cmt. 20(C):

T

ota

l Offense Leve

l:

Base F ine, U.S.S.G.

§ 8C2

.4 :

Culpability Score (U.S.S.G. §

8C2.5)

B

ase

Score, U.S.S.G. § 8C2.5(a) :

Invo lvement o r Tolerance , U .S.S.G. § 8C2.5(b)(5):

Accep tance, U.S.S.G. § 8C2.5(g)(2):

To ta l Culpability Score:

Fi.ne Multiplier, U.S.S.G. § 8C2.6:

Fine Range, U.S.S.G. § 8C2.4(d):

8.5 mi

ll

ion

5

-2

4

.8 1 .6

6.8 to 13.6 million

D

ISC

OVERY

SALES

agrees th

at

a reasona

bl

e a nd approp r

ia

te disposition ofthis case

28 under the Sentenc ing G uide lines and 18 U.S.C. § 3553(a

),

and the senten

ce

to wh

ic

h

th

e parties have

PLEA AGREEMENT

4


17/40


agreed is, as follows:

a. Criminal Fine:

DISCOVERY

SALES shall pay a criminal fine of 8,000,000,

3 which fine amount takes into account, among other things, the government 's investigation cost in this

4 matter. The fir

st

insta llment of 1 ,333 ,333 shall be paid on the one year anni

versa

ry of sentenc ing in

5 tlus matter, with three subsequent 1,333,333 installments

on

each yearly anniversary thereafter until the

6 final payment. Inter

est

will

accr

ue beginning

on

the date of entry of

ud

gment and the fifth

and

final

7 installment will be 2,666,668, plus any remaining interest due and owing. DISCOVERY SALES

may

8 pre-pay all or part of he total fine.

9 b. Probation: DISCOVERY SALES will be placed on probation for a tenn of 5

10 years for the purpose

of

co

mt

supervision

of

payment

of

the fi

ne

and rest itution,

star

ti

ng the day

11 DISCOVERY SALES is sen tenced by the Comt. As a te

nn

of its probation, DISCOVERY SALES

12 shall

co

mmit no further violations of federal, state , or local law, and shall conduct a ll its operations in

13 accordance with the laws ofthe United States.

14 c. Mandatory Special Assessmen

t:

Pursuant to 18 U.S.C.

§

30 13, DISCOVERY

15 SALES will pay a

400

mandatory special assessment at the time of sentencing.

16 d. Restitution: DI

SCOVERY

SALES will

pay

restitution in the

amount

of

17 3,000,000 within 120 days of sentencing. The restitution amount sha ll be paid to the Clerk, United

18 States District Court fo r the Northern District

of

California, which wi

ll

process and disburse the

19 pay

ments to the victims.

20

9. DI

SCOVERY

SALES agrees that the fine a

nd

restitution impo

sed

by the Court against it

21 will be due and payable as set fo1th herein. If DIS

COVERY

SALES fails to ma

ke

any payment as

22 prescribed by this

Agreement

, the entire amount of the fine and restitution ( 11 million) shall become

23 immediately due and payable and subject to immediate

co

llection

by the

government, a

nd

DISCOVERY

24 SALES understands that the govemment may seek immediate collection of he entire fine and restitution

25 from any

assets

of

DIS

COVE

RY SALES. DISCOV

ERY

SALES agrees that it will make a good-faith

26 effo1t to pay the fme and restitution it is order

ed

to pay. DISCOVERY SALES agrees to pay the special

27 assessment

at

the time of sentencing.

28 I0. DISCOVERY SALES shall provide a bond to secure payment of the outstanding amount

PLE AGREEMENT

5


18/40


of the fine set forth in Paragraph 8(a) above, payable to the Clerk, United States District Coun for the

2 Northern District

of California. Such bond wi ll be lodged with the Clerk

of

Court along with this

3 Agreement at the time

of

the plea.

4

11 DISCOVERY

SALES agrees that regardless

of

any other provision of this Agreement,

5 the government may and will provide the Court with a ll in formation relevant to the charged offenses and

6 the sentencing decision. The United States and DISCOVERY SALES jointly submit that this Plea

7 Agreement, together with the record that will be created

by

the United States and DISCOVERY SALES

8 at the plea and sentencing beat

ing

and the existing record of related cases before

the

Court, wil l provide

9 sufficient information concerning the defendant, the crime charged in this case, and the defendant s role

I0 in the crime to enable the meaningful exercise of sentencing authority by the Court under 18 U.S.C.

§ 3553. The Unit

ed

States and DrSCOVERY SALES agree to request jointly that the

Court

accept the

12 defendant s gui lty

plea and

impose

se

ntence on an expedited schedule as early

as

the date

of

the

13 arraignment, based upon the record provided by the defendant and the United States, under the

14 provisions

of

Fed. R. Crim. P. 32(c)( l)(A)(ii), U.S.S.G.

§

6A l

.l,

and Crim. L.R. 32-l (b). The Court s

15 denia l of this

joint

request and refen·al to the Probation Department for a Presentence Report will not

16

void this Plea Agreement.

17 J2. DISCOVERY SALES agrees not to commit or attempt to commit any

ctimes

before

18 sentence is imposed; to provide truthful infom1ation to the Court, the Probation Office, and the

19 government; and

to co

mpl y with all of the

other

promises t has made in this Agreement.

DISCOVERY

20 SALES agrees that if it fails to comply with any promises it h

as

made in this Agreement, then the

21 government will be released from a ll of its promises in this Agreement, including those set forth in the

22 Government s Promises Section below, but DISCOVERY SALES will not be released from its guilty

23 plea .

24

13.

IfDISCOVERY

SALES changes its name, the renamed company shall

be ob

liged to

25 meet all

of

the obligations

ofDISCOVERY

SALES under this Agreement. IfDISCOVERY SALES

26 merges with or is purchased by another company, the

merger

partner or purchaser shall be obliged to

27

meet all

of

the obligations of

DISCOVERY

SALES under this Agreement.

28 14. DISCOVERY SALES agrees that this Agreement contains all

of

the promises and

E GREEMENT

6


19/40


agreements between it

and

the

govemment, and

supersedes any other agreements, written or oral. No

2 modification

of

this Agreement shall be effective unless it is in writing

and

signed by all parties.

3 15.

DISCOVERY SALES

agrees

that

the Agreement

bind

s

the

U.S.

Attorney s

Office for

the

4

Nmthern

District

of

California only,

and does not

bind any

other

federal, s tate, or local agency.

5

The

Govemment s Promises

6 16.

The government

agrees

not

to file any additional charges against

DISCOVERY

SALES

7 as a

result of

the investigation that led to the captioned Infonnation.

8

17. The

g

overnment

agrees

that

the reasonable

and

appropriate sentence

in

this case is

as set

9 forth above, as secured by

the bond

to

be

filed pursuant to paragraph 10, unless the defendant violates

I

0

any

tem1 of this Agreement or fails to accept responsibility.

8 The

government

ag

ree

s that

it

will

not

bring criminal charges related to

the

investigation

12

into undisclo

se

d incentives

and

practices

used

by DIS

COVERY SALES, among other

things, that

led

to

3

the charge alleged

in

the captioned Information

aga

inst any affiliated or related entity

of

defend

an

t

or

4 any current or fanner owner, member, shareholder, director, officer, or

emp

lo

yee

of the defendant or its

15

related or affi liated entities,

except

that the prot

ec

tions granted in this paragraph shall not apply to

16

Ayman

Shahid, Ca rey Hend1ickson, and

Ja

s

on

Sterlino, and

do not extend

to employees

of

oint

7 ven

tur

es

between

DISCOVERY

SALES

and

preferred

lenders

during

the time frame alleged in the

8

Infonnation.

The government

wi

ll

not

be

bound

to th

e te

1m

s

of

this paragraph

if defendant

fa ils to

make

9 any

payment

required und

er

paragraph 8

of

this Agreement, eith

er

directly or

through the su

rety.

20 DISCOVERY SALES s Affim1ations

21 19.

DISCOVERY SALES

represents that this Agreement shall bind DISCOVERY

SALES,

22 its

successor

corporation

if any

, a

nd

any

other person or

entity

that

assw11es the

ob

ligations contained

23

herein

( successors-in-

in t

erest ).

DISCOVERY SALES

, or its

successors-in-inte

rest,

if

applicable,

24

shall provide the

government

w

ith

immediate notice of any

name

change, change

in

corporate or

25 individual control, change in

ow

nership, merger, change

oflegal

sta

h1s sa

le or

purchase of

assets,

26 divestiture

of

assets, or simil

ar

action affecting their abi lity to

pay

the fine

or

otherwise

comply

with tlus

27 Agreement.

No

change

in

name,

change

in corporate

or

individual control,

change

in ownership,

28 merger,

change oflegal

status,

sa

le

or purchase of

assets, divestihrre

of

assets,

or

s

imilar

action sha

ll

PLEA AGREEMENT

7


20/40


alter

DISCOVERY

SALES s obligations und

er

this Agreement.

DISCOVERY

SALES shall not engage

2 in any action to seek to avoid the

ob

ligations set forth in this Agreement.

3

20

DISCOVERY

SALES represents that it is authorized to enter into this Agreement. On or

4 before the date

of

entry and filing

of

the

Agreem

ent DISCOVERY SALES shall provide to the

5

govemment

and the

Court

a notarized written statement certifying that

DISCOVERY

SALES is

6 authorized to ent

er

into and comply

with

all

of

the provisions

of

this Agreement.

The

resolutions further

7 shall authorize a

co

rporate representative to enter into this Agreement and that a ll corporate fonnalities

8 for such auth01izations have been observed.

9

21

DISCOVERY

SALES confirms that it has had adequate time to discuss this case the

10

evidence and the

Agreement

with its attorney

and

that its attomey has provided it with all the legal

advice that

DISCOVERY

SALES requested.

12

22 .

DISCOVERY SALES confim1s

that

its decision to enter a guilty

plea

is made knowing

13

the charges that have been brought

aga

inst it any possible defenses and the benefits and po

ss

ible

14 detriments

of

proceeding to trial.

DISCOVERY

SALES also confirms that its decision to plead gui lty is

5 made voluntari ly and no

one

coerced or threatened it to enter into this Agreement

16

Dated:

7

18

9

20

21

Dated:

22

23

24

ll

25

ll

26

ll

27

ll

28

ll

PLE AGREEM T

8

WILLIAM

GOODMAN

for

DISCOVERY SALES INC.

BRIAN J. STRETCH


JOHN

H. HEMANN

Assistant United States Attorney


21/40


23. I have fully explained to

my

client all the rights that a criminal defendant has

and

all the

2 terms of this Agreement. In my opinion my client understands a ll the

tetm

s of this Ae rreement and all

3 the rights my client s giving up by plea

ding

guilty and based on the information now known to me, my

4 clie

nt s

dec

ision

to pl

ea

d guilty is knowing and voluntary.

Dated:

6

WILLIAM GOODMAN

WILLIAM

KEANE

7

Attorneys for Defendant

8

9

10

12

3

14

15

16

17

8

19

20

2

22

23

24

25

26

27

28

PLEA AGREEMENT 9


22/40

Exhibit B



23/40


24/40

Exhibit C



25/40


O

24

5E (

Rev

. 1

21

0

3)

Judgment inn C

rim

i

na

l Case for Org

an

iz

ati

onal Defendants

Sheet

I

UN1TED STATES DISTRICT COURT

Northern

UNITED STATES OF AMERICA

v.

DISCOVERY

SA

L

ES

, INC.

THE

DEFENDANT ORGANIZATION:

District

of

Ca

forn ia

JUDGMENT IN A CRIMINAL CASE

(For Organ izat

ion

al Defendants)

CASE

NUMB

ER: CR 16-0199 YGR

William Goodman Willia m Keane

Defendant Org

an

ization s Atto

rn

ey

i' pleaded guilty

to

cou n

t(

s) one

-------------------------------------------------------------

0 ple

ad

ed nolo contendere to count(s)

which was accepted by the co

urt.

0 wa s found gu ilty on count(s)

after a plea

of

not gui lty.

The organizational defendant is adju

di

cated g

ui

lty of hese offense

s:

Title Section

18 U.S.C. 1344

Nat

ut

·e of

Offense

Bank Fra ud

The defendant organiza

ti

on is sentenced as provided

in

pages 2 throu gh

0

The defendant orga

ni

zation has been fou nd n

ot

g

ui

lty on count(s)

Offense End ed

_ _ of this judgm ent.

0

Count(s)

0

is

0

a

re

dis

mi

ssed

on

the motion of

th

e United States.

Co

unt

One

It is ordered that the defendant oroanization mu st noti v the United States attorn

ey

for this district within 30 days ofany change

ofname, principalbus

in

ess address, or maiiing

add

ress until all fin es, restitution,costs, and special assessments imposed by this ud gment

a

re fu

lly paid.

If

ordered to pay restitution,

th

e defendant organization

mu

st notify

th

e cou rt and Un ited States attorney of mate

ri

al

changes in econom ic circumstances .

D

efe

nda

nt

Or

ga

ni

za

tion s

Fede

ral

Empl oye r J.D. No.:

:0: :0: :

: :0: :3 :9

_:3

Defe

n

dant

Organiza

ti

on s Prin

ci

pal

Bu

siness Addr

ess:

4061 Port Chicago Highway

Concord, California 95420

De

fendant Org

an

ization s

Mai lin

g Addre

ss:

4061 Port Chicago Highway

Concord ,

Ca

lifo

rni

a 95420

6/3/2

01

6

Dat

e ol lmp

os iti

on of

Ju

dgm

en

t

Signature of

Jud

ge

Yvonne Gonza lez-Rogers

U.S. District

Judge

Na

me of Judge

Title

of

Ju

dge

6/3/2016

Date


26/40


AO 245E Rev. 12/03) Judgment in a C

r

minal Case for Orga

zat onal Defendants

Sheet lA

DEFENDANT

OR

GAN IZATION : DISCOVERY SALES INC.

CASE

NUMBER CR 16-0199 YGR

Judgment- Page

ADDITIONAL COUNTS OF CONVICTION

Title Section Nature

of

Offense Offen

s

Ended

of


27/40


AO

245E (Rev. 12103} Judgment

in

a Criminal Case

for

Organizational Dcfcndan S

Sheet 2 - Probation

DEFENDANT

ORGAN IZATION: DISCOVERY SALES, INC.

CASE NUMBER:

CR 16-0199 YGR

PROB TION

The

defendant organization is hereby sentenced to probation for a

tenn

of:

5 years

The defen

dant

organizat ion shall not commit another federal, state or loca l crime.

Judgment-

Pa

ge

2

of

6

If this judgment imposes a fine or a restituti

on

obl i_garion, it is a cond ition of probation that the defendant organ ization

pay

in

accordat

ice

w ith

the

Schedule

of

Payments sh

eet of

tnis judgment.

The defendant organization mu

st

con

ply

with the standard conditions tha t have been adopted by this

coutt

as we ll as with any

additional conditions on the attached page if mdicated below).

Defendant shall pay the 3 million restitution ordered by the Court within 180 days of sentencing.

Defendant shall pay the 8 million fine imposed by the Court on the fo

ll

owing schedule: The first installment of

1,333,333 shall be paid on the one year anniversary of sentencing in this matter, with three subsequent 1,333,333

installments on each yearly anniversary thereafter until the final payment. Interest wi ll accrue beginning on the date

of

entry

of

udgment and the fifth and final installment will be 2,666,668, plus any remaining interest due and owing.

Defendant shall lodge with the Clerk of Court on the day of sentencing a surety bond in the amount of 8 million

pa ya ble to the Clerk of Court, Northern District of California.

f

defendant fails to make any fine payment on the

schedule set forth above, the total amount of the bond shall be forfeit to the United States.

ST ND RD CONDITIONS OF SUPERVISION

I) within thitty days from the date ofthis judgment, the defendant organ ization sha

ll

des ignate an official of

th

e organ ization to act

as the organizations s representative and to be the primary contact with the proba tion officer;

2)

t11e

defendant organization sha

ll

answer

truth fully a

ll

inquir ies by the probation officer

and

fo

ll

ow

the instructions

of

he probation

officer;

3) d1e

defendant organ ization shall notifY the pr

obat

ion officer ten days prior to any change in principal business or

ma

iling address;

4) d1e defendant organi zation sha ll permit a probation officer to v isit

th

e orga nization at any of its operating bus iness si tes;

5)

de.fendant orgat:J iza t

i

on shall

o ~ t y

the probation of

f

cer.w ithin

seve

nty-two hours

of

any criminal prosecution, major civil

lt tt

gatw

n, or admmtstrahve proceed

tn

g agamst the orgall tzat

tOn

;

6)

the defendant organization shall not disso lve, change its name, or chanoe

th

e name under which it does business un less

th

is

jud_gment a

nd

a ll cr iminal mor:tetary pena lties i rnposea by this court are e itfler fully satisfi ed or are eq ua lly enforceab le again

st

the

derendant

s

succe

sso

rs or ass tgnees; and

7) the defendant organ ization sha ll n

ot

waste, nor witho ut perm iss ion of the probation officer, se ll, ass ign, or transfer its assets.


28/40


AO 245E Rev. 12/03 )

Judgmem

in

a

Crimin

al

Case for Organi

za

t ional Defe

ndants

S

he

et

A Probation

DEFENDANT ORGANIZ

AT

lON: DISCOVERY SAL

ES

INC .

CASE

NUMBER CR

16

-0199 YGR

DDITION L PROB TION TERMS

Judgment Page

o


29/40


AO 245E

Rev

12/03) Judgment

in

aC

riminal

Case forOrganizmional Defendants

Sheet

B -

Probat

io

n

DEF

EN

DANT ORGANIZATION DISCOVERY SALES

IN

C.

CASENUMBER CR 16-0199 YGR

Judgment- Page

SPECI L CONDITIONS OF SUPERVISION

o

6


30/40


AO

245

E Rev. 12/03 Judgment in aCriminal Case forOrganizational Oe tendants

Sheet C Probation

DEFE

ND NT

ORG NIZATION: DISCOVERY SALES INC.

CASENUMBER

CR 16-0199 YGR

Ju

dgment-

Page of

DDITION L ST ND RD CONDITIONS OF SUPERVISION


31/40


AO 245E (

Rev 12

/03) Judg

ment in

a C

riminal

Case for Organ izatio

nal

Defendants

Sheet 3 - Criminal Monetary Penalti

es

DEFENDANT

ORGANIZATION: DISCOVERY

SA

LES, I

NC

. Judgment -Page _

CASE NUMBER:

CR 16-0199 YGR

CRilVIINAL

MONETARY

PENALTIES

of

6

The defendant organization must pay the followi

ng

total criminal

mon

etary penalti

es

under the schedule

of

paymen

ts

on Sheet 4.

TOTALS

Assessment

400.00

D The determ

in

ation of restitution is deferred until

e

nt

er

ed

after s

uch

determination.

Fine Restitution

8 000 000.00

3 000

,000.00

An mended Judgment in a Criminal Case (AO 245C) w

ill

be

D The defendant organization sha ll make restitution ( includ

in

g commun ity restitution) to the follow

in

g payees

in

the amount listed

below.

If

the defendant organization makes a partial payment, each payee shall receive an approx

im

ately pro

p01ti

oned payment, uoless speci

f

othe

rwi

se in the pnority orderor percentage payment column below How ever, pursuant to 18 U S.C.§ 3664(i), all nonfeoera lvict im sm

be paid before the United States is paid.

Name of Pavee

FH

LMC

FNMA

Tota l Loss*

Restitution Ordered Prioritv or Percentage

1 ,175 000.

00

1,825,000.00

TOTALS

0.00

3,000 000.00

lit Res titution amount ordered pursuant to

pl

ea agreement 3,000,000.00

lit

The defendant organization shall pay interest

on

restitution or a

fi

ne

of

more than 2,500,

unl

ess t

he re

s

ti

t

uti

on

or

fin

e is paid

in full

before the fifteenth day after the date of the judgme

nt

, pursuant to 18

U

S.C § 3612(f). A

ll

of the payment opt ions on Sheet 4

ma

y

be subject to penalties for del inquency and default, pursuant to 18 U.S.C. § 3612(g).

D The

co

urt deter

min

ed that the defendant organi

za

tion does not hav e

th

e ability to

pay

interest, and it is o

rd

e

red

tha

t:

D the interest requirement is waived

for

the D

fm

e D restitution .

0 th

e inter

es

t requireme

nt

for the

D fine D

restitution is modified as follows:

Findings for the totalamount of osses are required und er Chapters I09A, I I0, I IOA, and I 13A ofTitle 18 for offenses committed on or afte

Se

ptemb er 13, 1994, but before April 23,

19

96


32/40


AO 245E Rev. 12/03) Judgment in a Criminal Case or Organizational Defendants

Shee t 3A - Criminal Monetary Penalties

DEFENDANT ORGANI

ZATIO

N DISCOVERY SALES INC.

CASENUMBER: CR

6

-0199 YGR

Jud

gment

Page of

DDITION L TERMS OR CRIMIN L MONET RY PEN LTIES

6


33/40


AO 245E Rev . 12/03) Judgment in a Crim in

al

Case for Organizational De fenda

nts

Sh

ee

t 8 C

riminal

Monetary P

ena

ltie s

DE

FEN

DANT

ORGAN

I

ZAT

ION: DISCOVERY SALES, INC.

CASE NUMBER: CR 16-01

YGR

Judgment -

Page

of

ADDITIONAL RESTITUT

IO

N PAYEES

Name of Pavee Tota l Loss*

P

ri

ority or

Res titution O

rd

er·ed

Pe

rce

nt

a2e

6

Findings for the total amount

of

losses are req

ui

red by Chapters I09A, I I0, II OA , and I

3

A

of

Title

8

fo

r offenses committed o

or after September 3 , 1994, but before April 23, 1996.


34/40


245E Rev. 12/03) Judgment

in a

Criminal Case

fo

r Organizational Defendants

Sheet 4 -

Schedule ofPayments

DEFENDANT ORGAN

IZATION : DISCOVERY SALES, INC.

CASENUMBER: CR 16-0199 YGR

SCHEDULE OF P YMENTS

Jud gment- Page

_

H

av

ing assessed the organizat

ion

's

ab ility

to pay, payment

of

th

e total criminaI

mon

eta

ry

penalties are due as

fo

ll

ows:

A 0

Lump s

um

payment

of

due immediately, balance due

0 not later than

0

in accordance with

0 C

or

, or

0

D below; or

B 0

Pa

yment

to

begin

imm

ediately (

ma

y be combined with

OCor

0 D below); or

of

C 0 Payment in (e.g., equal, weekly, monthly, qua1terly)

in

stallments

of

over a period

of

(e.g., months or years),

to

commence (e.g., 30 or 60 days) after the

da

te

of

this judgment; or

0 Special instructions regarding the payment

of

cri

min al mon

etary penalties:

The 3,000,000 restitution payment shall

be

made within

18

days

of

the date

of

se

nt

encing.

6

The first installment

of

1,333,333 shall be paid on the one year anniversary

of

sentencing, with three subsequent

1,333,333 insta

ments on each yearly anniversary thereafter until the final payment. Interest will accrue beginning on

the date of entry

of

udgment and the fifth and final installment will be 2,666,668, plus any remain ing interest due and

owing. Defendant may prepay all or part

of

the total prior to dates on which installments are due.

Al

l cr iminal monetary penalties are made to

th

e clerk

of

the cotu

t.

The defendant organiza tion shall receive credit

for

a

ll

payments previously made toward any ctiminalmonetary penalties

imp

osed.

0

Joint and Several

Defendant and Co-Defendant Names and Case Nu mb ers (including defendant num ber), Total Amount, Jo

in

t and Several Amount, an

corresponding payee,

if

appropriate.

0 The defend ant organization shal l pay the cost of prosecution.

0

The defendant or

ga

nization sha

ll

pay the following

co

urt cost(s):

0 The defendant orga nization shall forfeit the defend ant organ iza tion s interest

in

the follow

in

g property to the Un ited States:

Payme

nt

s sha

ll

be applied

in

the fo llowing order: ( I) assessment, (2) resti tution principal , (3) restitution

in

terest, (4) fine principal,

(5) fine interes

t,

(6) communi

ty

restituti

on

, (7) pena

lti

es and (8) costs, including cost

of

prosecution

an

d

co

urt costs.


35/40


AO 245E Rev. 1

2103

Judgment

in

a Criminal Ca

se

for Organizational

De

fendants

Sheet A Schedu le of Payments

DEFENDANT ORGANIZATION: DISCOVERY SALES INC.

CASE NUMBER:

CR 16-0199 YGR

Judgment- Page

of

ADDITIONAL DEFENDANTS AND CO-DEFENDANTS HELD JOINT AND SEVERAL

Case Number

Defendant

and

Co-Defendant

Names including defenda

nt

number Total Amount

Joint

and

Several

Amount

Corresponding

Payee,

if

appropnate

6


36/40


2

5E

R

ev

. 12/03) Judgme

nt

in

a

Criminal Case lor Or

ganiza ti

onal

Defe

ndantS

Sheet 48 - Sched ule

o

Payments

DEFENDANT

ORGANJZATION DISCOVERY SALES INC.

CASE NUMBER: CR 16-0199 YGR

DDITION L FORFEITED PROPERTY

J

udgm

ent -

Page

of

6


37/40

Case 4:16-cr-00199-YGR Document 8 Filed 05/27/16 Page 37 of 40245E (Rev . 12/03) Judgment in a Criminal Case . Jrganizational Defendants

A

tt

achment - Statement

of Reas

ons

.

DEFENDANT

ORGAN IZATION: DI

SCOVERY S LES, INC.

C SE NUMBER:

CR 16-

01

99 YGR

STATEMENT OF REASONS

0 The cour t adopts the presentence report and guidel

in

e applications WI

THOUT

CH NCE.

R

Judgmcn t -

Page __

_

0

The

co

urt adopts the prese

nt

en

ce

report gu

ide

li

ne a

ppl

ica

ti

ons BUT WI

TH TH

ESE

CHANG

ES

:

G uideline Ran

ge

Determined

by

the C

our

t:

0

The defe

nd

a

nt

organization is a crimin al purpose organiza

ti

on pu rsuant

to

U.S.S.

G.

§8C 1.1.

R

of

0 The calculation of the guideline fine range is

tm

necessary because the defenda nt organization cannot pay restitution pursuan t to

U.S.S.G. §8C2.2(a).

R

To

tal Offense Leve l: _2_ _______

Base Fin e:

8,500,000.00

Total Cul pabi

lity

Score: _4______

Fine Range: 6,800,000.00 to 13,600,000 .00

is added

to

fine pursuant

to

U.S.S.G. §8C2.9.

Disgorgemen t amo

un

t of

0 Fine offset amount

of

is subtracted from fine

pu

rsuant to U.S.S.G. §8C3.4.

0

Fine wa ived or below the gu

id

el

in

e range because of

in

a

bi

lity to pay pursuant to U.S.S.G. §8C.3.3.

R

ES

TITUTION DETERMIN TIONS

Total Amount of Restitution:

3

000,000.00

O For offenses for which res

ti

tution is otherwise mandatory under 18 U.S.C.

&

3663A, resti

tu

tion is not order

ed

because the num ber

id

entifiable victims is so large as to make r

es

titution imprac ticable

und

er 18 O.S.C. § 3663A(c)(3)(A).

O For offenses for

wh

ich

res

ti tut ion is o

th

erwi

se ma nd

atory under 18 U.S.C. § 3663A, restit

uti

on is not ordered because determining comp

l

issues of fact and relating them to the cause or amount of the vic

tim

's losses

wo

uld complicate or

pro

long

th

e sentencing process to a

de

r

that the need to provide res titut ion

to

any victim wou ld be outweigh

ed

by the burden on the sentencing process under 18 U.S.\....

3663A(c)(3)(B).

0

For offenses for which restit

ut io

n is autho

ri

zed under 18 U.S.C. § 3663 and/or re

qu

ired

by th

e senten

ci

na

gu

idel

in

es, rest

it

ut

ion is n

ordered because the c

om

plication a

nd

pro longa tion of he se

nt

enc

in

g o e s s resulting from

th

e fash

io

ning o'ta restitution order outweig

th

e need to provide restitut

ion

to any victims under 18 U.S.C. § 365J(a)( I (B)(ii).

0 Restitution is not ordered for other reasons:

0 Partia l rest

itu

t

ion is

ordered pursuant to 18 U.S.C. § 3553(c) fo r the fo llow ing reason(s):


38/40

Case 4:16-cr-00199-YGR Document 8 Filed 05/27/16 Page 38 of 40245E Rev. 12/03 Judgment in a Criminal Case. J rg

nn

izational Ddcndants

Attac

hm

ent

A -

Statementof Reasons

.

DEFENDANT

ORGANIZAT

ION: DISCOVERY SALES IN .

CASENUMBER R 16-0199 YGR

ST TEMENT OF RE SONS

Judgment - P

age

6

of

6

Th

e

se

ntence is wit

hin

th

e guide

lin

e range and

th

e

co

urt

find

s no reason

to

de

pmt

from

th

e sentence called for

by

the app

li

cation

of

the guidel ines.

R

D

The sente

nc

e departs from

th

e guideline ran

ge

:

D

upon

motion

of

he govemm ent, as a result of a defendant s s

ub

stantial assistance, or

0

for the following specific reason s):


39/40

Case 4:16-cr-00199-YGR Document 8 Filed 05/27/16 Page 39 of 40\02451:. Rev . 12/03) Judgment in a Criminal Case . rganizational Defendants

Attachment B- Statement of Reasons

QEFENDANT ORGANIZATION: DISCOVERY SALES

IN

C

C SE NUMBER:

CR 16-0199 YGR

Judgment - a

ge

DDITION L FINDINGS ND GUIDELINE PPLIC TION CH NGES

of


40/40

Case 4:16-cr-00199-YGR Document 8 Filed 05/27/16 Page 40 of 40Rev 12/03) Judgment in aCriminalCase . Jrganiza tional De fendan ts

Attachment Statement ofReasons

DEFENDANT ORGANJZATION: DISCOVERY SALES C.

CASE

NUMBER

CR 16-0199 YGR

Judgment - Page

o

DDITION L RE SONS OR DEP RTURE FROM THE GUIDELINE R NGE

6

discovery sentencing

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