Frank Castaldi’s story serves as a cautionary tale for anyone trying to cooperate with the government to get a better deal.
In 2008, Mr. Castaldi turned himself in to government investigators, revealing his $77 million Ponzi scheme. Mr. Castaldi fully cooperated with the government and entered into a plea agreement recommending a sentence between 151 and 188 months. So the court’s 276-month sentence no doubt came as a bit of a shock.
Unfortunately, the Seventh Circuit wasn’t the least bit sympathetic.
The Investment Structure And Its Collapse
Some sons inherit from their fathers’ money or property or good hair. Mr. Castaldi inherited a Ponzi scheme. The Seventh Circuit called him a “second generation fraud artist.”
In the 1960s, Mr. Castaldi’s father taught him to find investors for a “remarkable” investment opportunity. As a teenager, Mr. Castaldi learned to highlight for potential investors the consistently high returns of the so-called investment and the fact that his investors need not report those returns to the IRS as taxable income. In reality, however, no such investment existed. Mr. Castaldi and his father continually paid off earlier investors’ promised returns using the principal from newer investors.
When his father passed away, Mr. Castaldi assumed complete control of the scheme.
In November 2008, a particularly large investor demanded the return of $500,000 within ten days. Mr. Castaldi did not have enough cash on hand and pressed hard on his new investors to raise the money. When he realized he would not be able to meet his investor’s timeline, he confessed the scheme to the government with a lawyer present. (This turn of events, of course, makes you wonder what kind of punishment Mr. Castaldi thought the large investor would inflict on him, since the better alternative was confessing to the government.)
The Plea Agreement
Mr. Castaldi cooperated fully with the government’s lawyers. He met with them more than thirty times without any assurances of leniency, and gave complete information on his decades-long fraud. He waived indictment and pleaded guilty to one count of wire fraud and one count of impeding the IRS.
Both parties then agreed to an assessment of Mr. Castaldi’s sentence under the Guidelines. Together, they arrived at an offense level of 34 and a criminal history category of I, yielding a sentencing range of 151 to 188 months. In light of the fact that the government had no prior indications of the scheme’s existence, coupled with Mr. Castaldi’s full cooperation, the government agreed to recommend the sentencing judge impose a sentence on the low end of the sentencing range. However, neither the plea agreement nor the sentencing guidelines were binding on the sentencing judge.
The Sentencing Decision
At his sentencing, Mr. Castaldi submitted a detailed memorandum arguing for a sentence below 100 months. Mr. Castaldi pointed out a number of mitigating factors, including:
- The fact that he inherited the Ponzi scheme, and had to maintain it to protect his father,
- His cooperation with the government,
- His lack of intent to cause harm,
- His absence of a greedy or lavish lifestyle,
- The health problems both he and his wife suffer,
- His advanced age (at 57 years old), and
- A number of letters from family and friends testifying to his good character.
The judge reviewed both Mr. Castaldi’s memorandum and the memorandum from the government, which also urged for a low sentence.
The judge was unquestionably swayed by the letters and statements of Mr. Castaldi’s victims. He read accounts from people who had lost retirement savings, college funds, and life insurance money. One letter recounted how Mr. Castaldi convinced his 92-year-old aunt to give him $120,000 by telling her she could use the interest to pay her caretaker. The victims told the court how Mr. Castaldi abused their trust and his position in the community to take their money.
The sentencing judge then handed down his sentence. He first focused on the length of the fraud, the enormous number of victims, and the losses in excess of $30 million. He explained that a sentence following Guideline range would “grossly understate” the gravity of Mr. Castaldi’s criminal actions. He pointed out that the scheme targeted elderly Italian Americans, whose cultural traditions championed hard work and frugality.
The judge ultimately imposed the maximum consecutive sentences for Mr. Castaldi’s two counts, totaling 276 months (23 years) in prison.
Mr. Castaldi’s Appeal
Mr. Castaldi tried unsuccessfully to appeal his sentence. His primary contention was that the sentencing judge did not provide a sufficient explanation for his departure from the Guidelines, and that he did not meaningfully consider Mr. Castaldi’s cooperation with the government.
The Seventh Circuit’s opinion on February 14, 2014, was no valentine for Mr. Castaldi.
The Court of Appeals rejected Mr. Castaldi’s sentencing argument. Looking over the record, the Court of Appeals found that the sentencing judge paid close attention during the presentations and closing arguments and properly considered Mr. Castaldi’s voluntary disclosure and cooperation.
The Court of Appeals quickly disposed of the remainder of Mr. Castaldi’s procedural arguments, denying each one and affirming Mr. Castaldi’s 23-year sentence.
Should the Sentence Have Been a Surprise?
The trial judge disregarded—completely—the voluntary confession and extensive cooperation of the defendant, as well as the recommendation of the government. This is a surprise. But the length of the fraud (several decades) and its size (tens of millions of dollars) plainly support the sentence imposed. Nonetheless, cases like this one should make any defense attorney think twice about letting our clients cooperate. Such a strategy is particularly risky where, as in Mr. Castaldi’s case, there is no one else to blame.
You have to think that if Mr. Castaldi provided this extensive cooperation but had a co-conspirator (who did not cooperate), then he may have received the sentenced he expected and the co-conspirator would have taken the hit. But this scheme was Mr. Castaldi’s alone and he alone bore the punishment for it.
Mr. Castaldi now has 23 long years to regret his decision. You have to wonder what his father is thinking now.