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United States of America v. Freeman, No. 12-4636

Decided: January 17, 2014

The Fourth Circuit reversed and remanded the district court’s order directing a defendant to pay restitution to victims that he defrauded because the crime for which the defendant was convicted did not cause the victims’ loss.

Defendant, Robert J. Freeman purported to be a minister and through fraudulent charities, caused several parishioners to take out substantial loans purportedly to help the church. In reality Freeman used the loan proceeds to accumulate substantial assets including: a $1.75 million house and more than $340,000 in luxury automobiles. Freeman convinced the parishioners that, although they took out the loan, he and the church would make payments. By October of 2005, Freeman and his wife owed debts in excess of $1.3 million and filed for bankruptcy. At his creditors meeting, Freeman falsely misrepresented his assets and presented fabricated earnings statements to a fictitious business.  The government charged Freeman with numerous crimes relating to his fraudulent activity; however, as a result of a plea agreement, he only pled guilty to one count of obstructing an official proceeding, relating to his misrepresentations at his bankruptcy hearing. Freeman was not convicted nor did he plead guilty to any crime relating to defrauding parishioners. The district court sentenced Freeman to 27 months in prison and ordered him to pay a total restitution of $631,050.52 to his victims. Freeman appealed to challenge the legality of the order of restitution.

On appeal, the Fourth Circuit first explained that a court may only order restitution based on statutory authority. In this case, the court determined that the district court ordered restitution as a condition of supervised release, pursuant to 18 U.S.C. § 3583(d). Under that section, a court may order restitution to repay victims “of the offense.” The Fourth Circuit held that, based on the plain language of the statute, “of the offense” meant that the court may order restitution “only for the loss caused by the specific conduct that is the basis of the offense of the conviction.”  In adopting this position, the Fourth Circuit sided with the overwhelming weight of authority from other circuits. In the present case, the Fourth Circuit held that the government failed to demonstrate the requisite causal connection between Freeman’s misrepresentations to bankruptcy officials and the victims’ significant financial loss. Even if Freeman had been entirely truthful at his bankruptcy proceeding, his victims would have suffered no less in unfortunate financial loss. Therefore, the Fourth Circuit reversed the district court order of restitution and remanded to the district court to determine whether or not to impose a fine.

Full Opinion

– Wesley B. Lambert