United States of America v. Melvin Dokich

In the
United States Court of Appeals
For the Seventh Circuit
No. 08-2850
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v.
MELVIN DOKICH,
Defendant-Appellant.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 06 CR 359—Milton I. Shadur, Judge.
ARGUED NOVEMBER 3, 2009—DECIDED JULY 21, 2010
Before EASTERBROOK, Chief Judge, and WOOD and
TINDER, Circuit Judges.
WOOD, Circuit Judge. Melvin Dokich sold stock for
Efoora, Inc., a company that claimed to be developing
diagnostic tests for HIV, mad-cow disease, and blood
glucose levels. Unfortunately, Efoora in the end was
nothing but a phony. The company invited potential
investors and customers to its headquarters in Buffalo
Grove, Illinois, where they received tours of manu-

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2 No. 08-2850
facturing facilities staffed by temporary laborers and
filled with fake test kits and empty boxes. Dokich and
others who sold stock lied about Efoora’s sales figures,
promised that the company would soon be traded
publicly, and falsely said that federal agencies were
poised to approve its diagnostic tests for sale in the
United States. During his time with Efoora, Dokich and
his group defrauded thousands of investors of millions
of dollars.
It is impossible to run such a scam forever, and Efoora
was no exception. In 2006, a grand jury returned an
indictment charging Dokich—along with David Grosky,
Efoora’s CEO, and Craig Rappin, its COO—with nine
counts of mail and wire fraud, 18 U.S.C. §§ 1341 and 1343;
four counts of money laundering, 18 U.S.C. § 1956(a)(1);
four counts of illegal monetary transactions, 18 U.S.C.
§ 1957; and 33 counts of illegal structuring transactions,
31 U.S.C. § 5324(a)(3). Without reaching an agreement
with the government, Dokich pleaded guilty to one
count of mail fraud and all of the structuring charges. The
district court sentenced him to 84 months’ imprison-
ment and ordered him to pay $55,971,122 in restitution,
jointly and severally with Grosky and Rappin. Dokich
did not object to the restitution order at sentencing, but
he argues on appeal that the district court plainly erred
by failing to make a finding that Efoora’s victims
suffered $55,971,122 in actual loss. Because we find no
miscarriage of justice that requires us to overturn the
district court’s decision, we affirm.

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No. 08-2850 3
I
Dokich’s challenge to the district court’s restitution
order requires us to delve into the details of the various
estimates submitted to the court between August 2007,
when Dokich entered his guilty plea, and July 2008,
when he was sentenced, of the loss suffered by his vic-
tims. As of mid-2007, the government estimated that
Efoora’s fraud caused “approximately $35,000,000” in
loss. Two months later, the government told the proba-
tion officer in charge of Dokich’s presentence investiga-
tion report (“PSR”) that Efoora had deprived 5,000 inves-
tors of $35 million and suggested that Dokich could
have foreseen $20-50 million in loss. Based on this infor-
mation, the PSR concluded that $35 million was likely to
be the appropriate amount for restitution, but it noted
that the government intended to provide more specific
numbers at the time of sentencing.
By February 2008, the U.S. Postal Inspection Service had
completed an extensive investigation of Efoora. This
information prompted the government to file a new
calculation of loss with the district court; in this version,
it asserted that Efoora had defrauded shareholders of
$57,769,237 over the course of the scheme. Of that total,
$55,130,612 represented the amount for which Dokich,
who had been an Account Executive from 1999 to 2006,
was responsible. The filing incorporated the postal
agent’s detailed report, which explained how loss was
calculated. First, the postal agent identified 6,000 stock
certificates (representing more than 160 million shares
in Efoora), which were dubbed “victim” certificates

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4 No. 08-2850
because investors bought the securities and never saw
any return. Next, the postal agent calculated the total
amount paid for those outstanding securities. This figure
was based on reports from investors of actual expendi-
tures on “victim” certificates, and, where that information
was not available, on the estimated amount someone
would have paid for the stock based on the average
share price at the time of the sale in question. The postal
agent noted that the current value of Efoora’s shares “was
discounted to ‘zero,’ to maximize the recovery to inves-
tors,” and so the total of $57,769,237 was simply the
amount investors had paid for all outstanding shares.
Along with its new calculation, the government gave
the district court an appendix detailing the amounts lost
by individual victims.
In March, the probation officer supplemented Dokich’s
PSR again. This time, it noted that even though the esti-
mated losses had increased from $35 million to over
$55 million, the government “was not seeking the [U.S.
Sentencing Guidelines] enhancement for a loss of
between $50,000,000 and $100,000,000.” The probation
officer disapproved of that decision and recommended
that the district court use the $55,130,612 figure to cal-
culate both restitution and Dokich’s offense level under
the guidelines. Dokich objected to the supplemental PSR;
he took the position that he could have foreseen only
$1 million in losses. In response, the government dis-
missed Dokich’s estimate as meritless and reiterated that
“[a]lthough the actual loss was more than $50 million,
the government is not arguing for a higher guide-
line level.”

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No. 08-2850 5
Five days before the sentencing hearing, the govern-
ment submitted a final calculation of loss to the victims
and required restitution. It updated its calculation
based on further review of information submitted by
Efoora’s victims, and it added close to $1 million in
losses based on newly discovered securities called “Reve-
nue Royalty Rights,” which Efoora had sold to a number
of investors. According to the final calculation, Dokich
was responsible for $55,971,122.
At sentencing in July 2008, Dokich agreed to take re-
sponsibility for $10 million of fraudulent stock sales. The
court, however, decided to accept the government’s
figures. The court noted that Efoora’s victims “had in-
vested in a situation in which they were defrauded . . . to
the tune of the figures I have seen in the government’s
response,” which reflected $20-50 million in loss. The
district court used that range to calculate Dokich’s sen-
tence. Over the government’s objection, the court relied on
the April 2003 supplement to the guidelines. Adopting
the sentencing recommendation from the supplemental
PSR, the court increased Dokich’s base offense level of
six by 22 to reflect $20-50 million in loss, U.S.S.G.
§ 2B1.1(b)(1)(L), and by an additional six levels because
the crime involved more than 250 victims, § 2B1.1(b)(2)(C).
After reducing the range for acceptance of responsibility,
the court found that Dokich’s final offense level was
31, and it placed him in criminal history category I, re-
sulting in a guidelines range of 108-135 months. The
court sentenced Dokich to 84 months, below the cal-
culated range.

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6 No. 08-2850
At the end of the sentencing hearing, the district court
turned to restitution. Noting that a restitution award was
required by statute and lamenting that any award “would
amount to tapping an empty barrel,” the district court
reviewed the government’s filings on loss and the
lengthy appendix detailing the experience of individual
victims. At various points, the court recognized that the
government had asked for restitution of “almost
$56 million as to Mr. Dokich.” After expressing concern
that the number of victims would make restitution dif-
ficult to administer, the court concluded, “I will make
the determination that the amounts of restitution are
joint and several in the sum . . . that’s provided by the
government, $55,971,122.” On the same day, the court
entered a judgment and commitment order, which in-
cluded restitution, and noted, “All the victims are listed
in the list provided to the U.S. District Clerk’s office.”
Dokich did not object to this part of the judgment.
We appointed Susan Kister to represent Dokich in his
appeal. Unable to identify any nonfrivolous issue, At-
torney Kister filed a motion to withdraw. Anders v. Califor-
nia, 386 U.S. 738 (1967). Dokich responded, arguing
that even though he had received a below-guidelines
sentence, the district court should have sentenced him
based on $10 million in loss, not $20-50 million. Although
we found no merit in that argument, we noted that
there was a conflict between the order imposing restitu-
tion in the amount of $55,971,122 and the guidelines
calculation, which was based on a maximum of
$50 million in loss. Concluding that “[a] restitution
award can never exceed the actual loss suffered by vic-

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No. 08-2850 7
tims,” we asked Attorney Kister to proceed with the
appeal. She did, and we thank her for her assistance to
this court and to her client.
II
Dokich’s only argument at this point is that the restitu-
tion component of the judgment cannot stand, because
the court never made a finding that Efoora’s victims
actually lost $55,971,122. The remedy, in his view, is to
vacate that order and remand for reconsideration. Be-
cause Dokich failed to object to the district court’s cal-
culations, he concedes that this court may review the
decision only for plain error. United States v. Allen, 529 F.3d
390, 395 (7th Cir. 2008). Under that standard of review,
Dokich must show that the district court committed an
obvious error that affected substantial rights. Puckett v.
United States, 129 S. Ct. 1423, 1429 (2009). If Dokich
makes that showing, we have discretion to remedy the
error, though the Supreme Court has recently stressed
that our discretion “ought to be exercised only if the
error ‘seriously affect[s] the fairness, integrity or public
reputation of judicial proceedings.’ ” Id. (quoting United
States v. Olano, 507 U.S. 725, 736 (1993)). While there were
problems in the calculations of loss, we conclude that
Dokich has not identified any error that resulted in the
sort of miscarriage of justice that would require reversal.
The Mandatory Victims Restitution Act of 1996
(“MVRA”), requires district courts to order restitution
in cases of mail fraud, among other federal crimes. 18
U.S.C. § 3663A(c)(1)(A)(ii); United States v. Pawlinski, 374

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8 No. 08-2850
F.3d 536, 539 (7th Cir. 2004). The statute makes restitu-
tion available to victims of fraud to the extent that those
victims would have been entitled to recover in a civil
suit against the criminal. United States v. Martin, 195 F.3d
961, 968 (7th Cir. 1999). While restitution awards typically
require a direct causal relationship between the defen-
dant’s personal conduct and a victim’s loss, we have
recognized that in the case of mail fraud, a crime that
“involves as an element a scheme, conspiracy, or pattern
of criminal activity,” the MVRA imposes joint liability
on all defendants for loss caused by others participating
in the scheme. 18 U.S.C. § 3663A(a)(2); Martin, 195 F.3d at
968-69. As a result, Dokich is jointly responsible to pay
restitution for all loss actually caused by Efoora’s fraud.
According to Dokich, it is impossible to tell from the
confused record of the proceedings below whether the
district court’s calculations represent actual or intended
loss. Part of the problem is that the calculations are rele-
vant to two distinct parts of the sentence: the offense
level under the guidelines, and the amount of restitu-
tion that is owed. When calculating the offense level for
someone convicted of mail fraud, the guidelines require
courts to begin with a base level of six, § 2B1.1(a)(2), and
then to increase the level according to the amount of loss
caused by the scheme, see § 2B1.1(b)(1). “Loss,” for this
purpose, is defined as “the greater of actual loss or in-
tended loss.” § 2B1.1 cmt. n.3(A); see also United States v.
Wasz, 450 F.3d 720, 727 (7th Cir. 2006). For restitution, on
the other hand, the MVRA “implicitly requires that the
restitution award be based on the amount of loss
actually caused by the defendant’s offense.” United States

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No. 08-2850 9
v. Rhodes, 330 F.3d 949, 953 (7th Cir. 2003). Thus, for
restitution, the distinction between actual and intended
loss was critical.
As far as we can tell, the district court never deter-
mined the higher of actual or intended loss when it calcu-
lated Dokich’s guidelines range; in fact, it never said
whether it was discussing actual or intended loss during
sentencing. This makes it difficult to tell whether the
$55,971,122 restitution figure reflects actual loss suffered
by Efoora’s victims or the loss that perpetrators of the
scheme intended to inflict (implying that actual loss
might be lower). The guidelines define “actual loss” as “the
reasonably foreseeable pecuniary harm that resulted from
the offense,” whereas “intended loss” is “the pecuniary
harm that was intended to result from the offense,”
including that which “would have been impossible or
unlikely to occur.” § 2B1.1 cmt. n.3(A).
The government, as Dokich points out, presented
varying calculations of loss before the sentencing
hearing, including some materials that ambiguously
referred to “intended and actual loss.” But we should
not place too much emphasis on a few words here or
there. The evolving estimate took into account the infor-
mation that was coming to light in the Postal Inspection
Service’s unfolding investigation of Efoora. The postal
agent’s reports and the government’s corresponding
filings provided detailed lists of investors, the amount
each spent on Efoora’s securities, and explanations of
how the government used this data to calculate its
final estimates. These documents make reasonably clear

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10 No. 08-2850
that both the postal agent and the U.S. Attorney’s
Office intended to provide the district court with a
figure representing actual loss. Contrary to Dokich’s
suggestion, the fact that the government included the
amount paid for so-called “Revenue Royalty Rights” in its
final calculation is not evidence that the final number
incorporated intended loss. Investors who bought
Revenue Royalty Rights paid $2,500 for the right to 2% of
Efoora’s revenues over a five-year period. The govern-
ment determined that dozens of investors paid a total of
$847,500 for these royalty contracts, and it added that
figure to the amount that Efoora’s victims spent on stock
contracts, yielding a final estimate. By including the
amount that Efoora made selling Revenue Royalty
Rights, the government was not presenting evidence
that Dokich (or any other person involved in Efoora’s
fraudulent acts) intended to inflict additional, unrealized
pecuniary harm. See United States v. Middlebrook, 553
F.3d 572, 578 (7th Cir. 2009) (“In determining the in-
tended loss amount, the district court must consider
the defendant’s subjective intent.”). Instead, the out-of-
pocket amount that investors paid for royalty contracts,
like the amount that they paid for stock contracts, repre-
sented actual loss to Efoora’s victims.
If the court had made it clear that the $55.9 million
represented actual loss, and then it had used the same
number for both the offense level and restitution, we
would probably not be here. But it did not, and the con-
fusion only deepened when it decided to use a higher
loss amount for restitution than it did for the guidelines
calculation. We have recognized that “[a] court could

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No. 08-2850 11
find that a defendant intended a large amount of loss
for sentencing purposes, but then order a much-
reduced amount in restitution in light of the actual
losses suffered by the victims.” Allen, 529 F.3d at 396-97.
That result should occur whenever intended loss exceeds
actual loss and restitution is imposed. Strictly speaking
(by which we mean considering the guidelines before
18 U.S.C. § 3553(a) enters the picture), the opposite is
impossible: because courts must rely on the greater of
intended or actual loss to calculate a guidelines sen-
tence, a restitution order should never exceed the loss
used to calculate a sentence. The district court ignored
that rule, basing Dokich’s guidelines calculation on $20-
50 million in loss while imposing $55,971,122 in restitu-
tion. If the latter number was the higher of actual or
intended loss, then the advisory guideline range
should have been based on it, and it was error not to do
so. While district courts enjoy sentencing discretion after
United States v. Booker, 543 U.S. 220 (2005), the Supreme
Court requires them to “begin all sentencing proceedings
by correctly calculating the applicable Guidelines range,”
Gall v. United States, 552 U.S. 38, 49 (2007). Had the
district court used the same figure to calculate Dokich’s
sentence as it did for restitution purposes, Dokich’s guide-
lines range would have been 135-168 months, not 108-135
months. Compare § 2B1.1(b)(1)(L), with § 2B1.1(b)(1)(M).
Because the government did not take an appeal, however,
and Dokich has nothing to gain from a higher advisory
guidelines range, we will not consider this point further.
Perhaps the district court, by deliberately basing
its guidelines calculation on a lower amount of loss,

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12 No. 08-2850
intended in this way to give Dokich a break. If this was
its intent, however, the way to achieve that goal would
have been to explain why under § 3553(a) it deemed a
lower sentence to be reasonable. But here is where the
plain error standard has teeth. Nothing about the district
court’s decision to give Dokich a slightly lower term of
imprisonment casts doubt on the fact that the court made
a specific finding about the actual loss that Efoora’s
fraudulent operations caused. The court had the govern-
ment’s calculations of loss, the postal agent’s reports, and
the long appendix of individual victims in hand when
it ordered restitution “in the sum . . . that’s provided by
the government, $55,971,122.” We see nothing in the
record that would support a finding that this was any-
thing but the court’s determination of the actual loss
suffered by Efoora’s victims. Indeed, nothing in the
record suggests there was some amount of intended loss
greater than the loss actually inflicted.
We note in concluding that Dokich has not argued that
the district court used the wrong methodology in cal-
culating actual loss. The focus in calculating actual loss
must be on net detriment to the victims, rather than the
gross amount of money that changes hands. United States
v. Mount, 966 F.2d 262, 265 (7th Cir. 1992) (interpreting
§ 2F1.1 in the 1990 guidelines, now incorporated in
§ 2B1.1); see also United States v. Vivit, 214 F.3d 908, 915
(7th Cir. 2000). The defendant’s gain from an offense
should be used “as an alternative measure of loss only if
there is a loss but it reasonably cannot be determined.”
§ 2B1.1 cmt. n.3(B); see also United States v. Serpico, 320
F.3d 691, 698 (7th Cir. 2003). Similarly, in the context of

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No. 08-2850 13
restitution awards, the government’s evidence of actual
loss must deduct any financial benefit realized by victims
of the fraud. Allen, 529 F.3d at 396-97; United States v.
Swanson, 483 F.3d 509, 515-16 (7th Cir. 2007).
It is conceivable that the district court’s finding with
respect to the total amount of actual loss is overstated by
a small amount. Efoora’s fraud consisted of convincing
investors to buy securities at a price higher than their
value. At oral argument, the government noted that
Efoora sold products overseas, creating a meager revenue
stream. In addition, Efoora apparently had at least some
assets. This means that at least some of the Efoora stock
sold was worth something. While the government
points out that it discounted its estimate of loss by the
amount Efoora paid back to investors before its crime
was discovered, see Application Notes 3(E) and 3(F)(iv)
to § 2B1.1, there is no evidence that the postal agent,
the government, or the district court adjusted the inves-
tors’ loss to take account of the value of the securities they
bought. In fact, the postal inspector said the value of
Efoora’s stock “was discounted to ‘zero,’ to maximize the
recovery to investors.” Perhaps in the end this was a
reasonable estimate. Again, we need not pursue the
possibility, because Dokich has not relied on it. E.g.,
Williams v. REP Corp., 302 F.3d 660, 666 (7th Cir. 2002).
Although we are well aware that it is not the court’s job
to decide which charges to bring, we expressed some
surprise at oral argument that this case was not pros-
ecuted as a securities fraud. Section 5 of the Securities
Act of 1933 requires a valid registration statement before

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14 No. 08-2850
securities are sold in or by means of interstate commerce,
15 U.S.C. § 77e, and it does not appear that Efoora
meets any of the exemptions to that requirement, see
generally United States v. Spirk, 503 F.3d 619, 620-21 (7th
Cir. 2007). Sections 11 and 12 of the 1933 Act make rescis-
sion the usual remedy for the sale of unregistered stock.
15 U.S.C. §§ 77k(e), 77l(a). In a securities-fraud prose-
cution, there would have been no doubt about how
much Efoora owed its victims: rescission would have
permitted the defrauded investors to return securities
purchased in exchange for the price that they had paid.
S.E.C. v. McNamee, 481 F.3d 451, 457 (7th Cir. 2007). If the
government had prosecuted the case as securities fraud,
the calculation of loss that it submitted to the district
court would have been exactly right.
Finally, there is good reason to believe that remanding
this case for a re-evaluation of the amount Dokich owes
as restitution would not make any practical difference.
Whether he is ordered to pay $55,971,122, $55.1 million
(the amount in the order less Efoora’s gains from
Revenue Royalty Rights), or $10 million (the amount
Dokich himself conceded was due), the odds that he
will repay his debt appear to be slim. Dokich will be
close to 70 years old when he is released from prison.
The judgment order specified that he would then be
required to make payments on this debt “in an amount
of 15% of [his] net monthly income.” Our decision in
United States v. Sawyer, 521 F.3d 792, 797-98 (7th Cir.
2008), shows why that number is probably too low, as an
actuarial matter, but once again the government has not
raised this as a point on appeal and Dokich has no incen-

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No. 08-2850 15
tive to complain. When we asked about Dokich’s ability
to pay at oral argument, his attorney said there was
virtually no chance he would ever pay a single penny to
his victims. If that proves to be true, Dokich can always
avail himself of the procedure set forth in 18 U.S.C.
§ 3664(k) and seek a modification of his schedule; by the
same token, if he turns out to have resources that would
permit more substantial payments, his payments can be
adjusted upward, id. and § 3664(n).
We conclude that the district court did not plainly err
when it included a requirement that Dokich pay
$55,971,122 in restitution to his victims. We therefore
AFFIRM the court’s judgment.
7-21-10

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