Saturday, February 8, 2014

Walter Scott Fox, Fixture in Portland Sailing, Guilty of $14m Fraud

Scott Fox pleads to $14m bank fraud
Walter Scott Fox III, better known as Scott Fox, was a fixture in the Portland sailing community for at least the last 20 years. The 56 year old was a longtime member of the Portland Yacht Club, owner of expensive racing sailboats, and a great advocate of junior racing.

He owned The Boathouse, a boating supply store in Falmouth's Handyboat complex where he appeared to do a good business of outfitting junior sailors with racing dinghies and associated gear. Scott Fox looked to be a successful businessman and a role model for the many youth that he helped support. As it turns out, his whole life was built on a fraudulent loan scheme that ran from 1995 to 2012 and netted Fox about $14,000,000.

The Offense Conduct

Fox worked for many years as a commercial loan officer for KeyBank. While he was there, he opened loans and lines of credit in the names of business clients without their permission. He withdrew funds for his personal use and kept borrowing more money to make payments and avoid defaulting on the increasing debt. Some of the debt had to be secured by collateral and Fox faked that too. He created fake certificates purporting to show that he owned significant investments. Through his decades of membership at the Portland Yacht Club, Fox befriended well-respected finance executives and he forged of their signatures on those fake documents.

The whole house of cards collapsed when Fox was unable to again increase a line of credit to continue paying the interest on the loans. By August of 2012 loans were in default and bank management started asking questions about the fraudulent accounts. Fox resigned from KeyBank suddenly in September of 2012, closed The Boathouse, and later moved to Georgia with his wife.

In September of 2013, with an investigation underway, Fox's defense lawyer contacted the U.S. Attorney's Office and arranged for him to come clean. By Thanksgiving of 2013, Fox had signed a plea agreement and on February 4, 2014 he walked into Federal Court in Portland, Maine and quietly pled guilty to one of the largest financial crimes in Maine's recent history.


The Plea Agreement 

In federal court, plea agreements rarely guarantee the defendant a certain sentence and this one is no different. Still, the prosecution and defense can often agree on many issues and thereby shape the Judge's sentencing analysis. In this case, the prosecution and defense agreed on many important points. At sentencing, the parties will each argue for the sentence they want and the judge will impose a sentence. Here is what we know from the plea agreement filed in this case:

Scott Fox agreed to plea guilty to an information charging two counts:
  1. Bank fraud, a violation of 18 U.S.C. § 1344
  2. Tax Evasion, a violation of 26 U.S.C. § 7201
In every federal case, the sentencing analysis starts with the sentencing guidelines. The guidelines consider two things: the offense level for the crime and the criminal history level for the defendant. Offense level goes from 1 to 43 and history categories are 1 to 6. The higher each one is, the worse things get. Sentences are expressed in terms of months. This sentencing table helps show how it works.

The parties have agreed that the guideline should be calculated in the following way. USSG §2B1.1(a)(1) sets the offense level for this crime. While the basic level is quite low, the offense characteristics detailed below lead to a pretty extreme number:
  • Base offense level is 7
  • Add 20: The loss was over $7,000,000
  • Add 2: The offense involved sophisticated means
  • Add 2: Fox misused identification to produce other means of identification
  • Add 2: Fox received over $1,000,000 gross from a financial institution
  • Add 1: Grouping the lesser tax evasion count in increases the offense level by 1
  • Adjusted offense level is 34
  • Subtract 3: For pleading guilty and accepting responsibility for his crimes.
To put a level 34 offense in perspective, or to highlight the absurdity of federal drug sentences, consider that distributing 30 grams of LSD, or 840 grams of crack cocaine will also get you an offense level of 34.

Subtracting 3 points for acceptance gives an offense level of 31. Scott Fox has no prior convictions so he is criminal history category 1. The guideline sentencing range is then 108-135 months.

Other elements of the plea agreement:
  • Fox waives his right to appeal a sentence that does not exceed 135 months or 11 years 3 months.
  • He agrees to pay $8,196,181.15 restitution to KeyBank
  • He agrees to pay $1,349,862 restitution to the IRS
  • He agrees to forfeit a property at 17 Critter Lane in Windham, Maine

What's Scott Fox's Likely Sentence?

It's hard to know what the sentence will be. Between the plea and sentencing, U.S. Probation will draft a report which gives the court a lot of information about the defendant and any factors that might lead to an increase or reduction in the sentence. There is no minimum sentence here and the maximum is 30 years.

Though his attorney will probably argue that the court should impose a sentence below the guidelines, the amount of the theft, the duration of the scheme, and simply the level of fraud and dishonesty will make that a tough sell. It's telling that Fox waived his right to appeal a sentence of 135 months or less. That's the high end of the guideline range. The appeal waiver is often set at the sentence the prosecutor will request, so you can bet they will ask for at least 135 months. 

If the U.S. Attorney wanted to take it easy, he could have set the appeal waiver at the low end, 108 months. This would give the defense free reign to request a below guideline sentence with relative confidence that the worst case scenario is still the low end number. There was no such luck in this case.

Free on Bail Pending Sentencing

After entering his guilty a plea, Scott Fox was released on bail over the government's objection. The bail is $5,000 unsecured, meaning he does not need to put the money up, but would owe the government $5,000 if he violates his conditions. He has conditions of home confinement and electronic monitoring. He will reside at his home in Canton, Georgia awaiting sentencing scheduled for May 28, 2014 in Portland Federal Court.

Oh Yeah, The Mistress

The Prosecution Version mentions “CNB” a woman who Scott Fox was having an affair with for several years. In May 2011, Fox paid $180,000 in cash for a house at 17 Critter Lane in Windham, Maine. He signed the deed over to CNB in June of that year and CNB agreed to pay a $100,000, twenty year mortgage to Fox. In March of 2012, Fox discharged the mortgage. This is the same property Fox agreed to forfeit.

A quick look in the registry of deeds shows that CNB is Cherish Nicole Burgess, a 25 year old woman from the Bangor area. She has a checkered past and seems to have developed a knack for dating men who end up in jail, though usually for drug trafficking. She has a few arrests on her record for drug offenses and theft, but thats about it. She does not appear to face any charges in connection with Scott Fox's crimes.

Case Documents in PDF