Key Takeaways

  • The Third Circuit Court of Appeals ruled yesterday in United States v. Banks1 that under the U.S. Sentencing Guidelines, “loss” means only actual loss and not intended loss.
  • Although the term “loss” is not explicitly defined in the Guidelines, the U.S. Sentencing Commission had previously issued commentary defining “loss” as “the greater of actual loss or intended loss.” As the term “loss” was unambiguous, the Third Circuit found that the loss-enhancement commentary improperly expanded the Sentencing Guidelines to include intended loss.
  • The Banks decision may and likely will result in reduced sentences for criminal defendants convicted of federal fraud or theft offenses.
  • There is a burgeoning split among the U.S. Courts of Appeals on how much deference to afford the Sentencing Commission’s commentary, which could lead to some uncertainty in sentencing law.


In United States v. Banks, the defendant filed an appeal to the Third Circuit after he was convicted by a jury of wire fraud and sentenced to over eight years in prison, arguing in relevant part that the District Court had erroneously applied the U.S. Sentencing Guidelines. The defendant’s fraudulent scheme included opening accounts with Gain Capital and making electronic deposits into those accounts drawn on bank accounts with insufficient funds. The defendant then tried to withdraw funds from the Gain Capital accounts before the lack of supporting funds could be detected. There was no actual monetary loss to Gain Capital, however: despite the defendant’s fraudulent deposits of US$324,000 and dozens of unsuccessful withdrawals and transfers totaling US$264,000, no money was ever transferred to the defendant and Gain Capital suffered no loss.

Nevertheless, at sentencing, the District Court applied a 12-point increase to the defendant’s offense level under the U.S. Sentencing Guidelines based on the amount of intended loss and sentenced him to over eight years in prison. On appeal, the defendant argued that the loss enhancement to the fraud guidelines2 should not have applied because there was no actual loss to the victim. As discussed below, the Third Circuit agreed.

Background on the U.S. Sentencing Guidelines and the Meaning of “Loss”

The U.S. Sentencing Guidelines provide a critical benchmark in determining sentences for federal criminal offenses.3 For offenses involving fraud, theft, or property damage, one of those Guidelines adjusts the defendant’s offense level based on the value of the loss attributable to his conduct.4 It instructs sentencing courts to use a graduated scale so that as the loss increases, so too does the defendant’s offense level—and thus, the length of his recommended sentence under the Guidelines.

The term “loss” is not explicitly defined by the Guidelines. But the Sentencing Commission has issued commentary stating that “loss” means “the greater of actual loss or intended loss.”5 So defined, the “loss” used in calculating an offense level includes not only “pecuniary harm that resulted from the offense,”6 but also “pecuniary harm that the defendant purposely sought to inflict,” even if such intended harm “would have been impossible or unlikely to occur.”7

For some time, litigants and courts alike applied the Sentencing Commission’s definition to include “intended loss” when calculating a defendant’s offense level.8 This was perhaps unsurprising. Indeed, the Supreme Court instructed courts to treat the Sentencing Commission’s commentary like “an agency’s interpretation of its own legislative rule.”9 And until recently, that meant that a court should generally defer to the commentary’s interpretation “unless it [was] plainly erroneous or inconsistent with the [Guidelines].”10 This principle is known as “Auer deference.”11

But just a few years ago, in Kisor v. Wilkie, the Supreme Court made clear that “the possibility of [Auer] deference can arise only if a regulation is genuinely ambiguous.”12 And when Kisor used that phrase, it “mean[t] it—genuinely ambiguous, even after a court has resorted to all the standard tools of interpretation.”13 The Supreme Court also stressed that courts should “make an independent inquiry into whether the character and context of the agency interpretation” indicates that deference is appropriate.14 At bottom, then, Kisor significantly “cabined Auer’s scope.”15

The Banks Decision

Applying Kisor’s “reprised standard for Auer deference,” the Third Circuit on Wednesday held that the Sentencing Commission’s definition of “loss” was entitled to “no weight.”16 Instead, it independently interpreted the Guidelines and determined that “[t]he ordinary meaning of ‘loss’ in the context of § 2B1.1 is ‘actual loss.’”17 As the term “loss” was unambiguous, the loss-enhancement commentary improperly expanded the Guidelines. And because the victim in Banks “suffered no actual loss”—i.e., there was only an “intended loss”— the Third Circuit vacated the defendant’s sentence and remanded the case to the District Court for resentencing.18


The Third Circuit’s decision is noteworthy for two reasons. First, its interpretation of the Sentencing Guidelines may and likely will result in reduced sentences for criminal defendants convicted of federal fraud or theft offenses. And those reductions will sometimes be significant. Second, the Third Circuit’s decision shows how courts could treat all of the Sentencing Commission’s commentary going forward—by employing the “strong judicial role” that Kisor envisions.19 Indeed, the Third Circuit is not alone in applying Kisor to reject Guidelines interpretations offered by the commentary; the Sixth Circuit has previously done so too.20 Nevertheless, the issue appears to be the subject of a burgeoning circuit split. The Fourth Circuit has held that the more relaxed formulation for deference “continues to apply when courts are addressing Guidelines commentary, while Kisor applies when courts are addressing executive agency interpretations of legislative rules.”21 And a panel of the Fifth Circuit has ruled to the same effect.22 So long as that split persists, there will be increased uncertainty—both in whether the Third Circuit’s interpretation of “loss” will be adopted by other circuits, and in the law of sentencing more generally.