United States Court of Appeals
                            FOR THE EIGHTH CIRCUIT
                                   ___________

                                   No. 06-2761
                                   ___________

United States of America,               *
                                        *
             Appellee,                  *
                                        * Appeal from the United States
      v.                                * District Court for the
                                        * District of Minnesota.
Daniel P. Alfonso,                      *
                                        *
             Appellant,                 *
                                   ___________

                             Submitted: December 15, 2006
                                Filed: March 9, 2007
                                 ___________

Before WOLLMAN, RILEY, and SHEPHERD, Circuit Judges.
                           ___________

WOLLMAN, Circuit Judge.

       Daniel Alfonso pled guilty to one count of wire fraud, a violation of 18 U.S.C.
§ 1343. The district court1 sentenced him to twenty-four months’ imprisonment. The
sentence was based in part on the district court’s calculation of the monetary losses
suffered by the victims of Alfonso’s fraudulent scheme. Alfonso appeals from his
sentence, contending that the district court used the wrong method to calculate these
losses. We affirm.



      1
      The Honorable David S. Doty, United States District Judge for the District of
Minnesota.
                                          I.

       Alfonso operated a Ponzi scheme, through which he obtained funds from
investors by fraudulently claiming that he would invest their money in promising real
estate ventures. He made no such investments, however, and used the money instead
for his own personal use. Alfonso also used the money to perpetuate the scheme by
providing some individuals with a profit on their investments in order to encourage
further investment. Some of his victims made two different investments with Alfonso.
These individuals profited from their initial investment, but lost money on their
subsequent investment.

       The presentence investigation report (PSR), applying U.S.S.G. § 2F1.1 (1998),2
determined that Alfonso’s total offense level was 15. This assessment was partly
based on the PSR’s determination that the total loss to Alfonso’s victims was
$385,125. See § 2F1.1(b)(1)(J) (applying a 9-level increase if the loss is more than
$350,000). In calculating this total loss, the PSR evidently concluded that profits from
a victim’s earlier investments could not be used to offset losses on that same victim’s
subsequent investments (or, for that matter, losses on another victim’s investment).3
Alfonso objected to this method, arguing that a victim’s profits on one investment
should be used to reduce the victim’s losses on other investments for purposes of

      2
       To determine Alfonso’s offense level, the PSR utilized Guidelines amendments
that were in effect at the time of Alfonso’s offense conduct.
      3
        An example illustrates this approach: investor Kevin Kincaid’s first investment
of $36,000 yielded a profit of $8,000. Accordingly, this investment did not add
anything to the amount of loss suffered by investors because it did not result in any
losses. On his second investment, however, Kincaid invested $265,000, but received
only $110,000 of that money back. The $155,000 loss on this second investment was
added to the total investor loss. If, as Alfonso suggested, gains from Kincaid’s first
investment were applied to offset his losses on the second investment, $147,000
would be added to the total loss calculation (that is, a $155,000 loss on the second
investment minus the $8,000 gain on the first investment).

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determining total investor loss. He contends that if this method were applied and
other errors in the loss calculation were corrected, the total loss from his scheme
would be less than $350,000 and would result in a Guidelines range of 15 to 21
months’ imprisonment. The district court, however, adopted the PSR’s calculation of
total victim loss and sentenced Alfonso at the high end of the resulting Guidelines
range of 18 to 24 months.

                                           II.

       “We review a district court’s interpretation and application of the sentencing
guidelines de novo and its findings of fact for clear error.” United States v. Durham,

, 734 (8th Cir. 2006) (citing United States v. Mashek, 

,
1017 (8th Cir. 2005)). In defining “loss,” the district court relied upon Application
Note 3(F)(iv) to U.S.S.G. § 2B1.1 (2005). Although this application note was added
after Alfonso’s offense conduct, the parties agree that it was properly relied upon
because it simply clarified the meaning of the term “loss.”

      Application Note 3(F)(iv) states:

      In a case involving a fraudulent investment scheme, such as a Ponzi
      scheme, loss shall not be reduced by the money or the value of the
      property transferred to any individual investor in the scheme in excess
      of that investor’s principal investment (i.e., the gain to an individual
      investor in the scheme shall not be used to offset the loss to another
      individual investor in the scheme).

U.S.S.G. § 2B1.1, cmt. n.3(F)(iv) (2005). Although the parties agree that this note
prohibits gains to one investor from being used to offset losses to another investor,
it does not explicitly address whether gains from an individual’s earlier investments
should be used to offset losses from that same person’s later investments. The
rationale underlying the application note, however, is instructive: “[T]he gain to any


                                          -3-
individual investor in the scheme [should not be] used to offset the loss to other
individual investors because any gain realized by an individual investor is designed
to lure others into the fraudulent scheme.” U.S.S.G. Supplement to Appendix C,
amendment 617 at p. 189 (Nov. 1, 2001) (citing United States v. Orton, 

(11th Cir. 1996)). In other words, Ponzi scheme operators do not provide investors
with gains out of the goodness of their hearts or to lessen damage to investors, but to
keep their fraudulent scheme running. See United States v. Munoz, 

,
1125 (9th Cir. 2000) (noting that “schemers typically return money to investors to
perpetuate the fraud and ensnare new investors, and not to mitigate damages to the
current investors”). Accordingly, they should not reap sentencing benefits for making
payments to investors that are designed to perpetuate their scheme.

       The considerations that underlie the application note’s prohibition against
offsetting one investor’s losses by another investor’s gains also counsel against
allowing a defendant to use a victim’s gains on an earlier investment to offset losses
on that same victim’s later investment. Just as gains realized by an individual investor
lure other investors into the scheme, those gains may also entice that same investor
to make further contributions to the fraudulent enterprise. A repeat investor is
essentially in the same position as a new investor for these purposes. To hold
otherwise would be to reward defendants for conduct that perpetuates, and constitutes
a component of, the Ponzi scheme. Accordingly, we conclude that the PSR’s loss
calculation was appropriate.

       Alfonso contends that United States v. Orton, 

(11th Cir. 1996),
requires victims’ losses to be offset by their gains and that this requirement was
adopted by the Guidelines. We disagree. In Orton, the Eleventh Circuit rejected the
“net loss” method of calculating investor loss, which entails using one victim’s gains
to offset another victim’s losses, as well as (as we will refer to it) the “risk” method,
which involves assessing the amount of money placed at risk by the defendant’s
scheme, regardless of whether the victim suffered any losses on the investment. 73

                                          -4-
F.3d at 334. In rejecting the “net loss” and “risk”methods, Orton spoke approvingly
of the approach taken by the district court in that case (referred to as the “loss to
losing victims” method), which was to “total[] the net losses of all victims who lost
all or part of the money they invested.” 

approach appears
superficially consonant with the method advocated by Alfonso, Orton did not squarely
address how losses suffered and gains made by a repeat investor should be assessed
in calculating total loss, the issue before us today. Moreover, Orton noted that the
approach used by the district court did not “reward a defendant who returns money in
excess of an individual’s initial ‘investment’ solely to entice additional investments
and conceal the fraudulent conduct,” 

which, as set forth above,
suggests that a victim’s gains should be used to offset neither losses to another victim
nor losses to that same victim later on in the scheme. In any event, although the
Sentencing Commission adopted Orton’s rejection of the “net loss” method, it is not
clear that it adopted any other aspect of the opinion. See U.S.S.G. Supplement to
Appendix C, amendment 617 at p. 189 (Nov. 1, 2001) (“This amendment adopts the
approach of [Orton] that excludes the gain to any individual investor in the scheme
from being used to offset the loss to other individual investors because any gain
realized by an individual investor is designed to lure others into the fraudulent
scheme.”). Accordingly, we believe that neither Orton nor Application Note 3(F)(iv)
requires a different result in this case.

      In sum, then, we conclude that the district court properly declined to offset
victims’ gains on one investment against their losses on subsequent investments.
Whether the offsetting urged by Alfonso might in some cases be appropriate is a
question that we need not address here. Cf. 

(“Fraudulent
schemes, however, come in various forms, and we must consider the nature of the




                                          -5-
scheme in determining what method is to be used to calculate the harm caused or
intended.”).4

       Alfonso also argues that the district court erred because it may have applied the
“risk” method. We reject this argument because the district court does not appear to
have used this method. Although the district court’s statement of reasons cites two
cases that appear to countenance use of the “risk” method, the district court expressly
endorsed the loss calculations reflected in the presentence report.

      Because we affirm the district court’s general methodology, we need not reach
Alfonso’s remaining arguments.

      The judgment is affirmed.
                      ______________________________




      4
       Alfonso argues that we approved his proposed method of loss calculation in
United States v. Craiglow, 

(8th Cir. 2005). We do not believe that
Craiglow assists Alfonso. Although the loss calculation that occurred in Craiglow,
referenced in a footnote and contested on other grounds, apparently entailed “taking
the total amount of monies invested by the investor and subtracting the money
Craiglow paid to that investor,” 

n.3, Craiglow does not directly address
whether and how a victim’s gains on one investment may be applied to offset the
victim’s subsequent losses. Moreover, there is very little information in Craiglow
regarding the investment and payment patterns that occurred in that case.

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