Ernesto Sandoval Martinez pleaded guilty to a drug conspiracy charge. He did so after law enforcement found cocaine and other drugs in the back of his tobacco shop. Law enforcement also found $12,424 in cash.

The issue in Martinez’s appeal was that the district court treated the cash entirely as proceeds from cocaine transactions. This resulted in a higher recommended sentence under the United States Sentencing Guidelines. Martinez challenged the cash-to-cocaine conversion, arguing that it was error for the district court to treat the entire sum of cash as cocaine proceeds.

Martinez owned E.T.’s Tobacco Shop in Dallas, Texas. Agents conducted controlled buys of cocaine from the shop, and thereafter obtained a warrant to search the premises. Inside the store, they found drugs, cash, and firearms. The PSR treated the cash as proceeds of cocaine by noting that “the main source of the controlled purchases” was cocaine, even though those purchases only amounted to a few hundred dollars. The Fifth Circuit held this was error. It said there were too many possible alternative sources for the cash, including lawful proceeds from tobacco sales and proceeds from the sale of other drugs found in the shop. It said the controlled buys did not fully reflect the trafficking that had occurred. Consequently, the district court’s decision to treat all the cash as cocaine proceeds was error.

United States v. Martinez