United States v. Brandon ( 1994 )

March 23, 1994 UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
No. 92-1447
UNITED STATES OF AMERICA,
Appellee,
v.
PETER BRANDON,
Defendant, Appellant.
No. 92-1465
UNITED STATES OF AMERICA,
Appellee,
v.
CHARLES D. GAUVIN,
Defendant, Appellant.
No. 92-1466
UNITED STATES OF AMERICA,
Appellee,
v.
MARVIN GRANOFF,
Defendant, Appellant.
No. 92-1467
UNITED STATES OF AMERICA,
Appellee,
v.
RONALD R. HAGOPIAN,
Defendant, Appellant.
No. 92-1468
UNITED STATES OF AMERICA,
Appellee,
v.
MOMI A. KUMALAE,
Defendant, Appellant.
No. 92-1469
UNITED STATES OF AMERICA,
Appellee,
v.
OWEN B. LANDMAN,
Defendant, Appellant.
No. 92-1470
UNITED STATES OF AMERICA,
Appellee,
v.
NORMAN D. REISCH,
Defendant, Appellant.
No. 92-1471
UNITED STATES OF AMERICA,
Appellee,
v.
JOHN WARD,
Defendant, Appellant.
Before
Torruella, Circuit Judge,
Campbell, Senior Circuit Judge,
and Boudin, Circuit Judge.
ORDER OF COURT
Entered March , 1994
The opinion of this Court issued on January 31, 1994, is
amended as follows:
Page 50, last paragraph, line 3, delete the sentence that
starts with "For the transactions . . ." and insert the
following: "Ward helped to solicit the buyers involved in the
transactions for these counts by telling them that no down
payments were required."
Page 51, line 2, delete the sentence that starts with "He
nevertheless . . ." and insert the following: "He directed one
of these buyers to provide a down payment check that would be
funded by someone else and then cashed so that the funds could be
returned."
Page 51, line 10, delete "Brandon's insurance company" and
insert "the buyer's insurance company."
By the Court:
Francis P. Scigliano
Clerk.
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
No. 92-1447
UNITED STATES OF AMERICA,
Appellee,
v.
PETER BRANDON,
Defendant, Appellant.
No. 92-1465
UNITED STATES OF AMERICA,
Appellee,
v.
CHARLES D. GAUVIN,
Defendant, Appellant.
No. 92-1466
UNITED STATES OF AMERICA,
Appellee,
v.
MARVIN GRANOFF,
Defendant, Appellant.
No. 92-1467
UNITED STATES OF AMERICA,
Appellee,
v.
RONALD R. HAGOPIAN,
Defendant, Appellant.
No. 92-1468
UNITED STATES OF AMERICA,
Appellee,
v.
MOMI A. KUMALAE,
Defendant, Appellant.
No. 92-1469
UNITED STATES OF AMERICA,
Appellee,
v.
OWEN B. LANDMAN,
Defendant, Appellant.
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No. 92-1470
UNITED STATES OF AMERICA,
Appellee,
v.
NORMAN D. REISCH,
Defendant, Appellant.
No. 92-1471
UNITED STATES OF AMERICA,
Appellee,
v.
JOHN WARD,
Defendant, Appellant.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
[Hon. Ernest C. Torres, U.S. District Judge]
Before
Torruella, Circuit Judge,
Campbell, Senior Circuit Judge,
and Boudin, Circuit Judge.
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Dana A. Curhan, by Appointment of the Court, for appellant
Peter Brandon; John A. MacFadyen with whom Richard A. Gonnella,
was on brief for appellant Charles D. Gauvin; Thomas J. May, with
whom Carol A. Fitzsimmons and Johnson, Mee & May, were on brief
for appellant Marvin Granoff; Barbara A. H. Smith for appellant
Ronald R. Hagopian; William C. Dimitri, by Appointment of the
Court, with whom Dimitri & Dimitri, was on brief for appellant
Momi A. Kumalae; Donald P. Rothschild, by Appointment of the
Court, with whom Tillinghast Collins & Graham, was on brief for
appellant Owen B. Landman; Barbara A. H. Smith for appellant
Norman D. Reisch; and Catherine C. Czar, by Appointment of the
Court, for appellant John Ward.
Craig N. Moore, Assistant United States Attorney, with whom
Edwin J. Gale, United States Attorney, and Margaret E. Curran,
Assistant United States Attorney, were on brief for appellee.
January 31, 1994
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TORRUELLA, Circuit Judge. The eight defendants in this
case were convicted of conspiracy to commit bank fraud under 18
U.S.C. 371 and of a varying number of bank fraud counts under
18 U.S.C. 1344 and 2 following a jury trial in the district
court. They now challenge their convictions and sentences on a
wide variety of grounds. For the reasons set forth below, we
affirm all of the convictions except for the bank fraud
convictions on Counts 24 and 25 against defendant John Ward and
the bank fraud convictions on Counts 23 through 26 against
defendant Owen Landman, which we reverse.
I. BACKGROUND
This case involves an alleged scheme to obtain loan
financing from a federally insured bank by fraudulently
representing the existence of down payments required by the bank
from the investors on whose behalf the loans were made.
According to the record in this case, viewed in the light most
favorable to the government, United States v. Van Helden, 920
F.2d 99, 101 (1st Cir. 1990), the facts of this scheme are as
follows.
On January 1, 1985, defendant Peter Brandon and two
others formed a partnership called Dean Street Development ("Dean
Street")1 for the purpose of buying, developing, and selling
real estate. Specifically, Brandon planned to buy and renovate
1 Several partnerships and corporations related to Dean Street
were also involved in this case. Together they are collectively
referred to here as "Dean Street." Brandon controlled all of the
various entities.
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motels along the Rhode Island seashore, convert them into
condominiums and then sell the individual rooms to investors as
condominium units. As part of this plan, the condominium buyers
would lease the units back to Dean Street and Dean Street would
then manage the properties as motels. Under the "lease-back"
agreement with the buyers, Dean Street would apply the income
from the operation of the motels to cover the monthly mortgage,
tax and insurance costs incurred by the unit buyers. Any
shortfalls in operating costs would be made up by Dean Street,
leaving the buyers with no monthly costs on their investment.
In addition, buyers would be allowed to use their units
for two weeks out of the year. Dean Street would also guaranty
them a certain level of profit at sale. Some buyers would
receive rebates for each unit they purchased. In short, the
buyers would be offered a sweet deal.
To make the deal even sweeter, Brandon planned to
arrange all the financing for the buyers. He hoped to obtain
100% financing, that is, loans for the complete purchase price of
each unit. With such financing, buyers could invest in the
project without putting any money down and consequently obtain
that elusive -- yet apparently not uncommon for the fast-paced
world of 1980s real estate -- deal of "something for nothing."
In early 1987, Brandon approached Homeowner's Funding
Corporation ("Homeowners"), a mortgage broker that acts as an
intermediary between banks and borrowers, to obtain these "end
loans" for the buyers. Homeowners' President told Brandon that
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100% financing was unavailable for the project. Rather, the best
Brandon could hope to find was 80% financing with a 20% down
payment required from the buyers. Homeowners subsequently
searched for a lender and, after approaching several banks,
located Bay Loan and Investment Bank ("Bay Loan"), a financial
institution insured by the Federal Deposit Insurance Corporation.
Bay Loan agreed to lend buyers of Dean Street's condominium units
up to 80% of the required purchase price.
Homeowners, as well as East-West Financial Corporation
("East West"), the other mortgage broker involved in this case,2
acted as brokers and servicing agents for Bay Loan. Bay Loan was
the actual lender for the Dean Street project and it financed
every condominium sale involved in the scheme. By prior
agreement, Homeowners and East West provided the original
mortgages for the buyers and then sold them to Bay Loan.
Homeowners and East West would forward all the loan applications
to Bay Loan for approval prior to providing the mortgages for the
condominium units.3 The decision of whether to fund a
particular mortgage rested entirely with Bay Loan and Bay Loan
2 Toward the end of 1987, Brandon became dissatisfied with what
he considered the slow pace at which Homeowners was processing
the loans and, after a dispute with Homeowners, retained the
services of East West to continue the project. East West
continued where Homeowners left off with Bay Loan again agreeing
to act as the end loan financier.
3 The brokers would not provide the financing to the buyers
without first getting Bay Loan's agreement to purchase and fund
the loans. In fact, Homeowner's line of credit for issuing funds
to the buyers specifically prohibited the disbursement of money
without a commitment from the ultimate lender, in this case, Bay
Loan, to fund the loan.
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set the terms and conditions of each mortgage.
As Bay Loan Vice President of consumer lending, Joseph
Gormley, explained to Brandon, the bank required each buyer of a
condominium unit to make at least a 20% down payment to the
seller, Dean Street, before Bay Loan could fund the loans.
Instead of instructing buyers to provide the required down
payments, however, Brandon concocted a scheme that permitted
buyers to avoid the down payments altogether. As a result, he
was able to pursue his original goal of obtaining 100% financing
for the condominium project. The scheme was formulated during
the spring and summer of 1987 when Brandon had several
discussions with, among other people, his attorney, George
Marderosian, and co-defendant Norman Reisch, another of
Marderosian's clients, concerning ways that the 20% down payment
requirement "might be satisfied by alternative methods or might
be avoided." During that period, Brandon also told another
person involved in the conspiracy, Claude Limoges, that the down
payments would be falsified.
Brandon planned and employed three basic methods of
falsifying the down payments. The first method was simply
providing money to the various buyers which the buyers would then
use to make the down payments to Dean Street. Usually the money
came from third-party investors to whom Brandon promised a
commission for each down payment they funded. Once the buyer
made the down payment to Dean Street, Dean Street would return
the money to the investor leaving a paper trail for a down
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payment that was never actually made. The second method involved
obtaining down payment checks from the buyers and promising not
to cash them. Copies of these nonnegotiated checks would remain
in the loan file to give the appearance that real funds had
actually been transferred. The third method was to provide
second mortgages to the buyers to fund their down payments and
then to discharge those mortgages after the closings.4
The first method of avoiding down payments was employed
from the outset of the scheme. Co-defendants Charles Gauvin and
Marvin Granoff, two clients of Marderosian, agreed with Brandon
to purchase some units at the Charlestown Motor Inn. Gauvin and
Granoff also agreed to provide down payment funds to other buyers
for subsequent unit sales. Brandon promised them $1000 for each
unit sold with their down payment funds. In August of 1987,
Gauvin, Granoff and a third person each purchased four units.
Marderosian conducted the closing and co-defendant Owen Landman,
an attorney who shared office space with Marderosian, acted as
escrow agent. During the closing, Marderosian recorded the
amount of each down payment ($20,500) on the closing statements -
- also called the HUD settlement sheets -- as "amounts paid by or
in behalf of borrower."5
Gauvin provided the down payment funds for these twelve
4 Brandon also falsified the loan applications of otherwise
unqualified buyers.
5 Throughout the project, the HUD settlement sheets were signed
by Brandon and the buyers, including those defendants who
purchased units.
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purchases but no actual payment was ever made; instead, the funds
were passed through Dean Street and returned to Gauvin. At the
closing, Gauvin delivered twelve separate checks for $20,500 each
to Marderosian, drawn on an account that only had a $6000 balance
at the time, and Landman deposited the checks in his escrow
account. Landman then wrote twelve corresponding checks to
Marderosian who in turn wrote checks to Dean Street for identical
amounts of $20,500 each. Two days later, Dean Street wrote
twelve checks back to Gauvin for the same amounts of $20,500 each
and Gauvin deposited the money in the original checking account
to cover his initial twelve checks written as down payments to
the seller.
In late August and September of 1987, Gauvin provided
down payments for the purchase of units at the Charlestown Motor
Inn and at the Bayside Motel by Reisch and others. As with the
first purchases, Dean Street returned the down payment money
within a matter of days and also paid Gauvin an additional $1000
per unit.
In the beginning of 1988, Bay Loan began requiring that
down payments be made with certified funds. Gauvin and Granoff
agreed to provide buyers with funds so that they could obtain
certified checks before the closings. In January and February of
1988, Granoff supplied $470,000 to Marderosian who deposited the
funds and began distributing the money to prospective buyers.
The original intention was that Dean Street would pay back the
money to Granoff a few days after each closing as it had done in
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the previous transactions. Brandon, however, never returned the
money as planned.6
With no more money coming from Gauvin and Granoff,
Brandon discussed the possibility of funding buyer down payments
with Reisch. Reisch had earlier supplied down payment money for
a buyer and was reimbursed by Dean Street the next day. Reisch
agreed to provide the money, but only if he could wire the money
directly to the buyers on a transaction by transaction basis in
order to avoid having large amounts outstanding. Funds were
wired to buyers on several occasions and the buyers then wrote
down payment checks with the money. The checks were either
deposited in Landman's escrow account or endorsed directly back
over to Reisch. Those funds deposited in escrow were promptly
returned to Reisch.
The second method of falsifying down payments, using
nonnegotiated checks, was employed less frequently. In October
of 1987, co-defendants Ronald Hagopian and John Ward purchased
several units at the Bayside Motel using nonnegotiated checks for
their down payments. Brandon also enlisted Hagopian and Ward,
both real estate brokers, to solicit other buyers for the
project. Hagopian and Ward told several of the buyers they had
recruited to provide down payment checks which they promised
would never be cashed. These buyers proceeded to write checks to
Dean Street and those checks were never negotiated.
6 Brandon did eventually agree to a repayment schedule but,
ultimately, none of Granoff's money was ever repaid.
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The third method of falsifying down payments was
through dischargeable mortgages. Joseph Gormley at Bay Loan
approved a plan for buyers to make only 5% down payments in
certified funds with the balance of a required 25% down payment
to be satisfied by a second mortgage provided by Dean Street.
Dean Street began providing these mortgages to the buyers, but
the mortgages were promptly discharged7 after the closings
because Dean Street never actually intended to obligate the
buyers. The discharges were accomplished by a "purchase price
adjustment" given to buyers after the sale to "compensate" them
for promised renovations that Dean Street was suddenly unable to
make. In reality, the renovations "were never going to happen"
in the first place.
At the closings, some of the buyers inquired about the
second mortgage documents because Brandon had promised a
discharge and the buyers wanted to know when that would take
place. The "purchase price adjustment" letters that discharged
the mortgages were excluded from the closing documentation so the
bank would not see them. During the closings, Landman gestured
to several buyers that they should not mention the matter to him.
Brandon's assistant at Dean Street, co-defendant Momi Kumalae,
did speak to buyers about the discharges and assured them that
they would be taken care of. Kumalae also signed many of the
7 Testimony was offered by defendants to the effect that the
discharges provided by Dean Street were not legally enforceable
and that the buyers are still obligated on the mortgages. We
find this possibility irrelevant as the intent was clearly to
discharge the mortgages.
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discharge letters sent to the buyers.
Despite the sale of almost 200 units, by the fall of
1988, the loan proceeds from Bay Loan's financing of unit
purchases was falling well short of Dean Street's expenses and
its own debt service. Dean Street quickly fell behind schedule
in making the mortgage payments on all the Bay Loan condominium
unit loans, and it eventually stopped making any payments by
early 1989.
Between August 1987 and October 1988, Dean Street had
sold 196 units to 79 different buyers, all financed by Bay Loan
in 176 separate loans. The face value of the loans was $18.8
million and Bay Loan actually distributed $17.3 million to
Marderosian who passed on about $16.9 million to Dean Street (the
balance was retained as fees or was paid to Landman for escrow
services). As of the trial, approximately $16.3 million remained
outstanding on the loans.
Gormley at Bay Loan, who approved the loans, did not
know that down payment funds came from sources other than the
buyers, that some down payments were nonnegotiated checks, that
second mortgages were being discharged, or that buyers were being
paid to purchase units. Gormley testified that he would not have
approved the loans if he had been aware of any of these
circumstances.
On February 28, 1991, a federal grand jury sitting in
the District of Rhode Island handed down a 27-count indictment
charging the eight appellants and four others with defrauding Bay
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Loan, a federally insured financial institution, of approximately
$18 million. Count 1 charged all twelve defendants with
conspiracy to commit bank fraud in violation of 18 U.S.C. 371.
Counts 2 through 27 charged various defendants with individual
acts of bank fraud, under 18 U.S.C. 1344, based on individual
loan transactions executed during the scheme to defraud.8 Four
of the defendants pleaded guilty and did not go to trial. Two of
the four, George Marderosian and Claude Limoges, testified for
the government.
After a trial in the United States District Court for
the District of Rhode Island, the jury found all the defendants
guilty of conspiracy and each defendant guilty on multiple counts
of bank fraud. Some defendants were acquitted on individual bank
fraud charges as discussed below. This appeal followed.
II. FAILURE OF THE INDICTMENT TO STATE AN OFFENSE
Defendants first argue that the indictment failed to
state an offense with respect to the conspiracy count because it
did not allege that the United States or one of its agencies was
the target of the conspiracy. Count I of the indictment charged
defendants with conspiring to commit an offense against the
8 One bank fraud count was later dismissed by the government so
that 26 total counts remained for trial. Brandon was the only
defendant charged in all of the counts.
Each bank fraud count charges one or more of the defendants
with facilitating in some way the fraudulent representation of
the required down payment for a specific loan for an individual
condominium unit. Although each unit purchase allegedly involved
the same fraudulent scheme, only 26 specific executions of the
scheme were originally charged.
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United States in violation of 18 U.S.C. 371 by executing a
scheme to defraud Bay Loan under 18 U.S.C. 1344. Section 371
makes it a crime to "conspire either to commit any offense
against the United States, or to defraud the United States, or
any agency thereof" (emphasis added). The Supreme Court held in
Tanner v. United States, 483 U.S. 107, 128-132 (1987), that in
order to establish a conspiracy to "defraud the United States,"
under the second clause of 371, the government must prove that
the target of the fraud was the United States or one of its
agencies. Id. (finding a recipient of federal financial
assistance and supervision not to be an agency of the United
States for purposes of 371). The defendants contend that this
requirement should be extended to the first clause of 371 for
alleged conspiracies "to commit any offense against the United
States."
18 U.S.C. 371 creates two distinct criminal offenses:
conspiracies to commit offenses against the United States and
conspiracies to defraud the United States. See, e.g., United
States v. Haga, 821 F.2d 1036, 1039 (5th Cir. 1987). The "any
offense" clause of 371 ("to commit offenses against the United
States") is aimed at conspiracies to violate the laws of the
United States. It does not refer to a particular victim of a
particular crime like the second clause does, but instead applies
generally to federal "offenses." The Tanner requirement should
not be extended to a large area of criminal conspiracies, such as
mail and wire fraud, that victimize persons other than the
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government or its agencies but traditionally have been prosecuted
under the "any offense" clause of 371. See United States v.
Falcone, 960 F.2d 988, 990 (11th Cir.) (en banc), cert. denied,
113 S. Ct. 292 (1992) (citing the reasoning in United States v.
Falcone, 934 F.2d 1528, 1548-51 (11th Cir. 1991) (Tjoflat, C.J.,
specially concurring, joined by Powell, Assoc. Justice, and
Kravitch, J.) to overrule its previous extension of Tanner to the
"any offense" clause of 371 in United States v. Hope, 861 F.2d
1574 (11th Cir. 1988)); United States v. Loney, 959 F.2d 1332,
1338-40 (5th Cir. 1992); United States v. Gibson, 881 F.2d 318,
321 (6th Cir. 1989). We therefore reject the contention that the
indictment must assert that the United States or one of its
agencies was a target of the alleged conspiracy in this case.
III. MULTIPLICITY OF THE BANK FRAUD COUNTS
Defendants challenge the validity of the indictment for
charging twenty-five individual counts of bank fraud under 18
U.S.C. 1344, when, allegedly, all the counts relate to the
single execution of one scheme to defraud Bay Loan. An
indictment is multiplicitous and in violation of the Fifth
Amendment's Double Jeopardy Clause if it charges a single offense
in more than one count. United States v. Serino, 835 F.2d 924,
930 (1st Cir. 1987). Under the bank fraud statute, 18 U.S.C.
1344, each execution of a scheme to defraud constitutes a
separate indictable offense. United States v. George, 986 F.2d
1176, 1179 (8th Cir.), cert. denied, 114 S. Ct. 269 (1993);
United States v. Lemons, 941 F.2d 309, 317 (5th Cir. 1991). The
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central question for determining multiplicity is "whether a jury
could plausibly find that the actions described in the [disputed]
counts of the indictment, objectively viewed, constituted
separate executions of the [bank fraud] scheme." United States
v. Lilly, 983 F.2d 300, 303 (1st Cir. 1992).
A number of factors are relevant in determining whether
a single or multiple executions of bank fraud have taken place,
including the number of banks, the number of transactions, and
the number of movements of money involved in the scheme. Lilly,
983 F.2d at 305. Each time an identifiable sum of money is
obtained by a specific fraudulent transaction, there is likely to
be a separate execution of the scheme to defraud. See, e.g.,
United States v. Barnhart, 979 F.2d 647, 650-51 (8th Cir. 1992);
United States v. Mason, 902 F.2d 1434, 1436-38 (9th Cir. 1990);
United States v. Poliak, 823 F.2d 371, 372 (9th Cir. 1987), cert.
denied, 485 U.S. 1029 (1988).
The government's position is that each transaction in
which Bay Loan provided a mortgage (or end loan) to a buyer on
the basis of a fraudulent representation of a down payment
constitutes a single, independent execution of the scheme to
defraud. We think that this position is the correct one when the
scheme is viewed properly from an objective standpoint. See
Lilly, 983 F.2d at 303 (finding that the scheme should be
"objectively viewed" to determine multiplicity).
The basic scheme to defraud Bay Loan involved the
fraudulent representation of buyers' down payments in order to
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obtain loan financing from the bank for Dean Street's condominium
units. The scheme was not designed to get a set amount, or a
preconceived sum, of money. Instead, the scheme functioned by
obtaining as many loans as possible depending on the number of
buyers Dean Street could recruit to apply for the mortgages. The
structure of the scheme was such that individual buyers would be
brought in to submit separate loan applications which would be
fraudulently prepared and then sent on to Bay Loan for approval
and the disbursement of the funds for that individual sale. Bay
Loan approved each loan separately based on each individual
application and each loan corresponded to an individual piece of
property, that is, a separate condominium unit. Objectively
viewed, each loan application appears to be a repeated execution
of the basic scheme and not simply an additional step or stage of
one unitary transaction. Although only one bank was involved in
the scheme, there were over 176 separate loans to 79 different
buyers involving many separate movements of money from Bay Loan
to the mortgage brokers and from the mortgage brokers to Dean
Street during the fifteen months in which the scheme was in
operation.
The fact that the end loans were sometimes processed in
bulk does not alter the essential nature of the scheme.
Defendants highlight the fact that, on some occasions, groups of
mortgage applications were supplied to Bay Loan together and Bay
Loan sometimes wired money to the brokers on a bulk basis. This
was usually done, however, as a matter of convenience (such as
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when several unit purchases closed at the same time) and not as a
method to package the financing in a way necessary to accomplish
a unified scheme.9 Arguably, one could view this case as a
single execution by Dean Street of a broad scheme to use various
buyers as fronts in order to get financing for a unitary motel
condominium project. However, we feel it makes more sense to
look at each mortgage application as an individual attempt to
fraudulently obtain distinct amounts of money from Bay Loan.
This is not, as defendants assert, a situation like the
one in Lilly where a group of fraudulent mortgages was assigned
in a single package of documents to the defrauded bank as
security for one sum of money used to buy a single apartment
complex. See id. at 302-305. In that case, there was one
transaction with the defrauded bank which was executed "in order
to obtain a single loan, the proceeds of which funded a single
real estate purchase." Id. at 303. Consequently, we found the
charges based on each mortgage to be multiplicitous. The present
case is more akin to a check kiting scheme which we characterized
in Lilly as involving multiple executions of a fraudulent scheme
because more than one bank was involved and because, "[m]ore
9 At one point, Brandon could not guaranty clear title to Bay
Loan on the condominium units until he sold enough units and
obtained a large enough chunk of financing to pay off some of the
original mortgages used to buy the motels in the first place.
This did necessitate bulk processing of unit mortgages so that
blocks of financing could be obtained at one time. The execution
of the fraud, however, still remained the submission of
individual loan applications as additional buyers were recruited.
The block processing of loans did not correspond to one loan for
each motel but were instead an amalgamation of individual loans
for individual condominium units.
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importantly, each check signifies a separate transaction
requiring a separate issuance of money or credit on the part of
the victimized bank." Id. at 304.
Similarly, the other cases cited by defendants that
invalidate indictments on grounds of multiplicity involve single
loan transactions instead of the multiple and separate loans
fraudulently obtained in this case. See United States v. Saks,
964 F.2d 1514, 1526 (5th Cir. 1992) (single loan transaction for
single piece of property); United States v. Heath, 970 F.2d 1397,
1401-02 (5th Cir. 1992), cert. denied, 113 S. Ct. 1643 (1993)
(two loans involved in the case "were integrally related; one
could not have succeeded without the other" and both were used to
accomplish essentially one integrated real estate transaction);
Lemons, 941 F.2d at 316-18 (separate payments of loan proceeds to
defendant were installments from a single loan transaction
involving a single project). We hold, therefore, that each end
loan provided by Bay Loan was the result of a separate fraud upon
the bank which the indictment properly charged as an individual
bank fraud offense.
IV. SUFFICIENCY OF THE EVIDENCE
Seven of the eight defendants argue that the evidence
introduced at trial was insufficient to support their convictions
for bank fraud and conspiracy to commit bank fraud.10 They
10 Brandon does not challenge the sufficiency of the evidence
against him on appeal. He does argue that certain evidentiary
rulings deprived him of a fair trial because he was unable to
present his theory of the case and convince the jury of his
innocence. This issue is discussed below in Section VII. We
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argue, with individual variations, that they did not have the
requisite knowledge and intent to defraud Bay Loan because they
did not know of, or intend to violate, any down payment
requirements of the bank. With the few exceptions previously
noted, we disagree. Before reviewing the evidence with respect
to each defendant, we must first address some issues regarding
the substantive offenses charged in this case.
A. The Offenses
1. Bank Fraud
To prove bank fraud under 18 U.S.C. 1344,11 the
prosecution must show beyond a reasonable doubt that the
defendant (1) engaged in a scheme or artifice to defraud, or made
note for the record that the evidence against Brandon is not only
sufficient but overwhelming.
11 At the time when the offenses occurred, 18 U.S.C. 1344
provided:
Whoever knowingly executes, or attempts
to execute, a scheme or artifice -- (1)
to defraud a federally chartered or
insured financial institution; or (2) to
obtain any of the moneys, funds, credits,
assets, securities, or other property
owned by, or under the custody or control
of a federally chartered or insured
financial institution, by means of false
or fraudulent pretenses, representations,
or promises; [shall be guilty of an
offense against the United States].
A technical amendment in 1989 deleted the words "federally
chartered or insured" from the section leaving just "financial
institution." Pub. L. No. 101-73, Title IX, 961(k), Aug. 9,
1989, 103 Stat. 500. Apparently, no substantive change was
intended by this amendment as the definition of "financial
institution" for all of Title 18, now contained at 18 U.S.C.
20, still encompasses federally chartered or insured
institutions.
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false statements or misrepresentations to obtain money from; (2)
a federally insured financial institution; and (3) did so
knowingly. United States v. Goldblatt, 813 F.2d 619, 623-24 (3rd
Cir. 1987); United States v. Cloud, 872 F.2d 846, 850 (9th Cir.),
cert. denied, 493 U.S. 1002 (1989). The terms "scheme" and
"artifice" are defined to include "any plan, pattern or cause of
action, including false and fraudulent pretenses and
misrepresentations, intended to deceive others in order to obtain
something of value, such as money, from the institution to be
deceived." Goldblatt, 813 F.2d at 624 (citing United States v.
Toney, 598 F.2d 1349, 1357 n.12 (5th Cir. 1979), cert. denied,
444 U.S. 1033 (1983)). "The term 'scheme to defraud,' however,
is not capable of precise definition. Fraud instead is measured
in a particular case by determining whether the scheme
demonstrated a departure from fundamental honesty, moral
uprightness, or fair play and candid dealings in the general life
of the community." Goldblatt, 813 F.2d at 624; see also United
States v. Stavroulakis, 952 F.2d 686, 694 (2d Cir.), cert.
denied, 112 S. Ct. 1982 (1992).
The alleged scheme in this case is the fraudulent
representation of down payments that were not actually paid in
order to obtain loan financing from Bay Loan. There is little
doubt that this scheme took place.12 Defendants argue,
12 Sufficient evidence exists to indicate Bay Loan provided the
loans for the Dean Street project, required down payments for the
loans, and approved loans and disbursed money based on the
understanding that its lending requirement was satisfied. The
evidence also clearly establishes that no down payments were
-22-
however, that they did not know of, or participate in, the
scheme, and, to the extent that they did participate in
activities related to the scheme, such actions were not illegal
because the actions were not intended to deceive or defraud Bay
Loan. Defendants claim they were either unaware that Bay Loan
existed or else unaware that Bay Loan had a down payment
requirement that prohibited the various down payment transactions
in which they were involved. The central issue on appeal,
therefore, is whether defendants possessed the requisite
knowledge and intent.
"To act with the 'intent to defraud' means to act
willfully, and with the specific intent to deceive or cheat for
the purpose of either causing some financial loss to another, or
bringing about some financial gain to oneself." Cloud, 872 F.2d
at 852 n.6 (citations omitted) (finding intent to defraud where
defendant signed instructions "knowing that the bank could be
deceived by materially false statements that appeared on the face
of the instructions"); see also United States v. Saks, 964 F.2d
1514, 1518 (5th Cir. 1992). "It is a well-established principle
that fraudulent intent may be established by circumstantial
evidence and inferences drawn from all the evidence." Cloud, 872
actually made to Dean Street because the payments were either
falsified or quickly returned to their source. Defendants did
present evidence, mostly testimony by Brandon himself, that Bay
Loan knew and approved of the down payment arrangements.
However, more than sufficient evidence points to the contrary
conclusion including the unequivocal testimony of Bay Loan's Vice
President, Gormley, that the bank never knew of nor approved of
the skirting of the down payment requirement.
-23-
F.2d at 852 n.6 (citations omitted); United States v. Celesia,
945 F.2d 756, 759-60 (4th Cir. 1991); see also United States v.
Mason, 902 F.2d 1434, 1442 (9th Cir. 1990) ("Specific intent is
established by 'the existence of a scheme which was reasonably
calculated to deceive persons of ordinary prudence and
comprehension, and this intention is shown by examining the
scheme itself.'" (quoting United States v. Green, 745 F.2d 1205,
1207 (9th Cir. 1984) (additional internal quotation omitted))).
Defendants argue that the government must prove that
they knew that the victim of their fraud was a federally insured
financial institution. We disagree. The status of the victim-
institution is not a separate knowledge element of bank fraud
under 1344 but an objective fact that must be established in
order for the statute to apply. The government produced
evidence, and defendants do not dispute, that Bay Loan is
federally insured. This is sufficient to satisfy the requirement
under 18 U.S.C. 1344 that the defrauded bank be a federally
insured bank. See United States v. McClelland, 868 F.2d 704,
709-11 (5th Cir. 1989); cf. United States v. Thompson, 811 F.2d
841, 844 (5th Cir. 1987) (finding that under 18 U.S.C. 1014,
which criminalizes the making of false statements to a bank, the
federal insured status of the victim institution is just a
jurisdictional requirement and not a knowledge element of the
offense); United States v. Trice, 823 F.2d 80, 86-87 (5th Cir.
-24-
1987) (same).13
We decline to adopt defendants' analogy to one of the
federal gambling statutes, 18 U.S.C. 1084(a), which we have
previously held requires knowledge of the interstate nature of
the wire communication involved in the offense. United States v.
Southard, 700 F.2d 1, 24-25 (1st Cir.), cert. denied, 464 U.S.
823 (1983). Our holding in that case rested on the fact that the
word "knowingly" in the statute could not reasonably refer to
anything else except the interstate nature of the communication.
Id. at 24 (noting one cannot unwittingly or unknowingly make a
wire transmission). That is not the case with the bank fraud
statute because "knowingly" in 1344 clearly applies to the
13 We find the language of 1014 sufficiently similar to 1344
to warrant a similar conclusion about Congress' intent with
respect to the knowledge requirement in the bank fraud statute.
18 U.S.C. 1014 states in pertinent part:
"Whoever knowingly makes any false
statement or report, or willfully
overvalues any land, property or
security, for the purpose of influencing
in any way the action of . . . any
institution the accounts of which are
insured by the Federal Deposit Insurance
Corporation [shall be guilty of an
offense against the Unites States]."
Defendants contend that the use of "knowingly" in this statute
differs significantly from its use in 1344 which prohibits
knowingly executing a scheme "to defraud a federally chartered or
insured financial institution." We reject this contention. The
placement in 1344 of the words "federally chartered or insured"
before the word "institution" instead of similar language being
placed after "institution," as in 1014, simply reflects the
fact that federal insurance is separately defined in another
subsection and thus there is no need to use the more awkward
construction found in 1014. The different word placement is a
distinction without a difference.
-25-
execution of a scheme or artifice to defraud. The word
"knowingly" is necessary because one can execute a scheme without
knowing or understanding that it is fraudulent. In fact, that is
what many of the defendants themselves argue in this appeal: that
they may have facilitated the false down payments but they did
not know it violated the bank's requirements. Therefore,
"knowingly" in 1344 has independent meaning without reference
to the federally insured status of the financial institution.
The defendants in this case also argue that the
government must prove they knew that the end loans were provided
by Bay Loan and not by some other institution, such as Homeowners
or East West. In other words, there was no violation of 1344
because the scheme to defraud was not knowingly targeted at a
federally insured financial institution, but instead at the non-
federally insured mortgage brokers.
Defendants overstate the government's burden. The
specific intent under 1344 is an intent to defraud a bank, that
is, an intent to victimize a bank by means of a fraudulent
scheme. See United States v. Stavroulakis, 952 F.2d 686, 694 (2d
Cir. 1992); United States v. Mason, 902 F.2d 1434, 1442 (9th Cir.
1990). It has been established that the government does not have
to show the alleged scheme was directed solely toward a
particular institution; it is sufficient to show that defendant
knowingly executed a fraudulent scheme that exposed a federally
insured bank to a risk of loss. See, e.g., United States v.
Barakett, 994 F.2d 1107, 1110-11 (5th Cir. 1993), petition for
-26-
cert. filed, (Sept. 22, 1993) (fraudulent scheme directed at
checking account customers of bank but fraud victimized bank as
well); United States v. Morgenstern, 933 F.2d 1108, 1114 (2d Cir.
1991), cert. denied, 112 S. Ct. 1188 (1992) (direct object of the
fraud was to steal money from third parties with deposits at the
defrauded bank).
We hold that it is also unnecessary for the government
to prove that a defendant knows which particular bank will be
victimized by his fraud as long as it is established that a
defendant knows that a financial institution will be
defrauded.14 The bank fraud statute was "designed to provide
an effective vehicle for the prosecution of frauds in which the
victims are financial institutions that are federally created,
controlled or insured." S. Rep. No. 225, 98th Cong., 2d Sess.
377 (1983), 1984 U.S. Code Cong. & Admin. News 3517. In creating
the statute, Congress noted that "there is a strong Federal
interest in protecting the financial integrity of these
institutions, and the legislation in this part would assure a
basis for Federal prosecution of those who victimize these banks
through fraudulent schemes." Id. Thus, Congress intended to
criminalize bank frauds that harm federally insured banks, not
14 We also reject a related claim made by several defendants
that the district court had no jurisdiction over their bank fraud
counts because the target of the alleged bank fraud -- Homeowners
or East West as opposed to Bay Loan -- was not a federally
insured financial institution. Bay Loan was in fact victimized
by defendants' scheme to defraud. In addition, the scheme was
designed to obtain funds from Bay Loan in particular by
fraudulently avoiding one of Bay Loan's requirements. This more
than satisfies the requirements for federal jurisdiction.
-27-
just bank frauds directed specifically toward federally insured
banks. As other courts have noted, "the legislative history
supports a broad construction of the statutory language" of the
bank fraud statute. Mason, 902 F.2d at 1442; see also
Stavroulakis, 952 F.2d at 694.
Defendants are essentially seeking to sanitize their
fraud by interposing an intermediary or an additional victim
between their fraud and the federally insured bank. We reject
this attempt to escape the reach of the bank fraud statute.
Instead, we find that defendants need not have had the specific
intent to defraud Bay Loan so long as they intended to defraud
some financial institution. The fact that it should turn out
that the financial institution actually defrauded was federally
insured is a fortuitous stroke of bad luck for the defendants but
does not make it any less of a federal crime. In this case,
evidence beyond a reasonable doubt that defendants fraudulently
evaded a known down payment requirement, whether thought to be
imposed by Homeowners, East West, Bay Loan or some other
financing entity, is sufficient to support a bank fraud
conviction. Of course, the government must also establish that a
federally insured bank, Bay Loan, was victimized or exposed to a
risk of loss by the scheme to defraud. See United States v.
Blackmon, 839 F.2d 900, 906 (2d Cir. 1988). This, however, is
not seriously disputed in this case.15
15 The down payment scheme victimized Bay Loan because it
devalued the mortgages that the bank was providing. Down
payments on a loan decrease the risk of default or nonrepayment
-28-
Concerns about extending the reach of the bank fraud
statute into broad new areas of financial activity stem from a
misunderstanding of the nature of the statute. Financial
transactions are becoming increasingly integrated and complex as
more and more financial instruments are securitized and traded on
national and global markets. Consequently, the effects of
fraudulent actions against one institution are increasingly
likely to spill over and detrimentally affect others. As
Congress' main concern in 1344 was to provide jurisdiction for
fraudulent schemes that harmed federally chartered or insured
institutions, the increased risks to the institutions should be
matched by increased coverage of the statute. We are not
federalizing criminal transactions previously covered only by
state law so much as recognizing that those criminal transactions
by increasing the equity participation of the borrower and giving
the borrower a larger stake in the venture. The down payments
consequently have value to the lender bank and the failure to
make them deprives the bank of this value. Cf. Mason, 902 F.2d
at 1441-43 (finding intent to commit bank fraud where bank
exposed to risk of loss through defendants' concealment from the
bank that its customers were purchasing prostitution services and
consequently were a greater credit risk to the bank which was
processing the customers' credit card purchases from defendants'
escort service).
The fact that buyers were required to make their down payments
to the seller, Dean Street, does not mitigate the risk of loss to
Bay Loan from the down payment scheme. There would still be a
higher risk of default and the absence of equity participation
regardless of who was receiving, or failing to receive, the down
payments. In addition, the value of the condominiums, the bank's
collateral, becomes an issue where the bank, thinking it is only
providing 80% of the purchase price, is actually lending 100% of
the sale price. Ultimately, Bay Loan refused to provide 100%
financing and explicitly required a down payment; the payment
became a negotiated term of the mortgage contract and thus had
some value to Bay Loan.
-29-
are becoming more federal in nature.16
An additional argument defendants make is that the
government must prove defendants knew that Bay Loan's down
payment requirement specifically prohibited the funding of
buyers' down payments by someone other than the buyer.
Defendants claim that they thought the funding of buyer down
payments was just some complex financial arrangement,
"supplemental financing" or required paperwork, and they did not
know the funding was designed to defraud the bank.
This misrepresents the nature of the fraud. Although
Bay Loan did in fact prohibit third party funding of down
payments, the key misrepresentation in this case was that the
required down payments were being paid when they actually were
not. Bay Loan required the buyers to make down payments to the
seller, Dean Street, and the existence of the payments was
represented to the bank on the closing settlement sheets. In
reality, the payments were not being made, either because no
funds were actually transferred or because the funds were
16 We do not address whether any scheme to defraud, regardless
of its intended victim, can be prosecuted under the bank fraud
statute as long as it has some detrimental effect on a federally
insured bank. In this case at least, the government did prove
the scheme was intended to defraud a financial institution:
Homeowners or East West, if not Bay Loan itself.
We also do not address possible statutory or jurisdictional
limitations on the remoteness or foreseeability of the harm or
the risk of loss to federally insured financial institutions
beyond which 1344 will no longer apply. We simply note that
this case presents a situation of direct harm to Bay Loan
resulting from a scheme specifically designed to fraudulently
avoid the requirements of that federally insured bank in order to
obtain funds originating directly from Bay Loan.
-30-
returned by Dean Street to their source.17 Therefore, the
government need only prove that defendants knew a down payment
was required and that no real down payments were actually made.
It need not establish that defendants knew all of the specifics
of the down payment requirement such as restrictions on third
party funding.
In sum, to prove defendants knowingly engaged in the
fraud, the government must establish that each defendant knew
that some financial institution was lending the money for the
motel-condominium project, knew that a down payment was required
for these loans, knew that a scheme of one sort or another
existed to make it appear that the down payments were being made
when in fact they were not, and finally, that each defendant
willfully participated in that scheme.
2. Conspiracy
Each defendant contests the sufficiency of the evidence
of his or her knowledge of the conspiracy to defraud Bay Loan and
his or her level of participation in that agreed upon scheme. To
prove conspiracy, the government must show the existence of an
agreement between defendant and another to commit a crime,18
17 In those cases where Dean Street failed to repay down payment
funds as promised, the intention was still to do so and to
execute the same fraud as was executed on the other unit sales.
18 To the extent that the existence of a conspiracy is at issue,
the evidence is overwhelming to support the convictions. A
conspiracy is an agreement to commit a crime and may be inferred
from the circumstances. United States v. Concemi, 957 F.2d 942,
950 (1st Cir. 1992). Brandon planned and executed a complex
scheme to defraud Bay Loan that required the cooperation of
investors, brokers, and other agents involved in facilitating the
-31-
that each defendant knew of the agreement, and that each
defendant voluntarily participated in the conspiracy through
conduct that was interdependent with the actions of the other
conspirators. United States v. G mez-Pab n, 911 F.2d 847, 852-53
(1st Cir. 1990), cert. denied, 498 U.S. 1074 (1993); United
States v. Evans, 970 F.2d 663, 668 (10th Cir. 1992), cert.
denied, 113 S. Ct. 1288 (1993). The defendants must have both
the intent to agree to participate in the conspiracy and an
intent to commit the underlying substantive offense. G mez-
Pab n, 911 F.2d at 853; United States v. Drougas, 748 F.2d 8, 15
(1st Cir. 1984). The government, however, need not prove that
each defendant knew all of the details and members, or
participated in all of the objectives, of the conspiracy as long
as it can show knowledge of the basic agreement. G mez-Pab n,
911 F.2d at 853; United States v. Marsh, 747 F.2d 7, 13 (1st
Cir. 1984). Such proof of knowledge and intent "may consist of
circumstantial evidence, including inferences from surrounding
circumstances, such as acts committed by the defendant that
furthered the conspiracy's purposes." G mez-Pab n, 911 F.2d at
853.
The government must also establish defendants'
participation in the conspiracy with the intent to further the
transactions. Brandon told several co-conspirators of his plans
to falsify down payments, including Marderosian, Reisch, Gauvin,
Granoff, Hagopian, and Ward. The evidence indicates these
defendants agreed to become involved in the conspiracy by
performing such critical tasks as drawing up mortgage discharges,
wiring money, and providing down payment checks that would not be
used.
-32-
aims of the conspiracy. Direct Sales Co. v. United States, 319
U.S. 703, 712 (1943). Once a conspiracy is established, as well
as defendant's intent to further it, any connection between the
defendant and the conspiracy, even a slight one, will be
sufficient to establish knowing participation. Marsh, 747 F.2d
at 13.
In this case, the government must prove that the
defendants knew there was an agreement to fraudulently represent
down payments in order to get loans from Bay Loan and that they
willfully participated in this scheme by taking some overt action
with the intent to further the scheme's objective. Thus, the
evidence must be sufficient to establish the intent to commit
bank fraud as discussed above and, in addition, must also
establish an intent to commit the fraud in conjunction with the
broader conspiratorial agreement.
B. The Case Against Each Defendant
Our task on review of the verdicts is to examine the
evidence in its entirety in the light most favorable to the
government to determine whether a rational trier of fact could
have found the essential elements of the crime beyond a
reasonable doubt. The government receives the benefit of all
legitimate and favorable inferences, and it can prove its case by
circumstantial evidence without having to exclude every
reasonable hypothesis of innocence. United States v. McLaughlin,
957 F.2d 12, 18 (1st Cir. 1992); United States v. Boldt, 929 F.2d
35, 39 (1st. Cir. 1991); United States v. Van Helden, 920 F.2d
-33-
99, 101 (1st Cir. 1990). Below, we review each defendant's case
individually.
1. Marvin Granoff
Granoff was convicted of conspiracy and two counts of
bank fraud in connection with his purchase of units on one
occasion and with his funding of buyer down payments on another
occasion. Granoff argues that the evidence in this case is
insufficient to show that he was anything more than an innocent
investor duped by his lawyer, Marderosian, into providing money
for a project he really did not know anything about. Although
the evidence against Marvin Granoff reveals a more circumscribed
role than some of the other defendants, we are not prepared to
overturn the jury's guilty verdict on either the conspiracy
charge or on the two counts of bank fraud.
Sufficient evidence supports the jury's conclusion that
Granoff knew Bay Loan was funding Dean Street's condominium
project, that he knew down payments were required from the buyers
and that he knowingly participated in a scheme to deceive the
bank into thinking the requirement was satisfied. To begin with,
Granoff bought four units on one occasion and provided down
payment funds on another occasion. Both times Bay Loan financed
the purchases without knowing the required down payments were not
actually made. Prior to each of these transactions, Granoff
attended a series of meetings with Brandon concerning the motel
condominium scheme. Brandon told Granoff that down payments were
required and that he needed Granoff to provide money for the down
-34-
payments of other buyers.19 Granoff agreed to do so.20
For Granoff's purchase of units at the Charlestown Inn
19 Specifically, Marderosian testified that Brandon told Gauvin
and Granoff in the summer of 1987 that "Homeowners required a
twenty-five percent down payment and while that down payment
would not be required of Mr. Gauvin and Mr. Granoff, he did have
the problem of the down payment with subsequent purchasers and he
asked Mr. Gauvin and Mr. Granoff for their assistance in meeting
that problem." Despite the offer to "waive" Gauvin and Granoff's
down payments, checks representing down payments were required
for their purchases.
In another meeting, Brandon asked Gauvin and Granoff if they
were "willing to provide the down payment money for other
purchasers" and they agreed to do so. Marderosian also testified
that Brandon told Granoff at a meeting in January of 1988 that he
needed someone to provide funding for the certified down payment
funds required from unit buyers. Brandon asked whether Gauvin
and Granoff were "interested in providing those certified funds"
and they agreed.
20 Marderosian testified that Granoff agreed on several
different occasions to participate in Brandon's scheme and
referred several times to the "agreement Mr. Gauvin and Mr.
Granoff made to provide Mr. Brandon with monies for the down
payments." Despite this, Granoff argues that Marderosian's
testimony indicates Granoff said little or nothing at the various
meetings with Brandon and this is insufficient to establish
Granoff agreed to participate in the conspiracy. The fact that
Granoff provided $470,000 that was used for down payments
following the meetings with Brandon in which the agreement was
discussed, however, is sufficient to support the conclusion that
Granoff in fact did agree and did participate in the conspiracy.
Furthermore, Granoff's involvement in the conspiracy was more
than just the provision of goods and services to an operation
that he knew might use the funds illegally. See Direct Sales Co.
v. United States, 319 U.S. 703, 711, 713 (1943); United States v.
Falcone, 109 F.2d 579, 581 (2d Cir.), aff'd, 311 U.S. 205 (1940).
The evidence, as we discuss below, indicates that Granoff
provided money specifically for the purpose of funding down
payments he knew would be falsified and was promised $1000 per
unit for his efforts. Granoff's provision of down payment funds
was a specialized transaction without loan documents or other
paperwork and did not constitute merely the provision of goods or
services to the conspiracy. Overall, the evidence is more than
adequate to support the finding that Granoff adopted the goals of
the conspiracy as his own and provided the down payment funds to
further the conspiracy.
-35-
in August of 1987, his partner, Gauvin, provided down payments to
Dean Street on Granoff's behalf in the form of checks that were
not backed by sufficient funds. Copies of the checks were
included in the closing files. The "payments" were returned to
Gauvin two days later when Dean Street wrote identical checks
back to Gauvin which Gauvin deposited in his account to cover the
original down payment checks. The fact that Gauvin's checks,
totalling $246,000, were drawn on an account with only $6000 at
the time when they were written indicates that there was no
intent on Gauvin's part to make an actual down payment in the
first place.21
Granoff likewise provided down payment funds for other
buyers and the evidence indicates he did this knowing and
expecting that the money would be returned to him after the
closing. Granoff provided $470,000 for down payments on the
21 Granoff argues that with respect to Count 2, charging him
with bank fraud in connection with his purchase of a unit at the
Charlestown Motor Inn, the requisite knowledge element was not
established. Brandon had told Granoff that the down payment
would be waived for his purchase and there was nothing, Granoff
claims, in the closing procedure sufficient to support the
conclusion that he knew his purchase took place under fraudulent
pretenses. On the contrary, even if we disregard the reasonable
possibility that Granoff's partner, Gauvin, told Granoff all
about the complex recycling transaction Gauvin undertook with the
checks used for Granoff's down payment, the fact that Granoff
signed the HUD settlement sheets establishes a sufficient basis
to conclude Granoff knew he was representing the existence of
down payments that he was not actually paying. The HUD
settlement sheet for Granoff's purchases clearly indicated that a
$20,500 down payment was being paid by the buyer. If indeed
Granoff was under the impression, up to that point, that the down
payment had been "waived," the $20,500 figure on the closing
documents must have tipped him off that something suspicious was
going on.
-36-
Atlantic Inn-Westerly units in the form of two checks, one for
$270,000 from Marvin Granoff Real Estate and another for $200,000
from Granoff's Eastern Wire Products Co. In turn, Brandon
promised to pay Granoff $1000 for each unit sold using Granoff's
down payment money.
As it turns out, Granoff was never paid back, but the
evidence shows that Granoff expected and intended for this money
to be promptly returned to him after the closings. A recycling
arrangement had been used earlier for Granoff's own purchase, and
for subsequent purchases funded by Gauvin, under the initial
agreement between Granoff, Gauvin, and Brandon. More
importantly, about two weeks after the first closings involving
Granoff's $470,000, Gauvin sent a letter to Marderosian, on
Manchester Associates22 letterhead, complaining that the
transaction involving the $470,000 was taking too long. The
letter stated that the transaction involving Granoff's $470,000
"was to take at most two to three days." Marderosian also
testified that on a different occasion, Gauvin told Marderosian
that Gauvin and Granoff "can make money without putting up any
money." In addition, there was no promissory note or other
formal documentation to indicate that the $470,000 was normal
loan financing.23 Consequently, Granoff knew that his money
22 Manchester Associates was a partnership formed by and
consisting of Gauvin and Granoff.
23 Gauvin and Granoff documented a previous loan to Brandon for
the smaller sum of $200,000 indicating that if they really
intended the money to be a loan instead of a tool to show down
payments through a recycling transaction, they would have
-37-
was used to create the appearance that down payments were being
paid when in fact they were not; they were being falsified.
The arrangement of rapidly recycling "down payment"
funds through Dean Street meant that, in reality, no down
payments were being made at all. A paper trail was left in the
closing files indicating that the buyer had made a down payment
to the seller, Dean Street, when, in fact, the seller just
returned the money to its source, effectively rendering that
paper trail fraudulent. Bay Loan's down payment requirement was
thus avoided without the bank's knowledge. As a knowing
participant in this recycling scheme, Granoff possessed the
necessary intent to defraud and the requisite level of
involvement in the larger conspiracy to be found guilty of the
offenses charged.
Although not essential for upholding Granoff's
conviction, we also find that the evidence is sufficient to show
that Granoff knew Bay Loan was loaning the money for the
condominium units. Granoff bought four units financed by Bay
Loan and he put up nearly half a million dollars to provide down
payment funds for other units to be purchased with Bay Loan
financing. Homeowners furnished a letter at the closings
including the closing on Granoff's purchases, which Granoff
attended, stating that Homeowners had "transferred all of its
documented it.
-38-
rights and interests" in the mortgage to Bay Loan.24 Granoff
had occasion to see the letter and it is not unreasonably to
assume he also read it.
Granoff also attended a number of planning meetings
with Brandon in which plans for closing on various units, the
funding of down payments, and other details of the scheme were
discussed. The evidence also indicates Granoff was continually
kept abreast of various detail of Brandon's scheme; details, one
could infer, that included the source of the financing. In the
last half of 1987, Granoff and Gauvin formed a partnership called
Manchester Associates for the purpose of real estate investment.
On behalf of Manchester Associates, Gauvin met several times with
Brandon who discussed his overall plans to close on over 400
motel units as well as the schedule for those closings. Letters
referencing these meetings were written on Manchester letterhead
and one could reasonably infer that Gauvin related the substance
of the meetings to his partner Granoff.25 One such letter from
24 There is some dispute whether this letter, which was not
signed by the parties, was included among the documents at the
closings. Homeowners' Vice President, Gregory Cambio, testified
that the letter "was part of the closing package" but also
testified that it may have been sent after the closing. The
trial exhibits containing the loan files for each of Granoff's
purchases do contain the letter which is dated on the same date
as the closing. However, the file contains both closing
documents, signed by Granoff, as well as other documents that may
or may not have been at the closing. The letter, therefore, is
not dispositive of Granoff's knowledge, but does provide some
evidence of knowledge that can be considered in conjunction with
the other circumstantial evidence.
25 For example, Granoff was cc'd on a letter to Dean Street that
referenced plans to close on 107 units and discussed the
repayment of Granoff's $470,000.
-39-
Gauvin states that "it would seem that the lending institutions
will be in a position to begin closing." As Homeowners and Bay
Loan were the only institutions involved at the time the letter
was written, the plural reference to "institutions" indicates
that Gauvin and his partner, Granoff, were aware not only of
Homeowners but of Bay Loan as well.
In sum, the evidence indicates that Granoff was aware,
on a fairly detailed level, of a large real estate scheme whose
only source of funding happened to be Bay Loan. With substantial
sums of his own money at stake in this extensive project, Granoff
was likely to become aware at some point of the source of money
behind it all. It is not unreasonable to conclude, therefore,
that Granoff knew of Bay Loan's involvement in the project.
Furthermore, the fact that Bay Loan was providing the
financing was known to several others who, like Granoff, were
involved in buying and investing in the units. Brandon testified
that he was "completely open" about, and "made no secret" of, Bay
Loan's involvement. Although Brandon testified that he generally
told people outside Dean Street that the lender was Homeowners
and not Bay Loan, he also testified that he told Hagopian, Ward,
Reisch, and Limoges about Bay Loan's involvement. These people,
like Granoff, bought units or provided down payment funds and
were not Dean Street employees. Even an investor named Michael
Parvin, who bought only one unit, testified that he knew Bay Loan
was involved. It is not unreasonable, therefore, for a jury to
conclude that Granoff discovered this fact as well.
-40-
Granoff challenges any inferences of criminal knowledge
or intent drawn from the pool of circumstantial evidence as
impermissibly based merely on Granoff's association with his co-
defendants. He claims that amidst the fast-paced wheeling and
dealing of the 1980s real estate market, investors did not have
the ability to know all the details and purposes behind every one
of their transactions. It was common for investors to entrust
their money to developers and lawyers without learning any of the
specifics of the various projects in which they were involved.
Details such as the exact nature of a bank's down payment
requirement were not, Granoff implies, important enough to be
discussed between a developer and an investor. Add to these
circumstances the unscrupulous and deceptive acts of Brandon and
Marderosian, who allegedly got Granoff into this whole mess, and
Granoff contends that we cannot help but conclude he was lied to
about the true nature of the project.
While it may be true that the typical real estate
investor in the 1980s would readily put up hundreds of thousands
of dollars for "down payment funds," expect the money back in a
few days, and still not suspect he is defrauding a bank, we are
certainly not prepared, given the facts discussed above, to
preclude a jury from concluding otherwise. The government need
not disprove every reasonable hypothesis of innocence, provided
the record in its entirety supports the jury's verdict. United
States v. Ortiz, 966 F.2d 707, 714 (1st Cir. 1992), cert. denied,
113 S. Ct. 1005 (1993). In this case, the record does provide
-41-
the requisite support. Therefore, we affirm Granoff's
convictions.
2. Charles Gauvin
Gauvin was convicted of conspiracy and five counts of
bank fraud in connection with his purchase of several units and
his funding of buyer down payments. Gauvin was Granoff's
business partner and the more active of the two in their dealings
with Dean Street. According to the record, he knew at least as
much as Granoff, and most likely more, about the scheme to
defraud Bay Loan. Gauvin also participated to a greater extent
in the scheme than Granoff did. Consequently, there is no need
to discuss at length the evidence sufficient to support his
conviction.
The jury could have found that Gauvin knew Bay Loan was
providing loans for the condominium project and requiring down
payments for these loans based on the evidence of the several
meetings Gauvin attended and correspondence that he exchanged
with Brandon discussing the condominium projects and his
agreement with Brandon to provide buyers with down payment funds
that were required for the financing of the units. The jury
could infer that Gauvin knew the down payments were not in fact
being paid in violation of the bank's requirement, and that
Gauvin willfully participated in the scheme to accomplish this
fraud, based on the evidence that Gauvin: 1) delivered to Dean
Street twelve down payment checks backed by insufficient funds
for the Charlestown closings in August of 1987 and received
-42-
twelve equivalent checks back from Dean Street two days later
which he used to cover his original checks; 2) provided down
payment money for Reisch and others which was returned to him
within a matter of days; 3) commented to Marderosian that the
down payment checks he was providing "did not have to be backed
by good funds because the timing was so quick" and that he and
Granoff could "make money without putting up any money;" and 4)
delivered Granoff's $470,000 in down payment funds to Dean Street
and wrote in a subsequent letter to Brandon that he expected the
transaction involving those funds "to take at most two to three
days."
Gauvin argues that the evidence of his activities
clearly indicates a lawful intent in his writing the checks to
Dean Street. As he testified at trial, Gauvin thought he was
simply lending money to Dean Street for its condominium project
and he had no intention that his money be used for fraudulent
purposes. Evidence in the record indicates that "supplemental
financing," similar to what Gauvin thought he was providing to
Dean Street, was a standard practice in the industry. Gauvin
also testified that he was "surprised" to see his first twelve
checks come back so quickly. But Gauvin was not so surprised,
apparently, so as to be tipped off that anything illegitimate was
going on because such rapid turn around of loans was also a
standard practice during the real estate boom of the 1980s.
Gauvin suggests that maybe Dean Street was packaging the
secondary financing and selling it off at a profit, thus removing
-43-
Gauvin's participation as a lender fairly quickly.
Maybe, but then again, maybe not. The jury considered
Gauvin's arguments and decided that the evidence proved Gauvin
knew what was really happening at Dean Street. Our job on appeal
is to measure the sufficiency of that evidence and not to search
for every logical or rational conclusion that can be drawn.
Ortiz, 966 F.2d at 714. Gauvin was told several times that funds
were needed to make down payments for buyers. We find it rather
difficult, therefore, to believe Gauvin thought he was
legitimately loaning money for down payments when the recipient
of the payments was giving the money right back to the lender.
If Gauvin loaned money to a friend to buy a car and then had his
loan paid off by the car dealership, we might wonder about his
characterization of the transaction as normal financing. In the
present case, the suspicious nature of the transactions, combined
with evidence of the underlying scheme to defraud and an
agreement between Gauvin and the scheme's mastermind to
contribute funds to the scheme, is more than ample to support the
jury's verdict.
3. Norman Reisch
Reisch was convicted of conspiracy and seven counts of
bank fraud. The evidence against Reisch indicates that he knew
Bay Loan was financing the condominium units, that he knew down
payments were required for the condominium loans and that he
knowingly participated in a scheme to recycle funds through
buyers to make it look like these down payments were actually
-44-
being made. Reisch had "at least a dozen" discussions with
Brandon and Marderosian about the 20% down payment requirement
and ways that the "requirement might be satisfied by alternative
methods or might be avoided," including the use of second
mortgages and loaning the down payment money to the buyers.
Proof of Reisch's knowing participation in the
conspiracy is as follows. Reisch bought four Charlestown units
for which Gauvin provided the down payment funds. At the same
time, Reisch provided another buyer with down payment money for
three other units. Dean Street returned the money to Reisch the
next day. Reisch later agreed with Brandon to wire money for
down payments directly into buyers' accounts. After each closing
that utilized Reisch's wired funds, the down payment money was
returned to Reisch. On some occasions, the buyers' checks to
Dean Street, which were funded by Reisch, were endorsed directly
back over to Reisch. Reisch once remarked about this arrangement
"we would just have to keep bringing the funds back and rolling
them to wire more funds out for the projects."
As for Reisch's knowledge of Bay Loan, Brandon
testified that it was "very probable" that he told Reisch about
Bay Loan's involvement in the project during a conversation in
the summer of 1988. The jury could reasonably conclude that
Reisch had knowledge of Bay Loan even before this conversation.
Reisch's contact with Brandon and his involvement in the down
payment scheme was more significant than that of Granoff.
Because we found sufficient evidence to support the conclusion
-45-
that Granoff had knowledge of Bay Loan, we think that, for the
reasons discussed above, there is also sufficient evidence
against Reisch.
Like Gauvin and Granoff, Reisch argues that he was just
making loans that he thought were completely legal. Like Gauvin
and Granoff, we find this argument unconvincing, especially given
Reisch's greater involvement in the scheme. We reject, moreover,
Reisch's application of the holding in United States v. Falcone,
109 F.2d 579, 581 (2d Cir. 1940) (holding the mere delivery of
goods or services to a conspiracy does not constitute membership
in the conspiracy), to this case. Reisch's conduct amounted to
more than a mere delivery of loans to a conspiracy. The evidence
indicated that Reisch was involved in the planning of the down
payment scheme and that he played a key role in furthering the
success of a conspiracy that was starved for new funds before he
began supplying them. In particular, Reisch provided a specific
loan arrangement (involving a complex system of wired funds)
especially tailored to falsifying the down payments. Reisch's
actions thus were not limited to the mere provision of lending
services but instead were strong evidence of an intent to further
the conspiracy.
4. Ronald Hagopian
Hagopian was convicted of conspiracy and six counts of
bank fraud for his role as a broker for Dean Street who solicited
-46-
buyers and facilitated their purchases.26 The evidence against
Hagopian more than adequately establishes his knowledge of Bay
Loan's down payment requirement and his knowing participation in
various schemes to fraudulently represent the existence of those
down payments. To begin with, Brandon testified that he told
Hagopian about "his relationship" with Bay Loan, which
establishes Hagopian's knowledge that Bay Loan was providing the
financing. Hagopian knew a down payment was required for the
units by virtue of the fact that he provided a down payment check
for his own purchase, and he discussed down payments with some of
the buyers he recruited.27
Hagopian also knew about and participated in the scheme
to falsify the existence of the down payments. Hagopian
purchased several condominium units and wrote a corresponding
down payment check that Dean Street never negotiated. Hagopian
told the buyers he recruited that they needed to write checks to
Dean Street for the purchases of their units but that the checks
would either not be used or would be covered by Dean Street
itself.28 Hagopian also told some buyers that they would have
26 The court entered a mid-trial judgment of acquittal for
Hagopian on one count of bank fraud. Hagopian was also found not
guilty by the jury on two counts of bank fraud.
27 In addition, Hagopian's business partner, John Ward, who
rounded up buyers with Hagopian, told one of these buyers to give
Ward a check "for the down payment that was required."
28 In addition, Hagopian was present during several meetings
with Brandon including one where Brandon told a buyer that there
were no down payments. Hagopian also told this to the buyer.
The buyer eventually did produce a down payment check for his
purchase and the check was never negotiated. Hagopian was
-47-
second mortgages to cover part of their down payment but these
mortgages would later be discharged. All of these schemes were
actually executed with many of the buyers Hagopian solicited.
Sometimes Hagopian returned voided or nonnegotiated down payment
checks back to the buyers. Hagopian also told buyers they would
be paid for each unit they bought and he usually provided this
rebate money to the buyers he had solicited after the closings.
Hagopian adds a new twist to the familiar refrain that
he thought he was participating in a perfectly legal real estate
project. He claims that the fact he openly solicited buyers for
a "no money down" investment opportunity proves that he had no
knowledge that Brandon's down payment scheme defrauded the bank.
Hagopian placed public advertisements for the condominiums that
explicitly promised "no money down." Hagopian contends that
because Dean Street took care of all the financing, his job was
limited to soliciting buyers for a type of real estate investment
that was allegedly common at that time and not in any way
suspicious.29
subsequently asked about that check by the buyer who expected it
to be returned to him and was concerned it might actually be
cashed. Hagopian said he would look into it.
29 Hagopian makes a related argument that his conduct did not
further the conspiracy to a significant degree and that there was
not sufficient interdependence between Hagopian and the other
conspirators to establish that he joined the conspiracy as
required. United States v. Evans 970 F.2d 663, 670 (10th Cir.
1992); United States v. Horn, 946 F.2d 738, 740-41 (10th Cir.
1991). All that is required is that the alleged conspirator
facilitate the endeavors of other alleged co-conspirators or
facilitate the venture as a whole. See Evans, 970 F.2d at 670;
Horn 946 F.2d at 740-41. The government has more than met this
burden.
-48-
The evidence clearly supports the jury's conclusion
that Hagopian did more than innocently broker deals for Dean
Street. Hagopian told buyers of his "no money down" investment
opportunity to provide down payment checks that would not be
cashed and to sign mortgages that would be discharged. His
"openness" in advertising no money down investments simply shows
he was actively soliciting buyers to further the scheme. The
scheme relied on new faces to serve as frontmen for the
individual bank loans and Hagopian's actions were an integral
part of furthering the scheme's success.
Hagopian was not open about the fact that "no money
down" meant providing false paperwork to the bank so that it
would think down payments were actually being made. Regardless
of whether 100% financing was customary at the time and thus not
suspicious, the fake down payments and fake second mortgages were
certainly not customary (or if customary in the 1980s, still
illegal), and the jury was warranted in concluding that Hagopian
knew this. Finally, the jury could reasonably infer that the
public advertising was just a necessary, and minor, risk taken by
Hagopian to attract new buyers and not particularly convincing
evidence of his innocence.
5. John Ward
Ward was convicted of conspiracy and six counts of bank
fraud for purchasing a unit and for soliciting and facilitating
-49-
unit sales.30 The evidence against Ward, at least in terms of
knowledge and intent, is essentially the same as that against his
partner, Hagopian, and the two played essentially the same role
in the conspiracy. Brandon testified that he told Ward about
"his relationship" with Bay Loan. Ward also knew that down
payments were required as he was involved in many of the same
discussions with potential buyers that Hagopian was involved in.
Specifically, Ward told one buyer to give him a check "for the
down payment that was required."
Ward knew down payments were not actually being made as
his own down payment was not negotiated and he told one buyer,
whose down payment funds were to be wired into that buyer's
account, that the down payment check would be cashed the same day
so that the people wiring the funds "got their money back."
We reject Ward's assertion that he thought Bay Loan
approved all of the various down payment shenanigans in which he
was involved. Ward contends that the down payment arrangement
that he was aware of was simply a paperwork requirement and not a
"real" requirement; that is, Ward only knew that some sort of
paper representing down payments had to exist but thought no real
funds were actually required from the buyers. We suppose Ward's
contention is within the realm of the possible. However, the
jury looked at the intricate down payment arrangements and the
way Ward explained them to the buyers and found, quite reasonably
30 The district court entered a mid-trial judgment of acquittal
in favor of Ward on one count of bank fraud. The jury found Ward
not guilty on two additional counts of bank fraud.
-50-
we think, that Ward knew his actions were a "departure from
fundamental honesty." Goldblatt, 813 F.2d at 624. The common
sense understanding of a down payment is the transfer of actual
funds from the buyer to the seller or financier. With this in
mind, it is more than reasonable for a jury to find that once a
defendant learned of the structure of the down payment
arrangement used in this case, with no real down payments
changing hands, the defendant would be tipped off to the fact
that a fraudulent transaction was contemplated. Even if we
assume Brandon lied to Ward and told him that Bay Loan directed
Dean Street to arrange for paper, as opposed to real, down
payments, the evidence was sufficient to support a finding that
Ward knew he was engaging in a sham transaction.
The evidence is also sufficient to prove Ward's willful
participation in the overall conspiracy and Ward's execution of
the bank fraud scheme charged in Counts 9, 15, 18, and 19.31
However, the evidence is not sufficient to show that Ward took
any actions that would constitute the engagement in bank fraud
set forth in Counts 24 and 25 of the redacted indictment.32
Consequently we uphold the convictions on the former counts and
reverse the verdict against Ward on the latter two counts.
31 Count 9 charges bank fraud in connection with Ward's purchase
of a unit at the Bayside Motel. Counts 15, 18 and 19 charge bank
fraud in relation to unit purchases at the Sandpiper Motel and
the Hillside Motel that were facilitated by John Ward and others.
32 Counts 24 and 25 charged Ward and four other defendants with
defrauding Bay Loan by obtaining an end loan for the purchases of
units at the Sandcastle Motel by Bruce Schulbaum and John Mills,
III.
-51-
As stated in Count 9, Ward bought a condominium unit at
the Bayside Motel in October of 1987. The down payment check he
provided for the sale was never negotiated. This is sufficient,
given his knowledge discussed above, to support the conclusion
that Ward never intended to provide real funds for the down
payment but just paperwork to deceive the bank. Ward's
conviction for bank fraud on Count 9 is thus upheld.
The evidence is also sufficient to support the
conviction on Counts 15, 18 and 19 which each charged Ward with
bank fraud for facilitating the sale of a separate condominium
unit. Ward helped to solicit the buyers involved in the
transactions for these counts by telling them that no down
payments were required. He directed one of these buyers to
provide down a payment check that would be funded by someone else
and then cashed so that the funds could be returned. Ward
provided the buyers in Counts 15 and 18 with the rebates they
were promised for purchasing units. For the transaction in Count
19, the evidence indicates that Ward was the intermediary for the
funds wired by Brandon to cover the buyer's down payment.
Brandon's wire transfer was directed to the buyer's insurance
company to the attention of "John Ward." Thus, we uphold Ward's
convictions for conspiracy and on Counts 15, 18 and 19.
The evidence is not sufficient, however, to show that
Ward engaged in bank fraud with respect to the transactions in
Counts 24 and 25. Although Ward was present at the closings and
several of the meetings where down payment arrangements were
-52-
discussed for the sales in Counts 24 and 25, there is no evidence
that Ward said anything to these particular buyers or did
anything to otherwise facilitate their purchases.33 Ward did
not provide the buyers in Counts 24 and 25 with rebates as an
incentive to buy nor did he direct these buyers to falsify their
down payments.34 As such, Ward neither executed nor aided the
execution of the scheme to defraud in these two instances.
Because we see no evidence in the record to support any
reasonable finding by the jury that Ward played a role in
obtaining the loans in Counts 24 and 25, we reverse his
convictions for these two counts.
6. Owen Landman
Landman was convicted of conspiracy and six counts of
bank fraud in connection with his facilitation of down payment
arrangements for Dean Street.35 Ample evidence exists to
support the finding that Landman knew a down payment requirement
existed and that he knew about the various fraudulent methods
33 Ward was involved in running the newspaper advertisement that
originally attracted the buyers to the Dean Street project.
However, that act was not necessarily directed toward these
specific fraud counts and, while contributing to the fraud, was
not alone sufficient to constitute an affirmative act of
facilitation of the fraudulent loan transactions charged in
Counts 24 and 25.
34 We note that Hagopian, who was also convicted on these two
charges and whose conviction we are upholding, did actively
solicit the buyers, discuss down payment arrangements with them
(such as dischargeable mortgages), and provide rebate money after
their purchases.
35 The jury found Landman not guilty on two counts of bank
fraud.
-53-
used to avoid that requirement. As in Ward's case, however, the
evidence is not sufficient to show Landman participated in the
execution of a scheme to defraud for four out of the six bank
fraud counts.
Landman acted as an escrow agent for a number of the
condominium closings and one of his main responsibilities was
receiving down payments from buyers and transferring them to the
seller, Dean Street. Marderosian testified that he told Landman
that Gauvin and Granoff would be funding down payments for the
initial purchasers and Landman should hold that down payment
money. Landman knew that the down payment funds were being
returned to whoever provided them as Landman himself delivered
the money back to its source on several occasions.36
Landman also knew about the fraudulent second mortgages
that were supposed to cover part of the down payment. He knew
the buyers were signing meaningless promissory notes for second
mortgages at the closings because Marderosian told him beforehand
that the mortgages would be discharged. At the closings, several
buyers asked Landman when the mortgages would be released as
promised because the discharge letter accomplishing this was not
part of the closing documents (presumably so Bay Loan would not
36 Marderosian explained to Landman that Reisch would be wiring
money directly into buyers' accounts to pay for their down
payments and that buyers would then write checks to Landman.
Landman assured Reisch that he would look after the money. The
evidence indicates that with respect to at least some of the
transactions, Landman returned the down payment funds that Reisch
had provided back to Reisch, writing checks back to Reisch from
the money Reisch had originally given to the buyers.
-54-
see the letter). Landman made gestures to these buyers to
indicate that they should not talk to him about it.37 All
these facts, taken together, support the jury's conclusion that
Landman knew that something illegal was being done to get around
the down payment requirement.
We reject Landman's argument that there is insufficient
evidence to prove he knew Bay Loan was the target of the scheme
to defraud. To begin with, Brandon was "completely open" about
Bay Loan's involvement and told a number of people involved in
the scheme. Several buyers testified that they knew about Bay
Loan, including one person whose only involvement was his
purchase of a single unit. Landman shared office space with
Brandon's point man in the scheme, Marderosian, who was
intimately involved in all the details of the scheme. Finally,
the closing documents included a letter indicating Bay Loan was
the ultimate lender;38 Landman acted as escrow agent for many
37 At one closing, Kumalae "asked Owen if he wanted her to
address [the mortgage discharge] at the time," and Landman
responded that it "had nothing to do with him . . . he didn't
want to know anything about it." Another time "Mr. Landman did
not want to hear about it in front of us. I do recall him saying,
his hands saying not in front of me." Still another buyer
testified that Landman "gestured" when confronted with the
mortgage discharge issue. Landman argues that his responses and
gestures could mean he just did not know anything about it and
could not answer the buyers' inquiries. We find that a
reasonable jury could also conclude that Landman's actions
indicated he already knew that something illegal was going on and
was trying to disassociate himself from it.
38 As discussed in footnote 24, Homeowners furnished a letter
stating that they transferred their rights in the mortgage to Bay
Loan. A similar document was furnished for the transactions
brokered by East West. Although the same uncertainty regarding
the presence of the letter at the closings discussed in Granoff's
-55-
of the closings and also conducted a few of them himself.39
Sufficient evidence exists to support the jury's
verdict on the conspiracy count and on Counts 21 and 22. Counts
21 and 22 allege bank fraud in connection with the closings of
two units at the Hillside Motel. The evidence reveals that
Landman returned the down payment funds provided by Reisch in
connection with these transactions back to Reisch in violation of
the down payment requirement.40 In addition, one Dean Street
employee, Marie Lynch, testified that, in general, she would
bring buyers' certified down payment checks to Landman after
money was wired by Reisch to the buyers' accounts to accomplish
the certification. Lynch testified that she once saw Landman
write a check to Reisch for the amount of the down payment funds
she had just brought to him. Lynch did not specify which
transactions she was referring to in her testimony but the record
does contain checks written by Landman to Reisch for the exact
amount of the down payment funds wired by Reisch for the Hillside
case above also exists with respect to Landman, there is more
reason to believe Landman saw and read at least one of the
letters because Landman had greater exposure and familiarity with
the closing documents.
39 Marderosian testified that when he prepared Landman for the
closings which Landman conducted, he "explained what documents
[Marderosian] would be preparing and that [Landman] had to
oversee their execution at the closing."
40 That evidence consists of a check written by Landman to
Reisch for the exact amount of the funds which Reisch had wired
into the buyers' accounts for the purchases in Counts 21 and 22.
As discussed above, at the time Landman wrote the check, he had
already been told what Reisch was doing and had agreed to look
after Reisch's money.
-56-
purchases referred to in Counts 21 and 22.41 We therefore find
the evidence sufficient to support the convictions for bank fraud
charged in Counts 21 and 22. This evidence is also sufficient to
show willful participation in the conspiracy and thus supports
Landman's conviction on Count 1.42
Landman argues that his actions were just a normal and
proper function of his job as escrow agent. His
responsibilities, he claims, were strictly limited to receiving
and distributing money at Dean Street's direction. See United
States v. Bruun, 809 F.2d 397, 402-03, 410 (7th Cir. 1987). This
"just following orders" defense cannot stand in the face of the
evidence showing that Landman knew down payments were being
falsified, that he agreed to safeguard Reisch's down payment
funds, and that he personally falsified two down payments by
returning the funds to Reisch. The evidence was sufficient to
indicate that Landman's intent was to participate in transactions
41 Although the testimony that Landman "[c]ut a check to Norman"
Reisch referred to a transaction sometime in the fall of 1988,
roughly a month after the Hillside closings in Counts 21 and 22,
it does add some credence to the government's account of
Landman's involvement in the scheme to defraud.
42 Landman is wrong in claiming that the jury impermissibly
ascribed the illegal actions of Marderosian to Landman. Cf.
United States v. Crocker, 788 F.2d 802, 806 (1st Cir. 1986)
("[A]scribing criminal liability to [an alleged] conspirator for
a co-conspirator's acts by way of the adoption mechanism inherent
in a conspiracy requires that the imputed acts be in furtherance
of the conspiracy or that they fall within its reasonably
foreseeable scope."). Returning down payment funds that are
required by the bank is not only within the foreseeable scope of
the conspiracy but directly in furtherance of it. The government
thus established Landman's criminal conduct independently from
that of Marderosian.
-57-
designed to deceive Bay Loan.
With respect to Counts 23 through 26, relating to
closings at the Sandcastle Motel, no checks written by, or to,
Landman that involved down payment funds were in evidence. The
government stipulated that the relevant checks for these
transactions were forgeries. In particular, Landman's signature
on the checks for the Sandcastle transactions were forged by
Marderosian.43 It is true that Landman conducted the closings
for the Sandcastle units and thus in some sense facilitated the
scheme to defraud,44 but that alone is not sufficient to show
that Landman participated in the relevant act of fraudulently
violating the down payment requirement for those individual
transactions. On the contrary, it seems that Landman never saw
the down payment checks as the money did not go through his
escrow account. Instead, the checks were transferred directly to
Reisch.
43 The existence of forgeries does not, as Landman claims,
provide conclusive proof of his innocence on all the counts.
Just because his name was forged on some of the checks does not
necessarily imply that Landman did not know of, or agree to go
along with, the conspiracy. In other words, it is not true that
the forgeries could only indicate that Marderosian was forced to
go behind Landman's back to accomplish the scheme to defraud.
For one, Marderosian testified that Landman authorized some of
the forgeries and indicated that forging Landman's name was a
method of convenience rather than a way to hide illicit activity
from Landman. More importantly, Landman did write checks for
illegal transactions in Counts 21 and 22, which, in conjunction
with the other proof of Landman's knowledge and intent, is
sufficient to uphold the conspiracy charge.
44 Lynch's testimony that Landman wrote a check to Reisch for
the Sandcastle units is decisively contradicted by the
government's stipulation that the checks were forgeries.
-58-
We note that Landman also conducted closings for units
at the Atlantic Inn-Narragansett, but the jury acquitted Landman
on the charges connected to those transactions (Counts 16 and 17)
apparently because it found the act of conducting the closings
was, by itself, insufficient to establish the execution of a
scheme to defraud. For Counts 23 through 26, once the stipulated
forgeries are removed from consideration, there is similarly
little evidence to support a conviction beyond the fact that
Landman conducted the closings. While the jury is not held to
consistent results, we think that the acquittal on Counts 16 and
17 reinforces our judgment that (absent some confusion about the
forged checks),45 there was insufficient evidence to convict on
Counts 23 through 26. Because the evidence is insufficient to
prove that Landman executed or aided in the execution of the
schemes to defraud Bay Loan charged in Counts 23 through 26, we
reverse his conviction on those counts.
7. Momi Kumalae
Kumalae was convicted of conspiracy and three counts of
bank fraud in connection with various actions she took while
45 There was apparently some confusion surrounding the exhibits
containing the forged checks. The government agreed to use the
checks only against the other defendants, namely Reisch, but
argued during closing argument that Landman was responsible for
the checks written to Reisch on the Sandcastle units. The
government did not explicitly state that Landman signed the
forged checks; however, it failed to acknowledge the stipulation
of forgeries and seemed to imply no forgeries existed. In any
event, we are convinced that the jury improperly considered the
forged checks in their guilty finding on Counts 23 through 26.
-59-
working as an assistant to Brandon at Dean Street.46 The
evidence establishing Kumalae's knowledge of Bay Loan's down
payment requirement and the scheme to fraudulently violate it is
the following: (1) Brandon testified that he told Kumalae about
his relationship with Bay Loan, (2) an East West employee
testified that she asked Kumalae to forward information about the
unit buyers so that she could satisfy the guidelines established
by Bay Loan; (3) Kumalae was present during some of the
conversations between Brandon, Ward, Hagopian and a buyer in
which down payments were discussed; (4) Kumalae was also present
at a meeting at which Brandon said "they needed to show down
payments or something so they were going to wire money into the
accounts or deposit it and they needed one of our checks to prove
that it came out of our account"; (5) Kumalae told one buyer that
she needed a check from him and that she would be "doing the
transactions at the banks"; (6) Kumalae assured one buyer whose
down payment check had not been negotiated that his check had not
been used; and, (7) Kumalae instructed another Dean Street
employee, Marie Lynch, who had asked about the discharges of the
second mortgages that "there weren't supposed to be any second
mortgages and to just don't worry about it. They were being
taken care of."
The evidence that she willfully participated in this
scheme is as follows: (1) Kumalae advised buyers of how their
46 The jury found Kumalae not guilty on one count of bank fraud.
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down payment requirement would be satisfied;47 (2) she once
wired money from her own account to a buyer in order to fund his
down payment;48 (3) she signed several of the mortgage
discharge letters provided to the buyers;49 and, (4) she
received some of the down payment checks, and because several of
these checks were deposited directly into Reisch's account,
presumably by Kumalae, she effected the return of down payment
funds to their source in violation of the down payment
requirement. All of this evidence is sufficient to support
Kumalae's bank fraud and conspiracy convictions.
Kumalae attempts to rely on cases holding that a
defendant's mere presence at the scene of the crime or mere
association with criminals to whom all the evidence at trial
pertains is insufficient to support a conviction for conspiracy.
United States v. Ocampo, 964 F.2d 80 (1st Cir. 1992); United
States v. Mehtala, 578 F.2d 6, 10 (1st Cir. 1978); United States
v. Joiner, 429 F.2d 489, 493 (5th Cir. 1970). Kumalae's reliance
on these cases is misplaced because the government's case rested
47 Kumalae told one buyer "no down payments" were required and
that Brandon was a "stand-up guy" who would "take care of things
and not to worry." On another occasion she told a buyer that his
mortgage discharge "would be taken care of after the closing."
48 This was the basis for the transaction for Count 15 and is
sufficient to support her conviction on that count.
49 One buyer testifies that he picked up his discharge letter
and the letter of another buyer directly from Kumalae. These
discharges were made for the transactions in Counts 24 and 25.
We note that the jury acquitted Kumalae on Count 23 presumably
because there was no such testimony to support Kumalae's
involvement with the discharge.
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on Kumalae's own knowledge of the scheme to defraud based on her
own statements to others and on a series of actions taken by
Kumalae herself that directly defrauded Bay Loan. Kumalae's
argument that she was just acting in good faith by performing
ministerial duties for Dean Street and nothing more also fails.
The record is clear that Kumalae wired down payment funds to
buyers from her own account and signed mortgage discharge
letters. These actions were not merely "ministerial duties."
V. SEVERANCE
The district court denied the motions for severance50
made by several of the defendants51 who argued that they were
unfairly prejudiced by the evidentiary spillover from the case
presented against their more culpable co-defendants. The
defendants' claim is that the joint trial seriously limited the
jury's ability to sift through all the evidence against each
individual defendant and increased the risk that the jury would
base its verdicts on evidence which has no bearing on the guilt
or innocence of defendants with a more limited involvement in the
50 The rule authorizing motions for severance states in
pertinent part:
If it appears that a defendant . . . is
prejudiced by a joinder . . . of
defendants . . . for trial together, the
court may . . . grant a severance of
defendants or provide whatever other
relief justice requires.
Fed. R. Crim. P. 14.
51 Granoff, Gauvin, Hagopian, Reisch, Kumalae, and Ward all
moved for severance before and during trial and all raise the
issue on appeal.
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scheme. Whatever the advisability, in general, of holding mass
trials in complicated cases with many defendants of varying
culpabilities, we do not find any significant degree of
unfairness or prejudice in this case that would warrant a
reversal of the district court's refusal to sever the trial.
The decision to grant or deny a motion for severance is
committed to the sound discretion of the trial court and we will
reverse its refusal to sever only upon a finding of manifest
abuse of discretion. United States v. Olivo-Infante, 938 F.2d
1406, 1409 (1st Cir. 1991); United States v. Natanel, 938 F.2d
302, 308 (1st Cir. 1991), cert. denied, 112 S. Ct. 986 (1992);
United States v. Boylan, 898 F.2d 230, 246 (1st Cir.), cert.
denied, 498 U.S. 849 (1990); see also United States v. Searing,
984 F.2d 960, 965 (8th Cir. 1993) ("In the context of conspiracy,
severance will rarely, if ever, be required."). Defendants
seeking a separate trial must make a strong showing of evident
prejudice. United States v. O'Bryant, No. 91-2132, slip op. at 8
(1st Cir. June 29, 1993); United States v. Mart nez, 922 F.2d
914, 922 (1st Cir. 1991). This showing must demonstrate that the
joint trial prevented the jury from separating the evidence
against each defendant and reaching a reliable verdict. Zafiro
v. United States, 113 S. Ct. 933, 938 (1993); O'Bryant, No. 91-
2132, slip. op. at 8-9.
There is no indication in this case that the jury was
unable to distinguish the various charges and defendants or to
sort properly through the evidence relating to each defendant.
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The jury demonstrated its ability to independently assess the
evidence when it acquitted four of the defendants on individual
bank fraud counts, see United States v. Figueroa, 976 F.2d 1446,
1452 (1st Cir. 1992), cert. denied, 113 S. Ct. 1346 (1993)
(finding acquittals to be a relevant factor in upholding a denial
of severance); United States v. Dworken, 855 F.2d 12, 29 (1st
Cir. 1988) (same), and when it asked that specific portions of
the transcript relating to specific defendants be read to them.
In addition, the trial judge provided a number of limiting
instructions throughout the trial that alleviated any potential
prejudice. See Figueroa, 976 F.2d at 1452; United States v.
Tejeda, 974 F.2d 210, 219 (1st Cir. 1992).
The degree of prejudicial spillover appears minimal as
no defendant has demonstrated which, if any, evidence presented
at trial would have been inadmissible if presented against that
defendant at a separate trial. The government presented
sufficient evidence to show that all defendants were involved in
a single interdependent conspiracy, see Section IX.B., and most
of the evidence at trial was related to the development and
operation of that conspiracy. "Where evidence featuring one
defendant is independently admissible against a codefendant, the
latter cannot convincingly complain of an improper spillover
effect." O'Bryant, No. 91-2132, slip op. at 10 (collecting
cases). Moreover, "[e]ven where large amounts of testimony are
irrelevant to one defendant, or where one defendant's involvement
in an overall agreement is far less than the involvement of
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others, we have been reluctant to secondguess severance denials."
Boylan, 898 F.2d at 246 (citations omitted). We therefore affirm
the judge's decision to deny the severance motions.
VI. PRETRIAL PUBLICITY
VI. PRETRIAL PUBLICITY
On January 1, 1990, the Governor of Rhode Island
ordered the closure of credit unions in that state insured by a
private entity known as the Rhode Island Savings Deposit
Insurance Corporation (RISDIC). After years of risky real estate
investments, many credit unions were unable to weather the late
1980s crash in the real estate market and RISDIC could not cover
their anticipated losses. In the process of closing the credit
unions, the governor froze the assets of hundreds of thousands of
angry depositors. The ensuing panic among depositors as well as
the public hearings, criminal investigations, and civil lawsuits
received extensive media coverage. The Rhode Island credit union
crisis, although coexistent with Dean Street's downfall, is not
related to the present case.
Defendants raised a series of claims related to the
district court's alleged failure to shield them from the
prejudicial effects of publicity surrounding the Rhode Island
credit union crisis. They argue that their right to an impartial
jury was jeopardized by the trial court's denial of their change
of venue motion, their request for individual voir dire, their
request to question the jurors about losing money in the credit
union crisis, and their request for a mistrial or curative
instructions after the admission of certain evidence relating to
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the failed credit unions. As we find no significant threat to
the trial's fairness from the effects of unfavorable publicity,
we uphold the district court's denial of the motions related to
prejudicial publicity.
A. Change of Venue
The decision to grant a change of venue52 is within
the sound discretion of the trial court and is reviewed for abuse
of discretion. United States v. Rodr guez-Cardona, 924 F.2d
1148, 1158 (1st Cir.), cert. denied, 112 S. Ct. 54 (1991); United
States v. Angiulo, 897 F.2d 1169, 1181 (1st Cir.), cert. denied,
498 U.S. 845 (1990). Change of venue is proper where the level
of prejudice against a defendant precludes a fair and impartial
trial because the community is saturated with inflammatory
publicity about the case. Rodr guez-Cardona, 924 F.2d at 1158;
Angiulo, 897 F.2d at 1181; United States v. Moreno Morales, 815
F.2d 725, 731 (1st Cir.), cert. denied, 484 U.S. 966 (1987).
Defendants proffered forty-four newspaper articles
relating to Dean Street and their criminal case, as well as other
examples from the media which purported to show negative feelings
stemming from the credit union crisis against those who benefited
52 The trial court, upon a defendant's motion, will transfer the
trial to another district
if the court is satisfied that there
exists in the district where the
prosecution is pending so great a
prejudice against the defendant that the
defendant cannot obtain a fair and
impartial trial.
Fed. R. Crim. P. 21(a).
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from failed financial institutions. Defendants claim that this
demonstrated widespread prejudice among potential jurors against
them. They argue that the jurors would not distinguish Bay Loan
from the failed credit unions and consequently the jurors would
direct their hostility toward those involved in the credit union
crisis against the defendants at trial.
We find that the publicity relating to this case did
not particularly saturate the community with inflammatory
sentiment nor do we have any reason to believe that the jury was
anything but impartial. The articles presented by the defendants
evidence standard factual press coverage of a criminal case and
are neither inflammatory nor sensational. See Angiulo, 897 F.2d
at 1181 (stating that prejudice will not be presumed in the case
of merely factual reporting, instead "the publicity must be both
extensive and sensational in nature"). Only five of the forty-
seven prospective jurors had ever read or heard about the case
and none of them sat on the jury. We find nothing in the record
to indicate that the jurors' feelings about the credit crisis, if
they had any, impaired their impartiality in the present case.
The trial judge appropriately cautioned the jury about the need
to separate the credit crisis from this case and, as discussed
below, he conducted a voir dire that sufficiently investigated
possible bias. The trial judge determined that the jurors would
understand that the credit crisis had no connection to this case
when he denied the change of venue motion and we find no abuse of
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discretion in this conclusion.53
B. Voir Dire
Defendants argue that the denial of their request for
individual voir dire and their request for jurors to be asked
whether they had lost money in the credit unions jeopardized
their right to an impartial jury. See Irvin v. Dowd, 366 U.S.
717, 722 (1961). Defendants claim that as a result of these
rulings the court did not adequately investigate possible bias
against defendants stemming from the credit union crisis. See,
e.g., United States v. Gillis, 942 F.2d 707 (10th Cir. 1991).
The trial court has broad discretion in conducting voir
dire. United States v. McCarthy, 961 F.2d 972, 976 (1st Cir.
1992); Real v. Hogan, 828 F.2d 58, 62 (1st Cir. 1987). "It is
more than enough if the court covers the substance of the
appropriate areas of concern by framing its own questions in its
own words." Hogan, 828 F.2d at 62 (citations omitted). In this
case, the judge adequately probed prospective jurors for possible
bias related to the credit union crisis54 and specifically
53 We also reject the allegation of actual juror prejudice based
on the unsubstantiated claim that there was a chance that actual
prejudice existed which could have been revealed if the judge
asked the right questions during voir dire. As we find no errors
in the voir dire process, see subsection B, and no other
indication of actual prejudice, we find this allegation
unfounded.
54 Specifically the judge told prospective jurors:
One thing I should caution you about is
some of you may be aware that there has
been some publicity in Rhode Island
recently about the credit unions and the
difficulties that they've experienced,
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inquired several times whether any of the jurors or their
families had "lost money in a bank fraud or anything of that
sort." One juror responded affirmatively to the court's
questions in this area and was excused.55 Throughout the voir
dire, any juror responding to the court's queries was subjected
to individual questioning by the judge and by counsel. For these
reasons, we find no errors in the voir dire process.
C. Prejudicial Evidence
During the trial, the judge admitted evidence relating
to some of the failed credit unions and individuals involved in
the credit union crisis. Specifically, during the government's
direct examination of Marderosian in which he was questioned
about the use of Bay Loan funds obtained from the Sandcastle
closings, Marderosian explained that, in accordance with
Brandon's instructions, he had deliberately failed to pay a
preexisting $1.5 million mortgage held by the Rhode Island
and I want to be sure that everyone
understands that this case is not in any
way related to those events. Is there
anybody who thinks they would have
difficulty in separating this case from
anything you might have heard about the
problems credit unions in Rhode Island
have experienced?
55 Defendants make an additional argument that because jurors
were told that the credit crisis had no relation to this case,
they did not think losing money in credit unions was important
before the trial started and thus would not have responded to the
judge's comments during voir dire. Yet, once evidence linking
defendants to the credit crisis was presented at trial, see
subsection C, the issue of losing money became critical and the
risk of bias was no longer adequately addressed by the voir dire.
The creativity of this argument is matched only by its
improbability and speculative nature. We summarily reject it.
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Central Credit Union. Instead, he used the loan proceeds to pay
off other Dean Street creditors. Included in the lengthy list of
these creditors admitted at trial were Robert Barbato, Atrium
Financial, and Davisville Credit Union. All of these entities
and individuals were involved in the RISDIC credit union
crisis.56 Defendants objected to the evidence and moved for a
mistrial arguing that the evidence was irrelevant and highly
inflammatory.
The decision to admit or exclude evidence under Fed. R.
Evid. 40357 is committed to the broad discretion of the trial
court and we will reverse the court's judgment only rarely and in
extraordinary compelling circumstances. United States v.
Nickens, 955 F.2d 112, 125 (1st Cir.), cert. denied, 113 S. Ct.
108 (1992); United States v. McMahon, 938 F.2d 1501, 1507 (1st
Cir. 1991). Rule 403 requires a balancing of the probative value
of a piece of evidence against its prejudicial effect. United
States v. Rodr guez Cort s, 949 F.2d 532, 540 (1st Cir. 1991).
56 Rhode Island Central Credit Union and the Davisville Credit
Union were among the institutions closed as a result of RISDIC's
failure. (Davisville apparently failed despite Dean Street's
preferred payment on its debt with them). Robert Barbato, who
purportedly was connected to organized crime, was a heavy
borrower of the credit unions. Atrium Financial was owned in
part by one of the key figures in the credit union crisis.
57 Rule 403 provides in part:
Although relevant, evidence may be
excluded if its probative value is
substantially outweighed by the danger of
unfair prejudice . . . .
Fed. R. Evid. 403.
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Exclusion is proper only when the probative value is
"substantially outweighed" by the risk of prejudice. McMahon,
938 F.2d at 1508.
The admitted evidence was relevant to the issue of
whether Marderosian was stealing the loan proceeds for Bay Loan
or passing them on as Brandon directed. Marderosian, the
government's key witness, was attacked by the defense and the
media as the main culprit in the scheme and the government sought
to bolster the credibility of his testimony by showing that
Marderosian did not improperly divert any of the large sums of
money that he handled into his own pocket. The evidence also
helped provide a foundation for later expert testimony regarding
what happened to the funds obtained from Bay Loan in the course
of the scheme to defraud.
The relevancy of the evidence sufficiently outweighed
the minimal prejudicial effect that was created by the brief
mention of individuals and entities that were connected to the
credit union crisis. First of all, nothing at trial linked the
named individuals and entities to RISDIC or the credit union
crisis. In order to find prejudice, the court would have had to
infer that the jury had heard of the individuals and entities
from an external source and also knew of their involvement in the
credit union scandal.58 Even if the jurors did know of the
involvement of the named individuals and entities, it is
58 The judge offered to question the jurors about their possible
knowledge of the persons named in the disputed testimony but
defense counsel refused.
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doubtful, given the court's various cautioning instructions and
the voir dire process, that jurors would likely be biased against
defendants just because certain names were mentioned at trial.
At most, the jurors might conclude that defendants contributed to
the failure of at least one credit union by not repaying certain
loans. The trial judge asked the jurors, however, if they had
lost any money from bank fraud related schemes and no sitting
jurors said they had. Thus we have no reason to believe that any
juror who may have inferred that defendants contributed to the
credit union crisis would be particularly likely to find
defendants guilty without fairly considering the evidence.
Finally, to the extent that the balancing of relevance and
prejudice was a close call, we find no abuse of discretion and
uphold the trial court's admission of the disputed evidence.
VII. EXCLUSION OF EVIDENCE
During the trial, defendants attempted to proffer
evidence regarding the allegedly common practice by financial
institutions of requiring no down payment on the sale of
commercial real estate. On cross-examination of several
government witnesses, Hagopian's attorney asked whether it was
customary during the relevant time period to buy and sell
commercial properties with no money down and to obtain 100%
financing. The government objected on relevancy grounds and the
district court sustained the objections. On another occasion,
Brandon presented an expert witness, James White, to bolster the
credibility of certain testimony. Brandon had testified that Bay
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Loan Vice President Gormley acknowledged that the proposed end
loans to unit buyers actually constituted one single commercial
loan to Dean Street, even though they were to be submitted
individually as consumer residential loans. Brandon sought to
present Mr. White's opinion that the loans at issue were more
consistent with commercial rather than consumer loans. The
district court again excluded the testimony on relevancy grounds.
We affirm the trial court's rulings.59
In general, "[a]ll relevant evidence is admissible" and
"[e]vidence which is not relevant is not admissible." Fed. R.
Evid. 402. The district court has broad discretion in making
relevancy determinations and we must review its decisions only
for abuse of that discretion. United States v. Griffin, 818 F.2d
97, 101 (1st Cir.), cert. denied, 484 US 844 (1987); United
States v. Lamberty, 778 F.2d 59, 61 (1st Cir. 1985). Evidence is
relevant if it has "any tendency to make the existence of any
fact that is of consequence to the determination of the action
more probable or less probable than it would be without the
evidence." Fed. R. Evid. 401; Lamberty, 778 F.2d at 61.
Defendants argue that the excluded evidence is relevant
to one of their theories of the case: (1) either that Bay Loan
knew of and approved their falsification of down payments; or (2)
that defendants did not know about, or intend to violate, Bay
Loan's down payment requirement. The proffered evidence,
59 Because we find the disputed evidence was not relevant to
defendant's case, we also reject Brandon's argument that the
trial court impaired his right to present his theory of defense.
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however, does not make either of these theories any more likely
to be true and thus the evidence is irrelevant.
As for the first theory, Brandon tried to show at trial
that Bay Loan aggressively purchased non-conforming loans, that
he openly sought 100% financing from the bank, and that Bay Loan
agreed to provide the financing without down payments by
directing Dean Street to falsify the paperwork to show the
existence of down payments. The expert testimony and the
government witness's testimony about the common practice of no
down payment financing may add support to the first two
assertions, but those assertions are simply not at issue in this
case. Rather, Bay Loan's alleged approval of false down payments
is at issue. The defendants, however, have not demonstrated any
relationship between the proffered evidence that no down payment
financing was a common practice and the likelihood that Bay Loan
directed Dean Street to falsify paperwork to misrepresent the
existence of down payments that were never made.
The problem with defendants' argument is that no
connection between the common use of 100% financing and the use
of false down payments was ever established.60 That is, for
60 The same problem exists regarding the connection between the
fake down payments and the expert's distinction between
residential and commercial loans. Brandon sought to characterize
the mortgages from Bay Loan as more like commercial than consumer
loans and thus subject to different standards and policies.
Specifically, he sought to show that 100% financing was normal
for commercial loans and to counter the allegedly critical
contention that residential loans typically require down
payments. This is basically the same type of evidence as the
testimony that 100% financing was customary in the industry.
That is, a showing that Bay Loan's mortgages were commercial
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the evidence to be relevant, there must be some reason to believe
that 100% financing, or no down payment financing, is customarily
provided in conjunction with paperwork showing fake down
payments. A no down payment custom does not establish a fake
down payment custom. The defendants lack, therefore, any
foundation that would make the proffered evidence relevant.
"'Trial judges have wide discretion in deciding whether
an adequate foundation has been laid for the admission of
evidence.'" Veranda Beach Club Ltd. Partnership v. Western
Surety Co., 936 F.2d 1364, 1371 (1st Cir. 1991) (citing Real v
Hogan, 828 F.2d 58, 64 (1st Cir. 1987)); see also United States
v. Young, 804 F.2d 116, 119 (8th Cir. 1986), cert. denied, 482
U.S. 913 (1987). No foundation was laid in this case. Even if
we accept 100% financing was in fact generally common in the
industry and for Bay Loan, it does not follow that Bay Loan's
approval of false down payment transactions is any more likely.
Defendants must provide, for example, some evidence that the
recording of down payments in no down payment transactions was a
common formality, perhaps for accounting, tax or bookkeeping
helps to establish the likelihood that the loans were actually
"no down payment loans." This still leaves us without the
missing foundational link -- that no down payment financing is
somehow associated with falsified down payments.
In response to Brandon's claim that the government proved its
case by showing the transactions deviated from the norm, we note
that the relevant norm is not 100% versus 80% financing but the
standard method of representing down payments, or lack thereof,
in loan transactions. Proof of a no down payment norm does not
establish a fake down payment norm.
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purposes,61 or for the convenience of some interested party.
If such evidence existed, then maybe a sufficient foundation
would exist for the relevance of 100% financing. However, no
such foundation is evident in the record.
What defendants were really trying to show is that the
bank or its officials were themselves perpetrating some sort of
fraud and the defendants were unwittingly caught up in it. This
assertion, however, also lacks foundational support. The
defendants want the proffered evidence to establish that Bay Loan
was in the practice of providing 100% financing and thus likely
to be providing 100% financing in this case as well, regardless
of whether such financing involved fake down payments, kickbacks
or fraudulent paperwork. This formulation, however, obscures the
real issue: if Bay Loan intended to provide 100% financing, or if
defendants thought down payments were waived, why did they have
to take actions to falsify down payments? To satisfy this
requisite foundational question, the defendants had to show
either that, (1) officials at Bay Loan stood to reap some
personal gain by offering loans with no down payments in
violation of the bank's requirements and thus needed to falsify
61 Brandon claims that Bay Loan directed him to falsify down
payments so that the bank could package the commercial loans as
residential loans. Were his claim true, however, it would not
make the common practice of providing commercial loans, and the
100% financing such loans allegedly involve, any more relevant to
the issue of why the falsification of down payments is
justifiable. Still lacking is some indication that the common
practice of lending money without down payments makes it more
likely that the bank would find it necessary to mischaracterize
loans and consequently direct Dean Street to produce false down
payment paperwork.
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down payments to hide the violation from bank superiors; or (2)
the bank as a whole stood to reap some gain by lending money
under false pretenses, perhaps to deceive their creditors,
shareholders, or regulators.62 In the absence of some evidence
supporting these two propositions, the custom of 100% financing
or the characterization of the loans as commercial as opposed to
residential does not make Bay Loan's approval of fraudulent down
payments any more likely to be true. Again, the foundational
link is simply missing.
The excluded evidence is similarly irrelevant to
defendants' lack of knowledge or intent to defraud Bay Loan.
Defendants claim that evidence that 100% financing was a standard
practice supports their claim that they did not know or suspect
anything was unusual or illegal about the loan transactions they
participated in. Again, what is at issue is the existence of
falsified down payments. There is no basis for finding that
defendants were more likely to think that their actions to
facilitate the documentation of nonexistent down payments were
somehow legitimate just because 100% financing was customary. To
put it another way, the proffered evidence does not make the
false down payment maneuvers less likely to tip off the
defendants to the illegal nature of the transaction without some
foundation connecting 100% financing to creative down payment
62 Defendants presented evidence that Bay Loan was knowingly
lending in violation of other requirements it imposed, not the
least of which was the requirement that buyers live in the
condominiums they purchased which was impossible given the units
were to be operated as motels.
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paperwork of some kind. Defendants were not engaged in what
appeared to them to be a "no down payment transaction"; they were
doing what appeared to them to be a transaction where a paper
down payment was documented and recorded but not actually paid.
The no down payment custom would only be relevant to intent if
that custom involved something even vaguely similar to this sort
of paper down payment. Because no such foundation exists on the
record, and because we find no abuse of discretion on the part of
the trial court in refusing to allow the jury to assume or infer
that foundation, we uphold the exclusion of the proffered
evidence.63
VIII. PREJUDICE FROM COMMENTS REGARDING DEFENDANTS' ETHNICITY
During the fifth day of trial, the government's main
witness, Marderosian, testified about a comment made by defendant
Landman concerning the religious affinity between Landman and co-
defendant Reisch. Marderosian was describing on direct
examination the arrangement for Reisch to wire down payment money
into buyers' accounts. The arrangement was designed, in part, to
allay Reisch's concern that too much money would be outstanding
between the time he provided funds to the buyers and the time the
funds were returned to him by Dean Street. In reference to a
63 Unlike the cases cited by defendant that have held that a
certain custom or practice in an industry may be relevant to the
defendant's case, United States v. Aversa, 984 F.2d 493 (1st Cir.
1993) (en banc); United States v. Seelig, 622 F.2d 207 (6th
Cir.), cert. denied, 449 U.S. 869 (1980); United States v. Riley,
550 F.2d 233 (5th Cir. 1977), the proffered custom in this case
is unrelated to the alleged illegal activity.
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discussion between Marderosian and Landman,64 the government
asked: "What, if anything did Mr. Landman say to you about
concerns expressed by Mr. Reisch?" Marderosian responded:
Mr. Landman stated to me on one occasion,
I am not sure if it was that occasion,
that Mr. Reisch appeared comfortable
doing it this way and part of the reason
for that, Mr. Landman explained, was that
Mr. Landman was involved and he was
Jewish and Mr. Reisch was Jewish and that
the level of comfort shouldn't be
underestimated by me.
Defendants did not immediately object to this statement
after it was made; however, Reisch's attorney moved to dismiss
later that same day. The judge denied the motion and also denied
later defense motions for a mistrial. Defendants argue that the
testimony invited the jury to make the impermissible inference
that members of the same religion would be more likely to trust
each other and join in a conspiracy and also that the testimony
may have provoked anti-Semitic feelings among jurors. When
defendants first raised their objections, the trial judge asked
counsel what they wanted him to do and the judge offered to try
and ferret out any possible anti-Semitism on the jury. Counsel's
only request was for dismissal. Counsel did not request further
questioning of the jury on this matter and expressed displeasure
64 Marderosian's testimony about Landman's statement properly
falls under the co-conspirator exception to the hearsay rule,
Fed. R. Evid. 801(d)(2)(E), because the evidence clearly
establishes beyond a preponderance of the evidence that
Marderosian, Landman and Reisch were all members of the
conspiracy and the statement was made during the course of and in
furtherance of the conspiracy. See United States v. Angiulo, 897
F.2d 1169, 1201-02 (1st Cir.), cert. denied, 498 U.S. 845 (1990).
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with the possibility of providing curative instructions because
"instructions would only magnify the problem."
Under these circumstances, we do not think that the
trial court's actions constitute reversible error despite the
possible inappropriateness of the testimony. The level of
prejudice, if any, was not sufficiently significant to overturn
the judge's decision to accept the defendants' tactical choice to
forgo more appropriate methods of addressing the potential
prejudice in favor of the unrealistic and unnecessary solution of
a dismissal or a new trial. Cf. United States v. De La Cruz, 902
F.2d 121, 124 (1st Cir. 1990) (noting the reluctance of this
court to require trial judges to override plausible strategic
choices on the part of counsel in the context of remedying
potential prejudice); United States v. Goldman, 563 F.2d 501, 505
(1st Cir. 1977), cert. denied, 434 U.S. 1067 (1978) (refusing to
reverse verdict in trial with prejudicial references to religion
because the trial judge gave curative instructions).
The prejudicial effect of Marderosian's statement
appears quite limited. The reference to defendants' Judaism was
the only such mention of religion at trial. It amounted to one
brief sentence in nineteen days of testimony and argument. There
was no subsequent reference to the challenged testimony nor did
the government use the issue of religious affinity in its closing
argument. The inference of Jewish affinity was not, as defendant
Landman claims, central to the government's case. The basis of
Landman's agreement to participate in the conspiracy was not his
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promise to protect the interests of Reisch but his agreement with
Marderosian and Brandon to facilitate the unit sales without down
payments. As discussed above, see Section IV.B.6, the record
contains sufficient facts regarding Landman's actions and
statements made by, and to, him to support his knowledge and
participation in the conspiracy. None of these facts have
anything to do with Landman's supposed religious affinity with
Reisch.65 Likewise, the evidence against Reisch centers around
his agreement with Brandon to provide money to the scheme and not
around his relationship with Landman. In fact, Landman was
acquitted by the jury on two bank fraud counts that involved the
funding of down payments by Reisch in which Landman conducted the
closings. This indicates that the jury was not prejudiced and did
not rely on the disputed testimony in its verdict.
Nothing like the serious prejudicial circumstances
found in United States v. Rodr guez Cort s, 949 F.2d 532 (1st
Cir. 1991) (finding reversible error from ethnically prejudicial
evidence), exists in this case. In Rodr guez Cort s, the
district court had found a defendant's Colombian identification
card admissible based on the impermissible assumption that
Colombians were more willing to trust fellow Colombians than
anyone else, and therefore, defendant was likely to be involved
65 There is also sufficient testimony, quite apart from the
disputed comment, that Landman agreed to look after Reisch's
interests. Marderosian testified that Reisch told Landman that
"he wanted Mr. Landman to look out for his interest to protect
his money to the extent possible." Landman later told
Marderosian "he would try to protect Mr. Reisch to the extent
possible."
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with his Colombian co-defendants. Id. at 540. This connection
was emphasized in the government's closing argument. Id. at 541.
Here, there was no objection to the relevancy of Marderosian's
statement and thus no ruling based on an impermissible inference.
The judge recognized the potential for prejudice and offered to
take steps to rectify the problem. More importantly, the
government did not invoke any inferences based on religious
affinity in its final argument before the jury. Similarly,
United States v. Cruz, 981 F.2d 659 (2d Cir. 1992), and United
States v. Doe, 903 F.2d 16 (D.C. Cir. 1990), are distinguishable
from the present case because those cases involved the
government's explicit use of the impermissible reasoning, upon
extensive direct examination and on summation, for crucial parts
of its theory of the case.
Defendants suggest there was an element of
prosecutorial misconduct in eliciting the disputed testimony from
Marderosian. Marderosian had made a similar statement about
defendants' Judaism when he testified before the grand jury and
the pattern of questioning prior to Marderosian's statement at
trial could be construed as an attempt to elicit the same
testimony from him a second time. At the bench conference with
the judge, the prosecutor denied knowing beforehand that
Marderosian would make the comment about defendants' religion and
claimed to have instructed Marderosian to limit his testimony to
the fact that Landman said Reisch felt comfortable with the
arrangement. While the circumstances are somewhat troubling, we
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do not find sufficient evidence of prosecutorial misconduct to
reverse the verdicts in this case, especially in light of the
absence of any reference to the religious comment in the
government's summation. Compare Goldman 563 F.2d at 504-05(prosecutor, on summation, referred to fact defendant was wearing
"what they call in the Jewish religion a yamaka [sic]" and that
the symbol he was wearing "has been defamed, defiled and
scandalized").
IX. JURY INSTRUCTIONS
Defendants make three challenges to the jury
instructions in this case.66 They allege that the trial judge
failed to provide proffered instructions concerning the required
proof of intent for conspiracy and the possibility of multiple
conspiracies. They also argue that it was error for the judge to
give an instruction concerning willful blindness.
66 Defendant Granoff makes an additional argument that the trial
judge erroneously failed to instruct the jury that they must find
that defendants knew of Bay Loan's federally insured status and
that defendants knew Bay Loan was the target of the scheme to
defraud. Because we found that neither of these elements were
required for a conviction under the bank fraud statute, see supra
Section IV, the trial court did not err in refusing to give the
proffered instructions.
The trial judge was thus correct in instructing the jury that:
it is not necessary for the Government to
prove that the Defendant knew the
identity of the particular financial
institution or that the Defendant knew
that that institution was Federally
chartered or insured. . . . It must,
however, prove that the Defendant
intended to defraud a financial
institution.
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A. The Direct Sales Conspiracy Instruction
The defendants proffered a jury instruction67 based
on the rule derived from Direct Sales Co. v. United States, 319
U.S. 703, 711, 713 (1943), that one who supplies goods to another
knowing that the recipient will use them for an illegal purpose
cannot, on that basis alone, be found guilty of conspiring with
the recipient. Rather, for the supplier to be culpable, he or
she must have the intent to further, promote, and cooperate in
that illegal purpose. Id.; United States v. Falcone, 109 F.2d
579, 581 (2d Cir.), aff'd., 311 U.S. 205 (1940). The district
court did not give the defendants' proffered instruction but
instead instructed the jury that "to be a member of a conspiracy,
a Defendant must have willfully joined it or participated in it
67 The instruction stated, in pertinent part:
You are instructed that a person who may
have furnished goods, money or services
to another person who he knows is or will
be engaged in criminal activity . . .
does not by furnishing such goods, money
or services necessarily become a member
of the conspiracy. Instead, . . . the
government must show beyond a reasonable
doubt that the defendant was aware of the
conspiracy and knowingly and voluntarily
joined it with the intent of furthering
its illegal aims.
To reiterate, it is not enough that the
Government prove that a particular
defendant acted in a way that furthered
the purposes or objectives of the
conspiracy. Instead the Government must
prove beyond a reasonable doubt that the
defendant acted while knowing of the
unlawful agreement and with the intention
to participate in it.
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for the purpose of advancing or furthering its unlawful
purposes." The court also stated that the government must prove
each defendant's "intent to participate in the unlawful scheme."
Defendants argue that this instruction inadequately addressed the
intent requirement laid out in Direct Sales and Falcone.
The trial court's failure to give a proffered
instruction will not be reversed unless that instruction is (1)
substantively correct; (2) was not substantially covered in the
charge actually given; and (3) concerned an important point such
that the failure to give it seriously undermined the defendant's
ability to present a particular defense. United States v.
McGill, 953 F.2d 10, 13 (1st Cir. 1992); United States v.
Perkins, 926 F.2d 1271, 1283 (1st Cir. 1991). In this case,
defendants fail to get past the second prong of the test.
The district court's instruction, which states that a
defendant must have "the purpose of advancing or furthering" the
unlawful purpose of the conspiracy, substantially covers the
substance of defendant's proffered instruction. The judge also
informed the jury that defendant had to "willfully join[]" the
conspiracy, that defendant had to have both the intent to agree
to join the conspiracy and the specific intent to commit bank
fraud, and that defendant had to have the intent to participate
in the unlawful scheme. All of these instructions together more
than adequately address the requirements of Direct Sales and
Falcone that defendant must join the conspiracy with the specific
intent to accomplish its illegal purpose. See United States v.
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Arias-Santana, 964 F.2d 1262, 1268 (1st Cir. 1992) (finding no
error where jury charge covered the substance of defendant's
requests); McGill, 953 F.2d at 12-13 (same). We have upheld the
adequacy of nearly identical instructions in the past. See
United States v. Hensel, 699 F.2d 18, 37-38 (1st Cir. 1983).
The defendants focus on the fact that the trial judge
did not explicitly state that mere knowledge by the defendant
that the goods he or she provides to a conspiracy will be used
illegally is not sufficient to prove an intent to join the
conspiracy. This instruction, defendants allege, is necessary to
properly define "intent to participate" or "intent to join" a
conspiracy. Without an expression of the innocent case, they
add, the instructions leave open the door for the impermissible
inference that a defendant can be guilty of conspiring to defraud
Bay Loan simply by providing money to Dean Street knowing it
would be used illegally. Defendants claim that because the murky
distinction between lawful cooperation and illegal participation
is especially close in this case, the district court had a
special obligation to be clear.
In some situations, this type of "negative" Direct
Sales instruction might be required, but we see nothing in the
facts of this case that makes the distinction between simply
knowing of the illegal nature of the scheme and agreeing to
further the scheme particularly crucial to the defense. The
central defense of most defendants was that they did not know
that Dean Street was doing anything illegal in obtaining the
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loans. Once knowledge of illegality is established, the evidence
of defendants' participation, as opposed to merely providing
goods and services to the conspiracy, is overwhelming and not, as
defendants assert, a close call. See supra Section IV.
In any event, we think the trial court's instructions
were quite clear that (1) "[i]n order to be a member of a
conspiracy, a Defendant must have willfully joined it or
participated in it for the purpose of advancing or furthering its
unlawful purpose"; and (2) that defendant must have both an
intent to agree to join the conspiracy and the specific intent to
commit bank fraud. These instructions adequately defined the
requisite "intent to participate" and foreclosed any inference
that knowingly providing goods to a criminal enterprise is itself
sufficient to support a finding of intent to join the conspiracy.
The trial court need not employ the most elegant or concise
phraseology nor must it incorporate the precise language of
defendants' request as long as the instructions taken as a whole
"accurately communicated the meat of the defense's theory."
McGill, 953 F.2d at 12. In this case, the court's instructions
adequately communicated the defendants' theory that mere
knowledge and assistance, without an intent to further the
enterprise, is not enough.
B. Instruction On Multiple Conspiracies
The defendants also challenge the trial court's refusal
to instruct the jury as to the possibility of multiple
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conspiracies.68 Such an instruction was warranted, they claim,
because the evidence indicated that different defendants had
different relationships with Dean Street and were involved in
separate schemes. Although the judge may have erred in refusing
to charge multiple conspiracies, we find insufficient prejudice
to warrant a reversal of the convictions.
A trial court should grant a defendant's request for a
multiple conspiracy instruction if, "on the evidence adduced at
trial, a reasonable jury could find more than one such illicit
agreement, or could find an agreement different from the one
charged." United States v. Boylan, 898 F.2d 230, 243 (1st Cir.
1990); see also United States v. Dennis, 917 F.2d 1031, 1033 (7th
Cir. 1990); United States v. Dwyer, 843 F.2d 60, 61-62 (1st Cir.
1988). As it is highly likely that the voluminous and complex
record in this case, viewed in the light most favorable to the
68 The defendants' proffered instruction stated in part:
Where persons have joined together to
further one common unlawful design or
purpose, a single conspiracy exists. By
way of contrast, multiple conspiracies
exist when there are separate unlawful
agreements to achieve distinct purposes.
. . . .
In deciding whether a single overall
conspiracy as charged in the indictment
has been proven beyond a reasonable doubt
you should look at whether there were
multiple agreements reached, whether
there were additions or withdrawals of
alleged conspirators, and most
significantly, whether the evidence shows
beyond a reasonable doubt that all of the
alleged conspirators directed their
efforts toward the accomplishment of a
common goal or overall plan.
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defendants, would allow for a plausible conclusion that more than
one conspiracy took place, we start from the assumption that the
trial court erred in its failure to give the multiple conspiracy
instructions. Our task, then, is to determine if the degree of
prejudice from the possible error necessitates a reversal. We
find that it does not.
We will reverse a court's erroneous refusal to give a
substantively correct instruction only when that instruction
concerned an important point such that the failure to give it
seriously undermined the defendant's ability to effectively
present a given defense. United States v. McGill, 953 F.2d 10,
13 (1st Cir. 1992); United States v. Perkins, 926 F.2d 1271, 1283
(1st Cir. 1991). In the context of alleged multiple
conspiracies, the defendant's main concern is that jurors will be
misled into attributing guilt to a particular defendant based on
evidence presented against others who were involved in a
different and separate conspiratorial scheme. Dwyer, 843 F.2d at
62; United States v. Flaherty, 668 F.2d 566, 582 (1st Cir. 1981).
The prejudice we must guard against, therefore, is evidentiary
spillover resulting from trying defendants en masse for distinct
and separate offenses committed by others. Kotteakos v. United
States, 328 U.S. 750, 756-77 (1946); see also Blumenthal v.
United States, 332 U.S. 539, 558-60 (1947).
We find the risk of evidentiary spillover to be
significantly limited in this case because we fail to see which,
if any, pieces of evidence would not be relevant to and
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admissible against any of the defendants individually. Although
the record does not foreclose the possibility of multiple
conspiracies, the evidence convincingly indicates the existence
of a single, unified conspiracy in which all the defendants
participated. Thus, all of the evidence would have been
available to the jury for consideration of the government's
single conspiracy claim against each defendant regardless of the
possibility of multiple conspiracies.
Determining the number of conspiracies in a particular
case depends on a variety of factors including the "nature,
design, implementation, and logistics of the illegal activity;
the participants' modus operandi; the relevant geography; and the
scope of coconspirator involvement." Boylan, 898 F.2d at 241;
United States v. Rivera-Santiago, 872 F.2d 1073, 1079 (1st Cir.),
cert. denied, 492 U.S. 910 (1989). A single conspiracy exists
where the totality of the evidence demonstrates that "'all of the
alleged co-conspirators directed their efforts towards the
accomplishment of a common goal or overall plan.'" Boylan, 898
F.2d at 242 (quoting United States v. Drougas, 748 F.2d 8, 17
(1st Cir. 1984)); United States v. Bello-P rez, 977 F.2d 664,
667-68 (1st Cir. 1992).
The conspiracy in this case consisted of a scheme to
obtain financing for a condominium project by falsely
representing the existence of down payments that were never made.
Although some of the details and tactics changed throughout the
scheme, the main objective, structure, intended victim, and modus
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operandi remained constant: the continuous recruitment of unit
buyers to submit loan applications to Bay Loan in which the down
payments were falsified in order to fraudulently avoid the bank's
down payment requirement, followed by the disbursement of Bay
Loan's loan proceeds to Dean Street. Defendants all worked
together interdependently to further the entire scheme. Hagopian
and Ward recruited buyers, Gauvin, Granoff and Reisch provided
the buyers with down payment funds, Kumalae and Landman
facilitated the fraudulent representation of the down payments,
and Brandon coordinated the entire conspiracy. With the
exception of Gauvin and Granoff, all of the defendants played
essentially the same role throughout the entire operation of the
conspiracy.69 Gauvin and Granoff stopped providing down
payment funds after Brandon stopped giving them their money back;
however, negotiations between Brandon and the two continued until
the scheme ended. Regardless, the cessation of Gauvin's and
Granoff's funding did not represent the end of one conspiracy and
the beginning of a second one but a snag in the ongoing operation
of the single conspiracy. See United States v. Aracri, 968 F.2d
1512, 1522 (2d Cir. 1992) (finding acrimony among participants of
conspiracy consistent with single conspiracy).
Defendants' arguments for distinguishing different
conspiracies have all been previously rejected and none of the
factors they highlight indicates the existence of multiple
69 Hagopian and Ward joined the scheme just two months after the
first condominium sales.
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conspiracies. The presence of different methods of falsifying
the down payments -- e.g., recycled funds, nonnegotiated checks,
dischargeable mortgages -- does not create separate conspiracies.
See, e.g., Aracri, 968 F.2d at 1521-23; United States v. Aponte-
Su rez, 905 F.2d 483, 486-88 (1st Cir.), cert. denied, 498 U.S.
990 (1990); United States v. Crosby, 294 F.2d 928, 945 (2d Cir.
1961), cert. denied, 368 U.S. 984 (1962). This is especially
true because the various methods were used interchangeably and
often simultaneously in furtherance of an identical objective.
Likewise, the differing relationships various defendants had with
the head conspirator, Brandon, does not signify that multiple
conspiracies existed. See United States v. Bello-P rez, 977 F.2d
664, 668 (1st Cir. 1992); United States v. Townsend, 924 F.2d
1385, 1389 (7th Cir. 1991) ("The crime of conspiracy focuses on
agreements, not groups.").70 The fact that different
defendants were involved in separate transactions for the
purchase of different properties at different motels is not
significant so long as there is a single continuing plan. See
Boylan, 898 F.2d at 242; Drougas, 748 F.2d at 8; United States v.
70 The present conspiracy is not, as defendants allege, the type
of conspiracy discussed in Kotteakos, 328 U.S. at 753-55, where
different conspirators had separate and independent relationships
with the hub conspirator and were thus separate spokes on a
rimless wheel. Here, all the defendants were part of an
integrated, interdependent scheme in which each defendant
depended upon and was connected to the others. The scheme could
not function without a steady stream of new buyers recruited by
Hagopian and Ward. New buyers were useless, however, unless they
could get down payment funds provided by Gauvin, Granoff, and
Reisch. In turn, down payment funds could not be properly
recycled or falsified to defraud the bank unless Landman and
Kumalae facilitated the transactions.
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Kelley, 849 F.2d 999, 1003 (6th Cir.), cert. denied, 488 U.S. 982(1988). Finally, the fact that Dean Street was engaged in other
licit and illicit commercial enterprises does not relate to the
present case against defendants and is irrelevant.
Almost all aspects of the government's case describing
the scheme to defraud Bay Loan were relevant to each defendant's
respective role in the conspiracy. Thus, we see no risk that the
jury based a defendant's conviction on evidence relating to an
unrelated offense. The lack of prejudice is underscored by the
fact that ample evidence was presented against each individual
defendant based on each defendant's actions and statements. See
supra Section IV. The jury did not need to rely on evidence
relating specifically to other defendants in order to convict.
In addition, the judge repeatedly cautioned the jury to assess
the evidence separately against each defendant.71 See Boylan,
898 F.2d at 244 (finding similar instructions contributed to
protecting defendant's rights).
C. Willful Blindness Instruction
71 The district court also told the jury to determine each
charge against each defendant based only on the evidence against
that defendant on that charge. More significantly, the judge
also cautioned the jury:
to consider only the evidence regarding
that Defendant's actions or the actions
of individuals belonging to a conspiracy
to which that Defendant also belonged.
That is to say, it would be improper to
return a guilty verdict with respect to a
Defendant based on evidence relating to
acts committed by someone belonging to a
conspiracy of which the Defendant was not
a member.
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The district court instructed the jury that "in
deciding whether a Defendant acted knowingly, you may infer
knowledge of a fact if you find beyond a reasonable doubt that
the Defendant deliberately closed his or her eyes to a fact that
otherwise would have been obvious to that Defendant."72 The
evidence supporting this instruction related only to defendant
Landman but the instruction was given generally for all
defendants without any mention of Landman's name. Defendants
claim the instruction was reversible error because it was not
applicable to this case and because it caused the jury to convict
defendants without finding sufficient evidence of knowledge
beyond a reasonable doubt.
We find, first of all, that the instruction was
72 The rest of the court's willful blindness instruction stated:
In order to infer knowledge, you must
find that two things have been
established.
First, that the Defendant was aware of a
high probability of the fact in question.
And second, that the Defendant
consciously and deliberately avoided
learning of those facts. That is to say,
that the Defendant willfully made himself
blind to those facts. It is entirely up
to you to determine whether a Defendant
deliberately closed his or her eyes to
the facts and, if so, what inference, if
any, should be drawn.
However, it is important to bear in mind
that mere negligence or mistake in
failing to learn the facts is not
sufficient. There must be a deliberate
effort to remain ignorant of the facts.
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appropriate and accurate as to defendant Landman; hence, no error
was made in his case. The trial court may instruct the jury
concerning willful blindness when a defendant claims a lack of
knowledge, the facts support an inference of defendant's
conscious course of deliberate ignorance, and the instruction,
taken as a whole, cannot be misunderstood by a juror as mandating
the inference of knowledge. United States v. St. Michael's
Credit Union, 880 F.2d 579, 584 (1st Cir. 1989); United States v.
Picciandra, 788 F.2d 39, 46 (1st Cir.), cert. denied, 479 U.S.
847 (1986). More specifically, the instruction is proper when
there is evidence to "support the inference that the defendant
was aware of a high probability of the existence of the fact in
question and purposely contrived to avoid learning all of the
facts in order to have a defense in the event of a subsequent
prosecution." United States v. Rivera, 944 F.2d 1563, 1571 (11th
Cir. 1991) (citing United States v. Alvarado, 838 F.2d 311, 314
(9th Cir. 1987), cert. denied, 487 U.S. 1222 (1988)).
The core of Landman's defense as argued at trial was
that he was simply doing his job as an escrow agent in receiving
and dispersing funds at the direction of Dean Street and that he
did not know that the transactions he was involved in were
illegally defrauding the bank.73 As discussed in Section IV,
73 Landman made this argument in various motions before the
judge and before the jury which satisfies the first requirement
that the defendant claim a lack of knowledge. It is not the
case, as Landman argues, that a defendant must testify or present
evidence indicating a lack of knowledge before a willful
blindness instruction can be deemed appropriate. See United
States v. Lizotte, 856 F.2d 341, 343 (1st Cir. 1988).
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sufficient evidence exists that Landman knew down payments were
required. The evidence also supports the conclusion that Landman
knew about the scheme to fraudulently represent the existence of
down payments.74 However, on cross-examination, the defense
attempted to impeach Marderosian's testimony that he told Landman
about the dischargeable second mortgages to be given to the
buyers which called into question a key piece of evidence
regarding Landman's knowledge. There was, nevertheless, evidence
that Landman tried to avoid learning of particular buyers' use of
dischargeable mortgages for their down payments. During several
closings Landman was asked by buyers about the second mortgages.
On one occasion, he told the buyer that he "didn't want to know
anything about it." At other times, Landman gestured in a way
that one buyer described as trying to say "not in front of me."
This evidence is sufficient to support the district
court's willful blindness instruction. The attempt to avoid
discussion of dischargeable mortgages with the buyers can be
interpreted as a "pattern of behavior predicated upon a knowledge
of the conspiracy together with a desire to limit inculpatory
evidence of complicity." United States v. Ciampaglia, 628 F.2d
632, 643 (1st Cir.), cert. denied, 449 U.S. 956, 1038 (1980).
74 We reject the argument that proof of direct knowledge
precludes a willful blindness instruction that is otherwise
appropriate. As long as separate and distinct evidence supports
a defendant's deliberate avoidance of knowledge and the
possibility exists that the jury does not credit the evidence of
direct knowledge, a willful blindness instruction may be
appropriate. See Lizotte, 856 F.2d at 343; United States v.
Ochoa-Fabi n, 935 F.2d 1139, 1142 (10th Cir. 1991), cert. denied,
112 S. Ct. 1565 (1992).
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The actual instructions given by the district court were proper
and cannot be misunderstood as mandating an inference of
knowledge. See St. Michael's, 880 F.2d at 585 (finding similar
language proper); United States v. Ochoa-Fabi n, 935 F.2d 1139(10th Cir. 1991), cert. denied, 112 S. Ct. 1565 (1992) (same);
United States v. Hiland, 909 F.2d 1114, 1130 (8th Cir. 1990)
(same). Significantly, the court said the jury "may infer
knowledge" (emphasis added) and that it was "entirely up to" the
jury to find deliberate blindness. See Ciampaglia, 628 F.2d at
642.75
Unlike the case against Landman, the evidence did not
warrant a willful blindness instruction for the other seven
defendants. This left the trial judge with a difficult decision.
He could either, (1) give no willful blindness instruction even
though it was warranted; (2) give the instruction only for
defendant Landman and thus highlight the evidence against him; or
(3) give a general instruction for all the defendants. We do not
think the judge erred by choosing the third option.
75 The holding in United States v. Mankani, 738 F.2d 538, 547 &
n.1 (2d Cir. 1984) does not apply in this case. First of all, at
most, Mankani stands for the specific proposition that a
"conscious avoidance" instruction cannot be used to establish
membership in a conspiracy and not the more general proposition
that the instruction is never proper in a conspiracy case. The
willful blindness instruction in this case had to do with the
finding that "defendant acted knowingly" and not with a finding
that defendant willfully joined the conspiracy. In any event, to
the extent our holding in this case differs from that in Mankani,
we agree with the Seventh Circuit that a willful blindness
instruction can be permissible with respect to a conspiracy
charge. United States v. D az, 864 F.2d 544, 549 (7th Cir.
1988), cert. denied, 490 U.S. 1070 (1989) (citing United States
v. Kehm, 799 F.2d 354, 362 (7th Cir. 1986)).
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Assigning error to the district court's decision to
give the general instruction puts the court in an impossible
position because the government is entitled to the willful
blindness instruction as to Landman and the judge is entitled in
turn to give an instruction that would not turn the spotlight on
a single defendant. On the facts of this case, we are satisfied
that the jury could be expected to apply the instruction properly
to defendants whose conduct arguably calls for that application
and not randomly or recklessly to defendants who do not deserve
the instruction. It is common during multi-defendant trials for
the court to give a number of boilerplate instructions --
concerning, for example, a missing witnesses, accomplice
liability, or withdrawal from the conspiracy -- that are
pertinent, on particular facts, to only one defendant and not to
the others. The instruction in this case is similar in many
respects to these other instructions and is equally appropriate
given the risk of prejudice to the other defendants is low. We
do not exclude the possibility that, on particular facts, it
might so mislead a jury to give a general instruction, rather
than one tailored to a specific defendant or rather than no
instruction at all, as to be an abuse of discretion, but we
emphasize that judgments of this kind are primarily entrusted in
the trial judge who inevitably has a superior feel for the
dynamics of the trial and the likely reaction of the jury.
The danger of an improper willful blindness instruction
is "'the possibility that the jury will be led to employ a
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negligence standard and convict a defendant on the impermissible
ground that he should have known [an illegal act] was taking
place.'" United States v. Littlefield, 840 F.2d 143, 148 n.3
(1st Cir.), cert. denied, 488 U.S. 860 (1988) (quoting United
States v. White, 794 F.2d 367, 371 (8th Cir. 1986)) (additional
citation omitted). In this case, as in Littlefield, 840 F.2d at
147-48, the willful blindness instruction clearly had little, if
any, effect on the jury's verdict. First of all, unlike those
cases where insufficient facts were present to support any
willful blindness instruction at all, see, e.g., United States
v. Barnhart, 979 F.2d 647, 651-53 (8th Cir. 1992); United States
v. Alvarado, 838 F.2d 311, 316 (9th Cir. 1987), cert. denied, 487
U.S. 1222 (1988), this case involved an instruction that was
proper for at least one defendant. The jury had an opportunity
to correctly apply the instruction and was less likely to
improperly consider a defendant's willful blindness in
conjunction with facts that only supported that defendant's
direct knowledge, or complete lack of knowledge. Thus, there was
little risk that the jury was confused into convicting a
defendant who merely should have known about the criminal
venture. See United States v. D az, 864 F.2d 544, 551 (7th Cir.
1988); see also Rivera, 944 F.2d at 1570-71.
In addition, the instructions properly and clearly
directed the jury not to find knowledge based on mere negligence
and extensively instructed the jury as to the requirements for
finding knowing participation in the conspiracy and knowing
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execution of bank fraud. See Littlefield, 840 F.2d at 147-48;
D az, 864 F.2d at 551. The court instructed the jury that "mere
negligence or mistake in failing to learn the facts is not
sufficient" and that a defendant's willful ignorance had to be
deliberate beyond a reasonable doubt. Throughout the
instructions, the court told the jury that the government had to
prove each and every element of the offenses, including those
elements requiring knowledge, beyond a reasonable doubt. For
example, knowing participation in the scheme to defraud required
the actions of each defendant to be "done voluntarily and
intentionally and not because of mistake or accident or some
other innocent reason." The court was clear that to prove
participation in a conspiracy, the government must show that a
"defendant knew of the existence of the conspiracy and its
unlawful purpose" and the court added that "knowledge and
willfulness like all of the other elements of a crime must be
established beyond a reasonable doubt." Twice the district court
explained that actual proof of knowledge was essential "to insure
that no one will be convicted for an act that he or she did not
intend to commit or the nature of which he or she did not
understand."
The instructions, taken as a whole, went a long way
toward curing any possible prejudice that may have resulted from
the willful blindness instruction. As evidence of this, the jury
delivered verdicts that demonstrated it was not confused or
affected by the willful blindness instruction. Three defendants
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were acquitted on multiple bank fraud counts and a fourth was
acquitted on one count of bank fraud. Defendant Landman was
acquitted on one count in which the principal witness testified
that Landman did not want to know about the second mortgage
discharges. Thus, it appears that the jury declined to apply the
willful blindness instruction when it was given the first clear
opportunity to do so. We therefore find no error in the court's
decision to give a general willful blindness instruction.
X. REHEARING OF TESTIMONY BY THE JURY
Defendant Gauvin assigns error to the district court's
failure to read back certain testimony to the jury in response to
the jury's request. Four days into the jury's deliberations, the
jury asked to rehear several areas of testimony. One jury
request stated: "We would also like to review the testimony of
Mr. Marderosian concerning a meeting in which Mr. Gauvin,
Mr. Granoff and Mr. Brandon discussed the purchase of Pidge and
Meeting Street." As several references were made to Pidge and
Meeting Street it was not clear which discussion the jury was
referring to. The court and the attorneys spent nearly two days
trying to cull together the parts of the transcript that related
to all of the requested subject matter. At one point, the court
suggested, and the prosecutor later argued, that the entire
transcript of Marderosian's testimony should be provided to the
jury, but counsel for Granoff objected to this suggestion.
The court read to the jury a portion of Marderosian's
testimony relating to Pidge and Meeting Street and to a meeting
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where the Pidge project was discussed. Against the objection of
Gauvin's counsel, the court stopped reading the transcript just
before testimony concerning additional meetings relating to the
same deal as the one involving Pidge and Meeting Street but not
specifically mentioning Pidge or Meeting Street. We find no
abuse of discretion in the trial judge's decision not to read
additional portions of the transcript.
The decision to reread testimony rests entirely upon
the trial court's sound discretion. United States v. Akitoye,
923 F.2d 221, 226 (1st Cir. 1991); United States v. Argentine,
814 F.2d 783, 787 (1st Cir. 1987) (citing United States v.
Almonte, 594 F.2d 261, 265 (1st Cir. 1979)). The exercise of
that discretion should not be disturbed absent good reason.
Argentine, 814 F.2d at 787.
In this case, the trial judge, with advice of counsel,
reviewed the record for two days in order to locate material
responsive to the jury's request. Faced with a request for
testimony relating to a meeting discussing "Pidge and Meeting
Street" and faced with multiple references to Pidge and Meeting
Street in the record, the judge decided to read testimony
concerning a meeting where Pidge was mentioned but not to read
testimony relating to a subsequent meeting in which Pidge and
Meeting Street were not mentioned. We find this decision to be
appropriately within the judge's discretion.
The fact that the omitted testimony concerned the same
deal as the one involving Pidge and Meeting Street and the fact
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that it also contained some discussion of down payment
arrangements does not suggest any abuse of discretion. First of
all, to the extent the omitted testimony is crucial to Gauvin's
defense, as he claims, we find the testimony to be more
inculpatory in nature than exculpatory.76 More importantly,
the judge was attempting to respond appropriately to a jury
request that turned out to be far from narrowly focussed. See
76 The omitted testimony included the following:
A. Mr. Brandon explained to Mr. Gauvin
and Mr. Granoff that Homeowners required
a twenty-five percent down payment and
while that down payment would not be
required of Mr. Gauvin and Mr. Granoff,
he did have the problem of the down
payment with subsequent purchasers and he
asked Mr. Gauvin and Mr. Granoff for
their assistance in meeting that problem.
Q. What, if anything did Mr. Gauvin
respond?
A. Mr. Gauvin, as I recall, initially,
didn't quite understand what Mr. Brandon
wanted and after further explanation,
Mr. Gauvin responded that he might be
interested under some circumstances in
helping out.
Q. What about Mr. Granoff?
A. I believe Mr. Granoff indicated his
consent also.
Defendant Gauvin claims this testimony was crucial to his
defense because it corrects a mischaracterization in the
government's closing argument about what Marderosian said about
the down payments. Defense counsel explicitly told the jury to
review the testimony regarding the alleged mischaracterization.
We have some doubts, given the request for a meeting concerning
"Pidge and Meeting Streets," that this particular request was
related to the issue of the alleged mischaracterization. In any
event, we find no abuse of discretion in the judge's decision
that the omitted material was not what the jury was looking for.
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Akitoye, 923 F.2d at 226. The extra burdens on the court created
by rehearing testimony is relevant to judging the reasonableness
of the court's refusal to read back testimony to the jury. See
id. If the trial judge had searched for all the testimony
related to the deal involving Pidge and Meeting Street or all the
discussions of down payment arrangements for that deal, the judge
would have had to spend considerably more time and effort than he
had already expended. Such extra effort was not required.
XI. REFUSAL TO APPOINT PARALEGAL FOR BRANDON
Defendant Brandon alleges that the trial court's denial
of his request for a court-appointed paralegal denied him his due
process right to present a defense. Prior to the indictment, the
Federal Bureau of Investigation took possession of 137 file boxes
from Dean Street's offices which contained documents kept by Dean
Street. Although Brandon was given complete access to the files,
he claims that without the services of a paralegal he and his
court-appointed attorney were incapable of meaningfully examining
the contents of the files, effectively denying him access to
potentially exculpatory evidence. Brandon and his attorney did
spend four hours one afternoon examining the contents of three of
the file boxes.
Defendant cites Brady v. Maryland, 373 U.S. 83 (1963),
and its progeny for the proposition that his due process rights
were violated. Brady requires the government to disclose any
exculpatory evidence that is "material either to guilt or to
punishment." Brady, 373 U.S. at 87. Before we even reach the
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issue of whether the lack of paralegal services effectively
constituted a failure of the government to disclose evidence, we
must first consider whether the defendant established that the
file boxes contained potentially exculpatory, or even material,
evidence in the first place.
To establish a violation of Brady, a defendant must
provide the court with some indication that the materials to
which he or she needs access contain material and potentially
exculpatory evidence. See United States v. Bagley, 473 U.S. 667,
674 (1985); cf. United States v. Mateos-S nchez, 864 F.2d 232,
240 (1st Cir. 1988) (holding that a Criminal Justice Act rule, 18
U.S.C. 3006A(e)(1), which provides for the provision to
defendants of necessary investigative or other services, requires
a defendant to make at least some showing why the requested
assistance would produce evidence "likely to be pivotal to his
defense"). In his initial request before the trial court and
subsequently on appeal, the defendant speculated that the Dean
Street files might contain exculpatory evidence. Brandon never
presented, however, any supporting evidence or arguments to
indicate this was, in fact, the case. Because Brandon did not
make any showing at all as to the nature of the disputed
materials, we find no error in the court's refusal to appoint a
paralegal for Brandon's defense.
This is not a Catch-22 situation in which defendant
cannot make the initial showing needed to get a paralegal without
first having a paralegal to assist in making the initial showing.
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Instead, the defendant can establish the possible existence of
material and exculpatory evidence by, at the very least,
describing the kinds of documents that might be in files which,
if they were found, might exculpate the defendant.77 At most,
defendant and counsel could have spent a few more afternoons
looking in the files for representative samples of documents that
might be useful to the defense. We do not think this places too
much of a burden on defendant or defendant's counsel.
XII. CUMULATIVE EFFECT OF ERRORS
Defendants argue that the cumulative effect of numerous
alleged errors made before and during the trial deprived them of
a fair trial and enabled the jury to convict despite the lack of
evidence against each individual defendant. Our review of the
record and trial proceedings as a whole does not reveal pervasive
unfairness or any error or combination of errors that deprived
the defendants of due process. See United States v. Barnett, 989
F.2d 546, 560 (1st Cir.), cert. denied, 114 S. Ct. 148 (1993);
United States v. Steffen, 641 F.2d 591, 598 (8th Cir.), cert.
denied, 452 U.S. 943 (1981). We thus conclude that defendants
received a fair trial.
XIII. SENTENCING
77 Brandon posits in his brief that the files may have contained
a letter from Bay Loan acknowledging that no down payments were
required. This example was not pointed out to the trial judge.
Even if the example was presented at trial, however, it would
probably not, by itself, be sufficient to establish the existence
of material exculpatory evidence without some additional
substantiation. Defendant made no claim as to the probability
such a letter exists nor provided an affidavit that he received
such correspondence.
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A. Amount of Loss and Relevant Conduct
Defendants attack the district court's determination
and apportionment of Bay Loan's losses for the purpose of
calculating their sentences under the Sentencing Guidelines.78
The district court set the offense level for each defendant based
on the actual loss to Bay Loan resulting from the scheme to
defraud. See U.S.S.G. 2F1.1; United States v. Haggert, 980
F.2d 8, 11-12 (1st Cir. 1992). The court arrived at a figure of
$11.4 million by reducing the outstanding principal amount of the
fraudulently obtained end loans by, among other things, the value
of the collateral used to secure them. The court then included
the entire amount of the loss in the calculation of each
defendant's offense level under 2F1.1. The resulting total
offense level was set by adding an 11-level increase to the base
offense level because the total loss was over $5,000,000, the
highest point on the loss scale at that time. U.S.S.G.
2F1.1(b)(1).
The defendants first challenge the district court's
valuation of the collateral used to secure the loans. We review
the valuation for clear error. United States v. St. Cyr, 977
F.2d 698, 701 (1st Cir. 1992). Determination of actual loss need
not be precise; "[t]he court need only make a reasonable estimate
of the range of loss, given the available information." U.S.S.G.
2F1.1 comment note 8.
78 The district court applied the 1988 version of the Sentencing
Guidelines and therefore all citations, unless otherwise
indicated, are to that version.
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The court determined the value of the collateral used
to secure the loan after an evidentiary hearing with respect to
the amount of loss. At this hearing, the court heard testimony
by Bay Loan's president and a real estate appraiser called by the
defense. The court also reviewed exhibits containing information
on the value of each of the motel condominiums. Defendants argue
that the $2.7 million dollar figure chosen by the court as the
total value of the collateral (the motels) was improperly based
on a 1991 appraisal as opposed to an earlier 1989 appraisal for
$7.8 million. Defendant seems to argue that the earlier
appraisal is the more accurate one because it was made closer to
the time of the crime and because the latter appraisal is more
likely to be affected by causes not related to the actions of
defendants. Given the evidentiary basis -- a professionally
prepared appraisal -- for the trial court's determination of
loss, however, we do not see any error, let alone clear error, in
the court's decision to choose the lower valuation of the
collateral.
A more significant objection raised by many of the
defendants is that the court improperly assigned to each of them
the entire value of the loss regardless of their degree of
participation in the scheme to defraud Bay Loan. The Guidelines
provide that for conspiracy convictions, relevant conduct
"includes conduct in furtherance of the conspiracy that was known
to or was reasonably foreseeable by the defendant." U.S.S.G.
1B1.3(a)(1) comment note 1; see also United States v. O'Campo,
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973 F.2d 1015, 1023 (1st Cir. 1992). This language has been
subsequently clarified to state that relevant conduct includes
"all reasonably foreseeable acts and omissions of others in
furtherance of the jointly undertaken criminal activity."
U.S.S.G. 1B1.3(a)(1)(B), 1993 Guidelines. The clarification
was designed to highlight the distinction between the scope of
criminal liability and the scope of sentencing accountability.
Regardless, "[t]he central concept then is foreseeability."
O'Campo, 973 F.2d at 1023.
There is first the question in this case of whether the
district court applied the correct standard of foreseeability.
Defendants argue that instead of limiting the determination of
losses that each individual defendant could foresee solely to
those losses connected with the criminal activity that a
particular defendant agreed to jointly undertake,79 the court
simply held all the defendants responsible for all the losses
attributable to the entire scope of the conspiracy. See, e.g.,
United States v. Lanni, 970 F.2d 1092 (2d Cir. 1992). While it
is true that the criminal venture a defendant intended to join is
79 The 1993 Guidelines define, in a rather unilluminating
fashion, "criminal activity the particular defendant agreed to
jointly undertake" as "the scope of the specific conduct and
objectives embraced by the defendant's agreement." U.S.S.G.
1B1.3 comment note 2, 1993 Guidelines. The Guidelines go on to
point out that "the criminal activity that the defendant agreed
to jointly undertake, and the reasonably foreseeable conduct of
others in furtherance of that criminal activity, are not
necessarily identical." Id. In other words, one can reasonably
foresee conduct in furtherance of an agreed upon enterprise even
though one did not specifically agree to join in that particular
conduct. Id.-109-
not necessarily the same as the scope of the entire conspiracy,
U.S.S.G. 1B1.3 comment note 2, 1993 Guidelines, there is no
reason why a defendant cannot intend to join and thus foresee the
operation of the entire conspiracy. As the Guidelines
acknowledge, the two can be coterminous, although "not
necessarily" so.
In this case, the district court did find the scope of
the conspiracy and the scope of the foreseeable conduct in
furtherance of each defendant's jointly undertaken criminal
activity to be the same. The judge held the defendants
responsible for "acts of co-conspirators to the extent that those
acts were committed in furtherance of the conspiracy and were
known to or reasonably foreseeable by the Defendant." The judge
then recited all the actions taken by each defendant which
indicated they were involved in the entire breadth of the
conspiracy.80 Most telling is the judge's statement during
sentencing that "the agreement that each [defendant] entered into
was to participate in a continuing scheme to obtain loans from
Bay Loan by means of fraudulent misrepresentations." Although
the sentencing judge did not employ all the expository language
recently added to the Guidelines, it is evident from the record
that he conducted the proper analysis. We thus see no error in
80 This is not a case where the sentencing court merely found
that the defendant "knew what was going on." See O'Campo, 973
F.2d at 1025. The judge in this case recounted specific facts
regarding each individual defendant which indicated that each
defendant embraced the full scope of the scheme to defraud Bay
Loan. See id. at 1025-26 n.11.
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the district court's application of the Guidelines.
Several defendants contend that some portion of the
loss was not foreseeable to them because of their limited
participation in the scheme. Each claims the court should have
reduced by some unspecified amount the loss attributable to him
or her as relevant conduct. The determination of what a
defendant can foresee for the purposes of determining relevant
conduct at sentencing is inherently fact-bound and, consequently,
reviewable only for clear error. United States v. Innamorati,
996 F.2d 456, 489 (1st Cir. 1993).
All the defendants, except Hagopian, Ward and Kumalae,
were involved in the scheme to defraud Bay Loan from the very
beginning. Before the scheme was first executed, Brandon
discussed with Reisch methods to avoid making down payments on
the end loans. The first unit sales were made to Gauvin and
Granoff with Landman acting as escrow agent. The involvement of
these defendants continued throughout the scheme and we find no
clearly discernable limits to the scope of the criminal venture
in which they agreed to participate such that the district court
erred in finding all the losses from the entire conspiracy to be
foreseeable. The fact that Gauvin and Granoff stopped lending
down payment funds after February of 1988 does not absolve them
of responsibility for the continued actions of the conspiracy to
obtain more loans from Bay Loan. The issue is not whether the
two continued to commit acts in furtherance of the scheme but
whether, at the time of the relevant conduct, they reasonably
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could have foreseen the actions of the other members of the
conspiracy. The evidence, particularly the ongoing
correspondence with Brandon made until the end of the scheme,
clearly indicates that Gauvin and Granoff not only could foresee
the continued sale of condominium units, they actually knew about
it.81
We have recently held that a defendant's base offense
level cannot be based on knowledge of historic facts. O'Campo,
973 F.2d at 1022-26. Thus, with respect to Hagopian, Ward and
Kumalae, losses attributable to fraudulent activity that occurred
before they became involved in the conspiracy cannot be
considered as relevant conduct. See id. The judge's error82
in this regard, however, had no effect on their sentences so we
find no reason for reversal on this issue.
Hagopian and Ward did not become involved in the
81 We disagree with Gauvin and Granoff that the evidence clearly
indicates some kind of withdrawal from the conspiracy so that the
scope of the criminal venture in which they participated was
limited to something less than the entire conspiracy. The trial
judge carefully considered this issue and we see no clear error
in his rejection of their arguments.
Similar arguments are made by Hagopian, Ward and Reisch to the
effect that they were not responsible for sales arranged by other
brokers or funded by other people. These arguments are
unavailing. The defendants agreed to participate in the entire
operation, even though their individual role may have been
limited to a specific function within the broader scheme.
Consequently, only a showing of the foreseeability of the other
co-conspirators' conduct is required to find that conduct
relevant for sentencing purposes. That standard, as the
sentencing judge correctly found, was clearly met.
82 We note that, to the district judge's credit, the O'Campo
decision settling this issue was not handed down until after the
judge conducted the sentencing of the defendants in this case.
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conspiracy until after October of 1987, after all of the
Charlestown units had already been sold. Kumalae did not join
until after some units had already been sold at the Bayside, the
second motel involved in the scheme. It may well be arguable
that the total losses to Bay Loan resulted from conduct occurring
after the participation of these three defendants. When
Hagopian, Ward and Kumalae joined the conspiracy, payments were
being made on the end loans. It was not until the scheme to
defraud expanded to more and more condominium units that it began
to collapse under its own weight as additional loan funds from
Bay Loan were required to pay off the existing obligations. The
conduct of Hagopian, Ward and Kumalae, therefore, contributed to
the overall losses to Bay Loan which took place when the loans
defaulted.
More importantly, however, even if the losses resulting
from the loans made for the Charlestown and Bayside units are
excluded from the loss calculation for Hagopian, Ward and
Kumalae, the total would still be well over $5 million, the
highest level under the 1988 version of U.S.S.G. 2F1.1. A
lion's share of the loans were made for units in the five other
motels after all the defendants had joined the conspiracy.
Therefore, any error in apportioning losses was harmless because
it did not affect the offense level assigned to each
defendant.83
83 We also find no error in the district court's refusal to take
into account multiple causes for Bay Loan's losses in determining
the sentences. "'[T]he victim loss table in U.S.S.G.
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B. Upward Adjustments for More Than Minimal Planning
Defendants Granoff, Ward and Landman argue that the
district court committed clear error by imposing a two-level
increase in their offense levels, pursuant to U.S.S.G.
2F1.1(b)(2)(A), for more than minimal planning.84 "More than
minimal planning" is defined as:
[M]ore planning than is typical for
commission of the offense in a simple
form. "More than minimal planning" also
exists if significant affirmative steps
were taken to conceal the offense.
"More than minimal planning" is deemed
present in any case involving repeated
acts over a period of time, unless it is
clear that each instance was purely
opportune. Consequently, this adjustment
will apply especially frequently in
property offenses.
U.S.S.G. 1B1.1, comment note 1(f).
We review the district court's minimal planning
2F1.1(b)(1) presumes that the defendant alone is responsible for
the entire amount of victim loss specified in the particular loss
range selected by the sentencing court.'" United States v.
Shattuck, 961 F.2d 1012, 1016 (1st Cir. 1992) (quoting United
States v. Gregorio, 956 F.2d 341, 347 (1st Cir. 1992)). The
Guidelines treat multiple causation only as a possible ground for
downward departure -- a matter within the sound discretion of the
sentencing court. Shattuck, 961 F.2d at 1017; Gregorio, 956 F.2d
at 346-48. In this case, the sentencing court, upon extensive
consideration of the issue, declined to grant such a departure.
None of the factors that defendants point to as allegedly
contributing to Bay Loan's losses are so compelling as to
convince us that the court erred in reaching its decision.
84 To the extent defendant Gauvin also appeals this decision by
reference in his brief to arguments made by the other defendants
we find no error. As there is no error with regard to defendant
Granoff, there can also be no error for Gauvin whose involvement
in the scheme was greater than Granoff's. The same applies to
defendant Hagopian whose involvement was greater than defendant
Ward's.
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assessment only for clear error. United States v. Beauchamp, 986
F.2d 1, 5 (1st Cir. 1993). We are not inclined to reverse a
finding of more than minimal planning unless the evidence compels
the conclusion that defendant's actions were purely opportune or
"spur of the moment." Gregorio, 956 F.2d at 343; United States
v. Fox, 889 F.2d 357, 361 (1st Cir. 1989) ("We cannot conceive of
how obtaining even one fraudulent loan would not require more
than minimal planning.").
In light of the rather complex and sophisticated scheme
involved in this case, we find any assignment of error to the
sentencing judge's ruling that the defendants engaged in more
than minimal planning to be rather far-fetched. In any event,
the judge made more than adequate findings based on the record to
support his decision. The judge found that Ward took the
initiative to find buyers for the scheme and helped falsify down
payments which constituted "repeated acts" over a period of time.
Ward protests that there is no evidence that he "initiated" any
of the contacts with the buyers. This is mere quibbling. Ward
was actively involved in the recruitment process, he told buyers
no down payments were required, he told buyers to provide down
payments checks that he knew would not be negotiated, and he
provided buyers with rebates for their purchases. Any one of
these facts would support a finding of more than minimal
planning.
As for defendant Granoff, the district court found that
the scheme to defraud Bay Loan involved more planning than is
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typical for commission of the offense in its simple form.
Looking at the scheme as a whole, this fact is indisputable. But
this fact is also true when viewed from the perspective of
Granoff's specific involvement. Granoff first met with Brandon
in the summer of 1987 to discuss the condominium project and
eventually he agreed to purchase some units and to fund buyer
down payments. Pursuant to this agreement, Granoff purchased
four units in August of 1987 in which funds were recycled via a
sophisticated arrangement. Five months later, he provided
$470,000 to Dean Street on the understanding it would be returned
to him after it was used to fund buyers' down payments. Granoff
also formed a partnership with Gauvin to invest in the Dean
Street project. All of these activities reflect a significant
level of involvement in the scheme. We therefore find no error
in his case.
Finally, the sentencing judge found that Landman
engaged in "repeated acts" during the scheme in his role as
escrow agent or closing attorney for most of the loan
transactions. There is no basis for any error in his case.
C. Denial of Role-In-The-Offense Decrease for Marvin Granoff
Defendant Granoff claims the court erred in finding he
was not a minor participant and thus not entitled to a decrease
in his offense level pursuant to U.S.S.G 3B1.2(b). "[A] minor
participant means any participant who is less culpable than most
other participants." U.S.S.G. 3B1.2(b) comment note 3, 1993
Guidelines. No defendant, however, is automatically entitled to
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a reduction, even if the defendant happens to be less culpable
than his or her co-defendants. United States v. Valencia-Lucena,
925 F.2d 506, 514 (1st Cir. 1991); United States v. Rexford, 903
F.2d 1280, 1282 (9th Cir. 1990). The sentencing court has broad
discretion in determining whether this downward departure is
appropriate and we will reverse only if the evidence
overwhelmingly demonstrates that the defendant played a part that
makes him substantially less culpable than the average
participant in the convicted offense such that the court's
decision was clearly erroneous. Gregorio, 956 F.2d at 344;
United States v. Ocasio, 914 F.2d 330, 333 (1st Cir. 1990).
Although the district court found that Granoff was less
culpable than the major participants in the scheme like Brandon,
the court found that Granoff did play more than a minor role.
The $470,000 Granoff provided to fund buyer down payments was a
significant contribution to the scheme to defraud Bay Loan. We
find that the record supports the court's finding that Granoff
was not less culpable than most of the other defendants let alone
substantially less culpable than an average defendant and we
therefore affirm Granoff's sentence.85
85 Granoff also claims that the district court erroneously
failed to depart downward based on his age and physical
condition, pursuant to U.S.S.G. 5H1.1 and 5H1.4. This issue
is not properly before the court because defendant did not seek a
downward departure on this basis during sentencing. See United
States v. Slade, 980 F.2d 27, 30 (1st Cir. 1992). The issue of
age and health were raised only with respect to the range of the
sentence and to bail pending appeal. Thus, the issue of
departure based on age and physical condition was not preserved
for appeal.
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D. Costs of Supervised Release and Special Assessments
The government correctly concedes that our decision in
United States v. Corral, 964 F.2d 83, 84 (1st Cir. 1992) mandates
that we find erroneous the court's decision to impose costs of
supervised release on five defendants found to be indigent for
purposes of a punitive fine. We therefore reverse the imposition
of supervised release costs on defendants Brandon, Ward, Landman,
Hagopian, and Kumalae.
Brandon further argues that because he is indigent, the
district court was without authority to order him to pay either
restitution or the statutory assessments. In imposing an order
of restitution, the district court must consider not only the
amount of the victim's loss but also "the financial resources of
the defendant, the financial needs and earning ability of the
defendant and the defendant's dependents, and such other factors
as the court deems appropriate." 18 U.S.C. 3664(a); United
States v. Savoie, 985 F.2d 612, 618 (1st Cir. 1993).
In this case, the sentencing judge considered the
required factors and, without error, arrived at the conclusion
that a $500,000 restitution order, payable after the three year
period of supervised release, was appropriate. Specifically, the
judge stated: "[I]n arriving at that figure, Mr. Brandon, I
recognize that based on the pre-sentence report, you don't appear
to have any assets at the present time but it appears that you
have the prospect of receiving or inheriting some assets in the
future." The court also noted that a man of Brandon's talents
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ought to be able to obtain gainful employment upon release.
Although the restitution order may be burdensome, and
although it may be true to some extent that "if a defendant is
indigent for purposes of one [fine], he must be indigent for
purposes of the other." United States v. Labat 915 F.2d 603, 607
(10th Cir. 1990), we do not think Corral's ban on imposing
certain fines on indigent defendants extends to restitution
orders. Corral dealt specifically with the interplay of two
provisions of the United States Sentencing Guidelines, U.S.S.G.
5E1.2(a) and 5E1.2(i). Corral, 964 F.2d at 84. We found in
that case that because the fine imposed under 5E1.2(i) was an
additional fine to be instituted only in conjunction with the
punitive fine imposed under 5E1.2(a), the former could not be
imposed once the latter was waived because of defendant's
indigency. Id. In the case of restitution, however, a separate
statutory scheme has been established which includes its own
independent consideration of defendant's ability to pay. 18
U.S.C. 3664. Therefore, the district court's determination of
indigency under U.S.S.G 5E1.2(a) in the present case is
independent of and does not affect its ruling on restitution.86
The judgments are affirmed except that the judgment of
86 To the extent Brandon also challenges the $50 statutory
assessment fee imposed for each count (totaling $1300) by the
district court pursuant to 18 U.S.C. 3013, we find no error.
The assessment fee is mandatory; the judge has no discretion to
waive it based on the defendant's ability to pay nor does the
Constitution require him to do so. United States v. Nguyen, 916
F.2d 1016, 1020 (5th Cir. 1990); United States v. Rivera-V lez,
839 F.2d 8, (1st Cir. 1988).
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conviction of defendant Ward on Counts 24 and 25 and the judgment
of conviction of defendant Landman on Counts 23 through 26 are
vacated and their cases are remanded for resentencing. The
district court's imposition of costs for supervised release are
vacated for defendants Brandon, Landman, Hagopian, Ward and
Kumalae.
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