United States v. Ross ( 1997 )

[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 96-3556
________________________
D.C. Docket No. 94-CR-03138-1 LAC
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
versus
KENNETH D. ROSS,
JAMES H. ADAMS,
Defendants-Appellants.
__________________________
Appeals from the United States District Court for the
Northern District of Florida
__________________________
(December 19, 1997)
Before ANDERSON and COX, Circuit Judges, and ALARCÓN*, Senior
Circuit Judge.
____________________
*Honorable Arthur L. Alarcon, Senior U.S. Circuit Judge for the
Ninth Circuit, sitting by designation.
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ALARCÓN, Senior Circuit Judge:
Kenneth D. Ross and James H. Adams appeal from the judgment
entered following their conviction for wire fraud, interstate
transportation of money taken by fraud, and conspiracy to commit
mail fraud, wire fraud, interstate transportation of money
obtained by fraud, and money laundering. The Government
persuaded the jury that Ross and Adams conspired to obtain money
for their personal use and benefit from two financially troubled
insurance companies by falsely representing that the loans were
to be used solely for business purposes. To disguise their
intent to channel part of the funds for their personal use and
benefit, and to escape detection by state insurance regulators,
Ross and Adams and their co-conspirators created shell
corporations and contrived deceptive paper transactions that had
no economic substance.
Ross and Adams contend that the evidence presented to the
jury is insufficient to sustain a conviction. They also argue
that the court erred in its rulings on the admissibility of
evidence and in rejecting certain jury instructions. Finally,
they assert that the district court miscalculated their sentence
and applied a sentencing guideline that is unconstitutional. We
discuss each of these contentions, and the facts pertinent
thereto, under separate headings.
We affirm the judgment of conviction because we conclude the
evidence is sufficient to persuade a rational trier of fact of
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the guilt of the accused of each crime, and we hold that the
court's rulings on the admissibility of evidence and its decision
to reject defense instructions were free from error.
We vacate the sentence imposed on each defendant and remand
for resentencing because the district court failed to make an
independent finding that it was persuaded beyond a reasonable
doubt that Ross and Adams conspired to commit the offense of
money laundering.
I
SUFFICIENCY OF THE EVIDENCE
A. Background
Ross and Adams contend that the Government failed to present
sufficient evidence that they committed any crime. They argue
that the Government failed to demonstrate that they defrauded the
policy holders of Midwest Life Insurance Co. ("MWL") Gulf
National Life Insurance Co. ("GNL"), and state insurance
regulators by concealing their intent to divert money for their
personal use that had been loaned to corporations controlled by
them, in reliance on false representations that it would be used
solely for legitimate business purposes -- the purchase of real
property and a merchant vessel suitable for conversion into a
gambling casino.
The evidence is sufficient to support a conviction if,
"after reviewing the evidence in the light most favorable to the
prosecution, any rational trier of fact could have found the
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essential elements of the crime beyond a reasonable doubt."
Jackson v. Virginia, 443 U.S. 307, 319 (1979) (emphasis in the
original). "[A]ll reasonable inferences must be drawn in favor
of supporting the jury's verdict." United States v. Sawyer, 799
F.2d 1494, 1501 (11th Cir. 1986) (citing Glasser v. United
States, 315 U.S. 60, 80 (1942)).
Ross began his involvement with GNL in 1989. At that time,
Ross was the chief executive officer of Charter Bank, a
Mississippi savings and loan association. GNL was experiencing
financial difficulties because of prior bad investments. GNL had
a $1,000,000 unsecured note in its loan portfolio issued to it by
a failing savings and loan institution. GNL had a serious
financial problem: if the note was not paid, GNL would become
insolvent. GNL concluded that it should dispose of the unsecured
note by using it to purchase real property. In December 1989,
GNL purchased the Ensley Shopping Center in Pensacola, Florida
from Charter Bank for $4,000,000. As payment for the shopping
center, GNL assigned the unsecured $1,000,000 note to Charter
Bank, made a cash payment of $1,000,000, and executed a
$2,000,000 promissory note secured by a mortgage on the shopping
center. The Ensley Shopping Center was operating at a loss prior
to this transaction. Ross was forced to resign from Charter Bank
when it was taken over by the Resolution Trust Company in March
1990.
On March 13, 1990, Bobby Shamburger and Gary Jackson, the
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controlling stockholders and officers of Southshore Holding
Company, ("Southshore") opened a bank account in the name of On
Line Investment Company and wired $900,345.33 to that account.
MWL was a subsidiary of Southshore. On March 30, 1990,
Shamburger and Jackson filed articles of incorporation in Nevada
for On Line Investment, Inc. ("On Line"). Ross was designated
president, secretary, and treasurer of On Line. He was also the
only person who had the right to withdraw from the On Line
Investment bank account.
On Line was originally created as a straw party to conceal
the transfer of first mortgage loans worth $875,000 from Public
Investors Life Insurance Co. ("PILICO"), one of the insurance
companies owned by SouthShore to MWL, another SouthShore
subsidiary. PILICO was insolvent at this time and could not
make payments to its policy holders without an infusion of new
funds. MWL had been prohibited from purchasing notes from a
related company without the consent of the Nebraska Insurance
Commissioner. On Line was used to circumvent this restriction.
Ross purchased the notes from PILICO with the money on deposit in
the On Line Investment bank account. Upon receipt of the notes,
Ross assigned them to MWL. Ross was paid $20,000 for
participating in this scheme.
Ross's next transaction with MWL involved the Tops'l Beach
and Racquet Club ("the Club"), which was located in Sandestin,
Florida. The Club cost $25,000,000 to develop, but it failed to
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produce sufficient funds to repay the development loan. The Club
was taken over by the NCNB Texas National Bank, which first
attempted to sell it for $18,000,000. After several years
without attracting a purchaser, the bank reduced the asking price
to $5,450,000.
The Sandestin Golf Resort ("Sandestin") was located next to
the Club. The Bos Holding Company owned Sandestin. Peter Bos
was its largest stockholder. Sandestin went into bankruptcy on
February 7, 1990. Bos decided that the acquisition of the Club
by the Bos Holding Company would create an attractive golf,
tennis, and beach resort, and reduce overhead and administration
costs through combined management. An added incentive was the
fact that the Club's property included two undeveloped parcels
that would be suitable for the construction of a hotel or
condominium. Bos persuaded the Birmingham-Destin Investment
Partners ("BDIP") to join him in negotiating for the purchase of
the Club. On May 4, 1990, Bos and BDIP formed the Tops'l Holding
Co. Inc. ("THI") for the purpose of purchasing the Club.
On the same date, THI signed an agreement to purchase the
Club. THI was required to make an initial payment of $200,000 as
"earnest money." The purchase and sale agreement provided that,
upon consummation of the sale, the earnest money would be applied
to the purchase price.
THI was unable to raise the balance of the purchase price
from its investors. Meanwhile, the BDIP partners concluded that
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they did not wish to participate in the purchase of the Club.
Tom Underwood, a partner in BDIP contacted Ronald Dunston, a
Florida real estate broker to seek his assistance in locating
someone who would be interested in purchasing the Club. Dunston
informed Underwood that Ross was interested in building a
beach-front hotel. Ross met with Underwood in the spring of 1990
to discuss the proposed purchase of the Club. Underwood told
Ross the purchase price would be $5,500,000.
Ross contacted Shamburger, Jackson, and Jeremiah O'Keefe,
the president of GNL and owner of GNL's parent company, to see if
MWL or GNL would lend him the money to purchase the Club. Each
company expressed an interest in making the loan. On May 1,
1990, Ross presented MWL with a written request for a commitment
to loan the money required for the purchase of the Club. On the
same date, MWL issued a commitment letter in which it indicated
it would provide the entire $5,500,000. Jerry Palmer, MWL's
attorney, testified that MWL did not perform any due diligence to
determine whether the investment was sound prior to issuing the
commitment letter.
Over the next few months, MWL, Ross, Oscar Jordan, a former
member of the board of directors of Charter Bank and Ross's
attorney, and representatives of Bos and Sandestin conducted
negotiations regarding the structure for the purchase of the
Club. On June 29, 1990, THI assigned its right to purchase the
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Club to On Line1 in exchange for a payment of $200,000 to
reimburse THI for the earnest money it had paid to the owner of
the Club. At this point in time, Ross was in a position to
purchase the Club because of the $5,500,000 loan commitment he
had received from MWL.
In the early part of July 1990, Dennis LaFont, MWL's
treasurer, informed Shamburger and Jackson that MWL was going to
have to report a loss of $2,300,000 on its second quarterly
report to the state insurance regulators in Florida and Louisiana
for the period ending June 30, 1990. LaFont was concerned that a
loss of this magnitude would subject the company to regulatory
action.
Shamburger and Jackson told LaFont that MWL was going to
sell an "option" and realize a $5,000,000 gain. The term
"option" was apparently used to refer to the purchase and sale
agreement for the Club that THI had previously assigned to On
Line. Because On Line did not assign its rights under the
purchase and sale agreement to MWL prior to June 30, 1990, MWL
could not accurately or legally report that it owned the right to
purchase the Club prior to June 30, 1990 and that this interest
was worth $5,000,000.
To manufacture a paper record that would reflect that MWL
1
While Ross was originally the sole stockholder of On
Line, Gerald Taylor, Ross's accountant, testified that Adams
acquired fifty percent of the stock in On Line prior to the end
of July 1990.
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had a $5,000,000 asset prior to June 30, 1990, a letter was
prepared on MWL letterhead which stated that MWL and Ross agreed
to the termination of MWL's commitment to lend Ross $5,500,000.
On August 6, 1990, Ross, acting as president of On Line, assigned
its rights under the purchase and sale agreement to MWL. No
consideration was paid by MWL for the assignment. On the same
date, MWL assigned its rights under the purchase and sales
agreement to L'Spot for $5,000,000. Ross was president and
director of L'Spot. Adams was also a director. Ross executed a
promissory note on behalf of L'Spot in the amount of $5,000,000
to MWL in exchange for MWL's rights under the purchase and sale
agreement. In short, Ross, acting as the president of On Line,
assigned its right to purchase the Club to MWL for no
consideration and then bought it back, as president of L'Spot,
for $5,000,000. Shamburger and Jackson instructed LaFont to
reflect the $5,000,000 promissory note MWL received from L'Spot
on August 6, 1990 as a corporate asset in its second quarter
report for the period ending June 30, 1990.
Meanwhile, on July 19, 1990, Adams obtained a commitment for
a loan of $1,700,000 from MWL for the purchase of a merchant
vessel large enough to serve as a floating gambling casino. Also
in July 1990, Dunston, Ross, Adams, and O'Keefe incorporated a
company named Casino Beach for the purpose of developing a casino
at Diamond Head, Mississippi.
On July 31, 1990, Ross, Adams, Dunston, Shamburger, Jackson
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Bos, and others met at Sandestin to determine how to accomplish
the sale of the Club to Ross and Adams. In preparation for the
closing of the sale of the Club, Ross and Jordan created a number
of corporations to receive title to specific portions of the Club
property. These corporations included Over Look Corp. ("Over
Look"), Technology Building, Inc. ("Technology Building"), Sand
Tops'l Corp. ("Sand Tops'l"), Tops'l Management, Inc. ("TMI"),
and Tops'l Beach Property, Inc. ("Tops'l Beach"). Ross served as
president and director for TMI and Over Look, secretary and
director for Technology Building, and director for Sand Tops'l.
Adams was named as a director of TMI. Because the structure of
the purchase and sale proved to be more difficult than
anticipated, the closing of the transaction did not occur until
August 6 and 7.
The final agreement was complicated. Pursuant to an
agreement titled Partial Assignment of Contract Rights ("Partial
Assignment"), the Club property was divided into four general
classes of property: (1) condominiums; (2) the amenities
including inter alia a retail/office building, restaurant, tennis
courts, pool house, and all personal property located in or used
in connection with the various facilities, and all attendant
contract rights, licenses and permits; (3) the developer rights;
and (4) the undeveloped parcels 628 and 630. L'Spot transferred
its right to acquire the condominium property to Over Look,
Technology Building, and Sand Tops'l. L'Spot transferred its
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right to acquire, the amenities, the developer rights, and the
undeveloped parcels 628 and 630 to TMI.
In exchange for the transfer of the acquisition rights, Over
Look, Technology Building, and Sand Tops'l each agreed to pay
approximately one third of the purchase price for the Club. MWL
loaned $2,000,000 to each of the three corporations so that they
could purchase their share of the Club pursuant to the Partial
Assignment and use the balance for working capital. The terms of
the three loans were identical. They were secured by a mortgage
on the portion of the property purchased by each corporation.
Each loan also had as collateral a portion of the property rights
transferred to TMI under the Partial Assignment.2
Thus, payment for the $6,000,000 loaned by MWL for the
acquisition of the Club was assumed by Over Look, Technology
Building, and Sand Tops'l. TMI assumed L'Spot's responsibility
to pay $5,000,000 to MWL for the right to purchase the Club. As
further consideration, TMI granted MWL a seven year option to
acquire a two-thirds interest in parcels 628 and 630 for one
dollar. The Partial Assignment states: "The . . . Option may be
2
For example, L'Spot's assignment to Technology Building
set forth in the Partial Assignment provides in relevant part as
follows:
Collateral - first mortgage lien on the Technology Assets as
well as a lien to be granted by [TMI] on [TMI's] development
rights, general intangibles and management agreement
relating to income properties constituting Technology
Assets.
(Emphasis added).
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exercised at any time by providing written notice thereof to
[TMI] within seven (7) years from the date hereof and by paying,
at the closing of such exercise, the sum of One Dollar ($1.00) as
the option price thereof." L'Spot received a similar seven year
option to purchase a one third interest in parcels 628 and 630.
TMI executed a mortgage and security agreement to secure payment
of the $5,000,000 promissory note, which included property that
was already pledged as security for the loans totaling $6,000,000
for the purchase of the Club.3 Parcels 628 and 630 were not
included in the mortgage agreements.
As a result of these negotiations, the Club property, which
was purchased for $5,450,000, was divided into several portions
and used to secure promissory notes totaling $11,000,000.
Parcels 628 and 630, however, were not included in the property
subject to foreclosure upon default. In addition, these valuable
properties could be purchased by MWL and L'Spot for an option
price that totalled two dollars. Furthermore, notwithstanding
the fact that the purchase for the Club was $5,450,000, the four
corporations signed promissory notes and mortgage agreements
totaling $11,000,000: $6,000,000 for the purchase money for the
Club and working capital, and $5,000,000 for the assignment of
3
L'Spot's assignment to TMI set forth in the Partial
Assignment provides in relevant part, "[TMI] shall grant to
Lender a first mortgage lien upon and a security interest in all
of the operating properties, the General Intangibles and
Developer's Rights." (Emphasis added).
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MWL's right to purchase the Club. As discussed above, the
acquisition and contemporaneous sale by MWL of On Line's right to
purchase the Club was done for the sole purpose of making it
appear that MWL had an asset worth $5,000,000 on its June 30,
1990 statement to the regulators.
Immediately following the sale, Ross opened a bank account
for TMI in the AmSouth Bank of Florida ("the TMI account"). He
also created a cash management account for L'Spot with Merrill
Lynch Gulfpost/Biloxi ("the L'Spot account"). After the purchase
of the Club, and the payment of closing costs, $205,000 remained
from the money MWL loaned to the three corporations. Shamburger,
acting on behalf of MWL, agreed to deposit the $205,000 in the
TMI account for "operating expenses."
On August 31, 1990, a condominium owned by the Club was sold
by TMI for $250,844.77. The condominium was part of the security
for the purchase price loan. Instead of using the proceeds of
the sale to reduce the outstanding balance on the purchase price
loan, Ross, with the consent of Shamburger and Jackson, deposited
the money in the TMI account as "operating expenses." Later that
day, Ross transferred $200,000 from the TMI account to the L'Spot
account. On September 1, 1990, Ross transferred an additional
$245,000 to the L'Spot account.
On September 26, 1990, Ross withdrew $150,000 from the
L'Spot account and deposited it in his separate personal account
at Merrill Lynch. On the same date, Ross executed six checks on
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his personal Merrill Lynch account payable to himself for a total
of $119,000. Two of these checks totalling $96,500 were endorsed
by Ross and deposited in Adams' account at Merchants and Marine
Bank. On October 2 and October 19, 1990, Ross drew two more
checks totaling $32,600 on his personal Merrill Lynch account and
deposited them into his account at Jefferson Bank.
In early October 1990, Ross, acting on behalf of TMI, asked
GNL to approve a $3,000,000 "construction/operating" loan for the
Club. GNL was in serious financial trouble at this time. It was
desirous of disposing of the Ensley Shopping Center. O'Keefe,
president of GNL, informed Ross and Adams that he would approve a
loan to TMI of $3,000,000 if they would purchase the Ensley
Shopping Center from GNL. To satisfy O'Keefe's counter proposal,
Adams caused articles of incorporation to be filed for the
Northgate Corporation of Sandestin ("Northgate"). Adams was the
only director of Northgate. Dunston was designated its president
and secretary. Its sole purpose was to acquire the shopping
center.
GNL retained Florida attorneys Richard Powell and Fred
Estergren to handle the loan to TMI and the sale of the Ensley
Shopping Center to Northgate. By this time, the Resolution Trust
Corporation had taken control of Charter Bank. Charter Bank held
a mortgage on the Ensley Shopping Center as security for its
$2,000,000 loan to MWL. Powell became concerned regarding
whether it was necessary to inform Charter Bank that GNL was
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planning to sell the Ensley Shopping Center to another party
because Charter Bank held the mortgage on this property. Michael
Cavanaugh, GNL's attorney, sent a facsimile to Estergren on
October 19, 1990, informing him that the mortgage did not contain
a due-on-sale clause. Accordingly, Estergren did not notify the
Resolution Trust Corporation or Charter Bank of the proposed sale
of the Ensley Shopping Center to Northgate.
Dunston, Ross, Cavanaugh, Jordan, Estergren, and Powell met
on October 30, 1990 to consummate GNL's loan of $3,000,000 to
TMI, and the sale of the Ensley Shopping Center by GNL to
Northgate. GNL sold the Ensley Shopping Center to Northgate for
$4,100,000. As payment to GNL for the acquisition of the Ensley
Shopping Center, Northgate assumed GNL's obligation to pay
Charter Bank $1,972,650.29, which was owing on the promissory
note executed by GNL in favor of Charter Bank. Northgate also
executed a promissory note for $1,127,349.31, secured by all of
Northgate's outstanding stock,4 and a second purchase money
mortgage. In addition, Northgate promised to pay GNL $1,000,000
in cash, no later than October 30, 1990. The agreement to
purchase the Ensley Shopping Center was signed by Adams on behalf
of Northgate.
On the same date, GNL agreed to loan TMI $3,000,000 based on
Ross's representation that the money would be used for the Club's
4
The record shows that Northgate's stock had no value at
this time.
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operating and maintenance expenses. One million five hundred
thousand dollars of the loan was secured by mortgages on parcels
628 and 630, which had been previously left free of debt. The
money was disbursed as follows: First, GNL set up a reserve fund
for TMI of $1,000,000. Second, GNL endorsed five checks to TMI
from different sources totalling $1,040,000. These checks were
deposited in the TMI account. Third, GNL also delivered a check
for $1,000,000 to TMI drawn on its account at the People's Bank
in Biloxi, Mississippi. On October 30, 1990, the date this check
was issued by GNL, GNL had a total of $41,500.64 in its account
at the People's Bank. On the same date, TMI endorsed the
$1,000.000 check to Northgate. Northgate then endorsed the same
check back to GNL. Thus, Northgate ostensibly met its obligation
to pay $1,000,000 in cash to GNL as partial payment for the
purchase of the Ensley Shopping Center by presenting to GNL the
same check that GNL had issued to TMI with insufficient funds.
As a result of this sleight of hand, GNL's bank account showed a
credit of $1,000,000 on November 1, 1990.
On October 30, 1990, $1,000,000 was transferred by wire from
TMI account to the L'Spot account. Immediately after this
transfer, Ross issued several checks on the L'Spot account. A
check in the amount of $499,999.99 was issued to Adams.
Shamburger received a check for $333,333.33. Ross also made out
a check in the amount of $166,666.66 to himself. Adams,
Shamburger and Ross deposited the checks into their personal bank
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accounts. Jane Masholie, a GNL employee, testified that she
typed these checks at Ross's direction during the closing of
GNL's loan to TMI.
Ross became a consultant for GNL in January, 1991. On
January 18 and January 22, 1991, Ross issued four checks to TMI
totaling $550,000 from the $1,000,000 TMI reserve fund, which was
created as part of GNL's loan to TMI. Ross then endorsed each of
the checks as president of TMI for deposit in the L'Spot account.
On January 22, Ross issued a check to L'Spot in the amount of
$100,000, a check for $183,333.33 to Jackson, $183,333.33 to
Shamburger, $41,666.50 to Adams, and $41,666.50 to himself. The
$100,000 check payable to L'Spot was used to acquire a
certificate of deposit. It was redeemed, endorsed by Ross, and
deposited in a bank account opened in the name of Casino Beach.
In late January, 1991, Ross instructed Ms. Masholie to draft
several promissory notes payable to the order of L'Spot and to
back date them so as to make it appear that they were executed on
the dates that checks had been issued on the L'Spot account. A
$150,000 promissory note dated September 26, 1990 was signed by
Ross, which provided that he would pay L'Spot interest at a rate
of prime rate floating per annum until paid and payable on
demand. A promissory note for $166,666.66, dated October 10,
1990, was also signed by Ross. Ms. Masholie testified that she
made a typographical error in using October 10, 1990 as the date
the note was executed; Ross had instructed her to use October 30,
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1990. Another note dated October 10, 1990 in the amount of
$166,666.66 was signed by Adams. Shamburger signed a promissory
note for $333,333.33, which was backdated to October 30, 1990. A
note for the same amount, also backdated to October 30, 1990, was
prepared for Jackson, however, it was not signed.
Ms. Masholie prepared a second set of promissory notes at
Ross's direction in late January 1991 . Each was dated January
24, 1991. She was told that the amounts should match earlier
disbursements from the L'Spot account. Jackson and Shamburger
each signed notes in the amount of $183,333.33. Ross and Adams
each signed notes in the amount of $41,666.50.
Ms. Masholie also testified that she drafted a promissory
note from Northgate to L'Spot in the amount of $1,000,000. The
note bears the date October 30, 1990. It was not prepared by Ms.
Masholie until approximately one year after October 30, 1990.
On May 14, 1991, Dunston, acting on behalf of TMI, requested
that MWL waive the restrictions on the use of the money loaned to
TMI on August 6, 1990 for the purchase of the Club. The letter
reads as follows:
Please accept this letter as a request for
written waiver of the loan covenants
specified below which are contained in the
loan agreement between TOPS'L Management,
Inc. and Midwest Life Insurance Company dated
August 6, 1990. This waiver will serve to
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document your prior verbal waiver of these
covenants.
Section IV, Negative Covenants, Item E,
"Loans to Others and Investments" prohibits
transaction with affiliates unless approved
in advance by the Payee (Midwest Life). At
December 31, 1990, TOPS'L Management has
outstanding advances to L'Spot Corporation,
its parent company, of $2,195,000. In
addition, TOPS'L Management has obligations
totaling approximately $802,222 due to Sand
TOPS'L Corp, Overlook Corporation and
Technology Building, Inc., affiliates,
resulting from the purchase of TOPS'L Beach
and Racquet Club. These transactions appear
to be violations of the above covenants.
Please indicate your acceptance of the waiver
request by signing below. Thank you for your
cooperation and assistance.
The waiver request was granted on June 3, 1991.
Ross received a total of $240,933.16 for his personal
benefit from the money loaned to TMI by MWL and GNL for the
purchase and operation of the Club. Adams received $660,666.49.
As of the time of trial, neither of them had paid any taxes on
these amounts, nor had they repaid the amounts reflected on the
backdated promissory notes.
Ross and Adams assert that the Government failed to prove
that they committed any crime. They argue that the evidence
shows, instead, that they were involved in complex, but lawful
financial transactions.
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B. Analysis
COUNT I -- CONSPIRACY
We begin our analysis of the sufficiency of the evidence in
the conspiracy count ("Count I") by examining the theory of the
prosecution in alleging that Ross and Adams were guilty of
conspiracy. "This Court cannot affirm a criminal conviction
based on a theory not contained in the indictment or not
presented to the jury." United States v. Elkins, 885 F.2d 775,
782 (11th Cir. 1989), cert. denied, 495 U.S. 1005 (1990)
(citation omitted).
Count I alleged a conspiracy among Ross, Adams, Jordan,
Dunston, and others to commit the substantive offenses of mail
fraud, wire fraud, interstate transportation of property taken by
fraud, and money laundering in order to further a scheme to
defraud MWL, GNL, Charter Bank, and the states of Mississippi,
Florida, and Louisiana. The indictment alleged that the
defendants' fraudulent scheme included the following objects:
It was the defendants' objective to fraudulently divert loan
funds from their intended purposes and thereafter convert
these stolen funds to the use and benefit of the defendants,
to include an investment in a Mississippi project to develop
a gambling casino, without disclosing to the regulatory
agencies the fact that the funds had been diverted.
It was further the defendants' objective to create a scheme
to defraud the people of the States of Florida, Louisiana,
and Mississippi, and Charter Bank, by using the funds
illegally obtained from Midwest Life Insurance Company
(Midwest) and Gulf National Life Insurance Company (Gulf
National Life) to invest in speculative investments which
normally would not have been approved as admissible assets
for these companies by the Insurance Commissions of these
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various states without properly disclosing the close and
affiliated relationships between the true borrowers and the
principal lending officials for these companies.
Thus, the Government's theory of prosecution was that Ross
and Adams conspired to induce two state regulated insurance
companies to loan money by fraudulently representing that it was
solely to be used for a legitimate business purpose, without
disclosing their intent to divert some of these funds for their
personal use and benefit. The indictment also alleges that a
further object of the conspirators was to falsify insurance
company records to cover up their fraud so as to avoid detection
by state insurance regulators.
Having identified the government's theory of prosecution,
we must next discuss the sufficiency of the evidence of a
conspiracy. Participation in a conspiracy to commit a crime may
be inferred from circumstantial evidence. See United States v.
Delgado, 903 F.2d 1495, 1500 (11th Cir. 1990) cert. denied, 498
U.S. 1028 (1991). "[C]onspiracy to commit a particular
substantive offense cannot exist without at least the degree of
criminal intent necessary for the substantive offense itself."
Ingram v. United States, 360 U.S. 672, 678 (1959) (internal
quotation marks and citation omitted) (alteration in original).
To establish a conspiracy to commit wire fraud, the government
must prove (1) an agreement between two or more persons (2) to
execute a scheme to defraud and (3) the use of either the mails
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or wire service in furtherance of the scheme. See United States
v. Simon, 839 F.2d 1461, 1469 (11th Cir. 1988). Proof of
specific intent to use the mails or wire service is not required
to show conspiracy to commit mail or wire fraud. See United
States v. Massey, 827 F.2d 995, 1001-02 (5th Cir. 1987). Rather,
"[t]he government's burden . . . is to demonstrate beyond a
reasonable doubt that [the defendants] agreed to engage in a
scheme to defraud in which they contemplated that the mails [or
wire service] would likely be used." Id. at 1002.
There is no dispute regarding the fact that Ross and Adams
entered into an agreement with MWL and GNL through their
corporate alter egos to obtain loans for business purposes that
were subsequently diverted to their personal use and benefit.
Ross and Adams argue that they committed no crime because there
was no restriction on the use of the GNL loan and MWL expressly
waived all earlier violations of the loan agreement on June 3,
1991.
In his opening brief, Adams argues that the Government's
assertion that there were "intended purposes" for the loans made
by GNL and MWL to the corporations controlled by Ross and Adams
is inaccurate. The record is to the contrary.
The Government presented evidence that TMI obtained a
$3,000,000 loan from GNL on October 30, 1990 for the specific
purpose of paying for the cost of repairs and the operation of
the Club. The purpose of MWL's loan to L'Spot is clearly
-22-
reflected in the commitment letter executed by Jackson on May 1,
1990, as chairman of the board of MWL. The commitment letter
states in pertinent part: "Midwest Life shall lend Five Million
Five Hundred Thousand ($5,500,000.00) Dollars to be used to
purchase Tops'l Beach and Racquet Club residential/recreational
development." The record shows that on August 6, 1990, Over
Look, Technology Building, and Sand Tops'L received loans from
MWL totalling $6,000,000 for the purchase of the Club and working
capital.
Alternatively, Adams maintains that, "even if there was an
agreement about the ``intended purposes' of the loan that was
breached by Adams or others, the remedy is civil litigation.
Adams asserts that [t]here is nothing in the law stating that
this sort of thing would be a criminal felony." Adams Br. at 16.
To support this proposition, Adams refers us to United States v.
Kristofic, 847 F.2d 1295 (7th Cir. 1988).
A careful reading of the Kristofic decision will readily
demonstrate that Adams's reliance on it in his challenge to the
sufficiency of the evidence is misplaced. Kristofic was
convicted of converting to her use "a thing of value of the
United States" in violation of 18 U.S.C. § 641. Id. at 1295-96.
The evidence produced at Kristofic's trial demonstrated that she
received a loan of $60,000 from the Small Business Administration
for leasehold improvements, new equipment, and capital for a
restaurant she had opened the previous year in Chicago.
-23-
Kristofic certified that she would use the loan proceeds
according to the provisions of the loan agreement. See id. at
1296. Less than a month after she received the loan, Kristofic
closed the restaurant. None of the funds were put to their
intended use. Instead, she paid pre-existing debts, made a down
payment on a car, made a personal loan of $12,000 to a friend,
invested money in a bar in Texas, and kept $3,000 in cash. See
id. The Seventh Circuit reversed the judgment in Kristofic. The
court held that the Government failed to prove that the defendant
converted a thing of value of the United States. The court
reasoned that "loan proceeds do not remain the property of the
lender." Id. Therefore "Kristofic's misapplication of the funds
was not a conversion because the government no longer held a
property interest in them." Id. at 1297. The Seventh Circuit's
opinion in Kristofic is not applicable to any of the issues in
this case because Ross and Adams were not prosecuted for
conversion. They were prosecuted for fraudulently representing
to MWL and GNL that their corporations intended to use the loan
proceeds for specific business purposes without disclosing their
intention to divert some of the money for their personal benefit.
Thus, unlike the situation in Kristofic, the crimes committed by
Ross and Adams were completed at the time they made fraudulent
representations and failed to disclose material facts in order to
induce MWL and GNL to make the loans.
Following oral argument, Adams filed a letter with the clerk
-24-
of this court in which he advances an additional argument based
on his reading of the Fifth Circuit's opinion in United States v.
Grossman, 117 F.3d 255 (5th Cir. 1997). In Grossman, the
defendant was convicted of conspiracy to commit wire fraud and
eleven counts of wire fraud. Grossman obtained several loans
from a savings and loan association in order to purchase a real
estate development known as "the Oaks." The loans contained the
following language: "Borrower represents and warrants lender
that the loan will be used by borrower for its business and
commercial purposes and not for personal, family, household or
agricultural use." Id. at 259.
The Government contended at trial that Grossman violated
this clause because he used the loan proceeds for business
purposes unrelated to the business entity named on the loan. See
id. Grossman argued that he was not guilty of fraudulently using
the loan proceeds because the language in the clause allowed him
to use it for business purposes related to any of his real estate
holdings. See id. at 260. The Fifth Circuit held that
Grossman's interpretation of the clause was reasonable, although
not the only possible interpretation, and stated that "the
alleged breach of this clause does not support a finding of
fraudulent intent on the part of Michael Grossman." Id.Adams contends that appellants' interpretation of the loan
agreements that they could use the loan proceeds for their
personal benefit was a reasonable interpretation of the loan
-25-
agreements. This argument finds no support in the record. The
intended purpose for the loans made by MWL and GNL is free from
any ambiguity. MWL loaned three corporations $6,000,000 for the
purchase of the Club and working capital. GNL loaned TMI
$3,000,000 to pay for repairs and operating expenses of the Club.
MWL and GNL did not loan any money to Ross or Adams, nor did
either company authorize the three corporations or TMI to make a
personal loan to Ross or Adams.
Appellants appear to argue that the failure of GNL expressly
to prohibit the diversion of loan funds obtained for enumerated
business purposes justifies their failure to disclose that they
intended to use the money for their personal benefit. Appellants
have not cited any authority for this bold proposition. We
reject it as frivolous.
Appellants concede that the diversion for their personal
benefit of money loaned by MWL for the purchase of the Club
violated restrictions contained in the written loan agreement.
They maintain, however, that the subsequent waiver of the
violation of the loan agreement immunizes them from prosecution
for their conduct and the failure to disclose their fraudulent
intent in applying for the loan. This argument ignores the fact
that the fraud was accomplished and the money was diverted
approximately eight months before the waiver was obtained.
Ratification or condonation is not a defense for past criminal
behavior. See Gilbert v. United States, 359 F.2d 285, 287 (9th
-26-
Cir. 1966); 1 Charles E. Torcia, Wharton's Criminal Law § 45
(15th ed. 1993).
The evidence, viewed in the light most favorable to the
Government, was sufficient to persuade a rational juror beyond a
reasonable doubt that Ross and Adams conspired to induce GNL and
MWL to loan money for business investments without disclosing
their intent to divert funds for their personal use and benefit.
This conduct threatened the interests of the policy holders and
deliberately interfered with the ability of the state insurance
commissioners to regulate the activities of these companies and
deter a use of their assets that would jeopardize their solvency.
The record shows that in March 1990 Ross entered into an
agreement with Shamburger and Jackson to disguise from insurance
regulators the purchase by MWL of first mortgage loans from a
related company. To carry out this deception, On Line, a shell
corporation, was created. Ross, as the president of On Line,
purchased the first mortgage loans from a bank account opened and
funded by Shamburger and Jackson, and then assigned the loans to
MWL. Ross was paid $20,000 for writing a check, in his capacity
as the president of On Line, to purchase the loans and executing
an assignment of the loans to MWL.
A rational juror could also infer from the evidence that
Ross and Adams conspired with Shamburger and Jackson to conceal
from state insurance regulators the fact that MWL had a deficit
of $2,300,000 for the second quarter of 1990. This deception was
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accomplished by using On Line as a conduit to effect transfer of
THI's right to purchase the Club to MWL. First, THI assigned the
Club purchase agreement to On Line. Then, Ross, as president of
On Line, assigned the Club purchase agreement to MWL for no
consideration. MWL, in turn, assigned the Club purchase
agreement to L'Spot. Ross, as president of L'Spot, executed a
$5,000,000 promissory note in exchange for MWL's interest in the
Club purchase agreement. L'Spot's promissory note was entered as
a $5,000,000 asset in MWL's second quarterly report even though
it was not executed until August 6, 1990, approximately five
weeks after the second quarter had ended. Thus, instead of
reporting a $2,300,000 loss, this sham transaction permitted MWL
to report a profit of $2,700,000.
Ross and Adams participated in similar trickery to disguise
GNL's fragile financial condition while at the same time
negotiating a $3,000,000 loan for the Club's construction and
operating expenses. As discussed above, GNL promised to loan TMI
$3,000,000 if Ross and Adams would purchase the Ensley Shopping
Center for $4,100,000. Ross and Adams created Northgate for this
purpose. Adams was its sole director. In payment for the Ensley
Shopping Center, Northgate assumed GNL's obligation to pay the
remaining balance of $1,972,650.69 owed by GNL to Charter Bank
for its 1989 acquisition of the Ensley Shopping Center, executed
a promissory note for $1,127,349.31 in favor of GNL, and endorsed
and handed to GNL's representative the same $1,000,000 check that
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GNL had issued to TMI as part of GNL's $3,000,000 loan to TMI.
This transaction created the illusion that GNL sold a shopping
center for $4,100,000 that it had purchased the previous year for
$4,000,000 from Charter Bank. In fact, GNL received a worthless
check with a face value of $1,000,000; a promissory note for
$1,127,349.31 secured by all of Northgate's outstanding stock,
which had no value on October 30, 1990; and a second mortgage on
the Ensley Shopping Center. Based on all the evidence presented
by the Government concerning the conduct of Ross and Adams, a
rational juror could be persuaded beyond a reasonable doubt that
Ross and Adams agreed to the purchase of Ensley Shopping Center
to assist O'Keefe in his efforts to mask GNL's perilous financial
condition from policy holders and insurance company regulators
and to strip GNL of approximately $1,000,000 for their personal
use and benefit.
The evidence outlined above demonstrates that Ross and Adams
perpetrated a fraud by withholding material facts regarding their
intention to use for their personal use and benefit money loaned
for business purposes. The evidence is also sufficient to
demonstrate that a wire transmission was used to accomplish their
fraudulent scheme to withhold from the Charter Bank and the
Resolution Trust Corporation material facts that may have alerted
them to take action to prevent use of the Ensley Shopping Center
as a pawn in their scheme to obtain $1,000,000 from GNL for their
personal use and benefit. We later discuss the sufficiency of
-29-
the evidence to commit the substantive offense of wire fraud.
Ross and Adams also contend that the evidence is
insufficient to persuade a rational juror that the defendants
conspired to commit the offense of interstate transportation of
money taken by fraud. We discuss below appellants' challenge to
the sufficiency of the evidence to support their conviction of
the substantive offense of interstate transportation of money
taken by fraud. Our determination that the evidence was
sufficient to satisfy a rational juror beyond a reasonable doubt
that Ross and Adams committed the crime of interstate
transportation of money by fraud answers their contention that
the evidence was insufficient that this crime was an object of
their conspiracy.
We are persuaded that the evidence was sufficient to
persuade a rational trier of fact beyond a reasonable doubt that
Ross and Adams conspired to commit the crimes of wire fraud and
interstate transportation of money taken by fraud. We need not
consider whether the evidence is sufficient to support a judgment
of conviction for conspiring to commit the crime of money
laundering. A guilty verdict in a multi-object conspiracy will
be upheld if the evidence is sufficient to support a conviction
of any of the alleged objects. See Griffin v. United States, 502
U.S. 46, 56-60 (1991).
-30-
COUNT VI -- WIRE FRAUD
Ross and Adams also challenge the sufficiency of the
evidence that they committed the crime of wire fraud as alleged
in Count VI of the indictment. They argue that the facsimile
from Michael Cavanaugh, GNL's legal counsel, to Fred Estergren,
who represented GNL in closing the Ensley Shopping Center sale to
Northgate, is insufficient to constitute wire fraud because there
is no evidence in the record that it was sent in furtherance of a
fraudulent scheme.
Count VI reads as follows:
1. From on or about November 1, 1989 and continuously
thereafter up to and including the date of this indictment,
the defendants, KENNETH D. ROSS, JAMES H. ADAMS, OSCAR
JORDAN, and RONALD DUNSTON, along with others, knowingly and
willfully devised a scheme to defraud, or for obtaining
money or property by means of false pretenses and
representations or promises well knowing at the time that the
pretenses, representations, and promises would be and were false
when made, and which scheme and artifice so devised and intended
to be devised by the defendants was in substance as described in
Count I of this indictment, which description is expressly
incorporated herein and made a part hereof as if set forth
word by word, line by line.
2. On or about October 19, 1990, in the Northern District
of Florida and elsewhere, the defendants, KENNETH D.
ROSS, JAMES H. ADAMS, OSCAR JORDAN, and RONALD DUNSTON,
for the purpose of execution of the aforementioned
scheme and attempting to do so, in furtherance thereof,
did knowingly transport and cause to be transmitted by
wire in interstate commerce between the State of
Mississippi and Destin, Florida, a letter from Michael
Cavanaugh to Fred Estergren regarding the Due on sale
clause contained in the Charter Bank mortgage,
along with this mortgage and promissory note.
In order to establish a violation of § 1343, the government
-31-
must prove beyond a reasonable doubt that a defendant "(1)
intentionally participated in a scheme to defraud; and (2) used
wire communications to further that scheme." United States v.
Brown, 40 F.3d 1218, 1221 (11th Cir. 1994). Further, "[e]ach
party to a continuing conspiracy may be vicariously liable for
substantive criminal offenses committed by a co-conspirator
during the course and in furtherance of the conspiracy,
notwithstanding the party's non-participation in the offense or
lack of knowledge thereof." United States v. Mothersill, 87 F.3d
1214, 1218 (11th Cir.), cert. denied sub nom. ___ U.S. ___, 117
S. Ct. 531, 136 L. Ed. 2d. 416 (1996). "[A] court need not
assess the individual culpability of a particular conspirator
provided the ``substantive crime was a reasonably foreseeable
consequence of the conspiracy.'" Id. (quoting United States v.
Alvarez, 755 F.2d 830, 849-50 (11th Cir. 1985).
A rational juror could infer beyond a reasonable doubt that
Ross and Adams intentionally participated in a scheme to defraud
the policy holders of GNL by falsely representing that TMI
required a loan of $3,000,000 to fund operational expenses
without disclosing that their true intent was to divert
approximately $1,000,000 for their personal use and benefit on
the same date the business loan to TMI was consummated. To carry
out their scheme, Ross and Adams agreed to purchase the Ensley
Shopping Center from GNL. Because Ross was the chief executive
officer of Charter Bank in 1989 when GNL purchased the Ensley
-32-
Shopping Center from Charter Bank, he was aware that Charter Bank
held a mortgage on that property. Ross was also aware that
Charter Bank had failed in March 1990 and had been taken over by
the Resolution Trust Company. Nevertheless, he and Adams did not
notify Charter Bank or the Resolution Trust Corporation that GNL
intended to convey the Ensley Shopping Center to Northgate,
Adams's alter ego corporation.
Ross retained Florida attorneys Richard Powell and Fred
Estergren to close the loan to TMI. Powell and Estergren
discovered in their title search that Charter Bank held a
mortgage on the Ensley Shopping Center. Estergren drafted a
document entitled "Consent to Sale" for Charter Bank's signature.
It provided that for a consideration of $10, Charter Bank
consented to the sale of the Ensley Shopping Center to Northgate.
The proposed agreement also noted that GNL would remain liable to
Charter Bank pursuant to its promissory note and the mortgage.
Estergren consulted with Michael F. Cavanaugh, a GNL board member
and its chief counsel, for his opinion regarding whether Charter
Bank should be notified of the proposed sale of the Ensley
Shopping Center because of the fact that it held the first
mortgage on that property. Cavanaugh sent a facsimile memorandum
from his Mississippi office, which stated: "I am forwarding the
current Mortgage on the Ensley Property. I do not find a ``due on
sale provision'. Under Florida law could we sell the property as
an Assumption and not trigger the due on sale."
-33-
Estergren testified that Cavanaugh's memorandum persuaded
him that he should "forget" about providing Charter Bank or the
Resolution Trust Corporation with notice of the proposed sale of
the Ensley Shopping Center. Accordingly, the Consent to Sale
document was not sent to Charter Bank.
Ross and Adams argue that Cavanaugh's fax cannot be the
basis for a conviction under § 1343 because its contents were not
fraudulent or untrue. The Supreme Court, however, has rejected
an identical argument in the mail fraud context. In Schmuck v.
United States, 489 U.S. 705 (1989), the Court stated that even
"``innocent' mailings--ones that contain no false information--may
supply the mailing element." Id. at 715 (quoting Parr v. United
States, 363 U.S. 370, 390 (1960)). The defendants' conviction
under the wire fraud statute is subject to the same analysis.
See Carpenter v. United States, 484 U.S. 19, 25 n.6 (1987) ("The
mail and wire fraud statutes share the same language in relevant
part, and accordingly we apply the same analysis to both sets of
offenses here."). Therefore, the fact that the facsimile
memorandum may have been correct that the Charter Bank mortgage
did not have a due-on-sale clause did not prevent the jury from
concluding that Cavanaugh's fax to Estergren furthered the
fraudulent scheme. Had Charter Bank or the Resolution Trust
Corporation been notified of the proposed sale of Ensley Shopping
Center, they may have been able to take action to prevent it.
Ross and Adams also argue that they were not aware that
-34-
Cavanaugh had wired the memorandum to Powell and Estergren.
"Where one does an act with knowledge that the use of the
[interstate wires] will follow in the ordinary course of
business, or where such use can reasonably be foreseen, even
though not actually intended, then he ``causes' the [interstate
wires] to be used." Pereira v. United States, 347 U.S. 1, 8-9
(1954). Ross and Adams incorporated Northgate in Florida. GNL
was a Mississippi corporation. It was clearly foreseeable that a
transaction between corporations in two states would involve
interstate wire transfers.
Finally, Ross urges us to reverse his wire fraud conviction
because "the government failed to prove that the actions of Mr.
Ross and the other named defendants caused any defrauding in that
a victim lost any money or property." Ross Br. at 19. He
further states there was "absolutely no evidence that Charter
Bank lost anything as a result of the wire fraud or the ``Ensley'
real estate transaction between Gulf National Life Ins. Co. and
Northgate Corporation of Sandestin, Inc." Id. at 20. This
argument lacks merit. Punishment under the wire fraud statute is
not limited to successful schemes. "A scheme to defraud need not
be carried out to constitute a violation of the mail and wire
fraud statutes. These statutes punish unexecuted, as well as
executed, schemes." Pelletier v. Zweifel, 921 F.2d 1465, 1498
(11th Cir. 1991); see United States v. Patterson, 528 F.2d 1037,
1041 (5th Cir. 1976) ("[t]here is no necessity for the government
-35-
to prove actual financial loss"). The Government merely needs to
show that the accused intended to defraud his victim and that his
or her communications were "``reasonably calculated to deceive
persons of ordinary prudence and comprehension.'" Pelletier, 921
F.2d at 1498-99 (quoting United States v. Bruce, 488 F.2d 1224,
1229 (5th Cir. 1973)). The record demonstrates that the
Government satisfied this burden as to both defendants.
We conclude from our review of the evidence that it is
sufficient to persuade a rational juror beyond a reasonable doubt
that Ross and Adams knowingly caused a facsimile memorandum to be
transmitted by wire between the states of Mississippi and Florida
to further their scheme to defraud GNL's policy holders by
diverting money loaned for business purposes for their personal
use without alerting the Resolution Trust Corporation that the
Ensley Shopping Center was being sold to a straw corporation
controlled by Adams.
COUNT VII -- INTERSTATE TRANSPORTATION OF STOLEN PROPERTY
Ross and Adams also challenge the sufficiency of the
evidence to support their conviction of transferring more than
$5,000 in interstate commerce. Count VII states:
On or about October 30, 1990, in the Northern District of
Florida and elsewhere, the defendants, KENNETH D. ROSS,
JAMES H. ADAMS, OSCAR JORDAN, and RONALD DUNSTON, did
knowingly and willfully transport and cause to be
transported in interstate commerce between Destin,
Florida, and the State of Mississippi, goods,
securities, or money, to-wit: funds in
the amount of One Million dollars ($1,000,000.00), knowing
the same to have been stolen, converted and taken by fraud.
-36-
"A conviction under 18 U.S.C. § 2314 requires ``(1) knowledge that
certain property has been stolen or obtained by fraud, and (2)
transporting it, or causing it to be transported, in interstate
commerce." United States v. Hartley, 678 F.2d 961, 986 (11th
Cir. 1982) (quoting Pereira v. United States, 347 U.S. 1, 9
(1953)).
Ross and Adams assert that this count was impermissibly
vague because there were two separate transfers between Florida
and Mississippi on October 30, 1990 involving funds in the amount
of $1,000,000. They contend that it is unclear whether Count VII
referred to the unfunded check for $1,000,000 provided by GNL to
TMI and endorsed back to GNL or the $1,000,000 TMI received from
GNL at the loan closing. The defendants did not object to the
vagueness of Count VII at trial. When there has not been a prior
objection to the form of the indictment, we will review a
challenge to the indictment only for clear and prejudicial error.
See United States v. Harrell, 737 F.2d 971, 981-82 (11th Cir.
1984).
After reviewing the record, we conclude that Count VII was
not impermissibly vague and that its general description of the
crime did not cause any prejudice to the defendants. During
closing arguments, the Government stated that the basis for the
interstate transportation of stolen property charge was the money
that GNL deposited in the TMI account following the loan closing
-37-
on October 30, 1990. The Government argued:
The funds are put in the Tops'l Management account for
Tops'l's operating purposes - for Tops'l's operating
purposes. They're immediately transferred from the AmSouth
Florida bank account, Tops'l, to the L'Spot account in
Mississippi. That's one of the crimes, interstate
transportation and money laundering.
Ross's counsel agreed with the Government that the basis for
Count VII was the $1,000,000 TMI received at the loan closing.
During Ross's closing argument, he stated:
Count VII charges that the defendants moved in interstate
commerce $1,000,000 to Tops'l Management. . . . . That
when this money from Gulf National as a result of that
October 30 closing - you remember, there were five
checks that Mr.
Cavanaugh from Gulf National brought to the closing at Fort
Walton, and he gave those five checks to Mr. Ross and they
were deposited in the Tops'l Management account in Destin.
And the government alleges that right there, that was stolen
property - that was stolen property. And I believed I
understood that the government's theory for taking that
position that this was stolen property was because
representations apparently were made that the purpose of the
loan was supposed to be to make improvement, but that, they
used the money for different purposes.
This is the only logical interpretation of Count VII. Count VII
clearly identifies "funds in the amount of One Million Dollars"
as the property transported through interstate commerce by the
Ross and Adams. The defense did not have any difficulty at trial
discerning the nature of the allegations in Count VII. It is
clear that Count VII referred to the $1,040,000 deposited in
-38-
TMI's account and not to the insufficient funds check that was
endorsed back to GNL.
Having concluded that Count VII is not impermissibly vague
or ambiguous, we must also consider whether the evidence
presented to the jury was sufficient to persuade a rational jury
beyond a reasonable doubt that Ross and Adams violated § 2314 by
causing the $1,000,000 in loan funds to be transported from
Florida to Mississippi. As discussed above in our analysis of
the sufficiency of the evidence to support the conspiracy count,
the Government demonstrated that Ross knew these funds were
obtained by fraud. There was testimony that Ross represented
that the $3,000,000 was for the Club's operating expenses. Ross
transferred $1,000,000 to himself, Adams, and Shamburger on the
same date that they were deposited by GNL into TMI's account in
Florida. Ross's act of diverting the GNL loan funds from their
intended purpose clearly furthered the conspiracy. As a
co-conspirator, Adams was liable for any substantive offense
committed by Ross in furtherance of the conspiracy to defraud the
insurance companies, its policy holders, and the state insurance
regulators. See United States v. Mothersill, 87 F.3d 1214, 1218
(11th Cir.) cert. denied sub nom. ___ U.S. ___, 117 S. Ct. 531,
136 L. Ed. 2d 416 (1996).
-39-
II
EXCLUSION OF EVIDENCE OFFERED BY ADAMS
Adams maintains that the district court erred in excluding
three defense exhibits designated as "Adams 7," "Adams 11," and
"Adams 12," which were offered to prove that MWL and GNL did not
lose any money as a result of the loans they made to the
corporations controlled by Ross and Adams. This court reviews a
district court's evidentiary rulings for "a clear abuse of
discretion." United States v. Sellers, 906 F.2d 597, 601 (11th
Cir. 1990).
Adams 7 included all records of the sales of the Club
property. It showed that MWL received $8,700,000 from the sale
of property that served as security for the money loaned to
Overlook, Technology Building, and Sand Tops'l for the purchase
and operation of the Club. Adams 11 contained an appraisal of
the Ensley Shopping Center. Adams 12 showed that GNL sold
parcels 628 and 630 for $3,700,000 on September 30, 1994. Adams
contends that these exhibits tend to prove that he did not intend
to steal, convert, or take any money by fraud.
The district court did not abuse its discretion in denying
admission of these exhibits into evidence. Ross and Adams
committed fraud by diverting for their personal use and benefit
money that was loaned for business purposes to TMI, Overlook,
Technology Building, and Sand Tops'l. MWL and GNL did not loan
any money to Ross and Adams. Ross and Adams did not furnish any
-40-
security for the money they obtained by diverting funds loaned to
the corporations for business purposes. The fact that the
property that was used to secure payment of the $3,700,000
business loan may have subsequently appreciated in value is not
relevant to the questions whether Ross and Adams falsely
represented that the money was to be used for business purposes
and whether they failed to disclose that their true intent was to
divert the loan proceeds for their personal use and benefit.
III
ALLEGED INSTRUCTIONAL ERROR
A. Failure to Inform the Jury of the Factual
Allegations in the Indictment
Ross and Adams assert that the district court erred in
failing to inform the jury of the factual allegations of each
count of the indictment. Adams's counsel requested a theory of
defense instruction to the jury. Counsel explained that the
proposed instruction was necessary because the jury would receive
the prosecution's theory of the case from the indictment. When
informed by the court that it did not intend to give the
indictment to the jury, Adams's counsel stated that "if the jury
did not get the indictment, I would withdraw the theory of
defense instruction." The prosecutor informed the court that
without receiving a copy of the indictment, the jury would not be
able to agree unanimously on which overt act had been proved
without being informed about each of the 206 overt acts listed in
-41-
the indictment. Adams's attorney then suggested that the defense
could stipulate that the jury should be instructed that "the
parties have agreed that at least one overt act has been proven."
After conferring with the prosecutor, Adams's counsel made the
following statement:
Here's what we propose, Judge, that the
indictment not be given to the jury, that the
theory of defense instruction be withdrawn,
and that we amend the jury instructions under
your 4.1 general conspiracy continued, and
I've got language written out that Mr. Beard
and I and the other defense lawyers have
agreed on, if I could come up and show you.
The prosecutor and defense counsel agreed that the court
should inform the jury that "the parties agree that an event or
transaction occurred which may be considered an overt act, but
the defendants disagree that a conspiracy existed." The district
court accepted the agreement. In accordance with this
stipulation, the court did not give the indictment to the jury.
The court's decision to deny the prosecutor's request that
the indictment be given to the jury was based on the stipulation
of counsel that the indictment should not be given to the jury.
Thus, any error in failing to give the indictment to the jury was
invited. It is "a cardinal rule of appellate review that a party
may not challenge as error a ruling or other trial proceeding
invited by that party." Crockett v. Uniroyal, Inc., 772 F.2d
1524, 1530 n.4 (11th Cir. 1985) (citing United States v. Males,
715 F.2d 568, 571 (11th Cir. 1983)).
-42-
B. Denial of Proposed Instructions
Ross argues that the court erred in refusing his request
that the court instruct the jury that the loan agreement was
valid although it was not in writing and that a borrower does not
commit a crime if he or she uses the proceeds of a loan for
purposes that vary from the terms of the loan agreement. This
court reviews a district court's rejection of a proposed jury
instruction for abuse of discretion. See United States v.
Gonzalez, 975 F.2d 1514, 1571 (11th Cir. 1992).
Ross requested that the court instruct the jury as follows:
The Court instructs the jury that in order to
constitute a loan, there must be a contract
whereby, in substance one party transfers to
the other a sum of money which that other
agrees to repay absolutely, together with
such additional sums as may be agreed upon
for its use. If such be the intent of the
parties, the transaction will be considered a
loan without regard to its form. While a
note would certainly be evidence of a loan,
it is not a prerequisite for the transaction
to be a loan.
No issue was raised at trial or in argument that required
the court to give this instruction. It was undisputed at trial
that MWL and GNL loaned money to four corporations and that the
loan agreements were in writing. There was no evidence that any
money was loaned to Ross and Adams for their personal use and
benefit. The factual question presented to the jury was whether
the loans were obtained by fraud.
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Ross also requested the following instruction: "The court
instructs the jury that it is not unlawful for a borrower to use
loan proceeds for other purposes than those specific purposes
expressly made to the lender in order to originally secure the
loan." This instruction was patterned after the holding in
United States v. Kristofic. As discussed above, the rule
announced in Kristofic is not applicable to a case such as this
one where the loan was obtained by fraudulent misrepresentations
and the withholding of material facts. The district court did
not abuse its discretion in rejecting each of these instructions.
IV. ALLEGED SENTENCING ERRORS
Ross and Adams also challenge the legality of the
district court's sentencing decision. They contend that the
district court erred as a matter of law in its interpretation and
application of the sentencing guidelines. "The question about
whether a particular guideline applies to a given set of facts is
a question of law, and thus this issue is subject to de novo
review." United States v. Shriver, 967 F.2d 572, 574 (11th Cir.
1992) (citation omitted).
The conspiracy charged in Count I of the indictment
contained multiple objects. Each object was also alleged as a
substantive offense in separate counts. The jury found Ross and
Adams guilty of conspiracy to commit mail fraud, wire fraud,
interstate transportation of money obtained by fraud, and money
laundering. Ross and Adams contend that the district court erred
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in applying the money laundering guidelines in view of the fact
that the jury found them not guilty of the substantive money
laundering count. They assert that "[g]iven the jury's finding
of a substantive offense of wire fraud and of interstate
transportation, but not of money laundering, it stands to reason
that the conspiracy verdict likely was for conspiring to commit
fraud and/or interstate transportation and not for conspiracy to
launder money." Adams Br. at 40. It is not surprising that Ross
and Adams did not cite any authority for this proposition. It is
contrary to well established law. This argument fails to
recognize the distinction between the existence of proof
necessary to demonstrate a conspiracy to commit a criminal act,
such as money laundering, and the evidence that must be produced
to sustain a conviction for the substantive offense of money
laundering. In United States v. Griffin, 699 F.2d 1102 (11th
Cir. 1983), this court held that because the crime of conspiracy
is a separate offense, a conviction for conspiracy will stand
even if the evidence is insufficient to support a conviction for
the substantive offense also pled as an object of the conspiracy.
See id. at 1107. Thus, the fact that the jury acquitted Ross and
Adams of money laundering does not demonstrate, as argued by
Adams, that "the acquittal here on money laundering charges and
the conviction for fraud and interstate transportation of stolen
property established that the object of the conspiracy was not
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money laundering but fraud and interstate transportation." Adams
Reply Br. at 19.
Unfortunately, Ross and Adams did not request that the jury
be provided with a special verdict that would have required the
jury to specify the objects of the conspiracy Ross and Adams
conspired to commit. For that reason, we have no way of
determining whether the jury was unanimously persuaded beyond a
reasonable doubt that Ross and Adams conspired to commit money
laundering.
The jury was properly instructed that the Government was not
required to prove that Ross and Adams committed each of the
crimes charged as objects of the conspiracy, provided that the
jury unanimously agreed on which of the offenses they conspired
to commit. The Supreme Court instructed in Griffin v. United
States, 502 U.S. 46 (1991), that a general guilty verdict in a
multi-object conspiracy will stand even if the evidence is
insufficient that the accused conspired to commit one of the
objects. See id. at 48-58. Because we have concluded that the
evidence is sufficient to demonstrate that Ross and Adams
conspired to commit wire fraud, we have affirmed the judgment
regarding the conspiracy charge pursuant to Griffin. Griffin
does not, however, provide any guidance concerning the applicable
sentencing guideline that must be applied in a multi-object
conspiracy where the jury's verdict does not specify which
offense the defendants conspired to commit. That precise
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question was addressed by this court in United States v.
McKinley, 995 F.2d 1020 (11th Cir. 1993). In McKinley, the court
framed the issue as follows: "When defendants are convicted on a
count charging a conspiracy to commit more than one offense, but
the jury's verdict does not specify which of those offenses the
defendants conspired to commit, which offense guideline applies
at sentencing?" Id. at 1022. This court held that "[t]he
Sentencing Guidelines answer this question in § 1B1.2(d), its
accompanying commentary and the grouping rules of Chapter 3, Part
D." Id.
Section 1B1.2(d) provides: "A conviction on a count
charging a conspiracy to commit more than one offense shall be
treated as if the defendant has been convicted on a separate
count of conspiracy for each offense the defendant conspired to
commit." U.S.S.G.§ 1B1.2(d). Application Note Five sets forth
the sentencing procedure that should be followed when a general
verdict is tendered by the jury in a multi-object conspiracy
case:
Particular care must be taken in applying
subsection (d) because there are cases in
which the verdict or plea does not establish
which offense(s) was the object of the
conspiracy. In such cases, subsection (d)
should only be applied with respect to an
object offense alleged in the conspiracy
count if the court, were it sitting as a
trier of fact, would convict the defendant of
conspiring to commit the object offense.
Id. comment (n.5).
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In McKinley, this court interpreted the words "were it
sitting as a trier of fact" in Application Note 5 to mean "that
the court must find beyond a reasonable doubt that the defendant
conspired to commit the particular object offense." 995 F.2d at
1026. Ross and Adams argue that we should not follow this
court's holding in McKinley that a trial judge should apply
§ 1B1.1(d) and Application Note 5 under these circumstances
because this court did not consider the constitutionality of
§ 1B1.2(d) and Application Note 5 in that decision. Here, Ross
and Adams first presented their constitutional challenge to
§ 151.2(d) and Application Note 5 during the sentencing
proceedings. Ross and Adams's argument can be summarized as
follows:
1. Proof that the accused conspired with others to commit
an offense is an element of the crime of conspiracy.
2. An accused has a constitutional right to have a jury
determine whether the Government has presented sufficient
evidence of each element of the crime alleged in the indictment.
3. Where, as here, it is unclear whether the jury was
persuaded beyond a reasonable doubt that the accused conspired to
commit the crime of money laundering, the Fifth and Sixth
Amendments preclude the trial judge from punishing the accused
for conspiracy to commit money laundering.
While this court has not previously addressed the question
whether § 1B1.2(d) and Application Note 5 deprive a defendant of
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rights protected by the Fifth and Sixth Amendments, five circuits
have discussed this issue. We conclude that the reasoning of
those circuits that have determined that § 1B1.2(d) and
Application Note 5 do not violate the Constitution is more
persuasive.
Citing only United States v. Owens, 904 F.2d 411 (8th Cir.
1990), United States v. Garcia, 37 F.3d 1359 (9th Cir. 1994),
cert. denied, 514 U.S. 1067 (1995), United States v. Pace, 981
F.2d 1123 (10th Cir. 1992), cert. denied sub nom, 507 U.S. 966(1993), and United States v. Bush, 70 F.3d 557 (10th Cir. 1995),
cert. denied, ___ U.S. ___, 116 S. Ct. 795 (1996), Ross and Adams
argue that "the holdings of several circuits, applying the Fifth
and Sixth Amendments, would require that the defendant be
sentenced on the basis of the conspiracy objective yielding the
lowest base offense level." Adams Br. at 41.
None of the cases cited by Ross and Adams holds that
§ 1B1.2(d) and Application Note 5 violate the Fifth and Sixth
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Amendment. Two of them do not discuss § 1B1.2(d) and Application
Note 5. A third decision involves a pre-guidelines sentence.
The fourth decision contains dictum concerning § 1B1.2(d) that
relies on the dictum in the pre-guidelines case.
In United States v. Owens, the appellant was charged in one
count with conspiracy to distribute and possess with intent to
distribute and attempt to manufacture
"methamphetamine/amphetamine." Id. at 412. The jury was
instructed that "[y]ou must ascertain whether or not the
substance in question in this case was in fact
methamphetamine/amphetamine." Id. at 413. "The jury returned a
general verdict of guilty." Id. at 414. In the presentence
report, the probation officer recommended that "the court
determine Owens's offense level on the assumption that the
conspiracy's purpose had been to manufacture and distribute
methamphetamine." Id. at 413. A calculation of the sentence
based on an assumption that the controlled substance was
amphetamine would have resulted in a sentencing range of 41-51
months. The range for an equivalent amount of methamphetamine
was 63-78 months. The court found that the conspiracy invoked
methamphetamine. See id.
The Eighth Circuit held that "[b]y instructing the jury on
an ``either/or' basis with respect to the two substances and by
failing to enable the jury to indicate which of the substances it
found the conspiracy to have involved, the district court
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elicited an ambiguous verdict of guilty with two possible
alternative interpretations." Id. at 415. The court held that
"[u]nder the circumstances of this case, the district court erred
in sentencing Owens based on the alternative which yielded a
higher sentencing range." Id.
The Eighth Circuit did not discuss the constitutionality of
§ 1B1.2(d) or Application Note 5. Furthermore, there is no
indication in the Owens opinion that the district court
determined that the evidence was sufficient to persuade it beyond
a reasonable doubt that the controlled substance was
methamphetamine. In this matter, unlike the situation in Owens,
the district court did not give an ambiguous "either/or"
instruction to the jury.
In United States v. Garcia, the defendant was charged with
conspiracy. The charge alleged five objects of the conspiracy.
See 37 F.3d at 1369. Four of the objects involved possession
with the intent to distribute cocaine and heroin. In the fifth
object of the conspiracy, the indictment alleged that the
defendant used a communications facility in committing drug
offenses. See id. The jury returned a general verdict of
guilty. See id. Thus, the defendant was found guilty of
conspiracy to possess heroin and cocaine. The district court
imposed a maximum fifteen year sentence on the conspiracy charge
based on the allegations that the object of the conspiracy was
the possession of heroin and cocaine. See id. The Ninth Circuit
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reversed holding that "[i]n the absence of a special verdict,
there was no way for the sentencing judge to know which object
was the necessary element to constitute the crime." Id. at 1370.
In a footnote, the Ninth Circuit stated as follows:
We note that the sentencing guidelines
in section 1B1.2(d) (n.5) state that when the
verdict in a multi-object conspiracy does not
establish which offense was the object of the
conspiracy, the court is to decide the object
of the conspiracy. The note specifies that
the court can do so "if the court, were it
sitting as a trier of fact, would convict the
defendant of conspiring to commit that object
offense."
The case at hand is a pre-guidelines
case, but we acknowledge that the rationale
of this holding casts doubt on the
constitutionality of the provision of the
sentencing guidelines, because that provision
permits a judge rather than the jury to find
the facts necessary to establish an element
of the crime. The submission of a special
verdict form would forestall any such issue.
Id. at 1371 n.4.
The Ninth Circuit's comment in Garcia is clearly obiter
dictum since the Sentencing Guidelines were not applicable
because the alleged criminal conduct occurred prior to the
effective date of the statute. More importantly, the holding in
Garcia, that a special verdict is required in a multi-object
conspiracy so that the district court can determine which object
was the necessary element to constitute the crime, is contrary to
the law of this circuit. In McKinley, the district court denied
the defendant's motion that the jury be provided with a special
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verdict form. See 995 F.2d at 1023. In framing the issue
regarding the validity of the sentence, this court stated that it
would address "the appropriate method for determining the
applicable offense guideline for a conviction on a count charging
a conspiracy to commit more than one offense when the jury's
verdict does not establish which of these offenses were objects
of the conspiracy." Id. at 1024.
As discussed above, this court held in McKinley that where a
jury has returned a general verdict on a multi-object conspiracy
charge, the district court may treat the conviction as a
determination that the defendant was convicted on a separate
count of conspiracy for each offense the defendant conspired to
commit only if the court finds beyond a reasonable doubt that the
defendant conspired to commit that offense. See id. at 1026.
In United States v. Pace, the defendants were charged with a
conspiracy with two objects: (1) possession with intent to
distribute "methamphetamine/amphetamine" and (2) an attempt to
manufacture methamphetamine. See 981 F.2d at 1126. The district
court submitted a general verdict form to the jury without
objection from defense counsel. See id. at 1127. The jury
convicted the defendants of conspiracy and the Tenth Circuit
affirmed the conspiracy conviction. See id. at 1129. The court
also held, however, that the sentence on the conspiracy count
could not stand because "the jury might have convicted defendants
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based on conspiracy to possess with intent to distribute
amphetamine . . . ." Id.The Tenth Circuit did not discuss whether § 1B1.2(d) or
Application Note 5 violated the Fifth or Sixth Amendments. More
recently, in United States v. Bush, the Tenth Circuit quoted from
the Ninth Circuit's dictum in United States v. Garcia regarding
the Ninth Circuit's "doubt" about the constitutionality of
§ 1B1.2(d) and Application Note 5. See Bush, 70 F.3d at 561.
The Tenth Circuit's comment was also dictum because the issue
before it did not concern a general verdict in a multi-object
conspiracy. Section 1B1.2(d) and Application Note 5 only apply
to general verdicts tendered in multi-object conspiracy cases.
Instead, the question presented to the Tenth Circuit was whether
the appellant intended to plead guilty to conspiracy to
distribute cocaine base, conspiracy to distribute cocaine powder,
or both. See id. at 562. The indictment alleged that the
defendant had conspired to distribute "cocaine (powder) and/or
cocaine base (crack)." Id. at 559. The district court
calculated the offense based on the assumption that the object of
the conspiracy was to distribute cocaine base. See id. at 560.
The Tenth Circuit affirmed the sentence despite the ambiguity in
the indictment because it determined that the evidence in the
record was sufficient to show that the defendant intended to
plead guilty to conspiracy to distribute cocaine base. See id.
at 562.
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The question whether a sentencing decision made pursuant to
§ 1B1.2(d) and Application Note 5 violates the Fifth and Sixth
Amendments was squarely addressed by the Third Circuit in United
States v. Conley, 92 F.3d 157 (3rd Cir. 1996), cert denied, ___
U.S. ___, 117 S. Ct. 1244 (1997). In Conley, the Third Circuit
held that a sentence imposed following a general verdict of
guilty on a multi-object conspiracy charge does not violate the
Fifth and Sixth Amendments if the court, in formulating its
sentencing decision, finds beyond a reasonable doubt that the
defendant committed each object of the conspiracy. See id. at
165-69. The court reasoned as follows:
We start our analysis of this Sixth
Amendment argument with McMillan v.
Pennsylvania, 477 U.S. 79, 106 S.Ct. 2411, 91
L.Ed.2d 67 (1986). There the Supreme Court
permitted a state to treat conduct which
arguably was an element of a criminal
offense, the visible possession of a weapon
during certain offenses, as a sentencing
factor. As a result, the trial court rather
than the jury would determine whether the
sentencing factor was present and would do so
by the preponderance of the evidence. The
Court in reaching its result explained:
While ``there are obviously
constitutional limits beyond which the
States may not go in this regard,'
ibid., ``[t]he applicability of the
reasonable-doubt standard . . . has
always been dependent on how a State
defines the offense that is charged in
any given case.'
Id. at 83-85, 106 S.Ct. at 2415 (quoting
Patterson v. New York, 432 U.S. 197, 211 n.
12, 97 S.Ct. 2319, 2327 n. 12, 53 L.Ed.2d 281-56-
(1977)). The Court analyzed the Sixth
Amendment claim tersely:
Having concluded that Pennsylvania may
properly treat visible possession as a
sentencing consideration and not an
element of any offense, we need only
note that there is no Sixth Amendment
right to jury sentencing, even where the
sentence turns on specific findings of
fact.
Id. at 92, 106 S.Ct. at 2419 (citing Spaziano
v. Florida, 468 U.S. 447, 459, 104 S.Ct.
3154, 3161, 82 L.Ed.2d 340 (1984)).
It is clear from McMillan, that if
section 1B1.2(d) is, in the words of
McMillan, properly a "sentencing
consideration," then the section does not
infringe the Sixth Amendment right to jury
trial. The Chief Justice's concurring
opinion in United States v. Gaudin, ___ U.S.
___, ___, 115 S.Ct. 2310, 2321, 132 L.Ed.2d
444 (1995), is in harmony with McMillan.
There the Chief Justice noted that:
Nothing in the Court's decision stands
as a barrier to legislatures that wish
to define--or that have defined--the
elements of their criminal laws in such
a way as to remove issues such as
materiality from the jury's
consideration. We have noted that the
definition of the elements of a criminal
offense is entrusted to the legislature,
particularly in the case of federal
crimes which are solely creatures of
statute.
Id. (Rehnquist, C.J., concurring) (internal
quotation marks omitted). We must decide,
therefore, whether the determination of the
object of a multi-object conspiracy following
a general verdict of guilty properly can be
deemed the ascertaining of a sentencing
consideration or whether such a determination
is beyond the "constitutional limits"
referred to in McMillan, 477 U.S. at 85, 106
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S.Ct. at 2415, and Patterson v. New York, 432
U.S. 197, 210, 97 S.Ct. 2319, 2327, 53
L.Ed.2d 281 (1977).
This issue is controlled by the Court's
holding in Griffin v. United States, 502 U.S.
46, 112 S. Ct. 466, 116 L.Ed.2d 371, where
the Court rejected the due process argument
that a general verdict of guilty in a
multi-object conspiracy verdict could not
stand if the evidence to support a conviction
for conspiracy to commit one of the objects
was insufficient. The Court reached that
result notwithstanding its almost
contemporaneous holding in Sullivan v.
Louisiana that the prosecution "must persuade
the factfinder ``beyond a reasonable doubt' of
the facts necessary to establish each of
[the] elements" of the crime. 508 U.S. 275,
278, 113 S.Ct. 2078, 2080, 124 L.Ed.2d 182(1993). As the Court explained in Sullivan,
"the jury verdict required by the Sixth
Amendment is a jury verdict of guilty beyond
a reasonable doubt." Id. at 278, 113 S.Ct.
at 2081.
If, as Conley asserts, it were
constitutionally impermissible to treat the
object of a multi-object conspiracy
indictment as a sentencing factor rather than
as an element of the crime, then it is
difficult to understand how the Griffin
Court, consistently with Sullivan, could have
permitted a conspiracy conviction to stand
when there was insufficient evidence to
support a conviction for one of the objects.
After all, if each object of the conspiracy
had been an element of the crime then under
well-established law the defendant in Griffin
would have been entitled to an acquittal
since the proofs could not support the charge
that she conspired with respect to one
object. Thus, while Conley argues that
violation of each object of the conspiracy
must be considered a separate element of the
offense for the purpose of his Sixth
Amendment right to a jury trial, it is clear
from Griffin that making the object of a
conspiracy charged under 18 U.S.C. § 371 a
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matter for the sentencer rather than an
element of the crime does not violate the
Sixth Amendment."
Id. at 165-66.
In addressing the Fifth Amendment, the court stated:
As we have indicated, Conley also argues
that his sentence violates the Due Process
Clause of the Fifth Amendment because the
district court's power to make the crucial
finding that an object of the conspiracy was
money laundering. Here we are guided by the
Court's holding in McMillan. There the Court
considered a Pennsylvania statute which
subjected defendants convicted of certain
felonies to a mandatory minimum sentence of
five years imprisonment if the sentencing
judge found, by a preponderance of the
evidence, that the person "visibly possessed
a firearm" during the commission of the
offense. The Court found that the
preponderance of the evidence standard was
constitutional but explained that "in certain
limited circumstances Winship's
reasonable-doubt requirement applies to facts
not formally identified as elements of the
offense charged." McMillan, 477 U.S. at 86,
106 S.Ct. at 2416 (citing In re Winship, 397
U.S. 358, 90 S.Ct. 1068, 25 L.Ed.2d 368(1970)).
Id. at 168.
In United States v. Manges, 110 F.3d 1162 (5th Cir. 1997),
relying on Conley, the Fifth Circuit rejected a claim that
§ 1B1.2(d) and Application Note 5 are unconstitutional. See id.
at 1179. The Second Circuit has also held that § 1B1.2(d) and
Application Note 5 involve "valid sentencing considerations and
not the violation of any Sixth Amendment guarantee." United
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States v. Malpeso, 115 F.3d 155, 168 (2d Cir. 1997) (citing
United States v. Conley, 92 F.3d 157, 168 (3rd Cir. 1996), cert.
denied, ___ U.S. ___, 117 S. Ct. 1244 (1997)).
We also agree with the Third Circuit's analysis in Conley.
Accordingly, we hold that § 1B1.2(d) and Application Note 5 do
not violate the Fifth and Sixth Amendments.
We next turn to the question whether the district court's
determination that money laundering was an object of the
conspiracy was consistent with McKinley's interpretation of
§ 1B1.2(d) and Application Note 5. To comply with § 1B1.2(d) and
Application Note 5, where the jury's verdict does not establish
which offense was the object of the conspiracy, "the court must
find beyond a reasonable doubt that the defendant conspired to
commit the particular object offense." McKinley, 995 F.2d at
1026.
The district court did not make an express finding that Ross
and Adams conspired to commit the offense of money laundering.
The court explained its decision to apply the money laundry
guideline as follows:
And under the evidence as I heard it,
accepting the jury's verdict of conspiracy,
they would have a basis in the facts to
determine that they had conspired to commit
money laundering. And, therefore, that is an
appropriate guideline if for no other reason
my factual determination that there is
sufficient evidence in the record that the
jury made that finding as well as the others.
I might add, just to cover the record. So I
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do find that it's appropriately scored under
the money laundering guideline.
The district court did not state that it had determined that
the evidence was sufficient to persuade it beyond a reasonable
doubt that Ross and Adams conspired to commit the offense of
money laundering. Because of the court's comment that the
evidence was sufficient for the jury to determine that Ross and
Adams conspired to commit money laundering, we cannot say with
any degree of certainty that the court made an independent
determination of this fact. McKinley compels us to vacate the
sentencing decision and remand for appropriate factual findings.
See id. at 1026.
Ross and Adams also contend that the district court selected
the wrong subsection of U.S.S.G. § 2S1.1(a) as a standing point
for the calculation of their sentence. The Government argues
that this issue was waived because it was not raised properly.
In view of our conclusion that we must vacate the sentence, we
decline to resolve this dispute. Upon remand, both sides will
have an opportunity to present their conflicting views to the
district court in a timely manner.
Adams asserts that the district court erred in concluding
that he is liable for a total of $1,702,599.64 laundered by all
the conspirators without supporting this conclusion with
appropriate findings. We decline to consider this question in
view of the fact that we have concluded that this matter must be
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remanded for appropriate findings regarding whether the money
laundering guidelines are applicable.
V. ASSIGNMENT TO A DIFFERENT JUDGE
Ross and Adams request that we order this matter assigned to
a different judge upon remand. They argue that in denying their
motion for bail on appeal, the district court stated that even if
it had sentenced the defendants under a fraud guideline, "this
range of loss would lead to a guidelines calculation resulting in
a term of imprisonment longer than the likely duration of their
appeal." Adams Br. at 53. Ross and Adams argue that
reassignment is required because the district court's comment
demonstrates that the district court has prejudged what it would
do in the event this court vacated its sentence. We disagree.
The district court judge's comments at the bail hearing do not
support an inference that he will fail to consider the evidence
presented at the sentencing hearing upon remand or that he will
refuse to follow the law.
CONCLUSION
We AFFIRM the judgment of conviction on each count. We
VACATE the sentences and REMAND for resentencing.
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