United States v. Johnson , 405 F. App'x 746 ( 2010 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 09-4417
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
v.
TED JAMES JOHNSON, JR.,
Defendant - Appellant.
Appeal from the United States District Court for the Western
District of Virginia, at Roanoke. Samuel G. Wilson, District
Judge. (7:07-cr-00048-sgw-1)
Argued: September 24, 2010 Decided: December 23, 2010
Before TRAXLER, Chief Judge, KING, Circuit Judge, and Jerome B.
FRIEDMAN, Senior United States District Judge for the Eastern
District of Virginia, sitting by designation.
Affirmed by unpublished per curiam opinion.
ARGUED: Brian Jay Grossman, CROWGEY & GROSSMAN, Richmond,
Virginia, for Appellant. Thomas Ernest Booth, UNITED STATES
DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee. ON
BRIEF: Timothy J. Heaphy, United States Attorney, Jennie L. M.
Waering, Assistant United States Attorney, OFFICE OF THE UNITED
STATES ATTORNEY, Roanoke, Virginia; Lanny A. Breuer, Assistant
Attorney General, Greg D. Andres, Acting Deputy Assistant
Attorney General, David A. Bybee, UNITED STATES DEPARTMENT OF
JUSTICE, Washington, D.C., for Appellee.
Unpublished opinions are not binding precedent in this circuit.
2
PER CURIAM:
Ted James Johnson, Jr. (“Johnson”) appeals his convictions
on various felony charges stemming from Johnson’s creation and
operation of a Ponzi scheme. Johnson does not dispute his
involvement in such illegal scheme nor his guilt on numerous
mail and wire fraud counts, but instead argues that his
convictions on certain money laundering counts should be
reversed. Additionally, Johnson seeks reversal of three counts
relating to the unlawful operation of a “commodity pool” based
on Johnson’s assertion that the applicable statute of
limitations expired before he was indicted on such charges. For
the reasons set forth below, we affirm the judgment of the
district court on all counts.
I.
The facts of this case are largely undisputed. In 1992,
Johnson and his co-conspirator, Frank Farrier (“Farrier”) began
a partnership known as Mountain Investments Limited (“Mountain
Investments”). Johnson and Farrier portrayed themselves as
commodity pool operators that pooled and traded investor funds
in the commodities futures financial market. However, Johnson
and Farrier were never registered with the U.S. Commodities
Futures Trading Commission, as required by law.
3
The Mountain Investments office was located in Johnson’s
home and was outfitted with numerous computer monitors that were
used as a prop to instill confidence in the company.
Additionally, potential investors recognized Johnson as an
upstanding member of the community due to his former employment
as the Giles County Circuit Court Clerk as well as Johnson’s
position within his church. Although Johnson and Farrier
claimed to have a foolproof trading system and offered potential
investors very high rates of return, in reality, Mountain
Investments suffered a trading loss every year it operated.
Johnson and Farrier began accepting investor funds in 1992,
and they commingled those funds in various personal and business
checking accounts. Although commodity futures trading accounts
were set up in Mountain Investments’ name, little trading ever
took place. In 1995, Johnson and Farrier established a second
company, Dogwood Farms Incorporated (“Dogwood Farms”) for the
purpose of buying, selling, and developing real estate.
However, like Mountain Investments, Dogwood Farms was primarily
used in furtherance of the Ponzi scheme.
Johnson’s Ponzi scheme initially created the illusion of
success, and several investors received full repayment of their
principal as well as interest at the rates promised. To placate
investors and sustain the subterfuge, Mountain Investments
4
prepared false 1099s reflecting interest on investments that had
never been made.
In January of 2001, the Virginia State Corporation
Commission (“SCC”) began investigating Mountain Investments
based on an anonymous tip. The SCC thereafter advised Johnson
and Farrier that they appeared to be operating an unregistered
commodity pool. Johnson and Farrier responded by advising the
SCC that Mountain Investments stopped taking new investments on
January 22, 2001.
Notwithstanding such representation, Johnson continued
soliciting and accepting investments through Dogwood Farms using
what proved to be worthless Deeds of Trust as collateral. Once
such new investments were received by Dogwood Farms, the money
was simply transferred into Mountain Investments accounts. Once
transferred, such money was used to make payments to investors
in Mountain Investments in an effort to extend the life of the
fraudulent scheme. Johnson solicited new investments through
Dogwood Farms in order to disguise the source of the money and
avoid SCC scrutiny.
In August of 2001, Mountain Investments entered into a
settlement agreement with the SCC and agreed that all investors
would be repaid within one year. Mountain Investments not only
failed to meet such deadline, but sought to disguise its failure
5
by sending the SCC “statements of satisfaction” for several
accounts that were not repaid but were instead merely converted
into Dogwood Farms investments. Unbeknownst to the investors,
such conversion was merely an exchange of one fraudulent
investment for another. In late 2002, at the same time
Johnson’s ability to obtain new funds was dwindling, the demands
for repayment were increasing. The Ponzi scheme inevitably
collapsed.
Several years after the collapse of his Ponzi scheme,
Johnson was indicted in the United States District Court for the
Western District of Virginia. Following a trial by jury,
Johnson was convicted of eighteen counts of mail fraud, two
counts of wire fraud, three securities frauds counts related to
operating a commodity pool, one count of conspiracy to commit
money laundering, four substantive money laundering counts, and
eight counts of engaging in monetary transactions in property
derived from specified unlawful activities. 1 Prior to his
sentencing, Johnson raised the same arguments asserted in the
instant appeal in a Rule 29 Motion for Judgment of Acquittal;
1
The convictions for conspiracy to commit money laundering,
money laundering, and engaging in monetary transaction in
property derived from specified unlawful activities, are
collectively referred to herein as “the money laundering
counts.”
6
however, such motion was denied. Johnson was thereafter
sentenced to a term of imprisonment of two hundred months,
followed by three years of supervised release.
II.
Although Johnson’s primary argument on appeal focuses on
the interpretation of the Supreme Court’s opinion in United
States v. Santos, 553 U.S. 507 (2008), he advances such legal
argument in an effort to establish that the government failed to
introduce sufficient evidence to prove his guilt on several
money laundering counts. Additionally, Johnson argues that
there was insufficient evidence to prove that he operated a
commodity pool during the limitations period.
We review challenges to the sufficiency of evidence de
novo. United States v. Kelly, 510 F.3d 433, 440 (4th Cir.
2007). “In doing so, our role is limited to considering whether
there is substantial evidence, taking the view most favorable to
the Government, to support the conviction.” Id. (internal
quotation marks and citation omitted). Evidence is substantial
if “a reasonable fact-finder could accept [it] as adequate and
sufficient to establish a defendant’s guilt beyond a reasonable
doubt.” United States v. Mehta, 594 F.3d 277, 279 (4th Cir.
2010). The credibility of witnesses and conflicts in the
7
evidence are not assessed, as we instead assume that any
discrepancies were resolved by the jury in the government’s
favor. Kelly, 510 F.3d at 440.
III.
Johnson’s first challenge on appeal seeks reversal of
several, but not all, of his convictions on the money laundering
counts based on Johnson’s interpretation of United States v.
Santos. 2 The government disagrees with Johnson’s reading of
Santos, highlighting the fractured nature of the Supreme Court’s
decision and arguing that Santos results in a limited rule of
law that does not extend to the instant case. As discussed in
detail below, we agree with the government’s position.
In United States v. Santos, the Supreme Court held, in a
plurality opinion, that the term “proceeds” in the federal money
laundering statutes refers to “profits,” not “gross receipts.”
Santos, 553 U.S. at 514. The underlying offense in Santos that
generated the funds that were purportedly laundered was an
illegal gambling operation. Although an oversimplification of
2
Johnson concedes, as he must, that even were we to adopt
the legal theory that he espouses, seven of the money laundering
counts should be affirmed. Additionally, Johnson does not
challenge his convictions on the twenty mail and wire fraud
counts that resulted in twenty concurrent sentences of 180
months.
8
the holding, the four justice plurality concluded that
“proceeds” always means profits based on the rule of lenity; one
concurring justice concluded that “proceeds” can mean profits in
some scenarios and gross receipts in others, but in Santos it
meant profits, and four dissenting justices concluded that
“proceeds” always means gross receipts.
In the short time since Santos was decided, circuit courts
have adopted widely divergent views on the precedential value of
such splintered decision. Most notably, the Fifth Circuit
recently acknowledged the four-way circuit split in the wake of
Santos yet “[r]eluctantly . . . refrain[ed] from joining any of
these camps” and instead adopting a fifth different reading of
Santos. Garland v. Roy, 615 F.3d 391, 402-03 (5th Cir. 2010).
This Court has not adopted a position via published opinion, but
did conclude in a recent unpublished opinion that Santos applies
only to illegal gambling operations. See United States v.
Howard, 309 Fed. Appx. 760, 771 (4th Cir. 2009) (“Because Santos
does not establish a binding precedent that the term ‘proceeds’
means ‘profits,’ except regarding an illegal gambling charge, we
are bound by this Court’s precedent establishing that ‘proceeds’
means ‘receipts.’”). Although it has no bearing on our analysis
herein, Congress also acted in the wake of Santos and modified
the federal money laundering statutes to expressly define
9
“proceeds” as gross-receipts in all cases, effectively
superseding the rule of law established by the plurality and
concurrence in Santos. 3
Prior to Santos, we have held that the word “proceeds” in
the federal money laundering statutes refers to gross receipts
of a criminal enterprise. See United States v. Singh, 518 F.3d
236, 247 (4th Cir. 2008) (finding that money received by
prostitutes in payment for their services that is later used to
pay the cost of a motel room constitutes “proceeds”); United
States v. Stewart, 256 F.3d 231, 250 (4th Cir. 2001) (indicating
that “reinvestment” of money received from selling drugs into
the drug enterprise, including using money from drug sales to
purchase more drugs and to pay for courier services to ship
drugs, was sufficient to support money laundering convictions);
see also United States v. Caplinger, 339 F.3d 226, 233 (4th Cir.
2003) (indicating that circumstantial evidence can be sufficient
to establish that a defendant used unlawful proceeds to promote
and perpetuate a criminal scheme and that “records documenting
3
In 2009, the following definition was added to the federal
money laundering statutes: “the term ‘proceeds’ means any
property derived from or obtained or retained, directly or
indirectly, through some form of unlawful activity, including
the gross receipts of such activity.” 18 U.S.C. § 1956(c)(9);
see 18 U.S.C. § 1957(f)(3) (cross referencing § 1956(c)(9)). Ex
post facto concerns obviously prevent this Court from
considering such statutory change in the context of this case.
10
specific expenditures” are not necessary). Johnson’s primary
contention on appeal is that Santos overrules our prior
precedent.
Because the plurality opinion in Santos, authored by
Justice Scalia, depended on Justice Stevens’ concurrence to form
a majority, “the holding of the Court may be viewed as that
position taken by those Members who concurred in the judgments
on the narrowest grounds.” Marks v. United States, 430 U.S.
188, 193 (1977) (internal quotation marks and citation omitted).
According to dicta in the plurality opinion, the concurrence
rested on narrower grounds because the concurrence held “that
‘proceeds’ means ‘profits’ [only] when there is no legislative
history to the contrary.” Santos, 553 U.S. at 523. Although at
least one circuit has recognized such statement as defining the
precedential value of Santos, United States v. Yusuf, 536 F.3d
178, 186 n.12 (3d Cir. 2008), we decline to adopt such position
as it is in direct conflict with Justice Stevens’
characterization of his own written opinion. Tellingly, Justice
Stevens not only labels Justice Scalia’s statement as “the
purest of dicta,” but indicates that Justice Scalia’s
interpretation of the concurring opinion “is not correct.”
Santos, 553 U.S. at 528 n.7 (Stevens, J., concurring) (citation
omitted).
11
In explaining the correct interpretation of his own words,
Justice Stevens explains that his concurrence rests on his
“conviction that Congress could not have intended the perverse
result that the dissent’s rule would produce if its definition
of ‘proceeds’ were applied to the operation of an unlicensed
gambling business.” Id. Accordingly, Justice Stevens notes
that “[i]n other applications of the statute not involving such
a perverse result, I would presume that the legislative history
summarized by Justice Alito reflects the intent of the enacting
Congress.” Id. As the legislative history summarized by
Justice Alito’s dissent suggests that proceeds always means
gross receipts, Justice Stevens’ narrow concurrence carves out
an exception that appears to be limited only to illegal gambling
operations. See United States v. Jennings, 599 F.3d 1241, 1252
(11th Cir. 2010) (treating “Justice Stevens’s opinion as
controlling in its narrowest form” and therefore declining to
extend it to a case involving mail and wire fraud).
As the plurality opinion in Santos does not appear to
extend beyond illegal gambling operations, 4 we are bound by this
4
Other circuits have adopted a broader reading of Justice
Stevens’ concurrence, holding that it extends beyond illegal
gambling cases to cases where the “merger problem” discussed in
Santos would result in a significantly higher sentence. See
United States v. Kratt, 579 F.3d 558, 562 (6th Cir. 2009)
12
Court’s precedent holding that “proceeds” means gross receipts.
Our precedent on this issue is most clearly demonstrated by
Singh, where we held that a conviction for money laundering can
be based on the use of funds from a completed crime, or
completed stage of a crime, to pay “expenses” in furtherance of
the continuation of the criminal enterprise. More specifically,
in Singh, the head of a prostitution ring made arrangements with
two motels whereby prostitutes would not pay for a motel room
until after they had used it for the purpose of prostitution.
Singh, 518 F.3d at 247. The payments to the motels “were made
with receipts from the [prostitutes’] first daily customers, and
allowed the prostitutes to service other customers thereafter.”
Id. at 248. Because such transactions utilized criminally
derived proceeds of a completed offense, or at a minimum, a
completed stage of an offense, the payments to the motels
involved the use of “proceeds” within the meaning of the money
(indicating that proceeds means profits “only when the § 1956
predicate offense creates a merger problem that leads to a
radical increase in the statutory maximum sentence . . .”).
This court need not decide whether to adopt such broader
interpretation of Santos as doing so would not impact the
resolution of the instant case. Tellingly, unlike in Santos
where the money laundering counts carried a statutory maximum
sentence four times greater than the maximum statutory penalty
for illegal gambling, here, the money laundering counts have the
same, or lessor, statutory maximums as the wire and mail fraud
counts.
13
laundering statutes. Id. Similarly, here, the financial
transactions that supported the money laundering convictions
involved criminally derived proceeds of a completed offense, or
at a minimum, a completed stage of an offense, as the funds at
issue were obtained by Johnson through defrauding individual
investors. Furthermore, just as the payments to the motel in
Singh helped enable the prostitutes to promote and conceal their
illegal prostitution ring, here, Johnson’s payments to investors
helped Johnson promote and conceal his illegal Ponzi scheme.
Accordingly, Johnson fails to establish that there was
insufficient evidence to sustain his convictions. 5
5
Although the accuracy of the jury instructions is not
squarely before the Court, we note that the instant case was
tried after Santos was decided and, in contrast to our ruling
above, the jury instructions reflect the limitation espoused by
the Santos plurality, i.e., that “proceeds” means “profits.”
(J.A. 1587, 1592, 1597). Based on such statement of the law,
which our opinion today concludes is too restrictive, the jury
still convicted Johnson of all of the charged money laundering
counts. Such finding may have been based on expert testimony
indicating that Johnson’s companies “profited” in 2002 as they
defrauded investors out of more money than they repaid. (J.A.
557-59). We need not, however, consider the sufficiency of the
evidence regarding whether Johnson’s companies profited as the
law only requires that the disputed transactions involved “gross
receipts” of Johnson’s fraudulent activities. Accordingly,
although the jury instructions needlessly restricted the term
“proceeds” to “profits,” such error was in Johnson’s favor and
does not result in any prejudice. See Rowland v. American
General Finance, Inc., 340 F.3d 187, 191 (4th Cir. 2003) (“If we
find the instructions flawed, we will not reverse unless the
14
IV.
Johnson’s second challenge alleges that his convictions on
three counts associated with operating a commodity pool are
barred by the statute of limitations. 6 It is undisputed that a
five year limitations period is applicable to the disputed
counts and that, based on the date Johnson was indicted, the
evidence must prove that Johnson engaged in illegal conduct
after July 27, 2002. Johnson argues in his brief that because
there is no evidence that he was pooling investments or trading
securities after such date, the evidence is insufficient to
establish that Johnson “operated” a commodity pool within the
limitations period. Upon questioning by the Court at oral
argument, Johnson’s counsel had little choice but to
acknowledge: (1) that Johnson’s position relies on an
exceedingly narrow interpretation of the concept of “operating”
a commodity pool; and (2) that to succeed on his claim, Johnson
must somehow overcome the fact that he solicited and received
new funds from investors after the limitations cut-off date.
error seriously prejudiced the challenging party’s case.”)
(internal quotation marks and citation omitted).
6
Count 36 charges operation of a commodity pool without
being registered, Count 37 charges embezzlement by a commodity
pool operator, and Count 38 charges fraud by a commodity pool
operator.
15
The issue regarding the timing of Johnson’s operation of a
commodity pool was properly presented to the jury as the jury
instructions for the commodity pool counts expressly stated: “In
order for the government to sustain its burden of proof as to
[this count], you must find beyond a reasonable doubt that the
defendant acted as a commodity pool operator, as defined by
these instructions, after July 27, 2002.” (J.A. 1606, 1612,
1617). The instructions further define a commodity pool
operator as: “a person who, in connection with an investment
trust or similar enterprise, solicits, accepts, or receives
funds, securities, or property for the purpose of trading in
commodity futures contracts.” (J.A. 1607).
As highlighted by the government, the statutory definition
of a commodity pool operator does not require the operator to
engage in actual trading. See 7 U.S.C. § 1a(5) (defining a
commodity pool operator as “any person engaged in a business
that is of the nature of an investment trust, syndicate, or
similar form of enterprise, and who, in connection therewith,
solicits, accepts, or receives from others, funds, securities,
or property . . . for the purpose of trading in any commodity
. . . .) (emphasis added); Commodity Futures Trading Comm’n v.
Equity Financial Group LLC, 572 F.3d 150, 158 (3d Cir. 2009)
(“If an entity is engaged in a business in the nature of an
16
investment trust, syndicate, or similar form of enterprise, and
it solicits, accepts, or receives funds for the purpose of
trading, it is a commodity pool operator. The actual trading of
commodity futures is not required.”). Based on such legal
standard, the evidence, viewed in a light most favorable to the
government, prevents Johnson’s counsel from making a compelling
argument on appeal. Specifically, the evidence presented to the
jury reveals that, after July 27, 2002, Johnson: (1) continued
soliciting funds from investors; (2) continued representing to
investors that he was still trading their invested funds; and
(3) continued noting in his journal that he was actively seeking
out money to trade. See (J.A. 735) (testimony indicating that
Johnson obtained money from an investor in August of 2002
because “he had some deal to work on” and that the investor
thought Johnson was trading with his money); (J.A. 348, 738)
(excerpt from Johnson’s journal indicating that on August 17,
2002, Johnson “[w]orked all day on and off trying to come with
something to trade ”); (J.A. 1065-66) (testimony indicating that
an investor loaned Johnson $30,000 in September of 2002 and that
the purpose of the loan was the same as all of his prior
investments, that is, “for Mr. Johnson to use to trade, to make
money, to make profits, and to pay [the investor] interest”);
(J.A. 348, 1063) (excerpt from Johnson’s journal indicating that
17
on September 26, 2002, Johnson was “[t]rying to come up with
something to trade. Working on something to trade until 10:00
p.m.”; (J.A. 168-72) (testimony indicating that after an
investor repeatedly contacted Johnson trying to find out why her
money was not being repaid she received a letter from Johnson in
October 2002 stating, inter alia, “I’m trading now”). 7
Based on the above, viewing the evidence in a light most
favorable to the government, it is plain that the jury had
sufficient evidence on which to find that Johnson continued to
solicit and receive funds for the purpose of trading after July
27, 2002. Tellingly, although increasing demands on Johnson for
repayment appear to have led to his inability to obtain enough
“new” money to actually trade, his own journal entries confirm
that he was actively soliciting funds after the limitations
period for the purpose of making additional trades.
7
The evidence further established that as late as December
of 2002, Johnson convinced existing investors to transfer
investments from Mountain Investments to Dogwood Farms. The
accounts being transferred were part of the Mountain Investments
commodity pool and the exchange of such investments may alone be
sufficient to establish that Johnson was still “operating” a
commodity pool in December of 2002, albeit a failing one. See
United States v. United Med. and Surgical Supply Corp., 989
F.2d 1390, 1398 (4th Cir. 1993) (citing United States v.
Andreas, 458 F.2d 491, 491 (8th Cir. 1971)) (“[P]rosecution for
a scheme to defraud devised outside limitations period but
continued into limitations period is permissible.”).
18
Accordingly, Johnson fails to establish that the jury’s verdict
on the disputed counts should be reversed.
V.
For the aforementioned reasons, we affirm the judgment of
the district court.
AFFIRMED
19