United States v. Chapman , 209 F. App'x 253 ( 2006 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 04-5010
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
versus
NATHAN A. CHAPMAN, JR.,
Defendant - Appellant.
Appeal from the United States District Court for the District of
Maryland, at Baltimore. William D. Quarles, Jr., District Judge.
(CR-03-301-WDQ)
Argued: September 20, 2006 Decided: December 8, 2006
Before WILLIAMS and TRAXLER, Circuit Judges, and Henry F. FLOYD,
United States District Judge for the District of South Carolina,
sitting by designation.
Affirmed in part, vacated in part, and remanded by unpublished
opinion. Judge Traxler wrote the opinion, in which Judge Williams
and Judge Floyd joined.
ARGUED: William R. Martin, BLANK ROME, L.L.P., Washington, D.C.,
for Appellant. Jefferson McClure Gray, OFFICE OF THE UNITED STATES
ATTORNEY, Baltimore, Maryland, for Appellee. ON BRIEF: Rod J.
Rosenstein, United States Attorney, Craig M. Wolff, Assistant
United States Attorney, OFFICE OF THE UNITED STATES ATTORNEY,
Baltimore, Maryland, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
2
TRAXLER, Circuit Judge:
Nathan Chapman was the chairman of the board, chief executive
officer, and majority shareholder of various financial services
companies including The Chapman Company, Chapman Capital
Management, and, later, eChapman.com. Chapman was convicted of
numerous crimes stemming from his management of the various
companies and from his conduct during the initial public offering
(“IPO”) of the stock of eChapman. Chapman appeals, raising
multiple challenges to his convictions, sentence, and restitution
award. We affirm Chapman’s convictions and the restitution award,
but we vacate his sentence and remand for re-sentencing.
I.
The charges for which Chapman was convicted stemmed from two
relatively distinct sets of facts: Chapman’s conduct in connection
with the IPO of eChapman stock and his improper use of “business
development funds” provided to him by his various companies. We
will set out the facts surrounding the IPO first and then discuss
Chapman’s use of the business development funds. The facts that we
set out, of course, are those established at trial when the
evidence is viewed in the light most favorable to the government.
A.
After working as a public accountant for several years,
Chapman started his own financial services companies: The Chapman
Company, an investment banking and retail brokerage firm, and
3
Chapman Capital Management, an investment advisory firm that
managed money for public and private pension funds.
Chapman, through Chapman Capital Management, later took over
management and operation of Minority Equity Trust, a “fund of
funds” that managed and invested funds for several pension funds,
including the State Retirement and Pension System of Maryland (the
“Maryland Pension System”). Minority Equity Trust used multiple
independent investment advisory firms (called subadvisors) to
manage the fund and allotted a portion of the total funds it
managed to each subadvisor for investing and managing. The
subadvisors had different investment styles or specialties--some
invested in growth stocks, others in small-capitalization
companies, etc. All of the subadvisors were controlled by women or
minorities.
When Chapman took over Minority Equity Trust, he renamed it
Domestic Emerging Markets Minority Equity Trust (DEM-MET), but its
purpose (to provide opportunities for minority money managers)
remained the same, and all of the subadvisors in DEM-MET were women
or minorities. Shortly after Chapman took over DEM-MET, one of the
subadvisors left. Chapman replaced that subadvisor with Alan Bond,
who at the time was enjoying great success on Wall Street and made
regular appearances on a PBS television show focusing on investment
and finance. Bond’s investment specialty was large-cap growth
4
stocks. He received from DEM-MET an initial allocation of $10
million to manage.
Under the rules established by Chapman Capital Management,
DEM-MET subadvisors were required to invest in stocks found on a
list of pre-approved companies or get approval before investing in
a stock not on the list. Subadvisors could not invest in stocks
where liquidity of the stocks was limited by the company size or
insider ownership of more than 50% of the company shares. The
various pension funds participating in DEM-MET also had certain
restrictions on the stocks that could be purchased by the
subadvisors.
When Chapman took over DEM-MET, his companies were private,
and he was the majority stockholder. In 1997, he spun off Chapman
Capital Management from The Chapman Company, placed each company
under a separate holding company, and announced that he would hold
IPOs for 40% of the outstanding stock in each holding company. The
IPOs were structured as “firm offer” IPOs--unless the minimum
number of shares specified in the registration statement were sold,
the IPO would not proceed.
The IPOs were successful, in that the minimum number of shares
were sold. In both cases, however, the minimum number of shares
were sold only because of large purchases of the stock by Alan
Bond. Bond used DEM-MET funds to purchase the shares in one of the
IPOs and used funds of other clients to buy into the other IPO.
5
Bond testified at trial that the Chapman IPOs were not a good
fit for him--the stock was not liquid, given that the companies
were small and Chapman retained a majority interest, and there was
a great deal of risk associated with the ventures. Bond also
testified that the companies were much smaller than the large-cap
growth stocks he focused on. He testified that the only reason he
bought into the IPOs was because Chapman pressured him and assured
him that more DEM-MET money to manage would come his way if Bond
invested in the IPOs. Bond was concerned that there might be a
conflict of interest in using DEM-MET funds to buy into the IPOs,
since Chapman (through Chapman Capital Management) controlled DEM-
MET and was the one selling and benefitting from the IPOs. Chapman
assured Bond that there was no conflict, and Bond ultimately
invested in the IPOs.
In May 1999, Chapman began planning a third IPO. This time he
was going to reunite Chapman Holdings and Chapman Capital
Management Holdings and turn them into an internet-based financial
services company called eChapman.com. Chapman initially hoped to
sell 3.3 million shares at $14-16 dollars a share. Chapman’s early
efforts to get investors to commit to purchasing shares in the
eChapman IPO, however, were not overly successful.
In December 1999, Alan Bond was indicted for a kickback scheme
involving a New York stock broker. After the indictment, many of
Bond’s clients abandoned him, and DEM-MET’s outside advisor
6
recommended that Bond be terminated as subadvisor. Chapman, who
was solely responsible for the decision, declined to terminate
Bond. Not long after the indictment, Chapman visited Bond in New
York. He told Bond that he was not going to fire him, but he also
told Bond that he expected Bond to be the “pinch hitter in reserve”
on the eChapman IPO. Bond understood that to mean that Chapman
expected Bond to again help him out if the IPO was under-
subscribed.
In early 2000, before the eChapman IPO opened, the “dot-com
bubble” burst, and the stock value of many Internet stocks dropped
dramatically. Chapman had already spent a great deal of money in
legal and accounting fees preparing for the IPO, so he pressed on
despite the less favorable market conditions. Chapman reduced the
number of shares to be offered to 1.26 million and lowered the
price to $13 per share. Investors, however, were still expressing
little interest in the eChapman IPO. The discussion about the IPO
in the financial press was almost uniformly negative. Analysts
believed that the $13 per share price was too high and that the
Chapman companies that were merging to form eChapman did not have
a good track record. There was also concern that the structuring
of the deal created an incentive for the owners of the companies
that were being merged to sell their shares as soon as eChapman was
born, which would create an immediate downward pressure on the
price of an already overvalued stock.
7
Faced with limited outside interest in the IPO, Chapman again
pressured Bond to buy into the eChapman IPO. Bond told Chapman he
could not invest, in part because he had so few clients left after
the indictment (only six, including DEM-MET), and eChapman did not
fit within the needs of any of those clients. Chapman persisted,
and Bond eventually capitulated, agreeing to buy 200,000 shares
with DEM-MET funds. The purchase of the eChapman IPO violated DEM-
MET’s investment guidelines, and Bond testified at trial that the
purchase was not consistent with his usual stock selection
strategy. Chapman also pressured another DEM-MET subadvisor to buy
eChapman stock. That subadvisor (who bought 20,000 shares),
testified that without Chapman’s pressure, “I would not have
participated, period.” J.A. 980.
The eChapman IPO closed on June 20, 2000, and public trading
of the stock began the next day. By the end of the first day of
public trading, the stock, which had been offered at $13 per share,
was trading for between $7 and $8 per share. The 200,000 shares
that Bond had bought for DEM-MET thus lost more than $1 million in
value in a single day.
A few days later, Chapman called Bond again and told him that
an underwriter had dropped out, which meant that the IPO was under-
subscribed and should not have proceeded. Chapman pressured Bond
to buy still more eChapman stock at the original offering price
rather than its then-current price of around $7 per share. When
8
Bond protested, Chapman promised Bond that he would give him more
DEM-MET money to manage if he bought more eChapman shares. Bond
capitulated and agreed to buy for DEM-MET’s account another 175,000
shares of eChapman stock at $13 per share. In late June, Bond
bought the additional shares, causing an immediate loss to DEM-MET
of 50% of its investment. Bond and Chapman structured the
purchases to make it look as if the stocks had been bought on the
day that trading opened. Bond had to liquidate well-performing
stocks in DEM-MET’s portfolio to raise the cash necessary to buy
the eChapman stock.
Chapman quickly followed through on his promise to Bond. He
gave Bond a $1.5 million eChapman investment portfolio to manage,
and he also gave Bond another $10 million in DEM-MET funds to
manage. Bond used much of the additional DEM-MET money to buy back
the stock that he had liquidated to finance the eChapman purchase.
In August 2001, Bond was indicted a second time on federal
securities charges. These charges accused Bond of “cherry picking”
-- day-trading in the same stocks in his personal account that he
was trading in for DEM-MET and two other clients, and assigning the
profitable trades to himself and the unprofitable ones to the
clients. At that point, Chapman terminated Bond as a DEM-MET
subadvisor. Bond was convicted in 2002 on the cherry-picking
charges, and he then pleaded guilty to the kickback charges.
9
Chapman’s conduct in connection with the eChapman IPO formed
the factual basis for multiple counts of mail and wire fraud,
investment advisory fraud, and making false statements to the
Securities and Exchange Commission. The jury ultimately convicted
Chapman of eleven counts of wire fraud, two counts of mail fraud,
three counts of investment advisory fraud, and one count of making
a false statement to the SEC.
B.
As chief executive officer of his various companies, Chapman
regularly requested that “business development” checks (ranging
from $500 to almost $10,000) be issued to him, to cover travel and
other expenses associated with getting and maintaining clients.
From 1997 to mid 2002, Chapman received more than $460,000 in
business development funds. He always converted the checks to cash
(that is, he did not deposit them in his checking account, but
instead cashed them at the bank) and he never submitted receipts or
other documentation to show how the money was spent.
During the time that he was getting the business development
checks, however, Chapman was also making extensive use of the
company credit card when he traveled. Hotel rooms, plane tickets,
meals, etc., were placed on the credit card. According to the
government, Chapman charged more than one million dollars on
company credit cards during the period of time that he collected
$460,000 in business development funds. Of those charges,
10
approximately $250,000 were for personal expenses, while somewhat
less than $800,000 were for company-related travel and other
business expenses.
The government presented fairly compelling evidence
demonstrating that Chapman was using much of the business
development cash to support his mistresses. From 1998-1999,
Chapman gave nearly $50,000 in cash to Debra Humphries. And from
1998-2002, Chapman gave Yelinde Tyler more than $200,000 in cash,
plus at least another $70,000 in gifts, trips, and meals. The
government compiled a chart comparing the dates and amounts of
business development checks received by Chapman and the dates and
amounts of cash deposits into the women’s bank accounts. While the
correlation was not perfect, there was enough of a correlation that
the jury could reasonably conclude that much of the business
development cash was going to the mistresses, not to legitimate
business expenses.
This improper use of the business development funds provided
the factual basis for multiple counts of wire fraud, as well as
several counts of making false statements on income tax returns.
The jury convicted Chapman of four counts of wire fraud and two
counts of making false statements on tax returns.
II.
Chapman, an African-American, contends that he is entitled to
a new trial because the government used its peremptory strikes to
11
remove African-American females from the jury, in violation of
Batson v. Kentucky, 476 U.S. 79 (1986), and its progeny. We find
no reversible error.
“When making a Batson motion, the defendant must first make a
prima facie showing of purposeful discrimination. Once the
defendant establishes a prima facie case of discrimination, the
burden shifts to the prosecutor to articulate a race-neutral [or
gender-neutral] explanation for the challenge.” United States v.
Grimmond, 137 F.3d 823, 833-34 (4th Cir. 1998) (citation and
internal quotation marks omitted). “If the prosecutor satisfies
this requirement, the burden shifts back to the defendant to prove
that the explanation given is a pretext for discrimination. The
ultimate burden always rests with the opponent of the challenge to
prove purposeful discrimination.” Id. at 834 (citation and
internal quotation marks omitted). When reviewing Batson
challenges, we give “great deference” to the district court’s
determination of whether a strike was exercised for an
impermissible reason. Id. at 833.
When selecting the jury, the government used five of its six
peremptory challenges, and all of those challenges were used to
remove black women from the jury panel.1 After Chapman made his
1
The government did not use its sixth peremptory strike, and
two black males were seated on the jury. The government used none
of the four strikes allotted to it for the selection of eight
alternate jurors. The alternates selected included two black
females and one black male.
12
Batson motion, the government explained its strikes as follows. As
to Juror 23, the government stated, “[s]he’s young. She works as
an office assistant at Giant. You know, the other jurors were
probably better able to appreciate some of the complicated evidence
in this case.” J.A. 206-07. As to Juror 37, the government
explained that “[s]he came up to the bench and spoke here. I just
had a reading of her as somewhat vacant. She just didn’t seem as
smart.” J.A. 207. The government explained that it struck Juror
47 because “[s]he just seemed very unhappy to be here. That’s what
my observation of her was when she walked into the room. . . . I’m
going on the basis of her demeanor and the way she’s been looking
at us.” J.A. 208. As to Juror 51, the government stated that
“[s]he’s had her arms crossed the entire time she’s been in here.
. . . [S] he’s got a hard look on her face. . . and just seems like
someone who could be difficult in the jury room. . . . It was just
her general demeanor. . . . She looked very fed up.” J.A. 208-09.
Finally, the government explained that it struck Juror 82 because
she works “with the Office of the Public Defender in the city, and
sometimes people who work for the Public Defender’s Office have
particular views about the Government.” J.A. 209.
The district court concluded that the government’s
explanations for the strikes were race- and gender-neutral, and the
court rejected Chapman’s claim that the reasons given by the
government were pretextual because they were not based on any
13
objective criteria. Accordingly, the district court denied
Chapman’s Batson motion.2
On appeal, Chapman suggests that the facial expression or
demeanor of a potential juror is an impermissible basis for
exercising a strike. We disagree.
This court has long recognized that a juror’s demeanor is a
neutral basis upon which to exercise a peremptory strike. See
United States v. Grandison, 885 F.2d 143, 149 (4th Cir. 1989)
(“Numerous valid factors may influence a prosecutor to strike a
particular potential juror, including current and past employment,
general appearance and demeanor. . . .” (internal quotation marks
omitted)); cf. Howard v. Moore, 131 F.3d 399, 408 (4th Cir. 1997)
2
After the government explained its reason for each strike,
the district court, before hearing from Chapman, described each
explanation as “not a pretext.” See J.A. 207-09. As noted above,
the question of pretext comes in at the third step of the Batson
inquiry--if the defendant makes a prima facie showing, the
government must articulate a race- and gender-neutral explanation
for its strikes, and the defendant is then required to show that
the articulated reason is pretext for unlawful discrimination.
Since Chapman had made no argument at the time that the court
declared the explanations to be non-pretextual, it is likely that
the district court simply misspoke, intending to describe the
explanations as neutral rather than non-pretextual. In any event,
we note that counsel for Chapman had the opportunity to make his
arguments as to why the government’s explanations were pretext for
unlawful discrimination, and the district court denied the Batson
motion after hearing from Chapman. See J.A. 211. Thus, even if
the district court prematurely (that is, before hearing from
Chapman) concluded that the government’s explanations for its
strikes were not pretextual, any error was cured by the subsequent
opportunity for Chapman to make his Batson argument. We also note
that Chapman does not argue on appeal that the district court
prevented him from adequately presenting his Batson claim.
14
(en banc) (“Both the prosecutor and defense counsel must be allowed
to make credibility determinations when exercising peremptory
challenges. For example, counsel may consider the characteristics
of the other prospective jurors against whom peremptory challenges
might be exercised; to reevaluate the mix of jurors and to take
into account tone, demeanor, facial expression, emphasis--all those
factors that make the words uttered by the prospective juror
convincing or not.” (internal quotation marks and alteration
omitted)). If the district court did not observe the expression or
demeanor that the attorney claimed justified the strike, the court
may well conclude that the proffered explanation is not credible.
There is, however, no requirement that the attorney exercising the
strike offer objective evidence to support his view of the juror’s
demeanor. See Purkett v. Elem, 514 U.S. 765, 767-68 (1995) (per
curiam) (“The second step of [the Batson inquiry] process does not
demand an explanation that is persuasive, or even plausible. At
this second step of the inquiry, the issue is the facial validity
of the prosecutor’s explanation. Unless a discriminatory intent is
inherent in the prosecutor’s explanation, the reason offered will
be deemed race neutral.” (internal quotation marks and alteration
omitted)); cf. Hernandez v. New York, 500 U.S. 352, 365 (1991) (“In
the typical peremptory challenge inquiry, the decisive question
will be whether counsel’s race-neutral explanation for a peremptory
challenge should be believed. There will seldom be much evidence
15
bearing on that issue, and the best evidence often will be the
demeanor of the attorney who exercises the challenge. As with the
state of mind of a juror, evaluation of the prosecutor’s state of
mind based on demeanor and credibility lies peculiarly within a
trial judge’s province.” (internal quotation marks omitted)).
In this case, the demeanor of the potential juror was the
government’s proffered explanation for many of its strikes.
Because Chapman offered no evidence tending to show that these
explanations were pretextual, the district court properly denied
Chapman’s objection as to those strikes. See United States v.
Cordoba-Mosquera, 212 F.3d 1194, 1198 (11th Cir. 2000) (per curiam)
(“[W]e give great deference to the trial judge’s determination that
the peremptory strike was not racially motivated. Deference is
particularly warranted here, where the proffered race-neutral
explanation centered on the juror's body language and mannerisms
that signaled inattentiveness, behaviors that are especially given
to on-the-spot interpretation.” (citations and internal quotation
marks omitted)); United States v. Love, 419 F.3d 825, 828 (8th Cir.
2005) (finding no error in denying Batson motion when district
court believed prosecutor’s explanation that he struck potential
juror because she rolled her eyes at him, and defendant offered no
persuasive evidence of pretext).
Chapman also contends that the other explanations proffered by
the government (regarding a juror’s age or occupation) were
16
pretextual because similarly-situated white jurors were not struck
by the government. See Miller-El v. Dretke, 545 U.S. 231, 241
(2005) (“If a prosecutor’s proffered reason for striking a black
panelist applies just as well to an otherwise-similar nonblack who
is permitted to serve, that is evidence tending to prove purposeful
discrimination to be considered at Batson’s third step.”). For
example, Chapman notes on appeal that the government did not strike
three white jurors who were younger than Juror 23, even though the
government contended that it struck Juror 23 in part because of her
youth. Chapman also points to other white jurors accepted by the
government who had low-level or low-skilled jobs. Since the
government noted Juror 23's job as an office assistant when
questioning her ability “to appreciate some of the complicated
evidence in this case,” J.A. 207, Chapman contends that the
government’s failure to strike the white low-skilled jurors
suggests that the explanation for striking Juror 23 was pretext.
Chapman, however, never made these arguments to the district
court. That is, he pointed to no similarly-situated jurors that
were seated by the government. Instead, Chapman simply asserted
that the government’s explanations were pretext and argued that
there must be some sort of objective standard before the government
could strike a juror based on demeanor, an argument we have already
rejected.
17
In this circuit, the failure to argue pretext after the
challenged strikes have been explained constitutes a waiver of the
initial Batson objection. See Davis v. Baltimore Gas & Elec. Co.,
160 F.3d 1023, 1027 (4th Cir. 1998). The failure to argue a
specific basis for pretext may likewise constitute a waiver of the
right to make that specific challenge to the Batson ruling on
appeal. If the issue is waived, the issue is not reviewable on
appeal; an issue that is merely forfeited is reviewable for plain
error. See United States v. Olano, 507 U.S. 725, 733 (1993);
United States v. David, 83 F.3d 638, 641 n.5 (4th Cir. 1996). We
need not decide, however, whether Chapman waived rather than
forfeited his specific juror-comparison arguments. Assuming that
it is appropriate to apply plain error review to these claims, we
decline to exercise our discretion to notice and correct any error.
“In reviewing for plain error, we must affirm unless an
appellant can show that (1) an error was made, (2) it was plain,
and (3) it affected the appellant’s substantial rights.” United
States v. Alerre, 430 F.3d 681, 689 (4th Cir. 2005), cert. denied,
126 S. Ct. 1925 (2006). “[T]he correction of plain error lies
within our discretion, which we do not exercise unless the error
seriously affects the fairness, integrity, or public reputation of
judicial proceedings.” Id. (internal quotation marks omitted). An
error is plain if it is obvious. See Olano, 507 U.S. at 734(explaining that for purposes of plain-error review, “‘[p]lain’ is
18
synonymous with ‘clear’ or, equivalently, ‘obvious’”). From the
record before us, it is not obvious that any of the jurors pointed
to by Chapman on appeal were sufficiently similar to the jurors
struck by the government to give rise even to an inference of
pretext.
The jurors who were accepted by the government but were
younger than Juror 23 all had what appear to be higher-skilled jobs
than Juror 23, while the accepted jurors with low-level or low-
skilled jobs were older than Juror 23. The age, occupation, and
educational level of a potential juror are all permissible bases
for the exercise of a strike, see Howard, 131 F.3d at 408, and
there is nothing inherently pretextual about trading off one factor
for another--for example, accepting a younger but more educated
juror. See United States v. Lane, 866 F.2d 103, 106 (4th Cir.
1989) (“In the selection of a jury panel, prosecutors and defense
counsel use their peremptory challenges depending on many valid
factors. For example, although one may be searching for jurors who
have a certain characteristic such as a college degree, a juror who
did not complete college may nevertheless be accepted because he
possesses other desirable characteristics.”). Because the record
before us does not clearly show that the government seated white or
male jurors who were situated similarly to the black female jurors
that it struck, we cannot conclude that the district court erred,
let alone plainly erred, by denying Chapman’s Batson motion.
19
III.
Chapman next contends that the district court erred by
permitting lay witnesses called by the government to testify about
the existence of a fiduciary duty on the part of Chapman and to
give their opinion about whether Chapman breached that duty. And
in a related argument, Chapman contends that the district court
erred by precluding his expert witnesses from testifying about
various aspects of the fiduciary-duty question.
A.
As noted above, the relationship between Bond and Chapman and
Bond’s use of DEM-MET money to buy into the eChapman IPOs provided
the factual basis for many of the charges against Chapman. Some of
those charges required the jury to consider whether fiduciary
duties existed and whether Chapman breached those duties. At
trial, the government did not present expert testimony on the
definition, existence, or breach of fiduciary duty. It did,
however, ask several of its lay witnesses questions about Chapman’s
fiduciary duties.
On appeal, Chapman contends that the fiduciary-duty testimony
was in fact expert testimony. Because the witnesses were not
identified as experts prior to trial and their opinions were not
subjected to the reliability requirements of Rule 702 of the
Federal Rules of Evidence, Chapman contends that the district court
20
erred by permitting lay witnesses to give what is properly viewed
as expert testimony.3
Under Rule 702, “a witness qualified as an expert by
knowledge, skill, experience, training, or education, may testify
thereto in the form of an opinion or otherwise,” so long as
“scientific, technical, or other specialized knowledge will assist
the trier of fact to understand the evidence or to determine a fact
in issue.” Fed. R. Evid. 702. Rule 701, however, states that
[i]f the witness is not testifying as an expert, the
witness’ testimony in the form of opinions or inferences
is limited to those opinions or inferences which are (a)
rationally based on the perception of the witness, (b)
helpful to a clear understanding of the witness’
testimony or the determination of a fact in issue, and
(c) not based on scientific, technical, or other
specialized knowledge within the scope of Rule 702.
Fed. R. Evid. 701. Subparagraph (c), which was added to Rule 701
in 2000, was intended “to eliminate the risk that the reliability
requirements set forth in Rule 702 will be evaded through the
simple expedient of proffering an expert in lay witness clothing.”
Fed. R. Evid. 701 Advisory Committee’s note to 2000 Amendments.
3
In his brief, Chapman suggests that expert testimony was
required to establish the nature and scope of the fiduciary duties
owed by the various parties involved in the transactions at issue.
Chapman does not, however, contend that the absence of expert
testimony renders the government’s evidence insufficient to support
his convictions. Under these circumstances, there is no reason for
us to consider the abstract question of whether expert testimony
was required in this case. We instead focus on the question of
whether the district court erred by permitting lay witnesses to
provide expert testimony.
21
“Rule 701 permits lay witnesses to offer an opinion on the
basis of relevant historical or narrative facts that the witness
has perceived.” Certain Underwriters at Lloyd’s, London v.
Sinkovich, 232 F.3d 200, 203 (4th Cir. 2000) (internal quotation
marks omitted). The rule does not, however,
permit a lay witness to express an opinion as to matters
which are beyond the realm of common experience and which
require the special skill and knowledge of an expert
witness. A critical distinction between Rule 701 and
Rule 702 testimony is that an expert witness must possess
some specialized knowledge or skill or education that is
not in the possession of the jurors.
Id. (citation and internal quotation marks omitted). As we explain
below, while most of the challenged testimony reflected the
“particularized knowledge that the witness had by virtue of his
position,” United States v. Ayala-Pizarro, 407 F.3d 25, 28 (1st
Cir.) (internal quotation marks and alteration omitted), cert.
denied, 126 S. Ct. 247 (2005), that knowledge did not render the
witness’s fiduciary-duty testimony improper under Rule 701. See
id. (concluding that police officer’s testimony about how drug
points operate and how heroin typically is packaged was admissible
as lay witness testimony under Rule 701, because the testimony was
based on the officer’s observations and experience on prior drug
arrests). To the extent that any of the testimony might be viewed
as improper expert testimony, its admission was harmless.
The testimony about which Chapman complains is that of
various people who were involved in or affected by the Bond-
22
eChapman transactions: an employee of Tremont Advisors, the outside
advisor to DEM-MET; two DEM-MET administrators; employees of two of
the entities with funds invested in DEM-MET, Alliant Energy and the
Maryland Pension System; and Alan Bond himself. When this
testimony is read in context, it is clear that the witnesses were
in the main talking about “historical or narrative facts” perceived
by those witnesses, which is a proper subject of lay testimony.
Sinkovich, 232 F.3d at 203.
For example, Cathy Sweeney, who worked for the outside advisor
to DEM-MET, wrote Chapman a letter after Bond was indicted in which
she recommended that Bond be terminated as a DEM-MET subadvisor.
In that letter she told Chapman that
it would be seen as seriously detrimental to both Chapman
and the DEM-MET if it was widely known that Bond was a
significant shareholder in Chapman Holdings. If
investigated, it could be viewed that friendship, perhaps
due to this large investment, surpassed fiduciary
responsibility. Therefore, to avoid possible criticisms,
we feel that the best course of action is to terminate
the relationship with Bond in DEM-MET.
J.A. 722. The government questioned Sweeney about what she meant
when she referred to “fiduciary responsibility” in the letter. The
district court overruled Chapman’s objection and allowed the
inquiry to proceed. Sweeney explained that “[t]he fiduciary
responsibility is the responsibility that the manager [Chapman] and
the advisor [Bond] has to the pensioneers, to the participants in
the pension plans and their beneficiaries.” J.A. 723.
23
Chapman does not contend (nor could he) that Sweeney’s letter
was inadmissible. And once the letter was admitted, it was proper
for Sweeney to explain what she meant by “fiduciary
responsibility.” She was not testifying as an expert, but was
instead simply testifying about historical or narrative facts. See
Sinkovich, 232 F.3d at 203. The district court therefore properly
rejected Chapman’s claim that Sweeney’s testimony was not
admissible under Rule 701.
Similarly, Maria Thompson, a DEM-MET administrator, testified
about her concerns when she learned that Bond had bought a large
portion of the shares in Chapman Holdings. She testified that the
transaction “raise[d] a flag in my mind about ERISA of having one
of our subadvisors owning part of the company,” J.A. 765, which
“had the appearance of conflict of interest to me.” J.A. 767.
Thompson was not explaining to the jury the technical scope of a
fiduciary’s responsibility under ERISA or any other statute; she
simply explained the reaction she had when she learned about Bond’s
purchase of the Chapman Holdings IPO. Her testimony was thus
properly admitted lay testimony.
Robert Rusch, an employee of Alliant Energy, which had funds
being managed by DEM-MET, testified that the contract between
Chapman Capital Management (which manages DEM-MET) and Alliant
provided that Chapman Capital Management was a fiduciary as defined
by ERISA. When the government asked Rusch “what goes into the
24
concept of being a fiduciary,” J.A. 954, Chapman objected. The
district court permitted the government to question Rusch about his
understanding of the contract to which his company was a party.
Rusch explained that, as to the duties of a fiduciary as used in
the contract, “the most important part . . . is whatever actions
you take with respect to the assets of the trust, you have to make
sure that whatever you do is in the best interests of the plan
participants, and that is those people that are going to be
receiving payments eventually out of these monies for their
retirement.” J.A. 956-57. This testimony was likewise properly
admitted. Rusch was testifying about his personal understanding of
the obligations imposed by a contract to which his company was a
party, a typical and proper subject for lay witness testimony. See
Ayala-Pizarro, 407 F.3d at 28.
A similar analysis applies to much of the other testimony
about which Chapman complains. Lisa Foley, a DEM-MET subadvisor
who participated in the eChapman IPO after pressure from Chapman,
testified briefly about her understanding of the fiduciary
responsibilities spelled out in the contract between her company
and Chapman. Art Lynch, the Maryland Pension System’s director of
equities, testified about his understanding of the “prudent man
rule” set out in the Pension System’s investment operations manual
and testified that he believed Bond’s investment in eChapman
violated the fiduciary obligations set forth in the operations
25
manual. These witnesses simply testified about their personal
knowledge and perceptions of the historical facts surrounding the
relevant transactions.4 While the witnesses had particularized
knowledge that they learned through their jobs, that does not
convert their lay testimony into impermissible expert testimony.
See Bank of China v. NBM LLC, 359 F.3d 171, 181 (2d Cir. 2004)
(concluding that bank employee assigned to investigate scheme by
bank customers to defraud the bank could testify about the results
of his investigation: “The fact that Huang has specialized
knowledge, or that he carried out the investigation because of that
knowledge, does not preclude him from testifying pursuant to Rule
701, so long as the testimony was based on the investigation and
reflected his investigatory findings and conclusions, and was not
rooted exclusively in his expertise in international banking. Such
opinion testimony is admitted not because of experience, training
or specialized knowledge within the realm of an expert, but because
4
In his brief, Chapman contends that Alan Bond’s testimony
about his understanding of the requirements of the prudent man rule
amounted to impermissible expert testimony. At trial, counsel for
Chapman initially objected to Bond’s testimony, but he quickly
withdrew his objection, stating that “[w]e have no objection to him
rendering what he believes this means.” J.A. 1078. This
withdrawal of the objection amounts to a waiver of any complaint
about Bond’s testimony, precluding us from considering the issue
even under plain error review. See United States v. Rodriguez, 311
F.3d 435, 437 (1st Cir. 2002) (explaining that “[a] party who
identifies an issue, and then explicitly withdraws it, has waived
the issue,” and that a waived issue “cannot be resurrected on
appeal”); United States v. Masters, 118 F.3d 1524, 1526 (11th Cir.
1997) (per curiam) (declining to apply plain-error review where
defendant knowingly waived objection to upward departure).
26
of the particularized knowledge that the witness has by virtue of
his position in the business.” (internal quotation marks and
alteration omitted)); accord Ayala-Pizarro, 407 F.3d at 28.
The only challenged testimony that approaches the line between
lay and expert testimony was that of Jackie Ford, a DEM-MET
administrator. Ford testified that she believed Bond’s investment
for DEM-MET in the Chapman IPO was “a direct conflict of interest,”
an opinion that was “based on the fiduciary responsibilities of an
investment manager.” J.A. 846-47. After the district court
overruled Chapman’s objection, Ford elaborated:
[A]s an investment manager, it’s your responsibility to
manage the portfolio for the benefit of the client, and
to have one of your own instruments or company holdings
into their portfolio seemed to me to be a direct conflict
of interest. It doesn’t seem as though you were
conducting your business . . . for the benefit [of the
client].
J.A. 851. Chapman objected again, and the court sustained the
objection.
Assuming without deciding that Ford’s testimony was
impermissible expert testimony, the error in admitting her
statement was harmless. See Bank of China, 359 F.3d at 183(concluding that the improper admission of expert testimony through
a lay witness is subject to harmless error review); United States
v. Williams, 81 F.3d 1321, 1327 (4th Cir. 1996) (holding that error
in admission of evidence is harmless if the improper evidence did
not substantially influence the jury). Given the other properly-
27
admitted testimony generally describing the nature of a fiduciary’s
responsibilities, we cannot conclude that this limited exchange
with one witness substantially influenced the jury.
B.
Chapman also contends that the district court erred by
restricting the grounds upon which his expert witnesses could
testify. The district court is vested with broad discretion when
determining whether to limit the testimony of an expert witness.
See United States v. Gastiaburo, 16 F.3d 582, 589 (4th Cir. 1994);
United States v. Barsanti, 943 F.2d 428, 432 (4th Cir. 1991).
The government presented evidence indicating that it was a
conflict of interest for Chapman to pressure the DEM-MET sub-
advisors to participate in the eChapman IPO: Chapman Capital
Management, which was controlled by Chapman, was DEM-MET’s manager
and primary investment advisor. Because Chapman was the majority
shareholder in the companies that were combining to form eChapman
and would be the majority shareholder of eChapman, Chapman
personally benefitted from the purchases of eChapman stock that he
pressured the DEM-MET subadvisors to make.
Chapman sought to have his expert testify that, under certain
circumstances, transactions between affiliated companies are
permitted under the Investment Company Act of 1940, 15 U.S.C.A. §§
80a-1 to 80a-64 (West 1997 & Supp. 2006). Chapman wanted his
expert to testify about SEC Rule 10f-3, which permits a mutual
28
fund, if certain conditions are satisfied, to purchase securities
in an IPO even though the broker-dealer selling the securities is
affiliated with the mutual fund advisor and the broker-dealer is a
member of the IPO underwriting syndicate. See 17 C.F.R. § 270.10f-
3 (2006).
The district court refused to permit this line of questioning,
in part because the Investment Company Act of 1940 does not govern
the relationship between Chapman Capital and DEM-MET; that
relationship is instead governed by The Investment Advisors Act of
1940, 15 U.S.C.A. §§ 80b-1 to 80b-21 (West 1997 & Supp. 2006).
Moreover, the district court noted that Rule 10f-3 permits the
affiliated transactions only if certain conditions are met, such as
the percentage of the IPO offering that will be bought by the
mutual fund. Even if the rule were applicable to this case, those
conditions would not have been satisfied. See J.A. 1664. Because
neither the statute nor the rule about which the expert would have
testified applied to the transactions at issue in this case, the
proffered testimony would have served only to confuse the jury. We
therefore conclude that the district court did not abuse its
discretion by prohibiting this line of inquiry.5
5
Chapman also contends that the district court erred by
refusing to permit Earl Bravo to testify about the Board of
Director’s knowledge of Rule 10f-3, in order to demonstrate to the
jury that not all affiliated transactions are impermissible. Even
assuming that Bravo’s testimony could be considered relevant, the
district court, for the reasons explained above, was well within
its discretion to exclude the testimony. See Fed. R. Evid. 403
29
Chapman also sought to present expert testimony describing the
fiduciary duties of an investment manager under the contracts
between Chapman Capital Management (as manager of DEM-MET) and the
Maryland Pension System. To the extent that Chapman’s experts
would testify about whether a fiduciary duty existed, the district
court noted that the legal definition of fiduciary duty would be
presented to the jury through its instructions and that the
testimony Chapman sought to present would therefore amount to an
improper legal opinion. The court explained that it would permit
Chapman, as it had the government, to present lay testimony from
representatives of Chapman Capital Management to testify, as
representatives of a party to the contract, about what they
believed their responsibilities under the contract to be. However,
the court concluded that it would intrude upon the province of the
jury to allow Chapman to present what would amount to an expert
opinion that Chapman did not violate the law. See J.A. 1599.
Rule 702 permits expert testimony where it is helpful to the
trier of fact. See Fed. R. Evid. 702. While expert testimony is
not inadmissible simply because it touches on an ultimate issue,
such testimony is “excludable under Rule 702 if it does not aid the
jury.” United States v. Barile, 286 F.3d 749, 760 (4th Cir. 2002).
“Expert testimony that merely states a legal conclusion is less
(noting that relevant evidence may be excluded if the “probative
value is substantially outweighed by the danger of unfair
prejudice, confusion of the issues, or misleading the jury”).
30
likely to assist the jury in its determination.” Id.; see also
United States v. Duncan, 42 F.3d 97, 101 (2d Cir. 1994)
(“Generally, the use of expert testimony is not permitted if it
will usurp either the role of the trial judge in instructing the
jury as to the applicable law or the role of the jury in applying
that law to the facts before it. When an expert undertakes to tell
the jury what result to reach, this does not aid the jury in making
a decision, but rather attempts to substitute the expert’s judgment
for the jury’s.” (citations and internal quotation marks omitted)).
As the district court noted, the contract outlined the nature
of Chapman’s fiduciary duties and having an expert testify as to
whether Chapman violated those duties would not be particularly
helpful to the jury. See Barile, 286 F.3d at 760. Having an
expert testify more generally about the existence and scope of a
fiduciary duty under various (and sometimes inapplicable)
securities laws could confuse the jury and usurp the district
court’s obligation to explain the governing law to the jury.
Therefore, given the deference that we must accord a district
court’s determination of whether expert testimony will be helpful
to the jury, we simply cannot conclude that the district court
erred by excluding Chapman’s proffered expert testimony.
IV.
The government’s theory of the case was that Chapman needed to
generate money because he was living well above his means, and the
31
government offered as evidence in this regard his improper use of
the business development funds. The government bolstered its case
on this issue by presenting evidence of the significant loans that
Chapman took from his companies and but never repaid. Some of the
loans were used to resolve personal charges that Chapman put on his
company credit card. The companies paid the entire credit card
bills, and charges that the bookkeeper identified as personal (such
as a charge to Victoria’s Secret) were treated as a receivable and
placed in a “due from officer” account. Chapman never paid these
charges, and at the end of the year Chapman executed promissory
notes in the amount of the balance of the “due from officer”
account. These loans (totaling approximately $250,000) were never
approved by the Board of Directors in advance, although they
typically were ratified by the Board months later.
Chapman also borrowed large amounts of money from the
companies for purposes unrelated to the credit card charges. For
example, he borrowed $100,000 to make a donation to a church;
$45,000 to buy a Corvette for himself, and approximately $240,000
to put a down payment on his house. While Chapman executed
promissory notes for these loans, the loans were not approved in
advance by the Board, but were instead ratified after the fact.
Chapman never made any principal or interest payments on any of the
loans. Eventually, the Board rolled all of the unpaid notes into
a single promissory note, payable on demand, for more than
32
$1,000,000. As of the time of trial, the Board had yet to demand
payment of the note.
On appeal, Chapman contends that the district court erred by
admitting evidence of the loans under Rule 404(b) of the Federal
Rules of Evidence. Under Rule 404(b), evidence of uncharged crimes
or other acts “is not admissible to prove the character of a person
in order to show action in conformity therewith. It may, however,
be admissible for other purposes, such as proof of motive,
opportunity, intent, preparation, plan, knowledge, identity, or
absence of mistake or accident.” Fed. R. Evid. 404(b). Rule
404(b) is “a rule of inclusion, not exclusion.” United States v.
Smith, 441 F.3d 254, 262 (4th Cir.), cert. denied, 75 U.S.L.W. 3174(U.S. Oct. 2, 2006). To be admissible under Rule 404(b), evidence
must be “(1) relevant to an issue other than character; (2)
necessary; and (3) reliable.” United States v. Wells, 163 F.3d
889, 895 (4th Cir. 1998) (internal quotation marks omitted). We
have no difficulty concluding that the evidence of the loans was
properly admitted under Rule 404(b).
First, the evidence was clearly relevant to the question of
motive. The government contended at trial that Chapman’s motive in
converting the business development checks to his own use was his
taste for things that he otherwise could not afford. That Chapman
also “borrowed” but yet never repaid more than $1,000,000 from his
companies is further evidence of his inability to live within his
33
means and thus of his motive to convert company funds to his own
use. See United States v. Aramony, 88 F.3d 1369, 1377 (4th Cir.
1996) (“To be relevant, evidence need only to have any tendency to
make the existence of any fact that is of consequence to the
determination of the action more probable or less probable than it
would be without the evidence.” (internal quotation marks
omitted)).
The evidence was necessary because it was probative of
Chapman’s motive. See United States v. Queen, 132 F.3d 991, 997
(4th Cir. 1997) (explaining that to be admissible under Rule
404(b), the challenged evidence “must be necessary in the sense
that it is probative of an essential claim or an element of the
offense”). Moreover, the evidence also furnishes context for the
crimes with which Chapman was charged. See Smith, 441 F.3d at 262(“Evidence is necessary, even if it does not relate to an element
of a charged offense, when it furnishes part of the context of the
crime.” (internal quotation marks omitted)). The government’s
evidence showed that Chapman viewed company funds as his own. He
used business development funds to help support two mistresses; he
charged numerous personal expenses on company credit cards and
never reimbursed the company for those charges; and he borrowed but
never repaid significant amounts of money. The evidence of the
unpaid loans thus helped establish Chapman’s approach to the
34
management of his companies and helped place the crimes with which
he was charged in context.
The evidence of the loans was also reliable. The promissory
notes executed by Chapman were identified by company witnesses, and
Chapman does not dispute their validity or amount. The evidence of
the loans was thus sufficiently reliable to be admitted under Rule
404(b). See Aramony, 88 F.3d at 1378 (explaining that evidence is
reliable for purposes of Rule 404(b) “unless it is so preposterous
that it could not be believed by a rational and properly instructed
juror”). Accordingly, we conclude that the government’s evidence
of the never-repaid loans satisfied the requirements of Rule
404(b).
Evidence sought to be admitted under Rule 404(b), however,
must also satisfy the requirements of Rule 403: the probative
value of the evidence must not be substantially outweighed by its
prejudicial effect. See Fed. R. Evid. 403; Queen, 132 F.3d at 997.
The loan evidence was prejudicial in the sense that it was damaging
to Chapman’s case. That is not the kind of prejudice, however,
that warrants exclusion under Rule 403. See United States v.
Hammoud, 381 F.3d 316, 341 (4th Cir. 2004) (en banc) (“The mere
fact that the evidence will damage the defendant’s case is not
enough--the evidence must be unfairly prejudicial, and the unfair
prejudice must substantially outweigh the probative value of the
evidence.” (internal quotation marks omitted)), vacated on other
35
grounds, 543 U.S. 1097 (2005). Instead, evidence should be
excluded under Rule 403 if “there is a genuine risk that the
emotions of a jury will be excited to irrational behavior, and ...
this risk is disproportionate to the probative value of the offered
evidence.” Aramony, 88 F.3d at 1378 (internal quotation marks
omitted).
The evidence presented at trial made it clear that the loans
had been approved by the Board of Directors (albeit after the
fact), such that there was nothing improper about the loans in and
of themselves. During its opening and closing statements, the
government informed the jury that Chapman was not charged with any
crimes in connection with the loans, and the government explained
the limited purpose for which the jury should consider the loan
evidence. When closing argument by the government seemed to
suggest that the jury could consider the loans as evidence that
Chapman had breached his fiduciary duty, the district court gave a
curative instruction, reminding the jury that Chapman was not
charged with any crime in connection with the loans and informing
the jury of the limited purposes for which the evidence was
admitted. See J.A. 2077. Under these circumstances, we do not
believe that the admission of the loan evidence created a
disproportionate risk of irrational behavior on the part of the
jury. Accordingly, we find no error in the district court’s
decision to admit the evidence of the loans. See Aramony, 88 F.3d
36at 1378 (“Because the evidence sought to be excluded under Rule 403
is concededly probative, the balance under Rule 403 should be
struck in favor of admissibility, and evidence should be excluded
only sparingly.”); United States v. Simpson, 910 F.2d 154, 157 (4th
Cir. 1990) (explaining that a district court’s decision to admit
evidence over a Rule 403 objection will not be overturned “except
under the most extraordinary of circumstances, where that
discretion has been plainly abused” (internal quotation marks
omitted)).
V.
Chapman contends that the district court’s instructions to the
jury on the mail fraud charges were improper. According to
Chapman, the court’s instructions improperly suggested that breach
of fiduciary duty can constitute a per se violation of the mail
fraud statute, because the court failed to explain to the jury that
the government must prove a specific intent to defraud. This
argument is utterly without merit.
The part of the instruction about which Chapman complains
provides that:
[A] breach of a fiduciary duty effected in part by the
use of the wires or mails may be a violation of the
federal wire and mail fraud statutes, at least when the
scheme is characterized also by the use of false
representations or by concealment of, or failure to
disclose, relevant and material facts.
37
J.A. 2033. Chapman contends this instruction was “prejudicially
incomplete” because it did not mention the requisite state of mind.
According to Chapman, “a reasonable juror reading this instruction
could conclude that a violation of the mail and wire fraud statutes
may arise from a breach of fiduciary alone, without any intent to
defraud.” Brief of Appellant at 53.
As the government points out, however, the very next paragraph
of the court’s instructions lists all of the elements of the
charge, see J.A. 2034, and on the next page of the instructions the
court explains that the government must prove that Chapman had the
specific intent to defraud. See J.A. 2035. Chapman’s challenge to
the jury instructions therefore fails. See United States v.
Rahman, 83 F.3d 89, 92 (4th Cir. 1996) (“[I]n reviewing the
propriety of jury instructions, we do not view a single instruction
in isolation; rather we consider whether taken as a whole and in
the context of the entire charge, the instructions accurately and
fairly state the controlling law.”).
VI.
In his final challenge to his convictions, Chapman contends
that various actions by the government before and during trial
amount to prosecutorial misconduct that requires dismissal of the
indictment.
38
A.
The pre-trial conduct about which Chapman complains involves
the conduct of United States Attorney Thomas DiBiagio when
obtaining the indictment and the conduct of the FBI when
investigating the case. Chapman, who was active in Democratic
Party politics, contends that he was the victim of a partisan
political witch hunt by DiBiagio, a Republican appointee.6 Chapman
also complains that DiBiagio obtained the indictment by presenting
his own “testimony” to the grand jury in the form of leading
questions.
As to the conduct of the FBI, Chapman claims that an FBI agent
aggressively questioned a Democratic political strategist about
Chapman and Chapman’s relationship with former Maryland Governor
Paris Glendening. Chapman contends that the agent told the
strategist that Chapman “was going down,” and the agent asked the
strategist to become an informant and told him that he could be
paid for information provided. When the strategist declined the
offer, the agent then offered to provide him with unfavorable
information about Republican candidates.
6
In the summer of 2004 (around the time of Chapman’s trial),
newspapers reported that DiBiagio had been pushing his staff to
make three “front page” white collar, public corruption cases by
early November, just days after the 2004 general election. J.A.
2091. DiBiagio was formally rebuked by the Attorney General and
was ordered not to seek further public corruption indictments
without approval from the Deputy Attorney General. DiBiagio
resigned in December 2004.
39
“[A]s a general matter, a district court may not dismiss an
indictment for errors in grand jury proceedings unless such errors
prejudiced the defendants.” Bank of Nova Scotia v. United States,
487 U.S. 250, 254 (1988). Once a defendant is convicted by a jury
after trial, “any error in the grand jury proceeding connected with
the charging decision [is deemed] harmless beyond a reasonable
doubt.” United States v. Mechanik, 475 U.S. 66, 70 (1986).
Because Chapman was convicted by the petit jury, Mechanik
would seem to foreclose his claim that the indictment must be
dismissed because of misconduct before the grand jury. In other
cases where such a claim is made after a guilty verdict, however,
we have gone on to consider whether the prosecutorial misconduct
“substantially influenced the grand jury’s decision to indict, or
if there is grave doubt that the decision to indict was free from
the substantial influence of such violations.” United States v.
McDonald, 61 F.3d 248, 253 (4th Cir. 1995) (internal quotation
marks omitted), overruled on other grounds by United States v.
Wilson, 205 F.3d 720 (4th Cir. 2000) (en banc). In our view,
Chapman’s claims fall far short of satisfying these standards.
The decision to seek an indictment is one that is entrusted to
the sound discretion of the prosecutor, and a “presumption of
regularity supports their prosecutorial decisions.” United States
v. Armstrong, 517 U.S. 456, 464 (1996) (internal quotation marks
omitted). That presumption may be overcome, however, by “clear
40
evidence” that the prosecutor’s decision was driven by a
constitutionally impermissible motive such as “race, religion, or
other arbitrary classification.” Id. The evidence that DiBiagio
was actively seeking out public corruption cases does not amount to
sufficiently clear evidence that DiBiagio’s decision to seek the
indictment was the product of a constitutionally impermissible
motive.
As to Chapman’s contention that DiBiagio engaged in misconduct
before the grand jury, Chapman does not dispute the government’s
contention that DiBiagio did not appear before the grand jury that
returned the superseding indictments in this case, nor is there any
indication that the grand jury that returned the superceding
indictment was ever presented with transcripts of any grand jury
examinations by DiBiagio. Under these circumstances, we cannot
conclude that Chapman was prejudiced by any misconduct by DiBiagio
in the handling of the initial grand jury proceeding. See United
States v. Feurtado, 191 F.3d 420, 425 (4th Cir. 1999) (concluding
that district court properly denied motion to quash indictment
where misleading grand jury testimony was not presented to the
grand jury that handed down a superseding indictment).
As to the conduct of the FBI, we will assume for purposes of
this opinion that the FBI’s alleged heavy-handed tactics occurred
when questioning the political strategist and were improper.
Chapman, however, has not even attempted to demonstrate how that
41
conduct influenced the grand jury’s decision to indict. Chapman
does not contend that the witness testified before the grand jury
or that his statements were otherwise presented to the grand jury.
Because Chapman has not established that the FBI misconduct had any
bearing on the grand jury’s decision to indict, the mere existence
of that misconduct does not warrant dismissal of the indictment.7
See United States v. Lee, 906 F.2d 117, 120 (4th Cir. 1990) (per
curiam) (“[A]s the Supreme Court has explained, absent demonstrable
7
When setting out of the facts of this case in his brief,
Chapman notes that DiBiagio himself ran roughshod over witnesses,
offering some witnesses preferential treatment by not prosecuting
them if they cooperated with him, but prosecuting a witness who
reluctantly testified for the government, and by promising one
witness (a state employee) that her job would be protected as long
as she cooperated with him. However, in the argument section of
Chapman’s brief where Chapman contends that the indictment should
be quashed on grounds of prosecutorial misconduct, Chapman makes no
mention of DiBiagio’s treatment of these witnesses. Because
Chapman makes no argument as to why the treatment of these
witnesses might warrant dismissal of the indictment, we decline to
consider that issue sua sponte. See Fed. R. App. P. 28(a)(9)(A)
(requiring argument section of brief to contain “appellant’s
contentions and the reasons for them, with citations to the
authorities and parts of the record on which the appellant
relies”); cf. United States v. Williams, 461 F.3d 441, 448 n.3 (4th
Cir. 2006) (“Although Williams references the Self-Incrimination
Clause at various places in his brief, he neither argues nor cites
any authority for the proposition that the district court's ruling
conditioning the admissibility of the demonstration on his
willingness to take the stand ‘compelled [him] to be a witness
against himself’ in violation of the Self-Incrimination Clause. We
therefore do not consider the argument.”); United States v.
Hammoud, 381 F.3d 316, 334 n.7 (4th Cir. 2004) (en banc) (“Hammoud
suggests that the FBI should have abandoned the surveillance when
it became clear that no foreign intelligence information would be
obtained. Hammoud provides no argument supporting this claim,
however, and we therefore do not consider it.”), vacated on other
grounds, 543 U.S. 1097 (2005).
42
prejudice, or substantial threat thereof, dismissal of the
indictment is plainly inappropriate, even though the violation may
have been deliberate.” (internal quotation marks omitted)).
B.
Chapman also contends that various actions of the government
at trial amount to misconduct severe enough, when considered
cumulatively, to require dismissal of the indictment.
Specifically, Chapman contends that dismissal of the indictment is
warranted because (1) the government wrongfully withheld evidence
that should have been turned over to Chapman under Brady v.
Maryland, 373 U.S. 83 (1963); (2) the government systematically
excluded black women from the jury; (3) the government referred to
Earl Bravo, a defense witness and former president of Chapman
Capital Management and Chapman board member, as a “co-schemer”; (4)
the government improperly presented evidence of the loans to
Chapman from his companies; and (5) the government improperly
vouched for its witnesses and made other improper statements during
closing argument.
“In reviewing a claim of prosecutorial misconduct, we review
the claim to determine whether the conduct so infected the trial
with unfairness as to make the resulting conviction a denial of due
process.” United States v. Scheetz, 293 F.3d 175, 185 (4th Cir.
2002) (internal quotation marks omitted). Generally, cases
involving prosecutorial misconduct occurring during trial are
43
remedied by the granting of a new trial, but that relief is
warranted only in “the most egregious cases.” United States v.
Dudley, 941 F.2d 260, 264 (4th Cir. 1991). Chapman cites no case
where the significantly more drastic remedy of dismissing the
indictment was found to be a proper remedy for prosecutorial
misconduct occurring during trial. See United States v. Derrick,
163 F.3d 799, 807 (4th Cir. 1998) (“The dismissal of an indictment
altogether clearly thwarts the public’s interest in the enforcement
of its criminal laws in an even more profound and lasting way than
the requirement of a retrial.”). Assuming that such a remedy would
ever be appropriate, it seems clear that the conduct warranting a
dismissal of the indictment would need to be substantially more
egregious than conduct that would warrant the granting of a new
trial. We have no difficulty concluding that the alleged
misconduct at issue here was not sufficiently egregious to warrant
dismissal of the indictment.
We have already concluded that the evidence of the loans was
properly admitted and that Chapman failed to establish any error in
the selection of the jury. Because there was no error associated
with those claims, we will not consider them further.
The Brady material that Chapman contends was withheld by the
government were the exhibits used in Alan Bond’s “cherry-picking”
trial. Although Chapman did not receive the exhibits before the
trial started, he did receive them more than a month before Bond
44
testified. To the extent that the government should have provided
the material earlier, Chapman still had sufficient time to examine
the documents, and Chapman therefore was not prejudiced by the
delay.
As to Earl Bravo, the government on one occasion described
Bravo, one of Chapman’s principal deputies at the Chapman
companies, as a “co-schemer” on the various fraud charges when
seeking to admit a statement made by Bravo. See Fed. R. Evid.
801(d)(2)(E) (defining as not hearsay “a statement by a
coconspirator of a party during the course and in furtherance of
the conspiracy”). The district court sustained Chapman’s objection
to the line of questioning, struck the reference to “co-schemer,”
and gave the jury a curative instruction the next day. Chapman
thus was not prejudiced by the single reference to Bravo as a co-
schemer.
Finally, we consider Chapman’s contention that the government
made improper and prejudicial statements during its rebuttal
closing argument. Because Chapman failed to object to the
statements when they were made, our review is for plain error only.
The government’s statement that it had been an “incredible
privilege” to meet some of the witnesses did not amount to the
government vouching for those witnesses. See, e.g., United States
v. Collins, 415 F.3d 304, 307 (4th Cir. 2005) (explaining that a
prosecutor improperly vouches for a witness if the prosecutor
45
indicates his personal belief in the witness or indicates to the
jury that he can guarantee the truthfulness of a witness). And the
government statement that the arguments of Chapman’s attorney “pain
me personally” was nothing more than an innocuous response to
various statements made in Chapman’s closing.8 Accordingly, these
statements were not improper.
The prosecutor’s statements about his duty to seek justice and
to “make sure that the burden of punishment never falls on people
when it is not appropriate,” J.A. 1974, are the only comments that
are even arguably improper. See, e.g., United States v. Higgs, 353
F.3d 281, 332 (4th Cir. 2003) (“As a general premise, a
prosecutor’s repeated references to his or her personal opinion
about a defendant may indeed be found improper.”). Even if we
assume, however, that this argument was improper, we find no
prejudice. The argument was but a small part of the government’s
lengthy closing and rebuttal arguments, and was, at most, just over
the edge of propriety. It is thus “unlikely that [the argument]
had any measurable tendency to mislead the jury, nor does it appear
that the prosecutor had any intention to divert the attention of
the jury.” Smith, 441 F.3d at 265. Under these circumstances, we
cannot conclude that the argument was so plainly prejudicial as to
require us to notice and correct the error on plain error review.
8
For example, counsel for Chapman argued that the government
was “being dishonest” with the jury, J.A. 1933, and that the
government had “ruined a lot of lives.” J.A. 1947.
46
Accordingly, we conclude that none of the specific instances
of “misconduct” identified by Chapman amount to reversible error.
Errors that do not warrant reversal individually, however, can
warrant reversal when the cumulative effect of the errors is
considered. See United States v. Martinez, 277 F.3d 517, 532 (4th
Cir. 2002) (“Under the ‘cumulative error doctrine,’ Martinez can
satisfy the requirements of the third prong of Olano if the
combined effect of the two Rule 11 errors affected his substantial
rights, even if individually neither error is sufficiently
prejudicial.”). But because we have identified, at most, only one
error, the cumulative error doctrine has no application to this
case. Chapman’s motion to dismiss the indictment on grounds of
prosecutorial misconduct was thus properly denied.
VII.
Chapman contends that his sentence was imposed in violation of
the principles set forth in United States v. Booker, 543 U.S. 220(2005). We agree.
A.
Chapman was tried after the Supreme Court issued its decision
in Blakely v. Washington, 542 U.S. 296 (2004), but before the
issuance of our opinion in United States v. Hammoud, 381 F.3d 316(4th Cir. 2004) (en banc), and the Supreme Court’s opinion in
Booker. Anticipating that Blakely might lead to the invalidation
of the Sentencing Guidelines, the district court submitted certain
47
sentencing interrogatories to the jury. Answering the
interrogatories, the jury concluded that the amount of loss caused
by the eChapman IPO charges was $5,000,856.00,9 and that Chapman
abused a position of trust with regard to the eChapman fraud
scheme.
At sentencing (which took place after Hammoud but still before
Booker), the district court used the loss amount determined by the
jury to add an 18-level enhancement to the base offense level
established by the Guidelines. The court also applied a two-level
enhancement based on the jury’s determination that Chapman abused
a position of trust. The district court then applied other
enhancements as recommended in the presentence investigation
report--an enhancement for role in the offense and obstruction of
justice--to arrive at a total offense level of 32 and a Guideline
sentencing range of 121-151 months. The district court then
departed downward three levels, which yielded a Guideline
sentencing range of 87-108 months. The district court sentenced
Chapman to 90 months.
B.
There are two types of Booker sentencing errors -- Sixth
Amendment errors and statutory errors. A Sixth Amendment error
“occurs if a sentencing court enhances a sentence beyond the
9
The jury was unable to reach a unanimous decision on the
amount of loss caused by charges involving the business development
funds.
48
maximum authorized by facts found by a jury beyond a reasonable
doubt or admitted by the defendant.” United States v. Williams,
445 F.3d 724, 741 (4th Cir.) (internal quotation marks omitted),
cert. denied, 75 U.S.L.W. 3174 (U.S. Oct. 2, 2006). A statutory
error “occurs if the sentencing court treats the Guidelines as
mandatory, rather than as advisory.” Id. (internal quotation marks
omitted). We agree with Chapman that a Sixth Amendment error
occurred in this case.
The Guidelines establish a base offense level of six for
Chapman’s convictions. See U.S.S.G. § 2B1.1(a)(2). Adding to that
the 18-level loss amount enhancement and the two-level abuse of
position of trust enhancement authorized by the jury’s answers to
the special interrogatories, the highest offense level supported by
the jury’s findings is 26. With Chapman’s category I criminal
history, the maximum sentence authorized by the jury’s findings was
63-78 months. Because the 90-month sentence imposed by the
district court exceeded that range, the district court’s
application of the role in the offense and obstruction of justice
enhancements violated Chapman’s Sixth Amendment rights.
The government, however, contends that the two-level
obstruction of justice enhancement was properly applied. The jury
convicted Chapman on a charge of lying to the SEC in a letter, and
lying to the SEC in the letter was one of the grounds for the
obstruction enhancement. The government therefore argues that the
49
obstruction enhancement was based on facts alleged in the
indictment and found beyond a reasonable doubt by the jury.
Because the 90-month sentence imposed is within the Guidelines
sentencing range for an offense level of 28, the government argues
that no Sixth Amendment violation occurred.
While this argument has superficial appeal, it is foreclosed
by our decision in United States v. Hughes, 401 F.3d 540 (4th Cir.
2005). In Hughes, the defendant was convicted of several counts of
bankruptcy fraud based on statements he made in various schedules
he filed with the bankruptcy court and two counts of perjury based
on false testimony given while under oath during bankruptcy
proceedings. At sentencing the district court grouped the
convictions and imposed a sentence for the bankruptcy fraud
charges; no independent sentence was imposed for the perjury
charges. To account for the perjury convictions, however, the
district court imposed a two-level obstruction of justice
enhancement, based on the false testimony before the bankruptcy
court. See id. at 558. The district court at sentencing also
applied several other fact-based enhancements to the defendant’s
sentence. See id. at 544.
When considering the Booker issue on appeal, the Hughes court
found Sixth Amendment error because the defendant’s sentence was
increased beyond what he would have received based only on the
facts as found by the jury. The Hughes court stated that, with one
50
exception (an enhancement for an offense occurring during
bankruptcy proceedings), all of the enhancements to the sentence
“were based upon facts found by the district court, not by the
jury.” See id. at 544 & n.3.
Just as lying to the SEC is conduct that would support an
obstruction of justice enhancement under the Guidelines, the
perjury for which the defendant in Hughes was convicted would
likewise support an obstruction of justice enhancement. By
concluding that all of the enhancements (save one not relevant to
this analysis) that were applied in Hughes were based on facts not
found by the jury, the Hughes court implicitly rejected the very
argument made by the government in this case. Accordingly, we are
constrained by Hughes to reject the Government’s argument that the
obstruction of justice enhancement was proper under Booker. We
therefore vacate Chapman’s sentence and remand for re-sentencing.
VIII.
The district court ordered Chapman to pay $5,000,856.00 in
restitution, the loss amount found by the jury, to two DEM-MET
clients--Alliant Energy and the Maryland Pension System. Chapman
raises several challenges to the restitution ordered by the
district court. Because these issues are raised for the first time
on appeal, we review them for plain error only.
Chapman first contends that it was error for the district
court to adopt the loss amount found by the jury. Chapman contends
51
that it was error to submit the loss amount question to the jury,
and that the error was compounded when the district court adopted
the loss amount found by the jury.
Even assuming that it was error, during the uncertain time
between Blakely and Booker, to submit the loss-amount question to
the jury, Chapman fails to explain how he was prejudiced by the
issue being decided by the jury rather than the district court.
Moreover, although the district court ordered restitution in the
same amount as found by the jury, the court gave no indication that
it considered itself bound by the jury’s finding. Thus, if the
district court had perceived a problem with the loss amount
determined by the jury, we have no reason to believe that the court
would not have made its own determination of the loss amount. And
because the amount of restitution ordered by the court is within
the range supported by the evidence presented at trial (and was in
fact substantially less than the loss amount sought by the
government), we fail to see how Chapman was prejudiced by the
manner in which the court arrived at the amount of the restitution
award.10
10
Chapman also asserts in a single sentence that the district
court failed to observe the procedures for determining the amount
of restitution set forth in 18 U.S.C.A. §§ 3663A & 3664. Because
Chapman makes no argument on this point and does not even mention
the procedures that he believes the district court failed to
follow, we decline to consider the issue. See Fed. R. App. P.
28(a)(9)(A); Williams, 461 F.3d at 448 n.3.
52
Chapman also contends that the district court should have
determined whether the victims have already been compensated for
their losses through the restitution that has been paid by Alan
Bond in connection with the cherry-picking charges. This argument
is without merit. Bond was involved in two crimes that happened to
cause losses to DEM-MET’s clients--the cherry-picking scheme and
the eChapman IPO scheme. The crimes, however, were unrelated, and
they inflicted distinct and unrelated sets of losses on the DEM-MET
clients. There is no reason why Chapman’s restitution obligation
should be offset by restitution paid by another criminal for an
unrelated crime that happened to inflict unrelated financial losses
on the victims of Chapman’s crimes.
Under these circumstances, we decline to exercise our
discretion to notice any errors that might have been associated
with the district court’s restitution order.
IX.
Accordingly, for the foregoing reasons, we affirm Chapman’s
convictions and the restitution order. However, we vacate
Chapman’s sentence and remand for re-sentencing.
AFFIRMED IN PART,
VACATED IN PART,
AND REMANDED
53