United States v. Allen ( 1996 )

REVISED SEPTEMBER 16, 2014
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 94-20403
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
versus
WILLIA ALLEN, LLOYD SWIFT and
FRANK C. CIHAK,
Defendants-Appellants.
Appeal from the United States District Court
for the Southern District of Texas
February 27, 1996
Before REAVLEY, HIGGINBOTHAM, and BARKSDALE, Circuit Judges.
HIGGINBOTHAM, Circuit Judge:
This case involves an elaborate series of interlocking schemes
to defraud various banks, particularly First City National Bank of
Houston, of substantial sums of money. A grand jury returned a 34-
count indictment against Frank Cihak, Lloyd Swift, and Willia
Allen. After an eight week trial, the district court dismissed one
of the counts and submitted the remaining 33 to the jury. The jury
found the defendants guilty on all counts. The district court
sentenced Cihak to 151 months imprisonment, five years supervised
release, and an $800,000 fine. Allen received 70 months
imprisonment and five years supervised release. The court
sentenced Swift to 87 months imprisonment and $197.674.71 in
restitution payments to the FDIC. The defendants appeal their
convictions and sentences. We affirm.
I
We provide here a brief overview of the schemes exposed at the
trial. We begin by identifying the characters and outlining the
structure of the orchestrated scams. We then summarize the events
in rough chronological order.
A
1
The activities of defendant Frank Cihak lie at the center of
this case. In the early 1980s, Cihak was a Chicago banker.
Through holding companies, he controlled or owned a substantial
interest in several Illinois banks, including Worth Bank & Trust,
Mount Greenwood Bank, and First National Bank of Danville. Cihak
held high-level management or board positions at many of these
banks and maintained offices at most of them. In the middle of the
1980s, Cihak became involved in the recapitalization of the failed
First City National Bank of Houston, the largest of a number of
banks owned by a holding company called First City Bancorporation.
The principal figure in the First City recapitalization was Robert
Abboud. Cihak organized the nuts and bolts of the recapitalization
and assumed the number two position at First City Bancorporation
and Bank upon its completion.
Joseph Fahy was a New York City securities dealer. Throughout
the 1980s, he operated several businesses, including STS Holding
2
Corp. and Fahy & Co., which attempted to generate funds through
municipal securities and automobile loan transactions. Although
Fahy testified for the United States at trial under a subpoena, a
grant of immunity did not improve his poor memory of the events
involved.
David Lucterhand was a Chicago businessman who began as a
dealer on the Chicago Board of Options Exchange. In the 1980s,
Lucterhand operated businesses called the Lucterhand Group, Inc.
and L.L. Chandos Co. Lucterhand initially attempted several
business deals with Fahy. In desperate financial straits as a
result of these deals, he turned to Cihak for help in finding a way
to generate funds. Cihak eventually arranged for First City Bank
to hire Lucterhand as a consultant. Lucterhand testified on behalf
of the United States at trial under a grant of immunity.
Defendant Lloyd Swift was a horse breeder with a farm in
Missouri. He ran a horse trading operation and other businesses
including Swift Thoroughbred, Swift Farms, and Swift Implement Co.
Swift also possessed considerable knowledge of automobile sale and
loan transactions. In the late 1970s and early 1980s, the market
for thoroughbreds crashed, and Swift’s financial situation
deteriorated. Cihak eventually arranged for First City to hire
Swift as a consultant on automobile matters.
Defendant Willia Allen was an accountant who owned and
operated her own accounting firm, Allen & Associates. Allen was
not a CPA. Together with another individual, Allen bought a
company called Shepherd Fleets, which eventually held Dollar Rent-
3
A-Car franchises in at least three cities. Allen also owned a
construction firm called Combined General Contractors. Allen
possessed some knowledge of bank obligations under the Community
Reinvestment Act, a federal statute designed to encourage banks to
lend funds to lower income businesses and individuals in the banks’
communities. Cihak arranged for First City to hire Allen as a
consultant on CRA matters.
The Cochonours were a wealthy Chicago family. Two Cochonour
brothers, Don and Robert, had extensive dealings with Swift’s horse
businesses. At one time, the two brothers also owned a percentage
in Tri-Star Cablevision, Inc.; Cihak claimed an interest in this
company as well.
2
According to the government, Cihak used two principal methods
to divert funds from First City bank to his own use. In the first
method, Cihak used his position at First City to have that entity
hire Lucterhand, Swift, and Allen as consultants. Cihak had these
consultants bill First City for substantial sums of money in
consulting fees. Cihak approved the invoices, and First City paid
them. The consultants normally transferred the proceeds of these
fees from accounts in their names at First City to accounts in
their names at one of Cihak’s Chicago banks, in order to avoid the
watchful eyes of First City auditors. Once the funds were out of
Houston, the consultants transferred a portion of their fees to
Cihak. These kickbacks occurred either when a consultant wrote a
check to Cihak or authorized an internal transfer, or when Cihak
4
used his position at the Chicago banks to transfer the funds to
himself on his own.
In the second method of defrauding the First City entities,
Cihak used his position to arrange for First City Bank to fund
various loans to Lucterhand, Swift, and Shepherd Fleets. Cihak
then either diverted the funds generated to his own use or received
bribes from the borrowers. In Lucterhand’s case, Cihak used the
funds generated from the consulting fees to pay back these loans.
B
This story begins in the early 1980s. From 1982 through 1985,
Cihak persuaded the boards of directors of two of his Chicago
banks, Mount Greenwood and First of Danville, to loan federal bonds
of large face value to Fahy. Fahy represented that he would
deposit these bonds in an account at a different corporation, where
they would remain to serve as the regulatory capital necessary for
Fahy to operate his securities dealing businesses, primarily STS.
First of Danville and Mount Greenwood together loaned Fahy bonds
with a total face value of $2,000,000. The bonds did not remain in
the corporate account as promised; instead, Fahy sold the bonds or
borrowed against them and used the funds generated for, in his
words, “legal fees, accounting fees, salaries, travel and
entertainment and . . . those arenas.”
When Mount Greenwood and First of Danville began to demand the
return of the bonds, or the money that should have been generated
from their maturity, Cihak secretly arranged to pay back the banks
himself. He had Fahy open a custodial trust account at Worth Bank
5
& Trust in the name of STS. This account became one of the primary
conduits for the funds generated by the frauds involved in this
case.
In November of 1986, Cihak personally attempted to borrow
$1,600,000 from Citibank in New York, representing that he would
invest the funds generated in an auto receivables company. As
collateral, Cihak offered two purported letters of credit in his
favor, one from Mount Greenwood and one from Worth, each in the
amount of $800,000. To support the letters, Cihak presented
purported bank documents, including board minutes memorializing the
authorizations of the letters of credit. On the strength of the
letters of credit and supporting documents, Citibank funded the
loan in full. The letters of credit and the supporting documents
were fraudulent. Each letter bore the forged signature of Randall
Ytterberg; although Ytterberg was at various times involved with
Mount Greenwood and the holding company that owned some of the
Chicago banks, he did not have authority to sign letters of credit
for either bank in November, 1986. Neither bank board ever
authorized the issuance of the letters of credit.
Apparently still short of funds necessary to resolve the Fahy
problem, Cihak orchestrated a certificate of deposit scam at Worth
in late 1986 and early 1987. Using various brokers, Cihak offered
jumbo CDS in the amounts of $99,000 and $100,000. Cihak
represented that these CDS belonged to Worth, a federally insured
bank. Several pension funds and other investors deposited large
amounts into the Worth STS trust account. Cihak then diverted the
6
money to his own use. Using his position in the Worth management,
Cihak had subordinates prepare false account documents for each CD.
Cihak paid the interest on the CDS and eventually returned the
principal to the investors when the CDS “matured” one or two years
later.
Using the money from the Citibank loan and the CD scam, Cihak
resolved the Fahy debt to First of Danville and Mount Greenwood.
Cihak funneled the Citibank money through the Worth STS trust
account and bought back the Fahy bonds that had not yet matured.
He returned these bonds, together with the cash supposedly
representing the money from the mature bonds, to Mount Greenwood
and First of Danville.
Cihak renewed his contact with Lucterhand in Chicago at around
this time. Lucterhand initially became involved with STS, but when
the Fahy business ventures failed, Lucterhand’s financial situation
became desperate. In late 1987, Cihak arranged for Mount Greenwood
to loan Lucterhand $15,000 without adequate supporting documents or
collateral. When Lucterhand was unable to pay back the loan, Cihak
arranged for a $5000 good faith payment on the loan. In return,
Cihak had Lucterhand open a custodial trust account at Worth and
sign a form authorizing Cihak to control the account. Thereafter,
Cihak had Lucterhand bill First of Danville $3000 per month,
although Lucterhand was providing no services to that bank.
By this time, Cihak was heavily involved at the
recapitalization of First City Bank in Houston. In January, 1988,
Cihak presented Lucterhand with a check for $96,500 from First City
7
Bank to the Lucterhand Group. Cihak had Lucterhand endorse it and
deposit the funds into the Worth Lucterhand trust account. At the
time, Lucterhand had done no work for First City Bank, and in fact,
had never been to Houston. Cihak funneled most of this money
through the Worth STS trust account to Citibank to pay off the
Citibank loan. Cihak suggested that Lucterhand come to Houston to
work as a consultant at First City. Lucterhand did so. The two
began a pattern of kickback payments. Lucterhand billed First City
for consulting fees and Cihak approved the invoice; Lucterhand then
deposited the money into his own First City account and transferred
it to the Worth Lucterhand trust account, where Cihak diverted most
of the funds to his own use.
Beginning in early 1988, Cihak arranged for First City to hire
Allen as a consultant. Using information already available to the
general public, Allen compiled three volumes of information
relevant to First City Bank’s duties under the Community
Reinvestment Act and gave a seminar on the same subject. For these
services, she billed First City Bank over $425,000 in a series of
invoices beginning in April of 1988. Cihak approved most or all of
the Allen invoices. Allen deposited the money generated by the
First City checks into her First City Bank account and moved the
funds into a Worth checking account in the name of Allen &
Associates. She then transferred to Cihak well over one fourth of
the money she earned.
Also in early 1988, Cihak arranged for First City Bank to hire
Lloyd Swift as a consultant to examine the bank’s automobile
8
accounts. Swift arranged a sale of a large and suspect automobile
loan portfolio for $.97 on the dollar and began to liquidate First
City Bank’s stock of repossessed automobiles. Swift and Cihak then
began kickbacks. After Cihak approved a Swift invoice and First
City wrote a check, Swift deposited the money into a First City
Bank account in the name of one of his businesses. Swift moved a
portion of the money to one of the various accounts that Swift or
his businesses held at Worth, and transferred a substantial
percentage of the proceeds to Cihak’s personal account at Worth or
to other Cihak accounts at other banks.
In the summer of 1988, Cihak arranged for First City to loan
Allen and another investor $686,000, without proper loan documents,
to buy Shepherd Fleets. Shepherd Fleets eventually owned Dollar
Rent-A-Car franchises in three cities. Under Cihak’s direction,
First City Bank funded this loan out of a department that did not
normally deal in loans of this type and in spite of the fact that
neither Allen nor her partner had any experience in the car rental
business. The Shepherd Fleets business was a disaster. The
company had debts of over $400,000 not disclosed at the time of the
purchase, and Allen succeeded in siphoning off hundreds of
thousands of dollars of Shepherd Fleets money to her own fledgling
construction company, Combined General Contractors. Under Cihak’s
direction, First City Bank increased the loan to Shepherd Fleets to
$960,000 on the strength of financial statements in which Allen
falsely represented herself to be a CPA and forged signatures of
CPAs on the staff of Allen & Associates. When Shepherd Fleets
9
plunged further into debt, First City increased the loan by
$400,000 more to cover overdrafts it had already honored, again on
the strength of documents in which Allen falsely represented
herself to be a CPA. First City Bank never recovered most of this
loan. As part of his reward for his role in this transaction,
Cihak received a Cadillac from the Shepherd Fleets stock.
In the middle of 1988, Cihak began receiving pressure from
Citibank to pay off the $1,600,000 loan. In August of the same
year, Cihak had Lucterhand borrow $1,800,000 from First City Bank.
Under Cihak’s direction, First City Bank made the loan without the
financial statements normally necessary for a loan of that size.
To provide collateral for the loan, Cihak and Lucterhand produced
false documents purporting to memorialize a fictional transaction
in which Lucterhand purchased a set of condominiums from the FSLIC
and resold them to a Japanese investor named Hui-Nan Lin at a large
profit. These documents bore the forged signature of Randall
Ytterberg, an attorney named Ken Young, and another attorney named
John Wu.
Cihak had Lucterhand open an account at First City Bank and
used his position as a bank officer to exercise control over this
account. After instructing First City Bank underlings to fund the
Lucterhand loan with deposits into this account, Cihak wired over
$1,200,000 of the money to the Worth Lucterhand trust account,
after which Cihak wired the money to his personal account at
Citibank to pay off his loan there.
10
Upon completion of this transaction, and under pressure from
First City Bank officials, Cihak arranged documentation to support
the Lucterhand loan. Cihak introduced Lucterhand to Allen. In a
three-hour meeting with Lucterhand, Allen took down false financial
figures that Lucterhand provided to her orally; Lucterhand changed
the figures when Allen’s facial expressions and body language
suggested that they were insufficient to support the loan.
Lucterhand provided no underlying tax or other documentation to
support the figures he gave to Allen. Allen took these fabricated
financial figures and prepared false financial statements for him
and his businesses, documentation to justify the already funded
loan. Allen forged the name of a CPA in her firm to engender
confidence in the financial figures.
Each time a payment became due on the Lucterhand loan from
First City Bank, Cihak had Lucterhand invoice the bank for amounts
large enough to cover the loan payments. Cihak approved the
invoices. In this manner, Lucterhand was able to “pay back” the
loan.
Also in August, 1988, Cihak arranged for First City Bank to
loan Swift $300,000 despite the absence of the usual documentation.
In November, 1988, Cihak had First City Bank increase this loan by
$650,000, and in January of 1989 arranged another $65,000 increase.
A portion of these funds was diverted to Cihak’s use. At the time,
Swift stated that the loan would be secured by a first mortgage on
his farm in Missouri, but he failed to provide appropriate
appraisals and title documents. When Swift did provide loan
11
documents, they failed to disclose the fact that Swift already owed
over $1,000,000 to the Cochonours. The documents also bore the
forged signature of a CPA with Allen & Associates; Allen was
Swift’s accountant at the time. A title search on the Swift Farm
found that at least two liens already existed on the Swift property
and that First City’s collateral was wholly inadequate.
In December, 1988, Cihak had to raise funds sufficient to pay
back the principal on his bogus jumbo CDS. To help generate the
necessary money, Cihak arranged for First City Bank to loan
Lucterhand an additional $200,000. Cihak told Lucterhand to tell
the bank’s loan officers that the money was needed to pay taxes.
After Lucterhand had deposited this money into the Worth Lucterhand
trust account, Cihak moved it to the Worth STS trust account and
used it to pay off the CD holders.
Later in 1989, under pressure from First City Bank officers,
and under the threat of possible discovery by federal regulators,
Cihak set about removing the Swift loan from the books of First
City. Cihak arranged a transaction in which First City funded a
dummy note from the Cochonours, which Cihak signed. Cihak used
most of the money produced to pay off the Swift loan; around
$170,000 of this money was wired to an account controlled by the
Cochonours. The next day, the Cochonours purported to forgive
Swift’s outstanding million plus debt to them in return for a deed
to the Swift farm, in spite of the fact that the farm’s appraised
value was significantly below $1,000,000. The Cochonours then
purported to borrow over $1,000,000 from a business called Vinland
12
Property Trust and sought to use the farm as collateral. Cihak
guaranteed the loan for the Cochonours, who never made a payment.
Instead, Cihak made all of the payments through one of his
businesses, Orland Enterprises. When Vinland discovered the shaky
nature of the Swift farm collateral, Cihak pledged certain
condominiums belonging to Orland Enterprises.
The various interlocking schemes began to unravel in late
1989, when federal regulators and internal bank investigators in
Chicago examined certain of Cihak’s transactions. To explain their
activities, Cihak, Allen, Swift, and Lucterhand recounted an
elaborate series of transactions. According to them, the money
moving from Lucterhand to Cihak, and later from Cihak through the
Worth Lucterhand trust account, represented a deal in which
Lucterhand initially bought and then sold back to Cihak a portion
of Orland Enterprises’ interest in the mortgages on certain
condominiums. The transfers from Swift to Cihak represented
payments on a pre-existing loan from Cihak to Swift. The transfers
from Allen to Cihak represented money that Allen actually owed to
the Cochonours; the Cochonours simply asked Allen to pay Cihak in
order to retire a pre-existing debt they owed to him.
II
The indictment charged Cihak with conspiracy, bank fraud,
eight counts of wire fraud, eleven counts of misapplication of bank
funds, two counts of making false statements to obtain loans, three
counts of making false entries in bank records, six counts of money
13
laundering to conceal the proceeds of specified unlawful activity,
and money laundering to promote specified unlawful activity. Allen
was indicted for conspiracy, bank fraud, wire fraud, three counts
of misapplication, making false statements to a bank, and money
laundering to conceal the proceeds of specified unlawful activity.
The grand jury charged Swift with conspiracy, bank fraud, two
counts of wire fraud, three counts of misapplication of bank funds,
making false statements to a bank, and two counts of money
laundering to conceal the proceeds of specified unlawful activity.
The district court dismissed one of the wire fraud counts against
Cihak and Allen at the close of the evidence, and the jury
convicted on all remaining counts.
Defendants here share three arguments. Their primary joint
contention concerns the victim of their various frauds. Defendants
argue that insufficient evidence established that they defrauded
federally insured First City Bank, a federally insured entity,
rather than First City Bancorporation, which was not. The second
argument common to all defendants is that the evidence was
insufficient to allow the jury to disbelieve the cover stories the
defendants provided for the various transactions. A rational jury,
the defendants argue, would have accepted these explanations. The
third shared argument concerns the counts alleging money laundering
to conceal the proceeds of specified unlawful activity. The
defendants ask us to reverse these convictions on the ground that
the funds allegedly laundered were not yet “proceeds” at the time
of the laundering.
14
Defendant Cihak appeals his conviction and sentence on other
grounds as well. He argues that certain of the wire transfers
forming the basis for the wire fraud counts were not covered by the
wire fraud statute because they were not in furtherance of the
specified scheme to defraud, which was already complete at the time
of the transfers. Cihak also uses this rationale to challenge his
conviction for money laundering to promote specified unlawful
activity. Cihak challenges one of his wire fraud convictions, on
a charge stemming from the First City Bank loan to Shepherd Fleets,
on the ground that insufficient evidence linked Cihak to this wire
transfer. All of his convictions must fall, he argues, because the
trial court abused its discretion on certain evidentiary rulings.
Cihak further requests that we upset his sentence on the ground
that the trial court miscalculated the amount of money involved in
the various convictions. Finally, in an argument raised for the
first time in their reply briefs, Cihak and Allen argue that the
district court committed plain error by not submitting to the jury
the issue of the materiality of their misrepresentations to First
City Bank.
Defendant Swift challenges his conviction of conspiracy on the
ground of fatal variance, arguing that the evidence at trial
established nine separate conspiracies while count one of the
indictment alleged a single conspiracy. Swift also claims that the
trial court abused its discretion in proceeding with the trial on
a day that Swift was unable to attend. Defendant Allen makes no
other arguments.
15
Some defendants make certain other arguments. Cihak, for
instance, argues that the record did not include evidence
sufficient to allow the jury to conclude that his approval of the
invoices was a factor in causing their payment, or that he
attempted to conceal the proceeds of the kickbacks. We find no
merit in these other arguments from Cihak, and given the clarity of
the record on these questions,1 we will not unnecessarily lengthen
this opinion with a full discussion of them.
III
A
The primary grounds upon which the defendants rely to attack
their convictions is sufficiency of the evidence to prove that
First City National Bank, as opposed to First City Bancorporation,
was the intended and actual victim of their illegal activities.
The defendants’ argument runs as follows. At the time of the
schemes, the federal statutes covering misapplication of bank funds
and falsification of bank records covered only activities designed
to defraud certain listed institutions, and the lists of covered
institutions included in these statutes did not include holding
companies. See 18 U.S.C. § 656 (1988) (misapplication); 18 U.S.C.
1
As Professor Pamela Bucy has explained, the mens rea
requirement for certain portions of the money laundering statutes
can be less than stringent. See Pamela H. Bucy, Epilogue: The
Fight Against Money Laundering: A New Jurisprudential Direction,
44 Ala. L. Rev. 839, 843 (1993).
16
§ 1005 (1988) (falsification).2 First City Bank, but not First
City Bancorporation, was a federally insured entity. Accordingly,
the government had to introduce evidence sufficient to prove that
the defendants defrauded First City Bank, not the holding company,
in order to sustain convictions for misapplication and
falsification. The government did not do so.
The defendants further argue that the counts in the indictment
alleging wire fraud, money laundering to conceal the proceeds of
specified unlawful activity, conspiracy, and bank fraud, all
depended in one way or another upon the allegations in the
misapplication and falsification counts. The defendants note that
the wire fraud counts alleged that the fraud occurred in wire
transfers designed to further the misapplication; the money
laundering allegedly concealed the proceeds of the misapplication;
the conspiracy count recited misapplication and falsification as
among objectives of the conspiracy; and the bank fraud count
alleged as part of the scheme a series of transactions to defraud
First City by misapplying its funds. See 18 U.S.C. § 371(conspiracy); 18 U.S.C. § 1343 (wire fraud); 18 U.S.C. § 1344 (bank
fraud); 18 U.S.C. § 1956(a)(1)(B)(I) (money laundering to conceal
the proceeds of specified unlawful activity). The defendants argue
that any variation as to the victim of the frauds between the
scheme alleged in the indictment and that proved at trial
2
In 1989 and 1990, Congress amended some of the statutes at
issue in this case to cover activities directed against holding
companies of federally insured depository institutions. See, e.g.,
Pub. L. No. 101-73, § 962, 103 Stat. 501-03 (1989); Pub. L. No.
101-647, § 2595, 104 Stat. 4906-07 (1990).
17
constituted a fatal variance; that the wire transfers could not
constitute wire fraud because the underlying transaction furthered
by the transfer, the alleged misapplication, was not itself
illegal; and that the jury may have convicted on the conspiracy and
bank fraud counts on the legally insufficient grounds that the
defendants designed a scheme to misapply bank funds and falsify
bank records.
In addition, citing United States v. McDow, 27 F.3d 132, 135-
36 (5th Cir. 1994), the defendants argue that even if their scams
did in fact harm First City, the government introduced insufficient
evidence to allow a rational jury to find that they knew they were
defrauding a bank. Accordingly, the defendants ask us to reverse
their convictions on the ground that no rational jury could infer
that they possessed the necessary criminal intent.
In response, the United States does not take issue with any of
the defendants’ legal reasoning or inferences. The government
argues only that the evidence at trial was sufficient to allow the
jury to find that the defendants intended to and did defraud the
bank, at least temporarily. We reach only the narrow question of
whether sufficient evidence established that the defendants
intended to and did deprive First City Bank of its funds. We
answer this question affirmatively.
Most of the alleged misapplications and falsifications
occurred in the context of the kickbacks of the consultants’ fees,
in which Swift, Allen, and Lucterhand provided invoices for
consulting services and transferred a percentage of the resulting
18
payments to Cihak. The government introduced copies of the checks
issued to the consultants into evidence at trial. The face of
these checks all bore the label “First City National Bank of
Houston;” none of them mentioned the holding company or any other
entity as the signing party or the owner of the funds in the
account corresponding to the checks. All of the checks were
signed, and underneath the signatures on some checks was the
identifier “Vice President and Cashier.” Nothing on the face of
the check identified the instrument as a cashier’s check or
anything other than a First City Bank check signed by a First City
Bank officer. Cf. United States v. Schultz, 17 F.3d 723, 726 n.7
(5th Cir. 1994) (deeming an FDIC logo on one of 1200 checks
insufficient to establish that the bank cutting the check was
federally insured).
In addition, all of the checks were drawn on account number
80-90017. Government rebuttal witness Vernon Pool, First City
Bank’s vice-president and manager in charge of accounts payable,
testified that this account held the funds of First City Bank.
Pool agreed that the holding company ultimately reimbursed the bank
for the consultant’s fees at the end of each month, but maintained
that all of the consultant fees for all of the entities owned by
the holding company were initially covered by the bank, which then
sought reimbursement from the proper entity within the holding
company or from the holding company itself.
The defendants attempt to minimize the importance of Pool’s
testimony by labeling Pool a “surprise rebuttal witness” and by
19
attempting to show how his testimony conflicted with that of other
government witnesses. The record includes no defense objection
when the government announced its intention to call Pool and
informed the court in the presence of defense counsel of the
evidence he would provide; in any case, the trial court did not
abuse its discretion in allowing Pool to testify. Moreover, Pool’s
testimony did not contradict that of the few other witnesses who
testified that the consultant’s fees were charged to the holding
company or some other entity within it. Pool agreed that the
holding company ultimately bore the costs of the defendants’
schemes, but stated that all of the consultants were initially paid
with First City Bank’s funds. No evidence suggested that any of
the witnesses allegedly contradicting Pool had ever seen the face
of the consultant checks themselves.3
Defendants also rely heavily on the theory that the
arrangement described in Pool’s testimony violated federal statutes
governing a bank’s lending relationship with its holding company
and other affiliated entities. See 12 U.S.C. § 371c(c) (requiring
that loans from a bank to an affiliated entity be secured by
specified collateral); 12 U.S.C. § 371c-1(a)(1)(A) (requiring
3
Defendant Cihak also makes much of the testimony of several
witnesses that the consultants’ expenses were charged to various
“cost centers” corresponding to the holding company or to other
entities within it but not to the bank. The evidence at trial
established, however, that these cost centers were merely
accounting devices to keep track of which entity should ultimately
be charged for which expense. The cost centers had nothing to do
with whose money was actually in account 80-90017. The fact that
all of the consultants’ checks were drawn on the same account, in
spite of being charged to different cost centers, supports Pool’s
testimony that the bank initially paid all of the consultant fees.
20
transactions between a bank and its affiliate to be on market
terms). Defendants’ arguments are unpersuasive for several
reasons. First, the record includes no testimony establishing any
arrangement between the bank and the holding company regarding the
payment of the consultant fees, beyond the fact that reimbursement
occurred at the end of each month. For all the record discloses,
the bank and the holding company did have a deal consistent with
these banking statutes. We decline the defendants’ invitation to
equate a silent record with one affirmatively showing a violation
of federal law. Second, even if the record did disclose that the
arrangement Pool described violated federal statutes, this fact
would at most create a jury question as to the credibility of
Pool’s testimony. A rational jury may certainly believe testimony
establishing a violation of a federal statute.
United States v. McDow, 27 F.3d 132, 135-36 (5th Cir. 1994),
does not support defendants’ argument of insufficient evidence of
criminal intent. In McDow, a defendant prosecuted under 18 U.S.C.
§ 1014 made fraudulent statements in a mortgage application to a
mortgage company owned by a federally insured bank. The government
did not have to prove that the defendant knew that his intended
victim was a federally insured institution; it did have to prove
that he knew he would victimize a bank. We reversed the
defendant’s convictions in part because the government did not
suggest how the McDow defendant might have acquired the knowledge
that he was defrauding a bank as opposed to a mortgage company.
21
Two factual differences distinguish this case from McDow.
First, the financial sophistication of the defendants in this case
is, to say the least, greater than that of the McDow defendant.
Here we have a lifetime banker, an experienced financial
consultant, and an accountant, all with extensive knowledge of
banks, loans, consultant fees, and checks. The jury could infer
much from the fact that Cihak, Swift, and Allen, in contrast to the
McDow defendant, were not members of the “public generally,” and
that they had “particular expertise in banking matters.” 27 F.3d
at 136. Second, nothing in the McDow opinion suggests that the
defendant in that case received documents notifying him that he was
dealing with a bank. In this case, in contrast, the checks
themselves bore only the name of First City Bank, and some
identified the signing party as a First City Bank official.
Although the defendants seek to avoid the force of this evidence by
analogizing these checks to cashier’s checks, they produced no
evidence to support this contention at trial, and indeed did not
argue the intent issue below. To discover the victim of their
schemes to defraud, these financially sophisticated defendants had
to look no farther than the face of the checks. We hold that the
evidence was sufficient to allow a rational jury to find that the
defendants intended to deprive First City Bank of its funds
temporarily.
22
B
The second argument common to all defendants is that no
rational jury could fail to believe the explanations for the
transfers of funds. We disagree.
The jury had ample ground to disregard the cover stories, and
we pause here to note only some of the reasons. The cover story
transactions were memorialized by post hoc documents, the creation
of which was prompted by internal bank investigations, or by no
documents at all. The stories contradicted earlier statements
given to First City Bank auditors that Swift, Cihak, and Allen had
no business dealings with one another. None of these transactions
were ever disclosed to First City Bank, in spite of bank rules
requiring disclosure. In several cases, the numbers in the
financial transactions alleged in the cover stories did not match
the flow of funds documented in the bank records. In one
explanation, defendant Swift simply forgot that he had already paid
a $1,000,000 debt to the Cochonours at the time he took out a loan,
in spite his impressive recall of exculpatory details, and in spite
of the fact that Swift testified otherwise before the grand jury.
The cover stories, and the documentation provided to support them,
changed over time as bank investigators and federal prosecutors
confronted the defendants with emerging details. The flow of the
consultant fees was circuitous, with money taking unnecessary trips
through Chicago banks, suggesting that the defendants sought to
hide their scheme from First City auditors, who would have no
access to the records of other banks. Cihak repeatedly arranged
23
for First City to fund loans in the total absence of supporting
documentation to highly suspect business ventures and against the
judgment of the relevant loan officers. To support these loans,
Allen created post hoc financial statements, statements fabricated
in the total absence of the necessary tax and other records. Allen
admitted in her grand jury testimony that she forged the signatures
of several Allen & Associates CPAs and falsely represented herself
to be a CPA in these statements. The story covering the kickbacks
from Allen to Cihak depended on the bizarre contention that the
Cochonours suddenly needed $150,000 to pay off a debt to Cihak not
due for at least another five years, this in the face of uniform
testimony from several witnesses, including the defendants, that
the Cochonours’ financial position was such that they could have
borrowed or paid this amount of money with ease at any point during
the relevant events. A rational jury could disregard such stories.
C
The final argument common to all three defendants is the
contention that their convictions for money laundering to conceal
the proceeds of unlawful activity may not stand because the funds
at issue were not yet proceeds at the time they were laundered.
See 18 U.S.C. 1956(a)(1)(B)(I) (making unlawful transactions
designed to conceal the origin of the “proceeds” of unlawful
activity). This attack concerns counts 28-33 of the indictment.
It is without merit.
Counts 28-31 all involved the kickback of the consultant fees
from Lucterhand, Swift, and Allen. In each of the transactions
24
corresponding to these counts, the consultant invoiced First City
Bank, Cihak approved the invoice, the Bank issued a check, and the
consultant deposited the check into an account at First City Bank
in the name of either the consultant or one of the consultant’s
businesses. The consultant then transferred the money from the
First City Bank account into an account at Worth. From the Worth
accounts, the consultant kicked a portion of the funds back to
Cihak. The defendants argue that the illegality of the transaction
stemmed from their failure to disclose to First City that a portion
of fees charged in the invoice was to benefit Cihak. See 18 U.S.C.
§ 656 (misapplication of bank funds); 18 U.S.C. § 1344 (bank
fraud). Therefore, the defendants argue, the money could not
constitute proceeds of a misapplication or fraud until the moment
Cihak received the benefit of the funds. Since the transactions
specified in the indictment took place before this moment, they
could not constitute laundering of the proceeds of illegal
activity.
Counts 32 and 33 concerned the First City Bank loan of
$1,800,000 to Lucterhand, which Cihak used for his own purposes.
After First City Bank funded a portion of this loan, Cihak had
Lucterhand transfer $300,000 of the money from Lucterhand’s account
at First City Bank to the Worth Lucterhand trust account. Cihak
used his position at Worth to transfer this $300,000 through his
personal account at Citibank to Citibank in repayment of his
$1,600,000 loan. In June, 1990, a payment on the First City Bank
loan came due. Lucterhand notified Cihak, then invoiced the bank
25
for a consulting fee. After Cihak had approved the invoice,
Lucterhand deposited the resulting First City Bank check into his
account at the bank. Lucterhand ended up transferring $112,515.84
of this fee to the bank as a payment on the loan. Count 32 alleged
that the transfer of the $300,000 from Lucterhand’s First City Bank
account to the Worth Lucterhand trust account constituted money
laundering. Count 33 recited an identical charge in the transfer
of the $112,515.84 from Lucterhand’s account at the bank to the
bank in repayment of the loan.
Defendants’ contentions fail because the funds at issue in
each of the transactions became proceeds at the moment the money
left the control of First City Bank and was deposited into an
account of a consultant or borrower. See United States v. Cauble,
706 F.2d 1322, 1254 (5th Cir. 1983) (“[T]he crime [of
misapplication] is complete at the time the misapplication
occurs.”) (alterations added), cert. denied, 465 U.S. 1005 (1984).
Suppose, for example, a consultant and a bank officer agree to an
invoice and kickback scheme, but the consultant decides to cheat by
keeping all the money and making no kickback. The two would have
perpetrated a fraud against the bank. The bank officer in this
example participated in the scheme by approving the invoice with
intent to defraud. The dishonor among thieves is not relevant,
certainly not to the bank.4
4
The only problem created by a refusal to kick back is
evidentiary, not legal. The government might have more difficulty
convincing a jury that a bank officer approved the invoice with
intent to defraud, when the bank officer never received the benefit
of the alleged scheme. If the government were able to solve this
26
As this hypothetical illustrates, the fraudulent scheme
produces proceeds at the latest when the scheme succeeds in
disgorging the funds from the victim and placing them into the
control of the perpetrators. Had Swift, Lucterhand, and Allen
refused to kick back money to Cihak, they nonetheless would have
been guilty. Accordingly, the money produced from the defendants’
fraud became proceeds when it left the control of First City Bank
and came into the possession of one of the consultants. The jury
could infer, from the circuitous nature of the subsequent
transactions as well as the other evidence in the case, that the
flow of funds recited in the indictment was designed to conceal the
fact that these funds were proceeds of fraud from First City Bank
internal auditors and from federal regulators.
For similar reasons, the defendants’ implication that First
City Bank did not overpay the consultants, who performed valuable
services for the bank and First City Bancorporation, is beside the
point. If, as the jury found, the defendants perpetrated a
kickback scheme, then by definition the consultants were willing to
perform these tasks for less money than they actually charged. The
bank, not Cihak, should have been the beneficiary of consultants’
willingness to do the job for less.
Nothing in our resolution of this case conflicts with United
States v. Johnson, 971 F.2d 562, 567-70 (10th Cir. 1992). In
Johnson, the defendant convinced several investors to dedicate
evidentiary problem, for instance, by taping conversations between
the consultant and the bank officer, no legal principle would bar
a conviction of fraud or misapplication.
27
millions of dollars to a non-existent currency exchange business.
Some of the investors wired their funds from their own bank
accounts to that of the defendant. The indictment charged a
violation of 18 U.S.C. § 1957, which renders unlawful the knowing
execution of a transaction involving more than $10,000 of the
proceeds of illegal activity, alleging that the deposit of the
funds from the investors into the defendant’s account as a result
of the wire transfer violated the statute. The Tenth Circuit
reversed the defendant’s convictions under section 1957, holding
that the wire transfers did not involve proceeds of criminal
activity because the money did not become proceeds until the wire
transfers, which did constitute wire fraud, were completed.
The difference between Johnson and this case is in the timing
of the wire transfers. The Johnson court held, in essence, that
the money at issue did not become proceeds until it left the
account of the victims and reached the account of the defendant.
The wire transfers were the means by which the funds made this
journey and thus occurred too early to form the basis of a money
laundering conviction. In this case, the consultant fees and loans
left the control of First City Bank and reached the accounts of the
conspirators before the wire transfers occurred. The wire
transfers distributed the proceeds among the various defendants and
helped hide the fraud from First City auditors and federal
regulators.
28
IV
Cihak makes several arguments unique to his convictions. None
have merit.
A
Cihak attacks two of his convictions for wire fraud and one of
his convictions for money laundering to promote specified unlawful
activity on the ground that the wire transfers and the transaction
specified in the indictment did not further the fraud. We
disagree.
Count 10 concerned the $1,600,000 loan that Cihak obtained
from Citibank upon the strength of the two fraudulent letters of
credit from Worth and Mount Greenwood. To repay these loans, Cihak
had Lucterhand borrow $1,800,000 from First City. Cihak, either on
his own or through Lucterhand, wired approximately $250,000 of the
proceeds of this first Lucterhand loan to the Worth Lucterhand
trust account, for use in repaying the Citibank loan. Count Ten
charged that this wire transfer furthered a fraud against Citibank.
See 18 U.S.C. § 1343.
Counts nine and 34 concerned the CD scam. Shortly before
several of the fake CDS matured, Cihak had Lucterhand borrow an
additional $200,000 from First City Bank. Cihak, either on his own
or through Lucterhand, wire transferred this money into the Worth
Lucterhand trust account, where he moved it to the Worth STS trust
account to use to repay the principal on the now matured CDS.
Count nine alleged that this wire transfer furthered a fraud
against Worth. Count 34 alleged that the movement of the funds
29
through the Worth trust accounts constituted money laundering to
conceal the proceeds of and promote the carrying on of specified
unlawful activity. See 18 U.S.C. § 1956(a).
Cihak attacks all three of these convictions on the ground
that the fraud inherent in these transactions had been completed by
the time any wire transfer or money laundering had occurred. He
thus contends that the evidence was insufficient to establish that
the wire transfers and laundering furthered a scheme to defraud.
Read broadly, Cihak’s argument amounts to the proposition that
acts occurring after the defrauding defendant already controls the
proceeds of the fraud may never further the fraud. Circuit
precedent in the closely analogous mail fraud setting squarely
forecloses this sweeping contention. See United States v. Bowman,
783 F.2d 1192, 1197 (5th Cir. 1986) (“‘[I]t is a well-established
principle of mail fraud law that use of the mails after the money
is obtained may nevertheless be “for the purpose of executing” the
fraud.’”) (alteration in original) (quoting United States v.
Ashdown, 509 F.2d 793, 799 (5th Cir.), cert. denied, 423 U.S. 829(1975)); see also, e.g., United States v. Bruno, 809 F.2d 1097,
1104 (5th Cir.) (“[C]ases construing the mail fraud statute apply
to the wire fraud statute as well.”) (alteration added), cert.
denied, 481 U.S. 1057 (1987).
Read more narrowly, Cihak’s contention is that the use of the
wire transfers, and the laundering of the money, did not further
the overall scheme. See Schmuck v. United States, 489 U.S. 705,
712 (1989) (stating that the in furtherance requirement of the mail
30
fraud statute is satisfied if the use of the mails is “‘incident to
an essential part of the scheme’”) (quoting Pereira v. United
States, 347 U.S. 1, 8 (1954)); cf. United States v. Maze, 414 U.S.
395, 402-05 (1974); United States v. Heaps, 39 F.3d 479, 484-86
(4th Cir. 1994). In assessing this argument, we follow Schmuck and
begin with a careful analysis of the nature and scope of the scheme
to defraud. See 489 U.S. at 711; see also Grunewald v. United
States, 353 U.S. 391, 406-11 (1957) (considering carefully the
scope and purpose of a conspiracy in establishing its duration and
in classifying which of several alleged overt acts furthered it).
In this case, a rational jury could conclude that Cihak intended
from the beginning to deprive Worth, the CD investors, and Citibank
of the use of their money, not to steal the money permanently. In
essence, Cihak defrauded his victims of the high interest rate
corresponding to the risky making of an unsecured loan to pay a bad
debt. The jury could conclude that Cihak returned this money to
its rightful owners as part of his scheme to obtain its use and in
order to avoid detection of his frauds.
We reject Cihak’s argument. Repaying the CD investors and
Citibank was an essential portion of Cihak’s scheme. To do so, he
used the wires and laundered money. In both cases, the illegal
activities furthered the scheme to defraud.
At oral argument, defense counsel argued that actions designed
solely to avoid detection, if taken after the defendant had control
over the money produced by the fraud, could not by definition be in
furtherance of a scheme to defraud. But all frauds depend upon
31
avoiding detection for at least a period of time sufficient to
allow the perpetrator to escape apprehension. Moreover, both this
court and the Supreme Court have recognized that actions taken to
avoid detection, or to lull the fraud victim into complacency, can
further the fraud, even after the victim has ceded its funds or
goods to the perpetrator’s control. See Maze, 414 U.S. at 402-03(holding that the mailings at issue in a prior case met the in
furtherance requirement because they “were designed to lull the
victims into a false sense of security, postpone their ultimate
complaint to the authorities, and therefore make the apprehensions
of the defendants less likely than if no mailings had taken
place”); Bowman, 783 F.2d at 1197 (holding that implementation of
a “lulling scheme” satisfied the in furtherance requirement);
United States v. Cavalier, 17 F.3d 90, 93 (5th Cir. 1994) (mail
fraud); see also United States v. West, 22 F.3d 586, 591 & n.13
(5th Cir.), cert. denied, 115 S.Ct. 584 (1994).
B
Cihak’s next argument concerns count eight, which alleged that
Allen and Cihak committed wire fraud in connection with the First
City Bank loan to Allen’s car rental business, Shepherd Fleets.
The wire fraud occurred after First City Bank extended a second
loan to Shepherd Fleets on the strength of financial documents
bearing the false representation that Allen was a CPA. Allen
caused the proceeds of the second loan to be wired from First City
Bank to a Shepherd Fleets account at a different bank. The
indictment alleged that Cihak was responsible for this wire fraud
32
as well. Cihak, but not Allen, appeals his conviction of this
count, arguing that insufficient evidence established that Cihak
knew that Allen submitted false documentation. We disagree.
Cihak’s relationship with Allen began long before April of
1989, when First City Bank funded the second Shepherd Fleets loan.
Testimony at trial established that Cihak arranged for First City
to hire Allen as a consultant in early 1988, and had previously
referred several potential clients to Allen, including Swift.
Shortly after the bank made the August, 1988 loan to Lucterhand,
Cihak arranged for Allen to aid Lucterhand in manufacturing false
financial documents to support the already funded loan. At around
the same time, Cihak arranged for First City Bank to fund a
fraudulent loan to Swift based on financial papers bearing the
forged signature of an Allen & Associates CPA.
In addition, Cihak had extensive involvement in the Shepherd
Fleets loans themselves. First City Bank loan officer M.G. Shetty,
a government witness at trial, described Cihak’s role in the
Shepherd Fleets transactions. After receiving a phone call on
September 23, 1988, Shetty went to a meeting with Hamid Hamidanian,
executive assistant to Cihak at First City Bank.5 The purpose of
the meeting was to discuss the funding of a loan to allow Allen and
her business partner to buy Shepherd Fleets, a Chicago business
that owned Dollar Rent-A-Car franchises. The only documentation
provided at the time was a fax from Allen and Associates to Cihak,
5
The jury heard testimony from several witnesses that
Hamidanian was Cihak’s right hand man.
33
which Hamidanian gave to Shetty, containing certain financial
projections for Shepherd Fleets. Shetty prepared the first
documents for a loan of $686,000, took them to Hamidanian, received
them back with Cihak’s initials on them, and the bank funded the
loan the same day.
Shetty testified that this loan was fairly unusual. The loan
was to a business with no Texas ties. Normally, Shetty did not
handle loans of this size or to Chicago businesses. Financial
statements for the business and documentation of collateral were
not present. Neither Allen nor Thomas had previous experience in
the car rental business. The revenue of Shepherd Fleets was small
in comparison to the amount of the loan, and the business did not
appear to be very profitable. The loan was to be funded the same
day. Nevertheless, Shetty helped arrange to fund the loan because
“this loan was originated by the senior management of the bank, Mr.
Cihak. So we are very sensitive to this relationship since it is
coming from the top.”
In April of 1989, Shetty received a second phone call, this
time from Allen. Allen told Shetty that Shepherd Fleets needed
more money to buy another Dollar Rent-A-Car franchise and that
Cihak had approved the loan. Shetty immediately called Hamidanian,
who already knew of the proposed loan. The next day, Shetty
participated in a meeting with Allen, her business partner,
Hamidanian, and Shetty’s immediate superior. In the middle of this
meeting, Cihak stopped by to ask if everything was fine with the
loan. Reluctantly, Shetty arranged for a second loan to be funded.
34
It was this loan that gave rise to Allen’s submission of false
documents and the subsequent indictment.
From these facts, the jury could infer Cihak’s participation
in the wire fraud. The jury could conclude that Cihak caused First
City Bank to fund both of the Shepherd Fleets loans from his
initials on the first set of documents, Allen’s statement to Shetty
that Cihak had already approved the second loan, Allen’s fax to
Cihak, Cihak’s brief visit to the meeting involving the second loan
to make sure that nothing was amiss, and the active participation
of Cihak’s executive assistant throughout the entire matter. The
jury could infer that this loan was part of the payback to Allen
for her participation in the kickback scheme. The jury could
conclude that Cihak knew from their prior dealings that Allen was
not a CPA. Finally, the jury could infer that Cihak knew that
Allen would make false representations on her own loan documents,
as Cihak had arranged for her to do in the documents accompanying
the Swift and Lucterhand loans, and that Cihak intended to have the
bank fund the loan in spite of these misrepresentations. In short,
sufficient evidence linked Cihak to the second Shepherd Fleets loan
transaction.
C
Cihak argues that all of his convictions must be reversed
because the trial court abused its discretion with regard to
evidentiary rulings regarding the admission of other bad acts and
the impeachment of one of his witnesses. We reject Cihak’s
35
contentions because any arguable error in the court’s rulings was
harmless.
1
Cihak argues that the district court misconstrued Fed. R.
Evid. 404(b) in allowing the admission of several pieces of
evidence. His primary attack centers on the evidence corresponding
to count ten, which alleged that in 1988 Cihak committed wire fraud
against Citibank while repaying the $1,600,000 loan he obtained
upon the strength of two forged letters of credit from Worth and
Mount Greenwood banks. Cihak’s first argument is that the evidence
of the forgeries themselves was inadmissible. We do not agree.
The forgeries were the very fraud charged in count ten, and thus
their creation and use were not prior bad acts within the meaning
of Rule 404(b).
Cihak’s second argument is that the trial court erred in
admitting evidence of a different letter of credit in the amount of
$1,400,000 purportedly issued from Worth to Acstar Insurance
Company in 1991. The government concedes that Rule 404(b) governs
the admissibility of this document but contends that the Acstar
letter constituted evidence of modus operandi. We agree with the
prosecution.
The Worth and Mount Greenwood letters issued to Citibank bore
the forged signature of Randall Ytterberg, purportedly an officer
of both banks. Ytterberg testified that his signatures were
forgeries and that neither bank issued any such letters. A series
of purported renewals of these letters of credit dated through 1987
36
also bore Ytterberg’s forged signatures. The 1991 letter
purportedly from Worth to Acstar bore Cihak’s signature and another
forgery of “Randall Ytterberg.” Worth officer Joan Meyer testified
that in response to a phone call from Acstar, she established that
Worth never issued the 1991 letter. Upon further investigation,
Meyer found the computer memory of the Acstar letter in the files
of Kathie Ellis, Cihak’s long-time secretary and administrative
assistant. Given the fact that some of the Citibank letters and
the Acstar letter issued from the same bank, bore the forged
signature of the same bank officer, and went to benefit the same
person, we hold that “the circumstances of the extraneous act were
so similar to the offense in question that they evince[d] a
signature quality -- marking the extraneous act as the handiwork of
the accused.” United States v. Sanchez, 988 F.2d 1384, 1393 (5th
Cir.) (alteration added, internal quotation marks omitted), cert.
denied, 114 S.Ct. 217 (1993); see also United States v. Brookins,
919 F.2d 281, 285 (5th Cir. 1990). The trial court did not abuse
its discretion in admitting evidence of the Acstar letter.
2
Cihak next attacks certain testimony of Waseem Ahmad, an
officer of Gruntal & Company. Gruntal was the company holding the
bonds Fahy borrowed from First of Danville and Mount Greenwood at
the beginning of the series of transactions covered by the
indictment. Ahmad testified that his signature on a letter
purportedly from him to Mount Greenwood and First of Danville
officers verifying that Gruntal held $2,000,000 worth of bonds in
37
the name of Joseph Fahy was a forgery, and that in fact no such
bonds were in Fahy’s Gruntal account on the date of the letter.
The trial court committed no error in admitting this
testimony. Although Ahmad’s testimony may have concerned a prior
bad act, a forgery, no evidence suggested that Cihak committed or
had contemporaneous knowledge of this act. The letter was on the
stationery of Fahy’s company, STS, and bore Fahy’s signature, not
Cihak’s. Regarding relevance, the forgery showed motive. The
testimony verified that Fahy had converted the Mount Greenwood and
First of Danville bonds to his own use, causing a potential
$2,000,000 deficit in the accounts of the banks as a result of a
loan that Cihak had suggested and championed in the banks’ board
meetings. This deficit was the motive for the Citibank loan and
the CD scam, as Cihak sought to use fraud and his personal
financial strength to make Mount Greenwood and First of Danville
whole. Thus, Ahmad’s testimony could not allow the jury to infer
that Cihak was a forger because nothing suggested that Cihak forged
this signature. Cihak could suffer little if any prejudice if the
jury concluded that Fahy was a forger, and the evidence was
otherwise relevant. See Fed. R. Evid. 403. No error occurred.6
6
The defense might have been entitled to an instruction
limiting the use of Ahmad’s testimony to the issue of Cihak’s
motive, and clarifying that the jury should not use evidence that
Fahy was a forger to infer that Cihak was a forger. The defense
requested no such instruction; instead, Cihak asked the trial court
to instruct the jury to disregard Ahmad’s testimony entirely. The
district court properly rejected this argument.
38
3
Cihak’s next Rule 404(b) contention concerns the prosecutor’s
closing argument that Cihak accepted a bribe from the Cochonours in
return for arranging a loan to the buyer of one of their companies,
Tri-Star Cablevision. We find Cihak’s reliance on Rule 404(b)
unconvincing because his challenge is to argument, not evidence,
and because he himself introduced the underlying evidence.
One of the government’s witnesses was Les Cheatle, the
president of First National Bank of Danville. Cheatle testified
that in the early 1980s, First of Danville made a $900,000 loan to
a Virginia limited partnership called Tri-Star Cablevision, Ltd.,
and that the funds were used to buy a corporation called Tri-Star
Cablevision, Inc. The Cochonours were principal shareholders of
Tri-Star, Inc., and Cihak signed many of the relevant loan
documents on behalf of First of Danville. Cheatle further
testified that if Cihak had benefitted from the loan to the buyer
in this transaction, he should have disclosed this fact to the
board of First of Danville before closing, and that Cihak had made
no such disclosure at the time. Cheatle then published to the jury
a document from Citibank’s records, which Citibank received from
Cihak, reciting that Cihak claimed an ownership interest in Tri-
Star, Inc. worth around $150,000. The defense did not object to
Cheatle’s testimony, and no other government witness addressed the
matter.
Cihak called Don and Robert Cochonour. Both Cochonours
testified that although Cihak never owned shares in Tri-Star, Inc.,
39
they had agreed to pay him $200,000 as a fee or bonus for his
months of work in finding a buyer for the corporation at a time
when the brothers were anxious to exit the business. The sale of
Tri-Star allowed the Cochonours to turn their investment in the
corporation into cash. The Cochonours testified that they paid
$50,000 of this “fee” at the time of the sale by check; years
later, they memorialized the remaining $150,000 debt in a letter to
Cihak, a copy of which the defense introduced at trial. Don
Cochonour also testified that later in 1988, defendant Swift owed
the Cochonours over $800,000 as a result of several horse
transactions. Don Cochonour, believing Swift to be insolvent, sold
this debt to defendant Allen, who believed that Swift would soon
become solvent as a result of a loan she was helping to arrange
from the State of Missouri. Allen bought the loans for $166,000.
Cochonour asked Allen to pay Cihak directly in order to retire the
remaining $150,000 debt still outstanding as a result of the Tri-
Star transaction.
At closing argument, defense counsel contended that the
kickbacks from Allen to Cihak were payments on this debt, in
accordance with the Cochonours’ testimony. At rebuttal, the
prosecution argued that the $50,000 payment from the Cochonours to
Cihak was a bribe, quid pro quo for Cihak’s orchestration of the
First of Danville loan to the Tri-Star buyer. The prosecution also
argued that the promise to pay $150,000 never existed and was part
of a cover story to conceal the Allen kickbacks. The defense
40
objected on Rule 404(b) grounds and moved for a mistrial; the
district court overruled the objection and denied the motion.
The district court committed no error. Rule 404(b) applies to
evidence, as the first word in its text suggests. Nothing in the
text of the rule extends its scope to argument. Nor did the trial
judge err in permitting the argument. Cihak, not the prosecution,
introduced the evidence of the $50,000 payment from the Cochonours,
and the prosecution’s interpretation of the evidence constituted
fair comment. Nothing in Rule 404(b) allows a defendant to
introduce evidence, then cry foul when the prosecution turns that
evidence against him, so long as the government’s interpretation is
not otherwise misleading. See United States v. Archer, 733 F.2d
354, 361-62 (5th Cir.) (holding that a defendant cannot use Rule
404(b) to contest cross-examination of her character witness
regarding her previous acts of dishonesty when she questioned the
witness as to her reputation for honesty), cert. denied, 469 U.S.
861 (1984).
4
Cihak’s next evidentiary challenge concerns evidence regarding
the transaction that Cihak arranged to remove the Swift loan from
the books of First City Bank. In this transaction, Cihak arranged
for First City Bank to fund a dummy note, which he alone signed, to
the Cochonours in an amount sufficient to retire the Swift loan.
The next day, a wire transfer arrived from a bank called Vinland
Trust to retire the dummy note. Further evidence showed that the
Vinland Trust wire transfer came from a loan from Vinland to the
41
Cochonours which Cihak guaranteed. Orland Enterprises, one of
Cihak’s businesses, made all of the payments on the Vinland loan.
Cihak relies on Rule 404(b) to contend that the trial court erred
in allowing government witness Richard Hendee, a First City Bank
loan officer, to testify regarding a note allegedly memorializing
a debt that the Cochonours owed to First City Bank in the amount of
$1,150,000. The note was found in Vinland’s files, and Hendee
testified that there was no such note in the files of First City.
Cihak did object to Hendee’s testimony, but not on Rule 404(b)
grounds. He objected to the foundation for admitting the note. We
review only for plain error, and find none.
5
Cihak’s final evidentiary challenge concerns the impeachment
of Glen Magnuson, former corporate counsel to First City
Bancorporation. In response to the district court’s ruling on a
defense motion in limine, Cihak elicited the fact that Magnuson had
previously been convicted of bank fraud. Over a defense objection,
the prosecution established on cross-examination that Magnuson had
defrauded First City entities during Cihak’s tenure.
We refuse to reach the correctness of the trial court’s ruling
on this issue because we hold that any error was harmless beyond a
reasonable doubt. From direct examination, the jury knew that
Magnuson had worked for First City for a significant portion of his
career, that he had since terminated his employment there, and that
he had been convicted of bank fraud. The trial court properly
admitted the evidence of the bank fraud for impeachment purposes,
42
see Fed. R. Evid. 609(a)(2), and the defense elicited the rest of
this information. No testimony linked Magnuson to the specific
frauds Cihak perpetrated against First City, and the government
suggested no link during argument or cross-examination. Given the
district court’s instruction limiting the use of the evidence of
Magnuson’s prior conviction to impeachment, any marginal prejudice
to Cihak from the extra details disclosed to the jury had little or
no effect upon the verdict. See United States v. Gadison, 8 F.3d
186, 192 (5th Cir. 1993) (The test for harmlessness is “whether the
inadmissible evidence actually contributed to the jury's verdict”
and suggesting that we will “reverse a conviction only if the
evidence had a substantial impact on the verdict”) (internal
quotation marks omitted).
D
For the first time in their reply briefs, defendants Cihak and
Allen attack their convictions for misrepresentation and
misapplication on the ground that the trial judge improperly
removed the element of the materiality of their misstatements from
the jury. Citing United States v. Gaudin, 115 S.Ct. 2310, 2322
(1995), the defendants argue that the materiality of their
misstatements should have been submitted to the jury. The
defendants concede that, because they did not raise this argument
in the trial court, our review on this question is limited to a
search for plain error. For its part, the government asks us to
reach this issue in spite of the fact that the defendants did not
raise it in their original briefs. Moreover, the government at
43
oral argument suggested that we assume that a Gaudin error had
occurred at trial. We accept the invitation, assume that Gaudin
establishes that the removal of the materiality issue from the jury
constituted error,7 and review this question for plain error only.
United States v. Keys, 67 F.3d 801, 811 (9th Cir. 1995), was
a perjury prosecution in which the defendant had joined the
prosecution in requesting an instruction that the materiality of
his misstatement was not a jury question. The court, although
noting that the defendant Keys had invited any Gaudin error,
nevertheless used the plain error framework to decide the case.
The court further assumed that the “plainness” of the error should
be decided by reference to the status of the law at the time of
direct appeal, not at trial. But see United States v. Kramer, Nos.
90-5055, 90-5360, 90-5431, 90-5751, 91-5659 and 93-4951, 1996 WL
13778 (11th Cir. Jan 16, 1996) (noting some confusion among the
courts regarding at what point in a defendant’s case an error must
be plain). Finally, the Keys court assumed that because the error
was arguably “structural,” the defendant might not need to show
that the mistake affected the result of his trial. But see Kramer,
1996 WL at *6, *7 (holding that a Gaudin error did not affect the
defendant’s substantial rights because no rational jury could have
disputed the materiality of the misstatements at issue).
Nevertheless, the court refused to exercise its discretion to
7
We also accept the government’s invitation to assume
without deciding that materiality is an element of the crimes
involved in this case. But see Gaudin, 115 S. Ct. at (Rehnquist,
C.J., concurring).
44
reverse because it found the evidence of materiality overwhelming.
See United States v. Olano, 113 S. Ct. 1770 (1993) (stating that
even if the three prerequisites of plain error are met, a court of
appeals has discretion to affirm or reverse). The court reasoned,
“In the circumstance of an error which did not matter, and was not
error when made, reversal of the conviction rather than affirmance
would impair the fairness, integrity and public reputation of
judicial proceedings.” 67 F.3d at 811.
We follow Keys in this case. We assume that any error was
plain because the Supreme Court handed down Gaudin during appellate
review of this case, and we assume that the “structural” nature of
the error relieves the defendant of the necessity of showing
prejudice, although we believe that the Kramer approach has great
appeal.8 We nevertheless refuse to exercise our discretion to
disturb these convictions.
The misrepresentations covered by the defendants’ Gaudin
argument span the entirety of their various schemes. In each case,
the evidence of materiality was overwhelming. We find it difficult
to believe, for instance, that the credit unions and pension funds
would still have invested in Cihak’s bogus “CDS” at Worth had they
known that their funds would not be federally insured and that
Cihak would use the money to pay back a prior bad debt of Cihak’s
business associate. Any suggestion that First City would have paid
consultant fees had it known that Cihak would receive kickbacks is
8
We are aware that in the Ninth Circuit, both of our
assumptions are law. See United States v. Gaudin, 28 F.3d 943,
951-52 (9th Cir. 1994), aff’d, 115 S.Ct. 2310 (1995).
45
untenable, equally so that the bank would have funded loans had it
known that the borrower had far less income than was represented in
the loan documents or already owed previously undisclosed
$1,000,000 to a wealthy Chicago family. We are not convinced that
Citibank would have loaned Cihak $1,600,000 on an unsecured basis,
especially had it known that Cihak would use the money to pay back
the Fahy debt instead of to start a business. We find it hard to
believe that First City did not consider important Allen’s
misrepresentations that the financial statements supporting the
fraudulent loans were prepared by a CPA. In each instance,
substantial testimony from various officials at Citibank, the
credit unions, the pension funds, and First City established that
these entities would not have engaged in the transactions
underlying the indictment had they known the truth.
It was perhaps for these reasons that the defendants never
mentioned materiality to the district court. Cf. United States v.
Wells, 63 F.3d 745, 748 & n.3 (8th Cir. 1995) (reversing where “the
materiality issue was hotly disputed”), cert. pet. filed Jan 31,
1996, No. 95-1228. Although defense counsel at oral argument
stated that the defendants had argued materiality to the district
court, she did not specify where, we have been unable to locate
such argument in the record. The defense elicited little or no
testimony to the effect that, assuming the government’s theory of
the case was correct, the misrepresentations had not substantially
affected the actions of the fraud victims. They did not alert the
trial judge during the discussion of the charge, or in their post-
46
trial memoranda, that they disputed materiality. We fail to see
how reversing these convictions would serve judicial integrity, or
why principles of fundamental fairness require a second chance to
argue a theory so lacking support in evidence and reality that the
defendants chose not to raise it below.
E
In his final attack on the district court’s handling of this
case, Cihak argues that the district court erred in calculating his
offense level corresponding to the money laundering convictions.
The Pre-Sentence Report calculated the value of the funds laundered
by adding together the total value of the fraudulent loans and
consulting fees. Upon Cihak’s objection, the district court
completed a new calculation based only upon the amount of money
diverted to Cihak’s benefit.9 In this court, Cihak argues that
this new calculation was also erroneous, and that the court should
have excluded Lucterhand’s consulting fees because they were used
to repay the Lucterhand loan.10 Cihak also contends that the
district court erred in including the value of the Citibank loan
because no evidence supported a conclusion that these funds were
laundered.
We reject Cihak’s first argument. Although he uses terms like
“artificial inflation” instead of “loss,” Cihak’s contention is
9
The government has not perfected a cross-appeal in this
case.
10
The government disputes whether Cihak raised this question
below. Because we find no error in this portion of the
calculation, we would also find no plain error.
47
that the Lucterhand consulting fees should not be included because
they caused no additional loss to First City Bank. The money
laundering guideline does not depend on loss; it depends on the
“value of the funds” that the defendant laundered. U.S.S.G. §
2S1.1(b)(2); United States v. Johnson, 971 F.2d 562, 576 (10th Cir.
1992); cf. United States v. Frydenlund, 990 F.2d 822, 826 n.5 (5th
Cir.) (applying U.S.S.G. § 2F1.1 to a check kiting scheme, and
focusing on the amount of “loss” the scheme produced), cert.
denied, 114 S.Ct. 337 (1993). The difference in focus in section
2S1.1 from, for instance, section 2F1.1, depends on the different
nature of the harms they measure. Section 2S1.1 measures the harm
to society that money laundering causes to law enforcement’s
efforts to detect the use and production of ill-gotten gains.
Section 2F1.1 measures the harm to society and the individual
suffered when an innocent person is deprived of her money. In
applying section 2S1.1, courts should follow the guideline’s plain
language and focus on the value of the funds laundered.
We also reject Cihak’s second argument. The evidence at trial
showed that Cihak flushed the proceeds of the Citibank loan through
the Worth STS trust account, used some of the money to repurchase
the unmatured federal bonds that Fahy had previously converted to
his own use, and returned the bonds and remaining cash to Mount
Greenwood and First of Danville. This transfer was cumbersome and
unnecessary; Cihak could easily have conducted the same
transactions from his own account at Citibank. The trial court
could infer that the purpose of using the Worth STS trust account
48
as a conduit for these funds was to conceal the fact that Cihak,
not Fahy, was making the banks whole. The court could conclude
that this concealment helped forestall what might have been
uncomfortable questions from officials at Mount Greenwood and First
of Danville, some of whom also had a relationship with Worth,
regarding how Cihak collateralized such a large loan used entirely
to pay off a previously existing bad debt. Finally, the court
could conclude that large checks written to entities not associated
with any automobile accounts receivable business might have
prompted inquiries from Citibank. We find no error in Cihak’s
sentence.
V
Defendant Swift makes two additional arguments.
A
Swift argues that there was a fatal variance between
allegation of a single conspiracy to defraud First City Bank found
in count one and the proof at trial, which assertedly showed
multiple overlapping conspiracies. We disagree.
Count one alleged a single conspiracy implemented by the
kickbacks from the various consultants to Cihak and the various
fraudulent loans Cihak arranged for First City Bank to fund to
Allen, Swift, and Lucterhand. The evidence at trial supported the
grand jury’s allegations as to the implementation of the kickback
and fraudulent loan schemes. The issue is whether the jury could
conclude from the evidence that there was a single conspiracy.
49
In deciding whether a string of actions by various individuals
is a single conspiracy or multiple conspiracies, we look to three
factors: “(1) the existence of a common goal; (2) the nature of
the scheme; and (3) overlapping of participants in the various
dealings.” United States v. DeVarona, 872 F.2d 114, 118 (5th Cir.
1989). In United States v. Richerson, 833 F.2d 1147, 1149-54 (5th
Cir. 1987), several employees of an entity involved in oil drilling
conspired with employees of vendors. The conspirators arranged a
series of kickbacks and bribes, with the vendors recovering their
costs by falsely invoicing the drilling company and with the
company’s conspirators approving the invoice. We held that the
conspirators labored towards the common aim of enriching themselves
at the expense of a single victim, the drilling company. Regarding
the scheme’s inherent nature, we noted that the level of each
conspirator’s participation depended on his position in the various
businesses involved, but that each conspirator furthered the
scheme, and the scheme’s implementation involved the repetition of
similar modus operandi. Finally, we held that the common
participants factor was satisfied, reasoning that a “single
conspiracy exists where a ‘key man’ is involved in and directs
illegal activities, while various combinations of other
participants exert individual efforts toward a common goal.” 833
F.2d at 1154.
We find Richerson instructive. As in that case, the common
goal among Cihak, Swift, Allen, and Lucterhand in this conspiracy
was to defraud a single victim, First City. As in Richerson, the
50
steps taken to reach this common goal bore a marked continuity and
similarity: kickbacks from consultant fees and fraudulently
obtained loans. Cihak was the key person directing and overseeing
the activities of the conspirators. See DeVarona, 872 F.2d 119(relying on the continuing participation of a “key figure” to hold
that the evidence supported the jury’s inference of a single
conspiracy). There were additional points of overlap. At Cihak’s
direction, Allen helped Lucterhand prepare false documents to
support Lucterhand’s $1,800,000 loan. A forged signature of an
Allen & Associates’ CPA appeared on the Swift loan documents; Allen
had been Swift’s accountant for years at the time of the loan. The
cover story for the Allen kickbacks to Cihak involved Allen
purchasing certain debt that Swift owed to the Cochonours. The
Cochonours’ name appears again in removal of the Swift loan from
the books of First City.
Swift does not take issue with this. Instead, he denies that
he had anything to do with Cihak’s fraudulent activities in Chicago
regarding Fahy, the Citibank loan, and the CD scam; he urges that
the government’s proof of these activities at trial risked an
improper rub-off of Cihak’s guilt to him. Swift has not appealed
the trial court’s denial of his motion to sever or argued a due
process violation. Instead, he has relied on a fatal variance
theory. No variance existed because count one of the indictment
did not recite Cihak’s Chicago activities as part of the manner or
implementation of the conspiracy against First City.
51
B
Swift’s second argument is that the trial court abused its
discretion in allowing testimony to continue for one of the thirty-
eight days of trial in his absence. Any error was harmless beyond
a reasonable doubt.
After several weeks of trial, and at the end of his case,
Swift took the stand. On Thursday, October 28, 1993, the
government began to cross-examine Swift. At the end of the day,
the court recessed for the weekend. On the following Monday
morning, Swift’s counsel found Swift prostrate in his bathroom.
The court continued the case until Wednesday afternoon, at which
time it held a hearing. At the hearing, the court heard
representations from the prosecution that Swift’s physicians had
determined that no medical basis existed to explain his condition.
The trial judge stated that an hour before he had spoken to Swift’s
doctor, who informed him that no medical condition explained
Swift’s condition and that tests had revealed the presence of
unprescribed drugs or other medication in Swift’s system. The
trial judge then repeated his belief, expressed numerous times
throughout the trial, that Swift was medicating himself with
improper drugs in an effort to obtain a mistrial or a severance.
The court also noted that Swift had frequently excused himself from
the courtroom and stayed absent for periods of time.
The court ordered the trial to resume the following morning,
and expressed a willingness to recall witnesses if necessary. At
that time, the court informed the jury that Swift’s absence was due
52
to an illness. Defendant Allen called Thomas Clements and Don
Cochonour. Swift’s counsel had no questions for Clements, who had
no information regarding his case, but he did conduct a lengthy and
extensive cross-examination of Cochonour in an attempt to show that
Swift had paid back the entirety of his debts to the Cochonour
family at the time he borrowed money from First City Bank. This
cross-examination exhaustively covered several years of horse-
dealings and land and insurance transactions. The next day, Swift
returned to the trial without comment.
Fed. R. Crim. P. 43 provides the defendant a right to be
present at trial, but we have held repeatedly that a Rule 43
violation can constitute harmless error. United States v. Alikpo,
944 F.2d 206, 209-11 (5th Cir. 1991); United States v. Gradsky, 434
F.2d 880, 884 (5th Cir. 1970), cert. denied, 409 U.S. 894 (1972);
see Fed. R. Crim. P. 52(a). Our cases have identified at least two
sources of prejudice to a defendant from the continuation of the
case against her in her absence: that the jury might draw an
adverse inference from the absence, and that the defendant might
have information necessary to the effective advocacy of her case.
We find no reasonable possibility that either type of
prejudice existed here, and in the unlikely event that the trial
court erred, we find that error harmless. Regarding the
possibility that the jury might draw an adverse inference, we note
this trial consisted of dozens of witnesses and over seven weeks of
testimony. Swift repeatedly absented himself from the proceedings
of his own accord. The record reflects that defendant Cihak left
53
early one afternoon to attend his daughter’s wedding. The trial
court told the jury that Swift was absent because he was ill.
Given these facts, it is difficult to believe that the jury, during
its deliberations, even remembered that Swift had been absent for
this portion of the trial, much less drew an adverse inference. We
find no reasonable possibility of prejudice in the jury’s
deliberations. Cf. Alikpo, 944 F.2d at 209-10 (expressing concern
that the jury might draw an adverse inference when the defendant
“cavalierly” walked into the courtroom after missing the beginning
of the trial, when the jury had no explanation of the defendant’s
absence).
Regarding the second possible source of error, we see no
possibility that Swift could have assisted his counsel in the
cross-examination of Don Cochonour so as to change the jury’s
verdict. Counsel’s cross-examination was detailed and extensive,
covering several years of horse dealings between the Cochonours and
Swift. Although Cochonour may have been an important witness to
Swift, we note that Swift apparently did not intend to call
Cochonour during his own defense. Cochonour’s basic testimony on
direct and cross-examination, that Swift owed the Cochonour family
over $1,000,000 at the time he borrowed money from First City, was
corroborated by Swift’s own grand jury testimony. At the
conclusion of Cochonour’s testimony, Swift’s counsel made no
objection to excusing the witness and did not at any later time
accept the trial court’s offer to recall witnesses. On appeal to
this court, Swift has identified no subject area left uncovered as
54
a result of his absence, nor any question left unasked. We realize
that the government’s burden to prove harmlessness in such
circumstances is an “onerous one,” Alikpo, 944 F.2d at 211, and we
are especially wary of labeling such an error harmless when the
absence at issue occurs during the trial testimony of a fact
witness. Nevertheless, our cases establish that no per se rule
requires us to reverse, and our review of the record convinces us
that no reasonable possibility exists that Swift’s absence
contributed in any way to the jury’s verdict.
AFFIRMED.
55