United States v. Tencer ( 1997 )

REVISED
UNITED STATES COURT OF APPEALS
for the Fifth Circuit
_____________________________________
No. 95-31135
_____________________________________
UNITED STATES OF AMERICA,
Plaintiff-Appellee - Cross-Appellant,
VERSUS
STEVEN B. TENCER,
Defendant-Appellant - Cross-Appellee,
AND
RONALD LAZAR,
Defendant-Appellant - Cross-Appellee.
______________________________________________________
Appeals from the United States District Court
for the Eastern District of Louisiana
______________________________________________________
March 10, 1997
Before WISDOM, DAVIS, and DUHÉ, Circuit Judges.
W. EUGENE DAVIS, Circuit Judge:
Steven Tencer and Ronald Lazar challenge their convictions on
multiple counts related to their scheme to submit fraudulent claims
to insurance companies and obtain proceeds for unperformed
chiropractic services. The government cross-appeals a number of
the district court's rulings. For reasons that follow, we affirm
in part, reverse in part, and remand this case to the district
court for sentencing.
I.
Appellants Tencer and Lazar, both licensed chiropractors,
worked at the Allied Chiropractic Clinic ("Allied") in Kenner,
Louisiana. Tencer, who owned the clinic, turned over the bulk of
his practice to Lazar, his employee, in 1989; thereafter, Tencer
generally supervised the clinic's financial affairs while Lazar
treated patients on a day-to-day basis. From sometime in 1988 to
early 1992, Allied submitted false insurance claims to three
insurance companies, Blue Cross/Blue Shield of Louisiana ("Blue
Cross"), Mail Handlers Benefit Plan ("Mail Handlers"), and National
Association of Letter Carriers ("NALC"), and collected proceeds for
patients who were not treated at all or who received only minimal
treatment.
To execute the fraud, the appellants paid insurance premiums
for some patients who, in return, signed multiple sign-in sheets
indicating their presence in the office awaiting treatment. Those
sheets were then used to generate false insurance claims.
Appellants followed a similar pattern with patients recruited from
local and federal government agencies; patients with good insurance
benefits for chiropractic services were paid to sign their names
and the names of family members on the clinic's sign-in sheets.
They were also compensated for referring coworkers to Allied.
While Allied apparently provided some legitimate services,
many patients testified that they and their family members received
either no treatment or only cursory treatment consisting of brief
massages or the application of heat pads. Yet, the claim forms
2
Allied submitted for these same patients reported complicated
diagnoses and elaborate treatment regimens. As a result of the
scheme, Allied submitted hundreds of fraudulent claims and
collected more than $450,000 in insurance proceeds related to these
patients.
Before trial, Tencer moved unsuccessfully to sever his trial
from Lazar. Following the jury trial, Tencer was convicted of one
count of conspiracy to commit mail fraud and money laundering in
violation of 18 U.S.C. § 371 (count 1); seventeen counts of mail
fraud in violation of 18 U.S.C. § 1341 (counts 2-18); and eighteen
counts of money laundering in violation of 18 U.S.C. § 1956 (counts
19-29, 31-37). The jury also returned a special forfeiture verdict
of $1,598,645.18 and two vehicles allegedly involved in the money
laundering. The district court acquitted Tencer on five money
laundering counts (counts 26-29, 37) and reduced the jury's
forfeiture order to $700,000. Tencer was sentenced to 78 months'
imprisonment, fined $17,500, and ordered to pay restitution of
$451,969.60 and to forfeit $700,000.
Lazar was convicted of conspiracy, mail fraud, and money
laundering (counts 1-18, 37), but the court acquitted him on the
money laundering count (count 37). He was sentenced to 33 months'
imprisonment and fined $30,000. Tencer and Lazar raise a number of
issues on appeal, which we discuss below. We also consider below
several issues the government raises in its cross-appeal.
II.
Both Tencer and Lazar argue that the evidence is insufficient
3
to support their convictions for mail fraud, money laundering, and
conspiracy. Faced with such a challenge, this court must determine
"``whether, after viewing the evidence and all inferences that may
reasonably be drawn from it in the light most favorable to the
prosecution, any reasonably minded jury could have found that the
defendant was guilty beyond a reasonable doubt.'" United States v.
Krenning, 93 F.3d 1257, 1262 (5th Cir. 1996) (quoting United States
v. Leahy, 82 F.3d 624, 633 (5th Cir. 1996)).
A.
To establish a mail fraud violation under 18 U.S.C. § 1341,
the government must demonstrate (1) a scheme to defraud; (2) the
use of mails to execute that scheme; and (3) the defendant's
specific intent to commit fraud. United States v. Fagan, 821 F.2d
1002, 1008 (5th Cir. 1987), cert. denied, 484 U.S. 1005 (1988).
Counts 2-18 charged appellants with using the mails in furtherance
of a scheme to defraud Blue Cross, Mail Handlers, and NALC. Counts
2-10 stem from nine separate mailings of checks from Blue Cross to
Allied. Counts 11-18 involve checks mailed from Mail Handlers and
NALC. The individual check that government relies in for the
"mailing" on each of the mail fraud counts is identified in the
indictment and was introduced in evidence at trial.
1.
Appellants first argue that the evidence fails to establish
the mailing requirement as it relates to the Blue Cross checks
underlying counts 2-10. To convict a defendant under § 1341, the
use of the mails must be "'incident to an essential part of the
4
scheme.'" Schmuck v. United States, 489 U.S. 705, 711 (1989)
(quoting Pereira v. United States, 347 U.S. 1, 8 (1954)). That is,
completion of the alleged scheme must depend in some way on the
information or documents that passed through the mail. United
States v. Pazos, 24 F.3d 660, 665 (5th Cir. 1994). Even a routine
or innocent mailing may supply the mailing element as long as it
contributes to the execution of the scheme. Schmuck, 489 U.S. at
714-15.
Ample evidence supports the existence of a scheme to defraud
Blue Cross, Mail Handlers, and NALC, and appellants' use of mails
to execute that scheme. Several patients testified that they never
received treatments for which their insurers were billed, and
insurance representatives testified that payments for all claims
were mailed to Allied. The evidence regarding Blue Cross in
particular showed that Allied billed the insurer for 2,944 visits
with patients about whom testimony was offered; Allied received
approximately $362,000 from Blue Cross in payment for the visits.
The Blue Cross-insured patients testified that they received little
or no chiropractic care in return for the money Blue Cross paid
Allied.
As to each of the counts at issue here (counts 2-10), the
indictment alleges that Blue Cross mailed a specific check to pay
fraudulent claims. The government, however, failed to produce any
evidence tending to connect these individual checks with fraudulent
claims. The record does not reveal the name of the patient, the
date of the treatment, or other relevant information demonstrating
5
what claims the individual checks paid. As the government
acknowledged, Allied submitted some valid claims for legitimate
treatment. Consequently, the government's evidence is insufficient
to establish that the checks relied on in counts 2-10 were in
payment of fraudulent claims and therefore were used to execute the
scheme to defraud.
The government argues that a review of claim forms, the
checks, and patient testimony supports the inference necessary for
convictions on these counts. According to the government, given
the regularity with which patients signed in and claims were
submitted and paid, the checks described in counts 2-10 must
contain fraudulent payments. We disagree. The government
submitted no evidence to indicate how quickly Blue Cross responded
to claims or to illustrate the number or amount of legitimate
claims Allied submitted to Blue Cross. Therefore, any conclusion
that the nine individual checks were in payment for fraudulent
claims is speculative.
Alternatively, the government asserts that proof that each
check contained fraudulent proceeds is not necessary to sustain
mail fraud convictions. Simply put, the government argues that
because the evidence of both a scheme to defraud and the use of
mails is overwhelming, this court should overlook its failure to
identify specific checks containing fraudulent proceeds.
The government relies on United States v. Reid, 533 F.2d 1255
(D.C. Cir. 1976), in which the defendant, a credit director,
submitted for payment inflated bills to a collection agency. The
6
defendant argued that the evidence was insufficient to support his
mail fraud convictions because it did not demonstrate that the
invoices or checks on which the mail fraud counts were based were
inflated billings or payments. Id. at 1263. The court disagreed,
stating:
As a matter of practicality, in most schemes to defraud,
it would be very difficult for the prosecution to show
that any particular check or invoice was in itself false
or inflated in amount, because in a course of dealing
over a period of months the bills sent and the payments
made are not necessarily tied in with ascertainable and
accurate accounting data. In fact, it may be assumed
that persons engaged in such a scheme to defraud would
take some pains not to tie in the invoices and checks
with other records which would be in the hands of the
person or company being defrauded, in order to escape
detection.
Id.
However, Reid's reasoning is not applicable here. The D.C.
Circuit in Reid emphasized that because of the nature of the
fraudulent scheme, determining what invoices or checks were
fraudulent would be nearly impossible. In contrast, the government
here makes no contention that the nature of the fraud made it
difficult for it to demonstrate what checks contained fraudulent
proceeds; it argues instead that such a link is unnecessary to
support a conviction. We disagree, and we decline to endorse a
broad reading of § 1341's mailing requirement that would relieve
the government of the burden of proving that mailings underlying
mail fraud counts are related to the fraud being perpetrated.1
1
The government also asserts that because the continuing
payment of all Blue Cross claims--both legitimate and illegitimate-
-was integral to the success of appellants' scheme, it is
unnecessary to establish what checks contained fraudulent proceeds.
7
In sum, we can identify no record evidence demonstrating that
the checks underlying counts 2-10 contained fraudulent proceeds.
Without such evidence, a rational trier of fact could not have
found Tencer and Lazar guilty beyond a reasonable doubt of the
offenses charged in those counts. Because the government's
evidence as to counts 2-10 was legally insufficient to establish
guilt beyond a reasonable doubt, the convictions of Tencer and
Lazar on those counts must be reversed.
2.
Counts 11-18 charge mail fraud based on checks mailed to
Allied from Mail Handlers and NALC.2 Tencer argues that because
the Allied patients insured by NALC or Mail Handlers testified that
they had no direct dealings with him, the evidence is insufficient
to establish the specific intent to defraud required by 18 U.S.C.
§ 1341 as to these counts. Tencer misconstrues the intent
requirement. The government need not demonstrate that Tencer was
aware that these particular patients were scheme participants;
rather, the intent element is satisfied as long as the government
showed that Tencer willfully participated in a scheme to defraud
"with the intent that the scheme's illicit objectives be achieved."
United States v. Rochester, 898 F.2d 971, 977 (5th Cir. 1990); see
We acknowledge that "innocent" mailings can sometimes support mail
fraud convictions. Schmuck, 489 U.S. at 714-15. However, the
government has failed to offer any explanation as to how the
payment of legitimate claims furthered the scheme to defraud.
2
Because each of these checks identified the claims being
paid, we are not faced with the gap in the evidence just discussed
in connection with the Blue Cross checks.
8
also United States v. Jimenez, 77 F.3d 95, 97 (5th Cir. 1996).
That is, the government must show Tencer participated in the scheme
to defraud, not that he took part in every aspect of that scheme.
Indeed, given Tencer's admittedly supervisory role in the clinic,
evidence of direct patient contact on his part would be unlikely.
The government presented overwhelming evidence of Tencer's
participation in a scheme to defraud insurance companies. Allied
employees testified that Tencer reviewed claim forms and, at times,
tacked on charges to inflate billings, regardless of whether
additional services had been provided. Patients testified that
Tencer regularly paid for their insurance in return for their
signature on sign-in sheets and that he instructed them to lie
about their health to insurance representatives to enable them to
obtain insurance more easily. This evidence is sufficient for a
rational trier of fact to find that Tencer had the requisite intent
to defraud.
Both Tencer and Lazar argue that the government failed to
submit evidence of fraud as to three of the counts (counts 13, 15-
16). Count 13 involved a payment from Mail Handlers for a claim by
Darryl Smith, and counts 15 and 16 involved claims for Smith's then
three-year-old daughter, Madeline. Neither of these patients
testified at trial. However, Jerry Kelley, a coworker of Darryl
Smith, testified that Smith referred Kelley to Allied and that
Smith told him he would be paid for his visits. Shortly
thereafter, Smith and Kelley visited Allied together, and Smith
gave Kelley money for the visit. In light of Kelley's testimony
9
that he was recruited into the scheme by Smith and later paid by
Smith for his participation in insurance fraud, the jury could
infer that Smith was intimately involved in the fraud himself and
that the claims submitted on behalf of Smith were fraudulent.
Counts 15 and 16 were based on checks paying claims for
treatment to Madeline Smith. During a five-month period, Allied
billed Madeline's insurer for 49 visits for a total of $6,735.50.
Appellants offered no explanation for the excessive number of
visits by a three-year-old child. In addition, Kelley and other
patients testified that the appellants encouraged them to bring
their children into the clinic and to sign their names, regardless
of whether they needed or received treatment.
This circumstantial evidence, viewed in the light most
favorable to the government, is sufficient to support appellants'
convictions on counts 13, 15, and 16.
Finally, Lazar argues that the government failed to establish
that mailings underlying five counts (counts 11-12, 14, 17-18) were
used to execute the fraud. Specifically, he contends that no
evidence shows that the checks from NALC and Mail Handlers were for
fraudulent claims. We disagree.
The checks at issue were in payment for claims by Rashad
Sanders, Jerry Kelley, Kelley's four-year-old son, Jerry Kelley
Jr., Barbara Blanchard, and Blanchard's son, Matthew Blanchard.
The government presented testimony by Sander's mother, Ernestine
Gray, Kelley Sr., and Barbara Blanchard. Each testified that they
were paid to visit the clinic, to refer coworkers and family
10
members, and to pre-sign Allied's sign-in sheets. For example, the
elder Kelley testified that, beginning in March 1992, he visited
the clinic two to three times a week and signed in his own name and
the names of his wife and son. Although Kelley brought his son to
the clinic only twice, Allied billed Mail Handlers for 44 visits
for the younger Kelley over a three-month period.
Similarly, although Gray visited the clinic only four times in
all, Allied submitted 38 claims for her and 35 claims for her son,
Rashad. On two occasions, Lazar even brought sign-in sheets to
Gray's home for her to sign. Lastly, Barbara Blanchard testified
that she and her two children visited Allied about five times
during spring 1992. Allied billed NALC for 22 visits for Barbara
Blanchard and for 24 visits for her son, Matthew.
Viewing the evidence in the light most favorable to the
government, a reasonable jury could conclude beyond a reasonable
doubt that the checks underlying counts 11, 12, 14, 17, and 18 were
mailed as a result of Allied's fraudulent billing and, therefore,
that mails were used to execute the appellants' fraud.
B.
Tencer next challenges the sufficiency of the evidence
supporting his conviction for money laundering on six counts
(counts 31-36), and the government, on its cross-appeal, challenges
the district court's acquittal of both Tencer and Lazar on one of
the money laundering counts (count 37). To support a conviction
under 18 U.S.C. § 1956, the money laundering statute, the
government must prove that the defendant 1) conducted or attempted
11
to conduct a financial transaction, 2) which the defendant knew
involved the proceeds of a specified unlawful activity, 3) with the
intent to conceal or disguise the nature, location, source,
ownership, or control of the proceeds of unlawful activity. United
States v. West, 22 F.3d 586, 590-91 (5th Cir. 1994), cert. denied,
115 S. Ct. 584 (1994); 18 U.S.C. § 1956(a)(1)(B)(i).
1.
Tencer contends first that the government failed to produce
sufficient evidence to establish the concealment element of six of
the money laundering counts (counts 31-36). Those counts stemmed
from six transfers of funds by wire and check from various money
market accounts throughout the country into one account in Tencer's
name at California Federal Bank in Las Vegas, Nevada. A brief
description of the facts is necessary to understand Tencer's
argument.
Between May 1989 and April 1992, Tencer opened bank accounts
in various banks across the country and deposited checks drawn on
his personal account at Fidelity Homestead and on the Allied Clinic
account at Whitney National Bank. On July 9, 1992, a little more
than a week after federal agents had executed a search warrant at
Allied Clinic, Tencer faxed instructions to several of the regional
banks where he had accounts. He directed those banks to transmit
his funds on deposit by mailing cashiers checks by Federal Express
to an Algiers, Louisiana, address at which Tencer neither worked
nor resided. On July 13, 1992, Tencer opened an account at
California Federal Bank in Las Vegas, Nevada, using some of the
12
cashiers checks; his initial deposit totaled $662,637.06. He told
employees at the Las Vegas bank that he was moving into the area
and needed cash to buy a business. He also directed banks that had
not yet mailed cashiers checks to the Algiers address to wire funds
totaling $312,297.89 to the account at California Federal Bank.
The next day, Tencer deposited an $89,832.10 cashiers check into
the account and withdrew $9,900.3 Later that day, Tencer arranged
to have the entire balance in the account--roughly $1,055,000--
delivered to him in cash at a local airport. Before the funds
could be picked up by a security company and delivered to Tencer,
a seizure warrant was executed on the California Federal account.
Tencer argues that the government has presented no evidence
that he sought to conceal the nature, source, ownership, or control
of the funds. He contends that when he opened the regional
accounts initially and later transferred those balances to the
California Federal account, he used his own name and handled his
own transactions. No third parties were used, and a paper trail
clearly connected Tencer to both the regional and California
Federal accounts.
The government counters that the use of a false identity is
not essential to a money laundering conviction. It contends that
Tencer's request that funds be sent to an address at which he
neither worked nor resided, his use of a Las Vegas bank hundreds of
3
Withdrawals of more than $10,000 in cash require the
completion of a Currency Transaction Report; according to a bank
official, withdrawals slightly below the regulated amount are not
unusual.
13
miles away from his home and business to consolidate funds, and his
false statements to bank employees about his plans to move to the
area demonstrated his intent to conceal.
We reject as overly narrow Tencer's view that § 1956's
concealment element is satisfied only by an attempt to disguise the
defendant's identity. Several circuits, including this one, have
recognized that the government need not "prove with regard to any
single transaction that the defendant removed all trace of his
involvement with the money or that the particular transaction
charged is itself highly unusual." United States v. Willey, 57
F.3d 1374, 1386 (5th Cir.), cert. denied, 116 S. Ct. 675 (1995);
see, e.g., United States v. Kinzler, 55 F.3d 70, 73 (2d Cir. 1995)
("§ 1956(a)(1)(B)(i) does not require an attempt to conceal the
identity of the defendant; a scheme that conceals only the source
of the funds falls within the purview of the statute."); United
States v. Manarite, 44 F.3d 1407, 1416 (9th Cir.) (holding that
defendants, by cashing gambling chips in small quantities and at
different times and places, showed intent to conceal even though
they made no intent to disguise their identities), cert. denied,
115 S. Ct. 2610 (1995); United States v. Campbell, 977 F.2d 854,
857-58 (4th Cir. 1992) (upholding conviction where evidence of
concealment consisted of real estate agent's suspicion that
client's funds were derived from illegal activity coupled with
under-the-table cash transfer of $60,000 cash down payment on
home), cert. denied, 507 U.S. 938 (1993); United States v. Lovett,
964 F.2d 1029, 1034 n.3 (10th Cir.) ("To find that the money
14
laundering statute is aimed solely at those transactions designed
to conceal the identity of the participants to the transaction is
to ignore the broad language of the statute."), cert. denied, 506
U.S. 857 (1992). Thus, the fact that Tencer did not seek to
conceal his identity while depositing funds in the California
Federal account does not require us to reverse his conviction on
these counts.
Tencer argues that this court's decision in United States v.
Dobbs, 63 F.3d 391 (5th Cir. 1995), supports reversal. In Dobbs,
the defendant deposited proceeds of bank fraud into his wife's bank
account, converted other proceeds into cashiers checks, and then
used the account and checks for family and business expenses. This
Court found insufficient evidence to sustain the defendant's money
laundering convictions because the transactions were "open and
notorious" and no third parties were used to make purchases or hide
his activity. Id. at 397; see also Willey, 57 F.3d at 1388
(reversing conviction where only evidence of concealment was
transfer of money from one account to another).
In Dobbs, unlike today's case, the government produced no
evidence that the transactions were conducted to disguise the
relationship between the defendant and the fraudulent proceeds.
Dobbs, 63 F.3d at 398. Whereas Dobbs openly used fraudulently
obtained funds to pay for business and family expenses, Tencer
endeavored to consolidate illicit funds in a city that was hundreds
of miles from his home and where large cash transactions are
commonplace. He asked regional banks to wire funds to an address
15
to which he had no connection. His false statements to bank
officials showed an intent to minimize attention to the
transactions. Based on the evidence in the record, a jury could
infer that Tencer was attempting to conceal the nature of the funds
and facilitate laundering of the proceeds of his fraudulent
activities.
Tencer argues next that if his conviction on mail fraud counts
2-10 are reversed, the money laundering convictions must be
reversed as well because the government failed to prove "specified
unlawful activity." A review of the money laundering statute and
relevant case law persuades us that Tencer's conviction under §
1956 will stand; the government has demonstrated that the funds
involved are proceeds of a "specified unlawful activity" as
statutorily defined.
Section 1956 requires that the financial transaction "in fact
involve[d] the proceeds of specified unlawful activity." 18 U.S.C.
§ 1956(a)(1) (emphasis added). "Specified unlawful activity," by
statute, includes any racketeering offense listed in 18 U.S.C. §
1961(1). 18 U.S.C. § 1956(c)(7)(A). In turn, mail fraud, as set
forth in § 1341, is one of the offenses listed in § 1961(1).
Tencer argues that the government did not establish that any
Blue Cross mailings occurred in furtherance of the scheme to
defraud. We disagree. In reversing the appellants' convictions on
counts 2-10, we concluded that the government established at trial
both the existence of a scheme to defraud Blue Cross and
appellants' use of mails to execute that scheme. Patients insured
16
by Blue Cross testified that they never received treatments for
which Blue Cross was billed, and a Blue Cross representative
testified that payments for all claims were mailed to Allied. More
particularly, the government produced evidence that Allied
submitted roughly $362,000 in claims to Blue Cross that were
related to patients about whom testimony was given. Those patients
testified that they received no treatment in connection with a
majority of the claims submitted on their behalf. Blue Cross then
transmitted checks in payment of those claims through the mail to
Allied. We are unable to affirm the mail fraud convictions as to
counts 2-10 because the evidence is insufficient to show that the
specific Blue Cross checks alleged in the indictment--the mailings
on which those counts are based--were in payment of fraudulent
claims and therefore used to execute the insurance fraud. However,
our reversal as to those counts does not disturb our conclusion
that the evidence demonstrated that Allied received more than
$300,000 through the mail from Blue Cross in payment of fraudulent
claims. This adequately established mail fraud for purposes of the
money laundering counts.
Tencer contends that this court and others have reversed money
laundering convictions where convictions as to the predicate
unlawful activity have been reversed. See United States v.
O'Hagan, 92 F.3d 612, 628 (8th Cir. 1996), cert. granted on other
grounds, 117 S. Ct. 759 (1997); United States v. Brumley, 79 F.3d
1430, 1442 (5th Cir.), reh'g en banc granted, 91 F.3d 676 (5th Cir.
1996). In O'Hagan, the court first vacated securities fraud counts
17
and then vacated mail fraud counts premised in the indictment on
acts that allegedly constituted securities fraud. O'Hagan, 92 F.3d
at 627. Because the court vacated all of the securities fraud and
mail fraud counts, it found no unlawful activity on which to base
money laundering convictions. Id. at 928. Similarly, in Brumley,
this court vacated a defendant's money laundering convictions where
the counts in the indictment identified the "specified unlawful
activity" by cross-referencing wire fraud counts that had been
vacated. Brumley, 79 F.3d at 1442.
In Tencer's case, the relevant money laundering counts in the
indictment (counts 31-36) identified the funds at issue as
"proceeds of specified unlawful activity, that is, the knowing and
intentional commission of mail fraud" under 18 U.S.C. § 1341.
These counts then incorporated by reference paragraphs in the
indictment describing the nature of the scheme to defraud.
However, neither the paragraphs incorporated by reference nor the
language in counts 31-36 define the predicate unlawful activity as
the mail fraud charged in counts 2-18. Because the money
laundering counts do not define "specified unlawful activity" in
terms of the mail fraud activities described in counts 2-18, this
court is not limited to considering only those activities. Cf.
United States v. Smith, 44 F.3d 1259, 1264-65 (4th Cir.) (holding
that indictment describing funds involved in transaction generally
as wire fraud proceeds was sufficient to define specified unlawful
activity at issue), cert. denied, 115 S. Ct. 1970 (1995).
Thus, Tencer's convictions on counts 31-36 will stand as long
18
as the jury, viewing the evidence in the light most favorable to
the government, could infer that the six deposits by wire and cash
into the California Federal account "involved" mail fraud proceeds
for purposes of § 1956(a)(1). To do so, the government need not
prove that all of the money involved in the transfers were proceeds
of mail fraud; it is sufficient if the government proves at least
part of the money represented such proceeds. See, e.g., United
States v. English, 92 F.3d 909, 916 (9th Cir. 1996); United States
v. Cancelliere, 69 F.3d 1116, 1120 (11th Cir. 1995); United States
v. Jackson, 935 F.2d 832, 840 (7th Cir. 1991); cf. United States v.
Moore, 27 F.3d 969, 976 (4th Cir.), cert. denied, 115 S. Ct. 459
(1994).
As noted above, the government presented evidence that from
May 1989 to April 1992, Tencer opened accounts in various banks
across the country and deposited checks drawn on his personal
account at Fidelity and on Allied's account at Whitney National
Bank. Marcus Veazey, an FBI agent, testified that the majority of
deposits into the Whitney account were from insurance companies and
that the specific checks in evidence were deposited into that
account as well. From July 1989 through July 1992, $2,681,205.60
in insurance proceeds were deposited into the account. Agent
Veazey testified that nearly $452,000 was related to patients who,
according to patient testimony, participated in the insurance
fraud; of that amount, roughly $362,000 came from Blue Cross
checks.
Veazey then testified as to the movement of funds from the
19
Whitney account. Checks written on that account went to Allied's
operating account at Fidelity Homestead, Tencer's personal account
at Fidelity, and to several regional accounts. From July 1989 to
summer 1992, $756,066.20 from the Whitney account was deposited
into Tencer's personal account at Fidelity. Veazey testified that
during this time period, Tencer deposited checks drawn on his
personal account into regional accounts as well. According to a
chart introduced by the FBI agent, Tencer deposited nearly $1.4
million in regional accounts during the three-year period. On July
13, 1992, he opened an account at California Federal and deposited
$662,637.06 in checks drawn on five of those accounts. He also
directed four banks to wire funds totaling $312,297.89 to the
account. On July 14, Tencer deposited $89,832.10 in a check drawn
on one regional account. By establishing that fraudulent proceeds
were initially deposited into the Whitney account and that Tencer
later transferred funds from that account into regional accounts
and, then, into the California Federal account, the government has
adequately established that the six transfers at issue "involved"
unlawful proceeds.
In sum, while the government has not demonstrated what
specific Blue Cross checks included fraudulent proceeds, it did
establish that Blue Cross paid Allied approximately $362,000 that
was directly related to patients who testified that Allied
submitted claims to Blue Cross on their behalf even though they
received little or no treatment. The government then established
that the checks making up the $362,000 were deposited in the
20
Whitney account. Funds from the Whitney account were later
deposited in Tencer's personal account, his regional accounts, and,
finally, in the California Federal account.
Given this evidence and the volume and scope of the insurance
fraud, the jury was entitled to infer that most of the $362,000 was
in payment for fraudulent claims. Furthermore, the jury could
infer that the six transactions underlying counts 31-36 involved
proceeds from this unlawful activity--specifically, mail fraud.
2.
The government cross-appeals the district court's acquittal of
both Tencer and Lazar on one of the money laundering counts (count
37). That count charged a violation of 18 U.S.C. § 1956 in
connection with Lazar's August 10, 1992 deposit of approximately
$60,000 in insurance checks into an Allied Clinic account with Dean
Witter Reynolds. Lazar made the deposit at Dean Witter's New
Orleans office on the same day Tencer opened the account in a Dean
Witter office in southern California. Lazar directed the New
Orleans branch to credit his deposit to the Allied account Tencer
opened with Dean Witter in California. Some of the more than
$60,000 in insurance checks Lazar deposited were in payment for
claims for patients who had not received the reported treatment.
As discussed above, to support a money laundering conviction,
the government must show that the defendant acted with an intent to
conceal. In support of the concealment element, the government has
shown only that a deposit was made with a national brokerage firm
in New Orleans to be credited to an existing account with the same
21
firm in California. We agree with the district court that although
a geographically distant financial transaction is a factor that can
be considered in support of the concealment element, it does not
alone establish intent to conceal.
We recognize that the timing of this transaction is
suspicious: the deposit was made shortly after the government
seized Tencer's funds in the Las Vegas account. But the government
provided no evidence that the transfer of the funds from New
Orleans to the existing California Dean Witter account made the
account harder to find or that a depositor would believe such a
transfer would tend to conceal the funds. The district court
correctly acquitted both Tencer and Lazar on this count.
C.
Finally, Tencer contends that the evidence is insufficient to
support his conviction for conspiracy. To establish conspiracy
under 18 U.S.C. § 371, the government must establish "(1) an
agreement between two or more persons, (2) to commit a crime
against the United States, and (3) an overt act in furtherance of
the agreement committed by one of the conspirators." Krenning, 93
F.3d at 1262. Conspiracy may be proved through circumstantial
evidence, and the agreement need not be formal or spoken. Id. at
1264. Here, abundant evidence presented at trial in support of the
mail fraud and money laundering counts set forth above demonstrated
the active participation of both appellants in the scheme to
defraud and their cooperative efforts in ensuring its success.
This circumstantial evidence of agreement, together with evidence
22
of the appellants' active participation in the scheme, is
sufficient to support appellants' convictions for conspiracy.
III. Tencer argues next that the
district court's denial of his severance motion prevented him from
introducing exculpatory testimony by Lazar, who would testify only
in a separate trial. To support his motion, Tencer submitted
Lazar's affidavits, which stated that, to his knowledge, Tencer did
not commit any of the acts underlying the charged offenses.
This court has recognized that, as a general rule, persons
indicted together should be tried together, especially in a
conspiracy case, United States v. Neal, 27 F.3d 1035, 1045 (5th
Cir.), cert. denied, 115 S. Ct. 530 (1994), and that "'a district
court should grant a severance only if there is a serious risk that
a joint trial would compromise a specific trial right of one of the
defendants, or prevent the jury from making a reliable judgment
about guilt.'" Id. (quoting Zafiro v. United States, 506 U.S. 534,
537 (1993)). To obtain a severance based on a codefendant's
exculpatory testimony, a defendant must initially demonstrate (1)
a bona fide need for the testimony; (2) the testimony's substance;
(3) its exculpatory nature and effect; and (4) the willingness of
the codefendant to testify. United States v. Ramirez, 979 F.2d
1024, 1035 (5th Cir. 1992), cert. denied, 508 U.S. 913 (1993).
Upon such a showing, a court must consider, among other things, the
significance of the testimony in relation to the defendant's theory
of defense and the extent of prejudice caused by the absence of
such testimony. Id. This court reviews the denial of a motion to
23
sever for abuse of discretion. United States v. Dillman, 15 F.3d
384, 393 (5th Cir.), cert. denied, 115 S. Ct. 183 (1994).
The government contends that Tencer failed to meet his initial
burden because he did not establish the exculpatory nature of
Lazar's proposed testimony. Lazar's affidavits assert generally
that Tencer did not conspire with Lazar to defraud insurance
carriers and, more specifically, that he was not aware that Tencer
approved billing for unnecessary treatments, paid patients to sign
names of friends and family on sign-in sheets, or offered to pay
patients' health-insurance premiums in order to submit false
claims. Lazar further stated that he, not Tencer, initiated the
clinic practice of paying new patients a "referral fee" and paying
for patients' transportation costs. We agree with the government
that Lazar's proposed testimony as to Tencer's lack of knowledge of
the scheme to defraud consists of conclusory allegations and
contains no specific facts that would exonerate him. United States
v. Broussard, 80 F.3d 1025, 1037-38 (5th Cir.), cert. denied, 117
S. Ct. 264 (1996); see also United States v. DeSimone, 660 F.2d
532, 540 (5th Cir. 1981) (upholding denial of severance where
affidavit "amount[ed] to little more than a bare, conclusory
assertion that he did not conspire with his co-defendants, nor they
with him"), cert. denied, 456 U.S. 928 (1982). Tencer argues that
he did not know of fraudulent billing practices underlying the
offenses charged and that Lazar's testimony would have cleared him
of any involvement. However, even if the jury had heard and
accepted Lazar's testimony that, to Lazar's knowledge, Tencer knew
24
nothing of billing errors and falsified sign-in sheets, such
testimony would have had little evidentiary value in light of the
abundant evidence of Tencer's role in generating fraudulent claim
forms and paying for patients' insurance. See United States v.
Jobe, 101 F.3d 1046, 1060 (5th Cir. 1996). Moreover, Lazar's
affidavits admit to no mail fraud or money laundering activities.
A codefendant's proposed testimony lacks credibility when it does
not contravene his own penal interests. See DeSimone, 660 F.2d at
540; Dillman, 15 F.3d at 394. While Lazar acknowledged that he
paid referral fees and transportation costs to patients, he denies
knowledge of the fraudulent billing from which the mail fraud
counts arose.
In sum, Lazar's affidavits failed to set forth specific
exonerative facts from which the district court could have
concluded that his testimony would have had an exculpatory effect,
and Tencer has not demonstrated that he suffered specific and
compelling prejudice by the denial of his severance motion.
Accordingly, the district court did not abuse its discretion in
denying Tencer's motion to sever.
IV.
Both Tencer and the government challenge the district court's
forfeiture order. The jury returned a special forfeiture verdict
of $1,598,645.18 and two vehicles allegedly involved in all of the
money laundering counts. Because the court vacated counts 26-29
and count 37, it similarly vacated the forfeiture verdict related
25
to those counts.4 Of the remaining money laundering counts (counts
31-36), a verdict of $1,055,395.71--representing the balance on
deposit in the California Federal account--was returned. The
district court reduced the forfeiture to $700,000. Tencer argues
that the forfeiture order must be reversed in its entirety because
it includes proceeds from legitimate insurance claims. The
government responds that reversal is inappropriate and that,
instead, the jury verdict ordering forfeiture of the California
bank account should be reinstated.
Forfeiture in this case was imposed pursuant to 18 U.S.C. §
982(a)(1), a mandatory criminal forfeiture provision stating:
The court, in imposing sentence on a person convicted of
an offense in violation of . . . Section 1956 . . . of
this title, shall order that the person forfeit to the
United States any property, real or personal, involved in
such offense, or any property traceable to such property.
18 U.S.C. § 982(a)(1) (emphasis added). The government argues that
all of the funds in the California Federal account were forfeitable
because any legitimate funds involved and "facilitated" the offense
by providing a cover for the tainted funds. This "facilitation
theory" rests largely on a passage in the legislative history of §
981,5 § 982's civil counterpart: "[T]he term 'property involved' is
intended to include the money or other property being laundered
4
The government does not challenge this action.
5
Section 981, like § 982, uses the phrases "involved in" and
"traceable to." Relatively few cases have interpreted § 982; those
that have often rely on § 981 case law. See, e.g., United States v.
Voigt, 89 F.3d 1050, 1087 (3d Cir.), cert. denied, 117 S. Ct. 623
(1996); United States v. Swank Corp., 797 F. Supp. 497, 500 (E.D.
Va. 1992) (both relying on § 981 cases to interpret § 982
language).
26
(the corpus), any commissions or fees paid to the launderer, and
any property used to facilitate the laundering offense." United
States v. All Monies ($477,048.62) In Account 90-3617-3, 754 F.
Supp. 1467, 1473 (D. Hawaii 1991) (citing 134 Cong. Rec. S17365
(daily ed. Nov. 10, 1988) (emphasis added)). Facilitation occurs
when the property makes the prohibited conduct "less difficult or
more or less free from obstruction or hindrance." United States v.
Schifferli, 895 F.2d 987, 990 (4th Cir. 1990) (defining term in
context of a drug forfeiture statute that expressly used the
"facilitating" language (internal citations omitted)).
Several district courts have upheld the forfeiture of the
entire balance of accounts containing both tainted and untainted
funds. There, courts have concluded that the commingling of crime
proceeds and "clean" money makes money laundering less difficult
and may even be necessary to successful completion of the offense.
Such untainted funds have therefore been found to be "involved" for
purposes of the forfeiture statute. See United States v. Contents
of Account Numbers 208-06070 and 208-06068-1-2, 847 F. Supp. 329,
335 (S.D.N.Y. 1994); United States v. Certain Accounts, Together
with All Monies on Deposit Therein, 795 F. Supp. 391, 396-97 (S.D.
Fla. 1992); United States v. Certain Funds on Deposit in Account
No. 01-0-71417, 769 F. Supp. 80, 84-85 (E.D.N.Y. 1991). The
district court here adopted the facilitation theory and instructed
the jury that "property involved" in the money laundering offense
included "any property used to facilitate the laundering offense."
Appellants argue that this instruction was incorrect and rely
27
on a Seventh Circuit decision. In United States v. $448,342.85,
969 F.2d 474 (7th Cir. 1992), the court refused to extend § 981's
reach beyond "property used in or traceable to" the criminal
offense. There, the government sought forfeiture of funds involved
in a fraudulent sales scheme that were pooled with allegedly
untainted funds and argued that the balances of seized accounts
were forfeitable regardless of whether all of the funds were
traceable to "specified unlawful activity." Id. at 476. The court
rejected this argument and reasoned that simply commingling tainted
funds with legitimate funds did not make an entire account subject
to forfeiture. Id. at 476. The Seventh Circuit then affirmed the
forfeiture of all the funds in the seized accounts because the
summary judgment evidence revealed that the criminal proceeds
"vastly exceed[ed] the sums on deposit at the time of the seizure."
Id. at 477.
We agree with the Seventh Circuit that merely pooling tainted
and untainted funds in an account does not, without more, render
that account subject to forfeiture. Nevertheless, we do not read
$448,382.85 as inconsistent with the facilitation theory as applied
by many district courts.6 We find the reasoning of the Southern
District of New York persuasive. That court noted:
[L]imiting the forfeiture of funds under these
circumstances to the proceeds of the initial fraudulent
activity would effectively undermine the purpose of the
forfeiture statute. Criminal activity such as money
6
As the Seventh Circuit acknowledged, "money need not be
derived from crime to be 'involved' in it; perhaps a particular sum
is used as the bankroll facilitating the fraud." $448,382.85, 969
F.2d at 476 (emphasis added).
28
laundering largely depends upon the use of legitimate
monies to advance or facilitate the scheme. It is
precisely the commingling of tainted funds with
legitimate money that facilitates the laundering and
enables it to continue.
Contents of Account Numbers 208-06070 and 208-06068-1-2, 847 F.
Supp. at 334-35 (quoting Certain Funds on Deposit in Account No.
01-0-71417, 769 F. Supp. at 84-85). The court held that forfeiture
of legitimate and illegitimate funds commingled in accounts was
proper as long as the government demonstrated that the defendant
had pooled the funds to disguise the nature and source of his
scheme. Contents of Account Numbers 208-06070 and 208-06068-1-2,
847 F. Supp. at 335. Other courts have similarly required the
government to demonstrate a substantial nexus between the money
laundering offense and the legitimate funds. See Marine Midland
Bank v. United States, No. 93 Civ. 0207, 1993 WL 158542 at * 7-8
(S.D.N.Y. May 11, 1993) (refusing to apply facilitation theory
where legitimate funds in account had merely an "incidental or
fortuitous" connection to illegal activity), aff'd in part,
remanded in part, 11 F.3d 1119 (2d Cir. 1993); Certain Accounts
with All Monies on Deposit Therein, 795 F. Supp. at 394 (holding
that funds derived from legitimate sources are forfeitable if used
to effectuate money laundering but refusing to allow forfeiture of
funds in indirect accounts where evidence showed only that checks
were written against suspect account); cf. United States v. Voigt,
89 F.3d 1050, 1087 (3d Cir.) (noting that government must prove
that property seized under § 982(a)(1) has "some nexus to the
property 'involved in' the money laundering offense" (emphasis in
29
original), cert. denied, 117 S. Ct. 623 (1996).
In this case, the money laundering counts arose from six
transfers of funds by wire and check from various accounts
throughout the country into one account in Tencer's name at
California Federal. All of the funds--both legitimate and
illegitimate--were quickly moved into the account within a few days
in order to conceal the nature and source of the mail fraud
proceeds. Faced with such evidence, the jury was entitled to infer
that all of the funds in the account were "involved in" the money
laundering and subject to forfeiture pursuant to § 982. Because
sufficient evidence supports the jury verdict, the district court
was bound by the mandatory provisions of § 982 and erred in
reducing the forfeiture.7
V.
In its judgment, the district court ordered Tencer to pay a
combined total of $451,969.60 in restitution to Blue Cross, Mail
Handlers, and NALC. Tencer's final contention is that the district
court lacked sufficient factual basis for its restitution order.
Specifically, Tencer challenges the restitution order's inclusion
of claims paid on behalf of Darryl Smith, his wife, and his
daughter as to which, he says, there was no evidence of fraud. He
further challenges the court's use of the entire amount of claims
7
Tencer also argues that forfeiture of all of the funds
violated the Eighth Amendment's Excessive Fines Clause, but he
provides no persuasive analysis to support his argument. Given the
extensive nature of the criminal activity in this case over a
three-year time span and the large sum of money derived from that
activity, we conclude that the forfeiture does not represent an
excessive fine under the Eighth Amendment.
30
filed on behalf of patients about whom evidence of fraud was
presented; he contends this is excessive because some of these
patients testified that they had received minimal treatment.
Restitution, a criminal penalty, is reviewed de novo. United
States v. Hayes, 32 F.3d 171, 172 (5th Cir. 1994). An order of
restitution must be limited to losses caused by the specific
conduct underlying the offense of conviction. United States v.
Chaney, 964 F.2d 437, 452 (5th Cir. 1992). As established above,
we found that the testimony of Jerry Kelley, a coworker of Darryl
Smith, sufficiently supported a jury finding that the claim forms
submitted in connection with Smith were fraudulent. Moreover,
while some patients did testify that they received treatment, no
patient testified that the cursory treatment they received was
beneficial or designed to improve their health. Given the evidence
of rampant fraud and patient testimony that most of the claims
submitted on their behalf were completely baseless, we conclude
that the district court's restitution award is proper. Cf. United
States v. Seligsohn, 981 F.2d 1418, 1421 (3d Cir. 1992) (upholding
insurance fraud award for fraudulent claims even though some of
defendant's claims were legitimate where defendant's own fraudulent
conduct prevented victim from distinguishing between legitimate and
fraudulent payments).
VI.
The government cross-appeals on two sentencing issues;
specifically, it contends that the district court erred (1) in
refusing to enhance appellants' sentence pursuant to the
31
obstruction of justice provision of the federal sentencing
guidelines and (2) in determining the "value of funds" laundered in
order to set Tencer's base offense level. We review the district
court's findings of facts for clear error and its application of
the Sentencing Guidelines de novo. United States v. Dean, 59 F.3d
1479, 1494 (5th Cir. 1995), cert. denied, 116 S. Ct. 794 (1996).
A.
At the appellants' sentencing hearings, the government argued
that evidence in the record supported a two-level sentence
enhancement under § 3C1.1 of the federal sentencing guidelines.8
In addition, such an enhancement was recommended by the presentence
investigation report. With one exception, the district court, in
refusing to allow the obstruction of justice enhancement for both
Tencer and Lazar, satisfactorily explained her reasoning. However,
the government pointed specifically to trial testimony that after
a federal search warrant was executed on the clinic and Tencer's
home and a grand jury subpoena was served on Lazar for clinic
records, Lazar and another man9 visited a Carencro storage facility
that Lazar had rented earlier under a false name and removed clinic
records stored there. According to the storage facility manager,
8
Section 3C1.1, the Sentencing Guidelines' obstruction of
justice provision, states:
If the defendant willfully obstructed or impeded, or
attempted to obstruct or impede, the administration of
justice during the investigation, prosecution, or
sentencing of the instant offense, increase the offense
level by 2 levels.
U.S. Sentencing Guidelines Manual § 3C1.1 (1995).
9
There was some dispute at trial as to whether the man
accompanying Lazar was Tencer.
32
some of those records were discarded in a dumpster. If the court
credited this testimony, we see no apparent reason why the
appellants' conduct should not warrant enhancement. We remand this
issue for reconsideration by the district court.
B.
We reject the government's contention that the district court
improperly calculated the "value of funds" laundered for sentencing
purposes. This court reviews the district court's valuation of
funds under the money laundering provision of the Sentencing
Guidelines for clear error. United States v. Tansley, 986 F.2d
880, 884 (5th Cir. 1993).
Under § 2S1.1 of the guidelines, a defendant's offense level
is increased for sentencing purposes according to the value of
funds involved. Here, the district court reversed for insufficient
evidence counts amounting to roughly $500,000--one-third--of the
approximately $1,500,000 commingled funds involved in the original
money laundering counts. It then concluded that, for sentencing
purposes, it should reduce the value of ill-gotten gains laundered-
-roughly $452,000--by one-third as well. Based on this reasoning,
the court placed a value of $285,000 on the funds laundered. Under
this calculation, Tencer was subjected to a two-level increase to
his offense level under § 2S1.1(b)(2)(C), rather than the three-
level increase warranted under § 2S1.1(b)(2)(D) when the value of
funds is more than $350,000. Given the broad discretion accorded
to sentencing judges on determining value, we cannot say that the
court clearly erred in its determination.
33
VII.
In sum, we affirm the conviction of both Tencer and Lazar on
all counts except counts 2-10; we reverse those counts because the
evidence is insufficient to support the conviction. We also affirm
the district court's restitution order. However, we vacate the
court's forfeiture award, and for reasons stated above, direct the
district court to reinstate the jury's forfeiture award related to
counts 31-36.
Because of our reversal of counts 2-10 for both defendants,
the case must be remanded for resentencing. At resentencing, the
district court should also reconsider its refusal to enhance
appellants' sentences for obstruction of justice consistent with
our discussion of this issue.
Accordingly, the judgment of the district court is AFFIRMED in
part; REVERSED in part; and REMANDED for further proceedings
consistent with this opinion.
34