United States v. Richards , 204 F.3d 177 ( 2000 )

UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 98-20441
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
VERSUS
AL RICHARDS, KURT LATRASSE, AND ROGER BRAUGH,
Defendants-Appellants.
Appeal from the United States District Court
for the Southern District of Texas
February 9, 2000
Before KING, Chief Judge, and STEWART, Circuit Judge, and
ROSENTHAL, District Judge.1
Defendants appeal their convictions for their involvement in
a purported investment scheme that took large sums of money from
the investors and returned them little or nothing. The investors
believed that their money went to purchase letters of credit, which
defendants were to “roll,” or repeatedly sell and repurchase, to
European banks. The indictment alleged that the defendants took
1
District Judge of the Southern District of Texas,
sitting by designation.
1
the money from the investors, but purchased no letters of credit
and instead kept the money for themselves.
Al Richards appeals his convictions for conspiracy to
commit wire and mail fraud, in violation of 18 U.S.C. § 371;
interstate transportation of stolen property, in violation of 18
U.S.C. § 2314; and wire fraud, in violation of 18 U.S.C. § 1343.
Richards also appeals the district court’s order that he pay
restitution in the amount of $487,000. Roger Braugh and Kurt
Latrasse appeal their convictions for conspiracy to commit wire
fraud and mail fraud; interstate transportation of stolen property;
wire fraud; and mail fraud, in violation of 18 U.S.C. § 1341.
Braugh also appeals the district court’s order that he pay $504,500
in restitution. Finding ample evidence in the record to support
the convictions and no basis for reversal, we affirm.
I. BACKGROUND AND PROCEDURAL HISTORY
The superseding indictment charged all three defendants with
conspiracy to commit mail and wire fraud (count 1), interstate
transportation of stolen property (count 2); and wire fraud (count
3). The indictment charged Braugh and Latrasse with two additional
counts of wire fraud (counts 4 and 5) and one count of mail fraud
(count 6). The jury convicted Richards on all three counts and
convicted Braugh and Latrasse on all six counts.
At trial, the government presented evidence as to how
defendants induced participants to “invest” in the so-called roll
program. Potential investors were told that their money would be
pooled with that of other investors and used to buy letters of
credit. The letters of credit would be “rolled” — sold,
2
repurchased, and resold — to European banks frequently and
repeatedly. Each “roll” would generate a large profit to be
distributed among the investors, in proportion to their investment.
The investors were told that their funds would be safe at all
times, held either in an account at a nationally-known brokerage
firm or invested with a “prime” or “top 50" international bank.
Investors were also told that they would receive at least the
return of their initial investment, with interest, and would likely
make substantial profit. In fact, the defendants took the invested
funds for their own use, bought no letters of credit, and, except
for a small payment to one participant, returned no money to the
investors.
Three investors testified. Bert Hayes, an Arkansas
businessman, was introduced to the program by Al Richards in a
telephone call. Richards outlined an investment opportunity, but
refused to discuss the details until Hayes signed a
noncircumvention, nondisclosure agreement. After Hayes signed the
agreement, Richards suggested they meet in Dallas to discuss the
potential investment. Hayes agreed.
At the Dallas meeting, Richards told Hayes that in the “roll
program,” the investors’ funds would be pooled to buy a $10 million
letter of credit from a “top 50 prime bank.” The letter of credit
would be “rolled” to different European banks. The investors would
earn interest with each “roll.” Richards told Hayes that the
interest on the “rolls” would generate ten weekly payments of
$50,000 each on a $ 250,000 investment. Richards told Hayes that
his money would be kept in an interest-bearing account at the
3
Shearson Lehman Brothers brokerage firm until used to buy the
letter of credit. Richards assured Hayes that he would control the
money until all the other funds necessary for the roll program were
raised. If the roll program could not purchase a letter of credit,
Richards would return Hayes’s original investment, with ten percent
interest.
Richards explained that he would not personally be involved in
purchasing and selling the letters of credit. His “contacts,”
identified as Roger Braugh and Al Sellars, would handle the roll
program transactions.
Hayes signed a written contract in August 1991. The contract
identified Hayes and Gold Cloud Development Corporation as the
parties to a “joint business proposition.” The contract was signed
by Hayes and by “Roger S. Braugh by Al Richards” as the chairperson
of Gold Cloud Development.
The contract provided that Hayes would deposit his investment
funds in a designated brokerage firm account on September 5, 1991.
On the Monday following that date, Gold Cloud Development would
purchase a “One Year Zero Interest Coupon Standby Letter of Credit
with a $10,000,000.00 USD face value.” Gold Cloud Development
would “orchestrate the sale of the Standby Letter of Credit in the
European or Japanese secondary markets based on an already existing
contractual arrangement . . . .” Gold Cloud Development would wire
Hayes his share of the profits from that sale, expected to be
$50,000, to a bank Hayes would designate. “The original $ 10
Million USD principal would be reinvested on Monday each week for
the purchase of a new Standby Letter of Credit to repeat the same
4
weekly chain of events, for a period of no less than ten (10)
transactions.”
On September 6, 1991, Hayes sent a $ 250,000 check to a
designated Shearson Lehman Brothers account for investment in the
Gold Cloud Development roll program. On the same day, Richards
signed and sent Hayes a “Business Proposal on Funding Commitment.”
This document set out Al Richards’ plan to use GEI Associates, a
company Richards owned and ran, to raise $10 million to buy the
first letter of credit. The business proposal provided that if GEI
Associates could not raise the money necessary to buy the first
letter of credit, Hayes would receive his money back, with
interest.
When Hayes sent in his $250,000 check, he told Richards he
wanted to meet the individuals who would be handling the roll
transactions. Richards arranged a meeting with Hayes and Roger
Braugh and Al Sellars a few weeks later. At that meeting, Hayes
asked Al Sellars if the investment was safe. Sellars, noting that
Hayes was wearing a Mason pin, told Hayes that he was also a Mason
and that the investment was “as safe as the Rock of Gibraltar.”
Sellars asked Braugh to “roll” the investment at least twice in the
next week so that Hayes could see how the program worked.
After that meeting, Hayes understood Braugh to be in control
of the roll program transactions. Hayes expected to be paid within
a few weeks for the first roll transaction, set to occur the
following week. Several weeks passed with no payments. Hayes
began to question both Richards and Braugh about the program and
about his money. In December 1991, Richard told Hayes that the
5
initial arrangement was not working and proposed a different
arrangement. Richards proposed to change the payment plan from ten
weekly payments of $50,000 each to 42 weekly payments of $ 20,000
each. Hayes agreed and signed a revised contract. “Roger S.
Braugh by Al Richards” signed as the chairperson of Gold Cloud
Development.
Early in 1992, Braugh introduced Hayes to Kurt Latrasse.
Braugh identified Latrasse as an expert in the roll program.
Latrasse told Hayes that his money was invested in England and
“doing very well.” In June 1992, Latrasse advised Hayes to cancel
his contract with Richards and GEI Associates so that Hayes could
deal directly with Braugh and Latrasse and avoid paying commissions
to Richards. Hayes followed Latrasse’s advice and, by letter to
Richards dated June 12, 1992, canceled the contract with Richards
and GEI Associates.
In August 1992, Hayes complained to Braugh that he still had
not received any payments from his investment. Braugh expressed
surprise and explained that he had sent Richards several checks
intended for distribution to Hayes. Braugh sent Hayes photocopies
of seven canceled checks, totaling $50,000, signed by Braugh and
made out to Richards. The notation “Bert Hayes payment” appeared
on the memorandum line of each check. Hayes telephoned Richards to
ask why he had not sent Hayes the $50,000. Richards expressed
surprise; he insisted that the checks were his own commissions, not
Hayes’s investment returns. Richards accused Braugh of lying to
Hayes. During this time, Braugh sent Hayes a $15,000 check so that
6
Hayes could pay the interest due on the loan he had taken out to
fund his $ 250,000 investment in the roll program.
In September 1992, Hayes sent a fax message to Latrasse asking
for an accounting and a status report on the investment. Hayes
received no response. A few weeks later, Hayes sent Latrasse a
second fax, again asking for an accounting. On October 5, 1992,
Latrasse sent a fax, announcing that Gold Cloud Development had
been able to purchase “the commitments” for the roll program in
late November 1991. Latrasse continued:
Now, as to the future, we believe we will be
able to return the original investment plus a
reasonable return to you within this month.
We would propose at that time to invest the
net proceeds (after principal and interest on
your loan has been satisfied) in a master
collateral commitment. . . . [I]nasmuch as you
have been patient as Job with us, we would
like to include you as an equal participant in
whatever profits are generated.
The month passed; Hayes received no money.
Hayes sent several more fax messages to Latrasse over the next
few months, to no avail. By May 1993, neither Latrasse nor Braugh
was returning Hayes’s telephone calls or faxed messages. Hayes
heard nothing further about the program until 1996, when the FBI
contacted him. Hayes lost $235,000.
Gail Schwinger, another investor, also testified at trial.
Schwinger met Richards in November 1991 through her partners in an
investment company. After Schwinger and her partners signed a
noncircumvention, nondisclosure agreement, Richards revealed the
mechanics of the roll program. Richards gave Schwinger much the
same explanation he had given Hayes, with one variation. Richards
7
told Schwinger that an investment of $250,000 could earn up to
$40,000 per week for 42 weeks, not the $50,000 per week for ten
weeks he initially described to Hayes.
In December 1991, Schwinger and her partners met with
Richards, Braugh, and Sellars in Houston. When Schwinger
questioned whether her money would be safe, Braugh assured her that
her money would never leave the banks and would be very safe.
Schwinger agreed to invest $ 250,000 and, on December 11, 1991,
signed a contract with Gold Cloud Development. “Roger Braugh by Al
Richards” signed the contract as the chairperson of Gold Cloud
Development. The contract stated that the letters of credit would
be rolled 42 times; Schwinger would receive $40,000 for each roll.
The contract provided that if Gold Cloud Development could not buy
a letter of credit, Schwinger would receive her full investment
back with interest. Schwinger sent a $250,000 check for deposit in
the designated Shearson Lehman Brothers account on the same day she
signed the contract.
After the expected date for the first payment passed, one of
Schwinger’s partners began asking Richards questions about the
investment. In January 1992, Schwinger asked Braugh for a status
report. Braugh told her that the program had been delayed. In
February 1992, Braugh told Schwinger that Kurt Latrasse had taken
over the roll program. In later conversations, Braugh gave
Schwinger different excuses for the lack of payments. In separate
conversations, he told her that Latrasse was in the hospital with
gallstones; that Latrasse’s wife was in the hospital for dental
surgery; and that Latrasse might have cancer. According to Braugh,
8
these problems prevented Latrasse from traveling to Europe to
correct problems with the roll program.
Schwinger also spoke to Richards and Braugh several times in
February and March of 1992. Each time, Schwinger received excuses
or promises that quickly proved false. In March 1992, Braugh tried
to persuade Schwinger to invest in another roll program. Schwinger
agreed to attend a meeting in April 1992 to discuss the proposed
investment with Braugh, Al Sellars, and a man named Harold Sellers,
identified as Al Sellars’ attorney. Schwinger had no intention of
participating in another program, but agreed to the meeting so she
could ask questions about her original $250,000 investment.
Schwinger received no answers at the meeting.
After the March 1992 meeting, Schwinger hired an attorney, who
sent a letter to Richards, Braugh, and Latrasse demanding an
accounting. On May 28, 1992, Latrasse called Schwinger and told
her that he was upset that she had hired a lawyer. The next day,
Schwinger sent a fax to Latrasse, again asking for an accounting.
Latrasse agreed. On June 11, 1992, Schwinger sent Latrasse another
fax asking when she would receive the promised accounting. On
June 19, Latrasse responded by offering another excuse for the
delays and promising prompt payment: “The commitments for
collateral and funding have now been conformed and are working
properly. We anticipate distribution of accumulated earnings to
commence by or on – by or before June 30th.”
June 30, 1992 came without either payment or an
accounting. On that date, one of Schwinger’s partners wrote to
Latrasse, Braugh, and Sellars, stating that he planned to contact
9
federal and state authorities about the investment program.
Latrasse left two messages on Schwinger’s answering machine on
July 1, 1992. In the first message, Latrasse told Schwinger that
there had been movement on the account and proposed a meeting to
discuss the investment. In the second message, Latrasse said he
had received the “threatening” letter from Schwinger’s partner and
proposed a meeting before attorneys became involved. One of
Schwinger’s partners did arrange a meeting with Latrasse and
Schwinger. Latrasse did not appear. Schwinger never recovered any
of her investment.
Brandon Blackwelder was the third investor to testify at
trial. Blackwelder met Roger Braugh in 1993. Braugh described his
career field as “international finance” and asked if Blackwelder
would be interested in investing in a “deal” in Europe. Braugh
told Blackwelder that the investment was secret and available only
to “blue-bloods” and “high-ranking officials.” Braugh described
the investment as a “roll-over program” consisting of purchases and
sales of prime bank instruments in Europe. Blackwelder agreed to
invest $12,500.
On May 12, 1993, Braugh went to Blackwelder’s office to
collect the money. While there, Braugh telephoned Kurt Latrasse.
Using a speaker phone, Braugh asked Latrasse to allow Blackwelder
to invest only $12,500 instead of what Braugh described as the
minimum amount of $25,000. Latrasse responded that Blackwelder
could invest the lower amount if Blackwelder would agree to recruit
other investors for the program.
10
Blackwelder and Braugh signed a contract titled the “SAI
Opportunity Account Agreement” that same day. Braugh signed the
contract on behalf of “SAI & Associates.” The contract provided
that SAI & Associates would “guarantee that the capital account
shall be returned at the end of ninety (90) days from the date of
execution of this Agreement.” The initial term of 90 days would be
deemed renewed absent a written notice of nonrenewal by either
party. Braugh also signed a instrument styled an “Unsecured Note,”
in which he promised to pay Blackwelder, within the 90-day initial
term, the principal amount with interest at a twenty percent annual
rate.
Blackwelder spoke to Braugh or Latrasse several times after he
made the investment. On June 26, 1993, Blackwelder hand-delivered
Braugh a letter stating that Blackwelder did not wish to renew the
contract after the initial 90-day term. Blackwelder explained that
he needed the money for a down payment on a new house. After this
meeting, Blackwelder was unable to reach Braugh for weeks. When
Blackwelder finally talked to Braugh, Braugh provided excuses, but
no money.
In July 1993, Braugh called Blackwelder. Braugh explained
that if he could travel to Europe, he could expedite the roll
program transactions, but he needed $5,000 to $10,000 to make the
trip. Braugh asked Blackwelder to lend him the money. Blackwelder
agreed to lend Braugh $5,000, but asked Braugh to give him a post-
dated repayment check as security. On July 8, 1993, Blackwelder
gave Braugh two checks for $2,500 each. In return, Braugh gave
Blackwelder a check in the amount of $5,000, post-dated July 16,
11
1993. Braugh cashed the checks from Blackwelder, but did not use
the money to pay for a trip to Europe.
On July 16, 1993, Blackwelder told Braugh that he planned to
cash the repayment check. Braugh told Blackwelder that he had not
yet deposited money in the account on which the check was drawn.
Blackwelder nonetheless presented the check for payment, which,
predictably, bounced. Blackwelder tried unsuccessfully to recover
his money from Braugh. On November 22, 1993, Braugh wrote
Blackwelder a letter stating that he would repay Blackwelder’s
$5,000 loan with cash or a cashier’s check. Blackwelder received
no repayment.
Blackwelder also spoke with Latrasse several times about his
investment. Latrasse repeatedly told Blackwelder that there would
be action on his investment “any day.” In February 1994, Latrasse
sent Blackwelder a fax stating that Latrasse had designated a
disinterested third party to deliver Blackwelder a check returning
his investment. Blackwelder never received the check. He lost his
$12,500 investment and the $5,000 loan.
Kathryn Brewer, a financial analyst with the FBI, examined
numerous bank and brokerage account records to trace the funds
Hayes, Schwinger, and Blackwelder invested. She testified that
most of the money was distributed among bank accounts of the three
defendants. The remaining funds were disbursed to various entities
unrelated to any investment program.
Hayes’s $250,000 check was initially deposited into a Shearson
Lehman Brothers account in Braugh’s name on September 6, 1991. All
but approximately $1,000 of this money was transferred out of that
12
account within one month of the deposit. From September 11, 1991
and ending to October 4, 1991, $182,500 was wire-transferred from
Braugh’s Shearson Lehman Brothers account to an account in Braugh’s
name at the Bank of Corpus Christi. A $100,000 check to Al Sellars
was drawn on Braugh’s Bank of Corpus Christi account on September
11, 1991. From September 11, 1991 to September 27, 1991, a total of
$24,000 was wire-transferred from Braugh’s Bank of Corpus Christi
account to an account at the same bank in the name of Lone Star
Exploration.2 On October 3, 1991, $25,000 was transferred directly
from Braugh’s Shearson Lehman Brothers account to the Lone Star
Exploration bank account. Nearly all the $49,000 deposited in the
Lone Star Exploration account was disbursed to various entities
unrelated to any roll program.3
Brewer testified that a $32,000 cashier’s check made payable
to Al Sellars was purchased on September 20, 1991 with money from
Braugh’s Bank of Corpus Christi account. The check was ultimately
redeposited into Braugh’s Shearson Lehman Brothers account. Brewer
testified that two wire transfers — a September 17, 1991 transfer
in the amount of $7,500 and a September 25, 1991 transfer in the
2
The signature card for the Lone Star Exploration account
disclosed that the account was opened on September 11, 1991, five
days after Hayes delivered his check. Braugh and a man named Jerry
Fritzler were the only authorized signatories. The signature card
identified Braugh as the chairman of Lone Star Exploration and
Fritzler as the president.
3
The bank records showed that checks made payable to
Watson Pipe, Inc.; Clark Oil Tools; Halliburton Services; Pride
Petroleum; Cellular One; and Southwestern Bell were drawn on the
Lone Star Exploration account.
13
amount of $5,000 — were made from Braugh’s Bank of Corpus Christi
account to an account in the name of Kurt Latrasse in California.
Schwinger deposited her $250,000 check into the Shearson
Lehman Brothers account in the name of Gold Cloud Development on
December 12, 1991. Brewer testified that, on December 13, 1991,
two checks made payable to Roger Braugh, totaling $50,000, were
drawn on the Gold Cloud Development account. By January 3, 1992,
$198,500 was transferred from the Gold Cloud Development account to
Roger Braugh’s Shearson Lehman Brothers account. Seven checks made
payable to either Al Richards or GEI Associates, totaling $50,000,
were later drawn on Braugh’s Shearson Lehman Brothers account; two
checks made payable to Kurt Latrasse, totaling $59,500, were drawn
on this same account in late December 1991. Three wire transfers
totaling $46,000 were made to Roger Braugh’s account at the Bank of
Corpus Christi in December 1991. The records from Braugh’s Bank of
Corpus Christi account also showed transfers totaling $22,000 to
the Lone Star Exploration account at that bank in December 1991;
the remaining money was disbursed to entities unrelated to any roll
program.
Blackwelder wrote a $12,500 check payable to SAI & Associates
on May 12, 1993. The check was deposited into the account of SAI
& Associates at the Bank of America on the same day. On that same
date, a $5,000 check made payable to Kurt Latrasse was drawn on the
SAI & Associates account and $2,500 was transferred from the SAI &
Associates account to an account in the name of Roger Braugh at the
Bank of America. Another $1,400 was transferred from the SAI &
Associates account to Braugh’s account on May 24, 1993. The money
14
transferred to Braugh’s personal account was in turn disbursed to
various entities unrelated to any investment program. Brewer’s
analysis showed that Braugh paid various expenses with the $5,000
Blackwelder loaned him, writing checks to, among other entities,
General Motors Acceptance Corporation and Wal-Mart. Braugh did not
use the money to pay for a trip to Europe, as he had promised
Blackwelder.
On January 20, 1998, a jury convicted Richards, Braugh, and
Latrasse on all counts. On May 14, 1998, the district court
sentenced each defendant to thirty-three months of imprisonment
followed by three years of supervised release. The district court
ordered Richards to pay $487,000 in restitution and ordered Braugh
and Latrasse each $504,500 in restitution. The district court
entered judgment on May 19, 1998. Defendants timely appealed.
II. THE CHALLENGE TO THE INDICTMENT
Braugh argues for the first time on appeal that the
superseding indictment did not meet constitutional standards. He
relies on the recent decision of United States v. Neder, 527 U.S.
1, 119 S. Ct. 1827 (1999), holding that the “materiality of
falsehood is an element of the federal mail fraud [and] wire fraud
. . . statutes.” Id. at 1841. Braugh contends that because the
indictment did not specifically allege that the misrepresentations
he made were material, it failed to allege an essential element of
wire fraud and mail fraud.
“To be sufficient, an indictment must allege every element of
the crime charged.” United States v. Fitzgerald, 89 F.3d 218, 221
(5th Cir. 1996). A challenge to the sufficiency of the indictment
15
is reviewed de novo. See United States v. Cabrera-Teran, 168 F.3d
141, 143 (5th Cir. 1999). “An indictment’s failure to charge an
offense is a jurisdictional defect.” Id. Because the sufficiency
of an indictment is a prerequisite to jurisdiction, a “defendant[]
at any time may raise an objection based on failure to charge an
offense.” Id. However, when a challenge to the sufficiency of the
indictment is made for the first time on appeal, “a court should
read the indictment with ‘maximum liberality’ and find it
sufficient ‘unless it is so defective that by any reasonable
construction, it fails to charge the offense for which the
defendant is convicted.’” United States v. Lankford, 196 F.3d 563,
569 (5th Cir. 1999)(quoting Fitzgerald, 89 F.3d 218, 221 (5th Cir.
1996)). “Maximum liberality” is the appropriate standard of review
when, as here, “the appellant does not assert prejudice, that is,
[when the appellant] had notice of the crime of which he stood
accused.” Fitzgerald, 89 F.3d at 221; see also Lankford, 196 F.3d
at 569.
In determining the sufficiency of the indictment, “[t]he law
does not compel a ritual of words.” United States v. Wilson, 884
F.2d 174, 179 (5th Cir. 1989)(quoting United States v. Purvis, 580
F.2d 853, 857–858 (5th Cir. 1978). “The test of the validity of an
indictment is ‘not whether the indictment could have been framed in
a more satisfactory manner, but whether it conforms to minimal
constitutional standards.’” Wilson, 884 F.2d at 179(quoting United
States v. Webb, 747 F.2d 278, 284 (5th Cir. 1984)).
In Neder, the Court defined “materiality of falsehood” in a
footnote:
16
The Restatement instructs that a matter is material if:
“(a) a reasonable man would attach importance to its
existence or nonexistence in determining his choice of
action in the transaction in question; or
(b) the maker of the representation knows or has reason
to know that its recipient regards or is likely to regard
the matter as important in determining his choice of
action, although a reasonable man would not so regard
it.”
Neder, 119 S. Ct. at 1840 n. 5(quoting Restatement (Second) of
Torts § 538 (1976)).4 This court applies this definition to
determine whether, by any reasonable construction, the superseding
indictment charged Braugh with making materially false
representations.
In United States v. McCough, 510 F.2d 598 (5th Cir. 1975),
this court considered a similar challenge to an indictment. In
that case, the indictment charged a violation of 18 U.S.C. § 1001,
which prohibits the making of false statements to a department or
agency of the United States. The indictment in McCough alleged
that a utility cooperative had submitted false financial statements
to a federal agency in a loan application. The defendants argued
that the indictment insufficiently alleged the materiality of the
falsehoods under section 1001. The court stated that “[i]f the
facts alleged in the indictment warrant an inference that the false
4
The definition of materiality quoted above refers to the
statements themselves, not whether the recipients of the statements
actually relied on them. Although allegations of actual reliance
appear to allege materiality, the standards are different. A
recipient might actually rely on a false representation, but the
representation might not be one to which “a reasonable man would
attach importance . . . in determining his choice of action,” or
one that “the maker of the representation knows or has reason to
know that its recipient regards or is likely to regard the matter
as important in determining his choice of action, although a
reasonable man would not so regard it.” Neder, 119 S. Ct at 1840
n. 5.
17
statement is material, the indictment is not fatally insufficient
for its failure to allege materiality in haec verba.” Id. at 602;
see also United States v. Fern, 155 F.3d 1318, 1324 (11th Cir.
1998); United States v. Pommerening, 500 F.2d 92, 98 (10th Cir.
1974); United States v. Olin Corp., 465 F. Supp. 1120, 1131–32
(W.D.N.Y. 1979).
The McCough indictment alleged that the financial statements
substantially misstated the value of the cooperative’s assets and
described specific entries in the financial statements that
contained misrepresentations. The court held that the indictment
sufficiently alleged the materiality of the false financial
statements because it alleged specific misstatements that were
significant and “could conceivably have the capacity to influence
the [agency’s] function in overseeing the status of the security of
a large public investment.” Id. at 603.
The superseding indictment in this case alleged false
representations of specific facts that also “warrant an inference
that the false statement[s] [were] material.” Id. at 602. The
indictment detailed the specific false representations and promises
defendants allegedly made to “induce the Investors to deliver to
the Defendants cashier’s check and checks.” Paragraph Six of Count
One of the indictment alleged:
ROGER S. BRAUGH, AL RICHARDS, and KURT LATRASSE would and
did represent falsely to certain individuals, including
but not limited to Bert Hayes, Gail Schwinger, and
Brandon Blackwelder (the “Investors”), that they had
contacts with European banks and lenders and that the
Investors would receive a substantial return on an
investment involving transactions between banks within a
matter of weeks or months.
18
Paragraph Ten of Count One of the indictment alleged:
ROGER S. BRAUGH, AL RICHARDS, and KURT LATRASSE would and
did continue to send and receive communications . . . to
and from the Investors, even after the Investors had
delivered their money to the defendants, for the purpose
of lulling the Investors into a false sense of security
by assurances that the promised services would be, or
were being, performed, and that the investment was a
worthwhile one, and that they would receive
distributions, or return of it, at some future date; for
the purpose of postponing inquiries, complaints, or legal
action by the Investors, and lessening the suspect
appearance of the fraudulent transactions; and, for the
purpose of giving excuses for non-performance, thereby
allowing additional investments or loans to be sought
from the Investors.
Paragraph 13 of Count One of the indictment listed twenty-eight
overt acts, including specific communications with the investors
describing the details of the investment program and later assuring
the investors that the program was making money as promised. The
allegations in Paragraphs Six, Ten, and Thirteen of Count 1 are
incorporated by reference in all other counts of the indictment.
The indictment in this case does not test constitutional
limits in light of Neder. Read as a whole, the superseding
indictment alleges specific facts that easily support an inference
that the defendants made material misrepresentations and false
promises. In particular, the allegations that the defendants
misrepresented that the investment program existed, was free from
risk of loss, and would generate large profits support an inference
of materiality. A “reasonable man would attach importance” to
assurances that the investments would take place as described and
would return at least the invested funds, plus interest, within a
short time, in determining whether to invest. The allegations in
19
the indictment are sufficient to charge the offenses of mail fraud,
wire fraud, and conspiracy to commit mail fraud and wire fraud.
III. THE CHALLENGE TO THE DENIAL OF BRAUGH’S MOTION TO SEVER
Braugh argues that the district court improperly denied his
motion to sever because the evidence presented at trial was so
complicated that the jury had difficulty considering the evidence
against each defendant separately. Braugh also argues that the
defendants presented antagonistic defenses.
The district court’s denial of a motion to sever is reviewed
for an abuse of discretion. See United States v. Pena-Rodriguez,
110 F.3d. 1120, 1128 (5th Cir. 1997). Rule 8(b) of the Federal
Rules of Criminal Procedure provides in relevant part: “Two or more
defendants may be charged in the same indictment . . . if they are
alleged to have participated . . . in the same series of acts or
transactions constituting an offense or offenses.” Generally,
“persons indicted together should be tried together, especially in
conspiracy cases . . . .” United States v. Posada-Rios, 158 F.3d
832, 863 (1998), cert. denied, ___ U.S. ___, 119 S. Ct 1280 (1999),
cert. denied, ___ U.S. ___, 119 S. Ct 1487 (1999), and cert.
denied, ___ U.S. ___, 119 S. Ct. 1792 (1999) (quoting United States
v. Pofahl, 990 F.2d 1456, 1483 (5th Cir. 1993)).
Rule 14 of the Federal Rules of Criminal Procedure authorizes
the trial court to grant a severance based on a showing of
prejudice. To demonstrate that a district court abused its
discretion in denying a motion to sever, the defendant “must show
that: (1) the joint trial prejudiced him to such an extent that the
district court could not provide adequate protection; and (2) the
20
prejudice outweighed the government’s interest in economy of
judicial administration.” United States v. McCord, 33 F.3d 1434,
1452 (5th Cir. 1994)(quoting United States v. DeVarona, 872 F.2d
114, 120–21 (5th Cir. 1989)).
This trial lasted two weeks and involved three defendants.
This court has upheld a district court’s decision to deny severance
in cases involving many more defendants, more evidence, greater
complexity, and longer trials. See, e.g., Posada-Rios, 158 F.3d at863–65(upholding district court’s denial of a motion to sever in a
conspiracy case tried for six months against 12 defendants); United
States v. Ellender, 947 F.2d 748, 753–755 (5th Cir. 1991)(upholding
district court’s denial of a motion to sever in a conspiracy case
tried for three months against 23 defendants, with 73 witnesses).
A general description of the complexity of a trial is not
sufficient to show the “specific and compelling prejudice”
necessary for reversal of a district court’s denial of a motion to
sever. United States v. McCord, 33 F.3d at 1452; cf. Posada-Rios,
158 F.3d at 863. Instead, an appellant must “isolate events
occurring in the course of the joint trial and then . . .
demonstrate that such events caused substantial prejudice.”
Posada-Rios, 158 F.3d at 863(quoting Ellender, 947 F.2d 748, 755
(5th Cir. 1991)). Braugh has not identified specific events that
caused prejudice and require reversal.
Braugh’s argument that the jury’s conviction of all defendants
on all counts shows that it did not separately consider the
evidence as to each defendant is unavailing. This court has
stated that “acquittals as to some defendants on some counts
21
support an inference that the jury sorted through the evidence and
considered each defendant and each count separately.” Posada-Rios,
158 F.3d at 864 (quoting Ellender, 947 F.2d at 755). It does not
necessarily follow, however, that conviction of all defendants on
all counts shows that the jury failed separately to weigh the
evidence as to each defendant.
“Appropriate cautionary instructions can decrease the
possibility that the jury will improperly transfer proof of guilt
from one defendant to another.” Ellender, 947 F.2d at 755 (quoting
United States v. Hogan, 763 F.2d 697, 705 (5th Cir. 1985)). “The
pernicious effect of cumulation . . . is best avoided by precise
instructions to the jury on the admissibility and proper uses of
the evidence introduced by the Government.” United States v.
Morrow, 537 F.2d 120, 136 (5th Cir. 1976). In this case, the trial
court gave careful instructions during the trial about the limited
purpose for which it admitted some of the evidence. The court
included the limiting instructions in the final instructions to the
jury. In the trial instructions, the court also admonished the
jury as follows:
A separate crime is charged against one or more of the
defendants in each count of the indictment. Each count,
and the evidence pertaining to it, should be considered
separately. Also, the case of each defendant should be
considered separately and individually. The fact that
you may find one or more of the defendants guilty or not
guilty of any of the crimes charged should not control
your verdict as to any other crime or any other
defendant. You must give separate consideration to the
evidence as to each defendant.
Similar instructions have been held sufficient to eliminate the
possibility of undue prejudice. See Posada-Rios, 158 F.3d at 864;
22
United States v. Faulkner, 17 F.3d 745, 759 (5th. Cir 1994). “The
remedy of severance is justified only if the prejudice flowing from
a joint trial is clearly beyond the curative powers of a cautionary
instruction.” Morrow, 537 F.2d at 136. Braugh offers no specific
basis for concluding that the district court’s repeated and
meticulous instructions failed to avoid legally cognizable
prejudice.
Braugh also argues that the district court should have severed
his trial because Richards presented an antagonistic defense.
Braugh points to three instances of purported antagonism. First,
Richards’ attorney stressed in opening statements that Bert Hayes’s
money was deposited into an account that Braugh, not Richards,
controlled. Second, Richards’ attorney argued that the checks
Braugh wrote to Richards with the notation “Bert Hayes payment” on
the memorandum line were to pay Richards’ commissions, and that
Braugh lied when he told Hayes that the checks were for him.
Richards’ attorney argued that Braugh wrote “Bert Hayes payment” on
the cashed and canceled checks after the fact. Braugh’s attorney
contended that Braugh sent the money to Richards in order to pay
Hayes. Third, during his cross-examination of Schwinger, Richards’
attorney asked questions about events that occurred after Richards’
involvement had ended, including actions Braugh took to make
Schwinger continue believing that the roll program was legitimate.
Braugh argues that these trial tactics were intended to blame
Braugh and portray Richards’ involvement as innocent.
“[S]everance is not automatically required merely because co-
defendants present mutually antagonistic defenses.” United States
23
v. Castillo, 77 F.3d 1480, 1491 (5th Cir. 1996); see also United
States v. Matthews, 178 F.3d 295, 298 (5th Cir.), cert. denied, ___
U.S. ___, 120 S. Ct. 359 (1999). The decision is committed to the
discretion of the trial court and will be reversed only if the
defendant shows “specific and compelling prejudice” the joint trial
caused his defense. This court has held that when defendants
present antagonistic defenses, “instructions to consider the
evidence as to each defendant separately and individually, and not
to consider comments made by counsel as substantive evidence
sufficed ‘to cure any prejudice caused when co-defendants accuse
each other of the crime.’” United States v. Mann, 161 F.3d 840,
863 (5th Cir. 1998)(quoting United States v. Stouffer, 986 F.2d
916, 924 (5th Cir. 1993)), cert. denied, ___ U.S. ___, 119 S. Ct.
1766 (1999). The district court gave both these instructions in
this case.
In addition to the curative instructions, a close examination
of Richards’ and Braugh’s defenses shows that they fall short of
mutual antagonism. Defenses are antagonistic if they are “mutually
exclusive or irreconcilable, that is, if the core of one
defendant’s defense is contradicted by that of a codefendant.”
United States v. Rojas-Martinez, 968 F.2d 415, 419 (5th Cir. 1992);
see also United States v. Moser, 123 F.3d 813, 829 (5th Cir. 1997).
Richards presented his belief that the roll program was legitimate
as the core of his defense. The core of Braugh’s defense was that
Al Sellars masterminded the “roll program” and Braugh believed it
to be legitimate. The two defenses are not mutually antagonistic;
the jury could have believed both. Specifically, the jury could
24
have found that Braugh wrote “Bert Hayes payment” on the canceled
checks after Richards cashed them, as Richards’ attorney argued,
and that Braugh believed the investment program was legitimate, as
Braugh’s attorney argued. The evidence as to Braugh’s continued
involvement with Schwinger’s investment after Richards’
participation ended similarly did not conflict with Braugh’s
defense that he believed the investment program to be legitimate.
Richards and Braugh did not present mutually antagonistic
defenses, so as to require severance. The district court carefully
instructed the jury separately to consider the evidence admitted
against each defendant. Braugh has not demonstrated the “specific
and compelling prejudice” necessary for reversal based on the
district court’s denial of his motion to sever.
IV. THE CHALLENGES TO THE ADMISSION OF EVIDENCE
A. THE RULE 403 OBJECTION
Richards argues that the district court abused its discretion
in admitting Braugh’s testimony that he brought a dispute he had
with Richards to the attention of the federal and state
prosecutor’s offices in Fort Worth and Dallas, respectively.
Richards contends that the district court should have excluded the
testimony under Rule 403 of the Federal Rules of Evidence, on the
ground that “its probative value is substantially outweighed by the
danger of unfair prejudice.”
Braugh testified without objection that Richards asked him for
$30,000 in January 1992. Braugh sent Richards three $10,000 checks.
Braugh testified that Richards agreed not to cash those checks, but
25
merely to show them to anxious creditors to provide assurance.
Instead, Richards cashed the checks, against Braugh’s instructions.
Richards did object to Braugh’s testimony the following day,
when Braugh told the jury that he reported his dispute with
Richards over the three $10,000 checks to the local offices of the
district attorney and the United States Attorney. The reports did
not result in criminal charges against Richards. Braugh testified
that he knew that by making the complaint, he was bringing his
relationship with Richards to the attention of law enforcement
agencies.
The district court carefully limited Braugh’s testimony about
his dispute with Richards and carefully instructed the jury as to
how they could consider the limited testimony admitted. The court
did not permit Braugh to present the details of his disagreement
with Richards over the checks. Instead, the court limited Braugh’s
testimony to the fact that he had a dispute with Richards, which he
later reported. The court included Braugh’s letters to the
prosecutors detailing the dispute as part of the record, but did
not admit the letters at the trial.5 The district court found that
the testimony had narrow, but significant, probative value. The
5
In the letters, Braugh reported a dispute with Richards
and another man named Ron Cravens. According to Braugh, the
dispute arose after Richards endorsed the checks to Cravens so that
Cravens could cash the checks. However, the checks were postdated.
Cravens contacted Braugh and threatened to sue for the amount of
the checks. Braugh placed a stop payment order on the checks.
When Cravens attempted to cash the checks, the bank returned them
unpaid. Cravens continued to threaten Braugh with suit on the
checks. Braugh ultimately wrote letters to law enforcement
agencies to report the dispute, claiming that Richards and Cravens
were “working together in an attempt to extort th[e] money from me
by threatening me with prosecution.”
26
fact that Braugh reported the dispute to law enforcement tended to
support his contention that he did not believe that he and Richards
were parties to an unlawful conspiracy. The district court
reasoned that Braugh would be unlikely to take any action that
could lead to law enforcement investigating his relationship with
Richards if he believed that their relationship was criminal.
The district court gave the jury the following instructions
about Braugh’s limited testimony:
Let me explain to the jury what’s happening. I’m going
to let Mr. Braugh testify about this matter, this dispute
that he had with Mr. Richards. The nature of the dispute
is not really that relevant in this case, and you are not
going to be asked to decide whether Mr. Richards was
right in this dispute or Mr. Braugh was right in this
dispute, I’m letting the fact that Mr. Braugh brought the
dispute to the attention of law enforcement agencies be
admitted into evidence because you may decide that it’s
relevant to Mr. Braugh’s state of mind, in that, if Mr.
Braugh believed that his dealings with Mr. Richards that
we have been hearing in this case were illegal. He may
not have wanted law enforcement officials to learn of his
dealings with Mr. Richards. So that’s the only reason I
am letting this come into evidence. The exact dispute,
who’s right and wrong in the dispute, is not relevant.
Only the fact that Mr. Braugh’s state of mind was such
that he was willing to bring the nature of the dispute to
law enforcement officials in 1992.
Richards argues that Braugh’s testimony lacked probative
value. Because “the dispute was totally unrelated to the charged
offenses,” Braugh would not have been concerned that his complaint
would trigger an investigation into his relationship with Richards,
and the fact of the report did not tend to show that Braugh viewed
his relationship with Richards as lawful. Richards also argues
that the evidence of Braugh’s reports of his dispute with Richards
was cumulative of other evidence showing that Braugh and Richards
had a “falling out.” Richards asserts that the probative value was
27
minimal and the prejudicial effect significant, given the facial
similarity between Braugh’s accusations and the conduct alleged in
the indictment.
This court reviews the district court’s ruling for an abuse of
discretion. See Old Chief v. United States, 519 U.S. 172, 174 n.
1 (1997); United States v. Ismoila, 100 F.3d 380, 391 (5th Cir.
1996). “The exclusion of evidence under Rule 403 should occur only
sparingly.” United States v. Pace, 10 F.3d 1106, 1115 (5th Cir.
1993). The “major function [of Rule 403] is limited to excluding
matter of scant or cumulative probative force, dragged in the by
the heels for the sake of its prejudicial effect.” Id. at
1116(quoting United States v, McRae, 593 F.2d 700, 707 (5th Cir.
1979)).
Contrary to Richards’ argument, the evidence admitted did have
the probative value defined in the trial judge’s limiting
instructions. The district court did not admit Braugh’s testimony
for the purpose of establishing that his report about Richards to
law enforcement agencies was true or to show that he and Richards
had a dispute. The court instead admitted the fact of Braugh’s
reports of a dispute with Richards as evidence bearing only on
Braugh’s contention that he did not believe that he and Richards
were parties to a criminal conspiracy. As the government notes,
both Braugh’s and Richards’ attorneys discussed the testimony in
their closing arguments, demonstrating its probative value.
Nor was Braugh’s testimony so prejudicial as to make its
admission, with the district court’s limiting instructions,
improper. When Braugh testified that Richards attempted to cash the
28
checks despite his agreement with Braugh not to do so, Richards did
not object.6 Richards did not object until the following day, when
Braugh testified that he reported the disagreement over the checks
to law enforcement agencies. The district court’s detailed
limiting instruction carefully defined the purpose for which the
6
“Under the plain error standard, forfeited errors are
subject to review only where they are ‘obvious,’ ‘clear,’ or
‘readily apparent,’ and they affect the defendants substantial
rights.” United States v. Richardson, 168 F.3d 836, 839 n. 9 (5th
Cir.)(quoting United States v. Calverley, 37 F.3d 160, 162 (5th
Cir. 1994)(en banc), abrogated in part by Johnson v. United States,
520 U.S. 461 (1997)), cert. denied, ___ U.S. ___, 119 S. Ct. 1589(1999). “Even then, we will not exercise our discretion to correct
the forfeited errors unless they ‘seriously affect the fairness,
integrity, or public reputation of the judicial proceeding.’”
Richardson, 168 F.3d at 839 n. 9 (quoting Calverley, 37 F.3d at
164). Braugh testified as follows about Richards’ cashing the
checks:
Q: . . . [W]hat did Al Richards say he
needed money for?
A: That he had some expenses and some
obligations that were due and he needed
that money, or, he needed a check from –
a check or a series of checks from me to
hold as good faith against those debts.
Q: . . . [W]hat was your understanding Al
Richards was going to do with the money
if you sent him the funds?
A: Well, I understood at the time that he
was going to hold these checks.
....
Q: ... [D]id you learn whether or not
ultimately or at some later date whether
or not these checks had in fact been
cashed?
A: I did learn later on they had been
cashed.
Even if we were to assume that this testimony was “clearly”
inadmissible under Rule 403, as Richards urges on appeal, Richards
has not shown plain error. He has not shown that the error
affected his substantial rights — that is, “affect[ed] the outcome
of the proceeding” — much less that the error “seriously affect[ed]
the fairness, integrity, or public reputation of [the] judicial
proceeding[].” Calverley, 37 F.3d at 164.
29
jury could consider the testimony and mitigated the potential for
undue prejudice. See United States v. Bailey, 111 F.3d 1229, 1234
(5th Cir. 1997).
In light of the court’s strict limits on Braugh’s testimony
and instructions limiting the jury’s consideration of the
testimony, the district court did not err in admitting this
evidence.
B. THE RULE 404(B) AND HEARSAY CHALLENGES
In rebuttal, and over objections, the government called a
witness named Mark McMillan to testify about investments he made
through Braugh and Latrasse in 1987 and 1988. These objections are
reasserted on appeal.
McMillan testified that he met Braugh in late 1987. Braugh
was working from an office in the church to which McMillan
belonged, trying to help the financially troubled church raise
money. Braugh proposed an investment to McMillan to help solve the
church’s financial problems. Braugh explained that he “had some
kind of bank letter of credit, foreign bank letter of credit deal
going where some bank was going to loan him $10 million
imminently.” Braugh told McMillan that $15,000 would make “the
deal” work. Braugh promised that if McMillan invested the
$15,000, Braugh would receive $10 million from the European bank;
would loan $800,000 to the church; would return $15,000 to McMillan
within a few days; and would pay McMillan an additional $15,000.
McMillan gave Braugh the $15,000. Neither McMillan nor the church
received any money from Braugh.
30
McMillan next saw Braugh several months later, at the offices
of Butler Industries. McMillan was there to see the company
president, a close personal friend. Braugh was using an office at
the company, working to raise money for the financially-troubled
business. Braugh proposed another investment opportunity to
McMillan. Braugh explained that he had succeeded in securing a $10
million loan from a European bank. The money had been wired and
placed in a holding account, but Braugh needed $25,000 to release
the funds. Braugh promised that if McMillan invested the $25,000,
Braugh would pay him $50,000 before the close of the same business
day; would pay the $30,000 owed from the first investment; would
loan money to Butler Industries; and would loan the church the
money he had promised earlier.
Braugh told McMillan that the transactions would take place
through a company called Gold Cloud Development.7 If the $10
million was not paid as expected, Gold Cloud Development would
invest McMillan’s money in a movie through a company called San
Francisco Productions. Braugh told McMillan that Kurt Latrasse was
in charge of both the loan from the European bank and the movie
deal and that Braugh was acting at Latrasse’s direction.
McMillan testified that, despite suspicions, he decided to
give Braugh the $25,000. On April 14, 1988, McMillan had his
office manager draft a document to record the promised
transactions. In this document, Braugh and Latrasse, referred to
7
Roger Braugh testified that the Gold Cloud Development
Corporation referred to in connection with this transaction was not
the same Gold Cloud Development Corporation that was involved in
the roll program, of which he was the chairman.
31
as “Borrower,” promised to pay McMillan $50,000 from: (1) “proceeds
received on the Roger Braugh/Gold Cloud Development Project
(expected loan of $10,000,000.00)”; (2) “proceeds received on the
San Francisco Productions Project (expected loan of
$10,000,000.00)”; or (3) “other sources as deemed necessary by
Borrower.” McMillan’s staff also drafted a personal guarantee for
signature by Braugh and Latrasse individually. McMillan told
Braugh that he would pay the $25,000 only after Braugh and Latrasse
signed the documents.
McMillan testified that he spoke by telephone to a man
identified as Kurt Latrasse after the documents had been faxed to
Latrasse:
A: . . . . [W]e got him on the telephone in
his motel room.
Q: Who is the “we,” who got him on the
telephone?
A: Me and Roger Braugh and Robert Cohen, the
president of Butler Industries.
Q: And who is the “him” that you got on the
phone?
A: Kurt Latrasse.
Q: And what makes you think you had Kurt
Latrasse on the telephone?
A: He said he was Kurt Latrasse. They
dialed the hotel -- I mean, I was told
that they were calling Kurt Latrasse.
The man got on the phone, said he was
Kurt Latrasse. He got the documents. He
said he read the documents. He said he
was signing them. He said he could not
get them notarize [sic] because his
secretary was gone to lunch or his notary
was gone to lunch, and he signed it,
supposedly, they faxed it back to me. I
looked at it, I verified the signature,
then I paid the money.
Later that day, Roger Braugh faxed McMillan the “loan document,”
signed “Kurt Latrasse” and “Roger S. Braugh,” and the personal
32
guarantee, signed “Roger S. Braugh.” On the fax cover sheet,
Braugh wrote: “Kurt’s personal guarantee will be here tomorrow
because the notary left before we sent the last document to him.”
McMillan did not see Braugh again after that day. He received
none of his money back and neither the church nor Butler Industries
received a loan. McMillan filed no complaint and made no attempt
to recover the money.
1. Braugh’s Challenges to McMillan’s Testimony
Braugh argues that the admission of McMillan’s testimony
violated Rule 404(b) of the Federal Rules of Evidence because the
transactions McMillan described were remote in time from, and
dissimilar to, the transactions charged in the indictment. Braugh
also argues that, even if the evidence was relevant, its marginal
probative value was substantially outweighed by the highly
prejudicial impact.
In response, the government argues that the McMillan
transactions had substantial similarities to the transactions
charged in the indictment, making the evidence highly probative of
Braugh’s intent. Braugh put his intent squarely in issue, making
McMillan’s testimony important rebuttal evidence. The district
court instructed the jury that they were to consider the testimony
only on the issue of intent.
The district court’s decision to admit Rule 404(b) evidence is
reviewed for abuse of discretion. See United States v. Chavez, 119
F.3d 342, 346 (5th Cir. 1997). This review is “necessarily
heightened” in criminal cases. United States v. Gonzalez, 76 F.3d
1339, 1347 (5th Cir. 1996)(quoting United States v. Anderson, 933
33
F.2d 1261, 1268 (5th Cir. 1991)). The probative value of the
evidence, the need for the evidence by the government on the issue
of intent, and the court’s limiting instructions are all considered
in determining if the court properly admitted the testimony under
Rule 404(b).8
A trial court must apply the test set out in United States v.
Beechum, 582 F.2d 898, 911 (5th Cir. 1978)(en banc), in determining
whether to admit extrinsic evidence under Rule 404(b). Careful
application of the Beechum test protects defendants from unfair
prejudice in the admission of extrinsic act evidence. See
Anderson, 933 F.2d at 1268. The first step of the Beechum test is
to determine that the extrinsic offense evidence is relevant to an
issue other than the defendant’s character. The second step is to
determine whether the evidence satisfies Rule 403. See Beechum,
582 F.2d at 911.
The relevance of extrinsic act evidence “is a function of its
similarity to the offense charged.” Id. When the evidence is
admitted to show the defendant’s intent to commit the offense
charged, “the relevancy of the extrinsic offense derives from the
defendant’s indulging himself in the same state of mind in the
perpetration of both the extrinsic and charged offenses.” Id.8
Rule 404(b) of the Federal Rules of Evidence provides:
Evidence of other crimes, wrongs, or acts is not
admissible to prove the character of a person in order to
show action in conformity therewith. It may, however, be
admissible for other purposes, such as proof of motive,
opportunity, intent, preparation, plan, knowledge,
identity, or absence of mistake or accident.
34
“The reasoning is that because the defendant had unlawful intent in
the extrinsic offense, it is less likely that he had lawful intent
in the present offense.” Id. An extrinsic offense is relevant to
the issue of intent only if “an offense was in fact committed and
the defendant in fact committed it.” Id. at 912. The proponent of
the evidence need not establish these facts by a preponderance of
the evidence; rather, “the evidence in the case must be sufficient
to permit a jury, acting reasonably, to find the preliminary facts
by a preponderance of the evidence.” Anderson, 933 F.2d at 1269.
“Once it is determined that the extrinsic offense requires the same
intent as the charged offense and that the jury could find that the
defendant committed the extrinsic offense, the evidence satisfies
the first step under rule 404(b).” Beechum, 582 F.2d at 913.
As to Braugh, McMillan’s testimony satisfies the first part of
the Beechum test. McMillan’s testimony, if believed, would permit
a reasonable jury to find by a preponderance of the evidence that
Braugh committed fraud in both of the McMillan transactions,
involving the same intent as the offenses charged in the
indictment.
In performing the second part of the Beechum test,“the task
for the court . . . calls for a commonsense assessment of all the
circumstances surrounding the extrinsic offense.” Id. Several
factors affect the probative value of the evidence, including “the
extent to which the defendant’s unlawful intent is established by
other evidence, the overall similarity of the extrinsic and charged
offenses, and the amount of time that separates the extrinsic and
charged offenses.” Chavez, 119 F.3d at 346-47.
35
McMillan’s testimony was highly probative as to Braugh’s
intent. “The mere entry of a not guilty plea in a conspiracy case
raises the issue of intent sufficiently to justify the
admissibility of extrinsic offense evidence.” United States v.
Broussard, 80 F.3d 1025, 1039 (5th Cir. 1996). In this case, the
core of Braugh’s defense was that he lacked the intent to defraud.
Braugh testified, and his attorney argued, that Braugh believed the
“roll program” was a legitimate investment. The government had no
direct evidence of Braugh’s fraudulent intent.
Braugh’s arguments as to the dissimilarity between the
McMillan transactions and those described in the indictment are
without merit. Braugh twice induced McMillan to give him money by
describing investments that would result in a European bank paying
$10 million to Braugh, yielding McMillan a substantial return in a
very short time with no risk of losing his money. The first of the
two transactions involved a letter of credit. The “roll program”
transactions involved promises that the investors’ payments would
enable Braugh and the other defendants to obtain a $10 million
letter of credit from a foreign bank, which would return the
investors’ money, plus interest and large profits, in a very short
time. Braugh told McMillan that Latrasse was in charge of the
investments proposed in the second transaction, just as he would
later tell the “roll program” victims that Latrasse was the expert
in that investment plan. The three to five years between the
McMillan transactions and the later charged offenses does not so
diminish the probative value of the evidence as to make it
inadmissible. Cf. United States v. Hernandez-Guevara, 162 F.3d
36863, 872–73 (5th Cir. 1998)(affirming district court’s admission of
an 18-year-old conviction under Rule 404(b) to show intent), cert.
denied, ___ U.S. ___, 119 S. Ct. 1375 (1999); Chavez, 119 F.3d at
346-47(affirming district court’s admission of a 15-year-old prior
conviction under Rule 404(b) to show intent).
The district court instructed the jury on the limited purpose
for which McMillan’s testimony could be considered:
You are going to hear evidence that you may conclude is
similar to the acts of Defendants Braugh and Latrasse
that are charged in the indictment but that occurred on
different occasions than those alleged in the indictment.
You must not consider any of the evidence that you are
about to hear in deciding if Mr. Braugh or Mr. Latrasse
committed the acts charged in the indictment. However,
you may consider the evidence for other very limited
purposes. If you find beyond a reasonable doubt from the
evidence you have heard up to now that Mr. Braugh or Mr.
Latrasse committed the acts charged against them in the
indictment, then you may consider the evidence that you
are about to hear to determine whether Mr. Braugh or Mr.
Latrasse had the state of mind or intent necessary to
commit the crimes charged against them in the indictment.
That is the only purpose for which you may consider the
evidence that you are about to hear.
The district court repeated this admonition in his final
instructions to the jury. “[T]he danger of unfair prejudice was
minimized by the district court’s careful instructions to the
jury.” Gonzalez, 76 F.3d at 1348. The high degree of probative
value of McMillan’s testimony, balanced against the danger of
unfair prejudice the testimony raised, in light of the limiting
instructions, leads to the conclusion that the district court acted
well within its discretion in admitting the testimony over Braugh’s
Rule 404(b) objection.
37
Braugh’s argument that McMillan’s testimony was improper
“guilt-by-association” evidence is similarly without merit.9 “It
is well established . . . that the government may not attempt to
prove a defendant’s guilt by showing that [the defendant]
associates with ‘unsavory characters.’” United States v. Polasek,
162 F.3d 878, 884 (5th Cir. 1998). McMillan’s testimony did not
suffer from this defect. McMillan testified about Braugh’s acts
and statements in inducing McMillan to make the two “investments.”
The testimony focused on Braugh’s own conduct. It did not merely
show that Braugh associated with Latrasse. See id. at
885(distinguishing between evidence showing extrinsic wrongdoing on
defendant’s part, which might be admissible to show knowledge or
intent under Rule 404(b), and evidence showing the defendant
associated with people who were later convicted of an offense
similar to the charged offense, which would be inadmissible guilt-
by-association evidence). The district court did not err on this
basis in admitting McMillan’s testimony.
2. Latrasse’s Challenges to McMillan’s Testimony
Latrasse challenges McMillan’s testimony as inadmissible, both
because it failed the Rule 404(b) criteria and because parts of
McMillan’s testimony were hearsay as to Latrasse.
9
Braugh concedes that he did not object to McMillan’s
testimony specifically on the ground that it was “guilt-by-
association” evidence. However, he argues that, based on the
record, his Rule 404(b) objection suffices to preserve this
argument on appeal. Of course, if Braugh did not timely object to
McMillan’s testimony on this ground, the plain error standard would
apply. See Polasek, 162 F.3d at 883-84. We conclude that
McMillan’s testimony was not inadmissible “guilt-by-association”
evidence even under the abuse of discretion standard.
38
Latrasse challenges the sufficiency of the evidence showing
that “an offense was in fact committed and the defendant in fact
committed it.” Beechum, 582 F.2d at 913. Specifically, Latrasse
argues that McMillan’s testimony was insufficient to show that
Latrasse was involved with Braugh in the second McMillan
transaction. To determine whether there was sufficient evidence to
satisfy the first part of the Beechum test, Latrasse’s hearsay
objection must first be addressed. The statements Latrasse objects
to would, if admissible, form part of the evidence showing
Latrasse’s involvement.
Latrasse objected under Rule 802 to McMillan’s testimony that
Braugh described Latrasse as the person in charge of the
investment, who was giving Braugh direction. The district court
admitted McMillan’s testimony against Latrasse under Rule
801(d)(2)(D), which defines statements of an agent or employee of
the defendant as non-hearsay. Latrasse challenges the district
court’s ruling.10
An out-of-court statement of a declarant is not hearsay if
“[t]he statement is offered against a party and is . . . a
statement by the party’s agent or employee, made during the
existence of the relationship.” FED. R. EVID. 801(d)(2)(D). The
proponent of the evidence must prove the preliminary facts that
bring the statement within Rule 801(d)(2)(D), by a preponderance of
10
Braugh’s out-of-court statements about Latrasse were
only arguably offered for the truth of the matters asserted in
them. However, because the government did not make this argument
at trial or on appeal, we do not rest our resolution of the issue
on this ground.
39
the evidence. See United States v. Bourjaily, 483 U.S. 171, 174
(1987). The statement itself may be considered in making this
determination. See id. However, “[t]he contents of the statement
. . . are not alone sufficient to establish . . . the agency or
employment relationship and scope thereof under subdivision
(D) . . . .” FED. R. EVID. 801(d)(2).
McMillan testified that Braugh told him “over and over and
over that Kurt Latrasse was the man in charge” of the Gold Cloud
Development and San Francisco Productions investments. McMillan
also testified that Braugh said “he was basically acting as an
agent for Kurt Latrasse.” These statements provided the only
evidence of Latrasse’s role as principal and Braugh’s as agent in
the second transaction Braugh proposed to McMillan. Neither the
loan document bearing Latrasse’s signature nor the circumstances
under which Latrasse signed it provide proof that Braugh was acting
as Latrasse’s agent. In light of the lack of evidence to
corroborate Braugh’s out-of-court statements that he was acting as
an agent for Latrasse, Rule 801(d)(2)(D) cannot serve as the basis
for the admission of these statements against Latrasse.
However, even if McMillan’s testimony should not have been
admitted against Latrasse under Rule 801(d)(2)(D), other grounds
for admission remove any harmful error. See United States v.
Lopez, 979 F.2d 1024, 1033 (5th Cir. 1992). The government urges
that the testimony was admissible under Rule 801(d)(2)(E), which
takes an out-of-court statement outside the hearsay rule if the
statement “is offered against a party and is . . . a statement by
a coconspirator of a party during the course and in furtherance of
40
the conspiracy.” FED. R. EVID. 801(d)(2)(E). Although the
indictment did not allege an earlier conspiracy in connection with
the McMillan transactions, “the conspiracy that forms the basis for
admitting coconspirators’ statements need not be the same
conspiracy for which the defendant is indicted.” United States v.
Arce, 997 F.2d 1123, 1128 (5th Cir. 1993).
Before admitting evidence under Rule 801(d)(2)(E), the
proponent must “establish by a preponderance of the evidence that
the declarant and the defendant were involved in a conspiracy and
that the statements were made during and in furtherance of the
conspiracy.” United States v. Broussard, 80 F.3d 1025, 1038 (5th
Cir. 1996); see also Bourjaily, 483 U.S. at 175-76. Under Rule
104(a) of the Federal Rules of Evidence, a court “is not bound by
the rules of evidence except those with respect to privileges” in
determining the existence of preliminary facts to support the
admission of evidence. See also Bourjaily, 483 U.S. at 178. The
out-of-court statement itself may be considered in determining the
existence of the conspiracy and other preliminary facts. See id.at 177–81; FED. R. EVID. 801(d)(2). However, the out-of-court
statement alone is not sufficient to support its own admission.
See FED. R. EVID. 801(d)(2).
Braugh made the statements as part of his efforts to induce
McMillan to give him money a second time. There is sufficient
evidence to show that Braugh and Latrasse conspired in this effort
to defraud McMillan. The trial record included the following
evidence that Braugh and Latrasse were parties to such a
conspiracy:
41
• McMillan testified that Braugh told him “over and
over again that Latrasse was in charge” of the Gold
Cloud Development transaction and the San Francisco
Production movie deal.
• McMillan testified that Braugh said that “he was
basically acting as an agent for Kurt Latrasse.”
C After McMillan refused to give Braugh any money
unless Latrasse signed a loan document and personal
guarantee drafted by McMillan’s staff, those
documents were faxed to Latrasse.
• Braugh and McMillan telephoned the hotel where
Latrasse was staying. They were connected to a man
who identified himself as Kurt Latrasse. That man
stated that he had received the documents that
McMillan’s staff drafted and was signing them.
C Braugh faxed McMillan the loan document bearing a
signature purporting to be that of Kurt Latrasse.
• The signature of Kurt Latrasse was very similar to
Latrasse’s signature on other documents previously
admitted as evidence in the trial.
This evidence shows the predicate facts making Braugh’s
statements about Latrasse admissible under Rule 801(d)(2)(e). The
record discloses sufficient evidence to show by a preponderance of
the evidence that Latrasse and Braugh conspired to defraud
McMillan. Braugh’s out-of-court statements in furtherance of the
conspiracy were admissible under Rule 801(d)(2)(E) of the Federal
Rules of Evidence.
In light of this determination, we return to the first part of
the Beechum test to consider whether McMillan’s testimony was
admissible against Latrasse under Rule 404(b). Under the
circumstances presented in this case, there was sufficient evidence
to permit a rational jury to find that Latrasse committed an
offense involving fraud for the purpose of the Beechum analysis.
42
McMillan’s testimony also satisfies Rule 403, the second part
of the Beechum test. Latrasse placed his intent at issue by
testifying that he believed the “roll program” was legitimate. The
evidence of the second McMillan transaction was probative rebuttal
evidence, particularly given the similarity between Latrasse’s role
in the extrinsic offense and his role in the charged offenses.
Braugh described Latrasse to McMillan as the person in charge
of the proposed investments; later, Latrasse was presented to the
roll program investors as the expert in such transactions. In both
schemes, when an investor expressed concern or doubt, Latrasse was
called in to provide reassurance. McMillan’s testimony was
probative on the issue of Latrasse’s intent. The district court
gave a careful limiting instruction to the jury, minimizing the
prejudicial impact of McMillan’s testimony. See Gonzalez, 76 F. 3d
at 1348. Balancing the probative value against the danger of
unfair prejudice in light of the limiting instruction, the district
court did not abuse its discretion in admitting McMillan’s
testimony against Latrasse over his Rule 404(b) objection.
Moreover, even if McMillan’s testimony was inadmissible, the
error was, on this record, harmless. See United States v. Cornett,
195 F.3d 776, 784 (5th Cir. 1999). The erroneous admission of
McMillan’s testimony would require reversal of Latrasse’s
conviction only if the evidence had a “substantial impact” on the
verdict. See United States v. Dickey, 102 F. 3d 157, 163 (5th Cir.
1996); United States v. El-Zoubi, 993 F.2d 442, 446 (5th Cir.
1993). The trial record discloses ample evidence of Latrasse’s
guilt. The evidence shows that Latrasse repeatedly provided Hayes,
43
Schwinger, and Blackwelder assurances as to the legitimacy and
profitability of the roll program long after he knew that the money
had not been invested as promised and was not producing the
promised returns. The record shows that Latrasse gave the
investors detailed and varying explanations, promises, and excuses
long after the investors’ money had already been disbursed to the
defendants, including Latrasse. In the context of the ample
evidence of Latrasse’s criminal intent in the record, McMillan’s
testimony did not have a “substantial impact” on the jury verdict
so as to require reversal.
V. THE CHALLENGE TO THE JURY INSTRUCTIONS
All three defendants argue that the district court erred in
rejecting the defendants’ proposed jury instruction as to the
relationship between breach of fiduciary duty and criminal
liability.
John Shockey testified as the government’s expert witness on
international banking practices and financial fraud. During cross-
examination, Braugh’s attorney asked Shockey whether “people in the
phony money world” ever used “people in the legitimate money world”
to promote fraudulent investment schemes. In response, Shockey
testified:
Well, while that could happen, we would hope that proper
due diligence would be done. And if the parties involved
hold themselves out as knowledgeable and experienced
financial advisors, they have a fiduciary responsibility
to their clients to conduct due diligence to protect the
interests of their clients.
44
Latrasse’s attorney later asked Shockey several questions to
clarify that “due diligence” and “fiduciary responsibility” were
terms from civil, not criminal, law.
Latrasse timely requested the trial court to include the
following language in the court’s jury instructions: “Neither a
failure to exercise due diligence nor a breach of fiduciary duty in
and of themselves rise to the level of specific intent to defraud.
Before you may find a Defendant guilty of fraud, you must find
beyond a reasonable doubt that the Defendant had the specific
intent to defraud.” The other defendants joined in the request.
The district court did not give the instruction.
A district court’s refusal to provide a requested jury
instruction is reviewed for abuse of discretion. United States v.
Jobe, 101 F.3d 1046, 1059 (5th Cir. 1996). Such a refusal requires
reversal only if the requested instruction (1) was a substantially
correct statement of the law, (2) was not substantially covered in
the charge as a whole, and (3) concerned an important point in the
trial such that the failure to instruct the jury on the issue
seriously impaired the defendant’s ability to present a given
defense. See United States v. Webster, 162 F.3d 308, 322 (5th Cir.
1998), cert. denied, ___ U.S. ___, 120 S. Ct. 83 (1999); Jobe, 101
F.3d at 1059.
The district court instructed the jury, in relevant part, as
follows:
The word “knowingly,” as that term has been used from
time to time in these instructions, means that the act
was done voluntarily and intentionally, not because of
mistake or accident.
45
Good faith is a complete defense to the charges in the
indictment, since good faith on the part of the defendant
is inconsistent with intent to defraud, which is an
essential part of the charges. The burden of proof is
not on a defendant to prove his good faith, since a
defendant has no burden to prove anything. The
government must establish beyond a reasonable doubt that
the defendants acted with specific intent to defraud as
charged in the indictment.
One who expresses an opinion honestly held by him, or a
belief honestly entertained by him, is not chargeable
with fraudulent intent even though his opinion is
erroneous or his belief is mistaken; and, similarly,
evidence which establishes only that a person made a
mistake in judgment or an error in management, or was
careless, does not establish fraudulent intent.
On the other hand, an honest belief on the part of the
defendant that a particular business venture was sound
and would ultimately succeed would not, in and of itself,
constitute “good faith” as used in these instructions if,
in carrying out that venture, the defendants knowingly
made false or fraudulent representations to other with
the intent to deceive them.
The district court also instructed the jury on the level of
intent required for conviction on each of the offenses charged in
the indictment. As to the conspiracy charge, the district court
instructed the jury as follows:
For you to find a defendant guilty of conspiracy,
you must be convinced that the government has
proved . . . beyond a reasonable doubt . . . [t]hat the
defendant knew the unlawful purpose of the agreement and
joined in it willfully, that is, with the intent to
further the unlawful purpose . . . .
One may become a member of a conspiracy without
knowing all the details of the unlawful scheme or the
identities of all the other alleged conspirators. If a
defendant understands the unlawful nature of the plan or
scheme and knowingly and intentionally joins in that plan
or scheme on one occasion, that is sufficient to convict
him of conspiracy . . . .
46
The district court also instructed the jury on the Pinkerton
doctrine of accomplice liability.11
As to the interstate transportation of stolen property charge,
the district court instructed the jury that “to find the defendant
guilty of this crime, you must be convinced that the government has
proved . . . beyond a reasonable doubt [that] the defendant devised
a scheme to defraud one or more persons of at least $5,000.” The
district court instructed the jury on the elements of mail fraud
and wire fraud, in relevant part, as follows:
For you to find the defendant guilty of this crime,
you must be convinced that the government has proved each
of the following beyond a reasonable doubt:
First: That the defendant knowingly created a scheme
to defraud, that is a scheme to obtain money, funds, or
credits from another by means of false pretenses,
representations and promises substantially as alleged in
this Indictment;
Second: That the defendant acted with the specific
intent to commit fraud . . . .
The district court’s instructions to the jury, considered as a
whole, substantially covered the defendants’ requested instruction.
Defendants fully presented their theory of defense, their belief
that the roll program was a legitimate investment. In his closing
argument, Latrasse’s attorney argued that a breach of fiduciary
duty does not necessarily give rise to criminal liability.
“[C]ounsel was not circumscribed in his argument to the jury” on
11
Under Pinkerton v. United States, 328 U.S. 640, 666
(1946), “[a] party to a continuing conspiracy may be responsible
for a substantive offense committed by a coconspirator pursuant to
and in furtherance of the conspiracy, even if that party does not
participate in the substantive offense or have any knowledge of
it.” United States v. Castillo, 179 F.3d 321, 324 n. 4 (5th Cir.
1999)(quoting United States v. Elwood, 993 F.2d 1146, 1151 (5th
Cir. 1993)) (alterations in original), cert. granted, ___ U.S. ___,
2000 WL 21143 (2000).
47
the theory of defense. United States v. Storm, 36 F.3d 1289, 1295
(5th Cir. 1994). The district court’s charge adequately instructed
the jury that they could not convict any defendant unless the
government proved, beyond a reasonable doubt, that the defendant
had the specific intent to defraud. See United States v. Giraldi,
86 F.3d. 1368, 1376 (5th Cir. 1996) (affirming district court’s
denial of a requested instruction on good faith because the charge
detailed specific intent and defined “willfully” and “knowingly”).
The defendants were not entitled to more specific instructions on
the distinctions between the civil terms “due diligence” and
“fiduciary responsibility” on the one hand, and criminal liability
on the other.
The district court’s refusal to give the defendants’ requested
instruction was not error.
VI. THE CHALLENGES TO THE SUFFICIENCY OF THE EVIDENCE
All defendants challenge the sufficiency of the evidence
supporting some or all of their convictions. In assessing these
challenges, “[t]his court must view the evidence in the light most
favorable to the jury verdict and affirm if a rational trier of
fact could find that the government proved all essential elements
beyond a reasonable doubt.” Giraldi, 86 F.3d 1368, 1372 (5th Cir.
1996). We consider “the countervailing evidence as well as the
evidence that supports the verdict.” United States v. Brown, 186
F.3d 661, 664 (5th Cir. 1999)(quoting Giraldi, 86 F.3d at 1272).
“It is not necessary that the evidence exclude every
reasonable hypothesis of innocence or be wholly inconsistent with
every conclusion except that of guilt provided a reasonable trier
48
of fact could find that the evidence establishes guilt beyond a
reasonable doubt.” United States v. Bell, 678 F.2d 547, 549 (5th
Cir. Unit B 1982); see United States v. Soape, 169 F.3d 257, 264
(5th Cir.), cert. denied, ___ U.S. ___, 119 S. Ct. 2353 (1999).
The jury is free to choose among reasonable constructions of the
evidence. See United States v. Ortega Reyna, 148 F.3d 540, 543
(5th Cir. 1998). If, however, “the evidence, viewed in the light
most favorable to the government, gives equal or nearly equal
circumstantial support to a theory of guilt and a theory of
innocence, the conviction should be reversed. United States v.
Pennington, 20 F.3d 593, 597 (5th Cir. 1994); see Ortega Reyna, 148
F.3d at 543. “When the evidence is essentially in balance, a
reasonable jury must necessarily entertain a reasonable doubt.”
Ortega Reyna, 148 F.3d at 543.
A. Richards
Richards argues that the evidence was insufficient to support
his conviction for inducing a person to travel in interstate
commerce in furtherance of a scheme to defraud and his conviction
for wire fraud. He does not challenge the sufficiency of the
evidence supporting his conspiracy conviction.
1. Interstate Transportation
18 U.S.C. § 2314 “requires proof of two elements to support a
conviction: (1) that the defendant devised a scheme intending to
defraud victim of money or property of a minimum value of $
5,000,and (2) that as a result of this scheme, a victim was induced
to travel in interstate commerce.” United States v. Myerson, 18
49
F.3d 153, 164 (2d Cir. 1994); see also United States v. Biggs, 761
F.2d 184, 187 (4th Cir. 1985).12
Richards does not challenge the proof that he induced Bert
Hayes to travel from Arkansas to Texas to meet with Richards and
deliver a $250,000 check. Richards’ argument is narrow. He
asserts that the evidence was insufficient to permit a reasonable
jury to find that he induced Hayes to cross state lines with the
specific intent to defraud Hayes. See United States v. Snelling,
862 F.2d 150 (8th Cir. 1988) (holding that it is an essential
element of the interstate transportation offense under section 2314
that the defendant had the intent to defraud at the time the victim
crossed state lines as a result of the defendant’s inducement).
The record, viewed in the light most favorable to the verdict,
contains evidence sufficient to support Richards’ conviction on
count 2. Richards promoted the roll program to Hayes, promising
that the money invested would be safe and would generate
substantial returns. The roll program described to Hayes did not
exist. John Shockey, the government’s expert on international
banking practices and financial fraud, testified that no such
investment existed in the legitimate financial world.
12
Section 2314 provides in relevant part:
Whoever, having devised or intending to devise any scheme
or artifice to defraud, or for obtaining money or
property by means of false or fraudulent pretenses,
representations, or promises, . . . induces any person .
. . to travel in, or be transported in interstate . . .
commerce in the execution or concealment of a scheme or
artifice to defraud that person . . . of money or
property of $ 5,000 or more . . . [s]hall be fined under
this title or imprisoned not more than ten years, or
both.
50
A reasonable jury could conclude that Richards knew the roll
program was not legitimate when he induced Hayes to travel to Texas
with his $250,000 check. Richards pitched an investment program
that did not exist in the legitimate financial world. He continued
his participation in the scheme, soliciting additional investors
and later lulling them into continuing to believe that the program
existed and was working long after he knew that at least some of
the money had gone to the promoters rather than to the investors
and that they investors had not received any of the money promised
them. The evidence that Richards continued to solicit and reassure
investors after he knew that the program had failed to perform as
he had promised supports the inference that Richards knew the
program was a fraud from the outset, when he induced Hayes to
invest in the program and to cross state lines to deliver his
check.
2. Wire fraud
“In order to establish wire fraud [under 18 U.S.C. § 1343],
the Government must prove that a defendant knowingly participated
in a scheme to defraud, that interstate wire communications were
used to further the scheme, and that the defendants intended that
some harm result from the fraud.” United States v. Powers, 168
F.3d 741, 746 (5th Cir.), cert. denied, ___ U.S. ___, 120 S. Ct.
360 (1999); see also United States v. St. Gelais, 952 F.2d 90, 95
(5th Cir. 1992). “An intent to defraud for the purpose of personal
gain satisfies the ‘harm’ requirement of the wire fraud statute.”
Powers, 168 F.3d at 746; St. Gelais, 952 F.2d at 95. A use of the
interstate wire facilities is in furtherance of a scheme to defraud
51
if it is “incident to an essential part of the scheme.” Schmuck v.
United States, 489 U.S. 705, 710–11 (1989) (citations omitted); see
also Powers, 168 F.3d 741, 747 (5th Cir. 1999). A defendant need
not personally have made the communication on which the wire fraud
count is based, nor have directed that it be made. “The test to
determine whether a defendant caused [interstate wire facilities]
to be used is whether the use was reasonably foreseeable.” United
States v. Massey, 827 F.2d 995, 1002 (5th Cir. 1987)(interpreting
the mail fraud statute).13 For a defendant to be convicted of wire
fraud, it is sufficient that the defendant could reasonably have
foreseen the use of the wires; the interstate nature of the wire
communication need not have been reasonably foreseeable. See
United States v. Lindemann, 85 F.3d 1232, 1241 (7th Cir. 1996);
United States v. Blackmon, 839 F.2d 900 (2d Cir. 1988); cf. United
States v. Kelly, 569 F.2d 928, 934 (5th Cir. 1978)(holding that the
interstate transportation offense, 18 U.S.C. § 2314, included no
level of mens rea as to the interstate nexus because the interstate
nexus requirement was merely “the linchpin for federal
jurisdiction”); United States v. Darby, 37 F.3d 1059, 1067 (4th
Cir. 1994)(holding the same under 18 U.S.C. § 875, which prohibits
the transmission of a threatening communication in interstate
commerce).
Richards asserts that the use of the wires charged in count 3
of the indictment was not reasonably foreseeable. This count
13
Because the language of the mail fraud and wire fraud
statutes are so similar, cases construing one are applicable to the
other. See United States v. Herron, 825 F.2d 50, 54 n. 5 (5th Cir.
1987); United States v. Bentz, 21 F. 3d 37, 40 (3d Cir. 1994).
52
charges the September 17, 1991 wire transfer of $7,500 from Texas
to Kurt Latrasse in California. The record evidence supports the
conclusion that the wire transfer to Latrasse was a distribution of
proceeds from the roll program scheme. Richards reasonably could
have foreseen that a distribution of the investors’ funds to the
defendant promoters might be made by use of wire transfers. The
evidence was sufficient to support Richards’ conviction on count 3.
B. Braugh
Braugh challenges the sufficiency of the evidence supporting
his conspiracy, interstate transportation, wire fraud, and mail
fraud convictions. We uphold the convictions on all six counts.
1. Conspiracy
Braugh was convicted of conspiracy to commit mail and wire
fraud under 18 U.S.C. § 371. “To establish a violation of [section
371], the government must prove beyond a reasonable doubt (1) that
two or more people agreed to pursue an unlawful objective, (2) that
the defendant voluntarily agreed to join in the conspiracy, and (3)
that one or more members of the conspiracy committed an overt act
to further the objectives of the conspiracy.” United States v.
Soape, 169 F.3d 257, 264 (5th Cir.), cert. denied, ___ U.S. ___,
119 S. Ct. 2353 (1999).
“To be guilty of conspiracy to commit mail [and wire] fraud,
[the defendant] must have had the requisite intent to commit mail
[and wire] fraud.” United States v. Sneed, 63 F.3d 381, 385 (5th
Cir. 1995). Neither “[m]ail fraud [nor wire fraud], however, has
[a] specific intent requirement regarding use of the mails [or wire
facilities].” Id. (quoting United States v. Massey, 827 F.2d 995,
53
1002 (5th Cir. 1987)). “The test to determine whether a defendant
caused the mails [or interstate wire facilities] to be used is
whether the use was reasonably foreseeable. The defendant need not
intend to cause the mails [or wire facilities] to be used.” Sneed,
63 F.3d at 385 (quoting Massey, 827 F.2d at 1002). “The
government’s burden, therefore, is to demonstrate beyond a
reasonable doubt that [the alleged conspirators] agreed to engage
in a scheme to defraud in which they contemplated that the [wire
facilities] would likely be used.” Sneed, 63 F.3d at 385 (quoting
Massey, 827 F.2d at 1002).
Braugh contends that the evidence was not sufficient to permit
a reasonable jury to conclude that he was a party to a conspiracy
to commit wire fraud and mail fraud. At most, he claims, the
evidence shows that the defendants participated in a failed
business together, not that they agreed to commit a crime. Braugh
points out that he was not present when either Schwinger or Hayes
signed contracts to invest in the roll program.
The lack of direct evidence of agreement to commit a crime
does not require reversal. Each element of a section 371
conspiracy may be inferred from circumstantial evidence. See
United States v. Faulkner, 17 F.3d 745, 768 (5th Cir. 1994).
Concert of action can indicate an agreement. See United States v.
Lopez, 979 F.2d 1024, 1029 (5th Cir. 1992). The record contains
ample circumstantial evidence to support Braugh’s conspiracy
conviction. Braugh and others induced Hayes, Schwinger, and
Blackwelder to part with their money and in lulling them into
continued belief that their money was safely invested. The bank
54
records showed that nearly all Hayes’s money was moved from
Braugh’s Shearson Lehman account within one month of deposit and
transferred to accounts in the defendants’ names at different
banks, including Braugh’s accounts. Most of the money Schwinger
invested was also transferred from a Shearson Lehman account to
accounts held by Richards, Braugh, and Latrasse, within a short
time.
The evidence showed the defendants’ coordinated acts to
implement their fraudulent scheme, including the use of the mails
and wire facilities to distribute the proceeds of the fraud and to
lull the investors as they grew anxious about their money. In
light of the other evidence in the record, the jury was free to
disbelieve Braugh’s self-serving testimony that he thought the
“roll program” was a legitimate investment. See United States v.
Brown, 186 F.3d 661, 667 (5th Cir. 1999); United States v. Ruiz,
860 F.2d 615, 619 (5th Cir. 1988). The evidence was sufficient to
permit a reasonable jury to find that Braugh conspired to commit
wire and mail fraud.
2. Interstate Transportation
Braugh argues that there is no evidence that he, rather than
Richards, induced Hayes to travel from Arkansas to Texas with the
$250,000 check. The interstate transportation element “is merely
the linchpin for federal jurisdiction and bears no relationship, in
terms of culpability, to the underlying criminal acts which are the
objects of [section] 2314.” United States v. Kelly, 569 F.2d 928,
934 (5th Cir. 1978) (quoting United States v. Ludwig, 523 F.2d 705,
707 (8th Cir. 1975)). The government need not prove that Braugh
55
knew that Hayes would travel in interstate commerce. See Kelly,
569 F.2d at 934. Indeed, the government need not show that Braugh
directly caused Hayes to travel across state lines. See id. at
934–35. It is enough if Braugh “was a motivating force in the
transportation.” Id. at 935 (quoting Thogmartin v. United States,
313 F.2d 589 (8th Cir. 1963)).
In Kelly, this court upheld a section 2314 interstate
transportation conviction over a sufficiency of the evidence
challenge. The defendant had devised a scheme to sell shares in a
nonexistent mutual fund. He sold shares in the fund to an
individual, who in turn transferred them to a third party. As part
of the transaction, the immediate and secondary purchasers met in
the Bahamas. This travel provided the interstate transportation
element of the original seller’s section 2314 conviction. The
court held that the original seller was a “motivating force” in the
ultimate buyer’s interstate travel, despite the fact that it was
the original buyer who induced the ultimate buyer to make the trip.
In this case, although Richards persuaded Hayes to cross state
lines to deliver his roll program check, Braugh’s involvement in
the roll program made him a “motivating force” in Hayes’s travel.
The evidence sufficed to permit a reasonable jury to find that
Braugh violated section 2314.
3. Wire Fraud
Braugh was convicted of three counts of wire fraud under 18
U.S.C. § 1343. His limited claim on appeal is that because there
was insufficient evidence to show that he knowingly participated in
a scheme to defraud, there was also insufficient evidence to
56
support his wire fraud convictions. The same record evidence that
led to the rejection of Braugh’s sufficiency of the evidence
challenge to his conspiracy conviction also leads this court to
reject Braugh’s challenge to the wire fraud convictions.
4. Mail Fraud
Count 6 of the indictment charged Braugh with mail fraud under
18 U.S.C. § 1341, based on Braugh’s November 22, 1993 letter to
Blackwelder, promising to send a cashier’s check to repay the
$5,000 “loan.” Braugh argues that there was insufficient evidence
to show that he participated in a scheme to defraud. The argument
is without merit.
C. Latrasse
Latrasse challenges his conviction on all counts on the basis
of insufficiency of the evidence. Latrasse argues that because he
did not talk to any investors until after they had made their
investments, he did not induce anyone to part with their money.
Latrasse also asserts that he believed the roll program to be
legitimate.
1. Conspiracy
The record presented sufficient evidence to permit a rational
jury to find Latrasse guilty of conspiracy to commit wire and mail
fraud. The fact that Latrasse did not speak to the investors until
after they had parted with their funds does not preclude his
membership in the conspiracy. Ample evidence showed that Latrasse
worked to induce the participants to continue believing that the
roll program existed and that their money was safe. Latrasse
lulled the investors when they protested the lack of the promised
57
payments. Latrasse’s lulling efforts furthered the fraudulent
scheme. Cf. United States v. Allen, 76 F.3d 1348, 1363 (5th Cir.
1996)(holding that actions designed to avoid detection after the
defendants had control over the money produced by the fraud were in
furtherance of the fraud under the mail fraud statute); cf. also
United States v. Perry, 152 F.3d 900, 904 (8th Cir. 1998)(holding
that mailings designed to lull the victims into a false sense of
security and hide a fraudulent scheme are considered an overt act
in furtherance of a conspiracy to commit mail fraud and wire
fraud), cert. denied, ___ U.S. ___, 119 S. Ct. 1088 (1999).
The evidence was also sufficient for the jury to disbelieve
Latrasse’s self-serving testimony and conclude that Latrasse knew
the investment program was not legitimate. Latrasse knew the
investors were not receiving the payments as promised when he
repeatedly assured them that their money was safely invested and
earning returns. He knew that money received from two investors
had been quickly transferred from the initial deposits in the
Shearson Lehman investment accounts to the defendants, including
Latrasse. There was ample circumstantial evidence showing that
Latrasse knew the roll program was fraudulent when he assured the
investors of its legitimacy. There was also clear evidence showing
that the use of the mails and wire facilities in furtherance of the
fraud was reasonably foreseeable. Latrasse’s challenge to his
conviction on count 1 fails.
2. Interstate transportation
A party to a conspiracy may be held criminally responsible for
a substantive offense committed by a coconspirator in furtherance
58
of the conspiracy if the offense was reasonably foreseeable and was
committed during that party’s membership in the conspiracy. See
United States v. Castillo, 179 F.3d 321, 324 n. 4 (5th Cir.
1999)(describing the Pinkerton doctrine), cert. granted, ___ U.S.
___, 2000 WL 21143 (2000); United States v. Dean, 59 F.3d 1479,
1490 n. 20 (5th Cir. 1995)(holding that the offense must have been
reasonably foreseeable for the defendant to face accomplice
liability under the Pinkerton doctrine); United States v. Basey,
816 F.2d 980, 998–99 (5th Cir. 1987). We have already found the
evidence sufficient to show that Latrasse conspired to commit mail
and wire fraud and that Richards and Braugh induced Hayes to travel
in interstate commerce with the intent to defraud.
The question as to Latrasse’s conviction on count 2 is the
sufficiency of the evidence to show that Latrasse was a member of
the conspiracy when Richards induced Hayes to cross state lines on
September 5, 1991 to participate in the roll program. Latrasse
points out that he did not begin communicating with the roll
program investors until early 1992. However, the record also shows
that Latrasse received a $7,500 wire transfer from Braugh’s Bank of
Corpus Christi account on September 11, 1991 and a $5,000 transfer
on September 17, 1991. Brewer testified that Latrasse received
money from Hayes’s deposit, only days after Hayes wrote his check.
A reasonable jury could conclude that Latrasse was a member of the
conspiracy when Hayes crossed state lines to deliver the check.
There is no basis to reverse Latrasse’s conviction on count 2.
59
3. Wire fraud
Latrasse challenges his convictions on the three counts of
wire fraud. The first of these counts involved the $7,500
September 11, 1991 wire transfer from Braugh’s Bank of Corpus
Christi account in Texas to Latrasse in California. The evidence
was sufficient to permit a rational jury to conclude that this
transfer was a distribution of proceeds from the fraudulent scheme,
in furtherance of that scheme and reasonably foreseeable to
Latrasse.
The second count, Count 4, involved a fax from Latrasse in
California to Schwinger in Texas on June 19, 1992. In the fax,
Latrasse promised a distribution of funds to Schwinger and her
partners on or before June 30, 1992. The evidence was clearly
sufficient for a reasonable jury to find that Latrasse sent this
fax to further the fraudulent scheme by lulling Schwinger into
continuing to believe that her money was safely invested, as
promised. See United States v. Allen, 76 F.3d 1348, 1363 (5th Cir.
1996)(holding that “actions taken to avoid detection, or to lull
the fraud victim into complacency” are in furtherance of the fraud
for the purpose of the wire fraud statute); see also United States
v. Maze, 414 U.S. 395, 402–03 (1974). The evidence was sufficient
to support Latrasse’s conviction on count 4.
The third wire fraud offense, alleged in count 5 of the
superseding indictment, involved a February 2, 1994 fax that
Latrasse sent from California to Blackwelder in Texas. In the fax,
Latrasse promised to send Blackwelder a check returning his
investment. Again, the evidence was sufficient to support a
60
finding that Latrasse sent this fax to lull Blackwelder into
continuing to believe the investment was legitimate. There was
sufficient evidence to permit a rational jury to convict Latrasse
on count 5 of the indictment.
4. Mail fraud
The mail fraud offense alleged in count 6 of the superseding
indictment arose from a November 22, 1993 letter Braugh sent to
Blackwelder by mail. In the letter, Braugh promised to send
Blackwelder a cashier’s check repaying the July 8, 1993 $5,000
“loan.”
The evidence show that in the weeks leading up to the loan,
Blackwelder had asked Braugh several times when he would receive
the promised payments from the roll program. Braugh repeatedly
assured Blackwelder that he would receive the money soon, giving
such excuses as “it’s going to happen in a day, it’s going to
happen in two days, it’s going to happen in a week, there’s a
problem, a little problem, it’s going to be good in a day.”
Blackwelder continued to press. As part of Braugh’s efforts to
lull Blackwelder into believing the roll program was legitimate,
Braugh explained that there were problems in Europe that needed
attention and asked for a $5,000 loan so that Braugh could travel
to Europe and “help expedite the transaction.”
Blackwelder tried to recover his money from Braugh. In a
telephone conversation on November 19, 1993, Braugh told
Blackwelder that the unpaid loan “was the only mistake he made in
executing his little ordeal here.” Three days later, Braugh sent
Blackwelder the letter that forms the basis for count 6. In the
61
letter, Braugh promised to give Blackwelder a cashier’s check to
repay the loan within one week.
After the November 22, 1993 letter, Blackwelder did not see or
speak to Braugh for approximately six months. However, Latrasse
continued to call Blackwelder to assure him that payment on his
roll program investment was imminent. On February 2, 1994,
Latrasse sent Blackwelder a fax, telling Blackwelder that Latrasse
had designated a “disinterested third party to deliver the check
for the pay-out” on Blackwelder’s investment. The fax continued:
It is regrettable that this project took longer than
programmed and that this led to the hard feelings between
you and Roger. Hope that we can quickly resolve the
remaining business between yourself and SAI [Associates]
and Roger’s personal obligation to you.
A reasonable jury could conclude that Braugh’s November 22,
1993 letter to Blackwelder was in furtherance of the scheme to
defraud. Braugh solicited the loan from Blackwelder in the context
of reassuring Blackwelder about the roll program. Braugh told
Blackwelder that the $5,000 loan would help him make a trip to
Europe to fix problems with the roll program and “expedite the
transaction.” Three days before he sent Blackwelder the November
22, 1993 letter promising to repay the $5,000, Braugh told
Blackwelder that failing to repay the $5,000 was “the only mistake
he made” in connection with the roll program. The November 22,
1993 letter was another instance of lulling, another assurance that
money promised would be paid soon. In his February 2, 1994 fax to
Blackwelder, Latrasse, seeking to reassure Blackwelder about the
roll program generally, stated: “I hope that we can quickly resolve
the remaining business between yourself and SAI and Roger’s
62
personal obligation to you.” Braugh obtained the $5,000 “loan”
through his involvement in the roll program. Latrasse was clearly
aware that Braugh had done so. Braugh’s and Latrasse’s statements
and written communications evidence their recognition that
assurances about the $5,000 transaction were part of keeping
Blackwelder satisfied about the status of the roll program.
Braugh’s lulling letter “was incident to an essential part” of the
roll program scheme, which Latrasse could reasonably have foreseen.
The evidence was sufficient to support Latrasse’s conviction
on count 6.
VII. THE RESTITUTION ORDER
Richards and Braugh argue that the district court erred in
applying the Mandatory Victims Restitution Act (MVRA) in setting
the amount of restitution. They contend that the Ex Post Facto
Clause of the United States Constitution precludes the application
of the MVRA to conduct occurring before April 24, 1996, the
effective date of the Act. The conduct underlying their
convictions occurred well before then. Defendants did not object
to the orders of restitution at trial. Plain error applies.
United States v. Cihak, 137 F.3d. 252, 264 n. 7 (5th Cir.), cert.
denied, ___ U.S. ___, 119 S. Ct. 118 (1998), and cert. denied, ___
U.S. ___, 119 S. Ct. 203 (1998).
The MVRA amended the Victim Witness Protection Act (“VWPA”),
18 U.S.C. §§ 3663–3664. Before the amendments to the VWPA, the
statute required a court to consider a defendant’s ability to pay
in setting the amount of a restitution order. As amended, the
statute provides that “the court shall order restitution to each
63
victim in the full amount of each victim’s losses as determined by
the court and without consideration of the economic circumstances
of the defendant.” 18 U.S.C. § 3664(f)(1)(A). Richards and Braugh
contend that the MVRA, by forbidding the trial court to consider a
defendant’s ability to pay in setting the amount of restitution,
causes an increase in the punishment a defendant faces for a given
offense. They argue that “retroactive” application of the Act to
conduct occurring before its effective date violates the Ex Post
Facto Clause.
The MVRA provides that it “shall, to the extent
constitutionally permissible, be effective for sentencing
proceedings in cases in which the defendant is convicted on or
after the date of enactment of this Act.” See 18 U.S.C. § 2248(statutory notes). If application of the MVRA to a given defendant
would violate the Ex Post Facto Clause, the district court must
apply the pre-amendment VWPA in determining restitution.
A law violates the Ex Post Facto Clause if (1) it “appl[ies]
to events occurring before its enactment,” and (2) it
“disadvantage[s] the offender affected by it by altering the
definition of criminal conduct or increasing the punishment for his
crime.” Lynce v. Mathis, 519 U.S. 433, 441 (1997)(quoting Weaver
v. Graham, 450 U.S. 24, 30 (1981)). Although this court has not
yet addressed the issue, several federal circuit courts have
considered whether application of the MVRA to conduct occurring
before its enactment would violate the Ex Post Facto Clause. The
majority of these courts have held that retroactive application of
the MVRA would violate the Ex Post Facto Clause. Compare United
64
States v. Siegel, 153 F.3d 1256, 1260 (11th Cir. 1998)(holding that
it would violate the Ex Post Facto Clause to apply the MVRA to a
person whose criminal conduct occurred prior to its passage);
United States v. Edwards, 162 F.3d 87, 89–90 (3d Cir. 1998)(same);
United States v. Baggett, 125 F.3d 1319, 1321–1322 (9th Cir.
1997)(same); United States v. Thompson, 113 F.3d 13, 15 n. 1 (2d
Cir. 1997)(same); United States v. Rezaq, 134 F.3d 1121, 1141 n.
13 (D.C. Cir.), cert. denied, ___ U.S. ___, 119 S. Ct. 90 (1998);
and United States v. Williams, 128 F.3d 1239, 1241 (8th Cir.
1997)(holding that an order of restitution under the MVRA is
punishment under the Ex Post Facto Clause and suggesting that
retroactive application of the Act would violate that clause); with
United States v. Nichols, 169 F.3d 1255, 1278–80 (10th
Cir.)(holding that retroactive application of the MVRA did not
violate the Ex Post Facto Clause), cert. denied, ___ U.S. ___, 120
S. Ct. 336 (1999); United States v. Newman, 144 F.3d 531, 537 (7th
Cir. 1998)(same).
The circuits approving retroactive application of the MVRA,
the minority approach, have reasoned that restitution orders under
the Act are not punishment for the purpose of Ex Post Facto Clause
analysis. This circuit’s precedent does not provide a basis to
adopt this reasoning. This circuit has held that restitution
imposed under the VWPA is punishment for the purpose of the Ex Post
Facto Clause. See United States v. Rose, 153 F.3d 208, 211 n. 1
(5th Cir. 1998); United States v. Corn, 836 F.2d 889, 895–96 (5th
Cir. 1988). By requiring the court to order restitution in the
full amount of loss, without considering the defendant’s ability to
65
pay, the MVRA increases the severity of the punishment a defendant
faces as compared to the pre-amendment VWRA. See Siegel, 153 F.3d
at 1260; see also Lindsey v. Washington, 301 U.S. 397 (1937).
Retroactive application of the MVRA to Richards and Braugh would
violate the Ex Post Facto Clause.
However, Braugh and Richards have not shown that the
challenged orders of restitution resulted from retroactive
application of the MVRA. Nothing in the record suggests that the
district court applied the MVRA in this case. During each
defendant’s sentencing, the district court adopted the presentence
report, which included specific findings about that defendant’s
ability to pay. Under the plain error standard of review, we have
held such adoption to be sufficient evidence that the district
court did consider a defendant’s financial resources in ordering
restitution under the pre-amendment VWPA. See United States v.
Greer, 137 F.3d 247, 252 (5th Cir.), cert. denied, ___ U.S. ___,
118 S. Ct. 2305 (1998). We find no plain error in the district
court’s orders of restitution.
VIII. CONCLUSION
For the reasons assigned, the convictions and sentences of
defendants Richards, Braugh, and Latrasse are AFFIRMED.
66