United States v. Jung, Edward T. ( 2007 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 05-3718
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v.
EDWARD T. JUNG,
Defendant-Appellant.
____________
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 03 CR 172—Milton I. Shadur, Judge.
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ARGUED SEPTEMBER 21, 2006—DECIDED JANUARY 18, 2007
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Before BAUER, CUDAHY, and WOOD, Circuit Judges.
BAUER, Circuit Judge. A jury convicted Edward Thomas
Jung of eight counts of wire fraud in violation of 18 U.S.C.
§ 1343 and two counts of securities fraud in violation of
15 U.S.C. §§ 77q(a) and 77x. Jung appeals, claiming that
the district court erroneously admitted the out-of-court
statements of his former attorney under Federal Rule of
Evidence 801(d)(2)(D). Jung also challenges his sentence,
arguing that the sentencing court failed to properly
consider and apply 18 U.S.C. § 3553(a). For the following
reasons, we affirm.
2 No. 05-3718
I. Background
In 1993, Hollis Lamon, an Atlanta securities broker
and promoter, decided to start a hedge fund and asked
Jung to manage it. Shortly thereafter, Lamon and Jung
formed a limited liability company called Strategic In-
come Fund, LLC (“SIF”). Fred Isaf acted as SIF’s special
counsel and drafted SIF’s governing documents, which
gave Jung the exclusive right and power to manage the
fund.
The fund was designed to attract investors who wanted
to generate additional income on stocks that they al-
ready owned. An investment in SIF cost $100,000 per
unit, but most investors signed a promissory note and
pledged stocks or bonds to collateralize the note. Investors
were told that they would continue to receive the divi-
dends and interest from their pledged collateral. The
collateral was then transferred into a sub-account of
E. Thomas Jung Partners, Ltd. (“ETJ”), which was a
market-maker/broker-dealer on the Chicago Board Op-
tions Exchange (“CBOE”). The collateral enabled Jung to
secure margin from LIT Clearing Services, Inc. (“LIT”),
and Jung used the margin to buy and sell options. Profits
generated by Jung’s options trading on the SIF margin
were to be distributed to SIF’s investors.
From July 1994 to September 1998, Jung, Lamon, and
others sold interests in SIF to 55 investors. Beginning
in 1995, Jung sold investments in an almost identical
fund called the Friends and Family Account (“FFA”). By
the end of 1997, SIF ’s investors had invested more than
$16.5 million. However, the combined net value of ETJ
and its sub-accounts totaled just over $1 million. Despite
the trading losses, Jung continued to pursue prospective
investors. In order to keep ETJ in business and continue
trading, Jung had to retain the collateral invested in the
funds and pursue additional collateral from old and new
No. 05-3718 3
investors. By the end of August 1998, even though SIF’s
investors had contributed another $6.85 million that year,
the total value of Jung’s accounts totaled less than $3.4
million.
In September 1998, LIT demanded payment from Jung
for the more than $22 million that ETJ had borrowed and
lost. LIT had a security interest in all assets held in ETJ’s
accounts, which included the SIF and FFA investors’
collateral. The $22 million debt consisted of Jung’s per-
sonal trading loses, ETJ expenses, and cash withdrawals
made by Jung. After LIT liquidated all of the assets in
ETJ’s account, Jung still owed LIT more than $1 million.
On September 22, 1998, Jung’s former attorney, James
Fox, called Lamon and Isaf and told them that all of SIF’s
collateral in the ETJ sub-account, approximately $21.6
million, had been liquidated by LIT.
A federal grand jury returned a ten-count indictment
against Jung on February 18, 2003. According to the
indictment, Jung had defrauded investors through his
hedge fund by falsely representing that their pledged
assets would be used solely to collateralize trading on the
investors behalf. Jung’s jury trial began on January 13,
2004. At trial, the defense tried to establish that Jung
reasonably believed that the investors were aware that
their pledged assets cross-collateralized all of Jung’s
trading and that Jung did not intend to deceive anyone.
During its case-in-chief, the government introduced
several pieces of evidence against Jung, including state-
ments attributed to Fox. Over repeated objections by
Jung’s trial attorney, the district court admitted the
statements as party-admissions under Federal Rule of
Evidence 801(d)(2)(D). First, the district court allowed
Isaf to testify that Fox had told him that “[Jung] had, if
I remember the words exactly, engaged in improper and
4 No. 05-3718
illegal trading1.” Second, the district court admitted a
letter drafted by Isaf to SIF’s investors stating that
“[Jung’s] lawyer informed me that [Jung] had engaged in
‘improper and illegal trading activity’ which he had
concealed from Lamon and Stern, all SIF Members, and
SIF’s accountant.” Third, the district court allowed Lamon
to testify that Fox had told him that “Mr. Jung, unbe-
knownst to us, had another account. And he had taken,
I believe was the word, our money and used it for his own
personal benefit and lost it all trading.” Finally, Lamon
also testified that “Mr. Fox gave us papers that he said
were written by Mr. Jung at the time that was, for lack of
a better word, Mr. Jung’s confession.”
On February 5, 2004, the jury found Jung guilty on all
ten counts in the indictment. Jung was sentenced to 109
months imprisonment and three years of supervised
release and ordered to pay a special assessment of $1,000
and $21 million in restitution. Jung then filed this timely
appeal.
II. Discussion
On appeal, Jung brings two separate challenges. First,
Jung argues that the district court erred in admitting
into evidence the statements attributed to James Fox,
his former attorney, as party admissions under Federal
Rule of Evidence 801(d)(2)(D). Second, Jung argues that
the sentence should be vacated because the district
court did not properly consider and apply the sentencing
factors under 18 U.S.C. § 3553(a).
1
Although Fox testified that he did not tell Lamon or Isaf
that Jung had engaged in unlawful or improper trading, Fox
conceded during cross-examination that he could not remem-
ber the details of his conversations with Lamon or Isaf.
No. 05-3718 5
A. Admission of Attorney James Fox’s Statements
A decision regarding the admission of evidence is
within the broad discretion of the trial judge and will be
overturned only upon a clear abuse of that considerable
discretion. United States v. Brandon, 50 F.3d 464, 468
(7th Cir. 1995). Jung contends that the district court
abused its discretion by admitting statements attributed
to Fox under Rule 801(d)(2)(D), which provides that “[a]
statement is not hearsay if . . . the statement is offered
against a party and is a statement by the party’s agent
or servant concerning a matter within the scope of the
agency or employment, made during the existence of the
relationship[.]” Fed. R. Evid. 801(d)(2)(D).
“An attorney may be the agent of his client for purposes
of Rule 801(d)(2)(D).” United States v. Harris, 914 F.2d
927, 931 (7th Cir. 1990). But “[t]he unique nature of the
attorney-client relationship . . . demands that a trial court
exercise caution in admitting statements that are the
product of this relationship.” Id. This Court has
“caution[ed] the government that it should only offer this
sort of evidence in rare cases and when absolutely neces-
sary, in order to avoid impairing the attorney/client
relationship, chilling full disclosure by a defendant to his
lawyer, and deterring defense counsel from vigorous
and legitimate advocacy.” United States v. Sanders, 979
F.2d 87, 92 (7th Cir. 1992).
Jung argues that the attorney statements admitted in
this case, unlike the statements admitted in Harris and
Sanders, infringed upon the policy concerns inherent in
the attorney-client relationship. In Harris, Harris’ attor-
ney visited with an eyewitness prior to trial and showed
him pictures of Harris’ brother in an attempt to develop
a defense to the charge of armed robbery. Harris, 914
F.2d at 930. Harris’ theory was that his brother had
committed the crime and that he was a victim of mistaken
6 No. 05-3718
identity. Id. However, after reviewing the pictures, the
witness was confident that it was Harris that he saw
fleeing from the scene. Id. At trial, the witness testified
about his conversation with Harris’ attorney, and the
district court admitted a statement attributed to Harris’
attorney acting in his investigative capacity. Id. In admit-
ting the evidence, the court explained that when Harris’
lawyer met with the witness, he was “testing a theory
on behalf of his client” and not “relating confidential
information about his client.” Id. at 931.
In Sanders, the defendant’s former attorney visited two
co-conspirators, who were in pretrial detention, and asked
the co-conspirators whether they had given statements
to the police. Sanders, 979 F.2d at 90. Because the visit
with the co-conspirators occurred several months before
Sanders was indicted, the government elicited the state-
ments made by Sanders’ attorney during his visit with
the co-conspirators to establish that Sanders must have
been involved in the conspiracy. Id. at 91. In deciding to
admit the statements attributed to Sanders’ former
attorney, the court noted the parallel facts in Sanders and
Harris:
In both cases, the lawyer spoke to the witness in
order to develop a defense strategy. Both lawyers took
a calculated risk in approaching an individual who
might well testify against his client. The fact that the
strategy backfired does not mean that advocacy will be
chilled . . . . Moreover, the testimony did not impair
the defendant’s privilege against self-incrimination
in either case; it simply ‘force[d the] defendant to
present a competing explanation to the jury.’
Sanders, 979 F.3d at 91 (quoting Harris, 914 F.2d at 931).
The court also emphasized that Sanders’ explanation “fit
in neatly with the defense theory that the other man who
knew [the incarcerated co-conspirators] also knew [the
No. 05-3718 7
lawyer who visited the co-conspirators in jail] and was the
true co-conspirator.” Id.
We agree with Jung that the district court failed to
apply the “more exacting standard [that] must be de-
manded for admission of statements by attorneys under
Rule 801(d)(2)(D)[.]” Harris, 914 F.2d at 931. Unlike the
attorneys in Harris and Sanders, Fox did not meet with
Lamon and Isaf in an investigative capacity. The state-
ments attributed to Fox were uttered more than five
years before Jung’s criminal trial.2 This is not a case
where an attorney’s pre-trial tactical decisions back-
fired; Fox was not attempting to develop a defense strategy
by meeting with Lamon and Isaf. As the government
acknowledges in its brief, “Fox’s statements served one
purpose—that being to notify victims about the situation
on behalf of the defendant as part of a strategy to be
cooperative.”
The government achieved the equivalent of having
Jung’s former attorney stand with the prosecutors and
vouch for his indictment when the trial court admitted
testimony that Fox had told Lamon and Isaf that (1)
Jung’s actions were improper and illegal, (2) Jung had
concealed his trading activity from SIF’s investors, (3)
Jung had taken the investors’ assets unbeknownst to
them, and (4) Jung had written a confession. Unlike the
admitted statements in Sanders, Fox’s statements did
not fit in neatly with the defense’s theory of the case.
Instead, the statements directly contradicted the argu-
ment that Jung reasonably believed that the investors
knew about the cross-collateralization risks. From a policy
2
The record does not indicate whether Fox’s initial conversa-
tions with Lamon and Isaf were authorized by Jung. However,
Fox became Jung’s attorney a week before these conversa-
tions were initiated by Fox.
8 No. 05-3718
perspective, defendants will be chilled from sharing
information with their attorneys, defense attorneys will
be deterred from vigorous advocacy, and the attorney-
client relationship will be impaired if statements like
Fox’s regarding Jung’s criminal liability are admissible.
Therefore, we agree with Jung that the district court
abused its discretion in admitting the out-of-court state-
ments attributed to Fox.
Under Rule 52(a) of the Federal Rules of Criminal
Procedure, any error “that does not affect substantial
rights must be disregarded” and deemed “harmless.” In
deciding whether the district court’s error was harmless,
this Court’s task is to gauge “what effect the error had or
reasonably may be taken to have had upon the jury’s
decision.” United States v. Shepherd, 576 F.2d 719, 723
(7th Cir. 1978) (quoting Kotteakos v. United States, 328
U.S. 750, 764 (1946)). Only if we are convinced that the
error did not influence the jury or only had very slight
effect should we hold the error harmless. Id. at 723-24.
Jung argues that after hearing the statements attrib-
uted to Fox, the jurors had a compelling reason to make
all credibility judgments in favor of the government’s
witnesses and to draw every inference against him. Jung
claims that Fox’s statements erased any chance for the
jury to view Jung as a trader incurring losses struggling
to get back into the black. Jung contends that Fox’s
statements had a significant effect on the jury and tainted
the verdict. We disagree.
Jung’s admissions in both an affidavit and a bankruptcy
stipulation severely damaged his defense. First, the
affidavit, executed by Jung, included the following ad-
mission:
From in or about July 1994 through September 1998,
contrary to the best interest of SIF and its members,
and my duties as Manager, I wrongfully permitted LIT
No. 05-3718 9
to deposit the Pledged Securities and other Collateral
in an ETJ sub-account. This action exposed, through
cross-collateralization, the SIF members’ securities
and cash on deposit, to liquidation by LIT to satisfy
my personal trading loses and expenses posted to
other ETJ sub-accounts at LIT. I did not notify SIF
members or the Member Liaison L & S, of this action.
Additionally, Jung agreed not to have the approximately
$21 million debt (the amount lost by SIF’s investors)
discharged in bankruptcy.3 These statements defeat
Jung’s arguments that he did not intend to deceive the
SIF’s investors and that he reasonably believed the
investors were on notice of cross-collateralization.
The evidence presented against Jung was overwhelm-
ing. In addition to Jung’s admissions, the government
introduced the testimony of a senior accountant from the
United States Securities and Exchange Commission, who
testified that Jung’s combined trading from 1994 to 1998
was never profitable; documents and testimony showing
that Jung used the SIF’s investors’ collateral and contin-
ued to pursue additional collateral to keep his brokerage
firm in operation; the testimony of two former SIF employ-
ees, who testified that Jung reallocated trades after the
fact to consolidate SIF and FFA profits; the testimony of
SIF’s and FFA’s investors, who testified that they had
received quarterly reports and trade compilations from
Jung showing that their investments were profitable; trade
performance compilations, which inaccurately reflected
that the SIF fund had made profits of 16.4% in 1994, 4.7%
in 1995, 4.6% in 1996, and 4.8% in 1997; and the testimony
of SIF’s and FFA’s investors, who testified that Jung had
3
The bankruptcy code includes a provision that makes money
or property obtained by fraud non-dischargeable.
10 No. 05-3718
never told them about his trading losses or that their
collateral was in jeopardy.
Because of Jung’s admissions and the overwhelming
body of evidence presented by the government establishing
that Jung did not disclose to SIF’s investors that he was
losing millions of dollars or that the investors’ collateral
was being used to cross-collateralize his personal trading,
we are convinced that the jury’s decision was not substan-
tially swayed by the admission of Fox’s statements.
Therefore, we conclude that the district court’s error
was harmless.
B. Application of 18 U.S.C. § 3553(a)
We use a non-deferential standard of review when
determining whether the district court followed proper
post-Booker sentencing procedures. United States v.
Rodriguez-Alvarez, 425 F.3d 1041, 1046 (7th Cir. 2005).
However, our review of a district court’s application of
§ 3553(a) sentencing factors is deferential. United States
v. Mykytiuk, 415 F.3d 606, 608 (7th Cir. 2005).
In imposing a sentence post-Booker, district courts are
required to calculate the proper guideline range even
though the guidelines are no longer mandatory. Mykytiuk,
415 F.3d at 607. The court must then give the defendant
an opportunity to point out any § 3553(a) factors that
might warrant a sentence outside of the guidelines range
and must consider those factors when determining the
sentence. United States v. Dean, 414 F.3d 725, 729-30 (7th
Cir. 2005). Finally, the district court must articulate the
factors that determined its chosen sentence but need not
expressly address each of the § 3553(a) sentencing factors.
United States v. Williams, 425 F.3d 478, 480 (7th Cir.
2005). “It is enough that the record confirms that the
judge has given meaningful consideration to the section
3553(a) factors.” Id.
No. 05-3718 11
In determining Jung’s sentence, the district court
complied with post-Booker sentencing procedures. Jung
first argues that the court improperly emphasized the
more severe penalties contained in the 2004 Guidelines
causing an unwarranted sentencing disparity under
§ 3553(a)(6). Although the court reviewed the current
Guidelines to “give some insight” into gauging the serious-
ness of Jung’s offense, the Court acknowledged that “it
would be very unfair to apply” the 2004 Guidelines. The
district court correctly determined that the sentencing
range was 97 to 121 months under the 1997 Guidelines
and recognized the range as advisory.
The district court then gave both Jung and his attorney
the opportunity to discuss the § 3553(a) sentencing factors
and present reasons for imposing a sentence outside of
the advisory range. Jung’s attorney discussed Jung’s
record of charitable works, letters that were written on
Jung’s behalf, and Jung’s exemplary life. Jung’s attorney
also emphasized Jung’s cooperation with government
agencies, the CBOE, and SIF’s investors in their lawsuit
against LIT.
The district court considered the § 3553(a) factors and
identified the factors that he was taking into consideration
in determining Jung’s sentence. The district court dis-
cussed the nature of the offenses and the need to impose
a sentence that reflects the seriousness of the offenses,
promotes respect for the law, and provides just punish-
ment. The district court also addressed the need to
afford adequate deterrence to criminal conduct such as
financial crimes. Although Jung acknowledges that the
district court judge stated that he was “going to apply
all of the criteria that are set out in 3553(a),” Jung ques-
tions whether he actually did. Specifically, Jung con-
tends that the court failed to consider Jung’s history and
characteristics. This is not true. The district judge specifi-
cally stated that he was taking into account the fact that
12 No. 05-3718
Jung had no criminal record in determining the sentence
and explained that he was sentencing Jung to the mid-
point of the sentencing range because of “counterbalanc-
ing factors.” The court explained that these factors in-
cluded the seriousness of the offenses versus Jung’s
recognition of causing the loss and efforts to be helpful
with Fox.
Jung’s final argument is that the court failed to con-
sider Congress’ preeminent command that a sentencing
court “shall impose a sentence sufficient, but not greater
than necessary” to comply with 18 U.S.C. § 3553(a)(2).
This Court’s role is not to chose between possible sentences
but rather to review the reasonableness of the sentence
imposed by the district court. United States v. Lopez, 430
F.3d 854, 857 (7th Cir. 2005). Because the district court
considered and adequately discussed the factors in
§ 3553(a), chose a sentence within the advisory range of
the 1997 Guidelines, and adequately explained the rea-
soning for sentencing Jung to the midpoint of the sen-
tencing range, Jung’s sentence was reasonable.
III. Conclusion
For the reasons stated above, we AFFIRM the sentence of
the district court.
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—1-18-07