United States v. Michael Sheneman , 682 F.3d 623 ( 2012 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 11-3161
U NITED S TATES OF A MERICA,
Plaintiff-Appellee,
v.
M ICHAEL S HENEMAN,
Defendant-Appellant.
Appeal from the United States District Court
for the Northern District of Indiana, South Bend Division.
No. 3:10-CR-126—Jon E. DeGuilio, Judge.
A RGUED A PRIL 13, 2012—D ECIDED JUNE 1, 2012
Before B AUER, K ANNE, and T INDER, Circuit Judges.
K ANNE , Circuit Judge. Michael Sheneman and his son
Jeremie engaged in an elaborate mortgage fraud scheme
that convinced unwitting buyers to purchase a large
number of properties they could neither afford nor rent
out after purchasing (as they had planned). As part of
the scheme, mortgage lenders were duped into financing
these ill-advised purchases through various misrepre-
sentations about the buyers and their financial stability.
2 No. 11-3161
All told, four buyers with few assets and no experience
in the real estate market purchased sixty homes. Most
of the homes were eventually foreclosed upon, and the
buyers and lenders each suffered significant losses.
Sheneman was subsequently convicted of four counts
of wire fraud and sentenced to ninety-seven months’
imprisonment. On appeal, he challenges the sufficiency
of the evidence supporting his conviction, as well as the
district court’s application of two sentencing enhance-
ments. We find none of these contentions meritorious,
and accordingly affirm his conviction and sentence.
I. B ACKGROUND
From 2003 to 2005, Sheneman and Jeremie worked
in tandem to defraud both real estate buyers and
mortgage lenders through a series of calculated misrep-
resentations. Generally speaking, their plan involved ac-
quiring control over a large number of rental properties,
inducing buyers to purchase the properties through a
host of false promises, and ensuring that lenders would
finance the purchases by falsifying loan documents and
misrepresenting the buyers’ financial standing.
Sheneman and Jeremie began by acquiring control
over a large number of rental properties being sold by
landlords in the South Bend and Mishawaka areas of
Indiana. Many of these sellers had difficulty renting out
their properties—some were in very poor condition—and
were, by and large, simply looking to cut their losses
and walk away from the homes with their mortgages
and taxes paid. They agreed to sell their properties to
No. 11-3161 3
either Sheneman or Jeremie, both of whom had a reputa-
tion for “flipping” homes and selling them at a profit.
Although most sellers believed they had sold their prop-
erties directly to either Sheneman or Jeremie, the sellers
had in fact merely granted one of the two power of attor-
ney over their properties.1 By exercising powers of attor-
ney, Sheneman and Jeremie took control over the proper-
ties without ever appearing on any chain of title. The
sellers, for their part, did not notice much of a practical
difference. Each seller received the amount of money
agreed upon as the selling price—albeit not from a
title company, as would normally be the case, but
directly from either Sheneman or Jeremie. After they
“flipped” the houses and sold them to new buyers for
more than the seller’s asking price, Sheneman and Jeremie
then endorsed and deposited the checks issued by the
title company directly into their own accounts, yielding
them hefty profits.
Once granted control, Sheneman and Jeremie then
set about searching for buyers to purchase the dilapidated
properties. Eventually, they found their marks, selling
sixty properties to four buyers with no relevant real estate
experience: Gladys Zoleko, a Cameroonian citizen in
the United States on a student visa, bought fifteen
homes; Paul Davies, a Liberian citizen also on a student
visa, bought fourteen homes; David Dootlittle, an electri-
cian, bought twenty-one homes; and Gary Denaway, a
1
Of the sixty homes, Sheneman purchased or was granted
power of attorney over thirty-four homes.
4 No. 11-3161
maintenance worker, bought ten homes. For each buyer,
a very similar pattern of conduct transpired.
Sheneman and Jeremie made a wide range of promises
to the buyers—false promises, as it turns out—in order to
induce the sales. The buyers were all looking for an
additional source of income, and Sheneman promised
them just that. Significant profits could be made by pur-
chasing homes and then renting them out—the more
homes purchased, the bigger the profit. The homes were
all in excellent condition, buyers were assured, and
either Sheneman or Jeremie would make any necessary
repairs. There was also little risk because most of the
homes already had paying tenants living in them, and
Sheneman and Jeremie would help find new tenants
for vacant homes. And if the buyers ever wanted to get
out of the real estate business, Sheneman and Jeremie
promised to buy back properties that they no longer
wanted. Perhaps most enticing of all, Sheneman and
Jeremie also promised to cover all down payments and
closing costs. The buyers, despite their relatively
modest incomes, could therefore purchase a large
number of homes and begin earning an immediate
profit—without having to spend a dime out-of-pocket.
They jumped at the chance.
The buyers, for their part, ignored some clear red
flags. Most obviously, they were only permitted to see
one or two of the properties they were purchasing prior
to closing. The other homes, buyers were told, had
tenants already living in them and a visit to those
homes might disturb the tenants. But the buyers were
No. 11-3161 5
assured that the other homes were all in similar condi-
tion and located in comparable neighborhoods.
Buyers filled out only minimal paperwork through-
out the process. Sheneman brought each potential buyer
to Superior Mortgage, a mortgage broker where Jeremie
worked as a loan officer.2 There, each buyer completed
a few documents with some very basic information.
Shortly thereafter, Jeremie informed the buyer that he
or she was approved to buy a large number of proper-
ties. In order to ensure that mortgage lenders approved
the loan applications, however, Jeremie falsified key
parts of the documents. Among other misrepresenta-
tions, numerous loan applications falsely stated the
buyers’ citizenship, employment status, and finances, and
the buyers’ signature on many documents was often
forged.
Beyond falsifying documents, Sheneman and Jeremie
took other steps to secure financing from lenders and
ensure the closings took place. First, they artificially
inflated buyers’ bank accounts, depositing tens of thou-
sands of dollars in order to make it appear as though
the buyers had sufficient assets to take on the loans.
After the transactions were completed, the money was
returned to Sheneman and Jeremie. Second, they masked
2
Although only Jeremie was an employee of Superior Mort-
gage, Sheneman attended many of the buyers’ meetings with
Jeremie, and visited the offices often enough that some em-
ployees mistakenly believed Sheneman was a part owner of
the business.
6 No. 11-3161
the buyers’ financial infirmities from lenders by
utilizing certified checks to cover down payments and
closing costs. Lenders therefore had no way of knowing
that the buyers were not the true source behind these
payments, as the loan documents contemplated.
After closing, each of the buyers quickly discovered that
the deals they were promised were too good to be true.
A number of the newly purchased homes were hardly
habitable. Some had faulty plumbing, others had sig-
nificant mold and termite damage, and yet others had
structural damage and leaky roofs. Moreover, paying
tenants were difficult to come by. Many of the homes
did not have tenants living in them—despite previous
assurances to the contrary—while others had tenants
who never paid rent. Often, the few homes that the
buyers had actually viewed prior to closing were not
even included among the properties they had pur-
chased. Many of the properties were also located in
worse neighborhoods than the ones they had visited.
When the buyers contacted Sheneman and Jeremie to
repair the homes or assist them in finding tenants, as
they had promised to do, they were suddenly difficult
to reach. The buyers’ calls would often be ignored, or
Sheneman and Jeremie would hang up when the buyers
began complaining. In the end, Sheneman and Jeremie
made very few repairs to the properties and reneged on
their promise to buy any of them back. Unsurprisingly,
each of the buyers was soon unable to make timely mort-
gage payments. Of the sixty properties: thirty-six were
foreclosed upon, eleven were deeded back to the lender
No. 11-3161 7
in lieu of foreclosure, six were demolished by the city,
and four were sold in tax sales.3
Sheneman and Jeremie were indicted on October 13,
2010, and charged with four counts 4 of wire fraud in
violation of 18 U.S.C. § 1343. After a four-day jury trial,
they were convicted on all four counts. At sentencing,
the district court calculated Sheneman’s advisory sen-
tencing guidelines range to be 87 to 108 months’ impris-
onment. In doing so, the court applied several sen-
tencing enhancements, including enhancements for a loss
amount of more than $1 million, using sophisticated
means, having ten or more victims, and gaining more
than $1 million in gross receipts from a financial institu-
tion. The district court then sentenced Sheneman to
97 months’ imprisonment.
II. A NALYSIS
On appeal, Sheneman challenges the sufficiency of
the evidence underlying his conviction for wire fraud.
He also challenges two of the district court’s findings at
3
A forensic auditor for the Department of Housing and Urban
Development, Richard Urbanowski, was unable to determine
the status of the final three properties.
4
Each count charged in the indictment identified one
property sold in connection with the wire fraud. Thus, a total
of four properties were identified in the indictment. At trial,
the government presented evidence that sixty properties
were sold as part of the overall mortgage fraud scheme.
8 No. 11-3161
sentencing that resulted in sentencing enhancements,
arguing: (1) that the loss amount was not in excess of
$1 million, and (2) that the offense did not involve the
use of sophisticated means. We take each of these argu-
ments in turn.
A. Sufficiency of the Evidence
Sheneman first challenges his conviction, arguing
there was insufficient evidence to establish wire fraud.
Typically, we will reverse a conviction only where
the evidence, viewed in the light most favorable to the
government, is “devoid of evidence from which a rea-
sonable jury could find guilt beyond a reasonable
doubt.” United States v. Durham, 645 F.3d 883, 892 (7th
Cir. 2011), cert. denied, 132 S. Ct. 1537 (2012). Although
we have characterized this standard as “highly deferen-
tial” and “nearly insurmountable,” the even more
stringent plain error standard applies here because
Sheneman did not move for a judgment of acquittal in
the district court. See United States v. Irby, 558 F.3d 651,
653 (7th Cir. 2009). Under the plain error standard,
Sheneman must show that “a manifest miscarriage of
justice will occur if his conviction is not reversed.” United
States v. Powell, 576 F.3d 482, 491-92 (7th Cir. 2009)
(internal quotation marks omitted).
To establish wire fraud under 18 U.S.C. § 1343, the
government must prove (1) Sheneman’s participation in
a scheme to defraud, (2) his intent to defraud, and (3) his
use of interstate wires in furtherance of the fraud.
United States v. Green, 648 F.3d 569, 577-78 (7th Cir. 2011).
No. 11-3161 9
Sheneman challenges the sufficiency of the evidence
with respect to all three of these elements.
Sheneman begins by contending that the evidence is
insufficient to establish there was any scheme to de-
fraud. “A scheme to defraud requires ‘the making of a
false statement or material misrepresentation, or the
concealment of [a] material fact.’ ” Powell, 576 F.3d at 490
(quoting United States v. Sloan, 492 F.3d 884, 890 (7th
Cir. 2007)). Sheneman’s argument is a non-starter;
there was an abundance of evidence presented at trial de-
tailing the numerous false statements and material mis-
representations made by both he and Jeremie through-
out the course of their fraudulent enterprise. The jury
heard evidence that Jeremie falsified key portions of
loan documents, that Sheneman made a series of misrep-
resentations to buyers about the homes, and that both
Jeremie and Sheneman concealed the true nature of the
buyers’ finances by inflating bank accounts and using
certified checks at closings. Plainly, there was suf-
ficient evidence of a scheme to defraud.
But even if there was a scheme to defraud, Sheneman
maintains, he was an unwitting participant. “[I]ntent
to defraud requires a wilful act by the defendant with
the specific intent to deceive or cheat, usually for the
purpose of getting financial gain for one’s self or causing
financial loss to another.” United States v. Howard, 619
F.3d 723, 727 (7th Cir. 2010) (quoting United States v.
Britton, 289 F.3d 976, 981 (7th Cir. 2002)). Sheneman
lacked the specific intent to deceive because he was a
hapless pawn in his son’s fraudulent scheme, or so the
10 No. 11-3161
argument goes. It was Jeremie, after all, who forged
documents and completed loan applications riddled
with material misstatements. Sheneman was merely
selling homes to interested buyers; how was he to
know the extent of Jeremie’s wrongdoing?
We are not convinced; there was ample circumstantial
evidence of Sheneman’s intent to defraud. A specific
intent to defraud may be established both from circum-
stantial evidence and inferences drawn by examining
the scheme itself. Id. As we have already stated,
Sheneman took an active part in misleading the banks
and causing them to believe that the buyers were finan-
cially capable of taking on the loans. More fundamentally,
Sheneman played a crucial role in nearly every aspect
of the fraudulent scheme from beginning to end. He
induced buyers to purchase the homes through various
misrepresentations, then immediately referred them to
Jeremie so that loan documents could be falsified. He
also attended closings and was present at many of
Jeremie’s meetings with buyers, and therefore was in-
volved in every step of the process. This is all to say
that the evidence is more than adequate to support the
jury’s determination that Sheneman was no unwitting
pawn in Jeremie’s fraudulent scheme, but rather an
active participant with the requisite level of intent.
The last element of wire fraud requires that interstate
wire communications were used in furtherance of the
fraud. Wire fraud statutes, like mail fraud statutes, are
not intended to reach all frauds but only those “limited
instances in which the use of the [wires] is a part of the
No. 11-3161 11
execution of the fraud.” Schmuck v. United States, 489 U.S.
705, 710 (1989); see also Carpenter v. United States, 484 U.S.
19, 25 n.6 (1987) (same analysis applies to both mail and
wire fraud statutes). The use of the wires need not be
an essential element of the scheme; it is enough if the
use is “incident to an essential part of the scheme” or “a
step in the plot.” Schmuck, 489 U.S. at 710-11 (brackets
omitted) (quoting Badders v. United States, 240 U.S. 391,
394 (1916)). Moreover, it is not necessary for the use of
the wires to contain any false or fraudulent material,
and even a routine or innocent use of the wires may
satisfy this element so long as that use is part of the
execution of the scheme. United States v. Turner, 551 F.3d
657, 666 (7th Cir. 2008).
The wire uses at issue are four bank-to-bank wire
transfers, one for each count charged in the indictment.
In each case, the lending bank wired funds interstate
to the title company on or about the closing date.
Sheneman primarily advances two arguments as to
why evidence of these wire transfers is insufficient to
sustain his conviction. First, he contends that he did
not “cause” the transfers, and was unaware that they
occurred. Second, Sheneman argues that the wire
transfers did not play any role in the execution of the
scheme. Instead, Sheneman posits, he would have
received the sales proceeds from the title company re-
gardless of whether or not the lending bank ever
wired funds to the title company, and thus the scheme’s
success in no way depended on the wire transfers
taking place. We disagree.
12 No. 11-3161
Although Sheneman did not “cause” the transfers
to occur, there is no requirement that a defendant per-
sonally cause the use of the wire. Rather, it will
suffice if the use of the wire “will follow in the ordinary
course of business, or where such use can be reasonably
foreseen, even though not actually intended.” Turner, 551
F.3d at 666 (quoting Pereira v. United States, 347 U.S. 1, 8-9
(1954)). Here, it was well within reason for the jury to
conclude that Sheneman, given his involvement in the
real estate market, could reasonably foresee that lending
banks would use wire transfers to transmit loan
proceeds in the course of real estate transactions. See
United States v. Mullins, 613 F.3d 1273, 1281 (10th Cir.), cert.
denied, 131 S. Ct. 582 (2010) (“[W]ire transmissions are
integral to other parts of real estate transactions, such as
transferring funds, with which real estate agents are
profoundly familiar.”). Sheneman’s second argument,
that the wire transfers played no role in the scheme,
fares no better. In each case, Sheneman received disburse-
ments from the title company only after the mortgage
lender approved the loan and wire transferred the
funds interstate to the title company. As such, there was
evidence that Sheneman would not have received any
disbursements from the title company absent the wire
transfers, and the fraudulent scheme thus would have
been foiled. There was simply no manifest miscarriage
of justice in the jury’s verdict.
B. Sentencing
Next, Sheneman challenges two of the district court’s
determinations at sentencing. First, he argues that the
No. 11-3161 13
district court erred in finding that the loss amount was
in excess of $1 million, which resulted in a sixteen-level
enhancement to Sheneman’s offense level. See U.S.S.G.
§ 2B1.1(b)(1)(I) (2010). Second, Sheneman contends that
the district court erred in finding that sophisticated
means were used in the mortgage fraud scheme,
which resulted in a two-level enhancement. See id.
§ 2B1.1(b)(9)(C).
We review the district court’s application of the sen-
tencing guidelines de novo and its findings of fact for
clear error. United States v. Samuels, 521 F.3d 804, 815
(7th Cir. 2008). Under the clear error standard, we will
affirm a district court unless “we are left with the definite
and firm conviction that a mistake has been committed.”
United States v. Reese, 666 F.3d 1007, 1021 (7th Cir. 2012).
1. Loss Amount
The district court found that mortgage lenders suf-
fered losses totaling $1,084,671.54 for the sixty proper-
ties sold as part of the mortgage fraud scheme.5 Sheneman
does not challenge the district court’s method of calcu-
lating these losses. Instead, he argues that the court erred
in considering the lenders’ losses at all. Echoing his
earlier argument, Sheneman points out that he did not
falsify loan documents—again, that was Jeremie. Because
5
The district court found that the four buyers also suffered
monetary losses, but noted that these losses could not be
quantified.
14 No. 11-3161
Jeremie was responsible, Sheneman contends that the
scope of the fraud he agreed to did not extend to the loan
application process, and that Jeremie’s acts were not
reasonably foreseeable. Thus, Sheneman maintains that
Jeremie’s misconduct alone caused the lenders’ losses,
and should not have been considered. But, for similar
reasons that we have already discussed in addressing
Sheneman’s earlier challenges, we disagree.
Section 1B1.3(a)(1)(B) of the sentencing guidelines
allows a defendant to be held accountable for the
conduct of others, but only if that conduct was “in fur-
therance of a jointly undertaken criminal activity and
reasonably foreseeable in connection with that criminal
activity.” United States v. Salem, 657 F.3d 560, 564 (7th
Cir. 2011) (citation omitted). The scope of jointly under-
taken criminal activity, however, is not necessarily the
same as the scope of the entire scheme. U.S.S.G. § 1B1.3
cmt. n.2. In determining the scope of the criminal activity
that a particular defendant agreed to jointly undertake,
“the district court ‘may consider any explicit agreement or
implicit agreement fairly inferred from the conduct of the
defendant and others.’ ” Salem, 657 F.3d at 564 (quoting
§ 1B1.3 cmt. n.2). Several factors are relevant in this
determination, including: (1) the existence of a single
scheme; (2) similarities in modus operandi; (3) coordina-
tion of activities among schemers; (4) pooling of resources
or profits; (5) knowledge of the scope of the scheme; and
(6) length and degree of the defendant’s participation of
the scheme. Id.
The district court properly found the scope of the
criminal activity that Sheneman and Jeremie agreed to
No. 11-3161 15
jointly undertake involved the fraudulent sale of
real estate, and this included fraudulently securing
the buyers’ financing. The scheme as a whole hinged on
unqualified buyers securing financing, and necessitated
a high level of coordination between Sheneman and his
son. In each case, Sheneman quickly referred potential
buyers to Jeremie for financing, and profits were pooled
throughout the duration of the scheme, which lasted
over two years. Moreover, Sheneman could have rea-
sonably foreseen that fraudulent funding was being
secured for the unqualified buyers. Not only was he
aware that the buyers were on shaky financial grounds,
he helped conceal this fact from lenders. And yet, each
time he brought a buyer to Jeremie, the buyer was able
to secure enough financing to buy as many as twenty-
one homes. The district court did not err in considering
the lenders’ losses at sentencing.
2. Sophisticated Means
Finally, Sheneman argues that the district court
erred in applying a two-level enhancement because
the mortgage fraud scheme did not involve the use of
sophisticated means. Sophisticated means are defined
as “especially complex or especially intricate offense
conduct pertaining to the execution or concealment of
an offense.” U.S.S.G. § 2B1.1 cmt. n.8(B). The sophisticated
means enhancement is proper when “the conduct shows
a greater level of planning or concealment than a
typical fraud of its kind.” Green, 648 F.3d at 576 (citation
omitted). In other words, “the offense conduct, viewed as
16 No. 11-3161
a whole, was notably more intricate than that of the
garden-variety offense.” United States v. Knox, 624 F.3d
865, 871 (7th Cir. 2010) (brackets omitted) (quoting United
States v. Jenkins, 578 F.3d 745, 751 (8th Cir. 2009)).
Sheneman primarily argues that the scheme at issue
was nothing more than a “garden variety home ‘flipping’
scam” (Appellant’s Br. at 25), and therefore was no
more complex than a typical fraud of its kind. But we
think it clear that the district court’s application of the
sophisticated means enhancement was proper. Sheneman
and Jeremie carefully orchestrated an intricate scheme
that fooled buyers, sellers, and mortgage lenders,
resulting in four unsophisticated buyers of limited
means purchasing sixty properties. In doing so, they
relied on their extensive knowledge of the real estate
market and lending industry to perpetrate the scheme
and avoid detection for several years. This was no
simple scam: Sheneman and Jeremie utilized powers
of attorney to conceal their activity; convinced buyers
that the run-down properties would make sound invest-
ments; and fooled mortgage lenders into financing
the purchases by falsifying loan documents, misrepre-
senting the source of down payments and closing costs,
and artificially inflating buyers’ bank accounts.
Moreover, we have previously upheld the application
of a sophisticated means enhancement in cases in-
volving similar mortgage fraud schemes. E.g., Knox, 624
F.3d at 871-72 (defendant used fraudulent appraisals
and false promises over seven-year period to convince
buyers into purchasing 150 overpriced properties, and
No. 11-3161 17
falsified loan applications to fool mortgage lenders into
financing); Green, 648 F.3d at 572, 576-77 (defendants
acquired seventy properties over three-year period
using fraudulent loan applications and fake documents
to obtain mortgages); see also United States v. Snow, 663
F.3d 1156, 1163-64 (10th Cir. 2011), cert. denied, 132 S. Ct.
1615 (2012) (defendant procured forty-four overpriced
properties for unqualified buyers over four-year
period using fraudulent documentation and disguising
buyers’ financial standing). We find no error in the
district court’s sentencing.
III. C ONCLUSION
For the foregoing reasons, we A FFIRM Sheneman’s
conviction and sentence.
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