United States v. John Hetherington ( 2001 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 00-2597
___________
United States of America, *
*
Plaintiff - Appellee, *
* Appeal from the United States
v. * District Court for the
* District of Minnesota.
John C. Hetherington, *
*
Defendant - Appellant. *
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Submitted: December 12, 2000
Filed: July 11, 2001
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Before McMILLIAN and JOHN R. GIBSON, Circuit Judges, and LAUGHREY,1
District Judge.
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JOHN R. GIBSON, Circuit Judge.
John C. Hetherington appeals his conviction on two counts of wire fraud, one
count of securities fraud, and one count of engaging in a monetary transaction in
criminally derived property, arguing that the evidence does not support the jury's
1
The Honorable Nanette K. Laughrey, United States District Judge for the
Western District of Missouri, sitting by designation.
verdict. He also argues that the district court2 erred by admitting evidence of a state
court civil judgment entered against him. Finally, he argues that the district court erred
in sentencing because there was no evidence to support adjustments for his role in the
offense and for his knowledge that money he received was proceeds of a specified
unlawful activity and because the court failed to group the monetary transaction count
with the fraud counts. We affirm the conviction and sentence.
In the fall of 1990, Hetherington met with Daniel Bubalo, Michael Wilcox, and
several other members of the board of directors of O-Jay, Inc., a Minnesota
corporation. At the time, Bubalo was president of the company and Wilcox was the
director of marketing at the O-Jay orange juice manufacturing plant located in
Lindstrom, Minnesota. Hetherington indicated that he was interested in becoming a
board member. Six months after the meeting, Hetherington sent a letter to Bubalo,
which identified Hetherington as the chairman of the board of directors of First Omni
Financial Corporation. He proposed that O-Jay acquire a number of companies, among
them Commercial Tire Warehouse, Incorporated. The board approved the acquisition
of Commercial Tire. Hetherington raised $500,000 to $700,000 in California to make
an initial investment in O-Jay, securing a place on the board. He became chairman of
O-Jay's board in February 1992.
In May 1992, Wilcox took over operations at the Lindstrom plant. O-Jay was
on shaky financial ground, and the plant eventually closed. The company had no assets
and was producing no revenue. At some point, O-Jay filed for bankruptcy protection.
During this same time period, Hetherington proposed that O-Jay ship orange
juice and other goods to Russia. In June 1992, Hetherington issued a press release that
stated that O-Jay and Morgan Enterprises had entered into an agreement to ship orange
2
The Honorable Ann D. Montgomery, United States District Judge for the
District of Minnesota.
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juice by air to the Commonwealth of Independent States. The press release indicated
that O-Jay was a diversified holding company with interests in juice production and
wholesale tire distribution, a reference to Commercial Tire. Four months later, First
Omni Financial issued a press release, which listed Hetherington as the media contact,
that contained similar information about First Omni Financial's and O-Jay's dealings in
the Ukraine. Several newspapers carried stories about the deal, and Hetherington faxed
one such article to O-Jay entitled, "Local businessman seals trade deal with Ukrainian
companies." The article stated that Hetherington would import $10 to $15 million of
goods from the Ukraine per month and, in return, he would export fruit juices and used
motor vehicles.
An O-Jay shareholders' meeting was called for the end of March 1993. One
purpose of the meeting was to change the company's name to Omni International
Trading, Inc. The night before the meeting, the board members met and Hetherington
proposed a tender offer be made for the outstanding shares in the company and
represented that he had the ability to fund the offer. The other board members were
unanimously opposed to the proposal.
One of the shareholders, Daniel Koehler, recorded the shareholders' meeting on
audiotape. At the meeting, Hetherington announced that the company had an
agreement in place to ship goods to the Ukraine. He stated that O-Jay was going to do
the shipping itself: "[W]e're gonna ship 'em over there on our airplanes, on our
schedule, to our people, and it's all paid for." Someone at the meeting asked
Hetherington if he was saying that the company owned its own airplanes, and he
responded, "No, I said Omni Leasing owns their airplanes . . . . DC 8s and 747s."
Hetherington said that Omni Computers, a subsidiary of First Omni Financial, had
computers available to ship to Europe, that the first order was for 10,000 computers,
and that O-Jay would profit. He said that his contracts called for $100 million of
business per month. Someone at the meeting asked him when that would start, and he
replied, "It's already started . . . . The money transactions are being done as we speak."
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None of Hetherington's statements was true. At the meeting, Hetherington also
announced that there was going to be a tender offer.
In May 1993, Omni's board members approved the tender offer they had
previously opposed. Hetherington sent a tender offer statement to Omni that was sent
to the shareholders. It offered $3.50 per share for up to twelve million shares if the
shares were tendered to National City Bank, the escrow agent, by June 30, 1993. By
the fall of 1993, National City Bank had not received any funding for the offer and
withdrew as escrow agent, returning the shares to the shareholders. Wilcox informed
the shareholders, at Hetherington's direction, that Omni would act as its own escrow
agent and that shares should be sent to Omni. Omni missed all the deadlines it set for
completion of the tender offer.
In the spring of 1994, with the tender offer still incomplete, Hetherington asked
Wilcox, who had become president of the company, to "sit on" Omni's financial
statements to prevent the shareholders from knowing the true state of affairs. At the
time, Omni's financial situation was very poor.
By the middle of 1994, Omni had set up an answering machine to field
shareholders' calls regarding the progress of the tender offer. The message was
continually updated, promising investors that they would receive money shortly. The
tender offer was never completed.
Additional investors purchased Omni stock in 1994, relying on outdated and
false financial information; they were also told that the tender offer would go through
very soon. Hetherington, who received over $360,000 over the course of his
involvement in O-Jay/Omni, received several wire transfers from the company in the
fall of 1994: $15,000 on October 12, $10,000 on October 14, and $2,000 on
November 10. The source for this money was investor funds. In May 1995, Omni's
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board discovered that the company had never actually acquired Commercial Tire.
Under pressure, Hetherington resigned as chairman of the board.
The Securities and Exchange Commission began investigating Omni in 1995.
Wilcox pled guilty to securities fraud, mail fraud, and conspiracy to commit securities
and mail fraud. Bubalo pled guilty to securities fraud, mail fraud, engaging in a
monetary transaction in criminally derived property, and conspiracy to commit
securities and mail fraud. More than 400 investors lost all the money they invested in
O-Jay/Omni, a total of about $4.8 million.
Counts I and II of the indictment charged Hetherington with wire fraud in
violation of 18 U.S.C. § 1343 (1994). Count III charged him with securities fraud in
violation of 15 U.S.C. §§ 78j(b), 78ff(a) (1994) and 17 C.F.R. § 240.10b-5 (2000).
Finally, Count IV charged Hetherington with engaging in a monetary transaction in
criminally derived property in violation of 18 U.S.C. § 1957 (1994). A jury found
Hetherington guilty on all counts.
For purposes of sentencing Hetherington, the district court grouped Counts I, II,
and III and considered them separately from Count IV. On the fraud counts, the court
determined that the base offense level was 6 and added 13 levels for the amount of loss,
2 levels for more than minimal planning, 2 levels for role in the offense, and 2 levels
for obstruction of justice, resulting in a total offense level of 25. On the monetary
transaction count, the district court determined the base offense level was 17 and added
2 levels for the value of the funds, 2 levels for knowledge that the proceeds were from
a specified unlawful activity, and 2 levels for role in the offense, resulting in a total
offense level of 23. The court decided not to group Count IV with the other counts
because it found that the monetary transaction count did not involve substantially the
same harm as the fraud counts. The court then applied U.S.S.G. § 3D1.4 (1998) and
added 2 levels to the higher offense level for a combined offense level of 27. Based on
Hetherington's criminal history category of I, his sentencing range was 70 to 87 months.
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See U.S.S.G. Ch. 5, Pt. A (1998). Hetherington received an 80-month sentence, which
included concurrent and consecutive sentences of various lengths.
I.
Hetherington challenges the sufficiency of the evidence to support his conviction
on all counts. In reviewing the jury's verdict, we consider the evidence in the light most
favorable to the government, give the government the benefit of all reasonable
inferences, and reverse only if no reasonable jury could have found Hetherington guilty
beyond a reasonable doubt. United States v. Sykes, 977 F.2d 1242, 1246-47 (8th Cir.
1992).
A.
In challenging his conviction under 18 U.S.C. § 1957 for engaging in a monetary
transaction in criminally derived property, Hetherington argues that there was no
evidence he knew the $15,000 he received in October 1994 was criminally derived.
He also argues that the government failed to trace the funds in the account from which
Hetherington received the wire transfer, and thus there was no proof that the $15,000
was in fact derived from a specified unlawful activity.
Omni's only legitimate source of revenue, the orange juice production plant,
closed in 1992. At the time Hetherington received the $15,000, Omni's only source of
funds was shareholder money. Hetherington contends that Bubalo sometimes loaned
money to the company, implying that the money he received may not have come from
investors. FBI agent Christopher Lester testified, however, that the source of the funds
for the wire transfer was investor money. Additionally, "[t]he government need not
trace funds to prove a violation of § 1957." United States v. Pennington, 168 F.3d
1060, 1066 (8th Cir. 1999). Hetherington's involvement in the tender offer and the
statements he made at the shareholders' meeting indicate that he was fully aware that
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Omni's entire operation was based on deceit and, consequently, that he was aware that
any funds he received were proceeds of this deceit. Hetherington directs us to his
testimony before the SEC, which was admitted at trial, where he stated that he did not
know the source of the money he received, but that it could have been investor money,
Bubalo's money, or Bubalo's brother's money. This testimony is equivocal, at best, and
the jury could have chosen not to believe it. A reasonable jury could find beyond a
reasonable doubt that Hetherington knew that the $15,000 was proceeds of a criminal
activity and that the money was actually derived from securities fraud.
B.
Hetherington argues that his convictions for wire fraud were not supported
because there was no evidence that he transmitted or caused to be transmitted the two
wire transfers at issue. Under the wire fraud statute, it is a crime to "transmit[] or
cause[] to be transmitted by means of wire, radio, or television communication in
interstate or foreign commerce, any writings, signs, signals, pictures, or sounds for the
purpose of executing" a "scheme or artifice to defraud, or for obtaining money or
property by means of false or fraudulent pretenses, representations, or promises." 18
U.S.C. § 1343. "[A] defendant will be deemed to have 'caused' the use of . . . the
interstate wires if the use was the reasonably foreseeable result of his actions." United
States v. Wrehe, 628 F.2d 1079, 1085 (8th Cir. 1980).
On October 14, 1994, Wilcox wired $10,000 to Hetherington in care of
Lawrence Wakefield. On November 10, 1994, Wilcox wired $2,000 to Hetherington
in care of Lawrence Wakefield. Hetherington points to Wilcox's testimony that he
made these wire transfers at Bubalo's direction. Bubalo testified, however, that he
authorized the transfers in part because Hetherington indicated that he had financial
needs. Wilcox also testified that Hetherington had instructed him to wire money to
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Hetherington, using an account with Kristen Wakefield's name on it.3 Certainly, the
transfers were a reasonably foreseeable result of Hetherington's actions. A reasonable
jury could find beyond a reasonable doubt that Hetherington caused the wire
transmissions at issue.
C.
Hetherington argues that there is no support for his securities fraud conviction
because there was no evidence that he intended to defraud anyone. "Fraudulent intent
need not be proved directly and can be inferred from the facts and circumstances
surrounding a defendant's actions." United States v. Flynn, 196 F.3d 927, 929 (8th Cir.
1999).
When Hetherington announced the tender offer at the stockholders' meeting in
March 1993, he made numerous misrepresentations, including that he had set up a trade
relationship with people in the Ukraine, that he had entered into an agreement to ship
goods to the Ukraine, that Omni Leasing owned airplanes that would be used for
shipping, and that his contracts would result in $100 million of business per month.
Hetherington claims that he was simply outlining plans for the future, but it is clear that
he represented to the shareholders that this was Omni's present situation. Hetherington
was also involved in issuing false press releases that contained misrepresentations
similar to those he made at the shareholders' meeting. This evidence was more than
sufficient for the jury to find beyond a reasonable doubt that Hetherington intended to
defraud Omni's investors.
3
Kristen Wakefield, Lawrence Wakefield's ex-wife and Hetherington's fiancee,
was apparently named on Lawrence's account.
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II.
Hetherington argues that the district court erred by admitting evidence of a civil
judgment entered against him in California because the evidence was unfairly
prejudicial. We review a district court's ruling on the admissibility of evidence for
abuse of discretion. United States v. Forcelle, 86 F.3d 838, 841 (8th Cir. 1996).
The California judgment was rendered in favor of Helen Troop and against
Hetherington for breach of contract, money had, and fraud. The judgment stated that
"there was no appearance by John Hetherington, in pro per." Other defendants in the
case included Omni, First Omni Financial, Bubalo, and Wilcox. Omni and First Omni
Financial were also found liable to Troop. The judgment neither describes Troop's
allegations nor contains any recitation of the evidence. The only description of this
civil case was through testimony, which revealed that Troop's husband, prior to his
death, invested in O-Jay as part of Hetherington's initial investment in the company.
The district court admitted the judgment, relying on our decision in United States
v. Sandow, 78 F.3d 388 (8th Cir. 1996), a case that involved the admission of evidence
under Fed. R. Evid. 404(b), and concluding that Hetherington's situation was very
similar. The court also concluded that the offenses from the civil case were blended
or connected with the crimes for which Hetherington was being tried, which strikes us
as being somewhat contradictory to its 404(b) conclusion.
In Sandow, the defendant was tried under two separate indictments, and we
concluded that the admitted civil judgments were relevant to the defendant's motive for
committing the crimes charged in one indictment, although we could not comprehend
the government's argument concerning their relevance to the crimes charged in the
other. 78 F.3d at 392. We held that it was harmless error to admit the evidence, if it
was error, given the overwhelming evidence against the defendant. Id. First, we note
that Sandow does not purport to create a bright-line rule that prior civil judgments are
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admissible in a criminal case. Second, we cannot conclude that Hetherington's situation
was similar to the situation presented in Sandow because the California civil judgment
was not relevant to Hetherington's motive to commit the crimes with which he was
charged.
The district court's other reason for admitting the judgment was the connection
between it and the crimes for which Hetherington was on trial. We have previously
held that evidence of other crimes is admissible when they are so connected with the
offense for which the defendant is being tried "that proof of one incidentally involves
the other; or explains the circumstances thereof; or tends logically to prove any element
of the crime charged." United States v. Derring, 592 F.2d 1003, 1007 (8th Cir. 1979)
(quotations omitted). "When the other crimes evidence is so integrated, it is not
extrinsic and therefore is not governed by Rule 404(b)." United States v. Bass, 794
F.2d 1305, 1312 (8th Cir. 1986). Although the district court concluded that the
judgment was blended or connected with Hetherington's crimes in this case, it gave a
404(b) limiting instruction to the jury, instructing them that they could not use the
evidence to decide whether Hetherington committed the crimes charged in the
indictment, but that they could use it to decide whether Hetherington "had knowledge
of fraudulent misrepresentations and intended to engage in a pattern of intentional
deceit and misrepresentation."
We entertain some concern about the admission of the judgment because of the
questionable applicability of Sandow and because the district court seems to have
found that the judgment was both extrinsic and intrinsic evidence. Even if the district
court erred, however, we conclude that the error was harmless. The court instructed
the jury not to use the judgment to determine whether Hetherington was guilty of the
crimes with which he was charged, and the government presented sufficient evidence
to convict Hetherington on all counts.
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III.
Hetherington argues the district court committed several errors in sentencing him.
We review the district court's findings of fact for clear error, and we review its
application of the sentencing guidelines de novo. United States v. Moore, 245 F.3d
1023, 1025 (8th Cir. 2001).
A.
The district court increased Hetherington's offense level for both the fraud counts
and the monetary transaction count by two levels for his role in the offenses. See
U.S.S.G. § 3B1.1(c) (1998). Hetherington argues that the evidence did not support
these adjustments. "To qualify for an adjustment under this section, the defendant must
have been the organizer, leader, manager, or supervisor of one or more other
participants." Id., comment. (n.2).
The district court found that the evidence established that Hetherington "gave
direction to and approved conduct by Michael Wilcox that constituted part of the
scheme to defraud." The district court also found that Hetherington "supervised Kristen
Wakefield's involvement in engaging in a financial transaction in criminally-derived
property by having the $15,000 wire-transferred to him in care of her ex-husband,
Lawrence Wakefield."
These findings are not clearly erroneous. Wilcox testified that Hetherington
asked him to delay issuing financial statements to the shareholders in 1994 until after
the tender offer was completed. He also testified that he wired money to Kristen
Wakefield at Hetherington's direction. Hetherington testified before the SEC that
Wakefield received money that was intended for him and that she used it to pay current
expenses and to reimburse herself for past expenses incurred on Hetherington's behalf.
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The two-level adjustments for Hetherington's role in the offenses were fully supported
by the evidence, and the court did not err by imposing them.
B.
The district court increased Hetherington's offense level for the monetary
transaction count by two levels pursuant to U.S.S.G. § 2S1.2(b)(1)(B) (1998).
Hetherington argues that he had no knowledge that the funds he received were
proceeds of a specified unlawful activity. The district court found that evidence
established that Hetherington "was fully knowledgeable that Omni's tender offer, and
even its entire operation, were based on fraud involving the purchase and sale of
securities." The evidence we considered in Sections I(A) & (C) supports a conclusion
that Hetherington knew that the funds he received were proceeds of securities fraud.
The district court's finding is not clearly erroneous.
C.
Finally, Hetherington argues that the district court should have grouped the
monetary transaction count with the fraud counts under U.S.S.G. § 3D1.2(c) (1998).
This section provides that counts involve substantially the same harm (and thus must
be grouped together) "[w]hen one of the counts embodies conduct that is treated as a
specific offense characteristic in, or other adjustment to, the guideline applicable to
another of the counts." Although his argument is awkwardly phrased, we read it to say
that Hetherington's knowledge that the funds were derived from securities fraud was
treated as a specific offense characteristic of the monetary transaction count and
embodied conduct from another count.
The government directs us to United States v. O'Kane, 155 F.3d 969 (8th Cir.
1998), and United States v. Lombardi, 5 F.3d 568 (1st Cir. 1993). In O'Kane, we held
that the district court erred by grouping O'Kane's mail fraud count with his money
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laundering count, stating that "none of the grouping rules properly apply to O'Kane's
two counts of conviction." 155 F.3d at 974. Our analysis addressed only two of the
grouping rules: sections 3D1.2(b) and 3D1.2(d). Id. at 973-74. In contrast,
Hetherington relies on section 3D1.2(c).
We are persuaded by the First Circuit's opinion in Lombardi, however.
Lombardi received a two-level increase to his money laundering offense level because
he knew that the laundered funds were obtained through mail fraud. Lombardi, 5 F.3d
at 570. He argued that section 3D1.2(c) required his money laundering count to be
grouped with his conspiracy/mail fraud counts. Id. at 571. The court held that section
3D1.2(c) did not apply: "The 'conduct' embodied in the mail fraud counts is the various
acts constituting the frauds, coupled with the requisite intent to deceive; the 'specific
offense characteristic,' in U.S.S.G. § 2S1.2(b)(1)(B), is knowledge that the funds being
laundered are the proceeds of a mail fraud." Id.; see also United States v. Smith, 13
F.3d 1421, 1428-29 (10th Cir. 1994). In essence, Hetherington's knowledge of the
origin of the funds is not conduct embodied in the securities fraud count. But see
United States v. Salter, 241 F.3d 392, 395 (5th Cir. 2001) (drug conspiracy count
should have been grouped with money laundering count under section 3D1.2(c)
because money laundering count was enhanced for defendant's knowledge that funds
were proceeds of unlawful activity involving drug distribution); United States v.
Bartley, 230 F.3d 667, 670-73 (4th Cir. 2000) (drug conspiracy and money laundering
conspiracy counts should have been grouped under section 3D1.2(c) where defendant's
money laundering conspiracy count enhanced for knowledge that laundered funds were
drug proceeds and indictment charged that drug conspiracy involved laundering drug
proceeds to facilitate illegal distribution); United States v. Rice, 185 F.3d 326, 328-29
(5th Cir. 1999) (section 3D1.2(c) requires grouping of money laundering count with
drug counts where defendant's money laundering offense level was enhanced because
he knew money was derived from drug distribution). The district court did not err by
refusing to group the monetary transaction count with the fraud counts.
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IV.
We have considered the additional arguments raised by Hetherington in his pro
se supplemental reply brief and conclude that they are without merit. We affirm the
judgment and sentence of the district court.
A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
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