United States v. Suba

United States Court of Appeals,
Eleventh Circuit.
No. 95-9408.
UNITED STATES of America, Plaintiff-Appellee,
v.
David W. SUBA, Managed Risk Services, Dennis J. Kelly, Defendants-Appellants.
Jan. 9, 1998.
Appeals from the United States District Court for the Southern District of Georgia. (Nos. CR195-
011-02, CR195-011-03, CR195-011-06), Anthony A. Alaimo, Judge.
Before BARKETT, Circuit Judge, HILL, Senior Circuit Judge, and HOWARD*, Senior District
Judge.
HILL, Senior Circuit Judge:
Jointly tried and convicted by a jury in a complex Medicare fraud scheme, Appellants Dennis
J. Kelly, David W. Suba, and Managed Risk Services, Inc. (Managed Risk) appeal their convictions
and sentences on a number of grounds, including insufficiency of the evidence, trial court error in
denying Kelly's requested jury charges and motion for a new trial, and sentencing, restitution, and
forfeiture errors.1 We reverse Kelly's conviction only as to Counts 131 and 132 for insufficient
evidence and remand his case for re-sentencing in accordance with this opinion. In all other
respects, we affirm Kelly's conviction and the convictions and sentences of Suba and Managed Risk.
*
Honorable Alex T. Howard, Jr., Senior U.S. District Judge for the Southern District of
Alabama, sitting by designation.
1
We discuss the sufficiency of the evidence issue at Part V infra. All other issues are without
merit and affirmed without discussion. See 11th Cir. R. 36-1 [Appellants' trial may not have
been perfect, but it was fair. See United States v. Ashworth, 836 F.2d 260, 268 (6th Cir.1988)
citing United States v. Hajal, 555 F.2d 558, 569 (6th Cir.1977)(where "we have yet to review a
perfect jury trial.") ].
I. PROCEDURAL BACKGROUND
Together, Kelly, Suba, and Managed Risk were convicted of one count of conspiracy to
defraud the United States and to commit offenses against the United States, in violation of 18 U.S.C.
§ 371 (Count 1); forty-five counts of mail fraud, in violation of 18 U.S.C. § 1341 (Counts 36-78,
100-111); and twenty-seven counts of money laundering, in violation of 18 U.S.C. § 1956 (Counts
79-105). Separately, Kelly was convicted of four additional counts of mail fraud (Counts 112-115);
six counts of embezzlement from an employee benefit fund, in violation of 18 U.S.C. § 664 (Counts
116-121); eleven additional counts of money laundering (Counts 106-109, 122-123, 125-128, 132);
one count of bank fraud, in violation of 18 U.S.C. § 1344 (Count 131); and nineteen counts of
making false statements, in violation of 18 U.S.C. § 1001 (Counts 11-26, 30-32).2 Kelly was
sentenced to 151 months' imprisonment followed by three years' supervised release. He was ordered
to pay a $75,000 fine, $710,118 in restitution, and to forfeit $934,856.02 under a consent order for
criminal forfeiture, 18 U.S.C. § 982 (Count 133). The jury found Suba guilty of all counts charged.
He was sentenced to ninety-seven months' imprisonment followed by three years' supervised release.
Managed Risk was found guilty of all counts charged. It was placed on five years' probation and
ordered to pay a $250,000 fine. Suba and Managed Risk were ordered to pay $710,118 in restitution
and to forfeit $390,000 pursuant to the consent order. Both Kelly and Suba are currently
incarcerated.
II. FACTUAL BACKGROUND
A. Factual Diagram
The underlying facts of this case are complex and have been reconstructed from numerous
and sometimes tedious paper trails throughout the record. At first, the scheme appears sophisticated.
2
Kelly was found not guilty on counts 33-35, 124, 129, and 130.
In fact, however, it is really quite simple. Home health care agencies are licensed by Medicare.3
Medicare is administered by the United States Department of Health and Human Services (HHS).
HHS contracts with insurance companies (fiscal intermediaries) to distribute Medicare funds.4 The
fiscal intermediary pays the Medicare funding to providers of medical care, in this case, home health
care agencies. Medicare covers the reasonable cost of direct patient care and reasonable and
necessary overhead expenses.5 Appellants allegedly established certain overhead expenses,
appearing genuine, but in fact, neither reasonable or necessary. These expenses were reimbursed
by Medicare. The reimbursed funds allegedly found their way into Appellants' pockets.6
3
The Medicare program, Title XVIII of the Social Security Act, 42 U.S.C. § 1395 et seq. (the
Medicare Act), was established in 1965 as a federally funded health care insurance program for
the elderly and disabled. The Medicare program is divided into two distinct parts: Medicare
Part A (Hospital Insurance for the Aged and Disabled) covers services furnished by hospitals,
home health care agencies, hospices, and skilled nursing facilities for inpatient hospital care,
inpatient care in a skilled nursing facility following hospital stay, home health care, and hospice
care. Medicare Part B (Supplementary Medical Insurance for the Aged and Disabled) covers
physician services, outpatient hospital care and a range of other noninstitutional services, such as
ambulance services, durable medical equipment, diagnostic laboratory tests and X-rays.
4
Fiscal intermediaries and carriers are government contractors who administer payments to
health care providers. 42 U.S.C. §§ 1395h, 1395u. Fiscal intermediaries handle claims covered
under Medicare's Part A program; carriers handle claims covered under Part B. Once treatment
is administered, Medicare, through its fiscal intermediaries and carriers, determines the rates and
amounts of payments to providers, and reimburses the patient. Id.
5
Insuring fiscal responsibility, curtailing health care costs, and eliminating the over-utilization
of health care services are fundamental aims of the Medicare program. S.Rep.No. 404, 89th
Cong., 1st Sess. 1965, reprinted in 1965 U.S.C.C.A.N. 1943. The Medicare program reflects a
congressional judgment that the federal government should not readily reimburse a health care
provider when its services have not been utilized properly. Monmouth Medical Center v. Harris,
646 F.2d 74, 76 (3d Cir.1981). There could be nothing clearer in the plain meaning of the
[Medicare Act] ... Congress did not intend to have Medicare funds used to subsidize Medicare
fraud. Good Luck Nursing Home, Inc. v. Harris, 636 F.2d 572, 578 (D.C.Cir.1980).
6
Understanding how the Appellants committed Medicare fraud, and how that fraud relates to
charges of false statements, money laundering, mail fraud and embezzlement from an employee
benefit fund is critical in an analysis of the sufficiency of the evidence.
The following is a pictorial diagram of the interrelationships of the participants in
the sequence of events leading up to the indictment:
CA(98)134-1,SIZE-21 PICAS,TYPE-PDI
B. The Medicare Conspirators Charged1
1. Healthmaster, Garrison & Master Health
Healthmaster, Inc. (Healthmaster) was a large, yet privately owned, home health care
company based in Augusta, Georgia.2 Jeannette G. Garrison was its chief executive officer and sole
shareholder.3 Healthmaster provided in-home nursing care for eligible persons with illnesses and
disabilities. Approximately 92% of Healthmaster's revenues were derived from providing in-home
nursing care to Medicare eligible patients. The balance was reimbursed by Medicaid and private
insurance.
Medicare guidelines provide reimbursement to Healthmaster for costs of direct patient care
This diagram was prepared by counsel for the United States as Government Exhibit
(GX) 1161G and attached to its brief. It should be viewed with that in mind. We believe it is
helpful in understanding the factual background of this case.
1
The 133-count indictment was originally returned against six defendants: Jeannette G.
Garrison, Healthmaster, Inc. (Healthmaster), and Master Health Plan, Inc. (Master Health), as
well as Appellants. Prior to trial, Garrison entered a guilty plea to the conspiracy count and nine
counts of making false statements. The submission of false cost reports to Healthmaster's fiscal
intermediary formed the basis for her guilty plea. In return, she received a prison sentence and
charges against Healthmaster and Master Health were dismissed. Garrison testified for the
government at trial. The appeal of her sentence is currently pending before this court.
2
Healthmaster operated in five states with twenty-two divisions in 125 separate locations. It
is estimated that 3,000 employees made two million home visits per year. Healthmaster had
approximate gross annual revenue of $100 million.
3
Garrison also was the sole shareholder of Preferred Care Companies (Preferred Care or
PCC), a holding company owning Healthmaster Pharmaceutical and Equipment Company, Inc.
(Healthmaster Pharmaceutical), a durable medical equipment sales company, and Healthmaster
Home Care of Georgia, Inc. (Healthmaster Home Care), a provider of home visitation services,
other than skilled nursing. Both Healthmaster Pharmaceutical and Healthmaster Home Care
were non-Medicare reimbursed companies.
and reasonable and necessary overhead expenses.4 Reimbursements claimed by Healthmaster were
submitted on cost reports to Aetna Life and Casualty Insurance Company (Aetna), the fiscal
intermediary for HHS, who apparently did not discover any improper submissions. The cost reports
required Healthmaster to declare whether or not its business transactions, such as purchasing
supplies or services, were conducted with companies to whom it was "related."5 Master Health Plan,
Inc. (Master Health), Garrison's health maintenance organization (HMO), as a wholly owned
subsidiary of Healthmaster, was a related company under Medicare guidelines.
2. Kelly, Suba & Managed Risk
Kelly was a certified public accountant and chief financial officer and vice-president of
Healthmaster, second in command to Garrison. Kelly was also the trustee for Healthmaster's
self-insured worker's compensation trust fund. In 1990, upon Kelly's recommendation, Garrison
hired Suba as Healthmaster's insurance risk manager to reduce the worker's compensation claims
and injuries of Healthmaster's three thousand employees.
That same year, Kelly and Suba formed their own company, Managed Risk, ostensibly to
provide risk management for self-insured worker's compensation and health insurance funds. Suba
4
The Medicare Act provides a controlling standard against which all coverage determinations
must be measured under Part A: "Notwithstanding any other provision of this sub-chapter, no
payment may be made ... for any expenses incurred for items or services which ... are not
reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the
functioning of a malformed body member." 42 U.S.C. § 1395y(a)(1)(A).
5
An organization is "related" to the healthcare provider through common ownership which
"exists if an individual or individuals possess significant ownership or equity in the provider and
the institution or organization serving the provider." 42 C.F.R. § 413.17(b)(2). In general,
Medicare will reimburse a home health care agency for only the cost of the supplies or services
received from the related company. See 42 C.F.R. § 413.17(c); United States v. Calhoon, 97
F.3d 518, 525 (11th Cir.1996), cert. denied --- U.S. ----, 118 S.Ct. 44, --- L.Ed.2d ----
(1997)(involving the reimbursement by Medicare of royalty fees paid to a hospital's related
company).
owned twenty-four percent of Managed Risk and served as its president. Mrs. Kelly owned
twenty-four percent. Majority ownership (fifty-two percent) was owned by two trusts controlled by
Garrison and Kelly for the benefit of the Garrison children. Managed Risk operated out of
Healthmaster's Augusta corporate offices yet it maintained a mailing (post office box) address in
Atlanta. Business cards for Managed Risk listed an Atlanta answering service telephone number
as its business number. Healthmaster was Managed Risk's primary client.
C. The Components of the Conspiracy
1. The Conspiracy Itself (Count 1)
The indictment charged that Garrison, Kelly, Suba, Healthmaster, Master Health and
Managed Risk conspired together to defraud the United States through its Medicare program by
fraudulently obtaining Medicare reimbursement for many different categories of items. Garrison
was charged with Healthmaster's submission of cost reports that fraudulently sought reimbursement
for her political contributions; for the wages of Healthmaster ghost employees (actually working
at non-Medicare reimbursed companies); and for many of her own personal expenses. Garrison
pleaded guilty to conspiracy and nine counts of making false statements. See note 8 supra. Count
1 of the indictment also charged Appellants with non-disclosure of related companies; with
fraudulently obtaining workers compensation insurance premiums payable to Managed Risk from
Preferred Care companies and fraudulently distributed to Managed Risk shareholders; with
embezzling money from an employee benefit plan; and with concealing the source of the
fraudulently obtained funds.
2. The Preferred Care (PCC) Allegations (Counts 36-109)
The Preferred Care allegations are touted to be the centerpiece of the Government's case.
The allegations originate with Healthmaster's application for state (Georgia) approval of its
self-insured worker's compensation program. Initially Healthmaster's application was rejected on
the grounds of insufficient funds necessary to satisfy the State of Georgia's required two-to-one
asset-to-liability ratio. Thereafter, to supplement its assets, Healthmaster listed as its workers'
compensation program affiliate, the Preferred Care Companies (Preferred Care or PCC), a
Garrison-owned holding company, and reapplied for self-insurance. See note 10 supra. Now armed
with adequate assets to ensure payment of claims, the State of Georgia granted Healthmaster's
re-application to self-insure, upon the condition that it post a $500,000 bond. Healthmaster posted
the bond. Kelly was the principal signatory on the second application. The re-application pledged
to pay workers' compensation claims out from an irrevocable trust funded upon an actuarial basis
(the Augusta WC account described below).
The Government alleges that Kelly, Suba and Managed Risk abused Healthmaster's
affiliation with Preferred Care by illegally converting (for their own use) premiums intended for the
benefit of Preferred Care employees. By so doing, Medicare was also defrauded. The scheme was
accomplished, the Government contends, as follows: Kelly established a trust account at the Trust
Company Bank in Augusta (the Augusta WC account).6 Healthmaster administered its self-insured
workers' compensation program through the Augusta WC account. From May 1990, through March
1993, Preferred Care was billed for and paid $1,420,237 in workers' compensation premiums.
However, the Preferred Care checks were not mailed to or deposited in the Augusta WC account as
pledged. Instead, the Preferred Care checks were mailed to Managed Risk's Atlanta post office box.
Elizabeth Siegler, a Preferred Care employee, testified that she signed and mailed twelve premium
6
The Augusta WC account funded a separate small claims account to pay employees' claims
up to $25,000. Kelly and Suba established another account at the Midland Bank Trust
Corporation in the Cayman Islands to provide coverage for claims greater than $25,000, up to
$250,000. Commercial insurance coverage was obtained for Healthmaster employee claims
above $250,000.
checks to the Managed Risk Atlanta post office box (Counts 67-78); her predecessor, Debra
Chance, testified that she signed the check used to buy the bond (Count 36) and thirty other
premiums checks (Counts 37-66), all made payable to Managed Risk and mailed to the Atlanta post
office box. The checks were endorsed and deposited into Managed Risk bank accounts in Atlanta
and Marietta (Georgia), by Suba on dates after their issuance. Kelly and Suba applied the first
$140,000 towards the purchase of the bond (Count 36). The funds were then distributed to Managed
Risk shareholders (Mrs. Kelly, Suba, and the Garrison children's trusts). Between November 1990,
and April 1993, Managed Risk distributed $1,719,000 (including the $1,420,237 in Preferred Care
premiums) to its shareholders via twenty-seven checks signed by Suba. Mrs. Kelly received
$640,000; Suba received $390,000; and the Garrison children's trusts each received $344,500. In
the meantime, four things allegedly occurred: (1) Healthmaster properly deposited its workers'
compensation premium checks into the Augusta WC account; (2) Medicare reimbursed
Healthmaster for the checks; (3) Preferred Care employees made claims of $225,000 for their
compensable injuries out of the Augusta WC account; and (4) Preferred Care employees were paid
from the Augusta WC account, comprised of Medicare-reimbursed funds. The net result of this shell
game, the Government contends, is that non-Medicare Preferred Care employees received $225,000
in Medicare-reimbursed funds.
(a) Mail Fraud (Counts 36-78)
The Government contends that Kelly and Suba committed mail fraud by using the United
States mails to carry out their Medicare fraud scheme. As described above, in accordance with a
schedule prepared by Kelly, a Preferred Care employee signed and mailed twelve workers'
compensation premium checks (Counts 67-78) to Managed Risk at its Atlanta post office box.
Another Preferred Care employee signed the check used to buy the $500,000 Healthmaster bond
required by the state (Count 36) and thirty premium checks (Counts 37-66). All checks were mailed
to Atlanta or Marietta from Augusta, made payable to Managed Risk, and endorsed and deposited
by Suba in Atlanta and Marietta.
(b) Money Laundering (Counts 79-105)
The indictment further charged Appellants with money laundering on the basis that the
money in the Augusta WC account used to satisfy the $225,000 in claims consisted solely of
Healthmaster premiums, reimbursed by Medicare. Thus, Government contends, Medicare funds
were illegally used to satisfy (non-reimbursable) Preferred Care claims. In addition, the Preferred
Care premiums were illegally converted by Managed Risk shareholders.
(c) Money Laundering (Counts 106-109) by Kelly Only
The Government alleged that Kelly further laundered the proceeds converted and distributed
to Mrs. Kelly by investing these proceeds in stock and land.
3. The Health Insurance Fund Allegations (Counts 112-123; 125-128)
The Health Insurance Fund allegations arise out of a trust account (the Greenville account)
established by Healthmaster at the Carolina First Bank in Greenville, South Carolina for the benefit
of its self-insured employee health and disability plan and administered by HDR, an independent
third party administrator. Kelly was trustee of the Greenville account. He apparently determined
the monthly $200,000 to $300,000 (in Medicare reimbursable) premiums paid into the Greenville
account by Healthmaster.
(a) Mail Fraud (Counts 112-115) by Kelly Only
The Government alleged that Kelly, over a two-year period, disbursed $1,587,775 from the
Greenville account for his own benefit and that of Master Health. He is alleged to have
accomplished this scheme as follows: Kelly established another bank account in Augusta (the
Augusta II account). He used false representations of being able to obtain a "higher yield" to induce
HDR to mail Greenville account funds to him, which he deposited in the Augusta II account
($700,000; $500,000; $258,775; and $129,000). Kelly never returned the money to the Greenville
account and improperly characterized two of the checks on Healthmaster's Annual Return, IRS Form
5500, as paid claims, rather than loans, transfers or investments.
(b) Embezzlement from an Employee Benefit Plan (Counts 116-118) by Kelly Only for Master
Health's Benefit
Kelly then, the Government alleged, embezzled $960,583 through three transfers from the
Augusta II account funds (composed of Medicare reimbursed funds transferred from the Greenville
account) and used them to purchase a $1 million certificate of deposit for Master Health (a
non-Medicare company) in order for Master Health to meet new state minimum capitalization
requirements for HMOs.
(c) Embezzlement from an Employee Benefit Plan (Counts 119-121) by Kelly Only for Kelly's
Benefit
Similarly, the Government alleged, Kelly withdrew funds from the Augusta II account and
deposited them into other accounts he controlled: (1) $78,400 payable for "data processing 91/92"
to a "special activity account" established by Kelly for Employee Benefit Coordinators (EBC)7; (2)
$116,160 payable to the Managed Risk advertising account; and (3) one year after EBC dissolved,
Kelly wrote a $71,256 check from the August II account and deposited it into the (now defunct)
EBC's "special activity account."
7
EBC was a non-Medicare company established in 1987 by Kelly, Garrison and EBC's
president, Peter Molloy, to market Master Health. Molloy was also vice-president of
Healthmaster. He testified that he was unaware of the August II account or the EBC "special
activity account." In fact, Molloy testified that Kelly had opened the EBC account with a
signature card on which he signed both his name and Molloy's name, without Molloy's
knowledge or permission. There is no record of any work, advertising or data processing,
performed for the health insurance fund by either EBC or Managed Risk.
(d) Money Laundering (Counts 122-123, 125-128) by Kelly Only
The indictment charges Kelly with money laundering the three checks described in (c) above.
None of the three checks were reported on his income tax return:
a. The $78,400 Check
On the same day as the transaction discussed in (c) above, Kelly wrote a second $78,400
check on the EBC account payable to his brother's company, AMAT Telecommunications (AMAT),
for non-existent data processing services.8 Twelve days later, Kelly's brother wrote a $78,400 check
from AMAT's account to Kelly's personal "rental account."
b. The $116,160 Check
Two weeks after Kelly transferred $116,160 from the Greenville account to the Augusta II
account and deposited the funds in Managed Risk's advertising account, he moved $100,000 from
the advertising account into his personal investment company, Icarus Investments, as a"loan." Two
weeks after that, Icarus Investments bought South Carolina real estate for $44,870.
c. The $71,256 Check
After Kelly transferred $71,256 from the Greenville account to the Augusta II account and
deposited it into EBC's special activity account, he then moved $85,000 from the special activity
account to Icarus Investments' account as a "loan." One week later, Kelly transferred the amount
remaining from the previous "loan" and deposited the total [$140,000] into his personal bank
account from Icarus Investments.
4. The Sizemore Allegations—Mail Fraud (Counts 110-111)
These counts are based upon an allegedly fraudulent invoice from Managed Risk to
Healthmaster's Augusta WC account for a $125,000 "additional premium." The Government
8
Kelly was an officer of AMAT, but AMAT performed no work for EBC.
contends that Managed Risk agreed to purchase a $125,000 Trust Company Bank certificate of
deposit for Sizemore Security to use as collateral for a bond necessary to qualify as a self-insured.9
With supplemented assets, Sizemore Security would be able to self-insure and Managed Risk would
obtain a new client. Managed Risk reimbursed itself for the certificate of deposit with
Medicare-reimbursed Augusta WC account funds. Documentation was prepared, allegedly making
it appear that the Augusta WC account owed a $125,000 "additional premium" to Managed Risk.
These request documents were mailed to Trust Company Bank which in turn mailed the requested
check to Managed Risk's Atlanta post office box. Thus, the Government contends, that Kelly, Suba
and Managed Risk defrauded Medicare and the Augusta WC account by billing the account for a
non-existing premium.
Kelly argues that there is no evidence of a scheme to defraud the (Medicare funded) Augusta
WC account because he had investment authority over the account, and, after Sizemore Security
repaid the loan for the certificate of deposit, Managed Risk returned the principal, with interest, to
the Augusta WC fund. Suba claims he had no knowledge of the wording on the invoice and that it
was incorrectly reflected as a "premium" instead of a "loan."
5. The False Statements of Garrison, Kelly & Healthmaster
(a) The River Valley Allegations (Counts 11-26)
The Government contends that Kelly, from 1989 to 1993, through false statements,
fraudulently obtained $1,765,492 in Medicare funds, when Healthmaster purchased River Valley,
an Albany, Georgia home health care agency, from four Galloway family members. The scheme
was structured as follows: for the sale of River Valley, each Galloway was to receive a deposit of
9
For its services, Managed Risk charged Sizemore a $4,000 fee and one percent monthly
interest.
$100,000 plus $80,000 (per person) per year for ten years. Healthmaster, however, at Kelly's
direction, completed the sales transaction by placing the Galloways on Healthmaster's payroll. They
each received semi-monthly checks totaling $80,000, the amount they were due for the River Valley
sale, as salary expense to Healthmaster yet they performed no work. Salary expenses were
reimbursed by Medicare. There was testimony in the record that Kelly had been warned by a
Healthmaster employee that this scheme would constitute Medicare fraud.
(b) The Concealment of Related Company Managed Risk Allegations (Counts 30-32)
The Government charges that Kelly and Suba fraudulently concealed their ownership in
Managed Risk from Healthmaster employees, although Managed Risk operated on the Augusta
premises of Healthmaster, its largest client, and, Healthmaster paid Managed Risk's overhead and
travel expenses. In addition, Kelly did not identify Managed Risk as a "related company" on
Healthmaster's cost reports for 1991, 1992, or 1993. See note 12 supra. Kelly, using Managed Risk
as middleman, established the Augusta WC account, designed after Healthmaster's existing
self-insured health program. See Part II C. 2. supra. Managed Risk received fees of $101,844 in
1991 and $114,382 in 1992 for managing Healthmaster's Augusta WC and Augusta II accounts.10
In the meantime, Kelly and Suba continued to receive their Healthmaster salaries. With Managed
Risk posing as their middleman, the Government contends that Kelly and Suba could in essence
double-bill Medicare for work they performed for Healthmaster since Managed Risk fees, like their
Healthmaster salaries, were reimbursed by Medicare as operating expenses.
III. ISSUE ON APPEAL
The only issue with merit to discuss on appeal is whether there was sufficient evidence to
10
Managed Risk charged Healthmaster an eight percent commission for managing the
Augusta WC account. For managing the Augusta II account, Managed Risk received a base fee
of $30,000, plus twenty-five percent of savings or minus twenty-five percent of additional costs.
support the convictions.11 See note 1 supra.
IV. STANDARD OF REVIEW
Sufficiency of the evidence is a question of law that we review de novo. United States v.
Massey, 89 F.3d 1433, 1438 (11th Cir.1996), cert. denied, --- U.S. ----, 117 S.Ct. 983, 136 L.Ed.2d
865 (1997). The relevant question for a reviewing court, in judging the sufficiency of the evidence,
is "whether, after viewing the evidence in the light most favorable to the prosecution, any rational
trier of fact could have found the essential elements of the crime beyond a reasonable doubt."
Jackson v. Virginia, 443 U.S. 307, 319, 99 S.Ct. 2781, 2789, 61 L.Ed.2d 560 (1979). We resolve
all reasonable inferences and credibility evaluations in favor of the jury's verdict; we will uphold
the jury's verdict if a reasonable fact finder could conclude that the evidence establishes the
defendants' guilt beyond a reasonable doubt. United States v. Starke, 62 F.3d 1374, 1380 (11th
Cir.1995). The Government need not disprove every hypothesis of innocence, as the jury is free to
choose among reasonable constructions of the evidence. United States v. Waymer, 55 F.3d 564, 570
(11th Cir.1995). The evidence may be sufficient even though it is not wholly inconsistent with
every conclusion except that of guilt; the jury is free to choose among reasonable constructions of
the evidence. United States v. Zielie, 734 F.2d 1447, 1458 (11th Cir.1984).
V. DISCUSSION
A. The Conspiracy (Count 1)12
Kelly argues that the Government failed to prove a single, wrap-around conspiracy, or, if it
11
We do not discuss the boat scheme allegations involving bank fraud and money laundering
(Counts 131-132). The Government conceded in its brief at page 32 and at oral argument that
there was insufficient evidence to support them as to Kelly.
12
This case reminds one of the prisoner who sued the county when he was hurt during his
escape because the county left the jail door open. Apparently, viewing Medicare as a cash cow,
the temptation for these co-conspirators was just as great.
proved anything, it proved multiple conspiracies, by impermissibly piling inference upon inference.
He bases his argument on three theories: (1) that counsel for the Government conceded this issue
when he stated in his closing argument that Suba "wasn't involved in every one of these subsidiary
schemes and transactions, and there's no claim that he was;" (2) that Garrison, in her testimony for
the Government, provided no evidence of her involvement in a single conspiracy nor gave any
evidence implicating either Kelly or Suba in a single conspiracy; and (3) that the Government failed
to prove requisite knowledge and criminal intent.
Individually, Suba tries to distance himself from his co-conspirators by claiming that there
was no evidence of his involvement in six of the nine objects of the conspiracy listed in the
indictment. He argues that his alleged involvement in the Preferred Care scheme (including money
laundering) and the non-disclosures of related companies (including Managed Risk) was entirely
separate and distinct from the other multiple schemes alleged against Kelly and Garrison.
To sustain a conviction for conspiracy to defraud the United States, the Government must
prove the existence of an agreement to achieve an unlawful objective, the defendant's knowing and
voluntary participation in the conspiracy, and the commission of an overt act in furtherance of it.
United States v. Kammer, 1 F.3d 1161, 1164 (11th Cir.1993). However, if the proof shows the
defendant knew the essential objective of the conspiracy, it does not matter that he did not know all
its details or played a minor role in the overall scheme. United States v. Walker, 720 F.2d 1527,
1538 (11th Cir.1983). In addition, "participation in a criminal conspiracy need not be proved by
direct evidence; a common purpose or plan may be inferred from a development and collocation
of circumstances." United States v. Khoury, 901 F.2d 948, 962 (11th Cir.1990) (quoting Glasser
v. United States, 315 U.S. 60, 62 S.Ct. 457, 86 L.Ed. 680 (1942)). The Government need only
produce sufficient evidence that the defendants conspired to commit a single object. See Griffin v.
United States, 502 U.S. 46, 112 S.Ct. 466, 116 L.Ed.2d 371 (1991); United States v. Stone, 9 F.3d
934, 938-939 (11th Cir.1993). To sustain a conspiracy conviction therefore, we must conclude that
a reasonable fact finder could determine that: (1) an agreement existed among two or more persons;
(2) that the defendant[s] knew of the general purpose of the agreement; and (3) that the defendant[s]
knowingly and voluntarily participated in the agreement. United States v. Ramsdale, 61 F.3d 825,
829 (11th Cir.1995). Variance between allegations and proof is reversible only when the defendant
is actually prejudiced. See United States v. Coy, 19 F.3d 629, 634 (11th Cir.1994).
Under these legal principles, the record reflects that the evidence proved an overarching
conspiracy to defraud Medicare. A reasonable juror could justifiably find, beyond a reasonable
doubt, that the Medicare fraud conspiracy alleged was the Medicare conspiracy proven.13 The
record indicates that the district court instructed the jury to consider the evidence on each offense
and each defendant separately. In addition, the evidence amply demonstrates Kelly's involvement
in any conspiracy that may have existed. See Khoury, 901 F.2d at 962. It matters not that Suba or
Managed Risk may not have known all the details of the conspiracy or played a lesser role in the
overall scheme. See Walker, 720 F.2d at 1538. We conclude that actual prejudice as to Kelly, Suba
and Managed Risk is absent; hence reversal on this issue is unwarranted. See Coy, 19 F.3d at 634.
B. The Preferred Care (PCC) Allegations (Counts 36-109)
1. Mail Fraud (Counts 36-78)
Kelly contends that the evidence does not support his Preferred Care mail fraud convictions
for three reasons: (1) that he and Suba were "under no duty or obligation" to pay Preferred Care
claims with Preferred Care money, hence, no crime was committed; (2) that Preferred Care
13
Notwithstanding, the district court gave an appropriate instruction on multiple conspiracies
and the jury is presumed to have followed it. See United States v. Stone, 9 F.3d 934, 938-39
(11th Cir.1993).
premiums included $568,000 in other (general liability or commercial) insurance payments, a matter
not alleged as mail fraud in the indictment; and (3) that, while conceding that the last twelve
premium checks were mailed (Counts 67-78) (Kelly's assistant testified that she mailed them), he
disputes evidence that the remaining were mailed earlier (Counts 36-66).
Suba claims that the evidence does not support his Preferred Care mail fraud convictions
because he had no fraudulent intent and that Preferred Care, as Garrison's alter ego, was not a
"victim" for 18 U.S.C. § 1341 purposes. There was no evidence Suba claims that, as Healthmaster's
"risk manager," he knew that Healthmaster's insurance premiums were being reimbursed by
Medicare or that he played any part in the Medicare reimbursement process itself, as others were
responsible for preparing Healthmaster's cost reports submitted to Aetna.14
The Government argues that a reasonable juror could find that Kelly, Suba, and Managed
Risk used the United States mails to defraud Medicare when Preferred Care mailed checks totaling
$1,420,237 to Managed Risk's Atlanta post office box. When a Preferred Care employee made a
legitimate workers' compensation claim, Kelly and Suba covered up its house of cards, the
Government contends, by paying the claim from the Augusta WC fund comprised of Medicare
money. Meanwhile, the $1,420,237 was converted and distributed by Suba to himself, Mrs. Kelly
and the Garrison children's trusts. If the claims were not paid, the Government argues, the Managed
Risk shareholders would not have been able to keep pocketing the Preferred Care premiums and
their house of cards would have folded.
The mail fraud statute prohibits devising a "scheme or artifice to defraud, or for obtaining
money or property by means of false or fraudulent pretenses," which is furthered by use of the mails.
14
There is evidence in the record that Healthmaster's vice-president, Mike Haddle, prepared
the cost reports with information supplied by others. Suba claims that "his name never came up"
in this context as one of the information suppliers.
18 U.S.C. § 1341; see also United States v. Funt, 896 F.2d 1288, 1292 (11th Cir.1990). To prove
mail fraud, the Government must show that the defendant (1) intentionally participated in a scheme
to defraud and (2) used the mails to execute the fraudulent scheme. See United States v.
Hooshmand, 931 F.2d 725, 731 (11th Cir.1991). The Government need not produce direct proof
of scienter in a mail fraud case, however; circumstantial evidence of criminal intent can suffice.
United States v. Hawkins, 905 F.2d 1489, 1496 (11th Cir.1990). The Government must establish
only that the fraudulent scheme existed; conviction for mail fraud "need not rest on the success of
the fraudulent scheme." United States v. Wingate, 997 F.2d 1429, 1433 (11th Cir.1993). Guilty
knowledge can rarely be established by direct evidence, especially in respect to fraud crimes which,
by their very nature, often yield little in the way of direct proof. See United States v. DesMarais,
938 F.2d 347, 352 (1st Cir.1991).
In this case we conclude that the mails were used and the United States was defrauded at
the conclusion of the following sequence of events: (1) Healthmaster (reimbursable) premiums were
deposited into the trust fund; (2) Preferred Care (non-reimbursable) premiums were not paid into
the trust fund, although Appellants had an apparent fiduciary obligation to do so, but were siphoned
off via the mails to Managed Risk shareholders; (3) Preferred Care employees made $225,000 in
claims which were paid by the trust; (4) the money in the trust used to pay the non-reimbursable
claims was comprised of Medicare reimbursed money. 18 U.S.C. § 1341.
We have examined the record as to the mailing of each of the forty-three checks charged in
the indictment. We conclude that direct testimonial evidence of mailing exists as to Counts 67-78,
and strong circumstantial evidence of mailing exists as to Counts 36-66. See Waymer, 55 F.3d at
570-571. As to Kelly, his arguments that no crime was committed because he had "no duty" to
deposit the Preferred Care premiums in the trust fund, and, that the Preferred Care premiums
contained general liability or commercial insurance are without merit. As to Suba, we find that there
is ample circumstantial evidence to support the idea that he knew exactly what was going on.
Although he claims he "was only a risk manager for Healthmaster," he also managed and owned part
of Managed Risk. Suba knew and participated in using, as Managed Risk's business address, that
of an Atlanta post office, while operating Managed Risk on Healthmaster's Augusta premises.
Strong circumstantial evidence is that the Preferred Care checks were addressed to this Atlanta post
office box. Suba endorsed and deposited the Preferred Care checks in Atlanta or Marietta banks,
other strong circumstantial evidence of mailing. Suba signed the twenty-seven checks distributing
Preferred Care money to the Managed Risk shareholders, including a hefty $390,000 profit to
himself.15
The jury could reasonably infer Suba's guilty knowledge and participation in the scheme to
defraud Medicare from the whole of the evidence presented and strong circumstantial evidence that
the checks were mailed. Given the widespread nature of the Medicare fraud from these Preferred
Care counts and the large amount of extra revenue generated to Suba and Kelly personally, only a
conscious course of calculated ignorance could have kept Suba from knowing the truth. In fact, we
think that Suba played more than a minor role in this operation. It is clear that he had more
understanding of the underlying unlawful act than he cares to admit and that he was a knowing and
willing participant in the conspiracy to defraud Medicare through this house of cards.
The same is true for Kelly, who, second only to Garrison, held the reins of corporate control
as chief financial officer of Healthmaster and had hands-on involvement in the operation of the
business. Our review of the record persuades us that there was sufficient evidence to support both
Kelly's and Suba's convictions on these counts. See United States v. O'Brien, 14 F.3d 703, 708 (1st
15
A substantial dividend rate of return for a shareholder making only a $10,000 investment.
Cir.1994)(where extensive circumstantial evidence "formed a river of proof" supporting a jury's
conviction of an ambulance service owner on 420 counts relating to Medicare fraud).
2. Money Laundering (Counts 79-109)
Kelly concedes that the financial transactions alleged in the money laundering counts
occurred. He claims that money laundering did not occur because the financial transactions did not
involve the proceeds of mail fraud.16 Suba does not address this issue in his briefs other than in a
sentencing context.
The Government contends that a reasonable juror could find that Kelly and Suba laundered
the mail fraud Preferred Care premiums by first depositing them in Managed Risk account and then
distributing them to its shareholders. As evidence of Kelly's criminal intent, the Government points
to his manipulation of the Garrison children's trust distribution deposits. Kelly forged the trustee's
name on the signature card (of an account of which the trustee had no knowledge) and then forged
the trustee's endorsement on the checks, also without his knowledge or permission. Laundering
continued when Suba and Kelly deposited their distributions into their personal bank accounts.
Kelly engaged in further money laundering by investing with two brokerage houses and purchasing
South Carolina real estate.
In order to prove the crime of money laundering, the Government must prove that Kelly and
16
Kelly also claims that (1) his financial transactions had no affect upon interstate commerce;
and (2) that his conviction for money laundering cannot be upheld because those counts involved
more money ($1.7 million) than the mail fraud counts ($1.4 million). Both of these arguments
are meritless. First, there is evidence that his transactions had an effect upon interstate
commerce. See 18 U.S.C. § 1956(c)(6) (defining financial institutions as one specified in 31
U.S.C. § 5312(a)(2), including a wide range of institutions, as the district court instructed the
jury). Second, the law in this circuit is clear that "where funds involved in the transaction are
derived from a commingled account of which only a part comes from "specified unlawful
activities,' " money laundering convictions can be upheld. See United States v. Cancelliere, 69
F.3d 1116, 1120 (11th Cir.1995).
Suba "conduct[ed] ... a financial transaction which in fact involve[d] the proceeds of specified
unlawful activity...." See 18 U.S.C. § 1956; United States v. Cancelliere, 69 F.3d 1116, 1119 (11th
Cir.1995). We think the evidence is clear that a reasonable juror could find that the Government
sustained its burden of proving beyond a reasonable doubt that Kelly and Suba laundered the
Preferred Care premiums at issue in the mail fraud counts by depositing them into Managed Risk
accounts and distributing them to themselves as shareholders. Kelly's unlawful activity went two
steps further when he forged the trustee's signature and endorsements and invested the proceeds in
securities and real estate. Neither were these money laundering transactions "open and notorious"
as Kelly contends. See United States v. Dobbs, 63 F.3d 391 (5th Cir.1995). We find no error
regarding this issue.
C. The Health Insurance Fund Allegations (Counts 112-123, 125-128)
1. Mail Fraud (Counts 112-115)
Kelly contends that the Government failed to prove mail fraud because it failed to prove that
he knowingly and willfully embezzled from the Greenville account. He claims that there is no
evidence that HDR transferred the funds from the Greenville account to the Augusta II account
based his false statement that he could obtain a "better yield" elsewhere, or that his statement was
material in influencing HDR's decision to comply with his request.
The Government argues that mail fraud was committed when Kelly requested that HDR issue
four (Medicare-reimbursed) Greenville account checks and mail them to him for deposit in the
Augusta II account, creating a $1,587,775 "slush fund." It claims that Kelly's "better yield"
statement was relevant because it falsely implied that he planned to use the money to benefit the
trust fund when in fact he used it to benefit himself and Master Health.
To prove Kelly violated the mail fraud statute, the Government must show that he
intentionally participated in a scheme to defraud and used the United States mails to carry out that
scheme or artifice. 18 U.S.C. § 1341; see Waymer, 55 F.3d at 568. And, although proof of specific
intent to defraud is necessary, id., "circumstantial evidence of criminal intent can suffice." United
States v. Cox, 995 F.2d 1041, 1045 (11th Cir.1993). See also Part V.B.1 supra.
Viewing the evidence in the light most favorable to the Government and resolving all
reasonable inferences and credibility evaluations in favor of the jury's verdict, we agree. See
Massey, 89 F.3d at 1438. The Government need not produce direct proof of scienter in a mail fraud
case, circumstantial evidence will suffice. See Hawkins, 905 F.2d at 1496. Kelly's false statement
constituted circumstantial evidence of criminal intent. Id.; see Cox, 995 F.2d at 1045. We think
the record is clear that a reasonable juror could conclude that Kelly committed mail fraud when he
caused the Greenville account Medicare funds to be mailed to and deposited in the Augusta II
account.
2. Embezzlement from an employee benefit plan (Counts 116-121)
Kelly contends that there is no evidence to prove that he acted willfully or knew that his use
of the money in the Augusta II account violated any legal duty. He claims that the embezzlement
conviction should be set aside because the Government failed to prove the requisite criminal intent.
The Government claims that the evidence easily demonstrated that Kelly embezzled $1,587,775
from the Greenville account, through the Augusta II account, both for his own use and for the benefit
of Master Health.
A charge of embezzlement from an employee benefit fund requires that the Government
prove that Kelly is a person who "embezzles, steals, or unlawfully and wilfully abstracts or converts
to his own use or to the use of another, any moneys, funds, securities, premiums, credits, property,
or other assets of any employee welfare benefit plan...."17 18 U.S.C. § 664. Section 664 requires
a showing of fraudulent intent to sustain a conviction. See United States v. Andreen, 628 F.2d 1236(9th Cir.1980). In United States v. Snyder, 668 F.2d 686 (2d Cir.1982), the Second Circuit
recognized that "[t]he only real question ... was whether [the defendant] took [the funds] with the
requisite criminal intent." Id. at 690.
We conclude that the evidence was sufficient to sustain a conviction for violating section 664
beyond a reasonable doubt. A reasonable jury could have found that Kelly possessed the specific
criminal intent necessary to satisfy the statute and that he embezzled Medicare money from an
employee benefit plan for his own use and that of Master Health. He used the funds to purchase a
$1 million certificate of deposit for Master Health which had been unable to meet Georgia's new
capitalization requirements and took three checks ($116,160; $78,400; $71,256) for his own
benefit. Kelly's argument that there was no evidence that these funds wouldn't someday be returned
to the Augusta II account is without merit. See United States v. Wuagneux, 683 F.2d 1343, 1359
(11th Cir.1982) (citations omitted)(where the possibility that funds will be recovered does not
preclude criminal liability). We find no error on this issue.
3. Money Laundering (Counts 122-123, 125-128)
Kelly contends that since he should be acquitted on the mail fraud and embezzlement
counts, he is therefore entitled to a judgment of acquittal on the money laundering counts. The
Government points to the record and to the fact that Kelly did not report the three checks on his
17
"The legislative history of Section 664 clearly indicates that its intended purpose was to
preserve welfare funds for the protection of those entitled to their benefits." United States v.
Santiago, 528 F.2d 1130, 1133 (2d Cir.1976) citing, H.R.Rep. No. 87-998 (1961), reprinted in
1962 U.S.C.C.A.N. 1532. This important public policy purpose is the underlying momentum for
the enactment of section 664. United States v. Somerstein, 971 F.Supp. 736, 748
(E.D.N.Y.1997).
income tax return.
In order to prove that Kelly laundered money in connection with the mail fraud and
embezzlement counts, the Government is required to show that the property involved in a financial
transaction represented proceeds of some form of unlawful activity, 18 U.S.C. § 1956(a)(1); that
Kelly conducted or attempted to conduct such financial transaction with the intent to evade income
taxes, 18 U.S.C. § 1956(a)(1)(A)(ii); knowing that the transaction was designed in whole or in part
to conceal or disguise the nature, location, source, ownership, or control of those proceeds. 18
U.S.C. § 1956(a)(1)(B)(i).
As Kelly did not report these three checks on his income tax return, the jury's conclusion that
Kelly laundered these Medicare monies is supported by a reasonable construction of the evidence.
D. The Sizemore Security Mail Fraud Allegations (Counts 110-111)
Suba claims that he was not involved in wording the invoice for the $125,000 certificate of
deposit for Sizemore Security as an "additional premium" instead of a "loan" but that Kelly's initials
and jottings were on the invoice and the request form. Kelly claims that no fraud was proven
because the loan was repaid.
The Government claims that the evidence clearly indicates Kelly's intent to defraud when
he mailed a "request for $125,000 check"/invoice from the Augusta WC fund to the Trust Company
Bank. Trust Company Bank in turn mailed a $125,000 check to Managed Risk and Managed Risk
used these funds for its purchase of a $125,000 certificate of deposit for Sizemore Security.
Repayment was made only after the investigation was ending, three months before the indictment
was issued.
Repayment in the face of litigation does not show a lack of fraudulent intent. United States
v. Sirang, 70 F.3d 588, 595 (11th Cir.1995). Trust Company Bank mailed the Augusta WC check
comprised of Medicare funds to Managed Risk's Atlanta post office box over which Kelly and Suba
had control. The jury was entitled to conclude that Kelly and Suba used the United States mails to
manipulate Medicare funds in the Augusta WC account for the benefit of themselves and their
company. There is no error on this issue.
E. The False Statement Allegations—(River Valley (Counts 11-26) and the Concealment of Related
Company Managed Risk Allegations (Counts 30-32))
Kelly contends that the Government failed to prove the essential elements of these counts
based upon alleged "false statements" in the cost reports, i.e., treating the money paid to the
Galloways for the purchase of River Valley as a salary expense, and failing to disclose that
Healthmaster and Managed Risk were related companies on 1991, 1992, and 1993 cost reports. He
bases his contention on the premise that he did not prepare the cost reports and that "[i]t is beyond
dispute that the Medicare regulations are a complicated morass of compliance rules."
The Government counters that Kelly, himself, is a certified public accountant, was chief
financial officer and second-in-command of Healthmaster and that he was warned by a Healthmaster
employee that the River Valley scheme would constitute Medicare fraud because Medicare would
in essence be illegally reimbursing Healthmaster for the cost of its purchase of River Valley. In
addition, the evidence clearly shows that Kelly concealed the relationship between Healthmaster and
Managed Risk by using an Atlanta post office box address and an Atlanta answering service
telephone number.
In order to prove that Kelly made false statements in violation of 18 U.S.C. § 1001, the
Government need only show that Kelly knowingly and willfully concealed a material fact by any
trick, scheme, or device, or made or used a false document knowing that it contained any false,
fictitious, or fraudulent statement or entry. 18 U.S.C. § 1001. A reasonable jury could conclude
from the substantial evidence presented on these counts that Kelly violated the false statements
statute.
VI. CONCLUSION
Based upon the foregoing, the convictions and sentences of Suba and Managed Risk are
affirmed. As to Kelly, except as to Counts 131 and 132 which are reversed, his conviction is also
affirmed. We remand for Kelly's resentencing on Counts 131 and 132 in accordance with this
opinion.
AFFIRMED IN PART; REVERSED IN PART; REMANDED FOR RESENTENCING AS
TO KELLY.