United States v. Ward

[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED
U.S. COURT OF APPEALS
____________________________ ELEVENTH CIRCUIT
12/08/99
THOMAS K. KAHN
No. 98-2881 CLERK
____________________________
D.C. Docket No. 4:97-cr-79-RH
UNITED STATES OF AMERICA,
Plaintiff-Appellant,
versus
KRISTOPHER DOUGLAS WARD,
Defendant-Appellee.
__________________________
Appeal from the United States District Court
for the Northern District of Florida
___________________________
(December 8, 1999)
Before BLACK and WILSON, Circuit Judges, and RONEY, Senior Circuit Judge.
WILSON, Circuit Judge:
The United States appeals a judgment of acquittal granted on three counts of a
six-count indictment charging Kristopher Douglas Ward with bankruptcy fraud and
money laundering, after a jury found him guilty on all six counts. For the reasons
discussed below, we affirm Ward’s acquittal on two of the bankruptcy fraud counts
and reverse his acquittal on the money laundering count. We remand this case for
sentencing on that count.
I. BACKGROUND
Appellant Kristopher Douglas Ward was engaged in the logging business. He
owned Action Industry, a sole proprietorship which provided hydraulics and supplies
and performed hydraulic repairs for other loggers. After financial setbacks, Ward
formed a corporation, Action Industry Trust, Inc., that would take over the sole
proprietorship. Ward executed a bill of sale transferring the assets of the sole
proprietorship to the new corporation. He then filed a personal petition for bankruptcy
under Chapter 7 of the Bankruptcy Code. The government indicted Ward and charged
him with four counts of bankruptcy fraud for making false statements under oath on
his bankruptcy petition, one count of concealing assets and one count of money
laundering in connection with certain concealed assets.
2
A jury found Ward guilty on all six counts charged in the indictment, including
the one count of concealment of assets in violation of 18 U.S.C. § 152, four counts of
making a false oath in a bankruptcy proceeding in violation of 18 U.S.C. § 152, and
one count of money laundering in violation of 18 U.S.C. § 1956. Ward moved for a
judgment of acquittal pursuant to Federal Rule of Criminal Procedure 29(c). The
district court denied the motion as to the false oath charges in Counts I, II, and III of
the Indictment1 and granted the motion as to Counts IV, V and VI. In Count IV of the
Indictment, the government alleged that Ward knowingly and fraudulently made a
false oath that he sold Action Industry in 1992. Count V alleged that Ward
knowingly and fraudulently made a false oath that his gross income for 1991 and 1992
was $15,000. Count VI alleged that Ward knowingly and willfully conducted or
attempted to conduct monetary withdrawals involving proceeds of a specified
unlawful activity with the intent to conceal and disguise the location, source,
ownership and control of these proceeds. The government appealed the district
court’s grant of Ward’s motion for judgment of acquittal on Counts IV, V and VI.
II. DISCUSSION
1
Defendant has not appealed the district court’s denial of his motion for judgment of
acquittal pertaining to Counts I, II and III. We shall briefly discuss these counts inasmuch as they
are necessary for an understanding of the record on appeal and insofar as they pertain to Count VI
which charges money laundering. Our reasoning regarding Count VI for money laundering is
premised on the sufficiency of evidence for Count III.
3
A. STANDARD OF REVIEW
This Court has jurisdiction to review a final decision of a district court. See 28
U.S.C. § 1291. In considering a motion for the entry of judgment of acquittal under
Federal Rule of Criminal Procedure 29(c), a district court should apply the same
standard used in reviewing the sufficiency of the evidence to sustain a conviction. See
United States v. Sellers, 871 F.2d 1019, 1020 (11th Cir. 1989). The district court must
view the evidence in the light most favorable to the government. See id. (citing
Glasser v. United States, 315 U.S. 60, 80 (1942), superceded by rule on other
grounds, Bourjaily v. United States, 483 U.S. 171 (1987)). The court must resolve
any conflicts in the evidence in favor of the government, see United States v. Taylor,
972 F.2d 1247, 1250 (11th Cir. 1992), and must accept all reasonable inferences that
tend to support the government’s case. See United States v. Burns, 597 F.2d 939, 941
(5th Cir. 1979).2 The court must ascertain whether a reasonable jury could have found
the defendant guilty beyond a reasonable doubt. See Sellers, 871 F.2d at 1021 (citing
United States v. O’Keefe, 825 F.2d 314, 319 (11th Cir. 1987)). “‘It is not necessary
for the evidence to exclude every reasonable hypothesis of innocence or be wholly
inconsistent with every conclusion except that of guilt, provided a reasonable trier of
2
All decisions rendered by the former Fifth Circuit prior to October 1, 1981 are
precedent in this Court. See Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981).
4
fact could find that the evidence establishes guilt beyond a reasonable doubt.’”
Sellers, 871 F.2d at 1021 (quoting United States v. Bell, 678 F.2d 547, 549 (5th Cir.
Unit B 1982) (en banc), aff’d on other grounds, 462 U.S. 356 (1983)). A jury is free
to choose among reasonable constructions of the evidence. See Sellers, 871 F.2d at
1021. The court must accept all of the jury’s “reasonable inferences and credibility
determinations.” See id. (citing United States v. Sanchez, 722 F.2d 1501, 1505 (11th
Cir. 1984)).
In reviewing the district court’s determination, this Court also applies the
foregoing standards. Our evaluation is comparable to a review for the sufficiency of
the evidence to sustain a conviction. See United States v. Barfield, 999 F.2d 1520,
1522 (11th Cir. 1993) (citation omitted). We do not afford any deference to the
district court’s decision. See id.; see also United States v. Greer, 850 F.2d 1447, 1450
(11th Cir. 1988) (district court’s decision that the evidence was insufficient to support
the jury’s verdict is a legal issue entitled to no deference on appeal).
5
B. CONCEALMENT OF ASSETS AND FALSE OATHS
A person can violate 18 U.S.C. § 152 if he "knowingly and fraudulently
conceals from a custodian, trustee, marshal, or other officer of the court charged with
the control or custody of property, or, in connection with a case under title 11, from
creditors or the United States Trustee, any property belonging to the estate of a
debtor" or if he "knowingly and fraudulently makes a false oath or account in or in
relation to any case under title 11."3 See 18 U.S.C. § 152(1), (2). The false oath must
pertain to a material matter. See United States v. Key, 859 F.2d 1257, 1261 (7th Cir.
1988) (citations omitted). The government proved beyond a reasonable doubt that
Ward concealed assets and made false oaths regarding material matters as charged in
Counts I, II and III of the Indictment, and the jury so found.
Count I of the Indictment alleged that Ward knowingly and fraudulently failed
to disclose to the bankruptcy court trustee the existence of certain bank accounts that
were part of the bankruptcy estate. The record reflects that as of January 29, 1993, the
date he filed his petition for bankruptcy, Ward had open and active accounts in his
name at Lafayette County State Bank and Citizens Bank that contained some money.
He concealed these accounts from the trustee by failing to disclose them.
3
Title 11 of the United States Code governs bankruptcy proceedings. See 11 U.S.C.
§ 103.
6
Count II alleged that Ward knowingly and fraudulently made a false statement
under oath at a meeting with creditors on March 2, 1993 that he had no connection
with Action Industry except that his wife purchased it. Ward operated Action
Industry, the sole proprietorship, as well as Action Industry Trust, Inc., the new
corporation that acquired the sole proprietorship’s assets. He was substantially
involved in running their day to day affairs with his wife, including paying debts,
signing invoices and checks, and deriving income from both entities. He had a
significant connection with Action Industry and Action Industry Trust, Inc., which
was a perpetuation of the sole proprietorship. Thus, his statement that he had no
connection with Action Industry was false.
Count III alleged that Ward made a false statement under oath on bankruptcy
Schedule B that he had no checking, savings or other financial accounts nor any
accounts receivable or any inventory. Yet, there is evidence that Ward had open and
active accounts at Lafayette County State Bank and Citizens Bank containing almost
$200 as well as over $14,000 in accounts receivable. Ward collected a relatively small
portion of the accounts receivable but used the accounts as collateral to run the new
corporation. The funds in these accounts were not enormous and were collateralized.
However, according to expert testimony, Ward was still obligated to disclose them to
7
the bankruptcy court. This count is the “specified unlawful activity” upon which the
money laundering count is premised.
The district court was correct in concluding that sufficient evidence supported
the jury’s guilty verdict on Counts I, II and III and therefore denying Ward’s motion
for judgment of acquittal on those counts.
Count IV alleges that Ward made a false oath on Schedule I of his bankruptcy
form by stating that he sold Action Industry in 1992. The district court granted
Ward’s motion for acquittal on this charge. We determine that it was correct in so
doing. The record contains insufficient evidence upon which a reasonable jury could
rely to find Ward guilty beyond a reasonable doubt. The government’s theory of
Count IV is that the sale of Action Industry was a sham; it did not occur. In support
of this theory, the government contends that Ward made inconsistent statements on
several occasions about the alleged sale. He stated that he sold it to his wife for
$8,000 and he also stated that he sold it to his brother for $8,000. The government
further contends that Ward’s bank accounts and tax returns contained no evidence of
the $8,000 sale. The government failed to prove that the sale did not occur. On
December 23, 1992, before he filed his bankruptcy petition, Ward executed a bill of
sale wherein he conveyed the assets of Action Industry for $8,000 to Action Industry
8
Trust, a valid Florida corporation.4 The $8,000 was paid to Citizen’s Bank, the
lienholder on the assets and inventory. The district court correctly granted Ward’s
motion for judgment of acquittal on Count IV.
Count V alleges that Ward knowingly and fraudulently made a false oath in his
Statement of Financial Affairs by stating that his yearly gross income for 1991 was
$15,000 and his yearly gross income for 1992 was $15,000. The question on the form
asked for gross income. The question also asked for the source. For each year, next
to the term "source," appears the term “earnings.” Additionally, for each year, the
figure "$15,000" appears next to the term "amount." The district court determined
that this was not a false statement but it was clearly nonresponsive. Ward testified
that he knew the difference between gross and net income and the record demonstrates
that his gross income was substantially higher than $15,000. However, there is no
evidence concerning whether his earnings were actually $15,000. Additionally, Ward
only completed the worksheets from which his attorney generated the form at issue.
These worksheets were not in evidence because they were destroyed in the normal
course of business. The record demonstrates that the jury did not have sufficient
evidence from which it could conclude that this statement was false. The government
4
In the corporations’s Articles of Incorporation, Ward’s wife is listed as the president
and secretary/treasurer and his brother is listed as a shareholder. In light of the totality of the
evidence and the government’s burden of proof, the fact that the corporation was formed after the
sale of Action Industry does not render the sale a sham.
9
failed to sustain its burden of proving beyond a reasonable doubt that Ward acted
knowingly and fraudulently.
C. MONEY LAUNDERING
Count VI charges Ward with money laundering. It alleges that Ward
knowingly and willfully conducted financial transactions involving proceeds of a
specified unlawful activity with the intent to conceal and disguise the location, source,
ownership and control of the proceeds. 18 U.S.C. § 1956 proscribes the laundering
of monetary instruments. It provides in pertinent part: “Whoever, knowing that the
property involved in a financial transaction represents the proceeds of some form of
unlawful activity, conducts or attempts to conduct such a financial transaction which
in fact involves the proceeds of specified unlawful activity . . . knowing that the
transaction is designed in whole or in part . . . to conceal or disguise the nature, the
location, the source, the ownership, or the control of the proceeds of specified
unlawful activity . . .” commits a federal offense. 18 U.S.C. § 1956(a)(1)(B)(i); see
also United States v. Suba, 132 F.3d 662, 674-75 (11th Cir. 1998) (discussing statute)
United States v. West, 22 F.3d 586, 590-91 (5th Cir. 1994) (discussing elements of
money laundering).
“[T]he term ‘knowing that the property involved in a financial transaction
represents the proceeds of some form of unlawful activity’ means that the person
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knew the property involved in the transaction represented proceeds from some form,
though not necessarily which form, of activity that constitutes a felony . . . . “ 18
U.S.C. § 1956(c)(1). There is record evidence upon which a reasonable jury could
have relied to conclude that the government proved this element beyond a reasonable
doubt.
“The term ’transaction’ . . . with respect to a financial institution includes a
deposit, withdrawal, transfer between accounts, exchange of currency, loan, extension
of credit, . . . or any other payment, transfer, or delivery by, through, or to a financial
institution, by whatever means effected.” 18 USCA §1956(c)(3). The government
proved that Ward engaged in monetary deposits and withdrawals from the concealed
Lafayette County State Bank account as well as the First Federal Savings Bank which
involved the concealed account receivable and the sole proprietorship. These
constitute “transactions” under this section.
The term "specified unlawful activity" includes bankruptcy fraud in violation
of 11 U.S.C. § 152. See 18 U.S.C. § 1956(c)(7)(D); see also West, 22 F.3d at 591 n.12
(construing code section). Since there is sufficient evidence to support Count III, the
money laundering count is still viable notwithstanding the lack of evidence for Counts
IV and V.
11
The language of the district court’s order itself leads to the inescapable
conclusion that there is sufficient evidence to support the jury’s verdict. For instance,
the court concluded that “[t]he record supports the assertion that some comparatively
small amount was collected on those [unlawfully concealed] accounts and deposited
to the accounts from which the withdrawals at issue eventually were made. This
provides some support for the government’s position.” The order goes further to
conclude that Ward was able to continue to use his concealed Lafayette County State
Bank account to:
obtain and use cash derived from accounts receivable of the sole
proprietorship to pay sole proprietorship creditors (and thus keep them
satisfied so that they would continue to deal with the new corporation),
and to funnel into the new corporation a modest amount of cash from
accounts receivable of the sole proprietorship, thus funding the new
corporation’s operations at least to a limited extend with sole
proprietorship assets. The amounts were not large, but they may have
been critical to the ability of the new corporation to get up and running.
The court further reasoned:
the small but not insignificant funds derived from sole proprietorship
accounts receivable and used by the corporation helped it get up and
running and thus contributed to its later operations. Such an infusion of
case into a business might, under some circumstances and for at least
some time, be sufficient to render all the corporation’s revenues
‘proceeds’ of specified unlawful activity, even after the infused cash was
spent.
However, the court’s reasoning is unpersuasive in its conclusion that:
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[e]ven in such circumstances, there presumably would be a point at
which the taint would be gone from long continuing and otherwise
lawful operations. Here the very small amount of the improper infusion,
the great predominance of legal capital and revenues, and the passage of
time take this case beyond the point at which the taint was gone.
No legal authority supports the district court’s notion that the value of the proceeds
is particularly significant to this analysis, or its theory that funds from unlawful
activities can lose their taint under these certain circumstances. Although the district
court’s rationale may be logically persuasive, it is without a legal basis.
To obtain a conviction under § 1956(a)(1)(B)(i), the government must prove
beyond a reasonable doubt “that the party engaged in the transaction knew that the
funds used represented, in whole or in part, proceeds of a specified unlawful activity.”
United States v. Cancelliere, 69 F.3d 1116, 1119 (11th Cir. 1995)5. Section
1956(a)(1)(B)(i) permits convictions “where the funds involved in the transaction are
derived from a commingled account of which only a part comes from ‘specified
unlawful activities.’" Id. at 1120. For example, when proceeds from a specified
unlawful activity are deposited into an account “at some indefinite point,” the
government need not trace the origin of all funds in the account to ascertain “exactly
which funds were used for what transaction.” Id. 1119-20. The district court’s
5
The trial court acknowledged this holding but reasoned that “despite this principle,
. . . at some point the connection becomes too attenuated between a small, comparatively nominal
deposit and the balance in the account months later.”
13
analysis of the nominal nature of the funds at issue and the possibility that they could
become untainted necessarily compels the government to trace the origins of the funds
and ascertain “exactly which funds were used for what transaction.” This is contrary
to Cancelliere. See id. at 1120. Moreover, the district court’s rationale belies
Congressional intent. Congress did not intend for participants in unlawful activities
to escape conviction for money laundering “simply by commingling funds derived
from both ‘specified unlawful activities’ and other activities.” Commingling of funds
“is itself suggestive of a design to hide the source of ill-gotten gains . . . .” Id.(quoting United States v. Jackson, 935 F.2d 832, 840 (7th Cir. 1991)).
The district court’s theory that the passage of time and the large infusion of
legal proceeds remove the taint from the illegal proceeds defeats the purpose of the
money laundering statute and promotes money laundering schemes. Because money
is fungible, the government must prove only that the tainted proceeds were
commingled with other funds. See United States v. Garcia, 37 F.3d 1359, 1365 (9th
Cir. 1994) (since money is fungible, segregation of proceeds defeats statutory
purpose). There is evidence that Ward commingled proceeds from the concealed
Lafayette County State Bank account and proceeds collected from Action Industry’s
concealed accounts receivable with legally derived funds from the new corporation.
The district court attempted to segregate the tainted funds in the commingled account
14
and in so doing, determined that their taint was lost at some point. However, the
tainted funds could not be easily divided from legal funds as the district court
suggests. When money is commingled, “the illicitly-acquired funds and the
legitimately-acquired funds . . . cannot be distinguished from each other . . . . ” United
States v. Moore, 27 F.3d 969, 976-77 (4th Cir. 1994) (interpreting 18 U.S.C. § 1957).
The illicit funds cannot, in the words of the district court, become “too attenuated” or
“turn over too many times” so that no part of the funds in the accounts can be said to
be derived from amounts collected on the sole proprietorship. Once proceeds become
tainted, they cannot become untainted.
The value of the concealed property is not an essential element of 18 U.S.C. §
152. See United States v. Grant, 971 F.2d 799, 808 (1st Cir. 1992); Kanner v. United
States, 21 F.2d 285, 286 (2d Cir. 1927). The district court erroneously focused on the
nominal value of the concealed assets in concluding that the funds at issue were not
laundered. The value of the funds at issue should not be confused with the
government’s burden of proving that the funds involved were proceeds of a crime.
This implicates the design element of the money laundering statute which requires
proof “that the funds used in the charged transaction were derived in substantial
measure from ‘specified unlawful activities’ rather than from other legal or illegal
conduct.” Jackson, 935 F.2d at 840; United States v. Garcia-Emanuel, 14 F.3d 1469,
15
1474 (10th Cir. 1994) (discussing design element). However, there is no requirement
that a “substantial portion” of the funds be derived from a specified unlawful activity
as implied by the district court. See United States v. Jackson, 983 F.2d 757, 768 (7th
Cir. 1993) (discussing Jackson, 935 F.2d at 840). The government met its burden of
proving that the funds used in several of the transactions listed in Count VI of the
Indictment were derived in “substantial measure” from bankruptcy fraud.
III. CONCLUSION
The evidence was insufficient for a reasonable jury to have found Ward guilty
of making false oaths when stating that he sold Action Industry or when stating that
his gross income for the years 1991 and 1992 was $15,000 respectively. However,
there was sufficient evidence from which a reasonable jury could have found Ward
guilty of making a false oath that he had no bank accounts or accounts receivable and
engaging in financial transactions involving those concealed accounts in violation of
the money laundering statute. Accordingly, we AFFIRM the district court on Counts
IV and V and REVERSE and REMAND for sentencing on Count VI.
AFFIRMED IN PART and REVERSED IN PART.
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