United States v. Ross

United States Court of Appeals,
Eleventh Circuit.
No. 96-3556.
UNITED STATES of America, Plaintiff-Appellee,
v.
Kenneth D. ROSS, James H. Adams, Defendants-Appellants.
Dec. 19, 1997.
Appeals from the United States District Court for the Northern District of Florida. (No. 94-CR-
03138-1 LAC), Lacey A. Collier, Judge.
Before ANDERSON and COX, Circuit Judges, and ALARCÓN*, Senior Circuit Judge.
ALARCÓN, Senior Circuit Judge:
Kenneth D. Ross and James H. Adams appeal from the judgment entered following their
conviction for wire fraud, interstate transportation of money taken by fraud, and conspiracy to
commit mail fraud, wire fraud, interstate transportation of money obtained by fraud, and money
laundering. The Government persuaded the jury that Ross and Adams conspired to obtain money
for their personal use and benefit from two financially troubled insurance companies by falsely
representing that the loans were to be used solely for business purposes. To disguise their intent to
channel part of the funds for their personal use and benefit, and to escape detection by state
insurance regulators, Ross and Adams and their co-conspirators created shell corporations and
contrived deceptive paper transactions that had no economic substance.
Ross and Adams contend that the evidence presented to the jury is insufficient to sustain a
conviction. They also argue that the court erred in its rulings on the admissibility of evidence and
*
Honorable Arthur L. Alarcon, Senior U.S. Circuit Judge for the Ninth Circuit, sitting by
designation.
in rejecting certain jury instructions. Finally, they assert that the district court miscalculated their
sentence and applied a sentencing guideline that is unconstitutional. We discuss each of these
contentions, and the facts pertinent thereto, under separate headings.
We affirm the judgment of conviction because we conclude the evidence is sufficient to
persuade a rational trier of fact of the guilt of the accused of each crime, and we hold that the court's
rulings on the admissibility of evidence and its decision to reject defense instructions were free from
error.
We vacate the sentence imposed on each defendant and remand for resentencing because the
district court failed to make an independent finding that it was persuaded beyond a reasonable doubt
that Ross and Adams conspired to commit the offense of money laundering.
I
SUFFICIENCY OF THE EVIDENCE
A. Background
Ross and Adams contend that the Government failed to present sufficient evidence that they
committed any crime. They argue that the Government failed to demonstrate that they defrauded
the policy holders of Midwest Life Insurance Co. ("MWL") Gulf National Life Insurance Co.
("GNL"), and state insurance regulators by concealing their intent to divert money for their personal
use that had been loaned to corporations controlled by them, in reliance on false representations that
it would be used solely for legitimate business purposes—the purchase of real property and a
merchant vessel suitable for conversion into a gambling casino.
The evidence is sufficient to support a conviction if, "after reviewing 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) (emphasis in the original). "[A]ll reasonable inferences must be drawn
in favor of supporting the jury's verdict." United States v. Sawyer, 799 F.2d 1494, 1501 (11th
Cir.1986) (citing Glasser v. United States, 315 U.S. 60, 80, 62 S.Ct. 457, 469, 86 L.Ed. 680 (1942)).
Ross began his involvement with GNL in 1989. At that time, Ross was the chief executive
officer of Charter Bank, a Mississippi savings and loan association. GNL was experiencing
financial difficulties because of prior bad investments. GNL had a $1,000,000 unsecured note in
its loan portfolio issued to it by a failing savings and loan institution. GNL had a serious financial
problem: if the note was not paid, GNL would become insolvent. GNL concluded that it should
dispose of the unsecured note by using it to purchase real property. In December 1989, GNL
purchased the Ensley Shopping Center in Pensacola, Florida from Charter Bank for $4,000,000. As
payment for the shopping center, GNL assigned the unsecured $1,000,000 note to Charter Bank,
made a cash payment of $1,000,000, and executed a $2,000,000 promissory note secured by a
mortgage on the shopping center. The Ensley Shopping Center was operating at a loss prior to this
transaction. Ross was forced to resign from Charter Bank when it was taken over by the Resolution
Trust Company in March 1990.
On March 13, 1990, Bobby Shamburger and Gary Jackson, the controlling stockholders and
officers of Southshore Holding Company, ("Southshore") opened a bank account in the name of On
Line Investment Company and wired $900,345.33 to that account. MWL was a subsidiary of
Southshore. On March 30, 1990, Shamburger and Jackson filed articles of incorporation in Nevada
for On Line Investment, Inc. ("On Line"). Ross was designated president, secretary, and treasurer
of On Line. He was also the only person who had the right to withdraw from the On Line Investment
bank account.
On Line was originally created as a straw party to conceal the transfer of first mortgage loans
worth $875,000 from Public Investors Life Insurance Co. ("PILICO"), one of the insurance
companies owned by SouthShore to MWL, another SouthShore subsidiary. PILICO was insolvent
at this time and could not make payments to its policy holders without an infusion of new funds.
MWL had been prohibited from purchasing notes from a related company without the consent of
the Nebraska Insurance Commissioner. On Line was used to circumvent this restriction. Ross
purchased the notes from PILICO with the money on deposit in the On Line Investment bank
account. Upon receipt of the notes, Ross assigned them to MWL. Ross was paid $20,000 for
participating in this scheme.
Ross's next transaction with MWL involved the Tops'l Beach and Racquet Club ("the Club"),
which was located in Sandestin, Florida. The Club cost $25,000,000 to develop, but it failed to
produce sufficient funds to repay the development loan. The Club was taken over by the NCNB
Texas National Bank, which first attempted to sell it for $18,000,000. After several years without
attracting a purchaser, the bank reduced the asking price to $5,450,000.
The Sandestin Golf Resort ("Sandestin") was located next to the Club. The Bos Holding
Company owned Sandestin. Peter Bos was its largest stockholder. Sandestin went into bankruptcy
on February 7, 1990. Bos decided that the acquisition of the Club by the Bos Holding Company
would create an attractive golf, tennis, and beach resort, and reduce overhead and administration
costs through combined management. An added incentive was the fact that the Club's property
included two undeveloped parcels that would be suitable for the construction of a hotel or
condominium. Bos persuaded the Birmingham-Destin Investment Partners ("BDIP") to join him
in negotiating for the purchase of the Club. On May 4, 1990, Bos and BDIP formed the Tops'l
Holding Co. Inc. ("THI") for the purpose of purchasing the Club.
On the same date, THI signed an agreement to purchase the Club. THI was required to make
an initial payment of $200,000 as "earnest money." The purchase and sale agreement provided that,
upon consummation of the sale, the earnest money would be applied to the purchase price.
THI was unable to raise the balance of the purchase price from its investors. Meanwhile, the
BDIP partners concluded that they did not wish to participate in the purchase of the Club. Tom
Underwood, a partner in BDIP contacted Ronald Dunston, a Florida real estate broker to seek his
assistance in locating someone who would be interested in purchasing the Club. Dunston informed
Underwood that Ross was interested in building a beach-front hotel. Ross met with Underwood in
the spring of 1990 to discuss the proposed purchase of the Club. Underwood told Ross the purchase
price would be $5,500,000.
Ross contacted Shamburger, Jackson, and Jeremiah O'Keefe, the president of GNL and
owner of GNL's parent company, to see if MWL or GNL would lend him the money to purchase the
Club. Each company expressed an interest in making the loan. On May 1, 1990, Ross presented
MWL with a written request for a commitment to loan the money required for the purchase of the
Club. On the same date, MWL issued a commitment letter in which it indicated it would provide the
entire $5,500,000. Jerry Palmer, MWL's attorney, testified that MWL did not perform any due
diligence to determine whether the investment was sound prior to issuing the commitment letter.
Over the next few months, MWL, Ross, Oscar Jordan, a former member of the board of
directors of Charter Bank and Ross's attorney, and representatives of Bos and Sandestin conducted
negotiations regarding the structure for the purchase of the Club. On June 29, 1990, THI assigned
its right to purchase the Club to On Line1 in exchange for a payment of $200,000 to reimburse THI
for the earnest money it had paid to the owner of the Club. At this point in time, Ross was in a
1
While Ross was originally the sole stockholder of On Line, Gerald Taylor, Ross's
accountant, testified that Adams acquired fifty percent of the stock in On Line prior to the end of
July 1990.
position to purchase the Club because of the $5,500,000 loan commitment he had received from
MWL.
In the early part of July 1990, Dennis LaFont, MWL's treasurer, informed Shamburger and
Jackson that MWL was going to have to report a loss of $2,300,000 on its second quarterly report
to the state insurance regulators in Florida and Louisiana for the period ending June 30, 1990.
LaFont was concerned that a loss of this magnitude would subject the company to regulatory action.
Shamburger and Jackson told LaFont that MWL was going to sell an "option" and realize
a $5,000,000 gain. The term "option" was apparently used to refer to the purchase and sale
agreement for the Club that THI had previously assigned to On Line. Because On Line did not
assign its rights under the purchase and sale agreement to MWL prior to June 30, 1990, MWL could
not accurately or legally report that it owned the right to purchase the Club prior to June 30, 1990
and that this interest was worth $5,000,000.
To manufacture a paper record that would reflect that MWL had a $5,000,000 asset prior to
June 30, 1990, a letter was prepared on MWL letterhead which stated that MWL and Ross agreed
to the termination of MWL's commitment to lend Ross $5,500,000. On August 6, 1990, Ross, acting
as president of On Line, assigned its rights under the purchase and sale agreement to MWL. No
consideration was paid by MWL for the assignment. On the same date, MWL assigned its rights
under the purchase and sales agreement to L'Spot for $5,000,000. Ross was president and director
of L'Spot. Adams was also a director. Ross executed a promissory note on behalf of L'Spot in the
amount of $5,000,000 to MWL in exchange for MWL's rights under the purchase and sale
agreement. In short, Ross, acting as the president of On Line, assigned its right to purchase the Club
to MWL for no consideration and then bought it back, as president of L'Spot, for $5,000,000.
Shamburger and Jackson instructed LaFont to reflect the $5,000,000 promissory note MWL received
from L'Spot on August 6, 1990 as a corporate asset in its second quarter report for the period ending
June 30, 1990.
Meanwhile, on July 19, 1990, Adams obtained a commitment for a loan of $1,700,000 from
MWL for the purchase of a merchant vessel large enough to serve as a floating gambling casino.
Also in July 1990, Dunston, Ross, Adams, and O'Keefe incorporated a company named Casino
Beach for the purpose of developing a casino at Diamond Head, Mississippi.
On July 31, 1990, Ross, Adams, Dunston, Shamburger, Jackson Bos, and others met at
Sandestin to determine how to accomplish the sale of the Club to Ross and Adams. In preparation
for the closing of the sale of the Club, Ross and Jordan created a number of corporations to receive
title to specific portions of the Club property. These corporations included Over Look Corp. ("Over
Look"), Technology Building, Inc. ("Technology Building"), Sand Tops'l Corp. ("Sand Tops'l"),
Tops'l Management, Inc. ("TMI"), and Tops'l Beach Property, Inc. ("Tops'l Beach"). Ross served
as president and director for TMI and Over Look, secretary and director for Technology Building,
and director for Sand Tops'l. Adams was named as a director of TMI. Because the structure of the
purchase and sale proved to be more difficult than anticipated, the closing of the transaction did not
occur until August 6 and 7.
The final agreement was complicated. Pursuant to an agreement titled Partial Assignment
of Contract Rights ("Partial Assignment"), the Club property was divided into four general classes
of property: (1) condominiums; (2) the amenities including inter alia a retail/office building,
restaurant, tennis courts, pool house, and all personal property located in or used in connection with
the various facilities, and all attendant contract rights, licenses and permits; (3) the developer rights;
and (4) the undeveloped parcels 628 and 630. L'Spot transferred its right to acquire the
condominium property to Over Look, Technology Building, and Sand Tops'l. L'Spot transferred its
right to acquire, the amenities, the developer rights, and the undeveloped parcels 628 and 630 to
TMI.
In exchange for the transfer of the acquisition rights, Over Look, Technology Building, and
Sand Tops'l each agreed to pay approximately one third of the purchase price for the Club. MWL
loaned $2,000,000 to each of the three corporations so that they could purchase their share of the
Club pursuant to the Partial Assignment and use the balance for working capital. The terms of the
three loans were identical. They were secured by a mortgage on the portion of the property
purchased by each corporation. Each loan also had as collateral a portion of the property rights
transferred to TMI under the Partial Assignment.2
Thus, payment for the $6,000,000 loaned by MWL for the acquisition of the Club was
assumed by Over Look, Technology Building, and Sand Tops'l. TMI assumed L'Spot's
responsibility to pay $5,000,000 to MWL for the right to purchase the Club. As further
consideration, TMI granted MWL a seven year option to acquire a two-thirds interest in parcels 628
and 630 for one dollar. The Partial Assignment states: "The ... Option may be exercised at any time
by providing written notice thereof to [TMI] within seven (7) years from the date hereof and by
paying, at the closing of such exercise, the sum of One Dollar ($1.00) as the option price thereof."
L'Spot received a similar seven year option to purchase a one third interest in parcels 628 and 630.
TMI executed a mortgage and security agreement to secure payment of the $5,000,000 promissory
2
For example, L'Spot's assignment to Technology Building set forth in the Partial Assignment
provides in relevant part as follows:
Collateral—first mortgage lien on the Technology Assets as well as a lien to be
granted by [TMI] on [TMI's] development rights, general intangibles and
management agreement relating to income properties constituting Technology
Assets.
(Emphasis added).
note, which included property that was already pledged as security for the loans totaling $6,000,000
for the purchase of the Club.3 Parcels 628 and 630 were not included in the mortgage agreements.
As a result of these negotiations, the Club property, which was purchased for $5,450,000,
was divided into several portions and used to secure promissory notes totaling $11,000,000. Parcels
628 and 630, however, were not included in the property subject to foreclosure upon default. In
addition, these valuable properties could be purchased by MWL and L'Spot for an option price that
totalled two dollars. Furthermore, notwithstanding the fact that the purchase for the Club was
$5,450,000, the four corporations signed promissory notes and mortgage agreements totaling
$11,000,000: $6,000,000 for the purchase money for the Club and working capital, and $5,000,000
for the assignment of MWL's right to purchase the Club. As discussed above, the acquisition and
contemporaneous sale by MWL of On Line's right to purchase the Club was done for the sole
purpose of making it appear that MWL had an asset worth $5,000,000 on its June 30, 1990 statement
to the regulators.
Immediately following the sale, Ross opened a bank account for TMI in the AmSouth Bank
of Florida ("the TMI account"). He also created a cash management account for L'Spot with Merrill
Lynch Gulfpost/Biloxi ("the L'Spot account"). After the purchase of the Club, and the payment of
closing costs, $205,000 remained from the money MWL loaned to the three corporations.
Shamburger, acting on behalf of MWL, agreed to deposit the $205,000 in the TMI account for
"operating expenses."
On August 31, 1990, a condominium owned by the Club was sold by TMI for $250,844.77.
The condominium was part of the security for the purchase price loan. Instead of using the proceeds
3
L'Spot's assignment to TMI set forth in the Partial Assignment provides in relevant part,
"[TMI] shall grant to Lender a first mortgage lien upon and a security interest in all of the
operating properties, the General Intangibles and Developer's Rights." (Emphasis added).
of the sale to reduce the outstanding balance on the purchase price loan, Ross, with the consent of
Shamburger and Jackson, deposited the money in the TMI account as "operating expenses." Later
that day, Ross transferred $200,000 from the TMI account to the L'Spot account. On September 1,
1990, Ross transferred an additional $245,000 to the L'Spot account.
On September 26, 1990, Ross withdrew $150,000 from the L'Spot account and deposited it
in his separate personal account at Merrill Lynch. On the same date, Ross executed six checks on
his personal Merrill Lynch account payable to himself for a total of $119,000. Two of these checks
totalling $96,500 were endorsed by Ross and deposited in Adams' account at Merchants and Marine
Bank. On October 2 and October 19, 1990, Ross drew two more checks totaling $32,600 on his
personal Merrill Lynch account and deposited them into his account at Jefferson Bank.
In early October 1990, Ross, acting on behalf of TMI, asked GNL to approve a $3,000,000
"construction/operating" loan for the Club. GNL was in serious financial trouble at this time. It was
desirous of disposing of the Ensley Shopping Center. O'Keefe, president of GNL, informed Ross
and Adams that he would approve a loan to TMI of $3,000,000 if they would purchase the Ensley
Shopping Center from GNL. To satisfy O'Keefe's counter proposal, Adams caused articles of
incorporation to be filed for the Northgate Corporation of Sandestin ("Northgate"). Adams was the
only director of Northgate. Dunston was designated its president and secretary. Its sole purpose was
to acquire the shopping center.
GNL retained Florida attorneys Richard Powell and Fred Estergren to handle the loan to TMI
and the sale of the Ensley Shopping Center to Northgate. By this time, the Resolution Trust
Corporation had taken control of Charter Bank. Charter Bank held a mortgage on the Ensley
Shopping Center as security for its $2,000,000 loan to MWL. Powell became concerned regarding
whether it was necessary to inform Charter Bank that GNL was planning to sell the Ensley Shopping
Center to another party because Charter Bank held the mortgage on this property. Michael
Cavanaugh, GNL's attorney, sent a facsimile to Estergren on October 19, 1990, informing him that
the mortgage did not contain a due-on-sale clause. Accordingly, Estergren did not notify the
Resolution Trust Corporation or Charter Bank of the proposed sale of the Ensley Shopping Center
to Northgate.
Dunston, Ross, Cavanaugh, Jordan, Estergren, and Powell met on October 30, 1990 to
consummate GNL's loan of $3,000,000 to TMI, and the sale of the Ensley Shopping Center by GNL
to Northgate. GNL sold the Ensley Shopping Center to Northgate for $4,100,000. As payment to
GNL for the acquisition of the Ensley Shopping Center, Northgate assumed GNL's obligation to pay
Charter Bank $1,972,650.29, which was owing on the promissory note executed by GNL in favor
of Charter Bank. Northgate also executed a promissory note for $1,127,349.31, secured by all of
Northgate's outstanding stock,4 and a second purchase money mortgage. In addition, Northgate
promised to pay GNL $1,000,000 in cash, no later than October 30, 1990. The agreement to
purchase the Ensley Shopping Center was signed by Adams on behalf of Northgate.
On the same date, GNL agreed to loan TMI $3,000,000 based on Ross's representation that
the money would be used for the Club's operating and maintenance expenses. One million five
hundred thousand dollars of the loan was secured by mortgages on parcels 628 and 630, which had
been previously left free of debt. The money was disbursed as follows: First, GNL set up a reserve
fund for TMI of $1,000,000. Second, GNL endorsed five checks to TMI from different sources
totalling $1,040,000. These checks were deposited in the TMI account. Third, GNL also delivered
a check for $1,000,000 to TMI drawn on its account at the People's Bank in Biloxi, Mississippi. On
October 30, 1990, the date this check was issued by GNL, GNL had a total of $41,500.64 in its
4
The record shows that Northgate's stock had no value at this time.
account at the People's Bank. On the same date, TMI endorsed the $1,000.000 check to Northgate.
Northgate then endorsed the same check back to GNL. Thus, Northgate ostensibly met its obligation
to pay $1,000,000 in cash to GNL as partial payment for the purchase of the Ensley Shopping Center
by presenting to GNL the same check that GNL had issued to TMI with insufficient funds. As a
result of this sleight of hand, GNL's bank account showed a credit of $1,000,000 on November 1,
1990.
On October 30, 1990, $1,000,000 was transferred by wire from TMI account to the L'Spot
account. Immediately after this transfer, Ross issued several checks on the L'Spot account. A check
in the amount of $499,999.99 was issued to Adams. Shamburger received a check for $333,333.33.
Ross also made out a check in the amount of $166,666.66 to himself. Adams, Shamburger and Ross
deposited the checks into their personal bank accounts. Jane Masholie, a GNL employee, testified
that she typed these checks at Ross's direction during the closing of GNL's loan to TMI.
Ross became a consultant for GNL in January, 1991. On January 18 and January 22, 1991,
Ross issued four checks to TMI totaling $550,000 from the $1,000,000 TMI reserve fund, which was
created as part of GNL's loan to TMI. Ross then endorsed each of the checks as president of TMI
for deposit in the L'Spot account. On January 22, Ross issued a check to L'Spot in the amount of
$100,000, a check for $183,333.33 to Jackson, $183,333.33 to Shamburger, $41,666.50 to Adams,
and $41,666.50 to himself. The $100,000 check payable to L'Spot was used to acquire a certificate
of deposit. It was redeemed, endorsed by Ross, and deposited in a bank account opened in the name
of Casino Beach.
In late January, 1991, Ross instructed Ms. Masholie to draft several promissory notes
payable to the order of L'Spot and to back date them so as to make it appear that they were executed
on the dates that checks had been issued on the L'Spot account. A $150,000 promissory note dated
September 26, 1990 was signed by Ross, which provided that he would pay L'Spot interest at a rate
of prime rate floating per annum until paid and payable on demand. A promissory note for
$166,666.66, dated October 10, 1990, was also signed by Ross. Ms. Masholie testified that she made
a typographical error in using October 10, 1990 as the date the note was executed; Ross had
instructed her to use October 30, 1990. Another note dated October 10, 1990 in the amount of
$166,666.66 was signed by Adams. Shamburger signed a promissory note for $333,333.33, which
was backdated to October 30, 1990. A note for the same amount, also backdated to October 30,
1990, was prepared for Jackson, however, it was not signed.
Ms. Masholie prepared a second set of promissory notes at Ross's direction in late January
1991. Each was dated January 24, 1991. She was told that the amounts should match earlier
disbursements from the L'Spot account. Jackson and Shamburger each signed notes in the amount
of $183,333.33. Ross and Adams each signed notes in the amount of $41,666.50.
Ms. Masholie also testified that she drafted a promissory note from Northgate to L'Spot in
the amount of $1,000,000. The note bears the date October 30, 1990. It was not prepared by Ms.
Masholie until approximately one year after October 30, 1990.
On May 14, 1991, Dunston, acting on behalf of TMI, requested that MWL waive the
restrictions on the use of the money loaned to TMI on August 6, 1990 for the purchase of the Club.
The letter reads as follows:
Please accept this letter as a request for written waiver of the loan covenants specified below
which are contained in the loan agreement between TOPS'L Management, Inc. and Midwest
Life Insurance Company dated August 6, 1990. This waiver will serve to document your
prior verbal waiver of these covenants.
Section IV, Negative Covenants, Item E, "Loans to Others and Investments" prohibits
transaction with affiliates unless approved in advance by the Payee (Midwest Life). At
December 31, 1990, TOPS'L Management has outstanding advances to L'Spot Corporation,
its parent company, of $2,195,000. In addition, TOPS'L Management has obligations
totaling approximately $802,222 due to Sand TOPS'L Corp, Overlook Corporation and
Technology Building, Inc., affiliates, resulting from the purchase of TOPS'L Beach and
Racquet Club. These transactions appear to be violations of the above covenants.
Please indicate your acceptance of the waiver request by signing below. Thank you for your
cooperation and assistance.
The waiver request was granted on June 3, 1991.
Ross received a total of $240,933.16 for his personal benefit from the money loaned to TMI
by MWL and GNL for the purchase and operation of the Club. Adams received $660,666.49. As
of the time of trial, neither of them had paid any taxes on these amounts, nor had they repaid the
amounts reflected on the backdated promissory notes.
Ross and Adams assert that the Government failed to prove that they committed any crime.
They argue that the evidence shows, instead, that they were involved in complex, but lawful
financial transactions.
B. Analysis
COUNT I—CONSPIRACY
We begin our analysis of the sufficiency of the evidence in the conspiracy count ("Count
I") by examining the theory of the prosecution in alleging that Ross and Adams were guilty of
conspiracy. "This Court cannot affirm a criminal conviction based on a theory not contained in the
indictment or not presented to the jury." United States v. Elkins, 885 F.2d 775, 782 (11th Cir.1989),
cert. denied, 494 U.S. 1005, 110 S.Ct. 1300, 108 L.Ed.2d 477 (1990) (citation omitted).
Count I alleged a conspiracy among Ross, Adams, Jordan, Dunston, and others to commit
the substantive offenses of mail fraud, wire fraud, interstate transportation of property taken by
fraud, and money laundering in order to further a scheme to defraud MWL, GNL, Charter Bank, and
the states of Mississippi, Florida, and Louisiana. The indictment alleged that the defendants'
fraudulent scheme included the following objects:
It was the defendants' objective to fraudulently divert loan funds from their intended
purposes and thereafter convert these stolen funds to the use and benefit of the defendants,
to include an investment in a Mississippi project to develop a gambling casino, without
disclosing to the regulatory agencies the fact that the funds had been diverted.
It was further the defendants' objective to create a scheme to defraud the people of the States
of Florida, Louisiana, and Mississippi, and Charter Bank, by using the funds illegally
obtained from Midwest Life Insurance Company (Midwest) and Gulf National Life
Insurance Company (Gulf National Life) to invest in speculative investments which
normally would not have been approved as admissible assets for these companies by the
Insurance Commissions of these various states without properly disclosing the close and
affiliated relationships between the true borrowers and the principal lending officials for
these companies.
Thus, the Government's theory of prosecution was that Ross and Adams conspired to induce
two state regulated insurance companies to loan money by fraudulently representing that it was
solely to be used for a legitimate business purpose, without disclosing their intent to divert some of
these funds for their personal use and benefit. The indictment also alleges that a further object of
the conspirators was to falsify insurance company records to cover up their fraud so as to avoid
detection by state insurance regulators.
Having identified the government's theory of prosecution, we must next discuss the
sufficiency of the evidence of a conspiracy. Participation in a conspiracy to commit a crime may
be inferred from circumstantial evidence. See United States v. Delgado, 903 F.2d 1495, 1500 (11th
Cir.1990) cert. denied, 498 U.S. 1028, 111 S.Ct. 681, 112 L.Ed.2d 673 (1991). "[C]onspiracy to
commit a particular substantive offense cannot exist without at least the degree of criminal intent
necessary for the substantive offense itself." Ingram v. United States, 360 U.S. 672, 678, 79 S.Ct.
1314, 1319, 3 L.Ed.2d 1503 (1959) (internal quotation marks and citation omitted) (alteration in
original). To establish a conspiracy to commit wire fraud, the government must prove (1) an
agreement between two or more persons (2) to execute a scheme to defraud and (3) the use of either
the mails or wire service in furtherance of the scheme. See United States v. Simon, 839 F.2d 1461,
1469 (11th Cir.1988). Proof of specific intent to use the mails or wire service is not required to
show conspiracy to commit mail or wire fraud. See United States v. Massey, 827 F.2d 995, 1001-02
(5th Cir.1987). Rather, "[t]he government's burden ... is to demonstrate beyond a reasonable doubt
that [the defendants] agreed to engage in a scheme to defraud in which they contemplated that the
mails [or wire service] would likely be used." Id. at 1002.
There is no dispute regarding the fact that Ross and Adams entered into an agreement with
MWL and GNL through their corporate alter egos to obtain loans for business purposes that were
subsequently diverted to their personal use and benefit. Ross and Adams argue that they committed
no crime because there was no restriction on the use of the GNL loan and MWL expressly waived
all earlier violations of the loan agreement on June 3, 1991.
In his opening brief, Adams argues that the Government's assertion that there were "intended
purposes" for the loans made by GNL and MWL to the corporations controlled by Ross and Adams
is inaccurate. The record is to the contrary.
The Government presented evidence that TMI obtained a $3,000,000 loan from GNL on
October 30, 1990 for the specific purpose of paying for the cost of repairs and the operation of the
Club. The purpose of MWL's loan to L'Spot is clearly reflected in the commitment letter executed
by Jackson on May 1, 1990, as chairman of the board of MWL. The commitment letter states in
pertinent part: "Midwest Life shall lend Five Million Five Hundred Thousand ($5,500,000.00)
Dollars to be used to purchase Tops'l Beach and Racquet Club residential/recreational development."
The record shows that on August 6, 1990, Over Look, Technology Building, and Sand Tops'L
received loans from MWL totalling $6,000,000 for the purchase of the Club and working capital.
Alternatively, Adams maintains that, "even if there was an agreement about the "intended
purposes' of the loan that was breached by Adams or others, the remedy is civil litigation. Adams
asserts that [t]here is nothing in the law stating that this sort of thing would be a criminal felony."
Adams Br. at 16. To support this proposition, Adams refers us to United States v. Kristofic, 847
F.2d 1295 (7th Cir.1988).
A careful reading of the Kristofic decision will readily demonstrate that Adams's reliance on
it in his challenge to the sufficiency of the evidence is misplaced. Kristofic was convicted of
converting to her use "a thing of value of the United States" in violation of 18 U.S.C. § 641. Id. at
1295-96. The evidence produced at Kristofic's trial demonstrated that she received a loan of $60,000
from the Small Business Administration for leasehold improvements, new equipment, and capital
for a restaurant she had opened the previous year in Chicago. Kristofic certified that she would use
the loan proceeds according to the provisions of the loan agreement. See id. at 1296. Less than a
month after she received the loan, Kristofic closed the restaurant. None of the funds were put to
their intended use. Instead, she paid pre-existing debts, made a down payment on a car, made a
personal loan of $12,000 to a friend, invested money in a bar in Texas, and kept $3,000 in cash. See
id. The Seventh Circuit reversed the judgment in Kristofic. The court held that the Government
failed to prove that the defendant converted a thing of value of the United States. The court
reasoned that "loan proceeds do not remain the property of the lender." Id. Therefore "Kristofic's
misapplication of the funds was not a conversion because the government no longer held a property
interest in them." Id. at 1297. The Seventh Circuit's opinion in Kristofic is not applicable to any of
the issues in this case because Ross and Adams were not prosecuted for conversion. They were
prosecuted for fraudulently representing to MWL and GNL that their corporations intended to use
the loan proceeds for specific business purposes without disclosing their intention to divert some of
the money for their personal benefit. Thus, unlike the situation in Kristofic, the crimes committed
by Ross and Adams were completed at the time they made fraudulent representations and failed to
disclose material facts in order to induce MWL and GNL to make the loans.
Following oral argument, Adams filed a letter with the clerk of this court in which he
advances an additional argument based on his reading of the Fifth Circuit's opinion in United States
v. Grossman, 117 F.3d 255 (5th Cir.1997). In Grossman, the defendant was convicted of conspiracy
to commit wire fraud and eleven counts of wire fraud. Grossman obtained several loans from a
savings and loan association in order to purchase a real estate development known as "the Oaks."
The loans contained the following language: "Borrower represents and warrants lender that the loan
will be used by borrower for its business and commercial purposes and not for personal, family,
household or agricultural use." Id. at 259.
The Government contended at trial that Grossman violated this clause because he used the
loan proceeds for business purposes unrelated to the business entity named on the loan. See id.Grossman argued that he was not guilty of fraudulently using the loan proceeds because the
language in the clause allowed him to use it for business purposes related to any of his real estate
holdings. See id. at 260. The Fifth Circuit held that Grossman's interpretation of the clause was
reasonable, although not the only possible interpretation, and stated that "the alleged breach of this
clause does not support a finding of fraudulent intent on the part of Michael Grossman." Id.Adams contends that appellants' interpretation of the loan agreements that they could use the
loan proceeds for their personal benefit was a reasonable interpretation of the loan agreements. This
argument finds no support in the record. The intended purpose for the loans made by MWL and
GNL is free from any ambiguity. MWL loaned three corporations $6,000,000 for the purchase of
the Club and working capital. GNL loaned TMI $3,000,000 to pay for repairs and operating
expenses of the Club. MWL and GNL did not loan any money to Ross or Adams, nor did either
company authorize the three corporations or TMI to make a personal loan to Ross or Adams.
Appellants appear to argue that the failure of GNL expressly to prohibit the diversion of loan
funds obtained for enumerated business purposes justifies their failure to disclose that they intended
to use the money for their personal benefit. Appellants have not cited any authority for this bold
proposition. We reject it as frivolous.
Appellants concede that the diversion for their personal benefit of money loaned by MWL
for the purchase of the Club violated restrictions contained in the written loan agreement. They
maintain, however, that the subsequent waiver of the violation of the loan agreement immunizes
them from prosecution for their conduct and the failure to disclose their fraudulent intent in applying
for the loan. This argument ignores the fact that the fraud was accomplished and the money was
diverted approximately eight months before the waiver was obtained. Ratification or condonation
is not a defense for past criminal behavior. See Gilbert v. United States, 359 F.2d 285, 287 (9th
Cir.1966); 1 Charles E. Torcia, Wharton's Criminal Law § 45 (15th ed.1993).
The evidence, viewed in the light most favorable to the Government, was sufficient to
persuade a rational juror beyond a reasonable doubt that Ross and Adams conspired to induce GNL
and MWL to loan money for business investments without disclosing their intent to divert funds for
their personal use and benefit. This conduct threatened the interests of the policy holders and
deliberately interfered with the ability of the state insurance commissioners to regulate the activities
of these companies and deter a use of their assets that would jeopardize their solvency.
The record shows that in March 1990 Ross entered into an agreement with Shamburger and
Jackson to disguise from insurance regulators the purchase by MWL of first mortgage loans from
a related company. To carry out this deception, On Line, a shell corporation, was created. Ross,
as the president of On Line, purchased the first mortgage loans from a bank account opened and
funded by Shamburger and Jackson, and then assigned the loans to MWL. Ross was paid $20,000
for writing a check, in his capacity as the president of On Line, to purchase the loans and executing
an assignment of the loans to MWL.
A rational juror could also infer from the evidence that Ross and Adams conspired with
Shamburger and Jackson to conceal from state insurance regulators the fact that MWL had a deficit
of $2,300,000 for the second quarter of 1990. This deception was accomplished by using On Line
as a conduit to effect transfer of THI's right to purchase the Club to MWL. First, THI assigned the
Club purchase agreement to On Line. Then, Ross, as president of On Line, assigned the Club
purchase agreement to MWL for no consideration. MWL, in turn, assigned the Club purchase
agreement to L'Spot. Ross, as president of L'Spot, executed a $5,000,000 promissory note in
exchange for MWL's interest in the Club purchase agreement. L'Spot's promissory note was entered
as a $5,000,000 asset in MWL's second quarterly report even though it was not executed until
August 6, 1990, approximately five weeks after the second quarter had ended. Thus, instead of
reporting a $2,300,000 loss, this sham transaction permitted MWL to report a profit of $2,700,000.
Ross and Adams participated in similar trickery to disguise GNL's fragile financial condition
while at the same time negotiating a $3,000,000 loan for the Club's construction and operating
expenses. As discussed above, GNL promised to loan TMI $3,000,000 if Ross and Adams would
purchase the Ensley Shopping Center for $4,100,000. Ross and Adams created Northgate for this
purpose. Adams was its sole director. In payment for the Ensley Shopping Center, Northgate
assumed GNL's obligation to pay the remaining balance of $1,972,650.69 owed by GNL to Charter
Bank for its 1989 acquisition of the Ensley Shopping Center, executed a promissory note for
$1,127,349.31 in favor of GNL, and endorsed and handed to GNL's representative the same
$1,000,000 check that GNL had issued to TMI as part of GNL's $3,000,000 loan to TMI. This
transaction created the illusion that GNL sold a shopping center for $4,100,000 that it had purchased
the previous year for $4,000,000 from Charter Bank. In fact, GNL received a worthless check with
a face value of $1,000,000; a promissory note for $1,127,349.31 secured by all of Northgate's
outstanding stock, which had no value on October 30, 1990; and a second mortgage on the Ensley
Shopping Center. Based on all the evidence presented by the Government concerning the conduct
of Ross and Adams, a rational juror could be persuaded beyond a reasonable doubt that Ross and
Adams agreed to the purchase of Ensley Shopping Center to assist O'Keefe in his efforts to mask
GNL's perilous financial condition from policy holders and insurance company regulators and to
strip GNL of approximately $1,000,000 for their personal use and benefit.
The evidence outlined above demonstrates that Ross and Adams perpetrated a fraud by
withholding material facts regarding their intention to use for their personal use and benefit money
loaned for business purposes. The evidence is also sufficient to demonstrate that a wire transmission
was used to accomplish their fraudulent scheme to withhold from the Charter Bank and the
Resolution Trust Corporation material facts that may have alerted them to take action to prevent use
of the Ensley Shopping Center as a pawn in their scheme to obtain $1,000,000 from GNL for their
personal use and benefit. We later discuss the sufficiency of the evidence to commit the substantive
offense of wire fraud.
Ross and Adams also contend that the evidence is insufficient to persuade a rational juror
that the defendants conspired to commit the offense of interstate transportation of money taken by
fraud. We discuss below appellants' challenge to the sufficiency of the evidence to support their
conviction of the substantive offense of interstate transportation of money taken by fraud. Our
determination that the evidence was sufficient to satisfy a rational juror beyond a reasonable doubt
that Ross and Adams committed the crime of interstate transportation of money by fraud answers
their contention that the evidence was insufficient that this crime was an object of their conspiracy.
We are persuaded that the evidence was sufficient to persuade a rational trier of fact beyond
a reasonable doubt that Ross and Adams conspired to commit the crimes of wire fraud and interstate
transportation of money taken by fraud. We need not consider whether the evidence is sufficient
to support a judgment of conviction for conspiring to commit the crime of money laundering. A
guilty verdict in a multi-object conspiracy will be upheld if the evidence is sufficient to support a
conviction of any of the alleged objects. See Griffin v. United States, 502 U.S. 46, 56-60, 112 S.Ct.
466, 472-75, 116 L.Ed.2d 371 (1991).
COUNT VI—WIRE FRAUD
Ross and Adams also challenge the sufficiency of the evidence that they committed the
crime of wire fraud as alleged in Count VI of the indictment. They argue that the facsimile from
Michael Cavanaugh, GNL's legal counsel, to Fred Estergren, who represented GNL in closing the
Ensley Shopping Center sale to Northgate, is insufficient to constitute wire fraud because there is
no evidence in the record that it was sent in furtherance of a fraudulent scheme.
Count VI reads as follows:
1. From on or about November 1, 1989 and continuously thereafter up to and including the
date of this indictment, the defendants, KENNETH D. ROSS, JAMES H. ADAMS, OSCAR
JORDAN, and RONALD DUNSTON, along with others, knowingly and willfully devised
a scheme to defraud, or for obtaining money or property by means of false pretenses and
representations or promises well knowing at the time that the pretenses, representations, and
promises would be and were false when made, and which scheme and artifice so devised and
intended to be devised by the defendants was in substance as described in Count I of this
indictment, which description is expressly incorporated herein and made a part hereof as if
set forth word by word, line by line.
2. On or about October 19, 1990, in the Northern District of Florida and elsewhere, the
defendants, KENNETH D. ROSS, JAMES H. ADAMS, OSCAR JORDAN, and RONALD
DUNSTON, for the purpose of execution of the aforementioned scheme and attempting to
do so, in furtherance thereof, did knowingly transport and cause to be transmitted by wire
in interstate commerce between the State of Mississippi and Destin, Florida, a letter from
Michael Cavanaugh to Fred Estergren regarding the Due on sale clause contained in the
Charter Bank mortgage, along with this mortgage and promissory note.
In order to establish a violation of § 1343, the government must prove beyond a reasonable
doubt that a defendant "(1) intentionally participated in a scheme to defraud; and (2) used wire
communications to further that scheme." United States v. Brown, 40 F.3d 1218, 1221 (11th
Cir.1994). Further, "[e]ach party to a continuing conspiracy may be vicariously liable for
substantive criminal offenses committed by a co-conspirator during the course and in furtherance
of the conspiracy, notwithstanding the party's non-participation in the offense or lack of knowledge
thereof." United States v. Mothersill, 87 F.3d 1214, 1218 (11th Cir.), cert. denied sub nom. --- U.S.
----, 117 S.Ct. 531, 136 L.Ed.2d 416 (1996). "[A] court need not assess the individual culpability
of a particular conspirator provided the "substantive crime was a reasonably foreseeable
consequence of the conspiracy.' " Id. (quoting United States v. Alvarez, 755 F.2d 830, 849-50 (11th
Cir.1985)).
A rational juror could infer beyond a reasonable doubt that Ross and Adams intentionally
participated in a scheme to defraud the policy holders of GNL by falsely representing that TMI
required a loan of $3,000,000 to fund operational expenses without disclosing that their true intent
was to divert approximately $1,000,000 for their personal use and benefit on the same date the
business loan to TMI was consummated. To carry out their scheme, Ross and Adams agreed to
purchase the Ensley Shopping Center from GNL. Because Ross was the chief executive officer of
Charter Bank in 1989 when GNL purchased the Ensley Shopping Center from Charter Bank, he was
aware that Charter Bank held a mortgage on that property. Ross was also aware that Charter Bank
had failed in March 1990 and had been taken over by the Resolution Trust Company. Nevertheless,
he and Adams did not notify Charter Bank or the Resolution Trust Corporation that GNL intended
to convey the Ensley Shopping Center to Northgate, Adams's alter ego corporation.
Ross retained Florida attorneys Richard Powell and Fred Estergren to close the loan to TMI.
Powell and Estergren discovered in their title search that Charter Bank held a mortgage on the
Ensley Shopping Center. Estergren drafted a document entitled "Consent to Sale" for Charter Bank's
signature. It provided that for a consideration of $10, Charter Bank consented to the sale of the
Ensley Shopping Center to Northgate. The proposed agreement also noted that GNL would remain
liable to Charter Bank pursuant to its promissory note and the mortgage. Estergren consulted with
Michael F. Cavanaugh, a GNL board member and its chief counsel, for his opinion regarding
whether Charter Bank should be notified of the proposed sale of the Ensley Shopping Center
because of the fact that it held the first mortgage on that property. Cavanaugh sent a facsimile
memorandum from his Mississippi office, which stated: "I am forwarding the current Mortgage on
the Ensley Property. I do not find a "due on sale provision'. Under Florida law could we sell the
property as an Assumption and not trigger the due on sale."
Estergren testified that Cavanaugh's memorandum persuaded him that he should "forget"
about providing Charter Bank or the Resolution Trust Corporation with notice of the proposed sale
of the Ensley Shopping Center. Accordingly, the Consent to Sale document was not sent to Charter
Bank.
Ross and Adams argue that Cavanaugh's fax cannot be the basis for a conviction under §
1343 because its contents were not fraudulent or untrue. The Supreme Court, however, has rejected
an identical argument in the mail fraud context. In Schmuck v. United States, 489 U.S. 705, 109
S.Ct. 1443, 103 L.Ed.2d 734 (1989), the Court stated that even " "innocent' mailings—ones that
contain no false information—may supply the mailing element." Id. at 715, 109 S.Ct. at 1450(quoting Parr v. United States, 363 U.S. 370, 390, 80 S.Ct. 1171, 1183, 4 L.Ed.2d 1277 (1960)).
The defendants' conviction under the wire fraud statute is subject to the same analysis. See
Carpenter v. United States, 484 U.S. 19, 25 n. 6, 108 S.Ct. 316, 320 n. 6, 98 L.Ed.2d 275 (1987)
("The mail and wire fraud statutes share the same language in relevant part, and accordingly we
apply the same analysis to both sets of offenses here."). Therefore, the fact that the facsimile
memorandum may have been correct that the Charter Bank mortgage did not have a due-on-sale
clause did not prevent the jury from concluding that Cavanaugh's fax to Estergren furthered the
fraudulent scheme. Had Charter Bank or the Resolution Trust Corporation been notified of the
proposed sale of Ensley Shopping Center, they may have been able to take action to prevent it.
Ross and Adams also argue that they were not aware that Cavanaugh had wired the
memorandum to Powell and Estergren. "Where one does an act with knowledge that the use of the
[interstate wires] will follow in the ordinary course of business, or where such use can reasonably
be foreseen, even though not actually intended, then he "causes' the [interstate wires] to be used."
Pereira v. United States, 347 U.S. 1, 8-9, 74 S.Ct. 358, 362-63, 98 L.Ed. 435 (1954). Ross and
Adams incorporated Northgate in Florida. GNL was a Mississippi corporation. It was clearly
foreseeable that a transaction between corporations in two states would involve interstate wire
transfers.
Finally, Ross urges us to reverse his wire fraud conviction because "the government failed
to prove that the actions of Mr. Ross and the other named defendants caused any defrauding in that
a victim lost any money or property." Ross Br. at 19. He further states there was "absolutely no
evidence that Charter Bank lost anything as a result of the wire fraud or the "Ensley' real estate
transaction between Gulf National Life Ins. Co. and Northgate Corporation of Sandestin, Inc." Id.
at 20. This argument lacks merit. Punishment under the wire fraud statute is not limited to
successful schemes. "A scheme to defraud need not be carried out to constitute a violation of the
mail and wire fraud statutes. These statutes punish unexecuted, as well as executed, schemes."
Pelletier v. Zweifel, 921 F.2d 1465, 1498 (11th Cir.1991); see United States v. Patterson, 528 F.2d
1037, 1041 (5th Cir.1976) ("[t]here is no necessity for the government to prove actual financial
loss"). The Government merely needs to show that the accused intended to defraud his victim and
that his or her communications were " "reasonably calculated to deceive persons of ordinary
prudence and comprehension.' " Pelletier, 921 F.2d at 1498-99 (quoting United States v. Bruce, 488
F.2d 1224, 1229 (5th Cir.1973)). The record demonstrates that the Government satisfied this burden
as to both defendants.
We conclude from our review of the evidence that it is sufficient to persuade a rational juror
beyond a reasonable doubt that Ross and Adams knowingly caused a facsimile memorandum to be
transmitted by wire between the states of Mississippi and Florida to further their scheme to defraud
GNL's policy holders by diverting money loaned for business purposes for their personal use without
alerting the Resolution Trust Corporation that the Ensley Shopping Center was being sold to a straw
corporation controlled by Adams.
COUNT VII—INTERSTATE TRANSPORTATION OF STOLEN PROPERTY
Ross and Adams also challenge the sufficiency of the evidence to support their conviction
of transferring more than $5,000 in interstate commerce. Count VII states:
On or about October 30, 1990, in the Northern District of Florida and elsewhere, the
defendants, KENNETH D. ROSS, JAMES H. ADAMS, OSCAR JORDAN, and RONALD
DUNSTON, did knowingly and willfully transport and cause to be transported in interstate
commerce between Destin, Florida, and the State of Mississippi, goods, securities, or money,
to-wit: funds in the amount of One Million dollars ($1,000,000.00), knowing the same to
have been stolen, converted and taken by fraud.
"A conviction under 18 U.S.C. § 2314 requires "(1) knowledge that certain property has been stolen
or obtained by fraud, and (2) transporting it, or causing it to be transported, in interstate commerce
'." United States v. Hartley, 678 F.2d 961, 986 (11th Cir.1982) (quoting Pereira v. United States,
347 U.S. 1, 9, 74 S.Ct. 358, 363, 98 L.Ed. 435 (1954)).
Ross and Adams assert that this count was impermissibly vague because there were two
separate transfers between Florida and Mississippi on October 30, 1990 involving funds in the
amount of $1,000,000. They contend that it is unclear whether Count VII referred to the unfunded
check for $1,000,000 provided by GNL to TMI and endorsed back to GNL or the $1,000,000 TMI
received from GNL at the loan closing. The defendants did not object to the vagueness of Count VII
at trial. When there has not been a prior objection to the form of the indictment, we will review a
challenge to the indictment only for clear and prejudicial error. See United States v. Harrell, 737
F.2d 971, 981-82 (11th Cir.1984).
After reviewing the record, we conclude that Count VII was not impermissibly vague and
that its general description of the crime did not cause any prejudice to the defendants. During
closing arguments, the Government stated that the basis for the interstate transportation of stolen
property charge was the money that GNL deposited in the TMI account following the loan closing
on October 30, 1990. The Government argued:
The funds are put in the Tops'l Management account for Tops'l's operating purposes—for
Tops'l's operating purposes. They're immediately transferred from the AmSouth Florida bank
account, Tops'l, to the L'Spot account in Mississippi. That's one of the crimes, interstate
transportation and money laundering.
Ross's counsel agreed with the Government that the basis for Count VII was the $1,000,000 TMI
received at the loan closing. During Ross's closing argument, he stated:
Count VII charges that the defendants moved in interstate commerce $1,000,000 to Tops'l
Management. .... That when this money from Gulf National as a result of that October 30
closing—you remember, there were five checks that Mr. Cavanaugh from Gulf National
brought to the closing at Fort Walton, and he gave those five checks to Mr. Ross and they
were deposited in the Tops'l Management account in Destin. And the government alleges
that right there, that was stolen property—that was stolen property. And I believed I
understood that the government's theory for taking that position that this was stolen property
was because representations apparently were made that the purpose of the loan was supposed
to be to make improvement, but that, they used the money for different purposes.
This is the only logical interpretation of Count VII. Count VII clearly identifies "funds in the amount
of One Million Dollars" as the property transported through interstate commerce by the Ross and
Adams. The defense did not have any difficulty at trial discerning the nature of the allegations in
Count VII. It is clear that Count VII referred to the $1,040,000 deposited in TMI's account and not
to the insufficient funds check that was endorsed back to GNL.
Having concluded that Count VII is not impermissibly vague or ambiguous, we must also
consider whether the evidence presented to the jury was sufficient to persuade a rational jury beyond
a reasonable doubt that Ross and Adams violated § 2314 by causing the $1,000,000 in loan funds
to be transported from Florida to Mississippi. As discussed above in our analysis of the sufficiency
of the evidence to support the conspiracy count, the Government demonstrated that Ross knew these
funds were obtained by fraud. There was testimony that Ross represented that the $3,000,000 was
for the Club's operating expenses. Ross transferred $1,000,000 to himself, Adams, and Shamburger
on the same date that they were deposited by GNL into TMI's account in Florida. Ross's act of
diverting the GNL loan funds from their intended purpose clearly furthered the conspiracy. As a
co-conspirator, Adams was liable for any substantive offense committed by Ross in furtherance of
the conspiracy to defraud the insurance companies, its policy holders, and the state insurance
regulators. See United States v. Mothersill, 87 F.3d 1214, 1218 (11th Cir.) cert. denied sub nom. ---
U.S. ----, 117 S.Ct. 531, 136 L.Ed.2d 416 (1996).
II
EXCLUSION OF EVIDENCE OFFERED BY ADAMS
Adams maintains that the district court erred in excluding three defense exhibits designated
as "Adams 7," "Adams 11," and "Adams 12," which were offered to prove that MWL and GNL did
not lose any money as a result of the loans they made to the corporations controlled by Ross and
Adams. This court reviews a district court's evidentiary rulings for "a clear abuse of discretion."
United States v. Sellers, 906 F.2d 597, 601 (11th Cir.1990).
Adams 7 included all records of the sales of the Club property. It showed that MWL
received $8,700,000 from the sale of property that served as security for the money loaned to
Overlook, Technology Building, and Sand Tops'l for the purchase and operation of the Club. Adams
11 contained an appraisal of the Ensley Shopping Center. Adams 12 showed that GNL sold parcels
628 and 630 for $3,700,000 on September 30, 1994. Adams contends that these exhibits tend to
prove that he did not intend to steal, convert, or take any money by fraud.
The district court did not abuse its discretion in denying admission of these exhibits into
evidence. Ross and Adams committed fraud by diverting for their personal use and benefit money
that was loaned for business purposes to TMI, Overlook, Technology Building, and Sand Tops'l.
MWL and GNL did not loan any money to Ross and Adams. Ross and Adams did not furnish any
security for the money they obtained by diverting funds loaned to the corporations for business
purposes. The fact that the property that was used to secure payment of the $3,700,000 business
loan may have subsequently appreciated in value is not relevant to the questions whether Ross and
Adams falsely represented that the money was to be used for business purposes and whether they
failed to disclose that their true intent was to divert the loan proceeds for their personal use and
benefit.
III
ALLEGED INSTRUCTIONAL ERROR
A. Failure to Inform the Jury of the Factual Allegations in the Indictment
Ross and Adams assert that the district court erred in failing to inform the jury of the factual
allegations of each count of the indictment. Adams's counsel requested a theory of defense
instruction to the jury. Counsel explained that the proposed instruction was necessary because the
jury would receive the prosecution's theory of the case from the indictment. When informed by the
court that it did not intend to give the indictment to the jury, Adams's counsel stated that "if the jury
did not get the indictment, I would withdraw the theory of defense instruction." The prosecutor
informed the court that without receiving a copy of the indictment, the jury would not be able to
agree unanimously on which overt act had been proved without being informed about each of the
206 overt acts listed in the indictment. Adams's attorney then suggested that the defense could
stipulate that the jury should be instructed that "the parties have agreed that at least one overt act has
been proven." After conferring with the prosecutor, Adams's counsel made the following statement:
Here's what we propose, Judge, that the indictment not be given to the jury, that the theory
of defense instruction be withdrawn, and that we amend the jury instructions under your 4.1
general conspiracy continued, and I've got language written out that Mr. Beard and I and the
other defense lawyers have agreed on, if I could come up and show you.
The prosecutor and defense counsel agreed that the court should inform the jury that "the
parties agree that an event or transaction occurred which may be considered an overt act, but the
defendants disagree that a conspiracy existed." The district court accepted the agreement. In
accordance with this stipulation, the court did not give the indictment to the jury.
The court's decision to deny the prosecutor's request that the indictment be given to the jury
was based on the stipulation of counsel that the indictment should not be given to the jury. Thus,
any error in failing to give the indictment to the jury was invited. It is "a cardinal rule of appellate
review that a party may not challenge as error a ruling or other trial proceeding invited by that
party." Crockett v. Uniroyal, Inc., 772 F.2d 1524, 1530 n. 4 (11th Cir.1985) (citing United States
v. Males, 715 F.2d 568, 571 (11th Cir.1983)).
B. Denial of Proposed Instructions
Ross argues that the court erred in refusing his request that the court instruct the jury that
the loan agreement was valid although it was not in writing and that a borrower does not commit a
crime if he or she uses the proceeds of a loan for purposes that vary from the terms of the loan
agreement. This court reviews a district court's rejection of a proposed jury instruction for abuse
of discretion. See United States v. Gonzalez, 975 F.2d 1514, 1517 (11th Cir.1992).
Ross requested that the court instruct the jury as follows:
The Court instructs the jury that in order to constitute a loan, there must be a contract
whereby, in substance one party transfers to the other a sum of money which that other
agrees to repay absolutely, together with such additional sums as may be agreed upon for its
use. If such be the intent of the parties, the transaction will be considered a loan without
regard to its form. While a note would certainly be evidence of a loan, it is not a prerequisite
for the transaction to be a loan.
No issue was raised at trial or in argument that required the court to give this instruction.
It was undisputed at trial that MWL and GNL loaned money to four corporations and that the loan
agreements were in writing. There was no evidence that any money was loaned to Ross and Adams
for their personal use and benefit. The factual question presented to the jury was whether the loans
were obtained by fraud.
Ross also requested the following instruction: "The court instructs the jury that it is not
unlawful for a borrower to use loan proceeds for other purposes than those specific purposes
expressly made to the lender in order to originally secure the loan." This instruction was patterned
after the holding in United States v. Kristofic. As discussed above, the rule announced in Kristofic
is not applicable to a case such as this one where the loan was obtained by fraudulent
misrepresentations and the withholding of material facts. The district court did not abuse its
discretion in rejecting each of these instructions.
IV. ALLEGED SENTENCING ERRORS
Ross and Adams also challenge the legality of the district court's sentencing decision. They
contend that the district court erred as a matter of law in its interpretation and application of the
sentencing guidelines. "The question about whether a particular guideline applies to a given set of
facts is a question of law, and thus this issue is subject to de novo review." United States v. Shriver,
967 F.2d 572, 574 (11th Cir.1992) (citation omitted).
The conspiracy charged in Count I of the indictment contained multiple objects. Each object
was also alleged as a substantive offense in separate counts. The jury found Ross and Adams guilty
of conspiracy to commit mail fraud, wire fraud, interstate transportation of money obtained by fraud,
and money laundering. Ross and Adams contend that the district court erred in applying the money
laundering guidelines in view of the fact that the jury found them not guilty of the substantive money
laundering count. They assert that "[g]iven the jury's finding of a substantive offense of wire fraud
and of interstate transportation, but not of money laundering, it stands to reason that the conspiracy
verdict likely was for conspiring to commit fraud and/or interstate transportation and not for
conspiracy to launder money." Adams Br. at 40. It is not surprising that Ross and Adams did not
cite any authority for this proposition. It is contrary to well established law. This argument fails
to recognize the distinction between the existence of proof necessary to demonstrate a conspiracy
to commit a criminal act, such as money laundering, and the evidence that must be produced to
sustain a conviction for the substantive offense of money laundering. In United States v. Griffin,
699 F.2d 1102 (11th Cir.1983), this court held that because the crime of conspiracy is a separate
offense, a conviction for conspiracy will stand even if the evidence is insufficient to support a
conviction for the substantive offense also pled as an object of the conspiracy. See id. at 1107.
Thus, the fact that the jury acquitted Ross and Adams of money laundering does not demonstrate,
as argued by Adams, that "the acquittal here on money laundering charges and the conviction for
fraud and interstate transportation of stolen property established that the object of the conspiracy was
not money laundering but fraud and interstate transportation." Adams Reply Br. at 19.
Unfortunately, Ross and Adams did not request that the jury be provided with a special
verdict that would have required the jury to specify the objects of the conspiracy Ross and Adams
conspired to commit. For that reason, we have no way of determining whether the jury was
unanimously persuaded beyond a reasonable doubt that Ross and Adams conspired to commit
money laundering.
The jury was properly instructed that the Government was not required to prove that Ross
and Adams committed each of the crimes charged as objects of the conspiracy, provided that the jury
unanimously agreed on which of the offenses they conspired to commit. The Supreme Court
instructed in Griffin v. United States, 502 U.S. 46, 112 S.Ct. 466, 116 L.Ed.2d 371 (1991), that a
general guilty verdict in a multi-object conspiracy will stand even if the evidence is insufficient that
the accused conspired to commit one of the objects. See id. at 48-58, 112 S.Ct. at 468-74. Because
we have concluded that the evidence is sufficient to demonstrate that Ross and Adams conspired to
commit wire fraud, we have affirmed the judgment regarding the conspiracy charge pursuant to
Griffin. Griffin does not, however, provide any guidance concerning the applicable sentencing
guideline that must be applied in a multi-object conspiracy where the jury's verdict does not specify
which offense the defendants conspired to commit. That precise question was addressed by this
court in United States v. McKinley, 995 F.2d 1020 (11th Cir.1993). In McKinley, the court framed
the issue as follows: "When defendants are convicted on a count charging a conspiracy to commit
more than one offense, but the jury's verdict does not specify which of those offenses the defendants
conspired to commit, which offense guideline applies at sentencing?" Id. at 1022. This court held
that "[t]he Sentencing Guidelines answer this question in § 1B1.2(d), its accompanying commentary
and the grouping rules of Chapter 3, Part D." Id.
Section 1B1.2(d) provides: "A conviction on a count charging a conspiracy to commit more
than one offense shall be treated as if the defendant has been convicted on a separate count of
conspiracy for each offense the defendant conspired to commit." U.S.S.G. § 1B1.2(d). Application
Note Five sets forth the sentencing procedure that should be followed when a general verdict is
tendered by the jury in a multi-object conspiracy case:
Particular care must be taken in applying subsection (d) because there are cases in which the
verdict or plea does not establish which offense(s) was the object of the conspiracy. In such
cases, subsection (d) should only be applied with respect to an object offense alleged in the
conspiracy count if the court, were it sitting as a trier of fact, would convict the defendant
of conspiring to commit the object offense.
Id. comment (n.5).
In McKinley, this court interpreted the words "were it sitting as a trier of fact" in Application
Note 5 to mean "that the court must find beyond a reasonable doubt that the defendant conspired to
commit the particular object offense." 995 F.2d at 1026. Ross and Adams argue that we should not
follow this court's holding in McKinley that a trial judge should apply § 1B1.1(d) and Application
Note 5 under these circumstances because this court did not consider the constitutionality of §
1B1.2(d) and Application Note 5 in that decision. Here, Ross and Adams first presented their
constitutional challenge to § 151.2(d) and Application Note 5 during the sentencing proceedings.
Ross and Adams's argument can be summarized as follows:
1. Proof that the accused conspired with others to commit an offense is an element of the
crime of conspiracy.
2. An accused has a constitutional right to have a jury determine whether the Government
has presented sufficient evidence of each element of the crime alleged in the indictment.
3. Where, as here, it is unclear whether the jury was persuaded beyond a reasonable doubt
that the accused conspired to commit the crime of money laundering, the Fifth and Sixth
Amendments preclude the trial judge from punishing the accused for conspiracy to commit money
laundering.
While this court has not previously addressed the question whether § 1B1.2(d) and
Application Note 5 deprive a defendant of rights protected by the Fifth and Sixth Amendments, five
circuits have discussed this issue. We conclude that the reasoning of those circuits that have
determined that § 1B1.2(d) and Application Note 5 do not violate the Constitution is more
persuasive.
Citing only United States v. Owens, 904 F.2d 411 (8th Cir.1990), United States v. Garcia,
37 F.3d 1359 (9th Cir.1994), cert. denied, 514 U.S. 1067, 115 S.Ct. 1699, 131 L.Ed.2d 562 (1995),
United States v. Pace, 981 F.2d 1123 (10th Cir.1992), cert. denied sub nom., 507 U.S. 966, 113 S.Ct.
1401, 122 L.Ed.2d 774 (1993), and United States v. Bush, 70 F.3d 557 (10th Cir.1995), cert. denied,
--- U.S. ----, 116 S.Ct. 795, 133 L.Ed.2d 743 (1996), Ross and Adams argue that "the holdings of
several circuits, applying the Fifth and Sixth Amendments, would require that the defendant be
sentenced on the basis of the conspiracy objective yielding the lowest base offense level." Adams
Br. at 41.
None of the cases cited by Ross and Adams holds that § 1B1.2(d) and Application Note 5
violate the Fifth and Sixth Amendment. Two of them do not discuss § 1B1.2(d) and Application
Note 5. A third decision involves a pre-guidelines sentence. The fourth decision contains dictum
concerning § 1B1.2(d) that relies on the dictum in the pre-guidelines case.
In United States v. Owens, the appellant was charged in one count with conspiracy to
distribute and possess with intent to distribute and attempt to manufacture
"methamphetamine/amphetamine." Id. at 412. The jury was instructed that "[y]ou must ascertain
whether or not the substance in question in this case was in fact methamphetamine/amphetamine."
Id. at 413. "The jury returned a general verdict of guilty." Id. at 414. In the presentence report, the
probation officer recommended that "the court determine Owens's offense level on the assumption
that the conspiracy's purpose had been to manufacture and distribute methamphetamine." Id. at 413.
A calculation of the sentence based on an assumption that the controlled substance was
amphetamine would have resulted in a sentencing range of 41-51 months. The range for an
equivalent amount of methamphetamine was 63-78 months. The court found that the conspiracy
invoked methamphetamine. See id.
The Eighth Circuit held that "[b]y instructing the jury on an "either/or' basis with respect to
the two substances and by failing to enable the jury to indicate which of the substances it found the
conspiracy to have involved, the district court elicited an ambiguous verdict of guilty with two
possible alternative interpretations." Id. at 415. The court held that "[u]nder the circumstances of
this case, the district court erred in sentencing Owens based on the alternative which yielded a
higher sentencing range." Id.
The Eighth Circuit did not discuss the constitutionality of § 1B1.2(d) or Application Note
5. Furthermore, there is no indication in the Owens opinion that the district court determined that
the evidence was sufficient to persuade it beyond a reasonable doubt that the controlled substance
was methamphetamine. In this matter, unlike the situation in Owens, the district court did not give
an ambiguous "either/or" instruction to the jury.
In United States v. Garcia, the defendant was charged with conspiracy. The charge alleged
five objects of the conspiracy. See 37 F.3d at 1369. Four of the objects involved possession with
the intent to distribute cocaine and heroin. In the fifth object of the conspiracy, the indictment
alleged that the defendant used a communications facility in committing drug offenses. See id. The
jury returned a general verdict of guilty. See id. Thus, the defendant was found guilty of conspiracy
to possess heroin and cocaine. The district court imposed a maximum fifteen year sentence on the
conspiracy charge based on the allegations that the object of the conspiracy was the possession of
heroin and cocaine. See id. The Ninth Circuit reversed holding that "[i]n the absence of a special
verdict, there was no way for the sentencing judge to know which object was the necessary element
to constitute the crime." Id. at 1370. In a footnote, the Ninth Circuit stated as follows:
We note that the sentencing guidelines in section 1B1.2(d)(n.5) state that when the
verdict in a multi-object conspiracy does not establish which offense was the object of the
conspiracy, the court is to decide the object of the conspiracy. The note specifies that the
court can do so "if the court, were it sitting as a trier of fact, would convict the defendant of
conspiring to commit that object offense."
The case at hand is a pre-guidelines case, but we acknowledge that the
rationale of this holding casts doubt on the constitutionality of the provision of the
sentencing guidelines, because that provision permits a judge rather than the jury to
find the facts necessary to establish an element of the crime. The submission of a
special verdict form would forestall any such issue.
Id. at 1371 n. 4.
The Ninth Circuit's comment in Garcia is clearly obiter dictum since the Sentencing
Guidelines were not applicable because the alleged criminal conduct occurred prior to the effective
date of the statute. More importantly, the holding in Garcia, that a special verdict is required in a
multi-object conspiracy so that the district court can determine which object was the necessary
element to constitute the crime, is contrary to the law of this circuit. In McKinley, the district court
denied the defendant's motion that the jury be provided with a special verdict form. See 995 F.2d
at 1023. In framing the issue regarding the validity of the sentence, this court stated that it would
address "the appropriate method for determining the applicable offense guideline for a conviction
on a count charging a conspiracy to commit more than one offense when the jury's verdict does not
establish which of these offenses were objects of the conspiracy." Id. at 1024.
As discussed above, this court held in McKinley that where a jury has returned a general
verdict on a multi-object conspiracy charge, the district court may treat the conviction as a
determination that the defendant was convicted on a separate count of conspiracy for each offense
the defendant conspired to commit only if the court finds beyond a reasonable doubt that the
defendant conspired to commit that offense. See id. at 1026.
In United States v. Pace, the defendants were charged with a conspiracy with two objects:
(1) possession with intent to distribute "methamphetamine/amphetamine" and (2) an attempt to
manufacture methamphetamine. See 981 F.2d at 1126. The district court submitted a general
verdict form to the jury without objection from defense counsel. See id. at 1127. The jury convicted
the defendants of conspiracy and the Tenth Circuit affirmed the conspiracy conviction. See id. at
1129. The court also held, however, that the sentence on the conspiracy count could not stand
because "the jury might have convicted defendants based on conspiracy to possess with intent to
distribute amphetamine...." Id.
The Tenth Circuit did not discuss whether § 1B1.2(d) or Application Note 5 violated the
Fifth or Sixth Amendments. More recently, in United States v. Bush, the Tenth Circuit quoted from
the Ninth Circuit's dictum in United States v. Garcia regarding the Ninth Circuit's "doubt" about the
constitutionality of § 1B1.2(d) and Application Note 5. See Bush, 70 F.3d at 561. The Tenth
Circuit's comment was also dictum because the issue before it did not concern a general verdict in
a multi-object conspiracy. Section 1B1.2(d) and Application Note 5 only apply to general verdicts
tendered in multi-object conspiracy cases. Instead, the question presented to the Tenth Circuit was
whether the appellant intended to plead guilty to conspiracy to distribute cocaine base, conspiracy
to distribute cocaine powder, or both. See id. at 562. The indictment alleged that the defendant had
conspired to distribute "cocaine (powder) and/or cocaine base (crack)." Id. at 559. The district court
calculated the offense based on the assumption that the object of the conspiracy was to distribute
cocaine base. See id. at 560. The Tenth Circuit affirmed the sentence despite the ambiguity in the
indictment because it determined that the evidence in the record was sufficient to show that the
defendant intended to plead guilty to conspiracy to distribute cocaine base. See id. at 562.
The question whether a sentencing decision made pursuant to § 1B1.2(d) and Application
Note 5 violates the Fifth and Sixth Amendments was squarely addressed by the Third Circuit in
United States v. Conley, 92 F.3d 157 (3rd Cir.1996), cert. denied, --- U.S. ----, 117 S.Ct. 1244, 137
L.Ed.2d 327 (1997). In Conley, the Third Circuit held that a sentence imposed following a general
verdict of guilty on a multi-object conspiracy charge does not violate the Fifth and Sixth
Amendments if the court, in formulating its sentencing decision, finds beyond a reasonable doubt
that the defendant committed each object of the conspiracy. See id. at 165-69. The court reasoned
as follows:
We start our analysis of this Sixth Amendment argument with McMillan v.
Pennsylvania, 477 U.S. 79, 106 S.Ct. 2411, 91 L.Ed.2d 67 (1986). There the Supreme Court
permitted a state to treat conduct which arguably was an element of a criminal offense, the
visible possession of a weapon during certain offenses, as a sentencing factor. As a result,
the trial court rather than the jury would determine whether the sentencing factor was present
and would do so by the preponderance of the evidence. The Court in reaching its result
explained:
While "there are obviously constitutional limits beyond which the States may not go
in this regard," ibid., "[t]he applicability of the reasonable-doubt standard ... has
always been dependent on how a State defines the offense that is charged in any
given case."
Id. at 83-85, 106 S.Ct. at 2415 (quoting Patterson v. New York, 432 U.S. 197, 211 n. 12, 97
S.Ct. 2319, 2327 n. 12, 53 L.Ed.2d 281 (1977)). The Court analyzed the Sixth Amendment
claim tersely:
Having concluded that Pennsylvania may properly treat visible possession as a
sentencing consideration and not an element of any offense, we need only note that
there is no Sixth Amendment right to jury sentencing, even where the sentence turns
on specific findings of fact.
Id. at 92, 106 S.Ct. at 2419 (citing Spaziano v. Florida, 468 U.S. 447, 459, 104 S.Ct. 3154,
3161, 82 L.Ed.2d 340 (1984)).
It is clear from McMillan, that if section 1B1.2(d) is, in the words of McMillan,
properly a "sentencing consideration," then the section does not infringe the Sixth
Amendment right to jury trial. The Chief Justice's concurring opinion in United States v.
Gaudin, 515 U.S. 506, 525, 115 S.Ct. 2310, 2321, 132 L.Ed.2d 444 (1995), is in harmony
with McMillan. There the Chief Justice noted that:
Nothing in the Court's decision stands as a barrier to legislatures that wish to
define—or that have defined—the elements of their criminal laws in such a way as
to remove issues such as materiality from the jury's consideration. We have noted
that the definition of the elements of a criminal offense is entrusted to the legislature,
particularly in the case of federal crimes which are solely creatures of statute.
Id. (Rehnquist, C.J., concurring) (internal quotation marks omitted). We must decide,
therefore, whether the determination of the object of a multi-object conspiracy following a
general verdict of guilty properly can be deemed the ascertaining of a sentencing
consideration or whether such a determination is beyond the "constitutional limits" referred
to in McMillan, 477 U.S. at 85, 106 S.Ct. at 2415, and Patterson v. New York, 432 U.S. 197,
210, 97 S.Ct. 2319, 2327, 53 L.Ed.2d 281 (1977).
This issue is controlled by the Court's holding in Griffin v. United States, 502 U.S.
46, 112 S.Ct. 466, 116 L.Ed.2d 371, where the Court rejected the due process argument that
a general verdict of guilty in a multi-object conspiracy verdict could not stand if the evidence
to support a conviction for conspiracy to commit one of the objects was insufficient. The
Court reached that result notwithstanding its almost contemporaneous holding in Sullivan
v. Louisiana that the prosecution "must persuade the factfinder "beyond a reasonable doubt'
of the facts necessary to establish each of [the] elements" of the crime. 508 U.S. 275, 278,
113 S.Ct. 2078, 2080, 124 L.Ed.2d 182 (1993). As the Court explained in Sullivan, "the jury
verdict required by the Sixth Amendment is a jury verdict of guilty beyond a reasonable
doubt." Id. at 278, 113 S.Ct. at 2081.
If, as Conley asserts, it were constitutionally impermissible to treat the object of a
multi-object conspiracy indictment as a sentencing factor rather than as an element of the
crime, then it is difficult to understand how the Griffin Court, consistently with Sullivan,
could have permitted a conspiracy conviction to stand when there was insufficient evidence
to support a conviction for one of the objects. After all, if each object of the conspiracy had
been an element of the crime then under well-established law the defendant in Griffin would
have been entitled to an acquittal since the proofs could not support the charge that she
conspired with respect to one object. Thus, while Conley argues that violation of each object
of the conspiracy must be considered a separate element of the offense for the purpose of his
Sixth Amendment right to a jury trial, it is clear from Griffin that making the object of a
conspiracy charged under 18 U.S.C. § 371 a matter for the sentencer rather than an element
of the crime does not violate the Sixth Amendment.
Id. at 165-66.
In addressing the Fifth Amendment, the court stated:
As we have indicated, Conley also argues that his sentence violates the Due Process
Clause of the Fifth Amendment because the district court's power to make the crucial finding
that an object of the conspiracy was money laundering. Here we are guided by the Court's
holding in McMillan. There the Court considered a Pennsylvania statute which subjected
defendants convicted of certain felonies to a mandatory minimum sentence of five years
imprisonment if the sentencing judge found, by a preponderance of the evidence, that the
person "visibly possessed a firearm" during the commission of the offense. The Court found
that the preponderance of the evidence standard was constitutional but explained that "in
certain limited circumstances Winship's reasonable-doubt requirement applies to facts not
formally identified as elements of the offense charged." McMillan, 477 U.S. at 86, 106 S.Ct.
at 2416 (citing In re Winship, 397 U.S. 358, 90 S.Ct. 1068, 25 L.Ed.2d 368 (1970)).
Id. at 168.
In United States v. Manges, 110 F.3d 1162 (5th Cir.1997), relying on Conley, the Fifth
Circuit rejected a claim that § 1B1.2(d) and Application Note 5 are unconstitutional. See id. at 1179.
The Second Circuit has also held that § 1B1.2(d) and Application Note 5 involve "valid sentencing
considerations and not the violation of any Sixth Amendment guarantee." United States v. Malpeso,
115 F.3d 155, 168 (2d Cir.1997) (citing United States v. Conley, 92 F.3d 157, 168 (3rd Cir.1996),
cert. denied, --- U.S. ----, 117 S.Ct. 1244, 137 L.Ed.2d 327 (1997)).
We also agree with the Third Circuit's analysis in Conley. Accordingly, we hold that §
1B1.2(d) and Application Note 5 do not violate the Fifth and Sixth Amendments.
We next turn to the question whether the district court's determination that money
laundering was an object of the conspiracy was consistent with McKinley's interpretation of §
1B1.2(d) and Application Note 5. To comply with § 1B1.2(d) and Application Note 5, where the
jury's verdict does not establish which offense was the object of the conspiracy, "the court must find
beyond a reasonable doubt that the defendant conspired to commit the particular object offense."
McKinley, 995 F.2d at 1026.
The district court did not make an express finding that Ross and Adams conspired to commit
the offense of money laundering. The court explained its decision to apply the money laundry
guideline as follows:
And under the evidence as I heard it, accepting the jury's verdict of conspiracy, they would
have a basis in the facts to determine that they had conspired to commit money laundering.
And, therefore, that is an appropriate guideline if for no other reason my factual
determination that there is sufficient evidence in the record that the jury made that finding
as well as the others. I might add, just to cover the record. So I do find that it's appropriately
scored under the money laundering guideline.
The district court did not state that it had determined that the evidence was sufficient to
persuade it beyond a reasonable doubt that Ross and Adams conspired to commit the offense of
money laundering. Because of the court's comment that the evidence was sufficient for the jury to
determine that Ross and Adams conspired to commit money laundering, we cannot say with any
degree of certainty that the court made an independent determination of this fact. McKinley compels
us to vacate the sentencing decision and remand for appropriate factual findings. See id. at 1026.
Ross and Adams also contend that the district court selected the wrong subsection of
U.S.S.G. § 2S1.1(a) as a standing point for the calculation of their sentence. The Government
argues that this issue was waived because it was not raised properly. In view of our conclusion that
we must vacate the sentence, we decline to resolve this dispute. Upon remand, both sides will have
an opportunity to present their conflicting views to the district court in a timely manner.
Adams asserts that the district court erred in concluding that he is liable for a total of
$1,702,599.64 laundered by all the conspirators without supporting this conclusion with appropriate
findings. We decline to consider this question in view of the fact that we have concluded that this
matter must be remanded for appropriate findings regarding whether the money laundering
guidelines are applicable.
V. ASSIGNMENT TO A DIFFERENT JUDGE
Ross and Adams request that we order this matter assigned to a different judge upon remand.
They argue that in denying their motion for bail on appeal, the district court stated that even if it had
sentenced the defendants under a fraud guideline, "this range of loss would lead to a guidelines
calculation resulting in a term of imprisonment longer than the likely duration of their appeal."
Adams Br. at 53. Ross and Adams argue that reassignment is required because the district court's
comment demonstrates that the district court has prejudged what it would do in the event this court
vacated its sentence. We disagree. The district court judge's comments at the bail hearing do not
support an inference that he will fail to consider the evidence presented at the sentencing hearing
upon remand or that he will refuse to follow the law.
CONCLUSION
We AFFIRM the judgment of conviction on each count. We VACATE the sentences and
REMAND for resentencing.