United States v. Gary McDuff

Case: 14-40780 Document: 00513367362 Page: 1 Date Filed: 02/03/2016
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 14-40780 United States Court of Appeals
Fifth Circuit
FILED
Consolidated with 14-40905 February 3, 2016
Lyle W. Cayce
UNITED STATES OF AMERICA, Clerk
Plaintiff–Appellee,
v.
GARY LYNN MCDUFF,
Defendant–Appellant.
Appeals from the United States District Court
for the Eastern District of Texas
USDC No. 4:09-CR-90
Before PRADO, OWEN, and HAYNES, Circuit Judges.
PER CURIAM:*
Gary Lynn McDuff appeals his convictions and sentence for conspiracy
to commit wire fraud and for money laundering. We affirm.
* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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I
McDuff was indicted in 2009 for conspiracy to commit wire fraud and for
money laundering. 1 According to the superseding indictment, McDuff, his co-
defendant, and an unindicted co-conspirator made a series of
misrepresentations to investors while soliciting investments in the Lancorp
Financial Fund Business Trust (“Lancorp Fund,” “Lancorp,” or the “Fund”).
Among other things, McDuff and his co-conspirators—in both conversations
with prospective investors and a prospectus provided to them—falsely stated
that the Lancorp Fund was duly registered, would maintain an insurance
policy to protect against losses, and would only invest in highly rated debt
securities. They also failed to disclose that McDuff was a convicted felon
without the requisite securities licenses or that his co-defendant was barred by
California authorities from soliciting investments due to his past involvement
in fraudulent securities offerings. McDuff and his co-conspirators received
payments totaling approximately $10 million from over one hundred investors
and diverted the bulk of those investments to an illegal investment scheme
called Megafund. Megafund returned at least $1 million in payments to
Lancorp, an entity controlled by the co-conspirators, and approximately two-
thirds of those payments were diverted for their personal use.
McDuff remained abroad for some time after learning of his indictment
but was eventually apprehended in 2012. Throughout the proceedings that
followed, he represented himself but largely refused to participate
meaningfully in his defense, except to claim that his criminal prosecution was
precluded by a prior “private administrative judgment.” 2 In the course of the
two-day trial, McDuff declined to cross-examine the government’s witnesses or
1 See 18 U.S.C. §§ 1349, 1956(a)(1)(A)(i).
2 McDuff was found competent to conduct his own defense after the district court
ordered a psychological examination.
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present a defense. He was found guilty on both counts and received a within-
Guidelines sentence of 240 months for each count, with 60 months of the Count
Two sentence to run consecutively with the sentence for Count One. The court
also ordered that McDuff pay $6,563,179.49 in restitution. McDuff filed two
appeals—one from the conviction itself and the other from the district court’s
denial of his pro se “Motion to Reserve Right to Colorable Showing of Factual
Innocence”—which were consolidated for our consideration before this case
was briefed.
II
McDuff, through counsel, raises several arguments on appeal. Because
inadequately briefed arguments are considered abandoned on appeal, we
address only those arguments adequately briefed. 3
A
McDuff has asserted an assortment of claims related to venue and the
statute of limitations. McDuff contends that “[t]here [was] no obvious reason
to charge and prosecute [him] in the Eastern District of Texas” and that the
government did not prove any criminal act arising within the five-year period
preceding his indictment. Although “the government must prosecute an
offense in a district where the offense was committed,” 4 the defendant “may
waive an objection to venue by failing to raise the issue before trial.” 5 Here,
McDuff’s failure to object to venue before the trial court means that his
objection is waived.
3 See United States v. Charles, 469 F.3d 402, 408 (5th Cir. 2006) (“Inadequately briefed
issues are deemed abandoned.”).
4 FED. R. CRIM. P. 18.
5 United States v. Carreon-Palacio, 267 F.3d 381, 391 (5th Cir. 2001); see also id. at
392 (“[A] defendant may raise an appellate challenge to a court’s failure to instruct on venue
by establishing that trial testimony put venue at issue and a timely challenge was made or
an instruction was requested.”).
3
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McDuff’s statute-of-limitations argument is foreclosed for similar
reasons. He argues for the first time on appeal that his prosecution should
have been barred by the five-year statute of limitations in 18 U.S.C. § 3282(a). 6
However, as the Supreme Court has recently confirmed, a defendant “cannot
successfully raise the statute-of-limitations defense in § 3282(a) for the first
time on appeal.” 7
B
In his second and third issues, McDuff objects to the district court’s
disclosure to the venire that McDuff was a convicted felon, as well as its
admission of evidence relating to his past conviction. The government
responds that the prior conviction was alleged as part of the “manner and
means of the offense” because McDuff’s failure to disclose that conviction was
“a material and intrinsic part of the fraud.” The government further notes that
McDuff failed to object to the admissibility of his past conviction at trial, so
only plain error would warrant reversal.
Although Federal Rule of Evidence 404(b) bars the introduction of
evidence relating to past crimes or bad acts in certain circumstances, it does
not apply to “[e]vidence that is inextricably intertwined with the evidence used
to prove the crime charged.” 8 Here, the indictment alleged that the Lancorp
Fund was structured so as to deliberately obscure McDuff’s role and criminal
history. At trial, the government adduced testimony that Lancorp Fund
investors would not have invested had they known of McDuff’s prior money-
6 See 18 U.S.C. § 3282(a) (“Except as otherwise expressly provided by law, no person
shall be prosecuted, tried, or punished for any offense, not capital, unless the indictment is
found or the information is instituted within five years next after such offense shall have
been committed.”).
7 Musacchio v. United States, No. 14-1095, 2016 WL 280757, at *8 (U.S. Jan. 25, 2016);
accord United States v. Arky, 938 F.2d 579, 582 (5th Cir. 1991) (per curiam).
8 United States v. Hawley, 516 F.3d 264, 267 (5th Cir. 2008) (quoting United States v.
Navarro, 169 F.3d 228, 233 (5th Cir. 1999)).
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laundering conviction. McDuff’s past conviction was “inextricably intertwined”
with the present case, and the district court did not err by admitting the
evidence in question. Additionally, any error by the district court was not
“clear or obvious,” and given the overwhelming evidence of McDuff’s guilt, the
decision to admit the evidence did not “affect[] the outcome of the district court
proceedings.” 9
C
McDuff asserts a Brady violation. 10 He cites depositions, a declaration
in an SEC enforcement action, and a published district court opinion that
purportedly demonstrate that the testimony presented at trial could not have
been true; he then asserts that the government “suppressed” those documents.
But McDuff resolutely declined to review the “more than 20 boxes of
documents” that the government timely made available to him before trial.
The record reflects that the “newly discovered” documents were made available
to him by the government. Alternatively, McDuff’s Brady argument fails
because he has not demonstrated that his “nondiscovery of the allegedly
favorable evidence” was not “the result of a lack of due diligence.” 11
To the extent McDuff asserts that the evidence presented by the
government was insufficient to sustain a conviction, his challenge fails.
McDuff failed to move for a judgment of acquittal under Rule 29. 12 Plain error
review thus applies. 13 This is not a case in which “the record is devoid of
evidence pointing to guilt” or “the evidence is so tenuous that a conviction is
9 See United States v. Delgado, 672 F.3d 320, 329 (5th Cir. 2012) (en banc) (quoting
Puckett v. United States, 556 U.S. 129, 135 (2009)) (describing standard for plain error).
10 See Brady v. Maryland, 373 U.S. 83 (1963).
11 See United States v. Walters, 351 F.3d 159, 169 (5th Cir. 2003).
12 See Delgado, 672 F.3d at 328.
13 Id.
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shocking.” 14 In McDuff’s two-day trial, prosecutors presented ample and
uncontradicted evidence of his guilt on both counts. Various investors testified
that McDuff and his co-conspirators were working together to solicit
investments in Lancorp Fund. They credibly explained that they relied on the
representations made by McDuff and two co-conspirators regarding the
security of the investment. Other witnesses demonstrated that these
representations were false and the Fund’s handling of the money put the
investors’ principal at grave risk. Finally, the evidence showed that McDuff
and his co-conspirators diverted the investors’ funds for their personal gain.
McDuff presented no evidence to the contrary. The verdict against him was
amply supported by the evidence.
D
Relying on the Supreme Court’s decision in United States v. Santos 15 and
subsequent Fifth Circuit cases, McDuff argues that his conviction for
promotional money laundering 16 impermissibly merged into his conviction for
conspiracy to commit wire fraud. 17
The first count charged McDuff and his co-defendant with conspiring to
solicit payments from investors based on a series of false representations as to
how the money would be invested. The indictment cited as overt acts a series
14 Id. at 331 (quoting United States v. Phillips, 477 F.3d 215, 219 (5th Cir. 2007)).
15 553 U.S. 507 (2008).
16 See 18 U.S.C. § 1956(a)(1) (“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--(A)(i) with the intent to promote the carrying on of specified
unlawful activity . . . shall be sentenced to a fine . . . or imprisonment for not more than
twenty years, or both.”).
17 See 18 U.S.C. § 1349 (punishing conspiracy); id. § 1343 (“Whoever, having devised
or intending to devise any scheme or artifice to defraud, or for obtaining money or property
by means of false or fraudulent pretenses, representations, or promises, transmits or causes
to be transmitted by means of wire . . . in interstate or foreign commerce, any writings . . . for
the purpose of executing such scheme or artifice, shall be fined under this title or imprisoned
not more than 20 years, or both.”).
6
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of three wire transfers from Lancorp’s account to Megafund, an illegal
investment scheme, in February, April, and May 2005. The second count
focused exclusively on a $500,000 transfer from Megafund to Lancorp in March
2005, charging that the transfer “involved the proceeds of a specified unlawful
activity” (wire fraud) “with the intent to promote the carrying on of specified
unlawful activity” (more wire fraud).
McDuff urges the court to review his merger argument de novo, citing an
“oral motion to dismiss the case before opening statements.” But the record
reveals that no motion to dismiss related to the merger question was presented
before trial or at the conclusion of the government’s case. Until the sentencing
phase began, McDuff devoted his energies entirely to his argument that the
district court had no jurisdiction because the criminal case had somehow been
settled by private proceedings in which the government had defaulted. We
therefore review McDuff’s merger challenge for plain error.
The doctrine of merger is applicable when “a defendant is convicted
under two criminal statutes for what is actually a single crime.” 18 This court
addressed the implications of the merger doctrine for money-laundering
convictions in United States v. Kennedy. There, we held that “in the money
laundering context,” the relevant inquiry is “whether the money laundering
crime is based upon the same or continuing conduct of the underlying predicate
crime, or whether the crimes are separate and based upon separate conduct.” 19
We concluded that merger may be proved by either “demonstrat[ing] the
underlying unlawful activity was not complete at the time the alleged money
laundering occurred” or “show[ing] the transaction upon which the money
laundering count is based was not a payment from profits of the underlying
18 United States v. Kennedy, 707 F.3d 558, 563 (5th Cir. 2013).
19 Id. at 565.
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crime made in support of new crimes, but, instead, was a payment from gross
receipts of the previously committed crime made to cover the costs of that same
crime.” 20
The evidence introduced at trial sufficiently supported McDuff’s
separate conviction for money laundering. As an initial matter, the conspiracy
charged in the first count was complete when the co-conspirators reached the
relevant agreement and committed an overt act to advance it. That occurred
no later than February 2005, when Lancorp’s $5,000,000 transfer to Megafund
(contravening the conspirators’ representations to investors) took place. The
transfer that was the subject of the second count did not occur until a month
later, when Megafund transferred $500,000 back to Lancorp. As in Kennedy,
“[i]f the entire scheme had come to a halt” after the February 2005 transfer
that was the first overt act charged in the indictment, McDuff would still be
guilty of the first count. 21 His conviction for a second offense based on conduct
occurring after that date does not violate the merger doctrine.
Nor was the March 2005 transfer a mere “payment from gross receipts
of the previously committed crime made to cover the costs of that same
crime.” 22 McDuff characterizes the wire from Megafund to Lancorp as a
“‘lulling’ payment in furtherance of the wire fraud” or as an “expense-related
activity necessary for the continuation of the scheme.” The transfer at issue in
the second count was a payment from a Ponzi scheme to the co-conspirators;
the evidence showed they pocketed about two-thirds of that money and
returned the remaining portion to investors to encourage further investments
in their fraudulent scheme. The transfer in question was “profits, and profits
only” and not attributable to any particular expenses arising from the conduct
20 Id.
21 See id. at 566.
22 Id. at 565.
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charged in the first count. 23 McDuff’s conviction on the conspiracy and money-
laundering charges did not merge.
III
McDuff contends that the district court committed procedural error in
determining his sentence. 24 He alleges that the district court made incorrect
findings regarding the amount of the loss, his abuse of a position of trust, and
his co-conspirator’s violation of an administrative order. This court “review[s]
calculations of the loss amount and other factual determinations for clear
error,” while legal questions regarding the interpretation of the Guidelines are
reviewed de novo. 25
McDuff first objects to the district court’s loss calculation of
$10,986,884.16, and the accompanying 20-level enhancement, under United
States Sentencing Guidelines Manual § 2B1.1. The district court, he says,
improperly failed to reduce the loss by “the value . . . of property returned to
the victim.” He alludes to a “payment of $1,000,000 paid to ‘Lancorp Fund’”
and to $2,000,000 contained in a separate fund for which, he says, he was not
responsible. He also argues, referring to unspecified “published statements
derived from [the Lancorp receiver’s] website reconciliations,” that the loss
amount should be further reduced by $4,372,290.71 because the receiver
returned that amount to investors before McDuff’s indictment.
McDuff has not demonstrated that the district court’s factual findings
were clearly erroneous. His briefing is conclusory and essentially bereft of
citations to facts in the record. Additionally, he has not shown that the funds
in question were “returned . . . to the victims before the offense was detected”
and accordingly fails to make the showing required by the Guidelines to reduce
23 See id. at 567.
24 See Gall v. United States, 552 U.S. 38, 51 (2007).
25 United States v. Morrison, 713 F.3d 271, 279 (5th Cir. 2013).
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the loss amount. 26 The Presentence Investigation Report, drawing on evidence
presented at trial, fully supports the conclusion that the claimed loss was in
excess of $7,000,000, which gave rise to the 20-level enhancement.
McDuff next objects to the district court’s imposition of a two-level
enhancement for abuse of a position of public or private trust under Sentencing
Guidelines § 3B1.3. “A district court’s application of section 3B1.3 is a
sophisticated factual determination that an appellate court reviews for clear
error.” 27 The Presentence Investigation Report justified the enhancement on
the grounds that the “[t]estimony at trial indicated that some of the
investments into the Lancorp Fund were based solely on the defendant’s
previous interaction with investors in legitimate investment opportunities.”
On appeal, McDuff argues that testimony of one of the investors—
Francis Lynn Benyo—was not sufficient to “indicate the establishment of any
special or fiduciary relationship of trust with McDuff.” We conclude, however,
that the evidence at trial was sufficient to support the enhancement for abuse
of trust. In particular, the evidence suggested that Benyo’s decision to invest
with McDuff was based in large part on the apparent success of her previous
investment with him, and that McDuff exercised essentially unfettered
discretion over the investments solicited in this way. 28 The district court did
not clearly err by finding that the two-level enhancement applies.
McDuff’s last challenge to his sentence is based on a misreading of
Sentencing Guidelines § 2B1.1(b)(9), which establishes a two-level
26 See Sentencing Guidelines § 2B1.1, application note 3(E)(i).
27 United States v. Willett, 751 F.3d 335, 344 (5th Cir. 2014) (quoting United States v.
Pruett, 681 F.3d 232, 248 (5th Cir. 2012)).
28 See United States v. St. Junius, 739 F.3d 193, 209 (5th Cir. 2013) (“[A] position of
trust is characterized by professional or managerial discretion and that individuals who
occupy these positions are typically under less supervision than individuals whose
responsibilities are primarily non-discretionary in nature.”).
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enhancement “if the offense involved . . . (C) a violation of any prior, specific
judicial or administrative order.” The district court applied that enhancement
after concluding that McDuff’s co-defendant, Robert Reese, was barred by the
state of California from soliciting investments but nonetheless did so as part
of the charged conspiracy. McDuff argues the cease-and-desist order against
Reese was issued on August 16, 2004, after the Lancorp Fund “became
effective,” and there was “no evidence that McDuff spoke to any potential
investor” after the order issued. Thus, he concludes, the two-level increase
amounted to an incorrect application of the Guidelines.
The relevant Guidelines language focuses, however, on what “the offense
involved” rather than the defendant’s own conduct. The Guidelines specify
that “in the case of a jointly undertaken criminal activity,” whether or not
charged as a conspiracy, the relevant conduct includes “all reasonably
foreseeable acts and omissions of others in furtherance of the jointly
undertaken criminal activity.” 29 McDuff’s contention that he had no further
contact with investors after the case-and-desist order was issued against Reese
is irrelevant. Evidence presented at trial, including testimony by Scot Bennett,
supports the conclusion that Reese continued to solicit investments after the
cease-and-desist order against him was issued in August 2004. Much of the
conduct relevant to the Guidelines determination—that is, conspiracy charged
in the first count and the wire transfer that was the subject of the second
count—took place well after that date. The district court did not clearly err in
finding that Reese’s conduct was in contravention of the order and attributable
to McDuff for purposes of sentencing.
29 Sentencing Guidelines § 1B1.3(a)(1)(B); see also id. § 1B1.3, application note 2.
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IV
Finally, both McDuff and his appointed attorney, D. Kyle Kemp, have
motions pending before the panel. Kemp filed a motion to withdraw on
November 6, 2015, and McDuff filed a motion on November 12, 2015 to
“discharg[e] or disqualif[y]” Kemp and file a “corrected” brief. McDuff and
Kemp cite McDuff’s pending bar complaint against Kemp and allegedly
“unauthorized” disclosures in Kemp’s November 2, 2015 letter to the court in
support of their contention that McDuff should be permitted to proceed pro se.
Based on the unique factual circumstances of this case, we will exercise our
discretion to permit Kemp to withdraw and allow McDuff to represent himself
for the remainder of the proceedings in this court. 30 Insofar, however, as
McDuff’s motion seeks leave to submit a proposed “corrected” brief and proceed
on that basis, his motion is denied. 31 He has not asserted that meritorious
issues not presented in the initial brief filed by his counsel would be the subject
of his pro se briefing. In any event, we decline to exercise our discretion to
permit additional briefing due to the unwarranted delay that would result.
McDuff’s motion to take judicial notice of additional documents from other
proceedings in connection with that brief is denied as moot.
* * *
We AFFIRM the judgment of the district court in all respects. Kemp’s
motion to withdraw is GRANTED. McDuff’s motion to proceed pro se for the
30 See Fifth Circuit Plan for Representation on Appeal Under the Criminal Justice Act,
§ 5B, http://www.lb5.uscourts.gov/cja/cjaDocs/cja.pdf (“Counsel may be relieved upon a
showing that there is a conflict of interest or other most pressing circumstances or that the
interests of justice otherwise require relief of counsel.”). We express no opinion on the merit,
if any, of McDuff’s complaint.
31 See United States v. Ogbonna, 184 F.3d 447, 449 (5th Cir. 1999) (denying
defendant’s motion to file pro se supplemental brief where his attorney “has already filed
what is clearly a competent brief on [his] behalf”); United States v. Wagner, 158 F.3d 901, 901
(5th Cir. 1998) (rejecting defendant’s motion to proceed pro se after his counsel filed an
Anders brief and moved to withdraw).
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remainder of the proceedings is GRANTED, but his motion to file a substitute
brief and his motion for judicial notice are DENIED.
13