United States v. Gary Milby

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 14a0537n.06
Case Nos. 12-5574/5611/6090
JUL 2 2014
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT DEBORAH S. HUNT, Clerk
UNITED STATES OF AMERICA, )
)
Plaintiff-Appellee, )
) ON APPEAL FROM THE
v. ) UNITED STATES DISTRICT
) COURT FOR THE EASTERN
BRYAN COFFMAN and GARY MILBY, ) DISTRICT OF KENTUCKY
)
Defendants-Appellants. )
)
)
)
BEFORE: BATCHELDER, Chief Judge; GUY and MOORE, Circuit Judges.
ALICE M. BATCHELDER, Chief Judge. After a fifteen-day trial in the Eastern
District of Kentucky, a jury convicted Bryan Coffman, a Kentucky lawyer, and Gary Milby, a
co-defendant who proudly describes himself as an oil man, of various counts of fraud and money
laundering. In a scheme involving shell companies and securities in Kentucky oil wells, Coffman
and Milby had defrauded almost 600 investors out of over 36 million dollars during a five-year
period. The district court sentenced Coffman to 300 months in prison and Milby to 240 months in
prison. Coffman appeals various aspects of his conviction and sentence. Milby appeals his
conviction.’ For the reasons that follow, we AFFIRM.
We
1 refer to Coffman and Milby collectively as “defendants.”
Nos, 12-5574/5611.6090, United States v. Coffman, eta!.
I.
Before we describe the facts of the case, a little background information about securities in
the oil and gas industry is helpful. There are legitimate securities investment plans called oil or
gas well-drilling programs. A general partner establishes and manages each program, identifies a
suitable drilling location, obtains a lease to the mineral rights for that location, and estimates the
cost of drilling and production. The general partner then describes the program in a “Private
Placement Memorandum” (PPM), which informs investors of the potential risks and profits of the
investment. Investors purchase shares in the program, and, if the program is successful, the oil or
gas is sold to local distributors. Investors receive profits via royalty checks.
This tale of the oil man and his lawyer began in 2002. In that year, Coffman prepared
documents to form a Kentucky oil-drilling company, Mid-America Oil & Gas, for his client,
Milby. In 2003, Milby filed for bankruptcy, employing Coffman as his attorney. Later, in 2004,
Coffman prepared for Milby documents to form Mid-America Energy, Inc., a Nevada corporation.
Mid-America Energy, Inc., (Mid-America) was a management company that provided funds for
the drilling operations of Mid-America Oil & Gas.
Over the next several years, Milby enticed potential Mid-America investors with false
promises of large investment returns, often taking them to see oil wells he operated in Adair and
Green Counties, Kentucky. Milby, however, knew that because a fractured oil reservoir with
spotty oil deposits lies beneath Adair and Green Counties, wells in these counties would never
produce the large amounts of oil he promised to Mid-America investors.
After Milby received checks from investors, his office wired the money to Coffman, who
managed company funds. Coffman aided Milby in misleading investors to believe that wells
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drilled in Adair and Green Counties would produce extraordinary amounts of oil. Coffman had
received a complaint from investors in Texas in 2004 alleging that Milby and Mid-America
companies were misusing oil well investor funds and committing fraud. One investor had even
said he trusted Coffman because he was a lawyer. But when potential investors contacted
Coffman seeking information about Milby, Coffman—knowing that Milby was perpetrating a
fraud—vouched for investments in Mid-America and the legitimacy of the operation.
Coffman also directly misled investors. He created Mid-America investor programs and
filled out for prospective investors PPMs that included false and misleading information.
Investors relied on those PPMs in making investment decisions.
Coffman and Milby utilized forty-two bank accounts in perpetrating the fraud. In 2005
and 2006, Mid-America received $19.3 million from investors but had only $893,000 in revenue
from oil sales. Milby and Coffman distributed only a few hundred thousand dollars to
Mid-America investors during that period, but used millions of dollars of the investors’ money for
personal expenses. Coffman knew that the Mid-America investors were receiving only small
checks; he had prepared the investors’ tax forms showing the amounts of their losses.
By 2006, investors realized that something was rotten in Mid-America, and one of them
lodged a complaint with the Securities and Exchange Commission, which began investigating
Milby and Mid-America. Several states launched investigations as well, issuing subpoenas and
summonses and filing cease-and-desist orders and contempt orders against Milby and
Mid-America based upon state securities fraud and other violations. Milby and Coffman received
notices of these actions.
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In 2006, Coffman suggested starting an off-shore oil investment company because of the
legal trouble Mid-America was experiencing in the United States. He and Milby founded Global
Energy Group with a Mid-America investor named Victor Tsatskin, a Canadian who had invested
in Mid-America oil wells and realized that his investment was worthless. The three men agreed
that Coffman would structure Global like Mid-America and that some of the investment sales
would occur in Canada. Coffman planned to pocket a large portion of investors’ funds and to
mislead investors into believing that an independent escrow agent would be holding those funds.
Coffman knew that Milby had no intention of drilling wells for Global investors.
All three men traveled to Toronto, Canada, in 2007 to train several Global salespersons.
At those sessions, at which Coffman was present, Milby made false claims about oil production,
intending that salespersons would repeat those claims to investors. Coffman later prepared the
Global PPM for distribution to Global investors.
Throughout 2007 and 2008, Canadian investors provided funds to Global after Global
salespersons promoted the investment. Global had little revenue from oil sales, but took in over
$16 million of investors’ money. Coffman took about half of it. Not surprisingly, when returns
on their investments were meager, investors became suspicious. One group of investors initiated
an investigation through a state agency in 2008. When Coffman was deposed in the course of the
investigation, he was evasive and misleading.
Coffman engaged in multiple complicated financial transactions with Global investors’
money that made tracing the flow of funds difficult. He moved investors’ money through several
bank accounts into an investment account that he held with his wife, Megan Coffman, and he later
transferred his interest in the investment account to Megan. He funneled investors’ funds through
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various bank accounts, including the account of one of Megan’s companies, and into an attorney
account in order to purchase a South Carolina condominium where his sister-in-law lived and
where he later moved Global’s office. Coffman signed documents for the purchase of a
$1.5 million yacht and, to make the down payment on it, transferred investors’ money through a
bank account of a company owned by Megan and through an attorney’s escrow account. The
yacht became the property of another of Megan’s companies.
On October 8, 2008, federal agents executed search warrants at Coffman’s Lexington law
office and at the South Carolina condominium, seizing documents and computer hard drive data.
On December 4, 2009, a grand jury returned an indictment charging Milby, Tsatskin, Coffman,
and Coffman’s wife Megan, with various fraud and money laundering counts.
After a fifteen-day trial in the spring of 2011, ajury convicted both Milby and Coffman of
mail fraud, wire fraud, and securities fraud. The jury also convicted Coffman of conspiracy to
commit money laundering and money laundering. Megan Coffman was acquitted of all charges.
Upon the Government’s motion, the court dismissed all charges against the fourth defendant,
Victor Tsatskin, after he pleaded guilty in Canada to a securities fraud charge based upon the same
fraud scheme, testified against Coffman and Milby, and later received in Canada an imprisonment
sentence of three years. Neither Coffman nor Milby testified at trial.
Coffman’s advisory sentencing guidelines range for imprisonment was 324 to 405 months,
and Milby’s was 262 to 327 months. The court sentenced each defendant below his guidelines
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range, sentencing Coffman to 300 months and Milby to 240 months in prison. Coffman timely
appealed his conviction and sentence. Milby timely appealed his conviction.
2
II.
A. Sufficiency of the Evidence
Coffman first argues that the evidence was not sufficient to convict him of mail, wire, and
securities fraud, or conspiracy to money launder and money laundering. “For sufficiency of the
evidence challenges, the relevant question is whether, after viewing the evidence in the light most
favorable to the prosecution, any rational trier of fact could have found the essential elements of
the crime beyond a reasonable doubt.” United States v. Sease, 659 F.3d 519, 523 (6th Cir. 2011)
(internal quotation marks omitted). We examine the evidence supporting the conviction for each
crime in turn.
1. Mail, Wire, and Securities Fraud
To sustain a conviction for mail fraud under 18 U.S.C. § 1341, the Government must prove
“(1) a scheme or artifice to defraud; (2) use of mails in furtherance of the scheme; and (3) intent to
deprive a victim of money or property.” United States v. Warshak, 631 F.3d 266, 310 (6th Cir.
2010) (quoting United States v. Turner, 465 F.3d 667, 680 (6th Cir. 2006)). The elements of wire
fraud under 18 U.S.C. § 1343 are identical to the elements of mail fraud except that wire fraud’s
second element requires use of “an interstate wire communication in furtherance of the scheme.”
United States v. Cunningham, 679 F.3d 355, 370 (6th cir. 2012) (quoting United States v.
We grant defendants’ motions to adopt each other’s arguments pursuant to Fed. R. App. P. 28(i). That rule
2
states: “In a case involving more than one appellant. any number of appellants. may join in a brief, and any party
. . . .
may adopt by reference a part of another’s brief. Parties may also join ii reply briefs.” Id.
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Nos. 12-5574/5611.6090, Un ited States v. Coffrnan, et at.
Faulkenberry, 614 F.3d 573, 581 (6th Cir. 2010)). The offense of securities fraud under
15 U.S.C. § 78j(b) is “quite similar” to mail fraud “in that it also calls for proof of a scheme or
design to defraud incident to the purchase or sale of a security” and “the use of an instrumentality
of interstate commerce or of the mails in furtherance of that scheme or design.” United States v.
MacKay, 491 F.2d 616, 619 (10th Cir. 1973). “Both statutes require a specific intent to defraud.”
United States v. DeSantis, 134 F.3d 760, 764 (6th Cir. 1998).
Coffman argues that there was not sufficient evidence to prove the intent element for each
of the crimes. To have intent, “a defendant must knowingly make a material misrepresentation or
knowingly omit a material fact,” and “the misrepresentation or omission must have the purpose of
inducing the victim of the fraud to part with property or undertake some action that he would not
otherwise do absent the misrepresentation or omission.” DeSantis, 134 F.3d at 764. “[A] jury
may consider circumstantial evidence of fraudulent intent and draw reasonable inferences
therefrom. Intent can be inferred from efforts to conceal the unlawful activity, from
misrepresentations, from proof of knowledge, and from profits.” United States v. Davis, 490 F.3d
541, 549 (6th Cir. 2007) (internal quotation marks and citations omitted).
We are not persuaded. The Government presented evidence that Coffman created
Mid-America and Global investor programs at Milby’s direction. Witnesses testified that
Coffman prepared prospectuses used to mislead investors about potential profits, and that Coffman
knowingly failed to inform inquiring investors that Milby had gone bankrupt and that Milby’s
companies were under investigation for fraud. Testimony also indicated that Coffman set up
Global as an off-shore company to defraud investors after the SEC and several states began
investigating Mid-America.
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Nos. 12-5574/5611.6090, United States v. Coffinan, et al.
The evidence presented at trial demonstrated that Coffman received millions of dollars
from Mid-America and Global, all the while aware that investors were receiving minimal returns
from oil production. Coffrnan funneled these millions of investors’ dollars through multiple bank
accounts. Any rational trier of fact could have found this evidence sufficient to demonstrate
intent.
Coffman seeks to analogize this case to Bennett v. Durham, 683 F.3d 734 (6th Cir. 2012).
In Bennett, we held that a Kentucky securities law did not impose civil liability on “an attorney
who performs traditional legal services for a company offering its securities for sale to the public.”
Id. at 735. The key difference between this case and Bennett—other than Bennett’s being a civil
case—is that here the Government presented strong evidence that the lawyer—Coffman—actively
participated in the fraud scheme.
2. Conspiracy To Money Launder
Coffman contends that there was insufficient evidence to convict him of conspiracy to
money launder because the jury acquitted his wife, Megan, who was the only other co-conspirator.
Coffman invokes the rule of consistency, which says that if coconspirators are tried together, an
acquittal on conspiracy charges as to all but one coconspirator mandates acquittal on conspiracy
charges as to the remaining defendant. See United States v. Williams, 503 F.2d 50, 54 (6th Cir.
1974). But this court has stated that the rule of consistency “is no longer good law.” Id. See
Getsy v. Mitchell, 495 F.3d 295, 307 (6th Cir. 2007) (en banc) (citing United States v. Crayton,
357 F.3d 560, 565-66 (6th Cir. 2004)). The jury’s acquittal of the only other co-conspirator
allegedly involved in the conspiracy does not preclude their finding Coffman guilty of conspiracy
to money launder. His argument on this issue fails.
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Nos. 12-5574/5611.6090, United States v. Coffman, et al.
3. Money Laundering
The jury also convicted Coffman of ten counts of money laundering under 18 U.s.c.
§ 1956(a)(1)(B)(i). Money laundering requires proof of: “(1) use of funds that are proceeds of
unlawful activity; (2) knowledge that the funds are proceeds of unlawful activity; and
(3) conduct[ing] or attempt[ing] to conduct a financial transaction, knowing that the transaction is
designed in whole or in part to disguise the nature, location, source, ownership or control of the
proceeds.” United States v. Prince, 214 F.3d 740, 747 (6th Cir. 2000) (quoting United States v.
Moss, 9 F.3d 543, 551 (6th Cir. 1993)).
coffman maintains that his simply transferring money from his bank account to his wife’s
bank account is not enough to prove that he had a purpose to conceal. This argument fails
because, “[w]hen a sequence of transactions is sufficiently complex, a reasonable juror may infer
that the transactions were made for the purpose of concealment.” Warshak, 631 F.3d at 321
(internal quotation marks omitted). The Government provided bank records and diagrams
demonstrating how Coffman moved investor funds among numerous bank accounts. These
transactions included the transactions between him and his wife.
Coffman also argues that because his wife, Megan, controlled the funds involved in several
of the transfers, Coffman did not have the requisite intent to conceal. But a reasonable juror could
have concluded that the transactions were not totally within the control of Megan. The
Government provided evidence at trial that Coffman signed documents involved in the transfers,
and Government trial exhibits detailing the large number and types of transfers also evidence
Coffman’s control of the transactions. A reasonable juror could have concluded from this
evidence and Coffman’ s involvement with Mid-America that Coffman performed these transfers
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in order to conceal funds.
B. Admission and Exclusion of Evidence
Defendants assert that the district court erred in excluding several pieces of evidence and in
admitting other evidence. We review “the district court’s decision to admit evidence for an abuse
of discretion.” United States v. Blanchard, 618 F.3d 562, 569 (6th Cir. 2010). A district court
abuses its discretion by making “errors of law or clear errors of factual determination in
evidentiary rulings.” United States v. Geisen, 612 F.3d 471, 495 (6th Cir. 2010) (internal
quotation marks and citations omitted).
First, Coffman maintains that the district court abused its discretion when it refused to let
him cross examine Tstatskin about the range of punishment he was facing in the United States.
Such information, Coffman contends, would have shown Tsatskin’s motivation for testifying
against him. We find no merit in this claim because this question was neither probative of
Tsatskin’s bias or motive for testifying nor useful for impeachment. At the time he made the plea
deal, Tsatskin did not know the length of any prison term he faced if he were convicted in the
United States; he learned only after he had agreed to the deal what his punishment would likely be.
Even if Coffman’ s question to Tsatskin were probative of bias or motive, the district court
did not abuse its discretion in excluding the testimony because “the jury was otherwise in
possession of sufficient information . . . to make a discriminating appraisal of [the] witness’
motives and bias.” United States v. Kone, 307 F.3d 430, 436 (6th Cir. 2002) (internal quotation
marks, citations, and brackets omitted); see also United States v. Lanham, 617 F.3d 873, 884 (6th
Cir. 2010). The jury heard testimony that Tsatskin made a deal with the United States
government in which he agreed to come to Kentucky to testify and the United States agreed to
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Nos. 12-5574/5611.6090, United States v. Coffinan, et al.
have the indictment against him dismissed. This information was sufficient to show Tsatskin’s
motive and bias in testif,ring against Coffman.
Milby argues that the district court erred when it refused to allow him to cross-examine
Tsatskin about an arguably inconsistent statement Tsatskin made during trial, as well as about two
unrelated forgery charges. But the jury heard both the testimony that Tsatskin received multiple
cease-trade orders based on securities violations and Tsatskin’s admission that the Canadian
government prohibited him from selling cars because he did not have a license to do so. This was
ample evidence to permit the jury to make a sound appraisal of Tsatskin’ s character.
Milby next maintains that the district court erred when it refused to admit into evidence
statements attached to a report detailing an investigation into Global by the Ontario Securities
Commission and to allow defendants to cross-examine Tsatskin about the statements. But
witness statements in a report are hearsay and are not admissible under Rule 803(8) of the Federal
Rules of Evidence. See Tranter v. Orick, 460 F. App’x 513, 515 (6th Cir. 2012) (per curiam).
We find no abuse of discretion here.
Coffman contends that the district court erred in admitting a recording of a civil deposition
Coffman gave before a Kentucky state investigator because, at the time of the deposition, Coffman
was unaware of any pending criminal investigation against him. Coffman did not raise the issue
at trial; moreover, he consented to the introduction of the recording. He has therefore waived this
argument, see United States v. Street, 614 F.3d 228, 234 (6th Cir. 2010), and must demonstrate
plain error, that is, an error that “was obvious or clear.” United States v. Doyle, 711 F.3d 729, 732
(6th Cir. 2013). Coffman makes no such showing. To prove impermissible commingling of
civil and criminal investigations, he must demonstrate “trickery or cloaking of the criminal
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Nos. 12-5574/5611.6090, United States v. Coffman, et al.
investigation as civil.” United States v. Setser, 568 F.3d 482, 493 (5th Cir. 2009) (internal
quotation marks omitted). Coffman provided no evidence whatever to support such a claim.
Both defendants argue that the district court erred when it admitted investors’ testimony
concerning statements by Global and Mid-America salespeople about investments, including
testimony that a Global salesperson made misrepresentations to them about oil production
amounts and expected returns on their investments. Coffman first maintains that this testimony
violated the parol evidence rule. Coffman, however, waived this argument because he did not
raise it in the district court. See, e.g., United States v. Murphy, 241 F.3d 447, 450—5 1 (6th Cir.
2001). At trial, Coffman’s objections to the testimony related solely to hearsay and the right to
confrontation. We therefore review this objection for plain error, see Doyle, 711 F.3d at 732, and
we find none. “Parol evidence is admissible to show that the making of a contract was procured
by fraudulent representations.” Waidman v. Stone, 698 F.3d 910, 923 (6th Cir. 2012) (citing
Radioshack Corp. v. ComSmart, Inc., 222 S.W.3d 256, 260 (Ky. App. 2007)).
Coffman and Milby also argue, however, that the district court erred by admitting this
testimony because the statements are hearsay. “Out-of-court statements constitute hearsay only
when offered in evidence to prove the truth of the matter asserted.” United States v. Hathaway,
798 F.2d 902, 904 (6th Cir. 1986) (quoting Anderson v. United States, 417 U.S. 211, 219 (1974)).
These false statements were offered not to prove the truth of the expected returns or profitability of
the oil wells, but to prove that the salespersons’ oral promises were false and misleading.
Because these statements are not hearsay, the district court did not abuse its discretion in admitting
them. See Hathaway, 798 F.3d at 905.
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Nos. 12-5574/5611.6090, United States v. Coffman, et al.
Both defendants contend that the district court abused its discretion when it allowed
Manning Warren, a securities law professor, to testify as an expert witness concerning the duties of
a securities lawyer. Properly qualified expert testimony is admissible if it “will help the trier of
fact to understand the evidence or to determine a fact in issue.” Fed. R. Evid. 702(a).
Defendants maintain first that Warren’s testimony about a securities lawyer’s role was
incorrect and not reliable. Warren testified that:
A securities lawyer is there to independently investigate. He’s not entitled to
believe what his client said. That’s when I mean, you usually find yourself
--
adverse to your client; sometimes it’s not particularly pleasant, because you are
supposed to be a skeptic, a devil’s advocate with your client. And you want to hear
what your client has to say, but then you want to go out there and independently
verify it.
Because defendants did not object to this testimony at trial, we review only for plain error. See
Un ited States v. Ham, 628 F.3d 801, 804 (6th Cir. 2011). While defendants dispute the accuracy of
Warren’s testimony, the district court did not plainly err in admitting it. Defendants’ arguments
“go to the weight the jury should afford the evidence, not to its admissibility.” United States v.
Crosgrove, 637 F.3d 646, 658 (6th Cir. 2011). Defendants were “able to raise each of [their]
points at trial, both through cross examination and closing arguments.” Id. In fact, Coffman’s
counsel vigorously questioned Warren on his views. Admitting expert testimony that is debatable
is not plain error.
Defendants also argue that the district court erred when it admitted Warren’s testimony
about what constitutes “materiality” for purposes of securities law. Warren testified that part of
the duty of the securities lawyer is to insure his clients’ compliance with the securities law’s
prohibition against making “any material misrepresentations of fact.” The prosecutor asked
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Nos. 12-5574/5611.6090, United States v. Coffman, etal.
Warren to provide the “standard definition” for “what is material.” Warren explained that
information is “material” if there is a “substantial likelihood that the information is information that
an investor would find important in making his or her investment decision.” The prosecutor then
asked Warren to explain categories of material disclosures based on the usual and customary
practice of a securities lawyer. In response to defense counsel’s objection, the district court
instructed the jury that the court would instruct them as to the meaning of the law, and that they
were to limit their consideration of Warren’s testimony to “determining what is ordinarily and
customarily done by securities lawyers in their practices.”
Defendants assert that an expert cannot testify on legal questions at all, citing United States
v. Zipkin, 729 F.2d 384 (6th Cir. 1999). In Zipkin the court held inadmissible expert testimony
about the meaning of the specific provision of law the defendant was accused of violating. Id at
387. Here, however, Warren was testifying about the lawyer’s duty to protect his client from civil
liability in the securities context. He was not testifying about the legal standard the jury was to
employ in deciding the instant case. The court made this clear in its limiting instruction.
Moreover, in its final instructions to the jury, the court defined “material” in terms nearly identical
to those used by Warren.
Defendants also assert that the district court erred because it permitted Warren to testify
regarding the ultimate issue of defendant’s guilt. They point to Warren’s responses to hypothetical
questions posed by the prosecutor regarding misrepresentations in PPMs and warnings of risk
contained in documents such as subscription agreements, and to his statement that Coffman was
subject to criminal liability. But hypothetical questions to an expert witness are permissible, see
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United States v. Collins, 78 F.3d 1021, 1037 (6th Cir. 1996), and as this court explained in Collins,
hypothetical questions to an expert do not withdraw the issue of guilt from the jury. Id. Warren’s
opinion regarding Coffman’s criminal liability was merely part of his explanation of a hypothetical
dealing with a different criminal charge related to securities law. It was not an opinion on the
ultimate question of guilt at issue in the case.
Defendants argue that the district court erred when it admitted testimony from John Cullen,
a Kentucky state investigator, which, defendants complain, amounted to legal conclusions.
During the cross-examination of Cullen, Coffman sought to establish that Cullen’s office did not
have authority to investigate Global because Global had no Kentucky investors. On redirect, in
order to establish that Cullen’s office did have jurisdiction to investigate Global, the Government
asked Cullen whether a Global representative’s taking an investor to a well site in Kentucky to
induce him to invest in the program would constitute an offer of securities in Kentucky. The
district court ruled the Government’s question was merely an effort to refute Coffman’s suggestion
that Cullen’s office lacked jurisdiction to investigate Global, and that Coffman’s attorney had
“opened the door for the government’s line of inquiry.” United States v. Ramos, 861 F.2d 461,
468-69 (6th Cir. 1988). We find no abuse of discretion here.
Defendants next argue that four witnesses provided lay opinion testimony in violation of
Federal Rule of Evidence 701, which states:
If a witness is not testifying as an expert, testimony in the form of an opinion is
limited to one that is: (a) rationally based on the witness’s perception; (b) helpful to
clearly understanding the witness’s testimony or to determining a fact in issue; and
(c) not based on scientific, technical, or other specialized Imowledge within the
scope of Rule 702.
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A foundational requirement of Rule 701 is that the witness have “personal knowledge of the
outward events” that supports assertions made in testimony. Torres v. County of Oakland,
758 F.2d 147, 150 (6th Cir. 1985).
Coffman has failed to develop his argument that Government witnesses gave improper lay
opinion testimony, simply claiming in summary fashion, with no explanation whatsoever, that four
statements contained lay opinions. Thus, Coffman has waived the issue. See, e.g., United States
v. Catalan, 499 F.3d 604, 606 (6th Cir. 2007) (“We require parties to develop their arguments in a
non-perfunctory manner at the risk of having them deemed waived.”).
But even if Coffman has not waived the issue, his argument has no merit. The first witness
Coffman mentions, Shiping Chen, invested in Mid-America after hearing Milby’s sales pitch, and
after Coffman assured him that Milby was successful and that Chen’s money would be secure.
Chen testified that after he failed to receive returns on his investment in Mid-America, he decided
that Coffman was “the key criminal in this scam.” Because Coffman did not object to this
testimony at trial, our review is for plain error. See Ham, 628 F.3d at 804 (6th Cir. 2011). Chen’s
testimony is arguably rationally based on his perceptions because it is founded on his interactions
with Coffman and Milby. Furthermore, the entirety of Chen’ s testimony covers 125 transcript
pages. Even if this one statement, upon which Coffman now focuses, were improper, we have
found harmless error where “this error involved only one brief question out of a rather lengthy
trial.” Torres, 758 F.2d at 150.
The second witness Coffman points to is Eric Taylor, who testified that he suspected that
Coffman and Milby were stealing his money after Milby threatened him and Coffman refused to
provide information about the money he had invested. Coffman’s attorney attempted to impeach
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Nos. 12-5574/5611.6090, United States v. Coffman, et al.
Taylor by showing that Taylor hoped to recover money in a lawsuit if Coffman were convicted.
Coffman’s attorney asked, “You have been advised, though, that if you convict Bryan Coffman you
might get some money?” Taylor answered, “Well, when Bryan Coffman has our monies in
Panama and the Cayman Islands and — [here Coffman’s attorney objectedJ — and the Bahama
islands, yes absolutely.” Later, Coffman’s attorney tried to establish that Taylor knew that his
investment was risky. The attorney asked, “Now, again, you were advised over and over about the
risk in the stock. Correct?” Taylor said, “Yes.” The attorney then asked, “And where the
money would be going?” Taylor responded, “To Gary Milby, not to Bryan Coffman and to
Panama, yes.” The defendants then moved for a mistrial. The court denied the motion.
The district court, however, almost immediately instructed the jury to disregard that
testimony. The court’s limiting instruction “was immediate, clear, and forceful,” and “the remark
was only a small part of the evidence against the defendant.” United States v. Caver, 470 F.3d 220,
243, 245 (6th Cir. 2006) (internal citations omitted). Taylor’s testimony was not “so clearly
improper and prejudicial” that the court’s instruction could not have “erased” any harm to the
defendants. United States v. Howard, 621 F.3d 433, 459 (6th Cir. 2010). At the beginning of the
next day of the trial, the district court reminded the jury of the instruction to ignore that testimony,
and asked the jurors if they could follow the instruction. Each juror answered affirmatively.
Taylor’s statements were a small part of the evidence against Coffman. In the context of
“all that happened” in the trial, there is no “reasonable possibility” “that the evidence complained of
might have contributed to the conviction.” United States v. Bell, 516 F.3d 432, 447 (6th Cir.
2008). We conclude that this error was harmless. See Torres, 758 F.2d at 150 (finding harmless
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error where “this error involved only one brief question out of a rather lengthy trial.”) The district
court did not abuse its discretion in dealing with Taylor’s testimony.
Coffman’s remaining claims of lay opinion testimony are also meritless. In response to a
question from Coffman’s attorney, Roberta Bottoms testified that, “Mr. Coffman was the true
owner” of Global. Coffman “cannot complain about the discussion elicited by his own counsel.”
United States v. Lay, 612 F.3d 440, 448 (6th Cir. 2010). Finally, Coffman claims that the
Kentucky investigator John Cullen testified that Coffman was involved in criminal activity. In
fact, Coffman’s attorney made that statement in a question in which he quoted Cullen’s affidavit.
Coffman cannot challenge the admission of evidence he introduced. See Ohier v. United States,
529 U.S. 753, 755 (2000).
Finally, defendants argue that the district court abused its discretion when it prohibited the
admission of testimony expressing opinions on the quality and accuracy of the Government’s
investigation. Citing only one case, defendants maintain that evidence discrediting an
investigation may be relevant and material. See Jeffries v. Morgan, 446 F. App’x 777 (6th Cir.
2011). In Jeffries, we addressed a defendant’s claim that the prosecution had failed to disclose
exculpatory material. Id. at 778. But here, defendants make no such claim, and a trial court does
not abuse its discretion in excluding as irrelevant accusations that the Government’s investigation
was not perfect. See United States v. Veal, 23 F.3d 985, 989 (6th Cir. 1994). Relying on Veal, the
district court properly prohibited defendants from making unsupported accusations about the
Government’s motivation in bringing the case. The defendants were able to attack the quality of
the investigation through cross examination of Government witnesses. This argument is meritless.
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C. Authenticity of Bank Records
Coffman argues that the district court erred when it admitted thousands of pages of bank
records documenting Coffman’ s money transfers because they were not properly authenticated
under Federal Rule of Evidence 803(6). At trial, Government witnesses testified that they used the
bank records to create consolidated charts and documents outlining the flow of money into and out
of Mid-America and Global bank accounts. We review “the district court’s decision to admit
evidence for an abuse of discretion.” Blanchard, 618 F.3d at 569.
Business records may be admissible if the records are properly authenticated. Fed. R.
Evid. 803(6). Coffman argues that the admitted bank records must be authenticated as provided in
Federal Rule of Evidence 902(11), which permits authentication of “certified domestic records of
regularly conducted activity” without “[e]xtrinsic evidence of authenticity,” provided the records
are admissible under Federal Rule of Evidence 803(6), and are accompanied by a certificate
meeting the rule’s standards. Because the Government did not have a certificate authenticating the
bank records, Coffman argues, the court should have excluded them.
Coffman is mistaken. Official certification is not the only means by which documents may
be authenticated; they may also be authenticated using a “custodian or other qualified witness.”
Fed. R. Evid. 803(6)(D). Regarding that provision, we have said: “there is no reason why a
proper foundation for application of Rule 803(6) cannot be laid, in part or in whole, by the
testimony of a government agent or other person outside the organization whose records are sought
to be admitted. When a witness is used to lay the foundation for admitting records under Rule
803(6), all that is required is that the witness be familiar with the record keeping system.”
Hathaway, 798 F.2d at 906.
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Witnesses, including Assistant United States Attorney Lisa Hasday and Ryan Lee, a United
States Postal Service analyst, testified to the authenticity of the records. Hasday testified that
using account numbers from investors’ deposited checks, she subpoenaed bank records for a given
time period. This testimony evinces a familiarity with the record keeping system of the banks.
Lee’s testimony described the process for obtaining those bank records, demonstrating that he was
familiar with the record keeping system of the banks. And the admitted documents had the
appearance of bank records, and some of them contained Coffman’ s name and signature. The
district court did not abuse its discretion in admitting the bank records.
In United States v. Sandles, we reversed a conviction because the government had failed to
provide sufficient evidence that a bank’s deposits were FDIC-insured. 549 F.3 d. 508, 516 (6th Cir.
2006). But in that case the FDIC insurance of the deposits was an element of the offense. Id.
Here, the Government simply had to comply with Rule 803(6). The district court did not abuse its
discretion in finding that the Government had done so.
D. Morrison and Extraterritoriality
Defendants urge that the district court’s refusal to dismiss counts 1-10, 14-19, and 34, which
related to defendants’ activities regarding Global, is contrary to the requirements of Morrison v.
NationalAustralia BankLtd., 130 5. Ct. 2869 (2010). We review de novo the district court’s legal
conclusions supporting its denial of the defendants’ motion to dismiss the indictment. See, e.g.,
United States v. Rose, 714 F.3d 362, 370 (6th Cir. 2013).
In Morrison, the Supreme Court endorsed the “longstanding principle of American law that
legislation of Congress, unless a contrary intent appears, is meant to apply only within the territorial
jurisdiction of the United States.” 130 5. Ct. at 2877 (internal citations omitted). Because Global
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is a corporation domiciled in the Bahamas, all of Global’s sales offices are located in Canada, and
Global solicited and sold partnerships only to Canadian foreign investors, defendants argue against
extraterritorial application of several statutes. The Government responds that the presumption
against extra-territoriality in Morrison is applicable only to civil cases, citing United States v.
Bowman, 260 U.S. 94 (1922).
We do not need to decide the reach of the Morrison presumption because defendants’
domestic conduct falls within the ambit of each of the statutes. Count 34 alleges a violation of
15 U.S.C. § 78j(b). Counts 5, 6, 8, 9 and 10 allege violations of 18 U.S.C. § 1341. Counts 14-19
allege violations of 18 U.S.C. § 1343. We turn first to § 78j(b).
1. 15 U.S.C. § 78j(b)
Section 10(b) of the Securities Exchange Act of 1934 is codified at 15 U.S.C. § 78j(b).
That provision states, in part:
It shall be unlawful for any person, directly or indirectly, by the use of any means or
instrumentality of interstate commerce or of the mails, or of any facility of any
national securities exchange . (b) [tb use or employ, in connection with the
. .
purchase or sale of any security registered on a national securities exchange or any
security not so registered, or any securities-based swap agreement any. . .
manipulative or deceptive device or contrivance in contravention of such rules and
regulations as the Commission may prescribe as necessary or appropriate in the
public interest or for the protection of investors.
The Court in Morrison found that section 10(b) applies only to “transactions in securities listed on
domestic exchanges, and domestic transactions in other securities.” 130 S. Ct. at 2884. In
interpreting the Securities Act, the Court argued: “[Wje think that the focus of the Exchange Act
is not upon the place where the deception originated, but upon purchases and sales of securities in
the United States.” Id. In Morrison, Australian plaintiffs sued an Australian bank and American
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defendants for losses on stock purchases traded on an Australian exchange and other foreign
exchanges. Id. at 2875-76. “[A]ll aspects of the purchases . . . occurred outside the United
States.” Id. at 2888.
In the case before us, Global investors wired and mailed money to Coffman in the United
States. These transactions thus occurred partially in the United States. Global repeatedly held
itself out to investors as being headquartered in Kentucky, instructed investors to mail or wire their
investments to Bryan Coffman in Kentucky and later, South Carolina, which the investors did, and
encouraged investors to travel to central Kentucky where Global representatives showed them oil
wells. Because portions of the transactions involved in this case occurred in the United States, it is
fair to characterize them as “domestic.” Morrison, 130 5. Ct. at 2884. The district court did not err
in refusing to dismiss the counts relating to Global.
2. 18 U.S.C. § 1341, 1343
The district court also properly denied defendants’ motion to dismiss counts 5-6, 8-10 and
14-19 chargingmailfraudunder 18 U.S.C. § 1341 andwirefraudunder 18 U.S.C. § 1343. Asthe
district court explained, the mail and wire fraud counts against Coffman and Milby involved the use
of “U.S. mail and interstate wires to execute the alleged scheme to defraud.” United States v.
Coffman, 771 F. Supp. 2d 735, 738 (E.D. Ky. 2011). Mail fraud occurs in “the place of mailing or
delivery by mail.” United States v. Wood, 364 F.3d 704, 711(6th Cir. 2004) (quoting Kreuter v.
United States, 218 F.2d 532, 534 (5th Cir. 1955)). Similarly, as the district court held, wire fraud
occurs in the United States when defendants use interstate wires as part of their scheme. Coffman,
771 F. Supp. 2d at 738 (citing Pasquantino v. United States, 544 U.S. 349, 371 (2005)). The
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defendants’ claims that the mailings and wire communications originated in Canada are irrelevant.
E. Severing the Trial
Before trial, Coffman moved to sever his trial from Milby’s pursuant to Federal Rule of
Criminal Procedure 14. Rule 14 permits the court to grant a severance if “consolidation for trial
appears to prejudice a defendant.” Fed. R. Crim. P. 14. The district court denied his motion. We
review a district court’s denial of a severance motion “for a clear abuse of discretion.” Caver,
470 F.3d at 237.
Although Coffman moved for severance before trial, he failed to renew his motion at the
close of the evidence. Therefore, he has waived the claim that he was entitled to severance. See
United States v. Sturman, 951 F.2d 1466, 1476 (6th Cir. 1991). Coffman argues that his wife,
Megan, renewed her motion for severance at the close of the evidence, and that this renewal was
joined by the other co-defendants because of the district court’s standing order that all defendants
were presumed to join in the motions of the other defendants. This argument fails because a
motion for severance is particular to the individual making the motion and cannot be joined by other
defendants.
Even if Coffman did not waive the issue, the district court did not abuse its discretion in
refusing to sever the trials of the defendants. The Supreme Court has stated that, “a district court
should grant a severance under Rule 14 only if there is a serious risk that a joint trial would
compromise a specific trial right of one of the defendants, or prevent the jury from making a reliable
judgment about guilt or innocence.” Zajiro v. United States, 506 U.S. 534, 539 (1993). Even
where the risk of prejudice is high, “less drastic measures, such as limiting instructions, often will
suffice to cure any risk of prejudice.” Id. at 534. For Coffman to prevail on his severance
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argument, he must show “compelling, specific, and actual prejudice from [the] court’s refusal to
grant the motion to sever.” United States v. Ross, 703 F.3d 856, 885 (6th Cir. 2012). The district
court provided limiting instructions designed to mitigate any potential for prejudice, and Coffman
fails to point to any specific or actual prejudice resulting from the joint trial, let alone any
compelling prejudice. Coffman’s claim of error is meritless.
F. Aiding and Abetting Instruction
Coffman asserts that the district court erred when it permitted the Government to amend the
indictment at the conclusion of its case. We review de novo whether there was an amendment or a
variance to the indictment. See United States v. Flowal, 163 F.3d 956, 962 (6th Cir. 1998). The
Government never attempted to amend the indictment, only requesting an instruction on aiding and
abetting under our decision in United States v. McGee, 529 F.3d 691 (6th Cir. 2008). Consistent
with McGee, the district court gave the instruction and did not commit error in doing so. A district
court may give an instruction on aiding and abetting as an alternative theory of liability even if the
indictment does not refer to this theory because “aiding and abetting is embedded in federal
indictments.” Id. at 695-96.
G. Eric Taylor’s Testimony
Defendants argue that they were entitled to a mistrial based upon Eric Taylor’s prejudicial
testimony. We review for abuse of discretion a district court’s denial of a motion to grant a
mistrial. See Howard, 621 F.3d at 458. “Where a defendant argues that the district court should
have granted a mistrial due to improper testimony, . . . we must first consider whether the
challenged testimony was in fact improper.” Id. “If the district court did not err in admitting the
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Nos. 12-5574/5611.6090, United States v. Coffrnan, et al.
evidence, then the district court could not have abused its discretion in denying the motion for a
mistrial.” Id. at 459 (internal quotation marks and citation omitted). If the testimony was
improper, we next determine whether the testimony “was so clearly improper and prejudicial to the
defendants that the harm could not be erased by any instruction which the court might give.” Id.
(internal quotation marks and citation omitted).
Defendants first argue that the court abused its discretion when it failed to declare a mistrial
after Eric Taylor testified that Milby verbally threatened him. Taylor was a Mid-America investor
who had met with Milby in the Kentucky oil fields. Sometime later, Taylor became suspicious
that Milby was misusing his investment, and contacted Milby. The prosecutor asked Taylor about
his conversation with Milby, and Taylor responded: “Well,just imagine the word ‘MF.’ And, ‘If
you keep talking smack and giving me problems, I will have some guys come up there with
shotguns and jam it up your A-S-S.’ Things like that.... And guys will come up with baseball
bats and break my kneecaps, stuff like that.”
The defendants did not raise a contemporaneous objection to this testimony, and we review
its admission for plain error. See Ham, 628 F.3d at 804; Un ited States v. Wilson, 168 F.3d 916, 920
(6th Cir. 1999). We find none. Milby’s conversation with Taylor concerned the alleged fraud at
issue and Milby’s threatening Taylor in an attempt to end inquiry into it. This evidence is relevant
to the commission of the fraud.
Defendants also argue that the testimony constituted impermissible character evidence
under Federal Rule of Evidence 404(b). This argument fails because “[wlhere the challenged
evidence is intrinsic to, or inextricably intertwined with evidence of, the crime charged, Rule
404(b) is not applicable.” United States v. Marrero, 651 F.3d 453, 471 (6th Cir. 2011) (internal
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Nos. 12-5574/5611.6090, Un ited States v. Coffman, et al.
quotation marks and citations omitted). The conversation between Milby and Taylor was directly
relevant to Milby’s attempt to cover up the alleged fraud. The threats Milby made against Taylor
are an intrinsic part of Taylor’s testimony that Milby attempted to cover up the fraud with which he
was charged.
Defendants then argue that the court abused its discretion when it failed to declare a mistrial
after Eric Taylor testified that Coffman was hiding money in an off-shore bank account. But as we
have already held, see supra at p. 16-17, any error in admitting this testimony was harmless at best.
And in any event, later in the trial, the jury heard that Coffman transferred over two million dollars
of investors’ funds to his account in Panama. There is no “reasonable possibility” “that the
evidence complained of might have contributed to the conviction.” Bell, 516 F.3d at 447. The
district court did not abuse its discretion in refusing to declare a mistrial.
H. Expert Testimony
Defendants argue that the district court erred by allowing Keith Hunter and Ryan Lee, two
financial analysts, to testify about the banking data they compiled from bank records. Defendants
maintain that Hunter and Lee were experts as to whom the Government should have provided
disclosures under Federal Rule of Evidence 702. We review for plain error the district court’s
decision to allow the testimony because defendants failed to preserve the issue for appeal. See
Ham, 628 F.3d at 804.
We find no such error. “Summary testimony is appropriate to aid the jury in the
examination of testimony and documents in evidence.” United States v. Vasilakos, 508 F.3d 401,
412 (6th Cir. 2007). Hunter and Lee did not provide expert opinions. They merely summarized
“a large amount of data” without offering “any conclusions as to what the data meant.”
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Faulkenberry, 614 F.3d at 588. Moreover, the district court gave an appropriate limiting
instruction regarding their summary testimony. See Vasilakos, 508 F.3d at 412.
I. Coffman’s Sentence
Coffman argues that the district court erred in sentencing him to 300 months in prison. We
review for abuse of discretion both the procedural and substantive reasonableness of the district
court’s sentencing decision. See United States v. Cunningham, 669 F.3d 723, 728 (6th Cir. 2012).
Coffman challenges first the district court’s failure to consider “the need to avoid
unwarranted sentence disparities among defendants with similar records who have been found
guilty of similar conduct,” as required by 18 U.S.C. § 3553(a)(6). Coffman did not raise this
objection during sentencing. When a defendant fails to raise an objection to the sentence after an
invitation from the district court to do so, we review the sentence, including the sentencing
procedures used by the district court, for plain error. United States v. Vonner, 516 F.3d 382,
385-86 (6th Cir. 2008) (en banc); see also United States v. Simmons, 587 F.3d 348, 360 (6th Cir.
2009). “If the record demonstrates that the sentencing court addressed the relevant factors in
reaching its conclusion, the court need not explicitly consider each of the § 3553(a) factors or
engage in a rote listing or some other ritualistic incantation of the factors.” United States v.
Kirchhoj 505 F.3d 409, 413 (6th Cir. 2007); see also United States v. Houston, 529 F.3d 743, 751
(6th Cir. 2008). The record reflects that the district court considered the relevant sentencing
factors in sentencing Coffman. We find no plain error in this regard.
Coffman then argues that his sentence was substantively unreasonable because it was
disproportionate when compared to sentences imposed in similar cases. But 18 U.S.C.
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Nos. 12-5574/5611.6090, United States v. Coffrnan, et al.
§ 3553(a)(6) concerns “national disparities,” and “the Guidelines themselves represent the best
indication of national sentencing practices.” Houston, 529 F.3d at 752. After considering the
guidelines range of 324 to 405 months, the district court varied below the range and sentenced
Coffman to imprisonment for 300 months. “{S]imple logic compels the conclusion” that a
defendant has a “demanding” task to persuade this court that a sentence below the
presumptively-reasonable guidelines range is “unreasonably long.” United States v. Curry,
536 F.3d 571, 573 (6th Cir. 2008). The extensive fraudulent conduct in this case, the need for
general deterrence of such white-collar fraud, and the significant financial impact on the victims
necessitate a long period of confinement. The 300-month sentence of incarceration imposed is not
substantively unreasonable.
J. The Preliminary Forfeiture Order
Coffman next argues that the Government did not prove, by a preponderance of the
evidence, that assets included in the Preliminary Order of Forfeiture bore a nexus to the crimes
committed by Coffman. We review a district court’s factual findings in criminal forfeiture
proceedings for clear error and the court’s legal conclusions regarding forfeiture de novo.
Warshak, 631 F.3d at 331.
The indictment contained a forfeiture count based on Coffman’ s mail fraud, wire fraud, and
money laundering offenses. Coffman waived his right to a jury determination of the forfeiture
issues. See Fed. R. Crim. P. 32.2(b)(5)(A) (providing that party may request “jury be retained to
determine the forfeitability of specific property if it returns a guilty verdict”). The district court
forfeited all thirteen financial accounts listed in the indictment, the South Carolina condominium,
and the yacht, as being involved in money laundering. See United States v. Coffman, 859 F. Supp.
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Nos. 12-5574/5611.6090, United States v. Coffman, et al.
2d 871 (E.D. Ky. 2012). Rejecting Coffman’s claim that non-investor funds were not forfeitable,
the court explained that Coffman used the forfeited property to engage in money laundering and
that he commingled investor funds with non-investor funds for the purpose of concealing and
disguising the nature, location, source, ownership, and control of the fraud proceeds. Coffman,
859 F. Supp. 2d at 877-8 1.
We find no error in the district court’s forfeiture order. Under the forfeiture statute,
“property” that is “involved in” an offense “or any property traceable to such property” is
forfeitable. 18 U.S.C. § 982(a)(1). “Property under the statute includes the money or other
property being laundered (the corpus), any commissions or fees paid to the launderer, and any
property used to facilitate the laundering offense.” United States v. Puche, 350 F.3d 1137, 1153
(11th Cir. 2003) (internal citations and quotation marks omitted). “Facilitation occurs when the
property makes the prohibited conduct less difficult or more or less free from obstruction or
hindrance.” Id.
Commingling of fraud proceeds with untainted money as part of concealment money
laundering under 18 U. S .C. § 195 6(a)( 1 )(B)(i) permits the forfeiting of the untainted money in
certain circumstances. Puche, 350 F.3d at 1153. “Forfeiture of commingled funds . . . is proper
when the government demonstrates that the defendant pooled the funds to facilitate or disguise his
illegal scheme.” Id. Commingling “is enough to expose the legitimate funds to forfeiture, if the
commingling was done for the purpose of concealing the nature or source of the tainted funds (that
is, if the commingling was done to facilitate money laundering in violation of 18 U.S.C.
§ 1956(a)(1)(B)(i).” United States v. McGauley, 279 F.3d 62, 76 (1st Cir. 2002).
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The Government provided extensive bank records as well as charts outlining the path of
monies through all of the bank accounts, which is sufficient to support a finding that Coffman
commingled tainted and untainted funds for the purpose of concealment. “When a sequence of
transactions is sufficiently complex, a reasonable juror may infer that the transactions were made
for the purpose of concealment.” Warshak, 631 F.3d at 321 (internal citations and quotation marks
omitted). The evidence relative to each account as well as to the condominium and the yacht
demonstrates that Coffman commingled tainted and untainted funds to engage in concealment
money laundering.
The context of the money transfers also reveals Coffman’s intent to conceal. Coffman was
aware that Mid-America investors were receiving only small checks from Mid-America; it was he
who prepared the investors’ tax forms showing the amounts of their losses. After transferring
money to his wife and her companies, Coffman moved Global’s office to the condominium and
signed several of the purchase documents for the yacht. This context supports the conclusion that
Coffman was commingling tainted and untainted funds for the purpose of concealing the nature and
source of the tainted funds.
Coffman’s argument that third party control of the bank accounts shields the accounts from
forfeiture cannot succeed here, where the third party controlling the accounts was his wife. The
only issue is whether the money laundering conduct “had a link to the assets listed in the
indictment.” Warshak, 631 F.3d at 331. Clearly it did. Coffman orchestrated the transactions
and continued to control the money after it was no longer in his name. For example, disguising his
continuing control of the funds by transferring money to his wife and her companies, he then moved
Global’s office to the condominium and signed several of the purchase documents for the yacht.
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The evidence as a whole was sufficient to prove that he commingled funds with fraud proceeds and
made transactions to disguise “the nature, location, source, ownership and control of the proceeds
of his fraud.” Coffman, 859 F. Supp. 2d at 879.
K. Substitute Assets and the Preliminary Forfeiture Order
Coffman contends that the district court erred in amending the preliminary order of
forfeiture under 21 U.S.C. § 853(p) to include property that Coffman claims belongs solely to
Megan. Because the district court’s application of 21 U.S.C. § 853(p) is a question of law, we
review this issue de novo. See United States v, Parrett, 530 F.3d 422, 429 (6th Cir. 2008).
A brief background of the statutory scheme for forfeitures is helpful to resolving this issue.
When imposing a sentence on a defendant convicted of money laundering or other specified
offenses in 18 U.S.C. § 982(a)(1), the district court “shall order that the [defendant] forfeit to the
government any property, real or personal, involved in such offense, or any property traceable to
such property.” 18 U.S.C. § 982(a)1). Further, 18 U.S.C. § 982(b)(1) makes these forfeitures
subject to the provisions of2l U.S.C. § 853, pursuant to which the government may obtain property
used in or derived from a defendant’s criminal activity. To prevent a defendant from disposing of
this tainted property, 21 U.S.C. § 853(c) makes clear that the government’s interest in such property
vests “upon the commission of the act giving rise to [its] forfeiture.” Called the “relation back”
doctrine, 21 U.S.C. § 853(c) permits the government to recover tainted assets no longer owned by
the defendant. See United States v. O’Dell, 247 F.3d 655, 685 (6th Cir. 2001).
Where because of the defendant’s actions, the government is unable to locate tainted
property subject to criminal forfeiture, it may obtain “substitute property” to satisfy the amount the
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Nos. 12-5574/5611.6090, United States v. Coffman, et al.
defendant must forfeit as part of his sentence. 21 U.S.C. § 853(p). This provision permits the
government to obtain “any other property of the defendant.” 21 U.S.C. § 853(p)(2). The
government’s interest in substitute property—unlike its interest in tainted property—does not arise
until “(1) after the defendant’s conviction and (2) the court determines the [tainted] property is out
of the government’s reach for a reason enumerated in [the statute].” United States v. Erpenbeck,
682 F.3d 472, 478 (6th Cir. 2012). Thus we have held that the relation back doctrine “extends
only to tainted property.” Id. at 477.
In the instant case, the district court ordered Bryan Coffman to forfeit $33,000,000 as a
money judgment. Arguing that it could not locate assets to satisfy the full money judgment, the
Government filed a motion to amend the preliminary order of forfeiture to include additional
automobiles and real property as substitute assets under 21 U.S.C. § 853(p). Among the additional
assets the Government sought were five pieces of real property that Coffman had given to his wife
in 2007. Coffman objected to the Government’s motion and argued that, because he did not own
those properties, they could not be “property of the defendant” under 21 U.S.C. § 853(p) and were
not subject to forfeiture as substitute assets. And because the Government’s interest in substitute
assets did not relate back to the time of the criminal activity, Coffman claimed, the Government
could not forfeit the property Coffman had transferred to his wife in 2007.
The district court granted the Govermnent’s motion to amend and amended the preliminary
order of forfeiture to include the five additional properties. It found that Coffman’ s argument was
based solely on a third party’s interest in the property; that the argument must be raised at an
ancillary hearing pursuant to 21 U.S.C. § 853(n); and that only the third party, namely Megan,
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Nos. 12-5574/5611.6090, Un ited States v. Coffrnan, et al.
could raise the argument. The district court held that, “the government may still be entitled to
forfeit [Megan’s] properties as substitute assets if [it] prove[s] at the ancillary hearing that the
transfers [to her] were fraudulent transfers under K.R.S. § 378.010.”
Coffman now argues that, because the Government did not prove that the properties in
question were his, the properties could not be “property of the defendant” under 21 U.S.C. § 853(p)
and were not subject to forfeiture as substitute assets. This claim fails for several reasons.
First, Coffman cannot assert a third party’s interest in substitute property in a direct
challenge to a preliminary forfeiture order. “The forfeiture statute makes it clear that an ancillary
proceeding is the sole avenue for a third party to assert an interest in forfeitable property.”
Erpenbeck, 682 F.3d at 480. In Erpenbeck, we rejected the argument that a party to litigation may
challenge a forfeiture order by asserting a third party’s interest in property to prove that it is not
“property of the defendant.” Id. The court found that such an argument was “nothing more than
an assertion that [the party] has a superior interest in [the property]—exactly the kind of argument
that a third-party must make in an ancillary proceeding under § 853(n).” Id.
Second, in the district court, the Government argued that Coffman maintained an interest in
the properties—and hence they were “property of the defendant” under 21 U.S.C. § 853(p)—because
the quit claim deeds executed in late 2007 to his wife were mere fraudulent conveyances aimed at
avoiding creditors. The district court stated that it would hold an ancillary hearing on the issue of
Megan Coffman’s claim to the properties as well as the issue of whether the properties were
fraudulently conveyed. Coffman has not cited a single case to support the assertion that courts
may not void fraudulent transfers as part of ancillary forfeiture proceedings. Further, if Coffman
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had an interest in the properties, which he denies, then the Government has acquired it. If he had
no interest in the properties, then the Government has acquired nothing from him. See 0 ‘Dell,
247 F.3d at 680.
Finally, the district court acted pursuant to Rule 32.2 of the Federal Rules of Criminal
Procedure. Rule 32.2 contemplates that a district court will issue a preliminary order of forfeiture
and then hold any ancillary proceedings necessary to determine third party rights associated with
the potentially forfeited properties:
(2) Preliminary Order
(A) Contents of a Specific Order. If the court finds that property is subject to
forfeiture, it must promptly enter a preliminary order of forfeiture setting forth the
amount of any money judgment, directing the forfeiture of specific property, and
directing the forfeiture of any substitute property if the government has met the
statutory criteria. The court must enter the order without regard to any third party’s
interest in the property. Determining whether a third party has such an interest
must be deferred until any third party files a claim in an ancillary proceeding under
Rule 32.2(c).
Fed. R. Crim. P. 32.2(b)(2)(A). The court then issues a final order of forfeiture based on findings
from the ancillary proceeding:
(2) Entering a Final Order. When the ancillary proceeding ends, the court must
enter a final order of forfeiture by amending the preliminary order as necessary to
account for any third-party rights. If no third party files a timely petition, the
preliminary order becomes the final order of forfeiture if the court finds that the
defendant (or any combination of defendants convicted in the case) had an interest in
the property that is forfeitable under the applicable statute.
Fed. R. Crim. P. 32.2(c)(2). The district court followed these procedures and did not err in doing
so.
Coffman complains that the ancillary proceeding prolongs the forfeiture process. As the
Supreme Court noted, however, “[wjhatever the merits of this argument as a matter of policy,
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Congress has determined that § 853(n). . . provides the means by which third-party rights must be
vindicated.” Libretti v. United States, 516 U.s. 29, 44 (1995).
L. The Taint Team Procedure
Milby contends that the Government’s “taint team” procedure violated his due process
rights. But Milby agreed to this document review process and thus has invited this error, if error
there was. We therefore review this claim under the invited error doctrine, according to which,
“when a party has himself provoked the court to commit an error, that party may not complain of
the error on appeal unless that error would result in manifest injustice.” United States v. Demmier,
655 F.3d 451,458 (6thCir. 2011).
In late 2008, federal agents seized documents from Coffman’s law office and from the
South Carolina condominium while executing search warrants. A team of Assistant United States
Attorneys who were not part of the prosecution team reviewed these documents to determine
whether they were encompassed by attorney-client privilege. The team then classified each
document as privileged, possibly privileged, and not privileged. This “taint team” did not share
documents classified as privileged and possibly privileged with those charged with prosecuting
Coffman and Milby. The district court conducted four hearings to consider Milby’s privilege
claims relating to the items that the taint team had determined were possibly privileged. The
district court made extensive findings regarding the documents identified by the taint team as
potentially confidential, finding that most of them were either not privileged or were subject to the
crime-fraud exception.
Milby objects to the taint-team procedure employed by the Government, arguing that the
district court erred by not holding the Government to more stringent standards in evidentiary
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hearings. See In re Grand Jury Subpoenas, 454 F.3d 511, 517 (6th Cir. 2006). In particular, he
maintains that the district court should have required the Government to shoulder the “heavy
burden of proving that all of the evidence it propose[d] to use was derived from legitimate
independent sources.” Kastigar v. United States, 406 U.S. 441, 461-62 (1972). The district
court’s failure to do so, Milby complains, is contrary to Sixth Circuit precedent and resulted in a
violation of his due process rights.
Milby cannot show any manifest injustice in the district court’s conducting of the discovery
process. We have said that taint teams are “used primarily in limited, exigent circumstances in
which government officials have already obtained the physical control of potentially-privileged
documents through the exercise of a search warrant.” In re Grand Jury Subpoenas, 454 F.3d at
522. “In such cases, the potentially-privileged documents are already in the government’s
possession, and so the use of the taint team to sift the wheat from the chaff constitutes an action
respectful of, rather than injurious to, the protection of privilege.” Id. at 522-23. Moreover,
“because the documents were not the product of compelled testimony, a full Kastigar hearing was
not required.” Warshak, 631 F.3d at 294. Such were the circumstances in the case at hand.
Nor did the district court shift the burden of proof to the defense or apply the crime-fraud
exception generally, as Milby argues. The Government provided evidence that supported a prima
facie showing that a crime or fraud sufficiently serious to defeat Milby’s claims of privilege had
occurred. See United States v. Collis, 128 F.3d 313, 321 (6th Cir. 1997). The court explained the
relationship between the communication and the fraud as to each specific document.
Finally, Milby cannot prevail in this claim because he cannot show prejudice. A defendant
must demonstrate that the Government made “direct use of the privileged communications, either at
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trial or before the grand jury,” to show prejudice. Warshak, 631 F.3d at 294-95; see also United
States v. White, 970 F.2d 328, 336 (7th Cir. 1992). “The attorney-client privilege is a testimonial
privilege. Consequently, so long as no evidence stemming from the breach of the privilege is
introduced at trial, no prejudice results.” White, 870 F.3d at 336. Milby has failed in precisely
this way. The district court found that almost all of the documents were either not privileged or
were subject to the crime-fraud exception. Milby has not pointed to a single document obtained in
alleged violation of the attorney-client privilege that the Government introduced at trial. Thus his
argument fails.
M. Closing Arguments
Defendants argue that they were denied their due process rights to a fair trial as a result of
prosecutorial misconduct during closing arguments. Specifically, defendants argue that the
prosecutor’s closing argument improperly shifted the burden of proof to defendants and was
calculated to inflame passion and prejudice in the jury. Allegations of prosecutorial misconduct
contain mixed questions of law and fact that we usually review de novo. United States v. Green,
305 F.3d 422, 429 (6th Cir. 2002).
We use a two-step inquiry to examine claims of prosecutorial misconduct. United States v.
Francis, 170 F.3d 546, 549 (6th Cir. 1999). First, we determine whether statements by the
prosecutor were improper. Id. If they were, we determine whether the statements were so
“flagrant” as to warrant reversal. Id. We consider four factors in determining whether statements
were flagrant: (1) whether they tended to mislead the jury or prejudice the defendant; (2) whether
the remarks were isolated or extensive; (3) whether the remarks were accidentally or deliberately
made; and (4) the overall strength of the evidence against the defendant. Id. at 549-5 0. It is not
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enough that the prosecutor’s remarks were improper; they must have “so infected the trial with
unfairness as to make the resulting conviction a denial of due process.” Darden v. Wainwright,
477 U.S. 168, 181 (1986) (quoting Donnelly v. DeChristoforo, 416 U.S. 637, 643 (1974)).
Defendants focus on two statements by the prosecutor during closing argument. First,
defendants claim that the prosecutor made an inappropriate statement in an exchange over the idea
of good faith. Counsel for Coffman had said in his closing: “And if I have a belief that what my
client is doing is legal, and how I’ve set it up is legal, and I’ve got a good-faith argument for that
belief, I can argue that as long as I want. Lawyers are permitted to make losing arguments.” In
his rebuttal closing, the prosecutor responded:
Mr. Romines [Coffman’s counsel] says that good faith is a complete defense. And
it is, if there is evidence of good faith. But was there any evidence introduced of
good faith in this in this case? Was there any evidence introduced of is there
— —
any evidence of any mistaken conduct or intent?
Coffman’ s attorney objected, and the court directed the jury to ignore the statement. Coffman’ s
attorney requested an admonition, and the court told the jury: “Members of the jury, the burden of
proving the good faith does not rest with the defendant because the defendant does not have any
obligation to prove anything in this case. It’s the government’s burden to prove to you beyond a
reasonable doubt that the defendant acted with an intent to defraud.” Defendants argue that this
exchange was prejudicial because it improperly shifted the burden of proof to defendants and
because the prosecutor had conveyed “by virtue of his experience, knowledge and intellect” that the
jury must convict. United States v. Bess, 593 F.2d 749, 755 (6th Cir. 1979).
Defendants’ arguments are not persuasive for several reasons. Even if the statement was
improper, it was not flagrant: it was isolated and ultimately did not prejudice the defendants
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because the evidence against the defendants was strong. See Francis, 170 F.3d at 549. Further,
the district court immediately provided a curative instruction, telling the jury to disregard the
statement. See United States v. Johnson, 581 F.3d 320, 330 (6th Cir. 2009). The court’s
instructions to the jury at the beginning of the trial and the final charge following closing arguments
also protected defendants from prejudice. See United States v. White, 563 F.3d 184, 194-95 (6th
Cir. 2009). Thus the comment by the prosecutor was not flagrant.
Defendants also complain that a second portion of the prosecutor’s closing argument,
dealing with the jury, was inappropriate. In his rebuttal closing, the prosecutor stated:
You know, how many times in life have you heard someone say to you on the street,
“You know, can you believe what they did, or they’re doing, and why doesn’t
someone do something about it?” And I always ask, “Well, who is the ‘they?’
Who is the ‘somebody’ who is going to do something about it?”
This time, Milby’s attorney objected, and the court overruled the objection and said, “Please
proceed.” The prosecutor then concluded his rebuttal argument:
Thank you. As I said, that question raises the subsequent question of who is the
somebody who is going to do something about it? When this first started, it was the
SEC and various regulatory agencies, and the Postal Inspection Service, and then
my office. But we’re done. When I sit down, we are finished. Today, somebody
is you. If you don’t do it, it doesn’t get done. I ask you to do your job. Thank
you.
Defendants argue that this statement was improper because comments appealing to the
national or local community interests ofjurors are impermissible if they are “calculated to inflame
passion and prejudice.” United States v. Solivan, 937 F.2d 1146, 1152 (6th Cir. 1991). Even if
the statement was improper, it must have been flagrant. Wainwright, 477 U.S. at 181. Applying
the factors from Francis, we hold that the statement was not flagrant. It did not mislead the jury or
prejudice defendants, but pointed out the role of the jury in the instant case. It was isolated,
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coming after a lengthy trial and consisting of only a few sentences within nearly fifty pages of the
prosecutor’s closing argument. See Cockream v. Jones, 382 F. App’x 479, 486 (6th Cir. 2010).
Finally, while the statement was deliberately made, it followed extensive evidence of defendants’
guilt adduced at a fifteen-day trial. Even if improper, the statement was not flagrant.
N. Cumulative Error
Defendants argue that there was cumulative error because “the combined effect of
individually harmless errors was so prejudicial as to render [their] trial fundamentally unfair.”
United States v. Trujillo, 376 F.3d 593, 614 (6th Cir. 2004). Defendants have failed to persuade us
of the merit of any of their claims of error. The record does not demonstrate that defendants were
denied a fundamentally fair trial. Thus this argument is meritless.
III.
For the foregoing reasons, we AFFIRM the conviction and sentence of Bryan Coffman and
the conviction of Gary Milby.
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