United States v. Earl E. Howard

ARNOLD, Circuit Judge.

Earl E. Howard appeals from his conviction before a jury in the Western District of Missouri, the Hon. Scott 0. Wright presiding, of conspiracy to transport fraudulently obtained securities in interstate commerce in violation of 18 U.S.C. §§ 371 and 2314. On appeal he contests the sufficiency of the evidence to support the verdict, the trial court’s refusal to grant a continuance during the trial, and the court’s failure to make findings as to admissibility of an alleged co-conspirator’s out-of-court statements at the close of the government’s case. We affirm.

I.

The gravamen of the indictment is that the defendant, his wife, and others agreed to engage and did engage in a scheme known as “check kiting.” The essence of such a practice is the generation of a substantial and false cash flow by the passing of checks among bank accounts at several different banks. The opportunity to generate false amounts of cash arises because, as here, banks often allow their customers to draw on provisional credits created by the deposit of a check from a different drawee bank. The credit does not, of course, become a final one until the check is paid by the drawee bank, and if the money to coyer the check is not in that bank to begin with there is a risk that the credit will never become final.

The defendant was convicted under the first count of an eight-count indictment charging that he and his wife, Helen Howard, conspired to transport in interstate commerce securities with a value in excess of $5,000.00, knowing the securities to have been taken by fraud from the Citizens State Bank of Galena, Kansas. The defendant had for some time been the owner and operator of two automobile auction companies, the Joplin Automobile Auction Company, Inc., of Joplin, Missouri and Dealers Automobile Auction of Tulsa, Oklahoma. The latter company was sold by the defendant to his son, Greg Howard, in 1976. The Joplin Auto Auction originally conducted business through the First National Bank of Sarcoxie, Missouri, while Dealers Auction Company did business primarily through the Union National Bank of Tulsa. Joplin Auto Auction also did business through the Citizens State Bank of Galena, Kansas, where it was the largest depositor. In addition, it was alleged that the defendant and his wife arranged for an account to be opened at the Bank of Carthage, Missouri by Virgil and Dale Hasselbring, who were brothers of Helen Howard. This account was originally funded with proceeds of a loan v/hich the Hasselbrings obtained for Earl Howard’s benefit. The Hasselbrings were alleged to have signed checks on the account in blank and given them to the Howards for use in connection with the check-kiting venture. The Hasselbrings wére not charged in the indictment.

The government’s proof showed many check transactions among the accounts under the control of Earl Howard which were said to have generated a huge false cash flow.¹ The proof as to the count on which Earl Howard was convicted² was, however, relatively simple. There was evidence that the defendant caused checks to be drawn on the Dealers Auction account at Union National Bank payable to the Joplin Auto Auction, knowing that the Union National account had insufficient funds to cover these checks. The checks were presented to Citizens State Bank of Galena for immediate credit. Helen Howard then drew checks payable to cash against these provisional credits and Earl Howard used these checks to purchase four money orders from Citizens State Bank on May 5, 6, 7, and 8, 1980. The money orders, which ranged in amounts from $39,500.00 to $45,400.00, were then transported to Missouri, where three were deposited in the Joplin Auction Company account at the First National Bank of Sarcoxie, and one was deposited in the Hasselbring account at the Bank of Carthage.

II.

Howard first contends the District Court erred in failing to grant his motion for judgment of acquittal because the evidence was insufficient to show beyond a reasonable doubt that a conspiracy existed. This argument is without merit. The defendant’s theory is that there was no direct evidence of an agreement between him and anyone else to participate in the scheme. He argues rather that he was the director of everyone else’s actions, and that his family members were, at most, unwilling participants. It is certainly true that one cannot be guilty of conspiring with himself. United States v. Moss, 591 F.2d 428, 434 (8th Cir.1979). There is ample evidence in this record, however, to support the jury’s finding that Earl Howard did agree with Helen Howard and other family members as well to perpetrate the check-kiting scheme, and that he committed one or more overt acts in furtherance of that agreement.

The scheme had evidently been in progress for a number of years. The First National Bank of Sarcoxie, under previous management, seems to have given Howard virtually unlimited check-writing privileges. If his account had insufficient funds to cover the checks, the bank’s employees were simply told to hold the checks until a deposit was made. This practice changed in 1978 when the bank was sold and the new management directed that Howard no longer be allowed to draw against provisional credits at the Sarcoxie Bank.

Greg Howard testified that in February, 1979, the defendant’s kiting activities became of such serious concern that a family meeting was held at which they attempted to persuade him to stop the kite. He refused. Instead, the kite apparently got larger, and the events described in Count 1 of the indictment were among its results.

Howard also argues that the banks involved were not defrauded because they knew what he was doing all along. The banks’ officers denied this, and the jury found against Howard on this point by its verdict of guilty.

The defendant raises two other points which merit little discussion. First, he urges that the District Court erred in refusing to grant him a continuance after the fourth day of trial so that he could locate and produce two additional witnesses. We think it sufficient to say that the decision to grant a continuance, especially in the midst of trial, is vested in the broad discretion of the District Court, and we find no abuse of discretion here.

Finally, Howard complains of the trial court’s refusal to make a finding at the close of the government’s case as to the admissibility of an out-of-court statement by Helen Howard. The evidence at issue stems from a question asked of government witness Greg Howard, the defendant’s son, concerning the February, 1979, family meeting. The United States Attorney asked him if his mother, Helen Howard, had said anything during the meeting. He responded that she virtually begged Earl Howard to stop the scheme. The next day an objection was made to this testimony, and the defendant asked that the government be reminded of the sanctions and procedures dictated by United States v. Bell, 573 F.2d 1040 (8th Cir.1978). The District Court expressed some doubt that the statement was in fact hearsay, but agreed to make the findings required by Bell. Then, at the close of the government’s case, the defendant moved for a mistrial on the basis that the government had not proved the existence of the conspiracy by sufficient evidence aliunde to support the admission of the alleged hearsay. In so doing, the defendant asked the District Court to make the required finding which would support or deny admissibility at the close of the prosecution’s evidence rather than at the close of all the proof.

This request was specifically contrary to the procedure outlined in Bell, which directs the finding.be made at the close of all the proof. See 573 F.2d at 1044. Defendant concedes the procedure he urges is contrary to Bell. He argues, however, that the Bell procedure should be modified so that a defendant is not faced with the dilemma of either foregoing putting on his defense and then appealing the denial of his motion for judgment of acquittal, or putting on his evidence and risking introducing proof which would support admission of the out-of-court statement. This is not an appropriate case to consider the defendant’s argument for two reasons. First, no proof was adduced during defendant’s portion of the ease which tended to support admission of the statement. Hence, he was not harmed by the procedure about which he complains. Second, this panel is without power to modify the procedure set out in Bell. Only the Court en banc can modify Bell.

The judgment of conviction is

Affirmed.

1 . The kite was finally discovered by a bank examiner during a routine examination at the Union National Bank of Tulsa. This discovery led to deficiencies of some $600,000 for Union National Bank and $400,000 for Citizens State Bank of Galena, all of which were then funded by loans to the Howards. Those loans are now in default with substantial balances remaining.

2 . Counts 6, 7 and 8, charging false statements to influence the action of a federally insured bank in violation of 18 U.S.C. § 1014, were previously dismissed with the government’s consent. As to the remaining four substantive counts, charging interstate transportation of a fraudulently obtained security, the jury was unable to agree on a verdict, and a mistrial was declared. Proceedings on those counts have been stayed by the District Court pending this appeal.