UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
__________________
No. 96-10464
__________________
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
versus
STEVEN P. MOSER; LAVOYD WAYNE DOLLAR;
FRANKLIN ROLLIN JOHNSTON; BILLY MACK O'NEILL;
JERRY LYNN WILKINS; THOMAS D. GANDY,
Defendants-Appellants.
_____________________________________________
Appeals from the United States District Court for the
Northern District of Texas
______________________________________________
September 18, 1997
Before GARWOOD, BENAVIDES, and STEWART, Circuit Judges.
BENAVIDES, Circuit Judge:
This direct criminal appeal involves six appellants who
challenge, among other things, the sufficiency of the evidence to
support their convictions, the jury instructions, the legality of
the search, and the district court's denial of their motion to
sever the trial. Finding no error, we affirm.
I. FACTS AND PROCEDURAL HISTORY
In February of 1986, Appellant Franklin Rollin Johnston
(Johnston) was engaged in the real estate business and suffered
severe financial losses. Johnston attributed those losses on the
downturn of the real estate market, oil business, and ultimately,
the failure of the banks. After attending various seminars and
conducting research, he became convinced that the Federal Reserve
Act was illegal inasmuch as banks were creating money out of thin
air and lending only their "credit."
After having met Appellant Billy Mack O'Neill (O'Neill) in
March of 1993, Johnston happened to meet O'Neill at a meeting
involving the subjects of banking and money in May of 1993.
O'Neill gave Johnston a packet of materials generated by the
"Family Farm Preservation" entity of Tigerton, Wisconsin. The
packet contained several court cases, blank "certified money
orders" (CMOs), and articles explaining that banks legally cannot
loan credit. The CMOs provided that they were payable:
on demand, money of account of the United
States, as required by law in Sect. 20 of
Coinage Act of 1792 from the time of official
determination of the substance of said money:
or, in U.C.C. 1-201(24) Credit Money.
The money order further provided that it was redeemable at full
face value when presented to L.A. Pethahiah in Tigerton, Wisconsin.
If a financial institution presented the money order to Pethahiah,
the institution would then receive a certified banker's check (CBC)
in the same amount as the CMO. The CBC also contained the above
limiting language.
Johnston gave the packet of materials to Appellant Jerry Lynn
Wilkins (Wilkins), an attorney who Johnston had previously retained
to do some work. Wilkins examined the materials and then advised
Johnston, who in turn advised O'Neill, that he agreed with the
information in the packet.
Johnston then formed USA First, an unincorporated business
2
organization in Waxahachie, Texas. Appellant Lavoyd Wayne Dollar
(Dollar), a businessman and long time friend of Johnston, owned
office space in Waxahachie and rented a suite of offices to
Johnston for USA First. O'Neill worked for USA First, and Wilkins
moved his law office to the offices of USA First. Johnston paid
Wilkins $500 each week for the work he did for USA First. Each of
those four men used CMOs from the Tigerton packet in an attempt to
pay off debts with various lenders.
Shortly thereafter, Johnston put together a packet almost
identical to the Wisconsin packet and began to sell it out of the
offices of USA First for $300. The packet instructed that the user
could fill out the six enclosed CMOs in any amount to pay off
particular debts. Like the Wisconsin CMOs, these CMOs contained
the above-quoted limiting language. The packet instructed the user
to include 2-3 months extra interest and to ask for return of any
overpayment. The institution to which a CMO was sent by certified
mail was instructed to forward the CMO for redemption to O.M.B.-
W.D. McCall at a post office box in Waxahachie.1 The institution
would then receive in return an item entitled "certified banker’s
check" (CBC) in the same amount as the CMO. The CBC would be
signed by O'Neill. The institution was instructed to credit the
CBC to the debtor's account. When the CBC was returned to USA
First, O'Neill would stamp it "paid in full." There was no money
behind the CMOs or CBCs. The packet itself referred to the CMOs as
1
The "O.M.B." designation was Billy Mack O'Neill's
initials reversed. The post office box was controlled by USA
First.
3
"pretend money."
The Texas Department of Banking sent a cease and desist letter
to O.M.B.-W.D. McCall, admonishing that it had information that the
business was violating state law regarding the unlicensed sale of
payment instruments. The letter explained that such a violation
was a third degree felony. The warning in the letter was ignored,
and USA First continued to sell the packets containing the CMOs.2
In December of 1993, the offices of USA First were searched
and records were seized. Shortly thereafter, Leo Hoad (Hoad) began
working for USA First. Apparently, O'Neill and Hoad had some
differences, and as a result, O'Neill left USA First.
Meanwhile, Appellant Steven P. Moser (Moser), who owned
several pieces of mortgaged real property in Pennsylvania, was
experiencing financial difficulties and, through a friend, heard of
USA First in Texas. Moser subsequently talked with Johnston and
purchased a packet. He used several of the CMOs in an effort to
discharge his debt.
Appellant Thomas D. Gandy (Gandy) learned of USA First through
a trust company employee in Kansas. Gandy purchased a packet, and
used the CMOs as payments for existing loans. All six appellants
attempted to use the CMOs. Ultimately, over 800 CMOs were issued
by O.M.B.-W.D. McCall with a purported face value of over $61
million.
A grand jury charged the six appellants with one count of
2
In fact, the cease and desist letter was placed on the
bulletin board at USA First as an object of disdain.
4
conspiracy to commit mail fraud and several substantive counts of
mail fraud in violation of 18 U.S.C. §§ 371, 1341, and 2. The jury
found Wilkins, Johnston, Dollar, and O'Neill guilty as charged.
The jury acquitted both Moser and Gandy of conspiracy but found
Moser guilty of one substantive count of mail fraud and found Gandy
guilty of two substantive counts of mail fraud.
The district court sentenced the appellants as follows:
Johnston and Wilkins, 96 months; Dollar and Moser, 21 months;
O'Neill, 70 months; Gandy, 4 months and 16 days.
II. ANALYSIS
A. SUFFICIENCY OF THE EVIDENCE
All the appellants argue that the evidence is insufficient to
sustain their convictions.3 Johnston, Wilkins, and Dollar were
convicted of one count of conspiracy to commit mail fraud in
violation of 18 U.S.C. § 371 and substantive counts of mail fraud
in violation of 18 U.S.C. § 1341 (Johnston, two counts; Wilkins,
seven counts; and Dollar, five counts). Gandy and Moser were
acquitted of the conspiracy count but convicted of mail fraud
(Gandy, two counts; Moser, one count).
When reviewing the sufficiency of the evidence, this Court
views all evidence, whether circumstantial or direct, in the light
most favorable to the Government with all reasonable inferences to
be made in support of the jury's verdict. United States v.
3
O'Neill attempts to adopt by reference Gandy's arguments
that the evidence is insufficient to sustain his convictions.
Because these are fact-specific challenges, O'Neill will not be
permitted to adopt these arguments by reference. United States v.
Alix, 86 F.3d 429, 434 n.2 (5th Cir. 1996).
5
Salazar, 958 F.2d 1285, 1290-91 (5th Cir.), cert. denied, 506 U.S.
863, 113 S.Ct. 185 (1992). The evidence is sufficient to support
a conviction if a rational trier of fact could have found the
essential elements of the crime beyond a reasonable doubt. Id.
The evidence need not exclude every reasonable hypothesis of
innocence or be completely inconsistent with every conclusion
except guilt, so long as a reasonable trier of fact could find that
the evidence established guilt beyond a reasonable doubt. United
States v. Faulkner, 17 F.3d 745, 768 (5th Cir.), cert. denied, 513
U.S. 870, 115 S.Ct. 193 (1994).
To prove a violation of the mail fraud statute, 18 U.S.C. §
1341, the Government must prove beyond a reasonable doubt that
there was (1) a scheme or artifice to defraud, (2) specific intent
to commit fraud, and (3) use of the mails for the purpose of
executing the scheme to defraud. United States v. Shively, 927
F.2d 804, 813-14 (5th Cir.), cert. denied, 501 U.S. 1209, 111 S.Ct.
2806 (1991). "Intent to defraud requires an intent to (1) deceive,
and (2) cause some harm to result from the deceit." Jimenez, 77
F.3d at 97 (citation omitted). A defendant has the intent to
defraud if he acts knowingly with the specific intent to deceive
for the purpose of causing pecuniary "loss to another or bringing
about some financial gain to himself." Id.
A conviction for conspiracy under 18 U.S.C. § 371 requires the
Government to prove beyond a reasonable doubt (1) an agreement
between two or more persons, (2) to commit a crime against the
United States, and (3) an overt act in furtherance of the agreement
6
committed by one of the conspirators. United States v. Krenning,
93 F.3d 1257, 1262 (5th Cir. 1996).
1. Johnston
Johnston argues that his offer of payment in kind is an
accepted banking practice and that the CMO and the CBC "could be
valid if they had been accepted by the financial institution." He
contends that if the bank had accepted the offer of payment he
would not have been guilty of mail fraud. He then reasons that as
a matter of law he cannot be guilty of conspiracy to commit mail
fraud and mail fraud simply because the bank decided not to accept
his offer of payment. This argument is specious. The evidence at
trial clearly established that the CMOs and CBCs underlying his
convictions are worthless. His convictions do not rest on the
bank's decision to reject his offer of payment because that is not
an element of the offenses. He does not otherwise challenge the
sufficiency of the evidence to support his convictions. This
argument is without merit.
2. Dollar
Dollar challenges the evidence to support his convictions for
conspiracy and mail fraud, arguing that the Government failed to
prove that he had the intent to defraud. He contends that the
principals of USA First did not inform the users of the packet that
they were engaging in a fraudulent act and that it was not manifest
from the packet itself. He concedes that the materials advised the
user not to tell the bank that he was using pretend money just like
7
the banks were using pretend money,4 but he nonetheless asserts
that this statement in itself does not reveal that the use of the
CMOs was fraudulent. He further asserts that the "statement was in
accord with USA First's theory that banks were unlawfully lending
their credit; therefore, their debtors could respond in kind."
(emphasis added). Dollar's argument proves too much. In other
words, if the debtor is responding in kind to the bank's illegal
conduct, the packet is at least implicitly stating that the
debtor's conduct also is illegal.
In any event, viewing the evidence in the light most favorable
to the verdict, the evidence is sufficient to show the requisite
intent. In addition to the statement regarding the "pretend
money," the jury could infer knowledge from the fact that Dollar
paid $300 for a packet of materials that included money orders that
could be filled out for any amount of money. Moreover, Dollar
ignores that, after his CMOs were rejected, he filed a $49 million
lien against a bank's employee.5 Finally, although Dollar
testified that he had no intent to defraud, the jury obviously
found his testimony incredible. The evidence is sufficient to
4
The packet advised the user that "just like in the
children's story about the Emperor's new clothes, do not mention
that your current credit money, the negotiable instrument, is
pretend money, only speak of the bank's negotiable instruments as
being pretend money or only promises while yours are according to
U.C.C. law."
5
Dollar testified that the $49 million figure was "[j]ust
a number that we came up with." It was "just a figure that I
pulled out of the air."
8
support Dollar's convictions.
3. Gandy
Gandy challenges both the sufficiency of the evidence to show
(1) that he had specific intent to defraud and (2) that the mailing
was in furtherance of the scheme to defraud. In regard to his
first challenge, Gandy states that his defense at trial was that he
himself was a victim of the scam perpetrated by USA First and that
he never intended to defraud anyone. Specifically, Gandy asserts
that he believed in good faith that he was simply refinancing his
home at a lower interest rate through W.D. McCall.
At trial, Gandy called Jay Newland, who worked for Continental
Trust Company in Wichita, as a witness. Newland testified that he
had informed Gandy that USA First was providing low interest loans
and sent off for a packet that Gandy ultimately purchased. Gandy
believed the CMOs could work because a mutual acquaintance, Lonnie
Canon, had used the CMOs to successfully discharge a debt.
Gandy further asserts that the evidence shows that even when
he experienced problems with the CMOs, he still believed he could
obtain refinancing through USA First. He attributes this belief to
the representations of Hoad, who led Gandy, among others, to
believe that W.D. McCall was going to establish its own bank in
Panama. As late as April of 1994, Hoad sent a letter to Gandy
indicating that he had been preliminarily approved for a loan of up
to $200,000. Hoad kept asserting that refinancing was right around
the corner. Gandy also relies on the fact that he paid off all his
loans prior to the prosecution of this case.
9
The Government responds that Gandy knowingly used the CMOs to
erase a debt that had bought him a valuable asset and then insisted
that the lender was obligated to accept the bogus payment, accusing
the lender of criminal fraud and threatening “non judicial remedies
through the Uniform Commercial Code” against the institution's
lawyer personally. The jury certainly could have found that this
evidence contradicted Gandy's defense of good faith and supported
a finding of his intent to defraud.
Further, as discussed above, the packet6 contained language
referring to the CMOs as "pretend money" and warned the user not to
refer to the CMOs as pretend money. Additionally, the record
reveals that in December of 1993, after learning there was a
problem with the CMO he submitted to Union National Bank, Gandy
represented to a loan officer that "he had used [W.D. McCall]
several times in the past [and] had not had any problems with them
. . . and that he had paid good money for [those] checks. . . ."
Contrary to Gandy's representation, the evidence at trial
demonstrated that Gandy had indeed been put on notice in November
of 1993 that a CMO he submitted to Mulvane State Bank was not being
accepted as payment. Thus, viewed in the light most favorable to
the verdict, the evidence demonstrates that Gandy had the specific
intent to defraud.
Gandy next argues that there is insufficient evidence to
establish that the mailings were used for the purpose of executing
6
Gandy's exhibit 1A.
10
the scheme to defraud because the mailings alleged in counts 15 and
16 occurred after the alleged scheme had come to fruition, which he
defines as occurring when the loan was deemed paid in full.
On November 12, 1993, Gandy submitted a CMO for $66,750 to
Wichita Federal Savings & Loan. On November 15, 1993, Wichita
Federal Savings & Loan released Gandy from any obligation on his
loans and notified him they were paid in full. Count 15 alleged
that on December 6, 1993, a CBC in the amount of $66,750 was mailed
by W.D. McCall to Wichita Federal Savings & Loan. Count 16 alleged
that on January 11, 1994, a letter was mailed to Wichita Federal
Savings in connection with the scheme.
We reject Gandy's premise that the scheme came to fruition
when the savings & loan initially notified him that his loan was
paid in full on November 15, 1993. As the evidence at trial made
abundantly clear, that was not the end of Gandy's efforts to make
the scheme succeed. Although the receipt of the bogus CMO by the
savings & loan caused it to send the release of the loan, the
subsequent mailings of the CBC and the letter were "incident to an
essential part of the scheme." Schmuck v. United States, 489 U.S.
705, 109 S.Ct. 1443, 1448 (1989). We therefore conclude that the
evidence was sufficient to support the substantive counts of mail
fraud.
4. Moser
Moser argues that the letter that underlies his sole
conviction for mail fraud does not further the alleged scheme to
defraud. The letter was from O'Neill to Wayne Paul (Paul), an
11
officer of Woodlands Bank. Paul testified that Moser had five
loans at Woodlands Bank. In November 1993, Moser was behind in
making payments, and the bank received a mailing from Moser with a
letter stating that the enclosed CMO constituted:
payment in full, on demand of the United
States, as required by law at USC 371, from
the time of official determination, as
required by law at USC 371, from the time of
official determination of the substance of
said money, or in U.C.C. 1-202(24) credit
money. . . . This certified money order is
with a Private concern and must be mailed to
O.M.B. W.D. McCall, P.O. Box 954, Waxahachie,
Texas 75165.
Paul testified that the money order looked suspicious and that
he did not understand the letter. The bank then sent the CMO to
the Waxahachie address, enclosing a letter questioning the validity
of the CMO.
In response, O'Neill sent the letter that is the mailing that
is alleged in count 14. That letter provided in part that:
I truly can understand your concern --
especially when your own regulatory laws
require you to act within 24 hours or "before
midnight" and seventy-two hours then changing
from default to unlawful conversion. Also,
the fact that millions of people have learned
about the fraud perpetrated by the Federal
Reserve System (a private corporation) through
you and your "bank." Primarily, they are
angry that you made "loans of credit" with no
lawful consideration from you from the
beginning.
You created-from-thin-air-credit-loan of bad-
check-loan of credit was bad enough, but you
socked it to them with Usury when you had
nothing of intrinsic value to charge interest
on. wow! what a deal!
You will find enclosed a Certified Bankers
Check in the amount of $227,400.00 and your
12
accommodating signature will suffice to cancel
the Certified Money Order now in your
possession. You shall credit your customer,
Steve Moser, with this amount and give him
clear title to whatever you have a lien
against that he is tendering payment on.
Moser argues that the tenor and language of the letter does
not attempt to lull the victim into a false sense of security. He
contends that "[t]he letter did not help the plan succeed; instead
it created a risk of exposing the alleged scheme." (emphasis in
brief). Moser makes much of the fact that Paul testified that he
was not "impressed" with the letter. We have rejected a similar
claim. In United States v. Shively, this Court explained that the
failure of the letter to in fact lull the institution does not
relieve a defendant of criminal liability. 927 F.2d at 815.
Additionally, we stated that viewed in the light most favorable to
the verdict, a reasonable juror could have concluded that the
letter was intended to lull the bank. Any delay as a result of the
letter would allow the scheme to continue. Id.
Likewise, in the instant case, any delay caused in foreclosure
proceedings, or the like, would allow the scheme to continue.
Moreover, although we understand Moser's argument, it would be
absurd to conclude that the letter, which expressly directs the
bank to credit Moser's account, was not sent for the purpose of
executing the scheme.
Moser further asserts that the letter could not have aided in
the execution of the scheme in that it was more likely to cause
detection and deter any use of the CMO or CBC. The Supreme Court
has rejected this view, holding that "[t]he relevant question at
13
all times is whether the mailing is part of the execution of the
scheme to defraud as conceived by the perpetrator at the time,
regardless of whether the mailings later, through hindsight, may
prove to have been counterproductive and return to haunt the
perpetrator of the fraud." Schmuck v. United States, 489 U.S. 705,
109 S.Ct. 1443, 1449-50 (1989).
Moser next asserts that there is no evidence that he was aware
of the letter sent by O'Neill until he received a copy of the
government's exhibits in September of 1995. "This court has held
that when an individual does an act with the knowledge that the use
of the mails will follow in the ordinary course of business, or
when such use can reasonably be foreseen, even though not actually
intended, then he/she causes the mails to be used." Shively, 927
F.2d at 815 (internal quotation marks omitted) (emphasis in
opinion). Here, it was reasonably foreseeable to Moser when he
sent the CMO that the use of the mails would follow in the ordinary
course of business at USA First. Moser's claim of insufficient
evidence is without merit.
5. Wilkins
Wilkins continues to argue that the CMOs were not fraudulent
instruments because it was credit for credit. The evidence clearly
demonstrated that the CMOs submitted were worthless and that the
users submitted those CMOs in an attempt to discharge real debts
and keep valuable assets. Wilkins also argues that the evidence
shows that he was simply a legal advisor. Wilkins ignores the
evidence that he used a CMO in the amount of $137,700 in an attempt
14
to pay off his home mortgage. Wilkins is not entitled to relief on
this claim.
B. MOTION TO SUPPRESS
This Court reviews de novo the determination whether a search
or seizure was reasonable under the Fourth Amendment. United
States v. Seals, 987 F.2d 1102, 1106 (5th Cir.), cert. denied, 510
U.S. 853, 114 S.Ct. 155 (1993). The evidence must be reviewed most
favorably to the prevailing party. United States v. Shabazz, 993
F.2d 431, 434 (5th Cir. 1993).
Johnston and Wilkins argue that the district court erred in
failing to suppress the evidence seized from the business premises
of USA First because the search warrant was a "general warrant,"
which gave the agents discretion to determine which items were to
be seized. "A warrant must particularly describe the place to be
searched and the person or things to be seized." United States v.
Kimbrough, 69 F.3d 723, 727 (5th Cir. 1995), cert. denied, 116
S.Ct. 1547 (1996). To determine whether the description of the
items to be seized is sufficient, "a court must inquire whether an
executing officer reading the description in the warrant would
reasonably know what items are to be seized." Id.
In the present case, the items to be seized were described in
exhibit B, which was attached to the search warrant:
Records relating to the production, advertising,
ordering, sale, mailing and shipment of material involved
in the use of "Certified Money Orders" by U.S.A. First
and O.M.B., W.D. McCall. Such records, files and
promotional material include but are not limited to
promotional material advertising the money orders,
printed material sold to those responding to the offer,
listing of individuals purchasing the material, records
15
concerning the receipt of payment and shipment of orders,
financial records including but not limited to all
original canceled checks, and other items such as
printing and reproduction equipment, all concerning the
operation of U.S.A. First, which is property constituting
evidence of the commission of a criminal offense; the
fruits of the crimes; and property designated and
intended for use and which is and has been used as a
means of committing an offense concerning a violation of
Title 18, United States Code, Section 1341.
Contrary to the appellants' contentions, the search warrant
meets the particularity requirement. The above language
sufficiently limited the agents' discretion by instructing them
what items were to be seized. Kimbrough, 69 F.3d at 727.7
Wilkins next claims that the search was unreasonable because
the agents executing the warrant violated the "knock and announce"
rule contained in the Fourth Amendment and 18 U.S.C. § 3109.8
"Under both the Fourth Amendment and the `knock and announce'
statute, defendants bear the initial burden of establishing that an
7
Johnston asserts that the affidavit was not attached to
the warrant during the search and that the warrant did not
expressly reference the affidavit. See United States v. Layne, 43
F.3d 127, 132 (5th Cir.) (recognizing that the test for
particularity may be satisfied with supporting affidavits if
warrant refers to affidavits), cert. denied, 514 U.S. 1077, 115
S.Ct. 1722 (1995). The warrant does, however, refer to the
affidavit as establishing probable cause. More importantly,
exhibit B (not the affidavit) was the document that limited the
agents' discretion by describing with sufficient particularity the
types of items to be seized, and exhibit B was attached to (and
expressly referenced by) the search warrant.
8
Section 3109 provides:
The officer may break open any outer or inner door
or window of a house, or any part of a house, or anything
therein, to execute a search warrant, if, after notice of
his authority and purpose, he is refused admittance or
when necessary to liberate himself or a person aiding him
in the execution of the warrant.
16
unannounced entry actually occurred." United States v. Fike, 82
F.3d 1315, 1323 (5th Cir.), cert. denied, 117 S.Ct. 241 (1996).
Wilkins acknowledges that this claim was not raised in the district
court. Wilkins cannot show plain error in regard to this obviously
fact-based claim. See United States v. Calverley, 37 F.3d 160 (5th
Cir. 1994), cert. denied, 513 U.S. 1196, 115 S.Ct. 1266 (1995);
United States v. McCaskey, 9 F.3d 368, 376 (5th Cir. 1993), cert.
denied, 511 U.S. 1042, 114 S.Ct. 1565 (1994).
C. ADMISSION OF EVIDENCE
This Court reviews the admission of evidence for abuse of
discretion. United States v. Coleman, 997 F.2d 1101, 1104 (5th
Cir. 1993), cert. denied, 510 U.S. 1062, 114 S.Ct. 735 (1994).
Moser and Gandy argue that the district court erred in admitting
evidence that Allan Kramer (Kramer), an unindicted coconspirator,
used an O.M.B.-W.D. McCall CMO to purchase a residence from Mark
Fetzer. They argue that the evidence was irrelevant and
prejudicial. This conduct was alleged in the indictment as an
overt act under the heading of "Thomas Gandy." At trial, the
Government stated that this act should not have been under Gandy’s
name in the indictment.
The witness who related this evidence testified on cross-
examination that he did not know either Moser or Gandy.
Additionally, at trial, the Government conceded that it had no
evidence that Kramer knew Gandy, Moser, or Dollar.
Both Moser and Gandy were charged with conspiracy to commit
mail fraud. It appears that the only way this evidence was
17
relevant to Moser or Gandy was to the extent that it was evidence
of the conspiracy. Assuming arguendo that the evidence was not
relevant, Moser and Gandy cannot show prejudice because both were
acquitted of the conspiracy count.
Moser and Gandy also argue that the district court erred in
allowing Donelle Smith to testify regarding a CBC (Government’s
exhibit 28) that Ted Schalesky used to pay off a note in the amount
of $232,234.62. Smith’s testimony was introduced in connection
with count 17 of the indictment, which charged O'Neill with a
substantive count of mail fraud.
The Government argues that there was no objection to Smith’s
testimony and thus this claim should be reviewed for plain error.
Moser correctly asserts that previously, in connection with another
witness’s testimony, an objection was made that the Government’s
Exhibit 28 “was not relevant to the case being tried." That
objection was overruled and the exhibit was admitted into evidence.
However, as the Government states, there was no such objection to
Smith’s testimony. Even assuming for purposes of this appeal that
the earlier objection preserved this claim, Moser and Gandy cannot
establish error, much less harmful error, in that Smith’s testimony
was introduced in support of count 17, a count that charged
O’Neill, not Moser or Gandy.
Moser next argues that the district court erred in admitting
three documents that were used by the Government to impeach him
during his cross examination. Moser describes the documents as
"common law court pleading[s] seeking to keep Woodlands [Bank] from
18
foreclosing on the collateral that the bank had on the loans that
were the subject matter of the criminal litigation."
Moser contends that the evidence and cross examination
regarding "these extrinsic offenses had little probative value on
the charges in the indictment and the probative value was
substantially outweighed by the danger of unfair prejudice."
Moser's contention that these documents are evidence of extrinsic
offenses is puzzling. These documents were relevant in that
Moser's loan from Woodlands Bank was the subject of count 14 (which
charged Moser with a substantive count of mail fraud), and Moser's
loan from Williamsport National Bank is listed as an overt act in
the indictment.
Moser repeatedly testified on direct examination that he used
the CMOs believing that he would in turn owe USA First the money it
sent in the form of a CBC to his other creditors. The jury could
have inferred from these exhibits that Moser did not intend to pay
his debts but instead sought to stop the bank's litigation by
invoking the jurisdiction of a bogus court. Additionally, the
district court found that packets used by USA First contained
information similar to statements made in the Government's
exhibits, and thus the exhibits were relevant to the determination
whether Moser was involved in the conspiracy. Moser has failed to
show that the district court abused its discretion in admitting
these exhibits. This issue is without merit.9
9
Wilkins also claims that the court improperly excluded
evidence regarding his "credit for credit" defense. The record
reveals that this defense was propounded at length, and the
19
D. JURY INSTRUCTIONS
(1) Deliberate Ignorance Instruction
The district court charged the jury that: "While knowledge on
the part of a Defendant cannot be established merely by
demonstrating that he was negligent, careless, or foolish,
knowledge can be inferred if he deliberately blinded himself to the
existence of a fact." Gandy contends that this instruction was not
warranted by the evidence.
"A district court has broad discretion in framing the
instructions to the jury and this Court will not reverse unless the
instructions taken as a whole do not correctly reflect the issues
and law." United States v. McKinney, 53 F.3d 664, 676 (5th Cir.)
(citation and internal quotation omitted), cert. denied, 116 S.Ct.
261 (1995). "The purpose of the deliberate ignorance instruction
is to inform the jury that it may consider evidence of the
defendant's charade of ignorance as circumstantial proof of guilty
knowledge." Id. (citation and internal quotation omitted). "It
should only be given when a defendant claims a lack of guilty
knowledge and the proof at trial supports an inference of
deliberate indifference." Id. at 676-77. In the instant case,
both of those requirements were met.
At trial, Gandy claimed a lack of guilty knowledge: he
believed that he was simply refinancing his loans through the use
of the CMOs and CBCs. In regard to an inference of deliberate
district court properly excluded some of the evidence as
cumulative.
20
indifference, the evidence from the USA First packet established
that Gandy was subjectively aware of a high probability of illegal
conduct. The packet described the CMOs as "pretend" money and
advised that they could be used to satisfy actual debts. Materials
in the packet further advised threatening and harassing anyone who
questioned the CMOs validity. Despite this overwhelmingly
suspicious scheme, Gandy made no further inquiry as to the CMOs
validity, thus supporting an inference of deliberate indifference
on Gandy's part. The district court did not abuse its discretion
in giving the deliberate indifference charge.
(2) Mail Fraud Instruction
In regard to the mail fraud instruction, the district court
charged the jury that, to find a defendant guilty, the Government
must prove beyond a reasonable doubt that:
First: That the Defendant knowingly created
or participated in a scheme to defraud, as
alleged in the Indictment which is hereby
referenced;
Second: That the Defendant acted with a
specific intent to commit fraud.
Third: That the Defendant mailed something or
caused another person to mail something for
the purpose of carrying out or attempting to
carry out the scheme.
The court further instructed the jury that "[a] `scheme to defraud'
includes any scheme to deprive another of money, property, or of
the intangible right to honest services by means of false or
fraudulent pretenses, representations, or promises" and that "[a]
representation may be `false' when it constitutes a half truth, or
21
effectively conceals a material fact, provided it is made with the
intent to defraud."
All six appellants argue that "materiality" is an essential
element of the mail fraud statute, and therefore the district court
erred in failing to submit the question of materiality to the jury.
Appellants argue that although materiality is not expressly
mentioned in the mail fraud statute, 18 U.S.C. § 1341, such an
element should be implied.10
They rely on the Supreme Court's holding in United States v.
Gaudin, 515 U.S. 506, 115 S.Ct. 2310 (1995), that if materiality is
an element of the offense, the question must be submitted to the
jury along with the other essential elements.11 In Gaudin, which
involved the offense of making a false statement in violation of 18
U.S.C. section 1001, the Supreme Court simply assumed that
materiality was an element of the crime because the issue was
uncontested.
10
They are vague, however, as to how materiality relates to
the elements of mail fraud. Some of the appellants seem to imply
that each mailing must contain a material misrepresentation. We
disagree. Our precedent makes clear that each mailing does not
even have to be fraudulent in itself. United States v. Shively,
927 F.2d 804 (5th Cir. 1991). Therefore, if materiality is an
element, the question would be whether the scheme to defraud
involved material misrepresentations or omissions. Cf. United
States v. Cochran, 109 F.3d 660, 667-68 n.3 (10th Cir. 1997)
(explaining that although materiality is not an independent element
of wire fraud prosecution, “fraud has always required that
misrepresentations or omissions be material to be actionable”).
11
A material statement was defined as having "`a natural
tendency to influence, or [be] capable of influencing, the decision
of the decisionmaking body to which it was addressed.'" Gaudin,
115 S.Ct. at 2313 (brackets in opinion) (quoting Kungys v. United
States, 485 U.S. 759, 770, 108 S.Ct. 1537, 1546 (1988)).
22
Prior to Gaudin, in the context of a civil RICO claim, this
Court explained that materiality was not an element of the offense
of mail fraud. Abell v. Potomac Insurance Co, 858 F.2d 1104, 1129
(5th Cir. 1988), vacated on other grounds, 492 U.S. 914, 109 S.Ct.
3236 (1989). Since Gaudin, in the context of determining whether
the evidence was sufficient to sustain a mail fraud offense, this
Court has assumed without deciding that materiality was an element
of the offense of mail fraud. United States v. Manges, 110 F.3d
1162, 1174 (5th Cir.), petition for cert. filed, (No. 97-315) (Aug.
19, 1997).
Acknowledging that there was no objection to the instruction,12
the appellants argue that the omission constituted plain error.
United States v. Olano, 507 U.S. 725, 113 S.Ct. 1770 (1993). The
first step in the Olano plain-error analysis is to determine
whether the district court's lack of a materiality instruction
constituted error.
As this Court did in Manges, we assume for purposes of this
appeal that materiality is an element of mail fraud, and thus, the
district court's failure to submit it to the jury constituted
error, which satisfies the first prong of Olano.
In regard to the second prong, we must determine whether the
error is "plain." In Olano, the Supreme Court opined that the
error must be plain "under current law," but did not decide
whether that was at the time of trial or on appeal. Recently, the
12
In his brief, although Johnston correctly states that he
adopted the objections of his codefendants to the court's charge,
none of his codefendants made this objection.
23
Supreme Court clarified that "where the law at the time of trial
was settled and clearly contrary to the law at the time of appeal--
it is enough that an error be `plain' at the time of appellate
consideration." Johnson v. United States, 117 S.Ct. 1544, 1549
(1997).
As set forth above, prior to Gaudin, this Court opined that
materiality is not an element of mail fraud. Abell; see also
United States v. Faulhaber, 929 F.2d 16, 18 (1st Cir. 1991)
(rejecting argument that jury should have received materiality
instruction because the only issue is whether there is a scheme or
artifice intended to defraud). More importantly, subsequent to
Gaudin, this Court has yet to hold that materiality is an element
of the mail fraud statute. It is clear to us that the error is not
"plain" under current law, that is, at the time of appellate
consideration. See Johnson, 117 S.Ct. at 1549. As such, the
appellants are constrained from showing that the mail fraud
instruction constituted plain error.
E. DISMISSAL OF JUROR
During the instant trial, Wilkins' wife was arrested as she
attempted to carry a loaded handgun through a security checkpoint
at the courthouse. Based on this incident, a motion for mistrial
was filed. The district court held a hearing and thereafter
dismissed one juror who had been observed in the vicinity of the
security checkpoint around the time Mrs. Wilkins was stopped.
Gandy, Wilkins, Moser, and O’Neill contend that the district
24
court erred in failing to question either the dismissed juror or
the remaining jurors to determine whether any other juror had
witnessed the incident. We are not persuaded. The appellants'
assertion that another juror might have witnessed the incident is
pure conjecture.
During the hearing, one of the defense attorneys testified
that when Wilkins' wife was stopped at the checkpoint it seemed
like the normal every-day search procedure, and he surmised that
the jurors did not know what was going on either. As stated by the
district court, "[a] board-certified criminal defense attorney with
over twenty years in trial experience did not know what was
happening until he `squeezed it out of the security guards.'"
After listening to the evidence, the district court concluded that
the safest course of action was to dismiss the one juror who had
been identified without questioning other jurors and risking undue
emphasis on the matter. The court's final instructions to the jury
provided that anything seen or heard outside the courtroom was not
evidence and must be entirely disregarded.13 We conclude that the
district court did not abuse its discretion in its handling of the
allegation of outside influence on the jury. See United States v.
Ramos, 71 F.3d 1150, 1153-54 (5th Cir. 1995), cert. denied, 116
S.Ct. 1864 (1996).
F. JOINDER AND SEVERANCE
1. JOINDER
13
Additionally, the court instructed the jury throughout
the trial not to partake of any media coverage of the trial.
25
Relying on Rule 8(b) of the Federal Rules of Criminal
Procedure, Gandy argues that he was misjoined for trial with the
other defendants because the allegations in the indictment and the
evidence at trial demonstrated not one single conspiracy, but
rather two or more separate and distinct conspiracies. At a
minimum, Gandy argues, there were two conspiracies: the first
involving the issuance of CMOs and CBCs by Leonard Peth, operating
as L.A. Pethahiah/Family Farm Preservation, in Tigerton, Wisconsin;
and the second involving the issuance of CMOs and CBCs by Johnston
and O’Neill, operating as O.M.B.-W.D. McCall, in Waxahachie, Texas.
“To determine whether an indictment charges separate
conspiracies or a single conspiracy, we consider whether the
alleged facts reveal a substantial identity of facts or
participants. A single conspiracy can be found when the indictment
adequately shows a singular conspiratorial objective . . . .”
United States v. Lindell, 881 F.2d 1313, 1318 (5th Cir. 1989),
cert. denied, 493 U.S. 1087, 110 S.Ct. 1152 (1990). Simply because
the indictment does not charge each defendant “with active
participation in each phase of the conspiracy does not constitute
misjoinder.” Id.
In the instant case, the indictment alleged the following
scheme:
The defendants would issue or cause to be
issued worthless certified money orders made
payable to private citizens, banks, mortgage
companies, and other financial institutions
and creditors. The worthless certified money
orders would be used to pay off personal and
consumer debts, forestall foreclosure of
property, and acquire real and personal
26
property, or title thereto, free and clear of
any encumbrances.
The defendants would direct the creditor
to forward the worthless certified money order
to the issuer to be redeemed at full face
value.
The issuer, upon receiving the worthless
certified money order from the creditor, would
issue a worthless certified banker’s check in
the same amount as the worthless certified
money order and send the worthless certified
banker’s check back to the creditor. L.A.
Pethahiah and O.M.B., W.D. McCall were
fictitious names used by the issuers.
The defendants would demand that the
creditor “zero balance” their accounts and
threaten legal action, including filing liens
against the creditors and criminal
prosecution, if the worthies certified money
orders or banker’s checks were not accepted as
full payment of the debt and would file liens
against and sue creditors, their employees,
government officials and others to intimidate
and harass them and cloud the title to
properties.
Although the scheme set forth in the indictment and the
evidence at trial did involve the issuance of CMOs and CBCs from
both L.A. Pethahiah and O.M.B.-W.D. McCall, we are satisfied that
there was only one conspiracy charged and proved. The Government
did not attempt to prove that the defendants conspired with the
persons involved in the scheme in Wisconsin. The evidence
established that O’Neill obtained the information and materials
from the Wisconsin operation and gave them to Johnston, who had
Wilkins examine them. Johnston then constructed a packet based on
the information from the Wisconsin materials. The packet sent out
by Johnston referenced Family Farm Preservation in Tigerton,
Wisconsin. The evidence indicates that the materials from
27
Wisconsin were used to launch this scheme and thereafter were
duplicated. In short, the evidence supports the Government’s
theory of a single, overarching conspiracy, rendering joinder
appropriate. Lindell, 881 F.2d at 1318.
2. SEVERANCE
Johnston, Wilkins, Dollar, Gandy, and Moser argue that the
district court erred in refusing to hold separate trials. Under
Rule 8(b) of the Federal Rules of Criminal Procedure, the initial
joinder of the appellants for trial was legitimate because they
were charged with having conspired with each other.14 United States
v. Elam, 678 F.2d 1234, 1250 (5th Cir. 1982). The district court's
decision of whether to grant a severance under Rule 14 because of
prejudice is reviewable only for an abuse of discretion. United
States v. Stotts, 792 F.2d 1318, 1321 (5th Cir. 1986); see also
United States v. Salomon, 609 F.2d 1172, 1175 (5th Cir. 1980) (to
establish an abuse of discretion of the district court, a defendant
must show that he received an unfair trial and suffered compelling
prejudice against which the trial court was unable to afford
protection). An appellant must demonstrate something more than the
fact that a separate trial might offer him a better chance of
acquittal. United States v. Berkowitz, 662 F.2d 1127, 1132 (5th
Cir. 1981).
(a) Dollar
The district court denied the severance motion, opining that
14
As discussed above, we reject Gandy’s argument that he
was improperly joined with the other defendants because there were
two separate conspiracies.
28
the defendants' defenses were not mutually antagonistic. Dollar
concedes that this was true to a certain extent "because each
defendant, to some degree, contended that he believed in the USA
First material and did not possess an intent to defraud." He
claims, however, that the defenses presented by the six appellants
fell into two distinct categories. Dollar asserts that, besides
offering the defense of lack of intent, he argued to the jury that
he had been duped by Wilkins, Johnston, and O'Neill "into believing
that the USA First program would work." Dollar argues that he was
prejudiced because "if the jury disbelieved the principals with
respect to their protestations that they believed in the USA First
program and possessed no intent to defraud, the jury would also
convict [him], disregarding his further defense that he was duped
into using the program by O'Neill, Johnston, and Wilkins." We
disagree for two reasons. First, the jury could have rejected the
defense of O’Neill, Johnston, and Wilkins and still believed that
Dollar was duped by them. Second, and perhaps more importantly, on
cross examination, Dollar testified that Johnston was enthusiastic
about and believed in the validity of using the CMOs. Dollar's
testimony also indicated that he thought Wilkins believed the CMOs
were legal. Under those circumstances, Dollar’s defense is not in
conflict with the other defendants.
(b) Moser
Moser argues that the district court erred because there were
two groups of defendants, the principals (Johnston, O'Neill, and
Wilkins), and the group in which he fell, users of the packets.
29
The first group’s defense was defending the program. On the other
hand, his defense was that the first group of defendants kept him
in the dark regarding the illegality of the CMOs. Moser argues
that his defense conflicted with the first group’s defense and that
his attorney “specifically rejected trying to defend the
allegations the way Mr. Johnston and Mr. Wilkins chose to do, i.e.
defending the packet.” These defenses are not necessarily
conflicting in that the jury’s rejection of the first group’s
defense does not inexorably lead to a rejection of Moser’s. Also,
as in Dollar’s case, we are not convinced that Moser actually
attempted at trial to point a finger at the first group. Upon
inquiry by the court, Moser stated that he did not think that the
people at USA First deceived him or "tried to hide the ball" from
him. In any event, in light of the fact that the jury acquitted
Moser of the conspiracy count and one substantive count of mail
fraud, Moser cannot show compelling prejudice.
(c) Johnston
Johnston argues that he was prejudiced by certain evidence
that would not have been admissible if a severance had been
granted. Johnston points to Moser's testimony that USA First
(Johnston's company) did not inform him that the Texas Department
of Banking had issued a cease and desist order and that the CMOs
could be illegal. Johnston ignores that the cease and desist order
would have been admissible against Johnston in a separate trial.
Even assuming arguendo that some of the complained of evidence
30
would not have been admissible in a separate trial, “Severance is
not required merely because the government introduced evidence
admissible against certain defendants.” United States v. Walters,
87 F.3d 663, 671 (5th Cir.) (internal quotation marks and citation
omitted), cert. denied, 117 S.Ct. 498 (1996). Johnston cannot show
compelling prejudice. This is especially true in light of the
district court's frequent instructions to the jury to consider the
evidence as to each defendant separately and individually,15
Johnston has failed to show the district court abused its
discretion in denying his severance motion.
(d) Wilkins
Wilkins generally argues that his defense was different from
the others but does not elaborate. Thus, he has utterly failed to
show the compelling prejudice required. In any event, as set forth
above, we conclude that the district court’s instructions were
sufficient to cure any possible prejudice. Walters, 87 F.3d at
671.
(e) Gandy
Gandy argues that even if his initial joinder with the other
appellants for trial was proper, the district court erred in
denying his motion for severance because he suffered compelling
prejudice from the evidence introduced against his codefendants.
In view of the previously mentioned instructions given by the
15
This Court has held that, even when two defendants accuse
each other of the crime for their respective defenses, severance is
not warranted when the court instructs the jury to consider the
evidence as to each defendant separately and individually. United
States v. Walters, 87 F.3d 663, 671 (5th Cir. 1996).
31
district court and the jury's acquittal of Gandy on the conspiracy
count, he has not shown compelling prejudice. In conclusion, the
district court did not abuse its discretion in denying the motion
for severance.
G. SENTENCING
Dollar and Wilkins argue that the district court erred in
assessing their offense levels. Under U.S.S.G. § 2F1.1, a
defendant's base offense level is increased according to the amount
of loss caused by his fraud. A district court's finding of amount
of loss is reviewed for clear error. United States v. Hill, 42
F.3d 914, 919 (5th Cir.), cert. denied, 116 S.Ct. 130 1995).
The commentary to § 2F1.1 provides some guidance:
[I]f an intended loss that the defendant was attempting
to inflict can be determined, this figure will be used if
it is greater than the actual loss. . . . For example,
if the fraud consisted of selling or attempting to sell
$40,000 in worthless securities, or representing that a
forged check for $40,000 was genuine, the loss would be
$40,000.
§ 2F1.1, comment. (n.7).
Dollar's presentence report (PSR) provided that the loss
intended by Dollar was $704,000, which is the face value of the
worthless CMOs that Dollar had caused to be issued. Wilkins' PSR
provided that the loss intended by Wilkins was $61 million. That
figure is the total amount of CMOs issued pursuant to the scheme.
The district court found that amounts attributed to Dollar and
Wilkins in their respective PSRs were accurate.
Relying on the fact that there was no actual loss in the
instances in which they personally used (or when Wilkins assisted
32
others in using) the CMOs, Dollar and Wilkins argue that there was
insufficient evidence to prove that they did not intend to repay
the loans. "When reviewing the calculation of an intended loss, we
look to actual, not constructive, intent, and distinguish between
cases in which `the intended loss for stolen or fraudulently
obtained property is the face value of that property' and those in
which the intended loss is zero because `the defendant intends to
repay the loan or replace the property.'" Id.
The Government asserts that the district court's findings
regarding the amount of intended loss are consistent with the
jury's verdict that the appellants were liable for intentionally
participating in a scheme to defraud creditors by sending creditors
bogus CMOs. Although we recognize that the appellants ultimately
paid their loans, in view of their previous attempts to coerce the
institutions to accept the bogus money orders, one is not left with
the definite and firm conviction that the district court made a
mistake regarding their intent to defraud. Thus, the findings
regarding the amount of loss the appellants intended cannot be
deemed clearly erroneous.16
H. BIAS
16
Wilkins also purports to challenge an upward departure
from the guideline range by the district court. Wilkins is
mistaken. The district court did not depart from the guideline
range. It appears that Wilkins is challenging the district court's
decision to assess four points (as opposed to the two points
recommended in the PSR) for his role in the offense under U.S.S.G.
section 3B1.1(a). In light of the evidence adduced at trial,
Wilkins has not shown that the district court clearly erred in
finding that Wilkins was an organizer or leader. United States v.
Barretto, 871 F.2d 511, 512 (5th Cir. 1989).
33
Wilkins asserts that the judge was biased because he felt
threatened by Wilkins. Immediately prior to sentencing Wilkins,
the court advised him of its concerns and gave Wilkins an
opportunity to seek a recusal. Wilkins declined. As such,
Wilkins's complaint is either waived or untimely. Cf. United
States v. York, 888 F.2d 1050 (5th Cir. 1989) (finding untimely a
motion for new trial based on disqualification of judge when
defendant previously aware of circumstances alleged as basis for
disqualification).
With respect to the remaining arguments of the appellants, we
have considered briefs and arguments of counsel and the pertinent
parts of the record, and conclude there is no error requiring
reversal.
For the above reasons, the convictions and sentences of
Johnston, Wilkins, O'Neill, Dollar, Moser and Gandy are AFFIRMED.
34