United States v. Birch

UNITED STATES COURT OF APPEALS
Filed 9/20/96
TENTH CIRCUIT

UNITED STATES OF AMERICA,

Plaintiff - Appellee,

v. No. 95-1484
(D. Colo.)
DESMOND ALEXANDER BIRCH, (D.Ct. No. 94-CR-357)

Defendant - Appellant.

ORDER AND JUDGMENT *

Before TACHA, BALDOCK, and EBEL, Circuit Judges.

A grand jury indicted defendant Desmond Birch on twelve counts of

violating the securities laws pursuant to 15 U.S.C. §§ 78j(b), 78ff; 18 U.S.C. § 2;

and 17 C.F.R. § 240.10b-5. The defendant moved for a judgment of acquittal at

the close of the government’s case, at the close of the evidence, and at the

sentencing hearing. The district court denied each request. The jury convicted

the defendant on all twelve counts. Pursuant to U.S.S.G. § 2F1.1, the court

sentenced the defendant to concurrent sentences of thirty months for each count

*
This order and judgment is not binding precedent, except under the doctrines of law of
the case, res judicata, and collateral estoppel. This court generally disfavors the citation of orders
and judgments; nevertheless, an order and judgment may be cited under the terms and conditions
of 10th Cir. R. 36.3.
and to a term of supervised release of two years. The court determined that the

appropriate base offense level under § 2F1.1(a) was six. The court then departed

upward by two levels for more than minimal planning under § 2F1.1(b)(2) and by

eleven levels based on an estimated loss of more than $800,000 pursuant to

§ 2F1.1(b)(1)(L).

The defendant now appeals on two grounds. First, the defendant asserts

that the trial court erred in denying his motion for judgment of acquittal. Second,

he contends that his sentence should be recalculated downward to reflect the net

loss to the victims and to reflect a disjunctive jury instruction. We reject the

defendant’s arguments and affirm.

I. BACKGROUND

On September 15, 1983, James Gilmore and Birch entered into a

“distributorship agreement” in which Birch agreed to raise money Gilmore needed

to develop an innovative fuel system. In exchange for raising the needed money,

Birch obtained limited “marketing rights” to market the system once it was

developed. Birch raised money by creating three limited partnerships and selling

interests in his marketing rights to other investors. The sale of these marketing

rights to twelve individuals was the subject of his securities fraud conviction.

From the outset of his talks with investors, Birch promoted the system as

though its marketability was imminent. For example, he advised the investors

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that major auto companies were interested in the pump. He told them that their

money was urgently needed for research and development of the product. In fact,

Birch had learned from technicians, mechanics, and engineers that no marketable

project would be forthcoming.

Birch prepared a derivative purchase interest agreement for his investors.

Paragraph 9.H of the agreement stated that Birch “may or may not” use the

proceeds for his “personal expenses.” Paragraph 5.A provided that Birch could

keep up to 20% of proceeds for his own personal needs. That paragraph also

provided that Birch would not convert any investor money for his personal use

unless he had the prior approval of “a two-thirds majority in interest of all the

Holders of Interest in the Granted Rights, including his own interest.” Birch,

however, failed to disclose that under his interpretation of the contract, he already

had all of the approval he needed to use investor money for his personal expenses.

When asked about these contract provisions, Birch gave a number of

responses to his investors. For example, he told one investor not to be concerned

about paragraph 5.A because her money could only be used on the project since

Birch had already used 20% of the proceeds. He told another investor that

paragraph 9.H related only to traveling expenses to promote the project.

Contrary to his oral and written representations, Birch kept most of the

investors’ money to support himself. For example, from January 15, 1989 to

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September 15, 1990, Birch raised $995,000 by selling his marketing rights in the

project. Roughly one-third of these funds went to project expenses while the rest

went to Birch’s personal expenses.

II. DISCUSSION

A. Judgment of Acquittal

We review the denial of a motion for judgment of acquittal using the same

standard as the trial court. United States v. Fleming, 19 F.3d 1325, 1328 (10th

Cir.), cert. denied, 115 S. Ct. 93 (1994). In order to conclude that the evidence

was insufficient, the court must find that no reasonable juror could have reached

the disputed verdict. United States v. Ivy, 83 F.3d 1266, 1284 (10th Cir. 1996).

We must view all the evidence and draw all reasonable inferences in the light

most favorable to the prosecution. United States v. Madrigal, 43 F.3d 1367, 1369

(10th Cir. 1994), cert. denied, 115 S. Ct. 1808 (1995).

After reviewing the record, we find that the evidence permitted a

reasonable jury to find that the defendant defrauded a number of investors

through the use of an ambiguous contract. Contrary to the defendant’s arguments,

this is not a simple contract dispute case. This is a case of fraud. Birch solicited

over a million dollars from investors by telling them that their money would buy

marketing rights in a viable and imminently marketable product. At the time

Birch made these representations to investors, he knew the rights he sold them

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were worthless. Instead of using the investors’ money for the final research and

development as he promised, he deposited their money in his own personal bank

account. Based on all of the evidence, we find that a reasonable jury could have

concluded that the defendant defrauded the investors who purchased securities.

B. Sentencing

The defendant challenges the trial court’s loss calculation used to determine

his sentence on two grounds. First, he argues that the loss figure should have

been offset by the “value” of the marketing shares that the victims received.

Second, he argues that the district court erred in considering other relevant

conduct in the loss computation. We review the trial court's factual findings

supporting calculation of loss under the clearly erroneous standard. United States

v. Lyons, 992 F.2d 1029, 1032 (10th Cir. 1993). We review the court’s

interpretation of the sentencing guidelines de novo. Id.

1. Offset

The defendant contends that the district court should have offset the loss

figure by the value of the marketing shares that the victims retained. The record,

however, reveals a significant amount of evidence both at trial and at sentencing

establishing that the “pump” was not a marketable product. Thus, we conclude

that the trial court was not clearly erroneous in concluding that the shares had no

fair market value. Accordingly, we hold that the trial court’s determination of the

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estimated loss to the victims of $828,000 was not clear error.

2. Other Relevant Conduct

The court instructed the jury that the defendant could be found guilty of

securities fraud if he committed a general scheme to defraud (with a loss

calculation of $828,000) or twelve individual acts of fraud against each of the

victims named in the indictment (with a loss calculation of $128,000). The

defendant argues that because the instruction was in the disjunctive, the district

court could not have determined upon which ground the jury found him guilty.

Thus, the defendant argues that he should receive the benefit of the lesser loss

calculation.

The defendant’s reliance on a disjunctive jury instruction is misplaced.

Under the Sentencing Guidelines, a court may look to "relevant conduct" when

sentencing a defendant. U.S.S.G. § 1B1.3. Section 1B1.3(a)(3) includes in its

purview "all harm that resulted from the acts and omissions specified in [the

Guideline], and all harm that was the object of such acts and omissions.”

Relevant conduct may include conduct for which defendant was not convicted.

See United States v. Underwood, 982 F.2d 426, 429 (10th Cir. 1992), cert. denied,

113 S. Ct. 3043 (1993).

When the government seeks to increase a defendant's base offense level, it

must show that the relevant conduct justifying the increase occurred by a

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preponderance of the evidence. United States v. Hagedorn, 38 F.3d 520, 522 (10th

Cir. 1994). In addition to the trial evidence, the government introduced evidence

indicating that the several individuals, other than the twelve named in the

indictment, were defrauded by the defendant. In determining the amount of loss,

the court reviewed bank accounts, answers to questionnaires, personal interviews

with the victims, and evidence demonstrating the amounts the defendant diverted

to his personal use. We conclude that the district court’s consideration of all the

conduct encompassed by the securities fraud in making its loss calculation was

not clear error. The defendant’s conviction and sentence are therefore

AFFIRMED.

ENTERED FOR THE COURT,

Deanell Reece Tacha
Circuit Judge

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