United States v. Johnson

UNPUBLISHED

UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

No. 09-4417

UNITED STATES OF AMERICA,

Plaintiff - Appellee,

v.

TED JAMES JOHNSON, JR.,

Defendant - Appellant.

Appeal from the United States District Court for the Western
District of Virginia, at Roanoke. Samuel G. Wilson, District
Judge. (7:07-cr-00048-sgw-1)

Argued: September 24, 2010 Decided: December 23, 2010

Before TRAXLER, Chief Judge, KING, Circuit Judge, and Jerome B.
FRIEDMAN, Senior United States District Judge for the Eastern
District of Virginia, sitting by designation.

Affirmed by unpublished per curiam opinion.

ARGUED: Brian Jay Grossman, CROWGEY & GROSSMAN, Richmond,
Virginia, for Appellant. Thomas Ernest Booth, UNITED STATES
DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee. ON
BRIEF: Timothy J. Heaphy, United States Attorney, Jennie L. M.
Waering, Assistant United States Attorney, OFFICE OF THE UNITED
STATES ATTORNEY, Roanoke, Virginia; Lanny A. Breuer, Assistant
Attorney General, Greg D. Andres, Acting Deputy Assistant
Attorney General, David A. Bybee, UNITED STATES DEPARTMENT OF
JUSTICE, Washington, D.C., for Appellee.
Unpublished opinions are not binding precedent in this circuit.

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PER CURIAM:

Ted James Johnson, Jr. (“Johnson”) appeals his convictions

on various felony charges stemming from Johnson’s creation and

operation of a Ponzi scheme. Johnson does not dispute his

involvement in such illegal scheme nor his guilt on numerous

mail and wire fraud counts, but instead argues that his

convictions on certain money laundering counts should be

reversed. Additionally, Johnson seeks reversal of three counts

relating to the unlawful operation of a “commodity pool” based

on Johnson’s assertion that the applicable statute of

limitations expired before he was indicted on such charges. For

the reasons set forth below, we affirm the judgment of the

district court on all counts.

I.

The facts of this case are largely undisputed. In 1992,

Johnson and his co-conspirator, Frank Farrier (“Farrier”) began

a partnership known as Mountain Investments Limited (“Mountain

Investments”). Johnson and Farrier portrayed themselves as

commodity pool operators that pooled and traded investor funds

in the commodities futures financial market. However, Johnson

and Farrier were never registered with the U.S. Commodities

Futures Trading Commission, as required by law.

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 The Mountain Investments office was located in Johnson’s

home and was outfitted with numerous computer monitors that were

used as a prop to instill confidence in the company.

Additionally, potential investors recognized Johnson as an

upstanding member of the community due to his former employment

as the Giles County Circuit Court Clerk as well as Johnson’s

position within his church. Although Johnson and Farrier

claimed to have a foolproof trading system and offered potential

investors very high rates of return, in reality, Mountain

Investments suffered a trading loss every year it operated.

Johnson and Farrier began accepting investor funds in 1992,

and they commingled those funds in various personal and business

checking accounts. Although commodity futures trading accounts

were set up in Mountain Investments’ name, little trading ever

took place. In 1995, Johnson and Farrier established a second

company, Dogwood Farms Incorporated (“Dogwood Farms”) for the

purpose of buying, selling, and developing real estate.

However, like Mountain Investments, Dogwood Farms was primarily

used in furtherance of the Ponzi scheme.

Johnson’s Ponzi scheme initially created the illusion of

success, and several investors received full repayment of their

principal as well as interest at the rates promised. To placate

investors and sustain the subterfuge, Mountain Investments

4
prepared false 1099s reflecting interest on investments that had

never been made.

In January of 2001, the Virginia State Corporation

Commission (“SCC”) began investigating Mountain Investments

based on an anonymous tip. The SCC thereafter advised Johnson

and Farrier that they appeared to be operating an unregistered

commodity pool. Johnson and Farrier responded by advising the

SCC that Mountain Investments stopped taking new investments on

January 22, 2001.

Notwithstanding such representation, Johnson continued

soliciting and accepting investments through Dogwood Farms using

what proved to be worthless Deeds of Trust as collateral. Once

such new investments were received by Dogwood Farms, the money

was simply transferred into Mountain Investments accounts. Once

transferred, such money was used to make payments to investors

in Mountain Investments in an effort to extend the life of the

fraudulent scheme. Johnson solicited new investments through

Dogwood Farms in order to disguise the source of the money and

avoid SCC scrutiny.

In August of 2001, Mountain Investments entered into a

settlement agreement with the SCC and agreed that all investors

would be repaid within one year. Mountain Investments not only

failed to meet such deadline, but sought to disguise its failure

5
by sending the SCC “statements of satisfaction” for several

accounts that were not repaid but were instead merely converted

into Dogwood Farms investments. Unbeknownst to the investors,

such conversion was merely an exchange of one fraudulent

investment for another. In late 2002, at the same time

Johnson’s ability to obtain new funds was dwindling, the demands

for repayment were increasing. The Ponzi scheme inevitably

collapsed.

Several years after the collapse of his Ponzi scheme,

Johnson was indicted in the United States District Court for the

Western District of Virginia. Following a trial by jury,

Johnson was convicted of eighteen counts of mail fraud, two

counts of wire fraud, three securities frauds counts related to

operating a commodity pool, one count of conspiracy to commit

money laundering, four substantive money laundering counts, and

eight counts of engaging in monetary transactions in property

derived from specified unlawful activities. 1 Prior to his

sentencing, Johnson raised the same arguments asserted in the

instant appeal in a Rule 29 Motion for Judgment of Acquittal;

1
The convictions for conspiracy to commit money laundering,
money laundering, and engaging in monetary transaction in
property derived from specified unlawful activities, are
collectively referred to herein as “the money laundering
counts.”

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however, such motion was denied. Johnson was thereafter

sentenced to a term of imprisonment of two hundred months,

followed by three years of supervised release.

II.

Although Johnson’s primary argument on appeal focuses on

the interpretation of the Supreme Court’s opinion in United

States v. Santos, 553 U.S. 507 (2008), he advances such legal

argument in an effort to establish that the government failed to

introduce sufficient evidence to prove his guilt on several

money laundering counts. Additionally, Johnson argues that

there was insufficient evidence to prove that he operated a

commodity pool during the limitations period.

We review challenges to the sufficiency of evidence de

novo. United States v. Kelly, 510 F.3d 433, 440 (4th Cir.

2007). “In doing so, our role is limited to considering whether

there is substantial evidence, taking the view most favorable to

the Government, to support the conviction.” Id. (internal

quotation marks and citation omitted). Evidence is substantial

if “a reasonable fact-finder could accept [it] as adequate and

sufficient to establish a defendant’s guilt beyond a reasonable

doubt.” United States v. Mehta, 594 F.3d 277, 279 (4th Cir.

2010). The credibility of witnesses and conflicts in the

7
evidence are not assessed, as we instead assume that any

discrepancies were resolved by the jury in the government’s

favor. Kelly, 510 F.3d at 440.

III.

Johnson’s first challenge on appeal seeks reversal of

several, but not all, of his convictions on the money laundering

counts based on Johnson’s interpretation of United States v.

Santos. 2 The government disagrees with Johnson’s reading of

Santos, highlighting the fractured nature of the Supreme Court’s

decision and arguing that Santos results in a limited rule of

law that does not extend to the instant case. As discussed in

detail below, we agree with the government’s position.

In United States v. Santos, the Supreme Court held, in a

plurality opinion, that the term “proceeds” in the federal money

laundering statutes refers to “profits,” not “gross receipts.”

Santos, 553 U.S. at 514. The underlying offense in Santos that

generated the funds that were purportedly laundered was an

illegal gambling operation. Although an oversimplification of
2
Johnson concedes, as he must, that even were we to adopt
the legal theory that he espouses, seven of the money laundering
counts should be affirmed. Additionally, Johnson does not
challenge his convictions on the twenty mail and wire fraud
counts that resulted in twenty concurrent sentences of 180
months.

8
the holding, the four justice plurality concluded that

“proceeds” always means profits based on the rule of lenity; one

concurring justice concluded that “proceeds” can mean profits in

some scenarios and gross receipts in others, but in Santos it

meant profits, and four dissenting justices concluded that

“proceeds” always means gross receipts.

In the short time since Santos was decided, circuit courts

have adopted widely divergent views on the precedential value of

such splintered decision. Most notably, the Fifth Circuit

recently acknowledged the four-way circuit split in the wake of

Santos yet “[r]eluctantly . . . refrain[ed] from joining any of

these camps” and instead adopting a fifth different reading of

Santos. Garland v. Roy, 615 F.3d 391, 402-03 (5th Cir. 2010).

This Court has not adopted a position via published opinion, but

did conclude in a recent unpublished opinion that Santos applies

only to illegal gambling operations. See United States v.

Howard, 309 Fed. Appx. 760, 771 (4th Cir. 2009) (“Because Santos

does not establish a binding precedent that the term ‘proceeds’

means ‘profits,’ except regarding an illegal gambling charge, we

are bound by this Court’s precedent establishing that ‘proceeds’

means ‘receipts.’”). Although it has no bearing on our analysis

herein, Congress also acted in the wake of Santos and modified

the federal money laundering statutes to expressly define

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“proceeds” as gross-receipts in all cases, effectively

superseding the rule of law established by the plurality and

concurrence in Santos. 3

Prior to Santos, we have held that the word “proceeds” in

the federal money laundering statutes refers to gross receipts

of a criminal enterprise. See United States v. Singh, 518 F.3d

236, 247 (4th Cir. 2008) (finding that money received by

prostitutes in payment for their services that is later used to

pay the cost of a motel room constitutes “proceeds”); United

States v. Stewart, 256 F.3d 231, 250 (4th Cir. 2001) (indicating

that “reinvestment” of money received from selling drugs into

the drug enterprise, including using money from drug sales to

purchase more drugs and to pay for courier services to ship

drugs, was sufficient to support money laundering convictions);

see also United States v. Caplinger, 339 F.3d 226, 233 (4th Cir.

2003) (indicating that circumstantial evidence can be sufficient

to establish that a defendant used unlawful proceeds to promote

and perpetuate a criminal scheme and that “records documenting
3
In 2009, the following definition was added to the federal
money laundering statutes: “the term ‘proceeds’ means any
property derived from or obtained or retained, directly or
indirectly, through some form of unlawful activity, including
the gross receipts of such activity.” 18 U.S.C. § 1956(c)(9);
see 18 U.S.C. § 1957(f)(3) (cross referencing § 1956(c)(9)). Ex
post facto concerns obviously prevent this Court from
considering such statutory change in the context of this case.

10
specific expenditures” are not necessary). Johnson’s primary

contention on appeal is that Santos overrules our prior

precedent.

Because the plurality opinion in Santos, authored by

Justice Scalia, depended on Justice Stevens’ concurrence to form

a majority, “the holding of the Court may be viewed as that

position taken by those Members who concurred in the judgments

on the narrowest grounds.” Marks v. United States, 430 U.S.

188, 193 (1977) (internal quotation marks and citation omitted).

According to dicta in the plurality opinion, the concurrence

rested on narrower grounds because the concurrence held “that

‘proceeds’ means ‘profits’ [only] when there is no legislative

history to the contrary.” Santos, 553 U.S. at 523. Although at

least one circuit has recognized such statement as defining the

precedential value of Santos, United States v. Yusuf, 536 F.3d

178, 186 n.12 (3d Cir. 2008), we decline to adopt such position

as it is in direct conflict with Justice Stevens’

characterization of his own written opinion. Tellingly, Justice

Stevens not only labels Justice Scalia’s statement as “the

purest of dicta,” but indicates that Justice Scalia’s

interpretation of the concurring opinion “is not correct.”

Santos, 553 U.S. at 528 n.7 (Stevens, J., concurring) (citation

omitted).

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 In explaining the correct interpretation of his own words,

Justice Stevens explains that his concurrence rests on his

“conviction that Congress could not have intended the perverse

result that the dissent’s rule would produce if its definition

of ‘proceeds’ were applied to the operation of an unlicensed

gambling business.” Id. Accordingly, Justice Stevens notes

that “[i]n other applications of the statute not involving such

a perverse result, I would presume that the legislative history

summarized by Justice Alito reflects the intent of the enacting

Congress.” Id. As the legislative history summarized by

Justice Alito’s dissent suggests that proceeds always means

gross receipts, Justice Stevens’ narrow concurrence carves out

an exception that appears to be limited only to illegal gambling

operations. See United States v. Jennings, 599 F.3d 1241, 1252

(11th Cir. 2010) (treating “Justice Stevens’s opinion as

controlling in its narrowest form” and therefore declining to

extend it to a case involving mail and wire fraud).

As the plurality opinion in Santos does not appear to

extend beyond illegal gambling operations, 4 we are bound by this

4
Other circuits have adopted a broader reading of Justice
Stevens’ concurrence, holding that it extends beyond illegal
gambling cases to cases where the “merger problem” discussed in
Santos would result in a significantly higher sentence. See
United States v. Kratt, 579 F.3d 558, 562 (6th Cir. 2009)

12
Court’s precedent holding that “proceeds” means gross receipts.

Our precedent on this issue is most clearly demonstrated by

Singh, where we held that a conviction for money laundering can

be based on the use of funds from a completed crime, or

completed stage of a crime, to pay “expenses” in furtherance of

the continuation of the criminal enterprise. More specifically,

in Singh, the head of a prostitution ring made arrangements with

two motels whereby prostitutes would not pay for a motel room

until after they had used it for the purpose of prostitution.

Singh, 518 F.3d at 247. The payments to the motels “were made

with receipts from the [prostitutes’] first daily customers, and

allowed the prostitutes to service other customers thereafter.”

Id. at 248. Because such transactions utilized criminally

derived proceeds of a completed offense, or at a minimum, a

completed stage of an offense, the payments to the motels

involved the use of “proceeds” within the meaning of the money

(indicating that proceeds means profits “only when the § 1956
predicate offense creates a merger problem that leads to a
radical increase in the statutory maximum sentence . . .”).
This court need not decide whether to adopt such broader
interpretation of Santos as doing so would not impact the
resolution of the instant case. Tellingly, unlike in Santos
where the money laundering counts carried a statutory maximum
sentence four times greater than the maximum statutory penalty
for illegal gambling, here, the money laundering counts have the
same, or lessor, statutory maximums as the wire and mail fraud
counts.

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laundering statutes. Id. Similarly, here, the financial

transactions that supported the money laundering convictions

involved criminally derived proceeds of a completed offense, or

at a minimum, a completed stage of an offense, as the funds at

issue were obtained by Johnson through defrauding individual

investors. Furthermore, just as the payments to the motel in

Singh helped enable the prostitutes to promote and conceal their

illegal prostitution ring, here, Johnson’s payments to investors

helped Johnson promote and conceal his illegal Ponzi scheme.

Accordingly, Johnson fails to establish that there was

insufficient evidence to sustain his convictions. 5

5
Although the accuracy of the jury instructions is not
squarely before the Court, we note that the instant case was
tried after Santos was decided and, in contrast to our ruling
above, the jury instructions reflect the limitation espoused by
the Santos plurality, i.e., that “proceeds” means “profits.”
(J.A. 1587, 1592, 1597). Based on such statement of the law,
which our opinion today concludes is too restrictive, the jury
still convicted Johnson of all of the charged money laundering
counts. Such finding may have been based on expert testimony
indicating that Johnson’s companies “profited” in 2002 as they
defrauded investors out of more money than they repaid. (J.A.
557-59). We need not, however, consider the sufficiency of the
evidence regarding whether Johnson’s companies profited as the
law only requires that the disputed transactions involved “gross
receipts” of Johnson’s fraudulent activities. Accordingly,
although the jury instructions needlessly restricted the term
“proceeds” to “profits,” such error was in Johnson’s favor and
does not result in any prejudice. See Rowland v. American
General Finance, Inc., 340 F.3d 187, 191 (4th Cir. 2003) (“If we
find the instructions flawed, we will not reverse unless the

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 IV.

Johnson’s second challenge alleges that his convictions on

three counts associated with operating a commodity pool are

barred by the statute of limitations. 6 It is undisputed that a

five year limitations period is applicable to the disputed

counts and that, based on the date Johnson was indicted, the

evidence must prove that Johnson engaged in illegal conduct

after July 27, 2002. Johnson argues in his brief that because

there is no evidence that he was pooling investments or trading

securities after such date, the evidence is insufficient to

establish that Johnson “operated” a commodity pool within the

limitations period. Upon questioning by the Court at oral

argument, Johnson’s counsel had little choice but to

acknowledge: (1) that Johnson’s position relies on an

exceedingly narrow interpretation of the concept of “operating”

a commodity pool; and (2) that to succeed on his claim, Johnson

must somehow overcome the fact that he solicited and received

new funds from investors after the limitations cut-off date.

error seriously prejudiced the challenging party’s case.”)
(internal quotation marks and citation omitted).
6
Count 36 charges operation of a commodity pool without
being registered, Count 37 charges embezzlement by a commodity
pool operator, and Count 38 charges fraud by a commodity pool
operator.

15
 The issue regarding the timing of Johnson’s operation of a

commodity pool was properly presented to the jury as the jury

instructions for the commodity pool counts expressly stated: “In

order for the government to sustain its burden of proof as to

[this count], you must find beyond a reasonable doubt that the

defendant acted as a commodity pool operator, as defined by

these instructions, after July 27, 2002.” (J.A. 1606, 1612,

1617). The instructions further define a commodity pool

operator as: “a person who, in connection with an investment

trust or similar enterprise, solicits, accepts, or receives

funds, securities, or property for the purpose of trading in

commodity futures contracts.” (J.A. 1607).

As highlighted by the government, the statutory definition

of a commodity pool operator does not require the operator to

engage in actual trading. See 7 U.S.C. § 1a(5) (defining a

commodity pool operator as “any person engaged in a business

that is of the nature of an investment trust, syndicate, or

similar form of enterprise, and who, in connection therewith,

solicits, accepts, or receives from others, funds, securities,

or property . . . for the purpose of trading in any commodity

. . . .) (emphasis added); Commodity Futures Trading Comm’n v.

Equity Financial Group LLC, 572 F.3d 150, 158 (3d Cir. 2009)

(“If an entity is engaged in a business in the nature of an

16
investment trust, syndicate, or similar form of enterprise, and

it solicits, accepts, or receives funds for the purpose of

trading, it is a commodity pool operator. The actual trading of

commodity futures is not required.”). Based on such legal

standard, the evidence, viewed in a light most favorable to the

government, prevents Johnson’s counsel from making a compelling

argument on appeal. Specifically, the evidence presented to the

jury reveals that, after July 27, 2002, Johnson: (1) continued

soliciting funds from investors; (2) continued representing to

investors that he was still trading their invested funds; and

(3) continued noting in his journal that he was actively seeking

out money to trade. See (J.A. 735) (testimony indicating that

Johnson obtained money from an investor in August of 2002

because “he had some deal to work on” and that the investor

thought Johnson was trading with his money); (J.A. 348, 738)

(excerpt from Johnson’s journal indicating that on August 17,

2002, Johnson “[w]orked all day on and off trying to come with

something to trade ”); (J.A. 1065-66) (testimony indicating that

an investor loaned Johnson $30,000 in September of 2002 and that

the purpose of the loan was the same as all of his prior

investments, that is, “for Mr. Johnson to use to trade, to make

money, to make profits, and to pay [the investor] interest”);

(J.A. 348, 1063) (excerpt from Johnson’s journal indicating that

17
on September 26, 2002, Johnson was “[t]rying to come up with

something to trade. Working on something to trade until 10:00

p.m.”; (J.A. 168-72) (testimony indicating that after an

investor repeatedly contacted Johnson trying to find out why her

money was not being repaid she received a letter from Johnson in

October 2002 stating, inter alia, “I’m trading now”). 7

Based on the above, viewing the evidence in a light most

favorable to the government, it is plain that the jury had

sufficient evidence on which to find that Johnson continued to

solicit and receive funds for the purpose of trading after July

27, 2002. Tellingly, although increasing demands on Johnson for

repayment appear to have led to his inability to obtain enough

“new” money to actually trade, his own journal entries confirm

that he was actively soliciting funds after the limitations

period for the purpose of making additional trades.

7
The evidence further established that as late as December
of 2002, Johnson convinced existing investors to transfer
investments from Mountain Investments to Dogwood Farms. The
accounts being transferred were part of the Mountain Investments
commodity pool and the exchange of such investments may alone be
sufficient to establish that Johnson was still “operating” a
commodity pool in December of 2002, albeit a failing one. See
United States v. United Med. and Surgical Supply Corp., 989
F.2d 1390, 1398 (4th Cir. 1993) (citing United States v.
Andreas, 458 F.2d 491, 491 (8th Cir. 1971)) (“[P]rosecution for
a scheme to defraud devised outside limitations period but
continued into limitations period is permissible.”).

18
Accordingly, Johnson fails to establish that the jury’s verdict

on the disputed counts should be reversed.

V.

For the aforementioned reasons, we affirm the judgment of

the district court.

AFFIRMED

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