UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________
No. 93-8548
_____________________
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
versus
MICHAEL McCORD and
O. B. HALEY, SR.,
Defendants-Appellants.
_________________________________________________________________
Appeals from the United States District Court
for the Western District of Texas
(DR-92-CR-78(1))
_________________________________________________________________
(September 26, 1994)
Before POLITZ, Chief Judge, and DUHÉ and BARKSDALE, Circuit Judges.
RHESA HAWKINS BARKSDALE, Circuit Judge:
This appeal principally concerns the convictions of Michael
McCord and O. B. Haley, in connection with their roles as trustees
in funding a bank employee stock ownership plan, for conspiracy to
violate 18 U.S.C. § 1954 (proscribing improper payments to persons,
such as trustees, who influence such plans), to include whether
they satisfied § 1954's "bona fide compensation" exception to
criminal liability. McCord also contests his five other bank-
related convictions and challenges his sentence on several grounds.
We REVERSE McCord's money laundering conviction and REMAND his case
for resentencing; otherwise, we AFFIRM.
I.
In April 1993, as a result of their activities at the American
Bank of Commerce (ABC) in Del Rio, Texas, McCord and Haley were
convicted for conspiring to violate § 1954, by agreeing that Haley,
through his corporation, would give McCord shares of ABC stock
because of McCord's actions and decisions as a trustee of the ABC
employee stock ownership plan (ESOP), in violation of 18 U.S.C. §
371 (count one). Each was acquitted of a substantive violation of
§ 1954 (counts two and three).
As for the several other related charges against McCord (to
include one against his wife), he was acquitted of soliciting
kickbacks, in violation of 18 U.S.C. § 215(a)(2) (count seven,
which charged that he demanded a $5,000 finder's fee from two ABC
customers to secure a buyer for their property); but he was
convicted for filing a false tax return by failing to report the
gain from sales of the stock received from Haley's corporation, in
violation of 26 U.S.C. § 7206(1) (count four).1 Furthermore, as a
result of having ABC pay for the installation of a new air
conditioner at his home and the installation of his used unit at a
house owned by ABC, McCord was convicted for making, or causing to
be made, false entries on bank records, in violation of 18 U.S.C.
§§ 2 and 1005 (count five), and misapplication of bank funds, in
violation of 18 U.S.C. §§ 2 and 656 (count six). Concerning a loan
made by ABC to his brother-in-law, McCord was convicted both for
1
McCord's wife was acquitted on the tax count, the only one in
which she was charged.
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unlawfully receiving part of the proceeds, in violation of 18
U.S.C. § 1005 (count eight), and for money laundering for the
deposit of the proceeds he received, in violation of 18 U.S.C. §
1957 (count nine).
Haley was sentenced, inter alia, to five months imprisonment,
with a recommendation that it be served at a halfway house. McCord
was sentenced, inter alia, to 36 months imprisonment on the tax
count and 37 months on each of the other five counts of conviction,
all to be served concurrently, and ordered, inter alia, to pay
$2,950 restitution (amount of the air conditioner invoice), and to
forfeit $17,000 (proceeds received from the loan to his brother-in-
law).
II.
Haley challenges the denials of his motions for severance and
to dismiss the indictment, the jury charge, and the sufficiency of
the evidence to support his conviction. McCord contests the jury
instructions, sufficiency of the evidence, the money laundering
conviction (on constitutional grounds), and his sentence (on four
bases).
The bulk of the numerous contentions concern the sufficiency
of the evidence. The following analysis of the evidence, and the
proper inferences that can be drawn from it, required in order to
review the sufficiency challenges, amply demonstrates, once again,
why our standard of review for such challenges is so narrow. For
numerous, and most obvious reasons, we do not sit to retry the
charges against Haley and McCord; that is the function of the jury.
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A.
It is the jury's "unique role" to judge the credibility and
evaluate the demeanor of witnesses and to decide how much weight
should be given to their testimony. E.g., United States v. Higdon,
832 F.3d 312, 315 (5th Cir. 1987), cert. denied, 484 U.S. 1075
(1988). Our resulting narrow standard of review for sufficiency of
the evidence challenges "gives full play to the responsibility of
the trier of fact fairly to resolve conflicts in the testimony, to
weigh the evidence, and to draw reasonable inferences from basic
facts to ultimate facts". Jackson v. Virginia, 443 U.S. 307, 319
(1979).
Accordingly, McCord and Haley's sufficiency of the evidence
challenges fail if a rational trier of fact could have found that
the Government proved the essential elements of the crime charged
beyond a reasonable doubt. United States v. Webster, 960 F.2d
1301, 1307-08 (5th Cir.), cert. denied, ___ U.S. ___, 113 S. Ct.
355 (1992). Toward that end, "[w]e must view the evidence in the
light most favorable to the verdict, accepting all credibility
choices and reasonable inferences made by the jury". United States
v. Gardea-Carrasco, 830 F.2d 41, 43 (5th Cir. 1987) (footnote
omitted). Moreover, "[i]t is not necessary that the evidence
exclude every reasonable hypothesis of innocence or be wholly
inconsistent with every conclusion except that of guilt .... A
jury is free to choose among reasonable constructions of the
evidence". United States v. Bell, 678 F.2d 547, 549 (5th Cir.
1982), aff'd, 462 U.S. 356 (1983). Finally, "our review remains
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the same whether the evidence is direct or circumstantial". United
States v. Cardenas, 9 F.3d 1139, 1156 (5th Cir. 1993), cert.
denied, 114 S. Ct. 2150 (1994).
For a conspiracy in violation of 18 U.S.C. § 371, the
Government must prove "that the defendant entered into an agreement
with at least one other person to commit a crime against the United
States and that any one of these conspirators committed an overt
act in furtherance of that agreement". United States v. Chaney,
964 F.2d 437, 449 (5th Cir. 1992) (emphasis in original). "The
government must also prove that the defendant knew of the
conspiracy and voluntarily became part of it". Id. Haley and
McCord were charged with conspiring to violate § 1954, which
provides in pertinent part:
Whoever being--
(1) [a] ... trustee ... of any employee
... benefit plan; or
(2) an officer ... of an employer ...
whose employees are covered by such plan; or
....
(4) a person who, or an officer ... of an
organization which provides benefit plan
services to such plan
receives or agrees to receive or solicits any fee,
kickback, commission, gift, loan, money, or thing
of value because of or with intent to be influenced
with respect to, any of his actions, decisions, or
other duties relating to any question or matter
concerning such plan or any person who directly or
indirectly gives or offers, or promises to give or
offer, any fee, kickback, commission, gift, loan,
money, or thing of value prohibited by this
section, shall be fined not more than $10,000 or
imprisoned not more than three years, or both:
Provided, That this section shall not prohibit the
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payment to or acceptance by any person of bona fide
salary, compensation, or other payments made for
... services actually performed in the regular
course of his duties as such ... officer, trustee,
... or employee of such plan, employer, ... or
organization providing benefit plan services to
such plan.
18 U.S.C. § 1954 (emphasis in original).
Haley and McCord contend that the Government failed to prove,
as required by § 1954, that stock was transferred by Haley to
McCord "because of" McCord's actions or decisions as an ESOP
trustee; and that the section's bona fide compensation exception is
applicable.2 The facts underlying the charged conspiracy are as
2
McCord and Haley claim also that "Wharton's Rule" prohibits
their conspiracy convictions because they were the only two named
co-conspirators and were acquitted of substantive violations of §
1954, the only object of the conspiracy. "Wharton's Rule states
that `[a]n agreement by two persons to commit a particular crime
cannot be prosecuted as a conspiracy when the crime is of such a
nature as to necessarily require the participation of two persons
for its commission'". United States v. Brown, 7 F.3d 1155, 1162
n.6 (5th Cir. 1993) (quoting 1 R. Anderson, Wharton's Criminal Law
and Procedure, § 89, at 191 (1957)). Wharton's Rule applies only
when "it is impossible under any circumstances to commit the
substantive offense without cooperative action". Id. at 1163
(internal quotation marks and citation omitted; emphasis in
original).
Because this issue is being raised for the first time on
appeal, we review it only for plain error. United States v.
Rodriguez, 15 F.3d 408, 414-17 (5th Cir. 1994). There is none;
even assuming that McCord and Haley satisfy the first step in plain
error analysis, that there was an error, that error is not "plain"
("clear" or "obvious"). Id. at 415. In short, it is most
questionable whether the rule applies to § 1954, in the light of,
inter alia, the section's legislative history reflecting that the
purpose of § 1954 was to protect plan participants and their
dependents, interstate commerce, and the national public interest.
See 1962 U.S.C.C.A.N. 1532, 1532-39, 1549. See Iannelli v. United
States, 420 U.S. 770, 784 (1975) ("[u]nlike the consequences of the
classic Wharton's Rule offenses, the harm attendant upon the
commission of the substantive offense [proscribed by § 1954] is not
restricted to the parties to the agreement.") Accordingly, because
the error (assumed) is not plain, we need proceed no further in our
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follows. (Haley did not testify; McCord did.)
During the early 1980s, McCord and Haley worked together at
Red Bird Bank in Dallas. In 1985, several ABC directors asked
Haley to invest in ABC, which had been operating under a cease and
desist order since 1984. Haley did so, was elected chairman of
ABC's board, and brought in McCord as executive vice president.
McCord became president in April 1986; and that December, ABC
raised $362,761 through a public stock offering.3 By 1987, it had
become profitable.
In June 1987, Red Bird Bank loaned $78,040 to the corporation
owned by Haley, Leisure Valley, Inc. The loan was secured by
80,000 shares of ABC stock and personally guaranteed not only by
Haley, but also by McCord.4 That December, the loan was renewed
for a year, with the amount increased to $162,040. It was secured
by 175,000 ABC shares and again personally guaranteed by Haley and
McCord.
In late 1987 or early 1988, after McCord attended a seminar at
which Banking Consultants of America (BCA) made a presentation
about employee stock ownership plans (ESOPs),5 he and Haley decided
analysis.
3
At $1.00 per share, 362,761 were sold; McCord purchased
40,000.
4
Neither side advances why McCord personally guaranteed the
loan to Haley's corporation, nor is there any explanation in the
record.
5
Charles Bullock, a tax lawyer who had been employed by BCA,
testified that an ESOP is a retirement plan, much like a profit-
sharing plan, except that it invests primarily in employer
securities; and that an ESOP can be used for the purposes of
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to establish one at ABC; and McCord retained BCA in July 1988 to do
so.6 BCA advised ABC that the ESOP could not pay more than fair
market value for stock; and as it recommended, ABC retained an
independent appraiser. An appraisal was necessary because there
was no active market for ABC stock. The stock was appraised at
$2.35 per share as of July 1, 1988.
Prior to September 20, 1988, Haley owned 170,000 shares of ABC
stock; his corporation, Leisure Valley, 174,000; and McCord,
105,000.7 On September 20, Leisure Valley transferred 70,194
shares to McCord -- 34,477 by one certificate and 35,717 by
another. McCord claims that he paid $81,020 for the 34,477 shares
(at the $2.35 appraised value), but received the 35,717 shares as
a gift from Haley for making ABC profitable. On the other hand,
Haley maintains that, as a reward for McCord's work, he sold McCord
all 70,194 shares at a discount for $80,723.10 ($1.15 per share).8
employee motivation, retirement benefits, raising capital as a
takeover defense, and creating a market for stock. An ESOP is
created by resolution of the sponsoring employer's board of
directors, and the ESOP's trustees are responsible for its
operations. In an ESOP, a trust owns shares of the employer's
stock for the benefit of the employees. The stock is contributed
to the plan at no cost to the employees, and ESOPs may acquire
stock by purchasing it from either the sponsoring employer or
shareholders.
6
McCord testified that attracting good people to work for ABC
was difficult; that once he had trained employees, he lost them to
other banks; and that the ESOP was to motivate employees and give
them an incentive to stay with ABC.
7
There were approximately 815,000 shares of ABC stock issued,
with approximately 150 shareholders.
8
In a pre-indictment interview, Haley stated that he sold the
stock at a discount because he wanted to recognize McCord's hard
work and success at ABC. And, on its income tax return, Leisure
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The ESOP trust agreement was executed ten days later --
September 30, 1988. That same day, McCord and Haley, as trustees
of the ESOP, borrowed $162,040 from Red Bird Bank on behalf of the
ESOP, so that it could purchase stock.9 As required by law, the
loan was non-recourse; for collateral, Red Bird Bank could look
only to the stock purchased by the ESOP. Red Bird Bank required
McCord and Haley to pledge their remaining ABC stock and to
personally guarantee the ESOP loan.10
Eleven days later (October 11), McCord sold to the ESOP 34,477
shares of the ABC stock he had received on September 20. The sale
was at the appraised value of $2.35 per share; $81,020 was paid.
(As discussed, this equals the amount paid by McCord to Haley's
corporation.) The ESOP also purchased the same number of shares of
ABC stock (34,477) from Leisure Valley for $81,020 (appraised
value).11 That same day, in payment for the stock transferred to
Valley reported the entire transfer to McCord as a sale. At $1.15
per share, 70,194 would cost $80,723.10; but, 34,477 at $2.35 per
share totals $81,020.95 (the amount McCord paid). Although the
Government's witnesses, who reviewed the pertinent records, agreed
with Haley's position, the Government does not explain why McCord
paid $81,020, rather than $80,723.10.
9
Bullock testified that in a significant number of ESOPs the
stock is purchased with borrowed funds.
10
Red Bird Bank was eligible for a 50% tax exemption on the
interest it earned on the ESOP loan.
11
McCord testified that, originally, the ESOP was going to
purchase the stock only from Haley; that Haley asked him if he
wanted to sell some of his shares, but he was not interested
because he felt that the stock was appreciating and was looking to
it as a retirement plan; and that, because Haley wanted the bank
employees to believe that the ESOP stock was coming from both of
them and did not want to usurp McCord's authority by being the only
contributor of shares to the ESOP, Haley asked McCord to buy the
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him on September 20 by Haley's corporation, McCord deposited in the
account of that corporation, Leisure Valley, his $81,020 from his
sale to the ESOP. In turn, Leisure Valley used the proceeds from
the two sales to the ESOP (its and McCord's) to pay off Leisure
Valley's December 1987 $162,040 loan from Red Bird Bank, which was
to become due that December, and had been personally guaranteed by
Haley and McCord.
In August 1990, the Office of the Comptroller of the Currency
declared ABC insolvent, after requiring it to accept liability for
the ESOP loan and to charge off other loans.12
1.
"Under § 1954, a defendant may be convicted of receiving a
[thing of value] (a) `because of' or (b) `with intent to be
influenced with respect to' any actions or decisions relating to
the plan involved". United States v. Pieper, 854 F.2d 1020, 1024
(7th Cir. 1988) (emphasis in original). The Government proceeded
under the "because of" prong. "[I]t is not necessary that a
defendant have had actual ability to control investment decisions
of a [plan] so long as, because of his status, he had ostensible
power over decisions regarding the [plan]". Id. at 1025. As
noted, Haley and McCord contend that the Government failed to prove
that they conspired to transfer ABC stock to McCord "because of"
his position as an ESOP trustee; that, instead, the stock was a
stock from him and then sell it to the ESOP.
12
It appears that ABC was required to accept liability for the
ESOP loan because of ABC's monthly $3,000 payments to the ESOP for
its use to pay the note.
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reward for McCord's work at ABC, an entity separate from the ESOP.
In support, they note that the ESOP was not created until after the
transfer.
There is sufficient evidence that McCord and Haley agreed to
transfer ABC stock to McCord "because of" his authority as an ESOP
trustee to decide how, and from whom, the ESOP would acquire stock.
They decided to establish an ESOP, the only type of employee
benefit plan which allows trustees to sell their shares to the
plan,13 rejecting other types of benefit plans.14 They elected to
serve as trustees and, as such, had authority to decide how much
stock the ESOP would purchase and from whom. Although no specific
amount of stock was required to fund the ESOP, McCord and Haley
decided that it would purchase 68,954 shares at $2.35 per share,
for a total of approximately $162,04015 -- the amount of Leisure
Valley's (Haley's corporation) note at Red Bird Bank, which they
13
The ESOP trust agreement gave the trustees power to enter into
transactions between themselves, as trustees, and the bank, or any
bank shareholder, for the purpose of acquiring or selling bank
stock. Government witnesses testified that it is not unusual, at
small, independent banks such as ABC, for bank officers to serve as
ESOP trustees, and that it is not unusual for ESOP trustees to sell
their stock to the ESOP. An attorney employed by BCA testified
that ERISA establishes two standards that apply when a "party in
interest" sells stock to an ESOP: (1) the party in interest can be
paid no more than adequate consideration for the stock, which is
generally the appraised fair market value; and (2) no one can earn
a commission on the sale. He testified further that, if those two
requirements are satisfied, there is nothing wrong with a trustee,
who also happens to be a major shareholder, officer, or director of
the bank, selling stock to an ESOP.
14
McCord testified that they rejected a 401K or a profit sharing
plan because they wanted to give the employees a vested interest in
the growth and performance of the bank.
15
At $2.35 per share, 68,954 totals $162,041.90.
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had personally guaranteed, and which was to become due
approximately three months later, in December 1988. Indeed, the
proceeds from the sales to the ESOP were used to pay off that loan.
Although Leisure Valley could have sold all 68,954 shares to
the ESOP, it instead sold only 34,477, transferring approximately
70,200 shares to McCord, who then sold to the ESOP approximately
half of those shares (the same amount as sold to the ESOP by
Leisure Valley). The Government introduced evidence that the ESOP
could have been funded with ABC treasury stock. In addition, other
shareholders owned stock which could have been purchased by the
ESOP, but Haley and McCord did not give them an opportunity to sell
their shares to it.16 Although the Government's witnesses testified
that there was no formal requirement that other shareholders be
notified of the ESOP's plans to purchase stock, BCA's president
testified that it would have been prudent for McCord and Haley to
notify the majority shareholders. It is true that McCord and Haley
sold their stock to the ESOP at the appraised value; but that price
16
Tully Shahan, one of the founding directors of ABC, testified
that, in 1988, or 1989, he talked to McCord about selling his
22,000 shares of ABC stock to ABC. McCord told him that ABC might
be interested in buying the stock at $1.25 per share, and did not
mention the July 1988 appraisal of $2.35 per share. Tom Schneider,
another founding director of ABC, testified that he owned 135,000
shares of ABC stock in 1988, but was not given an opportunity to
sell his stock to the ESOP.
Although both Shahan and Schneider testified that they would
not have been willing to sell their stock to the ESOP at $2.35 per
share if they had been required to guarantee the ESOP's $162,040
loan from Red Bird Bank, the director for the United States
Department of Labor Pension and Welfare Benefits Administration in
the Dallas region testified that there is no requirement that
persons who sell stock to an ESOP must guarantee any note in
connection with that transaction.
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was the maximum, or ceiling, that the ESOP could pay. There was
nothing to prevent the ESOP from purchasing shares from other
shareholders for less than the appraised price, had there been
willing sellers.17
The evidence strongly supports the inference that McCord and
Haley chose not to notify the other shareholders because they had
decided that the ESOP would purchase stock only from them, at the
appraised value. They benefited from the sales, inasmuch as there
was not an active market for the stock, and the proceeds were used
to pay off Leisure Valley's note at Red Bird Bank, which they had
personally guaranteed. (Although they also personally guaranteed
the ESOP loan from Red Bird Bank, they anticipated that the loan
would be paid by ABC's contributions to the ESOP. As noted, it
contributed $3,000 per month to the ESOP for that purpose.18)
The timing of the stock transfer also supports an inference
that it was "because of" McCord's authority as an ESOP trustee to
decide from whom the ESOP would purchase stock. McCord joined ABC
in 1985, and he testified that it had become profitable by 1987;
yet Haley waited until September 20, 1988 -- ten days before the
ESOP was established -- to transfer the stock to McCord, ostensibly
17
Bullock testified that the biggest abuse of an ESOP is selling
stock to it at an inflated price.
18
Bullock testified that when an ESOP borrows money, the loan is
repaid through contributions to the trust from the sponsoring
employer. McLeod, a tax lawyer and certified public accountant
with BCA, who drafted the documents for the ESOP loan, testified
that the only source of funds to repay the ESOP loan is
contributions from the sponsoring employer, and that the lender
relies on the employer to make contributions to the ESOP to enable
payment of the loan.
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to reward his past services in making ABC profitable. At the same
time, McCord sold 34,477 of the shares to the ESOP at the appraised
price.19
That the transfer occurred before the ESOP was formally
established (by ten days) is insignificant in light of the fact
that McCord and Haley exercised control over the ESOP at least as
early as July 1988, when ABC retained BCA.20 Although the ESOP
trust agreement was not signed until September 30, 1988, ABC's
board adopted a resolution making the ESOP effective January 1,
1988. Moreover, McCord testified that, prior to the signing of the
ESOP documents, it had been agreed who the trustees would be, where
the funding would come from, and how many shares the ESOP would
purchase.
In sum, the evidence supports the jury finding that Haley and
McCord agreed that Haley, through Leisure Valley, would transfer
ABC stock to McCord "because of" his position as an ESOP trustee,
including his authority to make decisions about the manner in which
the ESOP was funded. Accordingly, the standard for affirming the
jury's verdict is met: a rational trier of fact could have found
19
As stated, McCord claims that he paid the appraised value of
$2.35 per share for the 34,477 shares, and received the 35,717
shares as a gift from Haley for his efforts in making ABC
profitable; Haley, that he rewarded McCord by selling him all
70,194 shares for only $1.15 per share.
20
McCord testified that he discussed the ESOP with the ABC board
in July 1988.
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that the essential elements for a conspiracy were proved beyond a
reasonable doubt.21
2.
In the alternative, McCord and Haley contend that the evidence
establishes that the stock transfer to McCord falls within § 1954's
"bona fide compensation" exception to criminal liability. As
quoted earlier, that exception permits
the payment to or acceptance by any person of bona
fide salary, compensation, or other payments ...
for services actually performed in the regular
course of his duties as ... officer, trustee, ...
or employee of such plan, employer, ... or
organization providing benefit services to such
plan.
18 U.S.C. § 1954.
The Government interprets the exception to apply only to
compensation (to include "other payments") for services rendered
for the ESOP, and therefore maintains that it is inapplicable,
because Haley and McCord both concede that the stock transfer was
not for services that McCord performed for the ESOP. We agree,
however, with Haley and McCord that the exception is not limited to
21
Several circuits have held that proof of specific intent is
not required under the "because of" prong of § 1954. United States
v. Soares, 998 F.2d 671, 672-74 (9th Cir. 1993), cert. denied, ___
U.S. ___, 114 S. Ct. 927 (1994); United States v. Pieper, 854 F.2d
1020, 1024-26 (7th Cir. 1988); United States v. Romano, 684 F.2d
1057, 1063-64 (2d Cir.), cert. denied, 459 U.S. 1016 (1982); United
States v. Friedland, 660 F.2d 919, 925-27 (3d Cir. 1981), cert.
denied, 456 U.S. 989 (1982). Haley contends that, irrespective of
the intent required for violation of § 1954, the Government failed
to prove that he specifically intended to agree to violate § 1954,
as required for proof of conspiracy under 18 U.S.C. § 371. We
disagree. As shown above, there was ample circumstantial evidence
that Haley and McCord specifically intended to agree to transfer
ABC stock to McCord because of his actions or decisions as a
trustee.
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services performed for the ESOP; its plain language indicates
otherwise. Among other things, the exception applies to "bona fide
salary, compensation, or other payments" (payments) to an officer,
such as McCord, "for services ... performed in the regular course
of his duties as ... officer ... of [an] employer", such as ABC,
"whose employees are covered by [a] plan". Nevertheless, we do not
agree that Haley and McCord qualify for the exception; their
interpretation overlooks the requirement that the payments be "bona
fide".22
Although § 1954 does not define "bona fide", we can easily
discern its intended meaning by reading it as a whole. See, e.g.,
N. Singer, 2A Sutherland Statutory Construction § 46.05, at 103
(5th ed. 1992) ("each part or section [of a statute] should be
construed in connection with every other part or section so as to
produce a harmonious whole"; "it is not proper to confine
interpretation to the one section to be construed") (footnotes
omitted). Section 1954 first describes what is prohibited -- inter
alia, the receipt of a thing of value "because of" any actions or
decisions relating to the benefit plan. It then describes, in the
exception, what is not prohibited -- inter alia, the payment or
acceptance of "bona fide salary, compensation, or other payments
22
As noted, the exception is not limited to salary or
compensation; it includes "other payments". Accordingly, although
McCord was not an employee of the corporation that transferred
stock to him, so that the transfer was not salary or compensation
as those terms are understood in their normal employer/employee
sense, the transfer was a form of "other payments" that might
qualify for the exception. But, as discussed infra, the exception
is satisfied only if the "salary, compensation, or other payments"
are "bona fide".
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... for services actually performed in the regular course of ...
duties". (As noted, this includes duties as an officer of the
employer providing the ESOP.) When the exception is read in
context with the remainder of § 1954, it is clear (indeed, most
obvious) that the exception does not apply to payments to an
officer of an employer providing an ESOP or to a trustee of the
ESOP "because of" his actions or decisions relating to the plan if
they are not "in the regular course of his duties". In other
words, payments given or received with that motivation are not
"bona fide" within the meaning of the exception.23
As discussed, there was ample evidence that Haley's stock
transfer to McCord ("other payments") was not motivated by McCord's
performance as a bank officer (bona fide), but because, as an ESOP
trustee, he had the authority to make decisions with respect to the
manner in which the ESOP would be funded. Accordingly, the
transfer does not qualify for § 1954's exception.24
23
Our reading is consistent with the jury charge: "bona fide"
was defined as "in good faith, exclusive of fraud or deceit".
Neither Haley nor McCord challenge that definition.
24
Haley contends that the district court erred by denying his
motion to dismiss the indictment, because the Government failed to
charge that his conduct did not fall within the exception. Prior
to trial, he did not move to dismiss the indictment on this ground;
he did so during, and after, trial. Fed. R. Crim. P. 12(b)(2) and
(f) provide that objections based on defects in the indictment,
other than those attacking jurisdiction or claiming that the
indictment fails to charge an offense, are waived if not made prior
to trial. See, e.g., United States v. Mouton, 657 F.2d 736, 739
n.3 (5th Cir. 1981). Because Haley's objection is that the
indictment fails to charge an offense, it was not waived.
In any event, the objection fails. "Generally, a statutory
exception to an offense need not be alleged in the indictment and
the burden of proving compliance with the exception is upon the
- 17 -
B.
McCord and Haley each challenge the jury instructions on
conspiracy. McCord contends that the district court erred by
giving the Government's requested instruction on the § 1954
exception; Haley, that the court erroneously refused his requested
instructions on his defensive theory, and erroneously instructed
that the evidence proved a conspiracy if it showed that the
defendants "or either of them" knew the unlawful purpose of the
agreement and willfully joined the conspiracy.
"We afford the district court substantial latitude in
formulating its instructions, and we review a district court's
refusal to include a defendant's proposed jury instruction for
abuse of discretion". United States v. Chaney, 964 F.2d at 444.
In applying this standard, we review the charge "as a whole to
determine whether that instruction fairly and accurately reflects
the law and covers the issues presented in the case". Id.
"[W]here the contention is that the district court has refused to
give an instruction, we determine whether the requested
instruction: (1) is a correct statement of the law; (2) was
defendant". United States v. Outler, 659 F.2d 1306, 1309 n.3 (5th
Cir. 1981), cert. denied, 455 U.S. 950 (1982). Section 1954 is not
one of those "rare instances [where] an exception can be so
necessary to a true definition of the offense that the elements of
the crime are not fully stated without the exception". Id. at
1310; see also Sutton v. United States, 157 F.2d 661, 665-66 (5th
Cir. 1946) ("In an indictment ..., it is not necessary to negative
the matter of an exception made by a proviso or other distinct
clause in the statute, whether in the same section or elsewhere;
but, if the exception itself is incorporated in the definition of
the offense so that the elements of the crime are not fully stated
without the exception, then it must be negatived".) (footnote
omitted).
- 18 -
substantially given in the charge as a whole; and (3) concerns an
important point in the trial, the omission of which seriously
impaired the defendant's ability to present a given defense
effectively". Id.
1.
As noted, the district court gave the Government's requested
instruction on § 1954's exception. After stating the language from
§ 1954, to include the exception, it provided in part that
bona fide salary, compensation or other payments
means that the salary, compensation or other
payments w[ere] received in good faith, exclusive
of fraud or deceit. An administrator, officer,
trustee, custodian, counsel, agent or employee of
such plan, employer, employee organization or
organization providing benefit plan services to
such plan must disclose the salary or compensation,
that he is receiving, to qualify for the bona fide
compensation exception.25
This portion of the instruction was based on United States v.
Schwimmer, 924 F.2d 443 (2d Cir.), cert. denied, ___ U.S. ___, 112
S. Ct. 55 (1991). The defendant in Schwimmer was an investment
advisor to pension plan trustees, and was convicted of violating §
1954 for failing to report commissions from financial institutions
for the placement of plan funds. Id. at 447-48. The jury charge
in Schwimmer defined "`bona fide' to mean `in good faith or without
deceit or fraud'"; and, in response to a jury request for
clarification, it was instructed "that a fiduciary must disclose
the actual commission he is charging in order to qualify for the
25
As noted, the language of the exception preceded this part of
the instruction. It was read to the jury twice: with respect to
count two and to count three (the § 1954 substantive charges).
- 19 -
bona fide compensation exception". Id. at 448. The Second
Circuit, rejecting Schwimmer's challenge to the instruction,
stated:
"Bona fide" literally means in good faith,
exclusive of fraud or deceit. It cannot be said
that one who receives a commission from a financial
institution for placing employee benefit plan
funds, without disclosing to the plan the actual
commissions received, is acting in good faith ....
Because [§] 1954 uses broad language to protect
plan beneficiaries from dishonest or unfaithful
fiduciaries, it seems clear that the statute was
meant to reach Schwimmer's intentional failure to
inform the trustees ... that he was extracting a
commission from the placement of their investments.
Id.
As noted, McCord does not contend that the instruction
erroneously defined "bona fide"; nor does he contend specifically
that it was error to instruct that good faith requires disclosure.
Instead, he asserts that the instruction based on Schwimmer is
inapplicable because he received the 35,717 shares from Haley,
through Leisure Valley, as compensation for his past services at
ABC, not as compensation for his services on behalf of the ESOP,
unlike the defendant in Schwimmer, whose commissions were directly
related to his activities for the pension plan.
First, the jury was instructed on McCord's theory of defense.
Second, McCord's position is based on an erroneous interpretation
of the exception. As discussed, compensation paid to or received
by a trustee because of his actions or decisions with respect to
the plan that are not performed in the regular course of his duties
is not "bona fide" within the meaning of § 1954. Therefore, McCord
- 20 -
has not demonstrated that the district court abused its discretion
through its exception instruction.
2.
The district court refused to instruct the jury on Haley's
defensive theory -- that he complied with all of the laws governing
ESOPs, and that he sold the stock to McCord at a discount as
compensation for his services at ABC. Because the indictment
contained references to ERISA and terms defined by it, Haley's
requested instructions sought to submit other portions of ERISA "so
that the jury could understand `the rest of the story'". Haley
requested that the jury be instructed (1) that § 1954 does not
prohibit the payment of bona fide compensation to a bank employee
for services actually performed; (2) on the fiduciary duties of an
ESOP trustee under ERISA; (3) that, under ERISA, an ESOP trustee
has no duty to inform shareholders of a proposed stock purchase by
the ESOP; (4) on the good faith provision of ERISA; and (5) on a
summary of conduct permitted and prohibited by ERISA. He maintains
that the charge, which contained instructions on the bona fide
compensation exception for the substantive violations of § 1954
charged in counts two and three, but did not contain them with
respect to the conspiracy charged in count one, misled the jurors
to believe that they could not apply the exception to that count.
He maintains that, because the charge on the conspiracy count
lacked both the statutory exception and the instructions explaining
the relevant portions of ERISA, the jury lacked any information
about his theory of defense on the conspiracy count.
- 21 -
We disagree. As noted, the jury was instructed twice on the
exception (for counts two and three). Considering the instructions
as a whole, there is no basis for Haley's assumption that the jury
was misled to believe that the exception was inapplicable to the
conspiracy charge. And, Haley was charged with a criminal
conspiracy to violate § 1954; he was not charged with civil
violations of ERISA. The requested instructions, pertaining to
civil violations of ERISA, do not constitute a legally sufficient
defense to the conspiracy charge. See United States v. Hammons,
566 F.2d 1301, 1303-04 (5th Cir.), vacated on other grounds, 439
U.S. 810 (1978) (because facts of case did not demonstrate a legal
defense to the crime charged, trial court did not err in refusing
to instruct the jury on defendant's defense). Accordingly, the
district court did not abuse its discretion in denying Haley's
requested instructions.
3.
Haley maintains that the instruction on the elements of
conspiracy, by including the words "or either of them", erroneously
allowed the jury to convict him without requiring it to find that
he had the requisite intent to be a conspirator. The instruction
provided in part:
[Section 371] makes it a crime for anyone to
conspire with someone else to commit an offense
against the laws of the United States.
....
A conspiracy is an agreement between two or
more persons to join together to accomplish some
unlawful purpose. It is a kind of partnership in
crime in which each member becomes the agent of
- 22 -
every other member. For you to find the
defendants, or either of them, guilty of these
crimes, you must be convinced that the government
has proved each of the following beyond a
reasonable doubt.
First that two or more persons made an
agreement to commit the crime of [violating § 1954]
....
Second, that the defendants, or either of
them, knew the unlawful purpose of these agreements
and joined in it willfully, that is, with the
intent to further the illegal purpose.
And, third, that one of the conspirators,
during the existence of the conspiracy, knowingly
committed at least one of the overt acts described
in the indictment in order to accomplish some
object or purpose of the conspiracy.
(Emphasis added.)
Haley takes the words "or either of them" out of context.
That language, used for the second element of conspiracy, merely
mirrors the preceding language used for the definition of
conspiracy. It informed the jury that a finding of guilt as to one
of the defendants did not require a finding of guilt as to the
other.
In any event, "the presence of an imprecise or misleading
statement within the jury instruction does not by itself entitle
defendants to a reversal. Reversible error exists only if the jury
charge, considered as a whole, misled the jury as to the elements
of the offense". United States v. Kington, 875 F.2d 1091, 1098
(5th Cir. 1989). Even assuming that the challenged language was
misleading, the charge, considered as a whole, would not have
- 23 -
permitted the jury to convict Haley unless it found that he had the
requisite knowledge and intent to join the conspiracy.26
C.
In addition to challenging the sufficiency of the evidence for
conspiracy, McCord contests it for his convictions for false
entries, misapplication of funds, unlawful participation, and
filing a false tax return. In this and the next three parts, we
deal with those claims. Again, they present a classic example of
why our review of a jury verdict is most narrow.
Concerning an air conditioner, McCord was convicted for
making, or causing to be made, false entries in ABC's records, in
violation of 18 U.S.C. § 1005. The Government had to prove that:
"(1) an entry made in bank records is false; (2) [McCord] made the
entry or caused it to be made; (3) [he] knew the entry was false at
the time he ... made it; and (4) [he] intended that the entry
injure or defraud the bank or public officers". United States v.
Chaney, 964 F.2d at 448.27 "The government need not prove intent
to cause the bank injury; all that is required is that the
26
Obviously, not having found error with respect to any of
Haley's contentions, we reject his assertion that the cumulative
effect of multiple errors requires reversal of his conviction.
27
In relevant part, 18 U.S.C. § 1005 makes it a crime to
make[] any false entry in any book, report, or
statement of such bank, ... with intent to injure
or defraud such bank, ... or to deceive any officer
of such bank, ... or the Comptroller of the
Currency, or the Federal Deposit Insurance
Corporation, or any agent or examiner appointed to
examine the affairs of such bank, ... or the Board
of Governors of the Federal Reserve System ....
- 24 -
defendant intended to defraud one or more of the bank's officers,
auditors, examiners, or agents". Id. at 449.
Control Temp installed two air conditioning units at McCord's
residence in late 1987. In mid-1989, he told Dan Peterson with
Control Temp that one of the units was defective; and Peterson
replied that he would replace it when the renovations on McCord's
home were completed. They were completed that June.
In August 1989 there was a potential tenant for a house owned
by ABC, but it was missing an air conditioner. Therefore, McCord
asked Control Temp to provide a unit. Peterson testified that
McCord asked him what it would cost to install at ABC's house a
unit from McCord's residence and to install a new unit at his
residence; that he gave McCord the price; that "we did it"; and
that McCord told him to "send the bill to the bank".
ABC received an invoice from Control Temp for $2,950.87.
Peterson testified that the price included removing the unit from
McCord's residence, installing it at ABC's house, and installing a
new unit at McCord's residence.28 Of critical importance, Peterson
testified further that, if he had not had to make the "change-out"
from McCord's residence, he would have charged $300-400 less to
install a new unit at ABC's house.
The invoice does not reflect, however, that a new unit was
installed; it simply states, "installed 2.0 ton Janitrol heat
pump", and lists the installation address as that of the ABC house.
28
It is clear from Peterson's testimony and the amount of the
invoice that part of that amount was for the purchase of a new
unit.
- 25 -
Sylvia Owens, ABC's vice president, who was responsible for the
"other real estate owned" property files, testified that the
invoice caused her to believe that a new unit had been installed at
ABC's house. There was proof that the used unit at McCord's home
was worth less than the new unit substituted for it.
1.
McCord maintains that the entries were literally true. "[A]n
entry cannot be `false' within the meaning of [§ 1005] when it
correctly reflects the transaction and was so intended." United
States v. Hughes, 726 F.2d 170, 172 (5th Cir. 1984) (internal
quotation marks and citation omitted). But, "[t]he omission of
material information, as well as actual misstatements, qualifies as
a false entry under 18 U.S.C. § 1005". Chaney, 964 F.2d at 450
n.39.
Obviously, the evidence is more than sufficient to prove that
McCord made a false entry through a material omission, by
concealing that ABC was paying for both a new unit at his residence
and the installation of his used unit at ABC's house. Neither the
invoice nor ABC's books and records reflect that McCord's used
unit, worth less than a new unit, was installed at ABC's house, or
that a new unit was installed at McCord's residence, or that the
invoice was greater because of the cost of the work in changing out
the units. As a result, ABC's books did not accurately reflect the
bank's condition.
- 26 -
2.
Claiming that the Government failed to prove that he approved
the invoice for payment, McCord contends that the evidence was
therefore insufficient to prove that he "made or caused to be made"
the entries.
The invoice has notations by Sheila Cadena, an ABC officer,
indicating that entries of $1,634.06 and $1,316.81 were to be made
in ABC's "other real estate owned" expense and asset accounts,
respectively, totaling $2,950.87 (the amount of the invoice); and
the Government introduced evidence that the two entries were made
on ABC's books. Cadena testified that "[t]hose account numbers
would have come from Sylvia Owens or Mr. McCord[,] I can't remember
which one"; nor could she recall who made the entries in ABC's
records. And, McCord testified that he did not recall giving
instructions as to the amounts to be entered on the account
records.
Owens testified that she had the authority to approve bills
for payment and frequently did so, but that she was on vacation
when the unit was installed and the bill paid. McCord testified
that he saw the invoice for the first time during trial
preparation; that he always placed his initials on an invoice when
approving it for payment; that his initials do not appear on the
invoice; that any bank officer (Owens, Cadena, Joe Nieto, or
himself) had the authority to approve bills for payment; and that,
had he seen the invoice, he probably would have authorized payment
- 27 -
because it was "exactly correct", and he saw no problem with
handling the transaction that way.29
Cadena testified, however, that, when ABC received the
invoice, she placed it in the accounts payable folder and gave the
folder to McCord for approval by placing it on his desk. A copy of
the cancelled check was introduced into evidence, reflecting that
the invoice was paid.
In sum, the evidence was sufficient for the jury to find that
McCord caused the entries to be made.
D.
Again concerning the air conditioner, McCord asserts that the
Government failed to prove that he willfully misapplied bank funds,
in violation of 18 U.S.C. § 656, because there was no evidence that
he acted with the intent to defraud or injure the bank. This is
one of the several elements of proof. United States v. Kington,
875 F.2d 1091, 1100 (5th Cir. 1989).30
As discussed, there was sufficient evidence for the jury to
find that McCord intended to defraud ABC by having a used unit from
his home installed at ABC's house and a new unit installed at his
29
McCord testified that he believed that Peterson was replacing
the unit at his house under warranty, and that had a bill been
submitted to him for the work done at his house, he would have paid
it.
30
18 U.S.C. § 656 makes it a crime for
an officer, director, agent or employee of, or
connected in any capacity with any ... insured bank
... [to] willfully misappl[y] any of the moneys,
funds or credits of such bank ....
- 28 -
home, telling the installer to "send the bill to the bank", and
approving the invoice for payment.
E.
For a second violation of § 1005, McCord was convicted for
unlawfully receiving $17,000 of the proceeds of a $45,000 loan from
ABC to his brother-in-law, Scott Finney. Under that section, it is
also unlawful to receive, directly or indirectly, any money or
other benefit through any transaction or other act of a financial
institution, with intent to defraud the institution.31 Among other
things, the jury was instructed that a § 1005 violation required
proof that McCord received money directly or indirectly through a
loan from ABC, and did so with the intent to defraud ABC. A B C
financed Finney's subcontracts at an air base; but when Finney
approached McCord about borrowing $45,000 from ABC, because he had
underbid his first jobs, McCord refused the loan. Finney then
asked McCord to personally loan the money; and McCord did so in the
amount of $22,000, drawing on his $25,000 line of credit at ABC.
31
Section 1005 provides, in relevant part:
Whoever with intent to defraud the United
States or any agency thereof, or any financial
institution ... participates or shares in or
receives (directly or indirectly) any money,
profit, property, or benefits through any
transaction, loan, commission, contract, or any
other act of any such financial institution--
Shall be fined not more than $1,000,000 or
imprisoned not more than 30 years, or both.
18 U.S.C. § 1005.
- 29 -
Later, Finney received a $45,000 loan from ABC, with Owens
listed as the loan officer. The application stated that the loan's
purpose was "renewal of loans originally for wedding expenses and
to purchase inventory. New proceeds are to fund contract".32 From
the loan proceeds, $42,668.78 was deposited into the account of
Finney's company; from that account, $17,000 was then transferred
to Finney's personal account; Finney then transferred $17,000 to
McCord's account; and McCord used those funds to reduce his
indebtedness on his line of credit at ABC. Ultimately, the loan
was charged off, without Finney having made any payments on it.
1.
McCord contends, without citation to authority, that § 1005,
like 18 U.S.C. § 656 (misapplication of funds), requires proof of
a causal connection between the defendant's status as an officer
and the making of the loan. See United States v. McCright, 821
F.2d 226, 230 (5th Cir. 1987), cert. denied, 484 U.S. 1005 (1988)
(§ 656 requires proof that defendant, through his position at bank,
authorized or caused loan to be authorized). Accordingly, he
maintains that the Government was required "to prove that [he] was
the loan officer who caused the $45,000 line of credit to ...
Finney to be authorized".
We need not address whether § 1005 requires such proof,
because McCord neither requested an instruction on that element,
nor objected to the charge, which did not include that element.
32
ABC had loaned Finney $8,000 to purchase inventory and $3,000
for wedding expenses.
- 30 -
Because McCord failed to object, as required by Fed. R. Crim. P.
30, we review this issue only for plain error. See United States
v. Rodriguez, 15 F.3d 408, 414-17 (5th Cir. 1994). We need not
determine under the plain error analysis whether there was error,
or, if error, whether it was "plain", because, even assuming both,
we would decline to exercise our discretion to correct it, in that
McCord's substantial rights were not affected. There was evidence
that McCord caused the loan to be authorized. Owens testified that
she was Finney's "per se loan officer", but that McCord
participated in, and influenced, her decisions regarding approval
of Finney's loans. And Sandra Maldonado, an ABC employee when the
loan was made, testified that, pursuant to McCord's instructions,
she prepared the loan worksheet for the $45,000 loan to Finney.
2.
Contending that the Government failed to prove that he acted
with intent to injure or defraud ABC by receiving the $17,000,
McCord points out that Finney was current on all loans at ABC when
the loan was made and had never been in default. Nevertheless, the
loan application does not reflect that $17,000 of the proceeds were
for McCord rather than for the stated purposes. There was
sufficient evidence for the jury to find that McCord acted with the
requisite intent.
F.
McCord was convicted for subscribing a false tax return under
penalty of perjury, in violation of 26 U.S.C. § 7206(1). A §
7206(1) violation is established by proof that (1) the defendant
- 31 -
willfully made and subscribed to a return; (2) the return contained
a written declaration that it was made under penalties of perjury;
and (3) the defendant did not believe that the return was true as
to every material matter. United States v. Wilson, 887 F.2d 69, 72
(5th Cir. 1989).
IRS Special Agent Lange testified that McCord reported taxable
income of $29,251 for 1988, but failed to report approximately
$83,181, consisting of (1) a capital gain of $2,550 from the sale
of 3,000 shares of ABC stock purchased from Leisure Valley for
$1.15 per share and sold to the Alleys for $2.00 per share;33 (2)
a capital gain of $41,371 from the sale of 34,477 shares of ABC
stock purchased from Leisure Valley for $1.15 per share and sold to
the ESOP for $2.35 per share; and (3) other income of $39,260,
consisting of the difference between the purchase price of $1.15
per share and the value of $2.35 per share for the 35,717 shares of
ABC stock transferred to McCord by Leisure Valley.34
33
McCord testified that he discovered the sale to the Alleys
when preparing for trial, and admitted that he made a mistake by
not including it on his tax return. As noted infra, he asserts
that, because the amount was not substantial, this omission, alone,
is not violative of § 7206(1).
34
As stated, McCord claims that he paid for the 34,477 shares,
and received the 35,717 shares as a gift from Haley; Haley, that to
reward McCord, he sold him all 70,194 shares at a discount ($1.15
per share). As also noted, on its income tax return, Leisure
Valley reported the transfer of all 70,194 shares as a sale. Lange
testified that, assuming McCord had purchased the 34,477 shares for
$2.35 per share and had paid nothing for the 35,717 shares
(McCord's claim), there would have been no taxable gain on the sale
of the 34,477 shares to the ESOP (sold for same price as
purchased); but, with respect to the 35,717 shares (if not
considered a gift), there would have been a $6,000 gain on the
3,000 shares sold to the Alleys for $2.00 a share, and a $76,884
gain on the remaining 32,717 shares. Lange testified that, viewing
- 32 -
McCord contends that the evidence was insufficient to prove
that his income "was substantially in excess" of that reported,
asserting that the 35,717 shares from Leisure Valley were a non-
taxable gift and "could not logically be considered to be
compensation" because he was not employed by Leisure Valley35; that
there was no gain on the 34,477 shares he sold to the ESOP, because
he sold them for the price he paid for them; and that the
unreported gain from the sale of 3,000 shares of stock to the
Alleys is not substantial.36 McCord contends that the only rational
explanation for his wife's acquittal on the tax charge, despite
proof that she wrote the check to Leisure Valley to purchase the
stock, is that the jury concluded that the 35,717 shares were a
nontaxable gift.
But, McCord overlooks his testimony that his wife had nothing
to do with the preparation of the tax return and that he accepted
full responsibility for its contents. Because that testimony
the transaction in this manner, the effect on the tax owed would be
nearly the same as if all of the shares were purchased by McCord at
$1.15 per share.
35
With regard to the earlier discussed "bona fide compensation"
exception under § 1954, McCord's position on the tax charge may, at
first glance, seem inconsistent, because on the one hand, with
respect to the conspiracy charge, he claims that the 35,717 shares
received from Leisure Valley fall under that exception for his past
services at ABC; but, on the other hand, with respect to the tax
charge, he claims that they were a gift, maintaining that they
cannot be considered compensation because he was not employed by
Leisure Valley. The positions are not inconsistent; as discussed
supra, the exception includes not only salary and compensation, but
also "other payments made".
36
McCord calculates this gain as $3,000, using the donor's
(Leisure Valley's) basis of $1.00 per share and the sale price of
$2.00 per share.
- 33 -
provides an equally rational explanation for his wife's acquittal,
we refuse to speculate that the jury might have acquitted her
because it believed the 35,717 shares were a gift.
Moreover, there was overwhelming evidence that the 35,717
shares were taxable compensation. Agent Lange testified that a
"true gift" is not included in income, but that, if given as a
reward, compensation, perk, or fringe benefit, rather than out of
charity and kindness, with no disinterested or detached generosity
involved, "it may be called a gift, but it is compensation for
services. And compensation for services is always taxable". She
testified further that the relationship of the parties plays a
significant role in determining whether something is a gift; that
property given to a person by or for or on behalf of an employer
cannot be excluded from income; that gifts, in amounts greater than
$25, are not deductible on corporate tax returns; that, on its 1988
tax return, Leisure Valley reported the transfer of all 70,194
shares to McCord as a sale at $1.15 per share; and that, based on
her examination of Leisure Valley's return, it did not appear that
the transfer of 35,717 shares was a gift.
McCord testified that he received the ABC stock from Haley,
through Leisure Valley, because Haley knew that he did not "earn a
salary that was exorbitant" and that he had worked "late hours",
and recognized that, as a result of his efforts, he "had made the
stock go up in value"; that Haley gave him the shares because
Haley's "stock had increased [in value] due to ... my work in the
bank ... and he was giving me a gift". Similarly, McCord states in
- 34 -
his brief that the "35,717 shares of stock was a gift made by Mr.
Haley through Leisure Valley, Inc. as a reward for Mr. McCord's
past services at [ABC]". (Emphasis added.)
Likewise, bank examiner Robinson testified that McCord told
her that the stock was "for his services at the bank" and that it
"was Mr. Haley's way of compensating him" because "he had done a
good job at the bank". FBI Agent Alaniz testified that Haley
stated in an interview that he "wanted to reward Mr. McCord for
doing an outstanding job with the bank"; and that McCord stated in
an interview that the stock transferred to him from Leisure Valley
was a gift "to reward him for the hard work, [that] he had done,
during the years when the bank was struggling to be turned around".
The Government sustained its burden of proving that the 35,717
shares constituted taxable compensation rather than a nontaxable
gift. Accordingly, McCord's income for 1988 was substantially in
excess of that reported.
G.
Haley asserts that the district court abused its discretion by
denying his motions for severance, maintaining that he was
prejudiced by the spillover effect of overwhelming evidence of
McCord's dishonesty on counts unrelated to the ESOP conspiracy.
The foregoing review, in numbing detail, of the evidence underlying
the charges against Haley, and the more numerous charges against
McCord, provides a good backdrop for reviewing this contention. In
the light of McCord's actions for which he was convicted, it is
- 35 -
most understandable why Haley sought a severance. But, more is
required.
Rule 8(a) of the Federal Rules of Criminal Procedure
authorizes joinder of offenses which are "of the same or similar
character or are based on the same act or transaction or on two or
more acts or transactions connected together or constituting parts
of a common scheme or plan". Fed. R. Crim. P. 8(a). And, Rule
8(b) provides for the joinder of defendants in the same indictment
"if they are alleged to have participated in the same act or
transaction or in the same series of acts or transactions
constituting an offense or offenses". Fed. R. Crim. P. 8(b).
"[D]efendants may be charged in one or more counts together or
separately and all of the defendants need not be charged in each
count". Id. The conspiracy and substantive offenses charged in
counts one-three against McCord and Haley were based on the same
transaction -- the transfer of stock from Haley to McCord because
of McCord's position as an ESOP trustee. Accordingly, joinder was
proper under Rule 8.
On the other hand, Rule 14 offers relief from prejudicial
joinder; it states, in pertinent part:
If it appears that a defendant ... is
prejudiced by a joinder of offenses or of
defendants in an indictment ... or by such joinder
for trial together, the court may order an election
or separate trials of counts, grant a severance of
defendants or provide whatever other relief justice
requires ....
Fed. R. Crim. P. 14. "If joinder is proper in the first instance
under Rule 8, the denial of a motion for severance is reviewable
- 36 -
only for an abuse of discretion". United States v. Faulkner, 17
F.3d 745, 758 (5th Cir. 1994).
Generally, "persons who are indicted together should be tried
together". United States v. Arzola-Amaya, 867 F.2d 1504, 1516 (5th
Cir.), cert. denied, 493 U.S. 933 (1989). It goes without saying
that this is especially true when the defendants are charged with
the same conspiracy. United States v. McGuire, 608 F.2d 1028, 1031
(5th Cir. 1979), cert. denied, 446 U.S. 910 (1980). A "[s]everance
under [Rule] 14 is an appropriate remedy for a disparity in the
evidence only in the most extreme cases". United States v.
Harrelson, 754 F.2d 1153, 1175 (5th Cir.) (brackets in original;
internal quotation marks and citation omitted), cert. denied, 474
U.S. 908, 1034 (1985). Along that same line, "the mere presence of
a spillover effect does not ordinarily warrant severance".
Faulkner, 17 F.3d at 759 (internal quotation marks and citation
omitted). To demonstrate an abuse of discretion, Haley "must show
that: (1) the joint trial prejudiced him to such an extent that
the district court could not provide adequate protection; and (2)
the prejudice outweighed the government's interest in economy of
judicial administration". United States v. DeVarona, 872 F.2d 114,
120-21 (5th Cir. 1989). Haley must demonstrate "specific and
compelling prejudice". Faulkner, 17 F.3d at 759 (internal
quotation marks and citation omitted). He has not done so.
During both voir dire and trial, and in its charge, the court
instructed the jury to consider separately the charges against each
defendant. See Faulkner, 17 F.3d at 759 (noting that "[s]imilar
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instructions have been held sufficient to cure any possibility of
prejudice"); Arzola-Amaya, 867 F.2d at 1516 (instruction to
"consider each offense separately and each defendant individually
... sufficiently enabled the jury to `compartmentalize' such
evidence and prevent any `spillover' from tainting another
appellant's case"). Furthermore, the physical evidence was
designated so that the jury could easily sort that pertaining to
each of the counts and each of the defendants.37
Finally, the acquittal of each of the defendants on at least
one count reflects that the jury was able to sort and consider
separately the evidence applicable to each of the counts and each
of the defendants. See Faulkner, 17 F.3d at 759 (fact that "each
appellant was acquitted on one or more counts ... supports the
inference that the jury considered separately the evidence as to
each defendant and each count"). The district court did not abuse
its discretion in denying a severance.
H.
The Government concedes that the ex post facto clause, U.S.
Const. art. I, § 9, prohibits McCord's prosecution for money
laundering, because 18 U.S.C. § 1005, which he violated by making
the $17,000 deposit from the proceeds of the $45,000 ABC loan to
Finney on February 28, 1990, did not become a specified unlawful
activity under the money laundering statute, 18 U.S.C. §
37
The exhibit numbers relating to the ESOP were preceded by "E",
the tax exhibits by "T", the air conditioner exhibits by "A", the
bribery exhibits by "B" (as noted, McCord was acquitted of
soliciting kickbacks), and the Finney loan exhibits by "M".
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1956(c)(7), until nine months later, November 29, 1990.
Accordingly, we reverse McCord's conviction on that charge.
I.
McCord challenges four aspects of his sentence: calculation of
the amount of tax loss; increases in his offense level for both
abuse of a position of trust and more than minimal planning; and
denial of a reduction for acceptance of responsibility. "We will
uphold a sentence imposed under the Sentencing Guidelines so long
as it is the result of a correct application of the Guidelines to
factual findings which are not clearly erroneous". United States
v. Mora, 994 F.2d 1129, 1141 (5th Cir.), cert. denied, ___ U.S.
___, 114 S. Ct. 417 (1993).
1.
McCord contends that, for calculating his sentence on the tax
count, the amount of tax loss should have been based only on his
omission of the gain from the sale of 3,000 shares of ABC stock to
the Alleys. As discussed, he maintains that the only rational
explanation for his wife's acquittal on the tax count, and his and
Haley's acquittals for substantive violations of § 1954, is that
the jury concluded that the 35,717 shares were a nontaxable gift.38
We review the district court's amount of tax loss finding only
for clear error. See United States v. Charroux, 3 F.3d 827, 838
(5th Cir. 1993). Guideline § 2T1.3 is applicable to violations of
38
Obviously, our rejections of McCord's sufficiency of the
evidence challenges on his conspiracy and tax convictions fly in
the face of this contention and arguably render it unnecessary to
address this issue.
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26 U.S.C. § 7206(1), and provides in part that "the `tax loss' is
28 percent of the amount by which the greater of gross income and
taxable income was understated". U.S.S.G. § 2T1.3(1).
The probation officer calculated the loss as $23,290.92 (28%
of unreported income of $83,181.85). In finding the same amount of
unreported income, the district court implicitly found that the
35,717 shares were not a gift. As discussed supra, there is ample
evidence to support this finding; it is not clearly erroneous.
2.
The Guidelines provide for a two-level increase in the offense
level "[i]f the defendant abused a position of public or private
trust, or used a special skill, in a manner that significantly
facilitated the commission or concealment of the offense".
U.S.S.G. § 3B1.3. The commentary provides that "[t]he position of
trust must have contributed in some substantial way to facilitating
the crime and not merely have provided an opportunity that could as
easily have been afforded to other persons". Id., comment. (n.1).
"The application of § 3B1.3 is a sophisticated factual
determination reviewed under the clearly erroneous standard".
United States v. Fisher, 7 F.3d 69, 70 (5th Cir. 1993).
McCord challenges this increase, asserting that his position
as bank president did not facilitate the misapplication of funds
for the air conditioner, and there was no evidence that he approved
the invoice, instructed anyone to pay it, or signed the check.39
39
The district court found that McCord abused his position of
trust not only as to the air conditioner counts (false entries and
misapplication of funds), but also as to his participation in the
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But, he does not dispute that he occupied a position of trust.
And, that position significantly facilitated his ability to arrange
for ABC funds to be used for the installation of a new unit at his
house, and to arrange for false entries to be placed on ABC's
books. As discussed supra, there was evidence that the invoice was
placed on McCord's desk for approval, and paid by ABC. The
district court did not clearly err.
3.
"If the offense involved (A) more than minimal planning", the
Guidelines provide for a two-level increase in the offense level.
U.S.S.G. § 2F1.1(b)(2). For the offenses involving the air
conditioner (false entries and misapplication of funds), McCord
challenges this increase.
The Guidelines define "[m]ore than minimal planning" as "more
planning than is typical for commission of the offense in a simple
form". U.S.S.G. § 1B1.1, comment. (n.1(f)). "`More than minimal
planning' also exists if significant affirmative steps were taken
to conceal the offense". Id. "Whether ... a defendant engages in
proceeds of the $45,000 loan to Finney. McCord does not challenge
the position of trust adjustment as to the latter. Arguably, if
not obviously, the ruling on the Finney loan, alone, would be
sufficient to impose the increase. But, because we cannot say with
certainty that the abuse of trust ruling on the air conditioner
counts, even if erroneous, would be harmless error in light of the
similar ruling on the Finney loan, we must address the challenged
ruling. See Williams v. United States, ___ U.S. ___, 112 S. Ct.
1112, 1121 (1992) (remand not required "[i]f the party defending
the sentence persuades the court of appeals that the district court
would have imposed the same sentence absent the erroneous factor").
Among other things, the Government does not claim harmless error,
even though it notes that "[i]t does not appear that ... McCord
disputes the position of trust adjustment made as to count eight
[Finney loan]."
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more than minimal planning is a fact question reviewed under the
clearly erroneous standard". United States v. Barndt, 913 F.2d
201, 204 (5th Cir. 1990).
As discussed, McCord arranged to have ABC pay for the
installation of a new unit at his residence, and to have the used
unit from his residence installed at ABC's house. He took steps to
conceal the offense by causing false entries to be made on ABC's
books. The district court did not clearly err in finding that the
execution of this scheme involved more than minimal planning.
4.
The Guidelines provide for a two-level decrease in the offense
level of a defendant who "clearly demonstrates acceptance of
responsibility for his offense". U.S.S.G. § 3E1.1(a). McCord
maintains that he was entitled to this reduction because he
truthfully told the FBI about his conduct, voluntarily surrendered
to authorities after being charged, and voluntarily resigned as
president of ABC.
The Guidelines' commentary provides that, in determining
whether a defendant qualifies for the reduction, the court may
consider factors such as those urged by McCord. U.S.S.G. § 3E1.1,
comment. (n.1). But the adjustment "is not intended to apply to a
defendant who puts the government to its burden of proof at trial
by denying the essential factual elements of guilt" except in those
"rare situations" in which the defendant "exercises his
constitutional right to a trial ... to assert and preserve issues
that do not relate to factual guilt (e.g., to make a constitutional
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challenge to a statute or a challenge to the applicability of a
statute to his conduct)". U.S.S.G. § 3E1.1, comment. (n.2). Our
standard of review "is more deferential than the clearly erroneous
standard". United States v. Burian, 19 F.3d 188, 192 (5th Cir.
1994).
McCord put the Government to its burden of proof at trial, and
did not admit the essential factual elements of guilt. As one of
his witnesses at the sentencing hearing testified, McCord "has
never, to this minute, admitted he willfully did anything wrong".
The district court did not err in refusing the reduction.
III.
For the foregoing reasons, the judgment against Haley is
AFFIRMED; the judgment against McCord is AFFIRMED, except for his
money laundering conviction, which is REVERSED, resulting in his
sentence being VACATED, and his case REMANDED for resentencing
consistent with this opinion.
AFFIRMED IN PART; REVERSED, VACATED, and REMANDED IN PART
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