IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 94-50182
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
versus
HAL PETTIGREW, CRAIG WALKER,
and CHAD POWELL,
Defendants-Appellants.
* * * * * * * * * * * * * * * * * * * * *
Consolidated with
No. 94-50183
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
versus
GEORGE MONTAGUE,
Defendant-Appellant.
Appeals from the United States District Court for the
Western District of Texas
March 11, 1996
Before WISDOM, GARWOOD and JONES, Circuit Judges.
GARWOOD, Circuit Judge:
Defendants-appellants Hal Pettigrew (Pettigrew), Chad Powell
(Powell), George Montague (Montague), and Craig Walker (Walker)
appeal their convictions for alleged criminal activities relating
to their dealings with Victoria Savings Association (VSA). We
affirm in part, reverse in part, and in part reverse and remand for
a new trial, as well as partially remanding for resentencing.
Facts and Proceedings Below
During 1986, Pettigrew engaged in three real estate
transactions involving VSA that later became the subject of the
present indictment. In each of these transactions, Pettigrew would
purchase property on the open market which he would then sell to
third party buyers who received financing for the purchase through
VSA. The loans made by VSA to the third party purchasers were
allegedly over funded, with the excess profits being disguised
through the use of sham liens on the properties. Pettigrew would
then use these excess funds to purchase "real estate owned" (REO)
that VSA had acquired through foreclosure, thereby allowing VSA to
remove those properties from its books without suffering any loss
due to depressed real estate values. The first of these
transactions, referred to as the "Irving/River Run" transaction,
occurred in November 1986. William Snider (Snider), acting as
trustee for Llano Land Services (Llano Land), a Pettigrew-
controlled company, purchased approximately 55 acres of land
2
located in Irving, Texas, for $6.5 million. Later the same day,
Snider sold the property to Linus Baer and Carl Bohn, buyers
allegedly located by VSA chairman Rupert Hays (Hays) and Powell,
for $12,000,020. The approximately $5.5 million profit on the sale
was disguised by placing a $5 million sham lien on the property in
favor of Loch P. Lomond Production Company (Loch P. Lomond),
another Pettigrew-controlled entity. Llano Land then used the $5
million to purchase the River Run Condominiums from VSA, removing
them from VSA's inventory of REO. Upon the advice of attorney Ray
Williamson (Williamson), Pettigrew sent a letter to VSA purporting
to detail the terms of the transaction.
The next transaction, known as "McPherson Park/Luck Field,"
was similar in its details to the Irving/River Run deal. In
December 1986, Donald Johnson, acting as trustee for Crown Oaks
Employee Profit Savings Trust (COEPST), another Pettigrew entity,
purchased Luck Field for approximately $4.8 million. In January
1987, COEPST sold the Luck Field property to McPherson Park, Ltd.
(McPherson Park), a buyer selected by VSA, for approximately $12.5
million financed by VSA. Again, a sham lien for $10 million was
placed on the property in favor of Midwest Credit Company (Midwest
Credit). Following the closing, $6,100,000 was placed in
certificates of deposit held by VSA. Montague sent a letter to
Hays at VSA purporting to disclose the terms of the transaction.
The third transaction, known as "Cottonwood/White's Branch,"
began with the purchase of 205 acres of land for $4,150,000 by
Craig Walker (Walker) through his Cottonwood Capital Corporation
3
(CCC), acting as trustee for Pettigrew. The property was sold one
week later to White's Branch, Inc. for approximately $6.9 million,
financed in part by a $3,100,000 loan from VSA. A lien in favor of
Rand Financial Corporation (Rand) was placed on the property for
$2.5 million. Once again, Montague sent a letter to Hays
purportedly setting forth the terms of the transaction.
Approximately $1 million in profits from the McPherson Park/Luck
Field and Cottonwood/White's Branch transactions were used to make
"commission payments" to one H.E. Preble through an account at VSA
which funds were ultimately used to pay delinquent interest on a
note held by VSA.
Although the offenses for which the appellants were convicted
relate predominantly to the three transactions described above,
three additional real estate transactions are relevant to Powell’s
convictions. During the fall of 1986, R. Mark Pitzer (Pitzer) and
Ronnie E. Collins (Collins) approached Hays and Powell at VSA
seeking refinancing of notes held on a property referred to as
“Barthold Road.” VSA allegedly conditioned the refinancing on
Pitzer and Collins’ agreement to purchase two pieces of VSA’s REO,
the Cheyenne Plaza Shopping Center (Cheyenne Plaza) and Frankfort
Square Shopping Center (Frankford Square), using $800,000 in excess
funds to be included in the Barthold Road loan. Attorney J. Mark
Hesse (Hesse), Pitzer and Collins’ attorney, acted as a third party
purchaser of the properties acting through his company, Proformance
Incorporated (Proformance), using the excess funds from the
Barthold Road loan to make the downpayments. Hesse additionally
4
received “bottom” fifty percent liability on the Cheyenne Plaza and
Frankford Square notes. VSA also allegedly agreed to include an
additional $700,000 in the Barthold Road loan to secure the
cooperation of Pitzer and Collins. Powell was allegedly aware of
the structure of the transaction, yet signed loan committee
applications that failed to disclose that the purpose of the loan
was to finance the purchase of REO from VSA.
A second transaction involved a VSA loan of $6 million to
Pitzer and Collins through their Bloomdale Road Joint Venture #1
(Bloomdale Road) purportedly for the purchase of 149 acres in
McKinney, Texas. However, the government alleged that the loan was
overfunded by approximately $3 million, which was used for the
personal benefit of Hays, Powell, Pitzer, and Collins. For
example, Powell purchased Hays’ share of the Fall Creek Ranch with
the proceeds of a sale of a partial interest in the Fall Creek
Ranch venture to Pitzer and Collins. Pitzer and Collins had
purchased that interest from Powell with a loan from Union Bank
which was collateralized by CD’s purchased with the proceeds of the
Bloomdale Road loan. Once again, it is alleged that Powell was
aware that the Bloomdale Road loan was overfunded yet failed to
disclose this fact to VSA on committee loan applications that he
signed as a VSA officer.
The third transaction involved Powell’s receipt of a loan
through his wholly-owned company, Royston Properties, Inc. (Royston
loan). Powell obtained this loan for the purpose of paying
interest on a note (Santexco note) held by First City Bank on which
5
Hays was the guarantor. Hays’ interest in the loan was not
disclosed to VSA.
On June 23, 1993, a grand jury convened in the Western
District of Texas returned a thirty-six count indictment naming
Pettigrew, Powell, Montague, and Walker, as well as seven other
defendants. The indictment charged the defendants with two
conspiracies, as well as numerous substantive offenses relating to
their dealings with VSA, primarily bank fraud (18 U.S.C. §
1344(a)(1)) and the making of false entries in the books or records
of a lending institution (18 U.S.C. § 1006). Four defendants,
including Hays, pleaded guilty either before or during the early
stages of the trial, while three others were acquitted by the jury.
Following trial, Pettigrew was convicted of two counts of
conspiracy, two counts of bank fraud (18 U.S.C. § 1344), three
counts of aiding and abetting false entries in the records of a
lending institution (18 U.S.C. § 1006), and one count of money
laundering (18 U.S.C. § 1957). Powell was convicted of the two
conspiracy counts as well, along with six counts of making false
entries (18 U.S.C. § 1006), five counts of aiding and abetting
insider participation in the receipt of loan proceeds with the
intent to defraud VSA and an agency of the United States (18 U.S.C.
§ 1006), two counts of bank fraud (18 U.S.C. § 1344(a)(1)), and one
count of misapplication of funds (18 U.S.C. § 657). Walker and
Montague were both acquitted of the two conspiracy counts charged
in the indictment. However, Walker was convicted of one count of
aiding and abetting bank fraud and one count of aiding and abetting
6
the making of false entries, while Montague was convicted of two
counts of bank fraud (18 U.S.C. § 1344(a)(1)) and three counts of
aiding and abetting the making of false entries (18 U.S.C. § 1006).
Appellants now bring this appeal.
Discussion
I. Instructional Errors
The trial court’s refusal to include a requested instruction
in the charge to the jury is usually reviewed for abuse of
discretion, and the court is given substantial latitude in
formulating the charge. United States v. Storm, 36 F.3d 1289, 1294
(5th Cir. 1994), cert. denied, 115 S.Ct. 1798 (1995). Generally,
refusal to include a requested instruction is reversible error only
if the requested instruction is substantially correct, the actual
charge given the jury did not substantially cover the content of
the proposed instruction, and the omission of the proposed
instruction would seriously impair the defendant’s ability to
present a defense. Id; United States v. Correa-Ventura, 6 F.3d
1070,1076(5th Cir. 1993).
A. 18 U.S.C. § 1006
All of the appellants urge, and indeed the government
concedes, that the district court erred in refusing to submit
appellants’ requested materiality instruction with respect to the
section 1006 counts. We agree.
In order to establish a violation of section 1006, which
prohibits the making of false entries in the records of a lending
institution, the government must establish beyond a reasonable
7
doubt that: (1) the lending institution was one of those described
in section 1006; (2) the individual making the entry was an
officer, agent, or employee of the institution; (3) the individual
knowingly or willfully made, or caused to be made, a false entry
concerning a material fact in a book, report or statement of the
institution; and (4) the individual acted with the intent to injure
or defraud the institution or any of its officers, auditors,
examiners, or agents. United States v. Beuttenmuller, 29 F.3d 973,
982 (5th Cir. 1994). Thus, materiality is an essential element of
the false entry offense. Id.; see also United States v. Parks, 68
F.3d 860, 865 (5th Cir. 1995), cert. denied, 64 USLW 3502 (1996).
In Beuttenmuller, we stated that “[w]hile materiality rests
upon a factual evidentiary showing by the prosecution, the actual
determination of materiality is a question of law for the court .
. . .” Beuttenmuller, 29 F.3d at 982. However, the Supreme
Court’s recent decision in United States v. Gaudin, 115 S.Ct. 2310
(1995), teaches otherwise. In Gaudin, the Supreme Court indicated
that the determination of materiality under a related statute, 18
U.S.C. § 1001, was not a pure question of law, but rather a mixed
question of law and fact. Id. at 2314-15. More importantly, a
unanimous Court held that the Fifth and Sixth Amendments demanded
that the defendant’s guilt of the element of materiality, like all
other elements of the crime, be determined beyond a reasonable
doubt by a jury of his peers.1 Id. at 2320.
1
While we are cognizant of the fact that one panel of this
Court is generally powerless to overrule the previous decision of
another panel absent rehearing by the full Court sitting en banc,
8
The government, while conceding that the trial court’s failure
to give the materiality instruction was error, insists that the
error was harmless. This argument appears to us to be foreclosed
by the Supreme Court's reasoning in Sullivan v. Louisiana, 113
S.Ct. 2078, 2081-82 (1993). In Sullivan, the Supreme Court was
presented with the question whether the harmless error analysis
could be applied to a defective reasonable doubt instruction.
Justice Scalia, writing for a unanimous Court, observed that
harmless error review requires a court to determine what effect the
constitutional error had upon the verdict rendered by the jury.
Id. at 2081. Therefore, the Court concluded that where there is
defective reasonable doubt instruction, harmless error review is
simply not possible as there is no verdict upon which the analysis
can operate. Id. at 2082. In other words, "[t]here being no jury
verdict of guilty-beyond-a-reasonable-doubt, the question whether
the same verdict of guilty-beyond-a-reasonable-doubt would have
been rendered absent the constitutional error is utterly
meaningless." Id.
The reasoning of Sullivan leads inescapably to the same
conclusion in the present case. Because the element of materiality
was withheld from the jury, the jury rendered no verdict as to that
particular element of the offense. Thus, the harmless error
an exception to this rule arises when there has been an intervening
decision by the United States Supreme Court overriding the earlier
decision. United States v. Parker, 73 F.3d 48, 51 (5th Cir. 1996).
Given the Supreme Court’s decision in Gaudin, we conclude that
Beuttenmuller’s holding that materiality under section 1006 is a
question of law for the court has been overruled.
9
analysis is similarly inapplicable.
Having found that appellants’ convictions under section 1006
were fatally flawed, we are similarly compelled to reverse the
convictions for conspiracy found in count thirty-six. Although
making false entries in violation of section 1006 was but one of
several object offenses alleged in the indictment, where a general
verdict form allows for conviction for conspiracy to commit any one
of several object offenses a legal defect in any one of the
offenses alleged will require reversal of the conspiracy
conviction. United States v. Smithers, 27 F.3d 142, 147 (5th Cir.
1994).2 The trial court’s failure to instruct the jury with
respect to the materiality element of the false entry offense
raises the possibility that appellants’ conspiracy conviction rests
upon legally inadequate grounds. Because we are unable to
determine on review which object offense the jury selected, we
reverse.3
B. 18 U.S.C. § 1344(a)(1)
Pettigrew and Montague urge that their convictions for bank
fraud under 18 U.S.C. § 1344(a)(1) must also be reversed due to an
2
We take care to note the distinction between a general
verdict for conspiracy that rests upon legally inadequate grounds
such as the one with which we are presented today and a general
verdict that rests upon insufficient evidence that does not require
reversal. For a discussion of this distinction, see Griffin v.
United States, 112 S.Ct. 466 (1991).
3
Because we reverse on the basis of the materiality
instruction, we do not reach the question whether the trial court
adequately instructed the jury on the intent element of the section
1006 offense.
10
instructional defect.4 Section 1344(a)(1) provides that it shall
be a crime to “knowingly execute[], or attempt[] to execute, a
scheme or artifice—— (1) to defraud a federally chartered or insured
financial institution . . . .”5 “The requisite intent to defraud
is established if the defendant acted knowingly and with the
specific intent to deceive, ordinarily for the purpose of causing
some financial loss to another or bringing about some financial
gain to himself.” United States v. Saks, 964 F.2d 1514, 1518 (5th
Cir. 1992) (citations omitted); see also United States v. Dobbs,
63 F.3d 391, 395 (5th Cir. 1995).
The trial court denied Pettigrew’s request to submit an
instruction to the jury defining "intent to defraud" that was
substantially in accord with the definition set forth in Saks.6
Furthermore, the instruction given by the trial court did not
specifically define “intent to defraud” for purposes of section
4
Montague adopts this point of error from Pettigrew’s brief.
Although Walker and Powell were also convicted of offenses under
this section, they have neither briefed nor moved to adopt this
point of error. Therefore, any such error is waived.
5
Section 1344 was amended in 1989 to designate former
subsection (a) as an entire section which now reads: “Whoever
knowingly executes, or attempts to execute, a scheme or artifice
(1) to defraud a financial institution . . . .”
6
Pettigrew’s requested instruction read: “To act with the
intent to defraud means to act knowingly with the specific intent
to deceive or cheat for the purpose of causing some financial loss
to another or to bring some financial gain to oneself.”
The trial court’s denial of Pettigrew’s requested instruction
preserved error as to both Pettigrew and Montague as the district
court had informed the defendants that any written request to
charge not read to the jury would be deemed denied and constituted
objection by all defendants.
11
1344(a)(1).7 Pettigrew and Montague contend that the failure to
submit the requested instruction allowed the jury to convict upon
a finding of deceit alone without finding that appellants possessed
the specific intent to defraud which is necessary element of the
offense. Appellants argue that this error was further exacerbated
by the fact that "intent to defraud" was defined elsewhere in the
instructions as "intent to deceive or cheat," and by the fact that
the prosecutor repeatedly equated "intent to deceive or cheat" with
"intent to defraud" during closing arguments.
Appellants assert that the failure to submit the requested
instruction was reversible error because it hampered their ability
to advance the defense that even if the sham liens were intended to
deceive, they were employed for the purpose of helping, rather than
7
The trial court’s section 1344(a)(1) charge reads as follows:
“Title 18 United States Code section 1344(1) [sic]
makes it a crime for anyone to knowingly execute or
attempt to execute a scheme or artifice to defraud a
federally chartered and insured financial institution.
For you to find a defendant guilty of this crime you must
be convinced that the government has proved each of the
following beyond a reasonable doubt.
First, that the defendant devised a scheme or
artifice to defraud a federally chartered and insured
financial institution.
Second, that the defendant executed or attempted to
execute the scheme or artifice.
And third, that the defendant acted knowingly.
The term scheme or artifice to defraud includes any
plan, pattern or course of action intended to deceive
others in order to obtain something of value, such as
money, from the institution to be deceived.
The term federally chartered or insured financial
institution includes a savings and loan association with
deposits insured by the federal savings and loan
insurance corporation.”
12
harming, VSA by removing REO from its books.8
However, our review of the record leads us to conclude that
appellants’ proposed “intent to defraud” instruction was
substantially covered in the charge given by the trial court.
While the court did not specifically define “intent to defraud” in
its instructions to the jury, the court did charge the jury that:
“[t]he term scheme or artifice to defraud includes any plan,
pattern or course of action intended to deceive others in order to
obtain something of value, such as money, from the institution to
be deceived.” (Emphasis added).9 The trial court further
instructed the jury that in order to find a defendant guilty it
must find “that the defendant devised a scheme or artifice to
defraud a federally chartered and insured financial institution.”
(Emphasis added). Based on the instructions given, the jury could
not logically have found that the appellants devised a scheme or
artifice to defraud VSA without finding that they necessarily
possessed the specific intent to cause some financial loss to the
institution.
Because appellants’ proposed instruction was both
substantially covered by the charge given by the trial court and in
8
Appellants cite testimony by Rupert Hays at trial that the
Pettigrew transactions were intended to “benefit” or “maintain the
financial strength” of VSA as evidence that they lacked the
necessary intent to defraud.
9
While it would have been preferable in a case such as the
present to replace “includes” with “means” in this instruction,
there was no objection on that basis, and in context it is
reasonably clear that the remaining portion of the sentence
constituted a required element of the offense.
13
no way impaired appellants’ ability to present a defense, we find
no reversible error.
C. 18 U.S.C. § 1957
The money laundering statute under which Pettigrew was
convicted, 18 U.S.C. § 1957, provides that it shall be a crime to
“knowingly engage[] or attempt[] to engage in a monetary
transaction in criminally derived property that is of a value
greater than $10,000 and is derived from specified unlawful
activity . . . .” The knowledge element of the offense requires
that the defendant know that the property in question is
“criminally derived,” although it does not require knowledge that
the property was derived from “specified unlawful activity.” See
United States v. Baker, 19 F.3d 605, 614 (11th Cir. 1994); United
States v. Campbell, 977 F.2d 854, 859-60 (4th Cir. 1992), cert.
denied, 113 S.Ct. 1331 (1993).
Our review of the instruction given by the trial court
persuades us that Pettigrew’s conviction on the money laundering
count (Count 35) must be reversed.10 The court’s instructions may
10
The trial court instructed the jury in relevant part as
follows:
“Title 18 United States Code 1957 makes it a crime
for anyone to knowingly engage in a monetary transaction
in the United States in criminally derived property that
is of a greater value than ten thousand dollars and is
derived from specified unlawful activity.
For you to find a defendant guilty of this crime you
must be convinced that the government has proven each of
the following beyond a reasonable doubt.
First, that the defendant Hal Pettigrew knowingly
engaged in a monetary transaction by, through or to the
Victoria Savings Association.
Second, in criminally derived property of a value
14
most reasonably be read to permit conviction if Pettigrew knowingly
engaged in the transaction and the funds involved were in fact
criminally derived without requiring any showing by the government
that Pettigrew knew that the funds in question were criminally
tainted.11
D. Other Instructional Complaints
Pettigrew additionally maintains that the district court erred
in refusing both his proposed instructions on the defense theory of
the case and on the defense of withdrawal from the conspiracy.
These contentions are without merit.
In order to establish the defense of withdrawal from a
criminal conspiracy, the defendant must prove “‘[a]ffirmative acts
inconsistent with the object of the conspiracy and communicated in
a manner reasonably calculated to reach co-conspirators.’” United
greater than ten thousand dollars.
And third, that the criminally derived property was
from specified unlawful activity.
. . . .
The government is not required to prove that the
defendant knew that the offense from which the criminally
derived property was derived was a specified unlawful
activity.”
11
We also note that the indictment charged that Pettigrew and
Hays had transferred illegal proceeds between NCNB Medical Center
Bank and Texas Commerce Bank-Arlington, while the court’s charge
referred only to “a monetary transaction by, through, or to the
Victoria Savings Association.” Although it does not appear that
Pettigrew objected to this aspect of the instruction at trial, at
least if properly preserved, this constructive amendment of the
indictment would likely also have required reversal of this count.
See United States v. Restivo, 8 F.3d 274, 279 (5th Cir.
1993)(reversal required if instruction permitted jury to convict on
factual basis that modified essential element of offense charged),
cert. denied, 115 S.Ct. 54 (1994).
15
States v. MMR Corp.(LA), 907 F.2d 489, 500 (5th Cir.) (quoting
United States v. United States Gypsum Co., 98 S.Ct. 2864, 2887-88
(1978)), cert. denied, 111 S.Ct. 1388 (1991); see also United
States v. Stouffer, 986 F.2d 916, 922 (5th Cir.), cert. denied, 114
S.Ct. 115 (1993).
Pettigrew was not entitled to an instruction on the withdrawal
defense because it was not sufficiently raised by the evidence.
The so-called “disclosure letters” that Pettigrew caused to be sent
to Hays at VSA are simply not inconsistent with the object of the
conspiracy. The letters do not purport to be a withdrawal from or
abandonment of anything; nor do they purport to disclose any
criminal activity. While these letters reference the liens on the
properties, there is no indication that these liens do not
represent legitimate financial obligations. Furthermore, even had
the sham liens been fully disclosed, letters to a co-conspirator
who also happens to be an insider at VSA detailing the structure of
the transactions do not constitute evidence of withdrawal.
Pettigrew had no reason to believe that Hays as a co-conspirator
would disclose these letters to either VSA or bank regulators.
Accordingly, the district court did not err in refusing Pettigrew’s
proposed withdrawal instruction.
While “[a] defendant is usually entitled to have the court
instruct the jury on the defense’s ‘theory of the case’ . . . the
positing of a charge as the defendant’s theory of the case does not
automatically secure for the defendant a judicially narrated
account of ‘his’ facts and legal arguments.” United States v.
16
Robinson, 700 F.2d 205, 211 (5th Cir. 1983). Pettigrew’s proposed
instruction represents just such a “judicially narrated account of
‘his’ facts.”12 The district court did not err in refusing such an
instruction.
II. Admissibility of Evidence
A. Polygraph Evidence
Pettigrew argues that the district court erred in excluding
from evidence results of a polygraph examination that Pettigrew
maintains support his defense that he lacked the intent to deceive
bank regulators regarding the nature of his transactions with VSA.
Following the Supreme Court’s decision in Daubert v. Merrell Dow
Pharmaceuticals, Inc., 113 S.Ct. 2786 (1993), we have recently
reexamined our previous position that polygraph evidence is per se
inadmissible. In United States v. Posado, 57 F.3d 428 (1995), a
panel of this Court held that a per se rule against the
admissibility of the results of a polygraph examination was no
longer permissible.
While Posado rejected across-the-board application of a per se
rule of inadmissibility to polygraph evidence, we expressly stated,
“we do not now hold that polygraph examinations are scientifically
valid or that they will always assist the trier of fact . . . .”
Posado, 57 F.3d at 434. As this statement suggests, the district
court is always to be guided by the twin precepts of Rule 702: the
12
For instance, Pettigrew’s proposed instruction would have
stated that “[h]e fully disclosed all aspects of the transactions
in disclosure letters mailed to Victoria Savings Association, which
letters were intended by Mr. Pettigrew to be placed in the files of
Victoria.”
17
scientific validity of the method, and ability to “assist the trier
of fact to understand the evidence or determine a fact in issue .
. . .” This necessarily flexible inquiry, like all others under
Rule 702, is left to the sound discretion of the trial court and is
reviewed on appeal only for abuse of discretion. See Eiland v.
Westinghouse Corp., 58 F.3d 176, 180 (5th Cir. 1995)(admission or
exclusion of expert opinion testimony under Rule 702 will not be
disturbed unless “manifestly erroneous”); see also, United States
v. Powers, 59 F.3d 1460, 1471 (4th Cir. 1995)(refusal to admit
scientific evidence reviewed for abuse of discretion), cert.
denied, 116 S.Ct. 784 (1996).
We conclude that our decision in Posado does not require
reversal in the present case for several reasons. As the Supreme
Court observed in Daubert, the determination of whether proffered
scientific evidence will assist the trier of fact is essentially a
relevance inquiry. Daubert, 113 S.Ct. at 2795-96. “‘Expert
testimony which does not relate to any issue in the case is not
relevant and, ergo, non-helpful.’” Id. at 2795 (quoting 3 Weinstein
& Berger 702[02], p. 702-18). The results of the polygraph
examination that Pettigrew wished to introduce related to three
questions asked by the examiner in response to which Pettigrew:
(1) agreed that Hays had first proposed the idea to create the sham
liens; (2) agreed that he disclosed the liens in letters which he
caused to be sent to Hays; and (3) denied that he knew that the
letters would be hidden from bank regulators. The first two of
these responses are simply immaterial to the question whether
18
Pettigrew intended to deceive the bank regulators. Nor can we say
that the district court abused its discretion in excluding the
third response which, while arguably more relevant, suggests only
that Pettigrew did not know that the letters would not be
disclosed. The fact that he did not know that the letters would be
disclosed to regulators does not mean that he did not at least
think that it was highly unlikely.
Pettigrew argues that the fact that the district court denied
his motion requesting the admission of the polygraph results
without a hearing indicates that the court necessarily applied a
per se rule of inadmissibility. While generally we do not sanction
efforts to “short-circuit” the Daubert analysis, when the offer
fails the second prong of the Rule 702 inquiry we see little
reason to force a district court to expend precious judicial
resources in painstakingly evaluating the scientific validity of
the evidence under Daubert.
Further, even if the evidence offered by Pettigrew survived
the Rule 702 inquiry, the potential for prejudice created by such
evidence is high in the absence of appropriate safeguards. In
Posado, we suggested that an “enhanced role” for Rule 403 may be
appropriate in the context of the Daubert analysis due to the
possible prejudicial effect of polygraph evidence in comparison to
its probative value. We identified several safeguards present in
Posado which operated to counterbalance such prejudice. For
instance, the prosecution was contacted before the examination was
administered and given the opportunity to participate, and the
19
evidence was not offered at trial before a jury but in a pretrial
suppression hearing before a judge who would be less likely to be
“intimidated by claims of scientific validity.” Posado, 57 F.3d at
435. We further observed that the rules of evidence are relaxed in
pretrial suppression hearings. Id.
None of these safeguards were present in the case before us.
The polygraph examination was administered by an expert selected by
the defense apparently without the participation of the government,
and the defense wished to present this evidence before the jury.
While these factors may not always be conclusive, the absence of
these or other similar safeguards certainly weighs most heavily
against the admission of polygraph evidence.
While express findings by the district court are generally the
preferred practice, in the present context we cannot say that the
district court abused its discretion on the record before us.
B. Testimony of Government’s Expert Witness
Montague argues that the district court erred in admitting
certain testimony by William Black (Black), the government’s expert
witness on fraud in the savings and loan industry, because Black
both offered legal conclusions and testified as to the mental state
of the defendants.
Montague relies primarily on our decision in Owen v. Kerr-
McGee Corp., 698 F.2d 236 (5th Cir. 1983), in which we noted that
while Federal Rule of Evidence 704 abolished the old rule against
witnesses testifying as to “ultimate issues,” Rule 704 was not
intended to allow a witness to testify regarding legal conclusions.
20
Id. at 239-40. Montague notes that throughout his direct
testimony, Black repeatedly responded to hypotheticals posed by the
prosecutor by concluding that the acts described constituted a
“crime,” “fraud,” “deception,” or “cover-up.” Montague contends
that by framing his responses as legal conclusions, Black was in
effect instructing the jury as to the verdict it should reach.
Assuming arguendo that Black’s testimony was error under Owen,
such error was not preserved by proper objection. In order to
preserve error for appellate review, a defendant’s objection to the
admission of evidence must adequately apprise the trial judge of
the grounds for objection. United States v. Waldrip, 981 F.2d 799,
804 (5th Cir. 1993); United States v. Tomblin, 46 F.3d 1369, 1387
n.42 (5th Cir. 1995). Upon review of the record, we find no
objection by any defendant during the entire course of the
government’s direct examination of Black to the effect that Black’s
testimony constituted an impermissible legal conclusion.13 Thus,
we conclude that no error was preserved.
Montague also asserts that Black’s testimony was improper
because it violated Federal Rule of Evidence 704(b)’s prohibition
against expert testimony regarding whether the defendant possessed
the mental state that is a necessary element of the offense
charged. Specifically, Montague complains of Black’s responses to
hypotheticals posed by the prosecutor that the participants in such
13
We note that when a proper objection was raised to a question
soliciting a response involving a legal conclusion during the
government’s redirect examination of Black, the objection was
sustained by the trial court.
21
a scheme had to be “in on it,” had engaged in a “deception” and a
“cover-up,” and that the disclosure letters were a “confession.”
However, again there was no objection to any of these statements by
Black at the time that they were made.14 Therefore, the admission
of these statements is reviewable only for plain error, United
States v. Aggarwal, 17 F.3d 737, 743 (5th Cir. 1994), and we find
no such error here. See id. (use of terms “scam,” “fraud,” and
“fraudulent” not plain error).
C. Improper Cross-examination By Government
Pettigrew asserts that the government engaged in prosecutorial
misconduct throughout the trial by insinuating his guilt through
the improper questioning of witnesses. The only potential error of
this type which warrants discussion pertains to the government’s
cross-examination of Pettigrew’s attorney, Ray Williamson. On
cross-examination, the prosecutor asked Williamson whether another
transaction in which he and Pettigrew had engaged was “itself the
subject of an investigation.” Williamson denied that he knew of
any such investigation. While recognizing that neither prior bad
acts of a witness nor the mere fact that a witness has been
arrested or indicted is generally admissible for impeachment
14
Although the defendants filed a joint motion to strike
Black’s testimony the following day, we do not believe that this
satisfies Fed. R. Evid. 103(a)(1)’s requirement of a “timely
objection or motion to strike.” Furthermore, the motion to strike
complained only that Black’s characterization of the hypothetical
transactions as “fraudulent” constituted improper testimony
regarding the defendant’s mental state. Our decision in Aggarwal,
17 F.3d at 743, suggests that expert opinion that a given scheme
was fraudulent is not necessarily improper. No reversible error is
presented.
22
purposes as a conviction would be,15 we have also recognized that
where the arrest or accusation arises out of the transaction at
issue it is admissible to show the potential bias of the witness.
United States v. Musgrave, 483 F.2d 327, 338 (5th Cir.), cert.
denied, 94 S.Ct. 447 (1973). We believe that the case before us
presents an analogous situation. The fact that another transaction
in which Pettigrew and Williamson were involved was under
investigation would clearly demonstrate potential bias on
Williamson’s part as to how he characterized the transactions at
issue in the present case. As it appears the government had a good
faith basis for the question, we find no reversible error here.
16
III. Improper Joinder and Denial of Outsiders’ Motion to Sever
Montague asserts that the district court erred in denying his
objection to the joinder of all defendants, both VSA insiders and
outsiders, in a single trial. In the alternative, Montague
maintains that reversal is required because the district court
denied requests to sever the two VSA insiders from the outsider
defendants, and failed to take adequate steps to insulate the
outsider defendants from spillover prejudice.
Federal Rule of Criminal Procedure 8(b) provides that “[t]wo
or more defendants may be charged in the same indictment or
15
United States v. Greer, 939 F.2d 1076, 1097 (5th Cir.
1991)(prior bad acts), cert. denied, 113 S.Ct. 1390 (1993); United
States v. Abadie, 879 F.2d 1260, 1267 (5th Cir.), cert. denied, 110
S.Ct. 569 (1989). However, that a witness for the government is
under indictment by it is admissible for impeachment purposes. See
United States v. Alexius, F.3d (5th Cir. Feb. 15, 1996, No.
95-50175).
16
Pettigrew adopts this point of error.
23
information if they are alleged to have participated . . . in the
same series of acts or transactions constituting an offense or
offenses.” Fed. R. Crim. P. 8(b). The propriety of joinder is
determined on the basis of the allegations in the indictment that
are accepted as true barring charges of prosecutorial misconduct.
United States v. Faulkner, 17 F.3d 745, 758 (5th Cir.), cert.
denied, 115 S.Ct.193 (1994). As a general rule, persons indicted
together should be tried together, particularly in conspiracy
cases. United States v. Neal, 27 F.3d 1035, 1045 (5th Cir. 1994),
cert. denied, 115 S.Ct. 1165 (1995), “[P]roper joinder requires
that the offenses charged ‘must be shown to be part of a single
plan or scheme,’ and . . .‘[p]roof of such a common scheme is
typically supplied by an overarching conspiracy from which stems
each of the substantive counts.’” Faulkner, 17 F.3d at 758(quoting
United States v. Lane, 735 F.2d 799. 805 (5th Cir. 1984), rev’d in
part o.g., 106 S.Ct. 725 (1986)). In the present case, each of the
counts charged in the indictment stems from a common conspiracy to
defraud VSA and bank regulators. Thus, joinder of all defendants
was proper.
Once it is established that joinder was proper, denial of a
motion to sever is reviewable only for abuse of discretion.
Faulkner, 17 F.3d at 758. “[W]hen defendants properly have been
joined under Rule 8(b), a district court should grant a severance
under Rule 14 only if there is a serious risk that a joint trial
would compromise a specific trial right of one of the defendants,
or prevent the jury from making a reliable judgment about guilt or
24
innocence.” Zafiro v. United States, 113 S.Ct. 933, 938 (1993).
“To demonstrate an abuse of discretion, the defendant ‘bears the
burden of showing specific and compelling prejudice that resulted
in an unfair trial,’. . . and such prejudice must be of a type
‘against which the trial court was unable to afford protection.’”
Faulkner, 17 F.3d at 759 (quoting United States v. Holloway, 1 F.3d
307, 310 (5th Cir. 1993), and United States v. Pofahl, 990 F.2d
1456, 1483 (5th Cir.), cert. denied, 114 S.Ct. 266 (1993)).
The arguments advanced by Montague are, for the most part,
identical to those that we addressed in United States v. Neal, 27
F.3d 1035 (5th Cir. 1994). Montague contends that the outsiders
were prejudiced by the large volume of evidence introduced with
respect to the insider fraud at VSA, and that the trial court
failed to administer proper limiting instructions to insulate the
outsiders from spillover prejudice. However, as we observed in
Neal, “a quantitative disparity in the evidence ‘is clearly
insufficient in itself to justify severance.’” Id. at 1045
(quoting United States v. Harrelson, 754 F.2d 1153, 1175 (5th
Cir.), cert. denied, 106 S.Ct. 599 (1985)). Nor does the “mere
presence” of spillover prejudice ordinarily require severance,
particularly when the defendants are convicted of participating in
the same conspiracy. Id. Finally, the fact that——as here——the jury
returned verdicts of “not guilty” as to some of the defendants
clearly suggests that it was able to take a discerning approach to
the evidence presented. Id. Insofar as Montague’s claimed error
lies in the trial court’s failure to give limiting instructions
25
with respect to evidence that may have been relevant only to some
defendants, we are unable to conclude that this was an abuse of
discretion as Montague has identified no “specific and compelling
prejudice” that he and the other outsider defendants suffered as a
result.
However, Montague also contends that severance was required
because the outsider defendants wished to exclude any testimony
relating to the guilty pleas of co-conspirator witnesses who would
testify at trial, while the insider defendants wished to utilize
this evidence to impeach those government witnesses. In United
States v. Handly, 591 F.2d 1125, 1128 (5th Cir. 1979), we held that
a prosecutor’s reference to the guilty pleas of a defendant’s co-
conspirators was error, unless the defendant chose to rely on the
guilty pleas of his co-conspirators as part of his defense
strategy. We first note that the Supreme Court has held that
mutually antagonistic defenses are not prejudicial per se, and
severance is not necessarily required even if some prejudice is
shown. Zafiro, 113 S.Ct. at 938. Rather Rule 14 leaves “the
tailoring of the relief to be granted, if any, to the district
court’s sound discretion.” Id. (emphasis added). Again, the fact
that the jury returned “not guilty” verdicts as to some defendants
strongly suggests that there was no such prejudice here. Further,
that these witnesses had pleaded guilty would add little to their
admissible testimony as to the conspiracy and their role in it.17
17
We do not here deal with prosecution references to guilty
pleas by co-conspirators who do not testify.
26
Finally, contrary to Montague’s representations in his brief,the
district court properly instructed the jury that “[t]he fact that
an accomplice has entered a plea of guilty to the offense charged
is not evidence in and of itself of the guilt of any other
person.”18 Therefore, the district court acted within its
discretion in declining to sever Montague and the other outsider
defendants for trial.
IV. Sufficiency of the Evidence
In reviewing a challenge to the sufficiency of the evidence to
support a defendant’s conviction, we must affirm the jury’s verdict
if, viewing the evidence and the inferences that may reasonably be
drawn from it in the light most favorable to the verdict, a
rational trier of fact could have found that the evidence
establishes the defendant’s guilt beyond a reasonable doubt.
United States v. Garza, 42 F.3d 251,253(5th Cir. 1994), cert.
denied, 115 S.Ct. 2263 (1995). “The evidence need not exclude
every reasonable hypothesis of innocence or be wholly inconsistent
18
Montague states in his brief: “The court further compounded
the prejudice to Mr. Montague and the other outsiders by suggesting
in its final instructions that the guilty pleas could be considered
at least as supporting other evidence of a defendant’s guilt.” In
fact, the trial court instructed the jury as stated in the text and
also as follows:
“An alleged accomplice, including one who has
entered into a plea agreement with the government, is not
prohibited from testifying. On the contrary, the
testimony of such a witness may alone be of sufficient
weight to sustain a verdict of guilty. You should keep
in mind that such testimony is always to be received with
caution and weighed with great care.
You should never convict an accused upon the
unsupported testimony of an alleged accomplice unless you
believe that testimony beyond a reasonable doubt.”
27
with every conclusion except that of guilt, and the jury is free to
choose among reasonable constructions of the evidence.” United
States v. Bermea, 30 F.3d 1539, 1551 (5th Cir. 1994), cert. denied,
115 S.Ct. 1113 (1995).
19
A. Evidence of VSA’s Federally Insured Status
Powell, relying on United States v. Schultz, 17 F.3d 723 (5th
Cir. 1995), argues that the government’s failure to introduce
sufficient evidence of VSA’s federally-insured status requires
reversal of all counts of the indictment. Powell argues that
reversal is required both because federally-insured status is a
necessary prerequisite to federal jurisdiction and because
federally-insured status is a necessary element of every offense
charged in the indictment.20
We find sufficient evidence of VSA’s federally-insured
status. Former VSA President Barron offered testimony that the
funds of VSA were insured “at that time” by the FSLIC, and Powell
himself acknowledged the federally-insured status of VSA on cross-
examination by the government. As we noted in Schultz, “[i]f those
officials had possessed personal knowledge of the bank’s insurance
status, their testimony that [the bank] was insured by the FDIC
during the period in question, if unchallenged, would have
sufficiently proven the jurisdiction issue in the case sub judice.”
19
Pettigrew and Montague adopt this point of error.
20
Although not an element of money laundering under 18 U.S.C.
§ 1957, money laundering does require proof that the funds were
proceeds of unlawful activity, and the unlawful activity alleged in
the indictment was the use of a scheme or artifice to defraud a
federally insured financial institution.
28
Schultz, 17 F.3d at 727. A Supervisory Agreement entered into by
VSA and the FSLIC as well as an accompanying VSA Board of Directors
resolution both make reference to violations of FSLIC regulations
occurring in November 1986. All the several VSA printed
letterheads in evidence bore the legend “Member FSLIC.” Finally,
the government introduced copies of both a FSLIC certificate of
insurance issued to “Victoria Federal Savings and Loan Association”
with an original issuance date of March 25, 1935, and a copy of a
1987 Texas Savings and Loan Department examination of VSA “as of
12-31-86" that identifies VSA’s date of insurance as “3-25-35.”
Despite the inclusion of the word “federal” in the name on the
certificate of insurance, the jury could reasonably infer from the
evidence that these documents both referenced VSA. When viewed
cumulatively, a rational jury could have concluded from all the
evidence that VSA was a federally-insured institution.21
B. Pettigrew
Pettigrew argues that there is insufficient evidence to
support his conviction of a conspiracy to defraud the United States
in violation of 18 U.S.C. § 371 as charged in Count One of the
indictment. To establish a conspiracy under section 371, the
government generally must prove beyond a reasonable doubt that (1)
there was an agreement between two or more persons to pursue an
unlawful objective, (2) the defendant voluntarily agreed to join
the conspiracy, and (3) that one of the persons committed an overt
act in furtherance of the conspiracy. Faulkner, 17 F.3d at 768;
21
Nothing suggests that VSA was not so insured.
29
United States v. El-Zoubi, 993 F.2d 442, 445 (5th Cir. 1993).
Pettigrew essentially argues that there is insufficient
evidence that he agreed to join with Hays and others in a
conspiracy to defraud the United States of the lawful government
functions of the Federal Home Loan Bank Board as charged. The
agreement to join a conspiracy need not be express, but may be
inferred from circumstantial evidence. United States v. Hopkins,
916 F.2d 207, 212 (5th Cir. 1990); see also United States v.
Schmick, 904 F.2d 936, 941 (5th Cir. 1990) (any element of
conspiracy may be inferred from circumstantial evidence), cert.
denied, 111 S.Ct. 782 (1991). There is ample evidence in the
record from which a rational juror could infer Pettigrew’s
agreement to join the conspiracy. Pettigrew was aware of the use
of the sham liens to disguise the excess profits from the
transactions, and Pettigrew-controlled entities and associates were
employed to disguise the fact that these loan proceeds were then
being used to purchase REO from VSA. Pettigrew’s conviction on
Count One must be affirmed.
Pettigrew additionally maintains that there is insufficient
evidence that he possessed the necessary criminal intent to support
his convictions under 18 U.S.C. §§ 1006 and 1344(a)(1). Pettigrew
first maintains that there is no evidence in the record that Hays
ever informed him that the purpose of the liens was to deceive bank
regulators. However, the record reflects that Hays testified on
direct examination that he told Pettigrew that the River Run
transaction needed to be designed so that VSA could book the
30
transaction as a sale in order to avoid raising “a red flag, as far
as external auditors, as well as the examiners.” This testimony
when viewed in conjunction with the extensive involvement of
Pettigrew employees, associates, and entities in these transactions
provides sufficient evidence from which a rational juror could
conclude that Pettigrew knew of the purpose of the sham liens.
Pettigrew additionally argues that the letters that he sent or
caused to be sent to Hays discussing the terms of the transactions
were inconsistent with any intent to defraud VSA or deceive federal
regulators. However, as we indicated during our earlier discussion
of Pettigrew’s entitlement to a withdrawal instruction, these
letters simply do not constitute evidence of withdrawal or any
other action inconsistent with the required intent. While the
letters refer to the imposition of the liens, they do not indicate
that these liens do not represent an actual financial obligation or
the purpose for which they were imposed. If anything, we read
these letters as further evidence of Pettigrew’s illicit purpose
rather than as evidence of acts inconsistent with such intent.
Finally, Pettigrew argues that he acted in good faith reliance
on the advice of counsel, thereby precluding any intent to defraud
VSA or deceive the examiners. As we have previously noted,
“[s]trictly speaking, good faith reliance on advice of counsel is
not really a defense to an allegation of fraud but is the basis for
a jury instruction on whether or not the defendant possessed the
requisite specific intent.” United States v. Carr, 740 F.2d 339,
346 n.11 (5th Cir. 1984). Such an instruction was given in the
31
present case, and the jury apparently concluded that Pettigrew
possessed the necessary intent. Based on the record before us, we
cannot say that this was error.
B. Montague
Montague also challenges the sufficiency of the evidence that
he possessed the necessary intent to support his convictions under
18 U.S.C. §§ 1006 and 1344(a)(1). Like Pettigrew, Montague relies
on evidence that he acted pursuant to the advice of Williamson and
sent letters to Hays purporting to disclose the terms of the
transactions as evidence that he lacked the requisite intent, and
these arguments prove similarly unavailing. As discussed above,
whether reliance on the advice of counsel is inconsistent with the
requisite intent is an issue for the jury’s determination, and we
cannot say that the jury erred on the record before us. Nor do the
letters sent by Montague to Hays at VSA constitute evidence
inconsistent with the intent to defraud or deceive, as they do not
disclose that the liens were shams.
The only additional argument raised by Montague is that there
is no evidence that he was aware that the sham liens would be
referred to in the sellers’ closing statements on the properties,
and therefore he lacked the necessary intent to support his
conviction for aiding and abetting Hays on the false entry counts
(Counts 12, 23, 24). However, the government introduced as an
exhibit an internal Crown Oaks memorandum prepared by Cheryl
Moczygemba (Moczygemba) that details the McPherson Park
transaction, and states, “[f]or ‘looks’ sake, Victoria Savings did
32
not want to show such a large figure going back to the seller on
the closing statement.” (Emphasis added). Montague apparently
instructed Moczygemba to be “careful” about the way in which she
wrote her memos, although he did not ask her to rewrite the Crown
Oaks memo. This evidence demonstrates that Montague read
Moczygemba’s memo, and was therefore aware that the liens appeared
on the closing statements. Although it is admittedly a closer
question than in the case of Pettigrew, when viewed in the light
most favorable to the verdict, the evidence of Montague’s extensive
knowledge of the transactions, the letters to Hays, and his
statement to Moczygemba regarding the McPherson Park transaction
constitute sufficient evidence from which a rational juror could
conclude that Montague possessed the necessary intent.
Montague also argues that there was insufficient evidence that
including the sham liens on the sellers’ statements constituted
“material” false statements. We held in Beuttenmuller that a
“material fact” under section 1006 is one “‘hav[ing] a natural
tendency to influence, or be[ing] capable of affecting or
influencing, a government function.’” Beuttenmuller, 29 F.3d at
982 (quoting United States v. Swain, 757 F.2d 1530, 1534 (5th
Cir.), cert. denied, 106 S.Ct. 81 (1985)(construing 18 U.S.C. §
1001)). The listing of the sham liens on the sellers’ statements
was clearly a necessary step in evading the net worth requirements
imposed on VSA as they disguised the fact that VSA was actually the
source of the funds used to purchase its own REO, which allowed VSA
to book the transaction as a sale. Although the section 1006
33
convictions must be reversed and remanded for new trial due to the
failure to instruct the jury regarding materiality, we conclude
that there is sufficient evidence of materiality had the issue been
properly submitted.
C. Walker
While mindful of the deference due a jury verdict, we are
unable to conclude that there is sufficient evidence in the record
before us that Walker possessed the necessary intent to support his
conviction under 18 U.S.C. §§ 1006 and 1344(a)(1). The government
asks us to rely primarily on evidence that: (1) Walker acted as
trustee in the White’s Branch property and negotiated the sham
lien; and (2) Walker was a “close associate” of Pettigrew’s and
often dealt with financial institutions. However, the fact that
Walker acted as trustee for the White’s Branch transaction and
helped to create the sham lien is not alone sufficient to establish
intent to defraud VSA or deceive federal examiners.22 However, a
verdict may not rest on mere suspicion, speculation, or conjecture,
or on an overly attentuated piling of inference on inference. See,
e.g., United States v. Menesses, 962 F.2d 420, 427 (5th Cir. 1992).
While the issue is a close one, we are simply unable to say that
a rational juror could have found Walker possessed the necessary
intent beyond a reasonable doubt based upon the record evidence.
D. Powell
1. False Entry Counts
22
We note that the trustees in the other transactions were
either not indicted or acquitted on all counts.
34
Powell launches a three-pronged attack on the sufficiency of
the evidence to support each of his convictions under section 1006.
Powell urges that in each instance there is insufficient evidence
that: (1) the entries were false; (2) Powell was aware of their
falsity; and (2) Powell made the entries or caused them to be made.
With respect to the false entry count relating to the Barthold
Road committee loan application (Count 3), Powell first argues that
there was insufficient evidence of the falsity of the statement
that the purpose of the loan was “to refinance property.” However,
there is evidence that the Barthold Road loan was conditioned on
the agreement of Pitzer and Collins to purchase the Cheyenne Plaza
and Frankford Square properties. The omission of material
information may constitute a false entry under section 1006.
United States v. Baker, 61 F.3d 317, 323 (5th Cir. 1995).
Furthermore, Pitzer testified that Powell was aware of the
structure of the transaction. Therefore, the evidence that Powell
signed the committee loan application despite his knowledge that it
omitted material information is sufficient to support his
conviction on Count Three.
Powell raises the same arguments with respect to the false
entry counts relating to the committee loan applications for the
Cheyenne Plaza and Frankford Square loans (Counts 4, 5). The
committee loan applications indicated that the borrower,
Proformance, was to make the downpayments on the Cheyenne Plaza and
Frankford Square properties. Powell does not dispute that the
funds used to purchase these properties came from the VSA loan to
35
Pitzer and Collins related to the Barthold Road property. The
evidence supports the jury’s apparent conclusion that Proformance
was utilized as the borrower to disguise the link between the loan
to Pitzer and Collins, and the purchase of the REO. The entry
reflecting that the funds belonged to Proformance was therefore
false in that it misrepresented the true source of the funds.
Given the evidence that Powell was aware of the structure of the
Barthold Road transaction and nonetheless signed the committee loan
application, there was sufficient evidence to support his
conviction under section 1006.
Powell challenges the sufficiency of the evidence to support
his conviction for false entry relating to the Bloomdale Road loan
(Count 8) on the same grounds. The committee loan application
listed the purpose of the loan as being: “To provide funds to
purchase approximately 156.264 acres in McKinney, Texas zoned for
residential and retail use.” Powell’s own testimony establishes
that he was aware that the funds were being used for other purposes
as well as indicating that he believed the funds were to be used
as detailed in a document prepared by VSA employee Janine Radke
that reflected other purposes for the loan proceeds. Therefore,
there was sufficient evidence of a material omission, that Powell
was aware of such omission, and that he aided and abetted the
making of the false entry by affixing his signature to the loan
committee application.
Although providing extremely limited argument on this point,
Powell asserts that there was insufficient evidence to support his
36
false entry conviction in connection with the Irving/River Run
transaction (Count 11). Powell acknowledges that the committee
loan application did not reflect that part of the loan proceeds
were to be used by Pettigrew to purchase the River Run property.
However, he argues that the entry was literally true, and even if
false, there is no evidence that Powell was aware of its falsity.
Powell’s argument that the statement contained in the
committee loan application was not false is without merit. The
omission of the relationship between the sale of the Irving
property and the River Run purchase is clearly material.
Powell acknowledges that he located Bohn and Baer to purchase
the Irving property, and Bohn testified that Powell was involved in
negotiating the terms of the transaction. Both Bohn and Baer
indicated that after closing the Irving transaction they realized
that River Run was linked to the Irving transaction. Baer
indicated that this connection was reflected in a trust agreement
signed by Bohn involving River Run, which was included among the
documents. Given Powell’s involvement in the transaction, the jury
could rationally conclude that Powell was aware of the
transaction’s connection to River Run as well, and thus of the
material omission from the committee loan application.
Powell next contests the sufficiency of the evidence to
support his conviction on the false entry count relating to the
McPherson Park transaction (Count 22). The committee loan
application for the McPherson Park transaction stated that the
purpose of the loan was “[a]cquisition and development” of the Luck
37
Field property. However, the evidence indicates that some of the
loan proceeds were to be reinvested in VSA although the parties
could ultimately not agree as to the manner in which this was to be
done. There was some evidence Powell was present at a meeting
involving the structuring of the McPherson Park transaction from
which the jury could reasonably infer that Powell was aware of the
details of the transaction. Again, Powell signed the committee
loan application despite such knowledge, and in so doing
contributed to the making of the false entry.
2. Sharing in Proceeds of Loans
“In order to convict a defendant of improper participation in
bank transactions under section 1006, the government must
demonstrate: (1) the defendant’s connection with the protected
institution; (2) direct or indirect receipt of some benefit from a
bank transaction; and (3) intent to defraud.” United States v.
Brechtel, 997 F.2d 1108, 1115 (5th Cir. 1993). The government may
prove intent by circumstantial evidence, id. at 1116, and “[a]n
inference of intent to defraud arises where a responsible bank
insider acts to procure a transaction which he knows will benefit
him, without disclosing his interest therein.” Id.
Powell raises two arguments with respect to his conviction for
aiding and abetting Hays’ sharing in the proceeds of the Bloomdale
Road loan in violation of section 1006. The first of these
arguments actually raises a question of statutory construction
despite being couched as a sufficiency point, in which Powell
maintains that the connection between the Bloomdale Road loan and
38
the purchase of Hays’ share of the Fall Creek Ranch is too
attenuated to constitute “participation” by Hays in the proceeds
of a VSA loan. To briefly recap the details of the transaction,
Powell purchased Hays’ share of the Fall Creek Ranch with the
proceeds of a sale of a partial interest in the Fall Creek Ranch
venture to Pitzer and Collins. Pitzer and Collins purchased that
property with a loan from Union Bank, which was collateralized by
CDS purchased with the proceeds of the Bloomdale Road loan.
Powell contends that the relationship between the Bloomdale
Road loan and the purchase of Hays’ interest in the Fall Creek
Ranch is simply too remote. We cannot agree. The statute
expressly prohibits an officer of a federal credit institution from
“participat[ing] or shar[ing] in or receiv[ing] directly or
indirectly any money, profit, property, or benefits through any
transaction, loan, commission, contract, or any other act of any
such corporation, institution, or association . . . .” 18 U.S.C.
§ 1006 (emphasis added). While there will be some point at which
such a relationship becomes too remote, that point has not been
reached in the present case. To so hold would encourage the
structuring of transactions to evade the grasp of the statute.
Although Powell does include a citation to the record,
Powell’s other sufficiency argument as to this count consists of
one sentence in which he maintains that Pitzer told him that the
money to purchase the share in the Fall Creek venture was coming
from a loan secured by Pitzer and Collins’s interest in “the
39
property.”23 We understand this argument to be that Powell lacked
the necessary intent to aid and abet Hays in the commission of the
offense. We conclude that a rational juror could have reached the
conclusion that Powell was aware of the source of the funds.
Powell also challenges the sufficiency of the evidence to
23
Pitzer testified upon cross-examination by Powell’s counsel:
“A: Well, at the time I was on the advisory board
of the bank [Union Bank], and the bank was
always looking for real estate loans, or good
loans for the bank, and I had suggested that
we make a loan for our interest in the Fall
Creek Ranch. And that we collateralized that
with the CD’s . . . .
Q: Okay. And so this was new money that you
borrowed from Union Bank, that you sent to the
Charles Schreiner Bank? Money you borrowed on
that note?
A: That’s correct.
Q: What happened to that money that came from
Victoria? Those CD’s?
A: They were collateral for the note.
Q: Okay. Why didn’t you just use the money from
Victoria to -- why --
A: We decided we could just get a short term loan
from the bank, and [sic] helps us show
performance with the bank, to have a note, and
then pay it off in pretty short period of
time.
Q: Did you talk this over with Chad Powell, that
you were going to do this?
A: I believe we told him what we were doing.
Q: What did you tell him?
A: Make sure that they were -- if they were okay
with that.
Q: Okay.
A: And there was no problem on their side.
Q: What did you tell them?
A: We told them what we were going to do, and
they said that sounded fine.
Q: What did you tell them you were going to do?
A: That we were going to borrow money from Union
Bank, and it was going to be collateralized by
our interest in the property.”
40
support his conviction for aiding and abetting Hays’ receipt of the
benefits of the VSA Royston loans in violation of the insider
participation provision of section 1006. Powell acknowledges that
he borrowed money from VSA after he was no longer an officer there,
and that the loan proceeds were used to pay the interest and
principal on the Santexco note at First City Bank on which Rupert
Hays was still a guarantor.
Powell first maintains that Hays received no benefit as he no
longer possessed an interest in the underlying collateral.
However, the government correctly notes that the benefit which
accrued to Hays through Powell’s payment of the note was not having
to perform on his guarantee. Such a benefit, although indirect, is
sufficient under the insider participation provision of section
1006. See Brechtel, 997 F.2d at 1115.
Powell’s only other argument that merits passing attention is
that there was insufficient evidence that he knew that Hays had
failed to disclose his guarantor status on the Santexco note. This
contention is rebutted by the testimony of Al Bond, who serviced
the note at First City, that Powell had “made a comment that Mr.
Hays was sensitive to the fact that he was a guarantor on this
loan, and he was trying to help obtain, or was trying to work with
Chad [Powell] in providing financing at Victoria Savings, and that
there could be [the] appearance of conflict,” and that Hays “did
not want to acknowledge or sign any of the extension or renewal
documents because of that.” In the present context, a rational
juror could infer from this testimony that Powell was aware that
41
Hays had not disclosed his guarantor status on the Santexco note.
3. Misapplication
Powell also argues that there was insufficient evidence to
support his conviction for aiding and abetting the willful
misapplication of VSA funds in violation of 18 U.S.C. § 657. In
order to establish an offense under section 657, the government
must “prove that (1) the defendant was an officer, agent or
employee of, or connected in some way with, a federally insured
savings and loan association, (2) he willfully misapplied funds of
the association, and (3) he acted with intent to injure or defraud
the association.” Faulkner, 17 F.3d at 771; United States v.
Tullos, 868 F.2d 689,693(5th Cir.), cert. denied, 109 S.Ct.
3171(1989). In order to establish Powell’s liability as an
accomplice, the government needed to establish that Powell
“‘associated with a criminal venture, participated in the venture,
and sought by his action to make the venture succeed.’” United
States v. Parekh, 926 F.2d 402, 406 (5th Cir. 1991) (quoting United
States v. Holcomb, 797 F.2d 1320, 1328 (5th Cir. 1986), cert.
denied, 108 S.Ct. 354 (1987)).
Powell’s attack on the sufficiency of the evidence consists of
three points: (1) there was insufficient evidence that the
Barthold Road loan was “overfunded;” (2) there was insufficient
evidence that Proformance was not a creditworthy borrower, thus
negating any intent to injure or defraud VSA; and (3) evidence that
the loan was intended to induce the Barthold Road borrowers to take
out the loan was not illegal, and therefore, was not evidence of
42
misapplication.
However, these arguments fail to counter the evidence
introduced by the government. It is undisputed that Powell was an
officer of VSA. Furthermore, there was evidence that Powell signed
committee loan applications that failed to fully disclose the
purpose of the loans, thereby assisting Hays in evading net worth
requirements by disguising the fact the REO purchases were funded
by VSA. Assisting Hays in evading the net worth requirements both
exposed VSA and its officials to potential governmental sanctions
and potentially undermined the financial stability of the
institution, therefore constituting sufficient evidence of intent
to harm VSA. See Parekh, 926 F.2d at 908. In short, the evidence
was such that a rational trier of fact could have found Powell
guilty of all elements of the offense beyond a reasonable doubt.
4. Bank Fraud
Powell also challenges the sufficiency of the evidence to
support his convictions for bank fraud under section 1344(a)(1) in
Counts Seven and Ten. Powell’s argument in both instances turns
primarily on whether there was sufficient evidence that the
Bloomdale Road and Irving/River Run loans were overfunded, and
whether VSA funds were used to reduce the personal debts of Hays
and Powell and finance the River Run purchase. There was
sufficient record evidence from which a rational juror could
conclude that the loans were overfunded in order to disguise the
use of VSA funds to benefit Powell and Hays and to evade the net
43
worth requirements imposed on VSA.24
V. Conclusion
In summary, we reverse the false entry convictions of
Pettigrew (Counts 12, 23, 24), Montague (Counts 12, 23, 24) and
Powell (Counts 3, 4, 5, 8, 11, 22) due to the trial court’s failure
to properly instruct the jury on materiality under section 1006.
This instructional error also requires that we reverse the
convictions of Pettigrew and Powell under section 371 for
conspiracy to commit offenses against the United States (Count 36).
These counts are all remanded for another trial.
With respect to Pettigrew, we also reverse and remand for
another trial his money laundering conviction under section 1957
for instructional error (Count 35), while affirming his
convictions for bank fraud under section 1344(a)(1) (Counts 10, 21)
and conspiracy to defraud the United States of the lawful
government functions of an agency under section 371 (Count 1).
Pettigrew’s sentence on Counts 1, 10, and 21 is vacated and as to
him the cause is remanded for resentencing on such counts.
We affirm the remainder of Powell’s convictions for conspiracy
24
Powell’s sole remaining sufficiency point urges us to reverse
his conviction on the conspiracy counts because: “None of the
actions proved by the Government to have been taken or agreed to by
Powell were illegal. Thus, the conspiracy Counts must fail,
because the objects of the conspiracies were not illegal.
Beuttenmuller, at 5.”
Although Powell’s conspiracy conviction on Count 36 has been
reversed due to instructional error, we decline to address this
point as it relates to Count 1 as it fails to comply with the
requirements of Fed. R. App. P. 28(a)(4). United States v. Abroms,
947 F.2d 1241, 1250 (5th Cir. 1991), cert. denied, 112 S.Ct. 2992
(1992).
44
to defraud the United States of the lawful government functions of
an agency under section 371 (Count 1), misapplication under section
657 (Count 2), bank fraud under section 1344(a)(1), and aiding and
abetting insider participation in the benefits of a federal credit
institution under section 1006 (Counts 13, 15, 16, 17, 19).
Powell’s sentence on Counts 1, 2, 13, 15, 16, 17, and 19 is vacated
and as to him the cause is remanded for resentencing on such
counts.
We further affirm Montague’s convictions for bank fraud under
section 1344(a)(1) (Counts 10, 21); his sentence on Counts 10 and
21 is vacated and the cause as to him is remanded for resentencing
on such counts. However, Walker’s convictions for bank fraud under
section 1344(a)(1) and false entry under section 1006 (Count 24)
must be reversed for insufficiency of the evidence, and such counts
as to Walker shall be dismissed.25
Accordingly, the judgment of the district court is
AFFIRMED in part; REVERSED in part;
REVERSED and REMANDED in part; and
VACATED and REMANDED in part.
25
The motion of Pettigrew and Montague to cross-adopt the
argument found at pages 16 through 19 of Powell’s brief previously
carried with the case is hereby granted, as is the motion of Walker
to adopt Part III of the reply brief of Montague and Part VI of the
reply brief of Pettigrew.
45
United States v. Pettigrew
Court: Court of Appeals for the Fifth Circuit
Date filed: 1996-03-12
Citations: 77 F.3d 1500
Copy CitationsCombined Opinion