IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 97-10773
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
versus
JAMES TRUESDALE; RONALD HAMILTON;
RICHARD E. JONES; SANDRA MILNER,
Defendants-Appellants.
Appeals from the United States District Court for the
Northern District of Texas
August 24, 1998
Before GARWOOD, JONES and WIENER, Circuit Judges.
GARWOOD, Circuit Judge:
Defendants-appellants James Truesdale (Truesdale), Ronald
Hamilton (Hamilton), Richard E. Jones (Jones), and Sandra Milner
(Milner) (collectively appellants) were convicted on multiple
counts for their involvement in a gambling operation. Finding that
there is insufficient evidence supporting the convictions, we
reverse on all counts.
Facts and Proceedings Below
This case arises from a sports wagering operation that
accepted bets in the Caribbean, but conducted some of the financial
transactions related to those bets in the Dallas, Texas, area. The
participants were indicted on various conspiracy, money laundering,
travel in aid of racketeering, and gambling counts related to their
involvement in this bookmaking operation. They were all convicted
on multiple counts and sentenced to prison terms ranging from 15 to
46 months.
Jones was the head of an international sports wagering
service, variously known as Spectrum or World Sportsbook (WSB),
that operated in the Dominican Republic, Jamaica, and Dallas. WSB
maintained offshore offices in order to provide a way for people in
the United States to place bets on sporting events without running
afoul of domestic gambling laws. In Jamaica and the Dominican
Republic, a properly licensed company that complies with local laws
can legally operate a bookmaking service, like WSB, as long as the
service does not accept bets from local individuals. In Dallas,
however, bookmaking is illegal under the laws of the State of
Texas.
The offshore operation began in 1990 when Jones formed
Spectrum SA in the Dominican Republic for the purpose of accepting
international phone bets. Spectrum was formed with the assistance
of a local attorney who filed the necessary paperwork and helped
Spectrum obtain a license from the Dominican government that
allowed it to accept wagers on sporting events via international
phone calls. To facilitate this business, Spectrum had an office
2
in the Dominican Republic, with eight phones and desks, that was
staffed during regular business hours with persons who would answer
the phones and process the wagers.
Later, the operation was moved to Jamaica because Jamaica had
lower phone rates. In Jamaica, a new corporation was formed with
the assistance of a local attorney who filed the required
paperwork, making the operation legal under Jamaican law. WSB’s
office in Jamaica, like its office in the Dominican Republic, was
set up with desks and multiple telephones for the purpose of
receiving bets from offshore. The Jamaican office was staffed by
persons from the Dominican Republic, Jamaica, and the United
States.
Bettors in the United States could place bets at these foreign
offices through toll-free numbers that WSB had set up. There were
several toll-free numbers associated with the wagering service.
Some of these numbers terminated at locations in the Dallas area,
while others terminated in the offshore office of WSB.
The numbers that terminated in the Dallas area were
“information only” lines and were not used to accept bets. Two of
these information-only lines terminated at Jones’s and Truesdale’s
homes. A potential bettor would first have to call one of these
information lines. Thereafter a member of the operation would send
an information packet to the bettor explaining the operation. The
information packages gave general information about WSB, payoff
information, information on how to set up a wagering account, etc.
3
These information packages listed, among other things, two
information-only numbers for contacting WSB.
Before a bettor could place bets, he would first have to send
money to open a betting account with WSB. To open an account or to
replenish an existing account, bettors would wire money via Western
Union or send it with Federal Express. Two gamblers testified at
trial that they made their checks payable to S.K. Milner. The
government also presented evidence that Truesdale and Hamilton
would go to the Western Union office to pick up the money transfers
and deposit the money in various bank accounts belonging to
Truesdale, Jones, or Milner, in the Dallas-Fort Worth area.
Not all bettors were required to pay up front. Those that did
not maintain betting accounts with WSB would mail large amounts of
cash to Jones, listing Milner as the return addressee. Milner was
listed as the return addressee so that if the packages got lost in
the mail they would still reach a member of the operation. Postal
inspectors seized several of these packages; Jones admitted that
two of the packages were gambling proceeds and a third was money
connected to gambling.
Once a betting account had been opened with WSB, a bettor
could call the information lines to get balance information about
his account. However, he could only place a bet by calling one of
the betting lines in the Dominican Republic or Jamaica. The
payoffs to winners were made from accounts in the Dallas-Fort Worth
area belonging to Truesdale and Hamilton.
4
In addition to their involvement with WSB’s financial
transactions and information lines, Hamilton and Truesdale both
maintained their own sports information telephone lines through
which they promoted WSB by advertising the wagering service and
giving out information-only toll-free numbers to call. In exchange
for this advertisement, they were given fifty percent of the
profits that WSB derived from bettors that they brought in.
Milner was even more involved in the organization. In
addition to mailing out information packages, Milner also received
money from bettors. Milner also had access to Jones’s bank account
and post office box, which were used for WSB-related business. And
she handled many of the accounting matters related to the bettors’
accounts.
Jones, as the head of WSB, traveled frequently to Jamaica to
oversee the operation. He could also monitor the operation from
his home in Dallas where he had access to the betting information.
From his home in Texas he could access the Jamaican computer to
view betting information. The computer in Jones’s home was
equipped with a modem that not only allowed him to view
information, but also allowed Jones to input information directly
into the Jamaican computer.
On December 8, 1992, Jamaican police, with the cooperation of
United States law enforcement personnel, searched WSB’s Jamaican
office. After the search in Jamaica, the operation was moved back
to the Dominican Republic and continued there.
5
On June 18, 1993, law enforcement officials moved to shut down
the WSB organization in Dallas. The search of Jones’s home
revealed that Jones maintained an office in his home that contained
a computer, office-size photocopier, shredding machine, two desks,
multi-line telephone, a fax machine, and a bank of televisions. A
safe was found in the floor of the master bedroom. Agents seized
documents, including a tally sheet indicating that more than $2
million were wagered from April 15, 1993, to June 15, 1993. They
also found some black ashes floating in the toilet. While the
agents were searching the home, the phone rang several times with
callers asking for “line information” and checking their deposits.
Three of the callers also asked to place bets.
When agents searched Hamilton’s home they found a tally sheet
of bets placed with the operation similar to the sheet from Jones’
home. The agents also received a call from a person wanting to
know the line on a sporting event, and when asked whether he wanted
to place a bet, he replied “Yes.” The agents also seized a list of
bettors.
At Truesdale’s and Milner’s residences the agents seized
numerous WSB documents, cashiers checks, and Western Union transfer
receipts and money order receipts totaling $473,114.
The appellants were indicted for conspiring to commit various
violations in connection with their gambling operation.
Additionally, they were each charged with various substantive
offenses including operating an illegal gambling business,
6
traveling in aid of racketeering, and money laundering.
The jury found Truesdale, Hamilton, and Milner not guilty of
conspiracy, but guilty on several counts of money laundering and
guilty of illegal gambling. Jones was convicted of conspiracy,
illegal gambling, and money laundering, but found not guilty on
most of the “traveling in aid of racketeering” counts.
At sentencing, the court granted a downward departure for all
appellants. Truesdale and Hamilton’s base offense levels were
reduced from 20 to 12, and Milner and Jones’s levels were reduced
from 23 to 16.
Truesdale was sentenced to 15 months in jail and 3 years’
supervised release, fined $10,000, and ordered to pay a special
assessment of $250.
Hamilton was also sentenced to 15 months in jail with 3 years’
supervised release, fined $7500, and ordered to pay a special
assessment of $100.
Jones was sentenced to 46 months in jail with 3 months’
supervised release, fined $12,500, and ordered to pay a special
assessment of $350.
Milner was sentenced to 24 months in jail and 3 years’
supervised release and no fine and ordered to pay a $200 special
assessment.
Discussion
Appellants, who made appropriate Fed. R. Crim. P. 29 motions
7
below, argue that there was insufficient evidence supporting their
convictions on Count Two for illegal gambling. We agree and
reverse their convictions on Count Two. Additionally, because we
agree that the appellants did not engage in illegal gambling as
alleged in the indictment and charged to the jury, we also reverse
the conspiracy, money laundering, and travel in aid of racketeering
convictions, since those convictions all depended on a finding that
the appellants engaged in illegal gambling activity.
The standard of review for sufficiency of the evidence is
high, and we must affirm if a rational trier of fact could have
found that the evidence, viewed in the light most favorable to the
government, established guilt beyond a reasonable doubt. See
Glasser v. United States, 315 U.S. 60, 80 (1942); United States v.
Gardea Carrasco, 830 F.2d 41, 43 (5th Cir. 1987).
Count Two of the indictment charged Jones, Truesdale,
Hamilton, and Milner with conducting an illegal gambling operation
in violation of 18 U.S.C. § 1955, which prohibits conducting,
financing, managing, supervising, directing, or owning, “all or
part of an illegal gambling business.” See 18 U.S.C. § 1955(a).
Under section 1955, an illegal gambling business is defined as a
gambling business that: (1) violates state or local law, (2)
involves 5 or more people, and (3) is in continuous operation for
more than 30 days or has gross revenue of $2,000 in a single day.
See 18 U.S.C. § 1955(b)(1); United States v. Heacock, 31 F.3d 249,
8
252 (5th Cir. 1994).1
In order to meet the first prong (violation of state law), the
indictment alleged that appellants’ gambling operation was being
conducted in violation of Chapter 47, Gambling, of the Texas Penal
Code. The indictment did not cite a specific provision within this
chapter, but it alleged only “bookmaking.”2 Additionally, the
government’s case focused entirely on and the jury charge
instructed only on the “bookmaking” provisions of Chapter 47.
Chapter 47 defines “bookmaking” as follows:
"(A) to receive and record or to forward more than five
bets or offers to bet in a period of 24 hours;
(B) to receive and record or to forward bets or offers to
bet totaling more than $1,000 in a period of 24 hours;
or
1
Section 1955 reads as follows:
“(a) Whoever conducts, finances, manages, supervises,
directs, or owns all or part of an illegal gambling
business shall be fined under this title or imprisoned
not more than five years, or both.
(b) As used in this section——
(1) ‘illegal gambling business’ means a
gambling business which——
(i) is a violation of the law of a State
or political subdivision in which it is
conducted;
(ii) involves five or more persons who
conduct, finance, manage, supervise, direct,
or own all or part of such business; and
(iii) has been or remains in
substantially continuous operation for a
period in excess of thirty days or has a gross
revenue of $2,000 in any single day.”
2
The indictment alleged that “[appellants’] illegal gambling
business involv[ed] bookmaking, in violation of the laws of the
State of Texas (Title 10, Texas Penal Code, Chapter 47) . . . .”
9
(C) a scheme by three or more persons to receive, record,
or forward a bet or an offer to bet.” Tex. Penal Code §
47.01(2)(A)-(C).
Under Texas law “bookmaking” is illegal, and if a person
intentionally or knowingly commits “bookmaking,” he commits the
offense of gambling promotion. Tex. Penal Code § 47.03(a)(2).
Bookmaking, however, is not the only activity that constitutes
gambling promotion. Section 47.03(a) lists five separate
categories of activity (including “bookmaking”) each of which can
constitute gambling promotion.3 Section 47.03(a) makes it a
separate offense for an individual, for gain, to “. . . become[] a
custodian of anything of value bet or offered to be bet[.]” Tex.
Penal Code § 47.03(a)(3). In this case, neither the indictment nor
the jury charge nor the government’s argument alluded to this
3
Section 47.03, Gambling Promotion, reads as follows:
“(a) A person commits an offense if he intentionally or
knowingly does any of the following acts:
(1) operates or participates in the earnings of a
gambling place;
(2) engages in bookmaking;
(3) for gain, becomes a custodian of anything of
value bet or offered to be bet;
(4) sells chances on the partial or final result of
or on the margin of victory in any game or contest or on
the performance of any participant in any game or contest
or on the result of any political nomination,
appointment, or election or on the degree of success of
any nominee, appointee, or candidate; or
(5) for gain, sets up or promotes any lottery or
sells or offers to sell or knowingly possesses for
transfer, or transfers any card, stub, ticket, check, or
other device designed to serve as evidence of
participation in any lottery.” Tex. Penal Code §
47.03(a) (emphasis added).
10
section. The indictment only mentioned bookmaking and the jury
charge only tracked the language of sections 47.01(2) and
47.03(a)(2). Thus, the illegal gambling convictions can only be
sustained on the basis of a violation of the Texas law against
“bookmaking,” and the fact that the appellants engaged in financial
transactions in the State of Texas that may have run afoul of
section 47.03(a)(3) is irrelevant. So far as concerns the
violation of the state——here Texas——law element of section 1955,
this case was charged, tried, and instructed on solely on the basis
of a claimed violation of the Texas prohibition against
“bookmaking” as contained in sections 47.01(2) and 47.03(a)(2).
Appellants claim that there was insufficient evidence that
they engaged in illegal bookmaking in Texas, because the bookmaking
portion of their business occurred in Jamaica and the Dominican
Republic. They argue that no bets were received, recorded, or
forwarded in Texas. The government, however, argues that the jury
could have inferred that the operation received, recorded, or
forwarded bets, and thereby conducted illegal bookmaking, in Texas,
and, in the alternative, the government argues that the operation
conducted financial transactions related to the gambling operation
with bettors in Texas, and, thus, a part of the betting operation’s
business was transacted in Texas, in violation of Texas law. We
find the government’s arguments unpersuasive.
As stated in the foregoing summary of the evidence, it is
11
plain that the bookmaking activities occurred outside the United
States in Jamaica and the Dominican Republic. Under section 1955,
the illegal gambling activity must violate the law of the state in
which it is conducted. The evidence at trial indicated that the
bets were taken in the Dominican Republic or Jamaica (where such
activity is legal), and the government produced no evidence that
anyone in the organization accepted bets in Texas, or otherwise
violated the Texas bookmaking law. The government simply argues
that the jury could have inferred that some bets were also being
accepted in Texas, and thus appellants engaged in conduct that
violated Texas law.
There is evidence that Jones took bets in the Dallas-Fort
Worth area before he moved the operation offshore, and thereby
violated Texas’ bookmaking statute, but this evidence is irrelevant
since these Texas bookmaking activities occurred before the time
period stated in the indictment.
The fact that two of the toll-free numbers used by the
organization terminated at the Texas residences of Truesdale and
Jones is not probative of illegal bookmaking without some evidence
that bets were actually accepted over these phone lines. If these
were the only phone lines associated with WSB and the only means
through which bettors could communicate with WSB, then perhaps a
jury could rationally conclude that the lines were used for illegal
12
betting.4 But there were other toll-free numbers, which were
specifically designated as “betting lines,” that terminated
offshore and were in fact used to place bets. That is why there
was a big operation offshore. It is not rational to infer beyond
a reasonable doubt that simply because the phone numbers could have
been used to receive bets in Texas, that they were actually used
for this illegal purpose.
The only evidence that illegal betting was conducted over
these information-only phone lines in Texas came from agents who
answered the phones while searching the residences. When agents
answered the phones at Jones’s and Hamilton’s residences, callers
either asked for line information or checked whether their gambling
account deposits had been received. Two agents testified that they
took bets from these callers, but their testimony is not probative
of any wrongdoing by the appellants.
A caller at Hamilton’s house did not ask to place a bet,
rather the agent searching the residence offered to take a bet from
the caller. Agent Molina testified that when he answered the phone
at Hamilton’s house, he offered to take a bet from a caller, and
the caller asked whether he had called the right number. Even
after Molina answered “Yes,” the caller refused to place a bet.
Three callers at Jones’s house placed bets on basketball or
4
So also, perhaps, if these lines had no other purpose. But
they clearly had other purposes——including to give information on
the offshore betting and to establish credit.
13
baseball games. But, the testimony does not suggest that any of
these three callers had ever placed a bet over one of these lines
before. Indeed, one caller thought he was calling Jamaica.
The fact that agents allowed people to place bets on these
phone lines is probative of very little. At best it shows that
callers may have attempted to place bets in Texas, but it does not
indicate that appellants accepted bets from callers on these phone
lines.
In addition to these phone calls, the government also points
out that Jones had the capability to input information (such as
bets and line information) into the betting computer in Jamaica
from his home computer in Dallas. But there is no evidence
indicating that Jones (or anyone else) ever did this. The
government also argues that a notebook seized from Hamilton’s
residence containing account numbers, teams, and amounts could have
been notes for accepting bets in Dallas. Finally the government
argues that black ash found floating in Jones’s toilet was
evidence of something illegal.
Perhaps in some other circumstances, evidence of callers
attempting to place bets, the mere capability to input illegal
bookmaking information into the offshore computer, and the other
circumstantial evidence might lead to a rational inference that
appellants were engaged in illegal bookmaking in Texas. However,
looking at the overall circumstances of this case, such an
14
inference is unwarranted. Jones and his co-appellants went to
great effort to make sure that their operation was legal. They set
up offshore offices and consulted with lawyers in the United States
and abroad on the legality of their enterprise; they furnished the
Caribbean local offices with desks and telephones and staffed them
with personnel to accept international phone wagers; they set up
separate phone lines that could be used to place bets in the
offshore offices. Under these circumstances, without specific
evidence of any wrongdoing, it is irrational to conclude beyond a
reasonable doubt that after having gone through the effort of fully
equipping, staffing, and widely advertising the Caribbean offices,
the appellants nevertheless illegally accepted bets in the United
States.
The government has no direct evidence supporting its
contention that appellants engaged in illegal bookmaking in Texas.
And the circumstantial evidence here does not furnish an adequate
basis from which a reasonable jury could conclude beyond a
reasonable doubt that the appellants were engaged in bookmaking in
Texas. The appellants went out of their way to stay within the
law. The mere fact that they had the capability or even the
opportunity to break the law by accepting bets in Texas is
insufficient to prove that they actually did so.
In light of the weak circumstantial evidence, the government
argues in the alternative that the convictions can be upheld
15
because appellants accepted money from bettors and paid out
proceeds from bets in the United States. The government maintains
that these financial transactions were an essential part of the
operation. It may be true that these financial transactions were
essential to the overall operation, but they do not establish an
essential element of the crime of “bookmaking” as it is defined by
Texas law. The Texas bookmaking statute prohibits recording,
receiving, and forwarding bets; where and how the money is paid out
is irrelevant under section 47.03(a)(2).5 Becoming a custodian of
money that is used to place bets offshore would be a violation of
section 47.03(a)(3). However, the indictment did not allege that
the appellants violated section 47.03(a)(3) and the jury was not
instructed on any such violation. Nor was the case tried on that
5
The jury seems to have been confused about whether accepting
money for future betting constitutes “betting” under Texas law.
During deliberations, the jury sent a note to the judge asking
“[d]oes receiving money to facilitate the placing of a wager (to be
done at a future time) constitute a bet?” The court did not answer
this question, and responded “[t]he question you have posed is
addressed in the court’s charge and you should look to the charge,
considering my instructions as a whole, for the answer.” This
response was inadequate, as the subject matter of the question was
not directly or expressly addressed in the charge, and could not
have cleared up the jurors’ confusion. See United States v.
Stevens, 38 F.3d 167 (5th Cir. 1994). The court should then have
clearly instructed that Texas law has broken gambling down into two
separate offenses: bookmaking (as defined in the instructions) and
for gain becoming a custodian of anything of value bet or offered
to be bet, or at the very least the court should have answered
“No,” as appellants requested below.
The court’s instruction in response to the question was
inadequate and would require reversal were we not in any event
reversing the case because of insufficient evidence.
16
theory. In short, the government’s case and the jury’s verdict
were focused exclusively on illegal bookmaking, and we cannot
affirm the case on a different theory.
Because there is insufficient evidence to establish beyond a
reasonable doubt that the appellants were guilty of operating a
bookmaking service in violation of the Texas bookmaking statute, we
reverse the convictions on Count Two. Additionally, because we are
reversing the underlying gambling offense, we also reverse Jones’s
Conspiracy and Travel in Aid of Racketeering convictions, and we
reverse all the appellants’ money laundering convictions. All
these convictions are predicated on the section 1955 violation
charged in Count Two.
We reverse the money laundering convictions because without
the gambling conviction there is no underlying criminal activity.
Milner and Jones were convicted pursuant to 18 U.S.C. §
1956(a)(1)(A)(I) for: (1) conducting or attempting to conduct a
financial transaction, (2) which the defendant then knew involved
the proceeds of illegal activity, (3) with the intent to promote or
further unlawful activity. See United States v. Gaytan, 74 F.3d
545, 555 (5th Cir. 1996). Truesdale and Hamilton were convicted
pursuant to 18 U.S.C. § 1956(a)(1)(B)(I) for: (1) conducting or
attempting to conduct a financial transaction, (2) which the
defendant then knew involved the proceeds of illegal activity, (3)
with the intent to conceal or disguise the nature, location,
17
source, ownership, or control of the proceeds of unlawful activity.
See United States v. Wilson, 77 F.3d 105, 108 (5th Cir. 1996).
Money laundering requires that the defendant conduct or
attempt to conduct a financial transaction involving the proceeds
of an illegal activity. In this case, the only illegal activity
that was ever alleged or submitted to the jury was illegal
bookmaking. As discussed above, we reverse those convictions.
Without those convictions, no illegal activity has been properly
established upon which to base a money laundering conviction. We
suspect that appellants’ financial transactions in Texas probably
ran afoul of section 47.03(a)(3), but the case was not tried on
that theory, and without an indictment and appropriate jury
instructions, we cannot uphold the money laundering convictions on
such a basis.
We also reverse Jones’s convictions for travel in aid of
racketeering and conspiracy. Like money laundering, travel in aid
of racketeering requires an underlying criminal activity. Jones
was indicted for violating 18 U.S.C. § 1952(a)(3), which requires
that the defendant travel in interstate or foreign commerce with
the intent to “promote, manage, establish, carry on, or facilitate
the promotion, management, establishment, or carrying on of any
unlawful activity[.]” 18 U.S.C. 1952(a)(3). The travel in aid of
racketeering counts were explicitly made dependent on Count Two.
The indictment specifically referred to the gambling enterprise
18
alleged in Count Two as the unlawful activity supporting the travel
in aid of racketeering counts. Since we reverse the convictions on
Count Two, there is no illegal activity on which to base a travel
in aid of racketeering conviction, and hence we reverse these
convictions. Finally, because we reverse all the substantive
counts, we also reverse Jones’s conviction for conspiracy to commit
those offenses.6
Conclusion
For the foregoing reasons, we reverse the appellants’
convictions on all counts.
REVERSED
6
Under the allegations of the indictment, the basis on which
the government tried the case and the charge, the conspiracy
ultimately depended on the theory that what was done——and there is
no showing or claim that anything else was contemplated or
agreed——constituted bookmaking in Texas contrary to sections
47.01(2) and 47.03(a)(2).
19