United States v. Davis

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT
______________________

No. 98-51173
______________________

UNITED STATES OF AMERICA, Plaintiff - Appellee,

versus

TONY DAVIS, Defendant - Appellant.

___________________________________________________________________

Appeal from the United States District Court for the
Western District of Texas
___________________________________________________________________
August 29, 2000

Before POLITZ, GIBSON,* and HIGGINBOTHAM, Circuit Judges.

JOHN R. GIBSON, Circuit Judge.

Tony Davis was convicted of one count of conspiracy, 18 U.S.C.

§ 371 (1994), two counts of wire fraud, 18 U.S.C. § 1343 (1994),

two counts of travel and transportation of securities for

fraudulent purposes, 18 U.S.C. § 2314 (1994), and three counts of

money laundering, 18 U.S.C. § 1957 (1994), all in connection with

his operation of an advance-fee scheme, in which he would agree to

obtain funding for clients, but would never do so. Davis was

sentenced to 60 months imprisonment on each of the first three

counts and 97 months on each of the last five counts, to run

concurrently, and assessed $3,609,937.79 in restitution. On

*
United States Circuit Judge for the Eighth Circuit, sitting
by designation.

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appeal, he contends that the district court erred in failing to

suppress wrongfully seized evidence, in failing to dismiss the case

as a sanction for violation of Davis's attorney-client privilege,

in failing to dismiss the indictment, in instructing the jury, and

in sentencing him. He also argues that the evidence was

insufficient to support the conspiracy and money-laundering counts.

We affirm the judgment and sentence imposed.

At trial the government presented testimony of fifteen clients

who came to Davis seeking venture capital for business projects.

In each case the story followed the same lines. Davis would state

that he had the present ability to fund such projects and that the

clients would get their funding within a certain time, usually from

30 to 120 days, of paying an advance fee. Davis would promise to

refund the fees if he could not provide funding. Davis would then

collect fees from the clients, typically between $25,000 and

$150,000. Davis never provided the funding as promised, but

tantalized the clients with endless representations that their

funding was just around the corner. Davis rarely refunded the

fees, although he paid some money back to two clients, in one case

in response to a lawsuit. From the fifteen clients who presented

their stories at trial, Davis took in almost $2 million in fees.

Davis told his clients he had access to valuable financial

instruments, such as a guarantee for $100 million from the

Industrial Bank of Kibris, Ltd., and certificates of deposit worth

$50 million from CariBank International. Davis had obtained the

Kibris guarantee and other such instruments without paying anything

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for them. He had also received a report from an investigator he

retained stating that the instruments were worthless.

Davis was assisted in his scheme by Thomas Chaffe, who

provided false references to borrowers by claiming that Davis had

funded a $25 million project for him. Chaffe was tried as a co-

defendant on the conspiracy count and on one count of interstate

travel for fraudulent purpose. He was acquitted on both counts.

Also involved was Louis Lopez, who worked in the business

with Davis. Lopez posed as an escrow agent, thus enabling Davis to

get an additional $300,000 out of a client who balked at sending

more money to Davis himself. Lopez was not an escrow agent, and

Davis appropriated the $300,000 "escrow" payment. Lopez entered a

plea bargain, pleading guilty to a single misdemeanor count of

filing a false income tax return.

I.

Davis argues that the district court erred in denying his

motion to suppress evidence seized from his home and office in a

search conducted pursuant to a search warrant. Davis objects (1)

that the FBI officer who applied for the warrant omitted

information from his affidavit that made the affidavit misleading

to the magistrate; (2) that the warrant was not adequately

particular; (3) that the warrant was overbroad; and (4) that the

magistrate relied on oral statements that were not recorded.

On October 7, 1994, the FBI searched Davis's home and office

under search warrants that listed fifteen categories of evidence to

be seized, mostly various kinds of financial records, both paper

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and electronic. The warrant was based upon the affidavit of FBI

agent Emil Parelli. Parelli stated that he had reason to believe

the Davis house and office contained evidence of wire fraud based

on his knowledge of facts about two would-be borrowers, the

Goldtaper group, represented by Geoffrey Burchill and Timothy

Wright, and Spacelink Airborne Systems, represented by general

partner Michael Kelly.

Parelli's affidavit recounted that Wright and Burchill came to

Davis, who was doing business as Forum Financial, in search of $116

million to fund two projects in Australia for the Goldtaper group.

Davis told them he had sufficient securities on hand to convert to

cash and fund Goldtaper's project. Burchill, Wright, and Davis

signed a formal commitment letter on July 21, 1993 stating that

Goldtaper would receive $15 million in funding within 120 days.

Goldtaper paid Davis a $120,000 fee for providing the funding. The

120-day period expired in November 1993, but Davis did not provide

the $15 million. Davis then faxed a statement to Burchill stating

that Davis had $250 million in financial instruments and letters of

credit; on the strength of this representation, Wright granted

Davis a thirty-day extension, but Davis did not fund the project at

the end of the extension. In December 1993 and January 1994,

Davis told Burchill and Wright that he had borrowed the securities

necessary to obtain a loan and would be able to fund Goldtaper in

January 1994, but Davis never came through with the funds.

Burchill made formal demand of Davis to return Goldtaper's $120,000

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fee as required by the commitment letter, but Parelli's affidavit

stated: "Davis did not return the fee as promised."

Parelli's affidavit also recounted the similar story of

Spacelink Airborne Systems, which dealt with Davis through general

partner Michael Kelly. Kelly sought $100 million in funding

through Davis. Kelly and Davis signed a formal commitment letter

on April 26, 1994, in which Davis promised to provide Spacelink $1

million by June 10, 1994. Kelly paid Davis $125,000 to provide

this funding. Davis did not provide Spacelink any money by June

10, 1994, or by the subsequently promised dates of June 15, 1994,

July 8, 1994, July 18, 1994, and July 21, 1994. Davis never funded

the project. Davis provided the name of Thomas Chaffe as someone

whom he had provided financing. Kelly telephoned Chaffe, who told

him that he had received $25 million in funding from Davis. The

next day a cooperating witness spoke to Chaffe, who told the

witness that he had not received $25 million from Davis. Parelli

stated that Kelly formally demanded return of his $125,000 fee, but

Davis did not refund it.

The affidavit further stated that bank records revealed

hundreds of thousands of dollars had come into the accounts of

Davis's firm, Economic Dutch Consultants, U.S.A., Inc., doing

business as Forum Financial, but that no tax returns had been filed

for that company for the years 1990-1993.

Parelli presented this affidavit to the magistrate. In

examining it, the magistrate asked Parelli whether there were other

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victims besides Goldtaper and Spacelink, and Parelli answered that

there were. This colloquy was not recorded.

The magistrate issued the warrants authorizing seizure of

fifteen categories of evidence, primarily financial records of

Forum Financial and of Davis and his wife, Gaylan. Parelli

testified that the FBI seized 65 boxes of documents in the search.

Davis moved to suppress the evidence seized in the search.

After a hearing, the court denied Davis's motion.

A.

In reviewing the district court's ruling on a motion to

suppress evidence, we review factual findings for clear error. See

United States v. Cherna, 184 F.3d 403, 406 (5th Cir. 1999), cert.

denied, 120 S. Ct. 1669 (2000). We review de novo legal

conclusions regarding the constitutionality of law enforcement

action, the sufficiency of the warrant, and the reasonableness of

an officer's reliance on a warrant. See id. at 406-07.

In considering a Fourth Amendment challenge to a seizure

conducted pursuant to a search warrant, we ask first whether the

seizure falls within the good-faith exception to the exclusionary

rule. See id. at 407 (citing United States v. Leon, 468 U.S. 897

(1984)). Under the good-faith exception, "evidence obtained by law

enforcement officials acting in objectively reasonable good-faith

reliance upon a search warrant is admissible in the prosecution's

case-in-chief, even though the affidavit on which the warrant was

based was insufficient to establish probable cause." United States

v. Shugart, 117 F.3d 838, 843 (5th Cir. 1997) (quotation omitted).

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Only if we conclude that the good-faith exception does not apply do

we proceed to ask whether the magistrate who issued the warrant had

a substantial basis for believing there was probable cause for the

search. See Cherna, 184 F.3d at 407.

(1)

Davis argues that the Leon exception does not apply to his

case1 because Parelli misled the magistrate by omitting information

in his possession that would have weakened the case against him.

To impeach the warrant, Davis must show that Parelli either

deliberately or recklessly misled the magistrate and that without

the falsehood there would not be sufficient matter in the affidavit

to support the issuance of the warrant. See Franks v. Delaware,

438 U.S. 154, 171-72 (1978). The necessary falsehood can be

perpetrated by omission as well as commission, but the omission

must be of information that is not only relevant, but dispositive,

so that if the omitted fact were included, there would not be

probable cause. See United States v. Bankston, 182 F.3d 296, 305

1
There are four situations in which the Leon good-faith
exception does not apply. First, the good-faith exception does not
apply when the magistrate issuing the warrant was intentionally or
recklessly misled by the affiant on whom he relied. See Cherna,
184 F.3d at 407. Second, the exception does not apply if the
magistrate "wholly abandoned his judicial role" and acted as a part
of the law enforcement team, rather than as a check on its zeal.
Id. at 407-08 (citing Lo-Ji Sales, Inc. v. New York, 442 U.S. 319
(1979)). Third, the exception is not available if the warrant was
based on an affidavit "so lacking in indicia of probable cause as
to render belief in its existence entirely unreasonable." Leon,
468 U.S. at 923 (quotations omitted). Finally, the warrant itself
could be so facially deficient, for instance, so lacking in
particularity, that an officer would be unreasonable to rely on it.
See id.

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(5th Cir. 1999), cert. granted on other grounds, 120 S. Ct. 1416

(March 20, 2000) (No. 99-804); United States v. Tomblin, 46 F.3d

1369, 1377 (5th Cir. 1995).

Davis claims that Parelli omitted details of the Goldtaper and

Spacelink funding agreements that would have shown that Davis had

retained the legal right not to perform, specifically, that the

Spacelink agreement excused Davis from performing if Spacelink

became insolvent and that, in paying Davis the $125,000 fee,

Spacelink rendered itself insolvent. Thus, he contends, Spacelink

was not entitled either to get its $125,000 back or to have Davis

perform his part of the agreement.

Without going into the obvious difficulties with this

argument, we need only say that the evidence at the suppression

hearing showed Spacelink was not insolvent and has never been,

despite its loss from dealing with Davis.

Davis also contends that Parelli concealed that Davis had

refunded $60,000 to Goldtaper. Parelli testified that he did not

include this fact because the money was not paid to Goldtaper as

promised, in whole on demand, but rather in $20,000 increments in

attempts to stave off a lawsuit. Although Davis's partial

repayment is relevant, it is not dispositive. Parelli's affidavit

shows that Davis did more than simply fail to pay a contractual

commitment. According to the affidavit, Davis repeatedly told

Goldtaper's principals that he already had sufficient securities on

hand to fund their project. Davis also led them to believe he had

funded another project that he did not really fund. Thus, there

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was reason to believe Davis had already committed fraud, and

partial settlement of the claim against him under duress does not

take away the probable cause established by the other parts of the

affidavit.

Davis's other attacks on the affidavit also fail. Our review

of the record shows, even with the evidence Davis advances, that

the Parelli affidavit provided probable cause to believe Davis had

committed fraud and that the claimed omissions do not tend to

exculpate Davis.

(2)

Davis also argues that the Leon good-faith rule does not apply

because the affidavit does not provide probable cause for a search

of the breadth authorized by the warrant. A warrant based on a

"bare bones" affidavit that is obviously insufficient to establish

probable cause does not justify an officer's reliance. See Cherna,

184 F.3d at 410. Even though the warrant did authorize seizure of

broad categories of financial documents, that breadth was supported

by the affidavit, which suggested Davis's business was nothing but

a confidence scheme. See id. at 409-10; United States v. Humphrey,

104 F.3d 65, 68-69 (5th Cir. 1997) (all-records search of home and

business valid because affidavit supported conclusion that entire

business was merely a scheme to defraud and defendant's personal

and business lives overlapped). There certainly was not the kind

of discrepancy between the assertions in the affidavit and the

scope of the warrant that would make it unreasonable for an officer

to rely on the warrant. See Cherna, 184 F.3d at 409-10.

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 (3)

Davis also contends that the Leon exception does not apply

because the warrant lacked the particularity required by the Fourth

Amendment. Although parts of the warrant described generic

categories of documents, rather than specific documents, the

fifteen categories of evidence described in the warrant are

delineated in as much detail as is practicable for investigating

the kind of fraud indicated in this case. We have held that

warrants using generic categories of evidence are adequately

particular where the crime being investigated is likely to require

examination of all of a business's records. See Humphrey, 104 F.3d

at 69. The affidavit indicated that there was reason to believe

that Forum Financial had failed to file required tax returns; proof

that Forum had made money on which it owed taxes would require

review of broad categories of Forum's records. Further, the

warrant in this case shows that the officers made some attempt to

narrow the categories of evidence as much as possible. For

example, the warrant limited the documents to be seized by date or

subject matter in many cases. The warrant is more particular than,

for instance, the one we approved in Humphrey, 104 F.3d at 68-69

n.1. It was therefore not so defective that an officer would be

unreasonable to rely on it. See Cherna, 184 F.3d at 411-12.

(4)

Davis also argues that the officers were not entitled to rely

on the warrant because the magistrate asked Parelli questions, but

failed to have his answers recorded. Parelli testified at the

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suppression hearing that the magistrate to whom he applied for the

warrant asked him if there were other victims in addition to

Spacelink and Goldtaper. He told the magistrate there were.

Federal Rule of Criminal Procedure 41(c)(1) requires that if the

magistrate supplements the written affidavit with oral testimony,

the testimony should be recorded. However, where, as here, the

written affidavit was adequate to support issuance of the warrant,

the warrant will not be invalidated merely because the magistrate

elicited statements that were not recorded. See United States v.

Massey, 687 F.2d 1348, 1356 (10th Cir. 1982); United States v.

Sturgeon, 501 F.2d 1270, 1274 (8th Cir. 1974).

II.

Davis contends that the district court should have dismissed

the case because the seizure of documents protected by the

attorney-client privilege violated his Sixth Amendment rights.

Davis also contends that the court should have suppressed evidence

because of the violation of his attorney-client privilege. The

documents subject to privilege were submitted to a magistrate, who

ordered them sequestered, and they were not introduced at trial.

Even assuming that the government intruded on Davis's

attorney-client privilege by initially seizing the documents, we

would not dismiss the case against Davis without some showing of

prejudice. See United States v. Morrison, 449 U.S. 361, 365-66

(1981). The government did not offer any privileged documents into

evidence at trial because they were all under seal. Davis does not

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point to even one document that he contends would have revealed his

trial strategy or harmed him in any other articulable way. Davis

has failed to put forward the slightest showing of prejudice, and

so we can only affirm the district court's denial of his motion to

dismiss.

III.

Davis asserts that the district court erred in refusing to

dismiss the superseding indictment because it alleged that the

conspiracy continued through the date of that indictment, November

18, 1997, even though Davis and his co-defendants had been arrested

in November 1996 in connection with the original indictment.

According to Davis, the arrest terminated the conspiracy as a

matter of law. The district court denied Davis's motion to

dismiss, holding that the government could indict Davis for further

criminal acts intervening between his first arrest and the filing

of the superseding indictment. We review de novo the district

court's ruling on the sufficiency of the indictment. See United

States v. Cabrera-Teran,168 F.3d 141, 143 (5th Cir. 1999).

Davis appears to concede that the government adduced evidence

of acts after the date of the arrest that would have been in

furtherance of the conspiracy, had the conspiracy not ended as a

matter of law on the date of the arrest. He contends, however,

that the continuation of the scheme after the date of arrest of all

the conspirators cannot as a matter of law be a continuation of the

"conspiracy" and that he was injured by the introduction of

evidence of acts committed after the magic date.

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 This belabored, technical argument finds no support in our

precedent or in common sense. The statement in our cases that a

person's participation in a conspiracy ends with his arrest has its

origin in the co-conspirator hearsay cases and is a general rule

used in determining when statements are made in furtherance of a

conspiracy. See, e.g., United States v. Arce, 997 F.2d 1123, 1128

(5th Cir. 1993) (ordinarily, a person's participation in a

conspiracy ends with arrest). Where there is evidence that

conspirators managed to continue conducting the business of the

conspiracy after arrest, the mere fact of arrest does not prevent

the government from relying on that evidence. See United States v.

Register, 496 F.2d 1072, 1078-79 (5th Cir. 1974); see also United

States v. Puig-Infante, 19 F.3d 929, 945 (5th Cir. 1994) (arrest

does not constitute automatic withdrawal from conspiracy); United

States v. Howard, 115 F.3d 1151, 1156-57 (4th Cir. 1997). Here,

Davis was out on bond and conducting business as usual, including

telling one victim as recently as a month before trial that he was

going to provide him funding. Alleging that the conspiracy

continued after the arrest of the conspirators does not amount to

a defect in the indictment.

IV.

Davis argues that the evidence is insufficient to convict him

of conspiracy under Count 1 or of money laundering under Counts 9,

10, and 11. Our review of the sufficiency of the evidence

supporting a conviction is narrow: we will affirm if a rational

trier of fact could have found that the evidence established the

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essential elements of the crime beyond a reasonable doubt. See

United States v. Westbrook, 119 F.3d 1176, 1189 (5th Cir. 1997).

We view the evidence in the light most favorable to the verdict.

See United States v. Moreno, 185 F.3d 465, 471 (5th Cir. 1999),

cert. denied, 120 S. Ct. 835 (2000). While the jury is free to

choose among reasonable constructions of the evidence, a verdict

cannot be affirmed if it is based on circumstantial evidence that

is as consistent with innocence as with guilt. See id.

A.

Count 1 charged Davis with conspiracy to commit wire fraud, 18

U.S.C. § 1343, and inducement of travel or transport of securities

in interstate commerce for fraudulent purpose, 18 U.S.C. § 2314.

To prove conspiracy, the government must prove beyond a reasonable

doubt that there was an agreement to violate the law and that each

conspirator knew of the conspiracy, intended to join it, and

participated in it voluntarily. See Westbrook, 119 F.3d at 1189.

A conspirator need not know all the details of the unlawful

enterprise, so long as he knowingly participates in some way in the

larger objectives of the conspiracy. See id.

Count 1 charged Davis, Lopez, and Chaffe as co-conspirators.

On appeal, the government does not argue that it proved Chaffe

participated in the conspiracy, but it does contend that it proved

Lopez and Davis conspired to use interstate wire communications to

defraud Tonia Yeh, who lived in California, of $300,000 that she

sent to Austin Escrow Services in Texas.

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 Yeh represented C&C Gateway, Inc., which wanted to borrow $3.8

million to build a steel plant in China. Davis provided Yeh with

promotional materials indicating Forum Financial had the ability to

fund the projects, and he told her he could provide the $3.8

million within thirty days after they signed a contract. When

Davis sent her a fax stating that the initial funding could be done

within thirty days, Yeh wired Davis a $50,000 fee on January 17,

1995 and signed a contract. Later, Davis faxed Yeh another memo

stating that Forum would refund any retainers paid to it if it did

not provide complete funding for C&C Gateway's project.

Consequently, Yeh wired another $50,000 to Forum.

Instead of providing the $3.8 million, Davis next told Yeh

that she must put up $300,000 as a security deposit. Initially,

Davis proposed that the security deposit be paid directly to him,

but Yeh insisted that the deposit be handled by a third party

escrow. Davis provided Yeh with the name of "Austin Escrow

Services," which he said was an independent escrow agent. Yeh

asked for references for Austin Escrow Services, and Davis faxed

her a list of names, which included Thomas Chaffe. Davis told Yeh

that Louis Lopez was the person who ran Austin Escrow Services.

Yeh was still not comfortable sending the $300,000, so she asked

Lopez for an insurance policy on the money. Davis sent her a fax

stating that he "checked with the escrow company" and that they

could provide an insurance policy for loss of funds. The fax also

stated that Davis had just flown to Los Angeles to execute the

contract for funding C&C Gateway's transaction and threatened to

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reallocate the funds to other parties unless Yeh sent the money

immediately. A few days later, Davis faxed Yeh a letter saying he

understood that C&C Gateway's representatives had talked to Louis

Lopez about the insurance policy. Davis stated that "Austin Escrow

gets surety bonds on individual transactions," and he faxed what

purported to be an insurance binder on the C&C Gateway transaction

issued by Monopol. Yeh testified that she "purchased the cashier's

check [and] held it in [her] hand and waited for Tony Davis' fax

regarding the insurance policy on this $300,000." After receiving

the faxed insurance binder, Yeh sent the $300,000 to Austin Escrow

Services in Texas, attention Louis Lopez.

When C&C Gateway did not receive the funding as promised, Yeh

checked with the bank where Austin Escrow Services kept its account

and found that only a "couple hundred dollars" were left in the

account. C&C Gateway never got back either its $100,000 fee or the

$300,000 security deposit.

Lopez was actually a business associate of Davis's, who shared

office space with Davis from 1993-96. Lopez worked with Davis to

locate financial instruments to use as collateral, with the

understanding that they would split the profits if they were ever

successful. Lopez testified that Austin Escrow Services was

Davis's company and that he falsely told Yeh that he was the escrow

agent for Austin Escrow Services. He also testified that he told

Yeh her money would be insured, but the only insurance he could

point to at trial was Davis's insurance as a CPA. In the three

years that Lopez worked with Davis, he saw large numbers of people

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in the office who had waited for a long time to get their projects

funded or even to see Davis, but he never knew of anyone actually

getting funded by Davis. He spoke to Davis about whether Davis

would get in trouble for representing to those people that they

were going to be funded, and Davis told him that there were enough

loopholes in the contract so that it wouldn't be a problem for him

and that the contracts were written to allow him to make

requirements that people would never be able to fulfill.

There was evidence from the Texas Department of Insurance, the

agency that regulates escrows in Texas, that Austin Escrow Services

never had a license to act as an escrow agent in Texas and that

neither Davis nor Lopez had ever been lawful escrow agents in

Texas. Moreover, Davis himself filed an assumed name certificate

for Austin Escrow Services the day after Yeh sent the $300,000.

Earlier that same month, Davis hired a telephone answering service

for Austin Escrow Services. There was also evidence that the C&C

Gateway check was deposited into an account for Tony R. Davis,

doing business as Austin Escrow Services.

Yeh was induced to part with C&C Gateway's money by Davis's

false faxes to Yeh about the existence of an escrow company and an

insurance policy that never existed and Lopez's false

representations that he was the escrow agent for Austin Escrow

Services and that Austin Escrow Services had insurance. These

facts provide ample evidence from which to infer that Davis and

Lopez formed an agreement to defraud C&C Gateway, and that each

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participated in the conspiracy to commit interstate wire fraud

knowingly, intentionally, and voluntarily.

B.

Davis argues that there was insufficient evidence to support

his convictions on Counts 9, 10, and 11 for money laundering, 18

U.S.C. § 1957. Section 1957 proscribes knowing engagement in a

monetary transaction greater than $10,000 in property derived from

certain specified crimes, which include interstate travel for

fraudulent purposes, 18 U.S.C. §§ 1343 and 2314. As to all three

money-laundering counts, Davis argues that the criminal

transactions were not complete at the time of the monetary

transactions, so that the monetary transactions could not be said

to be in criminally derived property. As to Count 9, Davis argues

that the government could only establish that $6,414.45 of the

money used in the transaction was criminally derived, so that the

$10,000 statutory threshold was not met.

Each of the three counts charges Davis with writing checks on

accounts that contained money he had obtained from a fraud victim.

Count 9 alleged that Davis wrote a $25,000 check on the account

containing moneys obtained from DePawl Enterprises. In Count 10,

he wrote a check for $50,000 on the bank account into which he had

deposited Kelly's Spacelink check for $125,000. Finally, in Count

11, Davis wrote himself a check for $80,000 on the Austin Escrow

Services account, which contained C&C Gateway's $300,000 "security

deposit."

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 Davis contends that in each instance, the fraud was not

complete at the time he drew the checks on the accounts because he

had not yet failed to fund the victims' projects or return their

refundable fees. This argument is legally untenable. The

government's evidence was that Davis made false representations to

obtain the money in the first place. He told Kelly he had a blind

pool of cash out of which an initial draw of $1 million dollars

could be made and gave him a brochure stating, "In the past few

years [Davis] has arranged hundreds of millions of dollars of

financing worldwide." Davis told Ernest Alexander, an officer of

DePawl Enterprises, that he had a number of large investors whose

money he controlled and that he had "signature authority" to

release their funds. We have just stated above the false

representations Davis made to Yeh about the existence of an

independent escrow agency run by Louis Lopez. In contrast to

Davis's assertions, the evidence at trial showed that Davis's close

associate Lopez had never known of Davis funding anyone in the

years he worked with him; indeed, Davis explained to Lopez that he

had drawn the contracts in such a way that he would never have to

fund them. The fifteen victims who testified at trial testified

that their funding dates came and went with no funding; that their

attempts to obtain refunds were met with unending temporizing,

evasion, and promises of imminent funding that were never

fulfilled; and that the few who obtained any refunds received them

in small increments totally inconsistent with Davis controlling

millions of dollars in a blind pool with signature authority. When

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asked to explain how he planned to provide funding, Davis would

show financial instruments purportedly worth millions and even

billions of dollars that he had gotten for free. In each of the

money laundering counts, the fraud was complete when Davis obtained

the money from the victim by means of false representations and

with no intent to fund the projects or refund the fees.

"Fraudulent schemes produce proceeds, at the latest when the scheme

succeeds in disgorging the funds from the victim and placing them

into the control of the perpetrators." United States v. Leahy, 82

F.3d 624, 635 (5th Cir. 1996) (internal quotations omitted).

Davis's subsequent withdrawals of money obtained from the victims

were therefore transactions involving proceeds of the fraud.

Accord United States v. Dupre, 117 F.3d 810, 821-22 (5th Cir.

1997).

Count 9 charged Davis with issuing a check to Wright &

Greenhill, P.C., for $25,000 from moneys derived from wire fraud.

The government adduced evidence that the check was written on a

Forum Financial bank account which had received the $100,000 wired

from Alexander, on behalf of DePawl Enterprises. When DePawl

Enterprises wired the money to the Forum account on February 25,

1994, the account already contained $18,585.55. Therefore, Davis

argues, only the $6,414.45 difference between $25,000 and

$18,585.55 should be considered money Davis got from DePawl

Enterprises and, thus, proceeds from specified criminal activity.

This is less than the $10,000 threshold amount specified in section

1957. See United States v. Adams, 74 F.3d 1093, 1101 (11th Cir.

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1996) (under § 1957 there must be proof that transaction involved

more than $10,000 of tainted money). Cf. United States v. Tencer,

107 F.3d 1120, 1131 (5th Cir. 1997) (section 1956 requires only

that any part of transaction involved tainted funds).

The government introduced banking records showing various

withdrawals, made after receipt of the $100,000, that totaled more

than $100,000. One of these withdrawals was the $25,000 check to

Wright & Greenhill, which brought the account balance to $13,579.62

on March 14, 1994, the day the check cleared the account.

Obviously, when tainted money is mingled with untainted money

in a bank account, there is no longer any way to distinguish the

tainted from the untainted because money is fungible. See United

States v. Ward, 197 F.3d 1076, 1083 (11th Cir. 1999); United States

v. Moore, 27 F.3d 969, 976-77 (4th Cir. 1994) (cannot distinguish

without resort to "arbitrary" accounting techniques).

This Circuit has grappled with the commingling problem in

cases dealing with interstate transfer of funds obtained by fraud.

There, we have developed the rule that when the aggregate amount

withdrawn from an account containing commingled funds exceeds the

clean funds, individual withdrawals may be said to be of tainted

money, even if a particular withdrawal was less than the amount of

clean money in the account. In United States v. Heath, 970 F.2d

1397, 1404 (5th Cir. 1992), the defendants were convicted for

transferring a total of $2.2 million to New York from an account

into which they had deposited $6 million in tainted funds and

$800,000 in clean funds. They argued that each individual transfer

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named in the indictment was in an amount less than $800,000, and

therefore the government had not proved that any particular

transfer was of the tainted money, rather than the clean. We

upheld the conviction. We distinguished United States v. Poole,

557 F.2d 531 (5th Cir. 1977), where we reversed a conviction based

on use of commingled funds because the check in question was for

less than the amount of clean funds in the account and therefore

the check could have come from the clean funds. We noted in Heath

that we should examine the aggregate amount of the defendant's

transfers in deciding whether the defendant could be said to have

engaged in a transaction in tainted funds: "To view each

transaction in isolation . . . would defeat the purposes of the

statute, allowing sophisticated criminals to spirit stolen funds

from one state to another, so long as each check written did not

exceed the amount of legitimate funds on hand in the bank account."

970 F.2d at 1403 (internal citation and quotations omitted). We

concluded: "We are satisfied that, having proved beyond a

reasonable doubt that the aggregate taken from the account exceeded

the amount of clean funds available, the Government met its

burden." Id. at 1404.

The commingling problem under the money laundering statutes is

the same as under the transfer of funds statute, and so we apply

our own precedents, rather than choosing between the commingling

rules applied in other circuits, as the parties urge us to do.

Compare United States v. Sokolow, 91 F.3d 396, 409 (3d Cir. 1996)

(where money commingled, government does not have to trace proceeds

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to prove money tainted under section 1957); Moore, 27 F.3d at 976-

77 (where clean and tainted money has been commingled, any

withdrawal from account is presumed tainted under section 1957, up

to amount of tainted moneys deposited); with United States v.

Rutgard, 116 F.3d 1270, 1292 (9th Cir. 1997) (in case of

commingling, withdrawal is only shown to be tainted under section

1957 if it is the entire balance of commingled account).

In this case, the government proved aggregate withdrawals of

far more than $10,000 above the amount of clean funds available.

We therefore reject Davis's contention that there was insufficient

evidence to show that his $25,000 check to Wright & Greenhill

contained more than $10,000 of tainted funds.

V.

Davis makes various claims of instructional error. "A

district court has broad discretion in framing the instructions to

the jury and this Court will not reverse unless the instructions

taken as a whole do not correctly reflect the issues and law."

United States v. Moser, 123 F.3d 813, 825 (5th Cir. 1997) (internal

quotations omitted).

A.

Davis contends that the district court erred in instructing

the jury that it could find Davis had knowledge of a fact if it

found he "deliberately closed his eyes to what would otherwise have

been obvious to him." A district court may give a deliberate

ignorance instruction if the defendant claims he had no guilty

knowledge (as Davis claimed) and if the evidence shows a "charade

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of ignorance." See Moser, 123 F.3d at 825. On the facts as we

have already recited them, Davis's argument that there was no

evidence of willful blindness borders on the frivolous. For only

one instance, Davis's purported reliance on the Industrial Bank of

Kibris guaranty for $100 million, which he got for free, supports

the instruction. Cf. United States v. Threadgill, 172 F.3d 357,

368-69 (5th Cir.) (where evidence did not show deliberate

ignorance, but actual knowledge, submission of deliberate ignorance

instruction harmless error), cert. denied, 120 S. Ct. 172 (1999).

Therefore, we reject this argument.

B.

Davis objects to the district court's instruction to the jury

on victim naivety. The court instructed the jury:

You are instructed that the naivety, carelessness,
negligence, or stupidity of a victim does not excuse
criminal conduct, if any, on the part of a defendant.
The laws protecting against fraud are most needed to
protect the careless and the naive from perpetrators of
fraud. Even the monumental credulity of a victim does
not excuse a defendant's fraud, if any.

Davis contends this is an incorrect statement of the law because a

misrepresentation is only material if a reasonable person would

rely on it; therefore, he contends, a statement on which only a

stupid or inexperienced person would rely cannot be material.2

Davis's argument about the meaning of materiality ignores the

Supreme Court's discussion in Neder v. United States, 527 U.S. 1

2
The district court did not define materiality for the jury.
Davis does not argue for reversal based on the mere failure to
define materiality, but rather that this failure helped make the
naivety instruction misleading.

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(1999). In holding that materiality was an element of the federal

mail, wire, and bank fraud statutes, 18 U.S.C. § 1341, 1343, and

1344, the Court noted the Restatement (Second) of Torts definition

for materiality:

The Restatement instructs that a matter is material if:

"(a) a reasonable man would attach importance
to its existence or nonexistence in
determining his choice of action in the
transaction in question; or
"(b) the maker of the representation knows or
has reason to know that its recipient regards
or is likely to regard the matter as important
in determining his choice of action, although
a reasonable man would not so regard it."
Restatement (Second) of Torts § 538 (1976).

527 U.S. at 22 n.5. See also United States v. Richards, 204 F.3d

177, 191-92 (5th Cir. 2000) (Fifth Circuit applies definition of

materiality from footnote 5 of Neder), petition for cert. filed, 68

U.S.L.W. 3002 (U.S. June 20, 2000) (No. 99-2049). Earlier in

Neder, the Supreme Court quoted another definition of materiality,

used in cases under federal perjury statutes: "In general, a false

statement is material if it has 'a natural tendency to influence,

or [is] capable of influencing, the decision of the decisionmaking

body to which it was addressed." Id. at 16 (quoting United States

v. Gaudin, 515 U.S. 506, 509 (1995)). Under these definitions, a

statement could indeed be material, even though only an

unreasonable person would rely on it, if the maker knew or had

reason to know his victim was likely so to rely. Davis's argument

that a misrepresentation must be one on which a reasonable person

would rely ignores this alternative way of showing materiality.

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 The naivety instruction given in this case only discusses a

possible defense to proven fraud. Therefore, it does not go into

whether the defendant knew or should have known the victim would

rely on the statements. Although the instruction does not discuss

the circumstances under which a statement can be material even

though only an unreasonable person would rely on it, the

instruction does not purport to define materiality, and it is

correct as far as it goes. The instruction is a paraphrase of our

own language in United States v. Kreimer, 609 F.2d 126, 132 (5th

Cir. 1980). Accord United States v. Coyle, 63 F.3d 1239, 1244 (3d

Cir. 1995)("The negligence of the victim in failing to discover a

fraudulent scheme is not a defense to criminal conduct."). The

district court did not err in giving this instruction to the jury.

VI.

Davis contends the court erred in imposing sentence.

A.

Davis argues that the district court erred in sentencing him

under the money-laundering guidelines, rather than under the fraud

guidelines. Because Davis was convicted of closely related

offenses, the conspiracy, wire fraud, travel and transportation of

securities for fraudulent purposes, and money-laundering counts

were grouped together and assigned a single offense level. See

U.S.S.G. §§ 3D1.1, 3D1.2 (1998). The offense level is derived from

the most serious count in the group. See U.S.S.G. § 3D1.3(a)

(1998). These rules led to the use of the money-laundering

guideline applicable to offenses under 18 U.S.C. § 1957, which is

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U.S.S.G. § 2S1.2. Davis does not argue that the district court

misapplied those rules, but rather that his case falls outside the

heartland of money-laundering offenses covered by section 2S1.2.

Therefore, his argument is actually that the district court erred

in refusing to depart from the money-laundering guideline.

"This court can review a district court's refusal to depart

from the guidelines only if the district court based its decision

upon an erroneous belief that it lacked the authority to depart.

Moreover, something in the record must indicate that the district

court held such an erroneous belief." United States v. Valencia-

Gonzales, 172 F.3d 344, 346 (5th Cir. 1999) (internal quotations

omitted), cert. denied, 120 S. Ct. 222 (1999). The district

judge's remarks at sentencing do not suggest that he believed he

lacked authority to depart. Instead, the court evaluated the facts

of this case, determined that they fell within the heartland of the

guideline, and therefore declined to depart. Where the district

court understands that it has the authority to depart if there are

circumstances the guidelines have not taken into consideration, but

determines that the case at hand does not present such

circumstances, its decision not to depart is unreviewable. See

United States v. Palmer, 122 F.3d 215, 222 (5th Cir. 1997). This

is such a case.

B.

Davis also argues that the district court erred in giving him

a four-level upward adjustment for being an organizer or leader of

a criminal activity that involved five or more participants or was

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otherwise extensive. See U.S.S.G. § 3B1.1(a)(1998). Davis argues

that his scheme was not extensive within the meaning of section

3B1.1 because it only involved two co-conspirators.

We review for clear error the district court's determination

that Davis was an organizer or leader. See United States v.

Glinsey, 209 F.3d 386, 396 (5th Cir. 2000), petition for cert.

filed (U.S. June 11, 2000) (No. 99-10242).

The commentary to section 3B1.1 defines participants as people

who are criminally responsible for the offense. See § 3B1.1, cmt.

n. 1; United States v. Maloof, 205 F.3d 819, 830 (5th Cir. 2000),

petition for cert. filed, 69 U.S.L.W. 3086 (July 5, 2000) (No. 00-

43). The government does not contend that there were five

participants, but that the scheme was "otherwise extensive" because

the services of more than twenty people made the fraudulent scheme

possible. In deciding whether a scheme was otherwise extensive,

the district court must take into account "all persons involved

during the course of the entire offense." See Glinsey, 209 F.3d at

396. Those who assisted Davis included employees of Forum

Financial; loan brokers who referred clients to Davis; lawyers who

wrote misleading letters of reference for Davis; and those who

provided due diligence reports on various projects Davis was

supposed to finance. These people contributed to the success of

the scheme. See United States v. Sidhu, 130 F.3d 644, 655 (5th

Cir. 1997) (affirming upward adjustment where insurance fraud could

not have succeeded without unknowing assistance of insurance

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companies' employees). The district court's finding that the

scheme was otherwise extensive is not clearly erroneous.

C.

Davis makes various other arguments attacking the district

court's factual findings in its sentencing determination. In

particular, he attacks the evidentiary basis of the district

court's finding of an aggregate loss amount of $3,609,937.79. This

amount included the losses of victims who did not testify at trial,

but who were listed in the presentence investigation report.

Significantly, Davis's attorney stated he would not object to a

restitution order in that amount, although he declined to stipulate

to the amount.

'[A] presentence report generally bears sufficient
indicia of reliability to be considered as evidence by
the trial judge in making the factual determinations
required by the sentencing guidelines.' A district court
may adopt facts contained in the PSR without further
inquiry if the facts have an adequate evidentiary basis
and the defendant does not present rebuttal evidence.

United States v. Alford, 142 F.3d 825, 831-32 (5th Cir.) (citation

omitted)(quoting United States v. Sanders, 942 F.2d 894, 898 (5th

Cir. 1991)), cert. denied, 525 U.S. 1003 (1998); see United States

v. Huerta, 182 F.3d 361, 364 (5th Cir. 1999), cert. denied, 120 S.

Ct. 1238 (2000). Davis has not presented any evidence rebutting

the facts in the PSR upon which the district court relied. The

district court's findings are not clearly erroneous.

Davis also contends that the district court should have

subtracted from the loss amount the expenses he incurred seeking

financing for the victims. This argument presupposes that Davis

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incurred those expenses in a legitimate effort to find financing

for the victims, an assumption that is at odds with the jury

verdicts we have upheld. Davis has not shown that the district

court committed clear error in calculating his sentence.

We have reviewed Davis's other sentencing arguments and find

no clear error.

* * *

We affirm Davis's convictions and sentence.

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