United States Court of Appeals
Fifth Circuit
F I L E D
UNITED STATES COURT OF APPEALS
June 18, 2004
For the Fifth Circuit
___________________________
Charles R. Fulbruge III
Clerk
No. 03-10228
___________________________
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
VERSUS
LISA L. DALE; KEVIN DEWAYNE SPENCER,
Defendants - Appellants.
_________
Appeals from the United States District Court
for the Northern District of Texas
Before DAVIS, PRADO and PICKERING, Circuit Judges.
W. EUGENE DAVIS, Circuit Judge:
Defendant Kevin Spencer appeals his conviction and defendant Lisa Dale appeals her
sentence on charges of securities fraud, wire fraud, money laundering and related charges. Based
on our conclusion that the district court did not err in its disposition of trial matters raised by
Spencer, nor did it err in applying the Sentencing Guidelines to Dale, we AFFIRM.
I.
Lisa Dale and Kevin Spencer, along with two co-defendants, were indicted on charges
relating to a Ponzi scheme they ran. The two co-defendants pled guilty. Spencer was found
guilty by a jury of one count of securities fraud (in violation of 15 U.S.C. §§ 1(a) & 77x and 18
U.S.C. § 2), one count of interstate transportation of stolen property (in violation of 18 U.S.C. §§
2314 & 2), several counts of wire fraud (in violation of 18 U.S.C. §§ 1343 & 2), several counts of
money laundering (in violation of 18 U.S.C. §§ 1956(a)(1)(A)(I) & 2) and several counts of
engaging in monetary transactions in property derived from specified unlawful activity (in
violation of 18 U.S.C. §§ 1957 & 2). Dale was found guilty by a jury of two counts of securities
fraud (in violation of 15 U.S.C. §§ 1(a) & 77x and 18 U.S.C. § 2), two counts of interstate
transportation of stolen property (in violation of 18 U.S.C. §§ 2314 & 2), several counts of wire
fraud (in violation of 18 U.S.C. §§ 1343 & 2), and several counts of money laundering (in
violation of 18 U.S.C. §§ 1956(a)(1)(A)(I) & 2).
The charges arose from a Ponzi scheme. We focus on Spencer’s role in the transaction
because only he raises sufficiency of the evidence issues on appeal. Dale and a co-defendant
started Progressive Financial Services and Group (“Progressive”) as a check cashing company.
Progressive was used to solicit investors for the check cashing business and later for trading
programs promising investment in foreign capital markets and various commodities. Few
investments were made and most of the funds were used on personal luxuries and to perpetuate
the Ponzi scheme. Eventually Progressive filed bankruptcy, listing the principal and interest owed
to the investors as liabilities.
Spencer owned and ran Spencer Mortgage, a company specializing in serving people with
bad credit. After Spencer and Dale became acquainted through one of the other co-defendants,
Spencer agreed to let Progressive use its Spencer Mortgage bank accounts for a fee. Before
Progressive funds from investors were deposited, the Spencer Mortgage account had a negative
balance. Spencer made deposits, gave Progressive investors wiring instructions over the phone
and sent confirmations that he had received wire transfers. Over $5 million in investors’ funds
went into the Spencer Mortgage accounts. Spencer wrote checks to investors for false returns
out of the accounts. He also wrote checks for cars, boats and houses using these funds. Spencer
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took $581,865.20 of the investors’ funds for himself, including $200,000 for a house after
investors began questioning why they had not been paid as promised. Spencer also used $17,200
of the funds to pay an old business debt. Spencer prepared a letter containing false information
about Spencer Mortgage for a co-defendant to use for marketing purposes. He attended sales
pitches by the co-defendant and did not correct the lies told to investors.
Dale and Spencer were sentenced to 78 months in prison and 3 years supervised release
and ordered to pay special assessments. Dales’s Presentence Report did not include an
enhancement under U.S.S.G. § 2F1.1(b)(6)(A), which applies to a defendant whose offense
substantially jeopardizes the safety and soundness of a financial institution. The government
objected to the PSR and Addendum because this enhancement was omitted. The district court
sustained the objection noting that although the court was unable to find any federal case law
addressing the issue, it concluded that Progressive appears to fall within the definition of a
financial institution.
Spencer and Dale appeal.
II.
Spencer raises several trial related issues as a challenge to his conviction.
A.
Spencer argues first that the district court erred in denying his motion to sever his trial
from that of Lisa Dale. We review that decision for abuse of discretion. United States v. Nutall,
180 F.3d 182, 186 (5th Cir. 1999). In order to prevail, Spencer must show that “(1) the joint
trial prejudiced him to such an extent that the district court could not provide adequate
protection; and (2) the prejudice outweighed the [G]overnment’s interest in economy of judicial
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administration.” United States v. Solis, 299 F.3d 420, 440 (5th Cir. 2002), cert. denied, 537 U.S.
1060 (2002) (quoting United States v. Richards, 204 F.3d 177, 193 (5th Cir.), cert. denied, 531
U.S. 826 (2000)). Spencer claims that the jury was exposed to a significant amount of testimony
dealing with his co-defendant whose role in the crime was broader than his. However, joinder is
proper where a single scheme to defraud is carried out through the operations of different
companies, even if a defendant not connected with all of the companies is charged on only some
of the substantive counts. United States v. Chavis, 772 F.2d 100, 111 (5th Cir. 1985). Also,
disparity in the amount of evidence presented against co-defendants does not justify severance in
the absence of a showing of prejudice. United States v. Hogan, 763 F.2d 697, 705 (5th Cir.
1985). Spencer makes only a general claim of prejudice by spill-over effect. This does not rise to
the level to outweigh the government’s interest in judicial economy. The district court did not
abuse its discretion in denying Spencer’s motion to sever.
B.
Spencer argues next that the district court abused its discretion in admitting, as extrinsic
evidence, evidence that Spencer used investors’ money to repay an overdue business debt. The
district court admitted the testimony of Sharon Brock concerning a $17,200 wire transfer she
received from Spencer from investor funds. Brock also testified that Spencer sent her the money
because she had invested the funds with Spencer and that Spencer offered her a 200% return on
her investment. These facts were not part of the scheme charged in the indictment. Spencer
contends that this is extrinsic evidence because Spencer was not charged with defrauding Brock.
The government contends that this is not extrinsic evidence because it was presented to show that
Spencer was using the investor’s funds, which should have been invested as promised, to instead
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repay a loan unrelated to the investment programs. The admission of this evidence is reviewed for
abuse of discretion. United States v. Buck, 324 F.3d 786, 790 (5th Cir. 2003).
Brock’s testimony is not extrinsic evidence. Rather it is intrinsic as it was presented to
show the nature of the Ponzi scheme in that Spencer used investors’ funds to repay a loan
unrelated to the investment programs. Evidence is intrinsic and admissible when it and the crime
charged are intertwined, both acts are part of the same criminal episode or the other act was a
necessary preliminary to the crime charged. United States v. Torres, 685 F.2d 921, 924 (5th Cir.
1982). The district court appropriately limited this testimony to avoid the mention of fraud. No
error resulted from the admission of this testimony.
C.
Spencer argues that the district court erred in failing to compel the government to disclose
FBI Form 302s to Spencer under the Jencks Act, Brady or Giglio. Before and during the trial
Spencer made requests for FBI Form 302s under its request for Brady, Giglio and Jencks Act
material. Brady v. Maryland, 373 U.S. 83 (1963)(exculpatory material); Giglio v. United States,
405 U.S. 150 (1972)(material that would impeach a government witness); Jencks Act, 18 U.S.C.
§ 3500 (statements of any witness). At trial Spencer asked that the forms for each witness be
reviewed in camera to see if they contained any such material. The court reviewed them and
determined (with one small exception) that they contained no material required to be disclosed.
Spencer now requests that this court review the sealed Form 302s to determine whether they
contain Jencks, Brady or Giglio material and thus whether the district court erred in refusing the
compel the government to produce them to the defense. If the district court erred, Spencer
submits that reversal of his conviction is required.
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The district court’s conclusion that a document does not contain a Jencks Act “statement”
is reviewed for clear error. 18 U.S.C. § 3500. United States v. Brown, 303 F.3d 582, 591 (5th
Cir. 2002), cert. denied, 537 U.S. 1173 (2003). A denial of a discovery request is reviewed for
abuse of discretion. United States v. Gonzalez, 466 F.2d 1286, 1288 (5th Cir. 1972).
The government argues that a defendant seeking in camera inspection to determine
whether documents contain Brady material must make a “plausible showing” that the file will
produce material evidence. United States v. Lowder, 148 F.3d 548, 550-551 (5th Cir. 1998);
United States v. Martin, 565 F.2d 362, 364 (5th Cir. 1978). Also, to obtain production of a
statement under the Jencks Act, the defendant must make a preliminary showing that there is a
producible document. United States v. Edwards, 702 F.2d 529, 531 (5th Cir. 1983). Spencer
makes no claims as to what the forms may contain. The district court nevertheless carefully
reviewed the documents in question and determined, with minor exceptions, that they did not
qualify as Jencks Act material and did not contain material required to be disclosed under Brady
or Giglio. Our own independent review confirms these conclusions and we find no error in the
district court’s disposition of this issue.
D.
Spencer asserts that the evidence was insufficient to convict him of the crimes charged.
Specifically, Spencer argues that the evidence was insufficient to prove that he knew of the
fraudulent scheme, that he knew that the money in the Spencer Mortgage account was obtained
by fraud or that he intended to participate in the fraudulent scheme. Lack of proof of these
elements would negate his convictions. Essentially, Spencer is claiming that he had no knowledge
of the fraudulent nature of his co-defendants’ activities and that he simply acted on the orders of
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the others whom he viewed as his superiors in a legitimate business. He also claims that he did
not lie to investors and that the co-defendants gave instructions to investors to wire funds into his
account without his authorization.
The following evidence in the record supports Spencer’s convictions. Spencer made the
first deposit of investors’ funds into his account. He took no steps to prevent the co-defendants
from using his account. Spencer also did not return the money that “appeared in his account”
without his permission. Rather he was paid a fee and used the money in the account for personal
luxuries including a home and a car. Spencer lied about the size and success of Spencer
Mortgage and did not correct lies told to investors by his co-defendants. Spencer was in a
position to see the investors’ funds going into the account with no investment income. He wrote
checks to investors which led them to believe they were earning a return on their money. Spencer
also took $100,000 from money that an investor asked him to return.
The above outlined evidence is clearly sufficient to support a conclusion that Spencer
knew of the fraudulent nature of the scheme and intended to participate. Accordingly, we find no
merit to Spencer’s claim of insufficient evidence.
E.
Spencer’s final complaint is that the district court improperly instructed the jury in
conjunction with the wire fraud counts that a defendant is criminally liable for acts he did not
engage in based on participation in a joint scheme where the extraneous acts are a reasonably
foreseeable consequence of the scheme. As Spencer objected to the instruction, this court
reviews for abuse of discretion. United States v. Daniels, 281 F.3d 168, 183 (5th Cir. 2002), cert.
denied, 535 U.S. 1101 (2002). The question is whether the “charge, as a whole is a correct
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statement of the law and whether it clearly instructs jurors as to the principles of the law
applicable to factual issues confronting them.” Id.
There is no merit to the claim. As Spencer acknowledges, the challenged instruction
follows the Fifth Circuit Pattern Criminal Jury Instruction for “Conspirator’s Liability for
Substantive Count.” Spencer’s complaint is that the second prong of the instruction, covering
acts (presumably use of wires) that are a reasonably foreseeable consequence of the scheme, goes
beyond the principle that co-conspirators are responsible for acts in furtherance of the scheme.
However, the instruction given is a correct statement of the law. “One ‘causes’ the mail to be
used when one does an act with knowledge that the use of the mails will follow in the ordinary
course of business, or where such use can reasonably be foreseen, even though not actually
intended.” United States v. Finney, 714 F.2d 420, 423 (5th Cir. 1983), citing United States v.
Kenofskey, 243 U.S. 440, 37 S. Ct. 438, 61 L. Ed. 836 (1917). The charge as given was proper.
III.
Dale’s sole issue on appeal relates to a four-level increase imposed pursuant to U.S.S.G. §
2F1.1(b)(6)(A) (1997). Under that provision, if the offense “substantially jeopardized the safety
and soundness of a financial institution,” the defendant’s offense level is increased by 4 levels and
if the resulting offense level is less than 24, the offense level is increased to 24. Application Note
14 defines “financial institution” as follows:
“Financial institution,” as used in this guideline, is defined to include any institution
described in 18 U.S.C. § § 20, 656, 657, 1005-1007, and 1014; any state or
foreign bank, trust company, credit union, insurance company, investment
company, mutual fund, saving (building and loan) association; union or employee
pension fund; any health, medical or hospital insurance association; brokers and
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dealers registered, or required to be registered, with the Securities and Exchange
Commission, futures commodity merchants and commodity pool operators
registered, or required to be registered, with the Commodity Futures Trading
Commission; and any similar entity, whether or not insured by the federal
government. (Emphasis added).
Dale argues that Progressive is not a “financial institution” and that the Sentencing Commission
exceeded the Congressional directive in FIRREA by including nonfederally insured entities in the
definition of “financial institution.”
A.
Dale’s Presentence Report did not include the enhancement because the probation office
concluded that Progressive was simply a vehicle used to commit the securities fraud and was not a
legitimate investment company making legitimate investments. The government objected and the
district court sustained the objection upon finding that Progressive falls within the definition of a
financial institution. The district court stated its belief that whether or not the company
conducted itself as a legitimate investment company was irrelevant. It found that Progressive was
an investment company and sold or attempted to sell securities nationwide. The district court also
found that one of the co-defendants qualified as a broker/dealer and that the misapplication of the
funds received from those sales resulted in the insolvency of Progressive. We review the district
court’s factual findings for clear error, United States v. Texas, 168 F.3d 741, 752 (5th Cir. 1999),
and its application and interpretation of the Sentencing Guidelines de novo. United States v.
Montoya-Ortiz, 7 F.3d 1171, 1179 (5th Cir. 1993).
Dale makes three arguments that Progressive is not a financial institution. First, she
argues that Progressive was not a legitimate organization, it was merely a Ponzi scheme and the
guideline was meant to punish those who harm legitimate, sound financial institutions by their
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fraudulent conduct. The Seventh Circuit rejected this argument in United States v. Randy, 81
F.3d 65, 67-68 (7th Cir. 1996). In Randy, the defendant had founded a phony (unlicensed) bank
and used it as a vehicle to defraud his investors. Finding it to be a financial institution for
purposes of this sentencing guideline, the Seventh Circuit said “when it walks and talks like a
financial institution, even if it’s a phony one, it is, in our view, covered by § 2F1.1(b)(6).” Id.
We agree. In connection with this argument, Dale argues that because the co-defendants owned
Progressive, the purpose of the provision does not apply because it was victimized by their own
conduct. This court has rejected that position. United States v. McDermot, 102 F.3d 1379, 1384
(5th Cir. 1996), states that there is “no conceivable basis” for a conclusion that “the Sentencing
Commission did not intend for § 2F1.1(b)(6) to apply to a defendant who jeopardized the safety
and soundness of an institution he himself established.” McDermott also points out that the focus
is not “only on the institution qua institution” but also on others who fail to receive the benefits
for which they contracted. Application Note 15 to 2F1.1(b)(6) notes that an offense shall be
deemed to have substantially jeopardized the safety and soundness of a financial institution if as a
consequence of the offense, the institution was “unable to refund fully any deposit, payment or
investment.” That is certainly the case with Progressive.
Dale also argues that Progressive was not an investment company because it did not make
any investments. There is no definition of investment company in the guidelines or related
statutes. However, Progressive held itself out as an investment company. It solicited investments
for the check cashing business and for trading programs involving investments in foreign capital
markets and various commodities. We agree with the district court that whether the company
actually made any investments is irrelevant.
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Dale argues finally that Progressive was not a financial institution because it was not, as
the government argued, a “broker or dealer . . . required to be registered with the Securities and
Exchange Commission.” Because we conclude that Progressive qualifies as a financial institution
for purposes of this guideline provision because it was an investment company, we need not
consider this argument. However, we note that the definition of broker and the underlying
definition of security are broad enough to encompass Progressive. Under the Security Exchange
Act, the “term ‘broker’ means any person engaged in the business of effecting transactions in
securities for the account of others.” 15 U.S.C. § 78c(a)(4). A “security” is broadly defined to
include a long list of investment devices. 15 U.S.C. § 78c(a)(11). The basic test laid down by the
Supreme Court in SEC v. W. J. Howey Co., 328 U.S. 293 (1946), is whether “the person invests
his money in a common enterprise and is led to expect profits solely from the efforts of the
promoter or a third party.” As described by Dale, Progressive solicited persons throughout the
United States and Puerto Rico to invest money in trading programs. They represented to
investors that Progressive was a lucrative check cashing business, obtaining profits of 50 percent
for short term loans to individuals and that it could pay investors 25 to 50 percent per month from
its profits from the loans to individuals. Progressive represented that these returns were
guaranteed. The investment programs Progressive offered to investors, although fraudulent,
clearly fall within the definition of a security. Since Progressive sold securities for the account of
others, its investors, it was a broker. Section 15(a)(1) of the Securities Exchange Act requires
brokers to register with the SEC. 15 U.S.C. § 78c(a)(1). An expert testified on these points at
the sentencing hearing. The district court’s conclusion that Progressive was a financial institution
on this basis was correct.
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In summary, Progressive presented itself as an investment company to its victims. Also,
the trading programs it offered were securities and Progressive was a broker under securities
laws. These facts provide two separate bases under which the company falls squarely within the
definition of a financial institution as set forth above. The fact that the investment company was a
sham and that the financial institution victimized was owned by the defendants does not prevent it
from falling within the enhancements called for in § 2F1.1. The harm caused by Progressive,
losses to its investor victims, was the type of harm contemplated by the phrase “jeopardized the
safety and security of the financial institution” as set forth in the Application Notes. This
enhancement was correctly applied. 1
B.
Dale also argues that the Sentencing Commission exceeded the Congressional directive in
FIRREA by including nonfederally insured entities in the definition of “financial institution” in
U.S.S.G. § 2F1.1(b)(6)(A). In Section 961(m) of the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 (FIRREA), Pub.L. 101-73, Congress directed the Sentencing
Commission to promulgate guidelines to provide for a “substantial period of incarceration for a
violation of, or a conspiracy to violate, section 215, 656, 657, 1005, 1006, 1007, 1014, 1341,
1343 or 1344 of title 18, United States Code, that substantially jeopardizes the safety and
soundness of a federally insured financial institution.” (Underlining added.) The guideline
enacted in response to this directive, § 2F1.1 specifically covers non-federally insured financial
institutions in the definition of financial institution. The Background of U.S.S.G. §
1
Dale’s argument against the application of this enhancement based on recent
amendments to the 2B1.1(b)(12)(B), the successor guideline to U.S.S.G. § 2F1.1(b)(6)(A), are
without merit.
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2F1.1(b)(6)(A) (1997), states that “Subsection (b)(6)(A) implements, in a broader form, the
instruction to the Commission in Section 961(m) of Public Law 101-73.” Two cases from other
circuits have held that given the Sentencing Commission’s broad authority to promulgate
guidelines for sentences and its specific statement that it was exercising it in this situation to enact
a rule that was broader than the Congressional referenced directive, the Commission did not
exceed its authority in enacting the definition of financial institution in § 2F1.1. United States v.
Lauer, 148 F.3d 766, 769 (7th Cir. 1998); United States v. Ferrarini, 219 F.3d 145, 160 (2d Cir.
2000). This circuit has noted that the language in the Background Note (“in broader form”)
indicates that the Commission is exercising its authority to define an offense beyond a specific
directive of Congress. United States v. Soileau, 309 F.3d 877, 881 (5th Cir. 2002). Accordingly,
we conclude, following the 7th and 2d Circuits, that the promulgation of this provision was within
the authority of the Sentencing Commission.
IV.
For the foregoing reasons, Spencer’s conviction and Dale’s sentence are AFFIRMED.
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