United States v. Walsh , 6 F. App'x 781 ( 2001 )

F I L E D
United States Court of Appeals
Tenth Circuit
APR 2 2001
UNITED STATES COURT OF APPEALS
TENTH CIRCUIT PATRICK FISHER
Clerk
UNITED STATES OF AMERICA,
Plaintiff - Appellee, No. 00-1316
v. (D. Colorado)
JOHN W. WALSH, JR., (D.C. No. 98-CR-68-N)
Defendant - Appellant.
ORDER AND JUDGMENT *
Before EBEL, ANDERSON, and BALDOCK, Circuit Judges.
Defendant John Walsh, Jr. was convicted following a jury trial on nine
counts of mail fraud in violation of 18 U.S.C. § 1341. On appeal, he argues that
his conviction must be vacated because the evidence failed to prove beyond a
reasonable doubt that he had the requisite intent to defraud. We exercise
jurisdiction pursuant to 28 U.S.C. § 1291, and affirm.
*
This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
I. BACKGROUND
Defendant was the President and CEO of InterCap Funds Joint Venture (the
“Joint Venture”), a general partnership whose business was monitoring and
servicing burglar alarms. In addition, Defendant owned all the common stock and
was the sole officer and director of InterCap Monitoring Corporation (“IMC”) and
held a controlling interest in Security Data Group, Inc. (“SDG”). Appellant’s
App. at 453, 462-64. IMC and SDG were the managing general partners of the
Joint Venture. Seven limited partnerships (referred to collectively as the “Funds”
herein) were general partners in the Joint Venture. IMC was the general partner
of five of the Funds and SDG was the general partner of the remaining two Funds.
Id. at 449-50.
The Internal Revenue Code requires that “[e]very partnership . . . shall
make a return for each taxable year . . . and shall include in the return the names
and addresses of the individuals who would be entitled to share in the taxable
income if distributed and the amount of the distributive share of each individual.”
26 U.S.C. § 6031. After the partnership return is prepared and the partnership’s
profit or loss is allocated among the partners, the partnership must prepare a
Schedule K-1 for each partner. A Schedule K-1 lists the portion of the
partnership’s profit or loss allocable to the partner. The partners then report the
-2-
profit or loss allocated to them on their K-1s in their individual, corporate, or
partnership income tax returns, as the case may be.
From 1992 to 1995, the Joint Venture filed a partnership tax return and
prepared a K-1 for each of its partners. Employees of the Joint Venture also
prepared partnership returns and K-1s for the Funds. The K-1s relating to the
Funds were sent to the Funds’ partners/investors, most of whom were individuals.
Defendant oversaw the annual preparation of the various partnership tax returns
and K-1s. Appellant’s App. at 162. Defendant would sign the partnership returns
as the managing general partner. 1 Id. at 167-68.
In approximately October of 1994, the Joint Venture filed for Chapter 11
bankruptcy protection. Id. at 79-80. Defendant continued to run the Joint
Venture as debtor in possession. None of the partners in the Joint Venture were
in bankruptcy. Sometime after the bankruptcy filing, several of the limited
partners formed the Official Creditors Committee of Limited Partners (the
“Partner Committee”) and hired an attorney to represent their interests in the
bankruptcy proceedings. The Partner Committee moved the bankruptcy court to
appoint a trustee. The bankruptcy court held a hearing on March 4, 1996, in order
1
The testimony cited actually states that Defendant would sign the K-1s as
the managing general partner. However, a Schedule K-1 is not signed, but is
merely an informational document that is sent to each partner. Only the
partnership return itself is signed. We presume, therefore, that the witness meant
that Defendant signed the partnership tax returns.
-3-
to consider that motion and to consider a proposed $30 million asset sale by the
Joint Venture. Id. at 80-81, 352. At the hearing, Defendant resigned as CEO of
the Joint Venture, whereupon the court granted the Committee’s motion to
appoint a trustee. Id. at 149-50.
After Defendant’s resignation, the Joint Venture ceased paying his salary,
the lease on his vehicle and the management fee it had previously paid to IMC.
Id. at 155, 157-58, 458. IMC had used the management fee received from the
Joint Venture to pay for, among other things, a $1 million life insurance policy
insuring Defendant’s life and naming Defendant’s wife as sole beneficiary. Id. at
319-21. After the Joint Venture stopped paying IMC its management fee, IMC
had no money. Id. at 458.
On March 5, 1996, the day after Defendant’s resignation, Harvey Sender, a
Denver attorney, was appointed trustee of the Joint Venture by the bankruptcy
court. Id. at 79. At the time of Sender’s appointment, the $30 million asset sale
was pending. The asset purchase agreement provided that the sale had to close, if
at all, by the end of March 1996. Id. at 86. At a meeting with key employees of
the Joint Venture on March 6, 1996, Sender told Jim Bain, a computer
programmer who had written the software and maintained the investor
information databases used to generate K-1s in the past, and Elizabeth Hearty,
then known as Elizabeth Geiger, the Joint Venture’s controller, to stop working
-4-
on the K-1s and to devote all of their time to the asset sale. Id. at 103-04, 111-14.
Sender indicated to Hearty that the Joint Venture would not prepare the returns
and K-1s internally, but that it would hire an accountant to do them later. Id. at
103-04, 111. Sender believed that the Joint Venture had the legal obligation to
prepare the partnership returns and K-1s for itself and the Funds. Id. at 109.
Hearty and Bain both related their conversations with Sender about the
K-1s to Defendant. Hearty told him that Sender had not yet decided if he would
prepare the K-1s. Id. at 166-67. However, she also admitted that she may have
told Postal Inspector Allen that Sender never said he would not prepare the K-1s.
Id. at 173. Bain told Defendant that Sender said that the K-1s were a low priority
and that he did not think he was going to do them. Id. at 480-81. But, Bain
testified before the grand jury that Defendant told him that Sender was not going
to do the K-1s, not the other way around. Id. at 497. At trial, he could not
remember which way the conversation had gone. Id. Bain admitted that he was a
social friend of Defendant’s and that Defendant had bought him dinner the night
before his trial testimony. Id. at 490, 507-08.
In the early part of 1996, Defendant spoke several times with Carl Sims, an
attorney, about who was responsible for preparing partnership returns and K-1s
for the Funds. Sims told Defendant that IMC was legally responsible for
preparing the partnership returns and K-1s for the five Funds for which it was the
-5-
general partner. Id. at 451-53. He did not indicate that he thought Defendant was
responsible for preparing the return for the Joint Venture. Sims also explained
that Defendant, as the sole officer of IMC, was the only person authorized to sign
the partnership returns for those five Funds. Id. at 453-54. It was Sims’ view
that since neither IMC nor any of the Funds was in bankruptcy, Sender had no
authority to use funds of the bankruptcy estate to prepare the partnership returns
for those entities or to sign them. Id. Lastly, Sims warned Defendant that the
Internal Revenue Code provided for a penalty of $50 per month per K-1 if the
K-1s were not timely prepared and delivered. Id.On March 12, 1996, Defendant drafted a letter to the Joint Venture’s
investors (the “Solicitation Letter”). Id. at 43. Sims reviewed the text of the
Solicitation Letter and did not suggest any changes. Id. at 457-58. The
Solicitation Letter reads, in pertinent part:
[A]n immediate problem we all need to address is that the newly
appointed Trustee will not authorize the expenditures necessary for
the Venture to prepare the income tax returns for the separate
partnerships or the Form K-1’s for each of you individual investors.
Thus, Intercept [sic] Monitoring Corporation has arranged to prepare
the tax returns and K-1’s for each of you and to mail them to you just
as soon as they are completed. To facilitate the tax return
preparation process, it will be necessary for each investor to
immediately send a nominal fee of $50.
Please make your check for $50 payable to Tax Preparation, Inc.
and mail it to:
-6-
TAX PREPARATION, INC.
9678 E. ARAPAHOE ROAD
SUITE 133
GREENWOOD VILLAGE, CO 80112-3703
Id. at 43. Sims knew that the Solicitation Letter was going to be sent out to the
Joint Venture’s investors and that any money remitted was going to go to Tax
Preparation, Inc., a corporation he was preparing to incorporate for Defendant.
Sims stated that he had no problem with Defendant’s plan to solicit money for the
preparation of the K-1s. Id. at 457.
Sometime prior to March 14, 1996, Sender telephoned James Massaro, an
accountant, and asked him if his firm could prepare the partnership returns and
K-1s for the Joint Venture and the Funds. Id. at 90-91, 355. Massaro agreed to
perform the work. On March 14, 1996, Sender met with James Markus, the
lawyer hired by the Partner Committee, and told him that he had retained Massaro
to do the returns and K-1s. Id. at 115, 353-56. That same day, Defendant rented
box 113 at the Pak Mail Center located at 9678 Arapahoe Road in Greenwood
Village, Colorado, in the name of Tax Preparation, Inc. Id. at 279. On March 15,
1996, Sims incorporated Tax Preparation, Inc. with Defendant as its sole director.
Id. at 336, 343.
During this general time period, Defendant canceled a trip to Hawaii he and
his wife had planned for March 21, 1996. Defendant’s wife indicated that the trip
was canceled and later rescheduled for April 17, 1996, so that Defendant could
-7-
work on the K-1s. Id. at 510-11. In addition, she indicated that he set up three
computers, a printer, and a fax machine in their basement for use in preparing the
K-1s. Id. at 511. Defendant also spoke with Bain and John Picon, a former
employee of IMC, about assisting him in preparing the partnership tax returns and
K-1s. Id. at 483, 519. They discussed the amount each would be paid for their
services and the type of computer hardware required. Id. at 484, 520. Bain
believed that Defendant had all the data needed to do the K-1s. Id. at 484.
On March, 18, 1996, Defendant hired Direct Mail Services to send a copy
of the Solicitation Letter to 4170 investors via first class mail. Id. at 43, 133-135.
The Solicitation letter was written on SDG and IMC letterhead which listed the
address of the Joint Venture, the same location where SDG and IMC had their
offices until Defendant’s resignation. Id. at 43. The phone number, which still
rang in the offices of the Joint Venture, was blacked out. Id. at 43, 160. A pre-
addressed envelope bearing Tax Preparation, Inc.’s address was included.
Defendant paid Direct Mail Services $1440 by personal check for the mailing.
The next day, March 19, 1996, Sender met with Massaro to discuss further
Massaro’s preparation of the partnership returns and K-1s. Id. at 90-91. On
March 20, 1996, investors began receiving the Solicitation Letter and sending
their checks for $50 to Tax Preparation, Inc. Id. at 181-82, 230-31. Shortly
thereafter, both Hearty and Bain were given copies of the letter. When Hearty
-8-
told Defendant that she was shocked by the Solicitation Letter, he laughed. Id. at
161. When Bain spoke with Defendant about the Solicitation Letter, Defendant
admitted sending it and asked, “[c]an you believe these people are sending me
checks?” Id. at 501.
Defendant opened a checking account in the name of Tax Preparation, Inc.
on March 25, 1996. He deposited over $16,000 worth of individual investors’
$50 checks between March 25, 1996, and April 8, 1996. Also on March 25, 1996,
David Baston, chairman of the Partner Committee, sent his own letter to the
investors informing them that the Joint Venture had retained an accountant to do
the returns and K-1s and warning them not to send any money to Defendant. Id.
at 44. After receiving Baston’s letter, eighty-one investors were able to stop
payment on their checks to Tax Preparation, Inc. Id. at 264. After deducting
those amounts and penalties, the net deposits to the Tax Preparation, Inc. account
totaled $12,369. Id. at 430.
On April 12, 1996, Defendant wrote two checks on the Tax Preparation,
Inc. account. The first was to himself for $2000, which he cashed. Id. at 245-47.
The second was made out to IMC for $5000. Id. Defendant deposited the latter
check into IMC’s account on the same day. Defendant had authority over the Tax
Preparation, Inc. and the IMC bank accounts. The money Defendant deposited
into the IMC account was used to pay for three premium payments on his life
-9-
insurance policy, two overdue lease payments on his Jeep Cherokee and fees he
owed to a legal reporting service. Id. at 256, 259-60, 262-63, 291. On July 11,
1996, Defendant wrote another check on the Tax Preparation, Inc. account for
$5360 and deposited that check into his personal checking account. Id. at 247,
300-01. The next day, Defendant wrote a check for $10,000 on his personal
checking account to Sims’ law firm for outstanding legal fees. Id. at 304-05. The
ending balance of the Tax Preparation, Inc. account on July 31, 1996, was $4.67.
Neither Defendant nor Tax Preparation, Inc. ever prepared the partnership
returns or K-1s. Defendant did not follow up with Bain or Picon on his
discussions with them about preparing the tax forms. In addition, he did not
refund any money to any of the investors and did not respond to refund requests
made by an individual victim and the Partner Committee. Id. at 69, 359-62.
After Defendant’s conviction, the district court held a hearing on his post-
conviction motion for acquittal. At the hearing, the court expressed its surprise at
the verdict and threatened the government that if they did not produce something
convincing in their next filing, Defendant’s motion would be granted. Id. at 53.
The district court finally issued a one sentence order denying the motion to acquit
some sixteen months after the trial. Defendant was sentenced to four months in
prison, followed by three years of supervised release, and ordered to pay a $2000
fine and $5050 in restitution. This appeal followed.
-10-
II. DISCUSSION
In order to convict Defendant of mail fraud under 18 U.S.C. § 1341, the
government must prove that he: (1) devised or participated in a scheme to
defraud or obtain money through false or fraudulent pretenses, representations, or
promises; (2) had a specific intent to defraud; and (3) used the United States
mails to execute his scheme. United States v. Deters, 184 F.3d 1253, 1257 (10th
Cir. 1999); 18 U.S.C. § 1341. Defendant contends that the evidence failed to
prove beyond a reasonable doubt that he specifically intended to defraud the
limited partners when he mailed them the Solicitation Letter.
Whether the evidence was sufficient to sustain the jury’s verdict and
Defendant’s conviction is a question of law which we review de novo. United
States v. Jackson, 213 F.3d 1269, 1283 (10th Cir. 2000). We must determine
“whether taking the evidence—both direct and circumstantial, together with the
reasonable inferences to be drawn therefrom—in the light most favorable to the
government, a reasonable jury could find the defendant guilty beyond a
reasonable doubt.” United States v. Hanzlicek, 187 F.3d 1228, 1239 (10th Cir.
1999) (quotation omitted). We will disturb the jury’s verdict only if our review
leads us to conclude that no reasonable jury could have found that Defendant
intended to defraud the limited partners, and was, therefore, guilty beyond a
reasonable doubt.
-11-
Because intent to defraud is difficult to prove by direct evidence, a jury
may consider circumstantial evidence of fraudulent intent and draw reasonable
inferences therefrom. For example, “[i]ntent to defraud may be inferred from the
defendant’s misrepresentations, knowledge of a false statement as well as whether
the defendant profited or converted money to his own use.” United States v.
Prows, 118 F.3d 686, 692 (10th Cir. 1997) (quoting Kathleen Flavin & Kathleen
Corrigan, Eleventh Survey of White Collar Crime: Mail Fraud and Wire Fraud,
33 Am. Crim. L. Rev. 861, 869-70 (1996)). In addition, failure to respond to
requests for refunds by victims is also probative of fraudulent intent. United
States v. Masten, 170 F.3d 790, 795 (7th Cir. 1999).
It is clear that Defendant made misrepresentations in the Solicitation Letter
that he sent to investors. In the Solicitation Letter, he claimed that Sender would
not authorize the expenditures necessary to prepare the partnership returns and
K-1s. The evidence proves the falsity of this claim. Sender had already retained
Massaro to prepare the returns and K-1s several days before the Solicitation
Letter was sent. In addition, Defendant’s use of Tax Preparation, Inc. in the
Solicitation Letter was clearly misleading. A reasonable person would have
understood the Solicitation Letter to mean that IMC had hired an accounting firm
to prepare the returns and K-1s and that the $50 requested would be used to pay
the fees of that firm.
-12-
Defendant argues, however, that at the time he sent the Solicitation Letter,
he believed it to be truthful and had no knowledge that it was misleading. As to
his statement about Sender’s refusal to prepare the returns and K-1s, he points to
the testimony of Hearty and Bain, both of whom indicated that Sender said he was
not going to do the returns or had not decided whether or not to do them.
However, the jury could have discounted their testimony on credibility grounds
because both were impeached to some extent by statements made to investigators
and in their grand jury testimony. See Appellant’s App. at 173, 497. Moreover,
the jury could have reasonably concluded that if Sender said he was not going to
prepare the returns, he meant that they would not be prepared internally as had
traditionally been done, but rather would be prepared by an outside accountant.
Significantly, Defendant did not contact, and made no attempt to contact, Sender
to discover his intentions. Although we cannot say with surety whether
Defendant knew his statement about Sender was false, we believe that he did not
know it to be true either.
As to the use of Tax Preparation, Inc., Defendant claims he was not
deceptive because he did not conceal his identity in the incorporating documents
of Tax Preparation, Inc. or in his rental of box 133 at the Pak Mail Center. Even
so, it is unreasonable to think that an investor receiving the Solicitation Letter
would investigate the matter and discover Defendant’s involvement. Defendant
-13-
must have understood that the use of Tax Preparation, Inc. would lead investors to
believe that an independent accounting firm was going to prepare their K-1s.
Moreover, he knew that was not the case. As a result, we conclude that
Defendant’s use of Tax Preparation, Inc. in the Solicitation Letter was a knowing
misrepresentation.
As evidence of his intent to prepare the returns at the time he sent the
Solicitation Letter, Defendant brings to our attention the advice he received from
Sims, his counsel. Sims told Defendant that IMC, as the non-bankrupt general
partner of five non-bankrupt partnerships, had the responsibility to prepare the
partnership returns and K-1s for those five Funds. Id. at 451-54. Sims’ advice
must be considered in light of two other pieces of evidence, however. The first is
the fact that the IRS accepted the partnership returns prepared by Massaro and
signed by Sender as Trustee. The second is the fact that even if Defendant was
technically responsible to prepare and sign the partnership returns for the five
Funds for which IMC was a general partner, he had no authority or responsibility
to prepare the Joint Venture’s partnership return or K-1s after his resignation.
Moreover, he could not prepare the returns for the Funds unless he had received
the K-1s from the Joint Venture indicating the profit or loss allocable to each of
the Funds as partners of the Joint Venture. Defendant never contacted Sender to
-14-
discuss when he might get the K-1s for the Funds he controlled through IMC. 2
These facts call into question Defendant’s assertion that he, on the advice of
counsel, intended to prepare the partnership returns and K-1s for the entire
venture.
The undisputed evidence also shows that Defendant failed to prepare the
investors’ K-1s, used the money sent by investors for his personal expenses and
made no response to requests for refunds. From these facts and the
misrepresentations made in the Solicitation Letter, the jury may have reasonably
inferred that Defendant intended to defraud the investors when he sent them the
Solicitation Letter. See Prows, 118 F.3d at 692; Masten, 170 F.3d at 795.
Admittedly, the evidence of Defendant’s guilt is not overwhelming.
However, in order for us to vacate Defendant’s conviction on appeal, he must
convince us that the evidence was so lacking that no reasonable jury could have
2
Even if Defendant had, as Bain believed, all the information necessary to
prepare all of the returns and K-1s, including those of the Joint Venture, he did
not have the authority to prepare, sign or file the Joint Venture’s return and K-1s
after his resignation. In addition, had Defendant merely prepared a “draft” return
for the Joint Venture solely for the purpose of discovering the amounts allocable
to the Funds controlled by IMC, he would have been foolish to base the Funds’
returns and K-1s on the draft return because he could not be sure that the official
Joint Venture return would exactly match his draft. Regardless of whether he had
the legal obligation to prepare the Funds’ returns, he could not proceed without
first having received the K-1s for those Funds from the Joint Venture. We find it
hard to believe that Defendant thought that he could complete the partnership tax
returns and investor K-1s without collaborating with Sender and the Joint
Venture.
-15-
found him guilty of mail fraud. He has not done so. After carefully reviewing
the record, we conclude that the evidence therein, when viewed in the light most
favorable to the government, provided a sufficient basis from which a reasonable
jury could have found Defendant guilty beyond a reasonable doubt.
III. CONCLUSION
For the foregoing reasons, we AFFIRM Defendant’s conviction.
ENTERED FOR THE COURT
Stephen H. Anderson
Circuit Judge
-16-