United States v. Stewart , 185 F.3d 112 ( 1999 )

Opinions of the United
1999 Decisions States Court of Appeals
for the Third Circuit
7-16-1999
USA v. Stewart
Precedential or Non-Precedential:
Docket 98-1260
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Filed July 16, 1999
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
Nos. 98-1260, 98-1302, 98-1541,
98-1716, 98-1860, and 98-1968
UNITED STATES OF AMERICA
v.
ALLEN W. STEWART,
Appellant in No. 98-1260
UNITED STATES OF AMERICA
v.
ALLEN W. STEWART,
Appellant in No. 98-1302
UNITED STATES OF AMERICA
v.
ALLEN W. STEWART,
Appellant in No. 98-1541
UNITED STATES OF AMERICA
v.
ALLEN W. STEWART,
Appellant in No. 98-1716
UNITED STATES OF AMERICA
Appellant in 98-1860
v.
ALLEN W. STEWART,
UNITED STATES OF AMERICA
v.
ALLEN W. STEWART,
Appellant in No. 98-1968
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Crim. No. 96-00583-1)
District Judge: Honorable Harvey Bartle, III
Argued May 27, 1999
BEFORE: GREENBERG and ALITO, Circuit Judges,
and DOWD,* District Judge
(Filed: July 16, 1999)
W. Neil Eggleston (argued)
Richard A. Ripley
Timothy K. Armstrong
Howrey & Simon
1299 Pennsylvania Avenue, N.W.
Washington, DC 20004
_________________________________________________________________
*Honorable David D. Dowd, Jr., Senior Judge of the United States
District Court for the Northern District of Ohio, sitting by designation.
2
Kenneth I. Trujillo
Ira Neil Richards
Trujillo Rodriguez & Richards, LLC
The Penthouse
226 West Rittenhouse Square
Philadelphia, PA 19103
Attorneys for Appellant-Cross-
Appellee Allen W. Stewart
Michael R. Stiles
United States Attorney
Walter S. Batty, Jr.
Assistant United States Attorney
Chief of Appeals
Linda Dale Hoffa (argued)
Assistant United States Attorney
Michael V. Rasmussen (argued)
Special Assistant United States
Attorney
Suite 1250
615 Chestnut Street
Philadelphia, PA 19106-4476
Attorneys for Appellee-Cross-
Appellant United States of America
Ross S. Myers
National Association of Insurance
Commissioners
120 W. 12th Street, Suite 1100
Kansas City, MO 64105
Attorney for Amicus Curiae
National Association of Insurance
Commissioners
OPINION OF THE COURT
GREENBERG, Circuit Judge.
I. INTRODUCTION
On December 17, 1997, a district court jury convicted
Allen W. Stewart, formerly a partner in a Philadelphia law
3
firm, of 135 counts of mail fraud, 18 U.S.C. S 1341, wire
fraud, 18 U.S.C. S 1343, money laundering, 18 U.S.C.
S 1957, and racketeering, 18 U.S.C. S 1962(c). On August
12, 1998, the court sentenced Stewart to 180 months in
prison, to be followed by three years of supervised release
and required him to forfeit substantially all of his known
assets and to pay $60 million in restitution.
Stewart appeals from the judgment of conviction and
sentence, raising many legal issues as to why he is entitled
to a new trial or an acquittal. Stewart also challenges the
district court's forfeiture of his personal Merrill Lynch
account ("the Account") as substitute assets under 18
U.S.C. S 982(b)(1). The government cross-appeals the
district court's ruling that the Account was not directly
forfeitable under 18 U.S.C. S 982(a)(1) as property "involved
in" or "traceable to" Stewart's money laundering activities.
For the reasons that follow, we will affirm Stewart's
conviction and sentence and the other orders from which
he appeals. We, however, will reverse on the government's
cross-appeal and thus will modify the district court's
forfeiture order so that the Account is forfeited directly
rather than as a substitute asset. As modified, we will
affirm the forfeiture order.
II. BACKGROUND
A. Factual History
This case involves a very complicated series of fraudulent
transactions that we only summarize. Stewart's activities
revolved around various insurance companies and shell
corporations he created to facilitate his fraudulent
transactions. Stewart's two main vehicles for his criminal
activities were Summit National Life Insurance Company
("Summit"), formerly an Ohio corporation that moved to
Pennsylvania, and Equitable Benefit Life Insurance
Company ("EBL"), a Pennsylvania corporation. In 1994, the
Pennsylvania Department of Insurance ("Department") took
control of these companies because they were insolvent.
Stewart had sold these companies for a nominal amount
immediately before their insolvency was revealed. During
his ownership, each company reported that its assets
4
exceeded its liabilities. These surpluses were fraudulent,
however, as the companies inflated their assets with
unsecured worthless IOUs and accounting acrobatics aimed
at concealing the huge deficits that Stewart created by his
leveraged purchase of Summit and by his other conduct.
The fraudulent transactions began in 1988 when
Stewart, who already owned EBL through a holding
company, bought Summit. Stewart originally became
involved in the Summit purchase as Richard Fanslow's
attorney in Fanslow's attempt to acquire Summit. To
facilitate the acquisition of Summit, Fanslow created a shell
corporation to buy Summit for $52 million, subject to post-
closing adjustments. When Fanslow's bid failed because of
the disapproval of Ohio's insurance regulators, Stewart
stepped in as the purchaser. When Stewart took over, he
needed approximately $62 million to buy out Fanslow and
purchase Summit.
In preparing to purchase Summit, Stewart formed a
Pennsylvania partnership called Summit Company in which
he assigned the interests as follows: 9% to himself, 9% to
his wife, 34% to a stepson, 24% to a trust he had created
for another stepson, and 24% to a trust he had created for
his son. Despite his 9% ownership, Stewart exercised
actual control over the partnership. According to the
purchase agreement between Stewart and Fanslow, Stewart
was to pay Fanslow $473,499 in cash, deliver a $6.4 million
promissory note to him and pay a large portion of Fanslow's
deposit to acquire Summit. On October 6, 1988, Stewart
acquired Summit with a $47.7 million bank loan and a
$2.7 million contribution from EBL.
Stewart then needed approximately $62 million to pay
the bank, Fanslow, and other expenses, as well as to secure
the promissory note. Summit's $31 million capital and
surplus could not cover this amount, so Stewart devised a
number of schemes to pay off his debts without showing a
reduction in Summit's assets.
First, Summit sent more than $70 million to EBL. In
turn, EBL passed $62 million through a handful of
Stewart's shell corporations, which eventually paid the
bank loan and Fanslow. In return for the $62 million, these
5
shell corporations generated a series of unsecured IOUs to
EBL and Summit.
Stewart made these transfers pursuant to a reinsurance
agreement between EBL and Summit. In exchange for the
$70 million it received from Summit, EBL agreed to pay
future claims on a portion of Summit's policies. Summit, in
turn, recorded a reduction in liabilities corresponding to its
reduction in assets when it gave EBL the $70 million. EBL
recorded a corresponding increase in assets and liabilities.
However, Summit continued to make the payments on
claims for which EBL supposedly assumed responsibility.
Stewart continued hiding Summit's missing assets by
double-pledging the collateral used to secure the Fanslow
promissory note and through further fraudulent
transactions whereby Stewart would circulate money taken
from Summit through his other corporations before
returning it to Summit as payments on the IOUs. Summit
also engaged in a sham reinsurance agreement with an
unrelated insurance company, similar to the fraudulent
agreement it had entered into with EBL, and purchased
another insurance company in 1992, to which it assigned
all of EBL's profitable business.
Stewart did not inform the Ohio insurance regulators of
his acquisition of Summit. When they learned of it, the
regulators disapproved and ordered the transaction
unwound. Stewart then sued the Ohio Commissioner of
Insurance following which the parties reached a settlement
in which Summit agreed to sell its Ohio policies to another
insurer and move out of Ohio.
In addition to his fraudulent efforts to conceal the deficits
in his insurance companies, Stewart also began stealing
funds from Summit for his personal use. Pursuant to its
agreement with the Ohio regulators, Summit sold 25% of its
policies to an unrelated insurance company, Continental
Western, and its parent, Beneficial Life Insurance Company
("Beneficial"), in exchange for an annual return of 90% of
the profits from these policies. In January 1992, Stewart
caused Summit to assign, without compensation, this
agreement to another shell corporation he controlled. He
used the payments from Beneficial to help purchase a $1.6
million ocean-front house in Del Mar, California, to pay for
6
improvements to the house and furnish it with antiques, to
pay a $100,000 annual salary to his girlfriend, and to pay
$20,000 in "professional fees" to his son. It also appears
that Stewart "borrowed" $2 million from Summit through a
similar scheme to pay for renovations to his wife's house in
Radnor, Pennsylvania.
Stewart ultimately concluded that he should sell Summit
and EBL before anyone would have the opportunity to
detect his fraudulent activities. In September 1992, he
convinced Larry Fondren, an interested buyer, to sign a
letter of intent to purchase the companies for approximately
$8 million. When Fondren tried to examine their books his
due diligence was obstructed, and thus he attempted to
withdraw from the purchase. Stewart then sought another
buyer but that buyer's accountant discovered that Summit
and EBL were insolvent. Meanwhile, Stewart had brought
suit against Fondren and thereby forced Fondren to go
through with the purchase on the condition that he would
not make a substantial payment for the companies.
After he took over the companies, Fondren's fears were
realized when he discovered that both were insolvent. He
contacted the Department, which placed the companies
into rehabilitation in 1994. The Department traced the
companies' insolvency to Stewart's ownership period.
As a result of the companies' insolvencies, over 9,000 life
insurance policies were devalued, other policies became
worthless, and other insurance companies that belonged to
the same Guarantee Association were forced to take over
certain liabilities of Summit and EBL. The government
established at sentencing that the losses from the
companies' insolvencies exceeded $80 million, and that
Stewart was personally responsible for $60.1 million of this
amount.
Through Stewart's criminal activities, he accumulated --
aside from amounts not relevant to this discussion-- $3
million which he deposited into his Account at Merrill
Lynch on or about August 30, 1996. The Account
previously contained $160,000, which was, as far as the
government could ascertain, legitimate money not related to
Stewart's criminal activity. The government obtained a
7
pretrial restraint against the withdrawal of the entire
Account. Thereafter, the only withdrawal from the Account
was $600,000, released pursuant to a July 3, 1997
agreement between the government and Stewart so that he
could retain trial attorneys of his choice. At the time of the
withdrawal, Stewart and the government agreed that the
$600,000 included the legitimate $160,000. Ultimately, the
court ordered this Account forfeited as a substitute asset.
B. Procedural History
When Stewart's scheme collapsed, a grand jury indicted
him. During the ensuing jury trial, the government sought
to forfeit directly Stewart's personal Account at Merrill
Lynch under the RICO forfeiture statute, 18 U.S.C.S 1963.
In its special forfeiture verdict, however, the jury declined to
forfeit the Account as property acquired or maintained as a
result of Stewart's RICO violations. Following the trial the
government nevertheless claimed that the Account should
be forfeited as a substitute asset under 18 U.S.C.
S 982(b)(1), a provision in the criminal money laundering
forfeiture statute.1 The government later changed its
position and requested that the funds in the Account be
forfeited directly under 18 U.S.C. S 982(a)(1) as property
"involved in" or "traceable to" Stewart's money laundering
offenses.
The district court at Stewart's sentencing hearing on
August 12, 1998, considered the government's request to
forfeit the Account directly. During the hearing, the
government traced $3 million of laundered funds to the
Account. These funds represented the same money that,
according to the jury's verdict on Count 153 of the
indictment, Stewart had withdrawn illegally from the Merrill
Lynch account of Tartan Management Corporation, a
company Stewart controlled. The jury specifically forfeited
this $3 million in Count 157 under 18 U.S.C. S 982, the
money laundering forfeiture provision. Despite the
government's success in tracing the funds to the Account,
the district court concluded that United States v. Voigt, 89
_________________________________________________________________
1. The substitute asset provision in 21 U.S.C.S 853 is incorporated into
18 U.S.C. S 982(b)(1). See id. (incorporating subsection (p) of 21 U.S.C.
S 853).
8
F.3d 1050 (3d Cir. 1996), precluded the direct forfeiture of
the $3 million because the money had been commingled
with the $160,000 of untainted funds already in the
Account.
In an October 6, 1998 order, the court then considered
the government's alternate request to forfeit the Account as
a substitute asset. The court concluded that the
government had satisfied the money laundering substitute
asset provision because it demonstrated that qualified
property, the $3 million Stewart withdrew from the Tartan
Management account, had been "commingled with other
property which cannot be divided without difficulty." 18
U.S.C. S 982(b)(1) (incorporating 21 U.S.C.S 853(p)(5)). It
therefore granted the government's motion.
III. DISCUSSION
Turning to the merits of this appeal, we first discuss
Stewart's challenges to his conviction and then consider the
challenges to the district court's October 6, 1998 forfeiture
order.2 With respect to the purported trial errors, we
address only those issues Stewart raised at oral argument,
as we find the myriad other contentions contained in
Stewart's brief to be clearly without merit.3
_________________________________________________________________
2. The district court had jurisdiction under 18 U.S.C. S 3231 and we
have jurisdiction under 28 U.S.C. S 1291 to review the district court's
judgment of conviction and its October 1998 forfeiture order as well as
the other orders on appeal.
3. Accordingly, we reject without discussion Stewart's arguments that
the district court violated his right of confrontation by prohibiting
recross-examination, the RICO count as set forth in the indictment was
defective on its face, the district court constructively amended the
indictment's charges on RICO enterprise, the evidence was insufficient to
establish that Stewart mailed the fraudulent communications for his
mail fraud convictions, the evidence was insufficient to establish a
scheme to defraud, the indictment failed to charge an essential element
of the offense of money laundering by not mentioning a "financial
institution," the district court constructively amended the indictment by
broadening the potential basis of conviction for the money laundering
counts, there was insufficient evidence to establish venue in the Eastern
District of Pennsylvania, there was insufficient evidence to establish
that
the fraudulent transactions affected interstate commerce, and
the McCarran-Ferguson Act, 15 U.S.C. SS 1011-1015, barred the
prosecution.
9
A. Did the district court violate Stewart's right to the
counsel of his choice by disqualifying his "expert"
attorneys?
Stewart first argues that the district court's
disqualification of certain of his attorneys deprived him of
his Sixth Amendment right to counsel. After conducting a
hearing, the district court, on September 24, 1997, granted
the government's motion to disqualify the law firm of
Christie, Pabarue, Mortensen and Young ("Christie
Pabarue") from representing Stewart in the criminal
prosecution. See United States v. Stewart, No. 96-583, 1997
WL 611594, at *4 (E.D. Pa. Sept. 24, 1997). However,
Robert E. Welsh, Jr., who was not from that firm, had
represented Stewart since the middle of 1996, months
before the grand jury indicted him on December 4, 1996,
and the court did not disqualify Welsh. Although Christie
Pabarue had been working "informally" with Welsh during
the same period, the firm had not entered its appearance as
co-counsel until July 31, 1997. Id. at *1.
The conflict leading to Christie Pabarue's disqualification
arose because the firm also had been representing Stewart,
Jeanne Fletcher, June O'Brien, Geoffrey Stewart, and Paul
Tamaccio in a civil RICO action in the district court brought
by the Pennsylvania Insurance Commissioner parallel to
this case. Fletcher, O'Brien, Geoffrey Stewart, and Tamaccio
had agreed with the government to testify for it at Stewart's
criminal trial. These four persons had various relationships
with Stewart that we describe below. On April 10, 1997, the
district court in the civil action denied the Commissioner's
motion to disqualify Christie Pabarue from representing 14
co-defendants, including Stewart and these four
individuals. See Kaiser v. Stewart, 1997 WL 186329, at *5
(E.D. Pa Apr. 10, 1997). However, the firm's representation
of Stewart in the criminal trial was more problematic to the
district court. See United States v. Stewart, 1997 WL
611594, at *1.
The court recognized that the government had granted
immunity to Fletcher, O'Brien, Geoffrey Stewart, and
Tamaccio, and characterized their testimony as "significant"
to the prosecution. Id. At the hearing on the government's
disqualification motion in this case, Stewart and the four
10
witnesses each stated that he or she waived any conflicts,
agreed to the disclosure of privileged information, and
consented to allowing Christie Pabarue to serve as
Stewart's attorney. Id. Yet, the district court determined
that the firm's defending of Stewart was "directly adverse"
to its representation of the four individuals, and thus
placed the Christie Pabarue attorneys in the "unenviable
position of cross-examining their own clients with the help
of attorney-client communications." Id. at *3.
Moreover, the court doubted that the four individuals
comprehended the ramifications of adverse representation
and questioned whether their waivers were truly voluntary
inasmuch as each of the four was tied intimately to
Stewart: Fletcher was still an officer of an operating
insurance company Stewart owned and controlled; O'Brien
was Stewart's live-in girlfriend; Geoffrey Stewart was his
son; and Tamaccio was his step-son. Id. at *3-*4.
Furthermore, Stewart was paying both O'Brien's civil and
criminal legal fees, and his company was paying Fletcher's
fees. Id. at *4. The court also recognized that it had an
"independent responsibility to uphold the ethical precepts
of the legal profession as well as the public interest in the
integrity of the judicial process." Id. Finally, the court
stated that Welsh was "able and experienced" and that "[n]o
evidence or contention has been presented that [Christie
Pabarue's] absence [would] prejudice Allen Stewart's right
to a fair trial." Id.
We review the district court's order in two stages. First,
we exercise plenary review to determine whether the district
court's disqualification was arbitrary -- "the product of a
failure to balance proper considerations of judicial
administration against the right to counsel." Voigt, 89 F.3d
at 1074. If we find that the district court's decision was not
arbitrary, we then determine whether the court abused its
discretion in disqualifying the attorneys. See id.
Stewart seems to attack the district court's
disqualification decision as arbitrary, although he may be
confusing the two aspects of our dual prong analysis.
Stewart equates an adverse decision with an arbitrary one,
and puts much stock in the fact that the court allowed
Christie Pabarue to represent all of the defendants,
11
including Stewart and the four individuals, in the civil
RICO case. We long have recognized, however, that"[a]s
long as the court makes a `reasoned determination on the
basis of a fully prepared record,' its decision will not be
deemed arbitrary." Id. at 1075 (quoting Fuller v. Diesslin,
868 F.2d 604, 609 n.4 (3d Cir. 1989)). In this case, the
court held a hearing and properly balanced the factors for
and against disqualifying Christie Pabarue. Thus, we
cannot say that its decision was arbitrary, as we have
defined that term in the context here, and we confine our
review to determining whether the district court abused its
discretion in making this decision.
Considering Stewart's arguments in light of our
deferential standard of review, we find that the district
court did not abuse its discretion in disqualifying Christie
Pabarue. Indeed, even if we were to review the court's
decision de novo, we still would uphold its determination,
as we have come to the same conclusion as did the district
court regarding the propriety of Christie Pabarue's
representation of Stewart at the criminal trial.
Stewart claims that the district court erred because only
a few months earlier in the civil RICO case it denied a
"substantively indistinguishable motion." Br. at 24.
However, Stewart mischaracterizes the situation, for while
the motions sought similar relief, the circumstances
surrounding their consideration were quite different. When
the district court declined to disqualify Christie Pabarue in
the civil RICO case, the firm was representing all the
defendants in that suit but did not claim that it represented
Stewart in the criminal action. See Kaiser v. Stewart, 1997
WL 186329, at *1 n.1 ("Stewart has separate counsel in the
criminal action."). Here, however, Stewart was the
defendant in a criminal prosecution, and his civil co-
defendants, figuratively at least, were sitting on the other
side of the courtroom because they had agreed to testify
against him under grants of immunity. Thus, Christie
Pabarue's multiple representations in the civil RICO case
created a conflict of interest with its representation of
Stewart in his criminal trial.
In disqualifying Christie Pabarue in the criminal case, the
district court recognized that the firm "informally" had been
12
working with Welsh on Stewart's defense since "mid-1996."
United States v. Stewart, 1997 WL 611594, at *1. Yet it is
questionable that the district court in the civil RICO matter
was aware of this fact when it denied the Commissioner's
disqualification motion. Moreover, we believe that if it had
known of the firm's "informal" representation of Stewart in
the criminal case, the court might have viewed its
representation of him in the civil case as much more
problematic.
We recognize but reject Stewart's argument that there
was no "direct conflict of any kind" because the four
individuals were not criminal defendants. Br. at 26
(emphasis in original). While it is true that the typical
scenario where disqualification becomes necessary entails
an attorney's attempt to represent multiple defendants in
the same prosecution, we have recognized that conflicts
arise where a "defendant seeks to waive his right to
conflict-free representation in circumstances in which the
counsel of his choice may have divided loyalties due to
concurrent or prior representation of another client who is
a co-defendant, a co-conspirator, or a government witness."
United States v. Moscony, 927 F.2d 742, 749 (3d Cir. 1991)
(emphasis added).
Because the Christie Pabarue attorneys would have been
part of a team of attorneys required to cross-examine the
four individuals testifying for the government, Stewart's
right to effective counsel could have been compromised by
the divided loyalties of his own attorney: "Conflicts of
interest arise whenever an attorney's loyalties are divided,
and an attorney who cross-examines former clients
inherently encounters divided loyalties." Id. at 750
(citations omitted). Thus, Stewart is mistaken in arguing
that Christie Pabarue's multiple representations did not
pose a serious potential for conflicts of interest simply
because the four individuals were not co-defendants in the
criminal trial.
Similarly, we reject Stewart's contention that the district
court's "theory as to why Mr. Stewart's interests diverged
from the four witnesses' interests collapses under scrutiny."
Br. at 27. The district court stated that it could be an
"obvious" defense theory at trial to focus blame for
13
wrongdoing on the four individuals. United States v.
Stewart, 1997 WL 611594, at *3. Stewart claims that such
a theory was "directly contrary to the publicly declared
strategy of defense that counsel had already adopted." Br.
at 27 (emphasis in original). The defense's "publicly
declared strategy" was to assert that the allegedly
fraudulent transactions were legal because Stewart had
received the approval from the proper regulatory agencies
for them. Id.
We recognize that, as the Supreme Court noted in Wheat
v. United States, 486 U.S. 153, 164, 108 S. Ct. 1692, 1700
(1988), there is a presumption in favor of a defendant's
choice of attorneys. But the Supreme Court went on to
explain that:
that presumption may be overcome not only by a
demonstration of actual conflict but by a showing of a
serious potential for conflict. The evaluation of the facts
and circumstances of each case under this standard
must be left primarily to the informed judgment of the
trial court.
Id., 108 S.Ct. at 1700 (emphasis added).
Moreover, notwithstanding an attorney's pretrial
assurances otherwise, a defendant's trial strategy is not
fixed. Thus, if an attorney has been unsuccessful in
bringing out the necessary points in support of a
contemplated defense, the attorney may change his strategy
to provide the defendant with the best possible defense.
Accordingly, the district court could not accept Stewart's
assurances that he would not pursue an alternate strategy
at trial. In fact, by so doing, the court would have been
opening the door for a manufactured mistrial or a possible
ineffective assistance of counsel claim on appeal. We
emphasize that this was a complex trial and that during the
course of a case of this nature a defendant well might
change his strategy. In this regard, we point out that a
district court will not limit a defendant at trial to the
position the defendant stated in pretrial public statements,
which a court will not regard as a defensive bill of
particulars.
14
Furthermore, we find equally unavailing Stewart's
argument that the district court abused its discretion in
disqualifying Christie Pabarue in the face of his and the
other four individuals' waiver of any conflicts. Stewart's
argument does not take into account the court's obligation
to examine the validity of a waiver. After all, we have held
that "[s]uch a waiver, . . . does not necessarily resolve the
matter, for the trial court has an institutional interest in
protecting the truth-seeking function of the proceedings
over which it is presiding by considering whether the
defendant has effective assistance of counsel, regardless of
any proffered waiver." Moscony, 927 F.2d at 749. The
tension between protecting the institutional legitimacy of
judicial proceedings, which includes a concern to shield a
defendant from having his defense compromised by an
attorney with divided loyalties, and allowing a defendant to
be represented by the attorney of his choice, creates the
disqualification issue. Thus, a district court has discretion
to disqualify counsel if a potential conflict exists, see
Wheat, 486 U.S. at 164, 108 S.Ct. at 1700, even where the
represented parties have waived the conflict.
Moreover, we agree with the district court's conclusion
that the four individuals did not "fully comprehend[ ] the
ramifications flowing from joint representation" and we
share the court's doubt that the waivers were "truly
voluntary." United States v. Stewart, 1997 WL 611594, at
*3-*4. As the district court noted, even with its vast
experience in presiding over criminal trials, it cannot
foresee what ramifications can flow from multiple
representations. Thus, the court had good reason to doubt
"that anyone could be sufficiently prescient to foresee the
exact path this case [would] take either in the time
remaining before trial or at trial." Id. at *3. Further, the
four individuals had personal relationships with Stewart
and could have felt that by waiving the conflicts and their
privileges they somehow were lessening the damage that
their adverse testimony would cause to Stewart. When we
also consider that Stewart either personally or through his
insurance company was paying the legal fees of two of
these individuals, we see no reason to upset the district
court's judgment on this matter.
15
Finally, we reject Stewart's claim that the government
manufactured the conflict to disadvantage him at trial. Br.
at 28-29. Such a claim flies in the face of reality inasmuch
as the government agreed to immunity for all four
individuals and thus to that extent lessened the conflict. In
any event, the conflict was real. Accordingly, we will affirm
the district court's order disqualifying Christie Pabarue
from representing Stewart in this case.
B. Did the indictment omit an element of "mail fraud"?
Stewart argues that we must reverse the mail fraud
convictions -- and consequently the money laundering and
RICO convictions that relied upon the mail fraud counts as
predicate acts -- because the indictment and jury
instructions omitted the "knowing" element of causing a
fraudulent communication to be mailed. Br. at 49. 4 He
claims that a violation of 18 U.S.C. S 1341 requires a
showing that the defendant "mails or knowingly causes to
be mailed an article in furtherance of a scheme to defraud."
Id. According to this argument, the indictment's language
drops this knowing element. The indictment states:
54. On or about each of the dates listed below, in the
Eastern District of Pennsylvania and elsewhere, the
defendant,
ALLEN W. STEWART
for the purpose of executing the scheme and artifice
described above and attempting to do so, caused to be
placed in an authorized depository for mail matter the
documents described below to be sent by the United
States Postal Service, any one of which placements
constitutes the commission of Act One. . . .
Joint app. at 1240-41 (emphasis added).
The mail fraud statute provides:
Whoever, having devised or intending to devise any
scheme or artifice to defraud, or for obtaining money or
_________________________________________________________________
4. Because this argument raises a legal question of the elements of a
criminal offense, we exercise plenary review. See United States v. Mosley,
126 F.3d 200, 201 (3d Cir. 1997), cert. dismissed, 119 S. Ct. 484 (1998).
16
property by means of false or fraudulent pretenses,
representations, or promises, . . . for the purpose of
executing such scheme or artifice or attempting so to
do, places in any post office or authorized depository for
mail matter, any matter or thing whatever to be sent or
delivered by the Postal Service, . . . or takes or receives
therefrom, any such matter or thing, or knowingly
causes to be delivered by mail . . . according to the
direction thereon, or at the place at which it is directed
to be delivered by the person to whom it is addressed,
any such matter or thing, shall be fined . . . or
imprisoned not more than five years, or both.
18 U.S.C. S 1341 (emphasis added).
We hold that inasmuch as 18 U.S.C. S 1341 does not
require the "knowing" placing of a communication in an
authorized depository for mail matter, the indictment
correctly charged Stewart with causing communications to
be placed in an authorized depository for mail matter. Use
of the term "caused to be placed" in the indictment referred
to the fact that a defendant can be held responsible for
actions that he orders or directs another to perform. See 18
U.S.C. S 2(b). The jury was instructed on this theory of
criminal responsibility. Joint app. at 3018-19. Conversely,
Congress added the reference to "knowingly causes to be
delivered" in section 1341 to ensure that a defendant would
not be held responsible for fraudulent mailings where he
unknowingly processes a piece of mail or otherwise is
involved unwittingly with fostering the material's delivery.
Because of this distinction, we hold that the indictment
properly charged Stewart with mail fraud.
C. Was Stewart entitled to an "entrapment by estoppel"
instruction?
Stewart argues that the district court erred in refusing to
charge the jury on his defense theory of "entrapment by
estoppel" -- that he had made the allegedly illegal
transactions in reliance on the "categorical approval of all
necessary state regulatory bodies after full investigation
and disclosure." Br. at 56-57. Stewart argues that under
Mathews v. United States, 485 U.S. 58, 63, 108 S. Ct. 883,
887 (1988), and United States v. Mosley, 126 F.3d 200, 203
17
(3d Cir. 1997), cert. dismissed, 119 S. Ct. 484 (1998), the
district court's refusal to charge the jury on a recognized
defense, for which there exists evidence for a reasonable
jury to find in the defendant's favor, was reversible error.
We review the district court's refusal to instruct the jury
on a defense theory de novo in light of the fact that Stewart
objected to the court's refusal to give the charge. See
Government of the Virgin Islands v. Joseph, 765 F.2d 394,
398 (3d Cir. 1985). The entrapment by estoppel defense
applies where the defendant has established by a
preponderance of the evidence that:
(1) a government official (2) told the defendant that
certain criminal conduct was legal, (3) the defendant
actually relied on the government official's statements,
(4) and the defendant's reliance was in good faith and
reasonable in light of the identity of the government
official, the point of law represented, and the substance
of the official's statement.
United States v. West Indies Transp., Inc., 127 F.3d 299,
313 (3d Cir. 1997).
Stewart argues that he was entitled to have the district
court instruct the jury on the defense based upon his
interactions with the Ohio insurance regulators in
purchasing Summit. The Ohio regulators initially had
ordered the transaction unwound, but allowed the
transaction to go through after being sued by Stewart.
Pursuant to a Settlement Agreement, Ohio allowed the sale
on the condition that Stewart move Summit out of Ohio
and sell all of its Ohio policies to other Ohio insurance
companies. Stewart argues that this Settlement Agreement
represented (1) the statement of a government official
(the Ohio Superintendent of Insurance), (2) to
defendant that certain conduct (the purchase of SNLIC-
Ohio as proposed, together with the cession of the Ohio
Business and relocation to Pennsylvania by merger
with Parkway) was lawful, and (3) the defendant relied
on the Settlement Agreement, (4) with such reliance
being in good faith and reasonable in light of the
Superintendent's authority, the points of law at issue,
18
and the substance of the statements in the Settlement
Agreement.
Br. at 59.
We find that the evidence cannot establish an
entrapment by estoppel defense and thus the court
properly refused to charge on the defense. The Ohio
Superintendent never stated to Stewart that the criminal
conduct for which the jury later convicted him was legal.
While Ohio ultimately consented to Stewart's purchase of
Summit, it did not, and could not, approve of his
concealment of Summit's and EBL's huge deficits, and his
stealing funds from both companies. Accordingly, there is
simply no reasonable way that the record can be read to
support a conclusion that the Ohio regulators' highly
conditional consent to Stewart's acquisition of Summit
amounted to a statement that Stewart's conduct
constituting mail fraud, wire fraud, money laundering, and
RICO violations was legal.
Furthermore, the Ohio regulators did not even make a
clear statement approving of Stewart's acquisition of
Summit. Rather, the Settlement Agreement provides that
"[n]othing contained herein shall constitute or be construed
as an admission by any party hereto of the truth or validity
of any of the claims or contentions asserted by either party
in any of the Administrative Proceedings or the Court
Proceedings, or the ratification of any past conduct by
either party." Joint app. at 463. Thus, the parties expressly
agreed that neither could construe the agreement as
ratifying any past conduct. The agreement also
demonstrates that Ohio's regulators, although stopping
short of affirmatively accusing Stewart of illegal activity, did
not want him conducting business in Ohio. As conditions of
the Settlement Agreement, Ohio forced Summit to sell all of
its Ohio policies, move to a different state, and surrender
its authority to do business in Ohio. See id. at 457-58. No
reasonable person can construe an agreement in which the
regulators essentially ushered Stewart out of Ohio as
approving of Stewart's conduct. Accordingly, for this reason
as well, we hold that the Ohio regulators' statements
cannot reasonably support a conclusion that the regulators
condoned Stewart's illegal activities.
19
At bottom, Stewart's case is more like West Indies, 127
F.3d 299, than United States v. Pennsylvania Industrial
Chemical Corp., 461 F.2d 468 (3d Cir. 1972), modified and
remanded, 411 U.S. 655, 93 S. Ct. 1804 (1973), the only
case in which we have found that the evidence supported
an entrapment by estoppel defense. In Pennsylvania
Industrial we reversed the defendant's conviction for
discharging pollution in violation of the Rivers and Harbors
Act, 33 U.S.C. S 407, because the district court refused to
charge the jury on the entrapment by estoppel defense or to
allow the defendant to present evidence that Army
regulations and the government's long-term interpretation
of the statute authorized its allegedly criminal acts. 461
F.2d at 479.
In West Indies, however, we affirmed the defendants'
convictions despite the district court's refusal to instruct
the jury on the entrapment by estoppel defense. 127 F.3d
at 313-14. In that case, the defendants argued that their
convictions for visa fraud could not stand over an estoppel
defense because they had informed the INS fully of their
conduct of which it then approved. Id. at 313. The
defendants also argued that estoppel principles barred their
convictions for illegal dumping inasmuch as the Coast
Guard placed a placard stating that some types of
"nonplastic trash" may be discharged at sea if the vessel is
at least 12 nautical miles from shore. Id. at 314. We
rejected both of these arguments on the grounds that the
government never approved of the specific criminal activity.
The INS was not apprised of the entire situation when
granting the visas in question, while the Coast Guard's
placard did not claim to set out all of the dumping
restrictions. Id. at 313-14.
The circumstances here are similar. The Ohio regulators
did not approve of Stewart's criminal conduct described in
the counts on which the jury convicted him. Thus, we hold
that the district court did not err in refusing to instruct the
jury on the entrapment by estoppel defense because
Stewart did not present sufficient evidence to permit a jury
to conclude that he established the defense by a
preponderance of the evidence. See, e.g., United States v.
Weitzenhoff, 35 F.3d 1275, 1290-91 (9th Cir. 1993) (refusal
20
to instruct jury on entrapment by estoppel defense upheld);
United States v. Billue, 994 F.2d 1562, 1568-69 (11th Cir.
1993) (same); United States v. LaChapelle, 969 F.2d 632,
637-38 (8th Cir. 1992) (same); United States v. Hurst, 951
F.2d 1490, 1499 (6th Cir. 1991) (same).5
D. Did the district court err in giving a "willful
blindness" instruction?
Stewart contends that although the district court
instructed the jury that it could convict him on the mail
and wire fraud counts based on "willful blindness," the
government proceeded at trial on an actual-knowledge
theory. He argues that this charge constituted reversible
error because it lowered the government's burden of
proving intent. He also argues that the court's instruction
was flawed "as a matter of law" because the court omitted
the "high probability requirement" that United States v.
Caminos, 770 F.2d 361, 365 (3d Cir. 1985), required.
Because Stewart objected to this instruction at trial, we
review the instruction de novo. See Joseph, 765 F.2d at
398.
We have upheld a district court's willful blindness
instruction where the charge made "clear that the
defendant himself was subjectively aware of the high
probability of the fact in question, and not merely that a
reasonable man would have been aware of the probability."
Caminos, 770 F.2d at 365. In other words, a willful
blindness charge does not lower the government's burden
of proving intent as long as it "emphasize[s] the necessity of
proving a subjective awareness." Id. at 366. If the charge
satisfies this standard, and is supported by sufficient
evidence, it is not inconsistent for a court to charge a jury
on both an actual knowledge theory and a willful blindness
theory. See United States v. Stuart, 22 F.3d 76, 81 (3d Cir.
_________________________________________________________________
5. Although we do not reach the issue, we are doubtful that a defendant
can claim an entrapment by estoppel defense when, as Stewart contends
was the case here, the government official is a state official who
approves
of the criminal conduct on state law grounds and the defendant is
accused of violating federal law. See Hurst, 951 F.2d at 1499-50; United
States v. Etheridge, 932 F.2d 318, 320-21 (4th Cir. 1991); United States
v. Bruscantini, 761 F.2d 640, 641-42 (11th Cir. 1985).
21
1994). Moreover, contrary to Stewart's second assertion, we
do not require a court's charge to contain specific language
that a defendant must have "a subjective awareness of a
high probability that something is amiss." See id. at 81
(upholding the following instruction: "The government may
prove that a person acted knowingly by proving beyond a
reasonable doubt that that person deliberately closed his
eyes to what otherwise would have been obvious to him.
One cannot avoid responsibility for an offense by
deliberately ignoring what is obvious.").
Momentarily putting aside the issue of the sufficiency of
the evidence that would justify instructing the jury on
willful blindness, we consider Stewart's claim that the
district court's instruction on willful blindness was
erroneous as a matter of law. The full instruction reads:
The government can meet its burden of proving
fraudulent intent not only by showing that a defendant
knowingly lied but also by proving beyond a reasonable
doubt that he acted with deliberate disregard of
whether the statements were true or false or with a
conscious purpose to avoid learning the truth.
Stated another way, a defendant's knowledge of a
fact may be inferred from a deliberate or intentional
ignorance of or willful blindness to the existence of that
fact. It is entirely up to you as to whether youfind any
deliberate closing of the eyes and as to the inferences
to be drawn from any such evidence.
This guilty knowledge, however, cannot be
established by demonstrating that the defendant was
merely negligent or foolish. These legal concepts
concerning proof of fraudulent intent apply to all the
counts of the superseding indictment which allege
fraud as an element.
Joint app. at 3031-32. Comparing this instruction to the
one we approved in Stuart, we conclude that the district
court's charge was sufficient to guard against the jury
convicting Stewart under an objective standard of willful
blindness. In fact, we consider the court's charge here more
clearly to emphasize the distinction between objectively
22
foolish behavior and deliberate or intentional ignorance
than the Stuart charge.
Moreover, the evidence justified the instruction. Stewart
argued at trial that he lacked the intent to defraud because
he relied upon the findings of solvency reported in state
examinations and audit reports. But the evidence permitted
the jury to conclude that this was simply not the case. The
jury could have found that Stewart deliberately closed his
eyes to what otherwise would have been obvious to him
concerning the financial problems of these companies.
Stewart could have recognized the likelihood of insolvency
yet deliberately avoided learning the true facts. Therefore,
the instruction was justified in this instance.
E. Did the district court fail to give the jury a proper
unanimity charge?
Stewart argues that the district court violated his right to
a unanimous verdict on all of the counts of the indictment
by not giving a unanimity charge. However, we find this
contention to be insubstantial because Stewart did not
object to the unanimity instructions, and, in fact, if there
had been error on the court's part concerning Counts 2, 4,
14, 16 through 19, and 22 (for mail and wire fraud),
Stewart invited it by objecting to the government's proposed
unanimity charge on those counts. Joint app. at 3053-54.
Thus, Stewart has waived all of these issues on appeal, and
we would reverse only if the court committed plain error in
instructing the jury on the counts where Stewart did not
invite the error. See United States v. Zehrbach, 47 F.3d
1252, 1260 (3d Cir. 1995) (general waiver); United States v.
Console, 13 F.3d 641, 660 (3d Cir. 1993) (invited error).
In any event, we find no plain error in the court's
charges, and indeed no error at all in the district court's
unanimity instructions. We begin our discussion on this
point with the mail and wire fraud charges inasmuch as
they are the basis of the RICO and money laundering
counts.
The court began early in its charge with a general
instruction that "each of the 135 counts of the superseding
indictment which are before you for decision . . . must be
considered separately." Joint app. at 3010. Moving to the
23
specific mail and wire frauds charges, the court informed
the jury that "each separate use of the mails or wires in
furtherance of the scheme to defraud constitutes a separate
offense or violation of the mail and wire fraud statutes." Id.
at 3035.
This instruction followed the court's setting out of the
four schemes alleged in the indictment. The court charged
the jury that Counts 2, 4, 14, and 16 through 19 for mail
fraud and Count 22 for wire fraud described a scheme to
"defraud and to obtain money and property by wrongfully
taking valuable assets from Summit . . . and [EBL]. . . ." Id.
at 3024-25. The court distinguished this scheme from that
set forth in Counts 24 through 32 for wire fraud that
alleged a scheme "to deceive state insurance regulators
involving reinsurance." Id. at 3025. The court then outlined
the scheme "to defraud and obtain money and property by
inflating Summit['s] . . . financial statements with
overvalued promissory notes from its parent, its corporate
parent, SNL Corp., in order to deceive regulators, the buyer
and others regarding the true financial condition of the
company" set forth in Counts 33, 36 through 73 and 76
through 118 for mail fraud. Id. at 3025-26. Finally, at the
conclusion of its instructions, the court repeatedly
admonished the jury that it was required to agree
unanimously on "each count" of the indictment. Id. at
3049-3052. We find these instructions sufficiently clear to
ensure that the jury understood that it must agree
unanimously on each count of the mail and wire fraud
allegations set forth in the indictment.
Likewise, the court's instructions concerning the RICO
and money laundering charges were quite clear. In
describing the alleged acts of racketeering, the court
referred back to its instructions on the mail and wire fraud
charges and later directed the jury that it "must
unanimously agree on the identity of at least two of the
same racketeering acts alleged to have been committed by
[Stewart]." Id. at 3039-41. Similarly, the court again
referred back to its instructions regarding the mail and wire
fraud charges when instructing the jury on the money
laundering counts. See id. at 3044, 3046. Thus,
considering these instructions in their entirety, even if
24
Stewart had not waived the issue or invited the error, we
would conclude that the court's instructions were clear on
the unanimity issue.
Finally, we note that because the jury convicted Stewart
on all 135 counts of the indictment, even if the district
court erred in charging the jury on unanimity, such error
would be harmless beyond a reasonable doubt. See United
States v. Edmonds, 80 F.3d 810, 812-13 (3d Cir. 1996) (en
banc). Inasmuch as the jury reached a unanimous
agreement on each count, including those counts that were
predicate offenses for RICO and the money laundering
charges, it could not possibly have disagreed on any
elements of the individual crimes. This case is simply not
one in which some jurors relied on a fraudulent mailing
while the others relied upon a fraudulent wire transfer in
convicting on the RICO charges.
Contrary to Stewart's assertions at oral argument,
Sullivan v. Louisiana, 508 U.S. 275, 113 S. Ct. 2078 (1993),
does not preclude us from finding harmless error in this
instance. The Supreme Court held in Sullivan that an
erroneous reasonable doubt instruction cannot be harmless
because this error calls the ultimate verdict of guilt into
doubt. Id. at 280-81, 113 S.Ct. at 2082. As we recognized
in Edmonds, while Sullivan concerned a situation where "an
erroneous reasonable doubt instruction undermined all of
the jury's findings, the jury in this case delivered valid
findings on essentially all of the elements of the offense by
convicting [the defendant] of every violation.. . ." Edmonds,
80 F.3d at 812. Thus, we do not doubt the validity of the
jury's verdict here, nor do we question that this verdict
reflects anything but its unanimous agreement on each
element of each count of the indictment. Accordingly, we
will affirm.
F. Did the district court err in concluding that the
Account was not directly forfeitable?
We now consider two appeals from the October 6, 1998
forfeiture order. In the first, Stewart raises a number of
challenges to the order, including a Sixth Amendment claim
that the forfeiture prevented him from using the forfeited
money to finance his criminal defense. Stewart's claims
25
depend on the assumption that the Account could be
forfeited only as a substitute asset.6 We understand him to
concede, however, that his claims on appeal must fail if the
Account was directly forfeitable rather than forfeitable
merely as a substitute asset and, in any event, that is the
case. The government cross-appeals, claiming that the
district court erred in failing to forfeit the Account directly
under the relevant money laundering provision, 18 U.S.C.
S 982(a)(1).
We will affirm the district court's judgment of forfeiture
but will reverse the court's order finding that the Account
was not directly forfeitable. Thus, we will modify the
forfeiture order. Inasmuch as we agree with the
government's argument that the Account was directly
forfeitable as proceeds of a money laundering violation, we
need not reach the issues Stewart raises.7
We begin our analysis of the district court's forfeiture
order by considering the jury's verdict in this case. In its
special forfeiture verdict, the jury declined to forfeit the
Account as property acquired or maintained as a result of
Stewart's RICO violations. But the jury did find Stewart
guilty on Count 153, a money laundering count under 18
U.S.C. S 1957, which charged him with having withdrawn
illegally $3 million from the account of Tartan Management.
_________________________________________________________________
6. Stewart's claims are: (i) that because the Account was forfeitable only
as a substitute asset, the district court had no power to restrain it from
May 1998 to October of that year, the time between Stewart's request to
lift the pre-trial restraints and the court's order forfeiting the Account
as
a substitute asset; (ii) that forfeiture of the Account under the
substitute
asset provision violates his Sixth Amendment right to counsel because
he intended to use these funds to pay his post-conviction attorneys; (iii)
that prior to entering the substitute asset forfeiture order, the district
court failed to ascertain correctly the shortfall in the government's
recovery of directly forfeited property; and (iv) that when his sentence,
fine, restitution and forfeiture orders are considered together, the
forfeiture of the Account as a substitute asset is excessive under the
Eighth Amendment.
7. We review de novo as involving a legal question the district court's
interpretation of the money laundering forfeiture provisions so as to
forfeit the Account as a substitute asset rather than as criminal
proceeds. See In re Assets of Martin, 1 F.3d 1351, 1357 (3d Cir. 1993).
26
In Count 157, the jury specifically forfeited these funds
under 18 U.S.C. S 982. At the sentencing hearing in
August, the Government used appropriate records to trace
the $3 million forfeited by the jury to the Account. Yet, the
district court concluded that, under United States v. Voigt,
89 F.3d 1050, the money in the Account could be forfeited
only under the substitute asset provision. While we
understand why the district court reached this conclusion,
we find its ruling erroneous because the facts of Voigt are
distinguishable from the facts of this case.
In Voigt, the government sought to forfeit directly jewelry
that a defendant had purchased with funds from an
account in which money laundering proceeds had been
commingled with other funds. See 89 F.3d at 1081. There
had been numerous intervening deposits and withdrawals
between the deposit of the tainted money and the purchase
of the jewelry. See id. Considering these facts, we concluded
that the government simply could not show by a
preponderance of the evidence, as it was required to do
under the money laundering statute, that the jewelry was
"involved in" or "traceable to" the defendant's illegal activity.
See id. at 1082 (citing the money laundering direct
forfeiture provision, 18 U.S.C. S 982(a)(1)). Moreover, we
stated that an interpretation of the statute allowing the
government to forfeit directly the jewelry would force the
court to ignore the substitute asset forfeiture provision,
which specifically provides for the forfeiture of property as
a substitute asset when property involved in or traceable to
the criminal activity "has been commingled with other
property which cannot be divided without difficulty." See id.
at 1085 (citing the substitute asset provision, 21 U.S.C.
S 853(p)(5), incorporated into the money laundering
statute).
This case, however, presents quite different facts. First,
the government is not seeking to forfeit property purchased
with commingled funds. Thus, we are not dealing with
property analogous to the jewelry in Voigt. Instead, after
tracing the $3 million transfer to the Account, which
previously contained only $160,000, the government seeks
to forfeit directly the remaining approximately $2.6 million.
Second, this case does not involve numerous withdrawals
27
and deposits from and into an account containing
commingled funds because almost immediately after
Stewart transferred the $3 million into the Account, the
court restrained withdrawals from the Account. Since that
time, the only withdrawal from the Account was the
$600,000 that the government agreed to allow Stewart to
use to pay his trial attorney.
The single withdrawal aside, the question posed by this
appeal is whether the government may forfeit directly
tainted funds from an account that has been frozen from
the time of the illegal transfer but that also contains
untainted money. It is true that Voigt appeared to answer
this question in the negative: in a footnote, the court stated
that the substitute asset provision would have to apply to
commingled cash even if "one readily could separate out the
amount subject to forfeiture." 89 F.3d at 1088 n.24. But
this statement in Voigt is dicta because Voigt was not a case
in which "one readily could separate out the amount
subject to forfeiture." Accordingly, the holding of Voigt does
not require us to find against direct forfeiture in this case.
Indeed, if we were to rule against direct forfeiture in this
case our holding would contradict congressional intent as
expressed in the money laundering forfeiture statute.
Property is directly forfeitable under that statute when it is
"involved in" or "traceable to" the defendant's illegal activity.
18 U.S.C. S 982(a)(1). Here, the government clearly traced
laundered funds forfeited by the jury to Stewart's Account.
Stewart does not contest this tracing, which in any event
the government clearly established. Moreover, the
substitute asset provision of the statute applies only when
commingled property cannot be "divided without difficulty."
21 U.S.C. S 853(p)(5).
The Voigt panel surely was accurate when it concluded
that the substitute asset provision must be used"once a
defendant has commingled laundered funds with untained
funds . . . such that they `cannot be divided without
difficulty.' " 89 F.3d at 1088 (citing 21 U.S.C. S 853(p)(5)).
We do not see any difficulty, however, in separating out the
tainted $3 million from the untainted $160,000 that the
Account contained. There would be a difficulty only if one
were to attach significance to which actual bills were left in
28
a defendant's account after the direct forfeiture; certainly a
defendant has no legitimate interest in preferring one dollar
bill to another as long as he is left with the same amount
of legitimate funds.
Neither does the fact that the government agreed to the
withdrawal of $600,000 from the Account to finance
Stewart's trial defense affect our direct forfeiture analysis.
As the government made clear at oral argument, Stewart
agreed that untainted money would be deemed withdrawn
first. Because the Account contained only $160,000 of
untainted funds, Stewart already has used the funds in the
Account to which he was entitled legitimately. We therefore
conclude that the remaining approximately $2.6 million in
the Account should be forfeited directly to the government
under the money laundering forfeiture provision, 18 U.S.C.
S 982(a)(1).
IV. CONCLUSION
For the foregoing reasons, we will modify the district
court's October 6, 1998 forfeiture order so that the
forfeiture is direct rather than of a substitute asset. As
modified, we affirm the forfeiture order and we will affirm
the judgment of conviction and sentence entered August
13, 1998, and all other orders on appeal.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
29