United States v. Stearns ( 2002 )

UNITED STATES COURT OF APPEALS
For the Fifth Circuit
No. 01-50724
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
VERSUS
BRIAN RUSSELL STEARNS,
Defendant - Appellant.
Appeal from the United States District Court
For the Western District of Texas, Austin
(A-99-CR-230-All-JN)
July 23, 2002
Before WIENER and DENNIS, Circuit Judges, and DUPLANTIER,* District
Judge.
PER CURIAM:**
Brian Russell Stearns was charged in an eighty-two count
superseding indictment with securities fraud, mail fraud, wire
*
District Judge of the Eastern District of Louisiana, sitting by
designation.
**
Pursuant to 5TH CIR. R. 47.5, the Court has determined that this
opinion should not be published and is not precedent except under
the limited circumstances set forth in 5TH CIR. R. 47.5.4.
1
fraud, making false statements, Social Security Card fraud, money
laundering, and possessing a firearm as a felon. Stearns pleaded
not guilty, and the case was tried before a jury. During trial,
the government voluntarily dismissed counts sixteen and seventeen,
and the jury convicted Stearns on the remaining counts. The
district court sentenced Stearns to an aggregate term of
imprisonment of 360 months and to an aggregate term of supervised
release of five years. The district court ordered Stearns to pay
$36,054,990 in restitution and an $8,000 special assessment.
Stearns appeals his conviction on count fifty-five and his
sentence. We AFFIRM.
I. FACTS
From February 1998 to February 2000, Stearns, then a resident
of Austin, Texas, operated a vast Ponzi scheme.1 He made false
representations to investors and lenders concerning his background,
financial status, and occupation. Stearns represented himself as
a “Master Trader” and purported to sell and trade securities,
medium-term notes, high-yield European bank debentures, and bonds.
He further represented that he owned $2.3 billion worth of Barclays
Bank bonds and $40 million worth of Federal Home Loan Bank bonds,
1
“Ponzi was the last name of the swindler in Cunningham v.
Brown, 265 U.S. 1 (1924). The term has come to be used to describe
a scheme whereby the swindler uses money from later victims to pay
earlier victims.” Guidry v. Bank of LaPlace, 954 F.2d 278, 280 n.1
(5th Cir. 1992).
2
which would be used to secure and guarantee his investors’ funds.
Stearns forged documents to provide support for these and other
misrepresentations.
Over the course of his scheme, Stearns had over 350 victims
who invested almost $60 million. To promote his scheme, Stearns
used the help and services of several sophisticated individuals
such as Phillip Wylie, Stearns’s attorney, and Robert Caron, a
broker and manager of Peregrine Strategies investment fund. Wylie
acted as a collateral agent on some loans and investments for
Stearns; received money from a number of Stearns’s investors; and,
at Stearns’s direction, wired the money to Stearns’s personal
accounts and purchased a $3 million Lear Jet for him. Similarly,
Caron received payments from Stearns’s investors and wrote letters
on behalf of Stearns to prospective investors stating that he and
Stearns had done multimillion dollar deals together. Both Wylie
and Caron accompanied Stearns to a meeting with a bank officer from
Bank of America regarding a $20 million loan, in which they
asserted that Stearns owned the $2.3 billion Barclay Bond free and
clear.
Perhaps most importantly, Stearns employed the help of another
broker, Jerry Vosselman, to further facilitate his fraudulent
activity. Vosselman was introduced to Stearns via a contact from
Stearns’s business associate, Anwar Heidary – a money manager with
whom Vosselman had also engaged in high-yield investment schemes at
the expense of unsuspecting investors. In June of 1998, Vosselman
3
and Stearns entered into a business arrangement, whereby Vosselman
agreed to act as Stearns’s agent and solicit investors, whose money
Stearns was supposed to place in medium term notes. Vosselman was
to guarantee investors a forty percent monthly return, and he and
Stearns were to divide evenly the remaining profits.
During the next two months, Vosselman secured $4.3 million
from four investors. The investment funds were deposited into
Vosselman’s brokerage account and then wired directly to Stearns.
During that period, Vosselman was in contact with Stearns by
telephone five or ten times a day. One investor, Brent Butts,
unaware of Vosselman’s relationship with Stearns, invested $3.3
million with Vosselman between June 24 and September 25, 1998,
based in part on Vosselman’s representations that he had traded in
medium term notes for over three years and had been so successful
that he was thinking of retiring. Although the first payment was
made on Butt’s investment, the second payment, due in September,
was not made. Butts voiced concern to Vosselman and began calling
him on a daily basis. Vosselman, attempting to reassure Butts,
told Butts not to worry and that “everything was . . . still
working.”
Vosselman eventually began avoiding the calls. When pressed,
Vosselman finally identified Stearns as the trader, but then
attempted to reassure Butts by telling him of Stearns’s credentials
and his experience trading medium term notes in Germany. Vosselman
also provided Butts with a document supposedly generated by
4
Interpol showing Stearns’s qualifications and with a copy of a
printout of a Bloomberg screen supposedly showing that Butts’s
funds had been used to purchase a medium term note on the Abbey
National Bank in the United Kingdom. In addition, Vosselman told
Butts that Stearns had an impressive home in Austin and that
Vosselman was thinking of buying a ranch outside of Austin to
facilitate their business dealings. Vosselman finally resorted to
giving Butts a series of excuses: that the funds had been wired to
Stearns but the wire had been lost, that the wire was found but had
been sent to the wrong bank, and that the money had been wired back
to Morgan Stanley so that taxes could be withheld. Finally,
Vosselman told Butts that he and Stearns operated a hedge fund and
that Butts’s funds would be invested in the hedge fund if the
problem with Morgan Stanley could not be resolved.
In October 1998, when the second payment was two-to-three
weeks late, Butts insisted on speaking with Stearns. Vosselman
discouraged this at first but finally agreed to set up a conference
call, which happened on October 23, 1998. During this call,
Stearns was evasive and refused to tell Butts when the second
payment would be made. Butts insisted on having a contact name and
number for future reference, but Stearns gave him a phony name and
number.2
Vosselman also solicited funds from another investor, Barrett
2
Only after Butts’s attorney got involved was the money
recovered in April 1999.
5
Morrison, without disclosing his relationship with Stearns and
under the pretenses that he was the trader. Again, Vosselman made
various excuses when the first payment on the investment contract
was due in October 1998, including falsely telling Morrison of the
death of a close friend. He also falsely told Morrison that the
money had been frozen because another investor had complained to
state authorities.
During the course of all this misconduct, Vosselman received
a number of gifts and/or payments from Stearns. In August or
September of 1998, Stearns gave Vosselman a $98,000 gift to help
him purchase a condominium. Similarly, between June and the fall
of 1998, Stearns gave Vosselman $45,000 in gifts or salary.
III. ANALYSIS
A. Sufficiency of the Evidence — Count Fifty-Five
Stearns contends that the evidence was insufficient to sustain
his conviction on count fifty-five, which charged him with money
laundering to promote unlawful activity, in violation of 18 U.S.C.
§ 1956(a)(1)(A)(I). Because Stearns timely moved for judgment of
acquittal at the close of the government’s case and again after
both sides rested, this court reviews a sufficiency of the evidence
challenge in the light most favorable to the verdict and upholds
the verdict if, but only if, a rational juror could have found each
element of the offense beyond a reasonable doubt. United States v.
6
Brown, 186 F.3d 661, 664 (5th Cir. 1999); United States v. Pruneda-
Gonzalez, 953 F.2d 190, 193–94 (5th Cir. 1992); Fed. R. Crim P.
29(a).
To obtain a conviction under § 1956(a)(1)(A)(i),3 the
government must prove beyond a reasonable doubt that the defendant
“(1) conducted or attempted to conduct a financial transaction, (2)
which the defendant knew involved the proceeds of unlawful
activity, (3) with the intent to promote or further unlawful
activity.” Brown, 186 F.3d at 668 (internal quotation omitted).
Mere evidence of promotion of an unlawful activity does not satisfy
the intent-to-promote element. Id. at 670. The government must
show that “a dirty money transaction that in fact promoted
specified unlawful activity was conducted with the intent to
promote such activity.” Id. However, “[t]his does not mean that
there must always be direct evidence, such as a statement by the
defendant, of an intent to promote specified unlawful activity.”
Id. In fact, “[d]irect evidence is seldom available.” United
3
18 U.S.C. § 1956(a)(1)(A)(i) makes it illegal for:
(a)(1) Whoever, knowing that the property involved in a
financial transaction represents the proceeds of some
form of unlawful activity, conducts or attempts to
conduct such a financial transaction which in fact
involves the proceeds of specified unlawful activity
(A)(i) with the intent to promote the carrying on of
specified unlawful activity; . . . .
Subsequently, the money laundering statute defines “specified
unlawful activity” to include mail and wire fraud. See 18 U.S.C.
§§ 1956(c)(7)(A), 1961(1).
7
States v. Johnson, 971 F.3d 562, 566 (10th Cir. 1992). “In many
cases, the intent to promote criminal activity may be inferred from
the particular type of transaction” or from the surrounding
circumstances. Brown, 186 F.3d at 670; Johnson, 971 F.3d at 566.
Although an “intent to promote” cannot be inferred from the
conduct of a “defendant who . . . deposits proceeds of some
relatively minor fraudulent transactions into the operating account
of an otherwise legitimate business enterprise and then writes
checks out of that account for general business purposes,” Brown,
186 F.3d at 671, “[w]hen the business as a whole is illegitimate,
even individual expenditures that are not intrinsically unlawful
can support a promotion money laundering charge.” United States v.
Peterson, 244 F.3d 385, 392 (5th Cir. 2001). For example, in
United States v. Jackson, 935 F.2d 832, 840-42 (7th Cir. 1991), the
court inferred “intent to promote” from the defendant’s use of
illegal funds to purchase beepers because the beepers played an
important role in the defendant’s drug trafficking scheme.
Count fifty-five alleged that Stearns used money obtained
through wire fraud to pay two past-due mortgage payments totaling
$36,368.39. Stearns does not dispute either making the payment or
the source of the funds. Instead, citing Brown, he contends that
the payment of the mortgage on his residence was a strictly
personal expenditure and that the government failed to prove that
the transaction was intended to promote unlawful activity.
8
We reject Stearns’s contention, as this case is unlike Brown,
in which an automobile dealership defrauded lenders by helping
unqualified buyers obtain financing and then used those proceeds to
satisfy ordinary business expenditures that bore no relation to the
fraud. The court in Brown failed to find an “intent to promote”
because the ordinary business expenditures failed to “play[] an
important role” in the defendant’s criminal scheme.4 Instead, we
find persuasive the Tenth’s Circuit’s decision in United States v.
Johnson, 971 F.2d 562 (10th Cir. 1992), where the defendant, like
Stearns here, used the proceeds of a wire fraud scheme to pay off
the mortgage on his house. In finding sufficient evidence to
support a money laundering conviction, the court stated:
The evidence clearly showed that the defendant used the
office in his home to carry out the fraudulent scheme.
In addition, the defendant’s aura of legitimacy was
bolstered in the minds of investors who saw the
defendant’s house. The circumstances give rise to an
inference that the defendant paid the mortgage on the
house so that he could continue using the office in
furtherance of the fraudulent scheme.
Id. at 566.5
4
United States v. Brown, 186 F.3d 661, 670 (5th Cir. 1999).
5
Although there is, admittedly, language in Johnson which
suggests a distinction between paying off a mortgage and making a
regular monthly payment, we do not find this distinction to be a
meaningful one, as both courses of action protect the defendant’s
9
In relying on the Tenth Circuit’s case in Johnson, we are
mindful of the Sixth Circuit’s admonition that not all home
mortgage payments support the “intent to promote” prong merely
because the residence is used as a business office. United States
v. McGahee, 257 F.3d 520 (6th Cir. 2001). That is, the court in
McGahee rejected the government’s argument because there the
defendant’s “home did not play an integral part in the embezzlement
scheme,” and “[p]aying for personal goods, alone, is not sufficient
to establish that funds were used to promote an illegal activity.”
Id. at 527. Because in McGahee defendant’s use of his home as his
business office was “merely a convenience,” “the reasonable
conclusion [wa]s not that [the defendant] made the payment with the
intent to promote the embezzlement, but rather with the intent to
sustain his personal living quarters.” Id.
The record here, however, reveals that this case is more like
Johnson, than Brown and McGahee. Here, Stearns maintained an
office at his home, where he operated portions of his scheme. When
he was arrested, agents searching the house found business records
and several documents used in the scheme, including forged letters
that Stearns used to tout his investment offerings as risk-free.
Some victims testified to fraudulent activities conducted in
“right to continue using the office and the home.” Thus, the
relevant teaching of Johnson is that a sufficient connection
between a defendant’s residence and his unlawful activity will
permit a jury to legitimately infer that the defendant made a
mortgage payment with “dirty money” with the intent to promote or
further the unlawful activity.
10
Stearns’s house. He held meetings there with investors and
lenders, told potential investors that he traded bonds from home,
and received cash at home on at least one occasion.
More importantly, Stearns used his expensive home to create an
aura of legitimacy6 for his investment scheme. He displayed to
various potential investors either the house itself or his office
facilities. One investor testified that the impressive nature of
the house gave him a sense of comfort in his dealings with Stearns,
and Vosselman mentioned the house when trying to comfort Butts
after he failed to receive the second payment on his investment.
Finally, when Stearns pursued the ill-fated Bank of America loan,
he included a picture of his house with the loan application.
These facts distinguish this case from Brown, where the
proceeds of fraudulent transactions were deposited into an
operating account and then used to satisfy general business
expenses unrelated to the fraud, and McGahee, where the court found
that the defendant’s home did not play a significant role in his
embezzlement scheme. Instead, this case is closer to Johnson,
6
See United States v. Oberhauser, 284 F.3d 827 (8th Cir. 2002)
(concluding that transfers of illegal funds from a Ponzi scheme to
a charity were more than mere “benign expenditures” because the
transfers to charity promoted the continuation of the fraud, as the
corporation “induced investors to give them money by stating their
profits went to charity and by prominently displaying plaques
commemorating their contributions,” thus giving an aura of
legitimacy to the enterprise); United States v. Savage, 67 F.3d
1435, 1440 (9th Cir. 1994) (stating that “circumstantial evidence
of intent to promote a fraudulent scheme exists if the transfer
lends an ‘aura of legitimacy’ to the scheme”).
11
where the government established a link between the defendant’s
residence and his fraudulent scheme. Accordingly, because the
connection between Stearns’s house and his unlawful activities
supports a jury inference that he made the mortgage payment with
the intent to promote those activities, we affirm the jury’s
verdict on count fifty-five.
B. Sentence Enhancement
Stearns further contends that the district court erred by
overruling his objection to the enhancement of his offense level
under U.S.S.G. § 3B1.1(a) for being an “organizer or leader” of an
extensive criminal activity. “The district court’s determination
that a defendant is a U.S.S.G. § 3B1.1 organizer is a factual
finding which this court reviews for clear error. A factual
finding is not clearly erroneous if it is plausible in light of the
record read as a whole. This court reviews a sentencing court’s
application of the guidelines de novo.” United States v. Giraldo,
111 F.3d 21, 23 (5th Cir. 1997); see also United States v. Alfaro,
919 F.2d 962, 966 (5th Cir. 1990).
Under U.S.S.G. § 3B1.1(a), a defendant’s sentence may be
enhanced if he “was an organizer or leader of a criminal activity
that involved five or more participants or was otherwise
extensive.” U.S.S.G. § 3B1.1(a) (emphasis added). Although
Stearns does not contend that he did not act as an “organizer or
12
leader”7 or that the criminal activity was not “otherwise
extensive,” he does argue that no one else involved in the scheme
qualified under the sentencing guidelines as a “participant” for
him to lead or organize. That is, even under the “otherwise
extensive” prong of § 3B1.1, “the defendant must have been the
organizer, leader, manager, or supervisor of [at least] one or more
other participants.” Id. § 3B1.1, Application Note 2. See United
States v. Ronning, 47 F.3d 710, 712 (5th Cir. 1995). “A
‘participant’ is a person who is criminally responsible for the
commission of the offense, but need not have been convicted."
U.S.S.G. § 3B1.1, Application Note 1. In other words, to qualify
as a participant, a person “need not have been charged or
convicted” with the defendant but need “only have participated
knowingly in some part of the criminal enterprise.” United States
v. Boutte, 13 F.3d 855, 860 (5th Cir. 1994).8
Stearns contends that the district court clearly erred in
finding that Vosselman, Caron, and Wylie were participants in
Stearns’s scheme because it found only that they were knowledgeable
of Stearns’s misconduct, not that they were criminally responsible
for the commission of the offense. Stearns relies on this court’s
7
“[A] leader or organizer must control or influence other
people.” Ronning, 47 F.3d at 712.
8
See also United States v. Alfaro, 919 F.2d 962, 967 (5th Cir.
1990) (“We do not require each ‘participant’ to have committed each
element of the offense; rather, we require each of the participants
to play some role in bringing about the specific offense
charged.”).
13
opinion in United States v. Maloof, 205 F.3d 819, 830 (5th Cir.
2000), in which we vacated a defendant’s sentencing enhancement and
remanded for resentencing because the district court found only
that “other persons knew what was going on,” without “otherwise
indicat[ing] that it had determined that [the participants] had
intentionally or wilfully participated in the criminal conspiracy
or point[ing] to the evidence in the record that would support such
a finding.” Id. This court stated, “Willful participation is an
essential element of the crime of conspiracy; mere knowledge of a
conspiracy does not itself make a person a conspirator.” Id.
(internal quotation omitted).
Although Stearns’s argument has surface appeal, it is clear
from a review of the whole record and the entirety of the district
judge’s colloquy that the district judge did not clearly err in
finding at least one other participant in Stearns’s crime, and thus
enhancing Stearns’s sentence. 9 Unlike in Maloof, the evidence in
this record of the “willful participation” of others is clear.
There is no dispute that Vosselman, Caron, and Wylie acted as
intermediaries for Stearns, raising money from third parties for
investment purposes and passing the money on to Stearns. It is
9
Even if we were to find that the district judge applied the
wrong legal standard in determining whether the individuals
involved were participants, such a finding would not merit reversal
here, as the district court’s finding that Stearns was a § 3B1.1(b)
organizer was not clearly erroneous. See United States v. Giraldo,
111 F.3d 21 (5th Cir. 1997) (affirming a district court’s
sentencing enhancement under § 3B1.1 based on the evidence in the
record, despite the district court’s legal error).
14
equally clear that, at a minimum, Vosselman (who testified under a
grant of immunity) was so knowledgeable and intimately connected in
Stearns’s scheme that he unquestionably possessed the requisite
“criminal intent” to qualify as a participant under U.S.S.G. §
3B1.1.10 Vosselman knew that his investors had lost money in a
similar high-yield investment program with Stearns’s associate,
Heidary. Nevertheless, Vosselman solicited investors on Stearns’s
behalf. Vosselman also accepted nearly $145,000 in gifts from
Stearns, some of it even after Stearns had failed to pay
Vosselman’s investors. Vosselman became evasive and gave false
explanations for Stearns’s failures to make payments to investors,
thus putting the investors’ money at risk for an additional period
of time. Furthermore, Vosselman misrepresented his qualifications
and his role in the investment scheme to Butts and Morrison. Thus,
it is clear that Vosselman “participated knowingly” in the scheme
and “play[ed] some role in bringing about the specific offense[s]
charged.” Boutte, 13 F.3d at 860; Alfaro, 919 F.2d at 967.
Because the district judge’s factual findings are not implausible
in light of the record read as a whole, we affirm the district
court’s sentencing enhancement.
III. CONCLUSION
10
Because the enhancement guideline requires only one
participant, it is not necessary for us to consider whether Caron
and Wylie were also participants.
15
For the foregoing reasons, the district court’s judgment and
sentence are AFFIRMED.
16