United States v. Stephen M. Green ( 2000 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 99-1788
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United States of America, *
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Appellee, *
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v. *
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Stephen Michael Green, *
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Appellant. *
__________ Appeals from the United States
District Court for the District
No. 99-1973 of Minnesota.
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United States of America, *
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Appellee, *
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v. *
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Thomas Arthur Green, Sr., *
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Appellant. *
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Submitted: February 15, 2000
Filed: September 13, 2000
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Before BEAM and JOHN R. GIBSON, Circuit Judges, and PRATT,1 District Judge.
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PRATT, District Judge.
As a result of their participation in a telemarketing fraud, appellants were
charged by grand jury indictment with one count of conspiracy to commit wire fraud
in violation of 18 U.S.C. § 371, fifteen counts of devising and carrying out a scheme
to defraud utilizing the wires in violation of 18 U.S.C. § 1343 and 18 U.S.C. § 2, and
one count of conspiracy to commit money laundering in violation of 18 U.S.C. §
1956(h). A jury found appellants guilty on all counts and found $830,000 subject to
forfeiture pursuant to 18 U.S.C. § 982(a)(2)(A). In this consolidated appeal, appellants
raise multiple challenges to their convictions and sentences. We have jurisdiction
under 28 U.S.C. § 1291. We affirm the judgment of the District Court2 in all respects.
I.
From 1991 to 1994, Thomas Green, Sr. and his nephew Stephen Green3 ran a
large-scale telemarketing scheme that ultimately defrauded more than 480 small
business owners of over two million dollars. The scheme was simple. Around this
time, major car manufacturers were not building many convertibles. The Greens
incorporated a company that purported to be the largest manufacturer of convertible
1
The Honorable Robert W. Pratt, United States District Judge for the Southern
District of Iowa, sitting by designation.
2
The Honorable James M. Rosenbaum, United States District Judge for the
District of Minnesota.
3
Thomas Green, Jr., son of Thomas Green, Sr., was also involved in the scheme
but does not appeal his conviction or sentence, which included a downward departure
for diminished capacity.
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conversion kits in the world. Such kits are used to turn hard-top automobiles into
convertibles. The Greens then contacted auto body repair shops throughout the United
States, and for a $40 fee, sent out a promotional video and confidential business plan
they had produced. The video and plan represented that the company: manufactured
and sold convertible conversion kits; was the largest manufacturer of such kits in the
world; manufactured over 70 different kits; manufactured kits that were “original
equipment manufacturer” quality; had received factory approvals from major
manufacturers to install the kits; and would provide exclusive territories to qualified
distributors. None of these representations were true.
After a shop owner received the video and plan, the Greens or other company
telemarketers called to encourage the owner to send in an application to become a
distributor, along with a $150 fee. After the Greens “approved” the application and
deposited the fee, owners were called again and encouraged to wire transfer money to
the company to secure their territory and to serve as a down payment toward the
purchase of conversion kits. During these follow-up telephone calls, the Greens or
other company telemarketers said: the company had conversion customers waiting in
the area of the proposed distributorship; money had to be wired immediately or the
territory would be sold to someone else; and the territory was exclusive. Again, these
statements were not true. The Greens used multiple false names in these telephone
conversations and on company documents. The name of the company itself was
changed at least four times.
More than 480 auto body shop owners eventually became distributors at a cost
ranging from $3,500 to $18,000 each, depending on the number of kits requested. The
Greens received over two million dollars, but the company’s inventory consisted of
only some rusting frames and a few fabric tops. No usable kits were ever shipped. The
Greens sold overlapping territories in many states, and no useful customer referrals
were made. When owners attempted to contact the company to complain, inquire
about a refund, or even simply to request information, they were told further lies.
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During the life of this fraudulent telemarketing scheme, seven bank accounts
were used by the Greens. The Greens reinvested a significant portion of the proceeds
of the fraud into the scheme. They withdrew funds from the accounts, and one account
in particular, to pay various expenses, including: production costs for the promotional
video, shipping, telephone bills, salaries, intra-corporate transfers, and other office
expenses such as rent, taxes, and advertising.
After an investigation and indictment, Thomas negotiated a plea agreement and
twice attempted to plead guilty. The District Court twice rejected his plea as without
sufficient factual basis. Following a nine-day trial, the jury convicted the Greens on all
counts. The District Court sentenced Thomas to 135 months imprisonment and Steven
to 144 months imprisonment based on the following offense level calculation applicable
to both appellants. The District Court, after grouping Counts 1through 16 as closely
related counts under Chapter 3, Part D, started with a base offense level of 6 for the
wire fraud counts under U.S.S.G. § 2F1.1(a). The District Court then increased the
level by 14 for specific offense characteristics, adding 12 levels under section
2F1.1(b)(1)(M) based on the amount of the fraud loss and 2 levels for multiple victims
under section 2F1.1(b)(2)(B). To the adjusted offense level of 20 the District Court
added 2 levels for role in the offense under section 3B1.1(c) and 2 levels for
obstruction of justice under section 3C1.1, for a total offense level of 24 for the wire
fraud counts. On Count 17, the money laundering count, the District Court calculated
a base offense level of 23 under section 2S1.1(a)(1), increased the level by 4 for the
specific offense characteristic of the value of the funds laundered under section
2S1.1(d)(2)(E), added 2 levels under section 3B1.1(c) for role in the offense, and added
2 levels for obstruction of justice under section 3C1.1, for a total offense level of 31.
The District Court then combined the fraud group with the money laundering group
under section 3D1.4, counting the money laundering group as 1 unit under section
3D1.4(a) and counting the fraud group as one-half unit under section 3D1.4(b), for a
total offense level of 32. The District Court departed downward from III to II under
section 4A1.3 when determining Thomas’ criminal history, and sentenced him to a
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number of months at the low end of the appropriate range. The District Court departed
downward under section 4A1.3 to a criminal history category I for Stephen, and
sentenced him to a number of months at the higher end of the appropriate range. The
Greens were also each sentenced to three years supervised release, a special
assessment of $850, and ordered to pay restitution, owed jointly and severally, in the
amount of $1,426,436.95.
The Greens argue on appeal that the District Court erred in determining their
sentences by failing to group the money laundering and fraud counts under U.S.S.G.
§ 3D1.2(b), and by miscalculating the value of the funds laundered under U.S.S.G. §
2S1.1. Thomas argues separately that the evidence at trial was insufficient to establish
fraud, and that the District Court erred by rejecting his guilty pleas, increasing his
sentence for obstruction of justice, and increasing his sentence for having an
aggravating role in the offense. Steven argues separately that his sentence and the
sentencing scheme for money laundering are unconstitutional, and that the District
Court erred by finding his crime fell within the heartland for money laundering
offenses. We have carefully examined each of the alleged errors and find them to be
without merit. We will limit our discussion to the issue of grouping under section
3D1.2(b) of the Guidelines.
II.
When sentencing under the Guidelines, a district court determines the base
offense level for each count under the applicable offense guideline in Chapter 2, and
then adjusts that level for various factors listed in Chapter 3. See U.S.S.G. § 1B1.1(a),
(b), (c). If there are multiple counts, the sentencing court must group closely related
counts together to determine a single offense level as directed in Part D of Chapter 3.
See U.S.S.G. § 1B1.1(d). The Greens appeal the District Court’s failure to group their
money laundering and fraud counts under U.S.S.G. § 3D1.2(b). We review the District
Court’s application of the Guidelines de novo. See United States v. Lewis, 200 F.3d
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1177, 1178 (8th Cir. 2000). The District Court also found at each sentencing that the
victims of the Greens’ fraud and money laundering crimes differed. We review the
District Court’s findings of fact at sentencing for clear error. See United States v.
Johnson, 169 F.3d 1092, 1098 (8th Cir.), cert. denied, --- U.S. ----, 120 S. Ct. 143
(1999).
Under section 3D1.2 of the Guidelines, all counts involving “substantially the
same harm” should be grouped together for purposes of determining the offense level
for the crimes. Counts involve substantially the same harm “[w]hen counts involve the
same victim and two or more acts or transactions connected by a common criminal
objective or constituting part of a common scheme or plan.” U.S.S.G. § 3D1.2(b).
Therefore, to group counts under section 3D1.2(b), “the court must determine that the
same person or entity was the victim of both crimes.” United States v. O’Kane, 155
F.3d 969, 972 (8th Cir. 1998). In O’Kane, we carefully considered the issue and held
that fraud and money laundering counts cannot be grouped under section 3D1.2(b)
because those crimes have different victims. See id. at 972-73. The District Court,
citing to O’Kane, did not group the Greens’ money laundering and fraud counts. The
Greens argue that the District Court misinterpreted O’Kane as applying to all kinds of
money laundering. They urge us to limit O’Kane to “concealment” money laundering
and to follow other circuits which have held that the victims of “reinvestment” or
“promotion” money laundering are the same as the victims of the underlying fraud. See
United States v. Leonard, 61 F.3d 1181 , 1186 (5th Cir. 1995); United States v.
Cusumano, 943 F.2d 305, 313 (3d Cir. 1991), cert. denied, 502 U.S. 1036 (1992);
United States v. Emerson, 128 F.3d 557, 565-66 (7th Cir. 1997). For the following
reasons, we hold the analysis in O’Kane applicable to all types of money laundering.
Concealment money laundering refers to a violation of 18 U.S.C. §
1956(a)(1)(B)(i), which prohibits measures used to conceal or disguise illegal proceeds
from detection, while reinvestment money laundering refers to a violation of 18 U.S.C.
§ 1956(a)(1)(A)(i), which prohibits the reinvestment of illegal proceeds into the
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unlawful scheme. See United States v. Hildebrand, 152 F.3d 756, 762-63 (8th Cir.
1998). We first note that the defendant in O’Kane did not plead guilty to a violation
of either concealment or reinvestment money laundering under 18 U.S.C. § 1956, but
instead pleaded guilty to a violation of 18 U.S.C. § 1957, engaging in monetary
transactions in property derived from unspecified unlawful activity. Neither the
language nor analysis of O’Kane distinguishes between these types of money
laundering.
O’Kane defrauded his employer of over $300,000 worth of baseball cards and
used some of his profit from the sale of those cards to purchase various items for
personal use, including a computer and a pickup truck. See O’Kane, 155 F.3d at 970.
When examining whether fraud and money laundering have the same victim, we look
first to the Guidelines to determine the purpose of the grouping rules. See id. at 972.
“The Sentencing Commission intended the grouping rules to ‘limit the significance of
the formal charging decision and to prevent multiple punishment for substantially
identical offense conduct.’” Id. (quoting U.S.S.G., Ch.3, Pt. D, into. comment.).
“Defrauding one’s employer is not offense conduct substantially identical to laundering
part of the proceeds of that fraud, and the court moved far beyond ‘limit[ing] the
significance of the . . . charg[e]’ by grouping the counts in a manner which punishes
O’Kane solely for his money laundering, with no additional punishment for his fraud.”
Id. (quoting U.S.S.G., Ch.3, Pt. D, into. comment.). Grouping fraud and money
laundering counts, therefore, “defeats the express purpose of Part 3D, ‘to provide
incremental punishment for significant additional criminal conduct.’” Id. (quoting
U.S.S.G., Ch.3, Pt. D, into. comment.). This analysis applies equally to reinvestment
money laundering as to money laundering under section 1957. If the District Court had
grouped the money laundering and fraud counts under section 3D1.2(b), the offense
level for the Greens’ crimes would have been 31, thereby only punishing the Greens
for their money laundering. See U.S.S.G. § 3D1.3(a). As actually calculated by the
District Court, however, the total offense level was increased incrementally by only 1
level to reflect the additional harm caused by the fraud.
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We also consider the examples listed in the Guidelines to determine whether
fraud and money laundering counts are closely related for purposes of grouping. See
O’Kane, 155 F.3d at 972. The examples indicate that multiple counts of fraud are
properly grouped together. See id. (citing U.S.S.G. § 3D1.2 comment. (n.4)). We
stated, however, that “O’Kane’s separate offenses are not so closely interrelated as to
justify grouping under (b). The offenses entail different kinds of proscribed conduct,
punishable on different scales, which harm distinct and different victims.” Id. While
reinvestment money laundering is clearly more closely related to the underlying fraud
than other kinds of money laundering, the offenses still entail different proscribed
conduct, are punishable on different scales, and harm distinct and different victims.
And as mentioned above, for counts to be considered closely related under section
3D1.2(b) they must involve the same victim and be part of a common scheme or plan.
The counts might seem closely related because the money is being reinvested in the
fraud, but that merely satisfies the second requirement of section 3D1.2(b) that the
offenses are part of the same scheme or plan. Reinvestment itself does not make the
victim of money laundering the same as the victim of fraud, although it certainly allows
the criminal to increase the number of his fraud victims.4 As we observed, O’Kane’s
use of the truck on occasion to continue his fraud by hauling stolen baseball cards from
his employer’s premises “does not change the legal conclusion that he harmed a
different victim by his money laundering than by his fraud.” Id. at 973.
The Greens cite to Leonard, 61 F.3d at 1186, and Cusumano, 943 F.2d at 313,
both of which hold that reinvestment money laundering has as its “specific victim” the
same victim as the underlying fraud. We have expressly declined to follow these two
cases. See O’Kane, 155 F.3d at 972.
4
Because reinvested proceeds generate further criminal activity, reinvestment
money laundering has a higher base offense level than concealment money laundering
or money laundering under section 1957. See Hildebrand, 152 F.3d at 763.
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Fraud clearly harms the defrauded. But money laundering harms
society’s interest in discovering and deterring criminal conduct, because
by laundering the proceeds of crime, the criminal vests that money with
the appearance of legitimacy. . . . Therefore, we choose to follow those
circuits which have held that money laundering invades a distinct societal
interest.
Id. at 972-73; see also, United States v. Woods, 159 F.3d 1132, 1136 (8th Cir. 1998)
(agreeing with O’Kane “that bankruptcy fraud and money laundering invade different
interests”). Whether the criminal uses the funds to buy a truck for personal use or to
pay for production of a fraudulent video, money laundering invades society’s interest
in deterring and detecting crime. In both cases the funds have been given the
appearance of legitimacy through laundering. We hold the District Court did not err
by refusing to group the Greens’ reinvestment money laundering counts with the
underlying fraud counts. We affirm the District Court’s interpretation of the Guidelines
and find no clear error as to its factual conclusions.
III.
We have considered all claims of error raised by appellants and, after thorough
examination of the record, find them to be without merit. Affirmed.
A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
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